Edge v Pensions Ombudsman 1

Reference: (1998) OPLR 51, (1999) OPLR 179

The complaints related to a deed of amendment executed by the appellants who were the trustees of the ITB Pension Fund. The effect of the deed was to reduce the contributions paid by members and the employer and to provide improved benefits for members in service at a specified date. The complaints were made by a number of pensioners who, being no longer in service, were not liable to pay contributions. Nor did they qualify for the additional pension benefit.

The complainants alleged that these amendments were unjust.

The Ombudsman held that the trustees had acted in breach of trust in making the amendments and that the improved benefits and the reduction in members and employer contributions had not been validly introduced. He directed that the scheme should be administered on the basis of the rules as they stood prior to the deed of amendment and that the trustees should seek to recover payment of contributions which would have otherwise been due during the period between the deed of amendment and the determination. In addition, the Ombudsman held that the trustees who were also current employees were in breach of trust due to their conflict of interest in relation to the deed of amendment.

The Court of Appeal upheld the High Court's decision that the trustees in using their powers to improve the benefits of members in service but not pensioners or deferred pensioners, had not acted in breach of trust. The trustees' duty to act impartially is no more than the ordinary duty which the law imposes on a person who can exercise a discretionary power; that he exercises the power for the purpose for which it is given, giving proper consideration to the matters which are relevant and not considering matters which are irrelevant. If trustees do that, they cannot be criticised if they reach a decision which seems to prefer the claims of one beneficiary group over another, whether that of employers, current employees or pensioners.

Since the complaint by the pensioner affected others who would not be bound by the Ombudsman's determination (namely active members whose benefits were being improved), the Court of Appeal felt this was an investigation which the Ombudsman, in the exercise of his discretion, should not have undertaken. The Pensions Ombudsman should only appeal against High Court decisions in rare circumstances, e.g. where there is a point of principle in respect of which there are conflicting decisions of the High Court and the Ombudsman would find it difficult to perform his functions without further guidance from the Court of Appeal.

In allowing the appeal, Sir Richard Scott V-C. held that the Ombudsman had no jurisdiction to set aside the deed of amendment. In doing so he affected other members of the scheme in addition to the complainants and he did not have power to do so. Were the deed to be set aside, those employee members would lose the benefit of reduced contributions and the improved benefits. They were not given the opportunity to argue their respective positions before the Ombudsman. The Ombudsman had no power to direct remedial steps to be taken which were not steps that a court of law could properly have directed. In these circumstances, a court could not have ordered the deed of amendment to be set aside without having regard to the respective positions of the employee members who were not parties to the proceedings.

The Vice-Chancellor also held that the employee trustees were not in breach of a duty to act impartially. There was no such duty. Provided the trustees did not take into account irrelevant, irrational or improper factors, they were entitled to prefer one group of beneficiaries over another. Provided the trustees exercised this power honestly and for the purpose for which it was given, such exercise could not be set aside by the Ombudsman or by the court.