Seifert v Pensions Ombudsman 2

United Kingdom

Reference: (1996) OPLR 231, (1997) OPLR 395

Mr Kural was an employee of Seifert Limited and a member of the Seifert Pension Scheme. In December 1991 Mr Kural was given notice that his employment was to be terminated on 8 June 1992. In February 1992 Guardian Assurance, the insurer of the scheme, provided a quotation to Mr Kural offering either an annual pension of GBP 17,327 or a tax-free lump sum payment of GBP 29,240 together with a pension of GBP 14,676. This quote stated that the company would be required to make a further contribution of GBP 75,300 to fund this entitlement. It was clear that Seifert Limited was in no position to make such a contribution. In May 1992 Guardian Assurance informed the trustees that the scheme was underfunded and as a result it could only provide 63 per cent of Mr Kural's pension entitlement. The trustees informed Mr Kural of this fact.

Subsequently the scheme went into winding up and on 8 July 1992 Seifert Limited went into administrative receivership. An independent trustee was appointed and a valuation of the scheme as at October 1992 revealed that the assets would only cover 83 per cent of the scheme liabilities. Under the scheme rules, existing pensioners received priority where there was a deficiency in the scheme assets. As Mr Kural's pension had not yet commenced, he was not a pensioner for these purposes and received no priority.

Mr Kural made a complaint of maladministration on the part of Guardian Assurance. The essence of this complaint was that in June 1992 he had been offered merely 63 per cent of his entitlement when the later valuation indicated that there were sufficient assets to cover 83 per cent of his entitlement. His complaint was later extended to include claims of maladministration against the trustees and the company. In a subsequent letter, Mr Kural made a number of further complaints including serious allegations about the conduct of the trustees. Neither this letter, nor the nature of these complaints was communicated to the trustees or to the company. The Ombudsman's provisional determination upheld Mr Kural's claims against the company and the trustees but not against Guardian Assurance. The trustees and the company made representations following the provisional determination. However, the final determination was substantially in the same form.~

The Ombudsman held that the company had unreasonably denied the benefits promised to Mr Kural. In addition, the trustees were responsible for providing those benefits where promised. He ordered that the trustees commence payment of Mr Kural's benefit based on the February 1992 enhanced quotation. Benefits under the scheme of the two former trustees (who were also members) were to be reduced in order to provide the funds to meet Mr Kural's entitlement. In addition, he ordered the trustees to personally pay a total of GBP 1,500 compensation to Mr Kural for distress and inconvenience.

Both the Ombudsman and Mr Kural appealed. The Ombudsman accepted that his office was at fault in not informing Seifert Limited about the exact nature of the complaint. He also accepted that, following Wild -v- Smith, his direction against the pension funds of the former trustees could not be allowed to stand. Other than this, his appeal was allowed and the remainder of his determination was reinstated.

Staughton LJ, giving the Court's judgment on 31 July 1997, stated that Mr Kural had requested that the Ombudsman direct that he receive 100 per cent of his pension. This aspect of the complaint had substance and the Ombudsman was entitled to make such a direction. Had Mr Kural been treated correctly he would have been a pensioner before the company went into receivership. He would therefore have been higher up in the priority list on winding up. The company and the trustees had the opportunity to make representations on this point in between the provisional and the final determinations. They chose not to do so. Whilst there was some degree of obscurity in the determination, it was not to any relevant extent in relation to this ground of complaint.

Lightman J set aside the Ombudsman's determination in its entirety. He held that the failure to disclose Mr Kural's further letter rendered the determination fundamentally flawed. The Ombudsman must comply with both the statutory procedures contained in PSA 1993, s149 and with the principles of natural justice. Finding against the trustees did not reflect the original complaint made by Mr Kural. In addition, the relief granted - namely providing Mr Kural with 100 per cent of his pension entitlement - was not in fact claimed. The most Mr Kural could have been entitled to was his fair share of the assets of the scheme. In addition, in ordering the trustees to personally pay compensation for distress and inconvenience, the Ombudsman had ignored the effect of the exoneration clause in the scheme trust deed. The judge held that this clause should be construed as extending to cover former trustees. Given that there was no suggestion that they were guilty of wilful default, the interests of those trustees as beneficiaries under the scheme should not be postponed in favour of Mr Kural's benefits. Whilst the Ombudsman may have jurisdiction to award compensation for maladministration, this must not be exercised so as to create a new injustice at the expense of other beneficiaries under the scheme.

The judge also held that the Ombudsman had misdirected himself in law by treating the two trustees who were beneficiaries under the fund in a different manner to the third trustee who was not a beneficiary.

Lightman J held that the Ombudsman must give clear and unambiguous reasons for his decisions. This determination was held to fall well below the required standard.