Faraday Development Ltd v West Berkshire Council: Court of Appeal gives important guidance on development agreements and options, and declares contract ineffective

Cases

The Court of Appeal has given judgment in Faraday Development Ltd v West Berkshire Council [2018] EWCA Civ 2532 . The main judgment was given by Lindblom LJ.  The claimant’s appeal against the first instance judgment of Holgate J was allowed, and the Court made the first declaration of ineffectiveness seen in an English public procurement case since the remedy was introduced in 2009 (there has previously been one such declaration in Scotland).

The judgment provides some further guidance about the circumstances in which development agreements subject to contingencies will or will not amount to public contracts; emphasises the importance of the drafting used in VEAT notices; and has some interesting things to say about other remedy-related issues.

The judgment is substantial, but the following gives a broad explanation of what the court decided.

The contract in question was a development agreement which, although exposed to a form of competition which complied with the s. 123 duty under the Local Government Act 1972, had been awarded without compliance with the procedures applicable to public works contracts under the Public Contracts Regulations 2006 (similar issues would now arise under the 2015 Regulations). The defendant Council had concluded that the agreement would not amount to a works contract, but had been sufficiently conscious of the issue to publish a voluntary ex ante transparency (VEAT) notice.  That notice referred to the main object of the agreement as being “an exempt land transaction”, and also stated that it placed no binding obligation upon the developer.

Simplifying somewhat, the essential structure of the development agreement was that it identified the features of a proposed development of land mainly owned by the Council; required the developer to prepare more detailed proposals for submission to a steering group; and if certain conditions were satisfied, gave the developer the option to draw down parcels of land under long leases. If the developer chose not to exercise that option, it would be under no obligation to execute any works (although it would have to carry out some services); but if it did draw down the land, it would come under an obligation to develop it.

The Court of Appeal decided that:

  1. The development agreement was not a public works contract at the time when it was concluded, because it contained no immediately enforceable obligations to carry out works. Contingent obligations did not suffice, at any rate where the relevant contingency lay within the contractor’s control.
  2. Nor was it a public services contract, even though it included immediate services obligations, because the main object of the agreement was the carrying out of works.
  3. Nor was the development agreement a sham, and what the Council had done did not amount to an artificial avoidance arrangement subject to the “abuse of rights” doctrine (Lewison LJ preferred not to express an opinion about this).
  4. However, entry into the development agreement was still unlawful, because looking at the substance of the arrangements taken as a whole, they involved the Council in committing itself to the procurement of works from the developer – if the developer did draw down the land, a public works contract would come into being, and it would then be too late to carry out the required procurement. This was both a breach of the Public Contracts Regulations (actual or anticipatory), and a breach of public law (because it involved the Council in effect agreeing to act unlawfully in the future).
  5. The development agreement was not saved by the VEAT notice, which did not meet the standards laid down by the CJEU in Fastweb. The VEAT notice, in referring to a land transaction, and to binding obligations being absent, did not mention the detailed provisions for the design and execution of a large development, and so did not sufficiently indicate the nature of the transaction.
  6. It was not suggested in Faraday that the claim for a declaration of ineffectiveness was itself out of time (and that was the only relief, apart from a civil financial penalty, which it was ultimately necessary or appropriate for the Court to grant). However, the Court also indicated what the position would have been in relation to whether other claims under the Regulations were time-barred. The fact that they were combined with a claim for a declaration of ineffectiveness would not itself have stopped the ordinary 30 day time limit from applying, if the ineffectiveness claim had failed. However, this was a case in which time did not start to run until the development agreement was disclosed, and the claim was therefore in time (alternatively, it would have been appropriate to extend time).

The parties agreed, following judgment, that the Regulations made it mandatory for the Court to grant a declaration of ineffectiveness, and to order the payment of a civil financial penalty by the Council. The amount of that penalty was fixed at £1. Permission to appeal to the Supreme Court was refused.

Finally, it may be noted that there was no appeal against the aspects of Holgate J’s first instance judgment dealing with “best consideration” under section 123 of the Local Government Act 1972.

In the Court of Appeal, Nigel Giffin QC of 11KBW was leading counsel for the claimant/appellant, and Joseph Barrett of 11KBW was junior counsel for the respondent council.