The decision of the House of Lords in YL v Birmingham City Council and others may have considerable significance for businesses providing services to public bodies under ‘contracting out’ arrangements. Their Lordships had to determine whether a private care home fell within the definition of ‘public authority’ under the Human Rights Act when providing care and accommodation for an elderly resident with Alzheimer’s disease. In what might be described as a battle between public and private law rights, private law triumphed. In a split decision, the majority of their Lordships found that the care home was not exercising ‘functions of a public nature’; much to the dismay of those who saw this as an unduly restrictive approach to the definition of public authority under the Act.
A private body will be a public authority for the purposes of the Act, and have to act compatibly with the European Convention on Human Rights, if it is exercising functions of a public nature. Championing the public law rights of YL, Lord Bingham and Baroness Hale in their dissenting judgments took a purposive approach to the interpretation of the Human Rights Act and what was meant by a ‘function of a public nature’. They considered that the legislature’s intention was to capture the situation where functions formerly carried out by public authorities were now carried out by private bodies. In this case the provision of accommodation and care for the elderly was a public function carried out in the public interest and one for which the state had assumed responsibility at public expense.
Lord Scott, Lord Mance and Lord Neuberger disagreed. Their Lordships looked to the private contractual arrangements in place between the local council, the care home and YL’s daughter under which, in return for providing accommodation and care, the home received a basic fee from the local council with a top-up fee from YL’s daughter. In their view, the care home, although providing a socially useful service, was doing so for profit, operating in a commercial market with commercial competitors. The ordinary private law freedom to contract on agreed terms pointed against the home exercising functions of a public nature. In particular, the majority were concerned by the potential anomaly if publicly-funded residents were to have greater rights than other residents of the same home who paid for their care out of their own resources.
Their Lordships noted that, under the relevant statutory regime, the duty was on the council to make arrangements for providing accommodation, and the council had discharged this duty when it contracted with the care home. It was this duty to ‘make arrangements’ which was the public function in this case. The actual provision of accommodation and care were not in themselves ‘public functions’, and therefore the private care home was not acting as a public authority in performing those functions. They contrasted these services with private bodies exercising coercive statutory powers, such as private prisons or mental health institutions, which would involve ‘public functions’.
A possible objection to this approach is that, if public bodies can contract out of their duties under the Act in this way, claimants may be left without a remedy. In YL the care home had agreed to comply with the Convention rights in its contractual arrangements with the council. If the home failed to do so, their Lordships said that the council could bring a breach of contract claim against the care home. The difficulty with this approach to the interplay between public and private law rights is that there would be a potential mismatch between liabilities and remedies. If an individual is only able to bring proceedings against the public authority for failure to make the appropriate ‘arrangements’, there may be little that the authority can do to require compliance on the part of the private body providing the service. Even if there is a contractual provision, such as that in the contract with the care home in the YL case, it is by no means clear that a court would, for example, order specific performance of the contract by requiring the care home to treat the claimant with ‘dignity’.
What then is the likely implication of this decision for other ‘contracting out’ arrangements? As noted above, where the use of coercive statutory powers are involved, the courts are likely to find that the public functions are being exercised. However, in other situations, where the public authority’s obligation is only to ‘arrange’ the provision of certain services (either directly or by engaging private contractors) then this decision suggests that the ‘public’ functions will only include the making of those arrangements by the public body, and not the provision of the services themselves. What is less clear is whether the outcome would be the same where the statutory obligation is to ‘provide’ the services in question. In the interim, while this case turned on its facts, private companies providing services under contracts with public bodies may take significant comfort from the fact that the majority in YL gave precedence to ordinary private law freedoms.
Andrew Denny is a partner and Angeline Welsh an associate in Allen & Overy’s public law group.
