In our e-bulletin of 27 August 2010, we looked at estoppel based on a change of position as a defence to a trustee claim for over-payment to a scheme member.
In this briefing we continue our analysis of this area with a review of the High Court case Catchpole v Alitalia Pension Trustees (Warren J: 16 July 2010), with some points about estoppel claims against pension trustees, and about the Court's view of the Ombudsman.
Estoppel and pension trustees
Estoppel may assist trustees when claims are made against them by members on the basis of representations by the trustees or the employer, or by common assumptions arising between members and trustees, and estoppel has not generally proved to be a secure basis for member claimants. However, such estoppels have frequently been based on estoppel by convention (which was only an alternative and weaker limb for Mr Catchpole). In cases such as ITN v Ward and Trustee Solutions v Dubery, the Courts have seen a theoretical basis for estoppel being capable of operating in pensions claims, but real obstacles have arisen, at least to group estoppel claims. These are listed in Trustee Solutions, and include, among others:
- a need to show an estoppel principle applies to all existing members;
- a need to show a course of dealing by each claimant (passive acceptance is insufficient);
- booklets and announcements that expressly do not over-ride the trust deed and rules cannot give rise to an estoppel;
- the Courts should generally be cautious of accepting an estoppel that favours a few members against the interests of other members.
The Icarus case is an exception, but, as the Court noted in Trustee Solutions, the reasoning in that case regarding estoppel is very compressed, and no general principle can readily be derived from it: given the more recent cases, its authority is open to doubt.
Estoppel by representation
Mr Catchpole's claim was based on estoppel by representation for which (as in estoppel by convention) the basic principle is unconscionability. However, this concept taken alone is considered too general a basis on which to reach firm conclusions. Therefore, the Court recognises three "classic" principles set out in Steria v Hutchison, while bearing in mind that these are not intended to introduce rigidity into what is intended to be a flexible doctrine:
- a clear representation or promise made by the defendant upon which it is reasonably foreseeable that the claimant will act;
- an act on the part of the claimant which was reasonably taken in reliance upon the representation or promise; and
- after the act has been taken, the claimant being able to show that he will suffer detriment if the defendant is not held to the representation or promise.
In relation to (b) the "But for" test need not apply ("But for the representation, the claimant would not have acted as he did."); this is regarded as too onerous a test. Rather, the representation need merely be a significant factor in the claimant acting as he did. Additionally, an act may be a failure to act.
Mr Catchpole and the Pensions Ombudsman
Mr Catchpole lived with his partner for many years, unmarried. She was a member of the Alitalia pension scheme. In 2004, while in good health, she wrote to the Scheme secretary asking whether her partner Mr Catchpole would be entitled to pension benefits if she died, or whether they needed to be married for him to benefit if she died. The rules did not grant such benefit, but unfortunately the written response from an Alitalia employee (taken by the Ombudsman and the Court to be speaking for the pension trustees) quoted the definition of "spouse" (which included a person living with the member as spouse), with the clear implication that the definition did apply to a spouse's pension, when it did not do so. Mr Catchpole's partner later became ill, and died in 2007, still unmarried. Mr Catchpole applied for a spouse's pension, and was refused in accordance with the scheme rules; he complained to the Ombudsman, who agreed with the trustees that Mr Catchpole was not entitled to a spouse's pension.
The Ombudsman's reasoning was that on the evidence Mr Catchpole failed at the second hurdle – his failure to act (ie marry) was not taken in reliance on what the trustees had told him – the couple were in a relationship that they did not regard as requiring marriage, Mr Catchpole had said that they would not have regarded marriage as a particularly significant matter, and the partner was healthy at the time of her enquiry; additionally, Mr Catchpole had not taken steps to improve his inheritance tax position by marrying in advance of his partner's death – and therefore financial security did not appear to be a significant factor in the pair's view of their relationship.
Mr Catchpole appealed.
Mr Catchpole and the High Court
The Ombudsman's decision
The Court first considered the Ombudsman's decision. The Court recognised that it is not for the Court to substitute its own findings of fact on an appeal; appeals are on points of law, but the Court can substitute its own findings of fact if the evidence does not support the Ombudsman's factual conclusions. In this case, the Court decided that evidence from Mr Catchpole, which was supported by the trustees and the author of the erroneous trustee response, was that the pair would have married – it would not have been a major step for them – if they had been given the correct information. To the Court, the length of the unmarried relationship seemed neutral and the inferences to be drawn from the partner's ill-health could point either way. Finally, Mr Catchpole was not given the opportunity to respond to the financial security / inheritance tax issue (it was not raised in correspondence or in the draft determination). Since the non-neutral evidence all pointed one way, the Court concluded that the Ombudsman could not have reached his conclusion properly, and overturned the Ombudsman's decision on fact.
The Court did recognise the informality of Ombudsman proceedings (and that complaints are usually managed on paper). The Court also observed that written evidence can be rejected on the papers alone without an oral hearing – from inconsistency or implausibility (for example), and perhaps other circumstances. But the Court seemed to suggest that, absent such reasons, the Ombudsman must generally accept the evidence before him, untested by other means. There is therefore a tension between the desirable informality of the Ombudsman's procedures, and the need to test evidence.
Estoppel by representation
It was suggested on behalf of Mr Catchpole that the Ombudsman should have asked himself whether the issue was one of maladministration. The Court rejected this – the Ombudsman's powers are no more than can be granted by the Court. The Court stated that this was a case based on estoppel by representation (the letter from the trustees), and, on applying the Steria principles, found prima facie that an estoppel did arise:
- on the first limb "a clear representation or promise made by the defendant upon which it is reasonably foreseeable that the claimant will act", a clear representation had been made – a written statement concerning the rules of the scheme;
- on the second limb "an act on the part of the claimant was reasonably taken in reliance upon the representation or promise", the Court found – on the basis of the effectively unchallenged evidence – that Mr Catchpole and his partner had not married because they relied on the misrepresentation;
- on the third limb "after the act, the claimant being able to show that he will suffer detriment if the defendant is not held to the representation", Mr Catchpole was clearly suffering, since he had not been granted a pension.
Significantly, however, the Court found necessary to consider two further issues: (a) whether it made any difference to whom the representation was made; and (b) issues arising out of estoppel being asserted against trustees of a pension scheme.
Representation not made to the Claimant
The Court concluded it made no difference to whom the representation was made in this case. Either Mr Catchpole could argue that his partner's query was raised on behalf of both of them and/or the response was for both; or (the argument preferred by the Court) Mr Catchpole's partner could and did rely on it and therefore acted accordingly (ie did not marry). Clearly her intention was that her partner Mr Catchpole should benefit and, since she could remedy this herself – being deceased – it would be unconscionable for the Alitalia trustees to assert that Mr Catchpole could not be treated as a spouse.
Estoppel in a pension scheme
As regards estoppel in the context of a pension scheme, the Court first considered whether a claimant's rights in estoppel were against the scheme generally or individual trustees who made the misrepresentation – in such circumstances trustees would be generally able to recoup from the scheme (or the employer). However the Court rejected this since the nature of the estoppel is only that the defendant is estopped from denying that the Claimant is entitled to be treated as a spouse – but when those trustees cease to be trustees this would not help the claimant. Also, such trustees might have insufficient assets to meet his claim, if they cannot recoup from the scheme. The Court therefore regarded the better approach that an estoppel is binding on current and successor trustees – this would put the claimant in the same position he would have been in if he had been given the right information and acted upon it.
The remaining question was whether it would be unconscionable for Mr Catchpole to benefit, given that his pension would have an adverse effect on other beneficiaries. The Court did not find it unconscionable, given that Mr Catchpole and his partner could (and would) have married – and over this the trustees had no control: had the pair married, the trustees would have been obliged to pay a spouse's pension. Also, no trustee discretion or scheme amendment was required, and therefore the Court did not need to impute a decision to the Alitalia trustees.
The Court therefore did not find it unconscionable to put the prima facie estoppel into effect, and Mr Catchpole therefore succeeded.
In this case, the Court has provided some clarity over the operation of estoppel in relation to a pension scheme – it is assertable against the current and future trustees of the scheme – to put the claimant in the position he would have been. It is not asserted against merely the trustees who made the representation / promise. Also, a representation need not necessarily be made to the claimant personally – the Court may find arguments that render this unnecessary. The Court continues to recognise that it may be unconscionable for an individual to assert an estoppel against the interests of other scheme members, but this is not insuperable.
The case is also another example of the Court asserting its authority over the Ombudsman. The Ombudsman must consider the legal questions put to it. Also, the Court seemed to imply that the Ombudsman must follow the paper evidence, albeit perhaps untested owing to the informality of the Ombudsman's proceedings, unless it is contradicted by other paper evidence or is implausible. Finally, this is also an example of the Court being prepared to overturn an Ombudsman finding of fact that could not properly have been reached.