Conflicting procurement judgments bring fresh new challenges to the market

27 March 2017

In the recent case of Wylde v Waverely Borough Council [2017] EWHC 466 (Admin), five claimants attempted to challenge the variation of a development agreement using judicial review proceedings on the grounds that it was in breach of the Public Procurement Regulations 2006.

The claimants were:

  • two councillors of the defendant Council who were also members of the Farnham Town Council; and
  • three members of local civic societies

However, Mr Justice Dove ruled that the claimants didn't have sufficient interest or 'standing' to bring their application.

This ruling, relating to councillors, conflicts with an earlier decision from Mrs Justice Lang in the case of R (on the application of Gottlieb) v Winchester City Council [2015] EWHC 231 (Admin). This begs two questions: can the two decisions be reconciled and what lessons need to be learnt from this latest case?

Case Background

On 22 April 2003, the Council entered into a conditional development agreement with Crest Nicholson Regeneration Limited and Sainsbury's Supermarkets Limited. The agreement was for a project known as 'Brightwells' in the East Street area of Farnham, after a competitive process which did not follow the EU procurement regime for public works concessions.

Here are the facts:

  • Planning permission for a mixed-use development including retail, café, cinema, replacement day centre, car park and 239 residential units was granted on 7 August 2012
  • This planning permission replaced an earlier planning permission granted in August 2009
  • A compulsory purchase order for site assembly was confirmed in August 2013 and implemented before the court hearing
  • Funding for the scheme had been secured from Surrey County Council

Further variations to the scheme and the terms of the development agreement were necessary to satisfy the viability condition in the development agreement, including a reduction in the Council's minimum land value from £8.76m to £3.19m, being the premium for the grant of a 150 year lease. These were approved by the Council on the recommendation of its Executive on 24 May 2016. Permission to apply for judicial review was granted on 12 August and on 9 September, an order was made for the trial of the preliminary issue about standing.

Ex ante transparency notice

The Council published a voluntary ex ante transparency notice in the Official Journal, justifying the decision to enter into the variation without competition under the Concession Contracts Regulations 2016 "because it has been the subject of negotiations since before 18.4.2016, and it would not in any event amount to a substantial modification, and nor is it a material change applying the principles in Pressetext - Nachrichtenagentur C-454/06 (2008) ECR 1-4401". Detailed reasons for this view were set out in the notice.

The effect of the notice was to limit the time for starting proceedings for an ineffectiveness notice to 30 days after the date of publication. If proceedings for such a notice were successful the variation agreement would have been ineffective going forwards. Economic operators alone may bring such proceedings, that is persons or entities offering to undertake works or, in this case, rival developers to Crest Nicholson. No such proceedings were started.

Crest Nicholson's proposals had been opposed vigorously and consistently at various times and in various forums by the Farnham Society, the Farnham Building Preservation Trust and the Farnham Interest Group, as well as the two councillor claimants. The proposals were opposed for various reasons, including what was said to be their inappropriate scale and harmful and unnecessary impact upon the historic environment of the town.

Mr Justice Dove considered earlier decisions on standing in judicial review cases and, in particular, where the claim was based on an alleged breach of the EU procurement regime. Such applications had failed for lack of sufficient standing where the claimants were:

  • a community group challenging the award of a PFI contract to build an education facility (R (Kathro) v Rhondda Cynon Taff [2001] 4 PLR 83)
  • parents challenging the appointment of a sponsor of an academy school (R (on the application of Chandler) v Secretary of State [2009] EWCA Civ 1011)
  • a trade union challenging the decision to outsource some NHS medical services in (R (on the application of Unison) v NHS Wiltshire PCT and others [2012] EWHC 624).

On the other hand the Law Society was held to have sufficient standing to challenge the process for awarding legal services contracts as part of the reform of legal aid in R (on the application of The Law Society) v Legal Services Commission and others [2007] EWHC 1848 (Admin).

Similarities and differences with the Winchester case

In the Winchester case the Council did not argue the issue of standing and Mrs Justice Lang accepted that the claimant, "in his capacity as a resident, council tax payer, and City Councillor, has a legitimate interest in seeking to ensure that the elected authority of which he is a member complies with the law, spends public funds wisely, and secures through open competition the most appropriate development scheme for the City of Winchester."

In this case Mr Justice Dove followed the Court of Appeal decision in Chandler, where the Court held that:

"an individual who has a sufficient interest in compliance with the public procurement regime in the sense that he is affected in some identifiable way, but is not himself an economic operator who could pursue remedies under reg 47, can bring judicial review proceedings to prevent non-compliance with the regulations or the obligations derived from the Treaty, especially before any infringement takes place." A claimant may have a sufficient interest if following the procurement regime "might have led to a different outcome that would have had a direct impact on him"

The gravity of a departure from public law obligations may also justify the grant of a public law remedy in any event.

Mr Justice Dove identified the purpose of the EU procurement regime as being, "firstly, to provide for an open and transparent system for the competition for public contracts in the interests of securing a fair and efficient market for those contracts and secondly, to provide a bespoke system of remedies for those parties who are directly involved in competing for such contracts and participating in the market for them."

He therefore concluded that standing for the purposes of judicial review should be narrowly confined to a person who "can show that performance of the competitive tendering procedure… might have led to a different outcome that would have had a direct impact on him" following Chandler.

In this case, in his judgement, the claimants would have had difficulty in showing a different outcome to a procurement exercise within the regulations especially given the lack of response to the voluntary ex ante transparency notice. Furthermore, councillors, council tax payers or ratepayers do not have a status akin to or as proxy for an economic operator (as for example the Law Society in the legal aid contracts challenge).

Lessons for the future

  1. The question of councillors standing for local authorities when bringing judicial review proceedings to procurement cases is ripe for consideration by the Court of Appeal, following the different outcomes in the Winchester and Waverley cases. In the Waverley case, the Council was also prepared to argue that judicial review is not available at all as a remedy to a person who is not an economic operator. Given earlier cases, where judicial review has been denied to economic operators on the grounds of their alternative remedies under the Procurement Regulations, the direction of such an argument is that judicial review will not be available at all in procurement cases except in the rarest case of the most flagrant breach. In this case the councillors had the problem that they could not argue that the Council was financially disadvantaged by the variation agreement, or there was a breach of fiduciary duty. The Council had been advised by its professional valuers that the revised minimum land value satisfied its best consideration duty under the Local Government Act 1972. No rival developer came forward to challenge the variation in response to the OJ notice.
  2. Local authorities often have to grapple with changing circumstances after the appointment of a development partner. In this case, developers were appointed before the financial meltdown in 2008, leading to a reappraisal of schemes to deliver viability in the changed economic climate. Local authorities may be inclined to stay with a developer who has invested significantly in the project and area and may have built up land interests which will need compulsory purchase if the authority has the will and resource to undertake a procurement for a new development partner. Here, Waverley was able to publish a voluntary ex ante transparency notice to limit the time for bringing a claim for ineffectiveness which, if successful, would have nullified the varied development agreement. This is an important consideration. Can it be argued that the variations not sufficiently material as to amount to a new contract in the Pressetext sense, (if, as in this case the negotiations for the variation began before 18 April when the Concession Contracts Regulations 2016 came into force? (After that date regulation 43 of the Regulations dealing with permitted modifications applies.) If so, the voluntary notice is an important tool for the local authority and its developer partner especially if linked to a condition precedent preventing the varied agreement becoming operative until the 30 day period has expired without challenge.
  3. The case recognised that the typical development agreement is a works concession because the risk associated with carrying out the development works and then letting the completed development sits with the developer. This followed the Winchester case although the point was not discussed in the case of Faraday (R (on the application of Faraday Development Ltd) v West Berkshire Council [2016] EWHC 2166). The public authorities who still procure development agreements under the Public Contracts Regulations 2015 are taking on board unnecessary risk.
  4. The decision to enter into the development agreement variation was made by the full Council, notwithstanding that the Council was exercising executive functions within the remit of the Executive. Some authorities like to take major decisions of this kind in relation to development proposals in full Council, but risk challenge based on s9DA(3)(a) of the Local Government Act 2000, which prevents the local authority in full Council exercising such functions. Jurisdiction returns to full Council if the proposed decision conflicts with the policy framework, the budget, capital or borrowing programme, unless permitted by standing orders or financial regulations. If Councils want to proceed in this way they should ensure that the Cabinet or Executive approves the matter before them, as well as recommending it to full Council so there is clear authority to act at Executive level notwithstanding the views expressed later by full Council. If full Council disagrees the issue can be looked at again by the Executive after appropriate political discussions.

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