'In the case of non-contractual liability, Article 340 TFEU requires the EU to make good any damage caused by its institutions. Unfortunately, this provision has been interpreted so restrictively that individual applicants face almost insurmountable difficulties in establishing EU liability.'

In the light of this statement, critically discuss the interpretation and application of Article 340 by the Court of Justice.

Elements of liability

• You should begin with the TFEU provision: '. . . the Union shall, in accordance with the principles common to the laws of the Member States, make good any damage caused by its institutions or by its servants in the performance of their duties'.
• According to Lütticke, to succeed in a damages claim the applicant must establish three elements: a wrongful or illegal act, damage, and causation.
• The three elements should be discussed in turn, with reference to the relevant authorities. Make comment on interpretation and application by the Court of Justice.

Wrongful or illegal act

• Wrongful or illegal acts may be administrative, in which case liability can be established on the basis of illegality alone, for instance negligence on the part of an EU institution (Adams)
• By contrast, a more rigorous test has been applied to 'general legislative measures involving choices of economic policy'. There must be a 'sufficiently flagrant violation of a superior rule of law for the protection of the individual' (Schöppenstedt).
• The Court has defined 'general legislative measures involving choices of economic policy' broadly and many applicants have faced a considerable challenge in seeking damages under Article 340.
• Applying Schöppenstedt in subsequent cases, the Court of Justice included within the scope of 'superior rule of law' Treaty articles and general principles of law, such as equality, proportionality, legal certainty, and legitimate expectation.
• According to Schöppenstedt, not only must the applicant establish a breach, but that breach must be a sufficiently flagrant violation of superior rule of law for the protection of individuals. Where the institution concerned acted with a wide discretion, the applicant must show that the institution manifestly and gravely disregarded the limits on its powers.
• In HNL, the Court's assessment was based upon the effect of the measure. The Court found that the regulation affected very wide categories of traders, so its effect on individual businesses was lessened. Further, the regulation had only limited impact on the price of feed, by comparison with the impact of variations in world market prices. Consequently, the breach was not manifest and grave.
• Sometimes, the Court of Justice has focused on the nature of the breach and applied an even more rigorous test: liability would arise only where the conduct of the institution was 'verging on the arbitrary'. This test has proved to be an insurmountable difficulty for some applicants. In Amylum, for instance, despite the very serious impact of the measure, the action failed.
• In laying down and applying such restrictive tests, the Court of Justice has sought to ensure that the risk of successful damages claims by individuals did not hinder the legislative function. Consequently, such actions rarely succeeded.
• However in Bergaderm, the Court adopted a different approach by drawing on the principles applied to state liability in Factortame III. The right to reparation would arise where the rule of law infringed confers rights on individuals, the breach is sufficiently serious and there is a direct causal link between the breach and the damage sustained.
• According to Bergaderm, the decisive test for a sufficiently serious breach is the degree of discretion accorded to the institution, rather than the arbitrariness of the act or the seriousness of the damage caused. This represents an easing of the very restrictive Schöppenstedt test. It is likely that the additional factors set out in Brasserie du Pêcheur will be applied: the clarity of the rule breached, whether the error of law was excusable or inexcusable and whether the breach was intentional or voluntary.

Damage

• The damage must be quantifiable and exceed the loss arising from the normal economic risks inherent in the business. Steps must be taken to mitigate the loss. On occasions the Court of Justice has interpreted these requirements very restrictively. In HNL, for instance, the Court held that the loss did not go beyond the economic risks inherent in the business, despite the fact that it had previously held the regulation concerned to be void, as discriminatory and disproportionate.

Causation

• The damage must be a sufficiently direct consequence of the institution's breach.
• Establishing causation is not without difficulty. Compensation is not available for every harmful consequence, however remote. In Dumortier, the reduced sales, financial problems, and factory closures were not a sufficiently direct consequence of the unlawful conduct, even if the Council's actions had exacerbated the applicant's difficulties.

Concurrent liability

• A potential applicant must exhaust all possible national causes of action before Article 340 proceedings can be brought in the Court of Justice, provided that the national action is capable of resulting in compensation for the alleged damage. This constitutes yet a further hurdle for individuals.

Time limit

• Finally, unlike the short time limit of two months for bringing annulment proceedings under Article 263, the time limit of five years under Article 340 is generous.

Conclusion

Whilst Bergaderm introduced a new and more generous approach to damages claims under Article 340 than had been previously adopted by the Court of Justice under Schöppenstedt, it is still the case that applicants face serious challenges in establishing liability in respect of acts of the EU institutions.