Brief Historical Background of the Formation of the European Union
European Union was formed through the amalgamation of various sporadic integrations among countries within Europe. These integrations were initially motivated by the need to keep peace in Europe after the Second World War and by political resistance against strong nations such as the United States. However, they integrated with economic cooperation in mind to achieve the above goals (Struma, 2009). Various integrations that existed prior to the European Community hereinafter referred to as the EC, were: European Coal and Steel Community (ECSC); European Economic Community (ECC), and the Euratom. The three ratified a merger treaty in 1968, forming the EEC, commonly known as the EC (Indiana, 2012).
Over the years between 1968 and 1990 when the EC was formally known as the European Union, various political and economic events occurred, which influenced growth of the EC/ EU to its current size. These events included the fall of the Berlin Wall, the creation of a common currency, and cooperation in areas other than economic development (Struma, 2009).
It is also important to note at this point that European Union is established on the basis of the principle of the Rule of Law and was created on a treaty law framework, namely the Maastricht Treaty of 1993 and the Schengen treaty of 1990 that gave EU its current status (Wessel, 2000).
Legal Framework within the European Union
Sources of law within the European Union are of paramount importance to our discussion of direct effect, indirect effect, and state liability mainly because it is due to these laws that the above principles have emerged to determine the applicability of Union’s law in member states.
The sources of law are divided into two groups, namely: primary sources and secondary sources (Rosley, 2004). Treaty Law establishing the EU falls under primary sources, while secondary sources are numerous and consist of regulations, directives, decisions, recommendations, opinions, and international treaties concluded by the Union (Naglic & Papado, 2012). Treaty law of the EU mainly outlines goals the Union hopes to achieve, and it is through secondary sources that functions of the treaties are implemented. Whereas treaty law was a result of an agreement between member states and hence applies to all member states, there is a slight difference in the applicability of secondary laws. Notably, the treaty is silent on the applicability of either law, that is, a member country or the Union needs to do something further for implementation of either regulation or a directive, hence judicial interpretation leading to principles of direct effect, indirect effect, and state liability.
The supremacy of the EU Law over that of Member States
Factually, states are sovereign and hence free from the interference of other states and their laws. However, with the integration of European Community, which was a fusion of various sovereign states, the European Court of Justice, hereinafter referred as the ECJ, ruled on the issue of supremacy of the EC/ EU law over that of member states (Piqani, 2009). In the case of Costa v Enel, the ECJ established the principle of supremacy of community law. Monica Claes stated that “…under the principle of supremacy, precedence must always be given to community law over conflicting national law however framed and including national constitutional provisions” (CJEC, 1964). The court went further to state in its ruling guided by reasoning that when the court ratified the treaty, the treaty becomes an integral part of member states’ legal systems and hence law stemming from the treaty could not be overridden by municipal law since that would be depriving that particular law community force (Piqani, 2009).
Direct Effect and Indirect of EU Law
Having stated a well-settled jurisprudence on the supremacy of community law when in conflict with national law, it is important to note that regardless of community law being supreme, not all laws that emanate from community/Union have direct effect inapplicability (Piqani, 2009). The principle of directness, which was first established by the ECJ in the case of Van Gend en Loos, implies that laws that emanate from the EC become an integral part of municipal laws of members states and do not require further action from either the community or the member state (Tovey, 1994-2006). In addition, by introducing this principle the court clarified its applicability to individuals of member states of the Union. The court in its ruling empowered individuals by stating that: “…Moreover, the fact that the obligation was expressly imposed on the Member States did not imply that their nationals could not benefit from such an obligation” (ECJ, 1964). The concept of individuals invoking EC rules in their national court as established in the van Gend case is known as ‘vertical direct effect’ (ECJ, 1964).
To add to the aforementioned jurisprudence established in the case, it was further established that any law emanating from the EU has a direct effect (Tovey, 1994-2006). The criterion was well explained in the case of Reyners v Belgian State by advocate General Mayras, who claimed that provisions of the law in question must be clear, precise, unconditional, and independent from further action of either community or national authority for enforceability (Case 2/74.  ECR 631). This is particularly important since it acts as a distinguishing factor between the concepts of direct applicability as envisaged under article 249 of the EC Treaty and the principle of direct effect. Article 249 of the EC Treaty provides that regulations are directly applicable, and hence enter into force once legislated (Piqani, 2009). As the case may be, a regulation being directly applicable does not mean that it has a direct effect if it fails to meet the set criteria.
It is important to note that the emergence of the principle of direct effect has been advantageous to individuals of EU member states, hence the notion that it should be applauded. This is evident in the case of van Gend, where the individual was allowed to invoke EC law to override that of his state as well as in the case of van Duyn v Home Office, where EC law on freedom of movement was invoked as opposed to a restriction placed in the UK as to issuance to work permit, which was discretional, hence referred as being conditional (van Duyn, 1974).
However, the principle is not without its faults and injustices to individuals of member states. Domestic courts of member states are under an obligation to interpret domestic laws so as to give effect to EC law and any inconsistency that emerges overrides national law. In the case of Litster and Others v Forth Dry Dock & Engineering, the employer acted according to UK law, however, in contradiction to EC regulations and directives by dismissing his employee’s right before the company went into receivership. ECJ court held that the employer was liable for wrongful dismissal regardless of having been in conformity with UK law that was contradicting that of EC regulations and directives ( 1 AC 546).
The Doctrine of Indirect Effect
The doctrine of indirect effect requires that national courts interpret laws to give effect to intentions community laws even though provisions in question do not fulfill the criteria set out for a provision to have a direct effect. An indirect effect is seen to be a complementary principle to the principle of direct effect. This principle emanated from the case of Von Colson and Elisabeth Kamann v Land Nordrhein-Westfalen where the ECJ stated that (Case 14/83  ECR 1891, PARA.26):
[T]he Member States’ obligation arising from a Directive to achieve the result envisaged by the Directive and their duty under Article [4(3) TEU] to take all appropriate measures, whether general or particular, to ensure the fulfilment of that obligation, is binding on all the authorities of Member States including, for matters within their jurisdiction, the courts. It follows that, in applying the national law in particular the provisions of a national law specifically introduced in order to implement [a Directive], national courts are required to interpret their national law in the light of the wording and the purpose of the directive in order to achieve the result referred to in the third paragraph of Article .
However, though the doctrine is advantageous to some extent, like in the case of Von Colson, its applicability creates problems in the applicability of directives. Generally, member states are under an obligation to transpose directives once they are issued within a certain time frame. However, each state has discretion on how to transpose the directive to fit into their municipal law and “[W]here a directive is transposed belatedly, the general obligation owed by national courts to interpret domestic law in conformity with the directive exists only once the period for its transposition has expired” (Case C-212/04,  ECR I-6057, par.115).
The principle of state liability is a ‘negative ‘consequence of the development of the principle of the direct and indirect effect. The principle of state liability is invoked once a state is in breach of implementing EC provisions either to give a direct or indirect effect. The court in the case 6/60 the ECJ set out the principle of state liability by stating that:
[i]f the Court finds that a legislative or administrative measure adopted by the authorities of a Member State is contrary to Community law, that State is obliged by virtue of Article 8 of the ECSC Treaty to rescind the measure in question and to make reparation for any unlawful consequences thereof.
In 1991, the court further cemented the above ruling in the landmark case of Francovich by setting out extensively and bestowing a right upon individuals to seek compensation from member states for their failure to transpose a directive within the required period, which resulted in a situation where individual has suffered any damage, breach of rights, or any other loss. Referring to Article 5 of the EEC Treaty (now Article 10 of the EC Treaty), the court came to the conclusion that “it is a principle of Community law that the Member States are obliged to make good loss and damage caused to individuals by breaches of Community law for which they can be held responsible” (Francovich, 1991). It is important to note that various members states have numerous agents that assist the government to implement its mandate, and different agents are under an obligation to implement various provisions of EC law concerning its agents. However, failure on the part of the agent amounts to a failure of the government and hence is liable for breach of obligation.