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The best value duty (part 1)

Angelica Gavin

2 – 7

Part 36 offers

Nichola Evans

8 – 11

What are the essential elements of a consultation?

Tom Toulson

12 – 16

Breaching the terms of a party wall award

Helen Taller

17 – 18

First High Court decision on local offer

Richard Freeth

19 – 20

Section 123 – easy as ABC?

Neil Walker

21 – 24

The new public contracts regulations have arrived

Peter Ware

25 - 27

The articles in this newsletter are for general information only. They do not represent legal advice. You should always

take legal advice before pursuing any course of action discussed in this newsletter. If you would like to instruct any of

our lawyers on any matter please call +44(0)115 976 6000.

Peter Ware | +44 (0)115 976 6242 | Peter.Ware@brownejacobson.com

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A number of interventions in the operation of local authorities by Communities Secretary Eric Pickles under

the auspices of the best value duty have made the news lately. In late 2014 an inspection was carried out

and commissioners sent into the London Borough of Tower Hamlets in respect of failures by the authority to

meet its best value duty in relation to the making of grants and disposals of properties. The most recent

example will see five commissioners sent into Rotherham Metropolitan Borough Council under powers

contained in Section 15 of the Local Government Act 1999. This followed an inspection report in relation to

the Council’s exercise of its governance functions, functions in relation to children and young people, and in

relation to taxi and private hire licencing which Mr Pickles said confirmed “a complete failure of political

and official leadership” in Rotherham.

The events at these local authorities are a timely reminder of the importance of complying with, and

demonstrating compliance with the best value duty, particularly as the conditions in which local authorities

operate become more difficult and more and more authorities take steps to devolve responsibility for

carrying out functions and services to arms - length bodies. Many of the allegations against the authorities

involved decisions which many public bodies may make, and ones in which transparent decision making is

key.

This article is one of two in which we will explore the best value duty and the way in which authorities can

demonstrate their compliance with it. This article will focus on the requirements of the best value duty and

its application in relation to outsourcing. The next article will focus on governance and scrutiny.

The duty

The Best Value Duty (‘the Duty’) is set out at s.3 of the LGA 1999. It provides that “a best value authority

must make arrangements to secure continuous improvement in the way in which its functions are exercised,

having regard to a combination of economy, efficiency and effectiveness.” Authorities are required (under

s.3(2)) to consult representatives of a wide range of community stakeholders, including taxpayers, service

users, business rate payers and interested parties.

The Duty was introduced in 2000 to replace Compulsory Competitive Tendering; which required competitive

procurement processes to be held for a whole range of services; and was intended to simplify and reduce the

pressures upon authorities with a simple duty to take into account overall value and the best interests of

their community when making decisions. As the Communities Secretary put it in DCLG’s 2011 Guidance,

“local councils have been freed from excessive and prescriptive guidance and duties in return for a ‘social

responsibility’ deal”. The Duty also expands the obligations on local authorities, as well as a large range of

other public sector bodies, and is much wider than the Compulsory Competitive Tendering regime.

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But what does compliance with the Duty actually require? S.3 of the LGA 1999 sets out a duty to “make

arrangements to secure continuous improvement in the way in which… functions are delivered”. Functions

covers “all the duties and powers of a local authority”1 and includes all of the procedures, processes,

policies and management structures put in place by authorities, which should be designed in a way which

both seeks to improve service delivery in the present, and makes provision for improvement in the future. An

authority which is making efforts to improve provision in the future, but is not delivering best value now is

not meeting the requirements of the Duty.

The Duty applies to the functions of the authority, as well as methods for their delivery, and therefore

applies in a wide range of circumstances; for example, the duty in s.151 of the Local Government Act 1972

to “make arrangements for the proper administration of their financial affairs” as well as duties such as

that contained in s.7 of the Public Libraries and Museums Act 1964 to “provide a comprehensive and

efficient library service”, duties to provide social care services, children’s services, education and planning

and the activities that authorities carry out in the exercise of those duties, such as making grants, disposing

of property and procuring goods and services. Most activities of a local authority, including those which are

carried out by an arms-length company on behalf of the authority are therefore subject to the Duty.

Despite the broad coverage of the Duty, its requirements are not always clear. ‘Continuous improvement’ is

not defined in the LGA 1999, but presumably requires a demonstrable increase in the economy, efficiency

and effectiveness with which services are delivered. Economy, efficiency and effectiveness are also left

without definition, although government guidance provides that “authorities should consider overall value,

including economic, environmental and social value”. The concepts of economy, efficiency and effectiveness

are all related and cannot be achieved in a meaningful way which meets the requirement for ‘overall value’

individually.

The concept of ‘continuous improvement’ was considered in the case of R(Nash) v London Borough of Barnet

[2013] EWHC 1076 (‘the Barnet Case’), in which the court said that it did not think the duty was concerned

with “administrative ‘arrangements”, as “it may have been thought that to impose a duty simply to ‘secure

improvements’ would expose authorities to legal challenges from those who contended that particular

decisions were for the worse, or that authorities were wrong in failing to take particular steps which it was

asserted would make things better: the reference to ‘making arrangements’ would make it clear that the

duty was concerned with intentions rather than outcome. It may also be that the draftsman wanted to

emphasise the need to build the fulfilment of the best value duty into authorities’ plans and procedures.”

The court went on to say that “the important point for present purposes is what the arrangements are

aimed at, namely securing improvements in the way in which authorities perform their functions”.

1 Hazell v Hammersmith and Fulham LBC [1992] 2 A C 1

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The requirements of the Duty are therefore somewhat nebulous, although it will be clear in most cases what

is required to comply with the value. It should be stated that although the Duty requires authorities to

achieve best value from the delivery of functions now and in the future, the concept of ‘continuous

improvement’ naturally leaves room for error, but failures to comply with the value should be irregular and

isolated, rather than regular and indicative of an endemic failing within the operation of the authority. The

threshold for establishing a breach of the Duty is low, merely requiring that ‘arrangements’ to secure

continuous improvement have not been put in place or are failing to deliver improvement

The relevance of the Duty to outsourcing

As central government funding is cut and local government is required to provide more for less, local

authorities are finding innovative ways to provide their services. Outsourcing and shared services type

agreements are particularly popular, but there are specific issues in relation to the Duty which authorities

may wish to consider.

In order to comply with the duty, authorities must consider whether the services they are providing could be

provided in a better way. This will involve consideration of both public and private sector options. There are

a range of options for service delivery, but each should be assessed in order to determine whether it will

enable the authority to provide ‘continuous improvement’ and measures should be put in place for

evaluating the level of improvement which is expected to take place.

The duty to consult

Authorities are under a duty to consult on the exercise of the Duty. Section 3(2) of the LGA 1999 provides

that:

“for the purposes of deciding how to fulfil the duty arising under subsection (1) (the Duty), an authority

must consult:

a) representatives of persons liable to pay any tax, precept or levy to or in respect of the authority;

b) representatives of persons liable to pay non-domestic rates in respect of any area within which the

authority carries out functions;

c) representatives of persons who use or are likely to use services provided by the authority; and

d) representatives of persons appearing to the authority to have an interest in any area within which

the authority carries out functions.”

This is a broad duty, intended to cover a wide range of local representatives and which the statutory

guidance explains is intended to apply ‘at all stages of the commissioning cycle, including when considering

the decommissioning of services.’

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Consultation should be carried out in accordance with the principles set out in the case of R v Brent LBC ex P

Gunning 84 L.G.R 168 which provide that:

Consultation should take place when the proposal is still at a formative stage. In the recent case of

Draper v Lincolnshire County Council [2014] EWHC 2388 (Admin) the court held that “it is proper for

an authority to have a preferred option and to consult on the basis that that is what is proposed by

the authority. But for consultation to be meaningful the authority must be prepare to think again if

those consulted are unhappy with the proposal and suggest a different solution”.

Sufficient reasons must be put forward for the proposal to allow for intelligent consideration and

response. Consultees must be provided with sufficient information for them to understand what is

being proposed and why. In the case of R(Moseley) v LB Haringey [2014] UKSC 56 the Supreme Court

it was held that “consulting about a proposal does inevitably involve inviting and considering views

about possible alternatives”. Authorities must therefore include information on alternative options

and why the authority considers that they are unacceptable.

Adequate time must be given for consideration of the proposals and response by consultees. There is

no specified timescale for consultation, and what is appropriate may depend on the circumstances

but a minimum of four weeks, and more often six weeks is usually adopted.

Consultation responses received must properly considered by the decision maker. This requires

evidence that the responses to a consultation have been considered. In the case of Skyscanner v

Competition and Markets Authority [2014] CAT 16, the tribunal held that a consultation process was

unlawful because the decision maker had failed to conscientiously consider a particular significant

issue raised by respondents, holding that “if a consultation response raises an important and obvious

point of principle, it is for the authority to examine it further...”

In the Barnet case (discussed above), a judicial review was brought against the decision of a local authority

to outsource a number of its functions and services to private sector organisations. The claimant brought

proceedings claiming that amongst other things, there had been a failure on the part of the local authority

to consult under the LGA 1999. Although the claimant’s claim was out of time, the Court considered that the

duty to consult under the LGA 1999 “connotes high-level choices about how, as a matter of principle and

approach an authority goes about performing its functions.” The requirement therefore includes

consultation on the way in which a function will be performed as well as whether or not to perform the

function at all. In the Barnet case, the Court said that representatives “should have been given the

opportunity to express views or concerns about outsourcing the functions or services in questions that could

inform the council’s decision taking both on whether to proceed and on matters requiring attention in the

arrangements eventually made.

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Using contracts to assist achievement of best value

Following consultation and the identification of a solution, regard should be had to the way in which the

authority can use the process of procuring and managing the service in order to achieve best value. This can

be done in a number of ways, not least through the operation of a procurement or competitive tendering

process.

Although procurement processes may be viewed by authorities as adding an additional element of time and

cost to the outsourcing process, they can be structured in a way which will enable the authority to

demonstrate their compliance with best value, and to achieve the best commercial result. One of the aims

of the Compulsory Competitive Tendering regime was to encourage best value through competition, and

although there is no specific requirement under the 1999 Act to conduct a procurement process, this may be

the best way of demonstrating that a function is being provided in a way which provides competitive value.

The Duty does not subside when a service is outsourced, and therefore the authority should put provision in

place to ensure that the arrangements they make for outsourcing services will provide continuous

improvement in the way in which the functions of the authority are discharged. There are a number of ways

in which an authority can structure its outsourcing arrangements in order to demonstrate compliance with

the Duty:

Consider best value in the approach to procurement. Authorities using the open and restricted

procurement procedures are able to score tenders on the ‘most economically advantageous tender’

basis, which allows consideration of qualitative elements, rather than purely price. This means that

social value and other considerations such as the bidders’ ability to demonstrate an improvement in

the quality of service provision over time may be taken into account. However, it is important to

ensure that a balance is achieved between price and quality, as too strong a focus on quality may

not allow the authority to achieve best value for some services.

Balance the efficiencies of a longer term arrangement, which is likely to be cheaper for the

authority against the risk to the authority of supplier default inherent in a longer term agreement.

Authorities may wish to consider including provisions in the contract which will allow them to

terminate for convenience, bearing in mind that this is likely to come with an additional

compensation element; and provisions which will allow termination in the event of a supplier failure

or insolvency type event.

Authorities should ensure that their contract allows them to take advantage of reductions in the

market price for goods and services. This can be achieved through the inclusion of provisions

allowing the authority to carry out market testing and benchmarking of the service provision and

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actively assess the value they are receiving from their contract and request that the supplier makes

changes to the services or the prices where best value is not being achieved.

Key performance indicators (KPIs) are key to monitoring whether ‘continuous improvement’ in

service provision is being achieved. KPIs should be realistic and may be drafted to require that

particular targets or service levels are achieved which may increase over time. KPIs should be linked

to a performance regime to incentivise a supplier to provide the required service levels.

Good contract management will allow an authority to monitor the service it is receiving and ensure

that the service is being provided in line with its best value obligations. Provisions allowing the

authority to carry out audits and receive reports should be included, as these should oblige the

service provider to provide the authority with the information it needs. Contracts should be regularly

reviewed to monitor achievement of KPIs and opportunities to carry out benchmarking and market

testing exercises should be taken in order that the authority can assure itself that it is receiving best

value.

Angelica Gavin | +44 (0)115 976 6092 | angelica.gavin@brownejacobson.com

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Parties to litigation are firmly encouraged to consider how best to settle disputes between parties and to use

all the necessary tools available, from without prejudice negotiations to mediation to the use of Part 36

offers. Given the cost protection which flows from a Part 36 offer, an offer made under the Civil Procedure

Rules (the Rules) has great importance. However various criticisms have been made by practitioners and

judges alike about various aspects of the Rule. As a result the Civil Procedure Rule Committee (CPRC)

appointed a sub-committee to review Part 36 and subsequent to this has proposed various amendments

which are due to come into force in April 2015.

Introduction

The changes are apparent from the very beginning of Part 36. CPR 36.1 says “This Part contains a self-

contained procedural code about offers to settle made pursuant to the procedure set out in this Part”. This

makes it very clear that the new Rule does not incorporate the normal contractual requirements of offer and

acceptance. If a party wants to accept a Part 36 offer at a later date, that party can do so provided the

offer has not been withdrawn.

It also clarifies that Part 36 offers can be made in relation to counterclaims dealing with some of the

uncertainty which had built up in case law with the new CPR36.2 (3) saying that “a Part 36 offer may be

made in respect of…a claim, counterclaim or other additional claim”.

Further, the new Rule also addresses some of the technical point scoring that is referred to in case law

where a party to litigation claimed that a Part 36 offer did not comply with the strict wording of Part 36, for

instance in the case of Thewlis v Groupama [2012] EWHC 3 (TCC). Under the new CPR 36.5 (1) (b) a party

only has to make it clear that the offer is “made pursuant to Part 36” (as opposed to the current regime that

demands that the offer must “state on its face that it is intended to have the consequences of Section 1 of

Part 36”).

Pre issue Part 36 offers

Part 36.7 states that “a Part 36 offer may be made at any time, including before the commencement of

proceedings”.

In terms of what happens to the pre-issue costs these are dealt with at Part 36.14 which states that “where

a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the

proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was

served on the offeror”.

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It will be interesting to see if this provision encourages more early offers from claimants who are keen to

settle pre-issue. This may take on extra significance if the government is successful in hiking court fees as

currently proposed which in some instances will raise the court fee by 600%.

Improving offers

Very often in litigation a party makes an initial offer to see if there is any appetite for settlement and then

makes a further improved offer.

Under the new CPR 36.9, in order to do this the following must apply:

no notice of acceptance can have been served (CPR 36.9(1));

written notice of the change of terms must be served (CPR36.9 (2)); and

the enhanced offer can be made without the permission of the court (CPR36.9 (4) (a)).

In terms of costs, the most important change is to CPR36.9 (5) which provides:

“Where the offeror changes the terms of a Part 36 offer to make it more advantageous to the offeree –

a) Such improved offer shall be treated, not as the withdrawal of the original offer; but as the making

of a new Part 36 offer on the improved terms…”

Effectively therefore, unless the earlier offer is withdrawn, two offers (or more) of settlement can remain

on the table pending trial. This could prove to be very important on the question of costs post judgment.

Example

The claimant makes a claim for breach of contract claiming £150,000. The defendant believes that the case

has merit but that the damages are overstated. The defendant makes an immediate Part 36 offer at £75,000

during the pre-action correspondence which it increases to £100,000 following service of the Defence. At

trial the claimant is awarded £60,000. The defendant can refer to the first offer made very early on in the

process and claim enhanced costs from that date.

Withdrawing offers It may be the case that for legal or tactical reasons a party wishes to withdraw a Part 36 offer. Again, for

withdrawing offers:

notice of acceptance cannot have been served;

Written notice is to be given;

after expiry of the ‘relevant period’, the offer can be withdrawn without permission of the court;

and

the offer may be withdrawn in accordance with its terms.

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CPR36.10 deals with the consequences of withdrawing the offer before the expiry of the relevant period.

This means that parties can become more strategic in how they make offers by setting a date by which an

offer must be accepted or the offer falls away. This can be a dangerous strategy since the traditional cost

protection would similarly fall away. However in certain cases where pressure needs to be exerted on the

other party this provision may prove to be a very effective tool.

Part 36 and issue based trials

Lord Justice Jackson, as part of his reform package, had envisaged that judges would exert greater case

management and this would involve, at the case management stage, investigating whether any issues in

relation to the litigation could and should be dealt with separately. It was envisaged that there would be

more split trials.

However a difficulty arose on the wording of Part 36. Effectively a judge could not be told of Part 36 offers

and therefore any cost advantage in having a split trial was lost because the cost issues in relation to the

part 1 trial needed to be carried over and dealt with when the remainder of the issues came before the

court.

This difficulty has now been addressed by the CPRC in CPR36.16.

Under CPR36.16 (3)(d), where there has been an issue based trial and there is a Part 36 offer in relation to

the issues decided then that offer can be disclosed to the judge hearing the issue based trial. This means

that many of the costs issues pertaining to the part 1 trial can be dealt with at that trial. Parties will need to

consider making different settlement offers, and in particular structuring a Part 36 offer, purely in relation

to the first trial.

However, it should be noted that the parties cannot divulge the details of any offers that relate to the

litigation in general to the judge hearing the preliminary issues but the judge “may be told whether or not

there are Part 36 offers”. Therefore the judge can be made aware of the existence of an offer but not what

that offer consists of. It may well be the case that if the judge becomes aware that there is a wider offer

that he takes the view that the costs need to be reserved until final hearing in any event.

Court discretion when awarding costs

The CPRC has also considered whether there should be any amendment to the Rule to give the court a

greater discretion on costs to cater for the situation where a claimant makes a very high Part 36 offer with a

view to extracting indemnity costs at the end of the case, higher rates of interest and the post-Jackson

windfall of up to 10% of damages. The court is now given the option of considering “whether the offer was a

genuine attempt to settle the proceedings”. Commentators are already suggesting that this new, subjective

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test may lead to uncertainty – will a Part 36 offer at 95% of the value of the case be seen as a cynical

attempt to extract a better deal at trial? Personal injury lawyers have suggested that sometimes a 5%

discount can be a significant discount on a case with very high prospects of success. The CPRC say that in

those cases claimants will be able to justify their position. However there is a real risk of uncertainty in this

area.

Mitchell… again!

You may recall that in the case of Mitchell v News Group Newspapers the claimant failed to file a cost

budget on time, was denied relief from sanction as a result and was treated as having filed a cost budged

limited to court fees. The new Part 36 allows some relief from that limitation on fees in appropriate

situations.

If an offerer makes an effective Part 36 offer they can recover ‘50% of the costs assessed without reference

to the limitation’. The concept is that the other party to litigation does not have carte blanche to turn down

reasonable offers and run the litigation in an unreasonable way safe believing that even in the event of a bad

result they only have to pay court fees.

Appeals

CPR36.4 sets out the application of Part 36 to appeals and provides that Part 36 offers can be made where

the appeal relates to a decision made at trial (but not appeals from interlocutory decisions). CPR36.4 also

sets out the terminology that needs to be used when making a Part 36 offer in appeal proceedings.

Conclusion

There are some significant and far reaching changes to Part 36 being introduced in April. Most will result in

improvements to the Rule although practitioners will need to make themselves familiar with the changes.

There are still areas of uncertainty though. This is recognised by the CPRC and in particular the chair of the

sub-committee who has stated that “the new rules will not solve all problems and inevitably clever lawyers

will find arguments that will lead to unintended consequences. Perhaps all that can be hoped is that these

rules are an improvement on 2007.”

Nichola Evans | +44 (0)161 300 8021 | nichola.evans@brownejacobson.com

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Public bodies are often obliged by law to consult interested parties before introducing a new scheme or

policy. The duty to consult can arise in various ways: it may be required by the provisions of a particular

statute or inferred from general common law principles of procedural fairness. In either case, the public

body will be concerned to ensure that it complies with its legal duties when conducting a consultation.

What are the essential elements of a proper consultation? This question was recently addressed by the

supreme court in R (on the application of Moseley (in substitution of Stirling Deceased)) (AP) v London

Borough of Haringey [2014] UKSC 56 (Moseley). The Moseley case concerned a local authority’s statutory duty

to consult on its plans to introduce a council tax reduction scheme. The court found that the local authority

had failed to carry out a proper consultation because it had not provided consultees with sufficient

information about possible alternatives to its preferred scheme.

Learning points

Public bodies will find the judgment in Moseley provides a useful guide to the issues they should consider

when conducting any consultation. In particular they may wish to bear in mind the following key points:

even when the subject matter of a consultation is limited to a proposed scheme or policy, fairness

may nevertheless require that consultees are informed of discarded alternative options;

there is no need for consultees to be provided with extensive information about alternative options,

however enough information must be provided about the reasons for the preferred choice to enable

consultees to make an intelligent response;

when carrying out a consultation public bodies should observe the basic requirements established in

R v Brent London Borough Council, ex p Gunning (1983) 84 LGR 168 (often referred to as the Sedley

principles), which are that:

o consultation must be at a time when proposals are still at a formative stage;

o the proposer must give sufficient reasons for any proposal to permit of intelligent

consideration and response;

o adequate time must be given for consideration and response; and

o the product of consultation must be conscientiously taken into account in finalising any

statutory proposals.

public bodies should also bear in mind the following additional guidance given by the supreme court

in Moseley:

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o the degree of specificity with which a public authority should conduct its consultation

exercise may be influenced by the identity of those whom it is consulting; and

o the demands of fairness are likely to be somewhat higher when an authority contemplates

depriving someone of an existing benefit or advantage than when the consultee is a an

applicant for a future benefit.

Background

Prior to 1 April 2013 a national scheme operated in England for the payment of council tax benefit (CTB),

which entitled certain persons from relief (in whole or part) from their obligation to pay council tax. The

scheme was means-tested and the eligibility criteria were set by central government; each local authority

was merely required to apply the national scheme in their area. Central government then reimbursed each

local authority for the council tax payments they would have received but for the operation of the scheme.

In 2010 the government announced that from April 2013 it would transfer to local authorities the

responsibility for making (as well as operating) council tax benefit schemes in their areas. The necessary

legislation was duly passed; section 13(A)(2) of the Local Government Finance Act 1992 (the Act) obliges

local authorities to make Council Tax Reduction Schemes (CTRS). Paragraph 3 of Schedule 1A to the Act

requires a local authority to consult such persons “as it considers are likely to have an interest in the

operation of the scheme” before introducing the CTRS.

Under the new arrangements, the level of reimbursement provided by central government to local

authorities was capped at 90 per cent of the amount that would have been granted under the old scheme.

This meant that all local authorities faced a shortfall in their budgets, which could have been dealt with in

several different ways, including by:

reducing the level of relief provided to residents under the CTRS scheme;

raising council tax levels;

reducing spending on community services;

deploying reserves; or

some combination of the above measures.

Haringey London Borough Council (council) chose to rely on the first option exclusively. It proposed a CTRS

scheme that recommended reducing council tax relief by approximately 20 per cent from previous levels.

The council published its draft scheme on 29 August 2012 and proceeded to embark upon the consultation

required by paragraph 3 of schedule 1A to the Act. It posted a consultation document on its website and

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delivered hard copies and a covering letter by hand to each of the 36,000 households in the area that had

been entitled to relief under the old CTB scheme.

The consultation document was entitled ‘The Government is abolishing Council Tax Benefit’. It referred to

the reduction in government funding and stated: “Early estimates suggest that the cut will leave Haringey

with an actual shortfall in funding of around 20 per cent. This means Haringey claimants will lose on

average approximately £1 in every £5 of support they currently receive in CTB.”

Reponses to the consultation were considered at a full council meeting on 17 January 2013. At the meeting

the council resolved to adopt the proposed CTRS, which came into operation on 1 April 2013 and has not

been revised.

The case came before the courts when two residents who faced higher council tax bills under the new CTRS

scheme brought a judicial review challenging the lawfulness of Haringey’s consultation process. The

residents claimed that the council had failed to inform consultees that reducing the relief available under

the scheme was not the only possible way of absorbing the shortfall created by the reduction in central

government funding. The residents also argued that the consultation should have included the council’s

reasons for rejecting the other possible options.

The claim was rejected by both the high court and the court of appeal, the latter ruling that: “in this

statutory context fairness does not require the council in the consultation process to mention other options

which it has decided not to incorporate in its published draft scheme; much less require that the

consultation document contain an explanation as to why those options were not incorporated in the draft

scheme”. Leave was granted for an appeal to the supreme court.

The judgment

In the lead judgment (issued on 29 October 2014) Lord Wilson held that a public authority’s duty to consult

will always be informed by common law principles of procedural fairness, regardless of the origin of that

duty (i.e. whether it arises under statute or the common law). The judgment reviews the case law

concerning the common law principles of procedural fairness and endorses the ruling in R v Brent London

Borough Council, ex p Gunning (1983) 84 LGR 168, which held that the following basic requirements are

essential for a fair consultation process:

“First, that consultation must be at time when proposals are still at a formative stage. Second, that the

proposer must give sufficient reasons for any proposal to permit of intelligent consideration and response.

Third, […] that adequate time must be given for consideration and response and, finally, fourth, that the

product of consultation must be conscientiously taken into account in finalising any statutory proposals.”

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To those general principals Lord Wilson added a further two:

“First, the degree of specificity with which, in fairness, the public authority should conduct its consultation

exercise may be influenced by the identity of those whom it is consulting”. In other words, if only a select

and informed group is being consulted it may be fair to omit certain information that would need to be

included if the consultation were open to the wider public. Second, (quoting Brown LJ in R v Devon County

Council, ex parte Baker [1995] 1 All ER 73): “the demands of fairness are likely to be somewhat higher when

an authority contemplates depriving someone of an existing benefit or advantage than when the claimant is

a bare applicant for a future benefit.”

Referring to the cases of Nichol v Gateshead Metropolitan Borough Council (1988) 87 LGR 435 and R (Royal

Brompton and Harefield NHS Foundation Trust) v Joint Committee of Primary Care Tusts [2012] EWCA Civ

472, Lord Wilson said the common law clearly recognised that, “Even when the subject of the requisite

consultation is limited to the preferred option, fairness may nevertheless require passing reference to be

made to arguable yet discarded alternative options.”

On the facts of the case before the court, Lord Wilson concluded that “fairness demanded that in the

consultation document brief reference should be made to other ways of absorbing the shortfall and to the

reasons why (unlike 58% of local authorities in England) Haringey had concluded they were unacceptable.”

Haringey had presented the reduction in council tax relief as an inevitable consequence of the reduction in

central government funding, whereas in truth there were other possible ways of meeting the shortfall. For

that reason, Lord Wilson found that Haringey’s consultation had been unlawful.

Lord Reed concurred with Lord Wilson’s conclusion but for different reasons, preferring to place “less

emphasis upon the common law duty to act fairly, and more upon the statutory context and purpose of the

particular duty of consultation with which we are concerned.” In his view the essential elements of a

statutory consultation must depend on the wording, context and purpose of the relevant statutory provision.

Consequently it is not possible to prescribe a formula for the perfect public consultation and, “A mechanistic

approach to the requirements of consultation should therefore be avoided.”

Lord Reed noted that paragraph 3 of Schedule 1A to the Act obliged the council to consult such persons “as

it considers are likely to have an interest in the operation of the scheme”. In his view:

“Such a wide–ranging consultation, in respect of the exercise of a local authority’s exercise of a general

power in relation to finance, is far removed in context and scope from the situations in which the common

law has recognised a duty of procedural fairness. The purpose of public consultation in that context is in my

opinion not to ensure procedural fairness in the treatment of persons whose legally protected interests may

be adversely affected, as the common law seeks to do. The purpose of this particular statutory duty to

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consult, must, in my opinion, be to ensure public participation in the local authority’s decision-making

process.”

Lord Reed said it was difficult to see how ordinary members of the public could express intelligent views on

the proposed scheme unless they had an idea of how the loss of income suffered by the local authority might

otherwise have been absorbed. There was no need for a detailed discussion of the alternatives; however,

enough must be said about the reasons for the preferred choice to enable a consultee to make an intelligent

response.

Conclusions

Although the Moseley case does not create any new law (merely endorsing the approach previously taken by

the lower courts) nevertheless it is an important case as it provides Supreme Court authority as to the

correct approach to consultation. As such, it is essential reading for anyone who is either undertaking a

consultation exercise or responding to one.

For an example of how the courts have interpreted Moseley, see R (Robson) v Salford City Council [2015]

EWCA Civ 6, which concerned a local authority’s decision to close a service that provided transport for

disabled adults from their homes to day care centres. The court held that the authority had provided

adequate information to consultees and Moseley was therefore distinguished.

Tom Toulson | +44 (0)115 976 6259 | tom.toulson@brownejacobson.com

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Costly consequences

A recent decision concerning costs flowing from a successful urgent injunction application in respect of a

breach of a party wall award provides a useful reminder of the factors that a court will take into account

when deciding the question of costs in this type of case. It also highlights the challenges faced by those who

seek to resist a costs award against them.

By way of context, the party wall etc. Act 1996 (PWA 1996) essentially provides a framework to enable

neighbours who share a boundary to carry out certain building works close to the shared boundary. A party

wall award is simply the document which regularises how and when any works should be carried out and is

usually the outcome of negotiations between the neighbours and one or more party wall surveyors.

Chliaifchtein v Wainbridge Estates Belgravia Ltd concerned two adjoining properties in Grosvenor Crescent in

Belgravia. The claimant owns number 10 as a family home. Number 12 is owned by the defendant, a

development company currently carrying out extensive and costly redevelopment works.

The background to the dispute focused on the defendant’s works. The defendant used a mechanical digger

to dig a large hole (estimated by the judge to be about to 2 metres deep) in order to remove a large, rusted

RSJ. The hole was almost up against the party wall. The award, however, had specified that excavation

works affecting the party wall for the purposes of removing an obstruction must be carried out using a

trench box, with the excavation being carried out in layers of around 600mm. The claimant therefore

promptly sought and obtained an urgent injunctive order that the defendant stop the works that same day

on the basis that the defendant was not working in accordance with the terms of the award. The defendant

consented to the order on the basis that no further works covered by the award would be carried out and

therefore the injunction served no practical purpose. Notwithstanding their consent, however, the

defendant denied that the works had been in breach of the award, arguing that the RSJ was not an

‘obstruction’ but instead had been deliberately left there some two weeks earlier (allegedly in a bid to save

space) and, accordingly, its removal was not caught by the terms of the Award.

The parties submitted a considerable amount of written evidence about the incident, including both factual

and expert witness evidence for the hearing, with the result that significant costs were further incurred

solely for the purpose of equipping the parties to argue about the justification for the injunction and

therefore liability for the costs of that application. The defendant maintained its argument that the works

were not in breach of the party wall award and that, in any event, the claimant had acted impulsively in

seeking a ‘without notice’ injunction, which is widely acknowledged to be a measure of last resort.

In making his decision the judge did not accept the defendant’s arguments. He held that the defendant’s

works were contrary to the terms of the award and that the claimant had acted entirely reasonably in

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seeking to protect his family home in the way that he did, particularly against a background of bad feeling

between the two parties and previous examples of the defendant’s ‘cavalier’ approach to the

redevelopment works. On finding that the defendant was in breach of the party wall award, the judge held

that the claimant’s decision to apply for an injunction without notice could not be criticised. Accordingly,

the judge concluded that the claimant was entitled to his costs from the defendant.

Helen Taller | +44 (0)115 908 4892 | Helen.Taller@brownejacobson.com

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The first reported legal challenge in respect of local authority duties under the Children & Families Act 2014

(2014 Act) has been heard at the High Court in London. The case, R(ota L&P) v Warwickshire County Council

[2015] EWHC 203 (Admin) (Warwickshire), was heard at the end of January 2015 and resulted in two adverse

findings being made against Warwickshire County Council (the Local Authority), although on the main

challenge around consultation in respect of cuts to services the court found in favour of the authority.

The claimants in Warwickshire (claimants) were two disabled children who live in Warwickshire. Their main

challenge was to the local authority’s decision to reduce funding to their integrated disability service. This

challenge was ruled out of time as it was found that the decision to make savings of £1.786m from the

disabled childrens’ services budget had been made in February 2013. The claimants advanced a secondary

argument around consultation relating to this decision which was considered despite the application being

out of time. In addition, arguments were advanced in respect of the local offer consultation, which included

changes to disabled children’s social care and new criteria for accessing assessments and services. Access to

a short breaks service was to be restricted as part of the proposed changes.

Under reforms introduced under the 2014 Act on 1 September last year, local authorities are required to

have a local offer setting out in one place information on services across education, health and social care

and from birth to 25; how to access specialist support; how decisions are made including eligibility criteria

for accessing services where appropriate; and how to complain or appeal. The broad requirements as to the

local offer are set out in section 30 of the 2014 Act and the detail in the SEN & Disability Regulations 2014

and the SEND Code of Practice.

Cuts to services and the requirement to consult

The claimants argued that the local authority was under a duty to consult on the cuts it proposed to make to

the social care budget for disabled children and young people. The court, having reviewed the relevant legal

principles applicable to consultation, rejected the argument on the basis that the common law duty to

consult was restricted to situations where there had been a promise to consult or where there was an

established practice of consultation (both giving rise to unfairness) or where the lack of consultation would

result in conspicuous unfairness. This was not a case in which any of those grounds arose. It was a case of “a

budget being regularly and constitutionally set by a local authority in the present time of austerity” where

all necessary procedures and safeguards were followed. The judge then stated his opinion that the

complaints central to the case were stated in the wrong forum – these complaints were not meant for the

court but rather to be aired with councillors directly and ultimately through voting choices.

Local offer

There were a number of arguments around the local offer which were considered by the court in the

Warwickshire case. It was argued that the duty to consult on the local offer included a duty to consult on the

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cuts to the services being made. Again, the court disagreed. Whilst there was clearly a statutory obligation

under the 2014 SEN & Disability Regulations to consult, the focus of the consultation concerns the content of

the local offer and what services are expected to be provided rather than what services should be provided

and whether budgets should be cut.

Secondly, the court considered whether the local offer produced by the local authority was lawful, i.e.

whether it satisfied the considerable requirements of the legislation. It was argued by the claimants that the

local offer did not adequately deal with two-thirds of the requirements and the court agreed. The court

found that the authority’s local offer was defective in its current form and required “a good deal more

work” before it was issued in its final form.

Thirdly, the court also considered the allegation that the local authority had failed to maintain a register of

disabled children as required by Schedule 2 of the Children Act 1989. The local authority did not dispute this

element of the claim and the court found in favour of the claimants and directed the authority to promptly

rectify the defect which had existed for over 20 years. The importance of this finding cannot be overstated.

The decision at paragraph 83 states:

“Plainly unless this local authority has such a register and knows more or less precisely how many disabled

children there are in the county it cannot make a fully informed decision about budgetary allocation or as

to the terms of a proposed local offer.”

The holistic provision of support by education, health and social care bodies which is at the centre of

provision set out in the 2014 Act requires accurate information to be shared between relevant agencies.

That information provides a basis for the Joint Strategic Needs Assessment which in turn informs the content

of the local offer and provision being made within that area and specified with Education Health and Care

Plans. If that information is missing, there remains the possibility that further challenges could be brought to

the basis of the needs assessment, local offer or provision which ultimately takes resources away from the

provision meant for children & young people with SEN and disabilities. Whilst it is a minor point in this

judgment, the wider impact of this issue could have far reaching implications.

Richard Freeth | +44 (0)121 237 3961 | Richard.Freeth@brownejacobson.com

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The recent decision in the Galaxy case (R v Durham County Council and others ex p Galaxy Land Limited

[2015] EWHC 16 (Admin)) concerning the application of Section 123 Local Government Act 1972 is interesting

on a number of fronts.

Whilst it does not create any ground-breaking new law, it highlights the procedural requirements applying to

the disposal of ‘open space’ and also the dangers in making decisions based upon inadequate reporting.

On 17 April 2014, Durham County Council (council) entered into a limited liability partnership agreement

(LLP) with promoters and landowners of a wider development site, and granted an option over its part of the

site to the LLP.

The council’s land (almost 38 acres) was held by the court to include ‘open space’ within the definition of

Section 336 of the Town and Country Planning Act 1990 (“any land laid out as a public garden, or used for

public recreation, or land which is a disused burial ground”).

Whilst the council had argued that the school playing fields within its land were not ‘used for public

recreation’ because they were school playing fields, the court disagreed and ruled that they were, based

upon evidence that members of the public had used them for in excess of forty years.

This use was of the ‘bare licence’ type that the earlier Braim case (R v Doncaster MBC ex p Braim (1989) 57

P&CR 1) established could give rise to a sufficient quality of public recreation use to satisfy the Section 336

requirement.

Section 123 (2A) of the 1972 Act states that:

“A principal council may not dispose under subsection (1) above of any land consisting or forming part of an

open space unless before disposing of the land they cause notice of their intention to do so, specifying the

land in question, to be advertised in two consecutive weeks in a newspaper circulating in the area in which

the land is situated, and consider any objections to the proposed disposal which may be made to them.”

The council, based upon the reported facts, did not appear to have recognised this additional requirement or

had assumed that the land was not caught by it. So the cabinet’s decision to enter into the option was

flawed on this basis from the start.

Significantly McCulloch J said that “In any event the relevant intention to dispose of the open space was

already in existence at the time of the decision to enter into the agreements. The failure to publicise that

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intention before the agreements were entered into meant that it would not be possible for the council to

consider any objections to the proposed agreement under the section.”

So the requirements of Section 123 (2A) must be complied with before the documentation is entered into,

and this will capture option agreements as much as transactions that proceed by sale contract or straight to

transfer.

What else went wrong here?

The facts are complicated, there were a number of parties, an earlier LLP had been established (which

adjoining landowner Galaxy was party to, though the council was not), and Galaxy were not involved in the

new LLP.

Fundamentally though, despite having commissioned detailed advice by way of a report from external

property consultants (external report) which recommended the pro’s and con’s of entering into

arrangements with the LLP parties, and on the ‘con’ side clearly expressed some significant concerns, the

external report never reached the council’s cabinet, nor do cabinet members appear to have been made

aware of the concerns expressed.

The council’s assets services manager had seen the external report but nonetheless concluded that the

proposed arrangements should be entered into. The officer also decided that the arrangements did not

warrant the involvement of an independent surveyor under the council’s corporate property strategy.

Whilst the assets services manager had prepared a draft report which sought to summarise some of the

advantages and disadvantages, this also failed to reach the cabinet.

At its meeting on 16 April 2014 the cabinet approved the recommendations in a report that had been

prepared by a number of senior council officers (report) that recommended that the council should enter

into the LLP ‘on the terms negotiated’ which were ‘considered acceptable’. Crucially, no detail of the

potential disadvantages actually appears to have been reported to the cabinet.

The next day the council joined the LLP and granted an option over its land.

Cabinet may have been heavily persuaded by the expectation of “a significant capital receipt… estimated to

be in the region of £7.3m”, however no detail had been provided as to how this figure had been calculated,

nor the land it related to, and there appears to have been a total lack of independent evidence or valuation

to support any such assessment or the underlying land value.

Nonetheless, the report stated that “a conservative scenario analysis had been utilised, to ensure all risks

were accounted for”!

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In short, the court held that on the basis of the paper trail, reporting and decision-making, the cabinet had

not been provided with all of the necessary information to enable it to take into account obviously relevant

considerations, and so the exercise of the council’s power to dispose of its land was unlawful: the council

had not complied with Section 123 (2).

Lessons learned?

The reading of the judgment is likely to be painful for many within the council given the failures in this case.

The full facts make even starker reading.

For example the options had been granted for a period in excess of 30 years for an option fee of £1,

effectively sterilising any other avenues for the council to realise value during that period, and with no ‘get

out’ clause.

In addition, the professional member of the LLP, which had most of the key obligations, was a special

purpose vehicle (an SPV) with no covenant strength and no guarantor backing.

The expert evidence and external report made much of the council’s lack of control over the LLP’s decision-

making (which might have left the council obliged to transfer land at less than full value) and the lack of any

meaningful timetable for delivery of outcomes, milestones, or termination provisions… and there were no

obligations on the professional member to submit planning applications or appeals.

In essence the council was locked into a (potentially) bad deal for too long, and so had given away too much

for too little.

The lack of evidence for the anticipated financial outcomes for the council was (not surprisingly) criticised,

as was the council’s failure to follow its own policy (its disposals strategy) regarding independent valuations

of surplus land where sites were not to be marketed, and recording in writing any justifications for

proceeding by private sale.

Although the council’s disposal strategy here stated that a private sale may be justified without marketing in

some circumstances, it appears that those circumstances did not apply to these arrangements.

There also appears to have been a failure by the council’s officers to consider the council’s negotiating

position-an assumption seems to have been made that at least some of the land was effectively landlocked

and that there was a risk than no value could be realised unless the arrangements with the LLP were entered

into.

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In contrast, the claimant’s expert considered that the council’s land held strategic importance within a

wider site and that in fact the council might have ended up with a better deal by sitting out of the

arrangements until a later stage. The court seems to have favoured this view.

Practical guidance?

There are a number of lessons learned here that might be useful in establishing better practice.

First, the blindingly obvious: what is the status of the land in question - is it open space? If it is, comply with

section 123 (2A) or run the risk of challenge.

Secondly, have officers complied with all internal policies and reported all material considerations to

cabinet or other decision-making bodies?

Have all options been considered (including the ‘do nothing’ option?) and have the pros and cons been

reported?

If external reports have been obtained, it makes a good deal of sense for these to be properly evaluated and

reported on, and not to ignore any downside risks or other ‘negatives’ identified.

More fundamentally, in the context of Section 123 (2), does the deal actually represent ‘best value’? A

council needs to consider the value of the property and what it will get for it by doing the deal?

What a council can or can’t take into account in considering best value is beyond the scope of this article,

but is there any independent evidence of the current and anticipated land value, what are the financial

outputs likely to be, and how guaranteed are these?

And finally, when dealing with complicated arrangements don’t forget the basics.

How long can the arrangements bind the council, can the council withdraw on any grounds at any particular

time, what are the parties’ obligations and are these clear and sufficient… and when dealing with SPVs

where is the security for performance of the SPV obligations?

Neil Walker | +44 (0)115 908 4127 | Neil.Walker@brownejacobson.com

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The government issued its response to its consultation exercise on the draft Public Contract Regulations 2015

on 30 January, and without waiting to take much of a breath followed that the week after issuing the final

draft of the Public Contracts Regulations 2015. The implementation date of new regulations is 26 February

2015 so you’d better get your head around them fast.

You may recall that the Cabinet Office began a consultation on 19 September 2014 in relation to its

approach to transposition of the Directive 2014/24/EU. The consultation carried out by the Cabinet Office

was a reasonably short form consultation consisting of 20 questions, largely seeking affirmation of the

approach that the Cabinet Office had taken to the policy choices that member states had in relation to a

number of points in the underlying directive. The new approach to implementation of EU directives of

copying out rather than ‘gold plating’ which was the previous (perceived) approach to implementation, was

not subject to debate and accordingly the scope of consultation was a limited one.

As a general point the response to the consultation was generally in support of the approach taken by the

Cabinet Office and largely confirmed the individual choices taken by the Cabinet Office where choices were

open to member states in the underlying directive. Accordingly, the consultation confirmed and this was

born out in the actual regulations that the draft issued in September 2014 remain, with a few exceptions and

minor corrections, as drafted back then. However, a number of points are interesting to note. I pick these

out below.

Despite some discussion as to whether the e-procurement provisions should take effect immediately, the

position in the regulations was confirmed in that the new obligation to make all documents available

electronically will not be implemented until 1 April 2016. This will give contracting authorities time to

ensure that they have the requisite electronic procedures in place.

The flexibilities for sub-central contracting authorities were confirmed, in particular the ability to use a PIN

as the only call for competition, Regulation 26 (9), which is to be welcomed. However, the Cabinet Office

did confirm that they would continue to monitor its use to ensure that transparency was maintained in

public procurement.

The approach in relation to the obligation, or not to divide large contracts into lots, was subject to some

debate for those who responded to the consultation. However, the approach taken by the Cabinet Office was

confirmed in that there would be no obligation to divide any large contract into lots. However, guidance will

be issued and contracting authorities will be expected to clearly confirm why any particular contract had not

been divided into lots if they have not.

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The approach in relation to the requirements set out in Article 53 Electronic Availability was confirmed. You

will no doubt recall that Article 53 requires that contracting authorities shall by electronic means offer

unrestricted and full access to the procurement documents from the date of publication of the notice. This

is in line with government lean procurement process policy that in particular all procurement documents

should be available before the contract notice is published. They confirm that they will provide guidance in

due course. This is a particularly important point for contracting authorities in that they will no longer be

able to be drafting the next stage documents during the first stage of a two stage process for example.

There will be a need to build in flexibility to amend those documents during the course of any procurement

exercise and we will no doubt see standard drafting evolve over time.

The proposal in relation to a delay for the application of the light touch regime to contracts covered by the

Patient Choice Regulations 2013 has been confirmed. This is largely in order to ensure that health bodies

have worked through how their procurement practices will meet the requirements both under the Patient

Choice Regulations and the light touch regime.

The exemption afforded to public sector mutuals under Regulation 77 is confirmed and there is no deviation

from the drafting in the underlying directive. This is, of course, unsurprising given the importance given to

this government programme.

The approach to the implementation into these new regulations of the Remedies Directive has been

confirmed and there won’t be any substantive changes to the drafting proposed although guidance will be

issued as to how those will be applied to the new procedures and approaches particularly in relation to sub-

central contracting authorities.

The response to the consultation on the changes brought about as a result of the Lord Young reports was

particularly limited where the proposals themselves were not subject to debate only the drafting. The

summary of the consultation returns are interesting and it is difficult to understand whether consultees were

supportive as the Cabinet Office have chosen to group together supportive and neutral observations. The

Cabinet Office have confirmed that the concerns in relation to workloads as a result of the elimination of

PQQs below EU threshold level had already been considered and dismissed. It is good to see, however that

the final draft of the regulations have been reworded in order to aid clarity as to what actually was

expected.

For those of you on the cusp of procurements or who are already part way through you will be interested in

the transitional provisions contained in regulation 118. These follow the approach taken in previous

transpositions. Largely, where procurements have already started under the old regime they will continue to

be governed by it. For these purposes starting means the issue of a contract notice, the contracting

authority has issued any kind of advertisement seeking offers, the contracting authority has contacted any

27

economic operator in order to seek expressions of interest or has responded to an unsolicited expression of

interest. For the avoidance of doubt any framework agreement or dynamic purchasing system let under the

2006 regulations will remain valid and may be utilised under its terms in accordance with those regulations.

In conclusion, perhaps unsurprisingly, the Cabinet Office have not really changed its position from that which

was set out in their original draft regulations (although there are a number of points where they have

provided extra clarity). Accordingly, the work that has been done already by contracting authorities and

their advisers on understanding the underlining directive has not been wasted. The approach of copying out

the directive into UK law means that UK based deviations have not been implemented. So good luck in the

brave new world!

Peter Ware | +44 (0)115 976 6242 | Peter.Ware@brownejacobson.com