The Queen (On the application of Nestwood Homes Developments Limited) v South Holland District Council [2014] EWHC 863 (Admin)

This claim was for judicial review of the decision of the defendant, South Holland District Council (“the Council”) regarding how it should respond to remedial action recommendations by the Local Government Ombudsman (“the LGO”) in relation to findings of maladministration by the Council in the treatment of Nestwood Homes Developments Limited (“Nestwood”) made by the LGO.  The LGO recommended that the Council pay substantial compensation to Nestwood.  The Council did not accept that recommendation and challenged that decision.

Nestwood, a housing developer, purchased land in the Council’s area which had the benefit of planning permission for residential development.  A Council officer confirmed that conditions attached to the planning permission had been satisfied, on the basis of plans which clearly showed raised site levels for the development.  In reliance on this confirmation, Nestwood commenced building works.  Shortly after, neighbours complained about the raised site levels.  In response to those complaints, the Council informed Nestwood that it did not have planning permission for the raised site levels.  Nestwood contested this.

The Council obtained advice from counsel who confirmed that permission for the raised site levels had been granted and was valid unless set aside by the court.  The report produced, detailing this advice, for the Council’s Planning Committee was unclear, and failed to explain that permission had been granted for the raised site levels.  Consequently, due to the delay and difficulties with the planning permission, prospective purchasers of the land pulled out of the purchase.  Nestwood was advised to submit a fresh application for planning permission for the raised site levels, which it did under protest because of the severe commercial pressure it found itself under.  The letter from the Council to Nestwood did not reflect the legal advice it had been given and suggested that the existing permission was “void and voidable”.

The Planning Committee refused planning permission (contrary to the recommendation of the Council’s planning officer) and decided to take enforcement action, requiring four houses, garage buildings and boundary walls to be demolished and for the site levels to be restored to their original level.  Nestwood was vilified in the local press and was unable to realise its investment in the site or to invest elsewhere.  Nestwood appealed against the enforcement notices and the planning inspector appointed by the Secretary of State found that the Council had granted permission and allowed the appeal.  However, by this stage the market for residential property had dropped and Nestwood suffered significant losses upon selling the properties on the site.  The Council paid compensation to the neighbours in respect of loss of amenity due to the raised site levels.

Nestwood made a formal complaint to the Council and the LGO regarding the Council’s behaviour.  The LGO opened an investigation and made findings of serious maladministration.  It recommended that the Council issue an apology and pay compensation of £208,053 in respect of financial loss suffered, plus £25,000 for loss of opportunity, and a further compensation payment of £25,000 to the Director of Nestwood in respect of “the extreme stress and severe and prolonged strain on family and business relationships that occurred as a result of the maladministration” and damage to reputation.

The Council informed Nestwood that it did not accept the LGO’s recommendations as to remedy and so would not pay any compensation.  Nestwood commenced judicial review proceedings to challenge this decision.  The Council subsequently re-considered the LGO Report on three occasions.  On the fourth consideration by the Council, it was reiterated that the Council accepted the seriousness of the issue raised by the losses suffered by Nestwood and by the findings made against the council.  Councillor Pryszlak (the Council’s Portfolio Holder for Finance) invited the meeting to consider a global sum of £50,000, based on the affordability to the Council; this was to be apportioned pro rate between Nestwood and Nestwood’s Director; and interest was to be added, on the basis that the costs and expenses referred to in the LGO report were not broken down in the Report by reference to points of expenditure.  Councillor Pryszlak’s proposal was adopted by the Council.

It was this decision which was the subject of challenge in the proceedings.  Nestwood challenged the decision on a number of grounds:

i)                    The Council failed to provide adequate reasons for its decision, particularly in view of the availability of a general reserve maintained in the Council’s accounts;

ii)                   The Council gave excessive weight to the issue of affordability of a payment in line with the LGO’s recommendations and its impact on the Council’s finances and failed to take relevant considerations properly into account;

iii)                 The Council took the decision in an unfair way, in that it did not afford Nestwood an opportunity to make oral or written representations in relation to the decision it had to take on how to respond to the LGO’s recommendation on remedy;

iv)                 The Council acted in a way which gave the appearance of predetermination and unfairness in the sense of having a mind closed to the merits of the decision in question;

v)                  The decision was irrational and perverse.

The parties agreed that where the LGO issues a report which makes findings of maladministration, injustice and loss, those findings are binding on the authority unless successfully challenged by way of a judicial review claim.  The authority is not obliged to accept and act on the recommendations as to remedy made by the LGO.  The authority’s decision how to respond is governed by usual, general public law requirements.  There is no statutory duty to give reasons for rejecting an LGO’s recommendation as to remedy.  Where a local authority does provide reasons for rejecting it, the court is entitled to examine carefully whether the local authority had taken into account relevant considerations and had weighed those relevant considerations in a way that a reasonable council should have done (R (Gallagher) v Basildon DC [2010] EWHC 2824 (Admin)).

The court found that the Council had given sufficient reasons for its decision to inform a person such as Nestwood, with the knowledge of the chief executive’s report, and the circumstances of the case, why the Council had come to the decision that it did. It was very difficult to say very much by way of reasoning for departing from the LGO’s recommendation other than stating that the findings of maladministration, injustice and loss were accepted, but that, save to the extent of £50,000 plus interest, they were assessed to be outweighed by the Council’s need to deal with other financial pressures. The minutes, read against the background of the chief executive’s report, gave intelligible and adequate reasons to enable a reader to understand why the matter was decided as it was, and what conclusions were reached on the critical issue for decision (South Buckinghamshire DC v Porter (No.2) [2004] UKHL 33).  The minutes also explained how the sum of compensation would be divided and that interest would be paid.  The court therefore rejected the first ground of complaint.

The court did not accept that the Council had given excessive weight to the question of affordability.  The impact on the Council of making a compensation payment and the services the Council could provide were lawful relevant considerations to take into account; the Council had been entitled to give financial constraints significant weight. Moreover, the Council was not required to expressly consider making a payment higher than £50,000 plus interest; it was implicit in the decision that the Council should make the highest payment it felt able to. Although the payment made was close to the lowest acceptable limit in the circumstances, the Council had not acted irrationally or unlawfully in weighing the competing factors.  Accordingly, this ground of challenge also failed.

The court found that the facts did not support the contention that Nestwood was precluded from making any representations in relation to the decision.  Since the Council was bound by the LGO’s findings of maladministration, injustice and loss, set out in the LGO report, the Council was not bound as a matter of fairness to afford Nestwood an opportunity to comment further on those issues (R. v Secretary of State for the Home Department Ex p. Doody [1994] 1 A.C. 531).  However, the Council did have a discretion to exercise regarding how to respond to the recommendations made by the LGO as to remedy.  The court found that fairness did require the Council to allow Nestwood to see the materials to be put before the Council and an opportunity to comment on that material and make representations in writing.  The court found that the Council was not obliged to give Nestwood an opportunity to make oral representations at the Council meeting.  This ground of challenge was dismissed.

The court held that councillors were generally expected to be able to abide by the obligations to which they are subject, keeping an open mind “in the sense that they must have regard to all material considerations and be prepared to change their views if persuaded they should” (R (Island Farm Development Ltd) v Bridgend County BC [2007] LGR 60). To establish a case of an illegitimate appearance of pre-determination in decision-making, positive evidence was required as would suggest to the fair-minded and informed observer the real possibility that the councillor in question had abandoned his obligations (R. (on the application of Lewis) v Redcar and Cleveland BC [2008] EWCA Civ 746).

Council members were lawfully entitled to have regard to the affordability of the compensation recommended by the LGO.  Some predisposition to conserve resources of the Council in order to provide services in its area was to be expected and did not indicate that Council members approached the question they had to decide with a closed mind.

In addition, the court found that the Council did not act unlawfully or irrationally in making the decision that it did and therefore the perversity challenge could not be sustained.

Accordingly, the challenge was dismissed.

 

Comment

It is interesting to consider what the effect of a trend towards non-compliance with ombudsmen’s recommendations would be, on the grounds of affordability, if it took hold. It could mean that the ombudsman route would cease to offer a reliable alternative route to compensation, and make dissatisfied members of the public turn back to the courts for public and private law remedies, which are obliged to apply legal principles with regards to damages judgments, not questions of affordability.

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