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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Structadene Ltd, R (on the application of) v Hackney London Borough Council [2000] EWHC Admin 405 (19 October 2000) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2000/405.html Cite as: [2001] 2 All ER 225, (2001) 3 LGLR 19, [2001] 12 EG 168, [2000] EG 130, (2001) 82 P & CR 25, [2000] EWHC Admin 405, [2001] BLGR 204, [2001] 1 EGLR 15

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QUEEN on behalf of STRUCTADENE LIMITED v. HACKNEY LONDON BOROUGH COUNCIL [2000] EWHC Admin 405 (19th October, 2000)

IN THE HIGH COURT OF JUSTICE Case No CO/921/2000
QUEEN S BENCH DIVISION
ADMINISTRAXTIVE COURT LIST
Royal Courts of Justice,
Strand, London,
WC2A2LL

Thursday 19 October 2000

(1) Has there been a disposal?
The first issue which arises is whether the entry into the contract constituted a "disposal" at all within the meaning of Section 128(2). There is no statutory definition of disposal in the 1972 Act.
Mr. Hobson's argument is very simple. He says that once a contract for the sale of land has been entered into, the purchaser of the land has an equitable interest; the vendor holds the property on trust for the purchaser. Accordingly, he submits that at that stage there is a disposal of the land. Whilst it is not a disposal of the whole legal estate, it is the disposal of an interest in land and that is sufficient. Mr. Rutledge submits that there is no disposal until the legal estate is conveyed, and that whilst an equitable interest is created by the contracts, this does not give rise to a disposal as such within the meaning of the section.
Logically it might be argued that if the respondent is right, then there would be two disposals, one on exchange of contract when the equitable interest was passed, and one on completion when the legal title was passed. However, I cannot imagine that Parliament could conceivably have intended such a bizarre result, with consent technically having to be obtained on each occasion (assuming that the land was sold for below the best price) notwithstanding that the terms of the deal would not have changed between contract and conveyance. Accordingly, the question is which construction is to be preferred, reading the statute fairly and bearing in mind the context.

In my view there is no linguistic reason why the word "disposal" should not be used to describe the creation of the equitable interest arising when a sale contract is entered into. Indeed, section 262 of the Housing Act 1985 expressly defines a disposal as including "a conveyance or contract to convey an estate or interest not previously in existence". There the statute puts the matter beyond doubt. However, I start from the premise that if, in a sale of land, one has to choose between contract and conveyance as the moment when the disposal occurs, the concept would more naturally describe the transfer of the legal interest on conveyance rather than the creation of the equitable interest by the contract.
I have been referred to other statutory provisions where the concept of disposal arises but they are of limited utility because the concept is used in different ways in different statutes. Different meanings are given in different contexts. As I have said, the definition in Part 8 of the Housing Act 1985 puts the issue beyond dispute for the purposes of that Part by expressly providing that there is a disposition when the contract is made. By contrast, in Mainwaring v Smiths Charity Trustees [1998]Q.B 1 the Court of Appeal had to decide whether there was a relevant disposal on the entry into the contract or on conveyance for the purposes of section 4 of the Landlord and Tenant Act 1987. The court held that the disposal took effect on conveyance. I shall consider this case further below.
I shall consider the question of construction by analysing the statutory language construed in context, any relevant legal authorities, and the policy implications of the rival constructions.
Turning first to the statute There are in my view some indications in section 123 itself as to how the concept is to be construed. The following features lend support to the argument that the disposal occurs on conveyance:

1. Subsection (2(B)) provides that where the authority disposes of land which it is obliged to hold under certain statutory provisions for the enjoyment of the public, it will be freed from any such trust "by virtue of the disposal." These words suggest in my view that it is the very act of disposal that brings the trust to an end. It would be strange if this subsection meant that the authority was relieved of its duties once a contract to sell the land was made. One would not expect it to be free of its duties until it was no longer in a position to control the land in question, and that would be on conveyance. Yet if the respondent is right and the contract fixes the time of disposal, the making of the contract of itself brings the trust obligations to an end. If for some reason the conveyance never took effect, such as where there was termination of the contract by mutual agreement, then it would seem that the authority would retain control of the land but apparently unencumbered by the former trust duty.
2. Subsection (6) envisages that the payment is received in respect of the disposal. However, it is plainly received for the land itself, and is usually paid on transfer. It is not paid for the equitable interest arising on the contract of sale and nor is it measured by the value of that interest.
3. Both subsections (2) and (7) refer to a disposal by way of a short tenancy. This suggests that it is the tenancy itself which is created by the disposal rather than any agreement to create the tenancy.
On the other hand, subsection (2A) arguably lends support to the respondent's construction. This requires the authority to advertise and consider objections before land consisting of an open space can be disposed of. Plainly the purpose of this is to ensure that no commitment to sell is made before the objections are considered. This will be achieved only if the relevant steps are taken before the contract is made. By referring to the need to take these steps before disposal, the statute arguably implies that this means the contract being made. The point does not seem to me to be altogether clear, however, since the section could be implying that the steps should be taken long enough before disposal to ensure that the purpose of the provision can be achieved. That would mean that it would need to be in fact before the contract is concluded.
Mr. Hobson places considerable store by the fact that an option to purchase would fall within the terms of section 123. If that is so, he says, then a fortiori an agreement to sell must do so. It would be irrational were it otherwise since the option is created prior to the contract. I see considerable force in this submission. However, an identical argument was advanced and rejected before the Lands Tribunal in Wilkins v Horrowitz and the Yorkshire Rent Assessment Committee[1990]2E.G.L.R.217 That decision was in turn cited with approval and followed by the Court of Appeal in the Mainwaring case, to which I have made reference, in a judgment of Sir Thomas Bingam M.R., delivering the judgment of the court. Moreover, in that case also the grant of an option was expressly included in the definition of "disposal". Notwithstanding that, the Court held that in the case of a sale of the freehold, the contract did not constitute the disposal. In the Wilkins case the tribunal thought it relevant to ask whether the landlord had given up his rights qua landlord; it held that since he retained his right to the rents and profits and was responsible for sub-letting (albeit after consultation with the purchaser) he had not. Applying that principle here, in my view it would be wrong to say that the council had by the contract given up its rights as owner of the property. Plainly these were retained; the equitable interest conferred on the purchaser of property is only of a limited nature.
In my opinion, therefore, the balance of the argument based on the statutory provisions considered in isolation is in favour of treating the conveyance as the point at which disposal occurs.
I now turn to consider whether the authorities cast doubt on this construction. Section 128 itself appears to have been considered in only one case. It was analysed in the decision of Lightman J in R vPembrokeshire County Council ex parte Coker [1999]4All E R 1007. In that case the respondent council leased a property for five years but with an option to renew for 99 years. Lightman J considered that the lease and option had to be treated as one transaction. On the facts he held that there was no breach of section 123 but he went on to consider what the effect of section 128(2) would have been had there been a sale at an undervalue. He said this:

"The language of s 128(2) is perfectly clear and unambiguous: in favour of as person claiming under the control of the council (and that includes CSSL as lessee under the lease), the lease is not invalid even if a higher rent or a greater consideration could have been obtained and the necessary consent of the minister was not obtained.......But on no basis does s 128(2) limit the jurisdiction of the court to examine the legality of the conduct of the council in granting the lease or to grant any proper declaratory relief; what it does do is to protect the title of CSSL from exposure to risk of the invalidity of the lease by reason of the failure of the council to obtain a required consent and precludes the grant of any relief impugning the validity of, for setting aside, the lease on this ground.
It should be pointed out, however, that in the Pembroke case the issue was not whether the disposal took effect on contract or conveyance, but the reference to the protection of title in the passage I have quoted lends some support for the view that it takes on effect on the latter.
The other case in which there is a brief reference to the concept of disposal, although in the context of section 123 rasther than section 128, is the decision of the Court of Appeal in Trustees of the Chippenham Golf Club v North Wiltshire District Council 64P & CR527. The case in fact raised the question whether the council had power to grant an option under the Local Government Act 1933, the predecessor of the 1972 Act. The court held that it did not, but in the course of giving his judgment (with which Neill and Woolf LJJ agreed), Scott LJ expressed the view, obiter, that
"It may be noticed that section 123 by comparison with sections 164 and 165 of the 1933 Act considerably widens the powers of local authorities. "Dispose of" is a verb of comprehensive scope. I would accept that the grant of an option to purchase or, for that master, to take a lease of land would be authorised by section 123(1)".
Mr. Hobson relies strongly on this dictum. It certainly supports his contention that the section confers a power to enter into an option, and that the grant of the option will constitute a "disposal " within the meaning of the section. But for reasons I have already given, I do not agree with Mr. Hobson that because the grant of an option is a disposal, the contract to sell must necessarily be treated likewise.
A further question is whether considerations of policy would tend to favour one or other particular construction. Mr. Hobson submits that since the section is plainly intended to protect third parties, there is a cogent argument that it will do so more effectively if the consent of the Secretary of State is obtained prior to the contract being made at all. There is considerable force in that submission, but as against that, it can be countered that there is nothing in the applicant's construction, which would prevent the consent being obtained then. The council is clearly at liberty to obtain the consent before contract if it so wishes. The issue in my view is whether the statutory objective is better served if the third party purchaser is protected from the moment he enters into the contract or if his agreement may be set aside, absent the Secretary of State's consent, any time up to completion. It seems to me that there is nothing intrinsically unjust or in conflict with the statutory purpose, in so far as it can be gleaned, in adopting the latter option. It means that once the purchaser has good title, that cannot be upset by the Secretary of State's failure to give consent, but that until that time the purchaser remains vulnerable. Giving the provision a narrower rather than a wider meaning may also be justified by the consideration that it will sometimes preclude any effective remedy for what is plainly unlawful conduct.
I have not found this an easy matter, but taking all these considerations into account, in my judgment the better view is that the protection afforded by section 128(2) applies only once completion has taken place. It follows that it does not apply in this case since the sale to the third party tenants had not been carried into effect. The applicant is accordingly entitled to the relief it seeks of having the decision quashed and the contracts set aside.
In case I am wrong about this, I shall consider the other two arguments advanced by Mr. Rutledge.
Has the council acted unlawfully in ways falling outside the subsection ?
Mr. Rutledge contends that section 128(2) will apply only where the sole feature of the decision which renders it unlawful is the failure to obtain consent. I have no doubt that that is correct; the provision states in terms that the invalidity is not to arise "by reason that ...any consent has not been given." It is important to appreciate, however, that this is not the same as saying that the purchaser should be treated as if the consent had been given. That is not what the statute says. In my opinion the purchaser can use the provision as a shield to fend off any challenge that he has failed to obtain consent, but he cannot use it to fashion a sword entitling him to claim that he has consent.
This distinction is important. It can be tested by considering the arguments in this case. The applicant contends that the decision of the council is unlawful for a number of reasons including breach of fiduciary duty, Wednesbury unreasonableness, and for procedural errors. If the council had in fact obtained consent, or alternatively if the purchaser could rely upon section 128 to require the court to act as if consent had been given, this would in my judgment prevent certain of these claims being pursued. These would be claims alleging such legal defects as would effectively be remedied by the grant of consent. In my view they would include any defect which arises out of the failure to obtain best value, whether it is a blatant failure or one involving a breach of fiduciary duty. It seems to me that the Secretary of State has a wide discretion to give his consent and can do so even if the council has struck a balance between non-economic or social benefits on the one hand, and financial benefits on the other, which would put it in breach of its fiduciary duty at common law. If it were otherwise, this would involve assuming that Parliament must have intended that the Secretary of State could only give consent so as to validate a sale for less than the best price in circumstances where the courts would have held the agreement to be lawful at common law. That, in my view, is an improper construction of the provision, and is is inconsistent with the broad statutory language. I consider that in giving his consent, the Secretary of State can take into account a wider range of considerations than would be open to the council at common law; he can spread the cloak of legality where it would not otherwise exist. Accordingly, if the section were to involve deeming consent to have been given, this would significantly limit the potential grounds of challenge. The consent would render a potentially unlawful disposal at common law lawful.
However, the subsection in my judgment does not go that far. It only relieves the purchaser from the failure to obtain consent. Accordingly, in so far as the applicant is able to identify breaches of the law going beyond operating or independently of that breach, the provision will not give any protection. This therefore raises the question of whether the allegations that the council acted unlawfully for reasons other than the failure to obtain consent are available in this case.

The claims in this case
Mr. Rutledge submits that there are four breaches of law by the council in accepting the tenants' offer, quite independently of the failure to get the best price under section 123. First, he says that the council acted in breach of its fiduciary duty. Second, he says that it acted Wednesbury unreasonably in accepting the sum it did. The third and fourth grounds in my view are interrelated; the third ground is that there was a legitimate expectation that the council would hold an auction and that it would award the property to the highest bidder. It is alleged that at least it should have heard representations from the applicant before deciding to resile from that course. The fourth ground was that the council had acted unfairly in not holding the auction as promised. In my view this adds nothing to the legitimate expectation argument. It is the existence of a legitimate expectation, which in my view creates any duty to act fairly, and this in turn requires that the party with the expectation is consulted before the expectation is frustrated. But if there is no such expectation then I do not see any other basis for the council being under a duty to consult before changing its decision to take the sale to auction.
As I have already indicated, the council has not provided any proper explanation why it took the decision which it did. Prima facie I consider that the applicant has made out its claim that the council acted in breach of its fiduciary duty and there is no evidence which effectively counters that allegation. I accept that in an appropriate case it is possible for a council successfully to contend that there are social or other benefits to the local community which outweigh the loss resulting from the failure to obtain the best price. The interests of the local taxpayers are not decisive but must be taken into account; see Bromley LBC v Greater London Council [1983] 1AC 768. However, in the absence of any indication of what these advantages were perceived to be, I cannot speculate whether they existed or not. In general, however, in the absence of some such benefit, it will be a breach of the fiduciary duty if the council fails to obtain the best price for the local taxpayers: see Bromley per Lord Diplock at page 829H. I therefore hold that the council is in breach of that duty.
For essentially the same reason I am compelled to find that it acted Wednesbury unreasonably. A rational council would not have rejected an offer which was £100000 more favourable than the offer which it in fact accepted, in the absence at least of cogent countervailing considerations. The evidence does not enable me to say what the relevant factors are which could render the decision a rational one.
Mr. Hobson did not strongly resist this analysis. However, he said that these particular defects did not enable the applicant to surmount the hurdle of section 128. Initially I was inclined to agree with him, but on reflection I think that this argument involves treating section 128 as though the court must assume that consent has been granted. If this were the proper effect of the section, I would agree with Mr. Hobson, but for the reasons I have given, I do not believe that it is. It follows that for this reason also I consider that section 128 is not a barrier to the applicant obtaining the relief he seeks.

The procedural challenge, if made good, falls into a different category to the other two allegations. This is because even if I am wrong in concluding that section 128 cannot remedy those breaches, any procedural breach would fall into a different category. It would not be capable of being remedied by the consent of the Secretary of State since it is not directly related to the failure to obtain the best price. Accordingly, as Mr. Hobson accepted, it remains unaffected by the failure to obtain that consent.
Was there a procedural failure in this case? It is said that there was a legitimate expectation arising from the fact that the agents for the council sent the auction information to the applicant and that the applicant acted upon that by following up and inspecting certain documents relating to the property. The argument was advanced on the basis that there was both what is termed a substantive and a procedural legitimate expectation. The former, it was submitted, prevented the council from resiling from its undertaking to hold an auction at all, unless there was an overriding public interest to justify the reversal. It was said that no such interest had been demonstrated here. The latter argument was that in any event any decision to revoke the decision to go to auction should have been taken only after consultation had been carried out.
I reject both these submissions. I do not believe that the mere giving of information about the auction constituted the creation of a legitimate expectation that the council would not thereafter choose to sell the property in some other way. It was not in my judgment a promise given specifically to the applicant or those similarly placed; it was merely a statement of the council's then intentions. The fact that the applicant took steps pursuant to the information in anticipation of the auction would assist it in demonstrating that it had acted on any representation made, but it does not of itself go to the existence of the representation. (Such reliance is in any event only relevant where the applicant is relying on the substantive concept of legitimate expectation; it has no relevance to the purely procedural doctrine: see R v Falmouth ex.parte South West Water [2000]3All.E.R.306 at 309 per Simon Brown LJ.). Nor do I accept that there was a duty on the council to consult all those whom it might have known or suspected were potentially interested in purchasing the property at auction.
In short, I do not think that it was unfair for the council to change its mind, either at all or without giving the applicant the opportunity to make representations first. The challenge based on legitimate expectations therefore fails.
Was the proposed sale of a kind caught by section 128?
The argument here was that section 123 envisages just three types of lawful sale; the short term lease, the sale for best value, and the sale with the Secretary of State's consent. Mr. Rutledge submitted that section 128 applies only to cases where the authority intended to go down the consent route but for some reason failed to obtain the requisite consent. If the authority intended to go down another route, then the section is not applicable. In this case he submits that it did intend to go down the best value route and therefore section 128 could not bite.
I reject this argument. There is in my judgment no warrant for it in the statutory language. No distinction of any kind is made between the different circumstances in which consent might have been, but has not been, obtained. The third party purchaser is simply not concerned with the council's intentions at all. He is protected from any failure to obtain relevant consent, irrespective of why or in what circumstances there was a failure to obtain it. Moreover, I do not see how the principle could be applied in practice. In this very case it seems to me impossible to say which route the council intended to go down. In particular, it seems to me impossible to say, as the applicant must if this argument is to succeed, that the council here was intending to go down the best value route. Indeed, the evidence is to the contrary. The fact is that the council deliberately chose, for whatever justification, not to obtain best value. The notion that one can identify an unlawful act and say that, had it been lawful, it would have been carried out in one particular lawful way as opposed to another, is in my view false. For these reasons, I would reject this particular argument.
Conclusion
In my view section 128(2) does not save the contract entered into in this case. There has never been a disposal within the meaning of the subsection, and in addition the applicant has in my judgment successfully contended that the council erred in law in ways not caught by the provision. Accordingly the applicant is entitled in my opinion to have the decision to sell to the tenants quashed, and to have the contract declared invalid. I am not, however, prepared to issue mandamus to require the council to carry out an auction. In my view it would be wrong for me to dictate the particular route by which the council must ensure compliance with the law if and when it sells this property. I do not consider that the applicant had a substantive legitimate expectation that an auction would be held, and accordingly it would be wrong to compel the council to sell in that way as though he had.