The dispute between the parties relates to the recovery of a state grant.

In 2003, the claimant, a water supply association (Wasserzweckverband), was planning to connect the hamlets H. and O. to its drinking water network. To this end, the claimant applied for the approval to commence construction (Baufreigabe) to the defendant and received it on 22 July 2003. The approval did not contain any commitment to provide a specific grant, but only a waiver of the objection to the commencement of construction ahead of schedule.

The construction work was carried out in 2003/2004 at a total cost of approximately EUR 1.2 million. By notice of grant award of 28 March 2007, the defendant granted state funding for this in the amount of EUR 513,160.42. The notice is based on eligible costs of EUR 971,159 and a funding rate of 52.84%. It refers to the Guidelines for Grants on Water Management Projects (RZWas 2005, Richtlinien für Zuwendungen zu wasserwirtschaftlichen Vorhaben) from 2005 and to the General Additional Stipulations for Grants to Promote Projects to Municipal Corporations (ANBest-K 2005, Allgemeine Nebenbestimmungen für Zuwendungen zur Projektförderung an kommunale Körperschaften).

As is shown in the audit report of 7 April 2008, a review carried out by the Bavarian High Court of Auditors (Bayerischer Oberster Rechnungshof) led to several objections which particularly related to the establishment of the funding rate, the consideration of value-added tax and the funding of the cost of constructing a fire water pond. Thereupon, by recovery and withdrawal notice of 8 April 2009, the defendant established that the notice of grant award had partly lapsed and was partly to be withdrawn. The amount of the allocation was now set at EUR 402,735.05, so that the claimant was to refund an amount of EUR 110,425.37.

The action lodged against the notice by the water supply association with the Administrative Court (Verwaltungsgericht) was successful for formal reasons. Following the defendant's appeal on points of fact and law, the Higher Administrative Court (Verwaltungsgerichtshof) amended the judgment and largely dismissed the action. The challenged notice has only been repealed to the extent that the amount of refund exceeds EUR 104,936.66. To this amount, the condition subsequent contained in no. 2.1 ANBest-K 2005 applied. Accordingly, the grant is reduced if "the eligible expenditure that is estimated in the financing plan decreased subsequent to the approval". Any difference between the amount of expenditure which is presumed on approval and that which is subsequently established is said to be sufficient to trigger this condition subsequent, even if this difference was merely based on a reassessment on the part of the granting authority. (…) Accordingly, the extent of the eligible costs decreased in the instant case because of the wrongly-assessed value-added tax, and due to the mistakenly-included costs of the fire water pond. Furthermore, the funding rate needed to be revised downwards.

(…) 

10 The appeal on points of law is well-founded. The legal opinion of the Higher Administrative Court on which the appeal judgment is based, namely that the disputed additional stipulation contained a condition subsequent which had occurred by virtue of the mere legal reassessment of the eligibility of individual expenditure items by the granting authority, violates law subject to review (see section 137 (1) no. 2 of the Code of Administrative Court Procedure (VwGO, Verwaltungsgerichtsordnung)). It is founded on an inadequate consideration of the provisions on administrative procedure contained in article 36 (2) no. 2, articles 43 (2) and 48 of the Administrative Procedure Act of the Federal State of Bavaria (BayVwVfG, Bayerisches Verwaltungsverfahrensgesetz). The ruling also does not prove to be correct for other reasons.

11 1. The Court of Appeal correctly presumed that a beneficiary must, as a matter of principle, in accordance with article 49a (1) first sentence BayVwVfG restitute payments that have already been made if and to the extent that the grant has become ineffective as a result of the occurrence of a condition subsequent. (…) Having said that, the Court incorrectly understood the provision contained in no. 2.1 ANBest-K 2005, stating that the reduction in the eligible expenditure estimated in the financing plan leads to a reduction in the grant, as a condition subsequent.

12 a) In accordance with article 36 (2) no. 2 BayVwVfG, a condition is characterised by virtue of it making the commencement or ending of a privilege or burden dependent on the uncertain occurrence of a future event. The term "event" only encompasses actions, statements or incidents which are discernible for the outside world. In the current language, it is characteristic of an event that it can be experienced, heard and seen, or in other words discerned. The fact that the "event" specified in article 36 (2) no. 2 BayVwVfG must be an empirically verifiable process is also suggested by the semantic link to the "occurrence" of the event, which determines the time at which the administrative act contains a different regulatory content. Since the future uncertain event leads by virtue of law to a loss or gain of rights without any further intermedia step, its occurrence must be easily and equally discernible for all parties - for the addressee of the notice, for the authority and for any third parties - amongst other things for reasons of legal certainty. This is the case with external facts belonging to the general experiential world, but not with ideas belonging only to the conceptual world of one of the parties.

13 b) By these standards, the assumption of the Court of Appeal that the additional stipulation contained in no. 2.1 ANBest-K 2005 was a condition subsequent within the meaning of article 36 (2) no. 2 BayVwVfG contradicts law subject to review. Admittedly, it could be argued that the wording "reduces" suggests an automatic link between the reduction in eligible expenditure and that in the grant. Such an automatic link between the occurrence of a future event and a change in the regulatory content of the administrative act is also inherent in the condition within the meaning of article 36 (2) no. 2 BayVwVfG.

14 A decisive argument against such an understanding of no. 2.1 ANBest-K 2005 as constituting a condition is however that this provision does not designate an event triggering the condition. If the term "event" within the meaning of article 36 (2) no. 2 BayVwVfG is to be understood as an empirically discernible incident, then the wording "reduction in eligible expenditure" admittedly paints a picture of a discernible process. In fact, however, the reduction in expenditure is not an observable event, unlike the implementation of the construction measures funded. The finding that the eligible expenditure has decreased, and by how much, is not based on the discernment of facts that are equally accessible to all parties. In particular, the reduction in eligible expenditure cannot be ascertained simply by sifting and adding up the invoicing receipts received in connection with the measure funded. Each individual receipt must additionally be subject to an evaluation under funding legislation as to whether and to what extent expenditure, which was actually effected, is eligible. Only then can the eligible expenditure, that has been effected, be added up and compared with the estimated eligible expenditure.

15 The "event" which is indispensable for a condition can also not be ascertained by interpreting the provision. It would be conceivable to take as a basis discernible events which come after the "reduction in eligible expenditure" - such as the beneficiary's calculation, the final notice of the granting authority or the audit report drawn up by a court of auditors. That said, no. 2.1 ANBest-K 2005 does not contain any indication that the "reduction" of the grant is to depend on the application of the law which the beneficiary, the granting authority or an auditor subjectively considers to be correct. None of these actors is named in the additional stipulation and stated to be decisive. In particular, the provision does not recognisably show intent for a "final calculation" by the granting authority, as soon as it is submitted, even though possibly containing legal errors, to also determine as a condition subsequent the extent of the grant.

16 Contrary to the view taken by the Higher Administrative Court, the legal reassessment of the grant case by the granting authority does not therefore constitute an event within the meaning of article 36 (2) no. 2 BayVwVfG that is suitable to cause a change in the legal situation. The claimant hence rightly points out that the legal reassessment of grant-related questions is initially a purely inner process, and not - as required by article 36 (2) no. 2 BayVwVfG - an event which is discernible for the outside world. As long as no office-holder authorised to represent the granting authority makes an outwardly directed statement or carries out an action that can be discerned by the outside world, in cases of doubt it also cannot be ascertained whether, and if so from what point in time onwards, considerations on the part of one or more employees are representative of the authority's intention. Already for reasons of legal clarity and legal certainty, a purely internal reassessment can therefore not serve as a reference point within the meaning of article 36 (2) no. 2 BayVwVfG for a change to the amount of the grant specified in the notice of grant award.

17 (…)

21 2. The appeal judgment contested with the appeal on points of law is based on the revealed violation of provisions subject to review. It also does not prove to be correct within the meaning of section 144 (4) VwGO for other reasons. Concerning the three complexes of grants which the defendant regards as being unlawful (value-added tax problem, funding of the fire water pond, determination of the funding rate), there is no withdrawal within the meaning of article 48 (1) BayVwVfG, or none that is free from error.

22 a) In contrast to the defendant's legal opinion as to the grant for value-added tax and for the fire water pond, it already lacks an administrative act of withdrawal. The recovery and withdrawal notice of 8 April 2009 cannot be understood as meaning that the authority has withdrawn the notice of grant award in its entirety by way of alternative. Rather, the operative part of the notice already speaks of a partial lapse and of a partial withdrawal. As to the value-added tax amounts and the funding of the fire water pond, the occurrence of the condition subsequent is presumed, and only article 49a (1) first sentence BayVwVfG is designated as a legal basis. The notice of grant award has hence not been withdrawn in this regard.

23 b) Moreover, the funding of the fire water pond is also not to be regarded as unlawful.

24 (…)

26 c) As to the funding rate determined in the notice of grant award, a withdrawal has taken place. It was however not free from errors in exercising discretion.

27 (…)

28 With regard to the withdrawal decision, the defendant has however not sufficiently exercised its discretion concerning the difference emerging from the lower funding rate. The withdrawal and recovery notice of 8 April 2009 merely states in formal terms as regards the exercise of discretion for withdrawal that there were no particularities, and hence that the recovery of the grant was justified with regard to equal treatment with other funding projects. The defendant additionally stated in its explanatory letter of 29 January 2013 that a case of "intended" discretion applied and that there were no atypical facts.

29 In doing so, the defendant failed to exhaust the discretion provided under article 48 (1) first sentence BayVwVfG. According to the jurisprudence of the Federal Administrative Court (BVerwG, Bundesverwaltungsgericht), when unlawful administrative acts are withdrawn in accordance with section 48 (1) first sentence of the Administrative Procedure Act (VwVfG, Verwaltungsverfahrensgesetz), as a matter of principle, there is no case of intended discretion. The principles of the lawfulness of the administration and the binding effect of administrative acts are, rather, on an equal footing as far as the specialised law applicable by way of exception does not comprise a different evaluation (BVerwG, judgments of 25 September 1992 - 8 C 68.90 et al. - Rulings of the Federal Administrative Court (BVerwGE, Entscheidungen des Bundesverwaltungsgerichts) 91, 82 <90>, of 23 October 2007 - 1 C 10.07 - BVerwGE 129, 367 para. 32 and decision of 7 July 2004 - 6 C 24.03 - BVerwGE 121, 226 <230 et seq.>). This also applies if the party concerned cannot rely on the protection of legitimate expectations (BVerwG, judgment of 14 March 2013 - 5 C 10.12 - (…)). In the area of the law on grants which is relevant here, no legal evaluation is evident which would restrict the discretion granted in article 48 (1) first sentence BayVwVfG. The budgetary principle of the economy and efficiency of the public administration put forward by the defendant is by itself not sufficient for this (BVerwG, judgments of 19 February 2009 - 8 C 4.08 - juris para. 46 and of 14 March 2013 - 5 C 10.12 - (…)), so that the formulaic reference to this is not suitable to replace the exercise of discretion that was owed.

30 (…)