Automatic for the people?

Referee iStock 000006306507XSmall 146x219Have contracting authorities lost their automatic injunction protection? Deborah Ramshaw analyses a recent ruling.

Authorities will be aware of the requirement under the Public Contracts Regulations 2006 (the “Regulations”) to refrain from entering into a contract when legal proceedings are commenced challenging the authority’s decision to award the contact. The authority is required to refrain from entering into the contract until “the proceedings at first instance” are determined, discontinued or otherwise disposed of.

Under the Regulations the court may make an order to lift the requirement to automatically suspend the contract. When deciding such an order:

  • The court must consider if Regulation 47G(1) was not applicable (such that there was no automatic suspension) it would be appropriate to make an interim order requiring the authority to refrain from entering into the contract;
  • Only if  the court considers that it would not be appropriate to make such an interim order may it make an order to lift the automatic suspension;
  • Under Regulation 47H(3) if  the court considers that it would not be appropriate to make such an interim order in the absence of undertakings and conditions, it may require and impose such undertakings and conditions in relation to the requirements in Regulation 47G(1).

After the above requirement was introduced, the courts have generally ordered the automatic suspension to be lifted following the application by an authority (see for example the cases of Excel Europe Limited and Indigo Services). Authorities have often sought to obtain a voluntary cross undertaking in damages from a claimant either before, or shortly after proceedings are issued. A cross undertaking in damages is an undertaking by a claimant to proceedings that in the event of it losing at the ultimate trial of the matter it will reimburse the authority for the damages it incurs as a result of the authority not be able to enter into the contract with the winning bidder due to the claimant issuing legal proceedings.

Concerns over having to provide such a cross undertaking in damages often dissuaded a claimant from actually issuing legal proceedings. Whilst a claimant would obtain an immediate tactical advantage due to the imposition of the automatic suspension under the Regulations, it would have to be fairly certain that it would win at the ultimate trial as otherwise it would likely have to pay consequential damages to the authority and possibly to third parties. Issuing legal proceedings for claiming a breach of the Regulations is therefore a big step for claimants.

The recent case of Lowry Brothers Limited and Wilson (trading as AG Wilson) v Northern Ireland Water Limited [2012] MIQB105 has cast doubt on the need to voluntarily provide such a cross undertakings in damages immediately after proceedings are issued. The case concerned a procurement exercise conducted by Northern Ireland Water Limited in relation to a contract for its IF019 Capital Delivery Framework (CDF).

The two claimants brought proceedings to challenge the decisions of Northern Ireland Water and sought an order setting aside the decisions, a declaration that the decisions were unlawful, an order restraining Northern Ireland Water from inviting any contractor to negotiate for the relevant loss, or damages. Northern Ireland Water applied to the High Court requesting that the issue of whether the actions were time barred be considered as a preliminary issue. It also sought an interim order under the Regulations to lift the automatic suspension.

At an early preliminary hearing in December 2012 Northern Ireland Water also raised the question of whether the claimants should be required to provide an undertaking in damages. It argued that the CDF was a vital part of its capital work programmes and that any delay in executing the necessary works would have a detrimental impact on the water and sewerage network in Northern Ireland.

The High Court provided judgment in the question of undertakings in damages and whether these could be imposed in accordance with the Utilities Regulations at this stage in the proceedings. The Court considered that the effect of Regulation 45(H)(3) was to require the court to have regard to the issue of undertakings and conditions in cases where this arises. In accordance with Regulation 45(H)(2) where it does so the court must ask whether it is appropriate to restrain a defendant by injunctive order from proceeding to execute the relevant contract without conditions or undertakings. By virtue of Regulation 45(H)(2) this issue must be considered “when deciding to make an order under Regulation 45(H)(1)(a)”. 

The Court applied a narrow construction of “when”, and held that this was the time when the Court determines the defendant’s application for an interim order to lift the automatic suspension. The Court concluded that at the time the application was made to require the claimants to provide a cross undertaking in damages the time had not yet been reached in the proceedings.

The Court therefore concluded that it could not impose conditions or undertakings at that time. It noted that no condition or undertaking can be imposed until an order has been made and they must be directly connected to an order. In exercising the discretionary power the court must take account of all material facts which requires the court to be as fully informed as possible which was not possible until affidavit evidence and pleadings had been completed.

In this case therefore Northern Ireland Water was exercising its right for access to the court for the purpose of determining its application for a termination order under Regulation 45H. However, the claimants were also exercising their rights to a fair hearing of the application which meant they had a right to submit pleadings and affidavit evidence and to be heard. The question of conditions and undertakings will arise at the stage of the hearing of the application of the termination order.

What does this case mean for contracting authorities?

It would appear that the courts will not agree to an application for a cross undertaking in damages before the application to lift the automatic suspension is heard. As authorities have generally tried to obtain voluntary cross undertakings in damages from claimant bidders prior to the hearing of such applications, in light of this case it is arguable that claimant bidders may no longer feel it necessary to provide voluntary undertakings until the application to lift the automatic suspension.

In addition it remains to be seen whether when imposing a cross undertaking at a hearing to lift the automatic suspension the courts will be willing to back date any cross undertaking in damages ordered. There may be a delay in hearing any application to lift the automatic suspension after the contract award decision during which time a contracting authority may have incurred substantial cost/damages.

In our opinion it is unlikely that the court will back-date any cross undertakings in damages condition, but it is something authorities should consider requesting in circumstances where they have incurred substantial costs or damages between the imposition of the automatic suspension and the court hearing to lift it.

Authorities will need to consider making applications to hear their application to lift the automatic suspension as soon as possible, given that they may be incurring damages/costs in the intervening time.

Deborah Ramshaw is Head of Procurement at Dickinson Dees. She can be contacted on 0191 279 9836 or by This email address is being protected from spambots. You need JavaScript enabled to view it..