Abandoned buildingsA property development company which was plunged into financial crisis by a catalogue of local authority maladministration will receive just £50,000 in compensation despite the Local Authority Ombudsman’s recommendation that it should be paid five times that sum.

The company had purchased land in the council’s area with the benefit of planning consent and had begun building new homes after it received confirmation that the conditions attached to the permission had been satisfied. The need to raise the level of the site had been fully disclosed during the planning process.

However, neighbouring landowners complained about the raised site level and the council contended that works had been carried out without consent. It subsequently took enforcement action requiring the restoration of the land to its original level and the demolition of various structures, including four new homes.

A planning inspector later criticised the council for its ‘unreasonable conduct’ and allowed the company’s appeal, finding that it had been granted planning consent for the development as built. The company had by then been ‘vilified’ in the local press and estimated its losses as a result of the debacle at £1.2 million.

The company complained to the Local Government Ombudsman (LGO), who made nine findings of maladministration against the council and recommended that it pay the company and its director about £250,000 to put right the serious injustice that they had suffered. That included £25,000 in respect of the ‘extreme stress’ suffered by the director and the damage to his reputation.

However, the council disputed the LGO’s findings and it was only after prolonged negotiations and repeated threats of litigation that it finally sent letters of apology to the company and its director and agreed to pay £50,000, plus interest. The company challenged that decision by way of judicial review.

Given the findings of grave maladministration, the scale of the disruption and financial loss endured by the company and the divide between the sum paid and that recommended by the LGO, the Court subjected the council’s decision to ‘careful scrutiny’. It noted that it was only in a tiny proportion of cases that local authorities declined to accept and act on the LGO’s recommendations.

However, in dismissing the company’s case, the Court found that the council had given ‘intelligible and adequate’ reasons for deciding that £50,000 was enough to remedy the injustice. The council had been entitled to consider affordability issues and the impact that a larger payment would have on local finances.

In finding that the council had acted within the law in refusing to implement the LGO’s recommendations in full, the court rejected the company’s arguments that its decision was perverse, infected by procedural unfairness and gave the impression of predetermination.