Out of sight, but not out of mind

The Court of Appeal has ruled that local authority arrangements for contracting out homelessness functions are lawful. However, it is essential that there are effective contracts in place writes Judith Barnes.

A recent case has found that it is lawful for a local authority to contract out to a third party the review of a decision about eligibility for housing assistance, unless the third party does not have the necessary independence and impartiality or the appearance of such.

Background

The Court of Appeal case of Heald and others v Brent London Borough Council [2009] All ER (D) 157 (Aug) involved four appellants who had applied to a local authority for housing assistance. The local authority had made decisions relating to their applications and they had asked for reviews of those decisions.  

Brent contracted out those reviews to a private company with which it had a contract. The local authority had entered into this contract pursuant to the Local Authorities (Contracting Out of Allocation of Housing and Homelessness Functions) Order 1996, which provides that local authorities may contract out some homelessness functions, including making review decisions.  

The reviews were undertaken by the director and controlling shareholder of the private company. He signed decision letters which were printed on the local authority’s notepaper. The appellants appealed to the county court but their appeals were dismissed. They appealed to the Court of Appeal.

Issues were raised as to whether a local housing authority could lawfully delegate the performance of its reviews or any part of a review to a person who was not an officer or employee and whether a review carried out by such a person satisfied the requirements of Article 6 of the European Convention on Human Rights.  

The claimants argued that it was unlawful for the local authority to contract out the carrying out of its reviews, so the reviews carried out in each of their cases had been ultra vires and unlawful. It was also argued that there had been an appearance of bias, which meant that the reviews had not been fairly conducted and that their rights under Article 6 of the European Convention on Human Rights had been infringed.

The Court of Appeal ruling

The appeals were dismissed.  It was held that:

(1) The carrying out of reviews under sections 202 and 203 of the Housing Act 1996 was a function of a local authority.  The Local Authorities (Contracting Out of Allocation of Housing and Homelessness Functions) Order 1996 authorised such functions to be carried out by an employee of a person authorised to do so by a local authority.  

The word “functions” in that context embraced all the duties and powers of a local authority; the sum total of the activities Parliament had entrusted to it. It was significant that the functions expressly excepted by the Order from the contracting out power did not include the review function and it followed that the review function might be contracted out.  

It was not disputed that the local authority had authorised the private company to carry out its review functions in relation to the reviews it had referred to it and it was not disputed that the person who had carried out the reviews was an employee of the company. It followed that the reviews could lawfully be carried out by him unless he did not have the necessary independence and impartiality or the appearance of those qualities.

(2) The starting point for considering whether a third party review necessarily infringed Article 6 of the European Convention on Human Rights, assuming it to apply, would have to be that a review carried out by an employee of a local authority did not infringe Article 6, even though that employee was not independent.  

It was therefore necessary to compare the independence and impartiality of a person to whom the review function was contracted out with those of an employee. A third party should not necessarily be any less impartial than an employee.  

The question of whether the third party could be regarded as less independent might depend on the particular facts, in particular the terms of the contract between the local authority and the third party. It was possible to build into a contract a high degree of independence on the part of the third party, for example by prescribing a long contractual term that was terminable only for serious breach of the contract.  

In this case, the contracting out had not necessarily been precluded by the lack of independence of a third party reviewer. On the question of whether the provisions of the third party’s contract showed a lack of sufficient independence, the differences between the position of the company and the person who undertook the reviews on the one hand, and that of an employee of the local authority on the other had not been such as to affect materially the overall fairness of the review process.

(3) The test for apparent bias was whether a fair-minded and informed observer would conclude that there was a real possibility or a real danger of bias.  In this case, an objective and well-informed observer would not conclude that there had been a real danger of bias on the part of the person who had carried out the reviews.

The need for effective contracts

This case shows the importance of ensuring that arrangements for contracting out are put in place by effective contracts which are compatible with all relevant legislation.

The power for local authorities to contract out functions to private sector organisations is only available for a limited range of functions, namely those which are specified in orders made under section 70 of the Deregulation and Contracting Out Act 1994.  Alternatively, local authorities may arrange for the discharge of a function by another authority or an officer of an authority or arrange with other local authorities to discharge functions jointly, under the powers in section 101 of the Local Government Act 1972 (and sections 19 and 20 of the Local Government Act 2000 if executive functions are involved).  

This case has provided a useful illustration that for those functions in respect of which contracting out is possible, it is possible to make contractual arrangements which do not breach the requirements of human rights legislation.

Judith Barnes is a partner of Eversheds

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