07/05/2019

Further reflections on Faraday Development Limited v West Berkshire Council[1]

In our first article on Faraday we looked at the Court of Appeal’s decision on the issue of when a land development arrangement falls within the definition of a works contract and so is subject to the Public Contracts Regulations 2015 (as amended) (“PCR”). 

In this article we consider the Court of Appeal’s rulings in relation to voluntary ex ante transparency notices (“VEAT notices”) and limitation periods (i.e. the time within which a claim can be brought).

The Faraday case concerned a decision by West Berkshire Council to enter into a development agreement with St. Modwen Developments Ltd (St. Modwen) for the redevelopment of an industrial estate in Newbury, much of which was owned by the Council. The development agreement was entered into following a competitive process. The competition was not a procurement process run under the PCR because the Council took the view that the arrangement was a land transaction which was not subject to the PCR. The Council chose, however, to publish a VEAT notice in the Official Journal of the European Union, notifying the market of its intention to conclude the contract.

VEAT notices are a commonly used means of ascertaining – and mitigating – the risk of a procurement challenge. Properly drafted they can provide an absolute defence to a claim for a declaration of ineffectiveness under the PCR.

However, an invalid VEAT notice provides little or no such protection, and so can, where a contract is entered into, expose a contracting authority to the risk of a declaration of ineffectiveness and a fine.  

The Regulations

The “first ground of ineffectiveness” applies where an above threshold contract has been awarded without prior publication of a contract notice, in circumstances where prior publication was required by the PCR. The first ground does not apply if all of the following apply:

  1. The contracting authority considered that awarding the contract without prior publication was permitted by Part 2 of the PCR (sometimes referred to as the “good faith” requirement);
  2. The contracting authority has published a VEAT notice;[2] and
  3. The contracting authority has “stood still” for 10 days after publication of the VEAT notice.[3]

A VEAT notice must contain (1) the name and contact details of the contracting authority, (2) a description of the object of the contract, (3) a justification of the decision to award the contract without prior publication of a contract notice, (4) the name and contact details of the economic operator to be awarded the contract, and (5) where appropriate, any other information which the contracting authority considers it useful to include.[4]

The general time limit for starting proceedings (for example where the challenger seeks a damages remedy) is 30 days beginning with the date on which the claimant first knew or ought to have known that grounds for starting proceedings had arisen. This can be extended up to three months from that date, where the court considers there is good reason to do so.[5]

Where a claimant seeks a declaration of ineffectiveness the time limit for starting proceedings has a “long stop” of six months from the day after the contract is entered into.[6]

The arguments in Faraday

The VEAT Notice

The Council’s VEAT notice stated that the development agreement was an “exempt land transaction” and not a public works contract because (1) the developer (St Modwen) was not under a binding obligation to undertake any works, (2) the Council had not specified the requirements for any works, and (3) the Council did not exercise any influence on the type or design of any works.

The Council argued that a declaration of ineffectiveness was not available because a valid VEAT notice had been published and the Council had “stood still” for 10 days after publication. Faraday argued that the description of the contract and the Council’s justification were inadequate, and that the VEAT notice was therefore invalid.   

The European Court has previously confirmed[7] that a VEAT notice must contain a “clear and unequivocal explanation of the contracting authority’s reasons” for concluding that it was entitled to award the contract without prior publication of a contract notice.

The Court of Appeal in Faraday held that this requirement had not been complied with in Faraday, and that the VEAT notice “did not say all that it should.” The Council’s description of the contract as an “exempt land transaction” was “incorrect or at best misleading” because the scope of the contract extended far beyond the mere disposal of land. Furthermore, the statement that the contract imposed “no binding obligation” only presented a partial and misleading picture. In fact the contract imposed several obligations on the developer, albeit contingent ones. The information given in the VEAT notice did not do enough to alert the market to the “real nature of the transaction.” The Court of Appeal ruled that these deficiencies rendered the VEAT notice invalid such that it did not prevent the court from making a declaration of ineffectiveness.

A related issue was also whether the Council had “acted diligently” and “could legitimately hold” that there was no need for a public procurement procedure.  In light of the finding that the VEAT notice did not describe the nature of the transaction with sufficient transparency, the issue of “diligence” or “good faith” (as it is often referred), was not fully explored in the judgment however this appears a likely area for future judicial comment.

As the Court of Appeal made a finding of ineffectiveness, it also imposed a fine.  The Court imposed only a nominal fine of £1.   

The Limitation Period

The Council’s VEAT notice was published on 14 August 2015, and the contract was entered into on 4 September 2015. Faraday issued a judicial review claim on 20 November 2015, and a claim under the 2006 Regulations on 8 January 2016.

The claim for ineffectiveness was clearly brought within the six month “long stop” period so there was no issue in respect of that.

In relation to a claim seeking a remedy other than ineffectiveness, the Court of Appeal confirmed that the 30 day time limit still applied.  In other words, a claim for ineffectiveness did not extend the time period for a claim for damages.

In relation to the 30 day time limit for remedies other than ineffectiveness, Faraday confirmed that it was “aware of the contract” on 9 September 2015, but the contract itself was only disclosed to it (in redacted form) on 10 December 2015. The Council argued that Faraday knew or ought to have known that grounds for bringing proceedings had arisen in September 2015 or certainly no later than 20 November 2015, when it issued its judicial review claim.

The Court of Appeal disagreed, holding that Faraday could only have been sure of the terms of the contract when it was disclosed in December 2015. However, even if time ran from before that date the Court confirmed that it would exercise its discretion to extend time.

Key lessons for contracting authorities and bidders

  1. In order to protect against ineffectiveness, VEAT notices will need to contain full and transparent details of the proposed contract. The standard form only allows 500 words for the authority’s justification. Authorities should ask themselves whether a third party would understand the true nature of the contract and the authority’s justification from the information provided. If in doubt, err on the side of disclosure and transparency.
  2. Authorities may consider providing a link within the VEAT notice to a summary or redacted version of the relevant agreement in order that the market can see for itself the key terms. An alternative tactical approach might be to say all that can reasonably be said within the confines of the notice itself.  What is appropriate will need to be considered on a case by case basis.
  3. We can expect more judicial development of the concepts of “good faith” and “diligence” in relation to reliance on a VEAT notice. An authority should be able to show that it has given the matter sufficient consideration including appropriate fact finding, taking legal advice and reasonable decision-making.
  4. Whilst only a nominal civil financial penalty (£1) was imposed on the Council in this case, authorities should certainly not assume that a nominal civil financial penalty will be the norm when a declaration of ineffectiveness is made.
  5. The Court of Appeal’s comments in respect of limitation were arguably generous (and this issue was, in the event, largely academic given that the claim for ineffectiveness was brought “in time”). Bidders should not assume that time will only start to run once documents are disclosed to them. Pre-action disclosure often happens piecemeal in procurement disputes and bidders need to keep under constant review whether they know or ought to know that they have grounds for bringing a claim. The 30 day limitation period will not be extended lightly.

 


[1]               Faraday Development Limited v West Berkshire Council [2018] EWCA Civ 2532

[2]               Whilst the UK remains a member of the EU notices are required to be published in the Official Journal of the European Union (OJEU). In the event that the UK leaves the EU with a deal the requirement to publish in the OJEU will continue during the transition period.  In the event of a no-deal Brexit, a replacement UK e-notification service should be used.

                See: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790425/PPN-0219.pdf

[3]               Regulation 47K of the Public Contracts Regulations 2006 and Regulation 99 of the Public Contracts Regulations 2015. Faraday was decided under the 2006 Regulations but the relevant provisions are substantively the same under the 2015 Regulations.  

[4]               Regulation 99(4) of the 2015 Regulations, and Regulation 47K(4) of the 2006 Regulations.

[5]               Regulation 92 of the 2015 Regulations, and Regulation 47D of the 2006 Regulations.

[6]               Regulation 93 of the 2015 Regulations, and Regulation 47E of the 2006 Regulations.

[7]               C-19/13 Ministerio dell’Interno v Fastweb SpA ECLI:EU:C:2014:2194