A 'sufficiently serious' case?

What is a 'sufficiently serious' breach justifying damages in a public procurement claim? Stephen Pearson examines a case that went all the way to the Supreme Court.

EnergySolutions EU Ltd (now ATK Energy – “ATK”) unsuccessfully tendered for a contract to decommission 12 “Magnox” nuclear power stations managed by the Nuclear Decommissioning Authority (“NDA”).

It was found (following a previous judgment) by the Court that ATK should have been awarded the contract and that the NDA made serious errors in their assessment of tenders which had led to its erroneous decision.

ATK brought a public procurement claim against the NDA seeking damages for alleged breaches of the Public Procurement Directive ( 2004/18/EC) – the “Directive”) and the implementing legislation in the UK, the Public Contracts Regulations 2006 (the “Regulations”).

Shortly following the Supreme Court hearing, but before the decision was issued, we understand that the matter was settled by the parties at a reported cost of £100m to the British taxpayer, allied to an early termination of the awarded contract. Both parties agreed to the judgement being issued, irrespective of their settlement.

The judgment

“Sufficiently serious” – the second Francovich condition

It is established that the three Francovich conditions (from an ECJ case) must be satisfied for State Liability to arise; namely that ;

1. the rule of law infringed must be intended to confer rights on individuals,
2. the breach must be sufficiently serious, and
3. there must be a direct causal link between the breach of the obligation and the damage sustained by the injured party.

The present case considered the breaches by the NDA of the Directive in light of these three conditions, with the Court’s assessment of the second condition of particular significance to practitioners.

ATK had argued that UK legislation had gone further than required by EU law by making damages an automatic remedy to a breach regardless of whether the breach was “sufficiently serious” or not. The Court rejected this argument, clarifying that there is a positive obligation on claimants to demonstrate that a breach is “sufficiently serious”.

This assessment reverses long-standing practice and is now expected to present a major hurdle to future claimants. The Supreme Court also did not provide guidance on what constitutes a “sufficiently serious” breach (aside from that which results in the incorrect award of a contract).

Failure to issue claim before contract is made

The Directive provides that there is to be a “standstill” or “Alcatel” period” of at least 10 days from the date on which a tenderer is informed they have been unsuccessful, during which the relevant contracting authority cannot enter into the contract with the successful tenderer. This provides unsuccessful tenderers with the opportunity to issue a court claim to prevent the contract being made.

The UK has also legislated, under the Regulations, that an unsuccessful tenderer has a separate period of 30 days from the notification that they have been unsuccessful in which to issue proceedings seeking a review of the contracting authority’s decision.

In this case, the NDA made the contract with the successful tenderer after the initial standstill period (voluntarily extended to 14 days by the NDA), but before the expiry of the 30-day period. ATK, despite being aware that the contract was to be made, did not issue their claim until after the initial standstill period. The NDA argued that as a result of this delay and with full knowledge of the likely consequences, ATK had failed to mitigate their losses. The Court rejected this argument, finding that tenderers “are not obliged to take advantage of the opportunity….to stop the wrongful award of a procurement contract to a competitor” (para 53) – ie: an operator is perfectly entitled to wait until the standstill period has expired before issuing their claim, whether for tactical reasons or otherwise.

Practical points

This judgment leaves considerable uncertainty for practitioners on what will constitute a “sufficiently” serious breach, and this is likely to be highly dependent on the facts of the particular case.

The decision also may make it more likely that contracting authorities will now take the “safe approach” and wait until the expiry of the 30-day limitation period before awarding the contract. This will make life a little easier for unsuccessful tenderers, and means that they can take decisions within the 30-day period without fear of reproach.

Stephen Pearson is a partner at Freeths. He can be contacted on 0845 274 6900 or at This email address is being protected from spambots. You need JavaScript enabled to view it..