A fable for our times
Date: 09 July 2010
Authors: Stephen Levinson
Issue: Vol 160, Issue 7425
Categories: Features, Employment
If infuriating both government and the media at the same time is the best test of an independent judiciary, the decision of the Court of Appeal in Rose Gibb v Maidstone & Tunbridge Wells NHS Trust [2010] EWCA Civ 678, [2010] All ER (D) 229 (Jun) demonstrates that three members of the Court of Appeal pass with flying colours.
Background
The NHS trust entered into a compromise agreement ending the employment of its chief executive and was prevented from honouring its contractual commitments by orders from ministers. To avoid the contract the Trust relied on its own wrongdoing by arguing that it had been irrationally generous in the terms it had offered and therefore had acted beyond its powers (or ultra vires, as we are no longer supposed to say).
There had been outbreaks of clostridium difficile from 2004 to 2006 in hospitals managed by the Trust: many patients were infected and 90 deaths resulted. There was an understandable public outcry. The Healthcare Commission (HCC) undertook an investigation. After sharing its draft report with the Trust in September 2007 it was known that the final report would be published and become available to the press on 10 October 2007. A Draft HCC report was severely critical of the leadership of the Trust.
The remuneration committee of the Trust commissioned lawyers to investigate an allegation about the chief executive’s probity. Their report made no adverse finding and also concluded that the draft report of the HCC disclosed no reason to dismiss her.
Pressure to be seen to do something did not abate and the Strategic Health Authority “encouraged” the Trust to review its leadership. Towards the end of September the chairman of the Trust was writing that the board had decided informally “to encourage, or if necessary force our CEO to step down”. The Trust took legal advice on the appropriate amount to pay and a successor was offered the chief executive’s job. She was then offered a deal to resign in return for a payment of approximately £250,000 and a compromise agreement containing the usual confidentiality terms. Conscious of the need to ensure the offer was approved, a national officer of the chief executive’s union asked the solicitor acting for the Trust about this and was told that “all the ducks are lined up” and that the Strategic Health Authority had agreed the settlement. Reassured, the chief executive signed the agreement and no doubt both parties thought that was that.
The news of this agreement caused severe strain on ministerial blood vessels and the Trust was ordered to renege on its deal. After some prevarication over the reasons, the chief executive’s advisers were told that the payment their client had been promised was irrationally generous and ultra vires. Later a payment of £75,000 in lieu of notice was made but nothing else.
High Court decision
Treacy J found for the Trust. He thought that there had been insufficient assessment of the costs the Trust would incur if it was sued. He dismissed out of hand the calculations made after the event by the Trust’s HR director and thought that the Trust had been wrong to take into account the appellant’s previous good service and the length of time it would take her to obtain alternative employment. The judge also gave no weight to argument about the benefits to the organisation of an absence of litigation and the gagging of a disgruntled employee. He thought that the Trust should have capped its payment by assessing the maximum compensatory award and adding the payment in lieu of notice. He also, revealingly, said that the Trust had “paid no more than lip service to the need not to be seen to reward failure” and had failed to regard payments above statutory and contractual liability as “exceptional”, the guidance issued by the Treasury.
The appellant also argued that preventing the claim for unfair dismissal from being brought and by protecting her from attacks by the press and ministers or preventing her using the grievance process had unjustly enriched the Trust. The judge avoided this claim by holding that the appellant had brought these losses on by failing to bring proceedings for unfair dismissal within time. He found as a fact that the appellant and her advisers were aware of the reason for the non-payment shortly before Christmas 2007, the deadline being 4 January 2008.
Finally, the appellant argued that she could recover damages for the Trust’s breach of contract comprising its breach of confidence and trust by inducing her to sign the agreement by misleading her into a belief that the agreement had all necessary approvals from the Department of Health, the auditors and the Strategic Health Authority. The judge found that assurances had been given, and given in such a reckless fashion, that they amounted to a breach of the duty of confidence and trust.
No damages were awarded for this breach, however, because the judge held that according to the House of Lords ruling in Johnson v Unisys [2001] ICR 480, [2001] All ER (D) 274 (Mar) if the loss was caused by the dismissal, any claim was the sole prerogative of the law of unfair dismissal and not the common law. The judge saw the inducement to enter the compromise agreement as part and parcel of the steps leading to dismissal. Also he held that the fact that the agreement was void was not attributable to assurances that had been made but the irrationality of the amount.
Court of Appeal
There were two substantive judgments. Laws LJ dealt with all three issues and reversed the High Court on all three. Sedley LJ held that the agreement was not ultra vires and did not deal with the other arguments. Rimer LJ agreed with the reasoning of Laws LJ on ultra vires and unjust enrichment but expressed no view on the contract issue.
On the irrationality issue Laws LJ referred to Newbold & Smith v Leicester CC [1999] ICR 1182, [1999] All ER (D) 772 and adopted the approach of Simon Brown LJ when he said: “No court would be astute to allow public authorities to escape too easily from their commercial commitments.” He emphasised the distinction between the application of the law and the impact of guidance from government departments, implying that the judge at first instance had not been sufficiently careful to do so. Sedley LJ agreed and was also concerned that if statutory bodies like the Trust could challenge their own commercial agreements too readily, so could any party with a sufficient interest, and the net result would be to undermine the autonomy of the public bodies and encourage litigation.
Laws LJ also held that it had been wrong to find that there had been no proper financial analysis and wrong to give no weight to the HR director’s assessment or the analysis by the chairman of the Trust of the costs that might have been incurred.
On the assumption made by the judge that the Trust would have conceded that the dismissal was unfair and paid compensation, he pointed to a letter from the director-general of NHS Finance, Performance & Operations saying that his department’s view was that there should be no negotiations that might result in additional payments being made above the contractual payment that had been made. The department was willing to finance any additional costs that were incurred as a result. In such circumstances there was no basis on which the judge’s assumption could safely be made.
It had also been wrong to conclude that extraneous factors such as long service in the NHS had been taken into account or as he put it: “…the constraint of rationality will not close the door on some degree of generosity for the sake of good relations and mutual respect between employer and employee.” The judge followed these words by saying that this view was unaffected by instructions or guidance from the Treasury, “neither of which is a source of law”.
On unjust enrichment, after holding that these facts were in principle amenable to such a claim, he found that the judge’s approach had been “over-simplistic” and “fragile”. Unusually he specifically overruled a finding of fact by the judge that the appellant’s lawyers had been aware of the reason for non-payment before the unfair dismissal deadline expired. This was particularly damning as Laws LJ relied on exactly the same correspondence to reach his conclusion as had the judge to find the opposite. He also pointed out that this argument had not been pleaded, advanced in the skeleton, nor had the appellant been cross-examined on the issue.
On the contract issue, Laws LJ distinguished this case from Johnson by accepting that the breach in this case plainly occurred before the dismissal because it comprised the reckless inducement made before the compromise agreement was signed.
Sedley LJ rampant
Sedley LJ made his standpoint clear: “It seems that the making of a public sacrifice to deflect press and political obloquy, which is what happened to the appellant, remains an accepted expedient of public administration in this country.”
He regarded all of the factors taken into account by the board as potentially relevant and pointed out that the National Health Service Act 2006, s 26 even referred to paying gratuities by way of compensation. He plainly regarded the reliance on the ultra vires doctrine as the behaviour of a scoundrel trying to wriggle out of his obligations. He saw nothing irrational in the decision making of the board. He accepted that public bodies must not be profligate (and his quotation at para 56 of the decision from R (Bridgeman) v Drury [1894] 2IR 484 should be savoured—not many judgments can rank as hilarity).
The judge had also erred by acting as if he was an auditor and had substituted his own view of what financial prudence might require. He concluded by saying that a senior officer who had done nothing wrong had been sacrificed on the altar of public relations.
Comment
On the basis that Rose Gibb was in charge when it all went wrong, much of the press is angrily critical of this decision. The award is seen as a reward for failure. It was the anticipation of this reaction that caused the pressure to be brought on the NHS Trust. Gross misconduct should not be rewarded at all but no one involved asserted that it existed. That was the decision of the third estate. Government knew this when it ordered the Trust to act in breach of contract and its open willingness to finance the consequences of the contractual breach is disturbing.
No doubt consideration is being given to an appeal or even a change of the law regulating termination of employment in the NHS. A change in attitude would do the country more good.
Stephen Levinson, solicitor, partner with RadcliffesLeBrasseur.
E-mail: Stephen.levinson@rlb-law.com
Share this page
