The Law Commission

PART III

THE INSURANCE PROBLEMS

1 Introduction

3.1     Our terms of reference asked us to: 

consider the concerns raised in paragraphs 32.44 – 32.62 of the Waterhouse Report that in some circumstances local authorities may be unduly constrained by threat of actions or loss of insurance cover from making public acting upon and identifying necessary reforms in the light of the results of inquiries conducted by them or on their behalf. …

3.2     In the consultation paper we stated that we were keen to find out whether in practice local authorities were inhibited by fear of loss of insurance cover and if so why. The principal concerns appeared to be loss of cover: 

(1) if admissions of liability were made without the insurer's consent or

(2) if publication of a report might provoke an action in defamation against the local authority.

3.3     Our terms of reference also referred to "the possible loss of public interest immunity or privilege against disclosure." So we also examined these issues in the consultation paper. 
3.4     This Part starts by providing some general information about the insurance background against which local authorities operate. We then consider: admissions of liability; defamation; waiver of rights including the right to confidentiality legal professional privilege and public interest immunity; and the duty of confidentiality. We state our conclusions at paragraphs 3.76 – 3.77 below. 

2 The insurance background

3.5     Prior to Waterhouse there had been two inquiries into abuse of children in local authority care in North Wales (the Cartrefle inquiry^[1] and the Jillings inquiry^[2]). Neither of these reports had been made publicly available. Irrespective of whether they should have been published Waterhouse expressed concern about the role played by the local authorities' insurers in decisions by the authorities on how to handle the reports.^[3] 

3 Insurance arrangements

3.6     Some large local authorities self-insure against their legal liabilities; others have liability insurance. Even self-insurers may purchase partial cover for unexpected liabilities. Any independent person appointed by an authority to conduct an inquiry will probably have his or her own professional indemnity insurance but their insurance company might seek an indemnity from the authority or the authority's insurers. 
3.7     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".^[4] It could also be said to be in a position akin to that of a trustee.^[5] It should not therefore deliberately or recklessly vitiate its insurance cover. Moreover its accounts will be audited. The Audit Commission will look to see whether the authority has conducted itself with "economy efficiency and effectiveness."^[6] When an authority sets up an ad hoc inquiry or contemplates doing so it will 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 partial or anonymised form. 
3.8     Local authorities operate rather differently from private companies. For example elected councillors may be subject to political or media pressures even if officers are not. In addition authorities are accountable to the electorate at large as well as service users complainants and victims of malpractice. This is essential background to the relationship between local authorities and their insurers. 

4 The express term

3.9     Contracts of liability insurance may be expected to contain as an express standard term a clause in the following terms: "No admission of liability waiver of rights or promise of payment shall be made without the company's written consent".^[7] 
3.10     On its face the authority must not make any admission of liability promise any payment or waive any rights. A minor breach of this term entitles the insurer to claim damages. A breach which has very serious consequences for the insurer entitles the insurer not to pay out at all under the contract.^[8] 

5 An implied limitation on the express term

3.11     Nevertheless although the express term may forbid an admission of liability waiver of rights or promise of payment without the insurer's consent this does not necessarily give the insurer 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"^[9] and the context and purpose of the approval must be identified in each case it is likely that a limitation to the 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."^[10] 

6 Implied terms

3.12     In the case of the Jillings report the insurer went beyond the express term and instructed the local authority that it should not do anything which would prejudice the interests of the insurer. One of the problems for Clwyd was therefore that if it published the Jillings report it might jeopardise its insurance cover. Waterhouse concluded that the insurers were right actively to alert the council to these dangers.^[11] The insurers' representative to the Waterhouse inquiry accepted that the insurers had gone too far.^[12] 
3.13     In the consultation paper we revisited the issue to see whether there was any basis for an insurer to stipulate that its insured should not act to the insurer's prejudice. We also considered what would be the effect of terms that could be implied. We concluded that the authority may take steps which might expose it to liability – it can hardly avoid doing so. In that sense it must be able to insure against its own deliberate act. But it may not court liability and must act as a prudent reasonable authority would act. It owes a duty of utmost good faith to the insurer and duties of co-operation and to minimise loss may also be implied. These duties do not extend so far as to inhibit it from doing or saying anything prejudicial to the interests of its insurers when its own functions as a public body so require. Indeed we believe that the doctrine of good faith should not inhibit any local authority from acting in a manner which it believes to be responsible. 
3.14     Comments from respondents (Professors Malcolm A Clarke and Birds) tended to support our views.^[13] Nevertheless while some respondents said that their insurers had been helpful and that "the authority's public responsibilities are recognised and respected" this was not always the case. 
3.15     The fundamental point is that local authorities are in the business of providing services to the public. In the course of so doing things will go wrong. It ill befits an insurance company to take the premium from a body which is in the public service business and refuse to pay out when the act against which insurance has been taken out occurs. It is not obvious that the approach taken by all insurers of local authorities have fully absorbed the nature of their clients' business. This emerges from the responses we received to the consultation questions we put as set out below. 

7 Admissions of liability

3.16     In relation to the first issue admissions of liability the problems may be summarised as follows: 

The local authority's co-operation with the inquiry may be impeded if there is a risk that evidence given to the inquiry panel will amount to an admission of liability in breach of the insurance contract.

It is not sufficiently clear what kind of admission will be treated as an admission of liability within the terms of the insurance contract.

It is not sufficiently clear what kind of act by the council will amount to an admission of liability especially in relation to its response to an inquiry report.

The lack of clarity might either result in a breach of the insurance contract or lead an authority to make less full disclosure than it could to an inquiry panel or to hold back from publishing the inquiry report for fear of invalidating the insurance contract. None of these results serves the public interest.

The interests of the insurer and the local authority may conflict: if the insurer withholds consent to publish publication of a report could be impeded where it ought not to be. Again this result is not in the public interest.

8 Consultation

3.17     The CP asked: Is it the experience of consultees that even though liability may be inferred from an admission of fact witnesses to local authority non-statutory inquiries are free to give all relevant facts to an inquiry (subject to requirements of confidentiality)?^[14] 
3.18     Responses were divided. Three respondents answered this question in the negative. (One gave the example of an inquiry into the loss of water supply where those giving evidence to the inquiry had not been free to answer fully.) Nine either responded positively that witnesses were free to answer (subject in two cases to confidentiality requirements) or that they would expect them to be so. 
3.19     We then asked: Is it the experience of consultees that publication of an inquiry report whether internal or independent is treated in practice as amounting to acceptance of any findings of fact and conclusions reached in that report and thus to an admission of liability?^[15] 
3.20     Again responses were mixed. One respondent thought the publication of the report was "definitive" and others also thought it amounted to acceptance of liability. By contrast yet others thought publication was merely an influential factor in the acceptance (or non-acceptance) of liability.^[16] One respondent answered in the negative. 
3.21     We wanted to know how insurers acted in relation to admissions of liability and so we asked: Is it the experience of consultees that consent to an admission of liability is ever withheld by an insurer in circumstances where the local authority would have wanted to make that admission? If so we should be interested to know the circumstances. 
3.22     One respondent said the insurer had helped facilitate publication rather than the reverse. Six respondents said consent had never been withheld. But three respondents answered our question in the affirmative. One said it was likely that the insurer would withhold consent but this seemed to be a general view rather than a specific experience. One of the examples given seemed especially serious: 

The first case involved a teacher […] who allegedly buggered or otherwise sexually assaulted up to 20 pupils who all suffered learning disabilities. The authority considered the evidence overwhelming and wanted to admit liability to the families at an early stage as part of the apology process. It could not do so due to refusal of the insurer to give the requisite consent. The teacher was subsequently convicted on a number of counts of attempted buggery and other indecent assaults. In the second case allegations had been made in 1984 of physical and sexual abuse by the head of a children's home. That had been investigated by social services at the time but social services had not involved the police nor had they informed the parents. Evidence had been found to substantiate the allegations. This highly unsatisfactory investigation came to light in 1992 when the allegations were repeated. Apart from the fact there was evidence to substantiate the allegations there was also the fact that the authority had failed to discharge its duties appropriately in 1984 by not involving the police or the families. The authority wanted to accept liability to some of the families involved but again was prevented from doing so by its insurers. This included accepting responsibility for failing to conduct an appropriate investigation in 1984. Proceedings for some claimants in relation to this case are still continuing although liability has now been accepted in the majority of cases and the issue is one of quantum.

3.23     The tension between the interests of the insurers and those of the authority is resolved in some areas but very real in others. One respondent wrote: "As the Law Commission's Report has indicated there is a tension between for example a Local Authority deciding to admit liability and the attitude of its insurers this tension is bound to increase depending on the seriousness of the case and the amount of liability". The same respondent thought the tension was likely to increase as councils become more focused on meeting local needs and work increasingly in partnership with other bodies. 
3.24     It is worth noting that the tension can have the opposite effect: sometimes the insurer may want a case to settle (an economic decision) where the authority wishes to defend itself on principle. 
3.25     If it is the case that publication might amount to acceptance of liability then it seemed possible that publication might be withheld for that reason. We therefore asked: Is it the experience of consultees that inquiry reports are ever withheld from publication for fear that statements in them will amount to admissions of liability?^[17] 
3.26     While for some respondents this had not arisen as a problem others thought it could occur; in one case the authority's lawyers tried to persuade the inquiry team to be less forthright.^[18] Andrew Arden QC (who has conducted inquiries himself) wrote: 

It does however cause me concern that insurance companies enjoy such power over the decision whether or not to publish a report. Insurance companies will invariably opt for the safest course which is confidentiality. In broad terms reports which identify individuals in terms which adversely affect them are likely to be "exempt information" ^[19] which permits insurance companies effectively to prevent publication (even where other considerations e.g. disciplinary proceedings do not) by denying cover for it.

9 Defamation

3.27     Similar issues arose from the law of defamation namely fear of actions in defamation and whether that fear inhibited publication. 

10 Consultation

3.28     We asked: In consultees' experience are inquiry reports ever withheld from publication because of defamatory statements in them? If this has occurred was it because of fear of an action in defamation or because of the risk of invalidating the insurance cover or both?^[20] 
3.29     Again experience was mixed. One respondent who had conducted inquiries was confident that if his conclusions were sustainable then there was nothing to fear in defamation. On the other hand it was clear that a cautious approach is adopted in some cases – on occasion very cautious: "Moreover as a recent development the Insurers are now requiring prior to publication and at Clients' own expense that they seek to have the draft report reviewed by Defamation Counsel and that publication be restricted to the absolute number of interested parties who are required to receive the report and to no one else". 
3.30     This nervousness can occasionally affect the evidence given to the inquiry itself even though this would be protected by qualified privilege. One authority reported "some evidence that individuals intended to give to scrutiny panels was not taken from fear that it might contain defamatory statements". 
3.31     In the consultation paper our provisional view was that without clarification or change in the law authorities and insurers can only avoid the risk of publishing being sued and finding that the defence of qualified privilege is not applicable by adopting a very cautious approach to publication. We did not think this was in the public interest. We concluded that legislative reform in relation to the defence of qualified privilege was therefore desirable. We asked whether consultees agreed.^[21] Twenty two of the twenty three respondents who answered agreed. 
3.32     A lone dissentient with significant experience of conducting inquiries did not: 

… I think a fairly robust managerial attitude is needed to override too cautious legal advice here. If an insurance company wants a local authority's business it should calculate the effect of the authority's representative function and compete with other companies on its premiums. The nature of a local authority is so obvious that I would have argued had I been the chief executive of an authority that was obstructed by an insurance company that the very circumstances of being a local authority implied the likelihood of both of publication and (as in e.g. child abuse) the need to provide appropriate care to injured clients. Marine insurers don't disclaim just because a ship sinks! If insurers want local authority business they must take up the essential circumstances involved. A local authority is not a plc.

3.33     The practical difficulty with this approach is that insurers and local authorities are in a market. If the risk for insurers becomes too great they might either raise premiums so that it is uneconomic for authorities to pay them or they might walk away from the business altogether. 

11 Waiver of rights

3.34     The standard insurance term also prohibits "waiver of rights" without the consent of the insurer. In Part V of the CP we discussed the rights that a local authority might be waived in the context of publishing the report of an inquiry. There were three issues we considered in particular: 

(1) the right to confidentiality;

(2) legal professional privilege; and

(3) public interest immunity.

3.35     These issues could adversely affect an inquiry in a number of ways. For example 

(1) documents may be withheld from an inquiry on the grounds that not to withhold them would waive legal professional privilege;

(2) documents may be withheld from an inquiry on the grounds that not to withhold them could breach a duty of confidentiality owed by the authority to others.

12 The right to confidentiality

3.36     Confidentiality can attach to documents created specifically for the authority for example communications between the director of social services and the legal department. This confidentiality is not owed to a third person but is owed internally within the authority. The right to confidentiality also means that the local authority has the right to decide whether this information should be made public. However placing such material in the public domain may amount to a waiver of that right. 
3.37     Confidentiality also underpins the legal issues discussed next because claims to legal professional privilege and public interest immunity are precluded if the information in question is not confidential. 
3.38     We asked: In consultees' experience does the need not to waive the right to confidentiality which may be claimed by the authority lead to the withholding of documents (and other evidence) from local authority ad hoc inquiries. 
3.39     Most respondents said this was not a problem. One said this may occur "in sensitive cases"; one referred to it occurring where a third party's consent could not be obtained to the release of information; and one said it had occurred because of the loss of legal professional privilege which would have resulted. 

13 Legal professional privilege

3.40     Privilege entitles a litigant or his or her successor in title^[22] to withhold documents from production during the course of legal proceedings. Privilege is fundamentally a rule of evidence which applies to adversarial proceedings in courts.^[23] It may also be claimed in certain investigative non-adversarial proceedings.^[24] Once privilege is established the right to withhold the document is absolute.^[25] This means that if a document from the local authority is privileged then it is protected from being produced. But the fact that a document may be privileged does not mean it is not admissible because privilege may be waived.^[26] 
3.41     The type of privilege that will arise most often in local authority reports is legal professional privilege. Legal professional privilege covers communications between the client and the adviser whether or not proceedings are in existence or contemplated (legal advice privilege) and communications between the adviser and the client or between either and a third party where litigation is pending or in prospect if the dominant purpose of the communication is getting evidence or advice for the litigation (litigation privilege).^[27] 
3.42     The concern raised in Waterhouse was whether legal advice privilege may be waived by publication of the information in the inquiry report thus potentially prejudicing the authority (and its insurer) in subsequent trials and negotiations for favourable settlement. 
3.43     Communications between the legal advisers to the authority and the council will benefit from legal advice privilege if that communication is reasonably necessary to the giving or receiving of legal advice.^[28] This privilege will extend to communications passing between the authority's departments and local authority lawyers statements from the officers involved and other witnesses in the pre-inquiry stage. 
3.44     There is recent authority to the effect that litigation privilege is a creature of adversarial proceedings and thus cannot exist in the context of non-adversarial proceedings such as an inquiry. In such circumstances the party seeking privilege can only rely on advice privilege.^[29] 
3.45     As mentioned above a communication can only be privileged if it is also confidential. If an otherwise privileged document has lost its confidentiality there can be no claim for privilege. In Goldstone v Williams^[30] depositions had been read into a compromise settlement in a previous trial. The defendant sought disclosure of the depositions. Disclosure was granted because the depositions were freely available to be inspected by anyone who had proper grounds for doing so. Privilege could no longer attach to the documents as they were no longer confidential.^[31] 
3.46     If a privileged document or statement is communicated during the course of the inquiry the local authority cannot claim privilege in any legal proceedings following from the report's publication if publication is to the world at large. Confidentiality might be preserved if the report is circulated in a limited fashion but if the distribution is not tightly controlled confidentiality will be lost.^[32] Confidentiality might also be preserved if the documents are supplied to an inquiry conducted in private on the understanding that they will be kept confidential. This limits the use the inquiry can make of them. 
3.47     We asked: Does the fear of waiving legal professional privilege lead to the withholding of documents (and other evidence) from local authority ad hoc inquiries? 
3.48     The responses generally disclosed that although not very common this can happen. One respondent cautioned "The use of the word "fear" is probably misplaced. These are proper safeguards which professionals and responsible public bodies do not abandon lightly at all." (We note that one respondent said that although legal professional privilege had been relied on to withhold information that had not prevented the person conducting the inquiry getting hold of all the evidence.) 
3.49     It seems to us that if an authority is going to spend public money by having an inquiry then it should do what it can to make the inquiry effective. This means giving the inquiry access to documents except where there are very good reasons not to rather than the reverse. What is essential is that any privileged document should not lose its confidentiality. 

14 Public interest immunity

3.50     Waterhouse makes a number of assertions that evidence presented to panels and panel reports fell within the scope of public interest immunity. For example in relation to the Cartrefle report ^[33] Waterhouse states at paragraph 32.57: "A major concern of the insurers at that stage was that the Council should not be seen to waive public interest immunity that would otherwise attach to the report or to important parts of it and to many background documents." Counsel's opinion on the Jillings report also refers to waiver of public interest immunity but it is not given any separate treatment. 
3.51     Public interest immunity permits certain information to be withheld from public disclosure. It is a general rule of law founded on public policy and recognised by Parliament^[34] that any document may be withheld or an answer to any question may be refused on the ground that the disclosure of the document or the answering of the question would be injurious to the public interest.^[35] 
3.52     Public interest immunity is normally claimed by the body in possession of the confidential information. Here we are concerned with whether by publication of an inquiry report the local authority is placing into the public domain documents which might be subject to a claim of public interest immunity. 
3.53     Although public interest immunity can only be claimed by authority of the Crown it is open to any person to raise the objection that the production of documents for inspection will be injurious to the public interest.^[36] 
3.54     In litigation between private individuals it is the duty of the parties to draw the attention of the Crown to the possibility that disclosure or production of documents would or might be injurious to the public interest. If the Crown learns either from a party or otherwise that such documents may be disclosed or produced the appropriate legal officer such as the Treasury Solicitor or the solicitor for the appropriate Government department will direct the party who may make the disclosure that the documents should not be disclosed on the grounds that it would be harmful to the public interest. On this direction it will become that party's duty to raise the objection.^[37] If the opposing party applies for an order for production of the documents the Crown may be allowed to intervene in order to be heard in relation to the objection to disclosure. Also a court may raise this objection by its own motion. 
3.55     In the consultation paper we provisionally concluded that^[38] a local authority as a public body is under a duty to assert public interest immunity when it considers it necessary to do so. Public interest immunity once asserted cannot be waived. It is not a privilege from disclosure available to be used by a local authority as a private litigant akin to legal professional privilege but a public law duty. We do not consider that it can therefore be described as a "right to be waived". We conclude that an express term forbidding waiver of any right will not bite on it. We also do not consider that it would be proper for an insurance company to seek to influence an authority's conduct in relation to the assertion or otherwise of public interest immunity. 
3.56     Our preliminary consultations with local authorities and their insurers suggested that in fact it is not the practice of insurance companies to seek to do so. Accordingly our provisional view was that public interest immunity did not contribute to the potential problems for local authorities identified in the Waterhouse Report and our terms of reference. 
3.57     We asked: Does the fear of disclosing a document which might be subject to public interest immunity lead to the withholding of documents (and other evidence) from local authority ad hoc inquiries? 
3.58     There was a small mixed response to this question. Some did not see it as a problem. By contrast one respondent wrote "[p]ublic interest immunity is always asserted". The views of insurers on the matter did not feature in the responses. 
3.59     We conclude that while an authority may seek to claim public interest immunity as a reason for not disclosing a document to an inquiry as such it is acting on behalf of the general public interest and not in its own interest.^[39] Insurers have no part in this kind of claim which is ultimately overseen by the courts. 

15 The position of third parties

3.60     Following our consultation one new matter emerged as giving concern. From the viewpoint of those outside the authority such as the complainant or a complainant's family they may not find out that there has been a decision to withhold documents from the inquiry for reasons of confidentiality or legal professional privilege. In such cases they will not then be able to challenge the contents of those documents. 
3.61     In relation to this concern we note that if an investigative duty lies on the State as a result of a complaint (see paragraphs 7.45 – 7.74 below) then one aspect of that duty is the need for the complainant or family of the complainant to be sufficiently informed and involved in any inquiry. If a local authority undertakes an inquiry (whether ad hoc or required by statute) as part of the State's discharge of that duty it is required to have regard to the involvement of the complainant's family. Good practice would suggest that the complainant and/or his or her family should be kept informed whether or not the State has a legal duty to investigate. Part of the information provided could include an account of whether the inquiry has succeeded in obtaining all the evidence it sought. 
3.62     We note that in the case of an ad hoc inquiry the inquiry team might protest if it is aware that items are being withheld from it. In an extreme case it could challenge a decision to withhold material. However at present it cannot ultimately compel someone to attend before it. In the case of the new special inquiries that we recommend in Part VIII below the inquiry will subject to the court's view be able to compel production of documents to it. 

16 Breach of confidence and a duty to disclose?

3.63     A couple of respondents suggested that the issues arising in relation to confidentiality and legal professional privilege could be addressed by a statutory duty placed on the authorities to disclose all evidence to ad hoc inquiries. Such a duty would also meet concerns about whether an authority was in breach of any duty of confidence owed to others. 
3.64     Our consultation question was put in terms of the right to confidentiality which a local authority may claim in relation to documents held within the authority. However the issue is evidently sometimes thought about by local authorities in terms of the duty of confidence owed by them to others. 
3.65     An authority may owe a duty of confidence to another party for example where it holds personal information about recipients of its services ^[40] or where the local authority is in a special relationship with the communicator of the material.^[41] Similarly the information may have been imparted to the authority on the understanding that it was being provided subject to confidentiality.^[42] In this instance no question of a waiver of a right will arise. In the case law where confidentiality has been lost in a document this is referred to as a "breach" of the duty of confidence owed to others not a "waiver" of the authority's own right of confidentiality in the information held by it.^[43] 
3.66     It is clear that unauthorised use of confidential material can be classed as a breach of the duty of confidence. Breach of confidence is defined as unjustified disclosure or use or the unjustified putting at risk of confidential information.^[44] Disclosure may also occur if there is partial unauthorised use of the material where such use is significant and substantial.^[45] Breach can also occur where subsidiary or ancillary material is disclosed to the public.^[46] 
3.67     An authority will wish to avoid exposing itself to an action for breach of confidence just as it will wish to avoid an action in negligence or breach of statutory duty. 
3.68     One way of achieving this may be for the authority to release material to an inquiry on the express understanding that it is not to be further disclosed. Material that has been shared with other professionals or agencies^[47] but is still restricted from public access will still benefit from the quality of confidence as material can be confidential between some persons and not others.^[48] 

17 A statutory duty to disclose material to inquiries?

3.69     One respondent thought: "It would be helpful if the law were clear that documents should be produced to a local authority inquiry. This is particularly so given the Data Protection Act 1998 as well as common law on confidentiality. A statutory authority to disclose would be useful perhaps similar to section 115 of the Crime and Disorder Act 1998."^[49] The Adoption Forum also urged us to recommend a statutory duty to disclose material to an inquiry. 
3.70     We have considered whether a comparable provision might help local authorities to disclose documents to inquiries they have themselves established. We have concluded that it could not. Such a duty would amount to a statutory defence to an action for breach of confidence. The statutory duty would have to be based on a statutory requirement to disclose under very specific circumstances.^[50] The language of the statute would have to be unambiguous. Also there would be the competing interests arising from public interest immunity the Data Protection Act 1998 legal professional privilege and protection of the interests and confidentiality of third parties which would have to be taken into account in defining any statutory duty of disclosure. 
3.71     Personal information which is held in confidence is protected by Article 8(1) of the ECHR as an aspect of an individual's "right of respect for his private and family life".^[51] Any disclosure of confidential information must be justified under Article 8(2) as being: 

(1) in accordance with the law;

(2) necessary in a democratic society (proportionate);

(3) for a stated purpose: in the interests of public safety for economic well-being of the country for the prevention of crime and disorder for the protection of health or morals or for the protection of rights and freedoms of others.

3.72     The ECHR gives a form of codification to the nature of the public interest authorising breach of confidence by public bodies. Under the Human Rights Act ("HRA") 1998 disclosure of confidential information held within the control of a local authority will have to comply with Article 8 of the ECHR. Section 6(1) of the HRA 1998 requires a local authority to act compatibly with the ECHR.^[52] 
3.73     We do not think it would be appropriate to recommend a defence for breach of confidence in terms which did not refer to the public interest; the issues are far too subtle for that. There is nothing to be gained by recommending a provision which is cast in terms of the public interest because this is the effect of the common law on public interest immunity. The ultimate arbiter of where the public interest lies^[53] will always be the court which will take into account all the circumstances of each case.^[54] 
3.74     The court can order disclosure of documents determine where the public interest lies and make orders limiting the extent of disclosure necessary for determination of the issues before the inquiry. The court can take account of issues raised by the Data Protection Act 1998 legal professional privilege and public interest immunity. Also such hearings can be held out of the public eye and appropriate remedies given. 
3.75     If our recommendations in relation to a new power of inquiry are enacted (see Part VIII) and if a local authority declines to provide documents requested by an inquiry in certain circumstances the inquiry could apply to the court for an order that the document be supplied by the authority.^[55] 

18 Conclusions

3.76     In the light of responses to the questions asked in the CP we have reached the following conclusions. 

(1) From our respondents we received no evidence of insurance cover actually being withdrawn.

(2) There was some evidence of threats of loss of insurance cover.

(3) More generally there was an underlying fear that insurance cover might be withdrawn or invalidated if an authority acted contrary to the insurers' interests whether by admitting liability or by publishing an inquiry report.

(4) Such threats and fears are significant as loss of cover would be a very serious matter. As one respondent said "past experience shows that Members and Officers treat very seriously the risk that their actions might result in the breach of the contract of insurance thereby putting the authority in a position of having no cover."

(5) In relation to admissions of liability we think that a clearer agreement between local authorities and their insurers should resolve what uncertainties there are about the circumstances in which insurance cover may be lost by such an admission. We discuss this further in Part IV.

(6) In relation to the law of defamation we are persuaded in the light of responses to the consultation that some amendment of the law is desirable in particular that relating to qualified privilege. We discuss the arguments and our recommendations more fully in Parts V and VI.

(7) As regards waiver of rights in particular the waiving of the right to confidentiality and legal professional privilege we think this can be addressed by clearer guidelines on the conduct on inquiries. We discuss this further in Part IV.

(8) The issue of public interest immunity is a matter of public law and is not affected by the contract of insurance between the local authority and the insurance company.

(9) It may be possible to balance rights of confidence and the needs of the inquiry to arrive at the truth by evidence being given in confidence.

(10) A statutory duty to disclose confidential material would not be helpful but there is a case for a new power of inquiry in relation to which a court might order the disclosure of particular evidence. We discuss this further in Parts VII and VIII.

3.77     Our hope is that the combined effect of the legislative reforms we recommend and the non-legislative remedies we suggest will lead to greater confidence on the part of local authorities in the handling of ad hoc inquiries with regard to their insurance obligations and the facilitation of publication of well-conducted inquiry reports. These outcomes would be in the public interest. 
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Ü   Þ

Note 1    See para 1.5 above.    [Back]

Note 2    See para 1.9 above.    [Back]

Note 3    See para 1.18 above.    [Back]

Note 4    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.    [Back]

Note 5    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.    [Back]

Note 6    Audit Commission Act 1998 s 5(1)(e).    [Back]

Note 7    The contract between Clwyd and Zurich Municipal included such a term.    [Back]

Note 8    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.    [Back]

Note 9    Gan Ins Co Ltd v Tai Pin Ins Co Ltd [2001] EWCA Civ 1047; [2002] Lloyd’s Rep IR 667 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 2003) Vol. 1 General Principles paras 13–004 – 13–009.    [Back]

Note 10    Gan Ins Co Ltd v Tai Pin Ins Co Ltd [2001] EWCA Civ 1047; [2002] Lloyd’s Rep IR 667 para 73 per Mance LJ. Mance LJ 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.    [Back]

Note 11    The Waterhouse Report para 32.60 cited at para 1.17 above.    [Back]

Note 12    The Waterhouse Report para 32.60 and quotation at para 1.18 above.    [Back]

Note 13    However a discussion of recent case law on the doctrine of good faith concludes that it “appears to be in a state of flux”: HY Yeo “Post-contractual good faith– Change in judicial attitude?” [2003] MLR 425 440.    [Back]

Note 14    Question 1: see para 7.26 of the CP.    [Back]

Note 15    Question 2: see para 7.27 of the CP.    [Back]

Note 16    One respondent noted that it could assist potential claimants against the authority.    [Back]

Note 17    Question 3: see para 7.28 of the CP.    [Back]

Note 18    In one case reported to us the local authority’s Social Services Department and the Legal Department stood to be criticised in the inquiry report. The author of the report said “I had to fend off a succession of requests for amendments”. It does not seem that these requests for amendments were prompted by the insurers.    [Back]

Note 19    See in particular 1972 Act Sched 12A paras 1 3–9 and (on occasion) 14 (footnote in original response).    [Back]

Note 20    See para 7.39 of the CP.    [Back]

Note 21    Question 10; see para 7.55 in the CP.    [Back]

Note 22    Including the insurer.    [Back]

Note 23    Phipson on Evidence (15th ed 2000) para 20–01. Privilege was described by the Law Reform Committee in its 16th report as “the right of a person to insist on there being withheld from a judicial tribunal information which might assist it to ascertain facts relevant to an issue upon which it is adjudicating”: Privilege in Civil Proceedings (1967) Cmnd 3472 para 1.    [Back]

Note 24    Such as regulatory investigations: Price Waterhouse v BCCI Holdings [1992] BCLC 583.    [Back]

Note 25    In this respect privilege differs from public interest immunity. The court will ultimately decide whether public interest immunity is applicable in an individual case. The distinction was pointed out by Scott VC in Secretary of State for Trade and Industry v Baker (Re Barings) [1998] Ch 356. In R v Derby Magistrates’ Court ex p B [1996] 1 AC 487 the House of Lords firmly rejected the notion that privilege involved any form of balancing act in the particular case.    [Back]

Note 26    Phipson on Evidence (15th ed 2000) para 20–03.    [Back]

Note 27    Re L (A Minor)(Police Investigation Privilege) [1997] AC 16 33 per Lord Nicholls.    [Back]

Note 28    Wheeler v Le Marchant (1881) 17 Ch D 675.    [Back]

Note 29    See Re L [1997] 1 AC 16 and Three Rivers District Council v Bank of England (No 7) [2003] EWCA Civ 474; [2003] 3 WLR 667 para 2 an appeal from Three Rivers (No 7) [2002] EWHC 2730 (Comm). The litigation in Three Rivers District Council and others v Governor and Company of the Bank of England concerned proceedings commenced by former depositors of the failed BCCI against the Bank of England alleging that the bank was liable in the tort of misfeasance in public office. This concerned the bank’s capacity as the supervisory authority for United Kingdom deposit-takers under the Banking Act 1979. Shortly after the collapse of BCCI Lord Justice Bingham was invited to conduct a non-statutory private inquiry into the supervision of BCCI under the Banking Acts. The Bank claimed legal professional privilege for numerous documents that came into existence between the time when BCCI collapsed and the time when they made final submissions to the inquiry. In Three Rivers District Council and others v Governor and Company of the Bank of England (No 10) [2004] EWCA Civ 218 the Court of Appeal held that legal professional privilege covers communications between solicitor and client that is focused on the provision of advice and assistance in relation to legal rights and obligations; it does not extend to all the work that a solicitor may undertake on behalf of his client even where such work was in the ordinary course of business of the solicitor.    [Back]

Note 30    [1899] 1 Ch 47.    [Back]

Note 31    See also Nederlandse Reassurantie Groep Holding NV v Bacon and Woodrow [1995] 1 All ER 976; Bourns Inc v Raychem Corpn [1999] 3 All ER 154.    [Back]

Note 32    In the case of the Jillings report distribution was successfully restricted.    [Back]

Note 33    See paras 1.9 - 1.14 above.    [Back]

Note 34    See the Crown Proceedings Act 1947 s 28(1).    [Back]

Note 35    Conway v Rimmer [1968] AC 910.    [Back]

Note 36    Rogers v Secretary of State for the Home Department [1973] AC 388 400 per Lord Reid.    [Back]

Note 37    See Duncan v Cammel Laird & Co Ltd [1942] AC 624 626 – 627.    [Back]

Note 38    Para 5.42.    [Back]

Note 39    See Three Rivers District Council (No 6) [2002] EWHC 2309 (Comm) which concerned the claimant’s application to obtain access to the records of the Bingham report and issues of confidentiality. The court held that it was settled law that where confidentiality was raised in the context of disclosure of documents it was not a ground for public interest immunity in itself. However confidentiality could be an ingredient of or relevant to a claim for public interest immunity.    [Back]

Note 40    The duty of confidence may arise out of a transaction or relationship between the communicator and the recipient of the information but it may also arise independently of any transaction or relationship: Venables v News Group Newspapers Ltd [2001] Fam 430 para 81 per Butler-Sloss P.    [Back]

Note 41    Special relationships may cover e.g. co-operation with police authorities under the Crime and Disorder Act 1998 s 115; communications between teachers and educational psychologists in respect of personal information relating to pupils (see Phelps v Hillingdon BC [2001] 2 AC 619); and inter-agency communications under the Working Together guidelines paras 7.27 – 7.46. The provenance of these guidelines is described at para 2.32 above.    [Back]

Note 42    This may include complaints made to the authority by “whistleblowers”: see D v NSPCC [1978] AC 171.    [Back]

Note 43    See e.g. A-G v Blake (Jonathan Cape Ltd third party) [2001] 1 AC 268.    [Back]

Note 44    Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1960] RPC 128 CA Churchill Gear Machines Ltd v National Broach and Machine Co [1967] 1 WLR 384; Seager v Copydex Ltd [1967] 1 WLR 923. Note that disclosure of material in respect of which a duty of confidence is owed may be justified.    [Back]

Note 45    Amber Size and Chemical Co Ltd v Menzel [1913] 2 Ch 239.    [Back]

Note 46    Prince Albert v Strange (1829) 2 De G & Sm 652; 64 ER 293.    [Back]

Note 47    Such as the police under the Working Together guidelines: see para 2.32 above.    [Back]

Note 48    Gotha City v Sotheby’s [1998] 1 WLR 114. In this case the claimant sought sight of documents disclosed by one defendant in the action to the other. The court did not accept the claimant’s contention that confidentiality in the documents was lost by virtue of having disclosed them to someone.    [Back]

Note 49    CDA 1998 s 115(1) creates a power to disclose information as necessary and expedient for the provisions of the Act. The purpose of the Act is to tackle crime and disorder and it introduced among other things anti-social behaviour orders sex offender orders parenting orders child safety orders provisions for dealing with truancy noise and nuisance racially and religiously aggravated offences and youth offending. The scheme facilitating disclosure appears linked to the sharing of information to enable the use of these various orders. A “relevant authority” is limited to divisions of the police local authorities probation boards health authorities and primary care trusts (s 115(2)). However s 115 only creates a power to disclose; it does not give an absolute defence to a claim of breach of confidence. Even if the power is exercised in a manner in which a local authority officer considers necessary and expedient it is still possible they may be liable for breach of confidence. Moreover there may be additional liability under the Data Protection Act 1998 for unlawful disclosure.    [Back]

Note 50    See eg Hunter v Mann [1974] 1 QB 767.    [Back]

Note 51    Z v Finland (1997) 25 EHRR 371 and MS v Sweden (1997) 28 EHRR 313.    [Back]

Note 52    Article 8 and the Strasbourg case law was considered in A Health Authority v X [2001] Lloyd’s Rep Med 349. Munby J held that disclosure of patient records to a health authority for disciplinary and regulatory purposes was justified under Article 8 provided that they remained confidential and that there were express conditions to prevent abuse.    [Back]

Note 53    Or strictly speaking whether the public interest in a particular document being disclosed to particular people or bodies overrides the public interest in a system where confidentiality is respected.    [Back]

Note 54    For example the Family Law Bar Association referred to the “wider problem that the rules which are designed to protect the privacy and confidence of those who use social services especially children also protect the identity of their abusers and the institutions where the abuse occurred. There may be conflicting claims to confidentiality involved. Claims to confidentiality of some material may also conflict with the attempt by the inquiry to arrive at the truth”. Munby J’s judgement in A Health Authority v X illustrates the kind of considered approach a court might take. A Health Authority v X [2001] Lloyd’s Rep Med 349 (confirmed by the CA in A Health Authority v X [2002] EWCA Civ 2014 [2002] 2 All ER 780).    [Back]

Note 55    See para 8.66 below.    [Back]