Revisiting the Fosen-Linjen Saga on threshold for procurement damages

I had the honour of being invited to contribute to a future publication to celebrate the EFTA Court’s 30th Anniversary in 2024. I was asked to revisit the Fosen-Linjen Saga on the EFTA Court’s interpretation of the threshold for liability in damages arising from breaches of EU/EEA procurement law.

The abstract of my chapter is as follows:

The 2017-2019 Fosen-Linjen Saga saw the EFTA Court issue diametrically opposed views on the threshold for damages liability arising from breaches of EEA/EU public procurement law. Despite the arguably clear position under EU law following the European Court of Justice’s 2010 Judgment in Spijker—ie that liability in damages under the Remedies Directive only arises when the breach is ‘sufficiently serious’—Fosen-Linjen I stated that a ‘simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority’. Such an approach would have created divergence between EEA and EU procurement law and generated undesired effects on the administration of procurement procedures and excessive litigation. Moreover, Fosen-Linjen I showed significant internal and external inconsistencies, which rendered it an unsafe interpretation of the existing rules, tainted by judicial activism on the part of the EFTA Court under its then current composition. Taking the opportunity of a rare second referral, and under a different Court composition, Fosen-Linjen II U-turned and stated that the Remedies Directive ‘does not require that any breach of the rules governing public procurement in itself is sufficient to award damages’. This realigned EEA law with EU law in compliance with the uniform interpretation goal to foster legal homogeneity. This chapter revisits the Fosen-Linjen Saga and offers additional reflections on its implications, especially for a long-overdue review of the Remedies Directive.

The full chapter is available as: A Sanchez-Graells, ‘The Fosen-Linjen Saga: not so simple after all?’ in The EFTA Court and the EEA: 30 Years On (Oxford, Hart Publishing, forthcoming): https://ssrn.com/abstract=4388938.

The Norwegian Supreme Court Gives its Final Word in the Fosen-Linjen Saga [guest post by Dag Sørlie Lund]

The Fosen-Linjen Saga has finally come to a close with the Norwegian Supreme Court’s Judgment. Dag Sørlie Lund* kindly provides a sharp summary of the case while we await for any official translations. His fuller critical assessment of the Judgment will be included in the EPPPL special issue we are working on.

The Norwegian Supreme Court Gives its
Final Word in the Fosen-Linjen Saga

The so-called Fosen-Linjen Saga has finally come to its long-awaited end by the judgment of the Norwegian Supreme Court of 27 September 2019, more than 6 years after the company AtB tendered for the procurement of ferry services between Brekstad and Valset in the County of Trøndelag.

The contract was initially awarded to the company Norled. The competitor, Fosen-Linjen, which was ranked as the runner-up, claimed Norled had been awarded the contract unlawfully, and managed to stop the signing of the contract through interim measures. In the interim measures procedure two errors were identified by the courts:

1. AtB had not required the necessary documentation for the award criteria “environment”; and

2. AtB had not verified the viability in Norled’s offer regarding fuel consumption (which was part of the criteria “environment”).

As a result of this, AtB decided to cancel the tender procedure, and restart the whole process.

Fosen-Linjen did not submit a new tender, but instead filed a law suit against AtB claiming damages for the positive interest, or, in the alternative, the negative contract interest. The negative contract interests essentially amounts to the costs of tendering (damnum emergens), while the positive contract interest essentially amounts to the loss of profit (lucrum cessans).

The Supreme Court’s judgment clarifies several key questions about public procurement law related to the threshold for damages, and for the requirement of causality between the breach and the damages. Furthermore, the ruling contains interesting assessments of legitimate grounds to cancel a tender procedure, and the significance of the fact that a tenderer submits an offer despite being aware of errors in the procurement documents for the possibility to receive damages. The judgment is unanimous for all but the question of causality for damages for the negative contract interest, where one justice had a concurring opinion with a slightly different approach. For the purposes of this summary, I will not go further into the differences in the concurring opinion.

The Principle of State liability for breaches of EEA Law

The Supreme Court starts out by grounding the liability for damages in the general principle of State liability for breaches of EEA law. According to this principle an EEA State may be held liable for breaches of its obligations where the following three conditions are met:

1. The breached provision of EEA law must be intended to confer rights on individuals and economic operators;

2. The breach must be considered as sufficiently serious; and

3. There must be a direct causal link between the breach of the obligation in question and the damage suffered by the aggrieved party.

The first condition was clearly met, and the case before the Supreme Court thus mainly concerned the question of the threshold for receiving damages and what it takes to establish a direct causal link for damages for negative costs. A particularly disputed question in the Fosen-Linjen Saga, has been whether the threshold for damages for the negative and the positive contract interests is different. Under Norwegian law, it has traditionally been easier to receive compensation for the negative costs than for the positive costs.

The Positive Contract Interest

The Supreme Court rejected Fosen-Linjen’s claim for damages for the positive interest since there were sufficient grounds to cancel the tender procedure. In fact, there were two grounds for cancelling the procedure.

First, the Supreme Court considered that the identification of the two errors in the interim measures proceedings raised serious doubts about the lawfulness of the procedure. These doubts were considered as sufficient grounds to cancel the tender procedure.

Second, it was also considered that the fact that AtB did not require the necessary documentation for the award criteria “environment”, also constituted sufficient grounds to cancel.

Consequently, the Supreme Court concluded that since the cancellation was lawful, Fosen-Linjen could not receive damages for the positive contract interest. This part of the judgment is somewhat confusing, since it appears to consider the question of causality rather than the question of whether the breach was sufficiently serious: since the tender procedure was lawfully cancelled, no one could ever be awarded the contract, and thus no one would ever have a claim for the loss of profit.

This is particularly confusing since the Appeals Selection Committee of the Supreme Court had explicitly rejected the question of causality for the positive contract interest from being heard by the Supreme Court. This is all the more puzzling since the Supreme Court appears to have been aware of this distinction, noting that the cancellation did not exclude the possibility for damages for the negative contract interest, which shows that the question of liability was not conceptually excluded by the fact of the cancellation.

The Negative Contract Interest

As mentioned, the traditional approach in Norwegian torts law is that the threshold is lower when it comes to damages for the negative costs.

Based on its reading of case law from the CJEU and the EFTA Court, the Supreme Court held, however, that the test for receiving damages, regardless of the categorization of the damages as negative or positive costs, is whether the breach in question may be considered “sufficiently serious”. The Supreme Court outright rejected the suggestion that the threshold might be lower under Norwegian tort law.

In the assessment of whether a breach is sufficiently serious, the Supreme Court noted that it may not be required to demonstrate fault or fraud, although both subjective and objective factors included in the traditional assessment of liability under national tort law, may be relevant to take into account.

Same same, but different

Despite this description of the test for receiving damages, the Supreme Court emphasized that the norm could not be characterized as more or less strict than would otherwise follow from Norwegian tort law, but that the assessment may be somewhat different.

The Supreme Court identified the norm as a sliding scale where the crucial point appears to be the level of discretion enjoyed by the contracting authority – from wide to none at all.

The rule that was breached in the tender procedure – namely the obligation to require necessary documentation for an award criterion – was found to be clear and precise. Accordingly, the Supreme Court found that AtB was liable for the negative costs. In that regard, it was pointed out that AtB twice received questions that raised doubts as to the lawfulness of the award criteria, which combined with the consequences caused by the breach, led to the conclusion that the threshold of “sufficiently serious” was passed.

It’s worth noting that despite the fact that the Supreme Court rejected that a contracting authority might escape liability by claiming not to possess the necessary powers, knowledge, means or resources, it still considered the complexity of the public procurement rules indicated a certain restraint or caution in establishing liability.

Direct Causal Link

Concerning the question of a direct causal link between the breach and the damage, the Supreme Court asked whether the tenderer would have submitted an offer if they had known about the error committed.

Even though the fact that AtB had not required the necessary documentation for the award criteria “environment” was clearly visible for Fosen-Linjen, the Supreme Court considered that this criterion was met since AtB had considered the procurement documents to be lawful despite the fact that the error had been pointed out twice during the tendering procedure. This part of the judgment is also confusing, as it is not entirely clear why the subjective view of the contract authority is relevant when assessing the question of causality.

Unanswered questions

The Supreme Court thus disentangled many key questions about liability for breaches of procurement rules, but some issues remain unanswered. For example, the Supreme Court did not rule on the question of whether liability is conceptually possible where the tendering process should have been cancelled, but this doesn’t happen. Furthermore, as mentioned above, the question regarding direct causal link for damages for the positive interest was not accepted to be heard by the Supreme Court, so the particularities of that assessment was not further clarified. Considering the attention these questions have received through the Fosen-Linjen Saga, it is probably only a matter of time before these will materialize themselves in future cases, with new sagas in national courts and in Luxembourg.

Dag Sørlie Lund

Dag Sørlie Lund is part of our European and Competition law team. He has previously worked at the Department of Legal Affairs in the Ministry of Foreign Affairs, the EFTA Court, the EFTA Surveillance Authority (ESA), and as an attorney. He has experience in advising clients in EU/EEA and competition law, including state aid and public procurement law.

Dag has handled a number of cases concerning the EFTA Surveillance Authority, and has pleaded several cases before the Court of Justice for the European Union and the EFTA Court. Dag has lived in Spain, Belgium and Luxembourg, and speaks Spanish and English fluently.

Two related comments on the Fosen-Linjen saga

**This post is only for enthusiasts of the regulation of procurement damages out there**

You may have missed it (though being an enthusiast, you probably didn’t) but, in the middle of the summer, the EFTA Court U-turned in its Fosen-Linjen II Judgment by stressing that ‘Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages’ (see here).

Notoriously, this was a 180° move away from its earlier Fosen-Linjen I Judgment, where it had controversially stated that ‘A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority … pursuant to Article 2(1)(c) of Directive 89/665/EEC‘ (see here and here and, for extended discussion, A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law after the EFTA Court’s Fosen-Linjen Opinion’ (2018) 1(1) Nordic Journal of European Law 1-23).

The Fosen-Linjen saga deserves careful analysis and we are putting together a special issue of the European Procurement & Public Private Partnership Law Review that will provide complementary perspectives from EEA, Norwegian, EU, comparative and fundamental rights law. I have also prepared a longer case note for another law review. In case they are of interest, I have made drafts of both of those available on SSRN. Some overlap was unavoidable, so please read selectively!

• Sanchez-Graells, Albert, Liability threshold for damages in public procurement: The EFTA Court’s Fosen-Linjen Saga (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3455222.

• Sanchez-Graells, Albert, The EFTA Court’s Fosen-Linjen saga on the liability threshold for damages claims for breach of EU public procurement law: a there and back again walk (September 16, 2019). To be published in a forthcoming special issue of the European Procurement & Public Private Partnership Law Review. Available at SSRN: https://ssrn.com/abstract=3455213.

EFTA Court reverses position on liability threshold for procurement damages (Fosen-Linjen II, E-7/18)

In its Judgment of 1 August 2019 in Fosen-Linjen AS, supported by Næringslivets Hovedorganisasjon (NHO) v AtB AS (E-7/18, Fosen-Linjen II), the EFTA Court has remarkably reversed its earlier position on the liability threshold for procurement damages claims, which it had previously established in its Judgment of 31 October 2017 in (E-16/16, Fosen-Linjen I ).

I had strongly criticised the original Fosen-Linjen I Judgment in this blog (here and here), at a seminar at the University of Bergen and, in extended detail, in A Sanchez-Graells, ‘You Can’t Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law After the EFTA Court’s Fosen-Linjen Opinion' (2018) 1(1) Nordic Journal of European Law 1-23.

Therefore, I am truly glad to see this outcome of the Norwegian Supreme Court’s (creative) referral of the case to the EFTA Court for a second opinion.

It will be recalled that, in Fosen-Linjen I, the EFTA Court controversially found that

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of Directive 89/665/EEC, provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link (E-16/16, para 82).

In a 180-degree U-turn, in Fosen-Linjen II, the EFTA Court has now rather established that

... Article 2(1)(c) of the Remedies Directive does not require that any breach of the rules governing public procurement in itself is sufficient to award damages for the loss of profit to persons harmed by an infringement of EEA public procurement rules (E-7/18, para 121).

To be sure, this reversal is likely to generate further commentary (we are thinking of a special issue to collect some different views, so stay tuned) but my hot take is that with the Fosen-Linjen II Judgment, the EFTA Court has corrected the excesses of the earlier Fosen-Linjen I approach and (re)aligned EEA with EU law in the area of liability in damages for breaches of public procurement law.

Recording of seminar on procurement damages post-Fosen Linjen available

The Bergen Center for Competition Law & Economics (BECCLE) has now published the recording of the excellent seminar "Damages for breach of Public Procurement Law – Fosen-Linjen AS v AtB AS and its implications" held on 1 March--in which I had the pleasure and honour to participate. The recording includes four excellent and very lively presentations (modesty apart): 

• Dag Sørlie Lund – “The Norwegian law and practice on damages arising from public procurement breaches before Fosen-Linjen AS v AtB AS, and the challenges it entails.”
• Kirsi-Maria Halonen – “A comparative approach to damages: The Finnish and Swedish practice on damages arising from public procurement breaches.”
• Albert Sánchez Graells – “Approaches to the ‘seriousness’ of the breach: The EFTA Court vs the UK Supreme Court.”
• Halvard Haukeland Fredriksen – “Norway after the Fosen-Linjen AS v AtB AS case: What is to be expected and what are its repercussions – here and elsewhere.”

Given that the case is headed for the Norwegian Supreme Court after the Frostating Court of Appeal decided not to follow the EFTA Court's Opinion, the discussion we had in the seminar may be of particular interest. My arguments are further developed in this paper.

Some additional thoughts on the interaction between procurement remedies and the principle of State liability—re Fosen-Linjen (E-16/16) and Nuclear Decommissioning Authority ([2017] UKSC 34)

After I published some comments on the EFTA Court’s Judgment in Fosen-Linjen AS v AtB AS (E-16/16, see here) some three weeks ago, I have had some interesting exchanges and discussions with some academic colleagues (Dr K-M Halonen, Dr R Vornicu, Dr P Bogdanowicz, Prof R Caranta, Dr A Georgopoulos, Dr Herrera Anchustegui and Aris Christidis) and with policy-makers and practitioners (which mostly wish to remain anonymous). I am grateful to all of them for forcing me to think harder about some of the issues that derive from the Fosen-Linjen case and, in particular, for their repeated invitations to consider it by comparison to the Judgment of the UK Supreme Court in Nuclear Decommissioning Authority v EnergySolutions EU Ltd (now ATK Energy Ltd) [2017] UKSC 34 (the ‘NDA’ judgment; for my views on an interim decision at the start of the litigation, see here).

Indeed, comparing those cases is interesting, for the Fosen-Linjen and NDA judgments offer diametrically opposed views of the interaction between the use of damages as a procurement remedy and the principle of State liability for breach of EU law, in particular concerning the threshold for liability under the so-called second Francovich condition—ie whether liability arises from a ‘sufficiently serious breach’ of EU public procurement law, or from any (unqualified) infringement of the rules.

In this post, (1) I compare the approach to the procurement remedies-State liability interaction in both judgments, to then offer some brief reflections on (2) the implications of minimum harmonization of this subject-matter through the Remedies Directive (ie, Dir 89/665/EEC, as amended by Dir 2007/66/EC; see its consolidated version), (3) the possibility to reform the Remedies Directive so as to achieve maximum harmonization, and (4) the potential implications of a damages-based procurement enforcement strategy in the context of the emergence of EU tort law. This post is meant, more than anything, as an invitation for further discussion.

(1) Opposing approaches to the procurement remedies-State liability interaction

One of the contended issues in academic, and now also judicial, debate around public procurement remedies is the relationship between, on the one hand, the liability in damages derived from the Remedies Directive (art 2(1)(c), requiring a power for review bodies or courts to ‘award damages to persons harmed by an infringement’ of relevant EU public procurement rules) and, on the other, the liability derived from the general principle of State liability for breaches of EU law (following Francovich and Others, C‑6/90 and C‑9/90, EU:C:1991:428, and Brasserie du Pêcheur and Factortame, C‑46/93 and C‑48/93, EU:C:1996:79).

This is an issue that the Court of Justice of the European Union (ECJ) explicitly addressed in Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751 ('Spijker'), when it stated that Art 2(1)(c) of the Remedies Directive

… gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible …

… as regards state liability for damage caused to individuals by infringements of EU law for which the state may be held responsible, the individuals harmed have a right to redress where the rule of EU law which has been infringed is intended to confer rights on them, the breach of that rule is sufficiently serious, and there is a direct causal link between the breach and the loss or damage sustained by the individuals. In the absence of any provision of EU law in that area, it is for the internal legal order of each member state, once those conditions have been complied with, to determine the criteria on the basis of which the damage arising from an infringement of EU law on the award of public contracts must be determined and estimated, provided the principles of equivalence and effectiveness are complied with (Spijker, paras 87 and 92, emphases added).

However, maybe surprisingly, Spijker is not (yet) universally seen as having settled the issue of the interaction between the actions for damages under the Remedies Directive and the Francovich doctrine.

As mentioned above, the main point of contention rests on what could be seen as a lex specialis understanding of the interaction between the two regulatory frameworks (which could formally match a literal reading of para 87 of Spijker, but is more difficult to square with its para 92)—ie a view that the general condition for there to be a ‘sufficiently serious breach’ of EU law under Francovich is relaxed by the Remedies Directive by solely mentioning the need for an (unqualified) infringement as sufficient ground for a damages claim. This is specifically a point where the UK Supreme Court and the EFTA Court have taken opposing views in their recent judgments.

The UK Supreme Court's approach

Indeed, in its NDA Judgment (as per Lord Mance, with Lord Neuberger, Lady Hale, Lord Sumption and Lord Carnwath agreeing), the UK Supreme Court followed what I think is the correct reading of Spijker and established that

… para 87 [of Spijker] proceeds by making clear that the liability of an awarding authority is to be assessed by reference to the Francovich conditions. Subject to these conditions being met, paras 88 to 90 go on to make clear that the criteria for damages are to be determined and estimated by national law, with the further caveat that the general principles of equivalence and effectiveness must also be met (para 91). Finally, para 92 summarises what has gone before, repeating the need to satisfy the Francovich conditions (NDA, per Lord Mance, at [23]).

More importantly, the UK Supreme Court considered that

… there is … very clear authority of the Court of Justice confirming that the liability of a contracting authority under the Remedies Directive for the breach of the [public procurement rules] is assimilated to that of the state or of a public body for which the state is responsible. It is in particular only required to exist where the minimum Francovich conditions are met, although it is open to States in their domestic law to introduce wider liability free of those conditions (NDA, per Lord Mance, at [25], emphasis added).

Therefore, the UK Supreme Court takes the clear view that the existence of grounds for an EU damages action based on the Remedies Directive requires the existence of a ‘sufficiently serious breach’ of EU public procurement law. At the same time, it takes no issue with the possibility for more generous domestic grounds for actions for damages (although it eventually decided that this was not the case in relation to the Public Contract Regulations 2006; see NDA, per Lord Mance at [37], with which I also agree).

The EFTA Court's approach

Conversely, in its Fosen-Linjen Judgment, and despite the fact that similar arguments on the interpretation of Spijker were made before it (in particular by the Norwegian Government), the EFTA Court considered that

Article 2(1)(c) of the Remedies Directive … precludes national legislation which makes the right to damages for an infringement of public procurement law by a contracting authority conditional on that infringement being culpable … The same must apply where there exists a general exclusion or a limitation of the remedy of damages to only specific cases. This would be the case, for example, if only breaches of a certain gravity would be considered sufficient to trigger the contracting authority’s liability, whereas minor breaches would allow the contracting authority to incur no liability …

… A requirement that only a breach of a certain gravity may give rise to damages could also run contrary to the objective of creating equal conditions for the remedies available in the context of public procurement. Depending on the circumstances, a breach of the same provision of EEA public procurement could lead to liability in one EEA State while not giving rise to damages in another EEA State. In such circumstances, economic operators would encounter substantial difficulties in assessing the potential liability of contracting authorities in different EEA States’ (Fosen-Linjen, paras 77 and 78, emphases added).

This led it to reach the view that

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of the Remedies Directive, provided that the other conditions for the award of damages are met including, in particular, the existence of a causal link (Fosen-Linjen, para 82, emphasis added).

I already discussed (here) the reasons why I think the EFTA Court’s Judgment does not accord with the ECJ’s case law (notably in Spijker) and why I hope the ECJ will explicitly correct this situation. In the remainder of this post, I briefly discuss the themes of minimum and maximum harmonisation of procurement remedies that emerge from a comparison of the approaches adopted by the UK Supreme Court and by the EFTA Court.

(2) Minimum harmonization through the Remedies Directive

The UK Supreme Court’s approach is implicitly based on a conceptualisation of the Remedies Directive as a minimum harmonization instrument, which sets the basic elements of the (effective and equivalent) remedies that Member States must regulate for, in accordance with the peculiarities of their own domestic systems. I think that this characterisation of the Remedies Directive is uncontroversial (see eg the recent report by the European Commission on its implementation at Member State level, at 4). Following the logic of minimum harmonization, the UK Supreme Court clearly has no problem with the existence of two potential tiers of remedies: a lower or more basic EU tier (subject eg to a requirement of ‘sufficiently serious breach’), and a higher or more protective domestic tier (subject eg to ‘any infringement’), which may or may not exist depending on the policy orientation of each EU/EEA State.

This approach has both the advantage of being in accordance with the current state of the law as interpreted by the ECJ (as above), and of not imposing—as a matter of legal compliance, rather than policy preference—an absolute harmonisation of public procurement remedies (at least as the threshold of liability for damages is concerned).

However, this approach is not without some practical difficulties, as there is a thick mist of uncertainty concerning what is a sufficiently serious breach of procurement rules (but also of what rules in the EU directives are ‘intended to confer rights’ on the tenderers—ie the first Francovich condition, which has been so far largely untested), and the existing ECJ case law on the interpretation of substantive EU procurement rules would require significant reconceptualisation in order to provide clarity in this respect. The existence of the preliminary reference mechanism of Art 267 TFEU can alleviate this legal uncertainty (in the long term, and maybe starting soon with the pending decision in Rudigier, C-518/17), but not without creating a significant risk of collapse of the ECJ (or, at least, an even more significant growth in procurement-related preliminary references). From that perspective, the possibility to engage in maximum harmonization (as rather implicitly advocated by the EFTA Court) deserves some consideration.

(3) Maximum harmonization through a revised remedies directive?

In my view wrongly, the EFTA Court holds the implicit normative position that the Remedies Directive is an instrument of maximum harmonisation when it emphasises its ‘objective of creating equal conditions for the remedies available in the context of public procurement’ (see Fosen-Linjen, para 78 above, emphasis added). The EFTA Court derives this objective in an earlier passage, where it stresses that a 'fundamental objective of the Remedies Directive is to create the framework conditions under which tenderers can seek remedies in the context of public procurement procedures, in a way that is as uniform as possible for all undertakings active on the internal market. Thereby, as is also apparent from the third and fourth recitals to the Remedies Directive, equal conditions shall be secured (sic)' (Fosen-Linjen, para 66, emphasis added).

I think this is a clear judicial excess and I do not think the Remedies Directive can be considered an instrument of maximum harmonization (ie a tool that sets a ceiling, or even a common core of protections that must be uniformly provided in all EEA States) in the way the EFTA Court does. In my view, this is particularly clear from recital (6) of the Remedies Directive, according to which: ‘it is necessary to ensure that adequate procedures exist in all the Member States to permit the setting aside of decisions taken unlawfully and compensation of persons harmed by an infringement’ (emphasis added; note that adequate procedures are not necessarily homogeneous or identical procedures)--which the EFTA Court includes in its Judgment (para 3), but then largely ignores.

However, the EFTA Court does have a point when it stresses that the divergence of rules on (damages) remedies can distort the procurement field and, in particular, discourage cross-border participation—which could be alleviated by a reform of the Remedies Directive to create such maximum harmonization. Such revision and an explicit view on the elements of a uniform system of maximum harmonisation could bring a much needed clarification of the function and position of different types of remedies under its architecture—notably, it would clarify whether damages are a perfect substitute for other remedies (as the EFTA Court seems to believe) or an ancillary remedy [as I posit, maybe not in the clearest terms, in A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' in S Torricelli & F Folliot Lalliot (eds), Contrôles et contentieux des contrats publics (Bruylant, 2018)]. Maximum harmonisation could also provide an opportunity to consider the creation of safe harbours (at least of damages liability) for purely procedural errors, or in the context of certain general guidelines.

Nonetheless, despite potential advantages derived from a revision of the system to consider maximum harmonization, given the vast differences in the rules on damages claims across EU jurisdictions, it would be certainly difficult, if not outright impossible, to reach an agreement on the adequate level of protection and the relevant procedural mechanisms [for comparative discussion, see for example, the contributions to S Treumer & F Lichère (eds), Enforcement of the EU Public Procurement Rules (DJØF, 2011), and to D Fairgrieve & F Lichère (eds), Public Procurement Law. Damages as an Effective Remedy (Hart, 2011); see also H Schebesta, Damages in EU Public Procurement Law (Springer, 2016)].

Given these practical difficulties, I would not think the European Commission would be willing to engage in the exercise of designing such maximum harmonization, even if it decided to revise the Remedies Directive in the future (which, unfortunately, seems very unlikely at least for now). What then should not be acceptable is for such maximum harmonisation to be achieved or imposed through an excessively broad interpretation of the Remedies Directive as, in my view, the EFTA Court's Fosen-Linjen judgment does.

(4) Damages-based enforcement of procurement rules & EU tort law

As a last thought, I think it is worth stressing that, in addition to the practical difficulties derived from the current minimum harmonization of procurement remedies, and the not smaller difficulties in attempting a maximum harmonization, there are also structural tensions in the use of damages actions for the enforcement of EU public procurement rules. As recent research has clearly shown (see P Giliker (ed), Research Handbook on EU Tort Law (Elgar, 2017)), the use of damages actions (either based on Francovich liability, or sector-specific rules) for the enforcement of substantive EU law creates distortions in the domestic legal systems of the Member States. From that perspective, both the minimum and maximum harmonization approaches are problematic.

From the minimum harmonization perspective, because the existence of two tiers of protection can also result in two tiers of regulation and/or case law concerning the interpretation and application of the rules, which is bound to create legal uncertainty (eg if issues around the effectiveness of the remedy in the EU-tier create pressures on the interpretation of the domestic-tier remedies as a result of reverse pressures resulting from the principle of equivalence—ie the domestic remedy can hardly be both broader in scope and less effective in its consequences).

From the maximum harmonization perspective, because the creation of a one-size-fits-all remedy (such as that derived from the lower threshold for damages liability in the EFTA Court’s Judgment) can have rather drastic impacts for some Member States (in particular, those without a ‘higher-tier’ domestic protection), not only in the area of procurement law, but also in other areas of (economic) law which regulation and case law can be distorted as a result of the EU rules.

Thus, it seems adequate (and it may not be too late…) to reconsider a drastic change in the enforcement strategy to reduce the current over-reliance on tenderer-led administrative and/or judicial reviews, and start to move away from damages-fueled private enforcement of EU public procurement law and towards a more robust architecture of public enforcement with a restriction of damages compensation solely in exceptional cases—certainly where that compensation goes beyond direct participation costs.

Discussing the possibilities of doing so and the challenges it would imply far exceeds the possibilities of this post, but given that reaching a ‘happy median’ in the regulation of (private) damages actions in the context of procurement remedies in the EU would not be a minor feat, it may be time to (re)open that discussion.

Important EFTA case on procurement damages: Was the court of one mind, and will the CJEU follow? (E-16/16)

In its Judgment of 31 October 2017 in Fosen-Linjen AS v AtB AS, the EFTA Court issued an important Opinion on the interpretation of the procurement Remedies Directive (Dir 89/665/EEC, as amended by Dir 2007/66/EC) and, in particular, on the conditions for the recognition of a right to damages compensation where the contracting authority uses an illegal award criterion and subsequently decides to cancel the tender for that reason. That is, cases where it is clear (and acknowledged by the contracting authority itself) that the procurement procedure was not fully compliant with substantive EU/EEA public procurement rules--which comes to constrain the legal analysis to the question whether the irregularity is such as to allow disappointed tenderers to claim damages compensation.

The Fosen-Linjen case raised a number of issues in the six questions sent to the EFTA Court, such as the threshold for liability, evidentiary requirements, causation, exoneration causes and due diligence requirements. All of them are important but, in my view, the main relevance of the case concerns the threshold of liability, on which the EFTA Court found that 

A simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of Directive 89/665/EEC, provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link (E-16/16, para 82).

The EFTA Court reached this position in answer to a series of questions and sub-questions concerning whether liability under the Remedies Directive was conditional upon the contracting authority having deviated markedly from a justifiable course of action, upon it having incurred a material error that justified a finding of culpability under a general assessment, or upon it having incurred in an inexcusable'material, gross and obvious error' (question 1), or whether liability can be triggered under a test of 'sufficiently qualified breach' where the contracting authority was left with no discretion as to how to interpret or apply the infringed substantive rule (question 2). 

In the case at hand, the EFTA Court decided to group these questions and address them together. In my view, this has been determinative of the outcome of the case. Had the Court addressed the questions sequentially, and inverting the order, it would have been possible to establish that a breach of a substantive provision for which interpretation and application the contracting authority has no discretion constitutes a 'sufficiently serious breach' of EU/EEA procurement law triggering liability (if all other requirements are met) (question 2), which would have rendered the other issues (question 1) moot and unnecessary in this case. By choosing not to do so, the EFTA Court grabbed an opportunity to influence the development of EU/EEA law in the area of procurement remedies in a way that I am not sure will be productive in the long run, particularly because the rather extreme position taken by the EFTA Court--ie that any simple breach of EU/EEA procurement law suffices to generate liability for damages--was not really necessary under the circumstances and does not easily sit with previous developments in the case law of the Court of Justice of the European Union (CJEU).

Ultimately, this finding is controversial because of (1) the way the EFTA Court couches the deviation of liability standards under the Remedies Directive and under the general doctrine of State liability for breach of EU/EEA law, as well as (2) due to the fact that the EFTA Court engages in contradictory normative assessments in the reasoning that leads to this conclusion--which makes the interpretation and operationalisation of its main finding rather tricky. In my view, these two points of contention make it unclear that the CJEU--which is not bound by the EFTA Court's interpretation--will adopt the same approach. I will explore these two issues in turn.

Is public procurement special?

One of the normative and doctrinal issues in the background of the discussion surrounding the threshold of liability under the Remedies Directive concerns its relationship with the general doctrine of State liability for breach of EU/EEA law. The position taken by the EFTA Court on this point is not very clear--despite explicit submissions to that effect by the parties, the Norwegian government and the EFTA Surveillance Authority--but it seems to indicate that the Court considers that procurement law is somehow special.

While it is commonly accepted that the State liability doctrine is premised on the existence of a sufficiently serious breach of EU/EEA law (as seminally established in Francovich and Others, C‑6/90 and C‑9/90, EU:C:1991:428, para 35, and in Brasserie du Pêcheur and Factortame, C‑46/93 and C‑48/93, EU:C:1996:79, paras 31 and 51, and consistently reiterated by the CJEU, most recently in Ullens de Schooten, C-268/15, EU:C:2016:874, para 41), the EFTA Court is not willing to retain this threshold of liability in the area of procurement. As the EFTA Court indicated

... it has already been established that a national rule making the award of damages conditional on proof of fault or fraud would make actions for damages more difficult and costly, thereby impairing the full effectiveness of the public procurement rules ... The same must apply where there exists a general exclusion or a limitation of the remedy of damages to only specific cases. This would be the case, for example, if only breaches of a certain gravity would be considered sufficient to trigger the contracting authority’s liability, whereas minor breaches would allow the contracting authority to incur no liability (E-16/16, para 77, emphasis added).

In other words, the EFTA Court is not willing to tolerate a situation where what could be termed de minimis breaches of EU/EEA public procurement law remain unchallenged and, in that regard, the Court seems to have been influenced by the European Commission's position that 'any infringement of public procurement law should be followed up and should not be left unattended because the breach is not “sufficiently serious”' (E-16/16, para 59). The EFTA Court thus seems to consider that the establishment of an almost absolute right to claim damages is necessary to ensure the desirable effectiveness of EU/EEA procurement law.

The Court also considers that '[a] requirement that only a breach of a certain gravity may give rise to damages could also run contrary to the objective of creating equal conditions for the remedies available in the context of public procurement. Depending on the circumstances, a breach of the same provision on EEA public procurement could lead to liability in one EEA State while not giving rise to damages in another EEA State' (E-16/16, para 78), which is by no means obvious, in particular if the preliminary reference mechanism works appropriately. 

In my opinion, this general line of reasoning conflates two separate issues. First, whether any infringement of EU/EEA substantive law should trigger a ground for the review of the procurement decision concerned and, if justified, to set it aside. Second, whether any infringement of EU/EEA substantive law should provide a right to claim damages. By conflating both issues, the EFTA Court implicitly assumes that claims for damages are the only effective remedy. The Court does not take into account the existence of public oversight mechanisms able to 'pick up' on those de minimis infringements of EU/EEA public procurement law, and seems not to think it possible for disappointed tenderers to exercise rights of review in the absence of the financial incentives resulting from damages claims. This comes both to establish a hierarchy of remedies that is absent in the Remedies Directive [see A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' in S Torricelli & F Folliot Lalliot (eds), Contrôles et contentieux des contrats publics (Bruylant, 2018) forthc.], and to create the same risk of deformation of EU tort law that we have witnessed in other areas of EU economic law [see O Odudu & A Sanchez-Graells, 'The interface of EU and national tort law: Competition law', in P Giliker (ed), Research Handbook on EU Tort Law (Elgar, 2017); as well as the rest of contributions to that volume].

From a normative perspective, I find this approach problematic due to the perverse incentives it creates--and which I think the EFTA Court was somehow aware of (see below). Moreover, I am not persuaded that this would necessarily be the position of the CJEU, which has in the past held that Art.2(1)(c) of Directive 89/665 'gives concrete expression to the principle of State liability for loss and damage caused to individuals as a result of breaches of EU law for which the State can be held responsible' (Combinatie Spijker Infrabouw-De Jonge Konstruktie and Others, C-568/08, EU:C:2010:751, para 87, emphasis added). From that perspective, and even if the CJEU is likely to continue developing its line of case law that prevents the creation of additional requirements for the existence of liability in damages (as is clear it did by rejecting the imposition of a requirement of fault in Strabag and Others, C-314/09, EU:C:2010:567), I see no reason why it would accept that the requirement for a 'sufficiently serious breach' does not apply in this sub-field of State liability.

In my view, this is particularly important because the position taken by the EFTA Court was both unnecessary for the resolution of the case, and not explicitly premised on a deviation of the State liability doctrine, which leaves the CJEU an easy way out if it decides to take a different approach in the future. In my view, this is likely, because from a normative point of view, the position taken by the EFTA Court is not easily tenable.

What are the implications for contracting authorities and tenderers?

One of the important normative aspects on which the EFTA Court's Fosen-Linjen Judgment rests concerns the incentives that different liability thresholds and requirements create. In that regard, the Court seems to adopt two contradictory normative standpoints in dealing with the twin question of the threshold for liability and the causality requirement--which are indivisibly interlinked in its overall finding that 'A simple breach of public procurement law is in itself sufficient to trigger the liability ... provided that the other conditions for the award of damages are met, including, in particular, the condition of a causal link' (E-16/16, para 82, emphasis added). The contradiction is as follows.

On the one hand, the EFTA Court considers that a simple infringement of EU/EEA public procurement rules must suffice to trigger liability because

... damages seek to achieve a three-fold objective: to compensate for any losses suffered; to restore confidence in the effectiveness of the applicable legal framework; and to deter contracting authorities from acting in such a manner, which will improve future compliance with the applicable rules. Liability through damages may also provide a strong incentive for diligence in the preparation of the tender procedure, which will, ultimately, prevent the waste of resources and compel the contracting authority to evaluate the particular market’s features. Were liability to be excluded, this may lead to a lack of restraint of the contracting authority (E-16/16, para 76, emphasis added).

Thus, in this part of the Judgment, the EFTA Court considers a high likelihood of liability a proper incentive for adequate diligence and decision-making on the part of the contracting authority.

Conversely, on the other hand, when assessing the causality requirements for the recognition of a right to damages compensation (in the context of the fourth question referred by the Norwegian court), the EFTA Court stresses that

... there must be a balance between the different interests at stake. While liability of the contracting authority for any errors committed promotes, in principle, the overall compliance with the applicable legal framework, exaggerated liability of the contracting authority could lead to excessive avoidance costs, reduce the flexibility of the applicable framework and may even lead to the unjust enrichment of an unsuccessful tenderer. Furthermore, excessive liability may provide an incentive for a contracting authority to complete award procedures, that were evidently unlawful, or impinge upon the freedom to contract (E-16/16, para 101, emphasis added). 

This clearly indicates that the existence of liability needs to be constrained or modulated. The EFTA Court seems to want to do so by establishing a complicated approach to causality requirements that would distinguish between those applicable to claims for negative and positive damages (ie bid costs and loss of profits). Even in the context of the first question, the EFTA Court had already shown some inconsistency when establishing that 'a claim for damages can only succeed if certain other conditions are fulfilled, such as the condition that there must be a sufficient causal link between the infringement committed and the damage incurred' (E-16/16, para 81, emphasis added)--which, however, is not equally reflected in the wording of its general finding, which only makes reference to 'the condition of a causal link' (para 82). 

In my view, the approach (implicitly) followed by the EFTA Court is not better than the alternative approach of having closely stuck to a requirement for a sufficient breach of EU/EEA public procurement rules. Even if a combination of low liability threshold (simple breach) and high causality requirements ('sufficient causality') could lead to the same practical results that a requirement for 'sufficiently serious breach', the EFTA approach creates legal uncertainty and more scope for divergence across EU/EEA jurisdictions, not the least because causation is within the remit of domestic law. more importantly, it can create a wave of litigation based on any (minimal, formal, irrelevant) errors in the conduct of procurement procedures in an attempt to test the boundaries of that test.

In my view, on the whole, it would have been preferable to stick to the general framework of the State action doctrine as specified in the Remedies Directive, which is compatible with a finding of a requirement for there to be a 'sufficiently serious breach' of EU/EEA procurement law and, at the same time, with a finding that breaching a provision for which interpretation and application the contracting authority has no discretion (eg the obligation to be in a position to verify the content of tenders against its requirements and award criteria, as in Fosen-Linjen) suffices to trigger liability (the same way that the mere lack of transposition of a Directive triggers State liability under the general test). Therefore, I very much hope that this issue is brought to the CJEU soon, and I would strongly advocate for the CJEU to explicitly reject the EFTA Court's approach.