CA362/08

SHERIFFDOM GLASGOW AND STRATHKELVIN AT GLASGOW

J U D G M E N T

by

C A L SCOTT, Advocate, Sheriff of Glasgow and Strathkelvin

in causa

FARRANS (CONSTRUCTION) LIMITED PURSUERS

against

GLASGOW CITY COUNCIL

DEFENDERS

GLASGOW, 10 June 2010.

The sheriff, having resumed consideration of the cause, rejects the defenders' argument to the effect that the action, as laid, is incompetent and allows same to proceed; assigns a further diet of debate on dates to be hereafter determined; and reserves, meantime, all questions of expenses.

SHERIFF

NOTE:

[1] This is a commercial action in which the pursuers contend that the defenders have breached obligations incumbent upon them in terms of the European Council Directive 2004/18/EC and the Public Contracts (Scotland) Regulations 2006 (SSI 2006 No. 1) (hereinafter referred to, respectively, as "the Directive" and "the Scottish Regulations"). The pursuers had tendered for work associated with the White Cart Water Flood Prevention Scheme 2004. Said Scheme arose through the use of the defenders' statutory powers under the Flood Prevention (Scotland) Act 1961. The Scheme was made by the defenders in Autumn 2004 and was confirmed by the Scottish Ministers in May 2006.

[2] The pursuers' tender was unsuccessful. In the present action, they maintain that had the defenders operated the tender procedure in accordance with the Directive and the Scottish Regulations, they would have awarded the contract to the pursuers.

[3] A debate had been assigned because the defenders wished to challenge the relevancy of the pursuers' pleadings. However, in advance of the diet of debate, parties became aware of the decision by the First Division of the Inner House of the Court of Session in the case of Sidey Ltd v Clackmannanshire Council & Ors [2010] CSIH 37. It was agreed that the court's decision in Sidey should form part of the argument given that it appeared to impact upon the competency of the present proceedings. In the event, both sides were content to regard the issue of competency as being the sole topic for debate with the defenders' plea to the relevancy being reserved meantime.

Defenders' submissions

[4] The defenders had lodged a Note of Argument which, inter alia, summarised their submissions regarding the competency of the action brought against them. In Sidey, the First Division held that the procedure adopted was fundamentally incompetent. It held that the correct procedure was by way of application to the supervisory jurisdiction of the Court of Session. The opinion of the court was delivered by Lord Clarke. At paragraph [36], his lordship stated, inter alia,:-

"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."

[5] While Sidey concerned a below threshold contract, senior counsel for the defenders argued that the reasoning therein nevertheless applied to the present case, albeit that it involved an above threshold contract. No contract existed between the pursuers and the defenders. The essence of the pursuers' case was a challenge to the defenders' decision making.

[6] Regulation 47 of the Scottish Regulations fell to be read in the light of the decision in Sidey. In any event, that regulation did not provide a stand-alone procedure or remedy. The pursuers were confined to existing procedures and remedies. In the present circumstances, the procedure available to them was judicial review. (The Scottish Regulations had been amended with effect from 21 December 2009, but for the purposes of the present case, the pre-existing regulation 47 applied.)

[7] The reference in regulation 47(6) to proceedings being brought in the sheriff court did not equate with the proposition that all actions raised in the sheriff court were competent. The Sidey decision acknowledged that there may be circumstances, such as breach of contract, in which an ordinary action would be appropriate. Such an action might be raised in the sheriff court. A view on the issue of competency might properly be formed, not by reference to regulation 47(6), but by reference to the substance of the complaint being made. In the present action, (following the language in Sidey), the pursuers' complaint related to "how the authority went about placing the contract it did". However, senior counsel for the defenders recognised that the effect of his argument would, at the very least, place a restriction upon the availability of the sheriff court as a forum for regulation 47 purposes.

[8] The extent of the court's supervisory jurisdiction was set out in West v Secretary of State for Scotland 1992 SC 385. In cases such as the present, where a party not in a contractual relationship with a public authority seeks to challenge the way in which that public authority made a decision, or failed to perform a duty, the appropriate procedural mechanism was judicial review. Therefore, the present action was incompetent.

[9] In the course of his oral submissions, senior counsel for the defenders analysed the Sidey opinion. He pointed out that following reference to questions of cross-border interest and below threshold contracts in the context of the reclaimers' submissions, Lord Clarke had turned to discuss "...a more fundamental attack on the competency of the whole process...". What followed, particularly in the decision section of the court's opinion, were a series of passages which were expressed in general terms.

[10] Senior counsel for the defenders argued that, for this court to conclude that Lord Clarke's remarks were not intended to have general application, it would be forced to introduce to general statements of principle a qualification which simply did not exist. Nowhere within the Sidey opinion did Lord Clarke state that the court's observations were confined to below threshold contracts. One would have expected the court to mention that had it intended to distinguish, procedurally, between below and above threshold contracts.

[11] Attributing general application to the Sidey decision did not preclude the use of remedies under regulation 47. In support of that proposition, senior counsel referred to chapter 58 of the Court of Session Rules and, in particular, rule 58.4. The Court of Session, he submitted, had wide powers. Additionally, senior counsel founded upon the case of Clyde Solway Consortium v Scottish Ministers 2001 SC 553 as being an example of judicial review procedure utilised to deal with, inter alia, an alleged breach of the Public Works Contracts Regulations 1991, which regulations had been promulgated to implement a European Community Council Directive. Senior counsel characterised the Clyde Solway Consortium case as a "classic example" of the court being asked to determine whether the procedure adopted by a contracting authority had complied with the statutory regulations.

[12] With regard to Lord Clarke's comments on the scope for recourse to the ordinary law of contract in certain, unspecified cases, senior counsel advanced framework agreements, under regulation 19 of the Scottish Regulations as being one such example.

[13] Quite properly, senior counsel also indicated, in concluding his submissions, that he was aware of similar disputes involving above threshold contracts having been litigated by way of summons in the Court of Session without any competency issues arising. He cited the cases of Aquatron Marine v Strathclyde Fire Board [2007] CSOH 185 and Lightways (Contractors) Ltd v North Ayrshire Council [2008] CSOH 91. However, the existence of such cases did not, he submitted, detract from the decision in Sidey where the court had been of the view that it was pars judicis for it to recognise that the proceedings were fundamentally incompetent.

Pursuers' submissions

[14] In reply, Mr McFarlane, for the pursuers, contended that the reasoning in Sidey did not apply to the present action. Sidey was concerned with a below threshold contract where, generally, the Scottish Regulations did not apply. The present action involved an above threshold contract where the regulations did apply. Mr McFarlane explained that European jurisprudence only applied to below threshold contracts where the requisite degree of cross-border interest in the tendering process existed. However, that was, he suggested, a rebuttable presumption and it was open to the contracting authority to make a decision on that issue. That decision was habile of review but only by way of judicial review procedure. Accordingly, Mr McFarlane submitted that a "regulation free zone", as he put it, existed in relation to contracts below a certain financial threshold.

[15] The passage within paragraph [36] in the Sidey opinion, together with other comments in the same paragraph, fell to be looked at in the context of the overall decision. It was apparent from paragraph [3] in the opinion that the detailed procedures prescribed by the Directive and the Scottish Regulations were not prescribed for below threshold contracts. Mr McFarlane submitted that the decision in Sidey reflected the "basic incompetency" of having recourse to the Scottish Regulations in the context of a below threshold contract. At paragraph [22] of the opinion, Mr McFarlane highlighted the following sentence:

"But more fundamentally the reclaimers' position was that the action should have been dismissed because the remedies sought by the respondents, and the procedural route to those remedies were unavailable to them in a below threshold procurement case."

Mr McFarlane maintained that those considerations permeated the court's reasoning in Sidey. The below/above threshold distinction was inherent throughout. Therefore, for that reason alone, Mr McFarlane rejected the proposition that the competency issue identified by the court had general and wide ranging application.

[16] Mr McFarlane indicated that he distanced himself from any proposition to the effect that a contractual relationship was required in order to avoid the requirement for judicial review procedure. The Scottish Regulations gave effect to the Directive on public procurement. Mr McFarlane referred to the regulations and undertook a brief analysis of the tendering procedures. In general terms, an unsuccessful tenderer had a right to challenge the decision of a contracting authority under and in terms of regulation 47. Regulation 47(6) to (8) set out the nature of that right. Regulations 47(6) states:-

"A breach of the duty owed in accordance with paragraph (1) or (2) shall be actionable by any economic operator which, in consequence, suffers, or risks suffering, loss or damage and those proceedings shall be brought in the Sheriff Court, the Court of Session, or in England & Wales and Northern Ireland, the High Court."

The powers of the court were set out in regulation 47(8). It was Mr McFarlane's submission that the specific rights and remedies afforded to any aggrieved tenderer (economic operator) under the Scottish Regulations and, in particular, regulation 47, would, in effect, be eroded were the defenders' interpretation of the Sidey decision to be adhered to. As a point of principle, that simply could not be correct, argued Mr McFarlane.

[17] The inescapable and adverse effect of the defenders' line of argument would be that an aggrieved tenderer could never pursue the enforcement of obligations incumbent upon a contracting authority by invoking regulation 47 in the Sheriff Court. That outcome was in direct conflict with regulation 47(6). Moreover, any suggestion that the enforcement of obligations under regulation 47 could be "blended in" to judicial review procedure was, in itself, struck down by Lord Clarke's remarks in Sidey at paragraph [36], on p 19 of the opinion. He had, there, stated that a party, such as an aggrieved tenderer, had to resort to domestic law procedures and remedies and could not rely "on the procedures and remedies provided by the relevant European Directives and the Scottish Regulations".

[18] It was clear, submitted Mr McFarlane, that a general application of the Sidey case to both below and above threshold contracts would be unworkable and, arguably, illegal. All that being so, he maintained that, whatever else, this court should, in those circumstances, prefer the restricted application to which the pursuers subscribed.

[19] In any event, Mr McFarlane pointed out that the pursuers, in the present action, were founding upon specific breaches of statutory duties said to be have been incumbent upon the defenders. These alleged breaches could not be categorised as reflecting "irrationality" or "unreasonableness". He argued that the present case and, indeed, other actions brought under the Scottish Regulations were not, in real terms, within the recognisable "territory" of judicial review. The Scottish Regulations giving effect to the European Directive did not require any aggrieved tenderer to invoke concepts such as irrationality in order to achieve success in enforcing obligations incumbent upon a contracting authority. The regulations were such that an aggrieved tenderer was entitled simply to point to a specific breach of statutory duty.

[20] In relation to senior counsel's reference to regulation 19 framework agreements, Mr McFarlane submitted that that approach did not usefully advance matters. Where a framework agreement was put in place, it simply meant that a list of economic operators (potential tenderers) would be drawn up from which, thereafter, any one of several tenderers would be awarded the main contract. The existence of a framework agreement did not preclude the occurrence of circumstances in which, as with the present case, an aggrieved tenderer might seek to challenge the contracting authority's approach under the Scottish Regulations.

[21] Mr McFarlane also presented a secondary line of argument. Even if this court were to interpret the decision in Sidey as being of general application, Mr McFarlane submitted that, in certain circumstances, it would be open to this court to disregard that application and to give effect to what was intended by the European Parliament. In this connection, he tendered a note in relation to "European Issues" and made reference to the concepts of "direct effect", "conforming interpretation" and "indirect effect". For the reasons which follow, it is unnecessary to elaborate further upon this aspect of Mr McFarlane's submissions.

Decision

[22] I have concluded that the court's decision in Sidey cannot be taken to have the general application contented for by the defenders in the present action. In broad terms, it appears that the Sidey case involved consideration of a below threshold contract and that, therefore, it is simply not in point. However, a detailed analysis of the court's opinion, in my view, places the matter beyond doubt.

[23] The narrative as to the emergence of "a more fundamental attack on the competency of th whole process" begins at paragraph [32]. Towards the end of that paragraph, the passage commencing, "Attacks on decisions of local authorities...", is qualified by the phrase "where the contracts in question fall below the relevant threshold...". At paragraph [33], the court notes the "rapid" recognition by senior counsel for the respondents to the effect that "...what the respondents were seeking to do was to attack an administrative decision or decisions of an administrative body and ultimately he was forced to accept that there appeared to be force in the proposition that such a challenge could only be made by way of petition for judicial review". The court then observed that:

"The combined effect of the wording of regulations 8(1) and (21) and regulation 47 foreclosed in Scotland, it seemed, the procedural route which the respondents had chosen in the present case."

[24] It will be seen that regulation 8(1) is concerned with the proposition that the Scottish Regulations do not apply where the estimated value of the contract in question is below the relevant threshold. Regulation 8(21) also concerns the situation where a contracting authority proposes to award a public contract which is below the relevant threshold. When it comes to the enforcement of obligations incumbent upon a contracting authority under the Scottish Regulations and by way of any enforceable community obligation in respect of a public contract or design contest, regulation 47(1) specifically mentions any public contract excluded from the application of the regulations by regulation 8.

[25] Whilst these passages precede the court's actual decision, they, nevertheless, inform the basis of that decision. However, from paragraph [35] onwards, it is, in my opinion, apparent that the existence and consideration of a below threshold contract lay at the heart of the court's reasoned approach. The first two sentences in the main paragraph within the court's decision section, viz. paragraph [36], set out the underlying theme:

"It is a matter of agreement, on all sides, that the contract in question was a below threshold contract. In that situation it is clear that, as a matter of law, the provisions of the Directive and the Scottish Regulations had no application to it."

[26] The opinion of the court then acknowledges that, in relation to below threshold public procurement contracts, principles of community law may be engaged and may, therefore, require to be observed by contracting authorities in the public procurement activities involving below threshold contracts. There is also reference to "difficult and as yet apparently unresolved, questions" as to the application of the relevant European jurisprudence. This is followed by an observation that a contracting authority's decision upon whether a cross-border interest exists is subject to judicial review. The court concluded that given its view as to the competency of the process before it, it did not require to address or answer the questions surrounding the application of the European jurisprudence (in relation to below threshold cases). It then made the following statement:

"What is clear to us, however, is that 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."

[27] In my opinion, the reference, in the first sentence of the foregoing passage to "these questions" relates back to the issue of how the relevant European jurisprudence falls to be applied in the context of below threshold public procurement contracts. The foregoing passage also specifically precludes reliance upon the Directive and the Scottish Regulations. That is entirely consistent with a situation involving a below threshold contract and that context is emphasised when one looks to the sentence beginning, "That will be so even when...". In contrast, the remedial and procedural regime prescribed by the Directive and the Scottish Regulations unquestionably does have effect where an above threshold contract is involved, but not, according to the court, where the contracting authority, in effect, voluntarily adopts that regime.

[28] It is important not to overlook what the respondents in Sidey were seeking. This was a matter of some relevance as far as the First Division were concerned. The fourth conclusion in the Sidey summons sought specific performance of an alleged statutory duty. Moreover, in terms of the respondents' pleas-in-law, they sought orders from the court on the basis that Clackmannanshire Council, the first defenders, had "acted irrationally, unlawfully and in manifest error,...etc.". All that falls to be contrasted with the present action wherein the pursuers simply seek declarator coupled with the payment of damages. The pursuers are constrained to found upon breaches of the Directive and the Scottish Regulations. There is no reference within any of their pleas-in-law to concept such as irrationality or manifest error etc.

[29] I agree with Mr McFarlane's contention that the below/above threshold distinction is, in effect, present throughout the opinion of the First Division. Indeed, the repeated references to below threshold contracts, particularly from page 17 of the opinion onwards, to my mind, serve to delineate the factual/legal territory to which the court's pronouncements were intended to apply.

[30] There is also considerable force in Mr McFarlane's submission regarding the effect of the court's decision in Sidey, should it be generally applied. In above threshold contracts an economic operator is afforded recourse to the courts in terms of regulation 47 of the Scottish Regulations. Regulation 47(6) stipulates that a breach of duty by a contracting authority "shall be actionable" and that proceedings "shall be brought" in the Sheriff Court or the Court of Session, in the case of Scotland. If afforded general application, the decision of First Division in Sidey would, in effect, prevent proceedings being brought in the Sheriff Court. That outcome would be in direct conflict with the terms of regulation 47(6) and the Directive. With all due respect, I cannot conceive that their Lordships' opinion can be interpreted in such a way as to produce such an unsatisfactory outcome. Had the decision in Sidey been intended to apply to above threshold contracts it would have been straightforward for the court to have made such an intention explicit within its written opinion. However, it has not done so and, in my view, that is, quite clearly, because that opinion is concerned only with below threshold contracts.

[31] I confess to having some difficulty in construing the final seven lines of paragraph [36] within their Lordships' opinion. I am unclear as to what the court had in mind when it referred to certain cases wherein there may be a place for recourse to the ordinary law of contract. However, any misunderstanding on my part, in that regard, does not in any way impact upon the decision I have reached regarding the competency of the present commercial action raised in Glasgow Sheriff Court. Similarly, with regard to Mr McFarlane's secondary line of argument, as set out at paragraph [21] supra, there is no need for me to express any concluded view. Suffice it to say that I would have been circumspect about following the approach he commended, in the absence of clear and compelling authority.

[32] Accordingly, for all these reasons, I have determined that the present proceedings are, indeed, competent. Due to the circumstances in which the argument proceeded, the defenders had not, formally incorporated a preliminary plea to the competency of the action, prior to the commencement of the debate. Nevertheless, as recorded above, both sides were content that the debate should proceed in relation to the issue of competency thrown up by the decision in Sidey. In formulating an appropriate interlocutor, I have, therefore, merely recorded the rejection of the defenders' competency argument and assigned a further diet of debate to deal with separate issues of relevancy and specification. I have, meantime, reserved all questions of expenses, including the issue of sanction for the employment of counsel.