Damages Are Adequate – But Is It Sufficiently Serious?

Background

The procurement in question was for the provision of nationwide orthodontic services, although the challenge related to a contract for services in East Hampshire for a 7-year term worth £32.7 million (the Procurement). Braceurself was the incumbent, but its bid (one out of two) was unsuccessful, and the contract was awarded to a company known as PAL in these proceedings. The difference between the two bids was very close: PAL scored 82.5%, whereas Braceurself scored 80.25%.

Braceurself issued proceedings challenging the Procurement on a number of fronts, seeking to have the score corrected and the contract awarded to Braceurself. The issue of proceedings engaged the automatic suspension under the PCR. NHS England brought its application to lift the automatic suspension and was successful, primarily as Judge Bird found that “in this case damages would be an adequate remedy”. It is notable that in NHS England’s own submissions, it accepted that if Braceurself were to succeed in proving a breach at trial, “it would be compensated in damages if the suspension were lifted on the basis that it would have been awarded the contract”.

As a result of the suspension being lifted, the contract was awarded to PAL, and Braceurself amended its pleadings to proceed for the remedy left available: damages.

First Instance

On 20 June 2022, Mr Alexander Nissen KC, sitting as a Deputy High Court Judge (the Judge), handed down a judgment on liability, finding that from the numerous claims that Braceurself had made, there had been a single manifest error. In a question regarding Clinical and Service Delivery, one criterion concerned accessibility to the premises. As Braceurself’s premises were on the first floor, its bid needed to cater for those patients who could not use the stairs to access the service. In addressing this part of Braceurself’s bid, NHS England made two errors. Braceurself had proposed to use a device called a stair climber. Mistakenly, NHS England evaluated Braceurself’s bid on the basis that it was proposing to install a stair lift. NHS England also mistakenly thought that, by way of partial solution, Braceurself was offering services at alternative premises at least to those patients who could not use the stairs. The suggestion was that the equipment at the alternative premises would not be of the same standard. In fact, Braceurself was only making an offer to use alternative premises as a result of a flood or fire which rendered its primary site unusable. The Judge concluded that these mistakes had a causative impact on NHS England’s scoring and were material to the outcome, finding that Braceurself should have been awarded 2.5% more, making it the successful bidder.

The question of whether the breaches were sufficiently serious to justify an award of damages were left to a further hearing, and on September 16, 2022, the Judge handed down the so-called ‘Francovich Judgment’. In Francovich v Italy (C-C/90) [1991] ECR 1-5357, the CJEU identified three conditions which had to be met for State liability to pay damages for a breach of EU law. They were that: (i) the rule that has been infringed must be intended to confer rights on individuals; (ii) the breach must be “sufficiently serious”; (iii) there must be a direct causal link between the breach and the loss of damages sustained. Per Brasserie du Pecheur v Federal Republic of Germany [1996] QB 404, it was left to the member states to set the decisive test for finding if a breach is sufficiently serious.

This test was addressed by the House of Lords in R v SoS for Transport Ex Parte Factortame (No.5) [2000] 1 AC 524 (Factortame), a case examining UK-enacted legislation which imposed conditions of registration on fishing vessels based on British nationality. Lord Clyde identified eight factors (which are sometimes referred to as the ‘Factortame checklist’), which were usefully summarised by Richards LJ in Delaney v SoS for Transport [2015] 1 WLR 5177:

“36 …Lord Clyde identified the following factors, though the list was not exhaustive: (1) the importance of the principle which has been breached; (2) the clarity and precision of the rule breached; (3) the degree of excusability of an error of law; (4) the existence of any relevant judgment on the point; (5) the state of the mind of the infringer, and in particular whether the infringer was acting intentionally or involuntarily (i.e. whether there was a deliberate intention to infringe as opposed to an inadvertent breach); (6) the behaviour of the infringer after it has become evident that an infringement has occurred; (7) the persons affected by the breach, including whether there has been a complete failure to take account of the specific situation of a defined economic group; and (8) the position taken by one of the Community institutions in the matter. He said that the application of the “sufficiently serious” test “comes eventually to be a matter of fact and circumstance”; no single factor is necessarily decisive; but one factor by itself might, particularly where there was little or nothing to put in the scales on the other side, be sufficient to justify a conclusion of liability.”

The application of the Francovich conditions to the award of damages in a public procurement case was authoritatively determined by the Supreme Court in Energy Solutions EU Limited v Nuclear Decommissioning Authority [2017] UK SC 34 (see in particular [25]-[27] and [39] of the judgment of Lord Mance).

In the Francovich Judgment therefore, the Judge duly considered the Factortame checklist in this consideration of whether the one error was sufficiently serious to result in an award of damages. The Judge found that: factors (1) and (2) in the checklist had been made in Braceurself’s favour, but that factors (3) and (5) were in NHS England’s favour; with the remaining factors being neutral, the balance overall fell in NHS England’s favour. In particular, the Judge emphasised that he found that there was one single breach in an otherwise carefully planned, well organised Procurement, and that the purpose in the scoring of the relevant question, which was to maximise access to publicly funded orthodontic services for those who have a disability, was laudable.

Appeal

The main issue on appeal was:

“In considering whether the breach is ‘sufficiently serious’ for the purposes of Francovich damages, is the finding that, but for the breach, the contract would have been awarded to the appellant, decisive?”

Put simply, Coulson LJ said no. This was for a number of reasons, including:

1. If a breach is sufficiently serious because the wrong bidder got the contract, without nothing more and regardless of the circumstances of the breach itself, then the second Francovich condition would add nothing and would “collapse” into the third.
2. What matters for the purposes of the second condition is the nature or quality of the breach, not its effect. And in this exercise: “A deliberate decision to do something with a high change that loss will be caused is at one end of the culpability spectrum; something going wrong due to inadvertence, misunderstanding or oversight, is at the other”.
3. An approach that makes the first two factors of the Factortame checklist decisive of the ‘sufficiently serious’ test is not in accordance with the domestic authorities.

As to the second issue on appeal, regarding the two factors that the Judge held to be in NHS England’s favour, Braceurself’s submission that a manifest error can never be excusable was rejected. Coulson LJ recognised that factors (3) and (5) focused “squarely” on the conduct and state of mind of the infringer and that in his experience : “it is often quite easy to track a mistake made during an evaluation process back to its source; indeed, that is the whole point oft there being a proper ‘paper trail’ relating to the tender evaluation, which an aggrieved tenderer can follow to see precisely where the process went wrong”. And if there are evidential difficulties, “the judge can draw inference from the evidence he or she does have”.

Coulson LJ also expressly addressed the question as to whether Braceurself had been left without an effective remedy, and accepted that, in a public procurement challenge, “there is a potential conflict between the result at the interim stage of the litigation (when the respondent sought to remove the stay) and the final stage (when the judge came to consider whether the breach that he had found was sufficiently serious to warrant damages)”. Whilst acknowledging that this result was “most unfortunate”, Coulson LJ found that it was “not incoherent” – it is the consequence of there being two different exercises, two different sets of evidence and two different sets of governing principles in the interlocutory and final stages, which may produce different results. In this regard, Coulson LJ again focused on the otherwise well-run procurement, concluding that “A single, inadvertent breach in an otherwise impressive and careful procurement exercise caused the wrong result” but this was, in his experience, very rare.

Turning briefly to NHS England’s two points of appeal, Coulson LJ found that:

1. the Judge was wrong to find that there was a manifest error, or at the very least, was wrong to find that error would have resulted in an increase to Braceurself’s score, leading to the conclusion that Braceurself’s original score should have remained;
2. notwithstanding the above, in circumstances where the Judge did find that there was a manifest error, he was correct to attempt a re-marking exercise to determine whether that error in the marking of the tenders would have led to a different result based on the evidence provided.

Comment

Claimants in public procurement challenge often face an uphill battle – at the start of a claim, the Claimant has none of the documents, and when documents are disclosed, they may be within a confidentiality ring.

Even if enough documents are disclosed, the contracting authority will likely win its application to lift the automatic stay, leaving the Claimant with its often less favoured remedy of damages. In our experience, in most procurement challenges, the Claimant’s first priority is not usually seeking damages – they want the contract (or at least for the procurement to be re-done).

And now, if a claimant does manage to overcome these struggles and show that the contracting authority made an error, it may not get anything to reward its efforts.

However, it is important to remember the focus placed both at first instance and by Coulson LJ on the finding of just one error, in an otherwise well-run procurement. We hope this will be a distinguishing factor going forward.

Finally, we note that all of this comes at a time where the new Procurement Act 2023, along with the accompanying amended Provider Selection Regime 2023 for NHS services (the PSR), have just come into force. The PSR will mean that fewer NHS services contracts need to be procured in the first instance. Public authorities will still need to comply with standards of fairness and transparency but moving forward it any challenge to decisions made under a competitive process under the PSR will need to be made via a judicial review.