knowledge 20 March 2018 |

Public Contracts Judgments - Lifting of Suspensions

Under Regulation 8(1) of the Remedies Regulations¹, the mere filing of proceedings by a disappointed participant in the public procurement space triggers an automatic injunction, called the “automatic suspension”. This means a contracting authority who wants to award the contract to the winning bidder has to apply to the High Court for permission to lift the automatic suspension and sign the contract, or else wait for the full hearing of the disappointed participant’s case, which may take many months. Applications to lift the automatic suspension had been relatively unusual in Ireland, but were becoming more common. These two cases, however, will give contracting authorities pause for thought.

In the first of these cases, the Court followed existing case law in finding that the court has jurisdiction to lift the suspension either under Regulation 8A, using the principles set out in Campus Oil or, in the alternative, under Regulation 9(4) where the probable negative consequences could not exceed the benefits of lifting the suspension.  However, the Court canvassed a constitutional challenge which will be of concern to contracting authorities.

In the second case, the Court held that, in considering whether damages are an adequate remedy as part of the Campus Oil test, the court is required to assess liability for damages on the European law basis of “Francovich” damages for State liability, not purely as domestic law damages².“Francovich” damages are payable only if certain tests are met, giving rise to an additional hurdle for a challenger to overcome. The most relevant part of the tests in this context is that Francovich damages are only awarded where the breach of law is “sufficiently serious”, which the Court of Appeal, following a 2017 Supreme Court judgment,³ referred to as a “grave or manifest” or “inexcusable” breach. The Court noted the likely difficulty for challengers in procurement law disputes in meeting this test, and found that it meant in the circumstances of the case, damages would not be an adequate remedy for the challenger. Because a key issue in automatic suspension hearings is whether damages are likely to be an adequate remedy, this has serious implications for contracting authorities. Prior to this judgment, it was relatively straightforward for a contracting authority to show that damages would be an adequate remedy for a challenger if the challenge was ultimately successful. Now, authorities face the prospect that a court will say that Francovich damages, because they are harder to obtain, will not be an adequate remedy, making it harder to get the suspension lifted.  On the other hand, it should be welcome news to contracting authorities that, in the event of a breach of the applicable procurement rules, a challenging party should only be entitled to damages where the breach meets the higher Francovich standard.

Homecare Medical Supplies Unlimited Company v Health Service Executive, and Freightspeed for Pharmacy Limited

In Homecare Medical Supplies Unlimited Company v Health Service Executive, and Freightspeed for Pharmacy Limited ⁴, the Health Service Executive (“HSE”) sought an order lifting the automatic suspension of the execution of an emergency bridging contract for the distribution of certain healthcare products to Freightspeed for Pharmacy Limited (the “Notice Party”) pending the determination of two sets of earlier proceedings initiated by Homecare Medical Supplies Unlimited Company (“Homecare”) challenging awards by the HSE to the Notice Party.

In the High Court, Barniville J held that he would grant the HSE an order lifting the suspension and permitting it to conclude the bridging contract with the Notice Party.  In reaching this decision, Barniville J held that:

• Regulation 8A of the Remedies Regulations confers jurisdiction on the court to lift the suspension and in considering this, the correct approach to adopt is that set out in a number of recent case,⁵ namely that the court must decide whether, if there was no automatic suspension, it would be appropriate to grant an injunction restraining the contracting authority from entering into the contract.  Once the court has determined that it would refuse to grant such an injunction, then the court may consider whether or not to lift the suspension;
• the court should apply the Campus Oil test in considering whether, if there was no automatic suspension, it would grant an injunction to the challenger, although acknowledging that this is subject to a separate constitutionality challenge (see below);

  
  

  • the questions for the court to consider are therefore:
  • if so, will damages will be an adequate remedy for the challenger at trial?
  • if so, then that would be the end of the matter;
  • if not, would damages be an adequate remedy at trial for the contracting authority if the suspension was not lifted?;
• if damages would not be an adequate remedy for either party, where then as between the parties does the balance of convenience lie?
• has the challenger established that there is a serious issue to be tried?  (a low bar)

Barniville J noted that in separate proceedings, Homecare had made at least an arguable case that Regulation 8A is actually invalid, as being unconstitutional. Although not dealt with in detail in the judgment, this appears to be on the basis that it goes beyond what is mandated by EU law and therefore cannot be introduced by way of a statutory instrument. Barniville J emphasised that he was not making any judgment on that issue, as it was the subject of separate proceedings. However, it will give contracting authorities grounds for concern that this issue is likely to be raised now by any challenger seeking to stop an automatic suspension being lifted.  

Helpfully, Barniville J. briefly considered Regulation 9(4) of the Remedies Regulations, as a fall-back in case it was found that Regulation 8A was invalid or that the Campus Oil principles should not be applied. This provides that “[w]hen 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.” He held that this provision gives the Court jurisdiction to make an order lifting the automatic suspension. He stated he was not convinced that there was any significant difference between the test in Regulation 9(4) and the Campus Oil principles, but in any event in his view both tests led to the same conclusion, that the suspension should be lifted.

It remains to be seen whether this finding in relation to Regulation 9(4) provides some reassurance to contracting authorities that what had been relatively settled considerations in relation to lifting the automatic suspension will continue to apply, whether or not Regulation 8A is challenged further or indeed found to be invalid. However, the existence of this debate hanging over the relevant test and the prospect of a challenge to Regulation 8A will be a factor concerning to any contracting authority deciding whether or not to seek to lift an automatic suspension.

Word Perfect Translation Services Limited v. The Minister for Public Expenditure and Reform

In Word Perfect Translation Services Limited v. The Minister for Public Expenditure and Reform⁶, the Minister for Public Expenditure and Reform (the “Minister”) applied to the High Court for an order lifting the automatic suspension relating to a contract for interpretation services due to a legal challenge brought by Word Perfect Translation Services Ltd (“Word Perfect”), a disappointed bidder.  The High Court ruled in favour of lifting the suspension, but Word Perfect appealed to the Court of Appeal.

The Court of Appeal allowed the appeal and reversed the decision to lift the suspension, although it required an undertaking from the challenger that it would prosecute the underlying case with urgency and without delay. Hogan J, giving judgment on behalf of the Court, focused on what “damages” meant in the context of Regulation 9(6) of the Remedies Regulations. Regulation 9(6) states “[t]he Court may award damages as compensation for loss resulting from a decision that is an infringement of the law of the European Communities or the European Union, or of a law of the State transposing such law.” In the High Court, Noonan J had found that damages would be an adequate remedy for the challenger in this case and proceeded to lift the suspension.

Hogan J disagreed. He held that:

• reference to damages in Regulation 9(6) is a reference to Francovich damages (ie the type of special damages applicable to EU law breaches, and not normal domestic law damages);
• this was because the reference to damages was introduced under a statutory instrument, which can only introduce something mandated by EU law, and cannot go beyond what is mandated by EU law;
• Francovich damages are the only type of damages that can be said to be mandated by EU law and therefore must be what is referred to under Regulation 9(6);
• the entitlement to Francovich damages for a breach of EU law is highly conditional and limited;
• to be entitled to Francovich damages, it is necessary to show not just that there had been a breach of EU law which directly caused harm to the challenger, but also that such breach was “sufficiently serious”, which, quoting the  2017 Supreme Court judgment referred to above, meant “grave or manifest” or “inexcusable”;
• accordingly, there was a high bar for damages to be awarded to Word Perfect in any subsequent hearing of their procurement challenge and damages would therefore not be an adequate remedy; and
• in the circumstances, the balance of convenience indicated to the court that the suspension ought to be left in place and the appeal was allowed. 

Again, this judgment will give contracting authorities who are debating whether to apply to lift a suspension pause for thought, as it appears that it will become harder to satisfy the “damages are an adequate remedy for the challenger” requirement. It could be argued that many challengers will be in a different position to Word Perfect, who alleged that losing the contract would essentially threaten the existence of the company. However, again it introduces uncertainty into what had been a relatively settled approach in Ireland. It will require a number of further judgments before we can see the true implications of this decision.