EU procurement legislation: the question of whether damages claims should be limited to cases of a sufficiently serious breach

Dr Totis KotsonisEversheds Sutherland LLP

Dr Totis Kotsonis of Eversheds Sutherland LLP discusses developments in the application of EU public procurement legislation with reference to an EFTA Court decision dealing with a Norwegian court’s request for an advisory opinion on the correct interpretation of Directive 89/665/EEC (the “Remedies Directive”).

eversheds

There have been a number of important developments in the past 12 months that relate to the application of EU public procurement legislation.  Key amongst them is an EFTA Court decision dealing with a Norwegian court’s request for an advisory opinion on the correct interpretation of Directive 89/665/EEC (the “Remedies Directive”).

The case is of particular interest given that in its judgment the EFTA Court reached the opposite conclusion from that of the UK Supreme Court which, a few months earlier, had considered the same issue.  More specifically, in April 2017, the UK Supreme Court concluded, in EnergySolutions, that under the UK implementing legislation of the Remedies Directive, the remedy of damages was only available where there was a “sufficiently serious” breach of public procurement law.  For its part, the EFTA Court concluded that the Remedies Directive does not impose such a limitation on the availability of damages and that any infringement of public procurement law is sufficient to trigger liability in this way.

This note considers the EFTA Court’s decision on this issue and comments on the inconsistency, including the implications of that inconsistency, between that decision and the judgment of the UK Supreme Court on the same point.

Relevant facts

Fosen-Linjen, a small Norwegian ferry operator, and the claimant in the domestic proceedings, came second in a tender process for the operation of a ferry route.  The process, which had been launched in June 2013, was subject to the Norwegian law implementing Directive 2004/18/EC (the “2004 Directive”), the predecessor directive to Directive 2014/24/EU, regulating public procurement in EEA countries.

Tenders were evaluated on the basis of the following award criteria: “price” (50%), “quality” (25%) and “environment” (25%).  As to the environmental criterion, this was assessed by reference to the amount of fuel which each bidder specified as necessary for the running of the ferry service.  Crucially, bidders were not required to explain how the amount of fuel which they had specified in their tenders, had been calculated or to state the assumptions underlying those calculations.  Norled was declared the winner, despite the fact that Fosen-Linjen had achieved the highest score for price, and a score equal to that of Norled for quality.  What seems to have made the difference in the rankings was the fact that Norled had achieved the highest score in the evaluation of the criterion dealing with environmental considerations.

in January 2014, Fosen-Linjen sought and obtained interim measures stopping the conclusion of the contract between AtB, the contracting authority, and Norled.  AtB subsequently decided to cancel the contract award process and conduct a new competition, after the Court of Appeal confirmed the decision of a lower court to grant interim measures prohibiting the contract’s signature.  In doing so, AtB referred to the Court of Appeal’s finding that AtB had failed to establish a reasonable basis for evaluation and committed an error by not verifying the reasonableness of the fuel consumption estimate which Norled had specified in its tender.

In subsequent proceedings that dealt with Fosen-Linjen’s claim for damages for loss of profit or, in the alternative, bidding costs, while criticising AtB’s approach to the evaluation of the environmental criterion, the court did not award damages to Fosen-Linjen.  The latter appealed this decision to the Court of Appeal.

In its turn, the Court of Appeal made a reference to the EFTA Court, asking it to clarify a number of issues, including whether the Remedies Directive permitted the imposition of conditions for claiming damages in the context of a contract award process.  A key issue in this context, was whether the remedy of damages should only be deemed available where in line with the conditions for Member State liability, as established in Brasserie Du Pêcheur, there was a sufficiently serious breach.

The Court's decision

In considering this issue, the Court concluded that the Remedies Directive does not permit the imposition of conditions for claiming damages so that, in principle, any procurement law breach can give rise to a damages claim. 

The Court reached this conclusion essentially by interpreting purposively the legislation: the Remedies Directive aims at protecting tenderers from the arbitrary behaviour of contracting authorities and seeks to ensure the effective application of EEA rules in the award of public contracts. In order to achieve this, the legislation makes provisions for, among other things, the power to award damages to those harmed by an infringement of public procurement law.  In this regard, the Court also considered relevant that the Remedies Directive does not indicate in any way that for the right to damages to arise the infringement at issue should have special features. 

Separately, in seeking to interpret the Remedies Directive “in the light of the fundamental rights, in particular the right to an effective judicial remedy” the Court considered relevant that the CJEU had already established in Commission v Portugal and Strabag that a national rule making the award of damages conditional on proof of fault or fraud was not permissible as it would make actions for damages more difficult and costly, thereby impairing the full effectiveness of the public procurement rules.  The same reasoning had to apply in relation to national rules which sought to limit the remedy of damages to only specific type of public procurement law breaches. 

The Court also considered that limiting the availability of damages would affect adversely the deterrent effect of the public procurement remedies system and undermine substantially the goal of effective and rapid judicial protection.  In addition, it would interfere with the objectives pursued by the 2004 Directive, to guarantee the right to provide services and to ensure undistorted competition in the public procurement markets.  In the light of these considerations, the Court concludes that “the gravity of a breach of the EEA rules on public contracts is irrelevant for the award of damages”.  

As noted earlier, the Court’s decision on this point is of particular interest given that it is at odds with the Supreme Court’s decision in EnergySolutions.  In that case, the Supreme Court considered that the CJEU’s decision in Spijker provided “very clear authority” that the liability of a contracting authority under the Remedies Directive could only be established when the conditions for Member State liability were met, including the requirement that the breach was sufficiently serious.  Indeed, the Supreme Court considered that the clarity of EU law on this point was such as not to call for any reference to the CJEU: “the Supreme Court can be safe in relying on the clear language and ruling in Spijker as settling the position, whatever may have been previous doubts or differences of view at national level”.

The Supreme Court’s conclusion on this point has not been without its critics and has led to a lively debate amongst public procurement lawyers in the UK and elsewhere.  Indeed, arguably, a fair criticism of the Supreme Court’s decision lies in the certainty with which it concluded that Spijker sets out the correct interpretation of EU law on the question of whether liability for damages can arise only in relation to certain breaches of procurement law and that there is either no inconsistency between Strabag and Spijker or that to the extent that there might have been, the correct position has now been settled with the slightly more recent judgment in Spijker.

It is the author’s view that there is in fact an apparent inconsistency between Strabag and Spijker which the Supreme Court’s decision does not address or explain satisfactorily.  Indeed, the referring court’s difficulty in reconciling the CJEU’s judgments in Strabag, and the earlier Commission v Portugal case on the one hand, and Spijker on the other, was one of the key reasons for this reference to the EFTA Court.

Apparent inconsistencies in CJEU rulings, are of course nothing new.  These often come about as a result of the facts of different cases being sufficiently different to warrant different approaches.  Alternatively, such inconsistencies might arise as a result of the CJEU considering it appropriate to adopt a different approach in view of other relevant aspects of the law having been clarified in the meantime.  However, sometimes – as in the case of Strabag and Spijker – the reasons for the inconsistency are less clear so that the correct legal position cannot be said to have been established unless the CJEU itself provides the additional clarity (often as a result of references for preliminary rulings) or the legislators clarify the position by amending the relevant legislation.

Separately, even if we were to accept that there is no inconsistency between Strabag and Spijker a key problem with accepting the Supreme Court’s view that Spikjer sets out the correct approach to the question of whether only certain type of public procurement law infringements should give rise to damages, is that it is an interpretation which would seem to be inconsistent with a literal reading of the Remedies Directive while at the same time, it is an interpretation which would seem to disregard the underlying aims of procurement legislation and its remedies regime.  Indeed, the apparent inconsistency of Spikjer itself with either a literal or a purposive interpretation of the law should have been a sufficient reason for the Supreme Court to have sought a reference to the CJEU. 

Ultimately, the arguments advanced by the EFTA Court in reaching its conclusion on the question of whether the availability of damages can be made subject to certain conditions, would seem difficult to refute, unless one is prepared to argue that the type of effectiveness which the EFTA Court considers as necessary to ensure compliance with the requirements of the Remedies Directive is excessive and disproportionate and should be scaled back.  The argument that it is and that it should, would seem all the more difficult to accept in a UK context where a number of not insignificant difficulties have already been identified in relation to seeking a remedy for breaches of public procurement law.

Indeed, the number of (reported) procurement law cases which have led to the award of damages in the UK courts in the past 30 years is comparatively low.

That in itself is not necessarily an issue as ultimately the question of whether or not damages, and if so of what type and of what quantity, should be granted should be, as indeed it is, determined by reference to the question of causation.  In the author’s view, this requirement provides in itself a sufficient safeguard to ensure that the availability of the remedy of damages for all breaches of procurement law should not have the effect of being disproportionate or unduly onerous on contracting authorities. At the same time, the availability, in principle, of damages for all public procurement law infringements allows the remedies system to function more effectively as a deterrent against breaches of the law. 

In view of the contradictory nature of the EFTA Court’s and the Supreme Court’s judgements on this point, the question arises as to whether that effects in any way the current legal position in the UK.  The short answer is that, it does not do so directly.  More specifically, the EFTA Court’s interpretation of EU legislation is not binding on the courts of EU Member States.  In theory, therefore, it would be perfectly legal for the UK courts to disregard the EFTA Court judgment and continue to apply the law on this point as interpreted by the Supreme Court.   

At the same time, this inconsistency of interpretation, raises sufficient doubts as to the correctness of the Supreme Court’s approach, not least, its view that the EU law on this point is clear, and – Brexit considerations aside – makes a reference to the CJEU for a preliminary ruling both appropriate and desirable.

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