Faraday Development Ltd v West Berkshire Council & Anor

A development agreement is not itself a public works contract merely because the developer will become obliged to carry out works if it elects to draw down land. A contingent obligation is insufficient where the contingency remains within the developer’s control.

However, a contracting authority acts unlawfully if, when entering the agreement, it irrevocably commits itself to a later public works contract with a selected developer and leaves no opportunity for a lawful procurement before that contract crystallises. The transaction must be assessed as a whole. A voluntary transparency notice under the Public Contracts Regulations 2006 must accurately describe the contract and clearly and unequivocally justify dispensing with competition.

West Berkshire Council entered a development agreement with St Modwen Developments Ltd for the regeneration of its industrial estate. The agreement imposed immediate planning, design and management obligations. It gave St Modwen the option to acquire individual plots. Once a plot was drawn down, St Modwen became obliged to carry out the relevant development works.

Faraday Development Ltd, which held interests in other land within the estate, challenged the agreement without a procurement procedure. Holgate J dismissed the judicial review and procurement claims: [2016] EWHC 2166 (Admin). Faraday appealed, principally contending that the agreement was, or unlawfully committed the council to, a public works contract under the 2004 procurement regime.

1. Appeal allowed. Lindblom LJ, with whom Flaux LJ agreed and Lewison LJ agreeing save that he expressed no view on abuse of rights, held that the council had unlawfully committed itself to a public works procurement without first conducting the required procedure.

2. The development agreement was not, when made, a public works contract. Although it was in writing, for pecuniary interest, and directed to works, St Modwen’s obligation to execute those works was contingent on its own election to draw down land. Until that election, it could walk away. An obligation that is not immediately enforceable is generally insufficient in this setting where its activation remains under the developer’s control. This conclusion was consistent with Case C-451/08.

3. That conclusion did not determine the appeal. The procurement regime regulates the contracting authority’s acts in awarding contracts. The court had to examine the agreement as a whole, including the later stage for which it made binding provision. On entering the agreement, the council had done everything required of it to procure development from St Modwen. It had no further procurement decision to make before St Modwen could draw down land and thereby trigger reciprocal, unqualified obligations to grant the land and execute the works.

4. The arrangement therefore constituted a procurement in result. It would crystallise into a public works contract without any lawful opportunity for competition. The council had effectively committed itself to future unlawful action, contrary to the Public Contracts Regulations 2006 and the 2004 Directive.

5. The agreement was an indivisible whole whose main object was development works, not the preliminary planning and design services. It was consequently not a public services contract. The court also rejected the allegation that the option structure was a sham or abuse of rights: the commercial reality was disclosed and there was no bad faith or artificial disguise.

6. The voluntary transparency notice was invalid. It misleadingly characterised the agreement as an exempt land transaction and failed to disclose the contingent development obligations and the council’s control over the project. It did not provide the clear, complete justification required to prevent a declaration of ineffectiveness. The appropriate remedy was reserved for further submissions.

• Court of Appeal (Civil Division) — allowed Faraday’s appeal and held that the council had committed itself to an unlawful future procurement: [2018] EWCA Civ 2532.
• Administrative Court (Planning Court) — Holgate J dismissed Faraday’s judicial review and procurement claims: [2016] EWHC 2166 (Admin).