Brasserie du Pêcheur and Factortame III (1996): State Liability Conditions Refined

Brasserie du Pêcheur SA v Germany and R v Secretary of State for Transport, ex parte Factortame Ltd (Cases C-46/93 and C-48/93), known as Brasserie du Pêcheur / Factortame III, is a landmark judgment of the European Court of Justice delivered on 5 March 1996. The case refined the conditions for state liability for breach of EU law, establishing that liability arises where three conditions are satisfied: the rule of EU law infringed must be intended to confer rights on individuals, the breach must be sufficiently serious, and there must be a direct causal link between the breach and the damage. The judgment clarified the scope of state liability and applied it to legislative breaches involving discretionary choices.

Facts of the Two Cases

The Court joined two references concerning state liability for legislative breaches of EU law. In Brasserie du Pêcheur, a French brewery claimed damages from Germany for losses suffered as a result of the German Reinheitsgebot (beer purity law), which prohibited the marketing in Germany of beers not complying with traditional German brewing standards. The CJEU had previously held in Commission v Germany (Case 178/84) that the German beer purity law violated Article 30 EC (now Article 34 TFEU) on the free movement of goods. Despite this ruling, Germany had continued to enforce the law against imported beers for a period after the judgment, and Brasserie du Pêcheur claimed damages for lost sales during that period.

In Factortame III, Spanish fishing companies claimed damages from the United Kingdom for losses suffered as a result of the Merchant Shipping Act 1988, which had imposed nationality and domicile requirements for registration of British fishing vessels. The CJEU had held in Factortame II (Case C-221/89) that the nationality requirements violated the right of establishment (Article 43 EC, now Article 49 TFEU). The Spanish companies claimed damages for the period during which they had been excluded from fishing against the UK quota.

The Conditions for State Liability

The CJEU built on the Francovich framework and established a more detailed set of conditions for state liability in cases involving legislative action or inaction. The Court held that state liability is subject to three conditions: (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 and the damage suffered.

The Court stated that these conditions are necessary and sufficient for state liability, reflecting the equivalent conditions for the liability of the EU institutions under Article 215 EC (now Article 340 TFEU). The parallel between state liability and EU institutional liability ensures consistency in the protection of individual rights and avoids gaps in the system of remedies. The national court is to apply these conditions, taking account of the guidance provided by the CJEU.

The Sufficiently Serious Breach Criterion

The most significant contribution of the Brasserie du Pêcheur judgment was the elaboration of the sufficiently serious breach criterion. The Court held that a breach is sufficiently serious where the Member State manifestly and gravely disregarded the limits on its discretion. Where the Member State had no discretion (as in Francovich, where the obligation was clear), the breach is automatically sufficiently serious. Where the Member State had discretion, the seriousness of the breach depends on several factors.

The Court identified relevant factors for assessing whether a breach is sufficiently serious: the clarity and precision of the rule breached, the measure of discretion left by that rule to the national authorities, whether the infringement and the damage caused was intentional or involuntary, whether any error of law was excusable or inexcusable, the contribution of an EU institution to the breach (e.g., where the Commission’s position may have contributed to the state’s error), and whether the national measures or practices were contrary to settled CJEU case law.

The Court held that the breach in Brasserie du Pêcheur was sufficiently serious. The CJEU had previously held the German beer purity law incompatible with the free movement of goods, and Germany had continued to apply it after the judgment. In Factortame III, the Court similarly found the breach sufficiently serious: the UK had been warned by the Commission about the incompatibility of the nationality requirements, the discrimination was clear and intentional, and the UK had not acted on the basis of any excusable error.

The Causal Link

The Court held that the causal link between the breach and the damage must be direct. The national court must determine whether the damage claimed was a direct consequence of the state’s breach, as distinct from other factors such as market conditions, the claimant’s own conduct, or intervening events. The national court has significant discretion in determining causation, applying the national rules on causation subject to the principles of equivalence and effectiveness.

In Brasserie du Pêcheur, the causal link required the national court to determine whether the brewery would have sold beer in Germany in the absence of the restrictive law. In Factortame III, the causal link required the national court to determine whether the Spanish companies would have been able to fish against the UK quota if the nationality requirements had not been applied. The causal analysis is fact-intensive and depends on the specific circumstances of each case.

The Nature of the Breach: Legislative vs. Administrative

Brasserie du Pêcheur established that state liability applies to legislative breaches as well as administrative failures. The Court held that liability cannot be limited to cases of administrative misconduct but extends to the legislative function of the state. The principle of state liability covers all organs of the state, including the legislature, and applies to breaches of EU law arising from the adoption or maintenance of legislation that violates EU law.

The extension of state liability to legislative acts was constitutionally significant. Many Member States had no tradition of legislative liability, and the judgment required them to accept that legislation violating EU law could give rise to damages claims. The UK House of Lords, in applying the judgment, held that the UK was liable for the legislative breach of EU law, establishing a novel principle in UK constitutional law.

Relationship with Francovich

Brasserie du Pêcheur refined the Francovich framework by establishing a uniform standard for state liability. While Francovich had applied a relatively lenient standard (appropriate for a situation where the state had no discretion), Brasserie du Pêcheur established that a stricter standard (sufficiently serious breach) applies where the state had discretion. The two judgments together establish a graduated framework: where the state has no discretion, breach is automatically sufficiently serious; where the state has discretion, additional factors must be assessed.

The Court clarified that the Francovich conditions (rights conferred, content identifiable, causal link) were specific to the context of a failure to implement a directive and did not replace the general conditions for state liability established in Brasserie du Pêcheur. The general conditions apply to all breaches of EU law by Member States, including legislative, administrative, and judicial breaches, subject to the specific circumstances of each case.

The Legacy of Brasserie du Pêcheur / Factortame III

The judgment completed the system of legal protection for individuals under EU law. Together with direct effect and supremacy, state liability forms the third pillar of the EU constitutional framework for the enforcement of individual rights. The sufficiently serious breach criterion provides a flexible standard that balances the need for effective remedies with respect for the legitimate exercise of state discretion. Brasserie du Pêcheur / Factortame III remains the leading authority on the conditions for state liability and is cited in virtually every subsequent case on the liability of Member States for breaches of EU law.