Scottish Court of Session Decisions

Act: O'Neill QC and M Ross; Heggie Alexander

Alt: C O'Neill, solicitor advocate; Scottish Government

7 February 2014

Introduction

[1] The defenders are responsible for gritting the main roads of Scotland. In the cold winters of 2009/2010 and 2010/2011, they required large quantities of de-icing salt. They purchased their supplies without going through a formal procurement process. In April 2012, National Gritting Services Ltd ('NGS') learned that the defenders had made the contract awards. If an open competitive procedure had taken place, NGS would have lodged a tender.

[2] NGS used freedom of information requests to obtain further details of the contract awards. The defenders replied to the effect that (a) they were entitled to make direct contract awards; (b) they had obtained salt from INEOS Enterprises Limited; and (c) their operating companies had obtained supplies from other sources. NGS was dissatisfied with that response. It considered that the defenders had infringed the Public Contracts (Scotland) Regulations 2006. It raised the present action in August 2012, seeking declarator that the defenders had unlawfully awarded a contract to INEOS. It also claimed damages of £980,000.

[3] The 2006 regulations allow public authorities to depart from the normal procedure in exceptional circumstances. The defenders found on this provision. They maintain that it was unnecessary to carry out a competitive tendering exercise, because of the unusually cold weather and the critical shortage of de-icing salt. The substantive issue between the parties turns on this point. Were the defenders entitled to depart from the normal procurement process?

[4] After the action was raised, the defenders took a preliminary point. They argued that NGS had not raised proceedings within the three-month time bar. Following a debate, I resolved that issue in favour of NGS: 2013 CSOH 119. After I issued my opinion in July 2013, parties reserved dates for a proof to take place in May 2014. Meantime another preliminary issue has arisen.

[5] In October 2013 NGS adjusted the summons. The following month it lodged a minute of amendment. It seeks to revise its pleadings (a) to refer to a number of companies who supplied de-icing salt to the defenders, other than INEOS; (b) to refer expressly to haulage and storage charges; and (c) to increase the claim for damages to £3.85 million. I allowed the minute of amendment to be received on 15 November 2013. NGS now moves for the pleadings to be amended in line with its proposed revisions.

The issue

[6] The defenders submit that the minute of amendment and adjustments should be refused. They argue that NGS failed (i) to notify the defenders about the breaches now founded upon; and (ii) to make claims within three months from the date upon which it was aware of them. They contend that NGS had the requisite knowledge by January 2013 at the latest.

[7] If the proposed revisions are simply a development of the existing case pleaded by NGS, then there is no proper basis for opposition. Miss O'Neill fairly conceded that point. If, however, they constitute new claims, then prima facie they are time-barred.

The statutory framework

[8] The position is governed by regulation 47 of the 2006 regulations. Prior to raising an action, a claimant must notify the contracting authority: (a) that it alleges a specific breach of the duty; and (b) that it intends to bring proceedings in respect of that breach. Proceedings must be brought within three months from the date of knowledge of the alleged breaches. If, however, the court considers that there is good reason to do so, it has a discretion to extend the time limit.

Disclosure of Information by the Defenders

[9] Prior to the commencement of the action, NGS acquired its knowledge from the defenders' responses to the freedom of information requests. By letter dated 30 May 2012, they informed NGS that they had procured quantities of salt directly from INEOS, because of critical shortages of de-icing salt. They also stated that they did:

"not normally procure ... de-icing salt directly. This is carried out by our trunk road operating companies under the terms of the contract with us."

[10] By letter dated 3 August, the defenders stated that they had spent £8.8 million on salt in 2010/11. Of that figure, £990,000 represented the cost of purchasing salt from INEOS. The other supplies had been "procured by our Operating Companies from various sources". Those sources were not identified. In the same letter, the defenders indicated that they would not respond to any further requests for information because (i) the upper cost limit for processing such requests had been exceeded; and (ii) any further disclosure would substantially prejudice the commercial interests arising out of the contractual arrangements they had made with INEOS.

[11] NGS sent formal pre-action notices on 3 and 24 August 2012. Those notices referred to INEOS, as did the summons. That reflected NGS' state of knowledge at the time. But after the action was raised, it learned more about the contract awards through the defenders' adjustments to their answers.

[12] Between October 2012 and January 2013, both parties adjusted their pleadings on several occasions. The defenders identified several other suppliers from whom de-icing salt had been obtained. They also stated that they had paid for haulage and storage charges. In January 2013 they averred that the purchases made by the operating companies had been made on behalf of the defenders.

Is this a new claim?

[13] In my view, the revisions proposed by NGS do not introduce new claims. Its case remains the same. It continues to found on the defenders' failure to carry out a procurement exercise. I regard that as a single breach, rather than viewing each award to different companies as separate and divisible breaches. Properly construed, the minute of amendment and adjustments are directed toward quantification.

[14] The interaction between breach and loss was discussed in Uniplex (UK) Ltd v NHS Business Services Authority [2010] 2 CMLR 47, para 21:

"[T]he time when the period starts running for bringing a claim for compensation must not be made to depend on the fact that the applicant knew or ought to have known of the damage incurred by him. The damage that follows from a breach of duty sometimes comes to light only after some delay. Waiting for knowledge of the damage would thus run counter to the principle of review 'as rapidly as possible' within the meaning of art.1(1) of Directive 89/665. In return, however, it must be made possible for the tenderer or candidate concerned, if necessary, first to make an application for a declaration of a breach of procurement law and then to quantify the damage and claim compensation in subsequent proceedings."

[15] That passage recognises that an economic operator will often be unable to quantify its claim at the time when the action is raised. It will need to carry out a detailed exercise to calculate the loss it has suffered. In many instances, it will instruct a forensic accountant to prepare a report.

[16] In Hastings & Co (Insolvency) Ltd v Accountant in Bankruptcy [2013] CSOH 55, at para 15, Lord Hodge stated:

"An economic operator may develop its arguments in support of a particular notified challenge in the course of a legal action. But it would defeat the practical purpose of the notification requirements if it were allowed to open up new fronts on raising legal proceedings ... In my view, the policy of the legislation is that the economic operator has to particularise its complaints when the effect of any legal action that follows is to bring into operation the regulation 47(9) prohibition."

[17] In my view, NGS has not embarked on opening up new fronts in the present case. It challenges the defenders' decision not to hold a competitive tendering process at all.

[18] There are three other relevant features of this case which would in any event make me reluctant to refuse the proposed revisions. First, time does not run if a public authority breaches the duty of transparency: Lämmerzahl GmbH v Freie Hansestadt Bremen
[2007] ECR 1-8415. I cannot make any final assessment on this point without hearing evidence. But Mr O'Neill argued strongly that the defenders had "drip fed" the particulars of the individual contracts to NGS. Second, if the defenders' submission on the time-bar point had been successful, the action would have been dismissed. It is understandable that before committing further resources, NGS awaited my decision. This explains the development of its pleadings. Third, the route suggested by the defenders would erode the principle of effectiveness. It would be cumbersome for NGS to have to await each new disclosure, send a notice, and then adjust the summons.

[19] Miss O'Neill invited me to place the claims made in respect of the award of storage and haulage contracts in a separate category. She stated that the information available to NGS in respect of these matters was the same as when the action was raised. Accordingly, these claims had not been raised in accordance with regulation 47. I take a different view. I believe that they are likewise questions of quantification.

Discretion

[20] I accept that a strict approach to the exercise of discretion should be taken: SITA UK Ltd v Greater Manchester Waste Disposal Authority [2010] CMLR 48, per Mann J at para 174. If I had been required to do so, however, I would have exercised my discretion to extend the time limit in this case. The factors discussed above and in particular those relating to effectiveness and transparency point toward allowing the proposed revisions. If the defenders had provided full disclosure in the pre‑action correspondence, I believe NGS would have framed the summons in accordance with that information.

[21] But the exercise of discretion would not be enough. The notification requirement is mandatory. If my analysis of the nature of the proposed revisals is wrong and they do introduce new claims, then NGS is prohibited from introducing them.

Conclusion

[22] I shall allow the proposed revisals. Before making any order, I shall allow parties an opportunity to discuss (i) any further adjustment, and (ii) the outstanding motion made by NGS for a commission and diligence to recover documents.