PETITION OF KENMAN HOLDINGS LIMITED AGAINST COMHAIRLE NAN EILEAN SIAR AND OTHERS
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 170
P552/15
OPINION OF LORD TYRE
In the petition
KENMAN HOLDINGS LIMITED
Petitioner;
against
COMHAIRLE NAN EILEAN SIAR AND OTHERS
Respondents:
Petitioner: R W Dunlop QC, P Sellar; Maclay Murray & Spens LLP
Respondents (Comhairle nan Eilean Siar): Crawford QC, E Campbell; Harper Macleod LLP
Respondents (Highlands and Islands Enterprise): R Anderson; Burness Paull
16 December 2015
Introduction
[1] The petitioner is a company which owns and operates hotels on the Isle of Lewis. Comhairle nan Eilean Siar (“the Council”) is the owner of Lews Castle, a redundant category A listed building in Stornoway that the Council wishes to develop as a heritage and hospitality tourist destination. The Council envisages that the works will be carried out in four phases. These proceedings are concerned with the third and fourth phases, being upper floor works and hospitality and accommodation fit-out, to be undertaken by a private sector partner who would subsequently be granted a concession by the Council to operate various tourism-related businesses within the premises. A public procurement exercise conducted by the Council in 2012 led to the signing, on 24 July 2014, of a development agreement between the Council and two companies called NA Lews Castle Limited and Natural Assets Investments Limited (which two companies are referred to herein as “the company”).
[2] In this application for judicial review, the petitioner seeks various orders including (i) declarator that the Council’s decisions to enter into the development agreement and a related technical services agreement with the company were taken in breach of EU public procurement law and legal principles, and in breach of natural justice; (ii) reduction of those decisions; and (iii) damages. Answers have been lodged on behalf of the Council, Highlands and Islands Enterprise (“HIE”), and the company, denying that any breach of EU law and principles or of natural justice has occurred. The Council contends inter alia that the application for judicial review is incompetent and, in any event, that it should be refused on the grounds of mora, taciturnity and acquiescence on the part of the petitioner. This opinion is concerned with these two preliminary issues.
Background: the tendering procedure
[3] The following narrative is derived from averments of the parties which, unless otherwise stated, do not appear to be in dispute. In 2009, the Council conducted an initial public procurement exercise in relation to Lews Castle under the competitive dialogue procedure, and in June 2011 it issued an invitation to tender. Two tenders were submitted; one was by the petitioner and the other was withdrawn. By notice published in the Official Journal of the European Union on 9 June 2012, the Council discontinued the exercise. The petitioner was advised that the Council intended to review and re-define the scope of its requirements and initiate another procurement exercise.
[4] The Council proceeded to implement a second public procurement exercise, this time under the open procedure. In the course of 2012, the company expressed an interest in the project and there was communication between the Council and the company both directly and through the medium of HIE. A draft invitation to tender was provided to HIE and to the company by the Council in September 2012. On 27 September 2012, the Council published a notice relating to the second exercise in the Official Journal, and subsequently issued an invitation to tender dated 24 September 2012. One of the conditions regarding the award of the concession was that the selected contractor make available a minimum investment of £500,000 in a joint account with the Council on or before the date of execution of a lease of the castle.
[5] According to the petitioner’s averments, it decided not to submit a tender because it considered that a number of the terms of the proposed arrangement, notably the requirement to deposit £500,000 in a joint account, were too onerous. The Council received one tender, submitted by the company. The tender was evaluated by the Council and on 28 November 2012 the Council informed the company that it was the preferred bidder. Communication between the Council and the company continued during 2013.
[6] On 20 January 2014, the Council received a first draft of the development agreement from its external legal consultants. Revised drafts were thereafter exchanged by email between the Council and the company. The finalised agreement was signed on behalf of the company on 11 and 24 July 2014 and on behalf of the Council on 24 July 2014.
[7] On various dates in 2013 and 2014 (the latest being 12 August 2014), the company issued invoices to the Council for professional and technical services rendered in connection with design work for phases 3 and 4 of the project. Those invoices were paid.
The legal basis of the petitioner’s challenge
[8] In summary, the petitioner’s challenge is on the following grounds:
- Pre-tender discussions between the Council and the company were such as to create a distortion of competition and an unequal treatment of potential tenderers, including the petitioner.The discussions allowed the company to influence the choices and decision-making of the Council with regard to the substance of the invitation to tender and the procedure for public procurement;
- Post-tender negotiations, which are not permitted under the open procedure, took place between the Council and the company after the latter had been informed that it was the preferred bidder.These led to fundamental changes to the contract, including a postponement of the obligation to lodge £500,000 in a joint account.Such re-negotiation obliged the Council, as a matter of law, to run a new public procurement exercise;
- The Council’s evaluation panel was in a position of conflict of interest giving rise to actual or at least apparent bias, as a result of two of its members having promoted the company’s participation during pre-tender discussions;
- The Council’s decision to award the contract to the company was irrational, having regard to certain omissions and deficiencies in the company’s tender;
- The Council failed to run a public procurement exercise in respect of the technical design services for which the company received payment;
- The foregoing alleged breaches of EU law and legal and other principles constituted an award of state aid to the company by the Council.
Issue 1: competency of an application for judicial review
[9] The Public Contracts (Scotland) Regulations 2012 (“the Regulations”) set out the procedure that must be followed by a “contracting authority” with regard to the award of certain public contracts in Scotland. The Council is a contracting authority. It is, however, now common ground between the parties that the development agreement (including any related technical design services contract) with which these proceedings are concerned is properly characterised as a “services concession contract”, to which the Regulations do not apply (see regulation 6(2)(m)). Nevertheless, the Council conducted the 2012 public procurement exercise as if it were subject to the Regulations. The contract was advertised as such in the Official Journal. Reference was made to the Regulations in the Council’s invitation to tender. Notice of the award of the contract to the company was published in the Official Journal.
Argument for the Council
[10] On behalf of the Council it was submitted that it was lawful and competent for the Council voluntarily to conduct the procurement under and subject to the Regulations. Having decided to do so, the Council required to comply with the procedural requirements in the Regulations. Any failure to do so gave rise to the remedies provided by the Regulations. Those remedies included the right of an “economic operator” (such as the petitioner) in terms of regulation 47 to raise proceedings in the Court of Session or the sheriff court for any alleged breach by the Council of its duty to comply with the Regulations. The petitioner’s complaints consisted largely of failures to comply with requirements of the Regulations. If the petitioner had raised proceedings under reference to the Regulations, the Council would have been barred from challenging their competency. The remedy afforded by the Regulations would therefore have been effective. In these circumstances it was not competent for the petitioner to proceed by way of judicial review: see Rule of Court 58.3(2). The present proceedings were accordingly incompetent and the time limits for raising proceedings under regulation 47 had long expired.
[11] In anticipation of the Council founding upon the decision of the First Division in Sidey Ltd v Clackmannanshire Council 2010 SLT 608, it was submitted that that decision was distinguishable as its ratio was concerned only with “below threshold” contracts, ie contracts which were not subject to the Regulations (or, in the case of Sidey, their 2006 predecessors) because the contract value was below a specified threshold. Moreover the contract in that case had not been advertised in the Official Journal, nor did the contracting authority refer expressly to the Regulations so as to alert third parties to the availability of remedies thereunder. The Council reserved its position on arguing elsewhere that Sidey had been wrongly decided.
Argument for the petitioner
[12] On behalf of the petitioner it was submitted that the present case was indistinguishable from Sidey, the ratio of which was directly in point and binding on the court. Voluntary adoption of the procedure in the Regulations might give rise to a legitimate expectation on the part of tenderers (and others) that the requirements in the Regulations would be adhered to, but it did not deprive interested third parties such as the petitioner of their remedies under domestic law. Reference was made to the opinion of the court in Sidey, delivered by Lord Clarke, at paragraph 36. No rational distinction could be drawn between a contract which was excluded from the Regulations because it was below threshold and a contract which was excluded because it was a type of contract to which the Regulations did not apply. Any challenge by the petitioner based upon breach of legitimate expectation would require to be a common law challenge on that ground and not a challenge based on the Regulations which, according to Sidey, would have been incompetent.
Decision
[13] In my opinion the present case falls squarely within the ratio of Sidey, and I am bound to follow it. That ratio is expressed (at paragraph 36) as follows:
“… When a party, in Scotland, seeks to have these questions, or indeed others, addressed in relation to this area of law in the context of a challenge to acts and decisions of a contracting authority, they must do so by resorting to our domestic law procedures and remedies and not by relying on the procedures and remedies provided by the relevant European Directives and the Scottish Regulations. That will be so even when the contracting authority has elected voluntarily to follow, in relation to below threshold contracts, procedures for placing of the contract apparently either identical or similar to those provided for in those statutory instruments. The remedial and procedural régime prescribed by those instruments have no effect in relation to such a voluntary adoption of contractual procedures and aggrieved parties must resort to the remedies and procedures provided by domestic law. There may, no doubt, in certain cases be a place for recourse to the ordinary law of contract but, in cases like the present, where the aggrieved person has not concluded a contract with the contracting authority, and the complaint is as to how the authority went about placing the contract it did, then resort will require to be made to the supervisory jurisdiction of this court by way of a petition for judicial review, relying upon the well established principles of administrative law. There is no doubt, in our mind, that that is what should have been done in this case and that proceeding by way of commercial action was incompetent.”
[14] I see no basis for distinguishing between a contract which falls outside the scope the Regulations because it is a below threshold contract and one which falls outside the scope because it is the subject of some other express exclusion. The reasoning of the court, set out above, applies mutatis mutandis to the latter because the underlying rationale is, in my opinion, exactly the same. In each case, there is no good reason why a party who has not entered into a contract with the contracting authority but who wishes to challenge the procurement process should have his remedies circumscribed by the provisions of the Regulations. If the contracting authority elects voluntarily to adopt the procedure in the Regulations, it may thereby create additional rights based upon legitimate expectation, but it does not deprive an aggrieved party of his right at common law to seek judicial review on other grounds. It is, in my view, clear from Sidey that the present application is competent and that an action by the present petitioner under regulation 47 for enforcement of rights contained in the Regulations would have been incompetent. I therefore find in favour of the petitioner on the first issue.
Issue 2: mora, taciturnity and acquiescence
[15] In order to address the issue of mora, taciturnity and acquiescence, it is necessary to narrate the actions of the petitioner prior to the raising of the present proceedings at the end of May 2015.
[16] At a meeting on 6 March 2014, the petitioner’s chief executive, Mr Kenneth Mackenzie, expressed concerns about the procurement process to the council leader, Mr Angus Campbell, and asked that the process be terminated. On 27 March 2014, Mr Mackenzie attended a meeting between the Lews Castle Project Board and the company at which questions were raised regarding the advertising of the contract, direct contact with the company, sources of funding and state aid. Mr Mackenzie followed this up with a letter on 1 April 2014 requesting further discussion of “the current issues with the project as proposed”. Mr Campbell replied on 8 April 2014 explaining that the procurement exercise then in progress complied with all legal requirements, and asking Mr Mackenzie to advise him as soon as possible “whether you consider that any of these issues would mean that an award to Natural Assets cannot be made”. A further meeting was held on 17 April 2014, at which Mr Mackenzie expressed the view that “no reasonable person would conclude the procurement procedure adopted by the Council was fair, open and yielded best value for the public purse”. He stated that he was still hopeful that he would have an opportunity to work on the project in partnership with the Council and did not therefore wish to publicly oppose the current proposal.
[17] On 18 April 2014, the petitioner received information from HIE regarding pre-tender negotiations. Mr Mackenzie then submitted a Freedom of Information (“FOI”) request to the Council for information regarding its pre-tender meetings with the company. Certain information was provided to him on 29 May 2014. Correspondence on the part of the petitioner was thereafter conducted by its solicitors, Maclay Murray & Spens (“MMS”). On 10 June, MMS submitted a further FOI request to the Council. On 18 June, MMS wrote to the Council setting out detailed allegations of breach of the 2012 Regulations in respect of pre-tender discussions, post-tender negotiations and consequences thereof in the form of state aid. They stated the petitioner’s request that the tender process be withdrawn and replaced by a new, compliant process. Mr Campbell responded on 26 June, explaining why the Council did not accept that the procurement exercise was defective. Thereafter MMS made further FOI requests on behalf of the petitioner to HIE and to the Council. Responses to these requests, including disclosure of documents, were sent to MMS on 25 July and 12 August respectively.
[18] In the meantime, however, as already noted, the Council had awarded the contract to the company, having formally taken a decision to do so on 8 August 2014. On 11 September, MMS wrote to the Council expressing the petitioner’s disappointment that the contract had been awarded “…in breach of procurement, EU funding and state aid rules”. MMS intimated the petitioners’ intention to bring these alleged breaches to the attention of the European Commission and Audit Scotland. On 15 September, the Council re-stated its position that the contract had been awarded in compliance with its legal obligations. Between 17 September and 7 November 2014, MMS submitted several further FOI requests. The Council and HIE offered a meeting, which offer was declined. Some of the FOI requests were refused in whole or in part. MMS challenged the refusals in detailed responses. An appeal to the Scottish Information Commissioner was initiated but not pursued because HIE produced the documents sought. On 23 March 2015, the Council disclosed a substantial amount of further documentation to MMS. According to the petitioner’s averments, it was only on receipt of this documentation that it was in a position to consider mounting a legal challenge. On 20 April, MMS wrote to HIE threatening interdict should HIE award any further funding to the project. The petitioner’s intention to take legal proceedings was intimated to the Council on 14 May. On 28 May, the present proceedings were commenced.
Mora, taciturnity and acquiescence in judicial review proceedings
[19] The application of the plea of mora, taciturnity and acquiescence in proceedings for judicial review has been subject to analysis in a number of recent cases. I was referred in particular to Singh v Secretary of State for the Home Department 2000 SLT 534; Somerville v Scottish Ministers 2007 SC 140; United Co-operative Ltd v National Appeal Panel for Entry to the Pharmaceutical Lists 2007 SLT 831; and Tarves Health Ltd v Grampian Health Board 2014 SLT 974. From these authorities I distil the following (non-exhaustive) propositions, none of which I understood to be controversial:
(i) In order for the plea to succeed, all three elements must be present.
(ii) Whether delay on the part of the applicant is sufficient to found the mora element will depend upon the whole circumstances of the particular case, but is likely to be considerably shorter in cases of judicial review than the delay required to found the plea in cases concerning private rights.
(iii) Taciturnity connotes a failure to speak out in assertion of one's right or claim.
(iv) Acquiescence is not to be determined subjectively by looking into the mind of the applicant but is to be inferred objectively from the other two elements, ie delay and silence on the applicant’s part.
(v) Prejudice to, or reliance by, the person whose actions are challenged is not a necessary element of the plea, nor should prejudice be seen as an alternative requirement to acquiescence. Prejudice or reliance may however form part of the circumstances from which acquiescence may be inferred.
(vi) The concept of detriment to good administration may have a part to play where administrative action has been taken in the belief that the applicant has acquiesced in the actings in question.
Argument for the Council
[20] On behalf of the Council it was submitted that all of the three requirements of mora, taciturnity and acquiescence were met. As regards delay, reference was made to case law on the running of time for the commencement of a statutory challenge under the Regulations, and in particular to SITA UK Ltd v Greater Manchester Waste Disposal Authority [2012] PTSR 645. The focus in a statutory challenge was on what was available to a potential challenger and not on what that challenger subjectively made of it. Time began to run when a challenger was aware that he had a prospective claim and not, if later, when he knew that he had a real likelihood of success or after he had gathered evidence to support the claim. The same approach should be applied to mora. In the present case, the petitioner had challenged the Council’s intention to award the contract to the company as irrational in April 2014. By 18 June 2014, it had asserted positive breaches of the procurement rules as regards pre-tender discussions, post-tender negotiations and state aid. At the latest, it had all relevant information by 24 October 2014, when documents were provided upon which it was now founding. As regards provision of technical design services, information was again provided on 24 October 2014. In these circumstances the delay in raising proceedings had been unreasonable and excessive. Running of time was not postponed because the petitioner sought further evidence or legal advice. So far as taciturnity was concerned, no proceedings were raised after the letter from MMS was sent on 18 June 2014, or after the petitioner became aware that the contract had been awarded. The making of a series of FOI requests was not enough to keep the right of challenge alive; when no action was raised, the Council was entitled to proceed on the basis that the petitioner did not intend to litigate. Acquiescence could be inferred from the petitioner’s delay and taciturnity. In any event the Council would suffer prejudice in the form of delayed completion of the project if the challenge were allowed to proceed so long after the award of the contract was made.
Argument for the petitioner
[21] On behalf of the petitioner it was submitted that none of the three elements was present. The test was not whether the petitioner could have raised proceedings earlier but whether it was unreasonable, taking into account the gathering of information and the complexity of the subject matter, not to commence an action until it did. In the present case there had been a lengthy process of exploration while information was provided piecemeal by the Council. It was not until 23 March 2015, when 12,500 pages of documents were provided, that the full picture emerged. The petition was commenced within two months thereafter. The fact that the company had been provided with a draft invitation to tender in September 2012 was not revealed until adjustments were made by the Council to their pleadings in September 2015. Mora was an equitable plea and the Council did not come to court with clean hands. It would not be fair to penalise the petitioner for the Council’s delay in responding fully to its FOI requests. The case law on the statutory time limits was not in point. As regards taciturnity, the petitioner could not be accused of failing to speak out and thereby creating an impression of acquiescence. Throughout the process of seeking disclosure of documents the petitioner reiterated its position that the award of the contract had been unlawful. It would be wholly unrealistic to interpret the petitioner’s actings as demonstrating acquiescence. As a fall-back position, it was submitted that the plea could only affect the conclusion for reduction and not the petitioner’s claim for damages which will not prescribe until the expiry of the quinquennium in 2019.
Decision
[22] Although it is clear from the authorities that a successful plea of mora, taciturnity and acquiescence requires all three elements to be established, they cannot be addressed entirely independently of one another. The essence of the plea, as it seems to me, is that the passage of time, combined with a failure by a claimant to speak out, has led the person whose actings are challenged reasonably to conclude that the claimant has acquiesced in those actings, however reluctant and dissatisfied that acquiescence may be. In the context of judicial review of administrative action, the delay, taciturnity and acquiescence should be such as to lead the public authority reasonably to regard itself as free to proceed with its proposed course of action with confidence that it will not face a legal challenge requiring it to stop or perhaps even undo what has been done. I have already noted that in the interests of good administration, the period of time required to constitute the delay element of the plea – and, consequently, the period of time during which taciturnity must also subsist – is likely to be considerably shorter in applications for judicial review of administrative action than that which would found the plea with regard to a private law right.
[23] In the present case, the petitioner’s principal complaints, namely that there were pre-tender discussions and post-tender negotiations between the Council and the company, were clearly stated, under reference to a supporting factual background, in MMS’s letter dated 18 June 2014. Those complaints were accompanied by a request that the current tender process be withdrawn. In my opinion the period that falls to be scrutinised for mora, taciturnity and acquiescence began then. The matter was, of course, complex, and I have no difficulty in accepting that the petitioner did not yet consider that it was in possession of the information it required in order to frame a sufficiently specific ground of legal challenge. It could at that stage have proceeded by way of an application under section 1 of the Administration of Justice (Scotland) Act 1972. Instead, it proceeded by way of FOI requests and I make no criticism of the petitioner’s decision to adopt that route. Its requests were not responded to by the Council until August 2014, but by 11 September 2014, the contract had been awarded and the petitioner felt able to assert quite specifically that:
“… due to the fact that the Comhairle engaged in both pre-and post-tender discussions with Natural Assets, and disregarded the principles of equal treatment and transparency, it was not entitled to award the contract to Natural Assets.”
[24] I regard it as relevant that at that time the petitioner gave no indication that it was minded to raise court proceedings to have the award of the contract set aside. Instead, it intimated an intention to bring the Council’s alleged failures to the attention of the European Commission and Audit Scotland. Indeed, there was no assertion by the petitioner that legal proceedings were contemplated until the letter dated 20 April 2015 was sent to HIE, just over a year after the date when, in my view, the mora clock began to run, and no intimation of any intention to raise proceedings for judicial review was made until May 2015. In the meantime, the petitioner attempted to gather information by means of a large number of FOI requests. In my opinion those requests were not sufficient to rebut an inference of acquiescence arising from delay and taciturnity. It might at first sight seem curious to describe the petitioner’s approach as taciturn, having regard to the lengthy correspondence comprising the FOI requests and the responses of the Council and HIE to those requests. But the word “taciturnity” must be understood in context. The making of a FOI request does not of itself carry an implication that court proceedings are in contemplation by the person requesting information. In the present case, the FOI letters sent on the petitioner’s behalf consisted mainly of lengthy complaints about the manner in which the Council and HIE had dealt with previous requests for information. They included assertions of the public interest in ensuring that the tender process undertaken by the Council was properly conducted. They did not, however, make any reference to the contemplation of court proceedings by the petitioner to have the award set aside.
[25] In the United Co-operative Ltd case (above), Lord Glennie observed (paragraph 28):
“… If the common law requirement of taciturnity is a requirement of the plea in a judicial review context, the objector may in practice be able to hold up implementation of, or reliance on, a decision by continually threatening action without actually taking legal proceedings. However, there is no need for me to consider this further in this case.”
It seems clear from the decision of the court in Somerville v Scottish Ministers (above) that taciturnity is a requirement of the plea in the public law context. But the situation contemplated by Lord Glennie is not that of the present case because the petitioner did not continually threaten legal action, and so there is equally no need for me to consider it further. On the contrary, the nature of the petitioner’s “speaking out”, which consisted of repeatedly seeking further information on grounds of public interest, was not, in my opinion, inconsistent with an inference of acquiescence, however reluctant and dissatisfied, in the award of the contract to the company. By allowing a period of a year to elapse from the time when it became aware of grounds of challenge of an award of a contract to the company, and eight months to elapse from the time when it received information in response to its first FOI request and also became aware that the contract had been awarded, before intimating any intention to mount a court challenge to the award, the petitioner in my opinion delayed for an unreasonably long time and, moreover, delayed silently for the purposes of the operation of the plea. In a public law matter where it is detrimental to good administration to allow a matter as important as the development with which these proceedings are concerned to remain in a state of uncertainty, I consider that reluctant acquiescence may reasonably be inferred from the petitioner’s delay and taciturnity.
[26] In reaching this decision I have not derived assistance from the case law on the running of time for a statutory challenge under the limitation provisions of the Regulations. In my view the common law concept of mora, taciturnity and acquiescence differs materially from the statutory restriction which not only refers only to lapse of time but also introduces an element of court discretion in extending the three-month period “for good reason”. In contrast, it is clear from the authorities that the application of the plea of mora, taciturnity and acquiescence requires more than mere delay and, moreover, does not envisage any exercise of discretion by the court.
[27] I reject also the petitioner’s “fall-back” argument that even if the present action falls foul of mora, taciturnity and acquiescence with regard to the conclusion for reduction, it should nevertheless be allowed to proceed with regard to its other conclusions including the conclusion for damages. I am not persuaded that by excising the conclusion for reduction, the action loses its character of a public law challenge and acquires instead an entitlement to benefit from a more relaxed attitude to mora and taciturnity appropriate to a private law action. This is a petition for judicial review, competent only where the supervisory jurisdiction of the court is invoked (see eg Gray v Watson [2014] CSIH 81 and authorities there cited). The petitioner’s claim for damages is based on Francovich state liability criteria. It forms part of the invocation of the court’s supervisory jurisdiction and cannot, in my opinion, be detached and treated as if it were a private law action for damages. If, as I have held, the petitioner’s application for judicial review is excluded by mora, taciturnity and acquiescence, it is excluded in toto and not merely to the extent of some of the remedies sought.
[28] For these reasons I find in favour of the Council on the second issue.
Disposal
[29] The plea of mora, taciturnity and acquiescence is a plea to the merits. I shall sustain the Council’s second plea in law and refuse the prayer of the petition. Questions of expenses are reserved.