Member and officer indemnities

Geoff Wild sets out the key considerations when it comes to member and officer indemnities.

Individual members and officers of local authorities are not generally liable for the authority's acts or omissions.

Statutory Immunity

This is because section 265 of the Public Health Act 1875 provides councillors and officers, when acting in the course of their duties and in good faith, with statutory immunity and are not personally liable for the actions they take. The Act provides for an immunity in relation to potential liabilities and also costs.

Section 39 of the Local Government (Miscellaneous Provisions) Act 1976 provides further statutory immunity from personal liability, allowing members and officers to be indemnified from the general fund in relation to the performance of any of their functions, where they act bona fide, for proper purposes and without being negligent.

The Acts prevent any action being brought against members and officers (in contrast with an indemnity, which seeks to compensate the beneficiary against any loss resulting from a successful claim):

"No matter or thing done bona fide for the purpose of executing a public general act or local act by any member or officer of a local authority or any other person acting under direction of the authority shall subject them personally to any action liability claim or demand whatsoever”.

The limitations of this protection are that it only applies to local authority functions, and does not apply to members or officers sitting on outside bodies.

Council Indemnity/Insurance

Section 101 of the Local Government Act 2000 extended this by conferring a general power on local authorities to grant general indemnities to officers and members, which was given effect by the Local Authorities (Indemnities for Members and Officers) Order 2004. This clarified the ability of local authorities to provide an indemnity and gave them a specific power to grant indemnities and/or take out insurance to cover potential liabilities of members and officers in a wider range of circumstances than under the 1875 and 1976 Acts.

The Order permits indemnities and/or insurance to be provided in relation to any action or failure to act by a member or officer, providing the member or officer is carrying out a function at the request of, with the approval of, or for the purposes of, the authority.

The power extends to cases where the member or officer exercises the function in a capacity other than that of a member or officer of the authority, for example, as a director of a company or member of an outside body.

Each local authority has the discretion to decide whether to use the powers, and the extent of such indemnities and/or insurance. Given the wide range of council activities, the increasing complexity of issues that councillors and officers face and the demands made on their time, many councils have considered it appropriate to provide an indemnity/insurance - even where a member or officer inadvertently acts outside the powers given, whilst reasonably believing they are acting in the interests of the council or other body.

There is also a power to provide an indemnity/insurance where a member or officer makes a statement that certain steps have been taken or requirements fulfilled, but it later becomes clear that this is not the case. This power is limited to cases where a document has been issued containing an untrue statement as to the authority’s powers, or as to the steps taken or requirements fulfilled, but the member or officer concerned reasonably believed that the statement was true when it was issued or authorised.

However, those powers are limited. An authority may not indemnify a member or officer in relation to:

1. Any act or failure to act which constitutes a criminal offence (including matters that may give rise to a civil claim which also constitutes a criminal offence). However, an indemnity can be granted to cover criminal defence costs, but is repayable if conviction results
2. Any act or failure to act which arises as a result of fraud or other deliberate wrongdoing or recklessness
3. The cost of pursuing a defamation claim

It is well known that if the wilful misconduct of a councillor is found to have caused loss to a local authority, the councillor may be held liable to make good such loss to the council. Indeed, if a member or officer is liable for criminality, deliberate or reckless wrong-doing, any indemnity or insurance issued by the council must contain a claw-back for sums paid out by the authority or insurer. Such sums are recoverable as a debt.

So, where the authority is found to be vicariously liable for the acts or omissions of a member or officer, it arguably has a duty to pursue a contribution from that member or officer. The infamous case of Porter v Magill [2001] held that the then leader of Westminster City Council was found to have used powers for the sale of council houses for unlawful purposes, and had known this was unlawful. It was ultra vires and she was ordered to pay back £37 million. There followed a long battle to trace her fortune, and more case law on what was a reasonable level of settlement.

Regardless of any immunity, indemnity or insurance, councillors may still incur personal liability or have to defend themselves where allegations are made that:

1. They acted outside the powers of the authority
2. They acted in bad faith, fraudulently or out of malice
3. Their actions constitute a criminal offence
4. They made a defamatory statement

They may also be liable for:

1. Activities where they are appointed to or working with outside bodies in their role as a councillor
2. Action taken for an alleged failure to comply with the Member Code of Conduct (the 2004 Order requires a member to reimburse the council if there is a finding of breach of the Code or the member admits non-compliance with the Code)

Moreover, if a member or officer knows of wrongdoing, or a cover up, by keeping silent they may become party to the offence and be potentially liable - even if they didn't actually hide the facts themselves, doctor documents, give false testimony or act negligently. By condoning the impropriety of others, they may be held equally to blame. Failing to make reasonable enquiries, because one is afraid of what may be discovered, can itself be a culpable act of negligence.

Conclusion

What this shows is that that statutory immunities are limited and that a council is under an obligation to consider carefully whether to grant its own indemnity or insurance, whether to operate the claw-back, or otherwise seek a contribution from an individual respondent. The council itself is also in a fiduciary position to the taxpayer and must consider whether it ought to pursue a co-named respondent, weighing carefully all the material factors and likelihood of success.

Geoff Wild is a Legal and Governance Consultant. He is celebrating his 40th anniversary as a local government lawyer.