Nicol and Andrew Ltd v Brinkley 2

United Kingdom

Reference: (1996) OPLR 361

The claimants were employed by a company which was purchased by Nicol and Andrew London Limited ("N and A"). As part of that purchase, they transferred their benefits under their old employer's pension scheme into a new scheme set up by N and A. The claimants transferred their benefits into the new scheme on the basis of letters from N and A offering, in effect, to credit them with additional years of pensionable service. N and A was subsequently taken over by Mayday Limited and was replaced as trustee of the scheme. An actuarial valuation at this point showed that there was a deficit of GBP 97,000. One of the reasons for this deficit was that the transfers from the original scheme were calculated on an incorrect basis. The credit periods of pensionable service were based on figures for members' salaries which were far too low. N and A had relied on these incorrect salary figures and believed the transfer payment was sufficient to provide the additional years of pensionable service.

On realising the mistake, the trustees of the N and A scheme attempted to reduce the promised benefits. This lead to Mr Brinkley and the other respondents making their complaints to the Ombudsman.

The Ombudsman determined that N and A, as trustee of the scheme had entered into a binding contract with the complainants who were contractually entitled to the promised benefits. The Ombudsman directed that the trustees should not attempt to reduce these benefits, and that they should pay "from their own personal resources" any legal expenses reasonably incurred by the claimants.

The trustees appealed on three grounds. Firstly, that the mistake made in calculating the promised benefits invalidated the promise made to the members. Secondly, if there was a contract based on that promise, breach of that contract would give rise to a claim for damages which was not within the jurisdiction of the Ombudsman. Thirdly, the trustees argued that the Ombudsman had no jurisdiction to order them to pay a claimant's legal expenses. Sir John Vinelott rejected the appeals. He held that N and A had entered into a binding contract with the complainants in relation to their transferred benefits. It was absurd to suppose that the terms of this contract could now be altered. In addition, the Ombudsman had the power to award compensation for legal expenses incurred by a complainant. It was not necessary to consider whether this award could be against a trustee personally as the Ombudsman stated in court that this direction was intended to be without prejudice to the trustees' right of indemnity under the scheme rules.