England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
PUMFREY J
[2007] EWHC 438 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		30/01/2008

Lady Justice Arden :

Introduction
1. This is an appeal from the order of Pumfrey J dated 8 March 2007 whereby he allowed the appeal of Mr Phillip Davies against the determination of the pensions ombudsman, Mr David Laverick, dated 14 July 2006. The appellant in this court (which was formerly known as Saint-Gobain Calmar Ltd, and which I will call "the Company") was Mr Davies' former employer. Mr Davies was entitled to benefits under a pension scheme known as the Calmar Plan, having been employed by the Company from before 1983 to the end of 2000 when he was made redundant. The Company appeals from the judge's order principally (it is said) because the judge refused to permit the Company on Mr Davies' appeal to argue that certain aspects of the pensions ombudsman's determination were wrong. An appeal to the High Court from a determination of the pension ombudsman can only be brought on the point of law: see s 151 of the Pension Schemes Act 1993 ("the 1993 Act").
2. One of the complaints which Mr Davies made to the pensions ombudsman was that the Company, as his former employer and as trustee of the Calmar Plan, had attempted to make arbitrary changes to reduce his pension benefit entitlements because his pension was underfunded. At the end of his determination, the pensions ombudsman, having found in Mr Davies' favour, made a number of directions. These included a direction that Mr Davies' pension entitlement under the Calmar Plan be administered effectively as if it were a final salary defined benefit scheme as opposed to a defined contribution scheme for which the Calmar Plan had provided. Under the definitions in the Calmar Plan, the definition, "final salary" meant the greater of remuneration or the yearly average of total emoluments in a designated period of three years prior to retirement. The definition stated that remuneration and total emoluments were that portion of those emoluments assessable under schedule E. The pensions ombudsman went on to hold that this definition should be interpreted as including all of Mr Davies' emoluments that were assessable under schedule E or would have been so assessable if he had continued to be employed in the United Kingdom. He further held that many benefits which Mr Davies enjoyed would not be assessable under schedule E, such as housing allowance, home leave, air fares and so on. Mr Davies appealed to the High Court on that last point alone. The Company accepted that the pensions ombudsman had erred in law in finding that emoluments would not include these matters. The judge allowed the appeal on those matters, and there is no appeal from his decision on this point. However, the Company also sought to challenge various other aspects of the determination without having entered its own notice of appeal or served a notice of cross appeal. The first of the five issues concern the question whether the Company could properly do that, but before I turn to that I must set out the background.
The background
3. I can take the facts so far as material, and the important passages in the pensions ombudsman's determination, from the judge's judgment:

"2. The undisputed facts are as follows. Mr Davies commenced employment with a company called Hartmann Fibre Limited ("Hartmann"), a company associated with a predecessor of the Company, in November 1974. On 1^st March 1977, Mr Davies became a member of the Hartmann Pension Scheme ("the Hartmann Plan"). It seems that Hartmann ceased to be associated with the Company in 1983 and Mr Davies entered into a new service contract with the Company as from 23^rd September 1983. The service agreement, which is dated 27^th January 1984, employs Mr Davies as sales manager, a director and company secretary of the Company. It provides for an aggregate remuneration of £13,872 p.a., together with a minimum bonus of 1/12 of that sum, payable at the Company's discretion. There is no provision in the service agreement for the payment of a pension.

3. On 6^th December 1984, Bain Dawes & Partners Limited ("Bain Dawes") [the Company's pension advisers] wrote to Mr Davies a letter setting out benefit specifications and costings for his retirement benefits and death benefit cover, together with disability cover….The Ombudsman found that "it was [also] agreed between the Company and Mr Davies that a pension fund would be set up for Mr Davies, namely the Calmar Plan…. The pension benefits promised to Mr Davies by the Company were to be secured by the Company investing in an executive pension plan policy issued by an insurance company ("the Provider")". The plan in question was issued by Schroder Life Assurance Limited as provider, and the Declaration of Trust by the Company was executed both by Mr Davies and by Mr Pfannhauser, another director of the Company, some time in early 1985, but was expressed to take effect from 1^st December 1984. The Declaration of Trust was in a printed form provided by Schroder Life Assurance Limited (subsequently Friends Provident Life Assurance Limited) and appears to have been accompanied by a copy of the executive pension plan rules, which were supplied to Mr Davies.

4. I can take the ensuing history directly from the Ombudsman's determination:

"….

7. In 1994, Mr Davies changed positions within the Company and was appointed Managing Director of its Asia-Pacific operation and relocated to Singapore. His letter of appointment, dated 31 August 1994, stated that his pension benefits "will be maintained in (his) new assignment on the same basis as in "his" current position" and that "pension specialists will assist in achieving this objective".

8. ….Mr Perong, Director of Human Resources of Calmar Inc (the Company's parent), told the Adviser, on 14 August 1995 that the Company was not willing to fund Mr Davies' pension otherwise than on the basis that his NRD was at age 65. The Company's position was communicated to Mr Davies by Mr Perong in a memorandum dated 1 September 1995. Mr Davies appears to have accepted, in a fax to Mr Perong dated 2 October 1995, that having an NRD at age 60 was not feasible. In the fax he said:

"In view of the decision that you have passed to me that the cost of funding a pension for me at 2/3 of my earnings at age 60 is not feasible, I would request then that arrangements be put in place so I maintain the option of retirement at 60, as was my option under the Hartmann Scheme, albeit at a lower pension." "

5. The first question that the Ombudsman had to deal with was the legal basis of Mr Davies' pension entitlement. Under the heading "Mr Davies' entitlements", the Ombudsman says this:

"43. When Mr Davies' service contract was renewed in 1984, no mention was made of his pension entitlement. However, it was separately agreed between Mr Davies and the Company (acting through Mr Pfannhauser) that new pension arrangements should be made for Mr Davies so as to provide approximately the same benefits as he had under the Hartmann Plan. Mr Pfannhauser appears to have signalled his consent to the pension scheme proposed by the Adviser in his internal memorandum to Mr Davies dated 11 December 1984. The central provision of that proposed scheme was that Mr Davies would be entitled to 2/3 of final salary with an NRD at 65 years of age.

44. In order to put this pension promise into effect a Declaration of Trust was executed. This document clearly established the Calmar Plan and declared the Company as trustee and administrator, holding the policy that had been secured in accordance with the Calmar Plan Rules. Mr Davies was then given a copy of the Calmar Plan Rules.

45. The effect of these events is that Mr Davies was promised one thing by the Company (and was contractually entitled to be treated in accordance with that promise) but then the Calmar Plan was established providing different benefits. The Company has argued that Mr Davies was only ever entitled to what he had been promised and that the Calmar Plan was simply a way of funding that promise. From Mr Davies' point of view, it was reasonable for Mr Davies to believe that he was entitled to what he had been promised and that the Calmar Plan Rules would reflect that.

46. Given that setup, Mr Davies could not have been expected to realise that the Calmar Plan Rules (which had been given to him) did not govern his pension and that his entitlement stemmed only from the contractual promise by the Company. Furthermore, where the Company had agreed to a change in his pension entitlement under the Calmar Plan Rules, Mr Davies was entitled to believe that this change was effective in respect of his entitlement from the Company (i.e. in respect of the contractual promise too).

Final Salary

47. I am satisfied that the definition of Final Salary that was to apply to Mr Davies was as stated in the Calmar Plan Rules, as contended by Mr Davies. Nothing in the submissions on behalf of the Company leads me to believe that it had been agreed between Mr Davies and the Company that a different definition should apply.

….

49. In respect of the definition of 'total emoluments' under the Calmar Plan Rules, the most natural interpretation is that all of Mr Davies' emoluments that were assessable to Schedule 'E' tax (or would have been had he continued employment in the United Kingdom) are to be taken into account unless specifically excluded. Therefore, items to be excluded are a) those items specified in Mr Davies' letter of appointment dated 31 August 1994 (International Assignment Premium and Cost of Living Adjustment) and b) any elements of Mr Davies' employment package that are not assessable to income tax in the UK under Schedule E. Items such as housing allowance, home leave, airfares etc, would not be assessable in this way, and thus not be eligible for inclusion in the calculation."

6. It is obvious that the Ombudsman is correct in his treatment of the Calmar Plan, in that this was not a defined benefit scheme and was, to put it shortly, a policy which at maturity would give Mr Davies whatever it was worth. The Company accepted before the Ombudsman, as it accepted before me, that it had agreed to pay Mr Davies two-thirds of his final salary with a normal retirement date of 65 years of age, and the findings of paragraph 46 are accordingly crucial. I read this paragraph as quite clearly stating that Mr Davies has a contractual entitlement to a pension of two-thirds of Final Salary, and that the meaning of the words "Final Salary" was that contained within the Rules. There is no appeal against that determination. It is a question of mixed fact and law, and if there had been no evidence capable of supporting it, that would, of course, be an error of law.

7. The cornerstone of Mr Davies' appeal is the finding in paragraph 49 that "all of Mr Davies' emoluments that were assessable to Schedule 'E' tax (or would have been had he continued employment in the United Kingdom) are to be taken into account unless specifically excluded". It was accepted on Mr Davies' behalf that the Ombudsman was correct to exclude those items specified in Mr Davies' letter of appointment dated 31^st August 1994 (see Paragraph 7 of the Determination). It is said that in excluding "items such as housing allowance, home leave, airfares etc" the Ombudsman was wrong, those items falling into charge under Schedule E, had Mr Davies been assessable to income tax in the United Kingdom.

8. … The structure for Mr Davies' pension is summarised by the Ombudsman in paragraph 76 of his Determination in the following terms:

"Given that the Company (as it admits) owes Mr Davies a contractual promise to deliver the pension which it has agreed with him, I do not see that the funding level of the Calmar Plan is particularly relevant. Whether or not the Calmar Plan is adequately funded, the Company still has the obligation to meet its contractual promise to Mr Davies.

9. The direction given by the Ombudsman in paragraph 81 is as follows:

"I direct that Mr Davies' pension entitlement under the Calmar Plan be administered on the following basis:

81.1 The definition of Final Salary be in accordance with that provided under the Calmar Plan Rules;

81.2 Mr Davies' benefits under the Hartmann Plan be taken into account in determining his benefits under the Calmar Plan;

81.3 Mr Davies' SERPS benefits not be taken into account in determining his benefits under the Calmar Plan;

81.4 Mr Davies' NRD be when he attained age 65 years;

81.5 Mr Davies' Pensionable Service be taken as commencing from 1 March 1977;

81.6 Mr Davies is not entitled to a five year guarantee of his pension in payment."

The judge's judgment
4. Having allowed Mr Davies' appeal, the judge went on to deal with the submissions made by Mr Edward Nugee QC, on behalf of the Company:

"11. Mr Nugee QC's approach before me was to submit, first, that the effect of the direction given in paragraph 81 of the Determination is that Mr Davies' pension entitlements are only those produced by the Calmar Plan itself – in other words, the "entitlement from the Company" referred to in paragraph 46 quoted above was of no effect, although he emphasised that the Company had always been willing to pay a pension based on final salary and years of service. This submission I consider to be hopeless, reading the Determination as a whole. Given that there was no appeal by the Company against the substance of the Determination, and that permission to appeal out of time was not sought, it seems to me that Mr Nugee's attack on the function attributed to the definition of "Final Salary" by the Determination – a function which might be seen as diametrically opposed, on one view, to the function which it fulfils in the Rules – is equally not open to him.

12. His next submission was that, on the assumption that Mr Davies' final salary is to be taken as the "Final Salary" defined in the Calmar Rules, Mr Davies was not, in the years immediately before his employment ceased while he was still in Singapore, assessed to Schedule E tax: he did not pay Schedule E tax at all. Accordingly, no portion of the emoluments was assessable to Schedule E tax and there were no total emoluments. The Ombudsman again determined, in the passages in paragraph 49 to which I have referred, that the agreement between Mr Davies and the Company was that the whole provision was to apply as if Mr Davies were employed and paid in the United Kingdom. There is no appeal against this determination. I am certainly not in a position to say that there was no evidence to support the Ombudsman's determination, because I have no idea of the entirety of the documentation which he had seen. It appears to be common ground that the reference to Schedule E is, subject to the Company's submissions, relevant.

13. That brings me to the explicit exclusions contained in the Letter of Appointment dated 31^st August 1994 to which the Ombudsman refers. Two matters referred to by the Ombudsman are explicitly excluded from being taken into account when computing other benefits. These are the International Assignment Premium (a premium of 10% net on top of base salary, payable each year of Mr Davies' assignment in Asia) and a cost of living adjustment, to be determined by an independent administrator. Mr Topham, on behalf of Mr Davies, contends that all the other items of payment set out in the letter of engagement which would fall into charge under Schedule E should, however, be taken into account in computing his Final Salary. These include (i) his transport allowance (Sing $51,120 per annum), (ii) home leave airfares, (iii) cost of storing and insuring furniture in the UK, (iv) life, accident, medical and permanent ill-health insurance premiums, (v) schooling allowance, (vi) club fees and dues, and (vii) housing allowance. Each of these, it is contended, would in principle fall into charge under Schedule E, Class I or Class II tax, although certain adjustments would have to be made. For the Company, it is contended that whether or not housing allowance, home leave airfares, transportation allowance and storage costs are explicitly excluded in the calculation of Mr Davies' pension, as a matter of clear implication from the letter itself they must be excluded. Mr Nugee submits that once the two obvious recurrent payments (International Assignment Premium and Cost of Living Supplement) are excluded, even though both of them are regular payments of a very similar nature to salary, it is plain that the parties cannot have intended that other payments, less regular and more substantial, were to be taken into account. There are a number of ways, I think, of formulating this contention, but they come down to the basic argument that the parties cannot have intended to incorporate into the calculation of pension sums which were essentially paid to compensate Mr Davies for disbursements arising in consequence of his posting to Singapore.

14. Two specific problems arise. First, I have not been told what information was before the Ombudsman in respect of the various payments made to Mr Davies. I do not even know whether he had a car allowance in the UK. If he did, then there is no distinction in principle between what he received in the UK and what he received in Singapore in this respect. Second, this is not a case where general words have been used, and it is sought to cut down general words by reference to a specific genus identifiable as such. I think the letter has only to be examined to show that there is here no genus in any recognisable sense. While I accept entirely the force of the submission that the two matters expressly referred to are undoubtedly "salary-like", that is true also of the cash allowance for transport, the yearly return trip to the United Kingdom, and the housing allowance. The provision relating to housing allowance is particularly interesting, since it was clearly closely negotiated – it is substantially amended in manuscript – and involves an express provision for Mr Davies' paying 15% of his "net base pay" toward the cost of housing provided by the Company. This suggests careful consideration of the individual terms by the parties.

15. It is trite law that the court will not imply words into a contractual document unless it is necessary to do so in order to make the contract work as the parties must have intended it. In Phillips v. BSB [1995] 1 EMLR 472, Sir Thomas Bingham, MR, warned:

"The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong."

16. It is a commonplace that implication of a term can be undertaken only with a proper knowledge of the whole of the relevant factual matrix relating to the agreement in question. I am far from satisfied that I have sufficient information relating to the circumstances in which this agreement was made to enable me confidently to imply any term of the kind that Mr Nugee submits is appropriate. Neither as a matter of construction is it possible to qualify the list in the way that is suggested, nor is it possible, on the material available to me, to imply a term such as that suggested. It follows that Mr Davies' appeal succeeds to the extent indicated."

The issues on this appeal
5. There are five points raised on this appeal:

(1) Did the judge err in law in holding that it was not open to the Company to argue certain points because the Company had not appealed against the substance of the determination? I refer to this as "the preliminary issue on appealability". The judge dealt with this issue in [12] and [13] of his judgment.

(2) Did the judge err in law in holding that the direction by the pensions ombudsman related not only to Mr Davies' benefits under the Calmar Plan but also to the further benefits which had been promised to him by the Company? I will call this "the scope of the directions issue". The judge dealt with it in the first two sentences of [11] of his judgment.

(3) Did the judge err in law in rejecting the Company's argument that the definition of Final Salary in the Calmar Plan did not govern the terms of the contractual promise made by the Company to Mr Davies? I will call this "the Final Salary issue". The judge dealt with it in the final sentence of [11] of his judgment.

(4) Did the judge err in law in rejecting the Company's submission that no benefit should be computed by reference to payments taxable under schedule E while Mr Davies was resident outside the United Kingdom and thus not liable to tax under schedule E? I will call this "the schedule E issue". The judge dealt with this in [12] of his judgment.

(5) Did the judge err in law in rejecting the Company's argument that the pensions ombudsman's finding that "housing allowance, home leave, air fares etc" were excluded from the benefit computation under the terms of the appointment letter dated 1 August 1994, could be justified on the basis of an implied term? I will call this "the implied term issue". The judge dealt with it in [13] of his judgment.

Issue (1): Preliminary issue on appealability

Summary

6. The judge ruled that, as the Company had not filed its own notice of appeal, it was not open to it to take the Final Salary issue or the schedule E issue. In my judgment, this ruling was an exercise by the judge of his discretion, and it cannot be impugned on this appeal. I will now summarise my reasons, amplified below, for that conclusion:

i) the Company interpreted the directions given by the pensions ombudsman as applying only to the Calmar Plan and as not applying to the additional pension benefits which the Company had promised to provide. The judge considered this point, and rejected it (J [11]).

ii) there was nothing to prevent an appeal on a point of law against the directions so interpreted.

iii) the situation was not analogous to an appeal by a successful litigant against a finding in the judgment in his favour.

iv) the Company had therefore failed to serve a notice of appeal, and it was bound to do so if it wanted a finding on appeal that its interpretation was correct.

v) having failed to file a notice of appeal in time, the judge had a discretion as to whether to waive that irregularity. The judge effectively waived the irregularity in relation to the point on interpretation, because he dealt with that substantively. He concluded that the point was "hopeless" (J [11]). He also waived the irregularity in relation to the implied term issue.

vi) However, the judge refused to waive irregularity in relation to the Final Salary issue or the schedule E issue. This was a discretionary decision and it cannot be disturbed on appeal to this court unless it was perverse or was animated by an error of principle or an irrelevant consideration.

The statutory framework

7. Before I amplify these reasons, I need to explain the relevant parts of the statutory framework for determinations by the pensions ombudsman. The office of pensions ombudsman was created by s 145 of the 1993 Act. His functions include determining complaints by persons entitled to benefits under a pension scheme about maladministration (see s 146 of the 1993 Act). When he adjudicates on such a complaint, he makes a determination. He may also give directions. His determination and directions are final and binding unless successfully appealed to the High Court on a point of law only. These matters are provided for by ss (1) to (4) of s 151 which provides as follows:

"151 Determinations of the Pensions Ombudsman

(1) Where the Pensions Ombudsman has conducted an investigation under this Part he shall send a written statement of his determination of the complaint or dispute in question—

(a) to the authorised complainant in question; and

(b) to the trustees or managers of the scheme in question;

and any such statement shall contain the reasons for his determination.

(2) Where the Pensions Ombudsman makes a determination under this Part or under any corresponding legislation having effect in Northern Ireland, he may direct the trustees or managers of the scheme concerned to take, or refrain from taking, such steps as he may specify in the statement referred to in subsection (1) or otherwise in writing.

(3) Subject to subsection (4), the determination by the Pensions Ombudsman of a complaint or dispute, and any direction given by him under subsection (2), shall be final and binding on—

(a) the authorised complainant in question;

(b) the trustees or managers of the scheme concerned; and

(c) any person claiming under them respectively.

(4) An appeal on a point of law shall lie to the High Court or, in Scotland, the Court of Session from a determination or direction of the Pensions Ombudsman at the instance of any person falling within paragraphs (a) to (c) of subsection (3). …. "

Amplification of my summary

8. As from December 1984, Mr Davies was entitled to a pension under the Calmar Plan as a result of his service within the United Kingdom. As the background explained above shows, Mr Davies was made a beneficiary of the Calmar Plan some months after he became an employee. The pensions ombudsman's findings were that there were discussions between Mr Davies and a Mr Pfannhauser, on behalf the Company, that he should have approximately the same benefits as he had had under a scheme with his previous employer, an associated company of a predecessor of the Company. As a result of those discussions, he became a beneficiary of the Calmar Plan. The pensions ombudsman took the view that the benefits provided by the Calmar Plan were different from those he had been promised. The pensions ombudsman concluded at [46] of his determination that Mr Davies was entitled to believe in the light of the discussions that had taken place that his pension would not be governed by the Calmar Plan rules. There was a significant restriction on benefits under the Calmar Plan because they restricted benefits to the policy of insurance taken out to secure benefits (i.e. it was a defined contribution scheme). Thus the Calmar Plan rules provided:

"The amount of the pension to which the Member becomes entitled shall be of such amount as shall be secured by the Policy at his Normal Retirement Date or at the date of Retirement as appropriate. The said Pension may be either

(1) of a level amount

(2) subject to the Policy, increase in line with the cost of living at a rate not exceeding 81/2% p.a. compound "

9. This conclusion is unfavourable to the Company. However, it involves a question of fact and is therefore difficult for the Company to challenge. It has opted to challenge the pensions ombudsman's conclusion in [46] of his determination (set out above) obliquely by the second issue on this appeal.
10. The Company's position on this ground of appeal has several strands, each designed to show that it could not have served a notice of appeal if it had wanted to. One of these strands involves drawing a distinction between a determination by the pensions ombudsman and a direction made by him. Mr Michael Furness QC, who appears from the Company, submits that there can only be an appeal against what is comprised in a direction by the pensions ombudsman. It is not possible to appeal against any of the other matters in the determination. He submits, in reliance on Lake v. Lake [1955] P 356, that a person cannot appeal against a ruling that he has won. In that case, the appellant and wife had opposed her husband's petition for divorce on the grounds of her adultery. The court declined to make a decree of divorce, but found that the wife had been guilty of adultery. The wife sought permission to appeal against that finding only to this court, but this court held that the wife could only appeal against a decision against her. But, as Rimer J. pointed out in The Law Debenture Corporation Ltd v O'Malley [1999] IDS Pensions Law Reports 367, s 151(4) confers a right of appeal against both a determination by the pensions ombudsman or any directions made by him. Lightman J came to the same conclusion in Westminster City Council v Haywood [2000] IDS Pensions Law Reports 236.
11. In the present case, the Company has served neither a notice of appeal nor respondent's notice. It accepts that it should have served a respondent's notice, but a respondent's notice would not have assisted it since it did not seek to uphold the directions given by the pensions ombudsman, properly interpreted, but to challenge them. The Company seeks to justify the absence of a notice of appeal by contending, in reliance on the ratio in Lake v. Lake, that it was prevented from serving a notice of appeal by the fact that it was seeking to challenge a mere finding and not an outcome of the complaint heard by the pensions ombudsman. It is, with respect, curious that the Company should seek to rely on Lake v. Lake at all, because the logical consequence is that no appeal lies, just as Mrs Lake had no right of appeal. However that may be, as I have already explained, the ratio in Lake v. Lake does not apply and in any event, no bright line can be drawn between directions and the rest of the determination.
12. Another curious feature of this case is that the Company did not make an application to the judge to file a notice of appeal out of time. This may be because, as was submitted to us, it was thought that the judge could not waive the absence of an originating process of that kind. In my judgment, the absence of a notice of appeal was like any other procedural irregularity, a matter which the judge could have waived if it was appropriate to do so.
13. The judge took the course of disregarding the absence of a notice of appeal when he ruled on the question of the interpretation of the pensions ombudsman's directions. That was a matter which the judge considered that he was able to rule on without prejudice to Mr Davies, and there is no appeal against his decision to deal with those issues substantively.
14. Why then did the judge not also deal substantively with the Final Salary issue and the schedule E issue? He does not give a reason for declining to deal with the Final Salary issue, but the reason is obvious. Mr Davies, who had previously thought that the appeal concerned only the one short issue on home allowance etc on which he had appealed, had only received an intimation that the Company wish to raise these fundamental issues about two clear days before the hearing. He had instructed counsel for the appeal to the High Court, but had appeared in person before the pensions ombudsman. Counsel had therefore no prior knowledge of the background to the Final Salary issue in the schedule E issue and there was a risk that Mr Davies' position would be jeopardised if the Company was able to raise these two issues, because they would involve some knowledge of the matters which had led the pensions ombudsman to conclude that the effect of the communications between Mr Davies and the Company was that he was to have a pension entitlement of two thirds of the Final Salary as defined by the Calmar Plan even though that was not the effect of the Calmar plan itself. The judge indicates that this was his reason in relation to the schedule E issue because he says that he is not in a position to say that there was no evidence to support the pensions ombudsman's ruling (J[11]), thus clearly signalling that it if there was to be a challenge to this point it would involve looking at the material before the pensions ombudsman to see if he was entitled to make the direction which he had made.
15. In any event, the Company has formulated its reason for not filing a notice of appeal on the basis of its own interpretation of the directions. It did not countenance the possibility that it might be wrong. The judge's view was that their approach was "hopeless". His conclusion made it clear that the pensions ombudsman's directions were contrary to the result that the Company had sought to achieve and that, unless the Company successfully appealed from them to the High Court, it would be bound by them. What the Company ought to have done was to serve a notice of appeal, saying that if, contrary to its submission, the directions given by the pensions ombudsman had the effect that all Mr Davies' pension entitlements were subject to the Calmar Plan, that holding contained in error of law (see generally Cie Noga d'Importation et d'Exportation SA v. Australia and New Zealand Banking Group [2003] 1 WLR 307). In fact, the judge dealt with this point substantively and resolved it in Mr Davies' favour. The Company appeals against that ruling, and I will deal with that as issue (2).
16. Likewise, the judge decided to deal substantively with the implied term issue notwithstanding the absence of a notice of appeal. There is no appeal against his having done so, and, now that he has done so, in my judgment, it would be too late for Mr Davies to take the point (which he does not take) that there ought to have been a notice of appeal. Mr Topham, who appears for Mr Davies on this appeal and who appeared for him before the judge, did understandably object before the judge to the Company raising new points on Mr Davies' appeal. The judge must have been satisfied that he would not be prejudiced by his ruling on the scope of the directions issue and the implied term issue.
17. But the judge took the other view on the Final Salary issue and the schedule E issue. Those were discretionary decisions which would be open to review by this court if they were perverse or motivated by the wrong principle, or some the relevant irrelevant consideration. I shall have to consider those matters when I come to those issues.
Issue (2): the scope of the directions issue

Summary

18. In my judgment, the judge was correct to conclude that the directions made by the pensions ombudsman related to the whole of the pension to which Mr Davies was entitled from the Company, and not simply an element of it governed by the Calmar Plan, because the directions must be read as implementing the pensions ombudsman's findings in the earlier part of his determination.

Amplification of the above summary

19. On the face of it, the Company has an attractive argument. The directions in [81] of the pensions ombudsman's determination open with the words:

"I direct that Mr Davies' pension entitlement under the Calmar plan be administered" etc.

20. However tempting it is to conclude from those words that the pensions ombudsman was only seeking to give directions in relation to such part of Mr Davies' pension as is governed by the Calmar Plan, it is necessary to read the direction in the context of the complaint on which the pensions ombudsman was adjudicating and the findings which he made in the parts of the determination leading up to the directions. The dispute included a dispute about whether the Company was arbitrarily limiting Mr Davies' benefits. The pensions ombudsman had come down firmly in Mr Davies' favour, and concluded that he was promised one thing, and given another. There was no dispute about what the Calmar Plan meant and if his directions had been limited to implementing that scheme, they would have been interesting, but of little value. The pensions ombudsman's role was to bring the dispute about maladministration to a conclusion. His directions make no sense unless they have the meaning that the judge, construing them in the context of the determination, gave them. Accordingly, in my judgment, the appeal fails on this point.

Issue (3): the Final Salary issue

Summary

21. The pensions ombudsman concluded that Mr Davies' benefits should be calculated as a fraction of his Final Salary as defined by the Calmar Plan even though that definition was used for a different purpose in the Calmar Plan. The question turns on what was agreed between Mr Davies and the Company about his pension following his posting to Singapore. The question therefore is not a pure question of law, and in my judgment the judge was entitled not to entertain this issue which had not been properly the subject of a notice of appeal.

Introduction

22. It is easier to follow this point with certain provisions from the Calmar Plan rules set out in full:
23. The definition of "Final Salary" is as follows:

""Final Salary" means in relation to a Member the greater of

(i) Remuneration (i.e. basic salary for the year in question, plus the yearly average over three or more consecutive years ending with the expiry of the corresponding basic pay year of any fluctuating emoluments) for any one of the five years preceding the Normal Retirement Date or the date of termination of Service, if earlier (whether by death or retirement or otherwise), with the Employer,

and

(ii) the yearly average of total emoluments for any three or more consecutive years ending not earlier than ten years before Normal Retirement Date or the date of the termination of Service, if earlier (whether by death or retirement or otherwise) with the Employer,

where, for this purpose, Remuneration and total emoluments (i.e. the portion of those emoluments assessable to Schedule 'E' tax) shall be increased when calculating maximum retirement pension and cash benefits, but not maximum cash benefits in isolation. (maximum cash benefits may only be increased proportionately to any increase in maximum retirement pension), to allow for Remuneration or total emoluments arose up to Normal retirement Date or the date of the termination of Service, if earlier, with the Employer. Provided that the member is a 20% Director, Final Salary shall always be defined in accordance with (ii) above."

24. As already explained, the Calmar Plan was a defined contribution scheme rather than a defined benefits scheme because the benefits were limited to those which could be provided by the Policy. In addition, the benefits were limited to those acceptable for revenue purposes. Thus rule 11(a) provided:

"In order that the Plan may be accepted and continue to be recognised that the Commissioners of Inland Revenue as an exempt approved scheme under the 1970 Act the limits set out in Rule 11 must be observed."

The Company's submissions

25. The Company submits that the function of the definition of Final Salary in the Calmar Plan is to limit the maximum amount of benefit that the Calmar Plan could provide without infringing Revenue limits. It only promises to provide such benefits as are secured by a policy of life assurance effected for the purpose of the Plan. Thus, Mr Furness submits that the pensions ombudsman must have misread the Calmar Plan. Moreover, the pensions ombudsman was on the Company's submission wrong to place reliance on what Mr Davies could or could not be expected to realise about the effect of the Calmar plan rules (see [46] of the pensions ombudsman's determination set out above).

Mr Davies' submissions

26. Mr Topham submits that the pension ombudsman's use of Final Salary was a conclusion, which he was entitled to reach because both parties in their discussions had clearly had the Calmar Plan in mind. He submits that the agreement made between the Company and Mr Davies would have to be interpreted in the light of its factual matrix. Neither this court nor the judge had all the material available to the pensions ombudsman which might have constituted admissible evidence of the factual matrix. Mr Topham characterises the determination of the pensions ombudsman's approach as one which is eminently reasonable and he submits that the question of how the benefits were to be calculated was a matter for him as the fact finder. He submits that the issue for this court is whether the pensions ombudsman could sensibly and reasonably reach the conclusion that he did reach, whether his conclusion was such that no reasonable ombudsman could have reached that construction.

Amplification of my conclusion

27. I have already summarised my essential reasoning on this issue. It seems to me that to deal with this issue the pensions ombudsman would have first to have established what communications passed between Mr Davies and Company, and then interpreted them. So the question was not a pure question of law as to the true interpretation of the parties' agreement. I would add that, in respect of any question of interpretation, I would not accept Mr Topham's submission that the question is whether the interpretation reached by the pensions ombudsman is a reasonable one. The question of interpretation is a question of law, and the decision maker must apply the true interpretation and not some good faith or reasonable interpretation. But the issue had not been properly formulated in a notice of appeal, and Mr Davies had not had fair warning of it. In those circumstances, the judge had to consider whether to waive the irregularity arising from the absence of a notice of appeal. In my judgment, there was a risk of prejudice to Mr Davies, because he had not had adequate time to prepare this point. His conclusion cannot be said to be perverse or wrong in principle. Accordingly, in my judgment, the Company's argument on this issue fails.
Issue (4): the schedule E issue

Summary

28. What the Company seeks to do by raising this issue is to ensure that the benefits in kind assessable to tax under schedule E are not brought into the calculation of pension entitlement by increasing the Final Salary by reference to which pension is to be calculated. The Company's case is for understandable reasons that Final Salary should be limited to salary plus bonuses. If Mr Davies had remained in the United Kingdom and subject to the Calmar Plan, schedule E expenses would have been taken into account to increase the Final Salary, but his pension would have been limited to the amount that could be funded by the Policy. An employee goes to work abroad is likely to be provided with significant benefits in kind to offset the additional costs of living abroad. But the consequence of including in total emoluments payments that would be within schedule E if the employee was resident in the United Kingdom is likely to be to add a substantial amount of pensionable salary merely as a result of payments from expenses. Mr Furness submits that it makes no sense to suppose that that consequence could have been intended.
29. The judge held that he was not in a position to say there was no evidence to support the pensions ombudsman's determination. For reasons which I amplify below, I consider that he had a discretion as to whether to permit the schedule E issue to be raised by the Company. He decided not to exercise that discretion in favour of the company, and in my judgment the Company has failed to show that that decision was motivated by an irrelevant consideration or wrong principle or that it was perverse.

The Company's submissions

30. The Company submits that the pensions ombudsman presents his conclusion on this issue as an interpretation of the definition of final salary and that the court can deal with this issue as a matter of interpretation without reference to any facts. Both parties would have been aware that any pension scheme would have to abide by Revenue limits, and Mr Furness relies on certain official practice notes setting out Revenue practice in relation to employees resident outside the United Kingdom. It is said that in practice the Revenue would take no point if the limits were exceeded in the case of a non-resident employee. Mr Furness submits that there is no justification for writing in words to increase the total emoluments by reference to benefits which would have been assessable under schedule E if Mr Davies had been working in the United Kingdom.

Mr Davies' submissions

31. Mr Topham submits that the interpretation of the arrangements has to be viewed against the matrix of the facts. It is Mr Davies' case that he received little or no uplift in his basic salary for the inconvenience of working abroad. But he was to be rewarded generously in terms of benefits. For example, he only had to pay a percentage of salary for his housing in Singapore even if it cost the Company rather more. Not all benefits in kind would fall within schedule E because some might be wholly and exclusively incurred for the purposes of discharging his duties as an employee, such as transport costs when travelling on company business.

Amplification of my conclusions

32. The Company had of course served no notice of appeal raising this point. If it had done so, the question whether this issue was a pure question of law could have been considered. If it was, then it was likely that it could be dealt with on appeal without any prejudice to Mr Davies. However, the general rule is that agreements must be interpreted against the matrix of fact, and in this instance, that would include the question whether the parties agreed on a generous level of expenses as in part a supplement to salary and (to the extent that the expenses were not necessarily incurred for the employer's business) as something that was effectively to be treated as part of salary. If Mr Davies wanted to advance that case, he might be disadvantaged if he did not have proper notice of the issue. The judge had a discretion as to whether to permit the point to be raised despite the irregularity of the absence of a notice of appeal. In all the circumstances, he was entitled to exercise the discretion against the Company.

Issue (5): the implied term issue

33. Before the judge, Mr Edward Nugee QC had raised the question whether the effect of the appointment letter dated 31 August 1994, which formed part of the sequence of communications leading to the agreement between Mr Davies and Company about his pension, led to the conclusion that benefits assessable under schedule E were to be excluded in this case. The point was put on one of two bases: either the limited class rule of construction (the euiusdem generis rule) applied to exclude these benefits or it was an implied term of the arrangements that all such benefits should be excluded. The former basis is not pursued in this court.
34. The Company's submission can only be understood by examining the relevant letter. On 31 August 1994, the Company wrote to Mr Davies setting out the terms of his appointment as general manager/managing director of the Asia-Pacific region. The important point is that the letter contained a specific reference to pension entitlement and also confirmed that two of the benefits mentioned in the letter would not count for pension purposes. The letter contained (among other terms) the following provisions:

"International Assignment Premium

a premium of 10% net on top of your base net salary will be paid to you in each year of your assignment in This year in conjunction with the normal pay periods. Such compensation will not be utilised in computing other benefits, such as pension.

Cost of living

a supplementary cost of living adjustment will be determined by an independent administrator, such as Runzheimer, biannually. Such compensation will not be utilised in computing other benefits, such as pension.

…

Pension

Pension benefits will be maintained in your new assignment on the same basis as your current position. Pensioned specialists will assist in achieving this objective.

…

Housing

the Company will provide you with housing consistent with the standard of housing suitable for an expatriate executive of your status, in the country, under the assumption that you rent out your residence in the UK and that you live in rented accommodation is in the receiving company. You will contribute 15% of your net base pay towards the cost of the housing provided for by the company...

… "

35. The Company submits that, even if the pensions ombudsman was correct about the parties' agreement, this letter supports the conclusion that all non-cash benefits assessable under schedule E should be excluded.

My Conclusions

36. As I put it to Mr Furness in argument, this argument works both ways. The fact that two particular benefits, international assignment premium and cost of living adjustment, were expressly excluded from the calculation of pension benefits does not suggest that all such benefits were to be excluded. On the contrary, it may give rise to the inference that other benefits were to be included. Be that as it may, a term cannot be implied as a matter of law except as a matter of necessary implication in order to make the agreement work. I would agree with the conclusion of the judge that the implied term put forward in this case does not reach the threshold test for an implied term.
Disposition
37. In my judgment this appeal should be dismissed for the reasons given above.

Lord Justice Sedley:

38. I agree.

Lord Justice Buxton:

39. I also agree.