Bury, R (on the application of) v Secretary Of State For Environment [1997] EWHC Admin 213

Monday March 3rd, 1997

SECRETARY OF STATE FOR ENVIRONMENT Ex parte BURY, R v. [1997] EWHC Admin 213 (3rd March, 1997)

Royal Courts of Justice
London WC2
Monday 3rd March 1997
B e f o r e:
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Ex parte BURY
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(Computer-aided Transcript of the Stenograph Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
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MR M SUPPERSTONE QC and MR J COPPEL (instructed by Messrs Sharpe Pritchard, London, acting as London Agents for the County Solicitor, Bury Legal Services, Bury) appeared on behalf of the Applicant.
MR S RICHARDS (instructed by the Treasury Solicitor) appeared on behalf of the Respondent.
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( As Approved by the Court )
Crown Copyright
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Monday 3rd March 1997

1. MR JUSTICE POTTS: By leave of Tucker J the Applicant applies for judicial review of a direction dated 15th February 1996 ["the Direction"], issued by the Respondent under s.14 of the Local Government Act 1988 [the 1988 Act] and s.19B of the Local Government Planning and Land Act 1980 [the 1980 Act] the effect of which was:

a. to require the Applicant to re-tender for the provision of works of refuse collection etc. which was tendered in 1994/95 and awarded to Bury Contract Services (BCS), the Applicant’s Direct Services Organisation (DSO),
b. to seek the consent of the Respondent if, on completing the re-tendering exercise, it was proposed to assign the work to the Applicant’s DSO.

2. The Secretary of State had concluded that during the tendering process the Applicant had acted in a manner having the effect, or intended or likely to have the effect, of restricting, distorting or preventing competition by failing to provide information to

contractors regarding the use of depot facilities and the charges to be made for such use and regarding the status and use of the vehicle fleet used by the Applicant for the work.

3. By an amended Notice of Application, the Applicant seeks to declaratory relief in respect of paragraph 36 of Department of Environment Circular 5/96 which provides guidance to local authorities with regard to competition in the provision of local authority services. This Circular replaced 10/93 which was in force the time of the tendering process.

4. The application raises issues concerning the powers and duties of local authorities and the Respondent under:

(1) the regime of Compulsory Competitive Tendering (CCT) established by the 1980 and the 1988 Acts and,
(2) European Community law governing the award of contracts by public bodies, in particular, Directive 92/50/EEC, the Public Services Contract Directive
(the Directive), implemented in the United Kingdom by the Public Services Contracts Regulations, SI 1993/3228 (the Regulations).
The Domestic Legislation

5. By s. 9(4)(aaaa) of the 1980 Act a local authority may undertake certain types of functional work on condition:

“that in reaching the decision that they should undertake the work and in doing anything else in connection with the work before reaching the decision, they have not acted in a manner having the effect, or intended or likely to have the effect of restricting, distorting or preventing competition”.

6. S. 19A of the 1980 Act provides that:

“(1) If it appears to the Secretary of State that a local authority…… have carried out or undertaken work …..
(b) in circumstances where the provisions of s. 9(2) to (7) above have not been complied with as regards the work ….. he may serve on the authority a written notice falling within subsection (2) ……
S. 19A(3) provides for a written response to this notice. S. 19(B) empowers the Secretary of State to give a direction.
Parallel provisions are contained in the 1988 Act. Section 7(7) empowers the imposition of the condition, s. 13 governs the notice and s. 14 the direction.
In the present case the nature of the work for which tenders were sought was such that the tendering process was covered by both Acts. At the relevant time, Department of Environment Circular 10/93 provided guidance to local authorities with regard to competition in the provision of local authority services. Paragraphs 56 to 60 are material. It is only necessary to rehearse paragraph 56 here:
“56. Assets are in some cases an important input to the operation of a service — for example, refuse vehicles or works depots. The Secretary of State considers that authorities may be in breach of their duty to avoid restriction, distortion or prevention of competition if they refuse to make key premises or other assets available to external contractors in the event of their being successful in competition. Making available assets will ensure that contractors who not be in a position to compete for work without access to such facilities are not excluded from

7. Reference is made to paragraphs 59 to 60 later in this judgment.

The European Legislation and the Public Service Contracts Regulations

8. The Directive 92/50 EEC relates to the coordination of procedures for the award of public services contracts. The relevant recitals to the Directive are:

“Whereas measures arrived at progressively establishing the internal market …. need to taken; whereas the internal market is an area without internal frontiers in which the free movement of goods, persons services and capital is ensured;
whereas the rules for the award of public services contracts should be as close as possible to those concerning public supply
contracts and public works contracts……”.

9. Article 1 of the Directive provides that:

“(a) public service contracts shall mean contracts for pecuniary interest concluded in writing between a service provider and contracting authority ……
(b) contracting authorities shall mean the state, regional or local authorities, bodies governed by public law …….
(c) service provider shall mean any or natural or legal person, including a public body, which offers services.”

10. Article 12(2) contemplates that a tendering exercise may not lead to the award of a contract and requires a contracting authority, on request, to explain why no contract was awarded. Article 36 determines the criteria for the award of contracts:

“1. Without prejudice to national laws, regulations or administrative provisions on the remuneration of certain services, the criteria on which the contract authority shall base the award of the contracts may be
(a) where the award is made the economically most advantageous tender, various criteria relating to the contract: for example, quality, technical merit, aesthetic and functional characteristics, technical assistance and after sales service, delivery date, delivery period or period of completion, price, or
(b) the lowest price only.
2. Where the contract is be awarded to the economically most advantageous tender, the contracting authority shall state in the contract documents or in the tender notice the award criteria which it intends to apply, where possible in descending order of importance.”

11. It is accepted that the effect of this Directive is the same as Directive No. 71/305 EEC (the Works Directive) as amended by Directive 89/440/EEC.

12. The Directive is implemented into domestic law by the Public Service Contracts Regulations. Regulation 21 provides, so far as is material:

“Criteria for the award of a Public Service Contract –
(1) …… a contracting authority shall award a public services contract on the basis of the offer which:
(a) is the most economically advantageous to the contracting authority, or
(b) offers the lowest price.
(2) the criteria a contracting authority may use to determine than an offer is the most economically advantageous include delivery date, running costs, cost effectiveness, quality, aesthetic and functional characteristics, technical merit, after sales service, technical assistance and price.
(3) Where a contracting authority intends to award a public service contract on the basis of the offer which is the economically advantageous it shall state the criteria on which it intends to base its decision, where possible in descending order of importance in the contract notice or the contract documents”.

13. Regulation 21(9) provides that:

“For the purpose of this Regulation ‘offer’ includes a bid by one part of a contracting authority to provide services to another part of the contracting authority when the former part is invited by the latter part to compete with the offers sought from other persons”.
The History of the Tender

14. In May 1994 the Applicant put out to tender a contract for the provision of the refuse cleaning etc. for an initial period of five years. The Applicant invited applications from contractors:

“in accordance with the Local Government Act 1988, the Public Service Contract Regulations 1993 and the EEC Directive 92/50 EEC”.

15. The Applicant purported to award the contract using the restricted procedure laid down by Article 11(4) of the Directive and Regulation 10(1) of the Regulations.

16. By letter dated 12th October 1994 the Applicant invited four contractors to tender for the contract, Biffa Waste Services Limited, BFI Wastecare Limited,

17. UK Waste Management Services and Bury Contract Services (BCS). The Applicant instructed tenderers that the contract would be awarded to the most economically advantageous tender. The Applicant specified the award criteria as follows:

“The successful contract shall be awarded on the basis that its offer is the most economically advantageous to the Council. The criteria used to determine this is Price, Organisation, Operations, Quality and Health and Safety. Organisation, Operations Quality and Health and Safety are all rated of equal importance ………”.

18. By letter dated 14th November 1994, BFI Wastecare Limited declined to bid for the contract, citing pressure of existing work. Bids were received from three tenderers. The respective bids (adjusted for apportioned notional premium) were priced as follows:

19. Bury Contract Services £1,952,575 p.a.

20. Biffa Waste Services Ltd £2,927,320 p.a.

21. UK Waste Management Ltd £2,766,799 p.a.

22. The Applicant purported to assess each tender in accordance with the most economically advantageous criteria, and assigned each a technical and quality evaluation rating as follows:

23. Bury Contract Services 64%

24. Biffa Waste Services Ltd 24%

25. United Kingdom Waste

26. Management Limited 27%

27. On 21st December 1994, the Applicant decided to award the contract to Bury Contract Services. The Applicant asserts that pursuant to and because of the guidance contained in Circular 9/93 it decided to make its asserts (primarily depot space and vehicles) available to the successful contractor. Thus the invitation to tender contained the following stipulation as to assets:

“3.5 The successful service provider must provide all labour, plant and materials unless otherwise instructed by the supervising officer and rates are to include for all the labour, plant, and materials associated with the various operations.
3.5.1 The Council is prepared to make key assets available to service providers in the event of their being successful in competition. Should the service provider be of the view that they may require the use of such assets information in respect of the same will be made available on written request to the supervising officer.
3.5.2 Should the successful service provider determine that he will require the assets which are to be made available by the Council, then a licence/tenancy agreement would be required between the Council and the service provider”.

28. Further information was sought by Biffa Waste Services and UK Waste Services from the Applicant concerning the number, age, specification and leasing details of the vehicles currently being used to perform the services, and regarding the depot from which the services were currently being performed. The Applicant responded to these queries in November 1994. It changed its position as to the provision of information. As to vehicles the Applicant stated:

“Prospective service providers should note that should their tender be successful, they may enter into negotiations with the Council and the existing in-house contractor regarding use of the existing fleet. This will of course, be subject to the leasing company’s agreement to sublease.”

29. As to depots the Applicant replied:

“Prospective service providers should note that the in-house contractor operates from a multi-functional depot where the following activities are managed”.
(Certain activities were then identified and the reply went on):
“However should their tender be successful an appropriate part of the site will be made available, if required at market rental, or a full repairing and maintenance basis …….”.

30. The tenderers found these answers to be unsatisfactory and asked the Respondent to approach the Applicant regarding them. On 23rd November 1994 (before the award to Bury Contract Services), Mr Birt of the Respondent’s Local Government Division 3, wrote to

31. Mr Cannon, the Applicant’s Borough Engineer, stating (among other things):

“The information you have provided in respect of the vehicle fleet and the depot facilities does not appear to be consistent with the Department’s guidance contained in Circular 10/93. Paragraphs 59 and 60 state that the terms, conditions and length of time for which depot facilities and vehicles will be made available should be made clear when inviting tenders and I am concerned that not providing this information might have had an anti-competitive effect.
Tenderers do not appear to have been informed of the charges including rental which would be made for using the depot, or the facilities which would be available. I would welcome your comments on why you would not provide further information on the depot facilities or the vehicle fleet.”

32. The letter went on to ask the Applicant to provide details of the leasing arrangements for the vehicle fleet etc.

33. An exchange of the correspondence between the Applicant and the Respondent followed. The Applicant declined to provide additional information in respect of depot facilities and its vehicle fleet. (In summary it did so because):

(1) On its construction of Circular 10/93 it believed that it was obliged to provide such information only where it was considering alternative uses of the assets should BCS fail to win the contract and,
(2) Because it was of the view that the provision of the information sought would stifle healthy competition and impede the choice of the most economically advantageous tender. A factor in this assessment was said to be that all tenderers had substantial experience in providing the services for which tenders had been sought and all were in a position to know, or to find out, the cost of providing the requisite vehicles and depot facilities.

34. Thus it came about that in June 1995 the Respondent decided that:

“In not providing information to contractors relating to to depot facilities and the vehicle fleet (the Applicant had) acted in a manner having the effect or intended or likely to have the effect of restricting, distorting or preventing competition contrary to s.9(4)(aaa) of the 1980 Act and s.7(7) of the 1988 Act.”

35. Accordingly, the Respondent issued a notice under s. 13 under the 1988 Act requiring the Applicant to show grounds why a Direction under s.14 of the 1988 Act should not be issued (12th June 1995). This Notice related specifically to the refuse collection services for which the Applicant had sought tenders. On 29th August 1995, a further Notice was issued under s. 19A of the 1980 Act and s.13 of the 1988 Act a respect of the other work (“building cleaning, winter maintenance and other cleaning work”) comprised in the contract for which the Applicant had sought tenders.

36. In letters dated 7th July and 29th September 1995, the Applicant attempted to show grounds why a Direction ought not to be issued. The Applicant drew the Respondent’s attention to the following matters amongst others:

1. Only one of the outside contractors had complained to the Applicant about the conditions under which it was being required to bid.
2. All the tenderers had substantial experience in providing the services for which the tenders had been sought and were in a position to know or discover the cost of providing the requisite vehicles and depot facilities.
3. The bid of BCS was substantially cheaper (£815,000 per annum) than its nearest rival.
4. Lack of the information at issue could not have accounted for any more than a small proportion of this disparity. As to vehicles, even if an outside contractor was to assume that it would lease totally new vehicles, the additional cost relative to BCS’s vehicle costs have been no more than £100,000.
5. Both outside contractors failed to satisfy the Applicant on technical and quality issues which were
unrelated to the issue of the identity or cost of the assets which they intended to use. For example, one of the contractors omitted altogether the subject of winter maintenance from their tender. Lack of information about the basis upon which the Applicant’s assets would be made available clearly had no material effect upon the ability of the unsuccessful contractors to compete with BCS.

37. The information supplied and the arguments advanced did not satisfy the Respondent who concluded on 15th February 1996 that the Applicant had failed to show grounds why a Direction should not be issued. Accordingly, on that day the Respondent issued the Direction, the subject of this review.

The History of these Proceedings

38. Tucker J granted leave on 26th March 1996. I heard oral submissions on 30th and 31st October and 1st and 4th November 1996. It was contended on behalf of the Applicant that the application raised important issues of Community Law, in particular:

(i) the scope of the Directive and its application to the situation where contracts are awarded by the local authority’s to an in-house bidder.
(ii) whether a local authority can rely upon the direct effect of the Directive against the Respondent,
(iii) The extent of a local authority’s discretion under the Directive to select its preferred bidder for a public services contract.
(iv) the relationship between CCT rules and the broader obligations of the Respondent under European Community Law and,
(v) the application of the principle of proportionality to the decisions taken by the Respondent.

39. These issues were at the forefront of the Applicant’s case. The Applicant also challenged the vires of the Direction purely on domestic law grounds as I will explain later in this judgment.

40. As to Community Law, Counsel for the Respondent submitted that the Directive is concerned with contracts and does not bite on a decision by a local authority to undertake work in house. He argued that the Directive had no bearing on the Secretary of State’s decision to require the re-tendering of the works, to require compliance with the statutory conditions, to require the Secretary of State’s consent before deciding to undertake the works in house or as to exclude the DSO from the tendering process. Cumbria Professional Care Ltd v. Cumbria County Council (an unreported decision of Turner J) was cited in support of this interpretation.

41. Mr Richards further submitted that since the Directive was fully implemented into domestic law by the Regulations it was unnecessary and inappropriate to rely on the Directive rather than the Regulations. Felicitas Finangant fur Verkehrsteuevn (1982) 3 ECR 2771 was cited in support of this contention.

42. After considering these and other detailed submissions advanced on both sides I reserved judgment on 4th November. However, I had case relisted on 8th November 1996. I then indicated that I had reached the conclusion that I could not sensibly decide the case without first resolving:

1. Whether the Directive applied to in-house work
2. Whether the Applicant could rely on the direct
effect of the Directive.

43. To the best of my recollection (and without the advantage of a transcript of what I said) I asked counsel whether I could with complete confidence decide these issues bearing in mind the pitfalls:

“which face a national court venturing into an unfamiliar field, of the need for uniform interpretation throughout the Community and the advantages enjoyed by the Court of Justice in construing Community instruments”.
and, whether I should accordingly refer the case to the European Court.

44. I heard submissions from Mr Richards and

45. Mr Supperstone. Mr Richards opposed a reference to the European Court. He submitted that this Court could decide whether the Directive applied to in-house work. The direct effect point was not an issue because the Directive had been implemented into domestic law.

46. Mr Supperstone encouraged a reference, contending that the only issues that this Court could properly determine were those that raised questions of purely domestic law. Whilst these discussions were taking place neither I nor (I assume) Counsel were aware of the decision of the Court of Appeal in R. v. Portsmouth City Council, ex parte Peter Coles and Colwick Builders Limitd and ex parte George Austin Ltd (the Portsmouth case).

47. This decision bears directly on the problems canvassed by me with Counsel on 8th November. The judgments of the Court of Appeal were handed down on that very day. The Court of Appeal had no difficulty in dealing with the matters that troubled me and did not contemplate a reference. The judgments first came to my attention when reported in the Times newspaper on

13th November 1996. I then contacted Counsel and asked them whether they wished to make further submissions. Counsel on each side invited me to accept written submissions and I agreed to this course.
The Portsmouth Decision

48. This application for Judicial Review concerned the effect of the Works Directive (No 71/305/EEC) as amended. It is accepted that this Directive and the Directive under review are to the same effect and that the decision of the Court of Appeal binds me. The decision also disposes of my anxiety concerning a reference to Europe. At transcript 12BC Leggatt LJ said:

“That (Directive 92/50) defines a
‘public service contracts’ as
‘contracts for pecuniary interest’. The same meaning applies here. I regard it as inescapable that, when awarding work to PCS the Council were not entering into a public service contract within the meaning of the Works Directive, which could therefore have no application to the transaction”.

49. Hobhouse LJ reached a similar conclusion (Transcript 19AF):

“Article 20 applies to the award of ‘contracts’. When a Local Authority, as did this County Council, decides to use its own direct labour department, it is not deciding to award a contract; it is deciding not to award a contract”.

50. After the judgment of the Court of Appeal was handed down, Counsel for the Appellants in that case submitted that the decision did not affect earlier breaches of the Directive which continued to apply until the award was made in-house so that those who had suffered loss as a result of the failure to comply with the procedure laid down in the Directive could claim damages. Counsel for the Respondents submitted that (Transcript 10DF):

“My position is that the significance of the effect of your Lordships’ judgment is that, once a contract is awarded in-house, effectively the whole of the Directive falls away, so that it is not possible for a local authority to be in breach of the Directive at any stage in the tendering process. If my construction is right, the effect of that would be that, not only is the local authority free from liability in respect of the failure to award the contract, but it is also of course free from liability in respect of its failure, its admitted failure now, to have specified in the original documentation the criteria that would be applied”.

51. The Court considered these submissions and Leggatt LJ said (Transcript 11D):

“We take the view – or inform you (which ever be appropriate) that (Counsel for the Appellant’s) construction is the one we intended to convey. It accurately represents ….. the effect of our judgments”.
Submissions as to the effect of the Portsmouth case

52. I have received written submissions on behalf of the Applicant. They are essentially as follows:

“The fact that the Direction was issued after the award of the work to BCS, is irrelevant to the issue of whether or not the Directive applies. Following Portsmouth, the Directive does not fall away in its entirety once the work is awarded in-house but can still be relied upon in respect of stages in the tendering process which precede the award of the contract. The Direction was issued on the basis of actions taken by the Applicant at the pre-award stage, namely at the stage of specification of the award criteria, and the gathering of the bids which were likely to lead to the most economically advantageous result for the Council. These actions, in particular the refusal of the Council to provide full details of its vehicle fleet and of the cost of leasing its premises were, it is submitted, consistent with the discretion accorded to the Applicant by the Directive, which, according to Portsmouth did not apply at that stage of the tendering process.
All aspects of the Direction – the requirement to make available premises and assets and provide full information about those premises and assets, the requirement to retender and the requirement to seek the consent of the Respondent to the re-award of the work to BCS – can be challenged under the Directive since they are all part and parcel of the Respondent’s reaction to the conduct of the Applicant at the pre-award stage. Similarly, the relevant paragraphs of Circular 5/96, the legality of which is also in issue, relate to conduct at the pre-award stage when the Directive does apply, even if work is ultimately awarded in-house”.

53. I reject these submissions and accept those advanced on behalf of the Respondent. In my judgment the effect of the decision of the Court of Appeal is:

(i) That the view taken by Turner J in the Cumbria case that the Directives have no bearing on a decision to award a contract in-house (although it may have some bearing on the earlier stages of the tendering process) is correct,
(ii) That domestic regulations which provide that an “offer” shall include a bid made by the D.S.O.
(Regulation 29(9) are not implementing the Directive but going beyond it. “That paragraph must rather be regarded as having been included by the draughtsmen in order to make good an obvious lacuna in the Works Directive” (Leggatt LJ at Transcript 11FG when considering the 1991 Regulations). “Although for the purposes of the 1991 Regulations this would be treated as the award of a contract …… this is a fiction”. (Hobhouse LJ Transcript 19DE).
(iii) that the Directive applied to the tendering process until the award was made in-house and those who suffered loss as a result of the failure to comply with the procedure laid down by the Directive (the tenderers in the Portsmouth case) could claim damages to compensate them for the loss of the wasted tendering process.

54. The right of the Portsmouth tenderers to claim damages seems to me to differ fundamentally from that contended for here by the Applicant to have the Direction of February 1996 struck down. In my judgment

a Directive that has no application to the award of a contract in-house cannot found rights entitling a local authority to keep work in-house. The Applicant Council did not enter into a public services contract within the meaning of Directive 92/50/EEC. It therefore cannot rely on that Directive in order to strike down a direction lawfully made under the provisions of the CCT legislation.

55. It follows that the Applicant’s challenges to the Direction founded purely on Community Law must all fail. The issue of whether a local authority can rely upon the direct effect of the Directive against the Respondent (upon which must time was spent during the oral submissions) does not arise for consideration given the decision of the Court of Appeal in the Portsmouth case and the conclusion I have reached as to its application to the issues in the present case. Likewise as to the other issues of Community Law raised by the Applicant and identified above.

56. In arriving at this conclusion I have not overlooked Mr Richards’ principal submission on the Community Law aspect of the present case. This was that even if the Direction was held to apply to the award of work in-house so as to confer directly effective rights on the Applicant to challenge the Direction, there is no inconsistency between the Direction and the Directive. I will consider this submission later.

The Domestic Law
(1) Competition

57. Mr Supperstone submitted:

(a) that the Respondent adopted a mistaken construction of the meaning of “competition” under the 1980 and 1988 Acts and,
(b) that if the construction adopted was correct there was no material before the Secretary of State upon which he could reasonably conclude that competition had been restricted.

58. As to (a) the argument developed by Mr Supperstone was that Parliament intended the CCT regime to introduce equality of the treatment between in-house providers and external tenderers. Parliament did not intend that the in-house provider should be treated unequally. Disclosure of sensitive information to competitors would have this effect. Further, where the behaviour of a local authority had not affected the outcome of competition for a contract (as, it was argued was the case here) that behaviour could not have restricted, prevented or distorted “competition” within the meaning of the relevant Acts.

“Competition” is defined if the Concise Oxford Dictionary as “the act of competing”. The word is not defined in the legislation. No special meaning is given to it.

59. The provisions in the 1988 Act were considered by the Court of Appeal in R. v. Secretary of State for the Environment, ex parte Knowsley MBC and others (31st July 1991- unreported). At page 48 Ralph Gibson LJ said:

“In the light of that guidance it is necessary to examine the relevant sections of the 1988 Act. Does the Act expressly or impliedly require any matters to be taken into account, or excluded from consideration by the Secretary of State, in deciding whether it appears to him that the local authority has acted in a manner having the effect, etc of distorting etc competition?
The purpose of the Act is not, as I understand it, primarily to secure to contractors opportunities of bidding for and obtaining contracts for the performing of functional work for local authorities. The purpose is rather to secure that local authorities will only undertake such activities at the expense of the chargepayers if they can do so competitvely by deciding that they should carry out the work without their acting in a manner having the effect of distorting etc competition”.

60. At page 50 he went on:

“The basis of decision of the Secretary of State to exercise his discretion, first under s. 13(1) and then under S.14(1), that shall appear to him that the authority have acted otherwise than in accordance with the six Conditions. As in Tameside, so here it seems to me that is not open to the Secretary of State to say ‘It appears to me that the authority has acted in a manner having the effect of distorting competition’ unless that which appears to him to have been the relevant act of the local authority is capable of being regarded as distorting etc competition, and whether it is so capable is a matter of law for the law for the Court.
There must therefore be before the Secretary of State, if section 13 powers are to arise, material upon which he could reasonably conclude that the local authority were in breach. Having regard to difference in the apparent bid and tender costs, it could not have, and has not been, suggested that the Secretary of State did not act unlawfully in serving the section 13 Notices. It then became the obligation of the authority by their written response under section 13(3)(a) to state that they had not acted in breach of the conditions and to ‘justify’ the statement if they chose to proceed under that alternative.
The structure thus provides it is for the local authority to put before the Secretary of State the material to justify their assertion and it is for the Secretary of State to decide whether it does.
It is the duty then of the Secretary of State to consider the material and to decide whether or not, having regard to it, it still appears to him that the authority have acted in breach of the condition. At this stage also, although the Secretary of State may decide that on any relevant factual issue he is not satisfied that the jurisdiction put forward has been made out, the statute still in my judgment requires that, having resolved any such factual issues, the Secretary of State should only regard acts of the authority for the purpose of Condition 5 in section 7(7), as acts ‘having the effect of distorting etc. competition’ if there is material upon
which he can reasonably so conclude.”

61. Ralph Gibson LJ did not define “competition”, neither did Parker LJ and Leggatt LJ with whom he sat.

62. In my judgment no special approach to “competition” is called for in cases such as the present. The approach to be adopted is that laid down by Ralph Gibson LJ in the passage cited above.

63. At paragraph 6 of his affidavit, Mr Footit

(Assistant Secretary in the Department of the Environment) stated:
“Part 1 of the 1988 Act was enacted to secure that ‘local authorities ….. undertake certain activities only if they can do so competitively’ (to quote from its long title) and the same purpose can be discerned behind the provisions of Part III of the 1980 Act. Both Acts are concerned with subjecting local authority work to competition, ensuring that competition is genuine and that, where authorities subsequently carry out work using their own staff, they do not do so as a result of any unfair advantage in the competition”.

64. I am satisfied that this was the approach adopted by the Secretary of State in the present case. In my judgment it was in accordance with the principles enunciated by Ralph Gibson LJ in the Knowsley case.

65. As to the Applicant’s contention that behaviour which did not affect the outcome of the competition for a contract could not have restricted, distorted or prevented “competition” it is to be observed that

s. 9(4)(aaaa) and s. 7(7) are not limited to conduct which has the effect of restricting, distorting or preventing competition. They are also concerned with conduct “…… intended or likely to have the effect of restricting …… or distorting competition”. The Secretary of State was entitled to form his own views of these matters. The argument that the Applicant cannot have acted anti-competitively if the outcome was not affected ignores the broad language of the legislation which is concerned to ensure genuine fairness in the competitive process.

66. Therefore, I am unable to accept Mr Supperstone’s submission that the Secretary of State adopted a mistaken construction or approach to the “competition” under the 1980 and 1988 Acts. The approach adopted was correct.

67. It is clear from Mr Footit’s affidavit that it was the Applicant’s failure to provide information concerning the cost of using the assets which it was proposed to make available which caused the Secretary of State to conclude that the Applicant’s conduct was likely to have the effect of distorting etc. competition. Mr Richards submits that such a failure is capable of distorting competition as a matter of law.

68. If three potential bidders (the DSO and two contractors) wish to use existing premises and vehicles to undertake the work, each will have to provide for the cost of those premises and vehicles in the tender. If the DSO knows the cost and the others do not, those others are at a competitive disadvantage. Their tenders will require guesswork in relation to an element in the proposed contract. The DSO bid will not. Thus the competitive process is distorted. I accept this submission. Mr Richards logic seems to me to be unassailable.

69. Was there material before the Secretary of State which he could reasonably conclude that competition had been restricted, distorted, etc. It is submitted (among other things that) the Secretary of State relied upon speculation as to the effects of the Applicant’s conduct upon external bidders. Further, that Mr Footitt’s affidavit discloses that the Respondent gave no meaningful consideration to the Applicant’s views as to why the external contractors were not prejudiced. I reject these submissions. In my judgment there was material on which the Respondent could reasonably conclude that the Applicant had failed to comply with the relevant condition. This is fully rehearsed by

70. Mr Footitt in paragraphs 13 to 24 of his affidavit and in the correspondence and documents produced from Biffa and UK Waste. In particular the Secretary of State was entitled to conclude that the Applicant’s behaviour was not de minimis for the reasons set out in paragraph 22 of Mr Footitt’s affidavit.

71. In my judgment there was ample material before the Secretary of State upon which he could conclude as he did. I am satisfied he act lawfully and within the principles expressed by the Ralph Gibson LJ in the Knowsley case.

Improper purpose

72. It is argued that the Respondent exercised his powers under the legislation for an improper purpose, namely to punish and make an example of the Applicant rather for the purpose of Act. It was suggested that this could be inferred from a number of factors including the Applicant’s evidence regarding the effect of the behaviour upon competition and the outcome of the award procedure and the unreasonably short timetable set out for retendering.

In R. v. Secretary of State for the Environment ex parte Haringey LBC 92 LGR 538 (a decision of the Court of Appeal), Ralph Gibson LJ said (at 557):
“One of the sanctions enacted by Parliament and put at the disposal of the Secretary of State, if he finds that an authority has acted in breach of that fifth condition, is to make a barring order. An intention to demonstrate to the country at large, and to those entrusted with the making of decisions on behalf of the authorities in the tendering process under the Act of 1988 Act, that action by the local authority which is clearly in favour of the authority’s direct services organisation and is in breach of the fifth condition, may be met with the imposition of a barring order, seems to me to be an intention to promote the policy and the objects of the Act. That policy and those objects are not merely that breaches of the fifth condition, if reported, and well-established in accordance with the Act, shall visited only with such a sanction as may be held to be appropriate according to the degree of conscious wrongdoing on the part of the local authority of (as to proof of which much difficulty would arise) but include the purpose of securing that all local authorities to whose activities the provisions of Part I of the Act of 1988 apply, shall, without the need for intervention by the Secretary of State, conduct their relevant activities in accordance with the six conditions laid down by Parliament.
Insofar as it is submitted that the Secretary of State was wrong in law in having regard to the deterrent effect of the barring order in deciding that the appropriate order in this case was in the form of a barring order, I do not accept it.”

73. At paragraphs 27, 28 and 29 of his affidavit

74. Mr Footitt describes the approach of the Secretary of State in the present case and says (paragraph 28):

“The Secretary of State did not give the direction to punish the Applicant nor to make an example of them ….. there was in any event stronger action available to him. He considered the Applicant’s non-competitive behaviour to be blatant. He is concerned to demonstrate to the country at large and all those who make these decisions governed by these provisions, including the Applicant authority, that anti-competitive behaviour may be met with action ….. In this instance he considered that the Applicant’s …… behaviour called for a response to achieve the objects of legislation …..”.

75. In paragraph 29 Mr Footitt gives reasons why the Secretary of State considered the timetable to be a reasonable one. In my opinion the Secretary of State’s approach was in accordance with the objects of the legislation as explained by Ralph Gibson LJ in the Haringey case. It cannot be faulted. The Applicant’s complaint is without substance and I reject it.

3. Relevant and irrelevant considerations

76. The Applicant contends that in taking his decision to issue the Direction, the Respondent failed to consider the following. I will deal with each in turn:

(a) The duties and discretion of the Applicant under the Directive and the Regulations.

77. For the reasons given above the Directive had no application to the decision making process. I will consider the Regulations later.

(b) That the effect of the competition of the Applicant’s conduct was at worst de minimis .

78. I have dealt with this contention above (under”competition”) and rejected it,

(c) That the conduct complained of would not, on any view, have affected the outcome of the contract award procedure.

79. I have dealt with this contention under “competition” and rejected it.

(d) That accordingly, bar a major change in the circumstances, the DSO was certain to provide the most economically advantageous bid on any new tendering procedure.

80. As I have sought to indicate this was not the relevant test. The relevant test was that identified by Ralph Gibson LJ in the Knowsley case and was applied.

(e) The ability of the tenderers to compete regardless to the provision of the Applicant’s facilities.

81. Mr Footitt indicates that the Secretary of State considered this. But in any event the appropriate test was that stated by Ralph Gibson LJ.

(f) That he was obliged to act in accordance with the principle of proportionality.

82. Since the Directive did not apply to the transaction the Secretary of State was not so obliged. “Proportionality” as such only come into play if the principle stated by Laws J in R. v. Secretary of State for the Environment ex parte Oldham Metropolitan Borough Council

26th November 1996 (unreported) applied. At 28EF Laws J said:
“Mr Elias ….. must establish a proposition …. that wherever (as he put it) Community Law impinges on a particular area, the fundamental principle including proportionality applies to domestic measures taken in the same field.”

83. The Directive is silent on the question whether a local authority should be permitted to do work for itself. I accept the Respondent’s submission that the CCT regime and the Community public procurement regime are concerned with different issues. Thus the obligation to re-tender pursuant to the Direction is not a derogation from the regime of the Directive. There is no “impingement” of Community Law. In any event, and crucially, in my judgment the Direction was proportionate. The Secretary of State applied the test laid down by the CCT legislation and identified in the Knowsley case. He reasonably and lawfully was concerned with more than the instant tendering process.

84. It is submitted the Secretary of State took into account irrelevant considerations:

(i) Complaints of the external contractors that they had to bid on the basis of a complete new vehicle fleet.
(ii) Speculation and conjecture as to the effect of the Applicant’s conduct on the bids which were not matters raised by the Contractors themselves.

85. I reject both these submissions. The complaints of the contractors were relevant given the scheme of the legislation. Likewise, the experience of the Respondent of the effects of anti-competitive behaviour and his interpretation of the Applicant’s conduct were matters he was entitled to take into account.

The Circulars

86. These set out the Secretary of State’s general approach to assets and information concerning them. In my opinion, no independent question of law arises on the Circulars. If the Applicant fails on the other issues raised, it fails on the Circulars.

The Public Service Contract Regulations

87. The Applicant submitted that even if the Directive did not apply in this case the Regulations did so because the Applicant sought bids in relation to a proposed contract (Regulation 5(1)). Hence, it was argued, the meaning and effect of Regulation 21 should be identical to that of Article 36, which it was intended to implement and the provisions of Section 9(4)(aaaa) of the 1980 Act and Section 7(7) of the 1988 Act should be read in conformity with Regulation 21.

88. As to Article 36, the Applicant’s essential argument was:

(i) that the Respondent’s requirement that the Applicant provide contractors with information relating to depot facilities and the vehicle fleet of the in-house service provider was an unjustified restriction upon the discretion conferred upon the Applicant by Article 36 and,
(ii) that requirement arose from the Respondent’s view that the Applicant should make its key premises and other assets available to a successful outside contractor; which was itself an unjustified restriction upon the Applicant’s discretion to select and apply criteria to identify the most economically advantageous bid.

89. Mr Footitt set out in the Secretary of State’s approach to the Directive and the Regulations in paragraphs 7 to 10 of his affidavit.

“Paragraphs 7 and 8 of the Grounds recite extracts from the Public Service Contract Directive 92/50/EEC (“the Directive”) and the Public Services Contracts Regulations 1993 …… The Respondent’s view is that the Regulations wholly implement the Directive. The Respondent sees no conflict between the Directive and Regulations, on the one hand, and the Compulsorily Competitive Tendering (“CCT”) regime of the 1980 and 1988 Acts on the other.
The Respondent sees the CCT regime and the European public procurement rules as being very different in concept. I have quoted from the long title to the 1988 Act in paragraph 6 above. The CCT regime promotes the idea that public services should be exposed to competition from the private sector. Services may be provided in-house but only if the local authority complies with the statutory conditions including that of not acting anti-competitively.
The CCT regime has the effect of market testing qualifying public services and creates markets where none existed before. It exposes public services to market forces.
The European rules, by contrast, are not concerned to create new markets where none existed before. They apply when a decision has been taken to carry out a public function through entering into a contract with a service provider. The procurement rules have as their object the opening to up to access to public contracts throughout the European Union and the elimination of the unfair practices in the tender process.
The Respondent believes that where the proposed work is done in-house the Directive and the Regulations do not bite but, in any event, believes there is no conflict between the requirements of the CCT regime and Article 36 of the Directive which is implemented by Regulation 21 of the Regulations. The two regimes are different but run in parallel and it is the Respondent’s belief that the Directive does not preclude the application of the the domestic law regime”.

90. Support for this approach is now to be found in the judgment of Hobhouse LJ in the Portsmouth case at 18DG:

“But the remaining appellants, Mr Coles and George Austin Ltd, can only succeed, if at all, under the Directives. Here they run into a difficulty. The purpose of the Directives is to help to abolish “restrictions on freedom to provide services” and “to guarantee real freedom to provide services in the market for public works contracts” (see the preambles) or as the Judge put it at page 53 contrasting the Regulations and Directives -
‘The 1980 Act as amended by 1988 Act is clearly seeking to oblige public works and services to meet competition from the private sector. No such requirement is contained in the European based legislation or subordinate legislation which only operates if a public body chooses to embark upon a tendering process but which then requires the process to be one which is open to contractors across the Community on a comparable basis’”.

91. In his oral and written submissions Mr Richards developed the points made by Mr Footitt. In particular:

“The Respondent’s view that information about assets (and the assets themselves) should be made available for tenderers does not restrict the ability of the local authority to select the economically advantageous tender. Provision of such information and assets ensures a level playing field and enables tenders to be formulated in a fully competitive way. That promotes, rather than restricts, the ability of the local authority to select the economically most advantageous tender ……. one element the CCT regime and the EC public procurement regime do have in common is their concern to secure a competitive tendering process. The suggestion that a local authority is entitled, under the guise of economic advantage to introduce a distortion into the tendering process is wholly foreign to Article 36 and to the Directive as a whole”.

92. I have set out this submission in full because I have come to the conclusion that it correctly states the position. It is consistent with the approach of Hobhouse LJ cited above. In my opinion there is no inconsistency between the Direction and Article 36 and Regulation 21. The Direction does not attack the Applicant’s choice of criteria by which to evaluate the bids. It attacks the Applicant’s conduct in refusing to make available to external bidders the information and the assets that were available to the in-house bidder. The Secretary of State was entitled to conclude that such conduct was discriminatory and anti-competitive. In my judgment, such discrimatory and anti-competitive conduct is as much contrary to Article 36 of the Directive as it is to Regulation 21 and the provisions of the 1980 and 1988 Acts. The Applicant’s attempt to rely on Regulation 21 there fails despite the “fiction” created by Regulation 21(9).


93. In my judgment therefore this Direction would be lawful even if the Directive applied to the tendering process under review and conferred upon the Applicant directly effective rights upon which it could rely.

94. Mr Richards submitted that if I reached this conclusion the questions raised by the Applicant concerning the applicability of European Law need not be resolved for the purposes of deciding this case. As to this I will only say that I have approached the problems posed by the Applicants in the manner in which I have out of deference to the submissions of

95. Mr Supperstone at the forefront of which was his

contention that the Application raised important issues of Community Law.

96. In the result the Application fails and must be dismissed.

97. MR RICHARDS: I request that the application be dismissed with costs.

98. MR COPPEL: My Lord, I cannot resist that. I do have my own application.

99. MR JUSTICE POTTS: Yes. One thing at a time, Mr Coppel. The application is dismissed with costs. Now you have another application?

100. MR COPPEL: My Lord, I would apply for leave to appeal on behalf of the Applicant for two reasons. First of all, these areas are of considerable public importance. The ruling which your Lordship has given on the effect of the Directive in situations where a contract is awarded in-house is an important matter for local authorities up and down the country, as indeed are the other matters that were raised and with which your Lordship has dealt most fully in the judgment.

101. The second reason, my Lord, is that there is, in my submission, an absence of authority on the majority of the points with which your Lordship has dealt. The Portsmouth case is a conclusive ruling, we accept, on the point that there is no contract where work is awarded in-house. That was always our position. But the effect of that ruling on the earlier stages of the tendering process is indeed a point which their Lordships themselves failed to set out fully in their written judgment and which they dealt with later at the stage of handing down their judgment. In my submission, it would be with appropriate for their Lordships to be given an opportunity to consider this matter afresh.

102. As to the issue of authority on the other point with which your Lordship has dealt, we retain the position which we adopted in the course of submissions before your Lordship which was there are important points of Community Law which do lack authority both in the Domestic Courts and at the level of the European Court of Justice. For those reasons, I would ask for leave to appeal.

103. MR RICHARDS: It is my submission, this is not an appropriate case for leave. On the domestic law, the issues have been decided in a clear cut way and no point has been made on the domestic law. On Community Law, first, your Lordship has, in my submission, adopted a straightforward application of the principles laid down in the Portsmouth case and laid down confidently in the Court of Appeal in that case.

104. MR JUSTICE POTTS: Mr Coppel has a point there, has he not, as to the manner in which the Court of Appeal came to its decision on what might be called the intermediate?

105. MR RICHARDS: Nonetheless your Lordship dealt with that in your judgment. That in my submission does not effect the aspect of the judgment in the Portsmouth case which is determinative in this case. There is the further matter that your Lordship, at the end of your judgment, has indicated that you accept the submission that there is, in truth, no incompatibility in any event, between the Direction and the regime of the Directive and even if the Directive were to apply, it would not be a basis for challenging the Direction. All of those factors together, in my submission, combine to lead to the conclusion that leave should not be given, it should be left to the Court of Appeal to decide whether there is evidence which would justify the pertaining of an appeal.

106. MR JUSTICE POTTS: I see. I find the problems raised, at this stage, very difficult, Mr Richards, I have to say. I am anxious, so to speak, not to appear indifferent to the submissions that are made by the party that has lost and, at the same time I am anxious not to impinge, if that is the right word, on the discretion of the Court of Appeal to grant leave. If I were to refuse leave I suppose the result would be that you would all go to the Court of Appeal and argue the point there?

107. MR RICHARDS: The refusal of leave in no way forecloses the opportunity for the Applicants to apply to the Court of Appeal for leave to appeal, just as in the case of a decision of the Court of Appeal, the refusal of leave does not prevent one going to the House of Lords and saying that this is an appropriate case. The fact that leave is to be refused is not to be taken as suggesting that the lower court is trying to shut out the appeal, it is simply that the lower court takes the view that the matter should automatically be left to the higher court to decide.

108. MR JUSTICE POTTS: I am going to grant leave to appeal in this matter. This case does raise matters of importance which are worthy of consideration by the Court of Appeal. I grant leave.

109. The case raises other problems, Mr Richards, since you are here, might I mention to you?

MR RICHARDS: Yes, my Lord.

110. MR JUSTICE POTTS: I thought I ought to take some steps to see if the position that arose in this case could be avoided in the future. It did strike me as being unfortunate that we heard this matter argued over many days when the Court of Appeal were considering one of the points that took up a lot of time and raised great problems and indeed were handing down the judgment dealing with one of them on the very day that I was asking for further assistance.

111. I thought I would write a note about this to

112. Simon Brown LJ, who is in charge of the Crown Office, to see whether some kind of intelligence service could be devised. If you as, Treasury Counsel, with your experience with these matters, have any observations to make on the problem, I would be very grateful, not necessarily now.

113. MR RICHARDS: My immediate reaction is that, yes, it was very unfortunate. It is a problem that would not normally occur because would expect the intelligence to get back to the government department one way or the other.

MR JUSTICE POTTS: In the Portsmouth case the Secretary of State was not involved.

114. MR RICHARDS: That is right, which is perhaps exceptional in the field. Had he been involved then no doubt we would have been able to draw your Lordship’s attention to it and indeed we might well have applied to have the case stood out, pending the judgment of the Court of Appeal.

115. MR JUSTICE POTTS: Absolutely. It seems to me that it ought not to beyond the wit of those who had have charge of our affairs to devise a system in cases where parties in a particular case are not involved in another case,

if a point at issue is either being canvassed by the Court of Appeal, or likely to be, some kind of notice or warning is given. Precisely how that is to be achieved, I am not at all sure. I take it you are not attempting to discourage me, at any rate, from raising the matter.

116. MR RICHARDS: Not from raising the matter, my Lord. I do see real problems as to how it can be achieved. In my experience, it has not been a problem that has arisen very often but, from time to time, one is aware that cases are argued and time is wasted in arguing cases where there are other cases which have been decided at the same time or have been decided and one simply has not been alerted to the existence of the decision.

117. MR JUSTICE POTTS: It is fair to say that had the Portsmouth case not been reported in the Times newspaper, we might have remained in ignorance until after I have judgment.

118. MR RICHARDS: It is possible in these cases, that the matter gets assimilated through all sets of the chambers. It is the fortuitous act, the inspired act, of the publication in the newspapers of their decision which was obviously very important for the present proceedings.

119. MR JUSTICE POTTS: Yes. Thank you very much.

120. MR COPPEL: My Lord, there is one further matter. There was, pursuant to the order of Tucker J, a stay placed on the Respondent’s direction, pending the outcome of these proceedings. The reason being that the direction required a process of retendering within a fairly tight timetable. Could I ask that that stay be maintained, pending the decision of the applicant whether or not to take this matter pursuant to the leave which has been granted? The alternative is that we will have to start up retendering…

121. MR JUSTICE POTTS: What is happening? I think I was told this during the hearing Bury are still doing their own refuse collecting, is that right?

122. MR COPPEL: Yes, my Lord. We went a certain way down the road towards retendering the contract before leave was granted and before a stay was imposed. We suspended the retendering procedure and I would ask that we be at liberty to keep it suspended until the outcome of these proceedings are finally known.

123. MR JUSTICE POTTS: What do you say about that, Mr Richards?

124. MR RICHARDS: Given that your Lordship has granted leave to appeal, I find it rather difficult to resist the application of a stay to be kept in place.

125. MR JUSTICE POTTS: I would be disposed to put some sort of time limit on it.

126. MR RICHARDS: One’s worry is that this matter may take a year to be heard by the Court of Appeal.

127. MR JUSTICE POTTS: What I want to deal with is a situation where the applicant, having considered the matter, decides not to go further.

128. MR RICHARDS: In that event, one possibility is to put a time limit of, say 2 months, on the continuation of the stay within which time the applicant could seek an extension of the stay from the Court of Appeal if, by that time they had lodged their appeal, we would have to consider whether we agree to the extension of stay being lodged. If one made it two months, that would give

28 days for the notice of appeal to be lodged and a little bit extra to allow for administration.

129. MR JUSTICE POTTS: You do not look very happy about that,

Mr Coppel.

130. MR COPPEL: My Lord, in my submission, it is certainly appropriate that we have regard to the timeframe for appealing. If we do decide not to appeal then clearly the stay would fall away but it would be inappropriate for us to have to go to the Court of Appeal to ask for the stay to maintain if we do appeal.

131. MR JUSTICE POTTS: Could we not achieve it this way?

132. We achieved quite a lot in this case with submissions in writing. If I were to say two months — and you know why I am saying that — it is to enable Mr Supperstone and yourself and the Applicants to consider the position, could I not make this order in writing, having heard from you at the end the two months, for example, that the appeal is underway?

133. MR RICHARDS: My Lord, I am not sure. There would a risk of your Lordship then being functus officio . You would have made your order.

134. MR JUSTICE POTTS: It is the Court of Appeal then.

135. MR COPPEL: My Lord, if we do decide to appeal, the stay, in my submission, should be extended automatically because one does not want to have the position whereby we do appeal and are successful but yet we may already have had to award the contract to somebody else. If we do appeal, should not the stay be extended automatically but, on the other hand, if we do not appeal, the stay falls away and we resume the retendering as before.

136. MR RICHARDS: My Lord, maybe to assist in resolving this difficulty, the answer might be for your Lordship to impose a stay. We can then apply to the Court of Appeal to have it limited if, in the circumstances ….

137. MR JUSTICE POTTS: That is probably the simplest way. The direction you want from me is that I make a fresh direction, in the terms of the stay imposed originally by Tucker J, the Respondent having indicated that, in the event of the Applicant failing to appeal against my decision today, then the Respondent will apply to the Court of Appeal to have the stay lifted. Is that it,

Mr Richards?

138. MR RICHARDS: I think maybe perhaps one should provide the stay will lapse in the event that the Respondent fails to file a notice of appeal within the time laid down.

139. MR JUSTICE POTTS: I think that appropriate.

140. MR RICHARDS: What I had in mind was that if, having filed a notice of appeal, we took the view that was simply a delay tactic, it would be open to us…

141. MR JUSTICE POTTS: The only direction you want from me is the direction in the terms of Tucker J’s direction as to stay, such direction to lapse in the event of a notice of appeal being filed within time.


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