CO/5941/2014
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
ADMINISTRATIVE COURT
BETWEEN:
THE QUEEN
(on the application of
(1) LONDON CRIMINAL COURTS SOLICITORS ASSOCIATION
(2) CRIMINAL LAW SOLICITORS ASSOCIATION
(3) NELSON GUEST & PARTNERS
(4) PAYTON’S SOLICITORS)
Claimants
-andLORD CHANCELLOR
Defendant
SKELETON ARGUMENT FOR THE CLAIMANTS
For injunction application, 23 December 2014
The application
1.
The Claimants apply pursuant to §7 of the order of Holroyde J of 19 December
2014 to vary the order so as to include provision for an interim order
suspending the Duty Provider Crime Contracts tender process pending final
resolution of this claim.
2.
The substantive claim is summarised at §§1-8 of the Claimants’ Statement of
Facts and Grounds (“SFG”) [CB/tab5]. They challenge decisions of the Lord
Chancellor of 27 November 2014 (a) to award 527 contracts for criminal legal
aid Duty Provider Work (“DPW”), alongside the 1808 contracts for Own Client
Work (“OCW”) which were awarded in June 2014, and (b) to commence, on
that day, a tender process for the award of those 527 contracts, with a tender
submission deadline of 29 January 2014 (“the Decision”) [CB/tab22]. The First
and Second Claimants were successful in an earlier challenge to a decision of
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the Lord Chancellor to tender 525 DPW contracts: R (London Criminal Courts
Solicitors Association & Criminal Law Solicitors Association) v The Lord Chancellor
[2014] EWHC 3020 (Admin) [CB/tab13]. The Law Society has issued parallel
proceedings challenging the 27 November decisions.
3.
The application for interim relief is made on the two bases set out in the SFG at
§§117-125, namely that:
(1)
There is a seriously arguable case that the decision to award 527 DPW
contracts was not preceded by a sufficient degree of inquiry, nor
accompanied by a fair procedure, and is unreasonable on its merits. In
those circumstances, it would be wrong for up to 1808 criminal legal aid
firms with OCW contracts across the country to be required to expend
substantial amounts of time and money attempting the very significant
organisational change which, for many, will be necessary to compete in
the tender process, and then in completing tender documents, when the
foundation of the whole process may well be found to be unlawful.
Given the precarious finances of many criminal legal aid firms, this is
time and money which they can ill afford.
(2)
The two-month tendering window is itself unlawful, not least because it
benefits larger operators at the expense of smaller firms who must
restructure and otherwise acquire additional capacity in order to compete
in the tender process.
Even with the expedition already ordered by
Holroyde J (the claim has been listed for 15-16 January 2015), that two
month period will be all but over by the time that a decision is taken on
the claim. So without interim relief, this claim will in effect be determined
against the Claimants by default.
4.
The question of whether or not to grant an interim injunction, in a public law
case, is one to be considered in the round considering all factors including the
public interest: R v Transport Secretary, ex parte Factortame Ltd (No 2) [1991] 1 AC
603, 673A-B per Lord Goff of Chieveley, BACONGO v Department of
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Environment of Belize [2003] 1 WLR 2839, [2003] UKPC 63, §40. As the Privy
Council also stated in BACONGO (§39):
The court has a wide discretion to take the course which seems most
likely to produce a just result (or to put the matter less ambitiously, to
minimise the risk of an unjust result).
The merits of the substantive claim
5.
Although the Claimants are not subject to a formal requirement to demonstrate
the merits of their case to any particular standard, the Court will of course wish
to be satisfied that the case has at least significant prospects of success before
taking steps to interfere with the tender process.
6.
The grounds of claim are summarised in SFG §§3-7 and set out in more detail
in SFG §§78-114. In short:
(1)
The Lord Chancellor decided in September 2013 that his decision as to the
number of DPW contracts would be based on independent evidence
commissioned, in the event, from KPMG.
The decision involves,
centrally, a balance between capacity and viability (see Response, §2.81
[CB/tab22]): contracts in each procurement area must be small enough in
size to allow firms to scale-up or consolidate in order to perform them but
large enough to be viable at the rates which the Lord Chancellor is
prepared to pay for criminal legal aid work. But KPMG’s research does
not provide a legitimate basis for conclusions either as to capacity or as to
viability:
(a) KPMG’s conclusions as to the ability of firms to scaleup/consolidate to perform contracts of the size it was
recommending were subject to very significant caveats: factors
which represented serious obstacles to capacity but which were
not investigated by KPMG or by the Lord Chancellor prior to
adopting KPMG’s recommendations: SFG §§78-81.
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(b) Firms have been prevented from consolidating by decisions taken
by the Lord Chancellor since KPMG’s report was completed, but
without their analysis being revisited accordingly: SFG §§82-85.
(c) KPMG’s analysis of what was sufficient to render contracts viable
is fatally flawed: SFG §§86-87. They adopted a model whereby a
0.1% profit margin was regarded as viable when no business
person and still less a lender would regard this as a viable profit
margin. In fact, given that KPMG’s analysis (a) does not take into
account the necessary cost of obtaining finance and (b) does not
consider
potential
overheads
under
delivery
partnerships,
supposedly viable contracts will in fact be run at a loss.
(d) the Lord Chancellor failed to engage or grapple with these issues
despite the objections of almost 4,000 consultation respondents,
whose likely behaviour KPMG was attempting to predict: SFG
§§88-91.
(e) KPMG,
and
so
the
Lord
Chancellor,
adopted
irrational
assumptions: the 0.1% profit margin assumption; the assumption
that all firms were capable of 20% organic growth without
mergers (when KPMG were aware that all the evidence pointed to
the financial fragility of criminal solicitors’ firms, and to finance
being unavailable); and the assumption that winning bidders for
DPW contracts would relinquish on average 50% of their OCW
(which was directly contrary to the consultation responses and
had been directed by the Lord Chancellor because it ‘split the
difference’ in a dispute between KPMG and the Law Society): SFG
§§92-96.
(f) the significance of these assumptions for the out-turn of the model
has not been tested, and nor has the executable model been
provided to the Claimants to enable them to test the impact of
inputting different assumptions: SFG §§97-99.
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These complaints can be put on alternative bases: failure to discharge the
Tameside duty to investigate, failure to take into account relevant
considerations, procedural unfairness and unreasonableness: SFG §§7174.
(2)
The two-month tender deadline imposes unbearable burdens on smaller
firms which proliferate in this area of law, and which are required to scale
up/consolidate in an unmanageable time period, before completing the
tender documentation, to stand any chance of successful tendering. Many
will simply be unable to compete (including the Third and Fourth
Claimants: see the statements of Mr Nelson [CB/tab7] and Ms Payton
[CB/tab8]). The two month period is unreasonably and arbitrarily short,
disproportionate, and discriminatory in favour of large firms: SFG §§4669, 100-101.
(3)
The rights of firms to peaceful enjoyment of their possessions under
Article 1 of Protocol 1 ECHR have been unjustifiably interfered with.
Firms that cannot tender successfully in the short tender period are likely
to go out of business (see: Nelson §§28-30; Payton §§16-20; and see too the
judgment of Burnett J at §37 [CB/tab13]) and firms which obtain DPW
contracts are, on the Lord Chancellor’s own analysis, expected to have to
give up 50% of their OCW. These interferences with those firms’ goodwill
are unjustifiable, since (while the Claimants accept that cost savings may
be necessary), forcing hundreds of firms out of business while giving no
time for considered consolidation is to use a sledgehammer to crack a nut.
7.
The Lord Chancellor has yet to file his Grounds of Resistance, but his detailed
response to the Claimants’ pre-action letter sets out his position at §§12-65
(CB/tab24/pp.4-12). That response essentially re-states the erroneous approach
taken in the Decision, and fails (like the Decision) to grapple with the
Claimants’ principal objections.
Balance of convenience
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8.
Questions of the adequacy of damages will not normally assist in the analysis
of whether to grant an injunction in a public law case. That is because “there is
no general right to indemnity by reason of damage suffered through invalid
administrative action” (Factortame at p. 672H) while on the other hand “an
authority acting in the public interest cannot normally be protected by a
remedy in damages because it will itself have suffered none” (at p. 673A).
Those propositions are demonstrated in this case, where the First and Second
Claimants in particular bring a challenge on behalf of their members in the
public interest, and could not themselves suffer loss for which damages would
be an adequate remedy.
9.
The central consideration is, rather, the balance of prejudice which would be
caused to the Claimants and those they represent by the refusal of an
injunction (in the event that they were to succeed at trial) as against that which
would be caused to the Lord Chancellor’s policy by the grant of an injunction
(in the event that he were to succeed).
Prejudice to the Claimants
10.
The prejudice to the Claimants, those they represent, and to the public interest,
if the tender procedure were to continue only for the Lord Chancellor’s
decisions to be quashed, would be substantial. The vast majority of criminal
solicitors’ firms had not taken steps to scale up, merge, or form consortia in
advance of the 27 November decision, for good reasons: mergers and joint
ventures are highly problematic for criminal firms given their very low profit
margins, the fact that many are in financial difficulties, and the commercial
difficulties inherent in seeking to merge with direct competitors (see eg. Nelson
§§4-8). The Lord Chancellor was from May 2014 the subject of a (successful)
judicial review, and thence was re-consulting on the assumptions underlying
his decision on the number of contracts with an open mind. The commercial
decision as to the size and extent of any scaling-up/consortium would depend
entirely on the number of contracts tendered in each procurement area, which
was contingent on the outcome of that consultation.
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11.
Firms are now being required, in an extremely short timescale, to seek to
tender in order to attempt to save their businesses. This prejudices those firms
that are required to scale up/form consortia and are forced to utilise their very
limited financial resources on what is a high-stakes gamble (Nelson §§13, 16-17,
22; Cox §§13, 15 [CB/tab9], 21-22; Gray §11 [CB/tab10]). The Lord Chancellor
accepts that this will involve financial costs (though he wrongly regards these
as modest: pre-action Response at §67(iii)). Commercial decisions on scaling-up
and consortia cannot be ‘untaken’ once taken without significant additional
financial cost, which could well be disastrous for businesses already on
minimal profit margins (Nelson §§14, 22). Firms could find themselves in the
position of having undertaken costly financial obligations which prove to be
unnecessary if the claim is successful. Nor can the time that is required to fill
out the tender documentation (which, particularly in small firms, will impact
on the availability for paid work of senior personnel) be regained (Nelson §22;
Payton §14; Cox §§18-19; Gray §7). This prejudice is not averted by expedition.
Without a suspension of the tender process, criminal legal aid firms cannot
assume that a judgment will be handed down before the tender process closes:
given that a decision will not be made by the Court until very close to the
tender deadline, they must either continue to expend time and money on an
unlawful process or decide now that they cannot tender.
12.
To be clear, this work and the time and cost which it entails will, if the Claim
succeeds, very likely be wasted. To compete in the tender process firms must
demonstrate capacity to perform the contracts they are bidding for, each of
which has an assumed value (see DPW Tender IFA Annex A [CB/tab23/pp 6268]) plus credible provision to deliver up to 50% more work under the contract.
The extent to which a firm needs additional capacity, and so the steps which
will need to be taken, depends crucially upon whether there are, say, 4
contracts worth £250,000 each in a procurement area, or 8 contracts worth
£125,000 each, which is squarely at issue in the claim. Likewise, the content of
tender documents will depend upon the firm structure which has been put
together in order to bid for contracts of the size determined by the Lord
Chancellor.
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13.
Further, many smaller firms could only compete in the tender process given
additional time to do the considerable work required; if they cannot compete,
they are very likely to go out of business, which would be highly prejudicial
and cannot be in furtherance of the public interest. An injunction is the only
practical means of providing them with the additional time they need.
14. Finally, if an injunction is not granted to “hold the ring” pending the hearing of
the claim, the prospects of the Claimants obtaining effective relief will be
diminished. The Lord Chancellor will inevitably argue that (by then) the tender
process is all but complete, the work has been done and that it would be contrary
to good administration to grant relief which has the effect of re-winding the
tender process.
Absence of prejudice to the Lord Chancellor
15.
In contrast, the Lord Chancellor has failed to raise any form of prejudice
arising from the grant of an injunction which stands up to critical scrutiny. The
pre-action Response makes three assertions (at §67(iv)-(v)): (a) that there will
be a delay to the award of DPW contracts since there is “no contingency time”
built into the tender process, (b) that a delay of the service commencement date
would risk delaying the introduction of the proposed further fee reduction of
8.75%, and (c) that damages would not provide compensation for the harm
caused to “the continuous and effective provision of criminal legal aid
services”, and that it is unclear how an undertaking in damages could
compensate for that harm.
16. The first assertion is highly implausible. The LAA has been given more than four
months to evaluate tenders once submitted: twice as long as the tenderers have to
acquire the necessary capacity to perform the contracts they wish to bid for and
to formulate their bids: Waddington, §188 [CB/tab6]. There is then a further
three months between the contract commencement date and the start of work
under the contracts. Further, as the Decision (§3.11) notes, the Lord Chancellor
has already decided to extend the existing Standard Crime Contracts up to 30
September 2014, and could extend them further: there need be no gap in service
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provision. Nor is there any imperative that work under the DPW contracts begins
on 1 October 2014; this is a notional deadline set by the Lord Chancellor himself.
17.
The second is an assertion entirely contrary to the Lord Chancellor’s true
position. The Decision (§§3.6-3.7) (a) decoupled the second fee reduction from
the start of the DPW contracts (the former in July 2015 and the latter in October
2015) and (b) stated that there was to be consideration of two reviews of the
legal aid regime before that fee reduction could occur. It follows that the
proposed fee reduction, assuming it is brought into effect at all following the
reviews, will occur prior to, and without direct regard to the commencement
of, the new DPW contracts. Any suspension of the tender process will not
impact upon that potential decision.
18.
The third is equally unmeritorious. As Lord Goff explained in Factortame (at
673A), Government departments do not suffer financial damage when
measures adopted in the public interest are delayed by injunction. Nor is this
relevant to the balance of convenience, for the simple reason that there is no
danger of “harm … to the continuous and effective provision of criminal legal
aid services”. Even if the four month evaluation window were not capable of
being shortened, the Lord Chancellor is able to take steps to extend the current
contracts to cover any gap, as he has already done.
19.
Of course, to the extent that holding-up the DPW tender process results in a
delay to the Lord Chancellor’s desired timetable, it must be recalled that
significant delay has already occurred as a result of the Lord Chancellor’s own
unlawful conduct of the consultation which preceded his February 2014
decisions (and which necessitated a judicial review and a re-consultation). The
consequences of that unlawful conduct, and the delay which it occasioned,
should not now be visited upon the Claimants and those whom the First and
Second Claimants represent.
Cross-undertaking in damages
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20.
The Lord Chancellor has suggested that a cross-undertaking could be required
from the Claimants since he risks suffering financial loss. Since, however, he
has identified no loss capable, in reality, of being suffered, a cross-undertaking
is unnecessary.
21.
In any event, where an issue is a straightforward dispute between a public
body and citizens, “an injunction may be granted to the citizen, without any
undertaking in damages, if justice requires that course” (BACONGO at [37]).
That dictum was made following discussion of R v Servite Houses, ex parte
Goldsmith (2000) 3 CCLR 354, a case where two care home residents were not
required to give a cross-undertaking pending appeal to the Court of Appeal
because they would not be financially able to pay. In Servite Houses no crossundertaking was required despite the fact that the respondent would suffer
direct financial loss: per Arden LJ at §§36-37.
Likewise, given the very real
public interest in maintaining access to justice which is pursued by the
Claimants in this claim, it is submitted that justice does not require the
provision of a cross-undertaking.
Conclusion
22.
For the reasons given above, at SFG §§117-124 and in Waddington §§177-192,
the Court is respectfully requested to grant the relief sought.
JASON COPPEL QC
CHRISTOPHER KNIGHT
RUPERT PAINES
11KBW
11 King’s Bench Walk
Temple
London
EC4Y 7EQ
23 December 2014
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