Court of Appeal overturns development contract following breach of procurement rules

A recent Court of Appeal decision has potential implications for contracting authorities when deciding whether a development agreement is subject to procurement rules.  In Faraday Development Ltd v West Berkshire Council, the Council had entered an agreement giving a developer the option to activate a lease at a future point.  If the developer activated the lease, this would in turn trigger an obligation on it to develop.

The Council believed that since at the date the agreement was entered, there was no obligation on the developer to develop the land or take the lease, the award of the contract was not subject to the requirements of a formal procurement process (under the predecessor regulations to the Public Contracts Regulations 2015).  Faraday learnt of the contract award following the publication of a “voluntary transparency notice” by the Council, and brought a claim contending that the contract was an illegal “direct award” that ought to have been subject of a full procurement process.

The High Court ruled in favour of the Council, but the Court of Appeal has now overturned that ruling.  It also dismissed the Council’s argument that its “voluntary transparency notice” had nonetheless been sufficiently clear to meet the requisite “clear and unequivocal disclosure”, which would otherwise have enabled the Council to ask the Court to refuse to declare the contract ineffective.  The parties therefore agreed to the Court making a “declaration of ineffectiveness”, overturning the contract from the date of the declaration and also imposing a nominal £1 fine on the Council.  The level of the fine likely reflects the Council’s lack of deliberate intention to structure the transaction so as to avoid the procurement rules, but it remains to be seen whether this approach will be followed in similar cases.

It is also unclear whether the Council will appeal to the Supreme Court, but the judgment means that those involved in development contracts should consider the contractual obligations in the round when deciding whether procurement rules apply to development contracts.  Parties needing to draft voluntary transparency notices should also ensure they meet the necessary transparency standards.  A fuller analysis of the decision and its implications appears on Mills & Reeve’s procurement portal.

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