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Negotiating the minefield of administrative decisions

July 2007 - Conflicts of interest. Legal Developments by Lewis Silkin LLP.

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There are many situations where decisions are made by organisations such as local authorities (during the tendering process, the grant of contracts or planning decisions, for example) or professional or disciplinary bodies where a party may wish to challenge the outcome. A party with an interest in a decision may feel aggrieved by the outcome due to what appears to be a conflict of interest by those making the decision, or the appearance of bias. This may have serious consequences for in-house lawyers acting for organisations subject to such decisions, and therefore this briefing is intended to provide a general overview of the areas to consider. Challenging judicial or quasi-judicial decisions where there is a conflict of interest was considered by James Levy in a previous briefing (IHL146, p37-40).

For the purpose of this article, conflicts of interest will be construed widely - to cover not only a direct conflict of interest, such as a party who has a financial interest in the outcome of a decision, but also bias, actual or apparent (for example, where someone who is a party to the decision-making process already has a pre-determined view as to the outcome and is therefore unable to consider a matter impartially). The briefing will provide an overview of the domestic law but there is not sufficient space to cover the relevance of the Human Rights Act 1998.

Types of interest

Where we talk about a potential conflict of interest for a decision-maker, an ‚Äėinterest' generally falls within one of two types of category:

Pecuniary interest

The regulation of situations where a decision-maker has a pecuniary interest in the outcome of a decision in administrative situations is usually governed by legislation (either primary or secondary) and there are often codes of conduct in place to govern how matters should be dealt with. The codes of conduct are often similar to the common law principles. The nineteenth-century case of Nutton v Wilson established the principle that the reason behind the rules is to avoid a conflict between private and public duty: that is, to stop a decision-maker from being exposed to temptation or the semblance of temptation. The codes generally provide for the regulation and declaration of interests, and the barring of participation in the decision-making process for those with a pecuniary interest. This can apply to decisions made by various bodies - including local authorities, public transport companies and school governors.

Non-pecuniary interest

There are various types of non-pecuniary interest, and they can include:

  • family or other connection;
  • an active interest in an organisation that is a party to the dispute;
  • some previous connection to the matter; or
  • some other manifestation that a party has a particular pre-conceived view or strongly held view on the matter.

In R v Secretary of State for the Environment, ex parte Kirkstall Valley Campaign Ltd, it was held that the common law test of bias is applicable when non-judicial bodies make decisions. Non-pecuniary interests are treated differently to pecuniary interests, and in each case the significance of the interest, and its degree of proximity or remoteness to the issue to be decided, will be relevant. Again, many of the situations are governed by codes of conduct covering declaration of interests and abstention from voting. In Kirkstall it was held that although there was no rule requiring a member to withdraw from a meeting, withdrawal was generally wise.

In R v Local Commissioner for Administration in the North and North East England, ex parte Liverpool City Council, the Council considered a planning proposal on behalf of Liverpool Football Club. The decision was subsequently deemed to amount to maladministration. The planning proposal had been approved as a result of block voting by the Labour majority on the council. However, seven Labour councillors failed to disclose their interest as season ticket holders or regular attendees of Liverpool Football FC. This was held to be a non-pecuniary interest and the decision was set aside.

The scope of the rule regarding non-pecuniary interests is less in administrative decisions, as opposed to a judicial or quasi-judicial decision. A description of this process was helpfully formulated by Woolf J (as he then was) in R v Secretary of State for Trade, ex parte Perestrello, who stated that when reaching an administrative decision it can be said the individuals carrying out the decision are:

‚Äė... acting in a policing role... it is wholly inappropriate for the case to be approached in the same way as one would approach a person performing a normal judicial role or quasi-judicial role - the situation where the person is making a determination.'

Indeed, in many administrative situations those who are deciding an issue in an administrative context have strong views and may have a definite view of the outcome of any application. Accordingly, bias can be part of the system. The requirement is to consider the matter impartially. In judicial or quasi-judicial cases the test for bias is whether a fair-minded and well-informed observer might conclude from all the circumstances that the tribunal was biased. In many administrative decisions that reasonable person will often conclude that there is bias. The fact that someone may be inclined towards a decision due to a policy they are implementing will not affect the validity of a decision, provided that they acted fairly and their minds were not closed to an argument.

We will now examine a number of administrative situations where potential conflicts of interest and bias can arise.

Local authorities

Tender process and contracts

The tender process is an administrative process rather than a judicial one. Decisions made by a local authority in the tender process can be challenged. In Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council it was held that a contractual term may be implied obliging an authority to consider an invitee's tender in conjunction with all other tenders that conform to the local authority's requirements.

The effect of a non-pecuniary interest affecting a party to a tender process was demonstrated in the Court of Appeal decision of Fairclough Buildings Ltd v Borough Council of Port Talbot. Fairclough was removed from a tender list as the Council's principal architect was married to a director of the company. Fairclough challenged the decision. The Council's decision was upheld by the Court of Appeal, which decided that the Council had acted reasonably. However, this can be compared to the Court of Appeal's decision in R v Holderness Borough Council, ex parte James Robert Developments Ltd, where it was held that a business rival of one of the bidders being in charge of the evaluation of tenders was not a sufficient reason to lead the Court to say that the procedure was unfair.

It should be noted that a decision to remove a contractor from an approved list is subject to judicial review, as a contractor has a legitimate expectation of fair treatment (see R v Bristol City Council, ex parte DL Barrett & Sons).

The Local Government Act 1972, ss94-98, provides that where contracts, proposed contracts or other matters are discussed in council or committee meetings, the members have to declare any pecuniary interest. Any members having such interests must not take part in the consideration or discussion of the contract or other matter, or vote on any questions. Failure by the individual member to comply with this provision is a criminal offence. However, a decision taken by a local authority in which a member should not have taken part is valid, except where the authority is acting judicially.

Local authority members are also governed by codes of conduct. On 4 April 2007, the government issued a revised Model Code of Conduct for members (The Local Authorities (Model Code of Conduct) Order 2007 - No 1159). Local authorities have until 1 October 2007 to adopt the new Code. In the meantime the Code issued in 2001 will continue to apply.

In outline, the effect of the relevant Codes is to extend the requirements of disclosure so that members must disclose private or personal non-pecuniary interests and may be required to take no further part in the proceedings. A breach of the Code amounts to a criminal offence and it may also be regarded as maladministration.

Planning decisions

There have been numerous decisions involving challenges in planning applications. In summary, a decision can be quashed where there is a real danger of bias. A decision will not be quashed if, for example, an individual councillor has expressed support for a particular policy, unless it can be shown that the decision-maker has pre-determined the question. There is not scope in this article to cover all the cases. However, a ‚Äėflavour' of the types of situations that may arise in planning cases may be gained from the box below.

Administrative decisions are made in various other situations and the following demonstrate the variety of circumstances where challenges to them can arise.

Reviewing licensing decisions

In R v Reading Borough Council, ex parte Quietlynn Ltd, a panel appointed by the council to consider and determine applications for licences for sex establishments was not a judicial body and therefore not subject to the rule against bias, unless it could not properly exercise its discretion.

However, in R v Chesterfield Borough Council, ex parte Darker Enterprises Ltd, another case involving a sex shop, it was held that the presence of a councillor, who was a director of the company situated next door to the shop, amounted to a contravention of the bias principle.

Trustee v beneficiaries

Re Drexel Burnham Lambert UK Pension Plan

Trustees of a pension scheme decided to dissolve the pension scheme on the liquidation of the company. The trustees had discretion to apportion any surplus. They were also beneficiaries under the pension scheme and therefore there was a conflict between their fiduciary duties and personal interest, which the deed and rules did not cover. It was held that the Court had jurisdiction to give directions to resolve the matter.

Sports agents

Newcastle United Plc v HMRC

The Code of Professional Conduct issued by the governing body of world football (Fédération Internationale de Football Association - FIFA) regulates contracts between football clubs, players and their agents. It was decided that it is highly likely that a conflict of interest would arise if an agent acted for both player and football club, but that did not automatically mean that a contract could not exist. It was decided that the contract might be a breach of the regulations, but the contract still existed.

Disciplinary hearings/inquiries

Disciplinary proceedings brought by various professional or trade bodies can also be subject to challenge:

  • R v Financial Intermediaries Managers and Brokers Regulatory Association (Fimbra), ex parte Cochrane

    A member of Fimbra was found to be in breach of Fimbra's rules and his membership was terminated. The member's argument concerning bias was rejected.

  • Flaherty v National Greyhound Racing Club (NGRC) Ltd

    Allegations of actual and apparent bias by stewards in breach of NGRC's implied duty of fairness under the contract between NGRC and a trainer were rejected.

  • R (on the application of SmithKline Beecham Plc) v Advertising Standards Authority (ASA)

    SmithKline Beecham Plc challenged a decision of the ASA that an advert was misleading. An expert employed by the ASA to advise it had previously made public comments concerning advertising that was the subject of the challenge. The application for judicial review was refused, as the expert had been an adviser and was not part of the decision-making process, as argued by SmithKline Beecham.

  • R v London Metal Exchange (LME) Ltd, ex parte Albatros Warehousing BV

    An allegation of bias was made against the appeal committee of the LME, which was considering an appeal against a fine imposed for breaches of the LME's rules. The allegation concerned the chief executive: it was alleged that he had been involved in the investigative stage and, by virtue of his position as chief executive, had a pecuniary interest in the outcome of the appeal. It was decided that the appellant had agreed to the role played by the chief executive, by reason of his contract with the LME.

Conclusion

Where there is a conflict of interest, whether it is due to a pecuniary or non-pecuniary interest, the question that arises is whether the decision can be challenged. As can be seen from the above cases, there may be a contractual remedy for breach of an implied obligation, or as a result of a breach of particular regulations. In addition, there is also the right to seek a judicial review.

Although judicial review is a public law remedy it does not just apply to decisions made by a body that derives its powers from statute or by government ministers. The court will look at the nature of the function being decided and, if it is a quasi-governmental function, may decide that judicial review is available. It is often a commercial decision as to whether to challenge a decision.

What is absolutely clear from the examples above is that each case has to be looked at in relation to its own facts. In addition, the nature of the alleged conflict of interest involved, whether pecuniary or non-pecuniary, will also be relevant. Hopefully, this outline gives some guidance to those parties whose organisations are subject to administrative decisions that have been made as a result of a conflict of interest.

Cases

Nutton v Wilson
[1889] LR 22 QBD 744

R v Secretary of State for the Environment, ex parte Kirkstall Valley Campaign Ltd
[1996] 3 ALL ER 304

R v Local Commissioner for Administration in the North and North East England, ex parte Liverpool City Council
[2001] 1 ALL ER 462

R v Secretary of State for Trade, ex parte Perestrello
[1981] QB 19

Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council
[1990] 1 WLR 1195

Fairclough Buildings Ltd v Borough Council of Port Talbot
[1992] 62 BLR 82

R v Holderness Borough Council, ex parte James Robert Developments Ltd
[1993] 66 P&CR 46

R v Bristol City Council, ex parte DL Barrett & Sons
[2001] 3 LGLR 11

R v Reading Borough Council, ex parte Quietlynn Ltd
[1986] 85 LGR 387

R (on the application of Port Regis School Ltd) v North Dorset District Council and Gillingham and Shaftesbury Agricultural Society
[2006] EWHC 1373

R v Hendon RDC, ex parte Chorley
[1933] 2 KB 696

Halifax Building Society v Secretary of State for the Environment
[1983] 267 EG 679

R v Chesterfield Borough Council, ex parte Darker Enterprises Ltd
[1992] COD 466

Re Drexel Burnham Lambert UK Pension Plan (Ch D)
[1995] 1 WLR 32

Newcastle United Plc v HMRC
[2007] EWHC 612

R v Financial Intermediaries Managers and Brokers Regulatory Association, ex parte Cochrane
[1990] COD 33

Flaherty v National Greyhound Racing Club Ltd
[2005] EWCA Civ 1117

R (on the application of SmithKline Beecham Plc) v Advertising Standards Authority
[2001] EWHC Admin 6

R v London Metal Exchange Ltd, ex parte Albatros Warehousing BV
[2000] WL 331143

Planning decisions - Examples of challenges

R (on the application of Port Regis School Ltd ) v North Dorset District Council and Gillingham and Shaftesbury Agricultural Society

One of the rooms of a pavilion to be erected on a new agricultural showground was to be set aside for a Masonic Lodge. Two councillors on the planning committee had declared that they were Freemasons under the Local Authorities Code of Conduct, but neither had declared their interests as Freemasons at the relevant meeting. They attended the meeting and voted. The councillors did not feel that the fact they were Freemasons gave rise to a prejudicial interest. The Court decided that a fair-minded observer would not conclude that there was a real possibility of apparent bias. An appeal has been lodged.

R v Hendon RDC, ex parte Chorley

In a further case, the potential purchaser of a certain site applied for planning permission to build on the site. The permission safeguarded the applicant's right to compensation. One of the councillors who voted for the grant of permission was an estate agent acting for the site owner. It was held that the councillor was biased or his interest was such as to disqualify him.

Halifax Building Society v Secretary of State for the Environment

It has also been held that where there was such a degree of hostility and no attention given to the evidence by the inspector conducting the public inquiry, it gave the impression to reasonable people attending the inquiry that justice was not being done.

By Simon Bagg, associate, Lewis Silkin LLP.

E-mail: simon.bagg@lewissilkin.com.