Three Rivers District Council and Others v. Governor and Company of The Bank of England

The House stated the ingredients of the tort of misfeasance in public office: the defendant must be a public officer acting in the exercise of public power; the wrongful exercise must involve bad faith either as targeted malice or as knowledge that the act is beyond power (or subjective recklessness as to unlawfulness and likely harm); the plaintiff must have a sufficient interest to sue; causation and remoteness remain matters of fact (unsuitable for summary determination) and the tort requires that the officer knew his act would probably injure the plaintiff or was subjectively reckless as to that consequence. The House held that subjective recklessness (in a subjective sense) suffices to ground the second form of the tort, but rejected a merely objective foreseeability test for remoteness. On the Community law head, the House held that the First Council Banking Co-ordination Directive (77/780/E.E.C.) of 1977 did not, in its terms and context, confer individual rights on depositors capable of supporting a claim for damages and accordingly dismissed the Community law claim.

This was an appeal by more than 6,000 persons who alleged loss as depositors of B.C.C.I. in the United Kingdom and who sued the Bank of England for damages. Their pleaded case rested on two heads: (1) misfeasance in public office by senior officials of the Bank for licensing, supervising and failing to revoke the licence of B.C.C.I.; and (2) breaches of Community law, in particular the First Council Banking Co-ordination Directive (77/780/E.E.C.) of 12 December 1977, said to confer enforceable rights on depositors.

Procedural posture:

• The action was struck out by Clarke J. (preliminary issues tried on the assumption that the pleaded facts were true); his judgments are reported at [1996] 3 All ER 558 and 634 and an unreported further ruling led to striking out (2 October 1997).
• The Court of Appeal (majority) upheld Clarke J.'s rulings and dismissed the appeal; Auld L.J. dissented. That judgment is reported at [2000] 2 WLR 15.
• Leave was given to appeal to the House of Lords, which heard argument and delivered judgment on 18 May 2000.

Nature of relief sought: damages (claimed approximately £550m) from the Bank for alleged misfeasance and for breaches of Community law.

Issues framed for the House included:

• whether, on the pleaded facts, the Bank could be liable in the tort of misfeasance in public office;
• whether, on the pleaded facts, the Bank could be liable in damages for breach of the 1977 Directive;
• whether the plaintiffs' losses were causally attributable to the Bank's acts or omissions; and
• whether potential depositors at the time of any relevant act could sue for misfeasance.

Court's reasoning on misfeasance:

• The House restated the tort's elements: (i) public officer; (ii) exercise of public power; (iii) bad faith manifested either as targeted malice (intention to injure) or as knowledge that the act was beyond power and would probably injure, with subjective recklessness standing in place of actual knowledge. The subjective form of recklessness (not an objective Caldwell-type test) suffices.
• The plaintiffs need not, in principle, show an antecedent proprietary right beyond the protection against deliberate abuse of public power; proximity is not a separate controlling requirement, although standing requires a sufficient interest.
• Causation and remoteness are factual matters for further determination; the House declined to decide whether the pleaded facts met the tort's requirements on the assumed facts and adjourned that part for further argument and amendment of pleadings.

Court's reasoning on Community law:

• The House applied principles derived from Becker, Francovich and subsequent jurisprudence: for a Directive to give rise to a private right enforceable in national courts its provisions must, in the relevant part, be unconditional and sufficiently precise or satisfy the state-liability conditions (grant of rights to individuals, identifiable content, causation and sufficiently serious breach where required).
• Examining the recitals and articles (particularly articles 3, 6, 7, 8 and 10) the House concluded the Directive was a first-step harmonisation measure designed to co-ordinate supervisory and authorisation requirements and to safeguard the process of cross-border banking, not to create individually enforceable rights for depositors. Article 3 applied to institutions seeking authorisation to commence business and did not, on its terms and by article 10, apply to B.C.C.I. which had commenced business before implementation. Articles 6 and 7 imposed co-operation and observation duties, not an unconditional supervisory duty conferring identifiable individual rights. Article 8 limited withdrawal but did not impose an obligation in the sense required to create an individual right to compel revocation.
• The Community law question was treated as acte clair and a reference to the European Court was declined.

Disposition and practical outcome: the Community law claim was dismissed; the House stated the legal requirements of misfeasance in public office but adjourned the further determination of whether the pleaded facts met that tort and the issues on causation and amendments for further hearing.

The House dismissed the Community law limb of the appeal: the 1977 Directive, read as a whole, did not confer individual rights on depositors to sue the supervisory authority for damages; that part of the appeal was therefore dismissed. On the tort of misfeasance in public office the House authoritatively stated the ingredients (public officer, exercise of public power, bad faith either as targeted malice or as knowledge that the act is beyond power with subjective recklessness sufficing) and held that the questions whether the pleaded facts met that test, causation and remoteness were matters for further factual hearing; that part of the appeal was adjourned for further argument and amendment of pleadings.

The claim was originally litigated before Clarke J. who tried preliminary issues and, on the assumption that the pleaded facts were true, ruled that both the misfeasance and Community law causes were unsustainable and struck out the re-amended statement of claim (judgments reported at [1996] 3 All ER 558 and 634; order striking out 2 October 1997). The Court of Appeal (majority Hirst and Robert Walker L.JJ., dissent Auld L.J.) affirmed Clarke J.'s decisions; reported at [2000] 2 WLR 15. Leave to appeal to the House of Lords was granted and judgment was given by the Appellate Committee on 18 May 2000 ([2000] UKHL 33; [2000] 3 All ER 1; [2000] 2 WLR 1220).