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New Guidance on the Important Procurement Issues for Irish Clients

AUTHOR(S): Kate McKenna
KEY CONTACT(S): Kate McKenna
PRACTICE AREA GROUP: EU, Competition and Regulatory
DATE: 07.01.2019

To date the Irish Courts have not made a declaration of ineffectiveness in a procurement challenge.  However the applicable legal principles are of interest to Irish clients and have been outlined in the recent UK Court of Appeal decision in Faraday Development Ltd v West Berkshire Council and St Modwen Development, which marks the first declaration of ineffectiveness issued by an English court since the remedy was introduced in 2009.  This decision also provides useful guidance to Irish clients on the complex issues around whether land development agreements are subject to procurement law.

A declaration of ineffectiveness may be granted where a contract has been awarded without prior publication of a contract notice in breach of procurement law.  The practical impact of such a declaration is that the disputed contract is legally void from the judgment date onwards.  Where such a declaration is made, the Court will also order payment of a fine by the defaulting authority.  Unlike most procurement actions which are subject to a 30 day limitation period, actions seeking a declaration of ineffectiveness are subject to a longer limitation period of up to 6 months.

The central focus of the appeal was the following question:  Did the authority breach procurement law by entering an agreement with a developer containing contingent obligations on it to develop its own land without advertising the agreement in compliance with procurement law?  The development agreement gave the developer an option to draw down long leases of land and the developer would assume developments obligations in respect of that leased land only if this option were taken.

The procurement analysis of land development agreements is a confusing area.  The High Court had held that the development agreement was not subject to procurement law as the developer had no obligations when the agreement was entered into.  The Court of Appeal partially overturned this and made a more nuanced finding.  It held that the development agreement would become a ‘public works contract’ subject to procurement law once the option was exercised and the contingent obligations came into effect.  It further held that, as the developer could control this happening, the agreement involved the authority agreeing to act unlawfully in future and thus it breached procurement law.

While the Court of Appeal accepted that the authority did not deliberately breach procurement law and had brought about a degree of transparency regarding the development agreement by publishing a voluntary ex-ante transparency notice (“VEAT notice”), the Court of Appeal nevertheless granted a declaration of ineffectiveness and imposed a nominal civil financial penalty of £1.

The Court of Appeal made a notable finding on the authority’s VEAT notice, which is an optional device which may be used by an authority to disclose its procurement analysis and flush out legal actions.  It held that the VEAT notice was invalid because the rationale included in it (that the development agreement was “an exempt land transaction”) was incorrect based on its legal analysis.

Key messages from this case include that (i) a declaration of ineffectiveness is a powerful remedy and should not be discounted as a possibility, (ii) the key principle remains that land development agreements must include binding obligations in order for procurement law to apply, and (iii) VEAT notices may be invalided by a Court where they include a generous interpretation of the legal position.

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