Joanne Davis and Natalie Evans of DWF question whether
headteachers had the authority to sign up.
Go deeper with GlobalData
Recently, the UK government has cut school budgets leading local
authorities to identify savings by carrying out full audits on
school expenditure.
In doing so, councils have noticed
large expenditure on lease agreements entered into by school
headteachers and/or bursars despite the local authorities strict
audit requirements on schools.
Headlines have alleged that schools
have been mis-sold agreements, and that schools and local councils
have signed up to leases where the signatory did not have the
appropriate authority and the equipment had been grossly
overpriced.
Many finance houses have been
challenged on the enforceability of their lease agreements that
have been entered into with schools under leasing arrangements for
the bailment of goods such as laptops, white boards and
photocopiers.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataCouncils are seeking to rely on the
ultra vires defence, stating that in their opinion the agreements
are finance leases and the headteachers or bursars did not have
authority to sign the agreements on behalf of the school or the
local council. Councils are coupling this argument with claims of
misrepresentation, fraud, non-delivery of goods and agency.
So what is ultra vires? Ultra vires
is where people have signed agreements on behalf of a government
entity when they did not have valid authority to do so.
In this context, claims have
predominantly been raised in relation to finance leases because the
local council class this type of lease as borrowing. This is
arguable.
Uncertainty
Local councils have separate
policies and procedures that set out the authority that must be
sought for expenditure to be approved, with no uniformity, which
creates more uncertainty about what’s the correct procedure for
lenders to follow when leasing to the public sector.
This issue is growing rapidly as
local council’s seek to avoid further payments under the agreements
and, in some cases, to claim back monies already paid.
As ultra vires has become more
widely known by local councils, even more are now refusing to pay
the rentals under the agreements, regardless of the substance or
merit of such a claim.
More recently, further claims are
coming to light with more complex arguments such as allegations of
fraud.
If creditors are challenged by a
local council as to the validity of their agreement, they should
carry out a full review of the contract and sales invoice, the
classification of the lease agreement, together with the policy of
the council involved and look at how the council accounts for the
lease which is subject to dispute. It’s advisable to involve the
broker or supplier and obtain details of the authorities in place,
or represented to be in place, at the time of signing. Going
forward, lenders should ensure they put in place practices and
procedures to protect themselves from brokers and credit
intermediaries that are mis-selling finance.
Joanne Davis is a partner and
Natalie Evans is an associate at law firm DWF’s banking and finance
group
