We reported last year on a case in which it was held that a new unitary authority, Cornwall, was not liable for leases entered into by the former local authorities.  This was because the court found that, at the time the leases were arranged, the authorities did not ensure that the expenditure was reasonable and that their fiduciary duties had been breached.  As the authorities had not considered the proper market rent that should be payable they had acted outside their powers and the leases were therefore void.

On Tuesday the Court of Appeal reviewed that decision and concluded that there was not enough evidence to find that there had been a breach of fiduciary duty.  There was no evidence that the authorities had abused the housing benefit scheme, that the rents charged to residents were excessive or that the authorities were acting for an improper purpose.  The only failure by the authorities was to have a proper regard to market rents.  There was no expert evidence to show that the rents charged were not at a reasonable price and the Court of Appeal was not prepared to find that the leases were void either because of technical legalities regarding the powers of the authorities or because of a failure to consider market rents.

Although there is no doubt that some decisions of local authorities will amount to a breach of fiduciary duty and that this may, in certain cases, be characterised as ultra vires and be void, the Court of Appeal reflected that in this case, by claiming the previous authorities’ decisions were in breach of their duties, Cornwall was attempting to rid itself of what it considered to be bad bargains.  It concluded that it would be highly undesirable if, years after the time expired for the making of a prompt legal challenge, the fact of an historic breach of fiduciary duty should lead to the defeat of a claim brought by a party who had acted throughout in good faith.

Law: Charles Terence Estates Ltd –v- Cornwall Council [2012] EWCA Civ 1439