In The Pensions Ombudsman v EMC Europe Limited and Others [2012] EWHC 3508 (Ch), the High Court has decided that the Pensions Ombudsman did not have jurisdiction to decide a complaint where the direction sought would adversely affect the rights of a party which could not itself be bound by the Ombudsman’s determination.  The question arose pursuant to an application by the Ombudsman for directions from the High Court as to whether, as a matter of law, he should accept jurisdiction to investigate a complaint brought by a Mr Dilley in connection with the Data General Employee Benefits Plan (the “Scheme”). The Ombudsman submitted that he was entitled to accept jurisdiction, a position which was contested by the defendants, and ultimately rejected by Mr Justice Briggs.

The complaint

Mr Dilley’s complaint concerned a compromise agreement entered into in August 2002 between the then trustees of the Scheme and three EMC companies: EMC Europe Limited (the principal employer under the Scheme), EMC Computer Systems (UK) Limited (a participating employer in the Scheme), and EMC Corporation. EMC Corporation is incorporated in the USA and is the parent of EMC (UK) (itself the parent of EMC Europe) but is not, and never has been, a participating employer in the Scheme.

The terms of the compromise agreement were to compromise the liabilities of EMC Europe and EMC (UK) to fund the Scheme, in return for a single lump sum payment of £1.2m. Notwithstanding that it was not a participating employer, EMC Corp was a party to the compromise agreement under which it was obliged to put EMC (UK) and EMC Europe into funds in order to make the compromise payment. The compromise payment was made and the Scheme was subsequently put into winding up.

Mr Dilley brought a complaint to the Pensions Ombudsman in 2005, seeking a declaration that the compromise agreement should be set aside, and the Scheme administered as if the compromise had not ever been made. The grounds for his complaint were twofold:

  • EMC companies had failed to disclose full financial information to the then trustees before the settlement terms were agreed;
  • the then trustees had failed to obtain up to date financial information about the Scheme employers.

The facts of the Complaint were not agreed between the various parties, but this was not a matter on which the High Court was required to determine.

At the time that Mr Dilley’s complaint was made to the Ombudsman, the Pensions Regulator was also investigating certain matters relating to the Scheme. The Ombudsman therefore notified Mr Dilley in February 2006 that the complaint fell within his jurisdiction but that the investigation would be put on hold pending the conclusion of the Regulator’s investigations. The Regulator’s investigations concluded in July 2007, following which Mr Dilley confirmed that he wished to proceed with his complaint. The Ombudsman then notified Mr Dilley, the trustees of the Scheme and the three EMC defendants in April 2008, of his decision to investigate the complaint.

The application

The defendants argued that the Ombudsman did not have jurisdiction to investigate the Complaint for the following reasons:

  • EMC Corp could not itself be bound by any determination of the Ombudsman (on the grounds that it was not an employer in relation to the Scheme) and yet, if the Ombudsman was to determine that the Scheme should be administered and funded on the basis that the compromise agreement should be set aside, its interests would nevertheless be adversely prejudiced by such determination (specifically because of the adverse effect of any such determination on the value of its shareholding in EMC (UK)). Counsel for the defendants argued that as a party to the compromise agreement, EMC Corp would plainly be adversely affected if the Ombudsman made the determination requested. They also submitted that the determination would be ineffective as EMC Corp, which would not be bound by its terms, could make an application for specific performance of the terms of the compromise agreement so as to oblige the trustees to enforce its terms.
  • The Ombudsman had failed to inform them “forthwith” of his decision to investigate Mr Dilley’s complaint (such as he is required to do pursuant to Rule 5(2) of the Personal and Occupational Pension Schemes (Pensions Ombudsman) (Procedure) Rules 1995), and consequently no longer had jurisdiction to investigate the complaint. It was only necessary for the Court to consider this second point, if the defendants’ primary argument failed.  

The Edge principles

The first of the defendants’ arguments turns on the scope of the application of the principles laid down in Edge v Pensions Ombudsman [1998] Ch 51.  Edge concerned a complaint to the Ombudsman regarding an amendment made to scheme rules which had the effect of reducing employer contributions and increasing benefits for active members. The amendment conferred no benefit on then pensioner members of the scheme. On a complaint by a pensioner member, the Ombudsman determined that there had been a breach of trust by the trustees in making the relevant amendment and that the scheme should be administered as if the amendment had not been made.

An appeal was made to the High Court on the grounds that the Ombudsman’s determination adversely affected the rights of employers and active scheme members without those parties having been party to the proceedings, nor having had an opportunity to make representations.  The active scheme members could not in any event have been bound by the Ombudsman’s determination. The High Court, and subsequently the Court of Appeal, upheld the appeal, on the grounds that: (i) it was contrary to the principles of natural justice for the Ombudsman to be able to determine or adversely affect, the rights of persons who were not themselves parties to the proceedings; and (ii) Parliament cannot have intended the Ombudsman to determine matters relating to parties who could not otherwise have been bound by his determination.

The Ombudsman’s position

The Ombudsman argued that he had jurisdiction to investigate Mr Dilley’s complaint. He made three specific arguments, all of which were rejected by the Court:

  • EMC Corp’s only loss would be in terms of a reduction in the value of its shareholding in EMC (UK); this was not a form of loss which should impact the Ombudsman’s jurisdiction. He argued that to recognise such loss as impacting the scope of the Ombudsman’s jurisdiction would ease the way to parent companies being able to frustrate member complaints against sponsoring employers.

Mr Justice Briggs disagreed, drawing a distinction between a contractual right conferred on a party by way of a contractual agreement, and rights simply attaching to share ownership. Where a party has a contractual right, then it is entitled not to have that right overridden by proceedings to which it either is not, or cannot, be a party. In taking this view, Mr Justice Briggs appears to have placed import on the fact that EMC Corp was a genuine party to the compromise agreement and provided all of the funding by which the payment obligations under that agreement were met. Simply making a non employing company a party to such an agreement without it having any real role under the agreement might not be sufficient.

  • There was no sure way in which a determination against EMC Europe and EMC (UK) could be rendered ineffective – an injunction preventing the trustees from administering the Scheme as if the compromise had not ever been made would be at the discretion of the Courts and so the risk of such a remedy was not certain and should not go to the question of the Ombudsman’s jurisdiction.

Mr Justice Briggs again disagreed with this argument, holding that it cannot have been Parliament’s intention to confer such jurisdiction on the Ombudsman as would give rise to the risk of fresh proceedings or parallel litigation in relation to the Ombudsman’s determination.

  • The Edge line of case law was concerned with proprietary rights in relation to scheme assets, whereas in this case EMC Corp had no such right which could be infringed by the Ombudsman’s determination.

Mr Justice Briggs was not persuaded by this line of argument, and did not regard the principles established in Edge to be constrained in this way.

In dismissing the Ombudsman’s arguments, Mr Justice Briggs found the case to stand on all fours with Edge, stating:

More generally, I consider it plain that no court would entertain Mr Dilley’s claim to set aside the compromise agreement without joining EMC [Corp], which was in substance the buyer of the trustee’s release of EMC Europe and EMC (UK) from further liability. If follows that the principles in the Edge case are fully applicable to Mr Dilley’s complaint, and that it would not be proper for the Ombudsman to assume jurisdiction in relation to it.”

Delay

Although he did not need to decide the point, Mr Justice Briggs did also address the argument of delay raised by the defendants. He held that the Ombudsman’s delay in notifying the defendants of his intention to investigate was not a breach of Rule 5(2) of the Procedure Rules and would not have been sufficient to enable him to conclude that the Ombudsman should decline jurisdiction to investigate the complaint.

He said that the decision by the Ombudsman in 2006 to investigate Mr Dilley’s complaint subject to the completion of the parallel regulatory investigation being undertaken by the Pensions Regulator “fell short,… albeit by a hair’s breadth” of a decision to investigate a complaint which triggered the requirement to notify the defendants forthwith in accordance with Rule 5(2) of the Procedure Rules. In his view, the obligation to notify arose only after the Regulator had concluded his investigations and the Pensions Ombudsman decided to proceed with his own investigations.

Mr Justice Briggs did, however, take the view that it had been incumbent on the Ombudsman to notify the defendants in 2006 of his intention to undertake his own investigation, even if the requirements of Rule 5(2) were not invoked. Given the failure to have done so, it would then be a matter for the Ombudsman to determine whether that delay had caused the defendants prejudice, sufficient that he should not proceed with his investigation.

Comment

This is a further exposition of the principles expounded by the High Court in Edge and a pertinent reminder to both complainants and defendants of the importance of considering the question of jurisdiction carefully before embarking on or engaging in an Ombudsman complaint.