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Peters v Haringey: the LLP debate solved?

3 April 2018

On 8 February 2018, the High Court passed down their highly anticipated judgment in the case of Peters v London Borough of Haringey [2018] EWHC 192 (Admin). The ruling will bring significant comfort to many local authorities after it was confirmed that a Limited Liability Partnership (LLP) structure can legitimately be used to create joint ventures with the private sector to promote regeneration objectives.

The claimant in Peters was a member of ‘Stop HDV’ which was a group of Haringey residents who were opposed to the creation of the Haringey Development Vehicle (HDV). The HDV was being created to establish a partnership between the London Borough of Haringey ('the Council’) and the private sector, to develop the Council’s land and to achieve the Council’s strategic aims in relation to housing and employment. On the 20 July 2017 it was decided by the Council that the HDV would be created in a 50/50 split between the Council and Lendlease, the chosen private sector partner following a lengthy procurement process.

The claimant sought to challenge this decision of the Council on four grounds:

  1. the Council could not use an LLP for the HDV as the Council was acting for a commercial purpose;
  2. the Council had failed in its statutory duty to consult under S3 Local Government Act 1999;
  3. the Council had failed in its public sector equality duty under S149 Equality Act 2010; and
  4. the Council could only make this decision in full council and not in the cabinet alone, pursuant to rule 4(1)(b) Local Authorities (Functions and Responsibilities) (England) Regulations 2000.

The court rejected the challenge on all four grounds.

Ground 1: Use of an LLP

This is undoubtedly the ground which has the largest ramifications for other local authorities looking to create joint venture vehicles for regeneration purposes. Firstly, it was confirmed that if the power/function being exercised by the Council can only be undertaken via a company then it would be ultra vires for it to be done through an LLP. This confirms that if the Council is acting for a commercial purpose through a company under S4(2) of the Localism Act 2011, then an LLP is not a substitute for the use of a company.

Therefore the question in the eyes of the court was whether the Council was acting for a commercial purpose when establishing the LLP and if it wasn’t, was it possible to establish an LLP when one of the parties did not have a commercial purpose in doing so. The court stated that when looking at the Council’s purpose it was necessary to look at their purpose only; it is not a case of asking what the purpose of the private sector development partner is or indeed the purpose of the HDV itself. It then turned to the statutory interpretation of s4(2) and held that the reference to “a commercial purpose” was to be read as looking at the overall view of the thing being done and the overall purpose of the Council in doing that thing. It therefore confirms the notion of a dominant purpose test when looking at whether a council is acting commercially; if the dominant purpose of the council is one which is non-commercial (in this case it was to develop and manage the Council’s land to achieve its housing and employment growth aims) then the council will not be acting commercially, notwithstanding the fact there may be incidental or ancillary functions which look to be commercial purposes. The court confirmed that an LLP, by s2(1)(a) of the Limited Liability Partnership Act 2000, had to be formed for carrying on a business “with a view to profit”. However, its view was that merely making a profit from activities or maximising return did not mean that those activities were carried out with a commercial purpose. The court did not analyse “with a view to profit” in the same way as it did with “a commercial purpose” under the Localism Act 2011. Perhaps slightly incongruously therefore, an LLP can (and must) be established with a view to profit whilst at the same time a Council’s purpose in participating as a partner in that LLP must not be a commercial one.

Ground 2: Consultation under S3 Local Government Act 1999

This ground, whilst generating less fanfare than the reasoning and decision in relation to ground 1, contains further important considerations for other local authorities looking at creating at a joint venture with a private partner. This is because the court stated that the ambit of the S3 duty to consult was not confined simply to outsourcing, it covers “arrangements” and the overarching joint venture vehicle was an “arrangement”. Therefore, before the decision to enter in to a joint venture scheme was made, a statutory duty to consult arose.

However, the court clarified that the duty to consult under S3 relates to consultation in relation to a high level decision and, after considering the judgment in the case of Nash the court felt the relevant decisions were in February 2015 and November 2015. The consultation duty should have been undertaken prior to these decisions so as to fulfil it at a formative stage. The February decision was to seek tenders for a feasibility study to develop the preferred option in relation to a joint venture vehicle and the November 2015 decision approved the business case establishing the HDV as well as the procurement to find a development partner. The court therefore refused permission on this ground due to the fact the challenge was out of time.

Ground 3: The Public Sector Equality Duty (PSED)

The court rejected this ground on the basis of lack of arguable merit. It found on the facts that PSED had actually been considered regularly throughout the decision making process. It had been considered in February 2015 when the decision to investigate options for a joint venture was taken, and again in September 2015 for the November 2015 meeting where it was decided which structure the joint venture would take. Further Equality Impact Assessments (EqIAs) were then provided at the July 2017 meeting where it was agreed to enter in to the HDV with Lendlease. There was also reference to the need for further assessments as and when sites were transferred in to the HDV. The court highlighted that it is not necessary in law to evaluate other options that the Council may have to comply with S149; it is only necessary to have regard to the duty in relation to taking its decision. In this case, it meant that they only needed to look at the equality impacts of the HDV, and not compare that against other means it could have used to pursue its strategic objective of regeneration.

It also stated the fact that specific transfers of land into the HDV may have an impact on protected characteristics was not sufficient to breach the duty. The Council had already outlined that it intended to perform new EqIAs before any sites were transferred in to the HDV and, in any event, the Council could not be criticised for not considering these points under S149 at this stage as they were too remote. “It is not enough to find a point which an EqIA might have considered” the court said.

Ground 4: Decision in full council and not in the Cabinet

In relation to this ground the court held that, just because the arrangements had financial consequences, this did not bring them within the exceptions for cabinet decisions. The salient point here was that, whilst entering the HDV could be described as a financial plan or strategy, it was not a strategy which allowed “for the control of the authority’s borrowing, investments or capital expenditure”. The fact that within the HDV there is scope for borrowing or expenditure did not make the entering into of the HDV a decision of full council, although the court did acknowledge there may be decisions in the future which do involve borrowing or expenditure under the HDV and these decision may well need full council approval.

Practical tips for other local authorities

Peters not only provides a welcome clarification of the law in this area and a positive result for local authorities, it also provides some useful guidance for local authorities to follow if they are considering creating a joint venture vehicle in the future using an LLP. Some of these tips are summarised below:

  • make your purpose clear throughout the decision making process. There needs to be an emphasis in all decisions that the dominant purpose of the Council is non-commercial. Furthermore, to add clarity and minimise the risk of challenge, it is worth, when mentioning profits, returns and other commercial aspects of the venture, highlighting that these purposes are minor or ancillary to the larger non-commercial purpose
  • consult under S3 LGA 1999 early on in the process. S3 applies to the decision to enter in to a joint venture vehicle therefore, depending on the size and scope of the project, before making a decision to commit to a vehicle there could be a duty to consult. The judgment is not clear exactly where this point arises but we would suggest it should be considered at a formative stage as soon as the high level structure of the proposed joint venture is known, and no later than the beginning of the procurement process for a private sector partner. Claims issued at the appointment of a private sector partner will also likely be out of time on this ground as the duty to consult will usually arise at the formative stages of the project
  • have regard to your PSED throughout the decision making process. It seems that regard to your PSED regularly throughout the decision making process is necessary. Therefore, it seems that EqIAs should be carried out regularly. Key points of the process where we consider EqIAs should be carried out include:
    • ­ prior to deciding the formal structure of the joint venture;
    • ­ prior to agreeing to enter in to the joint venture once the terms and partner have been identified and finalised; and
    • ­ before each disposal of a site in to the joint venture.
  • future decisions of the joint venture may be decisions which need full council approval. Even though the decision to enter in to the joint venture arrangement may be a decision that can be taken by cabinet, local authorities need to have in mind that future decisions taken within the joint venture framework may involve borrowing and/or expenditure for the purposes of Local Authorities (Functions and Responsibilities) (England) Regulations 2000 and therefore will need full council approval.

Does this settle the LLP debate?

Local authorities using LLPs in regeneration projects can draw great comfort from this judgement. By their very nature land regeneration projects will engage a range of local authorities’ social, economic and regeneration objectives and this blend will usually mean local authorities are not acting with a commercial purpose. However, authorities undertaking projects entirely outside their area should be more cautious about using LLPs as it may be more difficult to align with these wider objectives. It is difficult to see how regeneration projects in (or possibly even adjacent to) a local authority’s area would not engage these objectives in some way, but clearly it is still possible so the judgement does not provide carte blanche to use LLPs in all circumstances.

This article was originally published by Local Government Lawyer in February 2018.

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