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

The tort of misfeasance in public office requires a deliberate abuse of public power in bad faith. In its untargeted form, it is not enough that a public officer knowingly acts unlawfully. The claimant must show that the officer knew that the act was unlawful and that it would probably injure the claimant, or a class to which the claimant belonged, or was subjectively reckless as to both matters.

The tort does not require a separate proximity test beyond sufficient standing and the required state of mind. It may extend to an identifiable class, even if individual members are not yet known. Causation remains essential and is fact-sensitive.

The First Council Banking Co-ordination Directive did not confer enforceable rights of damages on depositors against the supervisory authority. Its function was to begin harmonisation of banking regulation, not to create directly enforceable compensation rights for individual depositors.

Thousands of depositors with United Kingdom branches of B.C.C.I. sued the Bank of England after B.C.C.I.'s collapse. They alleged, first, misfeasance in public office by senior officials in licensing, supervising and failing to close B.C.C.I. and, secondly, breaches of Community law under the First Council Banking Co-ordination Directive of 12 December 1977 (77/780/E.E.C.).

Clarke J held that both causes of action were unsustainable and later struck out the re-amended statement of claim. The Court of Appeal, by majority, dismissed the appeal: [2000] 2 WLR 15. Auld LJ dissented in part.

In the House of Lords the appeal raised two central questions. The first was the correct legal test for misfeasance in public office on assumed facts. The second was whether the Directive of 1977 conferred rights on depositors or potential depositors to claim damages against the Bank as supervisory authority.

Disposition

1. Per Lord Hope of Craighead, with whom the House agreed on the Community law issue, the appeal on the Directive claim was dismissed. The Directive of 1977 did not entail the grant of enforceable rights to individual depositors or potential depositors.
2. Per Lord Steyn, with whom Lord Hope and Lord Hutton expressly agreed, and with Lord Hobhouse and Lord Millett in substantial agreement, the House restated the ingredients of misfeasance in public office and adjourned that part of the appeal for further argument on the pleadings.

Misfeasance in Public Office

Per Lord Steyn, the tort requires that the defendant be a public officer exercising public power. The critical element is bad faith. The tort has two recognised forms: targeted malice, where power is exercised with intent to injure, and untargeted misfeasance, where the officer knowingly acts beyond power and knows that the act will probably injure the claimant, or a class including the claimant.

Per Lord Steyn, Lord Hutton, Lord Hobhouse and Lord Millett, subjective recklessness is sufficient. It is enough that the officer is recklessly indifferent to the unlawfulness of the act and to the probability, or direct risk, of injury. Objective recklessness is insufficient. The tort is intentional in character and is not satisfied by negligence, inadvertence or mere maladministration.

Per Lord Steyn and Lord Hutton, the claimant need not establish a separate requirement of proximity or an antecedent legal right beyond sufficient standing. A claim may be brought by a class of persons, such as depositors, although their precise identities were not known at the time. Causation remains essential and was unsuitable for summary determination on the preliminary issues.

Per Lord Steyn, recoverable loss in the untargeted form is confined by the officer's state of mind. The claimant must show that the officer knew that the unlawful act would probably injure the claimant or the relevant class, or was subjectively reckless in that respect. Mere reasonable foreseeability of loss is not enough.

Community Law

Per Lord Hope, in the leading speech on this issue, the Directive was the first step in harmonising national regulation of credit institutions to remove barriers to establishment and the provision of services. Protection of savings was a constraint on harmonisation, not a basis for directly enforceable depositor rights.

Articles 6 and 7 imposed duties of co-operation and measures directed to eventual co-ordination, not clearly defined supervisory duties owed to depositors. Article 8 was limiting, not mandatory: it specified when authorisation might be withdrawn, not when it had to be withdrawn. Article 3 did not apply to B.C.C.I. as an institution already carrying on business before implementation, and any stricter domestic licensing requirement arose from national law, not Community law. The question was acte clair, so no reference was made.

• House of Lords: the appeal on the Community law claim was dismissed, and the misfeasance issues were adjourned for further argument.
• Court of Appeal: by majority, the court dismissed the appeal and affirmed Clarke J's decisions for broadly similar reasons: [2000] 2 WLR 15.
• High Court: Clarke J decided preliminary issues against the plaintiffs in judgments reported at [1996] 3 All ER 558 and [1996] 3 All ER 634, later refused further amendments, struck out the re-amended statement of claim on 2 October 1997, and dismissed the action.