Failures by procuring body render public sector contract void.

School Facility Management v Christ the King College ( High Court) [2020]

This case raises potentially very significant concerns for suppliers and service providers to the public sector (and beyond).


In 2009, the Isle of Wight Council ("the Council") approved a request by Christ the King College ("the College") to open a sixth form. Against a background of public sector budgetary constraints, the College, with the permission of the Council, entered into a contract ("the Contract") for the construction and hire of a modular building and associated equipment ("the Building") for a minimum 15 year Term. The Contract was signed in April 2013.

The Building was provided and assembled by a company called Built Offsite Limited ("BOS"). BOSHire Limited ("BOSHire") (a joint venture company in which BOS held a 50% interest) leased the Building to the College. Subsequent assignments led to School Facility Management Limited ("SFM”) obtaining the right to payments made by the College under the Contract.

The College failed to pay the annual instalment due in September 2017. SFM terminated the Contract and brought a claim for damages.


Here, somewhat unusually, the allegedly ultra vires nature of a decision was being invoked by the public body itself (i.e. the College). The court emphasised that the law of contract has traditionally placed a premium on parties being able to rely upon objective appearances when transacting. It then went on to distinguish between two different scenarios. First, where the public body in question lacks statutory power to enter into a contract of a particular kind, then it will not have contractual capacity to do so with the result that no contract comes into existence. The judge concluded that a decision by the College to enter a contract which it did not have power to conclude would give rise to a defence of lack of contracting capacity. Such a defence operates as a matter of entitlement rather than discretion.

The second scenario is where the public body has capacity to enter a contract of a particular kind but the way in which it has taken the decision to do so can be impugned on public law grounds such as if the decision to contract was substantively irrational; was reached taking into account irrelevant considerations or failing to take into account relevant considerations; or the process by which the decision was arrived at was unfair. The consequence of such unlawfulness would depend both on the nature of the unlawfulness, and on whether the counterparty had notice of the relevant breach of public law.

The judge concluded that the Contract should properly be classified as a finance (as opposed to an operating) lease and therefore involved ‘borrowing’. The College's power to borrow required the permission of the Secretary of State which was not obtained. Therefore, the College lacked the statutory power to contract, the Contract was ultra vires the College and was automatically void from the outset.

The court emphasised that the description of the contract the parties themselves use is not definitive. The judge quoted an example. The manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists on calling what he has made a spade. The question of what constitutes ‘borrowing’ is not a self-certification scheme, but a matter to be determined on the objective facts.

Unjust enrichment

Because the Contract was void from the outset, both sides made ‘unjust enrichment’ claims against each other for benefits had and received. The judge concluded that:- SFM conferred a benefit on the College in respect of the period from September 2013 to trial. The payments made by the College under the Contract for that benefit in respect of the period from September 2013 to September 2017 were not recoverable by the College because SFM had changed its position (i.e. spent money) in anticipation of those payments. It was therefore decided that it would be inequitable to permit recovery of the rental payments previously paid.

In respect of the period from September 2017 to trial, SFM could recover in unjust enrichment only at what the court described as the ‘market rate’ even though under the Contract the College would have been liable to pay significantly in excess of what the court regarded as the market rate. The court suggested certain principles governing any future unjust enrichment claim in respect of the period following trial making clear that any such claim would depend upon the factual situation at the time including whether the Lessor was offered a reasonable opportunity to disassemble and remove the Building, but refused to take it. The court was clearly inviting the parties to reach a settlement regarding the claim going forward.

SFM also lost out because, under the now void Contract, the College had various obligations upon termination including responsibility for "all costs of inspection, loading, unloading and transportation". If not returned in good and reasonably clean condition the College was liable to pay the costs of restoration, with hire continuing to be payable until contractual redelivery took place. Such obligations effectively fell away with the Contract being found to be void from the outset. In addition, SFM was unable to recover the hire charges which would otherwise have been due for the remainder of the 15 year Term.

Representations of capacity

Prior to execution of the Contract, two letters were written, one by the College addressed to the Lessor and one by the Council (addressed to the College but with the express intention it would be shown to the Lessor). The College’s letter stated (amongst other things) “1. The School has the power and capacity to enter into leases and lease assets of the type represented on the terms set out in the Lease.

2. The Governing Body has taken all necessary corporate and other action required by applicable law or regulations to authorise the execution of and performance under the Lease.

3. The Governing Body [has] concluded that the Lease is 'an operating lease'. Accordingly, the School will not be in breach of any restriction upon its power to incur capital expenditure or expenditure on capital financing.” The Council’s letter included the following “3. The Council accepts and agrees the Governing Body's assessment of the Contract as an 'operating lease'.

4. The Council approves the entry into the Contract by the Governing Body and agrees that the same will not cause the Governing Body to be in breach of any restrictions or obligations stated in the Scheme for Financing Schools or exceed any limitations on the powers of the Governing Body stated in the Schools and Standards Framework Act 1998.”

The claimants claimed that if the invalidity defence was successful these statements were untrue, that they entered into the Contract in reliance upon them and suffered loss as a result. The court noted that the claimants were well-informed about the risks prior to entering into the Contract and, in reality, had not relied on the statements from the Council or College. Although the court accepted that the claimants would not have gone ahead without the letters, this was simply because the letters were required to secure external investment. This was not enough to constitute reliance. Ultimately, “this was not a case in which [the claimants] looked to the College for advice on the law, or for information as to what the legal constraints on the College’s power to contract were.” However, had the position been different, the court still doubted whether it was possible for a public sector body to circumvent a lack of contracting capacity by simply representing that it actually has that capacity.

Points to Note:

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