Cross county trade routes set fair after High Court scrutiny

The High Court has recently brought a little more certainty to the wavering world of local authority cross-boundary tendering and supply.

On 18 December 1996, Mr Justice Owen, in R v Yorkshire Purchasing Organisation ex parte British Educational Suppliers, confirmed the lawfulness of a wide range of trading activities carried out across England by a local government purchasing association.

Yorkshire Purchasing Association (YPO) (a local authority under the Local Authorities (goods and services) Act 1970) is a joint committee presently consisting of 12 local authority and five associate members and formed under section 101 of the Local Government Act 1972.

By 1994, it operated as a mail-order company with an annual turnover of more than £130m and employed 373 full-time staff. As much as two-thirds of its total trade was with non-YPO members.

It "engaged widely in marketing and sales campaigns across England", conducted "contractual call-off sales" – where following introduction the customer places the order directly with the supplier who supplies directly to the customer – and also owned a fleet of 52 vehicles for the purpose of delivering goods.

British Educational Suppliers Association (BES), a trade association representing private sector companies supplying products to educational institutions, sought judicial review of YPO's decision not to stop trading activities which BES claimed were ultra vires.

The 1970 Act – among other things – enables a local authority to agree with a designated public body to supply it with goods or materials or to provide it with administrative, professional or technical services.

It also permits an authority to purchase and store goods and materials which it considers it may require for the purpose of the relevant powers under that Act.

Mr Justice Owen considered that, essentially, BES was arguing that "no matter how clear the words may appear… Parliament cannot have intended to create a local authority purchaser and supplier of the size of YPO".

However, while the judge readily accepted "that the original legislators might be surprised at the size and success of YPO it is far from clear that the legislators in 1970 did not intend to give powers which may be capable of development as has been the case".

Therefore, he concluded that, while "in general, a local authority cannot contract with the general public", it may, for the purposes specified in the 1970 Act and without geographical limitation, make an agreement with any public body "as a one-off transaction or to cover continuing transactions or in any other way".

While the restrictions in the Act must be complied with, the power to purchase and store goods and materials requires no pre-existing contract between the authority and the public body customer.

Section 1(3) of the 1970 Act, which enables the authority and the body to agree terms as to payment which they consider appropriate, it inevitably "enables the supplier to make a profit". In addition, YPO could "engage such staff as it thinks necessary" to perform its functions under the 1970 Act. And marketing activities and contractual call-off sales were authorised by section 111 of the 1972 Act as being incidental to the 1970 Act functions.

YPO was also entitled to provide services to the governing bodies of locally-managed schools with delegated budgets since those bodies contracted as agents for their local education authorities. As for grant maintained schools these were "given public body status" by statutory order. But while independent schools which operate otherwise than for profit are 1970 Act public bodies, contractual supplies by YPO to five independent schools not meeting this criterion had "rightly" been discontinued. Apart from these "YPO's actions have been lawful".

Mr Justice Owen also considered that where the legislature had given a local authority the power to purchase, the sale, for the best price possible of goods genuinely bought for its purposes, but proving surplus to its requirements, to other, even private, establishments, "would be incidental to and consequential upon that power" and therefore lawful.

So the case also manages to give a degree of limited support to the spare capacity argument used by many authorities to support some trading outside the 1970 Act.

And while leave to appeal was granted, any lingering doubt arising from the widely criticised (and now superseded) Audit Commission Technical Release 23/90 has, for the present, been put to rest.

The judgment is substantially in line with the updated views of the Department of the Environment in its 7 December 1995 letter to the local authority associations. So at least, pending any appeal, the local authority trade winds are set to blow a little more favourably.