Langdell v Abbey Life Assurance Company Ltd

Last Wednesday, 4 March 2015, I heard an application by Dr Langdell for permission to appeal a determination of the Deputy Pensions Ombudsman, Ms Jane Irvine (“the DPO”). I refused permission to appeal for the reasons that I gave in an oral judgment at the time.

Dr Langdell now asks me to reconsider my refusal of permission. Dr Langdell, who is resident in Southern California, attended the hearing by telephone and there was some confusion as to whether he asked me to reconsider my judgment at the hearing or not. I understood him to have done so and having reconsidered it, I declined to reopen it. I regarded the matter as then closed and I approved a draft order which has now been drawn up and sealed.

Dr Langdell however says that what he understood was that he had indicated that he would be lodging what he termed a motion for reconsideration and that I had agreed to hear it. He has now lodged his motion.

The Court has an undoubted jurisdiction to recall and reconsider a judgment that it has pronounced before the Order giving effect to it has been perfected by being sealed (see the White Book, Civil Procedure 2014 at 40.2.1). It is not at all clear to me in the present case, where the Order has in fact been drawn up and sealed, that the Court has any further jurisdiction to reconsider the matter. However in the circumstances I have decided not to spend time on this procedural point but to consider the application on its merits on the assumption that I may have the relevant jurisdiction.

It is necessary to give some account of the facts to explain the point which arises.

Dr Langdell and his wife were in the 1980s directors of a company called Softek International Ltd (“Softek”). They caused Softek to establish a pension scheme, which appears to have been established by at least 11 April 1984 when a deed was executed. It was called the Softek International Ltd Directors’ and Executives’ Retirement Plan (“the Scheme”). Dr Langdell and his wife became members of the Scheme. The Scheme was insured with Abbey Life Assurance Co Ltd (“Abbey Life”) and two policies were taken out for the purposes of the Scheme, one each for Dr Langdell and his wife.

Dr Langdell made inquiries about drawing his benefits in 2012 and after some correspondence Abbey Life put his benefits in place in February 2013. At that date the value of his policy was about £17,385. Abbey Life allowed him to take £7,849.30 by way of tax free cash lump sum and used the balance (some £9,536) to put in place an annuity for him of about £900 per year.

Dr Langdell, who would have preferred, for understandable reasons, to receive as much as possible by way of lump sum rather than annuity, was unhappy to have only received £7,849.30 by way of lump sum and complained to the Pensions Ombudsman. He had a number of complaints, including complaints as to the contradictory information given to him by Abbey Life and as to the fact that Abbey Life put his benefits in place at all when he had made clear that he did not want them to unless he could have a larger lump sum. The DPO, Ms Jane Irvine, in her determination dated 10 September 2014 upheld a number of his complaints and found Abbey Life guilty of maladministration. She directed it to pay Dr Langdell £500 by way of compensation. No complaint is made of any of these parts of her determination.

However she rejected another complaint made by Dr Langdell which was over the calculation of the lump sum. Abbey Life had calculated the maximum permissible lump sum at a figure of £16,712.30, but had then reduced that by the sum of £8,863 to leave a net sum of £7,849.30.

The explanation for the deduction of £8,863 is as follows. In 1989 Dr Langdell and his wife caused Softek to apply for a loan from Abbey Life against the security of their policies. The form this took is apparent from the documentation. This consisted of a number of documents, all dated 1 March 1989, including (i) a request by Softek for a loan; (ii) the appointment of a new trustee of the Scheme (namely Abbey Life Trustee Services Ltd) to act as pensioneer trustee along with Softek itself (“the Trustees”);(iii) the amendment of the Deed governing the Scheme by adding power for the Trustees to borrow money from Abbey Life and to lend it to Softek; (iv) a loan agreement between Abbey Life and the Trustees under which Abbey Life agreed to lend £13,000 against the security of the policies (£9,000 against Dr Langdell’s and £4,000 against his wife’s); (v) a loan agreement between the Trustees and Softek under which the Trustees agreed to lend on the £13,000 to Softek; and (vi) two letters from Softek to Dr Langdell and his wife respectively headed “Announcement to Loan Members”.

Two particular features of the documentation should be noted. First, in the loan agreement between Abbey Life and the Trustees provision was made for Abbey Life to have recourse to the policies in the event of default in repaying the loan. The mechanics by which this was done do not really matter but they in fact involved cancellation of certain units and transfer of the resulting money to a Sterling Account which on default would be used to repay Abbey Life. If however the loan was repaid the money would be used to purchase further units for the policies.

Second, the Announcements to Loan Members explained that Softek had applied to the Trustees for a loan against their policy; that if the loan were not repaid the fund available to secure their benefits would be reduced by the amount of the loan outstanding; and that

“On retirement the amount of any outstanding loan will be deducted from the Tax Free Cash Sum…”

It can be seen that the arrangements entered into took the form of two back-to-back loans, one from Abbey Life to the Trustees against the security of the policies, and the other from the Trustees to Softek. No doubt it was intended that Softek should repay the money, and no doubt in practice if it had done so it would have paid Abbey Life direct, but in law Softek did not owe money to Abbey Life and if it had repaid the money to Abbey Life it would have technically been a discharge of Softek’s liability to the Trustees, and a discharge of the Trustees’ liability to Abbey Life.

In fact however it appears that Softek did not repay the money. The DPO found (and no appeal lies against her findings of fact) that by 1991 Softek had defaulted and that Abbey Life in February 1991 enforced its security against the policies. At that date £8,863 was apparently outstanding on Dr Langdell’s policy and that sum was paid out of his policy to Abbey Life. It is common ground, and the DPO found, that this (together with the corresponding action in relation to his wife’s policy) had the effect of discharging the loan owed by the Trustees to Abbey Life.

Abbey Life’s case before the DPO however was that the use of £8,863 out of the policy in this way obliged them to reduce by a corresponding amount the amount of tax free cash that could be taken by Dr Langdell on drawing his benefits. This was accepted by the DPO who dismissed this head of Dr Langdell’s complaint.

Dr Langdell sought permission to appeal on the basis that the DPO had misconstrued the relevant provisions of IR12 which set out the requirements of the Inland Revenue (as it then was) for discretionary approval of occupational pension schemes. Abbey Life had relied on para 16.75 which read as follows:

“Any reduction of benefits as a result of foreclosure will be first effected against any lump sum retirement benefits payable.

The restriction on the director’s lump sum retirement benefits will be lifted to the extent of the amounts recovered by the scheme trustee(s) under the rights acquired as a result of the foreclosure.”

Dr Langdell wished to argue on appeal that the second limb of para 16.75 applied to his case because Abbey Life had “recovered” the sum of £8,863 in 1991 and the restriction should therefore be lifted.

He also referred to a similar statement in para 16.85 which read as follows:

“The reduction of the controlling director’s benefits will be lifted to the extent of the amounts recovered by the scheme trustees from the employer under the rights acquired after foreclosure. To avoid a restriction to the lump sum retirement benefits the amounts paid must be recovered before the lump sum retirement benefits are paid.”

In my judgment of 4 March, I rejected this as an impossible contention. As I there explained it confuses (i) the recovery by Abbey Life of the loan it made to the Trustees by exercising its rights under the loan agreement of looking to the policies, and (ii) the recovery by the Trustees of the loan they made to Softek. As a matter of construction the second limb of para 16.75 in my judgment refers to a recovery by the trustees from the employer, not a recovery by the insurance company from the security it holds over the policy in question. I regard this as clear beyond argument, and put beyond doubt by para 16.85 which refers to “the amounts recovered by the trustees from the employer”. There is no evidence that the Trustees ever recovered any amounts from Softek. It was for this reason that I refused permission to appeal.

Dr Langdell’s application for reconsideration turns on a letter dated 24 August 1990 which was not referred to by the DPO nor put before me on 4 March, although Dr Langdell says that it was before the DPO.

It is one of two letters of that date. The first is a letter from the Pensions Technical Services department of Abbey Life to the Trustees. This was in the bundle before me on 4 March. It refers to the loan agreement between Abbey Life and the Trustees and formally demands repayment of that loan together with interest. The final paragraph reads:

“If the money is not received, in accordance with Clause 4 Paragraph (ii) of the Loan Agreement, Abbey Life Assurance Company Limited will apply the money held in the Sterling Account to discharge the loan.”

The second letter is the new one which Dr Langdell now relies on. It is in quite a similar form to the first letter, but is a letter from Abbey Life Trustees Services Ltd (on behalf of itself and Softek as the Trustees) to Softek. It refers to the loan agreement between the Trustees and Softek and formally demands repayment of that loan with interest. This time the final paragraph reads:

“If the money is not received, in accordance with Clause 4 Paragraph (ii) of the Loan Agreement dated 1 March 1989 between the Trustees and Abbey Life Assurance Company Limited, the latter will apply the money held in the Sterling Account to discharge the loan.”

(textual differences from the first letter highlighted by me in bold).

Dr Langdell wishes to argue that this letter demonstrates that on Abbey Life having recourse to the policies this discharged the loan from the Trustees to Softek (as well as the loan from Abbey Life to the Trustees) so that neither loan was outstanding after 1991 and neither was outstanding in 2013.

Again I find this an impossible contention. This paragraph, as the words in bold makes clear, refers not to the loan agreement between the Trustees and Softek but to the loan agreement between Abbey Life and the Trustees. Only the latter agreement referred to the security against the policies – indeed it makes no sense to say that the Trustees could have security for a loan owing to them by Softek against policies of which they were already the owners. What this paragraph is referring to therefore, just like the corresponding paragraph in the first letter of 24 August 1990, is the right of Abbey Life to have recourse to the policies (and in particular to the Sterling Account) to discharge the outstanding loan owed to Abbey Life. That was of course the loan owed by the Trustees, not the loan owed by Softek to the Trustees. In my judgment the reference to Abbey Life applying the money “to discharge the loan” means the same in both letters, namely to discharge the loan owing by the Trustees to Abbey Life under the Loan Agreement dated 1 March 1989 between the Trustees and Abbey Life. It does not mean in the second letter the loan between Softek and the Trustees. Again I regard this as clear beyond argument.

Quite apart from this even if it could be shown that the loan between Softek and the Trustees was in some way discharged in 1991, it would not affect the question arising under paras 16.75 and 16.85 of IR12, namely whether the Trustees had “recovered” any “amounts … from the employer”. There is no evidence before the Court, and the letters of 24 August 1990 certainly do not provide any, that the Trustees ever recovered any money from the employer. Indeed as I understood Dr Langdell on 4 March, he accepted that Softek had not made any further payments into the Scheme. The practical effect of what happened therefore is that Dr Langdell took about £9,000 in cash out of his policy in 1989 (in the form of a cash loan to his employer which his employer never repaid) and I do not find it surprising that in those circumstances the amount of lump sum which he could take in cash on retirement was reduced accordingly.

For these reasons I refuse the application to reconsider my judgment.