#6840 - Charles Terenz Estate V. Cornwall Council - Restitution of Unjust Enrichment BCL

Charles Terenz Estate v. Cornwall Council

Facts

In outline the claimant, Charles Terence Estates Ltd ("CTE"), purchased some 30 properties in 2006 and 2007, which it leased to the defendant, Cornwall Council, under schemes designed to house those with housing need. The leases were originally with two district councils in Cornwall, Restormel Borough Council ("Restormel") and Penwith District Council ("Penwith"). These councils in turn used the properties to house those in need.

Coming into existence of Cornwall Council and cessation of rent payment: From 1 April 2009 the district councils in Cornwall, including Restormel and Penwith, and the former Cornwall County Council, were abolished and replaced by a new unitary local authority, Cornwall Council, which has succeeded to their rights and liabilities. Cornwall Council reviewed the schemes which Restormel and Penwith had undertaken with CTE, ceased paying rent under the leases and demanded immediate repayment of the grants and loans. CTE instituted the present proceedings for the unpaid rents. Cornwall Council rejects the claim and contends that the leases were flawed at the outset for both private and public law error.

Holding

Claim for breach of fiduciary duty

GLC owed duties to different classes, the duty to transport users on the one hand, and the duty of a fiduciary character to ratepayers on the other, both of which had to be fairly balanced: 814H-815C. In the course of his speech Lord Diplock said that the GLC's fiduciary duty included a duty not to expend moneys thriftlessly but to deploy its financial resources to best advantage, the relevant financial resources being the rate fund obtained by issuing precepts and the grants the GLC obtained from central government. The existence of the fiduciary duty cast light on the true construction of the legislation: 830A. Lord Scarman accepted that the House of Lords had "to construe the Act in the light of the principle that a local authority owes a fiduciary duty to its ratepayers."

This binding authority means that relevant legislation conferring a power on a local authority must be read subject to the fiduciary duty owed to its taxpayers.

Market Value of Rent for Premises not taken into Consideration: The broad claim of the Council here was that in negotiating the rent to be paid for the housing facilities, the market value of rent for such premises were not considered at all.

There is no evidence as to market rents in Restormel and Penwith at the relevant times, although it was not in dispute at the hearing that rooms were available in Penwith at about 55 per week. As mentioned earlier the figure of 191 for Restormel and 177 for Penwith were set out as the caps for central government rent subsidy under Housing Benefit Circular HB/CTB S2/2006. There was no evidence about how these figures were fixed. They covered a range of accommodation. The local authorities themselves appear not to have been consulted on the figures but it seems likely that they were based on information from the rent officer service.

In my view, the crucial point is that the councils never had regard to what was the market rent for the various properties leased from CTE. It seems that the 120 per unit per week figure for the houses in multiple occupation first emerged in discussions between Mr Fowley and Karen Waters, the head of corporate and housing services in Restormel.

Given that market rents would vary from property to property, and over time from unit to unit within each property, a formulaic approach was incapable of producing market rents. The statutory power of the councils to acquire property had to be construed in the light of the principle that they owed a fiduciary duty to their council taxpayers. Compliance with their fiduciary duties demanded that the councils have regard to market rents on agreeing the rents payable to CTE for these properties. In failing to do so they acted outside their powers. The upshot is that the leases are void and of no effect.

Restitution under the Auckland Harbour Principle

Given my finding that Restormel and Penwith lacked the power to enter the leases because they had no regard to their fiduciary duty to council taxpayers in doing so, they have no effect and are a legal nullity.

The leases being of no effect, Cornwall Council has a restitutionary claim against CTE for repayment of the rents it has paid: Auckland Harbour Board v R [1924] AC 318. CTE accepts this but relies on the defence of change of position: Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 578F -581B.

Is Charles Terenz entitled to rely on a Change of Position Defence?

The leases being of no effect, Cornwall Council has a restitutionary claim against CTE for repayment of the rents it has paid: Auckland Harbour Board v R [1924] AC 318. CTE accepts this but relies on the defence of change of position: Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, 578F -581B.

Cornwall Council contends that the defence fails on the facts, since CTE was a party to the councils' wrongdoing, or at least turned a blind eye to the want of authority to enter the leases.

In my view CTE has at all times acted in good faith. It was in no way...