Council acted unlawfully in refusing tenancy

Enterprise centreTrafford v Blackpool Borough Council [2014] EWHC 85 – read judgment

The High Court has held that a local authority had abused its powers by refusing to offer a solicitor a new lease of the claimant’s office premises.

The claimant solicitor was aggrieved by the fact that the stated reason for the defendant’s refusal was that her firm had brought claims against the Council on behalf of clients seeking compensation for injuries alleged to have been caused by the negligence of the Council, predominantly in highways “tripping” type claims.

HHJ Davies held that the Council had exercised its “wide discretion” under Section 123 of the Local Government Act 1912 for an improper purpose and was “fundamentally tainted by illegality” on that basis. The Council’s refusal was both Wednesbury unreasonable and procedurally unfair.

Public versus private

The interesting question central to this case was whether or not a public body, acting under statutory powers in deciding whether or not to renew or terminate a contract, was acting under public law duties, and therefore amenable to judicial review, or whether  the relationship between the claimant and the defendant was one governed exclusively by private law, where judicial review has no part to play . This question goes back to an early case on local authority powers in this context,  Wheeler v Leicester County Council (1985) AC 1054.  In that case, it will be remembered, the House of Lords ruled that it was not open to the city council, acting as a public body, to punish Leicester Rugby Club for its refusal to align itself with the council’s own view on the South African rugby boycott by suspending the club’s existing use of the council’s recreation grounds for matches and training. Since the club had committed no wrong, the council could not use its statutory powers to punish them, and misused its powers in so doing.  HHJ Davies took the view that the decision in Wheeler is authority for the proposition that a public body has an “overarching duty to act fairly when seeking to achieve its objectives in exercising its public functions and, by seeking to use those powers to punish someone who had not acted in any way which could properly justify such punishment, it misused its powers and, thus, acted unlawfully and Wednesbury unreasonably.” (para 63)

Background facts

The claimant had rented office space owned by the defendant council on a three year renewable lease since 2009. At no time during the tenancy did the defendant express to the claimant that it had any concerns or reservations about her occupation of office space in the Enterprise Centre on the basis of her firm’s activities. However, at a meeting of the defendant’s Corporate Asset Management Group (“CAMG”), held in November 2012, there was a discussion about the claimant and her firm’s activities. The minute of the discussion, as disclosed by the defendant, read as follows:

Tenants of the Enterprise Centre … have submitted several tripping claims against the Council on behalf of clients. Reported that the tenants are a firm of solicitors who have a three year contracted out lease from 15th June 2010, and therefore due for renewal 14th June 2013. They had an introductory 50% discounted rent for the first six months. This matter was discussed and it was agreed to terminate the lease as soon as possible.

Issues before the Court

The CAMG furnished evidence to the effect that, given the sudden increase in volume of claims from the claimant’s firm and their nature, it was inferred that these were “claim farmed” claims.

High volume claims such as these are a considerable drain on the Council and divert resources from the Council’s core functions of providing services and infrastructure for the benefit of the residents of the Borough. As such the Council considers that such claims are contrary to its interests.
The Council is well aware that it cannot prevent any person from carrying on business in any manner they see fit, provided that it is lawful. The Council can however choose who it enters into commercial relationships with, be it as landlord and tenant or otherwise.

It was “obvious”, in HHJ Davies’ view, that the CAMG would have known that the immediate effect of the action if implemented would have been to inconvenience the firm, in that it would have needed to find alternative office accommodation, and that any accommodation it might have been able to find might not have offered the same advantages as those offered by the newly constructed fully equipped and staffed Enterprise Centre. On the other hand there was “absolutely no evidence” that the CAMG’s intention was to seek to pressure the firm to stop taking on tripping claims against it, because there was no evidence that there was any intention, acted on or otherwise, to inform the claimant that any decision whether or not to offer a new lease might depend on whether or not she continued to take on claims against the defendant.

The judge therefore had to consider whether, under the relevant statutory power,  the defendant was exercising a public function in making the decision complained of, and the extent to which the grounds of challenge involved genuine and substantial public law challenges, or whether they were in reality private law challenges to decisions made under and by reference to the terms of the relevant contract.

The decision of the Court

HHJ Davies observed that in a case involving a challenge to a decision of a public body acting under a statutory power but in relation to a contract and in the absence of a substantial public function element, a claimant will nonetheless normally be entitled to raise genuine and substantial challenges based on fraud, corruption, bad faith, and improper motive. The question in this case was whether the claimant should be entitled to raise genuine and substantial public law challenges beyond those limited classes. This depended on “a careful analysis of all of the relevant circumstances so as to see whether or not there is a relevant and sufficient nexus between the decision in relation to the contract which is challenged and the grounds complained of.”

Having surveyed the authorities on the matter, he cited with approval Elias J’s observations in a 2001 case that

public bodies are different to private bodies in a major respect. Their powers are given to them to be exercised in the public interest, and the public has an interest in ensuring that the powers are not abused. I see no reason in logical principle why the power to contract should be treated differently to any other power. It is one that increasingly enables a public body very significantly to affect the lives of individuals, commercial organisations and their employees. (Molinaro v Kensington & Chelsea BC [2001] EWHC Admin 896.)

On the other hand  the mere fact that the party alleged to be in breach of contract is a public body plainly cannot, on its own, transform what would otherwise be a private law claim into a public law claim. In Hampshire County Council v Supportways [2006] EWCA Civ 1035 Neuberger LJ (as he then was) pointed out that

 where the claim is fundamentally contractual in nature, and involves no allegation of fraud or improper motive or the like against the public body, it would, at least in the absence of very unusual circumstances, be right, as a matter of principle, to limit a claimant to private law remedies.

Turning back to the instant case, HHJ Davies found that the defendant was entitled to say that its decision must be considered in the context of its being a decision under  Section 123 Local Government Act 1972, which confers an extremely wide and, in the context of a short lease such as the present, “virtually untrammelled” power. But the claimant was equally entitled to argue that this was a case of her having been subjected to a decision that the defendant would not even consider a request by her for a new tenancy once her existing tenancy expired, even though this was always clearly an option. Therefore it was open to her to submit that the decision was adopted for an improper purpose, that it was irrational (because it made no financial sense for the council) and that it was procedurally unfair in public law terms. All these challenges were genuine and substantial, and the defendant was, in the judge’s view, amenable to judicial review.

This conclusion is very much in line with Wheeler, and a number of other authorities including the landmark ruling by the Court of Appeal in R v Somerset County Council ex parte Fewings [1995] 1 All ER 513 that a council’s decision to ban deer hunting from council land was unlawful, not because it was wrong for the council to have regard to the cruelty of deer hunting, but because they had failed to have regard to the need to consider all relevant considerations in the context of the difference between the unfettered freedom given to a private landowner and the more circumscribed freedom given to a public landowner.

Equally, in this case, HHJ Davies concluded that there had been no evidence that the defendant had conducted a rational assessment of all relevant considerations, including the extent to which the claimant met the published tenant selection criteria and the nature of its business having regard to the wider community interest including that of the defendant itself. Instead, he was satisfied that,

based upon its conclusion that the claimant’s firm was engaged in claims farming which harmed the defendant’s own financial interests, the only consideration which it had regard to when deciding whether or not even to consider a request by the claimant for a new tenancy was its desire to punish the claimant for engaging in that activity by subjecting her firm to some difficulty and inconvenience, without having any regard to whether or not that would achieve any benefit for the wider community interest or indeed the defendant’s own financial interests.

The exercise of a power with the “sole or the dominant intention” of punishing the claimant and subjecting her firm to a detriment, in circumstances where there was no evidence that the claimant was actually doing anything at all unlawful or improper, was in his judgment the intentionally improper exercise of the power conferred on the defendant and the exercise of that power for unauthorised purposes.

The judge granted permission for judicial review proceedings to go ahead, noting that the impugned decision was fundamentally tainted by illegality, irrationality and procedural unfairness and, for those reasons, should be quashed.

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