Energy Solutions EU Ltd v Nuclear Decommissioning Authority

For the purposes of the second Francovich condition, a contracting authority’s failure to award a procurement contract to the tenderer whose bid was the most economically advantageous may itself constitute a sufficiently serious breach.

The assessment is objective and multifactorial. It focuses on matters including the importance and clarity of the obligation, the discretion available to the authority, the effect on affected tenderers and the circumstances of the breach. Flagrant misconduct, bad faith or moral culpability is not required. A margin of appreciation in evaluating scores does not give the authority discretion to award the contract to a tenderer other than the lawful winner.

Three related claims arose from a procurement competition for the decommissioning of Magnox power stations and nuclear research facilities. The claimant’s consortium was unsuccessful, although the court later found that several scores had been assessed on a manifestly erroneous basis and that the successful consortium should have been disqualified.

The proceedings concerned damages for breaches of the Public Contracts Regulations 2006. Earlier judgments addressed preliminary issues and liability. The Court of Appeal held that failure to commence proceedings during the standstill period did not break causation and that damages were not discretionary if loss caused by a breach was established. The defendant had permission to appeal those conclusions to the Supreme Court.

This judgment therefore considered, on the assumption that the second Francovich condition applied, whether the breaches were sufficiently serious.

1. Overall conclusion. The failure to award the contract to the tenderer whose bid was the most economically advantageous was, in itself, sufficiently serious to satisfy the second Francovich condition. The court answered Issue 1 “Yes”; Issue 2 did not arise.
2. The claim was a private law claim for breach of statutory duty. The relevant obligation under regulations 18(27) and 30(1)(a) of the Public Contracts Regulations 2006 was clear and precise: following a lawful evaluation, the contract had to be awarded to the most economically advantageous tender. The authority had a margin of appreciation in matters of evaluative judgment, but no discretion as to which tenderer should receive the contract.
3. The court applied the objective, multifactorial approach identified in R v Secretary of State for Transport, ex parte Factortame Ltd (No 5) [2000] 1 AC 524 and summarised in Delaney v Secretary of State for Transport [2015] EWCA Civ 172. Relevant factors included the importance of the breached principle, the clarity and precision of the rule, the available discretion, the excusability of any error, the infringer’s state of mind and subsequent conduct, and the persons affected. The list was not exhaustive and no single factor was necessarily decisive.
4. The importance of fair competition and the obligation to award the contract to the winner were central. The obligation was clear and precise in both the Regulations and Directive 2004/18/EC. A “no discretion” case made it easier to establish sufficient seriousness. Flagrant misconduct, bad faith or moral culpability was not an ingredient of the test.
5. As an alternative, each breach concerning a Threshold Requirement or Pass/Fail requirement was independently sufficiently serious because it resulted in a tender remaining in the competition when it should have been disqualified. A breach concerning an ordinary Evaluation Requirement was sufficiently serious if its individual or cumulative effect altered the competition’s outcome and which tenderer had submitted the most economically advantageous tender. Manifest error, unequal treatment and lack of transparency were treated as equivalent in this respect because their relevant effect was an incorrect overall score.

• High Court (TCC): preliminary issues were determined in [2015] EWHC 73 (TCC), and liability was determined in a subsequent judgment referred to as Judgment No.2.
• Court of Appeal: the defendant’s appeal on the preliminary issues was dismissed in [2015] EWCA Civ 1262. The Court held that failure to issue proceedings during the standstill period did not break causation and that damages were not discretionary if the statutory breach and loss were established.
• Supreme Court: permission had been granted for a further appeal concerning the application of the Francovich conditions. That appeal had not yet been heard when this judgment was delivered.