Disposal of land by local authority — Sale by auction without reserve by direction of Secretary of State — Interaction between section 98 of the Local Government, Planning and Land Act 1980 and section 123 of the Local Government Act 1972 — Secretary of State directed the authority under section 98 of the 1980 Act to sell by auction within four months certain pieces of unused land, the sale to be without reserve and without reservation of a right to bid — The local authority were opposed to this procedure, holding that the market for land was at the material time depressed and that the prices realised would be less than if the land were retained in the authority’s ownership until market conditions improved — The authority argued that disposal in accordance with the
direction would be a breach of their statutory duty under section 123 of the 1972 Act — This section provided that (subject to an exception not here material) an authority must not without the consent of the Secretary of State dispose of land for a consideration less than the best that can reasonably be obtained — The authority submitted that they had not received the Secretary of State’s consent — Taylor J, on an application by the authority for judicial review, had refused them an order of certiorari and had granted the Secretary of State an order of mandamus requiring the authority to comply with the directions — On appeal by the authority the Court of Appeal held as follows — (1) If the authority without any direction had a valid reason for raising money by disposing of unused land without delay, they would not be contravening section 123 by selling on the same basis as the Secretary of State directed — (2) Given the directions, it had not been established that the sale by auction within four months without reserve would be likely to produce a price less than the best that could reasonably be obtained — (3) In any case the Secretary of State’s direction under section 98 of the 1980 Act carried with it an implied consent by him under section 123 of the 1972 Act to the disposal of the land by that method even if it were sold for a price less than the best that could reasonably be obtained — Appeal dismissed
No cases are
referred to in this report.
This was an
appeal by Manchester City Council from the decision of Taylor J on an
application by the council for judicial review challenging directions by the
Secretary of State requiring the disposal of various areas of land within the
city. Taylor J had rejected the authority’s application for certiorari to quash
the directions and granted the Secretary of State’s application for mandamus to
enforce them.
J Sullivan QC
and N Huskinson (instructed by Sharpe Pritchard & Co, agents for R M W
Taylor, Town Clerk, Manchester City Council) appeared on behalf of the
appellant council; J Mummery (instructed by the Treasury Solicitor) represented
the Secretary of State.
Giving the
first judgment at the invitation of the Master of the Rolls, GLIDEWELL LJ said:
This appeal from the judgment of Taylor J given on July 15 1986 raises, we are
told, for the first time a question about the true construction and application
of Part X of the Local Government, Planning and Land Act 1980 and, in
particular, the interaction between section 98 of that Act, which is contained
in Part X, and section 123 of the Local Government Act 1972. Part X of the Act
of 1980 is concerned with the power of the Secretary of State — that is to say,
the Secretary of State for the Environment — to require local authorities to
dispose of land which they hold and which in his opinion is either unused or
underused. He exercises that power by making directions. In this case the Secretary
of State has made directions requiring Manchester City Council to dispose of
various areas of land within the city. Those directions were the subject of
challenge by way of an application for judicial review, namely for an order of
certiorari. Since the city council failed to comply with the directions, the
Secretary of State issued a riposte in the form of an application for orders of
mandamus requiring them to comply. Taylor J refused the application for
certiorari and granted the applications for mandamus. The city council now
appeal against both decisions.
Part VI of the
Act of 1980 starts with section 93, which describes the bodies to whom that
Part of the Act applies, and it is accepted by Mr Sullivan for the city council
that the council is such a body. Part X was brought into force by statutory
instrument in relation to Manchester and a number of other large cities on
December 31 1980. The operative parts of the Act start with section 95, which
provides by subsection (1) that:
The Secretary
of State may compile and maintain a register, in such form as he may think fit,
of land which satisfies the conditions specified in subsection (2) below.
Subsection
(2):
The conditions
mentioned in subsection (1) above are —
(a) that a freehold or leasehold interest in the
land is owned by a body to which this Part of this Act applies or a subsidiary
of such a body;
(b) . . .
(c) that in the opinion of the Secretary of State
the land is not being used or not being sufficiently used for the purposes of
the performance of the body’s functions or of carrying on their undertaking.
The power of
the Secretary of State to direct a disposal is contained in section 98, which
is the section on which most of the argument in this appeal has centred. By
section 98(1)(a):
The Secretary
of State may direct a body to whom this Part of this Act for the time being
applies —
(a) to take steps for the disposal of the
interest held by them in any land which is for the time being entered on a
register maintained by him under section 95 above or any lesser interest in
such land;
(b) . . .
being, in
either case, steps which it is necessary to take to dispose of the interest and
which it is in their power to take.
Section 99
then contains the procedure which the Secretary of State must follow if he is
minded to give such a direction. It requires him to give to the local authority
concerned notice of his proposal and of the proposed contents of the direction.
It gives the local authority power to make representations as to why the
direction should not be given or why its contents should be different. And by
subsection (4) it provides that if the authority has made such representations,
the Secretary
of State may not give a direction unless he is satisfied that the interest to
which the direction would relate can be disposed of in the manner in which and
on the terms and conditions on which he proposes that it shall be disposed of
without serious detriment to the performance of their functions or the carrying
on of their undertaking.
I will come
back in a moment to section 123 of the Local Government Act 1972, but first it
is helpful to go to the facts of the present case. On June 25 1985 the
Secretary of State gave notice to the Manchester City Council that he proposed
to give directions to them requiring them to dispose of 10 areas of land within
the city. They were areas of land described in schedules to the letter of that
date. They varied greatly in size from nearly 20 acres down to not much more
than one acre, and they were scattered about the city from Blackley in the
north to Brooklands in the south.
The council
duly made written representations to the Secretary of State. Their
representations made it clear that they were opposed to the whole concept of
disposing of the land at that time, but they were particularly opposed to the
method by which it was intended, if the directions came into effect, that the
disposal should take place. That was to be found in the second schedule of each
of the proposed directions in the following terms:
1. The Council
shall offer their interest in the land for sale by auction, the auction to be
held not later than four months from the date hereof.
2. The sale by
auction shall be without reserve.
3. The
Council shall not reserve a right to bid or to employ persons to bid on its
behalf.
The
representations made by the council were in two parts. The first part applied
generally to the whole range of sites which it was intended to make the subject
of the direction; the second related individually to each site in turn. We are
here concerned only with the general matters.
The first
point, which is to be found in the council’s letter of representation of August
6 1985, is:
To dispose of
these ten sites at this time in compliance with the direction given would be a
breach of the Council’s statutory duty under section 123 of the Local
Government Act 1972 and a breach of its fiduciary duty to the ratepayers of
Manchester.
The second and
third points which were made in that document do not concern us today, because
it is conceded by Mr Sullivan that the second point was dealt with by the
Secretary of State specifically in his direction. The third point was that in
relation to two of the original 10 sites, the council did not own either a
freehold or a leasehold interest, apparently because they were sites subject to
compulsory purchase where the conveyance of the land to the city council had
not been completed, and thus they could not be the subject of a direction. That
was accepted by the Secretary of State and no direction was made in respect of
those sites.
So the first
consideration which was urged before the Secretary of State was the point
relating to section 123 of the Local Government Act 1972, to which I now turn.
That is the general section which empowers local authorities to dispose of land
which they hold in the absence of any other specific power. There are in
certain other statutory provisions (for instance, the Housing Act 1985) specific
powers entitling local authorities under certain conditions to dispose
of land which they hold under those statutes. Section 123 is the general power.
Section 123(1) provides:
Subject to
the following provisions of this section, a principal council may dispose of
land held by them in any manner they wish.
Subsection
(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.
There is no
question here of disposal by way of a short tenancy.
The argument
for the city council was and is that the market for land in Manchester to be
sold for housing purposes was in 1985 when this direction was given, and I
apprehend perhaps still is, so depressed that the price which would be likely
to be realised by the sale of these areas of land at that time would be
substantially less than might be realised if the land were retained in the
council’s ownership until such time as market conditions had improved.
Accordingly, the disposal within four months of the date of the direction, at
an auction without reserve, would be unlikely to produce the best price that
could reasonably be obtained. Thus Mr Sullivan argues, and the council argued
in the letter to which I have referred, that, since the council were obliged to
dispose of land at a consideration which was the best that could reasonably be
obtained, they had no power to dispose of land when they expected the consideration
would be less than that. They would be given that power only if they received
consent from the Secretary of State, and they argue that they have not received
it.
The argument
at that time for the Secretary of State, with which we are not concerned but
which I summarise only to make it clear what the general battleground was
during the discussions between the Secretary of State and the council, was that
it was necessary to dispose of the land in the near future — that was the whole
object of Part X of the 1980 Act — and that, if there were a reserve at the
auction, particularly a reserve chosen by the city council at their discretion,
then effectively the council could choose a figure which would mean that the
land could not be sold at all, or, at any rate, would not be sold at the
auction to be held within four months.
The Secretary
of State took these representations into account. As I have said, he did not
make a direction in respect of two of the areas of land because he accepted
that they were not owned freehold or leasehold by the city, and was also
persuaded by the representations in relation to two individual areas of land
that the city council themselves intended to use for housing development in the
near future. He therefore made no direction in respect of them, When he finally
came to making his directions, which he did on November 19 1985, they related
to six of the original 10 areas of land. The total acreage had been reduced
from around 60 to around 30, of which one site in Blackley accounted for 16,
more than half.
The argument
before the learned judge, although it centred on the relationship between
section 98 of the Act of 1980 and section 123 of the Local Government Act 1972,
ranged over virtually the whole gamut of ways in which a decision of the
Secretary of State may be challenged by way of judicial review: in Lord
Diplock’s terms, ‘illegality, procedural impropriety and irrationality’. Before
us procedural impropriety is not argued and irrationality is but briefly and,
with respect to Mr Sullivan, faintly supported. The real argument turns on
illegality; that is to say, the one that I have already adumbrated, that it is
said that the council cannot legally dispose of the land in the way required by
the Secretary of State because to do so
Following
Taylor J’s decision, the Secretary of State has reconsidered the matter and has
revoked the direction in respect of two of the six sites. So this appeal is
concerned with directions in respect of four areas of land.
will achieve a
price less than the best that can reasonably be obtained.
Mr Sullivan
submits in relation to that that the court has to pose and answer three
questions. The first is: would it have been in Manchester City Council’s power
to dispose of the six sites (I translate that now into four) on the basis
required by the Secretary of State in his directions if no direction had been
made under section 98 of the 1980 Act and he had not granted a consent under
section 123(2)? Mr Sullivan submits that
the answer to that question is clearly ‘No’. For my part, I am not persuaded
that the answer to that question is so clearly ‘No’, and this raises an issue
as to the meaning and application of the phrase ‘for a consideration less than
the best that can reasonably be obtained’ in section 123(2) of the Local
Government Act 1972. Does it mean ‘can reasonably be obtained now or at the
present time’ or does it mean ‘that could reasonably be obtained if the city
council chose the best time to sell, the time which would be likely to achieve
the highest price’? That seems to me to
be the fundamental issue between the city and the Secretary of State.
Of course, if
one takes timing into account and if there were agreement between the parties
in this respect, that a sale in a few years’ time might well achieve a better
price than a sale within the four months specified by the direction, then a
sale in accordance with the direction would not achieve the best price that
could reasonably be obtained. But if one comes back to the position of the city
council acting voluntarily, I posed in argument the question: suppose the city
had some valid reason for wanting to raise money by disposing of some land for
which it had no present use, and it was advised that if it waited for some time
it would probably achieve a higher price but nevertheless decided that its need
for the money now overrode the likelihood that it would achieve a lower price
by selling now, would it be contravening section 123(2)? In my judgment, the answer to that question
is, ‘No; it would not’. Provided that the reason for sale was a valid reason,
in my judgment the city would be perfectly entitled to say: ‘We want the sale
now; we have good reason for selling now; we choose a method of sale which will
now produce the best price which can reasonably be obtained’. So I would answer
in that way Mr Sullivan’s first question.
That leads me
to the conclusion that if one now considers the position of the city not acting
voluntarily but acting under the direction of the Secretary of State, the question
to be answered is: given that the city council is directed to dispose of these
pieces of land within four months of the date of the direction, such sale to be
by way of auction, is it established that it is likely that the method of
auction is going to produce a price less than that which can reasonably be
obtained? In my view, the answer to that
is ‘No’. The purpose of the reserve is to ensure that the price does not fall
below what the vendor himself in a private situation finds acceptable. A vendor
who puts on a reserve is implicitly saying: ‘I would rather have the property
stay on my hands than dispose of it for less than £Y’, and the effect of the
reserve may very well be that the property does stay on his hands. But given
that the object of Part X of the 1980 Act, as Mr Mummery argues, is to require
the Secretary of State to require local authorities to dispose of land within a
relatively short period of time after the giving of his direction, then the
question ‘Is this method of disposal likely to produce the best price which can
reasonably be obtained?’ is to be
answered in relation to the period which is directed by the Secretary of State.
For that fundamental reason, I would answer Mr Sullivan’s first question
against his submission, and indeed that provides an answer to the case put
forward by the city council, if it be right.
If it be not
right — and this really is a related point — one then comes to Mr Sullivan’s
second question: did the directions made by the Secretary of State under section
98 of the 1980 Act include within them a consent by the Secretary of State
within section 123(2) of the 1972 Act?
The evidence
before the learned judge and before us, which includes three affidavits sworn
by Mr Sorensen, an Under Secretary in the Department of the Environment, on
behalf of the Secretary of State, makes it clear that the Secretary of State
has not in terms granted a consent to the land being disposed of at a price
less than the best that can reasonably be obtained. I think it is fair to
describe Mr Sorensen’s affidavit in this respect as somewhat elliptical. He
says at para 3(3) of his affidavit of June 27 1986:
A sale by
auction without reserve is capable of yielding the best price that can
reasonably be obtained for that property at that time.
I interpolate
that he is making the same point that I have just made about the time. He goes
on:
In general,
there is no reason why the best price which the market is prepared to pay
should not be so obtained but there may be special factors applying to
particular sites which could create a substantial risk that the best price
reasonably obtainable could not in fact be obtained at such an auction.
Then at para
3(6) he says:
. . . the
Secretary of State considered the different circumstances of each of the
relevant sites separately. In particular he considered whether there were any
special factors indicating that there was a substantial risk that the best
price reasonably obtainable could not in fact be obtained at an auction without
reserve and that an auction without reserve would not be a suitable method of
disposal of that site.
He said that
after the Secretary of State had reconsidered the matter he concluded that it
was appropriate to make his directions.
Mr Sullivan
criticises that as being the wrong approach. He says that it is approaching it
the wrong way round. He submits that one should ask: ‘Is there any reason why
this particular site should not achieve the best price?’, and that an auction
without reserve in principle may well do so. What is more important is that Mr
Sorensen is there in effect saying that the Secretary of State took the view
that, in order to achieve the best price likely to be obtainable now or within
a short time of the giving of the directions, an auction without reserve was
likely to produce such a price. He nowhere in terms says that the Secretary of
State gave his consent should that view be wrong. On the other hand, section
98, as I have already said, requires the Secretary of State to direct the city
council to take steps to dispose of the interest held by them, being steps that
are within their power to take, and section 123(2) of the 1972 Act provides
that it is the disposal of the land to which the Secretary of State’s consent
is required if that disposal is going to be for a consideration which is less
than the price that could reasonably be obtained.
A direction
for the disposal of land in a particular way must carry implicit in itself a
consent to the disposal of the land in that way. Thus it follows, in my
judgment, that if in fact the method of the disposal of the land produces a
price less than could reasonably be obtained, the Secretary of State’s consent
to that method of disposal becomes a consent to the disposal at such lesser
price. If the city council are concerned, as they say they are, that they might
be held to be in breach of section 123(2) or, indeed, in breach of their
fiduciary duty to their ratepayers, in my view they need not have that concern.
There was one
further feature of this case which was in issue before the judge, but ceased to
be in issue during the course of the hearing before him, that is to say, that
the council were assuming that the directions of the Secretary of State
contained all the terms upon which they were entitled to dispose of the land in
accordance with his directions. But Mr Mummery conceded before Taylor J that
that was not the case. In particular, when the council said that they were
concerned that, if they did dispose of the land, what might happen was that it
might be acquired by builders who would themselves then put it into their land
banks and not develop it and thus not achieve the desired effect of the
development of the land, the answer might well be that the city council could
put into the auction terms a pre-emption clause which would entitle them to
require the purchaser to resell the land to the city council upon appropriate
terms if it had not been developed within a given period of time. Mr Mummery
conceded that it would be open to the council to insert such a term. Quite what
effect that would have has not been discussed before us and opens up what I
think can rightly be described as interesting possibilities, but that is not an
issue that arises before us.
The second of
the points upon which I have expressed an opinion was one of the bases of
Taylor J’s judgment. The first, I think, was not. But for both those reasons I
would uphold his decision. Thus, in relation to the four directions that now
remain alive, I would dismiss the appeal, having the effect that the
applications for certiorari would fail and the orders of mandamus in respect of
those four directions would stand.
NOURSE LJ
said: With some misgivings, I agree that these appeals should be dismissed. I
will state my reasons as briefly as I reasonably can.
First, I
consider it to be clear that the final words of section 98(1) of the 1980 Act
‘and which it is in their power to take’ require us to ask whether the steps
directed to be taken are within the powers which are already available to the
council under section 123 of the 1972 Act. Second, I am of the opinion that an
unsolicited direction of the Secretary of State made under section 98 is
capable of taking effect also as a consent of his under section 123(2). Third,
what the Secretary of State is to consent to under that subsection is a
particular disposal or a particular series of disposals which may or may not be
for the best consideration that can reasonably be obtained.
For myself, I
do not think that in deciding what is the best consideration that can
reasonably be obtained one can take into account the particular directions
which have been made under section 98. It seems to me that that would very much
reduce the effect of the final words of section 98(1). I think that the
Secretary of State can only direct the council to take steps which, without a
direction, they would have power to take voluntarily. However, in the light of
the views which I have already expressed, that does not produce a difference in
the conjoint effect of the two sections in the circumstances of the present
case. Here the Secretary of State has directed, and thus consented to, a
particular series of disposals. Accordingly, he has given a consent under
section 123(2) which is prima facie valid even if the consideration for
the sales, or any of them, is less than the best that can reasonably be
obtained.
My difficulty
has been to decide whether there have been errors in the decision-making
process sufficient to vitiate his consent. Here Mr Sullivan, for the council,
has advanced a moderate but powerful argument with which I have been much
impressed. The Secretary of State’s duty under section 123(2) is not to allow
the council’s assets to be realised for less than their full value without good
cause. It seems to me to be a tenable view of the evidence that here the
Secretary of State has throughout proceeded on the assumption that the method
of sale directed would result in the achievement of the best consideration that
can reasonably be obtained, and that he has never taken proper account of the
possibility that he was giving his consent to sales which might very well lead
to something less. That was certainly something of which he was bound to take account.
In the end, I
do not think that it is open to us to take that view. It seems to me that there
is material in the evidence, in particular para 3(6) of the affidavit of Mr K E
C Sorensen sworn on June 27 1986, which Glidewell LJ has read, which suggests
that that point was taken into account in the decision-making process, even
though it has not in the result been given the prominence which I would have
expected to find.
SIR JOHN
DONALDSON MR said: I agree with the judgment of Glidewell LJ, and do so wholly
without misgivings or, indeed, reservations. Nevertheless, I want to add a word
on the consent which in my view is implicit in a direction under section 98 of
the 1980 Act. That consent must be a consent to a disposal in the manner
directed by the direction. It is not, as I see it, a consent to a sale in that
manner coupled with, for example, special terms. One such special term that has
been suggested is a special term allowing the council compulsorily to
repurchase the land if development is not begun in two years.
It is right, I
think, as Mr Mummery conceded before the learned judge, that the direction does
not prevent the council from putting in such pre-emptive terms. But that is
only half the story. The direction does not prevent their doing so, but section
123(2) does if the effect of putting in such pre-emptive terms would be to
prevent the council from achieving a consideration which is the best that could
reasonably be obtained. No question of price arises as long as you are
complying simply with the direction, because, whether the Secretary of State be
right or the council be right, that is covered by the consent. But if you
reduce the price by a special term, then section 123(2) does come into play,
and the council, if it wants to do that, in my judgment would have to ask the
Secretary of State for consent. He may well give consent. If he does not give
consent, they cannot put that term in, and they cannot, let me add, hang about
saying, ‘We are waiting for the answer’. The direction is the overriding
requirement. They have to sell within whatever is the time fixed by the
direction. But I should be extremely disappointed if the Secretary of State,
faced with such a request for consent, did not give it immediate consideration
and the reply was as immediate as it could be subject to the necessity to give
proper consideration to the term.
For those
reasons I, too, would dismiss the appeal.
The appeal
was dismissed with costs. An application for leave to appeal to the House of
Lords was refused.
