Elliott and another v Pensions Ombudsman and others 2

United Kingdom

Reference: (1998) OPLR 21

The trustees paid almost the entire scheme surplus to the principal employer. No provision was made for providing limited price indexation on pension entitlements as required by the Social Security Act 1990 (the pertinent section of which had come into force a few days after the trustee decision). The trustees had also failed to exercise their discretion under the scheme rules to apply any part of the scheme surplus to enhance members' benefits.

The independent trustee (appointed on the receivership of the principal employer some time after the relevant decision by the trustees) was directed to exercise the discretion of the trustees to allocate the scheme surplus to enhance members' benefits. Once this discretion had been exercised, the independent trustee was ordered to direct the employer, acting by its receivers, to repay to the scheme such amount as was needed to provide limited price indexation and such other benefit enhancements as determined by the independent trustee in accordance with the scheme rules. The Ombudsman directed that if the employer failed to make the required payments within 28 days of the demand, the trustees at the time of the decision to repay surplus must pay the required sum plus interest, to the independent trustees. The Ombudsman stated that those trustees were to be deprived of protection under the scheme rules and were personally liable.

Blackburne J concluded that it was not possible to ascertain from the Ombudsman's determination what the Ombudsman had decided on the critical issue of the appellants' knowledge and intention at the time of the payment of the surplus to the company. Being unable to determine this point, the judge held that the matter should be referred back to the Ombudsman to be re- heard. This was to determine whether the appellant trustees acted in bad faith or dishonestly and were thus incapable of benefiting from the exoneration clause in the trust deed. The judge held that a further reason for referring the case back to the Ombudsman was that the Ombudsman had rejected the appellant's request for an oral hearing. Given the seriousness of the allegations against the trustees and the extent of the personal liability which they could face, the judge thought that the Ombudsman had an obligation to concede to the appellants' requests for such a hearing.

31 October 1997

A separate judgment was given on the issue of costs. It was noted that the Ombudsman only appeared at the appeal to assist the court. Given that the appeal was against his determination, he had no power to settle the matter out of court and avoid the costs of the appeal. The judge therefore held that where an appeal was allowed, the Ombudsman would be directed to pay the appellants' costs only to the extent that those costs had been increased as a result of the Ombudsman's participation in the appeal.