«The Long and Winding Road Tunnel Case: Compensation for Procurement Damage in Icelandic Law Eiríkur Jónsson 1 Introduction.. 118 2 Background.. ...»
By this lawsuit [the corporations] have used the possibility in article 25, section 2 of the Act on Civil Procedure, No. 91/1991, to seek for the time being only an acknowledgement of [the authority’s] liability. Before the Supreme court [the corporations] have brought forward source material concerning premises for the calculations of their tender […], which expected a certain profit of the project. It has also to be considered that the tender was higher than [the authority’s] estimated cost, but the estimate must have presumed that the prospective contractor would have some profit from carrying through the project. By this, [the corporations] have adequately brought forth a probability of damage which article 84 can cover. Article 25 of Act No. 91/1991 does not preclude an acceptance of their claim, but this only resolves the legality of [the authority’s] actions without any ruling on to what extent the action has caused [the corporations] damage.
The conclusion of the judgment started like this:
The [authority’s] liability towards [the corporations], due to loss of profit that they might have enjoyed if [the authority’s decision] had not been taken, is acknowledged.
Round 2 – Claim for a Certain Amount of Compensation 3.3 Following the Supreme Court judgment the parties engaged in negotiations that proved not to be successful. The corporations therefore filed another suit (this time against the Icelandic state) in the District Court of Reykjavík and now claimed a certain amount of compensation. They mainly claimed 478.868.309 ISK (in solidum), on the grounds of their calculations based on the contract specifications. More precisely the corporations estimated the cost of the project on the one hand and the income of the project on the other hand and claimed the disparity. They also set forth a second claim, 258.955.156 ISK, on the grounds of a valuation performed by two experts (one engineer and one accountant), who were appointed by the District Court at the corporations’ request. The state objected that the corporation had suffered damage. Among Scandinavian Studies In Law © 1999-2015 Eiríkur Jónsson The Long and Winding Road Tunnel Case 123 other things the state contested the valuation of the experts, referred to the fact that the Norwegian corporation did not participate when the procedure was repeated, that the Icelandic corporation had carried through other large projects at the relevant time etc.
In a ruling in 2010, the District Court of Reykjavík dismissed the case on the grounds that the source material provided was utterly inadequate for passing a substantial judgment on the corporations’ claims.14 The corporations appealed this ruling and in February 2011, in SC 4 February 2011 (Case No.
718/2011), the Supreme Court overturned it and prescribed the District Court to address the case substantially. Subsequently the District Court delivered a judgment in June 2011, where the Icelandic state was acquitted.15 The District Court firstly explained that its understanding of SC 17 November 2005 (Case No. 182/2005) was that the corporations had adequately brought forth a probability of damage and that the state was obliged to pay compensation for the loss of profit that the corporations might have gained had the decision not been taken. However, nothing had been declared as to what extent the corporations had sustained damage and it was up to them to prove the damage’s extent, in this case their presumed loss of profit due to the rejection of their offer. The District Court also stated that it followed from article 84, section 2 of Act No. 94/2011, that general rules of compensation had to been taken into account, including the rule that the claimant has to mitigate his damage and should not be put in a better position than if the damage had not occurred.
The Court then turned to evaluation of the corporations’ claims. It first rejected the main claim on the grounds that the corporations’ estimate and the related calculations were not sufficient evidence of the corporations’ damage, and were even further away from proving that the damage measured up to the specific amount claimed. The Court then rejected the second claim on the grounds that the two experts who performed the valuation had relied on the same insufficient source material and that their method for calculating loss of profit was precarious. In this respect the District Court referred to the experts’ presumption that the profit would have been the same as shown in the Icelandic corporation’s financial statement 2004. However, no information had been made available on the corporation’s projects this particular year or on whether this profit would have been gained in other projects that could in some respect be considered comparable to this one. In addition, no information had been made available on the Norwegian corporation’s projects or profit this particular year. Taking this into consideration the District Court came to the conclusion that it could not rely on the two experts’ valuation. At the end of the judgment
the Court remarked:
The plaintiffs’ view can be sustained, that it is difficult for them to prove their veritable damage due to the defendant’s decision to reject their tender for the making of Héðinsfjarðargöng. Notwithstanding their statement that it is 14 DCR 9 December 2010 (Case No. E-7123/2007).
15 DCR 28 June 2011 (Case No. E-7123/2007).
impossible to acquire more material and that their claim cannot be arranged in another way than described above, the Court nevertheless considers that both plaintiffs possess various information and material about their operation, projects and profit at the relevant time, including from their accounting, which can be assumed to have been better suited for supporting their claims and other pleadings. Not least, the Court in this respect takes into view that no information is available about NCC International AS’s projects at the relevant time, nor about the corporation’s experience in the field of building tunnels or similar projects, let alone its profit from such projects. The plaintiffs could easily have acquired and provided such material. They did, however, not do so, but chose instead to found their claims on the material that has been provided.
As a consequence it has to be considered as not proven that the plaintiffs suffered damage due to the defendant’s decision to reject their tender for the making of Héðinsfjarðargöng. For the same reason there is not a ground to determine compensation to the plaintiffs by discretion. The defendant will therefore be acquitted of all the plaintiffs’ claims.
The corporations appealed this District Court Judgment and litigation will soon take place before the Supreme Court.
In addition to being the leading case in the field of public procurement damage, the Road Tunnel Case can be seen as one of the leading cases in an increasing trend in Iceland in the field of pure economic damage. More precisely the trend is to suit first for an acknowledgment of liability, before claiming a certain amount of compensation (both in and out of contract). This was not the first case where the Supreme Court acknowledged liability in that way, 16 but it is an important case in the line of such judgments, which have grown significantly in number after the 200517 judgment.18 Importantly, many big cases related to the bank collapse in 2008 seem to be framed in this manner, i.e. the claimants start by pursuing an acknowledgment of liability, before claiming a certain amount of compensation.19 The possibility to suit for an acknowledgement of liability can in many ways be beneficial to claimants. It can allow them to obtain results on the legality of their counterpart’s actions, without first having to undertake the often complicated and expensive process of proving a certain amount of damage (which often would be done by obtaining valuation by experts). It must however be stressed that although this might be seen as a fairway in 16 See for example SC 13 February 2003 (Case No. 384/2002).
17 SC 17 November 2005 (Case No. 182/2005).
18 Later judgments are for example SC 23 February 2006 (Case No. 371/2005), SC 8 May 2008 (Case No. 450/2007), SC 3 June 2010 (Case No. 43/2010) and SC 17 November 2011 (Case No. 87/2011).
19 Some of these cases have already reached the Supreme Court, see SC 25 November 2009 (Case No. 600/2009) and SC 25 November 2009 (Case No. 601/2009).
Scandinavian Studies In Law © 1999-2015 Eiríkur Jónsson The Long and Winding Road Tunnel Case 125 comparison to some other jurisdictions, at least in the field of compensation for positive interests in public procurement procedures, the claimant nevertheless must overcome severe obstacles before being awarded a certain amount of compensation. Firstly, he must prove damage to a certain extent to be able to obtain an acknowledgment of liability. Secondly, after receiving such an acknowledgement, he still has to prove the amount of his damage. Some remarks on the burden of proof at both stages are appropriate.
As regards the former stage, the first Supreme Court judgment in the Road Tunnel Case, i.e. SC 17 November 2005 (Case No. 182/2005), illustrates that the requirement to prove damage is more relaxed in a case of an acknowledgment than in general. Thus, the Court declared that the corporations had brought forth a probability of damage that was adequate for acknowledging liability. The Court has elaborated further on the requirement of proof in later cases and these judgments make it clear that although this requirement only concerns probability, it can preclude claimants from seeking an acknowledgment. A clear case on that point is SC 19 February 2010 (Case No. 68/2010), where an Icelandic corporation sued for an acknowledgment of the State Trading Centre’s liability for rejecting its tender in a procedure. The Supreme Court remarked that according to its case law article 25, section 2 of the Act on Civil Procedure, No. 91/1991, requires that the claimant adequately bring forth a probability of damage which he has suffered and explains what this damage consists of. Since the claimant had not done so, the case was dismissed. Similar judgments in other cases of pure economic loss, outside the field of public procurement, can also be found.20 These judgments make clear that this requirement is in fact a procedural one, linked to article 25 of Act No.
91/1991. If the claimant fails to adequately bring forth a probability of damage the result is therefore a dismissal of the claim, rather than an acquittal.21 In regards the latter stage, the most recent District Court judgment in the Road Tunnel Case, i.e. DCR 28 June 2011 (Case No. E-7123/2007), illustrates that a judgment of acknowledgement does not leave the claimant with an easy task to obtain a particular amount of compensation. The claimant still has to prove that he has suffered damage of that amount and the case is informative on the problems he may face and the complicated questions that can arise in the assessment of damage. The District Court placed high demands on the plaintiff.
High demands are in line with the general approach in the field of pure economic loss, where claims are often rejected on the grounds that damage has not been proven. It remains to be seen whether the Supreme Court will adhere to the District Court’s approach or whether it will accept the plaintiffs’ argument that is impossible to acquire better evidence or arrange the claims in another way. The Court might also take some kind of an intermediate position 20 See for example SC 25 November 2009 (Case No. 600/2009), SC 25 November 2009 (Case No. 601/2009), SC 17 December 2009 (Case No. 698/2009), SC 20 August 2010 (Case No.
435/2010), SC 11 April 2011 (Case No. 187/2011) and SC 12 April 2011 (Case No.
188/2011). On the other hand this requirement was met in SC 19 March 2010 (Case No.
129/2010) and SC 10 March 2011 (Case No. 57/2011).
21 This was expressly stated in SC 17 November 2011 (Case No. 87/2011).
Scandinavian Studies In Law © 1999-2015 126 Eiríkur Jónsson:The Long and Winding Road Tunnel Case by awarding a lower sum of compensation by discretion, along the lines of SC 18 November 1999 (Case No. 169/1998).
Although it is clearly the plaintiff who bears the burden of proof, and the defendant must be acquitted if the plaintiff cannot prove damage, such an end to the longstanding Road Tunnel Case might be seen as somewhat peculiar, bearing in mind that the existence of damage is a peremptory condition of liability for damages. The courts would then first have acknowledged an existence of liability, but then rejected compensation since damage was not proven – notwithstanding that the existence of damage is a general precondition for the existence of liability. 22 22 It should however be mentioned that there are judgments in the field of pure economic loss where the Supreme Court has first declared that liability for damages exists, if the plaintiff can prove damage, but has then acquitted the defendant on the grounds that damage has not been proven. See for example SC 18 October 2007 (Case No. 141/2007) and SC 22 January 2008 (Case No. 239/2008). Although it is therefore not unprecedented that the Court first declares liability but then denies compensation due to lack of proof, the wording in the 2005 Road Tunnel judgment can be seen as little bit different than in the two cases mentioned above, as well as in an older judgments of acknowledgment, i.e. SC 13 February 2003 (Case No. 384/2002). In the 2003 judgment the Supreme Court thus stated that the judgment only concerned the legality of the relevant actions, without any ruling on “whether” these actions caused damage to the plaintiff, whereas in the 2005 judgment the Court stated that there was no ruling on “to what extent” the action caused damage to the plaintiffs.