England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		29 July 2008

MR JUSTICE MACKAY:

The Background to this Dispute.

1. In 1998 the predecessor of the defendant, London Regional Transport, entered into a complex, high value contract with Transaction Systems Limited ("TranSys") for the provision of electronic ticketing systems and services for London's public transport system. That contract has been named the ticketing services contract ("TSC"). Unless terminated earlier it is due to remain in force until the autumn of 2015. TranSys was a joint venture company owned by, among others, Electronic Data Systems Limited, the claimant, and Cubic UK Limited ("Cubic") who also both acted as subcontractors to perform the TSC. In the very broadest of terms, Cubic provided card readers and software associated with them and the claimant all auxiliary services. This is a simplification but will do for present purposes.
2. The defendants became dissatisfied with TranSys as a contractor and over a long period sought to renegotiate the TSC. By February of this year those negotiations had broken down and the defendant said it proposed to exercise its right to terminate the contract on or before 13 August next by giving two years' notice of termination. In return it has to pay a sum to TranSys. There are other terms in the contract which would entitle it to terminate the TSC on later dates but these would be a more expensive course of action.
3. On 13 May 2008 the defendant told the claimant that it was considering awarding a new contract to Cubic, to be known as the future ticketing contract ("FTA"). It appears that negotiations are at a fairly advanced stage. What its terms are exactly is not known, but from the evidence it seems that it will require Cubic to do things within the notice period, starting in August 2008 running to August 2010, and then deliver services after the termination of the TSC for a three-year period, after which there will be in place systems to deliver those services and there will then be a competition to tender for a further ticketing contract.
4. The claimant comes to this court and argues that this proposed contract, the FTA, would offend the Utilities Contracts Regulations 2006 and it seeks interim relief preventing the defendant from entering into the FTA. It is therefore first necessary to look at those regulations.

The 2006 Regulations.

5. These import into UK law two European directives, Council Directive 2004/17/E and 92/13/EEC, respectively the Procurement and Remedies Directives. It is common ground that these apply to the defendant as a utility intending to enter into such an agreement as the FTA. The recital of the Procurement Directive illustrates the purpose of opening public procurement contracts to a competitive process. I do not lengthen this judgment by setting it out here. Of immediate relevance are these regulations:

"Call for competition.

16 --(1) Subject to regulation 17, for the purposes of seeking offers in relation to a proposed contract a utility shall make a call for competition.

"Award without a call for competition.

17 --(1) A utility may seek offers in relation to a proposed contract without a call for competition in the following circumstances ...

(c) when, for technical or artistic reasons, or for reasons connected with the protection of exclusive rights, the contract may only be performed by a particular economic operator.

"Economic operators.

4. --(1) In these Regulations, an 'economic operator' means a contractor, a supplier or a services provider ...

(3) A utility shall (in accordance with Article 10 of the Utilities Directive) --

treat economic operators equally and in a non-discriminatory way; and act in a transparent way."

6. The derogation from the regulations, for such it must be called, afforded by regulation 17(1) has to be considered in the light of the guidance of the European Court gave in Commission v Hellenic Republic Case C-394/02 which considered an identically worded provision. The Greek government had been seeking to defend its failure to use a competitive process on the basis that only one contractor had the technical know-how and ability to carry out the particular contract. The court said this at paragraph 33 and following:

(a) "In this respect, it should, as a preliminary point, be noted that, as derogations from the rules relating to procedures for the award of public procurement contracts, the provisions ... must be interpreted strictly. Also, the burden of proof lies on the party seeking to rely on them...

(b) "34 ... It follows from the case-law that the application of that provision is subject to two cumulative conditions, namely, first, that there are technical reasons connected to the works which are the subject-matter of the contract and, second, that those technical reasons make it absolutely necessary to award that contract to a particular contractor...

(c) "35. In this case ... the Greek Government has not convincingly shown that the ... consortium was alone in a position to carry them out and that it was, as a result, absolutely necessary to award it the contract."

7. Returning to the Regulations, and in particular the remedies provided, the following is relevant:

"Enforcement of regulations.

45 --(1) The obligation on the utility to comply with the provisions of these Regulations ... is a duty owed to an economic operator ...

(4) A breach of the duty owed in accordance with paragraph (1) ... is actionable by any economic operator which, in consequence, suffers, or risks suffering, loss or damage and those proceedings shall be in the High Court ...

(6) Subject to paragraph (7), but otherwise without prejudice to any other powers of the Court in proceedings brought under this regulation, the Court may --

by interim order suspend the procedure leading to the award of the contract or the procedure leading to the determination of a design contest in relation to the award of the contract of which the breach of the duty owed in accordance with paragraphs (1) or (2) is alleged, or suspend the implementation of any decision or action taken by the utility in the course of following such a procedure...

(7) In proceedings under this regulation the Court does not have power to order any remedy other than an award of damages in respect of a breach of the duty owed in accordance with paragraphs (1) or (2) if the contract in relation to which the breach occurred has been entered into."

8. Mr Howell QC for the claimant says that this all indicates that at the stage of interim relief these are special provisions designed to give effect to the Remedies Directive, the plain purpose of which is, first, to rectify breaches of procurement obligations at the earliest opportunity and, secondly, to ensure that effective remedies are available to economic operators. He points out that otherwise, by virtue of regulation 45(7), where a contract has in fact been entered into in breach of the duty owed the claimant is confined to a damages claim, which he says is a notoriously difficult thing to prove by an unsuccessful or excluded participant in a competitive tendering process. The regulation conspicuously fails to give the court power to set aside such a contract.
9. For the defendant Mr Lasok QC relied on the Court of Appeal's decision in Lettings International Limited v London Borough of Newham [2007] EWCA 1522 where similar provisions were being considered and being considered at an interim stage. At paragraph 12 the court stated:

(d) "The principles generally applicable when considering whether to grant relief by way of interim injunction were established in the case of American Cyanamid Co v Ethicon Ltd [1975] AC 396. They were applied in a case involving a claim under these regulations in Lion Apparel Systems Ltd v Firebuy Ltd [2007] EWHC 2179 Ch and also by the judge in the present case. In my view, the considerations governing an application for interim relief ... are so similar to those which arise on the ordinary application for an interim injunction that it is appropriate to apply the same principles, and indeed that was not in dispute before us. It is common ground, therefore, the court must ask itself the following questions:

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

(ii) Would damages be an adequate remedy for any interference with either party's rights which may later be found to have occurred?

(iii) Does the balance of convenience favour maintaining the status quo?"

10. It is apparent from that passage that this was not fully argued law. The references to "common ground" and "not in dispute" show that. But I accept Mr Lasok's argument that it is plain that the Court of Appeal gave thought to this matter. It took trouble to set it out at a certain amount of length and I believe, exercising caution as I should in this type of application, I ought to apply conventional principles of domestic law to this particular application for interim relief. I have to ask as a separate question within that whether the claimant should, if it is successful, be required to give what might be called the usual cross undertaking in damages.
11. In his favour in resisting that proposition Mr Howell relied on a decision of His Honour Judge Humphrey Lloyd QC sitting in the High Court in the case of Harmon CFEM v House of Commons [2000] 2 LGLR 372 at paragraph 253. He thought that the equivalent regulation he was considering in that case conferred on the court, as he put it:

(e) "An additional power the exercise of which is not fettered, for example, by the need for an undertaking or by damages being an adequate remedy."

12. He gave reasons for that. I am not sure that that survives the Lettings International decision. In any event the point may be academic to this extent: Mr Howell volunteered that if he is to be successful in this and if he was required to do so the cross undertaking would be given by the claimant. I will have to return to that later.

The Defendant's Case on Regulation 17.

13. It is important to see how the defendant put its case when first challenged by the claimant on this point. There was a lengthy letter from its solicitors dated 1 July 2008. These passages seem to me to be relevant and I should set them out fairly fully:

(f) "TTL has concluded that the 'technical reasons' derogation in Regulation 17(1)(c) of the Regulations applies. Because TTL lacks access to/knowledge of the design and functionality of the Prestige system [in the TSC], no provider other than Cubic (or another Cubic entity) would be able to supply the required services under the proposed contract [ie the FTA]. This is because of legal and practical limitations on TTL's access to key intellectual property which is currently licensed to TranSys by Cubic. Whilst TTL considers that its rights of access to intellectual property under the TSC are broader than those accepted by TranSys and reserves its rights in respect of those issues, the attitude of TranSys (of which EDS is a major shareholder) means that it is not possible for TTL to obtain the information necessary to hold a competitive tender."

A little lower down the letter continued:

(g) "TTL has therefore concluded that it would be unable to provide sufficient access/information to third party bidders for them to submit credible bids and/or operate the services to the required specifications."

Finally, at paragraph 10: The letter concluded

(h) "TTL considers that entering into an improved contract with Cubic will provide that information and allow a procurement exercise to take place much earlier, as TTL anticipates that the new contract will have a duration of around 3 years from termination of the TSC in 2010. Should it wish to, EDS could submit a bid as part of that procurement process."

14. As would be expected, the TSC, a formidable bidding document, has provisions relevant to these issues.
15. Clause 19(1) licenses all Contractor owned IPR (intellectual property rights) to the defendant or its nominees on a: "Perpetual, irrevocable ... and royalty-free licence" for the purposes, among others, of "understanding the system".
16. Clause 34(15) requires the contractor to take all reasonable steps to facilitate the engagement of a successor contractor in the year before termination and that includes specified hand back services.
17. Therefore it seems to me at this stage of the action that either there is no genuine problem here or, if there is, then it is one that this defendant would face whenever the TSC came to an end, either at full term or upon earlier termination. Either way it does not seem to me to fit with the terms of regulation 17(1) construed in accordance with the principles of the Hellenic Republic case as to onus of proof and strict construction.
18. So I have to say at this stage, and at my level of understanding of the case on an interim basis, I do not find the strength of the defendant's position on its claim for derogation to be impressive.
19. But the defendant further argues that the claimant is not within the definition of an "economic operator which ... suffers, or risks suffering, loss or damage" in consequence of the defendant's failure to call for competition before letting out the FTA. Only such an entity can avail itself of the regulation 45 remedies, as Mr Lasok rightly points out. It does not allow for some more general law enforcement type of action. I therefore have to ask myself whether there is a serious issue to be tried as to whether this claimant, either alone or in some form of partnership or consortium with others, could realistically put forward a credible bid for the FTA.
20. There is evidence from the claimants in the form of Mr Gutteridge's second witness statement, between paragraphs 4 and 8, of how this might be done, where he set out the size of the claimant as an organisation, its general contractual capabilities and experience and other examples of complex electronic ticketing contracts in which it is involved. As I have said, such contracts are not infrequently in the hands of consortia, as was the TSC here, where there are delineated areas of operation. But the claimant can, in my view, go no further than it has gone in this issue, for the reason that neither it nor the court has been shown how the FTA is modelled and what it says in terms of its specification and what is called for by way of obligations on the part of the contractor.
21. One could, as Mr Lasok says in his written argument, expect this issue of standing to be the subject of considerable attention by both sides at any trial. For present purposes I am quite satisfied that the claimant has a good arguable case in relation to its standing to make this claim. I have considered the opinion, albeit it is not binding on me, of the Advocate General in the case of Nachrichtenagentur GMBH C-454/06, especially paragraphs 143 and 148. She pointed out that limited standing to applicants who had an interest in the relevant contract and who could show existing or imminent harm served to exclude applicants with no prospect of success but "the possibility of harm ... must be presumed where it is not manifestly excluded". This I take as tending to support the view I have otherwise formed on this issue. As the defendant's skeleton (to which I have already referred) put it, this raises an issue of fact which can be decided at trial. I agree with that but I do not agree with the proposition that it could only be decided at trial, at least for the purpose of deciding whether there is a sufficient case on it to support such a claim as this. My judgment is the claimant has done enough to raise again a good arguable case for present purposes.

The Side Letter.

22. The defendant's final position is that this letter, the implementation of which, the defendant would accept as an imposed undertaking, as Mr Lasok indicated, is a complete answer to the claimant's concerns and renders the relief that is being sought otiose. I should therefore exercise my discretion not to grant it. I should set it out and do so in its final form, with the first paragraph having been amended by the defendant in response to observations on the first draft. In its relevant parts it reads as follows:

"1. Notwithstanding any other provision of this Contract, if the final judgment of the court in the proceedings in the High Court ... following any appeal or, if no appeal, upon the expiry of the applicable time limit for an appeal ('the Final Judgment'), is that TTL was obliged under the Utilities Contracts Regulations 2006 ('the Regulations') to hold a competitive procurement process in order to appoint a replacement supplier to TranSys and/or has breached the Regulations by failing to hold a competitive procurement process, then this Contract shall automatically cease and determine with effect from the date of the Final Judgment and the Parties shall take all necessary steps at their own cost ... to restore each of them to the position that they would have been in had the FTA not been executed.

"2. Notwithstanding any other provision of this Contract, if no Final Judgment has been made prior to 13 August 2009 and the Proceedings have not been discontinued by that date, then TTL may, by seven days' written notice to Cubic served at any time prior to 13 September 2009, terminate this Contract.

"3. If the Contract ceases or is terminated pursuant to the provisions of this Clause:

TTL shall reimburse Cubic for its actual and demonstrable incremental costs and expenses..."

23. There then follow definitions and limitations of those costs. There is provision for arbitration if disputes arise and the letter is said to create legally binding obligations and to be subject to English law. It is all prefaced by its introduction that the terms that I have set out will be included in the FTA between the defendant and Cubic.
24. The defendant says that this is in the circumstances adequate protection for the claimant and gives it what the Regulations do not give it, namely, a right if it otherwise succeeds in its claim at trial to annul the concluded contract between the defendant and Cubic and permit it to tender for its replacement if it wishes. Mr Lasok says that a speedy trial should be ordered and could possibly be concluded by the end of this year. To meet a preliminary objection by the claimant that, just as they have incorporated the side letter into their proposed contract, the defendants could as easily remove it hereafter, the defendant offers further reassurance in the form of a letter dated 25 July 2008 in these words:

"To give you greater comfort, our client undertakes not to amend, vary or waive the terms of the Side Letter pending resolution of your claim."

Again, as I understood it, Mr Lasok would accept that as an imposed undertaking, so to speak, were he to be successful in resisting this claim.

25. For the claimants there is a theoretical objection raised to all this, expressed in Mr Gutteridge's second witness statement at paragraph 31, that it all runs counter to the apparent purpose of these regulations and serves to allow a procuring party to proceed by ignoring the requirements as to competition, to award a contract and then put the onus on an interested economic operator to prove after the event that the award of the contract was unlawful. But the main thrust, as I understand it, of the claimant's objection is much more of a practical one. It seems from some of the defendant's evidence, particularly Mr Varma's second witness statement, paragraph 19, that discussions between Cubic and the defendant have progressed to a stage where the defendant has indicated its intention to commission prior to the termination of the TSC in August 2010 a new card reader for, as it is put, "about £3 million" but "the claimant could bid for the remaining services" under the tender process envisaged in 2013.
26. This perhaps illustrates one aspect of Mr Howell's objection to the side letter, which is supported, he says, by a decision of the European Court, to which I will come. The argument is that for whatever period the claimant is kept out of the bidding for the FTA, Cubic is, so to speak, inside the tent and is obtaining advantages or may be obtaining advantages that will be denied to the claimant and other possible bidders. Over the next two years it is to be expected, he argues, that Cubic and the defendant will together be looking ahead to see what it is that the defendant will want to specify and require for the longer term future. Cubic will be acquiring knowledge of the defendant's thinking. In a way this has a similarity to the defendants' own argument under regulation 17 that the defendants will make use of this period to get access to Cubic's IPR and so, as it put it, "obtain the information necessary to hold a competitive tender" (see the letter of 1 July 2008, paragraph 4).
27. Mr Howell points to the case of Fabricom SA v Belgium, Case C-21/03 [2005] ECRI 1559, as an important authority for the proposition that a person who has been instructed to carry out research, experiments, studies or development in connection with works, supplies or services is or may be at an advantage when formulating his tender the court said this:

"25. By the first question referred in Cases C-21/03 and C-34/03, the national court is seeking essentially to ascertain whether the provisions of Community law to which it refers preclude a rule, such as that laid down in Article 26 of the Royal Decree of 25 March 1999 (which states that any person who has been instructed to carry out research, experiments, studies or development in connection with public works, supplies or services is not allowed to participate in or to submit a tender for a public contract for those works , supplies or services where that person is not permitted to prove that, in the circumstances of the case, the experience which he has acquired was not capable of distorting competition ('the rule at issue in the main proceedings').

"26. In that regard , it must be borne in mind that the duty to observe the principle of equal treatment lies at the very heart of the public procurement directives, which are intended in particular to promote the development of effective competition in the fields to which they apply and which lay down criteria for the award of contracts which are intended to ensure such competition (Case C-513/99 Concordia Bus Finland [2002] ECR 1-7213, paragraph 81 and the case-law cited there).

"27. Furthermore, it is settled case-law that the principle of equal treatment requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified (Case C-434/02 Arnold Andre [2004] ECR 1-0000, paragraph 68 and the case-law cited there, and Case C-210/03 Swedish Match [2004] ECR 1-0000, paragraph 70 and the case-law cited there).

"28. A person who has been instructed to carry out research, experiments, studies or development in connection with works, supplies or services relating to a public contract (hereinafter 'a person who has carried out certain preparatory work') is not necessarily in the same situation as regards participation in the procedure for the award of that contract as a person who has not carried out such works .

"29. Indeed, a person who has participated in certain preparatory works may be at an advantage when formulating his tender on account of the information concerning the public contract in question which he has received when carrying out that work. However, all tenderers must have equality of opportunity when formulating their tenders (see, to that effect, Case C-87/94 Commission v Belgium [1996] ECR 1-2043, paragraph 54).

"30. Furthermore, that person may be in a situation which may give rise to a conflict of interests in the sense that, as the Commission correctly submits, he may, without even intending to do so, where he himself is a tenderer for the public contract in question, influence the conditions of the contract in a manner favourable to himself. Such a situation would be capable of distorting competition between tenderers.

28. The court went on to conclude that "a person who has carried out certain preparatory work" should [inaudible] be permitted to participate in a tendering procedure, subject to an assessment as to whether he had in fact received a competitive advantage over others

I remind myself of regulation 4(3) that the utility has to treat economic operators equally and in a non-discriminatory way and act in a transparent way. The defendant has, as I have said, been in negotiations with Cubic now for several months and has reached a point where it is close to contracting. Adding further opportunities for dealings between them for several more months at the very least, it may be much longer if there are appeals following the speedy trial or even a reference to Europe, will serve further to distort any subsequent competition which might take place if the claimant wins its case. Cubic in a sense is itself subsidised by the provisions of the side letter as to compensation for it and is risk free over this same period.

29. Mr Lasok says in reply that the problem described by Mr Howell is no worse than that which is encountered when at the end of a contract an incumbent contractor is in competition for the new or replacement contract. A properly conducted tendering process is then deployed and seen as the way to level the playing field. The analogy, in my judgment, is not exact and is indeed some way away from it. The differences seem to me to be, first, that the incumbent contractor problem is a problem and is inevitable which is not the result of non-compliance with the regulations. It could only be dealt with in one way, by excluding the incumbent contractor from re-tendering altogether, which would be almost certainly a disproportionate response. It therefore has to be dealt with as well as may be. Secondly, Cubic is on the inside track until the re-tendering process takes place and will be likely, as I have indicated the argument runs, and I accept it, to be privy to many of the defendant's future plans and wishes and the way it likes things done. That will not necessarily be the position of an incumbent at the tail-end of a long contract. Therefore, in my judgment, there is a significant risk that, despite the terms of the side letter, if the claimant eventually proves its case it will have suffered loss and loss, which it will be very difficult to substantiate and prove.
30. What if the claimant loses? The defendant's argument is that it cannot be expected to terminate the TSC on 12 August next at the latest without having reached agreement with Cubic as to the FTA which is to succeed it, as, if it does not, Cubic will be able to hold it to ransom. But however and whenever the TSC is brought to an end, it seems to me that that will always be a problem for the defendants at least if it does not call for competition. The claimant's answer is that it should serve notice by all means if it so wishes but it should then put in place a competition for the replacement in two years' time.

Conclusions.

31. I consider the claimant has shown that it has a sufficiently strong case demonstrated at this stage to show that there is a serious issue to be tried between it and the defendant as to the derogation and standing issues. The side letter, for the reasons that Mr Howell has put forward, I do not regard as an answer to this claim for relief, nor would it be just or in keeping with the scheme of these regulations and their purpose to leave the claimant with merely a remedy in damages. The balance of convenience favours the claimant, who seeks to maintain the status quo and who is entitled, in my judgment, to relief.
32. The relief I would propose to grant will be in the form of paragraph 2 of the draft order proposed, not paragraph 1, which is of, I consider, unnecessary width. It should include the usual cross undertaking in damages by the claimant. I am not persuaded that in principle there is any justifiable distinction between a claimant claiming interim relief under regulation 45 and any other claimant in domestic law claiming interim relief where the trial may prove the underlying claim to be unfounded and significant (in this case very significant) losses will then or may then have been caused to the defendant who is restrained.
33. I will hear counsel on any details of the proposed order. I agree that a speedy trial is appropriate and I will hear counsel on any suggestions as to directions to achieve that.