Development agreement was in fact a public works contract

The Court of Appeal has ruled that an agreement for the disposal of land was not a public works contract at the time the agreement was entered into but, because it contained contingent provisions which would require the developer to carry out development work in the future when those contingencies were met, the local authority had effectively agreed to unlawfully breach public procurement rules in the future. This breach either contravened the Public Contracts Regulations 2006 or was a breach of public law. The Court of Appeal therefore allowed the appeal against the dismissal of an application for judicial review of the council’s decision to enter into the agreement.

The main judgment in the case, Faraday Development Ltd v West Berkshire Council and St Modwen Developments Ltd, was delivered by Lord Justice Lindblom. He explained: “This appeal concerns the application of the law of public procurement to contracts by which local authorities seek to bring about the development of land in their ownership. It raises this question. Did a local authority act in breach of the requirements of Directive 2004/18/EC […] and the Public Contracts Regulations 2006, when, without having followed a procurement process under the 2006 regulations, it entered into a development agreement containing contingent obligations on the part of the developer to carry out development on its own industrial land?”

The appellant, Faraday Development Ltd, brought the appeal against the order of Holgate J, dismissing its claim for judicial review of the decision of the respondent, West Berkshire Council, to enter into a development agreement for the disposal of land on the London Road Industrial Estate, in Newbury, to the interested party, St Modwen Developments Ltd.

The first instance judge held that the development agreement did not constitute either a “public works contract” or a “public services contract” under the 2004 Directive and the 2006 regulations. He also concluded that the council had not failed to comply with the requirement in section 123(2) of the Local Government Act 1972 to obtain “best consideration”. Permission to appeal was granted and the appeal was allowed by the Court of Appeal. As a result, the appellant could apply to the court for the contract to be declared ineffective, thus cancelling any prospective obligations under it.

The value of the Court of Appeal judgment lies in its clarification of which contracts are public works contracts in pursuit of which public procurement rules have to be followed, even when parties stray into this highly regulated area without intending to do so when the contract was agreed.