A miss is as good as a smile: no damages awarded for “excusable breach”

A recent case has considered a claim for damages following a breach of the Public Contract Regulations 2015 and held that, despite the breach changing the outcome of the procurement, it was not ‘sufficiently serious’ to justify an award of damages.

The judgment appears to significantly raise the bar for claimants seeking to pursue a damages claim for a breach of the public procurement rules. In doing so, it also highlights the importance of ‘pre-contractual’ remedies, and specifically the ability to have an award decision set aside as opposed to pursuing a ‘post-contractual’ remedy for damages, whether that be for bid costs and/or loss of profit.

Background

In Braceurself Ltd v NHS England [2022] EWHC 2348 (TCC), a breach on the part of the defendant had already been established in the first part of the split trial. The breach identified was a manifest error by the defendant in the scoring applied to one part of the tender evaluation process. The error had resulted from a misunderstanding of part of the claimant’s tender relating to the accessibility of its premises for those with walking disabilities. The net effect, had the correct score been applied to the claimant, was that it would have received the overall highest score by 0.25% and would have won the contract.

The procurement in question was part of a nationwide procurement for the provision of orthodontic services which completed in February 2019. The claimant was the incumbent provider and one of only two bidders. In its proceedings, the claimant initially sought relief against the defendant to set aside the award to the successful bidder. When NHS England was successful in having the automatic suspension lifted, the claimant amended the relief it sought to include a claim for damages in the sum of £4.7m for loss of profit, bid costs of £26,500 and loss of goodwill (unquantified).

In this second part of the split trial, the remaining issue to be decided was whether the breach on the part of NHS England was ‘sufficiently serious’ to justify an award of damages.

The claimant argued that the impact of the manifest error in the evaluation of its tender was central to why the breach should be found to be sufficiently serious such as to warrant an award of damages. The error had led to the defendant being in breach of its fundamental obligation to award the contract to the most economically advantageous tenderer. The loss of this contract meant the claimant lost a significant proportion of its business. In relying heavily on the case of EnergySolutions EU Limited v Nuclear Decommissioning Authority [2016] EWHC 1988 (TCC) (on which, see our Law-Now here), the claimant also made the point that when the court lifted the stay on the award of the contract, part of the court’s reasoning had been that damages were considered to be an adequate remedy.

The defendant submitted that in the context of a well-run procurement, a single albeit manifest error in relation to a simple misunderstanding of one part of a tender response could only be considered a minor breach and not sufficiently serious such as to merit an award of damages. This was particularly so given that ‘sufficiently serious’ indicated a fairly high threshold needed to be met.

Judgment

The court held that on balance the breach was not sufficiently serious to justify an award of damages. In reaching this decision, the court examined each of the eight factors identified by Lord Clyde in Factortame, often with reference to the approach taken in EnergySolutions. Taking each in turn:

1. The importance of the principle which has been breached The court found that the principle in play was the defendant’s obligation to award the contract to the most economically advantageous tenderer. This was not a loss of chance case and the court held that this principle was an important one, lying at the heart of the procurement process. It was nevertheless, not a decisive finding, and remained to be balanced against the findings under the other factors to be assessed.
2. The clarity and precision of the rule breached The court held that the rule breach was clear and that the manifest error made here did not arise from any factual complexity. However, again, even combined with the finding in the claimant’s favour at (i), this was not decisive.
3. The degree of excusability of an error of law The court held that the errors made in this case, in the context of the ‘plethora of detail which they had to consider and take into account’ were minor and as such, were excusable (albeit with an obiter admission that the very concept of an ‘excusable breach’ was an odd one). The defendant was also given credit for the procurement having been on the whole carefully planned and well organised.
4. The existence of any relevant judgment on the point The court considered, as did the parties, that there was no case ‘on all fours’ with the case in question, despite the claimant’s heavy reliance on EnergySolutions, so this was a neutral factor.
5. The state of mind of the infringer Given that the error had been inadvertent, rather than deliberate, and had occurred in good faith, this factor weighed in the defendant’s favour. The court also appeared to give credit to the defendant for the laudable purpose of the scoring in question (being for the purpose of assessing accessibility of the premises for patients who could not use stairs).
6. The subsequent behaviour of the infringer The breach was not discovered until much later, so this was a neutral factor that did not apply.
7. The persons affected by the breach The court distinguished the case from that of EnergySolutions for various reasons including that the affected groups being limited to the claimant (arguments were not made as to redundancies caused as had been the case in EnergySolutions); the broader public would have been almost equally well served by either of the bidders; and there also appeared to be a lack of evidence on quantum of loss beyond the value of the contract.
8. The position taken by one of the Community (EU) institutions in the matter. The court was prepared to accept the parties’ view that this factor was not relevant, though there appears to have been no discussion on the meaning of this eighth factor.

Comment

While the requirement for there to be a ‘sufficiently serious’ breach in order to pursue a claim in damages is well-established, this is first time a court has denied a claim in damages despite finding there to be a manifest error in the tender evaluation exercise, which had the practical result of denying the claimant the contract. In doing so, the judgment arguably significantly raises the bar for claimants seeking to pursue a damages claim as a ‘post-contractual’ remedy. To most claimants (and their advisers) it will also appear odd having to run a set of arguments on all eight (non-exhaustive) factors in respect of each identified breach of the rules in order to make out a claim in damages. For example, weighing up an absence of a tangible disadvantage to the general public as a result of the consequence of what has been accepted as a manifest error.

The judgment also reveals a tension between the court’s reasoning when agreeing to lift the automatic suspension on the award of the contract. Part of the test for lifting is whether damages would be an adequate remedy, which was accepted by the court at the lifting hearing despite then going on to refuse that remedy at trial as a result of the breach not being considered ‘sufficiently serious’. In this case, the claimant therefore found itself without any remedy at all. This is a seemingly harsh outcome that gives rise to uncertainties about whether effective remedies are available to parties to a procurement process when there has been a breach.

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