Procurement in a Nutshell – Court rules simple breach of procurement law is sufficient to trigger liability
24th November, 2017
This week's update considers the European Free Trade Association Court's decision in Fosen-Linjen AS v AtB AS where it ruled that a breach of procurement law by a Contracting Authority need not be "sufficiently serious" for damages to be awarded to the challenger. Despite it not being directly binding on UK courts, the decision is interesting due to its disparity with other high profile decisions.
The case
The case concerned a small ferry operator, Fosen-Linjen (FL), who tendered to provide ferry services between Brekstad and Valset in Norway. FL was one of three businesses who bid for the contract and they were subsequently placed second in the procurement process.
The award criteria set out by the Contracting Authority (CA) were “price” (50%), “environment” (25%), and “quality” (25%). A score was awarded to each criterion on a scale from one to ten, and then weighted accordingly. FL successfully brought an action in a Norwegian district court and the Court of Appeal to prevent the contract signing. Subsequently the CA informed the tenderers that it had decided to cancel the tender procedure as a result of errors.
In the next series of challenges, FL brought damages claims against the CA for loss of profit and for the cost of bidding. At first instance FL were successful but subsequently the CA appealed and The Norwegian appeal court referred a number of questions to the EFTA Court.
At the Court
The EFTA Court made four important points in relation to the questions asked by FL.
- The Court held that a simple breach of public procurement law alone was sufficient to trigger liability for the CA to compensate the person harmed for the damage incurred, provided that the other conditions for the award of damages (such as the existence of a causal link) were met.
The Court held that a rule requiring a breach of a certain type of gravity would substantially undermine the goal of effective and rapid judicial protections sought by the Remedies Directive. Furthermore, it would interfere with the objectives of the Directive, by inhibiting the free movement of services and preventing open and undistorted competition in all EEA States.
- Regarding the standard of proof in relation to claims seeking compensation for loss of profit. The Court held in the absence of EEA rules on causation, it is for each EEA state to lay down the conditions for this, subject to the principles of equivalence and effectiveness. The Remedies Directive does not prevent member states having requirements which require the aggrieved tenderer to prove, with evidence, that they would have been awarded the contract but for the error before they could receive damages.
- Member states could have laws which exempt CAs from liability for loss of profits where a tender procedure is cancelled because of an error but in compliance with EEA procurement law. However, it is for the CA to prove the existence of the error and it must justify its decision to cancel the tender process. The court made reference here to the fact that allowing for excessive liability and damages may be a deterrent for both CAs and undertakings entering into procurement procedures.
- Finally, the Court held that it is ultimately up to the CA to choose the award criteria provided that its purpose is to identify the most economically advantageous tender, on condition that all reasonably well informed tenderers of normal diligence can interpret them in the same, clear way.
Why is this important?
What is particularly interesting is that the judgment contradicts the current UK position on the matter where, in the 2017 case of EnergySolutions v NDA, the Supreme Court followed European jurisprudence and ruled that damages would only be available where there has been a sufficiently serious breach.
For this reason, this case has raised interesting issues on what the position of domestic law will be following Brexit as it remains unlikely that the UK courts will continue to follow EU jurisprudence. This has left the door open for UK courts to possibly realign with the EFTA Court decision and it provides us with a potential insight into what the position of procurement liability and remedies may be following Brexit – particularly if the UK opts to join Norway in the EEA.
How can I find out more?
If you have any queries on the issues raised or on any aspect of procurement, please contact us via our procurement hotline on 0191 204 4464.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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