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You are here: BAILII >> Databases >> The Law Commission >> PUBLICATION OF LOCAL AUTHORITY REPORTS (A Consultation Paper) [2002] EWLC 163(3) (20 March 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/163(3).html Cite as: [2002] EWLC 163(3) |
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Part III
Local Authority Liability and Insurance Cover
3.3 An authority may be liable where it acts contrary to the common law, for example in breach of contract, or in tort, where it may be liable for the negligent exercise of statutory powers[1] or statutory duties,[2] vicariously liable for negligence of employees[3] or for intentional wrongdoing of its employees,[4] or for misfeasance in public office.[5]
3.4 In addition to liability in private law, a local authority’s actions and decisions can also be challenged by judicial review. This can arise where it acts beyond the scope of its statutorily defined powers (illegality); or where it exercises its discretion unreasonably (irrationality); or breaches the requirements of natural justice (procedural impropriety).[6] However, it must be noted that it does not necessarily follow that where a local authority has acted unlawfully in the “public law” sense, it is liable in private law, as the relevant private law cause of action must be made out.[7]
3.5 The Human Rights Act 1998 makes it unlawful for public bodies to act inconsistently with the ECHR, and empowers the court to give appropriate remedies, including damages, for contravention of Convention rights. Convention rights may be relied on in actions against a local authority (as well as in a judicial review of a local authority decision).[8] Therefore the acts of a local authority may be scrutinised in the light of private law principles, administrative law principles, and Convention rights.
(1) direct, where the authority itself commits the act or omission giving rise to the liability; and/or
(2) vicarious, where an employee of the authority, during the course of his or her employment, incurs personal liability but the authority – without fault on its part – can nevertheless be liable as well.
3.7 The issue is somewhat confused when an action is launched against an authority on different bases of liability and as a mixture of direct and vicarious liability. The current state of flux in the law on local authority liability (especially for torts)[9] means that the law reports are littered with cases where victims of wrongdoing by local authorities plead several alternative causes of action.[10]
3.8 Local authorities may incur direct liability for a breach of contract, breach of a statutory duty, negligence, nuisance, trespass, defamation, misfeasance in public office,[11] or a combination of these. For instance, an authority may fail to discharge duties imposed by statute, or discharge them in a negligent manner. In this case, a direct action against the authority for breach of statutory duty may – subject to certain preconditions – be successful.[12]
3.10 Vicarious liability is worth some further explanation at this point. Where a claimant can bring a claim against an authority on the basis that it is vicariously liable for the fault of its member or officer or employee,[13] he or she is likely to do so because the chances of obtaining financial compensation and payment of legal costs will be so much higher than if an action is brought merely against the individual. Moreover, it is much easier to establish a cause of action based on, say, a duty of care, against an easily identifiable individual than against the council as a whole.
3.11 The definition of vicarious liability is that “a master is jointly and severally liable for any tort committed by his servant while acting in the course of his employment.”[14] To establish vicarious liability the claimant must satisfy three limbs. First, he or she must show that the worker has committed a tort. Secondly, it must be shown that the worker was a “servant” (now normally referred to as an “employee”) rather than an independent contractor. Third, the claimant must establish that the tort was committed during the course of employment.
3.12 Many reported cases in which the vicarious liability of the local authority has been pleaded have concerned the “course of employment” criterion, especially when the tort committed by the servant is a physical or sexual assault. The tensions underlying vicarious liability – “on the one end, the social interest in furnishing an innocent tort victim with recourse against a financially responsible defendant; on the other, a hesitation to foist any undue burden on business enterprise”[15] – are brought to the fore. Local authorities, especially in relation to child welfare and education issues, have a broad responsibility to the community at large but are subject to finite financial and staffing resources. However, when a servant of that authority abuses children entrusted to his or her care then justice might require that the victim be adequately compensated. The courts have to balance these two competing policy objectives.
It is deemed to be done so if it is either (1) a wrongful act authorised by the master, or (2) a wrongful and unauthorised mode of doing some act authorised by the master.[16]
However, this statement can be misleading. The first part of this test is not concerned with vicarious liability at all. If a master actually authorises a servant to perform a tortious act, then the master’s liability will be primary and direct. The relationship between the master and servant would be transformed to a principal-agent relationship and governed by the law of agency.
3.15 The issue was comprehensively revisited in the House of Lords in Lister v Hesley Hall Ltd.[17] A warden at a school boarding house had committed several acts of sexual abuse on boys in his care. The House of Lords, with the benefit of recent Canadian judgments,[18] analysed the Salmond test. All their Lordships agreed that insufficient weight had been placed upon the phrase after the two-limbed test, which states
But a master, as opposed to the employer of an independent contractor, is liable even for the acts which he has not authorised, provided they are so connected with acts which he has authorised that they may rightly be regarded as modes – although improper modes – of doing them.[19]
3.16 Thus undue reliance on the unauthorised mode/independent act dichotomy had led to decisions that failed to take into account the connection between the act and the employment. Lord Steyn cited,[20] with approval, Diplock LJ in Ilkiw v Samuels when he stated that
the matter must be looked at broadly, not dissecting the servant’s task into its component activities – such as driving, loading, sheeting and the like – by asking: What was the job on which he was engaged for his employer? and answering that question as a jury would.[21]
Thus Lord Steyn concluded that there was a very close connection between the abuse committed by the warden and his employment, and their Lordships held that the school was vicariously liable.
3.17 A corporate body, such as a local authority, is legally distinct from its constituent parts.[22] Therefore any wrongful acts that the authority commits are separate from the legal liability of the individual members and officers. However in certain circumstances officers and members may be liable for their personal part in the authorities’ wrongful acts.
3.18 Although members and officers are largely immune from suit when discharging their duties, they may be personally liable where a certain degree of culpability is engaged. If, for instance, if they do not act in good faith or act beyond the powers of the authority, then they may be individually liable for their actions and omissions.[23] Officers, where they act negligently (but still in good faith) will have no statutory protection. It will be no defence that the authority authorised their negligent acts.[24]
3.20 A local authority must act prudently because it is a public body, and accountable for its use of public funds. It should operate in “a fairly business-like manner”.[25] It could also be said to be in the position akin to that of a trustee.[26] It should not, therefore, vitiate its insurance cover, deliberately or recklessly. Moreover, its accounts will be audited, and the Audit Commission will look to see whether the authority has conducted itself with “economy, efficiency and effectiveness.”[27] When an authority has set up an ad hoc inquiry, or is contemplating doing so, it will therefore wish to know how its obligations under its contract of insurance affect the authority’s relationship to the inquiry: what the authority ought to do, may do or should not do. In particular, it will wish to know how it may or should respond to the inquiry report, and whether it may publish it, in full or in some anonymised form.
3.22 An express term in a contract of liability insurance which reads “No admission of liability, waiver of rights or promise of payment shall be made without the company’s written consent” may be expected as a standard term.[28]
3.23 This condition is an innominate term of the insurance contract.[29] The authority must not make any admission of liability, promise of payment, or waive rights. A minor breach of this term will entitle the insurer to claim damages. A breach which has very serious consequences for the insurer will entitle the insurer not to pay out under the contract.[30] However, the contract will continue to govern other claims made by the authority under the insurance policy.[31]
3.24 The express term which forbids an admission of liability, waiver of rights of promise of payment without the insurer’s consent does not necessarily give the insurer an unfettered discretion to give or withhold consent. While a term will only be implied into a contract where it “represents the obvious though unexpressed intention of the parties or is necessary for the business efficacy of the contract”[32] and the context and purpose of the approval must be identified in each case, it is likely that a limitation to this express term can be implied. It is highly arguable that an insurer should not “withhold approval arbitrarily, or … [should] not do so in circumstances so extreme that no reasonable company in its position could possibly withhold approval.”[33]
3.28 If a wilful act of the insured is the cause of the loss, then the insured may not claim on the policy, whether or not the loss was intended.[34] Publication of an inquiry report would be a deliberate and “wilful” act and on the face of it, the authority could, on this doctrine, be unable to claim for liability which resulted from the act of publishing.
3.29 Moreover, if the wilful act is criminal or tortious, there again the insured may not claim on the policy, as a matter of public policy.[35]
3.30 Neither of these principles will be relevant where the authority’s liability is vicarious. In the case of the first principle, if liability is vicarious, it is on the basis of the act of an employee, and there is no deliberate act of the authority in view. In the case of the second principle, it has been held that while a person may not insure against liability arising out of the commission of a crime (save where such insurance is required by law), “there is nothing either in the authorities or in logic to justify extending this principle of public policy so as to deny insurance cover to those whose sole liability is one which arises vicariously, whether as employers or, as here, under an equivalent statutory provision.”[36] Indeed, it is because there is a risk that the authority will be vicariously liable that it should make provision. Thus, if an officer of the authority, without the permission of the authority, deliberately puts the findings of an inquiry into the public domain and an action for defamation results, the authority will be vicariously liable, and the doctrine that the insured may not claim where the act was wilful may not bite.
3.32 Even where these two principles are applicable on the face of it, they should be applied with reservations to local authority liability insurance contracts. The underlying principle is that the insured should not be able to recover on a policy when the insured party has itself brought about the loss deliberately. So, to take an extreme example, if an authority received legal advice that an inquiry report it had commissioned was prompted by malice and its conclusions were defamatory without justification, the principle would prevent the authority claiming on its insurance policy if it deliberately published the report. It would not have been the intention of the parties to the contract to permit this.[37]
So a man may insure against liability for other wrongful acts committed by him which are committed innocently or through carelessness and without any deliberate intention to do wrong, such as infringement of copyright or publication of a libel.[38]
3.34 We would argue also that the fact that the insured is a local authority itself means that these principles should be interpreted in this limited way. First, there is the general principle that a public authority may not by contract fetter itself so as to disable itself from exercising its discretion by law.[39] A contract concluded between a private contractor and a local authority will not be allowed to subsist if it is reasonably foreseeable that the contract will be incompatible with the due exercise of their powers or the discharge of their functions.[40]
3.35 For example, it could be said that in order to discharge its statutory responsibilities to vulnerable people for whom it provides homes, an authority ought to investigate complaints of ill-treatment, and disseminate the lessons that can be learnt. Further, local authorities clearly have statutory duties to fulfil, and part of those duties may entail making certain information public. An argument could also be founded on authorities’ new statutory power to do anything which they consider likely to promote or improve the economic, social and environmental well-being of their areas.[41]
3.36 The local authority may have a duty to publish a report.[42] It might, for example, be implied from the primary duty imposed upon the authority. For instance, in relation to child care, Part I Schedule 2 to the Children Act 1989 imposes a duty on the local authority to publish information about the services provided by them under various sections of the Act.[43] Not all inquiries may be linked in such an direct manner to a primary duty imposed upon the authority.
What in my judgment is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise a danger, should not deliberately court it by taking measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer’s omission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, that is to say, made with actual recognition by the insured himself that a danger exists, and not caring whether or not it is averted. The purpose of the condition is to ensure that the insured will not, because he is covered against loss by the policy refrain from taking precautions which he knows ought to be taken.[44]
3.38 An authority which adopted a cavalier attitude to an inquiry report, and did not trouble to take the steps that a reasonable prudent[45] authority would take to avert the risks of an action in defamation, could be said to be courting the danger. An authority which takes reasonable steps to avert that risk, such as reviewing the quality of the report and the basis for any defamatory statements in it, before releasing it, will not be courting the danger; if it does not take reasonable steps, it might be acting imprudently. We are fortified in this view by the statements of the ABI in its Response to the Waterhouse Report. It wrote, “… insurance policies generally include a duty to behave as if uninsured. The purpose of this duty is to prevent the insured (here, the local authority) behaving imprudently simply because its risks are being assumed by someone else.”[46]
3.39 Despite the strength of the arguments we have just rehearsed, if a fundamental term can be implied in the insurance contract not to say or do anything likely to prejudice the insurer’s position, the authority may be constrained. We therefore now consider the possibility that such a term can be implied in the insurance contract.[47]
3.40 A term will be implied if either it is necessary for the performance of the contract, or it can be shown that the parties would have agreed to such a term if they had thought about it.[48] A term will not be implied if it is not reasonable.[49] Further, as an express term will be construed in the context in which it appears,[50] so it is appropriate to bear the context in mind when considering what terms might be implied into a contract.[51]
3.41 The argument for implying a term to the effect that the local authority must not act in a way prejudicial to the insurers’ interests proceeds from the implied condition in all insurance contracts that the parties observe utmost good faith towards each other at all material times and in all material particulars.[52] This duty of utmost good faith continues throughout the contractual relationship at a level appropriate to the moment.[53]
3.42 Authorities on the duty of utmost good faith often concern the duty to disclose material facts to the insurer.[54] That aspect of the duty is no doubt very important, in consequence of the fact that the insured will or should have the information pertinent to risks and liabilities, and the insurer needs to have that information. But the problem for a local authority in the present context is not one of non-disclosure of information to the insurer; it is whether its words and actions, as regards others, should be circumscribed beyond what is stated in the express term because of the duty of good faith owed to the insurer.
3.44 However, where terms are sought to be implied into a private law transaction between the local authority and a private party, they will not be implied if the term would interfere with the discharge of statutory duties or functions.[55] In William Cory and Son v London Corpn[56]the claimants sought to imply a term to a contract that would have effectively prevented the corporation from discharging its statutory duty, expressed in imperative language. The court held that this term wasultra vires the corporation’s authority; the contract was incompatible with the effective discharge of the authority’s functions.
3.45 This case, and the general principle to which it relates, suggests a narrow interpretation of any implied duty, term, or condition in an insurance contract such that the authority is not prevented from carrying out its statutory functions. For example, it could be argued that the fact that the insured is a statutory authority responsible for the care and protection of children has a modifying impact on the duty of utmost good faith.[57]
3.47 It could be argued that the duty of utmost good faith has been developed to embrace a “duty of co-operation”. Liability insurance contracts commonly contain a co-operation clause, in which the insured promises not to admit liability or to settle a claim without the consent of the insurer, and to secure information or evidence required by the insurer to defend a claim against the insured and to render the insurer all reasonable assistance.[58] If there is no express term, a duty of co-operation may be implied, according to Lord Blackburn, when
... it appears that both parties have agreed that something shall be done, which cannot be effectually done unless both parties concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.[59]
3.48 A co-operation clause may be implied to the extent that it is necessary, namely where without co-operation, it would be impossible for the contract to be performed.[60] Thus it extends to matters such as obtaining or providing information, and rendering the insurer all reasonable assistance, but the implied duty of co-operation should not be interpreted as requiring that the insured not do anything prejudicial to the interests of the insurer. The context of the contract points rather in the opposite direction, as we explain at paragraph 3.34 above. We would therefore question whether a duty of co-operation extends so far as taking all steps to prevent or minimise loss, when to do so conflicts with a proper function or duty of the insured.
3.49 Judicial and academic opinion is divided as to whether or not a duty to mitigate loss is to be implied into insurance contracts.[61] Some judges have stated that, in the absence of an express duty, no duty to minimise the extent of loss will be implied. Others, mainly writers, have asserted that, if the insured has no express duty to take reasonable steps to minimise loss, a duty of that kind will be implied.[62] Although the writers have little support from the judges, many cite Scrutton LJ in City Tailors Ltd v Evans:
it is immaterial that the fire was caused by the negligence of the assured’s servants ... But, once the fire has happened, the assured must do his best to extinguish it.[63]
3.50 Clarke explains that a duty on the insured to minimise loss may arise because the insured’s act or failure to act may break the chain of causation, or as part of the wider duty to render assistance to the insurer which, in turn, is “linked” to the general duty of good faith.[64]
but he points out that “the insured is obliged to take care to prevent or avoid any insured loss at all only if the contract says so in very clear terms”. Again, it would be a considerable leap to infer from a duty to minimise loss once loss has occurred or started to occur, a duty not to do anything prejudicial to the interests of the insurer, even if to do so would mean that the insured cannot carry out its proper duties, and we doubt whether a duty of co-operation extends so far as taking all steps to prevent or minimise loss, when to do so conflicts with a proper function or duty of the insured.
3.51 An express term in the insurance contract may well prohibit any act which constitutes an admission of liability or waiver of rights, without the insurer’s consent.[65] In considering whether to withhold consent, the insurer must not exercise its discretion dishonestly, for an improper purpose, capriciously or arbitrarily.
[1] Stovin v Wise [1996] AC 923.
[2] X v Bedfordshire CC [1995] 2 AC 633; Barrett v Enfield LBC [2001] 2 AC 550; W v Essex CC [2001] 2 AC 592; Phelps v Hillingdon BC [2001] 2 AC 619.
[3] Phelps v Hillingdon BC [2001] 2 AC 619.
[4] As per Lord Steyn: “the law of vicarious liability sometimes may embrace intentional wrongdoing by an employee” in Lister v Hesley Hall Ltd [2001] UKHL 22 para [16]; [2001] 2 WLR 1311, 1317, where the torts of the employee “were so closely connected with his employment that it w[as] fair and just to hold the employers vicariously liable”: [2001] UKHL 22 para [28]; [2001] 2 WLR 1311, 1323. See further paras 3.10 – 3.16 below.
[5] Racz v Home Office [1994] 2 AC 45; Three Rivers DC v Bank of England (No 3) [2000] 2 WLR 1220.
[6] This classification is taken from Lord Diplock’s speech in Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374, 410.
[7] X v Bedfordshire CC [1995] 2 AC 633.
[8] See, eg, K Markus and M Westgate, “Recent Developments in Public Law” Legal Action [2001] Nov 25, 26–27.
[9] See Clerk and Lindsell on Torts (18th ed 2000) para 12–06.
[10] See, eg, Phelps v Hillingdon LBC [2001] 2 AC 619. For a succinct description of the current position, see C Booth QC, “Liability in Negligence” [2002] (1) JLGL 3.
[11] Misfeasance in public office is a hybrid type of liability that can be committed directly both by the authority and/or by individual officers: see Jones v Swansea CC [1990] 1 WLR 1453.
[12] See X v Bedfordshire CC [1995] 2 AC 633.
[13] Collectively, the members (who are the elected political representative) constitute the council. Officers are those staff appointed by the authority for the necessary discharge of their functions: Local Government Act 1972, s 112(1).Whether this covers all employees of the authority has been doubted (see R v Hertfordshire CC ex p NUPE [1985] IRLR 258, 260 per Sir John Donaldson MR) but otherwise employees are employed under the incidental power in Local Government Act 1972, s 111. See further, A Arden, Local Government Constitutional and Administrative Law (1999) para 5.2.2.
[14] Salmond and Heuston on the Law of Torts (21st ed 1996) p 430.
[15] J G Fleming, The Law of Torts (9th ed 1998) p 410.
[16] Salmond and Heuston on the Law of Torts (1st ed 1907) p 83; (21st ed 1996) p 443.
[18] See Bazley v Curry (1999) 174 DLR (4th) 45, per McLachlin J, and Jacobi v Griffiths (1999) 174 DLR (4th) 71.
[19] Salmond and Heuston on the Law of Torts (1st ed 1907) p 84; (21st ed 1996) p 443 (emphasis added).
[20] Lister v Hesley Hall Ltd [2001] UKHL 22, para [42]; [2001] 2 WLR 1311, 1327.
[21] [1963] 1 WLR 991, 1004.
[22] See generally Encyclopaedia of Local Government Law paras 1-115 – 1-177; Cross on Local Government Law paras 10–52 – 10–53; A Arden, Local Government Constitutional and Administrative Law (1999) paras 8.3.2 – 8.3.35.
[23] Common law personal liability is inapplicable for members and officers where the Public Health Act 1875, s 265 is engaged. The section now is applicable to all local authorities, by virtue of the Local Government (Miscellaneous Provisions) Act 1976, s 39 where powers pursuant to any public general or local Act are exercised. It provides a considerable degree of immunity for both the member and the officer. Where the officer or member can demonstrate that their actions were undertaken in good faith, they will benefit from an indemnity to an action. However, for officers this indemnity does not extend to negligent acts, or allegations of irregularities in insolvency proceedings: Southampton and Itchin Bridge Co v Local Board of Southampton (1858) 8 El & Bl 801; 120 ER 298; Bullard v Croydon Hospital Group Management Committee [1953] 1 QB 511; Bourgoine v Waltham Forest LBC (1997) 95 LGR 520.
[24] R v Watson (1788) 2 TR 199; 100 ER 108.
[25] As explained by Lord Atkinson in Roberts v Hopwood [1925] AC 578, 595–596:
A body charged with the administration for definite purposes of funds contributed in whole or in part by persons other than the members of that body owes, in my view, a duty to those latter persons to conduct that administration in a fairly businesslike manner with reasonable care, skill and caution, and with a due and alert regard to the interest of those contributors who are not members of the body.
[26] See Prescott v Birmingham Corpn [1955] Ch 210 in which Jenkins LJ said at p 235 that local authorities owed “an analogous fiduciary duty” to their ratepayers.
[27] Audit Commission Act 1998, s 5(1)(e).
[28] The Waterhouse Report referred to the contract between Clwyd County Council and Zurich Municipal which included such a term. Waterhouse describes how Zurich Municipal became the relevant insurer at paras 32.55 and 32.56 of the report.
[29] An innominate term is a term in a contract that does not automatically give rise to a repudiation of the contract (like, for instance, a breach of a condition) or merely a remedy in damages (such as breach of a contractual warranty) but may give rise to either: see Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. Procedural terms which regulate the insurance claims procedure were described as innominate in Alfred McAlpine v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437.
[30] See Alfred McAlpine v BAI (Run-Off) Ltd [2000] 1 Lloyd’s Rep 437 cf Virk v Gan Life Holdings [2000] Lloyds Rep IR 159.
[31] Alfred McAlpine v BAI (Run-Off)Ltd [2000] 1 Lloyd’s Rep 437, 444.
[32] Gan Ins Co Ltd v Tai Pin Ins Co Ltd [2001] EWCA Civ 1047, para [46] per Mance LJ, citing The Moorcock (1889) 14 PD 64; Liverpool CC v Irwin [1977] AC 239; and cf Chitty on Contracts (28th ed 1999) Vol 1 General Principles, paras 13–004 – 13–009.
[33] Gan Ins Co Ltd v Tai Pin Ins Co Ltd [2001] EWCA Civ 1047 per Mance LJ at para [73]. He continued, “This will not ordinarily add materially to the requirement that the reinsurer should form a genuine view as to the appropriateness of settlement or compromise without taking into account considerations extraneous to the subject-matter of the reinsurance.”
See also Abu Dhabi National Tanker Co v Product Star Shipping Ltd (The Product Star) (No 2) [1993] 1 Lloyd’s Rep 397 and Nash v Paragon [2001] EWCA Civ 1466; [2002] 1 WLR 683.
[34] Britton v Royal Ins Co (1866) 4 F & F 905, 908; 176 ER 843, 844 per Willes J. See also British and Foreign Marine Ins Co v Gaunt [1921] 2 AC 41, 52 per Viscount Finlay.
[35] A person should not profit from his or her own wrongdoing (ex turpi causa, non oritur actio).
[36] Lancashire CC v Municipal Mutual Ins Ltd [1997] QB 897, 908 per Simon Brown LJ.
[37] MacGillivray on Insurance Law (9th ed 1997) para 14–31 citing Beresford v Royal Ins Co [1938] AC 586, 595.
[38] See MacGillivray on Insurance Law (9th ed 1997) para 14–46.
[39] H W R Wade and C F Forsyth, Administrative Law (8th ed 2000) p 333.
[40] British Transport Commission v Westmoreland CC [1958] AC 126, 144 per Viscount Simmonds. See generally, H W R Wade and C F Forsyth, Administrative Law (8th ed 2000) pp 333–338; P P Craig, Administrative Law (4th ed 1999) pp 526–534.
[41] Local Government Act 2000, s 2(1). See para 2.54 above. The DTLR’s guidance to local authorities on the exercise of the power, to which the authorities are bound to have regard (Local Government Act 2000, s 3(5)) does not define any of the three well-beings. It states:
The Government does not intend to define what actions would constitute the promotion of economic, social or environmental well-being, although it should be made clear that it considers these terms to be sufficiently broad to encompass both cultural well-being and the promotion or improvement of the health of a council's residents or visitors to the area. It is for the local authority itself to decide whether any particular action would promote or improve well-being, taking account of their local circumstances and the wishes and needs of their communities. A local authority would, of course, need to interpret these terms in accordance with the general principle of “Wednesbury” reasonableness.
DTLR, “Power to Promote or Improve Economic, Social or Environmental Well-Being (Final Guidance)” May 2001, para 27.
[42] See paras 6.20 – 6.26 below.
[43] See para 1(2). The obligation to publish information arises in relation to Children Act 1989, ss 17, 18, 20, 23B – 23D, 24A and 24B.
[44] Fraser v B N Furman (Productions) Ltd [1967] 1 WLR 898, 906. The “condition” referred to was that “the insured shall take reasonable precautions to prevent accidents and disease”. The contract containing the condition was an employer’s liability insurance policy. See also Sofi v Prudential [1993] 2 Lloyd’s Rep 559; Devco Holder v Legal and General Assurance Soc [1993] 2 Lloyd’s Rep 567.
[45] Hardy Ivamy submits that the words “reasonable” and “prudent” are interchangeable: E R Hardy Ivamy, General Principles of Insurance Law (6th ed 1993) p 144.
[46] The ABI Response, section 2, para 2.4.
[47] As recounted in the Waterhouse Report (para 32.45), Clwyd’s insurers referred in correspondence to such a fundamental term. Counsel’s advice was that such a term could indeed be implied in the contract. The distinction between the supposed fundamental term and the express condition was significant in counsel’s advice. While the express condition prevented the council from adopting or accepting the report, it might have been possible to have published an edited and abridged version. The conclusion that the insurer was right to assert the fundamental implied term, however, meant that not even this limited form of publication was possible, because it might “be deemed so potentially prejudicial to the interests of the insurers” as to breach the fundamental term. If an insured breaches the fundamental term of utmost good faith, the insurer can avoid the contract entirely.
[48] MacGillivray on Insurance Law (9th ed 1997) para 11–11. See, eg, Yorkshire Water Services Ltd v Sun Alliance & London Ins plc [1997] 2 Lloyd’s Rep 21, 31.
[49] Liverpool CC v Irwin [1977] AC 239, 262.
[50] Fraser v B N Furman Ltd [1967] 1 WLR 898, 905 per Diplock LJ.
[51] “The court may construe the contract in the light of the objects which the contract was intended to achieve.” M A Clarke, The Law of Insurance Contracts (3rd ed 1997) para 15–3B2, citing authorities too numerous to repeat here.
[52] Mathew LJ described it as a “well-established rule of law”:
it is an essential condition of a policy of insurance that the underwriters shall be treated with good faith, not merely in reference to the inception of the risk, but in the steps taken to carry out the contract.
Boulton v Houlder Brothers [1904] 1 KB 784, 791–2.
[53] M A Clarke, The Law of Insurance Contracts (3rd ed 1997) para 27–1A, cited with approval in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd (The Star Sea) [1997] 1 Lloyd’s Rep 360 by Leggatt LJ. The duty of good faith is not an absolute. As Lord Clyde held in the House of Lords’ decision:
The substance of the obligation which is entailed can vary according to the context in which the matter comes to be judged. It is reasonable to expect a very high degree of openness at the stage of the formation of the contract, but there is no justification for requiring that degree necessarily to continue once the contract has been made.
Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] UKHL 1, para [7]; [2001] 2 WLR 170, 175. See also Konstantinos Agapitos v Agnew [2002] EWCA Civ 247 in which it was held, following their Lordships’ decision in The Star Sea that the duty of utmost good faith owed under the Marine Insurance Act 1906, s 17 is superseded or exhausted by the rules of litigation, that the same is true of the common law duty of good faith.
[54] For example, Leon v Casey [1932] 2 KB, 576, in which Scrutton LJ held at p 579, “insurance has always been regarded as a transaction requiring the utmost good faith between the parties, in which the assured is bound to communicate to the insurer every material fact within his knowledge not only at the inception of the risk, but at every subsequent stage while it continues…”.See also Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd [2001] UKHL 1; [2001] 2 WLR 170, cited at n 53 above.
[55] [1951] 2 KB 476, 484; Commissioners of Crown Land v Page [1960] 2 QB 274, 287 and 289 per Evershed MR and Omerod LJ.
[56] [1951] 2 KB 476.
[57] In the Clwyd case, counsel referred to having considered the impact of this fact, but concluded on balance that a cautious approach was nevertheless best, because there was no express modification in the insurance contract.
[58] M A Clarke, The Law of Insurance Contracts (3rd ed 1997) para 27–4A.
[59] Mackay v Dick (1881) 6 App Cas 251, 263 per Lord Blackburn.
[60] See Devlin J in Mona Oil Equipment and Supply Co Ltd v Rhodesia Railways Ltd [1949] 2 All ER 1014 at 1018.
[61] See MacGillivray on Insurance Law (9th ed 1997) paras 26–18 – 26–19; British and Foreign Marine Ins Co v Gaunt [1921] 2 AC 41; Yorkshire Water Services Limited v Sun Alliance and London Ins plc [1997] 2 Lloyd’s Rep 21.
[62] See M A Clarke, The Law of Insurance Contracts (3rd ed 1997) para 28–8G1.
[63] (1922) 126 LT 439, 443.
[64] M A Clarke, The Law of Insurance Contracts (3rd ed 1997) para 28–8G1.
[65] For discussion of what might constitute an admission of liability or waiver of rights, see Parts IV and V below respectively.
