The Court of Appeal recently rejected a legal challenge to a London borough’s award of leases for land on which structures that support large digital advertising screens are situated. Mari Roberts explains why.
On 8 October 2019, the Court of Appeal handed down judgment in Ocean Outdoor UK Limited v London Borough of Hammersmith & Fulham  EWCA Civ 1642, the first appeal to consider the Concession Contracts Regulations (‘the CCR 2016’). The Court unanimously dismissed an appeal from Ocean Outdoor UK Limited (‘Ocean’) against the decision of O’Farrell J, who had dismissed Ocean’s procurement challenge claiming that the CCR 2016 applied to a tender exercise carried out by the London Borough of Hammersmith & Fulham (‘the Council’) relating to two leases of land owned by the Council.
Background and the facts
Under Regulation 3 of the CCR 2016, a ‘service concession contract’ means a contract ‘…for pecuniary interest concluded in writing by means of which one or more contracting authorities or utilities entrust the provision and management of services (other than the execution of works) to one or more economic operators, the consideration of which consists either solely in the right to exploit the services that are the subject of the contract or in that right together with payment…’.
The leases in question are of two small plots of land adjacent to the Hammersmith Flyover on which there are two metal towers with large digital advertising screens. In 2010, the Council granted leases of both plots of land to Ocean. In April 2017, the Council invited bids for new leasing arrangements as the fixed term leases were about to expire. In June 2017, the Council granted two new leases to the highest bidder, Outdoor Plus, for a fixed annual rent. Outdoor Plus’s bid was much higher than that of Ocean.
Ocean argued that the new lease transactions were properly to be classified as services concessions within the CCR 2016. It was common ground that if the CCR 2016 did apply, the formalities under the Regulations relating to the procurement exercise had not taken place. Ocean also made a claim for damages. In addition, Ocean sought to challenge the Council’s decision to grant the leases by way of judicial review.
The Council argued that Outdoor Plus’s leases granted property rights over the land and the new leases were not service concession contracts as defined in CCR 2016. The Council maintained that the leases were not contracts for pecuniary interest as there was no legally enforceable obligation on the tenant to carry out any services under the contract. In any event, the leases were land transactions excluded from the CCR 2016.
O’Farrell J dismissed Ocean’s claim and determined that the CCR 2016 did not apply to the grant of the leases. Permission to bring a claim for judicial review was refused by O’Farrell J; this aspect of the case was not pursued on appeal.
Coulson LJ who gave the main judgment in the Court of Appeal identified three principal issues:
- Whether the new leases were service concession contracts within the meaning of the CCR 2016;
- Whether the new leases were contracts for pecuniary interest for the purposes of Regulation 3;
- Even if they were contract for the provision or management of services, whether the land exemption applied.
On the first issue, the Court of Appeal ruled that the leases were not service concession contracts. The CCR 2016 are concerned with services that are run for the benefit of the contracting authority or its residents, to meet their statutory obligations or further their strategic objectives. Regulation 3 deals with a contracting authority entrusting the provision and management of services to an economic operator. The Court held that the Council had no statutory or other obligation to provide advertising services for its residents or anyone else. The Council made no express request for advertising within the new leases and the advertising was unrelated to the Council’s objectives and its public obligations. Coulson LJ found that there was no direct benefit to the Council or its residents as a result of the advertising. The ‘indirect benefit’ of rent was not paid in consideration for services.
On the second issue, the Court of Appeal held that the leases were not contracts ‘for pecuniary interest’. A pecuniary interest requires the contractor to assume a legally enforceable obligation to carry out the services. The leases had permitted user clauses but there was no direct obligation within the new leases on the part of Outdoor Plus to provide any advertising services at all. Ocean had sought to rely on a ‘good faith’ and ‘reasonable endeavours’ clause in the leases, but that did not amount to a direct and immediately enforceable obligation to provide advertising services. The rent paid by Ocean was not consideration for the provision of advertising services, but was a fixed rental for their right to be in possession of the land.
On the final issue, the Court of Appeal held that the land exemption applied. The new leases were held to be genuine leases and not contracts to provide advertising services. Outdoor Plus obtained exclusive possession of the plots of land and paid fixed rent which was not conditional upon, nor affected by, any particular type or level of advertising sold. In his judgment, Coulson LJ commented that ‘if the New Leases were not caught by the land exemption, it is difficult to see what kind of lease or contract would fall within that exemption’ (paragraph 68).
Although the issue of damages did not strictly arise as Ocean had failed on all three principal issues, Coulson LJ did go on to look at the question of damages as he considered that the point was of general interest.
He stated that in public procurement cases, the loss of chance principle was most likely to arise where there was a close comparison between the successful and the unsuccessful bids, and where it could be shown that the illegality in the tender process might have contributed to the rejection of the losing bid. Here, Ocean had been comprehensively outbid by Outdoor Plus and it was plain to the Court that Ocean’s bid would have not been successful in any event. Coulson LJ stated (paragraph 93) that ‘it should no longer be the practice in public procurement cases for the losing tenderer to claim damages by rote, regardless of the absence of any possible connection between the alleged illegality of the process and any loss it may have suffered, simply by relying on a loss of chance principle. In my view this case is a paradigm example of where damages - even calculated by reference to a loss of a chance principle - would never have been recoverable’.