Public Procurement: Court of Appeal considers Concession Contract Regulations

The Court of Appeal has handed down its judgment in the case of Ocean Outdoor UK Limited v The London Borough of Hammersmith & Fulham

18 October 2019

The Court of Appeal has upheld the first instance decision in Ocean Outdoor UK Limited v The London Borough of Hammersmith & Fulham, providing helpful guidance on the scope and application of the Concessions Contracts Regulations 2016 (the “CCR”) and the availability of damages in procurement cases.

What were the facts?

Ocean Outdoor leased land owned by the local Council (Hammersmith and Fulham) between 2010 and 2017. The land was situated next to the Hammersmith Flyover and featured digital advertising screens. Following a lease renewal process, in which Ocean Outdoor were comprehensive outbid by Outdoor Plus Limited, the Council awarded the leases to Outdoor Plus Limited. Ocean Outdoor challenged the outcome of the renewal process on the basis that the process was in fact governed by the CCR and was therefore unlawful, as it was common ground between the parties that the process lacked the necessary formalities that would apply to a CCR-governed process. Ocean Outdoor sought damages from the Council as a result of the alleged breach of the CCR.

First Instance Decision

At first instance, the Court found against Ocean Outdoor on the basis that the leases in question were not service concession contracts within the meaning of the CCR. The Court held that:

  • To be classed as a services concession, a contract must entrust the provision and management of services to an economic operator, and that those services must be for the benefit of the contracting authority (or its residents) in furtherance of the authority’s strategic objectives or statutory obligations. The services in this cases were commercial in nature not provided for the benefit of the Council or its residents.
  • The leases did not constitute “contracts for pecuniary interest” within the meaning of the CCR because they did not impose any legal obligation on Outdoor Plus to provide any service.
  • Even if the leases could be construed as service concession contracts, they were “genuine leases” and therefore excluded by the land transaction exemption (Reg. 10(11) CCR).

Court of Appeal Decision

The Court of Appeal considered three main issues relevant to liability, and also considered the position in relation to damages.

  1. Were the leases “service concession contracts”?
  2. The Court of Appeal considered the history and intentions behind the Concessions Directive and the CCR, as well as relevant case law, and concluded that it agreed with the first instance decision on this point (i.e. that to fall within the definition of a service concession contract, there must be a direct link between the authority’s obligations and the services being provided: the services must “obviously be in the public interest”). As a matter of general principle, the services covered by the CCR are those that would otherwise be provided by the authority as part of its statutory obligations or to further its strategic objectives.

    The Court also emphasised the need to carefully consider the application of the procurement rules on a case-by-case basis, rather than adopting a blanket assumption that all contracts entered into by a local authority will be covered by the rules.

    Taking into account its findings above, the Court agreed with the majority of the reasoning at first instance as to why the leases in this case did not constitute service concession contracts. There was no benefit to the Council or its residents from the leases, and the advertising provided under the leases was unrelated to the Council’s objectives or public obligations. The Court drew a distinction between this case and the first instance decision in Group M UK Limited v Cabinet Office, where the advertising in question was in respect of government information and was therefore plainly part of the authority’s statutory and legal obligations.

  3. Were the leases “contracts for pecuniary interest”?
  4. The Court considered the key features of a typical concession arrangement, concluding that in a paradigm concession contract, the authority transfers the right to a third party to exploit a business opportunity by providing a service to members of the public for whom the authority is obliged to provide those services (e.g. residents who need car parking). The Court considered it was difficult to fit the facts of this case to such a typical arrangement, and instead considered the leases to be “an authorisation to exercise an economic activity (namely the selling of advertising)”.

    On the basis (as determined at first instance) that an “essential requirement of a contract for pecuniary interest is that the contractor assumes a direct or indirect obligation to carry out the services that form the subject of the contract; and that such obligation is legally enforceable”, the Court concluded that the leases were not contracts for pecuniary interest. There was no direct obligation within the leases on Outdoor Plus to provide any advertising services – only “a relatively vague mechanism to encourage Outdoor Plus not to let the screens sit there blank”. 

  5. Did the land exemption apply to the leases?
  6. The Court noted the broad definition of the land exemption set out in Reg. 10(11) CCR and concluded that the lease were genuine leases and not contracts to provide advertising services – in fact “this was precisely the sort of situation which the land exemption was designed to cover”. The purposes of the leases was to provide exclusive possession of the relevant pieces of land, and the fixed rent payable was not conditional on or affected by the advertising sold. 

  7. Damages

Although the Court determined that the CCR did not apply to the leases (and therefore no damages could be claimed), the Court went on to consider the position in relation to damages as a matter of general principle.

The Court recited the principles applicable to damages claims as set down by the Supreme Court in EnergySolutions EU Limited v Nuclear Decommissioning Authority. The Court confirmed the position that there is no automatic entitlement to damages for any breach of the procurement rules – damages are only available where the breach is sufficiently serious, which will depend on the facts of each case, rejecting the submission that “The mere fact of non-compliance with the Regulations, without more, can be regarded as sufficiently serious”.

The Court also rejected Ocean Outdoor’s assumption that the loss of a chance principle relieves the claimant from the obligation to establish a causal connection between the breach and the loss. In procurement cases, the Court concluded that the loss of a chance principle is most likely to arise “where there is a close comparison between the unsuccessful and successful bids, and where it can be shown that the illegality in the tender process may have contributed to the rejection of the losing bid”. This was “manifestly” not the case here given the extent to which Ocean Outdoor was outbid – there was therefore no uncertainty as to the hypothetical outcome of a lawful competition as Ocean Outdoor would still have lost (this was “a paradigm example of where damages…would never have been recoverable”).

The Court of Appeal therefore upheld the first instance decision that Ocean Outdoor was not entitled to claim damages in any event.

Comment

This judgment provides a helpful addition to the very limited body of case law regarding the scope and application of the CCR, although some important questions remain unanswered, principally around how far a contracting authority’s “public obligations” reach. Certainly the Court seemed to be of the view that the majority of a local authority’s contracts will not be covered by the procurement rules (“some will be caught by the Regulations: most will not”), indicating that the Court does not underestimate the number of contracts which may be entered into for commercial, rather than purely public, purposes.

The judgment also provides further guidance on the availability of damages as a remedy, which is likely to be welcomed by contracting authorities but criticised by bidders who argue that they already face significant obstacles in obtaining effective remedies in procurement cases. In particular, the judgment does not take into account that in some cases there may have been a manifest failure by the authority in its approach to the award of a contract or the design of a procurement process. In such cases, although damages payable on the loss of a chance principle may not be appropriate, it is at least arguable that damages on some basis should be available as a means of incentivising proper procurement behaviour by the authority.

Key contact

Laura Wisdom

Laura Wisdom Director

  • Public Sector
  • Defence
  • Procurement
  • Infrastructure

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