BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | |
United Kingdom Journals |
||
|
You are here: BAILII >> Databases >> United Kingdom Journals >> The King Can Do Wrong: State Liability for Breach of European Community Law in the Post-<I>Francovich</I> Era URL: http://www.bailii.org/uk/other/journals/WebJCLI/1996/issue4/betlem4.html Cite as: The King Can Do Wrong: State Liability for Breach of European Community Law in the Post-<I>Francovich</I> Era |
||
[New search] [Help]
![[1995] 3 Web JCLI](../../images/thisissu.gif)
Copyright © 1996 Gerrit Betlem.
First Published in Web Journal of Current Legal Issues in association with Blackstone Press Ltd.
Essentially the same issues arose in Case C-48/93 Factortame III. Ninety-seven plaintiffs, individuals and English incorporated companies, sought damages for their losses caused by the UK's Merchant Shipping Act 1988. This Act was held to be partly contrary to Community law by the ECJ - the freedom of establishment of Article 52 EC Treaty - in Case C-221/89 Factortame II [1991] ECR I-3905; [1991] 3 CMLR 589. The Act's nationality-based conditions of registration for vessel owners and operators were declared incompatible with Article 52 but not the condition for registration that the vessels must be managed from within the UK.
Meanwhile, the claimants had managed to secure interim measures in the form of suspension of an Act of Parliament (the celebrated Case C-213/89 Factortame I [1990] ECR I- 2433; [1990] 3 CMLR 1). The Factortame saga also led to two other judgments of the ECJ in infringement proceedings under Article 169 EC Treaty by the Commission against the UK (provisional measures in Case C-246/89R, [1989] ECR 3125, [1989] 3 CMLR 601; main action in Case C-246/89, [1991] ECR 4585, [1991] 3 CMLR 706). Both applications were successful; the President of the ECJ gave an order by way of interim relief which was later confirmed by the Court.
The loss and damage suffered by the 97 plaintiffs in Factortame III during the seven months the legislation had been in force in 1989, raised fundamental questions of Community law. The British referring court considered that under English law the State would not be liable for the breach of Community law by the legislature in the circumstances of the case. However, the law of governmental liability was unclear since Francovich. It therefore addressed a series of preliminary questions to the ECJ.
In British Telecommunications (BT), the plaintiff BT claimed that it had suffered loss as a result of the UK's incorrect transposition of Directive 90/531/EEC regarding procurement procedures in the water, energy, transport and telecommunication sectors. The Directive enables contracting entities, in certain circumstances, to exclude themselves from the requirements it lays down, under notification to the Commission. The UK implementing Regulations, by contrast, themselves laid down which operators are excluded from the scope of the Directive. BT argued that it was thus deprived of a power conferred upon it by the Directive. Its loss consists of extra costs in complying with the UK Regulations and lost profits due to a disadvantage in conditions of competition, as opposed to its competitors who were excluded from the Directive, in having to publish its procurement plans and concluded contracts in the Official Journal.
Top | Contents | Bibliography
Top | Contents | Bibliography
As for the conditions for State liability for breach of EC law, A-G Tesauro opined that Community law should at least lay down minimum requirements, which are to be applied in the context of the national laws of the Member States. Three basic conditions emerge from a comparative analysis: "actual damage, a causal link between the damage and conduct on the part of the perpetrator of the damage and the fact that the conduct was unlawful" (para. 53). In the light of a common core of fundamental principles in the legal systems of the Member States, the liability of the State for breach of EC law should be harmonised in keeping with the liability of the EU under Article 215 EC Treaty (paras. 67-69). After all, this provision stipulates that the Community, in the case of non-contractual liability, shall, "in accordance with the general principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties" (emphasis added). In the light of the ECJ's case law regarding this provision, the basic criterion for liability for breach of EC law in situations where the public authority has discretion, should be the notion of manifest and serious breach. In the situation where the infringed norm lays down a precise result which has not been attained, such as the obligation to transpose a directive within the prescribed period, there should be liability of the State "simply on account of the infringement of a Community provision which confers on individuals a right which is precise and whose subject-matter is determinable; no other factors may be taken into account" (emphasis added; para. 80).
However, according to A-G Tesauro, the proposed criterion of manifest and serious breach, as derived from the case law on Article 215 EC Treaty, should be confined to cases where the competent authority, and in particular the legislature, has broad discretion. The application by the ECJ of this notion, according to the Advocate General, "in a good few cases has made for perplexity" (para. 64). The Court has applied a restrictive test, developed in the context of an authority adopting legislative acts while enjoying a wide discretion, even where decisions were issued with less discretion (or none at all). The restrictive criterion boils down to a test of virtually arbitrary conduct; such an approach is not justified in a context of clearly and precisely defined obligations, according to the Advocate General. The test has proved to be so restrictive that to date only eight awards of damages against the EC have been granted (Note 65 of his Opinion).
Top | Contents | Bibliography
Before the Court was able to formulate Community law conditions of governmental liability, it had to dismiss two preliminary objections raised during the proceedings: (i) the relationship between liability and direct effect and (ii) whether it is for the ECJ, being the judicial branch of government, to proclaim rules of State liability?
Top | Contents | Bibliography
As for the objection against the law-making role of the Court, the ECJ referred to its task under Article 164 EC Treaty of ensuring the observance of the law. Given lacunae in the express provisions of the Treaty, the ECJ will rule on questions as State liability by applying generally accepted methods of interpretation and especially by referring to the fundamental principles of the Community legal order and the common principles among the Member States.(1) One of such common principles, as recognised by Article 215 EC Treaty, is the notion of state liability for unlawful acts or omissions. A concept which in many Member States has been fleshed out by the courts. The Court formulated this ius commune liability notion in broad terms. It said:
"29. The principle of the non-contractual liability of the Community expressly laid down in Article 215 of the Treaty is simply an expression of the general principle familiar to the legal systems of the Member States that an unlawful act or omission gives rise to an obligation to make good the damage caused. That provision also reflects the obligation on public authorities to make good damage caused in the performance of their duties." [Emphasis added.]
The ECJ, as will be seen below, elaborates on this fundamental starting point by linking the rules on State liability to the regime of Article 215 EC (liability of the Community). In second instance, A-G Mischo is followed who proposed this approach for Francovich;(2) the Court there did not introduce a linkage nor did it exclude such a possibility.
Is unlawful conduct of the legislature covered? Yes, it makes no difference whether the unlawful act is attributable to the legislature. Regardless of what organ of the State is responsible for the unlawful act or omission, the executive, the judiciary or the legislature, any case in which a Member State breaches Community law is in principle covered by the liability inherent in the system of the Treaty. In the light of the requirement of uniform application of Community law, individuals' rights to damages cannot depend on domestic rules on the division of powers between the various branches of government. It is likely that public authorities within the meaning of 'State' for the purpose of post-Francovich liability will include all local authorities and State controlled bodies (see also Geddes 1996, p 452). This will definitely be the case if the Court follows its case law on the meaning of ‘State’ for the purpose of direct effect - municipalities (3) and public undertakings (4) have there been held to be emanations of the State.
Under what conditions will States be liable for acts or omissions by the national legislature contrary to Community law? Starting point is, as established in Francovich, that a right to reparation depends on the nature of the breach of Community law.
"In order to determine those conditions, account should first be taken of the principles inherent in the Community legal order which form the basis for State liability" (para. 39, emphasis added).
These underlying principles are the following:
"46. That said, the national legislature - like the Community institutions - does not systematically have a wide discretion when it acts in a field governed by Community law. Community law may impose upon it obligations to achieve a particular result or obligations to act or refrain from acting which reduce its margin of discretion, sometimes to a considerable degree. This is so, for instance, where, as in the circumstances to which the judgment in Francovich and Others relates, Article 189 of the Treaty places the Member State under an obligation to take, within a given period, all the measures needed in order to achieve the result required by a directive. In such a case, the fact that it is for the national legislature to take the necessary measures has no bearing on the Member State's liability for failing to transpose the directive." [Emphasis added.]
Two points are noteworthy in this consideration. First, it follows from the fact that the same criterion for liability applies to Member States and the EC, that the ECJ can no longer use a restrictive liability regime in situations where the Community institutions have no discretion (in the French version of the judgment the term is pouvoir d'appréciation and in German Ermessen).
Second, the criterion for liability in a situation of absence of discretion (which may be called a Type A situation) is strict liability. This follows from the fact that the ECJ attributes no relevance, in the context of liability, to the fact that it is up to the national legislature to ensure timely transposition of a directive. Like in Francovich, the mere fact that the directive had not been transposed within the time limit suffices to impute this breach of Community law to the Member State in question. Or, in the words of A-G Tesauro (cited above), in Type A situations there is liability where a precise provision which confers a right on individuals is infringed and causes damage: "no other factors may be taken into account".
But what is the criterion for liability where the competent authority does have discretion? The Court formulates the regime for State liability in terms of two sets of rules. One applying in Type A situations without discretion and another in what may be called a Type B situation with discretion. In this second situation, liability will arise where three conditions are met:
"57. ...[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 of the Court on the matter from which it is clear that the conduct in question constituted an infringement."
By the same token, failure to adopt immediately the measures needed to comply with an Order of the President of the Court in interim measures proceedings constitutes a sufficiently serious breach (para. 64).
The regime as outlined above may be summarised in the following Table:
| Situations | Type of Liability | Example |
| Non-transposition of a Directive | Strict Liability | Francovich, Dillenkofer |
| Incorrect Transposition of a Directive |
Manifest and Serious Breach (MSB) |
British Telecom |
| Breach of Directly Effective Treaty Provisions | MSB | Brasserie/Factortame, Hedley Lomas |
|
Non-compliance with a judgment of the (President
of the) ECJ |
MSB | Factortame III |
What is the role of fault in this context? The Bundesgerichtshof had asked the ECJ to rule on the possible relevance of national law notions of fault. This question arises as the ius commune liability of Francovich and beyond functions within the framework of the national liability law. The European Court answers that in Type B situations only sufficiently serious breaches of EC law may give rise to liability and:
"78. So, certain objective and subjective factors connected with the concept of fault under a national legal system may well be relevant for the purpose of determining whether or not a given breach of Community law is serious (see the factors mentioned in paragraphs 56 and 57 above).""79. The obligation to make reparation for loss or damage caused to individuals cannot, however, depend upon a condition based on any concept of fault going beyond that of a sufficiently serious breach of Community law. Imposition of such a supplementary condition would be tantamount to calling in question the right to reparation founded on the Community legal order."
Accordingly, concepts relating to the tortfeasor's fault do play a role but only as a component part of the criterion of manifest and serious breach. Examples are factors 3 and 4 as cited above (intentional or involuntary breach; excusable error of law). Insofar as a national law element of fault would nonetheless enable a Member State to exculpate itself, it may not be applied. The ruling in Brasserie thus removes the uncertainty whether Francovich had established a strict liability regime across the board. In Type B situations the regime can be characterised as fault liability.
Turning to the way the post-Francovich basis of liability must be applied within the national legal system, the ECJ reiterates its well-established case law on the non- discrimination principle ("the conditions for reparation of loss and damage laid down by national law must not be less favourable than those relating to similar domestic claims") and the principle of effectiveness (these conditions "must not be such as in practice to make it impossible or excessively difficult to obtain reparation"), para. 67.(5) This Community check- list may severely curtail the application of the domestic liability rules (in particular the effet utile check). As the Court ominously announces in para. 68:
"In that regard, restrictions that exist in domestic legal systems as to the non- contractual liability of the State in the exercise of its legislative function may be such as to make it impossible in practice or excessively difficult for individuals to exercise their right to reparation, as guaranteed by Community law, of loss or damage resulting from the breach of Community law."
Before examining, in the next paragraph, the application of both the non-discrimination and the effectiveness principles in Brasserie du Pêcheur and Factortame III, two general aspects of the regime must be mentioned: the question of what damage must be compensated; and the issue of temporal restrictions to liability. A victim's possibility to rely on the direct effect of a Community law provision does not rule out a priori a damages suit against the State but it may limit recovery in the context of the victim's duty to mitigate the loss.
"84. In particular, in order to determine the loss or damage for which reparation may be granted, the national court may inquire whether the injured person showed reasonable diligence in order to avoid the loss or damage or limit its extent and whether, in particular, he availed himself in time of all the legal remedies available to him.""85. Indeed, it is a general principle common to the legal systems of the Member States that the injured party must show reasonable diligence in limiting the extent of the loss or damage, or risk having to bear the damage himself (Joined Cases C-104/89 and C-37/90 Mulder and Others v Council and Commission [1992] ECR I-3061, paragraph 33)."
Accordingly, the victim cannot recover that part of the damage that is attributed to his own failure to prevent that damage from occurring. In practice, this comes very close to a subsidiary role for liability in relation to direct effect. Where a victim is able to invoke a directive before a national court, or give effect to it by the requirement of consistent interpretation (see Prechal 1995, p 341), he would get what he is entitled to and damage does not arise. The exact scope of what is required of a victim will probably depend on what is reasonable in the circumstances of the case (see also Geddes 1996, p 490). The end result might go as far as total denial of compensation.
Regarding possible temporal restrictions to recovery of damage as a result of breaches of EC law, the ECJ ruled that the damage which arose before a judgment was delivered by the Court finding that an infringement had been committed, must also be compensated. The right to reparation under Community law arises as soon as the applicable conditions are fulfilled. Its existence cannot depend on a prior finding, particularly because, inter alia, that might make a right to damages dependent on the European Commission's assessment of the expediency of bringing an Article 169 action against the Member State pursuant to Article 169 EC Treaty. However, such a ruling does play a role in the context of establishing a manifest and serious breach.
Finally, the Court held that there was no need to limit the temporal effects of the judgment Brasserie/Factortame itself because, in the framework of domestic liability law, the right to reparation is subject to substantive and procedural conditions that take account of the requirements of legal certainty. For their part, these conditions, such as limitation periods, must of course meet the requirements of the EC principles of non-discrimination and effectiveness. It may be added that any temporal restrictions to the existence of State liability for imputable breaches could not have been introduced here in any event. Such a limitation can only be imposed in the judgment first dealing with the issue,(6) which was Francovich.(7)
Top | Contents | Bibliography
The ECJ gives the national courts a number of hints how to apply the newly established liability regime to the facts in hand ("...it will be helpful to indicate a number of circumstances which the national courts might take into account" (para. 58)). This is remarkable because, as the Court itself admits, only national courts have jurisdiction "to find the facts in the main proceedings and decide how to characterise the breaches of Community law at issue" (ibid.). The ECJ nonetheless had already ruled that in both cases a Type B situation applied (discretion present). In addition the national courts are to take their cue from 'Luxembourg' in the following respects. First, in Brasserie du Pêcheur the Court distinguishes two breaches of Article 30: one concerning the name giving of beer and the other relating to the use of additives. It then itself applies the factor 'excusable error' and concludes that this breach constitutes a manifest and serious breach (MSB). The 'additives- breach' on the other hand, is held to be clear only after the Court's judgment of 12 March 1987 finding an incompatibility. It would seem to follow that this ruling includes the possibility of the national court restricting the compensation to damage which occurred after this date on the ground that no MSB existed before it (see also Geddes 1996: 490).
Second, and involving the case of Factortame III, one possible MSB is spelt out by the Court: if it turns out that the UK failed to adopt immediately the measures necessary to comply with the ECJ President's Order, and thus increased the damage, that "should be regarded by the national court as constituting in itself a manifest and, therefore, sufficiently serious breach of Community law" (para. 64).
Finally British Telecom. Here the Court states that it possesses all the necessary information. It therefore itself decides, and does not leave this to the national court, whether the facts amount to a sufficiently serious breach. They do not, according to the ECJ. Citing both HNL (8) and Brasserie, it rules that the provision of the Directive in question is imprecisely worded and could reasonably have been construed as the UK had done. The Member State has acted in good faith and on the basis of reasonable arguments. Moreover, no guidance was available from either the Court's case law or the Commission. Thus, despite the ECJ's contrary opinion as to the meaning of the Directive in issue, the established incorrect transposition into English law does not constitute a sufficiently serious breach of Community law by the UK. There is no liability.
Top | Contents | Bibliography
Less appealing about the newly established Brasserie regime is its incongruity between the fundamental principles of and the actual prerequisites for liability. Four aspects are essential: damage, breach of the law, a causal link between the breach and the damage, and some form of imputing the breach to the actor (see para. 17). Thus, the regime is built up as a conceptual one, like French and Dutch law (Chorus et al 1993, p 103), rather than a situation-based liability system such as German and English law (Zweigert/Kötz 1994, 638, 645, 656, 662-668). This basis is worked out into two sets of three requirements for two situations: Type A with no discretion and Type B with discretion. This is unnecessarily complex; it is sufficient to accept a varying degree of imputability ranging from intentional conduct to risk-bearing without fault. It is confusing to use the element of discretion, as the Court has, both as a factor constituting the Type B category and as a relevant factor within that same category. In the conceptual approach, discretion will be pigeon holed in the element unlawfulness (e.g. no breach of law occurs where the competent authority has the discretion to, say, ban the import of dangerous products) or in the context of attributing responsibility for a committed breach, such as in the British Telecom case (see also Van Gerven 1994, pp 17, 20).
In the present system, there is the danger of rigidity now that all breaches seemingly must fall within one of two categories. Admittedly, the Court could not be expected to accept a new State liability regime without initial restrictions. As is apparent from the impact of the regime in both the situations of Brasserie du Pêcheur and Factortame III - restrictions imposed by German and English law must be set aside - State liability has been extended in a number of jurisdictions by the Brasserie judgment. In others, such as The Netherlands, the impact is marginal. Dutch law effectively recognises strict liability for unlawful acts by both the executive and the legislature since 1986 (Betlem 1993, p 448; Samuel & Rinkes 1992, p 212). If and when the Dutch State breaches EC law, it will be liable under less strict conditions than the ones of Brasserie.
Regarding these conditions, two dissimilarities with, on the one hand, the Article 215 EC Treaty case law and, on the other, Francovich may be noted. The first Brasserie requirement, like the first Francovich requirement, concerns the notion that the rule of law infringed is intended to create rights for individuals. This is not in keeping with the case law on liability of the EC where it is sufficient that the rule breached is intended to protect individual interests.(9) It would seem that the more restrictive approach of Brasserie should be reconsidered in future case law in order to bring liability of Member States in line with EU liability while ensuring proper legal protection. Second, unlike in Francovich, Brasserie stipulates that the causal link between the breach and the damage be direct. Although this approach squares with the pertinent Article 215 EC Treaty case law (i.e. Dumortier),(10) the result is that in Type B situations the causal connection must be direct whereas in Type A situations there is no such restriction. However, the guidance provided by the Court so far on questions of remoteness of damage is so limited that it is impossible to say whether there will be any difference in practice (Hartley 1994, p 478). The cited Dumortier case holds no more than that "[i]n the field of non-contractual liability of public authorities for legislative measures, ... Article 215 of the EEC Treaty ... cannot be relied on to deduce an obligation to make good every harmful consequence, even a remote one, of unlawful legislation" (emphasis added).
Finally on British Telecom. Apparently, the Court is only too aware of the complexities involved in applying the newly established regime for State liability uniformly. It therefore gave a number of hints for the national courts in Brasserie. In British Telecom it went as far as itself establishing that the UK would not be liable in that case. As said, this is remarkable since such an assessment would seem to be a job for the national courts. Probably, the ECJ can only declare findings of no liability, because deciding causation and quantum of damages must surely be left to the national courts, in the present state of the law.
Top | Contents | Bibliography
In the context of the IGC, Member States' ideas for possible amendments to the Treaty on European Union are laid down in the Westendorp Report.(12) As far as the Court is concerned, it states that one Member State considers some judgments disproportional. This State also feels that the IGC "should examine possible limits to member States economic liability when a member State has genuinely attempted to comply with Community law and the application of national time limits in such cases" (No. 120). A similar view is expressed in the British IGC-Paper A Partnership of Nations.(13) It suggests to limit State liability for breach of EC law to "the principle that a Member State should only be liable in damages in cases of serious and manifest breach of its obligations" (No 37). In Type B situations (discretion present) this is exactly what the Court has decided in Brasserie and British Telecom. Whatever the merits and demerits of these judgments, at least they gave that one Member State a worry less.
Brown, L N & Kennedy, T (1994) The Court of Justice of the European Communities, 4th ed. (London: Sweet & Maxwell).
Caranta, R (1995) 'Judicial Protection against Member States: a New Ius Commune Takes Shape', 32 Common Market Law Review 703
Chorus, J M J et al. (1993) (eds.), Introduction to Dutch Law for Foreign Lawyers, 2nd ed. (Deventer: Kluwer).
Geddes, A (1996)'Claims for damages against the state', 146 New Law Journal No. 6737, 451-452; No. 6738, 489-490.
van Gerven, W 1994) 'Non-contractual Liability of Member States, Community Institutions and Individuals for Breaches of Community Law with a View to a Common Law for Europe', 1 Maastricht Journal of European and Comparative Law 6.
van Gerven, W (1995) 'Bridging the Gap between Community and National Laws: Towards a Principle of Homogeneity in the Field of Legal Remedies', 32 Common Market Law Review 679
Hartley, T C (1994) The Foundations of European Community Law, 3rd ed. (Oxford: Clarendon Press).
Mancini, G F & Keeling, D T (1994) 'Democracy and the European Court of Justice', 57 Modern Law Review 175.
Prechal, S (1995) Directives in European Community Law (Oxford: Clarendon Press).
Samuel, G H & Rinkes, J (1992) Contractual and non-contractual obligations in English law (Nijmegen:Ars Aequi Libri).
Wade, H W R & Forsyth, C F (1994) Administrative Law, 7th ed. (Oxford: Oxford University Press).
Zweigert, K & Kötz, H (1994) Introduction to Comparative Law, 2nd ed. (Oxford: Clarendon Press).
Footnotes
(1) This line of reasoning goes back to the very beginning of the Court's case law, cf. Joined Cases 7/56 and 3-7/57 Algera [1957-1958] ECR 39, 55. Back to text.
(2) Opinion of A-G Mischo in Case C-6/90 and C-9/90 Francovich [1991] ECR I-5357, [1993] 2 CMLR 66, No 71; see also Opinion A-G Van Gerven in Case C-128/92 Banks [1994] ECR I-1209, [1994] 5 CMLR 30, No 49. Back to text.
(3) See Case 103/88 Fratelli Costanzo v Comune di Milano [1989] ECR 1839; [1990] 3 CMLR 239. Back to text.
(4) Case C-188/89 Foster and Others [1990] ECR I-3313; [1990] 2 CMLR 833. Back to text.
(5) See in particular Case 33/76 Rewe [1976] ECR 1989 and Case 45/76 Comet ECR [1976] 2043, [1977] 1 CMLR 533; Case 199/82 San Giorgio [1983] ECR 3595, [1985] 2 CMLR 658. Back to text.
(6) See Case 24/86 Blaizot [1988] ECR 379, [1989] 1 CMLR 57, para. 28. Back to text.
(7) A-G Mischo proposed such a limitaion but the Court did not follow him, Opinion in Case C-6/90 and 9/90 Francovich [1991] ECR I-5357, [1993] 2 CMLR 66, para. 86. Back to text.
(8) Joined Cases 83/76, 94/76, 4/77, 15/77 and 40/77 HNL and Others v Council and Commission [1978] ECR 1209; [1978] 3 C.M.L.R. 566. Back to text.
(9) Joined Cases 5, 7 and 13-24/66 Kampffmeyer and Others v Commission [1967] ECR 245, para. 7. Back to text.
(10) Joined Cases 64 and 113/76, 167 and 239/78, 27, 28 and 45/79 Dumortier Frères and Others v Council [1979] ECR 3091, para. 21. Back to text.
(11) IGC Home Page: http://www.cec.lu/en/agenda/igc-
home/index.html
Back to text.
(12) Reflection Group's Report, Brussels, 5 December 1995,
http://www.cec.lu/en/agenda/igc-home/eu-
doc/reflect/final.html
Back to text.
(13) http://www.fco.gov.uk/europe/igc/index.html
Back to text.
