Council fends off £43.5m claim for procurement breaches and deceit

Leeds City Council has successfully defeated a £43.5m High Court claim in which a property developer alleged procurement breaches and, initially, deceit when the local authority ended a competition to build an arena.

Cllr Keith Wakefield, Leader of Leeds, said the council would be pursuing the claimant, Montpellier Estates, for its £4m legal costs.

However, the chairman of Montpellier, Jan Fletcher, expressed surprise at the ruling and said the company would be considering grounds for an appeal.

The case centred on Leeds’ plan to choose a site and a developer for the proposed Leeds Arena and linked facilities. City One, a site owned by Montpellier, was one of four sites identified for the potential development.

Along with one other bidder (GMI, which was seeking to develop a council-owned site at Elland Road), Montpellier took part in the subsequent procurement.

Fletcher gave evidence during the hearing that, from early 2006, the company had repeatedly asked the authority about its intentions. She claimed to have received confirmation from the council that it did not intend to build the arena itself and that the process would be fair and transparent. The company ran up £1m in bid costs, it was said.

But Leeds subsequently cancelled the competition in November 2008 and chose to develop a separate site it owned at Claypit Lane.

In its legal action, Montpellier argued that the council had breached the Public Contracts Regulations 2006 and alleged that the authority’s assurances had also been fraudulent.

The company made a range of claims, including that the council:

• had been actively planning to build the arena itself from January 2008;
• had prepared a competing bid, outside the procurement process, and failed to tell the company that beating this bid was fundamental to success. This represented a breach of the requirements for fairness and transparency;
• had assessed the private sector proposals to favour its own development;
• had changed the weighting and scoring processes without telling the bidders, and made ‘manifest errors’ in that scoring process;
• should have disclosed in writing that its position had changed; and
• should have terminated the bidding process much earlier.

Montpellier argued that had it known the true position, it would have withdrawn from the competition.

The size of the claim reflected the company’s claim for the loss in value of the site or the lost opportunity to sell City One at a much greater price. The banking collapse in September 2008 had impacted on the site's value severely. Montpellier also sought additional costs, such as the wasted costs of taking part in the competition, financing costs and other losses.

But Leeds insisted that it considered proposals to build the arena at Clay Pit Lane as a public sector comparator “to test whether the private sector bids provided value for money and as a potential fall-back if not”.

It also said at the hearing that it had advised Montpellier in the summer of 2008 that it would seek to build the arena itself if value for money proposals were not forthcoming.

The claimant made allegations of fraud and dishonesty against eight individuals connected to the local authority, including Cllr Andrew Carter (its former leader), senior officers and consultants. However, these were withdrawn by the company’s counsel during the trial.

The case was heard over nine weeks in the autumn of 2012, and involved 18 witnesses from the council.

In a ruling issued today, Mr Justice Supperstone found in Leeds’ favour, saying that Montpellier were provided with proper reasons to abandon the competition. He also concluded that the council had acted in good faith and lawfully.

Mr Justice Supperstone concluded that Leeds was entitled to halt the competitive tendering exercise when bids were found not to be good value for money. He also ruled that Leeds’ evidence of how it assessed Montpellier’s proposals was "never seriously challenged".

The local authority’s chief executive, Tom Riordan, said the ruling represented “absolute vindication of the honesty and integrity of the council, its members, officers and professional consultants”.

He added: “Our processes have been held up to the most intense scrutiny possible over two months in the High Court. Our witnesses were subject to long hours of evidence-giving and rigorous cross-examination and many thousands of documents and statements were dissected in the finest detail.”

Riordan insisted that the decision to cancel the competition to develop the arena was, though difficult, the correct one.

He said: “This court case has proved beyond any doubt that the council has the highest standard of integrity and its operations are conducted openly, honestly and with robust, fully-accountable procedures. We are a principled public authority which has strong values of trust and transparency running through what we do.”

Cllr Wakefield added: “[The claim] has cost the people of Leeds dearly at a time of unprecedented enormous cuts to our budgets to have to defend this entirely unnecessary action. We will be pursuing the recovery of our legal costs of more than £4m on their behalf.

“This would always be the appropriate course of action when public money is involved but it would be particularly irresponsible not to on the eve of this year’s annual budget.”

Jan Fletcher said Montpellier was “very surprised” at the judgment, adding that it was considering whether there were grounds for appeal. She also criticised the council over its procurement skills.

The company’s lawyer, Walker Morris litigation partner Malcolm Simpson, agreed, insisting that the local authority had “left itself open to challenge.”

Montpellier also criticised the council for its approach to disclosure during the case.

However, Leeds claimed that as part of its disclosure requirements, it had to “forensically search seven terabytes of data across its entire computer network - equivalent to physically searching 14,000 filing cabinets - which identified some 200,000 potential documents for search, of which 40,000 had to be disclosed”.

Jon Hainey of law firm Cobbetts acted for Leeds, instructing Mark Cawson QC and David Mohyuddin of Exchange Chambers and Rhodri Williams QC of Henderson Chambers.