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High Court decision puts Gatwick contract into holding pattern

If Gatwick Airport had a claim to fame, it would be as the "world's most efficient single-runway airport". Although of little significance to the average traveller, in the highly competitive commercial aviation sector it's a statistic that puts Gatwick on the map.

Of course, the beating heart of any airport is not its duty-free section, but the control tower - nowhere more so than at Gatwick. Gatwick's runway can handle up to 55 movements per hour (that's a take-off or landing every 65 seconds), an impressive achievement that undoubtedly underlies the airport's continued success.

In October 2013, Gatwick Airport Limited ("GAL") put its air-navigation services out to tender. The procurement proceeded by way of a negotiated process before the bidders were asked to submit a "best and final offer". NATS (Services) Limited the incumbent and provider of air traffic services to Gatwick for over 30 years submitted a tender to provide air-navigation services.

In August 2014, after conclusion of the procurement process NATS were informed that GAL intended to enter into a contract with DFS Deutsche Flugsicherung GmbH ("DFS"). NATS launched a challenge in the High Court and sought a declaration that GAL should be prevented from entering into a contract with DFS until deficiencies in the procurement process were addressed. NATS contend that the procurement process was subject to the Utilities Contract Regulations 2006 (the "Regulations") under which any challenge to a procurement decision results in an automatic suspension of contract award.

In the ensuing procedural battle, NATS and GAL disagreed on the applicable legal test to lift an automatic suspension. NATS argued that if the Regulations did apply, a test based on the "balance of interests" should be adopted. The Court, at an interim hearing, disagreed, holding that the more stringent tests derived from the case of American Cyanamid Co (No.1) - v - Ethicon Limited [1975] UKHL 1 should apply.

The tests in the American Cyanamid case are:
(a) whether there is a serious issue to be tried (including whether damages would be an adequate remedy); and
(b) whether the balance of convenience lies in favour of granting or refusing the relief sought (including whether the status quo should be maintained).

On applying the American Cyanamid tests, the Court held that the automatic suspension should be maintained (or an injunction granted) to allow for a full trial on an expedited basis. The facts of the case were clearly significant in this instance, in particular:

- the Court considered that damages would not be an adequate remedy for NATS as the loss of opportunity suffered by NATS would be virtually impossible to calculate and moreover the Court would be required to effectively estimate those losses; and
- the loss of the Gatwick contract would have a significant impact on NATS' reputation in the global market place as the complexity of operations at Gatwick enhances NATS' ability to compete and win contracts around the world.

The case is notable for re-asserting that the American Cyanamid tests are the correct tests in the Courts are to apply when considering whether to lift an automatic suspension. However, advocates of this point of view would be advised to practice caution as the suspicion is, that until the Court of Appeal has the opportunity to rule explicitly on this point, the debate will continue.

So, what does this mean in practice? Whilst lawyers may be interested in the finer points of law, for contracting authorities and utilities, the recent shift in judicial thinking will be of far greater significance. The ruling in the Gatwick case is another example of the Courts maintaining an automatic suspension imposed by the Regulations in order to satisfy the "balance of convenience" test. It remains to be seen whether this will become a prevailing trend or if the particular facts in the Gatwick case were decisive.

Although these are significant developments, the wider background to this case should not be ignored. NATS is 49% owned by the Government. In 2013, DFS (a wholly owned subsidiary of the German state) launched a failed attempt to acquire 20% of NATS' shares. The European airspace market has become increasingly consolidated over recent years, driving costs and margins down. It's therefore no surprise that in maintaining the automatic suspension of the GAL contract, the Court held that NATS' commercial interests in the new contract were significant, in particular the potential loss of prestige was hard to compensate for in damages alone.

On 5 November 2014 in Group M (UK) Limited - v - Cabinet Office, the High Court followed the decision in the Gatwick case and asserted its view that the American Cyanamid tests were consistent with European law.

A full hearing of the substantive points is expected in late 2014, watch this (air)space!

NATS (Services) Limited -v - Gatwick Airport Limited & Another [2014] EWHC 3133 (TCC)

Group M (UK) Limited - v - Cabinet Office & Another [2014] EWHC 3659 (TCC)