Scottish Court of Session Decisions

[1] In this action the pursuers allege that the defenders were in breach of duties incumbent on them under Part III of the Utilities Contracts Regulations 1996 (S.I. 1996 No. 2911) ("the Regulations"). In particular, they allege breaches of duties said to be incumbent on the defenders by virtue of regulations 15 and 17. In respect of those alleged breaches the pursuers seek remedies by way of (1) declarator and (2) "suspension" and interdict.

[2] The pursuers aver that their business includes the establishment and maintenance of payment networks designed to facilitate the collection of sums which are due by members of the public to inter alios utilities. I shall return later to a summary of what such a payment network involves. The pursuers set out in their pleadings an outline of discussions that took place between them and the defenders in the period from January to August 2000 about the possible provision of a payment and pre-payment network by the pursuers to the defenders. They also produced what was, I understand, accepted as a complete set of the documents that passed between them in the course of those discussions. I shall return later to the detail of those discussions, so far as it is necessary to examine them for the purpose of the motion which I heard. Ultimately the pursuers were informed by the defenders on 10 July that they had been unsuccessful in their "tender application". The pursuers' contention is, in summary, that the defenders did not follow the required procedure for obtaining competitive tenders for the service for which they intended to contract.

[3] The pursuers' substantive conclusions are in the following terms:

[4] The case came before me on the pursuers' motion for interim suspension and interdict in terms of the second conclusion.

[5] In seeking the remedies that they do, the pursuers found on regulation 32 of the Regulations, which provides inter alia as follows:

[6] By their second conclusion the pursuers seek inter alia relief of the sort contemplated in regulation 32(5)(a). That is expressly interim relief, and the regulation is expressed in language that appears to contemplate that the court will have a discretion to grant or refuse the remedy. In the present case, the relief is sought, at least in part, in the form of the common law remedy of interim interdict. Counsel on both sides of the bar accepted, in my view rightly, that I should approach the matter as I would approach any application for interim interdict, that is by looking first to whether the pursuers had established a prima facie case, and by then weighing the balance of convenience. The pursuers also seek "suspension" of the purported tendering procedure, and interim suspension, but in that connection it is, in my view, necessary to note that in regulation 32(5)(a) the reference to "suspension" cannot be a reference to the Scottish judicial remedy of suspension. In the regulation the word must be used in its ordinary, non-technical sense. Whether suspension of the tendering process within the meaning of regulation 32(5)(a) can or should be achieved by means of the judicial remedy of interim suspension is a point that may require further consideration if an interim order is to be made in the present case. I also note at this stage that it is accepted by the defenders that the contract in question has not yet been entered into, and that consequently the limitation imposed by paragraph (6) does not apply.

[7] The defenders do not dispute that they are a "utility" within the meaning of regulation 3. Nor is it disputed that the pursuers are "providers" within the meaning of regulation 2(1). The pursuers' allegation, as formulated in the summons, is that the defenders have failed to comply with the requirements of regulations 15 and 17. By regulation 5(1), those two regulations apply "whenever a utility seeks offers in relation to a proposed supply, works or Part A services contract ...", but by regulation 5(2) they do not apply when a utility seeks offers in relation to "a proposed Part B services contract ...". . The proposed contract in question was a services contract rather than a supply or works contract. The pursuers' case is therefore periled on their averment that the proposed contract was a Part A rather than a Part B services contract. The pursuers' assertion to that effect was disputed by the defenders. The proper categorisation of the services for which the defenders intended to contract therefore requires to be considered as a preliminary issue.

[8] Part A and Part B services contracts are contracts under which services specified respectively in Parts A and B of Schedule 4 to the Regulations are to be provided (regulation 2(2)). Schedule 4 sets out 27 categories of services, 1 to  16 in Part A and 17 to 27 in Part B. The third column of the Schedule contains references to the Central Product Classification of the United Nations (CPC). Category 7 in Part A is "Computer and related services" (CPC reference 84). Category 9 in Part A is "Accounting, auditing and book-keeping services" (CPC reference 862). Category 27 in Part B is a residual category "Other services" (No CPC reference). In short the pursuers' contention was that the services to be provided under the proposed contract fell into category 7 (and/or possibly category 9) and were accordingly Part A services, whereas the defenders' contention was that they did not fall into either of those categories, or for that matter any of the specific categories set out in the Schedule, and therefore fell into category 27 "Other services", and were thus Part B services.

[9] The short description of the services in question as the provision of a payment and pre-payment network is taken, it appears, from the letter of 14 February 2000 (No. 6/3 of process) which the defenders addressed to the pursuers (and, I was told, three other service providers). Attached to that letter is a document (also part of No. 6/3 of process) which contains inter alia a "description of service". That document is not, however, in a form that summarises clearly for anyone unfamiliar with such networks their essential features. The pursuers aver that:

The defenders, at my request, formulated a brief summary of the services to be provided under the proposed contract (No. 7/4 of process). It was in the following terms:

The pursuers currently provide to the defenders a similar service under a contract which is due to expire in 2001 (No. 6/31 and 6/32 of process). Mr Brodie, who appeared for the pursuers, pointed to the terms of that contract as illustrative of the content of a contract for the provision of a payment network.

[10] From those various sources the understanding that I have derived of the nature of the proposed service is that it comprised:

That is, of necessity, an oversimplification of the service, but it seems to me to be sufficient to enable the problem of categorisation as a Part A or a Part B service to be addressed.

[11] Mr Brodie submitted that in categorising the service it was necessary to concentrate on what was actually to be done by the service provider. He submitted that Mr Smith, who appeared for the defenders, concentrated too much on the purpose of the service from the point of view of the defenders, and not enough on the activities demanded of the service provider. The service provider was given no option as to how the service was to be provided. The proper focus was therefore on the means by which the service was to be provided, rather on the purpose which it was to achieve. Essentially, what was to be provided was an electronic data processing service. It therefore fell into category 7. If it spilled beyond that category, it fell into category 9. It was, in effect, an electronic book-keeping system. On either basis it was properly to be seen as a Part A service.

[12] Mr Smith submitted that the service to which the contract was to relate was the provision of a payment and pre-payment collection facility. The references in Schedule 4 to the Regulations to CPC derived from the Directive 93/38 (see paragraph 23 of the preamble). It was therefore appropriate to look to CPC in more detail. Reference was made to a Breakdown of CPC Reference Numbers (No. 7/1 of process), which expanded upon the detail of the CPC reference numbers that appeared in Schedule 4. The breakdown of the category "Computer and related services" was to be found at page 9/6 of that document. Although data processing was involved in the services to be provided under the proposed contract, it was not a data processing service. Data processing was but a means to the provision of the service, not the substance or purpose of the service. Mr Smith also referred to Central Product Classification (CPC) Version 1.0 (UN Statistical Papers, Series M, No. 77, Ver. 1.0) (No. 7/2 or process). This was a successor of the version of CPC to which reference was made in Schedule 4, but contained cross-references to the earlier version. At page 7, paragraph 15, of that document the following passage appears:

At page 578 of the document, "collection agency services" were assigned the reference number 87902, part of the category "other business services" (reference 8790). At page 267, in relation to "collection agency services" it is said:

That, Mr Smith submitted, was the category into which the services to which the proposed contract related naturally fell. Since CPC references 8790 and 87902 did not appear in the third column of Schedule 4, it followed that services covered by those CPC references were "other services" which fell into category 27 in Schedule 4, and were accordingly Part B services.

[13] There seems to me to be considerable merit in Mr Smith's analysis. The services to which the proposed contract relates do seem to me to partake of the character described in CPC reference 87902. On the other hand, I have some difficulty in understanding without further guidance how the supposedly "exhaustive and mutually exclusive" nature of the CPC system of classification is intended to operate. In the ordinary use of language I have no difficulty in accepting that a single service that provided a computerised system for the collection of payments might be described both as a "collection agency service" and as a "computer and related service". I do not consider that in these circumstances it would be appropriate for me to attempt to resolve the issue finally at this stage of the case. Notwithstanding the force of Mr Smith's analysis, I do not consider that it would be right to hold that the pursuers have not stated a prima facie basis for the contention that the proposed contract related to Part A services.

[14] I am reinforced in that conclusion by the fact that it appears that the defenders may well have thought at the outset that they were dealing with a proposed contract for Part A services. My reason for saying that is not that before me the defenders argued an alternative line of defence to the effect that, if the proposed services were Part A services, they had in fact complied with the requirements of regulations 15 and 17. Rather what influences me is what Mr Smith told me in connection with the regulation 15 issue. In that connection the defenders argued that they had made a call for competition in the form contemplated in regulation 15(2)(a)(ii). Mr Smith relied on No. 7/3 of process as a notice of the existence of a qualification system. That qualification system involved potential service providers registering on a data base, the Utilities Vendor Data Base (UVDB). Mr Smith advised me that at the outset the defenders were aware that there were four potential providers in the United Kingdom of services of the sort in question, that on consulting UVDB they found that none of them were registered, and that they asked them to register. The pursuers, in response to that request, applied for and on 27 April 2000 achieved registration on UVDB. I can see no purpose in the defenders' request to the potential service providers that they register on UVDB if they were proceeding on the basis that the services which they were seeking were Part B services.

[15] The pursuers aver that so far as they are aware the defenders did not, before or after 31 January 2000, make a call for competition as required by regulation 15. As I have already mentioned, Mr Smith submitted that a call for competition had been duly made in the manner contemplated in regulation 15(2)(a)(ii). No. 7/3 of process was the requisite notice of the existence of a qualification system. It was dated 4 January 2000. In light of those submissions and that document, Mr Brodie departed from the pursuers' contention that there had been no call for competition. In these circumstances it is unnecessary to say anything further about that aspect of the case.

[16] The parts of regulation 17 on which the pursuers found are paragraphs (7) and (8). Paragraph (7) provides as follows:

The contract documents are defined in regulation 2(1) as meaning:

Paragraph (8) provides as follows:

[17] The complaint made by the pursuers in their pleadings is that at no time during the process devised by the defenders were the pursuers required by the defenders by an invitation to tender accompanied by the documents and information prescribed by regulation 17(7) and (8) of the Regulations to submit a formal final tender for consideration by the defenders for the provision of the services. In particular, no contract documents were ever sent to the pursuers. Nor were they provided with intimation of any final date for receipt of tenders or the other information prescribed by regulation 17(8). They did not submit a formal tender. When they were advised, by the letter dated 10 July (No. 6/22 of process) that they were unsuccessful with their "tender application", they at once protested (in their letter of 14 July, No. 6/23 of process) that they had not taken part in a tender process. At a subsequent meeting on 17 August, the pursuers aver, the defenders "conceded that they had not followed the procedure prescribed by the Regulations, but they contended that that failure was not material".

[18] The initial approach by the defenders to the pursuers was by letter dated 31 January 2000 (No. 6/1 of process). That indicated that the pursuers had been "identified as one of a number of potential providers of payment and/or pre-payment services", and that the defenders "would wish to enter into discussions with [them] to determine [their] full capability in providing these services". There then followed the letter of 14 February 2000 (No. 6/3 of process) in which the defenders stated:

That letter was accompanied by a document containing inter alia sections headed "Descriptions of Service", "Customer Analysis", "Future Developments", "Contractual Requirements" and "Proposal Requirements". There followed various communications by e-mail. They included one dated 28 February (No. 6/6(1) of process) which intimated that the "decision making process" would be aided by a "weighted matrix", and specifying the major weightings. In March 2000 the pursuers submitted a Proposal to the defenders (No. 6/13 of process). Following a "feedback session", a Revised Proposal was submitted on 5 April (No. 6/14 of process). Two days later, there was a further Revised Proposal (No. 6/15 or process), which contained the provision "This commercial offer remains valid until 28 April". A further amendment to the proposal was intimated on 11 April (No. 6/16 of process). Further communications, by letter and e-mail, followed, before the letter of 10 July intimating failure of the pursuers' "tender application".

[19] Mr Smith submitted that properly understood the process which the defenders had undertaken was not a formal tendering process, but an invocation of the negotiated procedure (see regulation 13). It was in their option to follow that procedure. Regulation 17(7) recognised that the invitation might be an invitation to tender or an invitation to negotiate a contract. No. 6/3 of process was not an invitation to tender, but an invitation to negotiate. Where the negotiated procedure was adopted, the requirements of regulation 17(7) and (8) had to be read accordingly, as had the definition of "contract documents" in regulation 2(1) (Arrowsmith, The Law of Public and Utilities Procurement, page 529). An invitation of that sort contemplated that the provider might have a greater role in the definition or specification of the service. In so far as the provision of the weighting information on 28 February involved intimation of "criteria for the award of the contract" later than contemplated in regulation 17(8)(e), there was no basis for holding that that had resulted in any prejudice or loss to the pursuers. All providers were affected in the same way, and the pursuers had the material in time to take it into account in their proposals.

[20] Mr Brodie submitted that No. 6/3 of process was no more a proper invitation to negotiate a contract than it was a proper invitation to tender. Where the defenders had an option under regulation 13 to adopt the procedure of their choice, it was important that they be precise in the language adopted in their invitation, and make it clear what they were inviting. Their argument failed at the outset if they could not point to language expressing an invitation to negotiate a contract. The letter and other document in No. 6/3 of process could not be construed as expressing such an invitation, or as describing or specifying the service for which the defenders wished to contract. At no stage were the pursuers put on notice that they were required to state a firm offer to contract. I should be slow to interpret their Proposals as offers to contract.

[21] There is, to my mind, some force in Mr Brodie's submission that the defenders in the letter of 14 February in No. 6/3 of process did not clearly express an unequivocal invitation to negotiate a contract. There is also force in the point that the language of the letter of 10 July (No. 6/22 of process) is not the language appropriate to the negotiated procedure. In my view, however, it is necessary to read the letter of 14 February along with the document which was enclosed with it, and it seems to me to be tolerably clear from that document that the pursuers were being invited to make proposals with a view to a contract. In the context of the negotiated procedure, it seems to me that that document gave a clear enough indication of the services that the pursuers were being invited to negotiate to provide. That is reinforced by the language of the e-mail of 28 February, which refers to a decision making process, and clearly contemplates a competition between potential service providers. The Proposal and Revised Proposals also seem to me to indicate that the pursuers were aware that they were in competition in commercial terms with other potential service providers. In so far as the statement of the weighting criteria came late, I do not consider that the pursuers have put forward any basis for suggesting that that was a breach of duty that caused them loss or the risk of loss. The impression with which the documents leave me is that there was indeed never an invitation to tender, in the strict sense, but there was an invitation to enter into negotiation for a contract, and that the pursuers appreciated that such an invitation had been made and responded to it according to its terms. I am not satisfied that it would be appropriate to hold that the pursuers have made out on averment and on the documents produced a prima facie case that the defenders were in breach of duty under regulation  17.

[22] In the event, little was said in counsel's submissions about the balance of convenience. Mr Smith made some criticism of delay on the part of the pursuers in proceeding with this action, but I do not consider that there was much merit in that. He informed me that the defenders in fact intended to enter into separate contracts with two service providers. Negotiations with one were far advanced; less so with the other. An interim order would disrupt those negotiations. On the pursuers' side the obvious consideration that would weigh heavily in the balance of convenience is that if an interim remedy is not granted, the contracts will be concluded, and the pursuers will be left with a somewhat elusive claim for damages. Had I taken the view that the pursuers had passed the test of stating a prima facie case that the defenders were in breach of duty under regulation 17, I would have regarded it as appropriate to take the relative strength of the parties' cases into account in the balance of convenience, and would principally on that basis have concluded that the balance favoured refusal of the interim remedy sought. In the event, however, no question of balance of convenience arises.

[23] I shall accordingly refuse the pursuers' motion for interim suspension and interim interdict.