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Litigation in the technology and construction court

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CHAPTER 7

Public procurement litigation in the TCC

Introduction

7.1 Procurement litigation is fast-moving and often somewhat fraught. The short time limit in which to bring claims (in most cases, 30 days from the date on which the claimant first knew or ought to have known of the facts amounting to breach)1 and the somewhat one-sided nature of the process (whereby contracting authorities tend to hold the vast majority of disclosable information) mean that much Court time relating to procurement challenges is taken up with interlocutory applications, often prior to close of pleadings. 7.2 Applications by economic operators (typically for disclosure) are frequently met with cross-applications by authorities (typically for relief from the automatic injunction under Regulation 95(1), further information and strike out/summary judgment (often on limitation grounds)). Very few cases make it all the way to trial, but over the past six or seven years, the TCC has heard a growing number of cases in relation to public procurement challenges. 7.3 As a result, the TCC can now genuinely hold itself out as a pre-eminent Tribunal for the consideration of both final and interlocutory matters in the field. This reputation has recently been enhanced by the publication of the TCC Guidance Note on Procedures for Public Procurement Cases, launched in July 2017, and which now appears at Appendix H to the TCC Guide. Although it is described as guidance as opposed to a protocol, it is expected that it will be adopted in all procurement disputes going forward. A copy of the protocol is appended at hereto. 7.4 A notable feature of procurement litigation is the ever-changing statutory regime pursuant to which claims are brought, namely the Public Contracts Regulations. At the time of writing, the 2015 Regulations are in force, which are the fourth iteration of the relevant legislation in the past 12 years. As well as keeping lawyers on their toes, the frequent revisions in the law introduce new concepts, many of which are relatively untested in litigation (e.g. the concept of ‘ineffectiveness’ introduced by the 2009 Regulations, and the codification of European jurisprudence in relation to ‘material change’ enshrined in the 2015 Regulations). 7.5 The 2016 referendum in the United Kingdom, which saw a majority of the British population vote to leave the European Union, imports further uncertainty over the direction in which the law might develop. To the editors, at least, it seems somewhat implausible that competitive tendering as a concept will be abandoned, not least on account of the fiduciary duties of public bodies, but also given that both contracting authorities and contractors have well-established processes for participating in competitions. Depending on the nature

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of the United Kingdom’s relationship with the single market post-Brexit, it may well be the case that the legislation continues to be pegged to the relevant European directives in any event. Alternatively, if the United Kingdom were to subscribe to the World Trade Organization’s Government Procurement Agreement, public contracting would be subject to a comparable regime. 7.6 The relatively recent introduction of the graduated issue fee in the High Court has led to some challengers thinking twice about commencing proceedings. For most procurement disputes, a fee of £10,000 will be payable on account of the level of damages ordinarily claimed. In some instances, this is enough to put off challengers unless they are confident in the strength of their case. Claimants sometimes seek a way around this charge by commencing proceedings for declaratory relief, in respect of which a lesser fee is payable, and subsequently amending the claim to include a claim for damages (and paying the increased fee). However, this approach risks being held to be an abuse of process unless the amendment arises because of new information which was not available when the claim was issued. This course of action may also give rise to a challenge to the damages claim on limitation grounds (given the short time limit in which to bring claims). The safest way to proceed is to issue proceedings for exhaustive relief in one go, even if this means committing to the full issue fee.

Applications to lift the automatic suspension

7.7 Prior to the coming into force of the Public Contracts (Amendment) Regulations 2009 which implemented the new Remedies Directive (2007/66), an aggrieved economic operator who wished to stop a procurement process (and thereby prevent contract award) needed to apply for an interim injunction. 7.8 Under the 2006 Regulations, the Courts approached the question of whether or not to grant an order restraining a contracting authority from entering into a contract by applying the test for an interim injunction set out in American Cyanamid Co Ltd v Ethicon Ltd 2, by considering: (1) if there is a serious issue to be tried; (2) if an award of damages would be an adequate remedy for the claimant if no injunction were granted; and (3) where the balance of convenience lies. The Court’s application of the American Cyanamid test in procurement cases is a developing area of jurisprudence, with some Judges maintaining the three-stage analysis set out in American Cyanamid itself, while others take the view that the adequacy of an award of damages falls to be considered as part of the balance of convenience, which is likely to include the adequacy for the defendant of any cross-undertaking offered and protection of the public interest. 7.9 From the perspective of the aggrieved contractor who had missed out on the contract, the ‘old’ regime posed a practical problem: contracting authorities who became aware of an injunction application would immediately award the contract, leaving the challenger with a remedy in damages only. This became known as the ‘race to contract’ or ‘race to signature’. The European Commission became concerned that: (1) contracts were being awarded before Tribunals had the chance to consider applications for injunctive relief (see the May 2006 impact assessment report (COM(2006)195); and (2) contracts were being awarded illegally, while the existing regime did not make it possible to prevent or correct

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effectively the consequences of such illegal action (see the June 2006 proposal for the Remedies Directive (COM(2006) final/2)). This culminated in the adoption of a new Remedies Directive (2007/66). 7.10 The Public Contracts (Amendment) Regulations 2009 amended the 2006 Regulations, implementing the 2007 Remedies Directive. Under the new regime (see Regulation 47G of the 2006 Regulations as amended), upon commencement of proceedings by a challenger, the contracting authority was automatically prevented from entering into the contract (which has become known as the ‘automatic injunction’ or ‘automatic suspension’) unless the Court made an order bringing the suspension to an end on an application under Regulation 47H(1)(a). Under the 2015 Regulations, the relevant provisions are found at Regulations 95 (automatic injunction) and 96 (relief from the automatic injunction). 7.11 The drafting of the legislation is somewhat cumbersome. Pursuant to Regulation 96(1)(a), the Court may make an interim order bringing an end to the automatic suspension imposed by Regulation 95(1) if it considers that it would not be ‘appropriate’ to make an order requiring a contracting authority to refrain from entering into the contract (see Regulation 96(2)(b)). 7.12 Neither the 2006 Regulations nor the 2015 Regulations contain any specific guidance on the approach to be followed in this regard. Indeed, the Office of Government Commerce Response to the Second Public Consultation (paragraphs 46 to 48) in relation to the UK implementation of the 2007 Remedies Directive expressly concluded that it would be wrong for the Regulations to require the Court to adopt any particular approach (such as the American Cyanamid test), as this would be out of line with the general approach taken by legislation (including rules of Court) in relation to other proceedings. It does seem, however, that the Commission had in fact suggested its own guidance at Article 2(5) of the 2007 Remedies Directive, in the form of what might loosely be labelled a ‘balance of interests’ test, pursuant to which the review Tribunal (in this case the Court) should ‘take into account the probable consequences of interim measures for all interests likely to be harmed, as well as the public interest, and may decide not to grant such measures when their negative consequences could exceed their benefits’. Article 2(5) of the Remedies Directive did not expressly find its way into the 2006 Regulations as amended in 2009 (although a ‘balance of interests’ type test was included in the comparable Scottish and Irish legislation). Somewhat inconsistently, a ‘balance of interests’ test was expressly included in the equivalent legislation for procurements in the defence sector, the Defence and Security Public Contracts Regulations 2011 at Regulation 57(2). The Defence Regulations seek to implement into UK law European Directive 2009/81 on the coordination of procedures for the award of certain works contracts, supply contracts and service contracts by contracting authorities or entities in the fields of defence and security. The reason for the inconsistency in drafting between the Defence Regulations and the Public Contracts Regulations is not clear. 7.13 There is a considerable body of opinion among lawyers that the American Cyanamid test, as applied, is not the most appropriate basis on which to decide whether the automatic suspension should be maintained or terminated, since it gives too little weight to the importance of reviewing public authorities’ compliance with law and too much weight to the purely commercial question of whether an award of damages would adequately compensate a claimant.

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 7.14 Whether or not American Cyanamid was an appropriate test under the ‘new’ regime was first argued in Exel Europe v University Hospitals Coventry & Warwickshire NHS Trust,3 the first automatic injunction case before the TCC. The argument adopted was that the three-stage test is incompatible with the ‘balance of interests’ test in the 2007 Remedies Directive. The Judge concluded that Cyanamid did apply. It has been applied since (albeit there is a range of approaches), and it is fair to say that the Courts have not been particularly impressed by subsequent attempts to argue that the Cyanamid test runs contrary to European law.4 7.15 In practical terms, the result has been to make it extremely difficult for challenging contractors to maintain the automatic suspension. That is either because a remedy in damages is almost always adequate compensation for a disgruntled tenderer if it transpires that the procurement was unlawful, or because the contractor is unwilling to give an undertaking in damages. Even if damages are found to be an adequate remedy for the authority as well as the contractor, this will not in itself be sufficient to persuade the Court to maintain the injunction (see Openview Security Solutions v Merton LBC 5). 7.16 It seems, therefore, that Cyanamid is here to stay, and the overwhelming majority of challenges will not succeed.6 7.17 This is not always the case, and there are instances in which the Court has been persuaded to maintain the injunction, but these cases are very much confined to their own facts. Material factors in the Court’s consideration in deciding not to grant relief from the injunction under Regulation 95(1) have been as follows:
  • In Counted4 Community Interest Co v Sunderland City Council,7 the first decision under the 2015 Regulations, the Court held that damages would not be an adequate remedy for the claimant: if the suspension were lifted, then the workforce would be lost and it would take years to develop skills which were not available on the wider market. Further, the current service being supplied for the duration of the suspension did not create a risk to users of the service such that the public interest outweighed the prejudice to the claimant if the suspension were lifted.
  • In Bristol Missing Link Ltd v Bristol City Council,8 damages were held not to be an adequate remedy because the claimant was a non-profit-making organisation and lifting the suspension would have caused it to lose a third of its turnover, which would have had a knock-on effect on the other services it provided. If the

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    suspension were lifted, then that would effectively have ended the claim, and the Judge held that there was a public interest in the law relating to procurement procedures being properly conducted.
  • In NATS (Services) Ltd v Gatwick Airport Ltd,9 the injunction was upheld because there would have been great difficulty in estimating the damages, and further the loss of the contract would have significantly impaired NATS’s ability to secure international air traffic control contracts. There had already been a significant delay in the procurement process and a further delay had to be seen in that context. The authority’s resulting position of uncertainty was not determinative in the balance of convenience.
  • In DWF LLP v Secretary of State for Business, Innovation and Skills,10 the Court of Appeal lifted the injunction with regard to all successful bidders except those with whom DWF had originally tied for last place. If DWF won at trial, damages would not be an adequate remedy because they would be impossible to quantify fairly. By contrast, if DWF lost, then the Secretary of State’s damages would be easily quantified.
  • Particularly where the suspension is maintained, the TCC is likely to support and impose a rapid progress to trial (and may well use powers to control and define the scope of disclosure in such cases – as to which see below). For the consideration of expedition principles before contract award, see Joseph Gleave v Secretary of State for Defence.11
7.18 The following guidance is offered to parties which find themselves prosecuting, or defending, an application for an order to lift the automatic suspension under Regulation 96.
  • For economic operators, serious consideration should be given to whether or not the application brought by the authority to lift the suspension should even be contested. Starting proceedings (and the imposition of the injunction) does provide some commercial clout to a contractor looking to negotiate a solution, but the bulk of the jurisprudence suggests that this will be a hurdle which, more often than not, is overcome by the authority, with consequent costs sanctions imposed on the contractor (and the morale-boosting effect of an early win) if the application is contested. Moreover, consenting to the termination of the suspension may signal to the defendant that the claimant has confidence in their case.
  • There are circumstances where money alone will not offer an adequate remedy due to other consequences stemming from the contract being awarded to another party – for example, redundancies, loss of human capital through TUPE transfers, loss of market share or loss of reputation (see the remarks of the Court in John Sisk & Son Holdings Ltd v Wester Health and Social Care Trust 12 (although the injunction was lifted in that case)). If contractors wish to contest applications, then these are

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    the areas upon which strong evidence should be adduced (although given the odds against a contractor, it may still not ultimately be enough to get over the line).
  • Authorities should make the application early. Given the TCC’s willingness to accommodate expedited trials, a late application may well be met by the submission that the balance of convenience militates against the injunction being lifted because: (1) most procurements are usually fairly long in the tooth by the stage that litigation is commenced; (2) the authority has delayed in making the application; (3) the Court is able to fix a hearing in a relatively short space of time; and (4) there is no discernible prejudice to the authority in waiting a few weeks or months longer for the conclusion of a trial and handing down of judgment before being permitted (or not) to award the contract in question.
  • If authorities are sensitive about disclosure (as to which, see below), it is unwise to take the point that there is no serious issue to be tried unless the claimant’s case is clearly unsustainable on its face, without the need for evidence. The requirement that there be a serious issue is sometimes described as a low threshold, so in most cases (but not all, as identified in the cases cited above) the claimant will satisfy the requirement; an assertion that there is no serious issue may attract a successful application for early specific disclosure so that the contractor can rebut the allegation. Many authorities, ultimately, will concede the point (even if the concession is not made until exchange of skeleton arguments) rather than risk being ordered to provide documents that they would rather hold back for the time being. It is submitted that this is a sensible approach (apart from in the most extreme cases where the challenge is fanciful) and consistent with authority. For example, in Pearson Driving Assessments Ltd v The Minister for the Cabinet and The Secretary of State for Transport,13 the Court considered an application for early specific disclosure in the context of a pending section 47(H). At paragraph 15, the judgment states:

The court, on the application of Section 47 (H), will simply not be in a position to find facts which are controversial or at the very least, which are not supported clearly by uncontroversial, contemporaneous documentation. Therefore, insofar as there is reliance by the defendants on those sorts of facts, those are facts which cannot properly be deployed as grounds for deciding that there is no serious issue to be tried.

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