The council has claimed it acted with 'extensive' legal backing. If proved, the allegation could open the way for legal action against the former council leader, Dame Shirley Porter, and nine other councillors and officials in an attempt to recover the pounds 21.25m the District Auditor estimates was lost by the policy.
John Magill, the auditor, accused the council in his report this week of gerrymandering votes by offering homes for sale to Tory supporters instead of renting them to the homeless, which he called disgraceful.
In the report, Mr Magill said a former senior member of the council's management team interviewed by him had, 'at the time and in his dealings with me, been economical with the truth and has sought to deceive me (and leading counsel instructed on behalf of the council) as to the status of certain documents'.
He added that Jeremy Sullivan, QC, the barrister retained by the council to give his opinion on the legality of the 'designated sales' policy, did not see a copy of the final report to the housing committee which approved the idea. A draft was sent to him which he did approve, but it was 'different in a number of substantial respects' from the final version. Despite that a member of the council's legal staff wrote to councillors saying Mr Sullivan had considered and approved the final report.
Mr Magill said that the legal officer 'was aware of at least the main differences and that there was at least a risk that leading counsel's advice might be different if asked to approve the final version having had his attention drawn to these differences'.
Labour councillors leapt on the disclosure and demanded publication of Mr Magill's interview with Mr Sullivan. Andrew Dismore, leader of the Labour group, said: 'It is clear that the barrister instructed on behalf of the council was not given vital documents before giving his advice, and appears to have been misled.'
He said he had written to Mr Sullivan asking for permission to release the transcript of his interview with the auditor. Mr Dismore wrote: 'It seems clear that if you had been given the full facts, you would never have advised the policy was lawful.'
Mr Sullivan, a local government legislation specialist, declined to comment last night. The senior clerk at his Gray's Inn chambers, Leslie Page, said: 'He is still professionally involved in this matter and obviously it's something he can't comment on. He would be happy for any relevant documents to be made public.'
A separate row emerged last night over the council's appointment of three financial consultants to contest the auditor's figure of pounds 21.25m lost.
In November, Bill Roots, the director of finance, began to dispute the auditor's assessment of the losses and appointed three financial consultants, Mike Reddington, Ken Webster and the accounting organisation Cipfa, to assess the figures. They are thought to have given lower assessments, but the council declined last night to give the figures. Labour is asking the District Auditor to examine whether fees paid to the consultants were legal.
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