Maidstone and Tunbridge Wells trust was not 'irrationally generous' in giving former chief executive Rose Gibb a £250,000 pay-off, because it took into account all the relevant considerations, a court heard yesterday.
"This trust acted reasonably," Oliver Segal, Ms Gibb's barrister told the High Court. "They knew that whatever they wanted to do there were other constraints.
"The remuneration committee recognised the difference between the contractual obligation and the award was significant. The potential risk of damages and the cost of fighting any case justified the premium."
Issues of generosity - "even simple generosity let alone irrational generosity" - did not materially affect the committee, he said.
The remuneration committee agreed to pay Ms Gibb£250,000 days before a critical Healthcare Commission report was published. But the Department of Health ordered the payment to be halted. The trust has since agreed to pay her six months' salary in lieu of notice but she is suing it for breach of contract to recover the remaining£175,000.
The case hinges on whether the trust was acting within its powers in entering into the agreement with Ms Gibb: if the judge decides that it was acting within its powers, then Ms Gibb is expected to get the money.
However, Mr Segal is also arguing that even if it acted beyond its powers because the agreement was "irrationally generous", there are other grounds that mean Ms Gibb should get some money, although not necessarily the whole package.
The trust's actions had given her a "legitimate expectation" that the payment was lawful and had the necessary approvals further up the line, he said.
The court has heard how she was given reassurances by former trust chairman James Lee that the compensation agreement had been agreed with the South East Coast strategic health authority.
Mr Segal said Ms Gibbs' note of the meeting with Mr Lee says: "Remuneration committee sorry, know my career is shot, but someone has to carry the can. Remuneration committee want to pay me more but SHA says no."
Mr Segal said: "We know that Mr Lee had spoken to the SHA and said that an appropriate figure is something more than£250,000 and the SHA had said no."
The belief that she had an enforceable contract meant that Ms Gibb did not file a claim with an employment tribunal within the three month time limit.
Although what would have happened if she had gone down this route is uncertain, one possibility is that she would have got around£145,000 through an award for unfair dismissal and her salary for a six month notice period.
This would be around£100,000 less than she was offered by the board.
The case is expected to end today, although the judgement is expected at a later date.