Ipsofactoj.com: International Cases [2002] Part 3 Case 9 [CAEW]


COURT OF APPEAL, ENGLAND & WALES

Coram

Foster

- vs -

Eastbourne Borough Council

LORD JUSTICE ALDOUS

LORD JUSTICE MAY

LORD JUSTICE RIX

11 JULY 2001


Judgment

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 49th 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 50th 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 10th 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 31st 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 50th 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 COMPROMISED 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 that Mr Foster would not be required to attend Eastbourne's offices from 1 June to 31 August 1999, ie for the last three months of his employment. Clause 7 gave Mr Foster permission to study on a part-time basis both at the University of Brighton (for a degree) and elsewhere (for a diploma in counselling), and provided that Eastbourne would pay the reasonable fees for such studying. Clause 8 dealt with provisions for the continued use by Mr Foster of the car leased by Eastbourne on his behalf. Clause 9 dealt with carrying forward annual leave. Clause 10 said that Mr Foster would be accountable to Eastbourne's chief executive and would –

    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).

  12. Clause 11 permitted Mr Foster to accept full time employment elsewhere pending 31 August 1999 and made provision for appropriate adjustments in the event that he did. Clause 13 said that Mr Foster would refrain from instituting proceedings before any court or tribunal "in respect of his dismissal from the Council's service"; clause 14 recorded Mr Foster's acceptance, whether he left his employment on 31 August 1999 or earlier, that he was "dismissed for a redundancy reason and that the Council acted fairly in so dismissing him for that reason"; and clause 15 was a full and final settlement clause. Clause 16 provided for a reference for Mr Foster.

  13. Thus the overall effect of the compromise agreement was to maintain Mr Foster's salary and other benefits but to put him "in due course" on a part time basis consistent with his studies; to alter the three months' notice period owed to him to a notice period ending on 31 August 1999; to give him three months' paid leave of absence up to the end of that period; to pay the reasonable fees for his studies; to permit him to leave for other full time employment without notice; and to provide for redundancy and premature retirement. All of this was done in effect as a variation to his existing contract, in the contemplation that his post as director of environmental services would come to an end.

    THE CONSEQUENCES OF THE COMPROMISED AGREEMENT

  14. As stated above, Eastbourne gave notice on 25 August 1998 of the termination of Mr Foster's employment by reason of redundancy as of 31 August 1999.

  15. At first, Mr Foster continued in his job as director of environmental services. However, on 28 September 1998 his post was abolished. Thereafter, he moved out of his old office and ceased to attend Eastbourne's premises on a full-time basis. Instead, as the judge found, he worked (with minimal and insignificant exceptions) for only three days a week, exclusively on Eastbourne's coastal protection scheme (CPS). That was, as its name implies, a scheme which had originally fallen under the control of his previous position. A dispute between him and the chief executive led to the lodging of two formal grievances, which were withdrawn in exchange for the agreement that as from 10 February 1999 he need no longer attend for work. Thus it was common ground that from that date he was placed on "garden leave". However, 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. The other terms of the compromise agreement stood unaffected, and he continued to receive his salary and other benefits.

  16. That remained the position down to the termination date of 31 August 1999. However, shortly before that date, the district auditor appears to have queried these arrangements. On 3 September 1999 the chief executive wrote to Mr Foster to say that the district auditor considered that the compromise agreement might have been ultra vires and that no more payments should therefore be made under it. Hence, the redundancy payments were never made. The letter stated that Eastbourne considered that Mr Foster's employment terminated in any event on 31 August 1999, but for the avoidance of doubt "the Council hereby terminates your employment in any event with immediate effect". On 8 September Mr Foster replied to say that he considered the compromise agreement to be valid and that his employment had therefore terminated under it on 31 August. He queried the reason for Eastbourne's "purported summary dismissal" as of 3 September and the procedures followed in relation to it. On 11 September in a further letter Mr Foster pointed out that if the compromise agreement was void, then his employment continued. On 14 September the chief executive wrote that "for the further avoidance of doubt" Eastbourne gave him 3 months' notice of termination in any event, ie a period ending on 13 December.

  17. In the circumstances, when this litigation ensued, initiated by Eastbourne, the parties took up pleaded positions as follows. Eastbourne claimed that Mr Foster's employment had terminated by mutual agreement as of the date of the compromise agreement, 25 August 1998, alternatively as of the date of the abolition of his post, 28 September 1998, alternatively as of 10 February 1999, at which point he had ceased to carry out any further work for the council. Mr Foster on the other hand claimed that, since the compromise agreement was void, his 1993 contract continued unaffected, so that it was finally terminated only upon the expiry of three months' notice on 13 December 1999; alternatively, his employment expired on 3 September (the purported summary dismissal) or 31 August 1999 (the date contemplated by the compromise agreement).

    THE JUDGMENT BELOW

  18. On the question of the date of termination of Mr Foster's employment the judge found in favour of Eastbourne's submission that his employment had ended on 28 September 1998. Eastbourne's principal argument was that the parties' had by their conduct by at latest 28 September 1999 evidenced a consensual termination of the 1993 contract, and that nothing contractual ever replaced it. Mr Foster's principal argument was that nothing that the parties did ever evinced an intention to terminate his 1993 contract: they mistakenly thought that they had varied it, but since the compromise agreement failed of any legal effect, it must be disregarded with the result that the original contract survived unscathed.

  19. The judge reasoned the matter as follows:

    My recital of the facts above shows, I 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 the 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 Studies 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 .... 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…

    I prefer the Council's argument on this point. I find it entirely unrealistic to characterise what these parties did between 28th September 1998 and the end of August 1999 as the performance of the 1993 contract of service. They were clearly both agreed that this had come to an end. They showed this agreement by purporting to alter its terms and conditions and enter into the compromise agreement which entirely contradicts its continued existence. While that compromise agreement is as a matter of law void ab initio and of no legal effect, in the sense that no party can base any claim upon its terms or seek to enforce it in any way, I do not read the authorities to which I have been referred as requiring me to ignore it, or as it were to airbrush it out of existence as if it had never been. Before it was entered into, it was common ground between Mr Foster and the Council that the one option that was not open to him was to continue under his 1993 contract. Whatever they failed to achieve by way of replacing it with any legally valid successor agreement, plainly by purporting to enter into it, and thereafter by behaving as they did, they evinced a clear intention no longer to be bound by any of the terms of the old 1993 contract. I therefore find that Mr Foster's contract of employment terminated on 28 September 1998 and was replaced by an arrangement which was of no legal effect; therefore he was not under any contract of employment at any time thereafter, nor (probably) was he in any other contractual relationship with the Council, though it is not necessary for me to decide just what the right legal analysis of his relationship with them was at this time.

    RESTITUTION

  20. It followed from the judge's analysis that, subject to a defence of change of position, Eastbourne was entitled to the recovery in restitution of all that it had paid Mr Foster from 29 September 1998 to 31 August 1999, less a quantum meruit or valebat for the value of Mr Foster's services in that period. However, the defence of change of position succeeded, and therefore Eastbourne recovered nothing. There is no appeal by Eastbourne from that holding.

    MR. FOSTER'S APPEAL

  21. One possibility for an appeal in this situation on the part of Mr Foster might have been that, even though his contract of employment had been terminated as of 28 September 1998, nevertheless, since such termination had been premised on the validity of the compromise agreement, restitution required more than a mere re-accounting of salary and other payments against services rendered. After all, if the compromise agreement had never been made, Mr Foster would have been able to stay with Eastbourne in some other post. The judge found that this is what would probably have happened. He found that Mr Foster would probably have carried on in such a post "until such time as he was able to make his exit…on terms acceptable to him". Mr Foster therefore might possibly have been able to argue that restitution following the realisation that the compromise agreement was without effect involved a complete reassessment of the parties' situation on both sides, in an attempt to do justice to both.

  22. As Lord Goff of Chieveley said, albeit in a dissenting speech, in Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] AC 669 at 692B, the jurisdiction of the court in such circumstances –

    should as a matter of principle be as broad as possible, to enable justice to be done wherever necessary; and the relevant limits should be found not in the scope of the jurisdiction but in the manner of its exercise as the principles are worked out from case to case.

    However, that was not the case made on Mr Foster's behalf; and the validity of such a case therefore simply does not arise.

  23. Mr Foster's appeal is rather centred on an attempt to overturn the judge's conclusion that his contract of employment was consensually terminated as of 28 September 1998. The essence of it, as Mr Michael Curtis, who appeared on his behalf, candidly stated, lay in the concern that his employment with Eastbourne should not be found to have ended before his 50th birthday. For these purposes it did not matter very much whether the precise date of termination was 13 December, 3 September or 31 August 1999. Provided the relevant date fell after Mr Foster's 50th birthday, he would be entitled to be considered under the 1996 Regulations, or so Mr Curtis submitted, for the benefits available in the case of premature retirement. Thus Mr Curtis asked for a declaration, if the appeal prevailed on the date of termination, to the effect that Eastbourne was obliged to reconsider Mr Foster's entitlement to an enhanced redundancy payment and enhanced retirement benefits under the 1996 Regulations (see prayer (8) of the defence and counterclaim).

  24. In one respect, Mr Curtis' submissions on appeal went beyond those pleaded or argued below. The case made before the judge was simply that, since the compromise agreement was void, the 1993 contract continued in full force and effect. On the appeal, however, as foreshadowed in para 10 of his grounds of appeal, Mr Curtis argued that one possible analysis was that a new contract of employment arose out of the failure of the compromise agreement, on the same terms and conditions as to salary and three months' notice as the old 1993 contract. As developed in the course of submission, this new argument embraced a range of possibilities, viz that the new contract was a variation of the old; that its terms did not matter all that much since provision for some period of reasonable notice would have to be incorporated and any period of notice would carry Mr Foster safely over the watershed date of 22 August 1999; and that whether or not the old 1993 contract of employment came to an end, regard had to be had to the fact that Mr Foster remained in Eastbourne's employment until at least 31 August 1999.

  25. Mr Stilitz did not submit that this new ground of appeal, either as set out in the notice of appeal, or as developed in oral argument, was one that Mr Curtis was not entitled to put before the court.

  26. Mr Curtis recognised that, if Mr Foster's employment did survive his 50th birthday, then the consequences of that could not be worked out in the court of appeal, but would have to be remitted to the court below.

    THE DATE OF TERMINATION OF MR. FOSTER'S EMPLOYMENT BY EASTBOURNE

  27. Eastbourne's case, accepted by the judge, was that Mr Foster's contract of employment ended on 28 September 1998 with the disappearance of his old post, and that no new or varied contract took its place. Two separate submissions are inherent in that case:

    • first that the 1993 contract came to an end at that time;

    • secondly, that nothing in the nature of a contract of employment replaced it.

  28. As to the first of those points, Mr Stilitz relied on two authorities to exemplify the way in which a contract of employment can be terminated by conduct. In Meek v. Port of London Authority [1918] 2 Ch 96 it was held that the promotion of the plaintiffs to higher grades of employment accompanied by notice that the PLA would discontinue the practice of paying income tax on salaries, as they had previously done, constituted a fresh contract of service under which there was no obligation on the part of the PLA to pay such tax. Swinfen Eady MR at 100 put the ruling proposition as follows:

    .... when he is promoted to a higher grade at a higher salary with different duties in law a new contract is entered into between himself and his employers. The employers offer him a better position and he accepts it, and under those circumstances, except so far as his duties are altered and his salary is increased, the old terms and conditions remain the same.

  29. In S W Strange Ltd v. Mann [1965] 1 WLR 629 the employer entered into a new agreement with its manager: it was held that the new oral agreement entirely superseded the earlier one, so that a restrictive covenant found in the former was not to be incorporated into the latter. Stamp J said (at 636/7):

    By entering into the new agreement the parties did not, in my opinion, vary the terms of the service agreement but replaced it. And in my judgment the respective rights and obligations of the parties were thenceforth governed by a new contract which superseded the old. The contention that the two contracts could continue to exist separately and not as a single varied contract seems to be contrary to principle, and I am fortified in that conclusion by a consideration of the reasoning in Colburn v Patmore (1843) 1 Cro M & R 65, where, parties having entered into a second agreement which was inconsistent with an earlier agreement, it was held that the whole of the earlier agreement and not merely the inconsistent terms was abrogated.

  30. As to the second of his points, Mr Stilitz submitted that, since the doctrine of ultra vires in the context of local government contracts is founded in public policy and is for the protection of the public (see Hazell v. Hammersmith and Fulham London Borough Council [1992] 2 AC 1 at 36F), it was impermissible to seek to achieve the effect of the void agreement by other means, such as the doctrine of estoppel: see Minister of Agriculture and Fisheries v. Matthews [1950] KB 148 and Rhyl Urban District Council v. Rhyl Amusements Ltd [1959] 1 WLR 465. In the latter case, the defendants made a new lease, which was void: not even the surrender of their old lease on the promise to grant the new one assisted them. It would therefore be wrong to regard the 1993 contract as continuing albeit as varied by the parties' conduct, or to regard such conduct as founding some new contract between the parties. Mr Stilitz relied on the dictum of Clarke J in South Tyneside Metropolitan Borough Council v. Svenska International plc [1995] 1 All ER 545 at 565 that where a transaction is ultra vires and void "it follows that any promise, representation or assumption to the contrary is also void".

  31. On behalf of Mr Foster, on the other hand, Mr Curtis submitted on the first point, that it was impossible to find in the parties' conduct a consensual termination of the 1993 contract. Their conduct, even if incapable of giving valid effect to the compromise agreement, simply did not permit any inference that they were agreeing to put an end to the 1993 contract. Secondly, he submitted that the "facts on the ground" were compatible only with a continued relationship of employment: whether such a relationship was founded in contract or not did not matter, but his primary position was that the 1993 contract continued unaffected until brought to an end by a proper three months notice.

  32. In my judgment, the correct analysis lies between these two positions. Although it is impermissible to accord any validity to the compromise agreement and I agree that it therefore follows that no reliance can be placed on any promise or representation that merely reflects an alternative legal foundation for binding Eastbourne to an undertaking that it had no power to give, nevertheless the conduct of the parties still exists in the real world and cannot be ignored for all purposes. Thus, to take what I suspect would be an uncontroversial example, payments made under a void agreement, even though made in the belief that the agreement was a binding contract, have been really made, and can be taken into account for the purposes of a claim in restitution. That claim may or may not succeed, but the payments cannot be swept aside in the same way that the void agreement is reduced into nothingness by the doctrine of voidness ab initio. Similarly, services provided in exchange for those payments have been made in the real world, and, even though the conventional scheme under which payments and services have been exchanged has vanished into thin air, the provider of those services may be entitled to have them taken into account for the purpose of a claim to a quantum meruit or quantum valebat. Indeed, in this case, Eastbourne accepts that, but for the fact that a defence of change of position rendered the enquiry moot, Mr Foster would have been entitled to be rewarded for his services on just such a basis.

  33. The point goes, however, further than that. In Guinness Mahon & Co Ltd v. Kensington and Chelsea Royal London Borough Council [1999] QB 215, one of the cases where the courts had to consider the consequences of a void interest rate swap transaction, Robert Walker LJ pointed out (at 240C) that what the parties thought, although mistakenly, that they were doing may still be legally relevant. He said:

    Where a supposed contract is void ab initio, or an expected contract is never concluded (as in Chillingworth v. Esche [1924] 1 Ch 97, [1923] All ER Rep 97), no enforceable obligation is ever created, but the context of a supposed or expected contract is still relevant as explaining what the parties are about. An advance payment made in such circumstances is not a gift, and is not to be treated as a gift.

  34. So in this case, I think that the judge was right to have regard to what the parties actually did, but I think with respect that he was wrong to conclude that the parties had agreed to put an end to the 1993 contract. Once the compromise agreement falls to the ground, there is no basis for saying that the disappearance of Mr Foster's post occurred consensually. It would in my judgment be truer to say that the disappearance of Mr Foster's post occurred against Mr Foster's will. The only consensus in terms of which he had been willing to accept the loss of his post was that set out in the compromise agreement. That consensus is void, and what that void leaves behind is, to my mind, not an agreed termination of his old contract, but a broken, indeed a repudiated, contract.

  35. Mr Curtis would not, I think, disagree with that, but submits that the old contract therefore simply continued as before and never terminated, since Mr Foster never accepted Eastbourne's repudiation. In this connection he relied on CHITTY on Contracts, 28th ed, 1999, Vol II at para 39-172 and Boyo v. Lambeth London Borough Council [1994] ICR 727. However, I cannot follow him there. It seems to me that when, in the aftermath of the disappearance of Mr Foster's old post, Eastbourne nevertheless continued to offer Mr Foster employment and Mr Foster continued to work for Eastbourne albeit on an entirely different basis from before, the best analysis of that new situation is that Mr Foster had accepted Eastbourne's repudiation and brought to an end his old contract of employment but that the relationship of employment nevertheless continued in the new circumstances. In my judgment, Mr Foster's employment by Eastbourne continued, but on a new basis. What that new basis was, and whether it involved a new contract of employment, I will consider below. In the meantime it seems to me that not to accept that the relationship and status of employment continued is to acknowledge less than the reality of the situation demands, while at the same time to accept the reality of that relationship is to do no more than the invalidity of the compromise agreement allows. In other words, I believe that this solution does justice both to the facts that occurred, and to the doctrine of ultra vires and thus to the need to ignore, and not by other means to give effect to, the false formal basis upon which the parties mistakenly believed themselves to be acting.

  36. It might be said that a difficulty in the way of giving effect to my analysis of a non-consensual termination of the 1993 contract is that it was no where pleaded. Mr Foster did not plead that the effect of the abolition of his old post was a breach or repudiation of his 1993 contract, and it therefore followed that Eastbourne had no need to plead that in any event any such repudiation had been accepted. I have therefore asked myself whether it is legitimate to give effect to my preferred analysis. I have concluded that it is. The issue whether the 1993 contract had come to an end was before the court. Eastbourne's case was that it had come to an end by mutual agreement, Mr Foster's case was that it had not come to an end, and that there had been no mutual agreement. If it had come to an end, but not by mutual agreement, it followed that it had been discharged by breach, and that was expressly contemplated in the argument before this court, for instance in Mr Curtis' submission (which he said was common ground) that there could be no such discharge without an acceptance on the part of Mr Foster of Eastbourne's repudiation, see his reliance on Boyo. Moreover, where the conduct of the parties was relied on by Eastbourne as evidencing a consensual termination, there is no reason why the same conduct cannot be analysed for the purposes of a different legal result.

  37. In this connection, Mr Curtis submitted, in response to the judge's finding of a consensual termination of the 1993 contract, that Mr Foster's conduct of complaisance was not to be ascribed to a mutual intent to rescind the contract because Mr Foster's apparent willingness was rather to be ascribed to his mistaken belief in the existence of the compromise agreement. I agree. It may be that he intended a similar submission to apply to the question of whether the 1993 contract had ended non-consensually. I will assume that he did. Nevertheless, in this respect I do not agree with the submission. Whether Mr Foster's conduct in accepting part-time employment is or is not ascribed to his belief in the compromise agreement, it is not consistent with the continuation of the 1993 contract. That contract was for the position of director of environmental services in full time employment. On any view, that contract had been supplanted: see Meek and Strange.

  38. If, however, I am wrong about that, it seems to me, for reasons which appear below, that it would make no difference, for as will be seen I accept in any event that, for the purposes of the parties' principal bone of contention, Mr Foster's employment with Eastbourne did not ultimately terminate until after his 50th birthday.

  39. Before I move to consider the nature of the parties' relationship after 28 September 1998, I would wish to clear away two points. Mr Stilitz submitted, in reliance on Morris v. Baron and Company [1918] AC 1, that a void agreement might still succeed in effecting a consensual rescission of an earlier contract. In my judgment Mr Stilitz is in error in seeking to apply the facts of that case, which concerned a contract which, although unenforceable because not in writing, was still a real contract, to the present case, which concerns a contract which, because it was void, never existed at all: see at 11 and 13 per Lord Finlay LC, at 18 per Lord Haldane, at 27 per Lord Dunedin.

  40. Secondly, Mr Stilitz also sought permission to raise by respondent's notice a point which he had sought to argue before the judge, which was that the 1993 contract in any event came to an end by operation of law because it was unlawful for him to continue in his old employment. The judge refused leave to Eastbourne to raise this point because it was unpleaded. It is not clear whether the "operation of law" was another aspect of the ultra vires argument or an aspect of frustration, or a combination of the two. I see no reason, however, to doubt the judge's decision to exercise his discretion not to permit the point to be raised. In any event, the point seems to me to have little to commend it. There was nothing to prevent Eastbourne continuing to employ Mr Foster on suitable terms which did not fall foul of the ultra vires principle. In as much as Mr Stilitz relied on the abolition of Mr Foster's post, that was something which Eastbourne chose to do, and it cannot rely on self-induced frustration. In as much as Mr Stilitz relied on Tannesby v. Kensington and Chelsea and Westminster Area Health Authority (Teaching) [1981] ICR 615, that turned on a statutory prohibition of the employment of a person "not being fully registered" as a hospital doctor.

  41. What then follows from the continued existence after 28 September 1998 of a de facto relationship of employment involving Eastbourne and Mr Foster? The closest parallel is that of Craven-Ellis v. Canons Limited [1936] 2 KB 403, a case which I confess was cited by neither party, but which it seems to me cannot be ignored in this field. Mr Craven-Ellis was appointed managing director of a company under an agreement which was void because he failed to hold the necessary qualifying shares. It was held that he was entitled to be paid for his work on a quantum meruit. In the language of those years, the company's obligation to pay was put on an implied promise, which Greer LJ explained as follows (at 410):

    the inference is not one of fact, but an inference which a rule of law imposes on the parties where work has been done or goods have been delivered under what purports to be a binding contract, but is not so in fact.

  42. More recently, the implied promise or contract theory of restitutionary obligations has been criticised and, in Westdeutsche, rejected: see CHITTY at paras 30-014/015. As Morritt LJ put it in Guinness Mahon v. Kensington at 229E: "if the contractual promise was void because it was ultra vires how could the law imply a promise to the like effect?" Even so, just a few years earlier, in Guinness plc v. Saunders [1990] 2 AC 663 at 693, Lord Templeman, with whose speech at least three others of their Lordships agreed, referred to the Craven-Ellis case in terms of an implied contract:

    there was no conflict between his claim to remuneration and the equitable doctrine which debars a director from profiting from his fiduciary duty, and there was no obstacle to the implication of a contract between the company and the plaintiff entitling the plaintiff to claim reasonable remuneration as of right by an action in law.

    See also GOFF & JONES, The Law of Restitution, 5th ed, 1998, at 590, where the obligation in Craven-Ellis v. Canons is spoken of as a quasi-contractual one; and Rover International Ltd v. Cannon Film Sales Ltd [1989] 1 WLR 912 at 927, where Kerr LJ said that when a contract is void ab initio, all remedies must necessarily lie in the area of restitution.

  43. Whether the obligation imposed by law in such a case is normally described as contractual, quasi-contractual or restitutionary, may not matter for the purposes of this case, since in any event I would consider that where, as here, the relationship between the parties is best described as a relationship of employment the law must necessarily impose a contractual solution. I do not think that that is even inconsistent with the parallel existence of restitutionary remedies. Thus, in this case, it is possible to say that in contract Mr Foster was entitled to claim reasonable remuneration for the work he did, or in other words a quantum meruit, while in restitution he was both prima facie obliged to return the sums he received under the void compromise agreement and at the same time entitled to a defence of change of position.

  44. In this connection I would point out that, unlike void borrowing contracts, the subject matter of the swaps cases such as Westdeutsche itself, into which local authorities are simply unable to enter, there was no general prohibition which prevented Eastbourne from employing Mr Foster; and also that unlike Craven-Ellis v. Canons Mr Foster was perfectly qualified to be employed by Eastbourne and Eastbourne was similarly entitled to employ Mr Foster in the capacity in which he was employed, albeit not in the circumstances of the compromise agreement. Moreover, Mr Foster also had the background of the 1993 contract.

  45. Mr Curtis, in an alternative submission, argued that the 1993 contract had been varied, rather than terminated. It seems to me that that is not correct, for its premise is consensual variation. That is what the parties sought to achieve by their compromise agreement, but failed. In as much, therefore, as Mr Curtis was seeking to achieve the compromise variation by another route, I think that route is blocked by the ultra vires doctrine. If, however, all that he is suggesting is that ultimately the parties' relationship continued as one of employment in circumstances where the terms of that relationship had changed from those of the 1993 contract, then his position is very little different from that adopted in this judgment.

  46. I would therefore conclude that although the 1993 contract came to an end in late September 1998, Mr Foster's employment with Eastbourne did not.

  47. The question then arises as to when Mr Foster's employment with Eastbourne finally did come to an end. For these purposes the critical question for the parties is said to be whether it was before or after Mr Foster's 50th birthday. If it came to an end on 10 February 1999, which is Eastbourne's fall-back position, then that would have been before his birthday: but any other date in issue would have been after his birthday. In my judgment, his employment did not end on 10 February 1999. It was not said to end then; and Mr Foster remained available for work if required. At the very least the continuing employment entitled Mr Foster to some reasonable notice. In the circumstances I would regard his employment as coming to an end on 31 August 1999. This is the date for which Eastbourne gave him notice, even if that was done pursuant to the void agreement. Even so, it reflects the date which the parties regarded in anticipation as the end of his employment, and I do not see why effect should not be given to that.

    CONCLUSION

  48. I would therefore allow Mr Foster's appeal and declare that Mr Foster's employment with Eastbourne terminated on 31 August 1999. In the meantime, Mr Foster had accepted the repudiation of his 1993 contract, and what happened thereafter occurred, I would think, in mitigation (partial or otherwise) of Mr Foster's rights. What flows from all that is not, however, before this court. There is, nevertheless, a claim for an inquiry or account of what payments or other benefits Mr Foster is entitled to receive in the period from 25 August 1998 to 31 August 1999. Since Mr Foster had been paid on his old contract terms until 31 August 1999, and has been able to retain the payments received on the ground of his change of position, I am not sure that there is anything further which is in issue between the parties: but, if necessary, the court can hear submissions on that matter and any other consequences of this judgment.

  49. Finally, there is the request for a declaration that Eastbourne is obliged to reconsider Mr Foster's entitlement to an enhanced redundancy payment and enhanced retirement benefits under the 1996 Regulations (see para 23 above). In this connection Mr Curtis accepts that such benefits arise under the Regulations rather than under contract and are not a matter of right, but he submits that Eastbourne is at least obliged to reconsider the matter. Mr Stilitz submits that Mr Foster is out of time in requesting such a determination by Eastbourne. This court has not so far been provided with the means of resolving this dispute. Subject to any further submissions in the light of this judgment, this is a matter which may have to be remitted to the court below.

    Lord Justice May

  50. I agree.

    Lord Justice Aldous

  51. I also agree.


Cases

Roberts v. Hopwood [1925] AC 578; Allsop v. North Tyneside Metropolitan Borough Council [1992] ICR 639; Credit Suisse v. Allerdale Borough Council [1997] QB 306; Hinckley and Bosworth Borough Council v. Shaw [2000] LGR 9; Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] AC 669; Meek v. Port of London Authority [1918] 2 Ch 96; S W Strange Ltd v. Mann [1965] 1 WLR 629; Hazell v. Hammersmith and Fulham London Borough Council [1992] 2 AC 1; Minister of Agriculture and Fisheries v. Matthews [1950] KB 148; Rhyl Urban District Council v. Rhyl Amusements Ltd [1959] 1 WLR 465; South Tyneside Metropolitan Borough Council v. Svenska International plc [1995] 1 All ER 545; Guinness Mahon & Co Ltd v. Kensington and Chelsea Royal London Borough Council [1999] QB 215; Boyo v. Lambeth London Borough Council [1994] ICR 727; Morris v. Baron and Company [1918] AC 1; Tannesby v. Kensington and Chelsea and Westminster Area Health Authority (Teaching) [1981] ICR 615; Guinness plc v. Saunders [1990] 2 AC 663; Rover International Ltd v. Cannon Film Sales Ltd [1989] 1 WLR 912

Authors and other references

CHITTY on Contracts, 28th ed, 1999, Vol II

Representations

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

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


all rights reserved