Francovich v Italy (1991): State Liability for Breach of EU Law

Francovich v Italian Republic (Cases C-6/90 and C-9/90) is a landmark judgment of the European Court of Justice delivered on 19 November 1991. The case established the principle of state liability for breaches of EU law: a Member State is liable to pay damages to individuals who suffer loss as a result of the state’s failure to implement EU law correctly. The Francovich principle filled a gap in the system of legal protection for individuals, ensuring that violations of EU law by Member States could be remedied through damages claims where the EU law provisions in question lacked direct effect.

Facts of the Case

Italian law had not implemented Directive 80/987/EEC on the protection of employees in the event of their employer’s insolvency. The Directive required Member States to establish a guarantee institution to ensure that employees received payment of their outstanding claims in the event of their employer’s insolvency. Italy had failed to implement the Directive, and many Italian workers who had lost their jobs when their employers became insolvent were unable to recover the wages owed to them.

Mr Francovich and Mr Bonifaci, Italian workers whose employers had become insolvent, brought proceedings against the Italian Republic, arguing that they were entitled to compensation for the losses suffered as a result of Italy’s failure to implement the Directive. The Italian courts referred questions to the CJEU concerning the direct effect of the Directive and the possibility of claiming damages from the state.

The Direct Effect Question

The CJEU first considered whether the Directive had direct effect, enabling the workers to claim the guaranteed payments directly from the state. The Court held that the Directive did not have direct effect because it was not sufficiently precise and unconditional. The Directive required Member States to establish a guarantee institution, but it did not specify the identity of the institution, the detailed arrangements for funding, or the precise level of guaranteed payment. The lack of precision meant that individuals could not invoke the Directive directly before national courts to claim the guaranteed payments.

The absence of direct effect did not leave the workers without any remedy. The Court held that the Member State’s failure to implement the Directive could give rise to an obligation to pay damages, even where the Directive lacked direct effect. The principle of state liability was necessary to ensure the full effectiveness of EU law and the protection of individual rights.

The Principle of State Liability

The CJEU established that state liability for breach of EU law is inherent in the Treaty system. The Court reasoned that the full effectiveness of Community law would be impaired and the protection of rights would be weakened if individuals could not obtain compensation when their rights were infringed by a breach of Community law attributable to a Member State. The principle of state liability is a corollary of the principle of effectiveness and the duty of sincere cooperation under Article 5 EEC (now Article 4(3) TEU).

The Court stated that the conditions of state liability depend on the nature of the breach. Where, as in Francovich, the breach consists of a failure to implement a directive that confers rights on individuals, three conditions must be satisfied: the result prescribed by the directive must entail the grant of rights to individuals, the content of those rights must be identifiable on the basis of the directive’s provisions, and there must be a causal link between the breach of the state’s obligation and the damage suffered by the injured party.

The Francovich Conditions

The Francovich conditions established a framework for state liability that was subsequently refined in Brasserie du Pêcheur v Germany and Factortame III (Cases C-46/93 and C-48/93). In Francovich, the Court applied a relatively lenient standard: the conditions were (1) the directive must confer rights on individuals, (2) the content of those rights must be identifiable, and (3) there must be a causal link between the breach and the damage.

The first condition requires that the EU rule infringed be intended to confer rights on individuals. Not all EU law provisions create individual rights; those that are addressed to Member States or that establish programmatic objectives may not. The second condition requires that the content of the right be identifiable from the EU law provision, even if the provision is not sufficiently precise to have direct effect. The third condition requires a causal connection between the state’s breach and the individual’s loss.

The Court left the determination of the detailed procedural rules for damages claims to national law, subject to the principles of equivalence (the rules must not be less favourable than those governing similar domestic claims) and effectiveness (the rules must not render the exercise of the right to damages practically impossible or excessively difficult). The national court was to apply these principles to Francovich’s claim.

The Relationship with Direct Effect

Francovich established that state liability is an independent remedy, available even where EU law does not have direct effect. The judgment recognised that the system of legal protection for individuals under EU law requires not only the direct effect of EU provisions but also the possibility of damages where the state has failed to implement its obligations. The state liability principle complements direct effect, filling the gaps in the protection of individual rights.

The relationship between direct effect and state liability has been clarified in subsequent case law. Where an EU law provision has direct effect, individuals may invoke it directly before national courts. Where the provision does not have direct effect, individuals may still claim damages if the conditions for state liability are satisfied. In Faccini Dori v Recreb (Case C-91/92), the Court held that the absence of horizontal direct effect of directives could not be circumvented by a state liability claim against the state for failure to transpose the directive, as the liability was that of the state, not the private party.

The Significance of Francovich

Francovich established state liability as a fundamental principle of EU law, ranked alongside direct effect and supremacy as a constitutional doctrine of the EU legal order. The judgment recognised that the effectiveness of EU law and the protection of individual rights require not only the capacity to invoke EU law before national courts but also the possibility of obtaining compensation for losses caused by state violations.

The Francovich principle has been applied in numerous subsequent cases, covering a wide range of state conduct including legislative breaches, administrative failures, and judicial errors. The conditions for state liability were refined in Brasserie du Pêcheur, which applied a stricter standard for breaches involving discretionary decisions (requiring a sufficiently serious breach). The principle has been extended to cover liability for breaches of EU law by national courts in Köbler v Austria (Case C-224/01) and Traghetti del Mediterraneo v Italy (Case C-173/03), ensuring that individuals can obtain compensation even for judicial violations of EU law.

State Liability in the EU Constitutional Order

Francovich transformed the legal protection of individuals under EU law. Before Francovich, individuals whose EU law rights were violated by state action could invoke EU law directly (if it had direct effect) or rely on the Commission to bring infringement proceedings. Francovich added a third layer of protection: the right to damages for losses caused by state violations. The three layers — direct effect, infringement proceedings, and state liability — together constitute a comprehensive system of remedies for the enforcement of EU law.

The Francovich principle also serves a deterrent function, encouraging Member States to comply with their EU law obligations. The prospect of damages claims provides an additional incentive for timely and accurate implementation of directives, beyond the political and financial consequences of infringement proceedings. Francovich thus contributes to the effectiveness of EU law and the protection of the rights that it confers on individuals.