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Case comment: Edenred (UK Group) Ltd v Her Majesty's Treasury and others [2014] EWHC 3555 (QB)

  • United Kingdom
  • Commercial and IT
  • Public procurement - Briefings

04-12-2014

A High Court judge has refused an application by Her Majesty's Treasury to lift the automatic suspension preventing it from proceeding with its plans to introduce Employer Supported Childcare ("ESC"), a new system of childcare support for working parents. Under government proposals, the ESC scheme would be replaced by a new scheme, known as Tax-Free Child Care ("TFC"), operated by National Savings and Investment (NS&I). All of NS&I’s operations are outsourced to a private company, ATOS. Edenred (UK Group) Ltd (“Edenred"), which provides services under the current scheme, objected to the Government's proposed reforms on the grounds that:

•  the new TFC scheme would involve the conclusion of a public services contract within the meaning of the Public Contracts Regulations 2006 (the “Regulations”) between two or more of the Defendants;

•  alternatively, the new TFC scheme would involve a material variation of a public services contract such that it would be necessary to hold a tender procedure in accordance with the Regulations.

The proceedings were issued on 29 August 2014 and an expedited trial was listed for the week commencing 24 November 2014. Notwithstanding the fact that the Court had ordered an extradited trial, Her Majesty’s Treasury issued an application to lift the automatic suspension. This application was heard on 27 October 2014.

The Court confirmed that when deciding whether or not to lift the automatic suspension, the principles established in American Cyanamid v Ethicon [1975] AC 396 should be applied without any weighting in favour of maintaining the automatic suspension. The first question for a Court to consider is whether the Claimant's case raised a serious issue to be tried. If so, a Court should then go on to assess whether damages would be an adequate remedy for either party in the event that (i) the Court decides to lift (or maintain) the suspension; and (ii) that decision ultimately proves to have been incorrect when the case is determined at trial. The Court should also consider whether the "balance of convenience" favours the lifting or maintaining of the suspension.

In this case, the parties accepted that the claim raised serious issues to be tried, particularly in relation to whether the provisions of the new TFC scheme fell within the scope of the existing contract or whether it could constitute a material change requiring a new competition to be run. As a result, the Court's reasoning focused on what the consequences would be for both parties if (A) the automatic suspension was lifted immediately; or (B) if the suspension was allowed to remain in place until after the conclusion of the trial approximately 6 weeks’ later.

The Court's decision

The Court accepted that a decision not to lift the automatic suspension would result in a delay to the implementation of a flagship government policy, which would be contrary to the public interest. Notwithstanding this potential damage to the public interest, the Court concluded that the automatic suspension should remain in place until the matter was heard at the expedited trial.

The Court accepted that Edenred would be left without an adequate remedy if the suspension was lifted and Her Majesty's Treasury proceeded with its plans to provide the new TFC scheme through ATOS (i.e. damages would not be an adequate remedy for Edenred). Although Edenred could potentially bring a claim for damages based on the lost opportunity to tender for a contract to administer the new TFC scheme, any assessment of damages in such a claim would involve an attempt to evaluate the outcome of a purely hypothetical tender exercise. The Court accepted Edenred’s agreement that the outcome of such an exercise would be entirely speculative and, as a result, damages would not be an adequate remedy. However, this also served to undermine Edenred’s argument that it would suffer significant financial harm if the suspension was lifted and no competition took place (i.e. Edenred would only have lost the opportunity to have taken part in a procurement process which it had no guarantee of winning).

The Court’s main reason for maintaining the automatic suspension appears to be the wider issues of public interest which, the Court ruled, would have been irreparably damaged if the suspension was lifted but Her Majesty's Treasury’s proposals were subsequently held to be unlawful. In such circumstances, lifting the suspension would result in a risk that a public contract for services worth approximately £160 million would be awarded without the competition required by the Regulations. The Court agreed that the Regulations were designed to serve an important public interest of promoting competition and fairness in the use of public resources; those interests would be damaged in an irreparable way if the suspension was lifted and the proposals did in fact turn out to be unlawful.

The Court ordered that the suspension should remain in place pending an expedited trial.

Comment

There have now been 6 reported cases in England and Wales where the automatic suspension has not been lifted, 3 of these having been heard within the past 6 months.

These latest cases reconfirm the applicability of the American Cyanamid test in relation to applications to lift the automatic suspension in procurement cases, notwithstanding arguments from some commentators that such an approach is not compatible with the EU law requirement on Member States to provide an effective remedy. This opinion is based on the argument that the American Cyanamid test is weighted too heavily in favour of Contracting Authorities, particularly when the requirement to provide a cross-undertaking in damages is taken into account.

Each case will turn on its own facts, but recent decisions suggest that the Courts are willing to maintain the automatic suspension in appropriate cases. This will particularly be the case where (i) there is an expedited trial so the period of delay is short relative to the length of the proposed contract; (ii) it would be difficult for the claimant to quantify its alleged losses; (iii) it is a high value contract where there is a clear public interest in ensuring that the competition has been run fairly; and (iv) lifting the suspension would expose the contracting authority (and ultimately taxpayers) to a significant liability in damages.

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