Local Authority View
Dec 20 2018
November-December 2018 #2Read More
For many years local authorities have entered into corporate joint ventures with private and other public sector partners. Limited liability partnerships have become the favoured vehicle for joint ventures, primarily because of tax transparency and the flexibility of governance arrangements. The case of Peters v London Borough of Haringey; Lendlease Europe Holdings Limited (Interested party)  EWHC 192 (Admin) questioned local authority vires to enter into a corporate JV structured as an LLP. However, the High Court ruled on 8 February 2018 that LLPs can lawfully be used where the local authority's primary or dominant purpose is not a "commercial purpose".
The legislative context
Prior to establishing a separate entity, a local authority must identify both the appropriate statutory powers and the purpose in setting up the entity. Councils have wide statutory duties and powers to carry out their functions, additional powers for trading activities (e.g. ss.1 and 3 Localism Act 2011 (LA 2011) and s.95 Local Government Act 2003 (LGA 2003)) and ancillary powers in s.111 Local Government Act 1972 (LGA 1972), with the latter enabling the creation of corporate joint ventures. The purposes could be wide-ranging – for example housing, regeneration, improved service delivery and to facilitate shared services – and could be effected either on a wholly-owned and controlled basis or with another public sector or private sector partner. Those purposes in turn can determine the type of vehicles used, so that:
The issues considered
Mr Peters challenged the validity of the Council's decision to establish the Haringey Development Vehicle (HDV), a joint venture between the Council and a private sector partner, 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 HDV would also take responsibility for delivering a number of the Council's functions, particularly asset management and development. The court considered whether the Council had entered into the joint venture arrangements for a "commercial purpose".
The Council had relied on the power in s.1 LA 2011 to enter into the joint venture (albeit it could also have relied on a combination of the other powers including s.2 Local Authority (Land) Act 1963 to develop land, ss.120-123 LGA 1972 to acquire, appropriate and dispose of land and s12 LGA 2003 to invest for any purpose relevant to its functions under any enactment, which would include its functions under the Housing Act 1995). The Council contended that s.4(2) LA 2011 did not apply because it was not doing things for a commercial purpose.
The issues included:
There were also challenges based on failure to properly consult under s.3 Local Government Act 1999 (which was considered to be out of time), breach of the Public Sector Equality Duty and an allegation that the decisions should have been taken by Council not the Cabinet under the Functions & Responsibilities Regulations 2000 (which were dismissed by the Judge).
Mr Justice Ouseley held, amongst other things, that:
The validity of using an LLP as the corporate vehicle for any joint venture or other trading arrangements will depend on the relevant local authority's primary or dominant purpose in entering into the joint venture or trading arrangements. That said, given the number of LLPs which are being used around the country for local authority joint ventures, it is reassuring that using an LLP as a joint venture vehicle was held to be lawful where a local authority's primary purpose was to better manage its land and deliver housing and regeneration (i.e. non-commercial purposes) even where there was a commercial element, since that commercial element was seen to be incidental and ancillary and not a separate purpose.
This case highlights the importance of the business case and minutes of council, cabinet and committee meetings accurately identifying and recording the various purposes and the relevant statutory powers being relied upon to establish and enter into any corporate joint venture, particularly where a certain power may restrict the type of vehicle which could be used, when other powers do not.
Local authorities which have already embarked on either procuring a joint venture partner or entering into other commercial arrangements may wish to revisit business cases and the decisions, to ensure that the correct statutory powers have been identified and to check whether the dominant or primary purposes have been properly recorded and are clearly identifiable.