The case of Braganza v BP Shipping Limited and another1 concerned a decision taken by BP in relation to one of its employees, under a provision in an employment contract.
So, it is not a decision taken under a pension scheme, but there are, nevertheless, lessons that employers and trustees can learn from it to apply when taking such decisions. In particular, the Supreme Court's judgment highlights the need for anyone taking a decision under a pension scheme to rely only on appropriate evidence, and identify all relevant factors and ensure that they are appropriately recorded, in case that record is needed later, to fend off any challenge to the decision ultimately taken.
The case demonstrates just how hard it can be for employers and trustees to get decisions right.
Ultimately, the Court's decision – being that BP did not get its decision right – was supported only by a minority of the judges who considered the matter over time (namely, three out of five in the Supreme Court, plus the High Court judge, whereas all three of the Court of Appeal judges and two judges in the Supreme Court decided the other way – meaning that, overall, five judges were against the decision that the Court reached, with only four in favour).
Given there was significant disagreement between the judges, including as between the President of the Supreme Court (who opposed the Court's decision) and the Deputy President of the Supreme Court (who supported it), what hope does that give employers and trustees who want to be sure that they are doing the right thing? This reinforces the need for employers and trustees to take legal advice – to ensure that their decision-making processes are appropriate and robust, and whenever they are faced with a difficult decision.
The essential question at issue, by the time the case reached the Supreme Court, was whether a death-in-service benefit was payable by BP to the employee's nominated beneficiary (here, his widow) following that employee having died at sea on one of BP's vessels. Under the employment contract, the benefit was payable unless "in the opinion of [BP]… the death… resulted from… [his] wilful act, default or misconduct whether at sea or ashore…".
Mr Braganza was on one of BP's oil tankers in the Atlantic in May 2009 and, one night, disappeared from it, apparently having fallen over the edge of the ship. The question was, was that as a result of an accident or did Mr Braganza commit suicide?
An investigation conducted by BP and subsequent report concluded that "having regard for all the evidence the investigation team considers the most likely scenario to be that C/E jumped overboard intentionally and therefore took his own life."
Mrs Braganza was not happy with that conclusion and challenged it. So, BP commissioned a second report, which looked again at the matter and reached the same conclusion.
BP's appointed decision-maker, Mr Sullivan, considered the reports and concluded that, for the purposes of the relevant provision of Mr Braganza's employment contract, he had committed a wilful act (suicide) and, as a result, Mrs Braganza was not entitled to a death-in-service payment.
The right approach
All the judges in the Supreme Court were agreed as to what the right approach was, as a matter of principle, for Mr Sullivan to have adopted.
Their Lordships outlined an approach that would be familiar to trustees when taking decisions, namely:
- directing oneself properly as to the decision that has to be taken;
- taking into account all relevant factors and no irrelevant factors; and
- taking a rational decision, in other words a decision that a reasonable decision-maker could have taken.
Where their Lordships differed as between themselves, was as to how that approach should be applied to the facts here.
All the judges recognised that it was not their job to substitute their own decision for that of Mr Sullivan; rather it was to see whether Mr Sullivan had taken his decision correctly.
The normal course, on a conclusion being reached that a decision-maker has not taken their decision correctly, is to remit the matter to the decision-maker to decide again – this time correctly (which may still mean the same conclusion being reached). However, here, BP had made a concession that, in the event that the Court found against it, it would simply make a payment to Mrs Braganza.
Application of the principles to the facts
It is in applying the agreed principles to the facts here that we get to the nub of the matter, and it is interesting – but unhelpful to employers and trustees – to see the different approaches taken by the different judges.
In giving the dissenting judgment, Lord Neuberger relied on well-established principles in essentially finding that Mr Sullivan had engaged in an appropriate process and reached a rational decision, and as such it was not for the Court to substitute its own views for his.
However, in contrast, Lady Hale, giving the lead majority judgment, considered that there was something amiss with part of Mr Sullivan's process and that, as a result, the decision was flawed – and this was so notwithstanding that a decision that Mr Braganza had committed suicide was one that was not "arbitrary, capricious or perverse". This highlights that it is not just getting the decision "right" that counts, but how you reach it – at least if you wish to avoid material additional costs in having to defend your decision and possibly re-take it.
Lady Hale had two particular concerns.
The first was that, in her view, the reports that BP prepared were intended for another purpose, rather than the purpose of helping Mr Sullivan decide the cause of Mr Braganza's death (and so Mr Sullivan should not have relied on them for that purpose). However, as the extract from the first report, in relation to its purpose, that Lord Neuberger quoted in his judgment shows, that was a harsh assessment.
Second, and the key point in Lady Hale's decision, was that Mr Sullivan had not taken account of a relevant factor. The factor was that Mr Braganza was a Roman Catholic and so, for him, committing suicide was a mortal sin, which makes it less likely that he did.
Nevertheless, as Lord Neuberger noted, just because neither the BP reports nor Mr Sullivan record expressly taking that into account, it does not mean that they did not do so. Lord Neuberger preferred an analysis that it is widely recognised that suicide is inherently unlikely and that, in the context of a thorough investigation and detailed reports, not every last detail needs to be recorded for the reports and any decision based on them to be appropriate and lawful. Further, there was more than enough evidence available for Mr Sullivan reasonably to have concluded that Mr Braganza committed suicide, so as to mean that the Courts should not interfere with Mr Sullivan's decision.
What can employers and trustees learn from this?
As noted above, the "correct approach" identified by their Lordships in relation to the decision that Mr Sullivan had to take under Mr Braganza's employment contract will be familiar to trustees and employers from decisions that they take under pension schemes.
Nevertheless, that kind of process – in particular taking account of relevant factors – is usually applied where a party has a discretion relevant to how they proceed. An example would be trustees deciding to whom a death benefit should be paid, out of a group of beneficiaries, any one or more of whom could in principle be paid. This was not such a case.
Rather, it was simply a matter of establishing whether an exception to the employer's duty to pay a death benefit applied. We would expect such a decision to be judged only by reference to whether an overall fair and reasonable process had been undertaken and a rational decision taken that, on a balance of probabilities, the exception applied or not – so, more in line with the dissenting judges.
Accordingly, employers and trustees should take note that the Courts will now likely be applying high and particular standards to processes in relation to all types of decisions, and so going through an appropriate process and making an appropriate record will always be important.
Further, of course, in light of the decisions in the recent IBM litigation employers and trustees also need to be aware of whether they have created any "reasonable expectations" that might affect the decision they have to take.
So, to end where we started: getting decisions right is not easy, but getting them right first time can ultimately save a lot of time and money. Therefore, it is worth ensuring that your processes are robust and appropriate, and that advice is taken on any difficult decisions.