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 EWCA Civ 678 , Court of Appeal - Oliver Segal QC, Jane McNeill QC, Michael Ford QC
Barristers: Oliver Segal acted for the Claimant/Appellant, Jane McNeill Q.C. and Michael Ford for the Defendant/Respondent
Ms Gibb was the Chief Executive of the Respondent NHS Trust. In 2006 there was an outbreak of C. difficile within the Trust’s hospitals and some of the patients affected died. The Healthcare Commission investigated and produced a draft report which identified significant failings on the part of the Trust and its leadership.
The Trust provisionally decided there were no grounds for removing Ms Gibb from her duties, but following the views expressed by the local Strategic Health Authority (SHA) decided that it should require Ms Gibb to step down before publication of the final HCC report. The Trust (through its solicitors) and Ms Gibb (represented by her trade union and solicitors) negotiated a compromise agreement providing for payments of about £75,000 in lieu of notice and compensation of around £175,000, in return for which Ms Gibb agreed to the immediate termination of her employment and undertook not to pursue any claims and not to make any statement potentially damaging to the Trust.
After the compromise agreement had been executed and Ms Gibb’s employment terminated, the Department of Health instructed the Trust not to make the promised compensation payment to Ms Gibb (the Department initially instructed the Trust not to make payment of the sum in lieu of notice also, but before trial sanctioned that payment to be made).
The Claim and Legal Issues.
(1) Ms Gibb sued under the compromise agreement for payment of the £175,000. The Trust defended that claim on the basis that it had acted ultra vires in agreeing the compensation payment, in that it was irrationally generous and based in part on irrelevant considerations. Ms Gibb claimed in the alternative: (2) a restitutionary remedy based principally on the claim for unfair dismissal she had foregone; (3) damages for breach of the employment contract (the Trust’s duty of trust and confidence) by the Trust misleading her into believing that the compromise agreement had been sanctioned by the SHA and Department of Health.
The decision of the High Court.
The High Court (Treacy J.) dismissed Ms Gibb’s claims, holding:
(1) The Trust’s agreement to pay the compensation payment was ultra vires for the reasons asserted by the Trust;
(2) As regards Ms Gibb’s inability to bring a claim in the employment tribunal for unfair dismissal, her own failure to do so when alerted to the possibility of the Trust asserting its ultra vires defence shortly before the limitation period for claiming unfair dismissal expired had caused any otherwise unfair advantage (unjust enrichment) to accrue to the Trust;
(3) The Trust had been in breach of contract as alleged, but that no remedy could be granted inter alia because the facts fell within the Johnson v Unisys ‘exclusion area’ (losses flowing from the manner of dismissal, etc.)
The Court of Appeal.
Laws LJ, giving the leading judgment, allowed Ms Gibb’s appeal on all three points.
Sedley LJ gave a reasoned judgment allowing the appeal on the ultra vires point.
Rimer LJ agreed with Laws LJ in allowing the appeal on the ultra vires and restitutionary points, but expressed no view on the contractual issue.
The defence of ultra vires.
The Court of Appeal expressed the view that a public body seeking to rely on its own putative public law wrong to avoid its private law obligations has “a very steep hill to climb”. The Court should not seek to reach its own conclusions as to what financial prudence might require in a given situation: that was for the assessment of the public body.
The Trust was entitled to take account not only of the obvious unavoidable costs of an unfair dismissal claim, but also of the potential management and legal costs, albeit more intangible. In any event the Judge had been wrong to accept the Trust’s argument that it could have restricted its financial exposure to an unfair dismissal claim simply by paying the maximum statutory compensation: there was no certainty that the Trust would have taken that course; also the Department of Health might well have forbidden it, particularly since Ms Gibb would have been entitled to require a public admission of liability in addition to monetary compensation.
Finally, the Trust did not step outside its powers in taking into account Ms Gibb’s many years of good service and the time it might take her to find other employment. As Laws LJ 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: not only for the sake of the employee in question, but it may be also for the employer’s standing and reputation as such.” Sedley LJ commented that: “On the scale of severance payments not only in the private sector but in parts of the public sector, £240,000 was not on its face outlandish compensation for the arbitrary termination of a career which it was unlikely Ms Gibb would be able to resume.”
The claim in unjust enrichment.
The Court of Appeal rejected the Trust’s argument that this claim should fail because there was no sufficient precedent for it: Laws LJ expressed the view that, given the availability of the remedy where money has been paid under an ultra vires contract, there was “no principled distinction between a benefit consisting in money paid and a benefit consisting in a claim foregone.” Indeed he went on to observe that he saw no reason why Ms Gibb’s restitutionary claim should not extend to the value of the confidentiality requirement imposed on her by the compromise agreement and the preclusion of her pursuing an internal grievance.
As to the causation issue, the Court of Appeal emphasized the “critical” aspect to the restitutionary claim, that “the focus … is on the benefit, the enrichment, enjoyed by the Trust at the appellant’s expense; not on the question whether the appellant has suffered a loss which she could have avoided.” The Court of Appeal further rejected, on the facts, the judge’s conclusion on causation.
The contract issue.
Laws LJ held that, if necessary, he would have found that the breach of contract established did not fall within the Johnson exclusion area, on the basis that Ms Gibb entered into the compromise agreement before the termination of her employment, and the fact that the loss arose after termination did not mean that the termination caused the loss.