Local authority – General power of competence – Limited liability partnership – Defendant local authority entering into limited liability partnership with private-sector partner to assist in achieving strategic aims in housing and employment of defendants’ land – Defendants purporting to act pursuant to general power of competence – Claimant objector applying for judicial review – Whether defendants making unlawful decision – Whether defendants acting for “commercial purpose” requiring use of limited liability company – Application dismissed
The claimant was a resident of Haringey who opposed the Haringey Development Vehicle (HDV), a limited liability partnership (LLP) between the defendant local authority and the interested party, a private-sector construction company, to bring private sector finance, experience and expertise to the task of developing the defendants’ land for its better use, and so achieving their strategic aims in housing, affordable housing and employment.
The claimant applied to challenge by way of judicial review the decision made by the defendants to confirm the interested party as the successful bidder to become the defendants’ partner in the HDV. The decision also approved the structure of the HDV, the 50/50 split between the interested party and the defendants, as well as the related legal documents. In making their decision, the defendants purported to act pursuant to the “general power of competence” conferred by section 1 of the Localism Act 2011, in so far as it gave a local authority power to do anything that individuals generally could do.
Under section 4(1) of the 2011 Act, the general power conferred power on a local authority to do things for a commercial purpose only if they were things which the authority might, in the exercise of the general power, do otherwise than for a commercial purpose. By section 4(2) where, in the exercise of the general power, a local authority did things for a commercial purpose, the authority had to do them through a company.
The claimant’s grounds of challenge included that the defendants could not use an LLP for the proposed purposes since they were acting for a commercial purpose under section 1 of the 2011 Act, and so had to use a limited company. He argued that, for section 4(2) to apply, the commercial purpose did not have to be sole or primary purpose of the defendants’ actions.
Held: The application was dismissed.
(1) The purpose of section 1 of the 2011 Act was to give authorities a considerably broader range of powers than they had enjoyed hitherto. Section 1 was not confined to enlarging authorities’ powers simply so that they could “do things” with a commercial purpose, although it clearly did enable them to do so. The commercial purpose would include trading and money-making activities which previously they could not undertake, and those activities might put them in competition with the private sector, large or small. The requirement for those activities, done for a commercial purpose, only to be carried out by a company prevented the local authority being in a more favourable position in relation to taxes than those with whom it was newly enabled to compete.
It was the defendants’ purpose in doing the “thing” challenged which had to be examined. Its purpose in entering into the HDV arrangements and activities might be very different from that of the interested party, which was a commercial purpose. It was perfectly sensible for the partners to have different lawful purposes which were brought together. Their different purposes might each be achieved through its activities. Section 4(2) required an overall view to be taken of “the thing” being done, and of the overall purpose for which it was done. If the purpose which was said to be commercial was simply an incidental or ancillary purpose to the non-commercial purpose, it was correctly seen as part of the non-commercial purpose, and not as a commercial purpose at all.
There was no doubt that the defendants’ purpose in entering into the arrangements setting up the HDV and governing its operation, including the relationship between the two partners, could not be characterised as “a commercial purpose” within the scope of the 2011 Act. Even more clearly its dominant purpose was not commercial. Any commercial component was merely incidental or ancillary, and not a separate purpose. The purpose was to develop and manage the defendants’ land so as to achieve its aims for housing, especially affordable housing, and employment growth, which it considered it could not achieve without bringing in private sector funds, expertise and experience: R (on the application of The Durham Co Ltd) v HM Revenue and Customs Commissioners [2017] STC 264 applied.
(2) The purpose behind the defendants’ entering into the HDV and associated arrangements was to use and develop its own land to its best advantage so that it could achieve the housing, employment and growth or regeneration objectives that it had laid down. It had to achieve the best consideration on any disposal of its land and be financially prudent in other respects to produce returns which could be used to further its policy objectives. Achieving the return was neither the activity nor its purpose of itself. Making a return was one intended but lesser consequence of the primary purpose of the property management or development which the defendants were using the HDV to undertake: the purpose of doing all of that was to achieve the developments and refurbishments themselves for the variety of local public benefits which that of itself would bring, plus an improved local tax base, and a return to enable further regenerative development. Some return on the investment and use of the defendants’ land should be a consequence of obtaining the best consideration and of acting prudently financially. The aims of the HDV partners were different. The language used did not show a commercial purpose, even as a minor component, attributable to the defendants.
(3) The decision to use an LLP had been made in February 2017 but the proceedings were not lodged until 14 August 2017. The court would refuse permission on grounds of delay. In any event, it would have dismissed the application on its merits.
David Wolfe QC, Sarah Sackman and Katherine Barnes (instructed by Leigh Day) appeared for the claimant; Nigel Giffin QC, Ranjit Bhose QC and Ruchi Parekh (instructed by Pinsent Masons LLP) appeared for the defendants; James Goudie QC (instructed by Ashurst LLP) appeared for the interested party.
Eileen O’Grady, barrister
