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26 February 2019 | Comment |

Faraday High Court decision appealed

We published a blog in September 2016 on the High Court decision of R (Faraday Development Limited) (Faraday) v West Berkshire Council (the Council) and St Modwen Developments Limited (SMDL) (2016). This blog looks at the appeal of the High Court decision and the grounds for appeal considered.

High Court decision appealed

This decision has since been appealed by Faraday, which was allowed by the Court of Appeal in Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532 (14 November 2018). Faraday challenged the decision on the basis that the Council had breached its obligations under the Public Contracts Regulations 2006 (PCR). The judgment from the Court of Appeal provides much needed clarity regarding what will be considered a ‘public works contract’ under the PCR.

The Court of Appeal also made a declaration of ineffectiveness in relation to the agreement in the case, which is the first declaration of contract ineffectiveness made under English law since the introduction of the remedy. It means that any prospective obligations under the relevant contract are cancelled. The judgment also confirms the level of detail required in Voluntary Ex Ante Transparency (VEAT) notices.

Four grounds of appeal

Faraday appealed the High Court decision on four grounds.

Ground 1 – Was the development agreement a “public works contract”, as defined in the Public Procurement Directive (PPD)?

In order to qualify as a ‘public works contract’ a transaction must involve the contractor assuming an obligation. However, the PPD definition is not clear on whether that obligation is required to be immediate or can be contingent, and there is no available case law established to reference. Therefore, in answering the question of whether an obligation has to be immediately enforceable to be considered relevant, a court has to determine the true nature of the development agreement.

In this case, the agreement was a multi-stage contract, containing a mechanism to trigger a second-stage. The second-stage was for the completion of development works on the regeneration of council land. The agreement clearly contained details of the obligation to undertake the development works, and the precise circumstances regarding when and how it would be triggered. Once SMDL triggered the second–stage, by proceeding to draw down the land as per the initial stage of the agreement, mutually binding obligations to complete the works were to take effect under this agreement. The mutually binding obligation was a legally enforceable commitment by the Council which bound it to contract SMDL for the development works. SMDL had committed itself to the obligations that were immediately enforceable and, contingently, to those that were not, the second-stage. To that extent, SMDL was free to walk away from the agreement before it completed the public works. Therefore, it was considered that at the point that the agreement was entered into it could not be regarded as a “public works contract”.

The Court of Appeal went on to consider the implications of the trigger in Ground 2.

Ground 2 – Was it unlawful for the council to enter into the development agreement, because by doing so it committed itself to entering into a “public works contract”, without following the procedure for public procurement?

By entering this agreement, the Council had agreed to contract SMDL to undertake the public works, once the obligation had been triggered without complying with public procurement procedures. The Council was therefore agreeing to breach the regime in the future.

This was considered to be unlawful as an actual or anticipatory breach of the requirements for lawful procurement under the PCR 2006 and also under Public Law.

Faraday’s appeal succeeded on this, Ground 2.

Ground 3 – If the development agreement was not a “public works contract”, was this because the public procurement regime was deliberately and unlawfully avoided?

No evidence was produced which satisfied the Court of Appeal of an underlying unlawful purpose of the agreement or of any bad faith from the Council. However, the effect of their actions was an attempt to avoid complying with the PCR, whether intended or not.

Ground 4 – If the development agreement was not a “public works contract”, was it a “public services contract”?

The agreement, if not a public works contract, was not a public services contract. Although, the contract did contain a provision of services by SMDL, the “main object” of the contract was the transfer of land and the execution of development works. It is the main object of the contract which defines it as a works or services contract.

The Court of Appeal made a declaration of ineffectiveness of the agreement as the Council’s VEAT notice was not sufficient to prevent the declaration. The VEAT notice failed the requirements of the PCR 2006 regulations, and was considered to be incorrect and misleading in its description of the contract. This therefore highlights the importance of the notice being transparent.

For more information or advice, please contact the Commercial team.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.


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