Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 169

CA201/15

OPINION OF LORD TYRE

In the cause

LIGHTWAYS (CONTRACTORS) LIMITED

Pursuer;

against

INVERCLYDE COUNCIL

Defenders:

Pursuer:  Lindsay QC;  Anderson Strathern

Defender:  Lord Davidson of Glen Clova QC;  Clyde & Co

1 December 2015

Introduction

[1]        For the purposes of the Public Contracts (Scotland) Regulations 2012, the pursuer is an economic operator in terms of regulation 4(1) and the defenders are a contracting authority in terms of regulation 3.  Prior to 2012 the pursuer provided street lighting maintenance services to the defenders.  In 2013 the defenders held a mini-competition for street lighting services under and in terms of the Crown Commercial Services Framework Technology Contract RM 869 – Lot 9 Street Lighting Service (“the Framework Agreement”).  The pursuer was not one of the suppliers listed for Lot 9 and was unable to participate in the mini-competition.  The contract was awarded to Amey Public Services LLP (“LLP”).  In 2015 the defenders held a second mini-competition for street lighting services under the Framework Agreement.  Two bids were received.  On 3 September 2015, the defenders awarded the contract to LLP, and on 1 October 2015 the defenders entered into a contract with LLP for a duration of 24 months with options to extend.

[2]        In these proceedings, the pursuer contends that the award of the contract (known as a “call off contract”) by the defenders in 2015 was unlawful on various grounds in terms of the 2012 Regulations.  For the purposes of this opinion I am concerned only with one of those grounds, in respect of which the pursuer sought summary decree.   That ground is that LLP is not listed in the Framework Agreement as one of the suppliers for Lot 9.  Rather a company called Amey OW Limited (“OW”) is one of the eight listed suppliers for Lot 9.  The pursuer contends that because LLP is not a party to the Framework Agreement, the award of the contract is an unlawful direct award made without advertisement or prior intimation.  It accordingly seeks an ineffectiveness order by the court under regulation 49(5).

[3]        By way of factual background it may be noted that both LLP and OW are members of the Amey UK plc group of companies whose ultimate parent is Ferrovial SA.  Both have their registered office in Oxford.  LLP is a joint venture owned to the extent of two-thirds by a company (not OW) in the Amey group and to the extent of the remaining one-third by North Lanarkshire Council.  In its financial statement for the year ended 31 December 2014 it states its business as consisting of a contract with North Lanarkshire Council for highways management.  It had a turnover of £16 million, made an operating loss of £76,000, and had total members’ interests of £3.3 million.  According to OW’s financial statement for the year ended 31 December 2014, its principal activity is the provision of civil engineering consultancy.  In that year it had a turnover of £88.5 million, made an operating profit of £5.6 million, and had shareholders’ funds of £19.1 million.  The management committee of LLP are not the same persons as the directors of OW.

Statutory provision

[4]        Regulation 19(3) of the 2012 Regulations provides as follows:

“Where the contracting authority awards a specific contract based on a framework agreement, it must –

1. comply with the procedures set out in this regulation; and
2. apply those procedures only to the economic operators which are party to the framework agreement.”

Arguments for the parties

[5]        On behalf of the defenders, it was submitted that the test for the grant of summary decree enunciated by the House of Lords in Henderson v 3052775 Nova Scotia Ltd 2006 SC (HL) 85 at para 19 was not met.  It was accepted that the award of the contract to LLP had been an error.  The correct entity had been OW, which was a party to the Framework Agreement and entitled to be awarded the contract.  The same offer would have been made to OW as was erroneously made to LLP.  The error was capable of rectification by novation by LLP to OW.  The 2015 error simply perpetuated a similar error made in 2013 which had not been noticed by the defenders or Amey or, indeed, by the pursuer who had been party to a transfer of its undertaking when it lost the street lighting services contract.  The mistake had been easily made and was easily rectified.  It would be contrary to the principle of proportionality to hold the award of the contract to be unlawful and ineffective.  Reference was made to JB Leadbitter & Co Ltd v Devon County Council [2009] EWHC 930 (Ch), David Richards J at paras 50-55, cited with approval in Azam & Co v Legal Services Commission [2010] EWCA Civ 1194, Pill LJ at para 36, Rimer LJ at para 53.  The proper characterisation of the defenders’ intention was as an intention to award the contract to the Amey company entitled to be awarded it in accordance with the Framework Agreement.  In any event, the pursuer had no standing to challenge the decision made on 3 September 2015 because it had not been entitled to participate in the mini-competition and would not be entitled to participate in any fresh mini-competition. 

[6]        On behalf of the pursuer it was submitted that the pursuer had standing to challenge the award to LLP because at least some of its grounds of challenge concerned the entitlement of the defenders to make any award at all of a call off contract without carrying out a fresh procurement exercise.  In terms of regulation 47(5), the pursuer was an economic operator which claimed to have suffered loss and damage in consequence of a breach of the defenders’ obligation under regulation 47(1) to comply with the provisions of the Regulations.  The ground based on error in awarding the contract to LLP was not therefore academic.  It was not merely a clerical error; it was a fundamental error of substance.  LLP and OW were very different entities with their own employees, assets and businesses.  OW had no business presence in Scotland.  It had not been invited to tender and had not tendered.  It was not clear what the defenders were proposing by way of rectification, but whatever method they selected would result in a further breach of the 2012 Regulations.  Having regard to the defenders’ admissions, there were no matters that required proof to resolve and there was no defence to this ground of challenge.

Decision

[7]        At the conclusion of the hearing I delivered an ex tempore judgment granting summary decree in the terms concluded for by the pursuer.  The defenders sought and were granted leave to reclaim, and I now provide a note of my reasons for granting summary decree.

[8]        I take as my starting point that there has been a breach of regulation 19(3) in respect that the call off contract was awarded by the defenders to an economic operator which was not a party to the Framework Agreement.  I accept the pursuer’s submission, set out above, that it has the requisite standing in terms of regulation 47(5) to challenge the award of the contract to LLP.  The issue, therefore, is whether the defenders’ admitted error was of a type that is capable of being rectified by the substitution of OW for LLP as the successful tenderer.

[9]        I am not satisfied, on the basis of the material placed before me, that the principle of proportionality is applicable to the circumstances of this case.  I was not addressed in any detail on the nature of the principle, but I note that it was summarised by Lord Hoffmann in a passage from CR Smith Glaziers (Dunfermline) Ltd v Customs & Excise Commissioners 2003 SC (HL) 21 at para 25, quoted by David Richards J in JB Leadbitter & Co Ltd v Devon County Council (above) at para 49, as follows:

“…First, a measure must be suitable for the purpose for which the power has been conferred; secondly, it must be necessary in the sense that the purpose could not have been achieved by some other means less burdensome to the persons affected and thirdly, it must be proportionate in the narrower sense, that is, the burdens imposed by the exercise of the power must not be disproportionate to the object to be achieved.”

The principle is thus concerned with the imposition of onerous conditions or requirements by a public authority, which expression was held in the JB Leadbitter case to encompass a contracting authority conducting a procurement exercise.  It cannot, in my view, be turned around and relied upon by a contracting authority which has failed to act within its statutory powers.  I was not referred to any authority for the proposition that the principle of proportionality applies to limit the entitlement of an economic operator to challenge an alleged breach of a contracting authority’s duty to comply with procurement legislation.  

[10]      That does not mean that it would never be possible for a minor clerical error, such as the insertion of the wrong name in the title page of a call off contract, to be disregarded or rectified by a court determining a challenge to the effectiveness of the award.  If the court were satisfied that the error amounted to no more than a slip of this kind, then I, for my part, see no reason why the document could not be read as if the mistake had not been made or, if necessary, why the statutory power of rectification could not be used to correct it.  The problem for the defenders in the present case, as I see it, is that the error made was of quite a different nature.  On the basis of the facts not in dispute, it cannot be said that there was an intention on the part of the defenders to award the call off contract to OW, still less that there was consensus between the defenders and OW that the latter should become a party to a contract.  It is of significance that these proceedings are concerned with the erroneous 2015 award and not the erroneous 2013 award, because it is not suggested that there is any doubt that the defenders intended to award the 2015 contract to the same entity as had been in place since 2013 and who had, incidentally, had personnel formerly employed by the pursuer transferred to it: namely, LLP.  An intention on the part of the defenders to award the contract to an entity entitled to be awarded it under the Framework Agreement cannot simply be equated with an intention to award the contract to OW.  If one were to drive at 45 mph on a road with a 30 mph speed limit in the mistaken belief that the limit was 50 mph, an intention (however genuine) to drive within the speed limit could not be equated with an intention to drive at less than 30 mph.

[11]      The error made by the defenders was not one of mis-designation.  It consisted rather of proceeding on the mistaken basis that LLP was a company within the Amey group which was a party to the Framework Agreement.  I am not persuaded that the entity selected as the supplier was a matter of indifference or irrelevance.  In short, it is readily apparent that the defenders intended to award the contract to LLP.  That being so, I am satisfied, first, that there is no issue raised by the defenders which can be properly resolved only at proof and, secondly, that on the facts clarified by the documents and other information made available to me at the hearing, the defenders have no defence to the pursuer’s challenge based on regulation 19(3).  The test in Henderson v 3052775 Nova Scotia Ltd is accordingly met.

Disposal

[12]      I shall sustain the pursuer’s first plea in law and make an ineffectiveness order in terms of regulation 49(5) of the 2012 Regulations in respect of the defenders’ decision dated 3 September 2015 to award a call off contract to LLP.  I shall continue consideration of the matters specified in regulation 49(10) to a later date, and in the meantime find the defenders liable to the pursuer for the expenses of the hearing.