Application to lift the automatic suspension – bucking the trend

The Technology and Construction Court has just handed down its latest decision in the chain of applications by contracting authorities in procurement challenges to lift the automatic suspension. Bucking the recent trend, this time Mr Justice Fraser found in favour of the Claimants, and ordered that the suspension should remain in place until trial, finding that damages would not be an adequate remedy for the Claimants should they succeed at trial.

The claim had been issued by two NHS Trusts (Lancashire Care NHS Foundation Trust and Blackpool Teaching Hospitals NHS Foundation Trust) against a local authority (Lancashire County Council). It related to a procurement run by the Council for county-wide children's public health and nursing services, currently delivered by the Claimants, which was won by Virgin Care Services Ltd following a short procurement process. 

As we have previously reported, the Court, when deciding whether to lift the automatic suspension, will apply the test laid down in American Cyanamid v Ethicon [1975] AC 396 which requires it to look at (a) whether there is a serious issue to be tried, (b) whether damages would be an adequate remedy for the Claimant and (c) where the balance of convenience lies.  In the majority of recent applications decided under American Cyanamid in procurement cases, the Defendant has conceded that there is a serious issue to be tried, recognising that the Court cannot conduct a detailed exercise of considering the merits at such an early interim stage, which has meant that these applications have generally proceeded via a consideration of whether damages for the Claimant would be an adequate remedy.

Recent judgments have sent the message that a Claimant will only be likely to succeed in maintaining the automatic suspension in cases where:

• The loss of the contract would cause its business operations to irremediably fail (as per Bristol Missing Link v Bristol City Council [2015] EWHC 876)
• The loss of the contract would result in the loss of an entire workforce (as per Counted4 v Sunderland City Council [2015] EWHC 3898)
• The contract was highly prestigious such that the damage to the Claimant's reputation could not be remedied (as per NATS v Gatwick Airport [2014] EWHC 3133)

Even the public sector nature of a Claimant, in terms of the fact that it is non-profit making and often delivers other closely-related services that are in some way interlinked to the services in dispute and which would be negatively impacted, has previously not been enough, with the Court finding that even such apparently unquantifiable impacts can be remedied via a payment in damages (as per, for example, Kent Community Health NHS Foundation Trust v NHS Swale CCG and others [2016] EWHC 1393). 

Fraser J noted that in this case that the loss of the contract by the Trusts would result in the Trusts having "significantly to restructure their operations" making it "more difficult for the Trusts to deliver similar public services which they are contracted to deliver, and these will require new pathways to care to be developed".  Further, the loss of some 160 staff members would result in a reduction in the Trusts' ability "to maintain other contracts for other children's health services".  He concluded that there would be a "significant impact on the operational activities of the two Trusts, and as a result, upon the quality of healthcare generally which they provide".

The Court concluded therefore that damages would not be an adequate remedy for the Claimants if the claim succeeded at trial, and ordered that the automatic suspension should be upheld. This may indicate a welcome softening of the Court's position in applications to lift, potentially indicating a willingness to recognise the difficulties in quantifying non-monetary losses.  There has been much talk in procurement law circles about the inappropriateness of American Cyanamid in questions about the award of public contracts given the ease with which damages can be shown to be an adequate remedy and the obvious unattractiveness of a contracting authority having to pay for the same contract twice (and for a Claimant being limited to damages when the real prize is the contract).  It is possible that this case represents at least a slight recognition by the Court of this issue. 

Other points to note:

The Court also considered some other points of interest:

• While he stressed that this was not a determining factor, the fact that both parties were public bodies was discussed by Fraser J. He noted that "it could not be ignored" that if damages were an adequate remedy they would be being paid by one public body to another.
• Fraser J commented that this was the first application to lift decided following the Supreme Court judgment in NDA v EnergySolutions EU Ltd [2017] UKSC 34 which found that damages could only be ordered in procurement challenges if the breach was "sufficiently serious". Fraser J did not have to determine the matter before him on this point, but noted that "the point should be taken into account when considering the question of adequacy of damages as presenting an additional requirement which any claimant had to satisfy to recover damages at all". He noted that this may arise for further and more detailed consideration in the future.
• The Council sought to argue that it could not lawfully extend the current contract with the Trusts to ensure that the service continued pending trial on the basis that the contract had originally been entered into without procurement and was therefore unlawful of itself, despite the fact that the contract included express provision for a two-year extension. Fraser J had very little patience for this argument, noting that if the circumstances did not justify the lifting of the suspension, it would have to continue as a result of the lawful operation of the regulations, which could not then lead to a breach of the regulations. Further, he noted that the contract had been entered into in 2015 and had not been challenged at the time, where any challenge at this stage would be out of time.

If you would like to discuss this topic in more detail please contact Fran Mussellwhite.