A claim for an indemnity was made by two council officers who were also directors of a company set up by the local authority to finance and manage a waterpark for the public. The project failed and the company went into liquidation. The liquidator brought proceedings to recover substantial sums from them under the Insolvency Act 1986. They sought to establish that the local authority was bound to indemnify them in respect of their liability, if any, in the insolvency proceedings, either under a contractual indemnity or, failing that, under section 265 of the 1875 Act.
Held: A Local Authority could not indemnify ultra vires actions of officers despite any contract to do so.
Neuberger J explained section 265. The first part was concerned with excluding liability, the second part was concerned with an indemnity and the third part being the proviso. He then stated: ‘The purpose of the first part of section 265 is to confer immunity from suit from the persons therein mentioned in the circumstances therein mentioned. This would strongly suggest that the ‘expenses’ against which such persons are to be indemnified under the second part of section 265 are not intended to be substantive sums for which they are sued, because the first part of section 265 renders them immune from liability for such sums. This reinforces the view that the reference to ‘expenses’ is to the expenses incurred by the relevant persons in connection with the claim in respect of which they are rendered exempt by the first part of section 265. It appears to me that this is consistent with what was said by Wightman J giving the judgment of the court in Ward v Lee (1857) 7 EandB 426, 430, where he said: ‘The clause at the end of the 128th section is not for the repayment of ‘damages’ recovered against a person acting bona fide in the execution of the Act, but for the repayment of his [expenses]; which may well be construed, consistently with our view of the meaning of the section, to be repayment of the [expenses] he may have been put to in defending an action brought against him personally, and in which he may have been successful on the ground that he was acting bona fide in the execution of the Act, and therefore not liable. [The section there referred to being a provision of similar effect to section 265 of the Public Health Act 1875].’
Times 07-Nov-1996, (1996) 95 LGR 520
Updated: 18 May 2022; Ref: scu.78750