Local authority – Provision of housing – Ultra vires – Section 17 of Housing Act 1985 – Predecessors of respondent council taking leases of properties from appellant for purpose of subletting or licensing to those in priority housing need – Respondents alleging breach of fiduciary duty and ultra vires by predecessors in entering into leases without having regard to market rents – Whether any relevant breach of duty occurring – Whether section 17 of 1985 Act imposing requirement to acquire properties “at reasonable price” – Leases held to be void as consequence of breach – Appeal allowed
The respondent council was the successor to two local authorities that ceased to exist in 2009 when the appellants, as the new unitary authority, took over their rights and liabilities. The two authorities had previously entered into arrangements with the appellant for the provision of housing for homeless persons in priority need, pursuant to their powers as local housing authorities under Part VII of the Housing Act 1985. Under those arrangements, set up between 2006 and 2007, the appellant purchased identified properties and leased them to the authorities, mostly for terms of 25 years; the authorities then sublet or licensed the properties to vulnerable people in housing need. The appellant financed the purchase of the properties in part by loans and grants from the authorities but mainly by bank borrowing.
When the respondents took over the authorities’ functions, they ceased to pay rent to the respondent although they continued to use the properties to house vulnerable people. In defence to the appellant’s claim for unpaid rent, they contended that the leases of the properties were ultra vires and void. They submitted that the power to acquire properties for housing purposes, under section 17 of the 1985 Act, had to be read as a power to acquire at a reasonable price and the authorities had breached their fiduciary duties to their taxpayers by entering into the leases without having regard to market rents.
That argument was accepted in the court below. The judge held that the authorities had breached their fiduciary duties by applying a formulaic approach to rent that did not take into account the fact that market rents would vary from property to property and over time from unit to unit within each property. He found that the leases were void and that, in the absence of any lawfully agreed rent, the respondents held under tenancies at will that were terminable at any time; however, in light of the appellant’s good faith and reliance on the perceived validity of the leases, it was equitable to require the appellants to pay the agreed rent in respect of their use of the properties. The appellant appealed.
Held: The appeal was allowed.
A decision of a local authority could amount to a breach of fiduciary duty, or of a duty analogous to a fiduciary duty, such that the decision could be characterised as ultra vires and void in public law proceedings at the suit of an interested party: Roberts v Hopwood [1925] AC 578, Prescott v Birmingham Corporation [1955] Ch 210 and Bromley London Borough Council v Greater London Council [1983] 1 AC 768 applied. Moreover, in some circumstances, a local authority might be able to raise their own lack of capacity as a defence to an action to enforce an apparent contract: Credit Suisse v Allerdale Borough Council [1997] QB 306 applied.
However, there was no relevant breach of fiduciary duty in the instant case. The judge had not found that the housing benefit system was being abused, that the rents charged to residents were excessive, or that the authorities were acting for an improper purpose. The alleged breach of duty resided solely in the failure to have regard to market rents. That failure could not amount to a matter of “pure” ultra vires unless a requirement were read into section 17 of the 1985 Act that housing should be acquired “at a reasonable price”. No such requirement could be read into the statute. It would rarely be appropriate to read such a limitation into a statutory power since doing so would invite judicialisation of the limits of legal capacity, in that capacity might be ascertainable only by a judicial determination of the reasonableness of a price: Gibb v Maidstone and Tunbridge Wells NHS Trust [2010] EWCA Civ 678 and Pickwell v Camden London Borough Council [1983] QB 962 considered. Moreover, in the absence of expert evidence, there was no basis for concluding that the rents charged in the instant case were not a reasonable price. Whether the case was examined by reference to breach of fiduciary duty or by reference to “pure” ultra vires, the judge had erred in finding that the leases were void because of a failure to have regard to market rents. There was neither a legal nor an evidential basis for such conclusion in the circumstances of the case.
Per curiam: Where an error by an authority had not resulted in “pure” ultra vires, in the sense of a lack of legal capacity, public law error should not always afford a defence to a private law claim. Breach of duty, fiduciary or otherwise, might or might not be a defence depending on the circumstances: per Hobhouse LJ in Credit Suisse. It would be highly undesirable if, years after time expired for the making of a prompt public law challenge by a person with a sufficient interest, the fact of an historic breach of fiduciary duty should inevitably lead to the defeat of a private law claim brought by a party who acted throughout in good faith. The two authorities in the instant case had done what they were empowered to do by section 17 of the 1985 Act in order to meet their onerous statutory duties. Even if any breach of duty had been established against the authorities, it would not have gone to legal capacity so as to render the leases a nullity and sustain a defence to the appellant’s claim for rent.
Martin Rodger QC and Joseph Ollech (instructed by Charles Russell LLP, of Guildford) appeared for the appellant; James Goudie QC and Guy Adams (instructed by the legal department of Cornwall Council) appeared for the respondents.
Sally Dobson, barrister
