Structadene Ltd v Hackney London Borough Council

Respondent local authority deciding to sell properties – Applicant informed that properties to be sold at auction – Respondents agreeing to sell to third party tenants and entering into contract – Applicant seeking judicial review and to have contract set aside – Whether disposal of land occurring upon entry into contract or upon conveyance – Section 128(2) of Local Government Act 1972 – Application allowed Hackney London Borough Council (the respondents) decided to sell 12 light industrial units that were let to tenants, who used the premises for small businesses. The applicant, a property company, contacted the agent charged with selling the properties and was informed that they would be sold at auction. The respondents’ advice was that the market value would be £400,000. On the day of the auction, however, the applicant was told that the respondents had resolved not to continue with the auction because they had agreed, subject to contract, to sell to the tenants. The applicant immediately offered £450,000, and then £500,000, before any contracts had been signed, but both offers were rejected. The respondents entered into a formal contract with the tenants. The applicant successfully obtained an injunction to prevent the completion of the sale and was granted leave to apply for judicial review. It then sought: (i) judicial review of the respondents’ decision to sell the properties to the tenants; (ii) the setting aside of the sale contract; and (iii) an order of mandamus requiring the respondents to sell the property by auction. The respondents conceded that they had acted unlawfully by entering into the contract, in that they had not taken proper steps to obtain the best value, pursuant to section 123 of the Local Government Act 1972, and had not obtained the Secretary of State’s consent to the sale. However, they contended that the court could not now quash the decision or set aside the contract, as the rights of the third parties were protected by section 128(2) of the Act and could not now be unravelled. That section provided that acquisitions or disposals of land by a local authority, lacking the consent of a minister, should not be held to be invalid in relation to anyone claiming under the authority. The applicant submitted that there had not been a “disposal” of the land merely by virtue of the respondents entering into the contract with the tenants, and that completion was necessary before the section could apply. The respondents submitted that once a contract for the sale of land had been entered into, the purchaser had an equitable interest and the vendor held the property upon trust for the purchaser. It was submitted that at that stage there was a disposal of land, since, although there was not a disposal of the whole legal concept, there was a disposal of a sufficient interest in the land. In support of their contentions, the respondents relied upon Trustees of the Chippenham Golf Club v North Wiltshire District Council (1991) 64 P&CR 527. Held: The application was allowed. 1. Having regard to the provisions of section 123(2)(b), (6) and (7) of the 1972 Act, and also to policy considerations, the protection afforded by section 128(2) only applied once completion had taken place. While Chippenham did support the contention that the grant of an option would constitute a “disposal”, it did not follow that the contract to sell was to be treated likewise. Accordingly, section 128(2) did not apply in the present case, since the sale to the third parties had not been carried into effect. The respondents’ decision to sell to the tenants was quashed and the contract declared invalid. 2. However, the applicant did not have a substantive legitimate expectation that an auction would be held. An order of mandamus, requiring the respondents to hold an auction, could not, therefore, be granted: R v Pembrokeshire County Council, ex parte Coker [1999] 4 All ER 1007 considered. Kelvin Rutledge (instructed by Eversleys) appeared for the applicant; John Hobson QC (instructed by Pettman Smith) appeared for the respondents. Sarah Addenbrooke, barrister