The Supreme Court decided last year in Nuclear Decommissioning Agency v Energy Solutions EU Ltd [2017] UKSC 34 (“the NDA case”) that a claimant no longer had an automatic right to damages for a breach of the public procurement rules. Instead the Supreme Court imposed a “sufficiently serious” requirement for a breach to entitle a party to damages using the Court of Justice of the European Union ruling in Francovitch (Case C-479/93 Francovitch (1995)) as a justification for its stance.
That decision came as a bit of a shock to many, especially in view of the accepted past interpretation of the Courts that any breach entitled a claimant in procurement proceedings to be awarded damages provided there was a causal link between the harm and the breach of duty. The ramification of this ruling is now being felt in hitherto unpredicted ways. A causality of this ruling appears to be applications by contracting authorities to lift the automatic suspension imposed once claimants have commenced proceedings for breach of public procurement rules.
The recent High Court decision in Lancashire Care NHS Foundation Trust, Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 200 (TCC) (8 February 2018) seems to confirm that the disappearance of the automatic right to damages is likely to prejudice contracting authorities’ chances of successfully challenging automatic suspensions in the future.
Background
The Lancashire Care case concerned an application by Lancashire County Council, as the awarding contracting authority, to lift an automatic suspension on the award of a contract for public and mental health and nursing services to be provided to children and young persons pursuant to the Public Contracts Regulations 2015 (SI 2015/102) (PCR 2015). The suspension had been imposed due to Lancashire Care NHS Foundation Trust and Blackpool Teaching Hospitals NHS Foundation Trust (the Claimants”) issuing a claim form against Lancashire County Council (“the Defendant”) in connection with a procurement run by the Defendant. The Claimants were the incumbent providers of those services and they challenged the procurement when it was announced a third party had been successful in the competition.
As readers may know under Regulation 95 of the PCR 2015 where a contracting authority is aware that a claim form has been issued in respect of its decision to award a contract which has not been entered into, the authority may not enter into the contract. That requirement continues until, amongst factors, the court brings the requirement to an end by interim order under Regulation 96(1)(a) of the PCR 2015. When deciding whether to make such an order, the court must consider whether or not it would be appropriate for the contracting authority to be prevented from entering into the contract. The test under the PCR 2015 explicitly incorporates the principles set out in American Cyanamid Co (No 1) v Ethicon Ltd [1975] UKHL 1 used in assessing interlocutory injunction applications. These principles were more recently supplemented in the case of Covanta Energy Ltd v MWDA [2013] EWHC 2922 (TCC)
In that case the Court held that in deciding whether to lift the suspension, the Court needed to have regard to whether there is a serious issue to be tried and if there was:
– whether damages are an adequate remedy for a party who was injured by the grant of or the failure to grant the injunction, and
– in addition a more general test as to where the balance of convenience lies.
The Court held that in applying this test it must assess whether it is just, in all the circumstances, that the claimant be confined to his remedy of damages. In addition following the case of Alstom Transport v Eurostar International Limited [2010] EWHC 2747 (Ch) 80 this test was further modified to allow that the public interest should be taken into consideration as part of the balance of convenience test.
Decision in Lancashire Care
In the present case, the High Court refused the Defendant’s application to lift the automatic suspension. Having concluded that there was a serious issue to be tried the Court justified its decision upon the following grounds
(i) Are Damages an Adequate Remedy?
The Court had regard to whether it was legitimate to consider whether, if the lifting of the suspension were to be ordered, the Claimants would be left with an effective remedy.
In this context the Court discussed the judgment from the NDA case. According to the Supreme Court’s judgement, a claimant no longer had an automatic right to damages. Their decision imposed a “sufficiently serious” requirement for a breach to entitle a party to damages. Accordingly this raised the question as to how (if at all) the conditional availability to damages was to be taken into account when the Court was faced with an application to lift the automatic suspension. The Court in the present case further concluded that at an interlocutory stage it could not come to a decision on the question of whether the alleged breaches were or could be classified as “sufficiently serious”. Therefore this point should be taken into account when considering the question of adequacy of damages as it presented an additional requirement which any claimant had to satisfy to recover damages at all.
As a result of this analysis the Court concluded that damages would not therefore be an adequate remedy for the Claimants.
On the other hand damages were likely to be an adequate remedy as the Defendant did not have to satisfy any conditional right to damages if its award decision was eventually upheld by the Courts.
In any event there was a very small margin between the costs of the winning bidder and the Claimants as well as the benefit that in the interim at least the actual services would remain uninterrupted up to the date of the judgment in the proceedings. Therefore the inadequacy of damages to the Claimants was conclusive in this application.
(ii) Balance of Convenience
The Court also summed up its attitude to where the balance convenience lay.
They found that the impact of the loss of the contract was important as part of its consideration as to whether to lift the automatic suspension. The Court recognised that, as the Claimants were the incumbent providers of the services, the loss of the contract would have severe consequences for their business including its inevitable reorganisation. Such reorganisation was likely to involve redundancies. In addition it would also have effect on the provision of services to children and young persons. The loss of the contract would also force the Claimants to restructure their operations for a second time having only just recently submitted their business to some widespread reforms relating to how healthcare was delivered across the region. The considerable cost and disruption would make it more difficult for the Claimants to deliver other similar public services which they had contracted to deliver.
The Claimants estimated that the loss of the contract would cost them over £2 million in lost funding for sustainability and transformation. It would also lead to the loss of over 160 skilled employees and this in turn would result in a reduction in capacity to maintain other contracts for other children’s health services over and above to the ones that were the subject of the procurement challenge. Accordingly the Claimants argued that these effects could not be compensated for by damages. There would be a significant impact upon the operational activities of the Claimants, and as a result, upon the quality of healthcare generally which they provided.
Therefore it concluded that the balance was overwhelmingly in the Claimant’s favour. Although it understood the Defendant’s wish to get on with the new contract, this did not weigh much in the balance. Maintaining the suspension therefore appeared to present the least risk of an injustice. An additional factor in favour of the Claimants was the availability of an expedited trial in this case.
In terms of the public interest in this case, the Court pointed out that all three of the parties to the litigation were publicly funded bodies. Whilst the Claimants would (had they been successful in the competition) have provided the services without profit, they would have recovered contributions to their overheads through payments from the Defendant in respect of their services. Any damages would be paid also by a publicly funded body, namely the Defendant. It was at least a factor that if damages were an adequate remedy, they would be being paid by one public body to another. There was a special circumstance in this case that fell to be considered generally.
Comment
Whether this case will in future be distinguished on its facts is to be seen. But this is the first case in which an application to lift an automatic suspension has been evaluated by the courts in the light of the decision of the Supreme Court in the NDA case.
It does appear to me that the Supreme Court ruling has fundamentally changed the way the relevant tests adopted by the Courts will operate in future applications to lift automatic suspension cases by contracting authorities. Inevitably it will make it more difficult for them to prevail.
The conditional availability of damages for breach of the public procurement rules has raised the question as to how (if at all) it should be taken into account when the court was faced with an application to lift the automatic suspension. The Court was strongly of the opinion that it could not be expected to assess whether at an interlocutory stage the alleged breaches were or could be classified as “sufficiently serious”. The effect of this conclusion is likely to be that in most cases there would be a strong presumption that damages might not be available to the claimants and therefore could not be regarded as an adequate remedy.
Case
Lancashire Care NHS Foundation Trust, Blackpool Teaching Hospitals NHS Foundation Trust v Lancashire County Council [2018] EWHC 200 (TCC) (8 February 2018).
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