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LTL 29/4/2009, LS Law Medical 364., Queen's Bench Division - Jane McNeill QC, Oliver Segal QC
Mr Justice Treacy has today handed down his decision in the high profile case of Rose Gibb v. Maidstone and Tunbridge Wells NHS Trust (the “Trust”) concerning the vires of the compromise agreement (the “Compromise Agreement”) entered into between Ms Gibb and the Trust on the termination of her employment.
Members of Old Square Chambers were involved on both sides of the case: Oliver Segal representing Ms Gibb and Jane McNeill QC representing the Trust.
Ms Gibb was chief executive of the Trust and its accountable officer. In 2006 there were outbreaks of the “super bug” C.difficile at hospitals managed by the trust. The Healthcare Commission (“HCC”) investigated the outbreaks and the measures taken to control and respond to them. Drafts of the report were shared with the Trust. Prior to the publication of the report in its final form, the Trust decided to terminate Ms Gibb’s employment. A Compromise Agreement was entered into between Ms Gibb and the Trust which provided for a payment to Ms Gibb of approximately £250,000.00, representing £75,427.00 in lieu of notice and a compensation payment of £174,573.00. However, the day after publication of the report the Department of Health instructed the Trust to withhold the severance payment until further notice. Subsequently, the Trust authorised payment to Ms Gibb of £75,000.00 odd in respect of her six month notice period but no more.
The issue before the court therefore related to the remaining approximately £175,000.00.
The Trust asserted that it was not obliged to pay the sum on the basis that the agreement to make the compensation payment was irrationally generous and fell outside the powers of the Trust.
Ms Gibb asserted that she was entitled to that sum under the terms of the Compromise Agreement or that, in the alternative, if the compensation payment was ultra vires, she was entitled to an equitable remedy by reason of which the court should exercise its jurisdiction to award equitable damages.
The Trust challenged the existence of any power to award equitable damages in the circumstances that arose in the case.
There were therefore two issues:
(1) Whether the Compromise Agreement was ultra vires and therefore unenforceable; and
(2) Whether, if it was unenforceable, the Claimant had an alternative claim for damages.
Was the Compromise Agreement ultra vires and therefore unenforceable?
The judge held that the Trust would reasonably have assessed its liabilities to Ms Gibb arising out of termination of her contract as being a sum in lieu of the contractual period of notice, together with a sum equivalent to the maximum possible unfair dismissal claim, giving a total of approximately £145,000.00. The judge ruled that re-engagement could be left out as a serious possibility. That left a gap of about £100,000.00.
Ms Gibb submitted that the trust was entitled to make allowance for legal costs and management time which would accrue if no agreement was reached and if proceedings were necessary and the benefits of a speedily resolution coupled with the absence of potentially further damaging publicity.
The judge stated that the difficulty with such an argument was that there appeared to have been no proper analysis at the time by way of a business case in order to justify the additional sum of about £100,000.00. In addition, the judge stated that he found it difficult to understand why Ms Gibb should be the beneficiary in a compromise agreement of a sum broadly equivalent to the cost and management time which might be incurred by the trust if there were a contested Employment Tribunal hearing. Moreover, that, if the Trust had followed advice received that it was exposed to a maximum unfair dismissal award, an acknowledgment of unfair dismissal would have avoided such cost being incurred. As a result the judge held that the Trust’s approach to the question of additional legal and management costs was flawed because: first, there was no proper financial analysis done and secondly, because since the Trust was working on the basis that there would, in the absence of a Compromise Agreement be a situation of unfair dismissal with a maximum award.
The judge also considered that the non-executive directors of the Trust were personally reluctant to see Ms Gibb depart and that their views coloured their approach, which was one of wishing to be generous to Miss Gibb. This led them to import into the assessment of compensation for loss of office her long career in the NHS, her previous good service and the fact that it might take her up to eighteen months to find other employment. The judge held that these do not constitute payment for or in respect of loss of office but compensation for past service which had already been rewarded or for a potential period out of work which significantly exceeded the contractual notice period.
In addition the judge found that the trust had paid no more than lip service to the need not to be seen to reward failure and to regard payments over and above the statutory and contractual liabilities as exceptional.
The judge therefore concluded that the Compromise Agreement was irrationally generous and thus ultra vires and that accordingly Ms Gibb’s claims under the terms of that agreement failed.
As a result of the Compromise Agreement being ultra vires, did Ms Gibbs have an alternative claim for damages?
If the agreement were found to be ultra vires, as happened here, Ms Gibb contended that alternative remedies were available to her.
First alternative claim: Unjust enrichment of the Trust at the expense of Ms Gibb
Ms Gibb contended that she changed her position in detrimental reliance on the statements and representations of the Trust that it had power to enter into the Compromise Agreement by:
- accepting the immediate termination of her employment;
- agreeing not to pursue any internal grievance or claim to the employment tribunal;
- accepting restrictions on her ability to comment on what had happened;
- agreeing not to disclose the terms of the Compromise Agreement.
Ms Gibb contended that as a result of the above, and the failure of the Trust to make any intra vires payment to her, the Trust had been unjustly enriched at Ms Gibb’s expense by securing:
- the value of Ms Gibb’s unfair dismissal claim;
- the value of the legal costs of defending such a claim;
- the prevention of Ms Gibb from defending herself publically;
- Ms Gibb’s agreement to the consensual termination of her employment;
- the avoidance of disciplinary or other internal processes.
Such unjust enrichment was at Ms Gibb’s expense in that she was prevented from pursuing a statutory claim for unfair dismissal, prevented from defending herself to the media (the “gagging clause”) and deprived of the opportunity to mount an internal challenge to the decision.
In respect of Ms Gibb’s potential claim for unfair dismissal, the judge concluded that Ms Gibb was aware of, and had access to legal advice about, the Trust’s reason for withholding payment under the Compromise Agreement prior to the expiry of the date for a claim before the Employment Tribunal. Therefore the judge concluded that the Trust had not been enriched or benefited as a result of the fact that the Compensation Agreement was void and, even if there was a benefit accruing to the Trust, there had been no unjust enrichment at the expense of Ms Gibb in this respect.
In respect of the agreement not to pursue an internal grievance, the judge viewed this as speculative and that it was much more likely that she would have pursued other legal remedies available to her in order to seek compensation. Moreover the judge considered that this was subsumed within the unfair dismissal claim upon which he had already ruled.
In respect of the “gagging clause”, the judge considered that, whilst this might have given a degree of comfort to the Trust, its weight was not significant, particularly in light of the clause itself. He did not consider that it represented a benefit to the Trust of the sort comprehended by the law of restitution.
On this basis the judge considered that Ms Gibb’s first alternative claim had to fail.
Second alternative claim: The Trust acted in breach of its implied contractual duty of trust and confidence towards Ms Gibb by misleading her deliberately or recklessly as to its power to enter into the Compromise Agreement
The judge considered that, whilst Ms Gibb was not deliberately misled as to the vires of the Compromise Agreement, the conduct of the Trust on two separate occasions and the giving of positive assurances that the necessary approvals were or would be in place, went beyond mere mistaken or careless conduct, and was in fact reckless in the sense that the statements could not have been made with any proper confidence that they were truthful and accurate and that such conduct in a matter of such important was “calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” and as such there was a breach of the implied term of mutual trust and confidence.
However, the judge accepted an argument from the Trust that, even if there was a breach of the implied term of trust and confidence, it formed part and parcel of the process for dismissal and as such falls within what is known as the “Johnson exclusion area” (see Johnson v Unisys  ICR 480 (HL)). Ms Gibb’s claim arose not from the assurances given in respect of the Compromise Agreement but from the fact that the Compromise Agreement was void and that Ms Gibb’s loss of her right to pursue a claim for unfair dismissal arose from her own failure to commence unfair dismissal proceedings in time when aware that the Trust was refusing to honour the agreement on the grounds that it was ultra vires. Therefore the facts were not exceptional so as to fall outside of the Johnson exclusion area.
As such Ms Gibb’s second alternative claim failed.
The Claimant has now been granted permission to appeal to the Court of Appeal.