Gibb v Maidstone & Tunbridge Wells NHS Trust

A public body may avoid a contractual severance obligation as irrationally generous only where no reasonable decision-maker could have agreed it. The body bears a particularly heavy burden when it invokes its own public law error to escape a commercial commitment made in good faith.

The reviewing court must assess legality, rather than substitute its own financial judgment. Potential litigation costs, management disruption, reputational harm, past service and an employee’s future difficulties may rationally inform a severance payment. Treasury guidance is relevant context but is not itself law.

Alternatively, benefits conferred under a void agreement may support restitution. A valuable claim foregone can constitute an enrichment, and a claimant’s failure to protect their position does not necessarily prevent that enrichment from being at their expense.

The appellant, formerly the respondent NHS trust’s chief executive, entered into a compromise agreement providing approximately £250,000 on the immediate termination of her employment. The agreement included payment in lieu of notice, compensation, confidentiality obligations and the abandonment of contractual and statutory claims. Following intervention by the Department of Health, the trust paid only the amount attributable to notice.

Treacy J dismissed the appellant’s claim to enforce the balance in [2009] EWHC QB 862. He held that the compensation was irrationally generous and therefore beyond the trust’s powers. He also rejected alternative claims in unjust enrichment and for breach of the contractual duty of trust and confidence.

The appeal concerned whether the compromise agreement was ultra vires, whether the trust had been unjustly enriched if the agreement was void, and whether the contractual claim fell within the exclusion relating to dismissal claims.

1. Appeal allowed. The trust had not shown that the compensation package was irrationally generous. The compromise agreement was therefore enforceable. Laws LJ gave the leading judgment. Sedley and Rimer LJJ agreed on this dispositive issue.

2. A public body’s contractual decision is constrained by Wednesbury rationality. Where the body seeks to avoid its own commercial commitment by asserting its own irrationality, however, it bears a very heavy burden. The agreement was made in good faith following professional advice and secured a clean break, confidentiality, the surrender of claims and the avoidance of litigation, management distraction and reputational damage. Those considerations rationally supported the amount agreed.

3. The judge had approached the case too closely as a financial auditor. The question was whether the trust’s decision fell outside the range open to a reasonable decision-maker, not what financial prudence would have required in the court’s own assessment. A court should not dissect and remake a public body’s calculation merely because some costs were imprecise or difficult to quantify.

4. Past service and the employee’s likely difficulty in obtaining other work were not legally irrelevant. A reasonable public employer settling a controversial termination may allow a degree of generosity for good relations, mutual respect and its own reputation. Guidance from the Treasury did not alter the common-law rationality standard because the guidance was not a source of law.

5. In the alternative, Laws LJ and Rimer LJ held that the unjust enrichment claim would succeed if the agreement were void. A valuable claim foregone can constitute a benefit just as money or services can. The judge had wrongly concentrated on whether the appellant could have avoided her loss, rather than on the benefit retained by the trust. The unfair-dismissal claim surrendered by the appellant was valued at £69,590, while the non-monetary benefits required modest valuation.

6. Laws LJ considered that the contractual exclusion associated with dismissal claims would not defeat a claim based on reckless assurances given before termination which induced entry into the compromise agreement. This point was unnecessary to the decision. Sedley LJ expressed no view, and Rimer LJ preferred to express no view, on the contract issue.

1. Court of Appeal (Civil Division): The appeal was allowed. The court held that the compromise agreement was not irrationally generous and was enforceable. A majority also accepted the alternative unjust enrichment claim.
2. High Court, Queen’s Bench Division: Treacy J dismissed the enforcement, unjust enrichment and contractual claims in [2009] EWHC QB 862.