Sheffield v Kier Group Plc [2019] EWHC 986 (Ch)

Sheffield v Kier Group Plc [2019] EWHC 986 (Ch) concerned an appeal by Mr Michael Sheffield against a determination of the Pensions Ombudsman, heard before His Honour Judge Klein sitting as a judge of the High Court. The appeal was allowed in part; the ombudsman had erred in law by misdirecting himself as to his jurisdiction.

Mr Sheffield had been HM Coroner for Teesside from 1 June 1972 until his retirement on 30 April 2014, having joined the Local Government Pension Scheme in about July 1978. His 75th birthday occurred on 11 April 2005. No pension benefits were paid to him on that date or until July 2014 or July 2015. Between May 1999 and April 2006, the Local Government Pension Scheme Regulations 1997 provided that retirement benefits must begin to be paid not later than a member’s 75th birthday even if he had not retired. From 6 April 2006, regulation 25A(2) provided that the pension and retirement grant were payable immediately on retirement or, if earlier, on the day before the member’s 75th birthday. Regulation 94 of the 1997 regulations provided for payment of interest where all or part of a pension or lump sum payment due under the regulations was not paid within the relevant period (one year for a pension) after the due date, which in the case of a pension was the date on which it became payable.

In about July 2010 Kier Group Plc, which administered the pension scheme on behalf of the Second Respondent Middlesbrough Council (notionally Mr Sheffield’s employer), wrote to Mr Sheffield’s solicitors proposing that Mr Sheffield’s effective date of retirement from the scheme should be 4 April 2006 rather than 11 April 2005. On retirement in April 2014, Mr Sheffield became entitled to a lump sum retirement grant and an annual pension. Kier calculated that, on the basis of the proposed retirement date of 4 April 2006, Mr Sheffield was entitled to a retirement grant of £108,602.37, arrears of annual pension from 5 April 2006 to 31 July 2015 of £109,505.60 and an annual pension of £36,200.79 (as at the April 2006 retirement date). It was accepted during Kier’s internal dispute resolution procedure that Mr Sheffield was entitled to interest on the retirement grant and on arrears of annual pension for the 2006/7 year, but not on arrears of annual pension for the 2007/8 year or later years.

Mr Sheffield complained to the Pensions Ombudsman on 13 June 2016, contending that he was entitled to interest on the arrears of the later annual pensions under regulation 94. His complaint, as set out in his written submissions and witness statement, was one of principle: whether interest is payable at all in respect of the 2007/08 and later payments, there being no basis upon which any distinction could be drawn between the lump sum and 2006/07 payment (on which interest had been paid) and the late payments. He accepted that regulation 94 had been properly applied to his retirement grant and to his annual pension for 2006/7. In his further submissions of 7 December 2017 Mr Sheffield emphasised that his complaint was one of principle and that he was content with the arithmetic methodology by which interest on the lump sum and the 2006/07 payment had been calculated. He submitted that both the lump sum and the 2006/07 payment and the 2007/08 and later payments attracted interest under regulation 94.

The ombudsman made his determination on 28 September 2018. He upheld Mr Sheffield’s complaint against Middlesbrough. The ombudsman found that Mr Sheffield’s pension was payable from his 75th birthday and should have been calculated by reference to his service and pensionable pay as at that date. Any arrears should also have been calculated from that date. As to interest, the ombudsman found that the relevant period for the purpose of regulation 94 was one year and the due date was Mr Sheffield’s 75th birthday and each payment date thereafter. He rejected Kier’s interpretation, which would lead to the odd situation whereby a member may receive interest only for the late payment of his first year of pension but nothing thereafter, regardless of any subsequent delay. There was no logical reason why the late payment of subsequent instalments should not qualify for the same recompense as the first. The ombudsman directed Kier to recalculate Mr Sheffield’s pension as at the date of his 75th birthday, together with any appropriate adjustments to contributions overpaid, and to recalculate the interest due on any instalment of the pension paid more than one year after it fell due to be paid. The effect of the determination was that Mr Sheffield’s retirement grant was reduced to £92,797.21, his annual pension as at his 75th birthday was reduced to £30,932.40, and as at January 2019 his annual pension was reduced by about £7,300 compared to the position if he had retired on 4 April 2006, and he owed the scheme £40,443.48. The ombudsman also refused to direct payment of Mr Sheffield’s legal costs, noting that while the subject matter was technical in nature, access to the ombudsman’s office and the Pensions Advisory Service was available free of charge.

Mr Sheffield appealed on several grounds. First, he contended that the ombudsman had erred in law by misdirecting himself that he had jurisdiction to determine the due date under regulation 94 for Mr Sheffield’s first payment from the pension scheme and, more generally, to determine when Mr Sheffield retired from the pension scheme; that the ombudsman erred in determining that the due date was Mr Sheffield’s 75th birthday rather than 4 April 2006; and that the ombudsman erred in dismissing Mr Sheffield’s application for costs by treating the access to his office and the Pensions Advisory Service as the sole or principal reason for the refusal. Secondly, Mr Sheffield contended that the determination was wrong and unjust because of a serious procedural irregularity in that the ombudsman did not give reasons for rejecting Mr Sheffield’s submission that the date of his retirement from the pension scheme was irrelevant to the complaint before him.

On the first ground, Mr Charles Morgan for Mr Sheffield submitted that the ombudsman’s jurisdiction was derived from section 146 of the Pension Schemes Act 1993, which provided that the ombudsman may investigate and determine complaints and disputes that are referred to him. The relevant dispute which Mr Sheffield referred to the ombudsman was whether interest was payable under regulation 94 on the arrears of later annual pensions. Mr Sheffield did not refer to the ombudsman any dispute about the due date for the first payment or about when he retired from the pension scheme, in respect of which there was no dispute. It followed that the ombudsman did not have jurisdiction to determine these matters and was wrong to do so. Mr Michael Uberoi for Middlesbrough argued that, first, as a matter of fact Mr Sheffield did refer those questions to the ombudsman; secondly, the ombudsman had an inquisitorial function which allowed him to investigate and determine those questions even if formally they had not been referred to him; and thirdly, because any agreement to treat Mr Sheffield as having retired on 4 April 2006 was ultra vires, the ombudsman had to determine as he did, because otherwise he would be condoning an ultra vires act, which the ombudsman was not permitted to do.

Judge Klein held that on a plain reading of section 146 of the 1993 Act, the ombudsman only had jurisdiction to determine a dispute if it was referred to him by or on behalf of Mr Sheffield. This conclusion was supported by Hamar v French [1998] Pens LR 321 and Wakelin v Read [2000] Pens LR 319. In Hamar, Millett LJ had said that the jurisdiction of the Pensions Ombudsman was limited to the investigation of the complaint actually made to him, and that at the end of his investigation his duty was to determine the matters then actually in dispute between the parties. The case of Hillsdown Holdings plc v Pensions Ombudsman [1996] 1 All ER 862 did not assist Mr Uberoi; Knox J in that case was considering whether a point could be raised on appeal which had not been but could have been raised before the ombudsman. Nor did Police and Crime Commissioner for Greater Manchester v Butterworth [2017] 001 PBLR (020) assist; the Deputy Judge in that case was not considering whether the ombudsman had jurisdiction to determine a question which had not been referred to him, but rather whether a question which had been referred could be remitted to consider an argument which could have been but was not made.

The judge rejected Mr Uberoi’s argument that the ombudsman was compelled to make the direction he did because otherwise he would be condoning an ultra vires act. On the assumption that the question referred to the ombudsman did not extend to the due date for the first payment or when Mr Sheffield retired, the dispute the ombudsman had to resolve was whether interest was payable on the arrears of later annual pensions for the relevant years, whatever the amount of those pensions. As Mr Sheffield had suggested to the ombudsman, the question before him was one of principle. The ombudsman did not need to consider, let alone determine, the amount of the annual pensions. A direction that Kier had to recalculate the interest due on any instalment of pension paid more than one year after it fell due, leaving Kier to properly calculate the correct principal amount of each instalment, would not amount to the ombudsman condoning an ultra vires act.

The judge therefore considered whether the questions of the due date for the first payment and when Mr Sheffield retired had been referred to the ombudsman. He examined in detail the documents Mr Sheffield had submitted. Mr Sheffield’s original 13 June 2016 complaint, when fairly read, showed that he was only referring to the ombudsman the question of principle of whether interest was payable at all on the arrears of later annual pensions, whatever the amount of those arrears. In the complaint, Mr Sheffield accepted that regulation 94 had been properly applied to his retirement grant and to his annual pension for 2006/7 and that the amount of interest on those arrears had been correctly calculated. In other words, Mr Sheffield was contending that his retirement date from the pension scheme was 4 April 2006. His witness statement referred to 4 April 2006, to his contention that regulation 94 had been properly applied to his retirement grant which became due in April 2006 and not on his 75th birthday, to his contention that regulation 94 had been properly applied to his annual pension for 2006/7, and to his contention that the due date for regulation 94 was April 2006; he repeated that his complaint was that interest had not been paid at all on the arrears of later annual pensions. In his 7 December 2017 further submissions Mr Sheffield said expressly that his complaint was one of principle: whether interest was payable at all on the arrears of later annual pensions (whatever their sum), in circumstances where regulation 94 had been properly applied to his retirement grant and to his annual pension for 2006/7. In his 10 August 2018 submissions, Mr Sheffield made clear that it was his contention that the ombudsman ought not to determine the due date for the purpose of regulation 94. The judge did not read those submissions as widening the scope of the reference to the ombudsman. Even in his 7 December 2017 further submissions, when Mr Sheffield discussed at some length how under the 1997 regulations the due date was to be determined, he made tolerably clear that he was not referring to the ombudsman the question of the due date for the first payment or the date when he retired from the pension scheme. The ombudsman acknowledged as much when in the determination he summarised Mr Sheffield’s complaint as being one of principle about whether interest was payable at all on the arrears of later annual pensions.

Judge Klein concluded that the ombudsman misdirected himself that he had jurisdiction to determine the due date for the payment of Mr Sheffield’s pension, and so erred in law. It followed that the judge did not need to consider the difficult questions of whether the unamended 1997 regulations did not deem Mr Sheffield’s retirement to be immediately before his 75th birthday, whether the parties were bound to proceed on the basis that Mr Sheffield retired on 4 April 2006, whether the ombudsman erred in concluding otherwise, and whether the determination should be set aside or varied because of any such error. In the light of the conclusions already reached, it was unhelpful for the judge to consider those questions now, because there remained the practical risk that the Respondents would, for example by way of a Part 7 claim, seek to recover the £40,443.48 overpayment made to Mr Sheffield, arguing that it was ultra vires for them, and they were not bound, to proceed on the basis that Mr Sheffield retired on 4 April 2006 rather than immediately before his 75th birthday. Mr Sheffield might in such a claim argue that there was a binding agreement, that the Respondents were estopped, that he had a legitimate expectation, that he had an accrued limitation defence, or that he had a change of position defence.

On the issue of costs, the judge held that his present view was that the ombudsman did have jurisdiction to make a costs direction, following Nicol & Andrew Ltd v Brinkley [1996] OPLR 361. Section 151(2) of the 1993 Act was broadly drafted and well able to accommodate what was, in effect, a costs jurisdiction. Because the judge did not hear detailed argument on the point, and the question had been fully argued in Nicol, it was proper for him to follow that case as a matter of judicial comity. Mr Sheffield did not complain about the adequacy of the ombudsman’s reasons for his determination on costs. The ombudsman’s written statement had to be read broadly and fairly; reasons should not be subjected to minute or over-elaborate critical analysis. It was reasonable to proceed on the basis that the ombudsman knew that factors he was entitled to take into account included the availability of free advice and easy access to the ombudsman’s service, but that he also had to take into account the particular circumstances of the case before him. The judge did not read the ombudsman’s determination on costs in the way contended by Mr Sheffield. Rather, the ombudsman acknowledged that factors to particularly weigh in the balance were the complexity of the case and that it was reasonable for Mr Sheffield to have assistance, particularly because of his personal circumstances, but the ombudsman concluded, nevertheless, that those factors were outweighed by the availability of free advice and easy access to the ombudsman’s service. The ombudsman could only have erred in law if that determination, as interpreted by the judge, was perverse. It was not. The ombudsman identified factors to which he concluded weight should be attributed and he weighed those factors. The ground of appeal on costs therefore failed.

On the second ground of appeal, the difficulty with Mr Sheffield’s complaint that the ombudsman did not give reasons for rejecting submissions that there was a binding agreement, that

Westminster City Council v. Haywood [1998] Ch 377
Judgment Sheffield v. Kier Grou p plc and ors Pensions Agency v. Beechinor [1997] PLR 95
Wirral BC v. Evans [2001] OPLR 73
Scotland v. T urner [2003] SC 525
Hamar v. French [1998] Pens LR 321
Wakelin v. Read [2000] Pens LR 319
Edge v. Pensions Ombudsman [1998] Ch 512
Andrew Ltd. v. Brinkley [1996] OPLR 361
Westminster City Council v. Haywood and another [1996] OPLR 95
Piglowska v Piglowski [1999] 1 WLR 1360