England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice
		13th November 1998

1. MR. JUSTICE HART: This is an appeal by the University of Nottingham ("the University") against a determination dated 8th July 1998 of the Pensions Ombudsman, whereby the Pensions Ombudsman upheld a complaint by Mr. Eyett ("the Complainant") that the University in its capacity as employer of Mr. Eyett had been guilty of maladministration of the University's pension scheme ("the scheme").
2. Under the rules of the scheme as applied with effect from 1st January 1992, the Complainant was entitled, with the University's consent, to take early retirement on or after reaching the age of 60 with immediate payment of pension unreduced for early payment. His 60th birthday being in July 1994, he inquired in early 1994 of the University as to what his pension entitlement would be if he were to retire on 31st July 1994. In response to that inquiry, he was supplied with a quotation showing what the position would then be, depending on whether or not he took part of the then projected pension as a lump sum. Apart from an AVC element, the calculation of the pension itself was, under the rules of the scheme a relatively straightforward matter. It involved multiplying his length of service (which by 31st July would be 20 years) by 60ths of his "Final Pensionable Salary". As appeared from the explanatory booklet with which he, in common with all other members of the scheme, had been supplied, the latter expression meant the average of the last three - and I quote - "Pensionable Salaries" immediately before the date of retirement. "Pensionable salary" was in turn defined as meaning the basic annual salary at the 1st August in each year. The quotation supplied to the Complainant was therefore calculated by reference to the average of his pensionable salaries for the years commencing 1st August 1991, 1992 and 1993 which had been £14,107, £15,166 and £15,166 respectively, giving an average of £14,813. The quotation with which he was supplied therefore showed his pension, exclusive of the AVC, as £4,937.67. It did not, however, show how that figure had been arrived at.
3. Armed with that information, which was entirely accurate, the Complainant, in April 1994, notified the University of his intention to retire on 31st July 1994. The University consented to that course and the Complainant duly retired as contemplated on 31st July 1994 and received a pension correctly reflecting his entitlement under the scheme.
4. What the Complainant had not realised was that he would have been better off had he sought to defer the date of his retirement to the earliest date after the 31st July 1994 to which the University would have been agreeable, which would in fact have been August 31st. Had he done that, his final pensionable salary would have been calculated by reference to his salary levels at 1st August 1992, 1st August 1993 and 1st August 1994 which, because of a salary increase which was subsequently announced and backdated to 1st April 1994, would have raised his final pensionable salary to £15,354 and his consequent pension to £5,118.
5. The complaint, therefore, was that the University had been at fault in not having alerted him at any stage to the fact that he would be better off in pension terms if he were to make this different choice. It was not disputed that the University would have been perfectly willing for him to make this choice had he indicated it.
6. The short question before the Ombudsman and before this court is whether the University was under any duty to alert him and, if so, whether it had been in breach of that duty. In upholding the complaint, the Ombudsman held that the University had been under a -

"contractual duty which extended to providing him with sufficient information to enable him reasonably to realise that 1st August 1994 rather than 31st July 1994 would have been the most advantageous date on which he should retire and begin drawing his retirement benefits. If the information actually provided was not sufficient for this purpose, reasonable steps would not have been taken within the Scally principle."

7. I interpose that the reference to 1st August appears to have been a slip for the 31st August, since the evidence before the Ombudsman showed that the University would not have been willing for him to retire otherwise than at the end of a calendar month. However, nothing turns on this.
8. The Ombudsman based this holding on the principle laid down in Scally v. Southern Health and Social Services Board [1992] 1 A.C. 294. He went on to hold that the information which was available to the Complainant in the form of the scheme's explanatory booklet was insufficient to discharge the duty. He also held that the fact that the Complainant was himself unaware of the advantages of delaying his proposed date of retirement, coupled with the University's own awareness of those advantages, rendered its failure to alert him to those advantages a breach of its "general duty of good faith", being a duty owed to the Complainant as its employee.
9. Finally he held that even if the University had not breached any contractual duty, its failure to advise or warn the Complainant had not accorded with good practice and was, accordingly, maladministration.
10. Before this court, Mr. Stafford was instructed by the Ombudsman not to seek to uphold his determination either on the basis of the Scally principle or on the ground that there had been conduct which amounted to maladministration while falling short of being a breach of any contractual duty. Given the fact that the Complainant was not himself represented on the appeal, I feel some duty to say whether I think those concessions were rightly made.
11. In my judgment they were. So far as the Scally principle is concerned, the facts of the present case are quite different from those which obtained in Scally. There, the relevant plaintiffs were wholly ignorant of the existence of the valuable right in question and had no means of knowing of its existence unless told of it by their employers. Moreover, I am unable to share the Ombudsman's conclusion that a careful reader of the explanatory booklet which was available to the Complainant would not have been able to deduce from it the consequences, in terms of final pensionable salary, of choosing a date one side or the other of 1st August on which to take early retirement.
12. So far as the finding of maladministration in the absence of any breach of contract is concerned, I need do no more than echo what has already been said on this subject by Carnwath J. in Miller and Anor. v. Stapleton [1996] 2 All E.R. 449 at 463 about the private law context in which this concept must be viewed in relation to pension schemes.
13. I was also referred in this context to the decision of Lightman J. in NHS Pensions Agency v. Beechinor, [1997] O.P.L.R. 99 and to the observations of Nourse L.J. in Mihlenstedt v. Barclays Bank International Ltd. [1989] P.L R. 124 at para.17 of those reports, on the invocation in a contractual context of the notion of legitimate expectations, both of which authorities support the proposition that in a context such as the present the parties' rights and obligations fall to be determined in accordance with established principles of trust and employment law.
14. In the light of those concessions, Mr. Stafford relied solely on the existence of the implied duty of mutual trust and confidence in the employment relationship, in particular as elaborated in the speeches of Lord Nicholls of Birkenhead and Lord Steyn in Mahmud v. BCCI [1998] AC 20.
15. Before examining the principle involved I should make one observation about the facts to which it is here said to apply. There was no finding by the Ombudsman that the University knew that the Complainant was labouring under any misapprehension when he selected his retirement date. The highest it was put by Mr. Stafford in his oral argument (in this respect resiling very properly from a more adventurous proposition put forward in his skeleton argument) was that the University was aware that the Complainant was making a choice which was consistent with his not having understood the advantages to him of making a different choice. There was no suggestion that the University had made any deliberate decision not to alert the Complainant to the possible advantages of his taking a different course of action. The furthest the evidence went was that the University had a blanket policy of not volunteering advice to employees.
16. In Mahmud or, as it is sometimes called Malik v. BCCI, the essential question whether the plaintiffs could prove in the liquidation of BCCI in respect of the damage allegedly suffered by them from their innocent association as employees of a business which had been run dishonestly and corruptly. The House had therefore to consider, inter alia, whether the implied term obliged the employer not so to conduct its business and whether such conduct could amount to a breach of the implied term even though it was not directed at the plaintiffs as employees and even though they remained ignorant of it until after the termination of their contracts of employment.
17. The content and evolution of the implied term were described by Lord Steyn, with whose speech Lords Goff, Mackay and Mustill, agreed in Malik in the following terms at p.45.
18. I will read the whole passage. The applicants -

"... rely on a standardised term implied by law, that is, on a term which is said to be an incident of all contracts of employment: Scally v. Southern Health and Social Services Board [1992] 1 A.C. 294, 307B. Such implied terms operate as default rules. The parties are free to exclude or modify them. But it is common ground that in the present case the particular terms of the contracts of employment of the two applicants could not affect an implied obligation of mutual trust and confidence.

"The employer's primary case is based on a formulation of the implied term that has been applied at first instance and in the Court of Appeal. It imposes reciprocal duties on the employer and employee. Given that this case is concerned with alleged obligations of an employer I will concentrate on its effect on the position of employers. For convenience I will set out the term again. It is expressed to impose an obligation that the employer shall not:

'without reasonable and proper cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee:' see Woods v. W.M. Car Services (Peterborough) Ltd. [1981] I.C.R. 666,670 (Browne-Wilkinson J.), approved in Lewis v. Motorworld Garages Ltd. [1986] I.C.R. 157 and Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd. [1991] 1 W.L.R. 589.'

"A useful anthology of the cases applying this term, or something like it, is given in Sweet & Maxwell's Encyclopedia of Employment Law (looseleaf ed.) vol. 1, para.1.5107, pp.1467-1470. The evolution of the term is a comparatively recent development. The obligation probably has its origin in the general duty of co-operation between contracting parties: Hepple & O'Higgins, Employment Law, 4th ed. (1981), pp.134-135, paras.291-292. The reason for this development is part of the history of the development of employment law in this century. The notion of a 'master and servant' relationship became obsolete. Lord Slynn of Hadley recently noted 'the changes which have taken place in the employer-employee relationship, with far greater duties imposed on the employer than in the past, whether by statute or by judicial decision, to care for the physical, financial and even psychological welfare of the employee:' Spring v. Guardian Assurance Plc. [1995] 2 AC 296, 335B.

A striking illustration of this change is Scally's case [1992] 1 A.C. 294, to which I have already referred, where the House of Lords implied a term that all employees in a certain category had to be notified by an employer of their entitlement to certain benefits. It was the change in legal culture which made possible the evolution of the implied term of trust and confidence.

"There was debate at the hearing about the possible interaction of the implied obligation of confidence and trust with other more specific terms implied by law. It is true that the implied term adds little to the employee's implied obligations to serve his employer loyally and not to act contrary to his employer's interests. The major importance of the implied duty of trust and confidence lies in its impact on the obligations of the employer: Douglas Brodie, 'Recent cases, Commentary, The Heart of the Matter: Mutual Trust and Confidence' (1996) 25 I.L.J. 121. And the implied obligation as formulated is apt to cover the great diversity of situations in which a balance has to be struck between an employer's interest in managing his business as he sees fit and the employee's interest in not being unfairly and improperly exploited.

"The evolution of the implied term of trust and confidence is a fact. It has not yet been endorsed by your Lordships' House. It has proved a workable principle in practice. It has not been the subject of adverse criticism in any decided cases and it has been welcomed in academic writings. I regard the emergence of the implied obligation of mutual trust and confidence as a sound development."

19. He went on to hold, inter alia, that the motives of the employer's conduct were not relevant and that the employee need not be aware of the conduct for a breach of the obligation to have taken place. In doing so he approved, as a classic statement of contractual principles, a passage in the article of Mr. Brodie to which he had already referred to the following effect:

"'In assessing whether there has been a breach, it seems clear that what is significant is the impact of the employer's behaviour on the employee rather than what the employer intended. Moreover, the impact will be assessed objectively.'"

20. Lord Nicholls in his speech, with which Lord Goff and Lord Mackay agreed, also emphasised that the conduct necessary to constitute a breach - and I quote from p.35:

"... must, of course, impinge on the relationship in the sense that, looked at objectively, it is likely to destroy or seriously damage the degree of trust and confidence the employee is reasonably entitled to have in his employer."

21. In addition, he identified, as a key feature in the case before the House, the fact that the conduct complained of consisted in the carrying of a dishonest and corrupt business, and he identified the content of the implied term for those purposes as a "term that the business will not be conducted dishonestly" (see p.42).
22. He did so in order to distinguish the case from that where an employee's future employment chances had been damaged by his association with a business which was run with gross incompetence.
23. Mr. Stafford submitted that in the present case, the University's failure to alert the Complainant to the significance of the date selected by him for retirement was a matter which was likely seriously to damage the degree of trust and confidence the Complainant was reasonably entitled to have in the University as his employer. From the point of view of an employee on the verge of taking early retirement, the maximisation of his pension rights was among the most important features, possibly the most important feature, of the contract at that stage. For the University not to apply its mind to the question whether its employee was or was not making a mistake in making his choice of retirement date showed that it was heedless of the employee's financial interests in a "trust - destroying" (to use Lord Nicholls' phrase) or "trust - damaging" degree.
24. The fact that the University's omission to warn the Complainant was not the result of a deliberate decision was, he submitted, irrelevant if that omission viewed objectively had the significant adverse financial consequences for the Complainant which, as the Ombudsman found, it did.
25. On behalf of the University, Mr. Simmonds submitted that an inadvertent omission by an employer to do something can never amount to a breach of the implied duty. It is true that the decided cases in which breach of the implied term has been established have all involved deliberate conduct by the employer, and most of them have involved situations where the conduct concerned was perceived by the court as being of a sufficiently serious nature to justify the employee in treating the conduct as repudiatory of the contract itself. Moreover, the terms in which the duty has been expressed has consistently been in the negative form of prohibiting conduct calculated or likely to produce the destructive or damaging consequences, rather than as positively enjoining conduct which will avoid such consequences.
26. Nevertheless, I do not think that the principle underlying the implication of the term necessarily excludes the possibility that it may, in appropriate circumstances, have a positive as opposed to a merely negative content, although I recognise that so to hold would involve an extension of the existing law.
27. In the final analysis the question for determination comes down to this: does the implied term include a positive obligation on the employer to warn an employee who is proposing to exercise important rights in connection with his contract of employment that the way in which he is proposing to exercise them may not be financially the most advantageous way in the particular circumstances? Expressed in those terms, it can be seen that the recognition of such a duty has potentially far reaching consequences for the employment relationship. A degree of caution is therefore required.
28. In my judgment, a proper caution requires the court to examine how such a positive obligation would cohere with other default obligations implied by law in the employment context. The answer is "Not well". In the specific area of giving advice to employees in connection with their pension rights, the furthest the courts have gone in recognising such a default obligation appears to have been in Scally itself, where the term implied was a duty to take reasonable steps to bring the existence of a valuable right to the attention of the employee and where the conditions necessary for the implication of the term were said by Lord Bridge at [1992] 1 A.C. 307 to be the following:

"(1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference; (2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit;"

(3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention."

29. It is, as I have said, rightly conceded that Scally provides no support for the Complainant. He undoubtedly knew of the existence of his early retirement rights. He was also able, pace the Ombudsman, to have worked out for himself how best to available himself of those rights by carefully studying the information set out in the explanatory booklet. There is no suggestion that he ever asked for advice as to whether the choice he was making was a suitable one, nor, as
30. I have already indicated, was there any finding that the University knew that he was making a decision under the influence of any mistake.
31. The fact that Scally provides no support for the Complainant's contention in my judgment tends to subvert, rather than assist, the proposition that the implied term of mutual trust and confidence includes within it a positive obligation to give advice of the kind which is now asserted. In addition, the authorities on the duties of pension fund trustees, who may be subject to a similar implied term, to give advice to beneficiaries do not encourage the idea that the term imposes any such obligation on them. See, for example, the judgment of Carnwarth J. in Miller v. Stapleton [1996]
32. 2 All E.R. 449, 463.
33. In my judgment, the authorities neither compel nor indeed justify me in holding that the University was in breach of contract in failing to alert the Complainant to the possibility that he was making a financial mistake in seeking the University's permission for him to cease service on the first available date following his 60th birthday. I reach that conclusion with some, but not much, regret. The mistake made by the Complainant could easily have been avoided had the University had a standardised procedure for warning employees contemplating retirement of the particular significance of choosing a retirement date one side or the other of the 1st August in any particular year. On the other hand, had the Complainant continued in employment for the additional month, he would have enjoyed at least two financial advantages which must have been manifest to him but which he was plainly deciding were not worth the candle of a month's additional service. The most obvious of these was his enjoyment during that month of his salary (about £1,263 before tax at the old 1993 rate) as opposed to his pension, about £411 before tax, an immediate sacrifice by the Complainant of some £850 or so. In addition, he would have earned another month's pensionable service. He could not for a moment claim that he was unaware of these advantages or of the fact that he was foregoing them. Had it applied its mind to the question (which it did not), the University might in those circumstances be forgiven for having assumed that the Complainant had carefully reckoned the financial consequences of his selected retirement date. The additional pension foregone by the mistake amounted to some £15 per month before tax.
34. For the reasons I have given, the University's appeal will be allowed.