England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BIRMINGHAM COUNTY COURT
(HIS HONOUR JUDGE McKENNA)
4BM13701

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/06/2007

Lord Justice Chadwick :

1. This is an appeal by Birmingham City Council from an order made on 23 August 2006 by His Honour Judge McKenna, sitting in the Birmingham County Court, in proceedings brought by employees of the Council to recover sums alleged to be due to them in respect of car user allowance payable under their terms and conditions of employment. In addition to the claims for payment, the claimants sought declarations as to the Council's on-going contractual obligations.
2. The judge upheld the claims to payment. He made a declaration in these terms:

"The [Council's] withdrawal with effect from 1 April 1993 of Band 3 mileage allowance as set out on the rate card referred to in paragraph 63(c)(i) of the Scheme of Conditions of Service of the National Joint Council for Local Authorities' Administrative, Technical and Clerical Services, from any employee then designated as a car user and to those whose car Band 3 applied, and its subsequent failure to pay that employee mileage allowance at Band 3, amount to continuing breaches of contract in respect of which any employee is entitled to damages."

3. For reasons which I shall explain it is not, I think, open to doubt that implementation of the Council's decision to withdraw mileage allowance at Band 3 rates from those employees who were in receipt of such allowance with effect from 1 April 1993 constituted a breach of the terms and conditions of the contracts of employment of those employees. The question on this appeal is whether, in the events which happened, the judge was correct to take the view that the Council's failure to pay mileage allowance at Band 3 rates to those employees was and is a continuing breach; so that the claimants are entitled to claim in respect of non-payment during the six years immediately prior to the commencement of these proceedings (on 2 April 2004) and for the future.
4. Whether or not the judge intended, by the use of the phrase "any employee" in the declaration which he made, to determine the contractual position as between the Council and employees other than those who, as claimants in the actions which were before the judge, are joined as respondents to this appeal, we were told that, in practice, determination by this Court of the question which I have identified will affect many other of the Council's employees who are in a similar position; and that, more generally, the issues to which this appeal gives rise are of importance to other local authorities and their employees.

Car user allowances under the national scheme

5. Paragraph 63 of the Scheme of Conditions of Service of the National Joint Council for Local Authorities' Administrative, Technical and Clerical Services (commonly known as "the Purple Book" but, hereafter, "the Scheme") set out nationally negotiated and agreed conditions for the payment by local authorities to their officers of what are described as "Motor Car Allowances". In the form in which it was as at 1 April 1993, sub-paragraph (a) of paragraph 63 was in these terms (so far as material):

"(a) GENERAL CONDITIONS

(i) Officers requiring the use of motor vehicles for the efficient performance of their duties will be eligible to receive allowance for the use of their cars on business only after being so authorised by the local authority, in accordance with such grading as the local authority may determine, e.g. by reference to the nature of the user, or cubic capacity of car considered appropriate.

. . .

(iii) The authority shall have the right to require an officer to carry official passengers without any additional payment. Where an authority requires an officer regularly to carry official passengers, such requirement should be taken into account in determining the cubic capacity category of allowance payable.

. . ."

6. Sub-paragraph 63(b) of the Scheme was concerned with "Casual User Allowance":

"(b) CASUAL USER ALLOWANCE

Casual users are deemed to be those for whom it is merely desirable that a car should be available when required. The mileage rates are set out on the card inside the back cover.

Notes: (i) Where a local authority authorises the use of a car in excess of 1750cc it should fix an allowance not lower than that prescribed for the category 1451 to 1750cc.

(ii) The lowest category of allowance shall be payable only to officers actually using a vehicle with an engine falling into the 451 to 999 cc category.

(iii) The scale of allowances to be paid to authorised officers of a local authority for the casual use of private motor cars whilst engaged on official duties operates so that a casual user does not at any mileage figure receive more than he would have done had he been receiving the essential user's allowance. The principle is a continuing feature of the car allowances agreement."

7. The claimants in those proceedings were not casual users. They had all been designated as essential users; and so fell under sub-paragraph 63(c). That sub-paragraph, in the form in which it was as at April 1993, provided (so far as material):

"(c) ESSENTIAL USER ALLOWANCES

(i) Essential users are deemed to be those whose duties are of such a nature that it is essential for them to have a motor car at their disposal whenever required. An officer whose employing authority so resolve, by reason of the fact that it is considered to be essential in the interests of the efficient conduct of the business of the authority that the officer shall be permitted to use his private car in carrying out his official duties, shall be entitled to receive the lump sum allowance and mileage rates set out on the card inside the back cover.

Notes. (a)Where a local authority authorises the use of a car in excess of 1750cc it should fix an allowance not lower than that prescribed for the category 1451 to 1750cc.

(b) The lowest category of allowance (451 to 999cc) shall be payable only to officers actually using a vehicle with an engine falling into the 451 to 999cc category. "

8. The scales of allowances to be paid to casual and essential users from 1 January 1992 were set out in Circular No. 321 (Revised October 1992) under four bands, defined by engine capacity: Band 1 – 451cc to 999cc; Band 2 – 1000cc to 1199cc; Band 3 – 1200cc to 1450cc; and Band 4 – 1451cc to 1750cc. In respect of casual users there was specified, in respect of each band, an allowance per mile which varied by reference to the extent of the use – that is to say, the allowance per mile was referable to the number of miles per annum for which the allowance was claimed. In respect of essential users there was specified, in respect of each band, an annual lump sum, an allowance per mile in respect of the first 11,000 miles per annum and an allowance per mile after 11,000 miles per annum. The relationship between the two scales was prescribed by Note (iii) to sub-paragraph 63(b).
9. Before addressing the facts which gave rise to the dispute in the proceedings before the judge, it is convenient to decide two questions which turn solely on the construction of the provisions in paragraph 63 of the Scheme: (A) whether, on designation of an employee as an essential user, it was open to a local authority to determine that car user allowance should be paid to that employee by reference to a band which did not correspond to the engine capacity of the car which that employee actually used in the performance of his duties (and, in particular, by reference to a band which was lower than that which corresponded to the engine capacity of his car); and, if so (B) whether it was open to the local authority to vary that determination from time to time during the course of the employment.

(A) Whether, on designation of an employee as an essential user, it was open to the local authority to determine that car user allowance should be paid to that employee by reference to a band which did not correspond to the engine capacity of the car which that employee actually used in the performance of his duties?

10. If it were not for the second sentence in sub-paragraph 63(c)(i) of the Scheme it would, I think, be beyond argument that the National Joint Council, in agreeing sub-paragraph (a)(i), sub-paragraph (b) and the first sentence of sub-paragraph (c) in the terms that it did, intended that, in any given case, the local authority would determine three distinct questions: (i) whether the officer or class of officer concerned required the use of a motor vehicle for the efficient performance of his (or their) duties; and, if so, (ii) whether those duties were of such a nature that it was essential for the officer to have a motor vehicle at his disposal (so that he was deemed an essential user) or merely desirable that a car should be available to him when required (so that he was deemed a casual user); and (iii) into what band or grading that officer (or officers of that class) should be placed.
11. In determining the third of those questions the local authority was to have regard (by way of example) to the nature of the user which was to be anticipated and the engine capacity of the car considered appropriate. In particular (as sub-paragraph 63(a)(iii) makes clear) the need for the officer to carry official passengers in his car on a regular basis was to be taken into account in determining the appropriate engine capacity of the car: the need to carry passengers might justify a larger car. But the local authority's power to determine the band or grading into which an officer should be placed was restricted by the terms of the Notes. An officer could not be placed in Band 1 unless the engine capacity of the car which he was actually using for the performance of his official duties was within that band: that restriction was imposed by Note (ii) to sub-paragraph 63(b) and Note (b) to sub-paragraph 63(c)(i). An officer who was authorised to use a car with an engine capacity in excess of 1750cc could not be placed in a band lower than Band 4; but might be placed in that band notwithstanding that the engine capacity exceeded that specified in that band.
12. It is said on behalf of the claimants that the effect of the second sentence in sub-paragraph 63(c)(i) -

"An officer whose employing authority so resolve, by reason of the fact that it is considered to be essential in the interests of the efficient conduct of the business of the authority that the officer shall be permitted to use his private car in carrying out his official duties, shall be entitled to receive the lump sum allowance and mileage rates set out on the card inside the back cover." [emphasis added]

- was that, in a case where (in answer to the first and second of the three questions which I have identified) the officer is designated as an essential user, the third question does not arise. It is said that, where the officer is designated an essential user, the local authority has no power to decide into what band or grading that officer should be placed: the band or grading is determined by the engine capacity of the car which the officer actually uses in carrying out his official duties. That conclusion follows, it is said, from the direction that an officer, once designated an essential user, shall be entitled to receive the lump sum allowance and mileage rates applicable to his car.

13. The judge accepted that submission. He addressed the point (which had been identified as "Issue 1" in an agreed list of issues for determination) at paragraphs 56 to 63 of the judgment which he handed down on 23 August 2006. After reminding himself of the five principles of construction summarised out by Lord Hoffmann in his speech in Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912H-913E, the judge said this:

"59 As it seems to me the purpose of paragraph 63 is to set out the terms and conditions upon which officers will be entitled to receive allowances for their own cars after being so authorised by the local authority. Once an employee is authorised to use his or her car for the purposes of work under paragraph 63(a)(i) Birmingham City Council has to decide whether he or she is to be treated as an Essential User under paragraph 63(c)(i). After such designation, as long as the employee qualifies as an Essential User within the definition, he or she is to be entitled to the Essential User Allowance and the rates to which he or she is entitled are the rates provided for by paragraph 63 by the Nationally Agreed Conditions of Service.

60 Since at the time of the Claimant's designation as Essential Car Users paragraph 63 of the Purple Book provided for all 4 bands of Essential User Allowance, each Claimant therefore acquired on designation as an Essential Car User the contractual right to payment of Essential User Allowance at whichever of the 4 nationally agreed Bands applied to his or her car. It follows in my judgment that Issue 1 should be determined in favour of the Claimants."

14. In my view that is not a tenable construction of sub-paragraph 63(c)(i). Paragraph 63 of the Scheme must be read as a whole. In particular, sub-paragraphs (b) and (c) must be read in conjunction with the "General Conditions" set out in sub-paragraph (a). The words in sub-paragraph (a)(i) - "in accordance with such grading as the local authority may determine" - read with the examples which follow –"by reference to the nature of user, or cubic capacity of car considered appropriate" – and with the direction in sub-paragraph (a)(iii) –"Where an authority requires an officer regularly to carry official passengers, such requirement should be taken into account in determining the cubic capacity category of allowance payable" – point clearly to the intention that the local authority (and not the individual officer, by his unilateral choice of the car which he will use for the performance of his duties) should have the power to determine the engine capacity by reference to which allowances should be payable to the particular officer or class of officers.
15. There is nothing in sub-paragraph 63(b) to displace that intention in relation to casual users. Indeed, the clear intention that the local authority (and not the individual officer) should have the power to determine the engine capacity by reference to which allowances should be paid to casual users is emphasised by Note (ii) to sub-paragraph 63(b). The Note would have no purpose if it were not otherwise open to the local authority to place an officer in a band which was lower than the band which corresponded to the engine capacity of the car actually used.
16. No reason has been suggested to explain why, in principle, there should be a difference of treatment, in this respect, as between casual users and essential users. If, as I have explained, the local authority (and not the individual officer) was to have the power to determine the engine capacity by reference to which allowances should be paid to casual users, there is no reason (unless provided by the use of the words "shall be entitled to receive") why the local authority (and not the individual officer) should not also have the power to determine the engine capacity by reference to which allowances should be paid to essential users. And, as it seems to me, there is no reason why the words "shall be entitled to receive" in sub-paragraph 63(c)(i) should be given any wider meaning than "shall be entitled to receive allowances in accordance with such grading as the local authority may determine".
17. In this context, it is pertinent to have in mind that Note (b) to sub-paragraph 63(c)(i) is in the same terms as Note (ii) to sub-paragraph 63(b). The Notes are a clear indication that those who agreed the Scheme at national level intended that – consistently with sub-paragraph 63(a)(i) – a local authority might determine that an authorised user (whether a casual user or an essential user) should be placed in a band lower than that which corresponded to the engine capacity of the car actually used. As I have said, the Notes would serve no purpose if (but for the Notes) it were not open to the local authority to place an officer in a band which was lower than the band which corresponded to the engine capacity of the car actually used. The effect of paragraph 63 of the Scheme, read as a whole, is that the local authority might determine that an officer be placed in Band 2 notwithstanding that the engine capacity of the car used by that officer fell within Band 3 (or even within Band 4). The only restrictions, under the Scheme, were those which I have mentioned: (i) an officer could not be placed within Band 1 unless the engine capacity of the car which he was actually using for the performance of his official duties was within that band; (ii) an officer who was authorised to use a car of which the engine capacity was in excess of 1750cc could not be placed in a band lower than Band 4.
18. The judge held (at paragraphs 61 and 62 of his judgment) that support for his conclusion was to be found in observations made in the judgment of this Court (delivered by Lord Justice Slade) in Keir and Williams v The County Council of Hereford and Worcester [1985] IRLR 505, [1985] 84 LGR 709. I think that the judge was wrong to take that view. The questions on that appeal were (i) whether, on the true construction of the terms of a national scheme (which, so far as material, do not differ from those in the present case) there were two categories of "essential user - (a) those whose duties were of such a nature that it was essential for them to have their own car at their disposal whenever required and (b) those whose duties were of such a nature that it was essential for them to have a car (but not necessarily their own car) at their disposal – and, if so, (ii) whether, by treating the claimants as employees within the second of those categories, the local authority were entitled to pay car user allowance at rates lower than those prescribed for essential users under the scheme. This Court rejected the contention that the scheme contemplated two categories of essential user. The claimants were essential users – because it was accepted that their duties were of such a nature that it was essential for them to have a car at their disposal whenever required – and so were entitled under contract to be paid at the rates prescribed by the scheme. But the Court did not go on to consider – no doubt because the point was not raised on the facts in that appeal – whether, consistently with the scheme, it was open to the local authority to determine that car user allowance should be paid by reference to a band which, although appropriate to the duties that were to be carried out, was lower than the band which corresponded to the engine capacity of the car actually used.
19. It follows, therefore, that I reject the judge's conclusion that, as a matter of construction of the Scheme, each claimant acquired on designation as an essential car user the contractual right to payment of essential car user allowance at whichever of the four nationally agreed bands applied to the car which he actually used.

(B) Whether it was open to the local authority, from time to time during the course of the employment, to vary the band by reference to which an employee should be paid car user allowance?

20. In my view it is reasonably clear that the Scheme did allow the local authority to decide, from time to time and on proper notice, that the grading which was appropriate to the duties which were to be performed by an officer (or class of officers) should be altered. There are three factors which lead me to that conclusion. First, as is made clear by sub-paragraph 63(a)(i), the grading might be determined by reference to the nature of the user. So it could be expected that if the nature of the user changed there might be a consequential change to the grading. Second, as again is made clear by sub-paragraph 63(a)(i), the grading might be determined by reference to the engine capacity considered appropriate. So it could be expected that, as engine technology developed and the same performance was obtainable from an engine of less cubic capacity, there might be a consequential change to the grading. Third, as is made clear by sub-paragraph 63(a)(iii), the grading was to reflect the local authority's requirement (if any) that an officer carry official passengers. So it could be expected that if (after the right to payment had been acquired) such a requirement were imposed (or withdrawn) the grading might be revised to take account of that change.
21. The judge addressed this point (which he identified as Issue 1(a)) at paragraphs 64 to 71 of his judgment. At paragraphs 68 and 69 he said this:

"68 . . . A local authority which adopted paragraph 63 [of the Scheme] was required to make two relevant determinations. The first determination was whether to authorise the particular officer as an Essential Car User. The second determination was whether to authorise only Bands 1 and 2 or to authorise Bands 3 and/or 4 as well (the need for this second determination being implicit in the notes to paragraph 63(c)(i) and in particular note (b) which required an authority to authorise at least Bands 1 and 2 but not 3 and/or 4 of the rate card.

69 Under paragraph 63(c)(i), as soon as an authority designates an officer as an Essential Car User that officer shall be entitled to receive the lump sum allowances and mileage rates applicable under the authorised bands of Essential Car Users Allowances and it follows that upon designation the officer has a contractual entitlement to receive mileage allowances in accordance with the Bands authorised by the [Council] at the date of his/her designation."

22. It is pertinent to note that, in paragraph 68 of his judgment, the judge seems to recognise that, upon designation, it was open to the local authority to authorise allowances only at the rates payable under bands 1 and 2 – notwithstanding that the engine capacity of the car which the officer was actually proposing to use was greater than that for which band 2 provided. In my view he was correct to do so. But I find it difficult to reconcile the approach in paragraph 68 with that which he had adopted earlier in his judgment (at paragraph 60). It may be that the apparent inconsistency is to be explained on the basis that the judge was addressing issue 1(a) on the basis that he had been wrong in his conclusion on issue 1. Be that as it may, the reasoning in paragraphs 68 and 69 does not – as it seems to me – explain why, if upon designation the local authority was entitled to determine that allowances should be paid at the rates applicable to the band or grading appropriate to the duties which were to be performed by that officer (or class of officers), the scheme did not allow the local authority to decide, from time to time and on proper notice, that the grading appropriate to the performance of the officer's duties should be changed.
23. It may be that, in the events which happened, each claimant did, in fact, acquire a right to payment of essential car user allowance at the rate determined by whichever of the four nationally agreed bands applied to the car which he actually used at the time of designation as an essential user; and that the claimant's right to be paid by reference to that band (or, perhaps, by reference to the band applicable to the car which he was using from time to time following such designation) could not be altered unilaterally by the Council during the course of the employment. But, if so, those rights arose from the way in which the Council chose to implement the Scheme, They did not arise under the terms of the Scheme itself.

The implementation of the national scheme by the Council

24. The Council gave effect to the national scheme, prior to April 1993, by incorporating its terms in the terms and conditions of employment of their employees. Certain officers – including, as I have said, the claimants in these proceedings (all of whom were first employed prior to 1993) – were designated as "essential users". But there is nothing in the facts before the Court to suggest that, in relation to those officers (or to any other employees), the Council did address the third of the three questions posed by paragraph 63 of the Scheme: into what band or grading that officer (or officers of that class) should be placed. It seems that the practice, prior to April 1993, was that an officer who had been designated as an essential user claimed and was paid car user allowance at the rate corresponding to the engine capacity of the car which, from time to time, he was actually using in connection with his duties. No consideration was given by the Council to the question whether the nature of the user required or justified a car of that engine capacity.
25. The practice is illustrated by the terms in the letter of appointment dated 22 November 1989 sent to Mr Roger Smith, one of the claimants in these proceedings. The letter explained that that: "The appointment will be subject to the Scheme of Conditions of Service of the National Joint Council for Local Authorities' Administrative, Professional, Technical and Clerical Services as varied and adopted by the City Council from time to time". It contained the following paragraph:

"The post currently carries essential car user designation. I reserve the right to review this designation at any time in the future and, if I feel it is necessary, make an appropriate change. Will you please complete the attached form giving details of your vehicle and present it along with a copy of your insurance certificate upon commencement."

26. The effect of the practice was that it was possible – and, it seems, acceptable – for two officers of the same employment grade, carrying out the same duties, to be in receipt of car user allowance at different rates: the difference in the rates allowed being attributable only to the fact that the one owned and used a car with an engine which was larger than the engine of the car owned and used by the other. On the basis that the duties could be performed satisfactorily by the use of the car with the smaller engine, the effect was that the Council were paying more by way of car user allowances than they were required to do under the national scheme.
27. Given the manner in which the Council chose to implement and operate the national scheme prior to April 1993, I would hold that, in the events which happened, each claimant did, in fact, acquire a contractual right to payment of car user allowance at the rates corresponding to the engine capacity of the car actually used at the time when he was first employed in a post which carried essential user designation; and, further, that if (prior to April 1993) while remaining in a post which carried essential user designation a claimant changed his car for a new car, the engine capacity of which was within the same band, he acquired a contractual right to payment of car user allowance at the rates corresponding to the engine capacity of the new car. It is not, I think, necessary to decide on this appeal (a) whether a claimant who changed his car for a new car, the engine capacity of which was in a lower band, remained entitled to payment by reference to the engine capacity of the car actually used when he was first designated or (b) whether a claimant who changed his car for a new car, the engine capacity of which was in a higher band, was thereafter entitled to payment at the rates corresponding to that higher band. My provisional view is that the manner in which the Council implemented the Scheme prior to April 1993 led to its employees acquiring a contractual right to payment by reference to the engine capacity of the car actually used from time to time. If that view is correct, the effect of the Council's practice in relation to the implementation of the Scheme was that the rate at which car user allowance was payable to an essential user was determined by the employee's unilateral decision as to the engine size of the car of his choice.
28. But it does not follow that the right to payment – which, when acquired, was a right to payment at the rates applicable to the car in use at the time - was incapable being changed by the Council to a right to payment at rates applicable to a band or grading which the Council might, thereafter, determine as appropriate to the duties performed by the claimant (or to officers of the class of which the claimant was a member): that is to say, it does not follow that a right which, when acquired, was vehicle specific could not be changed by the Council to a right which was duties specific. I have already explained why I take the view that, on the true construction of the national Scheme, it was open to the local authority to decide, from time to time and on proper notice, that the grading which was appropriate to the duties which were to be performed by an officer (or class of officers) should be altered. It seems to me that the same reasoning leads to the conclusion that it was open to a local authority who had made no determination, on appointment and designation of an officer as an essential user, as to the band or grading into which that officer was to be placed for the purposes of the Scheme to make such a determination at some later time during the employment. I should emphasise, however, the need for proper notice.

The withdrawal of Bands 3 and 4

29. By October 1992 consideration was being given within the Council to revision of the practice in relation to car user allowances. On 27 October 1992 the Principal Personnel Officer (Specialist Support) in the Social Services Department wrote to the Principal Personnel Officer, Directorate of Management and Support, in these terms:

"Car Allowances: Employer Consultation

Further to your recent memorandum concerning the above I have now completed consultations with colleagues in Human Resources. The general position of this Department is that the Car Allowance Scheme is too generous. There are a considerable number of jobs in the Department where it is essential that employees are mobile and able to travel to various parts of Birmingham at short notice. It is therefore clearly in the interests of the Department that certain employees have access to a vehicle. This however, needs to be balanced against the requirement to maintain adequate financial controls so that the ability to pay car allowances and mileage does not distort the budget and result in unplanned expenditure. The existing Scheme makes management control extremely difficult (although far from impossible) simply because it is so generous. Accordingly the Department would be in favour of the following amendments to the existing Scheme:- . . ."

There follow a number of suggested amendments to the existing scheme, with the reasons which are urged in support of those amendments. In the present context it is sufficient, I think, to refer only to those which I now set out:

"(b) categories of car size – there have been a number of significant changes in recent years that make the existing four categories no longer as relevant. The power of small cars (fuel injections, turbo-chargers etc.) has increased dramatically in recent years. Comfort and reliability have also improved. It is therefore possible to enjoy the luxury and performance standards today that in the past were only available for cars above two litres. If an employee decides he or she would prefer a large car then there is no reason why the Car Allowance Scheme should subsidise this wish. There are environmental concerns that also point in the direction of smaller cars. In addition the kind of motoring employees who work in Birmingham perform i.e. the absence of motorway or long distance driving and parking problems, also support the move towards smaller cars. Clearly some employees do travel long distances and there may need to be a differential in the mileage rate to reflect this – driving at 70 miles per hour may possibly use more fuel than urban driving.

. . .

(f) there is some debate in this Department over whether the Car Allowance Scheme is merely the reimbursement of expenses necessarily incurred during the performance of an employee's duties or whether the Scheme should be regarded as a form of remuneration. Perhaps because the Scheme is so generous employees have become to regard it as the latter. If it is regarded as reimbursement of expenses then, assuming that the arithmetic proves that the existing Scheme does more than this, it should be fairly easy to amend the Scheme so that it only reimburses employees for their expenditure."

The memorandum continued:

"One of the problems of the current scheme is that employees undoubtedly regard car mileage etc as a form of remuneration. Presumably they would argue that it also serves as a recruitment and retention device for those employees who must travel in order to undertake their duties. In fairness to employees there is no doubt that the Car Allowance Scheme has been used as a recruitment and retention device and now that financial circumstances are constrained, many employers want to amend the Scheme so that it only serves its original purpose.

The Department believes that the Car Allowance Scheme should reimburse employees for expenses they have necessarily incurred, although having said this, it is admitted the Department has not always acted in this way in the past. . . . "

30. On 9 February 1993 the Personnel (Consultations and Negotiations) Sub-Committee of the Council met to consider the question of car user allowance. The Sub-Committee had before it a report from the Director of Management and Personnel which raised the possibility of disregarding the upper two bands or gradings of car allowances to employees who used their cars on Council business. It appears that the trade union representatives present at that meeting asked for the item to be deferred until the next meeting whilst they sought the views of their members.
31. At the next meeting of the Sub-Committee, held on 24 February 1993, trade union representatives put forward objections to the proposed change. Those were noted in the minutes in these terms:

"Mr B Johnson [NALGO] said that the trade unions were asking the City Council not to exercise its discretion to disregard the top two bands of car allowances as proposed in the report presented to the last meeting of the Sub-Committee. It seemed that the City Council had overlooked the fact that it would have to pay significantly more to provide vehicles for staff or to pay for public transport costs, without considering the time which was saved by staff using their own cars on Council business.

The costs of buying and running a car had not changed so there was little rationale to reduce the payments to staff. The trade unions did not accept the proposed link between this proposal and saving jobs and services. Whilst NALGO was committed to defending local government jobs and services [it] could not be at the expense of the pay and conditions of its members. If employers intended to implement this proposal regardless of the fact that there had been no time for consultation, members might have to consider their response to the action.

Mr Osborne [NUPE] reiterated the fact that this issue was the subject of dispute at national level and in his opinion therefore it was not appropriate for any action to be taken on the issue at this stage. The Chairperson pointed out however that the abolition of the two tiers of payment was nothing to do with the national negotiations."

Notwithstanding those objections the Sub-Committee concluded that payment of car allowance at the two upper rates should be discontinued. It resolved:

"That in accordance with the discretion available under the National Agreement, approval be given to the disregarding of the existing top two bands of motor car allowances to officers for use of their cars on official business (i.e. 1200-1450cc and 1451-1750cc) with effect from 1^st April, 1993."

32. On 1 March 1993 the Director of Management and Personnel wrote to the Chief Officers of the Council (in the form of a circular, P/1699) to inform them of that decision:

"Car User Allowances

The above Allowances are set out in paragraph 74(d) of the Staff Handbook. The National Agreement for APT & C employees gives discretion to local authorities to disregard the upper two bands of engine size. The Personnel (Consultations and Negotiations) Sub-Committee has determined that it would be appropriate for the City Council to exercise this discretion with effect from 1 April 1993.

In respect of employees who have entered into agreements under the Car Contract Hire Scheme and where the current mileage rates have formed a part of the contract, then the current rates will apply for the duration of the contract.

The Sub-Committee arrived at its decision on the basis of the following:

money saved on car allowances is money that will not have to be cut from jobs and services

the current mileage allowances are higher than those paid by most other employers

the City Council wishes to encourage its employees to use smaller engined cars as part of its environmental policies

employees will still receive payments of up to 52.1 pence per mile

the action taken by the City Council is fully in accordance with national agreements and in line with that of many other local authorities."

The trade unions were consulted by the Sub-Committee and are aware of the decision taken. Can you please advise relevant employees in your Department (you may wish to display or copy this circular).

. . . "

33. As I have sought to explain, it was open to the Council, under the national Scheme and in the events which had happened, to determine that all employees who were authorised users (whether casual users or essential users) could be expected to perform their official duties by the use of a car of engine capacity within Band 2. If the decision to which the circular dated 1 March 1993 sought to give effect can properly be characterised as a determination of that nature, then – subject to the question of notice – the Council were acting within the terms and conditions of employment. But, as it seems to me, there can be no doubt that the Council were required to make proper transitional arrangements for the protection of existing rights; and no doubt that the circular failed to meet that requirement.
34. I have explained that an employee who purchased a Band 3 car in reliance on the practice in force before April 1993 acquired contractual rights to car user allowance at Band 3 rates – at least for so long as he owned and used that car. Those rights were capable of being varied by the Council, acting unilaterally. But the power to vary was subject to the restriction that it could not be exercised for an improper purpose, capriciously or arbitrarily, or in a way in which no reasonable employer, acting reasonably, would exercise it. If authority for that proposition be needed, it can be found in the judgment of Lord Justice Dyson in Paragon Finance plc v Nash and another [2001] EWCA Civ 1466, [36], [41], [42]; [2002] 1 WLR 685, 701D-E, 702G-703A, with which the other members of the Court agreed. Put shortly, an implied term to that effect is necessary in order to give effect to the reasonable expectations of the parties. An employee who has entered into financial commitments in relation to the purchase of a car on the basis of an existing practice is reasonably entitled to expect that that practice will not be changed without giving him a sufficient opportunity to adjust his commitments without loss.
35. In that context it is, I think, pertinent to note that the Council did recognise the need to make transitional arrangements. That appears from the second paragraph of the circular of 1 March 1993:

"In respect of employees who have entered into agreements under the Car Contract Hire Scheme and where the current mileage rates have formed a part of the contract, then the current rates will apply for the duration of the contract."

But no provision was made for those employees who were not within the Car Contract Hire Scheme. In particular, no provision was made for the employee who, after being appointed to an essential user post, purchased a Band 3 car in, say, December 1992, in reliance on the practice which was then in force: that is to say, in the belief that he could claim and would be paid car user allowance at Band 3 rates. For the Council to act on the basis that his rights were altered with effect from 1 April 1993 was, as it seems to me, inconsistent with the terms and conditions on which he was employed.

36. The judge addressed the question whether, in failing to give any consideration to the claimants' individual circumstances, the Council had acted in breach of their contractual obligations (which he identified as Issue 1(c)) at paragraphs 72 to 78 of his judgment. He accepted the submission advanced on behalf the claimants: "that an employer had a duty to exercise the discretion reasonably and in good faith . . .". That, as it seems to me, is consistent with the guidance given by Lord Justice Dyson in the Paragon Finance case. The judge went on to hold that "by imposing a blanket ban on Band 3 rather than by assessing each individual employee's position on its own facts" the Council had failed to comply with that duty. In reaching that conclusion he found support in the decision of His Honour Judge Maddocks in Barnes v Wigan Metropolitan Borough Council (unreported, 22 December 1997). For reasons which I shall explain, I take the view that Judge Maddocks was correct to decide the Wigan case as he did. But I think that the judge was wrong in failing to appreciate that the facts in the Wigan case differed from the facts in this case in a material respect. Nevertheless, given the Council's failure to make proper transitional arrangements in relation to employees who had assumed commitments on the basis of the pre-April 1993 practice, the judge was correct to hold that, in implementing its decision to withdraw Band 3 rates with effect from April 1993, the Council acted in breach of contract.
37. That conclusion is not determinative of this appeal. First, the claims in the present proceedings are not claims in respect of underpayment of car user allowance in the period commencing 1 April 1993: they are claims in respect of underpayment in the six year period from 3 April 1998 to 2 April 2004 (the date when the proceedings were commenced). Further, the declaration made by the judge was to the effect that failure to pay car user allowance at Band 3 rates since 1 April 1993 constitutes a continuing breach of contract "in respect of which any employee is entitled to damages". In the context of these proceedings it is necessary to decide whether, notwithstanding that implementation of the decision to withdraw Band 3 rates with effect from April 1993 was inconsistent with the claimants' contractual rights as they were at that date, the promulgation of that decision by the circular of 1 March 1993 was of no effect at all; or whether the circular had some (and, if so, what) effect.

The effect of the circular of 1 March 1993

38. The claimants' primary contention is that the Council should not be permitted to assert in these proceedings that the circular was capable of having any effect. It is pointed out, correctly, that the Council did not assert before the judge that the circular had the effect of altering the claimants' rights with effect from some date after 1 April 1993 and, in particular, with effect from some date prior to 3 April 1998. Further, it is said that, in any event, it would be an abuse of process for the Council to advance that contention in these proceedings, having regard to the position taken by the Council in earlier proceedings, to which two of the present claimants were party. I address those contentions in later paragraphs of this judgment. For the present, it is sufficient to say that I am not persuaded that it would be right to dismiss this appeal on the basis that the question whether the circular of 1 March 1993 was capable of having any effect cannot now be raised.
39. It is said on behalf of the claimants (without prejudice to their primary contention) that the circular of 1 March 1993 was of no effect at all. Before addressing that submission, that are two preliminary matters which need consideration: (i) what length of notice – or, more accurately, what transitional period – was required in order to meet the reasonable expectations of the Council's employees and (ii) in what form did the notice of intention to change the existing practice need to be given.
40. I have already explained why I take the view that the power to vary, unilaterally, the terms of the employment contracts as to car user allowance is subject to the implied term that reasonable notice of the variation will be given or proper transitional arrangements will be made. As I have said, an employee who has entered into financial commitments in relation to the purchase of a car on the basis of an existing practice is reasonably entitled to expect that that practice will not be changed without giving him a sufficient opportunity to adjust his commitments without loss. The claimants do not challenge that proposition. In written submissions lodged (at the Court's invitation) after completion of oral argument, it is said that: "The presumed intention of the parties must be that for such employees reasonable notice would be a period sufficient for them to discharge obligations undertaken in reliance on the previous rates." They suggest that a reasonable period in the present case would have been up to five years. As will appear from examination (in later paragraphs of this judgment) of the transitional provisions adopted when the national Scheme was varied by agreement, the rights of existing essential users to payment under the then current Scheme were preserved for a period of some two and a half years. Given that a period of five years from 1 March 1993 would have expired before 3 April 1998 (the commencement of the period to which the claims for payment in the present proceedings relate) it is not, I think, necessary to decide whether a transitional period of less than five years would have been sufficient in the present case.
41. I should, however, add that I reject the submission made on behalf of the Council to the effect that the need "to pay only proper reimbursement and carefully look after public money" will or may justify providing a transitional period which is less than that reasonably required to adjust, without loss, commitments undertaken in reliance on the previous practice. The need to pay only proper reimbursement and carefully look after public money (which is self-evident) may justify the decision to make the change from operating the car user allowance scheme on a vehicle specific basis to operating the scheme on a duties specific basis; but it does not justify making that change in a manner which fails to give proper recognition to the rights acquired by employees at a time when the Council (for whatever reason) had chosen to operate the scheme on the former basis.
42. The claimants submit (a) that the length of the transitional period required ought to be determined by reference to the facts existing at the time when the notice of intention to change the practice is given and (b) that the length of the transitional period required ought to take account of the individual circumstances of each employee. I accept the first of those propositions; but with the qualification that the facts existing at the time when the notice of intention to change the practice is given will include the fact (if it be established) that the employee entered into commitments in the knowledge that, under the terms of the scheme, the practice might be changed unilaterally on reasonable notice. I accept, in principle, the second of those propositions. But it must, I think, be recognised that, where a local authority employer has a large number of employees who are designated as essential users, it may be quite impracticable to provide individual transitional arrangements tailored to the circumstances of each individual employee. In such a case it seems to me acceptable that the transitional arrangements provided are sufficiently generous to meet the circumstances of most employees; with the possibility of adjustment in individual special cases.
43. The claimants further submit that notice of intention to change the existing practice must be given to each affected employee individually. It is said that that requirement follows (a) from the requirement in section 4 of the Employment Rights Act 1996 that an employer must inform an employee of any change to his terms and conditions of employment by giving him a written statement of that change and (b) from the need to take account of the individual circumstances of each employee. I am not persuaded that there is substance in that submission. I have explained why, in a case such as the present, it is not necessary to provide individual transitional arrangements tailored to the circumstances of each individual employee. In the absence of authority to the contrary (to which we have not been taken) it seems to me that the requirement in section 4 of the 1996 Act can be met by a circular which sets out the proposed change and which is brought to the attention of the employee. Given that, in the present case, the effect of the circular would have been immediately apparent to the employee who had, under the existing practice, been receiving payment of car user allowance at Band 3 rates – because, after 1 April 1993, payment was made only at Band 2 rates – it seems to me unreal to suggest that the circular was not brought to his attention. It would, necessarily, have been relied upon by the Council to explain why the payments after 1 April 1993 were less than they had been in the past.
44. It is submitted on behalf of the Council that section 4 of the Employment Rights Act 1996 is not in point. It is said that the provisions of that section apply to the change of terms and conditions; that the issue in this case does not involve a change of terms and conditions; that paragraph 63 of the national Scheme applies; that the change is in a determination under that paragraph; and that that takes place in accordance with, and not as a variation of, paragraph 63. I do not find that submission persuasive. As it seems to me, the submission overlooks the fact that the effect of the practice adopted by the Council before 1 April 1993 was that an employee acquired rights to car user allowance on the basis of the vehicle which he actually used, rather than on the basis of the vehicle appropriate to the duties which he was required to perform. The change notified by the circular of 1 March 1993 was from a vehicle specific scheme to a duties specific scheme. The submission might have force if the existing scheme had been a duties specific scheme: in that it could then be said that re-grading by reference to duties to be performed was no more than an implementation of the existing scheme. But that is not this case. I have explained why I take the view that under the terms and conditions of employment – read with the national Scheme - the Council was entitled to make the change from a vehicle specific scheme to a duties specific scheme; but I do not accept that a change of that nature fell outside section 4 of the 1996 Act. But, as I have said, I am satisfied that, in the present case, the requirements of that section were met.
45. The submission that the circular of 1 March 1993 was of no effect at all is put on three grounds: (i) that the giving of inadequate or inconclusive notice of intention to change the existing practice might well destroy or seriously damage the employment relationship – and so would infringe the requirement (implied by law into every employment contract) that the employer will not, without reasonable and proper cause, conduct itself in such a manner calculated to or likely to destroy or seriously damage the relationship of trust and confidence between employer and employee; (ii) that there are good public policy reasons as to why the purported unilateral variation of a contract by an employer, upon inadequate notice, should be ineffective – in that the power to vary the contract of employment unilaterally could easily be abused; and (iii) that damages for the failure to give proper notice are likely to be an inadequate remedy.
46. In my view there is no substance in those reasons. As to the first, it must be kept in mind that the proposal to vary the existing practice was the subject of discussion with trade union representatives at meetings of the Personnel (Consultations and Negotiations) Sub-Committee of the Council on 9 and 24 February 1993. The Council was frank in its disclosure as to the change that it wished to make and the reasons underlying the need to do so. The trade union representatives were given the opportunity to seek the views of their members. Objections were put forward, which were considered by the Council. It was not suggested that the change was one which the Council was not entitled to make; nor (perhaps surprisingly) was it suggested that the change should not be introduced without adequate transitional provisions.
47. In seeking to alter the existing practice, the Council cannot be said to have been acting in bad faith or without good commercial reasons. It is a striking (but unsurprising) feature of this litigation that no attempt has been made to justify a practice under which employees were reimbursed by reference to the engine size of the cars actually used in circumstances where the employees' duties could be properly performed by the use of cars with smaller engines. I am not persuaded that the Council's conduct – in seeking to implement its decision that a change in practice was necessary, but without adequate transitional provisions – comes within measurable distance of the sort of conduct which the House of Lords had in mind in Malik v Bank of Credit and Commerce International SA [1998] AC 20 when it affirmed the existence of an implied term that the employer would not "without reasonable and proper cause, conduct itself in a manner calculated to or likely to destroy or seriously damage the relationship of trust and confidence between employer and employee" (ibid, 34A, 45F). As Lord Steyn pointed out (ibid, 46D):

". . . the implied obligation as formulated is apt to cover the great diversity of situations in which a balance has to be struck between an employer's interest in managing his business as he sees fit and the employee's interest in not being unfairly and improperly exploited."

The Council may have been mistaken as to the need for transitional provisions in relation to existing essential users: if so, that mistake seems to have been shared by the employees' representatives. There is no suggestion that, in deciding to make and implement the change in practice, the Council intended to exploit its employees: rather the manifest intention was to correct an existing imbalance in relation to a scheme which was seen to be over-generous to essential car users.

48. Nor am I persuaded by the second and third of the reasons advanced. The true analysis, as it seems to me, is found in a reformulation of the Council's submission at paragraph 30 of its written reply to the claimants' additional submissions. If the Council acted in breach of contract in implementing the decision to change from a vehicle specific scheme to a duties specific scheme without adequate transitional provisions to protect existing essential users, then the employees affected are entitled (at most) to damages equivalent to the difference between the payments actually received and the payments which would have been received had adequate transitional provisions been made. If the Council was mistaken as to the need for adequate transitional provisions, the employees affected by that mistake can be adequately compensated in damages. I reject the submission that public policy requires that the Council's decision that a change in practice which (on proper grounds) it thought was necessary in the public interest in 1993 – and to which it has adhered in the seventeen years since that date – should be treated as having no effect at all.
49. It is, I think, pertinent to have in mind, in this context, that it must be probable that most (if not all) of the claimants will have changed their car at least once since 1 April 1993. It is not at all self-evident why public policy requires that, if a claimant acquired a Band 3 car after 1 March 1993 (at a time when he knew of the change of practice) he should, thereafter, be entitled to claim car user allowance at Band 3 rates. In my view a conclusion which has that effect serves no public interest.
50. It follows that I reject the claimants' submission that the circular of 1 March 1993 had no effect at all. The correct view, as it seems to me, was that the circular was effective to convey to existing essential users (and others) that the Council had decided that there should be a change in practice in the operation of the scheme for payment of car user allowance. As I have said, in the circumstances of this case, that was a decision which the Council was entitled to reach, unilaterally and without the agreement of its employees. But the Council was in breach of contract in implementing that decision without adequate transitional provisions to protect the rights which existing essential users had acquired under the practice which had prevailed before that date. It is, I think, accepted on behalf of the claimants – and, if it is not, I would so decide – that adequate transitional provisions would not have extended beyond a period of five years from 1 March 1993. But, in any event, it seems to me impossible to contend that any transitional provisions could have been expected to extend beyond the end of the period during which an existing essential user continued to use the car which he was using on 1 March 1993. An employee who changed his car (at a time when he knew of the change in practice) cannot say, thereafter, that he has not had a sufficient opportunity to adjust his financial commitments (which, ex hypothesi, are commitments in relation to the earlier car).
51. Notwithstanding the conclusion which I have reached as to the effect of the circular of 1 March 1993, it is necessary to complete the history of events since 1 April 1993 before addressing the question what order should be made on this appeal.

Variation of the national scheme

52. The negotiations at national level in relation to motor car user allowance – to which the full time NUPE official (Mr Osborne) had drawn attention at the meeting of the Personnel (Consultations and Negotiations) Sub-Committee on 24 February 1993 – continued throughout the summer of that year against a background of industrial action: UNISON members had been instructed by their trade union to withdraw use of their cars for official duties. Those negotiations culminated in agreement in October 1993. The effect of that agreement – details of which were set out in Circular No 323, dated January 1994 – was to reduce the four bands to three, by discarding Band 4 (1451cc -1750cc). The agreement provided (as noted at paragraph 6.1.1.1 of the circular) that: "The existing arrangements whereby local authorities determine which band to authorise will continue, subject to the lowest band only being used for cars in that band". Transitional, or "Protection", arrangements were put in place which enabled existing essential users to be paid at rates under the previous four band scheme until 31 March 1996.
53. It is unnecessary to describe the variation to the national Scheme in detail because its application by the Council was restricted by a circular (P/1713) sent by the Personnel and Training Division to the Heads of Departments on 15 October 1993. It is sufficient to note that the variation to the national Scheme did recognise the need for transitional provisions: those provisions extended the rights of existing essential users to payment under the then current scheme for a period of some two and a half years. It may well be that that was seen as a conventional period within which a user would be likely to change his car.
54. The circular of 15 October 1993 referred to the national agreement, and continued:

"Authority is given to implement these new figures subject to the top two mileage bands being disregarded in respect of the protected car allowances . . . in accordance with the decision of the Personnel Committee as described in P. Circular 1699 dated 1 March and similarly the top mileage band (1200-1450cc) being disregarded in respect of the new scheme rate . . ."

The position, therefore, was that the Council continued to pay motor car user allowance to essential users only at the rates provided under Bands 1 and 2. The effect of note (b) to paragraph 63(c)(i) of the national scheme was that the Council paid user allowance at the Band 2 rate except in cases where the engine capacity of the employee's car was below 1000cc.

The decision in Barnes v Wigan Metropolitan Borough Council

55. On 22 December 1997 His Honour Judge Maddocks, sitting as a Judge of the High Court in the Chancery Division in the Manchester District Registry, gave judgment in proceedings brought by employees of Wigan Metropolitan Borough Council against their employer in relation to car user allowance under the national Scheme. The issue – as expressed by Judge Maddocks in the second paragraph of his judgment – was whether the council was entitled to limit the bands under the national Scheme to Bands 1 and 2 in order to make savings within its financial budget.
56. Judge Maddocks reached the conclusion that, in the circumstances of that case, the council was not entitled to discard the upper bands by unilateral decision. After referring to the provisions in paragraph 63 of the national Scheme, he said this (transcript, page 10B-C) :

"The conditions must be read in a businesslike way. While the car allowance is not, as such, part of the remuneration of the employees, being designed as a return of expenses, it is a material part of his contract of employment, which he would expect to be applied in such a way that he can act upon it, not least perhaps in choosing his car".

And he went on (ibid, 10D-F):

"My conclusion is that, while the determination is that of the council, it is to be made for the individual employee concerned, by reference to the cubic capacity appropriate to his work and the use required of it. It is not a right which can be exercised arbitrarily or by reference to criteria unrelated to the job. If the council makes a determination by reference to the former criteria, the Court would not interfere, unless perhaps it could be shown that no reasonable employer could have reached that determination. That construction appears to me to accord with the general approach of the Court in construing a business document."

57. It will be apparent from views which I have already expressed that I agree with the observations in those two passages. But it is important to keep in mind that, in the Wigan case, "the decision was governed by a single consideration entirely unrelated to the car use of the employee. It was simply a cost cutting exercise" – (transcript, page 11B-C). As Judge Maddocks observed: "the council did not attempt to deal individually with each contract of employment upon its own merits and by reference to the requirement of the job of the individual employee". Judge Maddocks rejected the submission that the position established at the time when the employee was first designated an essential user was incapable of variation by the unilateral decision of the local authority. He said this (transcript, page 11F-H):

"First, there is the point taken by the plaintiffs that the council can make only one determination, which must be made when the initial authority is given. I do not take that view. I think the determination may be made from time to time. There may well be changes in the work load that could affect the car use so as to reduce or increase the size of car required, or it may simply be reassessed. However on the view I have taken, a determination would still be restricted to considerations related to the job."

58. The facts in the present case differ from those in the Wigan case in a material respect. In the present case the reasons underlying the decision not to pay car user allowances at rates above Band 2 included the Council's wish - set out in the circular (P/1699) of 1 March 1993 - to encourage its employees to use smaller engined cars as part of its environmental policies in circumstances where that wish was informed by the considerations set out under paragraph (b) of the memorandum dated 27 October 1992 from the Principal Personnel Officer (Specialist Support) in the Social Services Department to which I have already referred. It is, I think, clear that, in the present case, the Council satisfied itself that the duties in respect of which employees were designated essential car users could be carried out by using cars of engine capacity in Band 2. Two passages in the memorandum of 27 October 1992 provide support for that view:

"(b) categories of car size – there have been a number of significant changes in recent years that make the existing four categories no longer as relevant. The power of small cars (fuel injections, turbo-chargers etc.) has increased dramatically in recent years. Comfort and reliability have also improved. It is therefore possible to enjoy the luxury and performance standards today that in the past were only available for cars above two litres"

". . . In addition the kind of motoring employees who work in Birmingham perform i.e. the absence of motorway or long distance driving and parking problems, also support the move towards smaller cars."

The Council was entitled to take the view that: "If an employee decides he or she would prefer a large car then there is no reason why the Car Allowance Scheme should subsidise this wish". The important consideration – which, as it seems to me, the Council must be taken to have had in mind – was whether the employee's duties could be carried out by using a car with a smaller engine.

59. What the Council was not entitled to do – and the reason why I would hold that implementation, in April 1993, of the decision not to pay allowances at rates greater than those prescribed by Band 2 was in breach of contract – was to effect the change without transitional arrangements which took account of existing financial commitments into which employees had entered on the basis of the pre-April 1993 practice.

The proceedings in Brown v Birmingham City Council

60. The decision in the Wigan case is of importance not only for its reasoning but also in an historical context. It led to the issue of proceedings against the Council in 1998. The course of those proceedings is described by the judge at paragraphs 49 and 50 of his judgment in the present case:

"49 On 27 August 1998 Mr Dixon [one of the claimants in the present proceedings] submitted a claim for loss covering the period April 1993 to March 1998 and in the absence of any satisfaction wrote again on 16 November 1998 . . . threatening legal action in the absence of settlement.

50 No settlement was forthcoming and proceedings were instituted by a number of employees of Birmingham City Council including Mr Dixon. . . . This litigation came to be known as Brown and others v Birmingham City Council. The Defendants filed a Defence but had been unable to provide a copy of their Defence to this Court. However it appears from a document produced by Mr Dixon on which he comments on Birmingham City Council's Defence . . . that Birmingham City Council denied any breach of contract, asserting that it had the right to remove the top 2 bands by reference to criteria relating to Mr Dixon's employment. In the event however the Brown and others litigation did not come on to trial the claims being settled in full during the course of September and October 1999."

In the present case the judge took the view that, as a result of the way in which the Council had conducted the proceedings in Brown and others v Birmingham City Council it was an abuse of process for the Council to deny, in these proceedings, that they were in breach of contract in refusing to pay car user allowance to the claimants.

61. Some indication of the Council's thinking, following the settlement of the Brown proceedings, can be found in the draft of a report by the Chief Executive, Sir Michael Lyons, to the Chief Officers Group, dated 12 September 2001. At paragraph 2.5 of that report, the Chief Executive noted:

"During the course of this review [of the implementation of a decision to withdraw Essential Car User Allowance from those employees not completing 3000 miles per year], it became apparent that a small number of cases (11 in the High Court and 14 in the County Court) resulting from an earlier change in ECUA in 1993/94 have not yet been resolved. This change involved the deletion of the top two bands of mileage allowance. This variation was made unilaterally by the City Council and a subsequent case (Wigan) on the same matter indicates, without doubt, that the City Council is technically in breach of contract.

I understand that Legal Services have begun to close some of those cases through negotiated settlements and it is my recommendation that all these cases are now dealt with by reaching settlements with the individual applicants. Legal Services will be asked to open negotiations to identify possible settlement packages with a view to closing all the cases subject to appropriate approvals."

The Chief Executive's view, expressed without qualification, that the decision in the Wigan case led to the conclusion that, "without doubt", the Council was in breach of contract does not reflect a true appreciation of the basis on which that case was decided. As I have sought to explain in this judgment, the Council was entitled to decide in 1993, unilaterally, that the practice in the operation of the car user allowance scheme should be changed; provided that that decision was informed by consideration of the engine size of the car needed to enable the employee's duties to be performed. The breach of contract in the Wigan case lay in the fact that the decision was made without any such consideration. The breach of contract in the present case lay in implementing the change without adequate transitional provisions.

The proceedings in Butler v Birmingham City Council

62. Proceedings in Butler and others v Birmingham City Council (Claim No BM 302225) were commenced on 6 February 2003. 56 claimants, in addition to Mr Butler, are listed in the schedule to the particulars of claim; and it appears from the schedule to an order made on 25 April 2003 that Mr Butler's action was consolidated with 21 other actions brought by employees of the Council. The claimants in two of those actions (Mr Beamish and Mr Haywood) are claimants in the present proceedings.
63. After setting out the terms of paragraph 63 of the Scheme and the history (to which I have already referred), the claims in the Butler proceedings (and, I assume, in the other actions) were put in these terms:

"In the circumstances, from 1 April 1993 to date and continuing, the defendant has, in breach of the terms of the Claimants' contracts with the Defendant . . . failed to pay to the Claimants and each of them the sums to which each has been entitled by way of car user allowances, but has instead paid to each Claimant lesser sums calculated by reference to the non-contractual scheme . . ."

64. A defence was served in the Butler proceedings. Four points were taken: (i) that, by continuing in employment and accepting sums in respect of essential car user allowance, the claimant had "accepted the alleged breach"; (ii) that the claim was statute barred by virtue of the Limitation Act 1980; (iii) that the claims of seventeen of the additional claimants were an abuse of process, in that they had previously brought proceedings in the employment tribunal in respect of the removal of essential car user allowance in which they could and should have raised the subject matter of the claims in the Butler proceedings; and (iv) that the claims of two of the additional claimants were an abuse of process in that those claimants had been claimants in earlier proceedings in the Birmingham County Court in which they could and should have "resolved all matters by seeking a declaration in that action as to . . . past and future contractual rights". Save as to those four points the particulars of claim were admitted. Given that admission, it is pertinent to note the matters on which the Council relied in support of the plea that the claims were barred by limitation. Those matters were: "(i) the alleged breach occurred in April 1993 and the cause of action accrued on that date; and (ii) the cause of action arose from one alleged breach of contract and not the consequences thereof". It is impossible to hold – as the judge appears to have held – that the Council admitted in its defence that it had been in continuing breach since April 1993. In so far as there was an admission of breach of contract, it was confined to the breach which occurred when, in April 1993, the Council refused to make payments of essential car user allowance at the rates applicable under Bands 3 and 4: that is to say, when the Council implemented its decision that there should be a change in practice without making transitional arrangements to protect existing rights.
65. By an order made in the Butler proceedings on 25 April 2003 it was directed that there be a determination of preliminary issues corresponding to the points which I have identified as (i), (iii) and (iv) in the preceding paragraph; and it was recorded that, as no claimant sought to recover any sum falling due more than six years before the issue of the claim, the Council took no other issue on limitation. The order directed that there be no evidence on the preliminary issues other than that contained in the statements of case; and stayed all further proceedings.
66. Those preliminary issues came on for trial before Judge McKenna. On 10 October 2003, for the reasons set out in his judgment of that date, he determined each of those issues in favour of the claimants. He went on to order that judgment be entered for the claimants with damages to be assessed. At paragraph 7 of his judgment the judge observed:

"The [Council] accepts that it should have paid the Claimants the contractual car allowance rather than the non-contractual sums which it in fact paid but alleges that the Claimants have waived/accepted the breach by continuing to work and by failing to protest thereby affirming the contract and losing their right to sue."

67. It is, I think, clear that the judge thought that (subject to the defence of waiver) the Council accepted that it ought to have paid car user allowance at Band 3 rates to the claimants in the proceedings which were then before him in respect of the whole – or, (at the least) of part - of the period from 6 February 1997 (the date six years before the commencement of those proceedings). Although there is nothing in the judgment of 10 October 2003 to indicate whether the Council's acceptance that it should have paid essential car user allowance at Band 3 rates went beyond the admission in the defence to which I have already referred, the judge may, perhaps, have thought that he was entitled to take that view by the Council's concession that, as no claimant sought to recover any sum falling due more than six years before the issue of the claim, it would take no other issue on limitation. But, on a true analysis, the concession does not lead to the conclusion that the Council accepted that (subject to the defence of waiver) the damages which flowed from the implementation of the change in April 1993 included damages equivalent to the difference between the payments actually received for the whole (or, indeed, any) of the period between 6 February 1997 and 6 February 2003 and the payments which would have been received during that period if the Council had continued to make payments at the Band 3 rate. As I have said, that question turns on whether, had adequate transitional provisions been made in April 1993, the claimants would have received payments at the Band 3 rate after (and, if so, for what period after) 6 February 1997. The issue is one of causation: it is not an issue of limitation. It could be expected to arise for determination on the assessment of damages which the judge had ordered.
68. In particular, as it seems to me, there is nothing in the judgment of 10 October 2003, or in the order which the judge made on that date, which would have precluded the Council from taking the point, on an assessment of damages in relation to any individual claimant, that that claimant had suffered no damage referable to the period after 6 February 1997 because he had changed his car (with knowledge of the change in practice) between 1 April 1993 and that date. As I have said, it seems to me impossible to contend that any transitional provisions could have been expected to extend beyond the end of the period during which an existing essential user continued to use the car which he was using on 1 March 1993.

The judge's finding of abuse of process in the present proceedings

69. As I have said the parties had agreed a list of issues for determination by the judge in the present proceedings. Issue 1(b) was in these terms:

"1(b) Is the [Council] estopped from denying, or is it an abuse of process for the [Council] to deny, the non payment of car user allowance in accordance with the Bands was a breach of contract on its part: (a) in respect of those Claimants who were parties to [the Butler proceedings] (b) in respect of those Claimants who were parties to [the Brown proceedings] (c) in respect of other Claimants."

The judge addressed that issue at paragraphs 89 to 97 of his judgment. He concluded that, had it been necessary for him to do so (which, in the light of the other findings which he had made earlier in his judgment, it was not), he would have determined the issue in favour of the claimants. He took the view that "on the evidence before me . . . the [Council's] conduct is clearly abusive".

70. In reaching that conclusion the judge observed (at paragraph 89 of his judgment) that it was common ground that the Council "accepted in identical cases that it was in breach of contract in respect of the non-payment of Car User Allowance in accordance with the Bands". It is clear from the context that the "identical cases" which he had in mind were those which had been before him in the Butler proceedings. He accepted that the Council was not estopped from advancing a case that it was not in breach of contract by res judicata; or (as he put it) by issue estoppel in its narrow sense. He reminded himself of the observations of Sir James Wigram, Vice-Chancellor, in Henderson v Henderson (1843) 3 Hare 100 and of the recent restatement of principle in the speech of Lord Bingham of Cornhill in Johnson v Gore Wood & Co [2002] 2 AC 1, 30H –31J. He noted that Lord Bingham had referred to the need for:

" . . . a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focussing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the Court by seeking to raise before it the issue which could have been raised before."

He pointed out that it was submitted on behalf of the claimants "adopting a broad, merits-based approach . . . that it would be an abuse of process in this case for the [Council] to deny a breach of contract where it conceded breach of contract in one set of earlier proceedings and chose not to bring the issue forward for determination in another set of proceedings, particularly in circumstances where there is no explanation for the change of stance". And, after referring to the submissions advanced on behalf of the Council, he observed (at paragraph 96 of his judgment):

"The fundamental difficulty which the [Council] has on this issue is that the [Council] has chosen, for whatever reason, not to put forward any explanation for its inconsistent conduct in respect of this issue. The only witness called to give evidence for the [Council] was conspicuously unable to throw any light on why the [Council] had behaved in the way that it did in the two earlier sets of proceedings. This is a local authority employer who has a duty to treat its employees fairly and consistently and which has conspicuously failed to do so. It has blown hot and cold and now seeks the Court's indulgence to argue points which could and should have been argued in either of the two earlier sets of proceedings without putting forward any good reason. Indeed, in one set of earlier proceedings, designed to bring finality (Butler and 57 others v BCC) a series of preliminary points was identified and tried with a view to efficiency and economy in the conduct of litigation. Breach of contract could and should (on the [Council's] current stance) have been tried as such an issue but it was conceded by the [Council] and the issues were tried against the background of that concession."

The order to be made on this appeal

71. If it were not for the judge's finding as to abuse of process, I would have no hesitation in allowing this appeal. As I have said, it seems to me that, on a true analysis of the contractual position, the Council was entitled to decide in April 1993, unilaterally, to change the existing practice in the operation of the car use allowance scheme; but was not entitled to give effect to that decision by implementing the change without transitional provisions which would protect the existing rights of those employees who had been designated as essential users before 1 March 1993 and who were then using a Band 3 car for the performance of their duties. Refusal to pay car user allowance at Band 3 rates to such employees from 1 April 1993 – without giving them a proper opportunity to adjust their commitments - was in breach of contract. But a finding that the Council was in breach of contract in April 1993 does not, of itself, entitle the claimants to damages in the present proceedings; nor to the declaration made by the judge. The relevant question in these proceedings is whether the Council's failure to pay car user allowance at Band 3 rates after 3 April 1998 to an employee who had been designated an essential user before 1 March 1993 and who was, on 1 April 1993, using a Band 3 car in the performance of his duties gives rise to a claim for damages. That question must be answered in circumstances in which it must be probable that most (if not all) such employees will have changed their car at least once between 1 April 1993 and 3 April 1998. For the reasons which I have given earlier in this judgment, I have no doubt that the answer to that question is "No". Whatever the period which ought to have been provided under transitional provisions having effect from 1 April 1993, that period would have come to an end before 3 April 1998.
72. It is necessary to examine the argument based on abuse of process with that analysis in mind. It is important to have in mind, also, that the claims in Brown were in respect of the period from April 1993 to March 1998. For reasons which I have already explained, it seems to me likely that (at the least) claims in respect of the earlier part of that period would have been successful. I find it impossible to accept that the Council's decision to compromise the claims in the Brown proceedings, while maintaining the position that it had the right to discard the two upper bands by reference to criteria relating to the duties which the employee was required to perform, can provide a basis for a finding of abuse of process in the present proceedings.
73. The claims in the Butler proceedings were in respect of the period from 6 February 1997. I have explained why I am not persuaded that the Council conceded, in those proceedings, that it was in continuing breach of duty during that period. I accept that the manner in which the Council conducted those proceedings leads to the conclusion that it would be an abuse of process for the Council to assert in these proceedings that, whatever the period which ought to have been provided under transitional provisions having effect from 1 April 1993, that period would have come to an end before 6 February 1997. Indeed, I express no view as to whether that assertion could be made good. But I do not accept that it is an abuse for the Council to assert, generally, in these proceedings that the transitional period would have come to an end before 3 April 1998 – a proposition which, as I have said, the claimants accept in their further written submissions; and I do not accept that it is an abuse for the Council to assert, in relation to an individual claimant who changed his car between 1 April 1993 and 3 April 1998, that the transitional period would have come to an end when the claimant ceased to use the car which he had been using on 1 April 1993.
74. For those reasons I would hold that the judge was wrong to find that the Council's defence of these proceedings was an abuse of process. There is no reason not to make the order which (absent the judge's finding of abuse of process) the underlying facts plainly require.

Conclusion

75. I would allow this appeal and set aside the order of 23 August 2006.

Lord Justice Laws:

76. I agree.

Mr Justice Evans-Lombe:

77. I also agree.