HT-2022-000043 - [2024] EWHC 3180 (TCC)

In July 2021 the Claimants participated in a call-off competition under the DPS (Footnote: ¹) Agreement (“the Procurement”) and were the successful second highest ranked bidder. There were 3 successful bidders. The parties entered into a call-off contract dated 6 September 2021 (“the Contract”) pursuant to which the Claimants agreed to supply Tests to the Defendant on receipt of committed orders, based on allocated volumes divided between the top three ranked bidders in accordance with a procedure set out in the call-off competition Invitation to Tender (“the Allocation Procedure”). It appears that the Defendant entered into similar contracts with the first and third ranked bidders (Medco Solutions Ltd (“Medco”)) and Tanner Pharma UK Ltd (“Tanner”) at or around the same time.

The Second Claimant engaged MP Bio, a company registered and operating in Germany, as its sub-contractor and the Legal Manufacturer of the Tests. On the same day, MP Bio engaged Boson, a company registered and operating in China, as its sub-contractor and the Physical Manufacturer of the Tests.

On 30 September 2021, the Defendant placed a committed order for 68.4 million Tests from the Claimants (“the Committed Order”). The Tests were manufactured by Boson at its manufacturing facility in China between 11 October 2021 and 7 November 2021. At or around the same time, the Defendant also placed orders with Medco and Tanner, reflecting their shares in accordance with the Allocation Procedure.

On 7 October 2021, the Defendant informed the Claimants that he had commissioned a BSCI (Footnote: ²) audit of Boson’s manufacturing facility in China. The audit was carried out by a company called QIMA Limited (“QIMA” and “the QIMA Audit”). The Claimants believe that similar audits were also carried out for other DPS suppliers, including Medco, Tanner and the fourth ranked bidder, Innova Medical Group Inc. (“Innova”) (although they say that the audit reports for these other DPS suppliers have not been disclosed by the Defendant).

The QIMA audit report concluded that Boson had been awarded an overall rating of “D”. When the Defendant provided a copy of the QIMA Audit to the Claimants on 26 October 2021, it stated: “unfortunately, the overall rating is D which is failure”. It is the Claimants’ case that there is no such thing as a “fail” within the context of BSCI audits (as such audits are aimed at continuous improvement in working standards) and they say that the tender documents did not include a standard at which an audit would be considered to “fail”. The Claimants do not accept the findings of the QIMA Audit or that the Defendant was entitled to “fail” Boson.

By notice of 12 November 2021 (“the Rejection Notice”), the Defendant purported to reject the Tests already delivered and the further Tests due to be delivered pursuant to the Committed Order, namely the 68.4m Tests. The Rejection Notice did not particularise the legal (or factual) basis of the purported rejection of the Goods by the Defendant. Instead, the Defendant’s purported rejection of the Tests was said by the Defendant to be based on (a) alleged “breaches of labour law, health and safety and worker payment obligations” at Boson’s premises, which had purportedly been identified in the QIMA audit report and (b) the fact that such alleged breaches had not been identified by Boson in the Standard Selection Questionnaire for the call-off competition. The Claimants dispute that the findings of the QIMA audit amount to breaches of Chinese labour law (as alleged by the Defendant) and/or that the QIMA audit gave rise to grounds lawfully to reject the Tests (for the reasons set out in paragraph 28 of the Wrongful Rejection POC [PCMB/12/95]). Amongst other things, the Claimants place reliance on two other audits of Boson’s manufacturing facilities which were conducted at or around the same time (there is also another audit conducted on behalf the Defendant himself) and the existence of a local licence issued by the local district in China which the QIMA auditor had failed to take into account.

The Defendant puts in issue (by requiring the Claimants to prove) the authenticity of the local licence and there is also a factual dispute between the Parties as to whether the local licence (if it was authentic and in existence at the time of the audit) was shown to the QIMA auditor.

From 18 October 2021 the Defendant placed orders for further Tests from Medco, Tanner and Innova (the fourth ranked bidder), by way of further committed orders and direct contract awards, but did not place any further orders with the Claimants.

Some of the additional orders and direct awards were set out in two Contract Award Notices dated 17 January 2022 and 24 January 2022 in which the Defendant stated that (1) he had increased the maximum volume of Tests and had fully utilised the volume of Tests; (2) he had awarded a direct contract to Innova; and (3) it had made further direct contract awards to Innova, Medco and Tanner in purported reliance on Regulation 32(2)(c) of the Regulations.

The Claimants say that, having considered disclosure in the first and second claims, they discovered that the Defendant had disapplied the Allocation Procedure, placed yet further orders with Innova, Medco and Tanner, agreed to a substantial price increase with Medco, extended an existing contract with another contractor (SureScreen) and that audits of Innova, Medco and Tanner found that they had all breached Chinese labour law.