QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
B e f o r e :
|THE QUEEN ON THE APPLICATION OF JAMES FOSTER||(CLAIMANT)|
|(1) EASTBOURNE BOROUGH COUNCIL|
|(2) PETER ARKELL (DISTRICT AUDITOR)||(DEFENDANTS)|
Smith Bernal Wordwave Limited
190 Fleet Street London EC4A 2AG
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(Official Shorthand Writers to the Court)
MR DANIEL STILITZ (instructed by Bunkers Solicitors, Hove, East Sussex) appeared on behalf of the FIRST DEFENDANT
MR JAMES MAURICI (HEARING) AND MS CARINE PATRY (JUDGMENT) (instructed by Mayer, Brown, Rowe and Maw, London, EC4V 6RW) appeared on behalf of the SECOND DEFENDANT
Crown Copyright ©
"4. - (1) These Regulations apply in relation to, or as the case may be, in consequence of the death of, a person -
"(a) whose employment is terminated -
"(i) by reason of redundancy;
"(ii) in the interests of the efficient exercise of the authority's functions; or.
"(b) who, on his final day of employment, is eligible to be a Scheme member (whether or not he is such a member) or would be so eligible but for a relevant disqualification.
"and in the following provisions of these Regulations "person" shall be construed accordingly, unless the context indicates that it has a different meaning."
It is clear that Mr Foster was eligible. By Regulation 7(1):
"A person is an eligible person for this Part if he satisfies the requirements in paragraph (2).
"(2) The requirements are that, on the termination date -
"(d) he is at least 50, but under 65 ..."
By Regulation 8(1):
"An employing authority may award a credited period to an eligible person.
"(2) A credited period must not exceed whichever is the shortest of -
"(a) the difference between his total membership and 40 years ...
"(d) 10 years.
"(3) An award may not be made later than six months after the termination date."
"The Council's policy is to make proposals for consideration by Committee for the maximum allowable 'credited period' to be given to employees in respect of both lump sum and annual compensation, subject to the maximum credited period in cases of redundancy being reduced to 6 and two-thirds years, so as to avoid off-setting against the redundancy payment."
The Decision of the Cabinet Committee and Report from the Chief Executive
"Taking account of all of the matters set out in the report, the Cabinet:
"RESOLVED: (1) Not to exercise its discretion to reduce the redundancy payment under the 1965 Regulations on the grounds that there has been too long a delay.
"(2) To exercise the discretion under Regulation 5 of the Discretionary Regulations to allow Mr Foster's redundancy payment to be calculated by reference to actual weekly pay, on the basis that such payments are reasonable to compensate Mr Foster for his loss of office, in particular with regard to the Council's stated policy to award the maximum redundancy payment in all cases. The Council has followed that practice consistently since 1992 and Cabinet does not consider that any of the factors set out in the report operate so as to prevent them from applying that policy to the particular circumstances of Mr Foster's case.
"(3) Not to exercise its discretion to award added years under Regulation 8 of the Discretionary Regulations on the basis that to do so would be irrationally generous taking account of all the matters set out in the Chief Executive's report."
"Following the disappearance of his previous position of Director of Environmental Services on 28 September 1998, 'with minimal and insignificant exceptions' Mr Foster did no work for the Council other than that relating to the Coast Protection Scheme and he worked for only three days a week."
It then records that it was agreed that he should not attend for work after 10 February 1999.
"Although the judgment is not categorical on this point, it would appear that it was accepted that the Compromise Agreement was ultra vires the Council's powers and accordingly unlawful both because its terms were irrationally generous to Mr Foster and because it was entered into for the improper purpose of extending Mr Foster's employment artificially past his fiftieth birthday, so as to bring him within the eligibility criteria for enhanced early retirement benefits."
This paragraph contains what is submitted on behalf of Mr Foster to be a fundamental error. He says that there had been no finding that the terms of the compromise agreement were irrationally generous.
"Compensation must relate to what an individual loses as a result of the loss of office and it is a pecuniary recompense for that loss. It is necessary to assess loss, ascertain any payments by way of compensation payable under other provisions and consider whether to pay up to the amount of loss remaining, not exceeding the maximum compensation permitted by the relevant legislation."
"Counsel has advised that the Council should have regard to at the least the following issues:
"6.3.1 The council has adopted a policy as required under the Discretionary Regulations of awarding a six and two-thirds years 'credited period' in cases where the retiring employee is dismissed by reason of redundancy.
"6.3.2 Mr Foster's likely future employment prospects, and in particular his capacity to earn comparable pension benefits in any likely future employment.
"6.3.3 Mr Foster's medical condition. [This records that his claim for personal injuries as a result of the conditions which he underwent during his employment took into account some element in respect of future loss]
"6.3.4 The fact that Mr Foster has already received generous benefits in relation to the termination of his employment. In particular, Mr Foster continued to receive full salary and benefits over a period of months when he was required to work only part time, and subsequently was not required to work at all. Furthermore, the Council paid for him to attend courses during his final year of employment which were not of any benefit to the Council. As noted above, this consideration applies equally to the exercise of the Council's discretion to award an enhanced redundancy payment pursuant to regulation 5 of the Discretionary Regulations, and to that extent the two discretions cannot be seen in isolation.
"6.3.5 The fact that, were the Council to award Mr Foster now benefits as generous as those which it purported to confer upon him under the unlawful Compromise Agreement, Mr Foster would be placed in a position as advantageous as he would have been in had the Compromise Agreement been performed. Such a result would almost certainly be impossible to reconcile with the High Court's view that that agreement was irrationally generous. Again, this consideration obviously applies equally to the exercise of the Council's discretion to award an enhanced redundancy payment pursuant to regulation 5 of the Discretionary Regulations, and to that extent the two discretions cannot be seen in isolation.
"6.4 In accordance with paragraph 6.3.5, the advice to Cabinet is that awarding Mr Foster 10 added years would place him in the same position as under the unlawful compromise agreement and hence almost certainly be considered to be irrationally generous. The Council's current policy allows 6 2/3rds to be awarded. Awarding 6 2/3rds places Mr Foster in a position which would give him a higher retirement grant than contemplated under the unlawful compromise agreement and an additional added years pension of about £4100. Legal advice to Cabinet is that this could also be regarded as irrationally generous. There is no logical reason for awarding any other 'added years' sum."
The latter sentence shows that the council regarded the issue of added years, in consequence of the legal advice, as a matter of all or nothing.
"The amount of salary and benefits received amounted to approximately £54,000, being the sum the Council sought to recover in the High Court proceedings. The Court decided that the Council was not able to recover this amount on the basis that Mr Foster was entitled to rely on the defence of change of position. The District Auditor has determined in so far as the financial year 1998/1999 is concerned that a significant part of the sums paid to Mr Foster between 28 September 1998 and 31 March 1999 represents unlawful expenditure by the Council. Although the issue for 1 April to 31 August 1999 has not been formally considered by the District Auditor, it is likely that a similar finding would be made in regard to sums paid to Mr Foster during that period of time. The District Auditor indicated in recent correspondence that Mr Foster received unlawful salary payments of approximately £7,500 for the period 29 September 1998 to 9 February 1999 and of approximately £28,000 for the period 10 February 1999 to 31 August 1999. He further received the benefit of unlawful payments of approximately £1,960 by the Council in respect of course fees and expenses and of unlawful expenditure of approximately £1,280 by the Council in providing him with a leased car when he was not carrying out any duties on behalf of the Council."
" ... I am not minded to challenge any decision by the Council not to exercise its discretion, under the 1965 Regulations, to reduce the amount of the statutory redundancy payment which the Council will otherwise pay to Mr Foster.
"9.1.3 I am advised that the Council should approach the exercise of its discretion under regulation 5 of the Discretionary Regulations in accordance with the public law principles set out in paragraph 1.2 of the draft report.
"9.1.4 The legal advice to me, in agreement with that received by the Council, is that it would be unlawful for the Council to award any added years under regulation 8 of the Discretionary Regulations. I am further advised that any decision taken contrary to that legal advice would require consideration of the personal liability of members. Members have been advised that to award any added years would be 'irrationally generous'. If members nevertheless decide, in the face of that legal advice, to award added years, it may be that such generosity should be at their expense not at the expense of the local taxpayers: cf per Lord Atkinson in Roberts v Hopwood  AC 578, 595/6."
"9.2 Mr Foster has commented through his legal advisers that he does not accept that the Court made a finding that the 'compromise agreement was unlawful because it was irrationally generous. He accepts that it was unlawful for the improper purpose of extending his employment to above the age of 50. In addition, he believes he has been 'substantially financially disadvantaged as a result of the loss of his office and from the medical evidence available' and that 'that disadvantage will remain in place until his normal retirement age and indeed thereafter'."
The District Auditor confirms that he has received legal advice.
Would a credit of the maximum added years or any added years have been irrationally generous?
"The judge therefore seems to have thought, without finding, that the reasons which lay behind the parties' acceptance that the compromise agreement was ultra vires were both that it provided Mr Foster with irrationally generous payments and also that it was entered into for an improper purpose."
At paragraph 9 Rix LJ continued:
"I am prepared to assume, for the sake of argument, that the two reasons discussed by the judge are grounds on which the compromise agreement could validly be held to be ultra vires, as indeed Mr Stilitz submits is the case. It seems to me, however, to be unnecessary to decide these matters."
" ... clause 1, which provided that Eastbourne would by letter of the same date give notice terminating Mr Foster's 'contract of employment' stated that, notwithstanding the three months' notice term contained in that contract, the notice would expire on 31 August 1999, there described as the 'Termination Date'. Thus clause 1 also ended by stating that Mr Foster would 'continue to receive his salary and benefits in the usual way up to the Termination Date'. Clause 2 stated that the reason for the termination was redundancy. Clause 3 dealt with compensation for loss of office, which was to be paid on termination, but in the events related below was never paid. Clause 5 stated that Eastbourne would arrange and pay for the addition of 'ten compensatory added years' for the purposes of the scheme under the 1996 Regulations. Clause 6 said that Mr Foster would not be required to attend Eastbourne's offices from 1 June to 31 August 1999, ie for the last three months of his employment. Clause 7 gave Mr Foster permission to study on a part-time basis both at the University of Brighton (for a degree) and elsewhere (for a diploma in counselling), and provided that Eastbourne would pay the reasonable fees for such studying. Clause 8 dealt with provisions for the continued use by Mr Foster of the car leased by Eastbourne on his behalf. Clause 9 dealt with carrying forward annual leave. Clause 10 said that Mr Foster would be accountable to Eastbourne's chief executive and would-
"'In due course, spend the majority of his time with direct control of the coast protection scheme, and such other reasonable special projects as time reasonably allows (taking into account time required for the study referred to above).'"
"The most obvious feature of this proposal is that it carried Mr Foster past the critical date of his 50th birthday while keeping him on full pay. This would entitle him under the then relevant regulations, to which I will refer below, to claim significantly enhanced benefits."
He then refers to the maximum added years and the maximum redundancy, and then continues by stating:
"There were other surprising features of this list of proposals."
It is plain, therefore, that the judge, following the views of the trade union representative, regarded all of these features as "surprising". At pages 10 to 12 of his judgment, the judge noted the principles which applied, relating to the compromise agreement. At paragraph 11 he said:
"There is authority for the proposition that these terms may not be irrationally generous or unreasonably in excess of a fair or market rate for the job."
"In the present case, argues Mr Stilitz, the improper purpose is to bestow on Mr Foster, a 48 year old, benefits to part of which he at least was plainly not entitled and all of which were 'irrationally generous' as I found at 11D of my Judgment, and which the Court of Appeal appear to have accepted (paragraph 7)."
It appears that Mackay J thought he had found that the award within the package as a whole was irrationally generous. In fact, it is clear that he had made no such finding at 11D of his first judgment. But it does not seem to me to matter. It is clear that Mackay J thought, whether he expressly said so or not, that the benefits as a whole were irrationally generous, otherwise he would never have expressed himself as he did in the second judgment.
"The purpose in the negotiations I have dealt with above of seeking to extend Mr Foster's employment to 31 August 1999 was clear. It was to extend the life of his employment beyond his fiftieth birthday, the 'material date' for the purposes of Regulation 5 of the 1996 Regulations, so as to make him eligible for certain benefits which he would not otherwise have received."
The compromise agreement allowed Mr Foster full pay and status, though he was only working a three day week, in relation to but one aspect of his former responsibilities. It allowed him to leave whenever he wished to pursue his training at the Council's expense, and let him continue on such pay for three months without any work whatsoever and, during the same period, lease a motor car. The compromise agreement justifies the comments of Mackay J and the conclusion, which, it is clear to me, Mackay J reached about the compromise agreement as a whole.
Would an award of added years, viewed on its own, have been unlawful or irrational?
"It may be relevant at this stage to make a finding as to what would have happened as a matter of probability, if for any reason the negotiations had broken down or failed and no 'retirement package' as envisaged had in fact been agreed. Obviously in these circumstances Mr Foster would have missed the boat so far as becoming a new director was concerned. He himself said in evidence that he thought the council would have 'strained' to find him a protected post. Mr Woodman and Mr Ray gave evidence to a similar effect, and I believe that this is probably what would have happened. Mr Foster would have carried on in such a post until such time as he was able to make his exit from the Council on terms acceptable to him."
Thus it is said that Mr Foster would have either gone on working until retirement age and earned the maximum pension allowable or left in circumstances where he was entitled to added years because he would have reached the age of fifty. In any event, by reason of his dismissal following the reorganisation, he has lost the chance of some added years for which, following reorganisation, he is entitled to be compensated.
" ... I accept Mr Curtis' criticism of Mr Stilitz's argument here as erecting an artificial barrier between the eventual termination and the earlier events which set them off. In my judgment the real reason why Mr Foster left the employment of Eastbourne Borough Council on 31 August 1999 was that he was redundant and or the efficient exercise of the business of the Council required them to be rid of him. The protracted nature of his exit was caused by an unlawful attempt to prolong his life as an employee for reasons which have already been canvassed. But in my judgment he was as redundant in August as he had been in the previous September and that was the real reason for his departure."
At paragraphs 44 and 45 the judge took the view that there had been a dismissal and no consensual termination of Mr Foster's contract in August 1999.
" ... would not wish to take a post in the new structure which would be at a lower level than in his current role. He would see this as a very negative move in what has always been a very positive career."
" ... since such termination had been premised on the validity of the compromise agreement, restitution required more than a mere re-accounting of salary and other payments against services rendered. After all, if the compromise agreement had never been made, Mr Foster would have been able to stay with Eastbourne in some other post. The judge found that this is what would probably have happened. He found that Mr Foster would probably have carried on in such a post 'until such time as he was able to make his exit ... on terms acceptable to him'. Mr Foster therefore might possibly have been able to argue that restitution following the realisation that the compromise agreement was without effect involved a complete reassessment of the parties' situation on both sides, in an attempt to do justice to both."
At paragraph 23 Rix LJ heralded the fundamental ground upon which he reached his conclusion, in saying:
"No reliance can be placed on any promise or representation that merely reflects an alternative legal foundation for binding Eastbourne to an undertaking that it had no power to give, nevertheless the conduct of the parties still exists in the real world and cannot be ignored for all purposes."
At paragraph 35 there is contained what seems to me to be the core of Rix LJ's judgment:
"It seems to me that when, in the aftermath of the disappearance of Mr Foster's old post, Eastbourne nevertheless continued to offer Mr Foster employment and Mr Foster continued to work for Eastbourne albeit on an entirely different basis from before, the best analysis of that new situation is that Mr Foster had accepted Eastbourne's repudiation and brought to an end his old contract of employment but that the relationship of employment nevertheless continued in the new circumstances. In my judgment, Mr Foster's employment by Eastbourne continued, but on a new basis ... In the meantime it seems to me that not to accept that the relationship and status of employment continued is to acknowledge less than the reality of the situation demands, while at the same time to accept the reality of that relationship is to do no more than the invalidity of the compromise agreement allows. In other words, I believe that this solution does justice both to the facts that occurred, and to the doctrine of ultra vires and thus to the need to ignore, and not by other means give effect to, the false formal basis upon which the parties mistakenly believed themselves to be acting."
At paragraph 41 he stated that the relationship between the parties was a de facto relationship of employment. At paragraph 43 he said:
" ... [where] the relationship between the parties is best described as a relationship of employment the law must necessarily impose a contractual solution."
At paragraph 49 he said:
"Finally, there is the request for a declaration that Eastbourne is obliged to reconsider Mr Foster's entitlement to an enhanced redundancy payment and enhanced retirement benefits under the 1996 Regulations (see para 23 above). In this connection Mr Curtis accepts that such benefits arise under the Regulations rather than under contract and are not a matter of right, but he submits that Eastbourne is at least obliged to reconsider the matter."