Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 19
	OPINION OF LORD WOOLMAN in the cause MICHAEL GILLEN Pursuer; against INVERCLYDE COUNCIL Defender: and FLOSSHAUL LIMITED Pursuer; against INVERCLYDE COUNCIL Defender: ­­­­­­­­­­­­­­­­­________________

Pursuers: Mr Lake QC, Solicitors: Lindsays WS

Defenders: Mr Ferguson QC, Solicitors: Simpson & Marwick

3 March 2010

Introduction

[1] Inverclyde Council ("the Council") is responsible for the provision of bus services within its area. In late 2005, it wished to conclude new four year contracts for various routes. Mr Gillen, trading under the name "Gillens Coaches", submitted tenders for a number of routes. Flosshaul Limited, trading under the name "Scottish Travel", tendered for a number of different routes. Ultimately, their tenders were unsuccessful.

[2] The award of the contracts was subject to the Public Service Contracts Regulations 1993 ("the 1993 Regulations"). In these actions, the pursuers claim that the Council breached the 1993 Regulations. They seek damages on the basis that had the correct criteria been used, they would have been awarded one or more of the contracts. Alternatively, they maintain that they lost the chance of being awarded the contracts.

[3] The Council took a preliminary point. It contended that the pursuers had failed to satisfy certain conditions set out in the 1993 Regulations. Accordingly, they were barred from making their claims. The pursuers advanced two arguments in response. First, it was argued that Mr Gillen's action should proceed as his claim was capable of satisfying the conditions. No such argument was advanced in the other action. It was accepted that Flosshaul's claim did not comply with the 1993 Regulations.

[4] The second argument was more fundamental. Both pursuers maintained that the conditions were invalid, because they did not comply with the principle of "equivalence". Put simply, that requires the remedy for breach of Community law to be the same as one for breach of the equivalent domestic law. The pursuers contended: (a) that there was a comparable domestic remedy; and (b) it was not subject to the conditions contained in the 1993 Regulations. Accordingly, the principle of equivalence was infringed.

The 1993 Regulations

[5] The 1993 Regulations give effect to Community legislation dealing with public procurement: Council Directives 89/665/EEC and 92/50/EEC. Two provisions are material in the present case.

[6] First, a person who makes an unsuccessful tender is entitled to require the contracting authority to give the reasons for its decision: Regulation 23 (1). Those reasons must be provided by the authority within 15 days of the date on which it receives such a request.

[7] Secondly, any failure to comply with the regulations "shall be actionable by any services provider who, in consequence, suffers, or risks suffering, loss or damage": Regulation 32 (2). The right to bring a claim is subject to two conditions:

"(4) Proceedings under this regulation may not be brought unless-

(a) the services provider bringing the proceedings has informed the contracting authority of the breach or apprehended breach of the duty owed to him ... by the contracting authority and of his intention to bring proceedings under this regulation in respect of it; and

(b) they are brought promptly and in any event within 3 months from the date when grounds for the bringing of the proceedings first arose unless the Court considers that there is good reason for extending the period within which proceedings may be brought."

The Background

[8] The parties were in broad agreement on the facts material to this part of their dispute. On 29 December 2005, the Council published a contract notice in the Official Journal of the European Communities. It invited tenders for school bus routes within the Council area. The Council stated that it would award the contracts to:

"The most economically advantageous tender in terms of the criteria stated below:

1. Price, technical merit, and technical assistance and contractors must have sufficient resources to undertake the work."

[9] The Council appointed Strathclyde Passenger Transport ("SPT") to act as its agents. After evaluating the tenders using the criteria specified in the contract notice, SPT recommended that Mr Gillen should be awarded contracts for four routes, with a possible fifth route being added. SPT also recommended that Flosshaul should be awarded contracts for two routes. The Council did not adopt those recommendations. In May 2006, it indicated to SPT that the contracts should be awarded to other tenderers.

[10] SPT notified Mr Gillen of the decision in early August 2006. On 7 August 2006, he sent a letter to the Council. That letter was not lodged in process, but from subsequent correspondence, it appears to have been a request for further information.

[11] By letter dated 11 August 2006, Mr Gillen's solicitors wrote a lengthy letter to the Council intimating that it was in breach of two provisions of the Public Contracts (Scotland) Regulations 2006. The solicitors also sought further information about a number of matters relating to the tendering process. The letter concluded:

"For the avoidance of doubt, should you not comply with the above, our clients will have no option but to proceed straight to the Court of Session for the appropriate Order in respect of the breaches detailed above and the relevant damages."

[12] In its reply of 16 August 2006, the Council pointed out that the solicitors were mistaken. The 2006 Regulations did not apply as they only came into force after the contract procedure had commenced. The Council's letter continued:

"Given the fact that your clients were very specific that their requests were Freedom of Information requests, I do not consider that a request for information has been made ... under Regulation 23 of the 1993 Regulations. It is unclear from the terms of your letter whether it should be taken as a request under ... Regulation 23. However, I am treating it partly as such and the information which the Council is required to provide ... is attached."

[13] The letter went on to state that in each case where Mr Gillen had been unsuccessful, his tender was judged by the Council not to be the most economically advantageous in terms of the criteria specified in the Contract Notice.

[14] Mr Gillen's solicitors wrote to the Council again on 25 August 2006. There were three features of that letter. First, they accepted that the 1993 Regulations applied. Secondly, they stated that the earlier correspondence constituted a Regulation 23 request. Thirdly, they repeated Mr Gillen's claim that the Council had not adhered to the contract criteria and that irrelevant matters had been taken into account. A specific sum was sought in compensation in respect of three of the tenders: £64,790 for loss of profit and £2,000 for abortive management time. The letter stated: "Perhaps you could return to us with your specific response to this claim on which our clients will proceed to Court, if necessary".

[15] The Council's reply of 22 December 2006 stated: "We thank you for your letter dated 25 August 2006, which we are treating as a request under Regulation 23 of the Public Service Contracts Regulations 1993". With regard to the reasons for the Council's decision, the letter stated that in relation to several of the contracts:

"... on the information available at the time we assessed the tenders we were of the view that your client did not have the capacity to fulfil these contracts. Capacity was clearly stated to be one of the award criteria in the contract notice, and our consideration of this criterion was the reason why your client's bid was not the most economically advantageous and therefore why your client was unsuccessful in relation to these contracts."

In relation to the other contracts, the Council stated that "your client submitted tenders which were relatively expensive".

[16] The Contract Award Notice listing the names of the successful tenderers was not published in the Journal until 8 February 2007. As I understand matters, throughout this period Mr Gillen sought information about the reasons for the Council's decision under the Freedom of Information (Scotland) Act 2002. The Council claimed that it was entitled to withhold various information. In October 2007, however, the Council provided the pursuer with a copy of an Audit Scotland report into the contract exercise. It was heavily redacted.

[17] On 9 January 2008, Mr Gillen received a fuller version of the report from Audit Scotland itself. Parts of it were still redacted. The pursuers allege that the report was critical of the Council's decision because: (a) the award of the contracts was not in the best financial interests of the Council; (b) a primary aim of making the awards appeared to be to assist a Council debtor to clear his debts; and (c) the Council had re-evaluated the SPT recommendations using its own criteria.

Is Mr Gillen Entitled to Proceed under Regulation 32 (4)?

[18] The Council contended that the relevant conditions had not been satisfied in Mr Gillen's case. First, no valid "letter before action" had been sent on his behalf. Secondly, as Mr Gillen's action was raised on 13 June 2008, the claim had not been made within the three month time limit. Thirdly, there was no basis upon which the court could exercise its discretion to allow the claim to proceed after the expiry of the three month period. Accordingly, he was barred from making his claim.

The First Condition

[19] The purpose of the first condition is to give the contracting authority clear notice that a claim is to be made and the basis for that claim: Luck v London Borough Tower Hamlets [2003] 2 CMLR 12. In each case, the issue is whether the claimant has properly brought the matter to the attention of the authorities: Keymed Ltd v Forest Healthcare NHS Trust [1998] EuLR 71, 90-91 per Langley J.

[20] In my view, the test is not satisfied here. The letter of 11 August 2008 referred to the wrong regulations[SW1] [SW2] [SW3] . In consequence, it could not and did not specify a breach of the 1993 Regulations. With regard to the letter of 25 August 2006, it does not identify the breach or apprehended breach of a specific Regulation, nor alert the Council to the fact that Mr Gillen intended to bring proceedings in respect of it. In my opinion the Council was correct to construe it as a request for information under Regulation 23.

[21] I therefore reject Mr Lake's submission that reading the solicitors' letters of 11 and 25 August together, the Council had been put on notice that it was going to be sued. The notification requirement is a simple and straightforward one. In my view it is not a matter which should be left to inference or construction.

The Second Condition

[22] There is also the "time-bar" condition: Regulation 32(4)(b). As Mr Gillen knew from August 2006 that there was a possible claim, it is hard to hold that the claim was made "promptly". But even if the appropriate time limit is three months, there is still a problem. The possible dates from which the period should run are as follows:

(a) 25 August 2006 The date when the second solicitors' letter was sent on behalf of Mr Gillen.

(b) 8 February 2007 The date Mr Gillen knew for certain that the contracts had been awarded elsewhere.

(c) 9 January 2008 The date Mr Gillen received the fuller report from Audit Scotland.

[23] Even if the grounds for the bringing of the proceedings first arose on the last of these dates, in my view the claim was brought out of time. The longstop for raising of these proceedings was 9 April 2008. As the action was raised three months after that date, in my view the second condition is not satisfied.

The Exercise of Discretion

[24] Where proceedings are not brought within the three month deadline, it is still open to the court to extend the period if it considers that there is good reason for doing so. The relevant considerations are: "the length of and reason for any delay; the extent to which the plaintiff is to blame for any delay; the extent to which the defendant may have induced or contributed to the delay; and whether the defendant has been or will be prejudiced by the delay or the grant of an extension": Keymed v Forest Health Care NHS Trust [1998] Eu LR 71 at p. 96B.

[25] Mr Lake submitted that the discretion should be exercised in Mr Gillen's favour. He relied on the Council's failure to give proper reasons within 15 days as required, its delay of seven months in publishing the award notice, and what he maintained was its attempts to actively conceal the prejudicial material in the Audit Scotland report from the pursuers.

[26] Having regard to the whole circumstances, I am not persuaded that it is appropriate to extend the time limit in this case. Mr Gillen and his solicitors were seized of the facts at the very latest when they received the Audit Scotland report on 9 January 2008. By then, they had all the information necessary to raise an action. There would have to be cogent and convincing reasons to allow an action to proceed almost two years after the decision. In my view they are not present here. There is no adequate explanation for a further delay of four and half months.

Summary

[27] Accordingly, I hold that Mr Gillen has not brought a valid claim in terms of Regulation 32. As indicated above, the point has already been conceded in the Flosshaul case. It follows that unless the pursuers succeed in establishing that the 1993 Regulations are invalid, the actions must be dismissed.

The Principle of Equivalence

The General Approach

[28] The European Court of Justice authoritatively set out the principle of equivalence in Palmisani v Instituto Nazionale della Previdenza Sociale (Case

C-261/95) [1997] ECR I-4025. When a Directive is transposed to national law:

"27 ... it is on the basis of the rules of national law on liability that the State must make reparation for the consequences of the loss or damage caused; further, the conditions, in particular time-limits, for reparation of loss or damage laid down by national law must not be less favourable than those relating to similar domestic claims (principle of equivalence) and must not be so framed as to make it virtually impossible or excessively difficult to obtain reparation (principle of effectiveness)."

[29] Whether a particular provision complies with the principle of equivalance is a matter for the national courts. It is their duty: "to ensure that the rights derived by individuals from Community law are safeguarded under national law, and in particular that loss or damage caused to individuals by breaches of Community law for which a Member State can be held responsible are made good, comply with the principle of equivalence" (para. 33). The comparative exercise is carried out by the national courts because the Court of Justice may not have all the necessary information about the domestic law (Palmisani paragraph 38).

[30] Further guidance on the application of the principle was provided in Levez and T.H. Jennings (Harlow Pools) Ltd (Case C-326/96), [1999] ICR 521:

41. The principle of equivalence requires that the rule at issue be applied without distinction, whether the infringement alleged is of Community law or national law, where the purpose and cause of action are similar ....

42. However, that principle is not to be interpreted as requiring Member States to extend their most favourable rules to all actions brought, like the main action in the present case, in the field of employment law ....

43. In order to determine whether the principle of equivalence has been complied with in the present case, the national court - which alone has direct knowledge of the procedural rules governing actions in the field of employment law - must consider both the purpose and the essential characteristics of allegedly similar domestic actions ..."

[31] In Preston v Wolverhampton NHS Trust [2001] 2 AC 415, various questions were referred by the House of Lords to the Court of Justice. It followed Levez and stated:

57. ... in order to determine whether a right of action available under domestic law is a domestic action similar to proceedings to give effect to rights conferred by Article 119 of the Treaty, the national court must consider whether the actions concerned are similar as regards their purpose, cause of action and essential characteristics."

[32] When the case came back to the House of Lords for decision, Lord Slynn of Hadley delivered the leading speech. He accepted "that there may be no similar action for the purposes of this inquiry" and that "The Court is not therefore driven to find the nearest comparison ...": Preston v Wolverhampton NHS Trust (No 2)
[2001] 2 AC 455 (para. 18). He also emphasised that:

21. ... one should be careful not to accept superficial similarity as being sufficient. It is not enough to say that both sets of claims arise in the field of employment law, nor is it enough to say of every claim under article 119 that somehow or other a claim could be framed in contract. ...

[33] Lord Slynn, however, concluded that in the circumstances of the case, "a claim in contract may provide a sufficiently similar comparison" (para. 22).

Do the 1993 Regulations comply with the Principle of Equivalence?

[34] In light of these authorities, both parties agreed that there was a sole issue for decision - was there a suitable comparator in domestic law? They also agreed that the answer to that question depended upon the purpose, cause of action and essential characteristics of the two claims.

[35] The pursuers submitted that, following Preston, a relevant comparator was provided by a general claim for breach of statutory duty. Further, a specific and close comparator was provided by a claim for breach of section 17(1) of the Local Government Act 1988:

"It is the duty of every public authority to which this section applies, in exercising, in relation to its public supply or works contracts, any proposed or any subsisting such contract, as the case may be, any function regulated by this section to exercise that function without reference to matters which are non-commercial matters for the purposes of this section."

[36] The effect of that provision is that public authorities cannot take into account irrelevant matters when awarding contracts. They cannot, for example, select persons on the basis of the composition of the contractors' workforce, or their terms of employment: section 17(4). Like Regulation 32(4), failure to comply with the section is not a criminal offence. Rather, it is actionable in damages: section 19(7)(b). The material difference between the two provisions is therefore that only the 1988 Act imposes pre-conditions for claims.

[37] The pursuers argued that Regulation 32(4) infringed the principle of equivalence. However, their argument faces a significant difficulty. It has been expressly rejected by the Court of Appeal: Matra Communications v Home Office [1999] 1 WLR 1646. Delivering the leading judgment Buxton LJ held that regulation 32(4)(b) did conform to Community law. After considering the European jurisprudence he stated (1657D - E):

"The question is therefore whether the limitation period provided for the remedies under the Regulations causes the whole scheme of those remedies including their limitation period, to breach the United Kingdom's obligation to provide remedies for breaches of Community provisions that comply with the requirements of Community jurisprudence."

[38] Under reference to Palmisani, he continued

"... the principle of 'equivalence' really does mean what it says. The domestic court, in applying the principle, must look not merely for a domestic action that is similar to the claim asserting Community rights, but for one that is in juristic structure very close to the Community claim. It does that, in the words of the Court of Justice in ... Levez ... by considering "the purpose and the essential characteristics of allegedly similar domestic actions". (1659G-H)

[39] There was a "need to find in the domestic law not merely a cause of action for reparation, but one for reparation of conduct of a public authority in the exercise of its powers. " (1659A - B) The court held that a claim for breach of statutory duty was simply too wide a category to provide a comparator (1659F-G).

[40] With regard to the second proposed comparator, Buxton LJ stated:

"I agree that the 1988 Act comes closer as a comparator than any of the other candidates surveyed, but it falls well short of satisfying the principle of equivalence set out in Palmisani and Levez. First, the purpose of the two legislative provisions, and thus of the actions that they support, is different. The Regulations enforce the objectives of Directive 92/50/EEC, which is aimed at the establishment of the internal Community market and the general elimination of discrimination between nationals of different member states.

By contrast, the 1988 Act has much more limited objectives. It does not address competition in public supply in general, or indeed at all; that latter objective is pursued by different provisions in Part I of the 1988 Act. Rather, it prohibits very specific conditions in the procurement policy of public authorities.

Second, the whole structure and approach of the two regimes is different. Directive 92/50, and thus the Regulations, lay down a very detailed code for the whole tendering process; the 1988 Act merely prohibits certain specific conditions from being included in invitations to tender that are otherwise not regulated by it at all. And the essential conditions of the two actions that are generated by those regimes are different. Damages under the Regulations are at large, indeed in this case alleged to amount to loss of profits of £100,000,000; under the 1988 Act they are confined to the tendering expenses of persons who do submit tenders.

I therefore conclude that ... there is no such comparator for the claim under the Regulations. By the application of the second rule in Palmisani, therefore, the limitation period provided for that claim is not open to attack under Community law."

[41] On behalf of the Council, Mr Ferguson invited me to follow that approach and to reject a broad comparison. He contended that to do so would be "superficial": Preston per Lord Slynn at para 21. The appropriate starting point is to identify the cause of action and ask whether there are similar rights in national law: Matra 1659H. It was not appropriate to look at the similarity of remedies. That was not the approach taken by the Court of Justice in Preston.

[42] Mr Lake argued that Matra was wrongly decided. He observed that the decision in Matra pre-dated Preston, where he submitted the principle had been correctly applied. He made a number of specific criticisms of the reasoning in Matra:

(a) The question had been framed too widely. It was inappropriate to compare two entire legislative frameworks.

(b) The correct approach was to look at the purpose of one remedy and compare it with another. The Court of Appeal had failed to consider the essential characteristics of the two remedies.

(c) A regulation 32 claim was no different from any other claim against a local authority. No adequate reason had been given as to why "breach of statutory duty" is too wide a category. By parity of reasoning, "breach of contract" should also have been rejected in Preston.

[43] Although this argument was powerfully presented by Mr Lake, I am not persuaded by it. I agree with and adopt the reasoning in Matra. The exercise of comparison requires one to look at the purpose of ostensibly similar claims. In my view, the objective of a regulation 32 claim is to allow for the speedy rectification of mistakes. That is plain from the Directive, which requires Member States to set up rapid review systems: 89/665/EEC Article 1 as inserted by 92/50/EEC Article 41.

[44] It is clearly in the public interest to have a short time limit for such claims. In some situations it may be possible to unwind matters. In others, it will at least inform the authority whether or not it faces a claim, and "the effect even of a damages claim, and notably a claim for a huge amount, in a complex contracting process such as the present will be to have an unsettling and disrupting effect on that process." (Matra p1660). On that basis, a general claim for breach of statutory duty is in a different category and cannot be regarded as a comparator. It is more concerned with compensation, than rectification. I also note that Lord Clyde was hesitant in deciding that an action for breach of contract could provide a suitable comparison (paras. 43-44).

[45] Lord Slynn referred to Matra without disapproval: Preston para.17. In my view of more significance is the fact that the question was reconsidered by a differently constituted Court of Appeal in Luck v London Borough of Tower Hamlets [2003] CMLR 12
[2003] 2 CMLR 390. Delivering the judgment of the court, Rix LJ stated: "In our judgment there is no reason why the logic of Matra does not apply ... so far as concerns the principle of equivalence" (para. 38).

Conclusion

[46] I agree with Buxton LJ's analysis and am not persuaded that there is an appropriate comparator in domestic law. Accordingly, the 1993 Regulations are valid and the claims of both pursuers fall to be dismissed.