When are leases caught by public procurement law?

Facts

The London Borough of Hammersmith and Fulham (Council) ran a tender process for the lease of two plots of land with two structures (referred to as the Two Towers) used for large advertising screens. Ocean Outdoor UK Limited (Ocean), the incumbent, was outbid by Outdoor Plus and brought a legal challenge, claiming that the Council had failed to advertise the contract in compliance with the Concessions Directive. The case deals with a number of interesting issues, including when leases may amount to concession contracts, the scope of the land exemption in the Concessions Directive (2014/23/EU) and what amounts to a sufficiently serious breach of procurement law.

Judgement

The case was appealed to the UK Court of Appeal which held that:

1. The leases were not service concession contracts. Services concessions had to involve services provided for the benefit of the contracting authority or its residents to further its strategic objectives or to satisfy its statutory obligations. This is because the Concessions Directive is aimed at preventing the misuse of public money and therefore only services connected to the authority’s public obligation are caught. The Court stressed that not all contracts entered into by a public authority were caught by public procurement law and that it was for the claimant to prove that contracts fall within the scope of the Concessions Directive. In this case, the Council had no statutory obligation to provide advertising services for residents and the services were not provided on the Council’s behalf or for the benefit of the Council or its residents.
2. The leases were not contracts for pecuniary interest. The Concession Directive defines services contract as “contracts for pecuniary interest…by means of which the contracting authority entrusts the provision and management of services…to the economic operator”. The Court held that a concession was effectively a transfer of the right to exploit a business opportunity by providing a service to third parties in return for payment to the owner of that opportunity (eg a car park where the public pay car parking fees to the economic operator). Here, the third parties were advertisers with no connection to the Council or its residents and the money paid to the advertisers had nothing to do with the Council. The leases did not “entrust the provision and management of services” to Outdoor Plus as there were in standard form and there was no obligation on Outdoor Plus to provide any advertising services (though there was a good faith requirement to make some use of the Two Towers).
3. Even if this was a service concession contract, the land exemption applied. The land exemption in the Concessions Directive exempts contracts for “the acquisition or rental, by whatever financial means, of land, existing buildings or other immovable property or which concern interests in or rights over any of them”. The Court held that the leases were genuine leases which fell into this exemption, rather than the sale of an advertising opportunity. This was due to the fact that the rent was fixed and not conditional on, or affected by, any advertising sold.
4. When is a breach of procurement law sufficiently serious to merit an award of damages? Not every breach of procedural requirements of procurement law is a sufficiently serious breach which triggers an entitlement to damages. Ocean had argued that it had lost the chance to bid in a lawful competition. The Court stated that, in order to rely on the loss of chance principle, a claimant must show a connection between the breach of the procurement rules and the loss it has suffered. In other words, it is necessary to show that the breach may have contributed to the rejection of the losing bid. In this case, it was clear that Ocean’s bid would have been rejected as it had underbid Outdoor Plus comprehensively.

Comment

It will be interesting to see whether the Irish courts will follow the views expressed by the UK Court of Appeal in this case, particularly the view that the Concessions Directive only applies where services are within the scope of the authority’s public obligations. This is not something which is expressly stated in the Concessions Directive or which has been directly ruled on by the European Courts.

Another noteworthy part of the case is the statement by the Court of Appeal that procedural breaches are not necessarily sufficiently serious to give rise to damages. The Court appeared to say that a breach is only sufficiently serious if it would have affected the outcome of the competition. Again, it will be interesting to see whether the Irish courts will adopt the same approach.

Ocean Outdoor UK Limited v London Borough of Hammersmith and Fulham [2019] EWCA Civ 1642 (8 October 2019)