UK: Going Nuclear On Damages

Nuclear Decommissioning Authority v Energy Solutions EU Ltd (now called ATK Energy EU Ltd) [2017] UKSC 34

The UK Supreme Court has recently considered an authority's liability for damages in the case of a breach of public procurement rules and has concluded that a breach must be "sufficiently serious" for damages to be awarded. The Supreme Court also decided that an economic operator need not have raised its damages claim before the contracting authority enters into the contract in question.

Case details

The respondent, the Nuclear Decommissioning Authority ("NDA"), sought to contract for the decommissioning of 12 Magnox power stations ("the procurement").

ATK Energy EU Ltd ("ATK") as part of the unsuccessful consortium Reactor Site Solutions ("RSS") raised an action for damages claiming that, in running the Procurement, NDA had breached its obligations under the (applicable at the time in question) Public Procurement Directive 2004/18/EC ("the Directive") and the Public Contracts Regulations 2006 ("the Regulations").

ATK contended (and the courts agreed) that NDA had erred in its awarding of the contract as the awarded economic operator had failed two threshold requirements and so should have been disqualified. In any event, it was found that NDA made "many manifest errors" in scoring and as such the contract should have been awarded to ATK.

NDA notified RSS by letter on 31 March 2014 that it had been unsuccessful in its tender and noted that the standstill period would run until 14 April 2014. RSS wrote a number of letters requesting further information and extension to the standstill period.  NDA refused to extend and entered into its contract on 15 April 2014.  ATK raised proceedings on 28 April 2014.  An initial judgment on 24 January 2016 was appealed to the Court of Appeal with the matter subsequently being heard before the Supreme Court on 1 and 2 March 2017.

Supreme Court's Decision

Three main issues were considered by the Supreme Court:

1. Whether a breach of the Directive has to be "sufficiently serious" for an award of damages to be made.

The Supreme Court agreed with the Court of Appeal that the Francovich EU law conditions (Francovich v the Italian Republic [1995] ICR 772) apply i.e. liability would arise where:

  • the legal rule infringed intends to confer rights on the party;
  • the breach is sufficiently serious; and
  • there is a direct causal link between the obligation and the damage,

In addition, the general principles of equivalence and effectiveness must be met. The procedural rules governing actions to safeguard rights under EU law must be no less favourable than those for domestic actions (equivalence) and they must not make exercising EU rights practically impossible or excessively difficult (effectiveness).

2. Whether the Regulations confer a power to award damages in respect only of a "sufficiently serious" breach.

The Supreme Court considered the legislator's intention in relation to the Public Contracts (Amendment) Regulations 2009, which was not to "gold plate" EU law, just to do only what was necessary to implement the Remedies Directive 89/665/EEC (as amended) ("Remedies Directive").

The Supreme Court agreed with NDA that the Court of Appeal was wrong to hold that, even though European Union law only requires a remedy in damages for a serious breach, domestic law goes further by requiring a remedy in damages for any breach, whether serious or not. According to the judgment: "the 2006 Regulations as amended in 2009 should be read as providing for damages only upon satisfaction of the Francovich conditions."

3. Whether an award of damages may be refused on the ground that an economic operator did not raise its claim prior to the contracting authority entering into the contract.

Through the Remedies Directive EU public procurement rules provide an economic operator with an opportunity to stop the award of a contract in the event of breach, but it is not obliged to take advantage of that opportunity. The Supreme Court considered the statutory procurement remedies scheme in the context of the domestic law duty to mitigate loss, including potentially through raising legal action (such as against NDA in this case).  The Supreme Court went on to find that an award of damages cannot be refused on the ground that an economic operator did not take the opportunity to raise its claim before the contracting authority entered into the contract.

Comment

This case gives important confirmation that the Francovich conditions apply (see above), to provide what is required for damages to be awarded for procurement law breach.  When considering raising a claim, an aggrieved economic operator should consider if it can meet the Francovich requirements, including whether or not the breach is "sufficiently serious".

The case also highlights that economic operators should consider their options carefully as regards raising a claim. A damages claim may not need to be raised before the contracting authority enters into the contract in question but economic operators should bear in mind all the statutory time limits in the current regulations in force across the UK as applicable (including the 30 day period for declarations of ineffectiveness, for example).

From the contracting authority's perspective, the case highlights the significant risk of damages in case of breach, which can survive expiry of standstill and contract execution. It remains imperative to consider carefully the seriousness of any matters raised during and after standstill.

MacRoberts is holding free to attend breakfast briefings on 20th and 22nd June in Glasgow and Edinburgh respectively. Details can be accessed here. Our seminar on recent cases will cover the NDA case along with the recent Scottish Kenman Holdings case (amongst others).

© MacRoberts 2017

Disclaimer

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

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