Eastbourne Borough Council v Foster

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE RIX,LORD JUSTICE MAY,LORD JUSTICE ALDOUS
Judgment Date11 July 2001
Neutral Citation[2001] EWCA Civ 1091
Date11 July 2001
Docket NumberCase No: A2/2001/0236

[2001] EWCA Civ 1091

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM QUEEN'S BENCH DIVISION

(Mr Colin Mackay QC, sittingas

a Deputy High Court Judge)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Aldous

Lord Justice May and

Lord Justice Rix

Case No: A2/2001/0236

Eastbourne Borough Council
Claimant/Respondent
and
James Foster
Defendant/Appellant

Michael Curtis (instructed by Messrs Mayo & Perkins, Eastbourne, East Sussex for the Appellant)

Daniel Stilitz (instructed by Legal and Property Services, Eastbourne Borough Council for the Respondent)-

LORD JUSTICE RIX
1

This appeal raises interesting and difficult questions arising out of the failure of an ultra vires and therefore void compromise. What happens to the old contract which was thus ineffectively compromised? Does it spring back to life, and if so with what consequences? What if any regard should be paid to the acts of the parties carried out in the mistaken belief that they had made a valid compromise? Can those acts be relied on as bringing the old contract to an end, and if so, should any such termination be viewed as consensual or non-consensual? Or do those acts vary the old contract, without putting it to an end? Or do they create a new contract, and if so what are its terms? Or is it impermissible to have regard to such acts at all, because they merely reflect a void agreement, or because to do so would merely be giving effect to what public policy requires should be treated as ultra vires and void?

2

If it is not possible to think in terms of contract at all amid the ruins of an ultra vires agreement, do all consequences have to be found in the law of restitution alone?

3

What if the context is that of employment? Is it possible to think of the relationship of employment as surviving the end of a contract of employment? Is it possible to think of employment, of someone having the status of an employee, without thereby necessarily invoking the concept of a contract of employment?

4

These intriguing questions arise out of a set of facts which, if rendered unusual by the incidence of an ultra vires agreement, nevertheless otherwise appear to have a perfectly familiar air to them. The appellant, Mr James Foster, a civil engineer, had been employed by the respondents, Eastbourne Borough Council ("Eastbourne") as its director of environmental services. The terms of his contract of employment were to be found in a letter dated 16 March 1993, which set out the offer of his appointment (the "1993 contract"). He took up that post on 1 July 1993. On 29 July 1998 Eastbourne's policy and resources committee voted to accept the main recommendations of a report which proposed the abolition of Mr Foster's department and the distribution of its component services among four new directorates. Mr Foster was entitled to throw his hat in the ring for any of the four new directorships, and was in any event guaranteed some post within the new structure, even if of lesser responsibility or perceived status than his old position. Alternatively, he could opt for redundancy and early retirement. He chose the latter.

5

One difficulty, however, was his age, then just short of his 49 th birthday. Under the Local Government (Discretionary Payments) Regulations 1996 (the "1996 Regulations"), he would have been entitled, but only when he had turned 50, to be considered for enhanced benefit pension payments following such early retirement. In effect, he could be treated as having earned the status of up to an additional 10 years in service in local government, where he had begun work in 1974. He was anxious to secure that possibility. He entered into negotiations with Eastbourne, and the result of those negotiations was the so-called "Compromise Agreement" dated 25 August 1998. Among the effects of that agreement was that Mr Foster would remain employed by Eastbourne, albeit on a part time basis, until 31 August 1999, which carried him nine days beyond his 50 th birthday on 22 August 1999. Contemporaneously with the compromise agreement and pursuant to one of its terms, on 25 August 1998 Eastbourne gave written notice to Mr Foster confirming that "your employment with the Council will end by reason of redundancy on the mutually agreed date of 31 August 1999".

6

It is common ground that the compromise agreement was ultra vires, that is to say beyond Eastbourne's statutory powers. The judgment below records the parties' agreement that it was common ground between them inter alia that –

"the purpose of seeking to extend Mr Foster's employment for an additional year was to extend his employment beyond his fiftieth birthday, thereby bringing him within the eligibility requirements for certain premature retirement benefits which would not be available to him if his employment terminated when he was forty nine.

"It is also common ground that it lay beyond the council's powers to enter into the compromise agreement, which was accordingly ultra vires and void ab initio.

"Mr Foster continued to provide some services to the council until 10 th February 1999, when the council purported to enter into an agreement with him that he should be placed on 'garden leave'. Thereafter, Mr Foster performed no services for the council. He continued to receive full salary and benefits until 31 st August 1999."

7

Because it was common ground that the compromise agreement was ultra vires, it was unnecessary for any finding as to the reason for its being so. Nevertheless, in his judgment below, Mr Colin Mackay QC, sitting as a deputy high court judge, referred to the proposition that section 112 of the Local Government Act 1972, which allows local government to employ officers "on such reasonable terms and conditions, including conditions as to remuneration as the authority appointing him think fit", did not permit such terms to be irrationally generous or unreasonably in excess of a fair or market rate for the job. He did not cite authority for that proposition, but he could well have referred to Roberts v. Hopwood [1925] AC 578. The judge also pointed out that in Allsop v. North Tyneside Metropolitan Borough Council [1992] ICR 639, it was held that terms attaching to voluntary redundancy are entirely governed by (what are now the 1996) Regulations, and are not in local government's power under sections 111/112 of the 1972 Act. He referred to the fact (which was common ground) that the purpose of seeking to extend Mr Foster's employment beyond his 50 th birthday was to make him eligible for the premature retirement benefits under the 1996 Regulations. He cited a passage from Neill LJ's judgment in Credit Suisse v. Allerdale Borough Council [1997] QB 306 at 333C/334H for the proposition that entering into an agreement for an improper purpose was the equivalent of effecting a transaction beyond Eastbourne's powers to act.

8

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. In the latter connection, Mr Daniel Stilitz, who has appeared on behalf of Eastbourne, has in this court also relied on Hinckley and Bosworth Borough Council v. Shaw [2000] LGR 9 in particular at 39H/40G, where Bell J found that a pay increase granted for the purpose of enhancing an employee's redundancy or retirement benefits is unlawful, ultra vires and void, adding –

"The fact that the pay increase can be justified and seen as reasonable in itself does not save it if its real purpose is to enhance redundancy or retirement benefits."

9

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.

The 1993 contract

10

The letter of 16 March 1993, which contains the terms of the 1993 contract, was based upon Mr Foster's appointment as "Director of Environment". Thus the letter began: "I am pleased to confirm the offer of the appointment as Director of Environment" and the letter continued by setting out the "Conditions of Employment". For present purposes it is sufficient to note that the salary no doubt reflected the seniority of the position offered, and that the term dealing with "Normal Hours of Work", by providing that these were 37 hours per 5 day week, but that on occasions more hours may be required and that evening and weekend work may also be required, indicated that the position was a full time one.

The compromise agreement

11

This agreement was written as a variation to Mr Foster's 1993 contract. Thus 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...

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