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

Untargeted misfeasance in public office may arise where a public officer knowingly acts unlawfully with knowledge of probable injury, or consciously disregards a serious risk of injury arising from conduct known to be unlawful. A deliberate or wilful failure to act may suffice. Bad faith is established by the absence of an honest belief in the lawfulness of the conduct.

Under Part 24 of the Civil Procedure Rules 1998, a claim should receive summary judgment only where its prospects are fanciful rather than realistic and no trial is required. The court must not conduct a documentary mini-trial of complex factual issues. Findings from a private inquiry which would be inadmissible at trial cannot be used to foreclose a properly pleaded claim, particularly where discovery, oral evidence and cross-examination may materially affect the assessment.

The claimants, comprising existing and potential depositors with BCCI, alleged that the Bank of England had committed misfeasance in public office by unlawfully licensing BCCI and failing in bad faith to take effective supervisory or regulatory action before its collapse.

Clarke J struck out the action after concluding that it was bound to fail. A majority of the Court of Appeal upheld that decision in [2000] 2 WLR 15, with Auld LJ dissenting. At an earlier hearing, the House defined the ingredients of misfeasance in public office and rejected the claim based on the First Council Banking Co-ordination Directive: [2000] 2 WLR 1220.

The issues at this further hearing were whether the new draft particulars disclosed a properly pleaded claim and whether the claim had no real prospect of success under the Civil Procedure Rules 1998. The Bank also cross-appealed on standing and causation.

1. Disposition. By a majority of three to two, the House allowed the claimants' appeal and dismissed the Bank's cross-appeal. Lord Hope of Craighead delivered the principal speech. Lord Hutton was in general agreement with his conclusions and reasons, and Lord Steyn agreed with both. The strike-out order was set aside and the claimants received permission to amend in accordance with the new draft particulars.

2. Requirements of the tort. Per Lord Hope, untargeted misfeasance requires an unlawful act or omission in the exercise of public power, the necessary subjective mental element, bad faith, sufficient standing and causation. Subjective recklessness exists where the officer is aware of a serious risk of loss from conduct known to be unlawful and deliberately disregards that risk. It was unnecessary at the interlocutory stage to refine the difference between probable loss and a serious risk of loss. An absence of honest belief in the lawfulness of the conduct supplies the element of bad faith.

3. Acts and omissions. Per Lord Hope, the tort extends to a deliberate or wilful failure to take a decision or exercise a power. It is not confined to an express decision to act or refrain from acting. The pleaded allegations were capable, if proved, of satisfying that requirement.

4. Adequacy of the pleadings. Per Lord Hope and Lord Hutton, allegations of fraud, dishonesty or bad faith must be stated clearly and supported by particulars. The new particulars unequivocally alleged bad faith and sufficiently identified the factual basis of the claim. A pleading is not defective merely because the facts may ultimately establish negligence rather than bad faith. That evaluation ordinarily belongs to the trial judge after hearing the evidence.

5. Summary judgment. Per Lord Hope, the governing inquiry under Part 24 of the Civil Procedure Rules 1998 was whether the claim had no realistic, as opposed to fanciful, prospect of success and whether another reason required a trial. The procedure must not become a documentary mini-trial. Complex questions of subjective knowledge, recklessness and bad faith were unsuitable for final determination without discovery and oral evidence.

6. The Bingham report. Per Lord Hope, with Lord Steyn and Lord Hutton agreeing, the report's narrative could identify potentially available evidence. Its findings, conclusions and omissions were inadmissible at trial and could not be treated as conclusive. The inquiry was private, lacked compulsory powers and adversarial testing, and did not include representation of the claimants. The courts below had therefore used the report impermissibly when assessing the prospects of the claim.

7. Application. The material, particularly concerning events from April 1990, did not establish that the claim was fanciful. Discovery, witness evidence and cross-examination might materially illuminate the Bank's state of mind. Since the allegations across the whole period were interwoven, the House declined to sever and strike out the earlier periods. Questions concerning potential depositors and causation were also premature.

8. Dissent. Lord Hobhouse of Woodborough and Lord Millett would have dismissed the appeal. They considered that the claim lacked a proper evidential foundation, that failures to exercise discretionary statutory powers were not shown to be unlawful, and that the allegations had no real prospect of establishing the required subjective bad faith.

1. House of Lords: In [2001] UKHL 16, allowed the appeal by a majority of three to two, dismissed the Bank's cross-appeal, set aside the strike-out order and permitted amendment of the claim.
2. House of Lords, earlier hearing: In [2000] 2 WLR 1220, defined the relevant ingredients of misfeasance in public office and rejected the Community law claim. It directed the preparation of new draft particulars for the further hearing.
3. Court of Appeal: In [2000] 2 WLR 15, Hirst and Robert Walker LJJ upheld the strike-out order. Auld LJ dissented.
4. High Court: Clarke J addressed the preliminary issues in [1996] 3 All ER 558 and [1996] 3 All ER 634. In an unreported judgment delivered in July 1997, he refused the proposed further amendments and struck out the action as bound to fail.