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In this connection, you may find it interesting to look at an unreported English case, Hinckley and Bosworth BC v Shaw (21 Dec 1998) Unrep (QBD: Bell J). Shaw was the principal chief officer of the claimant borough council. In comparison with other local authority employees occupying similar posts he was significantly underpaid. The council wished to reorganize its administration, and as part of this reorganization, for Shaw to take early retirement. The council and Shaw therefore entered an agreement under which he promised to accept redundancy, and in return the council promised to increase his salary during his final year of employment by 30%, to pay him three months' salary in lieu of notice at the end of this year even though proper notice had been given, and thereafter to pay him larger redundancy and pension benefits than he could otherwise have claimed, as his entitlement to these was geared to the amount of his final salary. Pursuant to this agreement, the council then made him a series of payments in respect of salary increase, the money paid in lieu of notice, and those parts of the redundancy and pension benefits which related to the 30% final salary increase. Subsequently, however, the council brought an action for money had and received to recover all these payments on the ground that they had been made pursuant to an agreement that was ultra vires and illegal and therefore void. Shaw disputed this, and in the alternative raised a change of position defence in respect of various payments made by him to members of his family in reliance on his receipt of the payments in question.

Bell J held that an agreement entered into by a statutory local authority to increase an employee's salary for the main purpose of enhancing the employee's redundancy or retirement benefits is unlawful and void because it is beyond the authority's powers, even if the pay increase can be justified and seen as reasonable in itself, following Pickwell v Camden LBC [1983] 1 QB 962 and Allsop v North Tyneside MBC [1992] ICR 639. An agreement entered into by a statutory local authority to pay redundancy and pension payments geared to an unlawfully inflated final salary is itself also unlawful and void because it is beyond the authority's powers. An agreement entered into by a statutory local authority to make a payment in lieu of notice when proper notice terminating an employee's employment has in fact been given is unlawful and void because it is beyond the authority's powers, as in reality it is a gift. The council was accordingly entitled to restitution of all the payments in question on the ground of failure of consideration, following Guinness Mahon & Co Ltd v Kensington and Chelsea RLBC [1998] QB 215.

He also held that Shaw was not entitled to raise a change of position defence to the council's claim in respect of the gifts he made to his family, because he had not made these in reliance on receipt of the relevant payments by the council, but in reliance on his general financial position, which included reliance on the lawfulness of his agreements with the council - and following South Tyneside MBC v Svenska International plc [1995] All ER 545, a recipient of payments under a void contract may not raise a change of position defence to a claim to recover these payments where he has relied not on receipt of the payments but on the supposed validity of the transaction under which they were made.

My own view on this decision is that the courts can most sensibly determine whether benefits conferred under a void contract should be recoverable by examining the policy underlying the rule which makes the contract void, so as to decide whether recovery of the benefits is required by the policy, whether it is at least consistent with the policy and desirable for some other reason, or whether it would stultify the policy. And in cases like this, Auckland Harbour Board should provide them with a starting point for this kind of discussion. The problem with the Court of Appeal's approach in Guinness Mahon, at least insofar as it has been interpreted by Bell J, is that it leaves the courts with no room in which to embark on enquiries of this sort, since it apparently requires them to allow recovery on the ground of failure of consideration automatically, once they have held that the contract was void ab initio, regardless of whether the rule avoiding the contract was intended to protect the transferor or the recipient of the benefits in question.

So far as change of position was concerned, Bell J's finding on the facts that Shaw had relied on the validity of his contract with the council rather than on his receipt of the council's payments when making gifts to his family also seems a little strained, as does his assumption that the series of one-off gifts made by Shaw was analogous to the back-to-back hedging contract in the Svenska case. Clarke J's remarks on change of position in the latter case were surely specific to the facts of that case, and their application to to the facts of the present case inappropriate. It may be, though, that Shaw should anyway have failed in his defence, since it appears that he was frequently generous to his family and might well have made them the gifts in question anyway.

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Dr Charles Mitchell
Lecturer in Law
School of Law
King's College London
Strand
LONDON WC2R 2LS

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