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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Criminal Division) Decisions >> Legg, R (on the application of) v Westminster City Council [2000] EWCA Crim 31 (18th April, 2000)
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Cite as: [2000] EWCA Crim 31

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Westminster City Council Ex parte Barry Legg, R v. [2000] EWCA Crim 31 (18th April, 2000)

Case No: 99/6108/X5
IN THE COURT OF APPEAL
CRIMINAL DIVISION
Royal Courts of justice
Strand, London, wc2a 2ll
Tuesday 18 April 2000

Before:


MR JUSTICE HARRISON


____________________
Regina
V
The Queen
V Westminster City Council
Ex parte
Barry Legg
____________________
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
____________________

Mr Brian Ash QC (instructed by City of Westminster, SW1E 6QP) for the Respondent
Mr Jeremy McMullen QC & MrsJennifer Eady (instructed by Simmons And Simmons London, EC2M 2TX) for the Appellant
____________________
Judgment
As Approved by the Court
Crown Copyright ©


Facts
Both of these cases involve applications for judicial review of a decision of the respondent, Westminster City Council ("the Council"), through its Policy and Resources Committee, dated 16 December 1998 when it resolved that the applicants should not be reimbursed for costs and expenses incurred by them when participating in the audit hearing proceedings which were held following publication of the auditor's provisional findings on 13 January 1994 relating to an objection made in July 1989 to the Council's 1987/1988 accounts, and following his notices to show cause issued to ten persons as to why the sum of £21.25 million pounds should not be certified by him under section 20 of the Local Government Finance Act 1982 as due from them by reason of wilful misconduct. In the first case, the applicants are the Union of Managerial and Professional Officers ("MPO"), Mr England, who at all material times was the Council's director of housing, and Mr Hayler, who at all material times was the Council's divisional director of housing (private sector). Mr England and Mr Hayler were both members of the Union. In the second case, the applicant, Mr Legg, was a member of the Council, serving as a councillor from May 1978 to February 1991. Mr England, Mr Hayler and Mr Legg were all amongst the ten persons called upon by the auditor to show cause why they should not be surcharged with the sum of £21.25 million pounds.
The objection to the Council's accounts related to the Council's policy of selling a large number of Council houses to the private sector, which was alleged to be unlawful. It gave rise to a very lengthy and complex investigation by the auditor which lasted from July 1989 to May 1996.
Whilst that investigation was taking place, on 10 June 1992 the Council, through its Policy and Resources Appointed Panel, adopted an indemnity policy, the material parts of which read as follows:-
"The City Council will, subject to the exceptions below, indemnify all Councillors, employees of the Council, and nominees by the City Council to any body outside the City Council, against any damages, costs or legal expenses which any such Councillor, employee or nominee may be ordered to pay or may reasonably have incurred in the discharge of functions on behalf of or at the request of the Council if the Councillor, employee or nominee acted in good faith and honestly believed that the act complained of was within his power and that his duty as a Councillor, employee or nominee required him or entitled him to do or omit to do it....
Exceptions
(i) This indemnity will not extend to loss or damage directly or indirectly caused or arising from:
(a) Fraud, dishonesty or any criminal offence on the part of a Councillor, employee or nominee;
(b) Any neglect, error or omission by an individual otherwise than in the course of his duty; or
(c) Liability in respect of any surcharge and associated costs and expenses pursuant to Sections 19 and 20 of the Local Government Finance Act 1982. Provided that where upon final determination of an objection to the Auditor the Council is satisfied that a person the subject of an objection was not in any way culpable it will meet the legal costs reasonably incurred by such a person in connection with such an objection."

In January 1994 the auditor published his provisional findings and the notices to show cause why the ten persons should not be surcharged. It was then arranged that there should be an oral hearing at which all relevant parties could make representations to the auditor.


On 11 May 1994 the General Secretary and the Negotiating Officer of the Union met with Mr Roots, the Council's then acting managing director, to discuss the question of the costs which would be incurred by members of MPO in participating in the oral hearing before the auditor and showing cause why they should not be surcharged. Mr Roots handed to the Union representatives a copy of the indemnity policy dated 10 June 1992 at that meeting.
By letter of 11 May 1994 to the General Secretary of the Union Mr Roots stated "I would recommend a payment in respect of reasonable legal expences if Messrs England and Hayler were exonerated by the auditor/courts, subject to my assessment of the reasons for such an outcome", and he referred to the Council's 1992 indemnity policy, a copy of which he had handed to the Union representatives.
By letter of 21 July 1994 the objectors invited the auditor to make findings of wilful misconduct and to issue surcharge certificates under section 20 of the 1982 Act against five additional persons, including Mr Sporle and Mr Hackney, two other Council officers who were also Union members and whom the Union also agreed to support. By letter of 7 October 1994 Mr Roots, who by then was the Council's chief executive and director of finance, confirmed to MPO that the Council "will provide a costs indemnity to Mr Sporle and Mr Hackney on a similar basis as applied to Mr England."
The audit hearing before the auditor took place between October 1994 and February 1995. At that hearing Mr England and Mr Hayler were represented by leading and junior counsel and solicitors, the cost of which was borne by MPO on their behalf in the sum of £344,271. As I understand it, the same legal team also represented Mr Sporle and Mr Hackney, those costs also being borne by MPO. Mr Legg was represented separately by leading counsel and solicitors. He incurred costs in the sum of £164,876.
On 9 May 1996 the auditor issued his final report. He found Mr Legg not guilty of any wilful misconduct and held that he should not be surcharged. He also found Mr Sporle and Mr Hackney not guilty of any wilful misconduct. However, he found six of the ten persons named in his provisional findings to be guilty of wilful misconduct, including Mr England and Mr Hayler. He issued certificates under section 20 of the 1982 Act holding those six persons jointly and severally liable in a sum of over £31.6 million pounds.
Those six persons, including Mr England and Mr Hayler, duly appealed against those certificates. On 17 December 1997 the Divisional Court held that the Housing Committee had acted unlawfully, but they allowed the appeals of three of the six appellants, including Mr England. On 12 January 1998 the appeal of Mr Hayler, who was in ill health, was allowed by consent. The costs of the appeals by Mr England and Mr Hayler before the Divisional Court were ordered to be paid by the auditor. Those costs were subsequently agreed between the auditor and MPO.
The two appellants whose appeals were dismissed, Dame Shirley Porter and Councillor Weeks, the Leader and Deputy Leader of the Council respectively, appealed to the Court of Appeal. On 30 April 1999 their appeals were allowed. It was held that the designated sales policy of the Housing Committee was not unlawful and that the appellants were not guilty of wilful misconduct.
In January 1998 MPO, acting in its own right and on behalf of Mr England and Mr Hayler, applied to the Council for reimbursement of the costs incurred on behalf of Mr England and Mr Hayler in the proceedings before the auditor. On 12 October 1998 Mr Legg's solicitors applied to the Council for reimbursement of his costs incurred in those proceedings.
Those requests were put before the Council's Policy and Resources Committee on 16 December 1998. The relevant paragraphs of the minutes of that meeting , which also includes the Committee's resolution, state as follows:-
"4.7 In his advice to the City Council Mr Ash stated that the crucial test to be applied in determining whether an individual case was within the terms of the indemnity was whether the City Council is satisfied that the individuals concerned were "not in any way culpable" ....
4.9 The Committee concluded, having regard to the purpose of the indemnity, that Members and officers could legitimately have expected that the indemnity covered the circumstances that led to legal expenses being incurred in these cases. It therefore determined that in reaching a view on the individual cases before it, it would apply the test set out in paragraph 4.7 above.
4.10 In the case of Mr England it was noted that many of the serious criticisms made by the Appointed Auditor in relation to him were rejected by the High Court. The Committee were also of the view that the High Court judgment, whilst somewhat critical in places, did not include any finding that could fairly be described as a finding of culpability on Mr England's part. Accordingly, the Committee concluded that, in its opinion, Mr England was in no way culpable and his case met the terms of the indemnity.
4.11 As the report indicated, although a broad brush approach should not be adopted, it is reasonable to reach the same conclusion concerning Mr Hayler as is reached for Mr England. Accordingly, the Committee accepted that the claim from Mr Hayler fell within the terms of the indemnity.
4.12 The Committee noted that although the Appointed Auditor criticised Councillor Segal and former Councillors Young and Legg for failing to speak up, he also accepted that they did not have a duty to do so. The Committee did not have the advantage of any High Court judgment in their cases to consider, but noted that the Appointed Auditor did not at any stage intend to pursue the cases of either Councillor Segal or former Councillor Young, and did not find against former Councillor Legg in his final report. The Committee concluded that in their opinion these individuals were not in any way culpable and, therefore, fell within the terms of the indemnity.
4.13 The Committee also considered the cases of Mr Ken Hackney and Mr Sidney Sporle as the claim from MPO included small elements of expenditure on their behalf. The Committee noted that the Appointed Auditor did not at any stage intend to pursue the cases of Messrs Hackney and Sporle. They also noted that the Appointed Auditor made similar comments in relation to their failure to "speak up" as he did in relation to Councillor Segal and former Councillors Legg and Young. Again the Committee were satisfied that Messrs Hackney and Sporle were not in any way culpable in relation to this matter and therefore fell within the terms of the indemnity."
The Committee however resolved:-
"That reimbursement of Messrs England, Hayler, Hackney and Sporle (via the claim from MPO), Councillor Segal and former Councillors Legg and Young be not agreed on the basis that, whilst the Committee considers their cases to be prima facie within the terms of the indemnity in the sense that they are, in their opinion, in no way culpable:
a) there is doubt about the City Council's power to grant the indemnity.
b) there is doubt about the City Council's power to reimburse in the circumstances of these particular cases.
c) the Secretary of State has refused to grant a sanction for any expenditure incurred in granting reimbursement; and
d) reimbursement would be highly controversial and, in the Committee's opinion, should only be made in circumstances where the legal position is clearer."
That decision of 16 December 1998 is the decision which is challenged by the applicants in both these cases. They claim an order of certiorari to quash that decision. Secondly, they claim a number of declarations. It is necessary to quote the declarations sought in the first case because they have been referred to by reference to the paragraph numbers in the Form 86A. Similar declarations, adapted accordingly, are claimed by Mr Legg in the second case. The declarations are as follows:-
"2. A Declaration that WCC has power to indemnify MPO, alternatively the officer Applicants, in respect of claims for all reasonable costs and expenses incurred in the representation of the officers in connection with the Audit Hearing proceedings held following the Note of Provisional Findings and Views of the Appointed Auditor, made on 13 January 1994 relating to an Objection to the 1987/88 accounts, and the Notices to Show Cause, issued to 10 persons, why the sum of £21.25 million should not be certified as due from them.
3. A Declaration that the claims made by MPO, alternatively the officer Applicants, are within the terms of:-
3.1 the indemnity in s. 265 of the Public Health Act 1875 and s. 39 of the Local Government (Miscellaneous Provisions) Act 1976;
3.2 the indemnity offered by WCC made by or pursuant to its Policy and Resources Appointed Members Panel on 10 June 1992;
3.3 the indemnity offered by WCC by letter of 11 May 1994 and 7 October 1994 from the Acting Managing Director of WCC to MPO;
4. A Declaration that MPO, alternatively the officer Applicants, have a legitimate expectation:
4.1 arising from the indemnity adopted by WCC by or pursuant to the decision of its Policy and Resources Appointed Members' Panel of 10 June 1992;
4.2 arising from a meeting on 11 May 1994 between the Acting Managing Director of WCC and officers of MPO and/or letters from the Acting Managing Director of WCC of 11 May 1994 and 7 October 1994;
that in the light of the outcome of the Audit Hearing and the appeal therefrom to the Divisional Court on 17 December 1997, and the Policy and Resource Committee's findings on 16 December 1998, its and/or their claims will be met."
Finally, the applicants in the first case seek an order that the Council should pay MPO, alternatively Mr England and Mr Hayler, damages in the sum of £344,271 plus interest. That claim includes a small proportion in respect of Mr Sporle and Mr Hackney. In the second case, Mr Legg seeks an order that the Council should pay him damages in the sum of £164,876 plus interest.
The Council does not seek to resist the declarations specified in paragraphs 2 and 3.2, subject to amendments excluding MPO. It does, however, resist all the other relief sought by the applicants. If the court were to make the declarations specified in paragraphs 2 and 3.2, the Council would wish to reconsider the applicants' requests for reimbursement in the light of the court's clarification of the legal position. The principal issue between the parties is whether, if the declarations in paragraphs 2 and 3.2 are made, the Council is under an obligation to reimburse the applicants' reasonable costs, whether by virtue of a statutory indemnity under section 265 of the Public Health Act 1875, as applied by section 39 of the Local Government (Miscellaneous Provisions) Act 1976, or by virtue of a substantive legitimate expectation arising from the Council's 1992 indemnity or the undertakings given in May 1994. If there is such an obligation, I am asked to make orders for the payment of the amounts claimed in both cases, or such sums as may be subsequently independently assessed to be reasonable, together with interest.
Declarations not in dispute
Before I come to the main area of contention, I have to deal first of all with the declarations which are not resisted by he Council. It is apparent from the resolution of the Policy and Resources Committee dated 16 December 1998 and from the witness statement of Mr Wilson, the Council's director of legal services, that the main reason why the Committee did not agree to make the reimbursement was because of the uncertainty about the legal power to do so. Although both parties are content that I should make the declarations sought in paragraphs 2 and 3.2, as amended, I can only do so if I am satisfied that the legal uncertainty to which the Council referred should be resolved in the manner contended for by the parties. The legal uncertainty to which the Council referred arose as a result of legal opinions given on some aspects by those advising other parties. I therefore have to resolve those points without the opportunity of hearing those other parties developing those contrary arguments. I am grateful, however, to Mr Ash QC, who appeared on behalf of the Council, for identifying the way in which those contrary arguments were put.
The first uncertainty is whether the Council had the power to give the 1992 indemnity at all. That uncertainty arose as a result of the view expressed by the legal adviser to the auditor that the Council had no power to indemnify members or officers in respect of legal costs incurred by them in responding to an objection made to the auditor in the light of recent cases where a narrow view had been taken of the scope of section 111 of the Local Government Act 1972 ("the 1972 Act"). Mr Sullivan QC had advised the Council in 1991 that it had power to give the indemnity. Mr Ash advised the Council in 1998 that, although the matter was slightly more marginal than when Mr Sullivan advised in 1991 due to the restrictive interpretation of section 111 of the 1972 Act in some recent cases, he was of the view that the council was empowered to give the indemnity. Mr Patrick Elias QC advised the former leader of the opposition that, although the position, especially in respect of members, was uncertain, he was of the view, on balance, that the Council did have power to grant an indemnity in principle. It follows that three leading counsel have advised that the Council had the power to grant such an indemnity.
Section 111 of the 1972 Act empowers a local authority to do anything "which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions." I am satisfied that the reasons for a more restrictive interpretation of section 111 in some recent cases do not impinge on the circumstances of this case. In my view, the granting of an indemnity to members or officers in respect of their legal costs incurred in responding to an objection made to the auditor can properly be said, in principle, to facilitate, or be conducive or incidental to, the discharge of the functions of a local authority, not least because it is important for the proper discharge of the functions of a local authority that those seeking public office, whether by election as a member of the authority or by appointment to a post as an officer, should not be deterred from doing so by concern over personal liability. I therefore conclude that the Council did have power to grant the indemnity that it adopted in June 1992.
The next uncertainty is whether the Council had the power to grant the indemnity to the three individual applicants in the circumstances of these cases. That was another matter about which the Policy and Resources Committee expressed doubt in their resolution of 16 December 1998, despite their conclusions that each of the individual applicants were "not in any way culpable" within the terms of exception (i) (c) of the indemnity of 10 June 1992. Once again, both parties have accepted that there was, in fact, power to grant an indemnity to the individual applicants in these cases. The doubt or uncertainty referred to by the Policy and Resources Committee arose out of the opinion expressed by Mr Patrick Elias QC on behalf of the leader of the opposition on two aspects - firstly, whether the indemnity could be retrospective and, secondly, the meaning of the word "culpable". I therefore have to deal with those two matters without having heard Mr Elias' argument developed before me.
Dealing first with the issue of retrospection, Mr Elias expressed the view that the indemnity could not operate retrospectively so as to apply to acts done or decisions made prior to the coming into force of the indemnity. In his view, it merely protected councillors from past conduct which was not of benefit to Council taxpayers, nor was it necessary to encourage persons in future to become councillors.
Mr Ash, on the other hand, advised the Council that there was nothing in the wording of the indemnity which excludes future expenditure arising from events prior to June 1992. He advised that it would be legitimate for the Council to consider it to be in its interest, whether by reference to good administration generally or for the protection of its reputation when serious allegations have been made against officers or members, to ensure that proceedings before the auditor are conducted in as fair and comprehensive a manner as possible, something which could not be achieved solely by legal representation for the Council itself because in most cases the Council will be at arms length from those provisionally named by the auditor and may, as in the present case, play a somewhat limited role at the hearing. For those reasons, he concluded that there could be benefit to the Council's taxpayers in bearing the cost of proceedings before the auditor in respect of events which occurred before the indemnity came into force. Mr Ash elaborated on those views in his argument before me.
In my judgment, the Council were entitled to take the view that the indemnity could apply retrospectively in the sense that it could apply to future expenditure arising out of events occurring before the date of the indemnity. That was the situation in this case, the expenditure occurring in 1994 and 1995 arising out of events that occurred in the late 1980s. There is nothing in the wording of the indemnity to the contrary and there could be benefit to the Council's taxpayers that that should be so for the reasons given and elaborated upon by Mr Ash. I do not therefore consider that the issue of retrospection provides a legal impediment to granting an indemnity to these individual applicants.
I turn next to the issue relating to the word "culpable" in exception (i) (c) of the 1992 indemnity. Mr Elias advised that it meant wholly without blame. Mr Ash advised that it was not necessary or desirable to seek to provide an all-embracing form of words to define the test which the Council must apply when construing ordinary, non-technical English expressions. I prefer Mr Ash's approach . The indemnity is not a statute; it is the Council's own policy which it can apply using common-sense according to the ordinary meaning of the words without having to apply a precise meaning of a word or words prescribed by lawyers.
Finally on this aspect I have to consider whether the Council's decision that the three individual applicants were not in any way culpable was valid as a matter of law. The fact that all three individual applicants were exonerated in the sense that they were found not guilty of wilful misconduct does not necessarily mean that they were not in any way culpable. I have been referred in detail to the findings of the auditor, the findings of the Divisional Court and the contents of a detailed report of the Council's City Solicitor and Secretary to the Policy and Resources Committee dated 16 December 1998. I have earlier set out the conclusions and the resolution of the Policy and Resources Committee after it had considered those matters. I have come to the conclusion, having considered all that material and the submissions relating to it, that the Council was entitled to conclude as it did, namely that the three individual applicants were not in any way culpable. Whilst there were contrary arguments, those arguments were properly considered and it cannot, in my view, be said that the conclusions that were reached were conclusions which no reasonable local authority could have reached.
Having considered the various matters relevant to the legal power of the Council to grant the 1992 indemnity and the legal power to reimburse the three individual applicants in these cases, I am satisfied that the Council has those powers. I am therefore of the opinion that the three individual applicants in these cases are entitled to declarations along the lines of those sought in paragraphs 2 and 3.2 of the Forms 86A in their respective cases. The MPO is not entitled to those declarations because the indemnity only relates to councillors and employees and it does not include Unions representing employees. However, the Council accepts that any payment that may subsequently be made in pursuance of a declaration of entitlement of Mr England and Mr Hayler under the 1992 indemnity should be paid to the MPO who funded their legal expenses of the proceedings before the auditor. The Council therefore accepts that there should be a declaration relating to its power to make such a payment to the MPO.
I now turn to the disputed aspect of these cases, namely whether the Council is under an obligation to reimburse the applicant's legal expenses either by virtue of a statutory indemnity under section 265 of the Public Health Act 1875, as amended, or by virtue of a substantive legitimate expectation arising either from its 1992 indemnity or from the 1994 undertaking given by Mr Roots. I deal first of all with the issue of the statutory indemnity.
Statutory indemnity
Section 265 of the Public Health Act 1875, as amended by paragraph 1 of Schedule 5 of the Local Government Finance Act 1982, provides as follows:-
"No matter or thing done, and no contract entered into by any local authority --- and no matter or thing done by any member of any such authority or by any officer of such authority, or other person whomsoever acting under direction of such authority, shall, if the matter or thing were done or the contract were entered into bona fide for the purpose of executing this Act, subject them or any of them personally to any action liability claim or demand whatsoever; and any expense incurred by any such authority member officer or other person acting as last aforesaid shall be borne and repaid out of the fund or rate applicable by such authority to the general purposes of this Act.
Provided that nothing in this section shall exempt any member of any such authority from liability to make any payment in pursuance of section 19 or 20 of the Local Government Finance Act 1982."
The auditor in this case was acting under section 20 of the Local Government Finance Act 1982 when he certified that the amount of the loss was due from the six persons named by him as a result of their wilful misconduct.
The application of section 265 of the Public Health Act 1875, as now amended by the Local Government Finance Act 1982, was widened by section 39(1) of the Local Government (Miscellaneous Provisions) Act 1976 which provides as follows:-
"(1) Section 265 of the Public Health Act 1875 (which relates to the protection from personal liability of members and officers of certain authorities) shall have effect ... as if any reference to those authorities and the first reference to that Act included respectively a reference to a local authority and to any other public general Act --- and as if the reference to the general purposes of that Act included a reference to the purposes of the other public general Act --- in question."
It is argued on behalf of the applicants that the word "expense" referred to in section 265 covers the legal expenses of establishing exemption from liability in surcharge cases such as this and that there is therefore a mandatory duty for the expenses incurred by the applicants in the proceedings before the auditor to be met by the Council pursuant to that section.
I was referred to the part of the judgment of Neuberger J in Burgoine v Waltham Forest London Borough Council (1996) 95 LGR 520 where, at pages 536 to 538, he dealt with the interpretation of section 265 of the 1875 Act. That was a case involving a claim for an indemnity by two council officers who were also directors of a company set up by the local authority to finance and manage a waterpark for the public. The project failed and the company went into liquidation. The liquidator brought proceedings to recover substantial sums from them under the Insolvency Act 1986. They sought to establish that the local authority was bound to indemnify them in respect of their liability, if any, in the insolvency proceedings, either under a contractual indemnity or, failing that, under section 265 of the Public Health Act 1875.
Neuberger J referred to the first part of section 265 as being concerned with excluding liability, the second part as being concerned with an indemnity and the third part being the proviso. He then stated at p. 536 as follows:-
"The purpose of the first part of section 265 is to confer immunity from suit from the persons therein mentioned in the circumstances therein mentioned. This would strongly suggest that the "expenses" against which such persons are to be indemnified under the second part of section 265 are not intended to be substantive sums for which they are sued, because the first part of section 265 renders them immune from liability for such sums. This reinforces the view that the reference to "expenses" is to the expenses incurred by the relevant persons in connection with the claim in respect of which they are rendered exempt by the first part of section 265. It appears to me that this is consistent with what was said by Wightman J giving the judgment of the court in Ward v Lee (1857) 7 E&B 426, 430, where he said:
"The clause at the end of the 128th section is not for the repayment of `damages' recovered against a person acting bona fide in the execution of the Act, but for the repayment of his [expenses]; which may well be construed, consistently with our view of the meaning of the section, to be repayment of the [expenses] he may have been put to in defending an action brought against him personally, and in which he may have been successful on the ground that he was acting bona fide in the execution of the Act, and therefore not liable. [The section there referred to being a provision of similar effect to section 265 of the Public Health Act 1875]."
In the case of Ward v Lee, Wightman J was delivering the judgment of the Court of Queen's Bench consisting of three judges presided over by Lord Campbell CJ. I am bound to say that I consider the interpretation of the word "expense" in section 265 to be an arguable point in view of the fact that the expense has to be incurred "acting as last aforesaid" which could be taken to be referring back either to the words "acting under the direction of the authority" and/or to "matters or things done ... bona fide for the purpose of executing the Act". The interpretation adopted in Ward v Lee and by Neuberger J in Burgoine would seem to result in the word "expense" meaning expense incurred in establishing that the person was "acting as last aforesaid". Be that as it may, I will assume for present purposes that the interpretation given to that word in Ward v Lee and in Burgoine is correct. What I have to consider is whether the applicants can bring themselves within the first part of section 265 so as to be able to invoke the second part of that section relating to the expense incurred in relation to the matters referred to in the first part of the section.
As Neuberger J mentioned, the purpose of the first part of section 265 is to confer immunity from suit in the circumstances there mentioned. It is dealing with the circumstances in which the relevant persons will be immune or exempt from liability. It was held in Bullard v Croydon Hospital Group Management Committee (1953) 1 QB 511 that section 265 could not be relied upon in circumstances where the act complained of was carried out negligently. In the present case, the allegation against the three applicants was that they had been guilty of wilful misconduct. It was never claimed by the applicants, either before the auditor or before the Divisional Court, that they were immune from suit or exempted from liability under the first part of section 265 of the 1875 Act. Their case was that they were not guilty of wilful misconduct under section 20 of the Local Government Finance Act 1982. The purpose of section 265 of the 1875 Act is to protect local authority members and officers from personal liability in certain circumstances. That was never an issue before the auditor - either the applicants were guilty of wilful misconduct and liable for the loss incurred or they were not. No question of immunity from suit or exemption from liability under section 265 of the 1875 Act arose. I have therefore come to the conclusion that the first part of section 265 is not applicable and that there is therefore no entitlement to an indemnity in relation to the applicants' legal costs under the second part of that section.
In coming to that conclusion I have had regard to the proviso of section 265 which makes it clear that nothing in the section shall exempt a member of a local authority from liability to make any payment in pursuance of section 18 or 20 of the Local Government Finance Act 1982. The proviso emphasises the nature of the first part of the section as being to exempt from liability. If and insofar as the omission of the proviso to mention officers of a local authority may be said to imply that they could be exempted from liability under sections 19 or 20 of the Local Government Finance Act 1982, there was, as I have said, no suggestion that Mr England or Mr Hayler were exempted from liability to make any payment under section 20 of the Act. Indeed, it is difficult to see how an officer could otherwise be liable under section 20 of the 1982 Act by reason of wilful misconduct but still bring himself within the first part of section 265.
Finally, I should add that, in coming to the conclusion that I have reached I have taken into account the argument that was raised on behalf of the applicants relating to Article 6(1) of the European Convention of Human Rights, but it has not caused me to reach a different conclusion.
1992 indemnity - substantive legitimate expectation
I turn next to the 1992 indemnity. It was contended on behalf of the applicants that the Council is obliged to reimburse the three individual applicants for their legal costs of the proceedings before the auditor on the ground that the 1992 indemnity, together with the findings of the Policy and Resources Committee dated 16 December 1998 that they were not in any way culpable, give rise to a substantive legitimate expectation that the Council will pay their costs.
Reliance was placed on the case of R v North and East Devon Health Authority, ex parte Coughlan (1999) LGR 703 where the health authority's decision to move the applicant from a residential home, against her will and in breach of its own promise, constituted unfairness amounting to an abuse of power because it frustrated her legitimate expectation of having her home for life in the residential home and because there was no overriding public interest which justified the decision. In giving the judgment of the court, Lord Woolf MR stated at p. 726 that, in considering the legitimate expectation arising from a promise made by a local authority, there were at least three possible outcomes which he expressed as follows:-
"(a) The court may decide that the public authority is only required to bear in mind its previous policy or other representation, giving it the weight it thinks right, but no more, before deciding whether to change course. Here the court is confined to reviewing the decision on Wednesbury grounds .... (b) On the other hand the court may decide that the promise or practice induces a legitimate expectation of, for example, being consulted before a particular decision is taken. Here it is uncontentious that the court itself will require the opportunity for consultation to be given unless there is an overriding reason to resile from it (see Attorney-General of Hong Kong v Ng Yuen Shiu [1983] 2 AC 629) in which case the court will itself judge the adequacy of the reason advanced for the change of policy, taking into account what fairness requires. (c) Where the court considers that a lawful promise or practice has induced a legitimate expectation of a benefit which is substantive, not simply procedural, authority now establishes that here too the court will in a proper case decide whether to frustrate the expectation is so unfair that to take a new and different course will amount to an abuse of power. Here, once the legitimacy of the expectation is established, the court will have the task of weighing the requirements of fairness against any overriding interest relied upon for the change of policy."
It is submitted on behalf of the applicants that the circumstances of this case come within the third category mentioned by Lord Woolf. It is said that the indemnity constitutes a promise that the Council would pay the applicants' reasonable legal costs if it is satisfied that they were not in any way culpable. By its decision of 16 December 1998 the Policy and Resources Committee found that the applicants were not in any way culpable and it is submitted that they therefore had a legitimate expectation of a substantive benefit, namely the payment of the legal costs reasonably incurred by them. The applicants therefore ask for an order for payment of their costs.
On the face of it, that is a persuasive argument. It does not, however, deal with the whole picture, insofar as it does not deal with the reason why the Council did not agree to reimburse the legal costs reasonably incurred by the individual applicants. In paragraph 4.9 of the report to the Policy and Resources Committee dated 16 December 1998 it is expressly accepted that members and officers could legitimately have expected that the indemnity covered the circumstances that led to legal expenses being incurred in their cases. There is, therefore, no dispute about the concept of legitimate expectation applying in these cases. However, the main reason why the Council did not agree to reimbursement of the individual applicants' costs was because of its doubts about its power to grant the indemnity and its doubt about its power to reimburse the applicants' costs in the circumstances of these particular cases in light of legal opinions given on some aspects by those advising other parties. Those doubts are referred to in the Committee's resolution contained in paragraph 4.14 of the officer's report of 16 December 1998 where it is made clear that reimbursement should only be made in circumstances where the legal position is clearer.
Whilst I would accept that the terms of the 1992 indemnity, coupled with the Committee's finding that the individual applicants were in no way culpable, could be said to give rise to an expectation that their legal costs would be reimbursed, such an expectation must be subject to the Council being satisfied that it had the legal power to reimburse their costs. If the Council had genuine doubts about its legal power to do so, it would plainly be wrong for it to make the payments without first resolving its genuine doubts. In those circumstances I do not consider that it would constitute unfairness amounting to an abuse of power to frustrate such legitimate expectation as the applicants had until the Council's genuine doubts about its legal powers were resolved.
Those doubts have now been resolved as a result of this judgment. I am therefore urged on behalf of the applicants to make orders for payment of their legal costs now that the legal position is clear. The main reason for that request is the applicants' fear of their claim being politicised if the matter were considered again by the Council in the light of this judgment. I do not, however, consider that it would be right to make the orders requested at this stage. For the reasons I have given, there has not been an abuse of power by the Council. It was entitled to have its doubts about its legal powers resolved before making the payments. The matter should now be reconsidered by the Council in the light of this judgment and in the light of the declarations made by this court. Mr Ash assured me that he did not seek to argue that, if the matter were remitted to the Council for reconsideration, the Council could justifiably decline to pay the costs claimed by the Applicants once the legal position had been clarified".
1994 Undertakings
Finally, I turn to the Council's case relating to the undertakings given by Mr Roots in his letters of 11 May 1994 and 7 October 1994 referred to earlier in this judgment. Whilst they are relied upon by Mr England and Mr Hayler as reinforcing their claim under the 1992 indemnity, the main point of reliance on those letters is to cover MPO's claim in relation to the costs incurred by them on behalf of Mr Sporle and Mr Hackney, two other officers who were not found guilty of wilful misconduct by the auditor. The argument, as I understand it, is that Mr Roots' letters gave rise to a legitimate expectation that he would make a recommendation of payment of legal expenses in favour of Mr Sporle and Mr Hackney (as well as Mr England and Mr Hayler).
It is, however, clear from his letters that Mr Roots said that he would make a recommendation of payment if the officers were exonerated subject to his assessment of the reasons for such an outcome. As he makes clear in his witness statement, some criticisms were made of those officers and he did not therefore consider it appropriate to make a firm recommendation to the Committee. I see nothing wrong in that approach by Mr Roots and, in any event, even if he had made such a recommendation, it could not have been binding on the Council. I do not, therefore, consider that the so-called undertakings given by Mr Roots in 1994 can form a basis for MPO's recovery of the costs incurred on behalf of Mr Sporle and Mr Hackney, nor do they affect the position in any material way so far as Mr England's and Mr Hayler's entitlements under the 1992 indemnity are concerned.
Conclusion
My overall conclusion, therefore, is that I will grant the relief that is not in dispute between the parties, that is to say declarations relating to the power of the Council to grant the 1992 indemnity and the power of the Council to reimburse the three individual applicants in these cases, but I will not grant the other relief sought by the applicants for the reasons that I have given. I will hear submissions from the parties on the precise form that the declarations should take.

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MR JUSTICE HARRISON: I should formally say, therefore, that my overall conclusion in this case is that I will grant the relief that is not in dispute between the parties, that is to say the declarations relating to the power of the Council to grant the 1990 indemnity and the power of the Council to reimburse the three individual applicants in these cases, but I will not grant the other relief sought by the applicants, for the reasons which are given in the judgment that has been handed down, subject to the amendment which I have mentioned on page 15 of the judgment.
As I have said, I will hear submissions from the parties about the declarations that are sought. I have heard those submissions and I am content to grant the relief sought in the two documents that have been put before me, one in the case of Barry Legg and the other in the case of MPO, Graham England and Paul Hayler, subject, in the latter case, to the amendment to paragraph 2 of the declaration to substitute the words "make payments to" instead of "indemnify" in the second line of that declaration.
Are there any consequential matters?
MR McMULLEN: My Lord, I am grateful for your Lordship's judgment. The applicants seek their costs.
MR JUSTICE HARRISON: What do you say about that, Mr Ash?
MR ASH: My Lord, I resist that application to a limited extent. Your Lordship will be aware that from an early stage in these proceedings the Council made it clear that it did not resist declarations in relation to its powers, in effect, but it did resist declarations in relation to its legal obligations. My Lord, if I could have handed to your Lordship two letters. I think my learned friend may want to come back with a further letter, but for my purposes at the moment I just want to draw your Lordship's attention to two letters. One is from my instructing solicitor dated 10th November 1999 to my learned friend's solicitors.
MR JUSTICE HARRISON: Shall I have them now?
MR ASH: The other is a reply dated 26th January of this year.
MR JUSTICE HARRISON: I should say that the reason for sitting at 9.30 is because of pressing other engagements, so we have to make reasonable dispatch on this.
MR ASH: I hope this will not take very long. Can I make the point that I make this application expressly on the basis that the Council will clearly take a view, if your Lordship decides in my favour, as to whether it should in the circumstances enforce any judgment in relation to costs against these applicants.
But, my Lord, the position is that in the letter of 10th November 1999, if your Lordship turns to the second page, right at the bottom the preceding paragraph:
"For my part I would be content..."
Does your Lordship see that?
MR JUSTICE HARRISON: On the first page?
MR ASH: The second page.
MR JUSTICE HARRISON: Yes.
MR ASH:
"For my part I would be content if you did not wish to proceed with the issues raised by paragraph 3.2 or 4 of the relief sought, although I anticipate that you would wish to continue to maintain your arguments on these points and your attempt to establish liability should that be necessary. However, whilst I have not thought the matter through procedurally, if possible it seems to me that there may be some merit in seeking declarations on power as a preliminary issue, leaving the more difficult questions of legal liability and quantum to be resolved later should that prove necessary before any further decision of the Policy and Resources Committee, assuming that declarations as to power are forthcoming. Perhaps you would let me have your further thoughts on this."
What that is indicating is: perhaps we can cut this down and just deal with the points that are not really in issue.
MR JUSTICE HARRISON: Yes.
MR ASH: If your Lordship then goes to the second letter, 26th January 2000, that is a substantive response to that letter of 10th November 1999.
MR JUSTICE HARRISON: Yes.
MR ASH: It is paragraph 6 which is relevant here:
"Furthermore, your suggestion that there may be some merit in seeking to deal with the question of whether of not the Council has the power to reverse legal costs as a preliminary issue, effectively a split hearing is clearly undesirable from our client's point of view. Our clients clearly want the court hearing to reach a final outcome on all of the issues raised in their application. That requires the court to rule on not only whether the Council has the power to reverse legal costs, but also whether in the particular circumstances of this case they are under an obligation to reimburse these costs."
Then, over the page, references to the controversial nature.
"... want to have the matter dealt with dispassionately and authoritatively by the court without the possibility of further controversy felt by the Committee".
So it is a clear indication that we could have narrowed issues, but the applicants said they did not want to take that course. My Lord, we certainly did spend a considerable amount of time at the substantive hearing on the question of liability because of course they were contentious.
MR JUSTICE HARRISON: Yes. What are you asking for?
MR ASH: It would be my submission that the costs in relation to those aspects of the case from the date of the correspondence, whether your Lordship takes the view it should properly be 10th November as opposed to probably more appropriately the January letter when that matter was dealt with, should be borne by the applicants and not the Council. There should be an order to that effect.
MR JUSTICE HARRISON: You say the order should relate to the issues?
MR ASH: Effectively.
MR JUSTICE HARRISON: Follow the issues.
MR ASH: Yes.
MR JUSTICE HARRISON: Yes, I see. Thank you very much. Yes, Mr McMullen?
MR McMULLEN: That would be a grave injustice. The applicants, it is common ground, had to come to court for declarations. So there is no question that there had to be a hearing before your Lordship. The substance of the hearing has been declared in favour of the applicants. There is half a million pounds worth of costs involved in this matter which Mr Ash assures your Lordship will go before the Committee now, reassured by the clarification of your Lordship's judgment.
MR JUSTICE HARRISON: I think that the applicants had to come to court is not disputed. But what is being said is that, on the non-contentious issues they had to come to court, and they would be content to say they had to pay the costs of that. It is the cost of the controversial - the obligation to pay - they say they should not have to pay the costs of.
MR McMULLEN: So they had to come to court. The division of time on the issues of dispute is what is now sought, and, as I understand my learned friend's application, it is that that part of the preparation and argument relating to the orders which have not been made should not be ordered against the Council. That is as I understand his application, the basis of which is the offer by the City Council to treat the matter as a preliminary point.
MR JUSTICE HARRISON: Yes.
MR McMULLEN: My Lord, that saves no time or costs. Can I hand up the start of the correspondence, which is one previous letter, dated 3rd November, from Mr Vaughn, who sits in front of me on behalf of the applicants, in which these matters are the subject of reflection. He says on 3rd November, having got Mr Wilson's affidavit:
"The Council does not resist the declaration sought in para 2 and 3.2."
Effectively as your Lordship has ordered but with some additions now.
Then he goes on to say:
"If the Council does not resist the relief sought and the court proceeds to make the declarations then it appears to us that it ought to be possible to reduce very substantially the outstanding issues in dispute between the parties. In particular, in these circumstances it would appear unnecessary for the court to consider the issues raised by paras 3.4 or 4 of the relief. Given the points raised by the Council's insurers, about which we have written separately, you may consider that there is some merit in the court considering the question of the statutory indemnity raised in para 3.1 of the relief sought. We would be grateful for your further view."
Just pausing there, if there is a liability in the Council then that has an effect on the Council's insurance because the Council is insured against liabilities by its officers and its members. So the point that is made here is that there may well be merit for the Council, in that it might well be able to claim off its insurance matters which are the subject of a liability to pay. So in a sense the applicants were making a point that might assist the Council.
Simmons & Simmons go on:
"If the court determines that the Council has the power to indemnify and that our clients' claims are within the terms of the indemnity [that is the Council's indemnity] then it must follow that the Council will in fact reimburse our clients their reasonable legal costs and expenses."
Just pausing again there, your Lordship has been assured by counsel for Westminster that that is going to be the case; and Mr Wilson has said that, the City Solicitor as well.
The only reason why the court cannot make an award of damages in the terms of para 5 of the relief is because the quantum of the costs has not been agreed between us. We therefore invite you now to agree that the quantum being sought is fair and reasonable; alternatively, if, contrary to our expectations, you are not prepared to agree the reasonableness of the cost claim, we would ask you to nominate a draftsman --
MR JUSTICE HARRISON: So what is the point actually you are seeking to make?
MR McMULLEN: It was not easy enough; it was not so simple as to say: Let us have a split trial of the preliminary point of the powers because there were other issues which depended upon your Lordship's declaration. They include a hearing on the statutory indemnity, which is section 265, and a hearing on legitimate expectation.
MR JUSTICE HARRISON: Yes.
MR McMULLEN: Both of which would result in an order and both of which would involve simply one hearing, without any further reference back to the Council. The merit of that is one stop shopping. Now the applicants have failed on that: it has to go back to the Council - your Lordship's judgment. But the attempt by the parties to try to narrow the issues is reflected here.
If I could just read the next paragraph, the key to it is this:
"If the quantum could be agreed before the hearing of our clients' judicial review then all aspects of the matter can be dealt with in one go. If the court makes the declarations as we believe that it will there will be no reason why it could not also make an award of damages. In that event there would be no further delay or continuing liability for interest while the matter was again referred to the Committee for consideration. For the matter to return to that Committee in circumstances where the court has made the declarations would serve no useful purpose, in the sense that the outcomes of its deliberations to reimburse our clients their cost would have been predetermined by the court's order. In conclusion, we believe there is therefore scope for considerably reducing the ambit of our client's application and for ensuring that the court hearing is essentially the end of the matter."
MR JUSTICE HARRISON: Just help me, what is in fact being said there?
MR McMULLEN: That what goes with the declaration of the power --
MR JUSTICE HARRISON: Yes.
MR McMULLEN: -- is the order that their costs should be paid.
MR JUSTICE HARRISON: Yes. But that is something which I have said I should do.
MR McMULLEN: Yes, it is to go back to the Committee.
MR JUSTICE HARRISON: Yes.
MR McMULLEN: The Council has now had its position clarified as to law and as a result of the declarations which have been granted, which are in a more specific form than the 86A, in that, by agreement of the parties, all areas of doubt have now been removed in, for example, making clear that the Council has power in this specific case of the three applicants to make that clear.
MR JUSTICE HARRISON: Yes.
MR McMULLEN: That is what has emerged in the course of the hearing.
MR JUSTICE HARRISON: What I want to know is why your clients should not pay the costs of the issues relating to the obligation - that is the indemnity and the legitimate expectation point?
MR McMULLEN: Firstly, that is not the application. My learned friend's application is that we should not get our costs in respect of those matters.
MR ASH: No. My Lord, I did say this is a case where the Council should have its costs of those matters, but I made it clear it is a question for the Council to decide whether it would be appropriate to enforce such order in due course. But certainly that is the application that I am making.
MR JUSTICE HARRISON: Yes.
MR McMULLEN: My Lord, this is a matter of substance. What is in issue is my clients' rights, we say, to be paid their costs of the audit hearing. That is the substance of the issue. And they have won. And it is worth now over £500,000 to them. They came to court with nothing. They will walk away with your Lordship's declaration, under which the Council is committed to considering that matter.
MR JUSTICE HARRISON: From my point of view, certainly the Council had to come here and get the clarification of the powers and they should have to pay the costs of doing that.
MR McMULLEN: Indeed.
MR JUSTICE HARRISON: There was, though, the separate part of the hearing which related to the controversial issues, namely, the obligation arising from the indemnity of legal expectations.
MR McMULLEN: Indeed.
MR JUSTICE HARRISON: You have lost on that.
MR McMULLEN: Correct.
MR JUSTICE HARRISON: Why should you not pay the costs of those issues?
MR McMULLEN: Because as a matter of substance, my Lord, rather than form --
MR JUSTICE HARRISON: What does that mean? I do not understand what you mean.
MR McMULLEN: It means that what the applicants want is their money, their expenditure on the costs of the hearing. As a result of the clarification in this case they are likely to get their money.
MR JUSTICE HARRISON: And would have been even if you had not disputed the legal obligation point.
MR McMULLEN: Not necessarily, my Lord. We would still have had to come here --
MR JUSTICE HARRISON: Oh yes, but you have the costs of that part of it.
MR McMULLEN: We would still have to convince your Lordship that the declarations would be properly made, as has been done. We have added to the scope of the declarations by making them absolutely precise as to their focus that the Council now has clear power in these three cases, and therefore they have won.
The reality of the situation is that they are the winners in this litigation because the Council will consider the matter in the light of the declarations which have been.
MR JUSTICE HARRISON: That would have been so in any event, quite apart from the legal obligation point.
MR McMULLEN: Yes, my Lord.
MR JUSTICE HARRISON: So, yes, you should have your costs of that.
MR McMULLEN: Thank you, my Lord.
MR JUSTICE HARRISON: But what about the legal obligation point, which some time in this court was taken up with?
MR McMULLEN: Indeed, my Lord. We argued and lost on section 265. As I opened the case, there are various routes to the applicants getting their money. They have succeeded in getting their money. They have failed on one of the routes, which was section 265, and they have failed to have it followed through by an order of the court rather than simply a declaration, which is the legitimate expectation point. Therefore, as a matter of substance rather than form, and as a matter of reality, they are the winners in this litigation. Your Lordship should therefore judicially follow the discretion and award costs to them.
MR JUSTICE HARRISON: Yes, I see.
MR McMULLEN: It would be unjust for the applicants to have to bear the burden of further expenditure of proving what they and leading counsel advised was - Mr Ash that is - within the power of the Council. They simply want their money and to be required to pay additional expenditure and costs in order to achieve that would be unjust.
MR JUSTICE HARRISON: I see. Thank you very much.
RULING AS TO COSTS ORDER
MR JUSTICE HARRISON: I am quite clear what the appropriate order on costs here should be because the case does divide really quite starkly between the issues in this case. There are, first, the issues which were not in contention between the parties and then there are the issues relating to the obligation to pay arising out of either the statutory indemnity or the legitimate expectation.
On the first issues, the Council came to this court, and had to come to this court, to resolve the legal uncertainties that they saw on those issues, and it is right that the Council should have to pay the applicant's costs of the hearing relating to those issues. But so far as the issues relating to the legal obligation to pay are concerned, the applicants have lost on those issues, and I do not see any good reason why they should not have to pay the Council's costs on those issues if, and I emphasise 'if', the Council see fit to enforce such an order. That is therefore the order that I propose to make in relation to costs.
Are there any other matters?
MR McMULLEN: My Lord, there is one.
MR JUSTICE HARRISON: Yes.
MR McMULLEN: I seek permission to appeal to the Court of Appeal on essentially the second part of your Lordship's order, the 265 statutory indemnity and legitimate expectation. I make that application out of caution because, in the light of the way this hearing has developed, it is clear that the Committee of the Council will make the decision in accordance with your Lordship's judgment. But I need to make that application for permission to take those two legal matters to the Court of Appeal.
MR JUSTICE HARRISON: You mentioned the 265; you mean the legitimate expectation as well, do you?
MR McMULLEN: Yes, and the legitimate expectation as well.
MR JUSTICE HARRISON: Yes.
RULING ON APPLICATION FOR LEAVE TO APPEAL
MR JUSTICE HARRISON: I am afraid I am not prepared to grant leave, Mr McMullen, for that. If you want leave, you will have to go to the Court of Appeal for it.
MR McMULLEN: Yes.


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