Secretary Of State For Education & Skills & Anor v Farley & Anor

This is an appeal on a point of law under section 151 (4) of the Pensions Schemes Act 1993 against a determination (“the Determination”) dated 12^th March 2004 by the Pensions Ombudsman of a Complaint (the “Complaint”) by the Respondents against the Administrator of the Teachers Pension Scheme (the “Scheme”) and East Sussex County Council (“East Sussex”).

The Respondents are the executors of the estate of the late Miss Hilda Dann, who was employed as a teacher by East Sussex County Council (“East Sussex”) for the whole of her working life, until 1978 and retired as a Headmistress. She was all of her working life a member of the Scheme.

The Department for Education and Skills (“the Department”) for which the First Appellant is the Secretary of State is responsible for the administration of the Scheme. That administration has been delegated over a period of years as summarised in note 1 to the skeleton of Mr Quest who appears for the Secretary of State on this appeal. The administering body is now known as Teachers’ Pensoins.

The Pensions Ombudsman has not been joined to the Appeal, but in accordance with CPR 52 PD 17.5 a copy of the Appellant’s Notice has been served on him. He has the right to be heard on the appeal; Dolphin Packaging Materials Ltd. –v- Pensions Ombudsman [1995] OPLR 331 but despite requests by all parties for him to join the appeal he has declined so to do.

The appearance of East Sussex as an Appellant is somewhat unfortunate. In the Determination the Pensions Ombudsman (paragraph 14 and 15) determined that East Sussex were guilty of maladministration.

However, paragraph 28 directed that Teachers Pensions pay to the complainants interest as specified in the Award.

The Determination was not sent to East Sussex, but it appeared that the direction to pay to the Respondents was a several obligation as between the Appellants in equal shares (see paragraph 19 of the Determination). Letters were sent to the Pensions Ombudsman asking him to clarify his Determination, but he did not reply to them.

It is unfortunate that the Pensions Ombudsman took that stance. I can see no reason why he could not have taken the simple step of explaining the clear difference between paragraphs 19 and 22 of the Determination. It might well be that such clarification would have shown that only the Department was intended to be liable, thereby in the event making East Sussex’s appeal unnecessary and saving a significant amount of costs.

After the conclusion of the submissions on the appeal, I indicated that I would allow both appeals and I ordered the Respondents to pay the Appellants’ costs assessed by me in the sums of £4571.50 and £4764.51 respectively.

Further, as this Judgment shows this is a further case where a Respondent is reluctantly drawn into an appeal (without the necessary expertise) to uphold a decision of the Pensions Ombudsman. Mr Seligman appeared for the Respondents on a Pro Bono basis, they not having any funds to afford legal representation. He was instructed by Mr Farley, the former husband of the First Respondent, who also delivered his services on a Pro Bono basis. He has written to the Pensions Ombudsman inviting him to assist by appearing on the appeal, but as I have said, he declined so to do, leaving the Respondents to attempt to understand the reasoning behind the Determination and its clear flaws.

Miss Dann, as I have said, retired in 1978. She then became entitled to benefits under the scheme, but never claimed them. She died on 9^th August 1997. In January 1998 the Respondents claimed for the estate the arrears of benefits from 1978. There was an undisputed entitlement to payment of all arrears. No question of limitation arose on those payments. Payment was made on 11^th February 1998. The gross amount paid was £159,070.58 (being pension arrears) and a lump sum of £11,070.58. Tax was apparently deducted from that amount (although it is by no means clear why) leaving a net figure of £100,015.73. The executors somewhat unwisely spent all that money on paying debts and as I understand it acquiring a property. Miss Dann had no relatives and the beneficiary Mrs Farley was the granddaughter of a close friend of Miss Dann. There were apparently no other assets in the estate, which once again makes her decision not to claim any of her pension entitlement to which she had contributed all her working life even more inexplicable.

On 4^th March 1998 the estate received a further cheque for £1920.59 being statutory interest.

The statutory interest was due under regulation E34 of the Teachers’ Pension Regulations 1997. The interest was calculated from 1^st October 1996, the date on which the predecessor to regulation E34 came into force. Prior to that there was no entitlement to interest as of right under the statute.

Mr Seligman initially in his skeleton argument and his oral submissions contended that on the true reading of regulation E34 it was retrospective in effect so that interest would have been payable from the date each instalment of pension became due right back until 1978. This construction would have lead to a further windfall payment of some £200,000.00 to the estate. This backdating effect was not accepted by the Department, nor by East Sussex. As the arguments deployed, Mr Seligman on being presented with the case of In Re Barretto [1994] QB 392 acknowledged that the true construction of regulation E34 was that the liability by its wording was prospective only and not retrospective in effect and he abandoned this point ultimately. This was a new point, which had not been raised before the Pensions Ombudsman so that all the remainder of the appeal arose out of the Determination.

The Respondents on 10^th April 2001 filed a complaint against the Department for its failure to pay interest on the arrears accruing between September 1978 and 30 September 1996 and against East Sussex for failing to advise Miss Dann about her pension rights upon her retirement in 1978.

The Pensions Ombudsman had extended time for making the complaint under regulation 5(3) on the grounds that the complaint had been initially referred to OPAS which investigated the matter first. They concluded that it was right that in effect the time limits should not operate during the period that the OPAS enquiries took place. Those enquiries on investigation took 18 months during which OPAS unfortunately lost the papers. The complaint from the point of view of knowledge accrued in March 1998 when the interest from 1^st October 1996 was paid. Accordingly a complaint was required to be submitted by shortly after March 2001. The 3-year limit was therefore missed on a worse case scenario by a matter of weeks. Taking into account the OPAS matter (which both the Department and East Sussex conceded was a proper ground for extending time) I do not see there is any justifiable challenge to the decision of the Pensions Ombudsman to entertain the complaint in these circumstances.

The key paragraphs of the Determination are to be found in the conclusions (paragraphs 14-21):-

“CONCLUSIONS

14.

East Sussex should have sent Miss Dann a form to apply for her benefits. They say that all their records relating to Miss Dann have been destroyed. There is, therefore, no way of checking whether the form was sent to her or, if it was, whether Miss Dann returned it. In the absence of such records, the fact that no form was returned by Ms Dann leads me to the view on the balance of probabilities that she did not receive one. I do not conclude, also on the balance of probabilities, that because East Sussex’s normal practice was to send such a form that one was in fact sent.

15.

Teachers Pensions say they are not aware of a teacher’s retirement date until informed by the employer and that they were not so informed by East Sussex. I see the failure to inform Teachers Pensions as maladministration on the part of East Sussex. However, Teacher Pensions would certainly be aware of Miss Dann’s normal retirement date. Teachers Pensions say that they have made periodic checks since October 1996 to locate teachers who have not claimed the benefits due to them. Miss Dann lived at the same address from the date of her retirement until her death. I cannot believe that any serious attempt was made to trace her and that too in my view was maladministration.

16.

The Department has argued that there was no legal or other responsibility to make checks of the kind which Teachers Pensions now makes. However, I consider that good administration dictates that such checks should have been made and that the failure to make them before and after October 1996 was maladministration.

17.

In summary, I consider that both Teachers Pensions and East Sussex could and should have done much more to make Miss Dann aware of her benefits when they were due to come into payment and that their failure amounts to maladministration.

18.

I am faced with opposing arguments as to whether there is power to pay interest. The Department says the Regulations empower it only to pay interest which accrued after the date when the power to pay it became law ie 1 October 1996. The complainants’ solicitors argue that regulation E34 provides for the payment of interest on the whole of the arrears not only on those arrears which existed on the date on which the 1996 Regulation came into force. I am inclined to accept the Department’s view but do not see that as the end of the matter.

19.

Regardless of whether there is any provision in the regulations about the payment of interest, there is a need to ensure that the complainants, who stand in the shoes of Miss Dann, are not left with unredressed injustice as a result of the maladministration I have identified in paragraphs 14 to 17 (above). To avoid that the Department and East Sussex should make a payment in equal shares of the same amount as would be required had the 1997 Regulations been in force at the date when Miss Dann retired.

20.

I have considered carefully whether the interest payable should be on the arrears net of tax. However, I have formed the view that the interest fell due before any tax issue arose and that it should be payable on the gross amount.

21.

It is for Ms Dann’s executors to sort out with the relevant authorities (which are not the Department) as to whether any money needs to be repaid in respect of state benefits she is to receive.”

As I have said, an appeal is only on a question of law. This is unfortunate because East Sussex are bound by the factual determination in paragraph 14, whereby the Pensions Ombudsman concluded on the balance of probabilities that in this case East Sussex did not comply with their normal procedure when a teacher was retiring of sending the teacher an application form for completion and forwarding on to Teachers Pensions. I have to say that I find that a surprising conclusion for him to have made given the paucity of the material he had before him. There was no evidence indicating why Miss Dann had not made any claim during the 19 years that she was retired. She had a senior post, being a Headmistress and in that post itself would have been aware of and responsible for teachers who would all (like her) have made contributions of an obligatory nature to the Scheme. She would have made such contributions herself for in excess of 35 years. The Executors could throw no light on the situation either, nor could East Sussex, because it had (quite understandably) destroyed all of its records in relation to the retirement of Miss Dann in 1978. In my view the Pensions Ombudsman fell into error in that he clearly felt obliged to come to a factual decision. Paragraph 14 shows that there was no basis for him being able to come to any decision as to why Miss Dann made no claim. This is a classic case where the Pensions Ombudsman should have applied the principles enunciated in the House of Lords decision of Rhesa Shipping Co. S.A. –v- Edmonds [1985] 2 All E.R. 712. As that case shows there are some cases where a court has to decide a case on the burden of proof because of the paucity of evidence rather than attempt to come to a conclusion based on the slender evidence before it. In my Judgment, that is what the Pensions Ombudsman ought to have decided and dismissed the complaint on the grounds that the Respondents failed to establish any reason why Miss Dann failed to claim her pension and thus any reason as to why there was a complaint sustainable against the Department and East Sussex. He did not do so however. This presents a difficulty to the Appellants because they are bound by the factual findings. This is unfortunate. It reiterates the need for the Pensions Ombudsman to be careful in an analysis of a complaint to ensure that his factual decisions are soundly based and correctly reasoned.

I have already observed that the Pensions Ombudsman has not appeared to explain his thought processes, which led him to the conclusion that he did.

Having concluded that East Sussex was guilty of maladministration by failing to tell Miss Dann of her pension entitlement and failing to pass that material on to Teachers Pensions, he also concluded the Department was guilty of maladministration because it had a duty to make periodic checks to locate teachers both before and after October 1996.

He accepted the construction of regulation E34 as providing for interest only in respect of benefits accruing after 1^st October 1996 (paragraph 18). However, by reason of its maladministration he determined that the Department and East Sussex should pay the same amount as would have been payable as compensation if the regulations had been in force at the date when Miss Dann retired. Further in paragraph 20 he determined that the interest should be payable on the arrears before any tax was deducted, thus awarding the Respondents interest on sums which they never were going to receive. He declined to determine whether or not state benefits ought to be brought into account (paragraph 21), but then determined that the state benefits should be brought into account (paragraph 22).

The Department contends that the Pensions Ombudsman has made an error in law in concluding that the Department’s failure to take steps to locate Scheme Members who are not claiming benefits constituted maladministration.

Under regulation E33(2) of the 1997 Regulations (see the like effect in Regulation 1 of the 1966 Regulations and E31(2) of the 1988 Regulations) no benefits are payable unless a written application for payment has been made. The regulation imposed no positive duty on the Department to check whether members are entitled to, but have not claimed benefit.

Their duties follow, in my judgment, the general law, that trustees and administrators of pension schemes owe no duty to advise members on the exercise of their rights under the scheme; see Hamar –v- Pensions Ombudsman [1996] OPLR 55, Outram –v- Academy Plastics [2000] IRLR 449 and NHS Pension Agency –v- Beechinor and The Pensions Ombudsman [1997] PLR 99.

The principle was drawn to the attention of the Pensions Ombudsman, but he rejected it (see paragraph 16 of the Determination). I do not see how there is any legal basis for the conclusion that he came to (which is completely unexplained in the Determination). Accordingly, the Department’s appeal on ground 1 succeeds.

That makes it unnecessary to consider whether or not compensation was awarded on a correct basis (ground 2).

It is accordingly not necessary for me to consider that ground, but in case I am wrong on the first ground I accept the contentions of the Department that the level of compensation ought to be that that has been sustained in consequence of the maladministration. The decision to award interest on the gross sum, without the deduction of income tax purported to give the Estate a greater sum than Miss Dann would have received in her lifetime. That is clearly overcompensation.

I reject ground 2(3) which has an allegation that there should be a deduction on the ground of contributory negligence on the part of Miss Dann. I reject that because the burden of proving contributory negligence would be on the Department. No evidence has been adduced as to why she did not make her claim, so any allegation of contributory negligence ought to fail on the same principle to be derived from the Rhesa case referred to above.

I have already rejected the challenge to the decision of the Pensions Ombudsman to extend time as set out earlier in this Judgment (ground 3).

Ground 4 does not arise because both appeals have been allowed.

East Sussex challenge the Pensions Ombudsman’s decision on the basis that whilst it is bound by the finding of maladministration, it contends that the Pensions Ombudsman failed to analyse the facts further and determine whether or not there was any evidence that that maladministration was causative of the loss to Miss Dann and thus a justifiable claim for compensation. Paragraph 14 comprises the entirety of the Pensions Ombudsman’s decision, which made East Sussex, in his eyes, guilty of maladministration. Even if his factual determination is correct that no letter was sent, he has failed to go further and consider what impact the failure to send that letter would have had on Miss Dann’s overall position. He has failed to provide any justification for concluding that the letter failure caused the failure to apply for a pension and the consequent loss by reason of the maladministration. This is fatal to the Determination as against East Sussex in my opinion.

There is no evidence which explains the inexplicable decision Miss Dann made apparently not to seek her pension. The absence of this one letter cannot possibly be the determinative reason for her actions.

Accordingly, the Determination as against East Sussex ought similarly to be set aside.

During the course of the appeal I raised the question as to whether or not the complaint against East Sussex was really a complaint arising out of its duties qua employer of Miss Dann and not actionable before the Pensions Ombudsman. Mr Coppel, who appeared for East Sussex, acknowledged that that was the true position, but accepted that under the construction of the powers given to the Pensions Ombudsman to investigate complaints of maladministration in respect of pensions, he is entitled to investigate the conduct of an Employer, not withstanding that the Employer is not the scheme administrator.

It follows therefore that his determination that East Sussex did not send a letter was within the ambit of his jurisdiction and is not capable of challenge, because it is a factual determination.

Nevertheless, for the reasons that I have set out above the Appeal of East Sussex also succeeds.