EU Law:

Direct Effect,
Indirect Effect,
and State
Liability
Luke Fisher
Portfolio Lead (Law Programmes),
Lecturer in Law, Law Clinic
Director, and Solicitor
Learning objectives
1. Define direct effect (DE) and explain the two types
2. Explain the case in which the Court created the doctrine of DE of EU law and
analyse the nature of the test
3. Assess the application of DE with particular emphasis on its extension to
directives;
4. Critically discuss and apply the limitations of the DE of directives
5. Critically discuss and apply the legal principles stemming from relevant cases
relating to defining the State for the purposes of using vertical DE
6. Critically discuss and apply the principle of indirect effect with reference to
relevant cases
7. Critically discuss and apply the remedy of State liability with reference to relevant
cases
Introduction
 Methods of enforcement under TFEU
 A258 and A259
 Criticism
 Pre-1993 – no sanctions
 Delay
 Political implications
 Discretion of the Commission
 No recompense for individuals
 Court developed principles to secure compliance and maximise the
effectiveness of EU law through:
 Interpretative obligation
Interpretative obligation
Principles include:
Supremacy of EU Law over
National Law
Direct Effect
Indirect Effect
State Liability
Supremacy of EU Law
 s.2(1) European Communities Act 1972, as amended by European Union
(Amendment) Act 2008
 Effectively ensuring all EU law that is directly or indirectly enforceable, can
be done so in the national courts and tribunals, however…
 In the event of a conflict, nowhere is supremacy of EU Law expressly
stated – but it is consistently assumed through consideration of the
objectives of EU law
 Costa v ENEL (Case 6/64)
 “By creating a Community of unlimited duration, having its own institutions,
its own personality, its own legal capacity and capacity of representation on
the international plane and… real powers stemming from a limitation of
sovereignty or a transfer of powers from the States to the Community, the
Member States have limited their sovereign right… and have thus
created a body of law which binds both their nationals and
themselves.”
R (Factortame Ltd) v Secretary of State for
Transport [1989] UKHL 1 
 High Court – Preliminary reference to ECJ (Case 221/89) - were the requirements
as to nationality, domicile, and control imposed as conditions for registration of
fishing vehicles compatible with Community law?
 Injunction granted – argument to be had so status quo to be maintained until
case decided
 Transport SS appeals to CA
 Court of Appeal – overturned High Court; no power to grant injunction unless
successful before ECJ
 National court obliged to give effect to Community law but not override
national law in favour of a putative Community right
 Cannot require SoS to act contrary to will of Parliament where no finding of
unlawfulness
 Factortame appeals to HL
R (Factortame Ltd) v Secretary of State for
Transport [1989] UKHL 1 
 House of Lords
 Affirmed CA - but PR on power of national court to
injunct (Case 213/89)
Acts of Parliament presumed to be lawful unless
ruled otherwise – therefore no jurisdiction to
injunct
If injunction granted and Factortame ultimately
lose they will have benefitted from rights not
actually applicable under Community law
R (Factortame Ltd) v Secretary of State for
Transport (Case 213/89)
 European Court of Justice
 ‘directly applicable rules of community law must be fully and
uniformly applied…[and] render inapplicable any conflicting
provision of national law’ (quoting para 17 Case 106/77) (para 18)
 ‘it is for national courts…to ensure the legal protection which
persons derive from the direct effect of…Community law’ (para 19)
 ‘might impair the effectiveness of Community law by withholding
from national courts…the power to do everything necessary…to set
aside national legislative provisions which might prevent…
Community rules from having full force and effect’ (para 20)
 Held: ‘a national court which…considers that the sole obstacle which
precludes it from granting interim relief is a rule of national law
must set aside that rule’
Factortame Ltd v Secretary of State for
Transport (No. 2) [1991] 1 AC 603
 House of Lords
 When deciding whether to grant an interim injunction the court should
consider:
 The balance of convenience
 Whether damages would be an adequate remedy
 The importance of upholding the law of the land and the obligation
on authorities to enforce the law
 Whether the challenge is so firmly based as to justify so exceptional
a course
 Interim injunction granted
Factortame - conclusion
 Court of Justice (Case 221/89)
 Held: Merchant Shipping Act 1988 conflicted with Union
law
 DivisionalCourt declares incompatibility and refusal
to enforce the new provisions against Factortame
 Meaning the MSA 1988 did not impliedly repeal
earlier inconsistent legislation (i.e. s.2(4) ECA 1972),
and
 Community law seems supreme!
Direct Effect

A measure or provision has direct effect if…?

 It can be interpreted as capable of creating rights
that a natural or legal person may enforce in
national courts
 The are two types of direct effect:
 Vertical
 Horizontal

 Does it appear EU Law has direct effect?

Traditional approach under public
international law
 The effects of a treaty are determined by reference to
constitutional law
 Treaties are entered into by governments therefore they create
binding obligations and corresponding rights at State level only
 Treaties were considered incapable of placing obligations on
individuals or of creating wide ranging rights that they could enforce
 The EEC Treaty appeared to be no different to any other
international treaty/agreement and therefore could not create rights
for individuals
 (One exception to this was perhaps the development of human
rights treaties in the latter half of the last century e.g. European
Convention on Human Rights)
How did the CJEU apply this to the EEC
Treaty?
 Van Gend en Loos v Netherlands (Case 26/62)
 Facts:
 Van Gend en Loos imported urea-formaldehyde into The
Netherlands from Germany
A customs duty was charged breaching rules on free
movement of goods – Art 12 EC Treaty (now A30/TFEU)
 Van Gend en Loos issued proceedings in a Netherlands’
court, seeking reimbursement of the customs duty
 The court referred the question to the Court of Justice as
to whether the claimant could rely on Art 12 EC
Preliminary Reference
 Belgium, The Netherlands, and (West) Germany submitted as
observations, as per the existing presumption, that the accepted
method of enforcing EU Law was via (what is now) A258/TFEU, which,
they argued, precluded direct effect
 (However, even if an action under (A258/TFEU) were successful, Van Gend
en Loos wouldn't recover the customs duty)
 Court found these submissions “misconceived” and the existence of the
(A258/TFEU) procedure “does not mean that individuals cannot plead
these obligations, should the occasion arise, before a national court”
 “The vigilance of individuals concerned to protect their rights amount
to an effective supervision in addition to the supervision entrusted by
Art 169 and 170 (now A258 and A259) to the diligence of the
Commission and of the Member States”
Preliminary Reference (cont)

 In order to consider the question of direct effect the Court wanted to

consider “the spirit, the general scheme and the wording of those provisions”
 “The objective of the EEC Treaty…is more than an agreement which merely
creates mutual obligations between the contracting states”
 “the preamble… refers not only to governments but to peoples”
 “It is also confirmed more specifically by the establishment of institutions
endowed with sovereign rights, the exercise of which affects Member States and
also their citizens”
 “the nationals of the states… are called upon to cooperate in the functioning of
this Community”
 The preliminary reference procedure gives individuals indirect access to the
Court, implying they would have rights
 Conclusion:
 “the Community constitutes a new legal order… which become part of their legal
heritage” i.e. the principle of Direct Effect
Scope of Direct Effect, as per Van Gend en Loos
 Cumulative criteria for an EU Law be directly effective:
 Must be CLEAR AND PRECISE
i.e. unambiguous
 Must be UNCONDITIONAL
Not dependent on discretion, additional measures,
or intervention of another body
 Must be NON-DEPENDANT
No further legislative action must be required by
the State or EU institutions
Direct Effect (cont)

 Test originally limited in scope - Only those provisions which were precise and
unconditional
 The Court subsequently used the test more flexibly…
 Defrenne v Sabena (No 2) (Case 43/75)
 “the principle of equal pay for equal work” (Art 119 Treaty of Rome)
 Held: Directly effective – as per VGeL
 Positive economic and social development objectives
 “Principle” – fundamental/uniform – sufficiently clear
 Obligation against “Member States” – must include the national courts (and indeed,
has done)
 Unconditional – Held that the provision should have come into effect 1 Jan 1973
(following s2(1) ECA 1972) – tardiness no excuse!
 HORIZONTAL EFFECT – EU Law may be directly enforceable between individuals
 VERTICAL EFFECT – directly enforceable against the State
 Direct Effect (cont)

 Case law development seems to indicate Direct Effect has become the norm rather than
the exception
 However, the court will still refrain from finding Direct Effect:
 Where the criteria is not met
 Costa v ENEL (Case 6/64)
 Costa owned shares in an electricity company which was nationalised; the new company
sued Costa for unpaid monies; Costa argued breeches of four Treaty Articles prohibited
him being liable to the new entity
 Art 102/EC found not to be ‘unconditional’ as it required additional measures, i.e. a
‘prior consultation’ with the Commission, therefore not directly effective
 Art 93/EC found to not be directly effective
 (Art 53/EC directly effective but not breached in this case)
 (Art 37/EC is a matter for national courts)
 Note: the Court will pull apart measures of EU Law to identify where it can grant, at least in
part, direct effect
Direct Effect (cont)

 Where there are serious practical or political considerations

R v Secretary of State for the Home Department ex parte
Flynn [1995] 3 CMLR 888
 Where the measure is aspirational in nature
 Zaerav Institutio Nacionale de la Segurided Social (Case
126/86)
“promotion of an accelerated raising of the standard of
living…owing to its general terms and its systematic
dependence on the establishment of the common market
and progressive approximation of economic policies,
cannot impose legal obligations on Member States or confer
rights on individuals.”
Sources of EU Law and Direct Effect
1. The Treaties (TFEU and TEU)
 Can be both vertically and horizontally effective
 Van Gend en Loos and Defrenne
2. International Agreements
 Brescaniani v Amministrazione delle Finance (Case 87/75)
 Can be both vertically and horizontally effective where provisions similar to those in the
Treaty and the test is satisfied
3. Secondary Sources of EU Law
 Art 288/TFEU

To exercise the Union's competences, the institutions shall adopt

regulations, directives, decisions, recommendations and opinions.
Regulations General application- binding in their entirety and directly
applicable
Directives Binding as to results to be achieved, but discretion as to how
Decisions Binding in their entirety on those to whom they are addressed
Recommendations and opinions have no binding force
Sources of EU Law and Direct Effect (cont)

a) REGULATIONS
 Politi v Italian Ministry of Finance (Case 43/71)
 “…by reason of their nature and their function in the system of the sources of
Community law, regulations have direct effect and are as such, capable of
creating individual rights which national courts must protect”
b) DECISIONS
 Franz Grad (Case 9/70)
 “Although the effects of a decision may not be identical with those of a
provision contained in a regulation, this difference does not exclude the
possibility that the end result, namely the right of the individual to invoke the
measure before the courts, may be the same as that of a directly applicable
provision of a regulation.”
 “Therefore, in each particular case, it must be ascertained whether the
nature, background and wording of the provision in question are capable of
producing direct effects…”
 Sources of EU Law and Direct Effect (cont)

c) DIRECTIVES
 Require implementation (or transposition) by the stated deadline
 Ifsuccessfully achieved individuals should be able to rely on the
applicable national law
 Failure to implement can lead to unfair advantage, and
 The depravation of individual rights
 So, prima facie, are Directives capable of direct effect?
No – they are conditional by nature!
1. Granting Directives Direct Effect
 Van Duyn v Home Office (case 41/74)
 Yvonne Van Duyn – Dutch national, arrived at Gatwick 9 May 1973
requesting leave to enter for the purposes of taking up a position as a
Secretary for the Church of Scientology, under Art 48 (Free Movement of
Workers)
 Entry refused pursuant to public policy grounds: “undesirable… socially
harmful”
 Art 3(1) Council Directive 64/221/EEC of 25 February 1964 (re co-
ordination of special measures concerning movement and residence…on
grounds of public policy) “Measures taken on grounds of public policy or
of public security shall be based exclusively on the personal conduct of
the individual concerned”
 PR inter alia: Are Art 48 (ToR) and Art 3(1) CD 64/221/EEC directly
effective?
Van Duyn v Home Office (Case 41/74) - Submissions
 Submitted by Van Duyn
 Both directly effective as ‘clear and unconditional’
 Further the pre-amble to the Directive refers to “nationals of other
Member States should have adequate legal remedies available to
them in respect of the decisions of the administration in such
matters;”
 Submitted by the Commission
 Both directly effective as ‘clear and unconditional’
 Submitted by UK
 Directive not Regulation therefore not intended to be binding in
entirety
 Other cases have considered similar questions of the direct effect of
Directives and not come to a decisive conclusion
Van Duyn v Home Office (Case 41/74) - Judgment
 Held:
 Re Art 48 EC Treaty
”[the provisions] impose…a precise obligation which does
not require the adoption of any further measure…”
 Re Art 3(1) Council Directive 64/221
 “It would be incompatible with the binding effect attributed to a
directive by [Article 249] to exclude, in principle, the possibility
that the obligation which it imposes may be invoked by those
concerned.“
 “…the useful effect of [a directive] would be weakened if
individuals were prevented from relying on it before their national
courts and if the latter were prevented from taking it into
consideration as an element of [EU] law.”
 So, can directives have Direct Effect?
 “It is necessary to examine, in every case, whether the nature, general
scheme and wording of the provision in question are capable of having
direct effects on the relations between Member States and individuals”
(para 12)
 Directives must still satisfy the Van Gend en Loos test in order to be capable
of direct effect
 BUT

 “…legal certainty for the persons concerned requires that they should be
able to rely on this obligation even though it has been laid down in a
legislative act which has no automatic direct effect in its entirety” (para 13)
 “Ifthe meaning and exact scope of the provision raise questions of
interpretation, these questions can be resolved by the courts, taking into
account also the procedure under Article 177 of the Treaty” (para 14)
 This appears to expressly loosen the ‘clear and precise” test
 2. Applying the Van Gend en Loos test
 Francovich v Republic of Italy (Cases 6/90 and 9/90)
 Council Directive 80/987/EEC of 20 Oct 1980 on approximation of laws relating to
the protection of employees in event of employer insolvency; implementation
date: by 23 October 1983
 Italy failed to implement: Court of Justice declaration Commission v Italy (Case
22/87)
 Francovich (6/90) was owed 6 million LIT as a result of his employer’s insolvency;
Danila Bonifaci et al (9/90), 253 million LIT; both sued the Italian Government for
the outstanding amounts
 PR: where a private individual is adversely affected by the failure of a MS to
implement [a Directive] are they entitled to require the MS to give effect to such
provisions as are sufficiently precise and unconditional so as to obtain the
guarantees which the MS should have applied, and in any event claim reparation
 Note: sections of the Directive gave MS discretion as to how to calculate
quantum of reparation and who/what body was required to pay
Francovich v Republic of Italy (Cases 6/90 and 9/90)

 Held:
A Member State cannot plead failure to implement,
within the prescribed period on its own part to obviate
a claim brought by an individual
 Provisionsthat are unconditional and sufficiently
precise may be relied upon
 Inorder to consider whether the provisions are
unconditional and sufficiently precise the Court must:
i. Identify the persons who are entitled to the right
ii. Ascertain the content of that right
iii. Identify the person/body liable to provide that
right
Francovich v Republic of Italy (cont)

 Directive 80/987 sufficiently clear, precise, and

unconditional on definition of employee, employer, and
insolvency
 Whilst the Directive contains a discretion in favour of the MS,
the provision is unconditional and sufficiently precise to allow
the Court to ascertain the minimum content of the right
 However, the Directive contains a discretion as to which
person or body are liable to provide the right, so in the
absence of implementation provisions this cannot be
determined
 (However, under State Liability the Court held that Italy was
liable for reparations! To be discussed…)
 Pubblico v Ratti (case 148/78) Non-dependence and
the importance of deadlines…
 Council Directive 73/173/EEC (Art 8) of 4 June 1973, to be implemented by 8
December 1974
 Council Directive 77/728/EEC (art 9) of 7 November 1977, to be implemented
by 9 November 1979
 Concerning the labelling and packaging requirements on certain solvents
 Neither CD incorporated into Italian national law
 Ratti’s products complied with the provisions in both Council Directives but
was criminally prosecuted for them being in contravention of existing Italian
nation law
 Ratti raises non-compatibility between national and EU Law
 Preliminary Reference inter alia direct effect of the Council Directives
Pubblico v Ratti (case 148/78) and the
importance of deadlines…
 Held:
 A Member State could not rely on its own failure against an individual
 Council Directive 73/173/EEC was directly effective, as the implementation
date had passed, and the Italian authorities could no longer rely on national
law
 Council Directive 77/728/EEC was not yet directly effective
 Italy still had discretion in terms of implementation and could rely on
national law
 Conclusion
 Directives can be directly effective, even where dependent in nature, but
only once the deadline has passed
Directives and types of Direct Effect
 Marshall v Southampton and South West Hampshire Area Health Authority
(No 1) (Case 152/84)
 Re Council Directive 76/207/EEC of 9 February 1976 on the equal treatment
of men and women for employment, training and promotion, and working
conditions
 PR on whether dismissal on grounds of age was incompatible with CD 76/207
and whether it was capable of direct effect
 Held:
 Where sufficiently precise and unconditional a Directive can be relied
upon where the Member State has failed to implement by the deadline
 The direct effect of Directives can only apply against the State – i.e.
VERTICAL DIRECT EFFECT
 Court of Appeal had ruled in this case that the Respondent is a Public
Authority
 Therefore, Marshall can rely on CD 76/207/EEC as directly effective
Faccini Dori v Recreb (Case 91/92)
 Council Directive 85/577/EEC concerning protection of consumers in respect to
contracts negotiated away from business premises
 Parties concluded a contract for an English language correspondence course at
Milan Central Railway Station, not at the Respondent's business premises
 Clamant wrote to cancel, by letter, claiming her right of cancellation within at
least seven days, under the CD
 Respondent claimed, and was awarded, full sum and costs; Claimant objected
 At the time Italy had not implemented the Directive by the deadline 23 December
1987
 Subsequently implemented 3 March 1992
 Preliminary reference
 Is the CD capable of direct effect between the deadline and implementation?
 If so, is it applicable between individuals and the State, and as between individuals
Faccini Dori v Recreb (Case 91/92)
 Held:
 Sufficiently precise and unconditional as to ascertain against whom, and
for whom, the rights are established
 Sufficiently precise and unconditional as to establish a minimum right,
notwithstanding MS discretion
 E.g. cancellation period to be no less than seven days
 Capable of vertical effect
 Not capable of horizontal effect – although the Advocate General’s
Opinion was that it may be…
 But State expected to apply national law consistently with EU Law and
make good any damage caused as a result of the failure to transpose the
law by the prescribed deadline
Resolving the anomaly of Directives lacking
horizontal Direct Effect
1. Definition of the State
 Fratelli Contanzo SpA v Commune di Milano (Case 103/88)
 Art 29(5) CD 71/305/EEC of 26 July 1971, concerning coordination of procedures for the award of
public works contracts
 Provides for obviously low tenders to be examined, and considered for elimination
 Fratelli sued after his tender in relation to works required for Italia ‘90 was rejected for being too
low on a mathematical basis without consultation
 PR – Did Italy have discretion in the terms of implementation, i.e., to utilise some form of
formula, or could Fratelli rely on vertical direct effect?
 Held:
 The provision was sufficiently clear and precise as to be capable of direct effect, therefore no
discretion
 Capable of [vertical] direct effect against “all organs of the administration, including
decentralised authorities such as municipalities…” (para 31)
 See also: R v London Boroughs Transport Committee [1990] 1 CMLR 229, concerning the fitting
of exhaust silencers
 LBTC found to be an emanation arising out of a Local Authority and therefore constituted “the
State”
Extending the definition of ‘emanation or
organ of the state’
 Foster and Others v British Gas plc (Case 188/89)
 Facts
 Mrs Foster, and five other women, worked for British Gas and were
required to retire at 60 years old
 Sued, pursuant to CD 76/207/EEC non-discrimination on grounds of sex
 Employment Tribunal, EAT, and Court of Appeal found British Gas not
to be a ‘state authority’
 House of Lords raises a PR: was BG “a body of such a type” as to
entitle the claimants to rely on the CD as being directly effective?
Foster and Others v British Gas plc
(Case 188/89)
 Held:
 ‘Emanation of the State’ is a body that:
 Provides a public service
 Under the control of the State
 For which it has special powers beyond those which result from the
normal rules applicable in relations between individuals (para 22)
 House of Lords
 British Gas plc
 Pursuant to a measure adopted by the State for providing a public service…
the BGC was not independent…and subject to directions given by the
Secretary of State. And had a government-sanctioned monopoly
Definition of the State - conclusion
 The Court confirmed this is a cumulative test
 Rieser Internationale Transporte GmbH v Autobahnen-und
Schnellstrassen-Finanzierungs-AG (Asfinag) (Case 157/02)
 However!
 Criteria not affirmed as clear definition – must be applied
 There was lack of clarity over whether this test is exclusive
 NUT and Others v Governing Body St Mary’s C of E (Aided) Junior School
[1997], as per Schiemann, LJ
 But clarified in Farrell v Whitty (C-413/15)
 The Foster test is not restrictive, and may be applied more flexibly
 Only guidelines as to what may constitute an emanation of the state,
widening the scope for vertical direct effect
2. Indirect Effect
 The teleological interpretation of Union Law
 Von Colson and Kamann v Land Nordhain-Westfalen (Case 14/83) and Harz v Deutsche Tradax GmbH
(Case 79/83)
 Re Equal Treatment Directive 76/207/EC
 Facts
 Von Colson, Kamann, and Harz were all rejected for posts of employment on grounds of their sex
(VC & K was for SW positions in an all-male prison; H was for a company that had a lot of
dealings in Saudi Arabia)
 All bought actions in German national courts seeking either contracts of employment, or
appropriate compensation
 The German national law implementing the directive limited compensation to notional indemnity
- essentially travel expenses/cost of application
 In both cases the German national courts felt the existing law was unsatisfactory and requested
PR, inter alia
 Does the Directive allow for the respondent’s to be compelled to offer employment
contracts?
 Is the Directive directly applicable?
Indirect Effect (cont)

 Held:
 The Directive does not contain an obligation on an employer found to
have discriminated on grounds of sex to offer a contract of employment
 The national law limiting compensation to a nominal amount is contrary
to the provisions of the Directive and insufficient to provide a deterrent
effect and give effect to the purpose of the Directive
 But the provisions in the Directive are not sufficiently unconditional and
precise as to allow them to be directly effective and so the national
courts must interpret national laws in line with Community Law
 i.e. ignore national laws that conflict with Community Law, thus giving
Community Law an indirect effect
Indirect Effect (cont)

 Pfeiffer v Deutsches Rotes Kreuz, Kreisverband Waldshut eV (Cases 397/01-

403/01)
 Re various Red Cross workers and Articles 2 of CD 89/391/EEC, concerning health
and safety, and Arts 1,3 and 18 of CD 93/104/EC, concerning provisions around
working time
 “the principle of interpretation in conformity with Community law thus requires
the referring court to do whatever lies within its jurisdiction…to ensure that [a
directive] is effective” (para 118)
 So, Indirect Effect is an obligation on national courts to interpret
provisions of national law in a way that makes them compatible with any
relevant EU Law
 Irrelevant as to what form the EU Law takes
 Irrelevant as to against whom the measure is being enforced
 Marleasing v La Comercial Internacional de Alimentation (Case 106/89)
 Is this a ‘backdoor’ to allowing individuals to enforce EU Law even against
other individuals?
Limitations on Indirect Effect
 Cannot be applied where interpretation results in imposing criminal liability,
or aggravates such liability
 Pretore di Salò v Persons unknown (Case 14/86)
 Can be denied if national law already complies with the Directive
 Wagner Miret v Fondo de Garantia Salarial (Case 334/92)
 Debate as to whether the obligation to interpret national law in line with EU
Law applies only after the deadline for implementation; the Court of Justice
is inconsistent:
 Marleasing – Held: before implementation deadline
 Konstantinos Adeneler v Ellinikos Organismos Galaktos (ELOG) (Case 212/04) –
Held: only after
 Obligation still rests on the national courts to consistently interpret EU Law
 Requiring “mental gymnastics” and a “very significant daily challenge”
3. State Liability
 Not a means of enforcing EU rights, but a REMEDY if a breach of EU Law cause individual harm
or damage
 Applies to all breaches of EU Law committed by the State which cause harm or damage
 Including incorrectly implementing or failing to implement a directive
 Claims made through the national courts
 Francovich and Bonifaci v Italian Republic (Case 6/90 & 9/90)
 “it is a principle of Community law that the Member States are obliged to make good loss and damage
caused to individuals by breaches of Community law for which they can be held responsible.” (para 37)
 EU was a “new” legal system that national courts were bound to apply and which created rights for
individuals
 Under A4(3)/TEU national courts must ensure those rights take “full effect” and “protect” them
 The full effectiveness of EU law would be impaired if individuals were unable to obtain redress when
their rights had been infringed
 This was particularly important when the State had failed to take the action it should have and had
thus denied an individual their rights
 It was therefore “inherent” that a Member State is liable for any loss or damage it causes
State Liability (cont)

 Francovich test (para 40):

1. Result prescribed by the Directive should entail the grant of rights to individuals
2. It should be possible to identify the content of those rights based on the provisions
of the directive
3. [There should be] the existence of a causal link between the breach of the State's
obligation and the loss and damage suffered by the injured parties
 However, the Court has since clarified the test for State Liability:
 Brasserie du Pecheur v Federal Republic of Germany, joined with R v Secretary
for Transport ex parte Factortame (No III) (Cases 46/93 and 48/93)
 Brasserie were claiming DM1.8m against Germany after the latter had prevented
certain beer exports for reasons that were found to be in breach of EU Law (Case
178/84)
 Factortame were claiming a variety of damages against the UK for losses caused by
the Merchant Shipping Act 1988, which was found similarly (Case 221/89)
 Both national courts hearing the respective cases referred questions of state liability,
and how such liability should be considered, to the Court of Justice
Brasserie and Factortame Preliminary Reference
 Referring to Community provisions (Art 340/TFEU, fly
Art215/EC), and case law in respect of non-contractual
liability:
 “Community law confers a right to reparation where three
conditions are met:
1. The rule of law infringed must be intended to confer rights on
individuals;
2. The breach must be sufficiently serious; and
3. There must be a direct causal link between the breach of the
obligation resting on the State and the damage sustained by the
injured parties” (para 51)
 This is a three-part, CUMULATIVE test
 State Liability – Brasserie Criteria

1. Therule of law infringed must be intended to

confer rights on individuals
 You must, from the provision breached, be able to
identify:
The persons entitled to the right (the claimant must be
such a person)
The extent and content of the right; and
The identity of the body obligated to provide the right
State Liability – Brasserie Criteria
2. The breach must be sufficiently serious:
 “the decisive test for finding that a breach of Community law is
sufficiently serious is whether the Member State or the Community
institution concerned manifestly and gravely disregarded the limits on
its discretion” (para 55), considering:
 The clarity and precision of the rule breached
• The clearer the rule, the more serious the breach
 The measure of discretion left to the national or Community authorities
 The less the discretion, the more likely the breach will be considered serious
 Whether the infringement and the damage caused was intentional or
involuntary
 Intentional obviously more serious
 2. Sufficiently serious (cont)

 Whether any error of law was excusable or inexcusable

 Whether a Community institution may have contributed towards the breach
 The adoption or retention of national measures or practices contrary to
Community law
 Retention of national law that is in breach is likely to be considered more serious
 Also, “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” (para 57)
 Threshold criteria, e.g. Member States will be in a position to justify or mitigate
any breach
 If threshold not met, the Member State may still be in breach, just not liable for
damages
 State Liability (cont)

3. There must be a direct causal link between the

breach of the obligation resting on the State and the
damage sustained by the injured parties
 This will turn on the facts of each case
Other Considerations
 Wide definition of the State, as per Foster
 No requirement for the breached measure to have been
directly effective, but if the measure was capable of having
direct effect, and the opportunity was not taken, then the
claimant risks criticism for failure to mitigate loss and face a
reduction in damages
 General duty to mitigate loss
 What happened in Brasserie and Factortame?
 Brasserie
 Court of Justice suggested authorities must have known that the rules were in breach of EU Law due to
previous rulings
 Contributing to the ”sufficiently serious” test
 But the German national court ordered no damages awarded as no direct causal link between breach
and damaged suffered
 Factortame (IV)
 Court of Justice had asserted that the UK had been informed by the Commission of its position on the
MSA 1988 and the judgment in the direct action had ordered the Act be suspended – matte returned to
the national divisional court for damages
 House of Lords upheld the decision of the Court of Appeal that there had been a sufficiently serious
breach and a casual link between that breach and the damage suffered
 The fact that Her Majesty’s Government had taken legal advice re the passing of the Act does not
mitigate the seriousness
 HMG knew the risk the legislation posed and took steps to ensure no interim measures
 Claimed £285 million; awarded £55 million, plus £26 million interest
 Application of State Liability to
breaches involving directives
 State Liability for the FAULTY IMPLEMENTATION of a Directive
 R v Her Majesty’s Treasury ex parte BT plc (Case 392/93)
 Court identified that the Directive was unclear/imprecisely worded and other
Member States seem to have taken a similar approach
 No advice was available from case law
 No concerns raised by the Commission following implementation
 “a restrictive approach is justified in such a situation… concern to ensure that the
exercise of [discretion in respect of legislative powers] are not hindered by the
prospect of damages where general interest requires adverse effects to individual
interests” (para 40)
 Consequently, UK’s approach was excusable; it had acted in good faith and it’s
action was a reasonable interpretation of the Directive, and no compensation was
required under Community law
Application of State Liability to breaches involving Directives (cont)

 Denkavit International BV v Bundesamt fur Finanzen (Cases 283, 291, and

292/94)
 The Court identified that the Directive was unclear/imprecisely worded, and Germany
had no case law on which to rely as these were the first cases dealing with
implementation of this directive
 The Court did not find the breach was sufficiently serious as to give rise to damages
under State Liability
 Brinkmann Tabakfabriken GmbH v Skatteministeriet (Case 319/96)
 The Court asserted that “failure to take any measure to transpose a directive to
achieve the result…constitutes per se a serious breach of Community law” (para 28)
 No direct causal link – as the definitions were directly applicable therefore failure to
implement irrelevant
 The product in question did fall between the two definitions so Danish officials not
manifestly contrary in their interpretation; supported by Finland, and the
Commission, and further, as such the Danish cannot be criticised for not suspending
the decision
 No State Liability
 Application of State Liability to breaches involving Directives (cont)

 Robins (Case 278/05)

 The court found (again) that the provisions lacked clarity and precision – it allowed for considerable
latitude
 It was for the national court to consider whether the State had shown manifest and serious disregard in
exercising its discretion; but should bear in mind:
 None of the parties could suggest with any precision the minimum degree of protection required by
the Directive; and
 The Commission had contributed to the error by confirming in a 1995 report that the UK seemed to
have properly implemented the directive

 Rechberger and Greindl v Austria (Case 140/97)

 Existing case law (Dillenkofer and Others (Cases 178/179 & 188-190/94) using Brasserie) established that
the rights stated in the Directive were “determinable with sufficient precision” (para 22)
 The provision allowed for no margin of discretion and therefore the Member State’s breach was manifestly
incompatible with its obligations and constituted a serious breach of Community law (paras 51-53)
 The Court noted that the national court had already found a causal link and therefore the Member State
was liable
Application of State Liability to
breaches involving Directives
 State Liability for Failure to Implement a Directive
 Dillenkoffer and Others v Federal Republic of Germany (Cases 178, 179, & 188-
190/94)
 Germany had completely failed to implement Directive 90/314/EEC, re
package holidays
 Where the Member State had little or no discretion as to implementation
the mere infringement of Community law may be sufficient to establish the
existence of a sufficiently serious breach (para 25)
 Failure to implement a directive by its deadline “constitutes per se
a serious breach of Community law…” gives rise to a right of
reparations subject to defined rights and a casual link
Limitations of State Liability
 Creation of State Liability a significant development but there have been
few cases in national courts
 “The conditions for State Liability are very hard to satisfy”
 There seems to be a reluctance to request preliminary reference in
borderline cases, and
 “National courts will generally decide borderline cases in favour of the
state”
 Inconsistency in the availability of State liability since it is awarded by
national courts, and each MS has different national systems with varying
procedural and substantive rules on things such as time limits, causation,
mitigation and assessment of damages
 Lock, T “Is private enforcement of EU Law through State liability a myth?” (2012) CMLRev
Bringing it all together - How national courts should
use the principles available to enforce rights

 Dominguez v Centre informatique de Centre Ouest Atlantique, Prefet de la region Centre (Case
282/10)
 Preliminary reference in respect of interpretation of Art 7, Directive 2003/88/EC (working time)
1. National courts should begin by exercising their obligation to interpret national law in conformity
with EU Law to ensure “is fully effective and achieving an outcome consistent with the objective
pursued by it”
 i.e. use Indirect Effect first
2. If such an interpretation not possible, then the national court should determine whether the
provision is directly effective – does it meet the Van Gend en Loos test, and is the respondent the
State or emanation of the State following the Foster test
3. If the respondent cannot be classified as the State or an emanation thereof, the claimant will not be
able to enforce their rights; however
4. Where rights cannot be enforced directly or indirectly, any party injured as a result of the non-
conformity of law can potentially rely on Francovich and seek compensation via State Liability
Learning objectives
1. Define direct effect (DE) and explain the two types
2. Explain the case in which the Court created the doctrine of DE of EU law
and analyse the nature of the test
3. Assess the application of DE with particular emphasis on its extension to
directives
4. Critically discuss and apply the limitations of the DE of directives
5. Critically discuss and apply the legal principles stemming from relevant
cases relating to defining the State for the purposes of using vertical DE
6. Critically discuss and apply the principle of indirect effect with reference
to relevant cases
7. Critically discuss and apply the remedy of State liability with reference to
relevant cases
Next time in EU Law…

 EU
Citizenship and Free Movement of
Workers

 Well,after we have looked at a problem

question on this topic!