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The question of a “sufficiently serious” breach: a relevant consideration in the review of applications for the lifting of automatic suspensions?

  • United Kingdom
  • Competition, EU and Trade
  • Public procurement

05-04-2018

Case comment: (1) Lancashire Care NHS Foundation Trust and (2) Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 200 (TCC)

Summary

In a recent judgment of the new head of the TCC, Fraser J, Lancashire County Council’s application to lift the automatic suspension which applied to its decision to award a contract for public health and nursing services was refused on the basis that (1) damages would not be an adequate remedy for the Claimants; (2) the balance of convenience rested in favour of maintaining the automatic suspension; and (3) the matter could be dealt with at an expedited trial.

Although this judgment does not set out a new test to be applied when considering whether or not to lift an automatic suspension, it does provide for some interesting commentary on the subject. In particular, the Judge notes how the Supreme Court judgment in Nuclear Decommissioning Authority v Energy Solutions EU Ltd [2017] UKSC 34, which held that a claimant would only have the right to recover damages for breaches of procurement regulations which were “sufficiently serious”, should be considered when addressing the adequacy of damages. Full consideration of this point was not required in the present case but is likely to arise in future applications. Separately, Fraser J was of the view that contract extensions “for a short time pending a legal challenge to the procurement” would not constitute a breach of procurement regulations.

Facts of the case

Between September and November 2017, Lancashire County Council (the “Council”) ran a procurement for the provision of public health and nursing services, including mental health services, for children and young people across the county of Lancashire (the “Services”). The Council received two bids, one from Virgin Care Services Ltd (“Virgin”) and the other from Lancashire Care NHS Foundation Trust and Blackpool Teaching Hospitals NHS Foundation Trust (the “Trusts”), who were the incumbent suppliers of the Services.

The contract was awarded to Virgin, who had out-scored the Trusts by a margin of 4.07%. The bidders’ prices were virtually identical so 4% of the 4.07% related to the quality evaluation scores (i.e. just two quality marks separated the winner and the challenger). The Trusts issued a claim in December 2017, seeking an order setting aside the decision to award the contract to Virgin or damages in the alternative. The issuing of a claim by the Trusts triggered an automatic suspension under Regulation 95 of the Public Contracts Regulations 2015 (the “Regulations”), thereby preventing the Council from entering into the contract with Virgin. The Council applied to have the automatic suspension lifted, an application which, if successful, would allow the contract with Virgin to be entered into and confine the Trusts to a claim for damages.

The court’s decision

The courts determine whether or not to lift the automatic suspension on the basis of the American Cyanamid1 principles. These can be summarised as follows:

1. Is there a serious issued to be tried?

2. If so, would damages be an adequate remedy for the Claimant if the automatic suspension were to be lifted? and

3. If not, where does the ‘balance of convenience’ lie (essentially, considering who would be disadvantaged the most if the automatic suspension were to be maintained or lifted)?

The Council conceded that there was a serious issue to be tried, so the court did not dedicate any time to the first limb of the test and instead considered the second and third limbs.

Adequacy of damages

Considering whether damages would be an adequate remedy for the Trusts, Fraser J found that the redundancies and associated difficulties which would be faced by the Trusts if the contract was awarded to Virgin were important factors which indicated that damages would not be an adequate remedy. Fraser J concluded that the loss of the Trusts’ skilled staff and senior management as a result of the loss of the contract, and the considerable impact this would have upon the Trusts’ ability to provide services across other contracts, were “precisely the sort of effects…that cannot be compensated for by damages”.

Balance of convenience

Having come to the conclusion that damages would not be an adequate remedy, Fraser J went on to consider where the balance of convenience would lie. Referring to the brisk timetable of the procurement, the nature and subject matter of the Services, to whom they are provided and the importance to the public interest of the Services, Fraser J considered that the Council’s desire to award the contract quickly did not weigh strongly in the balance and that the balance was “overwhelmingly in the Trusts’ favour”. The court also considered this to be a case which could be brought to an expedited trial in a matter of months, and concluded that this also pointed in favour of a decision to refuse to lift the automatic suspension.

Points to note

Two interesting points were raised by Fraser J in his judgment.

Illegality

The Council argued that (i) a refusal to lift the automatic suspension would necessitate an extension to their existing arrangements with the Trusts; and (ii) any such extension would be a breach of the Regulations.

Fraser J was firmly of the opinion that any extension to existing arrangements required as a result of an automatic suspension would not amount to a breach of the Regulations, irrespective of whether the current contract was entered into in breach of the Regulations or whether or not it contained provisions allowing it to be extended: “I cannot, for myself, see why continuing the existing current provision of the services by the Trusts for a short time pending a legal challenge to the procurement exercise, whilst the Council is under an automatic suspension imposed by the Regulations themselves, could be said to be a breach of the Regulations. This would be the case whether there was a contractual option within the existing contractual obligations which can be exercised or not. The suspension is imposed specifically by the Regulations if a claim form is issued within a particular period. Those same Regulations set out the circumstances in which that suspension can be lifted. If those circumstances, in any particular case, do not justify at law the lifting of the suspension, then the suspension must continue as a result of the lawful operation of the Regulations themselves. I cannot see how that can lead to a breach of the Regulations”.

Adequacy of damages

As noted above, one of the key issues to be considered when deciding whether or not an automatic suspension should be lifted is whether damages would be an adequate remedy for the claimant. As stated by Brown LJ in Fellowes & Son v Fisher [1976] 1 QB 122:

“The governing principle is that the court should first consider whether, if the claimant were to succeed at trial, he would be adequately compensated in damages. If damages were an adequate remedy and the defendant would be in a position to pay them, then an interim injunction would ordinarily not be granted.”

When considered in the context of an application to lift the automatic suspension, this principle would ordinarily require the suspension to be lifted if damages would be an adequate remedy for the claimant if it were to succeed at trial. However, the concept of adequacy of damages has developed in the context of procurement cases, and it now appears settled that, as per the test in Covanta Energy Limited v MWDA [2013] EWHC 2922 (TCC), “the court must assess whether it is just, in all the circumstances, that the claimant be confined to his remedy of damages”. Furthermore, such remedy must be an effective remedy2. It is in relation to the question of whether or not damages should automatically be seen as an effective remedy for these purposes that Fraser J felt a “novel” point arose from the recent judgment of the Supreme Court in the case of Nuclear Decommissioning Authority v Energy Solutions EU Ltd [2017] UKSC 34 (”NDA”).

In NDA, the Supreme Court held that a claimant no longer has an automatic right to damages for breach of the procurement regulations. Instead, damages will only be awarded if a breach is “sufficiently serious”. In the present case, Fraser J posed the following question: “If a breach has to be “sufficiently serious” … to give an entitlement to damages, how (if at all) is that to be taken into account when the court is faced with an application to lift the automatic suspension where adequacy of damages is a consideration?”.

In this case, both parties agreed that (i) the court could not reach a decision at an interim hearing as to whether the alleged breaches were “sufficiently serious” to justify an award of damages; and (ii) this additional hurdle to recovering damages should be taken into consideration when assessing the adequacy of damages – presumably making it more difficult to prove that damages would be an adequate remedy and therefore militating in favour of a decision to maintain the suspension. In this case, Fraser J found that damages would not be an adequate remedy for various reasons without the need to consider whether damages would be an “effective” remedy (which in turn would affect whether they should be considered to be an “adequate” remedy). However, he noted the relevance of this issue and expressed the view that this might require fuller consideration in future cases.

Comment

It seems from the judgment that the consideration of whether a breach is “sufficiently serious” is going to play a more prominent role in relation to questions as to the adequacy of damages in future applications to lift the automatic suspension, particularly in those cases where a court would otherwise be inclined to find that damages would be an adequate remedy.

Until we have greater clarity on how this issue is likely to be dealt with, parties will be faced with some interesting tactical decisions. For example, should contracting authorities concede that an alleged breach of the regulations would, if proven, be sufficiently serious to support an award of damages, thereby removing the argument that a claimant would not have an effective remedy in damages if the suspension was lifted? Conversely, should claimants argue that breaches are not serious enough to justify an award of damages and, as a result, lifting the suspension would confine the claimant to an ineffective remedy? Both positions would seem counter-intuitive in the context of the litigation as a whole but taking the contrary position may reduce the force of the relevant party’s arguments in the context of the application to lift.

Separately, it is possible that in considering this issue further, the Court might come to the view that the American Cyanamid principles, only require it to consider whether, in the event that the claimant is successful and damages are available to it (because the breach is “sufficiently serious”), damages would be an adequate remedy. In other words, the court may conclude that the question of whether damages might or might not be available to the claimant, depending on whether the breach is deemed to be “sufficiently serious”, is not relevant in determining whether or not to lift an automatic suspension.

 


 

1. American Cyanamid Co –v- Ethicon Limited, [1975] AC 396

2. Group M UK Ltd v Cabinet Office [2014] EWHC 3659 (TCC)

 

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