FOURTH SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 44277/98 by Michael STRETCH against the United Kingdom

The European Court of Human Rights, sitting on 6 November 2001 as a Chamber composed of

Mr A. Pastor Ridruejo , President , Sir Nicolas Bratza , Mr J. Makarczyk , Mrs V. Strážnická , Mr M. Fischbach , Mr J. Casadevall , Mr R. Maruste , judges , and Mr M. O’Boyle , Deputy Registrar,

Having regard to the above application introduced with the European Commission of Human Rights on 21 October 1998 and registered on 10 November 1998,

Having regard to Article 5 § 2 of Protocol No. 11 to the Convention, by which the competence to examine the application was transferred to the Court,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,

Having deliberated, decides as follows:

THE FACTS

The applicant,  Michael Stretch, is a United Kingdom national , born in 1934 and living in Wareham . He is represented before the Court by Mr H.S. Deans of Berrymans Lace Mawer , a firm of solicitors practising in Southampton. The respondent Government are represented by their Agent, Mr. H. Llewellyn of the Foreign and Commonwealth Office.

A. The circumstances of the case

The facts of the case, as submitted by the parties, may be summarised as follows.

By a lease dated 27 November 1969 the applicant was granted a building lease of industrial land from Dorchester Borough Council (“Dorchester”) for twenty-two years from 29 September 1969. The lease required him to erect up to six buildings at his own expense for light industrial use and included an option to renew for a further twenty-one years in the following terms (at sub-clause 5(1)):

“If the Lessee shall be desirous of taking a lease of the said demised premises for a further term of 21 years from the expiration of the terms hereby granted and shall, not more than 12 months nor less than six months before the expiration of the said terms, give the Corporation notice in writing of his desire and if he shall have paid the rents hereby reserved and shall have reasonably performed and observed the covenants, provisions and stipulations herein contained (...), then the Corporation will let the demised premises to the Lessee for the said further term of 21 years (...)”.

The applicant states that he had requested a 43 year term in the course of negotiations but that this request was refused by Dorchester. The applicant was represented by solicitors when negotiating and entering into the lease.

In accordance with sub-clause 5(1) of the lease the applicant gave notice to exercise the option on 4 October 1990. By this time West Dorset County Council (“West Dorset”) had become the statutory successor to Dorchester. West Dorset disputed the applicant’s right to renew on three grounds, one of which was that the grant of the option had been beyond the legal powers of Dorchester and was invalid.

On 26 September 1991 the applicant applied to the Chancery Division of the High Court for a declaration that he was entitled to the grant of the further term and for an order of specific performance to enforce his right. His application was dismissed on 25 April 1996. On 10 November 1997 the Court of Appeal upheld the judge’s decision, on the ground that the grant of the option had been beyond Dorchester’s powers.

In the course of the proceedings before the Court of Appeal, the applicant sought to rely upon two separate statutory provisions, each of which he said gave Dorchester power to grant the option. The first was section 172(3) of the Local Government Act 1933 (“the 1933 Act”). This provides (as relevant):

“Where the council of a borough desire to dispose of corporate land otherwise than as aforesaid, they may, with the consent of the Minister, dispose of the land either by way of sale, exchange, mortgage, charge, demise, lease or otherwise, in such manner and on such terms and subject to such conditions ... as the Minister may approve.”

The term “corporate land” is defined in section 305 of the 1933 Act as:

“... [L]and belonging to, or held in trust for, or to be acquired by or held in trust for, a municipal corporation otherwise than for an express statutory purpose”

Following an examination of the history surrounding Dorchester’s appropriation of the land in question, the Court of Appeal concluded that it had been held by Dorchester for an “express statutory purpose” at the time of the lease and was thus not “corporate land”, with the result that section 172(3) did not apply.

The second statutory provision upon which the applicant sought to rely was section 164 of the 1933 Act, which provides:

“A local authority may let any land which they may possess -

(a) with the consent of the Minister, for any term;

(b) without the consent of the Minister, for a term not exceeding seven years.”

The crucial question on this provision was whether the power to let included a power to grant an option to renew. The Court of Appeal had answered this in the negative, albeit obiter dicta , in the case of Trustees of the Chippenham Golf Club v. North Wiltshire District Council (1991) 64 P & CR 527. A deputy High Court judge reached the same conclusion when it was directly in issue before him in 1993. The Court of Appeal in the applicant’s case referred to both of these decisions in finding that a grant of an option to renew was not the same as the exercise of a power to let. As a result, section 164 did not apply so as to give Dorchester the power to grant the option.

Lord Justice Peter Gibson, in summing up his judgment in the Court of Appeal, observed:

“... I would dismiss this appeal. I do so with little satisfaction. It seems to me unjust that when public bodies misconstrue their own powers to enter into commercial transactions with unsuspecting members of the public, those bodies should be allowed to take advantage of their own errors to escape from the unlawful bargains which they have made. For a local authority to assert the illegality of its own action is an unattractive stance for it to adopt. It is the more striking when, as in this case, the transaction in question is as mundane as a building lease; and the local authority, by taking the point against the member of the public with whom it or its predecessor contracted, thereby robs that member of the public of part of the consideration for entering into the lease. ...”

On 7 May 1998 the House of Lords dismissed the applicant’s petition for leave to appeal.

B. Relevant domestic law

Local authorities are statutory bodies whose powers are governed by domestic legislation. The legal consequences of entry into contractual commitments beyond statutory authority were explained by Hobhouse LJ in the case of Credit Suisse v. Allerdale Borough Council [1997] QB 306, where he stated (at 350 D-F):

“Where a statutory corporation purports to enter into a contract which it is not empowered by the relevant statute to enter into, the corporation lacks the capacity to make the supposed contract. This lack of capacity means that the document and the agreement it contains do not have effect as a legal contract. It exists in fact but not in law. It is a legal nullity. The purported contract which is in truth not a contract does not confer any legal rights on either party. Neither party can sue on it.”

COMPLAINT

The applicant complains under Article 1 of Protocol No. 1 about the Council’s refusal to grant the further term of twenty-one years under the lease.

THE LAW

Article 1 of Protocol No. 1 states (as relevant):

“1. 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 Government submit that the option granted to the applicant was not a “possession” for the purposes of Article 1. They state that, as Dorchester did not have legal capacity to grant the option, it was for the purposes of domestic law a nullity. The applicant thus never had any right to the further term purported to be offered by the option. Although they accept that the Court is not bound by domestic legal characterisation of what constitutes a “possession”, the Government argue that the Court should only consider departing from such a characterisation where it is manifestly out of step with broadly accepted notions of the concept. They contend that such a departure is inappropriate in the present case since there is nothing unreasonable or unusual in applying principles whereby a statutory body must act within the scope of its legislative powers and, in the event that it performs an act beyond such powers, that act is treated as a legal nullity. The Government highlight the fact that the applicant was represented by solicitors when he entered into the lease granting the option and point out that he could have insisted upon a 43-year term for the lease when negotiating its term, but failed to do so.

The Government go on to submit that, even if the option is characterised as a “possession”, neither West Dorset’s refusal to grant it nor the domestic courts’ refusal to enforce it constituted an interference with the applicant’s peaceful enjoyment of his possessions or a deprivation of them for the purposes of Article 1. This is because the option never conferred rights on the applicant because it was a nullity. They argue that it is necessary and important to impose limits on the legal capacity of local authorities for the benefit of the public as a whole. As a result, they go on to point out that, even if there was an interference or deprivation, it was compatible with Article 1.

The applicant contends that West Dorset’s refusal to grant the option, and the domestic courts’ refusal to enforce the option, have denied him his right to peaceful enjoyment of his possessions, and have deprived him of those possessions, contrary to Article 1. He argues that the option, since it formed an essential part of the consideration for his entry into the lease, and since it would form an important element of any likely return on his investment in erecting buildings on the land, was his “possession” for the purposes of that Article. Although he accepts that, especially as he was represented by solicitors at the time, it was open to him to check the scope of Dorchester’s powers before entering into the lease, he submits that in 1969 it was “less than clear” to all involved that Dorchester had no power to grant the option. No relevant domestic case-law on the scope of the relevant powers existed until 1991.

The applicant states that the deprivation of his possessions which he has suffered is wholly disproportionate as the loss caused to him as a result of failure to grant or enforce the option outweighs any real or perceived benefit to the general interest in applying the ultra vires principle, and that of corporate incapacity, on the facts of this case.

The Court considers that the application raises complex issues of law and fact under Article 1 of Protocol No. 1 to the Convention, the determination of which should depend on an examination of the merits. It concludes, therefore, that the application is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other grounds for declaring it inadmissible have been established.

For these reasons, the Court unanimously,

Declares the application admissible, without prejudging the merits of the case.

Michael O’Boyle Antonio Pastor Ridruejo Registrar President