England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST
(Mr Justice Hooper)

		Royal Courts of Justice Strand London WC2 Tuesday, 6th February 2001

1. LORD JUSTICE LAWS: This is an appeal against the judgment of Hooper J given on 2nd March 2000 when he dismissed an application for judicial review brought by the appellants, the Rochdale Metropolitan Borough Council, in respect of a decision by the Secretary of State contained in a letter of 7th October 1998 declining to make a determination under paragraph 7 of Schedule 1 to the Education Act 1946, whose terms I shall set out shortly. Permission to appeal was given by Tuckey LJ on 12th May 2000.
2. Queen Elizabeth Grammar School was founded by Thomas Langley in the 15th century. In 1950 it became what was called a voluntary controlled school under the Education Act 1944. A voluntary controlled school was one whose managers or governors were not able or willing to meet the cost of repairs to the fabric or alterations required to meet standards set by the Minister. In that case the cost was borne by the local education authority which was in consequence entitled to appoint two-thirds of the managers or governors.
3. The Education Act 1946 (whose relevant provisions were replicated in section 62 of the Education Act 1996) provided for various measures supplemental to the principal Act of 1944. Paragraph 1 of Schedule 1 included within the local education authority's general duty to maintain a voluntary school, imposed by the principal Act, the particular duty

"of providing any site which is to be provided for the school in addition to or instead of the whole or any part of the existing site of the school and shall in the case of a controlled school include the duty of providing any buildings which are to form part of the school premises."

4. As was said in paragraph 9 of the appellants' skeleton argument prepared for the hearing at first instance, this obviously raised the question to whom should the new land and buildings belong and what should happen to the proceeds of the old premises. Paragraphs 6, 7 and 8 of Schedule 1 provided as follows:

"6. Where a local education authority provide a site for a school in accordance with the preceding provisions of this Schedule, it shall be the duty of the authority to convey their interest in the site and in any buildings on the site which are to form part of the school premises to the trustees of the school to be held on trust for the purposes of the school. ...

7. Where an interest in any premises which are to be used for the purposes of a controlled school is conveyed in accordance with the last preceding paragraph to any persons who possess, or are or may become entitled to, any sum representing proceeds of the sale of other premises which have been used for the purposes of the school, those persons or their successors shall pay to the local education authority so much of that sum as the Minister may determine to be just having regard to the value of the interest so conveyed; and any sum so paid shall be deemed for the purposes of section fourteen of the School Sites Act, 1841 (which relates to the sale or exchange of land held on trust for the purposes of a school) to be a sum applied in the purchase of a site for the school.

In this paragraph the expression 'sale' includes the creation or disposition of any kind of interest.

8. Where in accordance with paragraph 6 of this Schedule a local education authority convey premises to be held on trust for the purposes of any voluntary school, and any person thereafter acquires the premises or any part thereof from the trustees, whether compulsorily or otherwise, the Minister may require the trustees or their successors to pay to the authority so much of the compensation or purchase money paid in respect of the acquisition as he thinks just having regard to -

(a) the value of the premises conveyed by the authority in accordance with the said paragraph 6; and

(b) any sums which have been received by the authority in respect of the premises under the preceding provisions of this Schedule.

In this paragraph the expression 'premises' includes any interest in premises."

5. Queen Elizabeth Grammar School was closed in 1990. In 1994 a plot of land owned by the Foundation and used as a playing field until 1962, when as I will show the school moved to a different site, was sold for development. The net proceeds amounted to some £645,678. The appellants assert that in the light of the history of events and on the proper construction of the statute, the Secretary of State was obliged to determine under paragraph 7 of Schedule 1 that some or all of this money should be paid to them. But the Secretary of State in letters dated 7th October 1998 and 4th January 1999 declined to make any such determination. The first of these letters was in form the subject of the judicial review application.
6. In order to understand how the issue arises and in particular the discrete point of construction of paragraph 7, on which it is said the issue ultimately turns, it is necessary to explain the relevant history. The school was in the last century established on a site (referred to by Hooper J as B) south of Mellalieu Street. The site was in 1910 owned by the Middleton Corporation as trustees of the charity pursuant to a statutory scheme. The piece of land in question in this litigation, to which Hooper J referred as A, extended to something over five acres and lay on the north side of Mellalieu Street. It was purchased by the trustees for £1,412 in 1923 to be used as playing fields for the school. It was subsequently leased to the Lancashire County Council as local education authority in 1927. That was seemingly done because the trustees could not finance the laying out of the grounds as playing fields themselves. The local education authority took a lease of 99 years at £1 per annum and covenanted inter alia to expend £3,750 for the purpose of laying out the playing fields. In fact the local education authority expended some £4,353 for the purpose. This meant that 75 per cent of the cost of providing the Mellalieu Street playing fields (site A) had been provided by the local education authority. In 1961 the Lancashire County Council as LEA purchased a new site for the school at Boardman Fold Road. This was the site referred to as C by Hooper J. It was 24.7 acres in extent and the purchase price was £56,000. This acquisition, or rather that part of it attributable in due course to a site for the school, was done pursuant to paragraph 1 of Schedule 1 to the 1946 Act. Lancashire County Council constructed a new grammar school on 4.88 acres of site C and laid out new playing fields on a further 10.282 acres. Following an order made by the Secretary of State under the principal Act the grammar school accordingly re-opened at Boardman Fold Road in September 1962.
7. Since the LEA had provided site C or part of it pursuant to paragraph 1 of Schedule 1 it was their duty under paragraph 6 to convey their interest in the school site and buildings on C to the trustees of the school. Accordingly, on 16th April 1965 the Lancashire County Council conveyed the new school, but not the playing fields, to Middleton Corporation as trustees. The area so conveyed thus extended to the 4.88 acres on which the school was built. It is as I understand it common ground that the cost to the LEA of providing the school amounted to £11,064 for the land (presumably a portion of the £56,000 which the whole site had cost), plus £312,373 for the buildings: thus in all £323,437. That is a sum of money to which much later reference was made in the history of this matter as set out in the contemporary documents.
8. This conveyance of April 1965 potentially engaged the application of paragraphs 7 and 8 of Schedule 1. On 20th August 1965 Lancashire County Council wrote to the Secretary of State indicating a desire to take over the old grammar school premises at Mellalieu Street to provide accommodation for the Durnford County Secondary School and to seek a conveyance of the land from the trustees to the county council. On 21st November 1967 the district valuer valued the school premises at Mellalieu Street (site B) but not the playing fields (Site A) at £75,000 for the purposes of paragraph 7. Following authority given by an order of the Secretary of State made under section 29 of the Charities Act 1960 site B, the site of the Mellalieu Street school, was assigned by the Middleton Corporation to Lancashire County Council for £1 only on 18th February 1969. Thereafter site B and the playing fields north of Mellalieu Street on site A were used by Lancashire County Council as LEA for the Durnford County Secondary School until 1990.
9. It is convenient to pause very briefly at this stage to review the actual or potential application of paragraph 7.

1. Lancashire County Council had conveyed to Middleton Corporation the school site and buildings on C under paragraph 6 for the relocated grammar school.

2. Middleton Corporation was thus a person who was or might become entitled to any sum representing proceeds of the sale of other premises which had been used for the purposes of the grammar school within paragraph 7; that is to say, the proceeds of sale of site B, the old grammar school site.

3. Accordingly on the disposal of B, in fact to the LEA itself, Middleton Corporation became liable under paragraph 7 to pay to the LEA so much of those proceeds as the Minister might determine to be just having regard to the value of the interest: that is the interest in the school site on C so conveyed.

10. I understand it to be common ground that the Secretary of State's authority for the transfer of B by Middleton Corporation to Lancashire County Council for £1 took effect as a determination under paragraph 7. Whatever the precise reasoning in relation to that, in 1969 the Secretary of State seems clearly to have thought it just for the purposes of paragraph 7 that Lancashire County Council should effectively receive £75,000, the value which had been put upon the premises in question for the purposes of paragraph 7 by the district valuer in 1967. The appellants point out (and I state the fact neutrally) that after this transaction the amount of the 1961/1962 expenditure laid out on the then new grammar school on site C, unrecouped by their LEA predecessors, was £323,437 minus £75,000.
11. On 1st April 1974 in virtue of relevant provisions contained in the Local Government Act 1972 the appellants, Rochdale Metropolitan Borough Council, succeeded Middleton Corporation, and so the reversionary interest in site A vested in them. They also succeeded to the Lancashire County Council as LEA, so that the leasehold interest in site A also vested in them. In August 1990 both the Queen Elizabeth Grammar School and Durnford County Secondary School were closed. Sites A, B and C all became redundant so far as any school use was concerned. There remained however a trust fund; the Queen Elizabeth Foundation trustees administered it. In 1993 those trustees sold the school premises at Boardman Fold Road on site C to Redrow Homes for £321,200. That potentially engaged paragraph 8 of Schedule 1 entitling the Minister to require the trustees to pay to the LEA so much of the purchase money as he thought just having regard to the value of the premises conveyed under paragraph 6 (that is the school site on C) and any sums previously received by the LEA in respect of the premises under the preceding provisions of the Schedule. That is the £75,000 recouped in 1969.
12. The appellants and the Foundation trustees together proposed to the Secretary of State that he should exercise his power under paragraph 8 in this way.

    (1) He should accept an apportionment of the original cost to the LEA of providing the school on site C (as I said £323,437) between them; that is, between the appellants and the trustees, 76 per cent to the LEA, 24 per cent to the trustees.

(2) He should take £75,000 as constituting the trustees' contribution.

(3) With those matters constituting the background he should determine under paragraph 8 that it would be just to allocate 75 per cent of the net proceeds of sale to the appellants.

13. That is what the Secretary of State did on 31 August 1993. 76 per cent of £321,200 amounts to £244,112, and that was the figure awarded under paragraph 8 at that time. In November 1994 the appellants as trustees sold 4.68 acres of site A, the old playing fields north of Mellalieu Street, to Barratt Manchester Homes for £675,000. The sale yielded net proceeds amounting to £645,678, as I have said. The appellants declined to transfer the proceeds to the Foundation trustees contending that they, the appellants, were entitled to a share. There followed litigation in the Chancery Division. It is not necessary to go into the details. The Foundation trustees sued the appellants for a declaration that they were entitled to the whole of the net proceeds. On 30th October 1997 Jonathan Parker J (as he then was) upheld the Foundation trustees' claim. The appellants' appeal was dismissed by this court on 23rd March 1999 - see [1999] 3 All ER 443.
14. Meantime on 13th December 1994 the appellants had applied to the Secretary of State to determine an apportionment of the net proceeds of the sale to Barratts between themselves and the Foundation. On 8th March 1995 the Secretary of State replied indicating his view that he had no power to determine any such apportionment because, putting the matter shortly, paragraphs 6 and 7 had no application to playing fields. On 13th February 1998 the appellants' solicitors re-applied to the Secretary of State for a determination under paragraph 7 (in its present statutory form). The appellants also suggested a basis for the paragraph 7 exercise. They said at paragraph 28 of their letter:

"In our view, the only just way to value the interest conveyed to the Foundation for the purpose of re-imbursing the LEA for the new school conveyed to the Foundation 30 years ago out of the proceeds of land sold by the Foundation in 1994 would be to estimate the cost of providing the land and buildings at 1994 prices."

15. More detail is added. On 7th October 1998 the Secretary of State wrote the letter which is in form the subject of these judicial review proceedings. He accepted, contrary to his earlier view, that there was power to make a paragraph 7 determination. The letter however then proceeded in these terms:

"However, it is not considered that a further determination would be appropriate in this case since a direction has been made under paragraph 8. The combined effect of the assignment of 18th February 1969, whereby the Mellalieu site was conveyed to the Local Education Authority, and the paragraph 8 determination made on 31st August 1993 was that the Local Education Authority were reimbursed in full for the value of the replacement site they had provided. Thus if a paragraph 7 determination had been made in respect of the playing fields before the paragraph 8 direction was made (or if the playing fields had been included in the 1969 assignment) the paragraph 8 direction would have been reduced by the amount of the value attributed to the playing fields."

16. Where the Secretary of State says that the local authority had been reimbursed in full I apprehend that the figures he had in mind were as follows. The LEA had received £75,000 in effect, in 1969, and £244,112 in 1993. That makes a total of £319,112 to be set against the sums laid out by them for the new grammar school on site C in the early 1960s, £323,437. Further correspondence ensued between the appellants and the Secretary of State and these proceedings for judicial review were instituted. At length the Secretary of State wrote again on 4th January 1999 and said this:

"I have looked again at paragraphs 26 to 28 of your letter of 13 February and in particular your argument that the value of the interest conveyed in the Boardman Fold Road site should be taken as the cost of providing the new site and buildings at 1994 prices. Where an application is made for a determination under section 60(4) after a section 62 determination has been made (I interpolate the references are correspondingly to paragraphs 7 and 8 respectively) it would in the Department's view generally be inequitable to take as the value conveyed an amount higher than the proceeds of sale of the new site. We have carefully considered the arguments put forward, but we do not consider that a different approach should be taken in this case."

17. The question raised in this litigation, on the face of it at least, is as to the correct approach in law to be taken by the Secretary of State to the words "the value of the interest so conveyed" in paragraph 7.
18. In my judgment the first thing to be noted here is that whatever is to be taken as the sense of that expression the statute does not require the Secretary of State to apply a formula or an exactly focused rule. He is to decide what amount it is just to pay to the LEA. In doing so he must have regard to the value of the interest conveyed. Had the statute intended the Secretary of State to have regard distinctly to the LEA's outlay on acquiring the site under paragraph 1, that in my judgment could readily have been so provided in terms. I would further accept the Secretary of State's submission that the purpose of paragraph 7 of Schedule 1 is not to provide an index-linked guarantee of compensation to the LEA. Mr McDonnell in the course of his elegant submissions this morning disavowed any suggestion that that was his client's aim in view. However he made it plain that the approach to the statute which he submitted was correct required the Secretary of State to take as his starting point the LEA's outlay on acquiring the site under paragraph 1. That in effect would be the value of the site at the time of its conveyance under paragraph 6; and then some form of uplift would have to be added for the passage of time, if any, between those transactions by the LEA and the later sale of the "other premises" under paragraph 7. I see every reason to adopt the simple approach, to the effect that value of the interest so conveyed refers to the property's value at the time the Secretary of State is considering the matter; or at the least I would regard it as open to the Secretary of State to treat that expression in the statute in that way.
19. If that is right a number of different policy approaches might be open to the Secretary of State in the administration of paragraph 7. He might give more or less weight to the LEA's original expenditure, to the passage of time and to the current value of the relevant property in light of the passage of time, and in light also of the actual purchase price received. Mr. McDonnell was at pains to emphasise what he called the windfall example. If the property sold so as to engage paragraph 7 happens to have been sold for a large sum of money, that again seems to me something that the Secretary of State would be entitled to consider in assessing what would be just payment within the paragraph. In my judgment an essential flaw in the appellants' case is that it seeks to straight-jacket the Secretary of State's approach by its insistence that he should take value as meaning in effect the cost to the LEA of providing the site and buildings of the school and treating this as a compulsory mathematical basis for arriving at a paragraph 7 determination; or, if that puts Mr McDonnell's argument too high or too tightly, at any rate the flaw is that the general approach is in truth to that effect. Mr. McDonnell submitted that his skeleton argument, paragraph 24, was the starting point of his argument before us. That reads:

"One of the principal purposes of Parliament which can be discerned in the 1944 Act was to preserve intact the voluntary schools which existed all over the country, many of them (like Queen Elizabeth School, Middleton) being foundations of great antiquity. Their school premises and endowments were left in the ownership of their own charitable trustees and subject to all the various individual charitable trusts created by their founders or modified or re-written by schemes."

20. Mr. McDonnell submits that the Secretary of State's approach is inconsistent with the notion that the local education authority provides the school to the Trust which then enjoys it beneficially as part of the Trust's assets subject only to paragraphs 7 and 8. He says that on that footing the purpose of paragraphs 7 and 8 is to compensate the LEA for their contribution to the Trust's assets and that exercise requires, as a matter at any rate of reasonableness, that "value of the interest so conveyed" must in practice be taken to refer to the cost to the LEA of providing the school under paragraph 1, though strictly I understood him to say that it refers to the value of the interest at the time it was conveyed under paragraph 6. I do not for my part find that the provisions in question contain anything like the somewhat elaborate edifice for which Mr McDonnell contends. I have given my reasons for that conclusion. In particular I have already stated my view that if Parliament had intended the Secretary of State distinctly to have regard to the cost to the LEA of acquiring the school, it could and I think would have so provided in terms. In my judgment the Secretary of State has a broad discretion here. No doubt he will have regard to the history, not least what the LEA has paid to acquire the school site under paragraph 1, when he comes to decide what if any portion of the proceeds received by the trustees for the other property should be paid to the LEA. But that does not compel what I regard with great deference as an artificial and strained construction of the words "value of the interest so conveyed", nor as it seems to me is any light thrown on the matter favourable to the appellants' case by the reference in paragraph 7 to the School Sites Act 1841. As was pointed out by my Lord, Buxton LJ, in the course of argument it appears that this reference was inserted merely to assimilate a payment under the paragraph to a payment under section 14 thereby making it clear, though plainly it was in truth unnecessary to do so, that no breach of trust could be involved in the transaction. Nor as it seems to me do the terms of paragraph 8 of the Schedule offer any separate comfort to the appellants, nor yet the fact that paragraph 7 only applies to controlled schools whereas paragraph 8 applies to all voluntary schools.
21. Adopting the approach that I have taken there is in my judgment no error of law in the decision letter of 7th October 1998 or the Secretary of State's further explanation given in the letter of 4th January 1999. For these reasons I would dismiss the appeal.
22. LORD JUSTICE BUXTON: I agree that the appeal should be dismissed. I venture to add a few words to my Lord's judgment, with all of which I agree. As my Lord has pointed out, an important part of the argument of Mr McDonnell for the appellants was to say that, when the local authority provides a site to a voluntary school under paragraph 1 of the First Schedule to the 1946 Act, that act should be analysed as the local education authority providing new assets to the Trust, which remain assets of the Trust and, if sold, are to be regarded on that sale as assets of the Trust, subject only to the statutory determination of the Secretary of State under paragraph 7; which determination should be based upon compensating the local authority for what was described in argument as "what the local authority gave to the trustees". Given that approach, what was given included the value of the site, which is seen as tantamount to a donation to the funds of the Trust of the amount paid by the local authority, or the value of land already owned by the local authority which is transferred, together with an uplift of that original amount in order to compensate the local education authority "from being kept out of its money".
23. That approach is wrong on a number of scores. First of all, it should be noted that there is nothing demonstrated by that analysis or otherwise in the argument put forward by the appellants to establish that, as a matter of law, value must mean not the current value but the uplifted original value. In my judgement it would be necessary to establish that, and it is not established, in order to demonstrate that the Secretary of State had erred in law. Secondly, as my Lord has demonstrated, such an approach impermissibly limits the broad discretion given to the Secretary of State that is set out in paragraph 7. Thirdly, that view of what is occurring in the First Schedule to the 1946 Act is simply conceptually misconceived. When it exercises its powers and duties under the First Schedule to the 1946 Act, the local education authority is not acting simply as a contributor to the funds of the Trust or simply as a provider of land for the Trust to do its work upon. The 1946 Act supplements and implements, and has to be read in the context of, the Education Act 1944. That is demonstrated by the fact that section 3 of, and the First Schedule to, the 1946 Act came into operation on the same day as Part II of the 1944 Act.

Part II of the 1944 Act makes it plain that the relationship between local education authorities and those responsible for the conduct of voluntary schools is to be one of partnership, a partnership that is to be seen in the context of the duty of the local education authority to secure provision of education. Section 8 of the 1944 Act imposes that duty. Section 9 says that the duty can be operated either by the local education authority establishing its own schools, or by or through primary and secondary schools not maintained by the local education authority; that is to say, by voluntary schools. Section 1 of the 1946 Act sets out the machinery for the operation of that partnership between the local education authority and the voluntary bodies. The local education authority provides the site under paragraph 1 of the Schedule to the 1946 Act as an aspect of, and part of, the local education authority's overall educational responsibility. That being so, and that being the context in which the machinery and arrangements in the First Schedule to the 1946 Act are formulated, it is artificial to approach them in the technical sense that the appellants' argument demanded. Rather, that explains why, in the context of that joint provision of education, resolution of how the finances should be determined when sites provided for voluntary schools are disposed of is subject to the discretionary judgement that is provided by paragraph 7 of the First Schedule. Any approach that limits the Minister would be inconsistent with the overall operation of the whole system of education established by the 1944 and 1946 Acts. The local education authority plays a particular role in this process and paragraph 7, interpreted as my Lord would interpret it, reinforces that approach. The appellants' approach does not do so.

24. For those reasons, which are merely a footnote to what my Lord has said, I would dismiss the appeal.
25. LORD JUSTICE THORPE: I agree that the appeal should be dismissed for the reasons given by my Lords.
Order: Appeal dismissed with costs; application for permission to appeal refused. (Order not part of the judgment of the court)