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Rolling in the deep court favours public interest when deciding to lift the suspension of a contract award for new tube trains

13 November 2018 | London
Legal Briefings

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The High Court has laid down an important ruling on the issue of whether a public authority may enter into a contract with its preferred bidder pursuant to a competitive tendering procedure, even though its award decision is the subject of a pending legal challenge alleging breaches of procurement law. The launch of such a challenge automatically suspends the authority’s right to enter into the contract, but the authority may apply to have that suspension lifted. In the case of Bombardier Transportation UK Limited, Hitachi Rail Europe Limited, Alstom Transport UK Limited v London Underground Limited [2018] EWHC 2926 (TCC), Mrs Justice O’Farrell DBE allowed London Underground Limited’s (“LUL”) application for the lifting of the automatic suspension which prevented LUL from entering into contracts with Siemens for the provision of over 100 new trains. The judge found that, whilst damages were likely to be inadequate for both the defendant and the claimants, the strong public interest in introducing the new trains as soon as possible pushed the balance of convenience towards lifting the suspension.

Key points

  • The Court held that damages were likely to be inadequate for both the defendant and the claimants and the case therefore hinged on the balance of convenience test set out in American Cyanamid v Ethicon [1975] AC 396.
  • The importance of LUL’s public functions and public service mission, including the pressing need to improve capacity and reliability on the Tube network, meant that the public interest in this case resulted in the balance of convenience falling in favour of lifting the suspension and permitting LUL to award the contract to Siemens.
  • The case is good news for public authorities, as it shows that UK courts will generally be reluctant to delay the delivery of important public projects bringing benefits for the public, solely to protect the private interests of disappointed bidders who are contesting the legality of the tender decision.

Background

LUL conducted a procurement exercise, under the Utilities Contracts Regulations 2006 (“the UCR 2006”), for the manufacture and supply of new trains for London’s Deep Tube Upgrade Programme. The contracts had a duration of 40 years and a value of up to £2.5 billion. The three shortlisted bidders were Bombardier and Hitachi, acting as a joint venture (“JV”), Alstom and Siemens, who was the successful bidder.

The JV issued proceedings seeking to challenge the procurement as contrary to the UCR 2006. The JV alleged that LUL’s evaluation of the JV bid breached the UCR 2006 in multiple ways and claimed, inter alia, an order setting aside LUL’s decision or an award of damages. Alstom issued proceedings alleging breaches of the UCR 2006 concerning, inter alia, LUL’s evaluation of the Alstom tender and also claimed, inter alia, an order setting aside LUL’s decision or damages.

Regulation 45G of the UCR 2006 imposes an automatic suspension on entering into contracts where a claim form has been issued in respect of the decision to award the contracts. Regulation 45H of the UCR 2006 empowers the court to lift a suspension imposed by Regulation 45G. When making such an interim order, this regulation requires the court to consider whether, if Regulation 45G were not applicable, it would be appropriate to make an interim order requiring the utility to refrain from entering into the contract; only if the court considers that it would not be appropriate to make such an order may it lift the suspension. On 5 September 2018, LUL issued its applications to lift the automatic suspension in each claim. At a directions hearing on 3 October 2018, Fraser J ordered that Siemens should be joined as an interested party.

The Court's Ruling

The judge noted that it is well-established that the applicable test when considering an application under Regulation 45H is the American Cyanamid test and quoted a summary of the applicable principles as set out by Browne LJ in Fellowes & Son v Fisher [1976] Q.B. 122. The judge considered the following questions in turn:

(i) Is there a serious issue to be tried?

LUL conceded that, for the purpose of this application, there was a serious issue to be tried but argued that Alstom’s claim was based almost entirely on speculation and flagged the high hurdle that the JV’s claim would need to clear. The judge held that the pleadings in each claim disclosed an arguable cause of action. The judge considered it inappropriate to attempt to weigh likely strengths or weaknesses without the benefit of full evidence and reasoned submissions, and so declined to take into consideration the possible outcome of the trial.

(ii) If there is a serious issue to be tried, would damages be an adequate remedy for the JV and/or Alstom if the suspension were lifted and they succeeded at trial?

The JV and Alstom claimed that the size and scale of the project, both in terms of value and prestige in the London market and internationally, and the consequent loss of opportunity in terms of reputation and in terms of losses relating to investments in technological advancements and innovations and therefore business, meant that damages would not be an adequate remedy. The judge emphasised that unsuccessful bids are part of the normal commercial risks taken by a business and that there must be evidence that the loss of reputation would lead to losses that would be “significant and irrecoverable as damages or very difficult to quantify fairly“. The judge considered that the particular procurement in this case is distinctively prestigious because of its size, location and value. The judge explained that it would be very difficult to prove a causal link between the loss of reputation and the loss of subsequent business and that losses would be very difficult to quantify.

In contrast, the judge considered that any losses in respect of investments in technological advancements and innovations could be compensated for by damages, as a matter of principle. The judge considered that it was likely that alternative opportunities could be found for the claimants’ employees and facilities, given their size and scope, and noted their involvement in the HS2 project, their active UK businesses and their healthy accounts.

(iii) If damages would not be an adequate remedy for the JV and/or Alstom, would damages be an adequate remedy for LUL if the suspension remained in place and LUL succeeded at trial?

LUL and Siemens claimed that the suggestion by the JV/Alstom that re-programming the project and reducing testing time for the new trains was unrealistic given the complexity of the project, the need for Siemens to coordinate a wider supply chain involving other projects and the limited capacity to accept delivery of trains out of sequence. The judge agreed and found that such a re-programming and reduction in testing time would introduce unnecessary risks. The judge agreed with LUL that it would suffer very considerable non-financial prejudice to the delivery of its core public functions and public service mission. Accordingly, the judge held that damages would not be an adequate remedy for LUL if it were to succeed at trial.

(iv) 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? That is, where does the balance of convenience lie?

As the judge considered it likely that damages would be inadequate for either the claimants or defendant, she undertook analysis of the balance of convenience (following the test in American Cyanamid), noting that she could have regard to the public interest. The judge considered several arguments brought by the JV and Alstom and by LUL and Siemens. She ultimately considered that the evidence produced by LUL established that there was a strong public interest in introducing the new trains as soon as possible and that further delay was not justified. Accordingly, the judge found that the balance of convenience lay in lifting the automatic suspension and granted LUL’s application.

In coming to this conclusion, the judge considered the following arguments:

  • As a starting point, the judge considered how long the suspension might have to be kept in force. The judge considered the JV/Alstom’s application for an expedited trial to be unrealistic and refused it. She noted that, although normally experts are not required in a procurement challenge, expert evidence would be required in this case in order for the court to determine whether the evaluation was within the range of reasonable conclusions, and that this would add considerable time to both preparations for the trial and the hearing itself. As the trial could not be expedited, it meant that there would be a number of months before a final decision could be made.
  • Conversely, the judge did not consider that the potential need to re-run a procurement was a relevant time factor, because it was not certain at this stage that a re-run would be required (this would depend on the outcome of the dispute) and so this could not be taken into account.
  • The judge also considered the JV/Alstom’s argument that, if either of them were instead awarded the contracts, their proposals meant that LUL would obtain substantial capital savings. The judge found that this argument ignored the non-financial benefits to the public and the whole life cost-benefit assessment, both of which were expressly identified as additional factors on which the bids were evaluated.
  • The judge viewed favourably LUL’s submissions regarding the purpose of the project in terms of the public benefit in improving capacity and retiring old trains (for which existing maintenance costs were rising and in which LUL could demonstrate increasing unreliability and unpredictability).
  • The judge dismissed the JV/Alstom’s argument that it would be detrimental to the public interest if LUL had to pay twice, as it is not for the court to police a party’s strategic decisions. The judge considered that the public interest in LUL complying with procurement law was balanced against the public interest in LUL’s entitlement to proceed with the contract following a lawful and fair procurement exercise; as the judge was not in a position to judge which would prevail, it was a neutral point.
  • The judge did not agree with the JV/Alstom argument that there was unreasonable delay by LUL in bringing the project to market. The judge also dismissed their argument that LUL could not point to actual urgency, noting that the American Cyanamid test does not require urgency to be established.

Comment

This case is interesting and generally positive for public sector clients because of its focus on the public functions and public service mission that LUL could demonstrate in its purpose of ensuring the timely delivery of key infrastructure projects. The ability of LUL to establish the impact of a significant delay in delivery of its project in terms of immediate costs to LUL (e.g. maintenance, cancellation and delay costs), as well as the public benefit of introducing a new fleet of trains (e.g. increased capacity and reliability) was a deciding factor that led the judge to find in favour of lifting the suspension.

It is also interesting to note the judge’s acknowledgement of LUL’s express inclusion of non-financial benefits and a whole-life cost-benefit assessment in its bid evaluation criteria. This factor could be weighed against the claimants’ contention that either of their bids would have brought cost savings, and hence benefits to the public, because they were cheaper than the winning bid.

Whilst the case related to a procurement run under the UCR 2006, equivalent provisions exist in both the Utilities Contracts Regulations 2016 (Regulations 110 and 111) and the Public Contracts Regulations 2015 (Regulations 95 and 96). This judgment will therefore continue to be a highly relevant precedent for current and future public procurements under the new Regulations.

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