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Important Judgment on Local Authorities’ Powers to Engage in Commercial Activity and Development Vehicles

Sarah Sackman

This morning Ouseley J handed down judgment in a major case concerning local government development vehicles. The Claimant, a resident of Haringey, challenged the Council’s controversial decision to establish the Haringey Development Vehicle (HDV). The joint venture between the Council and Lendlease would be the largest local authority development vehicle of its kind.

The judgment considers for the first time the scope of powers of local authorities to engage in commercial activities under the Localism Act 2011. The Council proposed setting up the HDV and conducting its development and investment activities through the vehicle under its general power of competence under s.1 of the 2011 Act. The Act provides that where an authority “does things for a commercial purpose” it must do them via a company. The Council in this case had, however, chosen for tax reasons to establish the HDV as an LLP.

The High Court considered the key question of what constitutes a “commercial purpose”. It held that the test is a dominant or primary purpose test and requires an examination of the underlying purpose for which the relevant things are done. The relevant purpose was that of the Council acting through the HDV rather than the purposes of the HDV itself or Lendlease. Whilst the Council intended to achieve a “commercially acceptable return” from the HDV, that profit motive was held to be incidental to its primary socio-economic objectives of providing new housing and economic growth in the local area.

The court also held that the Council had unlawfully failed to consult on the principle of establishing the HDV under s.3 of the Local Government Act 1999. Ouseley J found that it could not be said that the decision would have been the same had the consultation taken place. However, he dismissed the challenge on the basis of delay. An appeal of the High Court’s decision is anticipated.

Sarah Sackman and Katherine Barnes (led by David Wolfe QC) act for the Claimant, instructed by Leigh Day.