Redwood Health Ltd, R (on the application of) v NHS Purchasing and Supply Agency

MR JUSTICE NICOL: This is an application for permission to apply for judicial review. It was ordered to be heard orally by Mr John Randall QC sitting as a Deputy High Court Judge on 18th August 2009.

The claimant, Redwood Health Limited, is a subsidiary of the Redwood Group Limited and it trades as the Montagu Nursing Agency. For reasons which I explain, I will refer to the claimant as Redwood.

Earlier this year, the business of the claimant was being run by another company called Montagu Nursing Agency Limited. Montagu Nursing Agency Limited I shall refer to as MNAL. Its business was to provide agency staff to NHS trusts. MNAL is or was a subsidiary of the European Recruitment Network. Another subsidiary of European Recruitment Network is the Redwood Group Limited. The claimant in turn is a subsidiary of Redwood Group Limited.

In order to better conduct its business, Montagu Nursing Agency Limited entered into what is called a framework agreement with the defendant, the NHS Purchasing and Supply Agency. That framework agreement had the advantage that the companies who were party to that could then supply staff, or in other cases materials, to NHS trusts without those trusts having themselves to go through the tender process required under community law and without the trust themselves having to engage in a risk assessment. Participation in the framework agreement was therefore of substantial advantage to MNAL in conducting its business with NHS trusts. It is not impossible for companies to contract with NHS trusts even if they are not party to a framework agreement but participating in a framework agreement, for the reasons that I have explained, makes such business much easier and correspondingly the supplier more attractive to the NHS trusts.

In April, on 22nd April 2009, there was a reorganisation within the European Network Group of companies. The Montagu Nursing Agency Limited was placed in administration. Its business and assets were transferred to the Redwood Group Limited and immediately it was transferred onward to Redwood Health Limited, the claimant in these proceedings.

The framework agreement to which MNAL had been party was due to last until 30th September 2009. At the beginning of 2009, the defendant had begun the process for establishing a new framework agreement. That involved advertising in the Official Journal, inviting these who were interested in becoming parties to the new framework agreement to complete a PQQ (a preliminary questionnaire) and that had been completed and filled in by MNAL on 11th January 2009. The closing dates for companies who wished to take part in this process was 22nd January 2009.

The next stage was the invitation to tender stage. That took place at some time in March of 2009 and as far as I am aware the MNAL passed through to that stage. The ITT stage of the process was completed some time in March 2009. Consequently, by the time the reorganisation of the European Recruitment Network's subsidiaries took place in April, it was too late for any other company to take part in that process of selection for participation in the new framework agreement.

However, those involved in the claimant (and the claimant took over the business, managers and directors of MNAL) were in touch with the defendant on 17th April 2009, so that is before the reorganisation took place. One of those involved on the claimant's behalf wrote by email to the defendant saying that ERN (that is the European Recruitment Network) was undergoing a refinancing and a re-structuring and said that Montagu (that is MNAL) instead of being a division of ERN will become a division of ERN's subsidiaries and they asked "How long do you think will an novation take?" and questioned various other routes that might be undertaken. The same day, a representative of the defendant replied:

On 13th May, the defendant again was in touch with the claimant, asking for various questions about the Montagu business. There was a reply on the same day and, also on the same day, there was a telephone call from another representative of the Redwood Group, who phoned the defendant. He informed her that the business of Montagu was being carried on by Redwood Health as part of an internal group reorganisation and that it was business as usual. He said that Redwood Health would continue to operate pursuant to, and comply with, existing framework agreements and that the only change was to the legal entity.

In response to a request for further details about the new company, the claimant sent those details at the end of May 2009. In the meantime, and indeed on 22nd April 2009, MNAL, as I have said, was placed in administration. On 11th June 2009, BDO Stoy Haywood LLP, the administrators, wrote to the defendant, drawing attention to their appointment as administrators, saying that they were aware that the tender process was undergoing and that MNAL, the company for which they were administrators, had put in a bid. It referred to the parent company, the Redwood Group Limited and its subsidiary, the claimant, wishing to continue participating in the tender process. The administrators said in their letter:

On 16th July 2009, the defendant wrote to MNAL with a notice of the result of an application to participate in the framework agreement. It said:

The claim form, which was issued on 11th August 2009, seeks to challenge those two decisions.

It is convenient for me first to take the challenge to the refusal to novate the existing agreement. The claimant submits that this decision was arguably wrong in law for two principal reasons. Firstly, the claimant says that the defendant was under the misapprehension that to allow novation of the existing agreement would be constrained by community law. Secondly, it says the defendant was influenced by the fact that the existing agreement had only a few weeks left to run at the time the decision was taken and that ought not to have been an influential factor. The claimant is gravely affected by the refusal to novate and estimates that its losses are in the region of £3,000 to £4,000 per working day, which means that even a short period is a matter of significance to it.

As far as the error of community law is concerned, the claimant says this: while it is understandable that community law should be vigilant not to let independent third parties enter the tendering process for public contracts once the timetabled dates have passed, it is manifestly different where the new entrant is no more than an alternative manifestation of an existing entrant. The claimant says that is the position in this case and that is the position which the defendant ought to have recognised and those two errors, either singly or in combination, lead to its decision to refuse to novate the existing agreement being wrong in law.

I take first the argument that the defendant erred in considering that there would be a community law objection to allowing this novation to take place. I have been referred to the case of Pressetext Nachtrichtenagentur GmbH v Republik Osterreich (Bund) and it is a decision of the Third Chamber of the European Court of Justice, with the reference C-454/06. In that case, the court had to consider, amongst other questions, whether the tendering process had to be gone through where a contract awarded to one company by a public body was novated so that it was held in the future by another subsidiary within the same group. At paragraph 40, the Court said this:

In this case, Ms Rebecca Haynes on behalf of the claimant submits that the framework agreement did indeed allow for substitution and therefore it ought to be recognised that the change of identity of the contracting party would not constitute a change to one of the essential terms of the public contract. The term of the framework agreement, however, to which she referred me, was paragraph 11.1. Under the heading "Assignment" it said this:

In my judgment, that is a hopeless argument. Paragraph 11 expressly says that the agreement is personal to the supplier. It allows for the possibility of novation or subcontracting but only with the previous written consent of the NHS PASA. Even absent such a term, parties to a contract can of course agree that it should be amended or novated. Paragraph 11, in my judgment, is doing no more than stating what would be the position for any contract. I reject the argument than by reason of that paragraph this contract came within that qualification referred to by the ECJ in Pressetext.

More relevant in my judgment is paragraph 54. There the court turned to the facts of the current dispute before it. It said this:

It is apparent from the letter from BDO Stoy Haywood that they were very much not agreeing to continue to assume responsibility for compliance with the contractual obligations under the existing contracts. That, in my judgment, means that there is a significant difference between the present case and that in Pressetext. Both were cases of reorganisation within a single group. In both cases it appears that the new company was very much a reembodiment of the old one, yet nonetheless the European Court of Justice added the proviso which I have emphasised and appeared to regard that as a critical condition for its conclusion that the alteration of the identity of the contractor was not an alteration in an essential term of the contract. On the basis of Pressetext, it appears to me therefore that the defendant's concern, that to permit a novation to the claimant would risk infringing community law, unless of course the whole process of tendering was embarked upon again, was well-founded.

However, it is not necessary for Mr Moser on behalf of the defendant to establish that it was well founded. The letter from the defendant of 17th July emphasised that any novation was considered to be at risk of legal challenge under EU procurement law. Even if the defendant was wrong in its view that novation would infringe community law, it is plainly the case in my judgment that there was a risk of legal challenge should that course be taken. I reject therefore the first ground on which challenge is sought to be made to the refusal to novate the existing agreement.

The second challenge concerns the amount of time that then would have been left for the existing agreement. As I say, the decision was taken on 17th July. The contract was due to run for only another two and a half months or so. The claimant submits, as I have indicated, that, even for such a short period, the loss which it would suffer would be considerable.

In my judgment, the appropriate way to approach this question is by a slightly different route. Even at the stage of considering an application for permission to apply for judicial review, it is open to the court to look ahead to the substantive hearing and to ask itself whether as a matter of discretion relief is likely to be granted, even if the error of law is made out. This case is being heard today on 4th September 2009. It is, as I have emphasised, the application for permission to apply for judicial review. Assuming in the claimant's favour that permission were to be granted, there would then need to be a substantive hearing. We are in the vacation. There are other claims on the court's time, as always, and, even if this matter were to be expedited, the prospect of having a substantive hearing in less than one or two weeks is remote. Even after a substantive hearing, it would be necessary for the court to give judgment. Again, I assume in the claimant's favour that the judge hearing the substantive application would feel able to give a judgment straight away. Even if that were the case, there would then have to be a further decision by the defendant. Ms Haynes on behalf of claimant accepts that the claim form does not presently seek a mandatory order requiring the defendant to enter into an novation agreement. The time for the defendant to consider its position in the light of the judgment and the other factors it could properly take into account again must allow a degree of latitude to the defendant. By this time, the chronology, even with the best will in the world, would be in the last week of September. Even if that decision were favourable to the claimant, the question of the claimant taking advantage of it would be dependent not on the defendant itself but on contracts to be entered into with the NHS trusts.

Taking all of that into account, in my judgment the court would not be likely, in its discretion, to grant a quashing order. It simply would be of no, or absolutely minimal, use to the claimant given the timetable that I have described. Since I am able to predict that as the outcome, even, as I emphasise, making all assumptions as favourable as possible to the claimant, that in my judgment is a further reason why this application for permission to apply for judicial review of the existing agreements should be refused.

Ms Haynes emphasised that to some extent it is artificial to divide the claim as between existing and new agreements. I turn now, therefore, to the new agreement and the claim for judicial review of the refusal to permit the claimant to take part in that tender process, both as freestanding matter and also to examine whether it alters my view as to whether permission should be granted in relation to the challenge to the decision concerning novation of the existing agreements.

Turning then to the question of the defendant's decision in relation to the new tendering process, Ms Haynes argued that the defendant here had refused to allow the claimant to participate or to undertake to novate in the first place because MNAL was insolvent. Ms Haynes accepts that was indubitably correct, but, she says, it was only part of the picture. Her claim might have stood more prospect of success if the defendant's decision had rested only with the letter of 16th July, but it did not. There was the next letter of 17th July.

To some extent there is an overlap, as Ms Haynes said, between the arguments put forward in relation to the two sets of agreements. One of those areas of overlap is whether or not the defendant would act contrary to EU procurement law if it allowed the substitution of the claimant for that of MNAL in the tender process. Mr Moser argued that it would be plainly the case that it would. He submitted that the overall requirement of EU law that there be transparency and no discrimination as between the participants in the process would be offended if the claimant was allowed to stand in the shoes of MNAL or if MNAL's bid to take part in the new agreement were allowed to proceed on the assumption that, if it should be successful, there would be an immediate novation to the claimant. That, Mr Moser would argue, would be the very antithesis of transparency or fairness as between the participants in the process. Ms Haynes again submits that that is not so and that the critical difference is that this was merely a restructuring within the European Recruitment Network Group.

In my judgment, it is again necessary to come back to the terms of the decision letter of 17th July. The defendant said that any novation is considered to be at risk of legal challenge under EU procurement law. In my judgment, that is indubitably so. The Pressetext case itself shows that, even in the context of a group restructuring, a critical factor may be whether the original contractor (or, I infer, tenderer) is continuing to assume the obligations under the contract (or, I infer, the proposed contract). At the very least, it appears to me that there was a risk to the defendant of legal challenge if it allowed this substitution to take place, either actually or prospectively.

The risk of legal challenge, whether or not the challenge was ultimately successful, was a disadvantage which the defendant was entitled to take into account. It would involve the defendant in expense in fighting a legal challenge, even if, as I say, ultimately it was to be successful. But, more importantly, it would involve delay and disruption to the process of establishing a new framework agreement for the benefit of the NHS trusts. That risk of legal challenge, in my view, was a material circumstance that the defendant was entitled to take into account. The weight which it gave to that risk is axiomatically a matter for the defendant to determine. Of course, the court can interfere if the decision is irrational, but in my judgment the decision to take account of and to give weight to the risk of legal challenge was very far from being irrational. It is not a runnable legal argument.

Ms Haynes had a further submission and argument to make as to why the failure to allow novation with the new agreement, or indeed, I infer, with the old agreement, was unlawful and that was based on legitimate expectation. Mr Moser has referred me to the case of Rowland v Environment Agency [2003] (ChD) 581 for a useful exposition of the principles that will be applied in the context of legitimate expectation. At paragraph 68, Lightman J said this:

In this case, Mr Moser submits that there was no clear and unequivocal representation. I agree. I have been taken through the correspondence and the communications between the claimant and the defendant. I have sought to summarise them in my judgment so far, but I have taken account of the full course of conduct. In my judgment, there simply was no plain and unequivocal representation, in the words of the MFK Underwriting case, and no such representation can be spelt out from either the silence of the defendant in response to the letter from BDO Stoy Hayward or in continuing, for a relatively short period, to operate with the Redwood Group in the interval between the first communication in April and the decision in July. Absent a clear and unequivocal representation, the argument about legitimate expectation falls. It is not therefore necessary to have regard to Mr Moser's alternative submissions, namely that there was not a full cards on the table approach here or that the defendant in any event could not lawfully give effect to the representation that there would be a novation.

Ms Haynes put the argument based on legitimate expectation in slightly different ways, based upon fairness or reasonableness. In terms of fairness, having heard her submissions, in my judgment it really came to legitimate expectation or nothing. In terms of reasonableness, I do not consider that it is reasonably arguable that either of the decisions of the defendant were irrational or in any other way unlawful. In consequence, while I have been grateful for the submissions by both parties, I dismiss this application for permission to apply for judicial review.

I have, in the course of oral argument, canvassed with the parties whether it is open to the court to transfer this application to the ordinary Queen's Bench civil list to be dealt with as an application, or an action, under the Public Contracts Regulations. In view of the firm views which I have reached as to the arguability of those submissions put forward by Ms Haynes, I do not think that transfer would be a proper course to take. I simply dismiss these applications.

MR MOSER: My Lord --

MR JUSTICE NICOL: In English please, Mr Moser.

MR MOSER: If I may just briefly take instructions. (pause) My Lord, the decision was taken some time ago not to ask for costs and so I do not do so.

MS HAYNES: My Lord, I hear what your Lordship says in relation to a transfer of proceedings, but the situation is that any claim under the Public Contracts Regulations is a claim as of right and it does not require the permission of the court.

MR JUSTICE NICOL: Well, then you can bring your action and you will have to deal with whatever application is made as to whether that is open to you.

MS HAYNES: My Lord, I take your point.

MR JUSTICE NICOL: Thank you both very much.

MR MOSER: Thank you my Lord.