Case No. 1995-H-No.1451
IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

BETWEEN:

HINCKLEY AND BOSWORTH BOROUGH COUNCIL
Plaintiff

and

FRANK SHAW
Defendant

Case No. 1995-H-No.1452
IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

BETWEEN:

HINCKLEY AND BOSWORTH BOROUGH COUNCIL
Plaintiff

and

MICHAEL COKER
Defendant

(Approved Judgment to be handed down on 21 December 1998, subject to editorial correction)

This is a judgment on issues relating to liability but not damages in two consolidated actions brought by Hinckley and Bosworth Borough Council (“the Council”).

In the first action the Council claims the repayment of various sums which it has paid to Mr Frank Shaw since 31 July 1990 when he left his post as the Council’s Director of Administration and Finance and Principal Chief Officer.  The Council also claims various declarations.  The essence of its case is that an agreement which it made with Mr Shaw on 4 January 1990 to increase Mr Shaw’s salary considerably for the year ending 31 July 1990, and to pay him three months salary in lieu of notice on the termination of his employment on 31 July 1990, and to pay him a consultancy fee of £1,000 per month for five months from 31 July 1990, was beyond the powers of the Council and unlawful and void.  The agreement to increase his salary for the final year of his service, made well into that final year was made for the improper purpose of increasing his redundancy and pension entitlements which were geared to it.  It was and remains beyond the powers of the Council to pay Mr Shaw redundancy or pension benefits to the extent that the same have resulted from the unlawful increase in his salary.  The payment in lieu of notice was an unlawful gift, since sufficient notice was given.  The consultancy was a sham.

In the second action the Council claims from Mr Michael Coker, a solicitor, damages and indemnities for alleged negligence and breach of duty in respect of his advice or lack of advice in relation to the 4 January 1990 agreement and associated matters.

Mr Shaw contends that the 4 January 1990 agreement was both fair and lawful.  His salary increase was genuine and more than justified.  The Council was entitled to pay him money in lieu of notice.  He held himself available to be consulted and he was consulted.  In any event, he contends that it would be inequitable to order him to repay any money which he has received as a result of the agreement.  Alternatively he alleges a setoff and counterclaim on the basis of alleged breach of warranty and breach of duty of care on the part of the Council.

Mr Coker denies any negligence or breach of duty towards the Council.  He too contends that the agreement was lawful; alternatively that it was reasonable to believe that it was.

The Council seeks judgment against both Mr Shaw and Mr Coker.  The actions largely stand or fall together in that the allegations of negligence and breach of duty against Mr Coker depend upon the Council establishing that it was beyond the powers of the Council to make the agreement upon which he advised, and that the damage alleged to have resulted from his alleged negligence consists of the payments made to Mr Shaw, pursuant to the agreement, which the Council also claims should be repaid by Mr Shaw.  But the claim against Mr Shaw may succeed without proof of negligence on Mr Coker’s part; and if Mr Shaw’s defence that it is wrong to order him to repay money to the Council, or his setoff and counterclaim, succeeds, the Council’s claim against Mr Coker may succeed without commensurate success in its claim against Mr Shaw.  Moreover, the County Council has sued the Borough Council in respect of superannuation payments which it has made to Mr Shaw, based on his increased salary, and the Council seeks an indemnity from Mr Coker in respect of any liability to reimburse the County Council.

It is convenient to start by setting out the essential history and the principal issues between the parties, before turning to particular details in the evidence and my conclusions.  Both Mr Shaw and Mr Coker gave evidence.  They are both respectable men, but there is much at stake for each of them.  The main events took place about nine years ago.  Moreover, although Mr Shaw and Mr Coker gave evidence, the Councillors who negotiated the January 1990 agreement on the Council’s behalf did not.  In these circumstances, I have felt it particularly important, as did counsel, to pay heed to documents made in 1989 and 1990, and I make no apology for rehearsing extensive parts of them when setting out the history.

Mr Shaw was born on 4 July 1935.  He is a barrister.  He is also an associate of the institute of Public Finance.  In September 1974 he joined the Council as its Principal Legal Officer.  In August 1981 he was appointed to the Chief Officer post of Treasurer and shortly after that he became the Director of Administration and Finance, running what had been two separate departments.  In July 1983 he took over the vacant post of Principal Chief Officer, thereby becoming Principal Chief Officer and Director of Administration and Finance.  The Council did not like the title “Chief Executive”, used by other authorities, but that was effectively what Mr Shaw was, as well as having departmental responsibilities for administration and finance.

In about December 1988 the Council’s Director of Development resigned and a management team of the remaining Chief Officers, including Mr Shaw, was asked to consider the Council’s organisation and structure.  The management team made proposals which included an offer by Mr Shaw to take early retirement and voluntary redundancy in December 1989.  I accept his evidence that this was the first time that he considered early retirement, and that he made it clear that he was willing to continue in the Council’s employment.

In the event, the management team’s proposals, including Mr Shaw’s offer of early retirement, were not accepted, and a new Director of Development was appointed in about March 1989.

According to Mr Shaw, during the week of 24 to 28 July 1989 he started to work on a report setting out the need for a review of the salaries of senior officers and of organisation within the Council.  This was known to the Council, but on 31 July 1989, before Mr Shaw had completed his report, Councillor Smalley telephoned him to discuss his early retirement.

Three options were identified, according to Mr Shaw.
First (“Option 1”), Mr Shaw could retire early with virtually immediate effect, to enable reorganisation to take place.  Mr Shaw made it clear that this was not acceptable to him, for fear that others would think that he had been forced to leave in a hurry because of some fault on his part.
Second (“Option 2”), Mr Shaw should take early retirement with effect from about October 1989.  This possibility was identified by Mr Shaw as acceptable to him in principle, on the basis of his current salary of £30,732 per annum.
Third (“Option 3”), Mr Shaw should take early retirement with effect from October 1990 and should be responsible in the meantime for implementing the changes required by the Local Government and Housing Bill which was then before Parliament, with Royal Assent expected in October 1989.  According to Mr Shaw he made it clear that he would require a substantial salary increase if that option was adopted, and the appointment of at least a temporary officer to assist him, in view of the increased workload.  His duties were already heavy.

According to Mr Shaw, on the following day, 1 August 1989, he told Councillor Smalley that in the event of Option 3 being adopted he considered that an increase of 20% in his salary would be appropriate.  He suggested a further option (“Option 4”) that he would retire on a date to be fixed, after May 1991.  If that option was adopted, he would agree to forego any salary increase because he would be able to accept appointments as Returning Officer for the May 1991 local elections and Census Officer for the 1991 census, and he would receive fees for both those offices.  He would still require the appointment of a temporary officer, as with Option 3, but only until October 1990.  He made it clear to Councillor Smalley that his preference was for Option 4 but that Options 2 and 3 were also acceptable.

According to Mr Shaw, he met three members of the Policy and Resources (“P and R”) Committee, including Councillors Smalley, on 3 August 1989, before the P and R Committee meeting fixed for that day.  The three members told Mr Shaw that the Council wanted him to retire on 31 May 1990, a date which was not envisaged under any of the four previous options; that a 20% increase in salary was acceptable to the Council in view of Mr Shaw’s increased workload and additional responsibilities; that the appointment of additional staff to help him would be further considered, but that it was not looked on favourably.

According to Mr Shaw, he responded by saying that he would have to consider the proposed new retirement date of 31 May 1990 and that if no additional staff were to be appointed he would regard a salary increase of 33.33% per annum appropriate.  The controlling group of the Council held 30 of its 34 seats and Mr Shaw thought that the councillors were not coming clean about what was being discussed behind the scenes.

I have referred to Mr Shaw’s account of discussions between 31 July and 3 August 1989.  The Council did not call Councillor Smalley or anyone else to contradict Mr Shaw’s account, but it did put in issue whether Mr Shaw made any claim for a salary increase at that time.  There is no documentation expressing or recording such a claim.  This is an issue to which I must return.

Although Mr Shaw did not complete his proposed end of July report on review of salaries, in the light (he said) of his discussions with Councillor Smalley, he had on 27 July 1989 completed a Report No. PR22 which referred to the Local Government and Housing Bill.  This report was put before the P and R Committee on 3 August 1989.

It contained the following:

	“...................each Council will be required to appoint a “Head of the Paid Service” and also a “Monitoring Officer” responsible for reviewing the propriety and legality of Council business who would under a duty report if any action or decision was likely to be improper or unlawful. ..................... The Authority must provide the Head of Paid Service with such staff, accommodation and other resources as are in his opinion sufficient to allow his duties to be performed.  Both of these posts could be held by one person, but the “Monitoring Officer” post has to be separate from the post of the Chief Financial Officer.  They are seen as complementary to each other.  The Monitoring Officer must also be provided with such staff and resources as he may require.  He must examine any proposal, decision or omission to see whether it would break any law, regulation or code of practice or cause maladministration or injustice........................
	He must appoint a Deputy.  This all has obvious implications for our organisation which we shall have to report to the September or October Policy and Resources Committee Meeting.”

On the 17 August 1989 the Council’s Senior Payroll Officer wrote to Leicester County Council’s superannuation section to obtain estimated costs to the Council of Mr Shaw’s retirement in the interest of efficiency or on grounds of redundancy, both with added years’ service.  The letter said: “The effective date is estimated as 30 September 1989, and the superannuable pay to the date of leaving is £30,732.”  That was Mr Shaw’s existing salary.  The letter is consistent with Option 2 having been raised.

In September 1989 Mr Shaw responded to a request from the Chief Executive and Clerk of North West Leicestershire District Council who was doing a survey of salaries and emoluments of Chief Executives and Chief Officers.  Mr Shaw requested the results of the survey which were sent to him on 20 September.

The survey revealed that Hinckley and Bosworth had the third highest population of the nine local areas surveyed, but that Mr Shaw’s salary was the second lowest of the Chief Executives.  Only the Chief Executive of a much smaller authority was paid less than he was.  A few days later still, on 27 September, Mr Shaw wrote to his union, MPE, speaking of the possibility of early retirement, and saying that: “Throughout the discussions I have made it quite clear that any early retirement proposal, whilst it would be acceptable to me in principle, is totally subject to suitable terms being agreed.”  He asked for support and advice

	“in the discussions that will be starting after 5 October when the proposals that have been discussed by the Chairmen and Vice-Chairmen will be considered.  From information I have from the political Group Meetings, there is no doubt that their proposals will be accepted.”

In order to write in those terms Mr Shaw must have known from discussions which had already taken place, that there would be approval of the report and recommendations which the Management Team of Chief Officers was to put to the P and R Committee on 5 October 1989.  The report, No. PR48, was expressed partly in the first person plural (the Management Team) and partly in the first person singular (Mr Shaw as Director of Administration and Finance, who was identified as its author).

After reference to Report No. PR22 and the need for a Head of Paid Service and a Monitoring Officer who could be the same person as the Head of Paid Service but not the same person as the Chief Financial Officer, and the need for the Direct Services Organisation (“DSO”) which had recently been set up to have a Chief Officer separate from the Council’s Director of Public Services, the report read in part:
	
	“Dealing first of all with my own Department, it is clear that a very simple solution to the problem would be to designate say the District Secretary as the “Monitoring Officer”.  That would leave me with the “Head of Paid Service” and “Chief Financial Officer” posts as at present.
	
	However last December the Management Team was asked to consider the Council’s organisation and structure following the resignation of Mr Bailey before the vacancy was filled.  We put forward a new structure which we felt would be in the best interests of the Council but that was not accepted.  That new structure was on the basis that I was willing to accept early retirement and redundancy although I also made it clear that I would be perfectly happy to continue.  It is reasonable to assume that because that offer of early retirement and redundancy was rejected, Members were quite satisfied with my performance and certainly I have not received any criticisms since.
	
	However because of the changes that are now proposed, I have been asked if I am still interested in early retirement and redundancy.  I have indicated that I would be, but only subject to my agreement of the terms being offered.
	
	However I have equally made clear, as I did last December, that I am prepared to continue either under the existing arrangements or under any new arrangements that may be adopted.  Certainly I accept that there is a huge amount of work relating to financial, administrative and legal matters and that perhaps under the present arrangements we are not getting the best results because I am unable to give the proper care and attention to all these areas.  Consequently whilst I believe the present arrangements still work, I do have to accept that possibly they could be improved by some changes involving the separation of the legal and administrative function from that of the financial function.”

The report then made reference to difficulties with the existing organisation and to earlier proposals with regard to organisation, before continuing:

	“Subsequently we have had discussions with the Chairmen and Vice-Chairmen and we are now putting forward the following proposals:-
	
	(a)	The Development Department remains unchanged.
	
	(b)	A new Chief Officer post of Treasurer be established with responsibility for the Accounts, Computer and Revenue Sections.  This would take away part of my post.
	
	(c)	The remainder of my post be transferred to a new “Clerk and Principal Chief Officer” or some similar designation with responsibility for the remainder of my functions........”

Proposal (d) related to the position of the existing Director of Public Services, Mr Evans, whose early and unwilling early retirement and redundancy from about May 1991 was also under consideration.

The report then made various points, the third of which was as follows:

	“Insofar as I am concerned, I am prepared to accept an early retirement and redundancy situation.  However I have again to emphasise that I am equally happy to continue in the Borough Council’s employment.  Consequently early retirement and redundancy on my part would only be on the basis that we agree on the terms.  If that does not prove to be possible, then I would expect to be offered the post of Clerk and Principal Chief Officer, or whatever title it was given.  That is because presumably Members are satisfied with my performance bearing in mind my offer last December to finish if Members so wished, its rejection, and the fact that until the Government’s response to the Widdicombe Report was published, no-one has raised the question again or indicated any dissatisfaction.”

The Government’s response to the Widdicombe Report was the Local Government and Housing Bill which was expected to receive the Royal Assent shortly.

The report concluded:

	“The Management Team is therefore recommending:-
	
	(1)	The adoption of the proposals set out above which it has been indicated to us by the Chairmen and Vice-Chairmen is the structure that we wish to have.  We have to say that it is the best arrangement and for that reason we support it.  However we are in a difficulty because in supporting it we are effectively supporting the enforced early retirement and redundancy of the Director of Public Services with which we do not agree.
	
	If these proposals are accepted, we then recommend that:-
	
	(2)	The Chairmen and Vice-Chairmen of this Committee and the Establishment Committee be given delegated powers to negotiate and conclude the terms of any settlements.
	
	(3)	Authority be granted for the advertising of the Treasurer and Clerk and Principal Chief Officer posts immediately after the terms of any settlement relating to my post are agreed.
	
	(4)	If terms for my early retirement and redundancy cannot be agreed, then the post of Treasurer be advertised but that I assume the post of Clerk and Principal Chief Officer with the organisation as set out.”

Recommendations 5 and 6 related to the DSO.

In my view, “the terms of any settlements” in Recommendation (2) clearly refer back to the terms of Mr Shaw’s “early retirement and redundancy”, and to the terms of Mr Evans’ departure.

The Committee decided to convene a special meeting to consider the question of Mr Shaw’s early retirement, on 30 October 1989.

Also on 5 October 1989, Mr Shaw submitted a letter to the District Auditor setting out terms on which he was willing to accept early retirement.  They included added years towards his pension, a redundancy payment, payments in lieu of notice and holiday periods, and various possible termination dates including Mr Shaw’s preferred date of 31 July 1990 if he was to leave before 31 May 1991.  However, the letter went on to say that if he accepted 31 July 1990 he would lose the Returning Officer’s fee for the 1991 election; he calculated these to be £4,400, and said that “if ... Members insisted on a date before May 1991 whereby I lost those fees, then I would only be prepared to accept that on the basis that my salary was increased to recoup them.”  That was the first documentary reference to a possible salary increase, and it was related to the loss of the Returning Officer’s fees if he left on 31 July 1990, but Mr Shaw did attach a copy of the North West Leicestershire survey of Chief Officer’s pay and he referred to his extra work in relation to reorganisation as justification of such a salary increase.

In fact the Committee did not proceed to its special meeting because on 17 October 1989 the full Council resolved that the Council’s structure and organisation should consist of three Chief Officers, namely a Clerk and Principal Chief Officer, a Treasurer and a Director of Development; and that recommendations 2, 3 and 4 in Report PR48, which I have set out above, be adopted.

The Chairmen and Vice-Chairmen of the two Committees, who were given delegated powers to negotiate and conclude the terms of any settlements, and thereby constituted a sub-committee, were Councillors Smalley, Wallace, Coker and Davenport.  Councillor Coker was the brother of Mr Michael Coker, but was not suggested by any party to the two actions that Mr Michael Coker was instructed to advise the Council because of his brother’s influence or that one brother brought any undue influence to bear upon the other.  Mr Michael Coker was a very experienced solicitor who was also a member of a District Council in nearby Warwickshire, and therefore apparently well qualified to advise the Council.

I will refer to Mr Coker, the member of the Council, as “Councillor Coker”, and Mr Michael Coker, the Second Defendant, simply as “Mr Coker”, in order to avoid any confusion.

On 23 October 1989, Mr Wilson, the Deputy District Auditor, replied to Mr Shaw with his “informal comments” on Mr Shaw’s suggested retirement terms.  He said that the Solicitor to the Audit Commission had given his opinion that local authorities, in terminating the employment of their officers, could pay only those amounts which were authorised by the specific law relating to local authorities and regulations thereunder.  His advice was therefore based upon that opinion.  His advice was generally favourable, but he said that a payment of Returning Officer’s fees if Mr Shaw retired before the May 1991 election was not straightforward.  It would probably be ex gratia and outside the Solicitor’s advice.  The Council should take legal advice.

On 30 October 1989 Mr Shaw wrote to Councillor Smalley at his home address, setting out the terms upon which he was willing to accept early retirement.  It was a long letter, but it is important to issues in this case, so I must relate substantial parts of it.

After a reference to some papers which Mr Shaw had apparently given Councillor Smalley on 16 October, the day before the resolution which set up the sub-committee to negotiate and conclude the terms of any early retirement and redundancy of Mr Shaw, the letter continued:

	“............ These papers set out the matters on which I would require agreement before I could accept any arrangement for my early retirement on the grounds of redundancy.  I set out alongside each of the five items the cost in the first year, and for subsequent years.  The matters and figures, assuming I left at 31 July 1990, were:-
	
		1st Year cost
£	Thereafter per annum
£	
1.	5 added years to make up 40 years	11,478	2,869	
2.	Redundancy Pay
	23,120	-	
3.	Payment in lieu of holidays not taken from 1 April 1990	not assessable	-	
4.	Payment in lieu of notice to be incorporated in my salary	8,453	-	
5.	Salary increase to offset lost election fees	5,000	-	
		
48,051	
2,869

	As I advised you, even before I let you have the figures I had already asked the District Auditor for his confirmation that the arrangement was acceptable.  I have now received his response, which is that items 1, 2 and 3 are acceptable.  He seems to have totally misunderstood item 4 in that he has not replied to the question I put to him!  He agrees item 5 if the Council consider it reasonable.
	
	However it seems pointless to go back to him about item 4 because I would expect him to take the same line as item 5, and in the Council’s interest, I think we need a firmer opinion than that!
	
	However with my calculations of the 16 October I did sent to you the results of a recent survey carried out by North West Leicestershire District Council which covered all the Leicestershire Authorities, (except the County Council and City Council), and other Authorities on the Leicestershire County boundaries.  No Authorities were identified, although from our return I was able to identify Hinckley & Bosworth Borough Council.  As I pointed out to you, H.B.B.C. was the third largest of the nine Authorities, yet our salary levels were the eighth lowest of the nine.  I pointed out that in my view the results of the survey justified a salary review in its own right.
	
	In view of the lack of clear and firm response of the District Auditor, it is that review of salary that I now suggest. ..........”

The letter then gave the results of a survey of recent Local Government Chronicle advertisements for District Council Chief Officer vacancies, which Mr Shaw had carried out.  The letter pointed out that although only two of the eight authorities had a larger population than Hinckley and Bosworth every one offered a substantially larger salary than Mr Shaw’s; none of the six Chief Executive posts in the survey had any departmental responsibilities; the other two posts were single department Chief Officers; and the survey supported the information from nearby Authorities.  All the figures were pre-1989 pay claim.  The letter continued:
	
	“All of these figures set out above, and which now follow, are pre 1989 pay claim.  Consequently, based on the above facts, I now put forward a formal request that the salary of my existing Principal Chief Officer and Director of Administration and Finance post be increased by 33.33% to take the salary from £30,732 to £40,976 for the period 1 August 1989 to 31 July 1990 only.  On that date I will accept termination of my employment on the grounds of redundancy, and the claims I put forward under item 5 would be deleted.
	
	The costs to the Borough Council would then be:-
	
		1st Year
£	Thereafter per annum
£	
Item 1		11,022	2,755	
Item 2		21,670	-	
Item 3		not assessable	-	
Item 4		9,456	-	
	
Salary increase for 1 year	42,148
10,244	2,755
-	
		
52,392
	
2,755	
	
	This compares with the cost of the proposal put to you on 16 October of:-

48,051
(Increase of
£4,341)	
2,869
(A reduction of
£114 p.a.)	
	
	Presumably that original proposal was not considered excessive or unreasonably because the Council then proceeded to adopt the amendment at its meeting on 17 October. .........”

The letter then went on to say that the basis for Mr Shaw’s “revised salary claim” was that he held three major posts; when restructuring took place the Clerk and Principal Chief Officer would lose many of his, Mr Shaw’s responsibilities yet he would receive at least Mr Shaw’s salary, and possibly more; so would the new Treasurer; the pressure of work on Mr Shaw had been enormous for the last six months, at least; and he was 500 hours in credit in flexitime since 1 January 1989.  Mr Shaw did not deny that the increase requested was substantial, but in view of the reorganisation which the Council now wished to carry out, which would place even greater burdens on him in the interim period, and the current level of major changes in government finance and legislation, he felt fully justified in putting forward his proposal which would run for the period from 1 August 1989 to 31 July 1990.

The letter ended:

	“I do emphasise that the proposal is for a strictly limited period to reflect what I am now being called on to do.  For any other Chief Officers that position will not apply, neither will it apply to the new post of Clerk and Principal Chief Officer.  I will, of course, still want any agreement to be cleared by the District Auditor before any document is signed.”

Mr Shaw gave evidence that the £5,000, Item 5 at the beginning of the letter, was calculated by taking 20% (the rise which he had originally asked for) of £30,000 (his approximate current salary) for the period of ten months from 1 August 1989 (when he first made a claim for a salary increase) to 31 May 1990 (when it had been suggested that his employment should end).  The reference above the table at the beginning of the letter to “assuming I left at 31 July 1990” was a mistake.  It should have been “31 May 1990”.

Mr Shaw said that he did not know how the date of 31 July 1990 came to be chosen.  It occurs to me that it may have been a half-way compromise between Councillor Smalley’s original preferred date of 30 September 1989 and Mr Shaw’s preferred date of 31 May 1991.  Of course it was also precisely one year after the date, when Mr Shaw said, he made a claim for an increase in salary.

The P and R Committee met again on 2 November 1989.  Item 21 on the Agenda was:
	
	“CHIEF OFFICER APPOINTMENTS
	
	To consider the terms and arrangements for filling the vacant post of Treasurer and possible vacant post of Clerk and Principal Chief Officer.”

Mr Shaw’s report for the meeting, as Director of Administration and Finance, referred to Item 21 and gave Members information which he thought might help them, as follows:

	“Terms of Appointment
	
	The salary scales for Chief Officers are governed by population levels and Hinckley and Bosworth falls within the population band of 80,000 to 120,000. The scale and increments are as follows:-
	
	Point A		£28,863
	Point B		£29,583
	Point C		£30,306
	Point D		£31,026
	Point E		£31,746
	
	These figures include the pay award agreed last week of 8.6% which was effective from the 1 July 1989.  Principal Officers, who are the Section Heads on a Local Scale, are paid 70% of the above figures with the exception of the District Engineer, who receives 72½%, the Manager Council Properties and Manager of the DSO, who each receive 75%.
	
	The salary scales set out above for Chief Officers are at the top of the ranges allowed and it may well be that Members wish to retain that scale for the new appointments.  Certainly any change in that for the two new appointments would have to be applied also to the Director of Development.  The Principal Chief Officer receives, in addition to the above salary scale, a fixed payment of £1,500 per annum in his role as “Head of Paid Service”, but that does not receive the benefit of any salary awards.  It is a fixed payment in addition to the salary scales.  Originally it was £1,000 per annum but increased to £1,500 per annum in 1983.
	
	The matter of overall terms is one for Members, but my own view is that it would be practical to make changes in the area of this plusage without having repercussions on the salary of the Director of Development and the Section Heads. ..........”

The minutes of the meeting recorded that, among other matters, “consideration was given to the terms and arrangements for the filling of the new post of Treasurer and the possible vacant post of Clerk and Principal Officer”, and that the P and R Committee recommended that “the existing salary scales for Chief Officers be retained” and that that recommendation be submitted to the Council in public session.

Mr Patrick Ground Q.C., for the Council, contended that the minutes meant that it had recommended that Mr Shaw’s existing salary as Director of Administration and Finance and Principal Chief Officer should be retained.  I reject that argument.  The agenda Item 11 and Mr Shaw’s report were clearly from their wording directed at the new, vacant post of Treasurer and the new and possible vacant post of Principal Chief Officer, and the Committee’s consideration and recommendation were clearly, from the wording of the Minute which I have quoted directed at those posts also.  It would have been absurd of Mr Shaw to have recommended that the salary scale of his existing post remain the same when he had just suggested a substantial salary increase which would take him well outside the scales which he quoted, and the Committee could not have believed that that was what he was doing when, in effect, it accepted his advice in his own recommendation.  All four of the Councillors who had been deputed to reach terms of settlement with Mr Shaw, if possible, were at the P and R Committee meeting on 2 November, and they would hardly have gone on to discuss and agree the terms which they did with Mr Shaw if they had tied their hands to the Scales recommended by the Committee, so far as his existing post was concerned.

However, Mr Ground also argued that if the Council had decided to retain new Chief Officer’s salaries at the same scale in the future, as they clearly did, it was very difficult to see how they could be prepared to increase Mr Shaw’s salary in his existing post, to a figure well above the scale, even taking into account his work load and his multiple duties, save for the purpose of retirement and redundancy negotiations.

In early November 1989 Mr Coker was telephoned by Councillor Smalley and retained by the Council to provide legal advice on Mr Shaw’s and Mr Evans’ redundancy packages.  Councillor Smalley told him that Mr Shaw would write to him for this purpose.

By that time Mr Shaw must have agreed his terms of departure, subject to Mr Coker’s advice, because on 13 November he wrote to Mr Coker a letter which started by informing Mr Coker that the four Councillors had been authorised “to conclude agreements related to the redundancies of both myself and the Director of Public Services” following reorganisation.  It attached a copy of the letter which Mr Shaw had written to Councillor Smalley on 30 October 1989.  It informed Mr Coker that the proposals in the 30 October letter had been agreed save that the 33.33% increase in salary to £40,976 was to be 30% to £39,951, so that:

	“Essentially the agreement comes down to:-
	
	(a)	The revised salary of £39,951 to be from the 1 August 1989 to the 31 July 1990 only, subject to the 1989 pay award and 1990 pay award.
	
	(b)	Retirement on the basis of redundancy in accordance with the Council’s Severance Scheme, a copy of which I attach.  This will include a redundancy payment and the payment in lieu of notice referred to in the scheme.
	
	(c)	Payment in lieu of any holiday periods from 1 April 1990 which have not been taken. .............”

Mr Shaw attached a document which Mr Evans had prepared in relation to the arrangements for his departure, which were also set out.  He also attached a copy of the Council’s Severance Scheme which included the provision:
	
	“The Council will also pay one week’s pay in lieu of notice for each year’s service up to a maximum of twelve weeks where payment in lieu of notice is given on termination of employment.”

Mr Shaw gave evidence that a long “Statement of (nine) Reasons for claiming the salary increase requested in my letter of 30 October 1989” was also enclosed with his letter to Mr Coker.  Mr Coker did not believe that the Statement was enclosed with the letter.  He first saw it before the meeting on 20 December.  In my judgment the Statement of Reasons was probably prepared by Mr Shaw for that meeting.  I believe that he would have referred to it in his 13 November 1989 letter if he sent it to Mr Coker then, even though he said that he was too busy to dot every “i” and cross every “t”.  But the issue is of no particular importance.

Although I accept Mr Shaw’s evidence that he was anxious that the Council should obtain independent legal advice and the approval of the District Auditor before committing itself to any agreement with him, the whole tenor of his letter to Mr Coker, in my view, was that he expected Mr Coker to approve the terms which had been reached, and on the 13 November 1989 Mr Shaw also wrote to Mr Wilson, the Deputy District Auditor, in terms which were clearly designed to convince him that the extent of his salary increase was reasonable and that, provided that the Council acted reasonably, salary levels were for the Council alone to decide.

On 14 November 1989 the full Council adopted the recommendation made by the Policy and Resources Committee on 2 November 1989, with regard to salary scales for Chief Officers within the Council being retained.  Again their resolution must have related to salary scales for the new Treasurer, and the new Clerk and Principal Chief Officer, in my view.

On 20 November 1989 the County Treasurer wrote a letter marked “Confidential” to Mr Shaw as Principal Chief Officer and Director of Administration and Finance of the Council, expressing his concern if Mr Shaw’s salary level in respect of his last year of service had been increased to inflate the County Council’s main fund superannuation benefits.

On 24 November 1989 Mr Wilson wrote to Mr Shaw as Principal Chief Officer and Director, in answer to Mr Shaw’s letter of 13 November.  In respect of the proposed increases to the salaries of Mr Shaw and Mr Evans, he wrote:

	“I think it ought to be made clear that its final decision was taken in the full awareness that the benefit that the public is likely to receive from the additional salary payments will be limited to the period before the posts in question are declared redundant. In the case of Mr Evans this will be no more than two months.
	
	Further, the cost of the enhanced pension and/or increased redundancy payments which will arise from the new salaries will arguably provide no benefit to the ratepayers.  The financial consequences of all options should be quantified and placed before members. ....................I think you advised the Council well in telling it to take independent legal advice.  The matter is a sensitive one to which I am sure the Council will wish to give its fullest attention.”

On the same day Mr Coker wrote to Councillor Smalley at his home address with his advice as to Mr Shaw’s and Mrs Evans’ proposed redundancies.

Mr Coker said that he felt it

	“only appropriate ..... to mention the following factors:-
	
	Firstly, since the date when Mr Shaw’s employment is to terminate is known well in advance it would be open to the Council to give the appropriate notice prior to the 31st July 1990 and thus save itself a payment in lieu thereof.  I understand however that this is not uncommon in circumstances such as these for Councils to give payments in lieu of notice in any event but I feel I should draw this to your attention.
	
	Secondly and perhaps more important, the salary agreed of £39,951 is to date from the 1st August 1989 and is subject to the 1989 pay award.  From my enquiries the pay award became effective as of the 1st July 1989 in the sum of 8.5% and the salary you have therefore agreed is effectively £43,380.
	
	The range of salaries laid down for Shire Districts for Chief Executives on 1st July 1989 for authorities such as yourself is in the range of £31,714 to £39,189 and the figure of £43,380 is just below the maximum suggested for authorities of a 175,000 to 200,000 population.
	
	If the figure remained at £39,951 it would be approximately £800 more than the maximum for authorities in your range (75,000 - 120,000) and in the circumstances not open to question.
	
	Mr Shaw holds an unusual position but I think that you should bear in mind the increase which will be attached immediately to the salary you have agreed.  It is also subject to the 1990 award which would be due on the 1st July 1990.
	
	I think it is clear from my enquiries that the authority has been underpaying Mr Shaw for some time and quite obviously this should be rectified.  It is not my position to endeavour to set the salary level but I felt that I should mention to you the above factors.  Authorities do obviously pay more than the guide lines but I enclose copy of those lines I have obtained in relation to Chief Executives so that you can see the ranges.
	
	I understand from the correspondence that all of these matters have been cleared with the District Auditor but you should check that you will not receive any adverse comment from that quarter when the package is agreed having regard to the above matters.”

A meeting of the four Councillors, Mr Shaw, Mr Evans, Mr Coker and representatives of the District Auditor was arranged for 20 December 1989.

On 18 December 1989 Mr Shaw wrote to Councillor Smalley with copies to the other three Councillors, seeking to vary his suggested terms of termination to allow for payment of a consultancy fee of £5,000 to make up for the pension lump sum being £4,893 less than he had estimated.  Mr Shaw pointed out that the agreement which had been reached followed his letter of 30 October, and continued:

	“The figures which I put forward, both for the benefits which I would receive and the cost to the Borough Council, were based on certain assumptions relating to the superannuating legislation.  Subsequently I have had them checked out by the County Council who have confirmed part of the calculations, but because of my pre 1972 service in relation to any possible Widows Pension, the lump sum which I had expected to receive has been reduced by £4,893.  Consequently there is a shortfall in what I had calculated I would receive in that amount.”

The letter went on to say that the Council’s costs would be reduced by £4,020 in the first year of retirement and by £421 per annum thereafter, and that if this was so Mr Shaw did not see why he and the Councillors should not “stand by the original agreement and costs that we reached”.

The letter concluded:

	“The question is, how can this be done?  There are different ways but in my view they can be complicated.  The simply solution, and the one I now put forward, is that on my termination on the grounds of redundancy and with the continued major changes in local government legislation, I be retained on a consultancy basis for a period of five months to the end of the calendar year on a self-employed basis at a fee of £1,000 per month.  That will produce for me the sum of £5,000 which is almost identical to the £4,893 loss.  It will cost the Borough Council £5,000 which is offset by a reduction of £4,020 in the figures put forward for the first year, and a reduction of £421 per annum thereafter.  This seems to me to be a sensible arrangement and effectively brings us back to the figures that were produced at the meeting following my letter of the 30 October.”

On 20 December 1989 there was a meeting attended by Councillors Smalley, Wallace, Coker and Davenport, Mr Shaw, Mr Coker, Mr Wilson, the Deputy District Auditor, Mr Hemmings who was Assistant District Auditor, and Mr Evans.  It was preceded by a meeting between Mr Coker and the four Councillors, which Mr Shaw may or may not have attended.

No other unconcerned officer of the Council attended to take a minute of what transpired at what all counsel agreed was effectively a meeting of a sub-committee of the Council, comprised of the four Councillors, but Mr Shaw later produced a long, detailed note of what transpired.  Mr Shaw and Mr Coker gave evidence that it was an accurate note, and there was no evidence to contradict Mr Shaw’s account of what was discussed, and in what terms.

In his note Mr Shaw is recorded as producing draft Agreements for himself and Mr Evans “together with, for himself only, a statement of reasons supporting the claimed salary increase as set out in his letter of the 30 October 1989.”

Mr Coker is recorded as explaining in detail the factors that had to be considered by the Members in reaching decisions on salary levels so that they could come to a proper decision and emphasising that Members also had to consider any views expressed by the District Auditor in answering questions raised by him.  That was why the District Auditor was present.  In Mr Coker’s view there was certainly a redundancy situation for both Officers as a result of the review and therefore Members had to follow the redundancy rules of the Council’s Severance Scheme.

Mr Coker emphasised that whatever terms there were in the Agreement, the Officers could not sign away their rights to claim unfair dismissal and take industrial tribunal proceedings unless the matter had been dealt with through ACAS which it had not been.  Both Mr Evans and Mr Shaw emphasised that there was no question of any reference to a Tribunal and Members would have their word on that.

The four Councillors then asked the views of the District Auditor’s representatives on the terms set out in the draft agreements.  Mr Wilson explained why he could not commit the District Auditor but he felt that the meeting should look at the proposed terms and particularly the proposals relating to salaries.  Mr Wilson said that the presence of Mr Coker, the solicitor, who was also a Member of another local authority, clearly showed that proper independent advice was being received and in the opinion of Mr Wilson the letter of the 24 November 1989 from Mr Coker to Councillor Smalley gave to the Members all the protection that they needed.  However to be doubly certain there were a number of questions about the new salaries that he wished to put.

Those questions were then raised, and answers and explanations given.  Among other matters Mr Shaw pointed out that he had made his salary claim to apply from the 1 August 1989 because it was on that date that he had become aware of a probable redundancy situation.  This point was recorded on more than one occasion in Mr Shaw’s notes, and Mr Ground made the point that Mr Shaw’s notes referred to the 1 August 1989 because that was when he had become aware of a redundancy situation rather than because that was when he first made a claim for a salary increase.  The latter suggestion did not appear anywhere in the notes of the meeting which do read to me as a long justification of the proposed terms.  The whole of Mr Shaw’s notes of the 20 December meeting with the District Auditor’s representatives - all eight, closely typed pages - has to be read to get the flavour which they give, of the meeting.  Accepting them as accurate, as both Mr Shaw and Mr Coker asked me to, it is clear that both Mr Shaw and Mr Coker acted as advocates of the reasonableness and propriety of both agreements in respect of Mr Shaw and Mr Evans.

In any event Mr Wilson was recorded as saying that all his queries had been satisfactorily answered and that he was “not unhappy” with the proposals.  He and Mr Hemmings left the meeting, and as a result of further discussions it was agreed that:-
	
	“1.	The terms agreed with Mr Shaw as set out in the draft Agreement be confirmed for the reasons which are set out at items 1 to 9 in his statement of reasons circulated to the meeting.  The date of the 1 August 1989 to be applied on the basis that Mr Shaw could well have claimed a payment for an earlier date on the information he had received but was prepared to accept that date on the basis that it was the date he had been first advised of the possible redundancy situation.
	
	2.	If Mr Shaw did remain with the Borough Council, his salary would be the same as it was at the present time although he would lose substantial areas of work relating to the computer and finance functions.  Consequently whilst he retained these functions in a particularly difficult period of new legislation, it must be right for the proposals he had put forward to be accepted.
	
	3.	Clearly the District Auditor was satisfied with the explanations that had been given and his inability to go further and say he was “not unhappy” was simply because he was not allowed to go further than that and of course he could not be seen to pre-judge any future objection.”

On 22 December 1989 Mr Coker wrote to Mr Shaw.  The last paragraph of his letter suggested that it might be better to alter the draft agreements to divorce the increases in salary from the redundancy agreement as he had gained the impression that Mr Wilson had been keen for them not to be related.

On 4 January 1990 the Council and Mr Shaw made a written agreement which contained the terms upon which Mr Shaw’s employment would terminate.

The material parts of the Agreement provided as follows:
	
	“WHEREAS:-
	
	1.	The post of principal Chief Officer and Director of Administration and Finance which is held by the said Frank Shaw will at a future date and as a result of the provisions of the Local Government and Housing Act 1989 (“the 1989 Act”) and the Council’s desire to reorganise become redundant.
	
	2.	The Borough Council of Hinckley and Bosworth (“the Council”) and the said Frank Shaw have mutually agreed certain variations in the current terms and conditions and Contract of Employment in consideration of the additional substantial responsibilities of work arising out of the 1989 Act in the period leading up to the said redundancy.
	
	3.	The said variations in the current terms are that:-
	
	(a)	With effect from 1 August 1989 the salary of the said Frank Shaw will be increased by 30% from £30,732 per annum to £39,951 per annum.
	(b)	Such salary will receive in addition the benefit of any salary award already agreed or to be agreed in respect of the ’1989’ and ’1990’ national pay awards.
	(c)	The provisions set out at (a) and (b) above will run until the period ending 31st July 1990 and no further on which date the post of the Principal Chief Officer and Director of Administration and Finance will become redundant (“the redundancy”).
	
	4.	Frank Shaw accepts that having regard to the provisions of Clause 1 his position will become redundant on 31st July 1990 and hereby declares and accepts that in consideration of the provisions of Clause 5 of the Agreement the Borough Council of Hinckley and Bosworth has applied all relevant legislation properly and fairly and that there is no basis whatsoever for any claim of reinstatement or unfair dismissal by virtue of the redundancy or otherwise.
	
	5.	The provisions referred to in Clause 4 above which form part of the consideration are that on the redundancy:-
	
	(a)	The Borough Council of Hinckley and Bosworth will pay the said Frank Shaw for any holiday entitlement in the period 1st Aril 1990 to 31st July 1990 at the salary then current.
	(b)	The Severance Scheme including its redundancy provisions as adopted by the Borough Council of Hinckley and Bosworth as applied to the said Frank Shaw will be put into full effect except that any “added years” referred to in the Severance Scheme will be limited to those necessary to bring the years of the service of the said Frank Shaw up to forty years.
	(c)	The said Frank Shaw will be retained on a self-employed basis as a consultant to the Borough Council of Hinckley and Bosworth for a further period of five months from the 31st July 1990 but no further at a rate of £1,000 per month to be paid gross on a monthly basis on the last day of each month in arrear.
	(d)	On the redundancy the said Frank Shaw will receive three month’s pay gross in lieu of Notice under the Council’s Severance Scheme at the salary then current whether or not any Notice of Termination of Employment is given or received.”

The agreement provided for the 30% increase to be on the whole of Mr Shaw’s salary of £30,732 per annum which included the Principal Chief Officer’s fixed payment of £1,500 in respect of his role as Head of Paid Service.  It also provided that the 1989 and 1990 national pay awards were to be added to the resulting figure of £39,951.  The 1989 award had been agreed at 8.6%, and this brought Mr Shaw’s salary for his last year of service from 1 August 1989 to 31 July 1990, pursuant to the agreement, to £43,386.  His redundancy payment, retirement lump sum and annual retirement pension therefore fell to be calculated on that last figure, rather than on the total salary of £33,290 which, I was told, would have been his salary for the year to 31 July 1990 but for the increase made by the agreement.  Mr Ground told me that Mr Shaw’s salary increase inflated his redundancy payment by £6,665.76, the lump sum paid by the Council by £2,063.18, the lump sum paid by the County Council by £2,438.03, the total annual pension paid by the County Council over the intervening years by £44,196, the total pension paid by the Borough Council by £3,150, a total of £47,348 or about £6,000 per annum on average.  Mr Shaw’s total annual pension from both the Council and the County Council would now be about £23,000 without the agreed increase, compared with about £30,000 with the increase, a current increase of about £7,000 per annum.  I believe that these figures took account of a later increase in the Principal Chief Officer’s fixed payment, to which I will come in any event.  I am not asked to judge the quantum of the Council’s claims against Mr Shaw and Mr Coker, if they are successful, nor am I concerned with the proceedings which the County Council have taken against the Council, which have been stayed pending this judgment.  But Mr Ground put those figures before me to show the enhanced redundancy and pension benefits which Mr Shaw received, and must have appreciated he would receive, in general terms at least, from his salary increase.

Mr Evans’ agreement with the Council provided for redundancy on 31 May 1991, with an increase in salary from 1 April 1990 from £31,746 to £39,683, the benefit of added years, but no payment in lieu of notice or consultancy arrangement.

As far as Mr Coker was then concerned his engagement by the Council ended with the making of the agreements, and on 5 January 1990 he presented his fee note for £600, plus VAT, for a total of nine hours time involved.

On 1 February 1990, the District Secretary wrote on behalf of the Council to Mr Shaw giving him formal notice of the termination of his employment, in the following terms:

	“I refer to the discussions that have been going on over a period of some months concerning the Council’s proposals for reorganisation arising out of the Local Government and Housing Act 1989.  You have now agreed with representatives of the Borough Council that you will accept the termination of your employment with the Borough Council on the grounds of redundancy and in this connection your job will no longer exist with effect from the 31 July 1990.
	
	This letter is therefore a formal notice of the Council’s decision to terminate your employment on the basis of redundancy on the aforementioned date which means that your employment also ceases on that date. ..........”

Mr Coker was not aware that the Council proposed to give Mr Shaw notice, and he did not become aware that it had done so until he was sued.

On 28 February 1990 Mr Shaw was instructed by the Establishment Committee to report to the P and R Committee on the costs to the Council of the agreements reached for the early retirement of himself and Mr Evans.  His report dated 1 March 1990 said that the District Auditor had been involved throughout the negotiations.  He had attended the meeting when the terms of the settlement were agreed and he raised no objections to those terms.  A solicitor with Local Government experience had been engaged by the four Councillors to advise them and he had advised them throughout.

The solicitor had not been known to Mr Shaw or to Mr Evans and he was not in practice in the County of Leicester.  The solicitor had confirmed that the terms of the agreements were “in his opinion proper and reasonable”.  Mr Shaw’s report then summarised the terms so far as he was concerned.  It spoke of the consultancy clause, saying:

	“There is to be a five months period of consultancy arrangements from 1st August, 1990 to 31st December, 1990 at £1,000 per month, payable gross.  I am to retire on the 31st July 1990.”

So the fact of the consultancy agreement was published, at least to the seventeen Councillors who attended the P and R Committee meeting on 1 March, 1990.  Mr Shaw and Mr Evans were the only Council officers minuted as being in attendance.

 Finally, the report set out in tabulated form the costs of the arrangements to the Council, stating that they were the costs borne directly by the Council.  All other costs were a charge on the County Council’s Superannuation Fund.

Thereafter, Mr Shaw communicated with the Superannuation Section of the County Council and discovered a problem about the Borough Council adding years service for superannuation.  At about the end of May or beginning of June 1990, he met the four Councillors and they agreed to increase his salary by a further £7,454 per annum from 1 August 1989 and to delete any reference in his agreement to added years, with the result that he would receive the same pension as originally agreed.  He left a message to this effect for Mr Coker at his office, and asked that Mr Coker sign four copies of the amendment to the agreement, which he was sending.  In evidence, Mr Shaw said that the new agreement did amount to increasing his salary to increase his pension.  He saw nothing wrong in increasing his salary to make up the unanticipated shortfall in his pension.  He felt there would be no adverse financial effect on the Council, although the increase in salary would have increased his redundancy payment in lieu of notice and his holiday pay.

On 4 June 1990, Mr Coker wrote to Mr Shaw at the Council Offices as follows:
	
	As I understand the position the Council must decide if it is reasonable on due consideration to increase your salary to the amount suggested.
	
	I believe that the Council did this previously, and increased your salary above that which would usually be paid on the normal scales, on the basis that your position was different to that of most senior officers in that you held three portfolios.  This was my advice of the first occasion and I believe was accepted as far as he was able by the District Auditor.
	
	The question of Pension was not considered by me as it followed directly from the salary granted to you and was under the normal conditions relating to you and should be so.
	
	I am now concerned that we are endeavouring to gear the salary in order to produce a pension.  I think that this is the wrong way round and that the Councillors will be in the difficult position of defending the salary as they will have to take the line that they increased it in order to produce the pension when this should be the other way round.
	
	In the circumstances I am not happy with the new arrangement and can only suggest that before it is instituted that further advice be taken from the District Auditor.”

On 14 June 1990, Mr Coker met his brother, Councillor Coker, and Mr Shaw.  His attendance note upon which his evidence was based records:

	“We discussed in some detail the advice which I had given and correspondence.  I suggested to them that the only method by which the Council could carry out its intentions was if they were able to say that they had tempered their decision in relation to the new salary by considering that Mr Shaw would retire early together with added years and that therefore they had kept the salary increase down based on the fact that he would be having an accelerated pension and increased by payments from the Council.  That in the light of the new circumstances where they had misunderstood the situation relating to the pension, they could perhaps say that if they had known this then they would have increased the salary not so as to increase the pension but to provide a better reflection than Mr Shaw’s work actually carried out bearing in mind that he had 3 portfolios and was effectively being replaced by Officers whose total salaries would be in the order of £65,000.  Mr Shaw produced a job advert for a sum of £51,000 for a Chief Executive for a small organisation plus all the usual conditions.  I said that I was prepared to advise the Council that they might consider the line of approach that I had outlined but that they must in any event take the advice of the District Auditor and that whilst I was quite satisfied in relation to arrangements they had made originally I was far less satisfied in relation to the new arrangements.”

Mr Coker, Councillor Coker and Mr Shaw then went to the District Auditor’s office in Leicester where they saw Mr Hemmings.  Mr Coker, as he accepted, acted as advocate for the further salary increase which had been agreed, saying that in arriving at the original salary increase the four Councillors had borne in mind that Mr Shaw was doing three jobs and would be replaced by Officers who would be earring approximately £65,000 between them and that as a result the salary was much below that which would be expected.  Mr Coker said that he believed that the Councillors had tempered the increase that they had originally had in mind, quite properly, by the fact that Mr Shaw would have an accelerated pension increased by his redundancy and that whilst the salary was not intended to gear the pension, the pension had in fact geared the amount of the increase by their knowledge that he would receive the added years and early retirement coupled with redundancy payments in accordance with the scheme.  But he believed that it had been clearly accepted that the salary which was intended was reasonable and that the arrangements regarding redundancy and pension were in accordance with the Council’s own arrangements which were again in line with national and proper arrangements relating to these.  It had come to the notice of the council that their understanding of the pension arrangements had been mistaken.  This had resulted in the Councillors tempering the amount of increase that they had in mind on mistaken advice and resulted likewise in Mr Shaw receiving a lesser pension than they had expected that he would receive so that he was effectively caught twice in that the Council and he had misunderstood the amount of pension that he would receive and the salary had been tempered by the incorrect amount. As a result the Council had decided that they should then fix the salary at a more appropriate level in the knowledge that they would be paying less for the pension in that there would be no added years and there would be a saving to the Council.

Mr Coker told me that he was prepared to make this plea to Mr Hemmings, although there was really no basis for suggesting that the Councillors had kept the original agreed increase down because of the pension benefits which it would bring, because he did not think it would succeed.

The plea did not succeed, and on 27 June 1990 Mr Coker wrote to Mr Shaw at the Council, but marked “Private and Confidential” a letter which said that he had now heard from the District Auditor.  It related some of the history and his original advice that
	
	“..................... the arrangements were quite proper in so far as they followed the established redundancy and retirement provisions as understood at that time and would not therefore in the normal course of events be open to question if the salary was in order.”

The letter went on to relate his advice when he was made aware of the newly agreed, further increase, in the following terms:
	
	“I advised when I was made aware of this that my view was that it would be improper to fix a salary in order to produce a pension and that the pension must be produced by a salary agreed on a proper basis.”

Mr Coker informed Mr Shaw of the District Auditor’s response to the question of a further salary increase, in the following terms:

	“The District Auditor has now given me his informal views on the matter and I would summarise them as follows:
	
	(1)	In his view in considering your original salary increase some six months ago the Council clearly took my advice that they should be considering the question of the salary alone and not pension which should flow from the salary fixed.  It would be open to question if the Council reconsidered the matter again in such a short period.  He also referred me to the case of Re: Magrath 1934 2 K.B. 415 which clearly suggests the retrospective remuneration of an officer was open to question and that a challenge might lead to a surcharge.  I enclose a copy of the Headnote and can if you wish produce the complete judgment.
	
	Overall therefore on the question of an increase in salary on the basis of the argument that we presented he was not happy with the proposal and I think from this it would follow that he would be almost bound to raise it on the Audit. ..................................
	
	In conclusion the informal advice which I received was that the arguments that I put on behalf of the Council would not be generally acceptable as were the original submissions.”

His work in relation to these matters, which included “consideration of ......... case law suggested by the District Valuer (sic)”, amounted to nine and a half hours for which he charged £650 plus VAT on 18 July 1990.

The agreement for a further increase in Mr Shaw’s salary was not put into effect.  Further developments and discussions with the County Council’s Superannuation Section avoided the problem in respect of added years, pursuant to the original January 1990 agreement.  That agreement was, however, amended by an agreement on 19 July 1990 to increase the Principal Chief Officer supplement by £1,500 per annum from 1 August 1989.  The memorandum of that agreement was signed by Councillor Coker and Mr Shaw.  It said that the need to review the supplement as an independent item was overlooked in the discussions and came to light as a result of the Council’s decision to increase the Principal Chief Officer Supplement of the new appointee.

Mr Shaw left his employment by the Council on 31 July 1990.  He did render some services to the Council during the following five months and, indeed, thereafter.  I will return to these services later.

The new Treasurer who was appointed as part of the Council’s reorganisation was Mr James Corry.  He is a Member of the Institute of Public Finance.  He was already a very experienced Local Government Officer when he arrived at the Council on 13 June 1990, about six months before Mr Shaw’s departure.  He had the papers relating to the increase in Mr Shaw’s salary, the payment in lieu of notice and the consultancy arrangement.  He did not query any of the arrangements which were all put into effect in accordance with the January 1990 agreement as varied in July.  The District Auditor duly certified the Council’s 198/90 and 1990/91 accounts which included the payments to Mr Shaw pursuant to the agreement.  He did not raise any queries on them.

The new Principal Chief Officer who took up his post in September 1990 became Monitoring Officer.  He did not query any payments to Mr Shaw.

The District Auditor did not and has not exercised any of the powers given to him by statute to challenge or recover any of the payments made to Mr Shaw pursuant to the January 1990 agreement.  He has continued to sign off the Council’s accounts.

In March 1992, however, the Court of Appeal decided in Allsop v. North Tyneside MBC that the Council in that case did not have any powers to make payments to persons made redundant in excess of those which it was obliged to make under section 81 of the Employment Protection (Consolidation) Act 1978 and those which it was obliged or empowered to make under regulations made under the Superannuation Act 1972.  The Solicitor to the Audit Commission circulated advice to this effect to District Auditor and the District Auditor drew that advice to Mr Corry’s attention when the Council was concerned about a settlement for another Chief Officer in 1993.  In November 1993, the Council approached Mr Coker for information about the advice which he had given on the redundancy agreements for Mr Shaw and Mr Evans.  Mr Coker sent his complete file to the District Secretary.

The Council took counsel’s advice and in September 1994 letters before action were written to Mr Shaw and Mr Coker.  The Council instructed the Treasurer to cease to make payments of that part of Mr Shaw’s pension which related to the 30% salary increase.  In November 1994 Mr Shaw wrote extensive notes of his recollection of relevant events about five years before.

On 31 January 1995 the Council by a majority of fifteen to eleven resolved that subject to the Director of Legal and Administrative Services being satisfied on the legal position having received the further advice of counsel he be authorised to institute all necessary proceedings to recover the losses sustained by the Council.  Councillors Davenport and Wallace were of the majority in favour of litigation, subject to counsel’s further advice, but as I have already said, they were not called to give evidence of events in 1989 and 1990.  Councillor Smalley was no longer a Member, having moved out of the area.  Councillor Coker had died.

Separate proceedings against Mr Shaw and Mr Coker were commenced on the same day, 19 December 1995.

Before the hearing, the parties prepared a Summary of Issues as follows:
In respect of the action against Mr Shaw:

	“1.	Whether the agreement in writing dated 4 January 1990 made on behalf of the Council by the four members of the sub-committee ....... was beyond the powers of the Council.
	
	2.	Whether the defendant in acting as Chief/Principal Legal Officer of the Council was in breach of his duties to the Council. .......
	
	3.	(i)	Whether the part of the agreement relating to consultancy services was a sham, devised solely for the purpose of increasing the payment due to the defendant on the termination of his employment and without consideration of the need, if any, for the Council to retain his services, and, if so, at what fee; and/or
	
		(ii) 	whether the parties intended that the defendant should carry out consultancy services for the Council and whether he did so in the period from 1 August to 31 December 1990 or at all.
	
	4.	(i)	Whether the Council is entitled to recover in whole or in part the payments ........
	
		(ii)	what interest it is entitled to recover, ....
	
	5.	(i)	Whether the four Councillors who signed the agreement of 4 January 1990 thereby represented or warranted to the defendant or contracted with the defendant that they were authorised to act for and bind the Council .....
	
	6.	(i)	Whether the Council owed the defendant a duty of care ...... and, if so,
	
		(ii)	whether the Council was in breach of it. ..
	
	7.	Whether the defendant has changed his position in reliance upon the agreement and whether it is equitable that he should be entitled to rely upon such a change of position to avoid in whole or in part a liability to make repayment, .....
	
	8.	Whether Mr Coker was at any material time acting as the Plaintiff’s agent as alleged in the Counterclaim.
	
	9.	Whether the Defendant entered the agreement in reliance upon any representation, collateral contract or warranty by the Council, the four Councillors or Mr Coker for which the Council is liable, whether in tort or contract, as a result of any negligence by the Council for which it is liable ....
	
	10.	Whether the defendant has
	
		(i) suffered recoverable loss or damage, ..... and, if so,
		(ii) what interest he is entitled to recover. ......”

In respect of the action against Mr Coker:

	“1.	Whether the defendant was in breach of the implied term in his retainer as a solicitor that he should exercise reasonable care, skill and diligence and show competence in advising the Council, attending to the Council’s requirement and protecting their legal interest, and/or negligent ......
	
	2.	(i)	If so, whether the Council has suffered the loss and damage claimed, and
		(ii)	if so, what interest the Council is entitled to recover, and
		(iii)	whether the Council is entitled to the indemnities sought in ...... the Statement of Claim.”

In relation to the first issue in respect of the action against Mr Shaw, which is also important, of course, to the first issue in respect of the action against Mr Coker, I was referred to a number of authorities including Roberts v. Hopwood [1925] A.C. 578, In re Audit (Local Authorities) Act, 1927, and In re A Decision of H.W. Magrath [1934] 2 K.B. 415, and Pickwell v. Camden LBC [1983] 1 Q.B. 962 as well as Allsop v. North Tyneside MBC [1992] ICR 639 to which I have already referred.

In Roberts v. Hopwood, the relevant statutory provision was section 62 of the Metropolis Management Act, 1855, which provided that a metropolitan borough council, as the successors of the Board of Works, “shall ..... employ ..... such ..... servants as may be necessary, and may allow to such ..... servants ..... such wages as (the Council) may think fit,”

Section 247, subsection 7, of the Public Health Act, 1875, as applied to the accounts of metropolitan borough councils, provided that the district auditor “shall disallow any item of accountancy contrary to law, and surcharge the same on the person making, or authorising the making of the illegal payment.”

In the year ending 31 March 1922, a metropolitan borough council, as in the previous year, paid to its lowest grade of workers, whether men or women, a minimum wage of £4 per week, notwithstanding that the cost of living had fallen during that year from 176 percent to 82 per cent above the pre-war level, the borough council being of the opinion that £4 was the least wage which a local authority ought as a model employer to pay for adult labour.  The district auditor found that these payments were not wages but gratuities to the employees, and were contrary to law, and, starting with the pre-war rate of wages paid by the council, added on a bonus proportionate to the increase in the cost of living and a further £1 by way of margin, and disallowed the excess over that sum and surcharged the same upon the councillors responsible for the payments.

The House of Lords held that the disallowance and surcharge were rightly made.

Lord Atkinson said at pages 595 and 596:

	“This system of procedure might possibly be admirably philanthropic, if the funds of the council at the time they were thus administered belonged to the existing members of that body.  These members would then be generous at their own expense. ...... it may safely be assumed, I should think, that these members did not, at any time, pay the whole of the rates then collected.  The council then, at all times since the year 1914, may safely be assumed to have been dealing with a funds a portion of which - possibly the larger portion of which - was contributed by ratepayers who were not, and are not members of the council.  The indulgence of philanthropic enthusiasm at the expense of persons other than the philanthropists is an entirely different thing from the indulgence of it at the expense of the philanthropists themselves.  The former wears quite a different aspect from the latter, and may bear a different legal as well as moral character.  A body charged with the administration for definite purposes of funds contributed in whole or in part by persons other than the members of that body, owes, in my view, a duty to those latter persons to conduct that administration in a fairly businesslike manner with reasonable care, skill and caution, and with a due and alert regard to the interest of those contributors who are not members of the body.  Towards these latter persons the body stands somewhat in the position of trustees or managers of the property of others.
	This duty is, I think, a legal duty as well as a moral one, and acts done in flagrant violation of it should, in my view, be properly held to have been done “contrary to law” within the meaning of sub-s 7 of s.247 of the Public Health Act of 1875.  To make an act contrary to law it is not necessary that it should be prohibited by some legal enactment such as a statute or a by-law or the like.  Many things are contrary to law though not prohibited by any statute, ......”

At Page 600, Lord Atkinson concluded:

	“I concur with the auditor in thinking that what had been given to the women as wages is really to a greater extent gifts and gratuities disguised as wages, and is therefore illegal.  The council have evidently been betrayed into the course they have followed by taking into consideration the several matters mentioned in Mr Scurr’s affidavit, which they ought not to have taken into their consideration at all, and consequently did not exercise the discretion placed in them, but acted contrary to law ........”

At Page 610 Lord Summer referred to the course taken by the Council, and said:

	“........ I think it is plain that such a course, whether it be ideal or social or political or all three, forms no part of the conduct, as ordinarily understood, of such practical enterprises as borough councils are by statute authorised to engage in.  No authority and no statutory provision was cited to your Lordships, which enables a borough council to give practical effect, at the ratepayer’s expence, to such an abstract resolution, nor am I for my part aware of any.”

In my view the essence of the House of Lords’ decision was that the sums paid by the council, in so far as they were in excess of the sums certified by the District Auditor, were not paid as wages at all.  Moreover a payment made in the exercise of the council’s discretion to pay such wages as it might think fit was unlawful if the discretion was exercised in clear breach of the council’s duty to its ratepayers.

This was confirmed by In re Magrath.  The essential facts of that case were that in view of the increased statutory duties imposed upon local authorities in the levying and collection of Road Fund licences as from 1 January 1921, the Minister of Transport, in 1920, issued a circular to local authorities that he would be prepared to give the fullest consideration to any representation made to him as to increasing the salaries of their officers.  Nothing was then done by the Durham County Council in the matter, but in 1925 the council resolved that their County Accountant, upon whom the new duties had been imposed, should be paid an additional sum of £100 per annum as from 1 February 1925.  Nothing was then said with regard to the preceding years - 1921 to 1925 - during which the same duties had been performed.  In 1931 the county council adopted a report of their committee recommending that as £1,575 had been received from the Minister for the supervision and control of the department by the County Accountant, and as £600 only had so far been granted to that officer, he should be paid the sum of £700 out of the money so received, and accordingly that amount was paid to him.  That payment was disallowed by the District Auditor and the councillors who had voted for the recommendation were surcharged.

The council appealed on the basis that the increase of salary granted to the County Accountant in 1925 was provisional only and that in respect of the period from 1921 to 1925 the matter of his remuneration was still open to review.  The Court of Appeal rejected that contention.  The Court held that the District Auditor was right to disallow the retrospective payments, but it did grant relief from the surcharge.

At pages 434 to 435, Maugham L.J. said:

	“The position of a local authority like the Durham County Council in regard to the payment of salaries and wages has been finally determined by the House of Lords in the case of Roberts v. Hopwood.  The discretion conferred upon such a body must be exercised reasonably.  The payments made are to be reviewed by the Auditor for the purpose of ensuring, amongst other things, wise and prudent administration.  It is, I think, clear that the local authority cannot out of public moneys give gratuities to their officers or servants over and above their fixed salaries and wages.  That I think is not in dispute.”

Mr Ground relied on Magrath as support for a submission that retrospective increases in salary could not be made lawfully unless, at least, they were in response to a claim for an increase, made and recorded earlier, and the increase was only to be back dated to the date of that claim.  Mr Kerr, for Mr Shaw, and Mr Mould, for Mr Coker, referred to cases where payments for services had been held lawful without there being any prior claim, provided that additional work, beyond the scope of the work for which an employee’s original wage or a contractor’s original fee had been fixed, had been done.

Magrath was an extreme case but it does demonstrate that in judging whether a pay increase was lawful one may take note of the fact that it was retrospective when asking whether it really was an increase in wages or made gratuitously for some improper purpose or made unreasonably.

It is clear from Pickwell v. Camden LBC that the onus is upon the person who complains about a payment (the District Auditor in the cases to which I was referred) to satisfy the court that it was unlawful, and that a payment is not to be judged to have been made unreasonably unless it was one which no reasonable person could consider reasonable.

Both Mr Kerr and Mr Mould relied on Pickwell v. Camden L.B.C.   As a decision of the Divisional Court it is not strictly binding on me, but of course I treat it with considerable respect.

The facts were complicated.  Basically, Camden L.B.C. agreed wage increases for manual workers at a time of industrial unrest and when union activity was particularly strong in its own area.  The District Auditor applied for a declaration that items in the L.B.C.’s accounts were contrary to law in so far as they were in excess of a national wage settlement reached at the same time.

Forbes J. who gave the first judgment, referred extensively to the judgment of Lord Greene M.R. in Associated Provincial Picture Houses Ltd v. Wednesbury Corporation [1984] 1 K.B. 223, before saying:

	“The principles of Wednesbury can therefore be seen as the corollary of the assertion of a supervisory rather than an appellate jurisdiction and involve, so far as it is material here, the three brief propositions:
	
	(1)	an authority must not be affected by immaterial nor ignore material considerations;
	(2)	an authority must not act in such a way that it can be said of it that no reasonable authority, properly directing itself to what was material, could have concluded that it was entitled so to act; and
	(3)	in reviewing the acts of an authority the court will not substitute its own view of how a discretion should be exercised for that of the authority entrusted by Parliament with the discretion.”

At page 984, Forbes J. said:

	“..........all (counsel) though with differing emphasis on different elements, accept that the proper approach is that of Associated Provincial Picture Houses v. Wednesbury Corporation [1948] 1 K.B. 223.  I think that in considering whether items are contrary to law that is the approach which should be adopted.”

Speaking of Roberts v. Hopwood, Forbes J. said, at page 986:

	“The case seems to me to decide no more than this, that where the inevitable inference which must be drawn is that obviously excessive wage payment was agreed to be paid without any regard to any commercial consideration and solely on some extraneous principle, as, for instance, philanthropy, such a payment can only be regarded as a gift and is not covered by a statutory power to pay reasonably wages.”

Forbes J. concluded, at page 988:

	“There is nothing to suggest that there was any collusion or collaboration between councillors and the strikers.  If there had been this would of course have been wholly improper and would have struck directly at the good faith of the council’s decision to pay these wages.  But as it is I can only reiterate that in my view it is not possible in the circumstances of this case to draw the inference that the council here ignored relevant material, were guided by improper motives, or acted in such a way as no reasonable council could properly act.  I would refuse the declaration asked.”

At page 1003, Omerod L.J. said:

	“In Luby v. Newcastle-Under-Lyme Corporation [1964] 2 Q.B. 64, Diplock L.J. defined the powers of the court in these cases, at p.72:
	
		“The court’s control over the exercise by a local authority of a discretion conferred upon it by Parliament is limited to ensuring that the local authority has acted within the powers conferred.  It is not for the court to substitute its own view of what is a desirable policy in relation to the subject matter of the discretion so conferred.  It is only if it is exercised in a manner which no reasonable man could consider justifiable that the court is entitled to interfere.”
	
	In my judgment, this passage should be regarded as definitive of the court’s powers, and should be adhered to in all cases in which it is claimed that an authority has misused its discretionary power.”

At page 1004, Omerod L.J. said:

	“In my judgment, therefore, if the district auditor is to succeed in his application for a declaration that Camden’s expenditure, arising from their decision to pay their manual workers a minimum wage of £60 per week for a 35 hour week, was “contrary to law”, he must establish that Camden was acting in excess of its statutory powers.  There are only two ways by which this could be done in this case.  The first is by showing that the decision was not, in reality, a decision made in the exercise of their statutory power to fix wage rates, but for some other extraneous, irrelevant, or collateral purpose, for example, to undermine the incomes policy, or to sabotage, for political purposes, the national negotiations which were proceeding simultaneously, or to achieve some other social or political objective.  The second is by satisfying the court that no reasonable authority would have made such a decision in the circumstances prevailing in Camden in February and March 1979.”

I have already mentioned the part of Allsop v. North Tyneside M.B.C. in the history of this case.

Section 111(1) of the Local Government Act 1972, provides:

	“Subsidiary powers of local authorities
	Without prejudice to any powers exercisable apart from this section but subject to the provisions of this Act and any other enactment passed before or after this Act, a local authority shall have power to do anything (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions....”

Section 112 of the Act provides:

	“Appointment of Staff
	(1)	Without prejudice to section 111 above but subject to the provisions of this Act, a local authority shall appoint such officers as they think necessary for the proper discharge by the authority of such of their or another authority’s functions as fall to be discharged by them ................
	(2)	An officer appointed under subsection (1) above shall hold office on such reasonable terms and conditions as to remuneration, as the authority appointing him see fit.”

The Court of Appeal in Allsop v. North Tyneside M.B.C. held that the powers of the local authority under sections 111 and 112 of the Local Government Act 1972 were subject to regulations made pursuant to sections 7 and 24 of the Superannuation Act 1972; that those regulations provided that the Secretary of State for the Environment should have sole responsibility for determining what was to be or might be paid on redundancy in excess of those payments provided for by section 81 of the Employment Protection (Consolidation) Act 1978; and that, accordingly, the payments made under the local authority’s scheme were unlawful.  Although there was an express power by section 112(2) to fix the terms and conditions upon which an appointee should hold office, that was the limit of the power.  The Court could not accept the authority’s submissions that there must also be an inherent power to dismiss and to fix terms for payment, which were more favourable than those in the statutory and regulatory provisions, in the event that dismissal was on the ground of redundancy.

The Council is a statutory corporation, created by the Local Government Act 1972, and its powers to act are limited to those functions which are conferred on it, particularly in relation to this case by sections 111 and 112, so Mr Ground relied on the case of Allsop saying that the increase in salary was clearly a ruse to provide Mr Shaw with more than the Acts and regulations allowed by way of redundancy and superannuation payments on his true salary, i.e. what his salary would have been over the last years of service without the increase made for the improper purpose of providing him with terms of redundancy and early retirement which he would accept, but which were above what the statutory provisions and regulations would allow.

Mr Kerr and Mr Mould argued that Allsop was irrelevant to the present case, although it was the prompt for it, because the redundancy and superannuation payments to Mr Shaw were calculated in accordance with the provisions of the Acts and regulations, based upon his reasonably and lawfully increased salary over his last year of service.

Mr Ground’s reply was that if in the process of settling Mr Shaw’s redundancy and retirement terms his salary was increased, that was just another way of exceeding the statutory/regulatory limits on redundancy and retirement awards.

In my judgment all these arguments come back to the same fundamental question of whether the agreed salary increase for Mr Shaw was lawful or not.  Asking (as the first issue in respect of the action against Mr Shaw asks) whether the agreement dated 4 January 1990 was “beyond the powers of the Council” is just another way of asking whether it was contrary to law.

In my view the authorities  to which I have referred make it clear that a pay increase which is made by a statutory local authority like the Council for the purpose or main purpose of enhancing an employee’s redundancy or retirement benefits is unlawful and beyond the powers of the Council to make and an agreement to make it is void, because it is not in reality a decision made in the exercise of the Council’s power to fix rates of pay, but for the extraneous or collateral purpose of increasing the employee’s redundancy or retirement benefits beyond what the Acts and regulations would allow, but for the increase in pay.  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.

In my judgment a reasonably careful and competent solicitor engaged in 1989 and 1990 to advise on the legality of a large pay increase to a Council employee over the last year of his service would have appreciated that this was so, even though this was before Allsop v. North Tyneside M.B.C.

A payment made “in lieu of notice” when proper notice terminating an employee’s employment has been given is unlawful and beyond the powers of the Council to make, and an agreement to make it is void, because it is a gift.  The same applies to “consultancy fees” if the consultancy agreement is a sham; a mere device to give the departing employee more money.

This has been clear since Roberts v. Hopwood, and a reasonably careful and competent solicitor would have appreciated it.

It follows that in order to succeed on the first issue in the action against Mr Shaw and to demonstrate that Mr Shaw’s salary increase and the redundancy and pension payments which were calculated upon it were unlawful, beyond the powers of the Council and void, the Council must prove that the decision to increase Mr Shaw’s salary was not in reality a decision made in the exercise of the Council’s power to fix rates of pay, but for the extraneous or collateral purpose of increasing his redundancy and retirement benefits beyond what the Acts and regulations would allow but for the increase in pay.

In the circumstances of this case, it is the first Omerod L.J.’s approaches to the question of illegality which matters.  If the increase was truly made for the purpose of increasing Mr Shaw’s redundancy and retirement benefits, it was in any event not one which, in my view, any reasonable local authority could have made.  Mr Ground made it plain that the Council did not allege that the salary which was agreed could not be justified, if it was a genuine increase in salary.  The fact that the increased salary which Mr Shaw was awarded was a reasonable one if it is looked at purely as a salary increase, does not resolve the issue in Mr Shaw’s favour, but it is a real consideration in deciding whether it was a genuine increase in salary or an increase for the purpose of increasing redundancy and retirement benefits.

So far as the payment in lieu of notice is concerned, the main issue in the action against Mr Shaw is simply whether it was a genuine payment in lieu of notice, or a gift.

So far as the consultancy fee is concerned, the main issue in the action against Mr Shaw is simply whether it was a fee agreed for proposed consultancy services, or a gift.  Whether Mr Shaw did in fact provide significant consultancy services, or held himself ready to do so, is at the heart of that question.

The provisions in the January 1990 agreement, relating to salary increase, payment in lieu of notice and consultancy fee are clearly severable.  I will deal with the legality of each in turn, and I will start with the salary increase.

Mr Shaw was insistent that he made a claim for a pay increase at the beginning of August 1989.  There was some support for this in Mr Coker’s evidence not just that, as he understood it, the redundancy situation became known on 1 August 1989, but that that was when negotiations began and “everyone who was there (at the 20 December 1989 meeting) was prepared to accept that”.

But in my view the documentation makes it impossible for me sensibly to accept that Mr Shaw made a claim for a salary increase at the beginning of August 1989, and I reject his evidence that he did so.

I am satisfied that Mr Shaw discussed redundancy and early retirement with Councillor Smalley at the beginning of August 1989.  That is confirmed by the Senior Payroll Officer’s letter of 17 August 1989 and the notes, albeit made by Mr Shaw, of the 20 December 1989 meeting.  But the lack of any reference in the documents before 5 October 1989, to a pay increase, is striking.  Mr Shaw is a meticulous man, particularly when it comes to making and keeping written records of any matters of possible significance.  No doubt he was brought up to do so by his long experience as a Local Government Officer, but it still shows in his private, financial records.  He was well aware of the practice of backdating of pay increases to the date of claim for an increase, both in general and on any successful appeal to the Joint Negotiating Committee for Chief Officers, the JNC.

Although I do not accept the evidence of Mr Howes, the Council’s Director of Administrative, Legal and Housing Services, that a formal minute is required of a pay claim if a subsequent award is to be back dated to it, I find it to be inconceivable that Mr Shaw would have made a claim for a salary increase, even on a provisional basis, without recording it in writing in some form.  Yet there was no such record.  I accept that Mr Shaw was very busy at the material time, and his case is that he had not completed his report on the need for a review of salaries when Councillor Smalley intervened by telephoning him on 31 July, but the documents in the trial bundle show that he nevertheless wrote long, detailed letters, reports and notes in relation to matters which affected or might affect his job and pay.  He had particular cause to record something like a pay claim at the beginning of August 1989, if he thought that the controlling group of the Council, or a caucus of it, was not coming clean about its intentions so far as he was concerned.  He could easily have made some record of  a claim for a pay increase, perhaps even with some provisional figures, if he had been writing a report about staff pay increases, as he said.

Moreover, I reject Mr Shaw’s evidence that he spoke specifically of a 20% pay increase in early August 1989 or at all.  A claim for such a pay increase is not consistent with his letter of 5 October 1989 to Mr Hemmings of the District Audit Service, which is the first documentary mention of a possible pay increase and which relates the possible pay increase to the recoupment of £4,400 Returning Officer’s fees if Members insisted on him leaving before May 1991.  A claim for a pay increase, made in August 1989, is inconsistent with Mr Shaw’s Report No.PR48 which makes no mention of any claim for any specific pay increase in its own right.  I accept that a possible pay increase may be implicit in the reference to “terms” of “early retirement and redundancy” or “the terms of any settlements” especially when one knows that Mr Shaw wrote to the District Auditor on 5 October 1989, referring to a possible pay increase.  But that possibility was related to the loss of election fees if Mr Shaw left before 31 May 1991.  It was not related to any claim for a 20% increase in salary.

A claim for a 20% increase in pay is not consistent with the opening page of Mr Shaw’s 30 October 1989 letter to Councillor Smalley which spoke of a £5,000 salary increase to offset lost election fees, assuming that Mr Shaw left on 31 July 1990.  I reject Mr Shaw’s evidence that “31 July 1990” was an error for 31 May 1990.  Mr Shaw is not the sort of man who makes errors like that, even when under pressure of work.  I regret to say that in my judgment Mr Shaw’s evidence that the £5,000 was 20% of 10 months (August 1989 to May 1990 inclusive) salary must have been a concoction to seek consistency between a fabricated account of an initial claim for a 20% increase, and the written expression of an initial claim for a salary increase, if Mr Shaw left before May 1991, as compensation for loss of election fees.  The way in which the previously proposed £5,000 increase is expressed in the 30 October 1989 letter is inconsistent with the 5 October letter to the District Auditor relating it to loss of fees, and inconsistent with a prior claim for a 20% increase.

Finally, a claim for a pay increase made at the beginning of August 1989 is, in my view, inconsistent with Mr Shaw’s own notes of the meeting on 20 December 1989, which explain the backdating of his claim for a salary increase by reference to 1 August 1989 being the date when he became aware of probable redundancy, not by reference to a claim for a salary increase having been made on that date.  If Mr Shaw had made a claim for a salary increase on that date, Mr Shaw would surely have said no and noted it in his notes of the meeting since, as he was clearly aware, the best reason for backdating a subsequent increase to a specific date was that a claim for an increase had been made on that date.

In my view, Mr Shaw probably first thought of a real salary increase in late September 1989 when he received the results of the West Leicestershire survey.  He then realised that his own salary was low compared with salaries paid by neighbouring authorities, particularly when one took account of the extent of his duties and responsibilities and the increasing workload which he could expect with reorganisation and the floating off of the DSO.  Comparison with other authorities, and Mr Shaw’s actual and anticipated work load presented a ready, apparent justification of a salary increase which would substantially improve Mr Shaw’s terms of redundancy and retirement and enable him to request the salary increase which he did, formally, in his 30 October 1989 letter.  But that request for an increase and any informal discussion which there may have been in the days before the letters were inextricably linked, in my view, to the terms of Mr Shaw’s redundancy and early retirement.  Even the 5 October letter to Mr Hemmings which mooted a salary increase if Mr Shaw retired before May 1991, did so in terms of the effect which such retirement would have on income.

The delegation of powers to the four Councillors, and the creation therefore of a sub-committee of those members, was to negotiate and conclude the terms of any settlement in respect of Mr Shaw’s early retirement and redundancy, and the amount of his redundancy and pension entitlements must have been what was in the forefront of everyone’s mind, when the increase of his salary over his last year of service, the factor which would so fundamentally affect the amount of his redundancy and pension entitlements, was under consideration.

Mr Coker gave evidence that he was aware from the time when he was instructed in early November that the Council’s aim was to secure Mr Shaw’s retirement to facilitate reorganisation, and that Mr Shaw’s aim was to secure a certain level of pension for his retirement.  Since the amounts of redundancy and pension entitlements were fixed, i.e. to be calculated according to statute and regulations, once his salary for the last year of service and the number of countable years of service were known, it must have been in the forefront of everyone’s mind that what was to be negotiated was the question of his salary over the last year (the question of added years did not appear to present a problem), to see if terms of early retirement, that is redundancy payment and pension benefits, could be agreed at a level acceptable to Mr Shaw.

Mr Shaw was not making a claim for an increase  in pay in the event of terms of settlement not being agreed and his staying on as the new Clerk and Principal Chief Officer.  He accepted that, in effect, and the suggestion in his report of 2 November 1989 that Members might wish to retain the current scales in relation to the new post of Clerk and Principal Officer, and the Council’s resolution to do so, confirm that Mr Shaw was not making, and was not understood to be making, a claim for a salary increase if he stayed with the Council, i.e. outside the context of redundancy.

In my judgment the references in the January 1990 agreement to the consideration of additional, substantial responsibilities and work arising out of the 1989 Act in the period leading up to Mr Shaw’s redundancy, and to the consideration of abandoning any claim for reinstatement or unfair dismissal were matters of form, for the appearance of things, rather than of substance, although I accept that Mr Shaw had multiple responsibilities and a heavy work load.

I do not believe that the Councillors with their experience of private business realised that, whatever could be done by a business employer, a Council could not increase an officer’s salary in order to increase his redundancy and retirement benefits.  I believe that Mr Shaw must have realised that, after he received the County Treasurer’s letter of 20 November 1989, at the latest.  But I think that he may have thought that such an increase was acceptable, even if it was really made in order to increase redundancy and retirement benefits, provided it could be justified and seen as reasonable in itself; hence his efforts to portray his own salary increase as reasonable, to the Council, Mr Coker and the District Auditor’s representatives, whose advice he was keen for the Council to obtain.

Mr Coker told me that he was concerned that Mr Shaw might have a claim for unfair dismissal even if he received a redundancy payment.  I have difficulty accepting that, as I will explain later.

I was unimpressed by Mr Shaw’s statement that the public benefit to the Council, from his salary increase, was that “they would get the work done”.  In my view Mr Shaw would have done the work anyway, if terms had not been reached, until reorganisation and his new post of Clerk and Principal Chief Officer were realised.

I do not consider that the avoidance of any appeal by Mr Shaw to the JNC, if he did not achieve a satisfactory pay increase, was a consideration.  I do not believe that any such appeal was in anyone’s mind.  Nor would Mr Shaw have sued the Council.  He would have become its willing Clerk and Principal Chief Officer at the scales retained in accordance with his suggestion.

In all those circumstances I have no hesitation in finding that the salary increase in Mr Shaw’s salary was made entirely for the extraneous, collateral and, indeed improper purpose of increasing Mr Shaw’s redundancy and pension entitlements to figures which he found acceptable, beyond the figures which the Acts and regulations would otherwise have allowed, and that it was for that reason an unlawful increase which no reasonable Council could make.  It was illegal and beyond the powers of the Council to make and avoid.  The payment of the excess over Mr Shaw’s pre-existing salary, plus the 8.6% national award, was illegal and void, and all redundancy and pension payments which have been geared to that excess are illegal also and void.

In my judgment the payment of three months salary to Mr Shaw in lieu of notice was also unlawful and beyond the powers of the Council.  It was an outright gift.  More than sufficient notice terminating Mr Shaw’s employment on 31 July 1990 was given by the letter dated 1 February 1990.  That being so, there was no lawful or justifiable basis for making a payment in place of notice.  The payment in lieu of notice, in the sum of what would have been Mr Shaw’s salary for full time employment was, moreover, inconsistent with an agreement to engage him as a consultant during the relevant period of three months.

The fact that up to 12 weeks pay in lieu of notice was provided for in the Council’s Severance Scheme cannot affect the question of its legality and illegality.  The Scheme does not say that there is an entitlement to such a payment even if full notice has been given.  It refers to pay and payment “in lieu of notice”, and such payments can only be made, as a matter of plain language, if proper notice has not been given.  If there had been a provision for payment, supposedly “in lieu of notice”, even if notice had been given, it would have been unlawful, in my view.  I was told that such provisions are commonplace, even where notice has been given.  If that is so, they are equally illegal in my view.

The fact that the District Auditor has not acted in respect of the agreements to increase Mr Shaw’s salary and to make the payment in lieu of notice can not save them.  No doubt it is a reason to be cautious before striking them down, but it has no more significance than that, so far as the claim against Mr Shaw is concerned.

I am not, however, satisfied that the agreement to pay Mr Shaw a consultancy fee was illegal.

There was evidence of good reason to engage Mr Shaw to make himself available for some months after his redundancy and early retirement.

I have no reason to doubt Mr Coker’s evidence that it was agreed that the consultancy fee should be paid to Mr Shaw because the re-structuring of the Council would lead to the appointment of new Chief Officers.  There was no-one who knew more about the Council’s affairs than Mr Shaw who had held two of the posts, and the Councillors wanted to retain his services while the new appointees became familiar with their responsibilities.  Mr Coker thought that entirely reasonable.  The Council was also taking legal proceedings in connection with the Leisure Centre, and Mr Coker understood that Mr Shaw was very familiar with the background to the litigation.

Councillor Handford gave evidence that at a P and R Committee meeting in September 1994, Mr Corry said that the prime reason for the consultancy was Mr Shaw’s detailed knowledge of the Leisure Centre litigation.  Mr Corry denied that he said that, but he accepted that he suggested the litigation as a possible reason for a consultancy.

It is true that the Leisure Centre litigation settled before Mr Shaw left, but the obligation to pay the consultancy fee has to be judged at the time when it was made, 4 January 1990, and the Leisure Centre litigation was still very much alive then.  It is no doubt true that Local Government Officers readily answer queries from their previous employers, but they are not obliged to do so, so far as I am aware.  Mr Shaw did make himself available to be consulted.  I accept his evidence that but for the consultancy clause in the agreement which he had made, he would have gone straight off to his second home in Portugal at the beginning of August 1989, but that he did not do so because of his consultancy obligations.

Moreover, Mr Kerr was able to call evidence that Mr Shaw was consulted by an Assistant Secretary, Miss Anita Thind, on legal matters, and by the General Manager of the DSO, Mr Frank Armer.  The consultations were not particularly extensive and no record appears to have been kept of them.  Moreover, Councillor Coker’s consultation of Mr Shaw in relation to the conduct of the new Clerk and Principal Chief Officer, which both Mr Shaw and Councillor Handford spoke of, may have taken place on a personal basis.  However, the fact is that Mr Shaw did hold himself available to be consulted and he was consulted.  He may not have been consulted more than he was, and his consultancy may not have been well publicised, because the Leisure Centre litigation in fact settled and because, as was suggested, the new Clerk and Principal Chief Officer who arrived in September 1990 wanted to row his own boat.

I was not impressed by the Council’s case that one would expect a consultancy agreement to define the consultant’s duties and hours of work or availability.  No doubt that is so if an outside expert is engaged, but I would not have thought it necessary in the case of a retiring council officer.

The four Councillors may well have been generous to Mr Shaw so far as the consultancy was concerned.  An apparently telling point in support of the Council’s claim that the consultancy fee was unlawful is that Mr Shaw suggested it in his letter of 18 December 1989 to make up for his pension lump sum being £4,893 less than anticipated.  But Mr Shaw’s solution was not, simply, that he be paid a £5,000 consultancy fee, but that he be “retained on a consultancy basis for a period of five months .... at a fee of £1,000 per month”.  So he was offering his retention in exchange for the payment.  If the payment in lieu of notice had been valid, covering as it did the first three months of the five month consultancy, the consultancy would have to be a sham, and the Council’s strongest point is, in my view, that the Councillors agreed largely coincidental payments in lieu of notice and as consultancy fees.  But the payment in lieu of notice falls, in accordance with this judgment, while good reason has been put forward for the agreed consultancy fee for anticipated services as a consultant.

In my judgment, the consultancy arrangement was probably true, whatever its original motivation.  Put at its lowest, the Council has not satisfied me that the consultancy fees were a gift, or such as no reasonable Council could agree to pay.

In the light of my findings so far, the second issue in the action against Mr Shaw, of whether he was in breach of his duties to the Council, becomes relatively insignificant.

Clearly, as the Council alleges, it was an implied term of Mr Shaw’s contract of employment that he would serve the Council with fidelity and in good faith, and I also accept that there was an implied term that he would take all reasonable steps to ensure that the deliberations of the Council, its relevant Committees and the sub-Committee of four Councillors, were made with proper advice as to the Council’s powers and in the light of all relevant considerations.

Although Mr Shaw could hardly be criticised for looking after his own interest in arms length negotiations with the four Councillors, especially when they had their own legal adviser, Mr Coker, Mr Shaw was the Council officer who acted on the Council’s behalf in certain respects in relation to the negotiations, and particularly in its contact with Mr Coker and representatives of the District Audit service.  The Council’s case is that Mr Shaw failed the Council in various respects, when acting as its officer.

It is firstly alleged that he failed to inform either the four Councillors or the Council of the advice contained in the Deputy District Auditor’s letter of 23 October 1989 as to the need for legal advice before making payments to compensate him for loss of benefits that he considered he would otherwise have received had he remained in the employment of the Council.

It is secondly alleged that he did not convey to either the four Councillors or the Council the views of the District Auditor as to the desirability of identifying the potential public benefit from the proposed salary increase expressed in the letter from the Deputy District Auditor dated 24 November 1989.

It is alleged that he also failed to inform either the four Councillors or the Council of the District Auditor’s reservations as to the lack of necessity for the Council to make payment in lieu of notice, to which Mr Coker referred in his letter to Cllr. Smalley of 24 November 1989.

It is alleged that he failed to inform the Council of the advice given to him by Mr Coker in his letter of 22 December 1989 about giving further consideration to the divorcing  of the salary increases from the redundancy agreement and the reasons for doing so.

Finally, it is alleged that he failed to inform the Council, in the report which he made to the P and R Committee on 1 March 1990, of the above matters, or to ensure in that report that the Council identified the relevant considerations in terms of the benefits to be obtained from making the payments to himself or to inform or ensure that the Council was adequately informed as to its powers to make the proposed payments.

I cannot accept the first allegation.  It is true that Mr Shaw did not pass on the District Auditor’s distaste for a salary increase to compensate for loss of election fees, but he did press the Council to take independent legal advice, and it did so.

So far as to the second allegation is concerned, it seems to me that in circumstances where Mr Shaw was hoping to obtain a salary increase, it was for Mr Coker, if anyone, to stress to the Councillors the need to identify or question the potential public benefit from Mr Shaw’s proposed salary increase.  Although I have criticisms to make of Mr Coker’s advice or lack of it to the Councillors, he was an apparently competent adviser so far as Mr Shaw could see, in my view, and it is a bit much to expect Mr Shaw to do Mr Coker’s work for him in querying and testing the benefits which the Council, as opposed to Mr Shaw, might get from an agreement.  If Mr Shaw thought that Mr Coker was obviously not performing the function for which he was engaged, it would have been Mr Shaw’s duty to say so.  He was still the Council’s Principal Chief Officer.  But I do not judge that it was his duty to cover Mr Coker’s work otherwise.

I cannot accept that there is any substance in the allegation that Mr Shaw failed to convey the District Audit Service’s reservation about the payment in lieu of notice.  The allegation depends on Mr Coker’s letter of 24 November 1989, in which Mr Coker made precisely the point which the Council alleges that Mr Shaw should have made, and he made it to Councillor Smalley who was, of course, one of the four Councillors and the leader of the Council.

The question of divorcing salary increase from redundancy agreement in the form of written agreement was raised in Mr Coker’s 22 December 1989 letter to Mr Shaw because, as he said in that letter, he had gained the impression that the District Auditor’s representatives were keen for the two elements not to be related.  Mr Coker could only have gained that impression from the discussions at the meeting on 20 December when the four Councillors were present.  In my view it is not reasonable to criticise Mr Shaw for not passing on the point, thereby stressing it, to the Councillors when they may well have heard it made at the meeting, and when it was Mr Coker, the Council’s own adviser, who was raising it again two days later.  Surely Mr Shaw could leave Mr Coker to advise the Councillors on it, if Mr Coker thought that it was a serious point for them to consider.

The meetings on 20 December 1989 were Mr Coker’s opportunity to advise the Councillors of any possible faults in the proposed agreement and to obtain the District Audit Service’s criticisms of it, if any.  In fact, on my reading of Mr Shaw’s notes of the meeting with Mr Wilson and Mr Hemmings, encouraged by what Mr Coker did in June 1990, Mr Coker worked with Mr Shaw to convince Mr Wilson and Mr Hemmings that the agreement was good.  But Mr Shaw cannot properly be blamed for that, in my view.

For all these reasons I reject the Council’s claim that Mr Shaw was in breach of his duty to it.

I will take Issue 4, the Council’s right to recovery, with Issue 7, Mr Shaw’s alleged change of position, and after Issues 5,6,8,9 and 10.

Issue 5 was whether the four Councillors who signed the agreement of 4 January 1990 thereby represented or warranted to Mr Shaw or contracted with him that they were authorised to act for and bind the Council.  Mr Ground contended that the four Councillors did not represent, warrant or contract that they were authorised to do more than negotiate Mr Shaw’s redundancy and retirement package in accordance with the Council’s resolution.  Moreover, he contended that, as matter of principle, a payee who has received an ultra vires and void payment cannot rely upon the supposed validity of the transaction, either in support of a plea of estoppel or in support of a defence of change of position, because the transaction was and always has been void.

Upon reflection, Mr Kerr accepted the latter point, so this issue evaporated.  I would have accepted Mr Ground’s first point anyway.

Issue 6 was whether the Council owed Mr Shaw a duty of care and if so whether the Council was in breach of it.  The allegation of breach of duty made in the Counterclaim was based on a supposedly implied term of Mr Shaw’s contract of employment that “in negotiating terms in respect of the termination thereof, the Plaintiff would exercise reasonable skill and care, the content of which duty included an obligation not negligently to mislead the Defendant as to the capacity of the Plaintiff to enter into the agreement of 4 January 1990.”

But Mr Shaw is a barrister.  He was the Council’s chief lawyer.  The Council through the four Councillors had the benefit of legal advice of an apparently competent solicitor, Mr Coker.  The Councillors and Mr Shaw must have thought that the negotiations were as much at arms length as any negotiations between employer and employee of long-standing an mutual respect can be.  I see no basis for implication of the term contended for.  In any event the claim made by Mr Shaw, or on his behalf, in this respect is really just another way of expressing the contention (referred to under Issue 5) which Mr Kerr abandoned.

So far as Issue 8 is concerned, I can see no possible basis for holding that Mr Coker, the Council’s solicitor retained to advise it on the legality of the agreement which Mr Shaw wished to put into effect, said or wrote anything about the legality of the agreement, which Mr Shaw heard or read and which could be taken as representations to Mr Shaw by Mr Coker as the Council’s agent.  All the statements which Mr Coker made about the legality of the agreement were, in my view, made as legal advice to the Council, and must have been perceived by Mr Shaw to be such, not as representations to him, made by Mr Coker as agent of the Council.

In any event, this issue fades away with Mr Kerr’s concession in relation to Issue 5, as does Issue 9.

It must follow that Mr Shaw has not suffered any loss which is recoverable from the Council (Issue 10), and that Mr Shaw has no counterclaim to set off against any monies which are recoverable by the Council from him.

That leaves Issue 4, which is whether the Council is entitled to recover from Mr Shaw the payments in respect of salary increase, redundancy payment, and pension benefits and money in lieu of notice which I have held to have been paid unlawfully by the Council, taking account of Mr Shaw’s contention that it is not equitable to order repayment (Issue 7).

The Council contends that as the relevant payments were ultra vires and void, it is entitled to recover them as “money had and received” on the principles stated in Westdeutsche Landesbank Girozentrale v. Islington Borough Council [1994] 1 WLR 938 C.A. as modified by the House of Lords, the decision of which is reported at [1996] 2 AC 669, and in Guinness Mahon & Co Ltd v. Kensington and Chelsea RLBC.

In my view the references to which I was taken by Mr Ground to mean that the monies which the Council has paid to Mr Shaw under the parts of the January 1990 agreement which I have held to be unlawful and ultra vires and void and the consequential redundancy and pension payments which I have held to be unlawful and ultra vires and void, are prima facie recoverable by the Council in full restitution as monies had and received by Mr Shaw or on the grounds of unjust enrichment, there having been a total failure of consideration for the monies so paid.  I do not accept Mr Kerr’s attempt to distinguish those cases.

Mr Kerr contended, however, that Mr Shaw had an equitable defence of change of position; hence Issue 7.  He relied on part of what Lord Goff said in Lipkin Gorman Ltd [1991] 2 A.C. 548 at pages 579F and 580F.  What Lord Goff said was as follows:

	“In these circumstances, it is right 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.  If the plaintiff pays money to the defendant under a mistake of fact, and the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position.  Likewise, on facts such as those in the present case, if a thief steals my money and pays it to a third party who gives it away to charity, that third party should have a good defence to an action for money had and received.  In other words, bona fide change of position should of itself be a good defence in such cases as these.  At present I do not wish to state the principle any less broadly than this: that the defence is available to person whose position has so changed that it would be inequitable in all the circumstances 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 a defence which in fact is likely to be available only on comparatively rare occasions”.

Mr Kerr contended that Mr Shaw had changed his position by making certain payments in reliance on the validity of the January 1990 agreement and hence in reliance upon the payments which he had received under it.  In particular Mr Shaw had purchased a new car on 18 April 1990 for £7,678; he had given £18,000 to his son David in about June 1990 so that he could purchase a house; he had given over £3,000 to a daughter on 22 August 1990 to purchase a car; he had given £5,000 to another daughter on 28 September 1990.  Generally he had spent more than he might have done on various living costs including holidays and house improvements.

So, Mr Kerr contended, it would be inequitable for Mr Shaw to be ordered to return any part of the payments made to him as a result of the agreement.

Mr Ground argued that Mr Shaw was not entitled to rely upon the supposed validity of the agreement and all that it brought with it so far as unlawful salary increase, redundancy and pension benefits and money in lieu of notice were concerned, because the transaction was and always has been void.  See South Tyneside BC v. Svenska International [1995] All ER 545 upon which Mr Ground relied, and upon the basis of which Mr Kerr made his concession, in relation to Issue 5.  I do not recall Mr Kerr conceding that that case sank Mr Shaw’s equitable defence of change of position, however.

The South Tyneside case involved an interest rate swap agreement between the Plaintiff Authority and the Defendant bank.  Clarke J. held that the authority, as net payer under the agreement, was prima facie entitled to the return of the money paid as money had and received.  He applied Westdeutsche Landesbank Girozentrale in that respect.  However, the bank contended, among other matters, that it had changed its position as a result of the payments because it had entered into the swap in good faith and had relied on the validity of the original swap contract in committing itself to its hedges and maintaining them thereafter.

Clarke J. held that if a net payee under an interest rate swap agreement could show that it had altered its position in good faith after the receipt of money from the net payer, it might in principle be entitled to rely on the defence of change of position, but what it could not do was to rely on the supposed validity of the transaction either in support of a plea of estopped or in support of a defence of change of position because the transaction was and always had been void.  It followed that if the change of position defence asserted by the net payee involved reliance on the validity of an interest rate swap transaction which was in fact void, the result would not be that events before nor after it could be relied on.  Accordingly, the bank’s reliance on the validity of the original swap contract in committing itself to its protective hedging strategy and in maintaining the hedging transactions day by day thereafter did not afford the bank (as net payee) any defence of change of position since it involved relying not on the receipt of money, but on the validity of the transaction.

That case is not binding on me but I accept Clarke J.’s reasoning and conclusion.

In the present case it was clear that the payments which Mr Shaw relied upon as his change or changes of position, were made by virtue of his general financial position, which included reliance on the agreement, no doubt, rather that on any particular payments made under the unlawful parts of the agreement.

Moreover it was far from clear to me that Mr Shaw would not have made the payments, but for the unlawful agreement.  It became clear that he is and was in 1990, quite well off, regardless of the illegal parts of the agreement.  He owned various properties.  He had a good income and he would have received healthy redundancy and retirement lump sums and good annual pension payments in any event.

Mr Shaw said that he would not have made the gifts to his two daughters and that he thought that he and his wife would have been a little less generous to David, but for the agreement.  However, Mr and Mrs Shaw have always been generous to their adult children.  They had helped their eldest children buy homes before they helped David who received less, if anything, in real terms.

Mr Shaw said that he would have bought a smaller and cheaper replacement car, if it had not been for the effect of the agreement, but he needed a replacement car anyway, and the price which he paid (and therefore the car which he bought) was hardly extravagant.

I am completely unpersuaded that the maximum “ex turpi causa non oritur actio” should be involved to bar the Council’s claim.  It did what it thought was right and, by the account of Mr Shaw its chief legal officer, what he thought was right, at the time.

I am not of the view, on the short argument which I heard, that a discount should be made for tax paid and National Insurance payments made by Mr Shaw.  I would expect him to be able to recover these.  I was certainly not persuaded that he would probably not be able to do so.

For all these reasons I hold that the Council is entitled to recover from Mr Shaw all the payments which it has made to him as a result of the unlawful salary increase and unlawful payment in lieu of notice.

I am not called upon to quantify the sums to be paid by Mr Shaw to the Council, and in my view any arguments as to interest should be heard and decided at the quantum hearing.

In my view the Council is also entitled to the declarations which it seeks, save in respect of the consultancy fees, but I will hear anything which counsel have to say about declarations, when this judgment is handed down.

So far as the action against Mr Coker is concerned, it was common ground that he was retained by the Council to give legal advice on the legal propriety of the proposed arrangements for the increase of Mr Shaw’s and Mr Evans’ salaries and for their redundancies.  In evidence, Mr Coker said that his instructions were really to see that what the Councillors were doing (they had already reached agreement with Mr Shaw) was appropriate.  They could be surcharged, and it was his duty to see that the agreement fell within the law.

The Council alleges that Mr Coker failed to exercise reasonable care and skill in performing his task - in short, he was negligent.  It was common ground that the test by which Mr Coker’s performance of his retainer falls to be judged, is what the reasonably competent solicitor would have done and advised, in the circumstances which were known to Mr Coker or which he ought reasonably to have discovered, and given the readily ascertainable state of the relevant law at the time.  I must remember that Mr Coker did not have the wisdom of hindsight or the benefit of counsel arguing the legality of the proposals before him (although one of the criticisms which was made of him was that he did not seek counsel’s advice on the proposals), and that he was not retained to advise on the merits of the proposals (although one of the general criticisms of Mr Coker was that he looked too much at whether the proposals could be justified), but if he had shown reasonable care and competence he should have appreciated that the relevant legal position was, in principle, as I have stated it to be.  In his evidence he said in effect, that he did appreciate that the law was as I have stated it to be.  I will come to that.

The particular breaches of duty alleged against Mr Coker are that he failed to advise the Council as to its powers to make the salary increase, payment in lieu of notice and consultancy fee terms of the January 1990 agreement; that he failed to advise the Council that the agreement was ultra vires and that payments made pursuant to it were void; that, alternatively, he failed to advise that there were serious doubts as to the power of the Council to make the agreement and that counsel’s opinion should be obtained, and that he failed to convey to the Council, or explain, the implications of the advice given to him by the District Audit Service in June 1990.

Mr Coker has been a solicitor for forty years.  As well as being a senior partner of his firm, he holds public offices.  He was a Councillor of Warwick District Council from 1976 to 1995, chairing various committees, and the Council itself in 1984 to 1985.  He has been a Town Councillor of Kenilworth since 1979 and he was Mayor of Kenilworth from 1989 to 1990.  He knew nothing much about the affairs of Hinckley and Bosworth over the county border in Leicestershire, but he was engaged by the Council because of his personal involvement in local government.

Mr Coker knew nothing in particular about the background to Mr Shaw’s possible redundancy when he was instructed in mid November 1989.  He did not, for instance, see Mr Shaw’s reports or committee or Council minutes made before then, although he could have asked for any relevant records or information, but his general understanding, derived from conversations with Councillors Smalley and Coker, was that while Hinckley wanted Mr Shaw to retire as soon as possible so as to facilitate the reorganisation, nevertheless it did want to treat him decently insofar as it properly could, since Mr Shaw was well regarded as a competent local government officer.  Mr Coker said that he was from the start conscious of the problem for the Council in that in effect its aim was to secure Mr Shaw’s retirement in order to facilitate the reorganisation, while Mr Shaw’s aim was to secure a certain level of pension for his retirement.  His clear view and therefore his concern was that the Council could not properly and lawfully sanction a level of salary simply to produce the given level of pension which would satisfy Mr Shaw, but that whatever salary was agreed must be justifiable in itself.

Mr Coker’s evidence was that before sending off his 24 November 1989 letter to Councillor Smalley he passed a copy to one of his partners who was a specialist in employment law.  His partner told him that it was his opinion that if Hinckley were simply to give notice to Mr Shaw to leave on 31 July 1990 then Mr Shaw would certainly be entitled to some compensation.  His partner’s argument was that this might not be a true redundancy in that, following the reorganisation, there would be three Chief Officer’s jobs, any of which would be open to Mr Shaw.  It might therefore be open to Mr Shaw to seek compensation for unfair dismissal even if he were to receive a redundancy payment.  He raised this point in the course of the subsequent discussions, and Clause 4 of the Agreement of 4 January 1990 reflected this concern.

I cannot accept that this was a real or sensible concern.  A moment’s thought or enquiry would have revealed that if Mr Shaw reached satisfactory terms he would not complain of unfair dismissal; if he did not reach satisfactory terms, he would not leave the Council at all; he would become Clerk and Principal Chief Officer. Mr Coker accepted that he must have known that, by the 20 December, and he could easily have discovered it much earlier, if he had been concerned about whether there was a true redundancy or a simple unfair dismissal.

Mr Coker’s 24 November letter said that he had made enquires of his own, but these were not investigations of text books or cases on relevant aspects of local government law.  Mr Coker did not research the law at all so far as I can see.  His enquiries involved discussions with the Treasurer of Warwick District Council, from whom he also obtained the Guidelines on Salaries of Chief Executive Officers to which he referred in the letter which he sent to Councillor Smalley.

Mr Coker said that he considered it to be material that Mr Shaw in effect combined the functions of Head of Legal Services and of Financial Services with the de facto post of Chief Executive.  That was the consideration behind his remark in his letter to Councillor Smalley of 24 November that he thought it was clear that the authority had been underpaying Mr Shaw for some time.

Mr Coker knew that it was likely that Mr Shaw would retire and he considered that he gave clear advice in the letter that the Council could give him notice and had time to do so.  The Council did not wish to do this, and this seemed to Mr Coker to be completely reasonable.  Generally, Mr Coker took his instructions to be to advise on the propriety of what seemed to be a fair and reasonable solution to what he understood to be Mr Shaw’s claim for extra pay for the work which he was actually carrying out.  Mr Coker was not instructed that the Council wanted to get away with as little as possible.  He was not instructed to negotiate the level of salary.

Mr Coker did not speak to Councillor Wallace or Councillor Davenport before the 20 December 1989.  At a preliminary meeting which Mr Coker had with the Councillors on that day, before they met the District Auditor’s representatives, they considered how to present the proposed settlements for Mr Shaw and Mr Evans to the District Auditors.  Mr Coker confirmed the advice given in his letter of 24 November to Councillor Smalley and that his major concern was that the salary should be fixed at a proper level with reference to the pension which it would produce.

Mr Coker said that he had the feeling that the Council Members had made their minds up and wanted to ratify the draft agreements sent to him by Mr Shaw on 19 December and that their main concern was obtaining the approval of the District Auditor to the agreements which they had presented to him.  He talked at the first meeting about the factors likely to be regarded as material by the District Auditor’s representatives and which should be mentioned to them.

It was an important part of Mr Coker’s evidence that he particularly stressed that the Council must be quite sure that the salary now to be paid to Mr Shaw was a proper one in itself, and not merely fixed at a level governed by Mr Shaw’s view of his pension requirements.  The advice which he gave seemed to him to be comparatively simply, namely they should take into account the work that Mr Shaw was actually doing and the type of salaries paid in similar authorities for similar work - not only the salaries they suggested, but the rises that were likely to occur; that arising from those considerations, they should decide what was the appropriate salary; that they could if they wished merely give Mr Shaw notice; and that they should not fix a salary to produce a pension.

Mr Coker said that he told the Councillors that they should have regard to any opinions expressed by the District Auditor; that the Council’s proposed reorganisation would make Mr Shaw’s office as held at that time redundant; and that the Council should follow the redundancy rules in its own severance scheme, and that given that the date of termination of Mr Shaw’s employment was well known in advance, the Council was in a position to give notice to Mr Shaw and save itself a payment in lieu.

Mr Coker said that he was encouraged by the fact that Mr Wilson and Mr Hemmings of the District Audit Service did not object to any of the proposals which were put to them on 20 December 1989.  This confirmed that it was reasonable and proper to increase Mr Shaw’s salary.  Moreover, since the District Auditor was likely to be the source of any complaint such a complaint would be pre-empted if the Council could show that it had gone no further than proposals already put to the District Auditor and to which he had made no objection.

Mr Coker did not think it necessary to take the advice of counsel; the Councillors had had an opportunity of considering the advice which he had given them, and they still wished to proceed, and the District Auditor had raised no objection.

I have already said that Mr Coker did not know that the Council gave Mr Shaw due written notice of the termination of his employment.

Mr Coker said that when he received Mr Shaw’s message at the end of May or beginning of June 1990, that the four Councillors had agreed to increase his salary further, he spoke again to the Treasurer of Warwick District Council who took the same view as Mr Coker did, that the situation had changed completely in that the pension seemed to be driving the salary rather than the pension simply being the consequence of the salary.  So he wrote the 4 June 1990 letter to Mr Shaw.

It did not appear to occur to Mr Coker to reconsider whether the salary increase agreed six months before might have been driven by the question of pension.

Despite his view of the suggested further increase in salary, Mr Coker felt able to try to persuade Mr Hemmings that the further increase in salary was proper.

When cross-examined, Mr Coker said that he was aware that a statutory Council can not legally make a gift to an officer, and that it can not increase an officer’s salary to increase provision for his redundancy and retirement.  So in evidence in 1998 Mr Coker was saying that when the agreement was made he appreciated that the relevant legal position was as I have found it to be.  He said that he tried to get that across.  From the beginning, he was anxious to see that the Council was not increasing a salary to make a pension.

I cannot, however, accept that Mr Coker was aware of the legal position in 1989 or 1990.  He, as well as Mr Shaw and the four Councillors, must have realised, and he certainly ought to have realised, that the whole purpose of the appointment of the subcommittee was to negotiate terms of settlement in respect of Mr Shaw’s early retirement and redundancy; that the large increase of Mr Shaw’s salary over his last year of service would substantially improve his redundancy and retirement benefits, and that that was the real purpose of the salary increase.

I have come to the conclusion that Mr Coker did not appreciate, in 1989 and 1990, that it was unlawful for the Council to increase Mr Shaw’s salary with a view to providing improved terms of redundancy and retirement, which he would find acceptable.  He thought it was lawful if the increased salary could be justified in itself.  At one stage in his evidence he said that the four Councillors were entitled to fix a salary for Mr Shaw provided that it was reasonable for what he did.  Mr Coker’s letter of 24 November 1989 was really directed at the reasonableness of Mr Shaw’s proposed salary increase, rather than its purpose.

Even Mr Coker’s expressed clear view and concern that the Council could not properly and lawfully sanction a level of salary simply to produce the given level of pension which would satisfy Mr Shaw, but that whatever salary was agreed must be justified in itself, risks losing sight of the illegality of a salary increase to produce an agreeable pension, in circumstances where the salary increase is in fact justifiable in itself, and in my judgment Mr Coker did lose sight of that illegality if, indeed, he ever spotted it in the first place.  The point was certainly not made in Mr Coker’s 24 November 1989 letter to Councillor Smalley.

The point that it is wrong “to gear the salary to produce a pension” was made in Mr Coker’s 4 June 1990 letter to Mr Shaw, but even then Mr Coker went on to argue to Mr Hemmings that the further salary increase was justifiable, and I do not believe that he could honestly have said what he did to his brother and Mr Shaw on 14 June 1990, and argued what he did to Mr Hemmings later the same day, unless he still thought that even a salary increase to enhance or make up a shortfall in a pension, could be taken to be legal, provided that the increase was reasonable in itself.

I am quite certain that Mr Coker never advised or made clear to the Council, through any of the four Councillors, what a reasonably careful and competent solicitor should in the circumstances have advised and made clear; that a salary increase for Mr Shaw’s last year of service, the main object of which was to provide acceptable terms of redundancy and early retirement by enhancing the redundancy and pension calculated in accordance with statute and regulations upon the salary during the last year’s service, was unlawful even if the salary increase, taken on its own, could be justified, and that Mr Shaw’s salary increase was therefore unlawful.  That he did not do so was demonstrated by the willingness of Mr Shaw and the Councillors to increase Mr Shaw’s salary further in June 1990 in order to make up an apparent shortfall in pension entitlement, and by Mr Coker’s inability to advise that the proposed further increase was blatantly unlawful.

Mr Mould relied very heavily upon the effective approval of the original agreement by the District Audit Service, and the District Auditor’s failure to take any action to strike down the agreement and its effect.  I am grateful to Mr Mould for his explanation of the District Auditor’s powers and duties, but I have already indicated that I do not believe that the District Auditor’s failure to act can help me in this case.  There may have been many reasons for him not taking action.  He may, as Mr Howes suggested, have taken the view that there was no need for the police if the caretaker was handling matters.  He may have felt embarrassed about taking action when his predecessor did not act to nip the agreement in the bud in 1989 or 1990.  I just do not know. In any event the District Auditor can not decide this case for me.

Mr Mould’s main point on the District Auditor’s stance was that Mr Coker was entitled to take account of the views of the District Audit Service that the agreement was unobjectionable.  I agree with that, but Mr Coker was not entitled to pass his responsibilities on to the District Auditor, and in my judgment that is what he in large part did, acting, moreover, as advocate towards the District Auditor in respect of the proposed agreement on 20 December 1989, from my reading of Mr Shaw’s notes, as well as the proposed amendment in June 1990.  Mr Coker had no reason to suppose that either Mr Wilson or Mr Hemmings, or indeed the District Auditor himself, was a lawyer, whereas he had been engaged as a lawyer.  Instead of researching the law, Mr Coker contented himself with consulting others.

No doubt Mr Coker is a normally competent and skilful solicitor, but for all these reasons I find that on this occasion he was in breach of his duty and negligent in the advice which he gave or failed to give in relation to the proposed salary increase to Mr Shaw, which was agreed on 4 January 1990.  The consequence of that breach of duty was the payment to Mr Shaw of the unlawful salary increase and commensurately enhanced redundancy and retirement benefits by the Council and the County Council.  In addition to his liability for damages he must indemnify the Council in respect of any such payments which they are liable to refund to the County Council.

I have already ruled that the payment in lieu of notice was plainly unlawful in circumstances where notice was in fact given.  In my judgment a reasonable competent solicitor would have gone further than advising the Council, as Mr Coker did in his 24 November 1989 letter to Councillor Smalley, that it would be open to the Council to give Mr Shaw appropriate notice and thus save itself a payment in lieu thereof.  He would have gone onto say that if notice was given any payment in lieu would be a gift, and unlawful.  In fact Mr Coker did quite the reverse; he said that he understood, however, that it was not uncommon in circumstances such as then arose, for Councils to give payments in lieu of notice in any event.

I have no doubt that the Council say that as the green light to give notice and still pay the money in lieu of notice.  Mr Coker should have foreseen that the Council might well take that course, and warned them against it.  In those circumstances it does not assist Mr Coker to say that he did not know that notice had been given.  Proper advice would have avoided the payment of the monies in lieu.

In respect of the payment on money “in lieu of notice”, Mr Coker was in breach of duty, in my judgment, with resulting loss to the Council of the monies paid, supposedly in lieu of notice.  Again the failure of Mr Wilson and Mr Hemmings to object to the agreement to pay Mr Shaw money in lieu of notice, when notice could be given, can not save Mr Coker from this conclusion.

The consultancy fees have not been shown to have been unlawful.  In my judgment Mr Coker had no good reason to advise that they might be, on the information available to him.

It follows that Mr Coker is liable to the Council for damages in the sum of the money paid to Mr Shaw, supposedly “in lieu of notice”, in addition to the monies paid as a result of the unlawful salary increase, but not in respect of the consultancy fees.