Town and country planning – Development agreement – Variation – Defendant local authority authorising variations to city centre development agreement – Claimant resident applying for judicial review – Whether defendants’ making unlawful decision in failing to carry out procurement exercise – Application granted
The claimant was a resident of Winchester, a chartered surveyor, a director of a small private property investment and development company and a city councillor. He applied for judicial review of the decision of the defendant local authority, made in 2014, to authorise variations to a development agreement, entered into in 2004 with the interested party developer, to build a new mixed retail, residential and transport centre in Winchester city centre.
The claimant was a leading member of a campaign group, which opposed the scheme. He believed that it was poorly designed in terms of architecture and layout and that the buildings were oversized in their setting within the city. He was concerned that, under the terms of the variation, affordable housing and civic amenities had been removed from the scheme. The defendants considered that the development would achieve the longstanding objective of regenerating an economically weak area of the city centre. They favoured a comprehensive, rather than piecemeal development, to provide all the facilities needed to attract retail operators and customers.
The claimant contended that the variations to the development agreement were such as to require a procurement exercise to be undertaken on the ground that they were materially different in character from the original contract and demonstrated an intention to renegotiate the essential terms of the contract. The defendants argued that the variations were not materially different in character. They were made in accordance with variation clauses in the development agreement and did not change its overall nature.
The issue for the court was whether the defendants’ decision was unlawful because, having varied the terms of the development agreement, the defendants were required to carry out a procurement exercise under Council Directive 2004/18/EEC and the Public Contracts Regulations 2006.
Held: The application was granted.
In deciding whether variations to the development agreement required a procurement exercise, the test to be applied was whether the variations to the contract were materially different in character from the original contract, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract. Any material difference had to be assessed by comparing the contract as originally entered into and the contract after variation. Material variations included: an amendment to a public contract during its currency which introduced conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or the acceptance of a tender other than the one initially accepted; an amendment to the initial contract which extended the scope of the contract considerably to encompass services not initially covered; and an amendment which changed the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract. The likelihood of other economic operators bidding for the contract, had it been advertised, ought to be considered as part of the test, reflecting its underlying purpose of ensuring equal opportunity for economic operators. The reference to allowing other tenderers to be admitted or tenders accepted had to be construed broadly. It could include a range of possibilities, such as where operators had been deterred from applying by the less favourable terms but were interested in applying under the improved terms or where threshold conditions had been relaxed, enabling more operators to qualify: Pressetext Nachrichtenagentur GmbH v Republik Osterreich (Case C-454/06) [2008] ECR I-4401 applied. Edenred (UK Group) Ltd v HM Treasury [2015] EWHC 90 (QB) considered.
An increase in potential profitability for the economic operator could be a material variation. Where the court was considering a development contract or a concession contract, the commercial value would be judged by the potential profits to be obtained from third parties, not awarding authorities. The financial terms between the parties remained relevant but they were not the only consideration.
The task of the court was to apply the Pressetext test on the evidence before it. Evidence of actual or potential bidders might assist but it was not a prerequisite. In the present case the claimant relied on evidence of the commercial appeal of the development contract to potential developers. He had to satisfy the court, on the balance of probabilities, that a realistic hypothetical bidder would have applied for the contract, had it been advertised, but he was not required to identify potential bidders. Comparing the original contract terms with the varied terms, there had been material variations to the original contract which, if in place in 2004, would have provided an economic benefit to potential bidders.
The variation clause in the original contract was so broad and unspecific that it did not meet the requirement of transparency. It did not provide the information which an economic operator would need in order to assess the potential scope for variations when tendering. At best, a potential bidder would only know that applications could be made to the defendants for variations and that the effect of any variation on rental income would be a relevant factor. On the evidence, the court was satisfied, on the balance of probabilities, that a realistic hypothetical bidder would have applied for the contract, as varied, had it been advertised: EC Commission v CAS Succhi di Frutta (Case 496/00) [2004] ECR I-3801 applied.
The variations to the contract in 2014, taken as whole, had resulted in a contract which was materially different in character, such as to demonstrate the intention of the parties to re-negotiate the essential terms of the contract. Accordingly, the defendants’ decision to authorise variations to the development agreement without carrying out a procurement process as required by the 2004 Directive and the 2006 Regulations was unlawful.
Robert Palmer (instructed by Dentons UKMEA LLP) appeared for the claimant; David Elvin QC and Richard Moules (instructed by Berwin Leighton Paisner LLP) appeared for the defendants; the interested party did not appear and was not represented.
Eileen O’Grady, barrister
