JUDGMENT OF 11. 3. 1982 — CASE 127/80 GROGAN v COMMISSION

In Case 127/80

THE COURT (First Chamber) composed of: G. Bosco, President of Chamber, A. O'Keeffe and T. Koopmans, Judges, Advocate General: F. Capotorti Registrar: J. A. Pompe, Deputy Registrar

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of the procedure and the conclusions, submissions and arguments of the parties mav be summarized as follows:

I — Facts and written procedure

1. The legislative background to this case is as follows: As regards the payment of pension entitlement, the third paragraph of Article 45 of Annex VIII to the Staff Regulations allows pensioners to elect to have the amount due to them paid “in the currency either of their country of origin or of their country of residence or of the country where the institution to which the official belonged had its seat; their choice shall remain operative for at least two years”. The second subparagraph of Article 82 (1) of the Staff Regulations provides that pensions “shall be weighted in manner provided for in Article 64 and Article 65 (2) for the country of the Communities where the person entitled to the pension declares his home to be” and that “payment of such pensions shall be effected in accordance with the terms contained in Article 63 in respect of payment of remunerations”. In the form which it took until 31 March 1979. Article 63 of the Staff Regulations of Officials provided as follows: Remuneration paid in a currency other than Belgian francs shall be calculated on the basis of the par values accepted bv the International Monetar) Fund, and in force on 1 January 1965.” The fluctuations in the rates of exchange which have occurred since the international system of fixed exchange rates was abandoned in 1971 were offset bv the adjustment of the weightings which were originally intended to compensate for the differences in the cost of living between the various places of employment. That system tended to pull down the weightings for strong currency countries and to inflate them for weak currency countries. Thus, Council Regulation (Euratom, ECSC, EEC) No 1461/78 of 26 June 1978 (Official Journal 1978 L 1/6, p. 1) fixed the weightings applicable to pensions at 1C2.3 for Belgium and 137.9 for Ireland. Under those circumstances a pensioner residing in a weak currencv country could elect under Article 45 of Annex VIII to the Staff Regulations to have his pension paid in Belgian francs, adjusted by the weighting of his country of residence and convened at the rate of exchange prevailing on the day and thus obtain a considerably higher pension than a pensioner who had chosen to have his pension paid in the currencv of his country of residence, adjusted by the same weighting but convened on the basis of the par values accepted bv the International Monetary Fund on 1 January 1965. In order to remove such anomalies the Council, acting on a proposal by the Commission adopted Regulation No 3085/78 of 21 December 1978 amending, with panicular reference to the monetary parities to be used, Regulation (EEC, Euratom, ECSC) No 259/68 laying down the Staff Regulations of Officials of the European Communities and the Conditions of Employment of Other Servants of these Communities, Regulation (Euratom, ECSC, EEC) No 2530/72 and Regulation (ECSC, EEC, Euratom) No 1543/73 concerning special measures (Official Journal 1978 L 369, p. 6). By Article 1 of that regulation Article 63 of the Staff Regulations was replaced bv the following: Under Article 4 Regulation No 3085/78 was to enter into force on 1 January 1979 but was to apply from 1 April 1979. However, for pensions and allowances of which the net amount became less than that under the existing arrangements, the regulation was to apply only from 1 October 1979. From that date the difference between the net amounts resulting from the implementation of the regulation and those received in September 1979 was to be reduced by one tenth per month. In addition to bringing the exchange rates up to date, at the same time the Council adopted Regulation No 3086/78 of 21 December 1978 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). Article 1 (2) of Regulation No 3086/78 provides as follows: As far as its entry into force and its applicability are concerned, that regulation is similar to Regulation No 3085/78.

“An official's remuneration shall be expressed in Belgian francs. It shall be paid in the currency of the country in which the official performs his duties.

“Article 63

Officials' remuneration shall be expressed in Belgian francs. It shall be paid in the currency of the country in which the official performs his duties.

Remuneration paid in a currencv other than Belgian francs shall be calculated on the basis of the exchange rates used for the implementation of the general budget of the European Communities on 1 Julv 1978.

This date shall be changed, at the time of the annual review of remuneration provided for in Article 65, by the Council acting by a qualified majority upon a proposal from the Commission as provided in the first indent of the second subparagraph of Articles 148 (2) of the EEC Treaty and of 118 (2) of the Euratom Treaty.

Without prejudice to the application of Articles 64 and 65, the weightings fixed pursuant to these articles shall, whenever the above date is changed, be adjusted by the Council which, acting in accordance with the procedure mentioned in the third paragraph, shall correct the effect of the variation in the Belgian franc with respect to the rates referred to in the second paragraph.”

“With effect from 1 April 1979, the weightings applicable to pensions in accordance with the second paragraph of Article 82 (1) of the Staff Regulations shall be that given below for the Community country which the persons entitled to the pension declare their home to be:

Belgium | 100

...

Ireland | 59.3

...”

2. The applicant was employed by the Commission in the capacity of a director within the Directorate-General for Competition from 16 November 1973 to 31 March 1975. By decision of the Commission of 25 March 1975, the post occupied bv the applicant was abolished in the interests of the service with effect from 1 April 1975, in accordance with the provisions of Article 50 of the Staff Regulations. He received the allowance referred to by the third paragraph of Article 50 followed by a pension under Article 77 of the Staff Regulations. Pursuant to Article 45 of Annex VIII to the Staff Regulations, Mr Grogan elected to have his pension paid in the currency of the country where the Commission had its seat, namely Belgium. That election still stands. Bv a memorandum of 23 October 1979 from the Commission, the applicant was informed that pursuant to Article 4 of Council Regulation No 3085/78 his pension would be calculated on the basis of the new weighting with effect from 1 October 1979. Consequently, the net amount of his pension, which came to BFR 30145 in September 1979, would be reduced, to BFR 13080 for the month of October 1979. However, in accordance with the aniele cited above, the difference between the two amounts would be reduced by one tenth per month from October 1979 until July 1980. By a letter of 12 November 1979 registered with the Secretariat-General of the Commission on 21 January 1980, the applicant submitted a complaint under Article 90 (2) of the Staff Regulations against the Commission's memorandum of 23 October 1979. He sent a reminder by letter of 6 March 1980 and received an interim reply by letter of 17 March 1980. The Commission took no decision within the period of four months prescribed by Article 90 (2) of the Staff Regulations. By an application of 23 May 1980, which was lodged at the Court Registry on 27 May 1980, the applicant brought this action under Article 91 (1) of the Staff Regulations against the implied decision rejecting his complaint. By a letter of 15 July 1980, the Commission notified to him its express decision rejecting the complaint. In its statement of the reasons on which that decision was based, the Commission explained the need to put an end to the privileged treatment for certain pensioners which was made possible by the combined effect of the weighting and the choice of the currency in which the pension was to be paid. In that connection it stressed that the adjustment of the weightings (Regulation No 308ò/78) was intended to make certain that no change in money terms would result from the bringing up to date of the exchange rates (Regulation No 3085/78) and thereby ensure that each person in receipt of remuneration, allowances or pension would continue to receive exactly the same total net monthly amount in the currency of his country of residence, even after the exchange rates had been brought up to date. Nevertheless, it pointed out that in the case of a pensioner resident in a weak currency country who had opted for payment of amounts due in the strong currency of his country of origin or of the country where the institution had its seat, adjustment of the weighting for his place of residence would of necessity entail a reduction in the nominal amount due in the currency in question. Upon 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 inquiry.

II — Conclusions of the parties

The applicant claims that the Court should:

Annul the implied decision rejecting his complaint;

Declare Council Regulations Nos 3085 and 3086/78 inapplicable.

The defendant contends that the Court should:

Dismiss the application as unfounded in substance;

Order the applicant to pay his own costs.

III — The submissions and arguments of the parties

The applicant claims that the reduction in his pension made under Council Regulations Nos 3085 and 3086/78 is without lawful authority.

In that regard he submits first that the pension to which he is entitled is a contributory pension and, to the extent to which it is provided out of Community funds, is in the nature of deferred pay.

All officials of the same grade pay the same proportion of their salaries to the pension scheme irrespective of their place of work, country of residence or country of origin. No weightings are applied to those contributions. It follows that on retirement each of them is entitled to expect a pension at least proportionate to the contributions paid. Consequently, it is unlawful to introduce retroactively a weighting system which brings about a permanent reduction in the pensioner's income on the basis of his place of residence and the presumed cost of living there. Moreover, the effect of the revised scheme is that pensioners who have made identical contributions will receive different pensions simply because of their choice of residence after retirement.

Next, the applicant claims that the Commission's decision of 25 March 1975 abolishing his post in the interests of the service with effect from 1 April 1975 in accordance with Article 50 of the Staff Regulations put an end to the employer/employee relationship between the applicant and the Commission and created a new relationship between them. As a result of that decision, the applicant acquired a vested right to an allowance and a pension calculated in accordance with Article 77 of the Staff Regulations. That vested right and the obligation which it thereby imposes upon the Commission constitutes what may in common law be described as a constructive contract or a contract implied by law.

He therefore submits that the reductions made in his pension are in breach of the abovementioned decision of the Commission and of the contractual obligations arising therefrom. The applicant's pension is to be determined in accordance with the Staff Regulations as they subsisted on the date of the termination of his employment. The amount of his pension cannot be altered except in accordance with the Staff Regulations as they stood at that time and cannot be altered retroactively to his detriment.

The applicant adds that the adjustments provided for by Regulations Nos. 3095 and 3086/78 cannot be justified under Article 65 (2) of the Staff Regulations which provides that “in the event oi a substantial change in the cost ot iivirp the Council shall decide, within two months, what adjustments should bf made to the weightings and it appro priate to apply them retrospective^ ”

Finally, the applicant takes the vie thj* the reductions in his pension arp r*a>pil on provisions of Council Regulation *. 3C85/78 which should be déclarée ir.ar plicable in accordance with Artu if IM of the EEC Treaty on the grounO tria, they violate fundamental rights protected by Community law. The applicant iv as a pensioner is entitled to rely upon the continued payment of the pension awarded to him, adjusted from time to time in view of the cost of living in the country in which he lives. He is entitled to enter into commitments and establish his mode and standard of living in his years of retirement accordingly. The application of Regulation No 3085/78 has inflicted grievous loss upon him.

The defendant takes the view that the applicant's reasoning may be summarized under two heads: infringement of a vested right and violation of fundamental rights.

It submits that the fundamental ground on which the applicant's thesis on vested rights is based, that is to say the idea that the legal relationship between the applicant and the Commission is of a contractual nature, is a notion which is totally alien to Community civil service law.

Indeed, in its judgment of 19 March 1975 in Case 28/74 Gillet v Commission [1975] ECR 463, the Court itself took the following view:

“... the legal link between an official and the administration is based upon Staff Regulations and not upon a contract.

An official cannot in any case claim a vested right unless the facts giving rise to that right arose under a particular set of Staff Regulations prior to the amendment decided upon by the Community authority” (paragraphs 4 and 5 of the judgment).

The principle that the administration mav unilaterallv amend the rules and regulations which it has adopted is also admitted by learned writers and international case-law, in particular in relation to the detailed rules of a pension scheme (cf. Plantey, “Droit et Pratique de la Fonction Publique Internationale” [International Public Senice Law and Practice], Paris, 1977, p. 87; Knapp, “Jurisprudence du Tribunal Administratif de l'Organisation Internationale du Travail” [Case-law of the Administrative Tribunal of the International Labour Organization] in Annuaire Français de Droit International [French Year-Book of International Law] 1978, p. 470). Consequently, staff have no right to the maintenance of provisions of a general nature governing their circumstances.

Moreover, to determine an official's rights once and for all at the date of his retirement, as postulated by the applicant, would have the illogical consequence of creating as many different categories of pensioners as there have been different versions of the provisions dealing with pension rights. Such a system would clearly be inconsistent with the requirements of sound administration.

As regards the violation of fundamental rights alleged by the applicant in support of his claim that Regulation No 3085/78 is inapplicable, the defendant observes that the application does not contain a succinct statement of grounds relied upon and, consequently, does not complv with the requirements laid down by Article 38 (1) (c) of the Rules of Procedure. In so far as arguments were presented on that point in the reply, they were too late.

In any event, the contested rules were not in any way a cause of discriminatory treatment. On the contrary, their effect was to put an end to the privileged treatment of certain pensioners and to ensure that every holder of pension rights had the same purchasing power whatever the country of his residence or the currencv of pavment might be.

In his reply the applicant states that the extract from the judgment of 19 March 1973 in Case 28/74 (Gillet v Commission) cited by the defendant exactly describes the facts in the present case. The applicant's vested right to the pension payable under Article 50 did indeed arise under the Staff Regulations as thev subsisted on 25 March 1975 and consequently could not lawfully be adversely affected by subsequent regulations.

The applicant does not dispute that the Council is entitled to alter the method of calculating salaries whether by adjustment of the weightings or otherwise. However, he takes the view that the Commission's policy on the adjustment of salaries and the justification for such a policy vis-à-vis existing officials and persons who were retired after the adoption of the measures in question is a matter which is not relevant to the applicant's case.

It is not permissible to introduce a new weighting system for existing pensions identical to that applied for salaries where the result is to debase, in this case by more than 50o/c, the real value of the pension in the country in which the person concerned has chosen to live.

The applicant further submits that the principle adopted by Regulations Nos 3085 and 3086/78 is not consistently applied to all payments made on or in connection with retirement. Weightings are applied to the allowances paid under Articles 41 and 50 of the Staff Regulations at the rates fixed for the place where the official was last employed and not where he resides, whereas the death benefit payable pursuant to Article 73 (2) (a) of the Staff Regulations is not weighted.

In its rejoinder the defendant states in answer to the applicant's view that the quoted passage of the judgment in Case 28/74 in fact confirms that the only vested right which an official may assert is to avoid retroactive application of an amendment to an article of the Staff Regulations.

The defendant again stresses that the administrative authorities are entitled to alter unilaterally the Staff Regulations for officials in active employment as well as for retired officials.

In that connection it recalls that neither the method of calculating pensions nor their amount, as expressed in Belgian francs, has been altered. The only alteration was to remove, for the future, the unjustified exchange advantages which certrain retired officials were able to enjoy under the previous scheme.

Even if the pension is in the nature of deferred pay, the application to pensions of the principle that equal work gives right to equal pay implies that all former officials who are in the same situation must receive a pension providing them with the same purchasing power whatever their country of residence and currency of payment. Indeed, the new weightings were calculated in such a way as to ensure that each pensioner who had opted for payment in the currency of his country of residence, would continue to receive the same amount, in that currency, as he was receiving previously. In the case of the applicant, who had chosen to be paid in Belgian francs instead of Irish pounds, the reform did not cause a reduction of his pension (as expressed in Belgian francs) but the suppression of the unjustified exchange advantages arising from the application of unrealistic exchange rates dating from 1965. The alteration of the weightings was merely the consequence of abandoning those exchange rates.

As far as the weighting applicable to the allowance paid under Article 50 of the Staff Regulations is concerned, the defendant draws attention to a decision of the Court from which it is clear that if the application of the fifth paragraph of Article 50 is likely to result in a breach of a superior rule of law, the allowance in question must be weighted at the rate fixed for the official's country of residence (judgment of 31 May 1979 in Case 56/78 Newth v Commission [1979] ECR 1941, paragraph 13).

Finally, as to the death benefit provided for by Article 73 (2) (a) of the Staff Regulations referred to by the applicant bv way of comparison, it is not to be compared with a retirement pension.

In the annex to its defence the defendant produced the letter of 15 July 1980 whereby it had notified to the applicant its express decision rejecting his complaint.

In his reply the applicant points out that the letter was issued after the expiry of the period laid down by Article 90 (2) of the Staff Regulations and after the applicant's application had been lodged at the Court. He considers that the Commission was therefore not entitled to refer to it in its defence and requests that the Court declare the letter inadmissible.

In its rejoinder the defendant replies that the fact that its express decision occurred after the implied rejection of the complaint did not prevent the defendant from producing the document.

IV — Oral procedure

The parties presented oral argument at the sitting on 1 October 1981.

The Advocate General delivered his opinion at the sitting on 14 January 1982.

Decision

1. By an application lodged at the Court Registry on 27 May 198C Mr Grogan, a former official of the Commission of the European Communities, brought an action under Article 91 of the Staff Regulations of Officials for the annulment of the Commission's decision reducing as from October 1979 the monthly pension payable to the applicant and of the implied rejection of the complaint which he submitted against that decision.

2. In support of his action the applicant claims that Council Regulation (Euratom, ECSC, EEC) No 3085/78 of 21 December 1978 (Official Journal 1978 L 369, p. 6), which amended the provisions of the Staff Regulations with reference to the monetary parities to be used, and Council Regulation (Euratom, ECSC, EEC) No 3086/78 of the same date 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) are unlawful.

3. The applicant, who was retired in 1975 after his post had been abolished in the interests of the service in accordance with Article 50 of the Staff Regulations, is in receipt of a pension under Article 77 of the Staff Regulations. Bv virtue of the third paragraph of Article 45 of Annex VIII to the Staff Regulations, he could elect to have his pension paid in the currency either of his country of origin or of his country of residence or of the country where the institution to which he belonged before his retirement had its seat. The applicant, who took up residence in his country of origin, namely Ireland, opted to have his benefits paid in the currency of the country where the Commission had its provisional seat, that is to say in Belgian francs.

4. Under Article 82 (1) of the Staff Regulations pensions are to be weighted in the manner provided for in Articles 64 and 65 (2) of the Staff Regulations for the country of the Communities where the person entitled to the pension declares his home to be. Payment of such pensions is to be effected in accordance with the terms contained in Article 63 in respect of payment of remuneration.

5. In the form which they took until the end of 1978, Articles 63 and 64 of the Staff Regulations provided as follows: Article 63: “An Official's remuneration shall be expressed in Belgian francs. It shall be paid in the currency of the country in which the official performs his duties. Remuneration paid in a currency other than Belgian francs shall be calculated on the basis of the par values accepted by the International Monetarv Fund, and in force on 1 January 1965.” Article 64: “An official's remuneration expressed in Belgian francs shall... be weighted at a rate above, below or equal to 100%, depending on living conditions in the various places of employment. ... The weighting applicable to the remuneration of officials employed at the provisional seats of the Communities shall be equal to 100% as at 1 January 1962.”

6. Since 1971 the currencies of certain Member States, including the Irish pound, have suffered increasingly large reductions in value in relation to their values in 1965. During a first period extending until 1978 the Council did not alter the exchange rates laid down by Article 63 of the Staff Regulations. However, in order to maintain the purchasing power of pensions paid in currencies which had fallen in value, it increased the weightings referred to in Article 64 of the Staff Regulations for the countries concerned.

7. The result was that in the case of pensioners residing in Ireland who had opted to have their benefits paid in Irish pounds, the reduction in the purchasing power of the amounts calculated on the basis of the former parities was offset by the increase in the weighting applicable to Ireland. Those pensioners who, like the applicant, had chosen to have their benefits paid in Belgian francs, the amount of which could be convened into Irish pounds at the rate of exchange prevailing on the day, and who therefore did not incur a similar risk of sustaining a reduction in purchasing power, nevenheless had their pensions adjusted by the same increase in the weighting, since the weighting was of general application.

8. Thus, between 1973, the date of Ireland's accession to the Communities, and 1978, the amounts actually paid to pensioners who resided in Ireland but had chosen to have their benefits paid in Belgian francs rose progressively owing to the mere fact that they were adjusted by the increased weighting and were ultimately much higher than those paid to pensioners who resided in Ireland and had opted for payment in Irish pounds.

9. Regulation No 3085/78 put an end to that system by replacing the former parities by the application of updated rates of exchange. At the same time Regulation No 3086/78 restored the weightings to their original function of alleviating the effects of the differences in living conditions by comparison with those existing in the countries in which the provisional seats of the Communities were situated. On that occasion the weighting applicable to Ireland was substantially reduced.

10. Regulations Nos 3085/78 and 3086/78 applied from 1 April 1979. However, the third paragraph of Article 4 of Regulation No 3085/78 provides as follows:

“However, for pensions and allowances of which the net umount becomes less than that under the existing arrangements, the regulation shall only apply from 1 October 1979. From that date the difference between the net amounts resulting from the implementation of this regulation and those received in September 1979 shall be reduced by one tenth per month.”

11. On 23 October 1979 the Commission informed the applicant that the new system would be applied to his pension payments from 1 October 1979. The net amount of the benefit, which came to BFR 30145 in September 1979, would be reduced to BFR 13080. However, in accordance with the third paragraph of Article 4 of Regulation No 3085/78 cited above, the reduction would be made at the rate of one tenth per month from October 1979 until July 1980.

12. Since his complaint against that decision, which was lodged on 12 November 1979, evoked no response within the period of four months laid down by the Staff Regulations, the applicant brought this action on 27 May 1980. On 15 July 1980 the Commission notified him of its decision to reject his complaint.

The first submission (vested rights)

13. The applicant claims first that Regulations Nos 3085/78 and 3086/78 and the contested decision applying them to him could not deprive him of a vested right to a pension determined in accordance with Article 77 of the Staff Regulations. The vested nature of such a right arises from the fact that the Community pension scheme is a contributory one, the right to a pension being proportionate to the contributions paid. After the employer/employee relationship between the applicant and the Commission was terminated in 1975 when the Commission abolished his post in the interests of the service, the amount of his pension could be altered only in accordance with the provisions of the Staff Regulations already applicable at that time.

14. It should be observed in that regard that the provisions of Annex VIII to the Staff Regulations draw a clear distinction between the determination of “pension rights” covered by Chapter 2 of the annex and the “payment of benefits” governed by Articles 45 and 46 of the annex. The arguments put forward by the applicant are based on the assumption that his “pension rights” within the meaning of the Staff Regulations were reduced.

15. The changes which took place in the amounts actually paid to the applicant were due to the effect of the rates of exchange and the weightings. Whilst the changes affected the payment of benefits under Articles 45 and 46 of Annex VIII, they did not have the effect of encroaching upon the applicant's pension rights as determined in accordance with Chapter 2 of Annex VIII, which continue to serve as the basis for the calculation of the benefits actually paid.

16. It follows that this submission is inapposite and that it is therefore unnecessary to consider it.

The second submission (the lawfulness of the weightings)

17. The applicant submits next that Regulation No 3086/78 is unlawful inasmuch as it altered the weightings for reasons other than those which might justify such action under the terms of Articles 64 and 65 (2) of the Staff Regulations.

18. The Commission put forward two arguments in defence of the lawfulness of the weightings laid down by Regulation No 3086/78. The result of maintaining the former system would have been to perpetuate without justification the increasingly manifest inequality of two categories of pensioners, which stemmed from the choice which they made pursuant to Article 45 of Annex VIII to be paid either in Belgian francs or in the currency of their country of residence. Moreover, the effect of the new system set up in particular by Regulations Nos 3085/78 and 3086/78 was specifically to restore the weightings to the functions assigned to them by the Staff Regulations rather than to use them to offset fluctuations in the rates of exchange.

19. Those arguments put forward by the Commission must be accepted. However, they raise a different problem on which the Commission did not express its views in the course of these proceedings, namely whether the previous use of the weightings as an instrument of monetary policy during the period before Regulation No 3086/78 was put into effect is to be regarded as having been in conformity with the Staff Regulations.

20. It should be recalled that Article 64 of the Staff Regulations provides that the weightings are to be determined according to “living conditions in the various places of employment”. Article 65 (2) of the Staff Regulations provides that in the event of “a substantial change in the cost of living” the Council may adjust the weightings.

21. The gradual increase in the weighting applicable to Ireland which occurred during the period from the time of accession until 1979 was intended to allow the fixed par values accepted by the International Monetary Fund in 1965 to be maintained without prejudice to the purchasing power of the benefits paid to former Community servants residing in Ireland whose pensions had to be converted into Irish pounds in accordance with Article 63 of the Staff Regulations. Whilst the objective of not passing the effect of the maintenance of fixed exchange rates in times of currency disturbances on to pensioners residing in weak currency countries is wholly within the spirit of the Staff Regulations, it does not necessarily follow that the provisions of the Staff Regulations permitted the use of the weightings as an instrument of monetary policy.

22. According to the Commission, such use of the weightings was justified as a temporary expedient intended to offset the effects of the parities fixed in 1965 pending an alteration of the rates of exchange laid down by Article 63 of the Staff Regulations.

23. The Court has already held in another context in its judgment of 24 October 1973 in Case 9/73 Schlüter v Hauptzollamt Lörrach [1973] ECR 1133 that the Council may be entitled to have recourse to a temporary expedient when confronted with a situation characterized by the absence of any adequate provision for urgently counteracting the effects of sudden events which maygive rise to a serious situation, particularly where the measures to be adopted relate to an area intimately connected with the monetary policies of Member States, the effects of which they are partially to offset. However, the Court added that such a state of affairs may be only temporar), since the legal basis for the measures in question must eventually be found in the appropriate provisions of Community law.

24. In this case the alteration of the exchange rates and the corresponding adjustment of the weightings did not occur until the end of 1978. Thus the temporary measures governed the situation of pensioners residing in weak currency countries for a period of approximately seven years.

25. However, it must be acknowledged that the period was characterized by uncertainties as to subsequent currency developments. In those circumstances, the Council's reluctance to adapt Community provisions to the new situation on the currency market could be explained by the difficulties in laving down, not only in the sphere of the Staff Regulations but also in other spheres, criteria ensuring firm rates of exchange.

26. It follows from the foregoing that the submission put forward as to the unlawfulness of laying down the weighting applicable to Ireland is unfounded.

The third submission (legitimate expectation)

27. The applicant claims finally that the reductions in pension benefits paid, made pursuant to Regulations Nos 3085/78 and 3086/78, were in breach of certain general principles of law upheld by Community law. He claims in that regard that he was entitled to expect the continued payment of the benefits awarded to him, the level of which had guided him in choosing his mode of living during his years of retirement.

28. By that submission the applicant must be seen as claiming that there has been a. breach of the principle of the protection of the legitimate expectation, to which Community servants are entitled, that commitments which the institutions have entered into will be met. During the oral procedure the applicant stated that the submission related both to the new system set up by Regulations Nos 3085/78 and 3086/78 and to the arrangements for its introduction.

29. As has been explained above, the new system was introduced in order to rectify a situation which had deteriorated as a result of fluctuations in the rates of exchange and the prolonged application of temporary expedients designed to contend with those fluctuations. At the same time, it enabled the various categories of pensioners residing in weak currency countries to be restored to a situation in which they would be assured of equal treatment.

30. Since none of the Community institutions had committed themselves to maintaining a situation arising from the application of those temporary expedients which favoured a particular category of pensioners, the applicant's submission must be rejected in so far as it relates to the actual introduction of the new system.

31. With regard to the arrangements for its introduction, it should be recalled that it was the Council's reluctance to amend the provisions of the Staff Regulations concerning the rates of exchange which caused the progressive increase in the benefits due to the category of pensioners to which the applicant belongs. That increase occurred over a period of about seven years and yet the Council decided, by incorporating the third paragraph of Article 4 of Regulation No 3085/78, to make pensioners bear the loss of that increase after a relatively short transitional period, a system of monthly reductions over a period of ten months being applied from 1 October 1979, that is to say six months after Regulations Nos 3085/78 and 3086/78 entered into force.

32. It should be emphasized that the deterioration in the situation which occurred before the adoption of Regulations Nos 3085/78 and 3086/78 was not in any way attributable to the conduct of the pensioners. The prolonged period of deterioration was due to the inaction of the Council, which failed to rectify exchange rates which no longer bore any relation to economic reality.

33. Whilst there may be some explanation for the Council's inaction it must none the less not be overlooked that pensioners benefiting from that inaction were entitled to expect the Council to take account of the situation in which they had been placed by the prolonged application of the system temporarily used. That is particularly true in the case of pensions, since they are intended to ensure that officials who have left the service of the Communities enjoy an adequate standard of living.

34. It follows that after failing to act for a period extending over a number of years, the Council could not, without failing tó protect pensioners' legitimate expectations, lay down a transitional period for the progressive reduction of the amounts paid which lasted only ten months. A period of at least twice that length should have been envisaged for that process.

35. The submission put forward as to the failure to protect legitimate expectation is therefore well founded in so far as it relates to the period over which the transitional arrangements introduced by the third paragraph of Article 4 of Regulation No 3085/78 extended.

36. It follows that in the absence of transitional arrangements which were lawful, the Commission was not entitled to apply Regulations Nos 3085/78 and 3086/78 to the applicant and that consequently the contested decision must be annulled.

37. It is for the competent institutions to adopt the measures necessary to remedv the unlawfulness which has been established and in particular to introduce with retroactive effect suitable transitional arrangements.

Costs

38. Under Article 69 (3) of the Rules of Procedure the Court may order that the parties bear their own costs.

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

1 Annuls the Commission's decision reducing the applicant's pension pursuant to Article 4 of Council Regulation (Euratom, ECSC, EEC) No 3085/78 of 21 December 1978 (Official Journal 1978 L 369, p. 6), which was notified to the applicant by a memorandum of 23 October 1979.

2 Orders the parties to bear their own costs.