Credit Suisse v Allerdale Borough Council: CA 20 May 1996

Builder’s Guarantee Ultra Vires LA

The council set out to provide a swimming pool using powers under s.19 of the 1976 Act. Purporting to use powers under s.111 of the 1972 Act, it set up a company to develop a site by building a leisure pool and time-share units, with a view to selling the time-share units to pay for the cost of building the pool. The council gave a guarantee to help the company to finance the project, and on the strength of this the company obtained a facility from the bank. The sale of the time-share units proved unsatisfactory and the company went into liquidation. The bank sued the council under the guarantee to recover the sums owed to it by the company.
Held: The guarantee was ultra vires where it had been given to a company when the authority was acting outside it’s proper powers. Where a statutory corporation purports to enter into a contract which it is not empowered by the relevant statute to enter into, the corporation lacks the capacity to make the supposed contract. This lack of capacity means that the document and the agreement it contains do not have effect as a legal contract. It exists in fact but not in law. It is a legal nullity. The purported contract which is in truth not a contract does not confer any legal rights on either party. Neither party can sue on it. Any third party dealing with a local authority should be aware of that fact [of limited capacity and competence] and of the potential legal risk.
Hobhouse LJ said: ‘The discretion of the court in deciding whether to grant any remedy is wide one. It can take into account many considerations, including the needs of good administration, delay, the effect on third parties, and the utility of granting the relevant remedy.’

Hobhouse LJ
Times 20-May-1996, [1997] QB 306
Local Government Act 1972 111, Local Government (Miscellaneous Provisions) Act 1976 819
England and Wales
Citing:
Appeal fromCredit Suisse v Allerdale Borough Council QBD 17-Jun-1994
A Local Authority’s guarantee for its own company was void, having been given for impermissible reasons. . .
AppliedLondon and Clydeside Estates v Aberdeen District Council HL 8-Nov-1979
Identifying ‘maandatory’ and ‘regulatory’
The appellants had sought a Certificate of Alternative Development. The certificate provided was defective in that it did not notify the appellants, as required, of their right to appeal. Their appeal out of time was refused.
Held: The House . .

Cited by:
CitedStretch v The United Kingdom ECHR 24-Jun-2003
The claimant had taken a lease of property from a local authority. Relying upon an option for renewal, he invested substantially in the property, but it was then decided that the option was ultra vires.
Held: Property rights protected under . .
CitedRegina v Soneji and Bullen HL 21-Jul-2005
The defendants had had confiscation orders made against them. They had appealed on the basis that the orders were made more than six months after sentence. The prosecutor now appealed saying that the fact that the order were not timely did not . .
CitedKilby v Basildon District Council Admn 26-Jul-2006
Tenants complained that the authority landlord had purported to vary a clause in his secure tenancy agreement which gave certain management rights to tenants.
Held: The powers to let on secure tenancies were governed by statute. The clause . .
CitedBirmingham City Council v Qasim and Others CA 20-Oct-2009
The council argued that the defendant was not a tenant granted to him as a secure tenancy since he had not been granted the tenancy in accordance with its policies. An employee had manipulated the Council’s system to grant tenancies to bypass the . .

Lists of cited by and citing cases may be incomplete.

Local Government, Contract, Company, Banking

Updated: 20 November 2021; Ref: scu.79620