In Trafford v Blackpool Borough Council, the council refused to renew the lease of one of its tenants (a firm of solicitors), as punishment for the firm's record in bringing a number of personal injury claims against it.
Blackpool Borough Council owns the New Blackpool Enterprise Centre, modern office accommodation aimed at start-up and developing businesses primarily from the Blackpool area. The Enterprise Centre was funded in part by EU regional aid. Prospective tenants had to apply to the council, demonstrating their eligibility against specified tenancy selection criteria.
Ms Trafford is a solicitor running a small firm set up in 2008 with a view to practising mainly in the field of personal injury litigation. The firm had been accepted as a tenant in the Enterprise Centre but its lease was a 'contracted out' lease, which meant that there was no statutory right to request a renewal on its expiry.
Over the years, the claimant's firm brought personal injury claims against the council, and in 2012 there was a general upsurge in the number of those claims, which the council attributed to claims 'farming'. However, there was no suggestion that the firm had acted improperly in any way, and the council expressed no concerns to the claimant about its conduct.
In November 2012, the council's Corporate Asset Management Group decided that the lease should be terminated because of the claims that the firm was making against the council. It was accepted that this would have a financial impact on the Enterprise Centre, where available space already exceeded demand.
The council's decision was implemented in 2013; it refused to offer the firm a new tenancy when its existing tenancy expired. When the claimant questioned the decision, she was informed that her firm was on a 'blacklist'. She was subsequently told that the council's insurance policy was reaching unprecedented levels and that in the council's view the firm's practice (and that of similar firms) ran contrary to its interests. The claimant made a formal complaint and received a response (signed by the leader of the council) which reaffirmed the decision in similar terms.
The claimant brought judicial review proceedings, arguing that the council had used its powers for an improper purpose, that its decision was Wednesbury unreasonable and procedurally unfair and that it had implemented a secret policy to the detriment of the claimant and similar firms.
The council's primary argument was that the refusal to offer a new lease was not amenable to judicial review. It submitted that, in deciding whether or not to offer a further lease, the council was exercising a private law right in circumstances of a purely commercial nature, owing no public law duty to the claimant and being entitled to exercise its discretion on any basis it saw fit.
In giving judgment, HHJ Stephen Davies (sitting as a judge of the High Court) set out the following principles about the relationship between the private law rights of public bodies and their public law duties –
- Where a challenge is brought against a decision relating to a contract, it is necessary to consider whether the defendant was exercising a public function and whether or not the grounds of challenge involve genuine public law (rather than private law) challenges.
- Where the defendant is making a decision under a statutory power but there is no substantial public function involved, a claimant will still normally be allowed to bring genuine and substantial challenges based on fraud, corruption, bad faith or pursuit of an improper purpose.
- The extent to which a claimant will be entitled to raise genuine and substantial challenges on other grounds will depend on a 'careful analysis of all of the relevant circumstances so as to see whether or not there is sufficient nexus between the decision in relation to the contract which is challenged and the grounds complained of'.
Applying these principles, HHJ Davies decided that the council's decision was amenable to judicial review. The council is a creature of statute, and its power was ultimately grounded in a statutory function (in this case, section 123 of the Local Government Act 1972). The decision related to a commercial lease of commercial premises, but this was not a purely arm's length relationship.
The Enterprise Centre was built with public funding and the council had used tenancy selection criteria so that it would only be leased to a particular type of tenant, providing a particular benefit to the local area. The council's decision meant that it would not even consider the claimant's request for a new lease against the selection criteria. In that context, the claimant had made a number of genuine and substantial challenges.
Having considered evidence of the council's motive, HHJ Davies concluded that the decision was 'an act of retaliation, pure and simple, to "punish" the claimant's firm by causing it some difficulty and inconvenience' and that this was the only consideration to which it had regard.
In the context of the Enterprise Centre and its purpose, for the council to exercise its power with the sole intention of punishing the claimant's firm where there was no evidence that it was doing anything unlawful or improper was an intentional improper exercise of power. Even if the council had regard to other considerations, the desire to punish the claimant was still an irrelevant consideration and tainted the decision as a whole.
HHJ Davies also found that if (contrary to his conclusion on the facts) the motivation of the refusal to renew the claimant's lease was the protection of the council's financial interests, the decision was irrational. This was because there was no rational basis for considering that forcing the claimant's firm to relocate would affect the number of claims being brought against the council.
The decision was also unlawful because it was unfair. The council had adopted tenant selection criteria and was not entitled to make its decision by reference to other criteria without at least giving the claimant the opportunity to make representations.
The case is an important reminder that, while local authorities have the power to do 'anything that individuals generally may do' (section 1 of the Localism Act 2011), this does not mean that they are free to make decisions as individuals might. Local authorities are public bodies, and as such will be held to the standards of public law decision making.
The council's starting point was that it should be free to choose who it entered into a commercial relationship with; if the tenant had no private law right to a renewed lease, the council could do as it pleased with its property. The court found that the position was not so simple.
Claimants intending to challenge decisions of public bodies which relate to contractual rights still have to overcome the hurdle of showing that the decision should be amenable to judicial review. The courts have addressed this issue a number of times in recent decades. On the one hand, public bodies should comply with public law; why should they be held to a lesser standard when entering into contracts than when performing other functions? On the other hand, public law should not put public bodies in a detrimental position such that contractual relations (and negotiations) are unduly impaired. The courts are likely to continue to balance these considerations.
The court made clear that whether a case is amenable to judicial review will depend on the facts. Here, the purpose and community benefit of the Enterprise Centre, and the adoption of a tenant selection policy and the failure to follow it, were key considerations.
It is a well-established principle that public bodies should avoid using their contractual discretion for the purpose of punishing others who are doing nothing improper. Here, the council argued that it had not intended to cause detriment to the claimant, but HHJ Davies was not convinced of this on the facts.
The case also highlights the importance of public bodies ensuring that any policies which affect decisions relating to contracts are scrupulously applied or, where they are justifiably departed from, that particular attention is given to following due process.