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materially different contracts and declarations of ineffectiveness

21 July 2011

Alstom Transport v (1) Eurostar International Limited and (2) Siemens PLC

Judgement was handed down on Friday 15 July 2011 on part of the ongoing dispute between Alstom and Eurostar. Although not a judgement on the full dispute, Mr Justice Mann heard an application to strike out part of Alstoms claim. The judgement deals with Alstoms attempts to have the Eurostar-Siemens contract declared ineffective.

Background

Eurostar invited Alstom and Siemens to tender in relation to a new generation of trains to be used in the Channel Tunnel, in which Siemens were successful. Alstom objected to the decision and commenced proceedings in which it sought damages and a declaration of ineffectiveness in relation to a preliminary contract. Once the contracts (treated in the decision as one contract) were awarded (after Alstoms application for an interim injunction to prevent the parties contracting was dismissed) Alstom sought to amend their claim to include a declaration of ineffectiveness in relation to the two new contracts entered into by Eurostar and Siemens.

Siemens objected to Alstoms amendment to the claim, but rather than deal with the matter as an opposed application, the parties agreed to deal with the issue as an application to strike out the new part of Alstoms claim (the declaration of ineffectiveness in relation to the new contract). It should be noted that the main action (for damages and a declaration of ineffectiveness of the original contract) will continue regardless of the outcome of the strike out application. For the purposes of the application, Mr Justice Mann made several assumptions in favour of Alstom to enable him to form a view on whether Alstoms claim had any prospect of success should the matter get to trial.

The application was brought on the basis that:

1. the necessary grounds for the application for a remedy of a declaration of ineffectiveness did not exist; and

2: even if they did exist, the claim was made out of time.

Necessary grounds

There are three grounds for a declaration of ineffectiveness under the Utilities Contracts Regulations 2006 SI 2006/5, as amended in 2009, but only the first and second were relevant to this matter. The relevant procedural requirements are set out below.

1. Where the contract has been awarded without prior publication of a notice in the Official Journal in any case in which the Regulations require such publication.

2. Where all of the following apply:

(a) The contract has been entered into in breach of any requirement imposed by Regulation 33A (the standstill period);

(b) There has also been a breach of regulations 45A or 45B in respect of obligations other than those imposed by regulation 33A (the standstill period);

(c) The breach mentioned in (a) has deprived the economic operator of the possibility of starting proceedings in respect of the breach mentioned in (b), or pursuing them to a proper conclusion before the contract was entered into; and

(d) the breach mentioned in (b) has affected the chances of the economic operator obtaining the contract.

Alstoms argument in relation to the first ground was based on the assertion that as the contract eventually entered into with Siemens was materially different to the contract tendered for, the prior publication was ineffective and so ground 1 was satisfied. The Judge rejected this argument on the basis that the test of whether a notice has been provided is mechanistic and satisfied by the existence of a notice regardless of whether the contract eventually entered into is materially different to the contract anticipated at the time of the publication.

Alstom followed a similar line of argument in relation to the second ground, that the fact that the new contract was materially different meant that all the measures taken in respect of the award of this contract were ineffective. As such, elements (a) and (b) of the test were satisfied. The Judge rejected this argument, stating that the necessary steps were taken, and the fact that the steps were taken in respect of the original contract did not make the steps ineffective. Irrespective of the procedural requirements, there had been a standstill period and Alstom had started proceedings, meaning that they could not demonstrate elements (c) or (d) of the test.

This judgement suggests that it may be difficult for tenderers to obtain declarations of ineffectiveness for claims which are predicated on the fact that requirements of the Regulations have not been met because of material differences between the scope of the advert and the contract awarded. The judgement assumed that the contract was materially different, which is often difficult to prove in any event.

Claim brought out of time

Although it was not strictly necessary to consider whether Alstoms application for a declaration of ineffectiveness was out of time the Judge went on to do so. The limitation period commences once certain notices are given under the Regulations and either lasts for 30 days or 6 months depending on the particular circumstances. Alstom relied on the same argument as before, that as the contract was materially different it would have been impossible to provide the correct notices and so the limitation period would never start to run.

The Judge rejected this on the basis that if the notification requirements could not be satisfied in relation to a materially different contract then there would be no requirement to actually provide notification should a materially different contract be awarded. This was something he was not able to read into the regulations and so found that Alstoms reasoning was incorrect.

Again Alstoms arguments based on whether the contract was materially different were rejected. As outlined above, this judgement will make it very difficult (if not impossible) for unsuccessful tenderers to obtain declarations of ineffectiveness by arguing that procedural requirements have not been complied with solely due to material differences between the advertised contract and the awarded contract.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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