Commission in danger of compensation litigation in wake of scandals

By Jeremy Woolfe

Date: 11/12/03

IF EUROSTAT feels like a cold in the head for the European Union's administration today, it could work up into a rather nasty 'flu in time to come.

The potential malady would take hold if the present trickle of litigation against 'EU plc' were to grow into a cascade, as allegedly wronged parties sued the European institutions for compensation resulting from mismanagement.

One obvious starting point could come from the aggrieved would-be suppliers of professional statistics services to Eurostat.

It is conceivable that one or more firms, that had responded unsuccessfully for contracts with the EU's statistics agency, but then lost out to the 'inner-circle', could make a claim for loss caused by allegedly rigged public procurement procedures.

What would be even more disastrous for the EU would be if any proof turns up that Eurostat were fiddling the actual figures in its statistics.

Pedro Solbes, the economic and monetary affairs commissioner, has ruled this out. However, the same man denied, until July, knowledge of Eurostat's slush funds.

A lawyer working in one of the EU institutions explained that presumption of innocence is not so solid once evidence of mismanagement crops up.

At worst, European regions that suffered as a result of unsound economic figures might be tempted to start the legal ball rolling.

Furthermore, apart from Eurostat, there appears to be an accumulation of other possibilities. Litigation could also follow anything from mismanaged aid to developing countries, to the alleged supply of confidential information over quotas and pricing of cereals for export.

In this particular example, one source thinks that, as only five or so agricultural trading firms handle EU cereals exports, none would be likely to sue the European Commission. They would fear catalyzing the demise of export support subsidies altogether. However, the Commission's luck might not always hold out so well.

As for a general will to sue, Chris Heaton-Harris, the UK Conservative MEP, told European Voice that in the UK alone there could be thousands of companies aggrieved that they had failed to win Commission contracts in the light what they regard as a lack of fair play.

In circumstances where there is no obvious irregularity by the administration, an aggrieved would-be supplier to the EU institutions is in a weak position in attempts to claim damages over the 'wrongful' allocation of contracts.

A person-in-the-know says that would-be suppliers do start legal claims from time to time, but the executive's legal department has always managed to hold them off.

Cases can go on for ten years. Another source says: "Certainly, in every case I have seen, they [the litigants] have never won."

Apart from would-be suppliers to the European Commission, some EU officials might be nursing the idea of compensation cases for unfair treatment.

In fact, two linked cases are in progress. In December 2002 Marta Andreasen, at the Court of First Instance (CFI) in Luxembourg, requested annulment of the Commission decision to relieve her of her duties as accounting officer, claiming damages.

Her second case, which began in June of this year, opposes suspension and also asks for damages. The CFI is a civil, as opposed to criminal, court. It is part of the European Court of Justice. Neither side in the Andreasen versus Commission case is revealing any figures involved, but, generally, a case of damage to career and compensation for mental stress could imply large sums. As for timing, the CFI says that while, on average, it takes 20 months to two years to process cases, staff cases at present average only 17 months.

Questioned on general litigation (such as from aggrieved would-be suppliers to the Commission), a legal expert from an international firm explained to this paper that European law is very different from US law, with its propensity toward class-action litigation.

"In Europe you would have to demonstrate a direct causal link between wrongdoing and specific damage," he said. "There has to be a link between what went wrong and the damages. It is not that easy."

The head of a contracting company that supplies the Commission with management services warned that any would-be suppliers to Eurostat may have signed papers indemnifying the Commission from responsibility in case of wrongful allocation of contracts.

However, a judge might discard such a clause as unfair.

On the question of personal liability, we enter a tricky zone. To start with, auditors themselves cannot be sued. In addition, they can be subject to mental harassment if they fail to toe the corporate line. One states that he received threats of disciplinary action for asking "inappropriate" questions.

Furthermore, all officials are protected under the 'Protocol on the privileges and immunities of the European Communities of 8 April 1965'. This gives them the right to be "immune from legal proceedings in respect of acts performed by them in their official capacity, including their words spoken or written. They shall continue to enjoy this immunity after they have ceased to hold office".

The general public should note that the protocol does not absolve officials over aspects of private life. A spokesperson in Commission Vice-President Neil Kinnock's office confirms that a few criminal cases do crop up every year.

He explains that the reason for the protection is to ensure that member state authorities cannot put pressure on individuals.

However, whatever its origins, the protocol itself might be interpreted as something of a 'criminal's charter'.

German MEP Gabriele Stauner, a member of the European Parliament's budgetary control committee (Cocobu), told this paper that in certain circumstances the protocol could give protection to the white-collar law-breaker. She said it could aid those working in collusion with the miscreant, or those acting negligently to allow the wrongdoer to make an illicit fortune.

In other words, even if it were shown that a mandarin knew all about irregularities with potentially criminal intent, and decided to do nothing, the protocol could save his (or her) bacon.

Steps began to be taken this year to plug this loophole.

In the summer, the Commission put forward, as part of Kinnock's administrative reform programme, a proposed staff regulation to provide for the recovery of money from officials. It would apply when an official has caused financial loss through "deliberate fault", or as a result of "gross negligence".

For this Article 22 to apply, there are certain provisions, including serious misconduct. A descriptive note sets out that any scale of redress against an official or servant would relate to the seriousness and consequences of an offence.

In cases of deliberate misconduct, reparation (by the Commission, against the individual) should be sought for the whole of the damage sustained. The note states that where there is serious personal misconduct, arising from gross negligence, the Commission will, in general "strive to seek a solution that is commensurate with the official's misconduct and specify the size of the reparation accordingly".

However, the regulation has not yet been put into effect. At present, it is being discussed by the Commission and staff unions. Speedy enactment would seem unlikely. In any case, it would most likely not be able to act retrospectively.

Furthermore, its application would require initiative by the Commission.

A constant complaint is that the Commission employs its professional staff to delay processing affairs where it feels embarrassed. For example, there is the saga of Edith Cresson - the French former prime minister and a commissioner until early 1999.

Following investigations, she was sent a set of questions by the Commission earlier this year.

Mme Cresson responded with a statement, but not until September. This statement is currently being examined by the Commission's legal service. Meanwhile, a process has been started by the Belgian judicial authorities, but they have yet to charge her.

The Commission might say that this is all a complex matter, which needs time to resolve. Whatever, it does seem unlikely to reach an outcome before the present college of commissioners retires next year.

Perceived feeble management, weak accounting standards, refusal to take responsibility and so on are already undermining the entire European ideal.

But whether a mass of litigation will break out is unsure -Êthe Commission's legal service could succeed in holding the hounds at bay.

However, only one successful case could set off others. Then there could be catastrophic damage. This could include heavy costs to the taxpayer, and more muck thrown at the already tattered image of the EU executive.

• Jeremy Woolfe is a Brussels-based freelance financial journalist.