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New EFTA Court judgement: contracting authority may be held liable even in a case of a simple breach of the public procurement law

On October 31 2017, the EFTA Court delivered a judgement (case E-16/16) regarding requirements for a claim for damages depending on infringements in a tender procedure. According to the Court's conclusion even a simple breach of public procurement law is, in itself, sufficient to trigger the liability of the contracting authority.

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Facts and background

In the case at hand, there existed a dispute between Fosen-Linjen AS, a small local ferry operator and AtB AS, a contracting authority, concerning tender procedure for the operation of a ferry line. On the grounds of irregularities addressed by Fosen-Linjen, AtB cancelled the tender procedure. Nevertheless, AtB signed a contract with the winning tenderer from the cancelled competition for the operation of the ferry service. In response to that, Fosen-Linjen has brought an action against AtB, claiming damages for positive contract interest (loss of profit) or, in the alternative for negative contract interest (costs of bidding). Frostating Court of Appeal (Frostating lagmannsrett) requested an advisory opinion from the EFTA Court . One of the questions that the Court of Appeal referred to the EFTA Court concerned the conditions under which a tenderer may claim damages based on alleged irregularities in a tender procedure. In its judgment delivered on 31 October 2017 the EFTA Court replied to the questions referred.

Damages award under Norwegian law

According to Norwegian case law, damages are granted on three conditions: (i) the contracting authority must have committed a material error; (ii) the tenderer must have suffered financial loss; and (iii) there must be a high degree of probability that there is an adequate casual link between the error committed and the loss incurred.

Rules requiring a breach of certain type or gravity under EEA public contract law

As the EFTA court notices damages seek to achieve a three-fold objective: to compensate for any losses suffered, to restore confidence in the effectiveness of the applicable legal framework, and to deter contracting authorities from acting in such a manner, which will improve future compliance with the applicable rules.

Accordingly, the award of damages under Article 2(1)(c) of the Remedies Directive is not determined by whether the breach of a provision of public procurement law was due to the culpability and conduct deviating markedly from a justifiable course of action, or whether it occurred on basis of a material error. It neither depends on whether it is attributable to the existence of a material, gross and obvious error.

Most importantly, the Court has decided that a simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, provided that the other conditions for the award of damages are met including, in particular the existence of casual link.

In the Court's opinion, such a rule would also be contrary to the procurement directive's objective to guarantee free movement of services and to ensure open competition on equal terms in all EEA States.

A condition that the contracting authority must have committed a material error may no longer be upheld following the EFTA Court judgment. The consequence is therefore likely that tenderers will be eligible for damages more often than before.

Standard of burden of proof in relation to claims seeking compensation for loss of profit

According to Norwegian case law it is required from the aggrieved tenderer to prove with "clear, that is, qualified preponderance of evidence", that he would have been awarded the contract, had the contracting authority not committed the error.

The EFTA Court was requested to give its opinion on whether such a requirement is in line with the Remedies Directive. According to the Court's judgement such a requirement is not inadmissible under the Remedies Directive, as long as the principle of equivalence and effectiveness are respected.

On this basis it is likely that the national courts will uphold the condition requiring a tenderer that is seeking damages for loss of profit to prove that it is clear that he would have been awarded the contract.

What does it mean for contracting authorities in Norway?

So far Norwegian courts have used more rigorous criteria for damages award i.e. existence of material error. The EFTA Court's judgement can have an influence on national jurisprudence resulting in higher level of responsibility for contracting authorities. The threshold for granting compensation may become significantly lower than what have been the practice in Norwegian courts so far.

Written by Julia Styrylska, Ronny Rosenvold and Gro Amdal.