Supermarket Wars
Posted: Monday 2 July 2012
We recently gained an insight into how the domestic courts will interpret the Muller case in the recent decision of the English High Court in R (on the application of Midlands Co-Operative Society Ltd) v Birmingham City Council and Tesco Stores.
After a fairly chequered procurement history, Birmingham City Council contracted with Tesco for the sale of Council owned land forming part of a larger development site. The Council land housed a community centre which, in the event that the larger development went ahead, needed to be relocated off-site. Tesco were granted planning permission for the development and entered into a Section 106 Agreement with the Council. The Agreement was worded in such a way that the obligations on Tesco would only become enforceable in the event that Tesco chose to implement the planning permission; there was no positive obligation on Tesco to carry out the works detailed in the planning permission itself, although they would have lost a hefty 50% deposit should they have chosen not to go ahead. The Co-op challenged this award by way of Judicial Review.
The High Court held that, where the deal was structured in this way, there was no breach of the procurement rules. At the time that the land sale was contracted for, there was no enforceable legal obligation on Tesco to carry out works and therefore the contract could not be considered to be a public works contract. The obligation only occurred once Tesco commenced construction in terms of the planning legislation. The Court also noted that, even if there were enforceable obligations on Tesco at the point of the land sale, further consideration would need to be given to establish whether the stipulated works were merely requirements in terms of planning legislation, but this point was not considered further.
The case provides welcome clarification to local authorities on when works required in respect of a development fall into the sphere of public procurement, and how far local authorities can go in avoiding the procurement rules being invoked. In particular, the following part of the judgement is useful, “The Council cannot be criticised for formulating a strategy with regard to the development of the Site that, whilst having other downsides (including absence of development obligations it could enforce against a successful tenderer) avoided the onerous obligations of the Public Works Directive and the 2006 Regulations”.
To discuss this case further please contact Suzanne McCord on 0131 247 1325 or email suzanne.mccord@morton-fraser.com.
