‘As easy as 123’ – Section 123 of the Local Government Act 1972 considered in R (Cilldara) v West Northamptonshire Council [2023] EWHC 1675 (Admin)

Colin Ricciardello and Jonathan Blunden analyse the increasing number of challenges to councils' use of s123 of the Local Government Act 1972 (the “1972 Act”).

Under section 123 of the 1972 Act, local authorities enjoy the power to dispose of land in their possession. Judicial review challenges of decisions to dispose of land using this power are nothing new. However, what is noteworthy is the growing frequency and intensity of these challenges. R (Cilldara) v West Northamptonshire Council [2023] EWHC 1675 (Admin) is the latest example of this trend, and we consider the case in this article. More generally, what proceedings like this reveal is the growing trend in public law for claimants to challenge what are in essence commercial transactions. We consider this development too in further detail below.

Section 123 of the 1972 Act

Section 123 of the 1972 Act is concerned with “Disposal of land by principal councils”[1]. Sub-section (1) of that provision provides that “… a principal council may dispose of land held by them in any manner they wish”.  Sub-section (2) qualifies this general power as follows:

“Except with the consent of the Secretary of State, a council shall not dispose of land under this section, otherwise than by way of a short tenancy, for consideration less than the best that can be reasonably obtained”.

(our emphasis)

The law on section 123 is conveniently summarised in [130-134] of R (Faraday Development Ltd) v West Berkshire Council [2016] 168 Con. LR 131. Essentially, the question whether any particular consideration (in connection with the disposal of land) amounts to the “best that can be reasonably obtained” is one for the local authority, subject to review on irrationality principles only.  Irrationality is a “notoriously high” threshold for claimants: see R v Commissioners of Inland Revenue exp Unilever PLC [1996] STC 681. Usefully, a further review of the law on section 123 is in the West Northamptonshire judgment at [61 to 70 and 117 to 128].

The Facts and Background

• West Northamptonshire Council (the “Council”) owned freehold land (the “site”) adjacent to the Sixfields Stadium, Northampton, being the home of Northampton Town Football Club’s ground.
• Two potential purchasers were interested in the site, which was a former landfill.
• Each potential buyer made multiple offers for the site, including at very late stages.
• The site was subject to a complex series of leaseholds.
• Due to its former landfill usage, the site required remediation.
• The Council did not accept the highest offer: it regarded it as the least reliable and by no means a “bird in the hand” and had concerns about it how genuine it was. It was that rejection which fueled Cilldara Holdings Limited, as the spurned offeror, to challenge the decision to accept a lower offer.

The Issues

By the time of the substantive hearing, the issues in the proceedings were as follows.

• Whether Cilldara should be permitted to adduce expert valuation evidence. (If it was, then it was common ground that the Council should also be allowed to adduce comparable expert evidence).
• Was the Council’s consideration of the two offers for disposal infected by procedural impropriety and/or lack of procedural fairness?
• Did the Council breach any (Tameside) duty of inquiry?
• Was the Council’s decision to sell to a bidder other than the Claimant pre-determined and/or did the Council have a sufficiently open mind?
• In accepting the lower of the two offers, did the Council fail to obtain best consideration and, in so doing, breach section 123(2) of the 1972 Act?
• Whether the Council’s decision was irrational/whether there was a failure to take account of relevant considerations and/or whether account was taken of irrelevant considerations?
• Was there a failure to give adequate reasons?

The Judgment

• There was no dispute regarding the meaning of the term “consideration” – it was the price payable for the land or other elements that have a commercial or monetary value which are capable of being assessed by a professional valuation of land:
• It was uncontroversial that elements of social value in any offer do not count as consideration.
• It was well established that the best consideration duty is subject to the “bird in the hand” doctrine.
• It may on occasion be open to the local authority to regard a lower offer with a substantially high prospect of proceeding to completion as more commercially valuable than an offer for a higher sum which has a substantially lower prospect of going to completion.
• What constitutes consideration that is “the best that can reasonably be obtained” is:
• for the local authority to determine; and
• that determination is subject only to challenge on public law grounds.
• The Court is not entitled to substitute its own opinion on the facts and merits of the authority’s decision.
• However, the outcome required by section 123(2) can be achieved only through an appropriate competitive process[2] or some robust proxy.
• The robust process requirement does not mean that there is a statutory duty of procedural fairness towards, or as between, rival bidders[3].

All grounds of the challenge were dismissed. The Court held the following:

• The Claimant’s application for permission to adduce an expert valuer’s report was refused: paragraphs 76-86 inclusive. It was held that such evidence was not reasonably required to resolve the proceedings – the function of that resolution was not to assess the merits of the decision, but instead to determine whether the decision was the lawful exercise of a public function.  As such, it was seldom necessary to go beyond what was before the decision-maker at the time it made its decision.  None of the circumstances rehearsed in the Administrative Court Judicial Review Guide 2022 for admitting expert evidence[4]
• The Council had met the requirements of the common law duty of fairness, a duty which is acutely sensitive to context, and given the statutory purpose of protecting public assets in the interest of the public, the “… demands of procedural fairness towards bidders are at the lighter end of the spectrum”. On the facts it was held that the process did give fair and adequate consideration to the Claimant’s successive offers: paragraphs 87-100 inclusive, especially paragraphs 93 and 94.
• In the circumstances (including that the Council had commissioned two expert valuation reports including a ‘Red Book’ valuation) the Council had complied with its Tameside duty of inquiry. As such, it was rational for it to conclude that: (a) more inquiries were unnecessary; and (b) there was a danger that indecisiveness may have led to the loss of a bargain: paragraphs 101-107 inclusive.
• The Claimant’s allegation that the Council’s decision to sell to the successful bidder was pre-determined and/or the Council did not have a sufficiently open mind was nowhere near to being made out on the evidence: paragraphs 108-115.
• The Claimant’s contention that the decision to sell to the successful low offering bidder was irrational as it failed to take into account relevant considerations, and instead took into account irrelevant considerations was dismissed. The Judge decided that the Council’s weighing up of risks was rational and rejected the contention that the Council took into account inadmissible factors. The Council therefore complied with its Wednesbury duty: see paragraphs 129-137 inclusive.
• The Claimant’s argument that the Council breached its duty to give adequate reasons was dismissed. It was common ground that such a duty existed, however the Court decided that, on balance, the combination of the matters mentioned in paragraph 144 of the judgment amounted to the giving of adequate reasons: see paragraphs 138-144 inclusive.

West Northamptonshire: The nub of the claim

Coincidentally at paragraph 123 of the judgment, Steyn J. decided that:

• The Council had properly directed itself as to its best consideration duty under section 123(2).
• The Council had determined that the successful bidder’s fourth offer constituted the best consideration that could reasonably be obtained, and the question was whether that view was rational.
• The converse of this determination was that the Council had rational commercial concerns about the Claimant’s offer which diminished its value: paragraph 125.
• The crux of the Council’s assessment was that the Claimant’s offer would not prove reliable on the facts, as set out in paragraph 126 of the judgment and so:

“… it was reasonably open to the Council, on the evidence, to form the view it did that Cilldara’s offer was not a credible or reliable bid”.

Commentary

Interestingly, the Court accepted that as part of what could be taken into account when making decisions the Council was entitled to have regard to the subjective degree of confidence it held in the competing offers. Here, it held greater confidence in the successful bidder’s fourth offer being more reliable and credible and more likely to proceed to completion than Cilldara’s final offer – albeit that accepted offer was too tinged with some uncertainty, and it far exceeded the Council’s Red Book valuation. This approach appears to endorse a comparative analysis as to which bird is most firmly in hand when assessing what consideration is the best one reasonably available.

The judgment is also a helpful guide and reminder on the relevance of expert evidence in section 123 claims, and in judicial review generally.

Of broader interest is perhaps that even though section 123 claims focus on breach of a defined statutory duty to achieve a particular outcome, in West Northamptonshire the same section 123 decision also attracted five separate public law challenges. Similarly, we have recently seen this wider application of some more serious public law claims in judicial review challenges in the context of procurement of public contracts – see Dukes Bailiffs Ltd v Breckland Council [2023] EWHC 1569 (TCC) and R(GLP) v SSHSC [2022] EWHC 46 (TCC).  It seems that in practice, if a contract is of great public importance or of high value, the more likely it is that the claim will be held to be amendable to judicial review – for example the sale of Bulb energy, R (British Gas & Ors) v SOS for Energy Security & Net Zero [2023]EWHC 737 (Admin) and sale of green investment bank R (SDP Capital) v SSBEIS [2023] EWHC 771; the national lottery franchise and Good Law Project-related litigation.

Having said that, even though the breach of duty test in procurement law of manifest error is equivalent to irrationality in public law terms, a straightforward (not extreme) scoring challenge is likely to be classified as a commercial decision with no public law element, and so it would not be amenable to judicial review.

We have also seen the court’s willingness to hold that the exercise of discretion under a private law contract can be subject to the public law duty of reasonableness – Braganza v BP Shipping Ltd. [2015] 1WLR https://www.sharpepritchard.co.uk/latest-news/when-can-the-court-intervene-in-the-exercise-of-contractual-discretion/.

Colin Ricciardiello is a Partner and Jonathan Blunden is a Legal Director at Sharpe Pritchard LLP.

[1] “Principal Councils” is defined by s270 of the 1972 Act and means non-metropolitan county and district councils or a London Borough.

[2] S123 itself does not impose any procedural obligation and is a duty to achieve a particular outcome – R (Salford Estates) v Salford City Council [2011] EWHC 2145 – paragraph 95:

“Section 123 imposes a duty to achieve a particular outcome, namely the best price reasonably obtainable; it is not a duty to conduct a particular process, for example to have regard to particular factors”.

That it is a duty to achieve a particular outcome, rather than follow any particular process, was underlined in Whitstable Society v Canterbury City Council [2017] EWHC 254 (Admin) and R (Midlands Co-Op) v. Birmingham City Council [2012] LGR 393.

[3] With regard to fairness and equality of treatment questions, it is not to be forgotten that a disposal of land by a contracting authority is not covered by the Public Contracts Regulations 2015 and is expressly excluded by The Concession Contracts Regulations 2016 – see Ocean Outdoor v LB of Hammersmith [2019] EWCA Civ 1642.  As such the necessity in the acquisition of public contracts for there to be a process compliant with a statutory regime does not feature in S123 dispositions .

[4] See paragraph 23.2.4 of the Guide being explaining technical matters to the court, showing the decision was made by a serious technical error or the expert evidence could assist in showing the importance of undisclosed information. The approach to expert evidence in this case was similar to the starting point approach as to admitting expert evidence in procurement challenges where a supervisory function is also carried out not deciding as between the relative merits – see BY Development Limited v Covent Garden Market Authority [2012] EWHC 2546 (TCC).