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.

 

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