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
(MR JUSTICE MORISON)

		Royal Courts of Justice Strand London WC2
		Monday 26th February 2001

1. LORD JUSTICE PILL: This is an application for permission to appeal against a judgment of Morison J given as recently as 23rd February, which is Friday last.
2. Morison J refused permission to appeal and refused to give any relief to the applicants, who are described as Lidl UK GmbH. They had sought relief against the Swale Borough Council who had sought to sell land to a competitor of Lidl known as Aldi. Both companies are German companies who run supermarkets and are seeking to develop operations in the United Kingdom. They are in competition with each other. I am told that Lidl already have a large number of stores; I do not know how many Aldi have. They are competitors at the Isle of Sheppey, which is within the territory of the Swale Borough Council.
3. Aldi identified land mainly used for car parking as a site for a supermarket and entered into negotiations with the borough council. They also did some land assembly and produced a scheme which in planning terms was acceptable to the borough council who granted them planning permission for the supermarket and associated developments.
4. At a late stage Lidl entered the picture. They cannot be criticised for that because there had been no public advertisement of the land and no open offer for sale by the borough council who had negotiated only with and at the initiative of Aldi. They made, at a late stage, a higher offer for the land. They also accept that they are in negotiation to purchase other land within the Isle of Sheppey which could be used for a supermarket. That does not, as yet, have planning permission but an application could be made.
5. At a meeting on 15th August the borough council decided to proceed with the sale to Aldi, notwithstanding that they had received what in global terms was a higher offer from Lidl.
6. The central submission on behalf of Lidl is that the council, if they proceed with the transaction, are in breach of section 123 of the Local Government Act 1972 which provides at subsection (2):

"Except with the consent of the Secretary of State a council shall not dispose of land under this section otherwise than by way of a short tenancy for a consideration less than the best that can reasonably be obtained."

7. Subsection (1) empowers a disposal of land by principal councils of which the Swale Borough Council is one.
8. Before summarising the submission on behalf of Lidl in rather more detail, I indicate why it is that late on a Monday afternoon I am considering this application. The learned judge disclosed his reserved judgment to the parties 48 hours before he handed it down at 2 pm on Friday last. No steps were taken at that stage to see that the matter could come promptly before the Court of Appeal if the judge found against Lidl and refused to protect their position pending an application to the Court of Appeal. The need for urgent protection arose because it was made clear by the borough council and Aldi that they were on the verge of completing the transaction. They were not prepared to give any undertaking, following the judge's ruling in their favour, not to complete it pending an application for permission to appeal to this court.
9. There is at present a dispute as to whether the matter has been completed so that by virtue of section 128 of the Act the transaction can no longer be impugned. I have agreed to consider the application for permission to appeal on the basis that if permission is granted I will tomorrow consider submissions as to whether any real remedy is still available to Lidl.
10. What I should wish to put on record, having read the skeleton argument which Mr Mercer has submitted on the applicant's behalf, is that he does not persist in the submission that an indication had been given to him that the council would continue its undertaking, which existed up until the time of judgment by Morison J, not to complete the sale, which was by way of long lease. I accept that there is no question here of bad faith on behalf of the borough council. They were entitled to do as they did in declining to continue the undertaking and in proceeding with the action which has been taken today. As I have said, the effect of that action, in terms of whether it completes the transaction for the purpose of section 128, is in dispute between the parties.
11. Aldi were interveners at the hearing before Morison J and were represented by Mr Brown, who also appears today, as does Miss Carrington who appeared for the borough council.
12. What Mr Mercer submits is that the council are in breach of the requirement of section 123(2). They are proposing to or have disposed of the land for a consideration less than the best that can reasonably be obtained. Mr Mercer criticises the procedure which the council followed. He submits that they were under a duty to seek offers and they should have taken active steps to see that they were obtaining the best consideration. He submits that the judge has not considered this question of process, as Mr Mercer puts it; the procedure which ought to have been followed by the council having regard to the requirements of section 123(2). He goes on to submit that while the bid by his clients was a late one, in order to meet the requirements of section 123(2), the council should have sought more information from Lidl as to the terms upon which they were prepared to purchase. The council were under a duty to attempt to assess the good faith of the offer which Lidl were making if they had any doubt about it. Mr Mercer submits that they were at fault in failing to obtain a formal valuation of the land before taking the decision to proceed with the sale of the long lease to Aldi.
13. The issue was put before the council on 15th August. The council had available to them a report from their officer, Mr Parker, who is the engineering services manager. I do not propose to read it in full. The learned judge has set out the factors which Mr Parker believed to be relevant to the committee's consideration in making its judgment.
14. At the hearing before Morison J, evidence as to value was given both on behalf of Lidl and on behalf of the council and that is summarised at paragraph 15 of the judgment. Mr Parker told the court that having regard to comparables Aldi's bid reflected the true value of the site. The valuer called on behalf of Lidl submitted a valuation "at not less than £900,000". Aldi's bid was in the sum of £650,000 together with a long lease at a rent of £12,000 per year. That sum has been capitalised at a range, as the judge pointed out, the higher part of which is only £10,000 below the some of £900,000 just mentioned. The offer from Lidl is of £950,000. Mr Mercer submits that there is a plain difference between the two offers. Lidl's offer is higher. The council, in accepting or wishing to accept Aldi's offer, have failed to comply with the requirement of section 123(2).
15. He relies upon the case of Tomkins and another v Commission for the New Towns [1989] 1 EGLR 24 where the wording of section 37(3) of the New Towns Act 1981 (as amended) was considered and where the relevant expression was "the best reasonably obtainable" - an expression which it is not suggested is materially different from that in section 123. That was a sale of agricultural land with permission for residential development. In the course of his judgment Dillon LJ stated that the section was intended:

"...only to authorise a sale at the best price, the full current open market value... if there is to be a sale at a price which cannot be justified as the full current open market value or best price, it is only right that the Secretary of State who is answerable for public funds should have to consent to that sale."

16. Dillon LJ also stated that you could not imply from the word "reasonably" that the commission could:

"...on moral or ethical ground or grounds of supposed fairness take a price for the land which it and its advisors have no reason to believe is the best that could be obtained, or as good as it could get."

17. Bingham LJ considered the land in question and stated that:

"...there is, in my opinion, no conflict in any case where the full current open market value of land can with reasonable confidence be assessed.

...

If, therefore, as here, the commission shows that the value cannot be reliably ascertained save by offering the land on the open market, I do not think the former owners are assisted by the language of the subsection."

18. I accept that the decision of the council is to be made upon financial grounds. Moral or ethical grounds, depending on how they are defined, should not influence the discharge of the duty under section 123. Mr Mercer cannot, however, in my judgment, rely upon the facts of Tomkins to support directly his submission in the present case. That was a case where plainly open market value could readily be determined. It was agricultural land with permission for residential development. There was likely to be a ready market for that land and bids from many potential developers. The present situation is different in that one has land used primarily now as a parking lot and where it is not suggested that any general use such as, for example, a general office use or a general residential use would be appropriate, but which has potential for this specialist use in which the two present companies are in competition.
19. Valuation is a difficult exercise. I cannot find that Mr Parker or his council were at fault in not going to an outside valuer or in not doing more than they did to assess what the market value of the land might be, the market being a very restricted one. It is right that there was no formal valuation placed before the Committee but Mr Parker, who subsequently gave evidence that the sum offered was in his judgment a reasonable one, could in my judgment properly place before the Committee the considerations he did based on his view that the sum offered was a proper one. However, that is not the end of the story because, for the purposes of section 123, what the court must be concerned with is not merely a proper value in a market sense but the "best that can reasonably be obtained".
20. Mr Mercer's central submission comes down to the submission that if the sum offered, albeit with the provision for a long lease at £12,000 per year was simply not the best which could reasonably be obtained when an offer of £950,000 had been made. It is necessary therefore to analyse the considerations which led the council to accept the offer and proceed with the transaction with Aldi. That the judge has done in his judgment. That Mr Parker did in his report to the Committee. In my judgment, and I am agreement with the judge, there was ample material upon which the council were entitled to proceed with the transaction with Aldi, paying full regard to the wording of the section. In my judgment forceful arguments are set out which can be summarised as the "bird in the hand argument":

"7(4) To now abandon the agreement with Aldi and proceed with the offer from Lidl is considered to be a much higher risk strategy than continuing with current proposals from Aldi because there is much less certainty that the transaction could actually proceed to completion and that the development of this facility take place.

7(6) It is known that Lidl have been in discussions in connection with another edge of town site which could be their preferred option should, as a result of their bid, Aldi withdraw from the project altogether. The only reason for their interest in this site now is that the development by Aldi is likely to take place in the short term."

21. The council were faced with a negotiated offer the detail of which had been considered and which could be completed within a very short time. As against that they had an offer from which Lidl were entitled in law to withdraw. Moreover it was known that Lidl had another site which the council were entitled to bear in mind when considering the possibility of Lidl withdrawing. Moreover, the money, £650,000 of it, would be paid forthwith and plainly that is better financially for a council than having to renegotiate a complex transaction with another developer.
22. I agree with the conclusions of the judge. I do not find it necessary to go on to consider the motivation of Lidl. That in my judgment is not necessary to the decision, though in declining to offer any time to Lidl to bring an application to this court, the judge was entitled to take it into account.
23. It is right that in 7.5, the report, echoed in the minute accepting the recommendation, used the word "ethical". In its strict sense the word was, in my judgment, inappropriate for the reason I have given. I cannot however regard its use as crucial to the decision of the council which plainly appears to me to be based on financial considerations which they were entitled to take into account. The fact that negotiations had been completed and that an early completion could be achieved was, in my judgment, a relevant factor and comes close to the way in which the point in 7.5 is put.
24. The conclusion of the Committee appears at the minute at page 207A of the bundle:

"Members considered the ability of the respective parties to proceed, the comparable evidence supporting their original decision, the risks attached to both offers, the commercial position of the two bidders and the ethical considerations. They took into account all the circumstances of the case when reaching their decision."

25. Save for what I have said about the use of the word "ethical", that was in my judgment an approach which the Committee were fully entitled to make. I do not consider importance could be attached to planning considerations. Miss Carrington has sought to argue the fact that, as mentioned in the correspondence, other transactions would be thrown in doubt if the transaction with Aldi were not to proceed and there could be other planning complications for the council if they had to start again. I agree with Mr Mercer that planning considerations as such should not enter into a consideration of section 123. They will of course often have financial implications for the relevant land and to that extent they are relevant. I am satisfied that the council in this case made their decision upon a proper basis and having proper considerations in mind.
26. The further point is made that there is a breach of Article 87(1) and of the guidance contained in Commission Communication on State Aid Elements in Sales of Land and Buildings by Public Authorities. In my judgment that Article and that document do not require the council to act in an unbusinesslike way. For the reasons I have given in relation to domestic law and the section in the statute, I find nothing in the conduct of the council which in the circumstances of this case and having regard to the land concerned was in breach of the Article or of the guidance in the Communication to which I have referred.
27. In my judgment there is no arguable ground for appealing the judgment of Morison J. I refuse permission to appeal. That being so other questions as to injunctions and as to whether section 128 now operates to defeat any claim for relief by Lidl do not arise.
ORDER: Permission refused with costs.