England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
THE HONOURABLE MRS JUSTICE ROSE
CH/2013/02027

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/03/2015

Lord Justice Vos:

1. The issue in this appeal concerns the meaning of the word "resignation" as that term is used in the rules (the "rules") of the Principal Civil Service Pension Scheme ("PCSPS"). It arises out of the transfer of HM Prison Birmingham ("HMPB") on 1^st October 2011 from the public to the private sector to be run by G4S under an outsourcing arrangement. This resulted in the transfer of the employment of the staff at HMPB from the Civil Service to G4S. Whether or not that transfer took place formally under the Transfer of Undertaking (Protection of Employment) Regulations 2006 ("TUPE"), the Cabinet Office's statement of practice dated January 2000 (revised November 2007) made it clear that staff should be protected by TUPE, and that TUPE would be followed, in such circumstances.
2. Ms Annette Ellis, the respondent ("Ms Ellis"), was born on 24^th April 1964 (so is now 50 years old), and became a prison officer on 12^th May 1986 (at the age of 21), at which point she joined the 1972 section (commonly known as the "Classic section") of the PCSPS. This gave her two significant rights. The first was a right to retire at 55 (in her case in 2019) without a reduction in her pension provided that she was then still in service, and the second was a right to double-count each year of service for pension purposes after her first 20 years of service. On 1^st October 1987, these two rights were removed for new prison officers, but not for Ms Ellis, who was in a group described as "pre-Fresh Start officers". In Spring and Summer 2011, in the lead-up to the privatisation of HMPB, staff were offered various pension options. Ms Ellis, who was then under 50, was given 2 options: the first was to preserve her pension within the PCSPS (which she was told entailed being unable to take her preserved pension unreduced until she became 60), and the second was to join a bulk transfer of benefits from the PCSPS to the G4S pension scheme (which would have allowed her to take her preserved pension unreduced when she reached 55).^[1] Ms Ellis chose the former option, apparently because she was concerned at G4S's right as employer to alter the contributions and benefits structure at any time, and because, if HMPB returned to the public sector, she would not have been permitted to rejoin the Classic section of the PCSPS.
3. After 1^st October 2011, Ms Ellis continued working (then for G4S) at HMPB, as I understand she still does today. At some stage thereafter, she was informed by the Cabinet Office (Scheme Management Executive) and the administrators of the PCSPS that it was their view that, under rules 3.11 and 3.12 of the PCSPS, she was only entitled to take her preserved pension when she reached 60. Accordingly, Ms Ellis applied to the Pensions Ombudsman (the "Ombudsman"), complaining that she had wrongly suffered the loss of her reserved right to an unreduced pension from age 55. The Ombudsman's final ruling dated 28^th February 2013 rejected Ms Ellis's complaint and upheld the Cabinet Office's view on the grounds explained in a letter written by the Ombudsman's senior investigator, Mr Stephen Hart, dated 31^st January 2013. His core reasoning was as follows:-

" … The scheme's definition of "resignation" is wider than that word is generally used to mean, as it includes any termination of service before pension age, and what you have referred to as "loss of office".

So you are considered to have "resigned", and the terms which apply to you will be those in rules 3.11 and 3.12. Those rules state that a preserved pension, for an employee who resigns (including a "pre-Fresh Start" prison officer), is payable at 60. It follows that your pension will be reduced if it is taken before that age".

4. Ms Ellis, then acting in person, appealed to Rose J, sitting in the Chancery Division, under section 151(4) of the Pension Schemes Act 1993. Her Appellant's Notice, which she settled without the assistance of lawyers, said that she wished to appeal the Ombudsman's decision that the rules were applicable to a compulsory transfer of employment, and his construction of rule 1.13.
5. Rose J upheld Ms Ellis's appeal, and declared in an order dated 6^th June 2014 that:-

"(a) the compulsory transfer of [Ms Ellis's] employment from the Civil Service to G4S on 1 October 2011 did not constitute her resignation from the Civil Service within the meaning of rule 1.13 of Section II (the 1972 Section) of the Scheme; and

(b) [Ms Ellis] is not therefore to be treated as having resigned for the purposes of rules 3.11 and 3.12 of that section of the Scheme".

6. The Cabinet Office now appeals from Rose J's decision on the basis that she misinterpreted the rules, and that she was wrong to hold, as she did, that the Ombudsman had taken into account an irrelevant consideration, namely the fact that Ms Ellis had been given the option of transferring to the G4S scheme, which would have allowed her to take her preserved pension unreduced when at age 55. In the broadest of outline, Mr Paul Newman QC and Mr Jonathan Davey, counsel for the Cabinet Office submit that the Ombudsman was right for the reasons he gave, and that the definition of "resignation" in rule 1.13 makes it abundantly clear that an employee is taken to have "resigned" whenever her employment in the Civil Service terminates.
7. Before turning to the arguments advanced by the parties, I should set out those rules that seem to me to have a direct bearing on the narrow issue that we have to decide, and also summarise the judge's reasoning.

The relevant rules

8. Rule 1.11 provided that:-

"1.11 'Pension age' means the earliest age at which a civil servant may retire voluntarily with a pension. For prison officers in post on 30 September 1987 the pension age is 55 (see rules 2.26 and 2.27); … and for all other civil servants it is 60. …".

9. Rule 1.13 defined "resignation" in the following terms:-

"1.13 'Resignation' means termination of service or voluntary retirement from the Civil Service before the pension age".

10. Rule 2.26 provided that:-

"'service as a prison officer' means service as a civil servant serving in an institution to which the Prison Act 1952 … applies …".

11. Rule 2.27 provided that:

"2.27 For prison officers with service as a prison officer who were in post on 30 September 1987, the pension age is 55 (but see rule 3.12); ...".

12. Section 3 of section II of the rules was headed "Retirement and death benefits" and has 16 sections dealing with ordinary retirement, partial retirement, retirement on medical grounds, death benefits, termination of pensionable service or resignation or option out of the scheme, dismissal, modification on account of national insurance benefits, downgrading, restructuring leading to a reduction in pensionable earnings, re-employment, staff on approved employment, guaranteed minimum pensions, general option to exchange part of pension for extra lump sum, option to buy out actuarial reduction, calculation of unreduced earned pension, and additional service pension and lump sum. These sections are generally self-explanatory dealing either with specific means by which pensionable service may come to an end or the calculation of particular benefits in these and a range of other situations.
13. Under the heading "[t]ermination of pensionable service or resignation or option out of the scheme", rules 3.10a, 3.11, 3.12, and 3.14 provided as follows:-

"3.10a (i) Where a civil servant aged 50 or over … ceases to be a civil servant and is eligible for a preserved pension and lump sum under rule 3.11, he may opt for that rule not to apply and instead receive immediate payment of the preserved pension and lump sum after actuarial reduction. …

3.11 A civil servant who resigns or opts out of the scheme and who:

a) has two or more years qualifying service; or …

and who does not opt to transfer the whole or, under rule 6.2(iv), part of his accrued pension benefits out of this scheme, will be awarded a preserved pension and lump sum in respect of such part of his accrued pension benefits as is not transferred. Subject to rule 3.12, these will be brought into payment when the civil servant reaches the pension age, and will be calculated in the way described in rule 3.1.

3.12 The preserved pension and lump sum payable under rule 3.11 to a prison officer to whom rule 2.27 applies, excluding such a prison officer who is retired early under rules 2.2 or 3.1 of the Compensation Scheme, ... will be brought into payment at age 60 and will be calculated on the basis of 'uniform accrual' ...

3.14 (i) Subject to paragraphs (ii) to (vi) where a person:

(a) has been awarded a preserved pension and lump sum,

(b) has left the service, and

(c) falls ill before attaining the age of 60

- the pension and lump sum may be brought into immediate payment if it is established that the illness would have led to his retirement on medical grounds had he remained in the Civil Service.

14. Under the heading "[d]ismissal", rule 3.18a provides as follows:-

"3.18a A civil servant who is dismissed will be awarded the same superannuation benefits (if any) to come into payment at the pension age as if he had resigned voluntarily …".

The judge's reasoning

15. The judge gave her reasons for allowing the appeal at paragraphs 20-26 of her judgment. She said that the Ombudsman misconstrued the meaning of the term "resignation" in rule 1.13, when he took the words "termination of service" from the definition and held that those words must mean any termination of service even if that termination did not fall within the commonly used meaning of the term "resignation". She held that that was not a possible construction of the rules. Her main reasons were as follows:-

i) Although terms can be defined to be narrower or broader than their common meaning, there was no indication in the rules that the term "resignation" was intended to cover anything other than the ordinary meaning of a commonly-used word. That ordinary meaning covered a situation where someone decided of their own accord to leave their employment.

ii) The definition in rule 1.13 clarified that where someone took what was colloquially referred to as "early retirement" by leaving work before their pension age, that counted as resignation because the person was really resigning and not retiring, albeit that they did not intend to get another job and intended instead to live on their pension. That was not a significant stretch of the ordinary meaning of the word "resignation" as it was commonly understood.

iii) It would, however, be a very significant stretch to treat someone who was in fact continuing to work full time in her former role but doing so for a new employer because of the transfer of the undertaking as having resigned from her work. No one would regard Ms Ellis as having "resigned" from her post in any normal meaning of that word in the circumstances of this case.

iv) If "resignation" covered any termination of employment, it would be inconsistent with the structure of the rules. Section 3 of section II of the rules dealt with various different ways in which someone ceased to be employed and sets out how the scheme applied in each situation.

v) The heading to rule 3.10 reading "[t]ermination of pensionable service on resignation or option out of the scheme" would be rendered meaningless if "resignation" meant simply "termination of employment", because it would need to be read as saying "[t]ermination of pensionable service on termination of employment or option out of the scheme".

vi) The Ombudsman's construction made it difficult to see the purpose of the other provisions dealing with dismissal, ordinary retirement on medical grounds etc. Those were all ways in which there was a termination in service but they were clearly not intended to be governed by rule 3.10 and were not within the meaning of "resignation".

vii) The Ombudsman took the words in the definition out of context and had given them a meaning which simply did not work when one looked at the rules themselves.

viii) There was nothing to suggest that the definition of "resignation" or the application of rule 3.10 was intended to operate as a sweep-up provision to cover anything which was not otherwise covered in the rules in section 3.

ix) To treat Ms Ellis as having "resigned" from her post so as to reduce her pension entitlement was contrary to the Government's assurance that TUPE principles would be applied in respect of the pension rights of those moving into the private sector in these circumstances, the purpose of which was to ensure that employment continues uninterrupted under the new employer. Given that background to the application of the rules, there was no justification for giving the word "resignation" an expanded meaning.

The Cabinet Office's argument

16. I have already summarised Mr Newman's argument. He sought also to rely on a raft of contentions as to the supposed undesirable consequences of the judge's decision, and on the fact that, if her conclusion were correct, Ms Ellis would fall into a black hole and not be entitled to pension at all under any of the provisions of section 3 of section II of the rules. We discouraged Mr Newman from pursuing these points. In my view, none of them has any bearing on the issue of construction that we have to decide on normal principles.
17. Mr Newman helpfully took us through the relevant parts of the rules, showing us particular provisions that he submitted supported his position. In short, he contended that rules 3.11 and 3.12 had fairly to be read as dealing with both voluntary methods of termination of employment and involuntary ones.

Ms Ellis's argument

18. Ms Ellis was ably represented by Mr Simon Cheetham and Ms Sophie Beesley, both acting on a pro bono basis, before us. They broadly supported the judge's reasoning, submitting that the Ombudsman's construction involved reading the word "any" into the definition of "resignation" so that it read "'resignation' means any termination of service …", whereas what was meant was only a voluntary termination of service.
19. Mr Cheetham's central point was that the opening words of rule 3.11 ("[a] civil servant who resigns or opts out of the scheme") can only cover methods of termination of service or departure from the PCSPS that are initiated by the employee. In short, the words relate to things done "by the employee" not "to the employee". Ms Ellis took no action at all, so she cannot be hoist with the consequences of the increased pension age imposed by rule 3.12.
20. Mr Cheetham accepted that Ms Ellis was not employed by the Civil Service after 1^st October 2011. But he said that the argument that her service had terminated was too simplistic. There was simply a change of label, and the judge was right to say that the transfer did not provide any reason why Ms Ellis should lose her entitlement to retire at age 55 as a pre-Fresh Start employee.
21. Mr Cheetham also accepted that the Cabinet Office's Statement of Practice, which post-dated the rules, was not an admissible aid to construction. But he submitted that it was relevant as it explained how benefits not covered by a transfer under TUPE were to be treated, demonstrating that transfers of undertakings were not in people's minds when the rules were drafted in 1972, so cannot have been intended to be covered by rules 3.11 and 3.12.
22. Finally, Mr Cheetham pointed to the unfairness of applying rules 3.11 and 3.12 to the situation in which an employee is involuntarily transferred to a new employer. It deprives her of the real choice she should have had to decide between keeping her accrued pension in the PCSPS and joining the new employer's scheme. The extension of pension age to 60 might be justified where the employee had done something herself, like deciding to leave her employment or opting out of the scheme, but it was not justified when she had done nothing to bring about the change.

The proper construction of rules 1.13, 3.11 and 3.12 of the rules

23. It is important first to understand the context in which the rules were drafted - as long ago as 1972. At that time, as both parties accepted, it is unlikely that transfers of undertakings from the public to the private sector were much in anyone's mind. What must, however, have been in the draftsman's mind was the possibility that actions would be taken which would result in civil servants leaving the Civil Service both voluntarily and involuntarily. Voluntary methods of departure would include retirement, resignation (as that term is commonly understood), and perhaps moving to other Government employment. Involuntary methods of departure would include dismissal and redundancy. One needs, therefore, I think, to look at the rules for indications as to whether the section headed: "[t]ermination of pensionable service on resignation or option out of the scheme" was intended to be dealing exclusively with voluntary methods of departure, as Ms Ellis contends and the judge held, or both voluntary and involuntary methods, as the Ombudsman decided.
24. The first thing to note is that the governing provision in rule 3.11 is expressed in terms of what the employee alone might do. It refers to "[a] civil servant who resigns or opts out of the scheme". It must be remembered, however, that the rules deal not only with the termination of the employee's employment with the Civil Service, but also with an opting out of the PCSPS whilst an employee remains in the Civil Service. Whilst this aspect will presumably always be voluntary, I am not sure that it can be directly relevant to the question of whether these rules, so far as they affect termination of employment, relate to voluntary and involuntary termination or just voluntary departure.
25. Leaving the wording of the introduction to rule 3.11 to one side, it seems to me that there are clear indications that rules 3.11 and 3.12 are concerned with both voluntary and involuntary departure from the Civil Service. I say that for the following 5 reasons:-

i) First and foremost, the term "resignation" is defined in rule 1.13 as meaning "termination of service or voluntary retirement from the Civil Service before pension age". Had the words "termination of service" been intended to be limited to voluntary termination, it would have been easy to move the word "voluntary" to qualify both "termination of service" and "retirement from the Civil Service before pension age". Moreover, there is, as the judge herself acknowledged, nothing to prevent a draftsman defining a narrow term as having a broad meaning. As Mr Cheetham said, "black" can, if desired, be defined to mean or include "white".

ii) Rule 3.12 is the rule that makes the pension age 60 for those covered by rule 3.11, yet it expressly excludes those who have retired early under the Compensation Scheme, which is the method by which prison staff would have been made redundant. If the draftsman did not think that "resignation" prima facie included both voluntary and involuntary methods of termination, this exclusion would have been unnecessary.

iii) Rule 3.14 allows a preserved pension to be brought into immediate payment if the person suffers an illness that would have led to retirement on medical grounds had they remained in the Civil Service. One of the pre-conditions in rule 3.14 is that the person has "left the service". The formulation is apt to describe either a voluntary or an involuntary departure, providing some indication that the rules under the heading were concerned with both.

iv) Rule 3.10a allows a person, who is eligible for a preserved pension under rule 3.11, to opt for a pension at any time after age 50 (for pre-Fresh Start employees) subject to an actuarial reduction. The words used to describe the termination of the relevant service are, however, instructive. They say that the rule applies "[w]here a civil servant … ceases to be a civil servant". The concept of ceasing to be a civil servant is apt to include those who have left either voluntarily or involuntarily.

v) Under the "dismissal" heading, rule 3.18a provides that a civil servant who is dismissed will be awarded the same benefits "as if he had resigned voluntarily". This formulation provides a pointer to the fact that the draftsman must have thought it possible to "resign" involuntarily; otherwise, the word "voluntarily" would have been superfluous.

26. Standing back from this construction, it seems to me that, even if the definition of "resignation" in rule 1.13 were ambiguous, which I do not think it is, it makes business sense to think that the draftsman would have wanted to make provision somewhere for involuntary departures from Civil Service employment. I accept that transfers of undertakings out of the public sector may have been infrequent in 1972, but that does not mean that the draftsman did not contemplate involuntary departures. He clearly did. There is no reason in the rules to think that he was making provision for what should happen on dismissal or redundancy but not for any other kind of involuntary departure. Whilst section 71 of the Pension Schemes Act 1993 protecting short service benefit had not yet been enacted in 1972, it would be strange if the draftsman had not considered the need to do so in all reasonably conceivable circumstances.
27. I turn then to consider the judge's reasons for taking the alternative view. Her main reason seems to have been that the words "termination of service" in rule 1.13 were "clarified" by the words "or voluntary retirement … before the pension age". Thus, she seems to have thought that the word "or" in rule 1.13 was being used conjunctively rather than disjunctively. Whilst that would theoretically be a possible approach, I do not think there is any warrant for it here. The words "termination of service" are very general indeed, and voluntary retirement before pension age is very far from the only kind of possible termination of service. Much clearer words would, I think, be required to show that "or" was intended to mean "and".
28. The judge placed great emphasis on the normal meaning of "resignation", and on the fact that nobody would regard Ms Ellis as having "resigned" in the normal sense of that word. She was, of course, right. But I do not think the normal meaning of the word "resignation" provides any justification for ignoring the relatively clear words of the extended definition the draftsman has accorded to it.
29. Mr Cheetham did not really suggest that his case was much advanced by the judge's view of the structure of section 3 or of the words of the sub-heading. The fact is that the sub-heading refers to "termination of pensionable service on resignation", and "pensionable service" is defined in rule 1.4 as "service as a civil servant". The sub-heading is, therefore in my view, neutral. As for the structure of section 3, that does not require that particular types of departure are dealt with one sub-section alone. In several cases, multiple sub-sections will apply to any single employee. For example, dismissal has its own sub-heading, yet a dismissed employee is treated as if he had resigned voluntarily, engaging rules 3.11 and 3.12. The fact that voluntary resignation is referred to in rule 3.18a supports the Cabinet Office's case for the reasons I have given, even though Mr Cheetham was able to say that the use of the word "voluntary" in relation to benefits payable under rule 3.11 pointed weakly the other way.
30. For the reasons given above, the Government's Statement of Practice as to the application of TUPE (which itself only came into existence after the rules were drafted in 1972) can have no bearing on the proper construction of the rules. But even if it could, the judge has, I think, somewhat confused the purpose and effect of TUPE. TUPE is and was intended to secure continuity of employment where undertakings are transferred. Regulation 10 of the TUPE Regulations 2006 makes clear that the transfer of employment rights do not include the transfer of accrued pension rights.
31. For these reasons, in my judgment, the Ombudsman was right to construe rules 1.13, 3.11 and 3.12 as he did. Rules 3.11 and 3.12 are applicable to a civil servant whose employment within the Civil Service has been terminated involuntarily, in this case by the transfer of the undertaking to a private sector entity.
32. Finally, I should mention that I do not think that, in construing the rules, the Ombudsman did actually take into account the fact that Ms Ellis had had the option of transferring to the G4S pension scheme, and thereby retaining the right to take an unreduced pension at age 55. Had he done so, however, it would have been an irrelevant consideration to have taken into account in relation to the proper construction of the rules, as the judge indicated.

Disposal

33. In these circumstances, I would allow the appeal and restore the determination of the Ombudsman.
34. I understand that this result will be disappointing for Ms Ellis, who has behaved with perfect propriety throughout. The outcome is wholly unaffected by the fact that she rejected the option of transferring to the G4S pension scheme. The question of construction in this case is a purely legal one, which cannot, as I have tried to emphasise in this judgment, be properly influenced by events long after the rules were drafted.

Lady Justice Rafferty:

35. I agree.

Lord Justice Moore-Bick:

36. I also agree.

Note 1    It is common ground that paragraph 6 of the judge’s judgment erroneously recorded that transfer to the G4S scheme would result in Ms Ellis being entitled to only a reduced pension at age 55.    [Back]