Faraday revisited – a reminder of the application of the procurement rules to development agreements
17th January, 2019
In a recent Court of Appeal case, Faraday v West Berkshire Council, a development agreement was declared to be ineffective due to a failure by the Council to apply the EU procurement procedure to what was held to be a public works contract.
This overturned the previous High Court finding that the development agreement was not a public works contract because the developer would only become obliged to carry out the works if, once planning permission had been secured, it exercised its option to acquire the land.
Facts
The Court of Appeal held that the Council had made a legally enforceable decision to commit itself to both the sale and the development of the land. The Council has been refused the right to appeal the decision.
In order for a Public Works Contract to exist there must be a legally binding obligation on the purchaser of the land to carry out works specified by the seller. Prior to the Court of Appeal decision it was thought that, where the obligation to carry out the works was contingent, as was the case here where the decision to proceed lay within the control of the developer who could decide not to exercise its option to acquire the land, there was no binding commitment.
Court of Appeal
The Court of Appeal’s decision has now made it clear that the arrangement will be construed by looking at the real substance of the transaction as a whole. The Council had agreed to act unlawfully in the future by not publically procuring the works once the option was exercised.
It is also worth noting that whilst the Council had published a VEAT Notice (a device under which a Council can announce a direct award of a contract and then have a 10 day stand-still period to avoid a subsequent declaration of ineffectiveness) this was also held to be insufficient. It was misleading as it described the object of the contract as an exempt land transaction and did not alert a third party to the real nature of the transaction which was the design and construction of a large development. As such this provided no protection.
Comment
The case provides a warning to public bodies that where land is to be disposed of and works carried out, the documentation needs to be carefully analysed in the light of Faraday to avoid the risk of challenge and ineffectiveness.
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Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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