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England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Structadene Ltd, R (on the application of) v Hackney London Borough Council [2000] EWHC Admin 405 (19 October 2000)
URL: http://www.bailii.org/ew/cases/EWHC/Admin/2000/405.html
Cite as: [2000] EWHC Admin 405, [2001] BLGR 204, (2001) 3 LGLR 19, [2001] 1 EGLR 15, [2000] EG 130, [2001] 12 EG 168, [2001] 2 All ER 225, (2001) 82 P & CR 25
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QUEEN on behalf of STRUCTADENE LIMITED v. HACKNEY LONDON BOROUGH COUNCIL [2000] EWHC Admin 405 (19th October, 2000)
IN THE HIGH COURT OF JUSTICE Case No
CO/921/2000
QUEEN S BENCH DIVISION
ADMINISTRAXTIVE COURT LIST
Royal Courts of Justice,
Strand, London,
WC2A2LL
Thursday 19 October 2000
THE HON. MR JUSTICE ELIAS
Between:
on behalf of
STRUCTADENE LIMITED
(Applicant)
HACKNEY LONDON BOROUGH COUNCIL
(Respondent)
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
-----------------------------
Mr Kelvin A Rutledge appeared on behalf of the Applicant
Mr John Hobson Q.C. appeared on behalf of the Respondent
As Approved by the Court
The applicant in this action, a well-established property company, seeks judicial review of the decision of the respondent council to sell certain properties to third parties, and to have the contract whereby the sale has been agreed set aside. It also seeks an order of mandamus requiring the council to sell the property by auction. The respondent council concedes that it did indeed act unlawfully in entering into the contract in that it did not take proper steps to obtain the best value pursuant to section 123 of the Local Government Act 1972 ("the Act") nor, in the alternative, did it obtain the consent of the Secretary of State for the sale. If his consent is given then a sale which is for less than best value is nonetheless lawful. The council, however, contends that the court cannot now quash the decision or set aside the contract. It submits that the rights of third parties are protected by section 128(2) of the Act, and cannot now be unravelled. The Council accepts that it would be open to the court to declare the decision unlawful, but says that there would at this stage be no purpose in such relief being given. The applicant contends that in the circumstances of this case the contract can be set aside and that effective relief for the admittedly wrongful act is to hand. Whether that is right depends upon the proper construction of Section 128(2) and its application to the facts.
The background
This can be stated relatively briefly. The material facts are not in dispute and are summarised in a witness statement of Anthony Kent, the solicitor acting for the applicant. The council let twelve light industrial units to tenants, who used the premises for small businesses. The council decided to sell the property. This came to the attention of the applicant who contacted the agent charged with selling the property. The agent informed the applicant that it was to be sold at auction. The council's advice was apparently that the market value would be £400,000. One of the applicant's directors, a Mr. Watson, inspected the property and also visited the offices of the council's solicitor for the purpose of inspecting certain documents relating to the property. Mr. Watson informed the agent that the company was interested in the property. The property subsequently appeared on the agent's particulars for auction to be held on the 7 March 2000. The company later became aware that the tenants were also interested but it reiterated its interest and made it plain that it was intending to bid at the auction. There was apparently some potential difficulty with a lease, but after taking legal advice the company resolved to go ahead and seek to buy the property.
On the day of the auction, at 9.45a.m Mr. Kent contacted the council's solicitors and was told that the council had resolved not to continue with the auction because they had agreed, subject to contract, to sell to the tenants. The tenants had been given until 10 a.m. in which to sign an auction contract. It seems that the applicant discovered that the tenants had agreed to pay £400.000. In any event authority was obtained by Mr. Kent immediately to put in an offer of 450,000. It is accepted that this offer was in fact made before any contract had been signed with the tenants. Later that morning Mr. Watson went to the agent's office in the hope of being able to sign an agreement. He was told by the agent that his instructions were to sell the property to the tenants, and the offer was rejected. The offer was increased to £500000, but that also was rejected. Mr. Watson was told that the property was not available to the company. Shortly thereafter, at about midday, the formal contract was entered into with the tenants. The applicant successfully obtained an injunction to prevent the sale being completed and was granted leave to apply for judicial review.
The council has put in evidence a witness statement from Ms. Olorun-Rinu. She is an officer of the council, being Corporate Property Manager. Curiously she does not say why the council acted as it did. The statement suggests, but does not state in terms, that the council may have been intending to comply with one of its Standing Orders which gives statutory tenants the first opportunity to purchase the property which they rent in the event of a sale. But only some of the tenants fell into this category. It may be that the council wished to help small businesses, but again that would be speculation. What is plain is that the council had received advice that the market value was £400.000 and had agreed to sell the property to the tenants once their offer was raised to that price. It is also clear that before entering into the contract the council turned down an unambiguous offer which was £100,000 better than the offer it accepted.
The grounds of review
The applicant contends that the council acted unlawfully on a number of grounds. First it submits that there was a clear breach of section 123. In addition, it contends that the council was in breach of its fiduciary duties to the ratepayers; that it acted in a Wednesbury unreasonable manner; that it frustrated the applicant's legitimate expectation that the council should hold an auction and sell to the highest bidder, or at least give the applicant a chance to make representations before changing the sale procedure; and finally, that it acted unfairly.
Mr. Hobson QC for the council realistically accepted that in the circumstances the council had acted unlawfully in that it had infringed section 123. He accepted that it is required to take active steps to try to obtain the best price for the property and that it had failed to do that. He denied, however, that it had acted unlawfully in any of the other ways alleged. Whether it did or not is potentially material for reasons which I will explain below. As I have indicated, he relied upon section 128(2) as the basis for saying that the contract was nonetheless valid and could not be set aside by the court. The tenants have chosen not to be separately represented but I have received a written submission in which they say that they entered into the contract in good faith, and have incurred losses as a result of the injunction that the applicant obtained holding up the completion. They support the council's arguments.
The legislation
Section 123 of the Local Government Act 1972 (as amended) provides as follows:
"(1) Subject to the following provisions of this section, a principal council may dispose of land held by then in any manner they wish.
(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.
[(2A) A principal council may not dispose under subsection (1) above of any land consisting or forming par t of any open space unless before disposing of the land they cause notice of their intention to do so, specifying the land in question, to be advertised in two consecutive weeks in a newspaper circulating in the area in which the land is situated, and consider any objections to the proposed disposal which may be made to them.
(2B) Where by virtue to subsection (2A) above a council dispose of land which is held-
(a) for the purposes of section 164 of the Public Health Act 1875 (pleasure grounds); or
(b) in accordance with section 10 of the Open Spaces Act 1906 (duty of local authority to maintain open spaces and burial grounds),
the land shall by virtue of the disposal be freed from any trust arising solely by virtue of its being land held in trust for enjoyment by the public in accordance with the said section 164 or, as the case may be, the said section 10.]
(3)-(5) ......
(6) Capital money received in respect of a disposal under this section of land held for charitable purposes shall be applied in accordance with any directions given under [the Charities Act 1993].
(7) For the purposes of this section a disposal of land is a disposal by way of a short tenancy if it consists-
(a) of the grant of a term not exceeding seven years, or
(b) of the assignment of a term which at the date of the assignment has not more than seven years to run,
and in this section "public trust land" has the meaning assigned to it by section 122(6) above".
Section 128(2) provides:
"Where under the foregoing provisions of this Part of this Act or under any other enactment, whether passed before, at the same time as, or after, this Act, a local authority purport to acquire, appropriate or dispose of land, then-
(a) in favour of any person claiming under the
authority, the acquisition, appropriation or disposal so purporting to be made shall not be invalid by reason that any consent of a Minister which is required thereto has not been given or that any requirement as to advertisement or consideration of objections has not been complied with, and
(b) a person dealing with the authority or a person
claiming under the authority shall not be concerned
to see or enquire whether any such consent has been
given or whether any such requirement has been
complied with".
The concept of land is defined in s.270 as follows;
"land" includes any interest in land and any easement or right in, to or over land;
It is pertinent at this stage to note a number of features about these provisions. First, the concept of disposal occurs both in section 123 and 128. Both parties agree, correctly in my view, that it must bear the same meaning in each section. Second, the protection in section 128 arises only where there is a "disposal" as defined. Third, the disposal need not be of the freehold or leasehold estate; it can be of an interest in land, (unless the concept of land in these provisions is different to its general meaning in the Act.) Moreover, the concept of an interest in land is on the face of it wide enough to embrace both a legal and equitable interest. Fourth, the protection to third parties is provided whenever the required consent is not given. The subsection does not say whenever it is sought and not given, or whenever it should have been sought but was not; accordingly in my opinion the subsection could apply even where the consent was sought and refused. This construction is supported in my view by paragraph (b) of the subsection. Finally the disposal is not protected from invalidity as against every alleged legal defect, but only where the defect consists of the failure to obtain the Secretary of State's consent.
Of course section 128 does not operate to the benefit of the council itself. The applicant can still obtain such relief, other than rendering invalid the disposal itself, as the court is able to grant. Plainly, safeguarding the interests of third parties potentially diminishes -and may significantly diminish- the effectiveness of any relief, particularly where the applicant is a rival bidder for the property. However, it is wrong to say -as counsel for the applicant did in the course of submissions -that if section 128 applies, there is no incentive for councils to comply with the law. In an appropriate case the fact that section 128 applies would not, for example, prevent any officers or councillors at fault being subject to a surcharge for losses incurred by the council.
Does section 128(2) apply?
This is the fundamental issue in this case. Mr Rutledge for the applicant submits that it does not for three reasons. First, he submits that there was not a disposal of land merely by virtue of the entering into the contract with the tenants. He says that completion would be necessary. Second, he contends that in any event the conduct of the council was unlawful for a number of reasons which were quite independent of the failure to obtain consent, and that the subsection provides no shield against those attacks. Finally, he submitted that the provision only applied in any event when the council intended to dispose of land by the route of the Secretary of State's consent and would not apply where it was intending to get the best value. He further contended that it was seeking to get the best value in this case. I shall consider each of these arguments in turn.
(1) Has there been a disposal?
The first issue which arises is whether the entry into the contract constituted
a "disposal" at all within the meaning of Section 128(2). There is no statutory
definition of disposal in the 1972 Act.
Mr. Hobson's argument is very simple. He says that once a contract for the
sale of land has been entered into, the purchaser of the land has an equitable
interest; the vendor holds the property on trust for the purchaser.
Accordingly, he submits that at that stage there is a disposal of the land.
Whilst it is not a disposal of the whole legal estate, it is the disposal of an
interest in land and that is sufficient. Mr. Rutledge submits that there is no
disposal until the legal estate is conveyed, and that whilst an equitable
interest is created by the contracts, this does not give rise to a disposal as
such within the meaning of the section.
Logically it might be argued that if the respondent is right, then there would
be two disposals, one on exchange of contract when the equitable interest was
passed, and one on completion when the legal title was passed. However, I
cannot imagine that Parliament could conceivably have intended such a bizarre
result, with consent technically having to be obtained on each occasion
(assuming that the land was sold for below the best price) notwithstanding that
the terms of the deal would not have changed between contract and conveyance.
Accordingly, the question is which construction is to be preferred, reading the
statute fairly and bearing in mind the context.
In my view there is no linguistic reason why the word "disposal" should not
be used to describe the creation of the equitable interest arising when a sale
contract is entered into. Indeed, section 262 of the Housing Act 1985 expressly
defines a disposal as including "a conveyance or contract to convey an estate
or interest not previously in existence". There the statute puts the matter
beyond doubt. However, I start from the premise that if, in a sale of land,
one has to choose between contract and conveyance as the moment when the
disposal occurs, the concept would more naturally describe the transfer of the
legal interest on conveyance rather than the creation of the equitable interest
by the contract.
I have been referred to other statutory provisions where the concept of
disposal arises but they are of limited utility because the concept is used in
different ways in different statutes. Different meanings are given in different
contexts. As I have said, the definition in Part 8 of the Housing Act 1985
puts the issue beyond dispute for the purposes of that Part by expressly
providing that there is a disposition when the contract is made. By contrast,
in Mainwaring v Smiths Charity Trustees [1998]Q.B 1 the Court of
Appeal had to decide whether there was a relevant disposal on the entry into
the contract or on conveyance for the purposes of section 4 of the Landlord and
Tenant Act 1987. The court held that the disposal took effect on conveyance. I
shall consider this case further below.
I shall consider the question of construction by analysing the statutory
language construed in context, any relevant legal authorities, and the policy
implications of the rival constructions.
Turning first to the statute There are in my view some indications in
section 123 itself as to how the concept is to be construed. The following
features lend support to the argument that the disposal occurs on
conveyance:
1. Subsection (2(B)) provides that where the authority disposes of land which
it is obliged to hold under certain statutory provisions for the enjoyment of
the public, it will be freed from any such trust "by virtue of the disposal."
These words suggest in my view that it is the very act of disposal that brings
the trust to an end. It would be strange if this subsection meant that the
authority was relieved of its duties once a contract to sell the land was made.
One would not expect it to be free of its duties until it was no longer in a
position to control the land in question, and that would be on conveyance. Yet
if the respondent is right and the contract fixes the time of disposal, the
making of the contract of itself brings the trust obligations to an end. If for
some reason the conveyance never took effect, such as where there was
termination of the contract by mutual agreement, then it would seem that the
authority would retain control of the land but apparently unencumbered by the
former trust duty.
2. Subsection (6) envisages that the payment is received in respect of the
disposal. However, it is plainly received for the land itself, and is usually
paid on transfer. It is not paid for the equitable interest arising on the
contract of sale and nor is it measured by the value of that interest.
3. Both subsections (2) and (7) refer to a disposal by way of a short
tenancy. This suggests that it is the tenancy itself which is created by the
disposal rather than any agreement to create the tenancy.
On the other hand, subsection (2A) arguably lends support to the respondent's
construction. This requires the authority to advertise and consider objections
before land consisting of an open space can be disposed of. Plainly the purpose
of this is to ensure that no commitment to sell is made before the objections
are considered. This will be achieved only if the relevant steps are taken
before the contract is made. By referring to the need to take these steps
before disposal, the statute arguably implies that this means the contract
being made. The point does not seem to me to be altogether clear, however,
since the section could be implying that the steps should be taken long enough
before disposal to ensure that the purpose of the provision can be achieved.
That would mean that it would need to be in fact before the contract is
concluded.
Mr. Hobson places considerable store by the fact that an option to purchase
would fall within the terms of section 123. If that is so, he says, then a
fortiori an agreement to sell must do so. It would be irrational were it
otherwise since the option is created prior to the contract. I see considerable
force in this submission. However, an identical argument was advanced and
rejected before the Lands Tribunal in Wilkins v Horrowitz and the
Yorkshire Rent Assessment Committee[1990]2E.G.L.R.217 That decision was
in turn cited with approval and followed by the Court of Appeal in the
Mainwaring case, to which I have made reference, in a judgment of
Sir Thomas Bingam M.R., delivering the judgment of the court. Moreover, in that
case also the grant of an option was expressly included in the definition of
"disposal". Notwithstanding that, the Court held that in the case of a sale of
the freehold, the contract did not constitute the disposal. In the
Wilkins case the tribunal thought it relevant to ask whether the
landlord had given up his rights qua landlord; it held that since he retained
his right to the rents and profits and was responsible for sub-letting (albeit
after consultation with the purchaser) he had not. Applying that principle
here, in my view it would be wrong to say that the council had by the contract
given up its rights as owner of the property. Plainly these were retained; the
equitable interest conferred on the purchaser of property is only of a limited
nature.
In my opinion, therefore, the balance of the argument based on the statutory
provisions considered in isolation is in favour of treating the conveyance as
the point at which disposal occurs.
I now turn to consider whether the authorities cast doubt on this construction.
Section 128 itself appears to have been considered in only one case. It was
analysed in the decision of Lightman J in R vPembrokeshire County Council
ex parte Coker [1999]4All E R 1007. In that case the respondent
council leased a property for five years but with an option to renew for 99
years. Lightman J considered that the lease and option had to be treated as one
transaction. On the facts he held that there was no breach of section 123 but
he went on to consider what the effect of section 128(2) would have been had
there been a sale at an undervalue. He said this:
"The language of s 128(2) is perfectly clear and unambiguous: in favour of
as person claiming under the control of the council (and that includes CSSL as
lessee under the lease), the lease is not invalid even if a higher rent or a
greater consideration could have been obtained and the necessary consent of the
minister was not obtained.......But on no basis does s 128(2) limit the
jurisdiction of the court to examine the legality of the conduct of the council
in granting the lease or to grant any proper declaratory relief; what it does
do is to protect the title of CSSL from exposure to risk of the invalidity of
the lease by reason of the failure of the council to obtain a required consent
and precludes the grant of any relief impugning the validity of, for setting
aside, the lease on this ground.
It should be pointed out, however, that in the Pembroke case the
issue was not whether the disposal took effect on contract or conveyance, but
the reference to the protection of title in the passage I have quoted lends
some support for the view that it takes on effect on the latter.
The other case in which there is a brief reference to the concept of disposal,
although in the context of section 123 rasther than section 128, is the
decision of the Court of Appeal in Trustees of the Chippenham Golf Club v
North Wiltshire District Council 64P & CR527. The case in fact
raised the question whether the council had power to grant an option under the
Local Government Act 1933, the predecessor of the 1972 Act. The court held that
it did not, but in the course of giving his judgment (with which Neill and
Woolf LJJ agreed), Scott LJ expressed the view, obiter, that
"It may be noticed that section 123 by comparison with sections 164 and 165 of
the 1933 Act considerably widens the powers of local authorities. "Dispose
of" is a verb of comprehensive scope. I would accept that the grant of an
option to purchase or, for that master, to take a lease of land would be
authorised by section 123(1)".
Mr. Hobson relies strongly on this dictum. It certainly supports his contention
that the section confers a power to enter into an option, and that the grant of
the option will constitute a "disposal " within the meaning of the section. But
for reasons I have already given, I do not agree with Mr. Hobson that because
the grant of an option is a disposal, the contract to sell must necessarily be
treated likewise.
A further question is whether considerations of policy would tend to favour
one or other particular construction. Mr. Hobson submits that since the section
is plainly intended to protect third parties, there is a cogent argument that
it will do so more effectively if the consent of the Secretary of State is
obtained prior to the contract being made at all. There is considerable force
in that submission, but as against that, it can be countered that there is
nothing in the applicant's construction, which would prevent the consent being
obtained then. The council is clearly at liberty to obtain the consent before
contract if it so wishes. The issue in my view is whether the statutory
objective is better served if the third party purchaser is protected from the
moment he enters into the contract or if his agreement may be set aside, absent
the Secretary of State's consent, any time up to completion. It seems to me
that there is nothing intrinsically unjust or in conflict with the statutory
purpose, in so far as it can be gleaned, in adopting the latter option. It
means that once the purchaser has good title, that cannot be upset by the
Secretary of State's failure to give consent, but that until that time the
purchaser remains vulnerable. Giving the provision a narrower rather than a
wider meaning may also be justified by the consideration that it will sometimes
preclude any effective remedy for what is plainly unlawful conduct.
I have not found this an easy matter, but taking all these considerations into
account, in my judgment the better view is that the protection afforded by
section 128(2) applies only once completion has taken place. It follows that it
does not apply in this case since the sale to the third party tenants had not
been carried into effect. The applicant is accordingly entitled to the relief
it seeks of having the decision quashed and the contracts set aside.
In case I am wrong about this, I shall consider the other two arguments
advanced by Mr. Rutledge.
Has the council acted unlawfully in ways falling outside the subsection
?
Mr. Rutledge contends that section 128(2) will apply only where the sole
feature of the decision which renders it unlawful is the failure to obtain
consent. I have no doubt that that is correct; the provision states in terms
that the invalidity is not to arise "by reason that ...any consent has not been
given." It is important to appreciate, however, that this is not the same as
saying that the purchaser should be treated as if the consent had been given.
That is not what the statute says. In my opinion the purchaser can use the
provision as a shield to fend off any challenge that he has failed to obtain
consent, but he cannot use it to fashion a sword entitling him to claim that he
has consent.
This distinction is important. It can be tested by considering the arguments
in this case. The applicant contends that the decision of the council is
unlawful for a number of reasons including breach of fiduciary duty, Wednesbury
unreasonableness, and for procedural errors. If the council had in fact
obtained consent, or alternatively if the purchaser could rely upon section 128
to require the court to act as if consent had been given, this would in my
judgment prevent certain of these claims being pursued. These would be claims
alleging such legal defects as would effectively be remedied by the grant of
consent. In my view they would include any defect which arises out of the
failure to obtain best value, whether it is a blatant failure or one involving
a breach of fiduciary duty. It seems to me that the Secretary of State has a
wide discretion to give his consent and can do so even if the council has
struck a balance between non-economic or social benefits on the one hand, and
financial benefits on the other, which would put it in breach of its fiduciary
duty at common law. If it were otherwise, this would involve assuming that
Parliament must have intended that the Secretary of State could only give
consent so as to validate a sale for less than the best price in circumstances
where the courts would have held the agreement to be lawful at common law.
That, in my view, is an improper construction of the provision, and is is
inconsistent with the broad statutory language. I consider that in giving his
consent, the Secretary of State can take into account a wider range of
considerations than would be open to the council at common law; he can spread
the cloak of legality where it would not otherwise exist. Accordingly, if the
section were to involve deeming consent to have been given, this would
significantly limit the potential grounds of challenge. The consent would
render a potentially unlawful disposal at common law lawful.
However, the subsection in my judgment does not go that far. It only relieves
the purchaser from the failure to obtain consent. Accordingly, in so
far as the applicant is able to identify breaches of the law going beyond
operating or independently of that breach, the provision will not give any
protection. This therefore raises the question of whether the allegations that
the council acted unlawfully for reasons other than the failure to obtain
consent are available in this case.
The claims in this case
Mr. Rutledge submits that there are four breaches of law by the council in
accepting the tenants' offer, quite independently of the failure to get the
best price under section 123. First, he says that the council acted in breach
of its fiduciary duty. Second, he says that it acted Wednesbury unreasonably in
accepting the sum it did. The third and fourth grounds in my view are
interrelated; the third ground is that there was a legitimate expectation that
the council would hold an auction and that it would award the property to the
highest bidder. It is alleged that at least it should have heard
representations from the applicant before deciding to resile from that course.
The fourth ground was that the council had acted unfairly in not holding the
auction as promised. In my view this adds nothing to the legitimate expectation
argument. It is the existence of a legitimate expectation, which in my view
creates any duty to act fairly, and this in turn requires that the party with
the expectation is consulted before the expectation is frustrated. But if there
is no such expectation then I do not see any other basis for the council being
under a duty to consult before changing its decision to take the sale to
auction.
As I have already indicated, the council has not provided any proper
explanation why it took the decision which it did. Prima facie I consider that
the applicant has made out its claim that the council acted in breach of its
fiduciary duty and there is no evidence which effectively counters that
allegation. I accept that in an appropriate case it is possible for a council
successfully to contend that there are social or other benefits to the local
community which outweigh the loss resulting from the failure to obtain the best
price. The interests of the local taxpayers are not decisive but must be taken
into account; see Bromley LBC v Greater London Council [1983] 1AC 768. However, in the absence of any indication of what these advantages were
perceived to be, I cannot speculate whether they existed or not. In general,
however, in the absence of some such benefit, it will be a breach of the
fiduciary duty if the council fails to obtain the best price for the local
taxpayers: see Bromley per Lord Diplock at page 829H. I
therefore hold that the council is in breach of that duty.
For essentially the same reason I am compelled to find that it acted
Wednesbury unreasonably. A rational council would not have rejected an offer
which was £100000 more favourable than the offer which it in fact
accepted, in the absence at least of cogent countervailing considerations. The
evidence does not enable me to say what the relevant factors are which could
render the decision a rational one.
Mr. Hobson did not strongly resist this analysis. However, he said that these
particular defects did not enable the applicant to surmount the hurdle of
section 128. Initially I was inclined to agree with him, but on reflection I
think that this argument involves treating section 128 as though the court must
assume that consent has been granted. If this were the proper effect of the
section, I would agree with Mr. Hobson, but for the reasons I have given, I do
not believe that it is. It follows that for this reason also I consider that
section 128 is not a barrier to the applicant obtaining the relief he seeks.
The procedural challenge, if made good, falls into a different category to
the other two allegations. This is because even if I am wrong in concluding
that section 128 cannot remedy those breaches, any procedural breach would fall
into a different category. It would not be capable of being remedied by the
consent of the Secretary of State since it is not directly related to the
failure to obtain the best price. Accordingly, as Mr. Hobson accepted, it
remains unaffected by the failure to obtain that consent.
Was there a procedural failure in this case? It is said that there was a
legitimate expectation arising from the fact that the agents for the council
sent the auction information to the applicant and that the applicant acted upon
that by following up and inspecting certain documents relating to the property.
The argument was advanced on the basis that there was both what is termed a
substantive and a procedural legitimate expectation. The former, it was
submitted, prevented the council from resiling from its undertaking to hold an
auction at all, unless there was an overriding public interest to justify the
reversal. It was said that no such interest had been demonstrated here. The
latter argument was that in any event any decision to revoke the decision to go
to auction should have been taken only after consultation had been carried
out.
I reject both these submissions. I do not believe that the mere giving of
information about the auction constituted the creation of a legitimate
expectation that the council would not thereafter choose to sell the property
in some other way. It was not in my judgment a promise given specifically to
the applicant or those similarly placed; it was merely a statement of the
council's then intentions. The fact that the applicant took steps pursuant to
the information in anticipation of the auction would assist it in demonstrating
that it had acted on any representation made, but it does not of itself go to
the existence of the representation. (Such reliance is in any event only
relevant where the applicant is relying on the substantive concept of
legitimate expectation; it has no relevance to the purely procedural doctrine:
see R v Falmouth ex.parte South West Water [2000]3All.E.R.306 at
309 per Simon Brown LJ.). Nor do I accept that there was a duty on the council
to consult all those whom it might have known or suspected were potentially
interested in purchasing the property at auction.
In short, I do not think that it was unfair for the council to change its
mind, either at all or without giving the applicant the opportunity to make
representations first. The challenge based on legitimate expectations therefore
fails.
Was the proposed sale of a kind caught by section 128?
The argument here was that section 123 envisages just three types of lawful
sale; the short term lease, the sale for best value, and the sale with the
Secretary of State's consent. Mr. Rutledge submitted that section 128 applies
only to cases where the authority intended to go down the consent route but for
some reason failed to obtain the requisite consent. If the authority intended
to go down another route, then the section is not applicable. In this case he
submits that it did intend to go down the best value route and therefore
section 128 could not bite.
I reject this argument. There is in my judgment no warrant for it in the
statutory language. No distinction of any kind is made between the different
circumstances in which consent might have been, but has not been, obtained. The
third party purchaser is simply not concerned with the council's intentions at
all. He is protected from any failure to obtain relevant consent, irrespective
of why or in what circumstances there was a failure to obtain it. Moreover, I
do not see how the principle could be applied in practice. In this very case it
seems to me impossible to say which route the council intended to go down. In
particular, it seems to me impossible to say, as the applicant must if this
argument is to succeed, that the council here was intending to go down the best
value route. Indeed, the evidence is to the contrary. The fact is that the
council deliberately chose, for whatever justification, not to obtain best
value. The notion that one can identify an unlawful act and say that, had it
been lawful, it would have been carried out in one particular lawful way as
opposed to another, is in my view false. For these reasons, I would reject
this particular argument.
Conclusion
In my view section 128(2) does not save the contract entered into in this case.
There has never been a disposal within the meaning of the subsection, and in
addition the applicant has in my judgment successfully contended that the
council erred in law in ways not caught by the provision. Accordingly the
applicant is entitled in my opinion to have the decision to sell to the tenants
quashed, and to have the contract declared invalid. I am not, however, prepared
to issue mandamus to require the council to carry out an auction. In my view it
would be wrong for me to dictate the particular route by which the council must
ensure compliance with the law if and when it sells this property. I do not
consider that the applicant had a substantive legitimate expectation that an
auction would be held, and accordingly it would be wrong to compel the council
to sell in that way as though he had.
MR JUSTICE ELIAS: For reasons that are in a judgment which has already been handed down to the parties, this application succeeds, and I make the following order: That the Respondent's decision made on or about 7 March 2000 to sell Units 1-12 Tilia Road, London E5 to some or all of the existing tenants thereof for the sum of £400,000 be quashed; that the Court hereby declares that the contract for sale purportedly entered into on 7 March 2000 by the Respondent of the one part and Messrs Kamyabi, Newbold, Brown and Barker, of the other part, is and was at all material times invalid.
Yes.
MR RUTLEDGE: I am grateful, my Lord. There were one or two minor alterations that --
MR JUSTICE ELIAS: Yes, I am grateful for those. It is astonishing how one can miss such errors. However, I used to read the Guardian and miss all the misprints in that. Yes.
MR RUTLEDGE: There is agreement also in respect of costs, and in the draft order of the court is the order that I invite the court to make. There is a schedule of costs before the court in that sum, and it takes into account the costs ordered in any event by Jackson J on 7 April, and which should have been paid by Hackney.
MR JUSTICE ELIAS: I do not know the background to that, but there were costs awarded in any event, were there?
MR RUTLEDGE: There were, my Lord, yes. They are taken into account.
MR JUSTICE ELIAS: By that, you mean this figure you are giving me is in addition to those costs?
MR RUTLEDGE: It is a net figure. If my Lord looks at the schedule, you will see that there is a gross figure and then a deduction of £2666.89 in respect of the April 7 costs.
MR JUSTICE ELIAS: Yes.
MR RUTLEDGE: Leaving a subtotal, there described as grand total, of nine thousand -- the sum that is in the order, I am sorry, it has been amended to include today's costs. It is £9628.12.
MR JUSTICE ELIAS: I have to say on the face of it, it looks a big sum for a one-day case.
MR RUTLEDGE: My Lord, that includes, of course, the permission application before Kay J and the preparation. The case was due to be heard in July and it was not called on. It was a floater. Both parties had to prepare to go to court that day, but in the event no court was able to take it. There was further preparation in respect of the hearing before your Lordship recently.
I do not know whether it assists at all, but I have a copy of the respondent's schedule of costs, which is in the grand total of £13,953.
MR JUSTICE ELIAS: Well, it may be that Mr Hobson has no objection.
MR HOBSON: My Lord, I did indicate to my learned friend that I was not going to argue in relation to costs, certainly as to the principle. My client should pay the costs. Undoubtedly they should, and I do not raise any issue as to that.
I did indicate formerly, before your Lordship came into court, that I was prepared to agree the sum. However, my Lord, it is not unknown for concessions to be withdrawn, and the reason why I must change my view as to that is, in view of your Lordship's observations in looking at it more closely, and in view of the well-known circumstances regarding my client's financial state, it may be more appropriate that these costs are subject to a detailed assessment.
MR JUSTICE ELIAS: I am just trying to look down the list of items. Mr Rutledge, inevitably, an assessment of this kind is a fairly rough and ready matter.
MR RUTLEDGE: My Lord, yes.
MR JUSTICE ELIAS: I have to say I am inclined to say that I make an order for £7,500, or send it off to assessment, if you prefer that.
MR RUTLEDGE: I wonder if I might take instructions.
My Lord, I am instructed to stress that these costs as drawn do include the contested hearing before Jackson J in April.
MR JUSTICE ELIAS: As I understand it, there has been £2000 odd paid in respect of the large --
MR RUTLEDGE: With respect, my Lord is looking at the grand total, the subtotal. But apart from that, the costs are £9,000, which includes VAT.
My Lord, if my Lord's impression is it will drop as much as £2,500, then my clients would reluctantly ask for a detailed assessment. If it were less than that, say half that deduction, then they would be prepared to accept that figure now and not ask for a detailed assessment.
MR JUSTICE ELIAS: I think there will shortly be guidance as to what the considered ballpark figures should be, and I think they may be -- I do not know, but in my mind I am anticipating they would be lower than this. I am reluctant to send it off for assessment, because that just takes more time and incurs more costs.
MR RUTLEDGE: My Lord, yes. My Lord, if I have permission to bargain before the court --
MR JUSTICE ELIAS: I do not wish to bargain. I will say £7,500 costs in this case. I think the extra cost involved in going to assessment would not be appropriate.
MR RUTLEDGE: My Lord, we have already set out that is the net figure.
MR JUSTICE ELIAS: I am sorry?
MR RUTLEDGE: That is the net figure, not having regard to the costs already paid.
MR JUSTICE ELIAS: Not having regard to the costs already paid.
MR RUTLEDGE: My Lord, I am grateful.
MR HOBSON: I do have application for permission to appeal.
MR JUSTICE ELIAS: Yes.
MR HOBSON: My Lord, in my submission, this case raises issues of importance concerning section 123 and the relationship between sections 123 and 128, and the protection provided to a transaction of this sort by section 128.
As your Lordship recorded in the judgment, and as identified in the course of argument, there is a dearth of direct authority on this point, particularly on the meaning of disposal, which of course has ended up as a critical aspect of this case, your Lordship found that assistance from the interpretation was provided in analogous situations, but there was no direct authority on these two particular sections.
My Lord, there is also, I submit, a further aspect of importance concerning the scope of section 128, assuming that it would have application in a case of this sort, although strictly open to review of your Lordship's finding that there was no disposal in this case, and therefore section 128 did not come into operation in this case, your Lordship did go on to hold that the contract would be invalid for reasons apart from the breach of an obligation under section 123.
In my submission, this also raises an issue of the importance as to whether they could properly be categorised as breaches independent of section 123, circumstances which would involve a breach of fiduciary duty or an unreasonably set consideration.
My Lord, for these reasons I do submit this case does involve issues of considerable importance and would fully justify the case going to the Court of Appeal.
MR JUSTICE ELIAS: Yes, Mr Rutledge.
MR RUTLEDGE: My Lord, in my respectful submission, Hackney do not enjoy good prospects of success on an appeal for these reasons: Even if they were able to persuade the Court of Appeal your Lordship has erred in some way in his approach to section 128 or disposal, they would still lose on the Wednesbury ground and on the breach of fiduciary duty ground to which they have no, or no substantive, defence. Those, in my submission, are self-standing reasons for allowing this application, quite independent of the Local Government Act.
In my respectful submission, the Secretary of State, ingenious though the argument may be, the Secretary of State cannot be given consent under the Local Government Act and validate that which would otherwise be invalid under common law.
So my respectful submission is this is not an appropriate case for permission.
MR JUSTICE ELIAS: I am going to give permission in this case. I think it does raise an issue of some importance to the proper construction of these sections. As I have indicated, I have found in the judgment it was not a matter I found entirely easy, and I think in the circumstances, it is right that it should go to the Court of Appeal, in the chance that I have got it all wrong for Mr Dobson to persuade them of that.
But can I say I am grateful to both counsel for your additional written submissions that you provided to me. Thank you very much.
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