Midlands Co-Operative Society Ltd, R (on the application of) v Tesco Stores Ltd [2012] EWHC 620 (Admin)

Case No CO/2436/2011

[2012] EWHC 620 (Admin)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

ADMINISTRATIVE COURT IN BIRMINGHAM

Venue Manchester Civil Justice Centre,

1 Bridge Street West,

Venue Manchester M60 9DJ

Date 16/03/2012

Before

THE HON MR JUSTICE HICKINBOTTOM

Between

THE QUEEN (ON THE APPLICATION OFClaimant

MIDLANDS CO-OPERATIVE SOCIETY LIMITED)Claimant

BIRMINGHAM CITY COUNCILDefendant

TESCO STORES LIMITEDInterested Party

David Holgate QC and Timothy Morshead QC (instructed by Marrons) for Claimant

David Elvin QC and Charles Banner (instructed by

Hari Toor, Birmingham City Council Legal Services) for Defendant

James Goudie QC and Reuben Taylor (instructed by Ashurst LLP) for Interested Party

Hearing Hearing dates: 1 and 2 March 2012

Judgment

Introduction

[1]In this claim, the Claimant (“the Co-op”) seeks to challenge two decisions of the Defendant local planning authority (“the Council”), namely(i) its decision to enter into a contract on 8 April 2011 to sell its interest in a plot of land fronting the A441 Pershore Road, Stirchley comprising an indoor bowls and community centre to the Interested Party (“Tesco”), and

(ii) its decision of 14 March 2011 to authorise the making of a compulsory purchase order (“CPO”) to facilitate land assembly for Tesco’s proposed redevelopment of an 11 acre site of which that plot of land forms part.

[2]On 26 April 2011, permission to proceed was refused on the papers by His Honour Judge Robert Owen QC sitting as a Deputy High Court Judge. Following a renewed application and an application by the Co-op to amend the grounds of challenge, on 15 December 2011 Beatson J gave permission to amend and ordered that the application for permission to proceed and (if granted) the substantive judicial review be heard in a rolled-up hearing.

[3]That hearing came before me on 1 and 2 March 2012, when David Holgate QC and Timothy Morshead QC appeared for the Co-op, David Elvin QC and Charles Banner for the Council, and James Goudie QC and Reuben Taylor for Tesco. Their contribution was much appreciated.

[4]This is the reserved judgment from that hearing.

Factual Background and the First Tender Process

[5]Stirchley is about four miles south of Birmingham City Centre. For many years, there have been concerns about the lack of investment in the area, and the continuing viability of Stirchley as a local centre.

[6]The Council is the relevant planning authority. In December 1994, it adopted Supplementary Planning Guidance entitled “The Stirchley Framework” which recognised that retail activity could not be sustained in the whole area, and established a strategy of consolidation in a retail core area into which new retail investment would be concentrated.

[7]In April 2002, in accordance with that policy, the Council approved the Hazelwell Lane Development Brief, which identified a particular 11 acre site in Stirchley bounded by Pershore Road and Hunts Road and through which Hazelwell Lane ran (“the Site”) as one which was suitable for mixed-use development, possibly anchored by a retail foodstore. The Site was regarded as a key component of any redevelopment scheme for the area.

[8]The Site comprised various parcels of land, with a number of different owners. A small part of the Site of just under an acre is occupied by a former warehouse, converted in 1990 by the Council into an indoor bowling and community centre (“the Community Facility”). The freehold of the part of the Community Facility which fronted Pershore Road is owned by the Council, the rear being owned by a wholly-owned subsidiary of the Co-op which has leased that part to the Council on the basis of a covenant that it will not be used for any purpose other than an indoor bowls and community centre. Thus the Council, as part freeholder and part leaseholder of that property, has a direct land interest in part of the Site.

[9]The Community Facility has been, and still is, well-used: amongst other things it is home to the City of Birmingham Indoor Bowls Club and a football academy. The Council makes those recreational facilities available to the public under section 19 of the Local Government (Miscellaneous Provisions) Act 1976, which gives local authorities a wide power to provide such facilities.

[10]Section 19 gives an authority a power, not an obligation, to provide facilities. However, on 13 November 2006, the Council’s Cabinet declared that the property housing the Community Facility was surplus to requirements, but only “on the basis of [its] replacement to a specification and at locations to be agreed by the Cabinet Committee - Property [‘the CCP’]”. Because of its position on the Site, it has always been the Council’s intention to allow the development of the land on which the Community Facility stands as part of the wider development of the Site; but the Council has throughout been clear and constant that it will not allow the Community Facility to be developed unless replacement facilities are available to a specification and local position satisfactory to the Council.

[11]One obvious way of the Council ensuring such replacement facilities would be, of course, to require any developer to enter into an obligation to provide them as a requirement of its planning permission, under section 106 of the Town and Country Planning Act 1990 (“section 106”). Indeed, the Hazelwood Lane Development Brief indicated that any applicants for planning permission for the Site would be “required to demonstrate where the Community Centre/Indoor Bowls will be replaced and the replacement of the Community Centre/Indoor Bowls will be secured through a s106 agreement” and/or other appropriate legal agreement (paragraphs 6.8 and 9.1).

[12]Both Tesco and a Co-op-led consortium applied for outline planning permission for retail-led development of the Site. One difference between their respective schemes was that Tesco’s proposed development was led by a food superstore, whilst the Co-op scheme was for mixed non-food retail, restaurant and residential. That difference was perhaps unsurprising: the Co-op already has a food supermarket in Hazelwood Street, just to the north of the Site.

[13]On 4 December 2003, the Council’s Development Control Committee decided to grant outline planning permission for both schemes, subject to the completion of an acceptable agreement under section 106. Following completion of section 106 agreements, the Tesco scheme was granted planning permission on 29 June 2004, and the Co-op scheme on 7 December 2006.

[14]The Tesc planning permission included “construction of… replacement community facilities”. To supplement that, clause 4.3.1 of the section 106 agreement obliged Tesco to be responsible for all works of fitting out and re-location costs of “the Replacement Community Facilities”, defined in clause 1.1 as a community centre and indoor bowls facility to replace the facilities currently located in the Community Facility; and “the development” was defined to include those facilities. However: i) At the Council’s option, Tesco’s responsibility for the construction of replacement facilities could be commuted into a money sum. Clause 4.3.4 required Tesco:

“In the event that the Replacement Community Facilities are not constructed by [Tesco] to pay (at such time to be agreed by the Council) a sum of money (to be agreed by the Council) to cover the full cost of relocating the Existing Community Facilities elsewhere within the vicinity of the Site for the avoidance of doubt such costs to include the full costs of fitting out and re-locating the Existing Community Facilities. ii) By condition C19 of the planning permission, the demolition of the Community Facility could not commence until at least temporary accommodation for the facilities had been provided to the Council’s satisfaction; and, under clauses 4.3.2 and 4.3.3 of the section 106 agreement, Tesco was forbidden from (a) demolishing the existing Community Centre unless a (permanent) replacement facility had been constructed to the Council’s satisfaction, and (b) occupying the retail store provided for by the permission until a (permanent) replacement bowls facility had been constructed to the Council’s satisfaction. iii) By paragraph 3.1 of the section 106 agreement, with exceptions irrelevant to this claim, the provisions of the agreement were not to take effect until “commencement [of the development] has occurred”

. By clause 4.1, the development could not be commenced until the site had been assembled; and, by virtue of the planning approval itself, it could not be commenced until the reserved matters had been approved and various conditions met.

[15]Tesco proceeded to assemble the site, voluntarily, so far as they were able. On 17 June 2005, a briefing note was sent by Officers to the Council Cabinet Member for Regeneration advising that(i) the ownership of the site was approximately as follows: Tesco 80%, the Co-op 10% and the Council 10% (later figures appear to vary slightly; but Tesco’s ownership was at least about 70%); and

(ii) given part ownership by both Tesco and the Co-op, a CPO would be needed to assemble the site whoever were to develop it.

[16]In a report for a Council Cabinet meeting on 13 November 2006, Officers recommended to the CCP that the Council should undertake a competitive process between Tesco and the Co-op to select a development partner for the site, and to agree in principle that the Council’s interest in the site would be sold to the successful party on terms to be agreed. At the meeting, that recommendation was accepted, the Council declaring the Community Facility was surplus to requirements (and hence available to be sold), but only on the basis of the replacement of the community centre and indoor bowls facilities to a specification and at locations to be agreed by the CCP.

[17]The Council duly began a tender process limited to Tesco and the Co-op (“the First Tender Process”). As I understand it because of other pressures on the time and resources of the Council’s Officers, Knight Frank were engaged as the Council’s agents in respect of the First Tender Process, and, on 21 December 2006, they issued an invitation to tender to both Tesco and the Co-op, with proposed Heads of Terms including (at clause 8) development obligations requiring the successful tenderer(i) to use reasonable endeavours and act expeditiously in a planning application for its proposed scheme,

(ii) to replace the Community Facility (that being a specific obligation under the Heads of Agreement, over and above any section 106 agreement: see clause 15),

(iii) to commence construction of the replacement Community Facilities within 6 months of the grant of unconditional permission and site assembly, and to complete them within 12 months thereafter, and

(iv) substantially to complete the whole development scheme within 5 years of unconditional permission and site assembly. These obligations went beyond mere planning requirements; and the tender documents made clear that the Council were looking for a development partner who, subject only to satisfactory detailed planning permission (in respect of which the successful tenderer was required to use reasonable endeavours) and site assembly (in respect of which the Council indicated that, if required, it would use its CPO powers to achieve), would be obliged to develop the Site within a prescribed timescale. The sale of the Council’s land interests in the Site to the chosen developer was merely one element of that wider development agreement.

[18]Bids were required to be submitted on each of two bases, namely(i) that both the community centre and the indoor bowls facility would be replaced on the Site, and

(ii) that the bowls facility would be replaced on the Site, but the community centre would be relocated to another site, i.e. Bournville Lane Baths, with the costs of re-provision possibly being commuted to a cash sum. Bournville Lane Baths is a Grade II listed building constructed in 1910 in Hazelwood Street, close to the Site, on land gifted to the Council’s predecessor body by the Cadbury Family. The baths closed in 1988, since when the building had been vacant and had become dilapidated. The Council wished to refurbish the building, and bring it back into some form of community use. They hoped that the community centre, excluding the bowling hall, might be relocated to the refurbished building with other facilities relocated from elsewhere. The extensive works required to refurbish the baths building were in the region of £4.5m, much more than the cost of relocating the community centre within the redeveloped Site under the Tesco scheme. However, the Council considered that the public and heritage benefits would be substantial, and, because the refurbished baths would also be able to house other community facilities than those at the existing Community Facility on the Site, it was proposed to aggregate such facilities in the baths building.

[19]Both Tesco and the Co-op submitted tenders and, on 5 September 2007, Knight Frank submitted a report to the Council concluding that the Tesco proposals scored higher than those of the Co-op when appraised against the assessment criteria, mainly because of their better score on deliverability. As a result, on 18 October 2007, subject to further detailed negotiations in respect of its proposals, the CCP selected Tesco as its development partner in the terms of the First Tender Process and approved the sale of the Community Facility to Tesco on that basis.

[20]Those negotiations continued for the following year. The main reason why they took so long was that the Council’s plans for the refurbishment of Bournville Lane Baths required lengthy negotiations with (amongst others) English Heritage and local ward councillors.

[21]Council Officers prepared a report for the CCP meeting on 18 September 2008, reporting on the outcome of the discussions: “Replacement of the existing community centre and indoor bowling centre buildings and associated facilities will be provided to a specification to be agreed, and at no cost to the Council…. …. The outcome of those discussions is that Tesco have now agreed in principle to fund the costs of converting the baths building for use as a community centre…. Knight Frank confirms that this proposal provides the best option to the Council in respect of regenerative benefits and will utilise a longstanding vacant and increasingly dilapidated building. Ward Members are fully supportive of that arrangement. Following strong representation from local Members, it is clear that this is their preferred option…” (paragraphs 3.4 and 4.4).

[22]The report expressed concern that, given Tesco’s landownership in the Site and the possibility they could acquire further land by agreement, it was open to Tesco to develop an alternative scheme within its own landownership that might result in the Council losing the opportunity to obtain replacement bowls and community facilities. It recommended that Tesco be confirmed as the development partner and that an agreement be entered into for the sale of the Council’s interests in the site to Tesco, on the terms set out in the report. That was, of course, still within the First Tender Process, i.e. on the basis that Tesco would enter into the various development obligations set out in the Heads of Agreement that were part of the tender documents; except, as the report for the 18 September 2008 meeting indicated, it was by now likely that Tesco’s obligation in respect of the replacement facilities would be commuted, at least in part, to a cash sum to fund the refurbishment of the baths building.

[23]The Co-op, through their solicitors Marrons, objected to this course on a number of grounds, but notably two.

[24]First, it was said that there had been changes in market conditions since the Council’s in principle selection of Tesco as its development partner in October 2007, which required that decision to be reconsidered. It was also said that that selection needed to be reappraised in the light of two subsequently published documents: a further Stirchley Feasibility Study published in January 2009, and a consultation draft of proposed changes to the central Government’s Planning Policy Statement 6: Planning for Town Centres published in July 2008.

[25]The Council responded in a letter dated 22 May 2009 from Mr S J Evans, a solicitor in the Council’s Legal & Democratic Services Department and Head of Environment (Legal), which appeared to concede that there was force in those representations. It said that the Council did indeed propose to reconsider its proposed development partner, and that the Co-op would be given an opportunity for input:

“Given the time period that has elapsed since the ‘in principle’ resolution to select as the Council’s development partner in October 2007 and the changed economic circumstances, Officers are of the view that it would be appropriate to commission an update report from Knight Frank before [the CCP] reconsiders that decision. The proposed terms of the instructions to Knight Frank are annexed to this letter and your client(s) are invited to comment on them. Any comments should be received before 5pm on Monday 1 June 2009. Once the updated report has been received from Knight Frank, its findings will be reported back to [the CCP]. Your client(s) will be given the opportunity to comment on the Knight Frank update report and the draft report to [the CCP] before that Committee reconsiders the October 2007 decision. I will write further to you in due course to clarify the timing for the preparation of the draft report to [the CCP] and for submission of any comments.”

[26]The terms of instruction to Knight Frank attached to that letter were of course written in the context of the First Tender Process, and the selection of a development partner who would be subject to the proposed development obligations that formed part of that tender process. Consequently, Knight Frank were asked to consider viability and deliverability, in these terms: “The willingness and ability of Tesco and the Co-op to proceed with their respective schemes, including likely funding and deliverability having regard to market conditions” (paragraph 4).

[27]Marrons duly commented on the draft instructions to Knight Frank, and the Council indicated that the final instructions would reflect those comments.

[28]The second ground upon which Marrons complained about the First Tender Process was that it proposed development obligations being placed on the successful tenderer in relation to planning permission and completion of the scheme as described above which, Marrons said, triggered the public procurement requirements of the Public Contracts Directive (Directive 2004/18/EC) (“the Public Contracts Directive”) which the envisaged contract with Tesco would breach.

[29]The first ground of challenge in this claim focuses upon the Public Contracts Directive, and the Public Contracts Regulations 2006 (SI 2006 No 5, “the 2006 Regulations”) which transpose the Directive into domestic law; and I will deal with the detail of the relevant provisions when I consider that ground (see paragraphs 89 and following below). Briefly, the Directive applies to contracts for the execution of certain works, including the construction and demolition of buildings; and, in relation to the procurement of such contracts, it requires contracting authorities to treat potential contractors equally and non-discriminatorily, and to act in a transparent way. Marrons considered that the development obligations that formed part of the First Tender Process took the arrangement into the scope of public works contracts, and the proposed contract with Tesco would be in breach of the Directive and the transposing 2006 Regulations.

[30]In response to that suggestion, the Council’s letter of 22 May was less conciliatory. It said:

“Your position here is noted. However, the Council does not accept that the proposed disposal of land to Tesco would constitute a public works contract. The proposed contractual arrangement is likely to be for the sale and purchase of land. The provision of the replacement community centre and bowls centre are adequately dealt with under the terms of the planning permission (and related s106 agreement).”

[31]Marrons responded on 9 June 2009, noting the Council’s position but saying that it was “considered with respect to be plainly wrong”.

[32]In any event, during 2009, the Council took legal advice on the public procurement issue; and, although the precise nature of that advice is unknown, in January 2010, the Council decided to terminate the First Tender Process, and undertake a new tender process (“the Second Tender Process”), whereby Tesco and the Co-op would be invited to bid for the Council’s interests in the Community Facility as “a pure land sale with no development partnership with development obligations” (Kathryn Elizabeth James 30 January 2012 Statement, paragraph 26).

The Second Tender Process

[33]The Second Tender Process was led by Council Officers (rather than Knight Frank), and was again restricted to Tesco and the Co-op. An invitation to tender was issued to them on 19 March 2010, for bids by 30 April 2010. Tenderers were required to submit, as part of the tender, a “Development Appraisal” document showing how they envisaged Pershore Road being developed, with indicative drawings of the proposed development (Instructions to Tenderers, paragraph 17); and the tender evaluation criteria included deliverability with a 15% weighting, the other criteria being purchase price/value (70%) and conditionality (15%). For the successful tenderer, there was to be a non-refundable deposit of 10%.

[34]On 1 April, Marrons wrote on behalf of the Co-op, again expressing concerns about this new tender process. They indicated that the requirement for a Development Appraisal meant that, in their view, this was not a “straight land deal” but “keeps open the question as to whether [the requirements of the Public Contracts Directive] have been bypassed by the current process” (paragraph 10). It also expressed concern that(i) with such a small weighting allocated to deliverability and conditionality, “the Council would be bound to accept the highest monetary bid regardless of whether a deliverable scheme was put forward” (paragraphs 6 and 9), and

(ii) without the assurance of CPO availability or the consent of the Co-op both to assign the freehold of the Community Facility and for its change of use, it was unlikely that any prospective developer would wish to bid (see, e.g., paragraphs 7 and 11). Furthermore, Marrons expressed the view that, because of the Council’s statutory obligation under section 123(2) of the Local Government Act 1972 (“section 123(2)”) to obtain best consideration for an disposal of land:

“…where the Council (as it has done here) takes the initiative to sell a site, it would be usual for it to be openly marketed to establish a competitive value.”

[35]In relation to value of the Council’s interests in the Community Facilities, on 5 May 2010 the Council obtained a written report from Mr Matthew Lazar, a Chartered Surveyor and a member of the Council’s Valuations Team otherwise not concerned with the sale of this property. That report gave three valuations: existing use value, market value and development value. Of course, the Community Facility was being sold in the context of the Council’s proposal for the development of the Site, and so there was no suggestion that it would continue to have the same use; and the market value specifically excluded the possibility of enhanced value because of a special purchaser or subsequent marriage value which (in the light of the planning permission and land holdings held by each of Tesco and the Co-op) were, in this case, a distinct possibility. There was no reference in the report to “best consideration”.

[36]The most relevant valuation was consequently that for development value, namely £1.5m, appears to have taken into account the effect of a special purchaser. In arriving at that valuation, the report said:

“Comparable evidence suggests disposals of land for Class A1 Supermarket Schemes, command in the region of £1.8m per acre plus an additional amount for s106 contribution. In this case the s106 contribution for replacement of the Community/Bowls Centre is estimated at approximately £2,130,000 and the s106 contribution outweighs the value of the site. It has been assumed that the developer would spread the cost of the s106 Agreement across a development scheme of 11.61 acres. This valuation excludes the payment of the s106 contribution it is expected that the purchaser would pay this in addition to the land value of £1.8m per acre. It has been assumed that there will be no other s106 requirements other than re-provision of the Community/Indoor Bowls Centre. … It must be noted that the figures quoted here relate to current values which may be subject to sharp fluctuations in future months.”

(emphasis in the original). In an attached sheet of calculations, Mr Lazar pro-rated the section 106 development costs over the whole of the Site, which resulted in about £160,000 being allocated to the Community Facility plot.

[37]Marrons received no response to their letter of 1 April. On 30 April, they wrote again indicating that, because of their doubts about the process (and particularly the unclear nature of the role to be played by deliverability and conditionality), the Co-op would not be making a bid. The Council responded on 10 May, by a letter from Mr Roger Lloyd, the Head of Regeneration & Property Law in the Legal Services Department:

“… [Y]our letter… shows a misreading of the [Invitation to Tender]. The offering here is a straight sale of land. … You mention planning policies of [the Council] but these are not relevant to a sale of land without any specification or ‘Work’ (as defined in EU Procurement Legislation and case law). The City Council’s Regeneration Agenda is therefore not engaged and it is for the bidders to price their bid in the knowledge of the City Council’s Regeneration and other policies. ”

Tesco was not, of course, privy to that letter: they did not know that the Co-op had not bid.

[38]Shortly before that correspondence and within the period for bids, on 21 April, Tesco submitted a tender bid conditional on wider site assembly. Because of that condition, the bid was not considered by Officers to be suitable to be recommended for approval. On being informed of that, Tesco made a revised, unconditional bid; but that was still not considered capable of being recommended for approval, because the Council’s initial instructions to tender had indicated that tender statements once submitted could not be negotiated. There were no other bids. The Second Tender Process therefore ended with no bid regarded as acceptable by the Council.

[39]Given the amount of time and money it had expended on its proposed Stirchley scheme, Tesco was concerned at the position reached. Through its Development Director (Mr David Hall), on 2 July 2010 it wrote to the Council accordingly:

“… [Tesco] wishes to be able to proceed with the project, with the support of the Council. Reading between the lines, it appears that the Council’s real concern is the potential uncertainty about timing and cost of provision of the replacement facilities. We have given the matter further consideration with a view to resolving the impasse. As you are aware, the current planning permission and Section 106 Agreement for the scheme requires Tesco to be responsible for provision of replacement facilities. Rather than amend the planning permission and Section 106 Agreement to remove this requirement, the Council could simply agree to sell its land to Tesco at market value in the knowledge that Tesco will not be in a position to occupy the store until such time as the replacement facilities have been provided. The European Court case of [Helmut Müller] makes it clear that an agreement for the sale of land that does not contain any legally enforceable obligations to the economic benefit of the Council would not amount to a Public Works Contract, nor would the requirement to carry out works under Section 106 Agreement. Therefore, this approach would ensure that the transaction still falls outside the Public Works Regulations but would provide the Council with a certainty as to delivery of the replacement facilities.”

[40]Mr Holgate relied upon this letter in respect of Ground 1, which I deal with below (at paragraphs 89 and following), suggesting that Tesco were driving the process at this stage. However, two points are worthy of note at this stage.

[41]First, this letter was not of course the first suggestion that the land deal should be severed from development obligations: such severance was the very intent of the Second Tender Process, as was made clear in the letter of 10 May 2010 from Mr Lloyd to Marrons (referred to in paragraph 37 above).

[42]However, second, this letter does suggest that, even if the Council was simply to sell the Community Facility to Tesco at market value without any further tender process and without the imposition of any development obligations, the Council could take comfort from the fact that the then current planning permission and section 106 agreement forbade Tesco from occupying the retail store constructed as part of the development until the replacement facilities were provided. Therefore, although Tesco would not be legally required to construct or provide those replacement facilities, if the development scheme commenced, there was every likelihood (indeed, a practical certainty) that replacement facilities would be provided; and whether they were provided, and the specification and location of them if they were, was all in the control of the Council. That is what was meant by “this approach… would provide the Council with a certainty as to delivery of the replacement facilities”.

[43]On 30 July and again on 3 August, Mr Hall pressed the Council to accept the Tesco bid.

[44]However, on 4 August 2010, the Council decided to terminate the Second Tender Process on the basis that it had not resulted in any bid capable of being recommended for approval, and an open tender process (as had been suggested by the Co-op) would be more appropriate in the circumstances. The Officer’s report for that meeting stated:

“Note that a subsequent report will be submitted to advise of the outcome of the tender and seek approval to the appointment of a development partner.”

[45]“Development partner” was a term that had been used in the First Tender Process to describe the successful tenderer who would have been committed to the development obligations inherent in that process, as well as being committed to purchasing the Community Facility. In the Officer’s report for the 4 August meeting, it was clearly not used in that same sense; because it was part of the new process that the sale and purchase of the land would not be dependent upon such further obligations. “Preferred developer” may have been a better term here. But, in any event, that report makes clear that the sale of the land was to be a exercise discrete from the selection of a preferred developer – although, of course, the successful bidder for the land would own 10% (or 10% more) of the Site, which might possibly in itself be one factor in who would develop the Site.

[46]The open tender process approved on 4 August 2010 was then commenced.

The Third Tender Process

[47]On 10 August, Miss James sent a letter to Tesco and the Co-op indicating that the Second Tender Process was terminated and a new open tender process was proposed. That letter said:

“Prior to the commencement of this new tender process we would like to offer you the opportunity to attend a tender clarification meeting if this would be of use to you. Alternatively we can arrange for the Invitation to Tender to be forwarded to you following publication of the advertisement [in the Estates Gazette].”

Neither Tesco nor the Co-op took the opportunity offered.

[48]An advertisement for the land and premises appeared in the Estates Gazette on 14 August 2010. The advert was small, indicating that the site, comprising 0.86 acres, was for sale by informal tender with a closing date for bids of 9 September 2010. There was a contact telephone number for further information.

[49]On 17 August, the Council sent Tesco and the Co-op letters formally advising them of the Third Tender Process, and enclosing a draft Sale and Purchase Agreement. With regard to these tender documents, the following four points are of note.

[50]First, paragraph 4 of the Instructions for Tendering indicated that, if a prospective tenderer were in doubt as to the interpretation of any part of the tender documents, the Council would endeavour to answer any written queries before the tender was submitted.

[51]Second, paragraph 15 provided that:

“The Tender Statements once submitted and accepted by the [Council] cannot be renegotiated. The amount offered will be assumed to have been submitted with the potential purchaser having full knowledge of the land, its condition, statutory requirements and planning status. It is recommended that independent professional advice be sought before offers are submitted.”

[52]Third, the tender documents indicated that all offers and subsequent negotiations would be subject to contract (paragraphs 17 and 20 of the draft Sale and Purchase Agreement).

[53]Fourth, the payment terms were that 50% of the purchase price was payable on exchange of contracts in the form of a non-refundable deposit. Otherwise, the sale and purchase was conditional upon the Council serving a Put Option Notice within 2 years from the date of exchange of contracts confirming that it was ready, able and willing to complete the sale with vacant possession and with all necessary consents, and requiring the successful bidder within 5 days to exercise a Call Option and pay a Call Option Fee in accordance with the agreement. That Call Option enabled the successful bidder to purchase the property within a fixed period. The Instructions to Tenderers required any tenderer to insert into the bid both the amount of the Call Option Fee and the period over which the option could be exercised.

[54]The intended effect of these terms was to ensure that the Council had 50% of the purchase price on exchange of contracts and, so far as possible, in non-refundable form; but with the Council, on the face of it, having an option of not completing the sale (by not serving the Put Option Notice in the relevant time period). That Put Option Notice could only be served if the Council had obtained (from the Co-op) vacant possession of the Community Facility and the necessary consents. The successful bidder then had 5 days to decide whether it wished to complete the purchase, by payment of the Call Option Fee, which would give it a period in which to exercise that option and complete the purchase. These somewhat complex provisions were, quite clearly, geared to the ultimate development of the Site including the plot upon which the Community Facility stood; but the successful bidder was not bound to proceed with the purchase (or the development), even after the Put Option Notice was served. It could withdraw, simply by not serving the Call Option Notice; although, if it did so, it would lose its deposit. In the event of the sale and purchase of the property not being completed, then the draft contract provided that neither party should be entitled to any compensation or costs.

[55]These payment terms, on their face, would put a successful tenderer at substantial risk. I consider them further below, when dealing Ground 2 (see paragraphs 120 and following).

[56]The bidding period was open from 14 August to 9 September 2010. The Council had a number of enquiries and sent out 22 sets of tender documents. However, given the history and their proposals and planning permission held for the Site of which the property formed part, it was always likely that Tesco and the Co-op would be particularly interested in the property.

[57]However, so far as the Co-op is concerned, Marrons wrote to the Council on 9 September 2010 indicating that they would not be making a bid, as they considered the process “fundamentally flawed”, for two main reasons: i) The disposal of the Community Facility was not “a straight land deal”, but rather formed part of a wider regeneration agenda, the next stage of which would involve the Council approving a development partner by a process which (it was said) “will inevitably again require compliance with the procurement rules”. ii) The invitation to tender for the Community Facility appeared to be a sham, because “any would-be tenderer with no prior involvement in the matter is bound to be misled as to the true purpose behind the disposal”, i.e. to progress towards the development of the Site. Not only was the process not lawful, but the proposed terms were so “onerous, unprecedented, and are not justified in order to sell the asset” that they were bound to depress demand and result in reduced value for the Council such that the Council would be in breach of its duty under section 123(2) to obtain best consideration on any sale of land. Marrons threatened (or, at least, indicated) that:

“These are all questions to which the Council will be held to account in due course.”

[58]In the meantime, Tesco through Mr Hall submitted a bid on 8 September 2010, clarified in a letter of 22 September 2010 which (redacted in respect of the actual sums involved) materially read as follows:

“… [I]n order to clarify matters, we are willing to offer the following Two Payments: (i) £[redacted] payable as a non-returnable deposit on exchange; and (ii) £[redacted] when the Council serves a ‘put option’ and at Tesco’s election, the Council will complete the sale Or Three payments: (i) £[redacted] payable as a non-returnable deposit on exchange; and (ii) £[redacted] as a ‘call option fee’ payable when the Council services [sic] a ‘put option’ and (iii) £[redacted] on completion of the sale, following the exercise of the call option by Tesco. In both scenarios, payment of the final tranche of money £[redacted] dependent upon the Council delivering vacant possession of the Property. All three options are subject to [Tesco’s offer in the 8 September letter of] an additional sum of £[redacted] on top of the purchase price of £[redacted] subject to: 1. Grant of a satisfactory implementable planning permission. 2. Completion of all site assembly. 3. Full vacant possession of the wider Stirchley site.”

Mr Hall’s letter of 8 September also indicated that, insofar as “completion of site assembly” was a condition of the supplementary payment, Tesco would underwrite the cost of acquiring any remaining land and would indemnify the Council in respect of all costs of any necessary CPO. Two Payments:

Three payments:

[59]Those letters therefore answered the invitation to tender in its own terms, but also offered an additional and separate sum in the event that Tesco were in the future in a position to develop the Site by having appropriate planning permission, site assembly and vacant possession.

[60]Miss Kathryn James is a Chartered Surveyor and is the Council’s Business Centre Manager (Major Projects). She has worked for the Council since 1991, and on major land disposals since 1999. Within the Property Services Department, she has been responsible for the sale of the Community Facility. She prepared a report on the tender process for the 13 October 2010 CCP meeting. In her view, the level of enquiries indicated that the marketing exercise had been a success (Report, paragraph 4.6). However, only one bid – from Tesco – had been received. She recommended that the Tesco bid be accepted; and, at the meeting, it was.

[61]However, despite a number of enquiries on behalf of the Co-op, the identity of Tesco as the successful bidder did not find its way into the public domain until a public report for a CCP meeting on 2 March 2011 was published which (at paragraph 4.3) confirmed that CCP had agreed at its meeting on 13 October 2010 to dispose of the Council’s interests in the Community facility to Tesco following its successful tender to acquire it.

[62]In the intervening period, two things happened.

[63]First, on 22 December 2010, the Council granted Tesco new planning permission for the Site. (The June 2004 planning permission for the Site would by then have expired by the effluxion of time, but the December 2010 permission refers to an extant 2007 permission and the 2010 section 106 agreement refers to an original planning permission of 29 September 2008. No details of intervening permissions appear to be available. However, nothing appears to turn on them; and I shall work on the basis that, at all times from 2004 until 2010, Tesco had planning permission subject to a section 106 agreement in 2004 form.)

[64]Clause 5.2 of the new section 106 agreement amended clause 4.3.4 of the previous agreement (see paragraph 14(i) above) as follows (the added words shown in italics):

“In the event that the Replacement Community Facilities are not constructed by [Tesco] to pay (at such time to be agreed by the Council) a sum of money (to be agreed by the Council) to cover the full cost of relocating the Existing Community Facilities elsewhere within the vicinity of the Site for the avoidance of doubt such costs to include the full costs of fitting out and re-locating the Existing Community Facilities save where the Council and [Tesco] agree that the Replacement Community Facilities have or will be secured in some other manner by the Council or [Tesco]”

. That reflected the increasing likelihood that the community centre and indoor bowls hall at the Community Facility would be relocated off the Site, the former being housed in Bournville Lane Baths – with Tesco having no obligation to be responsible for the construction or refurbishment of alternative facilities.

[65]However, that having been said, the new planning permission continued to include in the “construction of… replacement community facilities”; and clause 4.3.1 of the new section 106 agreement continued to impose a responsibility on Tesco “for all works of fitting out and re-location costs of the Replacement Community Facilities” (see paragraph 14 above). Furthermore, reflecting previous condition C19 (see paragraph 14(ii) above), condition 44 of the 2010 permission provided:

“The demolition of [the Community Facilities] shall not commence until either permanent or temporary accommodation for these facilities has been provided in accordance with a phasing scheme to be submitted to and approved in writing by the [Council].”

[66]The planning permission and section 106 agreement therefore continued to impose obligations on Tesco; although there was of course no obligation upon Tesco to develop the Site in accordance with the planning permission they held, and, as with the earlier agreement (see paragraph 14(iii) above), the obligations imposed on Tesco by the section 106 agreement, including those in clause 4.3.4, still did not come into come into effect until the permission had been implemented (clause 3). The development could not commence – and, hence, the permission could not be implemented – until the reserved matters had been approved and the pre-conditions in the permission had been met. Those included the accommodation of the facilities in the Community Facility to the satisfaction of the Council (condition 44: see paragraph 65 above), but also (e.g.) the submission to the Council of a schedule of phasing (condition 3), usual risk assessments (condition 4) and a drainage scheme (condition 24), all to the satisfaction of the Council.

[67]Second, in February 2011, not only was Tesco provided with a draft Sale and Purchase agreement for the Community Facilities (substantively in the terms of the draft attached to the tender documents), but Tesco continued to press the Council for confirmation that they would proceed to promote the necessary CPO to further site assembly and a draft indemnity agreement in support was provided by the Council to Tesco.

[68]The Officer’s report for the CCP meeting of 2 March referred to above (paragraph 61) sought approval:

“.. for the Council to make a [CPO] to unify ownership of various sites to facilitate the development of a new retail superstore, additional retail units, new social facilities, residential accommodation, landscaping and associated works by the developer, [Tesco]. [and] … to enter into an indemnity agreement to ensure that all costs and compensation from the CPO are met by the developer.”

[69]The report referred to Tesco as “the developer” throughout, and noted the following: i) that Tesco would continue to negotiate with landowners to seek voluntary acquisition, but compulsory purchase was likely to be necessary to secure all the land needed for Tesco’s development particularly as some land was in the hands of the Co-op which had an interest in the land and extant planning permission for the Site (paragraph 4.3); ii) that the development would “also lead to the replacement of existing community buildings resulting in improved facilities for the local community” (paragraph 4.5); and iii) that a further report would be presented to the CCP to confirm the making of the CPO if voluntary negotiation to acquire the site had not been successful within 3 months (paragraph 2.5).

[70]The issue was put off from 2 March to the CCP meeting on 14 March 2011, when a substantively similar report was tabled. At the meeting, Mr Lloyd advised that there were two extant planning permissions – those granted to Tesco and the Co-op respectively – but he advised the meeting that the Co-op did not submit a bid for the Community Facility which, he said, indicated the Co-op had chosen to abandon its planning permission. For the purposes of this claim, the Council concede that Mr Lloyd left the meeting with the clear impression that the Co-op had abandoned its planning permission and hence the only potential development for the Site was that proposed by Tesco; and, the Council also concede, that was incorrect. The Co-op had done nothing to abandon its extant planning permission. I return to that below (paragraphs 86-7).

[71]In the event, on 14 March, the CCP adopted the recommendation from the Officer’s report, and gave the approvals sought.

[72]On 8 April 2011, the Council and Tesco exchanged contracts in relation to the sale of the Council’s interests in the Community Facility, in substantively the same form as the earlier drafts. By this stage, the Co-op had (on 4 March 2011) through solicitors sent the Council a letter before action, seeking the deferral of the sale of the Community Facilities to Tesco and of any further consideration of making a CPO (including any indemnity agreement) “consequential upon the impugned land disposal”, although not, it should be said, on the ground that the disposal would breach the Council’s obligations under section 123(2) to obtain best consideration.

[73]Prior to exchanging contracts, the Council took independent advice on valuation from Mr Jeremy Payne, a director of the chartered surveyors, DTZ. Based upon a desktop analysis, Miss James says (30 January 2012 Statement, paragraph 49), and I accept, that the Council was advised that “the deal provided the best consideration”.

[74]That oral advice was followed by a written report by Mr Payne, dated 13 April 2011, that is after the exchange of contracts and following an external inspection of the property the previous day. His estimate of the market value was £300,000. However, his brief was, clearly, to advise on best consideration: the heading of Section 13 of his report is “Disposal at Best Consideration”. Under that heading, and after his assessment of market valuation, he said:

“[Tesco’s] offer does not appear to be dependent upon reaching agreement with the freehold owner of the leasehold part of the subject property [i.e. the Co-op].… It should be noted that this ground lease has only 50 years unexpired and any redevelopment or change of use requires the freeholder’s consent. This freehold owner could demand a high premium to allow the development to take place. We have carried out development appraisals on similar sites with planning consent for supermarket/food retail development. Using rental levels that we know operators are prepared to pay for completed stores, the resultant land value appears to be in the order of £300,000 per acre. However, it is well known that the major supermarket operators are prepared to pay considerably more than this level for suitable land. It is clear that these operators do not wish to rentalise the potential profits that they can make from such developments. Although we are not aware of the precise areas of land in Tesco’s ownership, it is clear that this company had committed a considerable amount of money in assembling the sites around the subject property. For this reason it is prepared to make the above offer, in an attempt to complete its land assembly, which appears to be considerably above, by a factor of [redacted] times, that which a conservative development appraisal produces. We are of the opinion that this offer represents the best consideration for the Council’s freehold and long leasehold land ownership.”

[75]In addition to the exchange of contracts relating to the land interests, the same day (8 April 2011) the Council and Tesco entered into a separate agreement under which Tesco agreed to pay the Council an overage payment upon(i) Tesco acquiring all interests in the Site (with vacant possession and free from challenge), and

(ii) the grant of full and implementable planning permission for “the Development” on terms reasonably satisfactory to Tesco (“the Overage Agreement”). “The Development” was defined as follows (the italicised words being handwritten in the document):

“… the demolition of some or all of the buildings and structures on the… Site and construction on the… Site of a mixed use scheme including [a retail store] or some other form of development for which Tesco secures a satisfactory full and implementable planning permission in respect of the… Site which is free from challenge and which in all cases does not require the reprovision by Tesco of any of the Council’s facilities which currently exist at the… Site”.”

[76]Those handwritten words are another indication that, by this time, it was envisaged that Tesco would not in fact provide the replacement facilities for the Community Facility: the overage payment to the Council did not become due unless and until Tesco had obtained full planning permission for “the Development” which was defined to exclude any requirement for the reprovision of any of the facilities provided at the Community Facility. However, as the extant (2010) planning permission included such works, if they were to be excluded from the development, a new planning permission would be required.

[77]The Overage Agreement reflected the second limb of Tesco’s offer of 8 and 22 September 2010 (see paragraph 58 above): in the event that Tesco acquired vacant possession of the Site and appropriate planning permission, it would pay the Council an additional sum. It did not legally require Tesco either to proceed with the development of the Site, or to perform any works at all. Indeed, it was drafted on the premise that Tesco would not have any obligation to provide replacement facilities for the Community Facility due to be lost by virtue of any development of the Site.

[78]The Council and Tesco entered into both the contract for the sale of land and the Overage Agreement on 8 April 2011. They have not as yet entered into an Indemnity Agreement in respect of the costs of any CPO.

[79]As I have indicated, on 4 March, the Co-op had sent a letter before action challenging the disposal of the land and seeking a prohibition on any steps towards a CPO in support of Tesco’s proposed development of the Site. By a letter of Mr Lloyd dated 11 March, the Council responded, negatively; and on 16 March 2011, this claim was issued.

[80]Following the exchange of contracts on 8 April, on 19 April 2011 Tesco (now as reversioner) approached the Co-op with a view to buying the Co-op’s interests in the Community Facility. Unsurprisingly, that approach did not prove fruitful.

The Current Position

[81]The Community Facility continues to be used as both a community centre and an indoor bowls club.

[82]The Council is committed to relocating the community centre to refurbished Bournville Lane Baths. In her statement of 2 December 2011 (at paragraph 18(c)), Miss James indicated that, because of the restraints on its budget, the only available funds for the refurbishment of the baths building were monies from the disposal of the Community Facility and the Heritage Fund (in respect of which the Council were proposing to make a bid in the next bidding round, in June 2012). However, as a result of the delay in determining this claim (which was originally set down for hearing in December 2011) and continued deterioration of the baths building, the Council intend to commit themselves to proceeding with the refurbishment, irrespective of the result of this judicial review, if necessary reprioritising their budget to make funds available if they are not (or not immediately) available from the sale of the Community Facility to Tesco – although that will render greater uncertainty for other projects. That proposal, recommended by Officers, was, at the time of the hearing, awaiting approval by the CCP (Kathryn Elizabeth James 30 January 2012 Statement, paragraph 61-2).

[83]The Council propose to relocate the indoor bowls club to the Billesley Indoor Tennis Centre, and have given the City of Birmingham Club notice to quit the Community Facility by 13 June 2012. Because the Council consider there is a wider public interest in rationalising sports facilities at Billesley, it is prepared to fund the necessary work to provide indoor bowls facilities there, out of the Community Facility sale proceeds. However, as those funds are “at risk” as a result of this claim, that scheme is currently held in abeyance (Kathryn Elizabeth James 30 January 2012 Statement, paragraph 64-7).

[84]If the challenge to the contract for the sale of the Community Facility to Tesco is unsuccessful, the Council intends to refurbish the Bournville Lane Baths to include a replacement community centre, and provide replacement bowls facilities at Billesley Indoor Tennis Club, at its own cost – but using the proceeds of the sale of the Community Facility to Tesco. If Tesco’s current planning permission and section 106 agreement remain unaltered, the Council propose to do that pursuant to clause 4.3.4 of the section 106 agreement on the basis that replacement facilities have been adequately secured in some manner other than being provided by Tesco.

The Grounds of Challenge

[85]The Co-op seek to challenge the two decisions identified above (paragraph 1), namely(i) its decision to enter into a contract on 8 April 2011 to sell its interest in the Community Facility to Tesco, and

(ii) its decision of 14 March 2011 to authorise the making of a CPO to facilitate land assembly for Tesco’s proposed redevelopment of the Site. They do so on two primary grounds upon which this claim has focused, and a number of miscellaneous grounds, as follows: Ground 1: Procurement The disposal by the Council to Tesco of its interests in the Community Facility would contravene the Public Contracts Directive and 2006 Regulations. Ground 2: Best Consideration The disposal by the Council to Tesco of its interests in the Community Facility on the terms agreed would breach the Council’s duty under section 123(2) of the Local Government Act 1972 not to dispose of land for a consideration less than the best that can reasonably be obtained. Other Grounds i) The Third Tender Process in relation to the sale of the Council’s interest in the Community Facility was legally unfair so as to render the resulting contract with Tesco unlawful, particularly because of the inconsistency between that which was offered on the market and the terms on which the Council has agreed to sell to Tesco. ii) The authorisation of the making of a CPO to facilitate site assembly for Tesco’s redevelopment was legally unfair so as to render the decision to authorise unlawful, because the Council failed to comply with assurances it gave to the Co-op on 22 May 2009 that the choice of Tesco as its development partner would be reconsidered in the light of a reassessment of by Knight Frank into which the Co-op would be able to have input. Those assurances gave the Co-op a legitimate expectation that there would be such an assessment with the opportunity for such input. iii) In authorising the making of the CPO on 14 March 2011, the Council both failed to take into account a number of material considerations and took into account immaterial considerations. In particular, the decision to authorise was taken on the basis that the Co-op had abandoned its planning permission for its own scheme of development for the Site, which was incorrect.

[86]Before I deal with those grounds, I can deal, shortly, with a concession made by Mr Elvin on behalf of the Council at the hearing, which particularly bears upon the last miscellaneous ground to which I refer. As I have indicated above (paragraph 70), at their meeting of 14 March 2011, the CCP approved a CPO in support of the development of the Site proposed by Tesco on the basis that the Co-op had effectively abandoned its planning permission, which was incorrect. The Co-op had done nothing to abandon that permission. That was a first stage decision, in the sense that it was a decision in principle, that would need to be confirmed by the Council, if necessary, once Tesco had exhausted its attempts to assemble the Site voluntarily.

[87]As I have described, Tesco’s extant (2010) planning permission and section 106 agreement, require them to perform works in relation to the replacement Community Facility. Tesco do not intend to develop the Site on the basis of that permission: they intend to seek permission for an alternative development without those replacement facilities. The Council do not propose to insist that the developer of the Site replaces those facilities, as part of the development or section 106 obligations. In those circumstances, as I understand it, both the Council and Tesco accept that Tesco will need to make a new application for planning permission, which will require a new first stage decision in respect of a CPO in support. In any event, in the light of the misunderstanding under which the decision to make a CPO on 14 March 2011 was made, the Council accept that a new first stage CPO decision should be made in any event.

[88]I now turn to deal with the grounds identified above, in turn.

Ground 1: Procurement

[89]The Public Contracts Directive introduced a common framework for public procurement arrangements within the European Union “to guarantee the opening-up of public procurement to competition” (Recital (2)). The object of the Directive is clear. It is: “… to ensure that public bodies award certain contracts above a minimum value only after fair competition, and that the award is made to the person offering the lowest price or making the most economically advantageous offer…” (Risk Management Partners Ltd v London Borough of Brent

[2011] UKSC 7

at [10] per Lord Hope, with whom the other members of the Supreme Court agreed):

[90]The Directive applies to three identified and defined types of “public contracts”, namely “public works contracts”, “public services contracts” and “public supply contracts”, each with their own procurement rules. The Directive was transposed into the law of England and Wales by the 2006 Regulations.

[91]Mr Holgate submitted that the 2006 Regulations do not properly implement the Directive, in that Article 16(a) of the Directive provides that the Directive shall not apply only to public service contracts for the acquisition of land, whereas Regulation 6(2)(e) of the Regulations disapplies their effect to any public contract (including a public works contract) for the acquisition of land. However, for reasons that will shortly become apparent, I need not grapple with any possible inconsistency between the Directive and 2006 Regulations; and, for the purposes of this judgment, I can treat the Regulations as faithfully transposing the Directive.

[92]In particular furtherance of Article 2 of the Public Works Directive (which requires contracting authorities to treat actual and potential public contractors equally, and to act in a transparent and non-discriminatory manner), where the 2006 Regulations apply, before a contract is awarded, various procedures have to be followed (set out mainly in Part 3 of the Regulations), criteria in respect of price have to be met (Regulation 30), and obligations as to employment, environmental protection, tax etc are imposed (Part 7). The Regulations are over 120 pages long, and impose onerous conditions upon both contracting authority and the contractor.

[93]The Council and Tesco do not suggest that they would satisfy those obligations, if they apply to their current arrangements. However, they submit that the 2006 Regulations do not apply, because the arrangements do not comprise or include any public works contract covered by the Directive or Regulations.

[94]It is not suggested by the Claimant that the arrangement between the Council and Tesco could amount to either a “public services contract” or a “public supply contract” within the terms of the 2006 Regulations. Only “public works contracts” are possibly in play.

[95]Regulation 2(1) defines “public works contract” as follows:

“… a contract, in writing, for consideration (whatever the nature of the consideration) (a) for the carrying out of a work or works for a contracting authority; or (b) under which a contracting authority engages a person to procure by any means the carrying out for the contracting authority of a work corresponding to specified requirements…;”

For the purposes of this regulation, the Council is a “contracting authority” (Regulations 2 and 3); relevant “works” include the construction or demolition of all types of building (Regulation 2 and Schedule 2); the regulations apply whenever a contracting authority “seeks offers in relation to a proposed… public works contract” (Regulation 5(1)); and, if and insofar as Tesco entered into a contract with the Council for works otherwise falling within the definition of “public works contract”, then that contract would fall within the scope of the Regulations because Tesco would be an “economic operator” within the meaning of Regulation 4. (a) for the carrying out of a work or works for a contracting authority; or (b) under which a contracting authority engages a person to procure by any means the carrying out for the contracting authority of a work corresponding to specified requirements…;”

[96]I do not have to consider the possible inconsistency between the Directive and Regulations identified by Mr Holgate (see paragraph 91 above) because it was common ground between the parties that, for a contract to fall within the scope of a “public works contract”, there must be a legal obligation upon the person with whom the contracting authority contracts to carry out (or to be responsible for the carrying out) of works, including the construction or demolition of buildings. Hence, the issue in this claim is not whether the arrangements between the Council and Tesco fall into the specific exception for land contracts in Article 16(a) of the Directive or Regulation 6(1)(e) of the 2006 Regulations, but rather whether those arrangements do or do not amount to a “public works contract”. It is uncontroversial that the definition of “public works contract” in the 2006 Regulations does faithfully transpose the definition in the Directive.

[97]Nor was it contentious that an essential characteristic of a public works contract is a binding and legally enforceable obligation in the contractor to execute relevant works as specified by the contracting authority. Authority and principle support that as a proposition.

[98]Mr Holgate referred to paragraph 34 of the Office of Government Commerce Information Note 12/10 dated 30 June 2010 (Procurement Policy Note – Public Procurement Rules, Development Agreements and s106 ‘Planning Agreement’ Guidance) which, he submitted, accurately and succinctly set out the law as follows: “[T]he sale or lease of land or property by a public body is not within the scope of the public procurement rules, so a simple disposal of land is not caught as there is no acquisition (and thus no procurement) of any goods, works or services. Therefore the lease or sale of land by a contracting authority to a developer for the purposes of development will not be subject to the public procurement rules unless this lease or sale contains or is accompanied by a requirement to undertake a work or works as defined in the rules….”.

[99]The OGC Guidance suggests (at paragraph 14) that, when deciding whether a development agreement comprises a public works contract, questions for consideration are:

“Is a work or works required or specified by a contracting authority? Is there an enforceable obligation (in writing) on a contractor to carry out that work or works? Is there some pecuniary interest for carrying out this work (not necessarily a cash payment)?”

It suggests (at paragraph 15) that, if the answer to any or all of those questions is “no”, then it is unlikely that the arrangement will be subject to the public procurement rules. As I understood his submissions, Mr Holgate accepted that the answer to at least the first two questions must be, “Yes”, for the procurement provisions to apply. Is there some pecuniary interest for carrying out this work (not necessarily a cash payment)?”

[100]The principles underlying the propositions helpfully set out in the OCG Guidance were emphasised the recent judgment of the Court of Justice of the European Union (Third Chamber) in Helmut Müller GmbH v Bundesanstalt für Immobilienaufgaben

[2010] 3 CMLR 18

. At paragraph 63, the court said:

“… [T]he concept of ‘public works contracts’, within the meaning of [the Directive], requires that the contractor assume a direct or indirect obligation to carry out the works which are the subject of the contract and that that obligation is legally enforceable in accordance with the procedural rules laid down by national law.”

The reference there to “direct or indirect obligation to carry out the works” does not detract from the firm requirement that there must be a legally enforceable obligation on the contractor, the reference to “indirect obligation” simply reflecting the flexibility with which the obligation may be met, (e.g. through sub-contractors.

[101]The rationale for the proposition that a legal obligation to carry out works specified by the contracting authority is a required element for there to be a public works contract is admirably set out in the Opinion of Advocate General Mengozzi in Helmut Müller, as follows (at paragraphs AG76-77):

“In my view, however, it is clear that… the obligation to carry out the work and/or works constitutes an essential element in order for there to be a public works contract…. This follows, first and foremost, from the provisions of [the Public Contracts Directive] itself which… define public works contracts as contracts for pecuniary interest. The concept is therefore based on the idea of an exchange of services between the contracting authority, which pays a price (or, alternatively, grants a right of use), and the contractor, who is required to execute a work or works. Thus, public contracts are clearly mutually binding. It would obviously be inconsistent with that characteristic to accept that, after being awarded a contract, a contractor could, without any repercussions, simply decide unilaterally not to carry out the specified work. Otherwise, it would mean that contractors were entitled to exercise discretion with regard to the requirements and needs of the contracting authority.”

Hence, to fulfil the purpose of the Directive, a required element is a commitment by the contractor, legally enforceable by the contracting authority, to perform relevant works. It is insufficient if, legally, the contractor has a choice and is entitled not to perform the works.

[102]Turning to the claim before me, the issue between the parties in respect of Ground 1 is whether the arrangements between the Council and Tesco, outlined above, which included the contract for the sale and purchase of the Community Facility, do impose an obligation on Tesco to carry out works as specified by the Council, so that the arrangements amounted to a “public works contract” to which the provisions of the 2006 Regulations applied.

[103]Mr Holgate submitted that they do. He submitted that the arrangements between the Council and Tesco must be considered as a whole, including, vitally, the obligations imposed by the 2010 section 106 agreement which itself has to be viewed in the context of the Council’s obligations under section 19 of the Local Authority (Miscellaneous Provisions) Act 1976 and the declaration by the Council on 13 November 2006 that the property housing the Community Facility (provided by the Council under section 19) was surplus to requirements, but only “on the basis of [its] replacement to a specification and at locations to be agreed by the [the CCP]” (see paragraph 10 above). The section 106 agreement obliges Tesco to provide a replacement for the Community Facility, i.e. to undertake construction works as defined in the 2006 Regulations. Insofar as the arrangement is viewed as a contract with a mixed purpose, then(i) it is sufficient to invoke the procurement provisions of the 2006 Regulations that one purpose of the arrangement was the procurement of relevant works; or,

(ii) if that is not sufficient, then the main purpose of the arrangement is to procure those works.

[104]Those submissions were, as ever, both articulately and forcefully put by Mr Holgate. However, in my view, they not withstand analysis. They are founded upon a fundamental misunderstanding or, at least, mis-casting of the legal rights and obligations of the Council and Tesco, arising out of the arrangements between them; and they do not surmount the first hurdle, namely that, to fall within the scope of a “public works contract” and thereby be subject to the procurement requirement provisions of the 2006 Regulations, the arrangements must include a legally enforceable obligation on Tesco to perform relevant construction works. On any analysis, they do not include any such obligation. Tesco are not under any legally enforceable obligation to perform any works; and it is not to the point that, in the future and dependent upon how matters in fact proceed and choices Tesco make, they might at some stage be committed to such an obligation.

[105]In coming to that conclusion I have, in particular, taken into account the following.

[106]First, Mr Holgate submitted that the relevant time for consideration of such matters was 8 April 2011, when the Council and Tesco exchanged contracts for the sale and purchase of the Community Facility; but the precise date for these purposes does not matter, because there has been no material change in their rights and obligations since before 13 October 2010 when the Council resolved to enter into that contract.

[107]Second, I accept Mr Holgate’s uncontroversial submission that, in considering whether the procurement provisions apply, one must have look at the whole of the arrangements between the contracting authority and the contractor; and, in particular, whether there is in reality a multi-stage award procedure which comprises in substance a unity which includes an obligation to perform works and is consequently subject to the procurement rules. For example, there may be an award of a land contract by the authority to the contractor, with a separate award of a contract involving works. Where the authority and contractor are legally committed to the works contract at the time of the land contract, then the two stages might of course be considered as a single transaction, to which the procurement provisions apply. However, as Helmut Müller and the OGC Guidance make clear, at the time of the land transaction, it is insufficient that the authority merely intends to, or is very likely to, enter into a works contract with the contractor, short of a formal, legally enforceable commitment. The OGC Guidance (at paragraph 36) refers to a separation of the land contract from the works contract not avoiding the procurement rules “if the land sale was accompanied by or depended on a binding contractual obligation to carry out works on the land” (paragraph 36), and that “hiving-off a contractual obligation to carry out a development into a separate agreement from the land transfer would not defeat the application of the [procurement] rules” (paragraph 41) (emphasis added).

[108]Third, in relation to any legal commitment on the part of Tesco, section 19 of the Local Government (Miscellaneous Provisions) Act 1976 does not of itself assist the Co-op: it gives a local authority a power (not a duty) to provide recreational facilities. Nor does the declaration of the Council on 13 November 2006 (that the Community Facility was surplus to requirements on the basis of replacement to a specification and at locations to be agreed by the CCP) assist them. The only commitment in that declaration was by the Council, that replacement facilities would be provided. Although at that stage it may have been envisaged that that provision would be by the developer of the Site – particularly in the light of the Hazelwood Lane Development Brief which indicated that the facilities would be secured through a section 106 agreement – nothing in that declaration required any works to be undertaken by Tesco or other potential developer, and it does not, and could not, add to the obligations of Tesco found elsewhere in the arrangements.

[109]Fourth, Mr Holgate focused on Tesco’s obligations under the section 106 agreement, and he conceded in the course of argument that that agreement was indeed the only possible source of an obligation required to invoke the procurement provisions of the Public Contracts Directive and 2006 Regulations.

[110]At all material times, the “replacement community facilities” formed part of Tesco’s planning permission and paragraph 4.3.1 of the section 106 agreement obliged Tesco to be responsible for all works of fitting out and re-location costs of “the Replacement Community Facilities” (see paragraphs 14 and 65 above). Although that was capable of being commuted into a money sum at the option of the Council, there is force in Mr Holgate’s submission that, if and when the section 106 agreement in its current form is triggered, then there would be an obligation on Tesco to perform works, legally enforceable by the Council. The matter would legally, then, be out of Tesco’s hands. However, Tesco was not on 13 October 2010 or 8 April 2011 (and, indeed, is not today) committed to any of the obligations in the section 106 agreement. Those obligations do not arise unless the planning permission is implemented (i.e. the development is started). That start is conditional on a variety of matters and, in any event, Tesco is not legally committed to start the development at all (see, e.g., paragraph 66 above). Even if the conditions are in due course satisfied, Tesco have no development obligations; they are entitled to walk away from the Site. Whether they decide to proceed, and take impose upon themselves any obligation to perform any works, is entirely in their own hands. Of course, given their commitment to the Site in terms of money and effort to date, it may well be very likely that they will in fact proceed, if given an appropriate opportunity; but they have no legally enforceable obligation to do so. The Council cannot require them, as yet, to perform any works.

[111]Of course, as Mr Holgate pressed, the arrangements between the Council and Tesco must be looked at as a whole – but the aggregation of elements that might make it more likely that Tesco would be the developer with an obligation to perform works under a relevant section 106 agreement can never, of itself, create a legal obligation to perform works which, on a proper analysis, is simply not there.

[112]Fifth, although what matters here are legally enforceable obligations (rather than intentions, or what is likely to happen in practice), the evolving intentions of the Council and what is likely to happen with regard to the replacement community facilities is instructive here. As I have indicated, the Council have moved towards not requiring the developer of the Site to relocate the facilities either on the Site or elsewhere, in favour of moving the community centre to the refurbished Bournville Lane Baths building and the indoor bowls facility to Billesley Indoor Tennis Club. If this judicial review is unsuccessful (and the sale of the Community Facility to Tesco goes ahead on the terms proposed), then it intends to use the 50% deposit to fund at least the refurbishment of the baths building, although, if this claim is successful, it is now committed to reprioritising other expenditure to ensure that that refurbishment goes ahead in any event. The terms of the Overage Agreement (foreshadowed to an extent by the change to clause 4.3.4 of the section 106 agreement in December 2010: see paragraph 64 above), make clear that neither the Council nor Tesco now intend that the Site be developed by Tesco with them having any obligation to perform works in relation to the replacement community facilities (see paragraphs 75-6 above). Miss James says that, in relation to the proposed works at the Bournville Lane Baths and Billesley Indoor Tennis Centre required to provide the facilities currently housed in the Community Facility:

“There is no question of these works being undertaken or commissioned by Tesco”

. The fact that it is now, at the least, very unlikely that Tesco will ever perform any works in relation to the replacement facilities highlights the legal position that they are under no legally enforceable obligation to perform any such works.

[113]Sixth and finally, of course, the sale of the land has to be seen in its proper context. Some of the submissions of Mr Holgate (and evidence of Mr Colin Smith; see Report, paragraph 6.4) suggested that, when the Council referred to the Third Tender Process being for “a straight sale of land”, they meant that the land was being sold in some way in a blinkered fashion, divorced from any consideration of the wider context including their intention that the whole Site (including the land being sold) be redeveloped. That is not the case. “Straight sale of land” meant only a sale of land without attached development obligations. There is no doubt that the Council wished and still wish to have the Site developed, and the land was being sold with that objective in mind. They have never made any secret of that. Equally, there is no doubt that Tesco wished and still wish to develop the Site.

[114]Simply by virtue of that background, the sale of the land is not a “sham” – a word used by the Claimant in correspondence and in this claim. Nor is it a “sham” in the legal sense that it is intended to hide the true legal rights and obligations of the parties. It was suggested by Mr Holgate in his Skeleton Argument (at paragraph 47) that the letter of 2 February 2011 on behalf of Tesco to the Council, asking them to exercise their CPO powers, was “beyond doubt… a mere pretence”, because the availability of CPO powers to support Tesco’s redevelopment was “an integral part of Tesco’s offer of 8 September 2010” which the Council resolved to accept on 13 October 2010. However, in his oral submissions Mr Holgate denied any suggestion that the Council and Tesco have any overt legal agreement binding Tesco to develop the Site, and/or perform relevant works in relation to the replacement community facilities. There is no evidence to support such a suggestion. The second limb of Tesco’s September 2010 offer, if accepted by the Council and if the preconditions were met, would of course mean that a further sum would be paid by Tesco to the Council. There may even have been an expectation by Tesco that those conditions will be met. However, by committing themselves to sell the Community Centre to Tesco, the Council did not legally commit themselves to comply with those conditions, nor specifically to use their CPO powers to support the Tesco development.

[115]The Council has always understood that it was likely to be necessary for it to make its CPO powers available to a preferred developer, whoever that might be; and has made clear a readiness to make such powers available for an appropriate development. However, although Tesco were perhaps likely bidders for the Community Facilities and, particularly given their land holding, were likely to be the developers of the Site, the Council never suggested in the context of the Third Tender Process that they would necessarily exercise their CPO powers in favour of the purchaser of the Community Facility, whoever that might have been. In support of a contrary contention (i.e. that the successful bidder for the land would receive the Council’s support through CPO powers), Mr Holgate relied upon a letter from the Council to Tesco and the Co-op dated 3 August 2006, which (as part of the tender documents) refers to the Council supporting “the chosen scheme with compulsory purchase powers” (Skeleton Argument, paragraph 34 and footnote 8); but that was in the context of the First Tender Process which, as explained above, intended to identify, not just a purchaser of the Community Facility land, but a development partner contractually committed to development obligations. That context was very different from that of the Third Tender Process, which envisaged no such contractual development commitment.

[116]Mr Holgate submitted that, since it was pointed out to the Council in March 2006 that the First Tender Process potentially breached the procurement provisions of the 2006 Regulations, they “sought to find a way around them” (Skeleton Argument, paragraph 36). In my view, that is not a fair way of putting it. If it had been successfully completed, the First Tender Process would have resulted in the Council not only selling the Community Facility, but having a developer with development obligations. On reflection, they considered that a better course would be to sell the land divorced from those obligations: that was the purpose of the Third Tender Process. The advantage, from the Council’s point of view, was that the onerous provisions of the procurement provisions would not apply to the sale of the land, and may not apply to any part of the arrangement. The disadvantage is that they lost the imposition of an obligation on the successful bidder to commit themselves to the development obligations. However, these are the different sides of the same coin: both derive from the presence or absence of contractual obligations to perform works. Mr Holgate’s submission that, in the Third Tender Process, “The outward separation of the sale of the land from the other elements involved is a mere matter of form” (Skeleton Argument, paragraph 40), is simply not correct: the difference is one of legal substance. The Council cannot be criticised for formulating a strategy with regard to the development of this Site that, whilst having other downsides (including an absence of development obligations it could enforce against a successful tendererer) avoided the onerous obligations of the Public Works Directive and 2006 Regulations. That is particularly so as the Council’s primary objective was of a planning nature – to develop the Site – rather than having performed the works involved in replacing the Community Facility.

[117]For those reasons, I do not consider that Tesco is now under any legally enforceable obligation to perform any relevant works that mean that the arrangements between it and the Council or any of them (including the contract for the sale of the Community Facility) fall within the scope of “public works contract” for the purposes of the 2006 Regulations; and, hence, the procurement provisions of those Regulations do not apply.

[118]If there had been legally enforceable obligations to perform works, at least the three further potential issues would have arisen, namely(i) whether those obligations were mere planning obligations that would not invoke the provisions of the 2006 Regulations,

(ii) whether the 2006 Regulations would not apply, because the main purpose of the arrangement was not the procurement of works, and

(iii) whether the 2006 Regulations only give rise to private rights, such that a public law claim based upon them is inappropriate. In the light of my finding that the arrangement involved no legally enforceable obligation to perform works, those issues do not arise in this case; and it is unnecessary for me to consider them further.

[119]Ground 1 consequently fails. I deal with the appropriate disposal of all of the grounds at the end of this judgment (see paragraphs 161-8 below).

Ground 2: Best Consideration

[120]In relation to this ground, the Co-op and the Council relied upon expert valuation evidence from a surveyor, namely Colin Smith FRICS (a Senior Director and Head of Compulsory Purchase at CB Richard Ellis Ltd, instructed on behalf of the Co-op, Main Report dated 31 October 2011), and Miss Carole Pullan FRICS (a Director in the Development Consulting Group of DTZ, instructed on behalf of the Council, Main Report dated 30 January 2012).

[121]Section 123 of the Local Government Act 1972 gives a local authority a wide power to dispose of land “in any manner they wish”. However, that is qualified by section 123(2), which provides:

“Except with the consent of the Secretary of State, a Council shall not dispose of land under this section, otherwise than by way of a short tenancy, for a consideration less than the best that can reasonably be obtained.”

The same substantive provision applies to other public bodies, such as the New Towns Commission (section 37(3) of the New Towns and Urban Development Corporations Act 1985). The policy behind these provisions is plain: “… [I]t is to ensure, so far as reasonably possible, that public assets are not sold at an undervalue save on the authority of the Secretary of State. The public interest underlying the policy is obvious.” (R v Commission for New Towns

(1989) 58 P&CR 57

at page 65, per Bingham LJ). The provision is in the public interest, to protect public assets and the public purse. There is a similar constraint on trustees, to protect beneficiaries (section 39(1) of the Settled Land Act 1925).

[122]The nature on the duty imposed on public authorities by section 123(2) was recently considered by His Honour Judge Waksman QC sitting as a judge of this court, in R (Salford Estates) v Salford City Council

[2011] EWHC 2135 (Admin)

. He held (at [95)) that: i) section 123(2) imposes a duty to achieve a particular outcome, namely the best price reasonably obtainable, rather than a duty to conduct a particular process; and ii) an authority’s purported discharge of its duty under section 123(2) can only be challenged on ordinary public law grounds. I respectfully agree with those propositions.

[123]The duty in section 123(2) is directed at outcome, not process; but that does not mean that process is irrelevant. Whilst the circumstances of particular cases are infinitely variable, in deciding whether an authority has or has not breached its section 123(2) obligation, the process it adopted may have an important, and possibly determinative, evidential role; particularly where, as here, the actual consideration for the sale is commercially confidential and not known to either the person challenging the authority’s performance of its duty, or indeed the court. Hence, in R v Darlington Borough Council ex parte Indescon Ltd

[1990] 1 EGLR 278

at page 282, Kennedy J said:

“… [A] court is only likely to find a breach or intended breach by a council of the provisions of [section 123(2)] if the council has (a) failed to take proper advice or (b) failed to follow proper advice for reasons which cannot be justified or (c) although following proper advice, followed advice which was so plainly erroneous that in accepting it the council must have known, or at least ought to have known, that it was acting unreasonably.”

[124]In considering whether a particular price is the best price reasonably obtainable, the best price achievable in the open market is likely to be relevant. In many cases, they will be the same. It is intrinsic to the concept of open market value that it takes into account all potential bidders, including any special bidders, to avoid a speculator buying property and selling it on to someone with a special interest at a higher price (Commissioners of Inland Revenue v Clay

[1914] 3 KB 466

[125]With regard to the Third Tender Process, as a process, the following appear to be common ground. First, the method of sale employed (i.e. informal tender on the open market) was an appropriate basis for the disposal of the Community Facility (see Carole Pullan Report, paragraph 3.6 and Colin Smith Report, paragraph 6.2). Second, the only realistic attraction of the premises for a potential purchaser would be as part of the proposed wider redevelopment of the Site (Colin Smith Report, paragraph 4.5). The value of the premises as part of the proposed redevelopment area would undoubtedly be higher than the current use value, and there is no possibility of the premises being redeveloped in isolation as opposed to as part of the Site (Carole Pullan Report, paragraph 3.7 and Colin Smith Report, paragraphs 4.6 and 5.4).

[126]Mr Smith said that it was most likely that the highest bid would come from supermarket operators or other developers interested in the development of the Site as a whole (Report, paragraph 6.3). Miss Pullan was more specific: she said that, although the recession has hit commercial property values, the foodstore market has bucked the trend, and “generally foodstore sites in suburban areas generate the highest values and exceed those for other forms of development” (Report, paragraph 3.11); and “realistically the highest price obtainable for this land was on the basis of it forming part of a foodstore site” (paragraph 3.18). Insofar as there is any divergence of view between them, I prefer the more particular evidence of Miss Pullan, for the reasons she gave for her opinion. On that basis of course, in respect of the development for which the Co-op had obtained planning permission (which was not anchored by a foodstore), the Co-op would not have been the highest bidder, even had they chosen to tender.

[127]I also accept Miss Pullan’s evidence that it is “inconceivable that any prospective tenderer would not investigate fully the planning status of a site and the wider locality” (Report, paragraph 3.17). Given that the highest bid would almost inevitably come from a developer interested in erecting a foodstore as part of a wider development, the potential serious bidders came from a limited, but sophisticated and informed, market (paragraph 3.29). Miss Pullan said (paragraph 3.18):

“All the major operators employ teams of in-house or consultant development advisers, frequently with defined regional responsibility, which means that they tend to have detailed knowledge of suitable sites up and down the country. They have specific locational requirements for new stores and collate a wealth of data on sites in their target areas. In addition they monitor market activity and planning proposals (including site allocations) to defend trade of existing stores with a view to extension or relocation to keep the competition at bay. In my opinion, the major operators interested in this area would have been well aware of the circumstances surrounding the site and would have investigated them in detail.”

[128]I accept that evidence. There were, publicly available, the Stirchley Framework and the Hazelwell Lane Development Brief (which showed the local development policy and intentions of the Council) and the public report of August 2010 which led to the Third Tender Process (which, in paragraph 4, included the planning background). With regard to the Site (including the land on which the Community Facility is located), there were two extant planning permissions (those of Tesco and the Co-op, respectively), and there had been two aborted tender proposals (albeit closed to Tesco and the Co-op). Any serious bidder from the relevant market sector would have been aware (or could and would have made itself aware) of the Council’s proposals for developing the Site, and, broadly, the planning history. It is all but inconceivable that any serious potential bidder would not have been aware that the Community Facility was being sold in the context of a development programme for the Site.

[129]Nevertheless, supported by the evidence of Mr Smith, Mr Holgate submitted that the manner of marketing the Community Facilities in the Third Tender Process was fundamentally flawed, such that it was impossible to say that the Council had discharged their duty under section 123(2), in the following respects.

[130]First, complaint is made that, in the tender documents, the terms of the contract for the sale of the land were said to be “non-negotiable”, but the contract ultimately agreed with Tesco was materially different from those terms.

[131]However, paragraph 15 of the Instructions for Tendering stated:

“Tender Statements once submitted and accepted by the [Council] cannot be renegotiated.”

The Tender Statement was the proforma that tenderers were required to complete, indicating the amount and structure of the proposed payment. The intention behind that provision was to prevent a tenderer reducing an offer made and accepted: it was not intended to be an indication that the Council would not negotiate any of the terms in the draft Sale and Purchase Agreement that also formed part of the tender documents (Kathryn Elizabeth James 30 January 2012 Statement, paragraphs 37 and following). Indeed, the tender documents looked at as a whole clearly contemplated such negotiation. Clause 17 of the draft Sale and Purchase Agreement made clear that:

“All offers and subsequent negotiations are subject to contract”

(emphasis added). That, in substance, is repeated in clause 20. Those terms made it reasonably clear to any would-be tenderer that the terms of the draft agreement were open to negotiation. Had there been any doubts in the mind of the Co-op, then, before the Third Tender Process had started, on 10 August 2010 the Council had written to them indicating that they would be prepared to meet to discuss the new process with them (see paragraph 47 above), and the tender documents indicated to all prospective tenderers that, if any were in doubt as to the interpretation of any part of the tender documents, the Council would endeavour to answer any written queries before the tender was submitted (see paragraph 50 above). The Co-op asked for no such meeting, nor did they make any such enquiry.

[132]Second, Mr Holgate submitted that the terms of the offer were “unprecedentedly onerous”, notably in their requirement for a 50% deposit and the short period for bids. Mr Smith said (Report, paragraph 6.6) that the deposit requirement:

“… is a very strong disincentive to any offer being made with an inevitable depressing affect (sic) on price. Without the expectation of becoming the preferred development partner this requirement alone makes the offer commercially absurd.”

With regard to the timescale, the advertisement commencing the bidding period was inserted into the Estates Gazette on 14 August, with a final date for tenders of 9 September, i.e. a period of under a month which included the August Bank Holiday. Mr Smith said that, for a tender process such as this, this was an “extremely short” period and a 2-3 month period would be usual (Statement 17 February 2012, paragraph 3).

[133]The Council has put forward two reasons for the proposed terms for the deposit: i) By obtaining a 50% deposit, the Council could start work on the Bournville Lane Baths refurbishment, in order to provide a new community centre there as soon as possible; which, in turn, would ensure that the Council could deliver vacant possession of the Site (Kathryn Elizabeth James 30 January 2012 Statement, paragraph 42). ii) Whilst the Council concede that it would not be possible to keep a deposit (even if labelled “non-refundable”) if the receiving party was responsible for the failure to complete – because a party cannot benefit from its own wrong – far from being “unprecedented”, a clause in terms of a non-refundable deposit is standard in the Council’s documentation as it is perceived as discouraging “time-wasters” (Carole Pullan 30 January 2012 Report, paragraph 3.20).

[134]Miss Pullan found “nothing unusual in [the] requirement” for a non-refundable deposit (Report, paragraph 3.20): and, although a 50% deposit was unusual in her experience, she understood why it was required in this case (i.e. to be confident of obtaining a substantial contribution to the costs of relocating the community facilities in order to enable it to provide vacant possession to any developer: Report, paragraph 3.22). I have already indicated that the sale of the land was not done in a vacuum, without regard to the wider development intentions of the Council for the whole Site (see, e.g., paragraph 113 above). Given those intentions, and the Council’s commitment to replacing the facilities in the Community Facility (with an increasing likelihood that the community centre would be relocated in the refurbished Bournville Lane Baths building), the 50% deposit is understandable and the deposit terms at least rational.

[135]With regard to the timescale, Miss Pullan said simply that sites are marketed with a wide range of period for tender, from just 2 weeks to tenders without a stated closing date. She did not appear to consider the time period for bids in this case to be exceptional; and, given that the market was limited and sophisticated, there is no evidence that a longer period would have resulted in other or better bids. The Co-op, of course, made a positive decision to decline to bid within the tender period.

[136]Given that realistically the best bid would come from a potential developer of the Site who would probably have to be prepared to risk some money on the voluntary acquisition of land, I do not regard the term in respect of deposit or time for tender (or any of the other terms) as so onerous as likely to dissuade potential serious tenderers from bidding.

[137]Third, it was submitted that the Council made no effort to publicise the potential for the wider development of the Site (of which the Community Facility formed part), which might make the land for sale more attractive to potential purchasers.

[138]However, the tender documents made clear that it would be assumed that any tender would be made with full knowledge of the planning status of the land, and, as I have already indicated, the only potential serious best bidders would have been developers intent on a development with a major foodstore anchor. For the reason I have already given, such developers would have been reasonably aware of the Council’s proposed development of the Site.

[139]Fourth, it was said that the Council did not publicise its willingness to make CPO powers available to the successful bidder, to facilitate the development of the Site as a whole.

[140]With respect, this submission misses the target: the Council were never committed to making CPO powers available to the successful bidder for the Community Facility as such, as opposed to the preferred developer (although of course the identity of the two could possibly be the same) (see paragraphs 114-5 above). Given the ownership and assembly issues, it would have been obvious to any potential developer that the Council would almost certainly have to exercise its CPO powers to obtain site assembly for any potential developer.

[141]Fifth and finally, Mr Holgate submitted that the Council did not obtain any pre-marketing advice on the method of marketing that would most likely result in the best price, and therefore did not have that to fall back upon. They did not obtain detailed advice on marketing, but(i) it is common ground that the general method of marketing (an open informal tender) was appropriate, and indeed suggested by the Co-op,

(ii) the Council had significant experience in selling off significant estate (see Carole Pullan Report, paragraph 3.19), and

(iii) as emphasised in Salford Estates (paragraph 121 above), the section 123(2) duty is outcome (rather than process) driven.

[142]In relation to process, in conclusion, it was Mr Smith’s view that the method of marketing was consequently irrational. The only rational way to achieve the best price would have been to market the property openly and without special or unusual terms, explicitly on the basis that the premises form an essential part of the intended wider redevelopment of the Site as a whole, and the Council would be prepared to make CPO powers available to facilitate assembly of the Site as a whole if need be (Report, paragraph 6.9: the emphasis is his).

[143]I do not agree. In respect of adequate marketing for the purposes of obtaining the best price, that is essentially a matter for the selling authority. With the benefit of hindsight, the Council may now wish that it had obtained more detailed advice on marketing more readily to combat this challenge: but Miss Pullan considers the marketing of the Community Facility that the Council did to have been reasonably adequate, and unexceptional. The Council considered that the marketing had been a success, because of the number of enquiries (22) they had received. I do not consider that, on any view, the marketing actually done could be categorised as irrational. It was, in my judgment sufficient to encourage any prospective bidders from the limited potential market, to put in a tender: and, in relation to the bid made by Tesco, Miss Pullan considers it was sufficient to require Tesco to place a premium bid (see, e.g., Report, paragraph 3.26).

[144]However, the duty to obtain best consideration is outcome driven. In relation to the actual price obtained, the following points are relevant. i) The actual price obtained is not known. Tesco have not disclosed it, as a matter of commercial confidence. ii) For the reasons set out above (see paragraphs 125-6), realistically the highest bid would very probably derive from a developer intent on a development with a foodstore anchor. That excluded the development for which the Co-op had planning permission. iii) Tesco proposed such a development. Given the fact that they already own 70% of the Site (so CPO costs would be higher for any other developer) and that Tesco had incentives to make a premium offer likely to exceed that of any rival, Tesco were likely to bid high. Miss Pullan considered that Tesco was “likely to be able to afford and to be willing to pay a higher price than any other bidder” (Report, paragraph 3.42). iv) With regard to Mr Lazar’s valuation of 5 May 2010 (see paragraph 35-6 above), he puts the development value at £1.5m. In that, he took into account the special purchaser element: he refers to it in the first paragraph of his valuation, and he spreads the proposed section 106 costs across the entire Site. The acreage values used by Mr Lazar for sites of this sort in the circumstances of this case is not challenged by Mr Smith. Miss Pullan (in unchallenged evidence) said that that values had not risen for two years, making Mr Lazar’s valuation good at the time of the decision to accept the Tesco bid and at the time of the land contract. I accept that there is scant evidence that Mr Lazar’s valuation was before the CCP when they decided to accept the Tesco bid: but we are here concerned with value, rather than process. Mr Lazar’s evidence is of some weight in respect of value. v) Immediately prior to exchange of contracts, Mr Payne advised the Council that Tesco’s offer was for best consideration, and that was backed up by his (post-exchange) report of 13 April 2011 (see paragraphs 73-4 above). I do not find that report convincing. Whilst purporting to accept that the Tesco bid is for best consideration, the reasoning in the report is thin. It gives an apparently very low valuation of £300,000, which appears not to take account of the special purchaser point. vi) In her report, Miss Pullan considered(i) the valuations of Mr Lazar and Mr Payne,

(ii) comparable land deals where land has been bought by a supermarket developer in the Birmingham area, and

(iii) the guideline starting point figure for such land used by the Council (£1.8m-2.4m per acre). She states that the price agreed for the Community Facility “exceeds this level of value by a substantial amount” (Report, paragraph 3.38), “exceeds the Council’s benchmark figure by a substantial margin” and “exceeds those paid for all of [the comparable] sites” (paragraph 3.44). She says that the sum offered by Tesco (even excluding the sum offered in the Overage Agreement) “was far greater than that which could have been anticipated from any other party”. “Put simply”, she says, the Council “has secured for itself … an exceptionally good deal” (Report, paragraph 3.48), satisfying its obligation to obtain best consideration (paragraph 4.1). vii) In relation to best consideration reasonably obtainable, Miss Pullan appears to consider the appropriate factors, and to adopt the correct analysis. She takes into account the point that Tesco is a special bidder. Mr Holgate criticised her opinion for being after the event; but she is an independent expert, she gives reasons and supportive data for her opinion, and her evidence is compelling. viii) Interestingly, Mr Smith does not offer an indication of what he considers best value: nor does he challenge the figures of £1.5m and £1.8m per acre which are used in the Council’s evidence, upon which the assessment of best value is made by them Further, the Co-op’s solicitor (Simon Stanion), in a statement dated 8 February 2012 in support of an application for further disclosure, appears to have accepted (at paragraph 7) that:

“It thus appears that [Tesco] has paid over the odds for the [Council’s] land…”

. That is difficult to square that with the plea that the Council has not obtained best value; except insofar as it is suggested that, had the Council acted differently, they could have obtained an even higher bid from Tesco. ix) However, that possibility is covered by Miss Pullan. She considers that Tesco “bid the absolute maximum to secure the land” (21 February 2012 Statement, paragraph 13)

[145]As indicated in Salford Estates (see paragraph 122 above), an authority’s purported discharge of its obligation to discharge its duty to obtain best consideration under section 123(2) can only be challenged on ordinary public law grounds. For the reasons I have given (paragraph 121 above), the duty is imposed to protect public assets and the public purse. Where a challenge is made by a party who is a competitor of the successful bidder who, on the evidence, would not in any event have made a higher bid, this court is entitled to be sceptical.

[146]In this case, I am far from satisfied that the Council was not entitled to conclude that the Tesco offer was for best consideration that could reasonably be obtained. Its marketing appears to me to have been adequate and at least rational. However, I consider the crucial evidence is that of Miss Pullan, the substance of which I accept. On the basis of all the evidence, in my judgment it cannot be said that the price obtained from Tesco is not the best consideration reasonably obtainable for the Community Facility.

[147]For those reasons, Ground 2 also fails. As with Ground 1, I deal with disposal below (paragraphs 161-8).

Other Grounds

[148]I can deal with the remaining grounds shortly, because in respect of most the substance has already been dealt with above.

[149]First, Mr Holgate submitted that the Third Tender Process in relation to the sale of the Council’s interest in the Community Facility was legally unfair so as to render the resulting contract with Tesco unlawful, particularly because of the inconsistency between that which was offered on the market and the terms on which the Council has agreed to sell to Tesco.

[150]To a large extent this ground is an alternative way of putting the earlier point that the Instructions to Tenderers indicated that the tender statement was not negotiable (see paragraph 131 above). In addition, Mr Holgate relied upon the following additional matters. i) First, he submitted that the sale of the Community Facility was presented publicly, in the Estates Gazette advertisement and invitations to tender, as if it were an independent event (i.e. independent from the wider development of the Site, including the replacement for the Community Facility) without any suggestion that the Council might make its CPO powers available to the successful bidder. I have dealt with the substance of this ground already. The sale of the land was “independent” in the sense that it was not linked to any commitment on the part of the purchaser to develop the land, or on the part of the Council to make its CPO powers available to the successful bidder; and there was no commitment by the purchaser to replace the Community Facility. For the reasons I have given (see paragraphs114-5 above), the Council did not intend to make its CPO powers necessarily available to any successful tenderer for the Community Facility; but only for the preferred developer, when chosen. ii) Mr Holgate submitted that the tender process was unfair, because it effectively determined the development partner, whereas the August 2010 report indicated that the appointment of a development partner would be the subject of a separate report and a separate decision by the CPP. However, as I have indicated above (paragraph 45), “development partner” here does not connote a partner with development obligations – only a preferred developer. It was never envisaged that the successful tenderer for the Community facility would automatically be the preferred developer. Whoever won that tender, Tesco would still have at least 70% ownership of the Site: they would be in a good position, in any event, although, of course, a much better position if they were the successful tenderer for the Community Facility. iii) It was submitted that the process was unfair because Tesco knew what was going on, and no one else (including the Co-op) did. However, all those in the Third Tender Process knew that the sale and purchase of the Community Facility would be effected without any development obligations being imposed upon the successful tenderer and without a legal commitment by the Council to make a CPO or otherwise support the successful tenderer in any planned development of the Site as a whole. There is nothing in these complaints.

[151]Second, Mr Holgate submitted that he authorisation of the making of a CPO to facilitate site assembly for Tesco’s redevelopment was legally unfair so as to render the decision to authorise unlawful, because the Council failed to comply with assurances it gave to the Co-op in its letter of 22 May 2009. That letter (he submits) contained the following assurances: i) that the Council would have an opportunity to comment on the updated Knight Frank report; ii) that the findings of the updated report would be reported back to the CCP; iii) that the Co-op would have an opportunity to comment on the draft report to the CCP; and iv) that any formal decision to make a CPO would “follow” the reconsideration of the issue of whether the Council would dispose of the Community Facility to Tesco. Those assurances (it was submitted) gave the Co-op a legitimate expectation that there would be such an assessment with the opportunity for such input. It is said that the report for the 4 August 2010 CCP meeting(referred to in paragraph 44 above) is consistent with the assurances given on 22 May 2009, which refers to seeking “approval to the appointment of a development partner”.

[152]I accept that the letter of 22 May 2009 gave some assurances to the Co-op, although not precisely in the terms suggested: in particular, any assurance with regard to the making of a CPO was in the context of making Tesco the Council’s development partner with development obligations.

[153]However, as Mr Elvin submitted, this ground is predicated on the basis of a continuum of process, and the process was not a continuum. All of the assurances were given in the context of the First Tender Process, and any legitimate expectation was limited to that process: neither assurance nor any legitimate expectation survived the termination of that process.

[154]The August 2010 report does not assist the Co-op: for the reasons given above (paragraphs 44-5), the use of the terms “development partner” in that report cannot imply a continuation from the First Tender Process.

[155]I add in passing that, curiously, Knight Frank did review their earlier opinion as to the merits of the bids, by letter of 30 January 2009, concluding that conditions had moved more in favour of the Tesco bid – although they did not take into account other factors such as the recent guidance and policy documents.

[156]Therefore, although I was unimpressed by Mr Elvin’s submissions that the question of legitimate expectation and fairness could only properly be left to either the Council when considering confirming the CPO and/or an inspector on appeal, I am unpersuaded by the merits of this ground.

[157]Third and finally, Mr Holgate submitted that, in authorising the making of the CPO on 14 March 2011, the Council both failed to take into account a number of material considerations and took into account immaterial considerations.

[158]I have already dealt with the Council’s concession about the basis upon which the CPO was authorised on 14 March 2011 (see paragraphs 86-7 above).

[159]Although not at the forefront of his submissions, Mr Holgate submitted that a number of other immaterial consideration were taken into account in the making of the relevant decisions. I consider that I have already dealt with the substance of all those submissions, and it is unnecessary to add anything further.

[160]For those reasons, the challenge does not succeed on any of these miscellaneous grounds.

Disposal

[161]This is a rolled-up hearing, in that the Co-op has not yet obtained permission to proceed.

[162]It was submitted on behalf of both the Council and Tesco that the claims had not been brought promptly, and permission ought to be denied on that basis alone.

[163]Certainly, it is of concern that, partly as a result of this claim, no progress has been made towards the development of the Site, which comprises a significant part of Birmingham. The move of the community centre and indoor bowls has been delayed, and, of even wider public importance, Stirchley as a local centre has been blighted and its future as a successful local centre has been put in jeopardy.

[164]However, I would not have refused permission to proceed with these challenges on the grounds of delay alone.

[165]The claim was issued on 16 March 2011. Two decisions were sought to be challenged. The decision to make a CPO was made on 14 March 2011, only two days before the claim was issued. There is no argument that the claim was not prompt in relation to that decision. The real complaint is in respect of the challenge in respect of the contract for the sale and purchase of the Community Facility. Ground 1 of the judicial review has been couched in terms of challenging the 8 April 2011 contract. However, the Council made the decision to accept the Tesco bid on 13 October 2010; but the identity of the successful tenderer was not made public (and, despite requests, the Co-op did not know who the successful bidder was) until March 2011.

[166]In the circumstances, I consider that the challenges in relation to the contract for the sale of the land are, in substance, properly to the decision to proceed to enter into that contract, with Tesco, on 8 April 2011, rather than to the decision to accept the tender the previous October. In any event, given the (patently, in time and related) grounds of challenge to the decision to make a CPO in support of the Tesco development scheme, I would not have been minded to have refused permission on the grounds of delay alone.

[167]Of course, it would still be open to me to refuse permission on the merits. With respect to Mr Holgate’s valiant efforts, I consider the merits of these challenges to be essentially weak. However, not without some hesitation but bearing in mind the two days of argument that in fact took place before me, I have concluded that the claims were arguable.

[168]Consequently, I grant permission to proceed but, for the reasons set out above, refuse the substantive application for judicial review on all grounds.