Procurement remedies and SPVs – Teleperformance Contact – (revisiting American Cyanamid)

Public procurement bids are often delivered by a corporate group who may form special purpose vehicles (SPVs) as the legal entity for the bid and ultimately the contract. Similarly, one group company may lead a bid which will actually ultimately draw experience and resource from across the group. Similar scenarios can arise where a joint venture is put together between two businesses who are otherwise not associated.

This will often seem to be a normal, practical and commercial approach by the group and may not be considered to have any meaningful impact on the group’s rights in the event a contract is not awarded. The recent case of Teleperformance Contact Ltd (2023] EWHC 2481 (TCC)) however illustrates why there may be risks with this approach – particularly in relation to losses or impacts which are suffered by group members other than the formal bidder/SPV.

As part of the Court’s assessment of whether to allow signature of a contract to proceed when there has been a challenge, consideration will be given to whether damages are an adequate remedy (part of the American Cyanamid test). This case considers the relevance of damages suffered by other group companies as a result of the decision – on the basis that they would not be recoverable as loss for breach of the process. The case also acts as an interesting example of the Court’s dissatisfaction with the evidence provided by a claimant party in support of its position.

Brief background

The litigation concerned the Secretary of State for the Home Department’s (SSHD) procurement of £1.2bn of contracts for the provision of visa and citizenship application services, across five geographical lots.

The claimant in the proceedings, Teleperformance Contact Ltd (TCL) was a subsidiary company of a global digital services business, trading as TLScontact (TLS). TLS elected to tender for the delivery of the procured services through the use of special purpose vehicles (which included TCL), incorporated across key trading regions.

TCL was awarded the contract for Lot 5 but was unsuccessful it its bid for Lots 1-4.

TCL commenced proceedings, challenging the SSHD’s decision to award the contracts for Lots 1-3 to the successful bidder, VF Worldwide Holdings Ltd. SSHD subsequently applied to the Court to lift the automatic suspension on contract-making imposed under the Public Contracts Regulations.

Application to lift the automatic suspension – the test set out in American Cyanamid

The Court assessed whether to lift the automatic suspension on the established ‘American Cyanamid’ principles, namely:

• Is there a serious issue to be tried?
• If so, would damages be an adequate remedy for the claimants if the suspension were lifted and they succeeded at trial?
• If not, would damages be an adequate remedy for the authority if the suspension remained in place and it succeeded at trial?
• Where there is doubt as to the adequacy of damages for any or all of the parties, which course of action is likely to carry the least risk of injustice if it transpires that it was wrong? In other words, where does the balance of convenience lie?

The Court briefly concluded that there was no dispute as to whether there was a serious issue to be tried, instead turning to the second limb of the American Cyanamid test, primarily that of the adequacy of damages for TCL, as the unsuccessful bidder.

Adequacy of damages for special purpose vehicle companies

The key issue before the Court was whether it should consider the losses incurred by the wider TLS corporate group, when assessing whether damages would be an adequate remedy for TCL.

TCL claimed that damages would be inadequate should liability be established at trial because TCL’s parent company TLS would suffer irremediable losses, including the closure of its world-wide branches, leading to a reduction in revenue, large scale redundancies and loss of reputation for TLS.

The Court rejected this position. The Court did not consider it appropriate to consider the losses suffered by TLS or the wider corporate group as being relevant to the question of adequacy of damages. In reaching this conclusion, Constable J considered the following points:

• TLS elected to organise it’s corporate structure by way of a network of Special Purpose Vehicles, there being no requirement for it to do so. Whilst the Court accepted that this was an “entirely normal” practice for procurement parties, doing so carries with its advantages and disadvantages, applying Circle Nottingham Limited v NHS Rushcliffe Clinical Commissioning Group [2019] EWHC 1315 (TCC):

“if a commercial undertaking chooses to carry out its operations through a series of special purpose vehicles, it cannot really complain if that carries disadvantages as well as advantages.” (per Sir Anthony Edwards-Stuart)

• In considering the wider purposes of injunctive relief, such a ‘disadvantage’ for TCL was that the primary losses in question were directly attributable to TLS which (i) had no standing to bring its own claim, and (ii) had no duty was owed to it by SSHD under the PCR 2015.
• Whilst acknowledging the broad discretion afforded to the Court to grant injunctive relief (see Bath and North East Somerset Council v Mowlem Plc [2004] BLR 153), the Court noted an insufficient nexus between the losses attributable to TLS and TCL’s own losses. The Court did not regard the losses of other third parties (in this case, TLS) to reflect back and create intangible or reputational losses for TCL. Any loss suffered by TCL directly would easily be quantifiable, with damages being an adequate remedy.

The Court therefore concluded that TCL was unable to “pray aid its losses” to the wider TLS group, when assessing the adequacy of damages for TCL under the American Cyanamid test. The Court held that damages would therefore be an adequate remedy for TCL as the Claimant party and that it followed that the Court should lift the automatic suspension in place.

The Court in reaching this decision, placed weight on the lack of any internal analyses, assessment or papers raised by TCL in support of its position, considering that the evidence provided to the Court in support of its position as being “imprecise and vague”.

Comment

The judgment demonstrates the Court’s approach to injunctive relief in the context of complex procurements in which tendering parties use subsidiary entities as a means of delivering procured services. Where bidders elect to organise corporate structures by interposing SPVs to deliver services, they run the risk of the rest of the group’s interests being considered irrelevant to remedies.

Following Teleperformance Contact, it is unlikely that the Court will consider the losses suffered by a wider corporate group in its assessment of the adequacy of damages, save for where the Court exercises its discretion where there is deemed to be a sufficient nexus between the loss suffered by the group company and any intangible or reputational losses suffered by the tendering entity.

The judgment also commented on the extent of the evidence the Court would expect in support of any claim for the inadequacy of damages, notably including where damages are to lead to significant and unquantifiable losses for the claimant and its parent company. In the present case, the Court expressed its dissatisfaction with the absence of any internal analyses, assessments or papers evidencing the alleged significant harm and prejudice to be suffered by the wider corporate group; a point which was deemed to be a “common theme” running through the claimant’s evidence.

This article was written by Zac Bourne, Ian Tucker and Andrew Walls.