1. LOCAL AUTHORITY POWERS AND JOINT VENTURES Local Partnerships Nigel Giffin QC – 11KBW 3 March 2010

2. LOCAL AUTHORITY POWERS – THE BASICS Local authorities are statutory bodies Everything they do must be authorised by statute – the main focus of this presentation Also, exercise of powers must be “Wednesbury reasonable” –Rational –Having regard to all relevant and no irrelevant considerations –For a proper purpose –Without misdirection in law –Not based on critical error of established fact –Procedurally fair including e.g. proper consultation –Without improper delegation or fettering of discretion – Those acting in authority’s name must have delegated authority to do so –Distinction between executive and non-executive functions –Delegations in authority’s constitution –Terms of resolutions passed Actions must not infringe specific statutory provisions or EU law requirements –Could include e.g. Human Rights Act 1998 –Breach of Public Contracts Regulations 2006? – see Chandler [2010] LGR 1 –Land disposals and s 123 of Local Government Act 1972 –State aid

3. CONSEQUENCES OF ULTRA VIRES ACTION Actions may be challenged by judicial review Potential action by auditor Contracts may be unenforceable (by either party), even after many years Potential claims for restitution of benefits conferred/payments unlawfully made

4. FINDING THE POWER First step is always to analyse exactly what the authority is going to do Each element of the project requires authorisation Key provisions potentially relevant to joint ventures –Local Government Act 2000 s 2 (well being power) –Local Government Act 1972 s 111 (incidental/conducive/calculated to facilitate) –Local Government (Contracts) Act 1997 s 1 (power to contract to perform functions) –Local Government Act 2003 s 93 (charging for discretionary activities) –Local Government Act 2003 s 95 (trading through a company) Also look at substantive provisions relevant to activity in question Local Authority Goods and Services Act 1970 may be of little help in context of joint ventures – local authority self must enter into agreement with recipient public body and supply services – Credit Suisse v Allerdale BC [1997] QB 306 says provision by a company is not provision by authority

5. THE WELL BEING POWER Section 2 power Very broad – should be seen as power of first resort To do “anything” –Includes but not limited to specific matters in s 2(4) Incur expenditure Give financial assistance Enter arrangements/agreements with any person –Will cover most plausible elements of a joint venture e.g. formation of company, capitalisation, shareholders’ agreement –Can cover things done outside area – s 2(5) Which the authority considers – subjective test Is likely to achieve promotion or improvement of –Economic.. –Social.. –Environmental..... well-being of area

6. LIMITATIONS ON THE WELL BEING POWER Must have regard to s 4 sustainable community strategy + ministerial guidance (CLG February 2009: Power to promote well-being of the area) Section 3(1) – “... does not enable a local authority to do anything which they are unable to do by virtue of any prohibition, restriction or limitation on their powers which is contained in any enactment...” –Narrowly interpreted – R (J) v Enfield LBC, R (Khan) v Oxfordshire CC Section 3(2) “... does not enable a local authority to raise money (whether by precepts, borrowing or otherwise).” –Is this a test of purpose or effect? –Dominant purpose versus incidental consequence Guidance says prevents power being used primarily to raise money On that basis, incidental receipt of income not caught –Is costs recovery through charges raising money? – guidance says yes (but that voluntary contributions different), and 2003 Act assumes this

7. THE LAML CASE AND THE WELL BEING POWER R (Risk Management Partners Ltd) v Brent LBC [2009] EWCA Civ 490 Permission to appeal recently granted by Supreme Court What Brent did – –LAML – a company limited by guarantee – vehicle for insurance for London authorities and limited categories of affiliates. –Brent – became a member by subscribing to memorandum and articles made “paid capital contribution” of £160,500 undertook to make “guaranteed capital contribution” of up to £609,500 paid premiums of £520,328 for various insurances liable under rules to make supplementary capital contributions if required, and to meet supplemental calls for up to 100% of premium paid The intention – participation expected to produce substantial savings in insurance premiums; to be used either to provide better services, or to reduce council tax; thus argued that either social or economic well-being of the area would be promoted. CA accepted that, if argument sound in principle, Brent had on the facts reached necessary decision to use s 2 power – but held not a permissible use of the power.

8. Pill LJ (paras 111-120) – – Treats issue as one of interpretation of concept of “promoting well-being”. – Sees cases on s 111 as demonstrating that Parliament unlikely to have intended to confer carte blanche on authorities - section 2 not a power to do anything not specifically excluded by s 3. – Powers not incidental to local authority functions “do not readily obtain sanction by the use of a general expression, the wording of which does not easily bear upon such activities.” – “Promotion of well-being is not an expression one would normally associate with a somewhat complex arrangement to save money... rather than with action directly to promote or improve a healthy or prosperous condition.” – “The guarantees and degree of speculation involved... take the activity proposed beyond what Parliament intended by the well-being clause.” Moore-Bick LJ (paras 174-182): – s 2 cannot empower any scheme expected to reduce an authority’s costs. – s 3(2) prohibition on raising money indicates that action under s 2 must be financed out of existing resources, and also that improving general financial position not to be treated as of itself promoting or improving well-being of area. – “In my view section 2 gives a local authority power to take steps that have as their object, direct or indirect, some reasonably well defined outcome which it considers will promote or improve the well-being of its area. In other words, it gives authorities the power to do things themselves, or to procure or enable others to do things, that directly affect the well-being of their areas. In my view action to reduce the costs of goods or services purchased by the authority which does not have as its object the use of the money saved for an identified purpose which the authority considers will promote or improve well-being does not, on a natural reading of the words, fall within the section.” Moore-Bick approach is more coherent – should be seen as decision that well-being cannot lie in mere financial advantage, rather than anything more restrictive

9. SECTION 111 1.Without prejudice to any powers exercisable apart from this section but subject to the provisions of this Act and any other enactment passed before or after this Act, a local authority shall have power to do anything (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions. 3. A local authority shall not by virtue of this section raise money, whether by means of rates, precepts or borrowing, or lend money except in accordance with the enactments relating to those matters respectively. Statutory embodiment of old doctrine that, as well as express powers, statutory body has implied power to do things fairly incidental to its express powers Local authority attempts in 1980s and 1990s to escape capital controls and conservative views of their powers led to a series of important and generally restrictive decisions –Hazell v Hammersmith & Fulham LBC – not to use contrary to “comprehensive code” –McCarthy & Stone Developments v Richmond upon Thames LBC – no charging without express power; does not authorise what is merely “incidental to the incidental” –Allsop v North Tyneside MBC – not to use so as to subvert express limitations on other powers –Credit Suisse v Allerdale BC – use to circumvent statutory controls is improper purpose –Credit Suisse v Waltham Forest LBC, Morgan Grenfell Ltd v Sutton LBC – especially restrictive in relation to guarantees and indemnities

10. SECTION 111 and LAML Brent argued that effecting insurance was incidental to discharge of substantive functions carrying risk, and mutual insurance was just one form of possible insurance; all aspects of participation in LAML were part and parcel of effecting insurance through LAML Pill LJ (paras 121-122): “The local authority is not merely making an arrangement with other local authorities, it is insuring other local authorities and exposing the authority to a risk which insurance with a commercial insurance company does not, that is, a direct exposure to the losses of others.” – the inability to obtain mutual insurance without such commitments does not render such commitments lawful. Moore-Bick LJ (paras 159-173): Brent’s approach too broad – authorities show that necessary to examine constituent elements of what is done, even in cases where no element of seeking to circumvent statutory provisions. Establishment and membership of LAML, with consequent obligations to provide capital and reserves, and contract of insurance, were related but nonetheless quite distinct elements involving significant departure from conventional insurance. “... when a local authority enters into arrangements to obtain property, goods or services necessary for or incidental to the performance of its primary functions, the farther those arrangements depart from the simple acquisition of the benefits in question, the greater the likelihood that they will fall outside its powers... if what is required (in this case insurance) can be obtained by a straightforward contract with a recognised kind of supplier, more elaborate arrangements are likely to involve elements which, although they may form an integral part of what may be regarded as a beneficial scheme, are not necessary for the achievement of the objective and less easily be regarded as incidental to the performance of the authority’s function.” Conclusion – section 111 remains useful to plug gaps in powers where section 2 not in play (e.g. where using trading powers to raise money), but not likely to serve as sole justification for sophisticated schemes and projects.

11. TRADING POWER Local Government Act 2003 s 95, read with Local Government (Best Value Authorities) (Power to Trade) (England) Order 2009 Authorised to do for commercial purpose anything that authorised to do for the purpose of carrying on any of its ordinary functions (i.e. anything other than trading) This should be read as allowing any trading activity providing that nature of the activity is something that authority could otherwise be doing No longer linked to CPA scores or any equivalent Power only exercisable through a company Section 111 clearly allows authority to establish trading company, and to supply it with staff and services to help its operation (though Order requires costs of doing so to be recovered)

12. TRADING POWER - LIMITATIONS Must have regard to guidance: CLG’s General Power for Local Authorities to trade in Function Related Activities through a Company Must draw up and approve a business plan Requirement to exercise through a company means that cannot use vehicles such as LLP Does “commercial purpose” prevent use as source of power where intention is not to make a profit? Section 95(2)(b): cannot use s 95 power to do in relation to a person something that authorised to do in relation to him for commercial purpose apart from s 95 – creates issue re trading with other public bodies because of Local Authorities (Goods and Services) Act 1970

13. SOME BROAD CONCLUSIONS Well-being power likely to be sufficient for joint ventures where aiming at some direct benefit beyond the merely financial Where aim is financial advantage, section 95 will work for trading joint ventures Issues to think about in relation to joint ventures What is the power to form/participate? What will the authority do for the JV vehicle? Do the powers of the JV vehicle need to be limited?

14. GUARDING AGAINST ULTRA VIRES RISKS Careful attention to decision-making process, including necessary authorisations Keeping external auditor informed Certification under Local Government (Contracts) Act 1997 –Certified contracts: authority deemed to have had power, and exercised it properly –Not a protection against lack of proper authority –Although s 2(7) unamended, unlikely that can prevent declaration of ineffectiveness under Public Contracts Regulations –Subject to challenge by judicial review or audit review – but: Provides protection against long-term invalidity Can include relevant discharge terms –For certification to be proper, has to be Contract for provision/making available of services for purposes of or in connection with discharge by authority of its functions Intended to operate for at least 5 years Alternatively, a connected contract with a person who provides finance for a party to the contract

15. LOCAL AUTHORITY POWERS AND JOINT VENTURES Local Partnerships Nigel Giffin QC 3 March 2010