Those before the courts will usually want to fight their corner with vigour.

However, in Credit Suisse v The Borough Council of Allerdale, in which judgment was given by Mr Justice Colman in the High Court on 6 May 1994, the council did quite nicely out of its unlawfulness.

This was because Allerdale wished to get out of a financial lobster pot into which it had happily swum in May 1986.

If it could convince the court that it had had no power to imprison itself in the first place then the trap would swing open and the authority could swim free again.

And the 'open sesame' actually worked.In the mid 1980s the council wished to develop the old Keswick station and surrounding site which was owned by the Lake District Special Planning Board (LDSPB), a public body which had responsibility for granting planning consent for development projects in the area.

In simple terms the proposal was to build a leisure pool complex to be financed by a time-share development.Advice from CIPFA Services Ltd (which had been appointed financial advisers in respect of the development) had been to set up a limited company and underwrite its borrowings.

'The reasons for this are that by channelling all the capital expenditure through the company, the council completely avoids the capital expenditure controls, whilst at the same time ensuring that the borrowing can be done at the finest rates.' CIPFA also recommended that the proceeds of the time-share sales be used to pay off all bank borrowings, fees and rolled-up interest, all marketing expenses and other costs.Therefore the council acquired a limited company (the company) 'to assist with the financing of the council's various capital projects'.

The board of this company consisted of three councillors and one council officer.

The company took a 99-year lease of the station site (which was the land for the pool) and also took a lease of the land for the time-share units.The council agreed to 'provide the company with a guarantee of £6 million in order to be able to borrow the requisite resources to carry out the capital projects concerned'.

The guarantee provided that the council '...irrevocably guarantees to the bank payment on demand...of all moneys whether certain or contingent which are due and owing to the bank by the company pursuant to the loan...including all commissions, fees and other charges and all expenses incurred by the bank in relation to the loan or this guarantee including legal and other costs on a full and unqualified indemnity basis'.The guarantee was to become effective in the event that the company was to be wound up.

The company obtained from Credit Suisse a loan facility of £6 million comprising £4.5 million principal and £1.5 million interest.

This was for the 'construction of time-share and leisure pool complex'.The economic development powers in the Local Government and Housing Act 1989 (which now give authorities powers to provide guarantees under certain circumstances) had not been enacted at the time of the events in the case.

It was in that context, in February 1986, that Gerald Moriarty QC advised that the council had power inter alia under s.111 of the Local Government Act 1972 to give a guarantee in respect of the development company's liabilities.

However, a different counsel on behalf of the council managed to persuade the High Court otherwise.It was the deterioration in the property market which brought nightmare to the dream.

The time-share units became increasingly difficult to sell which caused the company considerable problems in servicing the loan.

These eventually resulted in the company's going into liquidation following a formal demand from the bank for repayment.

The bank thereupon called on the council's guarantee which led to litigation.The council argued that the provision of the guarantee was beyond its powers for various reasons.

This was because if the council could establish that it had acted ultra vires then it would not be bound by the guarantee since its actions on entering into it would be a nullity.The court agreed that the council had no power to give the guarantee.

At the time there was a comprehensive statutory code governing local authority borrowing in sched 13 to the Local Government Act 1972.

To guarantee the borrowing of the funds in question by a 'totall y different legal entity - in this case the company - would be a means of acquiring the use of borrowed money which was outside the contemplation of Parliament when it enacted...' the Local Government (Miscellaneous Provisions) Act 1976 (LGMPA) which gives councils leisure powers (see below and p.48 of the transcript judgment).

The judge also failed to see 'how there could be any implication empowering a local authority to acquire the use of borrowed money [for the purpose of discharging a particular function] by any other means than by borrowing the required funds itself and doing so conformably with...' the statutory borrowing regime (p.47).Therefore the use of the guarantee of the company's borrowing was 'an impermissible means of providing recreational facilities' (p.58).

Also, 'the loan money was to be used in part for a purpose outside the statutory powers of the council, namely the construction of time-share accommodation' (p.58).

This is because whilst being on holiday and using such accommodation provides an opportunity to participate in recreational activities it is not such an activity in itself (p.55).The case also underlined the basic principle of public law that authorities must not only identify precise statutory powers to underpin their actions but also make sure that their functions are discharged for proper purposes, ie those for which the power(s) had been given.

If, in taking a decision a '...

local authority takes into account a consideration which, having regard to the purposes for which the power was given, is irrelevant or fails to take into account a consideration which is relevant, the local authority's decision will be vitiated, that is to say it will be purporting to exercise powers in one way which Parliament only gave to it on the basis that they would be exercised in another way' (pp.69-70).The judge concluded that '...the council's decision to give the guarantee was, on both the grounds of its purpose of evading the borrowing and spending controls on local authorities and of its creating a revenue producing development to fund the provision of the leisure pool, a decision tainted by irrelevant considerations the effect of which was to make it an invalid exercise of the council's powers' (p.75).The judge also made clear the principle that a transaction beyond the powers of a public body is a nullity in law.

This is because such a body has no capacity in law to act beyond the powers conferred by statute.

Therefore, if a public body exercises 'a discretionary statutory power in consequence of an irrational decision or one based on irrelevant considerations' this 'has no greater essential validity than the purported exercise of a power not given by statute in the first place' (p.85).And the leisure powers in s.19 of the LGMPA referred to above are not quite so wide as many had previously thought.

For instance, s.19(1) provides that 'the powers conferred by this subsection to provide facilities include powers to provide buildings, equipment, supplies and assistance of any kind'.

However, this does not entitle an authority to assist itself to provide recreational facilities to others as opposed to assisting others to enjoy the facilities enabled by the Act since 'that which is provided must further the enjoyment of some recreational facility by the person or persons receiving the assistance' (p.51).However, (happily for local government generally) the court did stifle somewhat the council's enthusiasm for sackcloth and ashes.

For instance: 'The submission on behalf of the council that the use of a company must necessarily fall outside the permissible ambit of what is incidental or the boundaries of s.111(1) is, in my judgment, misconceived.

When a local authority sets up a company as a means of carrying out a statutory function, it does not necessarily follow that the functions of the company will be other than those which the local authority itself could carry out or that the company will in practice be able to perform functions not lawfully open to the local authority' (p.23).Also: 'To stigmatise the creation of a company as an act beyond the powers of the council merely because of the theoretical possibility that it might in future, by reason of its independent status as a separate legal entity, be able to take a decision on a matter as to which the council could not lawfully delegate its decision-making function would be an unreasonable and unnecessarily strict application of the ultra vires doctrine' (p.30).It is not therefore unlawful in itself for authorities to set up companies in connection with the carrying out of their functions.

Whilst authorities may not regard this as startling, if the council in the case had succeeded in its submissions many authorities could have found themselves in a difficult position with their existing companies.

Nevertheless, the judge did point out that '...it was not open to the council to delegate its decision-taking functions to any other body unless authorised by statute to do so and that there could be no such authorisation merely by implication as being incidental to its powers to provide recreational facilities' (p.41).On guarantees given under incidental powers: 'In my judgment, the guarantee by a local authority of the obligation of a company set up by the local authority to enable it to provide recreational facilities under s.19 is not necessarily impermissible any more than is the setting up of the company itself...in order to decide in any given case whether a guarantee is within the local authority's incidental powers, it is necessary to ask what is the nature and purpose of the obligation performance of which is guaranteed' (p.26).The court also helpfully narrowed the scope of the 'incidental to the incidental' argument emanating from the House of Lords in the McCarthy and Stone case ([1992] 2 AC 48).

Basically this is that whilst an authority's activity might well be incidental to one of its statutory functions (per s.111 of the 1972 Act) it is another thing for an activity to be incidental to what is already incidental.

In McCarthy and Stone this referred to the making of charges for pre-application planning advice.

The council (as ever energetically arguing its unlawfulness) submitted that if the creation of the company were permissible, incidental to the council's statutory power to provide recreation facilities, then the giving of the guarantee was merely incidental to the use of the company which was itself incidental.

However, the judge considered that '...this submission is unsustainable.

In the present case the guarantee was as much an integral part of the council's means of discharging or accomplishing its function as was the formation of the company.

If one took away the guarantee, the company would not be able to build the pool or the time-share accommodation.

By contrast in McCarthy and Stone if one took away the charge, the local authority could still carry out its statutory function of entertaining and determining planning applications' (p.45).

Whilst the judgment technically distinguished McCarthy and Stone, nevertheless arguably its practical eff ect is to have narrowed the application of the 'incidental to the incidental' doctrine.The case also suggests that the existence of express powers does not necessarily rule out the existence of implied powers in the area.

For instance, the judge indicated that: 'It is a perfectly legitimate drafting technique to make express provision for that which might otherwise by implied...' (p.25).

This is of course subject to the disapplication of s.111 of the LGA 1972 where a comprehensive code exists covering the matters in question.So the council won in that the bank's claim on the guarantee failed.

But why was the council allowed to rely on its own admitted unlawfulness to defend itself? The judge reviewed the law and in particular noted the decision of the House of Lords in Wandsworth LBC v Winder [1985] AC 461 where a ratepayer was held to be entitled to raise in defence that he was not liable to pay rent so far as it had been increased pursuant to an ultra vires decision of the authority.

He took the view that just as that ratepayer had been entitled to raise the defence that part of the rent was not due because the decision in question is void '...so a local authority sued on a contract which it has entered into pursuant to a decision which it was not empowered to make is entitled to defend the claim on the basis that the contract is void...' from the start.

The judge went on: 'The fact that it is the local authority which seeks to rely on the invalidity of its own decision, as distinct from the third party affected by the decision is, in my view, wholly irrelevant.

Once the decision is tainted by invalidity and the contract made in consequence is void, it must be void for all purposes and for both parties to it.

There is no principle of English law that precludes the party that lacks capacity to contract from relying by way of defence on its own incapacity' (p.90).In addition, the court refused to apply in favour of the bank the company law doctrine in Rolled Steel (Holdings) Ltd v British Steel Corporation (Court of Appeal 1986).

This is in very simple terms that a company will be bound by a transaction of the directors which is capable of being (but is not in fact) within its powers unless the third party was at the relevant time aware of the impropriety.

The reason for this is that for a local authority if an act is ultra vires 'it would be void and unenforceable regardless of the ignorance of the other party that the decision on which it was based was defective' (p.96).So what can be drawn from the case? It was a substantial and lengthy judgment covering many issues and authorities will need to read it carefully.

However, here are some general points.-- It is not necessarily impermissible for authorities to use companies for the discharge of their functions and each case must be examined on its merits.

However, in the absence of express powers, authorities cannot delegate their decision-taking functions.-- The provision of a guarantee (otherwise than under the economic development powers now available) is also not necessarily impermissible.-- The potential 'incidental to the incidental' limitation on s.111 of the Local Government Act 1972 which emerged from the McCarthy and Stone case was not accepted on the facts of the case and arguably this should help in weakening its effect.-- The powers in s.19 of the LGMPA to provide 'assistance of any kind' cannot be used by authorities to assist themselves to provide recreational facilities to others as opposed to assisting others to enjoy the facilities.-- There is no implication enabling authorities to borrow money other than in accordance with the statutory regime.-- The existence of express powers (in this case to give guarantees) does not necessarily preclude the existence of implied powers in the area.-- If authorities' decisions are unlawfully founded (eg by taking into account irrelevant considerations or taking decisions for purposes inconsistent with the relevant statutory powers) then their decisions will be legally ineffective from the outset whether or not a third party knew of the legal defect.-- Counsel's opinion will not save an unlawful transaction (although it may well help in demonstrating the reasonableness of the actions in question).So local authority powers have once again been on the operating table and have in some cases emerged looking different.

On the plus side, the best endeavours of the council to argue its unlawfulness in many areas were of no avail.

But whilst the finding of ultra vires was what the council wanted this may not be so in other cases.

And after this the banks and other institutions will be extremely chary.

Authorities will need to study the case very closely and make sure that their decisions and decision-making processes are thoroughly MOT'ed in the light of it.

For (although the case is apparently to go to appeal) it seems the days are no more where there can be credit where credit is not due.