Dudley Metropolitan Borough Council, R (on the application of) v Secretary of State for Communities and Local Government

The claimant local authority sought judicial review of the defendant’s decision of 19 April 2011 to cease PFI declining-balance grant payments and switch to an annuity basis. The claim advanced five grounds: (1) breach of a duty to consult/procedural expectation; (2) breach of a substantive legitimate expectation; (3) rigid application of policy; (4) error of fact/failure to take relevant facts into account; and (5) breach of the Public Sector Equality Duty (section 149 Equality Act 2010). The court held that a duty to consult arose in the particular circumstances (having regard to the claimant’s past position, the limited class affected and the government’s prior conduct) and that the defendant failed to consult at a formative stage in accordance with the Gunning requirements. The court rejected the substantive legitimate expectation claim (finding no binding assurance that would have fettered future governments), rejected the contention that policy was applied inflexibly (ministers did consider representations), rejected the error of fact challenge (ministers were aware of the true position by the decision date), and rejected the equality duty challenge (the likely impacts were contingent and not such as to require immediate s.149 action by the Secretary of State). Important statutory provisions considered included section 88B Local Government Finance Act 1988, section 31 Local Government Act 2003 and section 149 Equality Act 2010.

This was a first-instance claim for judicial review by Dudley Metropolitan Borough Council challenging the Secretary of State’s decision to end payment of PFI grant on a declining-balance basis and to pay instead on an annuity basis from 2011-12. The claimant said the change undermined funding on which it had relied for successive ICT PFI contracts (the Dudley Grid for Learning) and sought relief on five grounds: duty to consult (or procedural legitimate expectation), substantive legitimate expectation, rigid application of policy, error of fact/failure to take relevant matters into account and breach of the Public Sector Equality Duty (s.149 Equality Act 2010).

The factual background: special PFI grant arrangements were notified to the claimant in 1998 and paid on a declining-balance basis. A choice to switch to an annuity basis was made available in 2004 but the claimant elected to remain on the declining-balance basis. The Secretary of State announced in January 2011 that only annuity payments would be made in future and that the claimant would receive a one-off lump sum (subsequently paid) instead of continuing declining-balance payments. The claimant said the decision threatened its procured 10-year ICT contract and that the one-off payment was inadequate in present-value terms.

(i) Relief sought: judicial review of the Secretary of State’s 19 April 2011 decision to end declining-balance PFI grant and to make a one-off payment instead.

(ii) Issues framed by the court: whether there was a duty to consult or a procedural legitimate expectation; whether there was a substantive legitimate expectation to remain on declining-balance payments; whether the policy had been applied in a rigid and inflexible manner; whether the decision proceeded on an error of fact or failed to take relevant facts into account; and whether the Public Sector Equality Duty had been breached.

(iii) Court’s reasoning and conclusions: the court surveyed authorities on procedural and substantive legitimate expectation (including CCSU, Schemet, Bhatt Murphy and Luton). The judge concluded that in the particular circumstances a duty to consult arose: the claimant belonged to a small, identifiable class affected; the 2004 choice and the funding profile meant the impact on Dudley was pressing and focused; and the defendant had recognised consultation was appropriate. Applying the Gunning criteria, the court found consultation did not occur at a sufficiently formative stage because the January 2011 letter conveyed a decided position and the consultation that followed did not allow meaningful contest of the principle. Accordingly this ground succeeded. On substantive legitimate expectation the judge concluded there was no binding assurance which could fetter successor governments and the claim failed. The rigid-policy ground failed because ministers had considered representations and were prepared to consider exceptions. The error of fact claim failed because ministers were aware of the true contractual position by the time of the April decision. The s.149 Equality Act 2010 challenge failed because any adverse impacts were contingent and implementation choices lay with the local authority; the duty to have 'due regard' did not require action by the Secretary of State at the time. The remedy issues were reserved for consideration after the finding of unlawful procedure.

This was a first-instance decision. The court granted the claimant’s judicial review claim in part, finding that the Secretary of State owed a duty of procedural fairness to consult the claimant before applying the new annuity policy to its existing arrangements and that duty was breached because consultation did not occur at a formative stage in accordance with the Gunning principles. The court dismissed the other grounds: there was no substantive legitimate expectation to continue declining-balance payments, no unlawful rigid application of policy, no disqualifying error of fact at decision-making, and no breach of the Public Sector Equality Duty on the facts as they stood.

Permission to apply for judicial review was granted by HH Judge David Cooke (sitting as a High Court judge) on 6 September 2011. The claim was heard at first instance in the Administrative Court on 9 and 10 May 2012 and judgment was handed down by Singh J on 25 June 2012. No further appellate history is stated in the judgment.