Title: COURT PROTECTION IN PUBLIC PROCUREMENT PROCEDURES
1COURT 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
2Protection of rights in public procurement
procedures
-
- Administrative protection of rights
- Court protection of rights
-
3Administrative 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.
4Court 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
5Administrative 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.
6Administrative 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.
7Indemnity 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. -
8Indemnity 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.
-
9Indemnity 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.
10Basic liability for damages in public procurement
procedures
- Contractual arises due to breaches of contract.
- Extra-contractual arise independently of
contractual obligations.
11Assumption 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)
12Damage
- SUBSTANTIVE DAMAGE
- - Damage or loss diminishment of anothers
assets - - Lost benefits prevention of increased gain
- CONSEQUENTIAL DAMAGE
- - Violation of legal personality
13Consequential 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.
14Burden 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.
15Examples 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.
16-
- 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.
17- 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
18Opportunity 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.
19Court 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. -
20Constitutinal 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.