REUTERS | Mike Blake

Suspension maintained: the decision in NATS (Services) Limited v Gatwick Airport Limited

On 2 October 2014, the High Court decided that Gatwick Airport should be prevented from entering into a new contract for the provision of air-traffic control services with DFS Deutsche Flugsicherung GmbH (DFS) following a procurement exercise in which the complainant, NATS services Ltd, had also participated (NATS (Services) Limited v Gatwick Airport Limited [2014] EWHC 3133 (TCC)).

Christopher Brennan, Director at Wragge Lawrence Graham & Co, considers the decision.

The automatic suspension: a new direction of travel?

First, this is the latest decision (following pre-contract challenges in procurement) in which the High Court has ruled that the procurer should be restrained from entering into a contract with its preferred bidder. Until relatively recently, the High Court had – in a line of decisions all involving applications to lift the automatic suspension introduced by the Public Contracts (Amendment) Regulations 2009 (SI 2009/2992) and the Utilities Contracts (Amendment) Regulations 2009 (SI 2009/3100) to the domestic procurement rules – shown a consistent tendency to allow the contract to be entered into, rather than maintain the suspension. This was largely the result of its applying the American Cyanamid test and, in doing so, holding that the balance of convenience favoured allowing the contract to proceed.

Then came the High Court’s decision in Covanta Energy Limited v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC) a decision which prompted speculation as to whether the trend might be about to turn. Whilst not a case involving the application of the automatic suspension – the procurement in question having begun prior to the entry into force of the 2009 amending regulations – the High Court granted an interim injunction preventing the contracting authority from awarding the contract, on a number of specific bases. These included the fact that the claimant had established a serious case to be tried; that damages would not adequately compensate the claimant; and that the procurement process had already been running for so long that a little more delay until the matter proceeded to trial would not cause undue harm to the authority’s interests (or would cause the least risk of injustice).

Subsequently, in DWF LLP v Secretary of State for Business, Innovation and Skills [2014] EWCA, Civ 900, the Court of Appeal decided to maintain the automatic suspension in relation to the award of certain elements of a framework agreement for legal services, but to lift it in relation to others (as an aside, there is perhaps some room for debate as to whether an approach such as this – a partial lifting only – is a correct application of the rules).

So, is there still a clear trend towards allowing the award of the contract rather than preventing it? Or is the treatment of such cases by the Courts beginning to change? It is submitted that there is no real indication, as yet, of any turning of the tide. What we do know is that the decisions in both Covanta and NATS were significantly driven by their individual facts. Indeed, the findings of the High Court contain, in each, a number of striking similarities – notably:

That said, decisions to lift the suspension have also turned heavily on their facts – and in particular on the “counterfactual” scenario which might materialise were the Court to rule that the suspension should remain in place. So, in Exel, the fact that the sourcing of vital supplies for NHS hospitals might be put at risk was a major public-interest influencer for the Court in deciding to lift the freeze – as it was in The Halo Trust v The Secretary of State for International Development [2011] EWHC 87 (TCC) where, absent an award, landmines otherwise cleared by the contractor might remain unswept.

It would seem, therefore, that neither Covanta nor NATS especially point towards the Courts attaching less weight to the types of considerations which militated in favour of lifting the suspension in Exel, Halo Trust and most of the subsequent decisions on the automatic suspension: such factors can, when the circumstances require it, still prove determinative.

American Cyanamid: a further endorsement

Second, NATS is notable in that the High Court decided that the test in American Cyanamid Co v Ethicon [1975] AC 396 remains the correct test to apply when it comes to deciding whether to lift the automatic suspension (and the High Court did indeed apply it). American Cyanamid is a two-stage test involving the questions of, first, whether there is a serious issue to be tried, and second, whether the balance of convenience lies in favour of granting or refusing the relief sought. This second question involves consideration of whether an award of damages would be an adequate remedy.

The High Court rejected NATS’s argument that the correct test was a “balance of interests” test. NATS had argued that such test:

  • Did not require the claimant to surmount the separate hurdle of showing that damages would not be an adequate remedy; and
  • Would not permit member states to require the claimant to provide an excessive and disproportionate undertaking in damages, in return for the continuance of an automatic suspension. Such, argued the claimant, was inconsistent with the purposive interpretation of the rules and would be a bar to an effective remedy (NATS, paragraph 10).

(See Article, Dispensing with American Cyanamid: a fresh approach to interim relief in procurement challenges.)

Instead, submissions by GAL and also by DFS (as interested party) appear to have persuaded the court that there was nothing to require it to approach the question of whether damages were an adequate remedy in a way different to that in American Cyanamid: member states have to adopt a purposive approach to the rules, and have discretion as to how to do so – subject to the principles of effectiveness and equivalence (NATS, paragraphs 17 to 30) (in DWF, it is notable that the Court of Appeal proceeded to apply American Cyanamid as the High Court had done previously, and had also declined to address a counter-argument as to whether this was the correct test to apply).

Gatwick: in or out?

Third, the decision interestingly highlights a rather curious situation: it dealt with two applications (each based on a different starting premise) in one.

American Cyanamid first requires determination of whether there is a serious issue to be tried. In NATS, one such issue identified was whether Gatwick Airport Limited is actually caught by procurement rules (and specifically the Utilities Contracts Regulations 2006) at all. The question as to Gatwick’s status revolved around whether Gatwick enjoyed “special or exclusive rights” of the type with which it would need to have been conferred in order to qualify as a “utility” for the purposes of those Regulations (NATS, paragraphs 32 to 67).

On the basis that it might or might not be caught, there were actually two applications falling to be decided: one by Gatwick, for the lifting of the suspension should it be determined that Gatwick was subject to the Regulations (which Gatwick argued it was not); and the other by NATS, for the granting of an interim injunction against the conclusion by Gatwick of a contract with DFS should it be determined that Gatwick was not subject to the Regulations (which NATS argued it was). It is perhaps noteworthy that in deciding – insofar as the Regulations did not apply – to grant an interim injunction, the Court was granting interlocutory relief for which, as a matter of procurement law, there was absolutely no basis. Only if the Regulations applied – which had only been identified as a serious issue to be tried, and not determined in these proceedings – was there a statutory basis for the Court to hold that an automatic suspension actually existed (and, thereby, should not be lifted).

Implied tender contract: a resurrection?

Finally, NATS is noteworthy as regards the approach taken by the High Court towards the existence of an “implied tender contract” – a concept which, in procurement case-law, can be regarded as having been dying a slow death for some time. Whether there was, in this case, an implied tender contract was held to be a further serious issue to be tried. However, this question:

  • Arose in the alternative – in other words, it would fall to be decided in the event that the Regulations did not apply to Gatwick; and
  • Revolved around specific facts: Gatwick had commenced the procurement by issuing an OJEU notice, and had proceeded as though the procurement were regulated – but had not made any statement to the effect that so doing was a purely voluntary step on its part.

Therefore, despite the issue not being considered – merely identified as an issue – there is no suggestion here that the Courts might begin to stray from the current direction of travel – that where the procurement rules apply, the existence of a bespoke scheme of relief under those rules will mean that there is no reason for the existence of an implied tender contract to be found.

Leave a Reply

Your email address will not be published. Required fields are marked *