Standard Commercial Property Securities Limited and others v Glasgow City Council and others

The House of Lords considered whether a local authority may enter into a "back-to-back" agreement under which land acquired or to be acquired compulsorily is transferred to a private developer in exchange only for an indemnity, and whether the authority complied with the requirement in section 191(3) of the Town and Country Planning (Scotland) Act 1997 to obtain "the best price or on the best terms that can reasonably be obtained". The court held that subsections (1) and (2) of section 191 (the planning-purpose discretion) and subsection (3) (the obligation to obtain best price or terms) address distinct objectives: securing planning outcomes and protecting the public purse respectively.

Accordingly, disposal by means of an indemnity can fall within the scope of section 191(3) if, having regard to commercial value and planning benefits (including non‑monetary planning gain), those terms are the best that can reasonably be obtained. The authority must however direct its attention to the commercial value of the transaction; it cannot simply assume without consideration that an indemnity is the best available commercial term. Applying those principles to the facts, the House of Lords concluded that Glasgow City Council had sufficient factual and procedural material to conclude that the indemnity terms were the best that could reasonably be obtained and that the particular selection decision was within power and not unreasonable.

The respondents were property companies seeking to challenge Glasgow City Council's decision to select another developer (Atlas) as preferred developer for a prime city-centre site and to enter a "back-to-back" agreement under which the council would use compulsory purchase powers and transfer the assembled site to the developer in return for an indemnity for the council's costs. The petitioners sought judicial review, a declarator that the council's decision was ultra vires, and reduction of that decision.

Procedural history:

• Earlier litigation: Lord Nimmo Smith (2001 SC 177) had reduced an earlier council decision for failure to take relevant considerations into account, but indicated that back-to-back agreements could be lawful if proper account was taken of the planning purposes and of relevant terms.
• Lord Ordinary (2004 SLT 655) refused the petition in these proceedings.
• The First Division allowed the reclaiming motion and granted declarator and reduction (2005 SLT 144), holding that the council had not properly considered whether reimbursement of costs represented the best consideration under section 191(3).
• The House of Lords allowed the council's appeal ([2006] UKHL 50) and restored the Lord Ordinary's interlocutor.

Issues before the House:

• Whether section 191(3) of the 1997 Act permits disposal by way of an indemnity-only back-to-back agreement.
• Whether the council failed to take relevant considerations into account, and in particular whether it was bound to obtain independent valuation advice or to invite bids for additional monetary consideration so as to satisfy section 191(3).
• Whether the council's decision to select a single comprehensive development by a single developer at the stage it did was unreasonable.

Reasoning and conclusion:

• The court construed section 191 as addressing two related but distinct aims: subsections (1) and (2) require the authority to ensure the disposal is expedient to secure proper planning outcomes; subsection (3) separately protects the public purse by requiring the best price or best terms reasonably obtainable. "Best terms" is to be read in a commercial sense and may include non-cash planning gains relevant to value.
• An indemnity-only disposal is not inherently outside the statutory power; it can be a permissible commercial package if, on the facts, it represents the best terms reasonably obtainable taking into account planning gain, the multiple ownership of the site, the need for a level playing field among competing owner-developers and the absence of evidence that bidders would have paid more.
• The burden lay on the petitioners to show that no reasonable authority could have concluded as Glasgow did; they failed to discharge that burden on the material before the courts. The House of Lords therefore allowed the appeal and restored the Lord Ordinary's decision.

Appeal allowed. The House of Lords held that section 191(3) must be read as protecting the public purse by requiring the best commercial price or terms reasonably obtainable, while subsections (1) and (2) address the planning-purpose discretion; a back-to-back indemnity arrangement is not inherently ultra vires, and on the facts Glasgow City Council had a sufficient basis to conclude the indemnity represented the best terms reasonably obtainable.

Earlier proceedings before Lord Nimmo Smith led to reduction in 2001 (2001 SC 177). In these proceedings, the Lord Ordinary refused the petition (2004 SLT 655). The First Division allowed the reclaiming motion and granted declarator and reduction (2005 SLT 144). The House of Lords allowed the council's appeal: [2006] UKHL 50.