Procurement challenges - some relief for disappointed bidders

Notwithstanding these already short time limits, in a recent case before the Court of Appeal (EnergySolutions EU Limited v Nuclear Decommissioning Authority [2015] EWCA Civ 1262) the Nuclear Decommissioning Authority ("NDA") argued that a failure by the unsuccessful bidder to issue its claim during the standstill period effectively deprived it of the ability to pursue its claim for damages. Moreover, even if the bidder could show that it had suffered loss as a result of a contracting authority's breaches of duty, the NDA argued that the award of damages should be discretionary. The Court of Appeal's rejection of these arguments is an important decision for unsuccessful bidders thinking of bringing a public procurement challenge.

Background

EnergySolutions EU Limited ("Energy Solutions") was part of a consortium called "Reactor Site Solutions" ("RSS consortium") which tendered for a major nuclear decommissioning contract procured by the NDA. On 31 March 2014 the NDA informed the RSS consortium that its bid had been unsuccessful and that the standstill period would end at midnight on 14 April 2014. The RSS consortium subsequently wrote to the NDA expressing concerns about the adequacy of the procurement process but decided not to issue proceedings during the standstill period and thereby bring into play the automatic suspension provisions under the Public Contract Regulations 2006 (the "Regulations"). Instead the RSS consortium wrote to the NDA reserving all its rights on 14 April 2014.

The contract between the NDA and the successful bidder was entered into on 15 April 2014. On 28 April 2014 Energy Solutions issued proceedings claiming damages from the NDA of approximately £100m in respect of the loss of profit that it would have earned had the contract been awarded to the RSS consortium.

The appeal to the Court of Appeal concerned two preliminary issues which had been tried by Edwards-Stuart J. The first issue was whether the failure by Energy Solutions to issue a claim form, and inform the NDA it had done so, before the NDA entered into the contract effectively deprived it of the ability to claim damages (this was on the basis that the failure broke the chain of causation between any breaches of the NDA's obligations and the loss suffered by Energy Solutions). The second issue was whether the English court had a discretion when deciding whether to award damages, even if Energy Solutions could establish that it had suffered loss as a result of the NDA's alleged breaches of its obligations under the Regulations.

Decision of the Court of Appeal

The Court of Appeal decided both issues in favour of Energy Solutions.

(1) Should a bidder be deprived of its damages claim if it fails to issue proceedings during the standstill period?

The NDA argued that if Energy Solutions had issued proceedings during the standstill period, and the contract award had therefore been suspended, then Energy Solutions might have avoided the financial loss which it claimed by way of damages. At first instance the judge concluded that it was a question of fact whether or not any loss suffered by Energy Solutions was attributable to its failure to issue proceedings before the NDA entered into the contract, and as such the question could not be resolved without first having a trial. 

The Court of Appeal disagreed. The Court of Appeal analysed the claim brought by Energy Solutions as being a private law claim for breach of statutory duty and, as such, Energy Solutions was entitled to have its damages determined and assessed on normal principles. In the Court of Appeal's view, the automatic suspension provision which came into effect under the Regulations when proceedings were issued and notified, was equivalent to a form of interim injunctive relief. There was no legal principle, as a matter of English law, which allowed a claimant to be deprived of damages for failing to apply for interim injunctive relief.  

Moreover, there was nothing in either the Remedies Directive or the Regulations to suggest that a person whose rights have been infringed should be deprived of damages because of a failure to invoke any other available remedy. The regime for triggering the automatic suspension was available as an option to an unsuccessful bidder. Had the legislators wished to make the application of the regime a pre-condition to the availability of damages, they could easily have said so.

 (2) Are damages for breach of the Regulations discretionary?

The second issue concerned the principles applicable to the award of damages and whether such an award was discretionary. At first instance, Edwards-Stuart J held that English law principles were applicable to an award of damages, and that once a breach of the Regulations was established, the award of damages was not discretionary. The NDA appealed this decision, arguing that it was not obligatory for the court to make an award of damages, even if an unsuccessful bidder was able to establish that it had suffered loss as a result of a breach of the Regulations.

This argument was advanced on the basis that the unsuccessful bidder was enforcing public and EU law rights and as such damages should only be awarded if the conditions set out in Francovich v. Italy (C-6/90) were satisfied. The Francovich conditions applicable to awards of damages in EU law (as further explained and developed by the Court of Justice of the European Union in various decisions) provide that (i) the rule of law infringed must be intended to confer rights on individuals, (ii) the breach must be sufficiently serious, and (iii) there must be a direct causal link between the breach of the obligation and the damage sustained by the injured party.

Having analysed the EU case law, the Court of Appeal concluded that the Francovich conditions established a minimum standard for damages for breach of an EU law right. The liability and assessment of damages were, however, a matter for national law, and national law could provide for liability under less strict conditions than those set out in Francovich. It was, therefore, always open to national law to lay down more generous provisions to provide effective compensation to individuals harmed by infringements of EU law on public procurement or the national rules transposing that law. If national law laid down criteria that provided a less restrictive remedy in damages than would be provided by the application of the Francovich conditions, national law would prevail.

Under English law there is no requirement for a private law claim based on breach of statutory duty to be shown to be "sufficiently serious" before damages could be awarded. Accordingly, the English law approach prevailed over the second Francovich condition. In the Court of Appeal's view "a breach is a breach" and once a breach was established the victim was entitled to be compensated such as to put it in the position it would have been in had there been no breach. (In relation to the other Francovich conditions the Court did not comment on the first condition, which did not appear to be at issue in the case, and noted that the third (the requirement for a direct causal link between the breach and the loss) no more than reflected the position under English law).

In rejecting NDA's argument the Court of Appeal expressed the view that the fact that Energy Solutions claim pleaded only breaches of the Regulations and not direct breaches of duties owed under the Public Sector and/or Remedies Directives made no difference to its claim for damages. Any attempt to distinguish between claims based on directly enforceable EU law and claims based on domestic law enacted to give effect to EU law, would be illogical.

Commentary

The decision by the Court of Appeal will be welcomed by bidders in public procurements. It makes clear that an unsuccessful bidder can decide not to invoke the automatic suspension provisions, and pursue solely a damages claim, without running the risk that its claim will be prejudiced by arguments based on causation.

If the decision of Edwards-Stuart J had stood, with the result that it was a question of fact to be determined at trial whether a decision not to issue proceedings during the standstill period broke the chain of causation, this would have created uncertainty and would likely have had unwelcome consequences.  It would have effectively reduced the period for challenging public procurement awards from 30 days to 10 days. While this may have discouraged some unsuccessful bidders from bringing challenges, equally it is likely that it would have compelled other bidders to bring proceedings during the standstill period, and to resist the lifting of the automatic suspension, to avoid the risk of having their damages claim compromised, even if they had no particular wish to stop the procurement and were content to pursue solely a damages claim. This in turn would likely have led to greater disruption to public procurements, which by their nature tend to be time critical, and the potential waste of court resources, time and costs.

Similarly, the decision by the Court of Appeal to reject the application of the more stringent Francovich conditions in awarding damages for breach of public procurement obligations, in favour of the well-established English law approach to damages is welcome. Unsuccessful bidders already face an uphill battle in obtaining redress for breaches of procurement law, and will be relieved at the Court of Appeal's refusal to add to these difficulties by making the award of damages discretionary and dependent on showing that the breach was "sufficiently serious".