Lloyd (A.P.) and others (A.P.) (Appellants)
v.
McMahon (Respondent)
JUDGMENT
Die Jovis 12° Martii 1987
Upon Report from the Appellate Committee to whom was
referred the Cause Lloyd (A.P.) and ‘others (A.P.) against
McMahon, That the Committee had heard Counsel on Monday the
26th, Tuesday the 27th, Wednesday the 28th and Thursday the
29th days of January last, as on Monday the 2nd and Tuesday
the 3rd days of February last upon the Petition and Appeal of
David John Lloyd, of 12 Sandy Green, Liverpool L9 HE,
together with the other 46 Appellants named in the Petition of
Appeal, praying that the matter of the Order set forth in the
Schedule thereto, namely an Order of Her Majesty’s Court of
Appeal of 31st July 1986, 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 upon
the Case of Thomas Irving McMahon 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 31st July 1986 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 unassisted
Appellants do each pay or cause to be paid to the said
Respondent one forty-seventh of the Costs incurred by him in
respect of the said Appeal, the amount thereof to be certified
by the Clerk of the Parliaments if not agreed between the
parties: And it is also further Ordered, That in each of the
appeals of the assisted Appellants, one forty-seventh of the
costs of the Respondent incurred in respect of the said Appeal
be paid out of the Legal Aid Fund pursuant to section 13 of
the Legal Aid Act 1974, such Order to be suspended for four
weeks to allow the Law Society to object if they wish; And it
is also further Ordered, That the costs of the assisted
Appellants incurred in respect of the said Appeal be taxed in
accordance with Schedule 2 to the Legal Aid Act 1974.
Cler: Parliamentor:
Judgment: 12.3.87
HOUSE OF LORDS
LLOYD (A.P.) AND OTHERS (A.P.)
(APPELLANTS)
v.
McMAHON
(RESPONDENT)
Lord Keith of Kinkel
Lord Bridge of Harwich
Lord Brandon of Oakbrook
Lord Templeman
Lord Griffiths
LORD KEITH OF KINKEL
My Lords,
The appellants are a group of Liverpool city councillors.
The respondent is the district auditor for the city. In respect of
the financial year beginning 1 April 1985 the appellants brought it
about that a rate for the city was not set until 14 June 1985.
The council were advised by their officers that the rate then
proposed to be set was an illegal one, in respect that it fell far
short, taken along with other sources of income, of meeting the
city’s expenditure for the year as then estimated. But that is not
the point. The point is that the delay in setting the rate led to
delay in receiving various items of income, including government
contributions in respect of payments in lieu of rates on Crown
properties and in respect of rate rebates.
There had been trouble over the making of a rate also in
respect of the financial year 1984-85, when in the event a rate
was made on 10 July 1984. On 19 March 1984 the district
auditor’s predecessor had sent to the council a report expressing
concern at indications that the council might deliberately make a
rate for the year which would not be sufficient to meet its
outgoings for that year. The report drew attention to possible
consequences to individual councillors, both financial and by way of
disqualification, if an adequate rate were not made. In the
penultimate paragraph it was stated: “Members would in my view
also be at risk if a rate was not made because no vote was taken
or there was unreasonable delay in making a rate.”
On 10 April 1985 the district auditor’s predecessor had sent
to the council a report expressing concern at the council’s failure
to make a valid rate for the year commencing 1 April 1985,
drawing attention to his report dated 19 March 1984 and
reiterating the duties of councillors and the possible consequences
to the city and to individual councillors if these duties were not
carried out. The report concluded by urging the council in its own
best interests, as well as those of individual members, employees
– 1 –
and the local community, that a rate should be made at a very
early date. On 7 May 1985 the policy and finance committee of
the council rejected a motion that the chairman of the committee
submit proposals to the next meeting of the council to enable it
to fix a rate, and this was approved at a meeting of the council
on 21 May.
On 21 May 1985 the district auditor’s had made a further
report to the council, copies of which he sent to all councillors.
In it he referred to earlier reports and gave notice that unless the
council made a lawful rate at the earliest opportunity and in any
event before the end of May he would forthwith commence action
under section 20 of the Local Government Finance Act 1982 to
recover any losses occasioned by the failure to make a rate from
the members responsible for incurring them.
On 6 June 1985 the Audit Commission directed that an
extraordinary audit be carried out. On 26 June 1985 the district
auditor sent to each of the appellants a notice stating that he had
to consider in pursuance of his duty under the Act of 1982
whether he should certify the sum of £106,103, or any other sum,
consequent on the failure to make a rate or the delay in making a
rate for the financial year 1985-86, as due from the appellants on
the ground that a loss of such sum had been incurred or deficiency
caused by the appellants’ wilful misconduct. The appellants were
further notified that they might make representations in writing to
the district auditor before he reached a decision, and that any
such representations should reach him by 19 July 1985. There was
enclosed with the notice a note of the matters to which the
district auditor had had regard in deciding to issue it. This note
set out the council’s duty under section 2(1) of the General Rate
Act 1967 to make a rate, and the district auditor’s responsibility
under section 20(1) of the Act of 1982 which provides:
“Where it appears to the auditor carrying out the audit of
any accounts under this Part of this Act – . . . (b) that a
loss has been incurred or deficiency caused by the wilful
misconduct of any person, he shall certify that . . . the
amount of the loss or the deficiency is due from that
person and . . . both he and the body in question . . . may
recover that . . . amount for the benefit of that body; and
if the auditor certifies under this section that any . . .
amount is due from two or more persons, they shall be
jointly and severally liable for that . . . amount.”
There were appended to the note copies of earlier reports by the
district auditor and his predecessors, including those of 19 March
1984, 10 April 1985 and 21 May 1985, and also a list of minutes
of meetings of the council and certain of its committees between
March 1984 and June 1985 and of reports by the council’s officers
between the same dates. The facts gathered from these
documents were stated to show that there was no lawful
justification for the delay in the making of the rate for the year
1985-86. The note went on to identify certain specific losses
resulting from the delay. These were the loss of interest on sums
which would, but for the delay, have been paid at an earlier date
than was actually the case by the Department of Health and
Social Security, in respect of the rate rebates element of housing
benefit subsidy and by the Treasury Valuer in respect of
– 2 –
contributions in lieu of rates on Crown property. The total of
such loss was stated to be £106,103. The appellants were
identified as persons who by their voting or absence might have
failed to discharge their duty as members of the council and might
therefore be guilty of wilful misconduct resulting in the losses in
question.
The appellants chose to make a collective response to the
district auditor’s notice. This was prepared with the assistance of
the chief executive of the council, who was legally qualified and
had great experience in local government, and was sent to the
district auditor on 19 July 1985. The appellants relied upon
various matters which they claimed rebutted the district auditor’s
provisional view that they had been guilty of wilful misconduct.
Their principal contention was that, considering that the relevant
legislation laid down no date by which a rate must be set, it was
sufficient if they did so within a reasonable time after the start
of the financial year, and that the delay until 14 June 1985 had
been reasonable because they had hoped or expected to be able to
persuade ministers to make larger grants available to Liverpool
than ministers had previously expressed themselves as willing to
do. In this respect they founded upon the circumstance that in
relation to the year 1984-85 their efforts in this direction had met
with some success, and that the then district auditor in his report
of 7 June 1984 had stressed the importance of 20 June as the
latest date for making a rate, in order to permit of ratepayers
exercising their statutory right to pay rates by 10 monthly
instalments. It was contended that the appellants had been
influenced throughout by a sincere desire to maximise the
resources available to the people of Liverpool and thus to do their
best to alleviate the unsatisfactory conditions prevailing there.
There were sent along with the representations various documents
to which it was desired that the district auditor should have
regard as supporting the appellants’ contentions. It is to be
observed at this point that the representations did not face up to
the circumstance that, whether or not additional funds might be
secured from government sources, delay in making a rate must
inevitably have an adverse effect upon the city’s finances through
delay in the receipt of items of income which depended upon a
rate having been set. Nor did the representations draw attention
to any records, whether of meetings of the council and its
committees of meetings of the ruling political group represented
by the appellants, describing the reasons for the delay in making a
rate.
On 6 September 1985 the district auditor issued a
certificate under section 20(1) of the Act of 1982 to the effect
that a loss of £106,103 had been incurred by the wilful misconduct
of the appellants. The certificate was accompanied by a lengthy
statement of reasons for its issue setting out the history of the
matter and dealing in considerable detail with the appellants’
representations before setting out the district auditor’s conclusions.
These were that the delay in making a rate was deliberate, that
the intention of the delay was to use the non-making of the rate
as a lever in an attempt to prise additional money from central
government, that there was no justifiable reason for supposing that
delay would influence central government to increase rate support
grant, and that the council knew that to delay unreasonably was a
wrongful act or was recklessly indifferent as to whether or not it
– 3 –
was a wrongful act. Finally, it was concluded that a loss of
£106,103 was a direct consequence of the delay in making a rate
and the appellants were identified as those responsible for the
delay.
The appellants appealed to the High Court under section
20(3) of the Act of 1982. The appeal was heard by a Divisional
Court consisting of Glidewell L.J., Caulfield and Russell JJ.,
together with a similar appeal by a number of Lambeth
councillors. Counsel then acting for the appellants appear to have
concentrated upon the merits of the appeal rather than upon
allegations of procedural irregularity on the part of the respondent.
Affidavits were lodged by all the appellants and also a
considerable amount of documentary evidence which had not been
before the district auditor. Though invited to do so by the court,
none of the appellants gave any oral evidence. Counsel for the
appellants submitted that it would be inappropriate for the court
to investigate the proceedings of the political caucus represented
by the appellants. The Divisional Court dismissed the appeal, and
their decision was affirmed by the Court of Appeal (Lawton, Dillon
and Woolf L.JJ.), who gave leave to appeal to your Lordships’
House.
The argument by counsel for the appellants did not invite
your Lordships to enter deeply into the merits of the question
whether or not they had been guilty of wilful misconduct, nor was
attention drawn to any details of the affidavits and other material
placed before the Divisional Court. The substance of the
argument was that the district auditor’s decision had been vitiated
by his failure to offer the appellants an oral hearing before
reaching it, and should therefore have been quashed. The
argument was supported by an examination of earlier legislation in
regard to local government audits, starting with the Poor Law
Amendment Act 1844 (7 & 8 Vict. c. 101), where oral hearings
were the order of the day, and by reference to the Code of Local
Government Audit Practice for England and Wales, made under
section 14 of the Act of 1982 and approved by resolution of both
Houses of Parliament. The code, by paragraphs 16 to 20,
contemplates that an oral hearing will be held where the auditor is
dealing with a notice of objection given under section 17(3) of the
Act of 1982, which itself refers to the objector attending before
the auditor. The code does not deal with the procedure to be
followed where the auditor takes action under section 20(1).
Counsel produced a list of all instances since 1972 where a district
auditor had occasion to consider an issue of wilful misconduct,
indicating that in all but one of them an oral hearing had been
offered. This had the effect, so it was maintained, of creating a
legitimate expectation on the part of the appellants that they
would be offered an oral hearing before the district auditor arrived
at his decision.
My Lords, if the district auditor had reached a decision
adverse to the appellants without giving them any opportunity at
all of making representations to him, there can be no doubt that
his procedure would have been contrary to the rules of natural
justice and that, subject to the question whether the defect was
capable of being cured on appeal to the Divisional Court, the
decision would fall to be quashed. In the event, written
representations alone were asked for. These were duly furnished,
– 4 –
in very considerable detail, and an oral hearing was not requested,
though that could very easily have been done, and there is no
reason to suppose that the request would not have been granted.
None of the appellants stated, in his or her affidavit before the
Divisional Court, that they had an expectation that an oral
hearing, though not asked for, would be offered. The true
question is whether the district auditor acted fairly in all the
circumstances. It is easy to envisage cases where an oral hearing
would clearly be essential in the interests of fairness, for example
where an objector states that he has personal knowledge of some
facts indicative of wilful misconduct on the part of a councillor.
In that situation justice would demand that the councillor be given
an opportunity to depone to his own version of the facts. In the
present case the district auditor had arrived at his provisional view
upon the basis of the contents of documents, minutes of meetings
and reports submitted to the council from the auditor’s department
and their own officers. All these documents were appended to or
referred to in the notice of 26 June sent by the district auditor to
the appellants. Their response referred to other documents, which
were duly considered by the district auditor, as is shown by his
statement of reasons dated 6 September 1985. No facts
contradictory of or supplementary to the contents of the
documents were or are relied on by either side. If the appellants
had attended an oral hearing they would no doubt have reiterated
the sincerity of their motives from the point of view of advancing
the interests of the inhabitants of Liverpool. It seems unlikely,
having regard to the position adopted by their counsel on this
matter before the Divisional Court, that they would have been
willing to reveal or answer questions about the proceedings of
their political caucus. The sincerity of the appellants’ motives is
not something capable of justifying or excusing failure to carry out
a statutory duty, or of making reasonable what is otherwise an
unreasonable delay in carrying out such a duty. In all the
circumstances I am of opinion that the district auditor did not act
unfairly, and that the procedure which he followed did not involve
any prejudice to the appellants.
It is to be added that counsel for the appellants founded
upon certain matters which it was maintained were relied upon by
the district auditor in his statement of reasons dated 6 September
1985 without having been included in the notice of 26 June 1985
so as to give the appellants the opportunity of dealing with those
matters. In my opinion there is no merit in this point. One of
the matters, the alleged unlawfulness of the rate made on 14 June
1985, was not founded on by the district auditor as a ground for
issuing his certificate. The statement of reasons does not assert
that the rate was unlawful. It does no more than mention that,
as was the fact, the city solicitor had advised the council that the
proposed rate would be unlawful. The substance of the other
matters was broadly covered in the statement which accompanied
the notice of 26 June 1985.
Upon the view which I take, that the district auditor’s
decision was not vitiated by procedural unfairness, the question
whether such unfairness, had it existed, was capable of being cured
by the appeal to the High Court does not arise directly for
decision. It is, however, my opinion that the particular appeal
mechanism provided for by section 20(3) of the Act of 1982,
considered in its context, is apt to enable the court,
– 5 –
notwithstanding that it finds some procedural defect in the conduct
of an audit which has resulted in a certificate based on wilful
misconduct, to inquire into the merits of the case and arrive at
its own decision thereon. Section 20(3)(b) empowers the court to
“confirm the decision or quash it and give any certificate which
the auditor could have given.” The relevant rules of court enable
a rehearing of the broadest possible scope to take place. Evidence
may be given on oath, which is not possible before the auditor,
and there is no limit to the further material which may be
introduced so as to enable the whole merits to be fully examined.
There is no question of the court being confined to a review of
the evidence which was available to the auditor. In the
circumstances, it would be quite unreasonable and not in
accordance with the intendment of the enactment to hold that the
court, where an issue is raised as to the fairness of the procedure
adopted by the auditor, is confined to a judicial review species of
jurisdiction so as to have power only to quash or affirm the
auditor’s certificate without entering upon its own examination of
the merits of the case. No doubt there may be cases where the
procedural defect is so gross, and the prejudice suffered by the
appellant so extreme, that it would be appropriate to quash the
auditor’s decision on that ground. But in my opinion the court has
a discretion, where it considers that justice can properly be done
by its own investigation of the merits, to follow that course. I
may add that I agree entirely with all that is said upon this
aspect of the appeal in the speech of my noble and learned friend
Lord Bridge of Harwich.
The final argument for the appellants was that the loss of
£106,103 was not shown to have been caused by the wilful
misconduct of the appellants. This argument was fully considered
and rejected by the Divisional Court and the Court of Appeal. I
agree entirely with their reasons for rejecting that argument, to
which I find it unnecessary to add.
My Lords, for these reasons I would dismiss the appeal.
The appellants must pay the district auditor’s costs, subject to any
protection available to those of them who hold legal aid
certificates. This is a suitable case for directing, under section
20(3) of the Act of 1982, that any unrecovered costs shall not be
paid by the city of Liverpool.
LORD BRIDGE OF HARWICH
My Lords,
On 6 June 1985 the Audit Commission exercised its power
under section 22(1)(b) of the Local Government Finance Act 1982
to order an extraordinary audit of the accounts of the Liverpool
City Council for the financial year which commenced on 1 April
1985 in so far as they related to the failure to make a rate or
the delay in making a rate for that financial year. By notice
dated 26 June 1985 the respondent district auditor informed each
of the present appellants, who were members of the majority party
on the Liverpool City Council, of the extraordinary audit and that
– 6 –
he intended to consider in pursuance of his duty under section
20(1) of the Act of 1982 whether he should certify the sum of
£106,103 or any other sum, consequent upon the failure to make a
rate or the delay in making a rate for the financial year
commencing on 1 April 1985, as due from him or her on the
ground that a loss of such sum had been incurred or a deficiency
caused by his or her wilful misconduct. The notice was
accompanied by a note referring to the relevant statutory
provisions, summarising the history, enclosing a number of reports
made to the council by the district auditor and his predecessor,
and identifying all relevant minutes of the council and its
committees and reports made to the council by the council’s own
officers. The note indicated that this was the material to which
the district auditor had had regard and continued as follows:
“5. The facts show that there was no lawful justification
for the delay in the making of the rate. The council has
thus disregarded the advice and warnings given by me, my
predecessor and its officers. On the evidence the council
would appear to be in breach of its statutory duty. 6. To
the extent that a breach of statutory duty results from a
deliberate failure by any member to discharge his or her
own duty then such a member is guilty of wilful misconduct.
My predecessor referred to the members’ duty in his reports
of 19 March 1984 and 10 April 1985.”
The note then proceeds to indicate how the district auditor had
assessed such losses or deficiencies as he could then identify as
caused by the delay in making a rate and concludes:
“11. I have reviewed the resolutions of the council to
determine how individual members discharged their duty. It
at present seems to me that members listed below by their
voting, abstention from voting or absence may have failed
to discharge their duty as members and may therefore be
guilty of wilful misconduct occasioning the loss or deficiency
identified in paragraph 9 above. But I will defer making
any decision until I have had the opportunity to consider any
representations in writing you may wish to make.”
The formal notice indicated that representations in writing should
be made not later than 19 July 1985.
On 19 July the leader of the city council, Councillor
Hamilton, wrote to the district auditor in the following terms:
“The Liverpool Labour Group have held several meetings to
discuss their response to your letter of 26 June 1985
regarding the audit of Liverpool City Council’s accounts
1985-86. It is the unanimous view of those concerned that
our response to you should be a collective one and
accordingly the Labour Group’s response is attached and
signed by those councillors who are in receipt of your letter
of 26 June. I would, however, wish to point out, that in
the case of Councillor James Hackett, he has been away on
holiday for the last three weeks and has not had the
opportunity to sign the documents. It would therefore be
appreciated if you would allow Councillor Hackett to reply
to you upon his return.”
– 7 –
On his return from holiday a few days later Councillor Hackett
adopted the response of his fellow councillors.
The response enclosed with Councillor Hamilton’s letter was
a carefully drafted and closely reasoned document of 30 pages
accompanied by 349 pages of appendices. A paragraph headed
“Conclusion” contained the following:
“In preparing this response, and in assembling the
accompanying material, the councillors have sought to
comply with the relatively short time allowed in the district
auditor’s notice. They would wish, however, to reserve the
right to add to or develop their response, as appropriate, in
the light of events.”
Concurrently with the extraordinary audit of the accounts of
Liverpool City Council a similar extraordinary audit had been
ordered of the accounts of the Lambeth London Borough Council.
In the course of that audit a notice similar to the notice dated 26
June 1985 in the Liverpool case had been sent to the Lambeth
councillors and they too had made a collective response. On 7
August 1985 Councillor Hamilton wrote again to the district
auditor saying:
“The Liverpool councillors would wish, as part of their
response to the notices issued to them and in exercise of
the right reserved therein, to associate themselves with the
legal submissions made by the Lambeth councillors in so far
as they have not been explicitly covered in their own
response.”
No individual Liverpool councillor submitted any separate written
representations on his own behalf or asked for the opportunity to
make representations orally.
On 6 September 1985 the district auditor issued his
certificate pursuant to section 20(1)(b) of the Act of 1982 that
£106,103 was due from each of the appellant councillors on the
ground that it appeared to him that a loss or deficiency in that
amount had been caused by their wilful misconduct, accompanied
by a statement in writing of the reasons for his decision to issue
the certificate. The appellant councillors all appealed against the
decision under section 20(3)(a). A decision to issue a similar
certificate in respect of a number of Lambeth councillors was also
under appeal. The appeals were heard together by the Divisional
Court (Glidewell L.J., Caulfield and Russell JJ.) over 10 sitting
days from 3 to 14 February 1986. As in the written
representations to the district auditor, so on the hearing of the
appeals the stance adopted by the Liverpool appellants was a
united and collective one. They were all represented by the same
counsel. Although the affidavit material was voluminous and
different appellants deposed in their affidavits to different detailed
aspects of the facts, all expressed their agreement with the main
affidavit made by Councillor Hamilton, the leader of the council,
and neither by affidavit nor through counsel did any individual
appellant invite the court to distinguish his responsibility for what
the majority group on the city council did or failed to do from
that of any other member of the group.
– 8 –
The main issue canvassed in the Divisional Court was the
issue on the merits whether the appellants had been guilty of
wilful misconduct and if so whether it had caused any toss. The
court took the view urged by counsel for the district auditor and
supported by counsel for the Lambeth councillors that, in relation
to that issue, the scope of the hearing on appeal was unlimited
and that they could consider whatever evidence and arguments
were put before them, whether or not they had been before the
respective auditors. At an early stage in the hearing, the court
raised the question whether any party wished to give oral
evidence. None did. Counsel then appearing for the present
appellants went further and submitted that it would be
inappropriate for the court to hear oral evidence. When invited by
the court to disclose when and in what circumstances the rate at
a figure representing a 9 per cent, increase over the 1984 rate
(which the Liverpool City Council had eventually adopted and
which would have left a deficit of £117 million on estimated
expenditure) had been decided upon by the’ appellants, he submitted
that the court was not entitled to investigate the activities of a
political caucus. As Glidewell L.J. put it:
“It is clear to me, therefore, that the highly experienced
counsel who appeared for the appellants were satisfied that
justice could be done by our hearing their clients’ appeals
on affidavit and documentary evidence.”
The judgments in the Divisional Court examined the issue on
the merits at length and concluded that wilful misconduct causing
the loss certified by the district auditor was fully established.
Submissions that the district auditors’ certificates against
both Liverpool and Lambeth councillors were vitiated by procedural
unfairness, in that the councillors had not had a proper opportunity
to answer some of the points relied on in the reasons for the
respective decisions to certify, were made by counsel for both the
Liverpool and the Lambeth appellants after their submissions on
the merits. The court took the view that these should have been
taken as preliminary points and, if well founded, would lead to the
quashing of the auditors’ decisions. But they concluded that there
had been no procedural unfairness and that the appellants had had
a sufficient opportunity to meet the case put against them. The
Divisional Court gave judgment dismissing the appellants’ appeals
on 5 March 1985.
The Liverpool councillors appealed. The Lambeth councillors
did not. In the Court of Appeal there was both a change of
counsel and a change of emphasis. Mr. Louis Blom-Cooper now
presented the case for the Liverpool appellants, as he has done
before your Lordships. The hearing occupied the court for nine
days from 9 to 22 July 1986. The merits were once more fully
canvassed and the Court of Appeal (Lawton, Dillon and Woolf
L.J.J) unanimously affirmed the view of the Divisional Court that
the appellants had been guilty of wilful misconduct causing the
certified loss. But my impression is that the procedural complaint
by which the decision of the district auditor was sought to be
impugned loomed much larger in the Court of Appeal than it had
in the Divisional Court. Mr. Blom-Cooper introduced elaborate
new arguments based on the history of the legislation relating to
the auditing of local government accounts from the Poor Law
– 9 –
Amendment Act 1844 to the Local Government Finance Act 1982
and on the practice followed by district auditors over a long
period to support a submission, repeated before your Lordships,
that a district auditor, before certifying that a loss or deficiency
has been caused by the wilful misconduct of any person under
section 20(l)(b) of the Act of 1982, is obliged, as a matter of law,
to offer that person an oral hearing and that, if he does not do
so, any certificate issued is a nullity. The Court of Appeal
unanimously rejected this submission. They expressed marginally
different views, however, on the complaint that there had been a
lack of fairness in the proceedings. Put shortly, Lawton L.J.
thought that, in so far as the district auditor’s reasons for his
decision impugned the good faith and credibility of the appellants’
response to his notice of 26 June 1985, he ought, before taking
the decision, to have given them the opportunity of addressing him
orally on that issue. Dillon LJ. inclined to the same view, though
he found it unnecessary to reach a final conclusion. Both based
their decision on the ground that the full hearing on the merits
before the Divisional Court could, as a matter of law, and did, as
a matter of fact, remove any ground of complaint arising out of
the procedure followed by the district auditor in reaching his
decision. Woolf LJ. approached the matter more broadly. He
went no further than to say that it would be preferable to have
invited representations as to whether there should be an oral
hearing. But he concluded that when the proceedings, including
the hearing before the Divisional Court, were considered as a
whole, the allegation of unfairness was not made out. The Court
of Appeal gave judgment dismissing the appeals on 31 July 1986
but granted leave to appeal to your Lordships’ House.
My Lords, it is appropriate to emphasise at the outset that
the conclusion reached by the district auditor, the Divisional Court
and the Court of Appeal that the appellants were guilty of wilful
misconduct causing the certified loss is no longer the subject of
any substantial challenge. I use the qualifying epithet “substantial”
for two reasons. First, Mr. Blom-Cooper renewed shortly before
your Lordships a submission made below to the effect that, if
there was wilful misconduct, it did not cause the relevant loss
which the district auditor certified. The point is shortly dealt
with in the judgments of Glidewell L.J. in the Divisional Court and
Lawton and Woolf LJ.J in the Court of Appeal. They
demonstrate clearly that, if there was misconduct, the certified
loss was caused by it. I need say no more than that I agree with
and adopt their reasons. Secondly, the document headed “The
Issues on the Appeal” which Mr. Blom-Cooper helpfully handed in
at the opening of his submissions contains a paragraph which reads:
“Did the district auditor and the courts below, in concluding
that the appellants were guilty of wilful misconduct in
delaying the making of the rate for the financial year 1985-
86, apply the right test in judging the decisions and actions
of the appellants?”
Whatever faint argument, in the course of Mr. Blom-Cooper’s oral
submissions, may have been addressed to this issue, it signally
failed to identify any misdirection in law by the courts below in
their consideration of the issue of wilful misconduct. It seems to
me abundantly clear that they applied the right test and the
question whether they came to the right conclusion is one not of
– 10 –
law but of fact. Your Lordships were never invited by Mr. Blom-
Cooper to examine the voluminous material in the affidavits and
exhibits on which any challenge to the finding of wilful misconduct
must depend and the fact of wilful misconduct, therefore, must be
accepted as established.
The only challenge which must now be considered is
procedural. There are, I think, three facets to the challenge.
First, it is said that, as a matter of law, there is an absolute
obligation on a district auditor, before issuing a certificate under
section 20(1) of the Act of 1982, to ask any person upon whom
the certificate will impose a liability whether he wishes to make
oral representations. Secondly, in the circumstances of this case,
it is said that there were matters of complaint against the
appellants relied on by the district auditor in his reasons for
decision dated 6 September 1985 of which the appellants were not
informed by, and could not have anticipated from, the terms of
the notice given to them dated 26 June 1985. Thirdly, it is said
that, apart from any general obligation to offer the appellants an
oral hearing, the district auditor was under a particular obligation
to do so before he could properly reject as unacceptable any
explanation of their conduct put forward by the appellants relating
to their intention, motivation, or good faith. If any one of these
three propositions is established, then it is submitted that there
was such a want of natural justice in the proceedings leading to
the decision of the district auditor as to invalidate the certificate,
with the result that, on appeal, the Divisional Court, irrespective
of its view on the merits, was obliged to quash it.
My Lords, the so-called rules of natural justice are not
engraved on tablets of stone. To use the phrase which better
expresses the underlying concept, what the requirements of fairness
demand when any body, domestic, administrative or judicial, has to
make a decision which will affect the rights of individuals depends
on the character of the decision-making body, the kind of decision
it has to make and the statutory or other framework in which it
operates. In particular, it is well-established that when a statute
has conferred on any body the power to make decisions affecting
individuals, the courts will not only require the procedure
prescribed by the statute to be followed, but will readily imply so
much and no more to be introduced by way of additional
procedural safeguards as will ensure the attainment of fairness. It
follows that the starting-point for the examination of all the
appellants’ submissions on this aspect of the case is the Act of
1982. It will be convenient here to set out all the provisions
which, in my opinion, throw light on the issues to be decided.
They are as follows:
“17(1) At each audit by an auditor under this Part of
this Act any persons interested may inspect the accounts to
be audited and all books, deeds, contracts, bills, vouchers
and receipts relating to them and make copies of all or any
part of the accounts and those other documents. (2) At
the request of a local government elector for any area to
which those accounts relate, the auditor shall give the
elector, or any representative of his, an opportunity to
question the auditor about the accounts. (3) Subject to
subsection (4) below, any local government elector for any
area to which those accounts relate, or any representative
– 11 –
of his, may attend before the auditor and make objections –
(a) as to any matter in respect of which the auditor could
take action under section 19 or 20 below; or … (4) No
objection may be made under subsection (3) above by or on
behalf of a local government elector unless the auditor has
previously received written notice of the proposed objection
and of the grounds on which it is to be made. . . .
“19(1) Where it appears to the auditor carrying out
the audit of any accounts under this Part of this Act that
any item of account is contrary to law he may apply to the
court for a declaration that the item is contrary to law
except where it is sanctioned by the Secretary of State. (2)
On an application under this section the court may make or
refuse to make the declaration asked for, and where the
court makes that declaration, then, subject to subsection (3)
below, it may also – (a) order that any person responsible
for incurring or authorising any expenditure declared
unlawful shall repay it in whole or in part to the body in
question and, where two or more persons are found to be
responsible, that they shall be jointly and severally liable to
repay it as aforesaid; (b) if any such expenditure exceeds
£2,000 and the person responsible for incurring or
authorising it is, or was at the time of his conduct in
question, a member of a local authority, order him to be
disqualified for being a member of a local authority for a
specified period; and (c) order rectification of the accounts.
(3) The court shall not make an order under subsection
(2)(a) or (b) above if the court is satisfied that the person
responsible for incurring or authorising any such expenditure
acted reasonably or in the belief that the expenditure was
authorised by law, and in any other case shall have regard
to all the circumstances, including that person’s means and
ability to repay that expenditure or any part of it. (4)
Any person who has made an objection under section 17(3)(a)
above and is aggrieved by a decision of an auditor not to
apply for a declaration under this section may – (a) not
later than six weeks after he has been notified of the
decision, require the auditor to state in writing the reasons
for his decision; and (b) appeal against the decision to the
court, and on any such appeal the court shall have the like
powers in relation to the item of account to which the
objection relates as if the auditor had applied for the
declaration. … (6) The court having jurisdiction for the
purposes of this section shall be the High Court except that,
if the amount of the item of account alleged to be contrary
to law does not exceed the amount over which county
courts have jurisdiction in actions founded on contract, the
county court shall have concurrent jurisdiction with the High
Court. . . .
“20(1) Where it appears to the auditor carrying out
the audit of any accounts under this Part of this Act – (a)
that any person has failed to bring into account any sum
which should have been so included and that the failure has
not been sanctioned by the Secretary of State; or (b) that
a loss has been incurred or deficiency caused by the wilful
misconduct of any person. He shall certify that the sum or,
as the case may be, the amount of the loss or the
– 12 –
deficiency is due from that person and, subject to
subsections (3) and (5) below, both he and the body in
question (or, in the case of a parish meeting, the chairman
of the meeting) may recover that sum or amount for the
benefit of that body; and if the auditor certifies under this
section that any sum or amount is due from two or more
persons, they shall be jointly and severally liable for that
sum or amount. (2) Any person who – (a) has made an
objection under section 17(3)(a) above and is aggrieved by a
decision of an auditor not to certify under this section that
a sum or amount due from another person; or (b) is
aggrieved by a decision of an auditor to certify under this
section that a sum or amount is due from him, may not
later than six weeks after he has been notified of the
decision require the auditor to state in writing the reasons
for his decision. (3) Any such person who is aggrieved by
such a decision may appeal against the decision to the court
and – (a) in the case of a decision to certify that any sum
or amount is due from any person, the court may confirm,
vary or quash the decision and give any certificate which
the auditor could have given; (b) in the case of a decision
not to certify that any sum or amount is due from any
person, the court may confirm the decision or quash it and
give any certificate which the auditor could have given; and
any certificate given under this subsection shall be treated
for the purposes of subsection (1) above and the following
provisions of this section as if it had been given by the
auditor under subsection (1) above. (4) If a certificate
under this section relates to a loss or deficiency caused by
the wilful misconduct of a person who is, or was at the
time of such misconduct, a member of a local authority and
the amount certified to be due from him exceeds £2,000,
that person shall be disqualified for being a member of a
local authority for the period of five years beginning on the
ordinary date on which the period allowed for bringing an
appeal against a decision to give, the certificate expires or,
if such an appeal is brought, the date on which the appeal
is finally disposed of or abandoned or fails for non-
prosecution. (5) A sum or other amount certified under
this section to be due from any person shall be payable
within 14 days after the date of the issue of the certificate
or, if an appeal is brought, within 14 days after the appeal
is finally disposed of or abandoned or fails for non-
prosecution. (6) In any proceedings for the recovery of any
sum or amount due from any person under this section a
certificate signed by an auditor appointed by the
Commission stating that that sum or amount is due from a
person specified in the certificate to a body so specified
shall be conclusive evidence of that fact; and any
certificate purporting to be so signed shall be taken to have
been so signed unless the contrary is proved …. (9) The
court having jurisdiction for the purposes of this section
shall be the High Court except that, if the sum or amount
alleged to be due does not exceed the amount over which
county courts have jurisdiction in actions founded on
contract, the county court shall have concurrent jurisdiction
with the High Court.”
– 13 –
All these provisions except section 17(1) and (2) apply to an
extraordinary audit under section 22 as they apply to an ordinary
audit.
I draw attention at the outset to two striking features of
this statutory machinery. The first is that both the exercise of
the power to declare items of account unlawful under section 19
and the ultimate power to control the issue of certificates under
section 20 are entrusted to the regular courts, the county court if
the amount in issue is within the county court’s contractual
jurisdiction, the High Court if it is not. Under section 19 the
auditor can take no effective step without invoking the jurisdiction
of the court. Under section 20 the auditor’s certificate will be
effective unless appealed against. The second striking feature is
this. The auditor may act of his own motion either in applying to
the court for a declaration under section 19 or in issuing a
certificate under section 20. But where, for any reason, he fails
or declines to act under either section, after he has been invited
to do so by a local government elector exercising his right of
objection under section 17(3)(a), that elector has an unfettered
right to invoke the jurisdiction of the court himself. In a case
under section 19 the court will in every case be exercising its
jurisdiction at first instance, but the auditor may be either seeking
or opposing the declaration. In a case under section 20, the
auditor may, if he has been invited to act under section 17(3)(a),
be described as the tribunal of first instance, but whichever way
he decides, an unfettered right of appeal to the courts lies at the
instance either of the aggrieved elector or of the party from
whom the relevant loss has been certified to be due. In either
case if the court falls into error the error can be corrected by
the Court of Appeal or, if necessary, by your Lordships’ House.
So far as procedure is concerned, section 14 of the Act
provides for the issue of a code of audit practice to be approved
by each House of Parliament. The code currently in force
contains detailed provisions relating to objections under section 17,
but none relating to the procedure to be followed when an auditor
contemplates the issue of a certificate under section 20 of his own
motion. The gravity of the consequences of a certificate for the
person from whom the amount of a loss is certified to be due,
particularly if he is a member of a local authority and the amount
exceeds £2,000, are obvious enough. No one doubts that the
auditor must give to such a person adequate notice of the case
against him and an adequate opportunity to present to the auditor
his defence to that case. I followed with interest Mr. Blom-
Cooper’s carefully researched review of the history of local
government audit legislation, but I did not find that it threw any
light on what, in particular, is required to provide such an
opportunity in the circumstances of any particular case under the
statute presently in force. Still less do I attach any significance
to the fact that since 1972, when provisions substantially to the
like effect as those which we find in the Act of 1982 first
reached the statute book, auditors have, as a matter of practice,
always invited oral representations from members of local
authorities before certifying the amount of any loss or deficiency
as due from them. When a single individual is thought to have
failed to bring a sum into account or by his wilful misconduct to
have caused a loss or deficiency, it is no doubt a very appropriate
practice to invite his explanation orally. But I fail to understand
– 14 –
how that practice can constrain the courts to construe the statute
as requiring an auditor proposing to act under section 20 to invite
oral representations as a matter of law in every case. In this
case the auditor seems to have intelligently anticipated that the
Liverpool councillors who constituted the majority group would
want to present a united front in their response to his notice of
26 June 1985 as they had done in their conduct of the city
council’s affairs during the previous year. Councillor Hamilton’s
letter of 19 July 1985 amply confirmed his expectation. If any
councillor had wanted to put forward his own independent and
individual grounds in rebuttal of the charge of wilful misconduct
against himself, I have no doubt he would have done so. If any
had asked to be heard orally and the auditor had refused, there
would have been clear ground for a complaint of unfairness. I
suppose it is conceivable that the appellants collectively might
have wished to appoint a spokesman to present their case orally
rather than in writing, though the case they did present, embracing
as it did such a large volume of documentary material, clearly
lent itself more aptly to written than oral presentation. It has
never been suggested that it was unfair that the auditor did not
invite the appellants to address arguments to him through solicitor
or counsel. The proposition that it was, per se, in breach of the
rules of natural justice not to invite oral representations in this
case is quite untenable.
The second facet of the complaint of unfairness alleges that
the notice of 26 June 1985 did not sufficiently particularise the
case which the appellants had to meet and that new matters were
relied on by the auditor in the reasons for his decision given on 6
September 1985. This is exhaustively examined in the judgments
of the courts below and it would serve no good purpose to re-
examine it in detail. The notice dated 26 June was sent with
copies of all the previous reports to the council of the district
auditor and his predecessor and identified by reference ail the
relevant council and committee minutes and reports made to the
council by their own officers. I am fully satisfied that this gave
adequate notice of the grounds on which the auditor was
provisionally minded to proceed against the appellants under
section 20 and indeed the character of the response shows that
they were in no doubt as to the nature of the case they had to
meet. The point that troubled Lawton L.J. and, to a lesser
extent, Dillon L.J. was that the auditor in giving the reasons for
his decision rejected the protestations of good faith in the
appellants’ response to his notice of 26 June and did not accept
that their motivation in acting as they did was as they claimed.
The relevant passage from the judgment of Lawton L.J. reads as
follows:
“What the appellants were saying was wholly inconsistent
with what was in these minutes and documents. An
example is provided by their assertion that they had acted
‘in good faith and after taking advice from their officers.’
They had not acted on the advice of their officers in March
1984, and again in April 1985 and on 14 June 1985. Their
assertion that they believed until 6 June 1985 that the
central government would provide further money was so
contrary to the facts that no rational person could have
believed anything of the kind. The evidence relied on by
the district auditor for rejecting the appellants’ assertion
– 15 –
that they believed that more money would be forthcoming
was strong; but it is a matter of human experience that
political zealots, as some of the appellants seem to have
been, can so delude themselves about reality that lying is
unnecessary for them. The courts are chary, however, about
disbelieving people and attributing bad faith to them without
an oral hearing: see In re Smith and Fawcett Ltd. [1942]
Ch. 304, per Lord Greene M.R., at p. 308, and Jeffs v. New
Zealand Dairy Production and Marketing Board [1967] 1 A.C.
551, per Viscount Dilhorne, at p. 568. Had the appellants
been given an opportunity of commenting on the adverse
opinion of their conduct which the respondent had formed
they, or some of them, might have been able to persuade
him of their good faith and credibility. Maybe on the facts
of this case they would have had difficulty in so doing; but,
in my judgment, they should have been given a chance of
doing so. It was unfair not to have given them that
chance.”
With respect, I cannot agree that the authorities referred to
had any relevance to the circumstances of the instant case. There
was here no room for dispute as to what the council, for whose
action or inaction the appellants were responsible, had done or
failed to do. There was no room for dispute as to the factual
information and legal advice which had at all material times been
available to the appellants. It was never claimed on behalf of the
appellants that they acted under any misapprehension. In so far as
there was an issue as to whether the course on which the
appellants quite deliberately embarked was one in which they acted
“in good faith” or as to the motives which underlay their action or
inaction, it was in essence a matter for argument rather than for
evidence. When a group of 49 people act collectively they may,
of course, have different subjective reasons for acting. But if
they assert that their collective action was prompted by a single
collective state of mind, this is inevitably to some extent a
fiction. A group can have no single subjective mind. On the
other hand, the objective state of mind of the group can only be
inferred from what the group concurred in doing or omitting to do
in given circumstances. In this case it would not have advanced
the appellants’ case at all if each appellant had appeared in person
before the auditor and asserted his sincere belief in what had been
said in the collective written response. On the other hand, if
each had given his own explanation and volunteered to submit to
questioning as to his own individual state of mind in relation to
the council’s proceedings, this would have been a departure from
the collective stance which the appellants had deliberately adopted
and to which they have throughout resolutely adhered. For these
reasons I think the auditor was fully entitled to draw inferences
from the undisputed facts which involved a rejection of the
appellants’ protestations of good faith and purity of motive and
that his doing so without further reference to the appellants after
he received their response dated 19 July 1985 involved no
unfairness to them.
These conclusions would be sufficient to dispose of the
appeals. But I return to the question of more general importance
whether if there had been any unfairness in the procedure
followed by the auditor, this would necessarily have led, as the
Divisional Court thought, to the quashing of the certificate or
– 16 –
whether, as the Court of Appeal concluded, the full hearing of the
appeal to the court on the merits was in law able to make good
any deficiency in the auditor’s procedure. It was in order to set
this question in its proper context that I thought it necessary,
earlier in this opinion, to set out the relevant statutory provisions
in extenso. The question how far in domestic and administrative
two-tier adjudicatory systems a procedural failure at the level of
the first tier can be remedied at the level of the second tier was
considered by the Privy Council in Calvin v. Carr [1980] AC 574
in which all the relevant previous authorities on the subject are
reviewed. I do not find it necessary in this case to examine the
general principles there discussed, nor would I think it appropriate
in this case to seek to lay down any principles of general
application. This is because the question arising in the instant
case must be answered by considering the particular statutory
provisions here applicable which establish an adjudicatory system in
many respects quite unlike any that has come under examination in
any of the decided cases to which we were referred. We are
concerned with a point of statutory construction and nothing else.
As I have pointed out, the court acts at first instance under
section 19 in deciding whether or not to make a declaration and
so acts either on the application of the auditor or at the instance
of an objector against the auditor’s opposition. Under section 20,
although the auditor acts at first instance in deciding whether or
not to certify, either of his own motion or at the instance of an
objector, the jurisdiction of the court may be invoked by a person
aggrieved by either an affirmative or a negative decision. Once
issued a certificate is valid until it is quashed or varied. This
clearly follows from the provisions of section 20(6) making the
certificate conclusive evidence in proceedings for recovery of the
certified sum or amount of the loss. Apart from the provisions
for appeal in section 20(3) a certificate could, no doubt, be the
subject of an application to the High Court for judicial review.
But I cannot see any reason why it should be necessary to seek
leave to invoke the supervisory jurisdiction of the court when any
party aggrieved by the certificate is entitled as of right to invoke
the much more ample appellate jurisdiction which the statute
confers. It is the very amplitude of the jurisdiction which, to my
mind, is all-important. Whether the auditor has decided to certify
or not to certify, the court is empowered to confirm or quash the
decision, to vary the decision if a certificate has been issued by
the auditor, and in any case to give any certificate which the
auditor could have given. The language describing the court’s
powers could not possibly be any wider. Procedurally there is
nothing either in the statute or in the relevant rules of court to
limit in any way the evidence which may be put before the court
on either side. In the light of these considerations I can find no
reason whatever to construe the statute in such a way as to limit
the discretion of the court as to the action it will take to provide
an appropriate remedy where the matter of complaint, or one of
them, is of unfairness in the procedure followed by the auditor. I
can well see that, if the auditor has certified of his own motion
without giving any proper notice to the person against whom the
certificate operates, the court would probably decide to quash it
without entering upon the merits. But if, on the other hand, a
local government elector had objected under section 17(3)(a)
seeking a certificate against a councillor whom he accused of
wilful misconduct causing loss and the auditor had improperly
– 17 –
dismissed his objection out of hand, it might well be that the most
expeditious and appropriate remedy would be for the court, on
appeal by the objector, to determine the issue itself. If the court
decided to proceed in that way, it would be effectively
determining at first instance the issue whether the councillor had
been guilty of wilful misconduct causing loss or deficiency. The
councillor might, in such circumstances, have heard nothing of the
matter until the proceedings before the court, but, if the objector
could prove the case against him, the councillor would have no
ground of complaint on that score.
In every case it must be for the court, as a matter of
discretion, to decide how in all the circumstances its jurisdiction
under section 20(3) can best be exercised to meet the justice of
the case. But I am clearly of opinion that when the court has, as
here, in fact conducted a full hearing on the merits and reached a
conclusion that the issue of a certificate was justified, it would be
an erroneous exercise of discretion nevertheless to quash the
certificate on the ground that, before the matter reached the
court, there had been some defect in the procedure followed.
I would dismiss the appeals and make orders for costs as
proposed by my noble and learned friend Lord Templeman.
LORD BRANDON OF OAKBROOK
My Lords,
I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends, Lord Keith of Kinkel,
Lord Bridge of Harwich and Lord Templeman. I agree with all of
them, and for the reasons which they give I would dismiss the
appeal.
LORD TEMPLEMAN
My Lords,
This appeal is the culmination of a conflict between a local
authority and Parliament. In 1985 the will of the local authority,
Liverpool City Council, was exercised by the appellants, an united
majority of elected councillors. The will of Parliament was
exercised by ministers supported by an united majority of elected
members of the House of Commons. Liverpool’s revenues mainly
consisted of grants from national taxes controlled by the ministers
and the products of local rates controlled by the councillors. The
councillors asked that Liverpool’s grants from national taxes be
made at a level which the ministers declined to accept. The
ministers asked that Liverpool’s expenditure be maintained and
Liverpool’s budget balanced at levels which the councillors declined
to accept. The ministers could lawfully make grants from national
taxes at the level decided by the ministers with the approval of
Parliament. The councillors could not lawfully maintain Liverpool’s
– 18 –
expenditure at a level which exceeded Liverpool’s income derived
from grants, rates and other sources of revenue. A local authority
is created by Parliament; must perform the duties imposed
Parliament; and can only exercise powers conferred by Parliament
in the manner and for the purposes intended by Parliament. If a
majority of councillors who control the local authority procure the
local authority to reject or neglect its statutory duty, each
councillor is guilty of misconduct, even though the councillor may
have been democratically elected to oppose the performance of
that duty. If a councillor is advised or is otherwise conscious that
action contemplated by him will amount to misconduct, he is
guilty of wilful misconduct and is liable to statutory penalties if
he persists. In the present case the appellants appeal against a
finding of wilful misconduct.
By section 2(1) of the General Rate Act 1967:
“Every rating authority shall . . . make such rates as will
be sufficient to provide for such part of the total estimated
expenditure to be incurred by the authority during the
period in respect of which the rate is made as is not to be
met by other means . . .”
By section 1 of the Local Government Finance Act 1982 a
rating authority shall not have power “(b) to make a rate for any
period other than a financial year,” and by section 7(1) of the
same Act “financial year” means a period of 12 months beginning
with 1 April. Liverpool was a rating authority and was therefore
under a duty to make a rate for each year beginning with 1 April
sufficient to meet its expenditure for that year. Collection of
rates and payment of other revenues begin as soon as the rate is
made and notified. The rates should be made by or soon after 1
April in order to facilitate collection and payment. Any delay in
making the rate involves a loss to the authority of interest or
borrowing charges by imposing a delay on collection and payment.
The Act of 1982 established the Audit Commission charged
with appointing auditors to audit the accounts of local authorities.
Each auditor must be a professionally qualified accountant. By
section 20(1) where it appears to the auditor carrying out an audit
that “(b) that a loss has been incurred or deficiency caused by the
wilful misconduct of any person” the auditor is to certify the
amount involved and the Act provides for the recovery of that
amount from the person guilty of wilful misconduct. If a local
authority does not make an adequate rate or delays in making a
rate, then the resultant loss of revenue or of interest or borrowing
charges may be investigated by the auditor. If a councillor does
not support the making of an adequate rate or shares responsibility
for delay in making a rate, he shares responsibility for the loss
thereby inflicted on the local authority and the auditor may find
the councillor guilty of misconduct. If the councillor knows that
he is failing in his duty to ensure that the local authority receives
as much revenue from rates as is necessary and as soon as
possible, the auditor may find that the councillor is guilty of
wilful misconduct.
In March 1984, the Liverpool City Council was under a duty
to consider making a rate for the financial year beginning 1 April
1984. In a report dated 19 March 1984, sent to all councillors,
– 19 –
the district auditor explained the duty of the local authority and
the duty of the councillors, indicated the liability of the
councillors for breach of duty and warned that
“I should find it difficult to see how the deliberate making
of an inadequate rate could be anything other than wilful
misconduct …. Members would in my view also be at
risk if a rate was not made because no vote was taken or
there was unreasonable delay in making a rate.”
In the event, negotiations between the central government
and the local authority for an increase in government grant
continued long after 1 April and no action was taken to challenge
the conduct of councillors, notwithstanding that no rate was fixed
until July 1984. A copy of the report dated 19 March 1984 was
subsequently sent to all councillors elected after that date in order
that they too should be aware of their responsibilities and
liabilities.
In December 1984 the council endorsed
“the policies upon which the people of Liverpool elected the
Labour Party to power, viz. (inter alia) to refuse to impose
increases in rates, rents and charges to compensate for
government cuts in grants”
and called for the reinstatement of cuts in grants said to amount
to some £216m.
On 27 February 1985 the council rejected the proposal that
a meeting of the council be arranged in order to set a rate for
1985-86. On 7 March 1985 the council resolved that
”this council requires a budget of £265.4m. but, with a
target of only £222.1m. – representing another £90m. stolen
from the city in grant penalty – this council considers it
will be impossible to make a rate.”
On 14 March 1985 in a Parliamentary answer which was
drawn to the attention of the council, the Secretary of State for
the Environment made it clear that no more government money
would be provided, that “no rating authority can now have any
excuse for delay in carrying out its duty to make a lawful rate,”
and that government grants for 1985-86 would not be paid until a
rate had been fixed. The minister reminded
“all councillors that if a failure to rate leads to a loss or
deficiency and the auditor considers that this results from
wilful misconduct, then those responsible may be
surcharged.”
On 10 April 1985 the district auditor, in a report to the
council, expressed his concern at “the council’s failure to make a
valid rate for the financial year which commenced on 1 April
1985.” He advised that “failure to make a lawful rate would be a
clear breach of duty and that deliberate failure to do so would be
wilful misconduct.” He concluded by urging
– 20 –
“the council in its own best interests, as well as those of
individual members, employees and the local community,
that a rate should be made at a very early date. That rate
needs to be matched with plans to operate within available
resources.”
In May the council again declined to consider making a
budget or a rate. On 21 May 1985 the auditor made a further
report to the council and sent a copy of his report to each
councillor. After referring to the reports dated 19 March 1984
and 10 April 1985, the auditor continued:
“By its continued failure to make a rate the council and
individual members have placed themselves seriously at risk
…. I must now give the council notice that unless it
makes a lawful rate at the earliest opportunity and in any
event before the end of May I shall forthwith commence
action under section 20 to recover any losses occasioned by
the failure to make a rate from the members responsible
for incurring them …. Yet again and for the last time I
urge the council most strongly to comply with its statutory
duty to make a lawful rate and to do so with the utmost
speed.”
On 6 June 1985 the Audit Commission directed an extraordinary
audit to be carried out.
On 14 June 1985 the council considered a resolution that,
inter alia:
“A rate increase of 9 per cent, be approved and the
difference of £29m. be made up by the return of grant
moneys stolen from the people of Liverpool by the Tory
government since 1979.”
It appears from the revised budget summary, however, that the
difference between budgeted revenue and budgeted expenditure on
the basis of the increased rate proposed would amount to £117m.
The rate proposed to be fixed was therefore inadequate and the
city solicitor advised the council before they passed the resolution
that the resolution would be contrary to law. The resolution
fixing a rate based on a 9 per cent, increase was however passed
with the support of the appellants.
The respondent auditor was appointed auditor for the
purpose of the extraordinary audit and on 26 June 1985 gave
notice to each of the appellants that he was considering certifying
that the appellants had been guilty of wilful misconduct. The
auditor asserted that the documentary evidence which he
particularised and which consisted of the relevant minutes of the
meetings of the council and its committees and the relevant
reports of its officers including the reports of the district auditor
“show that there was no lawful justification for the delay in
the making of the rate. The council has thus disregarded
the advice and warnings given by me, my predecessors and
its officers.”
– 21 –
The auditor invited representations in writing by 19 July 1985 and
intimated that he would defer making a decision until he had
considered the appellants’ representations.
On 19 July 1985 the appellants submitted detailed and
careful representations which had been drafted with the assistance
of the chief executive of Liverpool. The facts to which the
auditor had drawn attention could not be and were not disputed.
The appellants denied wilful misconduct on three grounds. First
they said that at all times they had acted in what they sincerely
believed to be the best interests of the ratepayers and citizens of
Liverpool. My Lords, political leaders from Robespierre, the sea-
green incorruptible, to Gandhi, the prophet of non-violence, have
acted in the sincere belief that it was necessary to break the
nation’s laws in the interests of the nation’s citizens. Only
Gandhi, who broke the salt laws, acknowledged in a celebrated
exchange of courtesies with the British magistrate the correctness
of his conviction and the appropriate imposition of a sentence of
imprisonment which, however, hastened the repeal of the salt tax
and the dawn of independence for India. The sincerity of the
appellants provides no defence to a charge that they deliberately
delayed after they had been warned that it was wrong of them to
do so. Secondly, the appellants contended that they were entitled
to delay in the hope and expectation that the government would
thereby be compelled or persuaded to provide more money for
Liverpool. But the government in March 1985 had made it quite
clear that the councillors would be responsible if they did not
make a rate based on current government grants. The appellants’
belief that the government did not mean that which the
government stated does not justify a delay which was bound to
cause loss to Liverpool whatever the government might do.
Thirdly, the appellants contended that they had delayed in 1984
without dire consequences to themselves, and were entitled to
believe that they would escape from the consequences of delay in
1985. But both the government and the officers of Liverpool, at
an early stage, made plain to the council that 1985 circumstances
were different from 1984 circumstances, and that delay in 1985
would not be tolerated or excused. An offender cannot
successfully plead by way of defence that he was not prosecuted
for a similar offence on a previous occasion.
The appellants did not ask the auditor for an oral hearing
but it is now said that the auditor should have invited the
appellants to make oral representations before he ultimately made
up his mind. My Lords, a councillor might have persuaded the
auditor, if he was not already persuaded, that the councillor was
sincere in his belief that he could not sacrifice the policy for
which he had been elected and sincere in the belief that a rigid
adherence to the policy would enure for the benefit of the citizens
of Liverpool even if it entailed a breach of the councillor’s duty
promptly to make an adequate rate to provide for the year’s
expenditure. But the councillor’s beliefs could not alter the
councillor’s duty or excuse a deliberate breach of that duty. In
the voluminous evidence and in the addresses of counsel I have
been unable to discern any grounds for the assertion that the oral
representations of a councillor could have supplied a defence which
was lacking from the written representations of the appellants or
could have validated or reinforced possible defences foreshadowed
in those written representations. The facts disclosed by the
– 22 –
documents were incontrovertible and damning. The auditor had no
choice but to find the appellants guilty of wilful misconduct, He
certified on 6 September 1985 that the loss for which the
appellants were liable amounted to £106,103.
Mr. Blom-Cooper, who appeared for the appellants, urged
that the auditor should have invited the appellants to make oral
representations before he reached the decision based on the
written material. If any appellant had requested an oral hearing, I
think that it would have been desirable for the auditor to have
granted that request, first, so that the appellant could reiterate
the sincerity of his motives and, secondly, so that the appellant
might satisfy himself as to the judicial and impartial quality of
the auditor. But sincerity is no excuse. An oral hearing could
not detract from the force of the documentary evidence or
supplement the written defence of the appellants in any material
respects. I do not consider that the auditor was bound to follow a
procedure which the appellants, acting under competent advice, did
not suggest. The judicial and impartial qualities of the auditor are
not in question.
Mr. Blom-Cooper urged that although the appellants did not
request an oral hearing, they were deprived of a “legitimate
expectation” of being invited to an oral hearing. Mr. Blom-Cooper
does not allege that the appellants in fact expected to be invited
to an oral hearing and does not speculate whether they would have
accepted an invitation. Mr. Blom-Cooper submits that a legitimate
expectation of being invited to an oral hearing is an objective
fundamental right which, if not afforded, results in a breach of
law or breach of natural justice which invalidates any decision
based on written material. This extravagant language does not
tempt me to elevate a catch-phrase into a principle. The true
principle is that the auditor, like any other decision-maker, must
act fairly. It was not unfair for the auditor to reach a decision
on the basis of the written material served on and submitted by
the appellants. In Council of Civil Service Unions v. Minister for
the Civil Service [1985] AC 374 it was unfair for the government
to decide to deprive a civil servant of his right to belong to a
trade union without first consulting the civil servant or his union;
this House would have quashed the decision but for the overriding
interests of national security which justified the government’s
decision. My noble and learned friend, Lord Roskill, pointed out,
at p. 415, that “legitimate expectation” is a manifestation of the
duty to act fairly. A decision may be unfair if the decision-maker
deprives himself of the views of persons who will be affected by
the decision. In the present case the appellants were afforded
ample opportunity to express their views, and the auditor was
enabled to reach a decision in the light of every defence which it
was possible for the appellants to urge.
The certificate of the auditor that a loss of £106,103 had
been incurred by the wilful misconduct of the appellant was given
pursuant to section 20(1) of the Local Government Finance Act
1982 which provides:
“Where it appears to the auditor . . . (b) that a loss has
been incurred or deficiency caused by the wilful misconduct
of any person, he shall certify that … the amount of the
Joss or the deficiency is due from that person and . . . may
– 23 –
recover that . . . amount for the benefit [of the relevant
authority]; and if the auditor certifies . . . that any . . .
amount is due from two or more persons, they shall be
jointly and severally liable for that . . . amount.”
By section 20(3) any person who is aggrieved by a decision of an
auditor to certify that an amount is due from him may appeal
against the decision to the court and “the court may confirm, vary
or quash the decision and give any certificate which the auditor
could have given,” and any certificate given by the court “shall be
treated … as if it had been given by the auditor …”
On 6 October 1985 the appellants appealed under section
20(3) to the High Court. By R.S.C., Ord. 98 the appeal was
brought by notice of motion supported by an affidavit setting out
the facts on which the appellants intended to rely at the hearing.
Order 98, r. 4(2) provides that evidence at the hearing shall be
given by affidavit, except in so far as the court directs that the
evidence shall be given orally. The appellants filed numerous
affidavits and there were exhibited all the relevant documents
which were considered by the auditor or to which the appellants
wished to refer. The appeal was heard by a Divisional Court
(Glidewell L.J. and Caulfield and Russell JJ.). The appellants
asked that the certificate given by the auditor be set aside and
discharged. The appellants were invited to give oral evidence but
declined the invitation. After a hearing lasting 10 days the
appellants’ applications were dismissed. The appellants appealed to
the Court of Appeal (Lawton, Dillon and Woolf L.JJ.). The appeal
was dismissed and, with leave of the Court of Appeal, this present
appeal has been brought to this House. Any oral evidence which
could have been given by the appellants to the auditor could have
been given on affidavit or orally to the Divisional Court. In these
circumstances, Mr. Blom-Cooper did not urge the merits of the
appellants’ case. Having submitted that the procedure of the
auditor was defective because he did not invite the appellants to
give oral evidence, he next submitted that in those circumstances
the Divisional Court had no power to affirm the decision of the
auditor.
My Lords, in reaching a decision an auditor may make
mistakes of fact, law, or procedure. The auditor does not take
evidence on oath and the information available to him may be
incomplete. On an appeal from his decision, the court is entitled
to consider any evidence from any appellant or from any auditor
or other expert. Such evidence is given on oath, either in the
form of an affidavit or in the form of oral testimony. Evidence
may be produced before the court which was never available to
the auditor. The judges will draw their own conclusion from the
evidence before the court, will apply the law as judicially
construed, and will adhere to court procedure. If the Divisional
Court errs in law a further appeal lies. In my opinion, the court
hearing an appeal under section 20 of the Act of 1982 is not
powerless to confirm or vary the decision of an auditor merely
because the decision of the auditor was defective, whether the
defect relates to a matter of evidence, law or procedure. It is
for the court to consider a certificate under section 20(3) in
substitution for the certificate of the auditor.
– 24 –
Mr. Blom-Cooper relied on the dictum of Megarry J. in
Learv v. National Union of Vehicle Builders [1971] Ch. 34, 49 that
“a failure of natural justice in the trial body cannot be cured by a
sufficiency of natural justice in an appellate body.”
This dictum was enunciated in connection with an appeal from one
domestic tribunal to an appellate domestic tribunal. In Calvin v.
Carr [1980] AC 574, 593, Lord Wilberforce, delivering the advice
of the Board, demurred to this dictum as being “too broadly
stated” and at p. 592 recognised and asserted
“that no clear and absolute rule can be laid down on the
question whether defects in natural justice appearing at an
original hearing, whether administrative or quasi-judicial, can
be ‘cured’ through appeal proceedings.”
My Lords, when by statute an appeal lies from a tribunal to a
court of law, the statute must be construed to determine whether
the court is free to determine the appeal on the basis of the
evidence before the court or is bound by the evidence or
information laid before the tribunal. In the present case I have no
doubt that it was for the court of law to consider whether “wilful
misconduct” was proved and for that purpose to consider the
evidence laid before the court. The task of the court was to
“give any certificate which the auditor could have given” (Section
20(3) of the Act of 1982). The court was not concerned with any
defects in the procedure adopted by the auditor because those
defects (if any) did not hamper the prosecution or conduct of the
appeal. Different considerations apply if a statute only allows an
appeal to a court of law on a question of law, or entitles or
obliges the court of law to rely on the facts found by the
tribunal. And the defects in the inquiry conducted by the tribunal
may be so prejudicial to the aggrieved person that the court in its
discretion may decide to quash the decision and not to proceed
with an appeal on the merits in the absence of the views of the
tribunal after a proper inquiry. In the present case the Divisional
Court was entitled to consider the appeal on its merits and on the
basis of the evidence presented to the court.
The auditor on the basis of the information available to him
came to the conclusion that the appellants were guilty of wilful
misconduct. The Divisional Court on the basis of that information
supplemented by the additional evidence put forward by the
appellants affirmed the decision of the auditor. I would dismiss
this appeal. As regards costs there are technically 47 appeals
before this House. Some appellants are legally aided, some are
not. I would order each appellant to pay one forty-seventh of the
auditor’s costs of the appeal to this House, subject to the usual
protection afforded by the legal aid certificates. If and so far as
the auditor does not recover a due proportion from a legally aided
appellant and subject to any application of The Law Society, the
auditor should be entitled to recover from the legal aid fund
pursuant to section 13 the Legal Aid Act 1973.
– 25 –
LORD GRIFFITHS
My Lords,
I have had the advantage of reading in draft the speeches
prepared by my noble and learned friends, Lord Keith of Kinkel,
Lord Bridge of Harwich and Lord Templem,an. For the reasons
they give I too would dismiss the appeal.
– 26 –
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