LORD JUSTICE GLIDEWELL: This is an appeal against a judgment of Pill J given on 28 April 1992 when he found in favour of the Plaintiffs, Iswlyn BC and Gwent CC in this action against Newport BC. The Judge granted the following declarations:
1. That the Defendant is not lawfully entitled to
withdraw from participation in the Risca Area Joint
Committee for leisure services without the consent of the Plaintiffs and each of them.
2. That the Defendant is not lawfully entitled to
refuse to pay less than 25% of the annual running costsof the Risca leisure complex.
The Judge also dismissed the Defendant's counter-claim.
The action arose out of a dispute between the three Authorities as to whether an agreement made between them in 1977 for the construction and funding of a leisure complex is still binding upon all three Authorities. This question in turn depends upon whether the agreement was not terminable during the expected life of the complex or, alternatively, could be terminated by reasonable notice given by one of the parties to the agreement.
The leisure complex is in Risca, in Islwyn Borough, adjoining its boundary with Newport Borough. Both are in the County of Gwent. All these Authorities came into existence on 1 April 1974 under the provisions of the Local Government Act 1972. The predecessor Authorities in the area in which the leisure complex lies were:
Risca UDC - now Iswlyn,
Monmouthshire CC - now Gwent, and
Magor & St Mellons RDC - now Newport.
In 1970/71 Monmouthshire CC (as Local Education Authority) were considering the construction of a new comprehensive school on a site at Risca known as Pen-y-Fan. From that time onwards there were discussions with the UDC and the RDC about the prospect that the sports facilities at the school might be put to dual use, ie be available for use not only by school children but by other members of the public outside school hours. These discussions continued until 1977, with the assistance of periodic reports from joint meetings of officers of the three Authorities.
In 1977, the present parties to the action reached an agreement which provided for the funding of the construction and running of the leisure complex. That agreement was embodied in a Memorandum of Agreement which was intended to be formally executed by all three Councils. For reasons which have not been explained to us, none of the Councils did execute the agreement.
Nevertheless all three parties are agreed that the document exhibited in the papers before us as the Memorandum of Agreement contains the terms which they all agree and by which they are all bound.
The Memorandum of Agreement
The preamble of the agreement reads as follows: "Whereas were to be referred to arbitration, provision being made for the appointment of an arbitrator if the parties failed to agree on one.
In my view this clause provided for arbitration about any difference or dispute between the parties either as to the total expenditure of the Joint Committee or as to the proportion each Council should pay. There was an argument that the arbitration clause covered only the latter, not the former provision in clause 13, but I think this is of no significance because even if this argument were correct the effect would be that the Council which was not willing to approve the total expenditure would in effect be saying that it would be unwilling to contribute more than a particular sum towards the expenditure, and a dispute about whether this was a proper contribution would clearly be the subject of arbitration.
The nature of this agreement is therefore much more akin to the agreement in the LLanelly Railway case than to that in the Staffordshire Area Health Authority case. In my view the inclusion of this agreement of the arbitration clause, which enables the Defendant to propose at any time that the amount of the total expenditure which it should bear in the ensuing year should be reduced, and for any dispute about this to be referred to arbitration, points strongly towards the conclusion that the agreement that the three parties should be members of the Joint Committee was intended by them all when entered into not to be terminable. In other words, an agreement to continue to operate the joint leisure complex for the duration of its likely life, which made provision for the alteration of the proportions of the total expenditure which each Council should contribute, and for arbitration in the event of the disputes arising between them, seems to me accurately to reflect what I conclude the three parties intended when the agreement was made.
Additional argument on whether agreement terminable
Before us, Mr Macleod has advanced another argument to which there is no reference in the judgment of Pill J, because, I believe, the argument was not advanced before him. It depends upon the terms of section 101 of the Local Government Act 1972. This is the first section in Part VI of the Act, which is concerned with "Discharge of Functions".
Section 101(1) of the 1972 Act provides: "Subject to any express provision contained in this Act ... a Local Authority may arrange for the discharge of any of their functions -
(a) by a committee, a sub-committee or an officer of the Authority; or
(b) by any other Local Authority."
Sub-sections 2 and 3 carry this process further by providing that if an Authority has delegated functions to a committee, or a sub-committee or another Authority, that committee, sub-committee or other Authority may itself, in turn, sub-delegate.
Section 101(4) provides:
"Any arrangements made by a Local Authority or committee under this section for the discharge of any functions by a committee, sub-committee, officer or Local Authority shall not prevent the Authority or committee by whom the arrangements are made from exercising these functions."
So far these four sub-sections provide a self-contained code under which a Local Authority may delegate any of its functions, subject to its power to withdraw that delegation and exercise the functions itself. Similarly a committee may sub-delegate and withdraw the sub-delegation.
Section 101(5) reads:
"Two or more Local Authorities may discharge any of their functions jointly and, where arrangement are in force for them to do so -
(a) they may also arrange for the discharge of those functions by a joint committee of theirs or by an officer of one of them and sub-section 2 above shall apply in relation to those functions as it applies in relation to the functions of the individual authorities ...".
Mr Macleod submits that section 101(5) must be read with section 101(4). Thus read, any one of the Local Authorities which are parties to the agreement to set up the Risca Area Joint Committee, may withdraw from that Joint Committee the power to exercise its functions, just as it may withdraw the power to discharge a function from one of its own committees to which it has delegated such a function. This in effect is what in seeking to terminate the joint agreement Newport has done.
I have read in draft the judgment of Roch LJ, and I wholly agree with what he says about this argument. However I think it right to express my views shortly in my own words. I also conclude that there are two reasons why
Mr Macleod's argument is wrong. They are:
a) Section 101(5) does not refer to section 101(4), but does refer to section 101(2), thus empowering a joint committee constituted under section 101(5) to sub-delegate. This of itself is a strong indication that section 101(5) is not to be read subject to, or to incorporate the provisions of, section 101(4).
b) If it were not for the fact that Mr MacLeod's argument appeals to Hirst LJ, I would be tempted to say that it contains a logical fallacy. What section 101(4) entitles a Local Authority to do is to exercise itself a function which it has delegated to a committee etc, and thus to withdraw the delegation. But Newport is not seeking to exercise the functions which, by agreement, have been entrusted to the Joint Committee. It is seeking to the exact opposite, ie to cease to play any part in exercising those functions. It follows that even if section 101(5) were to be read as subject to section 101(4), this would not achieve the result for which Mr Macleod contends.
Conclusion
It follows that I agree with Pill J that the Defendant was not entitled under the agreement to give notice of termination of it. I would uphold his judgment on this issue.
Frustration of section 42 of the Act of 1986
Section 42 of the 1986 Act which came into force on 1st September 1987 provides:
"The Articles of Government for every County and maintained special school shall provide -
"a) for the use of the school premises at all times other than during any school session, or break between sessions on the same day, to be under the control of the Governing Body;
"b) for the Governing Body to exercise control subject to any direction given to them by the Local Education Authority and in so doing to have regard to the desirability of the premises being made available (when not required by or in connection with the school) for use by members of the community served by the school."
Section 42 is the last section in Part III of the 1986 Act, which commences at section 16. Section 16(1) provides:
"The Articles of Government for every County ... school shall provide for the conduct of the school to be under the direction of the Governing Body, but subject to any provision of the Articles conferring specific functions on any person other than the Governing Body..."
Submissions
The argument by Mr Macleod for Newport can be summarised as follows:
a) The leisure centre is and was part of the school premises within the meaning of section 42. There is no definition of the phrase "school premises" in the 1986 Act, but by section 67(3) the Act is to be construed as one with the 1944 Act. Section 114(1) of the 1944 Act defines the word "school" as "means an institution for providing primary or secondary education... being a school maintained by a Local Education Authority".
The section also defines "premises" as "in relation to any school," includes any detached playing fields, but, except where otherwise expressly provided, does not include a teacher's dwelling-house. It follows from this that the normal meaning of school premises must embrace all the land and buildings occupied and used for the purposes of a school as defined in the 1944 Act. It is agreed that the Risca Comprehensive School is a County school maintained by the Local Education Authority. It follows that the leisure centre is an integral part of the school premises.
b) Until the 1986 Act came into force, the leisure centre was managed by the Joint Committee.
c) When the 1986 Act came into force, the use of the leisure centre outside school hours was required by section 42 to be put under the control of the Governing Body of the school.
d) From the time onwards continuation of the management of the leisure centre, being part of the school premises, by the Joint Committee was unlawful.
e) Therefore the Agreement between the three Authorities was frustrated and ceased to have effect. As to what constitutes frustration of the Agreement in these circumstances, Mr Macleod refers us to paragraph 1647 of the current (26th edition) of Chitty on Contracts which starts:
"A subsequent change in the law or in the legal position affecting a contract is a well recognised head of frustration; Parliament ... may intervene by legislative action ... so as to effect the legal situation of the contracting parties."
In Baily v. De Crespigny (1869) LR 4 QB 180, a lessor had covenanted that neither he nor his assigns would build on a piece of land adjoining the demised premises. A railway company, under powers derived from a subsequent private Act, compulsorily acquired the land and erected a station on it. The full Court of Queen's Bench held that this relieved the lessor from his liability under the lease. Hannen J, giving judgment of the court, quoted a brief passage from an earlier decision in Brewster v. Kitchell to this effect:
"Where H covenants not do to an act or thing which was lawful to do, and an Act of Parliament comes after and compels him to do it, the statute repeals the covenant. So if H covenants to do a thing which is lawful, and an Act of Parliament comes in and hinders him from doing it, the covenant is repealed."
Mr Macleod submits that the second part of this passage applies precisely to the present case.
He also supports his submission by reference to the Education Bill 1993 which is at present before the House of Lords. If this Bill is enacted in its present form, it will replace the present section 42 of the 1986 Act by a new section of which paragraph (a) requires that the Articles of Government shall provide:
"For the use of the school premises outside school hours to be under the control of the Governing Body except to the extent provided by any transfer of control agreement under which they may enter by virtue of paragraph (c) below."
Paragraph (b) is in much the same terms as paragraph (b) of the present section, but there are added two new sub-paragraphs, which give the Governing Body power to enter into a transfer or control agreement so as to promote community use of the school premises outside school hours. Mr Macleod argues that this amendment would not be necessary unless section 42 as at present enacted has the effect for which he contends. Moreover, under the authority of the recent decision of the House of Lords in Pepper v. Hart (1992) 3 WLR 1032, he has referred us to the report in Hansard of the debate in the House of Lords on amendments to the Bill. When the appropriate part of the Bill was under consideration, Lord Henley, the Government Minister in charge of the Bill in the Lords, said:
"The effect of these amendments would be to ensure Governing Bodies of both voluntary and County schools may enter into transfer of control agreements which provide for some community use of a school's premises when not required for the purposes of the school during school hours as well as outside of school hours. The purpose of this part of schedule 12 is to remove the current barriers to joint managment arrangements where there is shared school and community use of a school's premises typically in the case of dual use sports' facilities. The schedule rectifies an unintended consequence of earlier legislation."
Lord Dean of Beswick, welcoming the provisions of the Bill said:
"They begin to remedy the Government's mistake in the Education (No 2) Act 1986 where School Governors were given the duty of controlling the use of school premises outside school hours. They cannot delegate that responsibility. At a stroke existing arrangements for joint school and community use of premises were rendered void. Arrangements continue on the basis of goodwill but could not withstand legal challenge."
Before this court Lord Irvine, for the Plaintiffs, repeats the submissions he had made on this aspect of the case before Pill J, which were mainly directed to persuading us that, properly construed, the leisure centre did not constitute part of "school premises" within the meaning of section 42.
That argument persuaded the learned Judge. In the transcript of the judgment at page 17A he said:
"I agree with that approach. Having regard to the purposes of the Statute, I do not consider that the leisure centre comes within the meaning of school premises as used in section 42. It is also difficult to see how section 42B, with its reference to community use, can apply to premises already committed to community as well as educational use. Further, even if the premises are "school premises", the section does not, in my judgment, have the effect claimed by the Defendants. The section specifies what shall be included in Articles of Government. I assume for present purposes that there are Articles of Government and that they include a provision which complies with section 42A.
The presence of that provision does not, in my judgment, override contractual rights if a premises such as those conferred in the Memorandum of Agreement. Had Parliament intended the section to override such rights I would have expected specific provision to have been made."
Conclusion
i) I agree with Mr Macleod that the leisure centre forms part of the "school premises" for the purposes of section 42. In my judgment the school premises of the Risca Comprehensive School include all the land shown within the boundary of the school's site on the plan attached to the Joint Officers' Report of April 1975, including all the buildings and other structures erected on that land. The recreation block is attached to the other two buildings, and the buildings and the all-weather pitch are surrounded by the remainder of the school site. Moreover they are all used for the purposes of education at the school, and form an integral part of the school. In my view therefore in the ordinary meaning of the term, all these facilities are part of the school premises. The fact that the recreation block and the all-weather pitch are being used as leisure centre by members of the public outside school hours does not, in my view, with respect to the Judge, take them outside of the meaning of the phrase "school premises".
ii) The argument advanced by Mr Macleod that section 42 has the effect of frustrating the Agreement between the parties for the maintenance of the leisure centre through the Joint Committee is powerful. Section 42 is not, in my view, particularly well worded, and the fact that it has been thought desirable to amend it in subsequent legislation is an indication that it has proved troublesome.
Nevertheless, in my judgment section 42(b) clearly provides that a Local Education Authority is empowered to give directions to a Governing Body which will ensure continued use of the leisure centre outside school hours by members of the public generally. This provision empowers the LEA to direct the Governing Body to delegate the management of the leisure centre to the Joint Committee, subject of course to the power of the Governing Body to ensure that the Joint Committee exercise their power of management in a way which does not conflict with the educational requirements of the school. If there were any doubt as to whether section 42(b) had this effect, it is in my view put at rest by the provisions to which I have already referred in section 16(1), that the Articles of Government may provide for the conferring of specific functions on any person other than the Governing Body. This provision is wide enough in my view to make it clear that the LEA can, by direction to the Governing Body, require it to delegate the management of the leisure centre to the Joint Committee.
It is true that the provisions of the 1993 Bill spell out this effect with greater clarity than do those of the existing 1986 Act. Nevertherless in my judgment the power in the Local Education Authority to ensure that the Joint Committee continue to manage the leisure centre in accordance with the agreement between the three Authorities is already granted by the provisions of the 1986 Act to which I have referred. Insofar as Lord Dean thought otherwise, I respectfully disagree with him.
The evidence put before the Judge and before this court does not inform us what the provisions of the Articles of Government in relation to this matter now provide. If they do not comply with section 42(a), then it appears that the Local Education Authority is in breach, a breach with the Secretary of State could require them to rectify if he thought it right to do so. But since Articles of Government which did comply with section 42(a) could, following the view I have expressed above, entrust the management of the leisure centre to the Joint Committee, and thus enable continued compliance with the terms of the Memorandum of Agreement, section 42 of the 1986 Act did not, in my judgment, have the effect of putting it out of the power of the parties to the Agreement to perform it. Thus I conclude that the coming into force of section 42 did not frustrate the Agreement between the parties.
For those reasons, I would uphold the decision reached by Pill J and, subject to one point of detail, dismiss this appeal.
The second declaration contained in the Judge's Order, which was in the terms sought by the Plaintiffs, reads:
"That the Defendant is not lawfully entitled to refuse to pay less than 25% of the annual running costs of the Risca Leisure Complex."
In my view, as it stands, this is too sweeping. It should have added to it some such words as:
"unless the parties hereto agree or the procedure provided by clause 17 of the Memorandum of Agreement has been utilised."
LORD JUSTICE HIRST: I gratefully adopt Glidewell LJ's statement of the facts and I shall consider the two main points at issue in the same order.
Was the agreement terminable?
Applying the test laid down in the Spenborough Corporation and Staffordshire Area Health Authority cases, the correct approach in order to determine the common intention of the parties in a case like the present is to examing three critical factors viz:-
1. What the parties said or omitted to say in the agreement itself;
2. The nature of the agreement;
3. The context and circumstances in which the agreement was made.
I take these in turn.
- The clause which seems to me to bear most directly on the problem in Clause 13(i) of the agreement which provides:-
"13. i) Proposals by the Joint Committee for expenditure whether or not of a capital nature shall be considered by the said Councils and such expenditure shall not be incurred unless approved by those Councils.
In my judgment Mr Macleod is right in his submission that this clause in its natural and ordinary meaning clothes each Authority with a right of veto over the Joint Committee's budget both for capital and running expenditure, provided, of course, as Mr Macleod accepts, that their decision is not made mala fide or irrationally.
Bona fide and rational disapproval by an Authority might come about for a number of reasons eg change of policy, financial stringency, reduction of user by their community, or simply disagreement with a particular budgetary proposal. The facts of the present case are a good illustration of the last example, since Newport objected at the first instance to a proposal for substantial capital expenditure.
I cannot accept Lord Irvine's submission that such a construction is alien to the essence of the agreement, namely a joint venture imbued with mutual goodwill, since the parties themselves chose to qualify their level of co-operation by including Clause 13(i) in the agreement. In any event there is no presumption in law, as Buckley J emphasised in the Spenborough case, that a joint venture is not terminable; this decision is in my judgment authoratative having been approved in the Court of Appeal in the Staffordshire case (at pp 1399G and 1406F)
Nor can I accept Lord Irvine's submission that Clause 13(i) must be subject to the rider that consent should not be unreasonably withheld which (he argued) would be for the arbitrator to adjudicate. To my mind it would be anomalous for a Local Authority to submit their decisions on policy, or their financial control, to outside arbitration, unless required to do so by statute (see below.) In any event, I do not think it is permissible to re-write Clause 13(i), in the manner suggested; nor do I consider that the arbitration clause has any impact on Clause 13(i) which confers a sovereign right on each individual Authority. Any suggestion of bad faith or irrationality would be susceptible to judicial review.
On the other hand once the budget is approved under Clause 13(i) any dispute as to apportionment would fall within the scope of the arbitration clause, as required by Section 103 of the Local Government Act, 1972.
In my judgment Clause 13(i), so construed, is a significant pointer in favour of a common intention that the agreement should be terminable. I can find nothing in the agreement pointing the opposite way.
- The essential feature of this agreement is that it is a joint venture in which the three parties are Local Authorities, so that all three share the common characteristics of such bodies, in particular that they are subject to periodic changes of political control leading to changes of policy, and also that they are vunerable to financial constraints imposed by central government. Thus the essential nature of the agreement tends to my mind to diminish the likelihood that these three bodies would have intended to bind themselves irrevocably for several decades to a joint project of this kind.
- The context and the circumstance in which the agreement was made are described in the recitals in the preamble. Of these, recitals (3)-(5) inclusive specify the statutory foundation for a joint venture between Local Authorities, namely the Local Government Act 1972, sections 101 and 103, which are specifically cited, and which come within Part VI of the Act headed "Discharge of Functions".
Section 101 (1-6) provides:
Arrangements for discharge of functions by local authorities
"101 - (1) Subject to any express provision contained in this Act or any Act passed after this Act, a local authority may arrange for the discharge of any of their functions --
(a) by a committee, a sub-committee or an officer of the authority; or
(b) by any other local authority.
(2) Where by virtue of this section any functions of a local authority may be discharged by a committee of theirs, then, unless the local authority otherwise direct, the committee may arrange for the discharge of any of those functions by a sub-committee or an officer of the authority and where by virtue of this section any functions of a local authority may be discharged by a sub-committee of the authority, then, unless the local authority or the committee otherwise direct, the sub-committee may arrange for the discharge of any of those functions by an officer of the authority.
(3) Where arrangements are in force under this section for the discharge of any functions of a local authority by another local authority, then, subject to the terms of the arrangements, that other authority may arrange for the discharge of those functions by a committee, sub-committee or officer of theirs and subsection (2) above shall apply in relation to the functions of that other authority.
(4) Any arrangements made by a local authority or committee under this section for the discharge of any functions by a committee, sub-committee, officer or local authority shall not prevent the authority or committee by whom the arrangements are made from exercising those functions.
(5) Two or more local authorities may discharge any of their functions jointly and, where arrangements are in force for them to do so,
(a) they may also arrange for the discharge of those functions by a joint committee of theirs or by an officer of one of them and subsection (2) above shall apply in relation to those functions as it applies in relation to the functions of the individual authorities; and
(b) any enactment relating to those functions of the authorities by whom or the areas in respect of which they are to be discharged shall have effect subject to all necessary modifications in its application in relation to those functions and authorities by whom and in the areas in respect of which (whether in pursuance of the arrangements or otherwise) they are to be discharged.
(6) A local authority's functions with respect to levying, or issuing a precept for, a rate [...] Shall be discharged only by the authority."
Section 103 provides:
Expenses of joint committees
"103. The expenses incurred by a joint committee of two or more local authorities whether appointed or established under this Part of this Act or any other enactment shall be defrayed by those authorities in such proportions as they may agree or in case of disagreement as may be determined --
(a) in any case in which those authorities are the councils of parishes or communities or groups of parishes or communities situated in the same
district council; and
(b) in any other case, by a single arbitrator agreed on by the appointing authorities or, in default of agreement, appointed by the Secretary of State."
Section 101(5) governs the present agreement.
Section 101(4) expressly reserves to an Authority which has made arrangements "under this section" for the delegation of their functions to a "committee or officer" to exercise these functions themselves.
Mr Macleod submits that section 101(4) applies to the whole section, including section 101(5); and that as a necessary corollary an Authority which is entitled to withdraw delegated functions from the Joint Committee must be entitled to withdraw from the agreement itself.
Lord Irvine contends that, having regard to the structure of the section, [sub-section (5) following sub-section (4)] the former must be outside the scope of the latter; and that this is underlined by section 103.
However, if Parliament had intended section 101(5) to fall outside the ambit of section 101(4), they would surely have so stipulated; as it is, section 101(4) expressly embraces " any arrangements made ... under this section", which covers the ensuing as well as the preceding sub-sections. The order in which the sub-sections are placed therefore has little if any significance, especially as section 101(6) reverts to delegation within a single Authority.
Section 103 only regulates the apportionment of the expenses of the Joint Committee, and the machinery for resolving disagreements thereon, and has in my judgment no bearing on section 101(4).
Thus the statutory context seems to me the most telling point against the parties having intended the agreement to be permanent.
Taking all these factors in combination, I find they strongly support Mr MacLeod's submission. I fully recognise that, as Lord Irvine repeatedly stressed, this was a joint venture involving mutual trust, which must be taken into account on the other side of the balance; however, as already noted, there is no legal presumption that such ventures are permanent.
In my judgment, having weighed carefully all these considerations, the proper inference to be drawn is that the agreement is terminable on reasonable notice. It is no longer in dispute that the two years' notice given by Newport was reasonable.
Section 42 of the Education Act (No 2) 1986
I respectfully agreee with Glidewell LJ, for the reasons he gives, that the Leisure Centre forms part of the school premises, and that therefore section 42 comes into play. This disposes of Lord Irvine's main argument under this heading.
Clause 11(b) of the agreement specified, as one of the functions which the Joint Committee "shall discharge", the management of the Leisure Centre.
This was objectionable prior to the coming into force of section 42(a), and thereafter also provided, but provided only, the LEA had given a direction under section 42(b).
The Act received the Royal Assent on 7 November 1986, but section 42 did not come into effect until 1 September 1987, pursuant to the Education (No 2) Act 1986 (Commencement No 2) Order 1987 SI 1987/344. Thus the LEA, in this case the second Plaintiffs Gwent, were given nearly ten months to issue a direction under section 42(b) if they chose to do so.
It was in my judgment for them to prove (if it be the case) that such a direction was given, so as to take the case out of the very clear and categorical requirement of section 42(a); they have not led any evidence to that effect.
It follows in my judgment that section 42(a) applies, and that the conclusion is inescapable that from 1 September 1987 onwards it became unlawful for the Joint Committee to manage the Leisure Centre, the use of which would to a very substantial extent (almost certainly predominantly) fall outside school hours, ie at times when the Governing Body of the school was under a statutory duty to control its use seeing that it forms part of the school premises.
As a result, the agreement was in my judgment frustrated by supervening illegality. In the words of Brewster v. Kitchell 1 Salk. 198 [quoted with approval in the leading case of Bailey v. de Crespigny (supra)], the parties having covenanted to do something lawful, and section 42(a) having come in and hindered them from doing it, the covenant was repealed, leaving the Joint Committee powerless to fulfil their central function of management of the Leisure Centre.
I cannot accept that the mere existence of a power in the LEA under section 42(b) [or under section 16(i) if applicable] renders legal what is otherwise illegal under section 42(a). Indeed I question whether the section 16(1) is even relevant, seeing that it regulates the conduct of the school, not the control of the use of the school premises out of school hours, which is expressly governed by section 42.
This conclusion is in line with the Minister's interpretation of section 42(a) in the House of Lords debate on the Education Bill on 10th May 1993, but I do not myself find any ambiguity in the section such as would justify recourse to Hansard under the rule in Pepper v. Hart.
For these reasons I would allow this appeal.
LORD JUSTICE ROCH: The facts of this case are to be found in the judgments of My Lord, Lord Justice Glidewell and the judgment of Mr Justice Pill and I gratefully adopt their expositions of those facts.
I shall refer to the three Local Authorities involved in this dispute as Islwyn, Gwent and Newport.
The first issue to be decided is whether Newport's purported withdrawal from the 1977 agreement on the
22nd March 1988 was lawful, it being accepted that the period of notice given by Newport was reasonable?
The memorandum of agreement was not the whole of the agreement made between the 3 local authorities. For example it did not deal with contributions of each authority to the capital cost of the scheme, nor did it deal with the question of the ownership of the facilities constructed with the capital sums contributed by the 3 authorities. The arrangements for those matters have to be ascertained by looking at other contemporaneous documents and records, for example the joint report of April 1975 referred to by My Lord, Lord Justice Glidewell.
It is common ground that the 3 authorities did not provide for the withdrawal or one or more of them from the 1977 agreement. The position is therefore as stated by Buckley J as he then was in Spenborough Corporation v. Cooke Sons and Company Ltd [1986] Ch 139 at page 147 B:
"Since ex hypothesi such an agreement contains no provision expressly dealing with determination by the party who asserts that this should be inferred, the question is not one of construction in the narrow sense of putting a meaning on language which the parties have used, but in the wider sense of ascertaining, in the light of all the admissible evidence and in the light of what the parties have said or omitted to say in the agreement, what the common intention of the parties was in the relevant respect when they entered into the agreement. It is of the nature of this problem that he who asserts that the parties intended something which they omitted to state expressly must demonstrate that this was so. Counsel for the Corporation accepts this. The court does not, however, in my judgment, lean one way or the other. Lord Selbourne in Llanelly Railway and Dock Company and London and North Western Railway Company and James LJ in the same case in the Court of Appeal said, I think, nothing inconsistent with this (see per Lord McDermott in Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd). An agreement which is silent about determination will not be determinable unless the facts of the case, such as the subject matter of the agreement, the nature of the contract or the circumstances in which the agreement was made, support a finding that the parties intended that it should be determinable. But there is, in my judgment, no presumption one way or the other."
It can be observed at this stage, that if it was the common intention of the parties that each should have the right to withdraw from this joint scheme at any time, then it is surprising that that common intention did not find expression in the memorandum of agreement or in any other contemporaneous document, but it did not do so.
I, for my part would accept the observation of
Buckley J that the court does not lean one way or the other, that is to say either for or against implying a term allowing parties to withdraw from joint agreements but I would not agree with his dictum that there is no presumption one way or the other. That in my view is at variance with that judge's own observation that it is for the party alleging that there has been omitted from the agreement a provision which the parties intended should be included to show that that was so, and it is further in conflict with the judgment of James LJ in the Llanelly Railway and Dock Company v. London and North Western Railway Company [1872] Ch App 948 at 949:
"I start with this proposition that prima facia every contract is permanent and irrevocable and it lies upon a person who say that it is revocable or determinable to show either something special in the contract itself, or something in the nature of the contract which it is reasonably to be implied that it was not intended to be permanent and perpetual, but was to be in someway or other subject to determination."
In my judgment there is a presumption that the 1977 agreement was to last for the lifetime of the facilities created. This is not a case where it is being alleged that this agreement should have a duration of infinite length. As Pill J recorded in his judgment, the likely life of these facilities in 60 years and that lifespan was in the contemplation of all 3 authorities in 1977 when they made their agreement. The creation and provision of this leisure centre was a joint adventure or undertaking, and, in the absence of an express power to withdraw contained in the agreement, the presumption must be that the parties intended to participate for the life of the facilities so provided.
Are there other factors which should displace this presumption? The first relied upon by Newport is the inclusion in the memorandum of agreement of clause 13. My Lord, Lord Justice Glidewell has set out the terms of that clause in his judgment. The submission made is that Clause 13 clothes each authority with a power to veto the joint committee's expenditure proposals for the coming financial year. In my judgment to understand clause 13 it is necessary to read sub-clause (ii) which deals with the machinery prior to reading sub-clause (i). The joint committee's expenditure proposals have to be available and referred to the 3 councils 5 months before the start of the next financial year. They are referred to the councils for their consideration and approval. The proposals must contain proposed capital expenditure as well as proposed running expenditure. The expenditure is not to be incurred unless approved by the councils. Mr Macleod for Newport accepted that approval could not be witheld irrationally or in bad faith. This concession recognises, in my opinion, that the expenditure proposals would have to be considered by each authority as expenditure proposals, no doubt taking account of money available to local authorities at that time for the provision of leisure facilities. What an authority could not do is to withhold approval because that authority had decided to spend that part of its financial resources available for leisure facilities which it could have devoted to the Risca Centre at some other leisure centre, unless the proposal related to capital expenditure to extend the facilities already provided at Risca. Newport did not contend that clause 13, in effect, gave them the power to terminate the joint venture nor did Newport try to use clause 13 to enable them to switch expenditure from the Risca Centre to another leisure centre in the centre of Newport which, in 1988, Newport wished to develop.
If one of the authorities withheld its approval from the joint committee's expenditure proposals on the basis that the proposed expenditure was unjustified or unreasonable, and the other authorities maintained that the proposals were justified and reasonable, then a dispute would exist between the parties which would become the subject matter of arbitration under clause 17 of the memorandum of the agreement. Further clause 13 itself envisaged that the apportionment of expenditure between the Councils might be varied from time to time. Again in the absence of agreement the arbitration clause would come into operation to resolve disputes between the Councils as to their respective contributions.
Far from considering clause 13 to be an indication that the common intention of the parties in 1977 was that the agreement should be determinable by any authority on the giving of reasonable notice, the provisions of clause 13 and 17 of the memorandum of agreement, in my judgment, strengthen the case for Islwyn and Gwent. It is those provisions which distinguish this agreement from the agreement in Staffordshire Area Health Authority v. South Staffordshire Waterworks Company [1978] 1 WLR 1387. In that case there was no provision in the agreement for a variation of the charges payable under the agreement, which had between 1929 and 1978 become derisory. That was an aspect of that case which the members of the Court of Appeal who decided it considered of particular importance. In that case also the agreement on the fact of it was of infinite duration.
If in 1976 or 1977 it had been stated on Newport's behalf that any one of the 3 authorities at any time on the giving of 2 years' notice could withdraw from the scheme leaving the remaining 2 councils to continue the facility if they could, it is most improbable, in my judgment, that the other authorities would have proceeded with the joint project. Still less would that have been the case, in my view, if Newport had said "We can withdraw on the giving of notice although we know that residents within our local authority area will continue to represent the majority of those using the facilities."
Finally it is submitted on behalf of Newport that although this might have been a joint venture, all three participants are local authorities and are therefore subject to changes of political control and also to financial constraints imposed on them by Governments. Further as local authorities under the relevant sections of the Local Government Act 1972, they cannot devolve their functions to others in such a way that they cannot resume those functions if and when they decide to do so. Here Counsel for Newport relied upon the provisions of Section 101(4) of the 1972 Act.
The relevant statutory provisions have been set out in the judgment of My Lord, Lord Justice Hirst and do not need to be repeated in this judgment, with the exception of section 101(4):
"Any arrangements made by a local authority or committee under this section for the discharge of any functions by a committee, sub-committee, officer or local authority shall not prevent the authority or committee by whom the arrangements are made from exercising their functions."
Mr Macleod submitted that Section 101(4) applies to the whole section, including section 101(5) which enables 2 or more local authorities to discharge any of their functions jointly, and, where they make such arrangements, to arrange for the discharge of those functions by a joint committee. In my judgment section 101(4) does not apply to joint committees set up under arrangements made between 2 or more local authorities for two reasons: First sub-section (4) does not refer to joint committees, although it does refer to the case where one local authority allows its functions to be discharged by another local authority. Second section 101(5) provides for two or more local authorities discharging their functions jointly. This is not a case of a function which is wholly within the competence of one local authority being delegated to a committee, sub-committee, officer or other local authority, which the first local authority can resume at any time. This is a case of a joint function. Newport could not take the running of the Risca Leisure back into its hands because as a single authority it had no competence to do so. The same would be true of Islwyn and Gwent. Joint functions which arise out of arrangements made between two or more local authorities are a special case to which sub-section (4) has no application. In my judgment in sub-section (4) the words "Any functions" do not refer to joint functions.
The problem of a change of political control and its effect on contractual arrangements already by a local authority is not new. However, it is well established that local authorities can enter into commercial transactions for fixed periods of time. Where a change of political control means that the new council wishes to terminate such contracts it is open to the authority to decide not to continue with its bargain. That may lead to a remedy in damages or an injunction or both. A Council's decision as to its future action will only be fettered in those case where a court considers that the discretionary remedy of an injunction should be granted. I, as did Pill J, find nothing unexpected in local authorities performing their functions by entering into long term commitments, either singly or jointly. It is clearly desirable and, I would suggest, Parliament's intention that local authorities should enter into joint schemes such as the one in the present case. I would anticipate a considerable reluctance on the part of the local authorities to do so if it were to be accepted that one local authority could withdraw from such a scheme leaving the other local authority with either having to bear the whole cost of continuing to run the scheme on its own, or a white elephant, in cases where no express provisions had been made for such a withdrawal, which adequately protected the interests of the other local authority.
The second issue is whether the agreement was frustrated by the coming into force of section 42 of the Education (No 2) Act 1986?
A subsequent change in the law will discharge a contract if further performance is rendered illegal by the change in the law, or if the change in the law renders performance of the contract by one or other party vitally and fundamentally different from what must have been in the contemplation of the parties at the time the contract was made. See Metropolitan Water Board v. Dick, Kerr & Co Ltd [1918] AC 119, at 126 per Lord Finlay, Lord Chancellor.
I agree with My Lords, Lord Justice Glidewell and Lord Justice Hirst that the Risca Leisure Centre is and was part of the school premises.
Section 42 of the Education (No 2) Act 1986 provides:
"The articles of government for every county and maintained special school shall provide (a) for the use of the school premises at all times other than during any school session or break between sessions on the same day, to be under the control of the governing body; (b) for the governing body to exercise control subject to any direction given to them by the local education authority and in so doing to have regard to the desirability of the premises being made available (when not required by or in connection with the school) for use by members of the community served by the school."
This court has not seen the articles of government for the Risca Comprehensive School. However it is to be presumed, in my judgment that those articles have been correctly drawn in accordance with the 1986 Act and contain the provisions which Section 42 requires.
The question that arises is whether the terms of section 42 of the 1986 Act render illegal the existence of the joint committee and the discharge by the joint committee of those functions placed upon them by the memorandum of agreement of 1977.
The functions to be discharged by the joint committee are contained in clause 11 of the memorandum. Clause 11 subjects the discharge by the joint committee of its functions:
"to the terms and conditions of this agreement and to the proper discharge of statutory obligations imposed on the County Council by the Education Acts ...."
The functions of the joint committee are set out in
7 sub-paragraphs. Three of the sub-paragraphs relate to purely advisory functions. Two of the sub-paragraphs concern the appointment and dismissal of such staff as the councils agree are required for the joint facilities provided and the machinery in connection with the appointment of such staff. A sixth sub-clause requires the joint committee to maintain a liaison with voluntary agencies in the area and to act as agent for the councils in sponsoring cooperative activities and programmes. The remaining sub-clause (b) reads:
"To advise concerning the administration and manage the Risca Leisure Centre and any other facility so provided jointly by the councils and which they agree should be managed by the joint committee."
Does section 42 render this function of the joint committee illegal? In my judgment it does not. The joint committee has no management function in relation to the school. Management of the Risca Leisure Centre by the joint committee does not conflict with the terms of section 42 unless the words "exercise control" means that the day to day management of the facilities for use by members of the community must be in the hands of the school governors. In my judgment section 42 does not have that meaning. The purpose of section 42 is to ensure that the final word as to the use of school premises, both during school hours and outside school hours should be with the school governors. The purpose of the section was to ensure that the Local Education Authority could not frustrate or make life difficult for the governing body of the school by claiming the ultimate say as to the use of the school premises, outside school hours. Nevertheless section 42 expressly recognises that use would be made of school premises by the local community outside school hours and that such use was and is desirable. It cannot, in my view, have been in Parliament's contemplation that the day to day management of leisure facilities at schools for the benefit of the local community should be placed upon the school governing body. The school governing body, in particular, would not wish to assume the cost of such administration and indeed might not be able to do so. The conclusion that I have reached is that it is possible for the governing body to exercise control, although the day to day management may be vested in a joint committee of local authorities.
As I understand the submissions on behalf of Newport, it is not argued that if Section 42 does not render the management by the joint committee of the Risca Leisure Centre illegal, then it has in some way made the performance of the agreement between the 3 authorities in 1977 fundamentally and vitally different from that which must have been in their contemplation at that time.
For those reasons I would dismiss this appeal and uphold the judgment of Pill J amending the second declaration granted by him in the ways suggested by My Lord, Lord Justice Glidewell.
LORD JUSTICE GLIDEWELL: I mentioned, at the very end of my judgment, about the form of the second declaration. I do not know whether there are any comments on that. Mr Bishop?
MR BISHOP: My Lord, so far as that is concerned we are entirely content with that amendment. It is in fact foreshadowed in our Statement of Claim. That was the alternative we sought.
It would not be seemingly for me to object and we do not object. We are entirely happy with that, my Lord.
LORD JUSTICE GLIDEWELL: Any other matters?
MR BISHOP: My Lord, I ask that the appeal be dismissed with costs.
LORD JUSTICE GLIDEWELL: With costs of the appeal?
MR BISHOP: I ask for costs against the defendants.
LORD JUSTICE GLIDEWELL: Yes, but your application is restricted to the costs of the appeal.
MR BISHOP: My Lord, the learned judge gave costs below and that order, I understand, still stands.
LORD JUSTICE GLIDEWELL: Mr Macleod?
MR MACLEOD: My Lord, so far as that is concerned, there is not very much I can say notwithstanding the amendment to which your Lordship has just referred. I do not consider that enables me to resist the application.
LORD JUSTICE GLIDEWELL: I think it does not.
MR MACLEOD: My Lord, I would seek to make an application for leave to appeal to the House of Lords on three grounds. First of all, the divisional opinion within the Court. Secondly, that large sums of money are involved as a consequence of the decision which has been reached. Thirdly, this is a matter of considerable interest to local authorities. Joint arrangements are commonplace up and down the country and notwithstanding that, there is legislation in hand to seek to clarify the position that has not yet been completed.
There remains the interim position and also my Lords, there is a point of what I would submit is of wide importance in my Lord, Glidewell LJ's judgment at page 24 where the judgment relates to the powers of the Local Education Authority to give directions to a governing body as set out there. That is a matter clearly of wide public interest. On those three grounds I would ask the Court to grant leave to appeal.
LORD JUSTICE GLIDEWELL: Mr Bishop?
MR BISHOP: My Lord, we treat the judgment of my Lord, Hirst J with great respect, nevertheless, we submit that this is a matter which would be considered by the applicant.
LORD JUSTICE GLIDEWELL: Would we be wrong in guessing that had the majority been in Mr Macleod's favour you might well have been instructed to make the same application?
MR BISHOP: Your Lordship would be absolutely right in assumming that. I had instructions in that sense.
LORD JUSTICE GLIDEWELL: Mr Macleod, I am sorry, is there anything you want to add?
MR MACLEOD: No, my Lord.
LORD JUSTICE GLIDEWELL: Mr Macleod, although we do consider there are issues of importance to have leave, you must ask their Lordships' House for it. We refuse. Thank you both.
- - - - - -
[Appeal Dismissed
Costs Awarded to the Appellant
Leave to Appeal to the
House of Lords was refused.]
