BRITAIN'S largest ever payout for racial discrimination loomed over a London council today as it faced a £400,000 compensation claim from an Asian worker it sacked.

Indian-born Don D'Souza claimed unfair dismissal and racial victimisation when he lost his £28,000-a-year job as a computer officer in Lambeth seven years ago.

Since then, two industrial tribunals have ruled that 61-year-old Mr D'Souza was discriminated against and have ordered Lambeth to reinstate him and pay backpay and compensation. Despite the scathing judgments against it, the council has refused to give him his job back or make any settlement and was due to put its case at an Employment Appeals Tribunal today.

However, it is understood that even Lambeth's own lawyers expect to lose the hearing and anticipate that the tribunal will issue a landmark judgment forcing them to pay up £400,000. Of this, £200,000 would go to Mr D'Souza and £200,000 to the Treasury as compensation for income support paid to him during the last seven years.

If the verdict does go against it, Lambeth will appeal. Yet even if it wins the appeal, the borough is preparing to pay out a minimum of £200,000.

The saga began in 1990 when the council fired Mr D'Souza without following its own disciplinary procedures in an attempt to get rid of him, by its own admission, as quickly and cheaply as possible.

Lambeth claimed that he was sacked because he had become 'impossible" to manage. Industrial tribunals have since backed Mr. D'Souza's claim that he was regularly passed over for promotion because of his colour and harassed by white staff.

When they dismissed Mr. D'Souza, council chiefs realised he could sue for unfair dismissal because normal procedures had not been followed, but calculated that the maximum he would be awarded was £13,000.

According to documents seen by the Evening Standard, the borough decided that it would be cheaper to dismiss him and not attend any of the expected industrial tribunal hearings. Mr D'Souza's sacking was approved by Lambeth's then leader, Left-winger Joan Twelves, and then chief executive John George.

An industrial tribunal found in 1992 that Mr. D'Souza had been victimised on grounds of his race and demanded his reinstatement with backpay of £84,000, but Lambeth refused. A second tribunal in 1993 also found the council guilty of discrimination for refusing to shortlist him when a new computer job was offered after his sacking in 1990.

Last December, a preliminary hearing of the current case before the Employment Appeals Tribunal indicated that the case today was likely to go against Lambeth.

A spokeswoman for Lambeth admitted today that the council was contesting the case but refused to give any details. 'We do not dispute the industrial tribunals' finding of guilt, but that is not what we are contesting,' she said.

Indian-born Don D'Souza, 62, won £360,000 from Lambeth Council after a seven-year battle over his sacking, described by a tribunal as the worst case it had heard.

Mr D'Souza insists he deserves every penny because the authority wrecked his career and deprived him of his livelihood.

But Lambeth, the South London council which was a byword for waste, corruption and far-Left intransigence in the Eighties and which is still desperately short of funds, says it cannot afford to pay. The Liberal Democrats are now the largest single party.

Lambeth Council sources confirmed last night that the money could have been used to employ 16 new teachers for a year, re-roof one of the borough's decaying schools, or build and staff a small nursery.

'We are already under considerable financial pressure, and we don't have the resources to cover this payment,' said a council spokesman. 'The cost will be met by the public purse. We can't say what services will be affected.' She admitted that Mr D'Souza's case had been handled 'appallingly' by council
officials, who have all since left the authority, but added that Lambeth is considering an appeal.

Mr D'Souza, a married man from Surbiton, Surrey, had worked as a £39,000a-year manager in the Town Hall's computer department for four years before he was suddenly sacked in 1990.

Council chiefs claimed that he had become 'impossible' to manage. But Mr D 'Souza said he was being harassed by white colleagues and had been repeatedly passed over for promotion because of his race.

At a tribunal two years later, the council admitted he had been unfairly dismissed, because its own procedures had been ignored, but denied racial discrimination.

Mr D'Souza won his case, however.

He was awarded £16,000, and the tribunal chairman ordered Lambeth to give him his job back.

The council paid out the cash in full, but refused to reemploy Mr D'Souza.

He went back to the tribunal in 1995 to protest, and was awarded a further £8,925, the maximum award at the time he was sacked. But Mr D'Souza, backed by the Commission for Racial Equality, argued that he should have been paid more because the ceiling on such awards had been lifted in 1994.

Yesterday the Employment Appeals Tribunal ruled that he was entitled to £358,288 and 73 pence, the amount he would have earned after tax from the time of his sacking to the date he was due to retire at 65 in the year 2000, plus the pension contributions he lost.

He is expected to hand over up to half his award to the Treasury to repay the income support he has received over the last seven years.

Lambeth's lawyers are understood to be planning an appeal against the way the sum was calculated, arguing that Mr D'Souza would have probably retired before 65 even if he was not sacked.

Mr D'Souza said yesterday: 'Had Lambeth acted properly at the beginning and reinstated me at an early stage, the financial loss they imposed on me would have been far smaller. I would have been able to continue contributing to services for the people of Lambeth through my chosen career while Lambeth would have saved its ratepayers the expenses it has wasted on defending the indefensible.' Mr D'Souza's appeal was heard by High Court judge Sir Thomas Morison, president of the Employment Appeals Tribunal, and two lay members.

In its judgment, the tribunal said: 'In the experience of this court, this is the worst case of unlawful race discrimination that it has ever had to consider.' The chairman said: 'Mr D'Souza has been the victim of shameful treatment by a local authority. He has been deprived of a job which he enjoyed
doing as a result of a campaign of racial discrimination and vic-timisation against him.

The council was ordered to pay more than (GBP) 358,000 to Donald D'Souza, information systems group manager at the borough from 1986 until his dismissal in 1990.

The judge described it as the "worst case of unlawful discrimination" the court had ever seen.

The Employment Appeals Tribunal award was the result of eight years' of litigation, during which Lambeth's present chief executive, Heather Rabbatts, admitted that the council had "permitted persistent acts of discrimination on grounds of race".

D'Souza returned from lunch one afternoon in September 1989 to find a letter on his desk saying he was suspended pending the termination of his employment.
The council stopped paying his salary immediately.

An industrial tribunal in 1992 found that D'Souza had been subjected to four counts of racial discrimination and victimisation by the council:
a. victimisation after alleging racial discrimination;
b. failure to be shortlisted for an appointment because of his race;
c. "unjustified and unlawful suspension";
d. unfairly and unlawfully dismissed for racial reasons.

Lambeth later failed to comply with the tribunal's order that D'Souza be reinstated, claiming reorganisation of the IT department made this "impracticable".

D'Souza appealed to the tribunal under the Race Relations (Remedies) Act 1994, which lifted the ceiling on awards in racial discrimination cases.

A council spokeswoman said that D'Souza's case had been handled by an external adviser brought in to reorganise Lambeth's IT department.

The sum was awarded by the Employment Appeals Tribunal. The previous highest award was £100,000 but the tribunal saw enough reason to award D'Souza the hefty compensation. "This is the worst case of unlawful race discrimination that the court has ever had to consider," said Mr Justice Morison, president of the tribunal.

D'Souza, 62, who lives in Surbiton in south-west London, started working for the council in 1986. One of 16 computer operators, he was the only non-white employee. It wasn't long before he complained of racist insults from colleagues; one particular manager had constantly given him unfair reports. When he made an internal complaint, the council, incredibly, started disciplinary