Three Rivers District Council v Governor and Company of the Bank of England (No 3)

This House restated the elements of the tort of misfeasance in public office and declined to treat objective foreseeability as sufficient. Liability requires a public officer who acts without an honest belief in lawfulness and either (a) intentionally to cause injury, (b) with actual knowledge that the unlawful act will probably injure the claimant or a class of which the claimant is a member, or (c) with subjective recklessness as to that likely injury. Recklessness in a subjective sense suffices for the second limb.

The House held that the First Council Banking Co‑ordination Directive (77/780/E.E.C.) was a harmonising, first‑stage measure and did not, on its terms, create identifiable, unconditional rights in individual depositors sufficient to found a damages claim against the supervisory authority. Accordingly the Community‑law claim failed as acte clair.

This appeal arose from claims by thousands of depositors against the Bank of England after the collapse of B.C.C.I. The plaintiffs pleaded two heads: (i) misfeasance in public office by senior Bank supervisors in licensing, supervising and failing to revoke the licence of B.C.C.I.; and (ii) breach of Community law, contending that the First Council Banking Co‑ordination Directive 77/780/E.E.C. conferred enforceable rights on depositors against the supervisory authority. The Court of Appeal (majority) affirmed strike‑out below and certified legal questions for the House. The House was asked (A) to define the ingredients of misfeasance in public office and (B) to decide whether the Directive conferred private rights to damages on depositors. The House treated the Community‑law question as acte clair and dismissed that head. It stated the constituent elements of misfeasance but adjourned a factual assessment of whether pleaded facts met that test to a later hearing.

1. Disposition: The House dismissed the Community‑law claim and declined to remit that issue to the ECJ as it considered the point acte clair. The part of the appeal concerning misfeasance in public office was not finally disposed of; the House set out the law and adjourned further factual proceedings to determine whether the pleaded case meets the tort's requirements (per Lord Steyn, Lord Hope, Lord Hutton, Lord Hobhouse and Lord Millett).
2. Misfeasance in public office — core rule (per Lord Steyn, leading): The tort requires a public officer acting in bad faith. Bad faith is shown either by targeted malice (intent to injure) or by knowingly acting without legal power and in circumstances where the act will probably injure the claimant or members of an identifiable class. Subjective recklessness (wilful or conscious disregard of the risk) suffices for the second form. The required mental element is subjective, not an objective foreseeability test.
3. Duty/standing: A claimant need only show a sufficient interest or standing; the law does not require a distinct antecedent proprietary right or a separate proximity requirement to limit the tort where the subjective mental element and remoteness rules operate as safeguards (per Lord Steyn).
4. Causation and remoteness: Causation is a factual inquiry unsuited to summary disposal on pleaded assumptions. Remoteness is stricter than ordinary negligence: the defendant must have known or been subjectively reckless as to the probable injury to the claimant or his class; mere objective foreseeability is insufficient.
5. Community law (per Lord Hope and Lord Millett): The Directive 77/780/E.E.C. was a first‑stage harmonising instrument. Its recitals and articles aim at coordinating authorisation and supervisory standards between member states. Articles 3, 6, 7, 8 and 10 do not, on their true construction, create unconditional, sufficiently precise private rights for depositors to sue the designated supervisory authority in damages. Article 3 concerns initial authorisation and does not apply retrospectively to institutions already carrying on business. Articles 6–7 impose duties of co‑operation and technical standardisation rather than a Community duty of continuous supervision enforceable by individual damages. Article 8 restricts withdrawal but does not confer a right on depositors to insist on revocation. Consequently the Community claim fails as a matter of law; the House declined a preliminary reference to the ECJ (acte clair).
6. Practical orders: The House dismissed the Community‑law head of the appeal. It adjourned further argument on whether the pleaded case can satisfy the newly articulated requirements of misfeasance and directed that amended pleadings and further procedural directions be prepared for a subsequent hearing.

• Court of Appeal: Appeal dismissed by majority (Hirst and Robert Walker L.JJ.), Auld L.J. dissenting. ([2000] 2 W.L.R. 15)
• High Court (Chancery, Clarke J.): Preliminary issues tried and claim struck out; extensive judgments on misfeasance and Community law reported at [1996] 3 All E.R. 558 and 634. (Clarke J. struck out the re‑amended statement of claim and dismissed the action.)