Gibb v Maidstone and Tunbridge Wells NHS Trust

This is an action for monies owed, alternatively damages, brought by Ms Rose Gibb (“Ms Gibb”) against her former employer Maidstone and Tunbridge Wells NHS Trust (“the Trust”). The action is brought pursuant to the terms of a contract entered into by the parties agreeing terms of severance of Ms Gibb’s employment on 5^th October 2007 (“the Compromise Agreement”). The issues in the case are whether the Compromise Agreement was ultra vires and therefore unenforceable and whether the Claimant has an alternative claim for damages if it was not enforceable.

Ms Gibb was appointed as Chief Executive of the Trust and as its accountable officer in November 2003. Her contract gave her an entitlement to six months notice of termination. By the date of the termination of her employment Ms Gibb’s basic salary was approximately £150,000.00. She also had a pension entitlement.

The background to the matter is that in 2006 there were outbreaks of the “super bug” C.difficile at hospitals managed by the Trust. There was a significant number of deaths and widespread anger and anxiety expressed by relatives of those affected and by others. Substantial publicity had been given to the matter. The Healthcare Commission (“HCC”) investigated the outbreaks and the measures taken to control and respond to them. The HCC produced draft reports in April and July 2007. Those drafts were shared with the Trust. Towards the end of September 2007 it was known that the final report would be published on 10^th October 2007.

When published, the report’s conclusions were highly critical of the leadership of the Trust. It recommended that the Trust’s board must review the leadership of the Trust in the light of significant failings in order to ensure that the Trust was able to discharge its responsibilities to an acceptable standard. The report also indicated that the HCC considered the findings of its investigation to be “extremely serious” and to constitute “a significant failing on the part of the Trust which failed to protect the interests of patients”. It will be noted that the report itself post-dated the Compromise Agreement, but its conclusions were known to the Trust in mid-September, in advance of publication. The witness David Flory, called by the Defendant, himself a former CEO of an NHS Trust who has seen many HCC reports, described it as the most critical report he had read.

One of the draft reports referred to had raised issues about Ms Gibb’s probity. As a result of that, the Trust commissioned a report from its legal advisors, Capsticks, to consider such allegations. On 31^st July 2007 Capsticks presented its findings to the Remuneration Committee of the Trust. The Capsticks report made no adverse finding about Ms Gibb’s probity and the Remuneration Committee unanimously concluded that having regard to that report, the Trust board should not remove Ms Gibb from her duties. The Committee also concluded that the current draft of the HCC report did not give grounds for the dismissal of Ms Gibb with respect to any other matter and noted its unanimous support for Ms Gibb from the executive members of the board. The Trust had, however, left the door open to reviewing this conclusion in the event that the final draft of the HCC report recommended that there should be change in the leadership of the Trust.

The local Strategic Health Authority (“SHA”) which exercises a supervisory role in relation to the Trust was informed of the Remuneration Committee’s conclusions on 2^nd August 2007. During August and September 2007 there were contacts between the Trust and the SHA. It is clear from the contemporaneous documents that the SHA, anticipating the likely conclusions of the HCC final report, was encouraging the Trust to review its leadership. By 21^st September 2007, James Lee, the non-executive Chair of the Trust, had considered the matter with fellow directors and was recording in a letter to the Chairman of the SHA “while no formal decision has yet been made, we have determined informally that the best course of action would be to encourage, or if necessary force our CEO to step down”.

The Trust sought written advice from Peter Edwards, a partner in Capsticks. Mr Edwards advised on 21^st September 2007 that the Trust should seek a negotiated settlement with Ms Gibb, but that if such a settlement could not be achieved within a reasonable time frame she should be dismissed without cause. It will be necessary to consider later in this judgment some of the considerations which Mr Edwards laid before the Trust in his advice.

Mr Edwards’ advice considered three options for terminating Ms Gibb’s contract and concluded with these words: “In the light of these matters, my advice is that the Trust’s financial exposure in this case is likely to be in the range from about £90,000.00 to £250,000.00, subject to confirmation of her notice period and salary. My advice is that a total package settlement that equated to twelve months salary and pension contributions would probably be about the norm for this type of case.”

On or around the 25^th September 2007 Mr Glen Douglas was offered the post of Chief Executive Officer of the Trust. His appointment was to follow the termination of Ms Gibb’s employment.

On 28^th September 2007 at a meeting of the Remuneration Committee it was decided that Ms Gibb’s contract should be terminated for three reasons.

The further deterioration in the performance of the Trust.

The state of the management team and the need for a different style of leadership given by a new leader.

The strength of the findings of the HCC report and its recommendation that the Trust board must review its leadership.

The Committee also concluded that it was essential that Ms Gibb’s contract be terminated well in advance of the HCC report, which was to be published on 10^th October 2007. The Committee decided to seek to terminate Ms Gibb’s employment by way of a negotiated settlement. A draft Compromise Agreement had been prepared by Capsticks. The Trust also had advice provided by its HR Director, Terry Coode. It was decided that termination must take place in any event by 5^th October 2007.

On 1^st October 2007 Ms Gibb met the Chairman of the Trust, Mr Lee, together with the Deputy Chair, Aaron Cockell. She was told of the Trust’s decisions and that such decisions were final. She was provided with a draft Compromise Agreement and told that she had 96 hours in which to agree. Ms Gibb was then placed on immediate gardening leave.

Ms Gibb consulted her Trade Union and its appointed solicitors, Russell Jones and Walker. There were discussions between the parties, leading to the executed Compromise Agreement which provided for a payment of approximately £250,000.00, representing £75,427.00 in lieu of notice and a compensation payment of £174,573.00. Amongst the terms of the agreement, Ms Gibb undertook to accept the immediate termination of her employment; not to pursue any internal grievance or bring any contractual or statutory claim against the Trust; not to make any statement potentially damaging to the Trust; and not to disclose the substance of the Compromise Agreement.

On 11^th October 2007, Mr Glen Douglas, who had taken over the role of CEO of the Trust, received a letter from David Flory, Director for General NHS Finance, Performance and Operations, which instructed Mr Douglas as the accountable officer of the Trust to withhold the severance payment to Rose Gibb until further notice.

Subsequently, in 2008, the Department authorised the Trust to make a payment to Ms Gibb in respect of her six month notice period and the sum of approximately £75,000.00 was then paid to Ms Gibb without prejudice to the remaining issues in this case.

The immediate issue then relates to the compensation payment element of approximately £175,000.00. The Trust asserts that it is not obliged to pay that sum. It says that the agreement to make the compensation payment was irrationally generous and fell outside the powers of the Trust. The Claimant asserts that she is entitled to that sum under the terms of the Compromise Agreement. She further argues that if the compensation payment was ultra vires, she is entitled to an equitable remedy by reason of which this court should exercise its jurisdiction to award equitable damages. The existence of any power so to do in the circumstances which arise in this case is strongly challenged by the Defendant.

A helpful starting point in considering whether the compensation payment was outside the Trust’s powers is to consider the source of the Trust’s powers. Section 26 of the National Health Service Act 2006 provides

Paragraph 14 (2)(b) of the Act gives an NHS Trust specific power to enter into contracts. Paragraph 26 (1) of Schedule 4 provides that a Trust

Paragraph 26 (3) provides

It is uncontroversial that as a public body the Trust’s powers are limited by statute and that it must exercise its powers in the public interest in a way which is reasonable in the Wednesbury sense. Decisions should take into account relevant considerations and exclude irrelevant considerations. The purpose of the ultra vires doctrine is to protect the public where a public body makes a decision which is outside its powers. See Hazell v Hammersmith and Fulham LBC [1992] 2AC 1 at page 36F.

It is common ground that the sum of money which the Trust agreed to pay Ms Gibb would be Wednesbury unreasonable if the payment was one which no reasonable Trust properly exercising its statutory powers could have offered. The Defendant asserts that the size of the agreed compensation payment (£174,573.00) was unreasonable:

The payment for loss of office was unreasonably generous.

It exceeded by a substantial margin the maximum liabilities of the Trust to Ms Gibb in respect of her potential statutory claims.

The decision to pay the sum took into account irrelevant considerations.

Insufficient consideration was given to value for money and the need to avoid the public perception of being seen to reward failure.

The Trust agreed to make the payment without an adequate business case and/or Treasury approval.

Those five matters are said to be the reasons why, individually and cumulatively the agreement was ultra vires. Reliance is placed on Roberts v Hopwood [1925] AC 578 and Eastbourne BC v Foster [2000] All ER (D) 2407 for the proposition that expenditure on a lawful object may not be irrationally generous, and if it is, it will be held to be ultra vires and void.

The Claimant’s case in response is that quite apart from being morally unattractive, the Defendant’s position is wrong. She says that a public body has a wide Wednesbury discretion granted to it, which should be respected. There is no absolute or specific limitation upon the amount of compensatory payment which the Trust is empowered to make. No improper purpose lay behind the agreed payment. The Defendant’s decision-making process took account of appropriate advice including independent legal advice, and reached a considered decision on cogent and rational grounds. Accordingly, there is no basis for striking down the contractual promise made on the ground of irrational generosity. Having stated in summary the broad submissions made by the parties, it is necessary to return to the facts.

As previously stated, the Trust, having informally concluded that a change of CEO was necessary, sought advice from Peter Edwards of Capsticks. That advice was considered as part of the decision-making process at the Remuneration Committee meeting of 28^th September 2007.

Mr Edwards had been asked to consider three options for terminating Ms Gibb’s contract. Firstly, dismissal without cause, without any additional compensation beyond her statutory entitlements. The cause would be both the deterioration of the performance of the Trust and breach of the code evidenced by the HCC report. Mr Edwards observed that this approach would be consistent with a view expressed by the Treasury and Department of Health that those in public office should not be “rewarded for failure”. There was at the relevant time guidance and advice available to Trusts on the agreement of severance payments. It could be found in a letter from the HM Treasury (DAO)(GEN 11/05), Chapter 5 of the NHS Finance Manual, and advice from the National Audit Office. In summary, payments exceeding statutory or contractual entitlements should be exceptional. Treasury approval should be sought for them. They should only be made if there is no feasible alternative. They should take into account the public interest and that there should not be a perception created of rewards for poor performance.

Mr Edwards drew attention based on his own experience to a degree of risk in proceeding with this first option in the absence of evidence of personal culpability on the part of the Chief Executive. He commented that in order for dismissal to be fair and thus avoid occurring liability for unfair or wrongful dismissal, it would be necessary for the Trust to show that there were reasonable grounds or evidence to support the decision, that there had been a proper investigation and that the reason to dismiss was within the band of reasonable responses.

He concluded “I do not consider that the Trust would be in a position to discharge these procedural requirements within the time between now and the likely publication of the [HCC] report, and therefore if the Trust wishes to terminate the Chief Executive’s employment prior to 1^st October I consider that any such dismissal is likely to be found to be unfair”.

The second option was one of dismissal without cause with a financial inducement, sufficient to make it unlikely that the Trust would be taken to Court. Mr Edwards advised that there was a risk inherent in this approach, if agreement could not be reached, since the Trust was unlikely to be in a position to defend an unfair dismissal claim. He recommended that this option be considered in conjunction with the third option, on the basis that if an agreement could not be reached within a reasonable time frame and on terms acceptable to the Trust, then the Trust would dismiss without cause.

The third option was that of a negotiated settlement under a Compromise Agreement. There would be advantages to the Chief Executive in leaving without a dismissal. The benefit to the Trust would be the certainty of a clean break, since the agreement would amount to a waiver of any potential employment-related claims Ms Gibb might have against the Trust.

Having recommended pursuit of options two and three in tandem, Mr Edwards advised on process. Steps to be adopted included:

Preparation of a business case which explained the case for termination and demonstrated that the parameters for a financial settlement represented value for money.

The Trust should forward the business case to its external auditors for comment. The auditors should be asked to confirm whether the approach proposed might cause them to issue a public interest report or take other action.

The Trust should also present the business case to the SHA. Whilst its approval is not legally required, the SHA should be asked to clarify whether Treasury approval for the proposed payment was necessary.

Mr Edwards referred to Treasury guidance, which provides that where special severance payments are being considered, the signed off business case should be approved by HM Treasury. However, he commented that this is not often followed in practice by NHS bodies, and that SHA support is often relied on.

Then, considering the parameters for settlement, Mr Edwards said that the Trust would need to consider the potential claims that the Chief Executive might make, together with their prospects and likely quantum.

As to unfair dismissal, in the light of the timescale involved there was little realistic prospect of dismissing Ms Gibb fairly before publication of the HCC report. Accordingly, if the Trust pursued any of the three options, it should assume that a finding of unfair dismissal would be made. There was a reasonable prospect that the Chief Executive would receive the maximum award, which is agreed by the parties to be £69,590.00. It might be possible to achieve a reduction of (say) 25% to reflect Ms Gibb’s own contribution towards her dismissal.

Turning to wrongful dismissal and breach of contract, Mr Edwards observed that unless gross misconduct was established, entitling a summary dismissal, Ms Gibb would be entitled to her contractual notice. As already stated this amounts to £75,427.00. Having given that advice, Mr Edwards concluded with the words recited at paragraph 8 above.

In addition to Mr Edwards’ advice, the Remuneration Committee also had advice from its HR director, Mr Coode. He identified a sum of about £145,000.00 representing the contractual notice period plus the maximum employment tribunal award for unfair dismissal. His paper refers interalia to “possible settlement could be one of payment of up to two years pay (£300,000.00) – but opening bid could be twelve or eighteen months pay.” However, in putting forward that figure, he did not explain its rationale or justification at all, and certainly not by reference to public interest considerations.

Next I turn to the Remuneration Committee meeting which agreed on 28^th September to authorise the Chairman, Mr Lee, to offer a package up to but not exceeding £250,000.00. The minutes are in evidence, and I have no reason to believe that they are anything other than an accurate record of what took place. The Committee noted the likely contents of the final draft of the forthcoming HCC report with its recommendations calling for a review of the leadership of the Trust. The Chairman advised the Committee that in his view it was necessary to revisit its decision of July 31^st. In addition he reported that the performance of the Trust had continued to deteriorate, that targets were being missed, that the Trust’s finances had deteriorated further, that the Board had received a critical report from the auditors in relation to governance and that the morale of the management team was low, with evidence that at least three members of the top management were actively seeking employment elsewhere.

The minutes record that Ms Gibb had been told by the Chairman, following the July 31^st meeting, that the Committee was very concerned about the Trust’s performance, and that a substantial and rapid improvement was expected from her. After those preliminaries, the Committee considered the question of the termination of Ms Gibb’s contract. The Committee concluded that it was essential that Ms Gibb’s contract be terminated well before the anticipated publication of the HCC report on 10^th October.

In addition to the three options addressed by Mr Edwards, there was a fourth option before the meeting: namely to suspend Ms Gibb for six months on full pay during which time the Trust might build a case to dismiss Ms Gibb with cause. The Committee decided not to pursue this further option. It decided to pursue the third option dealt with in Peter Edwards’ advice, but also decided that if no Compromise Agreement could be reached, the fall-back position would be to dismiss before close of business on 5^th October.

Turning then to the terms of any Compromise Agreement, under the heading “Business Case For Settlement”, the minutes recorded that the settlement should reflect “the good results that the CEO had delivered in the early years of her term in office and the fact that she could have some difficulty securing alternative employment within the NHS, to which she had devoted most of her working life. At the same time the Committee were concerned that the settlement could be justified as good value for money and could be justified to the public and employees. The recent redundancy programme was also a relevant factor”.

The minutes of the business case continue by referring to the range put forward by Mr Edwards and the figure of £145,000.00 advanced by Mr Coode, the HR director. The minutes then continue “The committee considered that RG [the Claimant] might take up to eighteen months to secure a comparable post. Her current salary is £150,854.00, so eighteen months loss of earnings including pension contributions would be approximately £240,000.00. After considering the objectives, the risks and the costs, the Committee agreed to authorise the Chairman to offer a package up to but not exceeding £250,000.00. The Committee recognise that the difference between the contractual obligation of six months notice and the proposed award was significant. However the potential risks of damages as advised and the costs of fighting any case justified the premium.”

The minutes also record that Capsticks had advised that the value of the payment needed to be cleared with the auditors and with the SHA. It was reported to the meeting that the SHA had approved a settlement no lower than one year’s compensation and no higher than £250,000.00. This concludes a summary of the “Business Case” section of the minutes. As to this last matter, I was informed at trial that there is a dispute between the Trust and the SHA as to whether the SHA had in fact given such approval.

It appears that Mr Edwards was present at the meeting and was invited to comment on its conduct. The minutes record that he confirmed that the necessary sequence of events had been gone through and that there were no issues outstanding.

The Defendant relies heavily on these minutes as demonstrating that the payment under the Compromise Agreement was unreasonably generous. It is argued that the compensation payment of approximately £175,000.00 exceeds by over £100,000.00 the maximum which an employment tribunal could award in respect of Ms Gibb’s potential claim for unfair dismissal.

In addition trenchant criticism is made that when the minutes are examined, the business case for settlement erroneously took account of good results achieved in earlier years of Ms Gibb’s time in office, the fact that she could have some difficulty securing alternative employment within the NHS, and the fact that she had devoted most of her working life to the NHS. It is submitted that those are irrelevant considerations in analysing an appropriate compensation payment, and represent a misguided, albeit well-intentioned decision. Moreover it is said that the subsequent reference to taking up to eighteen months to secure a comparable post and the reference to eighteen months loss of earnings, including pension contributions, amounting to approximately £240,000.00 falls into the same error of entertaining irrelevant considerations. These elements focus not on appropriate compensation, but rather on the personal consequences for Ms Gibb.

Criticism is made of the fact that there was no attempt to analyse Capsticks’ advice as to financial exposure, which had merely indicated a minimum and maximum figure. Those figures are recited, but there is no analysis of where the appropriate point in that range lay in this case beyond recitation of Mr Coode’s figure of £145,000.00. The Trust appears to have approached the question of settlement by looking at the top end of Mr Edwards’ range without performing any proper analysis, or by accepting a figure in that region as a result of taking into account the irrelevant considerations of the rewarding for previous service and taking into account a period, which it might take Ms Gibb to find alternative employment, well beyond any timeframe which could expose this employer to damages or compensation.

It was contended that the Trust in fact had grounds for dismissing Ms Gibb fairly on the basis of the HCC report. In the light of her very senior position and the grave nature of the HCC’s findings, Ms Gibb could have been fairly dismissed for a “substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held” which is a potentially fair reason for dismissal within Section 98(1)(b) of the Employment Rights Act 1996. Such a course would have entailed certain procedural requirements, but a fair dismissal could have been effected by the end of October 2007 or shortly afterwards.

The Trust failed properly to look at the potential liabilities comprising the six month notice period and the maximum employment tribunal award for unfair dismissal. Such a sum would only have amounted to £145,000.00. Although the minutes in the business case section refer to value for money, and the need for justification to the public, there is no analysis, in particular of the potential public perception that a large award might be wholly unjustified given the adverse conclusions of the HCC report about the leadership of the Trust. It is argued that wholly insufficient weight was given to these important considerations, and to the figure identified by Mr Coode, as representing the potential liability of the Trust.

The Defendant also asserts that the flawed nature of the decision-making process can be seen from the fact that a business case was not forwarded to the Trust’s external auditors for comment in order to ascertain whether the payment might lead to public interest issues. Moreover the Trust did not present a business case to the SHA or seek Treasury approval. As a matter of law, SHA or Treasury approval was not a necessary precursor to any payment, but these failures, it is said, are indicative of a failure to attach due weight to obtaining value for money, to the need for public justification, and the need not to be seen to reward failure.

It is also said that the reference to “considering the objectives, the risks and the costs”, shows a deficiency of proper analysis, there being before the meeting no advice upon or estimate of the costs of contesting proceedings.

The Defendant contends that it is clear that the Trust’s decision to offer Ms Gibb £250,000.00 was motivated by a misplaced desire to be generous. They point out that in Ms Gibb’s note of the meeting between herself, Mr Lee and Mr Cockell of 1^st October 2007, Mr Lee indicated that the Remuneration Committee wanted to be “generous” and that it wanted to pay more than £250,000.00 but the SHA had imposed that figure as a ceiling. When those factors are properly analysed, they show a decision which was irrational, in that irrelevant matters were taken into account and relevant factors were not given any or any sufficient weight. The result was that what was offered went well beyond reasonable compensation for loss of office.

The Claimant’s response is that, first of all, it is common ground that the Trust entered into the Compromise Agreement on the basis that it was a lawful agreement capable of enforcement. The Trust had obtained formal written advice on its options from independent solicitors experienced in this field. It considered that advice at the meeting of 28^th September. Mr Edwards was present at the meeting and confirmed that the necessary sequence of events had been gone through and that there were no issues outstanding.

Mr Edwards’ advice as to the Trust’s financial exposure being in the range £90,000.00 to £250,000.00 should be read as representing the Trust’s potential direct financial exposure; that is, not taking account of legal costs, management time and costs and reputational damage which might accrue if no Compromise Agreement was reached. In any event, his advice went on to comment that a total settlement package equating to twelve months salary and pension contributions would probably be about the norm for this type of case. Mr Segal submitted that, if legal and other costs were added to that sum, the figure of £250,000.00 was not unreasonable. In addition the Trust was entitled to take account of the consequences of not achieving a Compromise Agreement if the matter went to an Employment Tribunal. The Claimant, not being bound by an agreement not to speak out about the issues leading up to the termination of her employment, would be free to investigate and raise matters covered in the HCC report in a way which, far from drawing a line under the situation, would merely prolong it in the glare of publicity. Not only would this be potentially damaging to the Trust but the cost of such proceedings would be substantial.

Moreover the Claimant could seek an order of re-engagement from the Employment Tribunal which had prospects of success. Had such an order been made, and then not been complied with (as was the overwhelming likelihood), the direct costs to the Defendant would have been of a high order, probably a year’s back pay and up to a further year’s pay. Viewed in that light, the sum arrived at in the Compromise Agreement was not unreasonable.

Turning then to the argument that irrelevant considerations were taken into account, it is argued that the matters relied on were of no material effect. It is asserted that there was ample justification for the Trust to agree to making the compensation payment without taking the factor of good performance in the Claimant’s early years in office into account. Therefore, that particular consideration should not be regarded as being material to the decision and in particular to the amount of the compensation payment. In any event it is not conceded that irrelevant considerations were taken into account. Employers even in the public sector, it is said, take into account past success in determining severance payments.

The question is posed, if there was no realistic possibility of the Defendant getting away with paying less than the Claimant’s contractual and statutory entitlements, could any reasonable Trust have valued its additional exposure as being in the region of £100,000.00? Only if the answer to that question is in the negative should the agreement be held to be ultra vires. The additional exposure would involve legal costs, management time, reputational damage and the risk of an order of re-engagement. It is submitted that in reality, Capsticks, Mr Coode, the non-executive directors of the Trust and the SHA must have considered that premium within the reasonable range, albeit near the top of it.

Having considered the evidence and the submissions I come to the following conclusions on the ultra vires issue. It is clear that the Trust was determined to dismiss Ms Gibb even if no agreement could be reached. It was imperative from their point of view that such a dismissal should take place prior to the publication of the HCC report. That publication was to take place on the 10^th October, and the Trust had set Ms Gibb a deadline of the 5^th October for signing a Compromise Agreement. Failing that she would be dismissed, given the HCC’s findings that there had been significant failing on the part of the Trust, and that the Trust had failed to protect the interest of its patients.

The Trust was justified in regarding these findings as extremely serious. Ms Gibb, whilst not accepting the HCC’s conclusion regarding failure to protect the patients’ interests, acknowledged in her evidence that it was the worst failing that could be attributed to a Trust. The recommendation of the HCC that the Trust board must review the leadership of the Trust in the light of significant failings, plainly included Ms Gibb as Chief Executive Officer. In the light of the gravity of the outbreak of C.difficile, the Trust clearly felt that it could not be seen not to have dismissed the Chief Executive prior to the publication of the report which was inevitably going to attract a great deal of publicity.

By opting to seek to achieve a Compromise Agreement, the Trust plainly hoped to terminate Ms Gibb’s employment cleanly, with a clean break and a confidentiality clause, making it easier to present a picture to the public of action taken in response to the report. I am sure the Trust had in mind that such an agreement would obviate a potential risk of a contest before the Employment Tribunal, which could serve to prolong the issues arising from the outbreak in the public domain, and distract the management from working to recover the position. The Trust will have had in mind additionally the cost of proceedings before the Employment Tribunal, both in legal and management terms.

All of these factors no doubt led to a decision to seek to achieve a Compromise Agreement, but it is clear to me that if there had been no such agreement, then a prompt dismissal would have taken place. In deciding what would be the appropriate level of compensation to offer, the Trust will have appreciated that it was contractually bound to pay six months pay in lieu of notice (about £75,000.000). In addition the Trust seems to have proceeded on the basis that it would be liable for a full Employment Tribunal award for unfair dismissal (£69,590.00).

In my judgment the Trust could reasonably and properly proceed on that basis. As far as the unfair dismissal award is concerned, the decisions as to the need for speed and an early termination of employment effectively pre-empted any process which might have permitted a dismissal under Section 98(1)(b) of the 1996 Act. Even a “fair” procedure quickly completed would not necessarily have resulted in a finding at the Employment Tribunal favourable to the Trust. Moreover Mr Edwards’ advice to the Trust was on the basis that the Trust would lose any claim for unfair dismissal. Accordingly I find that the Trust was right to disregard, or to put it another way, not wrong not to consider proceeding on the basis that no or no full award would be made in an unfair dismissal claim. I find that the Trust reasonably proceeded on the basis that it would be liable to a full unfair dismissal award.

Turning next to the suggestion that Ms Gibb might have sought additional relief in the Employment Tribunal by way of reinstatement or re-engagement, Mr Segal, for the Claimant, effectively conceded that reinstatement was an unrealistic option. There was therefore no basis upon which the Trust could have considered that as a relevant factor in assessing the compensation payment. However, the Claimant submitted that there were prospects of success before the Employment Tribunal on the issue of re-engagement. In my judgment the possibility of re-engagement should be left out of account in any assessment of the Trust’s potential liabilities. There was no realistic prospect that such an order would have been made in this case. Such an order is, in any event, extremely rare.

The test under the 1996 Act for re-engagement is one of practicability (see Section 116). Practicability in this context means something more than mere possibility. Ms Gibb had relied on a suggestion made by the SHA that she might be temporarily seconded to work on a PFI project as an indication that re-engagement might be feasible. I do not find that at all convincing. The SHA’s suggestion had, contrary to Ms Gibb’s recollection that it had been made following her termination, in fact been made on the 3^rd August 2007. The proposal had merely been put forward as a temporary measure at that stage. Moreover there would be obvious difficulties in ordering re-engagement of a former Chief Executive in the light of the extremely serious findings and recommendations of the HCC.

David Flory, the Director General of NHS Finance Performance and Operations, convincingly raised the question of how Ms Gibb could have been credibly re-engaged or redeployed in the light of the severity of the conclusions of HCC report. The report would be bound to trigger a severe public reaction, and an Employment Tribunal would be entitled to have regard to this in considering the issue of practicability. In addition, Mr Edwards’ advice did not raise the possibility of an order of re-engagement being made when he was considering unfair dismissal issues. I conclude that this was because he too was of the view that such an order had no realistic prospect of success. Accordingly, it is my judgment that the Trust did and should reasonably have left this matter out of account.

I therefore find that the Trust would reasonably have assessed liabilities to the Claimant arising out of termination of her contract as being represented by a sum to represent the contractual period of notice, together with a sum equivalent to the maximum unfair dismissal claim, giving a total of approximately £145,000.00.

That finding still leaves a gap of about £100,000.00 to be considered. The Claimant submits 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. It submits also that benefits of a speedy resolution coupled with an absence of potentially further damaging publicity, should also be taken into account. The difficulty with this argument is that there appears 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. Ms Gibb acknowledged in cross-examination that she would have expected a business case or an appraisal if such a sum of money was to be spent. She commented that it would not necessarily appear in the minutes but that you would expect it to be in the supporting papers. There is no such material in the substantial contemporaneous documentary evidence containing any such analysis, either in the minutes or in any other document.

It is true that Mr Terry Coode, the Trust’s HR Director, prepared a document entitled “Business Case” on or about the 26^th October 2007. In the course of that he put forward an estimate of the likely costs of resisting an unfair dismissal claim as being:

Legal costs of up to £80,000.00.

Executive preparation time, twenty person days, £10,000.00.

Director time at a five day tribunal hearing, £2,500.00.

This material was of course created after the event, and was not part of the decision making process. In my judgment it is not of great weight, since the document is plainly an attempt to justify ex post facto the actions of the Trust. In my judgment, the contemporaneous documents show the Trust’s decision-making process. In any event, I find it difficult to understand why the Claimant should be the beneficiary in a Compromise Agreement of a sum broadly equivalent to costs and management time which might be incurred by the Trust if there were a contested Employment Tribunal hearing. I have already indicated that re-engagement can be ruled out as a realistic possibility, and assuming the Trust followed Mr Edwards’ advice that it was exposed to a maximum unfair dismissal award, an acknowledgment of unfair dismissal would have avoided such costs being incurred. Accordingly, I consider that the Trust’s approach to the question of additional legal and management costs was flawed. Firstly because 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.

I also find that the Non-Executive Directors of the Trust were personally reluctant to see Ms Gibb depart, notwithstanding the findings of the HCC report. Although they had by the end of September 2007 recognised the need for her departure, in my judgment their personal views coloured their approach, which was one of wishing to be generous to Ms Gibb. This led them, in my judgment, to import into the assessment of compensation for loss of office, the facts that she had spent many years working in the National Health Service and had given previous good service, and the possibility that it might take Ms Gibb up to eighteen months to find other employment. These factors undoubtedly played a part in the assessment of the level of compensation to be agreed with Ms Gibb. They do not represent, in my judgment, payment for or in respect of loss of office. They represent payments for past service, which had already been rewarded, or payment for a potential period out of work which significantly exceeded the contractual notice period, and which would already be comprehended by the payment in lieu and the compensatory element of the unfair dismissal award.

I reject the argument that these considerations played no material part in the fixing of a sum by way of compensation. My assessment, based on the minutes of the 28^th September taken together with the indications of generosity expressed to Ms Gibb at the meeting on the 1^st October, shows that they had a part to play.

In addition to that I find that the Trust, in adopting the approach which it had, paid no more than lip service to the need not to be seen to reward failure and to regard payments over and above statutory and contractual liabilities as exceptional, notwithstanding the advice given by Mr Edwards.

In these circumstances I find that the Compromise Agreement was irrationally generous and thus ultra vires. Accordingly Ms Gibb’s claims under the terms of that agreement must fail.

In that event, Ms Gibb contends that alternative remedies are available to her. The matter is pleaded in the Re-amended Particulars of Claim as follows:

The value of the Claimant’s statutory claim to have been unfairly dismissed by the Defendant;

The value of the legal costs of contesting such claim;

The prevention of the Claimant from defending herself or otherwise making any statement or taking part in any conduct potentially damaging to the Defendant;

The Claimant’s agreement to an immediate and ostensibly consensual termination of her employment;

The avoidance of any disciplinary or other internal process during which the Claimant would have sought to defend herself and during which the Defendant would have had to commit significant human and/or financial resources.

The Claimant was prevented from pursuing a statutory claim for unfair dismissal in which she contends she would inevitably have been successful;

The Claimant was largely deprived of the opportunity to defend her actions and reputation in the face of public attacks on her inter alia in the media and by Ministers of the Government;

The Claimant was deprived of the opportunity to challenge internally, by way of grievance or contested disciplinary process, any allegation that her conduct warranted the termination of her employment.

In the further alternative, if, which is denied, the Defendant’s agreement to the Compensation Payment is held to have been ultra vires, then the Claimant will claim that the Defendant acted in fundamental breach of its contractually implied duty of trust and confidence in securing the immediate and consensual termination of the Claimant’s employment and other undertakings, etc., from the Claimant as aforesaid, inter alia by misleading her, deliberately or recklessly, as to its powers to enter into the Compromise Agreement as set out at paragraphs 3-5 above.

As a result of the said breach, the Claimant has sustained and continues to sustain significant losses…, to date and ongoing.”

The Defendant denies that there is validity in these alternative claims, and in particular they deny that the Defendant has been unjustly enriched as a result of the Compromise Agreement being void. The Defendant denies that any legal right or obligation accrues to Ms Gibb from the Trust as a result of that agreement being void. It is pointed out that no authorities support a grant of restitution where no money has passed between a Claimant and a Defendant, and that in any event, no benefit to the Trust can be identified as resulting from the agreement being void. In addition the concept of reliance upon a legitimate expectation of receiving the agreed sum as underlying or supporting the claim for unjust enrichment is challenged. It was submitted by Ms McNeill QC that whilst legitimate expectation may be relevant to public law remedies, it has no applicability in a private law context.

As to the further alternative claim based upon an alleged breach of a duty of trust and confidence, it is argued by reference to Johnson v Unisys [2001] ICR 480(HL), that even if there was any breach of the duty of trust and confidence (which is denied) it has no relevance to the manner of dismissal, and no damages flow from such breach.

In seeking to show that the Claimant was entitled to an equitable remedy Mr Segal submitted that even if the Compensation Agreement was ultra vires, such an agreement still had real world consequences and an equitable remedy might be available. That would depend on the facts of each case.

He drew my attention to the observations of Lord Templeman in Hazell v Hammersmith and Fulham LBC and others at page 36D-E. He further referred to the speech of Lord Goff in Westdeutsche Landesbank Girocentrale v Islington LBC [1996] AC 669 at page 692B where he said that the jurisdiction of the Court

I was also taken to Eastbourne BC v Foster [2002] ICR 234. This was a case where the council had entered into an agreement with an employee designed to enable him to qualify for enhanced pension benefits on reaching his 50^th birthday notwithstanding that his post was shortly to be terminated on grounds of redundancy. The agreement was ultra vires and therefore void and unenforceable. At paragraph 32 of the judgment, Rix LJ held:

Additionally and in the context of unjust enrichment, I was taken to Banque Financiere de la Cite v Parc (Battersea) Limited [1999] 1AC 221, where at P234C-D, Lord Hoffmann identified four components or preconditions to relief for the innocent party to an ultra vires contract. The conditions are, firstly, that the Defendant is enriched by receipt of a benefit; second, that the benefit must be at the Claimant’s expense; third, that the Defendants retention of the benefit is unjust; and finally, that there are no policy reasons for denying a remedy. I was also referred to the observations of Lord Clyde in the same case at P239D-G.

The Defendant does not take issue with the principles cited above, but contends that they are not applicable in the circumstances of this particular case. It is common ground that the equitable jurisdiction, if it exists in this case, does not permit the court to require the Defendant to do something it never had power to do. However, as paragraph 11A of the re-amended particulars of claim makes clear, the Claimant argues that the appropriate remedy is that the Defendant should pay her compensation or damages in the maximum sum which is intra vires of the Defendant, such sum to be assessed by the court. From such sum credit would have to be given for the sum of circa £75,000.00 already paid. The Claimant is targeting a sum of just under £70,000.00 to represent the loss of her statutory claim for unfair dismissal plus a sum to represent a percentage prospect of securing a re-engagement award from an Employment Tribunal. In addition the Claimant seeks compensation for the fact that she was “gagged”; in other words for the fact that under the Compensation Agreement she agreed not to speak to the media.

Dealing with the first two of Lord Hoffmann’s components, namely whether the Defendant has received a benefit at the expense of Ms Gibb, Mr Segal argued that, by entering into the Compromise Agreement, Ms Gibb conferred a benefit upon the Defendant, both in financial and organisational terms. In particular she has lost her right to make a claim for unfair dismissal, including claims for reinstatement or re-engagement; she has lost her right to pursue a grievance process internally; and she has lost her right to speak out publicly against the criticisms of her leadership contained in the HCC report and the media.

In relation to these submissions I note that this is not a case where money has changed hands, nor is it a case where the Claimant has performed work for the Defendant. Those are the typical sorts of situation in which a restitutionary or quasi-contractual remedy may be granted. The Defendant submits that the lack of prior authority covering situations such as the present is an indication that the court’s power to grant a remedy does not stretch this far. I see the force of this, but think it right at this stage to consider other issues such as whether any such benefit or enrichment is unjust and whether it is capable of quantification.

I will deal first with the issue of a claim before the Employment Tribunal. In the light of the concession that reinstatement was an unrealistic option, and in the light of my earlier finding that there was no realistic prospect of an order for re-engagement being made in this case, I conclude that the element of a claim to represent the possibility of success on those issues before an Employment Tribunal can be wholly discounted.

As to the claim for unfair dismissal proper, the terms of the Compromise Agreement undoubtedly precluded such a claim being made. After that agreement apparently came into effect on 5 October 2007, the Defendant on instructions from Mr Flory at the Department of Health contained in a letter dated 11 October 2007, notified the Claimant that it intended to withhold any payment from her until further notice. It was initially submitted to me that the Defendant did not make clear to the Claimant that the refusal to pay was based on the contention that the agreement was made ultra vires, and thus was null and void, until a letter to the Claimant’s solicitors dated 29 January 2008.

The significance of that date is that the normal time limit for making a claim for unfair dismissal before an Employment Tribunal would have expired after three months, that is, in the first week of January 2008. No claim had been presented to the Employment Tribunal before the three month time limit expired. Having seen and heard Mr Flory, I am satisfied that there was no question of the Department or the Trust deliberately delaying setting out their legal position until after the time for making a claim had expired, so as in some way to take advantage of the Claimant. Moreover the Claimant had access to her own legal advice at all material times. Indeed, it subsequently transpired that, notwithstanding the initial assertion by Mr Segal and his reliance upon the letter of 29 January 2008, the Claimant was aware of, and had access to legal advice about, the Defendant’s reasons for withholding payment under the Compromise Agreement prior to the expiry date for a claim before the Employment Tribunal.

That much can be inferred from paragraphs 47 and 61 of the Claimant’s witness statement, but in my judgment the matter is made explicit in correspondence from and to the Claimant’s legal advisors dated 17 and 19 December 2007 respectively. Accordingly I find that the Claimant and her advisors were aware of the reasons for the refusal to make the payment under the Compromise Agreement prior to the last date upon which they could issue before the Employment Tribunal. The Claimant was aware of the ultra vires point. I do not accept the Claimant’s argument that, if she made a claim to the Employment Tribunal, she would be disentitling herself to a claim under the Compromise Agreement. It would have been perfectly possible for her to have issued a claim for unfair dismissal in time, making it clear, if need be, that that was being done on a protective basis and without prejudice to her contentions as to the validity of the Compromise Agreement.

I do not consider therefore that the Defendant has been enriched or has benefited as a result of the fact that the Compensation Agreement was void. Insofar as a benefit or advantage has accrued to the Defendant, it has arisen because the Claimant and her advisors with full knowledge of the stance which the Defendant was taking as to the validity of the agreement have not issued proceedings in time before the Employment Tribunal. The solicitors concerned are experienced in the field of employment; the Claimant herself is a highly intelligent woman who I find would certainly have been aware of her rights. I therefore further conclude that even if there were a benefit accruing to the Defendant, there has been no unjust enrichment at the expense of the Claimant in this respect. Any detriment lies at the door of the Claimant or her advisors.

That leaves two further matters to be considered, the first of which relates to the element of agreement not to pursue an internal grievance. Such a matter is somewhat speculative because in the absence of a Compromise Agreement, it is hard to be clear what would have happened in this respect. What is beyond argument is that Ms Gibb’s employment would have been summarily terminated on or about 5 October 2007 in the absence of a Compromise Agreement. Whilst pursuit of an internal grievance procedure might have been open to the Claimant I doubt that she would have pursued it in the face of the Trust’s attitude, the findings of the HCC report, and the public attention given to this matter. I consider it much more likely that she would have pursued other legal remedies available to her in order to seek compensation. Moreover I conclude that this aspect of the matter is subsumed into the unfair dismissal aspect upon which I have already ruled. As to the costs allegedly saved by the Trust by not having to deal with an unfair dismissal claim or an internal grievance procedure, whilst such costs might have been saved by the Trust, that would not be at the Claimant’s expense, and in any event, these are covered by my findings above.

I then turn to the element of this claim which relates to clause 12 of the Compensation Agreement and which Mr Segal described as the “gagging clause”. A reading of clause 12 suggests that it is far from the absolute ban on comment which Mr Segal’s submissions appeared to suggest. Clause 12(a) prohibits divulging any confidential information but containing exceptions relating to information in the public domain (apart from information disclosed in an unauthorised fashion). Clause 12(c) prohibits Ms Gibb from making untrue, disparaging or misleading statements or taking part in conduct conducive to bringing the employer, its directors, officers or employees into disrepute. Clause 13 contains parallel provisions, (with necessary exceptions), binding the Trust.

Whilst it is correct that Ms Gibb did not want to leave her post and would have wished to have contested aspects of the HCC findings and the Trust’s decision to dismiss her, she made what to my mind are significant concessions in the course of cross examination about her position in September 2007 and afterwards. She said that in September 2007 prior to her dismissal she had not personally been considering a challenge to the HCC report, but the Trust’s board was considering what to do. She specifically denied a comment made by Mr Lee in an internal document dated 20 September 2007, stating that she was considering commissioning an expert to attack the HCC report. This she said was incorrect. The board had earlier considered getting experts in to show why it said the HCC was wrong in some respects, “but we decided not to do it”. She went on to say that she had never personally considered commissioning such an expert and would not have done it at this stage.

She said that she did not think it would be right to challenge the HCC report. She said that the board’s position was that the HCC report should be accepted where it was accurate. The board would accept every recommendation but if specific questions were asked, they would say that they did not accept a particular finding. This last matter is open to question as there is no contemporaneous documentary material to support it. Given the tenor of this passage in cross examination with its emphasis on the fact that Ms Gibb would not speak with a separate voice from the board, I am doubtful that this “gagging clause” had anything like the significance attributed to it by Mr Segal.

Whilst no doubt it may have given a degree of comfort to the Trust as part of an overall Compromise Agreement, in reality I do not consider that its weight was significant, particularly when the clause itself is examined. In my judgment this is a tangential matter. I do not consider that it represents a benefit to the Trust of a sort which is comprehended by the law of restitution. In addition any attempt to quantify a benefit to the Trust or a loss to the Claimant would be inherently speculative, uncertain and inadvisable. The overwhelming likelihood, given the nature of the HCC findings at the time and the media’s adoption of them mean that in reality, there was no sensible prospect of salvaging the Trust’s reputation, nor was there any sensible prospect of the Claimant redeeming her own personal position even if she had chosen to speak out publicly, which I consider to be unlikely.

In support of his contentions, Mr Segal asserted that a material circumstance was that Ms Gibb had a legitimate expectation of receiving the sum agreed under the Compromise Agreement and that since the Defendant had resiled from its promise to pay and had failed to make any just and proportionate payment within the extent of its powers, it had been unjustly enriched at the Claimant’s expense. Legitimate expectation was not put forward as a separate cause of action but rather as a supporting argument.

It is clear that the Claimant cannot be put in the same position which would have been achieved by the ultra vires Compromise Agreement (see per Keene LJ at paragraphs 32 to 36 of Foster v Eastbourne BC and another [2004] EWCA Civ 36). However, Mr Segal argued that, when the court is dealing with an agreement held ultra vires on grounds of irrational generosity that should be viewed as a different situation from a finding that the agreement was ultra vires because the public body had no power to agree at all, and/or had acted for an improper purpose. In the situation of irrational generosity, the court should be able to award an amount which was just and reasonable and which would have been intra vires the powers of the public body.

Mr Segal also relied on Rowland v Environment Agency [2003] EWCA Civ 1885. This was a complex case concerning public rights of navigation on the River Thames. One of the major issues was whether a riparian owner had a legitimate expectation to continue privately to enjoy a stretch of the river in circumstances where the public body, lacking power to abrogate or qualify the public right of navigation, had conducted itself in such a way as to represent that there was no such right existing in relation to the stretch of river in question.

As I have said, Mr Segal did not rely on Foster or Rowland as conferring some separate cause of action. He relied on those authorities as illustrative of the flexible, case by case approach which he submitted that the court should adopt consistent with the observations of Lord Goff in Westdeutsche Landesbank Girosentrale cited earlier.

I have set out at paragraph 79 above how the Claimant’s case is put as to the proper assessment of equitable damages or compensation. It will be seen that the elements of appropriate compensation contended for represent the value of the statutory claim for unfair dismissal plus a sum to represent a percentage prospect of securing a re-engagement award, together with compensation for the period of “gagging”. I have already made findings that there was been no unjust enrichment at the expense of the Claimant in relation to the unfair dismissal claim; I have already found that there was no prospect of successfully securing re-engagement; I have found that the weight to be attached to the “gagging clause” was not significant and that its value was speculative. Accordingly the submissions based on Foster and Rowland that I should be flexible and creative in approaching the question of remedy do not arise. By reason of my findings the necessary preconditions for equitable relief identified by Lord Hoffmann in Banque Financiere have not been satisfied. It follows that the first alternative claim must fail.

I now turn to deal with the further alternative claim. This asserts that the Defendant acted in breach of its implied contractual duty of trust and confidence towards the Claimant by misleading her deliberately or recklessly as to its power to enter into the Compromise Agreement.

It will be recalled that the Defendant’s Remuneration Committee decided to terminate the Claimant’s employment at its meeting on 28 September 2007. On 1 October 2007 the Claimant met the Chairman of the Trust, Mr Lee, together with his deputy, Mr Cockell. She was told that the termination was a fait accompli, and that her only option was to negotiate a severance agreement. In the days that followed, the Claimant, through her trade union, negotiated the terms of the Compromise Agreement with Capsticks, the Trust’s solicitors. The Claimant had also taken advice from Russell Jones and Walker, solicitors experienced in the field of employment, who certified that they had given her advice as to the terms and effect of the Compromise Agreement. What was the only significant factual issue at the hearing before me concerned the way in which this aspect of the matter had been handled, and forms the basis of this further alternative claim.

In evidence before me Ms Gibb accepted that she was aware at the relevant time that there would be processes which needed to be followed in relation to severance payments, and that there was no place in the system for unnecessary pay offs. She agreed that in the public sector there are considerations which go beyond commercial considerations and that she was aware of a policy that failure should not be seen to be rewarded. She said that she was unaware that severance payments exceeding contractual and statutory maxima should be exceptional. Ms Gibb agreed that by the 1 October 2007 she appreciated that the approval of the Trust’s Remuneration Committee was needed in relation to her dismissal and compensation. She believed that that was the case with the Strategic Health Authority also and that it was possibly necessary on behalf of the Department of Health.

Her pleaded case and her evidence asserted that at the meeting of the 1 October 2007 she was told by Mr Lee and Mr Cockell that all necessary approvals had been obtained and that the agreement was “watertight”. She asserted that she was also told that Price Waterhouse Cooper’s (“PWC”) had been instructed by the Defendant to report on the business case for the severance agreement and had done so favourably. In addition her evidence was that she was told that the SHA had approved the agreement.

Ms Gibb was undoubtedly upset and shocked by the news conveyed to her at the meeting. Approximately two hours later she made some handwritten notes about what had happened. Those notes suggest that she was told that Mr Cockell had spoken to PWC and that “all is agreed for accounts etc”. They also suggest that Mr Cockell told her that he had “got everything agreed” with the SHA. The note also records that she was told that all paperwork had now gone to the SHA and the “Department”. In short her case is that she left the meeting of the 1 October knowing that her dismissal was certain, but having been informed that various authorities beyond the Trust had been consulted and that everything was approved.

It is clear to me that the pleaded claim that she was told that the agreement was “watertight” was not made at the meeting of the 1 October. The word does not appear in the notes which were made on the day; there is a reference to a “watertight paper trail” in an email of the 16 October. I am satisfied that in this respect the Claimant’s evidence was inaccurate. As to PWC, I think that some element of confusion has entered Ms Gibb’s recollection and note. They had not seen any business case by the 1 October, and so could not have given any agreement or approval. However, I do find that Mr Cockell told Ms Gibb that he had spoken to PWC. I accept that Mr Lee said that the Trust was sorry about the dismissal and wanted to be generous, and indeed had wanted to offer more, but the SHA had imposed a ceiling of £250,000.00.

In short I conclude that the Trust representatives who were conveying the message of dismissal were in an apologetic frame of mind and were seeking to convey that a Compromise Agreement with a ceiling of about £250,000.00 was the best Ms Gibb could achieve, and were indicating to her that there was authority for a payment up to that amount. I am not persuaded that it was specifically conveyed that either the Department of Health or PWC had approved the amount, but it is clear that Ms Gibb left the meeting with some degree of assurance that the proposed payment had been sanctioned or would be sanctioned further up the hierarchy.

This finding is further reinforced by the evidence of James Keegan, a National Officer in the union responsible for representing the interests of members including senior managers within the NHS. Between the 2^nd and 5^th October 2007 he was in touch with Peter Edwards of Capsticks on Ms Gibb’s behalf. He agreed the Compromise Agreement in the terms eventually signed on 5 October. During the course of that process Mr Keegan had a particular telephone conversation with Peter Edwards on 4 October 2007. According to Mr Keegan, Mr Edwards told him that the minutes of the Remuneration Committee meeting of 28 September had been disclosed to the SHA. He said that Mr Edwards had told him that as far as the approval process was concerned “all the ducks were lined up”. In addition he believed that Mr Edwards had told him that “the Department”, by which he took him to mean the Department of Health, had also received the minutes of 28 September. This conversation was followed up by an email which refers to “your advice that the Remuneration Committee minutes had been disclosed to the SHA etc”.

There is some degree of uncertainty about Mr Keegan’s written and oral evidence. He agreed there had been no reference to Treasury approval and there was considerable ambiguity about whether “Department” approval was in fact mentioned in terms. However the tenor of Mr Keegan’s evidence which I accept is that, having commented to Mr Edwards that the Trust must have moved fast to get all necessary approvals in place, he had been reassured that there was nothing to worry about in this regard, specifically by the phrase “all the ducks are lined up”. I accept Mr Keegan’s evidence that he relied on those observations and accepted them before relaying the information to Ms Gibb.

I have heard no evidence from Mr Lee, Mr Cockell or Mr Edwards so I have had to determine this issue on the basis of the evidence I heard from Ms Gibb and Mr Keegan taken together with such contemporaneous documentation as there was. I conclude that although in the instances I have specified assurances were not given in some of the more specific ways asserted on behalf of the Claimant, nonetheless assurances were given both by Mr Lee and Mr Cockell and also by Mr Edwards to the Claimant or her representative to the effect that there was or would be no difficulty in obtaining approval for the proposed Compromise Agreement from other bodies. I do not consider it to be an answer for the Defendant to point to the fact that independent solicitors advised her and signed off a certificate annexed to the Compromise Agreement. Their role was principally to advise on the legal effect of entering such an agreement. There is no evidence to show that they had any contact with Capsticks or the directors of the Trust. The assurances conveyed to Ms Gibb and Mr Keegan were conveyed by representatives of the Defendant who were in the best position to know and convey such assurances on behalf of the Defendant. I see no reason why the Claimant should not have relied on those assurances, particularly in circumstances where they came from two separate sources, where time was of the essence and where the information being conveyed was of a nature to be particularly within the knowledge of the Defendant.

The fact is that neither the auditors (PWC) nor the Department of Health, nor the Treasury had given its approval to the Compromise Agreement. It is in fact still unclear whether the SHA had given its agreement.

The obligation of trust and confidence on an employer is an obligation that it will not “without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”. see Woods v WM Car Services (Peterborough) Limited [1981] ICR 665 as approved in Mahmud v BCCI [1997] ICR 606 (HL), at 621B-D.

It is clear to me that both parties entered into the agreement on the basis that it was a lawful agreement capable of enforcement. It has required this hearing in order to determine the issue of vires, an issue raised on behalf of the Defendant only after the agreement had been signed and after the Department of Health had intervened, and after new management had taken over the running of the Trust. As this judgment shows, they were mistaken as to vires, and the agreement was void. That mistake could not of itself amount to a breach of the implied term relating to trust and confidence.

Moving on then from the question of ultra vires, the question then arises whether the assurances given on behalf of the Defendant to Ms Gibb and Mr Keegan were made deliberately or recklessly as asserted in the Re-amended Particulars of Claim. If so, there would be a breach of the duty of trust and confidence. Another way of phrasing the test can be seen in the decision of Mr Colin Mackay QC at first instance in the Eastbourne BC v Foster case where, the local authority having negotiated with Mr Foster a redundancy and early retirement package which it ought to have known it had no power to enter into, Mr Mackay QC held that the implied term imposing a duty of trust and confidence was designed to prevent deliberate conduct which undermined the employment relationship or if not deliberate, “conduct calculated, objectively viewed, to undermine it”. He went on to say that it was straining the implied term beyond breaking point to suggest that it had any application to what happened in the Foster case. Put at its highest the Council had acted “precipitously and carelessly” [query a misprint for “precipitately and carelessly”?]. He did not think such conduct amounted to a breach of the term relied on.

It is right however to note that there is a factual distinction to be drawn between Foster’s case and the present one. Whereas in both cases by the making of the Compromise Agreement the public body employer was representing that it had power to enter into the agreement, in the present case there is the additional feature of the assurances made.

I do not consider that the assurances given by the Defendant’s representatives constituted a deliberate misleading. Mr Lee and Mr Cockell were well disposed toward Ms Gibb and Mr Edwards had no axe to grind. Ms Gibb conceded in cross examination that she did not believe that they would lie to her on purpose. However I do consider that the conduct of the Defendant occurring as it did on two distinct occasions and giving positive assurance that necessary approvals were or would be in place, goes beyond mere mistaken or careless conduct. I consider that, when the assurances were being given on a matter of significance, when the Claimant was relying upon them for their accuracy, and when she was acting under pressure of time, the conduct of the Defendant can properly be described as reckless in the sense that the statements cannot have been made with any proper confidence that they were truthful and accurate. Such conduct in a matter of such importance is in my judgment “calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee” (See Mahmud). Accordingly I find that there was a breach of the implied term of mutual trust and confidence.

However the Defendant argues that even if there is such a breach it is of no practical effect. The argument between the parties relates to the so called “Johnson exclusion area” identified in Johnson v Unisys [2001] ICR 480 (HL). This was a case where the employee commenced proceedings for wrongful dismissal, (having previously successfully complained to an Industrial Tribunal of unfair dismissal), alleging that, because of the manner in which he had been dismissed, he had suffered a mental breakdown and was unable to work. It was held that the matters of which complaint was made were solely within the jurisdiction of the Industrial Tribunal since Parliament had provided a remedy for the conduct of which Mr Johnson complained. It was not for the judiciary to construct a general common law remedy for unfair circumstances attending dismissal. To summarise Lord Millett at paragraphs 78 to 80 of Johnson the implied term of trust and confidence which is an inherent feature of the relationship of employer and employee does not survive the ending of the relationship. The implied obligation cannot sensibly be used to extend the relationship beyond its agreed duration. Whilst the courts might well have developed the law by imposing an obligation upon an employer to treat his employee fairly even in the manner of his dismissal, the creation of the statutory right has made any such development of the common law both unnecessary and undesirable.

In Eastwood and another v Magnox Electric Plc [2004] 3 WLR 322 (HL) their Lordships had to give further consideration to the Johnson exclusion area. Lord Nicholls stated at paragraph 27:

The Defendant relies upon this passage and submits that even if there was a breach of the implied term of trust and confidence it formed part and parcel of the process of dismissal and falls within the Johnson exclusion area. The Claimant relies on the next paragraph in Lord Nicholl’s speech.

The Claimant’s argument is that this is not a typical case whereby unfairness in the dismissal process can properly be analysed as not causing loss until the moment of dismissal. The Claimant’s argument is that her dismissal in this instance did not cause her financial loss. The loss arose from the misleading representations which led her to sign the Compromise Agreement and thus prevented her from receiving financial benefits contained in that agreement. The Claimant has lost a statutory right and that loss occurred prior to her dismissal.

I do not consider that the Claimant’s analysis is correct. I consider that since the Compromise Agreement was void because it was ultra vires, the contract of employment was repudiated (see Eastbourne BC v Foster [2002] ICR 234 at paragraph 34). It seems to me that what occurred on 1 October was in reality part and parcel of the steps leading up to Ms Gibb’s dismissal and that the inaccurate assurances given are part and parcel of that process. Those assurances themselves caused no financial loss but are subsumed into a right to claim for unfair dismissal which crystallizes at the moment of dismissal if there has been some unfairness in the antecedent process. Accordingly I conclude that the events of the 1st October do not give right to any separate cause of action, but are to be viewed as coming within the so called Johnson exclusion area. Moreover any loss which has arisen in this case has not arisen as a result of the assurances. The assurances as to approvals are not reasons why the Compromise Agreement is ultra vires. Treasury or Department approval is not a necessary legal precursor to the validity of an agreement. The Claimant’s asserted loss of the benefit of the Compromise Agreement arises from the fact that it is ultra vires and void, not from the assurances. The fact that the Compromise Agreement is void is not something which arises from the breach of duty of trust and confidence, it arises from other factors. In addition the loss of the right to pursue a claim for unfair dismissal does not as I have held earlier in this judgment arise either from the fact of the ultra vires Compromise Agreement or from the assurances given on the 1 October, it arises from the Claimant’s own failure to commence unfair dismissal proceedings in time when aware that the Defendant was refusing to honour the agreement on the grounds that it was ultra vires. For these reasons I reject the submission that the facts of this case are exceptional in a way which should lead me to hold that this case falls outside the Johnson exclusion area. Accordingly the further alternative claim cannot succeed.

For the foregoing reasons this claim must fail.