What can we learn from five years of TCEA case law?

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Five years, that’s all we’ve got (so far).

In the five years since TCEA was implemented, there have been a few cases heard in the higher courts which have begun to provide authority defining and clarifying the new law.  What does this litigation tell us about the Act and its reforms?

Various points of practical and operational significance emerge:

  • notices of enforcement– it seems clear that there are some issues (possibly fundamental) with the pivotal stage of the whole process.  Upon correct service of the notice depends all subsequent lawful action, yet there are indications that notices are not being served at all or are being served at invalid addresses.  This in turn exposes the fact that there is no clear procedure in the Regulations- nor in the Civil Procedure Rules- to enable debtors to challenge the failed, delayed or even fraudulent service of a notice.  It needs to be possible to set aside notices or to suspend enforcement action when doubts are raised about the address used or about the ability of the agency to prove that the documents were dispatched (see for example Rooftops v Ash Interiors [2018] or Miller v CES Ltd [2017]);
  • rights of entry- the new law separates premises into two categories- those to which the agent has an automatic right of right (where a debtor lives or trades) and those premises that are connected in some way to the debtor, at which there is a suspicion that assets are present, but for which an entry warrant must be issued by a court.  There is clear evidence that agents are still acting as though all properties within England and Wales may freely be entered simply by dint of a warrant or writ of control being issued against the liable person.  This is entirely mistaken and it raises the uncomfortable possibility that a large proportion of takings into control that have been carried out may be invalidated by the absence of the necessary court orders.  Over and above the matter of the debtor’s ‘relevant’ and ‘specified’ premises, there is the complex question of the definition of a ‘highway.’  Goods may be taken into control on the highway, but once again it appears that some agents have only the haziest of conceptions as to how a ‘highway’ may be defined or identified.  Yet again, the concern must be that takings are occurring which are illegal because the roadways upon which they took place were private property and no warrant had been obtained from a court (see for example Rooftops v Ash Interiors [2018] and Midtown Acquisitions LP v Essar Global Fund Ltd [2017]);
  • taking into control- there are now four forms of taking control of goods, and the procedure is highly formal, in that the exact specifications of the 2013 Taking Control of Goods Regulations must be observed and fulfilled.  Case law once more suggests that at least some agents- put off by those very formalities and complexities- are trying to wing it with short-cut or informal means of taking control.  These may facilitate the quick and easy establishment of payment arrangements, but should those instalments not be maintained by the debtors, there would of course be no lawful security to back up the negotiated repayments.  Creditors may be being left exposed;
  • third party goods- although clear procedure are now laid down to be followed in the Act and in the Civil Procedure Rules, there is evidence of inconsistent observance of these (LGO decisions against Islington and Ealing).

Some issues continue to cause difficulties and uncertainties under the new law, just as much as under the former processes of distress and execution:

  • the confident definition and appropriate responses to vulnerability have been addressed in LGO decisions against Westminster and Peterborough;
  • the correct treatment of exempt goods and strict observance of the very longstanding law on ‘excessive takings‘ still leaves something to be desired;
  • some areas are still being refined as much under the new law as under the old- for example, what items may be exempted from taking as tools of the trade (Cowper v Albion Properties);
  • In certain areas, disputes continue as to the interpretation of the fee scales; and,
  • the associated law is still developing- for example, the recent string of LGO decisions to the effect that revocation of a PCN cancels all charges associated with the penalty- not just the court costs but the enforcement fees too (findings against Hackney, Bury, Harrow and TfL).

Now, what conclusions are to be drawn from these few cases? It’s evident that there are at least a few agents who don’t know the law as well as they should.  These individual bailiffs can be dealt with on a one by one basis: they may be dismissed by their employers and/ or referred to a county court, which might at least suspend a certificate whilst retraining is undertaken.

But that’s not all of it.  Our first point concerned enforcement notices- and these aren’t sent out by individual agents in the main (they should be, of course: agencies have no lawful power to issue them but- hey, that’s an argument for another day and we won’t digress).  Agencies seem to be as implicated by these judgments as the identifiable and named bailiffs are.  If there is, indeed, a practice of not bothering with notices- as at least one of these cases seems to imply- then we may have a serious structural and professional problem to address.  More evidence is required before a trend or practice can be confidently identified and we may just have seen a few unlucky instances where notices have gone astray in the post.  Even so, better record keeping that might prove they were posted (which would be sufficient in law) or even better modes of service, might be indicated as sensible precautionary steps in the industry.

With some of the other faults, there appears to have been at the very least a failure of corporate training and supervision of certain staff, if not the troubling impression of a deliberate policy of not bothering about some of the finer details so long as results are achieved.  Such express policies may very well not exist, but any  suspicion of them is damaging and retrograde.

These are highly tentative but worrying inferences and, although the picture suggested by the case law is as yet only an outline, the danger is that the conclusions drawn from the (admittedly limited) case law we have so far are that bailiffs have not reformed, despite the sector’s considerable efforts over the last decade or more to raise its professional status.  For these reasons it seems that greater support is given to my previous arguments in favour of a threefold policy for further development of enforcement law:

  1. further clarification and refinement of the statute;
  2. better training for agents;
  3. better regulation for the sector as a whole.

 

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Agents or concessionaries? the law since JBW & Newlyn

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For centuries it has been accepted that bailiffs acting for creditors were their agents.  Case law and statutory developments in the last decade have begun to challenge this.

In April 2016 the High Court ruled in the case of Newlyn plc v London Borough of Waltham Forest [2016] EWHC 771, striking an application  by Newlyn plc on the grounds  that the Public Contract Regulations 2015 (PCR) do not apply to the award of services concession contracts within the meaning of the Public Contracts Regulations 2006.  These regulations 2015 came into force on 26 February 2015 and normally apply to the procurement of public contracts by contracting authorities.

This case is important as it updates and confirms the law in this area and has important implications for enforcement agencies, creditors and debtors.

Facts

Newlyn Plc (the ‘contractor’) had provided enforcement agency and bailiff services to the London Borough of Waltham Forest (LBWF) in relation to council tax and non-business rates. This arrangement expired on 2 February 2016 and subsequently the council initiated a procurement exercise, with the aim of finding a new provider for such services. LBWF issued an invitation to tender and, unfortunately, Newlyn failed to win the new work. Feeling aggrieved, they commenced proceedings against the council challenging its decision on the basis that it failed to comply with the PCR 2015.

The High Court in its judgment considered two issues:

(1) was the PCR 2015 applicable to the parties’ relationship? and

(2) what are the consequences of that finding for the contractor?

Was the PCR 2015 applicable?

The sole claim made by Newlyn was that the council had failed to comply with the PCR 2015. The council rejected this and issued an application to strike out on the grounds that application of regulation 117(b) of the PCR 2015 meant that the PCR 2015 did not apply to the procurement of the contract because it was a “service concession contract” within the meaning of the PCR 2006. In order to resolve this, Mr Justice Coulson had to firstly examine whether a services concession contract existed.

A services concession contract is defined in the PCR 2006 as “a public service contract under which a consideration given by the contracting authority consists of or includes the right to exploit the service or services to be provided under the contract“.  What this means in practice was examined in the case of JBW Group Ltd v Ministry of Justice [2012] concerned contracts for the provision of bailiff services.

JBW Group Ltd v Ministry of Justice [2012] 

In JBW Group Ltd v Ministry of Justice [2012] EWCA Civ 8 the Court of Appeal held that the procurement of bailiff services by the Ministry of Justice was a ‘service concession’ and therefore fell outside the scope of the Public Contracts Regulations 2006 (the Regulations).

The facts of the JBW case

Those tendering for contracts to collect fines with Ministry of Justice were required to specify on a schedule in the invitation to tender documents the fees which they proposed to charge to debtors.  Tenders were given marks according to whether the fee structure proposed was felt to be efficient, effective, economic and fair to debtors. Contractors were not guaranteed any particular level of work and the numbers of warrants issued would depend upon the numbers of fine defaulters, a figure which varies over time.  The Ministry stipulated the levels of service that had to be achieved and laid down financial sanctions for non-performance.  There was an ‘operational protocol’ detailing how warrants would be enforced, plus specification of the detail that would have to be supplied if a warrant was to be returned un-enforced (such as the minimum number of visits that should be made to the premises).  Certain data had to be provided periodically to enable Ministry of Justice to monitor performance.  Finally, work could be allocated to a reserve contractor in the event that the performance targets were not met by the main contractor.

JBW Group was unsuccessful in its tender. The company alleged that Ministry of Justice officials had acted improperly, leaking information and providing assistance to a rival bidder in a manner which breached EU regulations on the making of public service contracts.  When the disagreement could not be resolved amicably with the Ministry, JBW issued court proceedings complaining of a breach of the Regulations and, alternatively, breach of an implied contract which had been created by the invitation to tender read in conjunction with JBW’s tender in response to it and which imposed obligations of transparency and equality of treatment as under the Regulations.  JBW did not allege any breach of EU Treaty rules as there was no cross-border interest in the contracts.

The Ministry applied for summary judgment on the claim (or alternatively its striking out) on the basis that the contracts were ‘service concessions’ which were excluded from the scope of the Regulations and that no contract could be implied as alleged by JBW. The Ministry was successful on both points before a High Court Master.  Because of the importance of the case the appeal from the Master went directly to the Court of Appeal, which gave a definitive judgment.

A services concession contract is a public services contract under which the consideration given by the contracting authority consists of, or includes, the right to exploit the service or services to be provided under the contract (reg. 2(1) of the 2006 Regulations).  The Ministry relied on several recent decisions in the European Court of Justice to argue that it was sufficient to satisfy the definition of services concession that payment to the contractor came from third parties- rather than the contracting authority- and that some risk was transferred from the contracting authority to the contractor, even if that risk was small having regard to the nature of the services to be provided.  (The relevant cases include Parking Brixen GmbH v Gemeinde Brixen und Stadtwerke Brixen AG [2005] ECR 1-08585, Wasser v Eurowasser Aufbereitungs [2009] ECR 1-08377 & Stadler v Zweckverband fur Rettungsdienst und Feuerwehralarmierung Passau, Case C-274/09.)

Although the Court of Appeal considered that the arrangement at issue was not “a paradigm case of a concession”- one in which the contractor is put in charge of a business opportunity which he could exploit by providing services to third parties and charging for them- the Court nonetheless held that the enforcement contract was a service concession. Its reasoning was as follows:

  • there was some transfer of risk from the Ministry to the bailiffs in the running of the bailiff service;
  • there was no direct payment by the Ministry to the bailiffs for the performance of the service;
  • a ‘service’ was provided to third parties in that they were subjected to a regulated and lawful system of debt enforcement; and,
  • lastly, it did not matter that those third parties were unwilling recipients of these services.

The Court also rejected the argument of JBW that there could be an implied contract incorporating terms akin to the duties found in the Regulations (that is, the duty to conduct negotiations in a fair, transparent and non-discriminatory manner). The reasons for this were that:

  • such terms were not necessary to give efficacy to the agreement;
  • there could have been no common intention to imply these obligations as the Ministry had always proceeded on the basis that the Regulations did not apply; and,
  • lastly the Ministry had an express power to depart from the terms of the tendering document, a fact which was inconsistent with implying the EU principle of transparency.

The Court held that the only ‘contract’ that could be implied was one limited to a duty to consider tenders submitted as required by the invitation to tender, and also to consider them in good faith (Blackpool Aero Club v Fylde BC [1990] 1 WLR 1195).

There are several importance aspects to this decision:

  1. It is the first time that the Court of Appeal has ruled on service concessions in England and Wales and it clarifies the nature and scope of such agreements in English law;
  2. It redefines the nature of the bailiff and creditor relationship and seems to displace the principal-agent relationship which has been accepted as governing the contract previously; and,
  3. It makes clear that a disappointed tenderer cannot rely on an implied contract to bring EU procurement obligations to bear on the tendering process even when the tender falls outside the scope of the EU rules.

What is a public service concession contract? 

 As article 1(4) of the EU Directive 2004/18/EC baldly states, a public service concession is “a contract [in which] consideration consists solely in the right to exploit the service or in this right together with payment.”  If this right of ‘exploitation’ is passed to a contractor (often termed a ‘concessionaire’ or concessionary), along with the risk of supplying the service involved (however great or small that risk may be) and provided that the contracting authority (that is, the local or central government department or agency) makes no direct payment for the service provided, a ‘concession’ is created.  In the narrow terms of the JBW judgment, this therefore exempted the Ministry of Justice from the 2006 Regulations and from the 2004 Directive governing the process of tendering and contracting.

A concession (rather than a contract) will be created even though:

  • the ‘market’ is limited- there will be a limited number of fine defaulters each year and there will be no scope to increase the market or to attract extra ‘customers;’
  • the ‘market’ is entirely composed of unwilling service users and no ‘contract’ is made between them and the bailiffs;
  • the fees paid by the recipients of the service may be fixed by statute or, as in the Ministry of Justice case, by the terms of the agreement, (or indeed by both) so that the degree of ‘exploitation’ of the reluctant debtors that may take place is limited;
  • the Ministry of Justice retained an interest in the service in the sense that it benefited from the successful enforcement of debts just as much as the bailiffs did; and,
  • other controls may be imposed on the contractor’s conduct.

The advantages to public authorities of entering into concessions rather than traditional public service contracts are:

  • all the risks and costs of the service are transferred to an outside agency.  The divesting of all these responsibilities onto a third party is the major attraction to concession agreements and give rise to savings which far offset any loss of control or even income.  The creditor may not recover the debt being enforced, of course, but the expenses of pursuing the defaulter lie with the bailiff- as does the risk that nothing at all may be recovered, or that only enough may be raised to cover the debt but not the fees;
  • a high and detailed degree of control may still be retained; and,
  • the Regulations and Directive do not apply to the tendering process, nor do the general principles of EU law.

Both the High Court and the Court of Appeal appreciated that the bailiff services tender was not a ‘classic’ concession agreement, and that to speak of debtors facing seizure of their goods as the “beneficiaries” of the bailiff’s service was, according to the High Court master, “an ugly use of language.”  Nonetheless, the weight of the factors was in favour of treating the arrangement as a concessionary one.

Implications of Court of Appeal judgment for Newlyn plc

Having considered the facts in both cases, Mr Justice Coulson could find no material distinction between the two.  Having determined that a services concession contract (within the meaning of the PCR 2006) existed between LBWF and Newlyn, the second question Mr Justice Coulson had to consider was whether that contract fell within the PCR 2015. Regulation 117(b) of the PCR 2015 states that:  “Nothing in these Regulations affects services concession contracts within the meaning of the 2006 Regulations“.

In light of Regulation 117(b) and JBW Group Ltd v Ministry of Justice [2012] Mr Justice Coulson concluded that the contract for enforcement agency services was a services concession contract within the meaning of the PCR 2006 and, accordingly, fell outside the PCR 2015.

What were the consequences of this finding for Newlyn?

Notwithstanding Mr Justice Coulson’s decision, Newlyn sought to challenge the court’s decision and requested permission to amend its claim form, so as to bring an application for judicial review on the basis that it had a legitimate expectation that the PCR 2015 would apply.

Mr Justice Coulson rejected this request on the basis of “procedural and substantive” grounds. Given that the contract fell outside the PCR 2015, allowing a judicial review would have no positive impact for the contractor, as “there would be no purpose in permitting the claim to continue in a new, but fatally flawed guise”. Coulson J. further observed that “in theory” permitting a judicial review is possible, but as a matter of law, such case would be doomed to fail from the start as it is “more fanciable than arguable”.

Conclusions- the implications for the enforcement sector

There are a number of consequences arising from these two judgments:

  • in pure Civil Procedure Rules terms, this case re-emphasises the fact that a court is unlikely to permit a Part 7 claim to be amended to become a claim for judicial review;
  • following from this, the procurement of contracts that fall outside of the scope of the PCR 2015 should be challenged by way of judicial review from the outset;
  • thirdly, the judgment clearly restates the position that contracts between enforcement agencies and creditors should now be viewed as ‘service concessions,’ with all the follows from that; and,

The judgment in JBW Group Ltd v Ministry of Justice, as confirmed by Newlyn v LBWF,  has a number of potentially far-reaching implications for the relationship between public sector creditors and the enforcement service providers whom they use- as well as for the detailed process of tendering for and entering into agreements.  The natural tendency is to fear that there will be less formality in tendering, that creditors will exercise less day to day control over the bailiff companies acting on their behalf and that there will be less stipulation made about levels and incidence of fees.  As will be explained, this is a genuine risk, but it need not be so.  There are cogent reasons why public bodies should wish to retain control and oversight of their enforcement procedures, but it will be readily evident that there are equally strong reasons why many officers will find the concession approach attractive- the primary one being, of course, the fact that for the creditor the cost implications are lower overall.

  • How are creditors affected? Creditors’ control over- and remedies against- enforcement agencies may be reduced by the judgment.  The essence of a concession is that responsibility and risk are transferred to the concessionaire.  This is clearly advantageous to the creditor entering into the arrangement but as this relationship no longer appears to be one which may be classified as being that of principal and agent, all the rights of and sanctions against the principal will be lost.  Amongst these (for example) is the loss of redress against the agent for abuse of the agency role: for example, by taking profits not contemplated in the agency agreement.  It may be necessary for each creditor authority to protect its position by enhancing the terms of the agreement made with the concessionaire to ensure that issues of quality control and fiduciary safeguards are covered.
  • How are debtors affected? Just as creditors lose the remedies against their agent, debtors lose remedies against the principal.
  • What about existing arrangements? The majority of public sector creditors will have entered into agreements with bailiff companies on the assumptions that the Public Contracts Regulations 2006 applied and that the longstanding relationship of principal and agent continued to operate.  The Court of Appeal judgment indicates that these assumptions need not have been made, but this does not of course detract from the contractual arrangements that have been entered into and which continue to apply at present.  Creditors may wish to reappraise their position in future in light of the judgment, but their present arrangements are no less lawful and valid for that.
  • No contradiction between control and concession- The Court of Appeal remarked upon the high degree of control retained by Ministry of Justice over the performance of the contract. Creditors may therefore impose controls, specify detailed criteria for the conduct of bailiffs and insist on feedback on a regular basis without making a concession into a contract.
  • A contract document can exist without there being a contract- The tender documents and specifications supplied during the tender process were extensive and detailed. Even so, such a written agreement would not make the relationship contractual provided that the key elements of a concession applied- the right to ‘exploit’ (i.e. to receive fees) plus the acceptance of risk.
  • How does the Act effect service concessions? It is arguable that the Act may reinforce the status of bailiffs as concessionaries rather than as agents.  This is because it provides regulation of enforcement powers independently of the debts being collected.  Rather than granting powers to creditors, who may in turn choose to devolve those to their contracted bailiffs, the 2007 Act is largely concerned with the rights and duties of the bailiff alone (even though reference is made throughout to ‘enforcement agent’.)  This change of emphasis is particularly to be noticed in respect of fees- no longer is the fee the creditor’s, which the bailiff is allowed to collect; the Act is concerned with the remuneration of enforcement agents as such.

Lastly, public bodies should also note that the Concessions Contracts Regulations 2016 are now in force and apply to the procurement of service concession contracts (as defined in the Regulations) with a value of over £4,104,394.  A final observation is to note that the cases derived from EU law- and the relevant law may therefore change over the next couple of years.