Nestwood Homes Developments Ltd, R (On the Application Of) v South Holland District Council [2014] EWHC 863 (Admin)

[2014] EWHC 863 (Admin)Case No CO/11385/2013
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 25/03/2014
Before
THE HONOURABLE MR JUSTICE SALES
Between
The QueenClaimanton the application ofClaimantNestwood Homes Developments LimitedClaimantSouth Holland District CouncilDefendant
Mr James Findlay QC & Ms Jennifer Oscroft (instructed by Battons) for ClaimantMr Peter Oldham QC (instructed by Legal Services Lincs) for DefendantHearing Hearing date: 28/1/2014
Judgment

Introduction

[1]This is a claim for judicial review of a decision of the Defendant (“the Council”) dated 15 May 2013 regarding how it should respond to remedial action recommendations by the Local Government Ombudsman (“the LGO”) in relation to findings of maladministration by the Council in the treatment of the Claimant (“Nestwood”) made by the LGO.[2]The LGO recommended that the Council pay substantial compensation to Nestwood and its Director, Mr Shephard (“the Director”), in the sum of about £250,000. The Council, however, did not accept that recommendation and resolved to pay only £50,000 plus interest. Nestwood challenges that decision on a number of grounds: i) The Council failed to provide adequate reasons for its decision, particularly in view of the availability of a general reserve maintained in the Council’s accounts; ii) The Council gave excessive weight to the issue of the affordability of a payment in line with the LGO’s recommendations and its impact on the Council’s finances and failed to take relevant considerations properly into account; iii) The Council took the decision in an unfair way, in that it did not afford Nestwood an opportunity to make oral or written representations in relation to the decision it had to take how to respond to the LGO’s recommendation on remedy; iv) The Council acted in a way which gave the appearance of predetermination and unfairness in the sense of having a mind closed to the merits of the decision in question; v) The decision was irrational and perverse.

Factual Background

[3]The factual background for Nestwood’s complaint to the LGO was the subject of careful review and findings by the LGO and can be shortly summarised here.[4]Nestwood is a housing developer. In June 2005 it purchased land in the Council’s area which had the benefit of planning permission for residential development. Later that year, the Council granted further planning permission.[5]In January 2006, as found by the LGO, a Council officer confirmed that conditions attached to the planning permission had been satisfied, on the basis of plans which clearly showed raised site levels for the development.[6]In early 2006, in reliance on this confirmation, Nestwood commenced building works on the land. Shortly afterwards, neighbours complained about the raised site levels which Nestwood was building up as part of the development.[7]In response to these complaints, the Council informed Nestwood that it did not have planning permission for the raised site levels. Nestwood contested this.[8]The Council obtained advice from Counsel, who confirmed that permission for the raised site levels had been granted and was valid unless set aside by a court. The report of this advice to the Council’s Planning Committee was unclear, and failed to explain that permission had been granted for the raised site levels.[9]In late 2006, prospective purchasers of the land pulled out of the purchase on grounds of delay and difficulties with the planning permission.[10]In December 2006, members of the Council’s Planning Committee visited the site and were unhappy with the development. Council planning officers persuaded Nestwood to submit a fresh application for planning permission for the raised site levels, which Nestwood did under protest, because of the severe commercial pressure it found itself under. The letter written by the Council to Nestwood did not reflect the legal advice obtained from Counsel, and misleadingly suggested that the existing permission was “void and voidable”.[11]On 7 February 2007, the Planning Committee refused planning permission on Nestwood’s fresh application, contrary to the recommendation of the Council’s planning officer. The LGO found that the officer’s report on the application was fundamentally flawed and that it misrepresented the advice received from Counsel on the crucial issue of the site levels.[12]In March 2007, the Planning Committee decided to take enforcement action, requiring four houses, garage buildings, boundary walls and so forth to be demolished and for the site levels to be restored to their original level. The LGO found that recommendations as to the extent of enforcement action to be taken did not reflect the views of Council planning officers and that a significant number of Planning Committee members had pre-determined views about the issue.[13]On 26 April 2007, the Council issued Enforcement Notices. Nestwood was vilified in the local press and was unable to realise its investment in the site or to invest elsewhere. It was forced to take out loans at a high rate of interest and its business stalled.[14]In December 2007 there was an inquiry before a planning inspector appointed by the Secretary of State on Nestwood’s appeals against the Enforcement Notices. In March 2008, the inspector found that the Council had granted permission for the development and allowed the appeals. He awarded Nestwood its costs of the inquiry because of unreasonable conduct on the part of the Council. However, by this stage the market for residential property had dropped and Nestwood suffered significant losses upon selling the properties on the site.[15]In August 2008, the Council paid sums amounting to £92,625 to neighbours in respect of loss of amenity due to the raised site levels.[16]The same month, Nestwood, acting by its Director, made a formal complaint to the Council and to the LGO regarding the Council’s behaviour. The LGO opened an investigation.[17]In April 2011, the LGO (Anne Seex) issued her Report in draft for comment by the parties. The draft Report was critical of the Council and proposed to find maladministration. The Council made comments vigorously challenging the LGO’s provisional findings. Nestwood sought a recommendation for financial compensation of £1.2 million in respect of damages it said it had suffered as a result of the Council’s maladministration.[18]On 31 October 2011, the LGO issued her Report in final form. It made findings of serious maladministration by the Council. It recommended that the Council should issue and publish an apology and make a compensation payment of £208,053 plus interest to Nestwood in respect of financial loss suffered by it plus £25,000 for loss of opportunity and a further compensation payment of £25,000 to the Director in respect of “the extreme stress and severe and prolonged strain on family and business relationships that occurred over a period of almost two years as a result of the maladministration” and damage to reputation.[19]At a meeting of the Council on 19 December 2011, the Council considered the LGO Report (“the first consideration”). Members of the Council were very critical of the LGO and her Report. The Council refused to accept the findings in the Report and the LGO’s recommendations as to remedy. The Council decided to write to Nestwood to express “regret at the circumstances of the matter” giving rise to its complaint, but not to pay any compensation.[20]Nestwood sent a pre-action protocol letter to the Council identifying alleged flaws in its decision and threatening judicial review proceedings. By letter dated 6 February 2012, without conceding that there was any flaw in its decision, the Council agreed to reconvene a meeting of the Council to consider the LGO Report afresh. The Council stated that it would share its internal draft report with Nestwood to give it the opportunity to make comments and suggest amendments prior to a decision being taken. The Council asked Nestwood for copies of all information it had supplied to the LGO in relation to the losses it had suffered.[21]The Council’s Chief Executive prepared a report for the Council to consider. Nestwood was given an opportunity to comment on this report and did so. The report drew attention to a file of information provided by Nestwood as to its losses which it wished the Council to take into account in its consideration of its response to the LGO’s recommendations and Nestwood’s representations about that were appended as Annex 2 to the report (the evidence filed did not include this Annex 2, but I infer that it set out details of the information it had supplied to the LGO to suggest that, as Nestwood had submitted to the LGO, its losses were of the order of £1.2 million). The Chief Executive advised, amongst other things, that the Council was obliged by law to accept the findings of maladministration and of loss made by the LGO. He also advised that whatever its decision the Council should formulate reasons for the decision.[22]At a meeting on 11 April 2012, the Council considered the LGO Report for the second time (“the second consideration”). The relevant part of the Council meeting took only about 10 minutes. There was again criticism of the findings made by the LGO in the Report. The proposal was made that the Council should not accept the LGO’s recommendations as to remedy; some councillors declared an interest in the matter and did not vote and/or withdrew from the meeting; the proposal was carried by the Council members who did vote. The reasons advanced in support of the proposal included reference to the way in which the LGO had investigated the complaint long after the events in issue and an unwillingness simply to accept the findings of maladministration made by the LGO. Although not directly in issue on the present application, there are strong grounds to consider that these were not lawful matters for the Council to take into account. Reference was also made to the financial impact on the Council if compensation were paid at the level recommended by the LGO. In relation to this last point, it was observed that “The amount recommended by the LGO exceeded [an 8% increase] on Council Tax at a time when the Government was directing local authorities to freeze Council Tax and would require a local referendum before any rise of such an amount. The alternative would be to use reserves, but with the Government’s autumn statement indicating a time of further public sector spending cuts all reserves are likely to be needed to weather the storm.”[23]By letter dated 19 April 2012, the Council informed Nestwood that it did not accept the LGO’s recommendations as to remedy and so would not pay any compensation. The letter referred to the consideration given to the financial impact upon the Council and the services it provided if compensation were paid as recommended by the LGO.[24]Nestwood again threatened to bring legal proceedings. The dispute was not resolved, so on 19 June 2012 Nestwood commenced judicial review proceedings to challenge the decisions made on the first consideration and the second consideration of the LGO Report.[25]The Council took advice from Mr Oldham QC, who appears for it in the present proceedings. It decided to convene a further meeting of the Council on 25 July 2012 to consider again what to do in relation to the LGO Report. Meanwhile, the Council filed an acknowledgement of service with its Grounds of Resistance. Amongst other points, the Council argued that the proceedings were academic because it had decided to reconsider the LGO Report at the meeting to be held in July.[26]The Council’s Chief Executive produced a report for consideration at the meeting. It advised that the Council should re-determine afresh its response to the recommendations in the LGO Report. The report emphasised that the Council was obliged to accept the LGO’s findings of maladministration, injustice and loss. The report set out legal advice which Mr Oldham also attended the Council meeting to give in person (see below). The report appended a note on the financial position of the Council (“the financial note”). The note concentrated on the Council’s General Fund, as its Housing Revenue Account and Collection Fund were ring-fenced for specific activities.[27]This report was not provided in draft to Nestwood for its comments. Unlike the Chief Executive’s report for the second consideration, this report did not refer to or annex representations or information from Nestwood.[28]The financial note: i) referred to the Council’s Medium Term Financial Plan, approved in March 2012; ii) highlighted “the significant financial challenges facing the Council”, against the background of reductions in government funding of about 28% in the four year period covered by the Government’s Comprehensive Spending Review of 2010; iii) stated that by making efficiencies in the way it worked the Council had managed to balance its budget in the current year, but that future years would require more drastic action to sustain its financial position. By 2013/14 the Council would need to make additional savings of £966,000 and there would be additional pressure to cut costs in later years; iv) reviewed the Council’s constrained capital spending programme and set out the Council’s reserves earmarked for particular purposes. It stated that in addition it held a General Fund balance of £1.9 million as at 31 March 2012, which was held to ensure that the Council maintained adequate working balances to meet short term variations against budgeted expenditure and income and fluctuations in the demands on Council services. In that regard, it stated: “When the new rates retention system comes into effect in April 2013, councils will have to manage the impacts of changes to their business rates income within their own budgets. The localisation of council tax benefit will also introduce a new source of volatility. The uncertainty is making it very difficult for councils to plan medium term financial strategies, therefore it is essential for the Council to maintain its reserves as a safeguard against future volatility.” v) reviewed the other resources available to the Council, stating that as a final resort the Council could consider raising Council Tax to meet the compensation claim. Any proposed increase above 3.5% would trigger a public referendum. The Council had a low Council Tax level and small tax base, so even a 3.5% increase would generate only £156,000.[29]When the Council’s accounts for the year to 31 March 2012 were eventually issued, they included a note that the General Fund working balance at 31 March 2012 was £1.943 million, which was “maintained to provide a financial cushion should something unexpected occur that leads to significant unplanned expenditure that would not be met from other sources or by specific government grants”, and that the “current minimum working balance” for the General Fund was set at £1.3 million.[30]On 25 July 2012, the Council duly held its meeting to consider the LGO Report once more (“the third consideration”). A representative of Nestwood attended, but the Council had already declined Nestwood’s request through solicitors that it be able to make representations at this meeting. On this occasion, Mr Oldham attended the meeting and gave legal advice regarding the proper approach which members of the Council should adopt in considering the LGO Report and her recommendations regarding remedy. He correctly advised, in line with authority considered below, that since the Council had not sought to challenge the LGO’s findings of maladministration, injustice and loss by Nestwood and the Director, it was bound to accept those findings. He advised, again correctly, that it was for the Council to determine how to respond to the recommendations of the LGO as to remedy, taking into account the level of seriousness of the maladministration found against it and whether this required, as a matter of fairness and reasonableness, the payment of compensation and at what level. Mr Oldham advised that the Council should formulate reasons for its decision. Councillors should not take into account the previous decisions made, and should approach the matter as a fresh decision.[31]The Minutes of the meeting indicate that Councillor Przyszlak (the Council’s Portfolio Holder for Finance) led the discussion. He said that the Council should accept the findings of the LGO. In considering the LGO’s recommendations as to remedy, he raised the issue of affordability and drew attention to the financial note. He proposed that the Council accept the findings in the LGO Report, offer a sincere apology to Nestwood and its Director and make an overall payment of £50,000 to cover all issues (i.e. the losses of both Nestwood and the Director and interest). The Minutes record that Council members debated this proposal, taking into consideration the LGO’s findings “and the seriousness of them” (meaning, on a fair reading of the Minutes, that they accepted the seriousness of the maladministration and injustice which had been found by the LGO) and the information in the financial note. Council members considered that making an apology and paying £50,000 as proposed would strike an appropriate balance between the seriousness of the injustice suffered and the affordability for the Council, and decided that the Council should respond to the LGO’s recommendations accordingly.[32]As a result of this decision, the Council sent letters of apology dated 1 August 2012, signed by Mr Huggins (its Chief Executive), to Nestwood and the Director acknowledging the maladministration by the Council and the consequences, as set out in the LGO Report, and offering “a sincere, full and unreserved apology” on behalf of the Council.[33]There was then further correspondence, not all of which was included in the evidence before the court, in which Nestwood sought clarification regarding the Council’s decision and raised objections. By a letter dated 3 September 2012 from Battens (the solicitors for Nestwood), Battens asked a series of questions in relation to the decision.[34]A reply was sent on behalf of the Council dated 7 September 2012, in which the Council maintained that Nestwood should discontinue or at least agree to stay the legal proceedings it had commenced. The Council’s position as set out in that letter was that the questions asked by Battens for Nestwood were mostly irrelevant to this issue, but that in a spirit of co-operation certain answers would be provided. The Council declined to answer a question about whether the payment was to be made from the Council’s reserves and how it would be included in the Council’s accounts, on the grounds that this was irrelevant. In response to questions whether certain letters from Battens in July 2012 (which are not before the court) had been placed before Council members and whether Council members had access to any of the material which lay behind the claims of Nestwood and the Director which had previously been provided to the Council, the Council’s reply said:
“You are aware of the report which went to Council for its meeting on 11th April 2012. You raised no objection to it. We believe that it refers to your clients’ concerns, as expressed in your correspondence, appropriately. We attach a copy of the report to Council on 25th July 2012. Again, we believe that it refers to your clients’ concerns appropriately. It would be unusual for all correspondence relating to Council business to be put before members and it was not necessary for your letters to be appended.”
[35]By a further letter from Battens, dated 11 September 2012, they commented that the inference to be drawn from this last response was that none of their letters nor the material lying behind the claims was drawn to the attention of councillors at or before the meeting on 25 July 2012.[36]On 12 September 2012 the decision of Nicol J (dated 16 August 2012) was released to the parties, refusing permission on the papers for Nestwood’s judicial review claim commenced in June 2012 on the grounds that it was premature (since under the Local Government Act 1974 the LGO was due to consider the Council’s decision declining to implement her recommendations) and also academic (by reason of the further decision which the Council had said it would take on 25 July 2012).[37]Nestwood issued a notice to renew its application for permission. The Council complained that this did not draw attention to the decision upon the third reconsideration on 25 July 2012.[38]On 8 November 2012 the LGO confirmed that a further report would be issued by her, under section 31(2A) of the Local Government Act 1974. In the light of this, by the agreement of the parties, the judicial review proceedings were withdrawn on terms and with no order for costs.[39]On 13 March 2013, the LGO (Dr Jane Martin) issued a Further Report. She noted and welcomed the general approach taken to the LGO Report on the third consideration and acknowledged the right of the Council to consider the LGO’s recommendations on remedy and take its own view, treating affordability as a material consideration (paras. 10-13). However, the LGO also agreed with the advice given by Mr Oldham to the Council that affordability should not be given excessive weight and allowed, in effect, to override all other considerations (para. 13); said she would expect the Council’s consideration of the matter to address directly the nine findings of maladministration in the LGO Report and the specific recommendations made, to pay Nestwood £214,053 plus interest in respect of costs and charges, £25,000 in respect of lost opportunity for sales and £25,000 to the Director for stress, strain and damage to reputation (para. 14); and said she was not satisfied with the Council’s response, which did not explain how the sum offered was arrived at nor how it was apportioned and which appeared, therefore, not to have considered the LGO’s findings with sufficient care and to have given excessive weight to financial considerations (paras. 14-17). The LGO called on the Council to reconsider the recommendations in the LGO Report and, if it was minded to agree a remedy different from that in the LGO Report, “to set out a clear explanation for the action it proposes to take, its relationship to the Ombudsman’s findings of maladministration and injustice, and its apportionment between the company and its director” (para. 18).[40]By letter dated 9 April 2013 sent on behalf of the Council to Battens for Nestwood, it was stated that the report for the Council for further consideration of the matter would be published before the meeting and could be reviewed by Nestwood at that time, but it would not be made available for comment by Nestwood prior to publication and no representations would be permitted at the meeting itself. In my view, the clear implication from the statement that the report could be reviewed by Nestwood in advance of the Council meeting was that this would enable Nestwood to make written representations for the meeting, if it wished to do so.[41]Battens replied on 3 May 2013 to protest that it would be “manifestly unfair” not to allow them to address the Council (i.e. by oral representations). They said that they expected their written response to be reported fully to the Council. The Council did not reply to dispute or disagree with this statement.[42]In my view, the position which emerged from this exchange of correspondence was that the Council would give Nestwood the opportunity to see the Chief Executive’s report in advance of the Council meeting and to make written representations, but would not allow Nestwood to make oral representations at the meeting.[43]The Council’s Chief Executive prepared his further report for the Council, discussing the LGO Further Report. He emphasised that the Council should consider what to do with an open mind and that it was bound to accept the findings of maladministration, injustice and loss in the LGO Report, and that the question for the Council was how these should be weighed against the impact of any sum on local resources to achieve a reasonable balance. He appended a revised, updated version of the financial note, which was in substance to the same effect. He indicated that it appeared appropriate to divide any payment pro rata between the losses the LGO had found to have been suffered by Nestwood and the Director. The Chief Executive also said, “On the overall amount to be paid, this may in the Council’s view not be an exact science, so that elaborate reasons are inappropriate”; nonetheless, he drew attention to the call in the LGO Further Report for reasons to be given and said the Council should attempt to give reasons.[44]Mr Findlay QC for Nestwood did not show me any further correspondence from Battens or Nestwood with comments on the Chief Executive’s report for Council or containing representations to be considered at the Council meeting. On the evidence, therefore, Nestwood did not seek to make written representations to be considered by the Council at its meeting and appeared to be content with the neutral way in which the matter was put to the Council in the Chief Executive’s report.[45]On 15 May 2013 the Council met to consider the LGO Further Report, amongst other things (“the fourth consideration”). It was reiterated that the Council accepted the seriousness of the issue raised by the losses suffered by Nestwood and the Director and by the findings made against the Council. Councillor Przyszlak spoke to emphasise that the Council should consider the recommendations of the LGO afresh. He invited the meeting to consider a total global sum of £50,000, based on the affordability to the Council; this was to be apportioned pro rata between Nestwood and the Director; and interest was now to be added at a simple interest rate of 5% from the mid-point in the period between November 2006 and July 2012, on the basis that the costs and expenses referred to in the LGO Report were not broken down in the Report by reference to points of expenditure. His proposal was adopted by the Council.[46]The Minutes set out a summary account of the reasons offered by Councillor Przyszlak for his proposal, which were accepted by the Council in voting on his motion and which accordingly stand as the recorded reasons for the Council’s decision, as follows:
“Whilst Councillor Przyszlak would not seek to dispute the recommendations of the Ombudsman in any way or to question the fairness or appropriateness of the process by which the Ombudsman reached any decision, he did believe that as members of the Council they should take into account the affordability of any payments in relation to the Council’s ability to provide its services to those who pay their Council tax, to the Council now and in the future. He therefore suggested it to be fair and proportionate on the following basis: That the Council would need to make significant efficiencies in order to balance its budgets in the coming years. In proposing this recommendation he had considered the reserves held by the Council and how they were earmarked to meet the future spending requirements of the Council.”
[47]It is this decision which is the subject of challenge in the present proceedings.[48]The LGO was not satisfied with the Council’s decision on the LGO Further Report. In early July 2013, she required the Council to publish a statement to that effect, pursuant to section 31(2D) of the 1974 Act. The LGO indicated that this marked the end of her involvement in the matter.[49]Nestwood sent a letter before claim dated 12 July 2013 to the Council. The letter raised the issues now included in the Grounds of Claim, save that it did not suggest that the procedure adopted by the Council had been unfair by reason of any failure to afford Nestwood an opportunity to make representations. The Council replied to dispute the claim.[50]Nestwood then launched the current judicial review proceedings. The Grounds of Claim covered the same arguments as in the letter before claim, but also included an additional argument. Under the heading “Predetermination”, Nestwood set out its argument to the effect that the Council had approached its decision with a closed mind, and as a point it said was relevant to that argument (see para. 87) it referred to the alleged refusal of the Council to allow Nestwood to make oral or written representations at the Council meeting, adding that, “Alternatively that was in breach of the common law duty of fairness.” This latter argument was not given prominence by having a heading of its own, even though it is analytically an argument distinct from the argument on predetermination. It was a point which assumed greater significance in Mr Findlay’s skeleton argument for the hearing before me, in which he gave “Unfairness” as the separate heading for a distinct ground of claim relied upon by Nestwood (albeit without identifying para. 87 of the pleaded Grounds of Claim as the basis for it).[51]Perhaps understandably, given the way it had not surfaced in the pre-action correspondence and was somewhat buried in Nestwood’s Grounds of Claim, the Council did not focus on the alternative argument in the second sentence of para. 87 in its Acknowledgement of Service and Mr Oldham’s main response in his skeleton argument to the “Unfairness” argument in Mr Findlay’s skeleton argument was that this argument was not properly open to Nestwood on its pleaded case. I address this in more detail below.[52]On 16 October 2013, permission to seek judicial review was granted on the papers.

Discussion

[53]The parties agreed on the basic legal framework and principles governing the nature of the decision to be taken by a local authority when presented with a LGO report containing findings of maladministration, injustice and loss, as explained by Kenneth Parker J in R (Gallagher) v Basildon DC [2010] EWHC 2824 (Admin); [2011] PTSR 731.[54]The LGO has power to investigate a complaint of alleged maladministration in connection with a local authority’s administration functions, under sections 24A and 26 of the Local Government Act 1974. A report by the LGO is sent to each person concerned: section 30(1). It can include recommendations to remedy injustice suffered as a result of maladministration: section 30(1A). Where the LGO reports that there has been maladministration, the local authority should inform the LGO of the action it has taken or intends to take: section 31(2). If the LGO is not satisfied with the action proposed by the local authority, then he shall issue a further report and make recommendations: section 31(2A).[55]Where the authority still fails to comply with the recommendations made by the LGO, he can require the authority to publish a statement in two local publications, setting out his recommendations and any other material he requires: section 31(2D), (2E) and (2F). However, the notice need only contain the authority’s reasons for not complying if the authority so decides: section 31(2E)(c).[56]Where the LGO issues a report which makes findings of maladministration, injustice and loss suffered as a result, those findings are binding on the authority unless successfully challenged by way of a judicial review claim: R v Local Commissioner for Administration for the South, the West, the West Midlands, Leicestershire, Lincolnshire and Cambridgeshire, ex p. Eastleigh BC [1988] QB 855; Gallagher, [27].[57]The authority is not obliged to accept and act on the recommendations as to remedy made by the LGO. The authority’s decision how to respond is governed by usual, general public law requirements of good faith, rationality, fairness and so on. The rationality of a proposed response has to be assessed taking account of the binding findings of maladministration, injustice and loss which have been made.[58]The statutory scheme providing for public notice to be given if the LGO is not satisfied with remedial steps taken by an authority indicates that emphasis is placed upon political sanctions and pressure, as opposed to imposition of a simple legal obligation to act upon the LGO’s recommendations. A finding of maladministration does not have the same effect as a finding of breach of some public or private law duty, in relation to which binding legal remedial consequences may be imposed by order of a court. By contrast, even though a recommendation as to remedy made by the LGO requires to be taken very seriously by an authority to which it is directed, it leaves scope for that authority to have regard to other pressing aspects of the public interest in deciding whether to accept and act upon the recommendation.[59]There is no statutory duty to give reasons for rejecting a LGO’s recommendation: Gallagher, [26]. However, where the authority does provide reasons for rejecting a recommendation, “the court is entitled to examine carefully whether the [authority] has, first, taken into account relevant considerations and, secondly, has weighed those relevant considerations in a way that a reasonable council should have done”: Gallagher, [33].[60]Local authorities decline to accept and act on recommendations regarding remedy made by the LGO in only a tiny proportion of cases: Gallagher, [15]. Whilst this serves to emphasise the seriousness with which a local authority should approach a LGO recommendation as to remedy for maladministration, it does not in itself indicate that an authority is required to treat itself as bound to accept and act upon such a recommendation.

The Grounds of challenge

(a) Inadequate reasons

[61]The Council’s Chief Executive advised that the Council should provide short reasons for its decision, and the Minutes of the meeting on 15 May 2013 recorded the argument in favour of the decision which was accepted by the Council. Although the 1974 Act did not impose an obligation to give reasons, the Council sensibly chose to provide reasons and the court should examine the reasons it gave to ensure they were adequate and in accordance with usual public law standards.[62]In my judgment, sufficient reasons were given by the Council for its decision, to a level adequate to inform a person, such as Nestwood, with knowledge of the Chief Executive’s report and the circumstances of the case, why the Council had come to the decision it did.[63]As the Chief Executive pointed out in his report, it is somewhat difficult to say very much by way of reasoning for departing from the LGO’s recommendation other than that her findings of maladministration, injustice and loss were accepted and taken seriously into account but that - save to the extent of £50,000 plus interest - were assessed to be outweighed by the need of the Council to deal with other pressing financial pressures to which it is subject. There were two incommensurable sets of issues and values on either side of the scales, which did not readily lend themselves to any more detailed assessment and weighing against each other than this. As Mr Oldham submitted, deciding what is affordable is not an exact science. It is a matter of evaluative judgment, which in the context of the local authority’s finances in this case did not lend itself to precise calculation or elaborate explanation.[64]The financial pressures on the Council were explained in the revised financial note, which was available to Nestwood as part of the Chief Executive’s report. His report explained, fairly, the nature of the exercise for councillors and the way in which they should approach that exercise, giving full value to the LGO’s findings of maladministration, injustice and loss. His report and the Minutes indicate that the councillors did approach the exercise on this basis. It is properly to be inferred that the Council members had regard to the factors set out in the Chief Executive’s report and the revised financial note attached to it: cf R (Richardson) v North Yorkshire CC [2004] 1 WLR 1920, [35].[65]The Minutes, read against the background of the Chief Executive’s report, give intelligible and adequate reasons to enable the reader to understand why the matter was decided as it was and what conclusions were reached on the critical issue for decision: see South Buckinghamshire DC v Porter (No. 2) [2004] UKHL 33 at [36]. The Minutes were in proper and adequate form for a body of this kind, as a relatively summary account of the points made in debate and accepted by the Council members when they voted as they did on the relevant resolution. They properly set out the general tenor of the discussion which constituted the reasons relied on by the members: cf R v Exeter City Council, ex p. JL Thomas & Co. Ltd [1991] 1 QB 471, 483. In my view, the reasons set out in the Minutes adequately addressed the points referred to in the LGO Further Report. They explained how the sum of compensation to be paid would be divided between Nestwood and the Director and they explained that interest would be paid, and at what rate and for what period. The principle for division of the payment between the Director and Nestwood was rational and fair.[66]For these reasons, I reject this Ground of complaint. (b). Excessive weight given to affordability and failure to consider relevant considerations[67]Mr Findlay submits that at the meeting on 15 May 2013, the Council gave manifestly excessive and unreasonable weight to the question of affordability in considering whether to adopt the recommendations of the LGO. It also failed to consider whether a sum higher than the £50,000 proposed could be afforded, including by being spread over a number of years.[68]I do not accept these submissions. As set out above, the relevant legal test is a rationality test, albeit conditioned by the findings made by the LGO. The findings of serious maladministration, injustice and loss reduced the range of legitimate rational decisions lawfully available to the Council, but did not eliminate all discretion for the Council in deciding what to do.[69]Affordability and the impact upon the Council and the services it could provide of making a compensation payment were, in my view, lawful relevant considerations for the Council to take into account. Indeed, Mr Findlay did not suggest otherwise. Although a payment of £50,000 plus interest was well below what was recommended as appropriate by the LGO, it could not be considered to be insignificant. It does not indicate that the Council failed to take the LGO’s findings and recommendation with the full seriousness they merited.[70]The financial constraints on the Council identified in the revised financial note were severe, and the Council was entitled to give them significant weight. Mr Findlay pointed out that the Council had a General Fund reserve of about £1.9 million, and that the Council’s accounts for the year ended 31 March 2012 included a note that “The current minimum working balance for the General Fund is set at £1.3m”, in order to suggest that the Council could afford to pay the full compensation recommended by the LGO without dropping below that £1.3 million figure. However, as pointed out in the revised financial note (and as also noted in the Council’s accounts in respect of the £1.9 million General Fund), the assessment was that it was essential for the Council to maintain its reserves to meet short term variations in income and expenditure in conditions in which volatility was to be expected. On the Council’s assessment, the £1.3 million figure is not a figure which could safely be substituted for a general reserve of £1.9 million. It is not the court or the LGO, but rather the Council which has responsibility for meeting all the many and varied demands on its resources and which has full information about the extent of those demands and resources. I do not find it possible to say that the Council has given excessive weight to the factor of affordability.[71]I do not consider that the Council was required to consider, expressly, making a payment higher than £50,000 plus interest. It had before it the LGO’s recommendation for a higher payment to be made, and plainly had that recommendation in mind in deciding what to do. It was implicit in the decision to be taken that the Council should consider making the highest payment it felt able to, in light of affordability constraints, and there is nothing to indicate Council members did not appreciate this. Neither the LGO nor Nestwood in any representations on the LGO Further Report or the Chief Executive’s report for Council on that Further Report had suggested that payments spread over a number of years should be considered and the Council was not required to consider, expressly, making payments in that way. In my view, again, the consideration given by the Council to the issue of affordability sufficiently covered that general possibility as well. The budgetary constraints upon the Council, as set out in the revised financial note, extended well into the future.[72]Even though I think it can perhaps be said that the amount of the payment was close to the lowest acceptable limit in the circumstances, I do not feel able to say that the Council has behaved irrationally or unlawfully in weighing the competing factors as it did. Accordingly, this Ground of challenge also fails.

(c) Unfairness

[73]The first question here is whether Nestwood is entitled to rely distinctly on alleged unfairness as a ground of challenge, in light of the way in which it has set out its case in the Grounds of Claim (see above). In my view, it is. Although it is unfortunate that the issue of unfairness as a distinct ground of challenge was not highlighted or given a distinct heading in the Grounds of Claim, there was a distinct allegation of unfairness as a ground of challenge in the second sentence of para. 87. I consider that is sufficient to justify Nestwood in maintaining this Ground of challenge, although I also think that the somewhat buried nature of the claim does explain why it was not responded to directly by the Council and means that the claim warrants careful scrutiny as it is now presented.[74]In my judgment, the facts do not support the contention of Mr Findlay that Nestwood was precluded from making any representations, written or oral, in relation to the decision to be taken at the meeting on 15 May 2013. The Council did provide Nestwood with an opportunity to comment on the Chief Executive’s report for that meeting and to make comments in writing, but refused to allow oral representations to be made at the meeting itself: see paras. [40]-[42] above.[75]As Mr Findlay pointed out in his submissions, the question of what fairness requires will vary depending on the context: R v Secretary of State for the Home Department, ex p. Doody [1994] 1 AC 531, 560D-G. Since the Council was bound by the findings of maladministration, injustice and loss set out in the LGO report, the Council was not bound as a matter of fairness to afford Nestwood an opportunity to comment further on those issues as such. It was not appropriate for the Council to re-open debate about those points with a view to either Nestwood or the Council going behind the findings made by the LGO.[76]However, the Council did have a discretion to exercise regarding how to respond to the recommendations made by the LGO as to remedy. The exercise of that discretion had a direct and immediate impact upon Nestwood and the Director and had potential very significant effects on their financial interests. In the circumstances of this case, against a background of findings of serious maladministration and injustice and of substantial loss suffered by Nestwood and the Director and of the recommendations for payment of substantial compensation as set out in the LGO Report and again in the LGO Further Report, I consider that fairness did require the Council to allow Nestwood to see the materials to be put before the Council (i.e. the Chief Executive’s report and the annexes to it, in particular the revised financial note: cf Doody at 560G) and an opportunity to comment on that report and make representations in writing, if it chose, regarding the exercise of this discretion.[77]In my view, the correspondence referred to above shows that the Council did make the Chief Executive’s report available to Nestwood in advance of the meeting and did give Nestwood an opportunity to make representations in writing regarding the exercise of the Council’s discretion.[78]I do not consider that the obligation on the Council to act fairly involved more than this. In my judgment, the Council was not obliged to give Nestwood an opportunity to make oral representations at the Council meeting. It was perfectly possible for cogent and informed representations to be made by Nestwood in writing, by reference to the findings made by the LGO and to what was said about affordability and other matters in the Chief Executive’s report for the meeting. This was all that fairness required in the present context.[79]I was shown no authority which supported Nestwood’s claim that fairness required that it be given an opportunity to make oral representations at the meeting. It is also noteworthy that in Doody, where very pressing interests of life prisoners in respect of the opportunity to seek their liberty were in issue (Lord Mustill said that their “future depends vitally on the decision of the Home Secretary” as to the tariff or penal element in relation to their life sentence: see Doody at p. 563G), fairness was found only to require an opportunity to make written representations. The interests of Nestwood implicated in the Council’s decision were, in my view, in no way stronger (indeed, are less vital or pressing) than those of the life prisoners in Doody, and so, as in that case, the requirements of fairness extended only to an opportunity to make informed representations in writing.[80]For these reasons, this Ground of challenge is dismissed.

(d) Predetermination

[81]As Mr Findlay submitted, the obligation on the Council members at the meeting on 15 May 2013 was to consider the recommendations of the LGO fairly and on the merits, even though as elected and democratically accountable decision-makers they may approach them with a predisposition in favour of one side or the other: see e.g. R (Lewis) v Redcar & Cleveland BC [2008] EWCA Civ 746; [2009] 1 WLR 83, [95] per Rix LJ. Unlawfulness may be found if there are circumstances which give “the appearance of a pre-determined, closed mind in the decision-making itself” (Rix LJ at [96]). This question has to be examined bearing in mind the particular role and obligations of elected members of a local authority: “the importance of appearances is generally more limited in this context than in a judicial context” (Rix LJ at [96]-[98]; Pill LJ at [69]-[71]; Longmore LJ at [105]-[113]).[82]Councillors are generally expected to be able to abide by the obligations to which they are subject, keeping an open mind “in the sense that they must have regard to all material considerations and be prepared to change their views if persuaded they should”: R (Island Farm Development Ltd) v Bridgend County BC [2007] LGR 60, [31] per Collins J, cited with approval in Lewis at [96]. To establish a case of an illegitimate appearance of pre-determination in making a decision, positive evidence is required “as would suggest to the fair-minded and informed observer the real possibility that the councillor in question had abandoned his obligations, as so understood”: Lewis, [97]. Put another way, has the relevant decision-maker “made up his or her mind finally at too early a stage” (Lewis, [107])?[83]In my judgment, Nestwood’s challenge based on the alleged appearance of predetermination also fails.[84]As set out above, the Council members were lawfully entitled to have regard to the affordability of the compensation recommended by the LGO. Accordingly, some predisposition to wish to conserve the resources of the Council in order to provide services in its area was to be expected and does not indicate that Council members approached the question they had to decide with a closed mind, in the requisite sense.[85]It is also the case that members had been involved in previous decisions regarding how to respond to the LGO Report, and had acted on those occasions (including on the third consideration) in ways unfavourable to Nestwood, so as to prompt the LGO to issue her Further Report calling on them to consider the matter again. But in my view this feature of the case similarly does not provide the positive evidence necessary to show an appearance of pre-determination. The Council simply was the body which had to take the decision. The responsibility regarding how to use its resources and how to balance the competing aspects of the public interest (provision of services to the public versus compensation for loss suffered through maladministration and injustice) was, for constitutional and democratic reasons, for the Council. It was a decision of sufficient significance that it had been addressed previously by the full Council, and it was right and proper – as an aspect of treating the LGO’s two reports with full seriousness – that the full Council should consider and decide the issue of remedy at the meeting on 15 May 2013: see also section 25(2) of the Localism Act 2011. There was nothing in the way in which the Council organised its business to allow for this issue to be considered which gives an appearance of pre-determination.[86]There may not have been extensive discussion at the meeting about what should be done, but this again does not give any relevant appearance of pre-determination. The Chief Executive’s report was careful and balanced and appended the relevant financial information. Councillor Przyszlak was well placed to make the proposal and to comment on questions of affordability. There was no onus on other councillors to hold a lengthy debate if they were persuaded by the points he made and the information supplied to them. In fact, councillor Przyszlak increased the amount of money he proposed should be paid to Nestwood and the Director from that decided upon the third consideration. In my view, the appearance given is that he and the Council as a whole did respond to the LGO Further Report with a mind open to persuasion in light of the observations by the LGO in that report, to increase the sum to be paid. They had not made up their minds to refuse to react to the LGO Further Report. This is a case which is, in my view, very far from one in which positive evidence showing an appearance of pre-determination, of the kind discussed in Lewis, has been put forward.

(e) Perversity

[87]As appears from the discussion above, I do not consider that a perversity challenge can be sustained in this case. The Council did not act irrationally or unlawfully in making the decision it did.

Conclusion

[88]I have approached the decision in this case with concern, because of the serious findings of maladministration, injustice and loss made by the LGO and the substantial contrast between the compensation recommended by the LGO and that eventually decided by the Council. Against this background, I have subjected the Council’s decision and decision-making process to careful scrutiny. However, for the reasons set out above, I consider that the Council has acted within the law and so Nestwood’s challenge to the Council’s decision regarding the payment to be made to it in respect of the Council’s maladministration is dismissed.

Cited in 1 later judgment