The need to take into account the principle of proportionality when deciding on the reduction of the subsidy due to exceeding the project completion date

Author of the article: Mgr. Antonín Hajdušek, LL.M., ARROWS (office@arws.cz, +420 245 007 740)

The Court fully agreed with our legal argumentation contained in the administrative action and annulled the decision of the Ministry of Industry and Trade to completely reduce the client's subsidy due to the alleged failure to meet the project completion deadline.

The decision in question provided for the non-payment of a subsidy of almost CZK 2 million on the basis of the claim that the client had obtained the approval of the building permit approximately one and a half months later than the decision to grant the subsidy provided for. However, during the proceedings, we stressed that the purpose of the grant was fulfilled in full, with no negative consequences for the grantor or the EU budget.

In particular, we objected to the disproportionate nature of the sanction imposed, which was contrary to the constitutional principle of proportionality of public authority interference with individual rights. We argued that the method of determining the amount of the reduction of the subsidy was not only incorrect but, above all, completely disproportionate. Our analysis showed that the subsidy provider had set a table of percentage reductions which mechanically penalised the beneficiaries without taking into account the actual impact of any breach of the conditions.

In this case, the project concerned the renovation of an industrial building, where the key indicator was the insulation of an area of 1 156 m². The Court of First Instance agreed with our view that this indicator does not arise gradually, but only in full after completion of the approval. The mechanism which penalised the delay in the approval by the immediate loss of the entire subsidy was considered by the Court to be dysfunctional and contrary to the principle of proportionality. From a theoretical point of view, the subsidy would have been reduced by 100 % even in the event of a single day's delay.

The judgment thus recognised the merits of our action and annulled the Ministry's decision for illegality. The Court imposed on the administrative authority the obligation to reflect the principle of proportionality in its further decision-making and to thoroughly justify the amount of the reduction of the subsidy corresponding to the gravity of the possible misconduct.

The case also showed that the administrative authority had not provided sufficiently convincing reasons for the 100% reduction of the subsidy. The Court found that the decision was unreviewable and that the grant provider was not entitled to impose sanctions in such a mechanical manner without taking into account the specific circumstances.

This result underlines the importance of consistent legal representation in cases where administrative authorities apply sanctions which may haveserious financial consequences for the beneficiary of the subsidy. Our reasoning, supported by the case law of the Supreme Administrative Court, has contributed to the protection of our client's rights and has also highlighted the need for transparent and fair decision-making in the management of public funds.