State Liability Flashcards
Why the doctrine was originated?
Member States’ liability to pay damages to individuals in respect of their breaches of EU law is not laid down in the Treaty. It is another example of the ECJ’s activism in promoting the rights of individuals and the effective enforcement of EU law.
We have seen earlier what the problems were concerning the application of the principle of direct effect of EU law. The ECJ considered a different way of giving maximum possible effect to EU law by introducing a uniform remedy for breach of EU law, irrespective of whether legislation had direct effect or not.
The existence of this liability was first established in Joined Cases of Andrea Francovich, Danila Bonifaci and Others v Italian Republic [1991].
ORIGIN OF THE DOCTRINE & RATIONALE
The principle of state liability was introduced by ECJ in Francovich. The rationale behind extending liability to member states (MSs) was founded upon
the obligation to implement directives under Art 288 TFEU and
the general obligation under Art 4 TFEU that state ‘shall ensure fulfillment of the obligations arising out of the treaties or resulting from acts of the institutions of EU’.
FRANCOVICH CASE
In Francovich, a group of ex-employees sought arrears of wages following the employer’s insolvency. The claim was based on the failure by Italy to implement Directive 80/987 in Commission v Italy, Italy had previously been held to be in breach of its Community obligations with respect to its failure to implement this directive. The Directive required MSs to provide a guaranteed fund to ensure the payment of arrears of wages in the event of insolvency of the employer.
JUDGMENT OF ECJ
In Francovich, it was held that in principle the state could be liable for failure to implement an EU Directive, if the following 3 conditions were satisfied:
The result prescribed by the directive should entail the grant of rights to individual,
That it should be possible to identify the content of those rights on the basis of the provisions of the directive,
That there should be a causal link between the breach of the State’s obligation and the loss and damage suffered by the injured parties.
Where the 3 conditions of Francovich apply, the individual who seeks compensation as a result of MS failing to act in accord with EU law may proceed directly against the state.
IN WHICH SITUATIONS THE DOCTRINE MAY APPLY?
In Francovich, the judgment was limited to Member States’ failure to implement Directives.
However, the law relating to state liability has been applied in a variety of situations such as
legislation infringing EU law (Factortame III);
incorrect implementation of Directive (BT case);
administrative breaches (Hedley Lomas) and
incorrect interpretation of EU law by a national court of last instance (Kobler).
EXPANSION OF THE DOCTRINE
Whether a Member State could be liable in damages for breaches of other Community law obligations, such as under Treaty Articles, was the issue in Brasserie v Germany and Factortame III.
The Court affirmed that the principle of Member State liability was available for all Community law provisions, whether or not they had direct effect. It also stated that ‘in the absence of a particular justification’, the conditions for the liability of the state would be the same as for the Community institutions.
It is not strict liability: there must exist a ‘sufficiently serious’ breach for the state to be held liable in damages.
So, has the requirements of Francovich changed changed?
A Member State will be liable to an individual for breach of its EU law obligations where:
the rule of law breached is intended to confer rights on individuals
the breach is sufficiently serious
there is a direct causal link between the breach of the obligation resting on the state and the damage sustained by the parties.
IMPLICATION OF FRANCOVICH CASE
The implications for MSs of Francovich remained unclear. The judgment was decided in the context of liability for the non-implementation of a directive, but it established principles that could be extended much further, to all breaches of EU law for which the state is responsible.
In Factortame, the principle of state liability was extended to all domestic acts and omissions, legislative, executive and judicial, in breach of EU law provided that conditions in Francovich applied.
In Factortame the condition under which to incur state liability, that of sufficiently serious was restated, liability would be founded where a MS had manifestly and gravely disregarded the limits of its discretion. As to whether the breach of Community law is sufficiently serious, the decisive point is whether the Member State has ‘manifestly and gravely ignored the limits on its discretion’.
Sufficiently serious breach
Whether the infringement of Community law was sufficiently serious depended on consideration of the same factors cited in the Factortame case: whether the national court had manifestly infringed the applicable law, that is, whether the ‘infringement was manifest’.
In deciding what this meant, regard had to be given to the specific nature of the judicial function and to the legitimate requirements of legal certainty. In order to decide whether the infringement was ‘manifest’, the national court hearing a claim for damages must take account of ‘all the factors which characterise the situation put before it’.
SUFFICIENTLY SERIOUS BREACH: FACTORS TO BE TAKEN INTO ACCOUNT WHETHER MS HAD MANIFESTLY AND GRAVELY DISREGARDED THE LIMITS OF ITS DISCRETION
Factortame held that the factors to be taken into account in establishing whether the state had manifestly and gravely disregarded the limits of discretion included:
i) the clarity and precision of the rule breached,
ii) the extent of any discretion left to MS,
iii) whether the breach was intentional or involuntary;
iv) whether the error of law was excusable or inexcusable;
v) whether the position taken by a Community Institution had contributed towards the MS’s action/omission;
vi) the adoption or retention of national measures or practices contrary to EU law.
Necessity of ruling from European Commission?
It is not necessary for the Commission to have obtained a ruling from ECJ, that the Member State has breached EU law. If there had been such a ruling (as had been the case in Francovich) and the Member State persisted in the breach, that would automatically lead to a finding that the breach was ‘sufficiently serious’:
on any view, a breach of Community law will clearly be sufficiently serious if it has persisted despite a judgment finding the infringement in question to be established, or a preliminary ruling or settled case law on the matter, from which it is clear that the conduct in question constituted an infringement.
R v Secretary of State for Transport ex parte Factortame Ltd and others [1999]
Following this ECJ ruling on the preliminary reference, the House of Lords decided in R v Secretary of State for Transport ex parte Factortame Ltd and others [1999], that the breaches of EU law by the United Kingdom arising out of provisions in the Merchant Shipping Act 1998 were sufficiently serious to entitle Factortame Ltd and 96 others to compensation under the principle of state liability.
STATE LIABILITY IN OTHER SITUATIONS
In Dillenkofer v Germany, the Court held that the non-implementation of a Directive is always a sufficiently serious breach, so only the Francovich conditions need to be fulfilled. Here Germany failed to implement Directive 90/314 designed to protect consumers in the event of a travel organizer’s insolvency.
The procedure for bringing an action for damages against the state will be governed by national rules. British Telecommunications plc is an interesting case concerning the incorrect transposition of a Directive. UK implemented a law contrary to the directive. The breach was held not to be sufficiently serious because the wording of the EC Directive was unclear, and several other Member States had also unintentionally misinterpreted it.
Brinkman
In Brinkman an incorrect tax classification by Denmark was not sufficiently serious to found liability; the same mistake in the interpretation of the directive had been made by other MSs.
Haim v Nordrhein [2000]
In Haim v Nordrhein [2000], a public law body separate from the state was held liable under the principle of state liability.
For the first time in Köbler, the ECJ ruled that it was possible for the principle of state liability to apply where the alleged infringement stemmed from a decision of a national court of last instance. The question of liability would depend on the established criteria for state liability.
What is the key issue for sufficiently serious breach?
Both BT and Brinkman evidence the view that where the MS has a discretion to decide what action is to be taken in the implementation of the obligation under EU law or where there is an excusable error in interpretation, then the standard of fault for liability will be higher. In consequence, it will be more difficult to obtain compensation.
This accords with the view that where the obligation is much clearer and the breach more obvious, then liability will be easier to impose on the state.
A STRICTER APPROACH IN HEDLEY LOMAS
By contrast, in Hedley Lomas, a different approach was adopted by ECJ to the issue of state liability. Here, a UK ban on meat exports to Spain as a result of the non-compliance Spanish Slaughterhouses did not comply with EU law and was held unlawful.
Where MS was not called upon to make any legislative choices and had only considerably reduced, or even no discretion, the mere infringement of EU law may be sufficient to establish the existence of a sufficiently serious breach.
This failure was held inexcusable and deemed ‘sufficiently serious’.
The conflicting cases
By contrast in Denkavit, ECJ followed the approach it had adopted in BT. In a claim for damages resulting from the faulty implementation of a directive, it was held that the relevant provision of the directive lacked clarity and precision and the breach of EU law by Germany could not therefore be regarded as ‘sufficiently serious’ to justify liability.
The approach adopted in BT was effectively that take in Lindopark, it was noted that given the clear wording of the VAT Directive, Sweden was not in any position to make any legislative choices and had only a considerably reduced or even no discretion. The mere infringement of directive was therefore sufficient to create liability.
Such an approach was supported in Norbrook Laboratories Ltd, in which ECJ held that where a MS was not called upon to make any legislative choices and had only considerably reduced or even no discretion, the mere infringement of EU law may be sufficient to establish the existence of a sufficiently serious breach.
CONCLUDING COMMENT
The doctrine of state liability completes the package of doctrines (direct effect, indirect effect and state liability) developed by the ECJ with the dual objectives of ensuring that Community law prevails and is enforced within the Member States, and on the other hand that individuals can obtain their rights under Community law. The availability of damages from the state applies to any individual who has suffered loss as a result of a sufficiently serious breach of EC law. Thus it overcomes the problem inherent in the direct effect doctrine whereby the availability of a remedy depends on the claim being a vertical one, against an emanation of the state.
