Faraday Development Ltd, R (on the application of) v West Berkshire Council & Anor

A local authority’s duty under section 123 of the Local Government Act 1972 is an outcome duty to obtain the best consideration reasonably obtainable. The court reviews the authority’s assessment on ordinary public law grounds. There is no absolute requirement to market land or obtain an independent valuation. Deliverability, credibility and the risks affecting a bid may be commercial considerations relevant to best consideration.

For procurement purposes, the main object of a development agreement is assessed objectively by reference to the transaction as a whole and its essential obligations. A contract is not a public works contract unless the contractor is legally obliged, directly or indirectly, to carry out the works forming its main object. An option to acquire land and undertake development later does not itself create that obligation. The development agreement was therefore outside the procurement regime.

Faraday challenged West Berkshire Council’s decision to enter into a development agreement with St Modwen Developments Ltd for the comprehensive regeneration of the London Road Industrial Estate in Newbury.

The claims alleged breach of the Council’s duty under section 123 of the Local Government Act 1972, unlawful avoidance of the public procurement regime, and irrationality in selecting a development partner whose agreement did not initially require redevelopment works.

The procurement claim was transferred from the Technology and Construction Court and heard with the judicial review. The central issues were whether the Council had properly assessed best consideration and whether the development agreement was a public works or public service contract under the Public Contracts Regulations 2015.

1. Outcome. The judicial review claim and the claim under Part 6 of the Public Contracts Regulations 2015 were dismissed. Permission to appeal was refused. The Defendant received its costs, but not on the indemnity basis.
2. Section 123 duty. The duty under section 123(2) of the Local Government Act 1972 is to achieve the best consideration reasonably obtainable, not to follow a prescribed procedure. The court may intervene only on ordinary public law grounds, including irrationality, failure to consider a legally relevant matter, or reliance on an irrelevant matter. A matter is so material that it must be considered only where no reasonable authority would have failed to take it into account, including where it is obviously material in the circumstances.
3. The Council had properly considered its statutory duty. Its objectives of regeneration, employment and enhanced rental income were compatible with maximising the value of its landholding. The uncertain, long-term and risky nature of the project meant that the competing financial proposals were estimates rather than fixed bids. The Council was entitled to rely on professional advice and to assess experience, expertise and deliverability. It was not irrational not to seek further financial information.
4. The Council was also entitled to select a development partner without imposing an immediate enforceable obligation to redevelop. St Modwen had substantial obligations to prepare plans, strategies and planning applications, and a commercial incentive to draw down land and undertake profitable development. Its future option to acquire individual plots did not make the agreement irrational.
5. Procurement. The main object of a contract must be determined objectively by examining the transaction as a whole and the essential obligations which characterise it. Ancillary services and land assembly did not constitute the main object. The agreement’s main object was to facilitate regeneration and maximise the Council’s financial returns.
6. A public works contract requires a legally enforceable obligation to carry out the works forming its main object. An indirect obligation may arise where the contractor must procure performance by others, but the concept does not extend to an optional future obligation to acquire land and redevelop it. The agreement did not contain an artificial device requiring disregard, and no general anti-avoidance principle could be derived from procurement objectives.
7. The agreement was not a contract for design and execution of works because St Modwen was not legally obliged to execute works. Nor was it a contract for the realisation of a work: the Council did not exercise decisive influence over the type or design of the works, and St Modwen retained responsibility for proposing the detailed plans and strategies.

The judgment was a first-instance decision. The Part 6 procurement claim had been transferred from the Technology and Construction Court to the Administrative Court for hearing with the judicial review. Permission to appeal was refused.