Factortame Litigation - Factortame III: State Liability

Factortame III: State Liability

Following the ECJ's second ruling, the case returned once more to the Divisional Court which, on 18 November 1992, requested a third ruling from ECJ concerning the conditions under which a Member State may incur liability for damage caused to individuals by breaches of Community law attributable to that State. At around the same time the German Federal Court had asked for a ruling on a similar question in the case of Brasserie du Pêcheur v. Bundesrepublik Deutschland and so the two cases were joined.

At this time the ECJ had just delivered judgment in Francovich which established the principle that "a State must be liable for loss and damage caused to individuals as a result of breaches of Community law". The Factortame case provided the court for an opportunity to elaborate on the principles underlying the liability of Member States. It was a case in which almost all Member States intervened to deny, whether wholly substantially, the right to claim damages; the UK accepted that there was, in principle, such a right. The EC Treaty does not deal expressly with the consequences of a breach of Community law by a Member State, and so it was for the court to rule on the question having regard to "the fundamental principles of the Community legal system and, where necessary, general principles common to the legal systems of the Member States."

In its judgment delivered on 5 March 1996 the ECJ reaffirmed the right of reparation, and stated that it existed irrespective of whether the provision of Community law in question has direct effect. Furthermore, the principle applies to any case where a Member State breaches Community law, irrespective of which organ of the State was responsible for the breach. The ECJ rejected the contentions that the right to reparation required the introduction of legislation by the EU, and that the availability of damages should be decided, in each case, on the basis of the national law of the State in question.

The court proceeded to outline the conditions on which liability would be established. It underlined that such conditions could not, in the absence of a particular justification, differ from the conditions applicable to the liability of the Community in similar circumstances. Further, the right to reparation would depend on the nature of the breach of Community law in question and the extent of the discretion available to the State in question. The conditions are:

1. the rule of law infringed must be intended to confer rights on individuals;
2. the breach must be sufficiently serious;
3. there must be a direct causal link between the breach of the obligation and the damage sustained by the injured party.

In the case where a State had exercised broad discretion in passing legislation which breached Community law (as was the case in Factortame), for the breach to be "sufficiently serious" it must be "manifest" and "grave". National courts have jurisdiction to decide how to characterise the breach in question, taking into account the clarity and precision of the Community rule infringed, whether the damage was intentional or involuntary, whether any error of law was excusable, and whether a Community institution contributed towards the adoption or maintenance of contrary national measures or practices. These same conditions apply to state liability for damage caused by the decision of a judicial body adjudicating at last instance.