Clays Lane Housing Co-Operative Ltd, R (on the application of) v Housing Corporation

This is a claim by a housing co-operative for judicial review of the decision of the Housing Corporation to transfer its housing stock to another housing association. Permission to proceed with the claim was refused by Ouseley J. without a hearing. The application for permission to proceed with the claim was renewed before Stanley Burnton J. He adjourned the question whether permission to proceed with the claim should be granted, and ordered that the application for permission, and the substantive hearing if permission was granted, be considered at one hearing. This is the court’s judgment following that hearing.

The claimant, Clays Lane Housing Co-operative (“the Co-operative”), is a housing co-operative whose members are the residents of premises in Clays Lane, Stratford, East London, which the Co-operative leases on long leases from the London Borough of Newham. The premises consist of 50 self-contained flats and 400 rooms in 57 houses, and are let to its members. The Co-operative is run by a management committee which is largely elected from amongst its members. Because it is a non-profit-making body established for the purpose of providing housing to its members, it is registered and incorporated under the Industrial and Provident Societies Act 1965 (“the 1965 Act”). The facts that the Co-operative (a) is registered under the 1965 Act, (b) is non-profit-making, and (c) was established for the purpose of providing and managing houses for occupation by its members, and that membership of the Co-operative is reserved for those entitled to occupy the Co-operative’s premises, mean that the Co-operative was eligible for registration as a social landlord under section 2(1) of the Housing Act 1996 (“the 1996 Act”). The Co-operative was duly registered as a social landlord under the 1996 Act.

The affairs of registered social landlords are regulated by the Defendant, the Housing Corporation (“the Corporation”). Its powers include directing an inquiry into the management of a registered social landlord, and (subject to the consent of the Secretary of State) directing a registered social landlord to transfer its land to another registered social landlord. Those powers are contained in paras. 20 and 27 of Schedule 1 to the 1996 Act, which read (so far as is material):

“20(1) The Corporation may direct an inquiry into the affairs of a registered social landlord if it appears to the Corporation that there may have been ….. mismanagement ……

27(1) Where as a result of an inquiry under paragraph 20 ….. the Corporation is satisfied as regards a registered social landlord –

(a)

that there has been ….. mismanagement in its administration, or

(b)

that the management of its land would be improved if its land were transferred in accordance with the provisions of this paragraph,

the Corporation may, with the consent of the Secretary of State, direct the registered social landlord to make such a transfer.

27(3) ….. the Corporation may direct a transfer to be made to the Corporation or to another registered social landlord.

27(4) The transfer shall be on such terms as the Corporation may direct on the basis of principles determined by it. The consent of the Secretary of State is required both for the terms of the transfer and for the determination of the principles on which it is based.

27(5) The price shall not be less than the amount certified by the district valuer to be the amount the property would command if sold by a willing seller to another registered social landlord. ”

Moreover, by section 9(1), the consent of the Corporation is required for any disposal of land by a registered social landlord.

An inquiry into the affairs of the Co-operative took place in 2000. A report was submitted to the Corporation in March 2001. The inquiry found that there had been mismanagement of the Co-operative’s affairs in a number of areas, including a complete lack of effectiveness in the work of the management committee, a lack of proper financial controls and a lack of proper day-to-day management and governance. The report concluded that the Co-operative was being mismanaged to such an extent that its assets and the welfare of its tenants were at risk, unless urgent action was taken to address the failings of management and to bring good order to such fundamental tasks as collecting rent and controlling expenditure.

The Corporation accepted the inquiry’s finding that there had been mismanagement of the Co-operative’s affairs, and it proposed to direct the transfer of the Co-operative’s land, in effect its housing stock, to the Governors of the Peabody Trust (“Peabody”), another registered social landlord, but not a co-operative. The Secretary of State gave his consent to the proposal on 14 March 2002, and on 20 March 2002 the Corporation formally directed that the transfer take effect. The Co-operative issued a claim for judicial review of the Corporation’s transfer direction, and of the Secretary of State’s consent to it, alleging different legal errors on the part of each. The claim was settled when the Corporation agreed to reconsider the matter, and the transfer direction did not take effect. The Secretary of State’s consent to the transfer became academic.

The Co-operative’s problems with the Corporation had been noticed by Tenants First Housing Co-operative (“Tenants First”), a large social landlord registered in Scotland, regulated by Communities Scotland, the Corporation’s counterpart in Scotland. Like the Co-operative, Tenants First is a housing co-operative. It was the largest fully mutual co-operative housing association in the UK (the Co-operative being the second largest). In March 2002, it began to explore the possibility of a merger between it and the Co-operative, and by April 2002 it had agreed with the Co-operative to consider amalgamating the two of them. It sought a meeting with representatives of the Co-operative, the Corporation and Communities Scotland to discuss the proposal. The Corporation did not think that a meeting would serve any useful purpose, no doubt because at that stage the Co-operative’s claim for judicial review of the transfer direction had not been launched. The Corporation was expecting the transfer direction to take effect according to its terms.

Following the settlement of the Co-operative’s claim for judicial review, the Corporation reconsidered whether a transfer direction should be made. By then, the Co-operative had accepted that there was no basis on which the finding of mismanagement could be challenged, and the Co-operative’s aim was to ensure that its obligations to its members were taken over by another co-operative. It was against that background that at a Board meeting on 24 June 2002, the Corporation decided again that the Co-operative’s housing stock should be transferred because of the mismanagement identified by the inquiry and because of the need to deal effectively with the legacy of the Co-operative’s managements problems. However, at the Co-operative’s request, the Board deferred its decision on whether there should be a statutory direction of the transfer of the Co-operative’s housing stock to Peabody under para. 27, or whether the need to do so could be eliminated by the Corporation’s consent under section 9(1) for the transfer of the Co-operative’s engagements to Tenants First, which would in effect amount to the voluntary transfer of its housing stock to Tenants First. That decision was deferred (a) to enable the Corporation to assess with Communities Scotland the regulatory implications of a voluntary transfer to Tenants First, and (b) to give the Co-operative and Tenants First more time to develop their proposal. However, the Board “emphasised that it was not prepared to allow this matter to drift, and required a strong commitment to rapid progress from all parties”.

The issue was reconsidered again by the Corporation at a Board meeting on 24 September 2002. The Board decided to direct the transfer of the Co-operative’s housing stock to Peabody under para. 27, and that the transfer of its engagements to Tenants First would not be an acceptable alternative. It subsequently sought the consent of the Secretary of State for the transfer and the terms on which it proposed the transfer should take place. On 9 July 2003, the Minister of State for Housing and Planning wrote to the Corporation informing it that the Secretary of State consented to the transfer and the terms on which it would take place.

The issue was finally considered by the Corporation at a Board meeting on 24 July 2003. The question which the Board addressed on that occasion was whether there had been any material change of circumstances which would cause the Board to alter its original decision to direct the transfer of the Co-operative’s housing stock to Peabody. The Board concluded, amongst other things, that the Co-operative “had not made a case for there having been a material improvement in the governance issues that had previously been identified”. It found that there had been no material change of circumstance since its decision of 24 September 2002, and it confirmed the decision to direct the transfer of the Co-operative’s housing stock to Peabody. That is the decision which is challenged on this claim for judicial review. The terms of the transfer included the assumption by Peabody of the Co-operative’s liability for the repayment of a loan, which was treated as part of the compensation payable to the Co-operative for the transfer of its housing stock to Peabody. The expenditure which Peabody would incur in carrying out remedial works on the Co-operative’s housing stock was also treated as part of the compensation, a survey obtained by Peabody in January 2002 having recommended that the possibility of “land contamination and settlement/instability” should be investigated.

Two points should be made. First, the Co-operative claims that the persons who had been responsible for its management in the period scrutinised by the inquiry had ceased to be involved in it by 24 July 2003. A new management team is claimed to have made many changes by then in the way in which the Co-operative was being run, and to have made considerable progress in resolving many of the failings which had previously existed. However, the Co-operative does not suggest that these considerations so undermine the Corporation’s conclusions as to make them susceptible to challenge on that ground. As I have said, the Co-operative accepts that it cannot challenge by way of judicial review the Board’s conclusion on 24 June 2002 that the Co-operative’s housing stock should be transferred because of the Co-operative’s mismanagement of its affairs. And the Co-operative also accepts that it cannot challenge the Board’s conclusion on 24 July 2003 that there had not been a material change of circumstances on the issue of whether the Co-operative should continue to have stewardship of its housing stock. Thus, although the decision nominally being challenged is that of 24 July 2003, it is really the decision of 24 September 2002 which has to be scrutinised (subject to an argument relating to the financial strength of Peabody to which I shall return later).

Secondly, the Co-operative does not on this occasion seek to challenge the decision of the Secretary of State to consent to the transfer. The reason for that is that on this occasion it is not suggested that the Secretary of State erred in ways which were different from the ways in which the Corporation is alleged to have erred. The Secretary of State is alleged merely to have repeated the Corporation’s errors. There is no benefit to be gained from challenging the Secretary of State’s decision to consent to the transfer, and doing so would only increase unnecessarily the costs of the litigation.

At the Board meeting on 24 September 2002, the Co-operative had asked for the decision whether there should be a transfer of its housing stock to Peabody under para. 27 to be further deferred to enable (a) a site survey which it had commissioned on the need for remedial works to be completed and (b) Tenants First to reach a final decision, in the light of that survey, whether to accept a transfer of the Co-operative’s engagements. The Board refused that request for two reasons. First, the survey had not been commissioned quickly enough, and there was no certainty that the survey would produce its results soon. Secondly, in the light of such information which the Board had received since the meeting in June, it was not thought that any additional information which the survey revealed would have altered the conclusion which it ultimately reached, which was that “a statutory transfer to Peabody” would be “in the public interest”.

The Board’s approach was to compare the relative merits of a compulsory transfer of the Co-operative’s housing stock to Peabody with the voluntary transfer of the Co-operative’s engagements to Tenants First. Thus, it took into account its belief that

The Board was aware of problems about cross-border regulation which a transfer of the Co-operative’s engagements to Tenants First might raise, i.e. the transfer of housing stock in an area governed by one regulator (the Corporation) to a body regulated by a different regulator (Communities Scotland). It noted that Communities Scotland had raised a number of regulatory concerns, “in particular those relating to control, policy, planning, risk management and a complex governance framework, ….. [and] about the potential impact on [Tenants First] were its proposed transfer engagements to proceed” (minute 68/09/02). The Board also noted that the London Borough of Newham did not support the proposed transfer of engagements to Tenants First, but did support the transfer of the housing stock to Peabody (minute 69/09/02).

Finally, the Board had permitted counsel for the Co-operative to address it. It noted that he had submitted that it would be wrong for the Corporation to consider the relative merits of the two proposals because the exercise was not a comparative one. The Board did not agree (minute 70/09/02). And to the extent that a compulsory transfer of its housing stock to Peabody amounted to an interference with its property rights and its rights of association (rights protected by the European Convention on Human Rights (“the Convention”)), the Board concluded that “the public interest concerns in favour of a statutory transfer were sufficient to justify” any such interference (minute 78/09/02).

The Board’s decision of 24 September 2002 is challenged on two grounds. First, the compulsory transfer of the Co-operative’s housing stock to Peabody amounted to an interference with its property rights and its rights of association. It is said that such interference could only be justified if the transfer of the Co-operative’s housing stock was strictly necessary, or at the very least if there was a compelling case in the public interest for such a transfer. Instead, the comparative approach which the Board adopted amounted to no more than determining which of the two proposals it had to consider was the more preferable. Had it approached the issue properly, it could well have concluded that, although a transfer of the housing stock to Peabody was preferable, a compelling case in the public interest for such a transfer had not been made out, let alone that the transfer was strictly necessary.

Secondly, the Board is criticised for its approach to the issue of cross-border regulation. The Board did not conclude that there were any legal impediments to such regulatory arrangements as would have to be formulated if the Co-operative’s engagements were transferred to Tenants First. What it took into account were some of the practical difficulties which might arise. It is said that the Board was wrong to take those practical difficulties into account

The Board’s decision of 24 July 2003 is challenged on one particular ground. It is said that by then there were growing concerns about Peabody’s financial strength. Those concerns were known to officers of the Corporation, but were not drawn to the Board’s attention. They amounted to a material change of circumstances since the Board’s decision of 24 September 2002, in view of the reliance which the Board had then placed on the relative financial strengths of Tenants First and Peabody.

A direction by the Corporation under para. 27 that the land of a registered social landlord be transferred to another registered social landlord is akin to the compulsory acquisition of property. Prior to the incorporation of the Convention into domestic law, there were no special rules beyond the ordinary rules relating to reasonableness for the court to apply when considering a challenge to the confirmation by the Secretary of State of a compulsory purchase order. But given the draconian nature of an order which deprived citizens of their property, there had to be sufficient reasons in the Secretary of State’s view to justify the order on its merits for the order not to be vulnerable to a successful challenge: see R v Secretary of State for Transport ex p.Rothschild [1989] 1 All ER 933 at p. 938e-f. Since then, a more stringent standard of reasonableness has emerged where fundamental rights, such as property rights, are at stake. If a compulsory purchase order is to withstand challenge, it must be demonstrated that the Secretary of State had rational grounds to conclude that a substantial public interest existed which outweighed the landowner’s rights: see Chesterfield Properties Plc v Secretary of State for the Environment (1997) 76 P&CR 117 at p. 131.

The incorporation of the Convention into domestic law brought a new component into the exercise. Art. 1 of the First Protocol to the Convention relates to protection of property. It reads:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

Two rights are therefore being protected: the right to the peaceful enjoyment of one’s possessions, and the right not to be deprived of them. It is the latter right which is engaged when action akin to the compulsory acquisition of property is taken. That right can only be interfered with in the public interest.

Jurisprudence on the Convention shows that an interference with a fundamental right protected by the Convention must be proportionate to the legislative aim which the interference pursues. Such an interference with a Convention right will only satisfy the test of proportionality if a number of conditions are satisfied, one of which is that the means used to interfere with the right are no more than are necessary to accomplish the legislative objectives. So said Lord Clyde in de Freitas v Permanent Secretary ofMinistry of Agriculture, Fisheries, Land and Housing [1999] 1 AC 69 at p. 80, and his analysis was cited with approval by Lord Steyn in R (Daly) v Secretaryof State for the Home Department [2001] 2 AC 532 at [27]. This condition reflects the need for the interference with the fundamental right to be the “minimum” interference necessary to achieve the legislative objective, which was the language used in an essay by Prof. Jeffrey Jowell QC cited by Lord Hope in R v Shayler [2003] 1 AC 247 at [77]. That is the source of the Co-operative’s formulation of the test which the Board had to apply.

However, the cases in which these comments were made were not cases involving limitations on the right not to be deprived of one’s possessions, and there is a raft of jurisprudence addressing the issue of proportionality specifically in the context of the property rights protected by Art. 1 of the First Protocol. Thus, Art. 1 of the First Protocol was considered in a compulsory purchase case heard a few months before the incorporation of the Convention, Tesco Stores Ltd. v Secretary of State for the Environment,Transport and the Regions (2000) 80 P&CR 427. Sullivan J. said at p. 429:

“In very broad terms, the Convention requires that a fair balance must be struck between the public interest, in the present case in securing much needed redevelopment of the Western Sector of [High Wycombe], and an individual’s right to the peaceful enjoyment of his possessions. Any interference with that right must be necessary and proportionate.

Although the Human Rights Act 1998 does not come into force until October 2, I am satisfied that for present purposes the Secretary of State’s policy, as set out in circular 14 of 94 that a Compulsory Purchase Order should not be made unless there is ‘a compelling case in the public interest’, fairly reflects that necessary element of balance.”

This approach was expressly approved in a case heard after the incorporation of the Convention, London Borough of Bexley v Secretary of State for the Environment, Transport and the Regions [2001] EWHC (Admin) 323 at [46]. That is the test which the Corporation says the Board had to apply.

The balancing exercise required by Art. 1 of the First Protocol has been considered in a number of European authorities. Three were cited to me. In James v The United Kingdom (1986) 8 EHRR 123, the European Court of Human Rights had to consider the impact of Art. 1 of the First Protocol on tenants’ rights under the Leasehold Reform Act 1967 to acquire the freehold of their properties at a price always below, and often far below, their market value, despite the landlords’ objections. Having identified the aim of the 1967 Act, i.e. to remedy the injustice caused to a long leaseholder who may have spent considerable sums improving and maintaining his property over many years but who is required to return the property to the lessor without compensation at the end of the lease, the Court had to consider the proportionality of the means adopted by the 1967 Act to remedy that injustice. At [50], it said that “there must ….. be a reasonable relationship of proportionality between the means employed and the aim sought to be realised”. Earlier jurisprudence of the court had expressed this requirement as requiring a “fair balance” to be struck “between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights”. The Court then summarised the landlords’ case at [51] as follows:

“According to the applicants, the security of tenure that tenants already had under the law in force ….. provided an adequate response and the draconian nature of the means devised to give effect to the alleged moral entitlement, namely deprivation of property, went too far. This was said to be confirmed by the absence of any true equivalent to the 1967 Act in the municipal legislation of the other Contracting States and, indeed, generally in democratic societies. It is, so the applicants argued, only if there was no other less drastic remedy for the perceived injustice that the extreme remedy of expropriation could satisfy the requirements of Art. 1.”

The Court rejected this argument. It said at [51]:

“This amounts to reading a test of strict necessity into the Article, an interpretation which the Court does not find warranted. The availability of alternative solutions does not in itself render the leasehold reform legislation unjustified; it constitutes one factor, along with others, relevant for determining whether the means chosen could be regarded as reasonable and suited to achieving the legitimate aim being pursued, having regard to the need to strike a ‘fair balance’. Provided the legislature remained within these bounds, it is not for the Court to say whether the legislation represented the best solution for dealing with the problem or whether the legislative discretion should have been exercised in another way …..

The occupying leaseholder was considered by Parliament to have a ‘moral entitlement’ to ownership of the house, of which inadequate account was taken under the existing law ….. The concern of the legislature was not simply to regulate more fairly the relationship of landlord and tenant but to right a perceived injustice that went to the very issue of ownership. Allowing a mechanism for the compulsory transfer of the freehold interest in the house and the land to the tenant, with financial compensation to the landlord, cannot in itself be qualified in the circumstances as an inappropriate or disproportionate method for readjusting the law so as to meet that concern.” (Emphasis supplied)

In Holy Monasteries v Greece (1994) 20 EHRR 1, properties owned by various monasteries were transferred to the state, and were to be managed ultimately by the Greek church. No compensation had been paid. The issue was whether the absence of such compensation rendered the transfer a disproportionate interference with the monasteries’ rights under Art. 1 of the First Protocol. Having recited the principles established in James, the European Court of Human Rights said at [71]:

“Compensation terms under the relevant legislation are material to the assessment whether the contested measure respects the requisite fair balance and, notably, whether it does not impose a disproportionate burden on the applicants. In this connection, the taking of property without payment of an amount reasonably related to its value will normally constitute a disproportionate interference and a total lack of compensation can be considered justifiable under Art. 1 only in exceptional circumstances. Art. 1 does not, however, guarantee a right to full compensation in all circumstances, since legitimate objectives of ‘public interest’ may call for less than reimbursement of the full market value.”

The Court concluded that the absence of compensation in that case meant that the “fair balance between the various interests in question as required by” Art. 1 of the First Protocol had not been achieved.

In Chassagnou v France (1999) 29 EHRR 615, farmers opposed to hunting challenged a law which required them to permit others to come onto their land to hunt. At [85], the European Court of Human Rights said that the result of the law was

“….. to place the applicants in a situation which upsets the fair balance to be struck between the protection of the rights of property and the requirements of the general interest. Compelling small landowners to transfer hunting rights over their land so that others can make use of them in a way which is totally incompatible with their beliefs imposes a disproportionate burden which is not justified under the second paragraph of Art. 1.”

These latter cases add little in terms of principle to what was said in James. They are merely applications of the principles in James to their own particular facts. The same is true of the recent case of Fisher vEnglish Nature [2003] EWHC 1599 (Admin), in which at [46] Lightman J cited James as authority for the proposition that “[t]he fact that there may be other even better methods of achieving the same ends does not necessarily mean that any particular measure is disproportionate under Art. 1”. Indeed, the focus in the HolyMonasteries case was on the absence of compensation, a feature which is not present in the Co-operative’s case. The crucial question is what is the true effect of James.

Mr David Wolfe for the Co-operative contended that the Court in James rejected the test of strict necessity only because the Court accords to national authorities a wide margin of appreciation in determining whether a measure is in the public interest. That margin of appreciation does not arise where, as here, it is a domestic court which is reviewing the actions of a domestic public authority. I do not agree. It is true that the Court devoted the whole of para. 46 of its judgment to the wide margin of appreciation which national authorities enjoy. But the language of para. 51 of its judgment shows that the Court’s rejection of the test of strict necessity was not based on the Court’s wish to defer to national authorities’ assessment of what measures are warranted to deal with a particular domestic problem. The “fair balance” test of proportionality was preferred, the margin of appreciation to be enjoyed by national authorities being reflected in the deference which would be paid to the national authorities’ assessment of where the “fair balance” lies.

For these reasons, I reject the Co-operative’s formulation of the test which the Board had to apply. What the Board had to determine was whether a compelling case in the public interest had been established for the transfer of the Co-operative’s housing stock to Peabody, having balanced the comparative benefits of a compulsory transfer of the housing stock to Peabody and a voluntary transfer of the housing stock to Tenants First, and the Co-operative’s wish for the latter so that its members could continue to enjoy the benefits of a co-operative. If a comparison of the benefits and disadvantages of two alternative options compellingly shows that the option which results in the deprivation of property is much to be preferred, a compelling case for adopting that option in the public interest will have been established.

Having read the minutes of the Board’s deliberations on 24 September 2002, I am satisfied that that was the test which it applied. It had been addressed on what the proper test should be by counsel for the Co-operative, and no doubt the two alternative tests had been explained to it. Although the minutes do not refer to the Board being satisfied that a compelling case for the transfer to Peabody had been established, the minutes refer to the Board’s conclusion that such a transfer “was lawful, in the public interest and proportionate” (minute 78/09/02). The minutes show that the Board identified the benefits which a transfer to Peabody would bring and the reasons why a compulsory transfer to Peabody was far preferable to a voluntary transfer to Tenants First, and that the Board took into account the Co-operative’s wish for its members to continue to enjoy the benefits of mutuality. It has to be remembered that the Co-operative provided social housing, and had been provided with public funds for that purpose. It cannot be said that the Board made the wrong judgment as to where the “fair balance” lay, nor can it be said that the Board did not have rational grounds for concluding that the public interest in favour of a transfer to Peabody was such that it outweighed the Co-operative’s right (subject to the Corporation’s consent) to dispose of its housing stock as it wished.

The rejection of the Co-operative’s wish to transfer its engagements to Tenants First meant that its members would no longer benefit from being members of a co-operative. That is said to amount to an interference with their right to freedom of association protected by Art. 11 of the Convention, which provides (so far as is material):

“(1)

Everyone has the right ….. to freedom of association with others, including the right to form and to join trade unions for the protection of his interests.

(2)

No restrictions shall be placed on the exercise of these rights other than such as are prescribed by law and are necessary in a democratic society in the interests of national security or public safety, for the prevention of disorder or crime, for the protection of health or morals or for the protection of the rights and freedoms of others …..”

The Board appeared to acknowledge (in minute 78/09/02) that membership of a co-operative amounted to “association with others” within the meaning of Art. 11(1). I am uncertain about that. It has been said that the concept of association presupposes a voluntary grouping for a common goal, but does not include the right merely to share the company of others: see Lester & Pannick, “Human Rights Law and Practice”, 2^nd ed., para. 4.11.5. But how that is to be applied in practice is not altogether easy to see. The two cases which were cited to me are unhelpful on this topic. In Chassagnou, the farmers were required to be members of approved municipal hunters’ associations (even though they were opposed to hunting). Unsurprisingly, the Court found such associations to be within Art. 11(1) (and the right of freedom of association included the right not to be a member of an association). In Swedish Engine Drivers’ Union v Sweden (1976) 1 EHRR 617, the issue was whether the right to be a member of a trade union included the right for the union to engage in collective bargaining and to conclude collective agreements in the interests of its members.

However, assuming (but without deciding) that membership of a co-operative amounts to “association with others”, the freedom of a member of a co-operative to associate with others lasts only for as long as he or she continues to be a member of the co-operative. If the co-operative ceases to exist, the right to freedom of association with one’s fellow members disappears, because there is no entity for that right to attach to. The true target of the challenge is, therefore, the decision which caused the entity to disappear. The loss of the right to associate with one’s fellow members is merely the consequence of that decision. It does not carry with it any additional or independent ground of challenge.

In 1998, the Corporation and Scottish Homes (the predecessor of Communities Scotland) concluded an agreement setting out “the details of a framework to ensure co-operation between the ….. Corporation and Scottish Homes in the context of parent and subsidiary organisations, where one is registered with the ….. Corporation and the other with Scottish Homes”. Subsidiaries could be registered with one regulatory authority, and parents with another. But the agreement was limited to parent and subsidiary organisations, and it did not permit dual regulation, i.e. both regulatory authorities being responsible for a single body. The Co-operative’s and Tenants First’s proposals were for an assumption by Tenants First of the Co-operative’s engagements so that there would be one body. Thus, the agreement would have to be adjusted to permit dual regulation of a single body whose housing stock straddled each of the regulatory authorities’ areas of responsibility.

That is said to have posed both legal and practical problems. The legal problems related to the powers of a regulatory authority (in relation to the Corporation under the 1996 Act, and in relation to Communities Scotland under the Housing (Scotland) Act 2001) to regulate the activities of a body carried on outside its geographical jurisdiction. The practical problems related to the need to adjust the cross-border regulation agreement to accommodate the Co-operative’s and Tenants First’s proposals, and the difficulty in regulating activities carried on a considerable distance away. Those practical difficulties would be increased by the mutual nature of the merged body, and the difficulty of exercising managerial control over housing stock in London from Aberdeen where Tenants First was based.

It is not possible to identify the extent to which these legal and practical problems were referred to, or discussed by, the Board on 24 September 2002. However, if the minutes are anything to go by, the Board did not put these considerations into the balance when it made its final decision. Minute 63/09/02 reads:

“Even if it were to be accepted that the Corporation had the legal power to approve such a transfer of engagements to [a registered social landlord] registered with Communities Scotland, very serious reservations would remain about the Corporation’s ability to discharge its statutory responsibilities as regulator effectively. That problem was particularly significant given the legacy of problems acknowledged by [the Co-operative], the lack of stable governance in the past, and the need for certainty that these problems would not recur in the future.”

The Board was therefore proceeding on the assumption that a transfer of the Co-operative’s engagements to Tenants First would not pose insuperable legal problems. Indeed, that was the position taken by the Corporation in correspondence prior to the meeting on 24 September 2002. On 13 September 2002, its solicitors had informed the Co-operative’s solicitors that the Board would “be requested to consider the position as to the transfer of engagements on the assumption that it does have the statutory power to accede to [the] proposals of [the Co-operative and Tenants First]”. It may be that the Board also proceeded on the assumption that a transfer of the Co-operative’s engagements to Tenants First would not pose insuperable practical problems either. As it is, I read the “very serious reservations” which the Board had about the Corporation’s ability to discharge its statutory functions as regulator as arising, not because of any cross-border problems which might arise as a result of Tenants First being based in Scotland, but because of the factors relating to the comparative merits of Peabody and Tenants First which the minutes then went on to refer to, and which are summarised in para. 13 above.

Moreover, such cross-border problems as might arise as a result of Tenants First being based in Scotland were not referred to at all in those parts of the minutes which summarised the Board’s reasons for directing the transfer of the Co-operative’s housing stock to Peabody, namely minutes 78/09/02 and 79/09/02. And in the Corporation’s letter of 7 October 2002 to the Minister for Housing, Planning and Regeneration, in which the Corporation set out in summary form the reasons for its decision, what the Corporation said was that

“….. the Board cannot be confident that the Co-operative’s proposed voluntary transfer of engagements to Tenants First Housing Co-operative, a fully mutual co-operative based in Aberdeen and regulated by Communities Scotland, will bring about fundamental change, or that the condition of the land and buildings as a residential environment could be improved under the Co-operative’s proposed management arrangements.”

There was no reference there to the legal and practical problems in relation to cross-border regulation created by Tenants First’s presence in Scotland.

Since the legal and practical problems said to have been posed by Tenants First’s presence in Scotland, though referred to at the meeting on 24 September 2002, did not play, on my reading of the minutes, any part in the Board’s ultimate decision to direct the transfer of the Co-operative’s housing stock to Peabody, the challenge to the Board’s decision on this topic must fail.

On 27 February 2002, the Corporation published a Performance Assessment and Investment Summary for Peabody. The Summary contained the following comments:

“Peabody demonstrates sufficient financial performance. It operates a viable and solvent business and financial projections give every indication that Peabody will continue to maintain stable financial health and will continue to be able to service its current debts, perform within lenders covenants and raise funds as required …..[W]e have no concerns regarding its financial health …..”

That remained the position on 24 September 2002 when the Board directed the transfer of the Co-operative’s housing stock to Peabody. The question is whether that remained, or ought to have remained, the Corporation’s view on 24 July 2003 when the Board concluded that there had not been a material change of circumstances which would cause the Board to alter its original decision.

The facts relied upon by the Co-operative to show that there had by then been a change in Peabody’s financial standing which should have been brought to the attention of the Board are these. The Corporation assesses the performance of registered social landlords in a number of categories: viability, governance, management and development. It classifies performance by traffic light indicators – green, amber and red. Each indicator is sub-divided into sub-indicators, so that when it comes to viability, there are four green indicators, two amber indicators and two red indicators. On 1 September 2003, the Corporation published on its website an assessment of Peabody. It placed Peabody’s viability in the lowest of the four green indicators, which meant that its “financial condition is presently acceptable but exposures exist which make it vulnerable to deterioration”. The Corporation’s detailed assessment of Peabody’s viability was as follows:

“Whilst the financial position is acceptable, there are areas of potential vulnerability. However, the group operates in areas where demand for housing is likely to remain high, and it has a strong asset base. It will also benefit financially from the impact of rent restructuring.

A key challenge facing the Trust is the condition of its stock and the costs involved in meeting the Decent Home Standard, with the age of the stock being a major factor. An updated asset management strategy is being prepared and the associated costs will feed into the next business planning round. Any significant increase in costs could affect the financial position adversely. Another challenge is the Trust’s need to make continuing efficiency savings in operational costs year on year.”

An updated asset management strategy was subsequently prepared, and the costs associated with it were appraised. The issues were discussed at meetings between officers of the Corporation and Peabody on 18 November 2003 and 29 January 2004. As a result, a fresh assessment by the Corporation of Peabody (and of one of its constituent housing associations, Waltham Forest Community Based Housing Association which would be managing the Co-operative’s housing stock following the transfer) was published on 5 February 2004. It placed Peabody’s viability on the higher of the two amber indicators, which meant that its “financial condition is presently of concern. However, measures are being undertaken which should, over time, address the areas of financial weakness”. The Corporation’s detailed assessment of Peabody’s viability was as follows:

“The group has until very recently expanded vigorously through its parent and non-registered joint ventures for core social and non-social housing. At the same time the parent, Peabody, has been carrying out a thorough assessment of the financial obligations to bring its stock up to the Decent Homes Standard. The required expenditure was always expected to be large but when the results of the assessment became available in autumn 2003 they revealed a larger liability than previously estimated. In the absence of grant funding the Trust has therefore accepted the need for a substantial change in its business strategy in order to focus the necessary resources on improving its existing stock. It has already taken some measures, and started to implement others, to save costs in order to make the necessary finance available. These measures include reducing and reprofiling the development programme, implementing efficiency savings, and increasing income from site and stock disposals. However some of the existing projects that the Trust is engaged in are financially marginal and there is little scope for error if the assumptions do not hold true.

The governors and management team recognise that some assumptions underpinning the Trust’s new financial plans may be challenging to deliver. We have no doubt of their commitment to ensuring delivery, but our assessment of Peabody’s viability will continue to be amber until the Trust is demonstrating delivery of the planned savings in 2004/05 and progress is being made in delivering the new asset management strategy.”

What had alerted the Co-operative to concerns about Peabody was what the housing press was saying about Peabody. The 19 December 2003 issue of Housing Today reported that Peabody had “been forced to make ….. 51 redundancies in development, design and support staff because of the investment it must make to meet the decent homes standard”, and was “being forced to sell land in London worth £5m” which already had planning consent. The Chief Executive of a large registered social landlord was reported as saying that Peabody was “not a very healthy patient. It hasn’t invested enough in its housing stock”. And the Managing Director of a housing consultancy was reported as saying:

“Peabody is in a unique position with the bulk of its stock being turn-of-the-century houses, which are very expensive to refurbish. However there must be issues around why it has only just realised this.”

The 9 January 2004 issue of Housing Today reported that Peabody was involved in talks with the Corporation with a view to being permitted to levy higher rents on properties in which it had invested to meet the Decent Homes Standard. Peabody was reported as saying that otherwise the target rent levels for 2012 which it had agreed with the Corporation in 2000 would not be achieved.

On the face of it, these concerns about Peabody’s financial standing only became known after 24 July 2003. Indeed, five weeks after then, the Corporation’s assessment of Peabody still justified a green indicator. On what basis is it said that, despite that, these concerns were known (or should have been known) to the Corporation’s officers, who should have brought them to the attention of the Board on 24 July 2003? It may well be that the concern expressed in the 1 September 2003 assessment of Peabody about “the condition of its stock and the costs involved in meeting the Decent Home Standard” was based on material which had been gathered before 24 July 2003, but the critical question was whether the materials which gave rise to that concern led (or should have led) the Corporation’s officers to be concerned about Peabody’s financial standing.

The fact of the matter is that there is no rational basis for saying that the Corporation’s officers should have realised prior to 24 July 2003 that the expenditure which would be incurred in refurbishing Peabody’s housing stock so as to bring it up to the Decent Homes Standard would have a significant impact on Peabody’s financial standing. The passage quoted in para. 40 above shows that it was only if the expenditure would be significantly greater than would otherwise be expected, and that that expenditure could not be met by savings in operational costs, that Peabody’s financial position might be adversely affected. It is true that the report in the 9 January 2004 issue of Housing Today referred to the “rent restructuring process” as having begun in April 2003, but I read that as identifying when Peabody began to address the question of restructuring its rents rather than when it began to discuss the matter with the Corporation’s officers. In short, I have not seen any basis for saying that such concerns as the Corporation’s officers may have had about Peabody’s future expenditure on refurbishing its housing stock led (or should have led) them to be concerned about Peabody’s financial standing prior to 24 July 2003. They were not concerned about it even at the beginning of September 2003. Their concern only crystallised as a result of the September and November 2003 meetings and the updated asset management strategy.

It may be that, as a result of the decision of the Court of Appeal in E vSecretary of State for the Home Department [2004] EWCA Civ 49, there are circumstances in which a decision by a public body taken in ignorance of relevant facts amounts to an independent ground for review. But there were no relevant facts of which the Board on 24 July 2003 was ignorant. If concern about Peabody’s financial strength could be said to have arisen as a result of the materials which gave rise to the 5 February 2004 report on Peabody, that concern arose long after any of the decisions challenged in the present case.

Having considered the claim for judicial review on its merits as if this had been the substantive hearing, it would be inappropriate not to grant the Co-operative permission to proceed with its claim. I therefore grant the Co-operative permission to proceed, but for the reasons I have given the claim must be dismissed. There are concurrent proceedings in the Chancery Division which were transferred to the Administrative Court, in which the Corporation sought to enforce its direction that the Co-operative should transfer its housing stock to Peabody. Now that the claim for judicial review has been dismissed, it will be necessary for directions to be given in those proceedings, and I propose to do so when this judgment is handed down.