Harry Yearsley Ltd v Secretary of State for Justice

This case is about the procurement of a contract for the supply of frozen food to prisons. The Claimant ("HYL") was an unsuccessful tenderer who claims that the procurement of the contract was carried out in breach of the Public Contracts Regulations 2006. The contracting authority was the Defendant (“the MoJ”). This is an application by the MoJ for summary judgment pursuant to CPR 24.2 or to strike out the claim pursuant to CPR 3.4(2)(a).

The prisons are managed by Her Majesty’s Prison Service (“HMPS”). However, the procurement process was initiated on its behalf by the MoJ. This was at the end of December 2008, by way of an advertisement published in the Official Journal of the European Union. Interested parties were required to complete a pre-qualification questionnaire, following which those invited to tender were provided with a number of documents including most relevantly documents entitled: Instructions to Tenderers (“ITT”), Administrative Instructions, Pricing and Payment Schedule, Specification.

Tenders were due in March 2009. Five tenders were submitted, including a tender by HYL.

It is not in dispute that the assessment of tenders proceeded in two stages, as described in the ITT. First, the tenderers had to meet the quality criteria set out in the ITT in order to ensure the minimum level of quality would be achieved. Any tenderer who did not achieve this would be eliminated at that stage. Second, those who passed through the quality gate would have to participate in an “e-auction”, the outcome of which would determine which tenderer was successful.

Of the five tenderers who were invited to tender, one was excluded following the assessment of the quality criteria. The remaining four tenderers proceeded to the e-auction stage. Those tenderers were provided with the document entitled Electronic Reverse Auction Rules of Participation.

A company known as “3663” was the successful tenderer following the e-auction. DBC Foodservice came second. HYL, who was the incumbent supplier, was third.

The contract was awarded to 3663 on or around 2 June 2009, and HYL was provided with a written debrief document on or around 5 June 2009.

HYL issued a Claim Form on 1 April 2010 in relation to this procurement process. However, it did not serve the Claim Form and nor did it provide Particulars of Claim.

On 27 July 2010 HYL issued a fresh Claim Form, which it served together with other documents at about 7 pm on 27 July 2010 (by fax). The other documents were the original Claim Form, short Particulars of Claim with each claim form, together with a document entitled Consolidated Particulars of Claim.

The MoJ filed a Defence in relation to each of the two claims, together with a Consolidated Defence which responded to the matters pleaded in the Consolidated Particulars of Claim.

The MoJ submits that it is an abuse of process to file two claim forms in relation to the same dispute and so one of them should be struck out. Given that no Particulars of Claim were filed until 27 July, and that these accompanied the second Claim Form, it submits that the claim dated 1 April 2010 should be struck out on this basis alone.

More fundamentally, the MoJ applies for summary judgment or to strike out the Consolidated Particulars Claim on the merits.

It is submitted that the Consolidated Particulars of Claim disclose no reasonable grounds for bringing the claim and that HYL has no real prospect of succeeding on any aspect of its claim for the reasons set out below.

The MoJ submits that there are two main reasons why HYL’s claim should be struck out or summary judgment entered:

In addition the MoJ submits that the claims have no real prospects of succeeding on the merits.

HYL relied on five matters as constituting breach of the regulations by MoJ. The use of criteria and weightings that differed from those set out in the ITT; permitting 3663 to derogate from the Halal standard; material changes to the contract post award; the way in which the electronic auction was conducted; and the nature of the debriefing.

HYL submits that it was not until at least mid February 2011 that the latest criteria and weightings were disclosed, and so it was not until then that it became aware of the alleged flaws in the tendering process or of the fact that it had been inadequately debriefed in June 2009. Accordingly, it submits that it is not out of time.

The Public Contracts Regulations 2006, which implement for the United Kingdom Council Directives 2004/18/EC and 89/665/EEC, apply to the conduct of the procurement process the subject of these proceedings. HYL alleges a number of breaches of the Regulations.

Substantial amendments were made to the Regulations which apply to procurement processes commenced on or after 20 December 2009 (see The Public Contracts (Amendment) Regulations 2009, which implemented Directive 2007/66/EC). However, since this procurement process was commenced by way of a Contract Notice published on 30 December 2008 the amendments introduced by the Amendment Regulations do not apply.

Regulation 47(7)(b) of the Regulations provides that:

“(7)

Proceedings under this regulation must not be brought unless-

(a)

…

(b)

Those proceedings are brought 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.”

There is no definition in the Regulations, and I was not referred to any case law on Regulation 47, as to when proceedings are considered to have been “brought”. Further, the Regulations do not provide for a time within which a claim form must be served.

It is submitted by the MoJ that the purpose of the time limit is intended to provide certainty for contracting authorities in the context of the procurement process. In M Holleran Limited v Severn Trent Water Limited [2004] EWHC 2508 (Comm), Cooke J said, at paragraph 41 that

“. . . It is self-evident and also appears from other decisions on comparable regulations that, in the procurement context, the need for speed in raising complaints and dealing with them is vital, since the whole process of procurement is otherwise rendered uncertain and hopelessly disrupted. The need for a rapid and effective review and enforcement is predicated on the need for prompt complaint. Without prompt complaint and review, lists of contractors may be drawn up and the tendering process progressed or even completed, with alteration of position by other contractors, as well as the utility company.”

Although it is not relevant to the question that I have to decide, it is perhaps worth observing that in this case HYL is confining its remedy to damages.

It seems to me that in order to establish when proceedings have been "brought" one must look at the relevant member state’s domestic rules relating to the bringing of proceedings. CPR 7.2(1) provides that "Proceedings are started when the court issues a claim form at the request of the claimant". However, paragraph 5.1 of Practice Direction 7A provides that where the claim form, as issued, was received at the court office on a date earlier than the date on which it was issued by the court, the claim is "brought" for the purposes of the Limitation Act 1980 and any other relevant statute on that earlier date. Once a claim form has been issued it must be served within four months of the date of issue.

There is no requirement in the CPR that service of a claim form constitutes part of bringing proceedings. The proceedings are "brought" when the claim form is issued by the court or, possibly, on the date when the claim form was received by the court for issue.

Ms Sarah Hannaford QC, who appeared for HYL, has also referred me to the OGC Guidance on the 2009 amending regulations, which was issued on 18 December 2009. Under the heading "Time Limits for bringing proceedings", it states that it is important to note that under the amending regulations the claim form must be served on the defendant contracting authority before the time limit expires. It then comments that“It no longer suffices merely to issue the claim form (or equivalent) within the time limit".

In a Consultation Document issued by OGC in April 2009 on the implementation of Directive 2007/66/EEC, at paragraph 66.5, it is noted that under the previous regulations - with which I am concerned - the requirement was "merely to file the claim form within the time limit” without any need to serve it for a number of months.

Miss Elisa Holmes, who appeared for the MoJ, submits that the relatively short period within which a claimant must bring proceedings would have little practical utility if proceedings could be brought but not served in order to stop the clock running. She submits also that the requirement contained in Regulation 47(7)(a), that a potential claimant must inform the contracting authority of the breach or apprehended breach of duty and/or of its intention to bring proceedings, further illustrates the importance placed on notice to the contracting authority.

I consider that the OGC Guidance and Consultation Document do no more than confirm what, to my mind, is the effect of the CPR. In my judgment CPR 7.2(1) makes it clear that in England and Wales proceedings are "brought" when the claim form is issued, and not when it is served.

Accordingly, I consider that for the purpose of the Regulations these proceedings were brought on 1 April 2010. Whether or not this means that the claims made are in time is a question that will have to be considered separately in relation to each claim.

There was not enough time to conclude this application within the time listed for its hearing on 18 February 2011. As a result, the application had to be adjourned part heard and I concluded the hearing during the afternoon of 1 March 2011, starting at 1:30 pm. On the morning of the adjourned hearing I indicated that I wished to hear further from Miss Holmes in relation to the weighting criteria that were adopted because I had had some difficulty in understanding a table that she showed me during her opening of the application.

At the outset of the resumed hearing Miss Holmes told me that on revisiting the documents following my query it had become apparent to the MoJ that they had used the wrong weightings. There were two weighting tables in the documents, one known as Matrix 1 and the other as Matrix 2. It turned out that the wrong one had been used. This of course explained why HYL, and subsequently the court, had had difficulty in understanding the MoJ's case is relation to the weighting criteria.

In the light of this admission this part of HYL's case does not have to be considered further. However, Miss Holmes had a further point in relation to the allegation in relation to the weighting criteria - and this had been part of her case from the outset - which was that the use of the incorrect weighting criteria at the non price stage made no difference to HYL because it succeeded in passing that stage of the tender process in any event. The non price criteria were threshold criteria, so once a tenderer had passed that stage the weightings ceased to be relevant. By way of a further refinement to this she pointed out also that none of the three successful tenderers at this first stage achieved a higher score than HYL on those criteria where the incorrect weightings were used and so, whatever use was made of these results, it could not have prejudiced HYL.

Ms Hannaford made three points in relation to this causation argument:

The first of these points is one of causation, which to some extent involves a question of principle. I will therefore deal with it separately.

The second point is, in my opinion, based on a misreading of the documents. The ITT made it clear that there were three non-price criteria in respect of which any failure to meet the requirement would result in an elimination. Those were: logistics capability, product compliance and product range offered. The criterion for which Bidder A scored a "D" was in respect of one of the aspects of compliance with commercial and legal requirements. That was not one of the criteria identified in the ITT which, if not met, would result in elimination. The document relied on by HYL is entitled "Evaluation of Tenders - Stage 2", dated April 2009, and was not sent to tenderers. Therefore it must be read with and subject to the ITT. Otherwise, non-compliance with any of the criteria would result in elimination even though tenderers had been told that there were only three criteria in respect of which non-compliance would lead to elimination. In my judgment the reference in the April document to "Non compliant and which should be rejected" must be read as referring only to the three items identified in the ITT with which it was stated specifically that tenderers must comply. For these reasons I do not regard this as an arguable point.

The third point is again one which is relied on in a different context, so I will deal with it in a separate part of the judgment.

HYL submits that the MoJ allowed tenderers to proceed to the electronic auction despite failure to comply with standards, including the Halal standard, which were stated in the ITT to be mandatory. Ms Hannaford relied on the fact, stated in the second witness statement of Julie Matthews, dated 14 February 2011, served on behalf of the MoJ, that the MoJ did not expect any tenderer other than HYL to be able to demonstrate compliance with the Halal standard at tender stage (see paragraphs 8 and 46).

Ms Hannaford submits that one of the non price criteria that was mandatory was product compliance, including product traceability. A failure of a tenderer to meet this requirement, she submits, should have resulted in its elimination. The Halal standard was very detailed and included requirements such as the slaughter of all animals by hand.

HYL contends that:

The MoJ's principal response to this ground of claim is the causation argument that I have already mentioned, namely that since HYL was successful following the assessment of the non price criteria, it cannot have suffered any loss as a result of the matters alleged. It also takes issue with the factual basis of the claim.

I can deal with the latter point quite shortly. Mr Jonathan Baker, HYL’s Commercial Director, devotes about 30 paragraphs of his first witness statement to the facts surrounding the derogation from the Halal standard and refers to over 20 pages of exhibits. Another witness, Mr Mark Fletcher, HYL’s Contracts Manager, describes in considerable detail in his witness statement what he says were various breaches of specification by rival tenderers, including many instances of breaches of the Halal specification. These allegations are refuted by the MoJ, but in fairly general terms.

It seems to me that this aspect of the dispute raises detailed issues of fact that cannot sensibly be determined on an application for summary judgment. The MoJ has come nowhere near satisfying me that the allegations in relation to the breach of the Halal standard have no prospect of success. Accordingly, they must proceed to trial.

By contrast, as I have already indicated, the MoJ's causation point raises an issue of principle. Although the MoJ's argument was attractively and forcefully put by Miss Holmes, I do not consider that it is necessarily correct. Ms Hannaford's answer to it was that if HYL is correct in submitting that one or more of the other tenders were non-compliant in a respect in which compliance was mandatory, then they should not have been permitted to proceed to the electronic auction stage. As a result, the dynamics of the electronic auction would have been quite different and HYL would or might have won it.

The matter is complicated further by evidence in a witness statement of Adrian Hall, on behalf of HYL, that one of the other tenderers, DBC, which finished second in the auction, was not interested in winning the contract because at some time into the electronic auction it reached the conclusion that the price had been forced down too far; thereafter, apparently, it only went on bidding for the sake of driving down the price. Whilst this may sound somewhat improbable, I cannot conclude on this application that at trial HYL will not be able to call the relevant evidence from DBC and make this point good. If it could be shown that, of the two tenderers who beat HYL in the electronic auction, one should not have been permitted to proceed to that stage and the other would not have been interested in winning, HYL could potentially overcome the causation point raised by Miss Holmes.

For these reasons, therefore, I do not consider that HYL has no real prospect of defeating the causation argument: this is not to be taken as an indication that it is likely to do so, merely that I consider that it raises a triable issue.

It is submitted on behalf of HYL that, having awarded the contract to 3663, the MoJ permitted and/or made various material changes to the contract. It is said that the food to be provided by 3663 and the manner in which it was to be or has been provided is different from the requirements set out in the ITT. Four changes are pleaded, by way of example, in the Consolidated Particulars of Claim. Three of the changes seem to me to be a relatively minor: a change in the weight of muffins, the provision of a substitute fish for Pollock and an increase in the price of frozen chops: the last of which is said to have increased the price on an annual basis by some £47,000 odd in the context of a contract with a value of some £22 million.

However, the main change relied on is a concession that permitted 3663 to provide machine slaughtered beef in breach or variation of the Halal standard.

In relation to these changes to the 3663 contract, Mr Baker said in his first witness statement, at paragraph 92:

“ ... the fact that those changes were allowed almost immediately casts doubt on the suitability of what 3663 tendered for and therefore whether that tender was compliant."

This ground of claim was not developed separately in Ms Hannaford's skeleton argument and it seems to me that it is to a substantial extent an aspect of the non-compliance of 3663’s tender. However, Mr Baker says (at paragraph 73 of his first witness statement) that the supplier that 3663 used for meat was unable to comply with the requirement for hand slaughtering of beef cattle at the start of the new contract and, indeed, was unable to do so until at least May 2010. He exhibited copies of e-mails which appear to demonstrate this. In her second witness statement, Julie Matthews did not address this specific point.

Ms Hannaford referred me to a decision of the third chamber of the European Court in the case of Pressetext, C-454/06. At paragraph 35 of the judgment the court said:

I have some reservations as to how this may assist HYL's case. HYL was already in a position to supply meat that was slaughtered by hand and so it did not require a concession. However, I anticipate that it may seek to argue that if the requirement for hand slaughtering had been withdrawn, at least for the first six months or so of the contract, it could have priced the relevant basket of goods on a more competitive basis.

In the context of this application the real problem with the claim in relation to material changes in the contract is that it has only been pleaded by way of example. If the matters set out in paragraph 19 of the Consolidated Particulars of Claim stood alone, I might have been prepared to strike out sub-paragraphs (1)-(3), but they do not since they are pleaded by way of example only. As I have already mentioned further details of the changes in the 3663 contract are given in Mr Fletcher's witness statement, although it is not entirely clear to me whether all of these examples are given as examples of variations to the contract or examples of non-compliance with the specification. In these circumstances, it seems to me that the appropriate course is to make a direction that, if HYL wishes to pursue this claim based on material changes to the contract, it must set out all the facts upon which it relies, perhaps by way of some form of schedule, and then apply to the court for permission to amend its Consolidated Particulars of Claim so as to advance that claim. If that application is opposed, then its merits can be determined at that stage. But in the light of the way in which the claim has been pleaded, and the further details given in Mr Fletcher's witness statement, I do not see how a decision on whether or not to strike it out can properly be made on this application.

Ms Hannaford submitted that it was not apparent from the ITT that non price criteria would be treated as a threshold so that thereafter the award would be on price alone. She submitted that the ITT suggested the opposite, and relied on the following provisions of paragraph 10, under the heading “Evaluation”:

She submitted further that the use of non price criteria to assess the “relative quality of each bidder’s proposals” was clearly inconsistent with the non-price criteria being applied merely to ensure compliance with the contract requirements, with the award being made solely on the basis of price. She submitted that it was not until HYL saw the specifications of the tenderers who had been permitted to proceed to electronic auction that it realised that tenderers which should not have been permitted to proceed to electronic auction had done so. This was not until at least 25 February 2010. The relevant proceedings were issued on 1 April 2010.

In support of her submission that the use of the non price criteria as a threshold was unlawful, Ms Hannaford relied on regulation 21 of the Public Contracts Regulations 2006 and, in particular, on paragraph (10)(b) of that regulation which provides that when inviting the economic operators who have submitted admissible tenders to submit new prices in an electronic auction the contracting authority is to inform tenderers of:

She submits that this requirement is completely inconsistent with the concept of using the non price criteria as a threshold and then determining the final result at a second stage based on price alone. It seems to me that this argument has some force and cannot be said to have no real prospect of success. Accordingly, if the correctness of this argument was the only issue on this aspect, I would allow this point to proceed to trial.

However, Miss Holmes submits that this part of the claim was not brought within three months from the date on which HYL knew, or ought to have known, of the breach of regulation 21 of which it now complains. She disagrees with HYL’s analysis of the ITT but, even if the position was not made clear by the ITT, she submits that the matter was put beyond any doubt by the Electronic Reverse Auction Rules of Participation which tenderers were given prior to the electronic auction. These say:

“Awarding method

Prior to the eAuction, a tender assessment has been conducted to determine suppliers that will be invited to participate in the eAuction lots.

The eAuction will be a "Price Only" eAuction which will provide each invited supplier a minimum of their rank position information. i.e. the rank shown will reflect the prices submitted.

The final eAuction rank position of the participating suppliers will be the rank position used to determine the preferred suppliers.

Following the event ... the award of the Contract will be made based on the outcome of the auction."

Following the auction HYL received a Debrief Document dated 5 June 2009. In relation to pricing, this stated that HYL was initially ranked first but ultimately was ranked third for price and that the final pricing for the basket of goods submitted by HYL was over 1.5% higher than the winning bid.

In a letter to HYL dated 20 November 2009 the MoJ stated that the only test used in the electronic auction was that of price, and that that stage of the process was "based solely on price evaluation".

It seems to me that HYL must have appreciated from the Auction Rules that final selection was to be made on the basis of the prices submitted at the electronic auction. I consider that any doubts about this would have been put to rest by the Debrief Document and the letter of 20 November 2009.

That letter followed a meeting on 21 October 2009 between the MoJ and HYL and a letter from HYL to the MoJ dated 5 October 2009. In that letter HYL specifically referred to regulation 21 of the Public Contract Regulations 2006 and stated that they had:

It is therefore clear that by 5 October 2009 HYL had taken legal advice from its solicitors and counsel who had considered the tender documentation and regulation 21 of the 2006 Regulations which, of course, included the provisions now relied on by Ms Hannaford.

Ms Hannaford referred me to the decision of Mann J in Sita (UK) Limited v Greater Manchester Waste Disposal Authority [2010] EWHC 680, which is authority for the proposition that, for the purpose of establishing when time starts running, it is not sufficient simply to have knowledge of the facts underlying the infringement complained of, the claimant must have knowledge also that those facts apparently clearly indicate that there has been an infringement. The case went to appeal and two of the three members Court of Appeal were content to adopt the test formulated by the judge.

So far as the electronic auction is concerned, I am satisfied that by early October 2009 HYL had the knowledge of the facts upon which it now relies for its contention that the electronic auction procedure did not comply with the regulations. In any event, HYL could not have been in any doubt about the procedure adopted following receipt of the MoJ’s letter of 20 November 2009. That itself was over 4 months before these proceedings were issued on 1 April 2010.

Further, I consider that by the same time, or at the latest shortly after 20 November 2009, HYL knew or had the means of knowledge that the information in its possession indicated reasonably clearly that there had been an apparent breach of the regulations. Accordingly, I consider that HYL did not raise its complaints about the electronic auction procedure within three months of having the relevant knowledge, or at least the means of such knowledge, of those complaints.

So far as the discretion to extend time is concerned, HYL relies on various matters that occurred after mid February 2010, consisting, in essence, of the provision of information (in response to requests by HYL) of which HYL was hitherto unaware and which, HYL submits, was essential to demonstrate the infringements of the regulations on which it now relies to establish its claim. However, I do not see how this can assist HYL on this part of the claim because by then it was already out of time. I therefore conclude that HYL has no real prospect of obtaining an extension of time in respect of this ground of claim.

When I asked Ms Hannaford whether she was able to tell me upon what basis HYL had been advised by early October 2009 that the "whole tender process was flawed" she was unable to do so. Since this was a matter that was obviously covered by legal professional privilege, it could not be explored further. However, in the light of HYL's case that it did not have the necessary knowledge until at least February 2010 to make all of the other claims advanced in the Consolidated Particulars of Claim, one is driven to conclude that the advice that HYL says that it was given in early October 2009 was likely to have been based, at least in part, on the contents of the tender documents and the Debrief Document. Whilst I have not relied on this in reaching my conclusion that the claim in relation to the electronic auction procedure is out of time, it tends to support that conclusion.

I did not understand it to be argued on behalf of the MoJ that a failure to bring any one ground of claim in time was fatal to a claimant's ability to bring forward other grounds of claim that were in time. Accordingly, my conclusion that HYL’s ground of claim based on the non-compliance of the electronic auction procedure with the 2006 Regulations is out of time is no bar to the other claims that it wishes to advance in these proceedings.

The allegations pleaded at sub-paragraphs 18(1) and (2) of the Consolidated Particulars of Claim, which relate to matters of detail in the conduct of the electronic auction about which HYL says that it was unaware until it received the MoJ’s letter of 27 April 2010, were not specifically addressed in Ms Hannaford's skeleton argument. It seems to me that they are inextricably bound up with the allegations relating to non-compliance with the specification by other tenderers.

HYL submits that the MoJ’s debrief in June 2009 was unfair, not transparent, discriminatory and/or inadequate. It relies in part on alleged failures to provide information requested, pursuant to regulation 32 of the Regulations, at various stages from 21 October 2009 onwards. HYL alleges that the information was not provided until, at the earliest, mid February 2010. In particular, HYL relies on the failure to disclose the scores awarded to HYL and the successful bidder, 3663, and the criteria and weightings that were used. So far as the criteria and weightings are concerned, I have already explained how the true position about these did not emerge until the course of this hearing.

I have to confess that, in spite of the confusion over the criteria and weightings, I am not particularly impressed with this ground of claim and I consider that the points made at paragraph 73-75 of Miss Holmes’s skeleton argument have some force. However, I do not consider that this claim’s prospects of success are so poor that it should be struck out - either on grounds of inherent lack of merit or because it is out of time.

Miss Holmes’s overarching submission is that, whatever may have gone wrong in relation to the non price stage of the tender process, since HYL was successful in that part of the assessment it cannot have suffered any loss or damage as a result.

This is a forceful argument but, for the reasons that I have already given in relation to the alleged derogations from the Halal standard, I do not consider that it can be said that HYL has no real prospect of overcoming it. HYL must, of course, prove its case at trial and that will involve establishing its loss as a matter of probability, not speculation (for the avoidance of doubt, I leave open the question of whether or not it would be sufficient in the context of this case to establish a risk of loss). But it seems to me that this raises a triable issue that ought to proceed to trial.

I consider that the claim that the electronic auction procedure was in breach of the regulations on the grounds that the evaluation of the non price criteria was a threshold stage and that the contract was awarded following the electronic auction on a price only basis is out of time and should be struck out. This is the claim pleaded at paragraph 18(3) of the Consolidated Particulars of Claim.

In so far as the allegations pleaded at sub-paragraphs 18(1) and (2) of the Consolidated Particulars of Claim are based on defects in the electronic auction rules, I consider that they are also out of time. Insofar as they concern breaches of the actual electronic auction process that were permitted or condoned by the MoJ at the time - which appears to be the case in relation to sub-paragraph (1) - then I consider that they are arguably not out of time. In the context of this application I do not feel able to say any more about these two sub-paragraphs.

Subject to the direction which I propose to give in relation to the allegation relating to material changes to the contract, I decline to strike out any other parts of the Consolidated Particulars of Claim. However, the practical effect of this judgment is that paragraphs 19(1)-(3) of the Consolidated Particulars of Claim may only proceed to trial as part of a wider claim in relation to material changes to the contract.

I will hear the parties on the form of the appropriate order to be made in the light of this judgment and on any questions of costs. If there are to be substantial arguments in relation to either of these matters, the parties are to request that a suitable amount of court time is set aside to hear them when the judgment is formally handed down.