Comninos, R (on the application of) v Bedford Borough Council & Ors

The claimant is the auditor appointed by the Audit Commission under the Audit Commission Act 1998 (the 1998 Act) to audit the accounts of the defendant, Bedford Borough Council. Section 24(1) of the 1998 Act gives the claimant power, subject to section 31(3) of the Supreme Court Act 1981 (the 1981 Act) to apply for judicial review in relation to any decision of the defendant which affects its accounts. In these proceedings the claimant challenges the defendant's decision to give financial support to libel claims brought by three council officers: Mr Field, the chief executive, who is also the returning officer for Bedford with responsibility for elections within the borough; Mr Gough, the borough solicitor and the council's statutory monitoring officer; and Mr Darkoh, a barrister employed by the council's legal department (the first, second and third interested parties respectively) against the fifth and sixth interested parties, and to indemnify the officers against the potential costs liabilities arising out of their claims.

The background facts are not in dispute and, since the claimant's challenge is presented as one of principle -- a Local Authority does not have power, under any circumstances, to fund libel proceedings by its officers or to indemnify them against the costs of such proceedings -- it is unnecessary to rehearse them in any great detail. In brief outline, there were elections to the defendant council in May 2000. In one of the 18 wards (Brickhill) an envelope containing 86 postal votes was overlooked. After two recounts the conservative candidate was declared the winner with a majority of nine votes. An informal count of the postal votes showed that, if they had been included, the outcome would have been the same, but the conservative majority would have been reduced from nine to six.

In an attempt to regularise matters, Mr Field, in his capacity as returning officer, made an application to the County Court under rule 47 of the Local Elections (Principal Areas) Rules 1986 for the formal inspection of the ballot papers. Although well-intentioned, this application was, to use a neutral word, ineffective. The judgment of Gray J in the libel proceedings dated 1 March 2002 considers this aspect of the case in great detail. I am told that Mr Gough is appealing against Gray J's judgment. In the circumstances, I say no more about the decision to make the application under rule 47.

The fifth interested party, Mr Lister, who was the local agent for the Conservative Party, issued a press release to the Bedfordshire on Sunday newspaper, a local newspaper published by the sixth interested party. The press release complained of "maladministration of Bedford Borough Council" and said, inter alia:

On 7 June Mr Field placed a report, "Legal Action Duty of Care to Employees", before the executive committee of the council. The report recommended the committee to ratify action that had been taken by him in consultation with group leaders. By way of background, the report explained:

Under the heading "Other Relevant Factors" the supplementary information said:

In a lengthy advice, Mr McCormick, having dealt with the defamation aspects of the matter, considered the question of whether the council had power to fund the proceedings. Having rejected section 222 of the Local Government Act 1972 (the 1972 Act) as a potential source of authority for funding proceedings, he turned to section 111 in these terms:

His conclusion in paragraph 13.1 of his advice was:

The minutes of the executive committee record that members were asked to read the full text of counsel's advice and the meeting adjourned for half an hour to enable them to do so. Having resolved that the borough solicitor's action in obtaining the advice be ratified, the committee further resolved:

On 23 June 2000 the Council and Messrs Field, Gough and Darkoh entered into an "Agreement relating to employee's claim for defamation". The agreement was entered into:

In a witness statement on 7 June 2000 the chairman of the executive committee, Councillor Headly, says that the committee comprised experienced members from all political groups on the council. Their decision to support the officers' libel claim was unanimous. In reaching his decision, Councillor Headly says:

As the libel claim progressed, further reports were made to the executive committee and/or to the full council. At one time it was envisaged that external insurance would be obtained in respect of legal costs. However, estimates of the costs steadily mounted and it became clear that insurance would not be available upon acceptable terms, so the council resolved that they would be covered by self-insurance. By that stage, the officers' own legal team had agreed to act on a "no win no fee" basis.

Although the application for judicial review challenges a number of the council's decisions, following the decision of the executive committee on 7 June 2000, it is unnecessary to set them out because Mr Faulks QC very fairly conceded, on behalf of the claimant, that they did not alter the substance of that initial decision, whereby the council agreed to fund the officers' libel claims and indemnify them against any liability for costs in those proceedings. It is further accepted on behalf of the claimant, that he was at all times kept informed by the defendant of the various decisions taken by the executive committee and/or the council as the libel proceedings progressed. Mr Harris sent Mr Williams a copy of the agreement dated 23 June 2000 at some time between November 2000 and February 2001. Thus, at all material times the claimant was "kept in the picture" by the defendant.

In a letter dated 11 October 2001 a conservative councillor, Mr Hare, wrote to the claimant expressing concern that the council was pursuing libel proceedings without the benefit of genuinely independent legal advice. His letter referred to the duty owed by councillors to borough taxpayers:

The trial before Gray J commenced on 4 February 2002. In his judgment on 1 March he rejected the claims of Mr Gough and Mr Darkoh, but accepted two out of three of Mr Field's complaints and awarded him £27,500 damages. Mr Field had previously accepted £25,000 damages in respect of another aspect of his claim. The officers were ordered to pay 80% of the fifth and sixth interested parties' costs, which, by that stage, were estimated to be well in excess of half a million pounds.

The claimant then received complaints from a number of electors to the effect that the council should not have used public funds to support the libel action. Some of those electors contended that the council's action had been unlawful.

On 16 April Mr Hall, the Member of Parliament for Bedford, raised the matter during the course of an adjournment debate in the House of Commons. He invited the Minister to agree that local authorities should not maintain and support libel actions directly or indirectly. Making it clear that he was not commenting on the present case, the Parliamentary Under Secretary of State for Transport, Local Government and the Regions, Dr Whitehead, referred to the order making powers in section 101 of the Local Government Act 2000, which enable the Secretary of State to:

It was at this stage that the claimant decided to seek his own independent legal advice. He instructed solicitors on 17 April. Their advice was that the council had acted ultra vires. Subsequently, leading counsel concurred with that advice. On 28 May the claimant wrote to the council, saying that he had been advised that its decision to indemnify the officers was ultra vires, and warning that, if any money was paid over under the agreement, he would commence proceedings for judicial review. The council resolved to make a "token payment of costs outstanding" and the claimant issued these proceedings on 3 July 2002.

The claim form contended that the defendant's conduct was unlawful for three reasons:

The claimant very fairly conceded both that there had been undue delay in making the claim for judicial review, and that granting relief would cause substantial hardship to the three officers. It was, nevertheless, submitted on his behalf that he had at all times acted reasonably and that relief should be granted, given the substantial public interest in the matter.

In the great majority of cases it will be appropriate to consider the question of delay after all the substantive issues have been resolved. Exceptionally, I propose to consider delay at the outset because I am satisfied that, on the facts of the present case, the court should refuse to grant the claimant any relief, regardless of the answer to issue (1) above. In his witness statement, the claimant has explained why he did not seek independent legal advice until 17 October 2002:

Mr Faulks submitted that the claimant had acted reasonably at all times and in accordance with the Audit Commission's Code of Conduct. It was not the role of the auditor to act as the council's Chief Financial Officer; he was appointed, essentially, as a 'long stop', to ensure that the council had appropriate financial and legal procedures in place. It was the council's responsibility to ensure, for example by taking independent legal advice, that its decisions were lawful. Paragraph 8 of the Audit Commission's March 2002 Code of Audit Practice (which I was told did not differ materially, for present purposes, from the Code previously in force) states:

The question under section 31(6) is not whether the claimant acted unreasonably in a Wednesbury sense, but whether, viewed objectively, there has been undue delay in making the application and, if so, whether granting the claimant the relief he seeks would be likely to cause substantial hardship to the three officers. The claimant rightly concedes that there was undue delay. I acknowledge that, given the essentially 'long stop' role of the appointed auditor (see the extracts from the Code above) it may not always be possible for him to comply with the three month time limit prescribed by CPR54.5. In some cases, indeed, it may have been difficult for the auditor to unravel the precise nature of the financial transactions that he eventually seeks permission to challenge, but that is not the case here and, in any event, it is not sensible to consider the issue of delay solely by reference to the passage of a particular period of time in the abstract; factors such as the state of knowledge of the claimant, whether he is a public official with a statutory role to perform or a private individual with limited means, and the practical consequences of the passage of time, will all be relevant.

In the light of these factors, there was not merely undue, but extreme delay in making this application for judicial review. There is no dispute that from the outset, and well before the libel proceedings were instituted, the claimant was informed of the council's intended course of action. He was kept fully informed of the council's decision making process as the action progressed. I accept that it is not part of an appointed auditor's statutory role to "second guess" every decision taken by an audited body. The primary responsibility for ensuring that its decisions are lawful rests with the council, but the Code of Audit Practice draws particular attention to "unusual transactions". Following the advice in paragraph 39, which I have set out above, the Code continues in paragraph 40 in the following terms:

If the claimant had the slightest doubt about the legality of the decision on 7 June 2000, he should have raised it with the council and, if he felt that its answer was unsatisfactory, sought independent legal advice at a much earlier stage. If he was not in any doubt about the legality of the council's decision, it was far too late to raise a doubt for the very first time nearly two years later on 28 May 2002. It is not simply that a long time had elapsed. The claimant is not a lawyer, but legal expertise was not required for him to appreciate that the council's potential liability for costs was bound to escalate the longer the proceedings were allowed to proceed. In October 2001 he had been told by Councillor Hare that the costs were then estimated at £400,000. By waiting until after the judgment to seek legal advice, by which time all of the costs would inevitably have been incurred, the claimant ensured that the horse had well and truly bolted, and could be recaptured only at the expense of imposing very considerable hardship upon the three officers.

That there would be "substantial hardship" for the purposes of section 31(6) is very properly conceded, but even where the hardship is acknowledged to be substantial, questions of degree and the extent to which a party is to blame for his own misfortune will arise. In their witness statements the three officers all say that they would not have commenced the libel proceedings without the council's indemnity. There is no challenge to this evidence. Mr Field is not a lawyer, but Mr Gough, who is a solicitor, was well aware of the requirement that applications for judicial review should be made promptly and normally within three months of a decision. The libel proceedings were not served on the fifth and sixth interested parties until 9 October 2002, more than four months after the committee's decision on 7 June. Mr Gough explains, and there is no reason to disbelieve him, that, if the claimant had expressed so much as a doubt about the legality of the council's indemnity, he would not have brought the claim, even if (which must be highly questionable) the council had continued to provide support. I have no doubt that Mr Field and Mr Darkoh would have followed Mr Gough's example, as borough solicitor, and adopted a similar position.

The witness statements deal with the officers' ability to meet the costs award, if the council's decision to indemnify them is now quashed or declared to be unlawful. All of the officers are married. Mr Field and Mr Gough have children. In each case the family would face the loss of its only substantial asset: the matrimonial home. This evidence is not challenged by the claimant.

The appointed auditor has a statutory duty to discharge. I accept that the claimant is honestly seeking to discharge that duty. There is no suggestion that he is motivated by any feeling of ill-will towards either the council or any of the three officers. Concerns having been raised by electors, he felt obliged to respond to them. But his power to apply for judicial review under section 24(1) of the 1998 Act is expressly made subject to section 31(3) of the 1981 Act. Thus, he is not exempt from the general requirement to apply promptly for judicial review, or from the consequences of section 31(6) if he fails to do so.

For the reasons set out above, I am satisfied that the delay in making the application for judicial review was extreme and that the hardship likely to be caused to the three officers would be very substantial indeed. It does not follow that the claimant is not entitled to any relief; the court still has to consider whether to refuse relief as a matter of discretion. In exercising that discretion, I recognise that it is necessary to consider, not merely the interests of the three officers, but also the wider interest and, in particular, the interests of the council's taxpayers. I am satisfied that these wider interests do not outweigh the very great injustice that would be done to the three officers, if the claimant was now to be given the relief he seeks: either a quashing order in respect of the decision of 7 June 2000, or a declaration that it was unlawful.

Two further matters are relevant to the exercise of the court's discretion under section 31(6). First, this case has been presented, on behalf of the claimant, as raising an important issue of principle for local authorities and appointed auditors generally. Whilst issue (1) above is undoubtedly of some legal interest, there is nothing to suggest that the problem posed by this case is of more general importance. Despite the fact that the case is supported by the Audit Commission, there is no evidence that there is a wider problem of authorities funding, or seeking to fund, defamation actions by their officers or members. This case seems to be very much a "one-off", and it was not suggested otherwise in the adjournment debate in the House of Commons. The hazards of defamation actions are, or should be, notorious. Common sense suggests that the council's disastrous experience in the present case should be sufficient to warn-off all but the most litigious of local authorities from granting indemnities in respect of the costs of defamation proceedings brought by their officers.

Secondly, insofar as these conclusions are unduly optimistic and there is a wider problem which needs to be addressed, the government has taken the necessary order-making powers in section 101 of the 2000 Act and proposes to consult with interested parties as to whether it would be appropriate to prohibit authorities from indemnifying members and officers for the costs of taking defamation proceedings. As with any consultation process, this is bound to take some time, but there is no indication that, apart from the present case, the problem is so urgent that it must now be addressed in a definitive manner by this court. For all these reasons, the answer to issue (2) above is in the affirmative.

It follows that my answer to question (1) is only of academic interest. In the circumstances, I propose to deal with it relatively briefly. The relevant powers are sections 111 and 112 of the 1972 Act, either alone or in combination. On behalf of Mr Gough, Mr Oldham referred, very much as a fallback position, to section 2 of the 2000 Act, which gives local authorities power to promote the economic, social and environmental well-being of their areas. This power cannot avail the council: section 2 did not come into force until 18 October 2000, and at no stage in the council's decision-making process thereafter did it consider, or purport to consider, the exercise of any power under section 2. It is not merely that the section was never mentioned by the council, the council never considered the substance of the discretions conferred by section 2 after they came into force on 18 October 2000.

Returning to sections 111 and 112, section 111(1) provides:

Against this agreed legal background, it was submitted on behalf of the claimant that there was a distinction to be drawn between granting employees an indemnity in respect of "defensive" proceedings (lawful) and "offensive" proceedings (unlawful).

I accept the submissions of Mr Goudie QC on behalf of the defendant, adopted by Mr Oldham on behalf of the second interested party, that none of the authorities cited by Mr Faulks provides any basis for such a distinction, nor is there any reason, in principle, why such a distinction should be made. Just as it may be fortuitous whether an officer finds himself in the position of a claimant or a defendant (see Duckenfield), so it may be arbitrary to attempt to distinguish between a "defensive" action, which may include a counterclaim and an "offensive" action, which may well seek to remedy damage (including damage to reputation) which has occurred and will continue if it is not prevented.

During the course of his submissions, Mr Faulks was prepared to concede that there might be circumstances in which it would be lawful for a local authority to give an officer an indemnity under section 111 in respect of the costs of defamation proceedings brought against him by a member of the public, aggrieved by statements made by the officer whilst performing his duties on behalf of the council. In view of the possibility of allegation and counter allegation in such circumstances, it might be well nigh impossible to disentangle the "defensive" from the "offensive" in such proceedings.

Insofar as the claimant argues for the existence of such a distinction upon the basis that the power under section 111 should not be too widely construed, otherwise it "could be used to justify any act promoting the officer's welfare, however tenuously connected with the officer's employment", it is unnecessary. Any exercise by a local authority of its power to grant an indemnity to one of its employees in respect of the costs of litigation will be susceptible to judicial review on normal public law principles. The more "defensive" the action the easier it may be for the local authority to satisfy the court that it did not act for any improper purpose; took account of relevant, and ignored irrelevant, considerations; and did not take a decision that was Wednesbury unreasonable. The claimant confuses the existence of the power with the manner of its exercise. The latter does not need to be controlled by artificial distinctions between "offensive" and "defensive" actions.

During the course of his submissions, Mr Faulks relied less upon this distinction and rather more upon the proposition that, whatever the position may be in respect of other litigation, whether "offensive" or "defensive", there was an exception in the case of defamation proceedings. He placed particular reliance upon the decision of the House of Lords in Derbyshire County Council v Times Newspapers Ltd [1993] AC 534. The County Council brought libel proceedings in respect of two newspaper articles which had questioned the propriety of investments made in its superannuation fund. The House of Lords decided that a local authority could not bring defamation proceedings. In his speech at page 547E Lord Keith said:

Although Mr Faulks referred to a number of authorities during the course of his submissions, the claimant's contention that there is a "defamation exception" rests solely upon the Derbyshire case. I accept that the important public policy expressed by the House of Lords in the Derbyshire case must not be circumvented. It follows that it would be an unlawful exercise of the power conferred by section 111 of the 1972 Act for a local authority to attempt to do so. But that does not lead to the conclusion that defamation proceedings should be treated as an exception to the propositions agreed in respect of all other kinds of litigation, see above. If a local authority's true purpose is to sue for damage to its own reputation, and it gives its officers an indemnity in respect of the costs of defamation in order to circumvent the rule that it has no right to commence such proceedings itself, then it will have acted for an improper purpose and/or taken irrelevant considerations into account and its decision will be liable to be quashed on normal public law principles. Given the importance of the right in question, now enhanced by article 10 of the European Convention on Human Rights, appointed auditors and the court would no doubt be astute to prevent any attempt by a local authority to circumvent the Derbyshire decision. However, in the present case there has never been any suggestion of improper purpose. The reasons why the council gave the indemnity are recited in the Agreement (see above) and are not challenged by the claimant. The claimant did not pursue the "relevancy" or the "irrationality" grounds of his challenge.

Mr Faulks submitted that it was not sufficient that the council believed that giving the three employees an indemnity would be conducive or incidental to the discharge of its employment functions. Ultimately, it was for the court to decide whether a particular course of conduct was or was not authorised by section 111, see Credit Suisse v Allerdale Borough Council [1997] QB 306, and Hazell v Hammersmith and Fulham London Borough Council and Others [1992] 2 AC 1. In both of those cases local authorities had been engaged in schemes which were intended to circumvent statutory controls upon local authority borrowing. The courts concluded that such schemes were not capable of falling within section 111 of the 1972 Act. The position in the present case is not at all comparable. For the reasons set out above, the council was not attempting to circumvent any statutory or other limitation upon its powers.

Unless there is a distinction between "offensive" and "defensive" proceedings, or a "defamation exception", as contended for by the claimant, it is difficult to see why giving an officer an indemnity in respect of defamation proceedings brought by him is incapable, as a matter of principle, of being conducive or incidental to a local authority's employment function. To take an example somewhat removed from the facts of the present case: a newspaper might publish an allegation that a chief planning officer had been accepting bribes from developers in order to favour particular applications for planning permission. Just as the council employing him might think it appropriate to conduct an enquiry into the truth of such allegations, so it might also think it expedient to give him an indemnity in respect of the costs of libel proceedings brought by him, not upon the basis that the allegation reflected upon the council's own reputation, but because it was essential for staff morale in the planning department, and the efficient provision of the council's planning service, that the chief planning officer's ability to lead his department should not be undermined. In deciding whether to give such an indemnity, the council would, of course, have to have regard to a range of factors: the damage done to the operations of the planning department; independent legal advice as to the prospects of success; the likely costs as compared with any likely damages et cetera. Its decision would be subject to review on public law principles.

If the giving of an indemnity in the present case was capable of facilitating or being conducive or incidental to the discharge of the council's employment functions, whether it did so was for the council to decide, subject to review on Wednesbury grounds. The claimant having abandoned his challenges on the grounds of "relevancy" and "irrationality", and there being no allegation of improper purpose, it follows that issue (1) above must be answered in the affirmative. That is not to say that the council's decision was wise, but the fact that a decision can be seen, with the benefit of hindsight, to have been unwise does not mean that it was unlawful.

For these reasons this application for judicial review must be dismissed.

MR GOUDIE: My Lord, I am grateful. I ask for an order that the claimant pay the defendant borough council's costs. My Lord, I appreciate that the claimant being an auditor, it is not simply a matter of costs more or less automatically following the event. But, my Lord, I submit, in the circumstances of this case, that it would be appropriate for such an order to be made for three reasons, the first being that your Lordship has found against the claimant not only, perhaps not even primarily, on the substantive issue involved, but also on the ground of what your Lordship has characterised as being extreme delay. My Lord, secondly, until a late stage in the proceedings there were Wednesbury allegations, and much of the preparation in the case, and almost all of the defendant council's evidence, was directed to that rather than to the issue of legal principle. Thirdly, no sooner were those allegations abandoned than the application to amend was foreshadowed, and from then until the hearing before your Lordship was under way, further costs, of course, were incurred by the defendant, both in terms of preparation of argument and in terms of a further round of evidence directed to the prospective amended issue.

So that, given both those aspects of the case that were part of the original claim were dropped, and given the proposed amendment, and given the delay feature of the case, most of the evidence and much of the preparation was devoted to issues other than the issue of general principle, an issue in relation to which, in any event, your Lordship has found against the claimant. I, therefore, do invite your Lordship to make an order that the claimant should pay the defendant council's costs.

MR JUSTICE SULLIVAN: Yes, thank you. Mr Oldham?

MR OLDHAM: My Lord, I do not know if your Lordship wishes to deal with it now, but Mr Gough, as an interested party, also seeks an order for his costs.

MR JUSTICE SULLIVAN: Yes.

MR OLDHAM: My Lord, as regards Mr Gough's costs position, there are, I suppose, two issues: the first being what the effect of section 24(3) of the Audit Commission Act is. My Lord, I have a spare copy of that section if your Lordship --

MR JUSTICE SULLIVAN: It would be convenient rather than trying to dig it all out.

MR OLDHAM: My Lord, on that issue we adopt what my learned friend Mr Goudie says. It is, certainly, in no sense a bar to costs being awarded. We go further, in that your Lordship sees that 24(3) does not, in effect, affect the position of an interested party at all. It only relates to the position vis-à-vis the body being challenged. So, we say that, if section 24(3) might be said to vary the normal position as regards the council, it certainly does not as regards Mr Gough.

My Lord, on the merits of the application for costs, again, I would adopt what Mr Goudie says. I would only highlight further these points: the weakness of the public interest in this case, which your Lordship has touched on in your Lordship's judgement; and, secondly, as regards Mr Gough's position, the delay and the admitted substantial prejudice to him and, indeed, his colleagues.

MR JUSTICE SULLIVAN: I do not think I need to trouble you any further. It is quite clear that the three officers had a distinct interest, subject, of course, to hearing what Mr Stagg says about it. They would be particularly concerned with aspects of delay and whether that resulted in hardship, and, if so, what degree of hardship, to them. Otherwise, for all one knows, Mr Gough might have been a very wealthy bachelor, well able to meet any award of damages against him, but plainly he is not, and he is the only person who can say that he is not.

MR OLDHAM: My Lord, indeed. I can come back later if your Lordship requires.

MR JUSTICE SULLIVAN: Yes, Mr Stagg?

MR STAGG: My Lord, can I deal with Mr Gough's position first?

MR JUSTICE SULLIVAN: Yes.

MR STAGG: The issue, as your Lordship says, is whether there was a distinct interest. Can I ask your Lordship to look at the extract from (inaudible) which I have handed up.

MR JUSTICE SULLIVAN: Yes.

MR STAGG: Under paragraph 20.1.6 your Lordship sees the Bobbel(?) case, which I am sure you are well familiar with --

MR JUSTICE SULLIVAN: Yes, I am.

MR STAGG: -- and the requirements of a separate issue. Then, going down the page, the Kirkstall Valley case, Sedley J commenting that, among his reasons for exercising his discretion against a double costs order was both that it is not the normal practice of this court to give two sets of costs and that this was, without doubt, a matter of public interest, which it is right for the claimant to bring before the court. Then the following case, Friends of the Lake District: third party's costs refused because, although different in emphasis, it essentially covered the same ground as the defendant.

Now, my Lord, I do not accept that the officers have any separate interest in this case. Obviously, if the council had adopted a neutral position or had proposed to oppose the judicial review proceedings only on the substantial ground rather than raising any delay point, then I would accept that the officers had a separate interest in the way that my learned friend has indicated, but the fact of the matter is that the council had set itself resolutely against the granting of relief in this case on the grounds of delay, as well as on the grounds that there was no substantive reason to grant any relief. The fact that Mr Gough has provided your Lordship with evidence to the effect that he would be severely prejudiced, which we do not, as your Lordship said, contest, is it not a reason why he felt a need to be separately represented by counsel before your Lordship.

I mean no disrespect to my learned friend, Mr Oldham, by saying that he largely adopted the submissions of my learned friend, Mr Goudie, with the exception of raising the further argument on section 2 of the 2000 Act, which your Lordship rejected. So, in substance, the interested parties, the officers, joined forces with the council in seeking to uphold the legality of the council's decision. There was no need for Mr Gough to be represented.

If your Lordship is minded to make an order for costs in his favour, I would invite you to restrict those costs to the costs of him, as a litigant in person, preparing his witness statements for this case, and to disallow the costs of Mr Oldham's attendance. That deals with Mr Gough.

As far as the council is concerned, by reason, we say, of section 24(3), which your Lordship has, I think, been handed up, where an auditor is concerned, the normal costs criteria simply do not apply. The reason why I say that is that the role of the auditor is as the guardian of the council taxpayers' money. These proceedings were brought following complaints by some of those council taxpayers and, as we saw it, although your Lordship has made comments about it, in the public interest. It is worthy of note, perhaps, that Mr Nigel Pleming QC, when granting leave, observed that he saw it as a matter of considerable public interest.

Now, what I say is the right way of dealing with the matter is this: if one looks at section 24(3), it must be the case that that would not have been enacted if Parliament had not intended that there should be some departure from the general costs rules.

MR JUSTICE SULLIVAN: If I can help you to this extent, Mr Stagg: to the extent that, generally, there ought to be a departure from the normal rules, you pushed an open door. It is my understanding that generally -- generally, I emphasise -- if an auditor raises some point of principle in respect of the legality of any item of account in respect of an audited body, then, generally, the court would order the costs of resolving that issue to be paid by the body whose accounts are being audited, generally. So, I am quite happy to proceed on that basis and I think Mr Goudie's submissions, indeed, were made on that premise.

What concerns me in the present case are the three items identified by Mr Goudie: whether that normal rule should apply, given the delay in making the application, as I have concluded it to be; given the fact that two allegations were made which were then not pursued; and given the fact that there was then a belated application to amend which did generate an immense flurry of activity to absolutely no purpose whatsoever. The question that I am presently considering, at least so far as the council is concerned -- it may well be that the appropriate position would be that the council should not have to pay the auditor's costs; it may well be that there should simply be no order so far as the auditor's costs. That means that the Audit Commission would end up paying the auditor's costs; the council would pay its costs; and I shall deal with Mr Gough's position separately, but we are just thinking about the council now. On the circumstances of this particular challenge, accepting that, in general, an auditor who challenged a council's accounts should be entitled to be reimbursed, even if his challenge fails, because he is simply coming along in a disinterested way saying, "Please, I want an answer about the lawfulness of this item of account". Why should the council pay for this particular challenge, given those three factors?

MR STAGG: If we consider the three matters separately: first of all there is the vires challenge that we brought, and your Lordship has ruled upon. That was, in my submission, brought reasonably and for the interests of the council taxpayers. Similarly, as far as the vires challenges were concerned, they were based upon a number of concerns that we had, in particular about the way the paperwork appeared from the 7 June 2000 meeting. Once we saw the council's evidence, as often happens with decisions based on rationality or relevancy, we, very properly in my submission, conceded that those could not be pursued. The only way that evidence could be challenged would have been to cross-examine the officers and, obviously, we saw no purpose in seeking to achieve that.

As far as the contract argument was concerned, all I can say about that is, once the auditor was advised that that was a point that could be taken, he felt that the only responsible approach, to guard the interests of the local public purse, was to raise it. Now, as matters have turned out, your Lordship gave clear indications about the application when it was being made and, therefore, it was withdrawn.

But, my Lord, if you are against me on those being valid answers to the points made, then perhaps the best way of dealing with it is this: to say that, effectively, the main challenge was reasonably brought -- I do not accept Mr Goudie's contention that they would not have been filing nearly the same amount of evidence had it just been the main challenge; the ancillary challenges, perhaps, in retrospect should not have been made; and, therefore, the best approach is to let things lie where they are, ie to say that the council and the auditor should both bear their own costs in the circumstances of this case. That is my alternative submission.

MR JUSTICE SULLIVAN: Yes.

MR STAGG: My Lord, as far as Mr Gough is concerned, well, you have my submission on that.

MR JUSTICE SULLIVAN: Yes, I have had your submission on Mr Gough. I understand that. Thank you very much indeed. Do you want to say anything else, Mr Goudie?

MR GOUDIE: Just on one aspect, my Lord. My learned friend, in effect, sought to justify having dropped the Wednesbury challenge on the basis that: we were acting responsibly as a claimant once we saw the respondent's evidence. One knows, of course, that that can very often be a way in which matters may sensibly develop, but that does not really fit with the facts here for two reasons: first, that the evidence that was put in on behalf of the council in response to the Wednesbury allegations needed to be put in for the benefit of the court, whilst those allegations were live, but, unlike with most claimants, were not actually telling the claimant anything new that he was not aware of already because he had been kept so fully in the picture throughout. It was essentially material of which he was already aware.

Secondly, it is simply not the case that the claimant dropped the Wednesbury allegations once he received the council's evidence. There was quite an interval thereafter, and, in particular, at the time when we did our skeleton, those issues were still live and the skeleton addressed them. My learned friend is quite wrong when he says that, in effect, we would have put in the same evidence if there had not been the Wednesbury allegations; the evidence that we did put in, some of it, clearly, only goes to the allegedly irrelevant and relevant consideration point and would not have been remotely material if those allegations had never been part and parcel of the case.

So, my Lord, we do submit that it would be quite wrong in this case for the council to have to meet any part of the auditor's cost, and that, indeed, there is a case that the auditor should meet at least part of the council's costs.

MR JUSTICE SULLIVAN: Thank you very much, Mr Goudie. Mr Oldham, I do not need to trouble you any more.

MR STAGG: My Lord, may I just rise again?

MR JUSTICE SULLIVAN: Yes, of course.

MR STAGG: One other point I should have made and I did not was that issues were raised and had to be dealt with by Mr Faulks and myself on which the defendant and the interested party failed. I would refer to section 2, which obviously did not take up very much of our time.

MR JUSTICE SULLIVAN: No, nor too much of my judgment time, I have to add.

MR STAGG: Indeed. There was also the Lister point which caused great confusion at our end. Quite where, with respect, Mr Goudie got the idea that we were denying that there could an indemnity in the contract --

MR JUSTICE SULLIVAN: Romford(?) and something.

MR STAGG: Indeed.

MR JUSTICE SULLIVAN: Not the Mr Lister in the present case.

MR STAGG: That caused considerable confusion at our end. There is the other point that was raised which your Lordship has not felt it necessary to rule upon, but in which we submit we were clearly right: namely the question of section 112 by itself. So, the fact that the defendant and the interested party failed on those issues is another factor your Lordship should take into account.

MR JUSTICE SULLIVAN: Yes, thank you. I think we had better draw a line under this now.

So far as costs are concerned, dealing firstly with the position vis-à-vis the council: the starting point, it seems to me, is that in the great majority of cases the auditor can reasonably expect, if, in the discharge of his statutory duties, he is concerned about the lawfulness of an item of account and brings it to the attention of the court, that he will not be penalised in costs, but, indeed, in the exercise of the court's powers under section 24(3), it is likely that the court will order the audited body to bear the costs of the application. I am satisfied that it would be right to depart from that normal rule on the facts of the present case, firstly because it does seem to me, as I have indicated in the judgment, that there was, indeed, extreme delay in bringing this application; secondly, there were allegations which were made which were then abandoned, but not until some considerable stage into the proceedings, and this is against the background that the auditor had, indeed, been kept abreast of matters and had been provided with the relevant documents by the council as matters had progressed; and, thirdly, there was the very belated application to amend, which did cause a great deal of unnecessary expense. For all of these reasons, I am satisfied that it would be just in the present case that the Audit Commission should bear its own costs in making this claim.

I am not satisfied, however, that the auditor's conduct of the matter is such that he ought to be ordered to pay any part of the council's costs, so I propose to make no order as to costs in relation to the council's costs and the auditor's costs.

So far as Mr Gough's position is concerned, I reject the proposition that he did not have a separate interest which justified his being represented here by counsel. I think that submission is, with respect to Mr Stagg, not realistic. Effectively, Mr Gough was facing professional and personal ruin if the auditor obtained the relief he sought. Therefore, it was wholly justified for him to be separately represented here and, indeed, he had a particular and distinct aspect of the case which was peculiarly within his knowledge: that is to say, personal hardship. So I am quite satisfied that the auditor should be ordered to pay Mr Gough's costs, those costs to go for detailed assessment, if not agreed.

Any more for any more?

MR STAGG: My Lord, I have an application for permission to appeal. I do not propose to recite it at great length. Your Lordship is well familiar with the basis on which we put it. Perhaps if I can just make one or two points. In relation to delay, we say that your Lordship, effectively, puts auditors in a more or less impossible position because, if they are faced with independent legal advice obtained by a council, they will be in danger of being found to be unable to challenge the lawfulness of a decision if they accept that advice at face value and later information comes to light which leads them to doubt the correctness of that advice. So your Lordship's exercise of discretion on delay, we say, with respect, is erroneous on that ground.

MR JUSTICE SULLIVAN: Yes.

MR STAGG: I do not propose to say anything about the substantive issues because your Lordship has our submissions on those.

MR JUSTICE SULLIVAN: That is very kind, thank you. Mr Goudie, Mr Oldham, I do not need to trouble you, thank you very much.

I do not think it appropriate to give leave, if for no other reason than that the exercise of the section 31(6) power is very much a matter of discretion and I am not persuaded that it is reasonably arguable that there is an error of principle in my exercise of that discretion, whatever may be said about the correctness of my judgment on the substantive issue. I refuse you permission.

MR STAGG: Quite clearly we will need to then consider whether we wish to take the matter further. Obviously, in the interests of everybody, it is vital that we do that as soon as possible; I would ask if your Lordship would direct that the transcript be expedited.

MR JUSTICE SULLIVAN: Sometimes that causes more problems, actually, than just allowing the transcript to come along in the normal course of events. I suspect it will not be that long. Subject to anything Mr Goudie and Mr Oldham have to say, why do I not simply say you have 14 days from receipt of the approved transcript in order to make your application to the Court of Appeal, if you are so advised.

MR STAGG: My Lord, I would be content with that.

MR JUSTICE SULLIVAN: Would that not be a sensible way round it?

MR GOUDIE: My Lord, indeed. If perhaps there could be some form of mechanics by which we would know on our side when the approved transcript was available, so that we knew when the auditor's 14 days were starting to run and, therefore, when they expired.

MR JUSTICE SULLIVAN: Yes. I do not see why, since it is a concession to you, effectively, Mr Stagg, the auditor should not agree to tell the council and the interested parties that he has received the transcript and is considering and so his 14 days is starting to run; would that be acceptable?

MR STAGG: I will notify my learned friends.

MR JUSTICE SULLIVAN: That must be a way of dealing with that. Mr Oldham, I appreciate that that slightly prolongs the time, but I think, in all the circumstances, it will only be a matter of a few days.

MR OLDHAM: My Lord, I accept that.

MR JUSTICE SULLIVAN: Right. Thank you all very much.