Concession Contracts

October 1st, 2018 by James Goudie KC

In Ocean Outdoor UK Ltd v Hammersmith and Fulham LBC (2018) EWHC 2508 (TCC) the Claimant challenged the decision by the defendant (“the Council”), to enter into arrangements with Outdoor Plus Limited (“Outdoor Plus”) for the leasing of two plots of land and operation of two metal towers, with media screens and supportive software, one on each plot, in West London (“the Two Towers”) following a tender exercise.

In 2010 the Council granted to Ocean a lease in respect of each plot of land for the purpose of advertising from the Two Towers (“the Original Leases”). In April 2017 the Council invited bids for a new leasing arrangement. Outdoor Plus submitted the highest bid and was the successful tenderer. In June 2017 the Council granted new leases in respect of the land to Outdoor Plus (“the New Leases”).

Ocean’s primary case was that the New Leases transaction is properly to be classified as a services concession to which the provisions of the Concession Contracts Regulations 2016 (“the CCR 2016”) apply. Further, there was sufficient potential cross-border interest in the procurement for general EU principles to apply, such as transparency, non-discrimination, equality, fairness and proportionality. The Council failed to comply with the CCR 2016 and was in breach of general EU principles arising from the Treaty on the Functioning of the European Union (“TFEU”) in its conduct of the tender exercise for the New Leases.

Ocean’s alternative case was that the award of the New Leases was susceptible to judicial review in relation to the Council’s decisions: (i) to enter into arrangements with Outdoor Plus for the leasing and operation of the Two Towers; and (ii) to execute the New Leases with Outdoor Plus; on the grounds of procedural unfairness and manifest error.

The Council’s case was that the CCR 2016 do not apply to the tender exercise for the New Leases. The New Leases were not service concession contracts as defined in the CCR 2016; they were land transactions. The Council was obliged to obtain the best consideration reasonably obtainable in respect of any land disposal pursuant to section 123 of the Local Government Act 1972 but was not obliged to comply with the CCR 2016 because such land transactions are excluded from the regulations. Further, they are not governed by the general principles of EU law because they concern internal matters and there is no cross-border interest.

The Council’s position was that Ocean should not be granted permission for judicial review because the challenge had been made too late, there were no reasonably arguable grounds and any alleged unlawful conduct was unlikely to have made any material difference to the outcome. The Council engaged independent consultants to carry out the tender exercise. The procedure was fair. The Council acted properly in accepting the highest bid.

There were two claims, a procurement claim and a judicial review claim. O’Farrell J dismissed the procurement claim. She refused permission for the judicial review claim.

The issues in summary were as follows:

  1. Do the CCR 2016 apply to the tender procedure for the New Leases?
  2.  Was the award of the New Leases governed by the general principles of EU Law?
  3. Was the Council in breach of the CCR 2016 or any general EU obligations in respect of the tender procedure adopted for the New Leases?
  4. If the Council was in breach of its obligations, to what remedies, if any, is Ocean entitled?#
  5. Should Ocean be given permission to seek judicial review of the decisions to enter into the leasing arrangements with Outdoor Plus and/or to execute the New Leases?
  6. If permission is granted, were the decisions (a) to enter into the New Leases and/or (b) to execute the New Leases unlawful?
  7. If either or both of the decisions were unlawful, what, if any, remedy should be granted?

As to the first issue, an agreement between a contracting authority and an economic operator amounts to a services concession contract falling within the ambit of the CCR 2016 if specified requirements are satisfied.

O’Farrell J said:

  1. … the Concessions Directive and the CCR 2016 are concerned with contracts for services or works where such services or works are for the benefit of the contracting authority or its residents, in furtherance of the strategic objectives of the contracting authority, or to satisfy the contracting authority’s statutory obligations.
  2. I have concluded that the New Leases do not entrust to Outdoor Plus the provision of services for the benefit of the Council and therefore do not engage the CCR 2016 for the following reasons.
  3. Firstly, the Council has no statutory obligation to provide advertising services for its residents. The advertising services are not provided on the Council’s behalf.
  4. Secondly, the advertising from the Two Towers is not required by, or provided for, the Council. The grant of planning permission for advertising and permitted use under the New Leases do not constitute a request for advertising by the Council. The Council derives income from the rent paid under the New Leases but such income is consideration for possession and use of the land. The Council does not dictate the content of the advertising and the advertising is not designed to support the objectives of the Council or in discharge of its statutory obligations.
  5. Thirdly, the New Leases do not provide a service for the benefit of the Council or its residents. Advertising is a commercial venture. There is no public benefit to the community from commercial advertising. The Council does not derive any benefit from the advertising at the Two Towers.
  6. Fourthly, general advertising does not fall within the categories of services envisaged by the Concessions Directive, such as infrastructure and strategic services as referred to in Recital (1). The cases where a services concession has been found are those where there is an obvious benefit to the contracting authority or the community, such as parking facilities, leisure services or public toilets.”

“104.      In conclusion, the New Leases are not service concession contracts within the meaning of the CCR 2016.”

“113.      In my judgment, the New Leases do not impose a legal obligation on Outdoor Plus to provide any service. There is a legally enforceable covenant on the part of the tenant to pay rent but there is no tenant’s covenant to provide advertising in the New Leases. There is permission to use the land for the purpose of advertising but no enforceable obligation to provide any defined advertising service.

  1. Therefore, the New Leases are not contracts for pecuniary interest for the purpose of Regulation 3 of the CCR 2016.”

Moreover, the land transaction exemption applied. O’Farrell J said:

“124.      The Court must determine the classification of the transaction by reference to the essential obligations which characterise the transaction. It is common ground that the relevant test is to ascertain the main object or purpose of the transaction: …

  1. The New Leases are contracts for the rental of land within the meaning of regulation 10(11) of the CCR 2016. The New Leases are genuine leases. Although the objective of Outdoor Plus in entering into the lease arrangement is to exploit the advertising rights, the primary objective of the Council in granting the New Leases is to obtain a guaranteed income stream from the rental payments. The advertising concession authorises Outdoor Plus to exercise an economic activity on state-owned land but does not require Outdoor Plus to provide a service for the benefit of the Council. The essential features of the New Leases are that Outdoor Plus gains exclusive possession of the land and the structures on it. It has permission to use those structures for the display of static advertising and to sell the advertising space to third parties but that does not change the nature of the transaction as one for the rental of land.
  2. Accordingly, even if the New Leases could be construed as service concession contracts, they would be excluded from the operation of CCR 2016.
  3. For the above reasons, I conclude that the CCR 2016 do not apply to the tender exercise for the New Leases.”

As regards general principles of EU law, O’Farrell J, following Coulson J, as he then was, in Quidnet v Hounslow LBC, held that EU principles did not apply, for the following reasons:

“136.      First, as explained above in the context of the CCR 2016, the agreement for the New Leases was a land transaction; it was not a services concession contract. Therefore, it is not a transaction to which TFEU principles apply.”

“140.      … in those cases where TFEU principles have been applied, the agreements in question have been characterised as agreements concerning the provision of works, services or capital. In this case, there is no obligation on Outdoor Plus to provide any services for the benefit of the Council. Therefore, there can be no question of any restriction of the provision of services that might engage Article 56.

  1. Secondly, the agreement for the New Leases is an internal matter in respect of which there is insufficient cross-border interest for TFEU principles to apply.
  2. I accept Mr Goudie’s submission that it is necessary to consider (i) whether the transaction is internal and (ii) whether there is sufficient cross-border interest. However, I consider that they are different aspects of the same test. Both concern the question whether the nature and circumstances of the transaction are such that it could and should be open to competition throughout the European Union in furtherance of the TFEU freedoms.
  3. Although the land, the parties and the bidders were all based in the UK, that in itself is not necessarily determinative of the issue, as demonstrated in Parking Brixen. A failure to advertise so as to open up the market to competition could of itself limit the bidders to a particular region or state, thus rendering what should be a cross-border exercise into a domestic exercise. Likewise, the mere fact that an entity in another state demonstrates an interest in bidding for an opportunity, no matter how unrealistic the bid, does not change an internal matter into one to which EU principles apply.
  4. There must be evidence of cross-border interest before the general principles of EU law will apply: …
  5. There must be evidence to support a claim of cross-border interest: …
  6. The test is an objective one, namely whether the “realistic hypothetical bidder” would have bid for the contract if the opportunity had arisen: …
  7. On the facts of this case, I am satisfied that this transaction was purely an internal UK matter and there was insufficient potential cross-border interest to engage TFEU principles. Advertising is a global industry and the prominent position of the Two Towers on a major route into London was capable of attracting international interest for advertisers. However, the transaction concerned the grant of leases of land located in London. The Council did not control access to opportunities to provide advertising through the New Leases. The advertising opportunity granted by the transaction was limited to permitted use and planning permission in respect of the land. The New Leases did not restrict the ability of any other commercial entity to provide advertising in other locations in Hammersmith and Fulham, or elsewhere in London, by the use of media screens or otherwise. Although messages were sent to potential bidders outside the UK, no interest was expressed from any of them. There is no evidence of a realistically hypothetical bidder who would have bid for the New Leases if the opportunity had arisen.
  8. For those reasons, I conclude that the tender exercise for the New Leases was not subject to general EU principles.”

O’Farrell J further observed:-

“159.      An award of damages can only be made, in accordance with the Francovich principles, if any breach of the CCR 2016 is sufficiently serious to merit an award and there is a direct causal link between the breach and the damage sustained: Nuclear Decommissioning Authority v EnergySolutions EU Limited [2017] UKSC 34.

  1. Any breaches of the CCR 2016 and/or general EU principles would not be sufficiently serious to give rise to an award of damages. Any distortion of the internal market through a failure to alert potential bidders from other EU states would not have affected the outcome of the tender exercise for Ocean. The successful bid from Outdoor Plus was more than £1 million per annum higher than the bid from Ocean. Therefore, even if the opportunity to tender had been offered to other bidders, Ocean would not have been successful. For that reason, Ocean would not be able to establish a causal link between any breach and damages.”

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