Foster, R (on the application of) v Eastbourne Borough Council

MR JUSTICE MOSES: On 15 February 2002 Mackay J remarked that this case continues to pose interesting and difficult problems. Over one year later it continues to pose problems. New readers should not begin here, but can be referred for the facts to the judgment of Mr Mackay QC, as he then was, at pages 1 to 9 of his judgment dated 20 December 2002, and the summary of Rix LJ in his judgment on 11 July 2001 in the Court of Appeal at paragraphs 4 to 6. The mere recital of those three dates when judgments have been delivered reveals that this is the fourth time this matter has come before the court.

This time, the claimant, the former director of environmental services employed by Eastbourne Borough Council (the Council), seeks judicially to review a decision of the Council dated 22 April 2002. By that decision, the cabinet committee of the Council refused to credit added years by which the claimant hoped to enhance his pension benefits pursuant to Regulation 8 of the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2000 (SI 2000 No. 1410) (the 2000 Regulations).

The source of the power to award added years is the 2000 Regulations. Eligibility depends in part upon the employee having reached the age of fifty. When the ultra vires compromise agreement was reached, Mr Foster was only forty-nine. Mackay J had held in his first judgment of 20 December 2000 that his employment terminated in September 1998, and thus he had not reached his 50th birthday. He was born on 22 August 1949. He was thereby not eligible for added years.

Rix LJ in his judgment, with which the other two Lord Justices agreed, held that Mr Foster's employment did not come to an end until 31 August 1999. The Court of Appeal remitted the case for investigation of Mr Foster's entitlement to enhanced redundancy and retirement benefits under the predecessor to the 2000 Regulations, the 1996 Regulations.

The matter came before Mackay J, as he had then become, for the second time. Mr Foster argued that the council was bound by its previous resolution of 29 July 1998 to award him enhanced redundancy payments and enhanced retirement benefits. Mackay J disagreed. But Mackay J did hold that the other conditions for eligibility to both species of award were satisfied. He held that the 2000 Regulations, and not the earlier Regulations, governed Mr Foster's case; that he had ceased to hold employment on 31 August 1999 by reason of redundancy; that he was dismissed on that date; and that the six month time limit for awarding credited years was directory and not mandatory.

The combination of Mackay J's decision second time round and of Rix LJ established Mr Foster's right to further consideration by the Council of his entitlement to enhanced redundancy and added years. The Council awarded enhanced redundancy payments on 22 April 2002, but refused any added years. It is plain that, in doing so, it took the view that it would have been unlawful to credit any added years. The lawfulness of any such award lies at the heart of these proceedings. If it was lawful to make any such award, it is clear that the Council, acting on the advice of its own legal advisers, informed by the legal advice given to the District Auditor, who appears on the stage for the first time, had failed to exercise any discretion and the matter would have to go back for further consideration.

Regulation 20 of the Local Government Pension Scheme Regulations 1997 provides for the normal calculation of a pension scheme to which a member belongs. The multiplier is the member's total number of years of membership divided by 80. Regulation 31 of the 1997 Regulations allows immediate payment of retirement benefits once a member has attained fifty, if the member leaves local government employment before entitlement to immediate payment.

By Regulation 4(1) of the 2000 Regulations:

The Council, as an employing authority, was required to formulate, publish and keep under review a policy, pursuant to Regulation 26(1) of the Regulations. In the instant case the Council's policy recorded, at paragraph A4 of the published policy:

The decision of the cabinet committee of the Council is contained in a letter dated 23 April 2002 to Mr Foster's solicitors. It states, in part:

The decision was based upon the report from the chief executive dated 22 April 2002. At paragraph 2.3.2, under the heading 'Court Findings', the report records that:

Paragraph 2.3.3 is important. It reads:

At paragraph 4.3, under the heading "Increase to Statutory Redundancy Payments", the report says:

Paragraph 6.2, under the heading "Further Discretions", refers back to the matters referred to at paragraph 4.3. Paragraph 6.3 reads:

Under the heading 'Financial Implications', at paragraph 7.4 there is further reference to the generous benefits already received by Mr Foster. It reads, in the second sentence:

There is a reference at paragraph 8 to Mr Foster's current medical condition and at paragraph 9 to the District Auditor's comments on the report. The report records the views of the District Auditor at 9.1.2:

The conclusion was to recommend to cabinet not to exercise its discretion under regulation 8 and, as I have said, the Council took that advice.

It is clear that the Council regarded this as the fundamental issue. In the instant case a number of arguments have been advanced in writing, but they are of no avail unless Mr Foster can establish that to award some or all of the added years up to the maximum of six and two-thirds would have been lawful and would not have been irrational. It is plain that the Council's view is that it would have been irrational to award added years because it would have been irrationally generous. That was the basis of its decision. If it would not have been irrational and not unlawful to make such an award, then it seems to me that the Council has failed to exercise its discretion; the decision should be quashed and remitted for fresh consideration. If, however, it was unlawful to award any added years, there would be no point in remitting this matter to the Council.

There has been much argument, particularly in writing, as to what Mackay J had said as to the irrationality of the payments, viewed as a whole, under the compromise agreement. The Court of Appeal itself, in the judgment of Rix LJ, gave no opinion. Rix LJ merely recorded at paragraph 8:

I regard the argument as being somewhat arid. The real question is as to whether the award would be unlawful or irrational, and not so much as to what Mackay J said. I accept that he did not say expressly that an award of added years would be irrational.

The compromise agreement was summarised in the Court of Appeal judgment by Rix LJ at paragraph 11. It is a summary I respectfully adopt:

Of the proposals which led to the agreement, of which Mr Foster was largely the author, Mr Mackay QC, as he then was, noted in his first judgment that the union representative had expressed surprise that the agreement was forthcoming on the terms proposed. Mr Mackay QC, having referred to the maximum added years, states:

In his second judgment Mackay J, at paragraph 11, stated:

It is further plain to me that, viewed as a whole, they were. The purpose of the compromise agreement was not to enable Mr Foster to continue in work and provide services for the benefit of the Council and, therefore, for the community, but to ensure he remained in employment until he was fifty. At page 12 of his first judgment Mr Mackay QC said:

That, however, does not dispose of the question of whether all or some added years should have been awarded.

Mr Curtis argues, on behalf of Mr Foster, that, whatever view is taken of the package as a whole, the essential point is that an award of added years by itself would have been justified, and certainly not irrational. The purpose of such an award, he argues, is to compensate an employee who has lost the opportunity to earn a larger pension than he has done in consequence of his dismissal, where that dismissal is due to redundancy or, following reorganisation, in the employer's own interests. He has, after all, only been dismissed because it is in the Council's own interests to dismiss him. Accordingly, he argues that the exercise of the discretion by the Council in favour of the employee is of immediate and direct benefit to the employee, receiving a larger pension than he otherwise would if his pension were calculated on the basis of the years that he had actually worked.

But the existence of the discretion and the power to exercise it has a wider benefit because it allows all local authority employees to know that they enjoy a potential exercise of a discretion in their favour, should the circumstances arise, and is of benefit to the local authority and the community in that it is a useful tool, if and when the circumstances arise, where it becomes necessary to carry out a reorganisation or to create redundancies. The existence of the discretion and the power to exercise it acts as an incentive to persuade employees to take redundancy and ease their difficulties. An employee is more likely to volunteer for redundancy or accede to it, if the Council is able to make an award of added years in his favour.

The policy of the Council clearly reflects that purpose and, Mr Curtis continues, to make an award in the instant case would have been merely a reflection of that purpose. There had been an internal reorganisation leading to the loss of Mr Foster's post. As a result, substantial savings had enured to the benefit of the Council. Those savings are disclosed in a report before the Council before its September 1998 resolution. That report showed that on one view there had been a saving to the Council, having taken into account the benefits to accrue to Mr Foster, in the year 1999 to 2000 £37,000 and £60,000 for future years or, adopting an alternative method, a saving of £26,540 per year in the years between 2000 and 2003, and thereafter a saving of £66,000 per annum.

Further, Mr Curtis points out, as a result of the Council's decision to reorganise so as to reduce the number of directors from four to three, Mr Foster did lose the opportunity to earn further years to add to the calculation of his retirement pension, the very thing for which the Regulations are designed to compensate. Had neither he nor the Council reached an unlawful compromise agreement, he would have gone on in employment with the Council and would thereby have added to the number of years used to calculate his retirement pension.

In that regard, Mr Curtis places particular emphasis on the findings of Mr Mackay QC in his first judgment at page 7. At that point Mr Mackay QC said:

Mr Curtis adds that the Council was not entitled to exclude from consideration the fact that Mr Foster's dismissal was in the interests of the Council following redundancy. At paragraph 35 of Mackay J's second judgment he says of the argument that the causal link between the eventual termination and the redundancy in the summer of 1998 was broken:

For those reasons, Mr Foster contends that the Council was fundamentally in error in reaching the conclusion that, by reason of the fact that the benefits as a whole under the compensation agreement were irrational, an award of added years would itself be irrational. Mr Foster was entitled to retain the other benefits of the agreement by reason of the fact that he had changed his position. But he is entitled to added years to compensate him for the loss he has suffered deriving from the reorganisation.

I disagree. The starting point for the application of the 2000 Regulations is whether a factual situation exists permitting consideration of the exercise of the discretion under those Regulations. That factual situation will exist where an employee has reached the age of fifty and is dismissed by reason of redundancy or in the interests of the efficient exercise of the Council's functions. Only where those factual conditions are met, is a Council entitled to consider whether to exercise its discretion to award added years up to the maximum permissible, but such an award must not exceed the amount of the loss. Thus the compensatory principle limits the amount of the award.

In the instant case, as Mackay J found in the second judgment, Mr Foster was redundant, but he was redundant, as Mackay J found, in September 1998. At that stage he was only forty-eight. He was not, under the Regulations, entitled to added years. True, he was also redundant, as Mackay J found, in August 1999. But the only reason that he was redundant in August 1999, as he had been in September 1998, was by reason of what Mackay J described as the unlawful attempt to prolong Mr Foster's life as an employee in order to achieve eligibility under the Regulations to added years. The Regulations do not permit of an award of added years to one who is only forty-eight. Nor, in my judgment do they permit of such an award where the continued employment is designed not to enable the employee to continue to be of service to the Council, but to trigger the operation of the Regulations and is thus itself part of the unlawful arrangement.

It profits nothing to refer to Mr Foster's losses which followed from the reorganisation or the council's savings. Such losses may be sustained by any employee aged forty-eight, and the savings may be achieved in respect of a dismissal of an employee aged forty-eight, but the Regulations draw a line by reference to a particular age and they cannot, in my view, be bypassed by an unlawful extension of employment.

It must be accepted that there are findings that Mr Foster, had he not entered into the unlawful compromise, would have been likely to continue in employment and reduce his lost pensionable years. Mackay J so found. The District Auditor, not intervening in any earlier proceedings, draws attention to the report leading to the resolution in 1998, which records in paragraph 6.2 that Mr Foster:

I am bound by Mackay J's findings. But in my judgment the Council was not bound to speculate as to what might have happened had he gone on in employment past the age of fifty. It is impossible to know for how long he would have gone on in employment or at what rate of pay. If he had been in a lower post, he could hardly have continued at the same rate as the judgment of Mackay J might, on one reading, appear to have suggested. The Council was entitled to look at what in fact had happened. What in fact had happened was that, following reorganisation, Mr Foster was redundant in September 1998 before he was fifty. He attained the age of fifty whilst continuing in employment only by virtue of the artificial and unlawful extension of that employment. The Council was not obliged to ignore the compromise agreement or its effect. Nor, consistently with the decision of the Court of Appeal to which I shall turn later, was it obliged to ignore reality. In those circumstances, permitting the fruits of that artificial extension would have been outwith the Regulations and, accordingly, unlawful or irrational.

In support of that conclusion, the District Auditor points out that the total value of benefits, if awarded, would be of a value of at least £219,000, whereas the maximum compensation, had Mr Foster been unfairly dismissed, would have been £18,600 plus his statutory right to redundancy of £1,650. This calculation excludes the cost of the leased car, the cost of the course fees and the fact that he was not required to work for the last three months. It is clear that, had he been awarded what he seeks, he would have benefited as much as he would have done had the compromise agreement been lawful.

That seems to me a powerful indication that an award of the maximum added years would be an unusual result, but I prefer to base my decision on consideration of an award of added years viewed in isolation. The real question is whether that would be irrational, having regard to the Regulations, which are the sole source of power to make such an award. For the reasons I have given, I am satisfied that it would have been unlawful and, accordingly, irrational to make such an award.

I must, however, consider whether such a conclusion contradicts the decision of the Court of Appeal or the second judgment of Mackay J. Mr Curtis points out that the decision of the Court of Appeal would have been pointless if all along the real bone of contention, namely the award of added years, was not even open to the Council. At paragraph 12 of his judgment, at page 485 of my bundle, under the heading "Mr Foster's appeal", Rix LJ recorded:

Rix LJ, to my mind, was not purporting to rule on entitlement to added years under the Regulations, any more than was Mackay J in finding that the gateway to an award was open. That is a question of construction of the Regulations and of public law, having regard to the meaning and purpose of the Regulations. As I have said, the meaning and purpose of the Regulations was to enable the Council to compensate for lost years one who has attained the age of fifty and has been dismissed in the interests of the efficient working of the Council. In reality, when that situation arose, Mr Foster had not reached fifty and, but for the artificial arrangement designed to overcome that obstacle, would not have been eligible for an award of added years. The Court of Appeal's conclusion that reality demanded that a continuing employment until fifty must be recognised does not carry with it recognition under the Regulations of an unlawful and artificial extension of his employment. Accordingly, this application fails.

MR STILITZ: My Lord, I apply for the Council's costs in this matter. I have a statement of costs.

MR JUSTICE MOSES: Yes. Have the other side seen that?

MR STILITZ: I think they have, my Lord.

MR CURTIS: I have certainly not seen it.

MR JUSTICE MOSES: Well, have your people seen it?

MR STILITZ: It was sent prior to the hearing. I have the letter here.

MR CURTIS: I do not have my instructing solicitor, who has been instructing me throughout all this, behind me. I was sent a copy of the costs for the District Auditor, but I have never seen those on behalf of the Council. I do not have any instructions.

MR JUSTICE MOSES: Well, if he has not seen them, we cannot deal with it.

MR STILITZ: No.

MR JUSTICE MOSES: Do you want to say anything about costs, Mr Curtis?

MR CURTIS: My Lord, yes I do. As far as the question of whether there should be one costs order or two costs orders --

MR JUSTICE MOSES: We have not reached that yet. There has only been one application by the Council.

MR CURTIS: As far as the Council's costs are concerned, the argument that has succeeded in front of your Lordship is an argument, which, with the greatest respect to Eastbourne Borough Council, was not at the forefront of their report. It was not one advanced in their written skeleton argument and it is one that ought, were it going to be taken in this form, to have been taken at the conclusion of the Court of Appeal hearing or in the Court of Appeal because what has been found, in effect, is that it was pointless for Mackay J to consider the six issues that arose --

MR JUSTICE MOSES: In front of Mackay J you tried to get everything under the compromise agreement. I think that is where you failed. You said the 98 resolution was binding.

MR CURTIS: In the hearing before Mackay J he had to consider, amongst other things, whether the gateway provisions were satisfied.

MR JUSTICE MOSES: Yes.

MR CURTIS: He also had to consider the six month time limit point --

MR JUSTICE MOSES: And nobody took the public law point. I rather agree with you that it could have been taken by everybody and counsel could have sought a declaration and you could have asked for a declaration; and nobody ever seems to have put their mind to it.

MR CURTIS: Had the Council taken the point that, in effect, is now taken, and had that matter been taken in front of the Court of Appeal or indeed earlier, and perhaps at the very outset as part of the declaratory relief that it was seeking (inaudible), then at the very least this hearing would never have taken place and the hearing before Mackay J on the last occasion would never have taken place. For those reasons, I submit that there should be no order as to costs.

MR JUSTICE MOSES: Yes, thank you very much. No, I shall award costs. I have a certain sympathy for the argument of Mr Curtis. The fact of the matter is that the point was plainly obvious, certainly in the District Auditor's written arguments and statement of objection, and alas -- well, I will not adopt yet another arboreal cliche, but the fact of the matter is that Mr Curtis did not fold. One would not expect him to, perhaps, in the light of that argument, but he persisted and lost. So, certainly, I shall award costs. In favour of whom, I do not know. I am only going to award one set of costs. Is the District Auditor asking for costs as well?

MISS PATRY: Yes. Sorry, I am Ms Patry and I --

MR JUSTICE MOSES: I know who you are.

MISS PATRY: Yes, we do apply for a second set of costs.

MR JUSTICE MOSES: Why? Why could one counsel not have made all the arguments on behalf of everybody. Why do you need two people? I am delighted to see Mr Maurici and now you, and even more delighted to see the District Auditor, or somebody representing him, behind you. But it is a luxury. I do not see why Mr Curtis' client should pay for it. Under normal rules there is one order.

MISS PATRY: We submit that we did have a distinct and separate interest.

MR JUSTICE MOSES: You did indeed.

MISS PATRY: That was the public interest, in essence.

MR JUSTICE MOSES: Does the Council not have a public interest?

MISS PATRY: The Council does also have a public interest, but --

MR JUSTICE MOSES: Even Eastbourne.

MISS PATRY: Yes, absolutely. But essentially it was also the fact that it was our advice that was being directly challenged in this case. It was our advice that --

MR JUSTICE MOSES: No, it was the Council's advice that happened to agree with yours.

MISS PATRY: That is correct, but if one --

MR JUSTICE MOSES: Why did you not trust Mr Stilitz? It does not matter whose argument it was; it was a legal argument.

MISS PATRY: I am not criticising Mr Stilitz in any way. I simply say that the District Auditor has a duty in this case to appear simply because he was criticised largely by the claimant. If one simply looks at the claimant's skeleton argument it is peppered with references to the District Auditor's behaviour. It also says that the Council was acting at the behest of the District Auditor. It simply points out the District Auditor as being the person (inaudible). Now, it would be inappropriate in such a situation for the District Auditor not to be able to defend himself and to appear and to say "I have a separate and distinct interest", because he has been directly criticised. We had to spend a huge amount of time within our skeleton argument dealing with --

MR JUSTICE MOSES: Well, I think all the skeleton arguments, if I may so, were rather too long. So you could perhaps have saved yourself a little time. I mean they just went on and on and on. It was all frightfully good stuff, but ... 

MISS PATRY: The submission really is that we had to spend even more time than would have been necessary in the already long skeleton dealing with the criticism that the claimant had put forward.

MR JUSTICE MOSES: Well, none of those mattered, if the legal point was correct.

MISS PATRY: That is true.

MR JUSTICE MOSES: Anyway, I have the point. What do you want to say about that, Mr Curtis? You did choose to take on the District Auditor.

MR CURTIS: No, we did not choose to take on the District Auditor. What happened was that the District Auditor was joined when an application was made by Eastbourne Borough Council to join the District Auditor. It is certainly true that my skeleton argument refers in detail to the District Auditor's acknowledgment of service. I would not --

MR JUSTICE MOSES: All right, one order of costs against you. Why can I not make just one order of costs and then you and the Council and the District Auditor can fight about it?

MR STILITZ: It is common ground, I think, between my learned friend and myself that the Council is entitled to its costs in any event. There is no issue there. The only issue is -- I have the fax from my solicitors on 3 April. If your Lordship feels that in fact Mr Curtis had not had a chance to consider it, it is inappropriate ---

MR JUSTICE MOSES: Would he have chance later on today? No, your solicitor is not here today. What do you want to do, come along another day and argue it? It would still be cheaper than going for an assessment, would it not?

MR CURTIS: It might well be. I simply have not seen the document.

MR JUSTICE MOSES: You might be able to agree them. Do you want to come back another day when the solicitors -- do you want to come back some other day this week to argue about it?

MR CURTIS: Perhaps the simplest thing would be --

MR JUSTICE MOSES: I shall be giving judgment in Mr Scrivener's case this afternoon. How long are you going to be? Your case, Mr Scrivener, is only going to take about an hour or so.

MR SCRIVENER: A couple of hours.

MR JUSTICE MOSES: A couple of hours.

MR CURTIS: Well, perhaps it can be put back so that I can try and take instructions. It may well be that I am simply instructed that we do not dispute it.

MR STILITZ: My Lord, I am sorry to be difficult; I am appearing this afternoon in the Central London County Court, so I would not be able to come along this afternoon. Can I say that the statement of costs which I have handed to my learned friend comes out significantly below that which was put in by him, and so I would be surprised if there was much argument over this.

MR JUSTICE MOSES: Do you want to have a quick look at it? I will have a look at it. I always like to see what counsel's brief fee is.

MR STILITZ: Your Lordship may want to see the claimant's statement of costs, both to see the brief of my learned friend and to see that overall that does come in significantly higher than that which is put forward by the Council.

MR JUSTICE MOSES: I am pretty horrified that there are costs anyway, bearing in mind that this is fourth time around.

MR STILITZ: My point is simply that it is difficult for my learned friend to criticise us in terms of the costs, where his do come in that much higher.

MR JUSTICE MOSES: His fees are not higher than yours. Anyway, you want time to look at it.

MR CURTIS: My Lord, I simply have no instructions at all. It may well be that --

MR JUSTICE MOSES: Can you get hold of them on the phone at all?

MR STILITZ: Yes, I would have thought so.

MR JUSTICE MOSES: Why do you not go away and think about it and I will get cracking, because I have serious players waiting to get on.

MR CURTIS: My Lord, the only other matter is that I am instructed to ask for permission to appeal. My Lord, the short point is this: the matter has turned on the construction of the Regulations and their application to the situation that your Lordship has described. I need not repeat any of that. My Lord, there are two points. First of all, I would submit that I have a strong argument to succeed in the Court of Appeal on the basis that your Lordship's decision is inconsistent with a finding of the Court of Appeal that, in fact, Mr Foster was fifty. The other point is simply, if I can take you to the Court of Appeal judgment that you have at 491 of the bundle, and it is a paragraph that your Lordship did not refer to, paragraph 44, "In this connection I would point out that, unlike the subject matter --

MR JUSTICE MOSES: No general prohibition.

MR CURTIS: That passage makes it clear that the Court of Appeal regarded Mr Foster's continuing employment as lawful. I would submit that the core of your Lordship's judgment, which is that in effect he is not entitled to added years because it was part of an unlawful bid to continue his employment, in some way tainted, therefore, with illegality is simply inconsistent with that passage in the judgment of the Court of Appeal. My Lord, those are the grounds on which I seek permission to appeal.

MR JUSTICE MOSES: No, I did not cite paragraph 44 because, as I thought I had made clear in my judgment, the point of this judgment was to look at the Regulations and their meaning and purpose. I shall not give permission. You must ask their Lordships. No doubt the matter can be reserved to Rix LJ to decide whether leave should be given or not. I think he would welcome the chance of looking at it again.

MR STILITZ: My Lord, simply on the practicalities of where we are left on costs, as I indicated, I am in some difficulty, I am afraid --

MR JUSTICE MOSES: Well, when are you on? You have time, if you do not take up time now, to perhaps talk about it before you catch your cab to Marylebone.

MR STILITZ: Yes. If we can agree the matter, is it proposed by your Lordship that we should return before your Lordship?

MR JUSTICE MOSES: Well, if you can. You had better try and mention it just before 1.00pm. What time are you due on?

MR STILITZ: I can do that very easily, my Lord.

MR JUSTICE MOSES: Well, you had better interrupt, but I warn you that I will only give you about three minutes.

MR STILITZ: I am grateful, my Lord.

MISS PATRY: My Lord, on behalf of the District Auditor, I simply ask to be excused, if there is a further hearing before 1.00pm.

MR JUSTICE MOSES: Certainly.

MISS PATRY: Thank you very much.

MR STILITZ: I am pleased to be able to tell your Lordship that Mr Curtis and I have reached agreement on the quantum costs.

MR JUSTICE MOSES: Good.

MR STILITZ: £28,000 including VAT, and so there is no need to trouble your Lordship further in making an assessment.

MR JUSTICE MOSES: A phone call would have saved me having to go up and down again. Thank you very much indeed.