Background
Birmingham City Council issued a judicial review of the Government's refusal to back its revised £2.4bn PFI arrangement for highway maintenance.
The refusal was communicated in a letter from the Department for Transport (DfT) to the Council, citing the inability to record the deal "off balance sheet" under accounting rules and the project's perceived unaffordability as primary reasons.
The Council argued that this decision was unlawful on six grounds (only two of which were dealt with in detail by the judge, the others either falling away upon the rejection of an earlier ground, or not being arguable):
(i) it breached a substantive legitimate expectation based on previous commitments, and (ii) was procedurally unfair.
Substantive Legitimate Expectation
On the first ground the Council argued that a substantive legitimate expectation was created through the PFI Credit Letter and related guidance, suggesting that the Government would only withdraw support in "exceptional circumstances."
However, the Court did not agree, concluding that the documentation did not constitute a clear and unambiguous commitment to continue funding except in exceptional circumstances.
Procedural Legitimate Expectation and Fairness
The Court's decision to quash the Government's refusal therefore hinged on the principle of procedural fairness.
It was held that the Government had significantly shifted its position following the Council's submission of its Final Business Case, without informing the Council or giving it an opportunity to respond to new concerns that later proved to be determinative in the decision making process. This lack of engagement was deemed unfair, especially considering the extensive discussions and collaborative approach taken by both parties since 2019.
Key Reasons for Quashing of Decision
1. Shift in Government's Position: The Court found that the Government's late-stage shift in its assessment criteria—focusing on balance sheet classification, risk transfer, and affordability—was not communicated to the Council, denying the Council the chance to address these newly prioritised issues.
2. Lack of Consultation: Despite the Council's extensive and costly efforts to comply with the Government's evolving requirements, the Council was not consulted or informed about the critical shift in the Government's stance that ultimately led to the refusal of support.
3. Impact of Procedural Unfairness: The Court was not convinced that the outcome would have necessarily been the same had the Council been given a fair opportunity to respond to the Government's late-stage concerns, highlighting the significance of the procedural unfairness.
Conclusion
This judgment highlights the importance of procedural fairness in decision-making for public bodies, especially in cases involving long-term collaborative projects like PFI arrangements.
It signals to public authorities the necessity of maintaining open and transparent communication and providing stakeholders with a fair opportunity to respond to changes in decision-making criteria.
The judgment also highlights the usefulness of judicial review as a tool by which public decision-making can be challenged, particularly where there are concerns that the proper process has not been followed. Given the recent change of UK Government, there are likely to be a high number of decisions made by public bodies in the coming months to effect the changes in policy and regulation that a new government might look to implement. It will be interesting to see if that leads to a short-term increase in the number of judicial reviews.
