JUDGMENT OF 1. 7. 1982 — CASE 618/79 A KNOEPPEL v COMMISSION

In Case 618/79 A

THE COURT (First Chamber) composed of: G. Bosco, President of Chamber, A. O'Keeffe and T. Koopmans, Judges, Advocate General: F. Capotorti Registrar: H. A. Rühi, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

The facts of the case and the conclusions and arguments of the parties put forward during the written procedure may be summarized as follows:

I — Facts and written procedure

By decision of 2 March 1970 concerning the use of the sums available under the European Coal and Steel Community budget item “Pension Funds” the Council authorized the Commission to set aside 40 % of the said sums for the grant of building loans to officials of the Communities.

By decision of 17 June 1971, published in Staff Courier No 170 A of 8 July 1971, the Commission issued the necessary implementing provisions, in particular:

“Article 9. Loans covered by this provision shall be expressed in Belgian francs. The payments in respect thereof shall be made in the currency of the country in which the property to be financed is situated, on the basis of the parity ruling at the time of the payment.”

Article 7 (2) (a) provides that the interest and repayments due from the official under the loan are to be retained from his remuneration pursuant to instructions given for that purpose to the Commission. Article 11 (2) provides that no amendment to the implementing provisions may jeopardize the rights conferred upon officials who have already been granted loans.

Accordingly, the loan agreements entered into between borrowers and the Commission include inter alia the following provision:

“Article 15 Any transfers by the borrower to the lender by way of early repayment or in payment of monthly instalments shall be made in Belgian francs or in the currency of the country in which the property to be financed is situated in which the funds arising from this loan were advanced. The funds in question shall be converted into Belgian francs on the basis of the parity ruling as at the date of the transfer.”

Until 31 March 1979, the monetary parity applied for conversion between the Belgian franc and other currencies was the parity notified by the Member States to the International Monetary Fund in 1965 (BFR 1 = LIT 12.50 in the present case). The sums lent were repaid (likewise on the basis of the exchange rate indicated above) by means of deductions made by the Commission, in its capacity as lender, from the monthly remuneration of officials.

The system operated as follows: the official's monthly salary, to which the weighting was applied (for example BFR 100000 X Italian weighting of 157.8 in March 1979) was reduced by the amount of the building loan instalment (for example BFR 5000), the net remuneration then becoming, in the example given, BFR 152800, which was converted into Italian lire at the rate of BFR 1 = LIT 12.50.

By decision of 25 July 1975, published in the Staff Courier of 15 September 1975 (special inter-institutional issue), the Commission amended Article 9 of the implementing provisions of 17 June 1971 as follows:

“Loans covered by this provision shall be expressed and paid in Belgian francs. The deductions and payments referred to in Article 7 (2) shall be made in Belgian francs, as shall any repayment made by the borrower to the Commission.”

The Staff Courier further stated :

“In the case of contracts already signed, borrowers will receive a personal communication regularizing their position from the Directorate-General for Personnel and Administration.”

The decision of the Commission was notified to the applicant by letter of 21 August 1975 from the head of the Building Loans Division, offering him a reduction of his principal debt and concomitantly the adoption of the Belgian franc as the only currency in which subsequent repayments might be made.

In Staff Courier No 136 of 7 February 1977, the Commission published the following notice:

“On 27 July 1975 the Commission decided that Commission building loans would in future be paid — and deductions from salaries to repay the loans would be made — in Belgian francs rather than in the currency of the country where the property covered by the loan in question is situated. Hitherto, all deductions have been calculated, where necessary, on the basis of parities at 1 January 1965. Henceforth, by decision of the Director-General for Personnel and Administration, conversion will be based on ‘updated’ exchange rates. However, surf may request that the deductions be made at the parities communicated to the International Monetary Fund, with reference to and within the scope of the provisions giving effect to Article 17 of Annex VII to the Staff Regulations (transfer of part of emoluments through the Commission).”

On 23 December 1971 Mr Knoeppel had entered into an agreement with the Commission for a loan of BFR 787500, the exchange value of which in Italian lire, namely LIT 9843750, was paid to him pursuant to Article 9 of the implementing provisions adopted on 17 June 1971.

The applicant made the request referred to in the Commission's decision of 25 July 1975 and the amount of his principal debt was reduced by BFR 150694.

Mr Knoeppel's salary statement for March 1979 showed a sum of BFR 3402 in respect of repayment of the loan, converted into LIT 42525. The same amount in Belgian francs was converted into LIT 62454 in April 1979 and in September 1975 into LIT 65170.

In fact on 21 December 1978 the Council had adopted Regulation No 3085/78 amending, with particular reference to the monetary parities to be used, Regulation No 259/68 laying down the Staff Regulations of Officials of the European Communities and the Conditions of Employment of Other Servants of the Communities, Regulation No 2530/72 and Regulation No 1543/73 concerning certain special measures (Official Journal 1978, L 369, p. 6) and Regulation No 3086/78 adjusting the weightings applicable to the remuneration and pensions of officials and other servants of the European Communities following the amendment of the provisions of the Staff Regulations concerning the monetary parities to be used in implementing the Staff Regulations (Official Journal 1978, L 369, p. 8). By means of those regulations the Council amended in particular Article 63 of the Staff Regulations of Officials and updated the exchange rates. The reference to the IMF parity was abandoned and for transfers in a currency other than that in which remuneration was paid the exchange rate used for implementation of the general budget of the European Communities on 1 July 1978 (reviewable) was imposed (that is to say LIT 26.11 = BFR 1), a coefficient being applied pursuant to Article 17 of Annex VII to the Staff Regulations “representing the difference between the weighting for the country in whose currency the transfer is made and the weighting for the country in which the official is employed”. The object of the application of that coefficient was to ensure, as regards the pan of the salary transferred to a country other than the official's place of employment, that every official should, as a result of the adjustment of that portion by means of the weighting applied in the other country, enjoy exactly the same purchasing power, for the corresponding portion of his salary, as an official employed in that country. For the IMF rate of BFR 1 = LIT 12.50 the rate of BFR 1 = LIT 18.35 was therefore substituted, remaining in force until 31 January 1980. As from 1 February that rate was changed to BFR 1 = LIT 19.80.

The persons concerned were informed of the new provisions by Circular No 19/C-2/79 of 1 March 1979 and by Administrative Notice No 230 of 9 April 1979 (which gave details of the new rates applicable to repayments in Belgian francs for Commission building loans).

On 27 March 1979 a complaint pursuant to Article 90 of the Staff Regulations was lodged by the applicant against the consequences for repayment of the building loan of Regulations Nos 3085/78 and 3086/78.

By letter of 12 July 1979 the Commission rejected the complaint.

A fresh complaint dated 11 July 1979 was lodged by the applicant (cf. Cases 530 to 729 and 781/79 Al and Others) pursuant to Article 90 (2) of the Staff Regulations against the application of those regulations to the calculation of the remuneration paid in respect of April 1979.

The Commission rejected the second complaint by letter of 28 September 1979.

By applications dated 17 December 1979 received at the Court on 24 December 1979, 13 officials (in the group 530 to 729 and 781/79), one of whom was the applicant, lodged a supplementary application disputing the procedures for repayment of the building loans granted by the Commission, which the latter had changed as from April 1979 on the basis of the contested Council regulations.

By memorandum dated 9 April 1980 the Commission contended that the supplementary applications should be dismissed as inadmissible and that the statements relating thereto be treated as separate applications.

By letter of 14 January 1981 the Registrar of the Court informed the Commission that the Court (First Chamber) had decided to treat the supplementary claims as new applications.

On hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court (First Chamber) decided to open the oral procedure without any preparatory enquiry.

It should be noted that, by order of 14 October 1981, the Court (First Chamber) declared the application inadmissible in so far as it was directed against the Council.

II — Conclusions of the parties

The applicant claims that the Court should:

I)

10) Declare unlawful and annul the salary statement issued by the defendant for April 1979 and its decision of 28 September 1979 on the applicant's complaint in so far as they relate to deductions for repayment of a building loan granted by the defendant, which, if converted at the rate applied for the advance of the loan, exceed the amounts in lire relating thereto;

11) In the alternative, in the case of the applicant, who in 1975 “updated” the building loan agreement concluded between him and the defendant, declare unlawful and annul the salary statement issued by the defendant for April 1979 and its decisions of 28 September 1979 on the applicant's complaint likewise in so far as they relate to deductions for repayment of a building loan granted by the defendant, which exceed the amounts in lire paid for that purpose until March 1979 inclusive on the basis of a higher rate of exchange applied to the advance of the loans at the time of amendment of the contract (“updating”);

12) Direct that, as regards the amounts thereof in lire, the monthly repayments of the building loan are to remain the same as the amount thereof as at 1 April 1979;

13) In the further alternative, in the case of the applicant, whose contract was “updated” in 1975, direct that, as regards the amount thereof in lire, the monthly repayments of the building loan are to be calculated on the basis of an exchange rate which corresponds to the exchange rate applied to the advance of the loans at the time of the updating;

14) In the final alternative, declare that during the two years after the Court's decision becomes res judicata, the applicant is to be entitled to make early repayment of his building loan on the basis of the exchange rate applied to the advance of the loan;

15) Order the defendant to amend the applicant's building-loan account, regard being had to the heads of claim in paragraphs 1.10 to 13;

16) Order the defendant to pay to the applicant in Italian lire the amount of the difference resulting from the calculation made in accordance with the head of claim in paragraph 1.15;

III)

1) Order the defendants to compensate the applicant for the pecuniary damage suffered, which the Court is requested to determine to be the amount of interest, at the rate of 6 %, accrued on the amount of the arrears from the respective dates on which they fell due until the date of payment;

2) Order the defendants to pay the costs.

The defendant contends that the Court should:

Dismiss the action as unfounded;

Order the applicant to pay the costs.

Ill — Submissions and arguments of the parties

The applicant alleges in the first place a breach of the law of contract. When the agreement was entered into the parties stipulated for repayment of the loan at the rate at which it was advanced, namely LIT 12.5 = BFR 1. The Commission is not entitled to amend the agreement unilaterally and to the detriment of the applicant. Had the applicant had notice of so onerous a provision he would not have signed the loan agreement since the long-term risk of depreciation of the lira was, as far as he was concerned, incalculable. Similarly, the applicant adds, he would not have obtained in lire the real value at the material time of his loan expressed in Belgian francs, but rather an amount calculated according to the special rate applicable to internal dealings.

Both the applicant's remuneration and his loan have been and are determined in Belgian francs but paid in the currency of his country of residence. If now the loan were to be repaid in Belgian francs the Commission could make deductions from the remuneration determined in Belgian francs and subsequently convert the amount, still expressed in Belgian francs, into lire and pay that amount in lire to the applicant. But the Commission wishes precisely to avoid that situation because, from a formal point of view, it distinguishes between the loan and the payment of remuneration and because subsequently, when the loan is repaid, it achieves a very significant gain. However, to regard the grant of the loan as the payment of remuneration is contrary to Article 62 et seq. of the Staff Regulations.

Moreover, the Commission's procedure is also at variance with the obligation to provide assistance which it must discharge with respect to the applicant. Had there been any intention to impose upon the applicant a monetary risk for a period which now, as a result of the increase in the amount to be repaid, extends beyond his retirement, an express provision to that effect should have been included in the agreement.

If, when in 1975 it brought pressure to bear on officials to apply for updating, the Commission was planning the present measures, it has laid itself open to allegations of fraudulent conduct.

In 1975 the applicant obtained a single reduction of the amount of his loan. It is to be acknowledged that officials who then availed themselves of the opportunity to update their agreements in fact obtained a higher rate for the repayment of the loan expressed in Belgian francs by reason of the reduction of the principal debt. As the applicant did not wish to obtain any unjustified advantage either from his remuneration or from his loan, he is naturally prepared to redeem his loan on the basis of that higher rate of exchange applied for the advance of the loan. It is not, however, permissible to impose on him burdens such as those resulting from the Commission's subsequent decision to which effect was given as from April 1979.

The Commission thinks that the view put forward by the applicant presupposes that the loan agreement offered him a legal guarantee that payment of the monthly amounts expressed in Belgian francs would be made at the same rate as that used for the advance of the loan. That view of the legal position is not supported either by the provisions of the contract or by the general implementing provisions of 17 June 1971 according to which the loan and the monthly amounts payable by the applicant are expressed in Belgian francs.

The amounts due from the applicant no longer bore any legal relationship with the Italian lira as from the time when his principal debt was reduced and the repayment table was amended.

Adherence to the parity of LIT 12.50 per Belgian franc never became an implied term of the contract which the defendant was not entitled unilaterally to delete. In fact, the parties performed the agreement on the basis of the IMF parities, but subject to the express provision that those parities might be changed (cf. in that regard the contractual provisions and the criterion of “parity ruling on the date of the payment or transfer”).

After convertibility of the dollar into gold was discontinued (15 August 1971) nobody could seriously believe in fixed parities. The Jamaica Agreements (January 1976) officially abolished IMF parities and as from March 1973 the de facto position was that currencies floated freely. Consequently, redrafting of Article 63 of the Staff Regulations and Article 17 of Annex VII no later than 1 January 1978 became not only an economic but also a legal requirement.

If the applicant's view regarding maintenance of the stipulated parity of LIT 12.50 were to be upheld, the reduction of his debt by BFR 150694 would constitute an unjustifiable gift in the view of the Community budgetary authorities — the applicant would then be able to repay without loss his loan of BFR 787500 by repaying the sum of LIT 9843750 which he had received; the updating of the contract would not have been necessary. The fact that updating was agreed between the Commission and the applicant in 1975 is in effect conceivable only if the two parties also expected an imminent adjustment of the outdated IMF parity, which was applicable to the repayment of the loan.

The Commission considers that the principle of equality requires it to treat the monthly instalments payable by the applicant in the same way as a transfer in Belgian francs made by an official employed outside Belgium to a Belgian credit establishment. When transfers are made to a credit establishment in accordance with Article 17 of Annex VII the amount transferred is adjusted on the basis of the weighting for Belgium and consequently a rate much more favourable than the market rate is applied (LIT 18.35 per Belgian franc instead of more than LIT 26 in April 1979).

In reply to the argument relating to the duty of protection and of assistance, the Commission states that it is under no general obligation, by virtue of the Staff Regulations, to safeguard officials against risks of a monetary nature (cf. Opinion of Advocate General Dutheillet de Lamothe in Joined Cases 63 to 65/70 Bode [1971] ECR 549). For that reason it is likewise under no obligation to bear that risk within the context of a low-rate loan agreement of the kind involved in this case.

The updating of the parity of the lira against the Belgian franc was not an unforeseen event justifying amendment of the agreement; on the contrary it was the underlying reason for updating the debt. The agreement, as updated in 1975, takes into account the updating of the parity, which came about after a considerable delay (in 1979), of which the applicant had the benefit.

Moreover, the applicant is free to make early repayment of his debt in Italian lire, on the understanding that the amount is converted into Belgian francs at the rate ruling on the date of the transfer.

Finally, since the Commission has properly discharged its contractual obligations, there can be no obligation, contractual or otherwise, to pay compensation.

The applicant replies that it appears from the wording of the Commission decision of 25 July 1975 that the detailed arrangements for payment of the loans were to be amended: for new agreements to be entered into, by payment in Belgian francs and for agreements under which payments had previously been made in the currency of the relevant country, by conversion, and therefore reduction of the sum granted by way of building loan, into Belgian francs according to the parity ruling on the date of the payment, and thus on the date of the transfer. The problem of payment of the loans was in fact known to staff and was reflected in part of Written Question No 26/72 of 13 April 1972 put by Mr Bermani.

It is clear from Article 2 of the provisions of 25 July 1975 that the deductions and payments remain unchanged as regards existing agreements and only the opportunity to make early repayment has been changed. The letter accompanying the decision of 25 July stated that “... all repayments made subsequently must be made in Belgian francs. You may therefore no longer make any early repayment in the currency which was used for the advance of the loan”. The monthly deductions continue to be made, as in the case of non-updated agreements, in accordance with Article 15 of the agreement (“in Belgian francs or in the currency of the country in which the financed property is situated and in which this loan is advanced”), that is to say on the basis of the parity ruling on the date of the transfer of the loan.

The applicant emphasizes that Article 9 of the implementing provisions of 17 June 1971 provides that, as regards transactions outside Belgium, the loans in question are, as from the time of the first advance, loans in the currency of the country in question, that is to say in this case a loan in lire and not a loan in Belgian francs. The meaning of that provision goes even further: since there is no further mention elsewhere of parities and repayments, it may be regarded as self-evident that the “corresponding payments” relate not only to the payments (made by the lender to the borrower) but also to the payments of interest and the repayments of the loans (made by the borrower to the lender) according to the principle whereby the amount of the loan is due, as regards the principal and therefore the interest and repayments, in the currency in which the loan was advanced. The basic idea of granting loans in each of the countries of employment or origin of officials within the framework of an accommodation policy was subsequently also included in the wording of the loan agreement, in Article 15. The expression “parity ruling on the date of the transfer” appearing in the second paragraph of that provision manifestly means “parity ruling on the date of the transfers” in exactly the same sense as the expression “transfer” is used and defined in Articles 1 and 5 of the agreement.

The grant of building loans to officials at a favourable rate of interest (4%) would be completely deprived of its social objective if, seven years after the agreement was entered into, the conditions for repayment were amended unilaterally, exposing borrowers to the problem of variable monetary parities. Commercial usage alone should prevent the Commission from making speculative monetary gains to the detriment of its officials. A change of parity is tantamount to a de facto change in the interest rate or of the principal debt, which is prohibited by Article 4 (6) of the implementing provisions.

The applicant shows that, although he received LIT 9843750 in 1972, the remaining amount of his debt as at 15 April 1979 amounted to LIT 10335509 (although he had made repayments since 1973) and, in March 1981, despite two further years of repayments, to LIT 10943614.

In 1971 it was clear that the fixed exchange rates could not remain permanently fixed. Both parties were therefore aware of the risk and, for the advance of the loan and repayment thereof, the parities which were used at the time of the advance were firmly agreed upon. In reply to Mr Bermani's question, the Commission stated that “the correct application of Article 9 of the implementing provisions for the grant of building loans to officials requires fixed official parities”, from which it is clear that in the absence of such parities Article 9 cannot be correctly applied. It added that “for repayment of the loans, the opportunity to choose the currency ensures that the borrower is protected against possible fluctuations of exchange rates from time to time”, which clearly means that the borrower may repay in lire the lire obtained by him and that he is not obliged to repay them in Belgian francs. The choice of the currency in which the loan is to be repaid offers protection against variations in exchange rates only if the rate in force on the date the loan was advanced is retained and the rate ruling on the date of repayment is not used.

Regulation No 3085/78 amends only the provisions of the Staff Regulations concerning the monetary parities “used in application of the Staff Regulations and the detailed arrangements for the transfer of part of an official's emoluments to a country other than the country of employment of the persons concerned”. Regulation No 3085/78 has therefore in no way changed the “parity ruling on the date of the transfer”, and therefore of the payment, referred to in the loan agreement. In its unilateral action, the administration failed even to inform the applicant of the detailed arrangements for securing repayment applied as from 1 April 1979, not to mention the fact that no reasons were given to him and his consent was not even sought. It should also be made clear that the “parity ruling on the date of the transfer” was not the same as the parity of 1 January 1965 referred to in Article 63 of the Staff Regulations in the version prior to Regulation No 3085/78.

The applicant claims in the alternative that the amendment made to the agreement in 1975 is inoperative. Had the Commission had the intention, when the loan agreement was amended, to change not only the early repayments but also the monthly repayments or deductions from salary, it would have been under an obligation to inform the borrower clearly and unequivocally. If, moreover, it gave him a false impression as to the aim of the amendment, the borrower has a right of revocation, of which he states his intention to avail himself. If it is found that after the amendment of the agreement, in this case four years later, that amendment nevertheless affected his rights, the amendment must be regarded as void. Had it been truly necessary to amend the old agreements in 1975, it would have been more honest to terminate them, at the request of the official, by means of a repayment in lire.

The request for early repayment on the basis of the rate ruling on the date of the advance, within a period of three years from the date on which the judgment becomes effective, is justified from the legal point of view by the possibility that such a judgment might detract from the balance between the duties of each party on which the agreement is based. Should the Court be of the opinion that the duties of the parties which constitute the basis of the contract no longer display the equivalence provided for by the previous contractual terms, it may direct that the legal relationship be altered and require compliance with the earlier agreement. In that respect, the applicant refers to the provisions of the agreement which bar the use of the loan for speculative purposes.

The provisions of the agreement define the “transfer” as the advance of the loan. Otherwise, it uses the expression “repayment”. The expression “corresponding payments” in Article 9 refers also to the monthly payments for redemption of the principal and discharge of the interest which are to be made in lire and converted into Belgian francs on the basis of the parity of the advance.

The acceptance of the Commission's proposal of 25 July 1975 did not convert the amounts due from lire into Belgian francs except in the case of “early repayments”. In consequence, the deductions from salary should still be treated in the same way as those under the non-updated agreements.

It is untrue that continuance of the IMF parity, applicable by virtue of Article 63 of the Staff Regulations, became an element of the agreement. Nowhere was any reference made to the parities provided for in Article 63. In fact, the IMF parities ruling in 1971 and 1972 were applied without their being referred to explicitly as such. It is untrue to say that those parities might be amended and that contractual provisions to that effect had been adopted.

The parity to be applied between the lira and the Belgian franc was specified in the contract as a fixed magnitude, since Article 15 in the existing agreements was not amended. Likewise, the latter are not affected by Regulation No 3085/78.

The reduction of the applicant's debt does not constitute an unjustifiable gift. It merely offsets the fact that he no longer has the opportunity to make early repayments of the loan in lire and must make them in Belgian francs. Since the conditions for transfers lay down a higher upper limit for any transfers made, namely 35 % of the net salary, the fact that the deductions from salary are treated as transfers made pursuant to Article 17 of Annex VII effectively diminishes the total amount which an official may transfer in order to maintain his purchasing power.

The parties did not agree to an updating in 1975 by reason of the fact that the IMF parity was soon to be updated. In fact, there was no question of updated parities in 1975 or else the Commission had the intention as from that date of exposing the monthly repayment instalments to the monetary risk.

The Community should not, otherwise than in the case of exceptional agreements, safeguard officials against risks of a monetary origin. But in this case there was the loan agreement and also the reply given to Mr Bermani's question (“for repayment of the loans, the opportunity to choose the currency ensures that the borrower is protected against possible fluctuations in the exchange rates from time to time”).

The contractual right of repayment referred to by the Commission is of little use to the applicant if the parties disagree on precisely that point, namely the question of repayment.

The defendant states by way of rejoinder that the relevant provision of Article 2 (I) (c) of the decision of 25 July 1975 (“All repayments to be made after the decision to reduce the debt must be made in Belgian francs”) does not apply only to early repayments of the loan but also to all the detailed arrangements for repayment provided for in the first paragraph of Article 15 of the agreement, including the monthly repayment instalments. That interpretation is confirmed by the scheme of the conditions applicable to repayment of the loan. There is no objective reason for treating the applicant's obligation to repay the loan in a manner which differs according to whether it is discharged by early payments or by means of setoff in response to an application for the monthly repayments to be deducted from salary. Only that interpretation endows the decision with any meaning consonant with the interests involved. In fact, if the applicant were able to continue to repay his loan of BFR 787500 by means of deductions from his monthly remuneration at the rate of LIT 12.50 BFR = BFR 1, he would have to pay only the amount of LIT 9843750 (plus interest) actually received by him. The updating of the debt would in that case be a gift financed by the Community budget and unacceptable to the budgetary authorities.

If the applicant's view that the debt might be paid off by means of monthly deductions of the repayment instalments from his salary up to the amount of LIT 9843750 (plus interest) were correct, there would be no perceivable grounds for the Commission's having abandoned an opportunity for protection from a collapse of the parity of the lira against the Belgian franc, in this case early repayment of the loan, and having offered the applicant a reduction of his debt outside the terms of the agreement.

The application would be unfounded even if the initial loan agreement had remained applicable since the opportunity to repay the loan in lire does not mean that each repayment must be appropriated in lire to discharge the debt expressed in Belgian francs on the basis of the rate which was in force at the time the loan was advanced. Only in the event of the Court's refusing to uphold the Commission's claims in the parallel case of Flamm (Case 567/79 A) would the applicant's present opposition to the updating of the debt offer him any advantage; if that course is not followed, it can only result in a financial loss for him. The Commission counters that opposition with an objection of inadmissibility and any argument which falls within the scope of that objection is in any event too late in this case.

Repayment of the loan in Belgian francs does not entail any particularly burdensome consequences for the applicant from a social point of view since the application to the portion of the remuneration used for that purpose of the weighting for Belgium, within the context of the conditions applicable to the transfers referred to in Article 17 of Annex VII to the Staff Regulations, is no more costly for the applicant than for an official employed in Brussels.

IV — Oral procedure

The parties presented oral argument at the sitting on 17 December 1981.

The Advocate General delivered his opinion at the sitting on 18 March 1982.

Decision

1. By application lodged at the Court Registry on 24 December 1979, Mr Knoeppel, an official of the Commission of the European Communities employed in Ispra (Italy), brought an action pursuant to Article 91 of the Staff Regulations of Officials primarily for the annulment of the Commission's decision altering the method of calculating the monthly amounts payable by him in reimbursement of a building loan granted to him by the defendant.

2. By decision of 2 March 1970 concerning the use of sums available under the ECSC budget item “Pension Funds”, the Council authorized the Commission to set aside 40% of the sums in question for the grant of building loans to officials of the Communities.

3. By decision of 17 June 1971, the Commission adopted the necessary implementing provisions, Article 9 of which in particular provided that “loans covered by this provision shall be expressed in Belgian francs. The payments in respect thereof shall be made in the currency of the country in which the property to be financed is situated, on the basis of the parity ruling at the time of the payment”.

4. On 23 December 1971, the applicant entered into an agreement with the Commission under which he received a loan of BFR 750000 from the Commission intended to finance the construction of a dwelling house.

5. By virtue of Article 4 of the agreement, the borrower undertakes to repay the amount of the loan in monthly instalments due on the 15th day of each month in accordance with the table attached to the agreement. The table, drawn up in duplicate and signed by both parties, constitutes an integral part of the agreement.

6. By virtue of Article 5 of the agreement the borrower irrevocably instructs the Commission to deduct or cause to be deducted for transfer to the Commission by the Community institution by which he is or may be employed in the future, on the 15th day of each month, from his monthly salary or any other emolument, the monthly instalment shown in the repayment table referred to in Article 4.

7. Article 15 of the agreement provides that any transfer made by the borrower to the lender by way of early repayment or in payment of monthly instalments is to be made in Belgian francs or in the currency of the country in which the property to be financed is situated and in which the loan was advanced. The currency of the loan is to be convened into Belgian francs on the basis of the parity ruling on the date of the transfer.

8. In the table referred to in Article 4 of the agreement the amount of the loan, the monthly instalment, the monthly interest, the monthly repayment of principal and the principal outstanding are expressed in Belgian francs.

9. The amount of the loan was convened into Italian lire on the basis of BFR 1 = LIT 12.50, the parity notified to the International Monetary Fund on 1 January 1965 which at that time was used as the basis for calculation of the remuneration of officials in accordance with Article 63 of the Staff Regulations. Correspondingly, the sums lent were repaid (likewise on the basis of the abovementioned exchange rate) by means of deductions made by the Commission as lender from the monthly remuneration of the official.

10. The system operated as follows: the official's basic salary, to which the weighting was applied (for example BFR 100000 X Italian weighting 157.8 in March 1979) was reduced by the amount of the monthly repayment instalment in respect of the building loan (for example BFR 5000) and, in this example, the net remuneration became BFR 152800, which was converted into Italian lire at the rate of BFR 1 = LIT 12.50.

11. On 25 July 1975 the Commission decided “in order to resolve the difficulties arising from the fluctuation of exchange rates” to amend Article 9 of the implementing provisions of 17 June 1971; as a result, for loan agreements entered into after that date both the loans and the repayments were to be made exclusively in Belgian francs.

12. Article 2 (1) of the decision provides as follows:

“(a) A borrower who received a loan in the currency of the country in which the property is situated at a rate other than the average rate for that currency in the Brussels foreign exchange market on the day of payment may — within a period of two months from the date of notification of this decision — apply for a reduction of his principal debt to the extent to which he has suffered financial loss as a result of the fact that repayment is to be made in Belgian francs.

b) To determine the new principal debt, the amounts paid to the borrower in foreign currency shall be converted into Belgian francs at the rate specified in subparagraph (a). From the amount thus obtained there shall be deducted the repayments made up to the date of the decision to reduce the debt. If those repayments were made in the currency of the country in which the property is situated, they shall also be converted into Belgian francs at the rate specified in subparagraph (a).

c) All repayments to be made after the decision to reduce the debt shall be made in Belgian francs.”

13. By letter of 21 August 1975 that decision was notified to the applicant. The letter contained the statement: “In the event of reduction of the debt, all repayments made subsequently are to be made in Belgian francs. You may therefore no longer make any advance repayment in the currency in which the loan was made.”

14. By declaration of 1 September 1975 the applicant sought a reduction of BFR 150694 in his principal debt (the amount specified in the letter of 21 August 1975). The reduction was granted by the Commission, with a consequent reduction in the monthly repayments expressed in Belgian francs.

15. After that reduction was made, the Commission continued until 31 March 1979 to make transfers in respect of the monthly instalments payable by the applicant by converting into Belgian francs the amount transferred in lire, adopting the parity referred to in Article 63 of the Staff Regulations.

16. Following the entry into force of Council Regulations Nos 3085/78 and 3086/78 of 21 December 1978 (Official Journal L 369, pp. 6 and 8) which amended inter alia the provisions of Article 63 of the Staff Regulations concerning monetary parities and of Article 17 of Annex VII concerning transfers, the Commission applied, as the parity for conversion into Belgian francs of the Italian lire deducted in respect of the monthly repayment, the rate resulting from application of the “updated parities” and from the new version of Article 17 of Annex VII. Mr Knoeppel's salary statement for March 1979 showed a repayment of BFR 3402, converted into LIT 42525. In respect of April, the same amount in Belgian francs was converted into LIT 62454.

17. On 27 March 1979 the applicant lodged a complaint pursuant to Article 90 of the Staff Regulations against the application of Regulations Nos 3085/78 and 3086/78 to the repayment of loans. That complaint was rejected on 12 July. By a second complaint dated 11 July 1979 the applicant contested his salary statement for April. That complaint was rejected by letter of 28 September 1979.

18. The applicant advances various arguments in support of his action. In his view, it appears from the agreement that, for the conversion into Belgian francs of amounts in- lire intended for repayment of the loan, the exchange rate to be applied should be that adopted for the conversion into lire of the amount of the loan and that any change in that rate is unacceptable. By unilaterally changing the parity used for conversion, the Commission broke the agreement.

19. The applicant refers to Article 9 of the implementing provisions of 17 June 1971 which states: “Loans covered by this provision shall be expressed in Belgian francs. The corresponding payments shall be made in the currency of the country where the property to be financed is situated, on the basis of the parity ruling as at the time of the payment.” According to the applicant the expression “the corresponding payments” comprehends not only the payments of principal made by the Commission but also the repayments to be made by the borrower. In consequence, the parity to be applied for conversion of the repayments ought to be the same as that adopted for the advance of the loan.

20. The applicant seeks to corroborate his view by reference to a letter dated 21 March 1977 addressed by the Director-General of Personnel and Administration of the Commission to Mr R. Lubek, Vice-Chairman of the Ispra Staff Committee, in which he states:

“Finally, I would inform you that the repayments of loans in respect of which the borrowers have not applied for the benefit of the reduction of debt provided for in the decision of 25 July 1975 are to be made at the same rate as that used for the grant of the loan itself, namely LIT 100 = BFR 8. In such cases, those transactions do not fall within the heading of partial transfers of remuneration.”

21. The applicant also refers to the Commission's reply given on 29 June 1972 to a question raised by Mr Bermani, a Member of the European Parliament, as follows:

“The problem raised by the honourable Member has been considered by the Commission.

The correct application of Article 9 of the implementing provisions for the grant of building loans to officials of the European Communities requires fixed official parities. Moreover, the determination of new official parities, which must be expected soon, would bring to an end the difficulties referred to by the honourable Member.

For repayment of the loans, the opportunity to choose the currency ensures that the borrower is protected against possible fluctuations of exchange rates from time to time.

The Commission is, however, considering the special problems which have arisen during the transitional period through which international monetary relations are at present passing.”

22. It appears from the file on the case that the exchange rate used for the conversion of the amount of the loan into Italian lire was the parity notified to the International Monetary Fund in 1965 which, at the time of the loan, was the reference parity determined in Article 63 of the Staff Regulations. In' essence the applicant's view is that that same rate must be used throughout the duration of the agreement for the conversion into Belgian francs of the funds transferred to the Commission to repay the loan by means of the monthly instalments provided for in the agreement.

23. The Commission contends on the other hand that the exchange rate to be used for that conversion must be the one fixed as a reference parity in Article 63 of the Staff Regulations and that the monthly transfers may be made pursuant to the provisions of Article 17 of Annex VII to the Staff Regulations, which enables officials regularly to transfer part of their emoluments through the institution by which they are employed in the currency of certain other Member States.

24. In pursuance of that interpretation of the agreement, the Commission converted the amounts in lire transferred to repay the loan in question into Belgian francs according to the parity referred to in Article 63 of the Staff Regulations until the entry into force of Regulations Nos 3085/78 and 3086/78. As from 1 April 1979 it also based its calculations for conversion of the monthly payments on the rates laid down in the Staff Regulations, as amended by Regulations Nos 3085/78 and 3086/78, and applied the provisions of Article 17 of Annex VII to the Staff Regulations in its amended version. It claims that that method of making the transfers conforms wholly with the agreement.

25. The applicant's view is untenable. It disregards the fact that, according to the provisions of the agreement itself, the funds transferred in order to pay the monthly instalments were to be converted on the basis of the parity in force on the date of the transfer, that is to say on the date of each transfer. The agreement did not provide for a fixed parity to apply throughout its duration but rather for various parities which might apply successively during the term of the agreement.

26. It should be recalled that all the recipients of loans were officials of the European Communities and that the agreement provided that repayments were to be made to the Commission by the institution in which they were employed. It was consonant with that situation that the parity to which the agreement referred should be the parity adopted for calculation of the borrower's remuneration, that is to say the parity provided for in Article 63 of the Staff Regulations.

27. In consequence of the events in the money markets which occurred in and after 1971, the parity notified to the International Monetary Fund for the lira ceased to be valid. For a time, the lira floated freely. Finally, with the introduction of the European Monetary System, a new exchange rate, which might fluctuate within certain limits, was determined for the currencies of the Member States which participated in the system.

28. The practice adopted by the Commission, namely the application to the transfers made to repay the loans in question of the provisions of Article 17 of Annex VII to the Staff Regulations as newly worded, entails the result that the conversion rate is more favourable to the applicant than mere application of the parity for the lira within the European Monetary System.

29. As regards the letter of 21 March 1977 from the Director-General of Personnel and Administration, it should be pointed out that it was written in reply to a question from Mr Lubek concerning conduct on the pan of the Commission which he regarded as constituting a unilateral change of the agreement. In any case, several months later, the same Director-General sent the applicants a communication in the following terms, which left no room for any error as to maintenance of the exchange rate in force at that time :

“Borrowers whose agreement was signed before 25 July 1975 have had an opportunity to choose between two courses of action :

1) Reduction of their principal debt by an amount corresponding to the difference between the amount of the loan at the official rate and that amount at the market rate on the day of payment. As a result, any early repayment under Article 8 of the loan agreement and every monthly payment (see the last sentence of the first paragraph and the third paragraph of Article 6 of the agreement) must henceforth be made exclusively in Belgian francs, contrary to what is stipulated in Article 15 of the loan agreement;

2) Maintenance of their principal debt, which is the position in your case. As a result, you are entitled, as stated in Article 15 of your loan agreement, to choose the currency (Belgian francs or the currency used for the advance of the loan) to be used in the case of: It should however be noted that any conversion into Belgian francs will be made on each occasion on the basis of the parity ruling on the date of each transfer, which at the present time is as follows: As regards repayment by deductions from salary (see Article 5 of the agreement) it is in all cases made in Belgian francs, the salary also being expressed in Belgian francs.

Early repayment under Article 8 of the agreement;

Monthly payments pursuant to Article 6 of the agreement (first and third paragraphs).

BFR 1 = LIT 12.50,

FF 1 = BFR 9.00,

UKL 1 = BFR 120.00.

3) For borrowers who did not take the benefit of the reduction in 1975 (as in your case), those deductions are not to be regarded as transfers of a pan of your remuneration. However, the exchange rate adopted is the same as that used for the advance of the loan (see paragraph (2) above);

4) No guarantee can be given regarding maintenance of the exchange rate at present adopted by the Commission for the conversion into Belgian francs of the payments referred to in paragraph (2) above or of the deductions from remuneration referred to in paragraph (3).”

30. As regards the reply given to Mr Bermani's question, it should be noted that the Commission envisaged that new official parities would be fixed in the near future and that no guarantee was given that the parities would remain unchanged.

31. It should in addition be emphasized that the applicant does not in any way maintain that he has deduced from those letters or from the answer given any consequences which might change his situation.

32. The applicant maintains that Regulations Nos 3085/78 and 3086/78 took effect retroactively by changing the parity to be applied for the purposes of an agreement entered into before the date of those regulations and that in the present case no valid grounds exist to justify such retroactive effect.

33. It appears, however, from the considerations set forth above that that view cannot be upheld. The Commission has always used the parity referred to in Article 63 of the Staff Regulations. As from April, it applied the parity referred to in the amended version of that same article. It appears from Article 15 of the agreement that it was not envisaged that the parity should remain unchanged throughout the currency of the agreement. It cannot therefore be asserted that by applying the new parity the Commission failed to act in accordance with the agreement. Regulations Nos 3085/78 and 3086/78 had no retroactive effect and the Commission merely applies them as from the date on which they entered into force.

34. The applicant also maintains that the Commission could have deducted the monthly repayments in Belgian francs before paying him in lire the balance of his remuneration, which would have been more favourable for him. By not doing so the Commission failed to discharge its obligation to assist its officials.

35. That complaint cannot be accepted. The applicant has put forward no argument capable of proving that the procedure proposed by him, if capable of implementation by the Commission, would have been more favourable for him. On the contrary, deduction in Belgian francs of the amount of the monthly payments would have exposed the applicant to the risk of his being deprived of the benefit now accruii.g to him from the fact that the transfers made in accordance with the procedure under Article 17 of Annex VII to the Staff Regulations are subjected to a multiplier in the form of a weighting for the country of transfer (in April 1979, 100) divided by that of the country in which the official is employed (in April 1979, 70.3). As a result of that operation in April 1979 a transfer of BFR 1 cost only LIT 18.35 instead of more than LIT 26 at the market rate.

36. The applicant claims in the alternative that the amount in lire of the monthly repayment instalments should be calculated on the basis of an exchange rate corresponding to the exchange rate applied to the advance of the loan at the time of the updating. He admits that those officials who at that time availed themselves of the opportunity to update their contracts obtained a higher exchange rate for the advance of the loan by reason of the fact that the principal amount of the loan was reduced. He is therefore prepared to pay off his loan at that higher exchange rate.

37. That claim disregards the fact that the Commission is entitled under the agreement to use the parity in force for the purposes of the Staff Regulations at the time of each successive transfer for the conversion into Belgian francs of the monthly repayment instalments and that the effect of the applicant's proposal would be to deprive the Commission of a right which is conferred on it by the agreement itself. That alternative claim must therefore be dismissed.

38. The applicant maintains finally that the Commission should have adopted transitional provisions in his favour when the parity resulting from Regulations Nos 3085/78 and 3086/78 was applied. He asserts that, in the absence of such provisions, the disadvantage suffered by him as a result of the change of parity is so great that he should be allowed the option of repudiating the existing contract and repaying the money received at the rate applied for the advance of the loan, within a period of three years following the decision of the Court.

39. It is understandable that the applicant, having had the benefit for many years of a favourable exchange rate, considers himself prejudiced by the application as from 1979 of the updated rates. However, the advantageous rate of which the applicant had the benefit until 1979 is merely the consequences of the fact that the Council, instead of adapting the parities under the Staff Regulations to the market rates, used weightings in order to compensate for the fluctuation of certain currencies.

40. In fact, the Staff Regulations make provision for the adaptation of the remuneration of officials in the various places of employment by two different methods, namely on the one hand by adjustment of the weighting according to changes in the cost of living in those various places and, on the other hand, by alteration of the parities under Article 63 of the Staff Regulations in order to take into account the fluctuations of exchange rates. In the case of devaluation of the currency of the place of employment, the remuneration of an official calculated in Belgian francs but paid in national currency must be increased accordingly. The result should be that the application of the parities provided for by the Staff Regulations for the conversion into Belgian francs of a national currency should not cause an official any loss by virtue of exchange rates which is not offset by an increase in his remuneration as expressed in national currency, whilst the Commission receives only the exact amount in Belgian francs of the monthly repayments and cannot obtain any benefit therefrom.

41. In the result, even if the updating of the parities as from 1979 had the effect of depriving the applicant of the benefit of the advantageous rate which he had previously enjoyed it cannot be regarded as a circumstance justifying termination of the contract.

42. It appears from all the foregoing considerations that the view put forward by the applicant in support of his claims cannot be upheld and that accordingly the application must be dismissed.

Costs

43. Under Article 69 (2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs.

44. However, under Article 70 of the Rules of Procedure costs incurred by the institutions in proceedings by servants of the Communities are to be borne by those institutions.

On those grounds, THE COURT (First Chamber) hereby:

1 Dismisses the application;

2 Orders the parties to bear their own costs.