In the following case, the court had to consider whether the grant of an interim injunction should be upheld to prevent a contracting authority proceeding with the award of a framework agreement.

European Dynamics SA v HM Treasury [2009] EWHC 3419 (TCC)

The contracting authority commenced a procurement exercise inviting tenders for the establishment of framework agreements for the delivery of software application solutions for use by UK public sector bodies. There were six agreements to be let (Lots 1 - 6). The tenderer (a company based in Greece which specialised in software products) was unsuccessful on its tenders for Lots 1, 3 and 6.

The unsuccessful tenderer complained to the contracting authority that its tender had not been marked fairly, that it had not been given sufficient details of the characteristics and relative advantages of the successful tenderers and required more information as to how the tenders had been marked. Despite the contracting authority’s responses the claimant tenderer continued to seek more information from the contracting authority.

As the contracting authority was due to sign contracts with the successful tenderers the unsuccessful tenderer sought a without notice injunction to prevent the contracting authority awarding the framework agreements.

The injunction was granted on the basis of the Cyanamid principles without notice to the contracting authority but on the return date hearing between the parties (one week later) the court had to consider whether to continue to uphold the interim injunction or to discharge it.

The Statutory Framework

We reported on the public procurement regulations (Regulations) in our December 2008 Updater in the case of Letting International Limited v London Borough of Newham [2008] EWHC 1583 (QB).

The Regulations relevant to this case provide that:

  • the contracting authority is under a duty to be transparent in its tendering process and provide a “level playing field” i.e. it must treat all tenderers equally;
  • the tenderer must bring proceedings for breach of the Regulations promptly and in any event within three months from the time when grounds first arose unless there is a good reason to extend the period; and
  • the Court has the power to:
    • suspend the award of the contract in question;
    • set aside a decision of the contracting authority; and/or
    • award damages when appropriate,
  • the Court also has the power to grant an injunction.

The law and practice of interim injunctions

The award of an interim injunction is subject to the Cyanamid principles which we set out in our case report on Ericsson AB v EADS Defence and Security Systems [2009] EWHC 2598 in our January 2010 Updater.

An interim injunction is permissible when:

(i) the applicant successfully establishes that there is a serious issue to be tried (Issue 1); and

(ii) the balance of convenience favours the grant of the injunction (Issue 2).

Issue 1: did the tenderer establish a serious issue to be tried?

The unsuccessful tenderer argued that it was unreasonably and irrationally marked down to such an extent that, if marked fairly, it would have been within the ranks of the successful tenderers. The argument was based on the fact that the way in which the consensus scoring system was operated by the contracting authority was not disclosed to tenderers, lacked transparency and did not result in the fair and equal treatment of tenderers.

The court held that on the evidence presented there may have been a sufficient number of discrepancies in the marking to support an assertion that the marking and system of evaluation and consensus checking was or may have been flawed so as to satisfy the threshold test that there was a serious issue to be tried.

Issue 2: the balance of convenience

The governing principle that the court should first consider was:

(i) if the applicant (here the unsuccessful tenderer) were to succeed at trial would the applicant be adequately compensated by an award of damages for the loss it would have suffered as a result of the defendant (here the contracting authority) continuing in the award of the framework agreements to the successful tenderers?

If damages would be an adequate remedy and the contracting authority was in a financial position to pay them, no interim injunction should be granted, however strong the unsuccessful tenderer’s claim appeared to be.

If damages would not provide an adequate remedy for the unsuccessful tenderer, the court should then consider whether:

(ii) if the contracting authority were to succeed at trial it would be adequately compensated under the unsuccessful tenderer’s under taking as to damages for the loss the contracting authority would have sustained between the time of the application and the time of the trial if the interim injunction had been granted (the Undertaking in damages).

If damages under the Undertaking in damages would be an adequate remedy and the unsuccessful tenderer was in a financial position to pay them, there would be no reason to refuse an interim injunction.

In practice, it is often hard to tell whether either damages or the Undertaking in damages will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause serious prejudice if it turns out that the injunction should not have been granted or withheld.

The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. Where there is doubt as to the adequacy of either of these remedies in damages then the question of the balance of convenience arises.

Lord Diplock in the Cyanamid case said that it was unwise to list all the matters which might need to be considered to assess where the balance lay as they varied from case to case. What was required was an examination of: (i) the particular facts of each case; and (ii) what the consequences of granting or withholding the injunction were likely to be.

Would damages be an adequate remedy?

The court held that in this case damages would be an adequate remedy and would not be difficult to assess, despite an argument that assessment of damages in public procurement cases was difficult or nearly impossible, given cases such as Letting International Ltd v London Borough of Newham [2007] EWCA Civ 1522.

The court’s approach to assessment of damages

The court gave directions in this case on a sensible way to assess damages:

  • Damages could always be and often were assessed on a loss of chance basis (see Chaplin v Hicks); the Court did the best that it could to assess damages when it was clear that there must have been some loss but it was difficult to assess.
  • Damages could be assessed on the basis of projections and previous framework type agreements which the contracting authority had entered into and on the likely value or range of values of the work over the period of operation of the proposed new framework agreements.
  • Given that there were to be some 10 contractors under each of the framework agreements it would be necessary to assess what the share of the unsuccessful tenderer (if successful on liability) would have been over the period of the framework agreements.
  • Once a figure or range of figures for the value of the overall work available over the lifetime of the framework agreements and the share available to the unsuccessful tenderer (had it been successful) had been assessed, the profit and overhead share then needed to be calculated. This could be done by looking at the pricing actually used by the unsuccessful tenderer on other similar projects and its historic trading performance.
  • The figure for damages would then need to be discounted to allow for the receipt of the damages before some of the return would have been earned.

It should be noted that the court did not say that the approach above was necessarily the right approach in this case because the court did not have all the facts, but at this early stage of the proceedings it saw no obvious obstacle to being able to assess damages.

The court’s decision on the balance of convenience

The court held that the balance of convenience in this case favoured the discharge of the without notice injunction for the following reasons:

  • There would be substantial prejudice to the contracting authority as the existing frameworks were due to expire and customers were waiting for the new frameworks to be in place - customers would go elsewhere to get the services they required if they had to wait for new frameworks to be put in place.
  • The earliest date for a full trial of the dispute between the parties was at least 6 months away. This delay could result in irreparable harm to the contracting authority’s reputation.
  • There was no obvious or clear evidence that the unsuccessful tenderer would lose market share or would not be able to seek other work to replace what it might have secured had it been successful.
  • If the unsuccessful tenderer succeeded on liability, damages would be an adequate remedy.
  • If an injunction was granted for as long as six months, there was a real risk that the whole tender process would have to be re-run and given - the knowledge acquired by the unsuccessful tenderer - it might be necessary to exclude the unsuccessful tenderer and indeed others who tendered on the basis that there would not and could not be equality of opportunity in the new tender process.

The court held that this was an inappropriate case to continue any injunction to restrain the contracting authority from placing its framework agreement. The interim injunction was accordingly discharged.

Editors’ comments

This case is a reminder that if every public procurement could be stopped by an injunction merely because there was a serious issue to be tried about the procurement process, public authorities would be invariably targeted by the unsuccessful tenderers and public procurements would or could grind to a halt.

However, it is possible that the introduction of the new remedies regime on 20 December 2009 might have inadvertently facilitated just that. This is because the new remedies regime generally enhances the rights of parties who believe that they have suffered or risk suffering loss or damage as a result of the alleged procurement breach, including by providing that the launch of proceedings should automatically lead to the suspension of an on-going tender process. It will then be for the contracting authority to go to the courts in order to seek the lifting of such suspension. It remains to be seen whether such reversal of roles will lead to frivolous challenges with a concomitant effect on the amount of disruption to tender processes. Arguably, the effects of this new provision should be limited as one would expect that a disgruntled party would still consider seriously the merits of its claim before initiating legal proceedings with all the costs that such action would still entail.

View: European Dynamics SA v HM Treasury [2009] EWHC 3419 (TCC)