Standard Commerical Property Securities Limited and others (Respondents) v. Glasgow City Council (Appellants) and others (Scotland) Standard Commerical Property Securities Limited and others (Respondents) v. Glasgow City Council and others (Appellants) (Scotland) Conjoined Appeals)
19. Para 18.104.22.168, which describes the conclusion phase of the framework, was in these terms:
20. No mention is made in the framework of the negotiation of any additional price for the disposal of the site to the preferred developer. The criteria for evaluation of the proposals which are set out under phase (3) make no mention of the amount of money, if any, that the council was to receive for making its compulsory powers available. Para 22.214.171.124 refers, without further explanation, to an indemnity arrangement in the substantially same terms as in the agreement which was entered into with Atlas in October 1999. This indicates that it was assumed, in the light of Lord Nimmo Smith's judgment, that it would be within the powers of the council to enter into an agreement of that kind, referred to in the head-note as a back-to-back agreement, provided the other provisions in the framework were satisfied.
21. On 4 October 2001 the committee resolved to investigate the requirement for the use of compulsory purchase powers to facilitate the redevelopment. All parties interested were invited to submit proposals for redevelopment of the entire street block within which the site to which this case refers is situated. On 11 April 2002, after further consideration and evaluation, the committee instructed the Director of Development and Regeneration Services ("the director") to contact all interested parties with a view to evaluating their development proposals and aspirations in more detail. Council officials met with representatives of the various owners of the site between July and September of that year.
22. On 16 December 2002 the council wrote to all the owners and occupiers inviting them to submit proposals for the redevelopment of the site. It was explained that the investigative process would follow the procedure described in the framework, a copy of which was appended, and that all submissions would be evaluated against the following criteria:
The letter said that these criteria would be weighted as follows: experience 15%; design 40%; ownership 20%; timescale 25%. A questionnaire was also appended, to be completed and returned for evaluation. It was explained that the council would require to be satisfied that the applicant had sufficient financial backing for the proposed development, and that essential to that would be the applicant's commitment to enter into an agreement with the council undertaking to indemnify the council against all costs incurred by it in pursuing any CPO to assemble the site. The council's style of back-to-back agreement was also attached as an appendix.
23. In response to this invitation SCPD submitted two development proposals. One was for a joint proposal by SCPD and another proprietor for a mixed retail and leisure scheme for Phases A-C. The other was a comprehensive scheme for Phases A-H which covered the entire site. Atlas submitted a single redevelopment proposal for Phases A-H for the entire site. Both parties were invited to make formal presentations of their proposals. They both did so, and their proposals were evaluated according to the stated criteria. The director submitted a report to the committee dated 4 April 2003 in which he reported the results of the evaluation. He said that Atlas, which had the highest score, could be recommended as the preferred developer. On 10 April 2003 the committee, having considered his report, agreed to the selection of Atlas as the preferred developer and instructed the director to enter into a back-to-back agreement with Atlas for the use of the CPO powers to achieve the redevelopment. On 8 September 2003 SCPD submitted an application for detailed planning permission for Phases A-C. On 8 October 2003 Atlas submitted an application for detailed planning permission for Phases B-H. Both applications were subsequently granted.
The proceedings below
24. On 22 July 2003 SCPS and SCPD commenced these proceedings for judicial review of the council's decision of 10 April 2003 to select Atlas as the preferred developer and to enter into a back-to-back agreement with it for the use of its compulsory powers to assemble the site for redevelopment. The first hearing took place before the Lord Ordinary on 5 and 6 February 2004. On 1 June 2004 the Lord Ordinary refused the petition: 2004 SLT 655.
25. In the course of her opinion, at p 671, the Lord Ordinary rejected the argument that, in selecting a preferred developer on 10 April 2003, the council had made it impossible to have proper regard to the requirements of section 191 of the 1997 Act. In para 129 she said:
In para 132 she said that in carrying out their selection process the council had laid down an open, fair and detailed evaluation procedure, all as set out in the framework, specifically reflecting the requirements of sections 189 and 191 of the 1997 and the guidance given by Lord Nimmo Smith, and that the whole procedure was directed to establishing the best use of the land on the best terms.
26. SCPS and SCPD reclaimed against the Lord Ordinary's interlocutor, and the reclaiming motion was heard on 12 and 13 October 2004. On 3 December 2004 the First Division (the Lord President (Cullen) and Lords Kirkwood and Reed) allowed the reclaiming motion, granted decree of declarator that the council's decisions of 10 April 2003 to agree to the selection of Atlas as preferred developer for the site and to instruct the director to enter into a back-to-back agreement with Atlas were ultra vires and unreasonable and reduced the decisions accordingly: 2005 SLT 144. The opinion of the court was delivered by Lord Reed.
27. In para 28, at p 154, Lord Reed observed that section 191(3) of the 1997 Act imposed a prohibition on the planning authority which, apart from the reference to subsection (7) which is not in point in this case, is unqualified. In para 37, at p 157, he said that it appeared to the court that a prohibition such as that contained in section 74(2) of the 1973 Act was intended, as Lord Macfadyen said in Stannifer Developments Ltd v Glasgow Development Agency, 1998 SCLR 870, 890, to protect the public purse from loss through the disposal of assets of a public body at undervalue, and that it required a judgment to be made by the authority as to what was the best consideration which could reasonably be obtained. Turning to the 1997 Act, however, he said in para 39 that, in construing section 191(3), the starting point was that the provisions of section 191 had to be read together, and interpreted in the light of the policy and objectives of the Act as whole:
In para 40 he referred to the fact that section 191(3) did not allow any exception to be made with the consent of the Scottish Ministers. He said that this was consistent with the view that section 191, read as a whole, permits land to be disposed of otherwise than on a wholly commercial basis, in appropriate circumstances.
28. In para 41 Lord Reed noted that in Standard Commercial Property Securities Ltd v Glasgow City Council Lord Nimmo Smith reached that conclusion by construing the words "best terms" in section 191(3) as including those terms which would be most conducive to the achievement of the purposes set out in subsection (2). He said that although the court had reached the same conclusion, it did not agree with that construction of "best terms". Section 191(1) was to be construed as regulating, to the exclusion of subsection (3), the planning authority's decision as to the aspects of the transaction which are intended to secure the purposes mentioned in subsection (2). The statute then required in addition to regulate the value obtained for the public asset involved, so as to protect the public purse. That objective could be achieved, without undermining the primary purpose of section 191, by construing subsection (3) as prohibiting disposal "otherwise than at the best price or on the best terms that can reasonably be obtained":
29. Reviewing the facts in the light of that approach to the subsection, Lord Reed said in para 43, at p 158, that it appeared that the council gave no consideration, prior the decision of 10 April 2003, to the question whether reimbursement of their costs constituted the best value to be obtained. Neither the evaluation process nor the use of the standard form of contract involved any consideration being given to the value of the site or to what developers might be willing to offer for it. The council had proceeded on the assumption that reimbursement of their costs constituted the best price that could reasonably be obtained. This was not an assumption that could reasonably be made.
30. In para 44 Lord Reed said that there appeared also to be force in the submission that the council had proceeded throughout on an assumption that a back-to-back agreement with a single developer in respect of the entire site was the most appropriate way of dealing with it and that there was nothing to indicate that it gave any consideration to whether there should be separate developments of parts of the site or whether it was appropriate to decide to enter into a back-to-back agreement prior to receiving or determining applications for planning permission.
31. The first question is whether the terms on which the council proposes to make the assembled site available to the developer are within the scope of the power to dispose of land acquired or appropriated for planning purposes under section 191 of the 1997 Act. The essence of the back-to-back agreement is that the developer will not pay any more for the assembled site than the cost to the council of assembling it, while the council for its part will achieve its planning purpose without any cost to the public purse and without the risk of incurring a loss on the proposed redevelopment. Is such an arrangement permitted by section 191(3)?
32. Their Lordships of the First Division agreed with Lord Nimmo Smith, whose opinion on this point was adopted by the Lord Ordinary, that section 191(3) did permit such an arrangement. But, as Lord Reed explained in para 41 of his judgment, there was an important difference between them as to the scope that was to be given to the expression "the best terms". It was common ground that it was within the scope of that expression, which is separated from the words "the best price" by the disjunctive word "or", for the land to be disposed of otherwise than for payment of a sum of money or on a wholly commercial basis. It was common ground too that the power in section 191(3) differs in two respects from the general power in section 74(1) of the 1973 Act for use where land is surplus to requirements, which prohibits the disposal of the land for a consideration less than the best that can reasonably be obtained. First, the Scottish Ministers have no power to override the prohibition in section 191(3). Second, the power in section 191(3) is designed for use in its own particular statutory context. So it must be interpreted in that context, reading section 191 as a whole. The primary objective of section 191 is to ensure that, where land acquired or appropriated for planning purposes is held for the purposes for which it was acquired or appropriated is disposed of, this is done in a way that will secure the best use of the land or the carrying out of works that are needed for the proper planning of the area: see section 191(2).
33. Lord Nimmo Smith said that the overriding consideration for the local authority, when it was deciding whether the use of a back-to-back agreement was appropriate, was whether acquisition of the land and its development by the developer on these terms were reasonably necessary for planning purposes: Standard Commercial Property Securities Ltd v Glasgow City Council, 2001 SC 177, para 43. It was for the authority to consider whether the terms would be most conducive to the achievement of the purposes set out in section 191(2). Factors such as the likely ability of the person to carry through the development to completion, in the light of past experience and financial soundness, would be relevant. As I have already indicated, reference to these factors led to their inclusion in the council's framework as part of the evaluation criteria.
34. I agree with their Lordships of the First Division, however, that this approach reads too much into the expression "the best terms" in this context. As Lord Reed pointed out in para 41, section 191 seeks to do two things. On the one hand it seeks to regulate those aspects of the transaction which are intended to secure the purposes set out in subsection (2). These purposes are to secure the best use of the land and the proper planning of the area. On the other it seeks in addition to protect the public purse in the manner indicated by subsection (3). These are separate and distinct requirements, although they must both be read in the light of what section 191 seeks to achieve. The prohibition in subsection (3) directs attention to one issue, and to one issue only. This is the commercial implications of the transaction for the planning authority. It is to the best commercial terms for the disposal of the land, not to what is best designed to achieve the overall planning purpose, that the authority must direct its attention at this stage. But the words "best terms" permit disposal for a consideration which is not the "best price". So terms that will produce planning benefits and gains of value to the authority can be taken into account as well as terms resulting in cash benefits.
35. Terms under which the land is to be disposed in exchange only for an indemnity, as the back-to-back agreement contemplates, are not necessarily outwith the scope of section 191(3). Mr Currie QC for the respondents accepted that in this respect the back-to-back agreement was not necessarily inconsistent with the prohibition which it sets out. His point was that there was no evidence that the council ever directed its attention to the question whether these were the best terms that could reasonably be obtained from the preferred developer. It had proceeded throughout on what was no more than an assumption. It was on this ground that the First Division held that the council's decision was ultra vires. The question then is whether it has been shown that the council failed to take all relevant considerations into account when it decided to exercise the power in this way.
36. There is, it is true, no record in any of the documents that we have seen of any discussion of the question whether it might be possible to exact a sum of money from the preferred developer in addition to the indemnity. There is no sign that advice was sought on the question whether the assembled sight would be likely to be worth more than the compensation that was to be payable for the individual parts that were to be acquired compulsorily. There is therefore some force in the point that Mr Currie makes that the terms of the back-to-back agreement were devised on an assumption that they were the best that could reasonably be obtained which was never tested or examined against the possibility that better terms might be obtainable.
37. On the other hand some aspects of the situation in which the council found itself were self-evident. Three points in particular stand out. First is the acknowledged fact that the site is in poor condition and badly in need of redevelopment. Second, the council does not have the resources to carry out such a project itself. The only way it can be done is by attracting a private developer. And third, the site is in multiple occupation and ownership. The most likely candidates for the redevelopment already own parts of it. Each of these points can be fleshed out in greater detail to build up a picture of whether the council was entitled to proceed on the basis that the back-to-back agreement would provide the best commercial terms that could reasonably be obtained from the preferred developer.
38. The council's letter of 16 December 2002 had appended to it a development brief in which a detailed description was given of the current state of the site and what needed to be done to it. The introduction to this document states:
39. The emphasis in this document on the wider benefits that were expected to flow from the redevelopment was taken a step further in another document which was appended to the letter of 16 December 2002. It is headed "Urban Design and Development Form". Various points are made about the elements to be considered in the design, such as sight lines, building lines and materials. The developer was encouraged to allocate a budget to the cost of integrating public art into the development, and there was to be a requirement to include improvements to the relevant areas of West Nile Street and Bath Street commensurate with that undertaken on Buchanan Street. The proposals for redevelopment were therefore to contain a strong element of planning gain. The developer was not to be allowed to restrict its proposal to what would be most likely to serve its own commercial interests. The value of achieving this planning gain was almost certainly not capable of being expressed in money terms. It was something of value nevertheless, and the council was entitled to take it into account.
40. The purpose of the indemnity which is set out in the back-to-back agreement is, of course, to protect the public purse. The planning gain which the council wishes to achieve is to be obtained at no cost to its council tax and rate payers. But it has another aspect which, in the context of this site and having regard to the extent to which those who were being invited to bid for the redevelopment are already owners in different proportions of separate parts of it, has a part to play in an assessment of whether its terms were the best that could reasonably be obtained. The proposal that the developer should not have to pay more for the assembled site than the council's costs in assembling it created a level playing field. Otherwise complicated questions could arise as to what credit, if any, was to be given in assessing the reasonableness of any additional payment for the value of that part of the site that was already owned by each developer. From the developer's point of view, of course, the attraction of bidding for the right to redevelop the site lies in the profit that it can expect to make from it. Each element of cost would have, in the end, to be taken into account in the amounts that were obtained by way of rent or other return from future occupiers and the size of the budget that could be set aside for such unremunerative aspects of the redevelopment such as public art. There was at least something to be said, in these circumstances, for keeping the arrangement as simple as possible in view of the benefits that were to be gained for the surrounding area.
41. There is one other factor which, in my opinion, adds weight to those already mentioned. At no time, prior to the bringing of these proceedings, was it suggested by SCPD or any other candidate for the redevelopment that they would be willing to pay more for the right to acquire the site than the amount of the indemnity. Nor has there been any offer to do so subsequently. Nor was Mr Currie able, when pressed on this point, to say on what basis it would be appropriate to invite tenders for any additional payment over and above the indemnity. He said that it was for the council to take advice on this point. But there is an air of unreality about his argument. In the real world prospective developers will seek to pay as little as possible for the right to undertake such a development. There is no indication that any of the recipients of the letter of 16 December 2002 were willing to volunteer anything substantial by way of an additional payment on top of the benefits which they were being required to provide by way of planning gain to the council as planning authority. It is reasonable to infer that there was no element of commercial value that the council could reasonably extract in addition to what has already been built into the agreement which has been entered into with Atlas.
42. For all these reasons, I would hold that there is more than enough in the surrounding facts and circumstances to enable it to be said that the terms set out in the back-to-back agreement were the best that could reasonably be obtained and that the council was acting within its powers when it decided to enter into the agreement with Atlas. It was for the respondents to show that the council were not entitled to conclude that its terms measured up to this standard, and I do not think that they have done so.
43. There are two further points that must be mentioned. The first relates to the question of timing. The first issue in the Statement of Facts and Issues asks whether a decision by a planning authority to enter into a back-to-back agreement with a developer at the same time as a decision to acquire compulsorily the land in question is inconsistent with the requirements of sections 189 and 191 of the 1997 Act. The obvious response is that the whole point of a back-to-back agreement of the kind proposed in this case is to make the authority's compulsory powers available for the benefit of the preferred developer. A decision that resort will be had to the compulsory powers, if their use proves to be necessary, to assemble the site for redevelopment is part and parcel of the whole arrangement. The two elements cannot sensibly be separated from each other, and I can see nothing to prevent a decision to enter into such an arrangement being taken in advance of acquiring the land and obtaining planning permission for the development. Mr Currie, very properly, said that this question did not need to be answered.
44. The second point is whether the council was in a position, when the decision was taken on 10 April 2003, to conclude that disposal of the whole site to Atlas as the single preferred developer was the most appropriate way of dealing with the site. Lord Reed said in para 44 of his opinion that it appeared to the court that there was some force in this argument, because there was nothing in the documents to indicate that they gave any consideration to the question whether there should be single comprehensive redevelopment of the entire site by a single developer or separate developments of different parts of the site or whether it was appropriate to defer a decision on this point before receiving or determining applications for planning permission.