It’s not only private sector bank chiefs who can be handsomely rewarded even though they have presided over disasters. One reason for what can sometimes appear to be unwarranted generosity is of course self-interest: senior directors are usually aware of any dirty linen there may be in their employers’ cupboards and an important part of the compensation packages they negotiate is often their agreement to keep quiet, euphemistically referred to as a “confidentiality clause”. That, of course, can be worth a lot.
In a recent public sector example, the former chief executive of Maidstone and Tunbridge Wells NHS Trust (a Ms Rose Gibb) resigned from her job in October 2007. This was just a few days before publication of a report on an outbreak of the clostridium difficile “super bug” which had caused the deaths of 90 people. Ms Gibb was not, of course, personally responsible but the outbreak occurred on her watch and the report said there had been ‘a significant failing on the part of the Trust which failed to protect the interests of patients’.
To the outrage of many, including Alan Johnson who was then Secretary of State for Health, the Trust had agreed to pay Ms Gibb a “compensation package” of around £250,000. As normal, the agreement included confidentiality clauses. Given the public outcry when the amount became known, the Trust quickly changed its mind. Although it had agreed to pay around £250,000 it refused to hand over more than the “pay in lieu of notice” part of it. That was £75,000 but was not enough to satisfy Ms Gibb. As the Trust had agreed to pay more it was perhaps understandable that she sued for the £175,000 balance.
The High Court rejected her claim, holding that the agreement was so unreasonable that it was void (see for example BBC News of 28 April 2009 “Bug scandal boss loses pay fight“). Ms Gibb appealed to the Court of Appeal. Not surprisingly, as the case concerned legal rights rather than moral ones, she has won.
Basically, the Court of Appeal’s reasoning was simply that the agreed payment was not irrational (the Trust’s lawyers had advised that Ms Gibbs could win up to £250,000 if she was dismissed) and that the High Court must not act as auditor or substitute its own view as to what was reasonable for the view of the Trust. In any event, and perhaps rather more controversially in the circumstances, the Court thought that “…£240,000 was not on its face outlandish compensation for the arbitrary termination of a career which it was unlikely Ms Gibb would be able to resume or resurrect“.
Parts of the Court of Appeal’s unanimous judgment of 23 June 2010 make wonderful reading. Lord Justice Sedley referred in passing to the execution of Admiral Byng in 1757, saying “It seems that the making of a public sacrifice to deflect press and political obloquy, which is what happened to [Ms Gibb], remains an accepted expedient of public administration in this country“.
Even though he agreed that Ms Gibb should have the full £250,000 Sedley LJ pointed out that profligate expenditure by a public body is not beyond the reach of the courts. He referred to an entertaining 1894 example of judicial auditing of civic expenditure. Councillors had been inspecting a waterworks in the Wicklow Hills and had had a rather good picnic lunch at public expense. They were appealing against a surcharge imposed on them as a result but got little sympathy from the judge who said:
“I think it is relevant to refer to the character of this luncheon. I have before me the items in the bill. Amongst the list of wines are two dozen champagne – Ayala 1885 – a very good branch – at 84s a dozen; one dozen Marcobrunn hock – a very nice hock; one dozen Chateau Margaux – an excellent claret; one dozen fine old Dublin whiskey – the best whiskey that can be got; one case of Ayala; six bottles of Amontillado sherry – a stimulating sherry; and the ninth item is some more fine Dublin whiskey… There is an allowance for brakes; one box of cigars, 100; coachmen’s dinner; beer, stout, minerals in siphons, and ice for wine. There is dessert and there are sandwiches, and an allowance for four glasses broken – a very small number broken under the circumstances …”