One area of the economy that appears to have remained relatively buoyant during the downturn is the development of new supermarket facilities in Scotland. This appears to be partly a phenomenon of existing operators seeking to protect (or even increase) market share with a number of new or less established operators (such as Lidl and Waitrose) trying to make inroads into Scotland. The development of new facilities has taken place not just in the larger conurbations within Scotland but in smaller towns which can only support a limited number (sometimes one) sizeable convenience food outlet.

There have been (and remain) significant concerns about the impact of reasonable sized convenience food retail outlets on the "High Street" (particularly if they contain an element of comparison shopping – hardware etc) even if they are situated in the town centre (and frequently they are not – see below). In England the review carried out by Mary Portas highlighted these concerns.

Concerns also exist in Scotland. Scotland has also seen a number of cases involving challenges between rival retail operators intended to protect either an existing outlet or separately a new outlet that they had planned (See our article on "Supermarket Wars").

In Scotland (like England) the siting of supermarkets and indeed other retail outlets has been subject to what is known as the sequential test. This is embodied in Government policy (currently the SPP) and has been embodied for some considerable time having been included in both NPPG8 entitled "Town Centres and Retailing" (the last version of this having been revised in 1998) and SPP8 (Scottish Planning Policy: Town Centres & Retailing) which in itself was replaced by Scottish Planning Policy. As well as being embodied in Government policy the sequential test is usually reflected in Structure Plans (where they exist) and Local Plans (now Strategic Development Plans and Local Development Plans).

In effect the sequential test sets out a hierarchy of preferred locations for retail development. Town centres are indentified as the first and preferred choice followed by edge of centre sites, then out of centre sites. The sequential test requires the prospective developer to assess whether or not there is a suitable location higher in the hierarchy as part of the necessary process of site selection when seeking to promote a site that is lower in the hierarchy. In other words a developer who wants to promote an out of centre site needs to show that there are no suitable town centre sites or indeed edge of centre sites. The issue which has arisen however is how that is to be approached – whether the test of suitability is an objective or subjective one. In other words the issue may be whether or not the prospective developer requires to configure the proposed development so that it can be accommodated on sites that may be available (and which better meet the sequential test) or whether the developer is entitled to say that in applying the sequential test they only need to take into account sites which can accommodate the development as they propose it (and thereby ignore sites which may be sequentially better located if not suitable).

This issue has been considered in the Scottish Courts before. Lord Glennie dealt with the issue in Lidl UK GmbH v Scottish Ministers [2006] CSOH 165. He came to the view that in effect the issue was whether should there be an alternative site that site was suitable for the proposed development. In other words, it was not a question of whether the proposed development could and should be altered (or even reduced) so it could be made to fit whatever alternatives were available.

This approach appears to have a degree of support in the SPP albeit this requires developers to adopt a "flexible" approach.

The issue has now been considered by the Supreme Court where a judgement was given on 21 March 2012 in the case of Tesco Stores Limited v Dundee City Council. While this was overtly a case between Tesco (who have a substantial outlet on the A90 in Dundee – which in effect is a ring road round the centre of Dundee) and the City Council, in reality what underlay the challenge was a decision of the Council to grant planning permission for a proposed development likely to be occupied by Asda. Both Asda and the developer (McDonald Estates) were represented before the Supreme Court. In effect the case came before the Supreme Court because of a challenge to the grant of planning permission brought by Tesco.

The Director of Planning in Dundee had recognised that the proposal made by Asda/McDonalds offended a number of policies in the Structure Plan and the Local Plan but considered that the grant of planning permission could be justified because the proposed development would bring significant economic benefits to the city. Separately it would allow for improvements to the road network which would facilitate the redevelopment of a redundant industrial site (the proposed supermarket to be erected on part of the site).

The Scottish Courts (probably more so than the English courts) have made very clear in a number of decisions that they are not going to intervene where what is at issue is an exercise of planning judgement. In order therefore to bring this challenge Tesco had to show that there was some legal issue which the courts could properly look at and in this case what they challenged was the interpretation of the sequential test as contained in both the Structure Plan and the relevant Local Plan. In effect the issue was what was meant by the word "suitable" as used in both documents. Did "suitable" mean suitable for the development proposed by the applicant or did "suitable" have some other meaning with the consequence that the test had not been properly applied by the Council. In effect Tesco were suggesting that there might be another site available (and sequentially better located) which though not suitable for the development proposed by Asda was nonetheless suitable for a supermarket development. Their argument was in effect that if the test was a "subjective" one (in other words a site simply suitable to meet the needs of the potential applicant), that made the policy largely meaningless as an applicant could design a proposal so as to be simply not suitable for whatever sites might be available and only suitable for the site that the applicant was proposing.

The Supreme Court considered the issue and the leading judgement was given by Lord Reed recently appointed as a Supreme Court judge who was previously a judge of the Inner House in Scotland. Having analysed the position he came to the view that the approach broadly speaking taken by Lord Glennie was correct though the "subjective" approach could not be applied on an unqualified basis. He referred to the previous Government guidance which (as with the current guidance) makes clear that developers need to be flexible and realistic and that in preparing proposals developers were expected to have regard to the circumstances of the relevant centre in regard to issues such as format, design and scale of the development. Developers therefore in his view needed to show that if there were sites sequentially preferred they should show that they had given consideration to whether or not the development could be accommodated in a different form on those sites. In this case that had been done by the prospective developers.

In giving his decision Lord Reed accepted that planning authorities had to proceed upon a proper understanding of the Development Plan and that if they were error in doing that then their decisions might be challengeable. Having said that he did acknowledge that Development Plans though having legal status often contained broad statements of policy which required in their application the application of judgement by the planning authority. If that judgement was applied based upon a correct interpretation then that judgement in itself would only be challengeable if it was irrational or perverse. However in applying that judgement the planning authority needed to do on a correct basis – as Lord Reed memorably put it:- "Nevertheless, planning authorities do not live in the world of Humpty Dumpty: they cannot make the Development Plan mean whatever they would like it to mean".

Lord Reed also observed however that any error in interpreting the relevant policies would only be of relevance if there was a real possibility as a result of that error the determination would have been different. Given the considerations which resulted in the local authority (Dundee Council) granting planning permission he did not think there was any possibility in this case that would have been the position.

Lord Hope (the Senior Supreme Court judge from Scotland) gave a brief opinion supporting Lord Reed. The other Supreme Court judges all agreed with Lord Reed.

Planning cases from Scotland before the Supreme Court (previously the House of Lords) are not that common and therefore the case is intrinsically of significance. It is equally of significance because the sequential test is extremely relevant to an area which has been of important as noted over the past few years and is likely to remain of importance over the next few years. Having said that, while the case broadly speaking supports an approach which is more subjective rather than objective, it is clear that developers will have to show that they have been flexible and realistic in determining their proposals. If there are alternative sites which are more sequentially preferred then they will need to show that they have considered these sites and rejected them on a proper basis having been willing to be flexible and reasonable as appropriate. If however they have done that and if the local authority accepts that position it is unlikely that such an approach will be successfully challengeable standing the terms of this case. Having said that, a developer who is inflexible or unrealistic will potentially face difficulties if there is another site available which is in a preferred sequential location. While this case therefore has set the parameters for the decision making process issues may still yet arise about whether in a particular case sufficient flexibility and realism has been shown.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.