Cornwall Council is facing up to a huge bill after failing to convince top judges that its defunct predecessors – Restormel and Penwith Councils – violated their public duties when they did a deal with a private landlord designed to house the homeless.
In October last year, a High Court judge ruled that the abolished councils had no regard to market rents when they agreed to pay millions for the right to put homeless people up in 30 properties owned by Charles Terence Estates Ltd (CTE).
Mr Justice Cranston ruled that leases entered into between the councils and CTE were not worth the paper they were written on because Restormel and Penwith acted outside their statutory powers.
However, that decision has now been reversed by the Court of Appeal, with the result that Cornwall will now have to meet its predecessors' contractual obligations to CTE, as well as having to pay the massive legal costs of the dispute.
The councils had put up more than £1m in "grants and loans" to assist CTE in the project which came to fruition in 2006 and 2007, and the company spent more than £8m itself, mainly funded by bank loans, personally guaranteed by its directors. However, after taking over the helm in the wake of the councils' abolition, Cornwall ceased paying rent to CTE, and demanded back the grants and loans, insisting the deal struck by its predecessor authorities was unlawful and void.
Allowing CTE's appeal yesterday, Lord Justice Maurice Kay, ruled that neither Restormel nor Penwith had breached the fiduciary duties they owed local taxpayers. The councils had wanted to obtain better quality, more cost-effective temporary accommodation for homeless, vulnerable, single people and the judge said it could not be said that the deal with CTE had achieved those objectives.
The judge, sitting with Lords Justice Moore-Bick and Etherton, added that, even if it had been proved that the councils breached their duties, that would not have been enough to make the leases agreed with CTE void.
In his ruling last year, Mr Justice Cranston accepted that CTE had "at all times acted in good faith".
There was no evidence that the housing benefit system had been abused, nor that tenants had been charged excessive rents, and CTE, which had borrowed heavily to buy and refurbish the properties, had had "no reason to doubt" the lawfulness of its contracts with the two councils.
Lawyers for Bournemouth-based CTE had argued that they leapt into the breach to fill the gap after the councils divested themselves of their housing stock and could find no other private landlord to help them house the homeless.
