The Umpire Strikes Back?

March 9, 2011

Mr Justice Holman recently ruled that the Education Secretary's decision to halt funding of a number of Building Schools for the Future projects was unlawful. Nicholas Dobson examines how the judge reached that view.

The thing about judicial review of course is that it isn’t there to retake the challenged decision. Its function is to enable the court on the application of an aggrieved claimant to scrutinise decisions made by one or more public authorities to ensure that those decisions have been lawfully made, without excess or abuse of power. For the courts are in no position to take the substantive decision, since they lack the requisite experience and expertise. But they do tend to know a thing or two about the law.

So success for a claimant at judicial review often comes with a sell-by date. For if a decision is struck down for identified process flaws, all the public authority often has to do is to re-take the decision, observing the rules of the legal road next time.

And so it presumably is in relation to the challenge launched by Luton Borough Council and four other authorities against the Secretary of State for Education, Michael Gove, for pulling the plug in July 2010 on the BSF (Building Schools for the Future) scheme which affected the claimants’ envisaged school building programmes. Judgment was given by Holman J on 11 February 2011 (R (Luton Borough Council and others) v. Secretary of State for Education [2011] EWHC 217).

Building Schools for the Future

BSF was launched by the Labour administration in 2004 with the aim of rebuilding or refurbishing every secondary school in England over a 15-20 year period in a series of ‘waves’, the most pressing or needy projects being allocated to the earlier waves. The programme was delivered on behalf of the Department for Education (DfE) through an executive agency called Partnerships for Schools (PfS). The BSF process was described by Michael Gove in the House of Commons as being “too complex, bureaucratic, inefficient and wasteful of money”. Indeed it has also been irreverently described as “Bureaucratic State Funding”. In truth it is rather Byzantine (and may indeed be the connoisseur’s choice for labyrinthine bureaucratic process).

In simplified terms it has the features described below. However, those allergic to acronyms should look away now.

Local authorities could apply to participate in BSF and the overall funding earmarked for a particular local authority (their ‘funding envelope’) was allocated in line with a Funding Allocation Model (FAM)
An authority would then develop, firstly a Strategic Business Case (SBC) and following its approval, their Outline Business Case (OBC)
PfS and others (including HM Treasury) then considered the OBC and whether to grant ‘OBC approval’
If OBC approval was given then a Local Education Partnership (LEP) was formed between the local authority in question, PfS and a Private Sector Partner (PSP), identified after an EU compliant tendering process. The PSP would actually deliver the projects and build or refurbish the schools in question
The LEP would last the duration of the entire 10-15 year BSF programme. A Strategic Partnering Agreement (SPA) between the local authority and the LEP would give exclusivity to the LEP for the remainder of the programme
Once OBC approval had been given the local authority and the LEP would scope and cost the project in detail and prepare a document called a Final Business Case (FBC)
If this were approved, PfS in conjunction with HM Treasury would give FBC approval and issue a Promissory Note to fund the respective project.

Claims

On 5 July 2010 Mr. Gove sent a letter to all local authorities participating in BSF indicating that where financial close had been reached on a particular LEP then the agreed set of projects under that LEP should proceed. The term ‘financial close’ was clarified on 12 July 2010 in a DfE document explaining the impact of the 5 July 2010 announcement. As Holman J pointed out, the Secretary of State had been using the term ‘financial close’ “in two very different senses and contexts”. These were: (i) the signing of the contract creating the LEP; and (ii) financial close on individual schools during the whole lifetime of the LEP.

The Secretary of State cancelled or stopped those projects in relation to which OBC approval was given after 1 January 2010 but which had not reached the stage of FBC approval by 5 July 2010. Each of the five Claimants (Luton, Nottingham, Waltham Forest, Newham, Kent and Sandwell) had received OBC but not FBC approval in relation to various projects between 1 January 2010 and 5 July 2010 and the claims were in relation to these projects.

Heads of Challenge

Rationality

Holman J was ‘absolutely clear’ that the decision of the Secretary of State was “not open to legal challenge on a discrete ground of irrationality. . .” bearing in mind comments of Kenneth Parker J in R (Cordant Group PLC) v. Secretary of State for Business, Innovation and Skills [2010] EWHC 3442. These included that: “It is trite law that this court must be cautious in interfering with such an exercise of discretionary power, unless there are solid legal reasons for doing so, and must not allow itself to become an umpire of a social and economic controversy that has been settled by due political process.”

The emphasis in the above extract was added by Holman J in the instant proceedings. He pointed out that the “present case concerns a very major decision with a patently political and heavy macro economic content, made at the highest level in the immediate aftermath of a general election and change of government, and patently intended to help achieve economic demands from the Treasury”.

The judge pointed out that the Secretary of State intended to and did draw a clear demarcation between situations where there were contractual obligations and those where there were not. And whilst the reasons of the Secretary of State and the government may not withstand political scrutiny and challenge, he was satisfied that there was no inherent irrationality about them. In his view to conduct further examination of their rationality would “be a grave and exorbitant usurpation by the court of the minister’s political role”.

Unlawful fettering of discretion

It was accepted within the proceedings that the ultimate source of the power of the Secretary of State in deciding to what extent to give or withhold further funding was section 14 of the Education Act 2002 Section 14(1) provides (so far as material): “The Secretary of State....may give, or make arrangements for the giving of, financial assistance to any person for or in connection with any of the purposes mentioned in subsection (2)”.

As the court noted, the purposes in section 14(2) are very wide and include “the provision of education or educational services”. By section 15, ‘financial assistance’ includes ‘grants’.

As David Bell, Permanent Secretary at DfE pointed out, the Secretary of State had been clear that his decision-making approach on BSF had to be based on general principles and not on the specific arrangements of every affected BSF project. The claimants argued that the Secretary of State was exercising the broadest and most open of statutory discretions and should not have fettered that discretion by adopting or applying such a rigid and ‘rule-based’ approach as he did.

Holman J noted the observations of Sedley J (as he then was) in R v. Hampshire CC ex parte W [1994] ELR 460 that: “….public law is also jealous to guard the discretion which a permissive power carries with it, and discretion is negated if any inflexible rule is adopted for the exercise of the power…. What is required by the law is that, without falling into arbitrariness, decision makers must remember that a policy is a means of securing a consistent approach to individual cases, each of which is likely to differ from others. Each case must be considered, therefore, in the light of the policy but not so that the policy automatically determines the outcome.”

In the circumstances, Holman J noted that “the rules were indeed applied, and continued to be applied, in a hard-edged way, with no residual individual discretion”. However, he appeared to make no discrete finding on this issue.

Substantive legitimate expectation

As public law enthusiasts will appreciate, there are essentially two types of legitimate expectation: substantive and procedural. The substantive variant is normally based on a clear and unqualified representation to the claimant. The procedural points to relevant procedural unfairness.

Holman J noted whilst there was no universal test there must be a commitment characterisable as a ‘promise’ such that to renege on that ‘promise’ would be so unfair as to amount to an abuse of power. There must in any event be a promise which is “clear, unambiguous and devoid of relevant qualification” (per Bingham LJ in R v Inland Revenue Commissioners, Ex p MFK Underwriting Agents Ltd [1990] 1 WLR 1545). And if there is a legitimate expectation, fairness requires (per R (Bibi) v Newham London Borough Council [2002] 1 WLR 237) that “...if the Authority decides not to give effect to that expectation, the Authority articulate its reasons so that their propriety may be tested by the court….”.

However, also relevant in the present context were the observations of Laws LJ in R v Secretary of State for Education and Employment ex parte Begbie [2000] 1 WLR 1115: “The more the decision challenged lies in what may inelegantly be called the macro-political field, the less intrusive will be the court's supervision. More than this: in that field, true abuse of power is less likely to be found, since within it changes of policy, fuelled by broad conceptions of the public interest, may more readily be accepted as taking precedence over the interests of groups which enjoyed expectations generated by an earlier policy.”

Holman J pointed out that “the law recognises that public bodies, and especially central government, must enjoy a wide discretion to change policies from time to time to reflect their conception of the public interest.” Since (per Lord Diplock in Hughes v. Department of Health and Social Security [1985] AC 776) “The liberty to make such changes is something that is inherent in our form of constitutional government”, as Holman J observed, this “must be especially so in the case of a different political party taking power after a general election and in the immediate aftermath of that election”. In the circumstances, the Court accepted the submission by James Goudie QC on behalf of the Secretary of State that no authority with anything less than FBC approval and a promissory note could have had any legitimate expectation that any project would still go ahead after that general election. Holman J therefore found no relevant promise or expectation that could have been the subject of a substantive breach.

Procedural legitimate expectation and the duty to consult

The doctrine of fairness – deriving ultimately (in terms of common law) from that of natural justice nowadays reinforced by Article 6 of the European Convention on Human Rights – is one of the invisible constraints affecting the decisions of public bodies. And it was here that the decision of the Secretary of State hit a sandbank.

Laws LJ noted in R (Niazi and others) v Secretary of State [2008] EWCA Civ 755 that both types of legitimate expectation (substantive and procedural) are concerned with exceptional situations. Consequently, the law will not often require a public authority “to involve a section of the public in its decision-making process by notice or consultation if there has been no promise or practice to that effect”.

Nevertheless, as Laws LJ went on to say: “The court will (subject to the overriding public interest) insist on such a requirement, and enforce such an obligation, where the decision maker’s proposed action would be so unfair as to amount to an abuse of power, by reason of the way it has earlier conducted itself …” What is fair or unfair is of course notoriously sensitive to factual nuance … “the categories of unfairness are not closed, and precedent should act as a guide not a cage”.

Consequently, per Laws LJ, for “….procedural expectation to run, the impact of the authority's past conduct on potentially affected persons must, again, be pressing and focussed” (emphasis added). Laws LJ continued: “One would expect at least to find an individual or group who in reason have substantial grounds to expect that the substance of the relevant policy will continue to enure for their particular benefit: not necessarily for ever, but at least for a reasonable period, to provide a cushion against the change. In such a case the change cannot lawfully be made, certainly not made abruptly, unless the authority notify and consult.”

So were these criteria met in relation to the BSF authorities? In short, yes. For in the view of Holman J the impact of the past conduct of the DfE on the claimants in question was indeed “pressing and focussed” and change could not lawfully be made abruptly without some prior consultation. Holman J could see: “no pressing reason why he could not have given to the seven local authorities who already held post January OBC approval a short opportunity (perhaps only of three weeks or so) to press their case for any one or more of their projects to be saved.”

And in the court’s view, the way in which the Secretary of State had abruptly stopped the projects in relation to which OBC approval had already been given (without any prior consultation with the claimants) “must be characterised as being so unfair as to amount to an abuse of power”. For: “However pressing the economic problems, there was no ‘overriding public interest’ which precluded any consultation or justifies the lack of any consultation; and insofar as it affects the five claimants the decision making process was unlawful.”

In the circumstances, by the absence of any consultation the claimants were found to have been “deprived of an opportunity to remind the Secretary of State of what they claim are unique or highly unusual facts and to press that case”. Holman J was therefore satisfied that in relation to them, the process had been unlawful.

Equality duties

The reach and pervasiveness of these duties (space does not permitted them to be replicated here) are well understood. However, in the present context, Holman J cited the Brown Principles (taken from the decision in R (Brown) v Secretary of State for Work and Pensions and another [2008] EWHC 3158 (Admin):

The decision maker who has to take decisions that do or might affect disabled people (or persons of different race or sex) must be made aware of his duty to have “due regard” to the identified goals.
The due regard must be fulfilled before and at the time that a particular decision is being considered. Attempts to justify a decision as being consistent with the exercise of the duty when it was not, in fact, considered before the decision, are not enough to discharge the duty.
The duty must be exercised in substance, with rigour and with an open mind. The duty has to be integrated within the discharge of the public functions. It is not a question of “ticking boxes”. However the fact that the duty has not been specifically mentioned (although it is good practice to do so) is not determinative of whether it has been performed.
The duty is non delegable.
The duty is a continuing one.
It is good practice to keep an adequate record showing that the equality duties had been actually considered and pondered. That disciplines decision makers to undertake their equality duties conscientiously.

In the present case Holman J was “simply not satisfied that any regard was had to the relevant duties at all, let alone rigorous regard.” And this was related to the absence of consultation. For whilst different claimants had emphasised relevant equalities issues in their respective areas, “if only the Secretary of State had consulted with them they would have been able (if they wished) to highlight those special equality considerations to him”. In the circumstances, the court was “satisfied that the Secretary of State’s decision making process was also unlawful because of his failure to discharge the relevant statutory equality duties”.

Outcome

In the round, Holman J found that “unlawfully and without justification” the Secretary of State had failed to consult any of the claimants as to the effect on their individual projects of his possible decision options. And partly as a result, but also as a discrete issue, he had unlawfully failed to give due regard to the equality impacts of his proposed decision.

So what should the Secretary of State do now? Holman J said that he must, after giving each of the claimants a reasonable opportunity to make representations, reconsider his decision insofar as it affects the claimants and each of the projects in relation to which they have claimed. He must do this “with an open mind, paying due regard to any representations they may make, and rigorously discharging his equality duties”.

The end of the line for the Secretary of State’s decision?

This is unlikely. For all the judgment requires is for the Secretary of State to reconsider the decision having proper regard to relevant public law considerations. And on 2 March 2011 he announced that he would do so in a written ministerial statement.

As mentioned, it is no function of the court to stand in the shoes of the substantive decision-maker, except concerning material legal aspects of the decision in question. As Holman J concluded, no-one should gain false hope from this decision, for providing the Secretary of State reconsiders the position of each of the claimants with an open mind, having due regard to any representations made and in proper discharge of his equality duties, “the final decision on any given school or project still rests with him”.

For as noted above, the court “must not allow itself to become an umpire of a social and economic controversy that has been settled by due political process”. So whilst on this occasion, the umpire may have struck back at the decision, the grounds for doing so were strictly limited to defect of legal process.

Dr. Nicholas Dobson is a Senior Consultant with Pannone LLP specialising in local and public law. He is also Communications Officer for the Association of Council Secretaries and Solicitors.