Lewis v Pensions Ombudsman & Ors

Contractual pension benefits are construed by asking what a reasonable person, with the relevant background knowledge, would understand the agreement to mean. Prior negotiations may be considered where they show that the parties negotiated on an agreed basis and used words in a particular sense. An employer’s obligation to explain pension rights is exceptional. It may arise where a collectively negotiated contract gives an employee a valuable right which depends on action by the employee and of which the employee could not reasonably be expected to know. That principle does not ordinarily extend to a senior employee negotiating an individual compromise with professional advice. A broadly worded full and final settlement clause may bar later claims concerning pension enhancement and alleged failures to provide related information.

Mr Gareth Lewis appealed under section 151(4) of the Pension Schemes Act 1993 against the Pensions Ombudsman’s dismissal of complaints concerning his pension under the Nortel Networks UK Pension Plan. The dispute arose from a 1989 agreement under which his employer undertook to adjust his pension to produce an Inland Revenue maximum pension on early retirement.

The Ombudsman construed that expression by reference to the regime applicable when the agreement was made. The appeal concerned the meaning of the expression, whether the employer had a duty to inform Mr Lewis of a later pension regime and election possibility, and whether a 1991 full and final settlement clause barred his claims.

1. The appeal was dismissed. The Ombudsman had reached the correct conclusion on the construction of the 1989 Agreement, although his reasoning was legally defective because he relied impermissibly on subjective intention and subsequent conduct.

2. Applying the approach in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Sirius International Insurance Co v FAI General Insurance Ltd [2004] 1 WLR 3251, the words had to be understood as a reasonable commercial person would understand them in their factual and legal setting.

3. The 1989 Agreement referred to the pension arrangement contemplated in the October 1989 letter. At that time Mr Lewis had no statutory right to elect for the 1989 regime, the Scheme rules did not provide such an election, and the Finance Act 1989 did not require the Scheme to amend its rules. The surrounding circumstances therefore indicated that the parties had the 1987 regime in mind. If the agreement was intended to provide the 1989 regime maximum, it would have needed to say so in substantially greater detail.

4. The court considered, obiter, that no duty arose to inform Mr Lewis of the 1989 regime or his ability to elect under it. The principle in Scally v Southern Health and Social Services Board [1992] 1 AC 294 concerns a definable category of collectively negotiated employment contracts. Mr Lewis was a senior employee negotiating an individual agreement arising from dismissal and re-employment, and was able to obtain professional advice. Implying the alleged term was not necessary.

5. The court also considered, obiter, that the 1991 full and final settlement clause covered claims for a greater pension sum and claims alleging a duty to provide information or advice about the 1989 regime.

• High Court (Chancery Division): Appeal from the Pensions Ombudsman’s determination dated 10 June 2004. The appeal was dismissed.