1. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU COURT PROTECTION IN PUBLIC PROCUREMENT PROCEDURES Srđan 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

2. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Protection of rights in public procurement procedures l Administrative protection of rights l Court protection of rights

3. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Administrative protection of rights l 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. l ADMINISTRATIVE OVERSIGHT OF LEGALITY - Croatian Government’s 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.

4. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Court protection of rights l In administrative court proceedings l In indemnity claims l In misdemeanour and criminal litigation l In cases before the Constitutional Court of the Republic of Croatia

5. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Administrative court proceedings l 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. l Secured by filing suit against the final ruling of the State Commission. l The party to the administrative lawsuit is the State Commission, not the client.

6. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Administrative court proceedings l 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. l Decisions of the Administrative Court of the Republic of Croatia are legally binding in terms of administrative law. l Decisions of the Administrative Court are deemed prejudicial (as they establish the facts of legality of client actions) in possible litigation involving indemnity claims.

7. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Indemnity claims l 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.

8. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Indemnity claims l 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. l Indemnity claims are filed with municipal courts.

9. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Indemnity claims l 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.”). l An indemnity claim may be validly filed prior to expiry of the statute of limitations for such claims.

10. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Basic liability for damages in public procurement procedures l Contractual – arises due to breaches of contract. l Extra-contractual – arise independently of contractual obligations.

11. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Assumption of liability for damages l The existence of a party contractually liable for damages – injuring party and injured party. l Damaging action of injuring party – the injuring party must commit damaging actions. l Damage – must be incurred by the injured party. l Causal link – between damaging actions as the cause and damage as the result. l Illegality of damaging actions – objective element (damaging actions violate a legal rule), subjective element (damaging actions occur at the fault of the injuring party)

12. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU DamageDamage l SUBSTANTIVE DAMAGE - Damage or loss – diminishment of another’s assets - Lost benefits – prevention of increased gain l CONSEQUENTIAL DAMAGE - Violation of legal personality

13. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Consequential damage l 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). l The above violations are infringements of – goodwill, reputation and name, specifically the company/corporate name of the legal person.

14. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Burden of proof of damages incurred l The burden of proof of the existence of damage and an injuring rests with the claimant – injured party. l Damage or loss is contained inthe costs of preparing tender documentation and compiling a bid. It is easily proven, but also minimal. l 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. l 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.

15. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Examples in which liability for damages is assumed to exist Example 1. l Two capable bidders apply in the tender l The client selects one of them which, according to the tender criteria, is not the best bid l The client rejects the objection of the other bidder that submitted the essentially more favourable bid l The State Commission also overrules the appeal l The client concludes a contract with the selected, less favourable bidder l The more favourable bidder succeeds in a claim filed with the Administrative Court of the Republic of Croatia (the State Commission’s decision is ruled null and void) l The State Commission overrules the client’s selection decision l The client makes a new decision to select the factually more favourable bidder l Indemnity claim l Compensation paid with reference to damages and lost benefit.

16. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Example 2. l The client decides to select the best bidder/accept the best bid l The other bidder’s objection is rejected l The State Commission also rejects the appeal l In this manner, the selection decision becomes final and executable l 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 l 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). l 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. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Example 3. l 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 l There is the legal possibility of exceptional approval of continuaton of public procurement procedures even if an appeal or claim are filed l 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) l 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) l 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 l 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 l 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

18. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Opportunity in seeking damages? l Indemnity claims filed against clients are very rare. l 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.

19. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Court protection in misdemeanour and criminal cases l Protection of rights and values protected in public procurement procedures may be secured in misdemeanour (magristrate’s court) and criminal proceedings (municipal court). l 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. l 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.

20. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Constitutinal legal protection in public procurement procedures l In public procurement procedures, violations of constitutional rights as specified by the Constitution of the Republic of Croatia, may not be excluded. l Constitutional legal protection is ensured by the Constitutional Court of the Republc of Croatia. l A prerequisite for exercising constitutional legal protection is that all other avenues of legal protection are first exhausted.