A while ago, we noted a series of judgments of the Court of First Instance in which it examined whether the institutions could be liable in damages even in the absence of any illegality on their part. Now, the Court of Justice has addressed the issue in Joined Cases C-120/06 P and C-121/06 P FIAMM and FIAMM Technologies v Council and Commission.
Certain EC exporters suffered from the temporary compensatory measures imposed by the United States and claimed compensation from the EC. The United States imposed a 100% customs tariff on certain goods from a number of EU member States from April 19th 1999 to June 30th 2001 pursuant to section 301 of the Trade Act 1974 (19 U.S.C § 2411) (for an overview, see here) and authorized according to Article 22 § 7 of the Understanding on Rules and Procedures Governing the Settlement of Disputes. The US measures were adopted because the EU had legislated in the banana sector in a manner contrary to the WTO rules. The EC exporters - none of whom were involved in bananas - lost trade as a consequence and sued the Council and Commission in damages.
The Court of First dismissed the claim of the traders in its judgments in Case T-151/00 Laboratoire du Bain v Council and Commission, Case T-135/01 Giorgio Fedon & Figli v. Council and Commission, Case T-69/00 FIAMM v. Council and Commission and Case T-383/00 Beamglow Ltd v. European Parliament, Council and Commission. It held that the institutions could be liable in damages even in the absence of any illegality on their part. To reach such a conclusion, it had exhumed the rather obscure judgment in Case 81/86 De Boer Buizen v. Council and Commission. To succeed, however, the plaintiffs had to show that the loss and damage they suffered was special and abnormal. The Court of First Instance held that it was not.
The traders then appealed that finding concerning the special and abnormal character of their loss to the Court of Justice. The Council and Commission cross-appealed on the point that they could be held liable in the absence of illegality when they act in their legislative capacity.
The Court of Justice upheld the result of the Court of First Instance (the traders don't get any compensation) but reverse the finding of principle of the Court of First Instance on liability in the absence of illegality: It held that the Council and Commission could not be liable in damages in the absence of illegality on their part when they act in their legislative capacity. (The Court of Justice actually dismisses the cross-appeals but substitutes its own reasoning for that of the Court of First Instance. So, really the result is pretty much the same as if the cross-appeals had been successful. Yeah, appeals are complicated!).
The judgment is rather tough going. The Court of Justice partly agreed with the Court of First Instance and partly disagreed radically with it.
First, the Court of Justice agreed with the Court of First Instance that it could not review the legality of the EC measures in issue in the light of the WTO rules. It recalled that it can examine the validity of secondary EC legislation in the light of an international treaty only where the nature and the broad logic of the latter do not preclude this and, in addition, the treaty’s provisions appear, as regards their content, to be unconditional and sufficiently precise (see, in particular, Case C‑308/06 Intertanko and Others, paragraph 45). As regards, more specifically, the WTO agreements, it is settled case-law that, given their nature and structure, those agreements are not in principle among the rules in the light of which the Court is to review the legality of measures adopted by the Community institutions (see, in particular, Case C-149/96 Portugal v Council, paragraph 47; Case C-93/02 P Biret International v Council, paragraph 52; and Case C-377/02 Van Parys, paragraph 39). It is only where the EC has intended to implement a particular obligation assumed in the context of the WTO, or where the EC measure refers expressly to the precise provisions of the WTO agreements, that the Court can review the legality of the EC measure in question in the light of the WTO rules (see Case C-93/02 P Biret International v Council, paragraph 53, and Case C-377/02 Van Parys, paragraph 40).
The Court of Justice agreed with the Court of First Instance that those conditions were not fulfilled and thus it could not review the legality of the EC measures in the light of the WTO rules in this case.
Then the Court of Justice and Court of First Instance part company.
Because the Court of First Instance could not find that the EC measures in issue were illegal in the light of the WTO rules, it had to find some other means to find the EC liable in principle (if not in actual fact) in these cases. That is why it imported the French concept of liability for loss caused by legislation in the absence of illegality on its part (see the 1938 Conseil D'Etat case of La Fleurette) (because the French Conseil d'Etat has no jurisdiction to examine the constitutionality of legislation).
The Court of Justice held that while the principle of liability of the EU institutions in the event of illegal conduct (or omission) on their part was well established, liability in the absence of unlawful conduct was not firmly established. It held that as regards, more specifically, liability for legislative activity, that it had laid down at a very early stage that, although the principles in the legal systems of the Member States governing the liability of public authorities for damage caused to individuals by legislative measures vary considerably from one member State to another, it transpired that the public authorities can only incur liability for legislative measures in exceptional and special circumstances (Joined Cases 83/76, 94/76, 4/77, 15/77 and 40/77 Bayerische HNL Vermehrungsbetriebe and Others v Council and Commission, paragraph 5). As a result, the Court held in particular that, in view of the second paragraph of Article 288 EC, the EC does not incur liability on account of a legislative measure which involves choices of economic policy unless a sufficiently serious breach of a superior rule of law for the protection of the individual has occurred (see, inter alia, Joined Cases 9/71 and 11/71 Compagnie d’approvisionnement, de transport et de crédit and Grands Moulins de Paris v Commission, paragraph 13; Joined Cases 83/76, 94/76, 4/77, 15/77 and 40/77 Bayerische HNL Vermehrungsbetriebe and Others v Council and Commission, paragraph 4; Case 50/86 Les Grands Moulins de Paris v EEC, paragraph 8; and Case C-119/88 AERPO and Others v Commission, paragraph 18).
The Court remarked that the strict approach taken towards the liability of the EU in the exercise of its legislative activities is attributable to two considerations. First, even where the legality of measures is subject to judicial review, exercise of the legislative function must not be hindered by the prospect of actions for damages whenever the general interest of the EC requires legislative measures to be adopted which may adversely affect individual interests. Second, in a legislative context characterised by the exercise of a wide discretion, which is essential for implementing an EC policy, the EC cannot incur liability unless the institution concerned has manifestly and gravely disregarded the limits on the exercise of its powers (see, Joined Cases C-46/93 and C-48/93 Brasserie du pêcheur and Factortame, paragraph 45).
As a result, the Court of Justice concluded:
"[...] as Community law currently stands, no liability regime exists under which the Community can incur liability for conduct falling within the sphere of its legislative competence in a situation where any failure of such conduct to comply with the WTO agreements cannot be relied upon before the Community courts."
There's more that can be said about this judgment but that's enough for now. We'll save an interesting and odd twist for later.