The Administrative Court's ruling on Haringey Council's controversial decision to enter into a corporate joint venture development vehicle not only provides much needed advice on the interpretation of s.1 of the Localism Act 2011 and "commercial purpose" - it also gives very useful guidance on how to apply the best value duty under s.3 and on which is the correct decision making body for such decisions.
The case of Peters v Haringey LBC; Lendlease Europe Holdings Ltd (Interested Party)  EWHC 192 (Admin) concerned an application for judicial review brought by a coalition of residents who were opposed to the Haringey Development Vehicle (HDV), a joint venture between the Council and the private sector, where the partner would bring finance, experience and expertise to the task of developing the Council's land for its better use, and thereby achieve the Council's strategic aims in housing, affordable housing and employment.
The residents applied to quash the Council's decision in July 2017 to confirm Lendlease as the successful bidder to become the Council's partner in the HDV. The decision also approved the structure of the HDV, the 50/50 split between LEH and the Council, as well as the related legal documents.
The main ground of challenge was that the Council could not use an LLP for these purposes since the Council was acting for a commercial purpose under s.1 Localism Act 2011, and so had to use a limited company – for a discussion on this point, see our Alert Lawfulness of using LLPs for local authority joint ventures.
The applicants also argued that the Council:
- had failed in its statutory duty of consultation under s.3 LGA 1999;
- had failed in its Public Sector Equality Duty (PSED) under s.149 Equality Act 2010; and
- could only take this decision in full Council and not by Cabinet alone, by virtue of r.4(1)(b) of the Local Authorities (Functions and Responsibilities) (England) Regulations 2000 (SI 2000/2853) (the Functions and Responsibilities Regulations).
The court refused permission on all grounds.
Section 3 duty to consult
Section 3 LGA 1999 requires an authority "to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness" ("the best value duty"). It also obliges the authority to consult certain groups of persons "for the purpose of deciding how to fulfil the duty" (s.3(2)).
The judge, Ouseley J, dismissed this ground on the basis that the application was out of time. He then gave guidance on application of the duty, setting out two steps:
- Was the Council was making "arrangements to secure continuous improvement in the way its functions are exercised", having regard to economy, efficiency and effectiveness, when it proposed or decided on its strategy for developing its land or for doing so with a private sector company, or doing so through the HDV? The judge noted that the duty was not limited to outsourcing – it covered arrangements with other parties, aimed at improving the way "its functions are exercised". The proposed overarching vehicle could be viewed as an "arrangement" or one "to secure continuous improvement" in the way the Council exercised various property management and housing functions, and so the duty to consult arose.
- When did that duty have to be fulfilled? The section required consultation about a "high level" decision, policy or approach, and not one about awarding, let alone entry into, a particular contract. The equivalent decisions on the HDV were taken in February 2015, or at the latest November 2015, and the consultation duty should have been undertaken before those decisions were actually arrived at.
The judge ruled that the language of s.3 made it clear that the level of decision-making, about which consultation was required, was the point where an authority was selecting the option in principle and establishing its approach, before significant expenditure on implementing the established approach was to be incurred, and before the third parties were approached, who would in their turn have to incur significant expenditure before any particular arrangement was agreed and entered into. It did not matter that the Council thereafter remained able to change its approach, whether through a change of heart or because the preferred approach proved unsatisfactory.
The court applied the Court of Appeal's decision in R (Nash) v Barnet LBC  EWCA Civ 1004 that where a public law decision was made at the end of a process which involved one or more previous decisions, the earlier and later decisions are distinct, each addressing what are substantially different stages in a process. It was necessary to decide which decision was actually being challenged; if it was the earlier, then the making of the second decision did not set time running afresh. On that basis, the s.3 duty arose by November 2015, or February 2017 at the latest, and so the application was out of time.
Should the decision have been taken by full Council?
The judge agreed that s.9D LGA 2000 placed decision-making in the hands of the Cabinet, unless a specific provision made them decisions for full Council, and so the decision was properly taken by Cabinet.
He ruled that the fact that the arrangements had financial consequences did not bring them within the exceptions to Cabinet decisions under reg.4 of the Functions and Responsibilities Regulations or the Council's Constitution.
The decision to enter into such arrangements might properly be described as a plan or strategy, but that did not make it a plan or strategy "for the control of the authority's borrowing, investments or capital expenditure". Nor did it come within the Council's Constitution's definition of "budget". The fact that within the HDV arrangements there might be scope for borrowing and expenditure might mean that future decisions on such matters would be for full Council, but that did not make the July decisions, which permitted future decisions to be made through entry into the arrangements, decisions for full Council.
Public Sector Equality Duty
The court also dismissed the PSED challenge, finding that this ground lacked arguable merit in relation to whichever decision it was addressed; it was also a long way out of time.
The s.149 duty was not a duty to produce Equality Impact Assessments - it was to have "due regard" to the issues. The regularity with which the PSED had been considered during the decision making sequence was striking. If there was a stage in the decision-making process which required compliance with s.149, where it was not complied with, then this was in 2015 where the Council decided to proceed with an overarching single development vehicle in a 50/50 partnership with the private sector, as opposed to pursuing some other option.
What does this mean for me?
- The case highlights the importance of ensuring that the council has a proper audit trail (e.g. in the business case, reports and in the minutes of meetings) of the purposes of entering any corporate joint venture or into other commercial arrangements, which will influence the section of powers to be used by the council.
- A council that has embarked either on procuring a joint venture partner or on entering into other commercial arrangements may wish to revisit previous reports and business cases to check that the dominant or primary purposes have been properly recorded and are clearly identifiable.
- As well as specific consultation duties, a council must not forget its wider duties of consultation under s.3 LGA 1999, which should be undertaken at the strategic level of the decision making process; or could perhaps be incorporated into annual corporate plan processes and consultation.
- Councils should review how and when equality impact assessments are compiled, when they are refreshed and how much information is given to members.
- Ensure the council's Constitution is up to date and that it is clear about the plans and strategies that are included in the Budget and Policy Framework which need both Cabinet and Council approval.