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

The Nuclear Decommissioning Authority wrongly awarded a Magnox decommissioning contract to CFP rather than the RSS consortium including ATK. The Supreme Court held damages under the Public Contracts Regulations 2006 require a 'sufficiently serious' breach, mirroring Francovich conditions, but rejected NDA's mitigation argument.

Facts

The Nuclear Decommissioning Authority (NDA), a non-departmental public body established under the Energy Act 2004, ran a procurement competition for a contract to decommission 12 Magnox nuclear power stations. The NDA awarded the contract to a consortium known as CFP, scoring it 86.48%, with the Reactor Site Solutions (RSS) consortium (of which ATK Energy EU Ltd, then EnergySolutions, and Bechtel were members) scoring 85.42%.

The NDA informed RSS on 31 March 2014 that it had been unsuccessful, and voluntarily extended the standstill period to 14 April 2014. Despite requests from RSS for further extensions and indications that proceedings might be issued, the NDA entered into the contract with CFP on 15 April 2014. ATK issued its claim form on 28 April 2014, within the 30-day period prescribed by regulation 47D of the Public Contracts Regulations 2006.

Fraser J held (and it was assumed for the appeal) that CFP should have been disqualified for failing two threshold requirements and that, but for many manifest errors, RSS would have won with a score of 91.48% against CFP’s 85.56%. Although the substantive claim was compromised, the parties wished the preliminary issues to be determined.

Issues

Three preliminary issues were before the Supreme Court:

(i) Whether the Remedies Directive (Council Directive 89/665/EEC as amended) only requires damages to be awarded where a breach of the Public Procurement Directive 2004/18/EC is ‘sufficiently serious’ (and whether the answer is acte clair);

(ii) Whether regulation 47J(2)(c) of the 2006 Regulations confers a power to award damages in respect of any breach, or only a ‘sufficiently serious’ breach;

(iii) Whether damages under regulation 47J(2)(c) may be refused where the economic operator issued its claim within the 30-day limit but did not do so before the contracting authority entered into the contract.

Arguments

ATK’s submissions

ATK argued that the Remedies Directive contemplated a general right to damages for any infringement, neither subject to nor capable of being limited by special features such as a ‘sufficiently serious’ threshold. It relied on articles 1(1) and 2(1) of the Remedies Directive, the contrast with article 3’s express reference to ‘serious’ infringements, and the EU’s obligations under the Government Procurement Agreement 1994. ATK relied on Stadt Graz v Strabag AG (Case C-314/09) and submitted that Combinatie Spijker Infrabouw-De Jonge Konstruktie v Provincie Drenthe (Case C-568/08) did not impose the Francovich conditions on contracting authority liability. Domestically, ATK argued the 2006 Regulations imposed unconditional liability for breach of statutory duty, with no warrant for reading in a ‘sufficiently serious’ requirement.

NDA’s submissions

The NDA submitted that the Francovich conditions applied at EU level and that the UK legislator intended only to give effect to the minimum EU requirements, supported by Explanatory Memoranda demonstrating an intention not to ‘gold-plate’. On issue (iii), NDA argued ATK had failed to mitigate by deliberately delaying its claim until after the contract was concluded, depriving the NDA of the opportunity to engage the automatic suspension mechanism.

Judgment

Issue (i): EU law

Lord Mance (with whom the other Justices agreed) held that the three Francovich conditions apply to claims against contracting authorities under the Remedies Directive. The Court of Justice’s judgment in Spijker was decisive: paragraphs 85-92 set out that liability of an ‘awarding authority’ is assessed by reference to the Francovich conditions, namely that (1) the rule infringed must confer rights on individuals; (2) the breach must be sufficiently serious; and (3) there must be a direct causal link between breach and loss. Stadt Graz was not inconsistent: it concerned the impermissibility of a fixed fault requirement, not the ‘sufficiently serious’ test, since whether an error is excusable is merely a factor in assessing seriousness. The position was acte clair and no reference was needed.

Issue (ii): Domestic law

The Court of Appeal had erred in treating the claim under the 2006 Regulations as an ordinary private law claim for breach of statutory duty free of any ‘sufficiently serious’ requirement. Lord Mance noted that even a domestic claim against the State for failure to transpose EU law is subject to the Francovich/Brasserie du Pêcheur conditions, citing Phonographic Performance Ltd v Department of Trade and Industry [2004] 1 WLR 2893. The Explanatory Note, Explanatory Memorandum and Impact Assessment for the 2009 Amendment Regulations demonstrated a clear legislative intention not to ‘gold-plate’ the Directive. The use of ‘may’ in regulations 47I(2) and 47J(2)(c) was consistent with limiting damages to cases meeting the Francovich conditions. The 2006 Regulations as amended in 2009 should be read as providing for damages only upon satisfaction of those conditions. The NDA’s appeal on this issue succeeded.

Issue (iii): Mitigation

The Court rejected the NDA’s mitigation argument. Although the Court of Justice has accepted in Brasserie du Pêcheur that domestic law may apply mitigation principles, including a requirement to avail oneself of legal remedies, Lord Mance held that under the scheme of the Remedies Directive and 2006 Regulations both parties had choices. An economic operator could not be required to issue proceedings before the contract was entered into in order to trigger the automatic suspension, nor to give a cross-undertaking or security to maintain that suspension. The provision of such security is a matter of free choice, and the economic operator cannot be regarded as acting unreasonably for declining to assume an indeterminate liability in order to prevent the contracting authority’s own continued breach. The NDA could itself have delayed entering the contract until expiry of the 30-day period. The appeal on this issue was dismissed.

Implications

The decision establishes that, under both EU law and the UK domestic regime implementing the Remedies Directive, an economic operator claiming damages for breach of public procurement rules must establish that the breach is ‘sufficiently serious’ within the Francovich/Brasserie du Pêcheur framework. Not every legal error in a procurement process will ground a damages claim.

The judgment confirms that the principle of state liability articulated in Francovich and Brasserie du Pêcheur extends to contracting authorities, harmonising their liability with that of the State itself. The factors relevant to whether a breach is ‘sufficiently serious’ include the clarity and precision of the rule breached, the discretion left to the authority, whether the error was excusable, and the position taken by EU institutions.

The decision is significant for procurement practitioners advising both contracting authorities and economic operators. For authorities, it offers some reassurance that not every procurement irregularity will translate into damages liability. For bidders, it raises the threshold for damages claims, although the Court emphasised that domestic law remained free to provide a more generous regime had the legislator chosen to do so.

On the mitigation point, the judgment preserves the strategic flexibility of disappointed bidders. They are not compelled to seek interim relief or trigger the automatic suspension to preserve a subsequent damages claim. This protects bidders from the financial exposure of cross-undertakings in damages and clarifies that the burden of avoiding contractual entry rests, where the authority chooses to proceed, on the authority itself. The decision draws a clear distinction between ordinary mitigation requirements and the unusual proposition that a victim must take steps to prevent a wrongdoer from continuing its own breach.

The limits of the decision should be noted: the issues arose on assumed facts of breach, the substantive claim having been compromised, and the judgment proceeds on the assumption that the relevant breach is the contract award decision rather than the entry into the contract itself.

Verdict: The Supreme Court allowed the NDA’s appeal in part. On issue (i), the Court held that EU law (the Remedies Directive read with the Francovich conditions) requires damages only where the breach is ‘sufficiently serious’, and this position is acte clair requiring no reference. On issue (ii), the Court allowed the NDA’s appeal, holding that the 2006 Regulations as amended in 2009 should be read as providing for damages only upon satisfaction of the Francovich conditions, including the ‘sufficiently serious’ requirement. On issue (iii), the Court dismissed the NDA’s appeal, holding that ATK could not be regarded as having failed to mitigate by not issuing proceedings before the contract was entered into.

Source: Nuclear Decommissioning Authority v EnergySolutions EU Ltd (now ATK Energy EU Ltd) [2017] UKSC 34