The UK Supreme Court has ruled on an appeal relating to the circumstances in which damages may be recoverable for failure to comply with the requirements of the EU and UK procurement rules (the Rules).1 Remedies include the setting aside of contract awards and compensation.2 The Rules provide for a ten day stand-still period during which the contracting authority must refrain from entering into a contract with the successful bidder. If proceedings are issued challenging the award decision during this period, the period is extended until court order or disposal of proceedings.
The respondent to the proceedings, ATK Energy EU, brought a damages claim against the appellant, the Nuclear Decommissioning Authority (NDA),3 for breaches of NDA’s obligations under the Rules in connection with ATK’s unsuccessful bid for a contract for the decommissioning of twelve power stations. The damages were sought for breach of the obligation to award the contract to the most economically advantageous tender. The parties sought judgment on preliminary issues relating to whether (i) the court had any discretion under these Rules not (or only partially) to award damages for losses deriving from NDA’s breach of its obligations and (ii) ATK’s failure to start proceedings within the ten day standstill period (which would have automatically suspended NDA’s right to award the contract) meant that the tenderer was not entitled to damages as it had failed to mitigate its losses.
In first instance proceedings, NDA had argued that the phrase “[the court] may award damages” in Regulation 47J(2)(c) gives effect to the “Francovich conditions” applicable to award of damages in EU law, as developed from EU case law.4 One of these conditions provides that the breach of EU law must be “sufficiently serious”, which necessarily introduces an element of discretion to the award of damages, according to NDA. ATK’s argument, however, which had been accepted by Edwards-Stuart J, was that ordinary English law principles were applicable to such awards of damages, and that once a breach of the Rules was established the award of damages was not discretionary. On the second issue, Edwards-Stuart J had concluded that he could not decide whether ATK’s failure to issue proceedings in time to prevent the conclusion of the contract deprived ATK of the right to any damages, because “that issue raised questions of fact that could not be determined without evidence as a preliminary issue”.
On appeal, the Court of Appeal dismissed NDA's appeal on the first issue and allowed ATK’s appeal on the second issue. It held that while breaches of the Remedies Directive are subject to the “Francovich conditions”, the latter were “minimum conditions” and it was open to national law to lay down criteria that provide a less restrictive remedy in damages, which it did (i.e. there was no requirement in English law for a breach to be shown to be “sufficiently serious”). The Court further concluded that “there is nothing in either the Remedies Directive or the Regulations to suggest that a person whose rights under these instruments have been infringed should be deprived of damages because of a failure to invoke any other available remedy”. The standstill and court application regime was available as an option to the unsuccessful tenderer, and not as a pre-condition to the availability of damages.
NDA appealed the Court of Appeal’s decision to the Supreme Court,5 which:
Did not accept ATK’s case that EU law requires a remedy in damages for any breach. The Court concluded that the liability of a contracting authority for breach of the Rules exists only where the minimum “Francovich conditions” (including the condition providing that the breach must be “sufficiently serious”) are met, “although it is open to States in their domestic law to introduce wider liability free of those conditions”;
Accepted NDA’s case that the Court of Appeal had wrongly held that domestic law goes further than EU law by requiring a remedy in damages for any breach, whether serious or not. It based this conclusion on an examination of the legislator’s intention when implementing the EU procurement rules (i.e. there was no intention to ‘gold plate’); and
Agreed with the Court of Appeal that the economic operator is not required to take advantage of the opportunity to stop the wrongful award of a procurement contract to a competitor. The operator is free to issue a claim for damages after awaiting the entry into the contract.
The impact of this ruling on the willingness of economic operators to bring similar actions for damages remains to be seen. On the one hand, the ruling adopts a relatively restrictive approach to the availability of damages, concluding that damages are available only in instances of “sufficiently serious” breaches. On the other hand, it makes clear that these operators do not have to exhaust other remedies before starting such action.