Risk Management Partners Ltd v The London Borough of Brent

In these proceedings the Claimant, Risk Management Partners Limited (“RMP”) claims damages against the London Borough of Brent (“Brent”) for Brent’s alleged breach of the Public Contracts Regulations 2006 (“the Regulations”) in awarding contracts of insurance to The London Authorities Mutual Ltd (“LAML”), a mutual insurance company of which Brent is a member, and of which membership is restricted to London boroughs, outside the tender process in which RMP participated. The essential facts are set out in my judgment in the judicial review proceedings in which RMP challenged the power of Brent to participate as a member of LAML, handed down on 22 April 2008 under neutral citation number [2008] EWHC 692 (Admin).

This is my judgment on RMP’s claim for breach of the Regulations. It is confined to the issue of liability: whether or not Brent acted in breach of the Regulations.

The Regulations were made in the exercise or purported exercise of the power conferred by section 2(2) of the European Communities Act 1972 for the purpose of implementing this country’s obligations under Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (“the Directive”). The broad object of the Directive and of the Regulations is to ensure that public bodies award certain contracts above a minimum value only after fair competition and to the person offering the lowest price or making the most economically advantageous offer.

The 2004 Directive was not the first Directive on this subject. Some of the authorities referred to below arose under the earlier Council Directives, but nothing turns on this.

It is common ground that Brent is a contracting authority within the meaning of the Regulations and as such under a duty to comply with the obligations imposed by them. It is common ground that the insurance contracts of the kind and values awarded by Brent to LAML were Part A Services Contracts within the meaning of the Regulations, to which the obligations imposed by the Regulations related. It is common ground that RMP is an economic operator to which the obligations of a contracting authority imposed by the Regulations are owed: see Regulation 47(1). RMP is similarly an economic operator within the meaning of the Directive. It is also common ground that Brent did not comply with the express requirements of the Regulations in awarding these contracts to LAML. To put it otherwise, if LAML had been an unconnected third party, it is common ground that Brent would have been in breach of the Regulations and, subject to the requirements of regulation 47(7), liable to it in damages.

The specific breaches of the Regulations alleged by RMP are of the following duties:

Brent does not deny that it did not comply with the duties alleged by RMP. Brent’s substantive defence is that it was not required to comply with the Regulations precisely because of its relationship with LAML, which, it submits, satisfies the requirements of the so-called Teckal exemption. The Teckal exemption was created by the jurisprudence of the European Court of Justice, and is named after the case in which it was first formulated: Case C-107/98 Teckal Srl v Comune di Viano [1999] ECR I-8121.

In addition, Brent contends that RMP did not satisfy the procedural conditions prescribed in regulation 47 of the Regulations for a claim for damages under the Regulations.

Thus Brent contends:

RMP submits:

Mr Goudie QC, on behalf of Harrow and LAML, adopted and supported the submissions of Mr Giffin QC on behalf of Brent.

Although the order in which I have listed the issues is logical, it seems to me to be more satisfactory for me to consider the requirements of the Teckal exemption first, and then to address the issues set out under paragraph 10 in the order (2), (3), (4) and (1). The answer to (5) follows from my findings on the other issues. I do so in part because, even if RMP did not comply with the requirements of regulation 47(7) all parties are concerned to obtain an authoritative determination of the application of the Regulations to local authorities wishing to place contracts of insurance with LAML. Even if RMP fail in these proceedings for procedural reasons, the same issue is likely to arise whenever a London borough is considering placing or renewing an insurance contract of sufficient size with LAML, and I suspect that if Brent did act in breach of the Regulations, the business of that company will cease to be viable. Secondly, it is necessary to understand the basis of the Teckal exemption in order to consider the question whether it has been incorporated into English Law.

In this judgment, references to a contract or contracts are, unless the contrary is indicated, to contracts to which, by reason of their subject matter and value, the Directive and the Regulations apply or would apply, absent any relevant exemption.

As mentioned above, the Directive replaced earlier Directives, referred to in recital (1):

(1)

On the occasion of new amendments being made to Council Directives 92/50/EEC of 18 June 1992 relating to the coordination of procedures for the award of public service contracts, 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply contracts and 93/37/EEC of 14 June 1993 concerning the coordination of procedures for the award of public works contracts, which are necessary to meet requests for simplification and modernisation made by contracting authorities and economic operators alike in their responses to the Green Paper adopted by the Commission on 27 November 1996, the Directives should, in the interests of clarity, be recast. This Directive is based on Court of Justice case-law, in particular case-law on award criteria, which clarifies the possibilities for the contracting authorities to meet the needs of the public concerned, including in the environmental and/or social area, provided that such criteria are linked to the subject-matter of the contract, do not confer an unrestricted freedom of choice on the contracting authority, are expressly mentioned and comply with the fundamental principles mentioned in recital 2.

The general purpose of the Directive can be seen from recital (2):

(2)

The award of contracts concluded in the Member States on behalf of the State, regional or local authorities and other bodies governed by public law entities, is subject to the respect of the principles of the Treaty and in particular to the principle of freedom of movement of goods, the principle of freedom of establishment and the principle of freedom to provide services and to the principles deriving therefrom, such as the principle of equal treatment, the principle of non-discrimination, the principle of mutual recognition, the principle of proportionality and the principle of transparency. However, for public contracts above a certain value, it is advisable to draw up provisions of Community coordination of national procedures for the award of such contracts which are based on these principles so as to ensure the effects of them and to guarantee the opening-up of public procurement to competition. These coordinating provisions should therefore be interpreted in accordance with both the aforementioned rules and principles and other rules of the Treaty.

Article 2 requires:

Contracting authorities shall treat economic operators equally and non-discriminatorily and shall act in a transparent way.

Article 20 requires contracts such as insurance contracts to be awarded in accordance with Articles 23 to 55. Those Articles set out the requirements of the Directive as to tenders for contracts intended to be entered into by contracting authorities such as Brent. Thus, Article 23 requires technical specifications to be set out in the contract documentation, with equal access being afforded to tenderers; Articles 44 to 52 concern the qualifications and disqualifications of economic operators; and Article 53 concerns the criteria that must be applied when awarding a contract:

Article 53

Contract award criteria

1.

Without prejudice to national laws, regulations or administrative provisions concerning the remuneration of certain services, the criteria on which the contracting authorities shall base the award of public contracts shall be either:

(a)

when the award is made to the tender most economically advantageous from the point of view of the contracting authority, various criteria linked to the subject-matter of the public contract in question, for example, quality, price, technical merit, aesthetic and functional characteristics, environmental characteristics, running costs, cost-effectiveness, after-sales service and technical assistance, delivery date and delivery period or period of completion, or

(b)

the lowest price only.

2.

…

The Teckal case itself arose under Directive 93/36, one of the predecessor Directives to the present Directive. It concerned a contract between Viano, an Italian local authority, and AGAC, a consortium that had been set up by a number of municipalities. Teckal, a private company, complained that the municipal council of Viano had conferred on AGAC the management of the heating service for municipal buildings without going out to tender. The award of the contract to AGAC would have been in breach of the requirements of the Directive if AGAC had been an independent private company. The facts relating to AGAC were stated by the European Court of Justice as follows:

12.

AGAC is a consortium set up by several municipalities — including that of Viano — to manage energy and environmental services, pursuant to Article 25 of Law No 142/90. Under Article 1 of its Statutes (‘the Statutes’), it has legal personality and operational autonomy. Article 3(1) of the Statutes states that its function is to assume direct responsibility for, and manage, a number of listed public services, which include ‘gas for civil and industrial purposes; heating for civil and industrial purposes; activities related and ancillary to the above’.

13.

Under Article 3(2) to (4) of the Statutes, AGAC may extend its activities to other related or ancillary services, hold shares in public or private companies or have interests in bodies for the management of related or ancillary services, and, finally, provide services or supplies to private persons or to public bodies other than the member municipalities.

14.

Under Articles 12 and 13 of the Statutes, the most important managerial acts, which include preparation of accounts and budgets, must be approved by the general meeting of AGAC, consisting of representatives of the municipalities. The other managerial bodies are the council, the chairman of the council and the director-general. They are not answerable to the municipalities for their managerial acts. The natural persons who sit on these bodies do not exercise any functions in the member municipalities.

15.

Under Article 25 of the Statutes, AGAC must achieve a balanced budget and operational profitability. Pursuant to Article 27 of the Statutes, the municipalities provide AGAC with funds and assets, in respect of which AGAC pays them annual interest. Article 28 of the Statutes provides that any profits in the financial year are to be allocated among the member municipalities, retained by AGAC to increase its reserve funds, or reinvested in other AGAC activities. Under Article 29 of the Statutes, where a loss occurs, the financial deficit may be corrected through, inter alia, the injection of new capital by the member municipalities.

16.

Article 35 of the Statutes provides for arbitration to resolve any disputes between the member municipalities or between those municipalities and AGAC.

It is worth referring to parts of the Opinion of Advocate General Cosmas:

53.

… the party entering into the contract with the contracting authority, namely the supplier, must have real third-party status vis-à-vis that authority, that is to say the supplier must be a separate person from the contracting authority. This element, likewise, is an essential characteristic for the conclusion of supply contracts falling within the scope of Directive 93/36.

54.

It follows from the above that the directive does not apply where the contracting authority has recourse to its own resources for the supply of the products it wants. (35) Community law does not require contracting authorities to observe the procedure ensuring effective competition between interested parties where those authorities wish to take on themselves the supply of the products they need.

55.

AGAC maintains that the Municipality of Viano did not entrust the service of managing heating installations to a third party but merely decided to organise the direct management of that service in a different manner, by having recourse to the structure and staff of a special entity established for that purpose rather than its own structure and staff.

…

61.

Under Article 10(3) of the Statutes, the Municipality of Viano’s percentage participation in the general meeting of AGAC and hence, in reality, both in the administration and in the profits and losses of the consortium, stands at 0.9%. In my view it is therefore unlikely (and the same also appears to be the case from the facts as presented by the national court) that, in the case of AGAC, a consortium set up by 45 municipalities in the province of Reggio Emilia and having separate legal personality, it could be maintained that the Municipality of Viano exercises over that consortium the kind of control which an entity exercises over an internal body.

62.

Furthermore, under Article 3(4) of the Statutes AGAC may provide certain services to municipalities, private persons or public bodies (enti) which do not belong to the consortium.

63.

Consequently, despite the possibility for the Municipality of Viano, under the Decision, to extend the contract at its request, I do not consider it proven that the municipality exercises hierarchical control over AGAC or that the relationship between it and AGAC does not entail the award of a contract on the ground that the two contracting parties do not in reality have third-party status with respect to each other.

64.

If, on the basis of the findings which it must make, the national court concludes that the relationship between the municipality and AGAC is the outcome of the concordance of two autonomous wills representing separate legal interests in a manner consistent with the customary form of relationship that characterises the contractual relationship of two separate persons, a conclusion which can also be inferred from a study of the contractual conditions, the entrusting of the supply which constitutes the subject-matter of this case falls within the scope of Directive 93/36.

65.

To accept that (it) is possible for contracting authorities to have recourse, for the supply of goods, to separate entities over which they maintain either absolute or relative control, in breach of the relevant Community legislation, would open the floodgates for forms of evasion contrary to the objective of ensuring free and undistorted competition which the Community legislature seeks to achieve through the coordination of procedures for the award of public supply contracts.

…

67.

In my view, therefore, it follows from the foregoing considerations that Directive 93/36 permits no exception to the procedure it lays down where a public supply contract is concluded, irrespective of whether the contract is concluded between a contracting authority and an entity which is also a contracting authority. Accordingly, subject to the points which the national court must establish, the entrusting of the contested supply to the consortium is in breach of the directive in question if the relationship between the local authority and the consortium to which it belongs constitutes the outcome of a concordance of wills of two different, essentially autonomous, persons representing separate legal interests.

Note 35 to the opinion of the Advocate General is relevant:

A similar question has already been raised before the Court in connection with the interpretation of Directive 92/50. In the BFI Holding case (cited in footnote 31 above), concerning a dispute between two Dutch municipalities and a private undertaking (BFI) which was claiming that the award of a contract involving refuse collection to a public limited company (ARA) established for that purpose by the municipalities in question was subject to the procedure laid down by the directive, the national court took the view that ARA fell within the exception provided for in Article 6 of Directive 92/50 in so far as it was to be regarded as a body governed by public law within the meaning of Article 1(b) of that directive.

In point 38 of his Opinion in BFI Holding, Advocate General La Pergola reached the conclusion that ‘there is no third party element, that is to say no essential distinction between ARA and the two municipalities, in the present case. What is involved here is a form of inter-departmental delegation that remains within the administrative ambit of the municipalities. In assigning the activities in question to ARA, the municipalities had absolutely no intention of privatising the functions they themselves had previously performed in this sector. Furthermore, this issue of whether public services are provided by a part of the public administration, in which case there is no public contract within the meaning of Directive 92/50, was also highlighted by Advocate General Alber in his Opinion in RI.SAN., cited in footnote 31 above; see point 49 of that Opinion.

Advocate General La Pergola concluded that ‘in short, ... the relationship between the municipalities and ARA cannot be regarded as a contract within the meaning of the Directive (the directive in question being Directive 92/50). However, Advocate General La Pergola was of the opinion that an entity of this type (such as ARA) constitutes a body governed by public law within the meaning of Directive 92/50. The Court examined the issue of when a body can be classed as having the status of a body governed by public law within the meaning of the second subparagraph of Article 1(b) of Directive 92/50 and supplied the national court with the ruling that it needed on the interpretation of that provision.

The conclusions of the Court were as follows:

46.

In its capacity as a local authority, the Municipality of Viano is a contracting authority within the meaning of Article 1(b) of Directive 93/36. It is therefore a matter for the national court to ascertain whether the relationship between the Municipality of Viano and AGAC also meets the other conditions which Directive 93/36 lays down for a public supply contract.

47.

That will, in accordance with Article 1(a) of Directive 93/36, be the case if the contract in question is a contract for pecuniary interest, concluded in writing, involving, inter alia, the purchase of products.

48.

It is common ground in the present case that AGAC supplies products, namely fuel, to the Municipality of Viano in return for payment of a price.

49.

As to whether there is a contract, the national court must determine whether there has been an agreement between two separate persons.

50.

In that regard, in accordance with Article 1(a) of Directive 93/36, it is, in principle, sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority. The position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities.

51.

The answer to the question must therefore be that Directive 93/36 is applicable in the case where a contracting authority, such as a local authority, plans to conclude in writing, with an entity which is formally distinct from it and independent of it in regard to decision-making, a contract for pecuniary interest for the supply of products, whether or not that entity is itself a contracting authority.

It can be seen that the judgment of the Court differed from the opinion of the Advocate General, who was more willing to address the facts of the relationship between the municipality and AGAC. Whether the difference between them was one of words or substance may be a matter of debate. I have italicised the second sentence of paragraph 50 because it has subsequently been regarded as formulating the two conditions for the application of the Teckal exemption, namely:

The rationale for the exemption is obvious. A public authority should not have to go out to tender simply because it has placed a function or functions that could be carried out internally in the hands of a company which, although a separate entity, is in substance a department of the authority.

Two other matters should be noted. First, it is irrelevant that the other contracting party is itself a public authority (in the terms of the Directive, a contracting authority), and therefore bound to comply with the procedures of the Directive when it proposes to enter into relevant contracts with other parties. Thus the fact that LAML complies with the Regulations when placing contracts of reinsurance is irrelevant to Brent’s duty to comply with them.

Secondly, the Court excluded contracts between a public authority and a person fulfilling the requirements set out in paragraph 50 of its judgment on the basis that, such a contract, although it is entered into between two legal entities, is not a contract for the purposes of the Directive. The Court thus gave a special autonomous meaning to “contract”.

The Teckal exemption was discussed by the Court in Case C-26/03 Stadt Halle and RPL Recyclingpark Lochau GmbH v Arbeitsgemeinschaft Thermische Restabfall- und Energieverwertungsanlage TREA Leuna. [2005] ECR I-1. The contract in that case was between the City of Halle and RPL Lochau. The ownership of the company was set out in paragraph 15 of the judgment of the Court:

15.

RPL Lochau is a limited liability company set up in 1996. Of its capital, 75.1% is held by Stadtwerke Halle GmbH, whose sole shareholder Verwaltungsgesellschaft für Versorgungs- und Verkehrsbetriebe der Stadt Halle mbH is wholly owned by the City of Halle, and 24.9% by a private limited liability company. The national court describes RPL Lochau as a ‘semi-public company’ and notes that the allocation of the shareholdings in the company was not agreed in the company’s statutes until the end of 2001, when the award of the contract for carrying out the project at issue was envisaged.

The Court held that the Directive applied to the contract between Halle and RPL Lochau:

42.

By this second series of questions, which should be considered together, the national court essentially asks whether, where a contracting authority intends to conclude with a company governed by private law, legally distinct from the authority and in which it has a majority capital holding and exercises a certain control, a contract for pecuniary interest relating to services within the material scope of Directive 92/50, it is always obliged to apply the public award procedures laid down by that directive, merely because a private company has a holding, even a minority one, in the capital of the company with which it concludes the contract. If that question is answered in the negative, the national court asks what the criteria are by reference to which it should be considered that the contracting authority is not subject to such an obligation.

43.

This question concerns the particular situation of a ‘semi-public’ company, set up and functioning in accordance with the rules of private law, from the point of view of the obligation of a contracting authority to apply the Community rules in the field of public procurement where the conditions for such application are satisfied.

44.

On this point, the principal objective of the Community rules in the field of public procurement, as stated in connection with the answer to Question 1, should be recalled, namely the free movement of services and the opening-up to undistorted competition in all the Member States. That involves an obligation on all contracting authorities to apply the relevant Community rules where the conditions for such application are satisfied.

45.

The obligation to apply the Community rules in such a case is confirmed by the fact that in Article 1(c) of Directive 92/50 the term ‘service provider’, that is, a tenderer for the purposes of the application of that directive, also includes ‘a public body, which offers services’ (see Case C-94/99 ARGE [2000] ECR I-11037, paragraph 28).

46.

Any exception to the application of that obligation must consequently be interpreted strictly. Thus the Court has held, concerning recourse to a negotiated procedure without the prior publication of a contract notice, that Article 11(3) of Directive 92/50, which provides for such a procedure, must, as a derogation from the rules intended to ensure the effectiveness of the rights conferred by the EC Treaty in relation to public service contracts, be interpreted strictly and that the burden of proving the existence of exceptional circumstances justifying the derogation lies on the person seeking to rely on those circumstances (Joined Cases C-20/01 and C-28/01 Commission v Germany [2003] ECR I-3609, paragraph 58).

47.

In the spirit of opening up public contracts to the widest possible competition, as the Community rules intend, the Court has held, with reference to Council Directive 93/36/EEC of 14 June 1993 coordinating procedures for the award of public supply contracts (OJ 1993 L 199, p. 1), that that directive is applicable in the case where a contracting authority plans to conclude a contract for pecuniary interest with an entity which is legally distinct from it, whether or not that entity is itself a contracting authority (Case C-107/98 Teckal [1999] ECR I-8121, paragraphs 50 and 51). It is relevant to note that the other contracting party in that case was a consortium consisting of several contracting authorities, of which the contracting authority in question was also a member.

48.

A public authority which is a contracting authority has the possibility of performing the tasks conferred on it in the public interest by using its own administrative, technical and other resources, without being obliged to call on outside entities not forming part of its own departments. In such a case, there can be no question of a contract for pecuniary interest concluded with an entity legally distinct from the contracting authority. There is therefore no need to apply the Community rules in the field of public procurement.

49.

In accordance with the Court’s case-law, it is not excluded that there may be other circumstances in which a call for tenders is not mandatory, even though the other contracting party is an entity legally distinct from the contracting authority. That is the case where the public authority which is a contracting authority exercises over the separate entity concerned a control which is similar to that which it exercises over its own departments and that entity carries out the essential part of its activities with the controlling public authority or authorities (see, to that effect, Teckal, paragraph 50). It should be noted that, in the case cited, the distinct entity was wholly owned by public authorities. By contrast, the participation, even as a minority, of a private undertaking in the capital of a company in which the contracting authority in question is also a participant excludes in any event the possibility of that contracting authority exercising over that company a control similar to that which it exercises over its own departments.

50.

In this respect, it must be observed, first, that the relationship between a public authority which is a contracting authority and its own departments is governed by considerations and requirements proper to the pursuit of objectives in the public interest. Any private capital investment in an undertaking, on the other hand, follows considerations proper to private interests and pursues objectives of a different kind.

51.

Second, the award of a public contract to a semi-public company without calling for tenders would interfere with the objective of free and undistorted competition and the principle of equal treatment of the persons concerned, referred to in Directive 92/50, in particular in that such a procedure would offer a private undertaking with a capital presence in that undertaking an advantage over its competitors.

52.

The answer to Question 2(a) and (b) must therefore be that, where a contracting authority intends to conclude a contract for pecuniary interest relating to services within the material scope of Directive 92/50 with a company legally distinct from it, in whose capital it has a holding together with one or more private undertakings, the public award procedures laid down by that directive must always be applied.

The Teckal exemption was the subject of further elaboration by the Court in its judgment in Case C-458/03 Parking Brixen Gmbh. The case concerned a contract for the management of a public pay car park, a concession granted by the Municipality of Brixen to Stadtwerke Brixen AG. (Despite the German names, the Municipality is in Italy.) As a public service concession, the contract was not subject to the then Directive on public service contracts; but the Court held that similar principles were applicable to the award of concessions. As a result:

64     It is appropriate to examine, first, whether the concession-granting public authority exercises a control over the concessionaire which is similar to that which it exercises over its own departments.

65     That assessment must take account of all the legislative provisions and relevant circumstances. It must follow from that examination that the concessionaire in question is subject to a control enabling the concession-granting public authority to influence the concessionaire’s decisions. It must be a case of a power of decisive influence over both strategic objectives and significant decisions.

66     It is clear from the order for reference that under Article 1 of the statutes of the special undertaking, Stadtwerke Brixen, it was a municipal body whose specific function was the uniform and integrated provision of local public services. The municipal council laid down the general guidelines, allocated the start-up capital, ensured that any social costs were covered, monitored the operating results and exercised strategic supervision, the undertaking being guaranteed the necessary independence.

67     By contrast, Stadtwerke Brixen AG became market-oriented, which renders the municipality’s control tenuous. Militating in that direction are:

(a)

the conversion of Stadtwerke Brixen – a special undertaking of the Gemeinde Brixen – into a company limited by shares (Stadtwerke Brixen AG) and the nature of that type of company;

(b)

the broadening of its objects, the company having started to work in significant new fields, particularly those of the carriage of persons and goods, as well as information technology and telecommunications. It must be noted that the company retained the wide range of activities previously carried on by the special undertaking, particularly those of water supply and waste water treatment, the supply of heating and energy, waste disposal and road building;

(c)

the obligatory opening of the company, in the short term, to other capital;

(d)

the expansion of the geographical area of the company’s activities, to the whole of Italy and abroad;

(e)

the considerable powers conferred on its Administrative Board, with in practice no management control by the municipality.

68     In fact, as regards the powers conferred on the Administrative Board, it is clear from the decision of reference that the statutes of Stadtwerke Brixen AG, particularly Article 18 thereof, give the board very broad powers to manage the company, since it has the power to carry out all acts which it considers necessary for the attainment of the company’s objective. In addition, the power, under the said Article 18, to provide guarantees up to EUR 5 million or to effect other transactions without the prior authority of the shareholders’ meeting shows that the company has broad independence vis-à-vis its shareholders.

69     The decision of reference also states that the Gemeinde Brixen has the right to appoint the majority of the members of Stadtwerke Brixen AG’s Administrative Board. However, the referring court notes that the control exercised by the municipality over Stadtwerke Brixen AG is limited, essentially, to those measures which company law assigns to the majority of shareholders, which considerably attenuates the relationship of dependence which existed between the municipality and the special undertaking Stadtwerke Brixen, in the light, above all, of the broad powers possessed by Stadtwerke Brixen AG’s Administrative Board.

70     Where a concessionaire enjoys a degree of independence characterised by elements such as those noted in paragraphs 67 to 69 of this judgment, it is not possible for the concession-granting public authority to exercise over the concessionaire control similar to that which it exercises over its own departments.

71     In those circumstances, and without it being necessary to consider the question whether the concessionaire carries out the essential part of its activities with the concession-granting public authority, the award of a public service concession by a public authority to such a body cannot be regarded as a transaction internal to that authority, to which the rules of Community law do not apply.

72     It follows that the reply to the second question referred for a preliminary ruling must be as follows:

Articles 43 EC and 49 EC, and the principles of equal treatment, non-discrimination and transparency, are to be interpreted as precluding a public authority from awarding, without putting it out to competition, a public service concession to a company limited by shares resulting from the conversion of a special undertaking of that public authority, a company whose objects have been extended to significant new areas, whose capital must obligatorily be opened in the short term to other capital, the geographical area of whose activities has been extended to the entire country and abroad, and whose Administrative Board possesses very broad management powers which it can exercise independently.

Paragraph 65 of this judgment is of particular importance, the statement that the public authority must have “a power of decisive influence over both strategic objectives and significant decisions” being reiterated in subsequent judgments.

Case C-340/04 Carbotermo SpA v Comune di Busto Arsizio [2006] ECR I-4137 concerned a contract entered into between the Comune di Busto Arsizio and AGESP SpA outside a tender process. AGESP was a wholly-owned subsidiary of AGESP Holding SpA, a company of which the Comune di Busto Arsizio held 99.98 per cent of the shares, the others 0.02 percent being held by other municipalities. The Court first considered whether the first condition for the application of the Teckal exemption was satisfied.

32      For there to be a contract within the meaning of Article 1(a) of Directive 93/36, there must have been an agreement between two separate persons (Teckal, paragraph 49).

33      In accordance with Article 1(a) of that directive, it is, in principle, sufficient if the contract was concluded between, on the one hand, a local authority and, on the other, a person legally distinct from that local authority. The position can be otherwise only in the case where the local authority exercises over the person concerned a control which is similar to that which it exercises over its own departments and, at the same time, that person carries out the essential part of its activities with the controlling local authority or authorities (Teckal, paragraph 50).

34      It is apparent from the order for reference and the evidence in the case-file that, at present, the contracting authority holds 99.98% of the share capital in AGESP Holding, with the remaining 0.02% being held by other local authorities. According to AGESP Holding’s statutes, private shareholders may acquire holdings in that company, on two conditions: first, the majority of the shares are reserved for the Comune di Busto Arsizio; second, no private shareholder may hold more than one tenth of the share capital of that company.

35      At present, AGESP Holding holds 100% of the share capital in AGESP. According to the latter’s statutes, private shareholders may acquire holdings in it subject to only one condition, namely that, with the exception of AGESP Holding, no shareholder may hold more than one tenth of the share capital of that company.

36      In order to determine whether the contracting authority exercises a control similar to that which it exercises over its own departments, it is necessary to take account of all the legislative provisions and relevant circumstances. It must follow from that examination that the successful tenderer is subject to a control enabling the contracting authority to influence that company’s decisions. It must be a case of a power of decisive influence over both strategic objectives and significant decisions of that company (see Case C-458/03 Parking Brixen [2005] ECR I-0000, paragraph 65).

37      The fact that the contracting authority holds, alone or together with other public authorities, all of the share capital in a successful tenderer tends to indicate, without being decisive, that that contracting authority exercises over that company a control similar to that which it exercises over its own departments, as contemplated in paragraph 50 of Teckal.

38      It is apparent from the case-file that the statutes of AGESP Holding and AGESP confer on the Board of Directors of each of those companies the broadest possible powers for the ordinary and extraordinary management of the company. Those statutes do not reserve for the Comune di Busto Arsizio any control or specific voting powers for restricting the freedom of action conferred on those Boards of Directors. The control exercised by the Comune di Busto Arsizio over those two companies can be described as consisting essentially of the latitude conferred by company law on the majority of the shareholders, which places considerable limits on its power to influence the decisions of those companies.

39      Moreover, any influence which the Comune di Busto Arsizio might have on AGESP’s decisions is through a holding company. The intervention of such an intermediary may, depending on the circumstances of the case, weaken any control possibly exercised by the contracting authority over a joint stock company merely because it holds shares in that company.

40      It follows that, in such circumstances, subject to their being verified by a court adjudicating on the substance in the main proceedings, the contracting authority does not exercise over the successful tenderer for the public procurement contract at issue here a control similar to that which it exercises over its own departments.

41      …

42      It follows that Directive 93/36 does not allow for the direct award of a public procurement contract in circumstances such as those in the main proceedings.

43      In response to that finding, the Italian Government states that the fact that AGESP must use a public tendering procedure to purchase the diesel oil in question shows that the Comune di Busto Arsizio, AGESP Holding and AGESP must be regarded as constituting together a ‘body governed by public law’ within the meaning of Article 1(b) of Directive 93/36 and required to conclude public supply contracts in accordance with the relevant Community and national legislation.

44      That argument cannot be accepted. First, the Comune di Busto Arsizio qualifies as a local authority and not a body governed by public law within the meaning of that provision. Second, the Comune di Busto Arsizio, AGESP Holding and AGESP each have distinct legal personalities.

45      Moreover, as the Court stated in paragraph 43 of Teckal, the only permitted exceptions to the application of Directive 93/36 are those which are exhaustively and expressly mentioned therein.

46      Directive 93/36 does not contain any provision comparable to Article 6 of Directive 92/50, which excludes from its scope of application public contracts awarded, under certain conditions, to contracting authorities (Teckal, paragraph 44).

47.

Accordingly, the answer to the first question must be that Directive 93/36 precludes the direct award of a public supply and service contract, the main value of which lies in supply, to a joint stock company whose Board of Directors has ample managerial powers which it may exercise independently and whose share capital is, at present, held entirely by another joint stock company whose majority shareholder is, in turn, the contracting authority.

For present purposes, the most relevant statement is that in paragraph 37, from which it follows that the fact that a company is entirely owned by public authorities is a first step for satisfaction of the first Teckal condition, and may be sufficient. However, an independent board of directors may negate this conclusion, and “the latitude conferred by company law on the majority of the shareholders” is insufficient to satisfy the first condition.

The Court proceeded to consider the second Teckal condition.

 58      It should be borne in mind that the principal objective of the Community rules in the field of public procurement is the free movement of services and the opening-up to undistorted competition in all the Member States (see, to that effect, Case C-26/03 Stadt Halle and RPL Lochau [2005] ECR I-1, paragraph 44).

59      The conditions laid down in Teckal for a finding that Directive 93/36 is inapplicable to the contracts concluded between a local authority and a person legally distinct from it, according to which the local authority must exercise over the person in question a control similar to that which it exercises over its own departments and that person must carry out the essential part of its activities with the controlling authority or authorities, are aimed precisely at preventing distortions of competition.

60      The requirement that the person in question must carry out the essential part of its activities with the controlling authority or authorities is aimed precisely at ensuring that Directive 93/36 remains applicable in the event that an undertaking controlled by one or more authorities is active in the market and therefore likely to be in competition with other undertakings.

61      An undertaking is not necessarily deprived of freedom of action merely because the decisions concerning it are controlled by the controlling authority, if it can still carry out a large part of its economic activities with other operators.

62      It is still necessary that that undertaking’s services be intended mostly for that authority alone. Within such limits, it appears justified that that undertaking is not subject to the restrictions of Directive 93/36, since they are in place to preserve a state of competition which, in that case, no longer has any raison d’être.

63      In applying those principles, the undertaking in question can be viewed as carrying out the essential part of its activities with the controlling authority within the meaning of Teckal only if that undertaking’s activities are devoted principally to that authority and any other activities are only of marginal significance.

64      In order to determine if that is the case, the competent court must take into account all the facts of the case, both qualitative and quantitative.

65      As to the issue of whether it is necessary to take into account in that context only the turnover achieved with the supervisory authority or that achieved within its territory, it should be held that the decisive turnover is that which the undertaking in question achieves pursuant to decisions to award contracts taken by the supervisory authority, including the turnover achieved with users in the implementation of such decisions.

66      The activities of a successful undertaking which must be taken into account are all those activities which that undertaking carries out as part of a contract awarded by the contracting authority, regardless of who the beneficiary is: the contracting authority itself or the user of the services.

67      It is also irrelevant who pays the undertaking in question, whether it be the controlling authority or third-party users of the services provided under concessions or other legal relationships established by that authority. The issue of in which territory those services are provided is also irrelevant.

68      If, in the main proceedings, the share capital of the successful undertaking is held indirectly by several authorities, it may be relevant to consider whether the activities to be taken into account are those which the successful undertaking carries out with all of the controlling authorities or only the activities carried out with the authority which in the present case acts as the contracting authority.

69      It should be borne in mind in this connection that the Court has stated that the legally distinct person in question must carry out the essential part of its activities with ‘the controlling local authority or authorities’ (Teckal, paragraph 50). It thus envisaged the possibility that the exception provided for could apply not only in cases where a single authority controls such a legal person, but also where several authorities do so.

70      Where several authorities control an undertaking, the condition relating to the essential part of its activities may be met if that undertaking carries out the essential part of its activities, not necessarily with one of those authorities, but with all of those authorities together.

71      Accordingly, the activities to be taken into account in the case of an undertaking controlled by one or more authorities are those which that undertaking carries out with all of those authorities together.

72      It follows from the foregoing that the answer to the second part of the second question must be that, in order to determine whether an undertaking carries out the essential part of its activities with the controlling authority, for the purpose of deciding on the applicability of Directive 93/36, account must be taken of all the activities which that undertaking carries out on the basis of an award made by the contracting authority, regardless of who pays for those activities, whether it be the contracting authority itself or the user of the services provided; the territory where the activities are carried out is irrelevant.

I confess to finding this part of the judgment less than clear. If a public authority enters into a relevant contract with a company owned by a number of public authorities, is the second Teckal condition not satisfied if the company’s activities with the other public authorities are of only marginal significance (paragraph 63), or is it satisfied if the company’s activities with entities other than its shareholders are only of marginal importance, as paragraph 71 might indicate? However, the position was clarified by the Court in the ASEMFO case, Case C-295/05 Asociación Nacional de Empresas Forestales (Asemfo) v Transformación Agraria SA (Tragsa) and Administración del Estado. The case concerned contracts entered into between Spanish public authorities and Tragsa, a company owned as to 99 per cent by the Spanish state and as to 1 per cent by those public authorities, the Autonomous Communities. Tragsa had very little liberty of action. As stated by the Advocate General:

7.

TRAGSA is required to carry out the works and activities entrusted to it by the Administration. That requirement specifically includes the work it is given as an executive organisation and technical service of the Administration in the areas covered by its company objects (Article 3(2) of Royal Decree 371/1999). In addition TRAGSA is required to give priority to urgent and exceptional work arising from natural disasters and similar events (Article 3(3) of the Decree). It cannot refuse the work entrusted to it or negotiate the deadline for completion, and must execute the works assigned in accordance with the instructions it is given (Article 5(3) of the Decree).

8.

The Royal Decree classifies TRAGSA’s relations with the central and decentralised public administrations as instrumental rather than contractual, and they are therefore, for all purposes, internal, dependent and (for TRAGSA) subordinate (Article 3(6) of the Decree).

9.

Under the financial system to which TRAGSA is subject its work is paid according to a system of tariffs laid down in Article 4 of Royal Decree 371/1999. The tariffs are decided by a joint ministerial committee partly on the basis of information supplied by TRAGSA on its costs.

10.

TRAGSA can call on the help of private undertakings in its activities (Article 5 of Royal Decree No 371/1999). There are a number of restrictions on such cooperation with private contractors: the work may involve only the processing or manufacturing of movable property, the amounts for which such contracts may be concluded are limited, and the principles of prior public tender (publication and competition) must be observed in the selection of private partners.

…

12.

The administrative context in which TRAGSA operates changed significantly in the 1980s as a result of the entry into force of the Spanish Constitution of 1978, when responsibility for agriculture and environmental protection was transferred from the general State Administration to the Autonomous Communities or regions (hereinafter ‘the Autonomous Communities’). The transfer of administrative powers also necessarily involved the transfer of the resources and instruments needed to enable those powers to be fully exercised. For that reason TRAGSA was placed at the disposal of the Autonomous Communities to enable them to exercise their powers even before the EC Treaty came into force for Spain.

13.

The transfer of public powers with respect to TRAGSA from the general State Administration to the Autonomous Communities took the form of public law agreements which each of the Communities concluded with TRAGSA, laying down the rules governing the use of TRAGSA as an ‘instrument’ of the Autonomous Community concerned. Most of the Autonomous Communities concluded such agreements with TRAGSA, although only four became shareholders in it as a company.

14.

Under the Spanish laws and regulations in force, however, an Autonomous Community does not need to become a shareholder in TRAGSA in order to use its services: TRAGSA operates as an ‘instrument’ of the Autonomous Communities, so that as a rule it makes no difference whether they are shareholders or not. That is borne out by Law 66/97, which provides that the regions may, but need not, be shareholders in TRAGSA.

Of significance in the present context is paragraph 75:

75.

Given that the condition of ‘similar control’ must be interpreted strictly, I consider that that condition implies that the company providing the services has no discretion whatsoever and that, in the end, the public authority is the only one to take decisions concerning that company. Moreover, use of the expression ‘in house’ indeed reveals the intention to make a distinction between activities which the authority carries out directly – by means of internal structures ‘belonging to the house’ – and those that it will entrust to a third-party operator.

The judgment of the Court was as follows:

46  By its second question, the referring court asks the Court whether a body of rules such as that governing Tragsa, which enables it to execute operations without being subject to the regime laid down by those directives, is contrary to Directives 93/36 and 93/37.

…

56      Accordingly, it is appropriate to examine whether the two conditions required by the case-law cited in the preceding paragraph (Teckal and subsequent cases)are met in Tragsa’s case.

57      As regards the first condition, relating to the public authority’s control, it follows from the Court’s case-law that the fact that the contracting authority holds, alone or together with other public authorities, all of the share capital in a successful tenderer tends to indicate, generally, that that contracting authority exercises over that company a control similar to that which it exercises over its own departments (Carbotermo and Consorzio Alisei, paragraph 37).

58      In the case in the main proceedings, it is clear from the case file, but subject to confirmation by the referring court, that 99% of Tragsa’s share capital is held by the Spanish State itself and through a holding company and a guarantee fund, and that four Autonomous Communities, each with one share, hold 1% of such capital.

59      In that regard, the argument cannot be accepted that that condition is met only for contracts performed at the demand of the Spanish State, excluding those which are the subject of a demand from the Autonomous Communities as regards which Tragsa must be regarded as a third party.

60      It appears to follow from Article 88(4) of Ley 66/1997 and Articles 3(2) to (6) and 4(1) and (7) of Royal Decree 371/1999 that Tragsa is required to carry out the orders given it by the public authorities, including the Autonomous Communities. It also seems to follow from that national legislation that, as with the Spanish State, in the context of its activities with those Communities, as an instrument and technical service, Tragsa is not free to fix the tariff for its actions and that its relationships with them are not contractual.

61      It seems therefore that Tragsa cannot be regarded as a third party in relation to the Autonomous Communities which hold a part of its capital.

62      As regards the second condition, relating to the fact that the essential part of Tragsa’s activities must be carried out with the authority or authorities which own it, it follows from the case-law that, where several authorities control an undertaking, that condition may be met if that undertaking carries out the essential part of its activities, not necessarily with any one of those authorities, but with all of those authorities together (Carbotermo and Consorzio Alisei, paragraph 70).

63      In the case in the main proceedings, as is clear from the case-file, Tragsa carries out more than 55% of its activities with the Autonomous Communities and nearly 35% with the State. It thus appears that the essential part of its activities is carried out with the public authorities and bodies which control it.

64      In those circumstances, but subject to confirmation by the referring court, it must be held that the two conditions required by the case-law cited in paragraph 55 of the present judgment are met in this case.

65      It follows from the entirety of the foregoing considerations that the reply to the second question must be that a body of rules such as that governing Tragsa which enables it, as a public undertaking acting as an instrument and technical service of several public authorities, to execute operations without being subject to the regime laid down by those directives, is not contrary to Directives 92/50, 93/36 and 93/37, since first, the public authorities concerned exercise over that undertaking a control similar to that which they exercise over their own departments, and, second, such an undertaking carries out the essential part of its activities with those same authorities.

Lastly, there is the decision of the Court in Case C-220/06 Asociación Profesional de Empresas de Reparto y Manipulado de Correspondencia v Administración General del Estado. The question posed by the reference was formulated by Advocate General Yves Bot as follows:

May a limited liability company whose capital is wholly state-owned (Correos) be directly entrusted with the provision of reserved and non-reserved postal services without infringing Community rules governing the award of public service contracts and Article 86(1) EC, read in conjunction with Articles 43 and 49 EC? This, in substance, is the question which the Audiencia Nacional (National High Court, Spain) has referred to the Court of Justice.

Having summarised the jurisprudence of the Court on the Teckal exemption, he turned to the first condition for its application:

75.

Given that the condition of ‘similar control’ must be interpreted strictly, I consider that that condition implies that the company providing the services has no discretion whatsoever and that, in the end, the public authority is the only one to take decisions concerning that company. Moreover, use of the expression ‘in house’ indeed reveals the intention to make a distinction between activities which the authority carries out directly – by means of internal structures ‘belonging to the house’ – and those that it will entrust to a third-party operator.

76.

In the present case, several elements combine to show that Correos, the capital of which is indeed state-owned, retains some discretion as regards decisions it has to take.

77.

Whilst it is true that pursuant to Article 58(2)(g) of Law 14/2000, Correos, the universal service provider, is under an obligation to accept the Cooperation Agreement, it is apparent from the documents before the Court that Correos can put an end to the contract with the contracting authority, by giving one month’s written notice.

78.

In addition, pursuant to Law 14/2000, Correos, which used to be a public undertaking, changed its status to a limited liability company which offers services in exchange for remuneration. It is also common ground that Correos can be asked to carry out any other activities or services in addition to the above or necessary to the achievement of the objects of the company. This also seems to be apparent from its 2005 annual report, which mentions that growing competition in that sector has made it inevitable to broaden the services on offer and to enter other markets.

79.

By changing its status to a limited liability company, and by having the possibility to broaden its company objects and to terminate the contract which binds it to the State administration, I consider that Correos became market-oriented, which renders the State administration’s control tenuous.

80.

In light of those elements, I consider that the contracting public authority does not exercise ‘similar control’ over Correos, within the meaning of the case-law mentioned above. However, it is for the national court to examine whether that condition is indeed fulfilled in the present case.

The Court addressed, but ultimately did not answer, the issue of control in paragraphs 49 to 59 of the judgment:

49      … this raises the question whether the Cooperation Agreement is in fact a contract within the meaning of Article 1(a) of Directive 92/50. The Spanish Government submits that the agreement is not contractual but instrumental, given that Correos is unable to refuse to enter into such an agreement, but is under an obligation to accept.

…

51      Admittedly, in paragraph 54 of its judgment in Case C-295/05 Asemfo [2007] ECR I-0000, the Court held that the requirement for the application of the directives governing the award of public service contracts relating to the existence of a contract was not met where the State company in issue in the case that gave rise to the judgment had no choice as to the acceptance of a demand made by the competent authorities in question or as to the tariff for its services, a matter which was for the referring court to establish.

52      However, that reasoning must be read in its specific context. It follows on from the finding that, under Spanish legislation, that State company is an instrument and a technical service of the General State Administration and of the administration of each of the Autonomous Communities concerned, the Court having already held, in a context different from that in the case that gave rise to the judgment in Asemfo, that being an instrument and technical service of the Spanish Administration, the company in issue is required to implement only work entrusted to it by the General Administration of that State, the Autonomous Communities or the public bodies subject to them (Asemfo, paragraphs 49 and 53).

53      Correos, as the provider of the universal postal service, carries out an entirely different task, which means in particular that its customers consist of any person wishing to use the universal postal service. The mere fact that that company has no choice as to the acceptance of a demand made by the Ministerio or as to the tariff for its services cannot automatically entail that no contract was concluded between the two entities.

54      In fact, such a situation is not necessarily different from that which arises where a private customer wishes to use services provided by Correos coming within the scope of the universal postal service, since it is in the very nature of the task of a provider of that service that, in such a situation, he is also required to provide the services requested and must do so, if necessary, for a fixed tariff or, in any event, for a price that is transparent and non-discriminatory. There is no question that such a relationship must be called contractual. It is only if the agreement between Correos and the Ministerio were in actual fact a unilateral administrative measure solely creating obligations for Correos – and as such a measure departing significantly from the normal conditions of a commercial offer made by that company, a matter which is for the Audiencia Nacional to establish – that it would have to be held that there is no contract and that, consequently, Directive 92/50 could not apply.

55      In the course of that examination, the Audiencia Nacional will have to consider, in particular, whether Correos is able to negotiate with the Ministerio the actual content of the services it has to provide and the tariffs to be applied to those services and whether, as regards non-reserved services, the company can free itself from obligations arising under the Cooperation Agreement, by giving notice as provided for in that agreement.

56      The other arguments submitted by the Spanish Government to show that a cooperation agreement like the one in issue in the main proceedings falls outside the rules on public procurement must also be rejected.

57      The Spanish Government submits, in particular, that the Cooperation Agreement cannot, in any event, be subject to the rules on public procurement because the ‘in-house’ criteria laid down in the case-law of the Court are fulfilled.

58      In this regard, it is important to recall that, according to the Court’s settled case-law, a call for tenders, under the directives relating to public procurement, is not compulsory, even if the contracting party is an entity legally distinct from the contracting authority, where two conditions are met. First, the public authority which is a contracting authority must exercise over the distinct entity in question a control which is similar to that which it exercises over its own departments and, second, that entity must carry out the essential part of its activities with the local authority or authorities which control it (see Case C-107/98 Teckal [1999] ECR I-8121, paragraph 50; Stadt Halle and RPL Lochau, paragraph 49; Carbotermo and Consorzio Alisei, paragraph 33; and Asemfo, paragraph 55).

59      It is not necessary to analyse in greater detail whether the first of the two conditions referred to in the preceding paragraph is fulfilled, given that it is enough to hold that, in the case in the main proceedings, the second condition is not fulfilled. It is not contested that Correos, as provider of the universal postal service in Spain, does not carry out the essential part of its activities with the Ministerio or with public authorities in general, but that that company provides postal services to an unspecified number of customers of that postal service.

I derive the following propositions from these authorities:

These propositions, with the possible exception of the last, were not controversial before me. The principal controversy between the parties concerns the position that arises where, as in the case of LAML, the company in question is owned by a number of public authorities. Mr Howell submitted that in such a case the public authority must show that it has the requisite influence over the acts of the company in relation to it, as in the case of Asemfo, where each of the autonomous regions could require the company to carry out works for it on prescribed terms. He pointed to the repeated formulation by the Court of the Teckal exemption, which refers to authority in the singular in the first condition but to “authority or authorities” in the second. He submitted that any other interpretation is inconsistent with the rationale of the exemption, which is that a truly “in-house” company is to be treated as a department of the authority. He stressed the possibilities of abuse of the exemption if this were not so: large parts of public contracting could be removed from the requirements of the Directive by establishing large companies in which numerous public authorities hold all the shares but in which individual authorities have very small shareholdings. Mr Giffin and Mr Goudie submitted that it is sufficient if the public authorities together exercise the requisite influence over the company. Authorities may exercise functions and provide services jointly, through a joint committee, without incorporating their joint activity; it is consistent with the rationale of the exemption that incorporation, which is a matter of form, should not lead to the application of the Directive which is aimed at market oriented activities. They relied on the statement in paragraph 37 of Carbotermo, to which I referred in the preceding paragraph of this judgment, which includes no such requirement as suggested by Mr Howell.

I think that Mr Giffin and Mr Goudie are right on this issue. I am puzzled by the difference between the Court’s statement of the first condition and its statement of the second condition. However, I cannot see any other explanation for the statement in paragraph 37 of Carbotermo. Moreover, in the case of a company owned by a number of authorities, it will normally be impossible for any one of them to have a decisive influence on the strategic objectives of the Company. On this basis, it is unnecessary for Brent, in the present case, to show that it alone has the power of decisive influence over both strategic objectives and significant decisions of LAML in relation to the insurance policies it has taken.

I should mention, however, that the question of the application of the Teckal exemption to jointly-owned companies is raised by the reference for a preliminary ruling in Case C-324-07 Coditel Brabant v Commune d’Uccle, lodged with the Court of Justice on 12 July 2007.

I can now turn to issues (2) to (4) in paragraph 10 above.

The Regulations do not refer to or expressly enact the Teckal exemption. Mr Howell pointed out that they are drafted in terms of English legal terms, doubtless for clarity for United Kingdom lawyers and others. The Directive contains the term “contract for pecuniary interest”, a term having an autonomous meaning. In addition, by virtue of the Teckal jurisprudence, it also excludes contracts between public authorities and companies that are regarded as “in-house”. The Regulations, on the other hand, refer not to contracts for pecuniary interest, but to a contract for consideration, an expression that is wider than “contract for pecuniary interest”, an expression that, for example, does not include a concession. Thus one of the basic terms, “public contract” is defined as “a public services contract, a public supply contract or a public works contract”, and all of these kinds of contract are defined in English legal terms. For example, “public services contract” is defined by regulation 2(1):

“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;

….

The criteria for the award of a public contract are set out in regulation 30. It uses the well-known English legal term “offer”, but its meaning is expressly extended by paragraph (10) so that it:

includes a bid by one part of a contracting authority to provide services, to carry out work or works or to make goods available 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.

Such a bid would not result in a contract for pecuniary interest for the purposes of the Directive, or indeed in a contract for the purposes of English law at all in the absence of paragraph (10). This, submitted Mr Howell, shows that the legislator intended to extend the ambit of the Regulations beyond that of the Directive. Furthermore, where the draftsman of the Regulations wished to incorporate provisions of the Directive into the Regulations he did so expressly, in regulation 4:

4.

—(1) In these Regulations, an “economic operator” means a contractor, a supplier or a services provider.

(2)

When these Regulations apply, a contracting authority shall not treat a person who is not a national of a relevant State and established in a relevant State more favourably than one who is.

(3)

A contracting authority shall (in accordance with Article 2 of the Public Sector Directive)—

(a)

treat economic operators equally and in a non-discriminatory way; and

(b)

act in a transparent way.

The italics are mine. Mr Howell explained this reference as necessary because our domestic law contains no definition of the requirements of transparency in the present context. Regulation 23 sets out personal criteria for rejecting an economic operator. They include convictions of the economic operator or its directors of certain criminal offences, such as bribery, including, in paragraph (1):

(f)

any other offence within the meaning of Article 45(1) of the Public Sector Directive as defined by the national law of any relevant State.

Clearly, this reference was made so as to ensure that offences within Art 45(1) were included notwithstanding any difficulty of its identification as an offence under English or other relevant domestic law.

Mr Howell submitted that the exclusion of the Teckal exemption from the Regulations has not resulted in any incompatibility between English law and the requirements of the Directive. All that has happened is that the draftsman has decided to go further than was required by the Directive in pursuing its objects.

Mr Giffin submitted that the Regulations are to be interpreted as incorporating the Teckal exemption: “contract” in the Regulations is to be construed consistently with that expression in the Directive, as interpreted by the Court of Justice, as requiring an agreement between two independent parties. He submitted:

The rule-making power referred to by Mr Giffin is section 2(2) of the European Communities Act 1972:

(2)

Subject to Schedule 2 to this Act, at any time after its passing Her Majesty may by Order in Council, and any designated Minister or department may by regulations, make provision—

(a)

for the purpose of implementing any Community obligation of the United Kingdom, or enabling any such obligation to be implemented, or of enabling any rights enjoyed or to be enjoyed by the United Kingdom under or by virtue of the Treaties to be exercised; or

(b)

for the purpose of dealing with matters arising out of or related to any such obligation or rights or the coming into force, or the operation from time to time, of subsection (1) above;

and in the exercise of any statutory power or duty, including any power to give directions or to legislate by means of orders, rules, regulations or other subordinate instrument, the person entrusted with the power or duty may have regard to the objects of the Communities and to any such obligation or rights as aforesaid.

As Mr Howell pointed out, the power conferred by section 2(2) is not restricted to implementing a Community obligation. Regulations made pursuant to that power must be made either for the purpose of implementing such an obligation or for the wider purposes referred to in paragraph (b). He submitted that the Regulations as made, excluding the Teckal exemption, were within the scope of this power. In this connection, he cited the decision of the Court of Appeal in R (Coles) v Portsmouth City Council (1996) 95 LGR 494. In that case, the Court rejected the submission that the 1991 Regulations should be interpreted as doing no more than reproducing the provisions of the then applicable Directive. As a result, it held that the then equivalent of the present regulation 30(10) was effective, even though it had no equivalent in the then Directive.

In Oakley Inc v Animal Ltd [2005] EWCA Civ 1191, [2006] Ch 337 the Court of Appeal rejected the submission that the power conferred by section 2(2) is confined to incorporating the provisions of a Directive into our domestic law. Waller LJ said, at paragraph 39:

… I can see nothing in the wording of the Section which would support the view that in some way a policy decision or a significant policy decision is automatically excluded from the ambit of Section 2(2)(b). At the same time I do not for my part equate the words “related to” or “arising from” in this subsection with “not distinct, separate, or divorced from” (the language used by Otton LJ). I would endorse his words that they should be given their natural meaning but as we know context means everything. That context is the bringing into force under Section 2 of the laws, which under the Treaties the United Kingdom has agreed to make part of its laws. The whole section is clearly primarily concerned with that obligation and the primary objective of any secondary legislation under Section 2(2) must be to do just that. Section 2(2)(b), and the words “arising from “ and “related to” take their context from that being the primary purpose of Section 2. It seems to me that Section 2(2)(b) from its position in Section 2, from the fact that it adds something to both subsection (1) and (2), and from its very wording is a subsection to enable further measures to be taken which naturally arise from or closely relate to the primary purpose being achieved. I accept that I will be accused of adding the words “naturally” and “closely”, but I believe that describes the context which provides the meaning of the words.

Jacob LJ said:

79.

My own view, provisional though it must be in the absence of any specific context relevant to this case, is this: that s.2(2)(a) covers all forms of implementation – whether by way of choice of explicit options or by way of supply of detail. Both of these are “for the purpose of implementing” or “enabling any such obligation to be implemented”. Supplying detail required by a Directive is just that.

80.

So s.2(2)(b) indeed adds more and Lord Johnston was wrong to say that it could not. How much more must depend on the particular circumstances of the case – the statutory language is the guide. It says “for the purpose of dealing with matters arising out of or related to”. Whether a particular statutory instrument falls within those words must depend on what it purports to do and the overall context. One cannot put a gloss on the meaning. If Otton LJ was adding a gloss – “distinct, separate or divorced from it” – then I do not agree with that gloss. You just have to apply the statutory language to the case concerned. And in doing so you bear in mind that the purpose of the power given by the section is European – the Art.10 purpose. Whether or not Otton LJ was right in the circumstances of Unison, I, like Lord Johnston, do not decide. It would not be right to do so in the absence of the affected parties.

In my judgment, it follows from these authorities, and indeed from the natural meaning of section 2, that the Regulations could have excluded the Teckal exemption, in much the same way as they added the provision in regulation 30(10). Its exclusion would have been within the power conferred by section 2(2) of the 1972 Act.

Furthermore, the exclusion of the Teckal exemption would not have resulted in any breach of this country’s obligations in relation to the Directive. It follows that the Court is not driven by the Marleasing principle (Marleasing SA v La Comercial Internacional de Alimentacion SA [1990] ECR I-4135) to interpret the Regulations as incorporating it. As Lord Brown of Eaton-under-Heywood (with whom Lord Bingham and Lord Rodger agreed) said in R (Hurst) v London Northern District Coroner  [2007] UKHL 13, [2007] 2 AC 189 at paragraph 52:

Where the Marleasing approach applies, the interpretative effect it produces upon domestic legislation is strictly confined to those cases where, on their particular facts, the application of the domestic legislation in its ordinary meaning would produce a result incompatible with the relevant European Community legislation. In cases where no European Community rights would be infringed, the domestic legislation is to be construed and applied in the ordinary way.

The Explanatory Memorandum to the Regulations, prepared by the Office of Government Commerce, an office of the Treasury, and laid before Parliament, is a legitimate guide to its interpretation (see London Borough of Ealing v Race Relations Board [1972] AC 342 per Lord Simon of Glaisdale at 361). It describes the Regulations as one of the two Regulations covered by the Memorandum as “being made to implement EU Directives under section 2(2) of the European Communities Act 1972”. Under the heading “Policy Background”, it stated:

7.5

The new Directives have already been adopted at European level and cannot now be changed. The implementing Regulations include the changes agreed at the European level, covered in paragraph 7.3. Where appropriate, the implementing Regulations include some further clarification of the provisions in the Directives, although we have avoided any unnecessary elaboration or any elaboration which risks being at odds with the Directives.

The Regulatory Impact Assessment stated, under the heading “Purpose and intended effect”:

The EU public procurement rules seek to ensure that public sector bodies award contracts in an efficient and non-discriminatory manner.

Under “Background”:

… Where appropriate the Regulations include some clarification and elaboration of particular provisions in the draft Regulations. However, in line with Government policy on implementing Directives, they avoid unnecessary super equivalence, or any super equivalence which risks being at odds with the meaning of the Directive. Written guidance will be provided on some of the more important or difficult issues.

Mr Giffin submitted that these passages showed there had been no intention to extend the scope of the Regulations beyond that of the Directive. Mr Howell submitted that the last cited passage begged the question: what super equivalence did the Government consider necessary? The answer to this question might be: the exclusion of the Teckal exemption.

Mr Giffin also referred to the consultation document issued by the OGC on the approach to the implementation of the Directive. It refers to Teckal in connection with its discussion of the position of central purchasing bodies, but not otherwise. There is nothing in it which would lead to the conclusion that the OGC intended to implement the Directive without incorporating the Teckal exemption. However, I do not think it appropriate to place any reliance on a consultation document, which may give an indication of government thinking at its date, but not of its reaction to the consultees’ responses.

Lastly, Mr Giffin sought to explain the omission of any express reference to the Teckal exemption in the Regulations as due to the fact that the jurisprudence was not fully developed, so that any drafting risked introducing an exemption that in due course would be held to be incompatible with the Directive as construed by the Court of Justice.

Ultimately, I have found the answer to this question far from easy. Mr Giffin’s explanation for the absence of any reference to the Teckal exemption in the Regulations is unpersuasive. The two conditions for its application have been stated and repeated in a number of decisions of the Court, as has been seen. While there may be uncertainty in their application in particular cases, their formulation is clear. In any event, as Mr Howell pointed out, it was open to the draftsman to refer to and to incorporate any terms of the Directive (for example, “contracts for pecuniary interest”) as such. This was the method of drafting used in the Environmental Permitting (England and Wales) Regulations 2007, which define “waste”, except where otherwise defined, as “anything that (a) is waste for the purposes of the Waste Framework Directive and (b) is not excluded from the scope of that Directive by Article 2(1) of that Directive”.

However, I cannot see why the Government should have wanted to exclude the Teckal exemption from English law. There is nothing in the Explanatory Memorandum to indicate that it was intended to depart from the jurisprudence of the Court in this respect. It is noteworthy that paragraph (10) of Regulation 30 is limited in effect. It applies only to bids where one part of a contracting authority is invited by another to compete with offers sought from third parties. It has no application (not surprisingly) where a simple decision is made by a public authority to employ a part of it to provide services, when it has not gone out to tender. What is meant by “one part of a contracting authority” is not defined, but I do not see why a separate corporate entity satisfying the Teckal conditions should not be a part of a contracting authority for these purposes. If so, it is curious that the draftsman did not deal expressly with the exemption if he had intended to depart from it. Lastly, I do not see that excluding the exemption could be considered to be necessary super-equivalence.

In these circumstances, with considerable hesitation, I have concluded that the term “contract” in the Regulations should be construed in the light of the expressed intention to implement the Directive, and as requiring two contracting parties that do not satisfy the Teckal conditions.

Mr Howell submitted that since the purpose of insurance is to place risk on the resources of someone other than the insured, and the basis of the Teckal exemption is that the public authority and the company with which it contracts are in substance one entity, it would be inconsistent for it to apply to insurance.

I do not find this argument compelling. I see no reason why a public authority could not establish a captive insurer, with its own resources. The relationship between a company and its captive insurer may be very close indeed, and there is no practical reason why the relationship could not be as close where the principal is a public authority, subject, of course, to any relevant regulatory requirements.

Thus, ultimately, in my judgment in the present case the real issue is whether on the facts the requirements of the Teckal exemption are satisfied.

Teckal condition 1 relates to the relationship between a contracting authority or contracting authorities and the economic operator. The assessment of that relationship “must take account of all the legislative provisions and relevant circumstances. … It must be a case of a (the contracting authority’s) power of decisive influence over both strategic objectives and significant decisions.” This condition must, like condition 2, be strictly applied, and it is for Brent to show that it was satisfied.

The starting point must be the Memorandum and Articles of Association of LAML. Article 4 provides that the business of the company is to be conducted under the control of the Board. However, Participating Members may by special resolution give directions to the Board: Regulation 70 of Table A of the Companies (Tables A-F) Regulations 1985, incorporated by Article 1 There are two kinds of director, Member Directors, each of whom represents a Participating Member, and Independent Members, who may not be an officer, employee or elected official of a Member. The Board has a minimum of 5 and a maximum of 11 Directors, of whom at least two must be Independent Directors. Decisions of the Board are by a majority. The chairman of the Board cannot be an Independent Director, and he has a casting vote. Until the first annual general meeting, the directors other than the Independent Directors would have been nominated by the original Members (Article 16(a)), but at and after the first AGM it is the Participating Members who elect the Directors. Any Director may be removed by ordinary resolution (Article 18).

The Board has discretion whether to admit a London Authority to membership, and a Member cannot become a Participating Member unless a proposal for its insurance has been accepted by the company. Article 11 confers power on the Board to terminate the Participating Membership of any Participating Member if in its judgment it determines that it is undesirable for the Participating Member to remain as such. (The Article is not clear as to whether termination under Article 11 results in the authority in question also ceasing to be a Member, but that is immaterial for present purposes.)

Appended to the Articles are the Rules, which may be altered by the Participating Members by ordinary resolution unless the alteration would vary a Member’s obligation concerning Capital Contributions, in which case an ordinary resolution of the Members is required. The Rules confer discretion on the Board to decide on the amounts of Guaranteed Capital Contributions payable by Members and of Paid Capital Contributions payable by both Members and Participating Members.

It is for the Participating Members to agree at a general meeting what kinds of insurance cover may be offered. The Board decides what cover is actually to be offered and its terms, which will be evidenced in the insurance policy. Charles Taylor Consulting PLC (“CTC”) manages the affairs of LAML. According to the first witness statement of Martin Fone, the Chief Executive and Senior Underwriter of the Non-Marine Mutual Department at CTC, who is responsible for managing the affairs of LAML, it requires its Participating Members to take a significant each and every self-insured retention of loss, namely £100,000 for any one occurrence or the expiring deductible, whichever is greater.

Article 50 authorises the Board to appoint independent managers of the company’s business.

Rules 22 and 23 are as follows:

RULE 22: POWERS OF THE BOARD RELATING TO RECOVERIES FROM THE MUTUAL

Consideration of Claims 22(1)

The Board shall consider claims which may be paid by the Mutual in accordance with these Rules, but the Board shall have power from time to time to authorise the Managers to effect and determine payment of claims without prior reference to the Board. Without the prior agreement of the Board, no Member Director of the Mutual shall sit on the Board while it is engaged in the consideration or settlement of any claim in which the Participating Members of that Member Director us interested.

Claims 22(2)(A)

The Board will grant from the funds of the Mutual to any Participating Member or former Participating Member an indemnity wholly or in part with regard to any of the matters set out in these Rules and that Participating Member’s or former Participating Member’s schedule of Insurance. The Board will determine the extent or limit of any such indemnity at any time and advise the Participating Member or former Participating Member in writing in respect thereto.

22(2)(B)

Without prejudice to any other provisions of these Rules the Board may reject a claim, or reduce the sum payable by the Mutual in respect thereof if:

a)

In the opinion of the Board the Participating Member making the claim has not taken such steps before, at the time of, or after the Participating Member had the knowledge of the circumstances giving rise to the claim, to protect the Participating Member’s interests as the Participating Member should have done or as the Participating Member would have done if the Participating Member had not been a Participating Member of the Mutual;

b)

The claim shall have been settled, or any liability shall have been admitted, by or on behalf of the Participating Member without the prior consent in writing of the Mutual;

c)

The Participating Member failed to comply with a recommendation or directive made at any time by the Mutual or the Managers to the Participating Member, in connection with the handling or settlements of the claim or potential claim, or

d)

The Participating Member shall have failed to comply with any of the Participating Member’s obligations in the Schedule of Insurance or Policy Wording referred to in Rule 20.

Interest 22(3)

In no case shall a Participating Member be entitled to claim interest on any claim against the Mutual.

RULE 23: CESSATION OF INDEMNITY

A Participating Member shall cease to be considered for indemnification by the Mutual if:

a)

Having failed to pay when due and demanded by the Mutual any sum due from him to the Mutual, the Participating Member to pay such sum and the Participating Member fails to pay such sum in full on, or before the date specified in such a final notice; or

b)

The Period of Indemnity shall have ceased in accordance with Rule 10 (Period of Indemnity); or;

c)

The Participating Member has been dissolved.

The Members of LAML have, I assume, no experience of managing an insurance company, and it was for that reason that the management of the company’s business was contracted to CTC. I was informed that the decision to do so was made by the Members and Board of LAML. The initial management agreement was dated 27 March 2007, and was for a period of 9 months. It is generally unremarkable: it places the management of the insurance business of LAML in the hands of CTC, who are “subject to any directions or instructions of the Board and to the terms of this Agreement, (to) promote, manage and protect LAML and its affairs and operations”. The agreement included in clause 9.2 an undertaking on the part of LAML to initiate the procurement of the management services in accordance with the Procurement Regulations 2006 for a period of 3 years from the termination or expiry of the agreement. The initial agreement has been replaced by an agreement, concluded (as I was informed by Mr Goudie on instructions) in compliance with the Procurement Regulations, in a form that is materially identical save for the omission of clause 9.2 of the initial agreement, for a term of 3 years from 1 January 2008. Under both agreements CTC are remunerated by a flat fee. RMP rely on clause 7.2 of both agreements, which requires LAML to ratify contracts and commitments entered into or made by the Managers in the lawful performance of the management services, and to indemnify the Managers against claims and liabilities. These are normal provisions of such a management agreement.

The policy wordings are in a normal commercial form, such as one would find issued by a commercial insurer to a commercial insured. I suspect that they are in standard CTC forms, or adaptations of them, but that seems to me to be immaterial: I assume that the terms of the policies were included because they may be enforced. The liability insurance wording includes provisions prohibiting any settlement, admission or repudiation of liability by the insured without the written consent of LAML, an express avoidance for misrepresentation clause, and a forfeiture for fraud clause. The policy may be cancelled by LAML for non-payment of premium or, by giving 30 days’ notice, for any other reason. During the period of insurance LAML may alter, revise or impose any additional terms or conditions to the cover, by giving 90 days’ notice to the insured, provided the resultant cover is no less than the market agreed position expressed by the Association of British Insurers. The insured undertakes to offer annually the insurance under the Policy to LAML until the expiry of the specified Long Term Agreement on 31 March 2010, but LAML is under no obligation to accept that offer. Lastly, clause 11 is an arbitration clause confined to differences as to the amount to be paid under the policy, liability otherwise admitted.

In considering whether the first condition of the Teckal exemption is satisfied, I do not take into account the regulatory requirements imposed on LAML. These would apply even to a truly in-house insurer that was not separately incorporated. I take into account that the Members of LAML may give directions to the Board, which may in turn give directions to the Managers. However, one would not expect the Members in general meeting to use this power regularly; and one would not expect the Board to intervene in the general administration of the business. The general picture given by the documents to which I have referred is of a business the administration of which is relatively independent. Just as in Stadt Halle the fact that there was private participation in the ownership of the contractor was inconsistent with the Teckal exemption, and in Carbotermo the fact that the public authority’s interest was held through a holding company was an indication that the Teckal exemption did not apply, so in my judgment the employment of a private company to manage LAML points against it. Moreover, and perhaps more importantly, there are contractual provisions that point to a degree of independence of decision that is inconsistent with the first condition. I refer in particular to Article 11 of the Articles of Association, and to Rule 22(1), under which a Participating Member will normally be excluded from the Board’s consideration of its insurance claim. Similarly, the terms of the policies referred to in paragraph 77, are typical of a policy issued by a wholly independent insurer to its insured. They envisage a relationship (including disputes) between Brent and LAML that is inconsistent with Teckal.

For these reasons, Brent has not satisfied me that the first Teckal condition was or is satisfied. It is therefore unnecessary for me to consider whether the second condition is satisfied.

Regulation 47, in Part 9 of the Regulations is, so far as material, as follows:

47 Enforcement of obligations

(1)

The obligation on

(a)

a contracting authority to comply with the provisions of these Regulations, other than regulations 14(2), 30(9), 32(14), 40 and 41(1), and with any enforceable Community obligation in respect of a public contract, framework agreement or design contest (other than one excluded from the application of these Regulations by regulation 6, 8 or 33); and

(b)

…

is a duty owed to an economic operator.

….

(6)

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

(7)

Proceedings under this regulation must not be brought unless--

(a)

the economic operator bringing the proceedings has informed the contracting authority or concessionaire, as the case may be, of the breach or apprehended breach of the duty owed to it in accordance with paragraph (1) or (2) by that contracting authority or concessionaire and of its intention to bring proceedings under this regulation in respect of it; and

(b)

those proceedings are brought promptly and in any event within 3 months from the date when grounds for the bringing of the proceedings first arose unless the Court considers that there is good reason for extending the period within which proceedings may be brought.

(8)

Subject to paragraph (9), but otherwise without prejudice to any other powers of the Court, in proceedings brought under this regulation the Court may--

(a)

by interim order suspend the procedure leading to the award of the contract or the procedure leading to the determination of a design contest in relation to the award of which the breach of the duty owed in accordance with paragraph (1) or (2) is alleged, or suspend the implementation of any decision or action taken by the contracting authority or concessionaire, as the case may be, in the course of following such a procedure; and

(b)

if satisfied that a decision or action taken by a contracting authority was in breach of the duty owed in accordance with paragraph (1) or (2)--

(i)

order the setting aside of that decision or action or order the contracting authority to amend any document;

(ii)

award damages to an economic operator which has suffered loss or damage as a consequence of the breach; or

(iii)

do both of those things.

(9)

In proceedings under this regulation the Court does not have power to order any remedy other than an award of damages in respect of a breach of the duty owed in accordance with paragraph (1) or (2) if the contract in relation to which the breach occurred has been entered into.

…

(11)

In this regulation--

…

"relevant time" means the date on which the contracting authority would have sent a contract notice in respect of the contract to the Official Journal if it had been required by these Regulations to do so.

RMP is an economic operator within the meaning of the Regulations; Brent is a contracting authority; I have held that it was required to comply with the provisions of the Regulations in relation to its award of insurance contracts to LAML; it is accepted that it did not award the contracts in the manner required by the Regulations; and it follows that it acted in breach of the duty to RMP imposed by Regulation 47(1)(a). That breach of duty was actionable by RMP if it risked suffering loss or damage or if it suffered loss or damage, by virtue of paragraph (6), provided it satisfied the requirements of paragraph (7).

The events relevant to the issue as to the application of regulation 47(7) were set out in my judgment under neutral citation number [2008] EWHC 692 (Admin). For convenience, I set them out below:

The requirement in regulation 47(7)(a) is not subject to any express time limit. Subparagraph (b) reproduces the material wording of Order 53, rule 4 of the former Rules of the Supreme Court, which provided:

(1)

An application for leave to apply for judicial review shall be made promptly and in any event within three months from the date when grounds for the application first arose unless the court considers that there is good reason for extending the period within which the application shall be made.

The first part of paragraph 7(b) reproduces the current wording of the familiar provisions of CPR Part 54.5. It is clear that that part is intended to apply to a claim under Regulation 47 the same principles as are applied by the Administrative Court under Part 54. The following wording “unless the Court considers that there is good reason for extending the period within which proceedings may be brought” is generally considered to express the basis for the exercise by the Court of its power under CPR Part 3.1(2)(a): see the note to CPR Part 54.5 in the 2008 White Book. In other words, the CPR was not considered to have changed the basis of the exercise by the Administrative Court of its jurisdiction to permit judicial review proceedings to continue notwithstanding a failure to comply with the applicable time limit. Given this identity of wording, it is quite clear, in my judgment, that the Regulations confer on the Court the power to extend time on the same basis and applying the same principles as are applied under CPR Part 54.5.

Brent submits that a breach of the Regulations was apprehended from 7 November 2006, when Brent informed RMP that it was committed to going into LAML. At that date, RMP risked suffering loss. There were therefore grounds for bringing proceedings under Regulation 47 for an order restraining Brent from breaching the Regulations by awarding an insurance contract to LAML. Time therefore began to run for the purposes of Regulation 47(7), and RMP failed to bring proceedings promptly or within 3 months thereafter.

RMP contends that time did not begin to run until there was an actual breach of the Regulations, and that that did not occur until the insurance contracts were actually awarded to LAML, or when it abandoned the tender process.

There is an ambiguity in regulation 47(7)(b). Paragraph (7)(a) envisages that proceedings may be taken against a contracting authority when a breach of the duty owed to an economic operator who risks suffering loss or damage is apprehended, or when the breach has occurred and caused loss or damage to the economic operator. In a case such as the present, when the facts giving rise to a possible breach of the regulations were known to the economic operator before the breach occurred (i.e., from 7 November 2006) and the proceedings are begun after the breach, the question then arises whether “grounds of the bringing of the proceedings” first arose when the breach was apprehended, or when the breach which forms the subject of the claim occurred.

The issue of delay on the part of a claimant economic operator was considered by the Court of Appeal in Jobsin Co UK Plc v Department Of Health [2001] EWCA Civ 1241. Brent relies on the judgment of the Court of Appeal as binding authority for the proposition that time runs under the Regulations from the time that a breach is apprehended by the claimant. The case concerned the predecessor Regulations to the present Regulations, but there was no material difference in the provisions relating to the commencement of proceedings. The actual breach in that case was a defect in the tender documents, which had been issued on 14 August 2000. The claimant had submitted its tender on 3 October 2000, and was informed that it was not to be included in the final shortlist on 17 November 2000. Its proceedings were commenced on 5 March 2001. The Court of Appeal held that the claimant’s cause of action was complete on or about 14 August, when the authority issued defective tender documents, and from which date the claimant risked suffering damage. Dyson LJ, with whom the other members of the Court of Appeal agreed, said:

27.

Mr Lewis submits that neither the loss nor the risk of loss was caused by the breach of regulation 21(3) until Jobsin was excluded from the tender process on 17th November. I reject that submission for the following reasons. First, it gives no meaning to the words “risks of suffering loss or damage” in regulation 32(2). It seems to me that those words are of crucial significance. They make it clear that it is sufficient to found a claim for breach of the regulations that there has been a breach and that the service provider may suffer damage as a result of the breach. It is implicit in this that the right of action may and usually will arise before the tender process has been completed.

28.

That brings me to the second reason. It would be strange if a complaint could not be brought until the process has been completed. It may be too late to challenge the process by then. A contract may have been concluded with the successful bidder. Even if that has not occurred, the longer the delay, the greater the cost of re-running the process and the greater the overall cost. There is every good reason why Parliament should have intended that challenges to the lawfulness of the process should be made as soon as possible. They can be made as soon as there has occurred a breach which may cause one of the bidders to suffer loss. There was no good reason for postponing the earliest date when proceedings can begin beyond that date. Mr. Lewis suggests that there is such a reason. He points out that if, in a case such as this, the limitation period runs from the date of publication of the tender documents, it will be possible for the contracting authority to rule out any real possibility of a challenge by issuing an invitation in breach of the regulations and then not taking any further steps in relation to tenders until after the three months period has expired. I confess that I find this an unlikely state of affairs, but I can see that it might conceivably happen. If it did, a service provider who wished to bring proceedings might have a good case for an extension of time: it would all depend on the facts. In my view, this cannot affect the plain meaning of regulation 32(2). I would therefore hold that the right of action which Jobsin asserts in the present case first arose on or about 14th August 2000. The essential complaint which lies at the heart of the proceedings is that there was a breach of regulation 21(3), in that the Briefing Document did not identify the criteria by which the DOH would assess the most economically advantageous bid.

I have italicised the penultimate sentence of paragraph 27 of the judgment because it makes it clear that Jobsin is not authority for the proposition that in a case in which the claimant seeks damages for an actual breach of the Regulations, the grounds for bringing the proceedings arise before a breach has occurred.

Jobsin was decided before the decision of the House of Lords in R (Burkett) v London Borough of Hammersmith and Fulham [2002] UKHL 23, [2003] 1 WLR 1593, in which it considered the application of RSC Order 53, r 4(1) to a claim that a grant of planning permission had been unlawful. The courts below had held that time began to run for the purposes of an application for judicial review when the local authority had resolved to grant the planning permission in question. The House of Lords held that time did not run, or more specifically the grounds for the application first arose, when the planning permission was granted, and not before. Lord Steyn, who gave the most substantial judgment, with which the other members of the appellate committee agreed, said:

39.

As a matter of language it is possible to say in respect of a challenge to an alleged unlawful aspect of the grant of planning permission that ‘grounds for the application first arose’ when the decision was made. The ground for challenging the resolution is that it is a decision to do an unlawful act in the future; the ground for challenging the actual grant is that an unlawful act has taken place. And the fact that the element of unlawfulness was already foreseeable at earlier stages in the planning process does not detract from this natural and obvious meaning. The context supports this interpretation. Until the actual grant of planning permission the resolution has no legal effect. It is unlawful for the developer to commence any works in reliance on the resolution. And a developer expends money on the project before planning permission is granted at his own risk. The resolution may come to nothing because of a change of circumstances. It may fall to the ground because of conditions which are not fulfilled. It may lapse because negotiations for the conclusion of a s 106 agreement break down. After the resolution is adopted the local authority may come under a duty to reconsider its decision if flaws are brought to its attention (see R v West Oxfordshire DC, ex p CH Pearce Homes Ltd (1986) 26 RVR 156). Moreover, it is not in doubt that a local authority may in its discretion revoke an outline resolution. In the search for the best contextual interpretation these factors tend to suggest that the date of the resolution does not trigger the three-month time limit in respect of a challenge to the actual grant of planning permission.

Translating these references from the planning context to the present context, in a case in which there is a claim that there has been an actual breach of the Regulations, the grounds for the bringing of proceedings arise when the first breach takes place. Jobsin is authority that those grounds arise even if at that date the claimant has not suffered loss, but only risks suffering loss. The context of Burkett differs from the present. In particular, the liability of a contracting authority for damages under the Regulations is a reason to require a claimant to bring proceedings as soon as a breach is apprehended, and in this connection I refer to paragraphs 33 and 38 of Dyson LJ’s judgment in Jobsin. However, given the identity of wording between regulation 47(7) and the former RSC Order 53, r 4(1) and the present CPR Part 54.5, that difference does not justify a departure from the principles laid down in Burkett. If Parliament or the draftsman of the Regulations had intended a different result from that applicable in judicial review proceedings, a different form of words would have been used. In my judgment, therefore, for the purposes of the Regulations in the present case “grounds of the bringing of the proceedings” first arose when the breach which forms the subject of the claim occurred. It would have been different if the claim were for an injunction to restrain a breach of the Regulations; but it is not.

It is therefore necessary to determine when the breach of the Regulations first occurred. It seems to me it was when Brent abandoned the tender process and awarded the contracts to LAML. That occurred in March 2007. Until then, it could have lawfully awarded the insurance contracts to a company participating in the tender process. It is not contended that on that basis RMP failed to satisfy the requirements of regulation 47(7).

It follows that RMP is entitled to damages for Brent’s breaches of the Regulations.