Judgment in Montpellier Estates v Leeds City Council

Mr Justice Supperstone has delivered his ruling today (Wednesday 6 Feb) in the high court action taken by Montpellier Estates v Leeds City Council and ruled in favour of Leeds City Council.

Montpellier had claimed for damages and breach of contract under European procurement law for the £50m bidding exercise for the Leeds Arena and in respect of a claim in deceit.

Jan Fletcher OBE, Chairman of Montpellier Estates, said:  “Anyone who knew what went on in this Arena competition, will understand why we took this action against Leeds City Council.  We are very surprised at the Judgment and we are considering whether there are grounds for appeal.  I remain committed to and passionate about the city of Leeds and wish every success for the opening of the Leeds Arena later this year.” 

Malcolm Simpson, litigation partner at Walker Morris, solicitors to Montpellier Estates, said:  “This litigation and the recent West Coast rail procurement decision both unfortunately demonstrate the need for better procurement skills in the UK.  Leeds City Council left itself open to challenge.”

Montpellier’s vision was to have a ‘mini-O2 arena’ with streets of restaurants and bars competing with cities such as Manchester and Glasgow.  It would have brought regeneration to Holbeck with major economic impact and job creation.

Leeds City Council started a procurement process in August 2007, it shortlisted two sites in February 2008 and bids were submitted in September 2008.  Montpellier argued that by at least January 2008, the Council was already looking at alternatives to develop the Arena itself outside of the procurement process, despite giving assurances to Montpellier to the contrary. These assurances were the basis of Montpellier’s claim in deceit. 

Montpellier repeatedly raised very specific concerns about the procurement from early 2006 and then throughout the process.  It says that Council officers and their agents continued to reassure Montpellier that the procurement was genuine, fair and transparent and that the Council did not want to build the Arena itself.  Montpellier’s case is that the Council’s officers persuaded it to initially bid for the Arena and they knew that if the bidding developers became aware of the Council’s subsequent actions they would have withdrawn from the bidding process. This, in turn, would have meant the Council having to abort their Arena plans before their own back-up plans were viable.  As a consequence, only the Arena operators were advised of the Council’s intentions and they were instructed not to tell the developers.

The Council had attempted to build an Arena in Leeds for many years and Montpellier says this was a politically sensitive issue, particularly just before the May 2008 election.

Montpellier argued that before the Council could terminate the procurement, which it did not do until 5 November 2008, Leeds had to buy itself time to get ‘its ducks in a row’.  This included confidential negotiations to buy the Clay Pit Lane land from Leeds Metropolitan University – where the Arena has now been built, negotiating car park contracts with Town Centre Securities, and using statutory powers to change residential parking rules in the surrounding area.  Montpellier alleges that the Council would have lost its negotiating position if the developers had known its plans and subsequently left the competition.

Montpellier says it was never possible to find out what really happened in the competition because Leeds City Council never made complete disclosure.  Montpellier asked for voluntary disclosure when the competition was terminated, but this was refused.  They took the Council to court several times to enforce disclosure.  Despite both Mr Justice Beaston and Mr Justice Simon ordering the Council to give this, Montpellier says full disclosure was still not given.

Jan Fletcher said she had been overwhelmed by support for her and her action:  “I have had extraordinarily kind letters, emails and comments of support – often from the most unexpected quarters.  I have also been surprised at just how many people feel strongly about the need for better run tenders and competitions.  There is a call for the government to introduce a college of procurement – particularly after the West Coast rail franchise fiasco.  This is a priority and must be extended to include local authorities.”

Ends

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Notes to editors

1.       Summary of case of Montpellier Estates

(written by Malcolm Simpson, partner, Walker Morris – solicitors to Montpellier)

Montpellier Estates is a property investment and development company, owned by leading business woman Jan Fletcher OBE.  Piecemeal, over many years, Ms Fletcher had assembled a 10 acre development site, a seven minute walk from Leeds city centre station. Montpellier had secured planning permission for 1.5m square feet of mixed use on its site, City One, which it planned to sell for development.

Leeds City Council had been committed to developing an arena in the city for many years and had already had two failed attempts to deliver this. Working with a consultant team, it announced its plan to invite competitive bids for a developer to deliver an arena. Interested developers could either bid on a site owned by the Council at Elland Road or on a site owned by the developer. There was very little market interest in the competition with just two bidders, Montpellier and GMI (bidding on the Elland Road site), taking part.

Montpellier was the only bidder proposing to build an arena on its own site. Worried about mothballing her site for a year or more, Ms Fletcher gave evidence that she repeatedly asked senior council officials for, and was given, very specific assurances about Leeds’ intentions. Specifically Ms Fletcher’s evidence is that she asked and they confirmed that Leeds did not intend to build the Arena itself and that the process would be fair and transparent.

Ms Fletcher’s evidence is that she relied on those assurances when deciding that Montpellier would take part in the competition. It instructed a world class consultants’ team, incurring bid costs of more than £1 million. The funding and other costs it incurred in holding its City One site were substantially greater.

Leeds abandoned the competition on 5 November 2008, announcing the same day that it would, after all, build the Arena itself either at Clay Pit Lane or Elland Road. By this time, the markets had collapsed, leaving Montpellier with very significant costs and unable to sell its site.

Montpellier started legal proceedings claiming that Leeds was in breach of legal rules governing the award of public contracts. Following disclosure of some of the Council’s internal documents Montpellier pursued further claims alleging that the Council’s assurances were fraudulent.

The trial of Montpellier’s claims lasted for 10 weeks in autumn 2012 in the High Court in London.

Montpellier‘s deceit claim was based on the repeated assurances it says were given by very senior council officers and others to Ms Fletcher both before and during the competition. Leeds claims that its assurances were true and that it did not plan to build the Arena itself until it announced that it was cancelling the competition on November 5th, 2008. 

Montpellier alleges that Leeds was actively planning to build the Arena itself from January 2008 and had been preparing a competing bid – outside of the procurement process – since then, and doing its best to ensure that only the Council could win its own competition.  Montpellier claims that Leeds went out of its way to keep these plans from both developers.  It also claims that given its earlier assurances, Leeds was subject to a legal duty to disclose in writing that its position had now changed, which it never did.

A procuring authority can terminate a competition if it decides that the competition is unlikely to be successful. It will only then be free to pursue alternative plans (plan B) which might include delivering the solution itself.  

Montpellier argued that while the Council is required to find best value, it cannot change the rules of the procurement – which it had set itself – without informing the developers.  Particularly it says that Leeds should have terminated the bidding process much earlier.

Leeds‘ case is that its statutory duty to achieve best value required it to work up its own development proposal in order to test whether it was better value for the public purse to develop itself. It claims in doing so, it was not only justified but needed and to make full use of the council’s own resources (land holdings etc) and statutory powers (such as CPO powers to buy land and the control of on-street parking) to determine whether it could deliver the best value.

Montpellier says it could never have won the competition because of the way the Council used its powers, landholdings and what it claims were secret agreements with third parties. Montpellier says that, if it had been told the true position, it would have withdrawn from the competition and sold its site.

Whilst Leeds informed the bidders that it was working up a “public sector comparator” (or PSC), this is usually understood to be a paper based benchmarking exercise. The Council did not disclose its agreement to buy the Clay Pit Lane site, nor that it was negotiating commercial terms for the development of that site with third party land owners. Montpellier’s case is that Leeds kept its negotiations secret until it was ready to proceed with its own development and that disclosure prior to then would have brought the competition to an end and blown its negotiating position.

Montpellier also claims that the competition broke the detailed legal rules on public sector procurement. Leeds’ failure to disclose the true nature of the PSC (as a competing bid outside the competition) and the fact that beating that bid was now fundamental to success, were very significant changes which Montpellier says were not disclosed to it.  These, it claims, broke the requirements for fairness and transparency.

Montpellier and GMI repeatedly asked for written clarification as to the definition and terms of the PSC to understand the terms and scoring.  Montpellier complains that despite repeated requests a detailed explanation was never given to it and not in writing. Montpellier was simply informed in writing that the PSC was required to check value for money was being achieved.

Montpellier also says that Leeds City Council broke procurement rules when it changed the weighting and scoring processes, but did not tell the two bidders. 

2.       Damages claimed

Following the banking collapse in September 2008, the value of the City One site fell significantly and Montpellier had lost the opportunity of selling it at anything approaching its value in 2007 and/or early 2008.  Montpellier’s claim is for the loss in value of the site or lost opportunity to sell City One at a much greater price together with additional losses including the wasted costs of taking part in the competition, financing costs and other losses.

3.       Definition of deceit

Where a person makes a false assurance (ie knowingly false or without caring if that assurance is true) to another person so as to induce them to enter a contract (or in this case to enter into or remain in a competition), this conduct can amount to deceit.  An assurance which is true when made but which subsequently becomes false can give rise to a claim in deceit if it is not corrected.  A claim therefore arises for the damages that the person who has been deceived has incurred as a result of that deceit.

4.       Failure to disclose

Montpellier says it was never possible to find out what really happened in the competition because Leeds City Council never made complete disclosure.  Montpellier asked for voluntary disclosure straight after the competition was terminated and was forced to take the Council to court several times to enforce disclosure.  Both Mr Justice Beaston and Mr Justice Simon ordered them to do so.

The Council was advised by its lawyers in November 2008 to retain all data in case of legal challenge. Despite this Leeds City Council chose not to retain a copy of the data room housing all relevant information. Furthermore, Leeds City Council said

• Emails were deleted when the Council changed from Lotus Notes to Microsoft Exchange. The back-up tape for 2008, the crucial year of the competition, was incomplete because the back-up job did not run to completion
• The personal computers, PDAs and mobile phones of many of the individuals key to the trial were lost
• The Council said they could not trace missing laptops, critical to the trial.  After orders made by Mr Justice Simon and Mr Justice Beaston a few personal devices were located and the Council provided limited disclosure of recovered deleted data, documents from additional custodians and additional hard-copy disclosure
• Examples of gaps in the disclosure provided by the Council were
  • Mr Farrington (project director for the Arena) sent on average 9 relevant emails per month during the relevant period and none in May 2007 and September 2008 (bids were submitted on 10 September 2008)
  • Jean Dent, director of city development at the Council at the time of the Arena procurement and chairman of the project board, sent on average 6 relevant emails per month, none in June 2007, August 2007 or September 2008 and 6 in the period October 2007 to February 2008
  • The Council did not disclose any emails sent by Councillor Andrew Carter, leader of the Council and the member responsible for the Arena project

5.       Location of Arena and how the problems with Elland Road arose, leading to confidential negotiations to purchase Clay Pit Lane

In September 2004, Leeds City Council commissioned PMP Consultants (“PMP”), a firm of management consultants, to produce a study (the “Feasibility Study”) into “The Future Provision of Concert, Arena and Other Music Related Facilities in Leeds.”

The Feasibility Study was published in December 2004. It concluded inter alia that:

• Montpellier’s City One site was in one of five locations in Leeds that was suitable for the development of an arena
• One of the five named sites (albeit not a city centre site) was located at Elland Road and was owned by Leeds City Council and other non-related parties. This was offered as a site to developers who did not own their own land, to bid on
• The Clay Pit Lane site – where Leeds City Council has now built the Arena itself – is in the city centre.  When the Arena bidding process started, it was under the combined ownership of Leeds City Council and Leeds Metropolitan University (LMU).  The PMP report had expressly stated Clay Pit Lane to be unsuitable as a concert hall location.  It was not included in the list of possible arena locations as it was deemed unsuitable.

When the Council invited bids from the private sector to develop the Arena, they offered two options

• The developer could submit proposals based on their own land, or
• Offer proposals to develop the Arena on Council land at Elland Road (land next to Leeds United football ground on the M62 south of Leeds) as a site for bidders who did not have their own land – though always saying it was not their preferred location

Montpellier’s case highlighted a number of inconsistencies in how the Council advantaged the Elland Road site against Montpellier through the tender process, as examples

• The Council issued a masterplan for Elland Road including an hotel, casino and arena in 2006 and onwards
• The Council told Montpellier they could not promote or make public the Holbeck masterplan for the New Holbeck Vision (as had been done in the same year by the Council for Elland Road) because it ‘could prejudice the Arena procurement’
• Montpellier was forbidden by the Council and its advisers to go public or consult publicly on its arena plans for City One in 2007/8

During the litigation it emerged that

• The consultants and project team offered Elland Road as an option for developers who did not own their own site.  Having started the competition they quickly realised the Council did not own a critical piece of land needed to make the Arena space viable.  Montpellier believes the Council should have terminated the competition at this point
• GMI – the other company bidding for the Arena – was already in negotiations to buy this land from the Castle Family trust.  Leeds City Council told GMI that it should withdraw from these negotiations – and if they were to continue, they would put a Compulsory Purchase Order on the land.  This would effectively reduce land value and prevent anyone else from buying the land
• Very soon after launching the bid, the consultants realised that Elland Road would cost £57m just to make the land feasible for the Arena – such as new traffic systems to manage football and arena traffic off the motorway
• It made building an arena at Elland Road unviable.  At this point Montpellier argued that Leeds City Council should have halted the competition

6.       Montpellier Estates – background to history of City One

Montpellier Estates was formed 30 years ago and has its head office in Harrogate, North Yorkshire.  It is a property investment and development company. 

City One has been assembled over more than 25 years. In 2005/6, Montpellier approached Leeds City Council, Yorkshire Forward, and private landowners to create a joint venture with Montpellier to regenerate 35 acres of land in Holbeck and Beeston, a seriously disadvantaged area of Leeds.  The Council would not allow Montpellier to go public with these plans.

Montpellier appointed Koetter Kim Architects to produce a strategic plan for the New Holbeck Vision, which included an arena and conference centre that would connect the southern part of Leeds to the city centre.  There were four possible options in Holbeck for siting an arena to best economic advantage, only one of which was on City One’s land.  It was not Montpellier’s preferred option to have the Arena at City One, but City One would have benefitted from the catalytic effect from adjacent development. 

In 2006, Montpellier signed an agreement to lease with US based casino operator, Isle of Capri Casinos (IOC) to hold 3 acres of land for a 500,000 sq ft development for a 300 bedroom hotel and casino complex on part of the City One site.  The agreement was conditional on Leeds obtaining the necessary licence for a regional casino by 31 December 2006. In February 2007, the government announced that Leeds had not won the regional casino licence. 

At the same time Leeds City Council was urging Jan Fletcher to mothball her site so that the Arena could be built on the only city centre site fully assembled and in one ownership.

7.       City One site

Since the Arena procurement was terminated, Montpellier Estates continued with its development plans and in March 2010 submitted a new planning application for its 10 acre City One site, at the southern entrance to Leeds for a 2 million sq ft mixed use development.   Outline planning permission was initially granted in 2006.  Permission for a larger site, including additionally acquired land, was granted in September 2012.

The site is located just off the motorways and within a short walking distance from Leeds City station. The plans are based around a high quality and sustainable mixed-use development with Grade A office space, residential and retail units, restaurants and a hotel.

Montpellier’s site will help Leeds City Council to achieve its regeneration plans, by linking the deprived areas of Holbeck and Beeston to the city centre.  The proposal includes a series of inter-connecting urban public spaces linking communities in the South to Holbeck Urban Village and the city centre.

 8.       Jan Fletcher OBE

Jan Fletcher is one of the UK’s leading entrepreneurs.  She has successfully built up and run diverse businesses.

Jan was appointed to the UK government’s Enterprise Forum in 2010, which has included being involved in the sub committee that has been reporting to the business secretary, Vince Cable, on the impact of the banks’ current lending strategy to SME’s  She has also spoken at Parliament on the matter.

Awards and recognitions include:

• Veuve Clicquot British Business Woman of the Year Award in 1994
• Voted Yorkshire Woman of the Year in 1995
• Awarded an OBE for Services to Industry in 1997
• Named one of Britain’s Top Entrepreneurs in 1999
• Honorary Doctorate of Letters from one of the UK’s top business schools Bradford University School of Management in 2009
• Non-Executive Director of Skipton Building Society for 10 years

In 2004, she was asked by Leeds City Council to help set up and become the founding Chairman of Marketing Leeds, the body created to promote the city nationally and internationally.