Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION
	[2014] CSOH 12
CA48/12	OPINION OF LORD WOOLMAN   in the cause   SHETLAND LINE (1984) LIMITED   Pursuer;   against   THE SCOTTISH MINISTERS   Defenders:   ________________

 

Pursuer: Lake QC; Maclay Murray & Spens LLP

Defenders: C O'Neil (Sol Adv); Scottish Government

28 January 2014

 

Introduction

[1] In September 2011, the defenders invited companies to tender for ferry services from the Scottish mainland to Orkney and Shetland. The pursuer was one of the tenderers, but its bid was unsuccessful. The defenders instead awarded the contract to Serco Ltd. In the present action, the pursuer challenges that decision. It maintains that the defenders breached the Public Contracts (Scotland) Regulations 2006, SSI 2006/1 ("the 2006 Regulations"). They were in force at the relevant time. Procurement exercises commenced on or after 1 May 2012 are governed by the Public Contracts (Scotland) Regulations 2012, which have replaced the 2006 Regulations.

[2] The 2006 Regulations contain a notification requirement. A person seeking to challenge a decision to award a contract by a public authority must give notice that it intends to raise proceedings. The pursuer served the summons in the present action at about 5.00 pm on 11 May 2012. Earlier that day, it sent two emails to the defenders. The defenders maintain that the emails did not provide the requisite notice. Accordingly, they contend that the action should be dismissed.

 

The legal framework

The 1989 Directive

[3] The 2006 Regulations are based upon Directive 89/665/EEC. It requires Member States to ensure that "decisions taken by the contracting authorities may be reviewed effectively": article 1.2. One practical method of securing that aim is the 'standstill period': article 2a. It prevents a contracting authority from concluding a contract for at least 10 calendar days following the date on which it issues the contract award decision. That is designed to give the unsuccessful tenderers sufficient time to assess their position.

[4] The Directive allows Member States to select a longer period than 10 days for the standstill period. It also allows them to introduce a notification requirement "provided that this does not affect the standstill period": article 1.4.

[5] That 1989 Directive was amended by the Remedies Directive: 2007/66/EC. The recitals to the Remedies Directive provide an indication of its purpose and aim. It was deemed necessary, because "consultations of the interested parties and the case law of the Court of Justice have revealed a certain number of weaknesses in the review mechanisms": recital (3). It reinforced the importance of the standstill period, by stating that it "should give the tenderers concerned sufficient time to examine the contract award decision and to assess whether it is appropriate to initiate a review procedure": recital (6). Where a Member State chose to impose a notice requirement, it should "make it clear that this should not affect the standstill period": recital (11).

 

The 2006 Regulations

[6] Under the 2006 Regulations, the standstill period is the minimum one specified in the 1989 Directive of 10 days: regulations 2 and 32. Regulation 47 deals with the enforcement of obligations. At the material time, it was worded as follows:

"(6) Proceedings under this Part shall not be brought unless-

 

(a) the economic operator bringing the proceedings has informed the contracting authority ... of-

(i) the breach or apprehended breach of the duty owed to it in accordance with paragraph (1) or (2); and

(ii) its intention to bring proceedings under this Part in respect of that breach or apprehended breach; and

 

(b) the proceedings are brought in accordance with paragraph (7).

 

(7) For the purposes of paragraph (6)(b), proceedings shall be brought-

...

(b) in any other case, [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."

 

[7] The present dispute centres on regulation 47(6)(a)(ii), which I shall refer to as "the notification requirement".
European Case Law
[8] The Court of Justice has stressed two points in relation to remedies. First, national courts must ensure that the rules of European law are fully effective and interpret provisions of domestic law in that light: Pfeiffer and Others v Deutsches Rotes Kreuz [2005] 1 CMLR 44 at paras 111 and 116. Second, a remedy is not effective if it is virtually impossible or excessively difficult to obtain: Santex SpA v Unita Socio Sanitaria Locale N.42 Di Pavia [2004] 2 CMLR 30; Palmisani v Instituto Nazionale della Previdenza Sociale [1997] ECR I-4025.

 

The material facts

[9] Transport Scotland is an agency of the defenders. On 27 September 2011 it published a notice in the Official Journal of the European Community seeking invitations for the provision of ferry services to the Northern Isles. The operator was to provide services for the Pentland Firth route and the Aberdeen‑Kirkwall‑Lerwick route over a six-year period. The contract had an advertised value of between £150M to £300M.

[10] The notice stated (a) that the procurement exercise would be conducted under the Competitive Dialogue Procedure, and (b) that the contract would be awarded to the contractor providing the most economically advantageous tender. The defenders provided five volumes of Competition Documentation to all the prospective tenderers.

[11] The defenders issued their contract award decision on Friday 4 May 2012. They informed the pursuer that its tender had not been accepted. Their letter contained a table showing the scoring system they had used. Serco's tender narrowly received a higher score than the pursuer's tender. Price was the decisive factor. The letter also indicated that the standstill period would run from 5 to 14 May inclusive. The pursuer replied by email on the same day. It stated that it was "deeply disappointed and exceedingly frustrated" at the outcome of the procurement exercise.

[12] Monday 7 May was a bank holiday. The following day, the pursuer instructed Messrs Maclay Murray and Spens LLP, solicitors, to act on its behalf. On 9 May they (i) instructed counsel; (ii) held a telephone conference call with him; and (iii) delivered four folders of papers to him, with instructions to draft a summons if he thought it appropriate to do so.

[13] On the same day (Wednesday), the pursuer wrote directly to the defenders and stated that it had appointed solicitors to advise it on "the prosecution of an action relating to the Procurement Process". It also stated that it had not been treated equally or transparently with regard to the freight requirements for the services and commented "that the successful bid is likely to be non-compliant".

[14] The key events took place on Friday 11 May. At 12.37 pm, Maclay Murray and Spens sent a letter by email to the defenders. They intimated that the defenders had breached the 2006 regulations in a number of specified respects. They requested a formal undertaking that the defenders would not enter into the proposed contract with Serco without giving the pursuer at least seven days' notice of their intention to do so. The solicitors stated that if the undertaking was not given by 2.30 pm that day, the pursuer "intends to take immediate court action".

[15] The defenders replied by email at 2.17 pm. They stated (a) that they would not award the proposed contract to Serco until 18 May; (b) that they would provide a substantive response to the matters raised in the pursuer's letter; and (c) that they were prepared to hold a meeting to try and resolve matters on Tuesday 15 May. The letter closed by stating "Please confirm by return that your client is content to proceed on this basis and that proceedings will not be issued before we meet."

[16] Maclay Murray and Spens sent a further email to the defenders at 3.37 pm. They stated that "given the potential time bar issues", they would serve a summons on the defenders that afternoon. That is what happened. The summons was served at about 5.00 pm. The parties did meet to discuss matters the following week, but they were unable to reach a resolution.

 

The ground of challenge

[17] Miss O'Neill submitted that the two emails of 11 May did not satisfy the notification requirement. The building blocks of her argument were as follows: (a) the notification requirement is an absolute one; (b) the first email did not provide unequivocal notification that the pursuer intended to raise an action, (c) in particular the defenders were entitled to expect that the pursuer would stay its hand, given that the defenders did provide the undertaking sought; and (d) by raising the action so quickly, the pursuer gave inadequate notice to the defenders. I shall discuss these matters in turn.

 

Discussion

The Notification Requirement

[18] The purpose of regulation 47(6) is to indicate the seriousness of the complainant and to give the contracting authority an opportunity to remedy the default: Luck v London Borough of Tower Hamlets [2003] 2 CMLR 12 at para 42. Lord Hodge put the matter in this way in Hastings & Co (Insolvency) Ltd v Accountant in Bankruptcy [2013] CSOH 55 at para 11:

"... the regulation contains a notification requirement for a practical reason and not as a matter of form. It is to allow the contracting authority to reconsider its position in response to a focused challenge or challenges to its decision and a notification of an intention to raise proceedings absent that reconsideration."

 

[19] Because the regulation is couched in mandatory language, the court cannot excuse a failure to comply with its terms. Mr Lake did not suggest otherwise.

 

The Notice and the Undertaking

[20] Miss O'Neill characterised the pursuer's first email, timed at 12.37 pm, as "a conditional threat". It indicated that it would only raise proceedings if the defenders refused to provide the undertaking. On her analysis, the defenders' email at 2.17 pm satisfied the condition. By agreeing to postpone the award of the contract to Serco for seven days, the defenders afforded the pursuer an extended period to determine whether to raise proceedings.

[21] In my view, however, the defenders did not provide the undertaking sought by the pursuer. What they proposed did not mirror the proposed wording contained in the 12.37 pm email. The defenders recognise that in their reply. The final sentence of their email would have been redundant if the undertaking sought had been granted. Miss O'Neil attempted to accommodate this by arguing that the defenders "in substance granted the undertaking". Having regard to the very clear terms of the pursuer's email and the critical time frame, in my view that was not enough.

[22] Further, upon receipt of the second email, no reasonable person could have been left in doubt about the pursuer's intention. It stated that it was going to raise proceedings that afternoon in respect of the breaches set out in the first email. The notification requirement may be satisfied by means of two or more communications taken together: Keymed (Medical & Industrial Equipment) Ltd v Forest Healthcare NHS Trust [1998] EuLR 71.

 

The Timing of the Notice

[23] In his note of argument, Mr Lake relied on both letters sent by email as satisfying the notification requirement. In his oral submissions he went further and contended that the first one alone gave sufficient notice. I am inclined to agree. The pursuer informed the defenders that it had formed a serious intention and pointed out the precise nature of its complaints. The defenders knew that if it did not grant the specified undertaking, an action would follow.

[24] But in either event, the defenders only had a matter of a few hours to assess the pursuer's criticisms, formulate a response and decide whether they wished to remedy matters. The defenders' submission that it received insufficient notice is a persuasive one. In Clinical Solutions International Ltd v NHS 24 [2012] CSOH 10, the notice was served on the contracting authority after office hours. A summons followed within a short space of time on the same day. Lord Hodge considered it "to be readily arguable that the economic operator has failed to give any notice which complies with regulation 47(6)".

[25] But there are powerful countervailing arguments. In terms of Santex (supra) the court must be vigilant to ensure that the economic operator has an effective remedy.

[26] Mr Lake explained that in the present case, the pursuer was concerned about two separate time limits. First, there was the standstill period. An economic operator's primary right is to challenge the contract award: Alcatel Austria AG v Bundesministerium fur Wissenschaft under Verkehr [1999] ECR I-7671, para 43. The pursuer was keen to retain that right, rather than being confined to a claim in damages. Any action therefore had to be raised on or before Monday 14 May. From the pursuer's perspective, the status of the defenders' email, timed at 2.17 pm, was uncertain. The pursuer was reluctant to rely on the assurance that no contract will be concluded until 18 May.

[27] But there was a second driver that underlay the pursuer's decision to raise proceedings. In analysing the contract award letter, it formed the view that the defenders might have infringed the 1996 Regulations on 13 February. The three month period set out in regulation 47(7) therefore terminated on Friday 11 May. In those circumstances, the only responsible legal advice was to err on the side of caution and raise proceedings. That was the course taken by the pursuer.

 

Decision

[28] I conclude that in the particular circumstances of this case, the notification requirement was satisfied. By issuing their decision letter immediately prior to a Bank Holiday weekend, the defenders created a very tight timeline. The standstill period, already short, was further truncated. The pursuer only had four working days to evaluate matters. As the defenders must have been aware, that would have involved a considerable degree of work. Counsel had to read a substantial quantity of documentation in order to reach an informed view. He then had to proffer advice, take further instructions and draft a summons.

[29] Against that background, the defenders knew or ought to have known that the pursuer would almost certainly not be in a position other than to provide bare notice. It had to act fast to avoid losing its right to seek reduction of the contract. That situation was the direct consequence of the defenders' actions.

[30] I also observe that in this case it is difficult to figure a period of notice that can be reconciled with the need for effective review. Miss O'Neil declined to specify the period of notice which should have applied. She submitted that it was a matter for the court. In my view, however, she was in the position known in chess as zugzwang. If she specified too short a period, then the pursuer did give enough notice. If she selected too long a period (say 48 hours), then that eroded the effectiveness of the remedy. Regulation 47(6) does not specify a minimum period of notice. In my view there is a good reason for that approach. Each case turns on its own individual circumstances.

 

Conclusion

[30] I conclude that the pursuer complied with the notification requirement. Accordingly I shall repel the defenders' first plea-in-law and fix a by order hearing to discuss further procedure. In doing so, I note that the pursuer's claim now only sounds in damages. The defenders entered a contract with Serco on 1 June 2012, following Lord Malcolm's decision permitting that to take place: [2012] CSOH 99.