Factual and Procedural Background
The appeal concerns two leases ("the New Leases") for land on either side of a flyover in West London, on which stand substantial structures supporting digital advertising screens ("the Two Towers"). The local authority ("the Council") owns the land and the Two Towers and had previously leased the land to the appellant ("Ocean"). Upon renewal, Ocean was outbid by a third party ("Outdoor Plus"), with whom the Council entered into the New Leases on 30 June 2017.
Ocean challenged the procurement process as unlawful, asserting that the Concessions Directive (Directive 2014/23/EU) and the Concessions Contract Regulations 2016 ("the Regulations") applied, and that the Council failed to comply with their procedural requirements. The Council denied applicability of the Regulations, and argued that any breach was procedural only, not sufficiently serious to warrant damages, and that the substantial difference in bids negated any causal link to Ocean's loss.
Ocean issued a claim for damages in the Technology and Construction Court (TCC) on 18 August 2017. The trial took place in May 2018, and the claim was dismissed by O'Farrell J in a reserved judgment dated 28 September 2018. Permission to appeal was granted on 17 December 2018.
Legal Issues Presented
- Whether the New Leases were service concession contracts within the meaning of the Regulations.
- Whether the New Leases were contracts for pecuniary interest as defined in Regulation 3 of the Regulations.
- Whether the land transaction exemption applied to the New Leases.
- Whether, assuming applicability of the Regulations, any breach was sufficiently serious to justify an award of damages and whether a causal link existed between the breach and Ocean’s loss.
Arguments of the Parties
Appellant's Arguments
- The Concessions Directive and the Regulations apply to contracts beyond those strictly for the benefit of the contracting authority or its residents; therefore, the New Leases should be considered service concession contracts.
- The New Leases entrusted Outdoor Plus with the provision of advertising services for the benefit of the Council, demonstrated by the substantial financial benefit to the Council used to support public services.
- Advertising services fall within the scope of the Concessions Directive.
- Clause 10.8 of the New Leases imposes a legally enforceable obligation on Outdoor Plus to carry out advertising services, making the New Leases contracts for pecuniary interest.
- The land transaction exemption does not apply because the grant of the interest in land was merely to facilitate the advertising concession.
- The tender exercise was subject to the Regulations, and the Council failed to comply with its obligations.
- Any breach was sufficiently serious to give rise to damages, including loss of the chance to participate in a lawful procurement process.
Respondent's Arguments
- The New Leases are not service concession contracts because the Council has no statutory obligation to provide advertising services, and the advertising does not benefit the Council or its residents.
- The New Leases do not impose a legally enforceable obligation on Outdoor Plus to provide advertising services; the rent is for possession and use of land, not for services.
- The land transaction exemption applies, as the contracts are genuine leases for land and existing structures.
- Any breach of the Regulations was procedural only and not sufficiently serious to justify damages.
- There is no causal link between the breach and Ocean’s loss due to the substantial difference in bids.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Gemeente Arnhem v BFI Holding BV [1998] 1-ECR 6821 |
Service concessions must involve services in the general interest, where the concessionaire replaces the public authority's obligation to provide the service. |
Supported the conclusion that services must be for the public authority’s obligations to fall within the Regulations. |
| Helmut Muller [2010] 3 CMLR 18 |
There must be a strong and direct link between the public authority and the service; non-material or indirect benefit is insufficient. |
Reinforced the necessity of a direct link between the contracting authority’s obligations and the services provided. |
| Promoimpresa Srl [2017] 1 CMLR |
Services concessions require specific requirements laid down by the public authority and binding obligations on the concessionaire. |
Confirmed that services must be subject to specific requirements and legally enforceable obligations to qualify as concessions. |
| Belgacom NV v Integan (C-221/12) EU:C:2013:736 |
Authorisation to exercise an economic activity on State-owned land does not constitute a service concession contract. |
Supported the view that the New Leases were authorisations to exploit land rather than service concessions. |
| R (Midlands Co-operative Society Limited) v Birmingham City Council [2012] EWHC 620 |
A contract for pecuniary interest requires a legally enforceable obligation on the contractor to perform the relevant work. |
Endorsed the necessity of a binding obligation to perform services for a contract to be a contract for pecuniary interest. |
| R (Faraday Development Limited) v West Berkshire Council [2018] EWCA Civ 2532 |
Confirmed the requirement for a legally enforceable obligation to perform the services under a contract for pecuniary interest. |
Applied to affirm the judge’s interpretation of the New Leases as lacking such an obligation. |
| Energy Solutions EU Limited v Nuclear Decommissioning Authority [2017] UKSC 34 |
Set out the Francovich conditions for damages in public procurement: intended rights, sufficiently serious breach, and causal link. |
Guided the court’s analysis on whether damages could be awarded for breach of the Regulations. |
| Exel Europe Limited v University Hospitals Coventry & Warwickshire NHS Trust [2010] EWHC 3332 (TCC) |
Loss of a chance principle as a basis for damages in procurement cases. |
Considered but rejected as inapplicable due to overwhelming bid difference. |
| AerCap Partners 1 Ltd v Aviva Asset Management AB [2010] EWHC 2431 (Comm) |
Loss of a chance principle requires a possible causal connection between breach and loss. |
Supported the court’s requirement of a causal link before applying loss of a chance. |
| Group M UK Limited v Cabinet Office [2014] EWHC 3659 (TCC) |
Advertising related to government information contracts can be within procurement rules if linked to statutory obligations. |
Distinguished from the present case where no such link existed. |
Court's Reasoning and Analysis
The court first examined whether the New Leases were service concession contracts under the Regulations. It agreed with the original judge that the Regulations apply only to contracts where the contracting authority entrusts the provision and management of services that are for its benefit or that of its residents, in furtherance of its strategic objectives or statutory obligations. The court found this interpretation consistent with the text of the Directive, the Regulations, and relevant CJEU authority, which emphasizes that services must be public in nature and that the contracting authority must obtain the benefits of the services.
Applying this principle, the court concluded the Council had no statutory obligation to provide advertising services, the advertising was not required by or provided for the Council, and the New Leases did not provide a service for the benefit of the Council or its residents. The advertising was a commercial venture unrelated to the Council’s public objectives.
Next, the court considered whether the New Leases were contracts for pecuniary interest, requiring a legally enforceable obligation on Outdoor Plus to provide services. The court accepted that clause 10.8 imposed an obligation to use reasonable endeavours to promote the site to generate revenue but did not require provision of any defined advertising service. The rent was for possession and use of land and structures, not for advertising services. The court found the New Leases were genuine leases and did not entrust the provision of services to Outdoor Plus.
The court then addressed the land transaction exemption, concluding that the New Leases fell squarely within it. The exemption excludes contracts for acquisition or rental of land or interests therein from the Regulations. The New Leases granted exclusive possession of land and existing structures for a fixed rent, with permission to use the structures for advertising, but this did not change their fundamental nature as leases.
Regarding damages, the court applied the Francovich conditions requiring a sufficiently serious breach and a causal link between breach and loss. While the Council breached procedural requirements, the court held the breach was not sufficiently serious to merit damages because there was no direct impact on public services. Further, Ocean was comprehensively outbid by Outdoor Plus, and thus no causal link existed between any breach and Ocean’s loss. The loss of a chance principle did not apply given the scale of the bid difference.
Holding and Implications
The court DISMISSED the appeal.
The court held that the New Leases were not service concession contracts within the meaning of the Concessions Directive and the Concessions Contract Regulations 2016 because the services provided (advertising) were not for the benefit of the contracting authority or its residents and the Council had no statutory obligation to provide such services. The New Leases were genuine leases, falling within the land transaction exemption. Consequently, the Regulations did not apply to the procurement process.
Further, even if the Regulations had applied, the breaches were not sufficiently serious to warrant damages, and no causal link existed between the breaches and Ocean’s loss due to the substantial difference in bids. The decision confirms the limited scope of the Concessions Directive and Regulations, emphasizing that they apply only to contracts involving public services or works entrusted by the contracting authority for its statutory or strategic objectives. No new precedent was set beyond clarifying the application of the Regulations in similar contexts.