On Wednesday last week the Court of Appeal handed down its long awaited decision in Faraday Developments Limited v West Berkshire  EWCA Civ 2532.
The facts of the case were that West Berkshire (the Council) appointed St Modwen Developments without complying with the Public Contracts Regulations 2006 (Procurement Regulations) on the strength of UK and EU case law that held that an essential characteristic of a public works contract (as defined by the Procurement Regulations) is that it contains binding development obligations.
This, as the Council argued, meant that as long as the obligations to carry out public works were entirely at the discretion of the developer at the moment the agreement was entered into it would not be a public works contract as defined by the Procurement Regulations. In this case the development obligations only arose at the point the land was drawn down and, in any event, they were unilateral.
The Court took a different view. It accepted that at the moment the agreement was entered into it was not a public works contract. However, at that same moment the Council was committing itself to entering into a public works contract without following the Procurement Regulations. This was because a public works contract would come into being as soon as St Modwen exercised its option to draw down land under the development agreement. The Council sought to argue that this was not the correct approach and the relevant point in time to determine the nature of the agreement was the date it was entered into.
This was rejected by the Court of Appeal. It accepted that the CJEU had not dealt with a case like this before. However, it felt that the available case law suggested that the Court should look at the transaction in its totality at the date it is entered into and "establish whether, at that date, it embodied defined obligations that will, once they take effect, compose a "public works contract" and if it does embody defined public works obligations the Council will effectively be agreeing to act unlawfully in the future. This was both a breach of the Procurement Regulations and of the Council's public law obligations, as it was effectively agreeing to act unlawfully in the future.
At first sight this is an attractive argument and it is difficult not to have some sympathy with the Court in wanting to address what appeared to be an attempt to circumvent the Procurement Regulations.
However, it does raise some serious questions. In particular, the Court seems to have altered the basic test. The test provided by the case law is whether, at the time the agreement is entered into, as Leading Counsel for the Council argued, it contains "bilateral, or mutually enforceable, commitments to the works". The decision is also vague on the implications for agreements made under section 106 Town and Country Planning Act 1990. There is no satisfactory explanation as to why these agreements would not come within the ambit of this decision.
Finally, the decision is important because it is the first time the English Courts have held a contract to be "ineffective". The Council had published a voluntary transparency notice, but in a detailed analysis, the Court concluded that it had failed to give an adequate justification for its decision to proceed as it did and the notice was therefore invalid. The Court imposed, as it was required to, a civil penalty of £1. The Court opted for a nominal penalty because it had accepted that the Council, in breaching the Procurement Regulations, had not acted in bad faith, because there had been no attempt to evade the Regulations.
By entering into the development agreement, therefore, the council effectively agreed to act unlawfully in the future. In effect, it committed itself to acting in breach of the legislative regime for procurement