The 7 May 2020 judgment in School Facility Management Limited v Governing Body of Christ the King College is a reminder that if you are dealing with a UK body which is not a Companies Act company, the ultra vires rule is live and dangerous.
Non-Companies Act public and quasi-public bodies (many educational establishments, all local authorities, charities, etc) do not have unlimited power. In this case, the terms of a construction contract for a classroom were held to constitute a finance lease because substantially all the risk and rewards of ownership were allocated to the school, and because a finance lease was treated as a borrowing under the Education Act 2002, it could only be done with the consent of the Secretary of State. In the absence of that consent, the school lacked capacity, and so the arrangement was void. In the 1980s, we had the same issue with swaps (cases such as Hammersmith & Fulham). As Colman J noted in 1995’s Credit Suisse v Borough Council of Allerdale:
"banks and other lending and credit providing institutions that deal with local authorities are exposed to the major risk of finding that their contracts are unenforceable in circumstances not encountered when dealing with the directors and officers of companies"
and the same applies to other non-Companies Act counterparties. The claimants in SFM may have a claim of some sort for unjust enrichment (the judge did not have to decide this) but unjust enrichment is an imprecise claim as regards availability (for example, the claim will fail if the court decides that the claimant knew of the risk the contract could be void and proceeded regardless) and as regards quantum: in the 2014 Supreme Court case Benedetti v Sawiris Lord Clarke said that "the starting point for identifying a benefit which has been conferred on a defendant, and for valuing that benefit, is the market price of the services", a test which is fraught with uncertainties and great scope for argument. #
In short: beware non-Companies Act entities.
and then 