06/09/2019

In AEW Europe v Basingstoke and Deane Borough Council[1] the High Court considered the circumstances in which the remedy of a declaration of ineffectiveness can and should be granted. This was in the context of the procurement of a long-term project for the redevelopment of a leisure park and associated facilities under the terms of a Development Agreement.

There are three grounds of ineffectiveness set out in the Public Contracts Regulations 2015[2] (PCR). This case concerned the first ground for ineffectiveness: when a contract is awarded without prior publication of a contract notice in the Official Journal of the European Union (OJEU) where publication of a contract notice is required under Part 2 of the PCR.

A contract notice was published in the OJEU by the contracting authority at the start of the procurement process. It was argued, however, that the notice could not be regarded as valid because the scope of the final Development Agreement departed so considerably from the opportunity that the notice described.

The judge held that the contract notice was valid and that the remedy of ineffectiveness was not available. In coming to this conclusion he made a number of interesting comments on the requirement for publication of a contract notice in the specific context of the first ground of ineffectiveness, and the degree of relationship between the contract notice and the contract awarded in these circumstances.

Facts
In June 2013, Basingstoke and Deane Borough Council published a contract notice in the OJEU for the appointment of a development partner to work with the Council and implement a long-term strategy plan for the development of Basingstoke Leisure Park, over a period of up to 15 years. The negotiated procedure was used. The contract notice included a lengthy description of the opportunity and provided a link to a dataroom from which project documents could be accessed.

At the conclusion of the negotiated procedure the Council received only one final tender, from Newriver Leisure Ltd (NRL). Negotiations continued with NRL and from early April 2015, the Council and NRL proceeded on the basis of an “exclusivity” agreement. Later in 2015 NRL proposed what was described as a “more bold scheme” which would increase both the leisure offer and the level of retail opportunities. In June 2016, the Council decided to proceed with the reconfigured, bolder, scheme. The Council and NRL entered into the Development Agreement on 19 March 2018.

In the meantime, AEW Europe LLP (AEW) acquired or set up various retail investment properties in Basingstoke. AEW had not participated in the 2013 procurement for the Basingstoke Leisure Park. From early December 2016, as it became aware of the bolder scheme proposals, AEW (through its solicitors) began to contact the Council with concerns about the conduct of the procurement for the Basingstoke Leisure Park development. In September 2018 AEW issued proceedings against the Council seeking, amongst other things, a declaration of ineffectiveness in respect of Development Agreement, as well as damages.

The judgment
AEW argued, in summary, that the published contract notice would only permit retail development which was “minor or ancillary to the construction of the leisure facility”. The provision of 300,000 square feet of retail space – which formed part of the “bolder” scheme proposed by NRL – was a “very substantial change” from the terms of the procurement that had been initiated by the published contract notice. The Council had thus failed to publish a contract notice for the contract which was to be awarded, and the remedy of ineffectiveness should be available.

It was accepted by AEW that the OJEU contract notices was, in itself, valid. The judge commented that the PCR do not specifically legislate for what is to happen when there is a perfectly valid contract notice, but where the contract which is subsequently let goes beyond what is set out in that notice. The main arguments in this case concerned the applicability of an earlier High Court decision in the Alstom[3] case. Alstom concerned a “qualification notice” under the Utilities Regulations, so the question was whether the same approach should apply to contract notices under the PCR. In Alstom the court adopted a “mechanistic” test on the existence or absence of a qualification notice, as long as the test was not so mechanistic as to produce an answer which is “pure form and no substance at all”.

The judge took a similar approach in this case. He concluded that, in the context of the first ground of ineffectiveness, there is nothing in Part 2 of the PCR which requires a further notice (call for competition) in circumstances where there is a wholly valid OJEU contract notice and the contract ultimately let substantially relates to the advertised project. He commented that the application of the mechanistic test for whether or not a contract notice has been published should involve a “broad-brush approach”. The reason for this approach was pragmatism. The judge noted that ineffectiveness is a draconian remedy which brings an otherwise lawful contractual relationship to an end. This might indicate a certain aversion on the courts’ part to making such a declaration, with the potentially disruptive consequences it could have for major projects. The judge did not, however, accept that the only circumstances in which the first ground for ineffectiveness is available is where there has been no call for competition at all. The judge thus left the door open to an argument that, in some cases, there will be insufficient linkage between the OJEU contract notice and the contract ultimately let.

In the case of the Basingstoke Leisure Centre procurement the judge was satisfied that there was a sufficient connection between what was advertised in the published notice and the resulting Development Agreement, and therefore that the remedy of ineffectiveness was not available.

This case does raise some interesting questions. In reaching his conclusion that there was a sufficient connection between the notice and the resulting contract, the judge considered:

*  whether the notice “substantially related” to the contract
*  what was within the “commercial purview” of a reasonable tenderer
*  whether a “reasonably close relationship” existed between the notice and the contract and 
*  what was and was not “ancillary” to the main development.

Questions of what is “sufficient”, “ancillary”, “substantial” and “reasonably close” are not mechanistic questions; they require a qualitative assessment. The judgment will provide contracting authorities with some confidence that a modified contract should not be declared ineffective where a contract notice has been published. However it does not close down the possibility of argument over whether a “sufficient connection” between notice and contract exists, and that question will still have to be considered carefully by authorities on a project by project basis.

There is also a question about how the reasoning in AEW fits with Regulation 72 of the PCR, which provides that a “substantial modification” to a contract (among other forms of modification) requires a new procurement procedure. A new procedure should by definition be commenced by a new notice. Failure to publish a notice when one is required gives rise to the first ground of ineffectiveness. But AEW suggests that even a “substantial modification” would not be declared ineffective as long as there was a “sufficient connection” between the modified contract and the published notice. This would mean that the only remedy available in respect of unlawfully modified contracts (as long as a notice had been published) is damages. That would be surprising. The court may have to consider the relationship between “substantial” in Regulation 72, and “sufficient connection” as applied in AEW, in order to provide clarity on this point.

 

[1]    AEW Europe LLP & others v Basingstoke and Deane Borough Council and Newriver Leisure Ltd [2019] EWHC 2050 (TCC)
[2]    Regulation 99, Public Contracts Regulations 2015, SI 2015 no.102. The PCR 2006 were the regulations applying at the time of the award of the contract, but it was agreed in this case that the relevant provisions in the PCR 2006 and PCR 2015, for all practical purposes, are in substance the same.
[3]   Alstom Transport v Eurostar International Limited [2011] EWHC 1828 (Ch).