In Dudley Muslim Association v Dudley Metropolitan Borough Council (2015) EWCA Civ 1123 the Court of Appeal held that a Chancery Master had not erred in striking out the Community Association’s defence of legitimate expectation in relation to a claim by the Council for the specific performance by the Association of a contractual obligation on the part of the Association to transfer land back to the Council. This was for three reasons: first, the legitimate expectation could not avail against the contract; second, Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 was applicable; and third, the defence failed on the facts.
As to the first reason, Levison LJ observed, at paragraph 22:-
“It is true that in a technical sense the Council is operating under statutory powers; but that is only because the Council can do nothing unless it is authorised by statute. The authorising statute in the present case is section 120 of the Local Government Act 1972, which empowers the Council to acquire land in its area. However, this case is not about the unilateral exercise by the Council of a statutory power; it is about the implementation of a commercial bargain. In substance, what we are dealing with is the enforcement of a contract willingly made by both parties with the aid of legal advice. The DMA’s defence is that the Council is not entitled to enforce the contract according to its terms. This important feature of the case gives rise to the question whether a public law defence based on legitimate expectation is, in principle, an available defence to a claim to enforce a contract. …”
The case will be governed by private law, absent bad faith or improper motive. At paragraph 30, Levison LJ concluded:-
“In my judgment, in the circumstances of this case, there is no public law defence available to the DMA based on legitimate expectation or a general appeal to abuse of power. If the DMA cannot assert a variation of the contract or a promissory estoppel, which they do not attempt to do, the contract is enforceable according to its terms.”
As to the 1989 Act, the Association’s obligation to transfer the land to the Council was in principle within the ambit of Section 2. Any variation that falls within the ambit of Section 2 must itself comply with the required formalities of that Section. They cannot be outflanked by promissory estoppel.
As to the facts, the Court of Appeal acknowledged (paragraph 46) that a decision of a local authority can be impugned even if there has been no clear representation which created a legitimate expectation, if there is an abuse of power. However:-
“47. … fairness and reasonableness are objective concepts, otherwise there would be no more than palm tree justice: … Abuse of power is not a freestanding ground on which a court can act in the absence of unlawful action on the part of the public authority in question: …the proper sphere of the court is illegality.”
“49 Where it is alleged that a public authority is abusing its powers it is necessary to inquire: what is the power that is being abused? In many cases what is in question is the exercise of a statutory power, and the question will be whether the power is being exercised for the purposes contemplated by the statute and proportionately on the facts of the individual case. A power of this nature is one conferred upon a public body and is capable of exercise without the consent of the citizens who are affected by its exercise. It is for that reason that the law will intervene to protect the citizen against the abuse of that unilateral power. But in this case we are dealing with contractual rights and obligations. I do not think that it can usually be an abuse of power to exercise contractual rights freely conferred, even if the result may appear to be a harsh one. By the same token what is “unfair” or “conspicuously unfair” will depend on the context. …”
“50. Once again the context here is a commercial contract entered into by two parties with the benefit of legal advice. It is not usually unfair to hold parties to the terms of the contract that they have agreed. As I have said the law of contract has developed mechanisms, such as the principle of promissory estoppel, which preclude a person from relying on his strict legal rights where certain conditions are fulfilled. These mechanisms exist in private law; but they are not relied on in this case, and play no part in the pleaded defence. One of the hallmarks of a bilateral contract is its mutuality. Whatever rights the Council has, they are rights that the DMA have granted to it. In my judgment the defence of abuse of power, even if available, would also fail on the facts.”