London Borough of Barking and Dagenham v Watts

Mr Justice Jacob:

Introduction

1. The London Borough of Barking and Dagenham appeal from a determination of the Pensions Ombudsman of 23 July 2002. The case concerns the pension of the respondent, Miss Watts. She was originally employed by the Borough of Dagenham and, in due course by the current appellants as successors to that borough. She was employed for many years, over 25. She retired as long ago as 18 June 1972 and has been in receipt of a pension since then. An element of that pension, amounting to £16.50 per month, arises out of the fact on 30 June 1969 the Establishment Committee of the Council awarded her a “long service award” (“LSA”) which was paid to her for the last three years before she retired. Since her pension was linked to her pay in the last three years, this resulted in an enhanced pension. It is that enhanced pension which is the subject of this dispute. The Council paid it continuously from the time Miss Watts retired until 3 February 2000 – for just under thirty years. They do not actually seek repayment of what they say they overpaid, though there are perhaps arguments that they could for at least some of the period, or could pay her a reduced pension for the future until the overpayments had been made up. The Council for obvious reasons do not go as far as that, though the logic of their position suggests they could or might be able to do so.

2. The Council’s action arose as a result of advice received in 1998-9 to the effect that the LSAs it had made in the past and the consequent enhanced pensions might be ultra vires and thus unlawful. After a failed attempt by the Council to get Government permission to continue to pay pensions enhanced by LSAs it wrote to Miss Watts on 3rd February 2000 to say she would no longer get the enhanced portion of the pension.

3. Miss Watts unsuccessfully invoked the internal complaints procedure and an appeal to the Secretary of State. Following that she went to the Pensions Ombudsman. He held that her pension should be reinstated with arrears and interest and that the Council should pay her £250 for distress and inconvenience caused by maladministration.

Principles of an appeal from the Pensions Ombudsman to the Court

4. The applicable principles are well settled. An appeal lies only on a point of law, as is provided by s.151(4) of the Pensions Schemes Act 1993. So, as Mummery LJ said in Wakelin v Read [2000] Pensions Law Reports 319 at para 40:

“The only question for the High Court and for this court, on appeal from the High Court, is this: is there an error of law in the determination or direction of the Ombudsman? In answering that restricted question the appellate court should be astute not to entertain appeals on points of fact dressed up as points of law. A point of law is one which arises from the wrong application of a legal principle, or from the misconstruction of a statutory provision or from a decision that no reasonable Ombudsman, properly directing himself on the facts and the law, could have reached. In this exercise the written statement of the determination should not be subjected to minute, meticulous or over elaborate critical analysis in an attempt to find a point of law on which the disappointed party to the reference can appeal.”

5. Neuberger J put it this way in Metropolitan Police Service v Hoar [2000] OPLR 267 at p.271:

“In the circumstances, whether or not particular conduct amounts to maladministration is essentially a question of fact for the Ombudsman to determine and the court should be most reluctant to interfere with any of his findings on appeal.

I would also say this. It seems to me that when considering a determination of the Pensions Ombudsman, the court should not pick through it with a view to finding errors or lack of clarity. Any determination by the Pensions Ombudsman should be construed in a beneficent way with a bias, if any bias is appropriate, in favour of upholding it rather than the opposite.”

What amounts to maladministration?

6. Lightman J in Legal & General Insurance v Pensions Ombudsman [2002] 2 All ER 577 at p.587 pithily put it thus:

“The concept of “maladministration” is broad … it is concerned with the decision making process rather than the merits of the decision … the jurisdiction to investigate maladministration does not enable the ombudsman to reopen and investigate the merits of the terms of [the contract in that case].”

More generally the concept was considered by Lord Denning MR in ex parte Bradford Metropolitan City Council [1979] 2 All ER 881 at p.898C. I do not go to this or other cases because there was no dispute between Mr Goudie QC (for the Council) and Mr Randall (for Miss Watts) on this point.

Was there maladministration here?

7. The Ombudsman found maladministration in the Council’s decision to reduce the pension. He reasoned thus: Miss Watts’ LSA was granted for a proper purpose and hence lawfully. So the Council was wrong to conclude otherwise. And its consequential decision to reduce the pension was thus maladministration.

8. Now I think there is a gap in logic here. Actually the Council in reaching its decision acted with thoroughness and care, for instance taking counsel’s advice and even trying to get authorisation to pay the enhanced amount. It is not suggested that the decision reached was perverse – one that could not be reached by any Council acting reasonably. There was material upon which it could fairly reach its conclusion – and, given its general duty not to make ultra vires payments, its decision to withdraw the enhancement cannot be said to have been reached by any maladministration – some error in the decision making process. It seems to me that the Ombudsman fell into error here: his decision no-where faults the process by which the Council reached its conclusion. It amounts to “acting on a mistaken view of the law = maladministration”. Accordingly I think the decision to award Miss Watts £250 compensation for maladministration was an error because there was none.

The lawfulness or otherwise of the enhanced pension

9. I turn to the really important point on this appeal, whether the enhancement should have been withdrawn. For there is no dispute but that the Ombudsman has jurisdiction to decide a question of law relating to a pension see s.146(1)(c) of the Pension Schemes Act 1993.

Onus

10. The Ombudsman began by considering onus. He said that the onus lay on Miss Watts to prove her entitlement to the LSA payment and hence the enhanced pension. Mr Goudie QC for the Council submits that this was correct but that the Ombudsman then failed to apply the onus to this case. I do not agree. I think the Ombudsman was entirely correct in his approach. The correct analysis of the position runs thus:

(1) The legal burden of proof of entitlement to the LSA (and indeed of the whole pension) lay on Miss Watts. Suppose for example the Council simply did not pay and she claimed the pension. It would not be good enough for her to put in a document saying “I claim a pension of £x per week” without saying anything else at all. Anyone could do that. A claim put thus baldly would not then require the Council to disprove entitlement.

(2) Although that is legal burden, the evidential burden can shift. In this case Miss Watts not merely claimed entitlement to the enhanced pension. She also “proved” (though in reality this was never in dispute) that it had been paid, with enhancement, continuously and without cavil, quibble or question, for nearly 30 years. That entirely changes the complexion of things. For, as a matter of common sense one assumes that things have been done properly. (This used to go by the maxim omnia praesumunter rite et solemniter esse acta, Co.Litt. 6). Under some pressure Mr Goudie accepted that if Miss Watts claimed the full pension and proved it had been paid for nearly 30 years and there was no other evidence whatever, she would succeed.

(3) So once it was shown that the enhanced pension had been paid the evidential onus shifted to the Council to show that there was an error.

(4) I accept also Mr Randall’s further submission on behalf of Miss Watts: that it in this case it was a heavy onus – for what the Council are saying now is that it acted unlawfully back in 1968 when the LSA was awarded and persisted in that unlawfulness until February 2000.

11. I do not think, however, that the case turns on this last point, the weight of onus – the real question before the Ombudsman was, in the circumstances, whether the Council could show that the 1968 LSA was unlawful because it was ultra vires. I think he was entirely correct in saying, as he did:

“Where a respondent to a complaint makes such an assertion [i.e. that the LSA was unlawful] it does not seem unreasonable to me for the respondent to substantiate that assertion particularly in a context where the respondent has take action to change a course of dealing in a way detrimental to the complainant.”

Was the Ombudsman right to conclude that the Council proved that the 1969 LSA was unlawful?

12. Before considering this in detail it is right that I should remind myself that I am not an appeal body on fact. What must be shown is not merely that the Ombudsman was wrong on fact, but that no reasonable Ombudsman, properly instructed, could have come to the conclusion he did. It must be shown, as Mr Goudie did not shrink from contending, that the decision was perverse in that sense.

13. The Council’s case runs thus:

(1) A general policy of providing LSAs to employees with the effect of enhanced pensions is unlawful as being no more than a payment for past services or a payment whose real or dominant purpose is to enhance the pensions of long-serving employees rather than to give them more pay for staying on.

(2) Although it would be permissible to provide an LSA for a particular employee as an inducement to stay on that would have to be done by considering the facts relating to that employee and exercising the discretion in relation to those facts. On the evidence that was not done in the case of Miss Watts.

14. The principal authority relied upon by the Council for its first proposition is Hinckley & Bosworth BC v Shaw [2000] LGR 9. The facts were that two very senior long term employees of the Council were proposing voluntary early redundancy. After discussion their contracts of employment were varied so as to give them enhanced pay with the intention of giving them enhanced pensions and redundancy payments. So the enhancing agreements were not part of any long term policy of the Council – they were negotiated “one-off” at a time when the employees had already given many years of service without any expectation of the benefits conferred by the agreements. Bell J went through the authorities (starting with Roberts v Hopwood [1925] AC 578) and held that the agreements were ultra vires. He said (p.39):

“The council is a statutory corporation, created by the Local Government Act 1972, and its powers to act are limited to those functions which are conferred on it, particularly in relation to this case by sections 111 and 112, so Mr Ground relied on the case of Allsop (supra) saying that the increase in salary was clearly a ruse to provide Mr Shaw with more than the Acts and regulations allowed by way of redundancy and superannuation payments on his true salary, i.e. what his salary would have been over the last years of service without the increase made for the improper purpose of providing him with terms of redundancy and early retirement which he would accept, but which were above what the statutory provisions and regulations would allow”.

1. …..

In my judgment all these arguments come back to the same fundamental question of whether the agreed salary increase for Mr Shaw was lawful or not. Asking (as the first issue in respect of the action against Mr Shaw asks) whether the agreement dated 4 January 1990 was “beyond the powers of the council” is just another way of asking whether it was contrary to law. In my view the authorities to which I have referred make it clear that a pay increase which is made by a statutory local authority like the council for the purpose or main purpose of enhancing an employee’s redundancy or retirement benefits is unlawful and beyond the powers of the council to make and an agreement to make it is void, because it is not in reality a decision made in the exercise of the council’s power to fix rates of pay, but for the extraneous or collateral purpose of increasing the employee’s redundancy or retirement benefits beyond what the Acts and regulations would allow, but for the increase in pay. The fact that the pay increase can be justified and seen as reasonable in itself does not save it if its real purpose is to enhance redundancy or retirement benefits.”

2.

And, at p.44:

“In all those circumstances I have no hesitation in finding that the salary increase in Mr Shaw’s salary was made entirely for the extraneous, collateral and, indeed improper purpose of increasing Mr Shaw’s redundancy and pension entitlements to figures which he found acceptable, beyond the figures which the Acts and regulations would otherwise have allowed, and that it was for this reason an unlawful increase which no reasonable council could make. It was illegal and beyond the powers of the council to make and avoid.”

15. It is said that this reasoning applied to the Council’s LSA policy as it stood during the 1950’s and 1960’s. I am far from convinced that it does. Although it is hardly surprising that many documents from those times no longer exist, there is evidence that the Council (and its predecessor) consulted counsel about the matter. The motive for the policy (in instructions to counsel) was not just to give money away: it was to:

“reflect the officer’s continued worth as an employee who is zealous in the authority’s interest and whose experience and knowledge was of more than usual value so as to provide sufficient consideration for the extra remuneration. It is also felt that the proposal would attract staff to the Council’s service and tend to dissuade existing officers from leaving such service for that of other local authorities.”

16. Now I would have thought that an employee who joined the Council (or stayed with the Council) knowing that it had an LSA policy of this sort would have an actual and legitimate expectation that it would apply to him or her. He or she would say to themselves “If I stay (and am permitted to stay) with the Council for long enough, they will reward me accordingly.” It all depends on the perspective of time. Of course if you just look at the end of the employee’s career you could say the payment and enhancement was really no more than a gift – an uncovenanted reward for past services. But if you look at the position when the employee enters the job (or decides not to leave it) the prospect of extra money and enhanced pension will be seen as an inducement to work for and stay with the Council. And the Council would get a corresponding benefit arising from loyal and long service. Hinckley’s case involved (self-evidently on the facts) looking only at the time of departure from employment. It was a merely a ruse to inflate pension and redundancy payments.

17. Further, if the grant of an LSA were awarded not merely on the basis of long service but also on the value of the particular employee the position would be even stronger. For an employee knowing that an LSA was discretionary would be keener to serve the Council not only long but well.

18. Of course one aspect of the legitimacy of the policy would be to consider how realistic it was that employees might be lost – whether the extra benefit was commercially worthwhile. Thus in Roberts v Hopwood the payment of wages well in excess of the market rate of the time amounted to giving money away unnecessarily. The Council got no value for the overpayment part of the wages it set. But here it may well be that the Council got real value for its LSA policy during the 1950’s and 1960’s. It is impossible to gauge now, for instance, the degree of poaching which may have been going on between different local authorities – a matter which seems to have been of concern at the time.

19. In 1966 a further opinion of counsel was obtained which confirmed that the policy was lawful. Counsel are set out the parameters of lawfulness and they set out in detail in the Ombudsman’s determination. Of particular note is that counsel advised that each case must be considered on its merits. There is no material explicitly showing that counsel’s advice was taken, but that is hardly surprising after all this time. An undated document existed by September 1975 which sets out a policy substantially along the lines indicated by counsel, namely that a limited uplift could be by the Establishment Committee who were to “deal with each case on its merits and having regard to all the circumstances.” If the Committee decided against an increase it had to give reasons and the officer was entitled to make representations.

20. The 30^th June minutes of the Establishment Committee stated that Miss Watts had indicated she intended to retire in 1972 and recommended that a long service award of £50 be paid to her. There is no extant record of what material was put before the Committee about Miss Watts and in particular whether the particular value of her services and experience was put forward. It is clear also that she wrote a letter because the letter telling here of the award referred to her earlier letter. Whether her letter simply said she had twenty-five years service or also went on to indicate what she did and why she was of value is unknown. Nor is it known whether or not her superiors made any report on her value.

21. To my mind that is ample material to set the scales in favour of Miss Watts as to whether or not her LSA was properly awarded. It is the nearest contemporaneous evidence as to what actually happened. It is not Miss Watts’ fault that the material put before the Committee, what her superior said to the Committee (if anything) or her letter seeking an LSA are no longer available. All that can be said is that there is ample material to justify the conclusion of fact that her LSA was awarded not merely as a matter of routine but on her particular merit.

22. The Council rely upon other, much later, material to suggest otherwise – particularly a 1975 document of a Mr King (it is not entirely clear who he was or what actual personal knowledge he had). This suggests that all awards in the past had been routine. The Council also relies upon a change of policy in 1973 as regards LSAs which was introduced when pensions depended only on the last year salary. They were in future to depend only on the last year’s salary.

23. I agree with Mr Goudie this much, that these matters can be set in the scales to suggest that the award was merely routine. But I am not the judge of fact. What Mr Goudie has to show is that the Ombudsman’s factual decision was perverse. For the reasons I have given I think there was ample material before him upon which he could conclude that Miss Watts’ LA was not granted automatically but on her individual merit. Indeed any other conclusion would mean that the Council ignored the advise of Counsel given only three years before the award.

24. For these reasons I think the Council has not shown that the Ombudsman was wrong to hold that it was not proved that Miss Watts’ individual case was not considered. The Council is miles away from the much higher hurdle of showing the decision was perverse.

25. That would be enough to dismiss this appeal. But I would add two matters. First, for the reasons I have given I am by no means satisfied that even if the award had been automatic it would have been ultra vires and unlawful. A long promised award is a different thing from one which is awarded off-the-cuff at the end of service.

26. Secondly I am concerned about this problem. Suppose it was unlawful to give the award automatically but lawful to give it on proved merit. And suppose it was in fact given automatically but that, if it had been necessary to prove merit, Miss Watts could have done so. I cannot think it would be right to deprive her of her enhanced pension now because she was not required to prove her case for an LSA in 1969. Mr Goudie suggested otherwise – that the doctrine of ultra vires means that if an ultra vires award was made that is an end of the matter – it is just hard luck on Miss Watts that the award could have been made intra vires. I very much doubt that. Mr Goudie’s reliance on cases where a Council simply acted ultra vires and a third party suffered as a result (as in some of the interest-swap cases) is beside the point. The problem I have in mind is where a body acts ultra-vires in favour of a party who (naturally) accepts the decision at the time but who, if he had been required or allowed to put his case, could have shown the body how to act intra-vires in his favour: the ultra vires act prevents an intra vires act.

27. Fortunately I do not have to consider this problem further here. This is a case where I think the Ombudsman in his well reasoned and constructed determination was not only not perverse but was right.

28. I dismiss the appeal on the principal point but uphold it as regards the finding of maladminstration.