Midlands Co-Operative Society Ltd, R (on the application of) v Tesco Stores Ltd

A land disposal is not a public works contract merely because the authority intends, or expects, development to occur. The procurement rules require a direct or indirect obligation which is legally enforceable against the contractor to carry out specified works. The court must examine the arrangements as a whole, but aggregation cannot create an obligation which the parties have not assumed.

The duty to obtain the best consideration reasonably obtainable on a disposal of public land is outcome-focused, rather than a duty to adopt a particular process. The adopted marketing and valuation process remains relevant evidence, especially where the price is commercially confidential. A challenge is determined on ordinary public law grounds.

The claimant challenged Birmingham City Council’s decision to sell its interest in a community and indoor bowls facility to Tesco and its decision in principle to authorise a compulsory purchase order supporting Tesco’s proposed redevelopment of an 11-acre site at Stirchley.

The claimant argued that the disposal formed part of a public works contract contrary to the Public Contracts Directive and the Public Contracts Regulations 2006. It also alleged breach of the duty under section 123(2) of the Local Government Act 1972 to obtain the best consideration reasonably obtainable, procedural unfairness, breach of legitimate expectation and failure to take account of material considerations.

1. Permission and outcome. Permission to proceed was granted at the rolled-up hearing, but the substantive judicial review was refused on every ground.
2. Procurement. A public works contract requires a direct or indirect obligation, legally enforceable under national law, to carry out the works. The arrangements must be considered as a whole. Separate agreements may nevertheless form a single transaction where, at the time of the land transaction, the parties are legally committed to the works. Separating a binding development obligation into another agreement cannot avoid the procurement rules.
3. The relevant planning permission and section 106 agreement did not impose a present obligation on Tesco to develop the site or perform replacement works. The obligations arose only if the permission was implemented, and Tesco was free not to proceed. The Council’s statutory power to provide recreational facilities and its declaration that the facility was surplus to requirements did not create an obligation on Tesco. The procurement ground therefore failed.
4. Best consideration. Section 123(2) imposed a duty to achieve the best price reasonably obtainable, not to follow a prescribed sale process. The process adopted could nevertheless be important evidence, particularly where the consideration was confidential. The informal open tender was rational and adequate for the limited and sophisticated market. The 50 per cent deposit and tender timetable were not shown to have deterred serious bidders.
5. The evidence established that Tesco’s offer substantially exceeded relevant valuation benchmarks and comparable transactions. Tesco was a special bidder with a strong commercial incentive to secure the land. The Council was entitled to conclude that the price represented the best consideration reasonably obtainable. The second ground failed.
6. The legitimate expectation relied upon arose in the context of the First Tender Process and did not survive its termination. The CPO decision of 14 March 2011 had been made on the mistaken basis that the claimant had abandoned its planning permission. The Council accepted that a fresh first-stage CPO decision was required, but the remaining grounds did not justify relief.