As the effect of public sector budget cuts begin to bite, companies and other institutions involved in projects with public bodies will look to judicial review as a possible way of protecting those projects or salvaging something from the wreckage if funding is pulled. The recent decision in R (on the application of Grimsby Institute of Further and Higher Education) v Learning and Skills Council (LSC)  illustrates very clearly the difficulties that are likely to be involved in doing so.
Grimsby Institute: background
Until around 2004/05, capital funding for further education colleges was very limited. The 2005 Budget announced a ‘step change’ in capital investment in the sector. The principal means through which this was to be delivered was central government grant funding of capital projects. Grants were distributed by the Learning and Skills Council (LSC), and initially it ran a successful programme. However, by late 2008 it was in crisis, as a result of what a House of Commons Select Committee later described as ‘a catastrophic mismanagement of the LSC capital budget during 2008 and neglect by those in the most senior positions in the LSC’. There was a huge disparity between the funds available to the LSC and the amounts that had, in principle, been committed in grants. In the short term, this led to an immediate freeze on capital funding. In the longer term it meant that the number of grants made was substantially reduced and a large number of further education colleges were left disappointed.
One of those colleges was the Grimsby Institute. It had made an application in 2007 for ‘approval in principle’ (the first of two stages of the LSC’s project approval process). Approval was given in January 2008 and the Grimsby Institute then prepared its application for ‘approval in detail’ (the second of the two stages), which was submitted in final form in November 2008. It sought a grant of £115.9m. The application was refused.
In the preparation of its application for approval in detail, the Grimsby Institute had incurred substantial costs – nearly £3m. Its request to the LSC for reimbursement was largely refused (the LSC’s priority was to devote its available resources to colleges in a similar position, but who were also facing insolvency), and so it brought judicial review proceedings to try and recover its losses. It did so by asserting that it had two legitimate expectations. The first was said to be that ‘once approval in principle had been granted, the application would be dealt with in accordance with the usual and known procedures of the LSC’. The second was that ‘the LSC would be funded and organised in a manner which enabled it to meet commitments given at approval in principle stage’.
Legitimate expectation: principles
The judgment in Grimsby contains a valuable summary of the current state of the law. Among the propositions accepted by the trial judge were:
- Other than in exceptional circumstances, a legitimate expectation founded on a representation requires that representation to be clear and unambiguous.
- A legitimate expectation founded on a past practice requires there to have been a specific undertaking to an individual or group whereby its continuance is assured.
- Legitimate expectations can arise even without a representation or past practice, to prevent a public authority from acting so unfairly that its conduct amounts to an abuse of power. Such a case will be highly exceptional.
- Detrimental reliance is not essential to establishing a legitimate expectation, although it is likely to be a material factor.
- In assessing whether a legitimate expectation has been created, the court is assessing whether the public authority has acted unlawfully, not whether there has been maladministration.
- In deciding what, if any, relief to grant, the court will take into account:
- whether the decision challenged is in the macro-political field;
- involves social or political value judgments as to the priority of expenditure; and/or
- the nature and clarity of the promise or prior practice in question.
Unusually in a judicial review case, the judge heard oral evidence with cross-examination of witnesses. This was because part of the Grimsby Institute’s case was that, in several meetings, officials from the LSC had made statements that, allied to what was said in the LSC’s Capital Handbook and in correspondence to the Grimsby Institute, amounted to an implicit representation that, as the judge put it ‘… the Institute’s application for approval in detail would be dealt with on its merits and without regard… to the financial state of the LSC’.
The judge was clear that the evidence fell far short of establishing representations that were clear enough or unequivocal enough to create a legitimate expectation. Although the LSC officials had been supportive of the Grimsby Institute’s application, it had always been clear that the project was ‘at risk’ unless and until approval in detail was granted.
Separately from its claim based on implicit representation, the Grimsby Institute also asserted that the LSC’s conduct in not repaying the £3m wasted costs amounted to conspicuous unfairness so as to amount to an abuse of power. The judge held that the facts of the case fell far short of demonstrating this. The Grimsby Institute’s claim had been properly considered and the fact that priority was given to reimbursement of colleges faced with insolvency was not irrational. Although the result was ‘unfortunate’ it was not the consequence of any abuse of power.
Grimsby highlights just how difficult it can be to succeed in demonstrating that a legitimate expectation has arisen in the context of a withdrawal or removal of funding by a public body. In particular it emphasises how strong and clear the evidence needs to be to found an implicit representation.
Grimsby also touches on – although does not consider in detail – the potential limitations on the grant of relief, even if a legitimate expectation can be established. The fact that the court will take into account ‘political value judgments as to the priority of expenditure’ is likely to be explored in subsequent litigation, where such judgments may well be at the heart of decisions to cut funding.
By Adam Chapman, head of public law, Kingsley Napley LLP.