AEW and others v Basingstoke: confirming the limits on availability of the Ineffectiveness Remedy

Importance

This decision (1) is the first case, so far as the writers are aware, in which the Court has considered a Declaration of Ineffectiveness (DoI) in a case in the context of the Public Contracts Regulations 2015 (PCR). (2)

The Facts

In March 2018, Basingstoke and Deane Borough Council (BDBC) entered into a development agreement (DA) with NewRiver Leisure Limited (NR) to redevelop Basingstoke Leisure Park, which contains an aquadrome, cinema and other leisure assets, and adjoining land. That contract award followed a process commenced in June 2013 with an OJEU Notice. Fifty-two expressions of interest were received but only NR and another bidder submitted initial bids. Neither AEW nor the other claimants responded to the OJEU Notice or professed any interest in taking part in the competition.

The process continued and in the event only NR submitted a final bid. That bid offered redevelopment of the leisure assets funded by a "Designer Outlet Centre" of retail outlets.

AEW bought Festival Place, a shopping centre in the centre of Basingstoke, in December 2015, so had an interest in how that shopping centre might be affected by the development of the Leisure Park. The DoI issue was dealt with via a 2-day preliminary issue trial (PI trial) heard by the TCC earlier this month and judgment was handed down on 26 July, just 9 days after the PI trial concluded.

In order to render the matter suitable for handling as a preliminary issue, the PI trial proceeded on the basis of an assumption in identical terms to that made for the purposes of the strike-out application in the Alstom case, so that it was assumed that

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

The Arguments

AEW sought to argue that the assumption effectively determined the case, and that Alstom should be distinguished on the basis that the case had dealt with a procurement based on a qualification system notice, such that no further OJEU Notice was required even if the authority (Eurostar in that case) had been required to abandon the process and re-commence an award procedure; it could, AEW argued, simply have reverted to the pool of qualified contractors.

The Judgment

In a relatively brief judgment, Sir Robert Akenhead rejected AEW's assertions, reaffirmed Alstom and decided the preliminary issue in favour of BDBC and NR.

In particular the judgment rejected the assertion that Alstom dealt only with the position under procurements utilising a qualification system. A close reading of that judgment strongly suggests that Mann J was seeking not to limit his conclusions solely to such situations.

Consequences of the Judgment

The Court considered it noteworthy that the PCR do not specifically legislate for what is to happen when there is a valid OJEU Notice but the contract which is let nominally pursuant to the procurement process in question goes beyond what is set out in that Notice.

The Court noted that there was no objection to the original OJEU Notice, and that this was not a case (such as Faraday for example) where there had been no notice at all.

A key finding of the Court, endorsing the approach taken by BDBC and NR, was that in order to require the Court to make a DoI, more was needed than simply a divergence from the original OJEU Notice. This is in line with the reasoning of Mann J in Alstom and is reflective of the Court's concern, which the Court summarised as follows in paragraph 41 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”. "

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).

In circumstances in which there has been a process commenced by a valid notice (as opposed to those in which (like Faraday) there was no prior notice at all) a claimant is likely (correctly in the writers' view) to face a very significant burden in seeking a DoI. In such circumstances, potential bidders have remedies, of course: the problem for AEW was not the absence of effective remedies but the fact that it raised its concerns late, close to the end of the 6-month DoI limitation period. As the Court in this case noted, the reason for the mechanistic test (paragraph 44):

" …is 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."

Leaving aside "no notice" situations, this decision and the reaffirmation of the principles laid down in Alstom, will be a welcome boost to legal certainty for contracting authorities and successful bidders.

Addleshaw Goddard LLP acted for the interested party in the case, NewRiver Leisure Limited.

(1)  AEW Europe LLP and others v Basingstoke and Deane Borough Council [2019] EWHC 2050 (TCC)]

(2)  The leading case before this judgment was Alstom [2011] EWHC 1828 (Ch), decided 8 years ago, but that dealt with the utilities regulations.