Can the EU Launch a Damages Action Against a Member State Using the Infringement Procedure? A Comment on Commission/UK and Commission/The Netherlands.

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After months in the waiting, the Court ruled at last in two crucial infringement actions that put the final piece in the jigsaw puzzle of damages actions in EU law. In Commission/UK (C-391/17) and Commission/The Netherlands (C-395/17) the question of damages actions by the EU against a Member State was put upfront by the Commission, after decades of doubts over the issue. Using once again the syllogistic style of its origins, the Court bluntly confirmed the principle and ruled that the EU can use the infringement procedure to claim the recovery of a legal wrong that causes the EU a patrimonial loss.

The judgment deserves a thorough analysis together with a far-reaching Opinion of Advocate General Bobek, who depicted in detail the implications of this case. But first, it is important to take a closer look at the context and facts of the case.

To summarize very briefly a highly complex factual and legal scenario, both infringements boil down to a claim by the Commission of the amounts not perceived by the national customs authorities as a result of the UK’s and The Netherlands’ failure to ensure that the authorities of, respectively, Angullia and Aruba (both Overseas Countries and Territories) complied with EU law. The outcome of the breach was a loss that amounted to EUR 1 500 342.31 in the case of Anguillian exports and EUR 18 490 721.95 in the case of Aruban exports. Thus, the Commission launched infringement procedures against both Member States requesting the Court to declare a failure to comply with EU law that would result in the recovery of the referred amounts.

At first sight, the case looks straight forward. The Commission spots a violation of EU law by a Member State, it brings the Member State to court and the Court declares the breach. However, as the AG explains in detail in his Opinion, this is only the surface of the case. If we search deeper the reader will soon realise that the Commission is requesting something rather different. What the Commission is actually claiming is a declaratory judgment that allows it to recover the sums involved. The Commission is not simply looking for a declaration of a breach. The Commission wants the EU’s money back. And that is not an infringement procedure. That is a damages action.

Once the real nature of the claim is unveiled, the case acquires a very different significance. This is not an ordinary infringement anymore, it is a damages action dressed like an infringement, the purpose of which is the recovery of a loss to the EU’s budget caused by two Member States.

The Opinion of the AG proposes a holistic approach to solve the case and set the principle, in which, once the true nature of the remedy is unveiled, the Court should apply the common standard of damages actions since Bergarderm, based on the determination of a manifest breach, the existence of a causal link and proof of a real and certain damage. The AG applies this standard to the alleged violation of EU law involved and concludes that the Commission failed to argue that both Member States incurred in a manifest breach.

The Court’s ruling parts ways with the AG, but not entirely. In a syllogistic and blunt manner, the judgment makes three important statements, two of them explicitly, and a third only implicitly.

First, the judgment confirms that the Commission can rely on the infringement procedure against Member States that are liable vis-à-vis the EU for a legal wrong that entails a loss of EU revenue. This remedy finds its legal basis on the breach of the principle of sincere cooperation (art. 4(3) TEU), in the same way that the Brasserie du Pêcheur and Factortame case-law relied on the same legal basis to construe individuals’ damages actions against Member States for breach of EU law.

Second, the Court explicitly states that default interest can also be claimed by the EU, although it clarifies that interest does not start to run until the date of the request addressed to the Member State concerned. Despite the defendant’s argument that adding default interest to the sums due would entail a paralegal increase of the duties involved, the Court was unconvinced and stated that default interest is a legitimate and integral part of the remedy.

And third, by simply omitting any reference to the standard criterion of damages actions, the Court disagrees with the AG and requires no specific conditions to declare whether the Member State is liable or not. No manifest breach test, no causal link, no real and certain damage. The Commission may use an infringement procedure to launch a damages action against a Member State, and in so doing it can rely on the purely objective nature of this remedy, which suffices with a mere declaration of a violation of EU law.
The two judgments are a very significant landmark in the law of EU remedies, particularly damages actions. They deserve a thoughtful analysis, but a few preliminary comments can be advanced at this stage.

First, it is now clear that if the EU wishes to claim pecuniary amounts from Member States based on breaches of EU law it does not have to rely on a damages action in national courts of the Member State. Nothing stops the EU, represented by the Commission, to make such claims in national courts, but last week’s judgments open the official route that the EU must follow from now on. And that route is the one of an infringement procedure pursuant to Article 258 TFEU.

Second, the EU has now an extraordinary privilege that individuals and Member States lack: an objective remedy that automatically determines, through a mere illegality standard, the duty of all Member States to pay damages plus interest when the victim is the EU. Individuals don’t share the same luck, for they are destined to bring costly and highly uncertain damages actions against the State before national courts. The EU’s privilege is an enviable one that will probably raise questions as to the rationale of such a stark difference in treatment between plaintiffs.

Third, the standard is very favourable to the EU. In fact, both judgments concern not so much a case of Member State action, but of failure to act. Even in these circumstances, Member States can be held liable through the ultra-effective means of a 258 TFEU procedure. The facts of the case show how generous the Court has been with the Commission (in contrast with the AG, who rightly raised many concerns and doubts over the Commission’s three-in-one strategy), and two Member States (the UK and The Netherlands) have ended up being liable for the conduct of two overseas territories that caused a loss in the entry of goods in another Member State, Italy. There are several somersaults involved in this particular breach that should have raised some concerns, but the Court was not really concerned by them at all.

Finally, what does this precedent entail for other cases which do not concern customs duties? Offsetting is a practice that is explicitly envisaged in the financial regulation, but damages actions through 258 TFEU pave a new way that will need to be refined in future judgments. Also, is this result also extensible to other EU Institutions that have standing to bring an infringement procedure pursuant to Article 271 TFEU? And how about intra-Member State infringements? Is this a new route to channel claims among Member States based on EU law by way of Article 259 TFEU?

Once Pandora’s box is open, the consequences are really too broad to predict. But one thing is certain: by inaugurating a new damages remedy through infringement procedures, a whole new world is possible. Only the future will tell us how new and how much of a world, or only a small parcel, this new case-law involves.

About the author

Daniel Sarmiento

Daniel Sarmiento is Professor of EU Law at University University Complutense of Madrid and Editor in Chief of The EU Law Live Blog.

By Daniel Sarmiento

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