Three Rivers District Council and Others v. Governor and Company of The Bank of England [2000] UKHL 33
[1]The Community Law Claim. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hope of Craighead. I propose to set out my own reasons for agreeing with him that this claim must fail. The objects of the Directive. In my opinion it is plain that the Directive does not have as one of its objects the protection of depositors. That is the function of the various national banking laws of the member states. In order to achieve their purpose these place restrictions on the freedom to provide banking services. Such restrictions are inherently anti-competitive and thus contrary to article 59 of the E.E.C. Treaty (now article 49 E.C.), but (as the recitals to the Directive itself expressly recognise) some restrictions are necessary if the interests of depositors are to be properly safeguarded. As they are imposed by national legislatures such restrictions vary from one member state to another, and this inevitably has a distorting effect on the operation of the single market. The object of the Directive was to begin the process of co-ordination of the national laws in order to remove anti-competitive barriers to the free provision of banking services throughout the single market so far as this could be achieved without weakening or impairing the protection of depositors. Thus the adequate protection of depositors was not an object of the Directive but rather operated as a constraint upon the extent to which its object could be achieved. That this is the case is in my opinion confirmed by the judgment of the Court of Justice in Société Civile Immobilière Parodi v. Banque H. Albert de Bary et Cie (Case C-222/95) [1997] E.C.R. 1-3899. The identification of the object of the Directive, however, is only of marginal relevance in the present case, where the question is whether the Directive confers rights on individuals. That question must be determined by reference to the particular provisions of the Directive which are relied on. What is decisive is not the interest which a Directive as a whole seeks to protect, but the interest sought to be protected by the provisions which are alleged to have been breached: see Sacha Prechal Directives in European Community Law (1995), p. 138. Attempting to identify "the underlying object" or "main object" of a Directive and to distinguish it from other subsidiary objects is in my opinion as unprofitable as it is illusory. There is a further consideration. The question whether a particular provision of a Directive confers rights on individuals is a secondary question. It does not arise until a breach of the provision in question has first been established. In the present case the plaintiffs allege breaches of articles 3, 6, 7 and 8 of the Directive. Unless the plaintiffs can establish a breach of any of these articles, the question whether it confers rights on individuals does not arise. Article 3: breach of the alleged obligation to withhold initial authorisation. As every banking supervisor would recognise, there is a critical difference between(i) withholding authorisation from a credit institution which is about to commence business and(ii) withholding authorisation from or revoking the authorisation of a credit institution which is already carrying on business. The former cannot injure anyone, not even the credit institution itself; it merely deprives it of an opportunity for profit. The latter damages and may destroy an established business and cause irreparable injury to the institution and its existing depositors. In the case of an existing business, there is a perennial conflict between the need to protect potential depositors and the interests of existing depositors, and difficult questions of judgment are inevitably involved. The Directive is careful to draw this distinction. It lays down precise requirements which must be met by a credit institution before it commences business; but it recognises that it would be inappropriate and potentially harmful to the interests of existing depositors to fetter the discretion necessary to deal with an institution already carrying on business. Article 3(1) imposes an obligation on member states to require credit institutions to obtain authorisation before commencing their activities . The Directive is not retrospective. B.C.C.I. had commenced its activities in the United Kingdom before the Directive came into force, and accordingly article 3(1) has no application to it. Article 3(2), which limits the power of the member state to grant authorisation, deals with the same subject-matter, viz. the authorisation of credit institutions proposing to carry on business in a member state. It requires the member state to withhold authorisation from a credit institution which does not comply with the relevant criteria. In the context of article 3 this does not include an institution like B.C.C.I. which is already carrying on business in the member state concerned. If the article applied to credit institutions already carrying on business in the member state, it would be inconsistent with the provisions of article 10(4). Credit institutions which commenced business in a member state before the Directive came into force are dealt with by article 10. Such institutions are deemed to be authorised and are subject to modified requirements. Whereas article 3(1) obliges member states to require credit institutions to obtain authorisation before commencing their activities, article 10(4) permits them to require institutions which are legitimately carrying on business without authorisation to obtain authorisation for the future. The United Kingdom could have exempted B.C.C.I. and other credit institutions which had commenced business in the United Kingdom before the Directive came into force from any requirement to obtain authorisation. It did not do so, but went further than the Directive required (though not further than it permitted) by obliging such institutions to obtain authorisation. In these circumstances an unlawful grant of authorisation in breach of the provisions of the Banking Act 1979 will amount to a breach of United Kingdom law but not of Community law. The appellants rely on Wagner Miret v. Fondo de Garantía Salarial (Case C-334/92) [1993] E.C.R. 1-6911 for the proposition that where a member state voluntarily assumes obligations laid down by a Directive it cannot escape liability by reason of the absence of any Community requirement to assume them. But that case dealt with the converse situation. There the Directive applied, but permitted member states to exclude certain categories of case from its scope. Spain did not exercise this power, and accordingly the Directive applied. The Court of Justice held that the fact that Spain could have excluded the operation of the Directive was no defence to a claim under Community law when it had not done so. The fact that the legal obligation had been voluntarily assumed did not alter its source, which was Community law. But in the present case there is no applicable Community law: article 3(1) of the Directive does not apply. The United Kingdom was not obliged by Community law to require B.C.C.I. to obtain authorisation or to withhold authorisation from it. The United Kingdom chose to impose its own requirements. Any obligation to enforce those requirements arises from national law, not Community law. Articles 6 and 7: failure to provide continuous and effective supervision. I cannot see that these articles impose any such obligation. They impose obligations of co-operation and the establishment of appropriate ratios with a view to eventual standardisation. They take the existence of supervisory regimes in the member states for granted. But it is not necessary to decide this, because it is obvious that an obligation to provide "continuous and effective supervision" is far too imprecise and leaves far too great a margin of appreciation in member states to be capable of conferring rights on individuals in accordance with the jurisprudence of the Court of Justice. Article 8: failure to revoke authorisation. Lastly the appellants allege a breach of an obligation said to be imposed by article 8 of the Directive to revoke an authorisation in certain defined circumstances. But the article imposes no such obligation. It provides that the competent authorities "may withdraw the authorisation . . . only " in the circumstances prescribed. The word "only" is critical to the meaning. "May" sometimes means "must"; but "may only . . . if" means "must not . . . unless." The article is not permissive, let alone obligatory. It is prohibitory. It forbids the member state to withdraw authorisation from a credit institution, with the attendant risk of loss to existing depositors, except in the circumstances prescribed. Where those circumstances exist, the article does not interfere with the power of the member state to withdraw authorisation at its discretion. But it does not oblige it to do so without regard to any of the countervailing considerations to which I have referred. Conclusion When properly understood, the scheme of the Directive makes sound regulatory sense. A member state must withhold authorisation from an institution wishing to commence business in the member state unless the criteria prescribed by article 3(2) are met. A member state is, however, free to select its own criteria for allowing an institution to continue to carry on an existing business. A member state may not withdraw authorisation or prohibit an institution from carrying on an existing business except in prescribed circumstances. Where those circumstances exist it is left to the member state to have regard to any countervailing considerations in exercising its own discretion whether to withdraw authorisation or close down an existing business. It follows that the appellants are unable to allege any breach of article 3 (which does not apply to B.C.C.I.) or article 8 (which does not impose a relevant obligation), while neither article 6 nor 7 confers rights on individuals.[2]Misfeasance in public office I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Steyn and Lord Hutton with which I am in full agreement. It may, however, be helpful if I set out in my own words what I consider to be the elements of the tort of misfeasance in public office. The tort is an intentional tort which can be committed only by a public official. From this two things follow. First, the tort cannot be committed negligently or inadvertently. Secondly, the core concept is abuse of power. This in turn involves other concepts, such as dishonesty, bad faith, and improper purpose. These expressions are often used interchangeably; in some contexts one will be more appropriate, in other contexts another. They are all subjective states of mind. It is important to bear in mind that excess of power is not the same as abuse of power. Nor is breach of duty the same as abuse of power. The two must be kept distinct if the tort is to be kept separate from breach of statutory duty, which does not necessarily found a cause of action. Even a deliberate excess of power is not necessarily an abuse of power. Just as a deliberate breach of trust is not dishonest if it is committed by the trustee in good faith and in the honest belief that it is for the benefit of those in whose interests he is bound to act, so a conscious excess of official power is not necessarily dishonest. The analogy is closer than may appear because many of the old cases emphasise that the tort is concerned with the abuse of a power granted for the benefit of and therefore held in trust for the general public. The tort is generally regarded as having two limbs. The first limb, traditionally described as "targeted malice," covers the case where the official acts with intent to harm the plaintiff or a class of which the plaintiff is a member. The second is said to cover the case where the official acts without such intention but in the knowledge that his conduct will harm the plaintiff or such a class. I do not agree with this formulation. In my view the two limbs are merely different ways in which the necessary element of intention is established. In the first limb it is established by evidence; in the second by inference. The rationale underlying the first limb is straightforward. Every power granted to a public official is granted for a public purpose. For him to exercise it for his own private purposes, whether out of spite, malice, revenge, or merely self-advancement, is an abuse of the power. It is immaterial in such a case whether the official exceeds his powers or acts according to the letter of the power: see Jones v. Swansea City Council [1990] 1 W.L.R. 1453 C.A. His deliberate use of the power of his office to injure the plaintiff takes his conduct outside the power, constitutes an abuse of the power, and satisfies any possible requirements of proximity and causation. The rationale of the second limb is not so transparent. The element of knowledge which it involves is, in my opinion, a means of establishing the necessary intention, not a substitute for it. But intention does not have to be proved by positive evidence. It can be inferred. Proof that the official concerned knew that he had no power to act as he did and that his conduct would injure the plaintiff is only the first step in establishing the tort. But it may and will usually be enough for the necessary intention, and therefore of the requisite state of mind, to be inferred. The question is: why did the official act as he did if he knew or suspected that he had no power to do so and that his conduct would injure the plaintiff? As Oliver L.J. said in Bourgoin S.A. v. Ministry of Agriculture, Fisheries and Food [1986] Q.B. 716, 777M: As that case demonstrates, the inference cannot be rebutted by showing that the official acted not for his own personal purposes but for the benefit of other members of the public. An official must not knowingly exceed his powers in order to promote some public benefit at the expense of the plaintiff. It will be seen from this that the real difference between the two limbs lies in the starting point. If the plaintiff can establish the official's subjective intention to exercise the power of his office in order to cause him injury, he does not need to establish that the official exceeded the terms of the powers conferred upon him. If, on the other hand, the plaintiff can establish that the official appreciated that he was acting in excess of the powers conferred upon him and that his conduct would cause injury to the plaintiff, the inference that he acted dishonestly or for an improper purpose will be exceedingly difficult and usually impossible to rebut. Moreover, as Blanchard J. pointed out in Garrett v Attorney-General. [1997] 2 N.Z.L.R. 332, 350, the consequences of his actions will usually be obvious enough to the official concerned, who can then be taken to have intended the damage he caused. I also agree with him that intention includes subjective recklessness, that is to say (to adopt his words at p. 349) "a conscious disregard for the interests of those who will be affected by" the exercise of the power. It is not, of course, necessary that the official should foresee that his conduct will certainly harm the plaintiff. Nothing in life is certain. Equally, however, I do not think that it is sufficient that he should foresee that it will probably do so. The principle in play is that a man is presumed to intend the natural and probable consequences of his actions. This is the test laid down by Mason C.J. writing for the majority of the Hugh Court of Australia and Brennan J. in Northern Territory v. Mengel (1995) 69 A.J.L.R. 527, viz. that it should be calculated (in the sense of likely) in the ordinary course of events to cause injury. But the inference cannot be drawn unless the official did foresee the consequences. It is not enough that he ought to have foreseen them if he did not do so in fact. In the present case most (and perhaps all) of the complaints made by the appellants are of the Bank's failure to act. Even their complaint that the Bank of England ought not to have granted B.C.C.I. initial authorisation is essentially a complaint that officials of the Bank failed to exercise an independent judgment and to apply the relevant criteria. The parties are agreed that there is no conceptual difference between sins of omission and sins of commission. This may be so; but factually there is a great difference between them. It is no accident that the tort is misfeasance in public office, not nonfeasance in public office. The failure to exercise a power is not in itself wrongful. It cannot be equated with acting in excess of power. The tort is concerned with preventing public officials from acting beyond their powers to the injury of the citizen, not with compelling them to exercise the powers they do have, particularly when they have a discretion whether to exercise them or not. There seems to be only one case in the books where a failure to exercise a power gave rise to the tort: Reg. v. Dytham [1979] 1 Q.B. 722, 727G C.A., where Lord Widgery C.J. said in terms that the neglect must be "wilful and not merely inadvertent." Ferguson v. Earl of Kinnoull (1842) 9 Cl. & Fin. 251 and the cases there cited were all cases of wilful breach of duty. Henly v. Mayor & Burgesses of Lyme (1828) 5 Bing. 91 was in my opinion a case of breach of statutory duty, not of misfeasance in public office. In conformity with the character of the tort, the failure to act must be deliberate, not negligent or inadvertent or arising from a misunderstanding of the legal position. In my opinion, a failure to act can amount to misfeasance in public office only where(i) the circumstances are such that the discretion whether to act can only be exercised in one way so that there is effectively a duty to act;(ii) the official appreciates this but nevertheless makes a conscious decision not to act; and(iii) he does so with intent to injure the plaintiff or in the knowledge that such injury will be the natural and probable consequence of his failure to act. Although we heard argument directed to the requirement of proximity and in particular the suggested need for the plaintiff to establish "an antecedent legal interest" or, as I would prefer to put it, "a legally protected interest," I cannot see that this presents a problem in the present case. The statutory powers in question were conferred on the Bank of England for the protection of actual and potential depositors, and any member of either class can satisfy the requirement. Conclusion I agree with the order which your Lordships propose.
Cited in 47 later judgments
and 38 more of the most senior