EU Non-Contractual Liability: Damages for Unlawful Institutional Conduct

1. The Legal Foundations of Non-Contractual Liability

The European Union is not only a system of legislative and administrative authority; it is also a legal order in which public power is subject to judicial control and, where the applicable conditions are met, financial responsibility. EU institutions exercise extensive powers affecting individuals, companies, public authorities and national governments. Their decisions may influence commercial activity, property, professional interests, personal rights and access to public resources. When the unlawful conduct of an EU institution or one of its servants causes legally recognisable harm, the Union may be required to compensate the injured party.

The principal legal basis for this responsibility is Article 340(2) of the Treaty on the Functioning of the European Union (TFEU). It establishes the Union’s non-contractual liability and requires it, in accordance with the general principles common to the laws of the Member States, to make good damage caused by its institutions or servants in the performance of their duties. Article 340(3) contains a corresponding rule specifically addressing the European Central Bank (ECB).

Non-contractual liability is an essential component of the EU system of judicial protection. It gives individuals and legal persons a means of seeking compensation where institutional conduct has caused damage, even when the dispute does not arise from a contract with the Union. It is, however, a carefully structured remedy rather than a general guarantee that every unlawful or disadvantageous institutional decision will result in compensation. The Court of Justice of the European Union (CJEU) requires applicants to establish three cumulative conditions: a sufficiently serious breach of a rule of law intended to confer rights on individuals, actual damage, and a sufficiently direct causal link between the breach and the damage.

This article examines the legal foundations, substantive requirements, procedural framework and practical operation of non-contractual liability under EU law. It also distinguishes damages actions from annulment proceedings, infringement proceedings and contractual claims, explaining how compensation contributes to the accountability of EU institutions.

The legal foundation of the Union’s non-contractual liability is Article 340(2) TFEU. It provides:

In the case of non-contractual liability, the Union shall, in accordance with the general 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.

This provision establishes a general obligation of reparation. It reflects a fundamental principle of public law: the exercise of public authority does not place an institution beyond the law or automatically exempt it from responsibility for the consequences of its conduct.

The reference to the general principles common to the laws of the Member States is particularly important. It indicates that the EU liability system developed with regard to shared principles of national legal systems, while remaining an autonomous body of EU law. The CJEU does not simply apply the domestic tort law of the Member State where the damage occurred. It interprets Article 340 in light of the structure, objectives and requirements of the Union legal order.

The provision must also be read together with Article 268 TFEU, which gives the EU Courts jurisdiction in disputes relating to compensation for damage, and Article 256(1) TFEU, which generally assigns jurisdiction at first instance to the General Court. These provisions create the procedural framework through which an injured party may seek financial redress from the Union.

The liability regime has two central purposes. First, it protects individuals and organisations against sufficiently serious unlawful conduct by EU institutions and their servants. Secondly, it ensures that institutional accountability is not confined to the possibility of having an unlawful measure annulled. A measure may be withdrawn or annulled without fully repairing the financial consequences already suffered by the person affected. Damages provide a distinct form of judicial protection.

The regime is not, however, designed to turn the Union into an insurer against every loss associated with its activities. EU institutions must often make complex decisions involving economic, scientific, technical, political or administrative assessments. A system imposing compensation for every legal error, regardless of its seriousness or consequences, could discourage legitimate institutional action and interfere with the exercise of powers conferred by the Treaties.

The CJEU has therefore developed a liability test that seeks to reconcile effective protection of individuals with the need to preserve the lawful exercise of institutional discretion.

2. Contractual and Non-Contractual Liability: The Essential Distinction

Article 340 TFEU distinguishes between contractual and non-contractual liability.

Under its first paragraph, the contractual liability of the Union is governed by the law applicable to the contract in question. This means that where a dispute arises from a contractual relationship with an EU institution or body, the applicable contractual provisions and the contract’s governing-law arrangements are central to determining the parties’ rights and obligations.

By contrast, Article 340(2) concerns damage caused outside a contractual relationship. The legal basis of the claim is the unlawful conduct of an EU institution or servant in the performance of official duties, rather than the breach of a contractual obligation.

The distinction is determined by the actual source of the alleged liability, not merely by the identity of the parties. A company may have a contract with an EU institution and also suffer damage through an independent administrative act. The contractual relationship does not automatically transform every subsequent dispute into a contractual claim. Equally, a party cannot avoid the contractual framework simply by describing an alleged breach of contract as a tort or non-contractual wrong.

The EU Courts examine the substance of the dispute. They consider whether the conduct complained of is connected to the performance of contractual obligations or whether it arises from the exercise of public authority independently of the contract.

This distinction has practical consequences for jurisdiction, applicable law and the remedies available. Article 268 TFEU gives the EU Courts jurisdiction over non-contractual liability claims. Contractual disputes, on the other hand, fall within the jurisdiction of the EU Courts only where the relevant jurisdictional basis exists, commonly through an arbitration clause under Article 272 TFEU.

An applicant must therefore identify the legal nature of the dispute before commencing proceedings. Choosing the wrong legal basis may lead to a finding that the action is inadmissible or that the court lacks jurisdiction.

3. The Institutions and Persons Whose Conduct May Give Rise to Liability

Article 340(2) refers to damage caused by the institutions of the Union or by their servants in the performance of their duties. The concept of institutional conduct must be understood in the context of the wider EU administrative and institutional framework.

Potentially relevant conduct may originate from:

• The European Commission;
• The Council of the European Union;
• The European Parliament;
• The European Council;
• The Court of Justice of the European Union, in circumstances falling within the applicable liability rules;
• EU agencies and other bodies exercising functions attributable to the Union;
• Officials and other servants acting in the performance of their duties.

The list is not intended to suggest that every EU body possesses identical legal characteristics or that every act of an agency automatically produces liability. The relevant question is whether the conduct can legally be attributed to the Union and whether it occurred in the performance of the functions covered by Article 340.

The European Central Bank is addressed separately in Article 340(3) TFEU. That paragraph provides that the ECB must make good damage caused by it or by its servants in the performance of their duties, in accordance with the general principles common to the laws of the Member States.

The separate treatment of the ECB reflects its institutional position and independence within the Union’s monetary framework. It does not establish an entirely different substantive liability test. The CJEU applies substantially corresponding principles when examining non-contractual liability claims against the ECB.

The conduct capable of generating liability is not limited to the adoption of formal decisions. It may include administrative omissions, failures to exercise powers lawfully, procedural misconduct, negligent handling of information, unlawful restrictions, failures to comply with duties of diligence, and other forms of institutional behaviour.

For example, an institution may adopt an unlawful decision affecting a company’s commercial interests. An EU agency may mishandle information in a manner that seriously breaches an individual’s rights. An institution may fail to exercise due diligence when examining evidence or may unlawfully disclose confidential information. Whether any of these situations produces liability depends on the specific legal obligations involved and proof of the remaining conditions.

The fact that an institution has acted unlawfully is not, by itself, sufficient. The applicant must establish the required seriousness of the breach, actual damage and a direct causal relationship.

4. The Three Cumulative Conditions for EU Liability

The central principle governing non-contractual liability is that three conditions must be satisfied cumulatively.

The CJEU established and refined this framework through its case law, particularly in Bergaderm and Goupil v Commission (Case C-352/98 P). The Court clarified that the standard applicable to the non-contractual liability of EU institutions is aligned with the principles governing Member State liability for breaches of EU law.

The three conditions are:

1. The infringement must concern a rule of law intended to confer rights on individuals, and the breach must be sufficiently serious.
2. The applicant must have suffered actual damage.
3. There must be a sufficiently direct causal link between the unlawful conduct and the damage.

These requirements are independent but interconnected. An applicant who proves serious institutional misconduct but cannot demonstrate actual damage will not succeed. Equally, a person who has suffered substantial financial loss cannot obtain compensation merely because an institution adopted an unlawful measure if the breach does not satisfy the required seriousness threshold.

The courts may examine the conditions in any appropriate order. If one condition is not established, the action must be dismissed, and it is unnecessary to determine whether the remaining conditions are satisfied. This approach was reaffirmed in cases including Lucaccioni v Commission (Case C-257/98 P) and European Union v Gascogne Sack Deutschland and Gascogne (Joined Cases C-138/17 P and C-146/17 P).

4.1. A Breach of a Rule of Law Intended to Confer Rights on Individuals

The first requirement is not satisfied by demonstrating that an EU institution has infringed any rule of law whatsoever. The rule must be intended to confer rights on individuals.

This requirement distinguishes between legal provisions that protect identifiable interests and provisions that primarily organise institutional powers, establish administrative procedures or regulate relations between EU institutions.

A provision may confer rights expressly, but the CJEU also examines the substance and purpose of the rule. It considers whether the provision is intended to protect individuals or identifiable categories of persons rather than merely regulate the internal functioning of the Union.

Rules protecting fundamental rights, procedural guarantees, legitimate economic interests, confidentiality and the lawful treatment of personal information may, depending on their content and context, satisfy this requirement.

For example, Article 41 of the Charter of Fundamental Rights of the European Union establishes the right to good administration in the context of dealings with EU institutions and bodies. It includes guarantees such as the right to have one’s affairs handled impartially, fairly and within a reasonable time, the right to be heard before an adverse individual measure is taken, and the right of access to one’s file subject to legitimate confidentiality requirements.

A serious breach of a relevant procedural guarantee may therefore form part of a damages claim, provided that the applicant establishes that the particular rule is intended to confer rights and satisfies the remaining requirements.

The same reasoning may apply to rules protecting confidential information, property interests or procedural rights in competition and administrative proceedings.

However, not every procedural irregularity automatically creates an entitlement to compensation. The applicant must identify the precise rule, explain the right it protects and demonstrate how the institution’s conduct infringed that right.

4.2. The Requirement of a Sufficiently Serious Breach

The second element of the first condition is the seriousness of the breach.

The CJEU requires that the institution has manifestly and gravely disregarded the limits placed on its discretion. This standard is intended to distinguish ordinary legal errors from sufficiently serious violations capable of generating financial responsibility.

The assessment depends on the circumstances of the case. The Court considers several factors, including:

• The clarity and precision of the rule infringed;
• The degree of discretion available to the institution;
• The complexity of the legal or factual situation;
• Whether the infringement was intentional or involuntary;
• Whether the error was excusable;
• Whether the institution persisted in conduct despite relevant warnings or established legal requirements;
• Whether the institution failed to take reasonable steps to comply with its obligations.

These factors are not a rigid checklist. Their importance depends on the nature of the alleged infringement.

Where an institution has very limited discretion, a breach of a clear and precise obligation may more readily be regarded as sufficiently serious. Conversely, where the institution must make complex economic or technical assessments within a broad discretionary framework, the threshold may be more demanding.

The distinction is particularly relevant in competition, financial regulation, trade, sanctions and economic policy. EU institutions may have to assess extensive evidence, forecast market developments or reconcile competing public interests. An error in such an assessment does not necessarily demonstrate a manifest and grave disregard of legal limits.

The case of Bergaderm and Goupil v Commission is fundamental because it confirmed that the liability of EU institutions is subject to the sufficiently serious breach test rather than a more demanding or separate standard based solely on the category of administrative activity involved.

In Safa Nicu Sepahan v Council (Case C-45/15 P), the Court examined the liability of the Union in the context of restrictive measures. The case illustrates the importance of procedural and evidential obligations when an institution adopts measures that seriously affect the legal and commercial position of an individual or undertaking.

The seriousness of a breach must therefore be assessed in context. The existence of discretion does not provide immunity, but it affects the threshold that must be met.

4.3. Actual Damage

The second principal condition requires the applicant to establish that damage has actually occurred.

The damage must be real and sufficiently certain. A purely hypothetical loss, speculative commercial opportunity or unsupported assertion of reputational harm will not normally satisfy the requirement.

The applicant must establish the existence and extent of the loss through convincing evidence. Depending on the nature of the claim, this may involve financial records, contracts, expert assessments, accounting documents, correspondence, market evidence or other relevant material.

Damage may be material or non-material.

Material damage includes financial losses capable of economic assessment. Examples include:

• Loss of profits;
• Additional operating or administrative costs;
• Unnecessary expenditure;
• Loss of the use of money;
• Damage to property;
• Financial consequences of an unlawful restriction or decision;
• Certain costs incurred as a direct consequence of unlawful institutional conduct.

Non-material damage concerns harm that does not consist primarily of direct financial loss. It may include serious interference with personal interests, distress, reputational injury or damage to professional standing, where the relevant legal and evidential requirements are satisfied.

The recognition of non-material damage does not mean that compensation is automatic whenever an applicant alleges distress or reputational harm. The applicant must establish that the harm is genuine, sufficiently identifiable and connected to the unlawful conduct.

The Court also distinguishes between actual damage and a mere possibility of loss. A company claiming that it would have secured a profitable contract but for an unlawful decision must provide evidence supporting the existence and realistic value of that opportunity. A general statement that the company expected to expand its business is unlikely to be sufficient.

The case law concerning claims for loss of profits demonstrates the importance of proof. In Giordano v Commission (Case C-611/12 P), the Court examined the requirement that the damage claimed be actual and certain. The fact that a person may have hoped or expected to obtain a particular economic advantage does not, without adequate supporting evidence, establish compensable loss.

Similarly, in litigation concerning the excessive duration of proceedings before the General Court, the CJEU has required applicants to demonstrate the existence and extent of the damage allegedly caused by the delay. The unlawfulness of an excessively lengthy procedure does not automatically establish every financial consequence claimed by the applicant.

The evidential burden is therefore substantial. A damages action must be supported by a coherent account of the loss, its calculation and the reasons why it should be attributed to the institution’s conduct.

4.4. Direct Causation

The third condition requires a sufficiently direct causal link between the unlawful conduct and the damage suffered.

This requirement prevents the Union from becoming responsible for every economic or personal consequence that may be associated with an institutional decision.

The applicant must establish that the damage flowed directly from the unlawful conduct. It is not sufficient to show that the loss occurred after the institutional act or that the act formed part of the general circumstances surrounding the loss.

The courts examine the factual sequence, the nature of the institutional conduct and the intervening circumstances. They consider whether the damage would have occurred in the absence of the infringement and whether other independent factors sufficiently explain the loss.

For example, a company may claim that an unlawful administrative decision caused it to lose a commercial opportunity. The company must establish not merely that the decision preceded the loss, but that the loss was sufficiently directly attributable to the decision.

If the loss was primarily caused by market conditions, the company’s own commercial choices, the conduct of third parties or unrelated regulatory developments, the causal link may be absent or weakened.

The existence of intervening events does not necessarily defeat a claim. The relevant question is whether those events break or materially weaken the direct causal connection between the institutional breach and the damage.

The CJEU has repeatedly emphasised that the applicant must prove the causal relationship rather than rely on assumptions. The standard requires a sufficiently direct connection, assessed in the circumstances of the individual case.

5. The Types of Institutional Conduct That May Generate Liability

Non-contractual liability may arise from different forms of institutional conduct. The legal framework is not confined to a particular policy area or category of administrative decision.

5.1. Unlawful Administrative Decisions

An EU institution may incur liability where it adopts an unlawful administrative decision that causes sufficiently serious harm.

Examples may include decisions imposing restrictive measures, decisions affecting access to EU funding, competition decisions, regulatory determinations and individual administrative measures.

The applicant must identify the legal rule breached and establish that the infringement was sufficiently serious. The existence of an adverse decision, even one later annulled, is not by itself enough.

5.2. Breaches of Fundamental Rights

The Charter of Fundamental Rights may provide an important source of rights relevant to non-contractual liability.

Potentially relevant provisions include:

• Article 7, respect for private and family life;
• Article 8, protection of personal data;
• Article 17, right to property;
• Article 41, right to good administration;
• Article 47, right to an effective remedy and to a fair trial.

A breach of a Charter provision may form the basis of a damages claim where the provision is intended to confer rights on individuals and the infringement is sufficiently serious.

However, the Charter does not create automatic compensation for every violation. The applicant must still prove actual damage and causation.

The distinction between establishing a breach of a fundamental right and establishing entitlement to damages is essential. A court may recognise that a right has been infringed without concluding that the conditions for financial reparation have been satisfied.

5.3. Failure to Exercise Due Diligence

EU institutions and bodies may be subject to duties of diligence when exercising their powers. These duties can require them to examine relevant information carefully, investigate material allegations, assess evidence objectively and avoid arbitrary administrative conduct.

A failure to exercise due diligence may contribute to a finding of sufficiently serious breach, particularly where the institution disregards important information or fails to conduct an examination required by EU law.

The precise standard depends on the powers exercised and the legal framework governing the institution’s conduct.

An institution is not required to guarantee that every administrative investigation produces a perfect result. It must, however, comply with the legal and procedural obligations governing its decision-making.

5.4. Unlawful Disclosure or Misuse of Information

The unlawful disclosure, processing or use of confidential or personal information may also give rise to non-contractual liability.

EU institutions and agencies operate within a legal framework that includes confidentiality obligations, data protection requirements and duties of professional secrecy.

Where unlawful conduct causes material or non-material damage, the affected person may seek compensation under the applicable legal framework. The relevant analysis will depend on the specific provision breached, the nature of the conduct and the evidence of damage.

In cases involving EU institutions and bodies, the relationship between Article 340 TFEU and the applicable data protection legislation must be considered carefully. A breach of data protection obligations does not eliminate the need to establish the requirements governing compensation.

6. The Relationship Between Damages Actions and Annulment Proceedings

Non-contractual liability and actions for annulment are distinct remedies under EU law.

Article 263 TFEU allows the EU Courts to review the legality of certain acts adopted by EU institutions, bodies, offices and agencies. Where the conditions are satisfied, an applicant may seek annulment of an unlawful act.

Article 340(2), by contrast, provides a route to compensation for damage caused by unlawful institutional conduct.

The two remedies address different legal questions.

An annulment action asks whether an act is lawful and whether it should be removed from the legal order. A damages action asks whether the Union must compensate an applicant for harm caused by conduct attributable to it.

An applicant may therefore have a damages claim even where an annulment action is unavailable or has become time-barred, provided that the independent requirements for non-contractual liability are met.

The CJEU has consistently treated an action for damages as an autonomous form of judicial protection. It is not merely an accessory to an annulment action.

This autonomy has important consequences.

First, an applicant does not generally have to obtain a prior judgment annulling the institutional measure before seeking compensation. The EU Courts may examine the unlawfulness of the conduct directly in the damages proceedings.

Secondly, annulment does not automatically establish entitlement to compensation. The applicant must still prove a sufficiently serious breach, actual damage and direct causation.

Thirdly, the two remedies are subject to different procedural requirements and time limits. The time limit for an action for annulment under Article 263(6) TFEU is generally two months, whereas proceedings for non-contractual liability are subject to the five-year limitation period in Article 46 of the Statute of the Court of Justice.

The autonomy of the damages action must not be used to circumvent the legal consequences of the annulment procedure. An applicant cannot simply repackage a claim seeking the removal of an act as a damages action in order to obtain a form of judicial review that the Treaty does not permit through Article 340.

The Court examines the substance of the claim. If the applicant is in reality seeking to have an act declared void rather than obtain compensation for actual damage, the action may be regarded as an attempt to circumvent the procedural framework of Article 263.

The distinction is therefore functional rather than merely formal.

7. Liability for Conduct of EU Officials and Servants

Article 340(2) expressly covers damage caused by servants of the Union in the performance of their duties.

The provision recognises that institutional conduct is carried out through individuals. Officials, temporary agents, contract agents and other servants may take decisions, process information, conduct investigations and perform administrative functions on behalf of EU institutions and bodies.

Where their conduct in the performance of official duties causes damage under the conditions established by EU law, liability may attach to the Union.

This does not mean that every personal error by an official automatically becomes compensable institutional conduct. The applicant must establish that the conduct is attributable to the Union and falls within the scope of the relevant duties.

The final paragraph of Article 340 separately provides that the personal liability of EU servants towards the Union is governed by the provisions laid down in their Staff Regulations or applicable Conditions of Employment.

This distinction separates the Union’s external responsibility towards injured parties from the internal relationship between the Union and its personnel.

A person seeking compensation ordinarily brings proceedings against the Union or, where appropriate, the ECB. The internal question of whether an official may bear personal responsibility towards the Union is governed by the relevant employment and staff rules.

The distinction is important because institutional accountability should not be confused with the personal liability of individual officials under employment law.

8. Special Considerations in Competition and Regulatory Cases

Competition law and regulatory enforcement provide important examples of the practical operation of non-contractual liability.

The European Commission exercises significant powers under Articles 101 and 102 TFEU and the EU competition enforcement framework. Its decisions may impose substantial fines, require changes in commercial conduct or affect the legal and economic position of undertakings.

An unlawful competition decision may cause serious financial consequences. Nevertheless, a company seeking damages must establish the requirements of Article 340 rather than rely solely on the fact that a decision was annulled.

In Bergaderm and Goupil v Commission, the Court clarified the applicable liability standard. The case concerned damage allegedly caused by unlawful institutional conduct in the regulatory field and became a central authority for the sufficiently serious breach test.

In Safa Nicu Sepahan v Council, the Court considered liability in the context of restrictive measures. The case illustrates how the adoption of measures affecting an undertaking’s economic and legal position may give rise to liability where the institution commits a sufficiently serious breach of a rule protecting individual rights and the other conditions are established.

Another important example is European Union v Gascogne Sack Deutschland and Gascogne. The case arose from allegations that the General Court had failed to adjudicate within a reasonable time. The CJEU confirmed that the Union may be liable for damage caused by an infringement of the reasonable-time requirement, but also emphasised that the applicant must prove actual damage and a sufficiently direct causal link.

These cases demonstrate that liability is not limited to traditional administrative decisions. It may arise from institutional conduct in regulatory, competition, economic and judicial contexts.

9. The Liability of the European Central Bank

Article 340(3) TFEU establishes the non-contractual liability of the European Central Bank.

The ECB is an EU institution with a distinct mandate and a high degree of independence, particularly in the conduct of monetary policy. Its decisions may have significant consequences for financial institutions, markets and other affected persons.

The separate Treaty provision confirms that the ECB is not outside the system of judicial accountability.

The ECB may be required to compensate damage caused by its own conduct or by its servants in the performance of their duties, in accordance with the general principles common to the laws of the Member States.

The substantive requirements are broadly aligned with those governing the Union’s liability under Article 340(2). The applicant must establish a sufficiently serious breach of a rule of law intended to confer rights on individuals, actual damage and a sufficiently direct causal link.

The ECB’s institutional independence does not remove the possibility of judicial review or liability. However, the nature of its functions may influence the assessment of the seriousness of an alleged breach, particularly where the institution exercises technical or economic discretion within the framework of the Treaties.

In Malacalza Investimenti and Malacalza v ECB (Case T-834/17), the General Court examined a damages claim brought against the ECB in connection with its supervisory activities. The case illustrates the application of the three cumulative conditions in the context of banking supervision and the importance of proving each element of the claim.

The distinction between monetary policy, prudential supervision and other ECB functions may be relevant when identifying the applicable legal obligations and the nature of the alleged infringement. The central liability principles, however, remain grounded in Article 340(3).

10. Jurisdiction and the Procedure for Bringing a Damages Action

Article 268 TFEU gives the EU Courts jurisdiction in disputes relating to compensation for damage under the second paragraph of Article 340 and the corresponding liability of the ECB.

Under Article 256(1) TFEU, the General Court generally has jurisdiction at first instance in these proceedings. Appeals on points of law may be brought before the Court of Justice in accordance with the applicable procedural rules.

The action is brought against the Union, normally represented by the institution or institutions whose conduct is alleged to have caused the damage. Where the claim concerns the ECB’s own conduct, the ECB is the relevant defendant.

The applicant must formulate a clear claim identifying:

1. The institution, body or servant whose conduct is challenged;
2. The relevant act, omission or other conduct;
3. The legal rule allegedly infringed;
4. Why the breach is sufficiently serious;
5. The damage suffered;
6. The causal connection between the conduct and the damage;
7. The compensation sought and the basis on which it is calculated.

The applicant must also comply with the requirements of the Statute of the Court of Justice and the Rules of Procedure of the General Court, including the rules governing the form and content of applications.

Unlike an action for failure to act under Article 265 TFEU, a damages action under Article 268 does not generally require the applicant first to issue a formal invitation requiring the institution to act. Nor is there a general requirement to exhaust an internal administrative appeal before commencing proceedings, although particular legal frameworks may provide relevant procedures or obligations.

The absence of a general mandatory pre-litigation procedure does not reduce the importance of evidence. An applicant should be able to identify the conduct, establish the relevant facts and provide a sufficiently precise account of the damage claimed.

The EU Courts may reject claims that are inadequately substantiated. A damages action is not an investigative mechanism through which an applicant can require the institution or court to discover whether damage might have occurred.

11. The Five-Year Limitation Period

Article 46 of the Statute of the Court of Justice establishes a five-year limitation period for proceedings against the Union in matters arising from non-contractual liability.

The period generally runs from the occurrence of the event giving rise to the claim. However, the precise starting point depends on the circumstances, particularly when the damage has materialised and when the conditions for liability have been fulfilled.

The Court has clarified that the limitation period does not necessarily begin on the date of the institutional act alone. In cases where damage develops over time, the date on which the relevant loss becomes sufficiently established may be decisive.

In Holcim (Deutschland) v Commission (Case C-282/05 P), the Court examined the operation of the limitation period and the relationship between the event giving rise to liability and the materialisation of damage.

The limitation period may be interrupted where proceedings are instituted before the EU Courts. It may also be interrupted where the injured party first submits an application to the relevant EU institution. In the latter situation, Article 46 requires that subsequent proceedings be instituted within the two-month period provided for in Article 263 TFEU, with the relevant provisions of Article 265 applying where appropriate.

The interruption mechanism should not be confused with a general extension of the limitation period. The applicant must comply with the procedural requirements laid down in Article 46.

A further distinction is necessary between a continuing infringement and continuing damage. The fact that the financial consequences of an institutional act persist does not necessarily mean that a new five-year limitation period begins every day. The Court examines the legal character of the conduct and the nature of the damage.

The limitation rules are therefore important at the earliest stage of a potential claim. An applicant should not assume that the period begins only when the full extent of the loss becomes apparent or when all consequences have ended.

12. The Assessment and Calculation of Compensation

Where the EU Courts establish liability, they must determine the appropriate form and amount of compensation.

The objective is to provide reparation for the damage attributable to the unlawful conduct. Compensation is not intended to punish the institution or create a financial advantage unrelated to the actual loss.

The applicant must provide a sufficiently clear basis for calculating the amount claimed. Depending on the circumstances, the assessment may include:

• Direct financial loss;
• Loss of profits, where sufficiently certain;
• Reasonable additional expenditure;
• Loss of the use of money;
• Non-material damage;
• Interest where legally justified.

The calculation must avoid double recovery. If the applicant has already received compensation, reimbursement or another form of financial redress for the same loss, that amount may need to be taken into account.

The courts may distinguish between damage that has already occurred and future damage that is sufficiently certain. A claim for future loss cannot be based solely on speculation. It must be supported by objective circumstances that make the loss reasonably established.

The assessment may also require consideration of whether the applicant contributed to the damage or failed to take reasonable steps to limit its consequences. The precise relevance of such factors depends on the legal and factual circumstances.

Compensation must correspond to the damage for which the Union is legally responsible. It cannot extend to unrelated economic difficulties, independent third-party conduct or losses that lack the required causal connection.

13. The Relationship Between EU Liability and Member State Liability

The non-contractual liability of the Union must be distinguished from the liability of Member States for breaches of EU law.

Member State liability was developed by the CJEU in Francovich and Bonifaci v Italy (Joined Cases C-6/90 and C-9/90). The Court recognised that individuals may be entitled to compensation where a Member State breaches EU law and causes damage.

The principle was developed further in Brasserie du Pêcheur and Factortame (Joined Cases C-46/93 and C-48/93), where the Court established the conditions governing Member State liability.

The two systems share important principles, particularly the requirement of a sufficiently serious breach of a rule intended to confer rights on individuals, actual damage and a causal connection.

Nevertheless, they operate through different legal and procedural frameworks.

A claim under Article 340 concerns damage attributable to the Union and is brought before the EU Courts under Articles 268 and 256 TFEU.

A claim for Member State liability is generally brought before the competent national court, applying the principles of EU law together with national procedural rules that must respect the principles of equivalence and effectiveness.

The distinction becomes important where damage results from conduct involving both EU institutions and national authorities.

For example, an EU regulation may establish a legal framework that is implemented by national authorities. If the alleged damage arises from an unlawful EU institutional act, Article 340 may be relevant. If it arises from an independent breach by a national authority, Member State liability may be the appropriate route.

In some circumstances, the conduct of both levels of authority may be relevant. The applicant must identify the source of the alleged infringement and the legal responsibility attributable to each actor. The existence of an EU measure does not automatically make the Union liable for every subsequent national implementation decision.

14. Practical Examples of Non-Contractual Liability

The principles governing Article 340 become clearer when applied to practical situations.

Example 1: Unlawful restrictive measures

An EU institution adopts restrictive measures against a company without an adequate evidential basis. The company suffers serious commercial losses, including the termination of banking relationships and the loss of existing contracts.

If the measure is found to involve a sufficiently serious breach of a rule intended to protect the company, the company may seek compensation. It must nevertheless establish the actual losses and demonstrate that they flowed directly from the unlawful measure.

The fact that the measure was annulled would be relevant but would not automatically establish the right to damages.

Example 2: Unlawful handling of confidential information

An EU agency unlawfully discloses commercially confidential information concerning an undertaking. Competitors obtain access to the information and use it in their commercial activities.

The undertaking may seek compensation if it can establish a sufficiently serious breach of the relevant confidentiality obligation, actual damage and a sufficiently direct causal connection between the disclosure and the loss.

The assessment may include the commercial value of the information, the consequences of its disclosure and any identifiable financial harm.

Example 3: Excessive duration of judicial proceedings

A company is involved in proceedings before the General Court that exceed a reasonable duration. The excessive delay causes a demonstrable financial loss.

The Union may be liable if the relevant procedural obligation has been breached sufficiently seriously and the company establishes actual damage directly attributable to the delay.

The mere fact that proceedings lasted a long time does not automatically prove every financial loss alleged. The applicant must identify the consequences of the delay and substantiate the causal connection.

Example 4: Unlawful administrative refusal

An EU institution unlawfully refuses an application for financial support. The applicant claims that the refusal caused the loss of a business opportunity.

A damages claim would require more than proof that the refusal was unlawful. The applicant would need to establish that the infringement was sufficiently serious and that the alleged opportunity represented a real and sufficiently certain economic interest.

If the applicant cannot demonstrate that the funding would have been granted or that the opportunity was sufficiently concrete, the claim for lost profits may fail.

These examples demonstrate that Article 340 does not operate as an automatic compensation mechanism. It requires a legally established infringement, demonstrable harm and a sufficiently direct causal connection.

15. The Significance of Non-Contractual Liability for Institutional Accountability

Non-contractual liability plays a distinctive role in the constitutional and administrative structure of the European Union.

The Union exercises public powers through a complex network of institutions, agencies and administrative bodies. Its decisions may affect individuals and organisations across all Member States. Judicial accountability must therefore extend beyond the possibility of reviewing the legality of formal legislative or administrative acts.

The damages remedy ensures that sufficiently serious unlawful institutional conduct may have financial consequences for the Union itself.

It also encourages institutions to respect procedural guarantees, fundamental rights, confidentiality obligations, evidential standards and the limits of their legal powers.

The requirement of a sufficiently serious breach is particularly important in maintaining the balance between institutional effectiveness and individual protection. It prevents every minor administrative error from becoming a basis for compensation while preserving liability for serious violations of legal obligations.

The requirement of actual damage ensures that the remedy remains compensatory rather than punitive. The causal-link requirement, in turn, confines liability to harm that can properly be attributed to the unlawful conduct.

Together, these principles establish a system in which public authority remains legally accountable without making the Union responsible for every disadvantage associated with its activities.

The effectiveness of the remedy depends not only on the legal standard but also on the ability of applicants to obtain and present sufficient evidence. In practice, the most difficult aspects of a damages action may concern the seriousness of the infringement, the proof of loss and the demonstration of causation.

For this reason, Article 340 should be understood as an independent and carefully structured remedy within the broader system of EU judicial protection.

Key Takeaways

• Article 340(2) TFEU establishes the non-contractual liability of the European Union for damage caused by its institutions or servants in the performance of their duties.
• Article 340(3) establishes a corresponding liability rule for the European Central Bank.
• Article 268 TFEU gives the EU Courts jurisdiction over non-contractual liability claims.
• The General Court generally hears these actions at first instance under Article 256(1) TFEU.
• Three cumulative conditions must be established: a sufficiently serious breach of a rule of law intended to confer rights on individuals, actual damage and a sufficiently direct causal link.
• The seriousness of a breach depends on factors such as the clarity of the rule, the discretion available to the institution and the complexity of the situation.
• Damage may be material or non-material, but it must be real and sufficiently certain.
• An applicant must prove that the damage resulted directly from the unlawful conduct.
• An action for damages is autonomous from an action for annulment under Article 263 TFEU. Prior annulment is not generally required.
• Annulment of an EU measure does not automatically establish entitlement to compensation.
• Article 46 of the Statute of the Court of Justice establishes a five-year limitation period, subject to its rules on interruption.
• Member State liability for breaches of EU law is a separate remedy, generally pursued before national courts.

Frequently Asked Questions

1. What is non-contractual liability under EU law?

Non-contractual liability is the legal responsibility of the European Union to compensate damage caused by unlawful conduct of its institutions or servants in the performance of their duties. Its principal legal basis is Article 340(2) TFEU. It applies outside the ordinary framework of contractual liability.

2. Which Treaty provision establishes the Union’s non-contractual liability?

Article 340(2) TFEU establishes the non-contractual liability of the Union. Article 340(3) contains a corresponding provision specifically addressing the European Central Bank.

3. What are the three conditions for establishing liability?

The applicant must establish a sufficiently serious breach of a rule of law intended to confer rights on individuals, actual damage and a sufficiently direct causal link between the breach and the damage. All three conditions are cumulative.

4. Does every unlawful decision by an EU institution create a right to compensation?

No. An unlawful decision does not automatically create an entitlement to damages. The breach must satisfy the sufficiently serious threshold, and the applicant must prove actual damage and a direct causal connection.

5. What does a sufficiently serious breach mean?

A sufficiently serious breach generally involves a manifest and grave disregard of the limits placed on the institution’s discretion. The Court considers the clarity of the rule, the degree of discretion available, the complexity of the situation and other relevant circumstances.

6. Can an individual claim compensation for non-material damage?

Yes, non-material damage may be compensable where the applicable conditions are established. The applicant must demonstrate genuine harm and a sufficiently direct connection between that harm and the unlawful institutional conduct.

7. Must an EU decision be annulled before a damages action can be brought?

No. A damages action is an autonomous remedy and does not generally require prior annulment of the measure. However, the applicant must independently prove all the conditions for non-contractual liability.

8. Which court hears actions for non-contractual liability?

The General Court generally has jurisdiction at first instance under Article 256(1) TFEU, while Article 268 provides the relevant Treaty jurisdictional basis. Appeals on points of law may be brought before the Court of Justice.

9. What is the limitation period for an EU damages claim?

Article 46 of the Statute of the Court of Justice establishes a five-year limitation period. The starting point depends on the circumstances and the materialisation of the damage. The Article also provides rules for interruption of the limitation period.

10. Can the European Central Bank be held liable for unlawful conduct?

Yes. Article 340(3) TFEU expressly provides for the non-contractual liability of the ECB and its servants in the performance of their duties. The substantive requirements are broadly aligned with those applicable to the Union under Article 340(2).

11. Is EU institutional liability the same as Member State liability?

No. Article 340 concerns damage attributable to the Union and is pursued before the EU Courts. Member State liability concerns breaches attributable to national authorities and is generally pursued before national courts under the principles established in Francovich and Brasserie du Pêcheur.

Conclusion

Non-contractual liability under Article 340 TFEU is an essential element of the European Union’s system of legal accountability. It establishes that EU institutions, bodies and servants are not exempt from responsibility when sufficiently serious unlawful conduct causes damage to individuals or organisations.

The system nevertheless imposes a demanding legal test. An applicant must identify a rule intended to confer rights, establish a sufficiently serious breach, prove actual damage and demonstrate a sufficiently direct causal relationship. These requirements prevent the damages remedy from becoming a general mechanism for challenging every unfavourable institutional decision or transferring ordinary commercial risks to the Union.

The relationship between Article 340 and the other judicial remedies under the Treaties is equally important. Annulment proceedings address the legality of institutional acts, while damages proceedings address the financial consequences of unlawful conduct. Member State liability operates through a separate but conceptually related framework.

Taken together, these remedies demonstrate that the European Union is a legal order in which the exercise of public authority is subject to judicial scrutiny and, where the legal conditions are met, financial reparation. Non-contractual liability therefore serves both an individual protective function and a broader constitutional purpose: ensuring that institutional power remains accountable to the law.

Primary Legal Sources and Further Reading

Treaty Provisions

• Article 268 TFEU – Jurisdiction in disputes concerning compensation for damage
• Article 256 TFEU – Jurisdiction of the General Court
• Article 340 TFEU – Contractual and non-contractual liability of the Union
• Article 46 of the Statute of the Court of Justice – Limitation period
• Charter of Fundamental Rights of the European Union

Important CJEU Case Law

• Bergaderm and Goupil v Commission, Case C-352/98 P – The sufficiently serious breach standard for EU institutional liability.
• Safa Nicu Sepahan v Council, Case C-45/15 P – Non-contractual liability in the context of restrictive measures.
• Lucaccioni v Commission, Case C-257/98 P – The cumulative nature of the conditions for liability.
• Giordano v Commission, Case C-611/12 P – The requirement of actual and certain damage.
• Holcim (Deutschland) v Commission, Case C-282/05 P – Limitation periods in non-contractual liability proceedings.
• European Union v Gascogne Sack Deutschland and Gascogne, Joined Cases C-138/17 P and C-146/17 P – Liability arising from excessive duration of judicial proceedings.
• Malacalza Investimenti and Malacalza v ECB, Case T-834/17 – Non-contractual liability in the context of ECB supervisory activity.
• Francovich and Bonifaci v Italy, Joined Cases C-6/90 and C-9/90 – The principle of Member State liability for breaches of EU law.
• Brasserie du Pêcheur and Factortame, Joined Cases C-46/93 and C-48/93 – The conditions governing Member State liability.