COURT PROTECTION IN PUBLIC PROCUREMENT PROCEDURES

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COURT PROTECTION IN PUBLIC PROCUREMENT PROCEDURES

• Srdan Šimac, M.S.
• President of the High Commercial Court of the
  Republic of Croatia
• INTERNATIONAL CONFERENCE Public Procurement
  Review Remedies Systems
• Dubrovnik 24-25 May 07

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Protection of rights in public procurement
procedures

• Administrative protection of rights
• Court protection of rights

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Administrative protection of rights

• ADMINISTRATIVE OVERSIGHT OF LEGALITY
• - Protection of rights in procedures before the
  client by lodging an objection against its
  decisions (administrative instrument).
• - Protection of rights before the State Public
  Procurement Oversight Commission (hereinafter
  State Commission) by filing an appeal.
• ADMINISTRATIVE OVERSIGHT OF LEGALITY
• - Croatian Governments Public Procurement
  Office (through petitions and initiatives for
  oversight).
• - Office of the Auditor General (control of use
  of finances and legality of financial
  transactions).
• - Internal budget oversight.

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Court protection of rights

• In administrative court proceedings
• In indemnity claims
• In misdemeanour and criminal litigation
• In cases before the Constitutional Court of the
  Republic of Croatia

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Administrative court proceedings

• Court protection, in compliance with Article 72
  of the Public Procurement Act, is secured in
  administrative lawsuits before the Administrative
  Court of the Republic of Croatia.
• Secured by filing suit against the final ruling
  of the State Commission.
• The party to the administrative lawsuit is the
  State Commission, not the client.

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Administrative court proceedings

• Administrative lawsuits are meant to assess the
  legality of decisions by the State Commission
  and, indirectly, also decisions of the client in
  public procurement procedures.
• Decisions of the Administrative Court of the
  Republic of Croatia are legally binding in terms
  of administrative law.
• Decisions of the Administrative Court are deemed
  prejudicial (as they establish the facts of
  legality of client actions) in possible
  litigation involving indemnity claims.

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Indemnity claims

• Regulations governing public procurement
  procedures do not contain specific legal
  protection provisions for compensation of any
  damages that may arise during such procedures
  so in such cases general regulations governing
  indemnification are applied, above all those
  contained in the Contracts Act.

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Indemnity claims

• A party whose subjective rights are violated
  either by the decision of the client or the
  legally-binding decision of the State Commission
  may file a claim to seek indemnification for
  damages incurred by these decisions.
• Indemnity claims are filed with municipal courts.

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Indemnity claims

• The defendant in an indemnity claim may be the
  client and Republic of Croatia, but the State
  Commission may not be directly named in a lawsuit
  (Art. 10(4) of the State Commission Act The
  Republic of Croatia shall be held accountable for
  the liabilities of the State Commission.).
• An indemnity claim may be validly filed prior to
  expiry of the statute of limitations for such
  claims.

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Basic liability for damages in public procurement
procedures

• Contractual arises due to breaches of contract.
• Extra-contractual arise independently of
  contractual obligations.

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Assumption of liability for damages

• The existence of a party contractually liable for
  damages injuring party and injured party.
• Damaging action of injuring party the injuring
  party must commit damaging actions.
• Damage must be incurred by the injured party.
• Causal link between damaging actions as the
  cause and damage as the result.
• Illegality of damaging actions objective
  element (damaging actions violate a legal rule),
  subjective element (damaging actions occur at the
  fault of the injuring party)

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Damage

• SUBSTANTIVE DAMAGE
• - Damage or loss diminishment of anothers
  assets
• - Lost benefits prevention of increased gain
• CONSEQUENTIAL DAMAGE
• - Violation of legal personality

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Consequential damage

• In cases of violation of the goodwill and other
  personality rights of a legal person the court
  will, if it deems that the severity of the
  violations and the circumstances of the case so
  justify, award just monetary compensation,
  regardless of compensation of substantive damage,
  and also when the latter are not awarded (Art.
  1100(3) of the Contract Act, Narodne novine
  (Official Journal), no. 35/05).
• The above violations are infringements of
  goodwill, reputation and name, specifically the
  company/corporate name of the legal person.

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Burden of proof of damages incurred

• The burden of proof of the existence of damage
  and an injuring rests with the claimant injured
  party.
• Damage or loss is contained inthe costs of
  preparing tender documentation and compiling a
  bid. It is easily proven, but also minimal.
• Difficulties arise in proving lost benefit, gains
  which the claimaint would have earned in the
  regular course of events had this claimant been
  selected in the tender in compliance with the
  conditions specified in the tender and by law.
• If there are more than two bidders, the claimant
  most often encounters considerable difficulty in
  proving that its bid should have been selected
  instead of the other one.

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Examples in which liability for damages is
assumed to exist

• Example 1.
• Two capable bidders apply in the tender
• The client selects one of them which, according
  to the tender criteria, is not the best bid
• The client rejects the objection of the other
  bidder that submitted the essentially more
  favourable bid
• The State Commission also overrules the appeal
• The client concludes a contract with the
  selected, less favourable bidder
• The more favourable bidder succeeds in a claim
  filed with the Administrative Court of the
  Republic of Croatia (the State Commissions
  decision is ruled null and void)
• The State Commission overrules the clients
  selection decision
• The client makes a new decision to select the
  factually more favourable bidder
• Indemnity claim
• Compensation paid with reference to damages and
  lost benefit.

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• Example 2.
• The client decides to select the best
  bidder/accept the best bid
• The other bidders objection is rejected
• The State Commission also rejects the appeal
• In this manner, the selection decision becomes
  final and executable
• Despite fulfilment of all criteria for conclusion
  of a contract/document on concluded legal
  transaction, the client withdraws from conclusion
  of a contract with the selected best bidder
• At this stage in the tender, the client is
  obliged to conclude a contract with the selected
  best bidder this is a legal obligation, and the
  client may refuse to accept the bid, void the
  selection and withdraw from conclusion of a
  contract only in cases of fraud, undue influence
  exercised in selection, conferral of rewards,
  privileges or other benefits, or concealment or
  submission of falsified data, etc. (Art. 68 of
  the Public Procurement Act).
• Insofar as the conditions specified in Article 68
  of the Public Procurement Act are not met, the
  selected bidder may file an indemnity claim to
  collect damages.

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• Example 3.
• The rule is that once a legal remedy (appeal and
  claim) is filed, the conclusion of a contract
  with the selected bidder is halted, although
  there is an exception to this rule
• There is the legal possibility of exceptional
  approval of continuaton of public procurement
  procedures even if an appeal or claim are filed
• The State Commission decides on this exclusively
  at the request of the client, but only in cases
  of the assume possibility of disproportionate
  damages incurred by the client (restrictively
  interpreted)
• This is a sort of adhesion procedure, i.e., a
  procedure joined with the appeal, and the
  decision that ensues therefrom is similar to the
  decision in a security procedure (temporary
  measure)
• The decision in this procedure is therefore made
  prior to completion of the appeal process in
  which the legality of the selection decision and
  the entire procurement procedure is assessed
• Approval for continuation of procurement at this
  phase of the procurement procedure means approval
  for the client to conclude a contract with the
  selected bidder prior to finality of the
  selection decision
• Illegalities in the public procurement procedure
  that may possibly be ascertained by the State
  Commission or the Administrative Court opens an
  avenue for the dissatisfied party to file suit to
  nullify the contract so concluded and to collect
  damages

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Opportunity in seeking damages?

• Indemnity claims filed against clients are very
  rare.
• The reasons for this are usually
• - the desire of bidders to maintain sound
  relations with clients in the future, even when
  their rights are in fact violated in a specific
  tender, due to fear of potential loss of future
  business.

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Court protection in misdemeanour and criminal
cases

• Protection of rights and values protected in
  public procurement procedures may be secured in
  misdemeanour (magristrates court) and criminal
  proceedings (municipal court).
• This is not a matter of protection of individual
  subjective rights, rather of public, fundmental
  values whose protection is stipulated in
  misdemeanour regulations and the criminal code.
• Thereofore, the initiative for this type of legal
  protection in public procurement procedures by
  means of oversight is primarily rests with the
  Public Procurement Office, the Office of the
  Auditor General and, naturally, the Public
  Prosecution of the Republic of Croatia.

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Constitutinal legal protection in public
procurement procedures

• In public procurement procedures, violations of
  constitutional rights as specified by the
  Constitution of the Republic of Croatia, may not
  be excluded.
• Constitutional legal protection is ensured by the
  Constitutional Court of the Republc of Croatia.
• A prerequisite for exercising constitutional
  legal protection is that all other avenues of
  legal protection are first exhausted.