More discussion of damages for breach of EU procurement rules

XmeA8Fy3_400x400.png

Dr Ignacio Herrera Anchistegui has organised a greatly interesting BECCLE seminar on "Damages for breach of Public Procurement Law – Fosen-Linjen AS v AtB AS and its implications". It will take place this Thursday 1 March 2018 in Bergen. I have the pleasure and honour of presenting my views on the EFTA Court's Fosen-Linjen Judgment and to provide a comparative view with the UK Supreme Court's decision in Nuclear Decommissioning Authority. These are issues I had already addressed in the blog (see here and here) and, in trying to provide a more comprehensive critique of the case at the seminar, I have now tried to restructure my initial ideas and develop them in some more detail in a new SSRN working paper.

I hope the discussion will provide plenty additional ideas and food for thought, and I will try to improve the paper after the BECCLE seminar in view of that. Any additional comments or feedback on how to get it ready for publication would also be most welcome: a.sanchez-graells@bristol.ac.uk. Thank you for reading.

The abstract is as follows:

This paper offers some reflections on the position advanced by the EFTA Court that a simple breach of EU public procurement law is in itself sufficient to trigger the contracting authority's liability in damages (Fosen-Linjen). I argue that this position is flawed because it deviates from previous case law of the Court of Justice of the European Union (Spijker), and because it is based on interpretive errors and internal contradictions in the EFTA Court's reasoning. In criticising the EFTA Court's Judgment from the perspective of the harmonisation of EU law, I rely on the better view of the UK Supreme Court. The latter held that the liability of a contracting authority for the breach of EU public procurement rules under the remedies directive is assimilated to that of the State under the general EU law doctrine of State liability and thus requires a sufficiently serious breach (Nuclear Decommissioning Authority). My reflections are based on the need to keep procurement damages litigation constrained to its main function and limited to justified cases. I use this normative position to argue against the expansion of private enforcement of EU public procurement law as a correction of the shortcomings in its public enforcement.

The full reference of the paper is: A Sanchez-Graells, 'You Can't Be Serious: Critical Reflections on the Liability Threshold for Damages Claims for Breach of EU Public Procurement Law' (February 24, 2018). Presented at the BECCLE seminar on 'Public Procurement and Damages,' University of Bergen, 1 March 2018. Available at SSRN: https://ssrn.com/abstract=3129430.

Paper on Public Procurement & "Core" Human Rights

J559sDcF.png

I have uploaded a new paper on SSRN, which is a draft chapter for a forthcoming book: O Martin-Ortega & C M O’Brien (eds), Public Procurement and Human Rights: Risks, Dilemmas and Opportunities for the State as a Buyer (Edward Elgar). In my chapter 'Public Procurement and "Core" Human Rights: A Sketch of the EU Legal Framework', I sketch the main mechanisms for the implementation of a "core" human rights-orientated public procurement policy foreseen in the 2014 EU Public Procurement Package.

In particular, I discuss the main constraints for the inclusion of human rights-related considerations in the procurement process through the following instruments: exclusion grounds; use of labels; award criteria; and contract performance requirements. I conclude by offering a sceptical view of the effectiveness of any of these mechanisms due to policy fuzziness and significant resource constraints, and query their desirability due to the implicit trade-offs they impose on the general effectiveness of the procurement function.

This is still very much work-in-progress, so any comments or feedback would be most welcome: a.sanchez-graells@bristol.ac.uk. The full paper is available on SSRN as: A Sanchez-Graells, 'Public Procurement and "Core" Human Rights: A Sketch of the EU Legal Framework' (January 16, 2018), to be published in O Martin-Ortega & C M O’Brien (eds), Public Procurement and Human Rights: Risks, Dilemmas and Opportunities for the State as a Buyer (Edward Elgar, forthcoming): https://ssrn.com/abstract=3103194.

CJEU requires EU law compliant interpretation of national principles of res iudicata (C-505/14)

In its Judgment of 11 November 2015 in Klausner Holz Niedersachsen, C-505/14, EU:C:2015:742, the Court of Justice of the European Union (CJEU) has reiterated that the requirement of effectiveness (effet utile) of EU law is incompatible with national principles and rules of finality of judicial decisions (res iudicata) that would prevent a court from drawing all the consequences of a breach of the EU State aid rules in Art 107(1) and 108(3) TFEU because of a (related, previous) national judicial decision which has become definitive.

The case does not set any new principle of EU law. The CJEU has repeatedly stressed that the effectiveness of EU law trumps res iudicata considerations under the domestic rules of the Member States--which has led some of them to develop a progressive approach to determining the finality of judicial decisions when not doing so would result in an infringement of EU law [regarding Italy, see Impresa Pizzarotti, C-213/13, EU:C:2014:2067 and comments here]. 

However, in my view, the case is interesting because the CJEU expands its case law as far as the application of the principle of consistent or harmonious interpretation is concerned, by indicating that domestic courts must try to reinterpret the principle of res iudicata itself in accordance with EU law so as not to impar its effectiveness and, only where that consistent interpretation is not possible, then proceed to a strict analysis of the principle of res iudicata under the principle of effectiveness of EU law.

In Klausner Holz Niedersachsen, the CJEU starts its reasoning by reiterating its settled case law on the duty of consistent interpretation and its limits. 
30 While accepting that the principle of res judicata, as construed in national law, has certain objective, subjective and temporal limitations and certain exceptions, the referring court notes that that law precludes not only re-examination, in a second action, of the pleas already expressly settled definitively, but also the raising of questions which could have been raised in an earlier action and which were not so raised. 
31 In that regard, it is appropriate to recall that it is for the national courts to interpret, as far as it is possible, the provisions of national law in such a way that they can be applied in a manner which contributes to the implementation of EU law (judgment in Lucchini, C-119/05, EU:C:2007:434, paragraph 60).
32 It is true that this principle of interpreting national law in conformity with EU law has certain limitations. Thus the obligation on a national court to refer to the content of EU law when interpreting and applying the relevant rules of domestic law is limited by general principles of law and it cannot serve as the basis for an interpretation of national law contra legem (see to that effect, judgments in Impact, C-268/06, EU:C:2008:223, paragraph 100, and Association de médiation sociale, C-176/12, EU:C:2014:2, paragraph 39).
...
34 In that regard, it must be borne in mind that the principle that national law must be interpreted in conformity with EU law also requires national courts to do whatever lies within their jurisdiction, taking the whole body of domestic law into consideration and applying the interpretative methods recognised by it, with a view to ensuring that EU law is fully effective and to achieving an outcome consistent with the objective pursued by it (see, to that effect, judgment in Dominguez, C-282/10, EU:C:2012:33, paragraph 27 and the case-law cited).
35 Thus, it is for the referring court to ascertain, on that basis, whether it can find such an interpretation ... (C-505/14, paras 30-35, emphasis added).
The CJEU then proceeds to extend the analysis where an EU law compliant interpretation of the principle of res iudicata is not possible. Unsurprisingly, it resorts to the principle of effectiveness of EU law, and reasons as follows:
38 If such a measure or interpretation should, however, prove not to be possible, attention should be drawn to the importance, both in the legal order of the European Union and in national legal systems, of the principle of res judicata. In order to ensure stability of the law and legal relations, as well as the sound administration of justice, it is important that judicial decisions which have become definitive after all rights of appeal have been exhausted or after expiry of the time-limits provided for in that regard can no longer be called into question (see judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 22, and Târșia, C-69/14, EU:C:2015:662, paragraph 28).
39 Therefore, EU law does not always require a national court to disapply domestic rules of procedure conferring finality on a judgment, even if to do so would make it possible to remedy a breach of EU law by the decision at issue (see judgments in Kapferer, C-234/04, EU:C:2006:178, paragraph 22, Fallimento Olimpiclub, C-2/08, C:2009:506, paragraph 23, Commission v Slovak Republic, C-507/08, EU:C:2010:802, paragraph 60, Impresa Pizzarotti, C-213/13, EU:C:2014:2067, paragraph 59, and Târșia, C-69/14, EU:C:2015:662, paragraph 29).
40 In the absence of EU legislation in this area, the rules implementing the principle of res judicata are a matter for the national legal order, in accordance with the principle of the procedural autonomy of the Member States. However, such procedural rules must not be less favourable than those governing similar domestic situations (principle of equivalence) and must not be framed in such a way as to make it in practice impossible or excessively difficult to exercise the rights conferred by EU law (principle of effectiveness) (see judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 24, and Impresa Pizzarotti, C-213/13, EU:C:2014:2067, paragraph 54 and the case-law cited).
41 As regards application of the principle of effectiveness, the Court has held that every case in which the question arises as to whether a national procedural provision makes the application of EU law impossible or excessively difficult must be analysed by reference to the role of that provision in the procedure, its conduct and its special features, viewed as a whole, before the various national bodies. In that context, it is necessary to take into consideration, where relevant, the principles which lie at the basis of the national legal system, such as the protection of the rights of the defence, the principle of legal certainty and the proper conduct of the proceedings (see, to that effect, judgments in Fallimento Olimpiclub, C-2/08, EU:C:2009:506, paragraph 27, and Târșia, C-69/14, EU:C:2015:662, paragraphs 36 and 37 and the case-law cited).
42 In that regard, it must be noted that an interpretation of national law ... can have the consequence, in particular, that effects are attributed to the decision of a national court ... which frustrate the application of EU law, in that they make it impossible for the national courts to satisfy their obligation to ensure compliance with the third sentence of Article 108(3) TFEU
43 It follows therefrom that both the State authorities and the recipients of State aid would be able to circumvent the prohibition laid down in the third sentence of Article 108(3) TFEU by obtaining, without relying on EU law on State aid, a declaratory judgment whose effect would enable them, definitively, to continue to implement the aid in question over a number of years. Thus, in a case such as that at issue in the main proceedings, a breach of EU law would recur ... without it being possible to remedy it.
44 Furthermore, such an interpretation of national law is likely to deprive of any useful effect the exclusive power of the Commission ... to assess, subject to review by the EU Courts, the compatibility of aid measures with the internal market. If the Commission, to which the Federal Republic of Germany has in the meantime notified the aid measure constituted by the contracts at issue, should conclude that it is incompatible with the internal market and order its recovery, execution of its decision must fail if a decision of the national court could be raised against it declaring the contracts forming that aid to be 'in force' (C-505/14, paras 38-44, emphasis added).
The CJEU concludes that a significant obstacle to the effective application of EU law and, in particular, a principle as fundamental as that of the control of State aid cannot be justified either by the principle of res judicata or by the principle of legal certainty (C-505/14, para 45). The final result leaves the open question of whether the initial analysis under the duty of consistent interpretation was at all necessary.

In my view, the CJEU tried to show deference towards the general principles of law of the national domestic orders of the Member States, while at the same time reaffirming the supremacy of the general principles of EU law. And in doing so, indicated to the Member States' courts that they should try to mediate any possible conflict by recourse to the duty of consistent interpretation, so as to 'domesticate' the requirement of effet utile of EU law. It will be interesting to see to what extent that leads to a reinterpretation of the German principle of res iudicata, which may well become 'progressive' all'Italiana. Who said that debates on general EU law were a thing of the past?

When the CJEU opens the umbrella, lawyers and economists get ready for a warm shower of damages claims (C-557/12)

In its Judgment in Kone, C-557/12, EU:C:2014:917, the Court of Justice of the European Union (CJEU) has followed the highly controversial proposal of AG Kokott (see my criticism here) and has bought into the theory of 'umbrella damages', hence determining that "Article 101 TFEU must be interpreted as meaning that it precludes the interpretation and application of domestic legislation enacted by a Member State which categorically excludes, for legal reasons, any civil liability of undertakings belonging to a cartel for loss resulting from the fact that an undertaking not party to the cartel, having regard to the practices of the cartel, set its prices higher than would otherwise have been expected under competitive conditions."

In my opinion, this Judgment must be strongly criticised and shows a very dangerous path of judicial activism that the CJEU is for some reason willing to engage with in the area of private law, but that it avoids in the area of public law and fundamental rights (see my remarks on the CJEU's total lack of will to effectively become EU's constitutional court here). Only on this asymmety of approach towards the development of EU rights in the public law / private law area (or, more bluntly, in the fundamental rights/economic rights divide) should give us all some food for thought about the role of the CJEU.
 
Further than the general criticism already spelled out against AG Kokott's Opinion, I think that the Judgment gives rise to even more specific arguments against the findings of the CJEU on the basis of the 'umbrella damages' theory of harm. I am lucky to have colleagues such as Dr Sebastian Peyer with whom to discuss these issues and, on this occassion, we clearly  coincide in our negative reading of the case. In this post, we put together our thoughts. Mine are slightly more general, so they will come first. Sebastian will then follow on with more specific and ellaborate points on the basis of his expertise in private enforcement of EU competition law.

My own criticism
From a general perspective of EU law and its effectiveness, the Kone Judgment really makes no sense and potentially impinges on the Member States' competences to regulate non-contractual liability and tort remedies [this point is common to previous criticisms against the EU's competence to regulate in the area of damages actions, as Francisco Marcos and myself stressed in “Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law through the Back Door?” (2008) 16(3) European Review Private Law 469-488].
 
 
Quite simply, in my view, Kone has carried the application of the principle of supremacy and effectiveness of EU law too far and the contrast between the findings in Kone and its original application to the competition law damages field in Courage and Crehan [C-453/99 EU:C:2001:465, paras. 23 and ff] is simply abysmal. Courage 'just' made the point clear that damages actions should not be impossible and that they were governed by the general principles of equivalence and effectiveness of remedies (para. 29). This general mantra has been repeated over and over but, in its repetition, the effectiveness part has been gaining relevance and, at least in Kone, the CJEU has completely disregarded the principle of equivalence (despite mentioning it in para. 25).
 
Given the split of competences between the EU and the Member States in many areas of the law and, in particular, in many areas that govern the remedies available for breaches of EU (and domestic) rules, the principle of equivalence needs to be understood as a functional tool to provide effectiveness to EU rights without altering the Member States' competences. In that regard, it seems uncontroversial that, as even an undergraduate student of law can clearly express in an effective way: "The principle of equivalence ensures that EU rights receive the same protection as domestic ones" [David Murray, "EU law rights and national remedies: an uneasy partnership?" (2010) Diffusion 6(1)]. There is no reason to suggest that, in the absence of EU regulatory competences or specific EU remedies, EU rights should receive more intense protection than domestic ones.
 
However, the CJEU disregards this plain understanding of the general requirements of EU law and its supremacy and goes on to state that:
32 [...] it is, in principle, for the domestic legal system of each Member State to lay down the detailed rules governing the application of the concept of the ‘causal link’. However,  [...] national legislation must ensure that European Union competition law is fully effective (see, to that effect, VEBIC EU:C:2010:739, paragraph 63). Those rules must therefore specifically take into account the objective pursued by Article 101 TFEU, which aims to guarantee effective and undistorted competition in the internal market, and, accordingly, prices set on the basis of free competition. In those circumstances [...] national legislation must recognise the right of any individual to claim compensation for loss sustained.
33 The full effectiveness of Article 101 TFEU would be put at risk if the right of any individual to claim compensation for harm suffered were subjected by national law, categorically and regardless of the particular circumstances of the case, to the existence of a direct causal link while excluding that right because the individual concerned had no contractual links with a member of the cartel, but with an undertaking not party thereto, whose pricing policy, however, is a result of the cartel that contributed to the distortion of price formation mechanisms governing competitive markets.
In my view, this is truly far away from a pondered and acceptable balancing of the competing demands of the principles of equivalence and effectiveness and amounts to a suppression of the equivalence element that is essential to the test for compliance by Member States with their duty to ensure the effet utile of EU law under Article 4(3) TFEU and the existing case law.

Moreover, it prevents Member States from adopting clear and streamlined rules that avoid the need to engage in very complicated and costly case by case assessments of every claim, regardless of any indication of remoteness or weakness of basic causality links. Hence, the Kone Judgment should clearly be rejected and its implications limited (ie undone) by the CJEU itself at the closest opportunity.

What Sebastian has to say
The Court's judgement does not only show some dangerous judicial activism, as my colleague and host Dr Albert Sanchez Graells has pointed out, it also raises more questions than it answers.

What do we talk about when we talk about umbrella pricing? In a standard cartel case the damages claimant, typically a direct customer of the cartel, has to show that the defendant overcharged him. For umbrella pricing the situation is different. The claimant has not purchased from the cartelist but from another firm in the affected market. Consequently, the claimant should demonstrate that the market price was inflated due to the cartel and that he suffered harm due to the higher market price. In European jurisdictions this is basically a question of causation and a question of the proof that is required by the courts whereas US courts deal with these issues under ‘antitrust injury’. In Kone, the Court has stated that national courts cannot categorically reject a causal link between the cartel and inflated market prices charged by non-cartelists (para. 34):

Consequently, the victim of umbrella pricing may obtain compensation for the loss caused by the members of a cartel […] where it is established that the cartel at issue was, in the circumstances of the case and, in particular, the specific aspects of the relevant market, liable to have the effect of umbrella pricing being applied by third parties acting independently, and that those circumstances and specific aspects could not be ignored by the members of that cartel.

The Court addresses the two issues related to umbrella pricing (Was there an effect on the market? Did the market effect cause damage to the claimant?) in one sentence and merges them into one “be liable” test. It is left to the Member States to establish the rules and standards for proving these effects. The Court also seems to introduce some element of knowledge on part of the cartelist ("could not be ignored"). This may turn out to be impossible to prove.
 
Sadly, the ruling fits into the line of recent cases that appear to be claimant-friendly but may not contribute much to the effectiveness of enforcement. On the face of it, cases such as Pfleiderer [C-360/09, EU:C:2011:389] or Donau Chemie [C-536/11, EU:C:2013:366] have opened the gates to private damages claims, allegedly improving the effectiveness of competition law enforcement through access to documents. But I think this does not hold true. In those rulings the court replaced categorical rules with a case by case approach. So far, this has not really helped claimants but forced courts to justify why they have decided to, for example, deny access to leniency material (Pfleiderer). With regards to umbrella pricing, the CJEU has followed this approach replacing a 'fixed rule' with a case by case approach. We shall see if the claimants can get anything out of this apart from more complicated litigation.
 
Overall, the CJEU’s decision is extremely short for a ruling that could turn out to be expensive for both claimants and defendants. The cost associated with proving and calculating umbrella pricing could be prohibitive and adds to the generally high litigation costs of follow-on damages actions. I would expect most umbrella claimants to fail at the quantification stage, even if they have actually managed to master the causation hurdles.

The implications of this judgement for national causation rules are also worrying. Member States are supposedly able to govern causation and remoteness of damages under the procedural autonomy principle the Court stressed in the Kone ruling but also in Courage, Manfredi, Pfleiderer and Donau Chemie. However, in AG Kokott (see her opinion in Kone) and the Court disregard earlier statements that it is for the domestic legal system to regulate a causal relationship. So, what does this mean for the domestic legal systems?
 
Regarding the UK, I could imagine that the autonomous decision of a third party not to undercut the cartel is an intervening event breaking the chain of causation. It could also become a struggle to show that damages were foreseeable because they depend on the buyer's decision to contract with a non-cartelist and on the non-cartelist’s decision to charge an inflated price in the shadow of the cartel. However, the TheWagon Mound (No1) holds that only the kind of damage has to be foreseeable, not the extent of it. The CJEU’s decision in Kone has certainly created many more questions. Now, the ball is in the national courts.

Coauthored paper with @pacomarcos: “Human Rights” Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?

There seems to be a clear trend of increased protection of ‘corporate human rights’ and, more specifically, due process rights (or procedural fairness) in the field of enforcement of competition law. To a large extent, that trend is based on the uncritical extension of human rights protection to corporate defendants by a process of simple assimilation of corporate and individual defendants.
 
This new coauthored paper briefly explores the rationale behind the creation of due process rights when the individual is the beneficiary of such protection. It then goes on to critically assess if the same need exists for the extension of those protections to corporate defendants, particularly in the field of competition law or antitrust enforcement. It concludes with some warnings concerning the diminishing effectiveness of competition law prohibitions and of human law protection that can result from an overstretched conception of due process protection in this area of EU economic law.

From a substantive perspective, this paper submits that the extension of human rights to corporations cannot be uncritical and should not be completely symmetrical to that for human beings; but that it rather needs to be necessarily adapted to their circumstances. To put it more bluntly, it is suggested that in the field of the enforcement of economic law, administrative law procedures should be sound and there should clearly be a strong system of judicial review in place, but corporations should not have access to broader constitutional or human rights protections and any perceived shortcomings in the design and application of those procedures should remain within the sphere of regulatory reform.
 
Sánchez Graells, Albert and Marcos, Francisco, “Human Rights” Protection for Corporate Antitrust Defendants: Are We Not Going Overboard? (February 2, 2014). University of Leicester School of Law Research Paper No. 14-04. Available at SSRN: http://ssrn.com/abstract=2389715.

CJEU protects right to challenge public procurement decisions by non-compliant tenderers (C-100/12)

In its Judgment of 4 July 2013 in case C-100/12 Fastweb, the Court of Justice of the European Union (CJEU) has strengthened the effectiveness of the public procurement remedies system by protecting the right to challenge (illegal) award decisions by tenderers that do not comply with all the (technical) requirements imposed by the tender documentation themselves.

In the case at hand, a disappointed tenderer challenged the award decision on the basis that none of the two awardees in a framework agreement complied with the technical specifications set by the contracting authority. The awardees of the contract intervened in the procedure and raised a counterclaim stating that the challenger did not comply with the technical specifications (either). Under Italian law, the counterclaim had to be analysed first and, if successful, would bar the challenge on the basis of a lack of locus standi of the disappointed tenderer (who could not have been awarded the contract anyway and, consequently, would be prevented from challenging the outcome of the procedure).

The CJEU found such an interpretation of the rules on active standing contrary to the EU public procurement remedies directives (as amended by dir 2007/66), inasmuch as 'the aim of [those directives] is to ensure that decisions made by contracting authorities in breach of European Union law can be effectively reviewed' (C-100/12 at para 25). Following a functional approach that deserves praise, the CJEU found that:
a counterclaim filed by the successful tenderer cannot bring about the dismissal of an action for review brought by a tenderer where the validity of the bid submitted by each of the operators is challenged in the course of the same proceedings and on identical grounds. In such a situation, each competitor can claim a legitimate interest in the exclusion of the bid submitted by the other, which may lead to a finding that the contracting authority is unable to select a lawful bid (C-100/12 at para 33).
Consequently, the CJEU has determined that the counterclaim concerning the locus standi of a tenderer that should have been excluded (or whose tender should have been rejected) cannot preempt the analysis of the legality of the award decision adopted by the contracting authority. 

By (implicitly) adopting such a broad interpretation of the concept of 'any person having or having had an interest in obtaining a particular contract and who has been or risks being harmed by an alleged infringement' [art 1(3) dir 2007/66], the CJEU has increased the chances of attaining effective and substantive review of the award decisions adopted by contracting authorities, regardless of the specific procedural rules within each of the EU Member States (as mandated by the principle of effectiveness of EU law) and seems to point clearly towards a principle or criterion of 'favor revisionis', so that review bodies and courts tend to assess the material conditions of award decisions, despite the presence of apparent procedural difficulties to carry out such an assessment. 

In my opinion, this is a favourable development of EU public procurement law and one that is conducive to ensuring an absence (or correction at review stage) of distortions of competition. As argued elsewhere [A Sanchez Graells, Public Procurement and the EU Competition Rules (Oxford, Hart, 2011) pp. 353-355], my view is coincidental with the approach adopted by the CJEU in that 
the best reading of the standing requirements imposed by Directive 2007/66 is that Member States have to adopt a broad approach to the setting of detailed rules regulating active standing to access bid protests and review procedures, and that they have to do so attending both to the criterion of participation in the tender, and to the criterion of the effects actually or potentially generated by the alleged infringement—so that bid protest and review procedures are open to any party that has taken part in the tender or that can otherwise prove that it has been harmed or risks being harmed as a result of the alleged infringement, regardless of its actual participation (or lack of it) in the specific tender that gave rise to it.