Workshop 6: State Liability for Breach of EU Law
Background to state liability:
 Francovich & Bonifaci (1991): Individuals missed salary after Italian
company went bust. Unimplemented directive required the state to set up
a compensation fund for such measures.
o NOT directly effective – too imprecise.
o However, compensation could be claimed! Principle of state liability
is inherent in the Treaties.
o Criteria:
 Directive must confer rights on the individual;
 Content of those rights must be identifiable in the directive;
 Must be a causal link between breach and damage to
individual.
o For the National Court to then provide the remedy!
 Factortame 3 and Brasserie:
o Added criterion:
 Sufficiently serious. (Discuss in question 4)
 Not just failure to implement a directive but also all domestic
acts or omission (legislative, executive and judicial: see Köbler
case and Traghetti del Mediterraneo – intentional fault and
serious misconduct of national court)
R (Factortame Ltd) v Secretary of State for Transport was a case taken against
the United Kingdom government by a company of Spanish fishermen who claimed
that the United Kingdom had breached European Union law by requiring ships to
have a majority of British owners if they were to be registered in the UK. The case
produced a number of significant judgments on British constitutional law, and for
the first time courts held that they had the power to restrain the application of an
Act of Parliament pending trial and ultimately to disapply that Act when it was
found to be contrary to EU law. The litigation was lengthy, and is typically divided
into five main stages. In this seminar we only discuss Factortame 3 and 5.
Factortame 3: Whether damages can be claimed for the legislative failure.
1. A number of Member State governments sought to limit the impact of
Francovich by arguing that it should not apply when provisions are
directly effective. What are their justifications for this? What was the
Court‘s response? What do you think?
 German, Irish and Netherland’s Governments – there is no need to
have state liability where the private party could have relied directly
under direct effect.
o Some remedy is enough – Francovich was designed simply to
fill a lacuna.
 Direct effect is a minimum requirement – full effectiveness also
requires state liability where there has been a breach [20].
o Direct effect: Forward looking.
o State Liability: Can also be backward looking.
2. How does the Court justify taking upon itself the task of creating the
concept of State liability? What Treaty provisions does it reply upon?
 Germany says that this can only be created by Treaty amendment
and is an example of the court going beyond its powers. [24]
 The CJ say it is about the interpretation of the Treaties which is part
of its jurisdiction (art 164 now art 19 TEU) [27].
o Art 4(3) TEU (former Art 5) (para 39). General principles of
Union law.
o Treaty already recognises state liability (through the
Commission’s infringement procedure) Art 258-260 TFEU
(former 177). Also, its own non-contractual liability – Art 340
TFEU (former art 215) [29] [41]
o Courts were often responsible for the national development of
similar rules nationally.
3. How does the Court justify the conditions for State liability which it lays
out?
 Conditions are: [51]
o Act must confer rights on the individual;
o Sufficiently serious;
o Must be a causal link between breach and damage to
individual.
 Justified by:
o Essential for the policing of Union law (full effectiveness) [39+];
o Essential for individuals’ fairness (effective protection) [39];
o Similar conditions to the Union non-contractual liability for
damage caused to individuals by unlawful legislative measures
adopted by its institutions [53].
4. What factors may the national court consider when deciding whether the
breach was sufficiently serious?
NOTE: This is a national court decision.
 MS ‘manifestly and gravely disregarded the limits on its discretion’
[55] (Test for the seriousness of the breach).
 Criteria: [56]
o Clarity and precision of the rule;
o The level of discretion available in rule: (Hedley Lomas case: no
discretion to act in breach of Union Law);
o Whether voluntary or involuntary;
o Error was excusable;
 BT case (C-392/93): Directive was unclear and UK had
acted in good faith. Not sufficiently serious).
o Contribution of EU.
 E.g. incorrect guidance from Commission etc.
 Always if:
o Continues despite CJ ruling against it (Factortame [57]).
o Unimplemented directive (Dillenkofer).
5. What kinds of considerations may the national court refer to in deciding
how much the compensation ought to be?
 It is not simply a case of being no less favourable than national rules,
national rules must be set aside if they do not allow for
compensation or make it excessively difficult. [74] [83]
 [84] Can take account of the injured parties’ diligence in attempting
to avoid loss.
 Cannot rule out any heads of damage.
Factortame 5:
In this case, the House of Lords discusses whether or not the criteria apply in this
case.
1. What are the criteria the Law Lords use to assess whether there is a
sufficiently serious breach?
 Again: manifestly and gravely disregarded the limits on the exercise
of its powers. (Lord Slynn)
o type and seriousness of the breach.
o type of the damage caused thereby.
o principle in question was infringed without sufficient
justification.
 Repeated the CJ remarks about when sufficiently serious.
2. What considerations led the Law Lords to their conclusion that the
violation in Factortame constituted a significantly serious breach of Union
Law?
 Accepted that the UK acted in good faith – on legal advice – but this
was not enough to excuse.
 Lord Hoffman – the measures taken were excessive. Not about the
operation of the boats, but the nationality of the shareholders etc.
 Lord Hobhouse – primary law; Commission since the beginning
opposed.
 Lord Hope – subject matter of the breach; the potential of the breach
for causing damage to those who are likely to suffer loss as a result of
it; the methods used to achieve the result.
:
Part II: Please prepare for the following problem question
Hypothetical:
In June 2014, the Council of Ministers, by a qualified majority vote, adopted (fictitious) Directive
2014/200, a measure designed to increase the protection afforded to young people at work.
Among other things, the Directive provides that no young person shall be required to work at
night. Member States were given three years in which to implement the Directive.
The British Government, which believes that employment practices are best regulated by
national governments, voted against its adoption in the Council and has since refused to
implement the Directive.
On the 10th February 2018, given the UK‘s continued refusal to implement the Directive, the
Commission, without any consultation and without providing any justification, issued (fictitious)
Decision 2018/7, addressed to the Confederation of British Employers (CBE) requiring them,
with immediate effect, to impose financial penalties on any of its members who employ young
people under 18 years of age between the hours of 10 p.m. and 8 a.m.
Question: In the event that Adam and Eve had been sacked by their respective
employers, consider whether they could rely on EU law in proceedings against
the UK Government.
 What do they want?
o Direct effect? No – They have been sacked and they are now
targeting the state. This means they want compensation!
 State liability.
 Francovich first recognised this potential. Confirmed and clarified in
Factortame III and Brasserie.
o Measure must confer rights on individuals: YES
o Sufficiently Serious: Factortame 3
 Clarity and precision of the rule;
 The level of discretion available in rule;
 Whether voluntary or involuntary;
 Error was excusable;
 Contribution of the EU institutions.
 It is a national court question.
 However, Dillenkofer tells us failure to implement is
always sufficiently serious. Although this case involves
more discretion, the complete failure to implement
means that this is probably satisfied.
o Causal link between individual’s loss and the breach by the MS.
 Not sure – the directive is quite vague as to whether they
would be included.