Veitch Penny LLP - Exeter | Crediton, Devon

Case

Gibb v Maidstone & Tunbridge Wells NHS Trust
Court of Appeal - 23 June 2010

Issues

(1) Compromise Agreements
(2) Unjust enrichment
(3) Ultra vires

Facts

Ms Gibb was employed as Chief Executive of the Respondent Trust. During her employment there were a number of outbreaks of clostridium difficile at Maidstone Hospital which led to the deaths of approximately 90 patients. An investigation into the outbreaks was commenced by the Healthcare Commission, looking at the steps taken to control and respond to the outbreaks. The Commission produced draft reports which it shared with the Respondent Trust. The final report contained a recommendation that the Respondent Trust review its senior management team in light of the failings it had highlighted. The Trust anticipated that there would be a strong public reaction to the report so in advance of the report being published, it decided to terminate Ms Gibb's employment.

Negotiations took place and a compromise agreement was agreed. The terms of the agreement meant that she would receive about £75,000 as a payment in lieu of notice and a further £175,000 as compensation for loss of office. However, after the compromise agreement was finalised, the Department of Health intervened and instructed the Respondent Trust not to make the payment. The Respondent Trust then declined to pay the balance of £175,000, leading to Ms Gibb bringing a claim in the High Court to enforce the terms of the agreement.

At the High Court the Court accepted the Trust's argument finding that the agreement to make the payment had been made ultra vires. The Court was concerned that the sum agreed far exceeded the maximum Ms Gibb could have obtained at court or tribunal had she been dismissed. It noted that the Trust had failed to do a full financial analysis of the situation or appropriate consideration of the Treasury's guidance on the agreement of severance payments.

Ms Gibb appealed the matter to the Court of Appeal.

Decision

Ms Gibb's appeal was allowed. The Trust was required to pay the balance of her claim. It found that the £175,000 was not irrational and that the Trust was not acting beyond its powers in entering into it. It noted that the Trust had been mindful of the costs of legal proceedings but also of management time and disruption. The Court also felt that it was not improper for the Trust to consider Ms Gibb's years of good service and the time it could take for her to find alternative employment. They had willingly entered into other compromise agreements and paid the amount which was promised. It was inappropriate for the judge to reach his own conclusions as to what financial prudence might require as this would rest with the Trust. It made clear that it would only be in very limited circumstances that a public authority can renege on its commitment.

Comments

Trusts should be mindful of the Treasury guidance on this matter. Where it is contemplated that payment may be made outside that guidance, Trusts should record their reasoning, justifying their "workings out" and stating why the proposal is an appropriate use of public money.