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

Misfeasance in public office is an intentional tort founded on subjective bad faith in the exercise of public power. It covers targeted conduct intended to injure and knowingly unlawful conduct undertaken with knowledge, or subjective recklessness, that it will probably injure the claimant or a class including the claimant. Objective foreseeability, negligence and mere illegality do not suffice.

No separate requirement of proximity or an antecedent legal right controls the tort. Causation and loss remain essential. An omission may qualify only where it represents a deliberate and unlawful decision rather than inadvertence or oversight. The First Banking Directive did not confer enforceable rights to damages on depositors: it began the harmonisation of national banking regulation and imposed duties of co-operation, but no sufficiently precise Community duty of supervision for their benefit.

More than 6,000 depositors sought approximately £550 million in damages from the Bank of England following the collapse of B.C.C.I. They alleged that senior banking supervisors had acted in bad faith when licensing B.C.C.I., had deliberately failed to supervise it and had failed to close it. They relied on misfeasance in public office and alleged violations of the First Council Banking Co-ordination Directive 77/780/EEC.

Clarke J, in decisions reported at [1996] 3 All ER 558 and [1996] 3 All ER 634, held both causes of action unsustainable and later struck out the claim. The Court of Appeal, by a majority, dismissed the appeal in [2000] 2 WLR 15; Auld LJ dissented.

The House was asked to define the ingredients of misfeasance in public office and determine whether the Directive conferred enforceable rights to reparation on depositors. Whether the pleaded facts could satisfy the reformulated tort was reserved for a further hearing.

1. Disposition. The House unanimously dismissed the appeal concerning Community law and declined to make a reference to the European Court because the answer was acte clair. The misfeasance aspect of the appeal was adjourned for further argument on whether the existing or proposed pleading could satisfy the tort as authoritatively stated.

2. Misfeasance in public office. Lord Steyn gave the principal formulation, with which Lord Hope, Lord Hutton and Lord Millett agreed; Lord Hobhouse expressed substantial agreement. The defendant must be a public officer exercising public power. The tort is founded on abuse of power accompanied by subjective bad faith. Neither negligence, inadvertence, an honest error nor an ultra vires act by itself is sufficient.

3. The tort has two forms. Targeted malice consists of using public power with the purpose of injuring the claimant or an identifiable class. Untargeted misfeasance requires an act known to be unlawful and known to be likely to injure the claimant or a class of which the claimant is a member. Subjective recklessness as to unlawfulness or likely injury is equivalent to knowledge. Objective recklessness and reasonable foreseeability are insufficient.

4. The claimant must establish that the officer knew that the conduct would probably cause the relevant kind of injury, or was recklessly indifferent to whether it would do so. A requirement that the officer know injury was certain would make the tort unduly narrow. Conversely, recovery of every reasonably foreseeable loss would detach liability from the intentional character of the tort.

5. Per Lord Steyn and Lord Hutton, no additional requirement of proximity or infringement of an antecedent legal right is needed. The claimant must have sufficient standing and prove causation and loss. Liability may extend to members of a class, such as depositors, whose individual identities were unknown to the officer. Whether potential depositors fell within the relevant class and whether causation was established could not properly be decided summarily.

6. Per Lord Hutton, Lord Hobhouse and Lord Millett, an omission may found liability only where it embodies a deliberate decision and an unlawful failure to perform a duty. Mere oversight, accident or inadvertence cannot suffice. Lord Millett added that the discretion whether to act must effectively admit of only one lawful course, and the official must consciously decline to take it with the requisite intention or knowledge.

7. Community law. Lord Hope delivered the principal reasoning, supported by Lord Millett and accepted by the whole House. The Directive did not grant individual depositors enforceable rights. Article 3 did not govern B.C.C.I.'s continuation of business because it had begun operating before implementation. Articles 6 and 7 concerned ratios and regulatory co-operation, not a sufficiently precise Community duty of supervision. Article 8 limited the circumstances in which authorisation could be withdrawn; it did not require withdrawal. The allegations therefore disclosed no Community-law right to damages.

1. House of Lords: The Community-law appeal was dismissed unanimously. The misfeasance aspect was adjourned so that the pleadings could be considered against the tort as reformulated by the House.
2. Court of Appeal: By a majority, Hirst and Robert Walker LJJ dismissed the depositors’ appeal and affirmed Clarke J for broadly similar reasons; Auld LJ dissented: [2000] 2 WLR 15.
3. High Court: Clarke J determined preliminary issues on the assumption that the pleaded facts were true. He held both causes of action unsustainable in judgments reported at [1996] 3 All ER 558 and [1996] 3 All ER 634. After refusing proposed amendments, he struck out the statement of claim and dismissed the action.