Court backs decision to pay only 20% of £250k recommended by LGO

A district council has fended off a judicial review challenge to its decision to pay a complainant only 20% of a £250,000 sum recommended by the Local Government Ombudsman.

The LGO had told South Holland District Council to pay the sum to Nestwood Homes Developments and its director, a Mr Shephard, after finding nine separate heads of maladministration.

In a public interest report issued in October 2011, the Ombudsman concluded that the council took enforcement action against the developer contrary to legal advice and national planning policy guidance.

In January 2006 a council officer had confirmed that conditions attached to planning permission for a site had been satisfied, on the basis of plans that clearly showed raised site levels for the development. Nestwood started building works, relying on this confirmation.

Neighbours objected and the council told Nestwood that it did not have planning permission for the raised site levels.

The company contested this, so South Holland sought counsel’s opinion. This advice was clear that the local authority had granted planning permission for the raised levels and that permission would remain valid unless quashed following judicial review in the High Court.

However, a report to the planning committee was unclear and failed to explain that permission had been granted for the raised site levels.

Nestwood was persuaded by officers to submit a fresh application for planning permission for the raised site levels, which it did under protest. A letter from the council to the company meanwhile did not reflect the counsel’s legal advice and misleadingly suggested that the planning permission was “void and voidable”.

The planning committee refused permission, contrary to the recommendation of its planning officer. The LGO’s report found that the officer’s report was flawed and misrepresented the counsel’s advice on site levels.

In March 2007 the council took enforcement action requiring four properties, three garages and much of the boundary wall to be demolished. Nestwood was said to have been “vilified” in the local press and was unable to realise its investment in the site. It was forced to take out high interest loans.

A planning inspector found in March 2008 that South Holland had granted permission for the raised levels and ordered the council to pay the developer’s costs of the appeal on the grounds that it had acted unreasonably. Nestwood made significant losses as the market for residential property dropped.

In August 2008, South Holland paid £92,625 to neighbours in respect of loss of amenity due to the raised levels.

Nestwood claimed that the council’s actions had caused significant loss to the business, distress to individuals concerned and damage to its reputation. The company estimated its losses to amount to £1.2m.

The LGO found maladministration and recommended that South Holland pay the developer £214,053 plus interest for its costs and charges and a further £25,000 in respect of loss of opportunity to achieve higher sales proceeds. The Ombudsman also recommended that the council pay Mr Shephard £25,000.

At a meeting on 19 December 2011 South Holland considered the LGO report for the first time and members were highly critical of it. The council refused to accept the findings and recommendations. It decided to write to Nestwood to express regret but resolved not to pay any compensation.

Nestwood threatened judicial review proceedings. South Holland agreed to reconvene a meeting of the council to consider the Ombudsman’s report afresh. It allowed the developer to comment on a report drawn up by the chief executive.

The local authority considered the report a second time and a proposal was carried that it should not accept the Ombudsman’s recommendations as to remedy.

The developer commenced judicial review proceedings to challenge both the first and second considerations of the report by the council.

South Holland then took advice from a QC and reconvened a third meeting to re-determine afresh its response to the recommendations. A second report from the chief executive, which was not provided in draft to Nestwood, said the council was obliged to accept the LGO’s findings of maladministration, injustice and loss.

The report included legal advice and a note of the financial position of the council, focusing on its general fund as its housing revenue account and collection fund were ring-fenced.

A representative of Nestwood attended the council’s third meeting but the authority had already declined its request to be able to make representations.

The QC advising South Holland said that it was for the council to determine how to respond to the Ombudsman’s recommendations as to remedy.

Council members considered that making an apology and paying £50,000 would strike an appropriate balance between the seriousness of the injustice suffered and the affordability for the council.

The Ombudsman issued a second public interest report in March 2013 saying that she was not satisfied with the proposed action, adding that – amongst other things – there had been no satisfactory explanation from the council as to how the figure had been arrived at.

In May 2013 the council met to consider the LGO’s further report and accepted a proposal to pay £50,000, apportioned pro rata between Nestwood and Mr Shephard, plus interest.

The councillor behind the proposal said the sum was fair and proportionate because the council would need to make significant efficiencies in order to balance its budgets in the coming years. Consideration had been given to the reserves held by the council and how they had been earmarked to meet future spending requirements.

Nestwood launched proceedings in the High Court over this decision. The challenge was based on five grounds:

1. 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.
2. The council gave excessive weight to the issue of the 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.
3. 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 how to respond to the LGO's recommendation on remedy.
4. 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.
5. The decision was irrational and perverse.

In Nestwood Homes Developments Ltd, R (On the Application Of) v South Holland District Council [2014] EWHC 863 Mr Justice Sales rejected the challenge.

The judge said:

• Where the LGO issues a report which makes findings of maladministration, injustice and loss suffered as a result, 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 of good faith, rationality, fairness and so on. The rationality of a proposed response has to be assessed taking account of the binding findings of maladministration, injustice and loss which have been made.
• The statutory scheme providing for public notice to be given if the LGO is not satisfied with remedial steps taken by an authority “indicates that emphasis is placed upon political sanctions and pressure, as opposed to imposition of a simple legal obligation to act upon the LGO's recommendations”.
• A finding of maladministration does not have the same effect as a finding of breach of some public or private law duty, in relation to which binding legal remedial consequences may be imposed by order of a court. “By contrast, even though a recommendation as to remedy made by the LGO requires to be taken very seriously by an authority to which it is directed, it leaves scope for that authority to have regard to other pressing aspects of the public interest in deciding whether to accept and act upon the recommendation.”
• There is no statutory duty to give reasons for rejecting a LGO's recommendation. However, where the authority does provide reasons for rejecting a recommendation, "the court is entitled to examine carefully whether the [authority] has, first, taken into account relevant considerations and, secondly, has weighed those relevant considerations in a way that a reasonable council should have done”.
• Local authorities decline to accept and act on recommendations regarding remedy made by the LGO in only a tiny proportion of cases. Whilst this serves to emphasise the seriousness with which a local authority should approach a LGO recommendation as to remedy for maladministration, it does not in itself indicate that an authority is required to treat itself as bound to accept and act upon such a recommendation.

Mr Justice Sales concluded that South Holland had given sufficient reasons for its decision. He also agreed with the council’s QC that deciding what was affordable was not an exact science – “it is matter of evaluative judgment, which in the context of the local authority’s finances in this case did not lend itself to precise calculation or elaborate explanation”.

The judge said he did not accept the claimant’s submission’s that South Holland gave excessive weight to the issue of affordability. The financial constraints were severe and the council was entitled to give them significant weight, he found.

“Even though I think it can perhaps be said that the amount of the payment was close to the lowest acceptable limit in the circumstances, I do not feel able to say that the council has behaved irrationally or unlawfully in weighing the competing factors as it did,” the judge concluded.

On the issue of fairness, Mr Justice Sales said the council did make the chief executive’s report available in advance of the meeting and did give Nestwood an opportunity to make representations in writing regarding the exercise of the council’s discretion. He said he did not consider the obligation to act fairly involved more than this – the council was not obliged to give the company an opportunity to make oral representations at the council meeting.

The judge also rejected the developer’s challenges on the alleged appearance of predetermination. He said: “The council members were lawfully entitled to have regard to the affordability of the compensation recommended by the LGO.

“Accordingly, some predisposition to wish to conserve the resources of the council in order to provide services in its area was to be expected and does not indicate that council members approached the question they had to decide with a closed mind, in the requisite sense.”

Mr Justice Sales also rejected the perversity challenge.

The judge said the LGO’s findings were serious, but concluded that the council had acted within the law.