A judgment in the case on criteria for exclusion of a candidate from public procurement procedure has been adopted
On 3 November 2011, the Constitutional Court adopted a judgment in the case No. 2011-05-01 “On Compliance of Section 39 (1) Indent 6 of the Public Procurement Law with Article 91 and 105 of the Satversme of the Republic of Latvia”.
On equal possibilities to participate in a public procurement procedure and verifiable criteria for exclusion of candidates from public procurement procedure
Contested Norm
Section 39 (1) Indent 6 of the Public Procurement Law provides that The commissioning party shall exclude a candidate or applicant from further participation in a procurement procedure, as well as shall not review the tender of an applicant in case if average remunerations of employees of a candidate or applicant registered in Latvia (has its domicile in Latvia) for the first three quarters of the year during the last year consisting of four quarters before the date of submitting a tender offer of an application is less than 70 per cent of average employee remuneration in the State for the same period and in the same field pursuant to NACE 2.red. qualification level of two figures pursuant to data summarized by the State Revenue Service and published in the home page of the State Revenue Service. If the candidate or the applicant is registered as a tax payer during the last year consisting of four quarters before the date of submitting a tender offer or an application, average monthly salary of employees for the period starting on the second month after the registration up to the date of submitting a tender offer or the application is taken into account.
The Facts
The person who submitted a constitutional complaint – SIA „HansaWorld Latvia” has participated in a tender call of the Ministry of Finance and pursuant to the Contented Norm it was excluded from the procurement procedure.
The Applicant holds that the Contested Norm fails to comply with Article 91 of the Satversme because, by establishing a different attitude towards persons enjoying similar and, according to certain criteria, comparable conditions; moreover, means selected by the legislator are not appropriate for reaching of the legitimate aim of the Contested Norm. The fact that salary disbursed by the employer exceeds the limit of 70 per cent established in the Contested Norm does not means that the respective person makes payments of all taxes established in normative acts. Moreover, the Contested Norm restricts the right of such persons to participate in procurement procedure who have fulfilled all tax liabilities before the State, though the exclusion criteria established in the Contested Norm is applicable to them.
Likewise, the Applicant holds that the Contested Norm fails to comply with Article 105 of the Satversme because the restriction established therein is not proportional and fails to ensure reaching of the legitimate aim. The aim of the Contested Norm can also be reached by other means that would restrict the fundamental rights of a person at a lesser extent, for instance, the State Revenue Service could make audits in companies in case if they suspect them for tax evasion.
The Applicant also provides arguments regarding non-compliance of the Contested Norm with the European Parliament and Council Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts. The Applicant holds that the Member States do not have the right to broaden the list of cases referred to in Article 45 of the Directive when candidates of procurement procedure can be excluded.
Findings and Ruling of the Court
On the extent of the claim in respect to non-compliance of the Contested Norm with Article 105 of the Satversme
The Constitutional Court assessed whether the Contested Norm infringes the fundamental rights established to the Applicant by Article 105 of the Satversme and concluded that substantiation of the constitutional claim does not apply to issues regarding compulsory expropriation of property; therefore the Court proceeded with assessing compliance of the Contested Norm only with the first three sentences of Article 105 of the Satversme [15.1].
On infringement of the property right
The Constitutional Court concluded that Article 105 of the Satversme provides a comprehensive guarantee of rights of property nature. The term “property right” means rights of property nature that a person can exercise in his or her own favour and that he or she can exercise using his or her own discretion. Future income can be regarded as property only if it has already been gained and a satisfiable claim exists [15.2].
Consequently, the Court indicated that the Applicant does not have protected fundamental right to possible earning of profit in the future as a result of participation in public procurement procedure. Neither Article 105 of the Satversme, nor Article 1 of Protocol No. 1 of the Convention provide legal protection for future possibilities of a person to gain profit since no such possibility can be regarded as a subject-matter of the property right [15.2].
Taking into account the above mentioned considerations, the Constitutional Court concluded that the Contested Norm does not infringe the fundamental rights established to the Applicant by Article 105 of the Satversme and therefore it terminated proceedings in respect to compliance of the Contested Norm with Article 105 of the Satversme.
On the extent of the claim regarding compliance of the Contested Norm with Article 91 of the Satversme
The Constitutional Court indicated that it follows from the constitutional complaint that compliance of the Contested Norm with the first sentence of Article 91 of the Satversme only shall be assessed, the particular sentence guaranteeing equality of persons before the law because, in the present case, there is no dispute regarding possible non-compliance of the Contested Norm with the principle of prohibition of discrimination [16].
On the content of the principle of equality
It has been concluded in the case-law of the Constitutional Court that the principle of equality prohibits public institutions to adopt such norms that admit, without reason, unequal attitude towards persons enjoying similar and, according to certain criteria, comparable conditions. The principle of equality permits and even requires different attitude towards persons enjoying different circumstances, as well as admits different attitude towards persons enjoying similar conditions if it is based on objective and reasonable grounds [16.1].
On persons (group of person) enjoying similar and, according to certain criteria, comparable conditions and the kind of attitude towards them
The Constitutional Court acknowledged that the Contested Norm shall be applicable to all possible candidates of procurement procedure, though negative consequences of such application occur only in respect to those applicants that comply with the exclusion criterion established in the Contested Norm [17]. In the case under consideration, the criterion for distinguishing between groups to be comparable is the average salary of employees of the candidate. Consequently, the Court indicated that in such a situation it is possible to distinguish between two groups of candidates depending on the average monthly salary disbursed to their employees if compared with average indices of the same field [17].
The Constitutional Court concluded that companies participating in procurement procedures or are interested in obtaining the right to win a tender enjoy similar and mutually comparable conditions; consequently, the candidates, the average monthly salary of which is greater than the limit of 70 per cent established in the Contested Norms, and candidates, the average monthly salary of which is less than the limit of 70 per cent established in the Contested Norms, enjoy similar and mutually comparable conditions [17].
Taking into account the fact that the Contested Norm serves as a criterion for exclusion of candidates from participation in procurement procedure, entrepreneurs whose average monthly salary is greater than the limit of 70 per cent established in the Contested Norm can continue participating in the procurement procedure; however, candidates who comply with the exclusion criteria established in the Contested Norm lose the right to continue participation in the procurement procedure. Consequently, the Constitutional Court concluded that the Contested Norm provides a different attitude towards such groups of person who enjoy similar and mutually comparable conditions [18].
On legitimate aim of the different attitude
When assessing the legitimate aim of the Contested Norm, the Constitutional Court concluded that the legislator, when adopting the Contested Norm, has first decided to exclude from procurement procedure those candidates who fail to fulfil their tax liabilities. Moreover, the Contested Norm stimulates entrepreneurs to pay taxes, as well as ensure fair competition among participants of procurement procedure [19].
Consequently, the Court established the following legitimate aim of the Contested Norm: assurance of welfare of the society and protection of the rights of other persons manifested through exclusion from procurement procedure of candidates failing to fulfil their tax liabilities, facilitation of full collection of taxes and assurance of fair competition between participants of procurement procedure [19].
On proportionality of the restriction of the fundamental rights
The Constitutional Court concluded that, in the result of application of the Contested Norm, candidates who comply with the criteria established in the Contested Norm and avoid payment of taxes are excluded from participation in procurement procedure. Thus the legitimate aim of the Contented Norm is reached because such candidates who evade taxation are not granted the right to conclude procurement agreements. Consequently, fair competition among candidates is ensured because only such candidates who have no doubt settles their tax liabilities can participate in procurement procedure. Consequently, it is possible to reach the legitimate aim of the Contested Norm by means elected by the legislator [21.1].
When assessing whether the Contested Norm reaches its legitimate aim, assessing it with conjunction with the practice of application of it, the Constitutional Court concluded that the Contested Norm may restrict rights of such persons who have settled their tax liabilities; however, the Contested Norm fails to ensure the possibility to exclude all such candidates that fail to pay taxes at full extent because the exclusion criteria included in the Contested Norm cannot be applied to all candidates [21.2].
There exist several reasons why a candidate might comply with the exclusion criteria established in the Contested Norm even though it has honestly made all stipulated tax payments. The legitimate aim of the Contested Norm is targeted only at exclusion of such candidates who have failed to fully fulfil their tax liabilities. Consequently, the Court concluded that the Contested Norm may restrict the rights of such candidates who have fulfilled all tax liabilities in respect to the State, though it may not restrict the rights of such candidates who have failed to completely fulfil their tax liabilities [21.2].
When analysing the case-law of the Court of Justice of the European Union regarding lawfulness of criteria for exclusion of candidates, the Constitutional Court concluded that no exclusion of candidates based on a non-contestable presumption can be admitted [21.2].
The Constitutional Court concluded that deficiencies of the Contested Norm follow from its formal application procedure providing that the institution applying the norm shall not have the duty to verify validity of doubt regarding fulfilment of liabilities by the candidate; neither has the candidate a possibility to prove that it has no unsettled tax liabilities before the State [22.2].
The Constitutional Court concluded that the legislator has to select more lenient measures for reaching of the legitimate aim of the Contested Norm [22.2]. Consequently, the Contested Norm fails to comply with the principle of proportionality and that of equality included in the first sentence of Article 91 of the Satversme.
The Constitutional Court indicated that, in order not to exceed the legitimate aim of the Contested Norm, the legislator has either to select means that do not restrict the right of candidates participating in procurement procedure and having paid all taxes to participate in procurement procedure, or establish such legal procedure, in the frameworks of which a candidate can prove that he has made all stipulated tax payments. Thus freedom of action of the legislator is preserved when selecting the most appropriate means for reaching of the aim of the Contested Norm insofar as they do not restrict the right of candidates having paid all taxes to participate in procurement procedures [23].
The Constitutional Court recognized Section 39 (1) Indent 6 insofar as it restricts the rights of candidates and applicants of procurement procedure having paid all taxes as non-compliant with Article 91 of the Satversme of the Republic of Latvia.
On the time of becoming of the Contested Norm as null and void
In order to provide the legislator the possibility to improve the legal regulatory framework of the Contented Norm by establishing mechanism that would not exceed the legitimate aim of the Contested Norm and would not infringe the rights of candidates having paid all taxes, the Constitutional Court holds that the most appropriate solution is recognition of the Contested Norm as null and void as from a certain moment in the future. The Constitutional Court rules that the Contested Norm shall lose its force as of 1 March 2012 [24].
The judgment of the Constitutional Court is final and not subject to appeal. It shall come into force on the date of publishing it in the newspaper “Latvijas Vēstnesis”.
Linked case: 2011-05-01