Automatic suspensions, American Cyanamid and cross-undertakings in damages

What can a decision of the High Court of Ireland tell us about EU procurement law and whether the UK approach to the lifting of automatic suspensions of contract awards is compliant with it? Brendan Ryan reports.

A recent judgment delivered by the High Court of Ireland, OCS One Complete Solutions Ltd v Dublin Airport Authority, has taken a different approach to that adopted by the UK courts in relation to applications for the lifting of automatic suspensions of contract awards in public procurement cases. 

Background

When a challenge to a proposed contract award is initiated by a disappointed bidder under the Public Contracts Regulations 2006 (“PCR”) (or under the Utilities Contracts Regulations 2006 ("UCR")), an automatic suspension on contract execution is triggered. Authorities in England, Northern Ireland and Scotland have, with varying degrees of success, attempted to lift the automatic suspensions by way of interim proceedings. Under the PCR (which apply in the UK with the exception of Scotland), the courts have dealt with such cases by applying the principles set out in the celebrated case of American Cyanamid v Ethicon Limited[1]. In other words, the courts will consider the following in deciding whether to lift the suspension and allow contract execution prior to determination of the substantive challenge:

• whether the claimant has at least an arguable case;
• whether damages would be an adequate remedy;
• where the balance of convenience lies; and
• the importance of maintaining the status quo.

The American Cyanamid test was formally adopted in Irish common law in the case of Campus Oil v. Minister for Industry and Energy (No. 2)[2].

Facts

Dublin Airport Authority ("DAA") carried out a public procurement procedure for the provision of cleaning and security services at the airport, at the end of which it announced its intention to award a contract to Maybin Support Services (Ireland) Limited. The incumbent operator, OCS One Complete Solution Limited ("OCS"), initiated a challenge in respect of the decision under the European Communities (Award of Contracts by Utility Undertakings) (Review Procedures) Regulations 2010 (the "Irish Regulations"), the Irish legislation containing the remedies provisions equivalent to those in the UCR (although the case revolved around utilities procurement regulations, the principles at issue are equally applicable to PCR cases).

In the instant case, DAA sought to have the automatic suspension on contract award lifted, inter alia because of OCS's failure to provide an undertaking in damages. DAA argued, in relying on a now well-established UK line of authorities,[3] that the claimant must give a cross-undertaking in damages. This is the first case before the Irish courts in which a contracting authority had sought to have the automatic suspension lifted.

The following are the relevant EU directive provisions, and their implementing measures in the Irish Regulations and in the UCR respectively:

Article 2(4), Directive 92/13/EEC (as amended) (the "Directive"): “Member States may provide that the body responsible for review procedures may take into account the probable consequences of interim measures for all interests likely to be harmed, as well as the public interest, and may decide not to grant such measures when their negative consequences could exceed their benefits.”

Regulation 9(4), Irish Regulations: "When considering whether to make an interim or interlocutory order, the Court may take into account the probable consequences of interim measures for all interests likely to be harmed, as well as the public interest, and may decide not to make such an order when its negative consequences could exceed its benefits."

Regulations 47H(2) and (3), UCR: "(2) When deciding whether to make an [an interim order] – (a) the Court must consider whether, if regulation 45G(1) were not applicable, it would be appropriate to make an interim order requiring the utility to refrain from entering into the contract; and (b) only if the Court considers that it would not be appropriate to make such an interim order may it make an order under paragraph (1)(a).

(3) If the Court considers that it would not be appropriate to make an interim order of the kind mentioned in paragraph (2)(a) in the absence of undertakings or conditions, it may require or impose such undertakings or conditions in relation to the requirement in regulation 45G(1)."

It will be noted that the Irish Regulations transpose the Directive's wording almost verbatim, whist Regulations 47H(2) and (3) differ somewhat from the Directive.

Judgment

The Principle of Harmonious Interpretation

A significant portion of the judgment is devoted to an analysis of the principle of harmonious interpretation of EU law. Taking as its starting point the CJEU case of Marleasing SA v. La Comercial Internacionale de Alimentation SA[4], Barrett J noted that a national court is obliged to interpret a provision of national legislation in a manner consistent with a provision of an EU directive after the time-limit for transposition of the directive has expired. However, this principle does not entail a requirement to apply a "contra legem" interpretation of national law where the language of the national provision is clearly different to the wording and purpose of the directive.

Relevance of the American Cyanamid/Campus Oil test

The Court declined DAA's invitation to follow the UK authorities in applying the American Cyanamid test. Barrett J. held that whilst that test might be appropriate in the context of the UK legislation, it could not be read into the Irish Regulations which represent a "more faithful transposition of the applicable European Union provisions". The Irish Regulations are, moreover, "untrammelled by the considerations that would arise were the Campus Oil guidelines to be followed". In particular, the Directive (and therefore the Irish Regulations) cannot be read as containing requirements:

• to demonstrate the impossibility of calculating damages (there is an argument over whether the UK Courts would require this or not); or
• for an applicant to provide an undertaking in damages.

Barrett J appears to concede that the American Cyanamid test could be derived from the language of the Regulations 47H(2) and (3) UCR. However, the implication of the Court's analysis of the principle of harmonious interpretation earlier in the judgment might be that the UK position is in fact in violation of the EU law.

According to the High Court, the appropriate test is whether the making of an interim or interlocutory order would entail fewer negative consequences than positive consequences. In the circumstances of the case, the following were identified as "negative" consequences of lifting the suspension:

• OCS's staff would be transferred to Maybin;
• OCS could lose expertise and become less competitive;
• any loss of competitiveness and the loss of the benefits of performing the contract might not compensable in damages;
• the public interest in avoiding the burden of paying twice for the services (once in damages to OCS and as consideration to the successful contractor).

On the other side of the balance sheet, the court recognised as a "benefit":

• the avoidance of double-payment for the provision for the services (even though it was acknowledged that airport users might be subject to higher charges while the incumbent's more expensive contract remained in place pending a resolution of the case).

On the facts of this case, Barrett J held that the application of the test favoured the retention of the suspension pending determination of the substantive proceedings. It is fair to say that the overwhelming majority of UK cases so far (applying the American Cyanamid approach) have released the suspension allowing the Authority to continue with its procurement.

Comment

The approach of weighing up the positive and negative consequences of lifting the suspension, as adopted in this case, appears to lead to a number of considerations which are similar to the balance of convenience limb of the American Cyanamid/Campus Oil test. However, the most controversial element of the test in the UK cases – the requirement to provide a cross-undertaking in damages – was considered by the Irish judge to be inappropriate in light of the wording of the Directive. The judgment therefore raises further doubt about the continued use of this requirement in UK cases.

Awarding authorities will be keen to downplay the significance of OCS One Complete Solution Ltd v Dublin Airport Authority. It might be argued that the Irish case is distinguishable on the basis of the difference in wording between (UK) Regulations 47H(2)-(3) and the Irish Regulations. Authorities might seek to argue that both approaches represent different, but equally legitimate, means of giving effect to the requirements sought to be achieved by the Directive.

On the other hand, disappointed bidders in public procurement cases will take encouragement from this judgment. Applicants unwilling to provide an undertaking in damages might seek to argue that:

• Regulations 47H(2) and (3) incorrectly transpose the Directive or, in the alternative, that the existing authorities have erred in reading into the Regulations a requirement to apply the American Cyanamid test in its entirety; and/or
• the requirement to give an undertaking infringes the EU law principle of effectiveness by potentially denying litigants a right of access to the courts (a point which was alluded to in Barrett J’s judgment).

In light of the continued uncertainty in this area of law, it would be unsurprising if we were to witness a preliminary reference or an appeal to the CJEU in the near future.

Brendan Ryan is a member of Burges Salmon's procurement team led by John Houlden. John can be contacted on 0117 902 2796 or This email address is being protected from spambots. You need JavaScript enabled to view it..