Brasserie du Pecheur

The joined references in Cases C-46/93 and C-48/93 arose from two distinct national proceedings, each concerning losses suffered by private parties as a result of legislative measures enacted by Member States in breach of European Community law. The Court of Justice of the European Communities (ECJ) heard the references together because both raised the same fundamental question: the conditions under which a Member State is obliged in principle to make good damage caused to individuals by breaches of Community law for which it is responsible.

Case C-46/93 concerned Brasserie du Pêcheur SA, a French brewery based in Alsace. The brewery had been exporting beer to Germany but was forced to discontinue exports because German authorities deemed its product incompatible with the Reinheitsgebot — the German Beer Purity Law — which prescribed the ingredients permissible in beer sold in Germany. The Commission had previously brought infringement proceedings against Germany, and in Commission v Germany the Court had held that the German purity legislation was incompatible with what is now Article 34 TFEU (free movement of goods), as it constituted a measure having equivalent effect to a quantitative restriction on imports. The French brewery consequently brought an action before the German courts seeking damages for the losses it had sustained during the period in which it had been unlawfully excluded from the German market.

Case C-48/93 arose from the well-known Factortame litigation. The United Kingdom enacted the Merchant Shipping Act 1988, which imposed nationality, domicile and residence requirements upon the owners and operators of fishing vessels wishing to register under the British flag and thereby access fishing quotas allocated to the United Kingdom under the Common Fisheries Policy. A number of Spanish fishermen and fishing companies — the Factortame claimants — were refused registration or had their vessels removed from the register as a result of the Act. The Court had previously confirmed, in proceedings under what is now Article 258 TFEU, that the registration conditions imposed by the 1988 Act were incompatible with Community law on freedom of establishment. The Spanish claimants then sought damages from the United Kingdom government for the economic losses they had suffered as a consequence of the incompatible legislation.

In each case, the referring national court sought guidance from the ECJ on whether Community law conferred a right to reparation in respect of losses caused by legislative acts of a Member State that were contrary to Community law, and if so, what conditions must be satisfied before such liability arises. The cases thus invited the Court to extend and consolidate the principle of State liability that it had first articulated in Francovich v Italy Joined Cases C-6/90 and C-9/90 [1991] ECR I-5357.

Both sets of proceedings were pending before their respective national courts — the Bundesgerichtshof in Germany and the Divisional Court in England and Wales — when the references were made. Each national court expressed uncertainty as to whether a right to reparation could arise from acts of the national legislature, given that Francovich had been decided in the context of a Member State's failure to transpose a directive into national law, a more passive form of breach than the positive enactment of incompatible legislation.

The central question referred to the ECJ was whether Community law requires Member States to make good damage caused to individuals by breaches of Community law attributable to the national legislature, and if so, under what conditions such liability arises. The Court was asked, in particular, to determine whether liability is restricted to cases involving the failure to implement directives or extends to all legislative breaches of Community law, including the positive enactment of incompatible measures.

A connected issue was whether the conditions for Member State liability must replicate or may depart from the conditions applicable to Community institutions' non-contractual liability under what is now Article 340 TFEU (then Article 215 of the EEC Treaty), and how the requirement of a "sufficiently serious breach" is to be assessed where the Member State has exercised legislative discretion.

Finally, the Court was asked to address the procedural framework within which national courts must adjudicate claims for reparation, and in particular whether national procedural rules governing such claims must satisfy the Community law principles of equivalence and effectiveness.

The Court began by affirming that the principle of Member State liability for harm caused to individuals by breaches of Community law is inherent in the system of the Treaty. Citing Francovich v Italy Joined Cases C-6/90 and C-9/90, the Court recalled that the full effectiveness of Community rules would be impaired and the protection of the rights they grant would be weakened if individuals were unable to obtain reparation when their rights were infringed by a Member State. The principle of State liability is therefore not a creation of judicial legislation but flows necessarily from the obligation of loyal cooperation enshrined in what is now Article 4(3) TEU, and from the requirement that Community law be given full effect within national legal orders.

The Court explicitly rejected the argument that the Francovich principle is limited to failures to transpose directives. It held that the principle applies to any breach of Community law by a Member State, regardless of which organ of the State is responsible and regardless of whether the breach consists of a positive act or an omission. The legislature is no less an emanation of the State than the executive or the judiciary, and there is no basis in the Treaty for treating legislative breaches as immune from the liability principle. To hold otherwise would undermine the uniformity of Community law and allow Member States to immunise their legislative acts from the consequences of incompatibility.

The Court then turned to the conditions that must be satisfied before the right to reparation arises. Drawing by analogy on its case law concerning the non-contractual liability of Community institutions under Article 215 EEC (now Article 340 TFEU), the Court held that three conditions must be met: first, the rule of law infringed must be intended to confer rights on individuals; second, the breach must be sufficiently serious; and third, there must be a direct causal link between the breach of the obligation incumbent upon the State and the damage sustained by the injured parties.

On the first condition, the Court observed that both the free movement of goods provisions applicable in Case C-46/93 and the freedom of establishment provisions applicable in Case C-48/93 are directly effective and confer rights on individuals. This condition was readily satisfied on the facts of both cases. The Court noted that the question whether a particular provision confers rights on individuals is to be assessed by reference to its purpose and content, not merely its form.

The second condition — that the breach be sufficiently serious — received the most detailed elaboration. The Court held that the decisive test is whether the Member State manifestly and gravely disregarded the limits on its discretion. This formulation was drawn directly from the standard applicable to Community institutions under Article 215 EEC, reflecting the Court's determination that the conditions governing State liability should not be stricter than those governing Community institutional liability. To impose a more stringent test on individuals seeking redress from Member States than those seeking redress from Community institutions would be inconsistent with the principle of uniform protection of Community rights.

In elaborating what constitutes a manifest and grave disregard of the limits of discretion, the Court identified a non-exhaustive set of factors that national courts must take into account. These include: the clarity and precision of the rule breached; the measure of discretion left by that rule to the national or Community authorities; whether the infringement and the damage caused were intentional or involuntary; whether any error of law was excusable or inexcusable; the fact that the position taken by a Community institution may have contributed to the omission, adoption or maintenance of measures or practices contrary to Community law; and whether the Member State adopted or retained national measures or practices contrary to Community law after the Court had ruled that such measures were incompatible.

The Court applied these factors to the facts before it. In Case C-48/93, it noted that the United Kingdom had deliberately enacted the Merchant Shipping Act 1988 despite the state of Community law on freedom of establishment, and that the incompatibility of the nationality conditions with Community law was not a matter of genuine legal uncertainty. In Case C-46/93, the German purity legislation had been maintained for a substantial period following the Court's ruling that it was incompatible with free movement of goods. In both cases, the national courts were invited to consider whether these circumstances amounted to a sufficiently serious breach, though the Court indicated that the relevant facts strongly supported such a finding.

On the third condition — direct causal link — the Court offered relatively brief guidance, observing that it is for the national courts to determine whether the requisite causal connection exists on the facts of each case. The Court did not seek to prescribe a Community law test for causation beyond the requirement that the link be direct. It acknowledged that national rules on causation may apply, subject to the constraints of equivalence and effectiveness.

The Court addressed the procedural dimension of State liability claims by confirming that, in the absence of Community legislation on reparation, it is for each Member State to determine the procedural conditions for claims. However, those conditions are subject to two fundamental constraints derived from Community law. The principle of equivalence requires that the conditions for State liability claims must not be less favourable than those applicable to analogous domestic claims. The principle of effectiveness requires that national procedural rules must not be framed in such a way as to make it in practice impossible or excessively difficult to obtain reparation. National courts must apply these principles when adjudicating claims brought under the State liability doctrine.

The Court also clarified that reparation must be commensurate with the loss or damage sustained. While it is for national law to determine the precise extent of reparation, a total exclusion of loss of profit as a head of damage would be unacceptable in the context of economic or commercial litigation, since such losses frequently represent a substantial part of the harm suffered. Similarly, national courts may not apply a condition requiring proof of fault beyond what is encompassed in the concept of a sufficiently serious breach under Community law.

An important obiter observation concerned the relationship between the conditions for State liability and those for Community institutional liability under Article 215 EEC. The Court stated expressly that the conditions under which the State may incur liability for damage caused to individuals by a breach of Community law cannot, in the absence of particular justification, differ from those governing the liability of the Community in like circumstances. This reasoning served to anchor the State liability doctrine within the broader constitutional architecture of the Community legal order, ensuring that individuals enjoy equivalent protection against unlawful acts whether by national or supranational authorities.

Throughout its reasoning, the Court emphasised the constitutional function of the State liability principle. State liability is not merely a remedy of last resort but a structural guarantee of the effectiveness and primacy of Community law. It operates alongside direct effect and the obligation of consistent interpretation to form a trilogy of mechanisms ensuring that rights conferred by Community law are capable of practical enforcement before national courts.

The ECJ held that the principle of Member State liability to compensate individuals for losses caused by breaches of Community law is not confined to failures to transpose directives but extends to all breaches of Community law attributable to the State, including breaches resulting from legislative acts. This ruling confirmed and extended the principle established in Francovich v Italy Joined Cases C-6/90 and C-9/90.

The Court held that the right to reparation arises where three conditions are satisfied: (1) the rule of law infringed must be intended to confer rights on individuals; (2) the breach must be sufficiently serious, in the sense that the Member State manifestly and gravely disregarded the limits on its discretion; and (3) there must be a direct causal link between the breach and the damage sustained by the claimant. Subject to those conditions, reparation must be adequate and commensurate with the loss suffered.

The Court further held that while procedural conditions for State liability claims are governed by national law, those conditions must respect the Community law principles of equivalence and effectiveness. National procedural rules must not render the exercise of Community law rights impossible or excessively difficult, and must not be less favourable than those governing comparable domestic claims.

Brasserie du Pêcheur and Factortame (No 3) represent a watershed moment in the constitutional development of European Community law. By extending State liability to all legislative breaches of Community law, the Court transformed the principle from a limited remedy specific to directive transposition failures into a comprehensive constitutional guarantee enforceable across the full breadth of Community law obligations. The judgment places Member State legislatures under a judicially cognisable obligation to respect Community law, reinforcing primacy not merely through disapplying incompatible national measures but by attaching financial consequences to non-compliance.

The three-condition test formulated in Brasserie du Pêcheur — rights-conferring rule, sufficiently serious breach, direct causal link — has become the definitive framework for State liability claims across all Member States. It has been applied and elaborated in subsequent ECJ jurisprudence, including in cases concerning judicial breaches of Community law (Köbler v Austria Case C-224/01), breaches by administrative authorities, and failures to give correct preliminary rulings by courts of last instance. The sufficiently serious breach test has proven particularly significant in managing the scope of liability and in ensuring that Member States are not exposed to