Rochester upon Medway City Council v Kent County Council

Funding for highway project – Provision of tunnel crossing under River Medway – Plaintiff making lump sum contributions to highway authority in respect of existing schemes – Highway authority reducing plaintiff’s future contributions to tunnel project – Avoidance of restrictions on future funding – Whether plaintiff acting ultra vires – Whether sums to be repaid by highway authority In January 1986 Kent County Council (Kent), as highway authority, published a New Medway Crossing feasibility study recognising a need to regenerate the old Chatham dockyard area after the closure of the Royal Naval base in 1985. The high expense of a tunnel crossing required contributions from the private sector. The mechanism to finance the project was to be a leasing arrangement with Kent, Rochester City Council (Rochester), Gillingham District Council, Rochester Bridge Trust and English Industrial Estates Corporation, a major landowner in the area. Three agreements were made: (1) the tunnel agreement, which was in effect a leasing agreement; (2) the main agreement, under which Rochester agreed to make annual contributions towards the costs incurred by Kent under the lease finance initiative; and (3) the side agreement, whereby Rochester made two advance lump sum payments of £2m to Kent on the basis that, in return for such payments, its annual contributions under the main agreement would be reduced. The purpose of the side agreement was to avoid forward funding restrictions, brought in by the government in 1989, by making capital contributions towards existing highway schemes in the area, thereby reducing costs of those schemes to Kent, which would in return reduce Rochester’s ultimate contribution to the tunnel project. The purported power under which the lump sum advances were made was section 274 of the Highways Act 1980. Initially, central government support was refused. However, in 1992 a new tunnel agreement was made and the tunnel was constructed as a highway scheme, supported financially by central government, at a cost of £80m. As a result the need for contributions from Rochester under the main agreement towards capital costs under the tunnel agreement ceased. Rochester sought repayment of the advance capital payments made to Kent on the ground, inter alia that the side agreement and the payments made under it were ultra vires, because the payments were an illegitmate and unlawful exercise of its powers under section 274. Held Judgment was given for the plaintiff. 1. The decision to make lump sum payments to Kent under the side agreement for existing highway schemes and not for the tunnel project was ultra vires, because Rochester had not considered those schemes and had it done so, could not have reasonably concluded that it was in the interests of their council tax payers to make contributions to schemes already approved and budgeted for by the highway authority, Kent. Expenditure in section 274 of the 1980 Act referred to the highway authority’s expenditure and not to a district council’s contribution to that expenditure. Furthermore, Rochester had not addressed the prior question whether it was for the benefit of their area. The side agreement was void ab initio: see Credit Suisse v Allerdale Borough Council [1997] QB 306, per Neill LJ . 2. Since the side agreement was ultra vires, prima facie Rochester’s claim was for money had and received, there having been no consideration. Kent had been enriched by £2m in respect of expenses which they were going to, but did not, incur because of the government’s change of funding. There was no justification for Kent retaining Rochester’s money and restitution was to be met in full. Richard Drabble QC (instructed by the solicitor to Rochester upon Medway City Council) appeared for the plaintiffs; Catherine Otton-Goulder (instructed by the solicitor to Kent County Council) appeared for the respondents.