The Valencia Case

The CJEU judgement in European Commission v Kingdom of Spain (C-306/08) delivered on 26 May 2011 had been eagerly awaited by a beleaguered UK public sector, anxious for some further clarity in matters concerning land transactions and their relationship with public procurement.

The role of the public sector dealing with planning and land transactions that also involve construction and urban development or regeneration projects has been in turmoil since the 2007 ECJ decision in the case of Commune de Roanne v Jean Auroux.

It was mostly anticipated that the decision of the Court in the Valencia case (as it became known), would follow the 2010 opinion of Advocate General Jaaskinen and that this would further push back the restrictive approach to land transactions that had been adopted following the infamous Roanne judgement. Some clarity and breathing space had already been made by the welcome decision in the Helmut Muller case in 2010 and it was hoped that the Valencia decision would provide further guidance for a troubled public sector.

The case arose following a decision by the European Commission to refer the case to the CJEU because the Commission took the view that the Valencian local authority had breached European directives on procurement by selecting a land developer without proper competition.

Whilst the CJEU did reach the same conclusion as the A-G in that the Commission's case was dismissed, it stopped short of adopting the A-G's opinion in full and it has to be said the decision is, ultimately, something of an anticlimax. Nonetheless, there are positive signs.

The Court opened by noting that the Commission's complaints concerned only the procedure for approving "Integrated Action Programmes". This is an administrative exercise peculiar to that region of Spain so it was always questionable therefore, to what extent this judgement was going to be useful for the wider public procurement audience. Under local Valencian development law, the autonomous local authority have power to approve development plans and where such plans involve two or more parcels of land this takes place by way of Integrated Action Programmes (IAPs).

The Court concluded that the Commission had not presented sufficient evidence to show that the main object of the contract between the local authority and the urban developer that had been selected was a "public works contract", which was a condition precedent to a finding that there had been a failure to fulfil obligations under the relevant Directives. On that basis, the action by the Commission was dismissed.

By contrast, in his opinion given in September 2010, A-G Jaaskinen went much further. A-G Jaaskinen looked at two important aspects in particular. Was there "a pecuniary interest"? His analysis concluded that "pecuniary interest" was not restricted to just money but there must be an economic detriment to the local authority (as per the La Scala decision). Here, there was none.

Turning to the question of whether there was sufficient nexus with the concept of a "public works contract" A-G Jaaskinen took the opportunity to compare the "functional interpretations" of directives first proposed by the Commission (but resisted by the ECJ) in the Helmut Muller case and the "activities reserved for local authorities in the field of planning and construction law". In doing so, he took the opportunity to set out some none too thinly veiled advice for the Court to consider.

A-G Jaaskinen suggested that; "the Court should exercise a certain restraint if a broad interpretation of an EU law concept seems to lead, in practice, to an instrument of national law loosing its raison d'être or a detailed EU legislative act becoming applicable to phenomena that have not been considered by the EU legislature during the legislative process.(75). He went on to suggest that the Court should be careful not to overstretch the meaning of certain criteria within the public procurement directives.

It may be thought that the Advocate General stepped beyond his remit or that the Court failed to take an opportunity to further clarify what remains a confusing and unsatisfactory state of affairs but it is not all doom and gloom.

We still have a very persuasive opinion from the Advocate General. Plus, the judgement can be seen as further confirmation that merely exercising a purely statutory function such as agreeing planning consent will not trigger the procurement regime. Additionally, it seems fairly certain that the requirement for a "pecuniary interest" will not simply be translated as an actual payment of money but equally that it should involve the local authority suffering some economic detriment.

It could also, arguably, be said that the Court gave a tacit nod of approval to the opinion of A-G Jaaskinen when they noted in their judgement at paragraph 96;" In fact, the execution of the IAP by the developer includes, ...activities which cannot be classified as 'works', within the meaning of the directives.. namely the preparation of the development plan, the proposal and management of the corresponding land consolidation project, obtaining for the administration free of charge plots for public ownership and for the community's public land bank, management of the legal conversion of the plots concerned or even the equitable division of the costs and profits between the parties concerned as well as the transactions for financing and guaranteeing the cost of the investments, works, installations and compensation necessary for the execution of the IAP. Such is also the case where the developer must organise the public competition for the appointment of the building-contractor to which the execution of the urban development works is to be entrusted".

Ultimately, the judgement can be seen as a (albeit tiny) step in the right direction.

Allan J. Donovan © 2011

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