Local government –– Sale of land –– Section 123 of Local Government Act 1972 –– Surplus land –– Cancellation of auction –– Land sold to tenants without being offered in open market –– Whether section 128(2) prevented invalidity of contract of sale –– Whether council in breach of law outside protection of section 128 –– Whether legitimate expectation that sale at auction would be to highest bidder –– Whether local authority required to offer land in open market –– Whether sale to tenants valid
The respondent council decided to sell, at auction, 12 light-industrial units occupied by tenants that used the premises for small-business purposes. The applicant company expressed an interest and decided that it would seek to buy the units. On the day of the auction, however, the company was informed that the council had resolved not to proceed with the auction because they had agreed, subject to contract, to sell to the tenants. On learning that the tenants had agreed to pay £400,000, the company offered £450,000. That offer, and a later offer of £500,000, was rejected. The company was informed that the units were not available to it, and the council entered into a contract for the sale of the units to the tenants. The company obtained an injunction to prevent the completion of the sale, and sought judicial review of the council’s decision. The council conceded that they had acted unlawfully in entering into the contract with the tenants, in that they had not taken proper steps to obtain the best value, pursuant to section 123 of the Local Government Act 1972. However, they argued that the court could not quash the decision or set aside the contract, as the rights of third parties were protected by section 128(2) of the Act.
Held: The application was allowed and the contract was declared invalid. The protection afforded by section 128(2) applies only once completion of a transaction has taken place. Accordingly, as the sale to the tenants had not been completed, there had not been a disposal within that subsection, and the company was entitled to the relief of having the decision of the council quashed and the contracts set aside. In any event, the subsection only relieves a purchaser from the failure to obtain the Secretary of State’s consent to the sale. If there are any breaches of law going beyond, or independently of, that breach, as was the case here, the provision would not give protection. The council were in breach of their fiduciary duty and had acted Wednesbury unreasonably. However, they had not acted unlawfully in relation to an alleged breach of a legitimate expectation that they would sell the units by auction and award the units to the highest bidder.
The following cases are referred to in this report.
Bromley London Borough Council v Greater London Council [1983] 1 AC 768; [1982] 2 WLR 92; [1982] 1 All ER 153
Farrage v North Wiltshire District Council; sub nom Trustees of the Chippenham Golf Club v North Wiltshire District Council (1992) 64 P&CR 527; 156 LGR 863, CA
Mainwaring v Trustees of Henry Smith’s Charity [1998] QB 1; [1996] 3 WLR 1033; [1996] 2 All ER 220; (1997) 73 P&CR 395; [1996] 2 EGLR 25; [1996] 29 EG 110
R v Falmouth and Truro Port Health Authority, ex parte South West Water Ltd [2000] 3 All ER 306
R v Pembrokeshire County Council, ex parte Coker [1999] 4 All ER 1007
Wilkins v Horrowitz [1990] 2 EGLR 217; [1990] 29 EG 57
This was an application by Structadene Ltd for judicial review of a decision of the respondents, Hackney London Borough Council, in relation to a sale of property.
Kelvin Rutledge (instructed by Eversleys) appeared for the applicant; John Hobson QC (instructed by the solicitor to Hackney London Borough Council) represented the respondents.
Giving judgment, ELIAS J said: 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 concede that they did indeed act unlawfully in entering into the contract, in that they 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 they obtain the consent of the Secretary of State for the sale. If his consent is given, then a sale that is for less than best value is none the less lawful. The council, however, contend that the court cannot now quash the decision or set aside the contract. They submit that the rights of third parties are protected by section 128(2) of the Act, and cannot now be unravelled. The council accept that it would be open to the court to declare the decision unlawful, but say 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.
Background
This can be stated relatively briefly. The material facts are not in dispute, and are summarised in a witness statement of Mr Anthony Kent, the solicitor acting for the applicant. The council let 12 light-industrial units to tenants that 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
On the day of the auction, at 9.45am, 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 10am 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 £500,000, 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 have 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 they did. The statement suggests, but does not state in terms, that the council may have been intending to comply with one of their standing orders that gives statutory tenants the first opportunity to purchase the property that 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 that was £100,000 better than the offer they accepted.
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 were in breach of their fiduciary duties to the ratepayers; they acted in a Wednesbury unreasonable manner; they 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, they acted unfairly.
Mr John Hobson QC, for the council, realistically accepted that, in the circumstances, the council had acted unlawfully, in that they had infringed section 123. He accepted that they were required to take active steps to try to obtain the best price for the property and that they had failed to do that. He denied, however, that they had acted unlawfully in any of the other ways alleged. Whether they did or not is potentially material, for reasons that I will explain below. As I have indicated, he relied upon section 128(2) as the basis for saying that the contract was none the less 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.
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 them 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 part 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 section 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 an 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 para (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 themselves. 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.
Does section 128(2) apply?
This is the fundamental issue in this case. Mr Kelvin 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 submits that the provision applied, in any event, only when the council intended to dispose of land by the route of the Secretary of State’s consent, and would not apply where they were intending to get the best value. He further contended that they were seeking to get the best value in this case. I shall consider each of these arguments in turn.
Has there been a disposal?
The first issue that 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. While 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, while 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 respondents are right, then there would be two disposals, one upon exchange of contract, when the equitable interest was passed, and one upon 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 upon 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 Trustees of Henry Smith’s Charity [1998] QB 1* the Court of Appeal had to decide whether there was a relevant disposal upon the entry into the contract or upon conveyance for the purposes of section 4 of the Landlord and Tenant Act 1987. The court held that the disposal took effect upon conveyance. I shall consider this case further below.
* Editor’s note: Also reported at [1996] 2 EGLR 25
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 (2B) provides that where the authority dispose of land that they are obliged to hold under certain statutory provisions for the enjoyment of the public, they 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 were relieved of their duties once a contract to sell the land was made. One would not expect them to be free of their duties until they were no longer in a position to control the land in question, and that would be upon conveyance. Yet if the respondents are 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 upon transfer. It is not paid for the equitable interest arising upon the contract of sale, 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 that is created by the disposal, rather than any agreement to create the tenancy.
On the other hand, subsection (2A) arguably lends support to the respondents’ 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, in fact, that it would need to be 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 [1990] 2 EGLR 217. That decision was, in turn, cited with approval and followed by the Court of Appeal in Mainwaring , to which I have made reference, in a judgment of Sir Thomas Bingam MR, 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 Wilkins, 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 subletting (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 their rights as owners of the property. Plainly, these were retained; the equitable interest conferred upon the purchaser of property is only of a limited nature.
In my opinion, therefore, the balance of the argument, based upon 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 upon 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 v Pembrokeshire County Council, ex parte Coker [1999] 4 All ER 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. Upon 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:
The language of s128(2) is perfectly clear and unambiguous: in favour of a 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 s128(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 upon 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 effect upon the latter.
The other case in which there is a brief reference to the concept of disposal, although in the context of section 123, rather than section 128, is the decision of the Court of Appeal in Farrage v North Wiltshire District Council (1992) 64 P&CR 527. The case, in fact, raised the question of 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 they 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 matter, to take a lease of land would be authorised by section 123(1).
Mr Hobson relies strongly upon 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 that would prevent the consent being obtained then. The council are clearly at liberty to obtain the consent before contract if they so wish. 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, it cannot be upset by the Secretary of State’s failure to give consent, but, 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.
Have 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 that 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 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 that 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 have struck a balance between non-economic or social benefits on the one hand, and financial benefits on the other, which would put them in breach of their 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 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, or operating 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.
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 their fiduciary duty. Second, he says that they acted Wednesbury unreasonably in accepting the sum they 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 they would award the property to the highest bidder. It
As I have already indicated, the council have not provided any proper explanation of why they took the decision they did. Prima facie, I consider that the applicant has made out its claim that the council acted in breach of their fiduciary duty, and there is no evidence that 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 that 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 London Borough Council v Greater London Council [1983] 1 AC 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 fail to obtain the best price for the local taxpayers: see Bromley per Lord Diplock at p829H. I therefore hold that the council are in breach of that duty.
For essentially the same reason, I am compelled to find that they acted Wednesbury unreasonably. A rational council would not have rejected an offer that was £100,000 more favourable than the offer that they 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 that 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, upon 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 upon 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 their 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 what the council then intended. 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 upon 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 upon the substantive concept of legitimate expectation; it has no relevance to the purely procedural doctrine: see R v Falmouth and Truro Port Health Authority, ex parte South West Water Ltd [2000] 3 All ER 306 at p309, per Simon Brown LJ.) Nor do I accept that there was a duty upon the council to consult all those whom they 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 their mind, either at all or without giving the applicant the opportunity to make representations first. The challenge based upon 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 they 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 were 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 they sell 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.
Application allowed.
