Secretary Of State For Education & Skills & Anor v Farley & Anor

On an appeal from a determination of the Pensions Ombudsman, compensation for maladministration requires proof that the maladministration caused the claimed loss. A finding that an employer failed to send a pension application form does not itself establish causation where the claimant’s failure to claim remains unexplained. Pension scheme trustees and administrators generally owe no duty to advise members about exercising scheme rights or to make unsolicited checks for unclaimed benefits unless the scheme or general law imposes such a duty. Where the evidence is too sparse to support a factual inference, the decision-maker should determine the issue by applying the burden of proof. Compensation must reflect loss actually sustained; awarding interest on a gross sum that the claimant would not have received overcompensates the claimant.

The respondents, as executors of Miss Hilda Dann’s estate, complained to the Pensions Ombudsman about unpaid pension benefits and interest. The Ombudsman found maladministration by East Sussex County Council for failing to notify Miss Dann of her pension rights and by the Department for failing to undertake checks to locate members who had not claimed benefits. He directed payment of compensation calculated by reference to interest on the pension arrears.

The appellants appealed under section 151(4) of the Pensions Schemes Act 1993. The issues included whether the findings of maladministration were legally sustainable, whether the alleged failures caused loss, whether the Department owed a duty to make checks, whether compensation was excessive, and whether the complaint had been admitted out of time.

Appeals allowed.

1. The Ombudsman’s finding that East Sussex had failed to send an application form was a factual determination within his jurisdiction and could not itself be challenged on the appeal. However, he failed to consider whether that omission caused Miss Dann not to claim her pension. The unexplained absence of a single letter could not, without further evidence, establish causation or a sustainable claim for compensation. The determination against East Sussex was therefore set aside.
2. The Department’s duties followed the general law. Pension scheme trustees and administrators owed no general duty to advise members on exercising their scheme rights or to check whether members had failed to claim benefits. The Ombudsman had identified no legal basis for imposing such a duty. The finding of maladministration against the Department was therefore erroneous in law.
3. Where the evidence is insufficient to support a reliable factual inference, the decision-maker should resolve the issue by applying the burden of proof. The Ombudsman had instead treated the absence of records and the absence of a returned form as sufficient to infer that no form had been sent. The approach required by Rhesa Shipping Co. S.A. v Edmonds [1985] 2 All E.R. 712 was applicable.
4. Although unnecessary to the result, compensation for maladministration must correspond to loss sustained in consequence of the maladministration. Interest calculated on the gross arrears, before tax, awarded the estate more than Miss Dann would have received and was therefore excessive. A contributory-negligence deduction was rejected because the Department had produced no evidence establishing the relevant conduct.
5. The Ombudsman was entitled to extend time for the complaint in light of the period during which OPAS investigated it. The appeals accordingly succeeded, and the respondents were ordered to pay the appellants’ costs.

• High Court (Chancery Division): appeals from the Pensions Ombudsman’s determination dated 12 March 2004 allowed.