Scottish Court of Session Decisions

In these proceedings the petitioners seek reduction of a decision of the first respondents on 27 March 1997 to recommend to the second respondents that a site extending to 1.9 hectares and lying to the east of the existing development at St.

Enoch's Square, Glasgow should be sold to a consortium of the Miller Group Limited and M.E.P.C. U.K. Limited ("Millers"); and the subsequent decision of the board of the second respondents on 5 June 1997 to accept that recommendation and to proceed with a sale to Millers. The interest of the petitioners in this matter is that they were the makers of an unsuccessful offer to acquire the site. The second respondents are a body established under section 1(a) of the Enterprise and New Towns (Scotland) Act 1990. Under section 19(1) of the Act the second respondents have power to arrange for the discharge of their functions by another person. In pursuance of that power they delegated to the first respondents the responsibility for marketing the site. Under section 8(1)(g) of the Act the second respondents had power of sale of land, subject to the proviso that except with the consent of the Secretary of State for Scotland they should not dispose of land "for a consideration less than the best that reasonably can be obtained".

In order to place the matters in issue in their context it is necessary for us to set out in some detail the history of events which led up to the decisions.

On 6 December 1996 chartered surveyors, on instructions of the first respondents, issued an invitation to tender and set out information about the site and the terms on which it was offered for sale. Under the heading of "Sale Terms" it was stated that, in addition to price, any offer must contain a number of elements, and that suspensive conditions in regard to certain matters including planning in principle were acceptable. It was also stated that formal offers must be returned by 12 noon on 24 January 1997 and that the first respondents reserved the right not to accept the highest offer or any offer. In response to that invitation offers were received from seven parties including the petitioners and Millers. On 30 January 1997 the chartered surveyors wrote to the offerors setting out "a proposed programme in respect of the decision-making process to select a preferred developer". The proposed programme included technical appraisal by a team of technical advisers, the selection by an independent review panel of a short-list of three developers, presentations to the review team by those developers, submission to the first respondents' management executive, approval by the board of the first respondents, followed by a submission to the second respondents for their approval.

By letter dated 10 February 1997 the chartered surveyors reported to the first respondents as to the outcome of the technical appraisal. This included an analysis of the offers and a calculation of the net present value ("NPV") in respect of each of the offers. An NPV calculation is intended to show the likely profitability of the development by ascertaining the present value of the return and the costs and expenses likely to be incurred in achieving that return. At that stage the cash price offered by the petitioners amounted to £14,150,000 and by Millers £12,550,000.

The review panel met on 13 February 1997, The briefing paper which was prepared for them stated that the purpose of the review panel was to review the submissions received and to select a preferred developer for recommendation to the board of the first respondents. It was proposed that the review process should have two stages. The first was to be on 13 February, which was to be "a review of the submissions resulting in a short-list of 3/4 developers who will be invited to present to the panel". The second was to be on 25 February when there was to be "a presentation by the short-listed developers followed by the selection of a preferred developer for recommendation to the board". According to the minute of the meeting of the review panel on 13 February, Mr. C.R. Aitken of the second respondents pointed out that "whilst the quality of the scheme was obviously important to G.D.A. and to the panel, the Scottish Office guidelines state clearly that the best possible price must be obtained on disposal of the S.E. assets". The review panel considered the seven offers and short-listed three for further consideration, namely those of the petitioners, Millers and Gazeley Properties Ltd.

Thereafter on 19 February the chartered surveyors wrote to the petitioners and the other developers who had been short-listed, informing them of the fact that they had been placed on a short-list so that their proposals might be considered further. They were invited to make a formal presentation on the afternoon of 25 February. The letter also stated that the first respondents had asked that the short-listed developers should be notified of a number of matters which were of concern and which would require to be discussed in more detail during the course of the presentation. These included the overage provisions. The respondents had also instructed that they proposed to impose a number of conditions including a non-returnable deposit of £500,000 payable on conclusion of the missives, which would bear interest at the rate of 7% per annum compounded quarterly and would be treated as an allowable cost within the development agreement as an advance payment of the site price. On 25 February both the petitioners and Millers wrote to the chartered surveyors submitting amended offers. The petitioners offered, in addition to an increased cash price of £15,575,000, an additional sum of £500,000 as deposit payable on conclusion of the missives and attracting interest at the rate of 7% for the purposes of the financial appraisal. They also offered overage equal to 50% of any profit in excess of 121/2% return on the total development cost. For their part Millers offered a cash price of £15,035,000, together with overage amounting to 50% of the profit in excess of 121/2% of the total development cost. The NPV in respect of the two offers amounted to £15,603,568 and £20,463,542 respectively. These offers were taken into consideration by the review panel at their meeting on the same date. The manuscript note of the meeting records a number of points which were made during and after the presentations. The note ends with recording the panel's conclusion as follows: "To recommend the Miller/M.E.P.C. scheme without qualification. However Bill O'Hara to try to secure the £1 million lost to the Stannifer bid". By letters dated the following day the petitioners and the other short-listed developers were informed of this recommendation. It appears that on 28 February Mr. O'Hara, who was in the firm of chartered surveyors and was a member of the review panel, contacted Millers. The outcome of that contact was that Millers increased their overage to £1.5 million of profit in excess of 12.5% of the development cost, together with 50% of the remaining excess profit.

The first respondents' board sat on 27 March 1997. According to a briefing paper prepared for that meeting it was stated, under the head of "Allocation of Risk and Return" that in principle the profit participation of Millers was most valuable to the first respondents. Under the heading of "Urban Design" it was stated that the review panel had concluded that Millers' proposals were more cohesive and showed greater awareness of the urban design dimensions, and that the City Council's planning director (who was a member of the review panel) had indicated that in his opinion Millers' proposal would be the easiest to convert to obtain approval by the planning authority. It was also reported that the panel had concluded that Millers should be selected as the preferred developer for six reasons as follows:

It was also stated:

Thereafter it was reported that the district valuer expressed the view that the market had been adequately tested and that the best price was being obtained in the public interest. The recommendations in the briefing note were as follows:

The recommendation made by the first respondents on 27 March 1997 went first to the projects advisory group, and then to the board, of the second respondents for consideration at its meeting on 5 June 1997. It may be noted that prior to the latter meeting solicitors acting for the petitioners had written to the members of the board complaining of a failure to follow the selection procedure as set out in the invitation to tender, in respect that certain parties were asked to reconsider their submissions after the original sealed bids had been delivered. Thereafter one party alone had been given the opportunity to make further revisals to both the form and financial nature of their bid. According to the briefing note for the board meeting it was stated, inter alia:

In presenting their reclaiming motion against the interlocutor of the Lord Ordinary who had sustained the respondents' plea to the relevancy and dismissed the petition, the petitioners advanced two main lines of argument. The first was that the decisions were arrived at in breach of the terms of section 8(1)(g) of the 1990 Act. The second was that there had been a breach of a duty to act fairly towards them.

The argument which had been presented to the Lord Ordinary in regard to the breach of section 8(1)(g) had concentrated on the proposition that the "consideration" offered by Millers was less than that offered by the petitioners and accordingly the respondents had decided that the property should be sold for "a consideration less than the best that reasonably can be obtained". The petitioners' submission had been that price was the sole criterion and that to bring in other matters, such as design quality and deliverability, was to fail to apply the proper test. The Lord Ordinary rejected this argument upon the view that "consideration" could not be equated with the cash element in the offers made by the petitioners and Millers. In his view the expression "consideration" was plainly broad enough to include other financial returns to the seller, including the overage. Furthermore other considerations such as the acceptability of a proposal in planning terms had an important bearing on when the price offered was likely to be payable and inevitably influenced the judgment as to which offer afforded the best consideration. More generally a comparison of the offers inevitably involved a judgment on what the review panel referred to as "deliverability", which depended upon the viability of the proposal as measured by the NPV. The Lord Ordinary observed:

In advancing their submissions in the reclaiming motion the petitioners departed from the line of argument which relied on the components of each offer, and turned their attention to what happened at the meeting of the review panel on 25 February 1997. It will be recalled that their conclusion was recorded as recommending the Millers' scheme without qualification, adding that Mr. O'Hara was to try to secure "the £1 million lost to the Stannifer bid". Counsel drew attention to the comments which the members of the review panel had made following the presentation. Mr. A. McCrory of the Building Design Partnership observed that Millers had provided a far better architectural solution. Mr. M. Hayes, the Director of Planning of Glasgow City Council, stated he wanted to see a reduction in the amount of retail in the petitioners' scheme; and that Millers "is the scheme which is closest to where we want to be". Mr. McCrory expressed major reservations about the design and build scheme as proposed by the petitioners, as the architect was not necessarily responsible for the end product. Mr. Hayes said that Millers' scheme was more acceptable, and would be easier to sell to the Council than the petitioners' scheme. He said that he would have difficulty recommending the petitioners' proposal to the Council, and that he wanted it recorded, in the event that the petitioners were chosen as the preferred developers, that he recommended the proposal by Millers.

The petitioners' submissions were directed to the two parts into which the conclusion of the review panel can be divided, namely (i) to recommend the Millers' scheme; and (ii) that Mr. O'Hara should try to secure "the £1 million lost to the Stannifer bid".

As regards the first part, counsel for the petitioners accepted that if the review panel had recommended Millers' offer on the basis that it represented the best consideration which was reasonably obtainable, it would have been difficult for them to challenge what had been done. However, they could not have been wholly satisfied with Millers' offer, since, if they had been, it would have been unlikely that they would request Mr. O'Hara to approach Millers as they intended. It should not be assumed that Millers' offer provided the best consideration. Indeed the rejection of the petitioners' offer pointed to the opposite conclusion. Further, it did not appear that the review panel had taken the view that greater deliverability in the case of the Millers' offer outweighed the fact that the petitioners had offered a higher cash price. Rather, the view was that in the case of the petitioners there was a perception of a difficulty about obtaining planning permission and a lower NPV had been calculated. Neither factor constituted an overriding reason for preferring Millers' offer. On no view were the review panel in a position to say that Millers presented the best consideration reasonably obtainable. For the review panel to recommend the acceptance of an offer for reasons other than the best consideration led to the requirement to obtain the Secretary of State's consent, which had not been done.

As regards the second part of the panel's conclusion counsel argued that the principal effect of the statutory provision was procedural in the sense that the authority which was selling the property required to make a judgment as to whether or not the proposed consideration was the best which was reasonably obtainable. If it was not, the authority required to seek the Secretary of State's consent. This implied the need for a procedure by which the body could answer that question. It was accepted that whether or not there was a breach of the prohibition contained in section 8(1)(g) depended on the end result. However, it was impossible to prove by direct means that a particular consideration was not the best which was reasonably obtainable. This was a matter of inference. While it was accepted that it was not always wrong to exclude certain offerors, for example in proceeding to a short-list, and while the statutory provision did not rule out any particular procedure, it was a different matter when the procedure which was adopted omitted something which might have yielded a better consideration. The petitioners might have increased their offer, although it was impossible to say what that offer would have been. It could not be assumed that the statute had been complied with. The panel had shown a fundamental lack of understanding of how the market should be used in order to obtain the best consideration. This involved competition and not the reverse of that. Yet Mr. O'Hara had been required to approach Millers after Millers had been told that they were the preferred offerors. This was at a time when the Lord Ordinary had held that the bidding process was as yet not complete. It followed that Millers' offer should not be regarded as containing the best consideration which was reasonably obtainable.

The petitioners' attack on the decisions taken by the first and second respondents evidently proceeds on the basis that it follows from the terms of section 8(1)(g) of the 1990 Act that it was unlawful for the first respondents to recommend, and for the second respondents to accept, the ultimate offer made by Millers without the consent of the Secretary of State. However, as counsel for the respondents pointed out, the sale of the property to Millers would not involve a breach of the subsection unless the consideration offered by Millers was in fact "less than the best that reasonably can be obtained". The petitioners do not offer to prove what better offer might reasonably have been obtained, and they no longer argue that it is self-evident that the consideration offered by them was better than that offered by Millers because the cash price offered by them was higher. The submission by the petitioners in support of their reclaiming motion - which are not foreshadowed in their averments - is that the recommendations of the review panel which the respondents accepted were vitiated by their reliance on matters which were not relevant to the best consideration and by their including the recommendation that one of the offerors, but not the others, should be invited to increase their offer.

Although at one stage counsel for the petitioners appeared to suggest the contrary, it is clear that the review panel came to a definite decision on 25 February 1997, thereby discharging what had been required of them. They were not thereafter involved in making any further recommendations. We are not persuaded that their recommendation in favour of Millers was based on reasons which were irrelevant, so far as concerns section 8(1)(g). As counsel for the respondents pointed out, there was a concern as to whether the proposals of each of the developers are deliverable. This depended on a number of factors including the resources and experience of the developer, the commercial return to each of them as measured by NPV and the prospects of obtaining planning approval in each case. Thus, for example, if there were a major planning impediment facing a particular proposal, this would affect its deliverability. We accept that matters such as these were relevant to the consideration offered in each case. According to the briefing note for the first respondents' meeting on 27 March 1997 the petitioners' offer did not match Millers' offer in two respects, namely in the amount of the NPV and in respect of the design solution and development strategy. The first was directly related to the deliverability of the proposal. It is reasonably clear that there was a connection between the second and the prospects of obtaining approval from the planning authority. Each of these factors had, in our view, a bearing on the value of the consideration offered by Millers. In these circumstances we are not persuaded that the recommendation went to Millers because of a factor which was of no relevance to the consideration offered by them. The fact that Millers were approached with a view to increasing what they offered does not demonstrate that the respondents' decisions were in favour of a consideration which was less than the best which was reasonably obtainable. The approach to Millers followed on a decision to recommend their offer. It does not follow that they did not offer the best consideration or that the review panel considered that they did not do so. When the decision to recommend was based, as it clearly was based, on the assessment of a number of factors, it is understandable that, while the overall preference was for Millers' offer the review panel might recommend that steps should be taken to increase the monetary element in the offer so far as was possible in the circumstances.

As regards the method which was adopted by the review panel we do not agree with the submission that the fact that they approached only one offeror leads to the inference that the best consideration was not obtained. We agree with the submission made on behalf of the respondents that the petitioners' argument relies merely on assumption that a better consideration would have been obtained by approaching the other offerors. The review panel required to reach a decision as to the preferred bidder. They decided that Millers' offer should be preferred, and recommended accordingly. In that state of matters any increase in the money which Millers were prepared to offer would serve only to increase the case for recommending them. It does not demonstrate that there was a failure to take reasonable steps to obtain the best consideration in the circumstances.

Accordingly we do not consider that the petitioners' case that the decisions of the respondents involved a breach of section 8(1)(g) is well-founded.

The second way in which the petitioners attacked the respondents' decisions was based on the submission by their counsel that the taking of these decisions had proceeded upon a failure to comply with a duty to act fairly as between Millers and the other offerors, in particular those on the short-list, namely the petitioners and Gazeley Properties Ltd.

The first basis for this submission was section 8(1)(g) of the 1990 Act. Counsel for the petitioners argued that the implication of that provision was that there had to be competitive bidding. There could not be competition without equality of treatment. Accordingly there was a duty to allow the petitioners to participate equally in the decision-making process until the decision was made that the respondents had obtained the best consideration which reasonably was available.

The petitioners sought to fortify this submission by arguing that they had a legitimate expectation that those who had made offers in the first instance would be enabled to participate until the final decision had been taken. However, we agree with the Lord Ordinary in thinking that in this context the importation of the concept of legitimate expectation is superfluous. In R. v. Devon County Council ex parte Baker [1995] 1 All ER 73 Simon Brown L.J. at page 89 adopted the following passage in the decision of Dawson J. in Attorney-General for New South Wales v. Quin (1990) 93 A.L.R. 1 at page 39:

The Lord Ordinary rejected the proposition that the respondents were, by reason of the proposal to exercise the statutory power of sale, under a duty to act fairly and, in our opinion, he was correct in that conclusion. No doubt there are cases in which it falls to a body exercising statutory powers to act fairly having regard to the interests of those affected by the exercise of those powers. An obvious example is when the body requires to reach a quasi-judicial decision as between such persons. Another may be where the exercise of the power would deprive persons of some existing right or benefit. An example of the latter situation may be found in R. v. Barnet London Borough Council ex parte Pardes House School Ltd. [1989] C.O.D. 512, which was concerned with consultation prior to the disposal of land held for educational purposes. There is, however, no general rule that a body seeking to exercise a statutory power is under a duty to act fairly, and accordingly that its exercise of that power is not valid unless it has done so. So far as concerns the power conferred by section 8(1)(g) of the 1990 Act, it was accepted that there was no legal restriction as to the manner in which a body could arrive at a decision as to the exercise of that power. In these circumstances we are unable to infer that it imposes a general duty to act fairly. As counsel for the respondents pointed out, the respondents were concerned with a proposed transaction in essentially the same way as any commercial body, and hence were subject to the same contractual and delictual responsibilities that might affect such a body.

The second way in which the petitioners sought to set up a duty to act fairly, and hence a breach of such a duty, lay in the proposition that they had a legitimate expectation of being enabled to participate equally in the decision-making process until the decision had been taken that the best consideration had been obtained. In this context they maintained that the present case was an example of the type of case which would fall within the fourth and final category mentioned by Simon Brown L.J. in R.. v. Devon County Council. He said at page 89:

Counsel for the petitioners maintained that intimated procedure gave rise to a reasonable expectation on their part that they would be given an equal opportunity with the other offerors.

We note that, according to the original statement of their position in article 7(c) of the petition, the petitioners asserted that the respondents had not given the tenderers equal treatment "in permitting other tenderers to increase their offer after the submission of sealed bids or after the date of the presentations". However, the fact of the matter is that the petitioners responded to the invitation to reconsider their original offer and made an increased offer for the review panel on 25 February 1997. It was not submitted on their behalf in the reclaiming motion that there had been any defeating of legitimate expectation by reason of the fact that this had occurred.

According to the terms of the original programme which was issued by the chartered surveyors on behalf of the first respondents by letter dated 30 January 1997, it was intimated that the review panel would determine a short list of three developers and receive a presentation by them. That took place. The programme plainly contemplated that the review panel would recommend a particular developer to the first respondents. The proposition that the petitioners had a legitimate expectation of being able to participate in the decision-making process until the respondents had decided which was the best offer ignores the fact that from the outset it had been intended that the review panel would arrive at a short list of developers from which one would be recommended. Once the decision to recommend a particular developer had been made, the fact that a unilateral approach was made to that developer with a view to increasing the money which they offered does not run counter to the procedure which had been announced from the beginning. The critical point is that it followed rather than preceded a decision to recommend that particular developer. For these reasons we do not consider that the petitioners' arguments in this respect are well-founded.

In these circumstances the reclaiming motion will be refused and we will adhere to the interlocutor of the Lord Ordinary.