B e f o r e :
LORD JUSTICE GLIDEWELL
LORD JUSTICE EVANS
LORD JUSTICE WAITE
____________________
| |
HARRIS |
|
| |
PLAINTIFF/APPELLANT |
|
| |
- v - |
|
| |
LORD SHUTTLEWORTH & OTHERS |
|
| |
(Trustees of the National & Provincial Building Society |
|
| |
Pension Fund) |
|
| |
DEFENDANT/RESPONDENT |
|
____________________
(Handed down judgment of John Larking Verbatim Reporters,
Chancery House, Chancery Lane
London WC2 Tel: 071 404 7464
Official Shorthand Writers to the Court)
____________________
MR. J. BURKE QC and MR. D. GRIFFITH-JONES (Instructed by Bond Pearce, Plymouth) appeared on behalf of the Appellant
MR. P. HOWELL QC and MR. J. CLIFFORD (Instructed by Hill Dickinson Davis Campbell, Liverpool) appeared on behalf of the Respondent
____________________
(HANDED DOWN HTML VERSION OF JUDGMENT OF JOHN LARKING VERBATIM REPORTERS,
CHANCERY HOUSE, CHANCERY LANE
LONDON WC2 TEL: 071 404 7464
OFFICIAL SHORTHAND WRITERS TO THE COURT)
HTML VERSION OF JUDGMENT
(HANDED DOWN)
____________________
Crown Copyright ©
Wednesday, 24 November 1993
J U D G M E N T
LORD JUSTICE GLIDEWELL: The Plaintiff, Mrs Grace Jeanette Harris, was employed by the National & Provincial Building Society (the Society) from 28 May l976 until 14 April l986, when the Society terminated her employment by giving her three months' notice in lieu of salary. From l November l977 until her employment came to an end she was a member of the National & Provincial Building Society Pension Fund (the Fund). Lord Shuttleworth and the other Defendants are the current Trustees of the Fund. Under the rules of the Fund which applied when Mrs Harris's employment was terminated, she was, at the least, entitled to a deferred pension payable when she reached the normal pension age of 60. However, Mrs Harris was only 45 years of age when her employment was terminated. She claimed, and claims, that the termination of her employment amounted to retirement which had occurred by reason of incapacity, and that she was and is therefore entitled to a full pension payable immediately on the termination of her employment, in accordance with rule l9 of the Pension Fund Rules. On the Trustees rejecting her claim, she commenced this action by writ issued on 3 March l988. In her Amended Statement of Claim she seeks a Declaration that she is:
"entitled to the payment of an immediate non-deferred pension, and has been so entitled since l4 April l986, calculated in accordance with the formula contained in Rule l9 of the Rules".
She also claims an account of all sums due to her from the Trustees of the Fund, an Order for the payment to her of sums found due on the taking of such an account, and damages as an alternative. In her case, the financial difference between a deferred pension and a pension payable in accordance with Rule l9 is considerable. A deferred pension would be at the rate of £1,026 per annum commencing when she reaches the age of 60. A pension payable under Rule l9 would be £2,853 per annum, payable from l4 April l986.
On 27 July l992 Judge Moseley QC, sitting as a High Court Judge, dismissed her claim in the action. Against this decision she now appeals. The Defendants seek to support the Judge's decision, not merely for the reasons he gave in his judgment, but on other grounds set out in a Respondent's Notice.
The facts
Mrs Harris was first employed by the Society in May l976 as a receptionist/cashier at their branch at Helston in Cornwall. The then Manager was impressed by her abilities, and she was promoted in April l977 to the post of Manager's Assistant. She applied to join the Pension Fund in August l977, and her application was accepted with effect from l November l977.
From an early stage in her employment with the Society, Mrs Harris was absent as a result of illness for substantial periods of time. In l979 she was off sick for l3 weeks in total, in l980 for 9 weeks. In September l98l, after attending the Society's Medical Adviser, Dr Campbell, she had an interview with Mr Lancaster, the Society's Personnel Manager, who told her that her attendance record was "appalling", and warned her that if it did not improve she could expect a recommendation from her Manager that she would be dismissed.
Mrs Harris's illness record did improve in the later part of l98l and the early part of l982, in which year she missed a total of nearly five weeks through illness. Thereafter her absences through illness continued spasmodically until l5 April l985, when she went absent from work again. After that she never returned to work with the Society. Initially she submitted medical notes showing her to be suffering from a variety of ailments, but from the end of May l985 onwards the diagnosis was that she was suffering from cervical spondylosis and agoraphobia. It seems that the Society did not have any clear contractual provision about the amount of sick leave it would allow an employee to take. However, it had a policy of allowing an employee to be absent on full pay for up to six months, and thereafter to reduce her to half-pay if she remained absent. At the end of 12 months continuous absence, the normal policy was for the Society to terminate the employment. This policy was applied to Mrs Harris. Moreover, it was decided to demote her to the position of Clerk/Typist, although in fact she never filled this position.
In January l986 there began the correspondence which culminated in the termination of Mrs Harris's employment. On l4 January l986 Mr Sowden, the Society's Personnel Support Controller, wrote a letter to Mrs Harris in which he said, inaccurately, that the services of the Society's medical adviser, Dr Campbell, had been:
"offered to you during your period of illness but you found it necessary to refuse them".
He continued:
"The Society's terms and conditions entitle you to six months' payment at full salary and six months at half-salary. Your entitlement will therefore cease on l4 April l986. It is our practice where such a period of illness has not resulted in a return to work that at that stage employment will be terminated. I am therefore advising you that this practice would be applied in your case. Perhaps you will advise me at an early stage whether or not your return before l4 April is likely."
On 12 February l986 Dr Lawton, Mrs Harris's General Practitioner, wrote to Mr Sowden a letter saying that her symptoms were cervical spondylosis and ii) If the Trustees adopted a proper construction of Rule l9 and the other rules, was their decision perverse or based on irrelevant considerations?
During the course of the hearing, counsel for the parties agreed to invite us only to deal with the first of these issues at this stage of the hearing. They invited us to answer the following agreed question:
"What is the proper construction, in Rule l9, of "retirement from the service by reason of incapacity" and, in particular, is a "retirement from the service by reason of incapacity" precluded where the Society terminates the contract of employment in the manner adopted in this case?
Counsel invited us to give judgment answering this question before proceeding to deal with the remaining issue which I have posed as the second main issue above. We now seek to comply with this request.
The Judge's approach
No doubt because of the way in which the matter was presented to him, the Judge addressed the question whether the Trustees had construed Rule l9 correctly by particular reference to the two key words in the Rule, namely, "retirement" and "incapacity". He discussed the proper meaning of each word in the rule separately.
In relation to the word "retirement", the argument before him was in part whether the verb was to be construed, as he put it, intransitively or transitively, ie was it to be understood as meaning that Mrs Harris retired, or that she had been retired, or could it cover both? The Judge said that in none of the reported cases cited to him had the word been used in the sense "Mrs Harris was retired by her employers".
At the conclusion of this section of his judgment, he said:
"For all those reasons the word "retirement" in Rule l9 is in my judgment to be considered in an intransitive sense only, and not as including a dismissal. ... As I will explain later the Trustees decided that retirement did not include dismissal. In my judgment their understanding of the law was correct, and consequently there is no reason for me to interfere with their decision."
The Judge then considered the meaning of the word "incapacity" in Rule l9. The Judge quoted paragraph 7.2 of the Amended Defence which defines "incapacity" in the rule as: "physical or mental disability or ill health of a permanent and not a temporary nature, sufficiently serious to prevent the member from managing his own or her own affairs or from following normal employment or to cause serious impairment of an incapacity."
The Judge concluded that in Rule l9, the word "incapacity" had the meaning alleged in the defence, and thus that the Trustees made no error of law in construing the word as meaning permanent incapacity.
Submissions
Mr Burke, for Mrs Harris, makes the following submissions about the proper construction of Rule l9.
Retirement
The Judge was wrong to construe the word "retirement" only in an intransitive, or active sense, as in "she retired"; the word is capable in its context of being understood in a transitive, passive sense, as in "She was retired by her employers". This led the Judge into the error of concluding that, within the rules, retirement was inconsistent with dismissal, and that since Mrs Harris was dismissed she cannot have retired. It cannot be right that an employer can, by dismissing an employee who wishes to leave the employment by reason of incapacity, deprive her of pension rights to which she would otherwise be entitled. The fact, referred to by the Judge, that this Society was not the kind of employer who would behave in this way is irrelevant to the construction of the rules.
The rules should be given a practical and purposive construction - see Mettoy Pension Trustees v Evans (1990) 1 WLR 1587 at l610, a decision of Warner J. In this case the Judge said that he bore this in mind, and that the beneficiary's rights are derived from the contract of employment, but it seems that he failed to follow this approach.
Incapacity
The critical issue is, does incapacity within the rules mean permanent incapacity, as the Trustees were advised and accepted it did. The Judge was wrong to conclude that in this respect they were correct.
In his skeleton argument Mr Burke defines incapacity as a) Throughout the judgment in this case, and elsewhere, Mrs Harris is frequently referred to as having been dismissed. The relevant Pension Fund Rules do not use this word. Rule l8 speaks of "leaving the service", and it is clear from Rule 34 that this can cover three situations, ie, the employee leaving of her own volition after giving notice to leave, the employee leaving because she has been given notice to terminate her employment, or the employee being dismissed for misconduct. In this case the word "dismissed" is used, as it increasingly is in employment law, to include termination by notice given by the employer, without any misconduct.
b) In construing the rules, it is important to bear in mind an employee's right to a benefit under a contributory pension scheme. In Parry v Cleaver (1970) AC 1, Lord Reid said at l6 C:
"It is generally recognised that pensionable employment is more valuable to a man than the mere amount of his weekly wage. It is more valuable because by reason of the terms of his employment money is being regularly set aside to swell his ultimate pension rights whether on retirement or disablement. His earnings are greater than his weekly wage. (Where the wage is £20 with total contributions to the pension fund of £4 per week) his employer is willing to pay £24 per week to obtain his services, and it seems to me that he ought to be regarded as having earned that sum per week. The products of the sums paid into the pension fund are in fact delayed remuneration for his current work. That is why pensions are regarded as earned income."
In the Imperial Group Pension Trust case, immediately before the passage to which I have already referred the Vice-Chancellor said at page 597 D:
"As the Court of Appeal have pointed out in Mihlenstedt v Barclays Bank International Ltd (1989) IRLR 522 a pension scheme is quite different. Pension benefits are part of the consideration which an employee receives in return for the rendering of his services. In many cases, including the present, membership of the pension scheme is a requirement of employment. In contributory schemes, such as this, the employee is himself bound to pay his or her contributions. Beneficiaries of the scheme, the members, far from being volunteers have given valuable consideration. The Company employer is not conferring a bounty. In my judgment, the scheme is established against the background of such employment and falls to be interpreted against that background."
c) The third preliminary point is the extent to which the wording of previous editions of the Pension Fund Rules, and of the advice given by the Superannuation Funds' Office, are admissible as aids to the construction of the present rules.
I have noted that the Trust Deed is expressly said to be supplemental to various earlier Deeds, starting with that dated l April l955 and including one dated l5 May l962. There are in evidence the Pension Fund Rules under those two earlier Deeds. In each case the rule which is the equivalent of Rule l9 in the present rules (Rule 13 in l955, Rule l6 in l962) refers to a person:
"who shall retire from the service of the Society before attaining pensionable age on account of permanent ill health, mental infirmity or permanent incapacity ..."
being entitled to a pension out of the Fund. In my judgment that is clearly a relevant consideration to be taken into account in interpreting the present rules, but it is only an aid to construction if the normal meaning of the present rules is not clear.
As to the SFO guidance contained in the document IR 12 which is in evidence, I have considerable doubts whether this is admissible as an aid to construction. However, even if admissible, I do not derive any great assistance from it. The document contains in paragraph 10.6 a definition which reads:
"Incapacity means physical or mental deterioration which is bad enough to prevent the individual from following his normal employment, or which seriously impairs his earning capacity. It does not mean simply a decline in energy or ability."
This is no doubt sound as far as it goes, but it seems to me to leave unanswered the very questions with which we are confronted in the present case.
Previous decisions
We have been referred to various decisions of the courts in claims by Plaintiffs to be entitled to pensions on the ground of incapacity. In none of the cases was the wording of the relevant rule of the pension scheme identical with that of Rule l9 here in this scheme. There are three decisions to which it is necessary to refer.
In Brooks v National Westminster Bank Ltd, unreported, a decision of the Court of Appeal given on 8 November l983, the Plaintiff suffered an injury which prevented him from doing his job as assistant engineer at a school. After about nine months, his employers gave him notice to terminate his employment, ie, dismissed him in similar circumstances to Mrs Harris. After a time he obtain another job as a school caretaker elsewhere. He claimed to be entitled to a pension on the ground of incapacity under a clause which provided such a pension on "retirement ... before normal retirement age due to incapacity arising from ill health or injury." As here, it was agreed that as an alternative he was entitled to a deferred pension. This Court held that retirement and dismissal were two separate concepts, and that in the clause under consideration the word "retirement" was used in the intransitive (or active) sense.
Giving the principal judgment, Lawton LJ quoted with approval the judgment of Dillon J in the court below where he said:
"What happened to him, as is put in his own pleading, is that he was dismissed from his employment. It seems to me that retirement and dismissal are two separate concepts. A man may be induced to retire, put under pressure to retire, or even compelled to retire but the retirement remains his own act and not the employer's act and, as Mr Brooks was beyond any doubt dismissed albeit dismissed honourably and through no fault of his own, he did not retire. His case, therefore, in the context of this scheme falls within Rule 25."
That was the rule under which Mr Brooks was entitled to a deferred pension on leaving the service of the employers because he was "dismissed honourably".
Mihlenstedt v Barclays Bank International Ltd (1989) IRLR 522 was another decision of this court. In that case the pension scheme was non-contributory. The relevant clause so far as was relevant read:
"Early retirement due to ill health will be permitted only when ... the member is unable by reason of physical or mental incapacity or infirmity to undertake any duties ... and is likely permanently to remain so unable ...."
The Plaintiff had been dismissed on notice.
Giving the first judgment, Nourse LJ with whom Nicholls LJ agreed, concluded that the phrase "to undertake any duties" meant to undertake any duties as an employee of the bank. The court decided that on the medical evidence, the Plaintiff was not incapacitated to the extent of being likely permanently to remain unable to undertake any such duties.
The case therefore turns upon the particular wording of the rule, and on its own facts. Nourse LJ's conclusion as to the meaning of the phrase "to undertake any duties" was strictly unnecessary to his conclusion on the appeal, since there was no suggestion that the Plaintiff in that case might be unable to undertake duties with the bank but able to undertake similar duties with another employer.
Dorrell v May & Baker Ltd (unreported) was a decision of Mr Julian Jeffs QC sitting as a Deputy High Court Judge on ll May l990. The Plaintiff, who had worked for the Defendants as a fireman for about l4 years, started to suffer from menieres disease which resulted in vertigo. He therefore had to cease working as a fireman, and there was no prospect that he would be able to resume that occupation in future. It was hoped that he would be able to do some other work, but no other suitable job was available to him with his employers. His employment was therefore terminated by notice.
The wording of the clause in the pensions' scheme entitling him to a pension on account of incapacity was very similar to that of Rule l9 in the present case. The Deputy Judge held, following Brooks and National Westminster Bank, that the fact that the Plaintiff had been dismissed by his employers meant inevitably that he had not retired.
Conclusion
In my judgment the task for the court is to construe the phrase in Rule l9 "retirement from the service by reason of incapacity" as a whole, in its context in that rule and in the remainder of the rules. In seeking to construe the words "retirement" and "incapacity" separately, I believe that the learned Judge was mistaken. On the contrary, construing the phrase as a whole, the words "retirement" and "incapacity" qualify each other. In this appeal, both Counsel have expressly agreed these propositions. At this point, however, their joint agreement ceases.
The primary object of the Pension Fund Scheme is to provide for a pension for an employee of the Society who has worked for the Society until normal pension age. The pension he receives, and to which his widow or dependants are entitled after his death, is in part his reward for working for the Society for 40 years or so, and in part the result of his and the Society's contributions which were in a sense as explained by Lord Reid a part of his reward for his services.
The rules which provide for the payment of pensions on early retirement, whether that comes about at the wish of the employee or on the direction of the employer, in each case within a few years of normal pension age, are but variants on the normal theme.
However, the Pension Fund is in part an insurance scheme. Thus when an employee, having made contributions to the scheme, leaves the employment of the employer for whatever reason long before he reaches normal pension age, it would be unfair if he were not at least able to obtain some benefit from the contributions to the fund he and the employers have made up to the date of his leaving. This is dealt with by Rule l8 which provides for a deferred pension.
So far the scheme as it seems to me is coherent. What then of Rule l9 which provides for a pension on the "retirement from service of a member ... by reason of incapacity ..."? If an employee has the misfortune to suffer from some condition which renders him incapable of working in his job for the Society for a temporary period, longer than the time for which they are willing to pay his salary, but is likely to be able to work again in that or a similar job at some time in the future, it would in my view be straining language to describe the termination of his employment as "retirement from the service ... by reason of incapacity". In its context in the whole body of the rules, it is to my mind clear that Rule l9 is intended to relate to incapacity which is a condition which is likely to endure at least until the normal date of retirement, ie, until normal pension age within the rules. Thus in order to be entitled to a pension under Rule l9, the employee must be able to show that, on the balance of probability, his incapacity is likely to last at least until that date. Moreover, if the question arises, it is my view that the incapacity must be one which affects both his ability to work for the Society and for any other similar employer. So far as I am aware, this is a question which has not arisen in any of the other reported cases, but it seems to me that no other answer could come within the general scheme of the rules.
I can discern no practical difference between incapacity which is likely to last until normal pension age and incapacity which is described as "permanent". I cannot think that in any of the cases in which this matter has been discussed, it has been suggested that the employee might be able to resume work after normal pension age.
Thus although I have said that in my view the Judge was wrong to construe the words "retirement" and "incapacity" separately, I nevertheless conclude that, using somewhat different phraseology from mine, he reached a correct conclusion on the likely duration of incapacity for the purposes of Rule l9. I would therefore answer the first part of the question posed to us as follows.
The proper construction, in Rule l9, of "retirement from the service by reason of incapacity" is that the member has left the Society's service at some date before reaching normal pension age by reason of some physical or mental disability or ill health so serious that, at the time she leaves the service, it is probable that she will be unable by reason of the disability to follow her present or similar employment, with the Society or any other employer, during any part of the period until she reaches normal pension age.
The second part of the question asked of us is where the Society terminates the contract of employment by giving notice, can this constitute "retirement" within Rule l9? The Judge concluded that, in its context in the rules, the word "retirement" should be construed only in an intransitive sense, and this in effect answered this questioon, "No".
Just as in my view the concept of retirement qualifies the concept of incapacity and thus leads to the construction I have already adopted, so "incapacity" must qualify "retirement". Unaffected by authority, I would conclude that if an employee before reaching normal pension age is incapacitated from following her employment by a physical or mental disability or ill health which renders it improbable that she will be able to follow her present or similar employment during any part of the period until she reaches normal pension age, and if as a result her employment with the Society comes to an end, it matters not how the employment is terminated. In my judgment, whether she gives notice of her intention to leave or the Society gives notice dismissing her, the termination can still properly be described as "retirement from the Service by reason of incapacity."
Are we prevented from reaching that conclusion by the decision of this court in Brooks v National Westminster Bank Ltd.? There is no doubt that in many respects the facts of that case are similar to those of the present case. There is, however, this critical difference. In Brooks, the Pension Fund Rules contained an express clause, no. 25, which provided for a deferred pension after an honourable dismissal. The reasoning of Dillon J, which this court adopted, was in effect that the Plaintiff in that case was entitled to the rights provided by clause 25 of the Scheme; that this clause was clearly an alternative to Rule 22, the "retirement due to incapacity" clause; that the Plaintiff could not be entitled to rights under two clauses of the scheme as alternatives; and that, as he clearly was entitled to the benefits under Rule 25, he could not be entitled to a pension as a result of disability under clause 22 of that scheme.
The scheme in the present case, though similar in many respects, differs from the National Westminster Bank scheme under which Mr Brooks claimed in this important respect. Rule l8 of the National & Provincial Pension Fund provides:
"In the event of a member leaving the service ... without any other benefit becoming payable to him out of the fund ...".
Thus the question to be asked is, does benefit become payable to her under any other provision of the fund? If so, Rule l8 does not apply. This is the very reverse of the process adopted in Brooks, where the court held that as Rule 25 did apply, he was not entitled to an incapacity pension under Rule 22.
I have already said that in my judgment, if Mrs Harris was dismissed from the Society's service by reason of her incapacity, this would constitute "retirement by reason of incapacity" as I have defined that phrase. If this were the case, Mrs Harris would be entitled to a pension under Rule l9, and thus would expressly not be entitled to any benefit under Rule l8.
Because in Brooks v National Westminster Bank the Court was answering a different question in a different context, the decision is not in my view conclusive in the present case. I would therefore answer the second question by saying that, if a member of the Pension Fund scheme leaves the Society's service by reason of incapacity, in circumstances in which it is the Society which has dismissed her rather than her giving notice that she is leaving, this can nevertheless constitute "retirement from the service by reason of incapacity".
LORD JUSTICE EVANS: I agree.
LORD JUSTICE WAITE: I also agree.
Order:Appeal will be stood out, to be restored before the same constitution for further order or directions, as appropriate, on either 20 or 21 December.
