Case Law Update: Are Damages Discretionary?

In the recent case of Energy Solutions EU Ltd v Nuclear Decommissioning Authority [2015] EWCA Civ 1262 the High Court considered the correct interpretation of the law surrounding the award of damages in procurement cases. Three key principles emerged:

1.  Damages may still be awarded to an unsuccessful bidder even if it brings a challenge after the standstill period has expired;
2.  Provided the unsuccessful bidder suffered a loss, an award of damages for a breach of the Public Contracts Regulations 2015 ("PCR") is not discretionary; and
3.  There is no requirement for a breach to be shown to be "sufficiently serious" before damages are awarded.

Background

The Nuclear Decommissioning Authority (the "NDA") issued a tender under the former PCR 2006 which concerned a contract for services in relation to the decommissioning of nuclear installations. A consortium called Reactor Site Solutions submitted a tender for this contract but lost out to another bidder. Following this loss one of the two consortium members, Energy Solutions EU Ltd ("Energy Solutions"), brought proceedings against the NDA. These proceedings were commenced outside of the standstill period.

The NDA's argument

The NDA sought to argue that it should not be possible for an unsuccessful bidder to be awarded damages when it had brought a challenge after the standstill period has ended and the contract has been awarded. The basis for this argument was that if the Court was to find that Energy Solutions should have won the contract then the NDA would effectively have to pay the profit on the contract twice over, both to the successful bidder and unsuccessful bidder.

On the other hand if Energy Solutions had brought the claim within the standstill period, thus triggering an automatic suspension of the contract, then it wouldn't have suffered any loss if it was found that it should indeed have been awarded the contract (because the contract could then be awarded to Energy Solutions instead). The NDA's argument therefore was that Energy Solutions had brought the loss upon itself.

However, if the NDA's argument was upheld, the result would be that an unsuccessful bidder would have no remedy in respect of a breach of the PCR brought outside of the standstill period.

Judgment

The Court was therefore asked to give judgment on two issues:

1.  Whether Energy Solutions' failure to commence proceedings within the standstill period broke the chain of causation between breach of the NDA's obligations and the loss suffered by Energy Solutions; and
2.  If Energy Solutions was found to have suffered a loss, whether the court has any discretion not to award damages at all, or to award only partial damages.

The Court held that the question of whether Energy Solutions "might possibly" have avoided loss by commencing proceedings within the standstill period was one of fact, and not a preliminary issue, and in any case such an uncertain assertion would not be sufficient to defeat the claim. As such Energy Solutions' decision to bring the action after the end of the standstill period was not unreasonable, particularly because the PCR expressly provides for unsuccessful bidders to do this.

As to the second issue, the Court held that an award of damages is not discretionary as long as the claimant has suffered a loss. Furthermore given that neither the Remedies Directive[1] nor the PCR say anything about how damages are to be determined, normal national rules should be applied, and national rules do not require a breach to be "sufficiently serious" before damages are awarded.

Impact

Given the Court's reluctance to impose restrictions on the ability of unsuccessful bidders to bring challenges outside of the standstill period or to give the Court discretion as to whether to award damages, it is crucial that contracting authorities ensure they are complying with procurement law at all times so as to avoid being faced with a double-pay-out problem as occurred in this case. It should also be noted that this judgment is not just relevant to procurements entered into under the PCR 2006, but also to procurements conducted under the new PCR 2015 since the position as to damages has not changed.

For more information on this article, please contact Lucy Woods