Chandler, R (on the application of) v Secretary of State for Children, Schools and Families

This is the judgment of the court written by Arden LJ.

This appeal concerns the public procurement regime, that is, the rules that govern the process whereby public authorities make contracts for the provision of goods and services. These rules are derived from directives made under the European Union Treaty (referred to below as “the Treaty”), and from the jurisprudence of the Court of Justice of the European Communities (“the Court of Justice”), which imposes obligations in certain circumstances where the directives do not apply. This appeal is of legal interest because it is one of the few cases on the public procurement regime to reach this court, and deals with important issues which have not previously reached this court.

The immediate concern of this appeal is the process that must be adopted by a public authority when making arrangements with a sponsor for establishing a school as an Academy school. The statutory framework for establishing such schools is summarised in paragraphs 6 and 7 below. A major issue is whether, if the sponsor is prepared to assume the management of the school for no remuneration, the arrangements fall within the public procurement regime at all. The question is important in relation to Academy schools as the policy of the Secretary of State is to offer to make such arrangements only on those terms. But the question has wider implications since the answer affects a broad range of situations, such as the case where a public authority asks (say) a commercial enterprise to take over the running of a cultural festival in return for (at most) reimbursement of its costs. These situations have been labelled “philanthropic” in argument. We are invited to consider whether services offered on a philanthropic rather than a commercial basis fall outside the public procurement regime.

The appeal is from the order dated 13 February 2009 of Forbes J. He dismissed the appellant’s claim that (amongst other matters) the decision of the Secretary of State for Children, Schools and Families (“the Secretary of State”) to approve an expression of interest by University College London (“UCL”) in being involved in the establishment of an Academy in the London Borough of Camden (referred to below as the Camden Academy) infringed the public procurement rules. UCL is a university based in the London Borough of Camden. The local authority, London Borough of Camden (“Camden LBC”), and University College London were joined as interested parties but have not been represented on this appeal.

On 28 July 2009, this court informed the parties that the appeal would be dismissed for reasons to be given in October 2009. This judgment sets out those reasons.

The Education Act 1996 (“the EA 1996”) provides for the establishment of a new type of independent school to be known as an Academy. Under s 482(1) of the 1996 Act, the Secretary of State may enter into an agreement (a “s 482 agreement”) with any person who wishes to establish an Academy, subject to certain consultation obligations. The Secretary of State may agree to make payments to such person in consideration of his undertakings (s 482(1) (b)).

The procedure for establishing an Academy school differs from that which generally applies when a new maintained school is to be established. Where a local authority wishes to establish a new school, the procedure in the Education and Inspections Act 2006 (“the EIA 2006”) requires the local authority to follow a consultative procedure. If it wishes to establish a school, it must publish a notice inviting proposals for the establishment of a school following consultation with such persons as appear to it to be appropriate (ss 7 and 9). New maintained schools can only be established through that process (s 28). This consultative procedure does not apply to the Secretary of State when he establishes an Academy.

Against that background, UCL indicated its desire in 2005 to be involved in school education in Camden. Discussions with Camden LBC led to the development of a proposal whereby UCL would become a sponsor of an Academy. On 4 July 2007 UCL publicly confirmed that it had a firm intention to apply to the Secretary of State to establish an Academy. Camden LBC gave provisional approval on 25 July 2007 and the appropriate committee confirmed that decision on 11 September 2007. Following further consultation by Camden LBC, UCL developed its proposal. The Secretary of State approved this on 29 February 2008. Ms Chandler seeks to have that decision quashed. Ms Chandler’s case is that at least two other potential contractors in the United Kingdom had expressed a serious interest in entering into a funding agreement to provide the Academy. In addition there was a Swedish company called Kunskapsskolan (“Kunskap”) which was known to be interested in running academies in England, though there is no evidence that it had expressed any interest in the Academy in Camden with which these proceedings are concerned.

Other claimants started judicial review proceedings but Ms Chandler was substituted as claimant on 17 July 2008. She also began a second set of judicial review proceedings. She alleged in her proceedings that the Secretary of State had failed to comply with the public procurement regime. Ms Chandler would like a competition to take place to determine who should be the sponsor of an Academy. She further contends that if the local authority decides as a result of the competition that an Academy should be opened she should then be consulted as part of the decision-making process about which organisation should sponsor and run it.

According to the first witness statement of Neil Flint, a senior civil servant in the Department of Children Schools and Families (“DSCF”), the state funding of academies aims to mirror so far as possible funding in the maintained sector. He states that a sponsor is not paid for the role it plays in either the creation or establishment of the Academy. Feasibility funding is released and paid to project managers engaged by DCSF for the purposes of the project. He states that a significant financial donation is usually required (save in the case of bodies such as Universities), plus significant time and work. His evidence is that: "[T]o the extent that any payment might be made to sponsors, on account of their provision of some services towards project managers, this will be at cost and will not include any profit element.” The fact that the sponsor obtains no profit does not mean that he may not gain by becoming a sponsor. Involvement in the establishment of an Academy may assist an independent school to show that its activities are for “public benefit”, thus justifying its charitable status.

If UCL agrees to be responsible for running the new Camden Academy, it will have to set up a charitable company limited by guarantee (referred to below as an Academy trust) to enter into a funding agreement with the Secretary of State. The memorandum of association of the Academy trust states that its income and property can only be applied in the promotion of its objects, which in essence provide for setting up and running an Academy school. We have not been shown the articles of association of the Academy trust but it appears from the model funding agreement that we have been shown that the directors of the Academy trust will be the governors of the school. They cannot receive any benefit from the Academy trust except in certain specified circumstances. Under the model funding agreement, the Secretary of State agrees to make payments to the Academy in accordance with the conditions set out in the model funding agreement. The payments include grants towards capital and current expenditure. If the grant exceeds expenditure in any year, it can be applied to capital purposes or carried forward. There is no right for the Academy trust to receive or retain for its own purposes any benefit from any grant or surplus of any grant.

The evidence shows that, where there is a proposal to establish an Academy, there is often more than one organisation prepared to become a sponsor even in the absence of a competition. A potential sponsor may be a charitable organisation but it could be a commercial enterprise involved in a manufacturing or other industry. There is no evidence of interest in setting up Academies from entities based in other member states apart from Kundskap, and Kundskap has not shown any interest in the Camden Academy despite the publicity which the proposal to set it up has already received.

The public procurement regime consists of four connected elements: firstly, the principles in the Treaty, secondly, a number of Directives, thirdly, the Public Contracts Regulations 2006 and fourthly, the jurisprudence of the Court of Justice on cross-border interest in procurement contracts outside the regulations. In the succeeding paragraphs, we summarise the aspects of each of the four elements that affect this appeal.

Principles in the Treaty

The public procurement regime is based on a number of principles to be found in the Treaty including the principle of freedom to provide services, the principle of non-discrimination on grounds of nationality and the principle of transparency. Articles 49 and 50 of the Treaty provide:

“Article 49

Within the framework of the provisions set out below, restrictions on freedom to provide services within the Union shall be prohibited in respect of nationals of member States who are established in a Member State other than that of the person for whom the services are intended.

The Council may, acting by a qualified majority on a proposal from the Commission, extend the provisions of the Chapter to nationals of a third country who provide services and who are established within the Union.

Article 50

Services shall be considered to be ‘services’ within the meaning of the Treaties where they are normally provided for remuneration, in so far as they are not governed by the provisions relating to freedom of movement for goods, capital and persons …”

These articles of the Treaty provide in part both the competence for the European Union to legislate in this area and the basis for the jurisprudence of the Court of Justice.

The Directives

The principal directive in force on public procurement is Directive 2004/18, which consolidated earlier directives on procurement. The Directive was implemented by the Public Contracts Regulations 2006 (“the regulations”). On established principle, the regulations must be interpreted so far as possible so as to be compatible with the Directive.

The Directive applies (with immaterial exceptions) only to public contracts that meet certain financial thresholds (article 7). Those thresholds are exceeded in the present case.

For the purposes of the Directive, services are divided into several categories in annexes to the Directive, Annex IIA and Annex IIB. Category no 24 in annex IIB to the Directive is described as education and vocational education services.

The purpose of the Directive is to promote the internal market. As the Court of Justice said in Commission v Ireland C-507/03 at [27]:

“[In this regard,] according to settled case-law, the purpose of coordinating at Community level the procedures for the award of public contracts is to eliminate barriers to the freedom to provide services and goods and therefore to protect the interests of traders established in a Member State who wish to offer goods or services to contracting authorities established in another Member State (see, inter alia, Case C-380/98 University of Cambridge [2000] ECR I-8035, paragraph 16; Case C-19/00 SIAC Construction [2001] ECR I-7725, paragraph 32; and HI, paragraph 43).”

The Directive governs the procedures and principles for the award of contracts by "contracting authorities", which include the Secretary of State. Article 1 contains a number of definitions. The definitions of “public contracts” and “service provider” are central to the issues in this appeal and they provide as follows:

(a)

‘Public contracts’ are contracts for pecuniary interest concluded in writing between one or more economic operators and one or more contracting authorities and having as their object the execution of works, the supply of products or the provision of services within the meaning of this Directive.

…

(d)

‘Public service contracts’ are public contracts other than public works or supply contracts having as their object the provision of services referred to in Annex II …

…

The terms ‘contractor’, ‘supplier’ and ‘service provider’ mean any natural or legal person or public entity or group of such persons and/or bodies which offers on the market, respectively, the execution of works and/or a work, products or services.

The term ‘economic operator’ shall cover equally the concepts of contractor, supplier and service provider. It is used merely in the interest of simplification.” (underlining added)

Article 2 of the Directive imposes an obligation on contracting authorities to treat economic operators “equally and non-discriminatorily” and to act in a transparent way.

Public Contracts Regulations 2006

The regulations were made under s 2(2) of the European Communities Act 1972. They implement both the Directive and a separate directive (89/995/EEC) dealing with remedies. The definitions of "public services contract" and "services provider" are particularly relevant:

“public services contract” means a contract, in writing, for consideration (whatever the nature of the consideration) under which a contracting authority engages a person to provide services but does not include—

(a)

a public works contract; or

(b)

a public supply contract;

but a contract for both goods and services shall be considered to be a public services contract if the value of the consideration attributable to those services exceeds that of the goods covered by the contract and a contract for services which includes activities specified in Schedule 2 that are only incidental to the principal object of the contract shall be considered to be a public services contract;

“services provider” means a person who offers on the market services and—

(a)

who sought, who seeks, or who would have wished—

(i)

to be the person to whom a public services contract is awarded; or

(ii)

to participate in a design contest; and

(b)

who is a national of and established in a relevant State;…” (underlining added)

The Secretary of State is also a "contracting authority" within the meaning of the regulations. The regulations contain financial thresholds in accordance with the Directive, and the services that would be provided by UCL exceed those levels.

Educational services are within schedule 3, Part B to the regulations. Reg 5(2) provides for the limited application of the rules in the regulations to a proposed Part B services contract. In broad terms, the effect is that contracts for Part B services are not required to be the subject of prior advertising or a tender process. Certain other provisions apply, for example, the award of such contracts must be notified in the Official Journal. The limited application of the rules follows the provisions of the Directive and may be explained on the basis that the Community legislature proceeded on the assumption that contracts for such services are not, in the light of their specific nature, of cross-border interest such as to justify their award being subject to the tendering procedure required by the Directive (see generally Commission v Ireland C-707/03 at [25]).

The regulations provide that the obligation to comply with the regulations is a duty owed by contracting authorities to each economic operator, defined in the context of remedies as including any person who is a potential services provider from any member state (reg 47 (5)).

An economic operator that suffers or risks suffering loss or damage as a result of a breach by a contracting authority of its duty to him, may bring proceedings in the High Court. However, such proceedings may only be brought if the economic operator has informed the contracting authority of the breach of duty and of its intention to bring proceedings under the regulations. Proceedings must be bought promptly and in any event within three months from the date on which the grounds for bringing the proceedings first arose unless the court considers that there is good reason to extend that time. If proceedings are brought, the court has power to impose interim measures, including a suspension of an award procedure or the implementation of any decision by the contracting authority.

The jurisprudence of the Court of Justice on cross-border interest in procurement contracts outside the regulations

Even where the tendering procedure in the Directive and the regulations does not apply, the Court of Justice has held that a contracting authority must apply the principles of non-discrimination and transparency in the Treaty before awarding a public services contract: Telaustria Verlags GmbH and Telefonadress GmbH v Telekom Austria AG, Case C-324/98 [2000] ECR I-10745. In these circumstances, the contracting authority must undertake a “degree of advertising sufficient to enable the market to be opened up to competition". This apparently activist approach of Court Justice is grounded in the fundamental freedoms guaranteed by the Treaty, including the freedom to provide services contained in article 49.

However, the jurisprudence only applies if there is shown to be the requisite degree of cross-border interest in tendering for the contract: see Commission v Ireland C-507/03, where the Court of Justice so held in relation to a contract not subject to the tendering requirements of the Directive:

“29      It follows that the advertising arrangement, introduced by the Community legislature for contracts relating to services coming within the ambit of Annex I B, cannot be interpreted as precluding application of the principles resulting from Articles 43 EC and 49 EC, in the event that such contracts nevertheless are of certain cross-border interest.

30      Also, in so far as a contract relating to services falling under Annex I B is of such interest, the award, in the absence of any transparency, of that contract to an undertaking located in the same Member State as the contracting authority amounts to a difference in treatment to the detriment of undertakings which might be interested in that contract but which are located in other Member States (see, to that effect, Telaustria and Telefonadress, paragraphs 60 and 61, and Case C-231/03 Coname [2005] ECR I-7287, paragraph 17).

31      Unless it is justified by objective circumstances, such a difference in treatment, which, by excluding all undertakings located in another Member State, operates mainly to the detriment of the latter undertakings, amounts to indirect discrimination on the basis of nationality, prohibited under Articles 43 EC and 49 EC (Coname, paragraph 19 and case-law cited).

32.

In those circumstances, it is for the Commission to establish that, notwithstanding the fact that the contract in question relates to services coming within the scope of Annex I B to Directive 92/50, that contract was of certain interest to an undertaking located in a different Member State to that of the relevant contracting authority, and that that undertaking was unable to express its interest in that contract because it did not have access to adequate information before the contract was awarded.

33      According to settled case-law, it is the Commisssion’s responsibility to provide the Court with the evidence necessary to enable it to establish that an obligation has not been fulfilled and, in so doing, the Commission may not rely on any presumption (see, to that effect, inter alia, Case C-434/01 Commission v United Kingdom [2003] ECR I-13239, paragraph 21; Case C-117/02 Commission v Portugal [2004] ECR I-5517, paragraph 80; and Case C-135/05 Commission v Italy [2007] ECR I-0000, paragraph 26), in this case a presumption that a contract relating to services coming within the scope of Annex I B to Directive 92/50 and subject to the rules described in paragraph 24 of this judgment necessarily is of certain cross-border interest..”

It is not wholly clear whether these principles also apply where a contract would be outside the Directive because the definitions of "service provider", or “public contracts" are not fulfilled. We have proceeded, without deciding the point, on the basis that the principles derived from the Treaty would apply in that situation.

The Court of Justice uses the words “of certain cross-border interest”. We doubt whether the Court of Justice intended to hold that cross-border interest had been shown beyond reasonable doubt. No argument has been addressed to the relevant test. In relation to the type of contract with which we are concerned, it is clear from Commission v Ireland that there is no presumption that cross-border interest exists. Clearly there must be a realistic prospect of cross-border interest. It may be that, in the interests of protecting contracting authorities, a higher test than reasonable prospect applies so that the contracting authority would only be bound to follow the general principles in the Treaty if it was likely that there was cross-border interest. But a higher test would work to the disadvantage of potential tenderers in other member states and would be applied on the basis of imperfect information since ex hypothesi there would have been no publicity for the proposal. It is not necessary for us to resolve this question on this appeal. We will proceed on the basis most favourable to the appellant that if there is a realistic prospect of cross-border interest, the principles of the Treaty are engaged. The question of whether there has been cross-border interest shown in this case forms the basis of an alternative argument on this appeal, which we consider below (paragraphs 65 to 69). The Secretary of State does not suggest that, if the principles in the Treaty are engaged, there has been compliance with the advertising obligation that flows therefrom.

That completes what we need to say in general terms about the regulatory framework of the public procurement regime. We now turn to the issues that arise on this appeal, and the judge’s judgment.

Only two of the issues decided by the judge have been appealed. The first issue on this appeal may be described as follows: does the public procurement regime apply at all to the expression of interest by UCL? As further explained below, this in the first instance turns on the question whether UCL is offering services “on the market” for the purposes of the definition in the Directive of services provider and whether the arrangements between UCL and the Secretary of State are contracts “for pecuniary interest” within the definition of "public contracts" in the Directive. As already indicated, there is also an alternative argument based on the principles applicable if the Directive does not apply. The second issue on this appeal is whether Ms Chandler has standing to contend that the public procurement regime is applicable to the arrangements between UCL and the Secretary of State.

The judge determined both issues against the appellant. It is sufficient to summarise his reasoning. The activity of setting up an Academy school was not an economic operation. An Academy sponsor may be an “economic operator” in its everyday business activities, but that did not mean it is an operator when it acts as a sponsor of an Academy. In that context it was “wearing a different hat”. There was no realistic market in setting up an Academy. UCL as sponsor was effectively engaged in philanthropy and therefore received no pecuniary benefit (or its equivalent) from the s 482 agreement. The judge held that it is important not to conflate an Academy with a private sector fee-paying school. Academies are tied to the state by public funding and are therefore very different to private schools. Furthermore academies do not compete in any economic sense with private schools, which form a distinct educational sector. The two types of school are not in competition against one another for business; in fact, the state school is not in business at all. Private schools only compete with other private schools.

The judge held that the decision of the Court of Justice in the case of Commission v Italy (referred to at paragraphs 47 to 63 below) could be distinguished from the present case on the basis that in that case there was clearly a competitive market for the activity in question. The very notion of a market was difficult to apply to philanthropic actions. The fact that there might be a diverse population of entities interested in sponsoring an Academy did not mean that this constitutes a “market” in any meaningful way. Each Academy is unique in that it addresses the educational needs of a particular community. The mere fact that there are two or more entities which may be interested in sponsoring an Academy in a particular locality does not, of itself, create a “market” in respect of that locality or at all.

On the question whether the regulations applied, the judge held that the regulations were primarily a measure aimed at preventing discrimination in cross-border trade. He held that the Directive did not contemplate that it would be used to regulate the process whereby a member state establishes an Academy as part of the state's function in providing education. On this, the judge applied a decision in the field of Community competition law that the performance by the State of an essential function of the state is outside the competition rules.

On standing, the essential reasoning of the judge was that the rights conferred by the regulations were private law rights conferred on "economic operators”. A complaint that the regulations had not been complied with could not be made by way of judicial review. The fact that the claimant lived in Camden and was the parent of school-age children was not sufficient. There was no evidence that she was affected by the decision.

This issue raises a question of the true interpretation of two requirements of the definitions in the Directive and the regulations. The relevant phrases are underlined in the extracts from those definitions in paragraphs 20 and 22 above.

As can be seen from the provisions of the Directive set out above, an economic operator (so far as relevant) is a service provider who offers to provide services "on the market". The regulations likewise define an economic operator as a service provider, and the definition of "service provider" includes a requirement that the relevant person offers services "on the market".

The other elements of the definition in the regulations of a "service provider" would be met by UCL if the arrangements constitute a “public services contract”. The definition of "public services contract" in the regulations includes a requirement that the contract is "for consideration (whatever the nature of the consideration)". These words do not import a requirement for consideration in the English law sense but rather reflect the requirement in the definition of "public contracts" in the Directive that the contract be "for pecuniary interest". As already stated, the regulations must be interpreted so far as possible so as to be compatible with the Directive. It follows that they must also be interpreted in a manner which so far as possible is compatible with any jurisprudence of the Court of Justice on the meaning of the words used in the Directive.

The crucial features of the relevant definitions are therefore the words "on the market" in the definition of service provider, and the words "for pecuniary interest" in the definition of public contract. Did UCL make an offer "on the market" to act as a sponsor of the Camden Academy? Will the funding arrangements be "for pecuniary interest”?

The key question as we see it is whether the presence of an agreement that the service provider should not make any profit takes the arrangements outside the public procurement regime. The answer of Mr Rhodri Thompson QC, for Ms Chandler, is in the negative. On his submission, making a profit is no part of the requirement that an offeror makes his offer “on the market”. Mr Thompson submits that the requirement that the offer should be "on the market" is met in this case because the sponsor can be said to be a participant in the market for the supply of educational services generally. It need not be shown that there is a market for the supply of the educational services in question; it is sufficient to create a market that there is a market in fee-paying educational services. He further submits that, where (as from time to time happens) a sponsor is a commercial entity, its other commercial activities can qualify it as acting on the market even if those activities have nothing to do with the provision of educational services. Mr Thompson also submits that, since the term ‘service provider’ extends to persons who would have wished to offer services, UCL cannot be treated as the sole person in the market.

Mr Michael Beloff QC, for the Secretary of State, makes the opposite submission. He submits that in order for an offer to be "on the market" there have to be parties competing against each other for some gain. Mr Beloff submits that the public procurement regime does not apply and that accordingly it is not right to say that the Secretary of State seeks some form of implied exclusion from that regime. He submits that the purpose of the Directive and the regulations, as well as article 49 of the Treaty, is to promote cross-border trade. He submits that the Directive is not concerned with the establishment of a school or its governance.

In relation to pecuniary interest, Mr Thompson submits again that a profit is not required. He submits that the decision in Commission v Italy is distinguishable, and he relies on Jundt v Finanzamt Offenburg C-281/06. In that case the Court of Justice held that the payment to a University lecturer of an expense allowance constituted remuneration for the purposes of article 50 of the Treaty even though it was matched by equivalent expenditure. Mr Thompson submits that this shows that even the payment of expenses can constitute remuneration. Furthermore, he submits that the entry into a section 482 agreement is not in any sense a philanthropic activity. On his submission, the sponsor obtains an indirect benefit.

Mr Beloff submits that the funding agreement is neither an agreement for a consideration nor an agreement for a "pecuniary interest" because no profit is made. Mr Beloff points out that the policy of the Secretary of State is that the sponsor of an Academy should only be able to recover its costs and not make any profit. The draft funding agreement shows that any funding will be at cost only. Mr Beloff submits that where a service provider undertakes to provide services in return for no more than the reimbursement of expenses that service falls outside the public procurement regime. He relies upon the decision in Commission v Italy, to which we refer below.

Mr Beloff submits that the Directive is concerned with opening up the internal market to competition. In support of this proposition, he relies on the following passage from the judgment of the Court of Justice in Ordini degli Architetti delle Province di Milano e Lodi v Commune di Milano Case C-399/98 [2001] ECR 1-5409 (“the La Scala case”):

“52.

Since the existence of a 'public works contract' is a condition for application of the Directive, Article 1(a) must be interpreted in such a way as to ensure that the Directive is given full effect. It is clear from the preamble to the Directive and from the second and tenth recitals, in particular, that the Directive aims to abolish restrictions on the freedom of establishment and on the freedom to provide services in respect of public works contracts in order to open up such contracts to genuine competition. As the tenth recital states, the development of such competition entails the publication at Community level of contract notices.”

On Mr Beloff's submission, the fundamental right of freedom to provide services is not invoked unless there is remuneration. Likewise, on his submission, the procument regime in the Directive does not apply where there is no remuneration paid. In support of this proposition, Mr Beloff relies on Commission v Italy and the following passage from the opinion of the Advocate General in the La Scala case:

“94.

Economic operators are motivated by the prospect of obtaining some economic benefit from contracts. Discrimination in awarding contracts is unacceptable because awards of contracts entail payment to the contractors who are selected. It would be difficult, where no finance was provided for a contract by the contracting authority, to imagine any kind of favouritism which could benefit the operator chosen. If anything done free of charge or financed by the party carrying out the work offends against the principle of competition, that is because it is damaging to that party's interests and not because it gives him any advantage over his competitors.

Under those circumstances, where there is discrimination in awarding to a contractor a contract for the performance of which he is not paid, there is no justification for following the procedures laid down by the Directive. It is sufficient, if it is assumed that circumstances might arise in which relations are of a contractual rather than a legal nature, for the economic operator to refuse to award the contract in order to eliminate the competitive disadvantage. ”

We now turn to state our conclusions on the issue whether the public procurement regime applies where there is an agreement that the service provider should not make any profit. The answer to this fundamental question is in our judgment provided by the Court of Justice in Commission v Italy. In that case, the proceedings were infringement proceedings by the Commission and the issue was whether contracts for health care transport services between the Italian State and the Italian Red Cross (and others) were “public service contracts” within the meaning of a predecessor of the Directive (article 1(a) of directive 92/50), alternatively, whether the transparency obligations arising under article 49 of the Treaty applied to these contracts. The Italian government argued that the arrangements were not public service contracts because the amounts received by the Italian Red Cross were reimbursement of expenses, and in any event, the Italian Red Cross was not a commercial operator, and did not pursue the activity “within the market and in the sphere of competition”. Article 1(a) of directive 92/50 defines “public service contracts” as “contracts for pecuniary interest concluded in writing between a service provider and a contracting authority”.

The judgment of the Court of Justice is available only in French and Italian, and it appears that no opinion of the Advocate General is available.

Before dealing with the question of whether a contract for the reimbursement of costs was for pecuniary interest, the Court of Justice rejected another argument, namely an argument that the fact the Italian Red Cross was a not-for-profit organisation and that this was sufficient to take the arrangements outside the public procurement regime:

“34.

The first question to be addressed is whether that framework agreement exhibits the characteristics of a public [service] contract within the meaning of Article 1(a) of Directive 92/50, namely whether it is a contract for pecuniary interest concluded in writing between a service provider and a contracting authority.

35.

The fact that the 2004 framework agreement is a written agreement is not disputed, nor is the fact that the region of Tuscany and the authorities are contracting authorities.

36.

First, the Italian Republic disputes the claim that the said framework agreement constitutes a public service contract within the meaning of Article 1(a) of the said Directive, on the ground that the organisations concerned are not commercial operators and do not pursue their activity within the market and the sphere of competition. This argument is based on the fact that the organisations are non-profit-making bodies and the people who work for them are motivated by considerations of social solidarity.

37.

While not denying the social importance of voluntary activities, the fact is that this argument cannot be accepted. The fact that they are non-profit-making bodies does not preclude the possibility that such organisations may pursue an economic activity and that they may constitute undertakings within the meaning of the competition rules of the Treaty (see, to that effect, Case C-244/94 Fédération française des societies d’assurance and Others [1995] ECR I-4013, paragraph 21, Joined Cases C-180/98 to C-184/98 Pavlov and Others [2000] ECR I-6451, paragraph 117, and Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 AOK Bundersverband and Others [2004] ECR I-2493, paragraph 49).

38.

It should be noted that, according to the case-law of the Court, entities such as health care organisations providing emergency transport services and patient transport services must be treated as undertakings within the meaning of the competition rules laid down by the Treaty (Case C-475/99 Ambulanz Glöckner [2001] ECR I-8089, paragraphs 21 and 22).

39.

It follows that the organisations concerned may pursue an economic activity in competition with other operators.

40.

The fact that, because the people who work for them do so on a voluntary basis, such organisations are able to submit tenders at prices appreciably lower than those of other tenderers does not preclude them from taking part in procedures for the award of public procurement contracts within the meaning of Directive 92/50 (see, to that effect, Case C-94/99 ARGE [2000] ECR I-11037, paragraphs 32 and 38).

41.

It follows that the 2004 framework agreement is not excluded from the concept of ‘public service contracts’ defined in Article 1(a) of Directive 92/50 on the ground that the organisations concerned are non-profit-making bodies….”

(There was then an argument about whether the public procurement regime applied to a framework agreement, with which we are not concerned.)

The conclusion of the Court of Justice on the first point, namely that the fact that the service provider is a not-for-profit organisation is not enough to take it out of the public procurement regime, might seem at first sight to indicate that a profit element is not required. But that would be to confuse the prohibition commonly applying to such organisations on any distribution of profit with the question whether they can themselves seek to make a profit from some activity. They may not be under a prohibition not to make a profit out of their activities. Such bodies can distort the market if they provide services more cheaply than other service providers because they are in effect subsidised by their supporters.

The Court of Justice dealt separately with the question of whether the Directive applies if the arrangements merely provide for the reimbursement of costs. The discussion of this point is complicated by the fact that the Court of Justice took the view, contrary to the Italian government, that a profit was in fact being made indirectly. But, as we see, it the clear conclusion of the Court of Justice is that a contract merely for the reimbursement of costs and no remuneration or other benefit is not "for pecuniary interest" :

“46.

Lastly, the Italian Government disputes the claim that that framework agreement was concluded for pecuniary interest, on the ground that the health care transport operations in question are carried out by voluntary organisations which merely receive reimbursement of their expenses.

47.

This argument too cannot be accepted. It must be pointed out that the pecuniary nature of a contract relates to the consideration due from the public authority concerned in return for the performance of the services which are the object of the contract and from which the public authority will benefit (see, to that effect, in connection with Directive 93/37, Case C-399/98 Ordine degli Architetti and Others [2001] ECR I-5409, paragraph 77).

48.

In the present case, while it is true that the people employed in the health care transport in question are not paid for the work, it is nevertheless clear from the information submitted to the Court that the payments provided for by the public authorities concerned cover more than mere reimbursement of the expenses incurred in supplying the health care transport services at issue. The amounts are fixed in advance at a standard rate on the basis of tables contained in an annex to the 2004 framework agreement. The system described in these tables provides for payment of a fixed sum for making a vehicle available (on ‘stand-by’) for operations, sums calculated on the basis of stopped time recorded during transport activities, a fixed sum for transport to a distance of less than 25 km and additional amounts for each additional kilometre.

49.

The Italian Government confirmed at the hearing that this method of payment and the sums provided for in the annex to the 2004 framework agreement allow the national authorities to subsidise the organisations providing the health care transport services in question.

50.

In the specific circumstances of the present case, the method of payment provided for in the 2004 framework agreement therefore covers more than mere reimbursement of the expenses incurred. To that extent, it must be considered that the framework agreement provides for consideration in return for the health care transport services referred to in the agreement.

51.

Consequently, the 2004 framework agreement is to be regarded as having been concluded for pecuniary interest within the meaning of Article 1(a) of Directive 92/50.

52.

It follows from the foregoing considerations that the said framework agreement constitutes a public service contract within the meaning of that provision.”

It will be noted that Commission v Italy is a decision on the public procurement regime and that it directly concerns the phrase "for pecuniary interest". We do not consider that the decision is in any way undermined by the decision of the Court of Justice in Jundt, on which Mr Thompson relies and which we have summarised above (paragraph 43). Jundt is a decision on the meaning of “remuneration” in article 50 of the Treaty. For that purpose, the Court of Justice considered that it was not necessary to make a profit and agreed with the Advocate General that there was “remuneration” if there was a payment which was "not.. provided for nothing". German law denied a tax exemption for expenses to university lecturers teaching in other member states. The issue was whether the expenses allowance provided by the university in the other member state (being the only sum paid to the lecturer) was remuneration within article 50 and whether the German law constituted unjustifiable discrimination on grounds of nationality. The Court’s conclusion was that article 50 was engaged and that there was unjustifiable discrimination. The context, however, was entirely different and accordingly, in our judgment, Jundt does not assist on the interpretation of the Directive. Furthermore, under German law expenses had to be ignored and thus it would have been entirely artificial for the Court of Justice to proceed on the basis that the sum in question was not remuneration.

Before we turn to consider the expression “on the market” we must consider a number of supplementary arguments by Mr Thompson about the requirement that to fall within the public procurement regime public contracts must be “for pecuniary interest”. Mr Thompson relies on the facts of the La Scala case. Under Italian law, on the grant of planning permission, the owner of the property had to undertake to bear the costs of certain infrastructure works. The owner could carry out the works in return for exemption from the contribution due. The Court of Justice held that the contract was “for pecuniary interest”. The works were not done for free, but in order to discharge the obligation to pay the infrastructure contribution. This was not a case where the contracting authority made merely a reimbursement of costs and so this decision does not detract from its decision in Commission v Italy.

Mr Thompson makes the point that the sponsor may obtain a reputational benefit. However, by no stretch of the imagination can reputational benefit alone be described as a pecuniary interest. A pecuniary interest is required so reputational gain is not enough. A sponsor may also be able to show that its activities are for “public benefit” and thus retain charitable status and the important tax benefits that this brings. This brings the present case closer to the La Scala case, but there is no evidence that UCL’s charitable status is attributable to or dependent upon its sponsorship of the Camden Academy. In any event, the decision of the Secretary of State to approve the expression of interest does not result in the conferral of a tax benefit, and thus in our judgment the benefit that might indirectly be obtained is too indirect and remote to constitute "a pecuniary interest".

The memorandum of association of the Academy trust contemplates that there may be circumstances in which the governors of the school may obtain a benefit but these circumstances are strictly regulated. Furthermore, there is no evidence that the governors will act as mere nominees of UCL and so the provisions of the memorandum cannot in our judgment make the arrangements between the Secretary of State and UCL “for pecuniary interest”.

Mr Thompson submits that the fact that the sums paid by the contracting authority in Commission v Italy exceeded the expenses incurred by the Italian Red Cross supports Ms Chandler’s case. Mr Thompson also submits that the actual result in Commission v Italy should follow here as in that case there was evidence of competition in the supply of ambulance services, as here in relation to the potential sponsors of Academy schools. But this is simply a similarity on the facts and not one that affects the principle established by the Court of Justice. For the reasons already given, we do not agree with the submission that the result in Commission v Italy follows in this case.

In conclusion, notwithstanding Mr Thompson’s submissions, in our judgment the principle that arrangements for the reimbursement of costs only are outside the Directive emerges with sufficient clarity from paragraph 50 of the decision of the Court of Justice in Commission v Italy. The decision would have been clearer if the arrangements had not permitted subsidies to be paid, but the Court had to deal with the facts of that case, and would have been able to deal with them more simply if it did not intend to exclude arrangements for the reimbursement of costs only. Neither counsel has suggested that the expression “for pecuniary interest” ought to be interpreted differently in the Directive from the way in which it was interpreted in directive 92/50.

We turn to consider the application of that conclusion to the present case. In the present case, under the pro forma funding agreement, the Academy trust will only receive reimbursement of its costs. It is obviously necessary for the Secretary of State to ensure that the arrangements for this purpose are watertight. To ensure that costs are properly calculated, it may well be necessary to adopt accounting conventions, but those conventions must be realistic and not result in some hidden profit to the Academy trust. Provided that this course is taken, the arrangements between the Secretary of State and UCL will not fall within the public procurement regime. It follows that arrangements loosely described in paragraph 3 above as “philanthropic”, which are made on the basis that no remuneration or benefit is given by the contracting authority to the service provider, will not be within the Directive or the regulations. As Mr Beloff points out, this conclusion also receives support from para. 94 (set out in paragraph 46 above) of the opinion of the Advocate General in the La Scala case.

It is appropriate here to deal with a criticism which Mr Thompson makes of the judge’s judgment. Mr Thompson criticises the judge on the grounds that he did not explain the circumstances in which the regulations apply to educational services if they do not apply to section 482 agreements. Section 482(4) of the EA 1996 provides that no fees shall be charged for attendance at an Academy. Mr Thompson submits that, where fees are charged to pupils, the Directive and the regulations do not apply because the provision of educational services would then be a “service concession” within article 1(4) (see article 17 of the Directive). Therefore, he submits, if no fees are charged it must have been intended that the provision of services should be within the Directive and regulations. We do not consider that that result necessarily follows: the other requirements of the public procurement regime must still be fulfilled. In our judgment, there is no substance in Mr Thompson’s criticism of the judge on this point since what he had to decide was whether there was an obligation on the Secretary of State in respect of the particular agreement in this case.

We now turn to consider the requirement that the offeror of services makes his offer “on the market”. The expression “on the market” must be interpreted in the light of the meaning placed on “for pecuniary interest” by the Court of Justice. The Court of Justice has not interpreted the former phrase. If, as Mr Beloff submits, it entails an activity for profit, then there is a potential overlap between the words “on the market” and “for pecuniary interest”. On the other hand, the overlap would not appear to narrow the operation of the Directive since both requirements have to be met. We accordingly prefer the view that the words "on the market” requires the participants in the market to be intending to make a profit from contracting to provide services offered by them. That means that the requirement for the offer by the service provider to be “on the market” was not met in this case.

We would add that, for there to be a “market”, there must be several people offering to provide similar services. Contrary to Mr Thompson’s submission, in our judgment, it is nothing to the point that the offeror may be an industrial concern that offers to sponsor an Academy as an adjunct to its entrepreneurial activities in some other field. Its commercial activities in that field are irrelevant for the purpose of determining whether the public procurement regime applies to the sponsorship of an Academy. A more difficult case is that of the independent school which charges fees for its educational services and then offers to sponsor an Academy school. It is then in the business of providing educational services but we agree with the judge that the business of running an independent school and the business of providing expertise to run a maintained school are separate markets. The services are offered to separate groups. Moreover, participation in the former market does not mean that there is in fact a market in the latter.

Finally on this point we record a further submission by Mr Beloff and accepted by the judge to the effect that in establishing a school the state is not engaging in gainful activity, but fulfilling its own duties to its own population. He submits that the core function of the state must be distinguished from commercial activity. In Belgium v Humbel Case 263/86 (at [18]), the Court of Justice held in that case that in providing courses at a tertiary education institution the state was not involved in gainful activity but “fulfilling its duties towards its own population in the social, cultural and educational fields". The state thus did not receive remuneration for services for the purposes of article 50 of the Treaty. In the light of our conclusion about the expressions “for pecuniary interest” and “on the market”, it is unnecessary for us to express a view on this submission.

In the alternative, Mr Thompson invokes the principles already discussed above (paragraphs 27 to 31) to the effect that, provided a contract for the provision of educational services is potentially of interest to suppliers established in other member states, it must conform to the requirements of transparency and non-discrimination equivalent to those laid down in the regulations and the Directive, whether or not the specific statutory requirements of the secondary legislation are satisfied (Telaustria and Telefonadress [2000] ECR –1-10745; Commission v Ireland [2007] ECR 1-9777 and R (Law Society) v Legal Services Commission [2008] 2 WLR 803).

However, Mr Beloff submits that article 49 of the Treaty cannot apply because there is no evidence of cross-border interest in the Camden Academy project.

We have already explained in paragraph 30 above that we are proceeding on the basis that, for the principles derived from the Treaty to apply, there must be a realistic prospect of cross-border interest. It is clear that there is no presumption of cross-border interest, and accordingly there must be an evidential basis for the conclusion that any cross-border interest exists. A contracting authority is not bound to comply with the obligations derived from the Treaty simply because there is an outside possibility that an economic operator from some other member state might be interested Furthermore, it is inevitable that the time for ascertaining whether economic operators outside the member state would be interested is at the time when the contract is to be made. The contracting authority has to come to its conclusion on the basis of the circumstances then existing. In addition, the issue whether any economic operator from another member state would be interested is to be determined by reference to the specific contract in hand, and not by reference to other similar contracts (see, on this point, Commission v Ireland at [28], set out in paragraph 32 above).

In this case, the Secretary of State takes the view that the arrangements are of no potential interest to potential sponsors in other member states. We see no reason to doubt the validity of his evaluation of this question, given that there is no interest from the only suggested potential sponsor from outside the United Kingdom, namely Kunskapp. Kunskapp has shown no interest in the proposal for an Academy in Camden. Nor has any other potential tenderer brought proceedings claiming a failure to comply with any obligations under the Directive or the Treaty.

For these reasons, we reject Mr Thompson’s argument based on the jurisprudence of the Court of Justice on cross-border interest in public procurement contracts outside the regulations.

Our conclusion on issue (1) renders the issue of standing academic. Moreover, although the detailed grounds for challenging the judge's conclusion on the issue of standing were advanced in the grounds of appeal, Mr Thompson without explanation did not advance his principal arguments on this issue in his opening. In the circumstances we propose to deal with the issue of standing quite shortly.

Ms Chandler is the parent of children entitled to a place in secondary education in the London Borough of Camden, and she therefore has an immediate interest in the standard of secondary schooling in the borough. But that is not the same as showing standing in law for the purposes of bringing judicial review proceedings, and we therefore have to consider the basis on which it is said that she has standing.

Firstly, Mr Thompson submits that, since Ms Chandler would be able to bring a judicial review challenge under domestic law she ought to have an equivalent remedy in Community law because the doctrine of equivalence requires that she should have an equivalent remedy. It is accepted by the Secretary of State that she could apply for judicial review of his decision to approve the expression of interest by UCL if the grounds of her challenge were that for some independent reason it is unreasonable for him to approve that interest in any event. In our judgment, however, this is a different challenge from showing that the Secretary of State has acted unlawfully in approving an expression of interest. In our judgment, there is no sufficient similarity between the two claims for the doctrine of equivalence to apply (see generally Matra Communications v Home Office [1999] 1 WLR 1646, 1657-9). Accordingly, it is not enough to show that it is conceded that she would have standing to raise a complaint on the grounds of unreasonableness for the purposes of domestic judicial review.

Secondly, Mr Thompson submits that the issue of the application of the regulations to sponsorship of an Academy school is an important issue that ought to be capable of being tested by judicial review (see, for example, R v Secretary of State for Foreign and Commonwealth Affairs ex parte Rees-Mogg [1993] 3 CMLR 101). But this is not enough to justify standing in a case such as the present. Economic operators can test the question of legality. It would drive a coach and horses through the requirement for standing if the importance of the issue justified standing in such circumstances. It would mean that people with no real interest in the question could bring judicial review proceedings.

Thirdly, Mr Thompson submits that the judge's conclusion in relation to standing is not consistent with the approach to the issue of standing adopted by the Court of Appeal in R (Kides) v South Cambridgeshire DC [2002] EWCA Civ 1370, where Jonathan Parker LJ held:

“133.

I cannot see how it can be just to debar a litigant who has a real and genuine interest in obtaining the relief which he seeks from relying, in support of his claim for that relief, on grounds (which may be good grounds) in which he has no personal interest…

134.

It seems to me that a litigant who has a real and genuine interest in challenging an administrative decision must be entitled to present his challenge on all available grounds.”

Mr Thompson submits that an applicant for judicial review with an interest in the relief to be granted should be entitled to advance all available legal arguments in support of the remedy and that this is a principle of public law of general application. Mr Thompson further submits the judge erred in relying on the dictum of Richards J in R (Kathro) v Rhondda Cynon Taff County Borough Council [2001] EWHC Admin. 527, in which the claimants sought to use the public procurement regime to stop a development adjacent to their property. Richards J held at [77]:

“The claimants have not been shown to be affected in any way by the choice of tendering procedure. They have seized on the point simply as a fall-back way to stop the project. I see no wider public interest to be served by allowing a challenge, and in all the circumstances the claimant should not in my view, be regarded as having sufficient interest for the purposes of the PFI challenge.”

Mr Thompson submits that this case is distinguishable because Ms Chandler has a legitimate concern as to the process that had been followed to identify the sponsor of the Camden Academy. The fact that the regulations confer a remedy on other economic operators does not mean that judicial review does not lie. On his submission, it is irrelevant that no other economic operator has brought a challenge.

To these arguments, Mr Beloff submits that a complaint that the public procurement regime has not been complied with is a matter for private law and that this is apparent from the decisions of the Court of Appeal in Matra Communications v Home Office at 1655–60, and of the Administrative Court in R (Gamesa Energy UK) v National Assembly for Wales [2006] EWHC 2167 and R (Menai Collect Ltd) v Department for Constitutional Affairs [2006] EWHC 727. Exceptionally, a public law remedy against a procurement background was given in R (Law Society) v Legal Services Commission [2007] EWHC 1848 but this can on his submission be explained by the fact that the challenge there was to the general arrangements made by the Lord Chancellor for the provision of publicly-funded legal services and by the fact that the Law Society was in effect the trade association of the relevant economic operators, namely solicitors. Mr Beloff submits that the Kides test is in any event contrary to authority, but he has not made full submissions on this point. The position would be different if the basis of the challenge to the decision to approve UCL's expression of interest was on reasonableness grounds in accordance with principles of domestic judicial review.

The judge accepted the submission that a failure to comply with any of the regulations gives rise only to a private law claim (judgment, [138] to [140]). Such a conclusion has potentially far-reaching implications. It means that a person who is not an economic operator entitled to a specific remedy under reg 47 can never bring judicial review proceedings in respect of that failure unless he can bring himself within the exceptional type of claimant in R (Law Society) v Legal Services Commission. We consider that the judge’s proposition goes too far. The failure to comply with the regulations is an unlawful act, whether or not there is no economic operator who wishes to bring proceedings under reg 47, and thus a paradigm situation in which a public body should be subject to review by the court. We incline to the view that an individual who has a sufficient interest in compliance with the public procurement regime in the sense that he is affected in some identifiable way, but is not himself an economic operator who could pursue remedies under reg 47, can bring judicial review proceedings to prevent non-compliance with the regulations or the obligations derived from the Treaty, especially before any infringement takes place (see generally Mass Energy v Birmingham CC [1994] Env LR 298, 306 cf Kathro, where Richards J held that the claimants were not affected in any way by the choice of tendering procedure). He may have such an interest if he can show that performance of the competitive tendering procedure in the Directive or of the obligation under the Treaty might have led to a different outcome that would have had a direct impact on him. We can also envisage cases where the gravity of a departure from public law obligations may justify the grant of a public law remedy in any event. However, while the court is in general bound to ask itself why a public law remedy is necessary when private law remedies are available, once permission to bring judicial review proceedings has been given, then, unless it is appropriate to deal with standing as a preliminary issue, there is likely to be little point in spending valuable court time and costs on the issue of standing.  In that situation, we would not encourage the court to embark on a complex argument about standing. This will especially be the case where standing is a borderline issue.

However, in this case the observations of Richards J in Kathro are particularly apposite. Ms Chandler states in her witness statement that she is sceptical about Academy schools. She fears that they select the most gifted children as pupils. She is concerned that Academy schools are run more like businesses than schools. Her first choice would be for her children's school to be run by the local education authority. What Ms Chandler wants to happen is that there should be a competition to determine who should run the new school in Camden and she suggests that she should have the right to be consulted if the public procurement regime applied. In fact there would be no consultation of the kind she seeks. Ms Chandler is not challenging the Secretary of State’s decision because of any interest that she has in the observance of the public procurement regime but because she is opposed to the institution of Academy schools. She is thus attempting, or seeking, to use the public procurement regime for a purpose for which it was not created. In all the circumstances, it would, in our judgment, be outside the proper function of public law remedies to give Ms Chandler standing to pursue her claim.

It is clear from our reasoning above that the Secretary of State could successfully oppose this appeal by arguing (1) that his arrangements with UCL about the Camden Academy were not "a pecuniary interest" for the purpose of the Directive and (2) that the obligations under the Treaty were not engaged unless there was cross-border interest in the arrangements. For the reasons given above, the decisions of the Court of Justice in Commission v Italy and Commission v Ireland and other jurisprudence of the Court of Justice provide this court with sufficient guidance to enable it to resolve the issues in this case. In those circumstances, we do not make any order for a reference to the Court of Justice.

We do not reach the conclusions that we have set out above as to the meaning of the Directive or as to the content of the obligations under the Treaty with reluctance. It seems to us that, save where there is some international agency in the field, it is in general unlikely that arrangements for the provision of services for a nil consideration or on terms as the reimbursement of costs only, will be of cross-border interest. Only where there is a sufficient prospect of cross-border interest will the arrangements to be subjected under the public procurement regime to competitive tendering or an advertising process. Moreover, there might in our judgment be a serious issue of policy as to whether the law of unintended consequences might not apply if our conclusions had been different: "philanthropists" might well be deterred by an advertising process from agreeing to sponsor an activity because the advertising process would introduce an element of uncertainty. In other words, in the context of philanthropy, the public procurement regime may well have a chilling effect that would be contrary to the public interest. That would be unlikely to have been intended by the Community legislature.

We have approached this matter from the general perspective of the public procurement regime, rather than in the narrow context of the sponsorship of Academy schools. Both parties have impressed on us in argument that this is an important test case about the procedure establishing Academy schools. But we would emphasise that we are not concerned with the question whether the policy of the Secretary of State on Academy schools is right or wrong. We are only concerned with the question whether the procedure that he has adopted complies with the law.

We have left open the argument that the provision of expertise in running schools is never subject to the public procurement regime, because it is linked to a core function of the state. We note that section 482 does not prevent a payment of remuneration to the sponsor, and if there were any such payment that would affect the reasoning in this judgment.

For the reasons given above, we dismiss this appeal.