February 8th, 2018 by James Goudie KC

The General Power of Competence (“GPOC”) in Section 1 of the Localism Act 2011 (“LA 2011”) and its exclusion, by Section 4 of LA 2011, when an authority is acting “for a commercial purpose”, but not through a limited company, has been considered in Peters v Haringey LBC (2018) EWHC 192 (Admin). The case is concerned with the Haringey Development Vehicle (“the HDV”).  The purpose of the HDV is to create a partnership, by way of a limited liability partnership (“LLP”), between the Defendant Council, and a private sector body, Lendlease, and to bring private sector finance, experience and expertise to the task of developing the Council’s land for its better use, and so achieving the Council’s strategic aims in housing, affordable housing and employment. The Claimant challenged by way of judicial review a decision made by the Council through its Cabinet, on 20 July 2017, to confirm Lendlease after a procurement process as the successful bidder to become the Council’s partner in the HDV, and also approved the structure of the HDV.

The grounds of challenge were that the Council (1) could not use a LLP, for these purposes, since the Council was acting for a commercial purpose, and so had to use a limited company; (2) had failed in its statutory “best value” duty of consultation under Section 3 Local Government Act 1999; (3) had failed in its Public Sector Equality Duty under Section 149 Equality Act 2010; and (4) could take this decision only in Full Council and not by Cabinet alone, by virtue of the Local Authorities (Functions and Responsibilities) (England) Regulations 2000, SI No 2853.

These grounds were all contested by the Council and Lendlease, who both also said that all grounds, save the question of whether the decision should have been taken in Full Council, were affected by undue delay: grounds for the challenges first arose on 10 November 2015 or at the latest on 10 February 2017, when earlier decisions in the long process of decision-making were taken. Proceedings were not lodged until 14 August 2017.  Time should not be extended. Permission and relief should also be refused under Section 31(6) of the Senior Courts Act 1981 because it would cause hardship, prejudice and detriment to good administration. They also said that permission and relief should be refused under Section 31(3)(D) of the Senior Courts Act 1981, because it is highly likely that the outcome for the Claimant would not have been substantially different, if the alleged unlawful acts had not taken place. The Claimant contested each of these points, in particular as to when grounds for the challenges first arose.

The proceedings took the form of a rolled up hearing, not least because of the significant delay issues. Ouseley J heard the permission and substantive issues together. He refused permission on all grounds.

On GPOC and commercial purpose, he said:-

“122. An LLP, by s2(1)(a) of the Limited Liability Partnership Act 2000, had to be formed for carrying on a business “with a view to profit”.  Merely making a profit from activities or maximising return did not make those activities commercial.  Nor did it deal with the purpose of seeking to make a profit, which is relevant to s4(2) Localism Act. Mr Goudie also pointed to the obligations of financial prudence and obtaining best consideration for land disposals which underlie local authority activities: Charles Terence Estates v Cornwall Council [2012] EWCA Civ 1439, [2013] 1 WLR 466.  This meant that profit and return could not of themselves indicate a commercial purpose to an activity for s4(2) purposes.  The question was not whether a Council was acting commercially, but whether it was acting for a commercial purpose.

  1. S4 did not examine the purpose of some other body participating in activities with the Council. So the purposes of Lendlease, which were commercial, were not to the point.  And what was done by a separate corporate entity as an LLP was not done by the Council, and its purposes were not the same as the Council’s purposes in becoming a partner in it. That was not to suggest that HDV’s purposes and activities were irrelevant to judging the Council’s purposes in establishing and acting through the HDV.  But under s4, what mattered was the Council’s purpose; the purposes of the LLP and of its individual members could be different without affecting the application of s4(2).”

“132. In my judgment, the purpose of s1 of the Localism Act is to give authorities a considerably broader range of powers than they had enjoyed hitherto. S1 is not confined to enlarging authorities’ powers simply so that they can “do things” with a commercial purpose, although it clearly does enable them to “do things” for a commercial purpose. The commercial purpose will include trading and money-making activities which previously they could not undertake, and these activities may 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 prevents the local authority being in a more favourable position in relation to taxes than those with whom it is newly enabled to compete.  I do not consider that Parliament, which had already accepted that certain Council activities should be undertaken through a company, intended that those other “things” that could be done already without a company, now had to be done through a company, if they were to be done at all.  It was not intended that the existing powers of authorities, in the guise of a very considerable enlargement of their scope, including their non-commercial scope, should become restricted in that way.  Still less do I think that it was intended that doing “things” which might generate a profit or return for the council, a commonplace of many council activities related to its land assets, and which the council could then put to use for its functions, should now be done and only lawfully done through a company, and indeed not through an LLP.”

“134. It is the Council’s purpose in doing the “thing” challenged which must be examined. Its purpose in entering into the HDV arrangements and activities may be very different from Lendlease’s, which is a commercial purpose.  Nor is the question simply: what is the purpose of the HDV? It is perfectly sensible for the partners to have different lawful purposes which are brought together. Their different purposes may each be achieved through its activities.  The question to my mind is: what is the purpose of the Council in entering into those arrangements for an HDV to do what it intends the HDV to do?

  1. …The question is: is the purpose for which these things are being done a commercial purpose? The phrase is to be read as a whole without intoning the article “a” with an emphasis which distorts the thrust and purpose of the section. In my judgment, s4(2) requires an overall view to be taken of “the thing” being done, and of the overall purpose for which it is done.
  2. That is perhaps only another way of expressing, by reference to the specific statutory language, the dominant purpose test … if the purpose which is said to be commercial is simply an incidental or ancillary purpose to the non-commercial purpose, it is correctly seen as part of the non-commercial purpose, and not as a commercial purpose at all.
  3. It would require clear statutory language, rather than reading “a” with emphasis, for a separate but minor, or lesser and incidental, purpose or the inevitable accompaniments to the dominant purpose, to require the use of a company when the dominant overall purpose did not.
  4. The contrary analysis would introduce very difficult problems for local authorities in judging whether a company was necessary: it would require disaggregation of what may be a single overall purpose, with components not sensibly separable from others, or using a company because of a minor or incidental component. This would be particularly problematic in view of the various obligations on local authorities to carry out functions in a financially prudent manner. This is likely to require them to act, at least at times, in a manner which could be characterised as “commercial”. This would be a curious consequence of an Act the avowed purpose of which was to give local authorities greater powers and flexibility.
  5. To my mind, there is no doubt but that the Council’s purpose in entering into the arrangements setting up the HDV and governing its operation, including the relationship between the two partners, cannot be characterised as “a commercial purpose” within the scope of the Localism Act. Even more clearly is its dominant purpose not commercial.  And any commercial component is merely incidental or ancillary, and not a separate purpose.”

“140. I do not consider it right to characterise the council as having a commercial purpose at all; the fact that a return is hoped for, to be reinvested for the same policy objectives does not turn them into commercial purposes at all. It may be acting in a commercial manner, as Mr Goudie suggested, but it is not acting for a commercial purpose.”

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