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Lifting the automatic suspension in public procurement after Indigo and Exel

In December 2010, I was involved in resisting an application to lift the automatic suspension imposed by regulation 47G(1) of the Public Contracts (Amendment) Regulations 2009 (SI 2009/2992) (2009 Regulations) so as to enable a hospital trust to award a public contract to the successful tenderer.

This post sets out my experience of the court’s approach in considering whether to grant the interim order that the hospital trust sought.

The “old” regime

Under the Public Contracts Regulations 2006 (SI 2006/5) (2006 Regulations), an aggrieved tenderer who wished to stop a procurement (and thereby prevent contract award) needed to apply to the court for an interim injunction.

The courts applied the interim injunction test as set out in American Cyanamid Co Ltd v Ethicon Ltd, by considering:

  • If there is a serious issue to be tried.
  • If damages are an adequate remedy.
  • Where the balance of convenience lies.

The “new” regime

The position is different under the 2009 Regulations (which implement the Remedies Directive, (2007/66/EC). Under regulation 47G, the procurement process is automatically suspended when a disappointed tenderer challenges the contract award decision by issuing and serving a claim form.

Regulation 47G provides as follows:

“(1) Where-
(a) proceedings are started in respect of a contracting authority’s decision to award the contract; and
(b) the contract has not been entered into,
the starting of proceedings requires the contracting authority to refrain from entering into the contract.

(2) The requirement continues until any of the following occurs-
(a) the Court brings the requirement to an end by interim order under regulation 47H(1)(a)…”

Under regulation 47H(1), the court has the power to make interim orders, including power to bring to an end the automatic stay imposed by regulation 47G(1).

The court may make an interim order bringing an end to the automatic suspension imposed by regulation 47G(1) if it considers that it would “not be appropriate” to make an order requiring a contracting authority to refrain from entering into the contract (see regulation 47H(2)(b)).

However, the regulations do not give any specific guidance on the approach to be followed. Indeed, the OGC’s response to the Second Public Consultation (paragraphs 46 to 48) on implementing the Remedies Directive in the UK expressly concluded that it would be wrong for the regulations to require the court to adopt any particular approach (such as the American Cyanamid test), as this would be out of line with the general approach taken by legislation (including rules of court) in relation to other proceedings.

Applications to lift the automatic stay

In late 2010, the English courts were required to consider, for the first time, applications by the contracting authorities for lifting of the automatic stay under regulations 47G and 47H:

In Indigo, the unsuccessful tenderer (Indigo) suggested that the regulations provided a “steer” in favour of an injunction. However, in Exel, the unsuccessful tenderer (Exel) went much further, contending that the court should not follow the American Cyanamid test in exercising its discretion under regulation 47H.

Exel placed particular reliance on:

  • The purpose and content of the new Remedies Directive:
    • to improve the effectiveness of review procedures in relation to the award of public contracts; and
    • to ensure the effective application of the directives on the coordination of public procurement procedures).
  • The more flexible approach apparently taken by the courts in the context of hearing applications for interim injunctions. (See, for example, the approach taken by the Privy Council in National Commercial Bank Jamaica Ltd [2009] UKPC 14 in viewing the question of whether damages are an adequate remedy as part and parcel of a more general balance of convenience/prejudice type test.)

Exel argued that, in the absence of the American Cyanamid test, a simple balance of convenience test was appropriate in determining whether the stay should be lifted.

The courts’ approach

Ultimately, the courts rejected Indigo and Exel’s submissions. In both instances, the application to lift the automatic stay was granted.

In Indigo, the judge held that he could detect “nothing of the sort” in the regulations suggesting that there should be a presumption towards a stay (paragraph 6, judgment).

In Exel, the judge interpreted the test under 47H as being consistent with what “courts in this country have done for many years”, namely the need to apply American Cyanamid principles (paragraph 28, judgment). However, the judge went on to doubt whether the application of the modified test suggested by Exel would make any practical difference (paragraph 30, judgment).

Where does this leave us?

The question of whether a different test should be applied may well ultimately be a matter for the Court of Appeal. In the meantime, however, it seems clear that regulations 47G and 47H will operate so as to prevent the mischief under the old regime of defendants awarding contracts before the court has had an opportunity to hear the claimant’s application for injunctive relief. Equally, the regulations will not be interpreted (by lower courts at least) so as to ensure that the automatic stay continues until the conclusion of any trial.

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