Supreme Court allows breach of contract claim against Ministry for Defence based on legitimate expectation of continued service.

THE SUPREME COURT

Appeal No: 239/2006

Geoghegan J.

Fennelly J.

Kearns J.

Between

JAMES McGRATH

Plaintiff/Respondent

- and -

THE MINISTER FOR DEFENCE, IRELAND AND THE ATTORNEY GENERAL

Respondents/Plaintiffs

JUDGMENT of Mr. Justice Fennelly delivered the 28th day of July, 2009.

1. This is an appeal from the judgment of the High Court (Laffoy J) of 7 April 2006 whereby she awarded a sum of

€36,395 .77 with interest to the plaintiff/respondent (“hereinafter the plaintiff”). She held that the discharge of the plaintiff

from the Army on 12th May 1996 had been in breach of contract. I will refer to the appellants together as “the Minister.”

2. Soldiers are enlisted in the army pursuant to section 53 of the Defence Act, 1954 and Defence Force Regulations. They

are medically graded from time to time. They may be discharged from the Army in accordance with regulations. The

principal legal issue in the appeal is whether the learned judge was correct to determine that there had been a breach of

contract when the plaintiff was discharged.

3. The plaintiff was born on 18th July 1953. He enlisted in the Defence Forces on 29th October 1969. He served for more

than 26 years prior to his discharge in 1996. His medical history is central to the matters in dispute.

4. In 1977, while engaging in recreational activity (a football match) at the Glen of Imaal, he suffered an injury to his right

knee. In 1982 he underwent a meniscectomy. He was, nonetheless, sufficiently fit to serve in the Lebanon in 1983. He had

continuous problems with his knee. In 1987, he had further surgery for the reconstruction of his anterior cruciate ligament.

Following that surgery the plaintiff was excused from regimental duties. In November 1988, he was reclassified to Medical

Category C. From that time on he was excused regimental duties. Between 1987 and 1996, the plaintiff performed a wide

range of duties. He attained the rank of Sergeant and at times was Acting Quartermaster. He did everything except

regimental duties. That he defined as guard duty with a weapon and ceremonial guard-mounting duties involving marching.

This remained his position until the events of 1994 and 1995, which I will now describe.

5. The plaintiff had originally enlisted for a period of 12 years. Thereafter, he was continued in service for successive

periods of enlistment of two years. In April 1994, his existing period of engagement was coming to an end. The plaintiff

made a formal application "to continue in service pursuant to section 65 of the Defence Act, 1954.” That section provides

that a man who has completed a total continuous period of twenty-one years’ service may be continued in service by the

Minister for a specified period. By his application in writing the plaintiff gave notice of his desire to continue in the army

“for the period of 2 years after the termination of my present engagement to enable me to render 27 year’s qualifying

service towards pension.” For the purpose of that application, the plaintiff was medically examined by an Army Medical

Officer, who, on 27 April 1994 certified that he had examined the plaintiff. He assigned him to medical category C. The

plaintiff's Commanding Officer recommended that he be continued in service. His conduct was assessed as “very good.”

The plaintiff’s continuance in service for the period of two years from 28 October 1994 to 28 October 1996 was duly

approved and published in Routine Orders.

6. Around this time, and unfortunately for the plaintiff, some changes were taking place in the army. A report of Mr Dermot

Gleeson, Senior Counsel, on pay and conditions in the Defence Forces and a subsequent efficiency audit carried out by

Price Waterhouse led to a review within the Army of every soldier serving who was classified in medical category C and

who was, consequently, unfit for 24-hour armed security duty at his own barracks.

7. Around the same time, and, as stated by the learned High Court judge, with broadly similar objectives, the Army

authorities devised a scheme for voluntary early retirement ("the VER scheme"). The main objectives of the scheme were to

reduce the number of personnel in medical category C, to reduce the age profile of the Army and thus to create greater

scope for recruitment. The scheme which was relevant to the plaintiff was open for application from 29 April 1996.

8. On 9th August 1995, following a medical examination, a recommendation was made that the plaintiff be brought before a

medical board. He was given notice on 17 October 1995 that the Medical Board would assemble on 20 November 1995 in

order to determine his appropriate medical classification. He was informed that there was a possibility of his being

reclassified to medical category E. The report of the Medical Board stated that the plaintiff suffered from “chronic

ineffectivity since 1987 due to R cartilage injury and R anterior cruciate injury which has failed to allow him return to

normal duties despite reconstructive surgery and physiotherapy.”

9. The plaintiff was reclassified as medical category E. He was informed that the provisions of DFR A12 would apply and

that he was “regarded as not possessing the medical standard required for service with the Defence Forces.” He was

recommended for discharge.

10. It is clear that the plaintiff and his commanding officers were conscious that his reclassification and impending discharge

would make him ineligible to avail of the VER scheme. The GOC Curragh Command and the Adjutant of Curragh

Command unsuccessfully recommended that he be allowed to serve out his current engagement ending on 29th October

1996.

11. Because of his reclassification to medical category E, the plaintiff was ineligible to apply for early retirement under the

VER scheme. He was duly discharged from the Army on 12th May 1996.

12. In the plenary proceedings which were commenced on 3 November 1998, the plaintiff claimed that the various steps

leading to the discharge of the plaintiff from the Army were ultra vires and had been adopted in breach of the principles of

basic fairness of procedure and of natural and constitutional justice. He claimed declarations to that effect in respect of each

of the decisions and in particular the decision of 20th November 1995 whereby he was reclassified to medical category E.

13. By a series of amendments to the Statement of Claim, the plaintiff alleged that from 29th October 1994 he had a fixed

term contract for two years and that he was entitled, notwithstanding his knee condition, to remain in service until 29th

October 1996. He also claimed that the defendants were estopped, within a two-year period, from finding the plaintiff unfit

due to his knee condition to complete his period of service. The plaintiff also claimed that the defendant failed to respect his

legitimate expectations.

14. The learned trial judge stated that the matter proceeded at the hearing in the High Court on the basis that it was a claim

for damages for breach of contract and failure to respect the plaintiff’s legitimate expectation that he would be entitled to

avail of the VER Scheme that was being primarily pursued. The learned trial judge held:

“In my view, the plaintiff’s claim in contract is well founded. The continuance of the plaintiff in service for

the two year term expiring on 29th October, 1996 created a contractual relationship between the first

defendant and the plaintiff. That contractual relationship was, of course, subject to the provisions of statute

law and regulations then in force governing the Defence Forces.”

15. The learned judge accepted that the Defence Force Regulations applied but only if something had occurred during the

two year extension. However she then proceeded to hold that the medical re-classification of the plaintiff resulted from a

change of policy rather than from any material change in the plaintiff’s medical condition since his medical examination on

extension of service in April, 1994 and the continuance of his engagement in October, 1994.

16. She addressed the submissions on legitimate expectations as follows:

“I do not propose to address the various arguments advanced by the defendants on the invocation of the

doctrine in this case, because, having found that there was a contractual relationship between the plaintiff and

the first defendant and that that contractual relationship was breached so as to give rise to an entitlement to

damages, the plaintiff did not have to rely on the doctrine of legitimate expectation.”

17. The Minister, in his written submissions states that it is trite law that a member of the Permanent Defence Forces is not

an employee of the Minister. Rather they are persons holding office under or in the service of the State. He relies on State

(Gleeson) v Minister for Defence [1976] I.R. 294. This is the core of the appeal on liability. The plaintiff interprets Gleeson

differently and submits that it is authority for the proposition that a man of the Defence Forces has a statutory contract for a

fixed period carrying with it the statutory benefits and liabilities attaching to his rank in the army.

18. I am satisfied that the Minister is correct and that the learned judge made an error in law in concluding that there was a

contractual relationship between the plaintiff and the Minister. She expressly found that the contract was with the Minister.

It is well established that an employee of the State is not the servant of the Minister. Walsh J stated the well-known position

in a different context in Byrne v Ireland [1972] I.R. 241 at 285: “The officials and other employees in the Department [for

Posts and Telegraphs] are not the employees of the Minister for Posts and Telegraphs, and he cannot be made liable in

damages for the tortious acts committed by these employees even though they may have been appointed by him to their

particular employment.” That principle clearly applies with equal force to any potential vicarious liability in contract. If the

Minister is not the employer, he cannot be vicariously liable.

19. Section 53(1)(a) of the Defence Act, 1954 provides:

“A person (including a minor) may be enlisted as a man of the Permanent Defence Force for service for a

period of twelve years or for such less period as may from time to time be prescribed, but not for any longer

period, and the period for which a person enlisting under this section is enlisted is in this Act referred to as

the term of his original enlistment.”

20. This section has been amended by the Defence (Amendment)(No. 2) Act, 1979 to include women, but remains

otherwise in force. Henchy J, at page 294 of his judgment in Gleeson referred to this provision in combination with Defence

Force Regulations as follows:

“The scheme of the Act of 1954 and of the Regulations made under it shows that a man such as the prosecutor

could have enlisted for a maximum of 12 years and a minimum of 3 years (s. 53. sub-s. 1, of the Act of 1954

and D.F.R. A.10, para. 8. sub-para. 1e) and that, save in circumstances not applicable here, he could not be

discharged except for one of the prescribed reasons: see ss. 73 and 80 of the Act of 1954, and D.F.R. A.10.

para. 58. The prosecutor, in fact, enlisted for three years and had served almost two years of that period.

Therefore, in the eyes of the law, he was not a servant. Subject to the statutory provisions for discharge, he

had a statutory contract for a period of three years which carried with it the statutory benefits and liabilities

attaching to his rank in the army. Accordingly, he was the holder of an office—no less so than was the member

of the police force in Ridge v. Baldwin. It is in the capacity of an office holder in the legal sense—although

not an officer in terms of military rank—that he comes forward in the present proceedings and submits that he

has not been lawfully discharged.”

21. It is a mistake to take the expression, “statutory contract,” out of context. There is no private-law contractual

relationship between a soldier and the Minister for Defence. The principle is even more clearly stated in the judgment of

Kenny J in the same case at page 298:

“On the 30th July, 1974, Mr. Gleeson enlisted as a private in the Permanent Defence Force for three years.

He did not become a servant or employee of the Minister: he was the holder of a military office though not an

officer in military rank. Section 81, sub-s. 3, of the Defence Act, 1954, provides that a person who is a man of

the Permanent Defence Force remains a member of that Force until his discharge is carried out in accordance

with regulations made under that Act. Therefore, Mr. Gleeson remains a member of that Force until he is

validly discharged in accordance with the regulations.”

22. In my view, it follows that the learned trial judge was in error in awarding damages for breach of contract to the plaintiff

against the Minister. As both Henchy and Kenny JJ said, a man of the Permanent Defence Force is not a servant of the

Minister. There was no contractual relationship between them.

23. It is clear from Gleeson that a man may be discharged from the Defence Forces prior to the termination of his period of

enlistment only if his discharge is authorised by the Defence Force Regulations. In the present case, the plaintiff’s discharge

was carried out pursuant to Defence Force Regulations A. 12 on the ground that he was medically unfit for service. The

learned trial judge accepted that the Regulations applied to the plaintiff’s service in the Army, even under the sort of contract

of employment which she found to exist. In other words, it is always open to the Army to discharge a man under the

Regulations, properly interpreted and fairly applied: in Gleeson, the discharge was held invalid for want of fait procedures.

Laffoy J found that the decision was crucially vitiated in the present case, because the discharge took place, not as a result

of a normal application of the Regulations, but as a result of a change in policy.

24. It is clear that the plaintiff suffered from a chronic and significant disability such that he was unable to perform normal

regimental duties. It is, in fairness, accepted by the Army that the plaintiff performed creditably in spite of his disability and

that the Army was content for many years to dispense him from the performance of regimental duties. Nonetheless, his

medical condition was such that the Army was entitled to discharge him, in the ordinary way, for that reason.

25. In my view, the only basis upon which the plaintiff could successfully challenge his discharge is by relying on the

doctrine of legitimate expectations. Finlay C.J. remarked, in his judgment in Webb v Ireland [1988] 1 I.R. 353, at page 384

that the doctrine of "legitimate expectation" had not, up to that time, been the subject matter of any decision of our

courts.He equated it with equitable concept of promissory estoppel and approved the following passage from the judgment

of Denning M.R. in M.R. in Amalgamated Property Co. v. Texas Bank [1982] Q.B. 84, 122:

"When the parties to a transaction proceed on the basis of an underlying assumption - either of fact or of law -

whether due to misrepresentation or mistake makes no difference - on which they have conducted the dealings

between them - neither of them will be allowed to go back on that assumption when it would be unfair or

unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such

remedy as the equity of the case demands."

26. In my judgment in Glencar Explorations plc and another v Mayo County Council [2002] 1 I.R. 84, I reviewed the

history of the doctrine of legitimate expectations and endeavoured to outline the necessary elements in a claim based on the

doctrine. At page 162, in a passage which may be regarded as an obiter dictum, I said:

“In order to succeed in a claim based on failure of a public authority to respect legitimate expectations, it

seems to me to be necessary to establish three matters. Because of the essentially provisional nature of these

remarks, I would emphasise that these propositions cannot be regarded as definitive. Firstly, the public

authority must have made a statement or adopted a position amounting to a promise or representation, express

or implied as to how it will act in respect of an identifiable area of its activity. I will call this the

representation. Secondly, the representation must be addressed or conveyed either directly or indirectly to an

identifiable person or group of persons, affected actually or potentially, in such a way that it forms part of a

transaction definitively entered into or a relationship between that person or group and the public authority or

that the person or group has acted on the faith of the representation. Thirdly, it must be such as to create an

expectation reasonably entertained by the person or group that the public authority will abide by the

representation to the extent that it would be unjust to permit the public authority to resile from it. Refinements

or extensions of these propositions are obviously possible. Equally they are qualified by considerations of the

public interest including the principle that freedom to exercise properly a statutory power is to be respected.

However, the propositions I have endeavored to formulate seem to me to be preconditions for the right to

invoke the doctrine.

27. If that passage correctly states the doctrine, which I believe it does, how does it bear on the plaintiff’s case? It seems to

me that he fits the requirements quite well. In the background is the fact that the plaintiff had been kept on in the Army for

more than sixteen years during which he suffered from a significant disability. The Army might well have decided to

reclassify him medically and to discharge him at an earlier date. The evidence shows that he was kept on to the benefit of

the Army and of himself. He served loyally and effectively. He sought an extension in 1994 pursuant to a section that

applied only to men who had served for a minimum of twenty-one years. He was concerned to build up his pensionable

service, to which his application made express reference. The Army would have been perfectly entitled to refuse that

extension on general grounds or, in particular, on the ground of his medical condition. In fact, the Army medical examination

expressly continued him in Medical Category C. The Army thereby clearly accepted that his medical condition at that time

did not prevent him getting a two-year extension. I believe the Army thereby represented to the plaintiff that he would be

reatained in service for two years even with his existing medical classification and he was entitled to rely on that

representation.

28. As the learned trial judge has expressly found, the later moves leading to his discharge were not motivated by a normal

application of the Regulations, but resulted from a change of policy. I believe that, having regard to his long history of

service, the plaintiff was entitled to believe, as of April 1994, that his medical condition would not present an obstacle to

completing the extended two-year period of service. It followed that he could reasonably expect that he would not be

medically reclassified and, consequently, discharged from the Army in the absence of a significant change in that condition.

29. It is true that a legitimate expectation does not necessarily confer substantive rights. The authority which created the

expectation may be entitled to correct it if it gives fair notice and an opportunity to respond. There is no doubt that the Army

was entitled to adopt a new policy with regard to medically unfit personnel, based, as it was, on reports from experts.

However, the plaintiff was in a an exceptional situation. He had been granted an extension for the short period of two years

in circumstances where his medical situation was as it had been for many years and was accepted without reclassification for

that purpose. The Army were at fault only in failing to take account of such special situations.

30. I would hold the plaintiff entitled to succeed on the basis that his legitimate expectation to be allowed to continue in

service to the 29th October 1996 was infringed.

31. The Minister contests the award of €36,395 .77 for damages. The sum is the agreed amount that the plaintiff would

have received if he had been admitted to the VER scheme in 1996. It is common case that he wished to have the

opportunity to apply and that he was deprived of that opportunity by his reclassification to Medical Category E. The

Minister says that the learned trial judge was not entitled to conclude that the plaintiff would have been successful in his

application for admission to the VER scheme. The Minister says that the statistics showed that only 500 out of 1,119

applications were successful in 1996. On this point, the learned trial judge said:

“In any event, I do not think that the issue of determining whether, as a matter of probability, the plaintiff

could have made a successful application under the VER Scheme, if he had been afforded an opportunity to do

so, should be approached on the basis of a statistic analysis of what actually happened. I think the correct

approach is to consider what decision the VER Board would have been likely to make on an assessment of the

plaintiff’s individual circumstances in the light of the objectives of the scheme and acting fairly. On that

basis, I think I am entitled to find that it is probable that his application would have been successful.”

32. This was a matter of fact for the judge to decide in the light of the evidence. She had heard the evidence of the

plaintiff’s superior officers and had seen the remarkably favourable views they held about him. In my view, the learned

judge was entitled to rule as she did.

33. I would, therefore, dismiss the appeal, although I would uphold the award made by the High Court, though on a

different legal basis.