This is an appeal by the defendants, Mersey Docks & Harbour Company (“the Harbour Company”) against HHJ Kershaw QC’s judgment and order dated 19^th January 2004, for damages to be assessed in favour of the claimant, Miss Kelly. Miss Kelly’s claim related to intractable rules of the Harbour Company’s pension fund, constituted at the relevant times by a Supplemental Deed dated 2^nd December 1991 amending numerous previous deeds and a further Supplemental Deed dated 6^th April 1994.

Miss Kelly was employed by the Harbour Company as a survey plotter from soon after she left school until she was dismissed with effect from 31^st August 1995, on what the Harbour Company described in a letter dated 29^th August 1995 as “medical grounds”. She sought an ill health pension on grounds of partial incapacity under the rules of the pension fund. It was, both at trial and before us, common ground that in order for the trustees of the fund to be able to grant such a pension Miss Kelly had to be able to show that she was, in the terms of the rules, someone “who retires from the service with the consent of the Employer by reason of partial incapacity”. It was and is also common ground on the parties’ primary cases that such consent was not forthcoming. However, there was and is no common ground about the nature of such consent, to what it related or to what it was that the Harbour Company should direct its mind when considering whether to give consent. In case it should be concluded that no consent (or none beyond any that might have been given) should in law be required, Miss Kelly also pleaded that the Harbour Company was operating as if such consent or further consent was required. Assuming the relevant consent not to have been given, Miss Kelly’s case was and is that the Harbour Company owed a duty not arbitrarily to refuse such consent, and that, by reason of the Harbour Company’s breach of this duty, she was deprived of the chance that the trustees would, on considering her claim, have seen fit to award her a pension.

The judge appears to have held (acceding to the Harbour Company’s argument on this point at trial) that, because Miss Kelly was dismissed, she could not be regarded as someone “who retires” from the service. A possible alternative view of his judgment is that he thought that the trustees could only fulfil their duty prior to an employee’s retirement (whether or not that includes dismissal). Whichever interpretation be correct, he certainly held that the dismissal was arbitrary in that it prevented the trustees from fulfilling their duty under the rules of determining whether Miss Kelly qualified for an ill-health pension. He assessed at 50% the value of the chance which she had lost of obtaining a partial incapacity pension.

Before us, Mr Benson in oral submissions for the Harbour Company did “not quarrel” with the proposition that retirement for present purposes includes termination by dismissal. In other words, he was prepared to concede the incorrectness of an argument which he had advanced and the judge had, apparently, accepted below, to the effect that an employee who was dismissed could not be regarded as someone who “retires” from the service with the consent of the Employer by reason of partial incapacity. In post-hearing written submissions, however, Mr King QC for Miss Kelly supported the judge’s basis for breach of contract, while maintaining that (if it be wrong) there are other, alternative ways in which such a breach can be established. I consider that the judge’s apparent approach cannot be sustained, for reasons which will appear. Nor can I see any basis for restricting the trustees’ performance of their duty to the period before actual retirement (a restriction which, if it existed, could lead to some palpable incongruities). Neither of the judge’s possible routes to a finding in Miss Kelly’s favour is therefore open to us. We have to grapple afresh with the proper functions of the Harbour Company and the trustees under these rules.

The 1991 Supplemental Deed declared by clause 3 that the pension fund and scheme should be held by and under the control of trustees (consisting of three “Company’s Trustees” and three “Members’ Trustees”). The scheme was amended to provide as set out in appendix 1, which contained rules including the following:

The Supplemental Deed dated 6^th April 1994 was made pursuant to clause 20 of the 1991 Deed, and provided for the amendment with effect from 21^st October 1993 of the rules to provide inter alia as follows:

Total Incapacity

who retires from the Service with the consent of the Employer by reason of total incapacity shall be entitled to an immediate pension payable for the remainder of his life calculated in accordance with Rule 9.a. hereof (Benefits on retirement on or after Normal Pension Date) except that such Member (other than a Pre-63 Member) shall be additionally entitled to an amount equal to the difference between the pension calculated in accordance with Rule 9a and the Member’s Prospective Pension Provided that the expression “total incapacity” for the purposes of this Rule 9.b.i(1) shall mean such physical or mental incapacity of a permanent nature as the Trustees shall determine is such as to prevent the Member from obtaining any other remunerated employment or occupation.

Partial Incapacity

who retires from the Service with the consent of the Employer by reason of partial incapacity shall be entitled to an immediate pension payable for the remainder of his life calculated in accordance with Rule 9.a. hereof (Benefits on retirement on or after Normal Pension Date) except that such Member (other than a Pre-63 Member) shall be additionally entitled to an amount equal to one half of the difference between the pension calculated in accordance with Rule 9.a. and the Member’s Prospective Pension Provided that the expression “partial incapacity” for the purposes of this Rule 9.b.i(2) shall mean such physical or mental incapacity of a permanent nature as the Trustees shall determine to be such as to prevent the Member from performing the occupation he was performing before the onset of that incapacity but is not so serious as to prevent the Member from obtaining another less well remunerated employment or occupation.

The Trustees shall not grant an ill health retirement pension to a Member in accordance with the provisions contained in this Rule 9.b.i. without first obtaining such medical evidence as they consider necessary as to the nature of the incapacity in question.

A member who retires under the provisions of this Rule 9.b.i by reason of his incapacity shall provide the Trustees on request with such evidence (including his attendance for a medical examination the reasonable expenses of such examination to be borne by the Fund) as they may require from time to time of his continued incapacity and if before attaining his Normal Pension Date the Member has recovered to such an extent that the Trustees at their discretion decide that it would not be appropriate for his pension to continue to be payable the pension payable to him under the provisions of this Rule 9.b.i. shall (subject to the preservation requirements of the Social Security Act 1973 and to the contracting out requirements of the Social Security Pensions Act 1975) be adjusted in amount suspended or terminated as the Trustees acting on the advice of the Actuary decided Provided always that the pension payable to him on attainment of State Pension Age shall not be less than the Member’s Guaranteed Minimum Pension.

In any event if a Member shall retire from the Service under the provisions of this Rule 9.b.i. the pension payable to him from his attainment of Normal Pension Date shall not be less than the pension which would have been payable at Normal Pension Date had he left the Service entitled to Short Service Benefits pursuant to Rule 9.g.

whose service is terminated (otherwise than for dishonesty or misconduct) by his Employer having reached the age of 50 years or in the case of a Pre-63 Scheme Member having completed 25 years’ Service since the attainment of age 21 shall (provided he so consents) be entitled in lieu of any benefit under Rule 9.g. hereof (termination of service) to a pension commencing (subject as hereinafter provided) on the actual date of such termination for the remainder of his life calculated in accordance with Rule 9.a. hereof (Benefits on retirement on or after Normal Pension date) Provided that the pension payable on attainment of State Pension Age shall not be less than the Guaranteed Minimum Pension”

The amendment was not well-drafted. Rule 9.b.(i) in the 1991 rules became two sub-rules numbered (i) and (ii), but this division appears to have been overlooked in much of the drafting. The former rule 9.b.(ii) has not been renumbered 9.b.(iii), as it should have been. The new rule 9.b(ii).2 includes a reference to itself, in obvious error, as clause 9.b.i.(2). Rules 9.b.(3), (4) and (5) refer to the provisions of “this Rule 9.b.i”, by which they must clearly mean both new Rules 9.b.i and 9.b.ii, their content being also equally relevant to both. “Ill health” as defined refers in terms only to Rule 9.b.i, but must also be understood as relating to both Rules 9.b.i and 9.b.ii (although both now use the word “incapacity” rather than “ill health”, which are words only appearing in Rules 9.b.(3). There has been a further deed of amendment dated 4^th December 1998, but it is not suggested that this applies or is of any relevance to the present appeal, and I would add that its terms, even if one looks at them, do not appear even retrospectively to throw light into the obscurity of the 1994 rules.

In attempting to understand the intention and effect of the amended scheme provided by the 1994 Deed, we have only the language of the 1991 and 1994 Rules with which to work. The 1991 Rules had two relevant features. First, ill-health was defined to mean “such illness as in the opinion” of the Harbour Company’s medical adviser “makes him unable by reason of physical or mental infirmity or incapacity (not occasioned by his own misconduct) to discharge the duties of his office and is likely to remain making him so”. The trustees’ role is as a second authority on the same subject:- “having been consulted by the Employer and having been provided with satisfactory medical evidence by the Employer”, their role was to decide whether they “agree with such opinion” and “determine that the Member shall be granted a pension in accordance with the provisions of this Rule 9b”. Secondly, the pension payable in such an event was calculated by reference to his years of service, plus half the extra pension that he would have received if he had remained in pensionable service until his normal pension date.

The 1994 Rules distinguish for the first time between “total incapacity” and “partial incapacity”. The former relates to incapacity of a permanent nature to obtain any other remunerated employment or occupation. The latter relates to incapacity of a permanent nature from performing the occupation he was performing prior to its onset, but not so serious as to prevent the member from obtaining another less well remunerated employment or occupation. The former now attracts an uplift in the full amount, whereas the latter continues to enjoy an uplift of only half, of the extra pension that the employee would receive on remaining in pensionable service until his normal pension date. Secondly, there is at least an apparent shift from the Harbour Company to the trustees in the focus of responsibility for determining whether an employee merits a pension. The definition of ill health now means such incapacity “as the Trustees shall determine is such as to entitle the Member to a pension in accordance with the provisions of Rule 9.b.i” - which, as I have said, must be taken to refer to both Rules 9.b.i and 9.b.ii. Rules 9.b.i and 9.b.ii also define “total incapacity” and “partial incapacity” for their respective purposes in terms making decisive the trustees’ determination as to whether or not such incapacity exists. Further, Rule 9.b.(3) provides that the trustees shall not grant an ill health pension (under, as I have said, either Rule 9.b.i or 9.b.ii) “without first obtaining such medical evidence as they consider necessary as to the nature of the incapacity in question”. Finally, it is the trustees who under Rule 9.b.(4) are entitled to require a member retiring under Rule 9.b.i (or as I have said Rule 9.b.ii) to provide further medical evidence from time to time, on the basis of which, if the member has recovered, the trustees may “at their discretion decide” that it would not be appropriate for the pension to continue to be payable, and, acting on the advice of the actuary, to decide to adjust, suspend or terminate it.

I start first with the reasoning by which the judge decided this case in Miss Kelly’s favour. He accepted the Harbour Company’s submission (no longer pursued before us) that the words “A Member who retires from the Service with the consent of the Employer by reason of [total/partial] incapacity” were incapable of embracing a unilateral dismissal. On that construction, the 1994 Rules would sharply restrict the payment of ill health pension, by comparison with the 1991 Rules, which used language clearly capable of covering a unilateral dismissal (“whose Service is terminated because in the opinion of the Employer he is suffering from ill health”). Such a restriction would seem surprising when in other respects the 1994 Rules set out to provide a more generous regime, with on its face less control by the employer over the granting of any ill health pension. The laxly drafted definition of “Retirement” in the 1991 Rules continues to apply for the purposes of the 1994 Rules, and its last part shows that the concept can embrace “being retired”, i.e. being dismissed against one’s will. In my view, an employee dismissed by the Harbour Company is capable of being regarded under Rules 9.b.i and 9.b.ii of the 1994 Rules as an employee who “retires” from the Service with the consent of the Employer by reason of incapacity.

I turn therefore to the other obstacle which the Harbour Company submits barred payment of any pension to Miss Kelly, the absence of consent on its part. That some form of consent was required and withheld is, as I have said, common ground, but its nature is hotly disputed. Taken by itself, the Company’s letter dated 7^th August 1995 (in terms summarised later in this judgment) might well be read as evincing any necessary consent to the existence of incapacity. But the Company’s later letter dated 29^th August 1995, in which it actually gave notice of termination as of 31^st August 1995, expressly rejected Miss Kelly’s eligibility to an incapacity pension and must be regarded for present purposes as the relevant announcement that consent would be refused to her retiring by reason of incapacity.

The revisions made by the 1994 Rules suggest that primary responsibility for awarding any pension was from 21^st October 1992 to be on the trustees. But the revised Rules also provide that it is only an employee “who retires from the Service with the consent of the Employer by reason of [total/partial] incapacity” who is entitled to any ill health pension. Various possibilities can be suggested. At one extreme, all that might be required is the Harbour Company’s consent to the termination of employment. In effect, the phrases “with the consent of the Employer” and “by reason of [total/partial] incapacity” would be read as each independently qualifying the words “who retires from the Service” (as if the word “and” appeared between them). But neither party advanced such a case before us, and it would be difficult to see why it was necessary to include the words relating to consent at all. It does not seem very likely that they were there simply to cater for a case in which an employee left for reasons of actual total or partial incapacity, but failed to seek the Harbour Company’s consent to leaving. Such an employee would in reality simply be recognising that he could no longer perform the contract of employment, and it would be odd if an employer could deprive him of a pension by purporting even after the event to refuse to consent to his leaving. It is not as if the alternative would be staying on at full pay (although unable to work – a situation itself unlikely to be tolerable for many, however enviable to some). As the present case shows, employment may continue long after sick pay entitlement has been reduced to half and then extinguished entirely.

At the other extreme lies the Harbour Company’s case that it was entitled to form its own judgment of the nature and extent of any incapacity and to grant or refuse consent to retirement by reason of such incapacity accordingly. The obvious difficulty about this literal construction is that total or partial incapacity, whichever is relevant, is itself defined in terms making the trustees the judge of its existence. If the trustees have not yet obtained medical evidence and formed a judgment at the time of retirement, how can the Harbour Company be consenting or not consenting to a determination which has not yet been made? And, if a case arose in which the trustees were approached and did determine before retirement that incapacity existed, it seems improbable that the Harbour Company was intended to have a veto over retirement on that ground. More fundamentally, this construction raises the problem that it equates the effect of the 1994 rules to that of the 1991 rules, in the face of an apparent intention to make the trustees the primary decision makers on matters of incapacity. Indeed, on an absolutely literal construction, even if the only question was whether the incapacity was total or partial in terms of the rules, an employee claiming total incapacity could not have a pension unless s/he conceded the employers’ view that the incapacity was only partial.

Mr King advances an intermediate analysis on behalf of Miss Kelly, namely that the Harbour Company’s function was to decide whether the retirement should be labelled as having been by reason of incapacity, so as to enable the trustees to go into the nature and extent of any incapacity in detail, to see whether it merited an ill health pension. The judge took a similar intermediate position, saying that what mattered was not the Harbour Company’s subjective view, but “agreement by both parties upon the basis on which the employment should come to an end”. The judge’s reference to “agreement by both parties” reflects his view that dismissal falls outside Rule 9.b.i and 9.b.ii, but the reference to “the basis on which the employment should come to an end” seems otherwise broadly consistent with Mr King’s submission that what is in question is the label put on the retirement. Nonetheless, both Mr King’s and the judge’s analyses invite the question: what if the Harbour Company should refuse to put the label of incapacity on a retirement? Mr King’s answer, as I understand it, would be that the Harbour Company was effectively bound to put the label of incapacity on the retirement, if the case of total or partial incapacity was one which the trustees might, as reasonable trustees, sensibly consider to be made out.

At this point, I note that it was also common ground before us that it was the duty of the Harbour Company not to conduct itself arbitrarily or capriciously in refusing consent in matters concerning payment of any pension to Miss Kelly. But such a duty requires a proper understanding of the basis on which the Harbour Company was or was not entitled to withhold consent. If it was entitled to act as a primary decision maker, forming its own independent view of the ultimate merits of any claim to total or partial incapacity, the arbitrariness or capriciousness of its decision would have to be considered on that basis, and having regard to the steps it had or had not taken to form a proper view. If on the other hand it was solely concerned to decide, as a filter, whether there was a case of incapacity fit to go to the trustees, it might more readily be regarded as arbitrary or capricious to refuse to consent, and it could well be so if the Harbour Company took it upon itself to act as a primary decision maker, rather than a filter.

In evidence Mr Allan Price, the Harbour Company’s Employee Relations Manager, asserted that he would have forwarded the matter to the trustees, if he had thought that there was a “chance” or possibility that an employee’s condition was permanent and would meet the requirements for an ill health pension. But this is not the test that the Harbour Company in fact applied. According to Further Information supplied under a Part 18 request, it approached Miss Kelly’s case on the (mistaken) basis that the 1991 Rules governed it. According to the judge’s findings of fact, both Mr Price and Mr Wilson (the Company’s Personnel Services Manager, who also acted in the separate capacity of Secretary to the pension fund trustees) approached Miss Kelly’s case on the basis she had no entitlement to a pension unless (i) the Board decided on the merits [i.e. as a primary decision maker) that a pension was justified, (ii) the Company in that belief communicated its consent to the trustees, (iii) her employment was terminated on the basis that the Company consented to its being a retirement on the grounds of immediately pensionable incapacity and (iv) the test to apply was whether there was a severe and permanent medical condition which seriously (my emphasis) impaired the employee’s ability to carry out employment in the future.

In my judgment, the better view of the 1994 rules is that, among the other changes which they worked, was a change in the role of the Harbour Company from a primary decision maker to filter. The test which Mr Price asserted in evidence that he would have applied was correct. The Company should have asked itself whether, on the information available to it, there was a real chance, possibility or prospect of the trustees regarding Miss Kelly as entitled to an ill health pension. However, the Company failed in fact to apply this test in relation to Miss Kelly.

The question therefore arises what would the Company have decided, had the Company applied the right test. In the light of the statements of principle in Allied Maples v. Simmons & Simmons [1995] 2 AER 907, this question is to be answered on the balance of probabilities, since it concerns the actions of a person not party to the litigation before the court. The judge did not address this question, which did not arise on the approach which he took. It involves a consideration of some of the material (particularly Miss Kelly’s medical history) which will also become relevant on the further question of loss, which depends on the prospects of the trustees being persuaded to award her a pension, if it be concluded that the Company would, applying the right test, have given its consent (or, putting the matter the other way around) been unable to refuse to give consent without being arbitrary or capricious. So I shall consider that material before expressing a view on either question.

Miss Kelly started working with the Company in 1971. Her last working day with 23^rd July 1993, when she attended her GP, Dr Donnelly was “swelling and tenderness over the dorsum of right wrist”, which however “cleared slowly over the next few months”. In findings made in a separate and unsuccessful claim by Miss Kelly against the Company for personal injuries, determined after trial on 18^th March 1999, Mr Recorder Stockdale QC accepted that Dr Donnelly diagnosed tenosynovitis of the extensor tendons of the fingers and recommended that Miss Kelly do alternative light duties. As the condition failed to settle, Dr Donnelly further certified her as unfit for work on 30^th July 1993. Mr Gelling, Personnel and Welfare Officer with the Company, then on 14^th August referred her to the Company’s medical officer, Dr Angela Thomas, who saw Miss Kelly on 26^th August and reported that “Today she has no clinical signs of tenosynovitis but is still getting numbness in her hand”, continuing:

Mr Price’s response on 2^nd September was one of concern about a perceived contradiction and lack of clarity. He considered that, if her condition was truly tenosynovitis and chronic, the Company would probably have to terminate her employment or at best transfer her to a lower grade position. He asked for a specialist’s opinion, which Dr Thomas sought from Mr R. A. Evans, a consultant upper limb surgeon. Mr Evans reported after seeing Miss Kelly on 16^th September that:

Also in October 1993, Miss Kelly’s GP referred her to another specialist, Dr H. O. Thomas, consultant orthopaedic surgeon, who saw Miss Kelly on 29^th November and reported:

Mr Price on 1^st December 1993 wrote once again to Mr Evans, proposing a modified work regime and asked him to consider its suitability, to eliminate the possibility of a recurrence of Miss Kelly’s condition. On 17^th January 1994 Mr Price saw Miss Kelly who expressed keenness to return to work. At some time in January 1994 her sick pay entitlement reduced to half pay. On 20^th January 1994 Mr Evans wrote that it was “reasonable to expect” the proposed regime

Miss Kelly did not take up Mr Price’s suggestion of a trial return to work, and only responded formally on 16^th March 1994 when her union relayed her intention to have a specialist opinion first. Mr Price replied to the union and Miss Kelly on 24th March that she had already had one, i.e. Mr Evans’s report. He expressed his concerns generally about the sequence of events, particularly when he understood that the further specialist consultation sought by Miss Kelly was not due until 3^rd June 1994, and about the reported absence of any or more than marginal improvement in her condition over 8 months. The union in turn asked for a copy of Mr Evans’s report, and said that, although Miss Kelly wished to return to work, “the pain in her arm is such that she does believe that she could properly undertake her normal duties at this stage”. On 31^st March Miss Kelly saw a physiotherapist who reported that her right wrist had a full range of movement “but her grip was weak and she demonstrates reluctance to use her hand”, and went on

Mr Price on 7^th April 1994 asked Dr Angela Thomas to see Miss Kelly again, expressing concern about the conflict between Mr Evans’s advice and Miss Kelly’s account that there had been no improvement. Dr Thomas’s advice, after seeing Miss Kelly on 8^th April, was that:

At meetings on 13^th May and 5^th July 1994 Miss Kelly indicated to Mr Price that she would not be fit to return to work and would not be for the foreseeable future, and Mr Price indicated that, in this light and also taking into account a planned reorganisation of her department explained by letter dated 10^th June 1994, termination of her employment was likely. Miss Kelly reported that she was seeing a specialist soon. The specialist, Dr Roger Bucknall, a consultant physician and rheumatologist, saw her in June and reported to Dr Taylor on 22^nd June 1994, that:

Miss Kelly’s entitlement to sick pay at half rate expired on 25^th August 1994. On 18^th August Dr Angela Thomas saw Miss Kelly again and reported to Mr Price that she had told Miss Kelly that

On 27^th September 1994 Mr Price met again with Miss Kelly and her union representative, and on 3^rd October 1994 he wrote referring to the

On 14^th December 1994 Dr Bucknall saw Miss Kelly again, and reported to Dr Taylor:

On 14^th March 1995 Dr Bucknall wrote to Dr Taylor:

Miss Kelly requested and on 29^th March 1995 attended a further appointment with Dr Bucknall, reporting continuing symptoms involving the right forearm and hand and describing some paraesthesiae affecting the right index finger, but on examination Dr Bucknall again found no wasting, normal power and reflexes, no sensory impairment and, with encouragement, a full range of movement, as well as no increased uptake on an Isotope Bone Scan, and symmetrical uptake on both sides, with an E.S.R. of 20 mm. His report to Dr Taylor concluded:

Dr Bucknall’s reports, apart from that dated 3^rd August 1994, were all sent to Dr Taylor and not seen by the Company. On 16^th June 1995 a member of Miss Kelly’s GP surgery issued her with a further 6 months sick note. On 26^th July 1995 Dr Bucknall again saw Miss Kelly, and reported shortly to Dr Taylor:

On 7^th August 1995 Mr Price wrote with reference to this sick note, that

Mr McCall of Miss Kelly’s union replied after consulting her:

Mr Price replied on 29^th August 1995:

Mr Wilson wrote on 30^th August 1995 explaining the basic pension payable from her normal retirement date, and Miss Kelly replied on 6^th September 1995 (supported by union letter on 13^th September) applying for an ill health pension on the ground that her employment ended because of ill health.

At some unstated date Miss Kelly was at Dr Taylor’s request seen by Dr Richard Pearson, a consultant physician at St Bartholomew’s Hospital, London, who on 11^th September 1995 reported that on examination

Mr Price responded to the union’s letter of 13^th September only on 7^th November, when he stated that

Also on 7^th November Mr Wilson as secretary of the pension fund responded to Miss Kelly’s letter of 6^th September:

I return to the first question identified in paragraph 18 above: what, as a matter of probabilities, would have been the Company’s conclusion on the question whether it should consent to Miss Kelly’s claim for an ill-health pension being considered by the pension fund trustees, had it applied the right test, namely whether there was a real prospect of the trustees deciding that she was entitled to such a pension. The extended account of the medical history which I have given in the previous paragraphs includes matters both known and unknown to the Company at the time when it terminated Miss Kelly’s employment and refused its consent to her claim to an ill health pension going before the trustees. The Company’s attitude at that time must be judged in the light of the material then available to it, which consisted of (a) its own knowledge of Miss Kelly’s absence and her refusal even to return for a trial period with a modified work pattern, (b) the exchanges between it and her or her union and (c), on the medical side, the memoranda, reports and letters from Dr Angela Thomas, Mr Evans and (as regards his first report only) Dr Bucknall, as well as the continuing series of sick notes received from Miss Kelly’s GP surgery.

Certain matters stand out from the material then available to the Company. First, there was strong support for the view that Miss Kelly had in 1993 suffered from tenosynovitis. Second, it was difficult to understand her continuing complaints, long into 1994 and 1995, of pain and of inability to use her right hand, although Dr Bucknall thought in his report of 3^rd August 1994 that she probably had a “low grade chronic inflammatory disease” which he could not specifically diagnose. Third, she had refused medical advice in favour of a trial return to work under a revised regime from Mr Evans in January 1994. Fourth, at no stage did the Company either receive advice to the effect or express any view that Miss Kelly was malingering. On the contrary, it at all times handled her case on the basis that there was a real medical problem, however difficult to tie down. Fifth, the Company in its letter of 29^th August 1995 gave as its expressed reason for dismissing Miss Kelly “medical grounds”, and only qualified that to the extent that it asserted that her “condition” did not meet the stringent requirements of the “most extreme circumstances”. In view of these matters, I consider that, had the Company applied the right test, it would as a matter of probability have decided that there was a real prospect that the pension trustees would on investigation conclude that she was suffering from some physical or mental incapacity of a permanent nature which prevented her performing her normal job, even though not so serious as to prevent her from obtaining another less well remunerated employment or occupation elsewhere. If it be necessary to go so far, I would also be prepared to hold that, on the material before the Company, it would have been arbitrary or capricious to reach any other conclusion.

This brings me to the question of the trustees’ attitude, if Miss Kelly’s case had been put before them. Since the trustees are not party to the present litigation, this question falls, again in accordance with the principles in Allied Maples, to be answered by assessing the prospects of a successful application to the trustees for an ill health pension. This assessment falls to be made in percentage terms, unless the outcome of such an application is obvious one way or the other (which it is not in this case). It also falls to be made, not in the light of the material which was available to the Company, but by making allowance for the material which the trustees would or might have obtained in considering Miss Kelly’s application. I understood Mr King for Miss Kelly to submit, and I would anyway consider, that the trustees would have been likely to see Mr H. O. Thomas’s letters of 29^th November and 9^th December 1993, endorsing the early diagnosis of tenosynovitis, the physiotherapist’s report of 31^st March 1994, endorsing a “well-established repetitive strain injury”, and the range of reports from Dr Bucknall, which the Company did not see, culminating in that dated 26^th July 1995. They would, I think, also have been likely to see Dr Pearson’s report of 11^th September 1995, which was later used before the Medical Appeal Tribunal, and relied on in its decision of 18^th June 1998 in Miss Kelly’s favour, although the Tribunal found tenosynovitis, whereas the Report suggested tenovaginitis.

The trial judge was also shown a letter dated 19^th May 1998 from Dr Donnelly of Miss Kelly’s GP surgery to Miss Kelly’s solicitors. Dr Donnelly’s stated opinion was:

The reference to witnessing the recurrence of pain probably relates to September 1996, when Miss Kelly sustained diffuse swelling of the right wrist and first metacarpals, apparently after obtaining a part-time job. Dr Donnelly’s letter gives strong support to Miss Kelly’s integrity and the genuineness of her complaints over the years. But one should add that it makes only limited and incomplete reference to Dr Bucknall’s reports. It was not available in 1995, but similarly positive support from her GP surgery (though not referring to any episode in September 1996) would have been likely to be before the trustees, had Miss Kelly’s case been put before them after her dismissal on 31^st August 1995.

The judge said this of Miss Kelly:

Medical evidence was given to the judge by experts instructed on either side for the purposes of the trial. The Harbour Company called Mr Kay from Sheffield, whose opinion was that Miss Kelly was malingering, meaning deliberately falsifying or exaggerating her case. The judge wholly rejected that evidence, and regarded Mr Kay as a “one off”, whose attitude would not have been shared by any other physician or surgeon who might have reported on Miss Kelly at the request of the trustees. The judge also rejected what he described as Mr Kay’s “suggestion …. that unless somebody has a condition which has an established medical name he does not have anything wrong with him”. He went on:

The Harbour Company on this appeal criticises the judge’s reasoning in a number of respects. It submits that he should have addressed the central issue between the two experts, which was whether Miss Kelly suffered from a clinically recognised condition (chronic tenosynovitis giving way to Sudecks Dystrophy). That was what her expert, Professor Bird (not mentioned in the judgment), considered to be the position. The Company submits, secondly, that the judge had no basis for saying that a person may nevertheless have something wrong with him, for which no recognised medical name exists. The Company criticises the judge, thirdly, for relying on the Medical Appeal Tribunal’s decision in June 1998, particularly when the Tribunal found tenosynovitis on the basis of a report suggesting tenovaginitis, fourthly, for failing to analyse the medical evidence which was or would actually have been available to the trustees in and around August 1995 and, fifthly, for placing great weight on his own favourable impression of Miss Kelly at trial, but failing to take any account of her failure to make the same impression on any of Drs Evans, Angela Thomas and Bucknall, who saw her over the relevant period.

I see force in these criticisms, even though the assessment on which the judge was engaged fell to be resolved only on a broad percentage basis. As to the first, Mr Benson is able to cite passages in Professor Bird’s cross-examination in which he accepted that his diagnosis of tenosynovitis effectively depended (in the absence of any other suggested cause) upon an exacerbation of Miss Kelly’s workload between January and July 1993, which Mr Recorder Stockdale QC had negatived in his judgment dated 18^th March 1999 in the separate proceedings between Miss Kelly and the Company (Appeal Bundle page 263B). Against this, although we were not taken in detail to the transcripts of the two experts’ evidence, it is clear that the judge was, at the trial in December 2003, invited to go into matters of medical detail and dispute in far greater detail than the trustees would have been likely to in the second half of 1995. To that extent the exercise conducted before the judge, although it was ostensibly directed to ascertaining what the trustees might have concluded, seems artificial and potentially even misleading, especially when the judge’s function was to do no more than make an assessment.

As to the second criticism, Mr Kay’s evidence on this aspect was directed to an evidently controversial issue. He could claim significant professional support (from the British Orthopaedic Society and the Hand Society) against the view that repetitive strain injury can exist without organic signs presented by recognised complaints such as tenosynovitis and peritendonities crepitens. The judge does not go into the medical issue, or give any basis for his rejection of Mr Kay’s evidence in this area or his acceptance of any contrary position. It seems probable that trustees would be very cautious before accepting a claim for physical incapacity of a permanent nature based on such a case. The judge said that he could “readily accept the possibility of trustees” accepting such a claim, on the basis that Miss Kelly appeared hardworking and well motivated. I do not consider that one can be so sanguine. This point also links up with the fourth and fifth criticisms, that the judge failed to give due weight to the medical history, including the doctors’ inability in 1994 and in 1995 to identify anything to prevent her going back to work and her refusal to do so, even on a trial basis under a modified regime. As to the third criticism, the Medical Appeal Board could for the purposes of this litigation be regarded as no more than another expert body considering Miss Kelly’s position. It gave only very limited reasons, and these are open to question because of their reliance on the solitary view of Dr Pearson in favour of a diagnosis of tenovaginitis. Dr Pearson was not called, and his theory of tenovaginitis was not pursued at trial. The judge did not address this problem. As to the fourth and fifth criticisms, the judge’s approach to the medical evidence up to 1995 amounted to little more than saying that it existed in a bundle which he had considered. I cannot regard that as an adequate approach to or treatment of key material, particularly the reports of Drs Evans, Angela Thomas and above all Bucknall. Again, if it were to be suggested that the report of Dr Pearson could carry possible weight in an opposite direction, he was a solitary voice suggesting a diagnosis which was not supported at trial. I add that the content of his report was also generally and heavily criticised by Mr Kay, on grounds which the judge again did not expressly address. The other contemporary medical material was likely to be the primary source to which any trustees would look, and it bore directly on the likelihood or otherwise of Miss Kelly having suffered first from tenosynovitis and later from Sudecks Dystrophy which was the diagnosis suggested on her behalf at trial. Other than by his compendious reference to its appearance in a bundle, the judge did not expressly address the impact that such medical material would have been likely to have on the trustees, and he nowhere expressly weighed the impression made on him as a non-expert by Miss Kelly against that which she had made at the relevant times on those experts who saw her then.

In answer to criticisms of the judge’s limited express reasoning, it can be said that it does not necessarily follow that he did not make the relevant assessment or that his judgment was erroneous or outside the margin available to him as the trial judge. That may be so, but the lack of express reasoning lessens confidence that he took all relevant considerations into account. The contrast between the weight placed by the judge expressly on the Adjudicating Medical Authority and the Medical Appeal Tribunal and the absence of any detailed consideration of contemporary medical opinion is notable. Further, some of the criticisms, particularly the first, second and third, go beyond lack of express reasoning. I consider that we have therefore to reconsider the appropriateness of the judge’s assessment, and if necessary replace his with our own. We must do this having regard to the judge’s unequivocal rejection of any case of malingering. Equally, however, the trustees’ role was not to determine the actual reason or reasons why Miss Kelly felt unable to return to work, whatever they might have been. It was simply and solely to determine whether she suffered from such physical or mental incapacity of permanent nature as to prevent her from at least performing the occupation she was performing before July 1993. Only if they determined in her favour that she was, could she be entitled to an ill health pension. If they were not so satisfied, they were under no obligation positively to identify any reason for her expressed inability to return to work. The fact that the Company had made no express suggestion of malingering would be a consideration to bear in mind. But, especially from the viewpoint of the trustees, as a body of persons charged with an independent function, it could not of itself be decisive in relation to their actual task.

Taking into account all the medical material that the trustees would or might have seen and the good impression made by Miss Kelly on both the judge and others such as her GPs, I agree with the judge that Miss Kelly had a worthwhile prospect of having her claim to an ill health pension accepted by the trustees. The general absence of objective symptoms on medical examination after the very early period, the subjective nature of many of her complaints, the inability of, in particular, Dr Bucknall after repeated examinations during 1994 and 1995 to identify any substantial problem and the repeated medical advice that she could and should return to work and her failure to do so were all factors which threw substantial doubt on her prospects before the trustees, notwithstanding the absence of any suggestion (or on the judge’s finding any basis for any suggestion) of malingering and notwithstanding the Harbour Company’s dismissal of her “on medical grounds”. My initial impression was that the judge put her prospects of success too high when he assessed them at 50%. But, having thought about it further, the position seems to me so open, particularly in the light of the judge’s failure to address a number of the problems, as to be difficult to describe it in terms other than 50/50. No-one suggested that a re-trial was appropriate, even on quantum alone, and it would be highly unsatisfactory to contemplate so expensive a possibility in order to achieve greater precision on this limited aspect. We must do the best we can, but we are entitled to bear in mind, in Miss Kelly’s favour, that the uncertainty which exists about the trustees’ attitude arises from the Harbour Company’s own breach of contract, in failing to apply a test which would have led to the trustees determining whether or not she was entitled to a pension. In the circumstances, I have come ultimately to the view, although not by the same reasoning as the judge, that the right percentage to adopt was and is 50%, and that damages should be assessed accordingly.

It remains to consider the two special defences, on which the Company relies with a view to eliminating any liability. I take first the suggested exceptions. Rules 17 and 18 of the 1991 rules provide:

Nothing in the Trust Deed or these Rules shall affect the right of any of the Employers to dismiss an Employee nor shall the benefit to which a person might claim to be entitled under the Scheme be used as a ground for increasing damages in any action or proceedings brought by or on behalf of a Member against his Employer in respect of his dismissal.”

None of the Employers shall be under any liability whatsoever in connection with the Scheme except as expressly provided in the Trust Deed any deed supplemental thereto and these Rules.

LIMITATION OF LIABILITY

No person whether a member or a person claiming through a Member shall have any claim on or interest in respect of the Fund or under the Scheme nor any claim against the Trustees or any of the Employers in respect of the Scheme except in accordance with the Trust Deed and the Rules. ….”

In my view, therefore, there is a considerable case for saying (contrary to the judge’s reasoning) that the phrases “liability whatsoever in connection with the Scheme” in rule 17 and “claim …. in respect of the Scheme” in rule 18 embrace a claim to hold the Company liable for unjustified failure to consent to retirement by reason of total or partial incapacity under rule 9 of the 1994 rules. However, since the exception in rule 17(b) is itself qualified so as not to exclude liability “expressly provided in the Trust Deed any deed supplemental thereto and these Rules”, the argument under that rule has also to be that the Company’s only obligations with regard to the giving or refusal of consent were implied and not express. Likewise, under rule 18 it has to be that any such liability was not “in accordance with the Trust Deed or the Rules”. The use of the word “expressly” in rule 17(b) and its absence from the phrase “in accordance with ….. the Rules” in rule 18 might be seen as suggesting some distinction between the scope of these apparently overlapping rules. What that distinction might be would not be easy to determine.

Viewing the matter generally, it seems to me improbable that the draughtsmen of the rules could have intended to exclude liability for failure to consent, if (as is common ground) rule 9 places certain qualifications on an employer’s right to refuse such consent. The exclusion would in effect eliminate the qualifications. That is unless the qualifications are treated as “expressly provided in …. these Rules” under rule 17(b) or as “in accordance with …. the Rules” under rule 18. There would be no difficulty in treating them in the latter sense, i.e. as “in accordance with …. the Rules”, and I would be inclined if necessary to treat the words “expressly provided in ….. these Rules” as embracing qualifications relating to the giving or refusal of consent arising necessarily under the express terms of rule 9. In any event, I find the general language of rules 17 and 18 (which the Company must be regarded as putting forward and on which it is also relying) as unclear in scope and intention to the point where I would refuse on that ground alone to treat it as sufficient to exclude the present claim if otherwise good.

The other defence raised is limitation. Miss Kelly’s claim form was delivered to the court on 31^st August 2001, so that, having regard to the six year time limit provided under the Limitation Act 1980, it is common ground that her claim is time barred unless it is in respect of a breach of contract or duty by the Company occurring on or after 31^st August 1995. The Company submits that any breach was committed prior to that date when it decided to refuse consent to retirement by reason of incapacity, as evidenced by its letter dated 29^th August 1995. However, the breach involved failure to consent to retirement from the service by reason of incapacity. Consent for the purposes of rule 9 could have been given at any time up to the termination of Miss Kelly’s employment on 31^st August 1995. Indeed, it may well be that it could have been given even subsequently and retrospectively. Mr King also submits that it is only the communication to Miss Kelly of the refusal of consent that could involve any breach, and that the (first class) letter of 31^st August 1995 must be taken to have been received only on 31^st August 1995. I would agree with the first part of this submission, but the basis for the second part (and on whom the onus lies one way or another) are matters open to debate, into which I need not go.

For the reasons I have given, I would therefore dismiss this appeal.

The critical provision in the Rules of the Salaried Officers Pension Fund is this:

Both Miss Kelly and the Company agree that the Company did not consent to her retirement. At one time Miss Kelly’s pleading took a different view. In the Re-amended Particulars of Claim, paragraph 12A, there was this passage:

At a later stage, in Voluntary Particulars served on 28 October 2003, it was said:

Despite the accord which was thus reached, it is to my mind clear that the company did consent to retirement by Miss Kelly. There may have been a degree of confusion about the meaning of the word “retires”. But however that may be, the parties have agreed to a state of affairs which does not represent the facts.

On that basis Miss Kelly is able to argue that the Company has prevented her from obtaining a pension; “blocked” is the phrase that has been used.

The Company resists that argument by saying that clause 9(b)(ii)(2) (as it should properly be called) allows and requires the Company to form its own view as to whether there was partial incapacity of Miss Kelly. If there was not, it is said that the Company could properly refuse its consent under that clause.

The judge appears to have accepted that argument. Nevertheless he held that the Company was in breach of contract in what it did or did not do, so as to deprive Miss Kelly of the chance of obtaining a pension from the Trustees.

I do not find it necessary to decide whether the clause allowed and required the Company to first make up its own mind as to whether there was partial incapacity, or whether there was no right for the Company to take that course. I say that because, on the facts agreed between the parties, the Company did not consent to the retirement of Miss Kelly, with or without a finding of incapacity. But if it were relevant I would hold that any finding in favour of or against incapacity by the Company could be overruled by the Trustees of the Pension Fund. That emerges plainly from clause 9b. The proviso in clause 9(b)(ii)(2) should be given the usual meaning of a proviso, that is to say something which detracts in part from what has gone before. But for the failure of the Company to give its consent, Miss Kelly could and should have applied to the Trustees for their ruling on capacity. There was a suggestion by the Company that Miss Kelly take that course, but she never accepted it.

The next question is whether there was in consequence a breach of contract by the Company. Here again there is an agreement between the parties which I am inclined to question. It is agreed that by an implied term in its contract with Miss Kelly the Company was obliged not to take any action which was arbitrary, capricious or inequitable. I wonder how that term is said to be implied. If the officious bystander, or for that matter Miss Kelly herself, had asked the Company whether it would contract not to do anything arbitrary, capricious or inequitable, I suspect that the Managing Director might answer as follows:

The parties being agreed, I say no more about my doubts on that topic. I accept that there was a breach of contract on the part of the Company, and that Miss Kelly can claim damages in respect of loss of the chance of a pension. She might instead have pursued her claim against the Trustees. It might be argued that in order to mitigate her loss, as I suggested in the course of the argument, she should have taken that course. But it was not a point raised at the trial.

The judge awarded 50% as the appropriate value of the chance that Miss Kelly would have been rewarded a pension in full. At the time of the hearing in this court I thought that the appropriate sum was 33%, which was a reduction of one third of what the judge awarded. It seemed to me that at least one other member of the court agreed with me. That is no longer the case. In the ordinary way I might have thought it necessary to add some reasons for what is now, in part, a dissenting opinion. But our judgments have been long delayed, and I do not propose to delay them further. I would have reduced the amount awarded as stated above.

I sympathise with the points to which Sir Christopher Staughton has drawn attention, but as he accepts we must deal with the case on the basis on which the appeal was argued. I do not however agree with him that we should reduce the award of the judge to 33%. I agree with the judgment of Mance LJ, and for the reasons given by him I would dismiss the appeal.