Shetland Line (1984) Limited Against The Scottish Ministers
| Jurisdiction | Scotland |
| Judge | Lord Doherty |
| Neutral Citation | [2016] CSOH 41 |
| Court | Court of Session |
| Published date | 11 March 2016 |
| Year | 2016 |
| Date | 11 March 2016 |
| Docket Number | CA48/12 |
OUTER HOUSE, COURT OF SESSION
[2016] CSOH 41
CA48/12
OPINION OF LORD DOHERTY
In the cause
SHETLAND LINE (1984) LIMITED
Pursuers;
against
THE SCOTTISH MINISTERS
Defenders:
Pursuers: Sandison Q.C, Watt; Maclay Murray & Spens LLP
Defenders: Clark Q.C, C O’Neill, solicitor advocate; SGLD
11 March 2016
Introduction
[1] In 2012 the pursuers were unsuccessful bidders in a competition for the award by the defenders of a contract for the provision of ferry services between the Northern Isles and the mainland of Scotland. The contract was to run from 5 July 2012 until 31 March 2018. In May 2012 the defenders awarded the contract to the successful bidder, Serco Limited (“Serco”). The Public Contracts (Scotland) Regulations 2006 (“the 2006 Regulations”) were the regulations in force at the time of the procurement exercise. (Procurement exercises commenced on or after 1 May 2012 are governed by the Public Contracts (Scotland) Regulations 2012).
[2] The pursuers were dissatisfied with the public procurement process which resulted in the award. The present commercial action was raised during the standstill period following the award. The summons was served upon the defenders on 11 May 2012. On 29 May 2012 Lord Malcolm granted an interim order in terms of regulation 47(10)(b) of the 2006 Regulations ending the prohibition on the defenders entering into a contract with Serco.
[3] The pursuers now seek damages. They claim that the defenders breached regulation 4(3) of the 2006 Regulations; that in doing so they breached the duty owed to the pursuers under reg 47(1); and that the breach is actionable in terms of reg 47(5) because they have suffered or risk suffering loss or damage. The sum sued for is £12,730,275.
[4] The matter came before me for a proof before answer on the commercial roll. I heard evidence on 1, 2, 3, 4 and 8 December 2015 from nine witnesses called by the pursuers. Some of those witnesses were officials of Transport Scotland (an agency of the defenders) who had also been on the defenders’ list of witnesses. In relation to each witness a signed witness statement (and in some cases also a supplementary witness statement) had been lodged and the witness adopted it as the substance of his/her evidence-in-chief. Where the witness had also prepared a witness statement for the defenders he or she also adopted that statement during cross-examination. When the evidence had been completed counsel prepared written closing submissions. Those written submissions were supplemented by oral submissions, which I heard on 10 and 11 December 2015.
[5] I set out first my findings on matters in relation to which there was little or no real dispute. Thereafter I shall set out the salient parts of the evidence which bear on more contentious issues.
Background
[6] Goods may be transported by sea in several different ways. RoRo freight is freight which can be transferred on and off a vessel on a trailer. A vessel which carries RoRo freight is known as a RoRo vessel. Containers can be transported on RoRo vessels if they are put on Mafi trailers. A RoPax vessel is a vessel which takes both RoRo traffic and passengers. With a LoLo vessel goods are loaded into containers which are lifted on and off the vessel by crane. A LoRo vessel is a vessel which can carry RoRo and LoLo traffic.
[7] In 2002 the defenders awarded NorthLink Orkney and Shetland Ferries Limited a four year contract for the provision of ferry services to and from the Northern Isles. Following a retendering exercise in 2006 NorthLink Ferries Limited (“NorthLink”) was awarded a contract for the provision of those services until 5 July 2012. In each case the defenders agreed to subsidise the services provided under the contracts. The services were provided using three RoPax vessels (the MV Hamnavoe, MV Hjaitland and MV Hrossey) and two RoRo freighter vessels (the MV Helliar and the MV Hildasay). The MV Hamnavoe ran mainly on the Scrabster-Stromness route while the other vessels operated mainly on the Aberdeen-Kirkwall-Lerwick route. NorthLink was a subsidiary of David McBrayne Ltd, and the defenders were the sole shareholder of the latter company.
[8] At the time of the 2011/12 procurement exercise Pentland Ferries operated an all year round passenger, car and freight service between Gill’s Bay, Wick and St Margaret’s Hope, Orkney; John O’Groats Ferries operated a summer passenger service between John O’Groats and Burwick, Orkney; and the pursuers operated a year round LoLo freight service on the Aberdeen-Kirkwall-Lerwick route using a LoLo freighter, the MV Daroja.
[9] The pursuers have operated LoLo freight services to and from the Northern Isles since the early 1980s, at times with the benefit of public subsidy, but at other times on a purely commercial basis. On 30 May 2008 the pursuers and the defenders entered into a public service contract in terms of which the defenders agreed to subsidise the pursuers’ LoLo service for six years from 31 May 2008 until 30 May 2014. The subsidy was based on the tonnage carried. On average, the subsidy paid out during the contract was about £500,000 per annum. The Pentland Ferries service and the John O’Groats Ferries service were not subsidised services.
[10] The pursuers are part of the Streamline Group (“Streamline”). The parent company is Streamline Shipping Group Limited. The Group provide a general haulage and distribution service throughout the United Kingdom. A large part of the pursuers’ LoLo business - just over half - comes from Streamline’s haulage and distribution operations.
[11] Between June and September 2010 the defenders carried out a public consultation on ferry services for the Northern Isles. 62% of respondents were of the view that the freight services currently contained within the bundle of services contracted to NorthLink should remain integrated within that bundle rather than be treated separately. The general preference was for the continuation of a subsidised service comprising vessels which carry passengers and cargo, and dedicated cargo vessels.
[12] At the time of the procurement exercise there was significant overcapacity for sea freight services on the Northern Isles ferry network. That was apparent from the consultation, from discussions the defenders’ officials had had with stakeholders, and from expert advice which the defenders had received. The combined capacity of the two RoRo freighters operated by NorthLink on the Aberdeen-Kirkwall-Lerwick route was very considerably in excess of freight carried.
The competition
[13] By a contract notice in the Official Journal of the European Communities dated 27 September 2011 the defenders advertised a competition for the procurement of a contract for the provision of ferry services to the Northern Isles for the period from 14.00 hours on 5 July 2012 to 14.00 hours on 31 March 2018. The new contract was intended to follow on from and replace the NorthLink contract.
[14] The competition was conducted under the competitive dialogue procedure in terms of reg 18 of the 2006 Regulations. Bids for two lots were sought: Lot A - the Pentland Firth route between Scrabster and Stromness; and Lot B - The Aberdeen-Kirkwall-Lerwick route. Bidders were invited to bid for either, or both, of the lots. Six operators applied to be invited to participate in the competition. On 29 November 2011 all six were invited to take part in the competitive dialogue procedure. Issue 1 of the Competition Documentation was issued to them, and the dialogue period commenced.
[15] In the course of the dialogue period two participants withdrew. The remaining four participants were the pursuers, Serco, P&O Ferries Holdings Limited (“P&O”) and NorthLink. As each of them wished to bid for both Lots A and B they elected to proceed by way of a single tender for both Lots. A new version of the Competition Documentation reflecting that change was issued on 15 January 2012. Thereafter a number of revised versions of the Competition Documentation were issued.
[16] During the dialogue period the defenders’ officials had meetings with those proposing to submit bids. Dialogue Period Bulletins and Clarification Notes responding to competitive dialogue queries were published. Query QC.021 referred to the expressions “loose freight and parcels” and “bagged cargo” which appeared at the time of the enquiry in the unrevised version of Vol. 5, Sched. 3, paragraphs 1 and 2.1 of the Competition Documentation, and enquired “what volumes by route/week/month/year would the operator be expected to deal with…”. The defenders’ response was:
“It is for bidders to determine what capacity of freight they will require to carry on the service and how it will be carried.” (Dialogue Period Bulletin No. 11 - issued 4 January 2012).
[17] The Competition Documentation also made provision for queries to be made during the final tender period - with a cut-off date for queries of 23 February 2012 and a response deadline of noon on 28 February 2012. Requirement 1.2.3.c on Traffic Resilience gave rise to Queries QF.020a and QF.020b by the pursuers during the final tender period. Query QF.020a ended:
“The intention of the above queries is to clarify the actual requirement under this new specification. Perhaps SG [Scottish Government] would prefer to specify the level of daily demand for cars and time sensitive freight that participants are required to guarantee.”
The defenders’ response to each of these queries was in the same terms and was published in the Final Tender Period Bulletin No. 3 on 16 February 2012:
“This question seeks to draw a statement of intent from the Participant which shall be marked for quality as part of Package A1 Services.”
On 28 February 2012 Transport Scotland answered Query QD340 from P&O:
“QD340. Within the ISFT Version Volume 3 there is now a requirement to show an allocation of space between tourist and time sensitive freight. Can you please supply...
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