Sir John Chadwick:
- The Report of the Parliamentary Commissioner for Administration entitled "Trusting in the pensions promise: government bodies and the security of final salary occupational pensions" (HC 984) was published on 15 March 2006. As the title suggests, the Report addressed the circumstances in which final salary schemes were wound up underfunded and the role of Government in that regard. The Report was presented to Parliament under section 10(3) of the Parliamentary Commissioner Act 1967.
- The Parliamentary Commissioner for Administration (commonly known as "the Parliamentary and Health Service Ombudsman" or, more shortly, as "the Ombudsman") made three findings of maladministration in her Report. Those findings are summarised at paragraph 5.164 of the Report. The first and third findings are these:
"(i) that official information about the security that members of final salary occupational pension schemes could expect from the MFR provided by the bodies under investigation was sometimes inaccurate, often incomplete and therefore potentially misleading, and that this constituted maladministration
(ii) . . .
(iii) that the decision in 2002 by DWP to approve a change to the MFR basis was taken with maladministration."
"MFR", in that context, means the Minimum Funding Requirement introduced under Part I of the Pensions Act 1995. "The bodies under investigation" included the Department of Work and Pensions ("DWP") and its predecessor, the Department of Social Security ("DSS"). As the Ombudsman found, responsibility within Government for occupational pensions policy and for the framework of law and regulation that relates to final salary schemes had, at all times relevant to her investigation, lain with those Departments.
- Having determined that there had been maladministration, the Ombudsman went on to consider whether complainants had suffered injustice as a result. She expressed herself satisfied that complainants and their families had "suffered financial loss, a sense of outrage, and considerable distress, anxiety and uncertainty": paragraph 5.168 of the Report. She was satisfied, also, that complainants had suffered injustice "through an inability to make informed choices or to take remedial action": paragraph 5.169. And, further, that that injustice had not been remedied and that there was no intention in Government that it would be remedied: paragraph 5.175. She concluded, at paragraph 5.245, that "injustice in the forms of a sense of outrage, lost opportunities to make informed choices or to take remedial action, and distress, anxiety and uncertainty was caused by maladministration"; and, at paragraph 5.246, that the maladministration which she had identified "was a significant contributory factor in the creation of financial losses suffered by individuals".
- On the basis of those findings the Ombudsman made five recommendations. Those recommendations (which are set out at between paragraphs 6.10 and 6.37 of the Report) were made, as she said, to remedy the injustice which she had found to have been caused by maladministration. The first recommendation (at paragraph 6.15) was in these terms:
"I recommend that the Government should consider whether it should make arrangements for the restoration of the core pension and non-core benefits promised to all those whom I have identified above are fully covered by my recommendations by whichever means is most appropriate, including, if necessary, by payment from public funds, to replace the full amount lost by those individuals."
The reference, there, to "all those whom I have identified above are fully covered by my recommendations" is to the individuals falling within paragraph 6.9 of the Report.
- Those falling within paragraph 6.9 of the Report and so fully covered by the Ombudsman's recommendations - were those who were members of final salary schemes which commenced wind-up from 6 April 1997 to 31 March 2004 in circumstances where (a) their scheme wound-up with insufficient assets to secure pensions in payment and to pay cash equivalent transfer values in respect of fully accrued pension rights to all non-pensioner members or to secure the full liabilities for each non-pensioner member in other ways, (b) the scheme was not eligible for the pensions compensation scheme (because it had not suffered losses wholly attributable to fraud or other unlawful behaviour) and (c) the individual had suffered an actual financial loss because of a shortfall in the pension promised in respect of the contributions made by him, contracted-out national insurance contributions that were rebated to the scheme or other benefits due (such as survivor benefits and life cover). The first of the two dates (6 April 1997) which defined the period within which a final salary scheme must have commenced wind-up if its members were to be covered by the first recommendation was the date on which the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996 (SI 1996/1563) came into force. The second date (31 March 2004) reflected the Ombudsman's view that, in April 2004, the DWP issued guidance on the operation of the Pensions Act 1995 that was "broadly accurate".
- On 16 March 2006 the then Secretary of State for Work and Pensions made a statement in the House of Commons. He informed the House that the Government had reached the view that it could not accept any of the findings of maladministration made in the Report and that it had decided to reject the first four of the Ombudsman's recommendations.
- Proceedings for judicial review were commenced in the Administrative Court by the issue of a claim form on 14 June 2006. The applicants were Mr Henry Bradley, Mr Robin Duncan, Mr Andrew Parr and Mr Thomas Waugh. Their individual circumstances were described by Mr Justice Bean at paragraphs [11] to [14] of his judgment, [2007] EWHC 242 (Admin). It is not, I think, necessary to set them out in this judgment. The relief sought in the proceedings, after amendment on 21 September 2006, was an order quashing the decision of the Secretary of State, on behalf of the Government, to reject the Ombudsman's first and third findings and first recommendation, and for the matter to be remitted to the Secretary of State for reconsideration.
- By an order made on 21 February 2007 Mr Justice Bean granted the relief sought in relation to the first finding of maladministration (save as to the causation of injustice) and the first recommendation. The Secretary of State appeals (under Court of Appeal reference 2007/0554) from the judge's decision to quash the Secretary of State's rejection of the first finding of maladministration. The judge upheld the Secretary of State's rejection of the Ombudsman's finding that maladministration (the subject of her first finding) had been the cause of injustice; and he dismissed the claim to relief in relation to the third finding of maladministration. He dismissed, also, a claim that the Secretary of State had acted in breach of article 1 of the First Protocol to the European Convention on Human Rights. The applicants appeal (under reference 2007/0556) from those parts of his order. The appeals are brought with the permission of the judge.
- The Court has been assisted at the hearing of these appeals by submissions on behalf of the Ombudsman (as interested party) and on behalf of the Attorney General, who intervened in the proceedings on behalf of the Speaker of the House of Commons.
- The first issue before the judge and, to my mind, the principal issue on these appeals - was whether the findings of the Ombudsman were binding on the Secretary of State. The judge summarised the respective contentions at paragraph [47] of his judgment:
"[47] Ms Rose submits that unless subsequently found by a court to be flawed in law or Wednesbury unreasonable, a finding by the Ombudsman that maladministration has occurred and has caused injustice is binding on the public authority against which it is made, either (a) absolutely, or (b) unless it can be objectively shown to be flawed or unreasonable. Mr Sales, for his part, submits that the Defendant is entitled to reject the Ombudsman's findings on the basis of a bona fide difference of view, and that unless the rejection is itself flawed in law or Wednesbury unreasonable judicial review should not be granted."
I should add that the judge noted that it was accepted by Miss Rose QC on behalf of the applicants that recommendations of the Ombudsman (in contrast to her findings) cannot be binding on the Secretary of State. The Court could not order the Secretary of State to carry out a recommendation. But, in the circumstances that his decision to reject the first recommendation was based (in part at least) upon his rejection of the first and third findings, it would follow that, if he were wrong to reject those findings, he could and should be ordered to reconsider that decision.
The Parliamentary Commissioner Act 1967
- In order to address the question whether the findings of the Ombudsman were binding on the Secretary of State it is necessary to have in mind that the office of Parliamentary Commissioner for Administration was established by statute: the Parliamentary Commissioner Act 1967. The Act was enacted (as its long title declares) "to make provision for the appointment and functions of a Parliamentary Commissioner for the investigation of administrative action taken on behalf of the Crown, and for purposes connected therewith".
- Section 5 of the 1967 Act confers the power to investigate. Section 5(1) is in these terms:
"5(1) Subject to the provisions of this section, the Commissioner may investigate any action taken by or on behalf of a government department or other authority to which this Act applies, being action taken in the exercise of administrative functions of that department or authority, in any case where
(a) a written complaint is duly made to a member of the House of Commons by a member of the public who claims to have sustained injustice in consequence of maladministration in connection with the actions so taken; and
(b) the complaint is referred to the Commissioner, with the consent of the person who made it, by a member of that House with a request to conduct an investigation thereon."
Section 5(2) restricts or excludes the power to investigate in cases where the person aggrieved has or had a right of appeal or review before a tribunal or a remedy by way of proceedings in a court of law. That restriction is not relevant in the present case.
- The bodies whose actions may be the subject of investigation are the government departments, corporations and unincorporated bodies listed in Schedule 2 to the Act: section 4(1) of the Act. The Department of Work and Pensions is (or was at the relevant time) among the bodies listed in Schedule 2. Section 4(2) of the Act provides for other bodies to be added by Order in Council; but the exercise of that power is subject to the restrictions in sections 4(3), 4(3A) and 4(3B). The effect of those restrictions, read with Schedule 2 as enacted, is that bodies whose actions may be investigated under section 5(1) of the Act may be expected to be bodies for whose actions a Minister of the Crown is answerable to the United Kingdom Parliament.
- Section 6 of the Act makes provision for the persons or bodies by whom complaints may be made for the purposes of the Act. It is important to have in mind that a complaint is not entertained by the Ombudsman unless first made to a member of the House of Commons and then referred on by a member of that House: there is no power to investigate complaints which are not made through a member of the House of Commons. Section 7 provides for the procedure to be adopted in respect of investigations. Where the Ombudsman proposes to conduct an investigation she must afford to the principal officer of the department or authority concerned and to any person who is alleged in the complaint to have taken or authorised the action of which complaint is made an opportunity to comment on any allegations contained in the complaint: section 7(1) of the Act. Section 8(1) provides that, for the purposes of an investigation under the Act, the Ombudsman may require any Minister, officer or member of the department or authority concerned to furnish information or produce documents relevant to the investigation. But that power does not extend to the proceedings of the Cabinet or of any Cabinet committee: section 8(4) of the Act.
- Section 10 of the Act ("Reports by Commissioner") is in these terms, so far as material:
"10(1) In any case where the Commissioner conducts an investigation under the Act or decides not to conduct such an investigation, he shall send to the member of the House of Commons by whom the request for investigation was made (or if he is no longer a member of that House, to such member of that House as the Commissioner thinks appropriate) a report of the results of the investigation or, as the case may be, a statement of his reasons for not conducting an investigation.
(2) In any case where the Commissioner conducts an investigation under this Act he shall also send a report of the results of the investigation to the principal officer of the department or authority concerned and to any other person who is alleged in the relevant complaint to have taken or authorised the action complained of.
(2A) . . .
(3) If, after conducting an investigation under section 5(1) of this Act, it appears to the Commissioner that injustice has been caused to the person aggrieved in consequence of maladministration and that the injustice has not been, or will not be, remedied, he may, if he thinks fit, lay before each House of Parliament a special report upon the case."
The judge's conclusion on the first issue: whether the findings of the Ombudsman were binding on the Secretary of State
- The judge reached the conclusion that subject to exceptions identified by this Court in R v Secretary of State for the Home Department, ex parte Danaei [1997] EWCA Civ 2704 "namely where the findings are objectively shown to be flawed or irrational, or peripheral, or there is genuine fresh evidence to be considered" the findings of the Ombudsman were binding on the Secretary of State. His reasoning may, I think, fairly be summarised as follows:
(1) The decision of this Court in R v Local Commissioner for Administration, ex parte Eastleigh Borough Council [1988] 1 QB 855 and, in particular the observations of Lord Donaldson of Lymington, Master of the Rolls, (ibid, 867B-D) was authority for the proposition that, in the absence of a successful application for judicial review, the findings of a Local Government Ombudsman are binding on the relevant local authority.
(2) Although there were differences between the scheme established under Part III of the Local Government Act 1974 - under which a Local Government Ombudsman conducts investigations and make reports - and the scheme established under the Parliamentary Commissioner Act 1967, those differences were not such as to render the proposition established in the Eastleigh case inapplicable to a case under the latter scheme.
(3) The proposition established in the Eastleigh case must be read with the observations of this Court in R v Warwickshire County Council, ex parte Powergen plc [1998] EWCA Civ 2280 and in R v Secretary of State for the Home Department, ex parte Danaei [1997] EWCA Civ 2704. Although those observations were made in the context that the fact finding exercise which had preceded the relevant decision in the first case, a planning inquiry and, in the second case, a hearing before an immigration adjudicator - had been "the exercise of adjudicative powers following an oral adversarial hearing", the different nature of the investigative process under the 1967 Act did not lead to the conclusion that those observations were not in point.
The judge's reasons for upholding the first finding of maladministration
- It followed from his conclusion that the findings of the Ombudsman were binding on the Secretary of State, subject to the exceptions identified in the Danaei case, that the judge was bound to find that the decision to reject the first finding of maladministration was wrong in law unless persuaded that that finding was, itself, demonstrably flawed "as irrational or for failing to have regard to material considerations or for having regard to immaterial ones": (ibid, in the judgment of Lord Justice Simon Brown at page 8 of the transcript).
- The judge addressed the first finding of maladministration at paragraphs [59] to [66] of his judgment. It is clear from those paragraphs that the argument before him had focussed upon two official leaflets: (i) a leaflet "The Pensions Act 1995" (PEC 3) issued in January 1996 by the DSS and (ii) the May 2002 edition of leaflet PM3 "Occupational pensions: Your guide". But the judge referred, also, (at paragraph [63] of his judgment) to a letter dated 22 November 1995 some six weeks before the issue of PEC 3 - in which the DSS had explained to the actuarial profession what the department saw as the intention underlying the MFR.
- The judge had explained, earlier in his judgment (at paragraphs [3] to [5]) that Part I of the Pensions Act 1995 had (amongst other matters) introduced a minimum funding requirement (MFR) in respect of occupational pension schemes and had established priorities for the application of a scheme's assets in the event of the scheme being wound up with insufficient assets to meet its liabilities in full. He had pointed out that detailed provisions as to the method of calculation of the MFR were prescribed in the 1996 Regulations ((SI 1996/1563) to which I have already referred; and that, in particular, regulation 3(2)(c)(ii) of those Regulations provided that, in calculating the MFR, it should be assumed that liabilities in respect of members would be so secured that the benefits of active and deferred members would be "reasonably likely" to be equal in value to those payable in respect of their accrued rights under the scheme. The order of priorities for the application of the scheme's assets where those assets were insufficient to satisfy the liabilities of the scheme in full was established by section 73 of the 1995 Act: in summary, assets were to be applied in meeting (i) liabilities derived from the payment of voluntary contributions; (ii) pensions paid to members who had retired (and, on death, to their dependants); and (iii) liabilities for pensions to members who had not retired.
- The judge drew attention to a paragraph on page 15 of PEC 3:
"New minimum funding requirement for salary related schemes
The Pensions Act introduces a new rule aimed at making sure that salary related schemes have enough money in them to meet the pension rights of their members. If the money in the scheme is less than this minimum level, the employer will need to put in more money within time limits. The minimum funding requirement is intended to make sure that pensions are protected whatever happens to the employer. If the pension scheme has to wind up, there should be enough assets for pensions in payment to continue, and to provide all younger members with a cash value of their pension rights which can be transferred to another occupational pension scheme or to a personal pension."
In particular, he emphasised, the word "sure" in the first and third sentences of that paragraph. He went on to say this (at paragraph [62] of his judgment):
"[62] . . . PEC 3, especially page 15, gives the clear impression that following the enactment of the new law scheme members can be reassured that their pensions are safe whatever happens. I have no doubt that this is what it was designed to do. I agree with the Ombudsman that it was inaccurate and misleading."
- In the letter of 22 November 1995 (to which the Ombudsman had referred at paragraph 4.64 of the Report) the DSS had explained that the intention underlying the MFR had been:
" . . . to require schemes to have a level of assets which should as a minimum be sufficient, if the scheme were to wind up, to enable it to pay in respect of each non-pensioner member a sum which if invested in an alternative appropriate pension vehicle could reasonably be expected to generate a pension benefit at least equivalent to that which the scheme would otherwise have paid in respect of rights accrued up to that point in time".
The letter continued:
"By reasonable expectation we mean that there should be at least an even chance."
The judge pointed out (at paragraph [63] of his judgment) that an expectation that there would be an even chance that a scheme complying with the MFR at the time of being wound up would meet its liabilities implied an expectation that there would an even chance that such a scheme would not meet its liabilities. He went on to say this:
"[63] . . . There is no mention of this 50% chance in the PEC3. It is right to say that the 'even chance' policy is not contained in the statute, and that the Regulations with the phrase 'reasonably likely' followed in 1996; but a description of the intended effect or aim of the MFR as being to make 'sure' that members received the pensions due to them, in an official publication by the same Department that devised the policy, was plainly inaccurate and misleading. It was not even the intended effect, still less the actual effect, of the MFR."
- The judge observed (at paragraph [64] of his judgment) that the May 2002 edition of PM3 made no mention of the risks to accrued pension rights should a scheme be wound up with insufficient funds to meet all its liabilities; and that nothing was said about the statutory order of priorities. There was a heading "How do I know my money is safe?"; but that question was answered "with two columns of information about the duties of trustees and the laws about eligibility to be a trustee and like matters, but nothing is said to warn members that despite these legal precautions their money may not be safe after all". He said this:
"[65] It is not an answer to this point, in scrutinising a general publication directed to lay people, to say that everyone knows that there is no certainty in life; that the value of shares may go down as well as up; and that if your employer goes out of business you are likely to lose your job. A member of the general public between 1995 and 2005 could indeed be assumed to have known these facts of life without being told them in an official publication; but not that if his employers went out of business just before he reached retirement age he might get no occupational pension at all, despite the contributions he had made from his earnings over many years, and despite the existence of people called 'trustees' who he thought were there to protect his interests."
- The judge concluded, without (as he said) finding it necessary to go through each item of official information which was scrutinised by the Ombudsman, that the finding that official information was "sometimes inaccurate, often incomplete, largely inconsistent and therefore potentially misleading" was "well open to her on the evidence". Given the test that he had held applicable, that was a sufficient basis for him to hold that the Secretary of State was bound by the first finding of maladministration; and had been wrong to reject that finding. So he quashed the Secretary of State's decision in that respect.
- It is pertinent to have in mind, however, that the judge would have held that the Secretary of State had been wrong to reject the first finding of maladministration even if he had been persuaded that the applicable test was that for which Mr Sales QC had contended on his behalf: that the Secretary of State was entitled to reject the Ombudsman's findings on the basis of a bona fide difference of view. It is clear that the judge would have held (if he had thought that that was the applicable test) that the Secretary of State's decision to reject the first finding of maladministration was itself flawed in law or Wednesbury unreasonable. He said, in terms, (at paragraph [66] of his judgment) that, "in the case of leaflet PEC3 . . . no reasonable Secretary of State could rationally disagree" with the view that the information which it contained was inaccurate, incomplete and potentially misleading.
The judge's reasons for rejecting the challenge to the Secretary of State's decision in relation to causation
- As I have said, the Ombudsman found that the maladministration which she had identified in her first finding had been a significant contributory factor in the creation of financial losses suffered by individual complainants. The Secretary of State had rejected that finding of causation. The judge declined to quash that part of the Secretary of State's decision. He reached that conclusion for the reasons expressed in paragraph [70] of his judgment:
"[70] If the First Finding had been limited to the causation of injustice to any scheme member who had read the offending leaflets, or who relied on advice from colleagues or others who in turn relied on the leaflets, it would not be open to challenge. But I cannot follow the logic of the Ombudsman's finding that everyone who between 1995 and 2005 suffered losses on the winding up of their pension scheme was the victim of injustice in consequence of maladministration, whether or not official misinformation had anything to do with it and whether or not there were any remedial steps open to them. I therefore conclude that even on the Claimant's case in law (ie that the Ombudsman's findings bind the Defendant subject to the exceptions identified in Danaei) this finding is logically flawed and in that sense unreasonable. . . . "
He went on to observe that, if the correct legal approach were as submitted on behalf of the Secretary of State that is to say, if the applicable test were that the Secretary of State was entitled to reject the Ombudsman's findings on the basis of a bona fide difference of view "the position would be a fortiori".
The judge's reasons for rejecting the challenge to the Secretary of State's decision in relation to the third finding of maladministration
- The third of the Ombudsman's findings of maladministration related to the decision of the DWP in March 2002 to approve a change to the MFR basis. The Ombudsman had set out the background to that decision at paragraphs 4.371 to 4.432 and 5.97 to 5.100 of the Report. The judge summarised the position at paragraphs [71] to [74] of his judgment:
"[71] On 5 September 2001 the Faculty and Institute of Actuaries wrote to the DWP recommending a reduction in the dividend yield figure for the equity market value adjustment factor used in MFR valuations from 3.25% to 3%, and providing reasons for that recommendation. The profession had indicated in previous communications with the DWP that it was minded to make this recommendation.
[72] The DWP asked the Government Actuary's Department ('GAD') to consider and give an opinion on the recommendation. GAD responded on 25 September 2001 endorsing the profession's view without qualification.
[74] The DWP then considered whether there were any overriding policy reasons why it should not accept the recommendation; and, in particular, whether the recommended change was sufficiently straightforward to allow its implementation before the MFR was expected to be replaced. It concluded that the proposed change could be implemented quickly and without due costs to pension schemes. The change was therefore approved and took effect from 7 March 2002."
- At paragraph 5.126 of the Report the Ombudsman had observed that, having examined the evidence, she was not persuaded that the DWP's decision to implement the change recommended by the actuarial profession and supported by the GAD - had been taken "after proper consideration of all the evidence that could have been available to it". At paragraphs 5.148 and 5.149 she concluded:
"5.148 Regardless of what professional advice DWP had received, as this decision affected the funding of many private sector final salary pension schemes and as it was related to the security of the pension rights of many thousands of people, it seems to me that DWP should have done more to satisfy itself that it was right to implement this recommendation.
5.149 Did all of the above constitute maladministration? I consider that this decision was taken with maladministration as there is insufficient documentary evidence that explains the rationale for the decision and as I have doubts about the reliance of DWP on professional advice which seems to me not to have been sufficient in itself to enable DWP to come to a decision that took account of all relevant considerations and which ignored irrelevant ones."
So, as she had said (at paragraph 5.150 of the Report), her third finding of maladministration was "predicated on what I consider to be failings in the process through which DWP took the decisions and in the completeness of the evidence considered by it in so doing".
- The judge drew attention (at paragraph [75] of his judgment) to the DWP's response to that criticism. In a letter dated 28 February 2006, commenting on a draft of the report, the Permanent Secretary had written:
"In the Department's view it would have been far more vulnerable to justified criticism if it had substituted an alternative judgment in the face of clear and consistent advice from the actuarial profession and from the Government Actuary's Department without good reason . . ."
The judge concluded that the third finding of maladministration was not "logically sound". He said this:
"[79] . . . The Department had a clear recommendation from the leading professional body and the concurrence of its own specialist adviser, the GAD. The Ombudsman was in effect expecting the Secretary of State, who is not an actuary, to keep a watchdog (the GAD) and then bark himself. The fact that additional evidence might have been sought in support of the actuarial profession's considered view is not equivalent to maladministration. Indeed, the Government Actuary, in an observation quoted in the DWP's Response document of July 2006, has commented that the evidence based for the 2002 decision was 'extremely strong and much stronger than for many (probably most) of the decisions that have to be taken by Government'. While I am conscious of the substantial research and thought which lies behind the Ombudsman's conclusion on this issue, I decline to quash the Department's rejection of the Third Finding. If there had been any disagreement between the Faculty and the GAD, or any qualification in the endorsement given by the GAD, the position would have been quite different."
The judge's reasons for quashing the Secretary of State's decision to reject the first recommendation
- The judge acknowledged that the recommendation was not binding upon the Secretary of State. He acknowledged the force of the submission, advanced on behalf of the Secretary of State, that implementation of the first recommendation would require a very large commitment of public funds: the Government was entitled to take the view that "taxpayers should not have to foot such a large bill". And he acknowledged that, as a matter of strict legal analysis, his rejection of the challenge to the Secretary of State's decision that there was no sufficient causal link between the first finding of maladministration and the finding that individual complainants had suffered injustice would lead to the conclusion that the Secretary of State was entitled to reject the first recommendation notwithstanding that (as the judge had held) the first finding of maladministration was binding upon him. But, as he observed (at paragraph [85] of his judgment), it had been emphasised by counsel on behalf of the Secretary of State that the question whether to accept and implement the first recommendation was a political rather than a legal question. He went on to say this:
"[85] . . . If [that question] is reconsidered on the basis that maladministration occurred, but that causation in individual cases has not so far been established, the result may be the same, but will not necessarily be the same. I therefore quash the Secretary of State's rejection of the First Recommendation and direct that it be reconsidered in the light of the Ombudsman's First Finding of maladministration and of this judgment"
The judge's reasons for rejecting the claim under the Human Rights Act 1998
- Although, perhaps, not directly linked to the Ombudsman's findings of maladministration or to her recommendation, the claimants' statement of grounds for judicial review of the Secretary of State's decision to reject those findings and that recommendation included a section (paragraphs 79 and 80) under the heading "Breach of Article 1 Protocol 1 of the European Convention on Human Rights". The article provides, so far as material, that: "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law". "It was said that the Government's refusal to restore the pension entitlements of members of wound-up occupational pension schemes was contrary to article 1 of the First Protocol; with the consequence that the DWP was in breach of section 6 of the Human Rights Act 1998.
- The judge summarised the claimants' submissions in support of the claim under this head at paragraph [88] of his judgment:
"[88] It is submitted that an entitlement under an occupational scheme is a 'possession', and that the Government owed all scheme members a positive duty to take reasonable and appropriate steps to protect them from loss of those 'possessions'. Ms Rose argues that this duty arose because the DWP had created a risk to such pensions, or at least had special knowledge of it; assumed responsibility for providing impartial information; encouraged people to join and remain in such schemes; and created a legitimate expectation of full recovery in the event of winding-up. By publishing information that was sometimes inaccurate and misleading as to risk, and by failing to warn properly of the risk, the Government failed to comply with that positive duty. Accordingly they are obliged to provide proportionate compensation. . . ."
- The judge rejected that claim. He accepted the submission advanced on behalf of the Secretary of State that "although the making of payments into a pension scheme is capable of giving rise to a right safeguarded by A1P1, that right consists merely of a beneficiary's entitlement to any payments made by the scheme, not to a payment of a particular amount". He noted that "even where the state had taken positive steps whose effect was to reduce an individual's pension, the European Court of Human Rights found no breach of A1P1 (Blanco Callejas v Spain, 18 June 2002)". He also accepted, also, the submission that "a positive obligation on the state to intervene and protect against financial loss is most unlikely to arise where the risk is to a large class of individuals whose pensions schemes were not under the Government's direct control". And he went on to say this:
"[90] . . . [Even] if there can be a free-standing A1P1 claim based on legitimate expectation, which is itself contentious, it is difficult to see that the legitimate expectation could be one of full reimbursement for all losses sustained, given the difficulties of causation some of which have featured earlier in this judgment. Finally and similarly, though only as regards the first three Claimants: even if a breach of A1P1 had been proved, the Secretary of State contends that the [Financial Assistance Scheme], in particular as recently extended, provides a proportionate response as a matter of human rights law, given the wide margin of appreciation which the Strasbourg jurisprudence gives to the judgment of member states' governments on socio-economic issues. "
- In the circumstances that the judge was minded to reject the claim under the 1998 Act it was (as he recognised) unnecessary to rule on the Secretary of State's submissions that the claim was time barred under section 7(5) of that Act and that there was no sufficient reason to extend time.
The Secretary of State's appeal
- As I have said, the Secretary of State appeals (under reference 2007/0554) from the judge's decision (reflected in paragraph 1 of the order of 21 February 2007) that the decision of the Secretary of State to reject the first finding of maladministration in the Report should be quashed. The primary grounds of appeal are: (1) that the judge erred in holding that a finding of the Ombudsman made pursuant to an investigation under section 5(1) of the 1967 Act was binding upon the body or bodies subject to that investigation (subject to the Danaei exceptions); and (2) that the judge erred in going on to hold that (if, as the Secretary of State had contended, a body subject to an investigation by the Ombudsman is entitled to reject such findings on the basis of a bona fide and rational difference of view) this was a case in which no reasonable Secretary of State could rationally disagree with the Ombudsman's conclusion that the leaflet PEC 3 was inaccurate and misleading so as to amount to maladministration. In the alternative, it was said by way of appeal that, if (contrary to the Secretary of State's primary contention) the Ombudsman's findings are binding upon the body subject to the investigation unless that body can establish that the findings are flawed or irrational or peripheral, then this was a case in which the first finding of maladministration was flawed and/or irrational and/or peripheral.
- Neither the appellant's notice filed on behalf of the Secretary of State, nor the grounds of appeal attached to that notice, refer in terms to (or challenge) the judge's decision (reflected in paragraph 5 of the order of 21 February 2007) to quash the decision of the Secretary of State to reject the first recommendation. That the omission is deliberate is made clear at paragraph 14 of the Secretary of State's consolidated skeleton argument (dated 14 July 2007):
"The Secretary of State does not appeal against the learned Judge's findings in relation to the First Recommendation. Notwithstanding the present appeal, the Secretary of State has reconsidered the First Recommendation on the basis ordered by the learned judge (ie on the basis of the maladministration identified in the First Finding), as a result of which substantial additional financial assistance has been provided to scheme members who have suffered losses. . . ."
- We were told that the Secretary of State's reconsideration of the first recommendation is, itself, the subject of challenge in further judicial review proceedings (Parr v Secretary of State for the Department of Works and Pensions, Claim CO/4863/2007). Two of the claimants in these proceedings are claimants in those proceedings. That challenge is not before this Court. I should add, for completeness, that since the hearing of these appeals, it has been widely reported that the Government has decided to commit substantial additional funds for the purpose of compensating scheme members for whom provision had not already been made under the arrangements, introduced in April 2005, for the Pension Protection Fund. Again, that is not a matter with which we are concerned on these appeals.
The first issue: whether the Secretary of State was entitled to reject the Ombudsman's findings on the basis of a bona fide and rational difference of view
- The principal question for this Court on this appeal - as I indicated at the outset of this judgment is whether, in principle, the Ombudsman's findings of maladministration are binding upon the Secretary of State, unless themselves flawed or irrational; or whether the Secretary of State, acting rationally, is entitled to prefer his own view. That, as it seems to me, is a question to be answered in the light of an understanding of the scheme and purpose of the 1967 Act.
- I accept the Secretary of State's submission that, as an aid to an understanding of the purpose of the 1967 Act, it is legitimate and helpful to have regard to the White Paper (1965, Cmnd. 2767) in which the Government's reasons for introducing legislation for the appointment of a Parliamentary Commissioner were explained. Paragraph 4 of the White Paper The Parliamentary Commissioner for Administration - contains the following passage:
"4 . . . In Britain, Parliament is the place for ventilating the grievances of the citizen by history, tradition and past and present practice. It is one of the functions of the elected Member of Parliament to try to secure that his constituents do not suffer injustice at the hand of the Government. The procedures of Parliamentary Questions, Adjournment Debates and Debates on Supply have developed for this purpose under the British pattern of Parliamentary government; and members are continually taking up constituents' complaints in correspondence with Ministers, and bringing citizens' grievances, great or small, to Parliament, where Ministers individually and Her Majesty's Government collectively are accountable. We do not want to create any new institution which would erode the functions of Members of Parliament in this respect, nor to replace remedies which the British Constitution already provides. Our proposal is to develop these remedies still further. We shall give Members of Parliament a better instrument which they can use to protect the citizen, namely, the services of a Parliamentary Commissioner for Administration."
The role of the individual member of the House of Commons was emphasised at paragraph 6 of the White Paper:
"6 The Commissioner will act only at the instance of a Member of the House of Commons, as the elected representative body in Parliament, and on a complaint of personal injustice suffered by the complainant. It will be for the Member to decide whether the complaint appears to be one appropriate for reference to the Commission."
Paragraph 9 explained that it was the Government's intention that the Commissioner's procedure was to be as informal as possible, "subject to the requirement that if he takes up a case he must give to the person against whom the complaint lies the opportunity to comment on it". Legal representation was to be the exception, not the rule. Legal aid was not to be available.
- Paragraphs 11 to 13 of the White Paper explained the role of the Commissioner:
"11 The Commissioner will be concerned with faults in administration. It will not be for him to criticise policy, or to examine a decision on the exercise of discretionary powers, unless it appears to him that the decision has been affected by a fault in administration. If he finds nothing wrong, he will inform the Member of Parliament who has approached him. If he finds that there is justifiable cause for complaint and the Department responds to his invitation to put it right, he will inform the Member. So far as the Commissioner is concerned, this will be an end of the matter, save for a possible reference to the case in his annual report to Parliament. If the Department does not act to the Commissioner's satisfaction, it will be open to him to report his conclusion to Parliament ad hoc.
12 It will be for Parliament to decide what arrangements to make to receive and act upon reports from the Commissioner. This will not be a matter for legislation. It may well be found convenient to establish a Select Committee to take these reports in the first instance. This Committee would have the usual powers of a Select Committee to summon witnesses (including Ministers) and to take evidence and report to Parliament.
13 It will be for Parliament, with the help of this Committee (if one is appointed), to consider what action should be taken on the reports of the Commissioner whether the annual report or reports ad hoc. . . ."
Paragraph 16 of the White Paper identified "two important principles" to which the Government had had regard in formulating its proposals:
"16 . . . First, that this new institution should serve to develop and reinforce our existing constitutional arrangements for the protection of the individual. Secondly, that the scope of the scheme must be made as clear as possible, so that everybody may know as plainly as may be what cases the Commissioner will be able to take up and what their rights and obligations will be in relation to his inquiries."
- There is nothing in those passages or elsewhere in the White Paper which suggests that, in introducing legislation for the appointment of a Parliamentary Commissioner, the Government intended that Ministers (or the complainant) should be bound by findings in any report which the Commissioner might think it appropriate to make. The purpose for which the legislation was introduced was to give Members of Parliament - in particular, members of the House of Commons access to the services of an independent and authoritative investigator as "a better instrument which they can use to protect the citizen". But, the protection was to be afforded through "existing constitutional arrangements". Those existing arrangements are identified in paragraph 4 of the White Paper: they include the procedures of Parliamentary Questions, Adjournment Debates and Debates on Supply, correspondence with Ministers, and the ability to bring citizens' grievances, great or small, to Parliament, "where Ministers individually and Her Majesty's Government collectively are accountable".
- In this context, the Government's intentions in introducing the legislation were made clear in the final sentence in paragraph 11 of the White Paper - "If the Department does not act to the Commissioner's satisfaction, it will be open to him to report his conclusion to Parliament ad hoc" read with the first sentence of paragraph 13 "It will be for Parliament . . . to consider what action should be taken on the [ad hoc] reports of the Commissioner". The establishment of a Select Committee was in contemplation as an aid to Parliament in its role in calling Ministers to account. The ad hoc report was to provide the basis for parliamentary and political accountability. The Minister whose department had, on investigation, been found by the Commissioner to have been guilty of maladministration must expect to have to justify, in the parliamentary arena, why his department has not put in hand arrangements to provide a remedy in respect of the citizen's complaint. But there is, as it seems to me, no reason to think that it was any part of the Government's intentions, in introducing the legislation, to preclude a Minister who was called to account before Parliament from explaining, as part of his justification for the decision to provide no remedy in respect of the complaint, his reasons for rejecting the Commissioner's finding of maladministration. The point is well put in the Royal Institute of Public Administration publication "The Parliamentary Ombudsman: A study in the Control of Administrative Action" ...Gregory and Hutchesson) (1975) at page 503:
"If he is prepared to take the consequences, and defend his position in Parliament, in the last resort a Minister who genuinely believes that he and his department have been unfairly criticised by the Commissioner, clearly has the right to say so, . . . "
To think otherwise would be to accept that it was the Government's intention that a Minister who had determined that he would seek to justify the decision to provide no remedy on the basis that he rejected the finding of maladministration would, before advancing that case in Parliament, need to obtain in judicial review proceedings an order quashing the Commissioner's finding. For my part, I find it impossible to accept that that was the Government's intention: to preclude a Minister from giving a full and frank account to Parliament of the reasons which had led to the decision to provide no remedy for the complaint (unless he had first obtained an order in judicial review proceedings) is, in my view, wholly foreign to the purpose for which the legislation was introduced.
- Before turning to the provisions of the 1967 Act itself - to examine whether there is anything in those provisions which provides support for the view that, as enacted, the legislation went beyond the intentions of the Government as revealed by the White Paper - I should mention that we were referred to a number of ministerial statements in Parliament made during the passage of the legislation and reported in Hansard. The claimants objected to any use being made of those statements. The Attorney General, intervening on behalf of the Speaker of the House of Commons, reminded us of the three requirements identified in Pepper v Hart [1993] AC 593, 640C-D. Observations in the speech of Lord Browne-Wilkinson (ibid, 635B-F) which, if read out of context, might suggest a wider relaxation of the exclusionary rule to which he had referred (ibid, 630E) must, it was said, be read with those requirements in mind.
- For my part, and to the extent only that ministerial statements made during the passage of legislation throw light on the purpose for which the legislation was introduced (or, to use the more familiar phrase, serve to identify the mischief at which it is aimed), I am not satisfied that the objection is well founded. Support for a wider relaxation of the exclusionary rule is found, as it seems to me, in Wilson v First County Trust Ltd (No 2) [2003] UKHL 40, [57], [58], [60], [173]; [2004] 1 AC 816, 840H-841D, 841F- 842A, 873F and in McDonnell v Congregation of Christian Brothers Trustees and others [2003] UKHL 63, [29]; [2004] 1 AC 1101, 1116G. But I do not think it necessary to decide the point. I will not set out the ministerial statements in this judgment. It is enough, I think, to say that I find little in those statements which, in the present context, adds to the material in the White Paper; and nothing which leads me to think that the view as to the Government's intentions which I have formed from the material in the White Paper is incorrect.
- It is, I think, impossible to contend that there is anything in the 1967 Act which, in terms, requires the body whose conduct is the subject of an investigation under section 5(1) to accept the Commissioner's findings of maladministration. Parliament could have enacted such a provision; but it did not. Had that been its intention, it might have been expected to say so; if only because it would have been necessary to make it clear whether it intended any element of reciprocity. If a finding that there had been maladministration was binding on the department so as to preclude the Minister from denying maladministration when called to account in Parliament - was a finding that there had not been maladministration to be binding on the Member of the House of Commons who had referred the complaint to the Commissioner so as to preclude him from asserting maladministration in debate? It is not difficult to suppose a case in which the Commissioner had found maladministration in one respect but rejected it in another. The Report in the present case provides examples.
- In broad terms the provisions of the 1967 Act give effect to the proposals in the White Paper. In particular, section 4 of the Act, read with schedule 2 as enacted, has the effect that the bodies whose actions may be investigated under section 5 are bodies for whose actions a Minister will be accountable in Parliament. In that context it is pertinent to have in mind not only section 4(3) but also sections 4(3A) and 4(3B) which exclude from the purview of the Commissioner matters in respect of which ministers can be called to account in the Welsh Assembly or the Scottish Parliament. Section 5(1) gives effect to the principle that members of the public are not given direct access to the Commissioner: his powers are limited to the investigation of complaints which are referred to him by Members of the House of Commons.
- Section 10(1) of the Act provides for the Commissioner to report to the Member of the House of Commons by whom the complaint was referred (or, if he is no longer a member of the House of Commons, to such other Member of the House of Commons as the Commissioner thinks appropriate) either (i) the results of the investigation or (ii) a statement of his reasons for not conducting an investigation. It is pertinent to note, first, that there is no provision which requires the Commissioner to report to the member of the public who made the complaint. And, second, that if the Member of the House of Commons by whom the complaint was referred has ceased to be a member, there is no obligation to report to him: the report must be made to another member of the House of Commons. The provisions of section 10(1) emphasise the role of the Commissioner as a servant of Parliament: his report is sent to a Member of the House of Commons so that the Member can pursue the complaint in Parliament or through parliamentary procedures.
- Section 10(2) of the Act requires the Commissioner (in a case where he has conducted an investigation) to send a report of the results of the investigation to the permanent secretary of the department whose actions have been the subject of the investigation. The report may disclose that the Commissioner has held the complaint to be misconceived (in whole or in part): either because the Commissioner has not found maladministration or because the Commissioner has not found the complainant to have sustained injustice in consequence of maladministration. But, if the report contains a finding that the complainant has sustained injustice in consequence of maladministration, then (as it seems to me) it is plain from the structure of sections 10(2) and 10(3) of the Act that the legislature intended that the department would have (and would take) the opportunity to consider whether any (and, if so, what) remedy should be provided in respect of that injustice.
- Section 10(3) of the Act has effect where (i) the Commissioner has made a finding that the complainant has sustained injustice in consequence of maladministration and (ii) it appears to the Commissioner that the injustice has not been, or will not be, remedied. When enacting sections 10(2) and 10(3) of the Act the legislature may, I think, be taken to have expected that the opportunity for the department to consider whether any (and, if so, what) remedy should be provided in respect of the injustice identified in the section 10(2) report would arise after it had been sent that report; and before a special report was laid before Parliament under section 10(3). But, as the present case illustrates, the Commissioner may be in a position to conclude not only that the injustice which has been identified has not been remedied but also that it will not be remedied. Where the Commissioner takes the view that injustice has been caused to the complainant in consequence of maladministration and that the injustice has not been, and will not be, remedied, then he may, if he thinks fit, lay a special report upon the case before each House of Parliament. The provisions of section 10(3) in common with those of section 10(1) - emphasise the role of the Commissioner as a servant of Parliament. A special report under section 10(3) in which the Commissioner expresses his view that an injustice which has been caused by maladministration has not been (and will not be) remedied - is put before Parliament so that Parliament can determine whether to call the Minister to account.
- Examination of the provisions of the 1967 Act itself provides no support for the view that, as enacted, the legislation went beyond the intentions of the Government as revealed by the White Paper. I find nothing in the Act to suggest that Parliament intended to preclude a Minister who was called to account before either House from explaining, as part of his justification for the decision to provide no remedy in respect of the complaint, his reasons for rejecting the Commissioner's finding of maladministration.
- We were referred to post-enactment statements in Parliament (in 1968) including statements of the then Leader of the House - as to the intention and effect of the legislation passed in an earlier session; and to the views of the Public Administration Select Committee in 2005/2006. In reaching my conclusion as to the legislative intention in enacting the 1967 Act, I have left those matters out of account. For the reasons advanced on behalf of the Attorney General, I am satisfied that they are not admissible as legitimate aids to construction.
- It follows that, unless compelled by authority to hold otherwise, I would conclude that the submissions advanced on behalf of the Secretary of State in respect of the first issue are correct: the Secretary of State, acting rationally, is entitled to reject a finding of maladministration and prefer his own view. But, as I shall explain, it is not enough that the Secretary of State has reached his own view on rational grounds: it is necessary that his decision to reject the Ombudsman's findings in favour of his own view is, itself, not irrational having regard to the legislative intention which underlies 1967 Act. To put the point another way, it is not enough for a Minister who decides to reject the Ombudsman's finding of maladministration simply to assert that he had a choice: he must have a reason for rejecting a finding which the Ombudsman has made after an investigation under the powers conferred by the Act.
- The judge was persuaded that observations in this Court, in R v Local Commissioner for Administration, ex parte Eastleigh Borough Council [1988] 1 QB 855, provided authority for the view that the Secretary of State was bound by the Ombudsman's findings of maladministration unless he could establish that those findings were, themselves, flawed by irrationality. The claimants as respondents to the Secretary of State's appeal seek to uphold that conclusion.
- As the judge explained, at paragraph [44] of his judgment, a Commission for Local Administration was established under Part III of the Local Government Act 1974. As enacted, section 26(1) of the 1974 Act provided that, where a written complaint was made by or on behalf of a member of the public who claimed to have sustained injustice in consequence of maladministration in connection with action taken by or on behalf of an authority to which Part III of the Act applied - that is to say, inter alios, any local authority being action taken in the exercise of administrative functions of that authority, a Local Commissioner might investigate that complaint. Section 34(3) of the Act provided that nothing in Part III authorised or required a Local Commissioner to question the merits of a decision taken without maladministration by an authority in the exercise of a discretion vested in that authority.
- Section 30(1) of the 1974 Act provided that, where a Local Commissioner had conducted an investigation, or had decided not to conduct an investigation, he was to send a report of the results of the investigation, or (as the case might be) a statement of his reasons for not conducting an investigation, to the authority concerned. Section 30(4) required the authority to make copies of the report available for inspection by the public; and section 30(5) required the authority to advertise that the report was so available. Section 31 of the 1974 Act (before amendment by the Local Government Act 1988 and the Local Government and Housing Act 1989) was in these terms:
"31(1) If in the opinion of the Local Commissioner, as set out in the report, injustice has been caused to the person aggrieved in consequence of maladministration, the report should be laid before the authority concerned, and it shall be the duty of that authority to consider the report, and to notify the Local Commissioner of the action which the authority has taken, or propose to take.
(2) If the Local Commissioner:-
(a) does not receive any such notification within a reasonable time; or
(b) is not satisfied with the action which the authority concerned has taken;
(c) does not within a reasonable time receive confirmation from the authority concerned that they have taken action, as proposed, to the satisfaction of the Local Commissioner,
he shall make a further report setting out those facts; and section 30 above shall apply, with any necessary modifications, to that further report."
It can be seen that those provisions, in sections 30 and 31 of the 1974 Act, were similar to, but not the same as, the provisions in section 10 of the 1967 Act. But that, as it seems to me, was to be expected. Under the 1967 Act the role of the Parliamentary Commissioner is to report to Parliament the result of an investigation into action taken by the executive: under the 1974 Act the role of the Local Commissioner is to report to the authority the result of an investigation into action taken by the authority. There is no separation of powers in local government which corresponds to the separation, in national government, between the powers of the executive and the powers of parliament.
- In the Eastleigh case a Local Commissioner for Administration for the South and other areas had investigated a complaint that the local authority, Eastleigh Borough Council, had failed properly to inspect a private foul sewer at the time of its construction. In his report he expressed the view that the authority should carry out inspections at all stages when they received notice and especially at the final stage when tests were carried out. He concluded that the sewer had not been thoroughly inspected, since no test had been carried out to test the gradient of the sewer; and that the complainant had suffered injustice because of maladministration by the local authority. The local authority took the view that the Local Commissioner had exceeded his powers; in that he had directed his criticism to matters of policy, contrary to section 34(3) of the 1974 Act. Having (I think) complied with their obligation under section 30(4) of the 1974 Act to make the report available to the public, the local authority sought by way of judicial review an order of certiorari to quash the Local Commissioner's findings.
- The proceedings came before Mr Justice Nolan. He accepted the local authority's submission that the Local Commissioner had exceeded his powers: (1987) 86 LGR 145, 151. But he held that judicial review was not an appropriate remedy. There was, he accepted, "no question of the remedy of certiorari . . . being available to quash the report". And, further, a declaration that the report (in those respects in which the Local Commissioner had exceeded his powers) was unauthorised in law would "have no practical or legal consequences". He went on to say this (ibid, 152):
"It is true that the council and its officials have been publicly criticized in a manner which I consider to have been unauthorised. But this is a free country, and even if the council has no remedy in the courts, there is nothing to prevent them from responding to the report with equal publicity disputing the local commissioner's findings and quoting if they so wish the legal advice which they have received. . . ."
It is clear, from that passage, that Mr Justice Nolan did not take the view that the findings of the Local Commissioner were binding on the authority: he envisaged the possibility that those findings could be challenged in the public arena.
- The authority appealed from the judge's refusal of relief; and the Local Commissioner cross-appealed from the finding that he had exceeded his powers. The cross-appeal was dismissed (Lord Donaldson of Lymington, Master of the Rolls, dissenting). The authority's appeal was allowed for the reasons given by Lord Donaldson, with whom (on this point) the other members of the Court (Lord Justice Parker and Lord Justice Taylor) agreed. After referring to Mr Justice Nolan's suggestion that the authority had an adequate remedy in that they could issue a statement disputing the right of the Local Commissioner to make the findings which he had Lord Donaldson said this ([1988] 1 QB 855, 876A-D):
" . . . Such an action would wholly undermine the system of ombudsman's reports and would, in effect, provide for an appeal to the media against his findings. The Parliamentary intention was that reports by ombudsmen should be loyally accepted by the local authorities concerned. This is clear from section 30(4) and (5) which require the local authority to make the local report available for inspection by the public and to advertise this fact, from section 31(1), which requires the local authority to notify the ombudsman of the action which it has taken and proposes to take in the light of this report and from section 31(2), which entitles the ombudsman to make a further report if the local authority's response is not satisfactory.
Whilst I am very far from encouraging councils to seek judicial review of an ombudsman's report, which, bearing in mind the nature of his office and duties and the qualifications of those who hold that office, is inherently unlikely to succeed, in the absence of a successful application for judicial review and the giving of relief by the court, local authorities should not dispute an ombudsman's report and should carry out their statutory duties in relation to it."
- I have already referred to the difference between the role of the Parliamentary Commissioner under the 1967 Act and the role of the Local Commissioner under the 1974 Act; and to the fact that there is no separation of powers in local government which corresponds to the separation, in national government, between the powers of the executive and the powers of parliament. It is important to keep those distinctions in mind when addressing the question whether Lord Donaldson's reasoning, in the passage which I have just set out, leads to the conclusion that, when enacting the 1967 Act, Parliament intended to preclude a Minister who was called to account before either House from explaining, as part of his justification for the decision to provide no remedy in respect of the complaint which has been the subject of investigation, his reasons for rejecting the Parliamentary Commissioner's finding of maladministration. In my view the reasoning in the Eastleigh case does not lead to that conclusion.
- I find support for that view in two factors. First, Lord Donaldson's observation that "The Parliamentary intention was that reports by ombudsmen should be loyally accepted by the local authorities concerned" was based on provisions in the 1974 Act - sections 30(4) and (5) and sections 31(1) and (2) - which had no parallel in the 1967 Act. Under the 1967 Act the report which corresponds most closely to that to which sections 30(4) and (5) and section 31(1) of the 1974 Act applied is the report to which sections 10(1) and 10(2) of the former Act refer: it is not the special report (if any) made under section 10(3). There is nothing in the 1967 Act which requires the department to which a section 10(2) report has been sent to make that report available to the public: indeed, as I have said, there is no obligation on either the Parliamentary Commissioner or the department concerned to send a copy of that report to the complainant. I have already expressed the view that, when enacting sections 10(2) and 10(3) of the 1967 Act the legislature may be taken to have expected that the opportunity for the department to consider whether any (and, if so, what) remedy should be provided in respect of the injustice identified in the section 10(2) report would arise after it had been sent that report; and before a special report was laid before Parliament under section 10(3); but there is nothing in the 1967 Act which imposes on the department concerned duties equivalent to those imposed on the authority by section 31(1) of the 1974 Act. And, although section 10(3) of the 1967 Act provides that, if it appears to the Parliamentary Commissioner that injustice has been caused to the person aggrieved in consequence of maladministration and that the injustice has not been, or will not be, remedied, he may, if he thinks fit, lay a special report before each House of Parliament, there is nothing in the 1967 Act which imposes on the Parliamentary Commissioner duties equivalent to those imposed on the Local Commissioner by section 31(2) of the 1974 Act. It is impossible to adapt the reasoning on which Lord Donaldson's observation, in the Eastleigh case, that "The Parliamentary intention was that reports by ombudsmen should be loyally accepted by the local authorities concerned" was expressed to be based to support a conclusion, in the present case, that "the Parliamentary intention was that reports by the Parliamentary Ombudsman should be loyally accepted by the department (or the Minister) concerned".
- Second, Lord Donaldson's concern that the issue of a statement by the local authority disputing the right of the ombudsman to make his findings "would wholly undermine the system of ombudsman's reports and would, in effect, provide for an appeal to the media against his findings" loses its force in the context of a report under the provisions of the 1967 Act. As I have said, the 1967 Act does not require the department to make a section 10(2) report available to the public; and so does nothing to provoke a public response. There should be no need for the department to "appeal to the media" against the findings in a section 10(2) report. The 1967 Act plainly contemplates that the opportunity to justify the decision to provide no remedy for the complaint will arise when the Minister is called to account in Parliament; following the laying before Parliament of a special report under section 10(3). As it seems to me, the ability of the Minister to justify the decision to provide no remedy for the complaint by explaining why he does not accept the findings of maladministration does not undermine the statutory purpose of the 1967 Act: rather, it promotes it. If the reason why no remedy is to be provided for the complaint is that the Government does not accept that injustice has been caused by maladministration, then it is difficult to see why that reason should not be put before Parliament and be the subject of debate. The legislative purpose is served by the fact that the findings in the section 10(3) report will inform that debate.
- The judge observed, at paragraph [53] of his judgment, that the effect of the Secretary of State's contention, if correct, must be that:
"[53] . . . an elected local authority such as Birmingham City Council, in the absence of a successful application for judicial review, must loyally accept the findings of an LGO (Eastleigh); whereas a quango such as the British Potato Council is free simply to disagree with any adverse findings of the Ombudsman unless its disagreement is itself flawed in law or Wednesbury unreasonable, which would be for the complainant to establish by an application for judicial review."
He saw "neither logic nor constitutional principle in such a distinction"; and so rejected the contention which (as he held) would lead to such an anomaly.
- The basis for the distinction, as it seems to me, is found in the legislative intention which underlies the 1967 Act. Paragraph 7 of the 1965 White Paper (Cmnd 2767) contains the statement that: "Except for some exclusions which are explained later in this Paper, the field for the Commissioner will be the whole range of relationships between the private person and the central Government". The paragraph contains a list of the bodies which, as proposed, were to be subject to investigation by the Commissioner. Schedule 2 to the 1967 Act, as enacted, incorporated the proposed list with amendments (not material in the present context). It is plain that the legislative intention was that the bodies which were to be subject to investigation by the Parliamentary Commissioner were those bodies (and only those bodies) for whose actions there was a Minister capable of being called to account in Parliament. Those bodies do not include elected local authorities.
- As I have said, it seems to me that, once it is accepted (as it must be) that the legislative intention which underlies the 1967 Act was that the bodies which were to be subject to investigation by the Parliamentary Commissioner were bodies for whose actions there was a Minister capable of being called to account in Parliament, it is impossible to avoid the conclusion that Parliament did not intend to preclude that Minister from giving a full and frank account to Parliament of the reasons which had led to the decision to provide no remedy for the complaint; including (if it were the case) the Government's reasons for rejecting the Commissioner's finding of maladministration. But, in a case where the body is one in respect of which there is no Minister capable of being called to account in Parliament, there is no basis for that conclusion: indeed, the conclusion would be meaningless. With respect to the judge's view, it seems to me that logic leads to an expectation that there will be a distinction between cases in which effect is to be given to the legislative intention underlying the 1967 Act and cases in which that legislative intention has no application. Further, it may be said that the distinction accords with constitutional principle: the courts must recognise and be sensitive to the principle of mutual respect explained by Sir John Donaldson, Master of the Rolls, in R v Her Majesty's Treasury, ex parte Smedley [1985] QB 657, 666D:
"It . . . behoves the courts to be ever sensitive to the paramount need to avoid trespassing upon the province of Parliament or, so far as this can be avoided, even appearing to do so."
- Paragraph 7 of the 1965 White Paper goes on: "The list [of the bodies which are to be subject to investigation by the Commissioner] will need to be amended from time to time as the structure of the government machinery itself is changed". Section 4(3) of the 1967 Act gave power to amend the list by Order in Council; but subject to the limitations to which I have referred earlier in this judgment. The power has been used, since 1967, to add a large number of non-departmental bodies, or "quangos", to the list in schedule 2 to the Act. The question whether (and to what extent) such bodies should be brought within the ombudsman jurisdiction was considered by the Select Committee on the Parliamentary Commissioner for Administration in its Fourth Report: "Non-Departmental Public Bodies" (October 1984). Paragraph 16 of that Report is of interest in the present context:
"16 The question of how the PCA's judgements could be enforced over non-departmental bodies was one that exercised the minds of the PCA [Parliamentary Commissioner for Administration] and of the CSD [Civil Service Department]. It is a desirable feature of any system for reviewing administration that there be some practical sanction where maladministration is discovered. The difference in the proportion of justified grievances ultimately unredressed after investigation by the PCA and CLA [Commission for Local Administration] respectively is proof enough of this. The sanction behind the PCA's judgments is Parliamentary pressure, and this is most easily exercised through a responsible Minister. If a body whose day-to-day actions were not subject to ministerial control were to refuse the redress indicated by the PCA, the Minister might have no recourse other than to dismiss the Chairman, a remedy which the PCA rightly described as 'a sledgehammer'. The CSD suggested that Ministers might be given power to order compliance with PCA judgements but felt that that would alter the characteristic relationship between Government and non-departmental body. We see no need for such provision. The experience of the Health Service Commissioner suggests that compliance can be achieved without any direct sanction, the authority of the Commissioner and the displeasure of Parliament, expressed in the first instance through this Committee, having always proved sufficient to secure the suggested remedy. However, in case anyone should suggest to the contrary it is to be remembered that many of these bodies receive money from public funds and that what Parliament customarily votes it can, if moved thereto, withhold. The new financial procedure, whereby debates are regularly held on the Estimates would offer a suitable Parliamentary opportunity for bringing unredressed maladministration by non-departmental bodies to the attention of the House of Commons."
At paragraph 20 of the Report the Select Committee emphasised its desire "to retain the Parliamentary connection by limiting the PCA jurisdiction to those bodies over which Parliament has a continuing oversight". For my part I am not persuaded that the concern which the judge expressed at paragraph [53] of his judgment should lead this Court to reject the Secretary of State's contention that it was open to him to reject findings of fact made by the Ombudsman on the basis of a bona fide and rational difference of view.
- The judge found support for his conclusion in the judgments of this Court in R v Warwickshire County Council, ex parte Powergen Plc [1997] EWCA Civ 2280; (1997) 96 LGR 617 and in R v Secretary of State for the Home Department, ex parte Danaei [1997] EWCA Civ 2704. The issue in the Powergen case was whether it would be a proper exercise of discretion for the County Council, as local highway authority, to refuse to enter into an agreement with the applicant, Powergen Plc, under section 278 of the Highways Act 1980 on the ground that the proposed arrangements for access to the applicant's development would be detrimental to road safety; in circumstances where an appeal from the refusal of Warwick District Council, as local planning authority, to grant planning permission for the development had been allowed by an inspector following a local inquiry, at which the highway authority had given detailed expert evidence, on the ground that the proposed access works did not present a sufficient threat to safety to justify refusal of permission. This Court, upholding the decision of Mr Justice Forbes, decided that issue in favour of Powergen. Lord Justice Simon Brown (with whose judgment the other members of the Court, Lord Justice Otton and Lord Justice Mummery, agreed) said this (96 LGR 617, 624b-d):
" . . . Although both the judgment below and the arguments before us focused principally upon the scheme of the legislation and whether the highway authority's approach to its s.278 discretion thwarted the policy and objects of the two Acts here in question - see, for example, Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997 - I for my part prefer the broader Wednesbury analysis of the case. Indeed, so far from this appeal raising . . . 'a short point of statutory construction', I see it rather as raising this simple question: is it reasonable for a highway authority, whose road safety objections have been fully heard and rejected on appeal, then, quite inconsistently with the Inspector's independent factual judgment on the issue, nevertheless to maintain its own original view? To my mind there can be but one answer to that question: a categoric 'No'."
Lord Justice Simon Brown emphasised (ibid, 624d-625b) that he had reached that conclusion not by reference to any general question regarding the proper legal relationship between planning authorities and highway authorities upon road safety issues but in the light of three basic considerations: (i) that the site access and associated highway works, together with the road safety problems which they raised, had been (a) central to the particular planning application, and (b) considered in full detail rather than left to be dealt with as reserved matters; (ii) that the planning permission had been granted following appeal to the Secretary of State and not merely by the local planning authority itself; and (iii) that there were no new facts or changed circumstances following the inspector's determination of the appeal "the highway authority's continued refusal was based upon the identical considerations that their witness had relied upon in seeking to sustain the planning objection before the Inspector". He concluded (ibid, 626a):
" . . . the Inspector's conclusion on that issue, because of its independence and because of the process by which it is arrived at, necessarily becomes the only properly tenable view on the issue of road safety and thus is determinative of the public benefit."
- Lord Justice Simon Brown's reference (ibid, 624c) to "the broader Wednesbury analysis of the case" is explained by his earlier citation of a passage from the judgment of Mr Justice Forbes (ibid, 623f-h):
" '. . . In those circumstances, I accept [counsel's] submission that no reasonable Highway Authority would, on the sole basis of the arguments as to road safety which had been fully considered and determined in the planning process, refuse to enter into any necessary Section 278 Agreement on the grounds that to do so was not a benefit to the public, thereby preventing the development from proceeding. I have therefore come to the conclusion that the decision of the County Council in this case to refuse to enter into the Section 278 agreement in question is both perverse and unreasonable in the Wednesbury sense. As [counsel] succinctly put it, it cannot be reasonable for the Highway Authority to allow a decision of the Secretary of State to be implemented only if it agrees with that decision.'"
Lord Justice Simon Brown went on (ibid, 624a) to note that there had been some debate in the Court of Appeal whether the judge's conclusion of Wednesbury irrationality was free-standing. He said this:
"To my mind it was not: in truth there is here but one issue: who, as between the Secretary of State (or Inspector) on appeal and the highway authority, is to have the last word in deciding a road safety issue of this nature?"
But that passage must be read with his expressed preference (ibid 624c) for "the broader Wednesbury analysis of the case". On a true analysis, as it seems to me, the basis upon which this Court dismissed the appeal in the Powergen case was that - given the circumstances in which, and the statutory framework within which, the inspector's conclusion on the issue of road safety had been reached - it was irrational for the County Council to continue to adhere to its own view on that issue: the inspector's view had become "the only properly tenable view" on the issue of road safety (ibid, 626a-b).
- The issue in the Danaei case was whether, in exercising his discretionary power to grant exceptional leave to enter or remain outside the Immigration Rules, the Secretary of State was bound to accept findings of fact made in the immigrant's favour by a special adjudicator on a related, but unsuccessful, asylum application. In short, the special adjudicator had accepted the immigrant's account of having committed adultery with a married woman and of fleeing Iran because his life was in danger from an outraged husband. Nevertheless, the Secretary of State maintained his view that the immigrant's account of an adulterous affair was a fabrication. Mr Justice Collins acceded to the immigrant's application for an order, by way of judicial review, setting aside the Secretary of State's decision to refuse to grant exceptional leave to remain. He did so for the reason explained by Lord Justice Simon Brown in his judgment in this Court ([1997] EWCA Civ 2704):
"Essentially . . . the judge found that it was Wednesbury unreasonable for the Secretary of State to have maintained his own original view of the facts in the face of the adjudicator's contrary views formed upon the respondent's related unsuccessful asylum appeal given that there was no material additional evidence on which the Secretary of State could rely."
- Lord Justice Simon Brown (with whose judgment the other members of the Court, Lord Justice Ward and Lord Justice Judge, agreed) noted that it was common ground that "the Secretary of State's decision was a separate and discrete decision to be taken by him alone"; that the Secretary of State's decision could only be challenged on Wednesbury grounds; and that the Secretary of State was required to have regard to the adjudicator's findings of fact as a material consideration. He went on: "Was he, however, in the circumstances of this case, then entitled to disagree with them? That is the critical question". He answered that question in the negative:
"In the present case . . . the primary fact in question is whether or not the respondent was an adulterer. On an issue such as this it does not seem to me reasonable for the Secretary of State to disagree with the independent adjudicator who has heard all the evidence unless only:
1. the adjudicator's factual conclusion was itself demonstrably flawed, as irrational or for failing to have regard to material considerations or for having regard to immaterial ones - none of which is suggested here;
2. fresh material has since become available to the Secretary of State such as could have realistically have affected the adjudicator's finding - this too was a matter we considered in Powergen;
3. arguably, if the adjudicator has decided the appeal purely on the documents, or if, despite having heard oral evidence, his findings of fact owe nothing whatever to any assessment of the witnesses."
He observed that the third scenario seemed unlikely; and indicated that he was expressing "no concluded view as to whether in this event the Secretary of State could properly ignore the fact that the adjudicator is an independent tribunal whereas he is not". But he rejected, in terms, the submission that "the Secretary of State is free to come to a different factual conclusion to the adjudicator irrespective of the advantages enjoyed by the latter through having heard oral evidence on the appeal and irrespective of whether or not fresh evidence has come to light".
- Lord Justice Judge, after expressing his agreement with the conclusion reached by Lord Justice Simon Brown "and the reasons for it", added a short judgement of his own:
"His judgment demonstrates the essential independence of the special adjudicator within the statutory scheme governing applications for asylum without undermining the ultimate responsibility of the Secretary of State for deciding whether to grant an asylum seeker exceptional leave to remain. The desirable objective of an independent scrutiny of decisions in this field would be negated if the Secretary of State were entitled to act merely on his own assertions and reassertions about relevant facts contrary to express findings made at an oral hearing by a special adjudicator who had seen and heard the relevant witnesses. That would approach uncomfortably close to decision making by executive or administrative diktat. If therefore the Secretary of State is to set aside or ignore a finding on a factual issue which has been considered and evaluated at an oral hearing by the special adjudicator he should explain why he has done so, and he should not do so unless the relevant factual conclusion could itself be impugned on Wednesbury principles, or has been reconsidered in the light of further evidence, or is of limited or negligible significance to the ultimate decision for which he is responsible."
It is pertinent, in the present context, to note the importance which Lord Justice Judge attached, in those observations, to the role of the special adjudicator within the statutory scheme governing applications for asylum.
- For my part, I think that the following principles can be derived from the judgments in Powergen and Danaei: (i) the decision maker whose decision is under challenge (in the former case, the local highway authority; in the latter, the Secretary of State) is entitled to exercise his own discretion as to whether he should regard himself as bound by a finding of fact made by an adjudicative tribunal (in the former case, the planning inspector; in the latter, the special adjudicator) in a related context; (ii) a decision to reject a finding of fact made by an adjudicative tribunal in a related context can be challenged on Wednesbury grounds; (iii) in particular, the challenge can be advanced on the basis that the decision to reject the finding of fact was irrational; (iv) in determining whether the decision to reject the finding of fact was irrational the court will have regard to the circumstances in which, and the statutory scheme within which, the finding of fact was made by the adjudicative tribunal; (v) in particular, the court will have regard to the nature of the fact found (e.g. that the immigrant was an adulterer), the basis on which the finding was made (e.g. on oral testimony tested by cross-examination, or purely on the documents), the form of the proceedings before the tribunal (e.g. adversarial and in public, or investigative with no opportunity for cross-examination), and the role of the tribunal within the statutory scheme.
- Properly understood, as it seems to me, the two cases provide no support for the proposition that, as a matter of law, it is not open to a body which has been the subject of a finding of maladministration by the Parliamentary Ombudsman to reject that finding; rather, the cases are authority for the proposition that it is open to such a body, acting rationally, to reject a finding of maladministration. The cases provide helpful illustrations of circumstances where, in other contexts, it was not rational for the decision maker to reject findings of fact made by adjudicative tribunals on the basis of a contrary (albeit rational) view which the decision maker preferred. I do not, myself, think that Lord Justice Judge intended that his observations directed, as they were, to the circumstances in which the Secretary of State could properly set aside or ignore the finding of a special adjudicator made within the framework of the asylum legislation were to be taken out of context and applied, more generally, to all circumstances in which the body against whom facts have been found in the course of a statutory investigation not of an adjudicative nature sought to dispute those facts. It is not, I think, a general rule that facts found in the course of a statutory investigation can only be impugned on Wednesbury grounds: although, plainly, if the investigator can be shown to have acted irrationally, that will be a powerful reason for rejecting his findings. The true rule, as it seems to me, is that the party seeking to reject the findings must himself avoid irrationality: the focus of the court must be on his decision to reject, rather than on the decision of the fact finder.
- At paragraph 119 of the skeleton argument filed in these appeals on behalf of the claimants, it is said (in the alternative to the claimants' primary submission that the Ombudsman's findings are binding on the Secretary of State) that the test which the Court should apply is whether a reasonable Secretary of State should have rejected the Ombudsman's findings having regard to: (a) the fact that the Ombudsman is charged by Parliament with the task of making findings of maladministration; (b) the fact that the Ombudsman made her findings in this matter after a very detailed and thorough investigation; (c) the content of official publications and (d) the "Key Conclusions" set out at paragraphs 5.4.1 to 5.28 of the report. Paragraph 120 of the skeleton argument is in these terms:
"120 For the avoidance of doubt, the relevant test is not whether a reasonable Secretary of State could himself conclude that failure to disclose risks in official leaflets was [not] maladministrative. Such a test would fail to take into account the fact that Parliament has conferred on the Ombudsman the function of making findings of maladministration and that the decision under review is a decision to reject that conclusion. The question is not whether the defendant himself considers that there was maladministration, but whether in the circumstances his rejection of the Ombudsman's finding to this effect is based on cogent reasons."
I have added the word "not" in the first sentence: it seems to me that the sense requires that addition. I suspect that the word was omitted from the text in error. Be that as it may, with the addition of that word, I would agree with that statement of the test by which the Court should determine whether the Secretary of State's rejection of the Ombudsman's first finding of maladministration should be quashed.
The second issue: whether the judge erred in holding that no reasonable Secretary of State could rationally disagree with the Ombudsman's first finding of maladministration
- I have referred, earlier in this judgment, to the judge's observation, at paragraph [66] of his judgment, that "in the case of leaflet PEC3 . . . no reasonable Secretary of State could rationally disagree" with the Ombudsman's view that the information which it contained was inaccurate, incomplete and potentially misleading. If the judge were correct to take that view, then the Secretary of State's appeal must fail, notwithstanding that, as I have held, the judge was wrong to decide the first issue as he did.
- The leaflet PEC 3 ("the 1995 pensions act") was issued by the DSS in January 1996. The expressed purpose of the leaflet was to provide a brief summary of the changes introduced by the Pensions Act 1995. The leaflet posed the question "Why was the Pensions Act needed?" Among the reasons given in answer to that question was the following:
"The Government wanted to remove any worries people had about the safety of their occupational (company) pension following the Maxwell affair."
The leaflet contained, on page 15, the paragraph under the heading "New minimum funding requirement for salary related schemes" which I have set out earlier in this judgment (at paragraph [20]). It is important to have that paragraph in mind; but unnecessary that I should set it out again. The Ombudsman's view was that the information in that paragraph (in common with much other information) was inaccurate, incomplete and potentially misleading. She said (at paragraph 5.43 of the report) that there was a "failure to ensure that the most fundamental aspect of the MFR the policy intention that Government would adopt towards what the MFR would actually provide in terms of security for scheme members was included in the official information"; that was "highly unsatisfactory" in the context of information "given to people to 'remove any worries' they might have"; that readers of PEC 3 were misled by "assurances that were never intended to be met". It was (in part) that view which led her to make the first finding of maladministration. The judge agreed with her: paragraph [62] of his judgment.
- In order to understand why both the Ombudsman and the judge took the view that the information in PEC 3 to which I have just referred was inaccurate, incomplete and potentially misleading it is necessary to have in mind that, as the judge had explained at paragraphs [3] to [5] of his judgment, in addition to introducing the MFR in respect of occupational pension schemes, Part I of the Pensions Act 1995 had established priorities for the application of a scheme's assets in the event of the scheme being wound up with insufficient assets to meet its liabilities in full.
- Section 73(3) of the 1995 Act, read with section 73(2), required that the assets of an occupational pension scheme other than a money purchase scheme and so, typically, a salary related scheme were to be applied, on the winding up of the scheme, in satisfying the liability for pensions in payment (and for the pensions of dependants of pensioners whose pensions were in payment on death) before satisfying the liability for accrued rights to future benefits of members whose pensions were not in payment. The effect was that the assets available "to provide . . . younger members with a cash value of their pension rights" (which they could transfer to another occupational pension scheme or to a personal pension) would be the assets remaining after satisfying in full the pensions in payment. Members whose pensions were not in payment were that much more vulnerable in the event that the assets of the scheme were not sufficient to meet its liabilities. In describing the intended effect of the MFR (in the passage which I have just set out) the PEC 3 leaflet does not draw attention to the differential treatment of pensioners and members whose pensions are not in payment under the priority rules.
- Section 56(1) of the 1995 Act is in these terms:
"56(1) Every occupational pension scheme to which this section applies is subject to a requirement (referred to in this Part as 'the minimum funding requirement') that the value of the assets of the scheme is not less than the amount of the liabilities of the scheme."
Section 56 (like section 73) applies to a salary related scheme. Section 56(3) of the Act is in these terms:
"56(3) For the purposes of this section and sections 57 to 61, the liabilities and assets to be taken into account, and their amount or value, shall be determined, calculated and verified by a prescribed person and in the prescribed manner." [emphasis added]
In that context "prescribed" means prescribed by regulations made by the Secretary of State: section 124(1) of the Act. Regulations made for that purpose may provide for the amount of the liabilities of the scheme to be calculated and verified in accordance with guidance prepared and from time to time revised by a prescribed body and approved by the Secretary of State.
- When section 56 of the 1995 Act is read with section 73(3)(c)(i) and section 124(2) of the Act, it is clear (although not, I think, expressed in terms) that "the amount of the liabilities of the scheme" (or "the amount of the scheme liabilities" section 56(5)(a)) includes the amount of the liabilities to members in service in respect of their accrued rights to future benefits. The value of those accrued rights was to be determined on the hypothesis that the member in service had opted, immediately before the time for determination, to terminate his service: section 124(2)(b) of the Act. It may be said (I think) that it would have been reasonably obvious to the sophisticated reader of the PEC 3 leaflet who was familiar with the provisions of the 1995 Act that the assurance in the passage to which I have referred - that, if the pension scheme were to be wound up, the MFR would "make sure" that there should be enough assets in the scheme "to provide all younger members with a cash value of their pension rights" which could be transferred to another occupational pension scheme or to a personal pension - was an assurance that (after full provision had been made for pensions in payment) there would be sufficient assets to pay to members in service the transfer value of their accrued rights: that transfer value being the value calculated by an actuary in accordance with guidance and on the basis of assumptions approved by the Secretary of State. That is not, of course, to say that the PEC 3 leaflet was addressed only (or even primarily) to sophisticated readers who were familiar with the provisions of the 1995 Act. The Ombudsman found that it was intended for a much wider readership. The significance of the point is that (even if fully understood) the assurance had no greater value than the value put on accrued rights by an actuary acting on assumptions approved by the Secretary of State. If the reader was misled as to the policy underlying those assumptions, the assurance could not be relied upon.
- The 1996 Regulations (SI 1996/1563), when made on 12 June 1996, provided, at regulation 3(1), that the amount of the scheme liabilities for the purposes of section 56 of the Act were to be calculated by the scheme actuary (that is to say, the actuary appointed under section 47(1)(b) of the Act) in the manner specified in regulations 7 to 9, on the general assumptions specified in paragraphs (2) and (3) of regulation 3 and in accordance with the guidance given in mandatory guidelines (GN 27) prepared and published by the Institute of Actuaries and the Faculty of Actuaries. The assumptions included those in regulation 3(2)(c):
"(c) that liabilities in respect of members will be so secured that
(i) the benefits of pensioner members will be equal in value to those under the scheme
(ii) the benefits of active members and deferred members will be reasonably likely to be equal in value to those payable in respect of their accrued rights under the scheme;"
In that context the expression "pensioner member" had the meaning given by section 124(1) of the 1995 Act: it meant a person whose pension was in payment. "Active member" was a person in pensionable service under the scheme. A "pensioner member" was a person other than an active or deferred member who had accrued rights under the scheme. It is pertinent to note the difference in treatment between pensioner members on the one hand and active and deferred members ("non-pensioner members") on the other hand. In the case of the former, the actuary was to make the assumption, in calculating the amount of scheme liabilities for the purpose of forming an opinion whether the MFR was met, that their benefits will be equal in value to those under the scheme: in the case of the latter, the assumption was to be that their benefits will be reasonably likely to be equal in value to those payable in respect of their accrued benefits under the scheme.
- The 1996 Regulations had not been made at the date of the leaflet PEC 3. But (as the Ombudsman pointed out at paragraphs 4.63 and 4.64 of the Report) there had been the exchange between the actuarial profession and the DSS which had led to the letter dated 22 November 1995 to which I have referred earlier in this judgment. For convenience, I set out again the passage in that letter in which the DSS explained "the underlying purpose of the MFR":
" . . . the intention underlying the MFR (which was clearly expressed by Ministers during the passage of the Pensions Bill) is to require schemes to have a level of assets which should as a minimum be sufficient, if the scheme were to wind up, to enable it to pay in respect of each non-pensioner member a sum which if invested in an alternative appropriate pension vehicle could reasonably be expected to generate a pension benefit at least equivalent to that which the scheme would otherwise have paid in respect of rights accrued up to that point in time. By reasonable expectation we mean that there should be at least an even chance."
There may be room for argument whether the concepts expressed by the phrases "reasonably expected to generate a pension benefit at least equivalent to . . .", "at least an even chance [of generating a pension benefit at least equivalent to] . . ." and "benefits . . . reasonably likely to be equal in value to
" reflect identical degrees of possibility or probability. As the Ombudsman pointed out, at paragraph 5.51 of the Report, a "reasonable expectation" would not ordinarily be understood to mean "only a 50% chance". But, for my part, I do not think it is in doubt that none of those phrases have a meaning which equates with "making sure" that there will be assets in the scheme on a winding up which should be enough to provide for non-pensioner members (or members in service) a cash value of their pension rights. Again, in describing the intended effect of the MFR, the PEC 3 leaflet does not draw attention to the differential treatment in this respect of pensioner and non-pensioner members.
- The Ombudsman's findings in relation to the leaflet PEC 3 are set out at paragraphs 5.40 to 5.43, 5.67 and 5.68 of the Report. After referring to the passage at page 15 of the leaflet, the Ombudsman said this:
"5.41 . . . No mention was made that the Government intended for non-pensioners that they would only have a 'reasonable expectation' that this [the provision of a cash value of their pension rights] would be the case, still less that such an expectation meant only an 'even chance'.
5.42 DSS had been given warnings that care had to be taken to ensure that scheme members did not misunderstand the degree of protection that the new legislative framework would provide for their pension rights. They had a responsibility to ensure that there were no significant omissions from any information they chose to publish.
5.43 Given this, I consider that the failure to ensure that the most fundamental aspect of the MFR the policy intention that the Government would adopt towards what the MFR would actually provide in terms of security for scheme members was included in the official information given to people 'to remove any worries' they might have was highly unsatisfactory. It misled the readers of that leaflet by giving them assurances that were never intended to be met."
And she returned to that point in the later paragraphs:
"5.67 I have seen nothing that would make me doubt that the Government's intention behind the MFR was always that it could only provide a limited degree of security to non-pensioner members which was apparent from its design . . .
5.68 However this was not properly disclosed to those most affected by such an intention. I consider that the official information given to the public about the degree of security provided by a scheme funded to the MFR level:
(i) was, prior to September 2000, misleading, incomplete and inaccurate in that it gave assurances which were incompatible with the design and purpose of the MFR as prescribed by Government and with its practical operation.
These assurances were that the MFR was designed to ensure that the schemes had sufficient assets to meet their liabilities and that a scheme funded to the MFR level would be able to pay cash transfers of accrued rights to non-pensioners. In addition, no disclosure or even mention was made of risks to accrued rights or of the potential effects of statutory priority orders on wind-up.
. . . "
It was those findings which led the Ombudsman to conclude (at paragraph 5.71 of the Report) that official information about the MFR "was not clear, complete, consistent or always accurate". In that respect, the DWP (and its predecessor, the DSS) did not conform to the standards which it had set itself (paragraph 5.72); or the standards which the Ombudsman would, herself, have expected in official information "about such important matters" (paragraph 5.73). For those reasons, she found that "the deficiencies in the relevant official information that I have identified constituted maladministration".
- In reaching those conclusions the Ombudsman had had the opportunity to take account of representations made in two letters (dated, respectively, 27 January 2006 and 28 February 2006) from the Permanent Secretary at the DWP. It is, I think, fair to say that the first of those letters does not refer to the PEC 3 leaflet in terms; and does not seek to meet the criticisms made in the specific paragraphs of the report to which I have just referred. The response in that first letter is limited (in this context) to the short statement (at paragraph 7(iii) of the letter) that: "all of the leaflets to which the draft report refers carried a general health warning making clear that they were not complete explanations of the law and were for general guidance only. As such they could not be absolutely relied upon; . . .". There are further comments in Annex B: to the effect (i) that publications are not to be "regarded as maladministrative simply because they fall short of the standards set down in internal guidance" and (ii) that "it cannot be maladministrative simply for the department to have taken a decision, with regard to what should be covered in a leaflet, that was different from the assessment which the Ombudsman would have made: two reasonable people can make different decisions based on the same evidence". The Ombudsman set out the text of that first letter at Annex D to the Report.
- At paragraph 8 in the second letter (dated 28 February 2006) it was asserted that the information given in leaflets (including, by inference, the information in PEC 3) was "general and high level"; but that was said to be appropriate for those publications. It was said that the DWP did not accept that "because they did not give a detailed explanation of the MFR (which as the Report acknowledges is a complex, technical subject), this makes them incomplete or inaccurate". In paragraph 9 it was said that the Report placed "insufficient weight on the fact that all of the leaflets . . . considered contained warnings (that the information given is for guidance only and is not a complete statement of the law) to alert the reader very clearly to the limitations of the information being provided". Paragraph 10 developed that point:
"10 We remain firmly of the view that it is reasonable to expect people to obtain more detailed information about the specific pension scheme they were joining (or had joined) rather than relying on brief, general and introductory material such as was issued by the Department. It is unrealistic to maintain as the report appears to that individuals had no responsibilities beyond reading the general leaflets issued by the Department. For example nobody could, in our view, have read a leaflet which opens with a phrase saying that it provided 'a brief summary of the changes' arising from the 1995 Pensions Act as the PEC 3 did and went on to say that 'more detailed information will be published later', and have concluded that they had the full picture. The leaflet concerned covered the whole of the provisions of the 1995 pensions Act in 20 pages and the MFR in just four sentences. Nobody could believe that they were being provided with an unqualified and complete understanding of the MFR; that occupational pension schemes were absolutely safe; and that they could, therefore, join (or remain in) one without making further enquiries. . . . ."
I find nothing in that second letter which seeks to respond to the specific criticisms summarised in paragraphs 5.68(i) of the Report. It was, if I may say so, obvious that the Ombudsman was not suggesting that leaflet PEC 3 was apt to provide, or purported to provide, the reader with "an unqualified and complete understanding of the MFR": the thrust of the criticism (which the DWP made no attempt to meet) was that the assurances which were given in PEC 3 as to the purpose and effect of the MFR were incompatible with the Government's intentions.
- The Ombudsman laid the Report before Parliament on 15 March 2006. On the following day, in an oral statement in the House of Commons, the Secretary of State indicated that the Government could not accept any of the findings of maladministration; and that that he would publish a full response within a few weeks. The formal response was published in June 2006. It is in that document ("the DWP Response") that one may expect to find the Government's considered reasons for rejecting the first finding of maladministration.
- In paragraph 11 of the DWP Response it was accepted that "The MFR was never intended to require schemes to hold sufficient assets to ensure that all members' benefits could be fully secured should the scheme wind up (by purchasing annuities and deferred annuities from an insurance company)". It is said that: "Instead it was intended to ensure that a scheme which was fully (ie 100%) funded on the basis of the MFR should have sufficient assets, in the event of it winding up, to protect fully pensions already in payment (by buying annuities), and to give younger members a cash amount which, if placed in a personal pension would allow them a reasonable expectation but not a guarantee of achieving, at retirement, benefits equivalent to those lost" [emphasis added]. There was, therefore, no suggestion that the Ombudsman was wrong to reach the conclusion which she did as to the Government's intentions in relation to the protection which the MFR was to provide for non-pensioner members. On the basis that she was correct to reach that conclusion, it might have been expected that the DWP Response would seek to meet the criticism clearly expressed in the paragraphs of the Report to which I have referred that the assurances given were incompatible with the Government's intentions; or, as the point was put in paragraph 5.43, that PEC 3 was misleading in that it gave assurances which it was never the Government's intention to meet.
- Any expectation that the DWP Response would seek to meet that criticism would have been disappointed. The only references to leaflet PEC 3 in that document are at paragraph 21 (which does no more than identify the leaflet) and paragraph 22.1 (which repeats the point made in the letter of 28 February 2007: that the leaflet was intended to be "a brief summary of the changes" and covers the MFR "in just four sentences"). The thrust of the DWP Response, in relation to the first finding of maladministration, is found in paragraph 36 of that document:
"36 . . . The . . . more general information which the Government provided in its leaflets was intended only to provide basic information and its limitations were made clear. The Government does not accept the finding that this information was potentially misleading and, thus, maladministrative."
- As I have said, the judge agreed with the Ombudsman that the description of the intended effect or aim of the MFR (at page 15 of the leaflet PEC 3) as being to make "sure" that members received the pensions due to them was plainly inaccurate and misleading. And he went on say (at paragraph [66]) that no reasonable Secretary of State could rationally disagree with that view.
- The Secretary of State's challenge to that conclusion is summarised at ground 4 in the grounds of appeal attached to his appellant's notice: "[The judge] ought to have held that such a view [disagreeing with the Ombudsman's finding in relation to PEC 3] was rationally open to the Secretary of State in the light of (a) the very general purpose of the PEC3 leaflet; (ii) the context in which it was published; (iii) the express caveat to which the leaflet was subject; and (iv) its informal and general language". That challenge is expanded at paragraphs 120 to 128 of the appellant's consolidated skeleton argument. It is said (at paragraph 128) that "the fundamental question in relation to PEC 3 . . . is whether a reader of the leaflet would be misled into thinking that the MFR provided a guarantee that all occupational pensions were safe and secure in all circumstances".
- The appellant's consolidated skeleton argument sets out (at paragraph 127) five reasons why it is said that the Secretary of State's view that the leaflet PEC 3, taken in context, was not in any way inaccurate or misleading. Those reasons may, I think, fairly be summarised as follows: (i) the leaflet was a high level and general guide to a lengthy and complex new piece of legislation in relation to which choices had to be made about what to include and what to exclude, "bearing in mind the objective of encouraging someone to read a short, non-technical document"; (ii) the leaflet contained a clear and express disclaimer to the effect that it "should not be treated as a complete and authoritative statement of the law"; (iii) the leaflet made it clear that the primary responsibility for looking after the interests of scheme members rested with the trustees of the scheme, from whom a member should seek advice; (iv) the description of the MFR was couched in qualified, non-technical language, appropriate to the circumstances in which the MFR was introduced as a new protective measure where there had been no such protection before the 1995 Act; (v) the Ombudsman's criticism of the failure to mention the "reasonable expectation" test was misplaced in that "to go down to such a level of technical detail would have been wholly inappropriate in what was the most general of introductions to a wide-ranging and complex piece of legislation".
- On the basis of those reasons it is submitted that the Secretary of State "was rationally entitled to conclude" that the reader of leaflet PEC 3 would not be so misled into thinking that the MFR provided a guarantee that all occupational pensions were safe and secure in all circumstances. If he was entitled so to conclude, then (it is said) he was entitled to reject the Ombudsman's finding on that point.
- For my part, I am not persuaded that that is the correct approach: I am not persuaded that the Secretary of State was entitled to reject the Ombudsman's finding merely because he preferred another view which could not be characterised as irrational. As I have said, earlier in this judgment, it is not enough that the Secretary of State has reached his own view on rational grounds: it is necessary that his decision to reject the Ombudsman's findings in favour of his own view is, itself, not irrational having regard to the legislative intention which underlies 1967 Act: he must have a reason (other than simply a preference for his own view) for rejecting a finding which the Ombudsman has made after an investigation under the powers conferred by the Act. It is, to my mind, a striking feature of the history which I have set out that the Secretary of State has not, even in this Court, sought to meet the Ombudsman's finding that the assurances given on page 15 of the leaflet PEC 3 were incompatible with the Government's intentions.
- In that context, it is, I think, helpful to look again at the assurances (in relation to the MFR) that were given in the leaflet PEC 3. The passage is set out at paragraph [20] of this judgment. It was said, first, that the 1995 Act introduced a new rule "aimed at making sure that salary related schemes have enough money in them to meet the pension rights of their members". If section 56(1) of the Act is read out of context (and without a proper understanding of what is meant by the phrase "the amount of the liabilities of the scheme), that does, indeed, appear to be its aim: the minimum funding requirement is that "the value of the assets of the scheme is not less than the amount of the liabilities of the scheme". It is correct, also, to say that "If the money in the scheme is less than this minimum level, the employer will need to put in more money within time limits". And, subject to a proper explanation of what is meant by the phrase "pensions are protected", it would be correct to say that "The minimum funding requirement is intended to make sure that pensions are protected whatever happens to the employer". The vice, as it seems to me, is that, unless the reader has knowledge of detailed provisions of the 1995 Act, and of the Government's intentions as set out in the letter dated 22 November 1995 and subsequently disclosed in the 1996 Regulations, he is likely to be misled into thinking that "pensions are protected" means that (provided the MFR has been maintained in respect of his scheme) his pension rights will not be at risk if the scheme is wound up. That belief would be encouraged by the statement that "If the pension scheme has to wind up, there should be enough assets for pensions in payment to continue".
- That statement "there should be enough assets for pensions in payment to continue" - is, of course, directed to the position of pensioner members: that is to say, those whose pensions are in payment at the date when the scheme is wound up. The Ombudsman made no finding that, in relation to pensioner members, the assurances given in leaflet PEC 3 were misleading. Her criticisms (in this context) are confined to the assurance given to non-pensioner members (and, in particular, to members in service) by the statement that "if the scheme has to wind up there should be enough assets to provide all younger members with a cash value of their pension rights". Her finding was that that statement, read with the assurance that the aim of the MFR was to make sure that schemes have enough money in them to meet the pension rights of their members and to make sure that pensions are protected whatever happens to the employer, would lead members in service to think that "the cash value of their pension rights" would be of an amount that would, on transfer to another scheme, provide future benefits equivalent to those to which they had become entitled in the existing scheme. If that was what members in service were led to think, the assurance was misleading. It was misleading because the Government's intention was not that the cash value would be of an amount which would provide, or would be more likely than not to provide, benefits equivalent to those under the existing scheme: the intention was that the amount would be such as to give an "even chance" of equivalent benefits.
- The Secretary of State did not, at the time when he decided to reject the Ombudsman's first finding, seek, and has not since sought, to challenge the Ombudsman's view that an assurance that the aim of the MFR was that the cash value of accrued rights would be of such amount that members in service would be protected in the sense that, on transfer to another scheme, that amount would provide benefits equivalent to those under the existing scheme - is not the same as an assurance that the aim was that the amount would provide an even chance of equivalent benefits. Rather, the basis for the decision to reject is said to be (a) that the reader of leaflet PEC 3 would not have understood the assurance in the sense which led the Ombudsman to make the finding that she did and (b) that to explain that the aim was to provide no more than an even chance of equivalent benefits would have introduced an unacceptable degree of complexity into leaflet PEC 3. In my view, neither proposition can withstand scrutiny. As to (a): it is impossible to suggest that the reader of leaflet PEC 3 would not have been led to think that both pensioner members and members in service were to be provided with the same degree of protection: the protection would be provided in a manner which reflected the difference between rights to a pension in payment and future rights but the degree of protection would be the same in respect of each class of members. The assurance in relation to pensioner members was that there should be enough assets "for pensions in payment to continue": there was nothing to indicate to the reader that members in service were to have some lesser degree of protection comparable to an even chance that pensions in payment would continue. As to (b): the suggestion that to explain that the aim was to provide no more than an even chance of equivalent benefits would have introduced an unacceptable degree of complexity cannot be sustained in the light of the explanation that was actually given, in September 2000, when the DSS published a press notice to accompany the consultation document "Security for Occupational Pensions". As the Ombudsman pointed out (at paragraph 4.319 of the report), paragraph 4 of annex one to that press notice explained that:
"The objective of the MFR is that a scheme fully funded according to its requirements would, if the employer became insolvent, protect fully pensions in payment, and provide younger members with a transfer value that would give them a reasonable expectation of replacing scheme benefits if they transferred to another pensions vehicle."
Save that the equivalent passage in a document published in January 1996 might more appropriately have referred to "an even chance" rather than "a reasonable expectation", there is nothing to explain why the explanation as to the aim of the MFR which was given in September 2000 could not have been given in January 1996.
- As I have said, the judge observed (at paragraph [66] of his judgment) that no reasonable Secretary of State could rationally disagree with the Ombudsman's view that the information in the leaflet PEC 3 was incomplete and potentially misleading. I am satisfied that the judge was correct in that observation; but, for my part, I prefer to say that, in the circumstances of this case, it was irrational for the Secretary of State to reject the Ombudsman's finding to that effect. For that reason I would hold that the judge was correct to conclude that the Secretary of State's decision to reject the first finding of maladministration should be quashed. It follows that I would dismiss the Secretary of State's appeal.
- I should add that, in the context of the Secretary of State's appeal, it has been unnecessary to consider (and I have not considered) whether, in rejecting the Ombudsman's first finding of maladministration, it was irrational for the Secretary of State to refuse to accept the Ombudsman's view on other matters which led her to make that finding. It is unnecessary to do so, first, because the judge made no findings of irrationality in respect of those other matters from which the Secretary of State is concerned to appeal.
- Second, although the claimants filed a respondent's notice in the Secretary of State's appeal (2007/0554) in which it is asserted, in general terms, (i) that it was irrational for the Secretary of State to reject the Ombudsman's findings save in the limited circumstances set out in Danaei and (ii) that the reasons given by the Secretary of State for rejecting the Ombudsman's first finding did not include and could not rationally have included any of those circumstances, they do not identify in that notice any particular information or matter in relation to which it is said that the judge ought to have found (but did not find) irrationality. Nor is any such information or matter identified, in terms, in the relevant section (paragraphs 125 to 140) of the claimants' skeleton argument; although it is said (at paragraph 123) that "to respond to the Ombudsman's detailed and comprehensive analysis by considering two leaflets (PEC 3 and PM3) in isolation is manifestly inadequate" and that that, of itself, should lead the Court to conclude that the Secretary of State had failed to provide rational and cogent reasons for rejecting the first finding. In those circumstances it does not seem to me necessary or appropriate both because it would be irrelevant to the outcome of the Secretary of State's appeal and because it would add substantially to the length of this already lengthy judgment for this Court to attempt to identify for itself other matters in relation to which the Secretary of State can be said to have acted irrationally in rejecting the first finding of maladministration. I should not be taken to have decided that it would not be possible to do so.
The claimants' appeal
- The claimants appeal (under reference 2007/0556) from the judge's decision (reflected in paragraphs 2 and 3 of the order of 21 February 2007) that the decisions of the Secretary of State to reject the first finding of maladministration in the Report (in so far as that finding related to causation) and to reject the third finding of maladministration were lawful. Their appellants' notice included an appeal from paragraph 4 of the order (dismissing the claim for breach of article 1 of the First Protocol to the European Convention on Human Rights; but we were told by counsel in the course of argument that that appeal was not pursued. The primary ground of appeal in respect of both paragraph 2 of the order (ground 2) and paragraph 3 (ground 7) is that, absent any application for an order in judicial review proceedings quashing the findings in the Report, the judge ought to have found that the Secretary of State was bound by those findings. For the reasons which I have already explained, I reject that contention. The relevant question for the judge, in each case, was whether the Secretary of State had acted rationally in rejecting the Ombudsman's findings.
The findings as to causation of injustice
- The remaining grounds of appeal in respect of paragraph 2 of the order are: (i) that the judge erred in finding that the Secretary of State had rejected the Ombudsman's findings on the grounds that it was irrational for her not to limit her findings to those people who had read or relied upon the assurances in the leaflets (ground 3); (ii) that the judge erred in treating the Ombudsman's finding as only a finding that maladministration was a significant contributory factor in the creation of financial losses suffered by individuals (ground 4); and (iii) that the judge failed to have regard to the fact that the Secretary of State had, in another case ("the Inherited SERPS case") accepted an approach to causation analogous to that adopted by the Ombudsman in this case (ground 5). In order to address those grounds (in particular, grounds 3 and 4) it is necessary to examine the structure of that part of the Report in which the causation of injustice is discussed.
- The Ombudsman had summarised her findings of maladministration at paragraph 5.164 of the Report. At paragraphs 5.165 to 5.168 she considered whether individuals had suffered injustice. At paragraphs 5.167 and 5.168 she said this:
"5.167 It is clear to me from the evidence I have reviewed about the personal circumstances of all those who have complained to me that they and their families have suffered financial loss, a sense of outrage, and considerable distress, anxiety and uncertainty.
5.168 I am also satisfied that they have suffered injustice through an inability to make informed choices or to take remedial action. . . ."
She then turned to consider whether that injustice had been remedied (paragraphs 5.169 to 5.175); and found that it had not been remedied and that it was not intended that it would be remedied. And she went on to consider what had caused that injustice (paragraphs 5.176 to 5.244).
- The Ombudsman addressed that question in relation to each of the three heads of injustice which she had identified in paragraphs 5.167 and 5.168: first, in relation to inability to make informed choices and to take remedial action (at paragraphs 5.179 to 5.186); second, in relation to outrage and distress (at paragraphs 5.187 to 5.191); and, third, in relation to financial loss (at paragraphs 5.192 to 5.244). Her conclusions in relation to the first and second of those heads are summarised at paragraph 5.245:
"5.245 I have found that injustice in the forms of a sense of outrage, lost opportunities to make informed choices or to take remedial action, and distress, anxiety and uncertainty was caused by maladministration."
In summary, the remedies which, as she held, would have been open to members included the following: (i) to choose not to transfer into the scheme the value of accrued rights from other schemes; (ii) to choose not to make voluntary contributions to the scheme, but to invest their monies elsewhere; and (iii) to seek to coerce employers to raise their contributions (paragraphs 5.229, 5.230 and 5.233(ii)). Trustees could have opted for a "gilts-matching" investment policy (paragraph 5.233(i)); and sponsoring employers could have sought to make arrangements to enable them to increase their contributions (paragraph 5.233(iii)).
- The Ombudsman's conclusion in relation to the third of those heads (financial loss) was in less absolute terms. It was summarised at paragraph 5.246:
"5.246 I have also found that the maladministration I have identified was a significant contributory factor in the creation of the financial losses suffered by individuals, along with other systemic factors. . . . "
And she added this:
"5.246 . . . A further consequence of that maladministration was financial injustice the distortion of the reality facing scheme members so that they were wholly unaware that their pension rights were dependent on the ongoing security of their employer."
- The "other systemic factors" to which the Ombudsman referred at paragraph 5.246 of the Report delays in the winding-up process, the actions of some employers, the nature of the relevant legal framework and some of the Government's policy decisions were discussed at paragraphs 5.200 to 5.222: at paragraph 5.223 she turned to consider "whether maladministration played any role in bringing about financial loss". She noted, at 5.234 of the Report, that she had found that the Government had provided "incomplete, inconsistent, misleading or inaccurate information about the degree of protection that the law provided". That had led to "members of the schemes and others being unaware of the need to take any of the possible forms of remedial action" that she had outlined in paragraphs 5.229 to 5.233. At paragraph 5.236 she held that those lost opportunities were the result of the maladministration which she had identified and contributed directly with other factors to the situation in which the loss of pensions and other benefits which were to be derived from the members' contributions to their scheme were able to occur. At paragraph 5.239 she posed the question "But what of whether that maladministration caused injustice?". In answer to that question she held (at paragraph 2.243) that: "Official information had effectively distorted the reality of the position in which scheme members found themselves. As a result, they were wholly unaware that their pension rights were dependent on the ongoing security of the employer sponsoring their scheme". That constituted an injustice which was caused by maladministration.
- The basis on which the Secretary of State rejected the Ombudsman's findings as to causation of injustice is to be found at paragraphs 48 to 57 of the DWP Response of June 2006. At paragraphs 48 to 51 it is emphasised that the immediate cause of financial loss was the winding-up of schemes at a time when the assets held were not sufficient to meet the liabilities: key contributory factors were "the sustained downturn in world stock markets in 2000/01" and the substantial increase in the cost of purchasing annuities to secure pensions in payment caused by "unanticipated increases in longevity and falls in interest rates" which left less to be shared between non-pensioner members. Nevertheless, the Response went on (at paragraphs 53 to 56) to explain why the Government rejected the Ombudsman's conclusion that there was a causal link between the official information supplied in leaflets and the actions taken by scheme members; or that scheme members would necessarily have acted differently had the official information been above criticism. It is convenient to set out the relevant paragraphs in full:
"53 Crucially, a number of the schemes covered by the report would not have had an MFR valuation before they went into wind-up. In these cases, self-evidently, members, even if properly advised about the limitations of the MFR, could not have taken account of such a valuation. Other schemes, which had a valuation, would have been found to have been underfunded against this test. Even if the members of these schemes had believed that, if their scheme was funded up to the MFR, they were fully protected, they could not have believed this protection applied to their scheme if underfunded. Therefore, any decision they made to join or stay in that scheme in these circumstances could not have been influenced by a belief that their scheme was, in some way, 'safe'
54 Where their scheme had been the subject of a MFR valuation and had been found to comply with it, it is clearly more plausible that the scheme's members might have sought to act differently if they had had a fuller explanation of what safeguards this did, and did not, provide. Even in those circumstances, however, and leaving aside the issue of the responsibility for any such lack of a fuller explanation, it is the Government's view that any action that could have been taken by members, either individually or collectively, would have been unlikely to have protected a greater part of their accrued rights, much less protected all of them. Indeed many possible actions would have exposed them to potentially greater risks.
55 For example, taking some of the possibilities raised in the Ombudsman's report, it would have been very difficult to persuade an employer to inject more money into a scheme when that company was itself in serious financial difficulties. In addition it would have been surprising if the employer in such circumstances would have been able to find another company willing to take it over and fund the pension deficit.
56 Where individuals wanted to transfer their money out of their occupational pension scheme and to remain working for the sponsoring employer, their only realistic option would have been to have transferred their share of the fund (which might have been reduced by the scheme) into a personal pension. This would, however, have left them still exposed to the risk of stock market movements and the general economic situation, as well as having to pay management costs and is likely to have deprived them of the employers' contribution. How much they would have lost or gained from such a transfer would be dependent on the company from which they chose to buy their personal pension and would not have been known until they reached retirement age."
The principal points made in those paragraphs may, I think, fairly be summarised as: (i) that, in cases where either there had been no MFR valuation at the time their scheme commenced winding up or the MFR valuation had shown their scheme to be underfunded, scheme members could not claim that any decision to join (or remain in) the scheme was influenced by a belief that they had the protection which they might have been led to believe the MFR would provide; (ii) that, in cases where the scheme was funded in accordance with the MFR, there was little (if anything) that a member could do, in practice, towards achieving protection for his pension rights which was greater than that actually provided by the MFR, other than transferring the value of his accrued rights to a personal pension fund; and (iii) that a transfer into a personal pension fund would leave the scheme member exposed to the same factors (stock market movements and the general economic situation) which had led to the shortfall in the scheme.
- As I have said, the judge declined to quash the Secretary of State's decision to reject the Ombudsman's findings as to causation of injustice for the reasons expressed in paragraph [70] of his judgment. He held, in effect, that it was open to the Secretary of State to take the view that a finding that "everyone who between 1995 and 2005 suffered losses on the winding up of their pension scheme was the victim of injustice in consequence of maladministration, whether or not official misinformation had anything to do with it and whether or not there were any remedial steps open to them" was irrational.
- In those circumstances, I am not persuaded that the claimants have made out ground 3 in their grounds of appeal - that the judge erred in finding that the Secretary of State had rejected the Ombudsman's findings on the grounds that it was irrational for her not to limit her findings to those people who had read or relied upon the assurances in the leaflets in respect of the first limb of the finding in paragraph 5.246 of the Report. In my view it is clear from the DWP Response that the Secretary of State did reject the finding that maladministration was a significant contributory factor in the creation of financial losses suffered by individuals on the ground that that finding could not be supported in the case of individuals who could not have relied on the leaflets as a basis for their decisions whether to join (or remain in) their schemes: paragraph 53 of the Response. The judge held that it was irrational for the Ombudsman to find that financial losses suffered in circumstances where it could not be said that "official misinformation had anything to do with it" did not, of themselves, give rise to "injustice in consequence of maladministration". He was correct to do so. He was correct, also, to take the view that that was a ground on which the Secretary of State was entitled to reject the Ombudsman's finding.
- It is no answer to contend (as the claimants do contend at paragraph 179 of their skeleton argument) that the finding in relation to the causation of injustice "was carefully limited only to those individuals who had complained to the Ombudsman, who submitted evidence of their circumstances and their knowledge of the Government information". Although the Ombudsman makes it clear, at paragraph 2.2 of the Report, that she was concerned to decide "whether maladministration has caused injustice to those who have complained to me and to those in a similar position to those complainants", she does not (and, it may be, could not) say whether all those who had complained (in excess of 200 in number: paragraph 1.44) were in schemes which (i) had had an MFR valuation before commencing wind-up and (ii) were fully funded in accordance with that MFR. Of the four representative complainants whose circumstances are described at paragraphs 2..4 to 2.32 of the Report, two (Mr G and Mr B) satisfy that test; and two (Mr J and Mr D) were in schemes which were underfunded (paragraphs 2.6 and 2.21).
- I am persuaded, however, that there is force in ground 4 in the claimants' grounds of appeal: that the judge erred in treating the Ombudsman's finding as only a finding that the maladministration was a significant contributory factor in the creation of financial losses suffered by individuals. I can find nothing in the DWP response to suggest that the Secretary of State questioned the Ombudsman's conclusion that (if there were maladministration as identified in her first finding) that caused injustice in the forms of outrage, distress, anxiety and uncertainty: paragraph 5.245 of the Report. And, although the judge set out the Ombudsman's finding in that respect (at paragraph [21] of his judgment), it does not seem to have been in his mind when he came to address the challenge to the Ombudsman's finding as to causation at paragraphs [67] to [70]. Neither the Secretary of State, nor the judge, challenged the Ombudsman's view that the concept of injustice was wide enough to cover a sense of outrage, distress, anxiety and uncertainty; nor that the concept would cover the loss of opportunities to make informed choices or to take remedial action (paragraph 5.245) and "the distortion of the reality facing scheme members so that they were wholly unaware that their pension rights were dependent on the ongoing security of their employer" (paragraph 5.246). And, in that context, it seems to me to be no answer to say that there was no real prospect that remedial action would avoid financial loss. The Ombudsman's finding included a finding that injustice was caused by the loss of the opportunity to make informed choices.
- At paragraph 8 of the letter dated 27 January 2006, to which I have referred earlier in this judgment, the DWP had noted that "less than half of the respondents to your survey said that they had seen the publications in question". The Ombudsman responded to that point at paragraphs 7.56 and 7.57 of the Report:
"7.56 First, while it is true that only approximately one-half of those complainants who responded to my survey can now demonstrate that they had seen the official information that I consider to be deficient, I think that it cannot be forgotten that a considerable time has passed since many of the leaflets were issued and read. Nor is it the case that all of those who cannot now demonstrate it did not see such information in the past.
7.57 I do not consider that it is reasonable to expect all individuals to now provide evidence in the form of copies of leaflets that were read many years ago. Such an expectation does not accord with the approach that my Office has taken in previous similar cases nor is it one that DWP accepted in those cases."
It is to that point that the claimants refer in ground 5 of their grounds of appeal - that the judge failed to have regard to the fact that the Secretary of State had, in the Inherited SERPS case, accepted an approach to causation analogous to that adopted by the Ombudsman in this case: paragraph 186 of their skeleton argument.
- The claimants are correct to point out that the judge did not refer to that point; and may, therefore, be taken to have failed to take it into account or to have given it no weight. But I am not persuaded that the point is of any assistance to the claimants in their appeal. The Secretary of State's reasons for rejecting the Ombudsman's findings in relation to the causation of injustice as set out in the DWP Response did not include an assertion that complainants had not read the official leaflets. The Secretary of State's point was a different one: that, given that a number of the schemes either had no MFR valuation or were underfunded by reference to the MFR, complainants who had been in those schemes could not be said to have relied on any misleading information about the MFR which was contained in a leaflet which they did read. It may be said that, when the judge observed (at paragraph [70] of his judgment) that: "If the First Finding had been limited to the causation of injustice to any scheme member who had read the offending leaflets . . .", he did not appreciate that, on the basis of the Secretary of State's view, it would not assist a complainant who was in an underfunded scheme to establish that he had read a leaflet which would have given him no comfort; but that does not lead to the conclusion that the judge was wrong to hold that the Secretary of State was entitled to reject the finding as to causation in relation in the first limb of paragraph 5.246 of the Report.
- For those reasons I would allow the claimants' appeal against paragraph 2 of the order of 21 February 2006 in so far as it relates to paragraph 5.245 and to the second limb of paragraph 5.246 of the Report; but dismiss that appeal in so far as it relates to the first limb of paragraph 5.246.
The third finding of maladministration
- The 1996 Regulations (SI 1996/1536) had provided, at regulation 7(7) that, for the purposes of calculating the liabilities of a scheme in respect of non-pensioner members, it was to be assumed (save in a case where the scheme had a gilts-matching policy for liabilities in respect of deferred members) that those liabilities would be met (a) to the extent that they related to any time before the switch over period, from investment in equities and (b) to the extent that they related to the switch-over period, from investments in both gilt edged securities and equities, in the respective proportions indicated by the guidance in GN 27 to which I have referred earlier in this judgment. For the purpose of that regulation, the switch-over period, in relation to a member, was the period of ten years ending with the date on which the member would first become entitled under the provisions of the scheme to receive a full pension on retirement: regulation 7(10). In order to calculate the liabilities of a scheme in respect of non-pensioner members (in the context of determining the MFR) it was necessary for the actuary to make an assumption as to the yield from investment in equities. The guidance note GN 27 provided for that assumption to be based on a concept known as the equity market value adjustment ("MVA"). The adjustment was expressed as a ratio to the dividend yield on the FTSE Actuaries All-Share Index.
- When the 1995 Act and the 1996 Regulations came into force, that ratio was 4.25 to the gross dividend yield: in 1998 the ratio was changed to 3.25 to the net dividend yield: in March 2002 the ratio was changed, again, to 3.00 to the actual dividend yield (paragraphs 3.132 and 3.136.of the Report). Those changes were made with the approval of the DWP (or of its predecessor, the DSS). At paragraphs 3.141 to 3.143 the Ombudsman referred to the advice which she had received as to the significance of those changes:
"3.141 [My advisers] advise me that the 15 June 1998 change reduced the value of the MFR liabilities for members more than ten years away from their MFR pension age by 9.4%.
3.142 I am also advised that the 7 March 2002 change to the formula reduced the value of the MFR liabilities for members more than ten years away from their MFR pension age by 7.7%.
3.143 Thus, the effect of the combined changes, compared to the original 1997 basis, was a weakening in the MFR basis of approximately 17% . . ."
She noted (at paragraph 3.146) that she had been advised that, after the March 2002 change, the MFR transfer values had only just above a 35% chance (for members aged up to 45) of providing the member's pension.
- The March 2002 change is the subject of the third finding of maladministration: the finding that "the decision in 2002 by DWP to approve a change to the MFR basis was taken with maladministration" (paragraph 5.164(iii) of the Report).
- The circumstances which led to the March 2002 change were described by the Ombudsman at paragraphs 4.371 to 4.435 of the Report and summarised by the judge at paragraphs [71] to [74] of his judgment. It is, I think, sufficient to refer to the following:
(1) In March 2001 the Government had published its proposals for the reform of the MFR, following publication (on the previous day) of a report commissioned by the Government (the Myners' report) which (amongst other recommendations) had recommended replacement of the MFR by an alternative funding standard. On 5 September 2001 the Chairman of the Pensions Board of the actuarial profession wrote to the Head of Private Pensions at the DWP to propose that an interim change should be made prior to the reform of the MFR. The interim change proposed was the lowering of the dividend yield in the MVA (paragraph 4.371 of the Report). In that letter the Chairman referred to factors which would, on the one hand, indicate the need to weaken the basis of the MFR (in particular, the uncertainties that dividend payments would be maintained at past levels) and, on the other hand, indicate the need to strengthen that basis (increased longevity). The letter included the following passage:
"The extent to which these two effects cancel each other out in terms of the total for the MFR liabilities will depend on the maturity of each particular scheme. We are of the view, however, that the overall position has changed sufficiently to require a lowering of the dividend yield in the MVA from 3.25% to 3%."
(2) On 25 September 2001 the Government Actuaries Department ("GAD") responded to the DWP's request for views on (inter alia) whether "the DWP should accede to the request from the actuarial profession that the MFR equity MVA should be amended, by replacing the assumed long term dividend yield of 3.25% with 3%: paragraph 4.388 of the Report. The response (paragraph 4.391 of the Report) was in these terms:
"In our view, recent events in and of themselves do not undermine the thrust of the argument of the actuarial profession. Accordingly GAD would agree that the change to the equity MVA proposed by the profession is justified as a simple change which adjusts the MFR to a level of protection consistent with that applying when the equity MVA was last adjusted in June 1998."
(3) On 23 October 2001 the DWP replied to the letter of 5 September 2001 indicating (paragraph 4.393 of the Report) its view that a change to the equity MVA should not be made in isolation, "but should be considered as part of a coherent and balanced package arising out of the current consultation".
(4) On 11 January 2002 Ministers were invited, by officials within the DWP, to approve the recommendation of the actuarial profession that the equity MVA factor be reduced from 3.25% to 3%: paragraphs 4.409 to 4.415 of the Report. The DWP submission to Ministers referred to the GAD's advice; and pointed out that the change would lead to a reduction in MFR liabilities of 7.7% in respect of scheme members who were more than ten years below pension age. It was said that "This returns things to the level when the MFR was introduced": paragraph 4.414.
(5) In February 2002, the DWP published a summary of responses received to the consultation document "The Minimum Funding Requirement: The Next Stage of Reform" (published in September 2001) and on draft regulations which had been an attachment to that document. In the course of that summary (while recognising that the recommendation in the letter of 5 September 2001 had formed no part of the draft regulations) the Government announced that it had accepted the recommendation from the actuarial profession "to amend the MFR equity market value adjustment from 3.25% to 3%": (paragraph 4.420 of the Report). It was said that:
"This change would take account, in a simple and straightforward way, of the overall impact on the strength of the MFR test caused by reductions in dividend payments made by companies, and of mortality improvements, and align the strength of the MFR test more closely with its original intended strength."
(6) Regulations to put the interim changes to the MFR basis into effect the Occupational Pensions Schemes (Minimum Funding Requirement and Miscellaneous Amendments) Regulations 2002 (SI 2002/380) were made on 22 February 2002. In a note to the press notice issued when those regulations were laid before Parliament (on 26 February 2002) the DWP confirmed that it had approved the recommendation of the actuarial profession that the MVA be reduced: paragraph 4.426 of the Report. On the same day the actuarial profession released a press statement (which had been seen by the DWP in draft) in which it welcomed the fact that its recommendation of a change to the MVA had been accepted: paragraph 4.432. It was said that the recommendation had been made "to recognise current market conditions and the lower dividend payouts in recent years"; that the change "eases the burdens on employers to meet the MFR"; but that "it also reduces the amount of minimum transfer values for people changing schemes".
- At paragraphs 5.77 to 5.81 of the Report the Ombudsman had considered the decision to change the MFR basis, in June 1998, by amending the MVA. She concluded that there was no evidence that that decision was taken with maladministration. As she put it: "Not only was the decision taken after DWP had regard to the available options, it was taken after full consideration of the advice of the actuarial profession which was supported by further evidence and statistics to back that advice up". She did not take the same view of the decision taken in respect of the change in March 2002.
- The Ombudsman's reasons for her third finding of maladministration may, I think be fairly summarised as follows:
(1) The 2002 decision to change the MFR basis could not be said to have been taken properly simply because it rested on a recommendation from the actuarial profession (in the letter of 5 September 2001): paragraph 5.110. That conclusion was based on two factors: (i) that the actuarial profession had made recommendation on four occasions, each "aimed at ensuring that the MFR remained aligned with the level intended by Government" (paragraph 5.102); and (ii) that, in choosing to implement two of those recommendations but to reject the others, the Government's response to those recommendations demonstrated that "It was clearly not the case that the existence of a recommendation from the actuarial profession . . . was sufficient cause for DWP to agree to change the MFR basis" (paragraph 5.104).
(2) Given that there was nothing in the material which she had seen which satisfied her that the 2002 decision was "taken within a consistent framework of implementing the recommendations of the actuarial profession to ensure alignment of the MFR with its original policy intention", it was necessary to enquire "on what basis was this decision taken?": paragraph 5.112. But, in that context it was not necessary to come to a view as to whether the advice received from the actuarial profession was soundly based: the relevant enquiry was whether the decision was taken "with regard to a properly documented evidence base and . . . with a full assessment of relevant considerations but without regard to irrelevant considerations" (paragraph 5.113).
(3) The evidence did not satisfy that test (paragraph 5.126): in particular, she could not accept that "advice or recommendation from the actuarial profession or from GAD or any other professional adviser absolved DWP from seeking to establish all of the relevant facts before making their decision (paragraph 5.124). The advice from the actuarial profession was "insufficient in itself to enable DWP to come to a 'considered and balanced' assessment as to whether to change the MFR basis" (paragraph 5.127): and "the advice provided by GAD to DWP" was [not] sufficient in itself to enable DWP to ensure that the evidence base on which it took its decision was properly documented and that the reasons for its decision were set out clearly" (paragraph 5.129).
(4) The advice from the GAD could be read as being limited in a significant way: it was not clear whether it was limited as an assessment of whether events in the two weeks following 11 September 2001 ("recent events") had undermined the rationale behind the actuarial profession's recommendation; or whether it provided the confirmation (which the DWP had sought) that the actuarial profession's proposal was in principle appropriate (paragraph 5.137). The GAD's advice "gave no clear basis on which the DWP could be satisfied that the rationale put forward by the actuarial profession in relation to the effect of events in the period prior to 5 September 2001 was in itself reasonable"; nor was that advice supported by analysis other than that carried out by the profession (paragraph 5.140).
(5) "Regardless of what professional advice DWP had received, as this decision affected the funding of many private sector final salary pension schemes and as it was related to the security of the pension rights of many thousands of people, . . . DWP should have done more to satisfy itself that it was right to implement this recommendation": paragraph 5.148.
- On the basis of those reasons the Ombudsman concluded (at paragraph 5.149 of the Report) that the decision to change the basis of the MFR in March 2002 was taken with maladministration "as there is insufficient documentary evidence that explains the rationale for the decision and as I have doubts about the reliance of DWP on professional advice which seems to me not to have been sufficient in itself to enable DWP to come to a decision that took account of all relevant considerations and which ignored irrelevant ones". As I have said, at paragraph 5.150 she emphasised that the finding was predicated "on what I find to be failings in the process through which DWP took the decision - and in the completeness of the evidence considered by it in so doing". Nevertheless, she acknowledged (at paragraph 5.226) that "had the decision-making deficiencies not occurred, this would have made no material difference to the degree of knowledge that scheme members had . . . That decision would still have been taken only on a proper basis."
- As Annex D to the Report the Ombudsman set out the response of the DWP in the letter dated 27 January 2006 to which I have referred earlier in this judgment; and included a submission made by the Government Actuary in support of that response. The Government Actuary's submission contained the following paragraphs:
"The statement made [in paragraph 5.129 of the Report] fails to recognise that GAD had been aware of, and closely involved in, the development of the profession's thinking on the MFR over many months and so GAD was fully aware of the context and scope of the profession's work when the Department's request for advice was put to us in September 2001. Furthermore our e-mail of 25 September 2001 was in confirmation of earlier discussions with DWP and so not the only component of our advice. Nor was our advice limited in any way, and particularly not in the way suggested [in paragraph 5.130]. The context of that advice was the overall question of how the strength of the MFR basis might have changed since it was last reviewed.
We do not agree that our advice was limited in the way suggested [in paragraph 5.130]. Neither do we agree that we failed to answer the question that DWP had put to us. This is a completely distorted interpretation of the GAD advice, exemplified by the unacceptable description of one paragraph of that advice as being the 'full advice'.
. . .
The statement made [in paragraph 5.138] does not recognise that, throughout its involvement in professional affairs, GAD had had access to the detailed work carried out by the Technical Support and research Committee of the Pensions Board of the actuarial profession, the committee that undertook the analysis leading to the profession's 5 September 2001 recommendation.
Once again, [paragraph 5.142] does not recognise the context of continuing discussions on the replacement of the MFR, involving the GAD, The Department and the actuarial profession, over the period between September 2001 and January 2002.
. . .
Moreover . . . the evidence base [for DWP's decision] was not insufficient since it was based on strong advice from the actuarial profession, which had been developed by a committee containing leading technical experts from most of the major firms of actuaries, and supplemented by GAD as a further independent source of advice. The evidence base for this decision was in fact extremely strong and much stronger than for many (probably most) of the decisions that have to be taken by Government."
- The Secretary of State rejected the third finding of maladministration for the reasons set out the DWP Response: in particular, at paragraphs 40 to 47 of that response. At paragraph 41 it was said that the 2002 decision in common with earlier decisions in 1998 and 2000 was based on a judgment on two issues: (i) whether the change would restore the MFR to its original level and (ii) whether the change was sufficiently straightforward to allow it to be implemented before planned changes to the MFR were expected to be introduced. The four steps in the decision-making process were described at paragraph 44: (i) there was a clear recommendation from the actuarial profession, "which had been developed by a committee containing leading technical experts from most of the major firms of actuaries"; (ii) the GAD was asked to consider and give an opinion on that recommendation which they endorsed without qualification; (iii) the DWP then considered whether there were any overriding policy considerations why the recommendation should not be accepted in particular, whether the change was sufficiently straightforward to allow for it to be implemented before the MFR was expected to be replaced; and (iv) whether the change to the MFR could be implemented quickly and without undue cost to the schemes. Paragraph 47 of the DWP Response summarised those reasons in these terms:
"The Government received a recommendation from the UK actuarial profession (as part of its role in continually monitoring the actuarial basis for the MFR) which was backed by the GAD and acted upon it. . . . The Government Actuary, in commenting to the Ombudsman on this issue . . . , has said that he considers that the evidence for this decision was 'extremely strong and much stronger than for many (probably most) of the decisions that have to be taken by Government'. The Government . . . would have needed strong grounds to justify not acting on the recommendation. No such grounds were apparent at the time."
- The judge declined to quash the Secretary of State's rejection of the third finding of maladministration. He set out his reasons at paragraph [79] of his judgment, to which I have already referred. He was impressed by the point made in the Government Actuary's submission and emphasised at paragraph 47 of the DWP Response. He made the telling observation that "The Ombudsman was in effect expecting the Secretary of State, who is not an actuary, to keep a watchdog (the GAD) and then bark himself". He observed that "The fact that additional evidence might have been sought in support of the actuarial profession's considered view is not equivalent to maladministration".
- As I have said the primary ground of appeal in respect of paragraph 3 of the order of 21 February 2006 (ground 7) is that, absent any application for an order in judicial review proceedings quashing the findings in the Report, the judge ought to have found that the Secretary of State was bound by those findings. I have already explained why I reject that contention. The remaining grounds under this head are (i) that the judge failed to appreciate "that the Ombudsman's third finding was a failure of process (paragraph 5.150) and that the Ombudsman was entitled to hold that this failing subsisted irrespective of whether the Government was entitled to act on the advice of the Government Actuarial Department" (ground 8); and (ii) that the judge erred in seeking to determine for himself the question whether the third finding amounted to maladministration that, it was said, was a matter for the Ombudsman to decide (ground 9).
- I am not persuaded that there is any substance in the contention that the judge failed to appreciate that the third finding of maladministration was a failure of process: that is to say, a finding of deficiencies in the process by which the DWP (and, in particular, the relevant Minister) reached the decision to approve the recommendation for a change in the MVA made by the actuarial profession in the letter of 5 September 2001. At paragraph [78] of his judgment the judge had observed:
"[78] [The ombudsman] concluded that this decision was taken with maladministration as there was insufficient documentary evidence that explained its rationale. She had doubts (at paragraph 5.149) about the reliance of DWP on professional advice which seemed to her 'not to have been sufficient in itself to enable DWP to come to a decision that took account of relevant considerations and which ignored irrelevant ones'. She notes in particular that the only documentary proof of advice from GAD on this subject is contained in two sentences of a single email."
It seems to me clear that the judge had well in mind that it was the process by which the DWP reached its decision to approve the change rather than the substance of that decision that was the subject of criticism by the Ombudsman.
- Further, it is important, in my view, to keep in mind that the finding of maladministration was directed to "the decision in 2002 by DWP to approve a change to the MFR basis". There was no finding of maladministration in the GAD's decision to endorse the recommendation that the actuarial profession had made in the letter of 5 September 2001. The Ombudsman took the view that the GAD was, in that respect, outside the scope of her investigation (paragraph 1.51 of the Report). But given the evidence of the Government Actuary (in the submission set out in Annex D to the Report) that "GAD had been aware of, and closely involved in, the development of the profession's thinking on the MFR over many months and so GAD was fully aware of the context and scope of the profession's work when the Department's request for advice was put to us in September 2001", that "throughout its involvement in professional affairs, GAD had had access to the detailed work carried out by the Technical Support and research Committee of the Pensions Board of the actuarial profession, the committee that undertook the analysis leading to the profession's 5 September 2001 recommendation" and that there was a "context of continuing discussions on the replacement of the MFR, involving the GAD, The Department and the actuarial profession, over the period between September 2001 and January 2002" statements which the Ombudsman does not reject - it is difficult to see how such a finding could have been made in any event.
- Nor am I persuaded that there is any substance in the contention that the judge usurped the role of the Ombudsman in seeking to determine for himself whether the decision which was the subject of the third finding could amount to maladministration. At paragraph [75] of his judgment the judge had set out the DWP's view, stated in its letter of 28 February 2006, that it would have been "far more vulnerable to justified criticism if it had substituted an alternative judgment in the face of clear and consistent advice from the actuarial profession and from the Government Actuary's Department without good reason . . .". He observed (at paragraph [76]) that there was no suggestion in the Report that the Ombudsman did not accept that that was, indeed, the view held by the DWP at the relevant time. When the judge referred (at paragraph [79] of his judgment) to the Ombudsman "in effect expecting the Secretary of State to keep a watchdog (the GAD) and then bark himself", he was plainly rejecting the proposition that (in a matter as technical as the proposed change to the MVA) it was for the DWP (rather than the GAD) to seek out further evidence to support the actuarial profession's considered view as to the need for the proposed change. The judge was entitled to reject that proposition for the reason which he gave. Given that it was not for the DWP to seek out further evidence to support the profession's view, the fact that there might have been further evidence which the GAD could have sought cannot support a finding of maladministration against the DWP. As I have said there was no finding of maladministration in respect of the GAD's decision to endorse the profession's recommendation.
- For those reasons I am satisfied that the decision of the Secretary of State to reject the third finding of maladministration cannot be held to be irrational. I would dismiss the claimants' appeal from paragraph 3 of the order of 21 February 2006.
The Ombudsman's submissions
- The Ombudsman has appeared by counsel at the hearing of these appeals as interested party; and we have been assisted by the extensive and detailed written submissions filed on her behalf. She has explained to the Court that she thought it appropriate to participate in the appeal (having taken no part in the hearing before the judge) because of her concern that the judge had misunderstood the content of the report, her concern that the submissions of the Secretary of State misrepresented the content of the Report; the collateral attack which (as she perceived) the Secretary of State had launched on the legality/validity of the Report and because (as she put it) "the case raises important legal and constitutional issues, particularly as regards the relationship between the Ombudsman and the bodies whose administrative actions it is her statutory function to investigate". She has emphasised that her principal concern is to respond to what she sees as a collateral attack on her Report; and that she does not seek to make common cause with the claimants. Nevertheless, it is inevitable that the submissions made on her behalf travel over much of the ground raised by the claimants on their appeal.
- I am conscious that the conclusion which I have reached as to "the relationship between the Ombudsman and the bodies whose administrative action it is her statutory function to investigate" differs from the view which has been advanced on her behalf (at paragraphs 42 to 61 of the skeleton argument dated 4 July 2007). In particular, I have rejected the submission that the decision of this Court in Eastleigh is authority for the proposition that the body under investigation is bound by the Ombudsman's findings of maladministration unless and until those findings are set aside in judicial review proceedings. I do not think it would be useful to add to the reasons which I have already given.
- I have sought to make it clear that, in dismissing the claimants' appeal from part of paragraph 2 of the order of 21 February 2006 (the first finding in relation to the causation of injustice), and from paragraph 3 of that order (the third finding of maladministration) I have not found it necessary to hold that the Ombudsman was not entitled to make the findings that she did. Rather, I have held that, in rejecting those findings, the Secretary of State cannot be said to have acted irrationally. This judgment should not be seen as a judgment upholding a "collateral attack" on the validity of those findings in the Report. On the view which I have taken as to the correct approach to the question whether the Secretary of State's decision to reject certain of those findings should be set aside which is the question raised in these proceedings - the validity of those findings is not an issue which the Court needs to decide.
The claim under article 1 of the First Protocol
- As I have said, we were told that the claimants are not pursuing an appeal from paragraph 4 of the order of 21 February 2006. In those circumstances and without the need to express any view as to the claim under article 1 of the First Protocol the claimants' appeal from that paragraph should be dismissed.
Conclusion
- I would dismiss the Secretary of State's appeal (2007/0554). I would allow the claimants' appeal (2007/0556) from paragraph 2 of the order of 21 February 2006 in so far as it relates to paragraph 5.245 of the Report and to the second limb of paragraph 5.246; but dismiss that appeal in so far as it relates to the first limb of paragraph 5.246. I would dismiss the claimants' appeals from paragraphs 3 and 4 of that order.
Mr Justice Blackburne
- I have had the advantage of reading Sir John Chadwick's judgment in draft. I agree with it, and do not feel there is anything I can usefully add.
Lord Justice Wall
- Like Blackburne J, I too have had the advantage of reading Sir John Chadwick's judgment in draft. I also find myself in complete agreement with it. I have taken some time to consider whether or not I should add a substantive judgment of my own, but have come to the clear view that Sir John has covered the ground so fully, that little would achieved by expressing identical conclusions in different words.
- I wish, accordingly, to make only a few short points, most of which are simply reiteration and reinforcement of what is already contained in Sir John Chadwick's judgment.
- By far the most important, in my judgment, is Sir John Chadwick's rejection of the proposition that the decision of this court in R v. Local Commissioner for Administration, ex parte Eastleigh Borough Council [1988] 1 QB 855 (Eastleigh) is authority for the proposition that the Secretary of State is bound by the Parliamentary Ombudsman's findings of maladministration and must treat them as correct unless and until they are quashed in judicial review proceedings. This is, in my judgment, a fundamental point, and in paragraph 5 of her written reply (undated, but received by the court on 14 August 2007, after the conclusion of the argument) the Ombudsman stated: -
Before considering the issues raised by the cross-appeal, it should be noted that the Court only needs to consider these issues if it rejects the written submissions of the Ombudsman on the main legal issue. The Ombudsman submits that in considering the Report and what action to take in respect of it, the Secretary of State must proceed on the basis that the Ombudsman's findings of injustice caused by maladministration are correct unless they are quashed in judicial review proceedings. If this is accepted then that is the end of the matter as no application for judicial review has been made seeking to quash the Report. The proper, and indeed it is submitted the only, place for the lawfulness of the Ombudsman's report to be questioned is in judicial review proceedings aimed at quashing that Report.
- For the reasons which Sir John Chadwick sets out in paragraphs 37 to 71 of his judgment, and with great respect to the Ombudsman, I am unable to agree with paragraph 5 set out above. Like Sir John, I find nothing in the 1967 Act or in the antecedent White Paper to support the proposition that the Secretary of State is bound by the Parliamentary Ombudsman's finding of maladministration, or that it was Parliament's intention in passing the 1967 Act to require a Minister to obtain relief by way of judicial review before rejecting such an allegation.
- The Eastleigh case was, of course, a case brought under a different statute, the Local Government Act 1974. Quite apart from the different statutory provisions, however, what strikes me as a broader consideration is the clear difference between the remedies provided by the two statutes. Thus under the 1967 Act, a Minister who rejects the Ombudsman's findings of maladministration will have to defend him or herself in Parliament, and will be subject to Parliamentary control. The ultimate remedy for aggrieved citizens such as the complainants in the instant case, whose complaints to their Members of Parliament have led to the Ombudsman's report, will ultimately be through political action rather than judicial intervention.
- In making these observations, I have not lost sight of the fact that the decision of the Minister / Secretary of State to reject the Parliamentary Ombudsman's findings of maladministration is itself, capable of being judicially reviewed on conventional public law grounds. However, in this context, the remedy if the application for judicial review is successful - is procedural rather than substantial. The decision is quashed as unlawful, and the Minister must think again. The limitations on judicial review as a remedy do not need to be spelled out.
- In cases involving the Local Government Ombudsman (LGO), the citizen who has invoked his assistance has - in law no substantive remedy against the local authority concerned if that authority rejects the LGO's conclusion. It is true that the citizen could apply for judicial review of the local authority's decision not to implement the LGO's findings, but the system, as I understand it, depends upon the convention that local authorities will be bound by the findings of the LGO. It must follow inexorably that if a local authority wishes to avoid findings of maladministration made by a LGO, it must apply for judicial review to quash the decision.
- This, in my judgment was what the Eastleigh case was about and why, with respect, Lord Donaldson of Lymington MR was right to hold that in the context of the 1974 Act, the Parliamentary intention was that "reports by ombudsmen should be loyally accepted by the local authorities concerned": - see [1988] 1 QB 855 at 867A-C. As is self-evident, this court in Eastleigh was discussing the work of LGOs and the 1974 Act, and I see nothing in Eastleigh which would mean that a similar consideration applied to reports by the Parliamentary Ombudsman.
- I raise the point, however, because it is clear to me that this case comes as close as it is possible to come to the clear line which divides the areas in which political and judicial decisions hold sway. Nobody reading the papers in this case could have anything but the utmost sympathy for the plight of the complainants, all of whom, it seemed to me, were decent, hardworking people who, through no fault of their own, had been or were at serious risk of being - deprived of that for which they had worked thoroughout their lives, namely a modestly comfortable retirement. But in my judgment, judicial review principles apart, their remedy is political, not juridical. There were times during Miss Rose's able submissions when it seemed to me that she was, in effect, inviting this court to put additional pressure on the Secretary of State to provide the claimants with a remedy. Self-evidently, however, that is not the function of this court.
- In my judgment, the role of the Ombudsman under the 1967 Act is not only to report to Parliament, but, where appropriate, vigorously to alert Parliament to an injustice which has occurred through maladministration. It is, therefore, for Parliament to provide the remedy, subject only to the role of the courts in ensuring that the acts of the Ombudsman herself and the role of the relevant Departments in responding to her reports are themselves lawful.
- In my judgment, Sir John Chadwick has skilfully and correctly steered the argument between the difficult political and jurisdictional shoals and eddies presented by the case, and, as I have already said, I find myself in complete agreement with him. I would therefore wholly endorse the conclusion which he expresses in paragraph 131 of the judgment.
- I would only wish to make two further observations. The first is to express my appreciation of the judge's lucid and careful judgment. The fact that we have disagreed with him on some points does not, in my judgment, detract from its quality.
- My final observation is to record my concern at the Ombudsman's feeling, recorded in paragraph 1 of her written reply that: -
.. notwithstanding the unpleaded, wide-ranging and constantly changing attack made to her Report by the Secretary of State on appeal, she had only very limited, inadequate time to make oral submissions on these matters including by way of response to the additional points raised by the Secretary of State in the course of the hearing. This is a matter of real concern because, it is submitted that, in a number of regards the written and oral submissions of the Secretary of State have misrepresented, and continue to misrepresent, the content of the Report.
- I very much hope that the Ombudsman will not retain these concerns when she has had the opportunity to read Sir John Chadwick's judgment. In my view, the care which has plainly gone into the writing of the judgment and its content both demonstrate a mastery of the vast amount of documentation with which the court was faced, and make it clear beyond peradventure that every word written by the Ombudsman, both in her Report and elsewhere, has been read and carefully analysed. Although this court has rejected one of the Ombudsman's principal submissions (that her Report was binding on the Secretary of State absent a successful challenge by way of judicial review) it was, as I understood the matter, common ground that the work of the Parliamentary Ombudsman generally was both highly valued and entitled to respect. Nothing in this Court's judgment should be taken as detracting from that proposition.
