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Councillor wins procurement judicial review over £165m city centre scheme

A councillor at Winchester City Council has won a High Court judicial review challenge over the local authority’s decision to adopt an updated scheme for a £165m city centre redevelopment without conducting a procurement exercise.

The claimant in Gottlieb, R (On the Application Of) v Winchester City Council [2015] EWHC 231 (Admin) brought proceedings over Winchester’s decision on 6 August 2014 to authorise variations to a contract with a developer for the scheme in the Silver Hill area of the city.

The development agreement had been entered into in 2004 and before the European Court of Justice decision in Auroux v Roanne. There had been no procurement at that stage.

Cllr Gottlieb leads the Winchester Deserves Better campaign that opposes the scheme, arguing that the scheme is poorly designed and over-sized for the setting. He is also concerned that under the terms of the variation, affordable housing and civic amenities have been removed from the scheme.

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The claimant’s case was based on one ground, namely that Winchester’s decision was unlawful because, having varied the terms of the development agreement, the council was required to carry out a procurement exercise under Directive 2004/18/EEC of 31 March 2004 and the Public Contracts Regulations 2006.

Cllr Gottlieb 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, therefore, were such as to demonstrate the intention of the parties to renegotiate the essential terms of the contract.

According to the councillor, who was advised by Monckton Chambers’ Robert Palmer and law firm Dentons, the variations changed the economic balance of the contract in favour of the developer in a manner which was not provided for in the terms of the initial contract.

Winchester insisted that the variations were not materially different in character. It argued that they had been made in accordance with variation clauses in the development agreement, and they did not change the overall nature of it. They still fell within the scope of the original brief, the council maintained.

The local authority also said it had taken independent professional advice which stated that the changes did not alter the economic balance in favour of the developer. Rather, it argued that the development agreement, as varied, was a more favourable arrangement than the council would be likely to obtain in the market.

But Mrs Justice Lang ruled in favour of Cllr Gottlieb and quashed the council’s decision.

The High Court judge applied the Pressetext ruling on material variations. She said she considered the variations to the contract in 2014, taken as a whole, “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”.

She went on to conclude that Winchester’s decision to authorise variations to the development agreement, without carrying out a procurement process as required by Directive 2004/18/EC and the Public Contracts Regulations 2006, was unlawful.

Mrs Justice Lang decided that the case could be distinguished from Mrs Justice Andrew’s recent ruling in Edenred [in relation to the Treasury’s delivery of tax-free childcare and which also covered the issue of material variation].

In that case Mrs Justice Andrews said variations to a contract would not be material unless the evidence demonstrated that “there would be someone else who would have been ready, willing and able to bid, who would have wished to have done so if the opportunity had been made clear, but who did not do so because it was not.”

Mrs Justice Lang noted, however, that in Edenred there had recently been a full tendering process and so the unsuccessful bidders and those who had expressed an initial interest could all be identified.

“The claimant in this case is in a more difficult position, as no tendering process has ever been carried out, and so he cannot identify any actual or potential bidders who were deterred or disadvantaged,” Mrs Justice Lang said.

“The requirement suggested by [the QC to Winchester] would have the undesirable consequence of placing a defendant who fails to comply with any procurement requirements in a better position than one who does.”

Mrs Justice Lang said the task of the court was to apply the test in Pressetext on the evidence before it.

Evidence of actual or potential bidders might assist but it was “not a pre-requisite”, she found. “Here the claimant relies on evidence of the commercial appeal of this development contract to potential developers, and the significantly more favourable terms offered in 2014, compared with 2004. In my judgment, the claimant has 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 is not required to identify actual potential bidders.”

In a statement Winchester’s Leader Cllr Robert Humby said the High Court ruling was “clearly disappointing” and ran against the external legal advice it had received on the matter.

“The case for the regeneration of the Silver Hill area has always been strong, and has cross-council support,” he added. “With that in mind, I think the council was quite right to proceed with the project, a decision which was backed up by clear legal advice. However, it is never easy to predict the outcome of a judicial review, and we must acknowledge the judge’s ruling.”

Cllr Humby said officers were considering with legal advisers the council’s next steps, including the possibility of an appeal.

“Meanwhile, it is important to note the courts have not overturned the decision of the Planning Committee last December, so there is still a viable scheme which has democratic support and could be developed,” he added.

“Nor have they contradicted Deloitte’s conclusion that the approved scheme offered the council ‘best consideration’. What is now at question is our ability to work with TIAA Henderson Real Estate within the framework of the Development Agreement.”

Winchester’s Leader said he had asked officers to advise on whether it was possible to rectify the omission identified by Mrs Justice Lang to allow the council to comply with her decision.

“I have also asked officers to advise on other options open to us, including whether we should abandon the existing approved scheme and begin again,” he said. “To start again will require public consultation on options, approval of a masterplan for a preferred option, procurement of development partners and, quite possibly, a further Compulsory Purchase Order being sought.”

Whatever option was chosen it would have financial consequences, Cllr Humby warned. He added that this was “not a matter which can be rushed”. An independent review of decision-making on the matter will also be held.

Commenting on the ruling, Robert Palmer of Monckton Chambers said: “The case is notable for the finding that where the court is considering a development contract or concession contract, the commercial value will be judged by the potential profits to be obtained from third parties, not just the awarding authority: the financial terms between the parties are not the only consideration.”

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