EFTA Court rules no need for “sufficiently serious” breach to claim damages for breach of public procurement rules

This decision is not binding on English courts, but will need to be reconciled with the Supreme Court decision that came to the opposite conclusion on the same facts. The decision also raises interesting issues regarding the interplay between EFTA / CJEU / domestic case law, and whether there is more to come on this issue before (or after) Brexit.

The European Free Trade Association (EFTA) Court has held, in the case of Fosen Linjen AS v AtB AS, that a breach by a contracting authority of its obligations deriving from the EU Public Procurement Directive (2014/24/EU) does not have to be “sufficiently serious” for damages to be awarded to a challenger.  This case comes less than a year after the UK Supreme Court ruled the opposite, interpreting the same legislation and case law in the appeal on this issue in EnergySolutions v Nuclear Decommissioning Authority.The fact that the EFTA Court decision and the Supreme Court’s ruling are contradictory leaves it very likely that the next case in the UK that addresses the question of whether damages are an adequate remedy for a breach of public procurement law is likely to be expedited to the Supreme Court and indeed a reference made to the CJEU.

What was the position following EnergySolutions?

In EnergySolutions v Nuclear Decommissioning Authority (see here and here for our analysis of the case) the Supreme Court decided that claims for damages in Public Procurement cases had to meet the EU damages threshold set out in Francovich v Italy before damages would be a remedy.

Francovich sets out that under EU law, a breach by a public authority must be “sufficiently serious” (amongst other things) before damages can be paid. This is in contrast to English law, in which damages will be payable simply where the claimant establishes that the defendant’s breach caused the claimant to suffer loss, with no requirement for a culpability test for the breach.

The Supreme Court found that, because the relevant UK procurement regulations were derived from EU law, and the UK had not sought to ‘gold plate’ the position for economic operators, the EU principle set out in Francovich would apply.

The Fosen decision of the EFTA Court, however, reaches a different conclusion.

EFTA and the EFTA Court

EFTA currently consists of Norway, Iceland and Liechtenstein. In order for EFTA members to trade freely with other EEA countries (that is, EU member states), they are subject to a number EU laws (such as the Public Procurement Directives). The EFTA Court decides issues for EFTA members arising out of applicable EU and EEA legislation; a function comparable to the CJEU.

Although the decisions of the EFTA Court are non-binding on the CJEU, in practice the CJEU usually gives great weight to EFTA Court decisions, especially where the EFTA Court has considered a novel issue. Indeed, the EFTA Court is the only court whose jurisprudence is regularly taken into account by the CJEU when interpreting EU law.

What was the Fosen case about?

Fosen-Linjen is a small ferry operator, that tendered to provide a ferry service in the Norwegian county of Sør-Trøndelag. AtB was employed to procure transport services for Sør-Trøndelag.

After losing the procurement and entering into a series of challenges, Fosen-Linjen brought a further claim for damages against AtB. Fosen-Linjen argued that, in failing to properly assess some of the claims made by other bidders with regards to fuel efficiency, AtB could not have properly assessed the tenders and so was in breach of the Norwegian Procurement Act, which implemented the EU Public Procurement Directive.  At first instance, Fosen-Linjen was successful, and AtB appealed.

The Norwegian appeal court referred a number of questions to the EFTA Court. Most importantly, the court asked whether the provisions of the relevant EU Procurement Directives meant that national rules on the award of damages must be set aside when considering breaches of national procurement law which implements EU procurement law, meaning damages should be assessed on the principles laid down in Francovich.

The EFTA Court decision

The question asked of the EFTA court is almost exactly the same question the Supreme Court dealt with in EnergySolutions, including references to the same EU Directives.

In a large part, the difference between the Supreme Court’s decision and the EFTA Court’s ruling comes about through different interpretations of the Remedies Directive and the CJEU’s decision in Combinatie Spijker. The Supreme Court took the decision in Spijker as meaning that the Francovich principles will apply to any claim for damages against a state (or state body) for breach of EU legislation – and in particular any breach by a contracting authority of laws implementing the Procurement Directives.

The EFTA court, by contrast, interpreted the Spijker case as meaning that the Francovich principle exists only where there is no specific EU legislation that deals with damages. Here, the Remedies Directive deals with damages for breaches of procurement law, and so in effect subsumes the Francovich conditions.

The EFTA court also justified its findings by distinguishing the nature of procurement challenges from the Francovich case. In Francovich, the damage arose because Italy failed to transpose EU/EEA law. Where the national legislature breaches EU law when transposing, it is “exercising an act of a public authority”. This is different, the EFTA court held, to a contracting authority breaching EU procurement law under that transposed legislation. In the latter instance, the authority is not carrying out “an act of public authority”, but merely aiming to enter into a commercial contract under an EU law derived framework.

As such, the finding of the EFTA court was that the laws of the nation where the contract was awarded should determine whether damages should be awarded, without any other conditions (i.e. Francovich conditions) being imposed under general EU law.

Osborne Clarke comment

The contrasting decisions of the Supreme Court and the EFTA Court are not possible to reconcile – it must be that one is the correct interpretation of the Directives and case law.

The Supreme Court is not bound by the EFTA Court’s decision in the way it would be by a CJEU decision. That said, given the weight the CJEU gives EFTA Court rulings, it is reasonable to assume that any referral of the question to the CJEU by an English court may well result in a ruling contrary to that of the Supreme Court in Energy Solutions.

The position is further complicated by Brexit, after which it is unlikely (although not yet certain) that the UK courts will be bound by decisions of the CJEU (for more on this, see our note on the EU (Withdrawal) Bill). It is unknown at present what weight the UK courts will give to post-Brexit EFTA Court or CJEU decisions in interpreting legislation derived from EU law.

The next case in the UK that needs to address the question of the adequacy of damages as a remedy could well lead to a reference to the CJEU to determine whether the EFTA court decision should be followed. We do not yet have certainty about the transitional arrangements for references to the CJEU, though, so there may be a limited window of opportunity in UK public procurement law to have this important issue clarified.