Lloyd (A.P.) and Others (A.P.) v McMahon

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Keith of Kinkel,Lord Bridge of Harwich,Lord Brandon of Oakbrook,Lord Templeman,Lord Griffiths
Judgment Date12 Mar 1987
Judgment citation (vLex)[1987] UKHL J0312-2

[1987] UKHL J0312-2

House of Lords

Lord Keith of Kinkel

Lord Bridge of Harwich

Lord Brandon of Oakbrook

Lord Templeman

Lord Griffiths

Lloyd (A.P.) and Others (A.P.)
(Appellants)
and
McMahon
(Respondent)
Lord Keith of Kinkel

My Lords,

1

The appellants are a group of Liverpool city councillors. The respondent is the district auditor for the city. In respect of the financial year beginning 1 April 1985 the appellants brought it about that a rate for the city was not set until 14 June 1985. The council were advised by their officers that the rate then proposed to be set was an illegal one, in respect that it fell far short, taken along with other sources of income, of meeting the city's expenditure for the year as then estimated. But that is not the point. The point is that the delay in setting the rate led to delay in receiving various items of income, including government contributions in respect of payments in lieu of rates on Crown properties and in respect of rate rebates.

2

There had been trouble over the making of a rate also in respect of the financial year 1984-85, when in the event a rate was made on 10 July 1984. On 19 March 1984 the district auditor's predecessor had sent to the council a report expressing concern at indications that the council might deliberately make a rate for the year which would not be sufficient to meet its outgoings for that year. The report drew attention to possible consequences to individual councillors, both financial and by way of disqualification, if an adequate rate were not made. In the penultimate paragraph it was stated: "Members would in my view also be at risk if a rate was not made because no vote was taken or there was unreasonable delay in making a rate."

3

On 10 April 1985 the district auditor's predecessor had sent to the council a report expressing concern at the council's failure to make a valid rate for the year commencing 1 April 1985, drawing attention to his report dated 19 March 1984 and reiterating the duties of councillors and the possible consequences to the city and to individual councillors if these duties were not carried out. The report concluded by urging the council in its own best interests, as well as those of individual members, employees and the local community, that a rate should be made at a very early date. On 7 May 1985 the policy and finance committee of the council rejected a motion that the chairman of the committee submit proposals to the next meeting of the council to enable it to fix a rate, and this was approved at a meeting of the council on 21 May.

4

On 21 May 1985 the district auditor's had made a further report to the council, copies of which he sent to all councillors. In it he referred to earlier reports and gave notice that unless the council made a lawful rate at the earliest opportunity and in any event before the end of May he would forthwith commence action under section 20 of the Local Government Finance Act 1982 to recover any losses occasioned by the failure to make a rate from the members responsible for incurring them.

5

On 6 June 1985 the Audit Commission directed that an extraordinary audit be carried out. On 26 June 1985 the district auditor sent to each of the appellants a notice stating that he had to consider in pursuance of his duty under the Act of 1982 whether he should certify the sum of £106,103, or any other sum, consequent on the failure to make a rate or the delay in making a rate for the financial year 1985-86, as due from the appellants on the ground that a loss of such sum had been incurred or deficiency caused by the appellants' wilful misconduct. The appellants were further notified that they might make representations in writing to the district auditor before he reached a decision, and that any such representations should reach him by 19 July 1985. There was enclosed with the notice a note of the matters to which the district auditor had had regard in deciding to issue it. This note set out the council's duty under section 2(1) of the General Rate Act 1967 to make a rate, and the district auditor's responsibility under section 20(1) of the Act of 1982 which provides:

"Where it appears to the auditor carrying out the audit of any accounts under this Part of this Act - … ( b) that a loss has been incurred or deficiency caused by the wilful misconduct of any person, he shall certify that … the amount of the loss or the deficiency is due from that person and … both he and the body in question … may recover that … amount for the benefit of that body; and if the auditor certifies under this section that any … amount is due from two or more persons, they shall be jointly and severally liable for that … amount."

6

There were appended to the note copies of earlier reports by the district auditor and his predecessors, including those of 19 March 1984, 10 April 1985 and 21 May 1985, and also a list of minutes of meetings of the council and certain of its committees between March 1984 and June 1985 and of reports by the council's officers between the same dates. The facts gathered from these documents were stated to show that there was no lawful justification for the delay in the making of the rate for the year 1985-86. The note went on to identify certain specific losses resulting from the delay. These were the loss of interest on sums which would, but for the delay, have been paid at an earlier date than was actually the case by the Department of Health and Social Security, in respect of the rate rebates element of housing benefit subsidy and by the Treasury Valuer in respect of contributions in lieu of rates on Crown property. The total of such loss was stated to be £106,103. The appellants were identified as persons who by their voting or absence might have failed to discharge their duty as members of the council and might therefore be guilty of wilful misconduct resulting in the losses in question.

7

The appellants chose to make a collective response to the district auditor's notice. This was prepared with the assistance of the chief executive of the council, who was legally qualified and had great experience in local government, and was sent to the district auditor on 19 July 1985. The appellants relied upon various matters which they claimed rebutted the district auditor's provisional view that they had been guilty of wilful misconduct. Their principal contention was that, considering that the relevant legislation laid down no date by which a rate must be set, it was sufficient if they did so within a reasonable time after the start of the financial year, and that the delay until 14 June 1985 had been reasonable because they had hoped or expected to be able to persuade ministers to make larger grants available to Liverpool than ministers had previously expressed themselves as willing to do. In this respect they founded upon the circumstance that in relation to the year 1984-85 their efforts in this direction had met with some success, and that the then district auditor in his report of 7 June 1984 had stressed the importance of 20 June as the latest date for making a rate, in order to permit of ratepayers exercising their statutory right to pay rates by 10 montly instalments. It was contended that the appellants had been influenced throughout by a sincere desire to maximise the resources available to the people of Liverpool and thus to do their best to alleviate the unsatisfactory conditions prevailing there. There were sent along with the representations various documents to which it was desired that the district auditor should have regard as supporting the appellants' contentions. It is to be observed at this point that the representations did not face up to the circumstance that, whether or not additional funds might be secured from government sources, delay in making a rate must inevitably have an adverse effect upon the city's finances through delay in the receipt of items of income which depended upon a rate having been set. Nor did the representations draw attention to any records, whether of meetings of the council and it committees of meetings of the ruling political group represented by the appellants, describing the reasons for the delay in making a rate.

8

On 6 September 1985 the district auditor issued a certificate under section 20(1) of the Act of 1982 to the effect that a loss of £106,103 had been incurred by the wilful misconduct of the appellants. The certificate was accompanied by a lengthy statement of reasons for its issue setting out the history of the matter and dealing in considerable detail with the appellants' representations before setting out the district auditor's conclusions. These were that the delay in making a rate was deliberate, that the intention of the delay was to use the non-making of the rate as a lever in an attempt to prise additional money from central government, that there was no justifiable reason for supposing that delay would influence central government to increase rate support grant, and that the council knew that to delay unreasonably was a wrongful act or was recklessly indifferent as to whether or not it was a wrongful act. Finally, it was concluded that a loss of £106,103 was a direct consequence of the delay in making a rate and the appellants were identified as those responsible for the delay.

9

The appellants appealed to the High Court under section 20(3) of the Act of 1982. The appeal was heard by a Divisional Court consisting of Glidewell L.J., Caulfield and Russell JJ., together with a similar appeal by a number of Lambeth councillors. Counsel then acting for the appellants appear to have concentrated upon the merits of the appeal rather than upon allegations of procedural irregularity on the part of the respondent. Affidavits were lodged by all the appellants and also a considerable amount of documentary evidence which had not been before the district auditor....

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