The High Court has overturned a ruling of the Deputy Pensions Ombudsman in relation to an attempt by the Administering Authority of the NHS Pension Scheme to recover an overpayment of benefits from the estate of a deceased member of the NHS Pension Scheme. The Deputy Ombudsman had limited the amount the NHS Administering Authority could claim to the net assets of the estate. The Court ruled that there was no legal principle to enable limiting the claim in such a way, and that the full amount of overpayment could be pursued.  It also ordered the Authority to reimburse the estate its legal fees.

Background

Dr Steven Wheeler was a locum GP doctor (a position comprising temporary shift work rather than a long term fixed contract) for a surgery in Kettering. He died early one Monday morning before having arrived at work. Shortly after his death, his parents were granted probate of his will.

The NHS Administering Authority paid his estate a lump sum death benefit of £153,053 but later discovered that since Dr Wheeler had operated as a locum and had not yet arrived at work on the morning of his death, he was in fact a deferred member and, as such, under the regulations governing the NHS Pension Scheme, his true lump sum death benefit entitlement was £18,602. The Authority wrote to the executors of the member's estate seeking repayment of the difference of £131,451.

The executors challenged the Authority's claim for repayment before the Deputy Ombudsman on two bases:

  • The Authority had misinterpreted the relevant NHS Regulations and the payment made had in fact been correct.
  • The lump sum benefit given had moved the estate from being insolvent to solvent. As a result, the executors had changed the way they had administered the estate - this included discharging the estate's minor debts totalling £23,468 in full and this amounted to an irrevocable change of position sufficient to amount to a defence against a claim in restitution for the overpaid sum.

The Deputy Ombudsman's determination

The Deputy Ombudsman had dismissed the first argument finding that as a locum GP, Dr Wheeler had not been in pensionable service at the time he died and consequently he was entitled to the death benefits of a deferred member. (This point was not re-argued before the High Court.). In relation to the second argument, the Deputy Ombudsman made a number of findings:

  • The overpayment had amounted to maladministration and was, on the face of it, recoverable as a payment made by mistake.
  • The Deputy Ombudsman had jurisdiction to rule on the claim for repayment and defences related to it.
  • The executors had changed their position by discharging some creditors which they would not have otherwise done.
  • The executors had not been negligent in taking these steps and therefore should not be liable for the shortfall between the net assets of the estate and the repayable sum.

On the basis of these findings, the Deputy Ombudsman ruled that any claim for repayment should be limited to the net (remaining) assets of the estate.  The Ombudsman also awarded the executors their legal costs.

Bases for appeal

The Authority appealed against this finding on two main bases:

  • The Deputy Ombudsman did not have jurisdiction to rule on the claim for repayment; whilst the Deputy Ombudsman could rule on whether the amount needed to be repaid as a matter of pensions law, she could not rule on possible defences of the estate to such repayment.
  • The basis upon which she had arrived at her conclusion to limit repayment was not grounded in established legal principles and was perverse, unreasonable and wrong in law.

Court's findings on the Ombudsman's jurisdiction

The court set out the parameters of the Ombudsman's jurisdiction and how they apply to claims for repayment as summarised in the case of Arjo Wiggins Ltd v Ralph [2010]: the Ombudsman has the power to rule on questions of injustice arising from the maladministration of personal or occupational pension schemes. He also has power to rule on disputes of fact or law between a person responsible for management of the scheme and a beneficiary in relation to such schemes. Once a determination on one of these points has been made, the Ombudsman may direct any person responsible for the management of the scheme to take, or refrain from taking, such steps as he may specify.

It is, however, worth noting that these powers are subject to two qualifications:

  • In making a determination, the Ombudsman must do so on the basis of established legal principles and not simply on what he deems fair and reasonable.
  • The Ombudsman does not have the power to make an order that the court would not be able to make. However, questions of "pure maladministration" and consequent injustice (where there is no infringement of any strict legal rights) are not actionable in court; in these matters, the Ombudsman's powers to make an order may be based on factors other than established legal principles (and include factors such as bias, incompetence, inattention, neglect and delay, etc) and by definition go beyond an order that the court would be able to make.

Claims for repayment (and limitations on such claims) were within the Ombudsman's jurisdiction since they could (and on the facts did) amount to a question of injustice. Defences to a claim for repayment also amounted to a question of fact and law within the Ombudsman's jurisdiction. Whilst there were limits on the Ombudsman's powers i.e. where the determination would be to the detriment of a third party not party to the complaint before the Ombudsman, for example if the question was whether the Authority had a proprietary tracing claim to the assets formerly part of the estate, this was not a bar to the Ombudsman considering defences of estoppel or change of position in relation to claims for restitution.

Reasons for restricting NHS Authority's right to repayment

The Court was critical of the Ombudsman's findings of a 'change of position' defence noting that paying off creditors had not involved any detriment to the estate; additionally, in the administration of the insolvent estate, these payments could be re-opened at the suit of other creditors.

Furthermore, the Court held that the Deputy Ombudsman had confused the liability of the executors in their personal capacity with their liability as Executors of the estate. Their lack of negligence was a defence to a claim in respect of the former, but had no impact in relation to claims in respect of the latter. There was no reason (subject to remedies arising out of maladministration) that the Authority should not be able to make a claim for repayment of the entire sum. The effect of the Deputy Ombudsman's decision had been to prefer all the other creditors over the Authority by not allowing the Authority to seek to recover the whole sum.

Executors' legal expenses were recoverable

In relation to the Deputy Ombudsman's findings that the executors' legal fees were recoverable, the Judge ruled that the Deputy Ombudsman's decision was not an application of general principles of the costs rules within Court procedure, but was rather an award to account for injustice arising out of maladministration on the part of the Authority. Had the Authority not been guilty of such maladministration, the Executors would not have had to incur these costs. Consequently, it was open to the Deputy Ombudsman in the circumstances to exercise her discretion to make this award.

Comment

The Judgment highlights the fact that where executors of an estate have paid off creditors from an overpayment of pension benefits, this will not be sufficient to constitute a "change of position" defence.

Although it is not usual practice for the Ombudsman to award legal costs in favour of a complainant, in certain exceptional circumstances legal costs may be awarded. The exceptional circumstances here were the complex legal arguments that had to be considered by the executors of the estate which necessitated the seeking of advice from counsel.

The case also highlights the limits to the Ombudsman's powers and jurisdiction when it comes to dealing with issues of fact or law and where he is considering injustice arising out of pure maladministration – the former binds the Ombudsman to established legal principles; the latter are not actionable in Court, and the Ombudsman's powers to make an order may be based on factors other than established legal principles.

NHS Business Services Authority v Katherine Margaret Wheeler and others [2014] EWHC 2155 (Ch)