Dear Dr. K.,

On 7 March 2002, you made, on behalf of Internationaler Hilfsfonds e.V., a complaint to the European Ombudsman concerning the cancellation of Co-Financing Agreement No. 97-2011 by the European Commission’s EuropeAid Co-operation Office.

On 29 April 2002, I forwarded the complaint to the President of the European Commission. The Commission sent its opinion on 7 August 2002. I forwarded it to you on 8 August 2002 with an invitation to make observations, which you sent on 29 August 2002.

On 2 September 2002, the complainant sent me further comments. On 13 September 2002, you submitted additional comments.

On 14 October 2002, I sent a proposal for a friendly solution to the Commission. You were informed accordingly in a letter sent the same day. The Commission sent its opinion on 16 December 2002. I forwarded it to you on 18 December 2002 with an invitation to make observations. On 31 December 2002, the complainant sent me a copy of a letter it had addressed to the Commission that day. On 28 January 2003, you sent me your observations on the Commission’s opinion.

In a letter sent on 30 January 2003, I asked the Commission for further information in relation to your complaint. You were informed accordingly the same day. The Commission sent its reply on 25 February 2003. I forwarded it to you on 3 March 2003 with an invitation to make observations. On 18 March 2003, the complainant replied to my letter of 3 March 2003.

On 20 March 2003, the complainant informed my services by telephone that a friendly solution could be considered as having been brought about.

I am writing now to let you know the results of the inquiries that have been made.

THE COMPLAINT

The complainant is a non-governmental organisation (NGO) from Germany working in the field of humanitarian aid.

The present complaint, which follows two other complaints regarding the same subject-matter that were rejected by the Ombudsman (1853/2001/GG and 119/2002/MM)(1), concerns Co-Financing Agreement No. 97-2011 ("the agreement") relating to a project in Kazakhstan with the title ‘Organisation of the Centre for Rendering Preventive, Medical and Diagnostic Help for Children and their Mothers, ill with Viral Hepatitis and Viral Carriers (Viral Hepatitis Associated Aids)’. This agreement was signed on 28/30 April 1998 by the complainant on the one hand and IBF (a body based in Brussels) acting on behalf of the European Commission on the other. The complainant as the lead NGO was to be assisted by two partners, the International Academy for Medical Education and Prevention (IAMED) from Germany and the Association of Paediatrists-Infectionists (API) from Kazakhstan. The project was co-financed by the European Union’s Phare and Tacis LIEN Programme which provides grant finance to foster the development of democratic societies in Central and Eastern Europe and in the New Independent States and Mongolia. The supervision of the project had been entrusted to a technical assistance unit, the Centre Européen du Volontariat (CEV) in Brussels.

According to Article 6 of the agreement, the Commission was to provide a non-reimbursable grant to the costs of the project that was not to exceed € 127 256, or 80 % of the project budget or 80 % of the final actual cost of the project, whichever was less.

Article 4 (4) of the agreement provided that if modifications of Annexes A (‘Project description’) or B (‘Budget’) became necessary, it was the responsibility of the ‘Organisation’ (the complainant) to request the approval of the ‘Contracting Party’ (IBF) by means of a separate letter. The Contracting Party had furthermore to be informed about any change in the Organisation’s or its partner organisation’s management structure. According to the text produced by the complainant, the ‘Information for Contractors’ (Annex C.6 of the contract) specified that "[m]ajor changes like (…) changes of project partners (…) require a contract addendum produced by the LDF Financial and Administrative Office [i.e., IBF] and agreed by the Technical Assistance Office and signed by the European Commission. If you envisage changes to the project proposal, please address yourself to the relevant Technical Assistance Office in writing who will then advise you further and if necessary direct the proposal to the European Commission for approval and to the LDF Financial and Administrative Office for the completion of the necessary formalities."(2)

According to Article 12 (1) of the agreement, either party could cancel this agreement by giving written notice of their intention to do so. Article 12 (1) further provided: "Should the Organisation severely contravene this agreement (e.g. by not implementing the activities described in Annex A, by not implementing them within the planned time schedule, or by not providing the requested technical and financial progress reports), the Contracting Party may terminate this agreement at any time and without notice". According to Article 12 (2), in the case of termination no payments should be due except for those services, equipment and supplies actually rendered or purchased up to the date of termination. Article 12 (3) provided that where the agreement was terminated because of a "fundamental breach" by the Organisation, the Commission reserved the right to refuse to make any further payment and to take legal action to recover any part of the grant already made.

In its complaint, the complainant explained that at an early stage of the implementation of the project IAMED had turned out to be unable to fulfil its financial obligations. According to the complainant, IAMED had not been replaced by another partner and the complainant had taken over the financial responsibility for IAMED’s participation. The complainant noted that IBF, that had been informed accordingly, had not raised any objections. It further pointed out that at the beginning of 1999, it had become necessary to replace API as well. One of the reasons for doing so was that API had aimed more at the rendering of medical help only, neglecting the anti-Hepatitis and social aspects of the project. The complainant added that API also had to be replaced because of a severe reprimand that had been imposed by the Kazak government on Dr. K., the chairperson of API, and that had accused her of financial maladministration and fraud. According to the complainant, the new situation had been discussed with IBF and CEV who had raised no objections.

In order to support its allegations, the complainant referred to a number of documents from which the following information is to be gleaned:

On 5 January 1999, the complainant’s local project officer, Dr. M., sent an e-mail to Mrs S., the project manager at CEV, in which she noted that IAMED had "eliminated itself from project implementation". In a letter dated 2 February 1999 addressed to IBF (with a copy to CEV), IAMED confirmed that it abandoned its participation in the project due to financial problems. On 13 February 1999, Dr. M. informed Mr T., the IBF project officer, via e-mail that the complainant intended to involve the Kazak Anti-AIDS Association (AAA) in the project instead of IAMED and asked Mr T. for advice as to the letter that should be sent to IBF "in order to get the permission to change our partner". Dr. M. further noted that API had lost its independence and had become part of AAA. She noted that the Kazak partner would remain the same; only the name of the authorised person would change. Given that she was concerned that IBF would nevertheless consider that there was a change of partner, she asked for Mr T.’s advice. In his reply of 15 February 1999, Mr T. pointed out that the question of a change of partner could be easily dealt with, but that it fell within the authority of CEV rather than IBF. He noted that he would therefore forward Dr. M.’s message to CEV. On 18 February 1999, Mrs S. from CEV replied to Dr. M.’s message. She pointed out that a forthcoming visit to Brussels by Dr. M. would provide an opportunity to discuss the issue. Mrs S. further listed the documents that were needed to set the file "in order". The documents requested included information in relation to AAA, an attestation from API "that certifies that the API NGO has been merged with the Anti-Aids Association" and a new partnership statement signed by all NGOs involved.

According to the complainant, a new partnership statement had been prepared and handed over to IBF/CEV. Neither IBF nor CEV had at any time requested the complainant to submit a formal request for approval of these changes or proposed to formalise these changes by way of an addendum to the contract. In the complainant’s view, it had thus been entitled to believe that the information and documentation provided to IBF/CEV would be sufficient to allow the project to continue and that no addendum was considered necessary by IBF and CEV.

The complainant stressed that Dr. K. had neither been the author of the project nor was she an infectionist. The author of the project had been Dr. I., the leading infectionist in Kazakhstan, who remained in the project.

In May 1999, CEV carried out a monitoring visit in Kazakhstan. In her preparatory letter of 3 May 1999, Mrs G., the person in charge at CEV, informed Dr. M. and the complainant that in order to ensure that all partners were aware of the impending visit, this letter would also be sent "to your official partner NGO API", represented by Dr. K. as the president of API and Dr. I. as API’s project co-ordinator. In his complaint, the complainant referred to the fact that according to the letter, the object of the monitoring visit was "…if necessary to offer support for the implementation of the project". In the complainant’s view, the ongoing nature of the project had thus been confirmed.

CEV’s letter of 3 May 1999 also includes the following remark: "Because of the conflictual situation and the eviction from your part of API the official partner of your contract for two new NGOs (APA and Anti Aids not recognised in your contract as official NGO partners) I need to meet Dr. [K.] and Dr. [I.] separately during a first meeting and without the presence of Dr. [M.]."

According to the complainant, the project activities continued and two technical and financial reports were submitted to IBF, the first in 1998 and the second in June 1999. The complainant’s request for the payment of the second instalment of the EU contribution was forwarded to CEV by IBF (22 July 1999). According to the complainant, no sign of disagreement with these reports was signalled to it prior to that date. Still according to the complainant, the first disturbing element had appeared when it received Mrs G.’s monitoring report. However, nothing in this report had suggested that the project should be stopped.

On 1 October 1999, IBF informed the complainant that the Commission had decided to cancel the project as of that day on the basis of Article 12 of the agreement. The complainant was asked to submit a global report for the period from 30 April 1998 until 1 October 1999 in order to enable IBF to calculate the final financial settlement.

When the complainant objected to the termination of the agreement, the Commission replied in an undated letter sent by Mr S., the Director-General of the Commission’s SCR – Common Service for External Relations. In his letter, Mr S. pointed out that the complainant had handed over, on 3 March 1999, a new partnership statement in which the two partners IAMED and API had unilaterally been replaced by two other NGOs, AAA and APA respectively. Mr S. pointed out that API refused to recognise this change of partners, that no request for an addendum to the contract had been made by the complainant regarding the replacement of API and that neither the Commission nor CEV or IBF had at any stage of the project agreed to this change. The Commission noted that according to Article 4 (4) of the contract, IBF had to be informed about any change in the management structure of the complainant or its partners. According to the Commission’s letter, the complainant had provided "key information" on the relevant issue only after CEV had discovered that the complainant had tried to impose these changes. Mr S. further took the view that by changing partners without prior agreement from API and without prior authorisation from the Commission or IBF, the complainant had "clearly violated article 12 of the contract".

The complainant’s subsequent efforts to make the Commission change its mind were unsuccessful. On 17 May 2001, a member of the cabinet of the Commissioner in charge informed the complainant that the Commission had decided to confirm its decision to terminate the contract but had also decided not to recover money paid in respect of costs that had been occurred "before the violation of the terms of the contract".

In a letter dated 6 August 2001, the complainant was informed that it would be asked to reimburse the sum of € 37 741,07, that is to say the difference between the advance payment (€ 50 902) and the costs accepted by the Commission (€ 16 451,16), to the extent the Commission had funded them (80 %, i.e. € 13 160,93). In an undated further letter that was apparently sent in October 2001, the Commission confirmed its position. The letter explained that the termination had been triggered by "the unilateral change of the official local partner". Attached to the letter was a document prepared by IBF in which the latter stated inter alia that there was a very succinct second financial report in the file that had however not been sent to it officially and that IBF had never received any third financial report. On 17 October 2001, the Commission once more confirmed its position and explained that the calculation of the amount to be repaid was based on the first progress and financial report for the period from May until October 1998, the only report that had been approved by it. According to the Commission, there was "therefore no basis on which further eligible costs could reasonably be assessed".

In its complaint to the Ombudsman, the complainant took the view that the behaviour of the Commission and its services regarding the proposed change of partners constituted an instance of maladministration. It pointed out that it had handed over a new partnership statement as requested by CEV, that neither IBF nor CEV had ever raised objections to the proposed change and that these services had not forwarded the changes to the Commission for its approval. The complainant concluded that in these circumstances it had been entitled to consider that the information it had handed over to IBF/CEV was sufficient to allow the continuation of the project activities. It pointed out that it must have been obvious that changing a partner that was involved in an investigation by the anti-corruption authorities in Kazakhstan was an absolute necessity. The complainant therefore considered that the Commission’s decision to cancel the Contract on the grounds that an unauthorised change of partners had occurred was unjustified.

In the complainant’s view, the quality of the project improved considerably through the change of partners. The complainant submitted copies of letters from Kazak authorities in order to show that the latter appreciated the work that had been carried out.

The complainant submitted a copy of an ‘order’ made by the head of the healthcare department of the governor of Almaty on 5 October 1999. The author of this document referred to inquiries carried out in the third quarter of the current year and declared that a ‘stringent reprimand’ was made with regard to Dr. K. and that she was dismissed from her post.

In so far as the financial aspect was concerned, the complainant alleged that it had submitted a second financial report in June 1999 and a third one in March 2000. The complainant stressed that it had continued to finance the project activities in good faith. It further argued that it had not committed any fundamental breach of its obligations and that there had been no violation of Article 12 of the agreement. The complainant thus considered that the Commission’s claim for reimbursement was unjustified.

Finally, the complainant noted that within the framework of its dispute with ECHO that was the subject-matter of another complaint to the Ombudsman (complaint 1702/2001/GG), it had discovered that a copy of the above-mentioned letter of Mr S. had been included in ECHO’s file concerning the complainant. The complainant considered that this showed that the EuropeAid Co-operation Office informed other units of the Commission in a biased, non-objective way.

The allegations made by the complainant may thus be summarised as follows:

(1) The Commission’s decision to cancel Co-Financing Agreement No. 97-2011 on the grounds of an unauthorised change in partners was unjustified, given that (a) the complainant had informed IBF and CEV about the change, that (b) neither IBF nor CEV had requested the complainant to make a formal request for authorisation to the Commission or had themselves submitted the matter to the Commission, that (c) the complainant had been entitled to consider the information it had provided to IBF/CEV as sufficient to allow the continuation of the project since it had received no reaction to the contrary and that (d) the Commission therefore could not subsequently rely on the complainant’s alleged failure to comply with the procedural rules laid down in the agreement.

(2) The Commission’s claim for reimbursement of the sum of € 37 741,07 was unjustified, given that there had been no fundamental breach by the complainant of its obligations and no violation of Article 12 of the agreement.

(3) The statement in Mr S.’s undated letter according to which the complainant had provided "key information" on the relevant issue only after CEV had discovered that the complainant had tried to impose these changes was incorrect and only pursued the aim of disqualifying the complainant.

(4) The fact that a copy of Mr S.’s letter was included in one of ECHO’s files showed that the EuropeAid Co-operation Office informed other units of the Commission in a biased, non-objective way.

THE INQUIRY

The Commission's opinion

In its opinion, the Commission made the following comments:

The LIEN programme was mainly focused on a key concept: the setting-up and running of an international partnership between at least two NGOs, one from the beneficiary country and one from a member state of the EU. In the light of this, the NGO partners themselves were of vital importance. Consequently, provisions had been inserted in the agreement that a change of partners must have the prior approval of the Commission.

There had been two separate changes of partner concerning first the German partner, IAMED, and then the Kazak partner, API. Regarding the first change, the complainant had announced its intention to cancel the partnership with IAMED in December 1998. On this occasion, it asked for information about procedures and was told that "changes can be dealt with easily". Regarding the second partner change, the complainant did not inform IBF or CEV about their intention to change the local partner API to APA. When IBF and CEV learnt about this, the complainant was warned that this was illegal and could be a reason for terminating the agreement. After having obtained some explanation from the complainant according to which API and AAA were the same legal body, CEV requested evidence to prove this. It appeared, however, that the claim that API and APA were the same legal body was untrue. Furthermore, API declared that it was not aware of the proposed change.

The Commission submitted a number of documents from which the following information can be gathered:

On 2 March 1999, CEV received a new partnership statement from the complainant that was dated 26 February 1999 according to which the complainant’s partners were AAA and "Association of Paediatrists-Infectionists within Almaty Pediatric Association (APA)". In a fax dated 10 March 1999, Mrs S. informed Dr. M. that she had just noticed that API had disappeared from the partnership. Mrs S. noted that she had originally thought that APA had been a typing error and that API was meant. She added that this withdrawal was illegal and could lead to the suspension of the agreement. Mrs S. therefore asked Dr. M. to get in touch with her. In its reply sent by fax the same day, the complainant stated that Dr. I. was "president of APA/API, which is one and the same institution". In a fax dated 12 March 1999, Mrs S. asked the complainant to submit, by 26 March 1999, official evidence showing that API and APA were identical organisations. The complainant replied by a fax sent on 13 March 1999 in which it repeated that "API-APA is one unique legal body" and that official confirmation of this fact would be provided.

On 26 March 1999, CEV received a fax from APA in which its president, Dr. I., confirmed that APA and API were one and the same legal body.

On 21 May 1999, Dr. K., president of API, sent a letter to the complainant in which she deplored the fact that the latter had been misled by Dr. I. She informed the complainant that API that had been founded on 12 February 1996 as a branch of the "Association of Physicians and Pharmacists of the Republic of Kazakhstan (APP RK)" and had been re-registered as an independent organisation on 16 November 1998, was not a part of APA that had been registered only on 23 March 1999. In a letter to the Commission dated 31 May 1999, the "Association of Physicians and Pharmacists of Kazakhstan" (referring to itself as "APPK") pointed out that API was "a branch of APPK" and that APA was an independent organisation.

In a fax sent to CEV on 26 July 1999, the EC Delegation in Kazakhstan noted that the complainant had unilaterally replaced the local partner and suggested that the project should be closed.

On the basis of the above, the Commission made the following specific comments:

The complainant was supposed to know the relevant provisions of the agreement. According to Article 4 (4) of the latter, it was the complainant’s responsibility to request the Contracting Party’s approval by means of a separate letter. Therefore, once the complainant had decided to change the local partner it should have requested IBF’s approval by means of a separate letter. This procedure was not adhered to, neither in the case of IAMED nor in that of API. The fact that neither IBF, CEV nor the Commission ever requested a formal request for approval was not relevant since this was not the way to proceed that was foreseen in the agreement. Considering the reaction of IBF and CEV, the complainant could not seriously affirm that it legitimately thought the information given was enough to continue the project. IBF and CEV were always clear on the fact that the project could not carry on without prior written approval of fundamental changes to the contract.

The LIEN programme was not just a subsidy instrument for NGO projects but followed the aim of promoting co-operation between NGOs and of strengthening local NGOs through good partnership practice. The Commission consequently considered that the partner change was a fundamental breach by the complainant of the basic conditions of participation laid down in the agreement.

Regarding the allegation concerning ECHO, the Commission noted that ECHO’s selection procedure for the signature of the Framework Partnership Agreement explicitly included the analysis of previous operational experience of the applicant organisation with other Commission services. In 1996, the complainant had informed ECHO about the steps it was taking in order to obtain funding from the LIEN programme. When reviewing its file in order to decide on the complainant’s eligibility to sign the second Framework Partnership Agreement, ECHO had contacted other Commission services requesting information on this NGO. This was current practice at ECHO. Co-ordination and exchange of information among Commission services should be regarded as an instance of good administrative practice.

On the basis of all the above, the Commission confirmed its position and argued that it should be considered as the result of good administrative practice.

The complainant's observations

In its observations, the complainant made the following comments:

The Commission had used two consulting firms, IBF and CEV, in the present case. It had thus the responsibility to make sure that the staff of these two firms was competent enough to exercise their functions in a correct manner.

In so far as IAMED was concerned, this partner had not been replaced but had withdrawn from the project. Neither CEV nor IBF had ever formally raised any objection. As a result of IAMED’s withdrawal, the complainant had taken over the latter’s obligations. This had changed nothing in respect of the technical planning.

In so far as the replacement of API was concerned, a formal information had been sent to IBF. This information had been contained in Dr. M.’s e-mail of 13 February 1999. IBF, which was responsible for all contractual matters, should immediately have dealt with the matter instead of making the mistake of referring it to CEV. In its reply to the complainant of 15 February 1999, IBF had noted that the question of a change of partner could "be easily dealt with"." This reply clearly referred to the problem with the local NGO in Kazakhstan and not to the case of IAMED, which had already been settled. The change in the structural composition of the Kazak partner as explained in the e-mail of 13 February 1999 was considered as a "change in the Organisation’s or its partner organisation’s management structure". Information about this change would therefore in principle have been sufficient. However, the complainant did in effect submit a formal request for advice on the approval procedure. The message of 13 February 1999 constituted the request within the meaning of Article 4 (4) of the agreement.

Mrs G. of CEV who had carried out the audit in May 1999, had arbitrarily taken the side of API, under investigation for fraud. According to information provided by Kazak authorities in 2000, API had not even been registered. Mrs G. was reported as having previously said "I shall kill this project".

The behaviour of IBF and CEV had been in complete contradiction with the rules as presented in the ‘Information for Contractors’. IBF/CEV should either have informed the complainant that the e-mail message of 13 February 1999 could not be considered as a request within the meaning of Article 4 (4) of the agreement, or produced a contract addendum to be agreed by IBF, CEV and the Commission, or advised the complainant further or informed the latter that an inquiry would be necessary and that consequently the project implementation and the spending of funds should be stopped. None of this happened.

From its inspection of the Commission’s file it appeared that into the second half of 1999, the staff of IBF/CEV considered the possibility to continue the project.

The Commission had retroactively set a virtual date (February or March 1999) at which the agreement ought to have been interrupted in order to defend its request for reimbursement. If the Commission was right, there would have been all the more reason to warn the complainant in time. The position taken by the Commission was illegal and not in conformity with any contractual rule.

The complainant submitted a note from the EC Delegation in Kazakhstan to the Commission dated 30 July 2001 which contains the following statement: "I am not convinced, however, of the necessity to claim reimbursement of funds expended by the contractor following the change of partners but prior to our formal rejection of the new project partners. Regardless of our reservations concerning the veracity of statements by the contractor, it appears, from the limited documentation available to the Delegation, that these funds were used to meet the project objectives and may have been used in good faith on the understanding that the revised project partners could be acceptable to the Commission. In these circumstances, and subject to further advice from our legal services, it may be appropriate to forego the claim for reimbursement of funds already advanced to the contractor." In the complainant’s view, the request for reimbursement was therefore untenable.

Regarding the document on the ECHO file, the complainant pointed out that its application to ECHO had been lodged in 1995/96, and that ECHO had suspended the treatment of the application. There was thus no reason why ECHO should have asked the EuropeAid Co-operation Office for information. In the list of documents provided to the complainant in the context of the latter’s access to the Commission’s file, there was moreover no trace that Mr S.’s letter of 10 January 2000 had been passed on to ECHO.

THE OMBUDSMAN'S EFFORTS TO ACHIEVE A FRIENDLY SOLUTION

After careful consideration of the opinion and observations, the Ombudsman was not satisfied that the Commission had responded adequately to all the complainant's allegations.

The Ombudsman’s proposal for a friendly solution

The Ombudsman considered that it was not necessary for him to deal with the first allegation of the complainant at that stage of the procedure. He further noted that his preliminary conclusion was that there was no maladministration in so far as the third and the fourth allegations were concerned.

The Ombudsman considered, however, that there could be maladministration in so far as the second allegation was concerned. This preliminary conclusion was based on the following considerations:

1. The complainant alleged that in view of the circumstances of the case, the Commission was not entitled to claim back the sum of € 37 741,07. In this context, regard should be had to the arguments raised in relation to the first allegation, namely that (a) the complainant had informed IBF and CEV about the change, that (b) neither IBF nor CEV had requested the complainant to make a formal request for authorisation to the Commission or had themselves submitted the matter to the Commission, that (c) the complainant had been entitled to consider the information it had provided to IBF/CEV as sufficient to allow the continuation of the project since it had received no reaction to the contrary and that (d) the Commission therefore could not subsequently rely on the complainant’s alleged failure to comply with the procedural rules laid down in the agreement.

2. The Commission submitted that there had been two separate changes of partner concerning first the German partner, IAMED, and then the Kazak partner, API. Regarding the second partner change, the complainant had not informed IBF or CEV about their intention to change the local partner API to APA. When IBF and CEV had learnt about this, the complainant had been warned that this was illegal and could be a reason for terminating the agreement. After having obtained some explanations from the complainant according to which API and AAA were the same legal body, CEV had requested evidence to prove this. It appeared, however, that the claim that API and APA were the same legal body was untrue. Furthermore, API had declared that it had not been aware of the proposed change. The Commission stressed that the LIEN programme was mainly focused on a key concept: the setting-up and running of an international partnership between at least two NGOs, one from the beneficiary country and one from a member state of the EU. In the light of this, the NGO partners themselves were of vital importance. The Commission considered that the partner change therefore was a fundamental breach by the complainant of the basic conditions of participation laid down in the agreement. Article 12 (3) of the agreement provided that where the latter was terminated because of a "fundamental breach" by the complainant, the Commission reserved the right to refuse to make any further payment and to take legal action to recover any part of the grant already made. The Commission relied on this provision to justify its request for repayment.

3. The complainant’s allegation essentially concerned the obligations arising under a contract concluded between the Commission (respectively IBF) and the complainant.

4. According to Article 195 of the EC Treaty, the European Ombudsman is empowered to receive complaints "concerning instances of maladministration in the activities of the Community institutions or bodies". The Ombudsman considers that maladministration occurs when a public body fails to act in accordance with a rule or principle binding upon it(3). Maladministration may thus also be found when the fulfilment of obligations arising from contracts concluded by the institutions or bodies of the Communities is concerned.

5. However, the Ombudsman considers that the scope of the review that he can carry out in such cases is necessarily limited. In particular, the Ombudsman is of the view that he should not seek to determine whether there has been a breach of contract by either party, if the matter is in dispute. This question could be dealt with effectively only by a court of competent jurisdiction, which would have the possibility to hear the arguments of the parties concerning the relevant national law and to evaluate conflicting evidence on any disputed issues of fact.

6. The Ombudsman therefore takes the view that in cases concerning contractual disputes it is justified to limit his inquiry to examining whether the Community institution or body has provided him with a coherent and reasonable account of the legal basis for its actions and why it believes that its view of the contractual position is justified. If that is the case, the Ombudsman will conclude that his inquiry has not revealed an instance of maladministration. This conclusion will not affect the right of the parties to have their contractual dispute examined and authoritatively settled by a court of competent jurisdiction.

7. In the present case, the dispute relating to the Commission’s claim for repayment concerned two issues, namely (1) the question as to whether there had been a "fundamental breach" within the meaning of Article 12 (3) of the agreement and (2) the question as to whether the Commission was right, if there had been such a fundamental breach, to insist on the repayment of sums already provided to the complainant. The Ombudsman considered that at the present stage it was not necessary for him to deal with the first of these questions. He therefore limited his analysis to the second question, on the purely preliminary and hypothetical assumption that there had been a "fundamental breach" as alleged by the Commission. In such a case, Article 12 (3) gave the Commission the "right" to recover any part of the grant already made. The said provision did however not seem to oblige the Commission to ask for the repayment of funds already provided. The Commission thus appeared to dispose of a discretion in the matter. It therefore had to be examined whether the Commission had properly exercised this discretionary power when acting as it did. It was obvious, however, that the Ombudsman could not replace the Commission’s appraisal by his own. The Ombudsman thus had to limit his examination to assessing whether the Commission had manifestly exceeded the margins of its discretion, for example by not taking account of circumstances that were relevant for its appraisal.

8. The Ombudsman considered that the Commission’s objections appeared to be directed at the replacement of the local (i.e., Kazak) NGO, API, by the complainant. It was true that the Commission also mentioned the replacement of the German NGO, IAMED. However, all the substantial arguments submitted by the Commission referred to the position of the local NGO, and in its opinion the Commission stressed that it had been the change of the local partner that was considered to constitute the "fundamental breach".

9. In the absence of more precise indications by either the complainant or the Commission, the Ombudsman assumed that the replacement of the local partner had taken place or had been proposed in February 1999. It appeared that CEV had only realised that such a change had been carried out or had been proposed in March 1999 and had then asked for evidence to prove the complainant’s view that APA, the NGO that was to replace API, was in fact identical with latter. The Commission took the view that the evidence that had thereupon been submitted by the complainant on 26 March 1999 had been insufficient. In that case, however, the Commission should have been in a position to decide on whether the agreement should be terminated already by the end of March 1999. If there had indeed been a fundamental breach of contractual obligations, one would have assumed that the Commission had acted quickly to terminate the agreement. The decision to terminate the agreement was however only notified to the complainant in October 1999, and only after an audit had been carried out in May 1999. In the meantime, the project had been allowed to continue, and no warning appears to have been given to the complainant that the Commission considered that there was a fundamental breach allowing it to reclaim monies spent during that time. The Commission had not explained why it had nevertheless decided to ask for the repayment of funds that had been provided and spent prior to October 1999. What was more, the Commission had not explained why it had only accepted expenditure incurred until the end of October 1998 whereas the alleged breach appeared to have taken place in February 1999.

10. The complainant furthermore submitted evidence to show that the project implementation even after the change of the local partner had satisfied local authorities in Kazakhstan. According to its note of 30 July 2001, the EC Delegation in Kazakhstan itself seemed to have assumed that the funds had been used to meet the project objectives. Whilst not necessarily conclusive as such, this aspect should certainly have been taken into account by the Commission when deciding as to how to use its discretionary power to ask for the repayment of funds.

11. Most importantly, however, appeared the fact that the complainant had insistently argued that the replacement of the local partner had been necessary for objective reasons. In this context, the complainant had in particular pointed at the inquiry that had been carried out against Dr. K., the president of the local NGO, by an anti-corruption authority in Kazakhstan and that had resulted in sanctions being imposed on this person. The complainant argued that it had been in the best interest of the EU or even necessary to avoid that projects supported by it should be discredited by the participation of persons suspected of corruption, and that the local partner therefore had to be changed. This was a weighty argument. There was however no evidence in the documents submitted to the Ombudsman to show that the Commission had taken this argument into account when deciding on whether to ask for the repayment of funds under Article 12 (3) of the agreement. The Ombudsman thus could not exclude that the Commission had not taken into account all the relevant facts and considerations when adopting the contested decision.

12. In these circumstances, the Commission’s decision to claim back the sum of € 37 741,07 could be an instance of maladministration.

Article 3 (5) of the Statute of the Ombudsman(4) directs the Ombudsman to seek, as far as possible, a solution with the institution concerned to eliminate the instance of maladministration and satisfy the complaint.

The Ombudsman therefore made the following proposal for a friendly solution to the Commission:

The European Commission should consider reviewing its decision to ask the complainant to pay back the sum of € 37 741,07.

The Commission’s opinion

In its opinion, the Commission maintained its position and took the view that the question as to whether or not it was entitled to seek recovery of the funds concerned could only be decided in a court of law.

The Commission recognised, however, that the funds may have been spent in the interest of the ultimate beneficiaries, i.e. the children and their mothers affected by viral hepatitis and in the antihepatitis centre in Almaty.

It was therefore willing, in the context of a final out-of-court settlement, to abandon its claim if and to the extent it could be shown that the funds had been used in the overall interest of the ultimate beneficiaries of the project. To this end, the complainant would have to submit a global financial report on this project which would allow the Commission’s services to verify the use of the funds already paid.

The complainant’s observations

In its observations, the complainant reiterated its view that it had not committed any breach of contract. The complainant also expressed its surprise at the Commission’s request for a global financial report, given that full reports and documentation had already been sent to the Commission.

Further inquiries

In the light of the above, the Ombudsman considered that he needed further information in order to deal with the complaint.

On 30 January 2003, the Ombudsman wrote to the Commission asking the latter to explain whether it was willing to base its verification first and foremost on the documentation that had already been provided by the complainant or why it should be necessary to ask the complainant for a global financial report.

In its reply, the Commission explained the reasons for which it considered that it had not yet received all the documentation it needed. The Commission 0 added that it would write to the complainant in order to request a meeting on the occasion of which the complainant could present the evidence of project costs from start until finish.

In its observations on the Commission’s reply, the complainant noted that a global financial report had been sent to the Commission on 18 March 2003. It further emerged that the complainant had proposed two dates in April for the audit that the Commission had requested should be carried out at the complainant’s premises.

On 20 March 2003, the complainant confirmed that whilst it maintained its view that there had been no breach of contract on its part, it considered that a friendly solution had been brought about.

THE DECISION

1 Lack of justification for claim for reimbursement

1.1 In March 2002, the complainant, a German NGO, submitted a complaint in relation to the cancellation of Co-Financing Agreement No. 97-2011 by the European Commission’s EuropeAid Co-operation Office. The complainant comprised four allegations.

1.2 Upon a preliminary appraisal, the Ombudsman came to the conclusion that there was no maladministration concerning the last two of these allegations and that there was no need at that stage further to consider the first allegation. The Ombudsman considered, however, that there could be maladministration concerning the second allegation according to which the Commission’s decision to ask the complainant to reimburse the sum of € 37 741,07 was unjustified.

1.3 The Ombudsman therefore made a proposal for a friendly solution according to which the Commission should consider reviewing this decision.

1.4 In its reply, the Commission expressed its willingness to abandon its claim if and to the extent it could be shown that the funds had been used in the overall interest of the ultimate beneficiaries of the project. To this end, the complainant would have to submit a global financial report on this project which would allow the Commission’s services to verify the use of the funds already paid.

1.5 It appears that the complainant has now sent a global financial report to the Commission and proposed possible dates for the audit that the Commission has requested.

2 Conclusion

Following the Ombudsman's initiative, it appears that a friendly solution to the complaint has been agreed between the European Commission and the complainant. The Ombudsman therefore closes the case.

The complainant is of course free to renew its complaint if the friendly solution should not be satisfactorily implemented.

The President of the European Commission will also be informed of this decision.

Yours sincerely,

 

Jacob SÖDERMAN

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(1) The two previous complaints were rejected since the Ombudsman considered that there were no grounds for an inquiry. This conclusion was largely based on the fact that the complainant had failed to submit all the relevant documents.

(2) The text subsequently submitted by the Commission contains slightly different wording (”…require a contract addendum produced by the Contracting Party and agreed by the Technical Assistance Office and the European Commission…”).

(3) See Annual Report 1997, pages 22 sequ.

(4) Decision 94/262 of 9 March 1994 of the European Parliament on the Regulations and General Conditions Governing the Performance of the Ombudsman’s Duties, OJ 1994 L 113, p. 15.