Ocean Outdoor UK Ltd v The London Borough of Hammersmith & Fulham

JurisdictionEngland & Wales
JudgeLord Justice Coulson,Mr Justice Snowden,Lord Justice Longmore
Judgment Date08 October 2019
Neutral Citation[2019] EWCA Civ 1642
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A1/2018/2681
Date08 October 2019
Between:
Ocean Outdoor UK Limited
Appellant
and
The London Borough of Hammersmith & Fulham
Respondent

[2019] EWCA Civ 1642

Before:

Lord Justice Longmore

Lord Justice Coulson

and

Mr Justice Snowden

Case No: A1/2018/2681

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM

THE HIGH COURT OF JUSTICE

TECHNOLOGY AND CONSTRUCTION COURT

THE HONOURABLE MRS JUSTICE O'FARRELL DBE

[2018] EWHC 2508 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Philip Moser QC and Ewan West (instructed by DLA Piper UK LLP) for the Appellant

James Goudie QC and Joanne Clement (instructed by Sharpe Pritchard LLP) for the Respondent

Hearing date: 9th July 2019

Approved Judgment

Lord Justice Coulson
1

Introduction

1

The rules relating to public procurement grow ever more complex. Following on from the original EU Directives relating to public procurement generally (most notably, Council Directive 89/665/EEC of 21 December 1989), and the various iterations of the Public Contract Regulations in the UK of 2006, 2009 and 2015, the rules have now been extended to what are known as concession contracts. This appeal raises novel questions as to the scope of the Concessions Directive ( Directive 2014/23/EU) (“the Concessions Directive”), and the Concessions Contract Regulations 2016 (“the Regulations”) which implement that Directive.

2

The contracts in issue are two leases (referred to by the parties as “the New Leases”) for land either side of the Hammersmith Flyover in West London, on which are situated substantial structures (known as “the Two Towers”) which support large digital advertising screens. The respondent (whom I shall call “the Council”) owns the land and the Two Towers. They originally leased the land to the appellants (whom I shall call “Ocean”). When the leases came up for renewal, Ocean were comprehensively outbid by Outdoor Plus Limited (whom I shall call “Outdoor Plus”), and on 30 June 2017 the Council entered into the New Leases with Outdoor Plus.

3

After failing to secure the New Leases, Ocean complained that the procurement exercise (in which they had freely participated) was unlawful, because it was one to which the Concessions Directive and the Regulations applied. The Council denies that the Regulations applied. If the Concessions Directive and the Regulations did apply, it is common ground that the procedural formalities they require for any procurement exercise did not occur. Ocean claim damages as a result. The Council maintains that, even if the Regulations were applicable, the breach was procedural only and not ‘sufficiently serious’ to justify a claim for damages. Moreover, the Council submits that the scale by which Ocean were outbid by Outdoor Plus means that there could have been no causal link between the Council's breach and any loss suffered by Ocean.

2

The Factual Background

4

The Council leased the land to Ocean in 2010, and those leases were extended to 20 June 2017.

5

In April 2017, the council engaged the services of Wildstone Media Consulting Limited (“Wildstone”) to oversee a competition for the New Leases. Bids were invited on the basis of a 3-year term, a 5-year term, and a 10-year term. Offers had to be made in the form of a guaranteed fixed annual payment to the Council, paid quarterly in advance.

6

Various bids were submitted. For a 10-year lease, Ocean offered £600,000 per annum with an upfront payment of the first 18 months' rent. By contrast, Outdoor Plus offered £1.7 million per annum over the same 10-year term, with a staged annual increase and a market review in year 5. A similar scale of difference was apparent in the respective bids for a 5-year term.

7

On 1 June 2017, Wildstone produced a tender report for the Council, recommending that it should accept the bid from Outdoor Plus. On 13 June, Wildstone informed Ocean that their bid had been unsuccessful. The following day the Council's solicitors wrote to Ocean requiring it to deliver up vacant possession of the land and the Two Towers.

8

On 30 June 2017, the New Leases were executed by the Council and Outdoor Plus. The New Leases were in identical terms for each plot of land. They were for a 10-year term, and reflected Outdoor Plus' successful bid in a total annual rent of £1.7 million.

9

The relevant terms of the New Leases are set out below.

(a) The “Property” was defined as:

“Property and the Tower erected thereon as described in Schedule 1 together with any alterations or additions thereto”.

(b) The “Tower” was defined as:

“the structure on which advertisements are displayed including all supports and the electrical cables and apparatus used for the lighting of the structure as further described in Schedule 1 hereto”.

(c) The ‘Permitted Use’ was defined as:

“… the operation of the Tower on the Property for the display of static electronic advertisements”.

(d) Clause 4 was headed “Demise”. Pursuant to that clause the Council exclusively let to Outdoor Plus the Property for the term of 10 years.

(e) The tenant's covenants included, at clause 5.1, the obligation to pay the annual rent in quarterly payments. There was no positive covenant referring to advertising although, amongst the lengthy list of other obligations on the part of Outdoor Plus, there were two negative covenants relating to unlawful and motion advertising (at clauses 5.12.2 and 5.12.4 respectively). By contrast, the Council's covenants were limited to the covenant of quiet enjoyment at clause 8.

(f) Clause 10 was headed “ Miscellaneous”. Clause 10.8 was headed “Good Faith” and was in these terms:

“The Tenant shall use all reasonable endeavours to market and promote the Tower so as to maximise the income received. Save where such marketing or promotion reflects usual advertising or marketing practice the Tower shall not be marketed, promoted or let at a discount in order to market, promote or otherwise sell space at other advertising sites operated by the Tenant”.

10

Schedule 1 of each New Lease defined the Property by reference to a plan. The relevant Tower was defined by reference to the applicable grant of planning permission. Schedule 2 dealt with the revision of the annual rent.

11

By a claim form issued in the TCC on 18 August 2017, Ocean claimed that the procurement process was unlawful because the Council had failed to comply with the Directive and/or the Regulations. The remedy sought was damages. The trial of the action took place in May 2018. In a reserved judgment dated 28 September 2018 ( [2018] EWHC 2508 (TCC)), O'Farrell J dismissed Ocean's claims. Permission to appeal was granted on 17 December 2018.

3

The Legal Framework

12

The Concessions Directive begins with a startling 88 separate Recitals. It is happily only necessary to set out five of them for present purposes, as follows:

(a) Recital 1 sets out the purpose of the Directive:

“The absence of clear rules at Union level governing the award of concession contracts gives rise to legal uncertainty and to obstacles to the free provision of services and causes distortions in the functioning of the internal market. As a result, economic operators, in particular small and medium-sized enterprises (SMEs), are being deprived of their rights within the internal market and miss out on important business opportunities, while public authorities may not find the best use of public money so that Union citizens benefit from quality services at best prices. An adequate, balanced and flexible legal framework for the award of concessions would ensure effective and non-discriminatory access to the market to all Union economic operators and legal certainty, favouring public investments in infrastructure and strategic services to the citizen. Such a legal framework would also afford greater legal certainty to economic operators and could be a basis for and means of further opening up international public procurement markets and boosting world trade. Particular importance should be given to improving the access opportunities of SMEs throughout the Union concession markets.”

(b) Recital 8 summarises the intent behind the new rules:

“For concessions equal to or above a certain value, it is appropriate to provide for a minimum coordination of national procedures for the award of such contracts based on the principles of the TFEU so as to guarantee the opening-up of concessions to competition and adequate legal certainty. Those coordinating provisions should not go beyond what is necessary in order to achieve the aforementioned objectives and to ensure a certain degree of flexibility. Member States should be allowed to complete and develop further those provisions if they find it appropriate, in particular to better ensure compliance with the principles set out above.”

(c) Recital 11 explains the nature of concession contracts:

“Concessions are contracts for pecuniary interest by means of which one or more contracting authorities or contracting entities entrusts the execution of works, or the provision and the management of services, to one or more economic operators. The object of such contracts is the procurement of works or services by means of a concession, the consideration of which consists in the right to exploit the works or services or in that right together with payment. Such contracts may, but do not necessarily involve a transfer of ownership to contracting authorities or contracting entities, but contracting authorities or contracting entities always obtain the benefits of the works or services in question.”

(d) Recital 14 explains that service concessions impose legally enforceable obligations in respect of the services to be provided:

“In addition, certain Member State acts such as authorisations or licences, whereby the Member State or a public authority thereof establishes the conditions for the exercise of an economic activity, including a condition to carry out a given operation, granted,...

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