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Comment and Analysis Masthead

Heavy lifting

Tick iStock 000013381987XSmall 146x219James Goudie QC looks at the lessons to be learned from the latest High Court ruling on whether the automatic suspension of a contract award should be lifted.

The case of Lancashire Care NHS Foundation Trust v Lancashire County Council (2018) EWHC 200 (TCC) concerns yet another application to lift an automatic suspension on the award of a contract imposed by virtue of the claimants issuing a claim form, within the necessary time period, challenging the results of a procurement exercise for that contract in which they were unsuccessful. Fraser J refused to lift the automatic suspension.

The procurement the subject matter of these proceedings concerns Public Health and Nursing Services to be provided to children and young persons from birth up to the age of 19, including services that concern children and adolescent mental health, across the county of Lancashire. It therefore involves a sizeable population and includes some of the most vulnerable members of society. The procurement exercise and the contract are both subject to the Public Contract Regulations 2015 (“the Regulations”).

The two claimant trusts (“the Trusts”) are the incumbent providers of these services to the Lancashire County Council (“the Council”) and there can be no question of there being any interruption in the provision of these services. Apart from any other considerations, the Council is statutorily obliged to provide such services to the residents of Lancashire under the Health and Social Care Act 2012, and will and must continue to do so. These services are being provided now by the Trusts and the contracts under which they do so expire on 31 March 2018. Were it not for the automatic suspension, from 1 April 2018 onwards (for a five year term) these services would be provided by the winning bidder in the procurement exercise the subject of these proceedings, namely Virgin Care Services Ltd (“Virgin”). Only the Trusts, and Virgin, bid for the supply for the Services in the procurement exercise.

Fraser J, from paragraph 14 of his Judgment, recited the legal principles. He stated, at paragraph 16, that the principles to be applied on such an application are widely accepted as being analogous to those that are applied on an application for an interim injunction. This test therefore now, under the Regulations, explicitly incorporates the American Cyanamid principles as summarised by Coulson J in Covanta Energy Ltd v MWDA [2013] EWHC 2922 (TCC). The first question is whether there is a serious issue to be tried. If there is, then there are two further questions: namely whether damages are an adequate remedy for a party who was injured by the grant or the failure to grant the injunction, and the more general question as to where the balance of convenience lies. These two questions have to be considered in stages because the relevance of the availability of an adequate remedy in damages, either to the claimant seeking the injunction or to the defendant in the event that an injunction is granted against him should always be considered first. The public interest should be taken into account as part of the balance of convenience.

The court must assess whether it is just, in all the circumstances, that the claimant be confined to his remedy of damages. In Group M UK Ltd v Cabinet Office (2014) EWHC 3659 (TCC) Akenhead J held that it must be legitimate, when considering all interests likely to be harmed, to have regard to whether, if the lifting of the suspension were to be ordered, the claimant would be left with a remedy, “and that must include an effective remedy”. In that context a novel point arose. A claimant no longer has an automatic right to damages since the decision of the Supreme Court in Nuclear Decommissioning Agency v Energy Solutions EU Ltd [2017] UKSC 34. To what extent, if at all, can and should this be addressed when considering the adequacy of damages? If a breach has to be “sufficiently serious” to qualify as satisfying the second Francovich condition, 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?

This point was not fully argued before Fraser J on the Council’s application, and in the particular circumstances of this case it was not necessary for it to be fully argued. Both parties were agreed that at an interlocutory stage of a case – and in particular, at the interlocutory stage in this particular case on these particular facts – the court could not come to a decision on the question of whether the alleged breaches were or could be classified as “sufficiently serious”. Both parties were agreed 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.

The Council argued that because no procurement competition was conducted for the current supply of the services by the Trusts (even though a contract was entered into between the Council and the Trusts), then there are residuals doubts or concerns about the legality of the Council using the Trusts to continue to provide these services if the automatic suspension is not lifted. These doubts, which are essentially to the effect that the Council ought already to have conducted an open competition and are concerned that they did not do so, will only be magnified (or continued) if the Court leaves the automatic suspension in place. A different way of expressing this same concern is to state that the Council is extremely reluctant to operate the contractual option as that will continue the current unsatisfactory state of affairs.

Fraser J dealt with this point first. He said that there were a number of answers to it, and they all arrive at the same point, namely a conclusion that there is nothing in this argument. These included that 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 lawful operation of the Regulations themselves. Fraser J could not see how that can lead to a breach of the Regulations.

There was also a further point. It would be odd (to say the least) that if the Council were in breach of its legal obligations in awarding the existing contracts to the Trusts, it could rely upon its own breach in this respect and be in a stronger position concerning its application than if it had not been in breach of the Regulations in the first place.

Fraser J, at paragraph 37, rejected any submission that a failure to lift the automatic suspension would lead the Council to be acting unlawfully. There was an associated point. The Council argued that a failure to lift the suspension would mean that the Council had to continue in contractual relations with two Trusts with whom it was in litigation. That was the case, but again, Fraser J regarded this is a point of no import. He had no doubt that healthcare staff are sufficiently professional that a procurement dispute in the Technology and Construction Court in London would not affect the day to day provision of healthcare services to children in Lancashire, or the relations between the parties at operational level.

Fraser J’s analysis was that there was a serious issue to be tried. This therefore meant that the next steps in the process had to be addressed. The correct approach was firstly to decide the question of whether damages would be an adequate remedy.

Fraser J said, at paragraph 39:-

“39.      In my judgment, the fact that the incumbent providers of the Services are NHS Trusts is an important factor. Any incumbent provider of any service who is then unsuccessful in a procurement competition for those services will face inevitable reorganisation of its business as a result of that lack of success. Such reorganisation will (very often but not invariably) involve redundancies. However, here, the reorganisation is not just to the staff, or even in relation to the provision of Services to children. The evidence served for the Trusts makes it clear that the Trusts only recently restructured their operations to deliver these Services, and if they lose the procurement the Trusts will have significantly to restructure their operations a second time. This is a restructuring of delivery of healthcare across the population, and what are called “pathways” which are delivery routes through which healthcare is supplied. In addition to the cost and disruption that will cause – which I find would be considerable — the loss of the Contract will make it more difficult for the Trusts to deliver other similar public services which they are contracted to deliver, and these will require new pathways to care to be developed. All of this reorganisation is different to the staff situation, which in a sense is inevitable (or to put it another way, is an inevitable consequence for any incumbent bidder of having lost the bid). The impact upon the provision of healthcare as a whole to those in the catchment areas of the two Trusts is said to be considerable and I accept that.”

There would be a significant impact upon the operational activities of the two Trusts, and as a result, upon the quality of healthcare generally which they provide. Fraser J found that damages would not be an adequate remedy for the Trusts. This is the same result whether that question is considered first in isolation, or whether the same point is approached as an issue of the justness, in all the circumstances, of the Trusts being confined to their remedy of damages. The answer is one favourable to the Trusts on this application whichever way it is framed.

On the other hand, damages would be an adequate remedy to the Council. Given the very slim difference in the costs of provision of the Services by the Council compared to Virgin, the successful bidder, the financial differential would in any event either be small or non-existent. But even if that were not the case, the actual services would remain uninterrupted up to the date of the judgment in the proceedings, and there would be essentially an accountancy-type exercise to compare and compute the financial loss after a trial. That is an entirely different matter, and of a different nature, to the damage that would be caused to the Trusts were the suspension to be lifted and the Trusts succeed at trial.

Fraser J considered the inadequacy of damages to the Trusts to be conclusive on this application. Moreover the balance of convenience was overwhelmingly in the Trusts’ favour. The only point in the Council’s favour is its stated intention and preference to bring Virgin on board as soon as possible, together with the mobilisation period required by that provider. Given the nature of the Services, their subject matter, and the sector of the population for which they are provided (the children and young people of Lancashire) and the importance to the public interest of these Services, a desire by the Council to get on with the new contract (although entirely understandable) did not weigh much in the balance. Maintaining the suspension was a course that had “the least risk of injustice”. There will be no break at all in the provision of the Services as the Trusts will continue to provide them, and have undertaken to do so. The least risk of injustice was clearly to maintain the automatic suspension. The application by the Council to lift the automatic suspension therefore failed.

James Goudie QC is a barrister at 11KBW. This article first appeared on the set's Local Government Law blog.

 

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