Hall & Ors v Bank Of England

Misfeasance in public office requires bad faith. Where the complaint concerns a failure to exercise a statutory power, bad faith may be established by actual knowledge that inaction would be Wednesbury unreasonable, together with knowledge that the inaction would probably injure the claimant. A statutory immunity conditioned on absence of bad faith makes dishonesty materially equivalent to bad faith.

Shareholders cannot recover reflective loss caused by a wrong done to their company where the company has the corresponding cause of action. The company is the proper claimant, subject to cases involving a separate wrong to the shareholder or loss independent of the company’s loss.

The appellants were shareholders and directors of Bradford Investments plc. They alleged that the Bank of England had committed misfeasance in public office by failing to intervene in the company’s management and property sales after exercising statutory supervisory powers under the Banking Act 1987.

Neuberger J struck out the claim, holding that the appellants had no real prospect of establishing bad faith and could not recover the company’s loss in the value of their shares. The appeal concerned the arguability of misfeasance, the proper claimant for the alleged loss, and delay affecting other heads of damage.

1. Appeal dismissed. The Court of Appeal, comprising the Vice-Chancellor, Chadwick LJ and Buxton LJ, upheld the order striking out the proceedings.
2. Under section 1(4) of the Banking Act 1987, the Bank was immune from damages for acts or omissions in discharging its statutory functions unless bad faith was shown. For this purpose, the court treated bad faith and dishonesty as materially equivalent.
3. Following the approach adopted in Three Rivers District Council v Bank of England [2000] 2 WLR 15, bad faith could be shown either by a positive intention to injure the claimant or by knowledge that the officer lacked power to act and that injury would probably result. In an omission case, the relevant formulation was actual knowledge that doing nothing would be Wednesbury unreasonable, coupled with knowledge that the inaction would probably injure the claimant.
4. The pleaded facts, including the alleged threat concerning liquidation and alleged secret instructions to an investigator, did not provide a realistic basis for inferring dishonesty or bad faith. The Bank’s conduct had to be assessed against its proper and lawful supervisory purposes. The appeal therefore failed on the misfeasance issue.
5. The shareholders also could not recover the diminution in value of their shares. Applying Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, the company was the proper claimant where the alleged wrong was done to the company and the company had the corresponding cause of action. The rule avoided duplication and double recovery.
6. Chadwick LJ explained that the rule did not prevent recovery for a separate wrong done personally to a shareholder, or for loss other than diminution in share value. Those exceptions did not apply because no targeted bad faith or actionable wrong to the appellants personally was alleged. The judge was also entitled to reject the additional claims as barred by delay.

• Court of Appeal (Civil Division) [2000] EWCA Civ 140: appeal dismissed and Neuberger J’s order upheld.
• High Court, Chancery Division: Neuberger J struck out the claim on the grounds that misfeasance in public office had no real prospect of success, that the shareholders were not the proper claimants for the company’s loss, and that delay barred other damage claims.