Injunction Granted to Second Placed Tenderer in £1 Billion Waste Contract

18 October 2013

Practice Area: Procurement

Jj

Covanta Energy Limited v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC)

This case concerns a £1 billion competitive dialogue for a 30 – 35 year “energy from waste” contract. The contracting authority, Merseyside Waste Disposal Authority (MWDA), ran a competitive dialogue procedure which took six years (from PQQ stage) to reach award stage.

MWDA was prevented from entering into contract with the winning contractor, SITA, because another tenderer, Covanta, commenced proceedings against MWDA alleging manifest errors in the scoring of the tender. Covanta’s action sought to bring about the automatic suspension of the award of the contract pursuant to Regulation 47G of the Public Contracts Regulations 2006 (as amended) (Regulations). However, MWDA argued that the Regulations did not apply because the procurement commenced before 2009 (which was the year that introduced Regulation 47G into the Regulations). The Court agreed.

Coventa then sought an interim injunction in accordance with the American Cyanamid test. The American Cyanamid test asks: is there a serious question to be tried? If there is, then there are two further questions: namely whether damages are an adequate remedy for a party who was injured by the grant or the failure to grant the injunction, and the more general question as to where the balance of convenience lies.

In applying this test the Court found that:

  • It was in the public interest that MWDA, as a contracting authority, complies with procurement legislation.
  • If MWDA entered into contract with SITA, damages would not be an adequate remedy for Covanta mainly because of the complexity of quantifying damages. The judge noted that it would be difficult to work out what Covanta’s actual rate of return might have been, because it would depend on so many variables and went on to state that “[t]he ascertainment of damages arising from this part of the claim would be... virtually impossible”. Moreover the judge noted that, if Covanta didn’t obtain the injunction but was then successful at trial, a claim for damages on such a large contract would, regardless of how it was calculated, exceed the resources available to MWDA and this ultimately would lead to the customers having to pay for the service twice over.
  • In the context of the duration of the contract, and the time taken over the competitive dialogue, the impact of a nine month delay for trial was proportionately acceptable. The judge also considered the impact on the environment and concluded that the extra landfill produced over the nine month period was in the overall context of the landfill produced through delay to the procurement process not a factor that could support the refusal of the interim injunction.
  • If an injunction was not granted, Covanta would be deprived of the remedy prescribed by EU law.
  • The factors in favour of refusing the injunction were: the financial cost of delay on MWDA and the adverse effect of delay on SITA.

In his summary the judge said that the factors in favour of granting the injunction outweigh the factors in favour of refusing it and stated that “granting an injunction for what is a relatively short time in the contract of this case, involves the least risk of injustice. Subject therefore to the provision of the guarantee in respect of the cross-undertaking in damages, I would grant Covanta the injunction sought”.

Recent case law in England & Wales has favoured the lifting of any automatic suspension to the award of a public contract, and in Northern Ireland there have been some recent decisions that have gone the same way. However, this case is a timely reminder that in certain cases, damages may not be an adequate remedy in which case the automatic suspension (or interim injunction as was the case here) will not be lifted.

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