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England and Wales Court of Appeal (Criminal Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Criminal Division) Decisions >> Legg, R (on the application of) v Westminster City Council [2000] EWCA Crim 31 (18th April, 2000) URL: http://www.bailii.org/ew/cases/EWCA/Crim/2000/31.html Cite as: [2000] EWCA Crim 31 |
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Case No: 99/6108/X5
IN THE COURT OF APPEAL
CRIMINAL DIVISION
Royal Courts of justice
Strand, London, wc2a 2ll
Tuesday 18 April 2000
Facts
Both of these cases involve applications for judicial review of a decision of
the respondent, Westminster City Council ("the Council"), through its Policy
and Resources Committee, dated 16 December 1998 when it resolved that the
applicants should not be reimbursed for costs and expenses incurred by them
when participating in the audit hearing proceedings which were held following
publication of the auditor's provisional findings on 13 January 1994 relating
to an objection made in July 1989 to the Council's 1987/1988 accounts, and
following his notices to show cause issued to ten persons as to why the sum of
£21.25 million pounds should not be certified by him under section 20 of
the Local Government Finance Act 1982 as due from them by reason of wilful
misconduct. In the first case, the applicants are the Union of Managerial and
Professional Officers ("MPO"), Mr England, who at all material times was the
Council's director of housing, and Mr Hayler, who at all material times was the
Council's divisional director of housing (private sector). Mr England and Mr
Hayler were both members of the Union. In the second case, the applicant, Mr
Legg, was a member of the Council, serving as a councillor from May 1978 to
February 1991. Mr England, Mr Hayler and Mr Legg were all amongst the ten
persons called upon by the auditor to show cause why they should not be
surcharged with the sum of £21.25 million pounds.
The objection to the Council's accounts related to the Council's policy of
selling a large number of Council houses to the private sector, which was
alleged to be unlawful. It gave rise to a very lengthy and complex
investigation by the auditor which lasted from July 1989 to May 1996.
Whilst that investigation was taking place, on 10 June 1992 the Council,
through its Policy and Resources Appointed Panel, adopted an indemnity policy,
the material parts of which read as follows:-
"The City Council will, subject to the exceptions below, indemnify all
Councillors, employees of the Council, and nominees by the City Council to any
body outside the City Council, against any damages, costs or legal expenses
which any such Councillor, employee or nominee may be ordered to pay or may
reasonably have incurred in the discharge of functions on behalf of or at the
request of the Council if the Councillor, employee or nominee acted in good
faith and honestly believed that the act complained of was within his power and
that his duty as a Councillor, employee or nominee required him or entitled him
to do or omit to do it....
Exceptions
(i) This indemnity will not extend to loss or damage directly or indirectly
caused or arising from:
(a) Fraud, dishonesty or any criminal offence on the part of a Councillor,
employee or nominee;
(b) Any neglect, error or omission by an individual otherwise than in the
course of his duty; or
(c) Liability in respect of any surcharge and associated costs and expenses
pursuant to Sections 19 and 20 of the Local Government Finance Act 1982.
Provided that where upon final determination of an objection to the Auditor the
Council is satisfied that a person the subject of an objection was not in any
way culpable it will meet the legal costs reasonably incurred by such a person
in connection with such an objection."
In January 1994 the auditor published his provisional findings and the notices to show cause why the ten persons should not be surcharged. It was then arranged that there should be an oral hearing at which all relevant parties could make representations to the auditor.
On 11 May 1994 the General Secretary and the Negotiating Officer of the Union
met with Mr Roots, the Council's then acting managing director, to discuss the
question of the costs which would be incurred by members of MPO in
participating in the oral hearing before the auditor and showing cause why they
should not be surcharged. Mr Roots handed to the Union representatives a copy
of the indemnity policy dated 10 June 1992 at that meeting.
By letter of 11 May 1994 to the General Secretary of the Union Mr Roots stated
"I would recommend a payment in respect of reasonable legal expences if Messrs
England and Hayler were exonerated by the auditor/courts, subject to my
assessment of the reasons for such an outcome", and he referred to the
Council's 1992 indemnity policy, a copy of which he had handed to the Union
representatives.
By letter of 21 July 1994 the objectors invited the auditor to make findings
of wilful misconduct and to issue surcharge certificates under section 20 of
the 1982 Act against five additional persons, including Mr Sporle and Mr
Hackney, two other Council officers who were also Union members and whom the
Union also agreed to support. By letter of 7 October 1994 Mr Roots, who by
then was the Council's chief executive and director of finance, confirmed to
MPO that the Council "will provide a costs indemnity to Mr Sporle and Mr
Hackney on a similar basis as applied to Mr England."
The audit hearing before the auditor took place between October 1994 and
February 1995. At that hearing Mr England and Mr Hayler were represented by
leading and junior counsel and solicitors, the cost of which was borne by MPO
on their behalf in the sum of £344,271. As I understand it, the same
legal team also represented Mr Sporle and Mr Hackney, those costs also being
borne by MPO. Mr Legg was represented separately by leading counsel and
solicitors. He incurred costs in the sum of £164,876.
On 9 May 1996 the auditor issued his final report. He found Mr Legg not
guilty of any wilful misconduct and held that he should not be surcharged. He
also found Mr Sporle and Mr Hackney not guilty of any wilful misconduct.
However, he found six of the ten persons named in his provisional findings to
be guilty of wilful misconduct, including Mr England and Mr Hayler. He issued
certificates under section 20 of the 1982 Act holding those six persons jointly
and severally liable in a sum of over £31.6 million pounds.
Those six persons, including Mr England and Mr Hayler, duly appealed against
those certificates. On 17 December 1997 the Divisional Court held that the
Housing Committee had acted unlawfully, but they allowed the appeals of three
of the six appellants, including Mr England. On 12 January 1998 the appeal of
Mr Hayler, who was in ill health, was allowed by consent. The costs of the
appeals by Mr England and Mr Hayler before the Divisional Court were ordered to
be paid by the auditor. Those costs were subsequently agreed between the
auditor and MPO.
The two appellants whose appeals were dismissed, Dame Shirley Porter and
Councillor Weeks, the Leader and Deputy Leader of the Council respectively,
appealed to the Court of Appeal. On 30 April 1999 their appeals were allowed.
It was held that the designated sales policy of the Housing Committee was not
unlawful and that the appellants were not guilty of wilful misconduct.
In January 1998 MPO, acting in its own right and on behalf of Mr England and
Mr Hayler, applied to the Council for reimbursement of the costs incurred on
behalf of Mr England and Mr Hayler in the proceedings before the auditor. On
12 October 1998 Mr Legg's solicitors applied to the Council for reimbursement
of his costs incurred in those proceedings.
Those requests were put before the Council's Policy and Resources Committee on
16 December 1998. The relevant paragraphs of the minutes of that meeting ,
which also includes the Committee's resolution, state as follows:-
"4.7 In his advice to the City Council Mr Ash stated that the crucial test
to be applied in determining whether an individual case was within the terms of
the indemnity was whether the City Council is satisfied that the individuals
concerned were "not in any way culpable" ....
4.9 The Committee concluded, having regard to the purpose of the indemnity,
that Members and officers could legitimately have expected that the indemnity
covered the circumstances that led to legal expenses being incurred in these
cases. It therefore determined that in reaching a view on the individual cases
before it, it would apply the test set out in paragraph 4.7 above.
4.10 In the case of Mr England it was noted that many of the serious
criticisms made by the Appointed Auditor in relation to him were rejected by
the High Court. The Committee were also of the view that the High Court
judgment, whilst somewhat critical in places, did not include any finding that
could fairly be described as a finding of culpability on Mr England's part.
Accordingly, the Committee concluded that, in its opinion, Mr England was in no
way culpable and his case met the terms of the indemnity.
4.11 As the report indicated, although a broad brush approach should not be
adopted, it is reasonable to reach the same conclusion concerning Mr Hayler as
is reached for Mr England. Accordingly, the Committee accepted that the claim
from Mr Hayler fell within the terms of the indemnity.
4.12 The Committee noted that although the Appointed Auditor criticised
Councillor Segal and former Councillors Young and Legg for failing to speak up,
he also accepted that they did not have a duty to do so. The Committee did not
have the advantage of any High Court judgment in their cases to consider, but
noted that the Appointed Auditor did not at any stage intend to pursue the
cases of either Councillor Segal or former Councillor Young, and did not find
against former Councillor Legg in his final report. The Committee concluded
that in their opinion these individuals were not in any way culpable and,
therefore, fell within the terms of the indemnity.
4.13 The Committee also considered the cases of Mr Ken Hackney and Mr Sidney
Sporle as the claim from MPO included small elements of expenditure on their
behalf. The Committee noted that the Appointed Auditor did not at any stage
intend to pursue the cases of Messrs Hackney and Sporle. They also noted that
the Appointed Auditor made similar comments in relation to their failure to
"speak up" as he did in relation to Councillor Segal and former Councillors
Legg and Young. Again the Committee were satisfied that Messrs Hackney and
Sporle were not in any way culpable in relation to this matter and therefore
fell within the terms of the indemnity."
The Committee however resolved:-
"That reimbursement of Messrs England, Hayler, Hackney and Sporle (via the
claim from MPO), Councillor Segal and former Councillors Legg and Young be not
agreed on the basis that, whilst the Committee considers their cases to be
prima facie within the terms of the indemnity in the sense that they are, in
their opinion, in no way culpable:
a) there is doubt about the City Council's power to grant the
indemnity.
b) there is doubt about the City Council's power to reimburse in the
circumstances of these particular cases.
c) the Secretary of State has refused to grant a sanction for any
expenditure incurred in granting reimbursement; and
d) reimbursement would be highly controversial and, in the Committee's
opinion, should only be made in circumstances where the legal position is
clearer."
That decision of 16 December 1998 is the decision which is challenged by the
applicants in both these cases. They claim an order of certiorari to quash
that decision. Secondly, they claim a number of declarations. It is necessary
to quote the declarations sought in the first case because they have been
referred to by reference to the paragraph numbers in the Form 86A. Similar
declarations, adapted accordingly, are claimed by Mr Legg in the second case.
The declarations are as follows:-
"2. A Declaration that WCC has power to indemnify MPO, alternatively the
officer Applicants, in respect of claims for all reasonable costs and expenses
incurred in the representation of the officers in connection with the Audit
Hearing proceedings held following the Note of Provisional Findings and Views
of the Appointed Auditor, made on 13 January 1994 relating to an Objection to
the 1987/88 accounts, and the Notices to Show Cause, issued to 10 persons, why
the sum of £21.25 million should not be certified as due from them.
3. A Declaration that the claims made by MPO, alternatively the officer
Applicants, are within the terms of:-
3.1 the indemnity in s. 265 of the Public Health Act 1875 and s. 39 of the
Local Government (Miscellaneous Provisions) Act 1976;
3.2 the indemnity offered by WCC made by or pursuant to its Policy and
Resources Appointed Members Panel on 10 June 1992;
3.3 the indemnity offered by WCC by letter of 11 May 1994 and 7 October 1994
from the Acting Managing Director of WCC to MPO;
4. A Declaration that MPO, alternatively the officer Applicants, have a
legitimate expectation:
4.1 arising from the indemnity adopted by WCC by or pursuant to the decision
of its Policy and Resources Appointed Members' Panel of 10 June 1992;
4.2 arising from a meeting on 11 May 1994 between the Acting Managing
Director of WCC and officers of MPO and/or letters from the Acting Managing
Director of WCC of 11 May 1994 and 7 October 1994;
that in the light of the outcome of the Audit Hearing and the appeal
therefrom to the Divisional Court on 17 December 1997, and the Policy and
Resource Committee's findings on 16 December 1998, its and/or their claims will
be met."
Finally, the applicants in the first case seek an order that the Council
should pay MPO, alternatively Mr England and Mr Hayler, damages in the sum of
£344,271 plus interest. That claim includes a small proportion in respect
of Mr Sporle and Mr Hackney. In the second case, Mr Legg seeks an order that
the Council should pay him damages in the sum of £164,876 plus
interest.
The Council does not seek to resist the declarations specified in paragraphs 2
and 3.2, subject to amendments excluding MPO. It does, however, resist all the
other relief sought by the applicants. If the court were to make the
declarations specified in paragraphs 2 and 3.2, the Council would wish to
reconsider the applicants' requests for reimbursement in the light of the
court's clarification of the legal position. The principal issue between the
parties is whether, if the declarations in paragraphs 2 and 3.2 are made, the
Council is under an obligation to reimburse the applicants' reasonable costs,
whether by virtue of a statutory indemnity under section 265 of the Public
Health Act 1875, as applied by section 39 of the Local Government
(Miscellaneous Provisions) Act 1976, or by virtue of a substantive legitimate
expectation arising from the Council's 1992 indemnity or the undertakings given
in May 1994. If there is such an obligation, I am asked to make orders for the
payment of the amounts claimed in both cases, or such sums as may be
subsequently independently assessed to be reasonable, together with
interest.
Declarations not in dispute
Before I come to the main area of contention, I have to deal first of all with
the declarations which are not resisted by he Council. It is apparent from the
resolution of the Policy and Resources Committee dated 16 December 1998 and
from the witness statement of Mr Wilson, the Council's director of legal
services, that the main reason why the Committee did not agree to make the
reimbursement was because of the uncertainty about the legal power to do so.
Although both parties are content that I should make the declarations sought in
paragraphs 2 and 3.2, as amended, I can only do so if I am satisfied that the
legal uncertainty to which the Council referred should be resolved in the
manner contended for by the parties. The legal uncertainty to which the
Council referred arose as a result of legal opinions given on some aspects by
those advising other parties. I therefore have to resolve those points without
the opportunity of hearing those other parties developing those contrary
arguments. I am grateful, however, to Mr Ash QC, who appeared on behalf of the
Council, for identifying the way in which those contrary arguments were put.
The first uncertainty is whether the Council had the power to give the 1992
indemnity at all. That uncertainty arose as a result of the view expressed by
the legal adviser to the auditor that the Council had no power to indemnify
members or officers in respect of legal costs incurred by them in responding to
an objection made to the auditor in the light of recent cases where a narrow
view had been taken of the scope of section 111 of the Local Government Act
1972 ("the 1972 Act"). Mr Sullivan QC had advised the Council in 1991 that it
had power to give the indemnity. Mr Ash advised the Council in 1998 that,
although the matter was slightly more marginal than when Mr Sullivan advised in
1991 due to the restrictive interpretation of section 111 of the 1972 Act in
some recent cases, he was of the view that the council was empowered to give
the indemnity. Mr Patrick Elias QC advised the former leader of the opposition
that, although the position, especially in respect of members, was uncertain,
he was of the view, on balance, that the Council did have power to grant an
indemnity in principle. It follows that three leading counsel have advised
that the Council had the power to grant such an indemnity.
Section 111 of the 1972 Act empowers a local authority to do anything "which
is calculated to facilitate, or is conducive or incidental to, the discharge of
any of their functions." I am satisfied that the reasons for a more
restrictive interpretation of section 111 in some recent cases do not impinge
on the circumstances of this case. In my view, the granting of an indemnity to
members or officers in respect of their legal costs incurred in responding to
an objection made to the auditor can properly be said, in principle, to
facilitate, or be conducive or incidental to, the discharge of the functions of
a local authority, not least because it is important for the proper discharge
of the functions of a local authority that those seeking public office, whether
by election as a member of the authority or by appointment to a post as an
officer, should not be deterred from doing so by concern over personal
liability. I therefore conclude that the Council did have power to grant the
indemnity that it adopted in June 1992.
The next uncertainty is whether the Council had the power to grant the
indemnity to the three individual applicants in the circumstances of these
cases. That was another matter about which the Policy and Resources Committee
expressed doubt in their resolution of 16 December 1998, despite their
conclusions that each of the individual applicants were "not in any way
culpable" within the terms of exception (i) (c) of the indemnity of 10 June
1992. Once again, both parties have accepted that there was, in fact, power to
grant an indemnity to the individual applicants in these cases. The doubt or
uncertainty referred to by the Policy and Resources Committee arose out of the
opinion expressed by Mr Patrick Elias QC on behalf of the leader of the
opposition on two aspects - firstly, whether the indemnity could be
retrospective and, secondly, the meaning of the word "culpable". I therefore
have to deal with those two matters without having heard Mr Elias' argument
developed before me.
Dealing first with the issue of retrospection, Mr Elias expressed the view
that the indemnity could not operate retrospectively so as to apply to acts
done or decisions made prior to the coming into force of the indemnity. In his
view, it merely protected councillors from past conduct which was not of
benefit to Council taxpayers, nor was it necessary to encourage persons in
future to become councillors.
Mr Ash, on the other hand, advised the Council that there was nothing in the
wording of the indemnity which excludes future expenditure arising from events
prior to June 1992. He advised that it would be legitimate for the Council to
consider it to be in its interest, whether by reference to good administration
generally or for the protection of its reputation when serious allegations have
been made against officers or members, to ensure that proceedings before the
auditor are conducted in as fair and comprehensive a manner as possible,
something which could not be achieved solely by legal representation for the
Council itself because in most cases the Council will be at arms length from
those provisionally named by the auditor and may, as in the present case, play
a somewhat limited role at the hearing. For those reasons, he concluded that
there could be benefit to the Council's taxpayers in bearing the cost of
proceedings before the auditor in respect of events which occurred before the
indemnity came into force. Mr Ash elaborated on those views in his argument
before me.
In my judgment, the Council were entitled to take the view that the indemnity
could apply retrospectively in the sense that it could apply to future
expenditure arising out of events occurring before the date of the indemnity.
That was the situation in this case, the expenditure occurring in 1994 and 1995
arising out of events that occurred in the late 1980s. There is nothing in the
wording of the indemnity to the contrary and there could be benefit to the
Council's taxpayers that that should be so for the reasons given and elaborated
upon by Mr Ash. I do not therefore consider that the issue of retrospection
provides a legal impediment to granting an indemnity to these individual
applicants.
I turn next to the issue relating to the word "culpable" in exception (i) (c)
of the 1992 indemnity. Mr Elias advised that it meant wholly without blame.
Mr Ash advised that it was not necessary or desirable to seek to provide an
all-embracing form of words to define the test which the Council must apply
when construing ordinary, non-technical English expressions. I prefer Mr Ash's
approach . The indemnity is not a statute; it is the Council's own policy
which it can apply using common-sense according to the ordinary meaning of the
words without having to apply a precise meaning of a word or words prescribed
by lawyers.
Finally on this aspect I have to consider whether the Council's decision that
the three individual applicants were not in any way culpable was valid as a
matter of law. The fact that all three individual applicants were exonerated
in the sense that they were found not guilty of wilful misconduct does not
necessarily mean that they were not in any way culpable. I have been referred
in detail to the findings of the auditor, the findings of the Divisional Court
and the contents of a detailed report of the Council's City Solicitor and
Secretary to the Policy and Resources Committee dated 16 December 1998. I have
earlier set out the conclusions and the resolution of the Policy and Resources
Committee after it had considered those matters. I have come to the
conclusion, having considered all that material and the submissions relating to
it, that the Council was entitled to conclude as it did, namely that the three
individual applicants were not in any way culpable. Whilst there were contrary
arguments, those arguments were properly considered and it cannot, in my view,
be said that the conclusions that were reached were conclusions which no
reasonable local authority could have reached.
Having considered the various matters relevant to the legal power of the
Council to grant the 1992 indemnity and the legal power to reimburse the three
individual applicants in these cases, I am satisfied that the Council has those
powers. I am therefore of the opinion that the three individual applicants in
these cases are entitled to declarations along the lines of those sought in
paragraphs 2 and 3.2 of the Forms 86A in their respective cases. The MPO is
not entitled to those declarations because the indemnity only relates to
councillors and employees and it does not include Unions representing
employees. However, the Council accepts that any payment that may subsequently
be made in pursuance of a declaration of entitlement of Mr England and Mr
Hayler under the 1992 indemnity should be paid to the MPO who funded their
legal expenses of the proceedings before the auditor. The Council
therefore accepts that there should be a declaration relating to its power to
make such a payment to the MPO.
I now turn to the disputed aspect of these cases, namely whether the Council
is under an obligation to reimburse the applicant's legal expenses either by
virtue of a statutory indemnity under section 265 of the Public Health Act
1875, as amended, or by virtue of a substantive legitimate expectation arising
either from its 1992 indemnity or from the 1994 undertaking given by Mr Roots.
I deal first of all with the issue of the statutory indemnity.
Statutory indemnity
Section 265 of the Public Health Act 1875, as amended by paragraph 1 of
Schedule 5 of the Local Government Finance Act 1982, provides as follows:-
"No matter or thing done, and no contract entered into by any local
authority --- and no matter or thing done by any member of any such authority
or by any officer of such authority, or other person whomsoever acting under
direction of such authority, shall, if the matter or thing were done or the
contract were entered into bona fide for the purpose of executing this Act,
subject them or any of them personally to any action liability claim or demand
whatsoever; and any expense incurred by any such authority member officer or
other person acting as last aforesaid shall be borne and repaid out of the fund
or rate applicable by such authority to the general purposes of this
Act.
Provided that nothing in this section shall exempt any member of any such
authority from liability to make any payment in pursuance of section 19 or 20
of the Local Government Finance Act 1982."
The auditor in this case was acting under section 20 of the Local Government
Finance Act 1982 when he certified that the amount of the loss was due from the
six persons named by him as a result of their wilful misconduct.
The application of section 265 of the Public Health Act 1875, as now amended
by the Local Government Finance Act 1982, was widened by section 39(1) of the
Local Government (Miscellaneous Provisions) Act 1976 which provides as
follows:-
"(1) Section 265 of the Public Health Act 1875 (which relates to the protection
from personal liability of members and officers of certain authorities) shall
have effect ... as if any reference to those authorities and the first
reference to that Act included respectively a reference to a local authority
and to any other public general Act --- and as if the reference to the general
purposes of that Act included a reference to the purposes of the other public
general Act --- in question."
It is argued on behalf of the applicants that the word "expense" referred to
in section 265 covers the legal expenses of establishing exemption from
liability in surcharge cases such as this and that there is therefore a
mandatory duty for the expenses incurred by the applicants in the proceedings
before the auditor to be met by the Council pursuant to that section.
I was referred to the part of the judgment of Neuberger J in Burgoine v
Waltham Forest London Borough Council (1996) 95 LGR 520 where, at pages 536
to 538, he dealt with the interpretation of section 265 of the 1875 Act. That
was a case involving a claim for an indemnity by two council officers who were
also directors of a company set up by the local authority to finance and manage
a waterpark for the public. The project failed and the company went into
liquidation. The liquidator brought proceedings to recover substantial sums
from them under the Insolvency Act 1986. They sought to establish that the
local authority was bound to indemnify them in respect of their liability, if
any, in the insolvency proceedings, either under a contractual indemnity or,
failing that, under section 265 of the Public Health Act 1875.
Neuberger J referred to the first part of section 265 as being concerned with
excluding liability, the second part as being concerned with an indemnity and
the third part being the proviso. He then stated at p. 536 as follows:-
"The purpose of the first part of section 265 is to confer immunity from
suit from the persons therein mentioned in the circumstances therein mentioned.
This would strongly suggest that the "expenses" against which such persons are
to be indemnified under the second part of section 265 are not intended to be
substantive sums for which they are sued, because the first part of section 265
renders them immune from liability for such sums. This reinforces the view
that the reference to "expenses" is to the expenses incurred by the relevant
persons in connection with the claim in respect of which they are rendered
exempt by the first part of section 265. It appears to me that this is
consistent with what was said by Wightman J giving the judgment of the court in
Ward v Lee (1857) 7 E&B 426, 430, where he said:
"The clause at the end of the 128th section is not for the
repayment of `damages' recovered against a person acting bona fide in the
execution of the Act, but for the repayment of his [expenses]; which may well
be construed, consistently with our view of the meaning of the section, to be
repayment of the [expenses] he may have been put to in defending an action
brought against him personally, and in which he may have been successful on the
ground that he was acting bona fide in the execution of the Act, and therefore
not liable. [The section there referred to being a provision of similar effect
to section 265 of the Public Health Act 1875]."
In the case of Ward v Lee, Wightman J was delivering the judgment of
the Court of Queen's Bench consisting of three judges presided over by Lord
Campbell CJ. I am bound to say that I consider the interpretation of the word
"expense" in section 265 to be an arguable point in view of the fact that the
expense has to be incurred "acting as last aforesaid" which could be taken to
be referring back either to the words "acting under the direction of the
authority" and/or to "matters or things done ... bona fide for the purpose of
executing the Act". The interpretation adopted in Ward v Lee and by
Neuberger J in Burgoine would seem to result in the word "expense"
meaning expense incurred in establishing that the person was "acting as last
aforesaid". Be that as it may, I will assume for present purposes that the
interpretation given to that word in Ward v Lee and in Burgoine
is correct. What I have to consider is whether the applicants can bring
themselves within the first part of section 265 so as to be able to invoke the
second part of that section relating to the expense incurred in relation to the
matters referred to in the first part of the section.
As Neuberger J mentioned, the purpose of the first part of section 265 is to
confer immunity from suit in the circumstances there mentioned. It is dealing
with the circumstances in which the relevant persons will be immune or exempt
from liability. It was held in Bullard v Croydon Hospital Group Management
Committee (1953) 1 QB 511 that section 265 could not be relied upon in
circumstances where the act complained of was carried out negligently. In the
present case, the allegation against the three applicants was that they had
been guilty of wilful misconduct. It was never claimed by the applicants,
either before the auditor or before the Divisional Court, that they were immune
from suit or exempted from liability under the first part of section 265 of the
1875 Act. Their case was that they were not guilty of wilful misconduct under
section 20 of the Local Government Finance Act 1982. The purpose of section
265 of the 1875 Act is to protect local authority members and officers from
personal liability in certain circumstances. That was never an issue before
the auditor - either the applicants were guilty of wilful misconduct and liable
for the loss incurred or they were not. No question of immunity from suit or
exemption from liability under section 265 of the 1875 Act arose. I have
therefore come to the conclusion that the first part of section 265 is not
applicable and that there is therefore no entitlement to an indemnity in
relation to the applicants' legal costs under the second part of that
section.
In coming to that conclusion I have had regard to the proviso of section 265
which makes it clear that nothing in the section shall exempt a member of a
local authority from liability to make any payment in pursuance of section 18
or 20 of the Local Government Finance Act 1982. The proviso emphasises the
nature of the first part of the section as being to exempt from liability. If
and insofar as the omission of the proviso to mention officers of a local
authority may be said to imply that they could be exempted from liability under
sections 19 or 20 of the Local Government Finance Act 1982, there was, as I
have said, no suggestion that Mr England or Mr Hayler were exempted from
liability to make any payment under section 20 of the Act. Indeed, it is
difficult to see how an officer could otherwise be liable under section 20 of
the 1982 Act by reason of wilful misconduct but still bring himself within the
first part of section 265.
Finally, I should add that, in coming to the conclusion that I have reached I
have taken into account the argument that was raised on behalf of the
applicants relating to Article 6(1) of the European Convention of Human Rights,
but it has not caused me to reach a different conclusion.
1992 indemnity - substantive legitimate expectation
I turn next to the 1992 indemnity. It was contended on behalf of the
applicants that the Council is obliged to reimburse the three individual
applicants for their legal costs of the proceedings before the auditor on the
ground that the 1992 indemnity, together with the findings of the Policy and
Resources Committee dated 16 December 1998 that they were not in any way
culpable, give rise to a substantive legitimate expectation that the Council
will pay their costs.
Reliance was placed on the case of R v North and East Devon Health
Authority, ex parte Coughlan (1999) LGR 703 where the health authority's
decision to move the applicant from a residential home, against her will and in
breach of its own promise, constituted unfairness amounting to an abuse of
power because it frustrated her legitimate expectation of having her home for
life in the residential home and because there was no overriding public
interest which justified the decision. In giving the judgment of the court,
Lord Woolf MR stated at p. 726 that, in considering the legitimate expectation
arising from a promise made by a local authority, there were at least three
possible outcomes which he expressed as follows:-
"(a) The court may decide that the public authority is only required to bear
in mind its previous policy or other representation, giving it the weight it
thinks right, but no more, before deciding whether to change course. Here the
court is confined to reviewing the decision on Wednesbury grounds ....
(b) On the other hand the court may decide that the promise or practice induces
a legitimate expectation of, for example, being consulted before a particular
decision is taken. Here it is uncontentious that the court itself will require
the opportunity for consultation to be given unless there is an
overriding reason to resile from it (see Attorney-General of Hong Kong v Ng
Yuen Shiu [1983] 2 AC 629) in which case the court will itself judge the
adequacy of the reason advanced for the change of policy, taking into account
what fairness requires. (c) Where the court considers that a lawful promise or
practice has induced a legitimate expectation of a benefit which is
substantive, not simply procedural, authority now establishes that here too
the court will in a proper case decide whether to frustrate the expectation is
so unfair that to take a new and different course will amount to an abuse of
power. Here, once the legitimacy of the expectation is established, the court
will have the task of weighing the requirements of fairness against any
overriding interest relied upon for the change of policy."
It is submitted on behalf of the applicants that the circumstances of this
case come within the third category mentioned by Lord Woolf. It is said that
the indemnity constitutes a promise that the Council would pay the applicants'
reasonable legal costs if it is satisfied that they were not in any way
culpable. By its decision of 16 December 1998 the Policy and Resources
Committee found that the applicants were not in any way culpable and it is
submitted that they therefore had a legitimate expectation of a substantive
benefit, namely the payment of the legal costs reasonably incurred by them.
The applicants therefore ask for an order for payment of their costs.
On the face of it, that is a persuasive argument. It does not, however, deal
with the whole picture, insofar as it does not deal with the reason why the
Council did not agree to reimburse the legal costs reasonably incurred by the
individual applicants. In paragraph 4.9 of the report to the Policy and
Resources Committee dated 16 December 1998 it is expressly accepted that
members and officers could legitimately have expected that the indemnity
covered the circumstances that led to legal expenses being incurred in their
cases. There is, therefore, no dispute about the concept of legitimate
expectation applying in these cases. However, the main reason why the Council
did not agree to reimbursement of the individual applicants' costs was because
of its doubts about its power to grant the indemnity and its doubt about its
power to reimburse the applicants' costs in the circumstances of these
particular cases in light of legal opinions given on some aspects by those
advising other parties. Those doubts are referred to in the Committee's
resolution contained in paragraph 4.14 of the officer's report of 16 December
1998 where it is made clear that reimbursement should only be made in
circumstances where the legal position is clearer.
Whilst I would accept that the terms of the 1992 indemnity, coupled with the
Committee's finding that the individual applicants were in no way culpable,
could be said to give rise to an expectation that their legal costs would be
reimbursed, such an expectation must be subject to the Council being satisfied
that it had the legal power to reimburse their costs. If the Council had
genuine doubts about its legal power to do so, it would plainly be wrong for it
to make the payments without first resolving its genuine doubts. In those
circumstances I do not consider that it would constitute unfairness amounting
to an abuse of power to frustrate such legitimate expectation as the applicants
had until the Council's genuine doubts about its legal powers were resolved.
Those doubts have now been resolved as a result of this judgment. I am
therefore urged on behalf of the applicants to make orders for payment of their
legal costs now that the legal position is clear. The main reason for that
request is the applicants' fear of their claim being politicised if the matter
were considered again by the Council in the light of this judgment. I do not,
however, consider that it would be right to make the orders requested at this
stage. For the reasons I have given, there has not been an abuse of power by
the Council. It was entitled to have its doubts about its legal powers
resolved before making the payments. The matter should now be reconsidered by
the Council in the light of this judgment and in the light of the declarations
made by this court. Mr Ash assured me that he did not seek to argue that, if
the matter were remitted to the Council for reconsideration, the Council could
justifiably decline to pay the costs claimed by the Applicants once the legal
position had been clarified".
1994 Undertakings
Finally, I turn to the Council's case relating to the undertakings given by Mr
Roots in his letters of 11 May 1994 and 7 October 1994 referred to earlier in
this judgment. Whilst they are relied upon by Mr England and Mr Hayler as
reinforcing their claim under the 1992 indemnity, the main point of reliance on
those letters is to cover MPO's claim in relation to the costs incurred by them
on behalf of Mr Sporle and Mr Hackney, two other officers who were not found
guilty of wilful misconduct by the auditor. The argument, as I understand it,
is that Mr Roots' letters gave rise to a legitimate expectation that he would
make a recommendation of payment of legal expenses in favour of Mr Sporle and
Mr Hackney (as well as Mr England and Mr Hayler).
It is, however, clear from his letters that Mr Roots said that he would make a
recommendation of payment if the officers were exonerated subject to his
assessment of the reasons for such an outcome. As he makes clear in his
witness statement, some criticisms were made of those officers and he did not
therefore consider it appropriate to make a firm recommendation to the
Committee. I see nothing wrong in that approach by Mr Roots and, in any event,
even if he had made such a recommendation, it could not have been binding on
the Council. I do not, therefore, consider that the so-called undertakings
given by Mr Roots in 1994 can form a basis for MPO's recovery of the costs
incurred on behalf of Mr Sporle and Mr Hackney, nor do they affect the position
in any material way so far as Mr England's and Mr Hayler's entitlements under
the 1992 indemnity are concerned.
Conclusion
My overall conclusion, therefore, is that I will grant the relief that is not
in dispute between the parties, that is to say declarations relating to the
power of the Council to grant the 1992 indemnity and the power of the Council
to reimburse the three individual applicants in these cases, but I will not
grant the other relief sought by the applicants for the reasons that I have
given. I will hear submissions from the parties on the precise form that the
declarations should take.
