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Supreme Court makes claiming for damages that bit harder

An unsuccessful bidder wishing to challenge a procurement decision might be forgiven for assuming that if it can prove there has been a breach of the procurement rules, and that it has suffered loss or damage as a result, then there should be a right to damages. But, in a landmark judgment, the Supreme Court has just decided otherwise, stating that damages will only be available if the breach is “sufficiently serious”.

The Court’s decision was made in the long running litigation between the Nuclear Decommissioning Authority (NDA) and Energy Solutions EU Ltd (now called ATK Energy) (ATK). Although the parties had already agreed a compromised settlement (see this earlier blog), they asked that the Supreme Court still hear the appeal, as there were important points of principle at stake.

The issues decided by the Supreme Court

For an award of damages the breach must be “sufficiently serious”. Agreeing with the earlier decision of the Court of Appeal, the Court confirmed that the three so-called “Francovich” conditions applicable to violations of EU law were applicable to breaches of the EU Remedies Directive (which provides remedies for breaches of the EU Public Procurement Directive). One of those conditions (and the one that mattered in this case) was that to qualify for an award of damages the breach of the Directive must be “sufficiently serious”.

In addition, and overturning the Court of Appeal’s earlier decision, the Court determined that damages for breaches of the UK procurement regulations (the Public Contracts Regulations 2006 (as amended by the 2009 Amendment Regulations to give effect to the Remedies Directive) (the “UK Regulations”) were still subject to the “Francovich” conditions and so were only available when the breach was indeed “sufficiently serious”.

The Supreme Court said the Court of Appeal’s mistake was in assuming that a claim for damages under the UK Regulations could be viewed purely a private law claim for a breach of a domestically based statutory duty which automatically freed it from any conditions which would otherwise apply under EU law. This would mean the claim was only subject to ordinary English law rules and so there was no requirement to show that the breach was “sufficiently serious”.

While it was open to a national legislator to go further than was required under EU law (and so not restrict damages for breaches of the UK Regulations to those cases which met the Francovich conditions), the Supreme Court found that the UK legislators had not done this. That was evident from the clear intention of the legislators not to ‘gold plate’ the UK Regulations and was also consistent with the wording of the UK Regulations (specifically regs 47I and 47J) and the use of the word “may ” [award] in the context of the Court’s power to award damages.

The extent of a challenging bidder’s duty to mitigate. In one shred of good news for a challenging bidder the Supreme Court, this time agreeing with the Court of Appeal, found that a bidder should not be prevented from claiming damages where it has commenced it claim in time but not taken steps to invoke an automatic suspension to prevent the contracting authority from entering into the contract. The NDA had argued (unsuccessfully) that, by not invoking an automatic suspension to prevent the contract from being entered into, ATK had failed to mitigate its loss and so should not be entitled to claim damages.

So what are the implications of the judgment for contracting authorities and bidders?

  • Although the decision was based on the previous Public Procurement Directive (2004/18/EC) and the previous UK Regulations, it is equally applicable to claims under the current Procurement Directive and the corresponding Public Contracts Regulations 2015 as the provisions relating to remedies are little changed.
  • It will be good news for contracting authorities that not all breaches of procurement law will give a right to claim damages, and that a challenging bidder must first show that a breach was “sufficiently serious”. Bidders must in future be mindful that they will be gambling on a Court finding that the breach was sufficiently serious should they decide not to take action to trigger an automatic suspension, but instead to simply claim damages. In future, bidders may be less willing to act as ATK did and take that risk.
  • There will inevitably be a good deal of uncertainty, and potential subjectivity, when it comes to determining if a breach is sufficiently serious to merit damages? Based on EU jurisprudence the decisive test is whether the authority “manifestly and gravely disregarded the limits on its discretion”. The factors which a Court may take in to account include: the clarity and precision of the rule breached, the measure of discretion left by the rule to the authority; whether the breach and damage caused was intentional or involuntary; and whether the error of law was excusable or inexcusable. How this will be interpreted by the UK Courts and in a procurement context is uncertain and looks destined to be the subject of future procurement litigation.
  • In the short to medium term (for at least the next couple of years), we now have the definitive position in the UK that breaches of procurement law must be “sufficiently serious” to merit damages. But, looking a little further ahead, how will the judgement be dealt with in the Great Repeal Bill and what will be the ultimate position post Brexit; particularly when the requirement for a breach to be “sufficiently serious” stems from principles of EU law and the jurisprudence of the European Court of Justice? Will the position ultimately be governed by ordinary English law rules for breaches of statutory duty where there is no sufficiently serious requirement? It would certainly seem odd for the UK to single out procurement law for different treatment but at this stage it is too early to say.

This article was originally posted here.