Balancing commercial considerations and monetary value when complying with the statutory duty to secure the best price reasonably obtainable.
Thursday, 15th September 2016
The High Court has dismissed a governance and procurement challenge by Faraday Development Limited ("FDL") against West Berkshire District Council ("WBDC").
There were two key aspects of the challenge:
Whether WBDC had failed to comply with its statutory duty under s123(2) of the Local Government Act 1972 ("LGA 1972"); and
Whether WBDC acted lawfully in deciding that the bid fell outside of the Public Contract Regulations 2015.
This article is the first of a two part series exploring each of these issues and assessing the impact of the decision for local authorities.
Section 123(2) of the LGA 1972 imposes an obligation on local authorities to dispose of land for the best consideration reasonably obtainable. The policy behind s123(2) is to ensure that public assets are not sold at an undervalue. Local authorities should attain the best price possible to enable them to re-invest in public services.
FDL argued that WBDC's objectives during the bidding process were incompatible with its statutory duty. FDL argued that WBDC was driven by commercial considerations and its philanthropic agenda over and above achieving the highest return.
HHJ Holgate highlighted that the Court is only likely to find a breach of s123(2) if the local authority:
- Failed to take proper advice;
- Failed to follow proper advice for reasons which cannot be justified; or?
- Followed advice which was so plainly erroneous that the local authority should have known or ought to have known that it was acting unreasonably.
It was further clarified that s123(2) does not:
- Mandate the local authority to have regard to particular factors ;
- Require the local authority's decision making process to make explicit reference to s123(2) provided that the substance of the duty has been performed ;
- Require a local authority to conduct a particular process.
Case law has established that the "consideration" referred to in s123(2) relates to both commercial and monetary value. An example of increasing the commercial value of a bid could be the bid's deliverability or credibility. The Court stated that "an authority may conclude that a bird in the hand is worth two in the bush" . It is important to appreciate that the highest offer on the table may not represent the best consideration which can be achieved.
HHJ Holgate referred to the following aspects of WBDC's conduct to dismiss FDL's claim in respect of this element of the case:
- WBDC had used explicit references to the statutory provision throughout the bidding process;?
- WBDC's consideration of the opportunities for redevelopment and the bids it received was guided by its desire to maximise returns;?
- WBDC did not offset its obligation to achieve best consideration with employment generation;
- The evidence had shown that WBDC's twin objectives of promoting regeneration and maximising its income were entirely compatible with its statutory duty; and?
- WBDC had received proper professional advice throughout on how to maximise and protect its income from the site.
This case is significant, in that it reiterated the importance of local authorities having objectives which are clear, robust and aligned with the statutory duty in the LGA 1972 and that good governance reaps rewards. Local authorities should not be solely guided by the bottom line, but should also be commercially minded. It is important for local authorities to seek professional advice and to explore the different options recommended to them. It is ultimately a local authority's responsibility to ensure that the advice they receive can be reconciled with its statutory duty.
This article was written by Elizabeth Gibson and Melissa King.