West Wiltshire District Council v Garland (Cond, Third Party)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE BALCOMBE,Order
Judgment Date01 December 1994
Judgment citation (vLex)[1994] EWCA Civ J1201-4
Docket NumberNo CHANI 93/0321/B CHANI 93/0379/B
Date01 December 1994

[1994] EWCA Civ J1201-4

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL CIVIL DIVISION

APPEAL OF THIRD

Parties from Order of Mr Justice Morritt

Appeal of Second Defendant from Order of Mr Justice Morritt

Appeal of Third Defendant from Order of Mr Justice Morritt

Before: Lord Justice Balcombe Lady Justice Butler Sloss Lord Justice Leggatt

No CHANI 93/0321/B

CHANI 93/0378/B

CHANI 93/0379/B

West Wiltshire District Council
and
Garland and Others
West Wiltshire District Council
and
Garland and Others
West Wiltshire District Council
and
Garland and Others

MR ANDREW NEWCOMBE appeared on behalf of the Appellant.

MR ALAN PARDOE QC and MISS ELIZABETH ANDREW appeared on behalf of the First Respondent.

MR JOHN HALL QC appeared on behalf of the Second Respondent.

1

(As Approved)

LORD JUSTICE BALCOMBE
2

This appeal and cross-appeal is from an order made by Morritt, J. on 22 February 1993 when in substance he dismissed an application by third parties to strike out the third party notices. (I say in substance because he did strike out certain parts of the third party notices.) The judgment of Morritt, J. is reported at [1993] Ch. 409.

3

In November 1990 the plaintiff Council started proceedings against a number of defendants. The second and third defendants, Messrs. Pugh and White ("the Officers") had been employed by the Council in a variety of senior posts for fifteen or more years. In the action the Council claims that each of the Officers acted in breach of contract and of fiduciary duties owed by the Officers to the Council, and in breach of the Council's proper processes, and procured payments to be made by the Council without proper authority. It claims damages and restitution accordingly. The allegations are denied by the Officers.

4

The third parties, Messrs. Cond, Heppleston and Day, were at the relevant times employees of the Audit Commission constituted under the Local Government Finance Act 1982. Each, during the period to which the action relates, was successively the district auditor for the Council, i.e. the person appointed to audit the annual accounts of the Council. By their third party notices the Officers claim contribution to, or indemnity against, any amount for which they may be found liable to the Council.

5

The issues before Morritt, J. were:

6

1) Did the District Auditors owe any duty, whether by statute or at common law, to the Officers? The judge answered this question in the negative and against this part of his decision there is no appeal.

7

2) Did the District Auditors owe a statutory duty to the Council and, if so, did a breach of that duty give the Council a right of action against the District Auditors? The judge answered both parts of this question in the affirmative and it was for this reason that he refused to strike out the third party notices, since on this basis the Officers may have a right of contribution from the District Auditors. The District Auditors appeal against this part of the decision.

8

3) Did the District Auditors owe a common law duty to the Council, the breach of which gave rise to an action in negligence? The judge, having held that there was a statutory duty whose breach gave rise to a cause of action, said that this issue did not arise and he ordered that the relevant parts of the third party notices be struck out. The Officers cross appeal against this part of the decision.

9

Since the date of the judgment below two important decisions of the House of Lords have been reported: Spring v. Guardian Assurance plc [1994] 3 W.L.R. 354 and Henderson v. Merrett [1994] 3 W.L.R. 761. Emboldened by these decisions the Officers have sought to amend their third party notices and statements of claim so as to allege certain claims against one only of the District Auditors, Mr. Day. It was two reports made by Mr. Day, on 23 and 31 March 1990, that set in train the events leading to this action, and the Officers now seek to allege that Mr. Day owed a duty of care at common law, both to the Council and to the Officers, in the making of these reports. Although these amendments so far exist only in draft, it was common ground that we should deal with the issues raised by the draft amendments at the same time as we dealt with the appeals by the District Auditors and the Officers.

10

I bear in mind that this appeal arises in the context of an application to strike out and we should therefore approach our task in the light of what was said by Sir Thomas Bingham, M.R. in E. (A Minor) v. Dorset County Council [1994] 3 W.L.R. 853, 865.:-

"….. where the legal viability of a cause of action is unclear (perhaps because the law is in a state of transition), or in any way sensitive to the facts, an order to strike out should not be made. But if after argument the court can be properly persuaded that no matter what (within the reasonable bounds of the pleading) the actual facts the claim is bound to fail for want of a cause of action, I can see no reason why the parties should be required to prolong the proceedings before that decision is reached."

11

With this approach in mind I turn to consider the issues which arise on this appeal.

12

I. Statutory Duty of the District Auditors to the Council enforceable by action.

13

1. The Test.

14

The Judge held, and it was common ground before us, that this issue depends on the proper construction of the Local Government Finance Act 1982 and the answer to two questions:-

15

(1) whether the provision in question is intended to protect the interest of a class of which the Council is a member; and

16

(2) did Parliament intend to confer on the Council a cause of action for a breach of such duty?

17

See generally R -v- Deputy Governor of Parkhurst, ex parte Hague [1992] 1 AC 50, 158–9, 168—171.

18

2. The Statutory Provisions.

19

To adopt both the phraseology and procedure of Fullagar, J. in the High Court of Australia in Shire of Frankston v. Cohen [1960] A.L.R. 249, 250, it is tedious but, I think, necessary to set out the substance of the provisions of the Local Government Finance Act 1982 which deal with the accounts of local authorities and the auditing of those accounts. The following summary is taken from the judgment of Morritt, J. [1993] Ch. at pp. 416–8.

"By section 11 and Schedule 3 a body was constituted as a body corporate to be known as the Audit Commission for Local Authorities in England and Wales. It is not to be regarded as acting on behalf of the Crown nor are its members, officers or servants to be regarded as Crown servants. It is required to appoint such servants or agents as it considers necessary for the discharge of its functions on such terms as to remuneration and otherwise as it thinks fit. Section 12 requires that all local authority accounts shall be audited in accordance with Part III of the Act by an auditor appointed by the Commission. Such an auditor may be an officer of the Commission, an individual who is not such an officer, or a firm of such individuals; but he, she or it must be professionally qualified and only appointed after consultation with the local authority concerned: see section 13(1), (3) and (5). The appointment of an auditor who is not an officer of the Commission is to be on such terms and for such period as the Commission may determine: section 13(7).

Section 14 required the Commission to prepare and keep under review a code of audit practice prescribing the way (embodying the best professional practice with respect to the standards, procedures and techniques to be adopted) in which auditors are to carry out their functions. Such a code was approved by each House of Parliament and came into effect on 7 November 1983. It emphasises the need for complete independence, the highest professional standards and recognition of the public interest.

The duty of the auditor is imposed by section 15 in the following terms:

'(1) In auditing any accounts required to be audited in accordance with this Part of the Act, an auditor shall by examination of the accounts and otherwise satisfy himself —(a) that the accounts are prepared in accordance with the regulations made under section 23 below and comply with the requirements of all other statutory provisions applicable to the accounts; (b) that the proper practices have been observed in the compilation of the accounts; and (c) that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. (2) The auditor shall comply with the code of audit practice as for the time being in force. (3) The auditor shall consider whether, in the public interest, he should make a report on any matter coming to his notice in the course of the audit in order that it may be considered by the body concerned or brought to the attention of the public, and shall consider whether the public interest requires any such matter to be made the subject of an immediate report rather than of a report to be made at the conclusion of the audit.'

Section 16 gives the auditor a right to obtain documents and information requisite to the performance of his functions. But by section 17 any person interested may inspect the accounts to be audited and all documents relating to them and the auditor is bound to permit a local government elector for that area to question him about the accounts. Such local government elector is entitled, by subsection (3), to object to any matter in respect of which the auditor could take action under section 19 or 20 or make a report under section 15(3). Section 19(1) provides:

'Where it appears to the auditor carrying out the audit of any accounts under this Part of this Act that any item of...

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