UK Supreme Court Blog

EDITORS: Dan Tench, Emma Cross, Zainab Hodgson, Francesca Knight, James Warshaw and Natalie Haefner (CMS)
Hugh Tomlinson KC, Matthew Ryder KC, Nandini Bulchandani and Daniel Rudd (Matrix)

Introduction

On Wednesday 1 Mar 2017 and Thursday 2 Mar 2017, the Supreme Court hears the appeal of Nuclear Decommissioning Authority v Energy Solutions EU Ltd. The appeal arises in the context of a claim by the respondent, Energy Solutions, for damages arising from an unsuccessful bid for a nuclear decommissioning contract. The appeal raises two issues which correspond to the preliminary issues raised in the defence of the Nuclear Decommissioning Authority (NDA) to Energy Solutions’ claim for damages.

The Court will consider whether an award of damages under the Public Contracts Regulations 2006 is discretionary and in particular whether such an award is subject to the Francovich conditions imposed by the EU Courts, including that any breach must be “sufficiently serious” to warrant the award of damages.

The Court will also consider whether a failure to seek interim relief preventing the conclusion of the contract with the successful bidder pending determination of a claim for damages could not, as a matter of law, break the chain of causation between breach and loss.

The appeal concerns the 2006 Regulations which were in force at the time of the procurement process in question, but the relevant remedies provisions have been reproduced in the current Public Contracts Regulations 2015. The outcome of the appeal will have serious consequences for the scope of liability for contracting authorities for damages in public procurement exercises under the 2015 Regulations, which apply in England and Wales and Northern Ireland.

Background

On 31 Mar 2014, Energy Solutions was informed by the NDA that its bid for a major nuclear decommissioning contract had been unsuccessful. The NDA also informed Energy Solutions that the ‘standstill period’ – during which the NDA (as the relevant contracting authority) could not enter into the relevant contract with the successful bidder – would end at midnight on 14 Apr 2014.

On 6 Apr 2014, Energy Solutions wrote to the NDA expressing concerns about the procurement process and seeking information. In its reply of 11 Apr 2014, the NDA declined to extend the standstill period, referring to the significant cost which would result from any delay to the programme. Energy Solutions did not issue proceedings before the end of the standstill period, which would have required the NDA to refrain from entering into the relevant contract. Instead, on 14 Apr 2014, Energy Solutions wrote to the NDA reserving all of its rights.

On 15 Apr 2014, the contract between the NDA and the winning bidder was entered into. On 28 Apr 2014, Energy Solutions issued its claim form, claiming damages from the NDA of approximately £100m. By its defence, the NDA alleged that any financial loss suffered Energy Solutions in consequence of the award of the contract was due to its own omission in not issuing proceedings before the end of the standstill period and not due to any breach committed by the NDA.

The decisions below

Edwards-Stuart J tried two preliminary issues [2015] PTSR 1106, [2015] EWHC 73 (TCC).

Energy Solutions appealed the judge’s conclusion as to the first issue, namely, that it was inappropriate without a trial to decide whether or not Energy Solutions should be deprived of damages because it had refrained from issuing proceedings before the contract had been entered into and thereby deprived itself of the opportunity to maintain suspension of the making of the contract pending determination of its claim. The judge concluded that this issue raised questions of fact requiring a trial for determination of the issue.

The NDA appealed the judge’s conclusion on the second issue, namely that ordinary principles of English law applied to any award of damages so that, once a breach of the 2006 Regulations was established, damages awarded were not discretionary.

The Court of Appeal (Lord Dyson MR, Tomlinson, Vos LJJ) upheld Energy Solutions’ appeal, and dismissed the appeal of the NDA [2016] PTSR 689, [2015] EWCA Civ 1262.

Vos LJ (with whom the other judges agreed) dealt first with the NDA’s appeal on the second issue. Referring to the EU jurisprudence applying general principles of equivalence and effectiveness, he concluded that, if national law lays down criteria that provide for a less restrictive remedy in damages than would be provided by the application of the Francovich conditions, then national law will prevail for the benefit of those harmed by the relevant infringements. In English law, there is no requirement for a breach of statutory duty – which is the cause of action for a claim under the Regulations – to be shown to be “sufficiently serious” before damages may be awarded. A breach is a breach. The Court does not have any relevant discretion in deciding whether to award damages.

As to the first preliminary issue, Vos LJ held that there was no authority in English law whereby a claimant has been deprived of damages otherwise payable on the basis that it failed to seek an interlocutory injunction (i.e. a remedy analogous to an application under the Regulations for continuing suspension of contract-making). That being so, relying again on the EU principle of equivalence, Vos LJ further held that such a legal principle could not be overlaid by EU law to the detriment of the claimant. The judge at first instance therefore erred in concluding that the question of whether the failure to seek, under the Regulations, to prevent the conclusion of the NDA’s contract with the winning bidder broke the chain of causation raised questions of fact which could not be determined without evidence. The facts would have made no difference: such a principle does not exist under English law.

The issues before the Supreme Court

The issues before the Supreme Court (Lord Neuberger PSC, Lady Hale DPSC, Lord Mance, Lord Sumption, Lord Carnwath JJSC) correspond to the two preliminary issues considered by the Courts below:

1. Whether, in a claim for damages under the Public Contracts Regulations 2006, the Francovich condition that the infringement be “sufficiently serious” must be met.
2. Whether the Court of Appeal erred in holding that the respondent’s failure to issue proceedings before the contract was concluded did not break the chain of causation between the breach and the loss.