Council in advanced negotiations to sell Connect 38, but was purchase lawful?

Folkestone & Hythe District Council are looking to sell Connect 38 – Ashford; which they bought for £16.8m, on the 14 May 2019. However, no evidence exists of a payment to the supplier in the Council’s data. After consideration of the avaliable evidence, it is our honest opinion, there exist doubts as to whether the Council had the legal powers to purchase the property, in the first instance.

On the 9 March 2019, we announced Folkestone & Hythe District Council were to purchase the building known as Connect 38 (pictured) in Ashford, for between £16 -17m.

Three days later – 13 March 2019 – behind closed doors, the then Cabinet meeting at 5pm, approved the purchase of Connect 38, as per report A/18/26. On the same day, at the Full Council meeting at 7pm, they too received report A/18/26, behind closed doors.

Back up two months, and the Head of Paid Service & Chief Executive of Folkestone & Hythe District Council, Dr Susan Priest (pictured), informed the public via a Statutory Notice, dated the 10 Jan 2019, that a report would go to Cabinet on the 13 March 2019, about the purchase of a Commercial property [Connect 38] and it would be heard behind closed doors.

Within two months, the Council had purchased the building for £16,819,406, on 14 May 2019, according to the Land Registry.

In our honest opinion the Council acted unlawfully in purchasing the property, this was because:

(i) It could not rely on the “general power of competence”(GPOC) in the Localism Act 2011 (which allows local authorities to do anything which an individual may do) because local authorities acting for a commercial purpose must do so through a company. Local authorities may only rely on GPOC when doing things for a commercial purpose if they do them through a company (section 4(2) LA 2011). The Council was not acting through a company in this case It did not purchase the property through a company, but rather in its own name. And it was for a commercial purpose. The yeild was estimated at 5-7%.

The title deed from the Land Registry, makes it clear Folkestone & Hythe District Council purchased Connect 38 in their own name, rather than through a company – such as Oportunitas Ltd, Otterpool Park LLP, as was necessary.

(ii) It cannot not rely on the power to acquire land (section 120 Local Government Act 1972), because the purchase of the property was not for “the benefit, improvement or development of [the authority’s] area“; the purchase was simply made for investment purposes (i.e., to make a profit). Any benefit to FHDCs area (through an increased income) was, and is, too indirect.

(iii) The powers to borrow and invest in sections 1 and 12 of the Local Government Act 2003 must be exercised for purposes relevant to the Council’s functions (not relevant here as none were specified or are identifiable) or for “the purposes of the prudent management of its financial affairs”.

The Council was required by the Local Government Act 2003 to have regard to the (then) Guidance on Local Government Investments (third edition, Feb 2018), as was applicable at the time. That guidance recommended the preparation of an annual investment strategy containing policies for the management of the authority’s investments. It states:

The Government believes that local authorities need to be better at explaining “why” not just “what” they are doing with their investment activity. That means that the sector needs to demonstrate more transparency and openness and to make it easier for informed observers to understand how good governance and democratic accountability have been exercised.

A statutory duty “to have regard” to guidance, as mentioned, does not mean the council is always required to follow that guidance. Rather, it means the local authority must give proper consideration to the guidance and if it proposes to depart from it, the authority must identify clear (proper and legitimate) reasons for doing so. But with the decision taken behind closed doors at Cabinet and full Council, it is not clear to the local ratepayer what clear (proper and legitimate) reasons they had for moving away from the Council’s own investment strategy.

All Councils are required to produce an Annual Investment Strategy. The acquisition of Connect 38 is not directly, or indirectly, mentioned in the 2018/19 investment strategy. Which is the relevant year, as it was approved lawfully in March 2019.

The investment strategy for 2018/19, went to Overview & Scrutiny on the 27 Feb 2018. On the next day, 28 Feb 2018, at 4pm, Cabinet approved to submit the proposed Investment Strategy for the financial years, 2018/19, to full Council on 28 February 2018, at 7pm. The vote was: 23 for, 0 against, 3 abstentions.

The definition of an investment covers all of the financial assets of a local authority as well as other non-financial assets that the organisation holds primarily or partially to generate a profit; for example, investment property portfolios. This may therefore include investments that are not managed as part of normal treasury management processes or under treasury management delegations.

No informed observer knows if the purchase was achieving Best Value for money, as all the commercial & financial information within the report, was hidden behind closed doors, by virtue of Part 1 of Schedule 12A to the Local Government Act 1972, s3.

Furthermore, there is no record in the Council’s payment data, between 2012 & 2022 for the sum of £16,819,406. or anything close to it. The top ten payments between that time are as follows:

As such we can only conclude, from the payment to supplier data published by the Council, that no payment between £15m – £20m has been paid, nada, zero.

How has the Council lost this payment from their data?

Is this further evidence of poor internal controls?

You can mull that over.

Moving on, The Shepway Vox Team, can disclose the Council are in the process of selling Connect 38, and the price will be more than they purchased the property for. Canny business you may say.

This is public money without any record of a payment to the supplier, in the Council’s payment data. Without fall back on the power to acquire land under section 120 Local Government Act 1972. Not purchased by a Company. A demonstrable lack of public evidence of regard to such an investment, as it is not mentioned, directly or indirectly, within the Investment Strategy for 2018/19.

In order to act lawfully, a local authority must not only possess the necessary powers to take the relevant action, but also exercise those powers within the limits of the law. Not forgetting their fiduciary duty established in law under Attorney General v De Winton 1906, when the judge determined that the treasurer [s151 officer] of a local authority held a fiduciary duty to the local taxpayer. This duty is at the core of the s151’s role.

With this in mind, and separately from the issue of legal powers (which we acknowledge may be open to interpretation, and only a Court could definitively decide), we have considered the evidence available. It is our honest opinion, and belief, the Council acted unlawfully in the way it exercised it powers it had to purchase Connect 38.

As always, we’ll leave you to mull over whether the Council did, or did not, act unlawfully.

The Shepway Vox Team

Dissent is NOT a Crime

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