Gibb v Maidstone and Tunbridge Wells NHS Trust

A public body may agree compensation for loss of office only within its statutory powers and subject to Wednesbury reasonableness. A payment becomes ultra vires where the decision is irrationally generous, takes account of past service or speculative future unemployment, gives insufficient weight to value for money and public perception, or lacks proper financial analysis. Potential liabilities may include contractual notice pay and a realistic unfair-dismissal award, but speculative re-engagement and unsupported additional sums should be excluded. A void agreement does not itself create an entitlement to an equitable payment. A breach of trust and confidence arising from assurances made during the dismissal process remains within the Johnson exclusion area where the alleged loss is in substance loss arising from dismissal.

Rose Gibb, formerly Chief Executive of Maidstone and Tunbridge Wells NHS Trust, entered into a Compromise Agreement on 5 October 2007 following the Trust’s decision to terminate her employment before publication of a highly critical Healthcare Commission report. The agreement provided for approximately £250,000, including about £175,000 described as compensation for loss of office. The Trust paid the contractual notice element but withheld the compensation payment, contending that the agreement was ultra vires and void.

The claimant alternatively sought equitable compensation or damages for unjust enrichment and alleged breach of the implied duty of mutual trust and confidence. The issues were whether the compensation payment was within the Trust’s statutory powers, whether any restitutionary or equitable remedy was available, and whether assurances about approval of the payment gave rise to an actionable breach.

1. Ultra vires compensation. The Trust’s powers were statutory. Under National Health Service Act 2006, section 26 and Schedule 4, paragraph 26, it could enter contracts and make compensation payments in respect of loss of office or employment. Those powers had to be exercised reasonably and in the public interest.
2. The Trust was entitled to proceed on the basis that it would incur the contractual six-month notice payment and the maximum unfair-dismissal award. The urgency of termination had effectively prevented a fair dismissal process before publication of the Healthcare Commission report. Reinstatement was unrealistic and re-engagement was not a realistic prospect. Its practicability under section 116 of the Employment Rights Act 1996 involved more than mere possibility.
3. The additional approximately £100,000 could not be justified by the evidence. There was no contemporaneous financial analysis of legal costs, management time, reputational damage or the benefits of a clean break. The later business case had little weight because it was prepared ex post facto. The Trust also took into account the claimant’s earlier good service, her NHS career and the speculative possibility of eighteen months’ unemployment. Those matters represented payment for past service or a period beyond the liabilities properly being assessed, rather than compensation for loss of office.
4. The Trust paid only lip service to the need to avoid rewarding failure and to the exceptional nature of severance payments above contractual or statutory entitlements. The Compromise Agreement was therefore irrationally generous, ultra vires and void. The claimant’s contractual claim failed.
5. The unjust-enrichment claim also failed. The principles identified in Banque Financiere de la Cite v Parc (Battersea) Limited [1999] 1AC 221 required enrichment, at the claimant’s expense, unjust retention and no policy reason denying relief. The Trust had not been enriched at the claimant’s expense. She and her advisers knew before the employment tribunal limitation period expired that the Trust disputed the agreement’s validity and could have issued protective proceedings.
6. The assurances that necessary approvals had been or would be obtained were reckless and breached the implied term of mutual trust and confidence. However, under Johnson v Unisys [2001] ICR 480 (HL) and Eastwood and another v Magnox Electric Plc [2004] 3 WLR 322 (HL), the matters formed part of the steps leading to dismissal. They caused no separate financial loss, and the claim fell within the Johnson exclusion area. The claim was dismissed.