COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH
DIVISION (ADMINISTRATIVE & DIVISIONAL
COURT) (MR JUSTICE NEWMAN)
London, WC2A 2LL
B e f o r e :
LORD JUSTICE LAWS
MR JUSTICE WILSON
| The London Borough of Newham
|- and -
|Khatun, Zeb and Iqbal
The Office of Fair Trading
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr J Luba QC and Mr S Knafler (instructed by Aina Khan Partnership) for the 1st 2nd and 3rd Respondents)
Mr N Green QC (instructed by The Treasury Solicitor) for The Office of Fair Trading
Crown Copyright ©
Lord Justice Laws:
THE FIRST ISSUE
(1) The Housing Act 1996 Part VII
"(1) In the exercise of their functions relating to homelessness and the prevention of homelessness, a local housing authority or social services authority shall have regard to such guidance as may from time to time be given by the Secretary of State.
(2) The Secretary of State may give guidance either generally or to specified descriptions of authorities."
"If the local housing authority have reason to believe that an applicant may be homeless or threatened with homelessness, they shall make such enquiries as are necessary to satisfy themselves –
(a) whether he is eligible for assistance, and
(b) if so, whether any duty, and if so what duty, is owed to him under the following provisions of this Part."
"(1) If the local housing authority have reason to believe that an applicant may be homeless, eligible for assistance and have a priority need, they shall secure that accommodation is available for his occupation pending a decision as to the duty (if any) owed to him under the following provisions of this Part.
(3) The duty ceases when the authority's decision is notified to the applicant, even if the applicant requests a review of the decision (see section 202).
The authority may secure that accommodation is available for the applicant's occupation pending a decision on a review."
S.189 defines those in priority need. In summary they are pregnant women, persons with dependent children, persons who are vulnerable through old age or certain other causes, and persons rendered homeless as a result of an emergency. S.190 imposes limited duties upon a local authority where it is satisfied that an applicant is homeless, but became so intentionally. S.191 explains what is meant by "becoming homeless intentionally". S.193 imposes on local housing authorities what is known (in the argot of this branch of the law) as "the full housing duty". It is at the centre of these appeals. I should set out the following subsections:
"(1) This section applies where the local housing authority are satisfied that an applicant is homeless, eligible for assistance and has a priority need, and are not satisfied that he became homeless intentionally.
(2) Unless the authority refer the application to another local housing authority… they shall secure that accommodation is available for occupation by the applicant.
(3) The authority are subject to the duty under this section until it ceases by virtue of any of the following provisions of this section.
(3A) The authority shall, on becoming subject to the duty under this section, give the applicant a copy of the statement included in their allocation scheme by virtue of section 167(1A) (policy on offering choice to people allocated housing accommodation under Part VI).
(5) The local housing authority shall cease to be subject to the duty under this section if the applicant, having been informed by the authority of the possible consequences of refusal and of his right to request a review of the suitability of the accommodation, refuses an offer of accommodation which the authority are satisfied is suitable for him and the authority notify him that they regard themselves as having discharged their duty under this section.
(6) The local housing authority shall cease to be subject to the duty under this section if the applicant –
(a) ceases to be eligible for assistance,
(b) becomes homeless intentionally from the accommodation made available for his occupation,
(c) accepts an offer of accommodation under Part VI…, or
(d) accepts an offer of an assured tenancy (other than an assured shorthold tenancy) from a private landlord,
(e) otherwise voluntarily ceases to occupy as his only or principal home the accommodation made available for his occupation.
(7) The local housing authority shall also cease to be subject to the duty under this section if the applicant, having been informed of the possible consequence of refusal and of his right to request a review of the suitability of the accommodation, refuses a final offer of accommodation under Part VI.
(7B) The authority shall also cease to be subject to the duty under this section if the applicant accepts a qualifying offer of an assured shorthold tenancy which is made by a private landlord in relation to any accommodation which is, or may become, available for the applicant's occupation.
(7D) For the purposes of subsection (7B) an offer of an assured shorthold tenancy is a qualifying offer if –
a) it is made, with the approval of the authority, in pursuance of arrangements made by the authority with the landlord with a view to bringing the authority's duty under this section to an end;
(7F) The local housing authority shall not –
a) make a final offer of accommodation under Part VI for the purposes of subsection (7); or
b) approve an offer of an assured shorthold tenancy for the purposes of subsection (7B),
unless they are satisfied that the accommodation is suitable for the applicant and that it is reasonable for him to accept the offer.
(8) For the purposes of subsection (7F) an applicant may reasonably be expected to accept an offer even though he is under contractual or other obligations in respect of his existing accommodation, provided he is able to bring those obligations to an end before he is required to take up the offer.
(9) A person who ceases to be owed the duty under this section may make a fresh application to the authority for accommodation or assistance in obtaining accommodation.
"(1) An applicant has the right to request a review of -
b) any decision of a local housing authority as to what duty (if any) is owed to him under sections 190 to 193… (duties to persons found to be homeless…),
f) any decision of a local housing authority as to the suitability of accommodation offered to him in discharge of their duty under any of the provisions mentioned in paragraph (b)… or as to the suitability of accommodation offered to him as mentioned in section 193(7).
(1A) An applicant who is offered accommodation as mentioned in section 193(5) or (7) may under subsection (1)(f) request a review of the suitability of the accommodation offered to him whether or not he has accepted the offer.
(3) A request for review must be made before the end of the period of 21 days beginning with the day on which he is notified of the authority's decision or such longer period as the authority may in writing allow.
(4) On a request being duly made to them, the authority or authorities concerned shall review their decision."
S.204, which I need not set out, confers on an applicant who is dissatisfied with a decision taken on a review under s.202 a right of appeal to the county court "on any point of law arising from the decision or, as the case may be, the original decision."
(2) The Secretary of State's Guidance
"9.11. Housing authorities must not make a final offer under Part 6 or approve a qualifying offer of an assured shorthold tenancy unless they are satisfied that the accommodation is suitable for the applicant and that it is reasonable for him or her to accept the offer. Where an applicant has contractual or other obligations in respect of his or her existing accommodation (e.g. a tenancy agreement or lease), the housing authority can reasonably expect the offer to be taken up only if the applicant is able to bring those obligations to an end before he or she is required to take up the offer (s.193(8)).
9.12. Housing authorities must allow applicants a reasonable period for considering offers of accommodation, particularly final offers made under Part 6 that will bring the homelessness duty to an end whether accepted or refused. There is no set reasonable period; some applicants may require longer than others depending on their circumstances, whether they wish to seek advice in making their decision and whether they are already familiar with the property in question. Longer periods may be required where the applicant is in hospital or temporarily absent from the district. In deciding what is a reasonable period, housing authorities must take into account the applicant's circumstances in each case."
(3) The Council's Policy
"Bed and breakfast accommodation caters for very short-term stays only and generally will afford residents only limited privacy and may lack certain important amenities such as cooking and laundry facilities. Consequently, where possible, housing authorities should avoid using bed and breakfast hotels to discharge a duty to secure accommodation for homeless applicants."
The Order will come into force on 1st April 2004.
"I am pleased to inform you that the Homeless Persons Unit can now transfer you to alternative temporary accommodation. This accommodation is available under the Private Leasing Scheme and is a self-contained unfurnished property.
You should come to the Homeless Persons Unit, 3 Pragel Street, London E13 9HB at 11.00 am on Thursday 12th December 2002 to collect keys and sign the Tenancy Agreement.
We will continue your hotel booking for a further 3 nights if necessary from your appointment date, in order for you to arrange for gas and electricity supplies to be connected.
If you are unable to keep the above appointment, please telephone on the above number to arrange another appointment. Failure to contact us will result in immediate cancellation of your Bed and Breakfast booking and the offer of accommodation will be withdrawn.
You must ensure that you bring with you proof of identity, ie wage slips, benefits book, letter from employer etc., so that the Housing Benefit form can be completed on the appointment day.
If you have a partner, please ensure he/she turns up also, otherwise sign-up will not take place.
Please note, if you decide not to accept this offer, you will not receive any further offers while enquiries on your application are ongoing. If you are in Bed and Breakfast accommodation it will be cancelled. If you have received a positive decision to your application (letter re: s.184 accept), your application will be closed. Please note that this Authority may consider that you have rendered yourself intentionally homeless if you make a subsequent application.
This accommodation is considered suitable for you and is offered under s.193 of Housing Act 1996. You may apply for a review of the suitability of this accommodation provided you request this within 21 days of receiving this letter."
As the judge noted, identical letters were sent to the other two respondents. In fact Ms Khatun, on being offered a different property at a later date, received a further letter which modified what had been said in the penultimate paragraph which I have set out. The substitute paragraph was in these terms:
"You are advised that if you refuse an offer of suitable accommodation you may not receive any further offers and your current accommodation provided by the council may be cancelled. If you need any further advice on this matter please speak to a member of our staff when you attend the above-mentioned appointment."
(4) The Particular Facts of the Respondents' Cases
"5. I phoned Ms Zeb's solicitors in an attempt to understand her reasons for rejecting the property. He was unable to make any comment on the suitability of the property but informed me that he was advising all clients not to accept properties without viewing because his firm was seeking to challenge Newham's policy."
All three respondents have been represented by the same solicitors, the Aina Khan Partnership. In my judgment the facts stated by Habiba Sukabawa demonstrate an abuse by these solicitors of their relationship with vulnerable clients. They were treating the clients as pawns in a campaign they had themselves conceived against the Council, with no particular regard to the clients' individual interests.
(5) The Judge's Approach to the First Issue
"26. In my judgment to depart from national guidance given under statute in order to achieve a national guidelines target, which has been set administratively, is to run the risk of acting unlawfully by failing to follow the guidance… 27. In my judgment the Defendant should not have permitted the targets which had been set to deflect its attention from the import of the guidance…"
Although with respect the point is by no means entirely clear, I take the judge to be holding in these passages that the Council's policy is unlawful because it involves a departure from the guidance for which no sufficient justification is demonstrated. If so, this is a free-standing basis for the policy's condemnation. I find it convenient to revisit that after considering Mr Luba's more direct assaults on the policy.
"… More than that, the view it [sc. the Council] held… to the effect that its state of knowledge, at the signing of the tenancy agreement, as to the suitability of the accommodation, was of paramount importance, was wrong. As a result it failed, when devising the policy, to pay sufficient regard to the interests of the applicants… 28. I have no doubt that, subject to any legitimate considerations to the contrary, the fair and practical administration of the law in this regard requires that an opportunity should be given to applicants to view accommodation before they enter into a tenancy agreement… [I]nspection of the physical condition and precise location are relevant to reaching a decision to pay rent and assume legal obligations as a tenant."
Then, under the heading "OPPRESSION", the judge continued:
"32… The efficiency of the Defendant in administering the system and its success in offering and providing suitable accommodation is not the issue. The issue is, whether there is any reason for not providing an applicant with an opportunity to view accommodation, if one is requested, before requiring them under threat of a legal sanction, to sign a tenancy agreement giving rise to legal obligations. I accept that the Defendant endeavours… to match the PSL property to the applicant and generally succeeds, but the catalogue of information may or may not be determinative of suitability. Ultimately whether there is to be an issue will depend upon the applicant having seen the property and considered its suitability. That is what, in my judgment, Parliament contemplated when legislating for a right of review. It did not legislate for the local authority's judgment to operate, at any stage, as final and conclusive."
Lastly, the judge summarised his reasons for striking down the policy:
"38. This policy… led it [sc. the Council] to assume that a homeless person did not require the same degree of freedom to contract as would have unhesitatingly been accorded by it to others. The terms of the letter to invite applicants to an interview and the practice employed at the signing appointment were coercive and unfair. They departed from the Code. They infringed an applicant's right to be sufficiently informed in connection with the legal obligations to be assumed by the tenancy agreement. They were designed to wrongfully restrict the circumstances in which a review could be requested. It follows the policy is unlawful."
(6) Mr Luba's Submissions
"That does not mean that they [sc. the local authority] can simply terminate without further notice. They are under a public law duty to act reasonably, which is of particular importance when one is dealing with a need so basic as the need for a roof over one's head… [A]t the very least I do not see how the time allowed, even in the most precarious case, can reasonably be less than the time normally given to someone found intentionally homeless, which I understand in Westminster would be 14 days subject to any particular considerations and I understand some other authorities it is 28 days."
(7) Conclusions on the First Issue: (a) A Right to View and Comment?
"32… The efficiency of the Defendant in administering the system and its success in offering and providing suitable accommodation is not the issue. The issue is, whether there is any reason for not providing an applicant with an opportunity to view accommodation, if one is requested, before requiring them under threat of a legal sanction, to sign a tenancy agreement giving rise to legal obligations."
In my judgment the Council's "success in offering and providing suitable accommodation" is precisely the issue; or rather, it will precisely constitute (where it eventuates) the fulfilment of the statutory scheme. The judge's statement of the issue assumes a right to view the offered property, and asks whether there is any reason to dislodge such a right. But this approach is not vouched by anything in the statute.
"He [counsel] prayed in aid some observations of Cooke J. in the New Zealand case of CREEDNZ Inc. v. Governor General  1 N.Z.L.R. 172. The facts of that case bear no resemblance to this case. But the judge did consider the question of the proper exercise of an administrative discretion in a situation where a statute permits but does not require consideration of certain matters. The judge said, at p.183:
'What has to be emphasised is that it is only when the statute expressly or impliedly identifies considerations required to be taken into account by the authority as a matter of legal obligation that the court holds a decision invalid on the ground now invoked. It is not enough that a consideration is one that may properly be taken into account, nor even that it is one which many people, including the court itself, would have taken into account if they had to make the decision.'
These words certainly do not support Mr. Sedley's submission. But… the judge in a later passage at p.183, line 33, did recognise that in certain circumstances, notwithstanding the silence of the statute, 'there will be some matters so obviously material to a decision on a particular project that anything short of direct consideration of them by the ministers . . . would not be in accordance with the intention of the Act.'
These two passages are, in my view, a correct statement of principle."
"In my view the court should establish what material was before the authority and should only strike down a decision by the authority not to make further enquiries if no reasonable council possessed of that material could suppose that the inquiries they had made were sufficient."
This approach is lent authoritative support by the decision of this court in R v Royal Borough of Kensington and Chelsea ex p. Bayani, which was concerned with the authority's duty of inquiry in a homelessness case. Neill LJ said at 415:
"The court should not intervene merely because it considers that further inquiries would have been sensible or desirable. It should intervene only if no reasonable housing authority could have been satisfied on the basis of the inquiries made."
'This need [to consult other authorities] need not prevent arrangements being made, taking full account of the wishes of the applicant, for another authority to take responsibility for him.'
That imports that the wishes of the applicant are to be taken into account."
In Ex p. Lindsay Simon Brown J as he then was said this at p. 507:
"[Parr] continues to be of relevance since it has been overruled [sc. implicitly by the decision of their Lordships' House in Ex p. Puhlhofer] only on the point as to the appropriateness of the accommodation offered and not upon the second question which was also considered by the Court of Appeal as to the applicant's entitlement to be given a proper opportunity of considering the offer, both by being told sufficient details about the premises and by being given time to take a decision."
I would disavow the proposition, so far as it is advanced, that the reasoning in these cases suggests (whether by force of public law principle, or of the words of the legislation or the guidance) that the applicant's subjective views on suitability are in truth a compulsory relevant factor in the authority's process of decision. The distinction between such a proposition and the notion that the applicant's preferences must be taken into account is fragile to the point of disappearance. No doubt, where an authority operates a procedure by which an applicant is in fact afforded an opportunity to view and comment, it would be difficult to see how the authority might then rationally decline to consider what the applicant had to say. Of course I do not suggest that the applicant's views are not capable of being treated by a reasonable authority as relevant to its decision. I hold only that they are not required by law to be so treated.
(8) Conclusions on the First Issue: (b) Oppression?
(9) Conclusions on the First Issue: (c) the Secretary of State's Guidance
"Obviously, Newham is conscious of the Code of Guidance, and has regard to it. Nevertheless, having regard also to the need to move families from bed and breakfast, it considers its current practice to be preferable to the one advocated by the Code. The current Code was published in July 2002, when the state of the law was that local housing authorities were under no obligation to offer applicants a review if they accepted the property."
For good measure Mr Luba submits that this last sentence is mistaken: the right of review given by s.202(1A) of the 1996 Act had effect from February 2002. As a matter of fact, that is quite right.
THE SECOND ISSUE
(1) The Directive
"1. … The Council shall… adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.
2. Paragraph 1 shall not apply to fiscal provisions, to those relating to the free movement of persons nor to those relating to the rights and interests of employed persons.
3. The Commission, in its proposals envisaged in paragraph 1 concerning health, safety, environmental protection and consumer protection, will take as a base a high level of protection, taking account in particular of any new development based on scientific facts. Within their respective powers, the European Parliament and the Council will also seek to achieve this objective."
"(8) Whereas the two Community programmes for a consumer protection and information policy underlined the importance of safeguarding consumers in the matter of unfair terms of contract…;
(9) Whereas in accordance with the principle laid down under the heading 'Protection of the economic interests of the consumers', as stated in those programmes: 'acquirers of goods and services should be protected against the abuse of power by the seller or supplier, in particular against one-sided standard contracts and the unfair exclusion of essential rights in contracts';
(10) Whereas more effective protection of the consumer can be achieved by adopting uniform rules of law in the matter of unfair terms; whereas those rules should apply to all contracts concluded between sellers or suppliers and consumers; whereas as a result inter alia contracts relating to employment, contracts relating to succession rights, contracts relating to rights under family law and contracts relating to the incorporation and organization of companies or partnership agreements must be excluded from this Directive…"
1. The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to unfair terms in contracts concluded between a seller or supplier and a consumer.
For the purposes of this Directive:
(c) 'seller or supplier' means any natural or legal person who, in contracts covered by this Directive, is acting for purposes relating to his trade, business or profession, whether publicly owned or privately owned.
1. A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
1. Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms."
(2) The Regulations
"These Regulations apply in relation to unfair terms in contracts concluded between a seller or a supplier and a consumer."
Paragraph 5 (and more particularly Schedule 2, given effect by paragraph 5(5)) makes provision for rules and instances by reference to which a contractual term will fall to be treated as unfair. The instances given are, in the inelegant language of paragraph 5(5), "non-exhaustive". I need not set them out. Paragraph 6(1) provides:
"… the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent."
(3) The Community Programmes of 1975 and 1981
(4) The Draft Proposed Directive and the Opinion of the Economic and Social Committee
"The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to unfair terms in consumer contracts."
"The Committee recognizes the need for a European instrument intended to restore some balance in consumer contracts. A fear is expressed in some circles as to the negative impact of the directive on the industrial, commercial and other professional sectors, the Committee's reaction is that: ""
- The directive will not constitute a major departure from the law of contract in nine Member States (United Kingdom, France, Germany, the Netherlands, Spain, Portugal, Ireland, Denmark, Luxembourg), whose legislations related to unfair contract terms contain principles which are very close to those of the directive, and which already apply to the contracting parties in these States,
- The directive will not introduce dramatic changes in contract law in the three Member States (Belgium, Italy, Greece) where no specific legislation exists, as in these countries case-law already, even if sometimes with hesitation, penalizes unfair contract terms."
Then at 2.3.1 ECOSOC says this:
"According to the Commission proposal, the Directive applies to all consumer contract terms, be they standard or individually negotiated…"
"The Committee invites the Commission to carefully revise the drafting of the different language versions of the annex, because many of the notions are not sufficiently clear and give rise to major difficulties of interpretation."
The annex referred to appears at the end of the draft directive and consists of a list of terms or types of terms which will be taken to be unfair. Mr Underwood says that if it had been intended that the Directive should cover transactions in land ECOSOC could and would at this point have picked up a difference, which is relied on before us by Mr Green, between the English "goods" and the French "biens" (the latter is said to include land). I shall deal with that when I confront the arguments.
(5) The Explanatory Memorandum
"It cannot be assumed that consumers who cross frontiers to buy goods or services, or to invest or acquire property in other Member States, have understood and agreed the terms of a contract they have made, if they do not speak the local language or are unfamiliar with the local law…" (my emphasis)
Then at pp. 2-3:
"Turning to the substance of the proposal, Article 1 defines its scope as including every contract between a consumer and a party acting in the course of his trade, business or profession…"
It will be seen that there is some difference in the language of Article 1 of the draft directive and Article 1 of the Directive as it was made, both of which I have set out. I would observe at this stage that this comment of the Commission, at pp. 2-3 of the Explanatory Memorandum, applies with like force to both texts.
"But we are very far away from large-scale harmonisation. The time is not ripe for approximating or unifying the national laws relating to the whole field of contractual and quasi-contractual obligations or even to the limited sphere of the sale of goods and provision of services. The most positive step that the European Community can at present take in this important branch of the law… is:
- to eliminate unfair terms in contracts concluded with consumers, by specifically identifying certain terms which should never be used in such contracts, and
- to fix the basic minimum obligations which in every Member State the consumer should reasonably be able to require the seller of goods or services to satisfy when selling to the consumer."
(6) Two Other Directives
"This Directive shall not apply to:
(a) contracts for the construction, sale and rental of immovable property or contracts concerning other rights relating to immovable property…"
"1. This Directive shall not apply to contracts:
- concluded for the construction and sale of immovable property or relating to other immovable property rights, except for rental…
2. Articles 4, 5, 6 and 7(1) [dealing with specific matters, such as the right to be provided with certain information before the conclusion of a distance contract] shall not apply:
- to contracts for the provision of accommodation…"
(7) Arguments from Language
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions."
It is well settled that the Article covers all property rights, movable and immovable alike. The French text has "biens" where the English has "possessions". The law of the European Union is generally to be understood and applied conformably with ECHR.
(8) Case Law
"It is relevant, however, to note that the lease is made between two commercial parties. If the tenant had been a consumer and the provisions for review of rent had not been individually negotiated…, it would be open to the tenant to argue that, by virtue of the Unfair Terms in Consumer Contracts Regulations 1999…, the provisions of proviso (2) are not binding on him."
But the applicability of the Regulations to land transactions was not an issue that fell for judgment in that case. There are two decisions of county courts, and one of a High Court master in Northern Ireland, in which (as I read them) it was also assumed that in principle the Regulations do so apply. I mean no disrespect if I do not set out these materials.
(9) Other Materials
"intended, in particular, to remove any uncertainty that the Regulations are not capable of applying to contracts relating to land to the extent that the Directive does so. Some of the most vulnerable consumers live in rented accommodation and there is much evidence of exploitation and onerous conditions imposed by landlords. Rent and related landlord charges are large elements of the total expenditure of most tenants. Removing unfair terms in tenancy agreements would improve the rights of tenants."
As the judge noted, the proposed amendments to the regulations of 1994 had in fact been prompted by the Commission.
(10) Conclusions on the Second Issue: (a) Do the Directive and the Regulations apply to contracts relating to land?
(11) The Directive: Two Further Recitals
"(14) Whereas Member States must however ensure that unfair terms are not included, particularly because this Directive also applies to trades, business or professions of a public nature;
(16) Whereas the assessment, according to the general criteria chosen, of the unfair character of terms, in particular in sale or supply activities of a public nature providing collective services which take account of solidarity among users, must be supplemented by a means of making an overall evaluation of the different interests involved…"
(12) Case Law
"It must be observed, in the context of competition law, first that the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed…"
"214. [after citing Hofner and other cases] The rationale underlying those cases is that the entities under scrutiny are fulfilling the 'function' of an undertaking. The application of Articles 85 and 86 [sc. of the Treaty] is justified by the fact that those public bodies or individuals are operating on the same or similar markets and according to similar principles as 'normal' undertakings.
311. As already stated, the Court has generally adopted a functional approach. The basic test is therefore whether the entity in question is engaged in an activity which could, at least in principle, be carried on by a private undertaking in order to make profits."
The kind of case in which the entity's function may be held not to amount to an economic activity is exemplified by Poucet and Pistre. There, two organisations managed compulsory social welfare schemes. The levels both of the contributions required to be made to the organisations, and of the benefits provided, were under the control of the public authorities. In its judgment the Court of Justice said this:
"8. Those schemes pursue a social objective and embody the principle of solidarity.
9. They are intended to provide cover for all the persons to whom they apply, against the risks of sickness, old age, death and invalidity, regardless of their financial status and their state of health at the time of affiliation.
18. Sickness funds, and the organisations involved in the management of the public social security system, fulfil an exclusively social function. That activity is based on the principle of national solidarity and is entirely non profit-making. The benefits paid are statutory benefits bearing no relation to the amount of the contributions.
19. Accordingly, that activity is not an economic activity and, therefore, the organisations to which it is entrusted are not undertakings within the meaning of Articles 85 and 86 of the Treaty."
(13) Conclusions on the Second Issue: (b) Do the Directive and the Regulations apply to public authorities such as the Council?
(14) Conclusions on the Second Issue: (c) Is the Council a "seller or supplier" and are the respondents "consumers" within the meaning of the Regulations and the Directive?
Mr Justice Wilson:
Lord Justice Auld: