Three Rivers District Council v Governor and Company of the Bank of England (No. 3)
 UKHL J0518-5
HOUSE OF LORDS
Lord Hope of Craighead
Lord Hobhouse of Woodborough
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
Before 1979, with limited exceptions, a deposit-taking institution in the United Kingdom required no licence or other authorisation before it commenced business. There was no statutory regulation of its subsequent performance. But the Bank of England operated an informal system of supervision. The Banking Act of 1979, enacted to give effect in domestic law to the First Council Banking Co-ordination Directive of 12 December 1977 (77/780/E.E.C.), introduced a statutorily based licensing system. Subsequently, the Banking Act 1987 replaced that system. For the purposes of the First Council Banking Co-ordination Directive of 12 December 1977 (77/780/E.E.C.), the Banking Act of 1979 and the Banking Act 1987 the Bank of England was the supervisory authority in the United Kingdom. On 1 June 1998, pursuant to the Bank of England Act 1998, the Financial Services Authority assumed the Bank's powers and responsibilities under the Banking Act 1987, for the supervision of deposit-taking institutions.
The Bank of Credit and Commerce International S.A. ("B.C.C.I."), a Luxembourg corporation, had carried on business in the United Kingdom as a deposit taking institution before the Act of 1979 came into force. When the Act of 1979 came into force B.C.C.I. came under the aegis of the new system. In June 1980 the Bank of England granted a licence to carry on business as a deposit-taking institution to B.C.C.I. Until 5 July 1991 B.C.C.I. carried on business at its principal place of business in the City of London, and at many branches elsewhere in the United Kingdom. On this date, the Bank petitioned the High Court to appoint joint provisional liquidators to B.C.C.I. The order was duly made. This resulted in the closure of B.C.C.I. in the United Kingdom, and led to the collapse of associated companies of B.C.C.I. in many jurisdictions. Thousands of depositors in the United Kingdom and elsewhere suffered substantial losses. The principal cause of the collapse of B.C.C.I. was fraud on a vast scale perpetrated at a senior level in B.C.C.I.
The plaintiffs are more than 6,000 persons who claim to have been depositors with United Kingdom branches of B.C.C.I. The action was started in May 1993. It is unnecessary to trace the earlier procedural history of this litigation. By August 1995 the claim was formulated in a re-amended statement of claim. This is a detailed and complicated pleading. It runs to 133 pages. In outline there are two alleged causes of action. The first is based on the tort of misfeasance in public office. The plaintiffs allege that named senior officials of the Banking Supervision Department of the Bank, but not two successive Governors of the Bank, acted in bad faith (a) in licensing B.C.C.I. in 1979, when they knew that it was unlawful to do so; (b) in shutting their eyes to what was happening at B.C.C.I. after the licence was granted; and (c) in failing to take steps to close B.C.C.I. when the known facts cried out for action at least by the mid 80s. The second cause of action is based on alleged breaches of Community law, and in particular breaches of the requirements of the Directive of 1977. The alleged breaches cover the initial licensing of B.C.C.I., failure to supervise B.C.C.I. and failure to revoke the licence of B.C.C.I. The total damages claimed are apparently of the order of £550m., plus interest. In a defence the Bank comprehensively denied the material allegations under both heads of claim.
On an application by the Bank, which was opposed by the plaintiffs, Clarke J. (now Clarke L.J.) ordered preliminary questions to be tried. This order was made on 19 July 1995 at a stage when discovery had not yet taken place. The judge directed that the questions should be tried on the assumption that the facts pleaded in the re-amended statement of claim were true. The preliminary issues were designed to test whether, if the pleaded facts are true, the causes of action based on the tort of misfeasance in public office and on breaches of community law are sustainable in law. The principal legal issues for decision were the precise ingredients of the tort of misfeasance in public office and whether the Directive of 1977 conferred rights of compensation on depositors.
The judge tried the preliminary issues as subsequently reformulated in stages. He delivered judgments on 1 April 1996, 10 May 1996 and 30 July 1997. The first two judgments are reported at and 634. These impressive and careful judgments dealt with the preliminary issues. The judge ruled that both causes of action were unsustainable. The third is an unreported judgment which considered further proposed amendments to the plaintiff's statement of claim. The judge concluded (on the assumption that his earlier rulings were correct) that the plaintiffs' claim was bound to fail and that it should be struck out. On 2 October 1997 Clarke J. struck out the re-amended statement of claim and dismissed the action. He gave leave to appeal.
By a majority (Hirst and Robert Walker L.JJ.) the Court of Appeal dismissed an appeal and for broadly similar reasons affirmed the decisions of Clarke J. Auld L.J. dissented. These judgments are lengthy and carefully reasoned. The judgments are reported at .
The present appeal to the House, described as the plaintiffs' legal appeal, is brought by the plaintiffs with the leave of the Court of Appeal given on 21 January 1999. The order of the Court of Appeal contemplated that the House would determine "the legal issues as to the correct test for misfeasance in public office … before any consideration of whether the facts alleged or capable of being alleged are capable of meeting that test". At the same time the legal appeal requires the House to consider whether properly construed the Directive of 1977 confers rights on depositors. Being the court of last resort in the United Kingdom the House may only determine the Community law issue if the matter is truly acte clair.
In a disappointingly uninformative joint statement of facts of issues the issues arising on the appeal are formulated as follows:
(1) Whether on the assumption that the facts pleaded in the re-amended statement of claim are true the Bank is capable of being liable to the plaintiffs for the tort of misfeasance in public office.
(2) Whether on the assumption that the facts pleaded in the re-amended statement of claim are true, the Bank is capable of being liable to the plaintiffs in damages for violation of the requirements of the First Council Banking Co-ordination Directive of 12 December 1977 (77/780/E.E.C.).
(3) Whether on the assumption that the facts pleaded in the re-amended statement of claim are true, the plaintiffs' losses are capable of having been caused in law by the acts or omissions of the Bank.
(4) Whether on the assumption that the facts pleaded in the re-amended statement of claim are true, the Bank is capable of being liable for the tort of misfeasance in public office to plaintiffs who were potential depositors at the time of any relevant act or omission of misfeasance by the Bank.
A strategy which differentiates between the issues affecting the tort of misfeasance in public office and the Community law issues is necessary. It is certainly possible to state, so far as is relevant, the ingredients of the tort of misfeasance in public office. What will not be possible at this stage is to embark on the exercise contemplated by the agreed issues viz. to test at this stage the sustainability of the case pleaded in the re-amended statement of claim against the requirements of the tort as stated by the House. In granting leave to appeal the Court of Appeal realistically foreshadowed that it would be necessary to postpone the question "whether the facts alleged or capable of being alleged are capable of meeting that test" i.e. the tort enunciated by the House. That exercise will indeed require exploration at a further hearing. On the other hand, the Community law issue raises the question of interpretation whether the Directive of 1977 conferred rights of reparation on depositors. If the matter is acte clair, the House can rule dispositively on this part of the case.
Misfeasance In Public Office
The early history
The history of the development of the tort has been described by Clarke J. and in the judgments in the Court of Appeal: see also Arrowsmith, Civil liability and Public Authorities, (1992), pp. 226-234. It is traceable to the 17th century: (1671) 2 Vent. 24. But the first solid basis for this new head of tort liability, based on an action on the case, is to be found in (1703), best reported in 1 Smith's Leading Cases (13th ed.) 253. The view ultimately prevailed that an action would lie by an elector who was wilfully denied a right to vote by a returning officer. Despite the recognition of the tort in a number of cases in the 18th and 19th centuries, the Court of Appeal in 1907 denied the existence of the tort in . But by 1981 the Privy Council described the tort as "well established:" , at 172F. An examination of the ingredients of the tort was still required. The first step towards that goal was the judgments in the Court of Appeal in . The present case is the first occasion on which the House has been called on to review the requirements of...
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