Midlands Co-Operative Society Ltd, R (on the application of) v Tesco Stores Ltd

Factual and Procedural Background

The Claimant ("the Co-op") challenged two decisions of the Defendant local planning authority ("the Council"): (i) the decision to enter into a contract on 8 April 2011 to sell its interest in a plot of land comprising an indoor bowls and community centre ("the Community Facility") to the Interested Party ("Tesco"); and (ii) the decision on 14 March 2011 to authorise the making of a compulsory purchase order ("CPO") to facilitate land assembly for Tesco's proposed redevelopment of an 11-acre site including that plot.

Initially, permission to proceed was refused in April 2011 but was later granted in December 2011 with directions for a rolled-up hearing. The hearing took place in March 2012 before Judge [Last Name].

The site in question is located in Stirchley, approximately four miles south of Birmingham City Centre, and has been subject to concerns about investment and viability as a local centre. The Council adopted planning policies since 1994 aimed at consolidating retail activity within a core area, including the Hazelwell Lane Development Brief in 2002 identifying the 11-acre site as suitable for mixed-use development possibly anchored by a retail foodstore.

The Community Facility is part owned by the Council and part owned by a wholly-owned subsidiary of the Co-op, with a covenant restricting use to an indoor bowls and community centre. The Council declared the property surplus to requirements in 2006, conditional on replacement facilities being provided to an agreed specification and location.

Both Tesco and a Co-op-led consortium applied for outline planning permission for the site, with Tesco proposing a food superstore-led development and the Co-op proposing a mixed non-food retail and residential scheme. Both schemes were granted outline permission subject to section 106 agreements securing replacement community facilities.

Following a first tender process limited to Tesco and the Co-op, Tesco was selected as the development partner in October 2007, subject to development obligations including replacing the Community Facility. However, concerns about compliance with public procurement rules led to the termination of that process in 2010 and the initiation of a second tender process structured as a pure land sale without development obligations.

The second tender process failed to produce an acceptable bid, and the Council commenced a third open tender process in August 2010. Only Tesco submitted a bid, which was accepted by the Council in October 2010.

The Council and Tesco exchanged contracts for the sale of the Community Facility land on 8 April 2011, alongside an overage agreement providing for additional payments to the Council upon Tesco acquiring all site interests and obtaining full planning permission for development excluding reprovision of community facilities.

The Co-op challenged these decisions by judicial review issued on 16 March 2011, seeking to restrain the sale and the making of the CPO.

At the time of the hearing, the Community Facility continued in use, with the Council committed to relocating the community centre to refurbished premises and the indoor bowls club to an alternative site, funded from the sale proceeds, though these plans were held in abeyance pending the outcome of the claim.

Legal Issues Presented

1. Whether the disposal of the Community Facility land to Tesco contravened the Public Contracts Directive and the Public Contracts Regulations 2006 by constituting a "public works contract" subject to procurement rules.
2. Whether the Council breached its duty under section 123(2) of the Local Government Act 1972 by disposing of land for less than the best consideration reasonably obtainable.
3. Whether the Third Tender Process was legally unfair, rendering the resulting contract unlawful.
4. Whether the Council acted unlawfully in authorising the making of the CPO by failing to comply with assurances given to the Co-op, thereby creating a legitimate expectation.
5. Whether the Council took into account immaterial considerations or failed to consider material ones in authorising the CPO, particularly regarding the Co-op's planning permission status.

Arguments of the Parties

Appellant's Arguments

• The disposal to Tesco constituted a public works contract because it included legally enforceable obligations on Tesco to carry out construction works, specifically the replacement of community facilities, thus triggering the procurement rules.
• The Council failed to obtain best consideration, as the tender process was flawed and did not properly market the land, leading to a sale at less than the best price reasonably obtainable.
• The Third Tender Process was unfair and inconsistent, misleading potential bidders about the true nature of the sale and the Council's intentions regarding development obligations and CPO support.
• The Council gave assurances to the Co-op that the choice of development partner would be reconsidered with input from the Co-op, creating a legitimate expectation that was not fulfilled.
• The Council's decision to authorise the CPO was based on incorrect assumptions, including that the Co-op had abandoned its planning permission, and failed to consider relevant factors.

Respondents' Arguments

• The arrangements between the Council and Tesco did not include a legally enforceable obligation on Tesco to perform works and therefore did not constitute a public works contract under the Directive or Regulations.
• The sale was conducted by an appropriate open informal tender process, with marketing adequate to attract serious bidders aware of the planning context.
• The terms of the tender, including the non-negotiable tender statements and deposit requirements, were reasonable and justified by the Council's objectives.
• The assurances given during the First Tender Process did not survive the termination of that process and did not create a continuing legitimate expectation.
• The Council conceded that the assumption regarding the Co-op abandoning its planning permission was incorrect and agreed a new decision on the CPO would be required.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court conducted a detailed analysis of the Public Contracts Directive and its transposition into domestic law by the 2006 Regulations. It focused on whether the arrangements between the Council and Tesco constituted a "public works contract" requiring compliance with procurement rules. The Court found that a key element of such a contract is a legally enforceable obligation on the contractor to carry out specified works.

Examining the contractual and planning framework, the Court concluded that Tesco was not under any legally enforceable obligation to perform works at the time of the contract exchange or thereafter, as the section 106 agreement obligations only arise upon implementation of planning permission, which Tesco was not bound to commence. Furthermore, the Council's evolving intentions indicated that replacement community facilities would be provided by the Council itself, not Tesco.

The Court rejected the appellant’s argument that the arrangements should be treated as a single package including enforceable development obligations, emphasizing the legal distinction between the land sale and any development obligations. It held that the Council’s strategy to separate the sale of land from development obligations was lawful and avoided the procurement rules.

Regarding the duty to obtain best consideration under section 123(2) of the Local Government Act 1972, the Court accepted expert evidence that the tender process was appropriate and the price obtained from Tesco was likely the best reasonably obtainable. It found the marketing sufficient and rational, and the terms of the tender, including the deposit and timing, justified by the Council's objectives.

The Court addressed complaints about the fairness of the Third Tender Process and the Council’s assurances to the Co-op. It found that the assurances given during the First Tender Process did not survive its termination and that the sale was conducted transparently within the context of the Council’s development plans. The Council conceded that the decision to authorise the CPO was based on an incorrect assumption that the Co-op had abandoned its planning permission, and agreed that a new decision would be required.

Overall, the Court found the appellant’s grounds weak and unpersuasive, but granted permission to proceed with the claim given arguability.

Holding and Implications

The Court granted permission to proceed with the judicial review but refused the substantive application on all grounds.

The Court held that:

• The arrangements between the Council and Tesco did not constitute a public works contract under the Public Contracts Directive and 2006 Regulations, as there was no legally enforceable obligation on Tesco to perform works at the relevant time.
• The Council complied with its duty under section 123(2) of the Local Government Act 1972 to obtain the best consideration reasonably obtainable in disposing of the Community Facility land.
• The Third Tender Process was not legally unfair, and the Council was not bound by any continuing legitimate expectation arising from prior assurances in the terminated First Tender Process.
• The decision to authorise the CPO was made on an incorrect factual assumption regarding the Co-op’s planning permission, but the Council conceded that a new decision would be necessary.

The direct effect of this decision is that the Council’s sale of the Community Facility land to Tesco and its authorisation of the CPO stand. No new legal precedent was established beyond the application of established principles to the facts of this case.