England and Wales High Court (Administrative Court) Decisions

Britannic Asset Management Ltd. & Ors, R (on the application of) v Pensions Ombudsman [2002] EWHC 441 (Admin) (21st March, 2002)

IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		21st March 2002

Mr Justice Lightman:

1. This is an application (made pursuant to permission granted by Elias J) by the claimants Britannic Asset Management Limited (“BAM”), Britannic Unit Linked Assurance Limited (“BULA”) and Britannic Investment Managers Limited (“BIM”), (whom I shall refer together as “the Claimants”) for a declaration that the defendant the Pensions Ombudsman (“the PO”) has no jurisdiction to investigate a complaint of maladministration (“the Complaint”) made against them by a Mr Brian Smith (“the Complainant”), a beneficiary under an occupational pension scheme, namely the Cheney Pension Scheme (“the Scheme”), and an order prohibiting the PO from proceeding with such investigation. The only basis on which the PO can have jurisdiction to conduct such an investigation is if the Claimants were or acted as “administrators” of the Scheme. The issue in this case is the meaning of that term and whether the Claimants were or their acts fulfilled that description.

FACTS

2. BAM, BULA and BIM are all members of the same group of companies. BIM (an investment management company) is a subsidiary of BAM. BULA is an insurance company. The predecessor in title to its insurance business Britannia Life Limited (“BLL”), issued to the trustees of the Scheme (“the Trustees”) two Pensions Fund Managed Policies both of which were unit linked long-term insurance policies (“the Policies”). The first of these policies dated the 28th March 1994 (“the Policy”) is the subject of these proceedings.
3. By Clause 1 of the Policy, in consideration of the investment made by Trustees and accepted by BLL (which is referred to therein as “the Company”) BLL agreed and undertook as follows:

“The Trustees shall be entitled to receive the sums stated to be payable in Schedule 1 upon providing satisfactory evidence to the Company, in such form as the Company may require and as to the sufficiency of which the Company will be the sole arbiter, of the following:-

(i) the occurrence of the event or events on which the proceeds are stated in Schedule 1 to be payable; and

(ii) the validity of title of the person or persons claiming the proceeds payable under this policy.”

4. Schedule 1 (so far as material) provided as follows:

“1. DEFINITIONS

Words and phrases used herein shall bear the meaning assigned to them in the preceding pages and, insofar as not defined, shall be deemed to bear the meanings ascribed to them below as follows:-

BID PRICE means the sale price of each Unit determined in accordance with the formula set out in Condition 7.4 hereof.

FUND means the Pensions Managed Fund or any other fund nominated by the Company for the purpose hereof.

INVESTMENT means the sums paid by the Trustees to the Company for investment in the Fund in accordance with the Trustees’ written directions.

OFFER PRICE means the purchase price of each Unit determined in accordance with the formula set out in Condition 7.4 hereof.

SURRENDER DATE means the date the Company receives written notice at their head office that the Trustees have exercised their right to surrender their Policy, in whole or in part, or the date on which the Company accepts such notice in terms of Condition 9.2, whichever is the later.

...

2. BENEFITS

The Policy is issued as an asset of the Scheme and the Trustees shall hold same and all sums payable thereunder upon trust in conformity with the Deed or Declaration of Trust establishing the Scheme. Except insofar as the Trustees determine to cancel all or part of this contract to reinvest the assets, in another investment, in accordance with the provisions of the Scheme, the Policy proceeds shall be applied in accordance with and payable in such form as may be determined, by the Rules of the Scheme, to provide relevant benefits for the members and their dependants.

Where in accordance with the previous paragraph a benefit is to be provided by the proceeds of this Policy then

(a) if the benefit is payable in lump sum form, under the Scheme, the benefit under this Policy will be payable as a lump sum.

(b) if the benefit is payable as a pension under the Scheme the benefit under this Policy will be payable as an annuity purchased from the Company on its then current terms (or alternatively from another Authorised Insurer).

The sum required to provide the benefit under (a) above or the purchase price of the annuity under (b) above will be realised by cancelling Units under this Policy. Where, however, at the date payment is due to the Trustees, there are contributions to this Policy awaiting investment, the sum required will be deducted first from those contributions and, any balance required, will be realised by cancellation of Units.

For the purposes of this section all sums properly payable by the Trustees out of the resources of the Scheme should be deemed to be benefits payable from the Scheme

...

3. INVESTMENT

The Trustees shall be entitled at any time after the Commencement Date, to apply further sums to the Policy providing such further sums exceed a level specified by the Company.

...

5. APPLICATION OF INVESTMENT

On payment, the Investment, subject to Condition 2 and Condition 6.1, shall be allocated to purchase Units in the Fund.

6. UNITS PURCHASED

... the investment shall be applied in purchasing Units in accordance with the Company’s allocation formula for the time being ...

7. UNIT FUNDS

The Company shall have the power to invest sums credited to the Fund as it shall at its absolute discretion think fit....

The allocation of Units under the Policy is notional only and is solely for the purpose of calculating benefits under policies issued by the Company. The persons entitled to such benefits have no legal or beneficial interest in the Units.

...

8. CORRESPONDENCE OF BENEFITS

The benefits payable under this Policy shall correspond with the liabilities of the Trustees under the Scheme insofar as these liabilities are or are intended to be secured, by this Policy. Any options or provisions in the Policy will be exercised only in such a manner and to the extent permitted by the provisions of the Scheme and in the form and at the time permitted by the provisions of the Scheme.

9. SURRENDER

9.1 The Trustees shall have the right exercisable at any time in writing to surrender the Policy and partly or wholly receive part or all of the surrendered value of the Policy as calculated under Condition 10.

9.2 Notwithstanding Condition 9.1 the Company reserves the right to defer such surrender in whole or in part for a period of up to three months from the date of receipt of notice from the Trustees that they have exercised their right if, in the opinion of the Company, this is in the interest of other policyholders.

10. SURRENDER VALUE

The surrender value of this Policy is equal to the Bid Price of the Units under the Policy less such deduction as the company may determine to cover:-

(i) the expenses of realising assets.

(ii) any current or future liability for a levy under the Policyholders Protection Act 1975.

...

12. ADMINISTRATION SERVICES

If the Trustees require the Company to provide full administration services or partial administration services initial and annual service charges together with a membership charge will be applicable. The amounts of such charges will be as notified to the Trustees, from time to time, by the Company.”

5. By various agreements between BULA and BIM, BULA appointed BIM: (1) to manage BULA’s investments (the value of which will in part determine the surrender values of the Policy); and (2) to provide certain specified administration services to BULA, including the provision of customer services for policyholders, such as producing monthly statements, processing investment and divestment instructions and dealing with customer queries. BAM has had no involvement with the Scheme at all.
6. The Trustees never exercised the option conferred by Schedule 1 Condition 12 to require BULA to provide “full administration services or partial administration services” for an extra charge. (This fact distinguishes the situation in this case from that in Legal & General v. Pensions Ombudsman [2000] 1 WLR 1524 (“L&G”)). Regular statements of the value of the Policy were provided to the Trustees together with information as to how that value was calculated and investment and divestment instructions were processed. These matters were simply a function of the Trustees’ ownership of the policies. The Claimants contend that the only material contact which they had with the Scheme or the Trustees was that which they would have had with any other policyholders. That is put in issue by the PO and will be considered later in this judgment.
7. The Complaint arises out of what appears to have been a substantial fraud practised on the beneficiaries of the Scheme by the (then) Trustees or those acting on their behalf over the period between April and October 2000 in respect of the Policy. Over the period between April to October 2000 divestments from that policy totalling £2,980,165 were requested by or on behalf of the Trustees and duly paid on behalf of BULA by BIM. The (current) Trustees allege that those divestments were tortious and made in breach of trust to the Scheme. The transactions are currently under investigation by (inter alia) the West Midlands Police Major Fraud Unit. The Complaint is that the compliance by the Claimants with the (former) Trustees’ request and consequent payment of the divestments made them accessories to the (former) Trustees’ breach of trust in making the divestments and constituted acts of maladministration by the Claimants as administrators of the Scheme causing injustice to the beneficiaries, including the Complainant. No action has been brought by the Trustees or beneficiaries against the Claimants seeking to hold them liable for the loss to the Scheme as constructive trustees. No doubt recourse to the PO, if available, affords a far easier and cheaper and (as regards costs) a risk free route to recovery.
8. On notification of the receipt by the PO of the Complaint the Claimants submitted to the PO that he had no jurisdiction to entertain the Complaint and proceed with the investigation and invited him pursuant to the Personal and Occupational Pension Schemes (Pensions Ombudsman) (Procedure) Rules 1995 regulation 6(4)(b) to determine the question of jurisdiction as a preliminary issue. By letter dated the 8th August 2001 (“the Letter”) in pursuance of this request the PO determined that he had jurisdiction. The Letter reads as follows:

“... The crux of Mr Smith’s complaint (as I understand it) is that the Britannic group was an accessory to a breach of trust in making disinvestments under the Scheme’s policy; it failed to act in accordance with its own procedures in this regard; and the procedures in place are faulty.

Furthermore he alleged that the Britannic group as ‘fund’ manager failed to have regard to the Scheme’s statement of investment principles in as far as they relate to dis-investment of the assets.

The question of jurisdiction overlaps with the merits of the complaint. Until the complaint is investigated it is not clear which companies are responsible for the acts or omissions complained of; nor is it possible to establish the extent the Britannic group were involved with the statement of investment principles.

However, in my view the implementation by the Britannic group of a trustee’s instruction to dis-invest assets is an act of administration concerned with the Scheme.... ”

9. L&G stands as authority to the effect that by reason of a lacuna in the legislation the Claimants had no right of appeal to the Court against the determination of this preliminary issue and that the only means of challenge lay in an application for judicial review. Accordingly the Claimants challenged the PO’s decision by this application for judicial review.

ISSUES

10. There are two issues raised on this application. The first is whether as a matter of law the Claimants have in any respect acted as administrators. If they have not, the PO can have no jurisdiction to investigate the Complaint. The second is whether, assuming that the Claimants have in any respect acted as administrators, the PO has jurisdiction to investigate a complaint against them though they have not themselves committed any act of maladministration in their role as administrators and whether it is sufficient that the Claimants had a role as administrators when acts of maladministration were committed by others (in this case the former Trustees). These questions are questions of jurisdictional or precedent fact. Unless the Claimants were or acted as administrators, the PO can have no jurisdiction to investigate a complaint against them.

THE PO’S JURISDICTION

11. The office of the PO is a statutory one, first established in 1990 and now governed by Part X (sections 145-152) of the Pension Schemes Act 1993 (“PSA 1993”). References in this judgment to sections are to sections of this Act. The PO’s jurisdiction (found in section 146) has been expanded from time to time but has throughout included a twin jurisdiction, namely to investigate and determine:

a) complaints of maladministration by “authorised complainants” (in effect members and other beneficiaries of pension schemes) against certain specified categories of respondent (see section 146(1)(a)); and

b) disputes of fact and law between an authorised complainant and such respondents which are referred to him by the former (see section 146(1)(c), (1A)(a)).

12. This remains the core jurisdiction, although the PO can now also determine complaints and disputes arising e.g. between employer and trustees, between trustees of two schemes, or between trustees of the same scheme; and questions raised by a sole trustee.
13. The respondents against whom a complainant can bring a complaint (or refer a dispute) are now:

a) the trustees of the scheme (section 146(3)(a));

b) the managers of the scheme (section 146(3)(b),(8));

c) the employer in relation to the scheme (section 146(3)(b)(8));

d) any “administrator” of the scheme (section 146(4), Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1996, SI 1996/2475, reg 1(2), 2(1) (“the 1996 Regulations”)).

14. There is no question of the Claimants being either the trustees or the employer in relation to the Scheme.
15. The term “managers” is not defined. Its meaning was however considered by Dyson J in Century Life v. Pensions Ombudsman (12th May 1995). In that case the judge had to decide whether in case of an insured scheme, where the insurer provided a full range of administrative services, the insurer was a manager of the scheme. He held that he was. He rejected the submission that the phrase “trustees or managers” was a composite phrase that was equivalent to “trustees, or if there are no trustees, managers” and accepted the submission that “manager” was an ordinary English word and means the person in fact running the scheme on a day-to-day basis. There was no evidence in this case that the Claimants were running the scheme on a day-to-day basis, and, though at one stage the PO faintly suggested that that they were managers, wisely he did not persist in this contention.
16. The issue in this case focuses on whether the Claimants were administrators. Regulation 1(2) of the 1996 Regulations defines “administrators” (in relation to an occupational pension scheme) as:

“any person concerned with the administration of the scheme, other than a person responsible for the management of the scheme (as defined in section 146(3) of [PSA 1993] [i.e. trustees or managers or employer]).”

THE ROLE OF THE CLAIMANTS IN RELATION TO THE SCHEME

17. It is clear that BULA (and BIM on its behalf) were not managing Scheme assets but their own assets. The legal relationship between BULA and the Trustees is a contractual one of insurer and assured. When the Trustees invest in the Policy, they are in law paying premiums to the insurer under a contract of insurance. The benefit of the Policy is an asset held by the Trustees on the trusts of the Scheme. Its value is determined by the value of the Units allocated under the Policy and such value in turn depends on the performance of the underlying assets; but the Trustees do not acquire any legal or beneficial interest in the underlying assets: see Schedule 1 Conditions 2, 5, 6, and 7 and in particular 7.2. This is not now in dispute.
18. Under the Policy:

a) the Trustees had a right at any time to invest further sums into the Policy: (see Schedule 1 Condition 3);

b) the Trustees had a right at any time to surrender the Policy either in whole or in part and receive payment of its value in cash: (see Schedule 1 Condition 9.1, 10).

19. In the present case the Trustees exercised their right to make a partial surrender and BULA (acting by BIM on its behalf) paid the partial surrender amounts to their order. It is the Claimants’ acts in complying with the Trustees disinvestment instructions which the PO in the Letter held were acts “of administration concerned with the Scheme”.
20. The Claimants’ acts in complying with the Trustees’ disinvestment instructions may indeed be characterised as “acts of administration” concerned with the Scheme, in the sense that the acts of processing the disinvestment instruction were administrative acts, and the disinvestment, being made at the request of the Trustees of the Scheme, obviously concerned or related to the Scheme. But that is not the relevant question on the issue whether the PO has jurisdiction. That question is whether in so acting the Claimants were “concerned with the administration of the Scheme”. This is a question which focuses on the role of the Claimants in complying with the instructions and what and whose affairs the Claimants were administering. In my view the Claimants are correct when they say that “administering the Scheme” means (in whole or in part) running the Scheme, e.g. inviting employees to join, keeping records of members, communicating with members, calculating benefits, providing benefit statements, paying benefits when due, keeping documentation up to date, dealing with governmental or regulatory agencies (Inland Revenue, DWP, OPRA) etc. In the case of a funded scheme, it will also no doubt involve running the fund, investing and managing the Scheme’s assets. The ultimate responsibility for all these acts will usually lie with the trustees, but: (1) if someone else carries out the day-to-day running on their behalf that person may be a manager; (2) if someone is otherwise involved with an act of administration for the trustees (whether by carrying out such an act or advising on it) that person may be concerned with the administration of the scheme. But the touchstone is whether he is engaged to act, or advise, in or about the trustees’ affairs in running the Scheme. This accords with the decision of the Court of Appeal of Northern Ireland in Ewing v. Arthur Cox (4th February 2000) and most particularly the passage in paragraph 16 of the judgment of Carswell LCJ who (in the course of considering whether the trustee’s solicitor could fall within the jurisdiction of the PO) stated:

“[A solicitor] may be engaged to perform tasks which are connected with the running of the affairs of his principal.”

21. It is of the essence for a person to be or act as an administrator that he shall have assumed an administrative role, (as Mr Nugee for the Claimants aptly puts it) “on the trustees’ side” in the administration of the Scheme’s affairs.
22. In processing the disinvestment, the Claimants were not engaged in anything of the sort. They were simply complying with their contractual obligations under the Policy which reserved to the Trustees the right to disinvest (by surrendering the Policy in whole or in part). The Trustees’ right to do this under Schedule 1 Condition 9.1 was (so far as relevant) unqualified; all that is required for this purpose is a decision or “determination” (see second sentence of Schedule 1 Condition 2) of the Trustees to this effect. So far as the Claimants were concerned, they had no right or obligation to inquire into the propriety of the Trustees’ decision: that would be to impose a quite intolerable burden and is a proposition that finds no support in the terms of the Policy. Clause 1 of the Policy in any event entitled the Claimants to proceed on whatever they in good faith considered sufficient evidence of a proper and binding decision by the Trustees. The position would of course be quite different if they were aware of any impropriety, in which case under the general law they might be held liable for any loss occasioned as constructive trustees. In complying with the Trustees’ instructions, the Claimants were not acting for them or acting on their side: they were acting as the counterparty with whom the Trustees had contracted and were on the other side of the fence, and they were accordingly not acting as administrators of the Scheme.
23. Mr Tidmarsh for the PO in his strenuous and inventive efforts to support the decision of the PO sought to persuade me that the terms of the Policy in this case created a different relationship from that which would normally exist between the Claimants and an investor (where the Claimants would not be concerned in the administration of any scheme) and that the Claimants were so intimately connected with the Scheme that they should be regarded as administrators. He first submitted that Schedule 1 of Condition 9.1 did not confer upon the Trustees an unqualified right to surrender the Policy: a qualification was imposed by Conditions 8 and 2. It is possible for the Trustees to use the Policy to pay out benefits (rather than exercise their right of full or partial surrender). Where this is done, the provisions are to the effect that the benefits have to be in the form set out in the rules of the Scheme, that is to say either in lump sum form (e.g. death benefits or lump sums on retirement) or annuity form (i.e. pensions), and it is necessary that the benefits provided correspond with the benefits under the Scheme. These provisions (as is common ground) form part of the provisions which are essential if the Policy is to be tax effective. The benefits under the Policy must correspond with the benefits under the Scheme if the premiums paid are to be treated as “pension business” and so achieve the result that the income and gain from representing premiums are exempt from direct liability to corporation tax: see sections 431(4) and 438 of the Income and Corporation Taxes Act 1988 as in force when the Policy was issued. Mr Tidmarsh argued that the requirement laid down that the Policy be operated in all respects in strict accordance with the provisions of the Scheme meant that in operating the Policy (whether in paying benefits under it or in paying money as a result of divestment from it) the Claimants were concerned in the administration of the Scheme, that its operation was part and parcel of the administration of the Scheme and that the Claimants were accordingly administrators. The short answer to this is that the two provisions of the Policy referred to impose no duties on the Claimants, and are indeed intended to impose no duties on the Claimants. They are there to remind the Trustees of, and reinforce, the Trustees’ obligations under the Scheme in respect of the Policy, their rights thereunder and the proceeds. They in nowise foist on the Claimants any role or duties to monitor or participate in the administration of the Scheme.
24. Mr Tidmarsh also relied to the same end on the provision in Condition 2 of the Schedule to the effect that the Trustees had the right to surrender in order to reinvest the assets in another investment. But the provision is not framed as, and cannot reasonably be interpreted as, restricting the Claimants’ obligations expressed in unqualified terms in paragraph 9 to pay when the Trustees do surrender.
25. As an alternative basis for establishing the jurisdiction of the PO, Mr Tidmarsh went on to argue that the Claimants assumed the role of administrators and relies for this purpose on certain correspondence between the Claimants and the Trustees shortly after the Pensions Act 1995 (“the 1995 Act”) came into force. The PO accepts that in law the assets underlying the policy were not Scheme assets. It follows that the Claimants were not managing Scheme assets and were not “fund managers” within section 124 of the 1995 Act and did not need to be appointed fund managers under section 47(2) of the 1995 Act. But when the 1995 Act first came into force, the position was not entirely clear. By a letter dated the 14th August 1997 the Claimants asked the Trustees for a copy of the Statement of Investment Principles for review: and stated that, although the position was unclear, it would be better to have a Letter of Appointment; but the letter advised the Trustees to take advice from investment advisors and consultants. No Statement of Investment Principles was ever sent or reviewed. The sending of the letter did not constitute or involve taking on a role of being concerned in the administration of the Scheme. The Claimants did accept a Letter of Appointment from the Trustees out of an abundance of caution and in a letter dated the 19th August 1997 referred to “the assets that we manage on behalf of your scheme”. This Letter of Appointment and correspondence had no effect on the way the Policy or Scheme operated: they had no effect at all.
26. Accordingly none of these acts constitute any assumption of the role of administrators by the Claimants or any act as such administrators. But in any event even if any of them did, there was no question of any maladministration by the Claimants in so acting. It is quite clear upon the true construction of the PSA 1993 and the 1996 Regulations that the PO only has jurisdiction to investigate complaints of maladministration in respect of acts or omissions of trustees, managers, employers or administrators acting as such trustees, managers employers or administrators. The adventitious fact that there is maladministration e.g. (as in this case) by the Trustees and the Claimants were at the time administrators or acting as administrators, cannot vest jurisdiction in the PO in respect of the Claimants. It is not possible to “decouple” (in Mr Tidmarsh’s phrase) the status of administrator of a subject of a complaint (e.g. as administrator) and the maladministration causing injustice and investigate a complaint against an administrator where the only maladministration was by someone else (in this case the former Trustees).
27. Accordingly on both these grounds I reject the alternative basis for jurisdiction put forward by Mr Tidmarsh.

CONCLUSION

28. I am confident on the material before me that there has been put before the Court the full and complete evidence as to the role of the Claimants in the Scheme. There is no real prospect that any further relevant evidence will materialise. On the basis of the evidence before the Court it is clear that the PO has no jurisdiction to investigate the Complaint. The Claimants are therefore entitled to the relief which they claim.