QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Public and Commercial Services Union and others
|- and -
|The Minister for the Civil Service
Miss Ingrid SIMLER QC & Mr Clive SHELDON QC (instructed by The Treasury Solicitor) for the Defendant
Hearing dates: 20th-22nd July 2011
Crown Copyright ©
The Honourable Mr. Justice McCombe :
"Article 1. Protection of property. Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
Further, it is argued that the new arrangements unlawfully breached the legitimate expectations of civil servants under domestic law. In addition, it is said that the steps taken constitute a breach of Article 11 of the ECHR ("Freedom of Assembly and Association") by the annulment of arrangements made under a collective bargaining agreement with trade unions. Finally, it is said the new arrangements are ultra vires the statutory powers in the 2010 Act because they make non-consensual changes to benefits which are not "compensation benefits" within the meaning of that expression as defined by the Act.
(B) The Old Scheme and the New Scheme Compared
(i) The Old Scheme terms provided power for government employers to make payments on:
a. Early termination of contract of permanent staff (sections 2, 2A, 3, 3A, 4 and 7)
b. Early termination of contract of fixed-term workers (section 8)
c. Compensation in lieu of notice (section 9)
d. Personal injury (section 10)
e. Dismissal for inefficiency - poor performance or poor attendance (section 11)
(ii) Under rule 1.4 of the scheme, benefits under all these sections were expressly described as discretionary save for compensation in lieu of notice and payments made under rule 1.14. Rule 1.14 provided an underpin for compensation benefits so that redundancy payments could not be less than the statutory scheme would require. These payments were not covered by the discretion of rule 1.4.
(iii) Sections 2 and 2A set out benefits payable under the Compulsory and Redundancy category. Section 2A applied to members of the premium category and, while the shape of the benefits were slightly different from those provided for in section 2, the intention was that they should be of essentially the same value as follows: people aged under 50 (or aged between 50 and pension age (60) and with less than 5 years' service) could be eligible for a Compulsory Early Severance (CES) lump sum payment. The CES terms applied on redundancy and could be used by employers for certain categories of voluntary exit. CES compensation payments were calculated as:
- One month's pay per year of service; plus
- One month's pay per year of service given after the later of (a) age 30 and (b) attaining 5 years' service; plus
- One month's pay per year of service given after the age of 35.
(iv) CES payments could not generally exceed three years' pay other than where an individual was covered by "reserved rights". In these cases the terms were set out in section 7. Where staff left on CES terms, their pension benefits were treated as if they had resigned – that is, provided the individual had at least 2 years' service, preserved in the scheme for payment at pension age (typically 60). People aged between 50 and 60 (with a minimum of 5 years' service) could be eligible for Compulsory Early Retirement (CER) terms. These comprised:
- Immediate payment of pension (and pension lump sum) without actuarial reduction for early payment; plus
- Pensionable service enhanced by up to 6 2/3 years (subject to the resulting pension not exceeding that which would have been earned if the person had carried on working until pension age); plus
- A lump sum compensation payment of up to 6 months' pay.
(v) Sections 3 and 3A set out the benefits that could be payable under the Flexible category. Section 3A applied to members of the premium category and were of essentially the same value as those provided for in section 3: People aged under 50 (or aged between 50 and pension age (60) and with less than 5 years' service) could be eligible for a Flexible Early Severance (FES) lump sum payment. The FES scheme was to be used in circumstances where the individual was not under any compulsion to leave. FES compensation payments are calculated as:
- Two weeks' pay per year of service; plus
- One week's pay per year of service given after the first 5; plus
- One week's pay per year of service given after the first 10; plus.
- Two weeks' pay per year of service given after age 40.
FES benefits could not exceed 2 years' pay.
(vi) People aged between 50 and 60 (and with a minimum of 5 years' service) could be eligible for Flexible Early Retirement (FER) terms. These were calculated in the same way as CER terms but without the lump sum compensation payment.
(vii) A further option open to employers, in respect of employees aged over 50, was Approved Early Retirement (AER). As with the Flexible terms, this could only be used where the individual was under no compulsion to leave. This provided immediate payment of pension (plus associated pension commencement lump sum) without the normal reduction for early payment.
(viii) While sections 2A and 3A applied to premium members, there were no equivalent provisions for nuvos members prior to the introduction of the February 2010 scheme, which was quashed. The practice under the Old Scheme rules was that, where departments wished to provide CSCS-equivalent benefits to people who were pensioned under nuvos, they applied to the Cabinet Office. Cabinet Office then calculated the benefits and, having secured Treasury agreement to these benefits being paid ex-gratia, advised the employer department accordingly. The New Scheme, which took effect from 22 December 2010 applies to nuvos members in the same way as to others.
1. A standard "tariff" of 1 month's salary per year of service;
2. The ability to vary that tariff between the statutory minimum and twice the standard tariff for voluntary departures with no crystallised risk of redundancies;
3. By way of instructions issued by the Minister, a commitment that staff would always have at least one opportunity to apply for a voluntary scheme offering the standard tariff and all other optional items before being made compulsorily redundant, but after being told that they are at risk of compulsory redundancy;
4. A cap of 12 months for compulsory redundancies and 21 months for voluntary departures;
5. The ability to treat all staff below a certain salary level (initially £23,000 but set as 90% of the Private Sector Median Earnings) as being at that salary level for purposes of the calculation;
6. Setting a cap (currently £149,820 and linked to 6 times the Private Sector Median Earnings) on the amount of salary that will count for compensation purposes;
7. The ability for staff who have reached their minimum pension age to draw an unreduced pension based on their service to date in return for surrendering some or all of their compensation payment. In voluntary redundancy (and where the employer so agrees, voluntary exit) cases, where the whole payment does not meet the cost the employer will pay the difference;
8. Payments above the 'caps' for the 'reserved rights' category of civil servants (see paragraph 4(v) Summary Grounds of Resistance) on voluntary and compulsory redundancy (but not voluntary exit)."
(C) Legal Background
"Provided always, and be it further enacted, that nothing in this Act contained shall extend or be construed to extend to give any person an absolute right to compensation for past services, or to any superannuation or retiring allowance under this Act, or to deprive the Commissioners of His Majesty's Treasury, and the heads or principal officers of the respective departments, of their power and authority to dismiss any person from the public service without compensation."
This provision remained in force until consolidation, in the Act of 1965, in the form of section 79 of that Act which provided as follows:
"Nothing in this Act shall extend or be construed to extend to give any person an absolute right to any allowance or gratuity under Part I or Part II of this Act or to deprive the Treasury or the head or principal officer of any department of their or his power and authority to dismiss any person from the public service without compensation."
"No scheme under the said section 1 shall make any provision which would have the effect of reducing the amount of any pension, allowance or gratuity, in so far as that amount is calculated by reference to service rendered before the coming into operation of the scheme, or of reducing the length of any service so rendered, unless the persons consulted in accordance with section 1(3) of this Act have agreed to the inclusion of that provision."
As Sales J held, section 2(3) applied to payments that remained technically discretionary. Upon that provision the proposals made in February 2010 by the last administration to revise the scheme foundered because consent of all the unions was not forthcoming. Of the six relevant trade unions, five had agreed to the changes, but one, the First Claimant in the present proceedings, had refused its consent. The Minister had argued before Sales J that the reference in section 2(3) to "rights which have accrued" applied only to benefits to which there was a full legal entitlement. That argument was rejected by the learned judge: see paragraphs 50 to 56 of the judgment.
"… although at the time the 1972 Act came into force the relevant scheme (i.e. that contained in the 1965 Act) did not contain any legal entitlements on the part of civil servants to receive the pension and lump sum payments which it was expected would be paid, it did set out a regime by reference to which any civil servant could invite the Minister to exercise his discretion to make such payments in his favour. In relation to a decision in that regard, the civil servant might have public law claims against the Minister if he did not exercise his discretion in a fair and proper manner. Those claims would be likely to be improved if the Minister continued, despite amendment of the scheme, to be subject to an administrative practice or policy of making payments calculated by reference to length of reckonable service in accordance with the scheme prior to its amendment. In particular, it might well be difficult in public law terms for the Minister to fail to recognise existing administrative entitlements as set out in the scheme in individual cases. "
"Subsection (3) above does not apply to a provision which would have the effect of reducing the amount of a compensation benefit except in so far as the compensation benefit is one provided in respect of a loss of office or employment which is the consequence of-
(a) a notice of dismissal given before the coming onto operation of the scheme which would have that effect,
(b) an agreement made before the coming into operation of that scheme."
"Compensation benefits" were then defined by a new subsection (3B) as follows:
"In this section-
"compensation benefit" means so much of any pension, allowance or gratuity as is provided under the civil service compensation scheme by way of compensation to or in respect of a person by reason only of the person's having suffered loss of office or employment."
"(1) The civil service compensation scheme is to have effect subject to the following limitations.
(2) The aggregate amount of compensation benefits provided to or in respect of a person under the scheme is not to exceed-
(a) in the case of a compulsory severance, an amount equal to that person's pensionable earnings for 12 months;
(b) in the case of a voluntary severance, an amount equal to that person's pensionable earnings for 15 months."
(D ) A1P1
"The concept of "possessions" in the first part of Art.1 of Protocol No. 1 has an autonomous meaning which is not limited to the ownership of material goods and is independent from the formal classification in domestic law. In the same way as material goods, certain other rights and interests constituting assets can also be regarded as "property rights", and thus as "possessions" for the purposes of this provision. In each case the issue that needs to be examined is whether the circumstances of the case, considered as a whole, conferred on the applicant title to a substantive interest protected by Art. 1 of Protocol No. 1 "
"While that right was created in a kind of inchoate form, as its materialisation was to be effected by an administrative decision allocating state property…s.81 clearly constituted a legal basis for the State's obligation to implement it".
"An applicant can allege a violation of Art. 1 of Protocol No. 1 only in so far as the impugned decisions related to his "possessions" within the meaning of this provision. "Possessions" can be either "existing possessions" or assets, including claims, in respect of which the applicant can argue that he or she has at least a "legitimate expectation" of obtaining effective enjoyment of a property right. By way of contrast, the hope of recognition of a property right which it has been impossible to exercise effectively cannot be considered a "possession" within the meaning of Art. 1 of Protocol No. 1, nor can a conditional claim which lapses as a result of the non-fulfilment of the condition."
"The notion of "legitimate expectation" within the context of Art. 1 of Protocol No. 1 was first developed by the Court in the case of Pine Valley Developments Ltd v Ireland. In that case the Court found that a "legitimate expectation" arose when outline planning permission had been granted, in reliance on which the applicant companies had purchased land with a view to its development. The planning permission, which could not be revoked by the planning authority, was "a component part of the applicant companies' property.
In a more recent case, the applicant had leased land from a local authority for a period of 22 years on payment of an annual ground rent with an option to renew the lease for a further period at the expiry of the term and, in accordance with the terms of the lease, had erected at his own expense a number of buildings for light industrial use which he had sub-let for rent. The Court found that the applicant had to be regarded as having at least a "legitimate expectation" of exercising the option to renew and this had to be regarded for the purposes of Art. 1 of Protocol No. 1, as "attached to the property rights granted to him…under the lease".
"It is of course open to member states to provide for rights more generous than those guaranteed by the Convention, but such provision should not be the product of interpretation of the Convention by national courts, since the meaning of the Convention should be uniform throughout the states party to it. The duty of national courts is to keep pace with the Strasbourg jurisprudence as it evolves over time: no more, but certainly no less". (Emphasis added)
Reference was also made to the statement of Maurice Kay LJ to the same effect in IR (Sri Lanka) v SSHD  EWCA Civ 704. In contrast, Mr Giffen cited the extra-judicial remark of Lord Phillips of Worth Matravers in the foreword to the current edition of Lester & Pannick's Human Rights Law:
"where our legislation creates novel areas in which human rights implications have to be considered…, of necessity we have to lead."
"In a line of cases the Court has found that the applicants did not have a "legitimate expectation" where it could not be said that they had a currently enforceable claim that was sufficiently established… There was a difference, so the Court held, between a mere hope of restitution, however understandable that hope may be, and a "legitimate expectation, which must be of a nature more concrete than a mere hope and be based on a legal provision or a legal act such as a judicial decision.
Similarly, no legitimate expectation can be said to arise where there is a dispute as to the correct interpretation and application of domestic law and the applicant's submissions are subsequently rejected by the national courts…
In the light of the foregoing it can be concluded that the Court's case law does not contemplate the existence of a "genuine dispute" or an "arguable claim" as a criterion for determining whether there is a "legitimate expectation" protected by Art. 1 of Protocol No. 1. The Court is therefore unable to follow the reasoning of the Chamber's majority on this point. On the contrary, the Court takes the view that where the proprietary interest is in the nature of a claim it may be regarded as an "asset" only where it has a sufficient basis in national law, for example where there is settled case law of the domestic courts confirming it."
"Another aspect of the notion of "legitimate expectation" was illustrated in Pressos Compania Naviera SA v Belgium. The case concerned claims for damages arising out of accidents to shipping allegedly caused by the negligence of Belgian pilots. Under the domestic rules of tort such claims came into existence as soon as the damage occurred. The Court classified the claims as "assets" attracting the protection of Art. 1 of Protocol No. 1. It then went on to note that, on the basis of a series of decisions of the Court of Cassation, the applicants could argue that they had a "legitimate expectation" that their claims deriving from the accidents in question would be determined in accordance with the general law of tort.
The Court did not expressly state that the "legitimate expectation" was a component of, or attached to, a property right as had done in Pine Valley developments Ltd and was to do in Stretch. It was however implicit that no such expectation could come into play in the absence of an "asset" falling within the ambit of Art. 1 of Protocol No. 1, in this instance the claim in tort. The "legitimate expectation" identified in Pressos Compania Naviera SA was not in itself constituitive of a proprietary interest; related to the way in which the claim qualifying as an "asset" would be treated under domestic law and in particular to reliance on the fact that the established case law of the national courts would continue to be applied in respect of damage which had already occurred." (Emphasis added)
"Furthermore, the notion of "public interest" is necessarily extensive. In particular, the decision to enact laws expropriating property or affording publicly funded compensation for expropriated property will commonly involve consideration of political, economic and social issues. The Court has declared that, finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, it will respect the legislature's judgment as to what is "in the pubic interest" unless that judgment is manifestly without reasonable foundation…"
"Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is in the "general" or "public" interest. Under the system of protection established by the Convention, it is thus for the national authorities to make the initial assessment as to the existence of a problem of public concern warranting measures to be applied in the sphere of the exercise of the right of property. Here, as in other fields to which the safeguards of the Convention extend, the national authorities accordingly enjoy a margin of appreciation.
The notion of "public" or "general" interest is necessarily extensive. …
Finding it natural that the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, the Court has on many occasions declared that it will respect the legislature's judgment as to what is in the "public" or "general" interest unless judgment is manifestly without reasonable foundation. These principles apply equally, if not a fortiori, to the measures adopted in the course of the fundamental reform of the country's political, legal and economic system in the transition from a totalitarian regime to a democratic state."
"Has the defendant persuaded the court not only that he was pursuing a legitimate aim, but also that the interference with accrued rights was the least intrusive method consistent with achieving the object of affordability. A way of doing that is to show that the defendant went about it by looking at accrued rights and spending parameters and asking, "What can we do by way of interfering as little as possible consistent with affordability?" ".
"It is, so the applicants argued, only if there was no other less drastic remedy for the perceived injustice that the extreme remedy of expropriation could satisfy the requirements of Article 1.
This amounts to reading a test of strict necessity into the Article, an interpretation which the Court does not find warranted. The availability of alternative solutions does not in itself render the leasehold reform legislation unjustified; it constitutes one factor, along with others, relevant for determining whether the means chosen could be regarded as reasonable and suited to achieving the legitimate aim being pursued, having regard to the need to strike a 'fair balance'. Provided the legislature remained within these bounds, it is not for the Court to say whether the legislation represented the best solution for dealing with the problem or whether the legislative discretion should have been exercised in another way."
In considering this and other cases, Maurice Kay LJ in R (Clays Lane Housing Co-Operative Ltd.) v Housing Corporation  EWCA Civ 1658 said this (at paragraph 25):
"I conclude that the appropriate test of proportionality requires a balancing exercise and a decision which is justified on the basis of a compelling case in the public interest and as being reasonably necessary but not obligatorily the least intrusive of Convention rights. That accords with Strasbourg and domestic authority. It is also consistent with sensible and practical decision making in the public interest in this context. If "strict necessity" were to compel the "least intrusive" alternative, decisions which were distinctly second best or worse when tested against the performance of a regulator's statutory functions would become mandatory. A decision which was fraught with adverse consequences would have to prevail because it was, perhaps quite marginally, the least intrusive."
"Against this background, the Court finds that, as an individual, the applicant was made to bear an excessive and disproportionate burden which, even having regard to the wide margin of appreciation to be enjoyed by the State in the area of social legislation, cannot be justified by the legitimate community interests relied on by the authorities. It would have been otherwise had the applicant been obliged to endure a reasonable and commensurate reduction rather than the total deprivation of his entitlements."
" 'If the authority can be seen to have thought carefully about the relative costs of one course of action against another, and made a sensible assessment of what those costs are, and the budgetary implications of meeting them, then the court will understandably be reluctant to interfere.' "
I agree with Miss Simler and Mr Sheldon's response that this is precisely what was done. In my judgment, reduction is benefits was "reasonable and commensurate" and the interference with A1P1 rights did not go beyond what was "reasonably necessary" to achieve the legitimate aim recognised on both sides of this case.
(F) The 2010 Act and A1P1
(G) "Compensation Benefits"
(H) Legitimate Expectation at Common Law
"In some cases a change of tack by a public authority, though unfair from the applicant's stance, may involve questions of general policy affecting the public at large or a significant section of it (including interests not represented before the court); here the judges may well be in no position to adjudicate save at most on a bare Wednesbury basis, without themselves donning the garb of policy-maker, which they cannot wear. …
…The more the decision challenged lies in what may inelegantly be called the macro-political field, the less intrusive will be the court's supervision. More than this: in that field, true abuse of power is less likely to be found, since within it changes of policy, fuelled by broad conceptions of the public interest, may more readily be accepted as taking precedence over the interests of groups which enjoyed expectations generated by an earlier policy."
"It follows that, unless an authority provides evidence to explain why it has acted in breach of a representation or promise made to an applicant, it is unlikely to be able to establish any overriding public interest to defeat the applicant's legitimate expectation. Without evidence, the court is unlikely to be willing to draw an inference in favour of the authority. This is no mere technical point. The breach of a representation or promise on which an applicant has relied often, though not necessarily, to his detriment is a serious matter. Fairness, as well as the principle of good administration, demands that it needs to be justified. Often, it is only the authority that knows why it has gone back on its promise. At the very least, the authority will always be better placed than the applicant to give the reasons for its change of position. If it wishes to justify its act by reference to some overriding public interest, it must provide the material on which it relies. In particular, it must give details of the public interest so that the court can decide how to strike the balance of fairness between the interest of the applicant and the overriding interest relied on by the authority. As Schiemann LJ put it in R (Bibi) v Newham London Borough Council  EWCA Civ 607,  1 WLR 237, at para 59, where an authority decides not to give effect to a legitimate expectation, it must "articulate its reasons so that their propriety may be tested by the court." "
Further, after citing (at paragraph 45) a further passage from Schiemann LJ's judgment in Bibi, his lordship said,
"Put in public law terms, the promise and the fact that the proposed act will amount to a breach of it are relevant factors which must be taken into account".
( I ) Article 11 of the Convention
"1. Everyone has the right to freedom of peaceful assembly and to freedom of association with others, including the right to form and to join trade unions for the protection of his interests.
2. No restrictions shall be placed on the exercise of these rights other than such as are prescribed by law and are necessary in a democratic society in the interests of national security or public safety, for the prevention of disorder or crime, for the protection of health or morals or for the protection of the rights and freedoms of others. This Article shall not prevent the imposition of lawful restrictions on the exercise of these rights by members of the armed forces, of the police or the administration of the State."
Note 1 Section 81 of the 1985 Polish Act was in the following terms:
“ 1. Persons who, in connection with the war that began in 1939 abandoned real property in territories which at present do not belong to the Polish State and who, by virtue of international treaties concluded by the State, are to obtain equivalent compensation for the property they abandoned abroad, shall have the value of the real property that has been abandoned offset either against the fee for the right of perpetual use of land or against the price of a building plot and any houses, buildings or premises situated thereon.
4. In the event of the death of an owner of real property abandoned abroad, the entitlement referred to in subsection 1 shall be conferred jointly on all his heirs in law or on the one [heir] designated by the entitled persons.
5. The offspring of the value of real property abandoned abroad, as defined in subsection 1, shall be effected upon an application from a person entitled to it.”
[Back] Note 2 The second case referred to in this passage was Stretch v United Kingdom (2004) 38 EHRR 12 where the grant of the option to renew was in excess of the local authorities powers . [Back]
Note 1 Section 81 of the 1985 Polish Act was in the following terms: “ 1. Persons who, in connection with the war that began in 1939 abandoned real property in territories which at present do not belong to the Polish State and who, by virtue of international treaties concluded by the State, are to obtain equivalent compensation for the property they abandoned abroad, shall have the value of the real property that has been abandoned offset either against the fee for the right of perpetual use of land or against the price of a building plot and any houses, buildings or premises situated thereon. … 4. In the event of the death of an owner of real property abandoned abroad, the entitlement referred to in subsection 1 shall be conferred jointly on all his heirs in law or on the one [heir] designated by the entitled persons. 5. The offspring of the value of real property abandoned abroad, as defined in subsection 1, shall be effected upon an application from a person entitled to it.” [Back]
Note 2 The second case referred to in this passage was Stretch v United Kingdom (2004) 38 EHRR 12 where the grant of the option to renew was in excess of the local authorities powers . [Back]