Bromley London Borough Council v Greater London Council and another  1 All ER 129
LORD WILBERFORCE: My Lords, this case concerns the validity of a supplementary precept issued by the Greater London Council (the GLC) to the London borough of Bromley (Bromley) for the levying of a rate of 6.1p in the pound in respect of the period 1 October 1981 to 31 March 1982. The precept was issued pursuant to a resolution of the GLC dated 21 July 1981. This resolution, in turn, was passed by way of implementation of a commitment, contained in an election manifesto for the election in May 1979, on which the present majority on the GLC was elected.
The supplementary precept went to all London boroughs. Bromley applied to the High Court for judicial review of the action of the GLC by way of certiorari. They failed in the High Court but the Court of Appeal granted their application, quashed the supplementary precept and declared that it was ultra vires, null, void and of no effect.
The London Transport Executive (the LTE) is a party to the proceedings because the precept was issued in order to enable the GLC to finance, by grant to the LTE, the cost of reducing LTE fares overall by 25% and of introducing a simplified zonal system. If the precept is set aside, the LTE will not be able to maintain these changes, and to reverse them will cause considerable dislocation.
The precept is attacked on two main grounds. 1. That it is beyond the powers of the GLC as defined by the Transport (London) Act 1969. 2. That even if the GLC has the necessary statutory powers, the issuance of the precept was an invalid exercise of its discretion under the Act. This ground itself may be divisible into two contentions: (a) that the exercise of the GLC's discretion was unreasonable, or (b) that the GLC when deciding to issue the precept did not take relevant considerations into account, or did take into account irrelevant considerations or misdirected itself as to the law.
Both of these grounds depend on the fact, which it is right to emphasise at the start, that the GLC, though a powerful body, with an electorate larger and a budget more considerable than those of many nation states, is the creation of statute and only has powers given to it by statute. The courts will give full recognition to the wide discretion conferred on the council by Parliament and will not lightly interfere with its exercise. But its actions, unlike those of Parliament, are examinable by the courts, whether on grounds of vires, or on principles of administrative law (those two may overlap). It makes no difference on the question of legality (as opposed to reasonableness: see Secretary of State for Education and Science v Tameside Metropolitan Borough, whether the impugned action was or was not submitted to or approved by the relevant electorate...
The rival arguments can be summarised as follows.
For Bromley, it is said that the LTE must run its undertaking on business principles and so far as practicable must meet its revenue charges (see s 7(1)) out of fares and other available internal revenue. If it incurs a deficit in one accounting period, it must 'ensure so far as practicable' that this is made up in the next accounting period. Under s 7(3)(a), it is open to the LTE to agree with the GLC on a period (which might be for more than one year) within which a favourable balance, on revenue account and reserve, must be established; this was to prevent an accumulated deficit being built up. The GLC (Bromley submits) has power to make grants in aid of revenue; but (and s 7(6) makes this clear) it must exercise this power with due regard to the LTE's duty, so far as practicable, to balance its own accounts. What it cannot do is to allow (or encourage) the LTE to abdicate any duty, or renounce any effort, to avoid a deficit.
The GLC and the LTE, on the other hand, while accepting that accumulated deficits have to be avoided, submit that the LTE, in making up its revenue account, and in putting forward fare proposals, may take account of a prospective grant on revenue account from the GLC. The fallacy, they say, of the argument of Bromley, and also of the judgment of Oliver LJ in the Court of Appeal, lies in assuming, or holding that 'revenue account' in s 7(3)(a) and (b) means account on internally generated revenue alone. Since GLC grants in aid of revenue go into the revenue account, the LTE's duty under s 7(3) is only to avoid a deficit after bringing into the revenue account existing, or prospective, grants from the GLC.
They sought to reinforce this argument by reference to supposed parliamentary intentions. It must, they argued, have been in the contemplation of Parliament that deficits would be incurred. Parliament may indeed have desired this, regarding transport as essentially a social service. Such deficits could only be made good by grants from the GLC. Parliament was content to leave the financing of them to the GLC, subject only to a prohibition against accumulated deficit.
To this argument, I have given careful consideration; it touches on important issues of transport policy. There is indeed, and has been for some years, discussion on the political level as to whether, and to what extent, public transport, particularly in capital cities, should be regarded, and financed, as a social service, out of taxation whether national or local. We cannot take any position in this argument; we must recognise that it exists. But I am unable to see, however carefully I reread the 1969 Act, that Parliament had in that year taken any clear stance on it. Counsel for the GLC was not able to argue that a policy of free travel (ie no fares) was open to the GLC under this Act. In this he was reflecting the views of the GLC, which (or the present majority of which) saw such a policy as desirable but not now realisable.....
In my opinion, there are two clear provisions in the Act. The first is in s 7(3)(b). This states the obligation of the LTE to make good a deficit in the year following a deficit year. This is an obligation the meeting of which the LTE is to ensure as far as practicable. In my opinion this points to the taking of action which it is in the power of the LTE to take. On the other hand, though I feel less confident about this, particularly since it was not an argument accepted by Oliver LJ, I am willing to accept that, subject to the LTE discharging the responsibilities cast on it, it may make provision in its revenue account for grants in aid of revenue, actual or assumed. The corresponding provision as regards the GLC is s 7(6) which dovetails with s 7(3). This recognises that the duty stated in s 7(3)(b) (to make up a deficit in year two) is one which 'falls to be complied with by the Executive', and then obliges the GLC in performing its functions to have regard to that duty and take action which will enable the LTE to comply with those requirements. Such actions might take several forms: the GLC might direct fares to be raised or services to be adjusted. Or the GLC could decide to make a grant. But it can only do that after it has 'had regard' to the LTE's duty under s 7(3). The respective statutory obligations of the GLC and the LTE fit in with one another: the LTE must carry out its duty as defined in s 7(3): the GLC cannot exercise its powers unless and until the LTE carries out that duty and must then do so with proper regard to its fiduciary duty to its ratepayers. If these constraints were not to exist, there would be no limit on the power of the GLC to make grants in aid of revenue, since the Act provides for no governmental control. I find it impossible, in the light of the previous history and of the far from definite language used, to accept that Parliament could have intended that this should be so. To say this is not to impose on the LTE a rigid obligation to balance its accounts every year, or, as it was at one time put in argument, to maximise fares. There is flexibility in the words 'so far as practicable', and the obligatory establishment of a reserve gives room for manoeuvre (as indeed the LTE accounts from 1970 onwards show). But given this, it appears to me clear that neither the LTE in making its proposals, nor the GLC in accepting them, could have power totally to disregard any responsibility for ensuring, so far as practicable, that outgoings are met by revenue, and that the LTE runs its business on economic lines.
One further consideration, and I mention it because it was not brought to the attention of the Court of Appeal. The Transport Act 1968, in that portion in which it dealt with the financing of the passenger transport areas, contained provisions which on the one hand enabled the new authorities to precept for grants on revenue account (s 13) and, on the other, enabled the executives to have regard to potential precepts in preparing their accounts (s 11(1)). There was an express provision (s 13(3)) obliging the authority to notify the executives of the amounts for which they proposed to issue precepts. As I have mentioned, this policy was not extended by the 1968 Act to the London board. The present London Act was passed a year later, and includes some of the language used in 1968 in relation to the passenger transport areas: but it is not easy to see whether the intention was to bring the new London Transport Executive under the same system as the passenger transport areas, to retain it, substantially, under the regime of the London Passenger Transport Board, or to establish it under a mixture of the two. In the absence of any demonstrated policy, the only safe course is to go by the terms of the 1969 Act itself.
As I hope to have demonstrated, that Act confers a large degree of autonomy on the GLC and the LTE but requires them both to operate subject to the interlocking restraints spelt out in it.
This, then, being, as I interpret them, the effect of the applicable statutory provisions, it remains to ask whether the GLC and the LTE acted in accordance with them. In opinion they plainly did not. The LTE, as regards the year 1980, was running a deficit. Acting, as I am willing to accept, in accordance with their obligations under the 1969 Act, it submitted to the GLC, in November 1980, proposals to achieve a break-even by a possible increase in fare revenue, increased productivity, and an assumed GLC grant of £80m. Its budget contains a careful review of the measures taken, by way of economy and better fare collection, to keep the deficit down as far as practicable. Obviously this was not the only possible budget at the time, but in its preparation and structure it represents a serious attempt to comply with the Act. If a radical departure is made from that budget, that seems to suggest, strongly, that it is made outside the Act.
After the change in control in May 1981, the new leader of the GLC immediately intimated to the LTE that it should submit proposals involving a general reduction in fares of 25%, proposals which would inevitably and greatly (to the extent of about £69m) increase the operating deficit. This increased deficit would have to be borne by the GLC ratepayers, and, as it soon appeared, would automatically bring about a loss of rate support grant (under central government legislation) involving an additional heavy burden on the ratepayers of an amount (approximately £50m, attributable to the fare reduction) not far short of the whole cost of the 25% reduction itself.
The LTE submitted proposals, including in them a new zoning scheme. (This, in itself, may well be advantageous but is wholly ancillary to the 25% reduction.) The GLC approved them. In my opinion, both the GLC and the LTE were in breach of their duties under the Act. The LTE was, in its own words, meeting the GLC requirement: it was not, and could not have thought that it was complying with its obligations under ss 5 and 7 of the 1969 Act. The GLC could not have considered (as it was obliged to do before it could make a grant to revenue) that the LTE was complying with its obligation under s 7(3). Furthermore, in deciding to proceed to make a grant to support the fare reduction, once it became apparent that the ratepayers' burden would be approximately doubled, it acted in breach of its fiduciary duty as defined above. It failed to hold the balance between the transport users and the ratepayers as it should have done.
I am therefore clearly of opinion that the actions of the GLC and of the LTE were ultra vires the 1969 Act.
LORD DIPLOCK:.....Bromley, on the one hand, say that the GLC must so exercise its powers under the Transport (London) Act 1969, as to require the LTE to adopt a general level and structure of fares charged to passengers that will maximise its income from this source, and that the power of the GLC to make grants towards the revenue account of the LTE is limited to making good any deficit on revenue account that arises despite the charging of fares that comply with this requirement. The GLC, on the other hand, contends that the Act confers on it an almost unlimited discretion to determine, as a matter of civic policy, in what proportions the revenue needed by the LTE in order to run its passenger transport services shall be obtained (1) from fares charged to passengers and (2) from grants made by the GLC to the LTE at the cost of the ratepayers of Greater London respectively. The discretion as to what the proportions shall be, it is contended, is unfettered except that some part, however small, so long as it is in excess of what would fall to be ignored under the de minimis rule, is met out of fares.
It may well be that one would be left with no other option than to choose between these two extreme interpretations of the language of the Transport (London) Act 1969 if the Act is looked at in isolation without regard to the legal structure and status of the GLC as a local authority and the means that are available to it for raising the moneys necessary to enable it to perform its functions. These latter considerations....are, in my view, highly relevant to the meaning of the Act itself on any purposive construction of it.....
This brings me back to the crucial section of the Act, s 1, to see what limitations (if any) it imposes on the choice of policy by the GLC as to the relative proportions in which the cost of running the passenger transport undertaking of the LTE is to be met out of fares paid by passengers or out of rates paid by ratepayers. Central to this question is the legal structure of the GLC and the categories of persons to whom its duties, both generally and in particular in relation to public passenger transport, are owed.
When a statute speaks, as s 1 does, of a 'duty' of a local authority composed of democratically elected members, it is speaking of the collective legal duty of all those members acting through the ordinary procedure of debate and resolution, to make choices of policy and of action that they believe to be in the best interests (weighing, where necessary, one against the other) of all those categories of persons to whom their collective duty is owed. This will involve identifying the persons to whom the particular duty is owed and in the event of a conflict of interest between one category and another deciding where the balance ought to lie. In the case of public passenger transport in Greater London those categories are (1) potential passengers by bus and train in Greater London whether resident there or not, (2) residents in Greater London, who may be assumed to derive benefit from the general mobility of people living in or within commuting distance of Greater London resulting from the availability of a public passenger transport system, even though the particular resident may happen to make little or no use of it himself, and (3) ratepayers in Greater London, to the extent that they are required to contribute to the cost of the system. These three categories overlap but do not coincide. Most persons in category (2) will also be in category (1), and it will be convenient to refer to these as 'passengers', but, as mentioned earlier, there is no such coincidence between either of these two categories and category (3), the ratepayers. They constitute only 40% of residents and that 40% bears only 38% of the total burden borne by all the ratepayers. The conflict of interest lies between passengers and the ratepayers.
I have left out electors as such, as constituting a separate category. A council member once elected is not the delegate of those who voted in his favour only; he is the representative of all the electors (ie adult residents) in his ward. If he fought the election on the basis of policies for the future put forward in the election manifesto of a particular political party, he presumably himself considered that in the circumstances contemplated in the manifesto those policies were in the best interest of the electors in his ward, and, if the democratic system as at present practised in local government is to survive, the fact that he received a majority of votes of those electors who took enough interest in the future policies to be adopted by the GLC to cause them to cast their votes, is a factor to which considerable weight ought to be given by him when participating in the collective duty of the GLC to decide whether to implement those policies in the circumstances that exist at the time that the decision falls to be made. That this may properly be regarded as a weighty factor is implicit in the speeches in this House in Secretary of State for Education and Science v Tameside Metropolitan Borough, although the issues dealt with in that case were very different from those arising in the present appeals. In this respect, I see no difference between those members of the GLC who are members of what as a result of the election becomes the majority party and those who are members of a minority party. In neither case when the time comes to play their part in performing the collective duty of the GLC to make choices of policy or action on particular matters, must members treat themselves as irrevocably bound to carry out pre-announced policies contained in election manifestos even though, by that time, changes of circumstances have occurred that were unforeseen when those policies were announced and would add significantly to the disadvantages that would result from carrying them out.
My Lords, the conflicting interests which the GLC had to balance in deciding whether or not to go ahead with the 25% reduction in fares, notwithstanding the loss of grant from central government funds that this would entail, were those of passengers and the ratepayers. It is well established by the authorities to which my noble and learned friend Lord Wilberforce has already referred that a local authority owes a general fiduciary duty to the ratepayers from whom it obtains moneys needed to carry out its statutory functions, and that this includes a duty not to expend those moneys thriftlessly but to deploy the full financial resources available to it to the best advantage, the financial resources of the GLC that are relevant to the present appeals being the rate fund obtained by issuing precepts and the grants from central government respectively. The existence of this duty throws light on the true construction of the much-debated phrase in s 1 'integrated, efficient and economic transport facilities and services'. 'Economic' in this context must, I think, mean in the economic interests of passengers and the ratepayers looked at together, ie keeping to a minimum the total financial burden that the persons in these two categories have to share between them for the provision by the LTE in conjunction with the railways board and the National Bus Co of an integrated and efficient public passenger transport system for Greater London. As I have already indicated I think that the GLC has a discretion as to the proportions in which that total financial burden should be allocated between passengers and the ratepayers. What are the limits of that discretion and whether those limits would have been exceeded if the only effect of the GLC's decision to instruct the LTE to lower its fares by 25% had been to transfer to the ratepayers the cost (amounting to some £69m) of the financial relief that was afforded to the passengers by the lowering of the fares is a difficult question on which the arguments for and against are by no means all one way. Fortunately, I do not find it necessary to decide that question in the present appeals. It does not, in my view, arise, because the GLC's decision was not simply about allocating a total financial burden between passengers and the ratepayers, it was also a decision to increase that total burden so as nearly to double it and to place the whole of the increase on the ratepayers. For, as the GLC well knew when it took the decision to reduce the fares, it would entail a loss of rate grant from central government funds amounting to some £50m, which would have to be made good by the ratepayers as a result of the GLC's decision. So the total financial burden to be shared by passengers and the ratepayers for the provision of an integrated and efficient public passenger transport system was to be increased by an extra £50m as a result of the decision, without any equivalent improvement in the efficiency of the system, and the whole of the extra £50m was to be recovered from the ratepayers. That would, in my view, clearly be a thriftless use of moneys obtained by the GLC from the ratepayers and a deliberate failure to deploy to the best advantage the full financial resources available to it by avoiding any action that would involve forfeiting grants from central government funds. It was thus a breach of the fiduciary duty owed by the GLC to the ratepayers. I accordingly agree with your Lordships that the precept issued pursuant to the decision was ultra vires and therefore void.
I would also have held the decision and the precept to be void on another ground....This ground is, that in exercising the collective discretion of the GLC under s 11 to direct or approve a reduction of fares by 25% the members of the majority party by whose votes the effective resolutions were passed acted on an erroneous view of the applicable law in that from first to last they regarded the GLC as irrevocably committed to carry out the reduction, whatever might be the additional cost to the ratepayers, because a reduction of that amount had been pre-announced in the election manifesto issued by the political party whose candidates formed a majority of the members elected. For reasons that I have previously stated at some length this is erroneous in law.....
LORD SCARMAN:....I conclude, therefore, that the GLC may make grants to provide not only for past, but for anticipated losses. It follows that the GLC and the LTE are entitled to anticipate a trading loss and to bring into their accounts a grant to offset the resulting deficit.
It is the next step in the appellants' argument which I think is not authorised by the Act. They say that it follows that deficit on trading account is acceptable, even if it be, wholly or to some degree, avoidable, provided the GLC judges it is justifiable on the ground of transport need. But, though revenue account may include grant income, it by no means follows that the Act entitles the GLC and the LTE to accept as an objective of policy a deficit on trading account merely because it best meets what they regard as the interests of the travelling public and 'transport need'. So to interpret s 7(3) is, in my judgment, to disregard the duty owed to the ratepayers. The subsection is, however, capable of another interpretation which is consistent with that duty. This interpretation, which I accept, is that, while permitting advance budgeting, it nevertheless requires the LTE so to provide its services as to ensure, so far as practicable, that deficit is avoided. Though the LTE may be compelled by circumstances to budget for a loss which will have to be made good by grant, the subsection requires it to avoid it, if it can. Its principal weapon is fares income. The subsection, though it envisages budgeting for a deficit, permits it not as an object of social or transport policy, but as a course of action which it may not be practicable or possible to avoid. Loss may be unavoidable: but it does not thereby become an acceptable object of policy.
Section 7(6) reinforces this view of the duties imposed by sub-s (3)(b). If the LTE fails to make good in the following year the deficit that has arisen in the previous year, the GLC shall take action to enable the LTE to overcome the deficit. In other words, deficit is unacceptable: and the GLC may take action to get rid of it either by grant or by requiring an increase in the level of fares (or by other steps).
Finally, s 11 is of some importance. By sub-s (1) the GLC may give general directions to the LTE; and by sub-s (2)(d) the LTE shall submit, and obtain GLC approval of, the general level and structure of fares to be charged. The section contains no indication as to the considerations which are relevant in establishing the general level of fares; but it clearly implies that fares are to be charged.
To conclude, s 7(3), in my judgment, requires the LTE to follow, so far as practicable, a financial policy of 'break-even'. Grants in support of revenue from fares are envisaged: but as a necessity, and not as an object of social or transport policy. Though advance budgeting which takes account of grant income to make good anticipated unavoidable loss on operations is authorised, the subsection does not erect grant financing of deficit into an object of policy. I find nothing in s 7 which cuts down or modifies the fiduciary duty of the GLC to its ratepayers, a duty which requires it to see that the services of its instrument, the LTE, are provided on business principles so as to ensure, so far as practicable, that no avoidable loss falls on the ratepayers.
Accordingly, I accept the Bromley submission that the Act requires that fares be charged at a level which will, so far as practicable, avoid deficit. I do not discuss the difficult problem of what is meant by 'so far as practicable'. For it is plain that the 25% overall reduction was adopted not because any higher fare level was impracticable but as an object of social and transport policy. It was not a reluctant yielding to economic necessity but a policy preference. In so doing the GLC abandoned business principles. That was a breach of duty owed to the ratepayers and wrong in law.