Author: Kristian Strømsnes, Postdoctoral Fellow, Faculty of Law, University of Bergen
In the recent judgment in Case C-547/22 INGSTEEL, the Court of Justice of the European Union (CJEU) clarifies that tenderers unlawfully rejected in a public procurement procedure in the EEA can claim damages for the loss of opportunity to win the contract, as a head of damage distinct from loss of profit. The judgment also clarifies that contracting authorities can only be held liable in cases where they have committed a sufficiently serious breach of the EEA rules governing public procurements. The latter question was the subject of two conflicting advisory opinions from the EFTA Court in the Fosen-Linjen saga of 2016-2019. In Fosen-Linjen I, the EFTA Court suggested that contracting authorities could be held liable for any breach of EEA public procurement law, but it later reversed this in Fosen-Linjen II. With the CJEU’s judgment in INGSTEEL, the EFTA Court’s willingness to reconsider its findings in Fosen-Linjen I has been vindicated.
As to the CJEUS’s finding in INGSTEEL that loss of opportunity is protected by EEA public procurement law as a distinct head of damage, the impact on Norwegian law is likely to be only modest as the standard of proof required for establishing such a loss was essentially left to national law. In Norway, the standard of proof for loss of profit is less strict than the minimum requirements flowing from the principle of effectiveness. The new possibility to claim damages for the loss of opportunity to win the contract is therefore unlikely to add much to the existing possibility to claim damages for loss of profit.
The facts of the case
In 2013 a Slovak contracting authority published a call for competition for a contract for works for the reconstruction, modernization and construction of a total of 16 football stadiums. INGSTEEL was a company in a participating tendering association. Due to the association’s economic and financial standing, the contracting authority rejected the association from the procedure. This decisions was eventually quashed by the Slovak Supreme Court in 2018, following a preliminary ruling from the CJEU (see C-76/16). In the meantime, however, the contracting authority had signed the contract with the only remaining tenderer. INGSTEEL’s only remaining remedy was thus to claim damages for the alleged losses caused by the unlawful exclusion from the procedure. The claim included an alleged loss of profit worth about € 820 000.
Before the national court, and subsequently before the CJEU, the contracting authority argued that under Slovak law, loss of profit can only be compensated if it is “highly probable, or even close to certain” that the claimant would have been awarded the contract (para. 46). According to the contracting authority, this evidentiary requirement was not met in the case: even if INGSTEEL had been allowed to compete, it would not necessarily have won the contract. Its tender would have been assessed in greater detail, including whether the price was abnormally low (which also can be a reason for rejection). Further, the claim was argued to be hypothetical, since not all the construction work listed in the call for competition would necessarily have been conducted in real life.
INGSTEEL countered that it did not seek compensation for loss of profit, but for loss of the opportunity to compete for the contract. According to INGSTEEL, this had to be considered a distinct head of damage, not to be equated with loss of profit and, importantly, one which cannot require such a high degree of probability of obtaining an economic advantage (para. 22).
The judgment
The question put to the CJEU was essentially whether EU Public Procurement Law (Art. 2(1)(c) of Directive 89/665) requires national law to recognize loss of opportunity to compete for a contract as a distinct head of damage. Indirectly, although unfortunately not directly put, the referring court also seemed to wonder whether the principle of effectiveness called for a lower standard of proof for loss of opportunity than the ‘close to certain’-threshold that exists in Slovak law to prove loss of profit.
By way of an introduction, the CJEU noted that it is settled case-law that individuals harmed by a breach of EU law attributable to a Member State have a right to compensation where three conditions are met: the rule of EU law infringed must be intended to confer rights on them; the breach of that rule must be sufficiently serious; and there must be a direct causal link between the breach and the damage sustained by those individuals. The Court proceeded to confirm its finding in the 2010 judgment in Combinatie Spijker (C-568/08) that Article 2(1)(c) of Directive 89/665 gives concrete expression to those principles. Thus, the general requirements for State liability for breach of EU law apply also to contracting authorities' breaches of EU public procurement law.
Turning to the question of the heads of damage covered, the CJEU highlighted that Art. 2(1)(c) of the Directive only states that member states shall have procedures in national law with provisions to “award damages to persons harmed by an infringement”.
The CJEU found that even though the Directive does not entail complete harmonization, the wording in Art. 2(1)(c) is broad and does not distinguish between different categories of damages. An interpretation that covers damages stemming from loss of the opportunity to participate in the procedure is supported by the context; since member states can limit national enforcement to only damages (after the contract has been signed, cf. Art. 2(7)), the EU legislator regarded damages as the last tool in the remedy toolbox. Where other remedies are not available, damages have to be available and effective. This is important in situations like the one with INGSTEEL, where the contract was signed and fulfillment started, which made it impossible for INGSTEEL to get back into a position where the company could win the contract. If the Directive was interpreted to exclude the possibility of obtaining damages related to loss of opportunity, it would be practically impossible to enforce the rights provided by EEA public procurement law.
Thus, CJEU found that Art. 2(1)(c) indeed covers damage suffered because of loss of an opportunity to win a contract. The CJEU did not, however, offer any guidance as to the standard of proof allowed for under national law in order to consider a lost opportunity to be established.
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With INGSTEEL, the CJEU has effectively settled the rather heated debate brought about by the EFTA Court’s advisory opinions in Fosen-Linen I and Fosen-Linjen II. While the EFTA Court in Fosen-Linjen I considered any breach of EEA public procurement law to the contracting authorities’ liability for losses caused by it, the Court reversed its position in Fosen-Linjen II, falling in line with the CJEU’s judgment in Combinatie. The judgment in INGSTEEL shows not only that Fosen-Linjen I was wrong on this point, but also that it was wise of the Norwegian Supreme Court to send the case back to the EFTA Court for reconsideration. The fierce criticism at the time from the former president of the EFTA Court, Carl Baudenbacher, saying it «would be the end of the rule of law» if Norwegian Supreme Court sent the case back, was never a convincing prediction. Rather, it allowed the EFTA Court itself to reconsider Fosen-Linjen I and thus prevent a conflict between its case-law and that of the CJEU, as now confirmed by INGSTEEL. Before the CJEU, both Fosen-Linjen I and Fosen-Linjen IIwere referred to, as can be seen in the Advocate General’s Opinion in the case. With the conclusion reached in Fosen-Linjen II, however, neither the AG nor the CJEU saw any reason to distance themselves from Fosen-Linjen I, something which can only be good for the relationship between the two EEA courts.
The final question is what INGSTEEL means for the national law in the EFTA States. As for Norwegian law, there is case-law from the appellate court level that rejects loss of opportunity as a head of damage and which now will have to be reconsidered. The practical implications of this, however, remain uncertain. The main reason for this is the fact that Norwegian law ever since the seminal judgment from the Supreme Court in Nucleus (Rt. 2001 p. 1062) allows a wronged tenderer to claim compensation for loss of profit if able to prove with “clear probability” that he would have won the contract had it not been for the (sufficiently clear) violation of the procurement rules. This standard of proof is lower than the Slovak “close to certain”-threshold that the CJEU took no issue with in INGSTEEL. Thus, Norwegian courts (or the Norwegian legislator, who is currently considering a proposal to codify the case-law on contracting authorities’ liability for breaches of the public procurement law), can probably limit the practical consequences of INGSTEEL considerably by clarifying that the standard of proof for loss of opportunity shall be no lower than the standard of proof for loss of profit.
However, I’m sure some tenderers will try, in case they should not pass the “clear probability” threshold required to claim compensation for lost profit, arguing the standard of proof for loss of opportunity ought to be lower. Or that all it takes for a claim for loss of opportunity to succeed, is proof that an opportunity was lost, which is different from having to prove that profit was lost. We have therefore most certainly not seen the last judgement from CJEU and the EFTA Court on contracting authorities’ liability for violation of EEA public procurement law.
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