It may be of some interest to the Common law reader, not least because two Italian judges started it all, to be told something about the actual and possible effects of the Francovich decision in Italian law.
The EC Court decision in the Francovich case made an enormous impact in Italy in that it was seen as superseding old and reassuring rules which had seriously circumscribed Governmental liability for almost a century.
Although in the Italian legal system the rules of non-contractual liability have ever since 1865 been based on a general clause modelled on article 1382 of the Code Napoléon, the courts found ways to limit liability. Interpreters read into article 1151 of the 1865 Civil Code a further precondition of liability, namely the "unlawfulness" of the faulty act or omission causing damage, a condition spelt out in article 2043 of the 1942 Civil Code.
According to the judges and, at least until recently, to many legal thinkers, an act or omission can be held to be unlawful only if it infringes a subjective right (diritto soggettivo), and not a mere legitimate interest (interesse legittimo).
The matter is very complicated and has given rise to a massive literature and to an endless and largely inconclusive debate; the distinction between subjective rights and legitimate interests is a very important one in that it is relevant not only to the question of liability but also to the choice of the forum when one party is a public body; the Italian system, like the French, has in fact two different judicial bodies, the administrative and ordinary ones. A legitimate interest gives no sufficient standing to lodge a claim with an ordinary (civil) judge, who only can afford a remedy in damages.
With some over-simplification due to limitations of space, it can be said that, as a rule, citizens cannot claim to have a subjective right as regards the exercise by the administration of a discretionary power. In particular, the owner of a piece of land has no right to obtain planning permission; a person minded to exercise an economic activity has no right to obtain the necessary licence; the customer of a bank or other credit institution has no right to have the institution properly controlled by the competent authority in order to avoid the effects of sudden bankruptcy.
Nor is the rule that there is no liability altered by the fact that refusal of permission or licence has been nullified on judicial review. The illegality of administrative action cannot be equated with its being "unlawful".
In such a framework, the impact of the Francovich decision, which extends liability to every act or omission contrary to Community law, even if the act or omission is imputable to the legislator, is shocking.
It is true that according to Francovich, one of the conditions of liability is the infringement of a right conferred by Community law. But, as will be shown to be the case in reference to English law, Community law seems to recognise rights far more easily than Italian law. In Italian law, citizens can avail themselves of no right in relation to the activities or omissions of legislative bodies; moreover, no subjective right exists that could be related to the discretionary powers conferred on the administration. In the former case, citizens are said to have a simple interest; in the latter there is generally a legitimate interest. The infringement of both types of interest entails no liability. Even in the case of duties imposed upon public bodies, the existence of a right is generally excluded, at least outside the area of pecuniary obligations; in such a case the duty is said to be imposed in the interest of the public at large, and its infringement cannot sound in damages; the citizen has only a legitimate interest.
By contrast, the Court of Justice affirmed the existence of a right, and of liability for its violation, in a case in which discretionary powers were entrusted to the legislators of Member States. This means that in a case in which under domestic Italian rules there is only an interest, and no liability, under Community law there can be a right, and liability.
The impact of the Francovich decision is apt to be greater in a legal system like the Italian one where liability is established by the use of general principles rather than on a case-by-case basis. Francovich means that even the infringement of a simple interest, or of a legitimate interest can be unlawful under article 2043 of the Civil code; but in this way, the boundary dividing what is unlawful and what is dissolved; the distinction between subjective rights on the one hand and legitimate and lesser interests on the other loses its powers and becomes of no avail. The general principle could become that any infringement of any right or interest whatever is unlawful.
This would stretch liabilities beyond limit, in that it would make every invalid administrative or legislative action into a tort giving rise to a claim for damages. It is submitted that there is only one way of escape from this in the Italian legal system.
It would give rise to endless complications if we accepted that in Italian law the boundary between rights and interests was the same as in Community law, that is that the boundary had moved in favour of the former. As has been observed, it is not only on the question of liability that this boundary is decisive; its principal function, as is universally accepted, is to divide the province of the "ordinary" judge from that assigned to the administrative judge; to enlarge the area of rights would reduce the judicial influence of the administrative judge, and that would be to put into reverse a movement which for a century has been one of the most significant features of the Italian legal system.
On the other hand, it is not practicable to think of curtailing the Francovich extension of governmental liability by limiting its application to cases involving Community law; in Italy, as has been said, tort liability depends on principles and article 3 of the Constitution forbids unequal treatment of basically similar situations. Let us give an example. In Italy public works are governed, irrespective of their value, by statutes enacted following EEC directives, which themselves only apply to public works whose value exceeds a given sum. To give different treatment to situations where Community law applies would involve treating the infringement of the same provision of a given statute differently just because the value of the work is different, perhaps only slightly different; this would be held to be unreasonable, and rightly so.
The only way out therefore appears to be to divide, that is to categorise according to general principles those interests that in the light of the case law of the Court of Justice can be considered - at Community law level - to be rights whose infringement gives rise to liability and those which have not this character.
The European Court decision in the Enichem case goes to show that even in Community law citizens can be in a situation where no subjective right exists. In that case a local authority issued a ban against plastic bags, which was challenged by producers before an administrative judge for violation of EEC directive 75/442 concerning waste disposal. The plaintiffs argued tha before adopting the ban, the local authority was obliged to give notice of the proposed measure to the EC Commission, in accordance with article 3, n° 2, of the directive. The administrative tribunal asked the Court of justice whether producers had a right not to be forbidden to sell their bags by an act of which prior notice had not been given to the Commission and whether the infringement of such a right, if any, could be compensated by the award of damages.
The Court, having held that under article 3, n°2, of the directive, local authorities had a duty to give prior notice of a measure such as the one in question, denied that the producers had any right to have the proper procedure followed, and consequently did not answer the question concerning damages.
It is suggested that the Enichem decision demonstrates that, even in Community law, a citizen cannot claim a right in respect of every legal provision enacted to regulate administrative action. To settle the matter it is necessary to wait for more case law, but the distinction between rights and interests which are not rights at Community level is probably to be found in the nature of the provision violated; when the provision just sets up formal requirements or procedural rules to be followed to reach a given result, which is not in itself unlawful, its infringement cannot be said to imperil a subjective right. Thus in many Member States -- France in particular -- governmental liability is excluded in case of violations which are thought to be only formal or procedural.
It is submitted that the Italian legal system, if it wants to set a limit to a potentially unlimited liability, will have first to distinguish what it considers to be legitimate interests as opposed to a subjective rights, according to the nature, either formal and procedural or substantial, of the provision infringed by the action or omission of the government, and to attach liability only to the infringements of the second kind of legitimate interests.
At present, the Italian legal system confronts litigants with a deterrent of another kind; namely, procedural incertitude. More or less one year after the Court of Justice decision in Francovich, the Pretore of Bassano ruled that Mr. Francovich had to bring claims arising from the non implementation of Council directive 80/987 following the procedure laid down for ordinary civil actions. So Mr. Francovich's first action failed; it had been commenced according to procedural rules valid only with reference to industrial relations claims. An action arising from the same facts decided by Pretore of Treviso had the same outcome, but the opposite conclusion was reached by Pretore of Pistoia judging in action based on identical grounds.
No appeal court has yet ruled on the point, and there has been non decision on liability in any other field governed by Community law. Besides, there is no general agreement whether it is for ordinary or hte administrative courts to hear claims involving what is only a legitimate interests in Italian law but a legal right in Community law. In a legal system in which precedents are not credited with binding force it may be some time before the matter is settled.
No such doubt exists in France. The administrative judge has jurisdiction in relation to most tort actions (plein contentieux) and the case-law developed over a century is well established. Liability for infringement of Community law has been readily accomodated.
The formation plénaire of the Paris Cour administrative d'appel deciding the case Sté Jacques Dangeville held the French government liable for collecting taxes from an insurance brokers firm under a national law in conflict with a Council Directive on V.A.T..
A recent decision by the Conseil d'Etat shows how the suggested distinction between formal and substantial infringement of legal rules works to curtail liability. Some foreign tobacco producers sued the French government for having fixed retail prices for cigarettes which were so as low not to allow any profit; the European Court of Justice had already twice held that the French tobacco pricing system was inconsistent with article 37 of the EEC Treaty. The Conseil d'Etat was told by the Commissaire du gouvernement Martine Laroque that claims for nearly two hundred milions francs had been lodged. The Assemblée of the Conseil d'Etat, deciding an action by Sté Arizona Tobacco Products and SA Philip Morris France demanding 5.849.742,75 francs, following the conclusions of its Commissaire, observed that the Court of Justice had held pricing rules to be in conflict with article 37 of the Treaty only in that they were peculiar to the tobacco market and could be used to protect highly subsidised national producers from foreign competition; on the other hand, said the Conseil d'Etat, Member States were free to apply to tobacco products general procedure of price control directed to reducing inflation. From a certain point of view, the infringement by the French Government was formal, in that it applied special instead of general pricing provisions. The Conseil d'Etat held that, had Govermnent followed the latter provisions, it could have legally fixed a maximum price only slightly superior to that actually fixed, and consequently the court awarded damages of only 230.000 francs.
It is submitted that this decision shows that liability shall not necessarily accrue from a purely formal infringement of Community law, and can be limited to prejudice which could have been avoided had the administration acted according to the law. It is conceded that the reasoning followed by the Conseil d'Etat implies reading the mind of the public powers to sort out how they would have acted otherwise than they actually did; that is taking into account results that, being hypothetical, cannot be checked. But the alternative, after Francovich, is to assess what amount to "maximum" damages: in the Sté Arizona Tobacco Products and SA Philip Morris France case, 5.849.742,75 francs.