Contracting authorities have been successful in their application to lift the ‘automatic suspension’ in two-thirds of TCC cases since 2017. An analysis of the 15 ‘suspension judgments’ from 2017 onwards shows that the automatic suspension (an injunction preventing the authority from signing a procured contract were it is under legal challenge) was lifted in 10 out of 15 cases.
The tally after the latest decision – Practice Plus Group v NHS Commissioning Board – now stand at 11 out of 16 cases. Aside from its facts, the decision in Practice Plus offers little which is truly novel. The core – as in all suspension lifting judgments – is an application of the American Cyanamid principles to the specific facts relied on in the parties respective witness statements, and the arguments of counsel. However, it proves a useful lens with which to look at the hurdles that claimant -challengers must overcome, at each stage of the American Cyanamid test, in order to successfully maintain the automatic suspension.
A case for a system-eye-view of both American Cyanamid and ‘Sufficiently Serious’?
More broadly, with amendments to the Procurement Bill currently under debate in Parliament, there is valuable opportunity to consider whether the American Cyanamid test or indeed the proposed revised test in the Procurement Bill delivers the right balance as a mechanism for determining:
(i) those claims whether the suspension should be upheld
a) keeping alive for the Claimant the prospect that it will win the contract if its challenge is ultimately successful, and
b) for the Defendant avoiding the ‘pay twice’ risk and enabling it to award the contract to the bidder that ‘should have won’
c) but at the expense of holding up delivery of the contract; and
(ii) those where the suspension should be lifted,
a) meaning that the Claimant is effectively left to pursue a ‘damages only’ action, and
b) the Defendant is at risk of having to ‘pay twice’ if the Claimant is ultimately successful (both paying for the contract it actually awarded, and paying damages to the successful challenger),
c) but where the Defendant gets the benefit of being able to immediately proceed with the contract from the point the suspension is lifted.
This issue has come into starker contrast following the decision in Braceurself v NHS England in which (the Court having lifted the suspension confining Braceurself to the remedy of damages, and Braceurself establishing at Trial that it should have rightly been awarded the contract), the Claimant was left without an effective remedy after the Court determined that the Defendant authority’s breach of procurement law was not ‘sufficiently serious’ to give rise to a right to damages. Beyond the American Cyanamid and ‘Sufficiently Serious’ tests, a further (often determinative) element is whether the Claimant is willing to give the cross-undertaking in damages which is often referred to as being “the price” for the suspension remaining in place.
There has been a significant amount of case law on this issue over the last few years, and particular the last few months:
In our last Procurement Expert View (Expedited Trials and Automatic Suspensions, September 2022) we analysed the last 18 months of cases on this issue, and considered whether the revised test in the Procurement Bill might result in a change in outcomes.
Following the handing down of the Braceurself judgment, we revisited this analysis (see Braceurself Part 2: Successful Claimant denied damages as breach was not “sufficiently serious”) concluding that it was potentially problematic that it now appeared that procurement law can operate (and indeed in Braceurself did operated) so that the automatic suspension is lifted explicitly on the basis that the Claimant should be compensated in damages if it ultimately succeeds, only to later find that (applying the ‘sufficiently serious’ test) the successful Claimant is not entitled to damages and potentially left without a substantive remedy at all.
Last month, we noted that, on the highly unusual facts of Inhealth Intelligence v NHS (analysed in our article Claimant obtains a suspension of a live procurement with no cross-undertaking in damage), the Court took the opportunity in the first suspension judgment following Braceurself to expressly acknowledged that one reason a Claimant might now want the suspension to remaining in place was that “Damages… are not always what an aggrieved bidder wishes to obtain. This is for at least two reasons. Firstly, it might be difficult for such a bidder to obtain an award for damages, given the requirement for there to have been a sufficiently serious breach by the contracting authority….” This is an explicit judicial recognition of the risk that the combined effect of these two tests (the American Cyanamid test resulting in suspension lifting, and the ‘sufficiently serious test’ resulting in unavailability of damages), might be to leave the Claimant without a remedy, a risk which ought to be acknowledged and brought into the balance in the suspension lifting test.
These are the system issues and recent case law developments, which formed that background to this latest case of a challenger (Practice Plus) seeking to persuade the Court that the automatic suspension should remain in place, preventing the authority (NHS Commissioning Board) from contracting with its preferred bidder.
Test Limb 1: Was there a serious issue to be tried?
In Practice Plus, the contracting authority accepted that there was a serious issue to be tried. This is common. In over 75% of cases since 2017 there has been no attempt by the contracting authority to argue this point. We are not aware of a case in which an authority has argued (rather than conceded) this point and succeeded in persuading the court that there was no serious issue to be tried.
Test Limb 2: If so, would damages be an adequate remedy for the claimants if the suspension were lifted and they succeeded at trial?
If damages are an adequate remedy, that will normally be sufficient to defeat the injunction (i.e. the suspension will be lifted), although that will not always be so. In Practice Plus, despite some distinctly innovative arguments, the Claimant failed to persuade the Court that that any of the potential losses it alleged it would suffer (insofar as they were even recoverable) could not be compensated in damages. The application to lift therefore succeeded on this ground alone (although the Court did go on to consider the other Limbs of the test).
The contracting authority made well-travelled arguments. The Claimant was a standard limited company; its primary objective was to deliver value for its members (i.e. winning the contract served no wider, unusual objective); the value it would have delivered for its members could be easily quantified; the contract was not of the size that a win or loss would be an existential threat to the business (as in multi-million/billion pound procurements for nuclear decommissioning (ES v NDA) or rail franchising (Stagecoach v DfT))
The Claimant ran a novel and thought-provoking but ultimately unsuccessful argument about the potential impact of the upcoming Procurement Act (explained further below). However, it also made some slightly more well-travelled arguments, the first and second of which might have held more weight in an ‘existential threat’-sized contract, but were not successful here:
i) The Claimant asserted that damages would not be adequate because the loss of the contract would result in it having to make redundancies leading to a ‘knowledge drain’ from its business. That is often the case for a losing bidder (particular if they are the incumbent and cannot redeploy the staff previous deployed on the former contract or bid team). However, in this case (as in others) the court said such losses could be quantified in damages. So this was not an argument for damages being an inadequate remedy.
ii) Practice Plus further argued that it would suffer damage to its general commercial reputation as a result of having lost these contract. This can be a factor for damages being an adequate remedy (see OpenView), but in this case “evidence comes nowhere near satisfying those requirements and does not rise above the level of assertion”.
iii) The Claimant also sought to argue that, if the suspension was lifted (so that the claim proceeded as a ‘damages only claim), and then the Claimant succeeded at Trial, it would suffer a specific loss of reputation with public bodies as a result of forcing the NHS to ‘pay twice’ (i.e. pay both the supplier to whom it awarded the damages and pay damages to Practice Plus). This argument (unsurprising) received short shift – the Court take the unusual step of specifically noting that it was “distinctly unimpressed” by the claimant’s argument here – as it could be made in every procurement case. The Court noted that this ‘pay twice risk’ “for an unlawful procurement exercise is integral to the system and does not seem to me to be any reason for saying that that very remedy is inadequate.”
Since 2017, in those cases in which the automatic suspension has been lifted, more than half turned on the fact that damages would be an adequate remedy for the Claimant. This illustrates the difficulty of succeeding under this head. However, some arguments that appear to hold more weight are those where:
i) the Claimant can show that the contract was of the size that a win or loss would be an existential threat to the business, although ironically in those cases the cost of the cross-undertaking in damages that a Claimant would have to be prepared to give is so large that the Claimant cannot give it, and so the suspension is lifted on that basis (see the West Coast Suspension Lifting judgment).
ii) As was explicitly acknowledge in this case (see below re the Procurement Act), where there would be significant difficulty in estimating the extent of the Claimant’s damages. This might be a reason why either damages would not be an adequate remedy (Limb 2) or the balance of convenience (see Limb 4 blow) is in favour of continuing the suspension.
The Practice Plus judgment showcases a number of arguments which have tended to be unsuccessful in tipping the balance. Against the background of recent cases it is also notable that the ‘Braceurself risk’ posed by the ‘sufficiently serious’ test was not argued, or at least not acknowledged in the judgment.
Test Limb 3: If not, would damages be an adequate remedy for the authority if the suspension remained in place and it succeeded at trial?
Damages would have been an inadequate remedy for the defendant if the suspension was “wrongly” upheld. The Court held that “the interference with [the NHS’s] public functions cannot be compensated in damages. Further, any deficiency in healthcare provision to serving prisoners by reason of delay in making the new contracts is likely to result in increased burdens on the general NHS when the prisoners are released into the community, a cost incapable of calculation” (para 24).
It is often the primary purpose of authority witness statements filed to in support of a lifting application to explain the time critical importance of being able to deliver the contract without delay, and why it should therefore not be suspended further.
Limb 4: Where there is doubt as to the adequacy of damages for any or all of the parties, which course of action is likely to carry the least risk of injustice if it transpires that it was wrong? In other words, where does the balance of convenience lie?
The Court held that, even if he had reached the opposite conclusion at Limb 4, he would have held that the balance of convenience fell in favour of lifting the suspension for the reasons discussed under the preceding limbs.
(Unofficial) ‘Limb 5’: The ability to give a cross-undertaking in damages
Even if a claimant can satisfy the Court that, on application of the American Cyanamid principles, the suspension should be maintained, there is the interlinked issue of whether the claimant can or will give the cross-undertakings in damages which is the standard quid pro quo for maintaining a suspension. The purpose of the cross-undertakings in damages is to cover the losses of the contracting authority (and potentially the winning bidder) for the losses they would suffer as a direct result of the suspension ‘wrongly’ remaining in place should the court find the procurement to be lawful at trial (i.e. the Claimant ultimate loses).
As discussed in our article last month, the Court does not actually have the power to order a party to give a cross-undertaking in damages. However, a Court can refuse to maintain the suspension unless a suitable undertaking is given.
The issue did not arise in Practice Plus because the Court determined the suspension should be lifted. However, the requirement to give a cross-undertaking can be prohibitive; a challenger cannot face the risk exposure which would be the quid pro quo for the suspension remaining in place. Indeed, Camelot recently cited the commercial risk associated with giving the required cross-undertakings in damages as the primary reason for abandoning its appeal of the decision to lift the automatic suspension preventing the Gambling Commission’s entering into the National Lottery operating licence with Allwyn Entertainment.
Therefore, to successfully maintain the suspension, a challenger not only has to persuade the Court that this is one of the rare cases where application of the American Cyanamid test favours maintaining the suspension (only 5 out of 16 TCC cases since 2017) but also has to have the appetite for the sizeable risk exposure that comes from giving the cross-undertaking in damages. Unsurprisingly, these are therefore rare cases.
Postscript: The Procurement Act and the Future of American Cyanamid
Although many stages of the Parliamentary process remain, the Procurement Act is currently on course to become law in late 2023. In many respects the Act is expected to be transformative.
As noted above, in respect of whether damages would be an adequate remedy for the Claimant, Practice Plus deployed a novel argument that was unsuccessful in this case, but does provide food for thought. It argued that – assuming the Procurement Bill currently passing through Parliament became law (visit our P.A.T.H website to find out more) – the contract authority would undertake far fewer (or even no) such procurements in future; this meant Practice Plus was not just losing out on this opportunity but would also lose out of future procurements (a so-called “loss of chance” argument). This is relevant because previous cases have held that a difficulty in assessing potential future losses (such as “loss of chance” damages) may be a reason to allow the suspension to remain in place as, if it is lifted and then the Claimant succeeds in establishing that it should have won, it will face difficulties in establishing what it has lost.
The reason this argument failed here was because, even accepting for the sake of argument that the Procurement Bill will become law and would mean (as was to certain extent common ground) that the contracting authority had greater optionality to favour an existing service provider, this did not amount to a ‘loss of chance’ recognised in law. The reasoning here is a bit legalese, but the essence is that:
i) ‘Loss of chance’ is typically available in cases in which a claimant is excluded from something it would have had a chance of winning;
ii) If successful in its argument then the claimant can obtain damages in accordance with its likely prospects of winning (i.e. the chance of winning it has been excluded from competing for) rather than damages being assessed on the binary basis it definitely would have won or lost the opportunity
iii) In this case, the Claimant would not beexcluded from competing for further opportunities; there might simply be fewer opportunities and it might have worsening prospects of winning them.
iv) Further it appeared to the court that insofar as there might be any loss flowing from this change of law “… the loss is, in fact, not reflective of a recoverable head of damage… [T]he court has no reasonable degree of confidence that a failure to impose interim relief will lead to financial losses that would be significant and irrecoverable as damages.” Any loss was “extremely speculative. It relies, first, on legislative change that has not taken place, albeit that it seems probable that it will. But it relies, second, on the concurrence of a host of circumstances…”.
As analysed in our Procurement Expert View on Expedited Trials and Automatic Suspension, the test for maintaining the automatic suspension is expected to change under the Procurement Act. However, as also examined in that article, it seems likely the successfully maintaining the suspension will continue to be a rare feat for any challenger seeking to win the contract, and not just damages.
In Camelot v Gambling Commission, the essential facts which were the backdrop to the suspension hearing were: (i) a highly prestigious contract (The National Lottery); (ii) the loss of which would be terminal to Camelot (the long term incumbent); (iii) where an expedited trial was available; and (iv) the contracting authority’s position was that a delay to implementing the new contract would delay (but not lose) the delivery of public benefits. That these were not sufficient to tip the scales in favour of lifting the suspension is demonstrative of the difficulty a Claimant faces in establishing the suspension should remain in place.
This article was written by members of our Procurement Team: Chris Jackson (Partner), Lloyd Nail (Senior Associate) and David Harrison (Solicitor).
References
Practice Plus Group Health And Rehabilitation Services Ltd v NHS Commissioning Board [2022] EWHC 2082 (TCC) (20 July 2022): http://www.bailii.org/ew/cases/EWHC/TCC/2022/2082.html
Stagecoach East Midlands Trains Ltd & Ors v Secretary of State for the Department of Transport (Re 2019 Rail Franchising Litigation) [2019] EWHC 2922 (TCC)
Energysolutions EU Ltd v Nuclear Decommissioning Authority [2016] EWHC 1988 (TCC)
Openview Security Solutions Ltd v The London Borough of Merton Council [2015] EWHC 2694 (TCC) (28 September 2015)