High Court outlines legal test for automatic suspension of public contract awards

Out-Law News | 15 Oct 2014 | 11:00 am | 3 min. read

The High Court in London has reinforced a legal test for determining whether the award of a public contract should be automatically suspended upon a legal challenge to the procurement process following criticism of the test by an Irish judge.

Mr Justice Ramsey applied a legal test on automatic suspension that has been established in case law in England when he ruled to prevent Gatwick Airport Limited (GAL) from awarding a contract to its chosen supplier of air traffic control services.

Whether or not GAL should be forced to re-open the procurement process to bidders will be determined at a full trial. However, Mr Justice Ramsey maintained the automatic suspension in the case after NATS, an air traffic management service provider that held the previous air traffic control services contract with GAL, lodged a legal challenge against the way GAL handled its procurement and decision to award the new contract to another supplier.

The automatic suspension rule could only be applied to GAL in this case if the High Court rules that GAL is a utility and subject to UK procurement rules on utilities contracts. GAL has claimed that it is not a utility and that it cannot therefore be held in breach of the procurement rules utilities are subject to.

Mr Justice Ramsey ruled, however, that even if he accepted that GAL was not a utility, it was appropriate to issue a temporary injunction banning GAL from entering into its new contract until NATS' alternative claim that it has an implied tender contract with the airport operator is considered in full at a trial.

Expert in public procurement Chris Murray of Pinsent Masons, the law firm behind Out-Law.com, said: "It is rare for courts to maintain the automatic suspension of procurements and this case suggests that the days where no court would maintain the suspension are gone. Whether automatic suspension is applied in future cases will, however, depend on the facts specific to each case."

The legal test applied in the case stemmed from a previous case ruled on by the House of Lords in 1975 regarding the issue of when the courts should generally exercise their discretion to grant interim injunctions. The 'American Cyanamid' guidelines have, however, also been applied in the context of procurement; specifically, in order to assess whether companies challenging procurement decisions are entitled to maintain the automatic suspension to a contract award until a full hearing of their legal challenge against the contract award is heard.

According to the guidelines, courts must first consider whether the legal challenge against the procurement raises a serious issue to be tried. If that is the case, the courts must then consider whether damages would be an adequate remedy to the complainant. Where an award of damages would not provide an adequate remedy, it will ordinarily be appropriate for a court to maintain the automatic suspension, preventing a contracting authority or utility from awarding a contract until the legal challenge is heard at trial. Finally, the courts must also consider where the overall 'balance of convenience' lies as between the parties in the event that the automatic suspension is maintained.

The application of the American Cyanamid guidelines by UK courts was criticised in a ruling by a court in Ireland earlier this year as being inconsistent with EU laws on procurement remedies. However, Mr Justice Ramsey rejected the criticism and said he had "no difficulty" in holding the guidelines as being consistent with the EU rules.

Applying the test, the judge ruled that NATS had raised a "serious issue to be tried" and that the award of damages to NATS would not be an adequate remedy to address its complaints.

Mr Justice Ramsey said that the fact the court would have "great difficulty in estimating the damages" GAL would owe NATS if a breach of procurement regulations was found, together with the potential impact on NATS if it lost the contract with GAL, were factors supporting his view that damages would not be an adequate remedy in the case.

"I am persuaded that … the loss of the contract to provide air traffic control at Gatwick Airport will significantly impair NATS' ability to secure international air traffic control contracts and other related contracts," Mr Justice Ramsey said. "Whilst … NATS remains the supplier to 14 UK airports, including Heathrow and has worldwide operations throughout the world, I have no doubt that the particular nature and challenges of air navigation service at Gatwick Airport is an important factor in NATS' attempts to win worldwide contracts."

"I have therefore no doubt that the loss of this contract in the procurement would have a substantial effect on the goodwill and trade reputation of NATS which it would be impossible properly to calculate in terms of damages," the judge said.

In arguing that it should not be considered a utility and therefore not held subject to procurement regulations, GAL made the case that there were "important practical matters that weigh in favour" of letting it enter into its contract with its new supplier whilst NATS' legal challenge proceeded.

However, Mr Justice Ramsey rejected those claims and maintained the ban on GAL entering into its contract with its chosen supplier until NATS' legal challenge had been heard at a full trial.