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AN ARTICLE by Peter Scrafton FIRRV, FCIArb, MRSA(Hon) Solicitor (Non-Practising)

June 2010.

It seems to be but recently that people started to get to grips with the European Court’s ruling in  the case of Auroux v Commune de Roanne C-220/05 [2007] All ER (EC) 918.Now we have a new one, decided in March, called Helmut Müller GmbH –v- Bundesanstalt für Immobilienaufgaben, intervening parties: Gut Spascher Sand Immobilien GmbH, Municipality of Wildeshausen Case C-451/08.  This latest decision may bring some relief to those engaged in the negotiation and drafting of development agreements, as it confirms that the exercise of planning powers by a local authority is not subject to E U Procurement Rules, established by the consolidated E U Directive (2004/18/EC).

In this country, we had been under the impression that a public/private sector development agreement was outside the ambit of the procurement rules (R –v- London Borough of Brent ex parte O’Malley 30 HLR 328 CA)  the buying and selling of public land is specifically excluded from the ambit of the rules:-

“… contracts relating to the acquisition or rental of immoveable property or to rights thereon have particular characteristics, which make the application of procurement rules inappropriate” (Services Directive  92/50 and 97/52 EEC)

Service contracts for land are specifically excluded from the scope of the Public Service Directive:-

“Public service contracts for the acquisition or rental, by whatever financial means, of land, existing buildings, or other immovable property or concerning rights thereon” (Article 16)

So everyone was happy, and understood the way things were.  O’Malley confirmed the position.

Then along came Roanne (a French municipality) and its dispute with Jean Auroux, who claimed that a contract entered into by the Council was unlawful.  That contract between the Council and a semi-public “urban development company”, was for the construction of a new leisure centre, a multiplex cinema, a hotel, commercial premises and a 320-space car park in the town.  The contract had not been advertised or awarded in accordance with EU rules, and provided (among other things) that the Council would acquire the car park site at the outset, provide a major capital contribution towards the cost of the development as a whole, take back any unsold portions of the development when completed, and: “… bear the full risk of any losses incurred”.

The Court held that the Council was indeed in breach, and the judgment contains useful guidance in looking at contracts between two public bodies, in distinguishing between “public works”, “public services” and “public concession contracts.  The judgment will repay study – bearing in mind always the clarification just given by the Court in Muller – particularly for authorities contemplating the use of regeneration platform structures such as Local Asset Based Vehicles.

This decision caused such a stir that a number of authorities halted their regeneration programmes because of the uncertainty caused by this decision, but the law has been working through these problems.  The difficulty is that often change must wait until the right case comes before the courts to give the opportunity for change.

There is, of course, no definition in Community law of a public/private partnership.  Ideas for a way forward have appeared in an EU Green Paper in April 2004, and in a consultation report in February 2005, which seemed to suggest a number of potentially viable solutions.

Several cases have been decided in relation to mixed contracts, concerning both the assignment of property and the execution of public works within it.  Such contracts have been held outside the EC requirements, “…if the performance of the works is merely incidental to the assignment of property” (Gestion Hotelera –v- Communidad de Canaris ECR 1329)

So it is safe to relocate Council Offices, Magistrates’ Courts, Fire Stations and the like provided that their replacement is incidental to the main purpose of the development agreement.  However, if the agreement provides for the developer to provide works in kind rather than cash in exchange for the public land, then the agreement is likely to be a public works contract.

Public subsidy remains a problem if it is over 50% of the value of a contract over the EU “threshold” when the contract can be caught by the rules.  Remember, too, that if the authority foregoes consideration for public land in order to secure a particular kind of development, such contracts can also be caught – so care needs to be taken to ensure that agreements provide for the “best price reasonably obtainable” I will deal with developer selection and the impact of Muller itself in a future article

Peter Scrafton

©J.P. Scrafton, 2008

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