My own thoughts are that you should be seen to act responsibly - that for your sake, your dog's and the sake of other dogs you should consult a behaviouralist asap and that you should probably (but read on, I am NOT a lawyer and professional advice is essential) respond to the council and tell them of the steps you are taking. If you are advised to do so I would imagine that you might be told to mention that your husband accidentally let the dog slip by him and muzzling your dog when in public and that as a result of the incident you're seeing X behaviouralist as of Y date. You would not certainly be wise to admit to anything such as that your dog can be dog-aggressive as that could be used against you.
This is because the DDA defines a dog as dangerously out of control when there is "?Any occasion on which there are grounds for reasonable apprehension it will injure any person". Your argument is reasonable - that this does not apply to your dog. However the DDA is such a cods of a law and authorities are so twitchy that they could argue that the Westies owner did indeed have reasonable apprehension that your dog would injure them. Potentially this is a serious matter. These are the penalties for a Section 3 breach of the DDA, which covers dogs which are not under the breed specific list such as Pit Bulls, Japanese Tosas and the like.
"Dangerously out of control without causing injury to a person:
A fine of up to £5000.
A prison term not exceeding 6 months.
An order to do any of the following:
Muzzle the dog at all times in a public place.
Keep the dog on lead at all times in a public place.
Neuter the dog if not already done so.
A Destruction Order placed on the dog.
Disqualification of owning an animal for such period as the court deem fit.
Realistically a one-off, dog on dog attack of the kind described is UNLIKELY to result in you having more than a slap on the wrist or at worst being ordered to comply with certain requirements such as muzzling pooch in public but it's wise not to be complacent. A public place includes private property where your dog has no right to be, such as on your neighbour's drive or in their garden.
I would suggest that you contact DDA WATCH before you do anything else and obtain their advice. I'd also strongly recommend that you seek the help of a behaviouralist immediately and also the advice and support of the rescue you adopted from. If you need any help or advice in dealing with the rescue please pm me with their name - I may know them/of them (I'm not promising) but if I do or I know anyone amongst trusted rescue contacts who does I'll willingly do all I can to help with finding the right person to contact, giving you a heads-up about the way they operate and what to ask and expect etc.
WRT a behaviouralist, find a registered one via personal recommendation. Your vet should be able to help, as should the rescue.
From a personal point of view as one who is a campaigner against DDA i would appreciate knowing what council you're under as it helps us to know the approach that each council takes and to monitor their actions and procedures (I'm not from DDA WATCH, btw, but am a supporter of the campaign and a rescuer and rescue volunteer with a pro-dog/political bent). As such I come across others in your position (and worse) and know that councils can get it wrong, can be over-zealous and can bend the rules so knowledge is useful. If you're willing to pm me in confidence and let me which is your local council we animal welfare campaigners can keep an eye on councils and will be better equipped to help other dog owners in the future. No offence taken if you'd rather not of course and if you do contact me it will be in total confidence and of course I will give you some known rescues who will be able to vouch for me before you tell me anything.
HTH,
Val