Frostating Court of Appeal rejects that a simple violation of procurement law is enough to obtain damages under the procurement regulations.
On October 31st 2017, the EFTA Court delivered an advisory opinion in case E-16/16, concerning the requirements of liability criteria and causality as regards compensation in case of violations of the rules on public procurements. The EFTA Court concluded that a simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of the Remedies Directive. The judgment has led to considerable debate in Norway as well as the rest of the EU.
On March 2nd 2018, Frostating Court of Appeal, however, arrived at a different conclusion and stated that the Supreme court of Norway’s interpretation of the law complies with EU/EEA law, and that a “material” error must have been committed before one is entitled to damages as a result of positive contract interest (loss of profit).
The case started as a dispute between AtB AS and Fosen-Linjen AS in connection with a bid for tenders regarding the ferry connection Brekstad – Valset. Haavind represents AtB AS in this matter. In the dispute before the appellate court, Fosen-Linjen AS’ primary claim is that AtB should compensate the net profit that Fosen-Linjen AS presumably would have earned if the company had been awarded, and had performed the contract relating to the operation of the ferry connection, meaning the positive contract interest. Secondarily Fosen-Linjen AS claims damages for the expenses the company has incurred by participating in the competition, that is: the negative contract interest.
According to Norwegian law, a tenderer is entitled to damages for the loss he has suffered as a consequence of the contract authority’s breach of the rules on public procurement cf. the procurement act § 10. Further requirements relating to liability criteria, causal link and the measuring of financial loss is established by case law, and one distinguishes between damages for positive and negative contract interest.
As regards compensation for positive contract interest, one has until now assumed that
Rt. 2001 p. 1062 (the Nucleus-judgment) expresses applicable law and that the judgment is in accordance with EU/EEA law. The judgment states that the contract authority must have committed a material error. When assessing whether there is a material error, one must take into account what type of error, which rule has been infringed, the gravity of the error and to what extent the contract authority may be held to account. As regards the causal link, the award of damages is conditional on the aggrieved tenderer proving with clear, that is, qualified preponderance of evidence, that he should have been awarded the contract had the contracting authority not committed the error.
Frostating Court of Appeal requested an advisory opinion from the EFTA Court regarding whether Norwegian case law is compliant with EU/EEA law.
The EFTA Court concluded that a simple breach of public procurement law is in itself sufficient to trigger the liability of the contracting authority to compensate the person harmed for the damage incurred, pursuant to Article 2(1)(c) of the Remedies Directive. That would imply that the law interpretation relied upon by Norway’s Supreme Court is contrary to EU/EEA law.
The case was brought before Frostating Court of Appeal at the turn of the months January/February and on March 2nd the judgment was handed down.
The appellate court has chosen not to rely on the EFTA Court’s opinion on this matter. The judgment states that the EFTA Court’s decision is flawed, inter alia because it does not discuss the significance of the EU Court’s judgment in case C-568/08 (Combinatie Spijker) which relies on the fact that there only exists a basis for liability where a sufficiently qualified error has been made.
In the appellate court’s decision, one can for example read that «The EFTA Court’s judgment certainly could have contained a more detailed discussion of the connection between Strabag and Combinatie. This particularly applies because Combinatie succeeds Strabag in time, and because it is evident from paragraph 90, that the court was aware of Strabag when the judgment was rendered.
The appellate court moves on to discuss the importance of the EFTA Court’s statements and decides that the same norm applies as for the Supreme Court. In Rt. 2013 p. 258, it is stated as follows:
«I consequently rely on the fact that the Supreme Court (Høyesterett) shall not rely on the EFTA Court’s opinion without first trying it, but has both the authority and the duty to independently deem whether and to what extent this shall be conducted. Based on this I cannot see that the Supreme Court (Høyesterett) is formally precluded from relying on a different view. But, as the opinion obviously must be given considerable weight, it requires weighty reasons to deviate from it» [our translation]
Frostating Court of Appeal further states that:
«The appellate court concludes that the question of whether each Member State has the right to regulate the contract authority’s liability regarding the requirement of material error, has not been unambiguously decided by the EU Court, that there are different views on this matter in the EEA countries and that the EFTA Court’s advisory opinion in this regard does not seem altogether correct. The appellate court also concludes that the Supreme Court’s assessment of the issue in Rt. 2001 p. 1062 (Nucleus) aligns well with Frankovich and Others, and Brasserie du Pêcheur and Factortame, to which the EU Court refers in Combinatie. As regards the requirements pertaining to causal link, the EFTA Court concludes however that in case of claims of positive contract interest, the Remedies Directive is not an impediment to demanding clear or qualified high probability that the aggrieved tenderer would have been awarded the contract if no breach had been committed.” [our translation]
Against this background, the appellate court maintains the law interpretation that the Supreme Court relied upon in the Nucleus decision, which means that a «material error» must have been committed in order to obtain damages for positive contract interest.
The appellate court found that using an unlawful award criterion bringing about cancellation of the competition, must be regarded as a material error. It would thus be decisive whether there was causal link.
The appellate court ascertains briefly, that the fact that the criterion «Environment» was unlawful, that it could not be documented or verified, that the company’s stated fuel oil consumption, like Norled’s, was uncertain, and that AtB had a right and a duty to cancel the competition, were sufficient to ascertain that Fosen-Linjen was not entitled to be awarded the contract. Fosen-Linjen consequently had no right to damages for the positive contract interest.
The appellate court thus found, like the EFTA Court, that there exists no right to claim damages for positive contract interest if the tender procedure has been lawfully cancelled.
Fosen-Linjen also submitted a claim for compensation due to «loss of chance». «Loss of chance» is meant to be an institute providing tenderers the opportunity to have some of their business interest recovered if a claim for compensation for full positive contract interest does not succeed. Normally, the loss is equal to the percentage of the profit equivalent of the probability of being awarded the contract.
The appellate court states in brief that there are no grounds for damages for «loss of chance». This theory is unknown in Norway, and appears to be modestly applied in Europe. Furthermore, implementing such a basis for damages should be regarded as a legislative task. Such loss would in any case not exist, because the contract could not have been awarded to Fosen-Linjen.
The appellate court however found that the conditions for damages for the negative contract interest were met, and Fosen-Linjen was awarded a compensation of MNOK 1.5.