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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Bromley LBC v Greater London Council [1981] UKHL 7 (17 December 1981)
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Cite as: [1982] 2 WLR 62, [1983] AC 768, [1983] 1 AC 768, [1981] UKHL 7

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JISCBAILII_CASE_CONSTITUTIONAL

    Parliamentary Archives,
    HL/PO/JU/18/241

    Die Jovis 17° Decembris 1981


    Upon Report from the Appellate Committee to whom
    was referred the Cause In re the Council of the London
    Borough of Bromley (Greater London Council Appeal),
    That the Committee had heard Counsel as well on
    Tuesday the 24th, Wednesday the 25th, Thursday the
    26th, and Monday the 30th days of November last as
    on Tuesday the 1st, Wednesday the 2nd, and Thursday
    the 3rd days of this instant December upon the Petition
    and Appeal of the Greater London Council of The
    County Hall, London SE1 praying that the matter of the
    Order set forth in the Schedule thereto, namely an
    Order of Her Majesty's Court of Appeal of the 10th day
    of November 1981 might be reviewed before Her Majesty
    the Queen in Her Court of Parliament and that the
    said Order might be reversed, varied or altered or that
    the Petitioners might have such other relief in the
    premises as to Her Majesty the Queen in Her Court of
    Parliament might seem meet; as also upon the Case of
    the Council of the London Borough of Bromley lodged
    in answer to the said Appeal; and due consideration had
    this day of what was offered on either side in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual
    and Temporal in the Court of Parliament of Her
    Majesty the Queen assembled, That the said Order of
    Her Majesty's Court of Appeal (Civil Division) of the
    10th day of November 1981 complained of in the said
    Appeal be, and the same is hereby, Affirmed and that
    the said Petition and Appeal be, and the same is hereby,
    dismissed this House: And it is further Ordered, That
    the Appellants do pay or cause to be paid to the said
    Respondents the Costs incurred by them in respect of the
    said Appeal, the amount thereof to be certified by
    the Clerk of the Parliaments if not agreed between the
    parties.



    HOUSE OF LORDS

    IN RE THE COUNCIL OF THE LONDON

    BOROUGH OF BROMLEY
    (GREATER LONDON COUNCIL APPEAL)

    IN RE THE COUNCIL OF THE LONDON

    BOROUGH OF BROMLEY
    (LONDON TRANSPORT EXECUTIVE APPEAL)

    [CONJOINED APPEALS]

    Lord Wilberforce
    Lord Diplock
    Lord Keith of Kinkel
    Lord Scarman
    Lord Brandon of Oakbrook


    Lord Wilberforce

    .
    my lords,

    This case concerns the validity of a supplementary precept issued by the
    Greater London Council to the London Borough of Bromley for the levying
    of a rate of 6.lp. in the £ in respect of the period 1st October 1981 to
    31st March 1982. The precept was issued pursuant to a resolution of the
    G.L.C. dated 21st July 1981. This resolution, in turn, was passed by way
    of implementation of a commitment, contained in an election manifesto for
    the election in May 1979, upon which the present majority in the G.L.C.
    was elected.

    The supplementary precept went to all London boroughs. Bromley applied
    to the High Court for judicial review of the action of the G.L.C. by way
    of certiorari. They failed in the High Court but the Court of Appeal
    granted their application, quashed the supplementary precept and declared
    that it was ultra vires, null, void and of no effect.

    The London Transport Executive is a party to the proceedings because
    the precept was issued in order to enable the G.L.C. to finance, by grant
    to the L.T.E., the cost of reducing L.T.E. fares overall by 25 per cent and
    of introducing a simplified zonal system. If the precept is set aside, L.T.E.
    will not be able to maintain these changes, and to reverse them will cause
    considerable dislocation.

    The precept is attacked on two main grounds:

    1. That it is beyond the powers of the G.L.C. as defined by the
      Transport (London) Act 1969.

    2. That even if the G.L.C. has the necessary statutory powers, the
      issuance of the precept was an invalid exercise of its discretion under
      the Act. This ground itself may be divisible into two contentions (a)
      that the exercise of the G.L.C.'s discretion was unreasonable, or (b) that
      the G.L.C. when deciding to issue the precept did not take relevant
      considerations into account, or did take into account irrelevant
      considerations or misdirected itself as to the law.

    Both of these grounds depend upon the fact, which it is right to emphasise
    at the start, that the G.L.C., though a powerful body, with an electorate
    larger and a budget more considerable than those of many nation states, is
    the creation of statute and only has powers given to it by statute. The
    courts will give full recognition to the wide discretion conferred upon
    the Council by Parliament and will not lightly interfere with its exercise.
    But its actions, unlike those of Parliament, are examinable by the courts,
    whether on grounds of vires, or on principles of administrative law (those
    two may overlap). It makes no difference on the question of legality (as
    opposed to reasonableness—see Secretary of State for Education v. Tameside
    B.C.
    [1977] AC 1014), whether the impugned action was or was not
    submitted to or approved by the relevant electorate: that cannot confer
    validity upon ultra vires action. Indeed, it forms part of Bromley's argument,
    that the G.L.C. in so far as it considered that it has a commitment to bring
    about the reduction in fares, regardless of other considerations, misdirected
    itself in law.


    2

    The first ground of attack involves a question of construction of the 1969
    Act. Before 1970, transport in London was governed by the Transport Act
    1962, as amended by the Transport Finances Act 1966. Under the Act of
    1962, the London Passenger Transport Board (the responsible body and the
    predecessor of the L.T.E.) had, under a standard provisions (section 18(1)),
    to balance its revenue account taking one year with another; the Act of
    1966 allowed a limited deficit to be accumulated over a period of six years.
    The same Act of 1966 allowed grants to meet deficits on revenue account
    to be made by the Minister (i.e. out of national revenue) during the same
    period.

    The Transport Act 1968 set up Passenger Transport Authorities (P.T.A.)
    in various parts of the country. So far as London was concerned, the
    1962 provision as to finance (i.e. balance taking one year with another) was
    continued by section 41(2). There were separate provisions relating to
    financing of the P.T.As., involving precepts for rates, to which I shall have
    to return. The Act of 1969 created a new system for London, forming
    the L.T.E. and putting it under the control of the G.L.C. which replaced
    central government as a grant-making body.

    The provisions of the Act of 1969 were examined in great detail by
    Oliver LJ. in his valuable judgment. Since I broadly agree with his
    analysis, I shall only refer to the relevant provisions and confine argument
    to the essential points.

    The general duty of the G.L.C. is stated, in section 1, as being to develop
    and encourage measures which will promote the provision of " integrated,
    " efficient and economic transport facilities and services for Greater
    " London."

    There has been a good deal of argument as to the meaning of these
    words, particularly of " economic"; no doubt they are vague, possibly
    with design. It has been strongly argued that the word means something
    like " on business principles " but for present purposes I will take it to
    mean " cost-effective ", or " making the most effective use of resources in
    " the context of an integrated system "—the meaning most favourable to
    the G.L.C.

    Section 3 gives the G.L.C. power to make grants to the Executive " for
    " any purpose " and no doubt these words are wide enough to cover grants
    to revenue as well as for capital purposes. The section cannot, however,
    be read in isolation, and it is necessary to examine the rest of the Act in
    order to ascertain the framework in which this power is exercisable. Its
    extent and the manner in which it is to be exercised must be controlled
    by the fact that the G.L.C. owes a duty to two different classes. First, under
    its responsibility for meeting the needs of Greater London, it must provide
    for transport users: these include not only the residents of London, but
    persons travelling to and in London from outside (e.g. commuters) and
    tourists. Most of these will not pay rates to the G.L.C. Secondly, it owes
    a duty of a fiduciary character to its ratepayers who have to provide the
    money. These, it is said, represent 40 per cent only of the electorate and
    probably a smaller proportion of the travelling public: they would them-
    selves, most likely, also be travellers. Most of the rates (62 per cent) have
    to be found from commercial ratepayers. For the extent of this fiduciary
    duty see Prescott v. Birmingham Corporation [1955] Ch. 210, a decision
    which remains valid in principle although free travel for selected categories
    has since been authorised by statute.

    These duties must be fairly balanced one against the other—see Roberts
    v. Hopwood [1925] A.C. 578 and Luby v. Newcastle-under-Lyme Corpora-
    tion
    [1964] 2 Q.B. 64, 72. Roberts v. Hopwood, which also remains
    authoritative as to principle although social considerations may have changed
    since 1925, was concerned with a case where there had been an election which,
    it was claimed, gave a mandate to the council to pay the wages in question,
    but Lord Atkinson emphatically rejected the proposition that however
    excessive or illegal their scale of wages might be, they were bound to put

    3

    it into force—against the interests of ratepayers—because their constituents
    gave them a mandate so to do (l.c. p.596)—see also per Lord Sumner at
    pp.607, 609 and Lord Wrenbury p.613.

    Part II of this Act, containing sections 4-15 is headed "The London
    " Transport Executive". The Executive is set up by section 4 "for the
    " purpose of implementing the policies which it is the duty of the Council
    " under section 1 to develop ". Sections 5 and 7 are critical for present
    purposes so I quote the relevant parts.

    " 5. (1) Subject always to the requirements of section 7(3) of this
    " Act, it shall be the general duty of the Executive to exercise and
    " perform their functions, in accordance with principles from time to
    " time laid down or approved by the Council, in such manner as, in
    " conjunction with the Railways Board and the Bus Company, and
    " with due regard to efficiency, economy and safety of operation, to
    " provide or secure the provision of such public passenger transport
    " services as best meet the needs for the time being of Greater London."

    Here we find another triad of words with " economy" instead of
    " economic ". Again, much fine argument has been given to them. If it
    makes any difference, I would read the words " of operation " as related only
    to " safety ", but in any case I think that the triad must be taken as a whole.
    They seem to me to point rather more clearly than does section 1 in the
    direction of running on business-like or commercial lines, but it would be
    reading " economy " too narrowly to treat it as requiring the Executive to
    make, or try to make, a profit. It does, on the other hand prevent the
    L.T.E. from conducting its undertakings on other than economic considera-
    tions. The initial words are important as drawing attention to the paramount
    financing provisions of section 7(3)—see below.

    " 7(1) In respect of each accounting period of the Executive, the
    " Executive shall charge to revenue account, and secure that any
    " subsidiary of theirs so charges, all charges which are proper to be
    " made to revenue account, including, in particular, proper provision
    " for the depreciation or renewal of assets.

    " (2) [Duty to establish reserves.]

    " (3) The Executive shall so perform their functions as to ensure so
    " far as practicable—

    " (a) that at the end of each such period as may from time to time
    " be agreed for the purpose of this paragraph between the
    " Executive and the Council the aggregate of the net balance
    " of the consolidated revenue account of the Executive and any
    " subsidiaries of theirs and the net balance of the general reserve
    " of the Executive is such (not being a deficit) as may be
    " approved by the Council with respect to that period, and

    " (b) that, if at the end of any accounting period of the Executive
    " the said aggregate shows a deficit, the amount properly
    " available to meet charges to revenue account of the Executive
    " and their subsidiaries in the next following accounting period
    " of the Executive exceeds those charges by at least the amount
    " of that deficit.

    " (4) ...
    " (5) ...

    " (6) The Council, in exercising or performing their functions under
    " this Act, shall have regard—

    " (a) to the duty imposed on the Executive by subsection (3) of this
    " section;

    " (b) ...
    " (c) ...


    4

    " and where the requirements of paragraph (b) of the said subsection
    " (3) fall to be complied with by the Executive, the Council shall take
    " such action in the exercise and performance of their functions under
    " this Act as appears to the Council to be necessary and appropriate
    " in order to enable the Executive to comply with those requirements."

    "11 (1) In addition to any power of the Council under any other
    " provisions of this Act to give directions to the Executive as respects
    " any matter, the Council may give to the Executive general directions
    " as to the exercise and performance by the Executive of their functions
    " (including the exercise of rights conferred by the holding of interests
    " in companies) in relation to matters appearing to the Council to
    " affect the policies and measures which it is the duty of the Council
    " under section 1 of this Act to develop, organise or carry out.

    " (2) Without prejudice to any requirement as to the approval or
    " consent of the Council in any other provision contained in or applied
    " by this Act, the Executive shall submit to the Council and obtain
    " the Council's approval of—

    the general level and structure of the fares to be charged for
    " the time being for the carriage of passengers by the Executive
    " or any subsidiary of theirs on railway services or London
    " bus services;

    " (3) Unless the Council are of opinion that in all the circumstances
    " it is unnecessary so to do, they shall cause particulars of the general
    " level and structure of the fares referred to in subsection (2)(d) of this
    " section as for the time being approved by the Council to be published
    " in such manner as the Council may determine, and the Executive
    " shall comply with any directions of the Council as to that publication;
    " and the Council may direct the Executive to submit proposals for an
    " alteration in the Executive's fare arrangements to achieve any object
    " of general policy specified by the Council in the direction."

    To clear one argument out of the way, it is not now contended that the
    G.L.C. directed the L.T.E. to submit fare proposals under section 11(3)
    (parenthetically, I do not consider that the last few words of this subsection
    could extend to what the G.L.C. has attempted to do). It is said that the
    L.T.E. submitted proposals for the approval of the G.L.C. under section 11(2).
    As to this, we heard an argument that the L.T.E. submission was invalid
    in the absence of a formal resolution but I think that all your Lordships
    were in agreement that this argument was hopeless. The position under
    section 11 is that fare proposals were submitted to, and approved by the
    G.L.C. The submission, and the approval, stand or fall together, and their
    validity (on the question now being considered, of vires) depends essentially
    upon the effect of section 7.

    The rival arguments can be summarised as follows:

    For Bromley, it is said that the Executive must run its undertaking on
    business principles and so far as practicable must meet its revenue charges
    (see subsection (1)) out of fares and other available internal revenue. If it
    incurs a deficit in one accounting period, it must " ensure so far as
    " practicable " that this is made up in the next accounting period. Under
    subsection (3)(a), it is open to the Executive to agree with the G.L.C. on a
    period (which might be for more than one year) within which a favourable
    balance, on revenue account and reserve, must be established: this was
    to prevent an accumulated deficit being built up. The G.L.C. (Bromley
    submits) has power to make grants in aid of revenue: but—and sub-
    section (6) makes this clear—it must exercise this power with due regard to

    5

    the Executive's duty, so far as practicable, to balance its own accounts.
    What it cannot do is to allow (or encourage) the Executive to abdicate any
    duty, or renounce any effort, to avoid a deficit.

    The G.L.C. and L.T.E., on the other hand, while accepting that
    accumulated deficits have to be avoided, submit that the Executive, in
    making up its revenue account, and in putting forward fare proposals, may
    take account of a prospective grant on revenue account from the G.L.C.
    The fallacy, they say, of the argument of Bromley, and also of the judgment
    of Oliver L.J. in the Court of Appeal, lies in assuming, or holding that
    "revenue account" in paragraphs (a) and (b) of subsection (3) means
    account on internally generated revenue alone. Since G.L.C. grants in aid
    of revenue go into the revenue account, the Executive's duty under sub-
    section (3) is only to avoid a deficit after bringing into the revenue account
    existing, or prospective, grants from the G.L.C.

    They sought to reinforce this argument by reference to supposed
    Parliamentary intentions. It must, they argued, have been in the
    contemplation of Parliament that deficits would be incurred. Parliament
    may indeed have desired this, regarding transport as essentially a social
    service. Such deficits could only be made good by grants from the G.L.C.
    Parliament was content to leave the financing of them to the G.L.C.,
    subject only to a prohibition against accumulated deficit.

    To this argument, I have given careful consideration: it touches upon
    important issues of transport policy. There is indeed, and has been for
    some years, discussion, on the political level, as to whether, and to what
    extent, public transport, particularly in capital cities, should be regarded,
    and financed, as a social service, out of taxation whether national or local.
    We cannot take any position in this argument: we must recognise that it
    exists. But I am unable to see, however carefully I reread the Act of 1969,
    that Parliament had in that year taken any clear stance upon it.
    Mr. Alexander, Q.C., for the G.L.C., was not able to argue that a policy of
    free travel (i.e. no fares) was open to the G.L.C. under this Act. In this he
    was reflecting the views of the Council, which (or the present majority of
    which) saw such a policy as desirable but not now realisable.

    Nor do the actual circumstances of 1969 support the argument. Of the
    years 1966-69, London Transport showed a surplus on revenue account
    before charging interest on debt in two and a small deficit in two. Even
    after 1969 (and I only refer to this as fact, and not in support of any
    particular interpretation of the 1969 Act), London Transport continued to
    break even, or better, in two years out of three, with a small deficit in
    1972 (by then its debt had been written off), and, as its accounts show,
    was pursuing a policy, evidently regarded as practicable, and considered
    as statutory, of balancing its account out of fares and other internal revenue.
    The G.L.C. itself directed the London Transport Executive to do so for 1973
    and later years. So there is no justification for endeavouring to read into
    the 1969 Act provisions, possibly suitable for the very different conditions
    after 1974, in favour of discretionary deficits. The only safe course is to try
    to understand the contemporary language.

    In my opinion, there are two clear provisions in the Act. The first is
    in section 7(3)(b). This states the obligation of the London Transport
    Executive to make good a deficit in the year following a deficit year. This
    is an obligation; the meeting of which the Executive is to ensure as far as
    practicable. In my opinion this points to the taking of action which it is
    in the power of the Executive to take. On the other hand, though I feel
    less confident about this, particularly since it was not an argument accepted
    by Oliver L.J., I am willing to accept that, subject to the Executive dis-
    charging the responsibilities cast upon it, it may make provision in its
    revenue account for grants in aid of revenue, actual or assumed. The
    corresponding provision as regards the G.L.C. is section 7(6) which dovetails
    with section 7(3). This recognises that the duty stated in section 7(3)(b)
    (to make up a deficit in year two) is one which " falls to be complied with
    " by the Executive", and then obliges the Council in performing its


    6

    functions to have regard to that duty and take action which will enable
    the Executive to comply with those requirements. Such actions might take
    several forms: the Council might direct fares to be raised or services to be
    adjusted. Or the Council could decide to make a grant. But it can only
    do that after it has " had regard " to the Executive's duty under section 7(3).
    The respective statutory obligations of G.L.C. and London Transport
    Executive fit in with one another: the London Transport Executive must
    carry out its duty as defined in section 7(3): the G.L.C. cannot exercise
    its powers unless and until the London Transport Executive carries out that
    duty and must then do so with proper regard to its fiduciary duty to its
    ratepayers. If these constraints were not to exist, there would be no limit
    upon the power of the G.L.C. to make grants in aid of revenue, since the
    Act provides for no governmental control. I find it impossible, in the light
    of the previous history and of the far from definite language used, to accept
    that Parliament could have intended that this should be so. To say this
    is not to impose upon the London Transport Executive a rigid obligation
    to balance its accounts every year, nor, as it was at one time put in argument,
    to maximise fares. There is flexibility in the words " so far as practicable ",
    and the obligatory establishment of a reserve gives room for manoeuvre
    (as indeed the London Transport Executive accounts from 1970 onwards
    show). But given this it appears to me clear that neither the Executive in
    making its proposals, nor the G.L.C. in accepting them, could have power
    totally to disregard any responsibility for ensuring, so far as practicable,
    that outgoings are met by revenue, and that the London Transport Executive
    runs its business on economic lines.

    One further consideration—and I mention it because it was not brought
    to the attention of the Court of Appeal. The Transport Act 1968, in that
    portion in which it dealt with the financing of the P.T.A.'s, contained
    provisions which on the one hand enabled the new Authorities to precept
    for grants on revenue account (section 13) and, on the other, enabled the
    Executives to have regard to potential precepts in preparing their accounts
    (section 11(1)). There was an express provision (section 13(3)) obliging the
    Authority to notify the Executives of the amounts for which they propose:!
    to issue precepts. As I have mentioned, this policy was not extended by
    the Act of 1968 to the London Board. The present London Act was passed
    a year later, and includes some of the language used in 1968 in relation to
    the P.T.A.'s: but it is not easy to see whether the intention was to
    bring the new London Transport Executive under the same system as the
    P.T.A.'s, to retain it, substantially, under the regime of the L.P.T.B., or to
    establish it under a mixture of the two. In the absence of any demonstrated
    policy, the only safe course is to go by the terms of the 1969 Act itself.

    As I hope to have demonstrated, that Act confers a large degree of
    autonomy on the G.L.C. and the L.T.E. but requires them both to operate
    subject to the interlocking restraints spelt out in it.

    This, then, being, as I interpret them, the effect of the applicable statutory
    provisions, it remains to ask whether the Council and the Executive acted
    in accordance with them. In my opinion they plainly did not. The L.T.E.,
    as regards the year 1980, was running a deficit. Acting, as I am willing to
    accept, in accordance with their obligations under the 1969 Act, it submitted
    to the G.L.C., in November 1980, proposals to achieve a break-even by
    a possible increase in fare revenue, increased productivity, and an assumed
    G.L.C. grant of £80m. Its budget contains a careful review of the
    measures taken, by way of economy and better fare collection, to keep the
    deficit down as far as practicable. Obviously this was not the only possible
    budget at the time, but in its preparation and structure it represents a
    serious attempt to comply with the Act. If a radical departure is made from
    that budget, that seems to suggest, strongly, that it is made outside the Act.

    After the change in control in May 1981, the new Leader of the G.L.C.
    immediately intimated to L.T.E. that it should submit proposals involving
    a general reduction in fares of 25 per cent, proposals which would inevitably
    and greatly (to the extent of about £69m.) increase the operating deficit.


    7

    This increased deficit would have to be borne by the G.L.C. ratepayers,
    and, as it soon appeared, would automatically bring about a loss of rate
    support grant (under central government legislation) involving an additional
    heavy burden on the ratepayers of an amount (approximately £50m.,
    attributable to the fare reduction) not far short of the whole cost of the
    25 per cent reduction itself.

    The L.T.E. submitted proposals, including in them a new zoning scheme,
    [This, in itself, may well be advantageous but is wholly ancillary to the
    25 per cent reduction.] The G.L.C. approved them. In my opinion, both
    the G.L.C. and L.T.E. were in breach of their duties under the Act. The
    L.T.E. was, in its own words, meeting the G.L.C. requirement: it was not,
    and could not have thought that it was complying with its obligations under
    sections 5 and 7 of the 1969 Act. The G.L.C. could not have considered (as
    it was obliged to do before it could make a grant to revenue) that the
    L.T.E. was complying with its obligation under section 7(3). Furthermore,
    in deciding to proceed to make a grant to support the fare reduction, once
    it became apparent that the ratepayers' burden would be approximately
    doubled, it acted in breach of its fiduciary duty as defined above. It
    failed to hold the balance between the transport users and the ratepayers as
    it should have done.

    I am therefore clearly of opinion that the actions of the G.L.C. and of
    the L.T.E. were ultra vires the Act of 1969.

    For these reasons, which coincide almost wholly with those given by
    Oliver L.J., I would dismiss the appeals.


    '

    Lord Diplock

    My Lords,

    My noble and learned friend Lord Wilberforce has sufficiently narrated
    in his speech the events that led up to the issue by the Greater London
    Council (" G.L.C. ") on 22nd July 1981 of the supplementary precept of
    6.lp in the pound upon the London Boroughs which, in these proceedings
    for judicial review, the London Borough of Bromley (" Bromley ") claims
    is void for illegality. For fuller details the judgment of Dunn L.J. in the
    Divisional Court can be consulted.

    It cannot be too emphatically stated that your Lordships in this appeal
    are not concerned with the wisdom or, indeed, the fairness of the G.L.C.'s
    decision to reduce by 25% the fares charged in Greater London by the
    London Transport Executive (L.T.E.) which made it necessary to issue
    the supplementary precept, or the greater part of it. All that your
    Lordships are concerned with is the legality of that decision: was it within
    the limited powers that Parliament has conferred by statute upon the G.L.C.?

    In the argument before this House, as in the courts below, this has been
    treated as involving two distinct questions. These have been referred to
    respectively as: the question of ultra vires, which has been treated as a
    pure question of construction of the Transport (London) Act 1969; and
    the question of discretion, viz. the exercise of a statutory discretion in a
    manner that was unlawful under what in administrative law has become
    known as the Wednesbury principle stated by Lord Greene M.R. in
    Associated Provincial Picture Houses v. Wednesbury Corporation [1948]
    1 K.B. 223, in terms that have been frequently cited ever since. The
    Wednesbury principle has in turn been subjected to sub-division in the
    course of the argument into decisions reached in the exercise of a statutory
    discretion that are unlawful because it can be shown that in reaching the
    decision the body exercising the discretion has acted on an erroneous view
    of the applicable law; and decisions that, looked at objectively, are so
    devoid of any plausible justification that no reasonable body of persons
    could have reached them.


    8

    My Lords, this treatment of the "question of ultra vires" and the
    " question of discretion " as falling into separate compartments and limiting
    consideration of the construction of the statute to the former question has
    in my view led counsel for the contesting parties to endeavour to support
    extreme, though opposite, contentions as to its meaning between which it
    was suggested your Lordships are compelled to choose. Bromley, on the
    one hand, says that the G.L.C. must so exercise its powers under the
    Transport (London) Act 1969, as to require the L.T.E. to adopt a general
    level and structure of fares charged to passengers that will maximise its
    income from this source, and that the power of the G.L.C. to make grants
    towards the revenue account of the L.T.E. is limited to making good any
    deficit on revenue account that arises despite the charging of fares that
    comply with this requirement. G.L.C., on the other hand, contend that
    the Act confers on them an almost unlimited discretion to determine, as
    a matter of civic policy, in what proportions the revenue needed by the
    L.T.E. in order to run its passenger transport services shall be obtained
    (1) from fares charged to passengers and (2) from grants made by the
    G.L.C. to the L.T.E. at the cost of the ratepayers of Greater London
    respectively. The discretion as to what the proportions shall be, it is
    contended, is unfettered except that some part, however small, so long as
    it is in excess of what would fall to be ignored under the de minimis rule,
    is met out of fares.

    It may well be that one would be left with no other option than to
    choose between these two extreme interpretations of the language of the
    London (Transport) Act 1969 if the Act is looked at in isolation without
    regard to the legal structure and status of the G.L.C. as a local authority
    and the means that are available to it for raising the monies necessary to
    enable it to perform its functions. These latter considerations, which have
    been treated in argument as lying within the compass of the question of
    discretion rather than the question of ultra vires, are, in my view, highly
    relevant to the meaning of the Act itself on any purposive construction
    of it. Powers to direct or approve the general level and structure of fares
    to be charged by the L.T.E. for the carriage of passengers on its transport
    system, although unqualified by any express words in the Act, may none-
    theless be subject to implied limitations when expressed to be exercisable
    by a local authority such as the G.L.C. that would not be implied if those
    powers were exercisable, for instance, by a Minister of the Crown. For
    the G.L.C. to act outwith any such limitations is ultra vires: and the
    question of discretion is, in my view, inseparable from the question of
    construction.

    The G.L.C. is the creature of statute. It was established as a body
    corporate by section 2 of the London Government Act 1963, and its powers
    are limited to those conferred upon it by that Act and other power-conferring
    statutes which apply to it. Part II of the London Government Act 1963
    conferred upon the G.L.C. functions in relation to what the heading to
    Part II described as " Road Traffic, Highways and Motor Vehicles "; but
    no functions were conferred upon it by that Act in respect of " transport",
    an expression which it has become the practice of parliamentary draftsmen
    to confine to the carriage of passengers and goods by road, rail, water or
    air. The London Government Act 1963 left unchanged the responsibility
    for the provision of "an adequate and properly co-ordinated system of
    passenger transport in Greater London " vested in the London Passenger
    Transport Board (" the London Board ") under the then recently-enacted
    Transport Act 1962, which by section 18(1) imposed upon the London
    Board a duty to pay its way couched in the, by then, familiar language:

    " shall so conduct their business as to secure that their revenue is not
    " less than sufficient for making provision for the meeting of charges
    " properly chargeable to revenue, taking one year with another ".

    This formula did not require the London Board to operate its passenger
    transport undertaking as if it were a commercial enterprise of which the
    purpose was to make a profit, but did require it so to conduct its under-

    9

    taking that it would pay its own way—that is to say that, taken over such
    a period as would be reasonable having regard to the kind of annual
    fluctuations in income or expenditure that are inherent to the operation of
    a passenger transport undertaking, the L.T.E. would make neither an
    accumulated profit nor an accumulated loss.

    So at the time the G.L.C. was established no part of the cost of providing
    Greater London with an adequate system of passenger transport could
    fall upon the ratepayers; and although the London Board was not wholly
    successful in complying with its duty under section 18(1), the immunity of
    the ratepayers of Greater London from any liability to contribute to financial
    deficits in the revenue accounts of the London Board was preserved by
    the Transport Finances Act 1966, which conferred upon the Minister a
    power restricted both as to time and to amount, to make grants to meet
    its deficit on revenue account and thus placed the burden of any deficit on
    the taxpayers at large.

    The G.L.C., like other local authorities, is an elected body and, like
    most of the larger ones, membership is divided upon party lines which
    reflect the social policies of the major national political parties. Broadly
    speaking, the electors comprise all adults resident in Greater London, of
    whom 40% are also ratepayers. Apart from income-earning assets, the
    G.L.C.'s principal sources of revenue are (1) rates for which it issues
    precepts to the London Boroughs, who are under a statutory obligation
    to levy rates upon the ratepayers in the amount specified in the precept,
    and (2) grants from central government funds. Some 62% of the
    total amount of the income of the G.L.C. from rates is raised from ratepayers
    engaged in industry, business or commerce. They have no vote as electors.
    These structural characteristics of the G.L.C. need to be borne in mind
    in applying, as I think one must, a purposive construction to the sometimes
    opaque and elliptical language adopted in the Transport (London) Act 1969.
    Its lack of clarity is demonstrated by the fact that although the House has
    reached a unanimous conclusion that, taken as a whole, the language of the
    Act leads ineluctably to the conclusion that Parliament cannot have intended
    to empower the G.L.C. and L.T.E. to adopt the course in relation to rates
    and fares that is the subject of the instant appeal, I have myself reached that
    conclusion notwithstanding that I would ascribe to some provisions of the
    Act, which are the subject of close analysis in each of your Lordships'
    speeches, a meaning that would give to the G.L.C. considerably wider liberty
    of action in determining the general level and structure of fares that are to
    be charged by the L.T.E. than would be available to the G.L.C. under the
    construction of the Act which your Lordships favour.

    The purposes of Parts I to III of the Transport (London) Act can be
    summarised as being (1) to confer upon the G.L.C. responsibility for
    formulating public transport policy for Greater London; (2) to transfer the
    undertaking of the London Board (whose members were appointed by the
    Minister of Transport) to the L.T.E. (whose members are appointed by the
    G.L.C.); (3) to require the L.T.E. to " provide or secure the provision of
    " such public passenger transport services as best meet the needs for the
    " time being of Greater London ", and in doing so to act " in accordance
    " with principles from time to time laid down or approved by " the G.L.C.,
    and (4) to remove from the Minister of Transport and thus from the
    taxpayers at large, the financial burden of making to the L.T.E. any grants
    that might be needed upon revenue account to enable it to pay its way, and
    to confer upon the G.L.C. power to make grants to the L.T.E. " for any
    " purpose ".

    The crucial section is section 1, which Lord Wilberforce has already
    cited; the crucial phrase is " to develop policies, and to encourage, organise
    " and, where appropriate, carry out measures, which will promote the
    " provision of integrated, efficient and economic transport facilities and
    " services for Greater London "; and the word that is crucial to the instant
    appeal is " economic ".


    10

    Recourse must be had, however, to the succeeding provisions of Parts I
    to IV of the Act in order to determine the ways in which the transport
    facilities that the G.L.C. is by section 1 under a duty to promote are to
    be provided, the means by which the G.L.C. is to promote their provision,
    and the limitations on the policies that G.L.C. is empowered to develop.

    The transport facilities and services referred to in section 1 do not, in
    my opinion, include activities in relation to highways and traffic undertaken
    by the G.L.C. under Part II of the London Government Act 1933, as
    amended by Part V of the Transport (London) Act 1969, which, in contrast
    to Part I, bears the heading " Provisions as to Highways and Traffic ". I
    mention this at the outset to dispose of the argument advanced by the G.L.C.
    that: since such activities are not capable of being " economic " in any
    less general sense than that once it had been decided to carry out a particular
    highway or road traffic project, value for money must be obtained for
    expenditure incurred in carrying it out, no less wide a meaning should be
    ascribed to it in relation to the public passenger transport services, the
    provision of which the G.L.C. was to promote.

    Transport Facilities and Services

    Consideration of the provisions of Parts 1 to IV of the Act contain
    clear indication that the transport facilities and services which it is the
    general duty of the G.L.C. to promote, but not itself to provide, are
    confined to the carriage of passengers by road and rail. The actual
    provision of public transport in London is to be undertaken by the L.T.E.,
    an autonomous public authority (all of whose members are appointed by the
    G.L.C.) which is established by section 4 " for the purpose of implementing
    " the policies which it is the duty of the [G.L.C.] under section 1 ... to
    " develop ". By section 6 the powers of the L.T.E. are confined to the
    carriage of passengers and ancillary activities, while by section 23 it is granted
    a monopoly by itself or its subsidiaries to operate all bus services on which
    passengers may be taken up and set down at different places within Greater
    London. By section 5(1) the implementation of the policies of the G.L.C. in
    relation to public passenger transport is to be undertaken by the L.T.E.
    " in conjunction with the Railways Board and the Bus Company ", for which
    two latter nationalised authorities the G.L.C. has neither responsibility nor
    control, although it is empowered by section 3(1)(b) to make grants to the
    Railways Board " in respect of passenger transport services or other transport
    " amenities or facilities " provided by the Railways Board which appear to
    the G.L.C. " to be required to meet the needs of Greater London ". What
    is meant by "in conjunction with" in section 5(1) appears from section
    5(2), which makes it clear that it is passenger transport services provided
    by the L.T.E. that are to be co-ordinated with those provided by the Railways
    Board, established by section 1 of the Transport Act 1962, and the National
    Bus Company, established by section 24 of the Transport Act 1968. These
    provisions also indicate that section 1 in speaking of " integrated " transport
    facilities and services for Greater London that the G.L.C. is to promote,
    is referring to co-ordination between bus services and rail services provided
    by these three bodies.

    In performing its general duty under section 5(1), the L.T.E. is required
    to act in accordance with " principles from time to time laid down or
    " approved by" the G.L.C. (The change of noun from " policies" in
    section 4(1) to "principles" in section 5(1) is baffling, but no one has
    been able to attach any significance to it.) The L.T.E.'s statutory duty to
    act in accordance with those principles is qualified in three respects:
    (1) the principles must be such as the G.L.C. are empowered to lay down
    by section 1 of the Act; (2) they must be directed to providing or securing
    the provision of " such public passenger transport services as best meet the
    " needs for the time being of Greater London" and (3) in acting
    in accordance with the principles laid down by the G.L.C., the L.T.E.
    must have due regard to efficiency, economy, and safety of operation. I
    shall have to consider what is involved in the two latter requirements later

    11

    in order to see what light they throw upon the crucial question whether
    the G.L.C.'s direction to the L.T.E. to reduce its fares by 25% complied with
    requirement (1).

    The means by which the G.L.C. is to promote the provision of integrated
    efficiency and economic facilities and services for Greater London is (1) by
    the exercise of their powers under the Act to make grants to the L.T.E. for
    any purpose under section 3(l)(a) and to the Railways Board for the limited
    purpose already mentioned, and (2) to give directions to the L.T.E. or to
    withhold consent or approval to proposals made by the L.T.E. The general
    power to give directions is conferred by section 11(1) and various specific
    requirements of the approval of the L.T.E.'s proposals by the G.L.C. are
    contained in other sections of which the most important for the purposes of
    the instant appeal are section 11(2) and (3); section 7(2), (3) and (4),
    particularly subsection (3) and section 8.

    Considerable reliance was placed by the G.L.C. upon the fact that the
    public passenger transport services which it was the duty of the L.T.E. to
    provide were such as best meet the needs for the time being of Greater
    London. The " needs of Greater London " in this context it was argued
    must include the needs of all those persons who wish to move to and
    from different places in Greater London, and their needs may be better
    met by a public passenger transport service that falls far short of paying its
    own way than by one that does pay its own way. I agree that the persons
    whose needs the L.T.E.'s public passenger transport services are to meet
    include all persons (whether ratepayers or residents in London or not) who
    are potential users of those services, but I do not accept that the phrase
    " the needs of Greater London " is confined to the needs of persons in their
    capacity as potential users of the passenger transport services to the exclusion
    of the needs of persons in their capacity as ratepayers (whether they use the
    L.T.E.'s public passenger transport services or not) not to have too heavy a
    financial burden placed upon them in the form of rates.

    Bromley in their turn relied upon the requirement that in providing public
    passenger transport services the L.T.E. should have " due regard to efficiency,
    " economy and safety of operation." " Economy " in this context, it was
    suggested, meant that the L.T.E. was to do its best to cover the expenses of
    its operation by the fares it charged to passengers. That is to say, that
    it must maximise the income generated from the operation of its
    undertakings at least to the extent necessary to avoid an operating loss and
    to build up a general reserve. For my part, I am unable to accept that in
    the context of section 5(1) "economy" bears this meaning. In my view,
    which is in respectful disagreement with some of your Lordships, the words
    " of operation" apply to " efficiency" and " economy" as well as to
    " safety ". If they applied to safety only, they would be otiose. What the
    whole phrase means is that the services must be operated efficiently, the
    buses and trains must be mechanically sound and run on time; they must
    be run economically, avoiding over-manning and the running of excessive
    numbers of buses or trains having regard to the number of passengers making
    use of the services; and they must be run safely, steps must be taken to
    prevent avoidable accidents.

    The legislative history of the phrase, in my view, shows that it is not
    concerned with the ways in which the L.T.E. is to raise the revenue from
    which the expenses of running its undertaking are to be met; and in particular
    that it does not mean that the L.T.E. must do its best to cover the expenses
    of its operations by the fares which it charges its passengers. The phrase
    is taken from section 7(1) of the Transport Act 1962, which imposed upon
    the London Board the duty " to provide or secure the provision of an
    " adequate and properly co-ordinated system of passenger transport for
    " the London Passenger Transport Area, and to have due regard to efficiency,
    " economy and safety of operation as respects the services and facilities
    " provided by them." A duty in the like terms " as respects the services and
    " facilities provided by them " was imposed by the Transport Act 1962 on
    each of the other three Boards that it established; and that, in the case of all


    12

    four Boards, " economy " in this context meant the avoidance of wasteful
    expenditure in operating its undertaking and was not directed to the ways
    in which revenue needed to meet operating expenses was to be raised, is,
    in my opinion, made clear by the fact that the raising of revenue (and
    capital) by the Boards is dealt with in a subsequent fasciculus of sections,
    18 to 24, which bear the cross-heading " Financial provisions ".

    The duty of the London Board to do its best to pay its own way was
    stated expressly in section 18, subsection (1) in the following terms: —

    " Each of the Boards shall so conduct their business as to secure that
    " their revenue is not less than sufficient for making provision for the
    " meeting of charges properly chargeable to revenue, taking one year
    " with another."


    Subsections (2) to (5) of section 18 contained provisions which correspond
    to section 7, subsections (1), (2) and (4) of the Transport (London) Act 1969.
    The omission from section 7 of the Act of 1969 of any provision in the
    terms of section 18(1) of the Act of 1962 is, in my view, intended to relieve
    the L.T.E. from this specific financial requirement. Subsection (3) of section
    7 of the Transport (London) Act 1969 contains what is substituted for
    subsection (1) of section 18 of the Transport Act 1962. It is an important
    subsection that is heavily relied upon by Bromley since the L.T.E.'s duty
    to provide a public passenger service to meet the needs of Greater London
    is expressed to be " Subject always to the requirements of section 7(3) of
    " this Act ", which is in the following terms: —

    " (3). The Executive shall so perform their functions as to ensure
    " so far as practicable—

    " (a) that at the end of each such period as may from time to time
    " be agreed for the purpose of this paragraph between the
    " Executive and the Council the aggregate of the net balance
    " of the consolidated revenue account of the Executive and any
    " subsidiaries of theirs and the net balance of the general reserve
    " of the Executive is such (not being a deficit) as may be
    " approved by the Council with respect to that period, and

    " (b) that, if at the end of any accounting period of the Executive the
    " said aggregate shows a deficit, the amount properly available
    " to meet charges to revenue account of the Executive and
    " their subsidiaries in the next following accounting period of
    " the Executive exceeds those charges by at least the amount
    " of that deficit."

    My Lords, I see nothing in the substitution of this financial duty for the
    duty to pay its own way imposed on the London Board by section 18(1)
    of the Transport Act 1962 that should lead to the conclusion that the
    revenue account of L.T.E. referred to in paragraph (a) is limited to income
    earned by the L.T.E. from the operation of its undertaking so as to exclude
    grants made by the G.L.C. to that revenue account under the power contained
    in section 3(l)(a) to make grants to the L.T.E. " for any purpose ", which on
    the face of it is unfettered. On the contrary it appears to me that coupled
    with the omission of any express requirement to pay its own way, subsection
    (3) contemplates that receipts to be credited to L.T.E.'s revenue account
    may be derived from such grants as well as from income earned by the
    L.T.E. from the operation of its undertaking and that the provisions of
    both paragraphs (a) and (b) are designed to ensure so far as possible that to
    the extent that money for the grant is raised by precepts upon current rates,
    the burden shall be borne equitably by those persons who are ratepayers at
    the time that the benefit of any reduction of fares made possible by the
    grant is available to them.

    Thus, paragraph (a) which deals not with each successive accounting
    period of the Board but with such period as may from time to time be
    agreed between the L.T.E. and G.L.C. appears to be intended to enable
    forward planning directed to building up a general reserve for future use

    13

    out of the surplus of annual revenue account, but gives the G.L.C. power
    to control the extent to which current ratepayers are to be mulcted for the
    benefit of future ratepayers; while paragraph (b), which does deal with
    each successive accounting period of the L.T.E., prevents the accumulation
    of a deficit which would involve mulcting future ratepayers for the benefit
    of current ones.

    A similar policy of holding the balance equitably between present and
    future ratepayers would appear to underlie the provision in section 8(9)
    which deals with loans made by the G.L.C. to the L.T.E. on capital account
    and requires the G.L.C. to charge interest on such loans at a sufficient rate
    to ensure so far as practicable that no loss shall be incurred by the G.L.C.
    in respect of the loan.

    Section 7(6) which requires the G.L.C. in performing their functions
    under the Act (which include the making of grants to the L.T.E.'s revenue
    account under section 3(1)(a) as well as giving approval to the general level
    and structure of fares, under section 11(2)(a) and (3)) to have regard to the
    duty imposed on the Executive by section 7 (3) does not appear to me to
    impose any limitation on the power of the G.L.C. to make grants towards
    revenue account. If limitation there be, and as will be seen I too think
    there is, it is to be sought elsewhere. Section 7(6) would, on the one hand
    compel the G.L.C. to make a grant to the L.T.E. that was at least sufficient
    to make good any deficit on its revenue account for the previous year
    whenever it would be impracticable for the L.T.E. to earn from the operation
    of its undertaking an income large enough not only to meet items properly
    chargeable to revenue account in the current year, but also to make good
    the previous year's deficit. It does not, as it seems to me, however, prohibit
    the G.L.C. from making grants to L.T.E.'s revenue account for the purpose
    of enabling it to build up out of revenue account the general reserve called
    for by subsection (2), or so as to enable it to make good any loss of income
    from the operation of its undertaking resulting from compliance with a
    direction given by the G.L.C. to the L.T.E. under section 11(3) which had
    the effect of reducing the income earned by the L.T.E. from fares charged
    to passengers on its undertaking. Upon the power of the G.L.C. to make
    grants to the revenue account of the L.T.E. for such a purpose under section
    3(l)(a), I find the provisions of section 7(6) to be neutral.

    Nor could I readily be persuaded that any such prohibition was intended
    to be imposed sub silentio by Parliament in 1969, given the political com-
    position of its membership at that date. The extent to which public
    passenger transport ought to be treated as a social service to persons in
    the area in which it operated rather than as a quasi-business enterprise
    which ought to do its best to pay its own way out of the fares it charged
    to passengers, was then, as it still is, a matter of political controversy. Into
    the merits of that controversy your Lordships, in your judicial capacity,
    must scrupulously refrain from entering; but recognition that it existed is,
    in my view, of considerable relevance to a proper understanding of the
    language of the Act. For a duty to develop policies (or lay down principles)
    for the provision of public passenger transport services in Greater London
    must include a power to make a choice of one out of a range of possible
    solutions to that controversy.

    So I conclude that the mere fact that a grant on revenue account is made
    by the G.L.C. to the L.T.E. to enable it to comply with a direction to
    reduce fares to a level at which, in the absence of the grant, its revenue
    account could not be maintained in balance, is not of itself sufficient to
    render ultra vires either the grant or a precept issued by the G.L.C. to
    raise the money for the grant from rates.

    This brings me back to the crucial section of the Act, section 1, to see
    what limitations (if any) it imposes upon the choice of policy by the G.L.C.
    as to the relative proportions in which the cost of running the passenger
    transport undertaking of the L.T.E. is to be met out of fares paid by
    passengers or out of rates paid by ratepayers. Central to this question is


    14

    the legal structure of the G.L.C. and the categories of persons to whom
    its duties, both generally and in particular in relation to public passenger
    transport, are owed.

    When a statute speaks, as section 1 does, of a " duty " of a local authority
    composed of democratically elected members, it is speaking of the collective
    legal duty of all those members acting through the ordinary procedure of
    debate and resolution, to make choices of policy and of action that they
    believe to be in the best interests (weighing, where necessary, one against
    the other) of all those categories of persons to whom their collective duty
    is owed. This will involve identifying the persons to whom the particular
    duty is owed and in the event of a conflict of interest between one category
    and another deciding where the balance ought to lie. In the case of public
    passenger transport in Greater London those categories are:— (1) potential
    passengers by bus and train in Greater London whether resident there or
    not; (2) residents in Greater London, who may be assumed to derive benefit
    from the general mobility of people living in or within commuting distance
    of Greater London resulting from the availability of a public passenger
    transport system, even though the particular resident may happen to make
    little or no use of it himself; and (3) ratepayers in Greater London, to the
    extent that they are required to contribute to the cost of the system. These
    three categories overlap but do not coincide. Most persons in category (2)
    will also be in category (1), and it will be convenient to refer to these as
    " passengers", but, as mentioned earlier, there is no such coincidence
    between either of these two categories and category (3), the ratepayers.
    They constitute only 40% of residents and that 40% bears only 38% of
    the total burden borne by all the ratepayers. The conflict of interest lies
    between passengers and the ratepayers.

    I have left out electors as such, as constituting a separate category. A
    Council member once elected is not the delegate of those who voted in
    his favour only; he is the representative of all the electors (i.e. adult residents)
    in his ward. If he fought the election on the basis of policies for the
    future put forward in the election manifesto of a particular political party,
    he presumably himself considered that in the circumstances contemplated
    in the manifesto those policies were in the best interest of the electors in
    his ward, and, if the democratic system as at present practised in local
    government is to survive, the fact that he received a majority of votes of
    those electors who took enough interest in the future policies to be adopted
    by the G.L.C. to cause them to cast their votes, is a factor to which
    considerable weight ought to be given by him when participating in the
    collective duty of the G.L.C. to decide whether to implement those policies
    in the circumstances that exist at the time that the decision falls to be made.
    That this may properly be regarded as a weighty factor is implicit in the
    speeches in this House in Secretary of State for Education and Science v.
    Tameside Council [1977] AC 1014; although the issues dealt with in that
    case were very different from those arising in the present appeals. In this
    respect, I see no difference between those members of the G.L.C. who are
    members of what as a result of the election becomes the majority party
    and those who are members of a minority party. In neither case when
    the time comes to play their part in performing the collective duty of the
    G.L.C. to make choices of policy or action on particular matters, must
    members treat themselves as irrevocably bound to carry out pre-announced
    policies contained in election manifestos even though, by that time, changes
    of circumstances have occurred that were unforeseen when those policies
    were announced and would add significantly to the disadvantages that would
    result from carrying them out.

    My Lords, the conflicting interests which the G.L.C. had to balance in
    deciding whether or not to go ahead with the 25% reduction in fares,
    notwithstanding the loss of grant from central government funds that this
    would entail, were those of passengers and the ratepayers. It is well
    established by the authorities to which my noble and learned friend,
    Lord Wilberforce, has already referred, that a local authority owes

    15

    a general fiduciary duty to the ratepayers from whom it obtains monies
    needed to carry out its statutory functions, and that this includes a duty
    not to expend those monies thriftlessly but to deploy the full financial
    resources available to it to the best advantage; the financial resources of the
    G.L.C. that are relevant to the present appeals being the rate fund obtained
    by issuing precepts and the grants from central government respectively.
    The existence of this duty throws light upon the true construction of the
    much-debated phrase in section (1) " integrated, efficient and economic
    " transport facilities and services ". " Economic " in this context must, I
    think, mean in the economic interests of passengers and the ratepayers
    looked at together, i.e. keeping to a minimum the total financial burden that
    the persons in these two categories have to share between them for the
    provision by the L.T.E. in conjunction with the Railways Board and the
    Bus Company of an integrated and efficient public passenger transport system
    for Greater London. As I have already indicated I think that the G.L.C.
    has a discretion as to the proportions in which that total financial burden
    should be allocated between passengers and the ratepayers. What are the
    limits of that discretion and whether those limits would have been exceeded
    if the only effect of the G.L.C.'s decision to instruct the L.T.E. to lower
    its fares by 25% had been to transfer to the ratepayers the cost (amounting
    to some £69m.) of the financial relief that was afforded to the passengers
    by the lowering of the fares is a difficult question on which the arguments
    for and against are by no means all one way. Fortunately, I do not find it
    necessary to decide that question in the present appeals. It does not, in my
    view, arise, because the G.L.C.'s decision was not simply about allocating a
    total financial burden between passengers and the ratepayers, it was also a
    decision to increase that total burden so as nearly to double it and to place
    the whole of the increase on the ratepayers. For, as the G.L.C. well knew
    when it took the decision to reduce the fares, it would entail a loss of rate
    grant from central government funds amounting to some £50m., which
    would have to be made good by the ratepayers as a result of the G.L.C.'s
    decision. So the total financial burden to be shared by passengers and
    the ratepayers for the provision of an integrated and efficient public
    passenger transport system was to be increased by an extra £50m. as a
    result of the decision, without any equivalent improvement in the efficiency
    of the system, and the whole of the extra £50m. was to be recovered from
    the ratepayers. That would, in my view, clearly be a thriftless use of
    monies obtained by the G.L.C. from the ratepayers and a deliberate failure
    to deploy to the best advantage the full financial resources available to it
    by avoiding any action that would involve forfeiting grants from central
    government funds. It was thus a breach of the fiduciary duty owed by the
    G.L.C. to the ratepayers. I accordingly agree with your Lordships that the
    precept issued pursuant to the decision was ultra vires and therefore void.

    I would also have held the decision and the precept to be void upon
    another ground, which I can deal with briefly because I find myself in
    entire agreement on this aspect of the matter with the judgment of Lord
    Justice Oliver in which all the relevant facts and citations from documents
    may be found. This ground is that in exercising the collective discretion
    of the G.L.C. under section 11 to direct or approve a reduction of fares
    by 25% the members of the majority party by whose votes the effective
    resolutions were passed, acted upon an erroneous view of the applicable
    law in that from first to last they regarded the G.L.C. as irrevocably
    committed to carry out the reduction, whatever might be the additional cost
    to the ratepayers, because a reduction of that amount had been pre-
    announced in the election manifesto issued by the political party whose
    candidates formed a majority of the members elected. For reasons that I
    have previously stated at some length this is erroneous in law.

    For the reasons that I have stated I too would dismiss these appeals.


    16

    Lord Keith of Kinkel

    my lords,

    The central issue in this appeal is whether, on a proper construction of
    the relevant provisions of the Transport (London) Act 1969, the London
    Transport Executive acted within its statutory powers in submitting, and the
    G.L.C. in approving, proposals for the general level and structure of fares
    to be charged on London buses and tubes which deliberately set such fares
    lower than might reasonably have been fixed had ordinary business
    principles been applied.

    In my opinion the starting point for the consideration of this issue must
    be Prescott v. Birmingham Corporation [1955] Ch. 210. In that case the
    Corporation operated a transport undertaking under statutory powers which
    authorised the charging of such fares as the Corporation thought fit, and
    provided that any deficiency in the revenue of the undertaking should be
    met out of rates. The Corporation brought in a scheme to provide free
    travel for certain classes of old people. The cost of the scheme, about
    £90,000, was paid out of the rates. The Court of Appeal held that the
    scheme was ultra vires on the ground that the Corporation, which owed a
    fiduciary duty to its ratepayers, was not entitled at their expense to confer
    a gift of free travel on certain classes of persons, and on the further ground
    that the Corporation's statutory powers implicitly required its transport
    undertaking to be run as a business venture, the fares being fixed in
    accordance with ordinary business principles. Jenkins L.J., giving the
    judgment of the Court, said at p. 236:

    " We think it is clearly implicit in the legislation, that while it was
    " left to the defendants to decide what fares should be charged within
    " any prescribed statutory maxima for the time being in force, the
    " undertaking was to be run as a business venture, or, in other words,
    " that fares fixed by the defendants at their discretion, in accordance
    " with ordinary business principles, were to be charged. That is not to
    " say that in operating their transport undertaking the defendants
    " should be guided by considerations of profit to the exclusion of all
    " other considerations. They should, no doubt, aim at providing an
    " efficient service of omnibuses at reasonable cost, and it may be that
    " this objective is impossible of attainment without some degree of loss.
    " But it by no means follows that they should go out of their way to
    " make losses by giving away rights of free travel. "

    The effect of the decision has been reversed by statute in relation to free
    travel for certain selected categories of persons, including the old (see
    section 138 of the Transport Act 1968, and, as regards London, section 40 of
    the 1969 Act), but the general principle laid down remains valid.

    I turn to an examination of the 1969 Act in order to determine whether
    that general principle has been statutorily departed from as regards London
    Transport. I shall consider first the relevant powers and duties of the
    London Transport Executive and secondly, the extent to which the G.L.C.
    is empowered to control the activities of the Executive, and for what
    purposes.

    Section 5(1) of the Act provides:


    " Subject always to the requirements of section 7(3) of this Act, it
    " shall be the general duty of the Executive to exercise and perform
    " their functions, in accordance with principles from time to time laid
    " down or approved by the Council, in such manner as, in conjunction
    " with the Railways Board and the Bus Company, and with due regard
    " to efficiency, economy and safety of operation, to provide or secure
    " the provision of such public passenger transport services as best meet
    " the needs for the time being of Greater London."

    Under section 6(l)(a) of the Act, the Executive is empowered to carry
    passengers by any form of land or water transport, within, to or from
    Greater London.

    17

    By virtue of section 6(2)(g) of the 1969 Act. section 43(3) of the Transport
    Act 1962 is incorporated. It provides:

    " Subject to this Act ... the Boards shall have power to demand,
    " take and recover such charges for their services and facilities,
    " and to make the use of those services and facilities subject to such
    " terms and conditions, as they think fit."

    I note that by section 50(10) of the Transport Act 1968 the words "or
    " waive " were inserted after the word " recover " in this enactment. The
    insertion of these words, in the context, cannot reasonably go the length
    of empowering the Executive to provide an entirely free service, but are
    to be read, in my view, as empowering the waiver of particular charges in
    particular instances, which the Executive would otherwise not be authorised
    to do.

    So far, the Executive would appear to be in no different position than
    were Birmingham Corporation in Prescott (supra) so that the principle of
    that case would apply to it. The word " economy " in section 5(1) goes
    some distance to reinforce that view. It is not, in my opinion, to be read
    as linked to the words " of operation ", though I think it of little importance
    whether it is or not. It conveys the idea of careful use of resources, so
    as to get the best out of them. The resources of the Executive include
    the revenue-producing capacity of its undertaking, and thus support is lent
    to the concept of running the undertaking on ordinary business principles.

    The paragraphs of section 6(1) which follow paragraph (a) confer upon
    the Executive a wide range of ancillary powers. These include (paragraphs
    (d) and (j)) power to let passenger vehicles on hire, and power to provide
    a car park, to repair motor vehicles and to sell petrol, oil and accessories.
    It is provided, however, that in carrying on these activities the Executive
    must act as if it were a company engaged in a commercial enterprise.
    From this it was argued that, since no similar limitation is imposed on the
    carrying on of its passenger transport undertaking, the Executive is free
    to do so with no regard to ordinary business principles. In my opinion
    that inference is not justified. As was made clear in the passage quoted
    above from the judgment in Prescott (supra), a public transport undertaking
    may be carried on in accordance with ordinary business principles even
    though it does not and cannot make a profit and some degree of loss may
    be inevitable, so that if it were a company engaged in a commercial enter-
    prise it would be obliged to close down.

    Section 7 deals with the financial duty of the Executive. Subsection (2)
    makes it obligatory for the Executive to establish and maintain a general
    reserve. Subsection (3) provides:

    " The Executive shall so perform their functions as to ensure so far
    " as practicable—

    " (a) that at the end of each such period as may from time to time
    " be agreed for the purpose of this paragraph between the
    " Executive and the Council the aggregate of the net balance
    " of the consolidated revenue account of the Executive and
    " any subsidiaries of theirs and the net balance of the general
    " reserve of the Executive is such (not being a deficit) as may
    " be approved by the Council with respect to that period, and

    " (b) that, if at the end of any accounting period of the Executive
    " the said aggregate shows a deficit, the amount properly
    " available to meet charges to revenue account of the Executive
    " and their subsidiaries in the next following accounting period
    " of the Executive exceeds those charges by at least the amount
    " of that deficit."

    Each of these paragraphs has the effect of setting the Executive an objective
    which is envisaged as being one towards the attainment of which the
    Executive is capable of directing its own efforts, though the words " so far


    18

    " as practicable " recognise that the objective may not in fact be attained.
    The efforts of the Executive in this respect can only be related, so far as
    revenue is concerned, to the level of income which it derives from its
    transport undertaking and any ancillary activities, and to the avoidance
    of any expenditure which is not reasonably necessary. Therefore, in the
    exercise of its own efforts the Executive appears to be required to operate
    according to ordinary business principles.

    At this stage, however, it becomes necessary to consider the role and
    functions of the G.L.C., particularly as regards its grant-making powers,
    and the manner in which these interact on the financial duties of the
    Executive.

    Under section 1 of the 1969 Act, the G.L.C. has a general duty "to
    " develop policies, and to encourage, organise and, where appropriate, carry
    " out measures, which will promote the provision of integrated, efficient
    " and economic transport facilities and services for Greater London ". Here
    again, I consider that the word " economic" involves that careful and
    proper use should be made of available resources, including any actual or
    potential sources of income which may exist. The functions of the G.L.C.
    under the Act do, of course, cover a wide field, including highways and
    road traffic, and in relation to some aspects no sources of income will exist.
    But where they do exist, and this applies particularly to the Executive's
    transport undertaking, they constitute an important resource calling for
    proper management.

    Section 3(1) of the Act empowers the G.L.C. to make grants to the
    Executive for any purpose. Section 7(6) provides—

    " The Council, in exercising or performing their functions under this
    " Act, shall have regard—

    " (a) to the duty imposed on the Executive by subsection (3) of this
    " section;"

    [there follow two further paragraphs which have been repealed]

    " ' and where the requirements of paragraph (b) of the said subsection (3)
    " fall to be complied with by the Executive, the Council shall take
    " such action in the exercise and performance of their functions under
    " this Act as appears to the Council to be necessary and appropriate
    " in order to enable the Executive to comply with those requirements."

    It is argued for the G.L.C., in the light of these two provisions, that
    section 3 plainly empowers the G.L.C. to make grants to the Executive for
    revenue purposes, that appropriate action by the G.L.C. under section 7(6) to
    enable the Executive to comply with section 7(3)(b) may include the
    making of a revenue grant, and that accordingly the revenue account which
    the Executive are thereby required to put in balance must be an account
    which includes on the income side any such grant. Therefore, the Executive
    may take into account for the purpose of meeting its section 7(3)(b)
    obligation the extent of any revenue grant which the G.L.C. may have stated
    its intention of making. If that grant is of such size as to make it
    unnecessary, for the purpose of meeting the obligation, to fix fares at such
    a high level as ordinary business principles would make appropriate, then
    the Executive is relieved from doing so. It follows, so the argument runs,
    that the Executive is empowered to disregard ordinary business principles
    and to accept whatever mix between fare revenue and grant revenue may
    be laid down as matter of policy by the G.L.C. I would accept that the
    G.L.C. has power to make grants to the Executive, for revenue purposes,
    and that these may be made to meet either actual or prospective deficits,
    and also that such grants may be taken into account in the balancing
    exercise required by section 7(3)(b). But this does not, in my opinion,
    properly lead to the conclusion that the Executive is empowered, either on
    its own initiative or as a result of a suggestion or directive from the G.L.C.,
    to carry on its undertaking, so far as the fixing of fares is concerned,

    19

    without due regard to ordinary business principles. In the first place, if
    that were the intention of Parliament. I would have expected, in view of the
    radical departure from previous principle which would have been involved,
    a clear indication of such intention, but I can find none. In the second
    place, acceptance of the argument would reduce the Executive's obligation
    under section 7(3)(b) to a mere book-keeping exercise. I do not think that
    can be right, because the subsection is one of the key provisions of the Act,
    which takes its place in section 5(1) as the overriding consideration of the
    Executive and to which, by virtue of subsection (6), the exercise of the
    G.L.C.'s functions under the Act—and that must mean the whole of such
    functions—is in a sense subordinated. So far as the concluding words of
    subsection (6) are concerned, it is to be kept in view that a variety of courses
    of action in addition to the making of revenue grants (which is not
    specifically mentioned), appear to be in contemplation as available to the
    G.L.C. to enable the Executive to comply with subsection (3)(b), for
    example directions to raise fares or trim services.

    Section 11 of the Act contains additional provisions as to control of the
    Executive by the G.L.C. There is nothing in these provisions, in my opinion,
    which is inconsistent with the Executive being required to operate its trans-
    port undertaking in accordance with ordinary business principles, or which
    empowers the G.L.C. to direct the Executive to depart therefrom, whether
    for the purpose of achieving some object of social policy, or for other reasons.
    The concluding words of subsection (3) provide that the G.L.C. " may direct
    " the Executive to submit proposals for an alteration in the Executive's fare
    " arrangements to achieve any object of general policy specified by the
    " Council in the direction ". " Any object of general policy " is a very wide
    expression, but clearly it is confined to the field of transport policy, and
    within that field it cannot, having regard to section 7(6), be invoked to justify
    a direction to the Executive to ignore its financial obligation under section
    7(3). It is to be noted, in passing, that no direction under this provision was
    made in the present case. What happened was that the Executive knowing
    what the G.L.C., as reconstituted after the election of May 1981, wanted to
    be done, submitted to the G.L.C. for approval, under subsection (2)(d),
    proposals for the general level and structure of fares which incorporated the
    25 per cent overall reduction, and these were duly approved. I am of
    opinion, for the reasons I have endeavoured to express, that it was contrary
    to the Executive's duties under the Act to submit proposals which involved
    an arbitrary reduction of this nature in the existing general level of fares,
    which it is not suggested had been fixed otherwise than in accordance with
    ordinary business principles. Nor was it within the G.L.C's statutory powers
    to approve of the proposals. The 25 per cent reduction appears, as I have
    said, to have been an arbitrary one. If it were valid, it must follow that a
    similarly arbitrary reduction of 50 per cent or 75 per cent or 90 per cent
    would have been equally valid, though counsel for the G.L.C. shrank from
    the logical conclusion that the provision of a free service financed wholly
    out of the rates would be within the powers of the Act.

    In the result, I have reached the conclusion that both London Transport
    Executive and the G.L.C. acted ultra vires in relation to the proposed
    reduction of fares. It must follow that the supplementary precept issued
    for the purpose of financing the reduction was also ultra vires and must be
    quashed.

    In these circumstances it is unnecessary to consider the second issue arising
    in the appeal, namely, whether the G.L.C., while not acting out with its
    statutory powers, nevertheless exercised its discretion in a manner which was
    unreasonable and otherwise contrary to the principles laid down in Associated
    Provincial Picture Houses Ltd. v. Wednesbury Corporation
    [1948] 1 KB 223.

    My Lords, for these reasons I would dismiss the appeal.

    20

    Lord Scarman

    my lords,

    In these proceedings the Council of the London Borough of Bromley
    challenges the lawfulness of a decision by the Greater London Council to
    lower fares on London transport by an overall 25%. It is the only issue: for
    if Bromley is right, the supplementary rate levied to finance the decision is
    itself " ultra vires " and void.

    On the 3rd November 1981 the Divisional Court dismissed an application
    by Bromley for judicial review of a supplementary precept for the levying of
    rates of 6.1 pence in the £ applicable to the period 1st October 1981 to the
    31st March 1982 issued by the Greater London Council to all the London
    Boroughs pursuant to a resolution dated the 21st July 1981. The respondents
    to the application were the G.L.C. and the London Transport Executive.

    On the 10th November 1981 the Court of Appeal allowed Bromley's appeal,
    declaring the supplementary precept to be ultra vires and quashing it. The
    G.L.C. and the London Transport Executive were granted leave to appeal to
    your Lordships' House.

    The speed with which these proceedings were taken through the Divisional
    Court and the Court of Appeal was a remarkable achievement by the two
    courts and an indication of the value of the procedure of judicial review.
    Notwithstanding their despatch, both courts gave this complex and difficult
    case the detailed and thorough consideration which it demands.

    Bromley's challenge has been put in two ways. First, the strictly " ultra
    " vires", or "excess of power", argument. The decision, it is submitted, was,
    as a matter of statutory interpretation, beyond the powers conferred upon the
    G.L.C. by the Transport (London) Act 1969. In other words (more familiar
    to English lawyers) the G.L.C. " misdirected itself in law ". On this view, the
    decision, it is submitted, must be quashed as having proceeded upon an error
    of law.

    The other way in which the challenge has been put is that the decision was
    a misuse of a discretionary power. On this view, the power to reduce fares is
    assumed to exist. It is a discretionary power. But, the courts can intervene
    if it be shown that the discretion was wrongly exercised. The power of the
    court is limited by the well-known principle formulated by Lord Greene M.R.
    in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation
    [1948] 1 KB 223 at pp. 233-4 and recognised by your Lordships' House in
    several cases, one of the latest of which is Newbury D.C. v. Secretary of State
    for the Environment
    [1981] A.C. 578, at pages 608, 618-9, and 627.

    Though there will be cases of which it will not be true, I have come to the
    conclusion that in this appeal the two challenges, when analysed, are but two
    ways of making the same point. The attack upon the discretion in this case
    is as truly based upon error of law as is the " ultra vires " argument. The
    " unreasonableness " of the decision, i.e. that which would enable the court to
    conclude that it is one which no reasonable authority could have reached,
    is that it proceeded upon a misconception of the duties imposed upon the
    appellants by the statute. Fundamental to both ways of putting their case
    is Bromley's submission that upon a true construction of the statute interpreted
    according to its terms and against the background of the general law it was
    an error of law to treat " transport need " as the exclusive criterion in determin-
    ing the legality of a fares reduction. The Act, they say, requires the public
    passenger transport services of the London Transport Executive under the
    direction of the G.L.C. to be run in accordance with business principles, i.e.
    to be financed so far as practicable, out of fares. The Act recognises, it is
    said, not merely a duty owed to the travelling public (" transport need ") but
    also a duty owed to the ratepayers (" business principles "). Their case is
    that the fare reduction was effected in disregard of the second duty. Whichever
    way, therefore, Bromley's case is put, the issue for your Lordships is funda-
    mentally a question as to the true interpretation of the statute.


    21

    The appellants' submissions on the construction of the statute, as I under-
    stand them, may be summarised as follows:

    1. the scheme of the Act is that the G.L.C. has the general duty of develop-
      ing policies to meet the transport needs of Greater London:

    2. the Executive, a public authority, exists as an instrument for im-
      plementing G.L.C. policies for the public passenger transport services of
      Greater London; sections 4(1) and 5(1):

    3. section 3 of the Act, which is not expressed to be subject to the
      requirements of later sections, empowers the G.L.C. to make grants for any
      purpose: the power is subject only to a limitation arising by implication
      from its context that the purpose of grants must fairly and reasonably
      relate to the G.L.C.'s general duty (supra):

    4. upon a proper construction of the Act read as a whole, there is no
      requirement that operating costs are to be financed, so far as practicable,
      out of fares: on the contrary, the G.L.C. is empowered to strike a balance,
      having regard to the transport needs of Greater London, between income
      from fares and income from grants, and the striking of the balance is a
      matter of judgment within the discretion of the G.L.C..

    These submissions were supported by a detailed analysis of the more
    important sections of the Act—notably sections 5, 7, and 11.

    One notes, in passing, that the G.L.C. has no direct access to funds. It has
    a power of precept. If, therefore, it is to raise the funds necessary to enable
    it to make grants to the Executive, it will, as the appellants recognise and
    submit, ordinarily (unless it receives a grant from central government) raise
    the money from the ratepayers of London through its power of precept. And
    that is what it did: hence the supplementary precept now under review, a
    substantial amount of which was attributable to grants to be made to the
    Executive to finance the lowering of fares by 25%. It is conceded, however,
    that, if the G.L.C. exceeded or misused its powers in deciding upon the fares
    reduction, the whole of the supplementary rate must be quashed.

    Bromley's submissions may be summarised as follows:—

    1. it is lawful for the G.L.C. to use its power under section 3 to make
      grants to finance an unavoidable deficit incurred by the Executive in the
      course of providing an economic public transport service; but

    2. the Act, properly construed, requires the Executive to act in accordance
      with business principles; and

    3. it is not lawful for the G.L.C. to use its grant making power to subsidise
      a fare reduction, which cannot be supported on business grounds, at the
      expense of the ratepayers.

    Bromley's submissions rely not only on the Act but also on the case law
    applicable to local authorities. The House is invited to construe the Act
    in the light of the principle that a local authority owes a fiduciary duty to its
    ratepayers. It is an invitation which has to be accepted: and I did not under-
    stand counsel for the appellants to argue otherwise. But the invitation does
    not decide the case. For, as the statute must be interpreted in the light of
    the general law, so also must the general law be adapted and applied in a
    way consistent with the statute. Indeed, if there be a clash, the statute prevails
    as the legislative will of Parliament.

    The principle of law upon which Bromley relies was recognised and applied
    by the Court of Appeal in Prescott v. Birmingham Corporation [1955] 1 Ch. 210.
    The Birmingham Corporation operated a transport undertaking under its
    local Acts. It was authorised to charge fares. The Corporation decided to
    introduce a scheme of free travel for old people. The Court of Appeal held
    that the decision was not a proper exercise of the Corporation's statutory
    discretion and declared it illegal. The legislation, the facts, and the era were
    very different from the 1969 Act and Greater London in 1981. Moreover,
    Parliament has subsequently intervened to permit fare concessions. But a

    22

    principle was declared by the Court of Appeal. It is well put in the headnote
    as being that local authorities owe a fiduciary duty, analogous to that of a
    trustee, to their ratepayers.

    The judgment of the Court, given by Jenkins L.J., contains the following
    passage (p. 236):—

    " We are not persuaded by Mr. Rowe's arguments to the effect that
    " the relevant legislation would allow the defendants to charge no fares
    " at all to anyone and to finance their transport undertaking entirely out
    " of the rates. We think it is clearly implicit in the legislation that while
    " it was left to the defendants to decide what fares should be charged
    " within any prescribed statutory maxima for the time being in force,
    " the undertaking was to be run as a business venture, or, in other words,
    " that fares fixed by the defendants at their discretion, in accordance
    " with ordinary business principles, were to be charged. That is not to
    " say that in operating their transport undertaking the defendants should
    " be guided by considerations of profit to the exclusion of all other
    " considerations. They should, no doubt, aim at providing an efficient
    " service of omnibuses at reasonable cost, and it may be that this objective
    " is impossible of attainment without some degree of loss. But it by no
    " means follows that they should go out of their way to make losses by
    " giving away rights of free travel."

    I would make a number of comments on this passage. First, Mr. Alexander
    Q.C. for the G.L.C. was not as bold in 1981 as was Mr. Rowe Q.C. in 1954.
    He was not (rightly, I think) prepared to argue that the relevant legislation,
    i.e. the 1969 Act, would allow the G.L.C. to finance London Transport entirely
    out of rates. Yet, if not, why not? If transport need be the criterion, as
    the G.L.C. submit, this would be logical.

    Secondly, so far as I am aware, the principle of a fiduciary duty owed to
    the ratepayers has never been doubted. Certainly, I do not doubt it. It is
    no more than common justice—especially where, as is the case under the
    existing law, those who provide the greater part of the rates have no vote in
    local government elections.

    Thirdly, it directs attention to " the relevant legislation ". In order to
    determine in the present case, therefore, whether fares are to be fixed in
    accordance with ordinary business principles, or by some other criterion, we
    must have regard to the provisions of the 1969 Act construed in the light of
    the fiduciary duty owed to the ratepayers.

    Fourthly, business principles can be as applicable to a public service under-
    taking as to a commercial venture. The avoidance of a deficit which falls to
    be made good out of rates is important to ratepayers—some would say of
    no less importance to them than the making of a profit to persons engaged
    in a commercial venture: and business principles are clearly as effectual in
    avoiding deficit as they can be in making a profit.

    Fifthly, if an efficient operation is impossible of attainment without some
    degree of loss, it does not follow that the transport authority may " go out
    " of their way " to make losses. I understand this to mean that the duty to
    ratepayers requires, unless the statute says otherwise, that in fixing fares the
    authority must do its best to reduce the burden falling upon ratepayers; in
    other words, loss may have to be accepted as a necessity, but may not be sought
    as an object of policy.

    To sum up my views, Prescott's case was, I consider, correctly decided,
    and the principle of the decision remains in the law. It must, however, be
    applied in the light of relevant legislation. I turn, therefore, to consider the
    provisions of the 1969 Act, bearing in mind the existence of the fiduciary
    duty owed by the G.L.C. to the ratepayers of London.

    The Act followed hard upon the Transport Act 1968, adapting to the needs
    of London the two-tier structure of Passenger Transport Authorities and

    23

    Passenger Transport Executives which that Act enabled the Minister to apply
    to Passenger Transport areas designated by him if he considered

    "... it expedient for the purpose of securing the provision of a properly
    " integrated and efficient system of public passenger transport to meet
    " the needs of that area." s. 9(1), 1968 Act.

    The two Acts are chapters in a legislative history of public passenger transport
    services which began with the Transport Act 1962. A feature of the history,
    upon which I remark without going into detail, is the recurrence in the various
    Acts of the same or similar words and phrases used to formulate the operating,
    financial, and policy provisions of the legislation. Notwithstanding structural
    changes of great importance, the several chapters of the legislation are members
    of the same family.

    The 1962 Act undoubtedly required transport authorities to follow a financial
    policy which would, so far as possible, avoid deficit—a policy which has been
    described as " breaking even ". The 1969 Act was only some seven years its
    junior. Nevertheless I have reached the conclusion that it would be unwise
    to pray the policy of the 1962 Act in aid, when construing the 1969 Act.
    While the family likeness in the drafting of the 1962-1969 legislation is plain,
    it cannot safely be used for any purpose other than to note that there would
    be nothing surprising in the conclusion that the 1969 Act was based on the
    same financial principles as to the avoidance, when practicable, of deficit.
    But whether the Act is so based or not is a question which depends not on
    the earlier legislation but on the terms of the Act itself.

    The reasons why I have reached this view may be shortly stated. First,
    the structural change wrought by the introduction of transport authorities
    with a right of raising funds from the ratepayers of the transport area was
    a radical departure. It was, to a great extent, a switch from central govern-
    ment to local government funding. It, therefore, requires that the financial
    provisions of the new legislation be interpreted in the light of the change.
    Secondly, by section 3 of the 1969 Act, Parliament conferred upon the G.L.C.,
    as transport authority for Greater London, a wide power to make grants
    to the London Transport Executive. The Act clearly envisages that the
    G.L.C. may use its power of precept to make a rate which will enable it to
    exercise this grant-making power. The legislation history, however, though
    it cannot be used to put out of court the interpretation for which the G.L.C.
    contends, is more consistent with that for which Bromley contends. And it
    is to be noted that the financial provisions of the 1962 Act, with certain
    important amendments, remain in the current law so as to impose upon
    British Rail, a transport authority with whom the G.L.C. and the Executive
    have the duty of co-ordinating services, the duty of financing their services
    out of fare income with the object, so far as practicable, of avoiding deficit,
    even though it is recognised that in existing circumstances they will need
    grant support from central government.

    It will be convenient to state at once my conclusion on the true construction
    of the 1969 Act. I accept broadly the Bromley submission. More specific-
    ally, I agree with the approach of Oliver L.J., though, as will appear, I differ
    from him on some points of detail. Before I give the reasons for my con-
    clusion, I will mention what I see as two flaws in the appellants' argument,
    as I understood it. Neither is fatal to their case: but each is a hint of weakness.
    First, the terms of the Act do not permit one to construe Part II of the Act
    as establishing the Executive as merely the instrument for implementing G.L.C.
    policies. The Executive is a public authority constituted " for the purpose
    " of implementing the policies which it is the duty of the Council under section I
    " of this Act to develop " (emphasis supplied): section 4(1). In other words,
    the obligation upon the Executive is to implement only such policies as
    " promote the provision of integrated, efficient and economic transport
    " facilities and services for Greater London ": for such are the policies which
    under the Act it is the G.L.C.'s duty to develop. If the G.L.C. should develop
    a policy outside the definition of its duty under section 1(1), the Executive

    24

    would be at risk of acting unlawfully if it implemented it, unless (which is
    not suggested in this case) it could point to some duty imposed by some
    other Act.

    The second flaw in the appellants' argument, which is more serious, is the
    inference which they ask the House to draw that because the grant-making
    power in section 3 is not expressly made subject to the later sections of the
    Act it is to be construed as untrammelled by them. This in no way follows.
    An Act has to be construed as a whole. Part II of the Act spells out the duties
    and powers of the Executive, in aid of which the grant-making power is given
    to the G.L.C. The words in section 3, " for any purpose " fall to be construed
    in the light not only of section 1 which declares the general duty of the G.L.C.
    but of Part II of the Act which declares the duties and powers of the Executive.
    In this respect, I fully endorse the approach of Oliver L.J. which, with respect,
    appears to me to be consistent with the basic rule that in order to determine
    the meaning of any statutory provision the Act, of which it is part, must be
    read as a whole.

    I turn now to consider the critical sections of the Act.

    Section 1(1) I have already mentioned. The general duty of the G.L.C.
    is to—

    " develop policies . . . which will promote the provision of integrated,
    " efficient and economic transport facilities and services for Greater
    " London."

    Integration is clearly a requirement that the facilities and services provided
    are to be co-ordinated with each other and with those provided by others
    (notably British Rail). Efficiency certainly covers such matters as the
    reliability, punctuality, frequency, convenience and comfort of the services
    provided. But what is meant by " economic " services is more difficult to
    determine. Is it simply a reference to " cost-effectiveness ", i.e. value, assessed
    by reference to transport need, for money, as the appellants contend? Or
    is it a reference to services provided on a business basis, which is Bromley's
    case?

    As a matter of English usage, the term " economic " (as also the noun
    " economy ") has several meanings. They include both that for which the
    appellants contend and that for which Bromley contends. It is a very useful
    word:—chameleon-like, taking its colour from its surroundings. Even in
    the statute now being considered, the adjective " economic " where used in
    section 1(1) may have a wider meaning than the noun " economy " which is
    to be found in section 5(1). For section 1(1) applies to facilities and services
    (e.g. the provision of traffic signs and of pedestrian crossings) other than
    public passenger transport, while section 5(1) is limited to the latter. I,
    therefore, refuse to consider the question of the meaning of " economic " in
    section 1(1) (or, indeed, the meaning of" economy " in section 5(1)) as capable
    of being determined by reference to a dictionary. The dictionary may tell
    us the several meanings the word can have but the word will always take its
    specific meaning (or meanings) from its surroundings, i.e. in this case from the
    Act read as a whole. But while the Act must be read as a whole, it is not
    to be construed in isolation from the duties of the G.L.C. as a local authority
    having the power (by precept) to raise a rate. As soon as the Act is considered
    in this context, a vital feature emerges. The G.L.C. owes not only a duty to
    the travelling public of Greater London but also a duty to the ratepayers
    from whose resources any deficit must largely be met. Understandably, the
    appellants have emphasised the first, and Bromley the second. But they
    co-exist. Where, therefore, the general duty of the G.L.C. is spelt out in
    section 1, it is necessary to bear in mind that it breaks down into two duties
    owed to two different, though overlapping, classes. " Economic " in section 1
    must, therefore, be construed widely enough to embrace both duties. Accord-
    ingly, I conclude that in section 1(1) of the Act " economic " covers not only
    the requirement that transport services be " cost-effective" but also the
    requirement that they be provided so as to avoid or diminish the burden
    upon the ratepayers so far as it is practicable to do so.

    25

    Section 1(1), therefore, requires the G.L.C. to strike a balance between the
    interest of the travelling public and the interest of the ratepayers. But, apart
    from affirming by the use of the word " economic " the existence of the two
    obligations which I have described, the section gives no further guidance.
    The section, however, in no way excludes the Prescott principle. Indeed, it
    is drafted in terms which are wholly consistent with its continuance in full
    force and effect, and I so construe it. The problem is, therefore, to determine
    how the principle operates in the context of the Act, and, in particular, its
    relationship with the duty owed to the travelling public.

    I now pass to section 3. The section empowers the G.L.C. to make grants
    to the Executive for any purpose. The section defines neither a policy nor
    a duty: it confers a power in aid of the policies and duties formulated elsewhere
    in the Act. Its importance is that it is a plain indication that the G.L.C. may
    have recourse to the ratepayers for funds for any of the Act's purposes. The
    section gives no guidance as to the extent of the burden which it is proper
    or lawful to impose upon ratepayers or as to the balance which is to be struck
    between transport users and ratepayers. That guidance must be sought
    elsewhere in the Act, notably section 1 (which I have already considered) and
    the provisions of Part II of the Act.

    Part II of the Act establishes the Executive as a public authority. Section 5
    lays down the general duties of the Executive. Subsection (1) is in these
    terms:—

    " Subject always to the requirements of section 7(3) of this Act, it shall
    " be the general duty of the Executive to exercise and perform their
    " functions, in accordance with principles from time to time laid down
    " or approved by the Council, in such manner as, in conjunction with the
    " Railways Board and the Bus Company, and with due regard to efficiency,
    " economy and safety of operation, to provide or secure the provision of
    " such public passenger transport services as best meet the needs for the
    " time being of Greater London."

    The appellants emphasise the following features of the subsection:—

    1. that it is the duty of the Executive to perform their functions in
      accordance with the principles laid down by the G.L.C.: and

    2. that the duty is to provide services which best meet the needs of
      Greater London.

    They argue that the determining factor in financing and operating the services
    to be provided is " transport need ". It follows, according to their submission,
    that a reduction of fares, if it be such as in the judgment of G.L.C. and Executive
    best meets the Transport need, is permitted by the Act, notwithstanding the
    burden it imposes on ratepayers. The balance between the two interests,
    they submit, is not for the courts but for the two authorities in the exercise
    of their judgment as to transport need—with the G.L.C. having the last word.
    G.L.C. has, therefore, the right to give priority to the interests of the travelling
    public, if it considers London's transport need is such that it should do so.
    If they think the need justifies it, they may deliberately choose a loss on
    operations to be made good by funds raised from the ratepayers.

    This construction of the section, if correct, would make mincemeat of the
    fiduciary duty owed to the ratepayers. It would also be inconsistent with
    what was a key principle of earlier legislation, that transport undertakings
    were to be operated on a " break-even " basis, so far as practicable. It would
    be strange if so fundamental a change were to be introduced into the law by
    a section setting out the general duties of the junior partner in the provision
    of London passenger transport services. If Parliament had such a change in
    mind, I would have expected it to enact it expressly in Part I of the Act, where
    the general duties of the policy-maker, the G.L.C., are set out. But section
    1(1) says nothing to suggest the exclusion of the fiduciary duty to the ratepayers:
    indeed, for the reasons I have given, it suggests the contrary.

    But more important than these general observations are the opening words
    of the subsection:—

    " Subject always to the requirements of section 7(3) of this Act."

    26

    Section 7(3) (which I consider in detail later) declares a major financial duty
    of the Executive. It is a paramount subsection, as is clear from the words
    just quoted. It is a paramount obligation not only for the Executive but for
    the G.L.C. For section 5(1) does not make sense save upon the basis that the
    principles which the G.L.C. may lay down are themselves to be consistent with
    the financial duty imposed by section 7(3).

    '

    Accordingly I reach the position that the nature of the financial duty imposed
    upon the G.L.C. and the Executive depends upon the true construction of section
    7(3). But, before I turn to it, two further points have arisen in the interpre-
    tation of section 5, to which I intend briefly to refer.

    First, subsection (1) requires the Executive to pay " due regard to efficiency,
    " economy and safety of operation " in its provision of public passenger
    transport services. The appellants submit that the words refer not to
    " economy " unqualified but to " economy of operation ". They use their
    construction in support of their view that " economy " and " economic ",
    where used in the Act, refer only to " cost-effectiveness ", i.e. value in terms
    of transport need for money. Section 1(1) of the Act, which lays down the
    general duty of the G.L.C., makes no reference to safety of operation: it does
    not even use the word "operation". The reason is clear: the G.L.C. is the
    policy-making, but not the operational authority. Safety of operation is
    added in section 5 because that section is primarily concerned to lay down the
    duty of the Executive, as operator of the services to be provided. Accordingly
    I think it the more probable construction that " safety of operation " is a
    self-contained concept listed with " efficiency " and " economy " as one of
    the three matters to which due regard is to be given, though, no doubt, all
    three have to be read as an omnibus expression (no pun intended). But, if
    the contrary view should be correct, it is not decisive either of the meaning of
    " economic " in section 1(1) or of the nature of the financial duty imposed
    by section 7.

    The second point is more revealing. Section 5(2) requires the Executive,
    the British Railways Board, and the Bus Company to co-operate with one
    another for the purpose of co-ordinating services and of running or facilitating
    the proper discharge of the Executive's duty under subsection (1). The financial
    duty of the Railways Board remains to-day so to conduct its operations as to
    achieve, if it can, a " break-even " position, taking one year with another:
    section 18 of the 1962 Act, amendments to which have not excluded the duty,
    though they have recognised the Board's difficulties and cushioned the severities
    of the duty in the economic circumstances in which it finds itself. This duty,
    imposed by the 1962 Act (as amended), cannot be affected by the power given
    to the G.L.C. to make grants to the Board under section 3(1)(b) of the 1969
    Act. If such be the duty of the Railways Board, it would be strange if the
    Executive, but not the Board, could, as a matter of deliberate policy, make a
    loss on its operations by reducing fares, confident in the knowledge that it is
    the policy of the G.L.C. to accept loss-making as an object of transport policy
    and to make it good by funds raised from the rates.

    Section 6 lists the general powers of the Executive. The section is relevant
    to the appeal only in two respects. It uses the word " business " in some of
    its provisions to describe the functions as a whole of the Executive: sub-
    section (1)(e), (h), and subsection (2). The section also specifies activities
    (letting vehicles on hire, subsection (1)(d), and repairing vehicles and selling
    petrol, subsection (l)(j)), which, if it carries on, it must do so as if it were
    a company " engaged in a commercial enterprise ". Clearly the use of the
    word " business " to describe the functions of the Executive may be regarded
    as no more than a straw in the wind: it cannot be decisive as to the nature of
    the financial duties of the Executive. Indeed, the word may be no more than
    a loose omnibus word used for convenience sake: it could even be (though
    I would not suggest it) a lapse by an overtaxed draftsman.

    The section's reference to " commercial enterprise " does not, in my view,
    assist the appellants. A commercial enterprise is certainly one which seeks to
    achieve a profit. But, as Jenkins L.J. pointed out in Prescott's case (supra),

    27

    business principles are as applicable to a public service undertaking which
    seeks to avoid a loss as they are to a commercial enterprise whose object is
    profit.

    I turn now to what I believe to be the critical section, section 7. The theme
    of the section is not in doubt. The Executive has two principal duties:—
    to establish and maintain a general reserve, subsection (2), (which derives
    from section 18(3) of the 1962 Act) and to perform its functions so as to ensure,
    so far as practicable, that it avoids a deficit, taking one year with another,
    subsection 3(a) and (b).

    Subsection (3) has been subjected in the Court of Appeal and in this House
    to a detailed analysis which has exposed a number of obscurities in its drafting.
    What is the meaning of the words of escape, " so far as practicable " ? What
    is included in " revenue " ? Grant income as well as earnings from fares and
    other charges for services provided? Or merely the latter? Further, it is
    necessary in construing the subsection to have regard to subsection (6), which
    provides:

    " The Council, in exercising or performing their functions under this
    Act, shall have regard—

    " (a) to the duty imposed on the Executive by subsection (3) of this
    " section . . . and where the requirements of paragraph (b) of
    " the said subsection (3) fall to be complied with by the Executive,
    " the Council shall take such action in the exercise and perform-
    " ance of their functions under this Act as appears to the Council
    " to be necessary and appropriate in order to enable the Executive
    " to comply with those requirements."

    This subsection puts beyond any doubt the paramount character of sub-
    section (3).

    My Lords, when first I studied the judgment of Oliver L.J., I was persuaded
    by him that subsection (3) must be construed as excluding grant from revenue
    account. I still believe that the construction has great force. But I have
    been driven to the conclusion that it must be rejected. Nevertheless, the
    construction, though it must, for the reasons which I shall give, be rejected,
    captures the spirit of the section. And the spirit is that the Executive must,
    under the direction of the G.L.C., conduct its operations so as, so far as
    practicable, to avoid loss—a spirit which accords well with the fiduciary
    duty owed by the G.L.C. to the ratepayers.

    I reject Oliver L.J.'s construction because, as counsel for the G.L.C. urged
    and the learned Lord Justice (as I think) recognised, it is inconsistent with
    " advance budgeting"—counsel's phrase to emphasise that section 7(3)
    imposes a duty of financial planning which may well envisage the possibility,
    or probability, of loss, upon a balance of fares income and expenditure, having
    to be made good by grant.

    Subsection (3) does, in my view, envisage financial planning, i.e. budgeting.
    Paragraph (a) requires the Executive to ensure, so far as practicable, that, at
    the end of such period as it and the G.L.C. agree (it could be a quinquennium),
    the aggregate of the balance on revenue account and the balance of the general
    reserve will be such as to avoid a deficit. There is nothing to suggest that in
    such planning the Executive should not bring into account any grants which
    the G.L.C. plans to make during the period under review: and there is nothing
    in section 3 of the Act (which confers upon the G.L.C. its power to make
    grants) to suggest that grants in support of revenue may be made only to
    make good deficits which have already arisen. Indeed, it is sensible that in
    planning ahead the Executive should take account not only of the prospective
    earnings from its services but also of prospective grant income.

    I conclude, therefore, that the G.L.C. may make grants to provide not only
    for past, but for anticipated losses. It follows that the G.L.C. and the
    Executive are entitled to anticipate a trading loss and to bring into their
    accounts grant to offset the resulting deficit.

    28

    It is the next step in the appellants' argument which I think is not authorised
    by the Act. They say that it follows that deficit on trading account is accept-
    able, even if it be, wholly or to some degree, avoidable, provided the G.L.C.
    judges it is justifiable on the ground of transport need. But, though revenue
    account may include grant income, it by no means follows that the Act entitles
    the G.L.C. and the Executive to accept as an objective of policy a deficit
    upon trading account merely because it best meets what they regard as the
    interests of the travelling public and " transport need ". So to interpret
    section 7(3) is, in my judgment, to disregard the duty owed to the ratepayers.
    The subsection is, however, capable of another interpretation which is con-
    sistent with that duty. This interpretation, which I accept, is that, while
    permitting advance budgeting, it, nevertheless, requires the Executive so to
    provide its services as to ensure, so far as practicable, that deficit is avoided.
    Though the Executive may be compelled by circumstances to budget for a loss
    which will have to be made good by grant, the subsection requires them to
    avoid it, if they can. Their principal weapon is fares income. The subsection,
    though it envisages budgeting for a deficit, permits it not as an object of social
    or transport policy, but as a course of action which it may not be practicable
    or possible to avoid. Loss may be unavoidable: but it does not thereby
    become an acceptable object of policy.

    Subsection (6) reinforces this view of the duties imposed by subsection
    (3)(b). If the Executive fails to make good in the following year the deficit
    that has arisen in the previous year, the G.L.C. shall take action to enable
    the Executive to overcome the deficit. In other words, deficit is unacceptable:
    and the G.L.C. may take action to get rid of it either by grant or by requiring
    an increase in the level of fares (or by other steps).

    Finally, section 11 is of some importance. By subsection (1) the G.L.C. may
    give general directions to the Executive: and by subsection (2)(d) the Executive
    shall submit, and obtain G.L.C. approval of, the general level and structure
    of fares to be charged. The section contains no indication as to the con-
    siderations which are relevant in establishing the general level of fares; but
    it clearly implies that fares are to be charged.

    To conclude, section 7(3), in my judgment, requires the Executive to follow,
    so far as practicable, a financial policy of " break-even ". Grants in support
    of revenue from fares are envisaged: but as a necessity, and not as an object
    of social or transport policy. Though advance budgeting which takes account
    of grant income to make good anticipated unavoidable loss on operations is
    authorised, the subsection does not erect grant financing of deficit into an
    object of policy. I find nothing in section 7 which cuts down or modifies the
    fiduciary duty of the G.L.C. to its ratepayers—a duty which requires it to see
    that the services of its instrument, the Executive, are provided on business
    principles so as to ensure, so far as practicable, that no avoidable loss falls on
    the ratepayers.

    Accordingly, I accept the Bromley submission that the Act requires that
    fares be charged at a level which will, so far as practicable, avoid deficit. I
    do not discuss the difficult problem of what is meant by " so far as practicable ".
    For it is plain that the 25% overall reduction was adopted not because any
    higher fare level was impracticable but as an object of social and transport
    policy. It was not a reluctant yielding to economic necessity but a policy
    preference. In so doing the G.L.C. abandoned business principles. That
    was a breach of duty owed to the ratepayers and wrong in law.

    For these reasons I would dismiss the two appeals.


    29

    Lord Brandon of Oakbrook

    MY LORDS,

    Three parties are concerned in these conjoined appeals: first, as appellants
    in one appeal, the Greater London Council ("the G.L.C."); secondly as
    appellants in the other appeal, the London Transport Executive (the
    " L.T.E."); and, thirdly, as respondents in both appeals, the Council of
    the London Borough of Bromley (" Bromley ").

    The appeals raise potentially two main questions for decision, both of
    which were decided favourably to the G.L.C. and the L.T.E. by the
    Divisional Court (Dunn L.J. and Phillips J.) and adversely to them by the
    Court of Appeal (Lord Denning M.R. and Oliver and Watkins L.JJ.).

    The first main question is whether the L.T.E. had power to submit to the
    G.L.C. for approval, and the G.L.C. had power to approve, proposals for
    an overall reduction of 25% in the level of fares charged by the L.T.E. for
    the carriage of passengers in trains and buses operated by them. The second
    main question, which only arises if the answer to the first main question is
    in the affirmative, is whether the G.L.C., in approving such proposals,
    exercised lawfully the discretion conferred on them by Parliament. I shall
    refer to these two questions as " the question of powers " and " the question
    " of discretion " respectively.

    I consider first the question of powers. The powers of both the G.L.C.
    and the L.T.E. in relation to the carriage of passengers are governed, and
    governed solely, by the Transport (London) Act 1969 as subsequently
    amended (" the Act"). The scheme of the Act was to vest in two separate
    bodies the responsibility for the provision of passenger transport services
    (" passenger services") for Greater London. The first body was an
    existing body, the G.L.C., to whom there was assigned by Part I of the Act
    the function of developing and promoting policies relating to passenger
    services. The second body was a new body created by Part II of the Act,
    the L.T.E., to whom there was assigned the function of implementing the
    policies relating to passenger services developed and promoted by the G.L.C.

    The relevant provisions of Part I of the Act are sections 1 and 3(1),
    which provide so far as material: -

    " 1 it shall be the general duty of the Greater London

    " Council (hereafter in this Act referred to as ' the Council') to develop
    " policies, and to encourage, organise and, where appropriate, to carry
    " out measures, which will promote the provision of integrated, efficient
    " and economic transport facilities and services for Greater London.

    " . . .

    " 3.—(1) .... the Council shall have power to make grants—
    " (a) to the Executive for any purpose;"

    The relevant provisions of Part II of the Act are sections 4(1), 5(1), 6(1).
    7(1)(2)(3) and (6), and 11 (1) and (2). These provide so far as material: —

    " 4.—(1) For the purpose of implementing the policies which it is
    " the duty of the Council under section 1 of this Act to develop, there
    " shall be constituted a public authority to be called the London
    " Transport Executive ....

    " 5.—(1) Subject always to the requirements of section 7(3) of this
    " Act, it shall be the general duty of the Executive to exercise and
    " perform their functions, in accordance with principles from time to
    " time laid down or approved by the Council, in such manner as, in
    " conjunction with the Railways Board and the Bus Company, and
    " with due regard to efficiency, economy and safety of operation, to
    " provide or secure the provision of such public passenger transport
    " services as best meet the needs for the time being of Greater London.

    30

    " 6.—(1) Subject to the provisions of this Act, the Executive shall
    " have power—

    " (a) to carry passengers by any form of land or water transport
    . . within, to or from Greater London;

    " 7.—(1) In respect of each accounting period of the Executive, the
    " Executive shall charge to revenue account, and secure that any
    " subsidiary of theirs so charges, all charges which are proper to be
    " made to revenue account, including, in particular, proper provision
    " for the depreciation or renewal of assets.

    " (2) Without prejudice to the power of the Executive to establish
    " specific reserves, they shall establish and maintain a general reserve,
    " and the Council may give to the Executive directions as to any matter
    " relating to the establishment or management of that general reserve,
    " or the carrying of sums to the credit thereof, or the application thereof;
    " but no part of the moneys comprised in that general reserve shall be
    " applied otherwise than for purposes of the Executive or a subsidiary
    " of theirs.

    " (3) The Executive shall so perform their functions as to ensure so
    " far as practicable—

    " (a) that at the end of each such period as may from time to time
    " be agreed for the purpose of this paragraph between the
    " Executive and the Council the aggregate of the net balance of
    " the consolidated revenue account of the Executive and any
    " subsidiaries of theirs and the net balance of the general reserve
    " of the Executive is such (not being a deficit) as may be
    " approved by the Council with respect to that period, and

    " (b) that, if at the end of any accounting period of the Executive
    " the said aggregate shows a deficit, the amount properly
    " available to meet charges to revenue account of the Executive
    " and their subsidiaries in the next following accounting period
    " of the Executive exceeds those charges by at least the amount
    " of that deficit.

    " (6) The Council, in exercising or performing their functions under
    " this Act, shall have regard—

    " (a) to the duty imposed on the Executive by subsection (3) of this
    " section; . . .

    " and where the requirements of paragraph (b) of the said subsection
    " (3) fall to be complied with by the Executive, the Council shall take
    " such action in the exercise and performance of their functions under
    " this Act as appears to the Council to be necessary and appropriate in
    " order to enable the Executive to comply with those requirements.

    " . . .

    " 11.—(1) In addition to any power of the Council under any other
    " provision of this Act to give directions to the Executive as respects
    " any matter, the Council may give to the Executive general directions
    " as to the exercise and performance by the Executive of their functions
    "... in relation to matters appearing to the Council to affect the
    " policies and measures which it is the duty of the Council under
    " section 1 of this Act to develop, organise or carry out.

    " (2) Without prejudice to any requirement as to the approval or
    " consent of the Council in any other provision contained in or applied
    " by this Act, the Executive shall submit to the Council and obtain the
    " Council's approval of—

    31

    " (a) such annual or other estimates of income or expenditure of the
    " Executive and any subsidiaries of theirs as the Council may
    " require to be so submitted;

    " . . .

    " (d) the general level and structure of the fares to be charged for the
    " time being for the carriage of passengers by the Executive
    " or any subsidiary of theirs on railway services or London
    " bus services;"

    Section 7, most subsections of which I have set out above, has the entirely
    appropriate side-note "Financial duty of Executive". For the purpose
    of deciding these appeals, the key provisions relating to that duty are, in
    my opinion, those contained in subsection (3), paragraph (b), and sub-
    section (6).

    The Executive, as might be expected, adopted a calendar year as their
    accounting period for the purposes of section 7(1) and paragraph (b) of
    section 7(3). That being so, the effect of paragraph (b) of section 7(3) can
    be stated in this way. If in any accounting year the L.T.E. expend on
    items chargeable to income account (including provision for depreciation
    and renewal of assets) more than they receive by way of income, so creating
    an income deficit for that year, they are under a duty so to manage their
    financial affairs in the next accounting year as to ensure that the income
    which they receive exceeds the moneys which they expend on items
    chargeable to the income account (including provisions for depreciation
    and renewal of assets) by at least the amount of the previous year's deficit.
    It is to be observed, however, that this is not an absolute duty, but is one
    qualified by the words " so far as practicable ". It is necessarily to be
    inferred from the inclusion of that qualification that the legislature contem-
    plated that there might well be two successive accounting periods in respect
    of which compliance by the L.T.E. with the requirements of paragraph (b)
    of section 7(3) would not be practicable.

    My Lords, the dispute between the parties in relation to what I described
    earlier as the first main question for decision can, I think, be reduced to
    two points of construction, each of which is closely linked with the other.

    The first point of construction concerns the scope of the power conferred
    on the G.L.C. by paragraph (a) of section 3(1) to make grants to the
    Executive for any purpose. It is common ground that the word " grants ",
    as used in that paragraph, is wide enough to cover grants for both income
    and capital purposes. But there is a dispute whether the power to make
    grants for income purposes extends to making such grants in order to
    reduce the level of fares which it would be practicable for the L.T.E. to
    charge, and which, unless given such grants, they would be bound to charge
    in order to comply with their duty under paragraph (b) of section 7(3).
    The case for Bromley is that the power does not so extend; the case for
    both the G.L.C. and the L.T.E. is that it does.

    The second point of construction, which is, as I said earlier, closely
    linked with the first, concerns the meaning of the expression " the aggregate
    " of the net balance of the consolidated revenue account" which occurs
    in paragraph (a) of section 7(3) and is then imported into paragraph (b) of
    section 7(3) by the words " the said aggregate" contained in the latter
    paragraph. The case for Bromley is that the L.T.E. are only entitled to
    include on the credit side of the consolidated revenue account self-generated
    income, including in particular fares charged for passenger services. The
    case for both the G.L.C. and the L.T.E. is that the latter are entitled to
    include in addition such grants for income purposes, if any, as the G.L.C.
    may see fit to make to them under paragraph (a) of section 3(1).

    The difference between the cases of the parties on these two points is
    of crucial practical importance. If, on the one hand, Bromley are right,
    the L.T.E. must, in so far as it is practicable for them to do so, balance

    32

    expenditure with self-generated income over any pair of accounting years,
    and the G.L.C. can only make income grants in order to assist the
    L.T.E. to do so to the extent that it is not practicable for the latter to do
    so on their own. If, on the other hand, the G.L.C. and the L.T.E. are right,
    the expenditure of the L.T.E. during any accounting year can be financed
    partly by self-generated income and partly by income grants from the
    G.L.C., the precise " mix " between these two sources of income being a
    matter for the G.L.C., as the policy-making body, to decide.

    In my opinion, in respect of the two closely linked points of construction
    described above, the case for Bromley is correct, and the case for the
    G.L.C. and the L.T.E. is erroneous. In what follows I shall endeavour to
    explain my reasons for reaching that conclusion.

    First, the only moneys which the G.L.C. can use for making grants to
    the L.T.E. are moneys obtained by precepts for the levying of rates from
    the London Boroughs. These moneys must in turn be obtained by the
    London Boroughs by the levying of rates from their own respective
    ratepayers.

    Secondly, although the words used in paragraph (a) of section 3(1),
    namely, " the Council shall have power to make grants . . . for any
    " purpose ", are on the face of them extremely wide, the purposes for which
    the G.L.C. may make grants under that paragraph must, in my view, be
    impliedly limited to purposes which do not conflict with other express
    provisions of the Act, including in particular those of section 7.

    Thirdly, the object of section 7 of the Act is to impose a defined form
    of financial discipline on the L.T.E. in the performance of their functions
    under the Act.

    Fourthly, while the words " consolidated revenue" in the expression
    " the aggregate of the net balance of the consolidated revenue account ",
    contained in paragraph (a) of section 7(3), and imported into paragraph (b)
    of that subsection by the words " the said aggregate" contained in the
    latter paragraph, are capable of including income grants made by the
    G.L.C. to the L.T.E. under paragraph (a) of section 3(1), I think that their
    ordinary and natural meaning, in the context of provisions relating to the
    financial duty of the L.T.E., is limited to self-generated revenue. In this
    connection it appears to me that the words " aggregate " and " consolidated "
    are included in order to make clear that the revenue account referred to is
    the overall revenue account relating to the entirety of the functions
    performed, and services provided, by the L.T.E. and their subsidiaries.

    Fifthly, the object of paragraph (b) of section 7(3) is, as it seems to me,
    to prevent the L.T.E., so far as practicable, from running their own under-
    taking, and permitting the undertakings of their subsidiaries to be run, in
    such a way as to make a loss taking one accounting period with another,
    and, as a consequence of that, preventing the L.T.E. from building up a
    cumulative deficit over a substantial number of accounting periods. If the
    words " consolidated revenue ", as imported into paragraph (b) of section
    7(3) from paragraph (a) of that subsection, are interpreted as including income
    grants made by the G.L.C. to the L.T.E. under paragraph (a) of section 3(1),
    the purpose of paragraph (b) of section 7(3), to impose a defined form of
    financial discipline on the L.T.E., would be largely, if not wholly, eroded.

    Sixthly, it seems to me much more in accord with section 7(6) of the Act
    to interpret the words " consolidated revenue" in the expression " the
    " aggregate of the net balance of the consolidated revenue account" as
    meaning self-generated income only than as meaning self-generated income
    together with income grants. In subsection (6) the G.L.C. are expressly
    required to have regard to the duty imposed on the L.T.E. by section 7(3),
    and to exercise their functions under the Act in such a way as they think
    fit to enable the L.T.E. to comply with that duty. If the L.T.E. satisfies
    the G.L.C. that it is not practicable for the L.T.E. to comply with their duty

    33

    under paragraph (b) of section 7(3), the G.L.C. has various options open to it
    under section 7(6). These options include the giving of directions to the
    L.T.E. under section 11(1), for example with regard to curtailing or ending
    the provision of passenger services on parts of the L.T.R's railway network
    or bus routes where the provision of such services involves the making of
    a particularly heavy loss, as well as the making to the L.T.E. of income
    grants under paragraph (a) of section 3(1).

    Seventhly, the general principle governing statutory transport undertakings,
    in the absence in the relevant statute of any provisions to the contrary, is
    that they should be operated on ordinary business lines. Prescott v.
    Birmingham Corporation [1955] Ch.210. This does not mean that they
    should be run so as to make the maximum, or any, profit. But it does
    mean that they should not be deliberately, or inadvertently, run in such a
    way as to make a loss, or, if it is not practicable to avoid a loss, in such a
    way as to make a loss greater than it is practicable to avoid. There is, so
    far as I can see, nothing in the Act to make the general principle referred
    to above inapplicable to the L.T.E. in the performance of their functions. On
    the contrary, it seems to me that paragraph (b) of section 7(3) is wholly
    consistent with, and indeed reinforces, that principle.

    Finally, if the case of the G.L.C. and the L.T.E. on the closely linked
    points of construction to which I referred earlier is correct, the result would
    be that the provision of passenger services by the L.T.E. could be financed
    wholly, or almost wholly, by income grants made by the G.L.C., with the
    passengers either travelling free, or at any rate paying only nominal fares
    for their carriage. In the instant case the decision of the G.L.C. means
    that passenger services are to be financed as to somewhat under 70%
    by fares paid by the travelling public and somewhat over 30% by
    income grants derived from rates levied on ratepayers in the London
    Boroughs. But, if the case put forward by the G.L.C. and the L.T.E. is
    correct in principle, there is no reason, in theory at any rate, why the
    percentage should not be varied, so that passenger services are financed as
    to 25% by travelling public and 75% by income grants made by the G.L.C.,
    or even 5% by the travelling public and 95% by income grants made by
    the G.L.C. There is, of course, no doubt that, if the legislature wished
    passenger services for Greater London to be financed in such a way, it
    could enact provisions which plainly had that effect. In my view, however,
    there are no such plain provisions in the Act, and, in their absence, it would
    be quite wrong to construe the Act as having any such effect.

    My Lords, stress was laid in the judgments in the courts below, and again
    in the arguments in your Lordships' House, on the use of the word
    " economic " in section I of the Act, in which the general duty of the G.L.C.
    with respect to transport is prescribed, and the further use of the word
    " economy " in section 5(1), in which the general duties of the L.T.E. with
    respect to passenger services are prescribed. It was argued on behalf of
    Bromley that the use of these words indicated an intention on the part of
    the legislature that passenger services for Greater London should be run
    on a business, and therefore, so far as practicable, on a self-financing, basis.
    I should not myself be prepared to rest my preference for Bromley's case
    on the two closely linked questions of construction referred to earlier on the
    use in sections 1 and 5(1) of the words "economic" and "economy"
    respectively. I think that these words are used in order to ensure that both
    the G.L.C. and the L.T.E. have proper regard, in the performance of their
    functions, to the principle of cost-effectiveness or value for money, and do
    not of themselves throw any light on the sources of the moneys in the expen-
    diture of which that principle of cost-effectiveness or value for money is to be
    applied.

    It has not, and could not have been, suggested that it was only practicable
    for the L.T.E. to meet somewhat under 70% of their necessary expenditure
    out of self-generated income. They had been doing much better than that in
    previous years and could without doubt have continued to do so. That
    being so, I am of opinion that it was beyond the powers of the L.T.E. to

    34

    submit to the G.L.C. for their approval, and beyond the powers of the
    G.L.C. to approve, proposals for an overall reduction of 25% in the level
    of fares charged by the L.T.E. for the carriage of passengers in trains and
    buses operated by them.

    It follows that I would dismiss these two appeals on that ground alone.

    My Lords, as I indicated earlier, if the G.L.C. and the L.T.E. fail on the
    question of powers, as I consider for the reasons which I have given that
    they do, it is not necessary to go on to examine the further question of
    discretion. In case I am wrong about the question of powers, however, I
    propose to deal shortly also with the question of discretion.

    In considering that question it is necessary to assume, contrary to the
    opinion which I have expressed above, that it is the intention of the Act
    that the provision by the L.T.E. of proper passenger services for Greater
    London is to be financed partly by fares paid by passengers and partly by
    income grants from the G.L.C. derived ultimately from rates levied on
    the ratepayers of the London Boroughs; and further that the extent to which
    such provision is financed from the one source or the other is a matter for
    the administrative discretion of the G.L.C.

    On those two assumptions the question is whether the G.L.C., in approving
    the mix of somewhat under 70% and somewhat over 30% which they did
    approve, exercised their administrative discretion lawfully.

    In my view it is plain for two reasons that the G.L.C. did not exercise
    their discretion lawfully. The first reason is that, if and in so far as they
    exercised their discretion at all, they considered themselves bound to exercise
    it in the way they did because they had promised to do so in their election
    manifesto. It is, of course, entirely appropriate for a Council, the majority
    of whose members have been elected after setting out a particular policy
    in their election manifesto, to take into account, and give considerable weight
    to, that circumstance when exercising their discretion in relation to that
    policy after they have been elected and come to power. It is, however,
    entirely wrong for such a majority to regard themselves as bound to
    exercise their discretion in relation to that policy in accordance with their
    election promises, whatever the cost and other countervailing considerations
    may turn out to be. In my view it is an inevitable inference from the
    evidence taken as a whole that the majority on the G.L.C.. when they
    approved the proposals for a 25% overall reduction in fares, were motivated
    solely by the belief that, because they had promised such a reduction before
    their election, they were completely and irrevocably bound to implement it
    after being elected.

    The second reason why I consider that the G.L.C. did not exercise their
    discretion lawfully is that they persisted in implementing their pre-election
    policy even after it had become apparent to them that, because of the
    withdrawal by central Government of a large amount of block grant which
    they had expected to be available to them, the cost to the ratepayers of the
    London Boroughs of their doing so, already very large, was going to be
    nearly doubled. On the assumptions made, it was the duty of the G.L.C.
    to balance fairly against each other the interests of the travelling public
    on the one hand and those of the ratepayers in the London Boroughs
    on the other. In my view the decision of the G.L.C. to persist in the
    implementation of their election policy on public transport, after it had
    become apparent that the originally contemplated cost to the rate-payers of
    the London Boroughs would be nearly doubled, was not a decision
    which the Council, directing themselves properly in law, could reasonably
    have made.

    My Lords, for the reasons which I have given, while content to dismiss
    these two appeals on the basis of my answer to the question of powers, I
    should also, if necessary, be willing to do so on the basis of my answer to
    the question of discretion.

    313737 Dd 8208150 C4 12/81


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