Canterbury City Council and Veolia, September 2012
The advice to Canterbury City Council, given by Joseph Barrett.
As you will see Barrett makes four arguments. In his detailed response, given below, Daniel Machover answers the first two points by repeating advice previously given and posted on this website; the answers to the second two points are new.
IN THE MATTER OF: CANTERBURY CITY COUNCIL THE VEOLIA GROUP PCR 2006 REGULATION 23(4)(e) ALLEGED ‘GRAVE PROFESSIONAL MISCONDUCT’
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ADVICE
Extract of advice given by Joseph Barrett of Counsel of 11 King’s Bench Walk. ____________________
Introduction
1. Canterbury is conducting a public procurement for a waste management and street sweeping contract. One of the participants is Veolia ES (UK) Limited (“Veolia UK”), a private limited Bidder established in the UK that forms part of the Veolia Group. Canterbury has received allegations from campaigners that other Veolia Group companies, which are not subsidiaries of Veolia UK, conduct business in Israel and carry out activities that service Israeli settlements in East Jerusalem and the West Bank (collectively, “Veolia Israel”).
2. I am asked to advise Canterbury as to whether Regulation 23(4)(e) of the Public Contracts Regulations 2006 (“the Regulations”) permits it to lawfully exclude Veolia UK from the procurement on grounds of the allegations about the activities of Veolia Israel in East Jerusalem and the West Bank.
3. In particular, my Instructing Solicitor has requested advice on: a. The legal risk that would arise from a decision to exclude Veolia UK; and b. The legal risk that would arise from a decision not to exclude Veolia UK.
4. My detailed reasoning and conclusions are stated below. However, it may assist my Instructing Solicitor if I briefly summarise my principal conclusions:
a. On its proper construction, Reg.23(4)(e) only authorises an economic operator to be excluded on grounds of its own acts of ‘grave professional misconduct’. The Regulations do not permit the alleged misconduct of Veolia Israel to be imputed or attributed to Veolia UK for this purpose. Thus, Canterbury cannot rely on Reg.23(4)(e) to lawfully exclude Veolia UK.
b. There is also an entirely reasonable argument that s.17 of the Local Government Act 1988 prevents Canterbury lawfully excluding Veolia UK on the grounds suggested. This is because the alleged ‘grave professional misconduct’ is inextricably bound up with the fact of the location or territory in which the relevant business is being carried on i.e. East Jerusalem and the West Bank.
c. There is a very strong argument that Israel (qua State) has breached various norms of public international law by sponsoring and maintaining settlement activity in East Jerusalem and the West Bank. However, the International Court of Justice’s (“the ICJ”) analysis of the current status of the settlements is equivocal. Consequently: (i) the ongoing status (and legality) of the settlements under public international law; and (ii) the nature and extent of the obligations that apply to third party States in connection with the settlements, is neither clear nor definitively settled.
The established position in public international law is that such obligations as do arise in this context bind only States, and do not directly apply to private sector corporations such as Veolia UK or Veolia Israel. It is therefore unlikely that, even if the factual allegations concerning Veolia Israel are entirely accurate, such companies are directly breaching any applicable rule of public international or domestic law. In my opinion, it follows that (on the basis of the documents before me) there is a very significant risk that a decision to exclude Veolia UK would, if challenged under the Regulations, be declared unlawful.
d. If Canterbury declined to exclude Veolia UK, the remedy of any dissatisfied third party would be to seek judicial review. Such a challenge would face very considerable difficulties in regard to (amongst other things) standing, justiciability and the need to satisfy the Court that Canterbury’s approach under Reg.23(4)(e) was irrational or vitiated by manifest error. In my opinion, while entirely respectable legal arguments could be advanced in support of such a challenge, the proceedings would ultimately have little prospect of success.
Response from Daniel Machover of Hickman & Rose, 27th September 2012
You ask me to respond to the advice provided to Canterbury City Council by Joseph Barrett of Counsel of 11 King’s Bench Walk.
I have pasted in each sub-paragraph of the advice in bold italics and commented on each below.
(a) On its proper construction, Reg.23(4)(e) only authorises an economic operator to be excluded on grounds of its own acts of ‘grave professional misconduct’. The Regulations do not permit the alleged misconduct of Veolia Israel to be imputed or attributed to Veolia UK for this purpose. Thus, Canterbury cannot rely on Reg.23(4)(e) to lawfully exclude Veolia UK.
Reply:
Veolia itself has not raised this argument, but even it had done so it is clear enough that the definition of an economic operator for these purposes goes beyond the specific bidding company. This is summarised with sufficient detail in sections 2(b) and (c) of the JFJFP briefing, pasted in here from the website (footnotes omitted):
UK law
UK public bodies are entitled by law to look behind the corporate structure of a bidding company to assess if any part of the business in question is committing grave professional misconduct.
English case law establishes that a holding company and subsidiary can be treated as a single entity, and the profits of the subsidiary can be treated as profits of the parent company. The legal position has been described as follows: “[A] court may, if the justice of the case so requires, treat two or more related companies as a single entity so that the business notionally carried on by one will be regarded as the business of the group or another member of the group if this conforms to the economic and commercial realities of the situation”.
EU law and the UK
The case is further strengthened when we take EU law into account. The European Court of Justice recently adopted a wide approach to parent liability for subsidiary conduct where the subsidiary is wholly owned by the parent company. As already pointed out above, Veolia treats itself as a single entity and so the conduct of one division is the conduct of Veolia as a whole. The Veolia website states, “Veolia Environnement is the only global company to provide the full gamut of environmental services in the water, environmental services, energy and transportation fields under one brand name.” UK law on procurement of public contracts must be applied so as to give effect to EU law. Given the definitions set out in the Directive and EU law a public body is entitled to treat a group of companies under common control as the bidder even where just the UK part of the group makes the bid. This means the conduct of all companies in the group can legitimately be imputed to the bidder. EU law will not permit a wrong-doer to shelter behind corporate structures or arrangements that ensure that they were not the bidder for the purposes of the Directive.
In other words, EU law encourages us to focus on substance rather than the legal form of companies, and to view “control” as the key issue of substance when examining the status of economic entities. This provides further support for the focus on substance rather than the legal form of companies, and for viewing “control” as the key issue of substance when examining the status of economic entities. In EU competition law it has long been established that companies will be held responsible for the activities of their subsidiaries. There is a presumption that where a company is wholly owned by another company it does “not decide independently upon its own conduct” but rather carries out the instructions of its parent.
In short, EU law permits public bodies to impute the conduct of group companies forming a single economic unit to the bidder. If one division of Veolia is involved in activities of grave misconduct and Veolia as a whole profits from such conduct, then Veolia as a single entity including all of its divisions and subsidiaries must necessarily be implicated in such misconduct.
(b) There is also an entirely reasonable argument that s.17 of the Local Government Act 1988 prevents Canterbury lawfully excluding Veolia UK on the grounds suggested. This is because the alleged ‘grave professional misconduct’ is inextricably bound up with the fact of the location or territory in which the relevant business is being carried on i.e. East Jerusalem and the West Bank.
Reply:
This was addressed in section 3 of the JFJFP advice note, as follows, which I can do no better than repeat here:
It is often claimed that LGA 1988 prevents public bodies from excluding Veolia from bidding for contracts on the basis of the above considerations. This is not so. There is no such legal impediment set down in any legislation, including LGA 1988.
Section 17 of the LGA 1988 provides as far as relevant (emphases added):
s.17 Local and other public authority contracts: exclusion of non- commercial considerations
(1) It is the duty of every public authority to which this section applies, in exercising, in relation to its public supply or works contracts, any proposed or any subsisting such contract, as the case may be, any function regulated by this section to exercise that function without reference to matters which are non-commercial matters for the purposes of this section…
(5) The following matters are non-commercial matters as regards the public supply or works contracts of a public authority, any proposed or any subsisting such contract, as the case may be, that is to say—
…(e) the country or territory of origin of supplies to, or the location in any country or territory of the business activities or interests of, contractors…
The wording may be complicated but it is clear that only certain kinds of non-commercial considerations are ruled out of consideration. Local authorities are not entitled to take into account some specific non-commercial considerations when making public contract decisions. But they are entitled to consider, for example, criminal conduct alleged against a bidder in a particular locality.
The “non-commercial matters” that are being put forward as the basis for excluding Veolia from public contracts do not contravene the LGA 1988 prohibition. That is because the grave misconduct alleged against Veolia does not relate to its activities in Israel or the Occupied Palestinian Territories (OPT) per se, or the location per se of its business activities or interests in Israel or the OPT. Rather, the (non-commercial) matter in question is the precise nature of Veolia’s activities in the West Bank, which is totally outside the list of excluded “non-commercial matters” in s17.
To clarify: there would be no complaint if Veolia were providing a bus service solely within Israel proper; or supplying waste disposal services to Palestinian communities alone within the West Bank; or not servicing illegal settlements as part of the Jerusalem Light Railway into East Jerusalem. In short, it is not that Veolia’s business activities take place in a particular country or territory that give rise to the allegation of “grave misconduct in the course of [its] business or profession”, but the nature of Veolia’s economic activity in the West Bank, including East Jerusalem (that is to say, the fact that Veolia acts in wilful defiance of international law).
(c) There is a very strong argument that Israel (qua State) has breached various norms of public international law by sponsoring and maintaining settlement activity in East Jerusalem and the West Bank. However, the International Court of Justice’s (“the ICJ”) analysis of the current status of the settlements is equivocal. Consequently: (i) the ongoing status (and legality) of the settlements under public international law; and (ii) the nature and extent of the obligations that apply to third party States in connection with the settlements, is neither clear nor definitively settled. The established position in public international law is that such obligations as do arise in this context bind only States, and do not directly apply to private sector corporations such as Veolia UK or Veolia Israel. It is therefore unlikely that, even if the factual allegations concerning Veolia Israel are entirely accurate, such companies are directly breaching any applicable rule of public international or domestic law. In my opinion, it follows that (on the basis of the documents before me) there is a very significant risk that a decision to exclude Veolia UK would, if challenged under the Regulations, be declared unlawful.
Reply:
The law on corporate responsibility in such matters is developing – see further below. In short, corporations can be complicit in violations by states and individual directors can be prosecuted for such complicity.
As to the ICJ’s advisory opinion on the Wall of 9 July 2004 (http://www.icj-cij.org/docket/files/131/1671.pdf)), this is not equivocal as to the above matters, but in fact clear and unambiguous.
The court’s conclusion is:
The Court concludes that the Israeli settlements in the Occupied Palestinian Territory (including East Jerusalem) have been established in breach of international law. (para 120)
And later:
‘all the States parties to the Geneva Convention relative to the Protection of Civilian Persons in Time of War of 12 August 1949 are under an obligation, while respecting the United Nations Charter and international law, to ensure compliance by lsrael with international humanitarian law as embodied in that Convention.” (para 159)
The full context of both these conclusions is set out below:
“120. As regards these settlements, the Court notes that Article 49, paragraph 6, of the Fourth Geneva Convention provides: “The Occupying Power shall not deport or transfer parts of its own civilian population into the territory it occupies.” That provision prohibits not only deportations or forced transfers of population such as those carried out during the Second World War, but also any measures taken by an occupying Power in order to organize or encourage transfers of parts of its own population into the occupied territory.
In this respect, the information provided to the Court shows that, since 1977, Israel has conducted a policy and developed practices involving the establishment of Settlements in the Occupied Palestinian Territory, contrary to the terms of Article 49, paragraph 6, just cited. The Security Council has thus taken the view that such policy and practices “have no legal validity”. It has also called upon “Israel, as the occupying Power, to abide scrupulously” by the Fourth Geneva Convention and:
“to rescind its previous measures and to desist from taking any action which would result in changing the legal status and geographical nature and materially affecting the demographic composition of the Arab territories occupied since 1967, including Jerusalem.” and, in particular, not to transfer parts of its own civilian population into the occupied Arab territories” (resolution 446 (1979) of 22 March 1979).
The Council reaffirmed its position in resolutions 452 (1979) of 20 July 1979 and 465 (1980) of 1 March 1980. Indeed, in the latter case it described “Israel’s policy and practices of settling parts of its population and new immigrants in [the occupied] territories” as a “flagrant violation” of the Fourth Geneva Convention.
The Court concludes that the Israeli settlements in the Occupied Palestinian Territory (including East Jerusalem) have been established in breach of international law.”
AND
155. The Court would observe that the obligations violated by Israel include certain obligations erga omnes. As the Court indicated in the Barcelona Traction case, such obligations are by their very nature “the concern of all States” and, “In view of the importance of the rights involved, all States can be held to have a legal interest in their protection” (Barcelona Traction, Light and Power Company, Limited, Second Phase, Judgment, I.C.J. Reports 1970, p. 32, para. 33). The obligations erga omnes violated by Israel are the obligation to respect the right of the Palestinian people to self-determination, and certain of its obligations under international humanitarian law.
156. As regards the first of these, the Court has already observed (paragraph 88 above) that in the East Timor case, it described as “irreproachable” the assertion that “the right of peoples to self-determination, as it evolved from the Charter and from United Nations practice, has an erga omnes character” (I. C.J. Reports 1995, p. 102, para. 29). The Court would also recall that under the terms of General Assembly resolution 2625 (XX’V), already mentioned above (see paragraph 88),
“Every State has the duty to promote, through joint and separate action, realization of the principle of equal rights and self-determination of peoples, in accordance with the provisions of the Charter, and to render assistance to the United Nations in carrying out the responsibilities entrusted to it by the Charter regarding the implementation of the principle . . .”
157. With regard to international humanitarian law, the Court recalls that in its Advisory Opinion on the Legality of the Threat or Use of Nuclear Weapons it stated that “a great many rules of humanitarian law applicable in armed conflict are so fundamental to the respect of the human person and ‘elementary considerations of humanity’ . . .”, that they are “to be observed by al1 States whether or not they have ratified the conventions that contain them, because they constitute intransgressible principles of international customary law” (I. C. J. Reports 1996 ( I ) , p. 257, para. 79). In the Court’s view, these rules incorporate obligations which are essentially of an erga omnes character.
158. The Court would also emphasize that Article 1 of the Fourth Geneva Convention, a provision common to the four Geneva Conventions, provides that “The High Contracting Parties undertake to respect and to ensure respect for the present Convention in al1 circumstances.” It follows from that provision that every State party to that Convention, whether or not it is a party to a specific conflict, is under an obligation to ensure that the requirements of the instruments in question are complied with.
159. Given the character and the importance of the rights and obligations involved, the Court is of the view that all States are under an obligation not to recognize the illegal situation resulting from the construction of the wall in the Occupied Palestinian Territory, including in and around East Jerusalem. They are also under an obligation not to render aid or assistance in maintaining the situation created by such construction. It is also for all States, while respecting the United Nations Charter and international law, to see to it that any impediment, resulting from the construction of the wall, to the exercise by the Palestinian people of its right to self-determination is brought to an end. In addition, all the States parties to the Geneva Convention relative to the Protection of Civilian Persons in Time of War of 12 August 1949 are under an obligation, while respecting the United Nations Charter and international law, to ensure compliance by lsrael with international humanitarian law as embodied in that Convention.”
The final sentence above is clearly in this context wider than the question of the wall but includes the question of settlements previously ruled on in the Advisory Opinion.
Meanwhile, as to corporate responsibility for human rights violations, Prof John Ruggie’s recent third party intervention in the US Supreme Court Kiobel case is very important. [Prof Ruggie is the former Special Representative of the United Nations Secretary-General on the issue of human rights and transnational corporations and other business enterprises (“SRSG”).] It can be accessed here:
He states, for example:
“The UN Human Rights Council unanimously endorsed the Guiding Principles. Human Rights Council Res. 17/4, Human Rights and Transnational Corporations and Other Business Enterprises, 17th Sess., July 6, 2011, U.N. HRC, A/HRC/RES/17/4, ¶ 1 (June 16, 2011).
The Guiding Principles operationalize the “Protect, Respect and Remedy” Framework presented to the Human Rights Council by the SRSG in 2008. The Framework rests on three interconnected pillars: (i) the state duty to protect against human rights abuses by third parties, including business, (ii) the corporate responsibility to respect human rights, which means to avoid infringing on the rights of others and to address adverse human rights impacts with which a business may be involved, and (iii) the need for greater access to effective remedy for victims of business-related human rights abuses.”
“…States are generally not required to—but nor are they prohibited from—regulating the extraterritorial activities of businesses domiciled in their territory and/or jurisdiction, where there is a recognized jurisdictional basis…”
The recognised jurisdictional basis here is quite simply the regulations and the grave misconduct provision.
(d) If Canterbury declined to exclude Veolia UK, the remedy of any dissatisfied third party would be to seek judicial review. Such a challenge would face very considerable difficulties in regard to (amongst other things) standing, justiciability and the need to satisfy the Court that Canterbury’s approach under Reg.23(4)(e) was irrational or vitiated by manifest error. In my opinion, while entirely respectable legal arguments could be advanced in support of such a challenge, the proceedings would ultimately have little prospect of success.
Reply:
The final sentence makes it absolutely clear that ‘respectable legal arguments’ are being advanced to exclude Veolia, or at least to properly exercise a discretion to do so, which does put his advice about the merits of a judicial review of a failure to do so in some doubt.
It is correct that the only legal remedy is judicial review.
It is correct that standing is a problem once the contract is issued, but local council tax payers have standing to bring a judicial review up to that point with no difficulty.
(A rival contractor to Veolia who is aggrieved has standing both now and after the grant of the contract as long as the JR limitation date is complied with, which requires claims to be commenced ‘promptly and in any event within three months of when the grounds arose’.)
I cannot see that justiciability is a significant problem, though the Court will need to determine complex questions about corporate complicity in violations of international law.
The need to satisfy the Court as to the decision being irrational or vitiated by manifest error will not be so difficult if the Council rely on (a) and/or (b) above as the basis of their decision, since both are plainly wrong, especially (b) regarding the LGA. However, (a) touches on complex law and (c) raises some complex issues, which does mean that a JR would not have a high chance of success. I would rate the chance of success as being around 50%. Something under 40% would be ‘little prospect of success’.
/ends