Executive Summary:
- EU institutions are liable for non-contractual liability when their actions infringe the legal rights of individuals and cause them harm.
- Incorrect interpretation and application of Article 107(1) TFEU by the European Commission may constitute a serious breach of EU law that gives rise to claims for compensation by those who are harmed.
Table of Contents:
- Introduction
- Claims for damages are time-barred
- Serious breach of EU law
- Causal link
- The relevance of other contributing factors
- Conclusions
Introduction
EU institutions, including the Commission, are liable for any harm or damage they cause. Companies often claim that negative Commission decisions on state aid causes them damage. But during at least the past 25 years, the Commission has been found by an EU court to have committed a “sufficiently serious breach” of law and, as a result, to incur non-contractual liability only once! [see case T-88/09, Idromacchine v Commission, paragraph 57]. It is not that the Commission does not make mistakes. It is just that mistakes must be sufficiently serious. Given the discretion that the Commission enjoys in the field of state aid and the complexity of state aid measures, it is very difficult to prove that it blatantly exceeds the boundaries of its discretion and acts in an arbitrary or unreasonable manner.
However, on 3 September 2026, in its judgment in case C-145/24 P, BdM Banca v Commission, the Court of Justice of the EU [CJEU] did find, rather surprisingly, that the Commission had committed a sufficiently serious breach of law.[1]
BdM Banca, formerly Banca Popolare di Bari SpA, appealed against the judgment of the General Court in case T-415/21, Banca Popolare di Bari v Commission. In that judgment the General Court dismissed the action of BdM Banca, based on Article 268 and Article 340(2), TFEU, seeking compensation for the damage which it claimed it had suffered as a result of Commission decision 2016/1208 on state aid SA.39451 granted by Italy to Banca Tercas. In that decision, the Commission had found that Banca Tercas had received incompatible state aid.
Banca Tercas had become insolvent and BdM Banca was in the process of acquiring Banca Tercas. At the same time the Italian Interbank Deposit Protection Fund [IDF] decided to inject capital in Banca Tercas to keep it afloat, rather than wait for Banca Tercas to declare bankruptcy and then compensate depositors. IDF had concluded that compensation would cost it less than the capital injection. The Commission considered that the capital injection was funded by state resources. Subsequent judgments by the General Court and the Court of Justice found that the capital injection could not be attributed to a decision of the state [see T-98/16, Italy v Commission confirmed in C-425/19 P, Commission v Italy] because IDF was a private entity and it act independently of the state.
In 2021, BdM Banca lodged proceedings before the General Court seeking EUR 280 million in damage compensation for the alleged serious breach of EU law committed by the Commission. BdM Banca claimed that the negative Commission decision caused a deterioration in customer confidence due to the uncertainty surrounding its ability to finalise the process of taking over Banca Tercas, which in turn caused losses of deposits and customers [loss of earnings], damage to its reputation [non-material damage], and extra costs related to measures to mitigate the negative effects of the Commission decision [actual harm]. In December 2023, the General Court dismissed the action because it held that no serious breach had been committed and because there was no direct link between the Commission decision and the claimed damage.
Claims for damages are time-barred
A claim seeking compensation for damage caused by an act of an EU institution must be submitted within five years of the damage first materialising. One of the causes of the alleged damage suffered by BdM Banca was the cost it incurred as a result of downsizing its staff in 2015. The CJEU found, in paragraphs 23-30 of the judgment, that it occurred more than five years before the action for damage was lodged in 2021. Therefore, it was unfounded.
Serious breach of EU law
Under Article 340 TFEU, EU institutions are liable for damage they cause through their action or inaction. Given the decision-making discretion they enjoy in varying degree in different policy fields, EU institutions incur non-contractual liability when they commit a “sufficiently serious breach” of law that affects the rights of persons or companies.
In paragraph 46, the CJEU recalled that the proof of non-contractual liability under the second paragraph of Article 340 TFEU is subject to the following three conditions: 1) The existence of a sufficiently serious breach of a rule of law intended to confer rights on individuals, 2) the occurrence of damage and 3) the existence of a causal link between the breach of the obligation of the institution concerned and the damage suffered.
With respect to the requirement for a sufficiently serious breach of a rule of law intended to confer rights on individuals, the CJEU recalled that the General Court had held that, by failing to apply correctly the concept of intervention by the state or through state resources, the Commission had not, nonetheless, committed a sufficiently serious breach of Article 107(1) TFEU [para 47].
More specifically, the CJEU noted that the General Court had found that, in view of the complex legal and factual context in which the aid measures at issue had been granted by a private entity, the fact that the Commission had not established to the requisite legal standard the involvement of the Italian public authorities in the adoption of the capital injection could not constitute a manifest and serious breach of the limits imposed on the Commission’s discretion [para 48].
The CJEU explained that a breach of EU law is sufficiently serious where, in the exercise of its legislative power, in respect of which EU law leaves it a margin of discretion, an EU institution manifestly and gravely disregards the limits on the exercise of that power. On the other hand, where that institution is not faced with legislative choices and has only a considerably reduced, or even no discretion, the mere infringement of EU law may be sufficient to establish the existence of a sufficiently serious breach [para 49].
In most cases where EU courts find a sufficiently serious breach of law it is the result of procedural irregularities where the relevant rules leave no discretion to EU institutions, such as, for example, where a legal or natural person must be informed of its rights or be given the opportunity to respond to allegations against them. In the only other case in the field of state aid where the Commission was found to have committed a serious breach of law, there was an infringement of the obligation of professional secrecy. The Commission had published confidential information. Here the Commission had no discretion with regard to its handing of professional secrets [see T-88/09, Idromacchine v Commission, paragraph 57].
Then the CJEU turned to the present case and recalled, “(50) in the judgment of the General Court of 19 March 2019, Italy and Others v Commission (T‑98/16, T‑196/16 and T‑198/16, EU:T:2019:167, paragraphs 70 and 87 to 90) and, on appeal, in the judgment of the Court of Justice of 2 March 2021, Commission v Italy and Others (C‑425/19 P, EU:C:2021:154, paragraphs 63 and 67), that the unlawfulness of the Tercas decision resulted, in essence, from two conceptual errors. The first of those errors alleges confusion between the condition relating to the imputability of a measure to the State and that relating to State resources, and the second lies in the assessment of the condition of the aid’s imputability to the State, even though it was granted by a private entity, by means of the same test as that which is applied when aid is granted by a public undertaking.”
The CJEU also reiterated that “(51) the concept of ‘State aid’, as defined in the FEU Treaty, is a legal concept which must be interpreted on the basis of objective factors. For that reason, the Courts of the European Union must, in principle and having regard both to the specific elements of the dispute before them and to the technical or complex nature of the assessments made by the Commission, carry out a full review as regards whether a measure falls within the scope of Article 107, paragraph 1 TFEU”.
Then the CJEU made a rather strong statement.
“(52) Consequently, the Commission has only considerably reduced, or even no, discretion as regards the classification of a measure as ‘State aid’ within the meaning of Article 107(1) TFEU, with the result that the mere infringement of that provision may be sufficient to establish the existence of a sufficiently serious breach.”
This statement appears to contradict the many times that EU courts have stated that when the Commission determines the presence of state aid, it carries out not only a legal assessment but also a complex technical and economic analysis. Despite the fact that the concept of state aid is “objective” and, therefore, the discretion of the Commission is limited, EU courts have acknowledged that the Commission still enjoys a certain degree of discretion in assessing complex legal, technical and economic issues.
Moreover, the case law on non-contractual liability of the EU does take into account the complexity of a case and whether the relevant law that is infringed leaves little or no discretion to the authority concerned. I find the summary of the General Court of the relevant EU law on non-contractual liability and its explanation of the complexity of the Banca Tercas case much more convincing [see T-415/21, Banca Popolare di Bari v Commission, paragraphs 109-125].
At any rate, the CJEU went on to clarify that “(54) although the measure of discretion left by the rule of law infringed to the EU authority is a relevant factor which must be taken into consideration in all cases in order to determine whether that authority committed a sufficiently serious breach, the absence of discretion does not necessarily mean that the breach of that rule of law is sufficiently serious“.
This is correct. Some errors are simply trivial.
Therefore, “(55) depending on the circumstances of each case, other factors may be taken into account, having regard to the context in which the infringement was found to have been committed. Accordingly, a breach of a rule of law that leaves no discretion to the authority concerned may not appear, in the light of those circumstances, to be manifest and therefore sufficiently serious, in particular if it results from an error of law that may be excused by having regard to the complexity of the situation to be resolved and the difficulties applying or interpreting the legislation containing that rule”.
“(56) Such difficulties of interpretation and application may be such as to explain the conduct of an institution where it turns out that it acted as an ordinarily careful and diligent administration would have done in similar circumstances”.
Then the CJEU turned to the case at hand and noted that both EU courts found that the Commission made the two conceptual errors, mentioned above, relating to the interpretation and application of the concept of state aid [para 57].
Consequently, “(58) in the Tercas decision the Commission applied an incorrect test in order to classify the aid measures at issue. Contrary to what the General Court held …, by making such conceptual errors, the Commission infringed Article 107(1) TFEU in a sufficiently serious manner, irrespective of any difficulties in applying the concept of ‘State aid’ within the meaning of that provision.”
Therefore, “(59) the General Court erred in law in finding that the Commission had not committed a sufficiently serious breach of Article 107(1) TFEU.”
I don’t follow the reasoning of the CJEU at this point. The injection of capital in Banca Tercas was particularly tricky. Although the Italian IDF was a private entity, it was acting in compliance with the law on the protection of depositors. It was reasonable for the Commission to conclude that the decision of IDF could be attributed to obligations imposed by the state. Moreover, in that situation no rational investor would have injected capital in a failing bank, in the absence of state or legal compulsion. I also don’t follow the reasoning of the CJEU because in paragraph 56 it referred to how a prudent and diligent institution would have acted and yet it found that the Commission had committed a serious breach without examining whether the Commission had acted in sufficiently prudent and diligent manner.
Causal link
Even though the CJEU found that the Commission had infringed Article 107(1) TFEU in a sufficiently serious manner, given the cumulative nature of the three conditions for the EU to incur non-contractual liability under Article 340 TFEU, it proceeded to examine whether there was a causal link between that infringement and the damage allegedly suffered by BdM Banca.
First, the CJEU explained that the General Court’s factual assessment of the causal link fell outside the jurisdiction of the CJEU on appeal, except where the facts or evidence had been distorted [para 67].
Then, the CJEU concurred with the General Court that there was a break in the chain of causality between the Commission decision and the damage allegedly suffered by BdM Banca. Moreover, it agreed with the General Court that BdM Banca had not provided any evidence or put forward any specific arguments to demonstrate that Tercas’ loss of customers and direct deposits were attributable to the Commission decision [para 69].
The relevance of other contributing factors
In the real world, no act is completely isolated from other events. In statistics this is called “multicausality” and statisticians have developed tests to ascertain not only the causal impact of an event on another, but also the significance of each individual impact when multiple events occur simultaneously or in the same time period. As can be seen below, the case law is rather vague on how the effect of an individual event can be separated from that of others that occur at the same time and have a causal impact.
“(87) As regards the appellant’s argument that the presence of other competing causal factors is not capable of breaking the causal link between the Tercas decision and the damage which it claims to have suffered, but may affect only the calculation of the compensation, it must be held that such an argument raises a question of law which may be subject to review by the Court of Justice on appeal.”
“(88) By that argument, the appellant asks the Court of Justice to rule on whether the General Court applied correct criteria in order to establish the existence of a causal link between the event giving rise to the damage and the damage, whether that damage may have been caused by other competing causal factors and, more specifically, concerning whether, as the appellant claims, the effect of potential concomitant causes is necessarily limited to quantifying the damage or whether it may, as the case may be, affect the very existence of such a causal link.”
“(89) In that regard, it follows from the case-law of the Court of Justice that the condition relating to a causal link concerns a sufficiently direct causal nexus between the conduct of the EU institutions and the damage, the burden of proof of which rests on the applicant, so that the conduct complained of must be the determining cause of the damage”.
The last part of the paragraph 89 immediately raises the question whether “determining cause” means the sole cause or the most important of several contributing causes. If a factor causes, say, 60% of the damage, should it be regarded as the “determining cause” or not? Or should it, instead, be considered as a “co-determinant” factor and liable only for 60% of the damage?
“(90) More specifically, the damage must flow sufficiently directly from the unlawful conduct”.
Here the CJEU appears to conflate causality with co-determination. For example, when a drunk driver that drives at high speed in a car with faulty brakes and causes an accident, we do not say that the cause of the accident is indeterminant because it is not possible to identify a single determining cause.
However, the CJEU went on note, correctly, that “(91) it thus appears that, even in the case of a possible contribution by the institutions to the damage for which compensation is sought, that contribution might be too remote because of other factors, such as responsibility resting on third parties or, as the case may be, on the applicants”.
“(92) It follows, …, that the effect of potential concomitant causes is not limited to the quantification of the damage, but may affect the very existence of a causal link between the acts attributable to an institution and the damage.”
“(93) Therefore, in the present case, in order to establish the existence of a direct causal link between the Tercas decision and the alleged damage, the General Court was right to hold, …, that it is not for the appellant to demonstrate that that decision may have contributed to causing that damage, but to prove that it was the decisive cause of that damage.”
But what is a “decisive cause”? Must a decision cause the majority of the damage or all of the damage. Or, does decisive mean that in the absence of that decision there would be no damage because the decision was the catalyst for other adverse events to take place? I find this conclusion unsatisfactory because it ignores the reality of multicausality in most actual situations.
In the end, the CJEU held that the General Court did not err in taking into account the existence of other factors which may have contributed to the alleged damage [para 94].
Lastly, the CJEU proceeded to give final judgment. It annulled the judgment of the General Court so far as it held that the Commission did not commit a sufficiently serious breach of Article 107(1) TFEU. Because, however, the General Court was found to be right in ruling that BdM Banca had not established the existence of a causal link between the Commission’s decision and the alleged damage, the CJEU dismissed the appeal.
Conclusions
The case law on non-contractual liability under Article 340 TFEU is complex and relies on concepts that are not easy to apply in practice. This is demonstrated by the present judgment. I do not think that it will have any significant impact on the Commission’s ability to control state aid. Even if it is found to commit a serious breach of law by misinterpreting the concept of state it, it will still be very difficult for companies to prove a causal relationship between the Commission decision and whatever damage they will claim to have suffered. The present judgment indicates that in the real and messy world, the proof of a causal effect is tricky.
