Best Consideration

September 9th, 2016 by James Goudie KC

The policy of legislation such as Section 123 of the Local Government Act 1972 is to ensure, so far as reasonably possible, that public assets are not sold by public authorities at an undervalue, save, if at all, with the consent, general or specific of the Secretary of State.  In R (Faraday Developments Ltd) v West Berkshire Council [2016] EWHC 2166 (Admin) Holgate J distilled, at paragraph 131, the following principles from the case law as to the circumstances in which a judicial review Court may or may not intervene in relation to the application of Section 123:-

(1) The Court is not entitled to substitute its own view on the facts and merits for that of the local authority, the Court may interfere only if there was no material upon which the authority’s decision could have been reached, or if in reaching that decision, the authority disregarded matters it ought to have taken into consideration, or if it took into account matters which were irrelevant, or if its decision was irrational;
(2) The Court is likely to find a breach of Section 123(2) only if the local authority (a) has failed to take proper advice, or (b) failed to follow proper advice for reasons which cannot be justified, or (c) although following advice, it followed advice which was so plainly erroneous that in accepting it the authority must have known, or at least ought to have known, that it was acting unreasonably;
(3) Section 123(2) does not mandate the authority to have regard to any particular factors;
(4) There is no need for the authority’s decision-making process to refer to Section 123(2) explicitly, provided that the Court is able to see that the duty has in substance been performed;
(5) The obligation under Section 123 is not to conduct a particular process, but to achieve a particular outcome, (albeit process may have an important, or even determinative, evidential role in deciding whether the authority has complied with Section 123(2));
(6) “Consideration” in Section 123(2) is confined to those elements of a transaction which are of commercial or monetary value, and therefore the Court will quash a decision to sell property where the authority has taken into account an irrelevant factor, eg job creation, when assessing whether it is obtaining the best “consideration” reasonably obtainable;
(7) The deliverability or credibility of a bid, or the care with which it has been prepared, are commercial factors which are relevant to an assessment of whether the “consideration” offered is the best reasonably obtainable: the highest offer on the table need not represent the best “consideration”, because an authority may conclude that “a bird in the hand is worth two in the bush”;
(8) In order to discharge the duty under Section 123(2) there is no absolute requirement to market the land being disposed of, or to obtain an independent valuation.

The case also concerned whether the Development Agreement was a “public contract” to which the public procurement regime applied; from paragraph 171, addressed the principles concerning the “main object” of a contract and the concept of direct and indirect and enforceable legal obligations; and, from paragraph 196, whether the Development Agreement contained artificial measures or devices to avoid public procurement legislation.

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