England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		2nd May 2007

Mr Justice Lightman:

INTRODUCTION

1. This is an appeal by A F Blakemore & Son Limited ("the Employer") and the Trustees ("the Trustees") of the A F Blakemore & Son Ltd Staff Retirement Benefit Scheme ("the Scheme") against two decisions dated the 3^rd January 2007 ("the Decisions") of the Pensions Ombudsman ("the Ombudsman") on the complaints ("the Complaints") dated the 21^st June and the 20^th October 2001 respectively of two former employees of the Employer and beneficiaries under the Scheme Mr Machin and Mr Browne.
2. Under the terms of the Second Definitive Trust Deed and Rules of the Scheme ("the Deed") executed on the 28^th September 1994, Mr Machin and Mr Browne are entitled to pension benefits upon retirement calculated by reference to their earnings which include for this purpose their bonuses. The Employer and the Trustees however decided that for the reasons which they stated the pension benefits should nonetheless be calculated without reference to their bonuses. Mr Machin and Mr Browne made the Complaints complaining of these decisions as maladministration occasioning them injustice. The critical issue was whether the reasons stated justified the displacement of the terms of the Deed or otherwise precluded the making of the Complaints. The Ombudsman by the Decisions upheld the Complaints. The Employer and the Trustees now appeal to the High Court.
3. An appeal to the High Court only lies on an issue of law. No appeal lies on an issue of fact, but as a matter of the law the court may interfere if the finding of fact contradicts the only true and reasonable findings which could be made on the basis of the primary evidence before the Ombudsman or where the Ombudsman has not set out clearly what his finding of fact is or how he arrived at his conclusion or when he has rejected without adequate reasons plainly credible evidence.

COMPROMISE AGREEMENT

4. The first issue I am asked to determine is a question asked by the Employer and the Trustees of, but unanswered by, the Ombudsman namely whether the Complaints are precluded by compromise agreements entered into between the Employer and Mr Machin and Mr Browne in 1999. These agreements provided as follows:

"4 FULL SETTLEMENT AND COMPROMISE AGREEMENT

4.1 The Employee will accept the Severance Payment and Continuing Benefits in full and final settlement of all his claims if any against the Company and any director officer or employee of the Company arising out of his employment by the Company and the termination of it including without limitation any of the following…"

5. In my judgment by the clause Mr Machin and Mr Browne settled and compromised all claims against the Employer and its officers arising out of their employment and the termination of their employment. The clause cannot possibly affect their rights under the Scheme against the Trustees and in particular their rights to pension benefits upon retirement, whatever they might be. The Employer and the Trustees have referred me to the judgment of Lawrence Collins J in Lewis v. The Pensions Ombudsman [2005] EWHC 103 as authority supporting the opposite construction. The issue in that case was whether a clause in similar terms settled any liability of an employer to make a payment to pension trustees to secure an enhanced pension for an employee. The judge held that it did. That holding is entirely consistent with the view which I have expressed. The clause is effective to extinguish claims against the employer, including claims requiring action be taken by the employer e.g. to supplement the funds of a retirement benefit scheme. But in any ordinary case and in particular in this case it is not effective to extinguish a claim against anyone else even though the claim against that other person may occasion an obligation on the part of the employer to make good the cost of meeting that claim and in particular (as in this case) to fund the added cost to the pension fund.

ORAL VARIATION AGREEMENT

6. The second issue is whether the Ombudsman was entitled to reject as he did the case made by the Employer and the Trustees that pension benefits should be calculated without reference to bonuses by reason of oral agreements reached in 1989 between the Employer and Mr Machin and Mr Browne. The alleged oral agreements were to the effect that as part of a package a greater part of directors' existing remuneration should be paid and received in the form of salary and that the smaller part paid in form of bonuses should not be included as part of their earnings for the purposes of entitlement to pension benefits. It is common ground that: (1) this was part of the case made in correspondence by the Employer and Trustees; (2) this part of their case was supported by witness statements (clearly credible evidence) to this effect; and (3) such a contractual arrangement (if made) overrides the provisions of the Scheme to the contrary: see South West Trains v. Wightman [1998] PLR 113. Both Mr Machin and Mr Browne were legally represented, but neither submitted any witness statements to the contrary. They contented themselves with the making by their solicitors of certain written submissions. The position sensibly and properly taken in the course of the correspondence with the Ombudsman by the Employer and the Trustees was that, if any question arose of not accepting the written evidence of their witnesses, there should be examination of the parties' witness at an oral hearing.
7. The Ombudsman nonetheless in the Decisions took the surprising decision that without affording any such hearing he should reject this ground of defence. The reason given for refusing an oral hearing was that "the issue of whether or not there was an agreement by Blakemore's directors is clear and I deal with it below" (see paragraphs 31 and 26 respectively). One therefore looks in the later parts of the Decisions for the exposition of the reasons why the issue was clear. One looks in vain for any, let alone a clear or satisfactory, explanation. As I have already said, on the evidence before the Ombudsman the evidence was all one way in favour of establishing that the agreement alleged by the Employer and Trustees was indeed made.
8. The Ombudsman's reasoning on this issue is vitiated by a confusion of what was the issue before him. The issue before him was whether the oral agreement was made (and there are passages in the Decisions which recognise this). But the issue which he addressed and on the basis of which the Decisions were made was whether Mr Machin and Mr Browne were aware of an agreement between the Employer and its directors that directors' bonuses were not pensionable and he held that the answer to this question was to be found in the facts that: (1) he had been shown no documentary evidence of any notification to Mr Machin or Mr Browne (a) of any treatment of directors' bonuses; or (b) of any general agreement; and (2) Mr Machin and Mr Browne (by their solicitors) denied that there were any. The real issue was not of the existence of awareness or notification, but of the existence of oral agreements.
9. In a word there was a substantial body of evidence before the Ombudsman in support of the agreement alleged by the Employer and Trustees. There was no evidence to the contrary. The Ombudsman could not properly have held that there was no such agreement, at least without an oral hearing and cross-examination of the witnesses on whose evidence the Employer and Trustees relied. Throughout the Ombudsman appears for no adequate reason to have discounted statements from company personnel which were crucial to the issue of the existence of the agreements (see e.g. his letter dated the 6^th February 2004). He appears to have set out to decide something else which did not require an oral hearing but was not the relevant issue. The Decisions accordingly cannot stand.
10. The Ombudsman must accordingly reconsider whether Mr Machin and Mr Browne sustained injustice by reason of maladministration and for this purpose reconsider the issue of the existence of the oral agreements. I should add in the light of submissions to me that, if Mr Machin and Mr Browne are contractually entitled to have their pension entitlement calculated by reference to their earnings including their bonuses as provided by the Deed and there is no legal or equitable defence to this entitlement, I cannot see how it can be argued that their denial of this entitlement does not constitute maladministration occasioning them injustice.

ESTOPPEL

11. The Ombudsman must when reconsidering that issue at the same time consider the question raised before him but unanswered by him whether Mr Machin and Browne are precluded from making the Complaints by reason of the application of the doctrine of estoppel by convention i.e. that the parties at all times proceeded on the basis that the bonuses were not to be taken into account and that to depart from that agreed course would occasion injustice. But I do not think that there was raised before the Ombudsman, or that there need or should be raised, any question whether Mr Machin should be separately and independently precluded from making his complaint by reason of his role as a trustee in the course of which he was alerted to the need to amend the terms of the Scheme so as expressly to exclude bonuses from the calculation of pension benefits. Such a contention was not clearly or unambiguously made to the Ombudsman. The contention is in substance a contention that Mr Machin should be so precluded because his failure to amend the rules was a breach of trust. I doubt if such a contention can or should be raised by a side-wind in this way: it should surely, if made, be the subject of a separate action for breach of trust. But in any event I do not think that, even if capable of being raised as an answer to Mr Machin's claim in these proceedings, it was sufficiently clearly and unequivocally raised and supported by the necessary supporting material to require determination by the Ombudsman.

DIRECTIONS

12. The Ombudsman should consider giving appropriate directions for any further evidence that the parties may consider should be submitted on the issues requiring determination by him and (paying due regard to his published guidance) the need for a hearing with cross-examination if what is on its face credible evidence adduced by a party is not to be accepted. In view of the startling and disturbing passage of some 5½ years between the dates of the Complaints and the Decisions, justice to the parties requires that the rehearing should be expedited.

COSTS

13. The parties have asked me to decide in this judgment the issue as to the costs of this appeal. Mr Machin and Mr Browne succeeded on the issue whether the terms of the Compromise Agreement barred them from making the Complaints. The Employer and Trustees succeeded on the issue whether the presence of an error of law in the Decisions required there to be a rehearing. Justice requires that no order should be made as to costs of this appeal.