Procurement Case Note (NI): PPL Automatic Suspensions & Catastrophic Harm: Not-for-Profit Entity resists Application to Lift

Introduction

The Northern Ireland High Court considered an application by the Defendant, the Department of Agriculture, Environment and Rural Affairs (a department of the Northern Ireland Executive), for an order pursuant to the Public Contract Regulations 2015 (PCR) to lift the automatic suspension of the award a contract for the provision of a rural community support service 1.

The Court’s decision involved a review of the law and principles applicable to automatic suspensions in Northern Ireland and in particular, applications to lift the suspension in circumstances where the plaintiff is a not-for-profit entity.

Background 

In June 2022, the Defendant commenced a competition, seeking proposals for a local community development support service. Following the evaluation of tenders, a decision was made to award the contract to the Fermanagh Rural Community Network. The Plaintiff, a not-for-profit charity which had been the incumbent service provider since 2018 but had submitted an unsuccessful tender, initiated legal proceedings in September 2023, challenging that decision. The Plaintiff’s contract had originally been due to expire in June 2021, but had been extended on seven occasions, the most recent extension being to 31 January 2023.

The Plaintiff claimed that it had been engaged in providing rural community support since 1989 and its four staff were uniquely experienced in providing such services. It was financially dependent on its existing contract, the loss of which (according to the Plaintiff’s accountant) “would inevitably lead to redundancies”. Details of the Plaintiff’s financial dependency on its existing contract were revealed, showing that (together with grant monies received for providing additional services) the contract accounted for 69% of the Plaintiff’s income in 2021 and 38% in 2022. 78% of the income generated by the contract went towards salaries and 22% towards costs and administration. The Plaintiff argued that the loss of the contract would “make it unsustainable for the plaintiff to continue as a charity” as the “provision and continuation of the subject contract constitutes the plaintiff’s reason d’etre without which its charitable purpose would be caused to suffer and be fundamentally undermined.” For all of these reasons, the Plaintiff claimed that damages would not be an adequate remedy.

The Defendant acknowledged that the services were of vital importance and were needed to encourage and enhance infrastructure to deliver services to vulnerable rural dwellers and tackle isolation in rural areas. Although the Plaintiff appeared willing and able to continue to provide the services beyond 31 January 2023, the Defendant took the view that the incumbent’s contract could not be extended further because of the restraints imposed by Regulation 72 of the PCR.

Applicable Principles

The High Court recounted the well-settled principles of American Cyanamid 2 that apply to applications to lift suspensions in procurement cases: 

(i)    Is there a serious issue to be tried?

(ii)    If so, would damages be an adequate remedy for the Plaintiff if the suspension was lifted and it succeeded at trial?

(iii)    If not, would damages be an adequate remedy for the Defendant, if the suspension remained in place and it succeeded at trial?

(iv)    Where there is doubt as to the adequacy of damages for either or both parties, which course of action is likely to carry the least risk of injustice if it transpires, that it was wrong - i.e. where does the balance of convenience lie? 

The Court noted that there is no basis for weighting the exercise in favour of maintaining the prohibition on the contracting authority from entering the contract 3. 

As the Defendant conceded that there was a serious issue to be tried, the focus of the Court was on the adequacy of damages and the balance of convenience. 

As regards the adequacy of damages, the Court affirmed the formulation set out by Coulson J in Covanta 4 - where damages are an adequate remedy, that will normally be sufficient to defeat an application for an interim injunction, but this is not always the case; the courts are also required to assess whether it is just, in all the circumstances, for a claimant to be confined to a remedy of damages 5. 

Other relevant principles to be derived from existing case-law included the following:

• the burden of proof lies with the plaintiff, the party seeking suspension;
• there must be a real prospect of loss attributable to the loss of the contract that would not be recoverable in damages 6; 
• the plaintiff must produce solid, cogent evidence that damages are not adequate - bald assertions are insufficient 7;  and
• the amount of damages that may be recoverable is immaterial – the question is whether damages are an adequate remedy.

The Court considered whether the adequacy of damages test is applied differently to not-for-profit entities. The view of Coulson J in Bristol Missing Link 8 - that a non-profit making organisation can still claim that damages would not be an adequate remedy - was noted. In that case it was found that the charity would suffer ‘catastrophic harm’ as a result of the contract being awarded to another entity, part of the charity’s work could not be carried out by other organisations and the charity’s reputation would be significantly affected.

This was contrasted with the decisions in Perinatal 9 and Kent Community Health NHS Foundation 10 where the Courts did not consider that Coulson J was setting an absolute rule that a non-profit organisation can never be compensated adequately in damages, although in Perinatal it was conceded that “the fact that an organisation is non-profit may make it more likely that it cannot be adequately compensated in damages”. 

The facts in Counted4 Community Interest Company 11 were also recalled. This was a case concerning a not-for-profit organisation which had not been successful in retaining a contract it had held for the previous seven years. It was found that highly specialised and ‘uniquely trained’ staff employed in the organisation would be lost if the suspension were lifted and consequently, damages were held not to be an adequate remedy. 

Decision

In the present case, McBride J decided that damages would not be an adequate remedy for the Plaintiff. The award of the new contract would lead to the loss of “uniquely experienced” staff, leaving the charity unable to carry out its charitable purpose. The contract was essential to the long term survival of the organisation and without it the Plaintiff would suffer “catastrophic consequences which are not compensatable in damages”.

Even though a plaintiff can show damages are not an adequate remedy it still has to persuade the Court that the balance of convenience lies in favour of continuing the suspension. In this regard, a non-exhaustive list of factors to taken into account was given - the effect of delay, the public interest, the impact on other tenderers, the impact on the plaintiff of refusing suspension, the strength of the Plaintiff’s case and the extent to which damages are available.

Where the various interests involved do not weigh significantly more in favour of one side than the other, it is an established principle under the American Cyanamid approach that the status quo should be favoured, which in a procurement case will generally mean allowing the contract to go ahead 12. 

As noted in TES Group 13, the public interest weighs heavily in the balance in procurement cases. Although the Defendant claimed that the public interest lies in awarding the contract to ensure that there is continuity of vital services to rural areas, the Plaintiff argued that it was within the power of the Defendant to extend its existing contract beyond 31 January 2023. The Court did not accept that there would, of necessity, be a gap in the provision of Services; the Plaintiff was willing to continue to provide services and the Court was satisfied that the Defendant, if it chose to, could extend the contract again and make a judgement about the risk of legal challenge against the risk of community services not being provided. Furthermore, even if there were to be a gap in the continuity of services, that would be because of a decision made by the Defendant and it would be of short duration as the Court was satisfied that an expedited trial would be possible.

Having taken all factors into account, the Court found that the balance of convenience tipped in favour of the suspension remaining in place. Not lifting the suspension was likely to cause the least irremedial prejudice to the Plaintiff. The Defendant’s application to lift the stay was therefore refused. 

 

The author wishes to acknowledge the contribution of Dearbhla McLoughlin to this casenote.

This casenote was first publishe in the Public Procurement Law Review

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1  Omagh Forum for Rural Organisations v The Department of Agriculture, Environment and Rural Affairs [2023] NIKB 14.

2  American Cyanamid Company v Ethicon Ltd. [1975] AC 396, as endorsed by the Northern Ireland Courts in Eircom UK Ltd v Department of Finance [2018] NIQB 75, CSC Computer Sciences v Business Services Organisation [2020] NIJB 480, TES Group Ltd v Northern Ireland Water Limited [2020] NIQB 62 and Sisk v Western Health and Social Care Trust [2014] NIQB 56.

3  Thus endorsing the views of Jefford J in Excel Europe Limited v University Hospital Coventry and Warwickshire NHS Trust [2010] EWHC 3 332.

4  Covanta Energy Ltd v Merseyside Waste Disposal Authority (No.2) 2013 151 Con LR 146.

5  Also referred to in Perinatal Institute v Healthcare Quality Improvement Partnership [2016] EWHC 2626.

6  Open View Security Solutions v the London Borough of Merton Council [2015] EWHC 2694.

7  TES Group Ltd v Northern Ireland Water Limited [2020] NIQB 62, at paragraph 62.

8  Bristol Missing Link Ltd v Bristol City Council [2015] EWHC 8766.

9  Perinatal Institute v Healthcare Quality Improvement Partnership [2016] EWHC 2626.

10  Kent Community Health NHS Foundation v NHS Swale Clinical Commissioning Group and Others [2016] EWHC 1393

11  Counted4 Community Interest Company v Sunderland City Council [2015] EWHC 3893

12  Kent Community Health NHS Foundation Trust v NHS Swale Clinical Commissioning Group [2016] EWHC 1393 at paragraph [40].

13  TES Group Ltd v Northern Ireland Water Limited [2020] NIQB 62.