European court rejects Commission appeal to fine Portugal over procurement regulations

Gurjit Degun
16 January 2014

16 January 2014 | Gurjit Degun

The European Court of Justice (ECJ) has dismissed a European Commission’s (EC’s) appeal to fine Portugal €3.6 million (£3 million) for failing to implement public procurement regulations.

The case goes back to 2004 when the ECJ ruled that Portugal had breached a 1989 directive relating to the “application of review procedures to the award of public supply and public works contracts”.

As Portugal did not implement the directive measures following the ruling, in 2008 the ECJ ordered Portugal to pay a fine of €19,392 (£16,132) for each day that it did not change its legislation.

Days before the 2008 judgment, Portugal introduced a new law which it believed met the requirements of the 1989 directive. But the EC said Portugal had still not complied with the 2004 judgement so it fined the member state €2.75 million (£2.23 million).

Portugal then revised the legislation and the EC agreed it complied with the judgement. The EC also claimed an extra €911,424 (£758,339).

Portugal challenged the fine in a 2011 hearing before the General Court – a constituent court of the ECJ. The court upheld the action brought by Portugal and annulled the contested decision. 

In this week’s appeal judgement the first part of the first ground of appeal concerned the respective powers of the EC and of the General Court. The ECJ said: “The General Court did not unduly limit the powers of the Commission in the verification of compliance by the Portuguese Republic with the 2008 judgement or, consequently, its own jurisdiction in relation to the review of the Commission’s assessment in that regard. That being so, the first part of the first ground of appeal must be rejected as unfounded.”

The second part of the first ground of appeal concerned “the definition of the failure to fulfil obligations established by the Court of Justice in its 2004 and 2008 judgements”. This was also rejected by the ECJ.

The second ground of appeal dealt with “alleging that the reasoning of the judgement under appeal is inadequate and contradictory”.

The court said the EC was not entitled to assess whether Portugal’s initial attempt to implement legislation conformed with European Union law. It added that the EC was not entitled “to draw inferences from this for the purposes of calculating the penalty payment”.

The appeal judgement said: “It must be concluded that the General Court’s reasoning is not vitiated by insufficient or contradictory grounds, therefore the second ground of appeal must be rejected.”

The ECJ dismissed the appeal and ordered the EC to bear its own costs and pay those of Portugal’s in the appeal hearing. The case saw Portugal being supported by eight other European countries - Czech Republic, Germany, Greece, Spain, France, the Netherlands, Poland and Sweden. The ECJ ordered the countries to bear their own costs.

Procurement lawyer David Hansom, partner at Veale Wasbrough Vizards, said: “This is a topical case given the current debate in the UK (and more widely in Europe) about the European Commission's powers and its democratic legitimacy. This decision shows the limitations on the Commission's powers and the checks and balances which the European Court has over the Commission.

“The case shows the importance that the Commission places on compliance with public procurement across the EU, and the need for consistency to promote a common market and a level playing field."

Paul Henty, who is also a procurement lawyer and partner at Speechly Bircham, added: “The Commission is passionate in ensuring that the EU procurement laws are adopted and applied faithfully in the Member States. However, the Commission ultimately overstepped its jurisdiction in this case and strayed onto the territory of the EU Court in seeking to punish Portugal for failure to comply with the Court’s judgment. 

"Whilst the Court had no hesitation in putting the Commission in its place, the case will be a reminder to EU Member States to ensure timely implementation of the new EU Procurement Directives, which were approved by the EU Parliament this week.”

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