Creating a level playing field

Date: 07/12/1995

By Ian S. Forrester QC

JUDGEMENTS of the European Court condemning member states for having failed to implement a directive could be very brief.

The member state would say that the legislature had been very busy, things were getting better and the directive would soon be implemented. The Court would politely note the excuses, confirm the directive had not been implemented, condemn the member state and order it to pay the costs.

Actions brought by the Commission against Italy were numerous, but their very number showed that embarrassing a member state before the Court of Justice was not an effective way of eliminating breaches of the law.

Things changed with the judgment in Francovich. Italy had failed to implement a directive which gave workers benefits in the event of the insolvency of their employers. Italy had been 'prosecuted' for this failure, but nothing had been done. Workers who lost their jobs due to their employers' insolvency were not compensated. Francovich lost money and sued the state.

The advocate-general suggested that damage ought to be payable if the fault of the member state had already been publicly condemned by the European Court. The full Court decided to go further: compensation should be available, subject to proper safeguards, even if there had not been a 'prosecution' of the member state. Thus the Court found that Community law required a member state to make damages available to people or enterprises where the member state had failed to do its duty under EC law.

Where does this principle stop? Member states are extremely concerned about the implications of four damages cases now being examined by the European Court. A German consumer says that because Germany failed to implement a directive protecting holiday-makers, she received no compensation when a tour operator collapsed. Probably the Francovich principle should be enough for victory against the state.

However, what about Brasserie du Pêcheur, a French brewery suing Germany for lost profits during years when 'foreign' beer could not be sold in Germany unless it satisfied the ancient quality standard for German beer? The German government defended its legislation passionately, but a prudent observer would have expected it to lose.

What about the Factortame fishermen, denied licences for British boats on the grounds that they were not British? The prudent observer would probably have found the outcome more difficult to predict, but the UK certainly lost. Should the UK and Germany be liable to pay damages wherever they make mistakes, or only if they were in bad faith? Or only if the breach of the law was 'manifest' or 'gross' or 'obvious'?

If liability arose only where the failure by the member state was unarguable, as in the case of an unimplemented directive, member states might be uneasy but not very alarmed. But if liability can arise wherever a member state wrongly interprets the treaty, the political and financial implications can be very far-reaching.

The European Court is normally scrupulously neutral in recording the arguments of member states. Inevitably, a member state (or several) will be on the losing side in very many cases. To award member states yellow cards (infringement, good faith, difficult to understand the legislation, no recent judgements from Luxembourg, no damages) or red cards (professional foul, no plausible explanation, feeble arguments, damages for those who suffered) will be very delicate, and fraught with opportunities for lurid headlines.

If member states must pay compensation to individuals for having made mistakes, why should the Commission not also be made liable in damages?

The Commission has of course lost cases and been criticised by the ECJ, sometimes with embarrassing robustness, but damages against the Commission have only rarely been awarded. It would seem surprising if “the Guardian of the Treaties” were held to a different standard of financial accountability for legal lapses. Where the Commission is slow to investigate a complaint about a breach of the competition rules by a private party; where it wrongly decides that an exporter should be hit with anti-dumping duty; or where, because of political timidity, it fails to act upon a well-founded complaint about a breach of the Treaty by a member state, should it be liable to pay compensation?

This article reflects the personal views of the author.