On the 16 March 2012, the High Court handed down its judgment in the case of R (on the application of Midlands Co-operative Society Ltd) v Tesco Stores Ltd which discusses the applicability of principles of European procurement law in relation to land transactions. Further, the judgment provides judicial guidance on the duty to obtain best value in public contracts under the Public Contracts Regulations 2006 (“the 2006 Regulations”). This is the first UK case to deal with these issues and is therefore an important decision.
In 2010, Tesco successfully submitted the sole bid to Birmingham City Council for the sale of an area of land. The Co-op challenged this transaction on the basis that the 2006 Regulations were applicable and had not been adhered to. The basis for the Co-op’s argument was that in this case the land in question was part of a wider regeneration project with community benefit obligations agreed under s. 106 of the Town and Country Planning Act 1990. These obligations were enforceable upon relevant planning permission being obtained for the development. It was the Co-op’s view that the transaction fell within the scope of a public works contract as a result of these obligations and as such was within the ambit of the 2006 Regulations. In addition, the Co-op maintained that the contract award was invalid on the basis that Birmingham City Council had not obtained the best value for the contract as it was obligated to do under s.123(2) of the Local Government Act 1972.
The High Court held that the transaction was not a public works contract for the purposes of the 2006 Regulations. The Court did agree with the Co-op’s assertion that when considering this issue the wider context of a land transaction should be taken into account. However, the Court disagreed with the Co-op on the extent of the obligations upon Tesco. It was the Court’s opinion that since Tesco was not legally obliged to comply with the developmental obligations at the point at which the transaction concluded then the Court held that the 2006 Regulations did not apply in this case.
With regards to the second limb of the Co-op’s challenge, the Court decided that the procedure by which the Council undertook to obtain the best value of the land was not irrational. In reaching this conclusion, the Court had particular regard to the fact that the Council had obtained a valuation from an expert which indicated that Tesco’s bid represented a price within the range that could be expected at open market. Further, the Court did not consider the marketing undertaken by the Council to be clearly insufficient and held that, ultimately, it was for the Council to determine what was required by way of marketing.
It seems that the High Court could foresee criticism that this decision was founded upon the ‘technicality’ of planning permission not yet being granted. The Court was keen to point out that even if these obligations had been enforceable, it would not necessarily have followed that this transaction represented a ‘public works contract’. In doing so, the Court highlighted the factors which would have to be determined and this provides an illustration of the approach that the courts may take if such circumstances were to arise. These factors included whether the key reason for the contract was one other than the procurement of works and whether a challenge via judicial review was appropriate in terms of the 2006 Regulations.
Finally, the High Court was clearly mindful of the recent Müller judgment which clarified the difference between a local authority’s planning powers and the award of public contracts. In its judgment, the Court noted that it would have to be determined whether the obligations in question were actually within the ambit of the 2006 Regulations or simply an extension of the Council’s planning controls. Despite highlighting these issues, the Court did not consider these in any further detail. Therefore, while this case does provide some guidance as to how the Courts will tackle such cases, there are a number of points which require clarification. Further case law is required to determine how the Courts will resolve these issues.