Edenred (UK Group) Ltd, R (on the application of) v HM Treasury & Ors

At present there is a system of Government support for working parents known as Employer Supported Childcare (“ESC”). ESC operates by giving tax relief to employers who provide childcare for their employees either directly or through vouchers which can be used to purchase childcare. The voucher scheme is administered by private commercial operators, one of whom is the claimant in this case, whom I shall call “Edenred”.

In March 2013 the Government announced plans to replace the current system of ESC with a new scheme known as Tax Free Childcare (or “TFC”). A decision has been made that the TFC scheme will be administered by National Savings and Investments (“NS&I”), all of whose operations are contracted out to a private company called Atos.

In this action, which was begun on 27 August 2014, Edenred seeks declarations that that decision is unlawful - principally on grounds that the arrangements will involve the conclusion of a public services contract within the meaning of the Public Services Regulations 2006 between either or both of the first two defendants, HMT and HMRC, and the third defendant, NS&I, or alternatively that the arrangements will involve a material variation of a public services contract between NS&I and Atos - such that in either case it is necessary to hold a tender procedure in accordance with the Regulations. The defendants deny that the arrangements fall within the scope of the Regulations, and maintain that no such tender procedure is necessary.

At two hearings in late September, I gave directions in this action which are contained in an order dated 29 September 2014. In particular, I directed that there should be an expedited trial of the key issues in dispute, to be listed for hearing in the week commencing 24 November 2014, that is in four weeks' time.

A feature of the 2006 Regulations is that, pursuant to Regulation 47G, where proceedings are begun to challenge a decision to award a public contract before the contract has been entered into, the contracting authority is prohibited from entering into the contract until either that automatic prohibition or suspension is lifted by the court or the proceedings have been determined. As I have mentioned, it is the defendants' case that concluding a memorandum of understanding between HMRC and NS&I and entering into a variation of the Atos contract will not involve the conclusion of a public contract falling within the Regulations. Understandably, however, the defendants have not wished to take the risk that they are wrong about that and they have therefore not entered into the relevant contractual arrangements.

Under Regulation 47H, the court has power to lift the automatic suspension imposed by Regulation 47G. On this application the defendants are asking the court to exercise that power.

It is common ground that an application of this kind is to be approached as if the claimant were applying for interim relief. Accordingly, the court must apply the well known principles established by the case of American Cyanamid v Ethicon [1975] AC 396, and should do so without any weighting in favour of maintaining the suspension.

It is also common ground that, in assessing the balance of convenience in accordance with the American Cyanamid principles, it is relevant in a case of this kind to take into account considerations of public interest as well as the relevant interests of the parties themselves.

Applying the American Cyanamid principles, the first question is whether there is a serious issue to be tried. It is common ground in this case that there is.

It seems to me, and nothing said today by either party has suggested otherwise, that the critical issue in the case is the second of the three issues which is to be decided at the forthcoming trial: that is, whether the use of Atos to provide the services required to administer childcare accounts for the purpose of the TFC scheme will amount to a material variation of the Atos contract which requires a separate tender, as the claimant contends; or whether, as the defendant contends, the services that Atos are to provide fall within the scope of the work for which they have already successfully tendered.

Although in some cases, justice requires the court to examine the strength of the parties' respective cases in some depth and to take account of the likely prospects of success when deciding whether to grant interim relief, I do not think that this is one of those cases. In circumstances where a trial is to take place in only four weeks' time at which the issues will be decided on their merits, after hearing evidence and full argument, I consider that it would be inappropriate for me to express any view about the merits today, even if I had formed one.

In any event, I cannot say from my superficial acquaintance with the competing arguments that either party has such an obviously more compelling case that it ought to be factored into the assessment of the balance of convenience.

I must therefore, in order to apply the American Cyanamid principles, consider what the consequences will be (a) if the automatic suspension is lifted today and no injunction is granted, and (b) if the defendants remain prohibited from entering into contracts until after the conclusion of the trial.

It is common ground that, if the suspension is lifted and the defendants then go ahead and enter into the relevant contracts, the claimant will be confined to a remedy in damages. That remedy, Edenred says, is so worthless that it does not intend even to pursue it. Therefore, the proceedings will in practice come to an end if the suspension is lifted.

On the other hand, if the prohibition against contracting remains in place and the claimant succeeds at trial, it will be open to the court to make an order setting aside the decision to award the contract for the provision of the relevant services to NS&I and/or Atos, and to declare that it would be unlawful to do so without holding a tender. In that event Edenred and other companies currently providing voucher services would potentially be able to compete for the opportunity to administer childcare accounts under the TFC scheme.

Against that background, I must look first at whether damages would, in principle, be an adequate remedy if the claimant is correct in its case that the proposed arrangements are unlawful. I accept that, in that event, damages would not be an adequate remedy because of the difficulty of quantifying the opportunity which Edenred will have lost if there has been no tender. To assess damages, the court would have to attempt to evaluate the outcome of a purely hypothetical tender exercise not corresponding in any shape or form to any tender process which had actually taken place. The court would have to attempt to estimate or make assumptions about a number of matters which are highly conjectural, including whether the Government would have decided to hold a tender process at all or would have made an arrangement, for example, for HMRC to provide the relevant services which would not have required a tender, and, if there was a tender, who the tenderers would have been, and what their respective bids might have been, with a view to attempting to estimate the claimant's prospects of being a successful bidder. I agree with the description given by Mr Langlois in a witness statement made on behalf of Edenred that such an assessment would be "entirely speculative".

It seems to me that the same point, however, does to a significant extent undermine Edenred’s claims about the damage to their business that they will potentially suffer if no trial takes place. If they are successful at trial, the only outcome which they can hope to achieve is an opportunity to take part in a tender process, in the event that the Government arranges matters in a way which requires it to hold one in the light of the court's judgment. I accept that a real opportunity to take part in a tender process is different from a claim for damages based on estimating the outcome of a hypothetical tender. Nevertheless, in considering what weight should be given to the potential existence of such an opportunity, it is necessary to form some view about its worth. It seems to me that the weight which should be accorded to that potential opportunity is necessarily diminished by the fact that it is, as I have indicated, entirely speculative.

Of much greater significance, in my view, than any speculative private interest of the claimant is a wider public interest at stake which counts in the claimant's favour. If Edenred’s contentions are correct and the currently proposed arrangements are unlawful, the result of lifting the suspension would be that a public contract for services worth some £160 million would be awarded without the tender process which the law requires. The Public Services Regulations are designed to serve important public interests of promoting competition and fairness in the use of public resources. It is clear that those interests would be damaged in an irreparable way if the suspension is lifted and the claimant is correct in its case as to the legality of the process.

Looking at what should be taken into account on the other side, if the prohibition on contracting is continued today and the defendants are ultimately successful at the trial, I also accept that harm will occur in that event which cannot adequately be compensated in damages.

The defendants do not suggest that they will themselves incur any costs or any costs which could not be compensated in damages in that scenario, but they say that there will be significant irremediable damage to the public interest as a result of the consequential delay in implementing an important Government policy.

The defendants' evidence, which I accept, is that for each day that the suspension remains in place, there will be, other things being equal, a day's delay in launching the TFC scheme. So a delay of, say, six weeks from today until a judgment at the end of the trial would mean that the launch date of the scheme, currently scheduled to take place in around a year's time, would be delayed by approximately six weeks. That, they say, will mean not only that the implementation of a flagship Government policy will be delayed for that period, something which is inherently undesirable, but that the benefits which the TFC scheme will deliver to members of the public will be lost for that period. In particular, the defendants point out that the TFC scheme will be available to more families than can currently benefit from the ESC scheme, including people who are self-employed and some employed people who cannot currently benefit.

They estimate that there are approximately 1.9 million families eligible to benefit from the TFC scheme, compared with approximately half a million under the ESC scheme. They further estimate that approximately 1 million families will ultimately be better off as a result of the TFC scheme being introduced than they would be if that did not happen - either because they are not eligible to benefit from the ESC scheme or because they stand to receive a greater benefit under the TFC scheme. Although the quantification given in Mr Russell’s witness statement of the financial impact of a delay in implementing the TFC scheme seems to me somewhat simplistic, I accept that such a delay would have financial consequences for many individuals which would, considered overall, be substantial.

Mr Moser QC on behalf of the defendants urges on the court this point and submits that the delay in getting money to families who stand to benefit from the TFC scheme, which will arise if the suspension remains in place, is a significant public interest which needs to be taken into account.

In answer, Mr Coppell QC on behalf of the claimant makes a number of arguments. He draws attention to the fact that some two years have already elapsed since the decision was made in principle to replace the ESC scheme and suggests that the pace with which the new scheme has been introduced indicates no great urgency on the part of the Government or at any rate not such great urgency that a delay of some six weeks can be regarded as significant in the overall context.

There has necessarily been a process of developing and consulting on policy in order to bring the TFC scheme to the point which it has so far reached. It is right to say that there had to be a second round of consultation because of what the claimant contends was a defect in the original consultation process. None of that, however, seems to me to be of great relevance to the public interest argument on which the defendants rely. This is not a case, such as sometimes occurs, where delay on the part of a defendant may justify giving less weight to its interests - because the interests on which reliance is placed in this case are not the interests of the defendants but the interests of the public at large. Those interests seem to me to be equally great or small, irrespective of the chronology of introducing the TFC scheme.

The next point which Mr Coppell makes seems to me to have more force. That is that, if the Government are concerned or as concerned as they say they are by the potential consequences of a six week delay in implementing the scheme, measures can be taken to mitigate the effects of that delay - for example, by making money available when the scheme is launched to cover costs not only of childcare about to be provided but of childcare which has already been provided in the previous six weeks. I accept that there are bound to be administrative complexities in backdating arrangements of that kind, but nevertheless I think it is a relevant consideration that it would be open to the Government to mitigate the detriment to the public interest about which they express concern.

A further point made by Mr Coppell is that the implementation of the entire TFC scheme is conditional on the approval of Parliament. There is, he points out, a bill before Parliament which will provide the statutory basis of the scheme. He contends that that bill is also necessary in order to give NS&I the necessary powers to enter into the arrangements to administer the scheme.

I am not persuaded that the latter point based on the alleged current absence of powers, assuming it for present purposes to be correct, adds anything to the more general point which is undoubtedly correct, that the enactment of the legislation will be necessary in order for the TFC scheme to be introduced at all. As to that, Mr Coppell submits, first of all, that it cannot be taken for granted that Parliament will approve the scheme and, to the extent that this is contingent, then so too are the public benefits which it will bring about. Secondly, and more fundamentally, he submits that, unless and until Parliament has approved the implementation of the TFC scheme, the court should make no assumption that the introduction of the scheme will be in the public interest. That, he says, is a matter for Parliament to decide and it would be wrong in principle for the court to pre-judge that question.

To those arguments, Mr Moser responds on behalf of the defendants that the scheme represents Government policy; that its introduction is supported also by the opposition; and that in those circumstances the likelihood that Parliament will not give the necessary approval is one that can, for all practical purposes, be discounted. He further says that there is no reason why the court should not take into account benefits to those people who will be better off under the scheme, just because Parliament has not yet given the necessary approval.

I accept that the court can and should take account of the reality that, barring something untoward occurring, the TFC scheme will be enacted into law. I do, however, consider that there is a material point underlying the argument made by Mr Coppell, which is that if the TFC scheme were not to be introduced or were not to be introduced so speedily, there is no question of public money being wasted. What would be lost or delayed is the use of public money in the manner which the Government considers to be in the best interests of the public. That is by no means an insignificant consideration - far from it; but I think it right to bear in mind that, to the extent that there is delay in commencing payments to families who would otherwise receive money earlier, it can be presumed that that money will be put to other beneficial public uses.

Looking at the matter overall, I accept the defendants' contention that there is a public interest in the avoidance of delay and that there will be a detriment to that interest if it is necessary to wait a further six weeks before the TFC scheme can be launched. I do not, however, consider that detriment to be sufficient to outweigh the strong public interest in compliance with the law and the benefits that implementing the scheme in a lawful way may be expected to bring. That is particularly so given the arrangements that have been made for an expedited trial and the fact that, as I have assumed for the purpose of this judgment, a decision on the question of legality can be expected within a relatively short time.

In circumstances where there is a serious argument, on which the court will very soon be able to adjudicate, that the proposed arrangements for administering the TFC scheme are unlawful because of the failure to hold a tender, such detriment to the public interest as will result from the delay involved in resolving this issue cannot in my view justify bypassing the question of legality and allowing the scheme to be introduced in a potentially unlawful way.

For those reasons, I hold that the suspension should remain in place until the conclusion of the trial.