Recent developments in the Ombudsman's jurisdiction - detailed analysis 2

This article considers the impact on the Ombudsman's jurisdiction of the Child Support, Social Security and Pensions Act 2000 (the Act) and the recent judgments in and.

The Act

Section 53 of the Act came into force on 1 December 2000. By the new provisions which it inserts into the Pension Schemes Act 1993 (s146(1)(e) and s146(1A)(c)), a dispute between trustees of the same scheme can be brought to the Ombudsman by at least half of the trustees.

This reform can be traced back to the Report of the Pension Law Review Committee (Recommendation 150). This change was not enacted in the Pensions Act 1995 and so this part of the Act can be seen as something of a catching up exercise.

The Explanatory Notes to the Act say at para 571 that:

"This will include "friendly" disputes where the trustees are seeking a direction as to how they should act."

So the policy intention seems to be that disputes can be engineered in order to get an answer to a difficult (or even not so difficult) question facing the trustees.

The first point to note is that the power to bring a dispute lies with a half or more of the trustees. It is not linked in any way to voting structures in the particular trustee body. So, for example, the management trustees in a scheme might hold the voting power under the scheme's trustee arrangements e.g. by a casting vote, but not form a numerical majority. In these circumstances the member trustees could take any points they are concerned about to the Ombudsman or at least threaten to do so (perhaps as part of their negotiating strategy).

What happens where at least half of the trustees brings a dispute but during the investigation there are changes in the trustee body? Through deaths and retirements the group could become the minority. Can the Ombudsman continue to investigate the case and make binding directions?

The requirement for there to be a "dispute ... between different trustees" does not appear to be as wide as the Court's power (see Ord 85) to give directions to the trustees. Trustees might not be in dispute about the construction of a particular scheme rule but they can still ask the court to clear up the point. A "dispute" suggests an actual disagreement between the parties. Does one group of trustees have to genuinely hold an opposing view to the other group? Or will whatever they say they believe be taken at face value by the Ombudsman? If this were the case it would seem quite odd; parties to litigation should not be expected to take false positions and thus deliberately mislead the adjudicator. Take the following example:

• the trustees are all active members
• they want to spend the surplus on the active members (because pensioners and deferreds had benefit improvements 3 years ago)
• they are worried about an attack from a pensioner on similar grounds to the complainant in
• to be on the safe side, half of the trustees apply to the Ombudsman, saying they wish to spend the surplus on the active members alone but the other half are economical with the truth and say they want to spend some on pensioners and deferreds as well.

Can the deceitful trustees safely act like this? It would not be perjury because no sworn statement would usually be made (see the Perjury Act 1911), but it does not seem very trustee-like and might even expose the trustees to a costs risk, for example if the scheme ends up footing the legal bill for representative proceedings ordered by the Ombudsman (under the reforms in s54 of the Act dealt with below).

Another slight oddity of the new provision is that s146(1)(e) refers to a 'dispute', rather than a 'dispute of fact or law'. Are there disputes that are not of fact or law? Perhaps a question about the tactics which the trustees should adopt in negotiations with the employer over surplus or on a scheme merger falls into this novel category.

Section 146(1)(f) of the Pensions Schemes Act (introduced by s53 of the Act) now provides that an independent trustee appointed on insolvency (under s22 of the Pensions Act) can bring to the Ombudsman a "dispute" (again not expressly limited to a dispute of fact or law) between itself and the other trustees or former trustees. The explicit reference to former trustees possibly demonstrates some ignorance on the part of the parliamentary draftsman. In [1996] OPLR 129 it was held that in the context of "trustees" as respondents to complaints, the term must also include former trustees. Otherwise a trustee under investigation simply needs to resign to escape the Ombudsman's clutches.

Section 146(1)(g) of the Pension Schemes Act (introduced by s53 of the Act) now provides that a sole trustee can refer "any question relating ... to the carrying out of the functions of that trustee". There is no requirement for any dispute; clearly it is hard for a sole trustee to have a dispute with itself although of course the directors of a corporate trustee may in reality hold opposing views. The scope of this jurisdiction is much more akin to the court's ability to give trustees directions about the administration of the trust. It is a shame that for multi- trustee schemes there has to be a "dispute" to have issues addressed by the Ombudsman. It would have been preferable, and perhaps more in line with policy intention, to allow at least half of the trustees to refer questions about their functions. In appropriate cases it may even be worth a scheme switching from an individual trustees structure to a sole corporate trustee structure to utilise the wider scope of s146(1)(g).

If a question is worth referring to the Ombudsman it probably affects members' interests and so representation orders will need to be made. The same applies to intra-trustee disputes. As Section 54 of the Act is not yet in force, such questions and disputes involving members' interests cannot at the moment be dealt with by the Ombudsman.

In line with the Court of Appeal in [2000] 3 WLR 79, the Ombudsman cannot currently take on a case if it would impact upon parties not consulted in the investigation process. This means that particularly where large classes of individuals are concerned, the Ombudsman must decline jurisdiction because it is impractical for them all to be consulted in the investigation.

To overcome this, s54 of the Act was passed by Parliament. Following a Government press release on 18 March 2003, this provision will not be brought into force for some years (and may never be introduced, or, if it is, in a modified, more workable way). Section 54 would have obliged the Ombudsman to give the following persons an opportunity to comment or make representations to him about the case:

• every person against whom allegations are made
• employers, trustees, managers and administrators of the scheme
• every actual or potential beneficiary of the scheme "whose interests are or may be affected by the matters to which the complaint or dispute relates".

The description of this last category begs the question of what are the "interests" of a beneficiary; does the minor dilution of security of a member's benefits in a final salary scheme affect any such interest? The answer may depend on one's interpretation of the Williamson case discussed below.

Regulations were intended to permit the Ombudsman to appoint a person to represent a group of those who have the same interest in a complaint, for instance, all the pensioner members, and it would then be this appointed person who would make representations on behalf of that group and the group would be bound by the determination.

The regulations would also include provisions to allow the Ombudsman to order that the cost of legal expenses in a particular case can be met from the funds of the scheme.

Williamson
On 23 February 2001, Rimer J decided (relying on ) that the Ombudsman did not have jurisdiction to deal with the case because no members of the scheme affected by the ruling other than Mr Williamson were represented or consulted during the investigation.

The difficulty with Rimer J's approach is that even in cases where the directly affected members all stand to gain, the Ombudsman has no jurisdiction. Did Rimer J have in mind the small potential dilution of security if the fund immediately bore the cost of equalising the benefits? If he did, he fails to mention this consideration in a 32 page judgment. The scheme was in any event backed by a large solvent employer. Apart from theoretical dilution of security, members could not possibly have suffered reduced benefits, as the Ombudsman concluded as follows:

"It has been submitted that some methods of equalisation can lead to some members of the Scheme being adversely affected. It is my opinion that, if a member is so affected, then the Trustee and the Holding Company will have failed to comply properly with the equal treatment rule."

What the Ombudsman was really doing was interpreting the provisions of the scheme; declaring that the scheme contained an overriding statutory requirement to provide equal benefits for men and women. As a consequence, Mr Williamson's benefits should be uplifted to take into account any GMP inequalities if they otherwise would impact on him. The obvious implication of such a direction, whether or not it is expressly stated to bind other members, is that such an overriding statutory provision applied to all members of the scheme, not just Mr Williamson.

There could be no other possible practical conclusion. Take, for example, a scheme which has never equalised pension ages for men and women (65 and 60 respectively) and does not treat men as having a pension age of 60 for pensionable service after 17 May 1990 (Barber). Sections 62(2) and 63(6) of the Pensions Act have the automatic effect of providing that those men should be treated as having a pension age of 60 for post Barber service. If a man complained to the Ombudsman and he directed the trustees to operate the scheme in accordance with the overriding legislation (s62), then following Rimer J's logic the Ombudsman would have no jurisdiction unless all other members were consulted!

The approach taken in may arguably mean that the Ombudsman may not have jurisdiction in more cases than one might have anticipated. Every time more than a few members stand to get better benefits under an Ombudsman ruling, the Rimer approach suggests that the balance of the membership should be represented.

Preston

Claims to the Ombudsman have different time limits to those settled on by the House of Lords in , which was only considering claims to employment tribunals. The Ombudsman has not previously considered himself bound by the case and has instead applied his normal three year statutory time limit to both eligibility to bring a claim and the period in respect of which he directs compensation (see J00132 and H00053).

Therefore claims through the Ombudsman are particularly likely to be made by employees who left the relevant employment more than 6 months ago. The Ombudsman also has power to extend his usual three year limit for lodging claims where in his opinion it was 'reasonable' for a complaint not to be made within that period. Perhaps he might take the view that there has been sufficient publicity about these claims (certainly since some ECJ rulings in 1994) to rule out such extensions unless there are very unusual circumstances.

The three year limit on backdating of benefits which the Ombudsman has applied so far appears to be as incompatible with Community law as the two year limit under the Equal Pay Act which has just been held to be illegal by the House of Lords in . If a two year limit renders Community law rights ineffective then surely three years does too when the alternative is up to 25 years (i.e. back to 1976). Community law rights, according to s2(1) of the European Communities Act 1972 "are without further enactment to be given legal effect ... and be enforced, allowed and followed accordingly". There is an obiter comment by Neuberger J to this effect in (2002).