Case C-478/22 P(R) Telefónica de España: relaxation of interim measures in public procurement – another brick into the sui generis remedies before the Luxembourg Courts
Facts of the case
- The case concerns a procurement procedure conducted by the European Commission and covered by the Financial Regulation 2018/1046 (can be accessed here).[1] The aggrieved tenderer has sought interim measures without success before the General Court. The Court argued that the justifications for the urgency criteria could be eased only during standstill period, however, in the present case the application was submitted outside standstill period. In addition, the General Court concluded that the applicant was unable to demonstrate that the harm was irreparable.[2] The applicant appealed the Order before the Court of Justice (CJ).
General conditions for imposing interim measures
- The CJ explained that Article 156(4) of the Rules of Procedure of the General Court and the case law require two cumulative conditions for imposing interim measures. First, such a request must be ‘justified, prima facie, in fact and in law’.[3] Second, the need should be urgent, meaning, as the case-law explains, ‘in order to avoid serious and irreparable harm to the interests of the party making the application’.[4] In addition, the CJ tends to add another layer into the assessment, the ‘balancing of interests’ derived from the principle of proportionality.[5]
- The ‘prima facie case’ condition implies a superficial examination of the merits of the case. The developed test suggests that the applicant’s action should appear ‘at first sight relevant and not without foundation or cannot be discounted without a detailed examination’ [6] and that it ‘does not appear at first sight to be totally without foundation’.[7]
- The ‘urgency’ condition is to be assessed having in mind that interim measures have the scope to avoid ‘serious and irreparable harm to the party seeking the interim relief’. The CJ points out that to prove this condition, the applicant does not have to demonstrate ‘the occurrence and imminence of the harm with absolute certainty’, but rather with a ‘sufficient degree of probability’ that there is ‘a genuine risk of such harm occurring’.[8]
- The difficulty of the above condition is that damage of a pecuniary nature can be regarded as ‘irreparable harm’ only in exceptional circumstances, because the restitutio in integrum can be upheld via an action for compensation under Articles 268 TFEU and 340 TFEU.[9]
The applicability of the principle of effective remedy from the Remedies Directive
- The Remedies Directive 89/665 is not applicable to procurements conducted by EU institutions and covered by the Financial Regulation 2018/1046. Nonetheless, the CJ decided otherwise in the Vanbreda case via the ‘the expression of the general principle’, i.e. an interpretational regulatory mechanism.[10] The principle of effective remedy tailored for the public procurement sector was already developed by the EU legislator in the Remedies Directive 89/665. Thus, given that the latter directive represents ‘the expression of the general principle of the right to an effective remedy in the area of public procurement’, the CJ decided that it should be taken into account when ruling on interim measures in public procurement conducted under the Financial Regulation 2018/1046.
- In the CJ view, the issue revolves around Article 2(7) of the Remedies Directive 89/665 which stipulates that Member States may provide that after the conclusion of the contract the review body’s competence shall be limited to awarding damages to the harmed tenderer.
- The CJ underlines that the latter legal provision means that the EU legislature makes a distinction between pre-contractual and post-contractual phase.
The justification for the ease of the interim measure application
- The wording of Article 2(7) of the Remedies Directive 89/665 gives a mere option to the Member Sates to limit the powers of their national review body’s. Nonetheless, the CJ decided that this is ‘the expression of the general principle of the right to an effective remedy’ in the area of public procurement conducted by EU institutions. Hence, the policy choice of the CJ for remedies for these type of procurements.
- The policy role of using Article 2(7) of the Remedies Directive 89/665 by the Court is to emphasize the particular difference of remedies palate in the pre and post contractual phase. The logic of the Court can be reduced to the following: given that in the post-contractual phase the available remedy is only damages, the interim measures requirement should be eased. I have two objections here.
- First, the fact that the Court relies only on Article 2(7) from the Remedies Directive 89/665 to demonstrate the difference of remedies at hand in the pre and post contractual phase is unfortunate. The whole Remedies Directive 89/665, especially after its 2007 revamp, is built around providing instruments to the affected economic operators to correct errors of the contracting authority before and after the conclusion of the contract. With more emphasis on the pre-contractual remedies because these are more effective in securing the contractual opportunity for the affected economic operators.
- In essence, pre-contractual remedies consist in interim measures and setting aside (annulment) a decision of the contracting authority. Post-contractual remedy consists in the ineffectiveness claim. Lastly, damage claims can be initiated in the pre-contractual and post-contractual phase, this very much depends on the nature of the review body and the administrative law traditions of the Member State. Here paragraph two of Article 2(7) of the Remedies Directive 89/665 comes into play and says that after the conclusion of the contract review body’s power can be limited to only awarding damages to the person harmed by the infringement. Nevertheless, it is for the Member States to decide this.
- Let us assume that paragraph two of Article 2(7) of the Remedies Directive 89/665 does not exist. What powers would the review body have after the conclusion of the contract under the latter directive? Interim measures? Yes, but only under national law because the interim measure under the Remedies Directive 89/665 is pre-contractual and not post-contractual. Annulment or setting aside? It is also a pre-contractual remedy under the Remedies Directive 89/665. Thus, even in the absence of the mentioned provision, the review body’s powers in the post-contractual phase are limited to awarding damages and hearing ineffectiveness claims.
- Hence, the Court was wrong to rely only on Article 2(7) of the Remedies Directive 89/665.
- Second, the Court made a causal link between the lack of remedies beside damages in the post-contractual phase and the ease of interim measure requirements. Two questions surface here. First, why this cause and effect relationship? Second, what does the ease of interim measures requirements actually mean in practice?
a. Cause and effect relationship?
- The Remedies Directive 89/665 does not say or imply that because of the post-contractual remedy limitations interim measures should be granted easier. What the directive stipulates in the first paragraph of Article 2(3) of the Remedies Directive 89/665, and which is fundamentally different from procurements covered by the Financial Regulation 2018/1046 and challenged to the General Court, is that contracting authorities are not allowed to sign the contract until the review body decides either on interim measures or on merits of the case. The later provision gives more legal certainty to a harmed economic operator and reinforces the pre-contractual remedy system. A luxury not available for procurements conducted by EU institutions. In addition, the Remedies Directive 89/665 does not regulate the conditions for granting interim measures but its mere aim (see letter a) from Article 2(1) of the Remedies Directive 89/665).
- For me personally it is difficult to follow CJ reasoning. A national court or review body could bend the year to this justification and argue that under the Remedies Directive 89/665 it should be easier to defend an interim measure claim. Which is not true because the conditions of imposing interim measures are left to the Member States to regulate under the procedural autonomy rule and subject to the principle of equivalence and effectiveness.
- What the CJ and the General Court wanted to justify is the relaxation of the requirements for interim measures set in Article 156(4) of the Rules of Procedure of the General Court and its case law for procurement cases covered by the Financial Regulation 2018/1046. The CJ could of mentioned that the Remedies Directive 89/665 is built around the idea of correcting contracting authorities error before the signature of the contract via various legal instruments[11] which represent the expression of an effective remedy in public procurement. Further, taking into account that some of those legal instruments are not available in such cases and given the specificity of the procurement cases the CJ should have argued that the requirements for interim measures set in Article 156(4) of the Rules of Procedure of the General Court and the case law must be relaxed. Instead, the CJ took a good regulatory benchmark but a shallow justification for that.
- A powerful argument that the Court could of invoked is the speed requirement. The fifth recital of the Remedies Directive 89/665 stipulates that the short duration of procedures for the award of public contracts means that infringements of provisions of EU law need to be dealt with urgently. That is why Article 1(1) of Remedies Directive 89/665 provides that review procedures should be effective and, thus, as rapid as possible. To ensure that the examination of interim measures requests are as rapid as possible a relaxation of the rules is, hence, justified.
- In this respect the European Commission view is that:
Ordinary courts under ordinary procedural codes cannot guarantee rapid and effective review as required by EU case-law.[12]
- This means that the Rules of Procedure of the General Court and its non-procurement case law cannot guarantee rapid and effective review and that no interim measure before the General Court is rapid enough to suspend the conclusion of the contract. The case law shows that the General Court and the CJ are very much aware of this and via precedents are trying to create a sui generis procedural regime for procurement cases covered by the Financial Regulation 2018/1046.
- Lastly, although it concerns a different aspect, cutting procedural guarantees for the sake of effective and rapid interim measures under Remedies Directive 89/665 has already received blessing from the CJ. [13]
- Although this may not happen soon, but we will one day witness the codification of this jurisprudence creating a special remedy system for such procurements.
b. Ease of interim measures requirements in practice
- The ‘urgency’ requirement to be satisfied the applicant must demonstrate two risks of (i) serious harm and (ii) irreparable harm. From the corroboration of paragraph 47 and 69 of the Order, we can infer that in such cases the ease of interim measures requirements means that only the ‘prima facie case’ and the risk of serious harm must be met. Thus, the risk of irreparable harm is out of the equation.
- The CJ explained that the justification lies in the general principle of the right to an effective remedy from Remedies Directive 89/665, which means that the aggrieved tenderer should have a real possibility of bringing an action.[14]
- In my view leaving the requirement of risk of irreparable harm in such cases would make the interim measures an unobtainable procedural instrument. Losing a tender means losing a contractual opportunity, thus, lost profit. In this respect, the case law emphasises that damage of a pecuniary nature can be regarded as ‘irreparable harm’ only in exceptional circumstances, because the restitutio in integrum can be upheld via an action for compensation under Articles 268 TFEU and 340 TFEU.[15]
- This means that the interim measures conditions are reduced to the requirement of a ‘prima facie case’ because if the latter is demonstrated the risk of serious harm may come as a package in the form of a lost contractual opportunity.
- This is a particularly important if we extrapolate this pattern for interim measures applications to the procurements challenged under the Remedies Directive 89/665 which are left to Member States to regulate. Thus, review bodies can set the same threshold for upholding interim measures and point the finger to the Luxembourg Court case law and not to the Remedies Directive 89/665.
The temporal aspect regarding ease of interim measures
- In the present case, the application for interim measures was submitted outside standstill period but before the conclusion of the contract. The CJ decided that the ‘urgency’ requirement is to be eased not only until the expiration of the standstill period but also until the conclusion of the contract.[16] The Court retained that the standstill period is intended to ensure that the judicial protection is effective and it is relevant only for the interlocutory judge to assess whether the contract was concluded outside this period, thus, the expiration of the standstill period does not tighten back the urgency requirement. [17]
- I agree with the CJ that the ease of the urgency requirement should be enforced until the conclusion of the contract. However, the reasoning provided is very thin.
- In the Remedies Directive 89/665 realm the aggrieved economic operator can challenge the award in a classic scenario before the expiration of the standstill period of either 10 or 15 days (see Articles 2c). Once the application is made, the Contracting Authority is not allowed to conclude the contract (see Article 2(3) of the Remedies Directive 89/665). This amounts to an effective remedy.
- Whereas in the procurements conducted under the Financial Regulation, the standstill period is 10 or 15 days, [18]but the challenging period is two months.[19] This means that the application for review can be made outside the standstill period. Moreover, the applications for review do not have a suspensive effect.
- Thus, the role of the standstill period in the later cases is a bit different, i.e. a period in which to try to convince the Contracting Authority not to conclude the contract. Whereas in the Remedies Directive 89/665 realm is to give time to challenge the award. This means that the CJ should of argued that in the two months challenging period the CJ must provide the same level of protection to the aggrieved economic operator irrespective of the standstill period. The main argument must revolve around the challenging period with reference to the standstill period and not the other way around.
Conclusion
- The above case shows once more how unfit are the procedural rules before the both General Court and Court of Justice for the procurement cases.
- For plugging the holes, the Luxembourg Courts use a good regulatory benchmark – the Remedies Directive. Nonetheless, the procedural rules of the Court are conceptually different from the one in the Remedies Directive. Probably that is why the Court is so shy in digging deeper in the Remedies Directive.
- A sui generis remedies regime is a natural way forward. However, it will require political will beside judicial activism.
[1] Case C-478/22 P(R) Telefonica de Espana SA v European Commission, Order of the ECJ, 22 November 2022, para 44.
[2] ibid, paras 17-20.
[3] ibid, para 44.
[4] ibid, para 44.
[5] Case T‑393/10 R Westfälische Drahtindustrie GmbH v European Commission, Order of the President of the GC, 13 April 2011, para 54.
[6] ibid, para 54.
[7] ibid, para 54.
[8] Telefonica de Espana SA (n 1), para 44.
[9] C-278/13 P(R) Commission v Pilkington Group, Order of the President of the Court of Justice, 10 September 2013, para 50.
[10] C-35/15 P(R) Commission v Vanbreda Risk & Benefits, Orders of the Vice-President of the Court of Justice of 23 April 2015, EU:C:2015:275, para 28.
[11] Suspension of the contract award procedure where review proceedings are initiated contract – see first paragraph of Article 2(3) of the Remedies Directive 89/665.
[12] See Commission staff working document on the evaluation of the modifications introduced by directive 2007/66/ec to directives 89/665/eec and 92/13/eec concerning the european framework for remedies in the area of public procurement/ refit evaluation: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017SC0013&from=EN .
[13] Case C-568/08 Combinatie SpijkerInfrabouw-DeJonge Konstruktie and Others v. Provincie Drenthe [2010] ECR I-12655, paras 57-59.
[14] Telefonica de Espana (n 1) para 47.
[15] C-278/13 P(R) Commission v Pilkington Group, Order of the President of the Court of Justice, 10 September 2013, para 50.
[16] Telefonica de Espana SA (n 1) para 65.
[17] ibid, paras 58 – 63.
[18] See Article 175(3) from the Financial Regulation 2018/1046.
[19] See Article 263 of the TFEU.