The Court of Appeal gives an important ruling on the scope of service concessions and implied contracts in procurement cases.

17 Jan 2012

In JBW Ltd v Ministry of Justice [2012] EWCA Civ 8 (16 January 2011) 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 vast majority of bailiffs’ work under the tendered contracts consists of the execution of warrants of distress issued by Magistrates for non-payment of fines. A bailiff enforcing a warrant issued by a Magistrates Court is entitled to levy distress against a fine defaulter by taking money or goods which are sold to generate funds to pay the fine.  The bailiff has a statutory right to retain out of the money thereby generated “the proper costs and charges of the execution of the warrant”.  In the case of distress warrants, monies received from defaulters are applied first to pay the court penalty, and then to pay the bailiff’s fees. The bailiff’s fees could be set by the bailiff on a case-by-case basis, leaving defaulters to verify for themselves that the fees are reasonable in the circumstances.  Tenderers were required to specify on a Schedule in the Invitation to Tender (ITT) the fees which they would charge.  Tenders were given marks according to whether the fee structure proposed was 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 defaulters which will vary from time to time.  And work could be allocated to a reserve contractor in the event that performance targets were not met.

JBW was an unsuccessful tenderer. It issued proceedings complaining of, amongst other things, a breach of the Regulations, alternatively, breach of an implied contract created by the ITT read with JBW’s tender in response to it, containing obligations of transparency and equality of treatment as under the Regulations.  JBW did not allege breach of EU Treaty rules as there was no cross-border interest in the contracts.

The Ministry applied for summary judgment on, alternatively strike-out of, the Claim 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.  Because of the importance of the case the appeal from the Master it went directly to the Court of Appeal.

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)). The Ministry relied on recent ECJ decisions in Case C-206/08 Wasser and Case C-274/09 Stadler to say 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.

Although the Court of Appeal considered that the contracts at issue was not “a paradigm case of a concession” where 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 this was a service concession. Its reasoning was that i) there was some transfer of risk from Ministry to the bailiffs in the running of the bailiff service, ii) there was no direct payment by Ministry to the bailiffs for the performance of the service and iii) a service was provided to third parties, and iv) it did not matter that those third parties were unwilling recipients of the services.

The Court also rejected the argument of JBW that there could be an implied contract incorporating the terms akin to the duties found in the Regulations. Such terms were not necessary to give efficacy to the contract; 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 the Ministry had an express power to depart from the terms of the tendering document 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 consider tenders submitted as required by the invitation to tender, and also to consider them in good faith, as per the Court of Appeal’s decision in Blackpool Aero Club v Fylde BC.

This is an important case. It is the first time that the Court of Appeal has ruled on service concessions. The Court also made clear that a disappointed tenderer cannot rely on an implied contract to bring EU procurement obligations when the tender falls outside the scope of the EU rules.

Christopher Vajda QC acted for the Ministry of Justice.  Click to read the judgment inJBW Group Limited v Ministry Of Justice