The focal point of a local authority is its council of elected members which is declared by the Local Government Act to be a body corporate under the name of the county or district council concerned. As a corporate entity the council lasts for ever, even though its membership will change from time to time. As a separate legal entity in law, the council can act as an individual in acquiring and disposing of all types of property for the fulfilment of its various functions. In the same way it has the capacity to enter into contracts, again for the fulfilment of its various functions. Finally, and again as an individual corporate entity, the council of a local authority can sue and be sued in its own name. All of this makes for a more efficient discharge of business for the local authority.
4.2.1 The acquisition of property
In order to fulfil its functions a local authority will have to acquire all types of property, from office furniture to land for the building of houses. A large num- ber of statutory powers exist to facilitate these transactions. These powers may be expressed in very broad terms or in very specific terms. As a rule of thumb, the powers will be broadly defined where local authorities can conclude volun- tary contracts or similar transactions while the powers will be closely defined where the local authority has to use compulsion, primarily in the area of the compulsory acquisition of land. By way of an illustration of this latter area, s 226 of the Town and Country Planning Act 1990 permits the compulsory acquisition of land for planning purposes. More specifically, the section allows the local planning authority to acquire land in its area which is suitable for and is required in order to secure the carrying out of one or more of the following activities, namely ‘development, redevelopment and improvement’ or ‘which is required for a purpose which it is necessary to achieve in the interests of the proper planning of an area in which the land is situated’. Any compulsory pur- chase order made under this power has to be submitted to the Secretary of State for the Environment for confirmation. His decision whether to confirm will be taken after a public local inquiry into any objections to the order. By way of con- trast, the Local Government Act contains a broadly defined power to acquire land by agreement for the purpose of any function and for the ‘benefit, improvement or development’ of a local authority’s area (s 120). In addition to these statutory powers to acquire land compulsorily or by agreement, the local authority, acting again in its own name, is empowered by s 123 of the Local
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Government Act to dispose of land, subject to general consent of the Secretary of State.
These statutory powers may be open to scrutiny by the court which may be invited to decide that they are subject to restriction, usually by reference to what Parliament is said to have intended.
Section 120 referred to above also contains a power whereby a local author- ity will manage any land so acquired ‘for the benefit of their area’. In a case where the local authority purported to use this power in order to ban stag hunt- ing on its land – R v Somerset County Council, ex p Fewings (1995) – the Court of Appeal held that the power was exercisable by reference to wider questions of public benefit rather than narrower questions of ethics, animal welfare and social considerations. On the other hand it has been held – in R v Barnet London Borough Council, ex p Islam (1991) – that the power of disposal in s 123 must be exercised in good faith, fairly, reasonably and for proper purposes after consid- eration of all the issues involved.
4.2.2 Contracts
As statutory corporations with functions to fulfil, it is clearly necessary for local authorities to have an effective power to enter into contracts, eg for the supply of goods and services. It would be impossible to define precisely every purpose for which a contract has to be made in the day-to-day discharge of functions which explains the very broad power in s 111 of the Local Government Act. This section empowers a local authority, subject to some limitations, 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 facil- itate, or is conducive or incidental to, the discharge of any of their functions’.
There are, in addition, a number of specific powers for the making of contracts in some areas, eg where it may not be clear whether s 111 extends to cover the particular transaction. Nevertheless, s 111 is very widely defined and does per- mit virtually any contract which is in some way reasonably referable to a local authority’s function or functions. The powers have not often been challenged in the courts hitherto but in R v Greater London Council, ex p Burgess (1978) it was decided that a closed shop agreement between a local authority and a trade union was within the powers of the section. On the other hand, in R v Wirral Metropolitan Borough Council, ex p Milstead (1989), the court found that a factor- ing arrangement where the authority agreed to sell anticipated receipts from council house sales to increase statutory limits on spending powers was not covered by s 111. Such an agreement was not incidentalto the sale of the council houses. The House of Lords in R v Richmond-upon-Thames London Borough Council, ex p McCarthy and Stone (Developments) Ltd (1991) had to deal with the legality of a local authority practice of providing advice on planning matters and the charging for such advice. It was held that, in the absence of any specific
power or duty to provide advice, s 111 gives an implied power for this purpose.
To provide advice in respect of planning matters is calculated to facilitate or is conducive or incidental to the discharge of the local authority’s planning func- tion. On the other hand, it was held that imposition of a charge could not be seen in the same light and was therefore unlawful. The parties to this litigation agreed that a fundamental assumption underpinning the case was the principle in Attorney General v Wilts United Dairies Ltd(1921), a case dealt with in Chapter 8. Accordingly a charge may not be imposed unless authorised expressly or by necessary implication in the statute concerned. Because the giving of advice was characterised by the House of Lords as a ‘subsidiary’ power by virtue of s 111, to charge for the exercise of that power is, at best, ‘incidental to the incidental’
and not incidental to the discharge of functions.
The useful powers in s 111 may be subject to other statutory requirements which may restrict its coverage. In North Tyneside Metropolitan Borough Council v Allsop (1991) it was held that a local authority has no power by statute to pay compensation under a voluntary redundancy scheme in excess of amounts pre- scribed by statute and subject to approval by the Secretary of State. Similarly, in Morgan Grenfell and Co Ltd v Sutton London Borough Council(1995) a local author- ity used s 111 in order to guarantee and indemnify a loan made to an unregis- tered housing association. Because s 111 is subject to any ‘subsequent enactment’ the local authority’s action was unlawful and ultra vires by virtue of the later Act – the Housing Association Act 1985 – that prohibits the giving of guarantees to unregistered housing associations. On the other hand, in Credit Suisse v Waltham Forest London Borough Council (1994) it was held that a local authority acts within its statutory powers when it guarantees the obligations of a company which it had helped to set up and to which it lent money with a view to fulfilling its obligations to house the homeless. However, in Credit Suisse v Allerdale Borough Council(1994) it was stressed that although a local authority, in order to execute a statutory function, may establish a company and guarantee any borrowing, that guarantee is unlawful if it is given on the basis of irrelevant and impermissible considerations. Furthermore, the guarantee is void and unenforceable, regardless of the lender’s ignorance of the local authority’s posi- tion here.
The power of a local authority to enter into speculative financial transactions – so-called ‘rate swaps’ – again focuses attention on s 111 powers. The House of Lords in Hazell v Hammersmith and Fulham London Borough Council (1991) has held such transactions to be ultra vires in the absence of any express statutory authority to enter into the transactions and the fact that s 111 does not extend to such activity. Furthermore, and although rate swaps are ‘part’ of the local authority borrowing process, the House of Lords held that Part I of Schedule 13 to the Local Government Act regulating the power of borrowing could not jus- tify rate swaps as being calculated to facilitate or conducive or incidental to, the
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discharge of the money borrowing function. Lord Templeman was content to conclude that:
The authorities show that a power is not incidental merely because it is con- venient or desirable or profitable. A swap transaction undertaken by a local authority involves speculation in future interest trends with the object of making a profit in order to increase the available resources of the local authorities.
In the context of this important decision it has been held also that one of the banks involved could recover the necessary funds advanced on the basis, inter alia, of unjust enrichment as an aspect of quasi-contract and the fact that pay- ments had been made by the bank under a purported contract that was ultra vires and void: Westdeutsche Landesbank Girozentrale v Islington London Borough Council(1993).
The Local Government Act 1988 introduces new restrictions on contractual powers. Section 17, eg, requires a local authority to exercise its functions with- out reference to ‘non-commercial considerations’. In R v Islington London Borough Council, ex p Building Employers Confederation (1989), eg, standard con- tract clauses requiring contractors to comply with statutory requirements on sex discrimination and health and safety were found to infringe the section.
Nevertheless, contracts can promote race relations objectives in conformity with s 71 of the Race Relations Act 1976. Note also that the Act of 1988 introduces new requirements for competitive tendering by authorities.
4.2.3 Extended powers
Beyond the power in s 111, s 137 of the Local Government Act empowers a local authority, again subject to some limitations, to ‘incur expenditure which in their opinion is in the interests of and will bring direct benefit to their area or any part of it or all or some of its inhabitants’. This power relates to any transaction which is not already provided for by statute as a particular function and is lim- ited to the product of a statutory formula. Section 137 was in issue in Manchester City Council v Greater Manchester Council (1980) when it was decided that the establishment of a trust fund to provide monies for the private education of some children in the Greater Manchester area was within the s 137 powers, even though the council in question was not an education authority. A number of local authorities have used these powers in order to establish and found private companies for the purposes of promoting industrial development in their respective areas. The Local Government Act 1986 now restricts the scope of the section where its powers are used for publicity. The powers can be used only for the production of economic development in a local authority’s area where that publicity is incidental to other activities undertaken for that type of promo- tion. Over-reliance on s 137 in relation to economic development activities is now alleviated by s 33 of the Local Government and Housing Act 1989. This
provision now provides a specific power to take ‘such steps as they [the local authority] may from time to time consider appropriate for promoting the eco- nomic development of their area’.
Because controls like those in s 111 apply to local authorities Parliament has legislated to ensure that similar statutory controls apply to companies influ- enced or controlled by them. However, the controls – contained in Part V of the Local Government and Housing Act 1989 – focus essentially on the local author- ities themselves. According to the type of influence or control a local authority will be subject to differing controls in its conduct of business through a com- pany. Each local authority concerned is subject to a duty to ensure, so far as is practicable, that any company subject to influence or control complies with rele- vant statutory regulations. Failure is sanctioned through the classification of any expenditure as unlawful expenditure.
4.2.4 Local authorities’ contracts and the doctrine of ultra vires
Wherever a local authority strays beyond the statutory limits of the various powers prescribing its right to acquire property, make contracts and to enter other transactions, it will be acting ultra vires so that the acquisition, contract or transaction will have no effect in law that is, it will be null and void. As an ultra virescontract it cannot be enforced so that one of the parties could not seek pay- ment, for example. There was one notable exception to this general rule in the context of the Secretary of State for the Environment’s control of local authori- ties’ capital expenditure under the Local Government Planning and Land Act 1980. Where the Secretary of State considered that a local authority had failed or was likely to fail to comply with prescribed limits for capital expenditure he could direct that contractual expenditure should not exceed the limit. If that direction was not adhered to, any contract entered into for this purpose was ultra vires, but it would not be null and void as between the local authority and the other party. As a result it would appear that the members of a local author- ity who sanctioned such contractual expenditure could be surcharged and face other penalties which will be described in section 4.4.2. Finally, it is a funda- mental rule of the law that a local authority cannot use a contract or, indeed, any other means in order to fetter or prevent its exercise of functions prescribed by statute (Stringer v Minister of Housing and Local Government(1971)).
4.2.5 Ultra vires in practice
Although ss 111 and 137 of the Local Government Act bring a useful measure of flexibility to many areas of local government activity, there will be occasions when the more specific statutory powers will be in use and when it will be nec- essary to decide how far they extend. It is clearly impossible for Parliament to legislate for every detail which is likely to arise from the exercise of such pow- ers. It is equally unrealistic for the law to insist that a local authority should
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operate strictly within the express limits of the statutory powers. Accordingly, the courts have attempted to apply the doctrine of ultra vires so that local authorities can do all those things which are implied from or are incidental to the express statutory powers. In most instances, any other approach would frus- trate the working of the legislation. This approach can be illustrated with the case of Attorney General v Crayford Urban District Council(1962) where the local authority proposed to introduce a scheme of compulsory insurance for the per- sonal property of its residential tenants. The scheme was introduced under s 111 of the Housing Act 1957 (now s 21 Housing Act 1985) which states that the ‘gen- eral management, regulation and control of houses provided by a local author- ity ... shall be vested in and exercised by the authority’. It was decided by the Court of Appeal that the scheme was not ultra viresbecause the statutory pow- ers implied that the local authority could pursue the general social welfare of its tenants.
4.2.6 Challenging local authorities’ ultra vires acts
There are three methods by which anultra viresact may be challenged:
(a) by an application for judicial review in the Queen’s Bench Division or, exceptionally, by an application for a declaration or an injunction in the High Court, topics which are covered in Chapter 13;
(b) indirectly where an individual is prosecuted in a criminal court for an alleged failure to comply with some order, notice or licence: the individual may attempt to avoid conviction by establishing that the order, notice or licence wasultra viresso that he could not be convicted for failure to comply with something which does not exist in law;
(c) by means of audit, where the auditor finds that an item in the local authori- ty’s accounts is ‘contrary to law’. If this finding is confirmed on application to the High Court by the auditor the amounts involved may be surcharged to the members responsible who may also find themselves excluded from membership of the council.