A High Court judge recently ruled that a council's decision to pay a developer only 20% of the £250,000 recommended by the Local Government Ombudsman was lawful. Nicholas Dobson analyses the case.
On 25 March 2014 Sales J handed down an interesting decision on the law surrounding local ombudsman recommendations and the scope of council duties concerning them. And although the authority in question (South Holland District Council) emerged from the proceedings with judicial endorsement for a very substantial reduction in the Ombudsman’s recommended compensation payment (down from over £250K to £50K), the history of the Council’s involvement in the matter does not come across as edifying. The case in question was R (Nestwood Homes Developments Limited) v. South Holland District Council  EWHC 863 (Admin).
The factual background is well summarised in the Local Government Lawyer article of 27 March 2014 Court backs decision to pay only 20% of £250k recommended by LGO. However, it is necessary to recite some key elements of the lengthy and rather tortuous history.
Nestwood, a housing developer (the claimant), having purchased land in the council’s area with planning permission for residential development obtained further planning permission from the council. A council officer went on to confirm that planning consent conditions had been satisfied on the basis of plans clearly showing raised site levels for the development. After Nestwood, in reliance on this confirmation, had commenced building works, neighbours complained about the raised site levels which Nestwood was building up as part of the development. Counsel, however, advised the council that permission for raised site levels was in place and valid but the report of this advice to Planning Committee failed to explain that raised site level permission had been granted.
Planning Committee members being unhappy with the development, planning officers persuaded Nestwood to submit a fresh application for permission for raised site levels which Nestwood did under protest because of severe commercial pressures. Contrary to the recommendation of the council’s planning officer the council subsequently refused permission for the fresh application and subsequently decided to take enforcement action requiring houses and other structures to be demolished and site levels restored to their original level.
The claimant was apparently vilified in the local press, was forced to take out high interest loans and its business stalled. However, a subsequent planning enquiry found that the council had in fact granted permission for the development and awarded Nestwood its inquiry costs because of the council’s unreasonable conduct. Nevertheless, the residential property market having dropped, Nestwood suffered significant losses upon selling the site properties.
Nestwood complained to both Council and the Local Government Ombudsman (LGO) and sought an LGO compensation recommendation of £1.2m in respect of damages it claimed to have suffered from the council’s maladministration. The LGO’s report recommended compensation in excess of £250K in respect of damage to reputation and "the extreme stress and severe and prolonged strain on family and business relationships that occurred over a period of almost two years as a result of the maladministration". However, the council refused to accept the LGO’s findings and remedy recommendations and decided to write to Nestwood expressing regret at the circumstances but not to pay any compensation. Nestwood threatened judicial review proceedings in the light of alleged flaws in the council’s decision.
Although the council’s chief executive had advised (amongst other things) that the council was obliged by law to accept the findings of maladministration and of loss made by the LGO, the council informed Nestwood that it did not accept the LGO’s recommendations as to remedy and so would not pay any compensation. This was because of the financial impact upon the council and its services if compensation were paid as recommended. Nestwood subsequently commenced judicial review proceedings.
Following advice from senior counsel (Peter Oldham QC), the council decided to convene a further meeting on 25 July 2012 at which Mr. Oldham attended. Although a Nestwood representative attended, the council refused to allow Nestwood to make representations at the meeting. The council’s chief executive produced a report for that meeting which advised that the council re-determine afresh its response to the LGO’s recommendations and emphasised that the council was obliged to accept the LGO’s findings of maladministration, injustice and loss. The report also appended a note of the council’s financial position.
Sales J noted as follows Mr. Oldham’s advice to the council, the first two elements of which he specifically agreed:
- "in line with authority . . . since the council had not sought to challenge the LGO’s findings of maladministration, injustice and loss by Nestwood and the Director, it was bound to accept those findings.".
- ". . .it was for the council to determine how to respond to the recommendations of the LGO as to remedy, taking into account the level of seriousness of the maladministration found against it and whether this required, as a matter of fairness and reasonableness, the payment of compensation and at what level."
- "....the council should formulate reasons for its decision. Councillors should not take into account the previous decisions made, and should approach the matter as a fresh decision."
Councillor Przyszlak (the Finance Portfolio Holder) led the discussion and proposed that the council accept the LGO findings, offer a sincere apology and make an overall payment of £50,000 to cover all issues. Sales J noted that the committee "considered that making an apology and paying £50,000 as proposed would strike an appropriate balance between the seriousness of the injustice suffered and the affordability for the council, and decided that the council should respond to the LGO’s recommendations accordingly".
The LGO issued a further report under section 31(2A) of the Local Government Act 1974 (which resulted in the judicial review proceedings being withdrawn). As Sales J noted, the Ombudsman was: "...not satisfied with the council’s response, which did not explain how the sum offered was arrived at nor how it was apportioned and which appeared, therefore, not to have considered the LGO’s findings with sufficient care and to have given excessive weight to financial considerations".
The LGO therefore called on the council to reconsider the recommendations in the LGO Report and, if minded to agree a remedy different from that in the LGO Report, "to set out a clear explanation for the action it proposes to take, its relationship to the Ombudsman’s findings of maladministration and injustice, and its apportionment between the company and its director".
The council met to consider the LGO’s further (fourth) report on 15 May 2013. Sales J noted from correspondence between the parties that "the council would give Nestwood the opportunity to see the chief executive’s report in advance of the council meeting and to make written representations, but would not allow Nestwood to make oral representations at the meeting".
Councillor Przyszlak spoke to that meeting to emphasise that the council should consider the LGOs recommendations afresh and, as Sales J noted: "....invited the meeting to consider a total global sum of £50,000, based on the affordability to the Council; this was to be apportioned pro rata between Nestwood and the Director; and interest was now to be added at a simple interest rate of 5% from the mid-point in the period between November 2006 and July 2012, 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."
The council adopted this proposal as a "fair and proportionate" response bearing in mind the council’s financial position and this is the decision that was challenged in the instant proceedings. The LGO was not satisfied with the decision on her further report and under section 31(2D) of the 1974 Act she required the council to publish a statement to that effect. This concluded the LGO’s involvement.
Nestwood as claimant then raised the following grounds of judicial review challenge:
- Inadequate reasons;
- Excessive weight given to affordability and failure to consider relevant considerations;
Parts III and IIIA of the Local Government Act 1974 govern the jurisdiction of the Commission for Local Administration. A Local Commissioner (otherwise known as the Local Government Ombudsman – LGO) may (amongst other things) investigate alleged or apparent: maladministration in connection with the exercise of the authority’s administrative functions or failure in or to provide a functional service. Complaints may be made to the LGO by members of the public claiming to have sustained injustice in consequence of the matter in question.
Generally when the LGO completes his or her investigation s/he prepares a report and sends a copy to those concerned i.e. (amongst others) the complainant (if any, given section 26D of the 1974 Act) and the authority concerned. The report must then be publicly available without charge (public notice is to be given accordingly) and anyone may take copies or extracts from the report at that stage. Where there has been maladministration or service failure the authority must consider the report and within three months (or longer period if agreed with the LGO) notify the LGO of the action taken or proposed to be taken.
In default, or if the LGO is not satisfied with the action taken or proposed s/he must make a further report setting out relevant facts and making recommendations to remedy or prevent injustice. Furthermore, the LGO may be notice to the authority require publication of a statement detailing (amongst other things) action recommended by the LGO in a further report and which the authority has not taken plus (if the authority so requires) a statement of the authority’s reasons for having taken no relevant action. In default the LGO must arrange for publication of such statement.
Although the LGO is not empowered by the 1974 Act to award compensation to a complainant in consequence of maladministration or service failure, nevertheless, under section 92(1) of the Local Government Act 2000, where an authority considers that its actions amount to maladministration and that a person has accordingly been adversely affected the authority "....may, if they think appropriate, make a payment to, or provide some other benefit for, that person" (emphases added). There is also nothing to prevent an LGO recommending that an authority pay compensation.
Sales J noted R (Gallagher) v. Basildon DC  EWHC 2824 (Admin) which (amongst other things) indicated that the only express sanction for failure to follow Ombudsman recommendations was "...local publicity, leaving the electors to determine whether the local authority had behaved acceptably in rejecting any recommendation designed to remedy an injustice to a local citizen". He also cited R v. Local Commissioner for Administration for the South, the West, the West Midlands, Leicestershire, Lincolnshire and Cambridgeshire, ex parte. Eastleigh BC  QB 855 which found (per Lord Donaldson) that "in the absence of a successful application for judicial review and the giving of relief by the court, local authorities should not dispute an ombudsman's report and should carry out their statutory duties in relation to it".
Sales J noted that: "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."
Furthermore, 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".
For: "...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."
Per Gallagher, there is no statutory duty on an authority to give reasons for rejecting an LGO’s recommendations. However, where an authority does so "the court is entitled to examine carefully whether the council has, first, taken into account relevant considerations and, secondly, has weighed those relevant considerations in a way that a reasonable council should have done".
But although local authorities decline to accept and act on LGO remedy recommendations in only a very small proportion of cases, the seriousness with which this emphasises that an authority should approach such a recommendation does not (per Sales J) indicate in itself that an authority is required to treat itself as bound to accept and act upon such a recommendation.
As Sales J noted, "emphasis is placed upon political sanctions and pressure, as opposed to imposition of a simple legal obligation to act upon the LGO’s recommendations". To this might be added local democratic pressure. This is of course very different from a legal right to compensation by way of damages. As Sales J pointed out: "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."
Against this backdrop and despite the unfortunate factual history, the claimant’s legal path was uphill. And so in the event it proved. A brief note on the finding on each head of claim is noted below.
In the Court’s view ‘sufficient reasons were given by the council for its decision, to a level adequate to inform a person, such as Nestwood, with knowledge of the chief executive’s report and the circumstances of the case, why the council had come to the decision it did’. And the relevant meeting minutes "read against the background of the chief executive’s report, give intelligible and adequate reasons to enable the reader to understand why the matter was decided as it was and what conclusions were reached on the critical issue for decision". Consequently this ground of complaint was rejected.
Excessive weight given to affordability and failure to consider relevant considerations
Sales J considered that affordability and the impact upon the council and its services were "lawful, relevant considerations" for the council to take into account. For: "It is not the court or the LGO, but rather the council which has responsibility for meeting all the many and varied demands on its resources and which has full information about the extent of those demands and resources."
He also did "not find it possible to say that the council has given excessive weight to the factor of affordability". In the circumstances this ground of challenge also failed since Sales J did not "feel able to say that the council has behaved irrationally or unlawfully in weighing the competing factors as it did".
In the Court’s view, given that the council did make the chief executive’s report available to Nestwood in advance of the meeting and gave Nestwood an opportunity to make written representations regarding the exercise of the council’s discretion, Sales J did not consider that the obligation to act fairly required more than this.
For: "....the council was not obliged to give Nestwood an opportunity to make oral representations at the council meeting" since it "....was perfectly possible for cogent and informed representations to be made by Nestwood in writing, by reference to the findings made by the LGO and to what was said about affordability and other matters in the chief executive’s report for the meeting."
Sales J considered that this "was all that fairness required in the present context".
However, in the event of any appeal it will be interesting to see to what extent this particular finding endures, in the light of all the circumstances. For the council did come across as having behaved rather high-handedly in not allowing Nestwood’s representative to make oral representations at material meetings. There did seem to be inequality of arms in Nestwood’s position at the key meeting and certainly a greater perception of fairness would have been created by enabling the claimant to make the oral representations it sought.
The bar for local authority predetermination has been set high since R (Lewis) v. Redcar & Cleveland BC  EWCA Civ 746, given the context of elected and democratically accountable decision makers and the consequent fact that "the importance of appearances is generally more limited in this context than in a judicial context". And (per Collins J in R (Island Farm Development Ltd) v. Bridgend County BC  LGR 60) to establish an illegitimate appearance of predetermination, positive evidence is required that the councillor in question had "made up his or her mind finally at too early a stage".
Consequently, while there was some predisposition to wish to conserve the resources of the council in order to provide relevant services, there was no "positive evidence necessary to show an appearance of pre-determination". Therefore, since the appearance given is that the council responded to the LGO’s further report "with a mind open to persuasion" there was no positive evidence showing an appearance of pre-determination. This ground therefore also failed.
This was considered to be unsustainable in the circumstances since the council did not act irrationally or unlawfully in making the decision it did.
Consequently, despite the "serious findings of maladministration, injustice and loss made by the LGO and the substantial contrast between the compensation recommended by the LGO and that eventually decided by the council", Sales J concluded that the council has acted within the law.
As indicated, the narrative history of the council’s actions throughout does not make edifying reading. Nevertheless, the discretion as to whether or not to make a payment is in fact vested in the council (under section 92 of the Local Government Act 2000) and the Ombudsman has no power as such to award compensation as if s/he were a court. Consequently, given that Sales J was not "able to say that the council has behaved irrationally or unlawfully in weighing the competing factors as it did", (and given also that the Court found no other legal contra-indications) the council’s decision was found to be lawful.
Nevertheless, the essence of this case was the lawfulness of the council’s approach to the LGO’s recommendations and not the claimant’s legal position generally in the light of the council’s actions throughout. The claimant will no doubt therefore be considering its position carefully.
However, local authorities and those dealing with them will find this decision instructive as it usefully rehearses the law and statutory purpose of the LGO regime. For as Sales J noted, this emphasises "political sanctions and pressure, as opposed to imposition of a simple legal obligation to act upon the LGO’s recommendations".
So, as to the question posed in the title to this article, the answer appears to be "no". However, proper, lawful consideration should of course be given to any such recommendations.