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Detailed Description of EU Judgment on ERDF Financing Contract
Case Overview
The Court of Justice of the European Union (CJEU) delivered a judgment on 17 October 2024 in Case C‑701/22. The case involves a preliminary ruling request from the Curtea de Apel Cluj (Court of Appeal, Cluj, Romania) concerning the interpretation of several provisions related to the European Regional Development Fund (ERDF) under Regulation (EC) No 1083/2006 and Directive 2011/7/EU.
Key Provisions Analyzed
Regulation (EC) No 1083/2006
- Article 60 – Principle of Sound Financial Management:
Mandates the managing authority to oversee and implement operational programs in line with sound financial management. This includes ensuring that funded operations meet applicable criteria and comply with both Community and national regulations throughout their implementation. - Article 80 – Right of Beneficiaries:
Ensures that beneficiaries receive the total amount of public contributions promptly and in full. It prohibits deductions, withholdings, or any charges that would reduce the amounts payable to beneficiaries. - Article 98 – Financial Corrections by Member States:
Specifies that Member States are responsible for investigating irregularities related to the management of ERDF funds. Upon detection, they must make appropriate financial corrections, which may include canceling all or part of the public contributions based on the nature and severity of the irregularities.
Regulation (EU, Euratom) 2018/1046
- Point 59 of Article 2 – Principle of Sound Financial Management:
Defines sound financial management as the implementation of the budget adhering to the principles of economy, efficiency, and effectiveness.
Directive 2011/7/EU on Combating Late Payment
- Article 1 – Subject Matter and Scope:
Aims to combat late payments in commercial transactions to ensure the proper functioning of the internal market. It applies to all payments made as remuneration for commercial transactions. - Article 2 – Definition of Commercial Transactions:
Defines ‘commercial transactions’ as transactions between undertakings or between undertakings and public authorities that result in the delivery of goods or provision of services for remuneration.
Judgment Findings
Payment of Default Interest
The Court held that the principle of sound financial management under Article 60 of Regulation No 1083/2006 does not prohibit the managing authority from paying default interest for late payments corresponding to eligible expenditure under the ERDF. Additionally, the principle of effectiveness under Article 80 ensures that national laws cannot exclude the payment of such interest based on provisions that only allow interest after a specific repayment period.
Reduction of Default Interest Due to Irregularities
The Court determined that Articles 2(7) and 98(1)-(2) of Regulation No 1083/2006 do not prevent a national court from reducing the amount of default interest owed to an ERDF beneficiary due to detected irregularities in the financing contract, provided such reductions adhere to the principle of proportionality.
Applicability of Directive 2011/7/EU
It was concluded that Directive 2011/7/EU does not apply to financing contracts between a managing authority of a Member State and a profit-making undertaking where the contract’s purpose is the ERDF’s co-financing of a project involving the purchase of equipment from a third party. This exclusion is based on the nature of the transaction not fitting the directive’s definition of ‘commercial transactions’.
Implications of the Judgment
This judgment clarifies the application of EU financial regulations and directives in cases involving ERDF financing contracts. It reinforces the rights of beneficiaries to receive payments promptly and in full, including default interest for late payments, while outlining the boundaries within which national courts can adjust such interest in the presence of contractual irregularities.[:]
