Where a claimant is granted an injunction pending examination of a legal dispute by the court, it is common for the court to require the claimant to provide a “cross undertaking in damages”, or, in layman’s terms, to undertake to compensate the respondent in the event that the claimant loses the case and loss has been caused to the respondent as a result of the injunction being granted. In a public procurement context, it has not been clear whether the court can impose a requirement for a cross undertaking in damages before it has heard an application to lift an automatic suspension.
The court in Northern Ireland had to consider this recently in the case of Lowry Brothers Ltd and Wilson v Northern Ireland Water Ltd, and decided not to require the claimant supplier to provide a cross-undertaking in damages to the public body. This was because, at that point in the legal proceedings, the application to lift the automatic suspension had not been heard and the court considered it only had the power to require a cross-undertaking at that point. It remains to be seen whether the courts in England and Wales will follow the same approach.
The case concerned separate actions brought by each of two unsuccessful bidders, both bidding for appointment to Northern Ireland Water’s capital delivery framework for water and sewerage works. Their claims were brought under the Utilities Contracts Regulations 2006.
As proceedings were started before any appointments had been made to the framework, the automatic suspension preventing the utility from entering into the contract was triggered. The utility applied to the court for an order lifting the automatic suspension and a date for the hearing set. A preliminary hearing was also arranged, to take place approximately six weeks in advance of the application hearing date.
During the preliminary hearing the utility raised the question of whether the claimants should be required to provide a cross undertaking in damages. The utility argued that the delay in entering into the framework would impact significantly on the delivery of infrastructure improvements and would also have major cost implications (including additional procurement costs). It also argued, in the event its application to lift the suspension succeeded, it would be uncompensated for the loss suffered in the intervening period (ie, the period while the suspension was in force) and that the claimant should therefore be at risk during this period.
Despite the utility’s arguments, and even in the absence of any evidence submitted by the claimants, the court was not prepared to impose a cross undertaking in damages on the claimants at the preliminary hearing stage. In fact it considered that it was not even open to the court to do this. 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.
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. It certainly emphasises the need to move quickly in making an application to lift an automatic suspension and to seek an early hearing date.
A further question, which will no doubt be the subject of future litigation is whether, if a court rejects an application to lift an automatic suspension on condition that a cross undertaking in damages be given, can it require a cross undertaking to be retrospective and so cover the period from when the automatic suspension was first triggered? This would certainly help to rectify the risk to the utility or contracting authority of suffering uncompensated losses if the court orders the suspension be maintained. However, it would not assist where an order to lift the suspension is made (because the losses arising while the suspension was in force will remain).