Housing association’s object to provide housing or associated amenities — Purchase of site for development — Planning permission for flats and offices — Whether transaction was ultra vires because of development of office units — High Court holding that transaction was intra vires — Judgment for defendants
M was an industrial and provident society registered under the Industrial and Provident Societies Act 1965 with the object of carrying on the industry business or trade of providing housing or any associated amenities. It also had power to do all things necessary or expedient for the fulfillment of its objects. As a creature of statute it had no capacity to do that which was not expressly or impliedly authorised by its rules and case law relevant to the construction and effect of the powers of companies applied.
M purchased a site comprising freehold land and buildings at North Quay, Sutton Harbour, Portsmouth, for a purchase price of £1,425,000. M entered into a development agreement to develop the site. Halifax Building Society advanced £1,422,000 to M and M executed a first legal charge over the site in favor of the Halifax to secure all money payable by M. Planning permission was granted for 28 residential flats and some offices. The office element accounted for approximately 16% of the space and 18% of the value of the development. The planning permission required the first floor of the proposed building to be used as offices and for no other purposes. If the first floor had been residential rather than office units, the development would have been economically unviable and therefore unfundable. A question arose whether the transaction was ultra vires by reason of the development of the office units in two sets of proceedings by Halifax against the defendants.
Held The transaction was intra vires.
1. The question whether a transaction was outside the capacity of the company depended solely upon whether, on the true construction of its memorandum of association, the transaction was capable of falling within the objects of the company as opposed to being a proper exercise of its powers: see Rolled Steel (Holdings) Ltd v British Steel Corporation [1986] Ch 246.
2. In asking that question the facts pertaining to the development to which the court could have regard must be limited to the fact that the relevant part of the development was office units. It should not take into account such matters as the terms of the development agreement or the leaseback, or the proportionate size or value of the office units.
3. There was no doubt but that at the time of the development M was proposing to provide housing. It must be possible for M to build an office in some circumstances, since the provision of office units was capable of “being … a thing necessary or expedient for the object of conducting a business of providing housing”.
4. The fact that the office might be in fact an associated amenity could not affect that analysis. In any event the actual purpose for which the offices were required was relevant to the question of ultra vires. Accordingly, the transaction was intra vires.
Timothy Lloyd QC and Jonathan Simpkiss (instructed by Walker Morris, of Leeds) appeared for Halifax Building Society; David Neuberger QC and Timothy Fancourt (instructed by Reynolds Porter Chamberlain) appeared for Chamberlain Martin & Spurgeon; Laura Rodriguez-Garcia (instructed by Booth & Co, of Leeds) appeared as a watching brief for Meridian Housing Association Ltd’s receivers.