Public Procurement – Availability of the Ineffectiveness Remedy, First Ground, and the Court of Appeal refuses permission to appeal in AEW v. Basingstoke & Deane Borough Council.

17 September 2019

Author: Colin Ricciardiello, Partner

Background

Agreements for the development of land have proven to be a valuable source of judicial guidance on procurement law issues associated with variations to contracts post award[1] and the ineffectiveness remedy[2]- first ground. The first ground appears in Regulation 99(2) of the Public Contracts Regulations 2015 and “… applies where the contract has been awarded without prior publication of a contract notice”.

That body of procurement law guidance was extended on 26 July 2019 when the High Court handed down judgment in AEW Europe LLP v Basingstoke & Deane Borough Council and NewRiver Leisure Ltd (Interested Party) [2019] EWHC 2050 (TCC).

Facts

The Borough Council owned a leisure park which it wished to redevelop and regenerate. The Council accordingly published an OJEU Contract Notice on 21 June 2013 – a notice which the Judge described as being in “relatively broad terms”. 52 expressions of interest were received but only the Interested Party, NewRiver Leisure Ltd, (“NRL”) and one other bidder submitted initial tenders. Only NRL went on to submit a final more detailed tender. Negotiations followed which included a bolder regeneration scheme that increased the potential retail element. A development agreement was signed on 19th March 2018.

The Claimant, AEW, was not an economic operator who had in any way participated in the procurement sparked by the OJEU notice (so for the purposes of the Regulations it was neither a “candidate” nor a “tenderer”). It had, however, bought nearby retail investment properties known as Festival Place in December 2015. It therefore had a commercial interest in preventing a rival retail facility development. They accordingly issued proceedings on 17 September 2018 seeking to declare the March 2018 development agreement ineffective, as well as damages. The claim was issued in time as the “longstop” time limit for the ineffectiveness remedy in Regulation 99(2) (b) is 6 months after the date on which the contract was entered into.

Issues and Procedure

In essence AEW did not argue that the Borough Council’s OJEU Notice was invalid but sought the remedy of ineffectiveness on the basis that the development agreement was so different to the contract sought in the OJEU Notice that a new procurement should been commenced, starting with a new OJEU notice.

The parties agreed that the availability of the first ground of ineffectiveness could be dealt with on the basis of assumptions at a trial of a preliminary issue as follows:

“…the Development agreement departs from the contract sought by the tender process to such an extent that it is a materially varied contract which is not actually the subject of the previous tender process and would have required a fresh process in accordance with the applicable regulations”.

The fundamental point determining the outcome of the preliminary issue was whether or not the decision of Mr Justice Mann in Alstom Transport v Eurostar International Ltd [2011] EWHC applied to this case. That brought into play the findings in Alstom that the first ground of ineffectiveness is not about a failure of the process generally but is specifically tied to a failure to give prior notice; the existence or absence of a notice is a mechanistic test – but not to the point that a notice is pure form and of no substance; the notice given is capable of being related to the procedure and the contract awarded; the notice given sparked a competition.

 AEW argued that Alstom should be distinguished because it dealt with a procurement based on a “qualification system” whereby the potential suppliers had to qualify in order to progress in the competition – in that event the issue became whether or not the qualification system was contrary to the original OJEU Notice.

The Decision

 The Judge decided that even allowing for the assumption in the preliminary issue, the declaration of ineffectiveness remedy was not available and that Alstom did apply to this case despite the attempt to distinguish it.

The Court‘s principal findings are succinctly found at paragraphs 41 and 42 of the judgment:

"(a) There has to be an effective notice “which is capable of being related to the procedure and the contract” awarded.

(b) Regard can be and indeed should be had to the fact that the OJEU notice sparked the competition.

(c) The Regulation (dealing with ineffectiveness) operates by looking to the existence or absence of an OJEU notice which involves the application of a “mechanistic test” the benefit of which is that it will be easier to apply for clarity reasons “if the remedy is to operate sensibly in a commercial context”.

At paragraph 42 the Judge remarked that the above all became clear when one noted that the first ground applied where the contract was awarded without prior publication of a contract notice and here “…as in Alstom a wholly valid OJEU notice was published”.

NRL argued that the ineffectiveness remedy is only available where there was a failure to call for competition but again, in tune with Alstom, the Judge decided (at paragraph 45) that such a proposition went too far. Whilst the mechanistic test involved a broad brush approach, there still had to be a relationship between the published notice and the contract. The Judge gave an example of the Borough Council publishing its notice for a regenerated leisure park but let a contract for 1,000 dwellings: in such circumstances “…one can readily see that such a contract went so far beyond what was covered by the original Notice that it bore no relation to it at all.”

The Court found that there was "… a sufficient and indeed close connection between the OJEU Notice issued in this case and the Development Agreement" (paragraph 47 of judgment).

AEW’s application for permission to appeal to the Court of Appeal was refused on 3rd September 2019 by Coulson L.J.

Conclusions and Comment

In confirming the approach in Alstom it would appear that where a competitive procedure has been started by a valid notice (so unlike Gottlieb and Faraday where there were no prior notices) which is sufficiently close to the concluded contract, then the grant of a declaration of ineffectiveness is a very unlikely outcome.

This consistency of approach can only assist in generating certainty and continues to confine ineffectiveness to its intended limited circumstances. As the court noted, the remedy was extreme and that was why the test of mechanistic compliance was appropriate and based on:

"… pragmatism, which takes into account the fact that the declaration of ineffectiveness remedy is a Draconian one which brings to an end an otherwise lawful contractual relationship."(Paragraph 44 of the judgment).

In addition to the ineffectiveness issues, AEW’s damages claim was of interest – AEW’s claim was put as if they were an economic operator to whom a duty was owed under Regulation 89 and sought to enforce a breach of duties owed under Regulation 91. The writer understands that the damages claim has been abandoned and indeed the Judge noted that there was a very real issue as to whether there was locus for bringing a breach of duty claim (paragraph 21). That same issue recently came before the Court in Royal Cornwall Hospitals NHS Trust v Cornwall Council [2019] EWHC 2211 and the Court emphatically decided that no duties were owed to an economic operator who did not participate in a procurement and, in consequence, was unable to show that it suffered or risked suffering any actionable loss as required by Regulation 91.

Colin Ricciardiello is a Partner at Sharpe Pritchard who specialises in matters including procurement challenges and procurement advice, commercial contract disputes and commercial property disputes. For more information, please contact him today at cricciardiello@sharpepritchard.co.uk.

 

[1] Gottlieb v Winchester City Council [2015] EWHC 231 (Admin) concerning the lawfulness of post award modifications to a development agreement; and Wilde v Waverley Borough Council [2017] EWHC 466 (Admin) which considered the standing of non-economic operators’ rights to challenge variations to a development agreement.

[2] Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532 in which the Court of Appeal made the first declaration of ineffectiveness in an English public procurement case as the development agreement constituted a public works contract which should have been the subject of a competitive procurement but no contract notice had been published.

This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.

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