A question which has caused considerable judicial debate is whether the Ombudsman's ability to direct the taking of steps includes awarding compensation for distress and inconvenience. At the moment the short answer is that he can and frequently does.
This answer was quite long in coming and even now it is possible that the Court of Appeal may, if it is asked, rule that the Ombudsman does not have power to award compensation for distress and inconvenience.
The starting point is the current Ombudsman's lecture to the Association of Pension Lawyers on 22 February 1995. This was before some key High Court rulings on the issue. He said:
"There is a myth about, fostered by another Goode [Pension Law Review Committee] Recommendation and the Government's response:
"152 The Ombudsman should be able to direct that compensation payments should include a reasonable sum to reflect any distress, delay and inconvenience caused, as well as actual financial loss."
"Rejected. The Pensions Ombudsman can already order restitution for financial loss. As the powers which allow the courts to award compensation for distress are very limited, and apply to circumstances which would not arise in connection with the administration of pension schemes, it is not considered appropriate to allow the Ombudsman to order the payment of compensation. It will, however, remain open for the Ombudsman to encourage schemes to consider making such payments."
Government White Paper Vol II
Extraordinary reasoning: the Legal Services Ombudsman, created in the same year, is expressly empowered to report, inter alia, recommending:
"that the professional body concerned pay compensation of an amount specified by the Ombudsman to the person making the complaint for loss suffered by him, or inconvenience or distress caused to him, as a result of the way in which the complaint was handled by that body."(Courts and Legal Services Act 1990 s.23(2)(d))
The courts' limited powers did not render it inappropriate for this Ombudsman to require redress for distress. And bear in mind that his are not mere recommendations: non-compliance leads to the dreaded publicity sanction (s.23(8)(9)).
But all this comparison with the courts' powers strikes me as fundamentally misconceived. Not only is the role of an Ombudsman supposed to be different from that of a court, but also injustice caused by maladministration would not itself constitute a cause of action in respect of which the courts could award compensation at all, even for financial loss (a criticised fact, see eg per Schiemann, J in (1992) 90 LGR 635 at pp664-5). The reality should be recognised: Parliament has seen fit to create a new civil wrong (or tort) and to provide for remedies: namely that the Pensions Ombudsman may direct the taking of steps.
A non-invidious comparison would be with discrimination, sexual or racial: nothing at common law but by statute a tort (Sex Discrimination Act 1975 s.66, and Race Relations Act 1976 s.57). Jurisdiction is conferred on Industrial Tribunals, inter alia, to order the respondent to pay compensation "of an amount corresponding to any damages he could have been ordered [to pay] by a county court" (1975 Act s.65(1)(b); 1976 Act s.56(1)(b)). In a county court "all such remedies shall be obtainable ... as ... would be obtainable in the High Court." (ss.66 and 57 respectively). The Pension Schemes Act 1993 contains no reference, restrictive or otherwise, to what could be obtained in the courts. Then the discrimination statutes proceed:
"For the avoidance of doubt it is hereby declared that damages in respect of an unlawful act of discrimination may include compensation for injury to feelings whether or not they include compensation under any other head."
Let no one doubt that the maladministration of a pension can lead to injured feelings!
Directed steps, including payments of money, are meant to redress injustice caused by maladministration. With regard to substantially similar statutory language, it has been said judicially:
"I prefer the submissions of [Counsel for the Council] ... [who] is inclined to accept, rightly in my view, that "injustice" is a broad concept in the present context. I agree with [Counsel for the Ombudsman] that it would cover expense and inconvenience thrown on the Complainant if this arose in consequence of maladministration on the Council's part."
(Per Nolan, J quoted by Lord Donaldson MR in [1988] 3 All ER 151 at pp156-157, adding, please note, that he was "loathe (sic) to criticise a busy Ombudsman on merely semantic grounds".)
The first Ombudsman had taken a different approach. Apparently on advice from DSS lawyers he assumed that he could not direct payment of compensation for distress and inconvenience. Therefore he would only direct respondents to making such payments.
The question was considered in 1996 by the High Court in [1996] OPLR 73, where an Ombudsman award of £750 for distress was reviewed. Carnwath J referred to the Ombudsman's reasoning as explained in his lecture to the Association of Pension Lawyers (published in , March 1995). The only distress point which arose directly in the case was "litigation distress". The judge concluded (at p87) that "there is no reason why a complainant should be in a better position because the dispute happens to be litigated before the Ombudsman rather than before a court."
However, a possible distinction was raised by the judge in relation to distress and inconvenience caused by maladministration in its ordinary sense. After some discussion he concluded (at p87):
"I am reluctant to express a final view on this difficult point, given that it does not in the event arise on the facts. However, I am inclined to agree with the previous Ombudsman's view. The trustees may be directed to "take, or refrain from taking ... steps ...". The language, to my mind, naturally implies some pre-existing obligation or right of a specific nature - whether positive or negative - which the Ombudsman is empowered to enforce. Given that, in the law generally, the award of damages for distress or inconvenience is the exception rather than the rule, I would have expected a power to make such an award to have been created by express words."
A month later, Walker J was required to deal directly with the question in. He concluded that none of the arguments on the point were:
"... strong enough to overcome my strong inclination to construe what the 1993 Act [Pension Schemes Act] says about the Pensions Ombudsman's powers in such a way as to effectuate, rather than frustrate, what I take to be the legislative purpose. I am naturally diffident about taking a view contrary to even the tentative view of Carnwath J ... but I have to come to the conclusion that the steps which the Pensions Ombudsman may direct under s.151 (2) of the 1993 Act include the payment of reasonable compensation for distress and inconvenience."
Although the judge is not specific, his comments are in the context of Carnwath J's comments on "maladministration distress" rather than "litigation distress". Therefore the importance of the distinction between whether a grievance is classified as a complaint of maladministration or a dispute of fact or law can be highly relevant.
One should also note that Walker J referred to "reasonable" compensation. It was also argued in the case that the compensation awarded by the Ombudsman of £1,000 to the complainant was "so high as to be perverse, unreasonable and wrong in law". Although the judge thought that the award was on the high side he concluded that "... I am not persuaded that to pay £1,000 (roughly a month's national average earnings) to an ex- employee with 24 years' service who is found to have sustained injustice, is so excessive as to be wrong in law."
There was a postscript to this point when the Court of Appeal dealt with the case. Millett LJ concluded that the award of £1,000 should be set aside because the enhanced pension the complainant had received before it was stopped (totalling £1,580) fully compensated him for any disappointed expectations.
There are no hard and fast rules about the appropriate measure of such compensation but it was held in [1999] PLR 187 that an award for distress should only exceed £1,000 in very exceptional circumstances.
In subsequent cases Carnwath J has grudgingly accepted the decision of Walker J. In [1996] OPLR 129, Carnwath J said (at p137) of the approach that "... it seems to me right that I should now follow it, in spite of the doubts I expressed in , unless and until the matter is considered by a higher court."
In [1996] OPLR 119, Carnwath J said (at p121) "... even assuming there is power to make an award of that kind, there must be something in the evidence, or the facts found by the Commissioner [or Ombudsman] which justifies the award in a particular case." The judge also reaffirmed that the distress and inconvenience must be beyond what he called "litigation distress". He also held that the Ombudsman must indicate what loss or damage he is compensating the complainant for. The Ombudsman summarised Carnwath J's approach in his Annual Report 1995/6 (at p93) as follows:
"... he has indicated that the actual distress and inconvenience suffered by a complainant ought not to be thought too obvious for words but must be spelt out for the benefit of the judiciary in the determination itself. Without such a basis he, at least, is liable to set aside distress awards."
Lengthy argument on the point was put to the Court of Appeal in the case but unfortunately Millett LJ declined to express an opinion, much to the consternation of the Ombudsman (see his Annual Report 1996/97 at p41) although he did rule (at p48) that any steps directed by the Ombudsman "... must be calculated to provide an appropriate remedy for the injustice found to have been sustained by the complainant."
In (2000), Lightman J said that awards for distress and inconvenience should not be a "ritual incantation to be inserted at pleasure by the Pensions Ombudsman".
Although at least for the time being it is clear that the Ombudsman has power to award compensation for distress and inconvenience caused by maladministration, there is an important proviso laid down in . In that case the principal employer of the scheme was insolvent and the final salary scheme was in winding up. Carnwath J warned of the risk that an Ombudsman award may have the effect of "robbing Peter to pay Paul". This would be an inevitable result where there was a finite pot of assets and wide trustee exoneration and indemnity provisions under the scheme rules. Carnwath J said (at p88):
"There can, of course, be no concern if the Ombudsman limits himself to awards reflecting the legal entitlement of the parties. Each beneficiary is entitled, as against the other beneficiaries, to the due and prompt performance of legal obligations inherent in the deed. However, it is a different thing to impose upon the general body of beneficiaries an obligation to compensate their fellows for distress or inconvenience caused by the actions of the trustees. In the context of what is essentially a private law scheme, I doubt that the words of this statute [PSA 1993] are sufficiently specific to have that effect."
Walker J developed the point in as follows (at p110):
"In deciding what level of compensation to direct, the Pensions Ombudsman will undoubtedly be anxious not to remedy one injustice by creating another, and the ultimate burden of any compensation directed must therefore be a relevant consideration for him in considering the facts revealed by any particular investigation."
The case involved a solvent employer, a solvent pension scheme and an award of £1,000 compensation. In such a case the cost would ultimately fall on the employer in a final salary scheme and Walker J thought "that may do rough justice in most cases". The rough justice effect was deemed acceptable by Sir John Vinelott in [1996] OPLR 361.
Where it may not do rough justice is in money purchase schemes, or final salary schemes with no solvent employer, such as the one considered in.
