State Liability for Breaches of European Law: An economic analysis

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This correlation explains both taking away the compensation from the doer and giving it to the sufferer. Because the plaintiff has a right, he is entitled to receive compensation, and because the defendant has a duty not to interfere with that right, he is forced to pay damages.

Therefore, this bidirectional link is sufficient to explain the justification of liability. This is the reason, as it has been held, why corrective justice justification is identified with the structure of private law while distributive justice responds mainly to the structure of political reasoning, where several external elements come into play.

The argument will be developed through a very simple line of reasoning. Firstly, the premises that we need to assume concerning the inputs constituent of corrective justice will be explained, namely the existence of a certain structure of rights and duties , and the existence of a mechanism for reconstituting that structure.

EU Law Analysis

Secondly, the problems derived from the intellectual process of assuming those inputs will be developed. The lack of clarity on how these inputs are settled, makes corrective justice explanation difficult to maintain. Thirdly, distributive justice criteria will be considered as an essential element of state liability in the EU sphere. Since the origins of the legal and judicial construction of the EU legal order, the way by which judicial reasoning justifies member state liability for breaches of EU Law has focused, directly or indirectly, on the idea of corrective justice.


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This explanation can usually be seen in two elements of the decisions of the courts. Secondly, the ECJ understands that the way of protecting and enforcing those rights is through a liability system. By integrating these two elements in the justification of its decisions — rights and liability system — the court fulfils the requirements of corrective justice.

On the one hand, the existence of a specific given order that the Court will recompose based on the synchronicity of the rights and duties allegedly stated by the European legal order and, on the other, the existence of a mechanism of reaction of the own legal order to its attacks, consisting of a remedy to recompose it. According to this jurisprudence, liability of member states was seen by the court as a means to enforce the rights that Community rules had supposedly established. The motivations of the ECJ for favouring a decentralised way of enforcing EU Law — that is, permitting that any citizen seeks damages before any court — are well known, and can be summarised in a general option both to give citizens the possibility to question the conformity of national rules to European norms, and to enforce in a more expansive way the European legal order.

In this line, the centralised review of member states acts such as the action for infringement was considered inefficient and too restrictive. In this line, it is possible to perceive that the ECJ assumed that the way to enforce EU Law, or better, the interests and principles that this system supposedly protects, should be developed through an action for damages.

As this action needs the existence of rights, the Court proceeds giving those principles and interests the physiognomy of rights. The process of enforcement, the Court seems to reason, needs rights because they are the real repositories of coercion, essential to make possible some process of enforcement. This rationale can explain that rules created with specific requirements of transposition later acquire a pedigree of rights-created norms.

Istituto nazionale della previdenza sociale [] ECR I On the other hand, the appeal to liability as an inherent mechanism to enforce those rights previously granted by EU Law is an argument sustained already in the opinion of the Advocate General Mischo in the discussion of the Francovich decision. In fact, the way in which a legal order can implement a mode of ensuring the obligations imposed by it will depend on several factors such as the nature of the obligation, the cost of the enforcement, the relation between the public powers involved in the rights-duties couple and the type of court that applies the mode of ensuring, among others.

The technique used by the court is well known.

EU Law Analysis

It is based on an idea of constitutionalisation of values or interests that the court prefigures as good or convenient. The ECJ, by reading the national legal order, pretends to discover some common foundation that can afterwards be applied precisely against these same national orders.

Treasury, ex parte British Telecommunications plc. Bundesrepublik Deutschland [] ECR Italian Republic [] ECR Bundesrepublik Deutschland and The Queen v. Some scholars understand that the focus of the action of reading national orders regarding liability issues must be the administrative liability present today in almost every country in the world. However, inside these regulations there are different sorts of state activities that can cause damages.

Negligent actions and illegal administrative acts are the most common causes that permit the state to be considered liable. On the other hand, it is exceptional that unconstitutional statutes can cause state liability.

Therefore, there has been assimilation between the categories of national statutes that contravene EU law and administrative acts that contravene legal national statutes. Finally, the last stone in the edifice of corrective justice as justification of state liability consists in solving the problems regarding application of this theory to public matters.

But the way to overcome this obstacle is precisely by denying the differentiation between both types of liabilities.

EU Law Analysis

Based on the aforementioned arguments, corrective justice adequately justifies a compensation process when rights are violated. Accordingly, the existence of rights and the need for liability as a way to protect those rights, are the key pillars upon which corrective justice is constructed as the explanation of member state liability. Following our plan, we will review driving forces more critically.

The problem of the creation of rights by the European legal order is a familiar difficulty in the debate around liability. In fact, it is common to say that rights are created by the European legal order because EU rules have direct effect. So, if we apply the corrective justice approach to member state liability we are not transposing a private law solution. Letelier and A. Lee, supra, note 28, at p. In the same vein, see R. In some cases it avoids the topic considering it an evident matter, while in others it relies on the preamble and the intention lay down therein.

In other cases, it only states that the creation of rights for the purpose of establishing state liability depends on the specific and relevant position of the parties. Thus, the main premise of corrective justice is constructed by the ECJ in a week and haphazard way. But, despite this shortcoming, the explanation of corrective justice as the foundation of state liability persists on appealing to the rhetorical argument that only in this way citizens are treated with dignity and not as objects of social relations.

This formal objection, of course, is not the most relevant protest in this matter. The judicial creation of rights and its implication in the democratic game is a problem in itself, 35See C. Hilson and T. To this Hohfeldian approach see A. Golding and A. Schulev-Steindl, Subjektive Rechte. Eine rechtstheoretische und dogmatische Analyse am Beispiel des Verwaltungsrechts, Wien: Springer, Prechal, supra, note 33, at p.

On the other hand, even if there are problems in the construction of the right-based argument, the truth is that there are more objections against the idea of liability being a necessary mechanism for correcting rights when conferred and then breached. Firstly, liability is not the best way to enforce rights above all in constitutional wrongs; and secondly the premise that liability must exist in a right-based structure is not a correct one. The first objection lies in the problem of justification of state liability as a social instrument, and the second one refers to the straightforward problem of the necessity of liability.

When we think about why we need a liability system or, in other words, what is its justification, the deterrence theory is the most salient answer.

EU supremacy, direct and indirect effect and state liability

According to this theory, the aim of liability systems is to deter some actions or omissions socially perceived as wrongs. Therefore, and as only measures beneficial for the Union as a whole must be undertaken, the breaches of European rules produces, on the one hand, an illegal enrichment in the offender country, and on the other hand, damages in the rest of the EU member states. Clearly, this core argument is efficient-based. See, S. Patterson ed. In the same vein, see the traditional view applied to Government in E.

Posner, Economic Analysis of Law, 5 ed. Heller and J. See C. Redondo, Reasons for actions and the Law, Dordrecht: Kluwer, , at p. See I. Perry, supra, note 45, p. Indeed, if the justification of liability is deterrence, it should be presupposed that the imposition of monetary compensation is a sufficient incentive to deter these actions that can be considered contrary to rights. But the latter premise can be put in doubt since governmental actors respond mainly to political, not market, incentives. Indeed, as several researches put it, the calculus that government agencies must implement in this matter has complexities that private enterprises do not have.

When one of the actors responds not only to economic incentives but to political ones, the relation of correlativity becomes impossible to be stated just in economic terms. Political preferences differ from market preferences because they reflect not only homo economicus options but they include altruist choices and individual and collective aspirations.

In a personal relation, this power can be strongly perceived since the parties are relatively similar in patrimonies and the compensation could represent an amount wanted to be avoided. On the other hand, as the early EU Law has taught us, compensation is not the only way to enforce rights. Levinson, supra, note 1, at p.

Ibidem, at. Measures of this sort are product of deliberative processes on the part of citizens and representatives. Polinsky and S. A second problem of corrective justice rationale is that it is far from clear that each assignation of rights must include a liability system as a way to enforce them.

Indeed it is possible to affirm that when liability takes place there are rights involved, but rights do not necessarily need a liability system to justify its coercible character. But, as Eilmansberger has pointed out, it is very probable that in this scheme remedies are the ones that absorb the breaches of rights and, at the end, they would be the real creators of those rights.

Nevertheless, concerning EU the question is more complex. Here, to the ambiguity of the process of creation of rights, the problems involved in the definition of fault need to be added. In equal terms, article now established the same action, but entitled member states to make use of it. See in this line B. Eilmansberger, supra, note 39, at. As it is possible to see, this requirement has been linked with the extension of the discretionary powers of the state or the Community.

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This requirement of sufficiently serious breach and specially the way that it has been understood by the court, reveals that the current system of liability held by the ECJ is based on an idea of fault, and if this is true, the justification of liability in corrective justice continues to be weak. All of them are important but, in my view, the main relevance of the case concerns the threshold of liability, on which the EFTA Court found that.

In my view, this has been determinative of the outcome of the case. I will explore these two issues in turn. The position taken by the EFTA Court on this point is not very clear--despite explicit submissions to that effect by the parties, the Norwegian government and the EFTA Surveillance Authority--but it seems to indicate that the Court considers that procurement law is somehow special. The same must apply where there exists a general exclusion or a limitation of the remedy of damages to only specific cases.

The Court also considers that '[a] r equirement that only a breach of a certain gravity may give rise to damages could also run contrary to the objective of creating equal conditions for the remedies available in the context of public procurement. In my opinion, this general line of reasoning conflates two separate issues. By conflating both issues, the EFTA Court implicitly assumes that claims for damages are the only effective remedy. From a normative perspective, I find this approach problematic due to the perverse incentives it creates--and which I think the EFTA Court was somehow aware of see below.

In my view, this is particularly important because the position taken by the EFTA Court was both unnecessary for the resolution of the case, and not explicitly premised on a deviation of the State liability doctrine, which leaves the CJEU an easy way out if it decides to take a different approach in the future. In my view, this is likely, because from a normative point of view, the position taken by the EFTA Court is not easily tenable. One of the important normative aspects on which the EFTA Court's Fosen-Linjen Judgment rests concerns the incentives that different liability thresholds and requirements create.

In that regard, the Court seems to adopt two contradictory normative standpoints in dealing with the twin question of the threshold for liability and the causality requirement--which are indivisibly interlinked in its overall finding that ' A simple breach of public procurement law is in itself sufficient to trigger the liability The contradiction is as follows.

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