EU Law: Exam Summary Note on 'State Liability'

STATE LIABILITY

1. INTRODUCTION and CONDITIONS FOR STATE LIABILITY

Introduction

·           In Francovich v Italy, the ECJ created the possibility of seeking an award of compensation against a State whose failure to implement a directive caused an individual to suffer loss.

·           State liability (SL) involves an action in the courts of the relevant State.

·           SL is not limited to the failure by the State to implement a directive, as in Francovich, although that still remains a good example (Dillenkofer v Germany, BT, Rechberger v Austria, Stockholm Lindöpark v Sweden). SL also extends to breaches of EU law by Member States generally:

Ø Article 34 TFEU: the prohibition of quantitative restrictions on imports (Brasserie du Pêcheur v Germany, Schmidberger v Austria, Danske Slagterier v Germany).

Ø Article35 TFEU: the prohibition of quantitative restrictions on exports (Hedley Lomas).

Ø Article 45(2) TFEU: the free movement of workers – specifically the prohibition of discrimination on grounds of nationality (Köbler v Austria).

Ø Article 49 TFEU: the freedom of establishment (Factortame III, Haim).

Conditions for State Liability

·      In Brasserie du Pêcheur / Factortame III, the ECJ identified three conditions for State liability:

      the rule of law infringed must be intended to confer rights on individuals;

      the breach of EU law must be “sufficiently serious”;

      a direct causal link between the State’s failure to comply with EU law and the damage suffered by the individual.

1. Intention to Confer Rights on Individuals

·      This criterion was satisfied in Brasserie du Pêcheur (Article 34 TFEU), Hedley Lomas (Article 35 TFEU), Köbler (Article 45(2) TFEU) and Factortame III (Article 49 TEU). All of these Treaty provisions are also directly effective.

·      In Dillenkofer and Rechberger the ECJ held that Art.7 of Directive 90/134 (the Package Travel Directive) conferred individual rights, and in Fuß v City of Halle, the ECJ held that Article 6(b) of Directive 2003/88 (the Working Time Directive) did so too. However, in Paul & Others v Germany, the ECJ decided that Art.3(1) of Directive 94/19 did not do so.

2. A Sufficiently Serious Breach

·      The decisive test is whether there had been a “manifest and grave” disregard of the limits of the State’s discretion.

·      The ECJ has identified several “factors” in seeking to prove this:

1.        the clarity and precision of the rule breached,

2.       the measure of discretion left by that rule to the national... authorities,

3.        whether the infringement was intentional or involuntary,

4.      whether any error of law was excusable or inexcusable,

5.       the fact that the position taken by an institution of the EU (such as the European Commission) may have contributed,

6.      the adoption or retention of national measures contrary to EU law.

Failure to implement a Directive on time

·      Such a breach is automatically sufficiently serious (Dillenkofer).

Defiance of clear ECJ caselaw

·      Such a breach is also automatically sufficiently serious (Fuß).

Who applies the “Sufficiently Serious” Test?

·      This, generally speaking, is a task for the national courts.

·      Sometimes, however, the ECJ will rule that the breach has been so obviously serious (or not) that it will answer this question itself (Hedley Lomas, BT, Rechberger, Stockholm Lindöpark).

3. A Direct Causal Link between Breach and Damage

It is for the national courts to determine whether the causal link exists (Brasserie du Pêcheur / Factortame III; Leth v Austria). This is done by applying national rules on causation.

2. whAt is the state?

·      The principle of State Liability applies regardless of the organ of the State whose acts or omissions are responsible for the breach.

·      Most of the cases have involved central government (Francovich, Brasserie du Pêcheur, Factortame III, Dillenkofer, BT, Hedley Lomas, Rechberger, Stockholm Lindöpark, etc).

·      However, there is no requirement that a claimant in a SL case must bring their action against central government. In federal States, including Austria and Germany, it would be possible to bring an SL case against a regional government instead (Konle, Fuß v City of Halle).

·      In Haim, the ECJ held that any public body could face SL actions.

·      The judiciary may also be held liable (Köbler v Austria, Traghetti del Mediterraneo v Italy). Only national courts adjudicating at last instance may face SL actions. Generally speaking, this means national Supreme Courts, although in Cooper v Attorney General (2010) an action was brought against the Court of Appeal because it had been the “court of last resort”. The Köbler / Traghetti decisions raise certain problems of principle (e.g., does it affect judicial independence?) and practical difficulties about how this policy is to be put into practice.

·      In AGM v Finland the ECJ decided that an individual could be held liable under SL in addition to the State itself, a form of vicarious liability.

3. LIMITATIONS ON RECOVERY OF DAMAGES

Reparation is subject to two conditions (Brasserie du Pêcheur, Factortame III):

·      The principle of equivalence. Reparation must be made in accordance with national rules on liability, but under conditions that are no less favourable than for similar domestic claims. Thus, for example, exemplary damages are available in SL claims against the UK because exemplary damages may be awarded in cases against British public authorities in domestic litigation. Similarly, Member States may impose limitation periods on the recovery of SL claims, as they do with domestic claims, provided that the periods are reasonable (Danske Slagterier). A 3-year period will not be unreasonable.

·      The principle of effectiveness. This means that national rules on recovery of compensation in SL claims cannot be so framed so as to make it in practice “impossible or excessively difficult” to obtain compensation. Thus, total exclusion of loss of profit in the context of economic and commercial litigation is not acceptable as far as SL claims are concerned.