Why American Cyanamid is the Bruce Forsythe of case law

I realised that I probably needed to get out more when I became absurdly excited over an instruction that referenced American Cyanamid as the original owner of one of the product formulations I had been asked to consider. To any litigator, American Cyanamid is not just 'one of America's top manufacturing companies during the 1970s (it says in Wikipedia) but the case concerning the criteria on which English courts will grant injunctive relief and it is always exciting to be in the presence of something so significant no matter how tangential your involvement.

So what exactly is American Cyanamid? Essentially it is a legal test which involves a two stage process of considering if there is a serious issue to be tried and, if so, the balance of convenience in granting an injunction or not. In considering the balance of convenience the question of whether damages might be an adequate remedy is one of the factors to be taken into account.

The American Cyanamid test was the basis on which, pre 2009, the English courts considered whether or not to grant an injunction to a disappointed bidder who wanted to stop what it considered to be an unlawful procurement process at least until such time as the merits of its challenge could be considered.

In 2007 the EU introduced the Remedies Directive 2007/66/EC and this was transposed into English law by amending the Public Contract Regulations 2006 (the Regulations). Those amendments came into force in 2009.

Once again, cue considerable excitement from procurement lawyers because the effect of the Directive and Regulations was to impose what amounted to an automatic injunction whenever a claim was issued. To mitigate the effect of that the Regulations provided for contracting authorities to be able to apply to the court to lift the automatic suspension.

We had to wait a year to find out the basis on which the court would consider the application to lift the automatic suspension but in the very first case, Indigo Services v Colchester Institute, in December 2010 the court adopted the American Cyanamid test. This was widely taken up in the flood of cases that came afterwards and in every single case the automatic suspension was lifted. Only in Northern Ireland did the courts occasionally agree that the suspension should continue.

The more decisions lifting the automatic suspension the greater the disquiet in some quarters that the remedy provided for by the Directive was not actually being properly implemented in England & Wales and that, in particular, the use of the American Cyanamid test deprived claimants of an effective remedy.

In 2014 this debate seems finally to have come to a head. Indeed it has seen some very eminent procurement practitioners tie themselves in knots. Whilst perfectly proper it was amusing to see Mr Justice Akenhead's comments in a recent case that Michael Bowsher QC was arguing the exact opposite of his submission in a case a matter of weeks earlier that American Cyanamid was the appropriate test.

However, it always seemed to me that those who felt that American Cyanamid was too inflexible to give an adequate remedy under the Directive were misreading the test and in particular the position on the adequacy of damages. It has always been the case that the question of whether damages are an adequate remedy was only ever one factor in the more holistic approach required in considering the balance of convenience. Whereas some had come to see the American Cyanamid test as depending solely on whether damages were an adequate remedy it has always been much more nuanced than that.

The debate in England & Wales about American Cyanamid had been fuelled by a decision in Ireland, the only other common law jurisdiction in Europe, which held that the American Cyanamid test did not give proper effect to the Directive.

In addition during 2013 and 2014 the tide on lifting the automatic suspension, if not exactly turning, is, at least moving slightly. There have been cases (notably Covanta Energy Ltd v Merseyside Waste Disposal Authority; NATS (Services) Ltd v Gatwick Airport Authority and Edenred (UK Group) Limited), where the automatic suspension has remained in place albeit an expedited trial has been ordered. However, and despite the efforts of some very eminent lawyers in this area, there is no sign of the English courts being prepared to relinquish American Cyanamid as the appropriate test.

So as we prepare to leave 2014 what is the court's current thinking on applications to lift the automatic suspension?

It is obviously important to say that each case depends to a large degree on its own facts. Subject to that caveat, however, here is where I think we have got to:

  • The American Cyanamid test will remain the test against which an application to lift the suspension is judged. It is true that no higher court has yet considered this but a number of high calibre judges in the Technology & Construction court support it and in doing so they have focused on the overall balance of convenience and not just the adequacy of damages. At the moment it is difficult to see an economic operator prepared to pursue this as a matter of principle to a higher court.
  • For contracting authorities lifting the automatic suspension is no longer a foregone conclusion. In particular:
    • If the procurement has already taken a long time (in Covanta the procurement had begun in 2006);
    • If there is no immediate impact to public services or the safety of a section of society (compare a change in the scope of a contract for the administration of childcare [Edenred] with the operational capacity of the Army and safety of soldiers [NP Aerospace Ltd v Ministry of Defence]);
    •  If there might be a substantial reputational impact on the losing bidder (NATS);
    • If a decision that the procurement was unlawful would render the basis on which damages might be calculated just too hypothetical for any realistic assessment to take place (Covanta and NATS); or
    • If an expedited trial can be agreed and organised (Covanta; NATS and Edenred)

then there is at least a reasonable chance that the automatic stay will be allowed to continue.

However there remains one other vexed issue and that is the question of the so-called cross-undertaking in damages. That is a binding undertaking to the court by the economic operator that in the event the automatic suspension continues until trial but the claim is ultimately unsuccessful it will pay any damages incurred by the contracting authority as a result of not being able to let the contract. In some cases this is a potential exposure of many millions and is naturally a deterrent where a challenge is being considered and perhaps so much so that it effectively deprives the economic operator of a remedy.

I think the position on this is much more problematic than the use of American Cyanamid and I do expect that we may hear more about this in 2015.

Which brings me back finally to the title of this piece and the unexpected similarity between American Cyanamid and Bruce Forsythe. Obvious really: both were big stars and much talked about in the 1970s; silently ticking along but pretty much unnoticed in the 1980s and 1990s and then suddenly back with a bang and the centre of attention again in the twenty-first century. Whether the similarities go beyond that is Strictly a question for the reader.

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