Court of Appeal decision in Charles Terence Estate v Cornwall Council [2012] EWCA Civ 1439 overturns
Court of Appeal decision in Charles Terence Estate v Cornwall Council [2012] EWCA Civ 1439 overturns decision that Council’s breach of duty rendered leases void
The Court of Appeal has given judgment in Charles Terence Estate v Cornwall Council [2012] EWCA Civ 1439, in which Martin Rodger QC and Joe Ollech represented the successful Appellant landlord. The Court of Appeal overturned the High Court’s decision ([2011 EWHC 2542 (QB)) in what Lord Justice Etherton described as a case which raised important issues “about the relationship between public and private law concepts of ultra vires”.
Charles Terence Estates (“CTE”) purchased 30 properties in Penzance and Newquay which it leased to predecessor councils of the Respondent, Cornwall Council, under schemes to house vulnerable homeless people in good quality accommodation. The properties were bought and adapted by CTE specifically for this purpose, before being let to the councils on leases for 25 year terms at substantial rents. Following a local government reorganisation Cornwall had second thoughts and sought ways out of the leases. Cornwall advanced a number of public and private law arguments to support its contention that the leases were void. At first instance it failed on all these arguments save one. The High Court held that in entering into the leases the councils had breached their fiduciary duties to Council Tax payers by failing to take into account “market rent”. It found that this failure meant that the councils lacked capacity to enter into the leases, which were accordingly declared void.
The Court of Appeal fundamentally disagreed, both on the principle that a lease could be rendered void by a breach of duty of the sort alleged, and on the facts: Cornwall had produced no evidence of what “market rents” should have been; it had not established that there was any breach of fiduciary duty; even if there had been it would not have affected the councils’ capacity to enter into the leases. The Court of Appeal considered the House of Lords decision in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147, and its own decision Credit Suisse v Allerdale Borough Council [1997] QB 306 and distinguished between acts which were ultra vires in the sense of lacking capacity, and in the sense of having capacity but exercising that power improperly. The latter species of ultra vires acts will not provide a local authority with a defence to a private law claim. The Court of Appeal also ruled that statutory accounting requirements imposed on local authorities in respect of their housing stock did not affect their capacity to acquire or dispose of property per se; such requirements operated as a subsequent accounting duty, not as a condition precedent to the exercise of the councils’ powers.
The High Court’s decision had appeared to open up the destabilising prospect of local authorities relying on the inadequacies of their own decision making to escape commercial commitments freely entered into. The Court of Appeal has quashed that threat and put local authorities on the same footing as other corporations.
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