Council defeats High Court bid for declaration of ineffectiveness over development agreement

A High Court judge has dismissed a property investment company’s bid for a declaration of ineffectiveness of a contract entered into by Basingstoke and Deane Borough Council for a major regeneration scheme.

The proceedings in AEW Europe LLP & Ors v Basingstoke And Deane Borough Council [2019] EWHC 2050 (TCC) concern the regeneration of Basingstoke Leisure Park which has hosted a number of leisure facilities, including a multiscreen cinema, swimming pools and lagoon area, gym facilities, an ice rink, restaurants, and other services.

The Leisure Park was set up in the 1990s, away from the town centre, with most of the larger facilities let on 100-150 year ground leases.

By 2011-2012 the council began to consider in detail the possibility of developing (or redeveloping) and the regeneration of the Leisure Park.

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Because this was going to involve a public procurement which was subject to the Public Contracts Regulations 2006 as amended (PCR), a notice was posted in the Official Journal of the European Union on 21 June 2013.

Although there were numerous expressions of interest for the initial stage of the tendering process, only two bids were submitted apparently in accordance with Basingstoke's published evaluation criteria. One of those bidders was the interested party in the case, Newriver Leisure Ltd ("NRL").

Although both bidders were invited to proceed to the second stage which involved the submission of detailed proposals, only NRL submitted a final, more detailed bid. Negotiations proceeded with NRL and as from 2 April 2015 NRL and Basingstoke proceeded on the basis of an "exclusivity" agreement.

Later in 2015 NRL proposed that what was described as a "more bold scheme" could be developed which would effect "a complete regeneration and expansion of the leisure offer but this would include a greater level of retail on site".

Proposals for this scheme began to be developed and were submitted by April 2016. A report was prepared (the Cabinet Report) to be laid before the Basingstoke Cabinet at its meeting on 12 April 2016 which set out NRL's latest proposals in relation to the proposed development which involved the complete redevelopment of the existing Leisure Park such that the leisure facilities would double in size and be restructured into a series of leisure zones and, as the Cabinet Report indicated, "up to 300,000 sq ft of retail space, provided as a designer outlet centre [would] be incorporated".

The Cabinet Report indicated that legal advice from solicitors and leading counsel had been obtained in relation to, amongst other things, whether the proposal "remained within the procurement process”.

The Cabinet resolved to follow the recommendations of the Cabinet Report to the effect that Basingstoke would enter into Heads of Terms with NRL and into a Development Agreement and Lease in respect of the Leisure Park redevelopment. The Cabinet decision became effective from 14 June 2016 upon the decision of Basingstoke's Overview and Scrutiny Committee.

By late 2015 or at some stage in 2016, the first named claimant, AEW Europe LLP, acquired or set up various retail investment properties in Basingstoke (Festival Place) and, as it became aware of the later proposals either generally or in detail, its solicitors began to contact Basingstoke from early December 2016 onwards, as was evident from its letter dated 13 October 2017 to the council.

As that letter made clear, AEW had concerns as to the conduct of the procurement following a statement issued publicly by Basingstoke in April 2016 to the effect that the procurement up to that time had been conducted in a compliant manner.

The negotiations which culminated in the Development Agreement which was entered into on 19 March 2018 between Basingstoke and NRL had started after the Overview and Scrutiny Committee's decision such that by January 2018 there was substantive agreement in relation to Development Agreement, albeit that there were some minor and non-material alterations before it was formally entered into.

AEW and the second and third named claimants, said in their pleadings with others to be the owners and managers of the existing Festival Place retail facility in the centre of Basingstoke, issued proceedings against the council on 17 September 2018 in the Technology and Construction Court seeking, amongst other things, a "declaration of ineffectiveness in respect of the March 2018 Contract" as well as damages.

However, Sir Robert Akenhead rejected the claimants’ application on this issue, concluding that a declaration of ineffectiveness was unavailable in this case.

The judge said that in this case, as in Alstom Transport v Eurostar International Limited [2011] EWHC 1828 (Ch), a wholly valid OJEU notice had been published.

“There is nothing in Part 2 of the PCR which on analysis requires the giving a further requisite Notice (the "call for competition" in Regulation 26 (2)) in circumstances such as the present where there has been a wholly valid OJEU Notice issued and the contract ultimately let substantially relates to the advertised project,” Sir Robert said.

The judge said the ‘mechanistic test’ outlined by Mann J in Alstom for determining whether the grounds existed for granting a declaration of ineffectiveness should be applied in this instance.

“The primary reason for this approach 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,” Sir Robert said.

He added that this case was a good example: “proceedings issued 10 months ago, another year of proceedings probably required to determine the factual background and merit, if any, of the Claimant's claim, the incurring of hundreds of thousands of pounds in terms of costs of the legal proceedings and the consequential economic uncertainty of whether the Leisure Park will start to be redeveloped much before 2022 (four years on from when the contract in question was let).”

It was legitimate in interpreting statutory regulations such as this to have regard to a realistic approach, the judge continued.

Sir Robert found that there clearly was “a sufficient and indeed close connection between the OJEU Notice issued in this case and the Development Agreement”. Not only did the OJEU Notice ‘spark’ the development agreement, they were closely related.

He also said what was “unchallengeable” was the fact that “undoubtedly there is a reasonably close relationship between the Development Agreement requirements and the OJEU Notice and the ISOP (incorporated by reference). For instance, it is undoubtedly clear that a substantial majority of the proposed square footage for the new Leisure Park development is leisure.”