In the case of Lowry Brothers Ltd and Wilson v Northern Ireland Water Ltd (2012), claims were brought by two bidders who had unsuccessfully bid for appointment to Northern Ireland Water’s capital delivery framework for water and sewerage works. As the claims were commenced prior to the award of the framework, the 'automatic suspension' regime was triggered and the contracting authority was prevented from concluding the contract. A hearing on whether the suspension should be lifted was fixed for a few weeks’ time.
In the meantime, the utility asked the Northern Ireland Court to order the bidder to supply a so-called 'cross-undertaking in damages'. An undertaking of this kind is essentially a promise from the claimant bidder that, in the event that the bidder does not succeed at the full trial of the issues, it has sufficient funds to compensate the 'innocent' contracting authority for any losses it suffers due to the delay caused by the suspension. The utility argued that the delay in entering into the framework would cause it significant losses, with a major impact on the delivery of infrastructure improvements and significant cost implications (including additional procurement costs). Without such an undertaking, it argued, these losses would go uncompensated even if the utility was eventually successful at the full trial of the issues.
Unfortunately for the utility, the court decided it had no power to require a cross-undertaking at the preliminary hearing stage. In reaching its decision, the court's analysis of the relevant provisions in the Regulations (and in particular Regulations 45H(1) and 45H(3)), was that an undertaking in damages could only be imposed within the framework of an order of the court. The preliminary hearing stage was not a time 'when [the court was deciding] whether to make an order' for the purposes of Regulations 45H (as this fell to be decided at the later hearing when the utility's application to lift the automatic suspension would be considered). Further, the imposition of an undertaking was a discretionary power and the court, in exercising such discretion, was obliged to take into account all material factors and be as fully informed as possible. Although the process for the utility's application to lift the automatic suspension had begun, it was too early to consider imposing an undertaking in damages, or any other condition, on the claimants. The court did not have sufficient evidence to make an informed decision and engage in a proper exercise of judicial discretion.
The case certainly emphasizes the need to move quickly in making an application to lift an automatic suspension and to seek an early hearing date. We will have to wait and see whether the English courts echo the approach taken by the court in Northern Ireland when considering the timing of requests for cross undertakings in damages, or if they have more sympathy for the utility or contracting authority's position.
Looking at the use of automatic suspensions generally over the last couple of years, we see a marked difference in the readiness of the courts of England and Wales and the courts of Northern Ireland to uphold automatic suspensions. The former has tended to be more sympathetic to contracting authorities (as the Lowry Bros case discussed above illustrates).
In deciding whether or not to lift automatic suspensions, the courts in both jurisdictions have applied the same test used under the previous regime where bidders were required to actively apply for an injunction if they wished to suspend the contract award process. That is, the American Cyanamid test which considers:
- If there is a serious issue to be tried (ie, does the claimant’s case have merits – the threshold here is a relatively low one)
- Whether damages would be an adequate alternative remedy
- Where 'the balance of convenience' lies, (an imprecise term which, in the procurement context, is often determined on public interest grounds ie, 'what decision best reflects the public interest in this case?')
In England and Wales at least, courts have almost always decided in the contracting authority’s favour on balance of convenience/public interest grounds and because they have generally taken the view that damages will be an adequate alternative remedy for bidders. In Northern Ireland, however the story is slightly different. An example is the case of First4skills Ltd v Department for Employment and Learning (2011), where the claimant bidder was rejected for failing to supply information to meet a selection criterion in circumstances where that criterion was, it alleged, misleading. The court decided that the balance of convenience lay in maintaining the suspension and that the bidder had good case. The different approach taken by the Northern Ireland court might, however, be explained by the fact that the claimant had a strong case on merits, it had agreed to provide a cross undertaking in damages, and the contracting authority could lawfully extend the existing contract until the date of the main trial. The court therefore felt that the balance of convenience in maintaining the suspension fell in the claimant’s favour.
Contracting authorities faced with an automatic suspension will need to carefully plan their strategies when considering if and when to make an application to lift the suspension. This is a time-consuming and costly exercise, witness statements will need to be prepared and evidence gathered to address the American Cyanamid principles and to counter the claimant’s arguments on this test. The obvious advantage of a successful application to lift is that the contracting authority can go ahead and award the contract. The disadvantage, which may sometimes be forgotten, is that the contracting authority could find itself in a position of double jeopardy having entered into a new contract with the successful bidder and also having to pay damages for loss of profit to a successful challenging bidder.