You win some, you lose some.

On 6 May 1994 Allerdale Borough Council walked away from its High Court tussle with Credit Suisse and from a debt of well over £5m.

This was because a guarantee given by them was held ultra vires and void.

On the other hand, Waltham Forest LBC had to pay up some £4,463,420.84 (and counting) following its barney with the bank.

And whilst the bank in Allerdale (and it seems Waltham Forest too) is off to the Court of Appeal, in the meantime the score is Credit Suisse 1 local authority 1.Waltham Forest was having difficulties securing the availability of accommodation for its homeless under s.65 of the Housing Act 1985 since it had insufficient housing of its own and bed and breakfast was expensive and often unsatisfactory.

Therefore, it hit upon an ingenious (but entirely proper) wheeze which unfortunately backfired.

A company, North East London Property Company Ltd (NELPCO), was incorporated.

This was owned 50% by the council and 50% by National Leasing Finance Company Ltd which had expertise in public housing finance and leasing schemes.

NELPCO was to purchase houses using bank finance and let them on short leases to the council which was to pay a market rent qualifying for housing subsidy.

NELPCO would service the bank loan using the rent and, at the end of the short leases, the houses would be sold to pay off the loan.

The property market was envisaged to continue rising with the house sales consequently generating a surplus to be used for charitable housing purposes.The bank took the following security for a loan facility of up to £11m: a charge over NELPCO, a charge over each individual house and a guarantee of the loan by Waltham Forest.

There was also an agreement by Waltham Forest to indemnify NELPCO.

Leading counsel had approved use of the guarantee in these circumstances.However (as in Allerdale), enter again the villain in the shape of the property market slump which meant that the NELPCO sales receipts did not cover the total borrowed.

On 31 December 1993, the bank called on the guarantee which resulted in the litigation.

NELPCO similarly claimed under the indemnity agreement.But why was the guarantee upheld here when it was not supported in the Allerdale case? Even the district auditor expressed the view that this guarantee was ultra vires following the Hazell v Hammersmith & Fulham LBC [1992] 2 AC 1 interest rates swaps case.In Allerdale it was held that the council had no statutory power to give a guarantee in respect of borrowing from the bank by a company set up by the authority.

This was because (a) the use of a guarantee of the company's borrowing of the costs of facilities to be provided was an impermissible means of providing recreational facilities under the relevant statute; (b) the loan money was to be used in part for a purpose outside the statutory powers of the council, ie the construction of time-share accommodation; and (c) the decision to give the guarantee was partly based on the irrelevant and impermissible consideration of avoiding the statutory local authority borrowing limits.On the other hand, in Waltham Forest, the guarantee was held to be a fundamental part of the council's performing its statutory duty to 'secure that accommodation becomes available' for homeless applicants.

The bank submitted that authorities are specifically empowered to provide housing accommodation by 'acquiring houses'.

Waltham Forest did so in this case by leasing them from NELPCO and could not have fulfilled its function without entering the guarantee since no prudent lender would have thus proceeded.

Therefore, the guarantee was an indispensable condition of the loan and if it had not been given 'the scheme would not have got off the ground'.As in Allerdale Waltham Forest sought to avoid liability under the guarantee by arguing actively for its unlawfulness.

It contended that because pt II of the Housing Act 1985 (with other provisions) contained a comprehensive and detailed code concerning the provision of housing accommodation there was no place for the operation of s.111 of the Local Government Act 1972 which provides that '...subject to the provisions of this Act and any other enactment...a local authority shall have power to do any thing (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate or is conducive or incidental to the discharge of any of their functions'.Therefore (so Waltham Forest argued) there was an existing 'corpus of law relating to the housing functions of a local authority ...where Parliament intended an authority to have power to enter into a guarantee it made express provision, and there was no room for the implication of any further implied powers'.The argument was rejected.

Mr Justice Gatehouse took the view that: 'This seems to me a proper case for the application of s.111.

The facts are quite different from those in Hazell's case.

Here, the giving of the guarantee to the bank was a sine qua non of the scheme designed to fulfil the council's duty under s.65 and in my judgment was "calculated to facilitate, or was conducive to, or incidental to" the discharge of that function.'The court noted that the Allerdale decision rejected the argument that the setting up of a company and provision of a guarantee or ind emnity in its favour by a local authority in order to carry out in that case a statutory recreational function must always be ultra vires since s.111 empowered the local authority to do so.

Mr Justice Gatehouse also agreed with the judge in Allerdale that 'in as much as the giving of a guarantee involves the carrying out of an obligation to the party guaranteed, I see no reason why if that is calculated to facilitate the provision by the local authority of recreational facilities that should not fall within the ancillary powers given to the local authority by s.111 of the Local Government Act 1972'.

Likewise, he considered that 's.111 gave the council in the present case implied power to guarantee NELPCO's loan (and indemnify NELPCO itself)'.

So, whilst in Allerdale the guarantee was 'an impermissible means of providing recreational facilities' in Waltham Forest the guarantee was the linchpin of a proper statutory scheme.

Therefore 'bingo' for the bank.What the Court of Appeal will make of it is anybody's guess.

However, many local authorities will consider that Waltham Forest's bad fortune was rather better fortune for local authorities in general.

This is because at least one piece in the jigsaw of diminishing local authority legal discretion has been left intact and the principle of being able to use implied legal powers even where there are arguably express powers in the area upheld.

Also the district auditor is not always right! And finally on such a balancing of fine and complex legal points does the fate of so much money rest.