MFE (European Regional Development Fund (ERDF) - sound financial management - Judgment) [2024] EUECJ C-701/22 (17 October 2024)

Judgment This request for a preliminary ruling concerns the interpretation of the principle of sound financial management referred to in Article 60 of Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 (OJ 2006 L 210, p. 25), read in conjunction with the principle of equivalence, the third paragraph of Article 288 TFEU and Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions (OJ 2011 L 48, p. 1). The request has been made in proceedings between SC AA SRL (‘AA’) and the Ministerul Fondurilor Europene (Ministry of European Funds, Romania) (‘the MFE’) concerning the payment of default interest requested by AA as a result of the late payment by the MFE of eligible expenditure under a financing contract concluded between the two parties (‘the financing contract’), pursuant to a programme co-financed by the European Regional Development Fund (ERDF). The legal framework E uropean U nion law Regulation (EC) No 1080/2006 Article 7(1) of Regulation (EC) No 1080/2006 of the European Parliament and of the Council of 5 July 2006 on the European Regional Development Fund and repealing Regulation (EC) No 1783/1999 (OJ 2006 L 210, p. 1) provides: ‘The following expenditure shall not be eligible for a contribution from the ERDF: (a) interest on debt; …’ Regulation No 1083/2006 Regulation No 1083/2006, which was repealed by Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions for the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation No 1083/2006 (OJ 2013 L 347, p. 320), but remains applicable ratione temporis to the dispute in the main proceedings, defined, in point 7 of Article 2 thereof, the concept of ‘irregularity’ as ‘any infringement of a provision of Community law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the European Union by charging an unjustified item of expenditure to the general budget’. Article 60 of Regulation No 1083/2006, entitled ‘Functions of the managing authority’, was worded as follows: ‘The managing authority shall be responsible for managing and implementing the operational programme in accordance with the principle of sound financial management and in particular for: (a) ensuring that operations are selected for funding in accordance with the criteria applicable to the operational programme and that they comply with applicable Community and national rules for the whole of their implementation period; …’ Article 80 of that regulation, entitled ‘Wholeness of payment to beneficiaries’, provided: ‘Member States shall satisfy themselves that the bodies responsible for making the payments ensure that the beneficiaries receive the total amount of the public contribution as quickly as possible and in full. No amount shall be deducted or withheld and no specific charge or other charge with equivalent effect shall be levied that would reduce these amounts for the beneficiaries.’ Article 98(1) and (2) of that regulation, entitled ‘Financial corrections by Member States’ provided: ‘1. The Member States shall in the first instance bear the responsibility for investigating irregularities, acting upon evidence of any major change affecting the nature or the conditions for the implementation or control of operations or operational programmes and making the financial corrections required. 2. The Member State shall make the financial corrections required in connection with the individual or systemic irregularities detected in operations or operational programmes. The corrections made by a Member State shall consist of cancelling all or part of the public contribution to the operational programme. The Member State shall take into account the nature and gravity of the irregularities and the financial loss to the Funds. …’ Regulation (EU, Euratom) 2018/1046 Point 59 of Article 2 of Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014 and Decision No 541/2014/EU, and repealing Regulation (EU, Euratom) No 966/2012 (OJ 2018 L 193, p. 1), defines the principle of ‘sound financial management’ as ‘implementation of the budget in accordance with the principles of economy, efficiency and effectiveness’. Directive 2011/7 Article 1 of Directive 2011/7, entitled ‘Subject matter and scope’, provides: ‘1. The aim of this Directive is to combat late payment in commercial transactions, in order to ensure the proper functioning of the internal market, thereby fostering the competitiveness of undertakings and in particular of [small and medium-sized enterprises (SMEs)]. 2. This Directive shall apply to all payments made as remuneration for commercial transactions. …’ Point 1 of Article 2 of that directive defines, for the purposes thereof, the concept of ‘commercial transactions’ as ‘transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration’. Romanian law The Civil Code Under Article 1535 of Legea nr. 287/2009 privind Codul civil al României (Law No 287/2009 on the Romanian Civil Code), of 17 July 2009 ( Monitorul Oficial al României , Part I, No 511, of 24 July 2009), in the version applicable to the dispute in the main proceedings (‘the Civil Code’), entitled ‘‘Default interest in the case of pecuniary obligations’: ‘(1) Where a sum of money is not paid by the due date, the creditor shall be entitled to default interest from the due date until the date of payment, at the rate agreed by the parties or, failing that, at the statutory rate, without having to prove any damage. In this case, the debtor shall not be entitled to prove that the damage suffered by the creditor by reason of late payment would be less. … (3) If the rate of default interest due is not higher than the statutory rate, the creditor shall be entitled, in addition to interest at the statutory rate, to damages for reparation in full of the damage suffered’. OG No 13/2011 Article 1 of Ordonanța Guvernului nr. 13 privind dobânda legală remuneratorie și penalizatoare pentru obligații bănești, precum și pentru reglementarea unor măsuri financiar fiscale în domeniul bancar (Government Order No 13 concerning legal remunerative and penalty interest for pecuniary obligations, as well as for regulating financial and fiscal measures in the banking field), of 24 August 2011 ( Monitorul Oficial al României , Part I, No 607, of 29 August 2011) (‘OG No 13/2011’) provides: ‘(1) The parties shall be free to set, by agreement, an interest rate both for repayment of a loan of a sum of money and for late payment of a pecuniary obligation. … (3) Interest owed by the debtor of the pecuniary obligation for failure to comply with the obligation in question at the due date shall be called penalty interest. …’ Under Article 10 of OG No 13/2011, ‘the provisions of Article 1535 and Articles 1538 to 1543 [of the Civil Code] … shall be applicable to penalty interest’. OUG No 66/2011 Article 42(1) and (2) of Ordonanță de urgență a Guvernului nr. 66/2011 privind prevenirea, constatarea și sancționarea neregulilor apărute în obținerea și utilizarea fondurilor europene și/sau a fondurilor publice naționale aferente acestora (Government Emergency Order No 66/2011 concerning the prevention, the detection and sanctioning of irregularities in the obtaining and use of European Funds and/or related national public funds), of 29 June 2011 ( Monitorul Oficial al României , Part I, No 461, of 30 June 2011) (‘OUG No 66/2011’), provided, in the version applicable to the dispute in the main proceedings: ‘(1) Budgetary debts arising from irregularities shall be due upon expiry of the payment deadline set in the credit instrument or within 30 days from the date of notification of that instrument. (2) Where the debtor does not comply with the obligations provided for in the credit instrument within the prescribed period, it shall owe interest calculated by applying the rate of interest due on the outstanding balance of the amount expressed in [Romanian lei (RON)] of the budgetary debt, from the first day following the expiry of the payment deadline set in accordance with paragraph 1 until the date of extinction of the debt, unless the rules of the European Union or the international public donor provide otherwise.’ The dispute in the main proceedings and the questions referred for a preliminary ruling On 22 April 2015, the MFE, the Managing Authority of the ERDF Sectoral Operational programme ‘Increase of Economic Competitiveness 2007-2013’, and AA, a limited liability company governed by Romanian law, concluded a financing contract, in execution of this programme, for the purpose of implementing the project entitled ‘Purchase of equipment to increase the production capacity of AA’. To that end, the MFE undertook to grant AA funding of up to RON 3 334 257.20 (approximately EUR 671 000). AA agreed to co-finance that project by contributing up to that amount to the eligible expenditure under the project and by contributing RON 2 385 556.64 (approximately EUR 479 780), including value added tax, to the expenditure ineligible under the project. In order to cover the co-financing of that eligible expenditure, in accordance with the financing contract, AA took out a credit agreement with a banking institution for a total sum of RON 3 334 257.20 (approximately EUR 671 000). On 22 September 2015, after completion of that project, AA submitted a claim to the MFE for repayment of that sum, corresponding to that eligible expenditure, which it supplemented by letters dated 2 and 22 October 2015. Subsequently, AA brought an action before the Curtea de Apel Cluj (Court of Appeal, Cluj, Romania), which is the referring court, seeking, first, an injunction against the MFE to issue a decision accepting that claim, secondly, an order against that ministry to reimburse the amount of that eligible expenditure, thirdly, that the ministry be ordered to pay default interest on that amount from the date on which the action was brought, and fourthly, in the alternative, that the ministry be ordered to pay damages for the material loss suffered. On 29 August 2016, the MFE terminated the financing contract on the basis of AA’s failure to comply with its obligation under the contract to publish a tender or contract notice. On 27 April 2017, AA brought a second action against the MFE before the Curtea de Apel Cluj (Court of Appeal, Cluj), seeking the annulment of the act terminating the financing contract. In a judgment that became final on 10 March 2021, that court upheld the action on the ground that, despite AA’s failure to comply with the obligation of transparency in the performance of the financing contract, the termination of the contract was disproportionate. According to that court, in view of the minor nature of the irregularities found, the MFE should have applied less severe measures, such as financial corrections. Following payment in full by the MFE of the amount of eligible expenditure under the ERDF contribution, namely the sum of RON 3 320 502.41 (approximately EUR 667 370), without application of financial corrections, the referring court remains seised, in the context of the action referred to in paragraph 17 of this judgment, only of the heads of claim relating to the payment, first, of default interest on that amount and, secondly, of damages in respect of the material loss suffered. In that regard, AA submits that, as a result of the non-payment of the sums owed by the MFE, it was forced to pay, between the original maturity of the loan and the bringing of this action, a total sum of RON 23 225.46 (approximately EUR 4 671) by way of interest until April 2016. The referring court asks, first, whether, in the absence of specific EU legislation in that area, the principle of sound financial management, as laid down in Article 60 of Regulation No 1083/2006, read in conjunction with the principle of equivalence, makes it possible to apply to a financing contract such as that at issue in the main proceedings in particular Article 1535 of the Civil Code and Articles 1 and 10 of OG No 13/2011, which provide for the payment of interest for late performance of a pecuniary obligation, or to apply, by analogy, Article 42 of OUG No 66/2011, which, in relation to the implementation of European Funds or related national public funds, governs the withdrawal of a financial advantage unduly paid and does not provide for the payment of default interest by the recipient of that advantage, except in the case where repayment is not made within 30 days. Secondly, that court questions whether, where a beneficiary has committed irregularities in the performance of a financing contract such as that at issue in the main proceedings, it may, in order to take account of those irregularities, limit the amount of default interest, assuming that it is owed by the managing authority, even though that authority has not applied any financial correction to that beneficiary. Thirdly, that court questions whether a financing contract such as that at issue in the main proceedings falls within the scope of Directive 2011/7 and, consequently, whether that directive allows the interest rate which it provides for in respect of late payment of eligible expenditure to be applied to that contract. In those circumstances, the Curtea de Apel Cluj (Court of Appeal, Cluj) decided to stay proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: ‘(1) Must the principle of sound financial management be interpreted, in conjunction with the principle of equivalence, as precluding a legal person, which operates a profit-making undertaking and is the recipient of non-repayable financing from the ERDF, from obtaining from the public authority of a Member State default interest (penalty interest) in relation to the late payment of eligible expenditure for a period in which an administrative act was in force that excluded reimbursement and which was subsequently annulled by a judicial decision? (2) If the answer to the first question is in the negative, is the fault of the recipient of the financing established by that decision relevant to the quantification of the amount of default interest, having regard to the fact that the same public authority responsible for the management of the European Funds declared, ultimately, after the adoption of that decision, all the expenditure eligible? (3) In interpreting the principle of equivalence with regard to the point in time at which default interest is awarded to the recipient of the non-repayable financing from the ERDF, is it relevant that a rule of national law provides that, in the event of a finding of irregularity, the only consequence is that the financial benefit concerned is not granted or, as the case may be, is withdrawn (repayment of the undue amounts), to the extent to which it was granted, without receipt of interest, notwithstanding that the recipient of those amounts has enjoyed the advantage of their use up to the time of repayment, and that it is only where that repayment does not take place within the statutory time limit, that is, 30 days from the notification of the credit instrument, that the provisions of Article 42(1) and (2) of [OUG No 66/2011] permit the receipt of interest after the expiry of that time limit? (4) Do the provisions of the third paragraph of Article 288 TFEU preclude, in circumstances such as those of the present case, a national rule extending the applicability of [Directive 2011/7] to a contract relating to the grant of funding from ERDF non-repayable funds concluded between the public authority competent to manage European Funds and a legal person operating a profit-making undertaking?’ The request for application of the expedited procedure The referring court requested that the present case be subject to the expedited procedure provided for in Article 105 of the Rules of Procedure of the Court of Justice, while pointing out that the main proceedings have been pending before the national courts since 18 April 2016. Article 105(1) of the Rules of Procedure provides that, at the request of the referring court or, exceptionally, of its own motion, the President of the Court may, where the nature of the case requires that it be dealt with within a short time after hearing the Judge-Rapporteur and the Advocate General, decide that a reference for a preliminary ruling is to be determined pursuant to an expedited procedure. The application of that procedure depends, above all, on the exceptional circumstances of the main proceedings, which must establish that there is an extraordinary urgency to give judgment on the questions referred (see, to that effect, judgment of 29 February 2024, Staatssecretaris van Justitie en Veiligheid (Mutual trust in the event of transfer) , C-392/22, EU:C:2024:195 , paragraph 34 and the case-law cited). In that regard, paragraph 37 of the Recommendations of the Court of Justice of the European Union to national courts and tribunals, in relation to the initiation of preliminary ruling proceedings (OJ 2019 C 380, p. 1) states that, in order to enable the Court to decide quickly whether to apply the expedited procedure, the request must set out precisely the matters of fact and law which establish the urgency and, in particular, the risks involved in following the ordinary procedure. In the present case, nothing provided by the referring court is such as to establish that it is required to give a ruling within a specific period or that the judicial proceedings brought by AA since 18 April 2016 have been dealt with as a matter of urgency. It should be noted in that regard that the present reference for a preliminary ruling, which that court decided to refer to the Court on 15 December 2021, was not lodged until 15 November 2022 (see, to that effect, judgment of 13 June 2024, C (Court-appointed administrators and liquidators) , C-696/22, EU:C:2024:499 , paragraphs 42 and 43). Furthermore, neither the mere interest of litigants, important and legitimate though it is, in determining as quickly as possible the extent of their rights under EU law, nor the fact that the case in the main proceedings is economically or socially sensitive, however, implies that it must be dealt with within a short time within the meaning of Article 105(1) of the Rules of Procedure (judgment of 20 October 2022, Curtea de Apel Alba Iulia and Others , C-301/21, EU:C:2022:811 , paragraph 39). In those circumstances, on 20 December 2022, the President of the Court decided, after hearing the Judge-Rapporteur and the Advocate General, not to grant the request for application of the expedited preliminary ruling procedure submitted by the referring court. The questions referred for a preliminary ruling The first and third questions By its first and third questions, which it is necessary to examine together, the referring court asks, in essence, whether the principle of sound financial management referred to in Article 60 of Regulation No 1083/2006, read in conjunction with the principle of equivalence, precludes the payment of default interest on account of the late payment, by the managing authority of sums of money corresponding to eligible expenditure under the ERDF and, if the answer is in the negative, whether the payment of that interest is precluded by provisions of national law which require the payment of default interest only from the expiry of the period for repayment of the amount unduly paid. In the first place, it should be noted that, under Article 317 TFEU, the Commission implements the Union budget in cooperation with the Member States, in accordance, in particular, with the principle of sound financial management, which point 59 of Article 2 of Regulation 2018/1046 defines as the implementation of the budget in accordance with the principles of economy, efficiency and effectiveness. The principle of sound financial management requires, therefore, that the European Structural and Investment Funds are used by the Member States in accordance with the principles and legal requirements underlying the sectoral regulation of the Union. In accordance with Article 60(a) of Regulation No 1083/2006, it is the responsibility of the managing authority to ensure, in accordance with the principle of sound financial management, that operations are selected for funding in accordance with the criteria applicable to the operational programme concerned and that they comply, throughout their implementation, with the applicable Union and national rules. In addition, Article 7 of Regulation No 1080/2006 provides that interest on debt paid by the competent national authorities is not eligible for a contribution from the ERDF. It follows that the payment of default interest on account of late payment by the managing authority of sums of money corresponding to eligible expenditure under, in particular, the ERDF does not compromise the objective of sound financial management pursued by Regulation No 1083/2006. Since such default interest cannot be charged to the EU budget, the financial interests of the European Union remain protected. In the second place, according to well-established case-law, any member of the public on whom a national authority has imposed the payment of a tax, duty, charge or other levy in breach of EU law is entitled, by virtue of that law, to obtain from that authority not only repayment of the sum of money levied though not due, but also payment of interest to compensate for the unavailability of that sum of money (judgment of 11 June 2024, Commission v Deutsche Telekom , C-221/22 P, EU:C:2024:488 , paragraph 55 and the case-law cited). Consequently, where sums of money have been received by a national authority in breach of EU law, they must be repaid and that refund must bear interest covering the entire period from the date of payment of those sums of money to the date of their repayment, which constitutes the expression of a general principle of recovery of sums paid but not due (judgment of 11 June 2024, Commission v Deutsche Telekom , C-221/22 P, EU:C:2024:488 , paragraph 56 and the case-law cited). The Court has, moreover, held that that principle applies where the sums of money at issue correspond to export refunds which were granted late to a person after having been refused in breach of that law (see, to that effect, judgment of 28 April 2022, Gräfendorfer Geflügel- und Tiefkühlfeinkost Produktions and Others , C-415/20, C-419/20 and C-427/20, EU:C:2022:306 , paragraph 59). That situation is comparable to that of a recipient of ERDF funding who has been deprived, for a given period of time, of sums of money corresponding to eligible expenditure to which it was entitled because of the delay with which those sums were paid in breach of EU law. In addition, it should be emphasised that Article 80 of Regulation No 1083/2006 requires Member States, first, to ensure that managing authorities guarantee that beneficiaries receive the full amount of the public contribution as soon as possible and in full. Secondly, that article prohibits Member States from making any deduction or withholding, specific charge or other charge with equivalent effect which would reduce those amounts for beneficiaries. It follows from the foregoing that, in a situation such as that at issue in the main proceedings, where the beneficiary of a public contribution from the ERDF has been unduly deprived of a sum of money due to it, that beneficiary is entitled to the payment of default interest from the date on which the managing authority should have paid it that sum, and, instead of paying that sum, terminated the financing contract, which termination was subsequently annulled, with ex tunc effect, by a final court decision (see, to that effect, judgments of 28 April 2022, Gräfendorfer Geflügel- und Tiefkühlfeinkost Produktions and Others , C-415/20, C-419/20 and C-427/20, EU:C:2022:306 , paragraph 75, and of 11 June 2024, Commission v Deutsche Telekom , C-221/22 P, EU:C:2024:488 , paragraph 61). As pointed out in paragraph 37 of this judgment, the purpose of that right to payment of interest is to compensate for the unavailability of the sum of money of which the recipient concerned has been unduly deprived. That compensation may take place, depending on the circumstances, in accordance with the detailed rules laid down by the applicable EU legislation or, in the absence of such legislation, in accordance with those applicable under national law (see, to that effect, judgment of 28 April 2022, Gräfendorfer Geflügel- und Tiefkühlfeinkost Produktions and Others , C-415/20, C-419/20 and C-427/20, EU:C:2022:306 , paragraphs 70 and 71). In the present case, it is for the referring court, in the absence of provisions of national law providing for the payment of default interest in a situation such as that at issue in the main proceedings, to determine, on the basis of both the purpose and the essential elements of the national provisions on default interest which it cites in the reference for a preliminary ruling, those the application of which is best able to guarantee the effectiveness of the general principle of recovery of sums paid but not due, referred to in paragraphs 37 to 39 of this judgment. The procedural rules governing actions for payment of interest must not be less favourable than those governing similar actions under national law (principle of equivalence) or be such as to render impossible in practice or excessively difficult the exercise of the right to such payment guaranteed by EU law (principle of effectiveness) (see, to that effect, judgments of 16 December 1976, Rewe-Zentralfinanz and Rewe-Zentral , 33/76, EU:C:1976:188 , paragraph 6; of 6 October 2015, Târşia , C-69/14, EU:C:2015:662 , paragraphs 26 and 27; and of 28 April 2022, Gräfendorfer Geflügel- und Tiefkühlfeinkost Produktions and Others , C-415/20, C-419/20 and C-427/20, EU:C:2022:306 , paragraph 74). As regards the question whether it would be appropriate, on the basis of the principle of equivalence, to apply, in the present case, Article 42 of OUG No 66/2011, it should be noted, in the light of the information set out in the reference for a preliminary ruling, that that article governs the withdrawal of a financial advantage unduly paid as a result of irregularities in the obtaining and use of European funds or related national public funds. As the Commission pointed out in its written observations in the present case, reliance on the principle of equivalence presupposes that the rule in question applies equally to actions based on infringement of EU law and to actions based on infringement of domestic law which have a similar purpose and cause of action. Consequently, a national rule designed to penalise only infringement of EU law is not capable of constituting the appropriate ground of comparison against which to measure compliance with that principle (see, to that effect, judgments of 1 December 1998, Levez , C-326/96, EU:C:1998:577, paragraphs 41 and 48, and of 16 May 2000, Preston and Others , C-78/98, EU:C:2000:247 , paragraphs 52 and 55). Furthermore, it is apparent from the reference for a preliminary ruling that Article 42 of OUG No 66/2011 provides for the payment of interest in the event that the repayment of the financial advantage does not take place within the statutory period of 30 days from the communication of the debt instrument. In such circumstances, subject to the verifications which it is for the referring court to carry out, the application of that article to the dispute in the main proceedings would be liable to prejudice the right of the beneficiary concerned to repayment of sums of money corresponding to eligible expenditure and to payment of interest guaranteed by EU law. The application of that article would lead to that 30-day period not being taken into account as the relevant period for the calculation of interest (see, by analogy, judgment of 28 April 2022, Gräfendorfer Geflügel- und Tiefkühlfeinkost Produktions and Others , C-415/20, C-419/20 and C-427/20, EU:C:2022:306 , paragraphs 75 and 76). In the light of the foregoing reasons, the answer to the first and third questions is that the principle of sound financial management referred to in Article 60 of Regulation No 1083/2006 must be interpreted as not precluding the payment of default interest on account of late payment by the managing authority of sums of money corresponding to eligible expenditure under the ERDF. By contrast, the principle of effectiveness must be interpreted, in the light of Article 80 of Regulation No 1083/2006, as meaning that it precludes the payment of that interest from being excluded pursuant to provisions of national law which require the payment of default interest only from the expiry of the period for repayment of the amount unduly paid. The second question In order to provide a helpful answer to the referring court, it should be considered that, by its second question, the referring court is asking, in essence, whether the combined provisions of point 7 of Article 2 and Article 98(1) and (2) of Regulation No 1083/2006 are to be interpreted as precluding a national court from reducing, as a result of ‘irregularities’, within the meaning of point 7 of Article 2 thereof, detected during the performance of a financing contract, the amount of default interest owed to the beneficiary of ERDF financing on account of late payment, by the managing authority, of expenditure eligible under that financing, in a case where that managing authority has not applied any financial correction in that regard. In the first place, point 7 of Article 2 of Regulation No 1083/2006 defines the concept of ‘irregularity’ as any infringement of a provision of EU law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the Union by charging an unjustified item of expenditure to that budget. It follows from the very terms of point 7 of Article 2 that only an infringement which ‘has or would have the effect’ of prejudicing that budget can be classified as an ‘irregularity’. In the second place, it follows from Article 98(1) and (2) of Regulation No 1083/2006 that the Member States are responsible for investigating individual and systemic irregularities and for making financial corrections in relation to irregularities detected in operations or operational programmes. Those corrections consist of cancelling all or part of the public contribution for the operational programme, in application of criteria relating to the nature of the irregularities, their seriousness and the resulting financial loss for the Fund concerned. Those criteria are an expression of the principle of proportionality, which is one of the general principles of EU law (see, to that effect, judgment of 8 June 2023, ANAS , C-545/21, EU:C:2023:451 , paragraphs 42 and 43). It follows that Article 98(1) and (2) of Regulation No 1083/2006 must be interpreted as meaning that, in the case of an ‘irregularity’, as defined in point 7 of Article 2 of that regulation, it requires the Member States, in order to determine the applicable financial correction, to carry out a case-by-case assessment, in compliance with the principle of proportionality, taking account of those criteria (see, to that effect, judgment of 8 June 2023, ANAS , C-545/21, EU:C:2023:451 , paragraph 49). In the legal order of the Union, the duty of the Member States, under the second subparagraph of Article 4(3) TEU, to take any appropriate measure, whether general or particular, to ensure fulfilment of the obligations arising out of EU law is binding on all the authorities of Member States including, for matters within their jurisdiction, the courts (see, to that effect, judgments of 26 September 2000, Engelbrecht , C-262/97, EU:C:2000:492, paragraph 38, and of 17 October 2019, Elektrorazpredelenie Yug , C-31/18, EU:C:2019:868, paragraph 60). In those circumstances, it is for the referring court to determine whether, in the presence of ‘irregularities’ within the meaning of point 7 of Article 2 of Regulation No 1083/2006, a reduction in the default interest owed to the recipient of the funding, by virtue of the general principle of recovery of sums paid but not due, referred to in paragraphs 37 to 39 of this judgment, complies with the principle of proportionality, as set out in Article 98(1) and (2) of that regulation. In the light of the foregoing reasons, the answer to the second question is that the combined provisions of point 7 of Article 2 and Article 98(1) and (2) of Regulation No 1083/2006 must be interpreted as not precluding a national court from reducing, as a result of ‘irregularities’, within the meaning of point 7 of Article 2 of that regulation, detected in the performance of a financing contract and in accordance with the principle of proportionality, the amount of default interest owed to the beneficiary of ERDF financing by reason of late payment, by the managing authority, of expenditure eligible under that financing, in a case where that managing authority has not applied any financial correction in that regard. The fourth question By its fourth question, the referring court asks, in essence, whether Directive 2011/7 must be interpreted as applying to a financing contract concluded between a managing authority of a Member State and an undertaking for the co-financing, by the ERDF, of a project for the purchase of equipment from a third party by that undertaking. At the outset, it should be noted that, under Article 1(1) of Directive 2011/7, its purpose is to combat late payment in commercial transactions in order to ensure the proper functioning of the internal market, thereby improving the competitiveness of undertakings and, in particular, SMEs. Article 1(2) of that directive states that it applies to all payments made as remuneration for commercial transactions. The concept of ‘commercial transactions’ is defined in point 1 of Article 2 of that directive as ‘transactions between undertakings or between undertakings and public authorities which lead to the delivery of goods or the provision of services for remuneration’. That provision thus sets out two conditions for a transaction to fall within the concept of ‘commercial transactions’. First, it must be carried out either between undertakings or between undertakings and public authorities and, secondly, lead to the delivery of goods or the provision of services for remuneration (judgments of 9 July 2020, RL (Directive to combat late payment) , C-199/19, EU:C:2020:548 , paragraph 24, and of 13 January 2022, New Media Development & Hotel Services , C-327/20, EU:C:2022:23 , paragraph 32). Admittedly, the scope of Directive 2011/7 is defined very broadly and may cover a commercial transaction the financing of which is provided in whole or in part by resources from the Union’s Structural Funds and Cohesion Fund (see, to that effect, judgment of 28 November 2019, KROL , C-722/18, EU:C:2019:1028 , paragraph 32). The fact remains, however, that, in order to fall within the concept of ‘commercial transactions’ within the meaning of point 1 of Article 2 of that directive, a transaction must actually give rise to a supply of goods or a provision of services, even if it does not have such a supply or provision as its object (see, to that effect, judgment of 18 November 2020, Techbau , C-299/19, EU:C:2020:937 , paragraph 44). In the present case, in so far as the purpose of the financing contract, which is the co-financing by the ERDF of a project for the purchase of equipment from a third party, does not involve the supply of goods or the provision of a service by AA to the managing authority concerned, that contract is excluded from the scope of Directive 2011/7. In the light of the foregoing reasons, the answer to the fourth question is that Directive 2011/7 must be interpreted as meaning that it is not applicable to a financing contract concluded between a managing authority of a Member State and an undertaking the purpose of which is the co-financing, by the ERDF, of a project for the purchase of equipment from a third party by that undertaking. Costs Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the referring court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable. On those grounds, the Court (Third Chamber) hereby rules: 1. The principle of sound financial management referred to in Article 60 of Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999, must be interpreted as not precluding the payment of default interest on account of late payment by the managing authority of sums of money corresponding to eligible expenditure under the European Regional Development Fund. By contrast, the principle of effectiveness must be interpreted, in the light of Article 80 of Regulation No 1083/2006 as meaning that it precludes the payment of that interest from being excluded pursuant to provisions of national law which require the payment of default interest only from the expiry of the period for repayment of the amount unduly paid. 2. The combined provisions of point 7 of Article 2 and Article 98(1) and (2) of Regulation No 1083/2006 must be interpreted as meaning that they do not preclude a national court from reducing, as a result of ‘irregularities’, within the meaning of point 7 of Article 2 of Regulation No 1083/2006, detected in the performance of a financing contract and in accordance with the principle of proportionality, the amount of default interest owed to the beneficiary of European Regional Development Fund financing by reason of late payment, by the managing authority, of expenditure eligible under that financing, in a case where that managing authority has not applied any financial correction in that regard. 3. Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions must be interpreted as meaning that it is not applicable to a financing contract concluded between a managing authority of a Member State and an undertaking the purpose of which is the co-financing, by the European Regional Development Fund, of a project for the purchase of equipment from a third party by that undertaking. [Signatures] * Language of the case: Romanian. © European Union The source of this judgment is the Europa web site. The information on this site is subject to a information found here: Important legal notice . This electronic version is not authentic and is subject to amendment. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII