Automatic suspensions and adequacy of damages - what counts if you're a non-profit organisation?

What is adequacy? Adequacy is no standard at all! - So said Winston Churchill in 1938 in the House of Commons, as part of his criticism of the politics of appeasement and the then government's statement that it had an 'adequate' rearmament programme.

So in the context of adequacy, how does a Court assess adequacy of damages in a procurement case, when hearing an application to lift an automatic suspension involving two not-for-profit NHS organisations?

That was the difficult decision before the Court in the recent case of Kent Community Health NHS Foundation Trust v NHS Swale CCG and NHS Dartford Gravesham and Swanley CCG [2016] EWHC 1393 (TCC)

The facts of the case

Kent Community Health NHS Foundation Trust (the 'Trust') was the incumbent provider of adult community services in north Kent under a contract which expired on 1 April 2016. In planning for this expiry date the commissioning CCGs (NHS Swale and NHS Dartford Gravesham and Swanley) decided that they would put the service out to competitive tender. As health services the services were 'Part B' services falling under the Public Contracts Regulations 2006. The Trust submitted a tender but following the tender evaluation the CCGs announced their intention to award the contract to one of the other bidders Virgin Care. The Trust then issued proceedings in the High Court and so triggered the automatic suspension of the contract award.

When hearing the CCGs application to lift the suspension the Court applied the usual American Cyanamid test.

The test asks three questions:

  • can the claimant bidder show that there is serious issue to be tried - Unless the bidder has no real prospect of succeeding at trial this part of the test will usually be satisfied;
  • assuming there is a serious issues to be tried would financial damages be an 'adequate remedy' for the successful party? If in the case of a challenging bidder the answer is 'yes' then the Court will usually agree to lift the suspension and allow the contract to be entered into; and
  • if damages are not adequate as a remedy then does the 'balance of convenience' favour one side or the other? In public procurement cases this is usually shorthand for saying - does the public interest lie in allowing the contract to be awarded prior to a full trial on merits or not?

In this case both parties to the application were public sector NHS bodies with similar public sector duties to the people of Kent in respect of the provision (or commissioning the provision) of adult community healthcare services. However they each held diametrically opposed views on how that duty should best be fulfilled and the services provided.

The application of the American Cyanamid test

The parties accepted there was potentially a serious issue to be tried and so that was quickly dealt with by the Court.

It then went on to consider in detail whether damages would be an adequate remedy for each party.

The Trust argued that as it was a not-for-profit entity which exists to service the public good damages would not be an adequate remedy and instead it needed the suspension to be maintained pending full trial of the issues. Procurement for NHS services said the Trust could not be treated as an ordinary commercial exercise. If Virgin Care were awarded the contract this would undermine the Trust's public service mission to provide integrated health care to people in Kent in a way that could not be compensated in financial terms. In any event said the Trust it stood to lose 10% of revenue and would suffer from reduced economies of scale which would impact on patient care as it would have to make savings elsewhere.

Unsurprisingly the CCGs argued that the suspension should be lifted and the award of the contract allowed to proceed. They argued damages would be an adequate remedy for the Trust were it to win at full trial. The financial loss to the Trust could easily be calculated and the financial and reputational impact of losing the contract would not be so catastrophic as to cause the Trust's total disintegration as an entity/service provider (in the few cases where the courts have held that damages were inadequate as a remedy it has usually been for reasons along these lines).

In contrast the CCGs argued damages would not be adequate remedy for them. The Court acknowledged that if the suspension remained in place the CCGs losses were more difficult to quantify. The CCGs had some on-going concerns about the quality of the Trust's services but in assessing damages this had to be balanced against possible similar or different difficulties in the bedding in of a new service in the early days the proposed contract with Virgin Care. The CCGs were concerned that any delay in finalising the new contracting arrangements even with an expedited trial would still present a real risk of their not having adequate arrangements in place by winter of 2016/2017 (when demand for the services would be at its heaviest).

Judgment

The court accepted that in some cases damages might not be an adequate remedy on grounds other than it not being possible to calculate the financial loss incurred. For example where the relief sought is the protection of protection of privacy financial compensation might well be inadequate. The question of the adequacy of damages should be answered by reference to the interests of the person seeking the injunction. In principle there was no reason why damages should be regarded as inadequate simply because the Trust as a not for profit organisation would not suffer a substantial financial loss. The Court accepted that in some cases the immediate financial loss may be modest but the knock on effects (which would not be compensated) could be catastrophic. This then might create a real interest that could not be compensated in damages to meet the substantial justice of the case.

That said the court was not persuaded by the Trust's arguments on adequacy of damages and said:

  • The Trust having a public service mission to provide health care services in Kent did not give it a monopoly on doing so. The chosen procurement regime set out to treat the Trust and other bidders equally and on a level playing field of providers. There could be no justification for approaching the question of adequacy of damages differently had Virgin Care been the loser and the claimant in this case. In short the Trust's status as an NHS Body did not secure it any special treatment in the decision about adequacy of damages and in financial terms its losses could be easily calculated.
  • The award of the contract to Virgin Care would not cause a significant reputational loss to the Trust or have a catastrophic effect on the its ability to continue providing services.
  • The Trust's core argument was that the award of the contract to Virgin Care would undermine its public mission to deliver integrated care across Kent and the new arrangements with Virgin Care would not serve the interests of patients as well as would be the case if the contract remained with the Trust. It was a category error  to expect financial damages to compensate for this. Indeed the Trust's purpose in engaging in the procurement was not to generate money but rather to best serve the interests of patients; and its interest in pursuing the litigation was in the protection of the public good. Therefore it would not be doing substantial justice to the Trust if the Court held that all it could recover was money.

In response to this, the case provides useful insight on how the Court will consider adequacy of damages in an automatic suspension case where both parties are not for profit organisations.

Interestingly no reference is made in the judgment to the NHS (Procurement Patient Choice and Competition) (No 2) Regulations 2013 and the CCGs duty under those Regulations to procure the provider (or providers) who are most capable. Indeed the Court was quite clear in this case that its role was not to assess the respective merits of each bidder's services but simply whether or not the procurement process was flawed.

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