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Case No: CHANF 1998/0737/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MR JUSTICE HART
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 17th March , 2000
B e f o r e :
LORD JUSTICE PILL
LORD JUSTICE MUMMERY
and
SIR RONALD WATERHOUSE
- - - - - - - - - - - - - - - - - - - - -
|
WAKELIN
& ORS
|
Appellant
|
|
-
and -
|
|
|
READ
& ANR
|
Respondent
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Mr Christopher Nugee QC (instructed by Messrs Beachcroft Stanleys
London Ec4a 1BN for the Appellant)
Mr Nicholas Warren QC & Mr Andrew Simmonds QC (instructed by Lovell
White Durrant EC1A 2DY for the Respondent)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE MUMMERY:
This appeal from the order of Hart J dated 22 May 1998, allowing an appeal
from the determination of the Pensions Ombudsman dated 17 December 1997,
relates to the circumstances in which the trustees of a pension scheme may
properly use their powers to impound the pension benefits of a member of the
scheme on the ground that he has dishonestly assisted in a breach of trust by a
former trustee. The judgment of Hart J is reported in [1998] Pensions Law
Reports 337.
Some of the difficulties in this case suggest that the informal procedures
of the Pensions Ombudsman, though well suited to the efficient, quick and cheap
resolution of most complaints and disputes about pension schemes, may not
always be appropriate in cases of contentious factual issues and unusual legal
questions arising from allegations of dishonest assistance in a breach of trust
by a trustee of pension scheme.
The Pensions Ombudsman made the determination of this dispute without holding
an oral hearing for evidence or argument at any stage. It was all done on
paper. It is still unusual in this country for any one to decide a dispute of
this kind involving very substantial sums of money without some kind of
hearing. The parties are hardly in a position to complain (and, it is fair to
add, do not complain) on this ground: neither side had ever made a request for
an oral hearing. With the benefit of hindsight it is easy to say that they
should have done so.
The Pensions Ombudsman proceeded to find, on the basis of witness statements
and written submissions from the parties, that there was no dishonest
assistance in a breach of trust. Nevertheless he declined to order the Trustees
to pay pension benefits to the member, acquitted of having acted as a dishonest
accessory, on the ground that he did not come with "clean hands." That
conclusion was to a significant extent based on matters relevant to the conduct
of the member which had never formed any part of the Trustees' justification
for refusing to pay the member's pension.
Both the member and the Trustees appealed and submitted to Hart J that there
were errors of law in the determination. Hart J found in favour of the
Trustees and dismissed the appeal by the member. He held that, contrary to the
decision of the Ombudsman, the member was in fact a dishonest accessory to a
breach of trust. For that reason he upheld the Ombudsman's refusal to order
payment of pension benefits. The member appeals against that ruling. There is
also a Respondents' Notice from the Trustees.
This court has to perform the anxious task of deciding whether (a) to uphold
the determination of the Pensions Ombudsman for the reasons given by him, or
(b) to uphold the judgment of Hart J on the dishonest accessory issue, or (c)
to remit the dispute, in whole or in part, to the Pensions Ombudsman for a
fresh determination.
The Outline Facts
The primary findings of fact by the Pensions Ombudsman may be summarised as
follows:-
(1) Mr John Read was the Chairman and Chief Executive of LEP Group plc (the
Group), a large public company. Mr East was the Finance Director of the Group.
Mr Percival was the Company Secretary. They were all accountants with long
experience.
(2) There was a Group pension scheme called LEP(UK) Pension Plan (the Scheme)
established under a Definitive Deed and Rules dated 11 April 1990. The sole
trustee of the Scheme at the material time was Lassen Trustees Limited
(Lassen). Mr Read was the Chairman and Mr East and Mr Percival were directors
of Lassen. Under the Scheme all three of them were potential
beneficiaries.
(3) In May 1991 the Group was in financial difficulties. It was in breach of
gearing covenants with certain banks. The Auditors were threatening to qualify
the 1990 accounts if corrective measures were not embarked upon. A quick sale
of assets was needed to raise money to pay a final dividend which had been
declared in April and was due to be paid on 6 July 1991. According to the
evidence the total cost of this was £6.9m.
(4) On 9 May 1991 the Group resolved to sell certain assets to raise money.
The assets included Coombe Hill House, Kingston-upon-Thames (the Property), a
suburban office block in course of construction. It was due to be completed in
October 1991. A valuation of the Property at £11.75m had been obtained on
7 May by the Group from James Andrew Badger Limited (Badger), an independent
estate agent habitually used by the Group for the valuation and management of
its substantial properties in England and abroad. The Group expected that the
Property would fetch £10m on a quick sale in the open market.
(5) Attempts to find a purchaser or a tenant of the Property failed. At an
informal meeting of the directors of Lassen convened by Mr Read on 19 or 20
June 1991 agreement in principle was reached on Mr Read's suggestion that
Lassen should purchase the Property as an investment for the Scheme and lease
it back to a subsidiary of the Group at a commercial rent guaranteed by the
Group. The actual purchase price was not discussed.
(6) Mr Read told Mr Ron Jackson, the in-house lawyer at the head of the
Group's Legal Department, about the proposed sale and instructed him to put the
documentation in place for the sale and lease back. Mr Jackson was concerned
that the sale should be at arms' length. He telephoned Badger's office and
asked for an urgent valuation. On 25 June he received from Badger a draft
letter addressed to the Group and later addressed by Badger to Lassen giving a
rental value in the order of £998,250 pa exclusive and a freehold value of
£12.45m. The letter was signed by Mr Kleinman, a director of the
commercial agency department of Badger on the firm's headed notepaper. It was
approved by Mr Soning, senior director and chairman of Badger.
(7) Between 19 and 28 June 1991 Lassen agreed that , if the Property was
re-sold, there would be a share out of the profits between the Group and the
Scheme.
(8) On 28 June a rapid succession of important events took place. The
directors of a subsidiary company in the Group, LEP Properties Limited,
resolved to take a 25 year lease of the Property from Lassen at the rent set
out in the estate agent's letter of 25 June. The directors of the subsidiary
were Mr Read, Mr East and Mr Percival. The same three, as directors of Lassen,
had already agreed that it was in the best interests of the Scheme to purchase
the Property at the price set out in the estate agent's letter and to let it at
the rent set out in the same letter on the basis that the Group would guarantee
payment. £10.5m of the purchase price was to be lent to Lassen by a bank
in return for a charge over the Scheme's investment portfolio. The transfer of
the Property was effected by Epex Limited, the subsidiary in the Group holding
the freehold title to the Property. The purchase concentrated 35% of the
Scheme's assets in a single item of real property in the course of
construction. The transfer provided that, if Lassen sold the Property to a
third party within 3 years, it would pay to Epex Limited 50% of the profit on
the sale.
(9) On 3 July 1991 the Group resolved to act as surety for LEP Properties
Limited. On 6 July the Group paid its dividend as declared.
The Subsequent History
Badger continued to look for a tenant of the Property in a market that was
already crashing. The value of the Property, which remained unoccupied from
1991 to the end of 1995, fell. The price of the shares in the Group fell from
93p per share on 30 August 1991 to 9p per share by the end of the year. The
Group continued to pay to Lassen the guaranteed rent of £998,250 pa until
the Group went into administrative receivership on 31 December 1995. It went
into compulsory liquidation on 17 April 1996.
Mr Read had ceased to be a director of the Group at the end of 1991. On 23
January 1992 he was removed from office as a director of Lassen. On 1 January
1995 Lassen was replaced by Mr Wakelin and others as trustees of the Scheme
(the Trustees).
On 21 March 1995 Mr Read reached retirement age (60) under the Scheme. The
actuarial value of his benefits was between £1.4 and £1.5m entitling
him to a pension of £109,750 pa. He was informed that the Trustees
intended to withhold his pension entitlement. Reference was made to prima facie
evidence of breach of trust and to breach of a director's duties causing loss
in excess of his entitlement. When Mr Read asked for details he was informed
that he was liable as a constructive trustee for all monies lost to the Scheme
as a result of his knowing assistance in the misapplication of trust money in
the purchase of the Property.
In July 1996 the Trustees sold the Property for £4.16m.
The Reference of a Dispute.
By letter of 17 October 1996 Mr Read referred his dispute with the Trustees to
the Pensions Ombudsman for him to investigate and determine. In view of the
later debate about the nature and scope of "the dispute" the terms in which Mr
Read referred the dispute and the manner in which he and the Trustees
formulated their submissions to the Ombudsman require examination. This
exercise will be conducted on the basis that, while the Ombudsman was under a
duty to observe procedural fairness, the question of what "dispute" he was
asked to determine and had jurisdiction to determine should be treated as a
matter of substance. His power is limited to the investigation of "the
dispute" referred to him and to the determination of the matters actually in
dispute between the parties: see Millett LJ in Hamar v. French
[1998] Pensions Law Reports 321 at 335, para. 73.
The Ombudsman has power under section 146 (2) of the Pension Schemes Act 1993
to investigate and determine any dispute of fact or law arising in relation to
the pension scheme between the trustees and the authorised complainant and
which is referred to him by that complainant. By his letter of 17 October 1996
Mr Read referred the dispute in the following terms
" I now lodge a formal complaint against the trustees....in that, in breach of
their fiduciary duties (1) they have failed to pay my pension, and (2) they
have failed despite repeated requests to give any justification for so
doing."
The letter then set out the grounds of the complaint stating that the Trustees
had claimed to withhold the pension because of "alleged prima facie evidence"
that he was a constructive trustee by reason of alleged breaches of duty and
trust arising from the purchase of the Property in 1991. He complained that the
allegations about his liability in relation to the purchase of the Property
were vague, unparticularised and demonstrably unfounded.
On 22 November the Ombudsman accepted the case for formal investigation. Mr
Read made further written representations to the Ombudsman on 10 April 1997
enclosing a copy of Leading Counsel's Opinion written in response to a letter
from the Trustees' solicitors and expressing the view that the trustees had no
right to withhold Mr Read's pension; that on the authority of Royal Brunei
Airlines v. Tan [1995] 2 AC 378 Mr Read could only be held liable as a
constructive trustee if he dishonestly assisted in a breach of trust by Lassen;
that there was no breach of trust by Lassen in the purchase of the Property;
and that, even if there was, no case of dishonest assistance could be made
out against Mr Read as one of the directors party to a unanimous decision based
on facts known to all the directors.
The Trustees responded to the complaint on 18 July 1997. They accepted that
the dispute as to non-payment of the pension depended on whether they had valid
grounds for refusing to pay the pension. Their contention was that they were
entitled to impound Mr Read's benefits on the basis that he was liable as a
constructive trustee to make good the losses incurred by the Scheme as a result
of the purchase of the Property from a subsidiary of the Group. In reliance on
the Royal Brunei case (supra) they submitted in paragraph 2.9 of their
letter that the purchase of the Property was "a clear breach of trust
by Lassen." In order to make Mr Read liable as a dishonest accessory to a
breach of trust it first had to be established that Lassen had acted in breach
of trust, but it was held in the Royal Brunei case that the breach of
trust, which is a prerequisite to accessory liability, need not itself be a
dishonest and fraudulent breach of trust by the trustee: see [1995] 2 AC 378 at
p.384D and 390D-F. This is in contrast to the liability of an accessory where
dishonesty on the part of the accessory is a necessary and sufficient condition
of liability: see p.392F-G
The Trustees did not expressly contend that there had been a dishonest breach
of trust by Lassen. They did not need to advance that contention in order to
make Mr Read liable as an accessory. They gave particulars of their reasons
for the contention of a clear breach of trust in sub-paragraphs (a) to (g) of
paragraph 2.9. The matters relied on included the excessive concentration (35%)
of the Scheme's assets in a single investment; the failure to take independent
advice in relation to the propriety and suitability of the investment for the
Scheme ; the failure to make enquiries of Badger about the amount of the
purchase price and the lease back rental ; the awareness of the directors of
Lassen of the Group's financial difficulties ; the absence of any attempt by
Lassen to negotiate a price with the Group and the agreement by Lassen, who had
purchased the Property at a considerable overvalue, to remit 50% of the profit
on a resale within 3 years to the Group.
The contention that Mr Read "acted dishonestly in pushing the transaction
through" was made in paragraph 2.10. It was based on a number of grounds set
out in sub-paragraphs (a) to (g). In the light of the Ombudsman's findings of
fact in the determination most of those sub-paragraphs are no longer relied on
by the Trustees. It is no longer contended that Mr Read consciously sought to
further the interests of the Group at the expense of the Scheme by seeking to
engineer a valuation at the highest possible level when it was in the interests
of the Scheme to pay as little as possible for the Property ; nor that he
procured a valuation from someone (Mr Kleinman) whom he knew did not want to
provide it and felt insufficiently qualified to give it ; nor that Mr Read told
Mr Jackson that the Property would be sold on by Lassen to a Japanese purchaser
in a few months.
It is, however, still contended that it was Mr Read who insisted on the
inclusion of the profit sharing provision and that
"(f) In all aspects of the transaction Mr Read sought to derive the maximum
benefit for [the Group] in flagrant disregard of his duties as a director, and
Chairman, of Lassen."
In the light of these conflicting contentions, as amplified by further written
submissions from both sides, the Pensions Ombudsman formulated "the dispute" to
be determined in the following terms-
" THE DISPUTE
1. The Trustees have withheld the Disputant's benefits under the Scheme
on the basis that he is liable to the Scheme as a constructive Trustee for
losses incurred in 1991 following two imprudent purchases by the Former Trustee
[Lassen]. The Disputant[Mr Read] asks me to determine whether the Trustees are
entitled to withhold his benefits."
The reference to "two imprudent purchases" includes both the purchase of the
Property and the purchase of shares in the Group by Lassen. The share purchase
is not relevant to this appeal.
It will be seen that, following the structure of the written submissions, the
Ombudsman dealt separately in the determination with (a) on the one hand,
matters relied on in support of the contention of a breach of trust by Lassen,
and (b) on the other hand, with the matters relied on in support of the
contention that Mr Read dishonestly assisted in that breach of trust.
This separate treatment of the breach of trust issue and the dishonest
assistance issue had been emphasised by the Trustees in paragraph 4.7 of their
written submission:-
".....a clear distinction is made between the Trustees' grounds for concluding
that Lassen acted in breach of trust (which does not of itself connote
dishonesty) and the Trustees' grounds for concluding that Mr Read personally
acted dishonestly."
It was submitted in paragraph 4.8 that Mr Read's counsel had in his Opinion
failed to recognise that distinction.
"The dispute " referred to the Ombudsman by Mr Read did not include the
question of the liability of Mr East or Mr Percival for assisting in a breach
of trust by Lassen. This is significant in view of the importance attached by
the Ombudsman, in rejecting the charge of dishonesty against Mr Read, to the
fact that the Trustees did not allege dishonesty against either of the other
two directors of Lassen.
In paragraph 4.2 (d) of their submission of 18 July 1997 the Trustees set out
their view of the position of Mr East and Mr Percival as follows:-
"The Trustees have carefully considered the position of Messrs East and
Percival and have been advised that, although they certainly bear a moral
responsibility for the clear breach of trust committed by Lassen in
purchasing[the Property], there is no case of dishonesty to be made out against
them."
Their reasons for this view are then summarised. Thus neither the Trustees nor
Mr Read had any "dispute" with Mr East or Mr Percival. As will be seen the
Pensions Ombudsman made this fact the central feature of his reasons for
rejecting the allegation of dishonesty against Mr Read.
The Statutory Regime.
Before examining the determination of the Pensions Ombudsman it is necessary
to outline his powers and the prescribed procedures.
The relevant legislation is the Pension Schemes Act 1993 (the 1993 Act).
That legislation has since been amended by the Pensions Act 1995.
The office of Pensions Ombudsman had been established in 1990. The function of
the Ombudsman is to conduct investigations in accordance with Part X of the
1993 Act. The following features of the statutory regime should be noted .
1. Functions.
One function exercised in this case, but not relevant to this appeal, was the
investigation and determination of a complaint of "injustice in consequence of
maladministration in connection with acts or omissions" of the trustees of a
pension scheme: section 146 (1).
The relevant function is that described in section 146(2). It confers very
wide powers to decide disputes of a kind which a court would also have
jurisdiction to try:-
" (2) The Pensions Ombudsman may also investigate and determine any dispute of
fact or law which arises in relation to such a scheme between-
(a) the trustees or manager of the scheme, and
(b) an authorised complainant,
and which is referred to him in writing by or on behalf of an authorised
complainant."
It is agreed that this dispute was within the jurisdiction of the Ombudsman
and that Mr Read, as a member of the Scheme, was an authorised complainant.
But, as already indicated, there is room for disagreement about the scope of
the "dispute" referred to him for investigation and determination.
2. Procedure.
The procedure for investigation and determination laid down in sections 149
and 150 is a mixture of the inquisitorial and the adversarial. As Staughton LJ
said in Seifert v. Pensions Ombudsman [1997] 4 All ER 947 at 952e
" The exercise of those powers is no doubt intended to be simple, swift and
cheap."
The complainant refers the dispute in writing. The trustees must be given an
opportunity to comment on any allegations contained in the reference. Subject
to any provision made by rules (Procedure Rules were made by SI 1995/1053),
the procedure for conducting the investigation is in the discretion of the
Ombudsman "as he considers appropriate in the circumstances of the case." The
procedure adopted, though informal when compared with litigation, must, of
course, be fair to both sides. The Ombudsman has a general power to "obtain
information from such persons and in such manner, and make such inquiries, as
he thinks fit." He has a specific power to require the trustees and any other
person "who, in his opinion is able to furnish information or produce documents
relevant to the investigation, to furnish such information or produce any such
documents." He has the same powers as the court in respect of the attendance
and the examination of witnesses and the production of documents. He may also
obtain advice to assist him in the investigation from any person who in his
opinion is qualified to give it .
He may refer any question of law arising for determination in connection with
a dispute to the High Court. He did not do so in this case and was not asked to
do so.
The Ombudsman also has power to hold an oral hearing in connection with any
investigation where he considers it appropriate: see Rules 10 to 15. In the
present case he did not hold any hearing. He was not asked to do so by either
side. He has not been criticised by either side for failing to do so.
3. Determination.
Under section 151 the Ombudsman's determination of a dispute of fact or law
must be in a written statement containing the reasons for his determination.
His determination is final and binding on the authorised complainant and the
trustees under section 151(3). In this case his determination is binding as
between the parties, but not, for example, as between the trustees and Mr East
and Mr Percival.
He has a discretion under section 151(2), which has featured in the
submissions, to "direct the trustees.....to take, or refrain from taking, such
steps as he may specify...." in writing in the statement of his determination
or otherwise in writing. Such a direction is also final and binding on the
parties.
4. Appeal
Under section 151 (4) there is an appeal to the High Court from a
determination or direction of the Ombudsman " on a point of law." There is no
appeal on fact. The critical function of the Ombudsman is to make clear
findings of fact on matters revealed by his investigation of the dispute. It
is irrelevant that the High Court or the Court of Appeal would have taken a
different view from him on the evidence revealed in his investigation. The
Ombudsman is the sole judge of fact and he can only be corrected on errors of
law.
The only question for the High Court and for this court, on appeal from the
High Court, is this: is there an error of law in the determination or
direction of the Ombudsman? In answering that restricted question the appellate
court should be astute not to entertain appeals on points of fact dressed up as
points of law. A point of law is one which arises from the wrong application of
a legal principle, or from the misconstruction of a statutory provision or from
a decision that no reasonable Ombudsman, properly directing himself on the
facts and the law, could have reached. In this exercise the written statement
of the determination must be read broadly and fairly. The findings of fact and
the reasons for the determination should not be subjected to minute,
meticulous or over elaborate critical analysis in an attempt to find a point
of law on which the disappointed party to the reference can appeal.
The Determination of the Pensions Ombudsman in brief.
In the determination the Ombudsman decided three main points:-
1. Lassen had committed a breach of trust in the purchase of the Property
(para. 60). This is not an issue on the appeal.
2. No case had been made out that Mr Read was liable to the Scheme as
dishonest accessory to that breach of trust by Lassen. He was not dishonest.
The Trustees were not therefore entitled to withhold benefits from him.
(para.79). The Trustees contended that this conclusion is erroneous in law.
3. No direction should, however, be given specifying steps to be taken in
connection with Mr Read's complaint as he did "not come with sufficiently clean
hands" (para.79). Mr Read contended that this conclusion is erroneous in law
and that, having rejected the case of dishonest assistance advanced by the
Trustees, the only legally correct course open to the Ombudsman was to direct
the Trustees to pay the benefits due to Mr Read under the Scheme.
Both sides appealed against the determination. The appeals were heard by Hart
J. On 22 May 1998 he allowed the Trustees' appeal and he dismissed Mr Read's
appeal.
Judgment of Hart J.
Although the appeal to this court by Mr Read is from the order of Hart
J it is important to remember that the question for this court is the same as
the question on the appeal to Hart J : was the determination of 17 December
1997 erroneous in law? So the focus of argument must be on the determination
of the Ombudsman rather than on the judgment of Hart J. It is, however,
inevitable that Mr Nugee QC, on behalf of Mr Read, should spend time attacking
Hart J's judgment as wrong and that Mr Warren QC, on behalf of the Trustees,
should attempt to uphold his judgment.
Hart J approached the matter in the following way:-
1. The Ombudsman's findings of fact compelled the conclusion that Mr Read had
been dishonest in the sense required to render him liable as a constructive
trustee following the test laid down by Lord Nicholls in Royal Brunei
(paras. 34, 35).
2. The only reason the Ombudsman shrank from upholding the claim of
dishonesty against Mr Read (as summarised in para.58 (I) of the Determination)
was that he was mistaken in law in thinking that he would only have been
entitled to find dishonesty by Mr Read if the Trustees had pleaded that all
three directors of Lassen were equally to blame in respect of the matters
alleged by the Trustees in para. 58(1). Instead the Trustees had made what the
Ombudsman wrongly regarded as a "concession" that Mr East and Mr Percival had
not themselves been dishonest. The true legal position was that the Trustees
had not made a concession which precluded the Ombudsman from making a finding
of dishonesty against Mr Read. The Trustees had formed the view, on their
assessment of the evidence, that Mr East and Mr Percival had not been
dishonest, but that did not entail a concession, let alone an assertion, by
them that
"on any possible view of the facts Mr Read's conduct could not be
characterised as dishonest unless they succeeded in establishing that it was
in some way worse than that of his co-directors" (para.31).
Liability of Mr Read as Dishonest Accessory.
In order to succeed the Trustees have to establish dishonesty on the part of
Mr Read. There are two reasons for this.
(1) Joint Liability
Any attempt to make Mr Read jointly liable with Lassen for breach of
trust would be met by reliance on clause 11.02 of the Definitive Deed which
excuses the trustees and the directors and officers of a corporate trustee for
loss in a wide range of circumstances
" except fraud or wilful negligence on the part of that Trustee who or which is
sought to be made liable or (in the case of a corporate trustee) any of its
directors officers or employees."
(2) Accessory Liability
As already indicated it was held in Royal Brunei Airlines that a
third party could only be held liable as an accessory for assisting in or
procuring a breach of trust if he acted dishonestly; whereas a trustee can be
held liable for breach of trust even if he has acted honestly. In his
discussion of the meaning of dishonesty in the context of accessory liability
Lord Nicholls emphasised the importance of the application of the objective
standard i.e not acting as an honest person would in the circumstances. He said
at 389F-G
"In most situations there is little difficulty in identifying how an honest
person would behave. Honest people do not intentionally deceive others to their
detriment. Honest people do not knowingly take others' property. Unless there
is a very good and compelling reason, an honest person does not participate in
a transaction if he knows it involves a misapplication of trust assets to the
detriment of the beneficiaries. Nor does an honest person in such a case
deliberately close his eyes and ears, or deliberately not ask questions, lest
he learn something he would rather not know, and then proceed regardless."
After pointing out that all investment involves risk and that imprudence is
not dishonesty, Lord Nicholls said at 389H
"....imprudence may be carried recklessly to lengths which call into question
the honesty of the person making the decision. This is especially so if the
transaction serves another purpose in which that person has an interest of his
own."
At p.390 F Lord Nicholls returned to the question of honesty as an objective
standard. He said
"The individual is expected to attain the standard which would be observed by
an honest person placed in those circumstances. It is impossible to be more
specific. Knox J captured the flavour of this, in a case with a commercial
setting, when he referred to a person who is "guilty of commercially
unacceptable conduct in the particular context involved: " see Cowan de
Groot Properties Ltd. v. Eagle Trust Plc [1992] 4 All ER 700,761.
Acting in reckless disregard of others' rights or possible rights can be a
tell-tale sign of dishonesty. An honest person would have regard to the
circumstances known to him, including the nature and importance of the proposed
transaction, the nature and importance of his role, the ordinary course of
business, the degree of doubt, the practicability of the trustee or the third
party proceeding otherwise and the seriousness of the adverse consequences to
the beneficiaries. The circumstances will dictate which one or more of the
possible courses should be taken by an honest person."
As appears from paragraph 3 of the determination the Pensions Ombudsman had
these passages from the judgment of Lord Nicholls well in mind. In deciding
whether Mr Read was liable as an accessory he first considered the grounds, as
summarised in paragraph 57, on which the trustees contended that there was a
breach of trust by Lassen. He concluded in paragraphs 60 and 61 that, for the
reasons set out in paragraph 57, there was a breach of trust i.e. the purchase
concentrated excessive assets in a single investment; no independent legal or
actuarial advice was taken as to the propriety of the purchase ; there was no
attempt to negotiate a price and no hint of arm's length bargaining ; a profit
sharing agreement was inserted ; Lassen did not clarify the basis of the Estate
Agent's valuation with the Estate Agent, a particularly grave matter as no
written instructions had been given; and Lassen agreed the price and the
leaseback rental on the basis of the letter of 25 June 1991 and made no further
inquiries, despite the magnitude of the transaction, the nature of the
valuation letter (which he described as "blatantly defective", both in its
omission of a statement of the purpose of the valuation and its silence on the
assumptions on which it was made) and the lack of independence in the position
of the Estate Agent as property advisers to the Group.
It is significant that in these paragraphs of the determination the
discussion is confined to the liability of Lassen for breach of trust
divorced from the role played by Mr Read, as chairman of Lassen, as well as
of the Group, in the events on which the finding of a breach of trust is
based.
Mr Read's liability as accessory is separately dealt with in this
section of the determination (paragraphs 62 to 71). Those paragraphs refer to
the summary in paragraph 58 of the grounds on which the Trustees contended that
Mr Read was a dishonest accessory to the breach of trust. Those grounds do not
incorporate or replicate all the detailed matters relied on to find that Lassen
was in breach of trust.
My comment at this stage is that the separate approach to the liability of
Lassen and of Mr Read in the determination was correct to the extent that it
reflected (a) the way in which the Trustees advanced their case in their
submissions; and (b) the legal distinction drawn in Royal Brunei
Airlines between the strict liability of a trustee for breach of trust and
the liability of an accessory only on proof of dishonesty. In my judgment,
however, this approach contained the seeds of legal error. It led the Pensions
Ombudsman to reach a conclusion on the accessory liability of Mr Read without
consideration of all the factual circumstances relevant to his alleged
dishonesty.
The significance of this omission is reflected in paragraphs 72 to 78 of the
determination. The Pensions Ombudsman, having rejected "the story" told by the
Trustees as "overgenerous", expounded his own theory. Unfortunately that theory
was based on matters which had formed no part of the case advanced by the
Trustees in their evidence and submissions. Nor was it the case that Mr Read
had prepared to meet. The first that he knew about it was when he received his
copy of the determination. Mr Nugee submitted that this part of the
determination was not part of "the dispute" referred to the Ombudsman for
determination.
In concluding that the Trustees' case was "overgenerous" to Lassen and to Mr
East and to Mr Percival the Ombudsman explained his perception that a "plot
was devised" to raise large amounts of money urgently needed by the Group. The
"plot" is described as follows -
" 73 [Lassen] would purchase[the Property], the subsidiary would pretend to
take a lease of it and whatever figure the Estate Agent was prepared to sign
his name to would be used to persuade financial institutions to lend money. In
the meantime, the interests of the Group would be safeguarded by the profit
sharing agreement.
74 Oblivious of the conflict of interest and indifferent to the question of the
intrinsic value of the Property (except in relation to any loss to the Group if
[Lassen] were to sell at a profit) the three directors of [Lassen] plunged-eyes
shut, ears stopped-into a transaction which, as Mr [East] concedes, had clear
advantages for the Group, but only a speculative advantage for the Scheme."
75 Yet the co-directors knew, in Mr [East's] words, that "it was difficult to
predict what the long term future .....would be." They also knew (i) without
the lease the Property lost value, (ii) the lease to the Subsidiary and the
protection of the covenant were only as good as the future of the Group, which
was uncertain, and (iii) the price of the Property ought not to be the open
market value in any event, but that value discounted for quick sale.
76 Knowing all these things, they entered into the transaction in such a way as
to cut the risk to the Group (that is, the risk it would lose its profit by
selling the Property rather than keeping it), while ensuring that the Scheme
would take all the hazard of the transaction but only a fraction of the
profit."
He added in paragraph 77 that the transaction "might very well be stigmatised
as dishonest" and that it might well be thought that Lassen and its directors
"lacked probity" and that "they should not have purchased the Property at any
price or at all ."
Despite these conclusions the Pensions Ombudsman did not address the question
whether there had been a dishonest breach of trust by Lassen and, if so, how
that impinged on the liability of Mr Read. Instead he repeated his finding that
Mr Read had not been dishonest. He then invoked his theory of what had happened
as the basis for a supposed "equitable jurisdiction" to refuse relief and to
decline to make a direction that the Trustees pay to Mr Read the pension
benefits due to him under the Scheme.
The Dishonesty Case
The allegation of dishonesty against Mr Read requires more detailed
consideration, especially in view of the Trustees' submission that this court
should uphold Hart J's finding of dishonesty. I shall deal first with the
reasons why the Pensions Ombudsman rejected the Trustees' allegation of
dishonesty against Mr Read.
The Trustees' contentions are set out in sub-paragraphs (i)-(iv) of paragraph
58. On this appeal the Trustees do not attempt to challenge the Ombudsman's
rejection of grounds (ii),(iii) or (iv). They contain specific allegations that
Mr Read told the lawyer that the Property would probably be sold on by Lassen
to a Japanese purchaser within a few months ; that Mr Read had dishonestly
represented to Mr East and to Mr Percival that the Property would be a short
term investment; and that Mr Read consciously sought to further the interests
of the Group at the expense of the scheme by engineering an overvaluation which
he procured from someone he knew did not want to provide it and felt
insufficiently qualified to give it (Mr Kleinman).
As those allegations are no longer pursued only paragraph 58 (i) remains.
That alleges that-
" He insisted on urgency when the urgency was in the Group's interests only,
not in the scheme's; insisted on the profit sharing provision; sought to derive
the maximum benefit for the Group in flagrant disregard of his duties to
[Lassen]."
I agree with Hart J that the reasons given (in paragraph 62) for the rejection
of these allegations are flawed by error of law. The Pensions Ombudsman stated
"......If, as the Trustees accept, no case of dishonesty can be made out
against Mr E and Mr P, then the Disputant cannot, in my view, be treated as
having been dishonest. There were three directors of the Former Trustee. The
Disputant on his own was not in a position to insist, nor do the Trustees
establish he acted substantially differently from his fellow directors in
relation to seeking to derive benefit for the Group. He may have been the
leader, but his followers were not members of a chain gang."
The Pensions Ombudsman misdirected himself in law in holding that, as the
Trustees had, on advice, taken the view that they could not make out a case of
dishonesty against Mr East and Mr Percival, he could not treat Mr Read as
having been dishonest.
This is a legal non-sequitur. The issue was whether Mr Read by his conduct in
relation to the purchase of the Property had dishonestly assisted in or
procured a breach of trust by Lassen. The resolution of that issue of fact
turned on a consideration by the Pensions Ombudsman of all the evidence
relevant to Mr Read's conduct in relation to the purchase of the Property by
Lassen from the Group. It did not turn on the view taken by the Trustees about
the conduct of the other two directors of Lassen.
I am also of the view that this error of law had consequences which make it
difficult to follow the course taken by Hart J. On the basis of the primary
facts found by the Pensions Ombudsman he concluded that this was a case of
dishonest assistance by Mr Read. He did not consider it necessary to remit the
matter to the Pensions Ombudsman for a further hearing.
I can well understand the reluctance of the judge to order that a case should
be reheard. The party who has succeeded below wants the appeal dismissed. The
party who has not succeeded below wants the decision reversed and a substantive
order made in his favour. A rehearing necessarily involves further delay and
expense. It might even lead to another appeal by the party who is unsuccessful
at the rehearing.
I share this reluctance, but there are cases where this is unavoidable. It is
for the first instance tribunal to evaluate the evidence and to find the facts.
That is not the function of the tribunal hearing an appeal on a point of law.
There are, of course, cases in which it is possible to say with confidence that
there is no more evidence to be heard, that the primary facts found by the
Tribunal are sufficient to entitle the appellate tribunal to conclude that a
properly instructed tribunal could only come to one conclusion (e.g that Mr
Read was dishonest) and that there is no point in remitting the case for a
further hearing.
In this case the difficulty in following this course is that neither the
Ombudsman nor the parties addressed their evidence or argument to the issue
whether there had been a dishonest breach of trust by Lassen and what part Mr
Read had played in the matters which constituted the breach of trust. This is
a factual aspect of the dispute about the Trustees' right to withhold payment
of pension benefits to Mr Read which should have been fully investigated by the
Pensions Ombudsman. The investigation would involve examination of the role of
Mr Read in the affairs of Lassen. This investigation did not take place because
(a) the Trustees did not in terms rely on Mr Read's role in the affairs of
Lassen in relation to all the matters alleged to have constituted a breach of
trust by Lassen; and (b) the Ombudsman erroneously regarded himself as legally
inhibited in his investigation of the alleged dishonesty of Mr Read by the
Trustees' "concession" that Mr East and Mr Percival were not dishonest. The
result was that the investigation of the dispute about Mr Read's alleged
dishonesty was incomplete. I think that only the Ombudsman can complete it.
It is true that the Ombudsman's own theory of the circumstances of the
purchase of the Property by Lassen involves findings of fact and conclusions
which are highly critical of the conduct of Lassen and its directors, but the
criticisms are made on the novel basis of "a plot " and "a sham leaseback"
which the Trustees never alleged and which Mr Read therefore never answered.
The Ombudsman did not fully investigate with the parties the role of Mr Read
in the affairs of Lassen in relation to the matters relied on to establish a
breach of trust by Lassen. As a result the Ombudsman did not receive the
evidence and the submissions from the parties which he would have done if the
allegation by the Trustees of dishonest assistance in a breach of trust had
clearly included consideration of Mr Read's role in the affairs of Lassen.
In my judgment the appeal should be allowed and the dispute remitted to the
Pensions Ombudsman under Order 55 Rule 7(5) and Order 59 Rule 10 (1) and (3)
for a re-determination of the dispute about Mr Read's dishonesty. In view of
the lengthy submissions which have already been made to him it should be
possible to confine the scope of the rehearing. It will be for the Ombudsman to
decide, after hearing the views of the parties, whether there should be an oral
hearing and, if so, what form it would take.
Discretion of Ombudsman.
As Robert Walker J said in Westminster Council v Haywood [1996] 2 All
ER 467 at 475j
" A very important part of the legislative purpose was to provide a quick,
inexpensive and informal means of settling complaints and disputes about
occupational pensions, especially where an individual or a small group of
individuals (whether employees or pensioners) find themselves in conflict with
trustees who have large resources and may sometimes (rightly or wrongly) be
thought to be more attentive to the views of the employer than to those of the
employees or pensioners."
He added that, as recognised by the statutory right of appeal on a point of
law, disputes could raise difficult questions of law as well as questions of
fact. This case is a timely illustration of the truth of his comment at 476c
that
"The Pensions Ombudsman's task in delivering rapid, unlegalistic justice,
without cutting too many legal corners, is a dauntingly difficult one."
The decision in that case was reversed on appeal, but the judgment of Millett
LJ did not affect the force of these general comments.
The power to refer a question of law to the High Court and the right of appeal
on a point of law both recognise that the general legislative purpose
described by Robert Walker J does not in itself empower the Ombudsman to act
otherwise than in accordance with legal principles. His determinations of
disputes and his directions must be according to law. This means that, unless
he has clear statutory authority to disregard established principles of private
or public law, he must correctly apply them to the determination of the
dispute.
A point has been raised by the Trustees on the width of the Ombudsman's
discretion to give directions under section 151(2) of the 1993 Act. Mr Simmonds
QC sought on behalf of the Trustees to uphold the decision of the Ombudsman to
decline to direct the Trustees to pay the benefits on the ground that Mr Read
did not come with clean hands. He submitted that the sub-section confers the
widest possible discretion both as to the nature of the remedy granted and as
to whether he should grant any remedy at all. He was not limited to those
courses of action which would be open to a court in litigation.
I am unable to accept this submission. In Hillsdown Holdings plc v.
Pensions Ombudsman [1997] 1 All ER 862 at 868b-d Knox J said
" The terms in which Parliament has chosen to define the remedial powers of the
Pensions Ombudsman in s 151(2) are remarkably wide. All that is said is that he
may direct the taking or refraining from taking such steps as he may specify.
That some limits must be placed upon the steps is self evident but that
sub-section is silent on the subject and, unless one is to resort to what to a
lawyer would be a counsel of despair and leave the limits to the unfettered
discretion of the Pensions Ombudsman, so as to put him under the traditional
palm tree, limits must be sought elsewhere. It was not suggested by any party
before me that there are no limits upon the Pensions Ombudsman's powers to
direct steps to be taken or not to be taken. The appeal to the court on a point
of law suffices to show, if it needs to be shown, that the Pensions Ombudsman
must operate within the law."
He added that the limitations on his power are to be found in the definition
of his function, in particular the determination of disputes of fact or law. At
p.899d he repeated that it was trite law that "pension funds must operate
within the law" with the result that, on a question of legal liability to
refund payments improperly made from a scheme, it was not right that there
should be a different answer as to the substance of the dispute according to
whether the dispute was decided by a court or by the Ombudsman.
I agree. The Ombudsman does not have a discretion to refuse relief in the
circumstances of this case if he makes a determination, without error of law,
that Mr Read was not dishonest. If in legal proceedings a Court rejected the
allegation of dishonesty against Mr Read it would be bound to order the
Trustees to pay to Mr Read his pension benefits. It would not be entitled to
reject his claim against the Trustees on the ground that he was seeking an
equitable discretionary remedy which the court could refuse on the ground that
he did not have clean hands.
Conclusion.
I would allow the appeal of Mr Read to the extent of
(1) setting aside the declaration made by Hart J that the Trustees are
entitled to withhold Mr Read's benefits under the Scheme; and
(2) remitting the dispute to the Pensions Ombudsman for him to re-determine,
in accordance with the terms of this judgment, the dispute whether Mr Read was
a dishonest accessory to a breach of trust by Lassen, notwithstanding the
absence from this dispute of a complaint by the Trustees of dishonesty
against Mr Read's two co-directors. In his investigation of the dispute, he
should consider all the evidence concerning Mr Read's role in the affairs
of Lassen in relation to the matters established as constituting a breach of
trust by Lassen and determine whether such breach of trust was dishonest and
whether Mr Read dishonestly assisted in that breach of trust.
The court invites the parties to agree the wording of the proposed order,
failing which the court will hear submissions on the handing down of judgments
on this appeal.
SIR RONALD WATERHOUSE:
I agree that this appeal should be allowed to the extent indicated by
Mummery LJ and for the reasons that he has given.
I agree, in particular, with the analysis of the legal position by Mummery LJ
under the heading "Liability of Mr Read as Dishonest Accessory" and his
conclusion that the Pensions Ombudsman failed to address the question whether
there had been a dishonest breach of trust by Lassen and, if so, how that
impinged on the liability of Mr Read. This failure stemmed from the Pension
Ombudsman's error of law, in my judgment, in holding that he was constrained
from finding that Mr Read had been dishonest because of the terms of the
Trustees' submissions, based on the premise that Mr East and Mr Percival, Mr
Read's fellow trustees at the time, had not been dishonest. This error itself
resulted, in my view, from too narrow an interpretation of "the dispute" that
had arisen in relation to the pension scheme between the Trustees and Mr Read,
as the complainant. As Mummery LJ has stated, the central issue was whether Mr
Read had, by his conduct in relation to the purchase of Coombe Hill House,
dishonestly assisted in or procured a breach of trust by Lassen; and that issue
ought to have been determined by the Pensions Ombudsman on consideration of all
the evidence about and relevant to Mr Read's conduct in relation to the
purchase.
For these reasons I am unable to accept that this Court is bound to uphold the
Pension Ombudsman's finding that Mr Read was not dishonest as a finding of
fact, underpinned as it was by an error or errors of law. The contrary view
would, in my judgment, unduly restrict the Pension Ombudsman's jurisdiction in
determining "any dispute".
In these circumstances I see no alternative to a re-hearing. I have some
sympathy with the view of the learned judge below that he was able to
substitute a finding of dishonest assistance on the part of Mr Read on the
basis of the primary facts found by the Pensions Ombudsman but I have been
persuaded that the judge was wrong to do so, having regard to the limited
nature of the investigation by the Pensions Ombudsman on the one hand and the
importation of his own theory, which Mr Read had no opportunity to deal with,
on the other hand.
Finally, I should make it clear that I respectfully agree also with the
concluding comments of Mummery LJ on the limits of the Pensions Ombudsman's
discretion to give directions under section 151(2)of the Pension Schemes Act
1933.
LORD JUSTICE PILL:
In 1996 Mr J L Read referred to the Pensions Ombudsman a dispute he had with
the Trustees of the LEP (UK) Pension Plan ("the Scheme") He had been Chairman
and Chief Executive of LEP Group plc ("the Group"), a large public company.
Having reached retirement age, he claimed a pension under the Scheme. The
actuarial value of his benefit was between £1.4m and £1.5m and,
subject to the Trustees' objection, he was entitled to a pension of over
£100,000 a year. I gratefully adopt the statement of the factual
background, and indeed of the entire dispute, by Mummery LJ.
The Trustees' objection was based on alleged conduct of Mr Read while chairman
of Lassen Trustees Ltd ("Lassen"). That company was in 1990 and 1991 the sole
trustee of the Scheme. In January 1992, Mr Read was removed from office as
chairman and director of Lassen. He had ceased to be a director of the Group in
1991. In 1995, Lassen was replaced as trustee by the present Trustees, ("the
Trustees"). Mr J R East and Mr P W S Percival were also directors of Lassen in
1991. They continued as Trustees following his removal, Mr East becoming
chairman. Mr East and Mr Percival, as well as Mr Read, were potential
beneficiaries under the Scheme. Mr East was finance director of LEP Group plc
and Mr Percival company secretary. I refer to their involvement because of an
important finding of fact by the Ombudsman.
Mummery LJ has set out the circumstances in which the Scheme lost a sum of
money substantially in excess of that held for the benefit of Mr Read. I agree
with LORD JUSTICE MUMMERY:
1) that the Ombudsman did not address the question whether there had been a
dishonest breach of trust by Lassen and, if so, how that impinged on the
liability of Mr Read.
2) that the Ombudsman's own theory of the circumstances of the purchase of the
Coombe Hill House involved criticisms which the Trustees never alleged and
which Mr Read did not have the opportunity to answer.
3) that Hart J was not entitled to reverse the Ombudsman's finding of fact that
Mr Read was not dishonest.
4) that the Ombudsman did not have a discretion to refuse relief in the
circumstances of this case if he made a determination, without error of law,
that Mr Read was not dishonest.
It is common ground that the Pensions Ombudsman must act in accordance with
legal principles. I respectfully adopt the statement of Knox J in Hillsdown
plc v Pensions Ombudsman [1997] 1 All ER 862 at 899e:
"It is trite law that pension funds must operate within the law and it does not
seem to me right that there should be a different answer to the question `are
you legally liable to repay this sum' according to the tribunal to which resort
is had so that the answer is: `If I am sued in court, No, but if a complaint is
made to the Pensions Ombudsman, Yes.'"
I accept that proceedings before the Ombudsman may be more informal than
those before a court but the same principles of fairness apply to a dispute
before the Ombudsman as to one before a court. These include the right to know
the opposing case and the consequential right not to have to face a different
case on the same subject matter if the first has failed. (Henderson v
Henderson (1843) 3 Hare 100, 115, Yat Tung Co v Dao Heng Bank [1975] AC 581). In Henderson Wigram VC stated, at p 115:
"... where a given matter becomes the subject of litigation in, and of
adjudication by, a court of competent jurisdiction, the court requires the
parties to that litigation to bring forward their whole case, and will not
(except under special circumstances) permit the same parties to open the same
subject of litigation in respect of matter which might have been brought
forward as part of the subject in contest, but which was not brought forward,
only because they have, from negligence, inadvertence, or even accident,
omitted part of their case. The plea of res judicata applies, except in special
cases, not only to points upon which the court was actually required by the
parties to form an opinion and pronounce a judgment, but to every point which
properly belonged to the subject of the litigation, and which the parties,
exercising reasonable diligence, might have brought forward at the time."
In Talbot v Berkshire County Council [1994] QB 290 Mann LJ, at p 300,
categorised the principle as cause of action estoppel.
Before purporting to rely on Mr Read's lack of "clean hands" to disentitle him
to relief, the Ombudsman stated:
"I have resolved the dispute in [Mr Read's] favour, in that I have found that
the Trustees were not entitled to withhold his benefit for the reasons they
advanced and bearing in mind, as I said in paragraph 3, that dishonesty must be
strictly pleaded and proved so that I have not found him dishonest".
It would follow from those findings, and subject to two further conclusions of
Mummery LJ, that the Trustees are not entitled to withhold Mr Read's
entitlement under the scheme.
Mummery LJ reached two further conclusions which led to his conclusion that
the dispute must be remitted to the Pensions Ombudsman for a further
determination whether Mr Read was dishonest. The first, with which I also
respectfully agree (though not with what should follow from it), is that the
question whether there had been a dishonest breach of trust by Lassen, and what
part Mr Read had played in the matters which constituted breach of trust, was
not considered by the Ombudsman. The second, with which I am unable to agree,
is that the Ombudsman has misdirected himself in law in his consideration of
the conduct of Mr Read in relation to that of Mr East and Mr Percival. I
consider each of those conclusions and state the consequences which, in my
view, flow from them.
The reason the Ombudsman did not consider the first question just posed was,
as Mummery LJ states, that the allegation by the Trustees of dishonest
assistance in a breach of trust had not included consideration of Mr Read's
role in the affairs of Lassen. In detailed written submissions, the issue was
limited in the manner described by Mummery LJ. Upon receipt of the provisional
determination of the Ombudsman, the Trustees, by their solicitors, continued to
put their case against Mr Read on the basis of their earlier submissions and
without the element now identified by Mummery LJ. In a letter of 8 December
1997 it was stated at paragraph 1(b):
"The Ombudsman correctly identifies in paragraph 2-4 the three matters which
must be established to justify withholding Mr Read's benefit namely:
(i) the former trustee was in breach of trust;
(ii) [Mr Read] dishonestly procured or assisted in the commission of the
breach;
(iii) the dishonesty caused loss to the Scheme."
As to the second conclusion, and, of many, it is the only one with which I
respectfully disagree, the Ombudsman stated at paragraph 62:
"Turning to the allegations by the Trustees set out in paragraph 58(i). If, as
the Trustees accept, no case of dishonesty can be made against Mr E and Mr P,
then the Disputant also cannot, in my view, be treated as having been
dishonest. There were three directors of the Former Trustee. The Disputant on
his own was not is a position to `insist', nor do the Trustees establish he
acted substantially differently from his fellow directors in relation to
seeking to derive benefit for the Group. He may have been the leader, but his
followers were not members of a chain gang."
Mummery LJ considers that paragraph to be a legal non-sequitur. The Ombudsman
erroneously regarded himself as legally inhibited in his investigation of the
alleged dishonesty of Mr Read by the Trustees "concession" that Mr East and Mr
Percival were not dishonest.
I regard the conclusion of the Ombudsman as essentially a finding of fact he
was entitled to make. In their written submissions to the Ombudsman the
Trustees stated at paragraph 4.2(d):
"Mr Read is liable as a constructive trustee because he acted dishonestly in
the respect set out in paragraphs 2.10 and 2.11 above. Mr East and Mr Percival
would only be liable if they too had acted dishonestly. The Trustees have
carefully considered the position of Messrs East and Percival and have been
advised that, although they certainly bear a moral responsibility for the clear
breach of trust committed by Lassen in purchasing Coombe Hill House, there is
no case of dishonesty to be made against them."
Particulars are then given. It has not been suggested that the Trustees were
acting beyond their powers or in breach of trust in presenting their case in
that way.
The Ombudsman had to make a finding of fact as to whether the dishonesty
alleged against Mr Read was proved. He was deciding a dispute between the
parties. In deciding that issue, he was entitled to take as a starting point
the Trustees' case that Mr East and Mr Percival were not dishonest. The
Trustees in effect invited him to make a comparison. Their case depended on a
distinction being drawn between the conduct of Mr Read and that of his fellow
directors. He was entitled to consider the respective roles and conduct of Mr
Read on the one hand and Mr East and Mr Percival on the other. Having done so,
he was entitled to reach the conclusions of fact stated in paragraph 62. Mr
Read did not act "substantially differently from his fellow directors"; "he may
have been the leader, but his followers were not members of a chain gang".
Those are findings of fact which justified the conclusion that dishonesty was
not proved against Mr Read. The Trustees' own view of Mr East and Mr Percival
was the starting point for a consideration of the evidence which led to the
findings of fact in the paragraph. It would not, in my view, be a true reading
of paragraph 62 as a whole to treat the second sentence as a conclusion of law.
The Ombudsman was entitled to conclude on the facts that Mr Read should not be
distinguished in this respect from his fellow directors. That finding involved
no error of law.
Supporting that finding of fact, was a letter written by Lassen to members,
pensioners and deferred pensioners of the Scheme on 8 June 1992, that is after
Mr Read had been dismissed. It was signed by Mr East as Chairman, by Mr
Percival and by a third signatory. Members were told that the discontinuance
valuation on 1 January 1992 "indicated that there would be a shortfall of
assets of some £6.4m. A more recent valuation indicates that this
shortfall has reduced to £5.9m" . Under the heading "Reason for shortfall"
a description is given of the circumstances in which Coombe Hill House, which
had suffered a sharp decline in value, was purchased in June 1991. It was
stated:
"It was considered that, by purchasing Coombe Hill House, the Pension Fund was
provided with a valuable investment, generating an annual rental of nearly
£1 million. It was recognised at that time that the purchase by the
Pension Fund of this property not only offered the Fund a sound investment, but
also helped the LEP Group through what was understood to be temporary cash
difficulties. In this particular set of circumstances the view was taken that
there was no conflict between the interest of the LEP Group and the interests
of the members, whose protection is, of course, the Trustees' sole
responsibility.
While property values generally remain depressed, the Trustees believe that
Coombe Hill House is potentially a valuable investment for the Pension Fund,
although as you will see from the summary of ACTION below, all the Fund's
current property investments are under review."
No attempt was made by Mr East and Mr Percival in that letter to distance
themselves or dissociate themselves from Mr Read's conduct or from the
transaction, nor realistically could there be. Upon the case put to the
Ombudsman by the Trustees, he was entitled to find as a fact that Mr Read could
not properly be distinguished from his co-directors in 1991.
My conclusions are as follows:
1. Not only was Mr Read entitled to an application of principles of law, he was
entitled to the same procedural safeguards in a claim referred to the Pensions
Ombudsman as if it had been made to a court.
2. The Ombudsman's task was, like that of a judge, to decide a dispute between
the parties.
3. The Ombudsman was entitled to decide that dispute upon the basis of the case
put to him by each of the parties. He was also entitled, had he seen fit, to
conduct further investigation of his own, subject to the usual requirements of
a fair hearing.
4. On the two points now considered, the Trustees, having carefully considered
the position, put their case in the manner stated and the Ombudsman dealt with
the case as put by them.
5. Subject to the "clean hands" point, the Ombudsman made findings of fact he
was entitled to make and, on the basis of them, "resolved the dispute in [Mr
Read's] favour", as he put it.
6. The Trustees should not be given the opportunity of presenting a fresh and
different case upon the points at issue (Henderson v Henderson),
alleging for example that Mr East and Mr Percival were dishonest or withdrawing
the assertion that they were not. The new matters could have been raised at the
first hearing. The Trustees would not be permitted that opportunity before the
courts; they should not have it before the Ombudsman.
7. The Ombudsman could have made his own fuller investigation of Mr Read's role
in the affairs of Lassen, as contemplated by Mummery LJ. Deciding, as he was, a
dispute between the parties, the Ombudsman was not obliged to do so. He not
having done so, the Trustees cannot now require him to conduct a fresh hearing
so that they can put fresh allegations.
8. The Ombudsman's determination of the dispute in Mr Read's favour should
therefore stand and, because the "clean hands" argument fails, Mr Read is in my
judgment entitled to his pension.
I too express surprise that neither side asked for an oral hearing. I accept
the statement of Staughton LJ in Siefert v Pensions Ombudsman [1997] 4
All ER 947 at 952 that the procedure is intended to be "simple, swift and
cheap". The dispute involved a large sum of money and an allegation of
dishonesty. It was determined on paper without the benefit of oral evidence or
submissions. The parties' understandable wish to achieve those objects may have
contributed to the difficulties and differences of view which have arisen. It
is unlikely that the difficulties which have confronted Hart J and this court
would have occurred had there been oral evidence and oral submissions on
conventional lines. I add that no complaint is, or could be, made by the
parties of the Ombudsman's conduct in not exercising his power to direct an
oral hearing.
Having regard to Mummery LJ's statement of the law upon the duties of
trustees, with which I agree, I am less than satisfied with the result I would
achieve. The Ombudsman has the jurisdiction to determine disputes, however. He
does so on the basis of the case presented to him. He is the fact finding
tribunal. In that context, I consider it important that, subject to errors of
law, his determination of a dispute is treated as final. It would not serve the
interests of justice if a party who fails with a case before the Ombudsman can
put a different case which could have been put the first time.
I would have allowed the appeal of Mr Read and dismissed the
Trustees'
consequent application that the dispute be remitted to the Ombudsman.
Order: Appeal allowed in part.
(Order does not form part of the approved judgment)
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