JUDGMENT OF 27. 9. 1984 — CASE 235/83 MULLIGAN v COMMISSION

In Case 235/83

THE COURT (First Chamber) composed of: T. Koopmans, President of Chamber, G. Bosco and R. Joliét, Judges, Advocate General : Sir Gordon Slynn 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 may be summarized as follows:

I — Facts and written procedure

1. Mr Mulligan, the applicant, entered the service of the Commission on 1 July 1973 as a head of division in the Secretariat General. From 1 October 1974 to 1 April 1982 he held the post of Head of the Information Office in the Delegation of the Commission in Washington, United States of America. He left the service of the Commission on 1 January 1983. While working in Washington, Mr Mulligan received a lodging allowance under the second subparagraph of Article 14 (1) of Annex VII to the Staff Regulations. Paragraph (1) of that article is worded as follows: The detailed rules for implementation of the second paragraph of Article 14 (1) are contained in an internal service instruction of 18 February 1976, which was applicable as from 1 January 1976 and was replaced by a new instruction with effect from 1 January 1980. Before 1976, the rules for the grant and the method of calculation of the allowance were notified to the officials concerned, in each individual case, by the Director of Personnel. In 1982 the Commission personnel administration noted that the conditions for granting the lodging allowance to Mr Mulligan were not satisfied between 1 December 1974 and 31 March 1982, since Mr Mulligan owned his house and it is the rent payable by the official concerned which serves as the basis for the calculation of the lodging allowance. Considering that Mr Mulligan was not unaware of that irregularity, the Commission, by a decision notified to the applicant in a letter from the Director General of Personnel and Administration dated 21 October 1982, decided to recover the sum unduly paid, namely BFR 1115552, by deducting that sum from his salary or other sums due to him. Recovery of undue payment is governed by Article 85 of the Staff Regulations, which provides as follows:

“Officials who, by reason of their duties, regularly incur entertainment expenses may be granted a fixed-rate allowance by the appointing authority, which shall determine the amount thereof. In special cases, the appointing authority may in addition decide that part of the cost of accommodation for the officials concerned also be borne by the institution.”

“Any sum overpaid shall be recovered if the recipient was aware that there was no due reason for the payment or if the fact of the overpayment was patently such that he could not have been unaware of it”.

2. The circumstances surrounding the grant and the recovery of the lodging allowance in question are as follows. By letter of 9 September 1974, the Director of Personnel of the Commission in Brussels informed the applicant of his pecuniary rights in Washington. In a note attached to that letter, he stated that “Mr Mulligan is entitled to a lodging allowance which cannot, however, be worked out until we have a copy of his lease ... The lodging allowance represents the difference between the actual rent paid in Washington and the notional rent for Brussels...”. For October and November 1974, Mr Mulligan leased a house in Fulton Street, Washington, at the monthly rent of USD 750. Following his application on 18 September 1974 and after a copy of the lease was forwarded with a letter from the Head of the Delegation in Washington dated 11 October 1974, he obtained an initial lodging allowance of BFR 7805. The note from the Director General for Personnel of 4 December 1974 confirming the grant of that allowance stated that Mr Mulligan “must inform the administration at once of any changes in [his] situation which might affect the payment of the allowance in question”. During the same period, Mr Mulligan contemplated purchasing a house in Washington and discussed with the assistant to the Head of the Delegation the question of claiming an accommodation allowance for a house which he himself owned; the latter's response was positive. For the purpose of the purchase, a company named Algonquin Properties Inc. was incorporated, of which Mr Mulligan himself was the president and his spouse and a friend, Mr John Larkin, were the directors. The company purchased a house in Chesterfield Place, Washington, and leased it to Mr Mulligan from 1 January 1975 for an initial monthly rent of USD 750. The original lease having been only for October and November 1974, the Director General for Personnel, by letter of 11 February 1975 informed the applicant of a change in the allowance and stated that until a new lease was forwarded the revised amount, paid after the expiry of the first lease, was to be paid by way of an advance. After two reminders, by letter of 28 April 1976 Mr Mulligan forwarded to the Head of the Individual Rights and Privileges Division in Brussels a copy of the lease for the new house covering the period from 1 January 1975 to 31 March 1976 and stipulating a rent USD 750. On the same date, Mr Mulligan forwarded a copy of the lease for the period 1 April 1976 to 31 March 1978, under which the rent was USD 1200 per month, and the covering letter indicated that “the rental is considered reasonable by an independent valuer”. At the request of the Individual Rights and Privileges Division, the Head of the Washington Delegation confirmed, by letter of 9 June 1976, that “the house leased by Mr Mulligan ... is appropriate to the duties discharged by him in the Washington Delegation and takes account of his family situation ...”. Copies of the leases for the periods 1 April 1978 to 31 March 1980 and 1 April 1980 to 31 March 1982, both specifying a rental of USD 1200 per month, were forwarded to the administration in Brussels with a letter from Mr Mulligan dated 22 June 1981. The leases covering the period 1 January 1975 to 31 March 1982, relating in each case to the house in Chesterfield Place, Washington, were signed by Mr John Larkin for Algonquin Properties Inc., as owner, and by Mr Mulligan as tenant. It is apparent from the documents before the Court that Mr Mulligan was regularly kept informed of changes in the calculation of his lodging allowance, and in particular of the internal service instructions governing that matter. At a meeting with the Head of the Individual Rights Division on 23 April 1982, Mr Mulligan confirmed that he in fact was the owner, through Algonquin, of the house in Washington in respect of which he was receiving a lodging allowance. After consideration of the situation, the Head of the Individual Rights Division informed Mr Mulligan at a meeting on 27 September 1982 of the Commission's intention to recover in full the amounts overpaid in respect of the accommodation allowance. The decision in that respect was notified to him by the abovementioned letter from the Director General of Personnel and Administration of 21 October 1982. The calculation of the amount recovered is not disputed.

3. By a letter from his legal adviser dated 25 January 1983, which was received at the Secretariat General of the Commission on 16 February 1983, the applicant submitted through official channels a complaint within the meaning of Article 90 (2) of the Staff Regulations against the Commission's decision to recover the lodging allowance. Since the Commission did not reply within the prescribed period, the applicant, by application lodged at the Court Registry on 14 October 1983, brought the present action pursuant to Article 91 of the Staff Regulations. 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:

1) Annul the implied decision rejecting the complaint made by the applicant by letter dated 25 January 1983 sent by the applicant's legal adviser to his immediate superior at the Commission;

2) Order the Commission to pay to the applicant the sum of BFR 1115525 together with interest thereon calculated from the date at which payment should have been made by the Commission, being the date of termination of the applicant's service, 31 December 1982;

3) Order the Commission to make good any other financial loss (including exchange losses if any resulting from the withheld payment) incurred by the applicant as a result of the Commission's wrongful decision;

4) Order the Commission to pay the applicant's costs;

5) Order such further or other relief as may be lawful or equitable in all the circumstances.

The defendant contends that the Court should:

1) Dismiss the application;

2) Order the applicant to pay the defendant's costs.

III — Submissions and arguments of the parties

The applicant submits that the sums paid by him by way of accommodation allowance between 1 December 1974 and 31 March 1982 were properly paid to him by the Commission and cannot therefore be treated as sums overpaid within the meaning of Article 85 of the Staff Regulations. He maintains that the accommodation allowance provided for in the second subparagraph of Article 14 (1) of Annex VII to the Staff Regulations constitutes an allowance for entertainment expenses and that the personal choice between rented and owned accommodation is irrelevant as regards the application of that provision. In that respect, he draws attention to the fact that according to the English language version of the second paragraph of Article 14 (1), the allowance in question concerns the “cost of accommodation”, whereas the allowance referred to in Article 14a of the same annex is specifically referred to as a “rent allowance”. This difference of terminology confirms that the expression “accommodation” used in the second subparagraph of Article 14 (1) covers more than accommodation rented from a third party. Moreover, to prevent an official who is the owner of his residence from receiving the allowance in question constitutes discrimination by comparsion with an official who rents a house belonging to a third party.

The critical test for the granting of an allowance is whether the house is appropriate for the applicant's duties and whether the rent on the basis of which the allowance is claimed represents a fair basis for the claim for an accommodation allowance in respect of that house. In that connection the applicant refers to the notes sent by the successive Heads of the Delegation contained in the file, which leave no doubts in that regard. After discussing the matter with the persons responsible in the Delegation in Washington, the applicant decided on the scheme he adopted in order to take account of the Commission's system of calculating accommodation allowances, and the rent paid by the applicant to Algonquin was no greater than the amount which he would have to have paid to a third-party proprietor.

The applicant considers in addition that the Head of the Delegation is responsible for making decisions of that kind and that it was the latter's responsibility, rather than that of the applicant, to seek guidance from the relevant Directorate General in Brussels, if he felt it appropriate. He considers in any case that the Head of the Delegation binds the Commission as regards administrative questions relating to the staff of the Delegation.

Alternatively, if the allowance was erroneously paid, the applicant maintains that the Commission has not established that he was aware that there was no due reason for the payment or that the fact of the overpayment was patently such that he could not have been unaware of it.

In that connection, the applicant states in the first place that he claimed and received the accommodation allowance in good faith and that the inquiry into the applicant's housing arrangements in Washington concluded that he had acted honourably and that there could be no question of any disciplinary problem arising.

Moreover, the second part of Article 85 permits recovery only in a case where a sum has been paid either completely by accident or in circumstances where the payee is clearly unable to adduce reasons for it. That is not what happened in this case.

As regards the interpretation of the second subparagraph of Article 14 (1) of Annex VII to the Staff Regulations, the Commission, the defendant, observes that the use of the term “rent allowance” in Article 14a merely confirms that the lodging allowance does not cover the expenses of purchased accommodation. The interpretation according to which the allowance in question covers only renting is systematically drawn to the attention of every official concerned and applied accordingly. The information and internal service instructions given by the adminstration to the applicant leave no room for any misunderstanding on that point. Moreover, the repayment of rental costs rather than the purchase cost represents a constant practice of the Commission corresponding to the system of rotation applied to the officials of external delegations.

The Commission rejects the argument that the Head of the Delegation in Washington has any power of decision regarding lodging allowances. According to Article 14 of Annex VII to the Staff Regulations, it is the appointing authority which is entitled to grant such an allowance, and the internal instructions for the application of that provision, adopted by the competent Commissioner or Director General as appointing authority, refer in that regard to the Directorate General for Personnel and Administration.

As regards the alternative submission, the Commission contends in the first place that Article 85 of the Staff Regulations refers to circumstances in which an official receiving a payment knew or should clearly have known that the money was not duly received. It adds that in this case the applicant had all the information regarding the lodging allowance, from which it is apparent that such an allowance is based on the arm's length rent payable. He cannot therefore substitute his own view of the lodging allowance for that clearly expressed by the Commission, without informing the administration in Brussels of the arrangement made by him reflecting his view of matters.

By failing to notify the administration of the fact that he himself, through Algonquin Properties Inc., had purchased the house in respect of which he claimed a lodging allowance, the applicant gave the impression that what was involved was a bona fide arm's length transaction. However, he did not explain why the property was not held in his name or why his interest in Algonquin Properties Inc. was not made known to the Commission in Brussels at the outset.

IV — Oral procedure

The parties presented oral argument at the sitting on 30 May 1984.

The Advocate General delivered his opinion at the sitting on 21 June 1984.

Decision

1. By application lodged at the Court Registry on 14 October 1983, Andrew Armstrong Mulligan, a former official of the Commission in Grade A 3 brought an action for the annulment of the Commission's decision to recover a sum overpaid in the amount of BFR 1115552, which was notified to the applicant by a letter from the Director-General for Personnel and Administration dated 21 October 1982.

2. The sum in question, the amount of which is not in dispute, represents all the payments made to the applicant by way of lodging allowance for the period from 1 December 1974 to 31 March 1982. During that period, the applicant performed the duties of Head of the Press and Information Office in the Delegation of the Commission in Washington, United States of America.

3. The abovementioned letter of 21 October 1982 states that the conditions for the grant of a lodging allowance were not fulfilled since the applicant was the proprietor of his residence, whereas the basis for the calculation of the lodging allowance is the rent which an official is obliged to pay during his temporary assignment to a delegation of the Commission in a nonmember country. According to that letter, the applicant was aware of that principle since he deliberately created a legal device which amounted in effect to a lease to himself, so that he could continue to receive the lodging allowance as a tenant.

4. The applicant maintains that the decision is unlawful since the conditions laid down by Article 85 of the Staff Regulations for the recovery of sums unduly paid to an official are not satisfied. He submits, on the one hand, that the payment of the allowance was not irregular and, on the other, that even if the payment were irregular, he was unaware of the irregularity and that in any event the irregularity was not patently such that he could not have been unaware of it.

5. As regards the irregularis of the payment, the Commission contends that the lodging allowance paid to the applicant during the period in question was granted pursuant to Article 14 (1) of Annex VII to the Staff Regulations and that that provision covers only reimbursement of expenses in respect of rented accommodation. As a secondary point, the Commission also observes that it is for the appointing authority to decide whether only the expenses of rented accommodation should be reimbursed or whether the benefit of the lodging allowance should be extended to officials who become the owner of their residences, with a view to covering part of the purchase price or of the payments in respect of a mortgage loan. According to the Commission, it is, however, apparent from the information supplied to the applicant in September 1974 and from the internal service instructions of 1976 and 1980 regarding the lodging allowance, of which the applicant had knowledge, that only a part of the rent paid by an official may be borne by the Commission.

6. It is unnecessary to consider whether Article 14 of Annex VII must be interpreted as not allowing the grant of a lodging allowance to an official who is the owner of his residence. It is apparent from the documents before the Court that, in this case, the applicant applied for and obtained the lodging allowance to cover part of the rent of a residence rented by him in Washington; that the amount of the allowance was calculated on the basis of the difference between the actual rent paid in Washington and a notional rent applicable to Brussels: and that it was the Commission's practice, as is apparent from the internal service instructions the text of which was given to the recipients of the lodging allowance, to grant that allowance only to an official “who spends by way of monthly rental” a sum exceeding a certain percentage of his net remuneration.

7. In those circumstances, it must be stated that the allowance was granted to the applicant as a lodging allowance intended to cover part of the rent which he was obliged to pay in Washington. Various memoranda from the Commission administration in Brussels reminded the applicant that he was obliged to inform the administration at once of any changes in his situation which might affect the payment of the allowance.

8. Accordingly, it must be concluded that the basis for the grant of the allowance ceased to exist as soon as the applicant, without informing the Commission, purchased the house in which he had taken up residence. It is of little importance in that connection that, from the formal point of view, the house was purchased by a company incorporated by the applicant, in which he held all except one of the shares and of which he became the president, whilst his wife and one of his friends were the directors. The effect of the lease between the company and the applicant in those circumstances was to conceal from the Commission the fact that the applicant had purchased the property.

9. It having thus been established that the allowance was unduly paid, it should be considered whether the applicant was aware of that irregularity or whether that irregularity was patently such that he could not have been unaware of it.

10. In that connection, the applicant submits in the first place that he was unaware of the Commission's view that the lodging allowance referred to in Article 14 (1) of Annex VII to the Staff Regulations can cover only the costs which officials incur by reason of high rents. On the contrary, the senior officials of the Community Delegation in Washington gave him to understand that the purchase of the house in which he lived did not preclude his continuing to receive the lodging allowance. The Head of the Delegation himself was not unaware of the basis of ownership adopted by the applicant and even approved it.

11. In the second place, the applicant submits that the second test laid down in Article 85 of the Staff Regulations allows sums overpaid to be recovered only where the recipient was clearly unable to adduce reasons for the payment. According to the applicant, that is not the case in this instance since the object of the payment was to enable the applicant to live in a residence of a standard consonant with his post and with the duties of representation which it involved.

12. Those arguments must be rejected. The applicant knew that the allowance had been granted to him to cover part of his rent and that he was obliged to inform the Commission administration in Brussels of any change in his situation. Moreover, an official of his rank could not have been unaware of the fact that grants, changes and withdrawals of lodging allowances are not matters for the Head of the Delegation in a nonmember country but for the appointing authority, that is to say the Director-General for Personnel and Administration in Brussels. Furthermore, when the company acting as owner increased the rent, the applicant showed that he was aware of that rule.

13. It follows that the applicant must have understood that the allowance was being paid to him without justification as from the time at which he ceased to be a tenant and became the owner of his house.

14. Consideration of the circumstances of the case thus leads to the conclusion that the irregularity of the payment of the allowance for the period in question was patently such that the applicant could not have been unaware of it.

15. It must therefore be held that the Commission applied Article 85 of the Staff Regulations correctly and that the application must be dismissed,

Costs

16. Under Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. However, under Article 70 of the Rules of Procedure, institutions are to bear their own costs in proceedings by servants of the Communities.

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

1 Dismisses the application;

2 Orders the parties to bear their own costs.