EASTBOURNE COUNCIL v JAMES FOSTER

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IN THE HIGH COURT

 

 

Eastbourne Borough Council v Foster

 

QUEEN'S BENCH DIVISION

 

20 December 2000

 


COLIN MACKAY QC (sitting as a deputy judge of the high court)

 

What happens when a local authority enters into an agreement in the form of a contract of employment in excess of its powers? The answer to this question lies at the heart of this case which has given rise to difficult questions of law in circumstances I will describe below.

 

 

The factual background

 

James Foster the Defendant, was born on 22 August 1949. That date is significant for reasons which will appear later. After University he worked for a while as a teacher, before changing direction and becoming a Civil engineer. He worked for 71/2 years with South Oxfordshire District Council, qualifying as a Chartered Engineer during that period. In 1982 he became a senior engineer with Eden District Council, and some five years later he joined Dover District Council as chief engineer and recreation officer.

 

He continued his progress through the ranks of his profession, and in June 1993 was offered and accepted the post of Director of Environmental Services with Eastbourne Borough Council ("The Council"). The letter setting out his terms and condition of employment dated 16 March 1993 confirmed a starting date of 1 July 1993 and dealt with his other terms and conditions. Of relevance to this case are these. His hours of work were 37 hours per week on a five day week, with the obligation to do more work on those occasions when the work of the Council required it. He was entitled to receive and obliged to give three months notice of termination. He was also entitled to be provided with a car leased by the Council for his use, of the type appropriate for a Chief Officer within the Council scheme.

 

In October 1995 the Council appointed a new chief executive Ms Sari Conway. Within a short time relations between Mr Foster and Ms Conway became strained and difficult. It is no part of my job to decide whose fault that was, and I bear in mind that I have not heard evidence from Ms Conway in this case. It is enough to note that in February 1997 Mr Foster went off work suffering from depression, which he attributes to his working conditions, and he was away continuously until October of that year. When he came back to work the relationship between the two was no better. Disciplinary and capability proceedings were started by Ms Conway against him on 5 June 1998. In his turn Mr Foster instituted a grievance procedure against Ms Conway, saying that the disciplinary procedure she had adopted against him did not accord with laid down procedures. His complaint was upheld. So far as I can see neither of her complaints was driven to any conclusion.

 

Against this unhappy background, but not because of it, in July 1997 the Council had commissioned a report from external consultants who were asked to carry out a review of the Council's management structure. They reported in February 1998. Of relevance to this case was one of their suggestions, which they called Option 2, that the existing five directorates be reduced in number to four. The effect of this if implemented would have been to abolish Mr Foster's directorate of environmental services and to distribute its various component services among the four proposed new directorates, or groups as they were to be known. After a period of consultation the chief executive Ms Conway reported to the Policy and Resources Committee of the Council on 13 July 1998, in broad terms recommending acceptance of Option 2. She also recommended that all current permanent employees should remain assured of a post within the new structure. She pointed out at para 10 of her report that there were currently more members of the corporate management team than there were posts for directors under the new structure; some of these might therefore suffer a loss of responsibility and perceived status if unsuccessful in being appointed to one of the four new director posts. The Committee was therefore asked to agree that any officer in this position should be able to indicate a preference either for redundancy and premature retirement. The relevant Committee of the Council having considered this report resolved to accept it in all its material respects on 30 July 1998.

 

While all this was being considered within the Council, and no doubt while it was the subject of much speculation and discussion, Mr Foster and Ms Conway met informally in a cafe in Eastbourne on 30 June 1998. He raised the question of whether, in general terms, she would be prepared to consider him for early retirement. She said that at that stage that she did not think that he would be eligible. This was the first of a series of discussions and negotiations relating to Mr Foster's future.

 

On 14 July there was a meeting between Ms Conway, Mr Woodman who was the Chief Personnel Officer of the Council, Mr Gales who was Borough Treasurer and whose personal position was also threatened by the proposals, Mr Foster and Mr Davies the District Officer of the Union to which both Mr Foster and Mr Gales belonged. The note of this meeting shows that among other things early retirement of officers affected was discussed. If that happened, the Chief Personnel Officer said, the package would be the "maximum permitted by law and regulations" but that it would ultimately need members approval. He would not want to tie the hands of the committee and could not give a complete assurance. In the course of this discussion Mr Foster, who was then still 48, asked the highly relevant question "What about me, 50 in August 1999?" He was showing his awareness of the significance of this date in relation to his entitlement to an enhanced benefits package as will be seen later. The question was left unanswered at that discussion but was flagged up and obviously firmly on the agenda. It was further discussed at a meeting between Mr Foster and Mr Woodman seven days later on 21 July.

 

Two days after that, on 23 July Mr Foster and others were formally invited by the Chief Executive to apply for the new director posts.

 

By 28 July it seems clear, and I make a finding to this effect, that Mr Foster's preference for early retirement had hardened into a definite policy decision on his part. On that date his friend and colleague Mr Gales the Borough Treasurer sent a detailed note to the Chief Executive spelling out the financial implications of an early retirement package for Mr Foster, and on the same date Mr Foster himself set out a list of proposals which had arrived after a discussion of his position with Mr Gales and with his union officer Mr Davies. I should set out this important document in full.

 

"I am writing regarding the package for my redundancy and early retirement which is proposed as follows:

 

(1) Final date of service 31st August 1999. Until that time full protection of existing terms and conditions including salary.

 

(2) Maximum added years.

 

(3) Carry forward more than five days leave if required.

 

(4) From 1st June until 31st August 1999 on special paid leave.

 

(5) Maximum redundancy payable to be made.

 

(6) The leased car available until 31st August 1999.

 

(7) Agree a reference prior to departure.

 

(8) If I obtain another job in the meantime, redundancy will be payable at point of departure along with pay in lieu of notice."

 

Mr Davies the union representative describes this in his evidence as a "shopping list" of matters which the two members would have liked to have seen in place to secure their agreement to a redundancy/early retirement solution. He says:

 

"It was my view at the time, and I advised them in these terms, that Sari Conway was desperate to get them out, and that we should go for as much as we dare, though I had not expected there to be an agreement on some of the terms that we were requesting. They were simply put forward as a negotiation starting point."

 

Later in his statement he expresses surprise that agreement was forthcoming on most of these terms.

 

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. The "maximum added years" referred to at point two of his proposals meant in simple language that he could be credited with ten extra years of service and therefore enhanced payments on that basis. The reference to "maximum redundancy" at point five meant that the limits which would normally apply to the weekly pay used for the purposes of calculating redundancy payments could be broken under Pt II of the same regulations. There were other surprising features of this list of proposals. Under point four it was plainly proposed that he do no work at all in the final three months of the period. Under point eight it is apparent that while the Council was compelled to continue to employ him for the next 13 months he, for his part, was free to leave at any time without notice within that period if he wanted so to do.

 

The next day 29 July 1998, a report went to the Special Policy Resource Committee of the Council, the body which was required to approve this proposal. It went out under the names of the Chief Executive and Mr Gales the Borough Treasurer. Its first draft at least was the creation of Mr Gales in the sense that it was typed by his personal assistant, but he told me and I accept that it underwent numerous variations thereafter. He told me that, perfectly properly, he was unhappy about his name being on it since he was potentially a beneficiary of certain proposals contained in it. Be that as it may the report essentially recommends that the Council adopt Mr Foster's "shopping list" albeit it does not reproduce all of its terms.

 

Section 6 of the report dealt with Mr Foster's particular position, and he accepts, and I find, that he played a part in its drafting. Indeed I believe that it was effectively drafted by him - see the close correspondence between the wording of the final sentence of para 6.2 with an earlier document generated by him and annexed to his application for the post of Director on 29 July. It recorded his wish to take redundancy when he reached his 50th birthday. In the meantime he should continue with direct control of the Coastal Protection Scheme ("the CPS"), a large project which had been going on for some time, and which was one of the services within the responsibility of his old directorate. It is expressly acknowledged that otherwise the services provided by his old directorate had disappeared into one or other of the new groups. It presupposed that his work with the authority would then conclude on 31 August 1999, but made no mention of the three month period of special paid leave. It said in the meantime he should have the title of Director of Environment and Special Projects. It made reference to the Council's policy on premature retirement which it had adopted in September 1992, which policy was in effect to grant in all cases the enhanced benefits payable under what later became the 1996 Regulations.

 

Although Mr Foster had kept his options open by completing an application form for one of the new posts, I am quite satisfied that his real wish was to take the early retirement package that he had so far successfully negotiated.

 

The Committee met on 29 July and resolved:

 

"that Mr Foster be given premature retirement from 31st August 1999 and that the Chief Executive in consultation with the Borough Treasurer and leader of the Council be given authority to negotiate and agree the details of the retirement package."

 

The Committee then went on to appoint the four new directors needed, obviously not including Mr Foster.

 

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.

 

In any event, in accordance with the resolution and on the same day the Chief Executive instructed the Borough Solicitor to draw up a Compromise Agreement, the first draft of which is included at p 346 of the Claimant's bundle. Shortly after this, or at about the same time, Mr Foster instructed a firm of solicitors Pattinson and Brewer who were standing solicitors to his trade union to act for him in the matter of drafting the compromise agreement. On 13 August 1998 they sent back the first draft with a number of changes, the writer saying:

 

"I am instructed that my client would like the following amendments to be made."

 

Although they showed that significant consideration had been given to the first draft, and that more than minimal input had been forthcoming from the solicitors, none of the changes altered the essential parts of the agreement that Mr Foster had reached in principle with Miss Conway. Mr Foster accepted he had discussed the matter on the telephone a couple of times with the solicitor involved, and the solicitors charges were in due course paid by the Council.

 

The Compromise Agreement was finally signed by Mr Foster and a signatory for the Council on 25 August 1998. In effect its terms were as follows. Clause 1 overrode the contractual provision for three months notice, and required the Council to give notice of termination expiring on 31 August 1999 until which date Mr Foster was to receive his full contractual benefits. Clause 2 said that the reason for the termination was redundancy. Clause 3 dealt with the calculation of a sum as compensation for loss of office. Clause 5 gave Mr Foster, in effect, the "maximum added years" that he had placed on his earlier "shopping list". Clause 6 gave him the three months paid leave at the end of the period. Clause 7 gave him the right to continue his studies "on a part-time basis" leading to an MSc at the University of Brighton and a further course leading to a diploma in counselling, with the Council agreeing to pay the fees. Clause 8 gave him the right to go on using his car. Clause 10 said that from the date of the agreement:

 

"the employee should be accountable to the Council's Chief Executive and will 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 the time required for the study referred to above."

 

Clause 11 gave Mr Foster the right to accept alternative employment within the period with appropriate adjustments. Clauses 12 to 15 excluded other claims. Clause 18 acknowledged that before signing the agreement Mr Foster had received independent advice:

 

"as to the terms and effects of this agreement and in particular its effect on his ability to pursue his rights before an Employment Tribunal."

 

On 28 September 1998 Mr Foster was recorded as having attended for the last time a meeting of the Environment Committee of the Council as Director of the Environmental Services, and that directorate and with it his position as Director of it disappeared from the management structure of the Council on that day.

 

Thereafter Mr Foster moved out of his old office and ceased to attend the premises of the Council on a full-time basis. There is an issue as to whether he went there for three days a week as was said by Mr Paget, an engineering manager who worked immediately below him, and as had been envisaged by Mr Foster himself in a memorandum of 25 September 1998 or whether as he himself told me he worked 3 to 4 days a week. I find as a fact that with minimal and insignificant exceptions after 28 September he did no work other than work relating to the CPS and that probably he worked for only three days a week. Though Mr Foster is in my judgment a conscientious and hard working man, he would not have enjoyed his time at the Council due to his poor relationship with Ms Conway, and she would have not complained if he was only there to the extent indicated in his earlier memorandum. 

 

Mr Foster's assistant Mrs Wallace was unable to recollect the nature of any other work that he did apart from his CPS work at this time. Unhappily despite this new arrangement, the bad relationship between Mr Foster and Ms Conway continued to prove a problem. On 15 December 1998 he lodged two formal grievances against her, relating to her failure the previous July to follow proper procedures in her proceedings against him, and a separate failure properly to resource the Council's input into the CPS. The upshot was that, after discussions which included Mr Foster's trade union representative, he agreed to withdraw his grievances and the parties agreed he would "no longer attend for work" with effect from 10 February 1999. To ensure a smooth hand-over he agreed to be available until 31 August 1999 to give assistance to anyone who wanted information from him, and he was allowed to seek information to help him finish his MSc. The other terms of the compromise agreement stood unaffected.

 

That is how matters rested until the intervention of the District Auditor later that year. In due course, he formed the view that the Compromise Agreement was unlawful having been entered into in excess of the powers which the Council had to make it. On 26 August a few days before the employment was due to end under that agreement, Ms Conway wrote on the instructions of the District Auditor, that she had been told to defer making any further payments under the agreement.

 

On 3 September, having received the district auditor's opinion that the agreement was outside the Council's powers, Miss Conway wrote again,

 

"it is the Council's position that your employment terminated in any event on 31st August 1999. However for the avoidance of doubt, insofar as it is necessary to do so, the council hereby terminates your employment in any event with immediate effect."

 

Mr Foster replied on 8 September rejecting her purported summary dismissal of him. There then followed a confused passage of correspondence, culminating in a letter of 14 September in which Miss Conway wrote again:

 

"for the further avoidance of doubt in so far as it is necessary to do so, I hereby give you three months notice of termination in any event."

 

 

 

Matters agreed between the parties

 

It is common ground between the parties that:

 

1. The claimant ('the council') is a local authority incorporated by statute. The defendant ('Mr Foster') was employed by the council as Director of Environmental Services from 28 June 1993.

 

2. In 1998 the Council's management structure was reorganised. The effect of the reorganisation was, inter alia, that the post of Director of Environmental Services was to be deleted.

 

3. Following negotiations between Mr Foster and the Council on 29 July 1998, the Council's Policy and Resources Committee resolved that Mr Foster should 'be made redundant' and should 'be given premature retirement on 31 August 1999'. Thereafter Mr Foster's representatives in the council negotiated a so-called 'Compromise Agreement' ('the Compromise Agreement') which the parties purported to enter into on 25 August 1998. The Compromise Agreement provided inter alia that Mr Foster's employment with the council would terminate on 31 August 1999. It is common ground 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.

 

4. 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.

 

5. Mr Foster continued to provide some services to the council until 10 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 August 1999.

 

 

The Compromise Agreement

 

Although as noted above, it is common ground that this was beyond the powers of the council to enter into, it is important to see why. As a creature of statute, the council could only lawfully do what statute empowered or obliged it to do. In Hazell v Hammersmith & Fulham London Borough Council [1992] 2 AC 1 at p 36, Lord Templeman said: .

 

"The object of a doctrine of ultra vires is the protection of the public,"

 

and at p 37 he emphasised that:

 

"A local authority owes a duty to its ratepayers to preserve ratepayers funds and to arrange for proper administration."

 

So far as the employment of staff is concerned, the council derived its powers from s 112 of the Local Government Act 1972, which allowed it to:

 

"appoint such officers as they think necessary for the proper discharge of such of their . . . functions as fall to be discharged by them,"

 

and further that:

 

"an officer appointed . . . shall hold office on such reasonable terms and conditions, including conditions as to remuneration as the authority appointing him think fit."

 

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.

 

So far as payments made on the termination of employment where local authority employees are concerned, the position was considered in Allsop v North Tyneside Metropolitan Borough Council [1992] RVR 104. That case says that so far as terms attaching to a voluntary redundancy are concerned, these are entirely governed by the relevant regulations made under the Superannuation Act 1972. At the time with which I am concerned, those were the Local Government (Discretionary Payments) Regulations 1996 (SI 1996/1680). The case of Allsop makes it clear that neither s 112 nor s 111 of the 1972 Local Government Act, which empowers local authorities to:

 

"do anything . . . conducive or incidental to the discharge of any of their functions,"

 

confers the power to deal with conditions of voluntary redundancy.

 

Turning then to the source of such power, the 1996 Regulations, Pt II conferred a power to ignore statutory restrictions which would otherwise apply to the calculation of a redundancy payment, and Pt III conferred a power to give enhanced compensation for early retirement. One of the qualifying factors was that the relevant employee must have attained the age of 50. 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 reg 5 of the 1996 Regulations, so as to make him eligible for certain benefits which he would not otherwise have received.

 

The consequence of the Compromise Agreement being void were discussed in the case of Credit Suisse v Allerdale Borough Council [1997] QB 306. At 343D Neill LJ considered an argument that there were 'gradations of ultra vires' and concluded:

 

"I feel bound to reject these submissions. I know of no authority for the proposition that the ultra vires decisions of local authorities can be classified into categories of invalidity. I do not think that it is open to this court to introduce such classification. Where a public authority acts outside its jurisdiction in any of the ways indicated by Lord Reid in Anisminic Ltd v Foreign Compensation Commission [1962] 2 AC 147, 171 the decision is void."

 

Earlier in the same case at 333C-334H Neill LJ had held that entering into an agreement for an improper purpose was the equivalent of effecting a transaction beyond the Council's powers to act.

 

With that in mind I must turn to the issues which fall for decision in this case.

 

 

 

When did Mr Foster's employment with the Council terminate?

 

This issue is the key to the resolution of this case. The Council proposes three dates, 25 August 1998 (the date on which the Compromise Agreement was formed); 28 September 1998 (the date on which the post of Director of Environment Services was deleted); or 10 February 1999 (the date when by agreement Mr Foster ceased all work). For Mr Foster, three dates are put forward, 31 August 1999 (the date on which the term of employment envisaged by the Compromise Agreement expired), 3 September 1999 (the purported summary dismissal), or 13 December 1999 (the expiry of the three-month notice). Realistically, the Council's preferred date is the second of the three listed above and Mr Foster's is the last.

 

The Council says that the 1993 Contract of Employment terminated by mutual agreement evidenced by the conduct of the parties. It is not a contentious statement of the law to say that an agreement to change the terms and conditions of a contract of employment may, if those changes are sufficiently fundamental, constitute a rescission of the original contract and its replacement by a new one - see Chitty on Contracts 39-152 and SW Strange Ltd v Mann [1965] 1 WLR 629, an example of this principle in practice. It seems to me to be necessary that the new agreement or arrangement should be inconsistent with the continued existence of the old.

 

Mr Foster's answer to this is that the parties did and said nothing which evinced an intention to terminate his employment with the Council. What they attempted to do was an unlawful bid to vary the terms of his original contract. If they failed to achieve that due to the Council's want of power to enter into the agreement, that unlawful attempt is itself void and so must be disregarded, leaving in place the original contract which survived the attempt to vary it unscathed.

 

My recital of the facts above shows, l believe clearly, that what the parties did 'on the ground' was so fundamentally different from what Mr Foster had been employed to do up to September 1998 as to be quite inconsistent with his continued employment on the basis of his 1993 contract. He no longer worked a 37 hour week, but in fact worked something like three fifths of that amount of time. His post as Director of Environmental Services was no more. The various services which he directed were dissipated among the four new directors created in August 1998. He worked exclusively on one project and one project only, the CPS. He points out, perfectly fairly, that he had done this before. He had devoted eight or nine consecutive days of his time exclusively to supervising and sorting out the CPS at the end of March and beginning of April 1998, at the request of the Chief Executive. From his evidence and documents at the time, it is clear that this assignment was a one-off and temporary job, the need for which arose out of the sickness of a junior colleague and an accumulated backlog of paperwork relating to the project. Once he had put the matter to rights, he reverted to his full range of duties as a director. As from September 1998 however, it was envisaged that for eight months or so he would do nothing but this work (which amounted to the supervision and direction of the contractors carrying out the necessary works) and that thereafter for the next three months he would do nothing at all. At the same time he was understood by the parties to be in a position to leave the Council's employment without any notice if he felt like it whereas the council was obliged to continue to employ him (absent gross misconduct) until 31 August 1999. His fees for attending college were to be paid by the council. In reality the only points of coincidence between his position after and before the watershed date was that he continued to receive the same salary that he had as Director of Environmental Services and the entitlement to use a car provided by the council.

 

Mr Foster says that all this happened because of the Compromise Agreement under which both parties believed they were operating and which they both believed, as I accept they genuinely did, was a valid and enforceable transaction. If the Compromise Agreement itself was void, as is now common ground, it therefore follows, says Mr Foster, that it was of no effect and was incapable of effecting a variation of his original contract of employment. He therefore argues that I should, as it were, strip away and discard the unlawful agreement and ignore it for all purposes. Not only can neither party seek to enforce it, he says, but it goes further than that; no reference can be made to it in order to discern or construe the true contractual relationship, if any, between the parties. He says the result is that the contract of employment as originally entered into in 1993 subsisted until brought to an end by appropriate contractual notice in accordance with its terms, in other words until 13 December 1999.

 

In view of my finding the Council's case is that prima facie in law it is entitled to restitution of the sums paid by way of salary and benefits to Mr Foster between 28 September 1998 and 31 August 1999. This money is claimed as 'money had and received' which by virtue of the void nature of the underlying transaction remains, in reality, the money of the paying party.

 

In Westdeutsche Landesbank Girozentrale v Islington Borough Council [1994] 1 WLR 938, the Court of Appeal considered one of the interest rate swap agreements which had taken the time of the courts in the 1990's. In that case the transaction had left the Council concerned as a net recipient of funds which the Bank reclaimed. Dillon LJ said at 946H, having reviewed the authorities:

 

"It must follow in my judgment on the authorities referred to that the bank is entitled to recover the balance of the 2.5m from the council as money had and received or as it is now called, as Lord Goff of Chieveley pointed out in Lipkin Gorman [1991] 2 AC 548 at 572 unjust enrichment at the expense of the owner of the money. . . . the same result can be achieved on equitable as well as opposed to common law grounds. Since, contrary to the expectation of the parties, the swap transaction contracts are and were from the outset, ultra vires and void, the purpose for which the 2.5m was paid by the bank to the council has wholly failed and the 2.5m has from the time the council received it, been held on a resulting trust for the bank . . ."

 

Leggatt LJ added at 952B-C:

 

"Where A has in his possession the money of B under a void transaction, B should be entitled to reimbursement unless some principle of law precludes it."

 

See also Guinness Mahon & Co Ltd v Kensington & Chelsea Royal Borough Council [1998] 3 WLR 829 per Morritt LJ at 838E-G and 840F-H.

 

This therefore being the starting position, it is necessary to consider specific defences raised by Mr Foster.

 

 

Estoppel by representation and change of position

 

It is convenient to group these two defences together but they are significantly different. I must deal first with estoppel by representation. This is defined in Halsbury's Laws, vol 16, para 955 as follows:

 

"Where a person has by words or conduct made to another a clear and unequivocal representation of fact, either with knowledge of its falsehood or with the intention that it should be acted upon, or has so conducted himself that another would, as a reasonable person, understand that the certain representation of fact was intended to be acted upon, and the other has acted upon such representation and thereby altered his position to his prejudice, an estoppel arises against the party who made the representation, and he is not allowed to aver that the fact is otherwise than he represented it to be."

 

The question of representation occurs elsewhere in Mr Foster's case and it is convenient perhaps to deal with it here. His pleaded case appears in his amended Defence and Counterclaim at para 16. Without doing it any injustice I believe I can summarise it this way. He relies first on the resolution passed by the Council on 29 July 1998, as a representation that the terms of the agreement would constitute a valid and binding agreement; second on the fact that Ms Conway negotiated with him on the details of the retirement package and then put them forward to the Committee for approval as a representation that the proposals were "possible and appropriate"; and thirdly, the fact of payment of salary and benefits subsequent to the Compromise Agreement as a representation that the agreement was lawful and that he was entitled to receive the payments and "treat the money and benefits as his own."

 

Was there any representation of fact by words or conduct in any of the matters above? The resolution of 29 July was something which Mr Foster himself was seeking to persuade Ms Conway to promote by her representations to the relevant committee of the Council. To do this he made direct personal contributions to her report of 29 July to the Council, and as I have found drafted all or significant parts of s 6 of that report himself. I do not believe that whenever a local authority passes a resolution it also makes some form of collateral representation, as to the lawfulness of the action proposed in it, or that this Council did on this occasion. The fact that Ms Conway negotiated with him and put the results of those negotiations before the Committee, no doubt urging them to approve them, itself in my view imports no representation on her part. It was always clear to the parties that the upshot of any negotiations would have to be placed before other bodies, including the East Sussex County Council's Pension Authority and the relevant committee of the Eastbourne Borough Council. Likewise I cannot see how the mere fact of payment of benefits of itself can amount to a representation sufficient to form the basis of an estoppel. But there are more significant problems in the path of this line of defence.

 

Firstly, the representation must be one of fact and not opinion. It is of the essence of such representations that the person making it knows some fact which the person receiving it does not know. Here the type of representation relied on is one to the effect that the representor has valid power in law to enter into the transaction which is being proposed. The presence or absence of that was and is a matter of publicly available law and as such presumed to be accessible to all parties to the negotiation. It is a different matter if the representor's knowledge as to the limits of his authority are known to him and him alone, as was for example the case in West London Commercial Bank v Kitson (1884) 13 QBD 360. In the present case the want of authority arose under the general law of the land which Mr Foster is assumed to know as readily as the Council. I was referred to the Third Edition of "The Law Relating to Estoppel By Representation" by Spencer Bower and Turner p 38 para 40 which reads:

 

"A statement of fact accompanied by or involving an inference or proposition of law, where such inference or proposition is not distinct or severable from the statement of fact, is wholly and for all purposes a representation. But a statement of a rule, principle, or proposition of the general law, or a statement of the legal effect of facts which form the subject of another and distinct and severable statement, or which are within the common knowledge of the parties, is a representation to the same extent only as any other statement of opinion; that is to say it is not a statement of the fact of the law being thus, or thus, and there is no estoppel against a subsequent assertion that the law is otherwise."

 

For Mr Foster it was argued that his case was supported by the case of Hirschfeld v The London Brighton and South Coast Railway Company (1876) 2 QBD 1. In that case the defendant's representative made fraudulent representations to an injured claimant to persuade him to accept a financial settlement. The representations were twofold, first that his injuries were trivial and temporary, and secondly that if he signed a deed of release he would be able to obtain further compensation if the injuries in fact turned out to be more severe. As I read the case, it was decided in favour of the claimant on the basis of the first representation, and that is the limit of the authority it constitutes, though it is right to say that both the learned judges thought that fraudulent misrepresentation of the effect of a legal document might also found a defence. That was not part of the ratio of the case, which is an extreme case on its facts, and which might be explained by the maxim "fraud unravels all".

 

The second problem for Mr Foster is the general proposition that the defence of estoppel cannot be deployed so as to prevent a local authority from relying on its own lack of powers, because to do so would be to undermine entirely the whole doctrine of ultra vires and would permit the party acting without power to extend his own powers by this means. The clearest example of this is Ministry of Agriculture & Fisheries v Matthews [1951] QB 148.

 

This principle, therefore, together with the absence of a clear and unequivocal representation of fact is enough to dispose of this defence. In any event reliance as I find is another insuperable problem for Mr Foster. I have already said that the impetus for the making of this agreement came largely from him, albeit it met with the willing concurrence of the Council, and he needed no encouragement to press it forward. He was in receipt of advice and assistance, both apparently and in reality at all stages. Initially that came from his friend and colleague and fellow officer in his trade union Mr Gales. Mr Gales was also the Borough Treasurer and the s 151 officer of the Council, one of whose statutory functions was to inform himself and be alert to the presence of any possible unlawful action by the Council. He also had advice from Mr Davies a full-time official of his trade union. Prior to the conclusion of the compromise agreement he had legal advice from the union solicitors. Conversely Ms Conway who embodied the Council for the purpose of these negotiations so far as Mr Foster was concerned, was not somebody in whom he had any great trust or, as I find, any trust at all. When asked in cross examination about this, he said:

 

"She wouldn't necessarily have acted with my best interests at heart."

 

As I understood that answer when he gave it he was being ironic and was understating the true position. This was a true arms' length negotiation. At no stage did the council intend to make or did it make either by words or conduct, any representation upon which Mr Foster relied. He was guided entirely, as I find, by his own judgment and that of those who were helping him in the way I have set out above.

 

I have, however, to deal with the more difficult question of change of position. As a defence in circumstances such as these it does not require the presence of or reliance upon any representation of fact. As such it therefore appears at first sight a more promising line of defence for Mr Foster facing this restitutionary claim.

 

In Avon County Council v Howlett [1981] IRLR 447, a case involving the overpayment of a teacher, the trial judge found, after a concession by the paying council, that the payments it had made were made in circumstances which amounted to a sufficient representation of fact that the recipient was entitled to treat the money as his own. He held that the paying party was estopped from claiming restitution, but only to the extent that the recipient had honestly relied on that representation and changed his position by spending the money. The Court of Appeal reversed that decision at [1983] 1 WLR 605. It held that estoppel by representation once established was a defence to the entirety of the claim and not just to the claim in respect of that part of the overpayment which the payee had spent. It was an unsatisfactory case in a number of ways. Firstly the teacher declined to amend his pleading to reflect the reality as the judge found it to be, but persisted in asserting that he had only spent part of the proceeds. Secondly it was an entirely hypothetical exercise being run as some form of test case. Doubts have been expressed as to the extent to which it can survive the impact of the case to which I must next turn.

 

In Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, Lord Goff of Chieveley dealt with the circumstances in which change of position had an existence independent of that of estoppel by representation. He outlined the principles giving rise to it and having dealt with the Avon County Council case said, at 579E:

 

"Considerations such as these provide a strong indication that in many cases estoppel is not an appropriate concept to deal with the problem. In these circumstances it is right that we should ask ourselves: why do we feel that it would be unjust to allow restitution in cases such as these? The answer must be that where an innocent defendant's position is so changed that he will suffer an injustice if called upon to repay or to repay in full the injustice of requiring him so to repay outweighs the injustice of denying the plaintiff restitution."

 

He set out at 580C-H the principles that apply where this defence is relied on. It is important to quote the passage in full:

 

"I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case-by-case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open do a wrong-doer . . . it is not however appropriate in the present case to attempt to identify all those actions in restitution to which a change of position may be a defence. A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake a fact; but I can see no reason why the defence should not also be available in principle in a case such as the present, where the plaintiff's money has been paid by a thief to an innocent donee, and the plaintiff then seeks repayment from the donee in an action for money had and received. At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively, to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of the defence which in fact is likely to be available only on comparatively rare occasions."

 

In South Tyneside Metropolitan Borough Council & Svenska International [1995] 1 All ER 545 Clarke J held that the net payee under an interest rate swap agreement might in principle be able, provided it had acted bona fide, to rely on this defence. But he held that it could not rely upon the supposed validity of the transaction in support of it because that transaction was and always had been void. At 564G to 565D he appears to draw a distinction between two possible positions. In the first there is a change of position by the defendant in anticipation of and relying on the supposed validity of the transaction which is to incur in the future; there the defence would not apply by virtue of the reasoning in Hazell [1992] 2 AC 1 that any promise or representation or assumption as to the validity of a void transaction is itself void. In the second case where the change is as a result of a reliance on the fact of payment, he appears to have accepted that the defence might run.

 

Another decision at first instance which considered this defence in the context of facts much closer to those of the present case is Hinckley & Bosworth Borough Council v Shaw [2000] LGR 9. In that case a senior council employee had negotiated a substantial salary increase shortly before being made redundant, including an agreement under which he received three months pay in lieu of notice of termination, notwithstanding that he had in fact been given due notice. Both payments were held to be void as ultra vires the paying council. The defendant relied on a defence of change of position. His counsel had conceded that there was no representation as to the Council's authority to enter into the agreement. The defendant said that he had made certain specific payments in reliance on the validity of the void agreement. He had bought a new car, made substantial gifts of capital to his three adult children and incurred large expenditure on improving his home and going on holidays.

 

At 51 B-F of his judgment, Bell J held that the defendant had relied on the agreement rather than on any payments. In addition on the facts of the case before him, he held that the defendant was 'quite well off', the owner of various properties and a man who would have received a handsome redundancy payment and pension in any event. He held he had always been financially generous to his children and that he needed a new car and that the car he bought was not an extravagant one and therefore on these findings of fact, he rejected the defence.

 

Drawing these authorities together, it seems that the guidance I received from them is this:

 

1. I am concerned here with the balance of injustice as between a defendant and claimant. Whatever the order I make, there will be injustice to one party or the other and it is important to see where the greater burden lies.

 

2. The defence is one which is available in circumstances such as those I am faced with, and should be deployed and developed on a case-by-case basis. No comprehensive guide as to the circumstances in which it should and should not run is possible.

 

3. It is not available to the defendant whose hands are not clean.

 

4. It will be extended to those in whose cases the court considers it would be 'inequitable in all the circumstances' to award restitution.

 

5. It should not be ordered where the change of position is the result of reliance on the invalid agreement in such a way as to dilute or undermine the effect of the ultra vires doctrine, existing as it does for the protection of the public.

 

6. Reliance on the fact of payment may be enough.

 

7. Merely having spent the money is not enough.

 

8. The defence will only be available on comparatively rare occasions.

 

I have an incomplete but fair picture of Mr Foster's financial position. He received (according to the Council's pleaded case, which I have not had to try) in salary terms approximately 4,000 per month before deductions over the relevant period. The value of the car was 1283.09 and his tuition fees of 1200 were paid. He is a married man with four children between ten and nineteen. His wife earned a modest wage of 80 a week net. All the money he received over this period of a year or so was spent on normal family expenditure and there were no exceptional items. He has a mortgage and all the usual outgoings one would expect of a family man in his position.

 

It is a fine distinction and one which has caused me some trouble, but I believe that at the end of the day he spent the apparent earnings in reliance on the series of monthly payments he received. He was not anticipating future largesse in spending the money and he was not pre-spending anything he stood to gain after the end of his proposed term of employment on 31 August 1999. There is a significant difference between his case and any other case cited to me including the Hinckley & Bosworth decision. Although he is of course assumed, by a necessary legal fiction, to have known of the void nature of the transaction, there is no suggestion that he actually did know or that he did anything other than fight his corner in the negotiations as hard as he could, legitimately as he believed it. His hands are clean.

 

I believe that as each month from September 1998 went by a payment went into his account and that as month succeeded month he must have believed, with justification, that the payments would continue and could be relied on to do so. If at any stage he had been told the truth, that no further payment could lawfully be made because the agreement was void, what would he have done? It is not possible to predict this with any confidence, save to say he would certainly have done something. He could have hammered on the Council's door with at least a moral case for some form of reinstatement or non-enhanced redundancy payment. He could have looked for a job elsewhere. He could have considered the position of those who had advised him. The one thing he would not have done is nothing at all. Though the distinction is a fine one I believe it is right to say that in refraining from doing these things he was relying not on the expectation of future benefits under the agreement (such as the enhanced benefits due in September 1999) but on the stream of payments themselves.

 

The balance of injustice test clearly comes down in his favour. If there is any room for the defence of change of position in cases such as this, I believe strongly that Mr Foster is entitled to the benefit of it. I therefore hold Mr Foster is entitled to defeat the claim for restitution on this ground.

 

Had I not so found, I would have had to order restitution in full, subject only to a quantum meruit claim to be assessed in respect of the period up to 10 February 1999. After that time as I find no services of value were provided by Mr Foster to the council.

 

 

The Counterclaim for reconsideration by the council of Mr Foster's position under the 1996 Regulations

 

This claim does not survive my finding as to the date of termination of Mr Foster's contract of employment since it means that his contract did not survive his fiftieth birthday. If I am wrong as to that date, I do not see that any findings of fact by me would assist any higher court to decide this part of the counterclaim.

 

 

Counterclaim for damages under the Misrepresentation Act 1967

 

I have already found in the earlier section of this judgment dealing with estoppel by representation, that no representation of fact was either made by the council or relied on by Mr Foster, which findings it seems to me dispose of this element of the counterclaim. There were in any event further difficulties in its path. Mr Curtis accepted that someone in Mr Foster's position cannot avoid the consequences of an ultra vires agreement by claiming to have entered into it relying on:

 

"any promise representation, representation or assumption to the contrary," (to use the words of Clarke J in South Tyneside at 565C)

 

because to do so would be to obtain by the back door, benefits under a void contract not available by the front door route. He argued that he was entitled, however, not to obtain the benefit of the contract, but to be put in the position in which he would have been if no representation had been made. Had that been the case Mr Foster would not have entered into the agreement and would presumably have negotiated his continued employment with the council on what was described as protected terms. In view of my other findings and the length of this judgment, I do not deal with this argument in full. It seems to me that the Council is right when it argues that this is an over subtle refinement. I believe that any representation to the effect that a void agreement is valid cannot be given legal force and the route by which Mr Curtis seeks to circumvent this rule, though skilfully and attractively presented, is an invitation to heresy which I should resist.

 

 

Mr Foster's claim for damages for negligent mis-statement

 

A necessary part of this claim is the existence of a duty of care owed by the council to Mr Foster. In order to show that, under well accepted principles he needs to demonstrate that the party said to owe the duty had "assumed or undertaken a responsibility" towards him - see Lord Goff of Chieveley, Henderson v Merrett v Syndicates Ltd [1995] 2 AC 145, at 180. That assumption of responsibility must be such as to have created a special relationship between the parties in which the one relies on the special skill or knowledge of the other. Classically, though not always, that arises either under a contract or a situation equivalent to or close to contract. The assumption of responsibility must be a conscious assumption - see White and another v Jones and others [1995] 2 AC 207, at 273.

 

In addition to the above, there must also have been a mis-statement made in breach of this duty of care, that is to say something, to use the words of Lord Steyn in Williams v Natural Life Ltd [1998] 1 WLR 830 at 835 which "crossed the line between the defendant and the plaintiff." No express statements are relied on in this case. The council say that if one asks in ordinary language 'Did the council advise Mr Foster as to the legal effects of the compromise agreement?' the answer is plainly no. I agree with them. There was no voluntary or conscious assumption of responsibility in this case. While there may be arms' length negotiations in which a duty of care attaches to one of the parties they will be rare and this is not in my judgment, one of them. For the reasons I have given above, there is no room for a duty of care in this case.

 

 

Mr Foster's claim for breach of contract

 

This rests on the usual implied term to be found in contracts of employment to the effect that both parties owe the other a duty of trust and confidence - see Malik v Bank of Credit and Commerce International SA (in liquidation) [1998] AC 20. The purpose of this implied term is to facilitate the proper functioning of the contract, since without it the particular relationship of employer and employee cannot sensibly be made to work see Lord Nicholas at 36D-E. At first sight therefore it is difficult to see the extent to which it survives the termination of the employment relationship although the case of Malik shows that a breach during the subsistence of the contract which causes damage after the relationship is terminated may be actionable. Hence, Mr Foster says that it was a breach of this implied term for his employer to negotiate within the currency of his 1993 contract a redundancy package which it ought to have known it had no power to enter into.

 

I think it is at the heart of this term that the conduct it is designed to prevent is deliberate conduct which undermines the employment relationship or if not deliberate, conduct calculated, objectively viewed, to undermine it. Lord Steyn in Malik at 45F cites with approval a dictum of Browne-Wilkinson J as he then was, in Woods v HM Car Services (Peterborough) Ltd [1981] ICR 666 at 670, where he said that the employer should not,

 

"without reasonable and proper cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee."

 

I think it is straining this implied term beyond breaking point to suggest that it has any application to what happened in this case. Put at its highest, this Council acted precipitously and carelessly. If that is right I do not think that approaches a breach of the term relied on in this part of the case for Mr Foster.

 

I believe this judgment covers the matters in issue between the parties. I would welcome the assistance of counsel as to the form of order which they think best reflects it. I wish to record my gratitude to both of them for the clarity and concision of their arguments in what has not been a simple case.

 

 

 


 

 

 

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