Summum ius, summa iniuria? GC supports a very narrow approach to the dismissal of non-fully compliant tenders (T-216/09)

In it Judgment of 25 October 2012 in case T-216/09 Astrim SpA and Elyo Italia Srl v European Commission, the General Court has backed up the Commission in its decision to dismiss a tender offer where 0,33% of the itemised prices required by the tender documents were not provided by the tenderers. 

In the invitation to tender, the Commission had indeed expressly stressed "the importance of completing all sections of files", and specifically mentioned that" [t]he omission of one or more of [the itemised prices] may result in the exclusion of the bidder from the tender". On the basis of this clear warning, the GC finds no fault in the decision of the Commission to dismiss the tender submitted by the appellants--which, as mentioned, failed to indicate prices for 7 of the 2091 items included in the contractual object.

According to the GC (only French and Italian versions available):

97 L’article 148 du règlement n° 2342/2002 prévoit, quant à lui, que, « [a]près l’ouverture des offres, dans le cas où une offre donnerait lieu à des demandes d’éclaircissement ou s’il s’agit de corriger des erreurs matérielles manifestes dans la rédaction de l’offre, le pouvoir adjudicateur peut prendre l’initiative d’un contact avec le soumissionnaire, ce contact ne pouvant conduire à une modification des termes de l’offre ». 

98 Il y a donc lieu de considérer que, en l’espèce, le pouvoir adjudicateur, après avoir constaté l’omission affectant certaines rubriques et avoir vérifié qu’il ne s’agissait pas d’erreurs matérielles manifestes dans la rédaction de l’offre, n’était tenu ni d’apprécier la gravité de l’omission ni, par conséquent, de consacrer une motivation spécifique à l’importance des rubriques non complétées. 

99 Il s’ensuit que la Commission n’a pas enfreint le point 17 de la lettre d’invitation en décidant d’exclure les requérantes au motif que certaines rubriques des listes de prix n’avaient pas été complétées. 

100 Troisièmement, s’agissant de la prétendue violation de l’article 89 du règlement n° 1605/2002 en ce qui concerne le principe de proportionnalité, il suffit de rappeler que le point 17 de la lettre d’invitation souligne « l’importance de remplir toutes les rubriques des fichiers » et indique que « l’omission d’une ou de plusieurs d’entre elles pourrait avoir pour effet d’exclure le soumissionnaire de l’appel d’offres ». 

101 Le point 17 de la lettre d’invitation indique donc clairement que l’omission d’une seule rubrique peut entraîner l’exclusion d’un soumissionnaire de l’appel d’offres. À cet égard, il convient de relever que cette disposition de la lettre d’invitation vise à fournir au pouvoir adjudicateur, en l’occurrence à la Commission, une explication détaillée quant à la manière selon laquelle le prix global offert pour le marché public en cause par chaque candidat se décompose en des prix individuels pour les différents produits et services inclus dans ce marché public. 

102 En outre, l’obligation de chaque candidat de mentionner un prix pour toutes les rubriques de la liste des prix vise à permettre la vérification aisée, par la Commission, du caractère exact du prix global offert par chaque soumissionnaire ainsi que du caractère normal de ce prix, conformément à l’article 139, paragraphe 1, du règlement n° 2342/2002 (voir, en ce sens, arrêt Antwerpse Bouwwerken/Commission, précité, point 62). 

103 Enfin [...] il y a lieu de rappeler que, si l’un des prix composant une offre n’est pas indiqué et que cette absence d’indication n’est pas le fruit d’une erreur matérielle manifeste et mineure qui permette, même grâce à des précisions et des explications du soumissionnaire, de déduire le prix de l’offre de manière facile et certaine, le pouvoir adjudicateur ne peut qu’exclure ladite offre. 

104 Dans ces circonstances, contrairement à ce que soutiennent les requérantes, la Commission n’a pas violé le principe de proportionnalité en décidant d’exclure leur offre sans tenir compte de l’incidence des rubriques non complétées sur la valeur de cette même offre. (GC T-216/09 at paras 97 to 104, emphasis added).

Even if the legal reasoning followed by the GC is formally sound, in my opinion, it sets a negative precedent that potentially restricts the possibilities to take into account marginally-faulty tenders, particularly in its paragraphs 98 and 103, where the GC adopts an absolute approach to the duty to dismiss incomplete or faulty bids (ie non-fully compliant tenders), regardless of the material relevance of the defects--which the contracting authority would be under no obligation to assess. I think that an alternative approach would be preferable.

As indicated elsewhere [A. Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) pp. 318-323]:

During the tender evaluation process, and as a result of applying the evaluation rules […] contracting authorities can determine that a given tender is not fully compliant with the technical specifications or other requirements regulating the tender. This deviation from the tender requirements should be determined in accordance with the mandate to accept functional and performance equivalents and, consequently, cannot be justified on purely formal terms or by relation to a given standard—at least if alternative standards are available and if the tenderer has proven the equivalence of the proposed solution under the latter (art 23(4) and 23(5) dir 2004/18). In any case, deviations from the requirements set by the contracting authority in the tender documents can still take place under the test of functional or performance equivalence, and a determination that a bid is not fully compliant with the tender requirements can clearly take place under the regime regulating technical specifications. In that situation, however, there is room for significant variation as regards the degree of non-compliance of bids. At the one extreme, bids can be completely unsuitable for the purposes intended by the contracting authority and, at the other extreme, tenders can be merely non-compliant with marginal or secondary issues that would not significantly alter the ability of the tender to satisfy the contracting authorities’ needs. Any imaginable situation lying in the middle of these two extremes is possible and, consequently, a rigid rule applicable equally to all instances of formal non-compliance seems to offer relatively limited results. In this regard, contracting authorities might be willing to accept relatively minor deviations from the tender requirements provided that, overall, the tender is beneficial to their interests. Therefore, an automatic and non-waivable requirement to reject non fully compliant bids could limit unnecessarily the alternatives of the contracting authority.

[…] 

Non-Fully Compliant Tenders and Non-Fully Compliant Variants. Regardless of whether contracting authorities authorise or not the submission of variants, the issue of the treatment of non-fully compliant bids remains largely open. On the one hand, where no variants are authorised, bids can be non-fully compliant with the general requirements included in the tender documents. Similarly, where variants are accepted, both ‘standard’ and ‘variant’ tenders can be non-fully compliant with the ‘minimum’ requirements contained in the tender documents. In either case, contracting authorities could have an interest in accepting non-fully compliant bids that, however, are substantially suited to satisfying their needs, and prove to be superior to fully compliant bids in some relevant respects—ie, bids that would be considered the most economically advantageous under the relevant award criteria (even taking into consideration their partial or non-full compliance with one or several criteria) and which might not be admissible precisely (or only) because of such partial or non-full compliance. As suggested, these decisions on the treatment granted to non-fully compliant bids can alter the outcome of the tender and can have an impact on competition and, consequently, merit further scrutiny. 

Directive 2004/18 does not contain express rules determining whether contracting authorities are bound to reject non-fully compliant bids in all cases or, on the contrary, whether they can retain a certain degree of discretion to accept them. Nonetheless, this issue has been addressed by the case law of the EU judicature, which has determined that ‘the principle of equal treatment of tenderers requires that all the tenders comply with the tender conditions so as to ensure an objective comparison of the tenders submitted by the various tenderers’ and that ‘[t]hat requirement would not be satisfied if tenderers were allowed to depart from the basic terms of the tender conditions … except where those terms expressly allow them to do so’. In principle, it might seem that—unless contract documents expressly allow for specific departures from the basic requirements (ie, unless variations are authorised)—there is an absolute obligation to dismiss non-fully compliant bids as a requirement or corollary of the principle of equality of treatment. Therefore, it might seem that, other than according to the rules on variants, the acceptance or rejection of a non-fully compliant bid is not within the discretion of the contracting authority—which must automatically reject all non-fully compliant bids in order to guarantee equality of treatment. However, it is hereby submitted that such a reading of the interpreting case law is unnecessarily restrictive and might lead to excessive limitations of competition based solely on largely formalistic criteria that might also diminish the ability of contracting authorities to obtain value for money. Consequently, while complying with the requirements of the principle of equal treatment, an alternative reading might give leeway to more pro-competitive results. 

In this regard, it seems compatible with the abovementioned case law to allow contracting authorities to include in the tender documents a rule allowing for the acceptance of non-fully compliant bids—and, therefore, to make known to all potentially interested tenderers right from the beginning that such a possibility exists—where certain stringent conditions are met, so that i) the partial non-compliance does not materially affect the ability of the tender to satisfy the needs of the contracting authority and/or does not grant the tenderer a material advantage over other competing bidders (which, in the case of quantitative criteria could be limited by authorising a given percentage of deviation from the set requirements)—ie, where the tender is not unsuitable, but merely non-fully compliant; ii) the tender is superior to fully compliant bids in some relevant respects—ie, it is the most economically advantageous under the relevant award criteria— even taking into account the partial and non-material non-compliance with one or various requirements included in the tender documents; and iii) the rules do not confer on the contracting authority unrestricted freedom of choice amongst tenderers. Such rules could be supplemented by setting a penalisation system for non-fully compliant bids (either fixed, or varying with the number of criteria with which the tender is non-fully compliant), in order to ensure that their overall superiority compensates for and exceeds the potential deficiencies derived from partial non-compliance with one or several tender requirements. Also, contracting authorities could always establish that certain tender requirements are not subject to partial compliance (ie, awarding constraints). 

In our view, effective competition for the contract could be fostered by allowing tenderers that cannot fully comply with the specifications to submit tenders for the contract and, as long as the rules applicable to non-fully compliant tenders were clearly set in the tender documents ex ante, no breach of the principle of non-discrimination or the ensuing transparency obligation would arise. Therefore, it seems justified to require contracting authorities to adopt such an approach, whenever clear rules and criteria for the appraisal of non-fully compliant rules permit it. Once again, implementing this approach might raise the complexity and costs of the tender procedure and, consequently, should be subjected to a proportionality test.

Hence, I submit that a more flexible approach should have been adopted by the GC in T-216/09 or that, at least, future developments of EU public procurement law should not be restricted by the very tight corset created by the GC in paras 98 and 103 of the Astrim SpA and Elyo Italia v Commission Judgment. As the classics said, summum ius, summa iniuria...

"Ask responsibly": a warning on the hypertrophy of referrals for preliminary rulings

The tendency towards saturation and the risk of a bottleneck in the activities of the Court of Justice of the European Union (CJEU) are one the main concerns that prompted the recent changes in the rules of procedure of this institution (adopted on 25 September, published in the OJ and due to enter into force on the 1st of November). 

As the CJEU expressly remarked: 

"Faced with a constant rise in the number of cases brought before it, dominated by references for a preliminary ruling, the Court is adapting its rules of procedure to ensure that the particular features of those cases can more readily be taken into consideration, while at the same time strengthening its ability to dispose within a reasonable period of time of all the cases that are brought before it" (see press release here, emphasis added). 

Indeed, references for a preliminary ruling account for more than 60% of the CJEU’s caseload and the hypertrophy of this mechanism for the consistent and harmonized interpretation and enforcement of EU Law risks leaving us with a CJEU without time and resources to effectively deal with any of its other duties under the Treaties.

In that regard, the proactive approach adopted by the CJEU in changing its rules of procedure must be welcome, but at the same time it should be stressed that preventing the hypertrophy of the preliminary ruling mechanism is a two way avenue and that referring courts should also make an effort to "ask responsibly" and avoid referring unnecessary questions to the CJEU. However, the open question is whether the current drafting of Article 267 TFEU allows them to do so. 

As is well known, according to Article 267 TFEU, the CJEU shall have jurisdiction to give preliminary rulings concerning: (a) the interpretation of the Treaties; and (b) the validity and interpretation of acts of the  institutions, bodies, offices or agencies of the Union. And domestic courts are under an asymmetrical duty/possibility to raise such questions before the CJEU. Indeed, where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon. However, where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.

In my view, the imposition on the highest courts of the Member States of an absolute duty to refer cases for a preliminary ruling prevents them from exercising the basic degree of judicial discretion required to "ask responsibly" and generates a potentially non-negligible number of unnecessary referrals without the national courts or the CJEU being able to avoid them. Even if those unnecessary referrals can be replied by way of a reasoned order under the new Article 99 of the rules of procedure of the CJEU, that still takes significant time and costs. Therefore, in my view, some flexibility needs to be introduced to prevent such cases from the very beginning.

The recent Judgment of the CJEU of 18 October 2012 in case C-385/10 Elenca Srl v Ministero dell’Interno is an example of an unnecessary referral. The case involved the interpretation of Council Directive 89/106/EEC of 21 December 1988 on the approximation of laws, regulations and administrative provisions of the Member States relating to construction products as amended by Regulation (EC) No 1882/2003, and also the interpretation of the free movement of goods in the TFEU. More specifically, the case involved a mandatory requirement for construction materials used in chimney pipes sold in Italy to bear the CE mark.

Under the applicable Italian rules, all products used to insulate chimneys and make them fire proof had to bear a CE mark that ensured compliance with a given European technical standard. However, the complainant in the case was using innovative materials for which there exists no equivalent European standard and, consequently, cannot bear the CE mark. As put by the complainant, the contested Italian rule infringed Articles 34 TFEU to 37 TFEU because it made the marketing of a product originating from another Member State of the European Union (in this case, Hungary) subject to a technical condition, namely the affixing of the CE marking, a requirement that is impossible to fulfill because there is no corresponding harmonized standard in Hungary, which makes it impossible in practice to import and distribute the product in question.

The Italian Council of State shared the complainant's doubts as to the validity of the national legislation under European Union law but had to refer the case regardless of such doubts. It should come as no surprise that the CJEU indeed ruled that, in the absence of a harmonized standard for those specific construction products,

18 [... Directive 89/106] provides that the Member States are to allow such a product to be placed on the market in their territory if it satisfies national provisions consistent with the Treaty until the European technical specifications provide otherwise [...]

19 It follows that a Member State may not require the affixing of CE marking on a construction product not covered by [a harmonized European standard], originating from another Member State, in order for that product to be marketed on its territory. That Member State may subject the placing on the market of that construction product only to national provisions which comply with its obligations under the Treaty, in particular with the principle of the free movement of goods set out in Articles 34 TFEU and 36 TFEU.

20 [...] Directive 89/106 must be interpreted as precluding national provisions which automatically make the marketing of construction products, such as those at issue in the main proceedings, originating from another Member State, subject to the affixing of CE marking.

Moreover, the CJEU also dismisses very clearly any possibility to consider such a disproportioned restriction of free movement of goods justified on public interest grounds:

28 Although [...] it is established that, in the absence of harmonising rules, the Member States are free to decide on their intended level of protection of human life and health and on the need to monitor the goods concerned when being used (see, to that effect, Case C-293/94 Brandsma [1996] ECR I-3159, paragraph 11, and C-432/03 Commission v Portugal [2005] ECR I-9665, paragraph 44), it must be observed that legislation which prohibits, absolutely and automatically, the marketing on national territory of products lawfully marketed in other Member States because those products do not have CE marking is not compatible with the requirement of proportionality imposed by European Union law.

29 [...] such a strict requirement of CE marking, which prevents at the outset the very application of the principle of mutual recognition of products for which the European legislature has not effected full harmonisation or drawn up European technical approvals, by prohibiting compliance by the products in dispute with the required safety standards on the basis of approval and certification procedures conducted in the Member State of origin, goes beyond what is necessary to attain the safety objective pursued.

30 [...] Articles 34 TFEU to 37 TFEU must be interpreted as precluding national provisions which automatically make the marketing of construction products, such as those at issue in the main proceedings, originating from another Member State, subject to the affixing of CE marking.

The outcome of the case seems rather straightforward to anyone acquainted with the case law on free movement of goods and, consequently, it seems that the Italian Council of State (which already indicated its position by sharing the doubts of the complainant) did not need this answer from the CJEU in order to be able to give a judgment consistent with EU Law. Therefore, this is a good example of an unnecessary preliminary ruling that has taken up time and resources of the CJEU (and the Italian Council of State) without facing an actual difficulty of interpretation of EU Law. Therefore, in terms of prioritization in the development of EU Law, such a case ranks very low, and should have been avoided.

In my opinion, this shows that we need to allow all domestic courts, including the highest courts of the Member States against whose decisions there is no judicial remedy under national law to "ask responsibly". Otherwise, the risk of hypertrophy of the preliminary ruling instrument and the suffocation of the European Courts will still be a storm over our heads.

Why do you need to have sustained profits to perform a public contract? A critical view on C-218/11

In its Judgment of 18 October 2012 in case C-218/11 Édukövízig and Hochtief Solutions (anciennement Hochtief Construction), the CJEU ruled on the compatibility with EU public procurement rules of a requirement that tenderers for a given contract furnished proof that their "profit/loss item in the balance sheet should not have been negative for more than one of the last three completed financial years (‘the economic requirement’)". In other words, an economic requirement that tenderers proved that they had sustained profits for most of the the three financial years prior to the award of the contract. The CJEU did not object to the inclusion of the requirement in the tender documentation, with the only caveat that it should not go beyond what is reasonably necessary to ensure capacity to perform the contract to be awarded.

In the case at hand, Hochtief had challenged such an economic requirement on the basis that, due to the different existing legislation applicable to intra-group distribution of dividends in Germany and in Hungary, it was discriminatory against German (and, more generally, non-Hungarian) companies that due to intra-group profit transfer agreements (or for any other reasons) find themselves reporting negative profit/loss balances despite having a sound financial standing--which they could proof by means other than specific extracts of their balance sheets which, however, were not allowed for in the specific tender. More specifically,

"Hochtief Hungary argued that the economic requirement does not allow a non-discriminatory and objective comparison of the candidates to be made, since the rules on annual accounts of companies as regards the payment of dividends within groups of undertakings may vary from one Member State to another. That, in any event, was the case with regard to Hungary and the Federal Republic of Germany. The economic requirement was indirectly discriminatory because it disadvantaged candidates who were unable to fulfil it, or could do so only with difficulty, because they are subject, in the Member State where they are established, to different legislation from that which is applicable in the Member State of the awarding authority." (C-218/11 para 17).

In view of this challenge, the Hungarian referring court essentially asked the CJEU whether EU procurement rules [in particular, Articles 44(2) and 47(1)(b) of Directive 2004/18] must be interpreted as meaning that a contracting authority may fix a minimum level of economic and financial standing with reference to a given item on the balance sheet, even if there may be differences as regards that item between the legislations of the various Member States and, as a result, in the balance sheets of companies, depending on the legislation to which they are subject as regards the preparation of their annual accounts (C-218/11 para 25).

The CJEU has ruled that:

32 [...] a contracting authority may require a minimum level of economic and financial standing by reference to one or more particular aspects of the balance sheet, provided that those aspects are such as to provide information on such standing of an economic operator and that the threshold thus fixed is adapted to the size of the contract concerned in that it constitutes objectively a positive indication of the existence of a sufficient economic and financial basis for the performance of that contract, without, however, going beyond what is reasonably necessary for that purpose. The requirement of a minimum level of economic and financial standing cannot, in principle, be disregarded solely because that level relates to an aspect of the balance sheet regarding which there may be differences between the legislations of the different Member States.
34 [...] as is clear from the order for reference, the divergence of legislation at issue in the case in the main proceedings does not concern the scope of the item of the balance sheet covered by the economic requirement, that is to say the profit/loss recorded in the balance sheet. Both the German and Hungarian legislations provide that that item takes account of the profit or loss of the financial year and the distribution of dividends. However, those legislations differ in that the Hungarian law prohibits the distribution of dividends or the transfer of profits from having the consequence of making that item negative, whereas the German law does not prohibit that, in any event not in the situation of a subsidiary like Hochtief Solutions AG, which is linked to its parent company by a profit transfer agreement. [...]
37 [...] in such a situation, the fact that a subsidiary is unable to meet a minimum level of economic and financial standing defined by reference to a particular aspect of the balance sheet is, in the final analysis, the result, not of a difference in legislation, but of a decision by its parent company which obliges that subsidiary to transfer all its profits systematically to it.
38 In that situation, that subsidiary has only the option [...] to rely on the economic and financial standing of another entity by producing the undertaking of that entity to make the necessary resources available to it. Clearly, that option is particularly suited to such a situation, since the parent company may thus itself remedy the fact that it has placed its subsidiary in a position in which it cannot meet the minimum capacity level.
39 [...] where an economic operator cannot meet a minimum level of economic and financial standing consisting in a requirement that the profit/loss item in the balance sheet of candidates or tenderers should not be negative for more than one of the last three completed financial years, because of an agreement under which that economic operator systematically transfers its profits to its parent company, that operator has no other option, in order to meet that minimum capacity level, than to rely on the capacities of another entity (C-218/11 paras 32 to 39, emphasis added). 

The Hochtief Solutions Judgment works well in intra-group situations, where parent companies indeed have the means to supplement the information shown in the balance sheets of their subsidiaries and offer alternative proof of their sound financial standing--and, consequently, can self-protect them from the allegedly discriminatory requirement. Therefore, by restricting the analysis to the very specific circumstances of the case, the CJEU has very conveniently avoided the more general question whether requiring sustained profits as an indicator of financial standing is in accordance with EU procurement rules.

In my view, the CJEU should have gone well beyond the boilerplate answer that "a contracting authority may require a minimum level of economic and financial standing [...] provided that [...] the threshold thus fixed is adapted to the size of the contract concerned in that it constitutes objectively a positive indication of the existence of a sufficient economic and financial basis for the performance of that contract, without, however, going beyond what is reasonably necessary for that purpose" (para 32) and addressed the issue that overall profits are hardly ever (if they can ever be) a requirement that is suficiently linked to the tender and that does not go beyond what is reasonably necessary to ensure capacity to perform the contract to be awarded. In failing to do that, the CJEU has given an appearance of legitimacy to the "profits requirement"--which seems to be completely disproportionate in the majority of the cases because a lack of profits or a "negative profit/loss item" in the balance sheet of an undertaking is ill-prepared to show an actual lack of financial standing--since the negative balance can be due to a large amount and variety of reasons that the contracting authority could be rejecting to take into due consideration on the basis of such a formality.

In my opinion, what is of most concern is that the Hochtief Solutions Judgment opens a very dangerous door to the systematic exclusion of companies reporting negative results in the years immediately preceding the tender, which should clearly be seen as a discriminatory requirement--particularly in the current economic environment, where many firms are struggling to survive and some of them do despite reporting sustained losses, and where their systematic exclusion of tender procedures can result in an undue advantage to larger companies and incumbent public contractors, which will tend to win more and more public contracts (sometimes simply by the fact that they were successful in getting prior contracts awarded and that allowed them to make a positive profit).

Once again, the excesive narrowness of the CJEU's framework for the analysis of public procurement cases seems to have resulted in a good solution to the specific case with potentially very negative effects in the vast majority of public procurement settings. Maybe it would be good for the CJEU to try to estimate these larger impacts and take them into consideration when deciding the case at hand, and to avoid having resort to the very specific circumstances of the case in order to provide more useful general guidance thorugh its replies to the requests for preliminary rulings.

'Winner' means WINNER and 'prize' means FREE PRIZE: The CJEU overshoots the mark of consumer protection (C-428/11)

In its Judgment of 18 October 2012 in case C-428/11 Purely Creative and Others v Office of Fair Trading, the CJEU was confronted with the interpretation of consumer protection rules in the field of aggressive commercial practices in a distant sales scenario. The CJEU has significantly raised the barrier for the conduct of commercial practices that include the award of 'prizes' and call the targeted consumer a 'winner' if she must assume any cost (even that of buying a stamp) to claim the prize, by determining that "the prohibition on making the consumer bear any cost whatsoever is absolute, whether it be the cost of a stamp or of a simple telephone conversation". In my opinion, the CJEU has overshot the mark of consumer protection.

In the case at hand, Purely Creative and other traders were sending individually addressed letters, scratch-cards and other advertising inserts placed into newspapers and magazines, by which the consumer was informed that he had won a prize or equivalent benefit, the value of which could be either considerable or merely symbolic. The consumer was offered a number of options in order to discover his prize and obtain a claim number: he could call a premium rate telephone number, use an SMS service or obtain the information by ordinary post (the latter method being given less prominent). The consumer was informed of the cost per minute and the maximum duration of the telephone call but was unaware that the company responsible for the promotion took a certain sum from the cost of the call (see curia press release here).

The Office of Fair Trading (OFT) took issue with these commercial practices and brought proceedings before the High Court of Justice of England and Wales, Chancery Division (Companies Court) seeking to restrain the traders from continuing to distribute promotions. The High Court found that the promotions involved unfair practices, albeit on a more limited basis than contended by the OFT. In short, the High Court found that the commercial practices would only be acceptable "if the payment required was de minimis (such as the purchase of a stamp or the cost of an ordinary telephone call), no part of which would benefit the trader concerned, and if that payment were de minimis compared with the value of the prize won" (account rendered by the CJEU in C-428/11 at para 19, emphasis added).

Therefore, the High Court passed undertakings by which traders committed not to ‘create the false impression that the consumer has already won, will win or will on doing a particular act win, a prize or equivalent benefit, when in fact taking any action recommended by the [trader] in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost which is either: (a) a substantial proportion of the unit cost to the defendant of the provision to the consumer of the thing described as a prize or other equivalent benefit; or (b) in the case of a charge stated to be for delivery and insurance, used by the defendant to finance in whole or in part its acquisition, handling or other cost of the making available of that thing, other than the actual cost of its delivery to the consumer and insurance (if any) in transit’  (account rendered by the CJEU in C-428/11 at para 20, emphasis added).

Traders appealed and the OFT cross-appealed the High Court ruling before the Court of Appeal (England and Wales) (Civil Division), which referred the case to the CJEU for a preliminary ruling whereby it seeked an interpretation of paragraph 31 of Annex I to the Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (OJ 2005 L 149, p. 22) in order to determine whether that provision prohibits the imposition of a cost, even of a de minimis nature, on a consumer who has been informed that they have won a prize.

According to the CJEU, indeed, the proper legal basis for the analysis in this case was Dir 2005/29/EC and, more specifically, its rules preventing the conduct of aggressive commercial practices against consumers. According to Art 8 Dir 2005/29/EC, 'A commercial practice shall be regarded as aggressive if, in its factual context, taking account of all its features and circumstances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise'.

More specifically, annex I to the Dir 2005/29/EC is a list of 31 paragraphs that describe practices which are in all circumstances regarded as unfair. Under paragraph 20, ‘[d]escribing a product as “gratis”, “free”, “without charge” or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item’ is considered an unfairly aggressive commercial practice. Identically, under paragraph 31, ‘[c]reating the false impression that the consumer has already won, will win, or will on doing a particular act win, a prize or other equivalent benefit, when in fact either, [a)] there is no prize or other equivalent benefit, or [b)] taking any action in relation to claiming the prize or other equivalent benefit is subject to the consumer paying money or incurring a cost.’

In Purely Creative v OFT, the CJEU has adopted a very strict, absolute interpretation of paragraph 31 of annex I of Dir 2005/29/EC by finding that:

29 [...] the term ‘false’ is not vital to an understanding of paragraph 31 of Annex I to the Unfair Commercial Practices Directive but merely reinforces the sentence in question (sic). The prohibited practice consists in the creation of one of the impressions referred to in the first part of that paragraph, whereas, as stated in the second part of that paragraph, those impressions do not correspond to reality.

30 [...] according to the wording of that provision, an unfair practice exists where the consumer is subject to a requirement to pay money or incur a cost on taking any action to claim what is presented to him as a prize or other equivalent benefit. That wording does not allow for any exception, meaning that it is evident that the expression ‘incur a cost’ does not allow the consumer to bear the slightest cost, even if it is de minimis compared with the value of the prize or a cost which would not procure any advantage for the trader, such as the cost of a stamp.

31 The wording of the phrase ‘action in relation to claiming the prize’ is imprecise, it being possible therefore that it covers, inter alia, any step taken by the consumer in order to obtain information about the nature of his prize or to collect it. [...]

34 In addition, given the absolute nature of the prohibition on imposing any cost, the offer of a number of options cannot eliminate the unfair character of the practice if any of the proposed options were to require the consumer to bear a cost, even a de minimis cost compared with the value of the prize. [...]

38 [...] the practice at issue in paragraph 31, second indent, of Annex I to the Unfair Commercial Practices Directive exploits the psychological effect caused by the announcement of the winning of a prize, in order to induce the consumer to make a choice which is not always rational, such as calling a premium rate telephone number to ask for information about the nature of the prize, travelling at great expense to collect an item of low-value crockery or paying the delivery costs of a book which he already has (sic). [...]

40 [...] prohibiting traders from making the consumer bear the slightest cost would not make it impossible to organise such promotional campaigns. The trader could impose a geographic limitation on participation in the competition or in the promotion, so as to limit the costs he would have to bear which are associated with travel by the consumer and with the formalities for the consumer’s taking possession of the prize. When determining the value of the prizes to be distributed, the trader could also take into account the communication or delivery costs he would have to bear. [...]

42 [...] clarification of the interpretation of paragraph 31 of Annex I to the Unfair Commercial Practices Directive can be provided by a reading of paragraph 20 of that annex. According to that provision, there is a misleading practice where a product is described as ‘gratis’, ‘free’ ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item. Paragraph 31 of Annex I to the directive does not contain similar wording, confirming that that paragraph should be interpreted as meaning that the prohibition on making the consumer bear any cost whatsoever is absolute, whether it be the cost of a stamp or of a simple telephone conversation (sic). [...]

49 It is, therefore, in order to protect the consumer that the concept of a true ‘prize’ should be preserved, by interpreting paragraph 31 of Annex I to that directive as meaning that a prize in respect of which the consumer is obliged to make a payment of whatever kind cannot be regarded as a ‘prize’.

50 [...] it is not permissible to allow action to be taken in relation to the claiming of a prize pursuant to a multi-option scheme, proposed to the consumer by the trader, where at least one of the methods would not involve any payment. It is the very prospect of taking possession of the prize which influences the consumer and may cause him to take a decision he would not take otherwise, such as choosing the quickest method of finding out what prize he has won, even though that may be the most expensive method. (C-428/11 at paras 29 to 50, emphasis added).

In a nutshell, the position of the CJEU makes life very difficult for companies willing to attract consumers by offering legitimate and true prizes, since they now have to internalize the tiniest of the costs involved. This position is very strict and, from my view, overshoots the mark--possibly on the basis of rather extreme assumptions of irrational consumer behaviour such as those presented in paragraph 38 of the Judgment (which, in my view, do not seem to represent the actual behaviour of the average consumer or would, at least, have deserved some further evidentiary support). The position advanced by the High Court of Justice of England and Wales, Chancery Division (Companies Court) was preferable because it set a more proportionate standard. I find two faults in the reasoning of the CJEU.

First, in paragraph 29, I think that the CJEU fails to give proper value to the expression 'false' impression. If the consumer is not mislead because she has full, proper information of the de minimis costs required to claim the prize, there seems to be no need to extend the protection. In this regard, resorting to paragraph 20 as an interpretative tool seems correct, but the CJEU seems to have extracted the wrong conclusions. Given that paragraph 20 deals with the concept of 'free' (a rather absolute and appealing concept) and still allows for de minimis charges that are the unavoidable cost of responding to the commercial practice, it seems to impose a clear de minimis threshold for the analysis of the relevance of the costs retained by consumers (ie not internalized by the trader running the promotion). And this de minimis threshold or safe harbour should have been extended to paragraph 31 under the systematic interpretation conducted by the CJEU. Otherwise, the construction of paragraph 31 of annex I Dir 2005/29/EC as the CJEU at para 42 of Purely Creative v OFT is an expansive interpretation of a prohibitive rule (since the 'absolute' element of no-cost that the CJEU brings to the provision is arguably not there, once resort to paragrah 20 is had as an interpretative tool). And expansive or analogic interpretation of prohibitive rules runs against basic principles of legal interpretation [whatever is not prohibited is thereby ipso facto permitted].

Second, the reasoning that the CJEU offers to support the adoption of such a per se prohibition seems faulty too. At paras 45 to 47 of Purely Creative v OFT he CJEU considers that

45 As is apparent from the recitals in the preamble to the Unfair Commercial Practices Directive, in particular recital 17, legal certainty is an essential element for the sound functioning of the internal market. It was in order to attain that objective that the legislature collected in Annex I to the directive the commercial practices which are, in all circumstances, unfair and which, therefore, do not require a case-by-case assessment against the provisions of Articles 5 to 9 of that directive.

46 That objective would not be achieved if paragraph 31 of Annex I to the Unfair Commercial Practices Directive were interpreted as including an element of misleading conduct, distinct from the situations described in the second part of that provision. Difficult assessments would have to be carried out, on a case-by-case basis, in order to prove that element, which is precisely what Annex I to the directive sought to avoid by including that practice.

47 Equally, that objective would not be achieved if traders were allowed to impose on the consumer costs which are ‘de minimis’ compared with the value of the prize. That would make it necessary to determine evaluation methods both for the costs and the prizes and would also require such evaluations to be carried out (C-428/11 at paras 45 to 47, emphasis added).

Formally, the reasoning is correct. However, it is in open contradiction with the following finding of the CJEU in the same Judgment: "[c]lear and sufficient consumer information is important where the trader wishes to ensure that consumers can identify a prize and assess its nature" (para 53) and, therefore "[l]ike every other item of information provided by a trader to a consumer, information on the substance of the prize must be examined and assessed by the national courts in the light of recitals 18 and 19 in the preamble to the {Dir 2005/29/EC], and of Article 5(2)(b) of the directive. That concerns the availability of the information and how it is presented, the legibility and clarity of the wording and whether it can be understood by the public targeted by the practice" (para 55). Therefore, national courts cannot conduct an automatic interpretation of paragraph 31 of annex I of Dir 2005/29/EC anyway. And, if so, the provision is simply badly tailored to become a per se rule--which should allow for a case by case scrutiny of the information provided to consumers (ie the 'false impression' prong of the text) as well as of the actual costs necessary to redeem the prize (as ruled by the High Court of England and Wales). Otherwise, we have an asymmetrical per se rule that unnecessarily restricts business possibilities without clearly increasing (actual, effective) consumer protection, nor reducing litigation (costs and occurrences).

Therefore, in my opinion, the CJEU has overshot the mark by adopting such an absolute interpretation of paragraph 31 of annex I of Dir 2005/29/EC.

Crisis jurídica tras la crisis económica: ¿una visión (justificadamente) pesimista?

Los efectos de la mala gestión pública de la crisis económica amenazan con generar una crisis jurídica de gran impacto (quiero decir, de un impacto aún mayor de la que ya nos acecha), especialmente en los segmentos sociales más vulnerables. No dejan de leerse noticias relativas a la imposición de tasas judiciales (desproporcionadas en el caso de procedimientos administrativo sancionadores y que establecen barreras de acceso a la justicia voluntaria—que sólo lo es en cierta medida), al recorte de los servicios de asistencia jurídica (como el que acaba de anunciar de forma preocupante la Comunidad de Madrid y que suena más a órdago en el pulso abierto entre gobierno regional y colegio de abogados que a decisión sensata de política pública) y a una reducción del gasto en justicia que pretende ser el milagro de los panes y los peces (dado que pretende, con menor gasto público, conseguir un mayor volumen de gestión de casos e imposición de sentencias).

Además, la crisis no sólo afecta a los sistemas y capacidades actuales de nuestra “sociedad jurídica”, sino que pone en jaque las siguientes generaciones de operadores jurídicos en un sistema que congela oposiciones a los cuerpos públicos y semipúblicos y crea un nuevo sistema de acceso a las profesiones de abogado y procurador absolutamente carente de becas y ayudas a la financiación de los prácticamente dos años adicionales de formación requeridos a los estudiantes de derecho; a la vez que depaupera la academia jurídica al ahogar a las Facultades de Derecho y hacer prácticamente imposible tanto el acceso a la vida académica (por la escasez de becas de formación y de contratos en puestos de acceso) como la progresión dentro de ella (forzando a muchos académicos a buscar alternativas profesionales—simultáneas o no, legales o menos, eso es harina de otro costal—en el más lucrativo sector privado, donde el césped está dejando de ser más verde en todo caso).

Si se atan cabos (los mencionados son sólo algunos ejemplos pero sin duda hay mas), es imposible sacar cualquier conclusión que no nos indique claramente que el estado de nuestra “sociedad jurídica” sólo puede empeorar a resultas de la mala gestión pública de la crisis económica (no nos engañemos, no es un problema estricto de falta de recursos, sino de una mala priorización en su gasto) que acabará por dañar necesariamente a la “sociedad civil” en un sentido más amplio y, en el fondo, supondrá un retroceso en el grado de seguridad jurídica y de efectividad del Estado de Derecho en el que decimos vivir. En un entorno de recortes de libertades individuales y de derechos económicos individuales y colectivos, adelgazar (hasta la anorexia) la “sociedad jurídica” es el peor complemento para una política de carrera al fondo o, mejor, a las profundidades.

Además, hay que tener en cuenta que revertir el deterioro que no puede dejar de preverse en la “sociedad jurídica” supondrá una necesidad de inversión mucho mayor que el gasto necesario para mantener el sistema en su actual (ya deficiente) nivel. En este sentido, los gestores públicos deberían priorizar el mantenimiento de las estructuras básicas de la “sociedad jurídica” española y estar dispuestos a pagar un precio mucho más alto en términos de recortes de otras partidas presupuestarias, puesto que es imposible imaginar un escenario en que, por ejemplo, entre 2015 y 2020 se invierta un 15% o 20% del PIB español en justicia—y, por tanto, es difícil hacer un pronóstico que no confirme que estamos asomados a por lo menos una disminución de garantías jurídicas efectivas para las  próximas tres o cuatro generaciones.

En definitiva, hay que hacer una llamada clara a nuestros políticos para que incrementen el gasto en justicia en plena crisis económica, sino queremos que además de nuestras estructuras sociales, se lleve nuestras estructuras jurídicas por delante. Y hay que hacerles entender bien la responsabilidad que tienen si no reaccionan. De lo contrario, están boicoteando desde la base el sistema de Estado de Derecho del que tanto se les llena la boca. Tengámoslo, al menos, claro.

Duty to give reasons under EU procurement law and EU trademark law: is there a contradiction?

Even if they may seem two rather disconnected areas of legal practice, reading cases on EU public procurement and on EU trademark law sometimes offers interesting insights into broader issues of EU Economic Law or, more generally, EU Law. For instance, some recent case law on the duty to provide reasons under each of the specific adminsitrative procedures that govern contract tendering and trademark registration shows what, in my view, is rather a contradiction.

On the one hand, and as commented recently here, the General Court issued his Judgment in Sviluppo Globale GEIE v Commission where it imposed a very demanding standard for the duty to give reasons in procurement cases. Indeed, the GC held that:

27 [...] despite the information contained in [debriefing] letters, and taking into account the relevant case law [Evropaïki Dynamiki/OEDT, T-63/06 at para 112, and Evropaïki Dynamiki/Commission, T-300/07 at para 50] the applicant has not received a response from the Commission showing in a clear and unequivocal fashion the reasoning followed in the adoption of the contested decision. [...]

30 [...] the Commission has not made a formal comparison of the projects described by the applicant in its expression of interest against the benchmark of the three criteria set out in paragraph 21.3.a) of the contract notice. In particular, it did not explain which of these three criteria was not satisfied by the projects [submitted by the applicant]. In these circumstances, the applicant was not able to know if the reason for the rejection of her expression of interest in the procurement in question concerned the minimum number of projects implemented, their budget, their completion in a timely manner or the areas in which they were executed. [...]

35 [...] when, as in this case, a European institution has a wide discretion, the guarantees conferred by the Community legal order in administrative procedures is of an even more fundamental relevance. Those guarantees include, in particular, the duty of the competent institution to state sufficient reasons for its decisions (Technische Universität München, C-269/90 at para 14; Le Canne v Commission, T-241/00 at paras 53 and 54, and Evropaïki Dynamiki v Commission, T-300/07  at para 45). [...]

40 In light of the foregoing, it must be held that the applicant properly submits that, to the extent that the Commission has not developed further the reasons why her candidacy did not meet the technical selection criteria set in the contract notice, it has not received in a clear and unequivocal fashion the reasoning of the Commission, which would have allowed her to know the reasons for the decision not to be included in the shortlist of the contract at issue. Moreover, she could not sue without knowing what those reasons are. It is noteworthy in this regard that the right to good administration under Article 41 of the Charter of Fundamental Rights of the European Union (OJ 2007 C 303, p. 1) sets an obligation on the administration to justify its decisions and that this motivation is not only in general, the expression of the transparency of administrative action, but it must also allow the individual to decide, with full knowledge of the facts, if it is useful for her to apply to a court. There is therefore a close relationship between the obligation to state reasons and the fundamental right to effective judicial protection and the right to an effective remedy under Article 47 of the Charter of Fundamental Rights. (GC T-183/10, at paras 27 to 40, emphasis added, own translation from French).

As I said, this detailed debriefing standard imposes a very high burden on the contracting authorities and entities to provide very detailed reasons concerning every single criterion used in the evaluation of bids. Therefore, contracting authorities and entities will have a powerful incentive to be extremely cautious in the level of detail they provide in debriefing letters and meetings and, in case of doubt, they may feel that the safer position is to err on the side of providing excessive rather than insufficient information. And this generates some troubling incentives and risks, as discussed here.

On the other hand and on the same day, the GC issued its Judgment of 10 October 2012 in case Case T-569/10 Bimbo v OHMI - Panrico (BIMBO DOUGHNUTS), where the challenger of OHIM's decision contended, among other grounds for appeal, that OHIM had not expressly addressed some of the arguments presented during the trademark review procedure. In this case, the GC found that:39 The applicant is in fact arguing that the Board of Appeal infringed the obligation to state reasons provided for in the first sentence of Article 75 of Regulation No 207/2009

39 The applicant is in fact arguing that the Board of Appeal infringed the obligation to state reasons [...]

40 It is to be observed that in the present case the Board of Appeal set out in the contested decision the facts and legal considerations which led it to take that decision [...]
41 As regards, more particularly, the applicant’s argument that the Board of Appeal failed to respond to two specific arguments which it had put forward during the procedure before OHIM, the following points should be made.
42 Firstly, with regard to the applicant’s argument that the word ‘doughnuts’ is regarded by the Spanish public as descriptive of the goods in question, the Board of Appeal addressed that argument by stating, in paragraph 18 of the contested decision, that for the average Spanish consumer (excluding those who speak English) the word ‘doughnuts’ did not describe the goods or their qualities. It also held that the earlier sign, like the sign applied for, would be perceived as a foreign or fantasy term ‘by most consumers’.
43 Thus, the Board of Appeal implicitly held that the majority of average Spanish consumers did not speak English or, at least, did not speak it well enough to know the meaning of the word ‘doughnuts’. In that context, it should be observed that the reasoning of the decision of a Board of Appeal may be implicit, on condition that it enables the persons concerned to know the reasons for the Board of Appeal’s decision and provides the competent Court with sufficient material for it to exercise its power of review (Case T‑304/06 Reber v OHIM – Chocoladefabriken Lindt & Sprüngli (Mozart) [2008] ECR II‑1927, paragraph 55).
44 In this case, the Board of Appeal’s reasoning rejecting the argument based on the allegedly descriptive character of the ‘doughnuts’ element of the trade mark was sufficient to enable the applicant to understand the reasons that had led the Board of Appeal to adopt the contested decision and to enable the Court to exercise its power of review.
45 Secondly, with regard to the applicant’s argument based on the reputation of the ‘bimbo’ element of the trade mark applied for, it is true that the Board of Appeal did not explicitly address that argument in the contested decision. However, it pointed out that the ‘doughnuts’ element in the trade mark applied for ‘[would] catch the attention of the relevant Spanish public, as it appears unusual in Spanish due to the atypical combination of vowels “ou” and the accumulation of consonants “ghn”’. The Board thus held that that element could not be disregarded in the comparison in question. Thus, it follows from the contested decision that the Board of Appeal did not consider that the ‘bimbo’ element of the mark applied for dominated the overall impression created by the mark applied for to such an extent that the other component – the ‘doughnuts’ element – could be disregarded. The reasoning relating to this point was also sufficient to enable the applicant to know the reasons for the contested decision and to enable the Court to review the legality of the decision on that point.
46 The statement of reasons in the contested decision is thus sufficient in law. (GC T-569/10, at paras 39 to 46, emphasis added).

In my reading, the position of the GC in Bimbo Doughnuts is a more balanced review of the reasons provided by the authority than in Sviluppo Globale, and the focus is ultimately functional. Even if the bottom limit or the minimum standard concerning the duty to give reasons set by the GC in both Sviluppo Globale and Bimbo Doughnuts points towards the same functional requirement [ie that the affected party (either a bidder or a trademark applicant) must be able to decide whether to apply to a court to challenge the decision on the basis of its supporting elements, and that such court must be able to exercise its power of review], there seems to be a clear contradiction--or, at the very least--a significant discrepancy in the level of scrutiny in both cases.

Whereas Sviluppo Globale indicates the need to "show in a clear and unequivocal fashion the reasoning followed in the adoption of the contested decision", Bimbo Doughnuts leaves more room to administrative restrictions of the information provided by accepting that "the reasoning of the decision may be implicit and even not expressly address all points raised by the applicant", provided always that the information given is sufficient to understand the reasons for the contested decision. In my opinion, the second position is much less formal and allows for a more workable system of administration of EU rules. Therefore, it seems preferable and should be extended to the public procurement arena and, more generally, to all areas of EU Law.

In this regard, the codification of a proper set of rules (or standards) on EU Administrative Law seems a worthy regulatory exercise. For very interesting proposals, please see the projects conducted under the Research Network on EU Administrative Law http://www.reneual.eu/.

Again on procurement debriefing and its excesses: Extent of the duty to give (very detailed) reasons to bidders and right to a fair trial (T-183/10)

In its Judgment of 10 October 2012 in case T‑183/10 Sviluppo Globale GEIE v Commission, the General Court has issued a new decision concerned with the extent of the duty to provide reasons to disappointed tenderers on the basis of Article 100(2) of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ 2002 L 248, p. 1) (‘the Financial Regulation’) [for another recent case on debriefing, see my comments here]. Interestingly, the GC expressly highlights the link between the duty to give reasons and the right to effective judicial protection under Article 47 of the Charter of Fundamental Rights of the European Union.

In the case at hand, the disappointed tenderer received a debriefing letter from the European Commission where the reasons for its non-invitation to present a full bid in a restricted procedure were limited to indicate "failure to comply with the criteria listed in point 23.1.a)" of the call for expressions of interest. According to those requirements, potential tenderers had to justify that, at the time of tendering, they would have completed at least two international projects worth €3.5mn or more, in areas covered by the object of the future contract (ie technical services to support central and local government in Syria).

The disappointed tenderer considered that the mere indication of a 'generic' or 'unspecific' failure to comply with point 23.1.a) of the call for expressions of interest fell short from the duty to give reasons incumbent upon the contracting authority and violated its procedural rights. On the contrary, the European Commission took the view that, given the objective nature of the criteria included in point 23.1.a) of the call, the disappointed tenderer should have been able to understand the reasons behind the decision not to shortlist her for the presentation of a full bid by a simple comparison of its tender with the contractual object.

The GC disagrees with the position of the Commission and finds that:

27 [...] despite the information contained in [debriefing] letters, and taking into account the relevant case law [Evropaïki Dynamiki/OEDT, T-63/06 at para 112, and Evropaïki Dynamiki/Commission, T-300/07 at para 50] the applicant has not received a response from the Commission showing in a clear and unequivocal fashion the reasoning followed in the adoption of the contested decision. [...]

30 [...] the Commission has not made a formal comparison of the projects described by the applicant in its expression of interest against the benchmark of the three criteria set out in paragraph 21.3.a) of the contract notice. In particular, it did not explain which of these three criteria was not satisfied by the projects [submitted by the applicant]. In these circumstances, the applicant was not able to know if the reason for the rejection of her expression of interest in the procurement in question concerned the minimum number of projects implemented, their budget, their completion in a timely manner or the areas in which they were executed. [...]

35 It should be recalled in this connection that when, as in this case, a European institution has a wide discretion, the guarantees conferred by the Community legal order in administrative procedures is of an even more fundamental relevance. Those guarantees include, in particular, the duty of the competent institution to state sufficient reasons for its decisions (Technische Universität München, C-269/90 at para 14; Le Canne v Commission, T-241/00 at paras 53 and 54, and Evropaïki Dynamiki v Commission, T-300/07  at para 45). [...]

40 In light of the foregoing, it must be held that the applicant properly submits that, to the extent that the Commission has not developed further the reasons why her candidacy did not meet the technical selection criteria set in the contract notice, it has not received in a clear and unequivocal fashion the reasoning of the Commission, which would have allowed her to know the reasons for the decision not to be included in the shortlist of the contract at issue. Moreover, she could not sue without knowing what those reasons are. It is noteworthy in this regard that the right to good administration under Article 41 of the Charter of Fundamental Rights of the European Union (OJ 2007 C 303, p. 1) sets an obligation on the administration to justify its decisions and that this motivation is not only in general, the expression of the transparency of administrative action, but it must also allow the individual to decide, with full knowledge of the facts, if it is useful for her to apply to a court. There is therefore a close relationship between the obligation to state reasons and the fundamental right to effective judicial protection and the right to an effective remedy under Article 47 of the Charter of Fundamental Rights. (GC T-183/10, at paras 27 to 40, own translation from French).

The GC then complements this analysis by underlining the relevance of the motivation provided by the European institutions (in general, by the contracting bodies) for the purposes of judicial review and considers that the scant justification provided by a mere reference to some unfulfilled criteria required by the tender documents falls short from ensuring effective judicial review (GC T-183/10, at paras 41 to 46). In view of all those shortcomings in the motivation provided by the Commission, the GC annuls the decision not to invite the applicant to the submission of a full bid in the relevant procurement process.

In my view, this case generates a significant risk of hypertrophy of bid protest mechanisms in cases where contracting authorities use short or not overly detailed explanations in their debriefing correspondence [in my personal view, the Commission was right to assume that a reference to a specific set of objective criteria clearly indicated in the tender documents should provide the disappointed tenderer with sufficient information to, eventually, challenge the decision]. This can simply open a very dangerous door to strategic litigation and to an excessive broadening of 'fair trial' guarantees in an area where the financial drivers of tendering companies can generate perverse incentives to challenge. 

At the very least, the decision of the GC in Sviluppo Globale will increase the red tape and administration costs of the public procurement system, since contracting authorities will have a powerful incentive to be extremely cautious in the level of detail they provide in debriefing letters and meetings and, in case of doubt, they may feel that the safer position is to err on the side of providing excessive rather than insufficient information. As recently stressed in relation to case C-629/11 P, contracting authorities and review courts should be particularly careful in not imposing excessive disclosure when there are actual risks of strategic use of challenge procedures or the market structure is such that the increased degree of transparency could (inadvertently) facilitate or reinforce collusion.

However, this message seems not to be reaching the adequate ears and disclosure and transparency requirements are just being significantly expanded in the recent case law of the EU Courts. In my view, this is a dangerous development of EU public procurement law, which may lead to excessive litigation and to a strengthening (or facillitation) of collusion in some public procurement markets. I am just hoping that future practice proves me wrong.

EU's accession to the ECHR and due process rights: Nothing new under the sun?

I have just posted a new paper on SSRN about the potential implications of the EU's accession to the European Convention on Human Rights (ECHR), particularly in terms of the scope and intensity of judicial review of enforcement decisions in competition law cases.

In light of the ongoing discussion on the potential need for reform of the enforcement system of EU competition law to make it compliant with Article 6(1) ECHR, the aim of the paper is to contribute to the debate in a threefold manner by: i) sketching the peculiarities of the enforcement of competition law (in general, but with a focus on EU competition law), which basically derive from the complex and data intensive economic assessments required in most cases; ii) critically appraising the requirements of Article 6(1) ECHR in the field of EU competition law in view of those peculiarities; and, finally, iii) assessing the impact of those requirements in terms of the potentially necessary amendments to the EU competition law enforcement system upon the EU’s accession to the ECHR.

The basic contention of the paper is that, given the specific architecture of the EU competition law enforcement system under Regulation 1/2003 (and the domestic competition laws of Member States) — which have crystallized in a network of highly specialised and independent administrative agencies that, generally, offer procedural guarantees equivalent (or superior) to those of most tribunals in other areas of the law — and as long as an effective (soft or marginal) judicial review mechanism is available to the undertakings affected by sanctions due to EU competition law infringements, no significant changes are required in order to make the system comply with Article 6(1) ECHR. This position is further supported by the express normative assumption that undertakings (or companies) deserve a relatively more limited protection than individuals under the ECHR and, more specifically, under Article 6(1) ECHR — at least as regards non-core due process guarantees, such as the applicable standard of review (and as opposed to ‘core’ due process guarantees such as the presumption of innocence, the principle of equality of arms, the right to have full access to the evidence, or the right not to suffer undue delays).

The full paper is available here: http://ssrn.com/abstract=2156904. 

Still an excessive level of transparency in public procurement debriefing? C-629/11 P Evropaïki Dynamiki v Commission

In its Judgment of 4 October 2012 in case C‑629/11 P Evropaïki Dynamiki v Commission (ESP-ISEP), the Court of Justice has issued another interesting decision on what should be considered sufficient debriefing of disappointed bidders in public procurement procedures.

The Evropaïki Dynamiki (ESP-ISEP) Judgment has been issued on the basis of Article 100(2) of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ 2002 L 248, p. 1) (‘the Financial Regulation’). However, a 'twin' provision can be found in Article 41 of  Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ 2004 L 134, p. 114) ('Directive 2004/18'). Consequently, the Judgment is of relevance in all areas of public procurement, and not only to that of the EU Institutions.

According to Article 100(2) of the Financial Regulation,

‘The contracting authority shall notify all candidates or tenderers whose applications or tenders are rejected of the grounds on which the decision was taken, and all tenderers whose tenders are admissible and who make a request in writing of the characteristics and relative advantages of the successful tender and the name of the tenderer to whom the contract is awarded.

However, certain details need not be disclosed where disclosure would hinder application of the law, would be contrary to the public interest or would harm the legitimate business interests of public or private undertakings or could distort fair competition between those undertakings’.

In this case (and furthering an unsuccessful strategy to challenge adverse award decisions that, however, has made a fundamental contribution to the development of the case law in this area), Evropaïki Dynamiki challenged the debriefing received from the European Commission both on the grounds that it was 8 days late (although both the GC and the CJEU dismiss this procedural deffect easily on the basis that the delay did not however restrict the undertaking's opportunity of asserting its rights and could not, by itself, lead to the annulment of the contested decisions) and that it was insufficient--ie that the Commission had not provided sufficient reasons to justify the award of the contract to another bidder.

Reading the Evropaïki Dynamiki (ESP-ISEP) Judgment, one cannot but wonder if EU public procurement rules do not still impose an excessive degree of transparency in the debriefing of disappointed bidders. According to the CJEU in Evropaïki Dynamiki (ESP-ISEP) 

20 [...] according to the first subparagraph of Article 100(2) of the Financial Regulation, the contracting authority is required to notify all candidates or tenderers whose applications or tenders are rejected of the grounds on which the decision was taken, and to notify all tenderers whose tenders are admissible and who make a request in writing of the characteristics and relative advantages of the successful tender and the name of the tenderer to whom the contract has been awarded.

21 However, it is apparent from the case-law that the Commission cannot be required to communicate to an unsuccessful tenderer, first, in addition to the reasons for rejecting its tender, a detailed summary of how each detail of its tender was taken into account when the tender was evaluated and, second, in the context of notification of the characteristics and relative advantages of the successful tender, a detailed comparative analysis of the successful tender and of the unsuccessful tender (see, to that effect, order of 29 November 2011 in Case C‑235/11 P Evropaïki Dynamiki v Commission, paragraphs 50 and 51 and the case-law cited).

22 Similarly, the contracting authority is not under an obligation to provide an unsuccessful tenderer, upon written request from it, with a full copy of the evaluation report (see order of 20 September 2011 in Case C‑561/10 P Evropaïki Dynamiki v Commission, paragraph 25).

23 Furthermore, it must be noted that, according to settled case-law, the statement of reasons required under the second paragraph of Article 296 TFEU must be assessed in the light of the circumstances of each case, in particular the content of the measure in question and the nature of the reasons given (see, inter alia, Case C‑367/95 P Commission v Sytraval and Brink’s France [1998] ECR I‑1719, paragraph 63, and judgment of 28 February 2008 in Case C‑17/07 P Neirinck v Commission, paragraph 52).

24 In the present case, it is apparent from paragraphs 8 and 37 of the judgment under appeal that the [debriefing] letter [...] contained the names of the tenderers selected as first contractor for each of the two lots of the call for tenders at issue.

25 In addition, [...] the Commission enclosed as annexes to that letter extracts from the two evaluation reports [...]

26 It is apparent therefrom that those extracts contained tables relating, in particular, to the technical evaluation of the tenders for both of the lots and indicating, for each award criterion, the number of points obtained by Evropaïki Dynamiki in comparison with the successful tenderer, broken down each time into sub-criteria, as well as the maximum number of points attainable per sub-criterion and the weighting of each of those sub-criteria in the overall evaluation. Summary tables showed, on the basis of the results of the technical and financial evaluation, the final ranking for each of the two lots.

27 It is also apparent therefrom that, according to the information communicated in the [debriefing] letter [...], Evropaïki Dynamiki’s tender was ranked higher than the successful tender solely under the fourth award criterion regarding the quality of the service and the methodological proposal in the domain of Lot No 2. It was also only with regard to the fourth criterion relating to the quality of the technical offer in the domain of Lot No 1 that its tender obtained the same number of points as the successful tender. On the other hand, for all other criteria, Evropaïki Dynamiki’s tender was less well ranked than that of the successful tenderer.

28 Furthermore, the comments of the evaluation committee which were also disclosed indicated, for each award criterion, the sub-criteria on the basis of which the Commission found the successful tenderer’s offer or that of Evropaïki Dynamiki to be the best.

29 Finally, the method applied by the Commission for the technical evaluation of the tenders was clearly set out in the tendering specifications relating to the call for tenders at issue. As is apparent in particular from paragraph 3 of the judgment under appeal, they specified, for each lot, the various award criteria, their respective weighting in the evaluation, that is to say in the calculation of the total score, and the minimum and maximum number of points for each criterion.

30 Accordingly, [...] in view of all the information supplied to Evropaïki Dynamiki, as well as the specifications contained in the call for tenders, including the weighting relating to the award criteria for each of the lots, Evropaïki Dynamiki had sufficient information to enable it, for each lot, to identify the characteristics and relative advantages of the best ranked tenderer’s offer.

31 It follows that, in the light of all of the elements of the present case [...]  Evropaïki Dynamiki’s argument alleging that the statement of reasons for the contested decisions was inadequate had to be rejected.

From the Judgment, it is not only clear that the Commission debriefed Evropaïki Dynamiki in full, but also that the current rules require the disclosure of certain information (of most relevance, the name of the winning bidder) that may be excessive. In that regard, the second paragraph of Article 100(2) of the Financial Regulation [or the equivalent Article 41(3) Directive 2004/18] deserve more attention, as regards the caveat that some information may (rectius, should) not be disclosed if such disclosure might prejudice fair competition between economic operators.

As pointed out elsewhere, contracting authorities and review courts should be particularly careful in not imposing excessive disclosure when there are actual risks of strategic use of challenge procedures or the market structure is such that the increased degree of transparency could (inadvertently) facilitate or reinforce collusion  [Sanchez Graells, A. Public Procurement and the EU Competition Rules (Oxford, Hart Publishing, 2011) 358-9].

It should be taken into consideration that there is a risk for a strategic use of bid protest mechanisms seems at least twofold. On the one hand, tenderers could try to gain access to confidential information which could be used later to compete unfairly with the affected tenderers. On the other hand, excessive disclosure of information can increase market transparency and be used as a means to collude or to reinforce collusion by tenderers. Therefore, rules on disclosure of information should take into account their potentially restrictive or distortive effects on competition. Interestingly, Directive 2004/18 contains a specific rule addressing this issue. Article 41(3) of Directive 2004/18 allows contracting authorities to withhold certain information

regarding the contract award, the conclusion of framework agreements or admittance to a dynamic purchasing system where the release of such information would impede law enforcement, would otherwise be contrary to the public interest, would prejudice the legitimate commercial interests of economic operators, whether public or private, or might prejudice fair competition between them [see also art 29(3), art 32(4)(c), and art 35(4) dir 2004/18, emphasis added].

Therefore, in the exercise of such discretionality and as a mandate of the principle of competition, contracting authorities are bound to restrict the disclosure of information given to tenderers to prevent instances of subsequent unfair competition or collusion—and, in order to do that properly, must identify and properly justify the negative effects which the withholding of the information seeks to avoid.

Along the same lines, and although there is no equivalent provision in Directive 89/665 and Directive 92/13 (both as amended by dir 2007/66), it is submitted that the same restrictions to the disclosure of information apply in bid protests and review procedures, so that contracting authorities (in the case of mandatory reviews prior to challenges, or otherwise) and independent review bodies are bound to prevent disclosures of information that could result in restrictions or distortions of competition. In such cases, limiting the access of information to the minimum extent required to ensure the effective protection of the rights of the applicants in review procedures will require a balancing of interests by the competent authority—which, in our view, should take into due consideration the potential impact on competition of the disclosure of certain information. Such an obligation can be stressed or reinforced by general rules on the treatment of business secrets and other commercially sensitive information of general application according to Member State domestic legislation.

Do we need a clearer message?: Distorting competition is not only wrong, it is socially empoverishing

The OECD has recently released its report ‘Promoting Compliance with Competition Law’ [DAF/COMP(2011)20, http://tinyurl.com/OECDCompliance2011]. In this policy roundtable report, the OECD Competition Committee analyses the reasons behind the current relatively low level of development of competition compliance programs, as well as best practices to try to promote their adoption by a broader base of companies across jurisdictions and sectors of economic activity.

According to the report, one of the causes for the relatively low compliance efforts made by companies seems to be that:

companies may be more inclined to commit resources to those areas of law that are associated with the strongest moral condemnation. In other words, the choice to promote compliance with a law is influenced by the degree to which society accepts the idea that the behaviour prohibited by that law should be illegal. For this reason, competition compliance may sometimes slip down the list of priorities behind other areas such as bribery and fraud. Some commentators have emphasised that for companies to take competition compliance more seriously, the immoral aspect of competition violations should be communicated more strongly. Competition authorities should therefore consider more actively engaging with the media and increasing advocacy efforts to promote the idea that competition law infringements are not only illegal, but immoral.

In my view, this may be a step in the wrong direction but it may also not work in societies where certain levels of illegal collaboration between competitors are actually not seen as an immoral practice. However, in this day and economic scenario, we may have an even more appealing argument than morality: simply and plainly, economic efficiency. 

If we truly want to help our economies recover, we need a thriving competition environment (free from opportunistic 'crisis cartels' to begin with). Along these lines, yesterday's speech by Commissioner Almunia at the European Competition Day is a rather good reminder:

Competition control helps Europe’s economy become more competitive. Competition authorities create better conditions for economic growth – and Europe needs them more than ever [...]

Nothing can boost a sustainable growth pattern more than turning the Single Market into a reality for innovative entrepreneurs, efficient businesses, and 500 million consumers. The work of the EU competition authority has two main effects in this context. First, in the knowledge economy, a growing part of our enforcement involves industries where information is key, such as financial services, telecoms, and the digital economy – and these are crucial markets for growth. In doing so, we do not shy away from taking on corporations with a global reach. Second, our investigations and decisions help Europe keep its edge over its global competitors by promoting competition across the whole Single Market [...]

These are some of the ways in which competition policy can promote growth in Europe. Our action can contribute to keep the business environment in Europe more efficient; it can effectively foster our process of integration; and it can give lower prices and a wider choice to consumers. For that purpose, we must fight against business practices and certain government decisions that slow down the economy; harm competitiveness and innovation; and taint economic relations with an element of injustice.

Hopefully, if this is well understood, it will be sufficient to stress that anticompetitive practices constitute a barrier to economic growth and to recovery from the current crisis. Given the current climate of awareness of the relevance of boosting economic growth to avoid further cuts in social services (amongst other things), it should be sufficient to stress clearly and to disseminate the message that anticompetitive practices are socially empoverishing. In the end, it's the economy ...