§ 'Where an application is made to a Court and —
- (1) the Court is satisfied that there has been, in relation to the scheme, a prima facie breach of trust by trustees, and
- (2) the application has been supported by scheme members under prescribed conditions,
§ Brought up, and read the First time.
§ 4.5 pm
§ Mr. Adam Ingram (East Kilbride)
I beg to move, That the clause be read a Second time.
Before I begin my comments on new clause 6, may I say that, although the Minister for Social Security and Disabled People is in his place, which is good to see, I understand that congratulations are due on his recent elevation to the post of Secretary of State for Wales? I only hope that the decision was not taken on the back of battles with the Celtic fringes while debating this Bill over the past few weeks.
I give the right hon. Gentleman a word of advice: understanding the Scottish accent will not stand him in good stead when he goes to Wales. The Welsh accent is entirely different. Gaelic may be somewhat similar to Welsh, but the right hon. Gentleman will have a hard task speaking to the Welsh in that language. I wish him every success in his new appointment, although he will hold his post for a very short time.
The new clause is straightforward in its intention. It seeks to give maximum protection to scheme members in circumstances where they are required to initiate a court action against trustees of their pension scheme when they consider that there has been a prima facie breach of trust by the trustees. The purpose of the new clause is to lay down a level playing field between trustees and scheme members in matters that require determination by a court.
The new clause is based on experience of recent judgments, which, although they have clarified the law substantially, still leave areas of uncertainty. There can be no dispute that the cost of legal actions against trustees for breach of trust can be extremely high, because of the length of such cases and the need for different sub-categories of beneficiaries to be separately represented.
Where scheme members, either individually or collectively, possibly and unusually with the support of their trade union, decide to take a case against their trustees or their employers, or jointly against them, for breach of trust, they face the prospect of open-ended and indeterminate costs. That is a major deterrent, especially if all costs are to be met by them if the case is found against the plaintiffs.
391 Trustees against whom the case is being brought do not face the same hazard, for the simple reason that their costs will be met by the trust fund. Trustees, therefore, have the added facility and encouragement to drag out cases, making them extremely expensive and creating a greater disincentive to scheme members to take action in the first place.
The most recent example of court action, on which the current law rests in relation to such matters, is the Melton Medes case. The case involved action being taken by beneficiaries against their employers, their pension fund trustees and others, in which they made serious allegations concerning the administration of the scheme.
The beneficiaries originally had the financial support of their trade union, the GPMU—the Graphical, Paper and Media Union—which paid out £250,000 in legal costs at the commencement of the case and as it developed. Understandably, however, the union decided that it could pay no more, because the case was open-ended. That left the beneficiaries unable to fund the case to its conclusion.
An application was therefore made to the court for a pre-emptive costs order. In the court's consideration, Justice Vinelott found in the plaintiffs' favour. As a result of the unprecedented nature of that judgment, the matter was then transferred to the Court of Appeal for further consideration.
Last August, the Court of Appeal upheld Justice Vinelott's judgment by declaring:What distinguishes the shareholder and pension fund member on the one hand from the ordinary trust beneficiary on the other is that the former have both given consideration for their interests. They are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration for the services of the employee.At the Court of Appeal, Lord Justice Hoffman, in his judgment, laid down some criteria to be used in future cases. They include the provision that the discretion can be considered in pension scheme cases only where the plaintiff members are suing on behalf of the trust estate. Another provision stated that the fact that the employer's residuary interest on a winding-up of the fund might be reduced by the cost of reasonable and bona fide proceedings coming out of the fund could not be conclusive against the making of an order, and that this was to be a factor in the exercise of a court's discretion. A further provision was that, if the plaintiffs were impecunious, unless the litigation was funded, serious claims would never be investigated.
Clearly that decision set an important precedent. It established the right of scheme members and beneficiaries with a legitimate grievance to obtain a protective costs order out of a pension fund to enable them to litigate at the expense of the fund, irrespective of the eventual outcome of the case.
However, the principles on which Lord Justice Hoffman made his judgment were narrow. It is important that the judgment had not been confirmed by the Law Lords, because the case was settled before the House of Lords had the opportunity to give further consideration to that new departure in law.
392 Others who have considered the judgment have confirmed that the principles set out by Lord Justice Hoffman were indeed narrow. In the "Occupational Pensions Law Reports", pensions lawyer and expert John Mesher stated:there is little guidance on which to predict how the discretion will or will not be exercised in the future, since the factors identified in it will be common to most cases where pension scheme members bring claims against the trustees or the employers.New clause 6 sets out to replace the broad statutory right available to beneficiaries, which is subject to interpretation by the judiciary, who may not always find in favour of the beneficiaries, with a properly defined right in law.
The Government may argue—indeed, they have argued when the matter has been considered elsewhere—that the appropriate mechanism for dealing with matters of dispute is the newly established pensions ombudsman, who has been in place for about four or five years. It is accepted that the ombudsman may be able to resolve certain disputes, but he will not be successful in all cases, and recourse to the law will therefore still be required.
When the matter was considered earlier in the Bill's progress, Opposition amendments sought to place the financial responsibility on the new regulatory authority, saying that that body had a duty to fund such cases in the interests of natural justice. The Government did not accept that approach.
The Government's first argument was that there was a pensions ombudsman in place to take on such matters, and that it was therefore unlikely that there would be such disputes requiring clarification. It was clear that the Government accepted that cases could still end up in court, but they were not prepared to find a mechanism to assist the beneficiaries to fund any case that they might be forced to take.
Under the regulatory authority provisions, that chance is denied them, and I am not aware of any other mechanism available to them. Clearly, if access to justice is not to be denied, the only way forward is through the mechanisms laid down in new clause 6, allowing trust funds to be used in pursuance of such matters.
I accept the arguments advanced during our earlier considerations that litigation should be avoided if possible, but I hope that the Minister will accept that that will not always be possible. The likelihood is that recourse to the law will be required in some cases to clear up matters of doubt and to ensure that the scheme beneficiaries are properly protected against possible wrongdoing or maladministration of their scheme.
I accept that such cases may be rare, but they may easily end up in a court of law, so it is important that beneficiaries should not be disadvantaged relative to the powers that rest with trustees, who can draw upon trust funds to protect their interests. On that basis, I commend the new clause to the House.
§ The Parliamentary Under-Secretary of State for Social Security (Mr. James Arbuthnot)
Clearly it is right that the interests of scheme members should be protected. If members have reason to challenge the actions of the trustees because they believe that there has been a breach of trust, effective and straightforward methods of redress should be available. New clause 6 proposes one way of meeting that concern, by indemnifying members against their legal costs.
393 I make no bones about it—I shall be asking the House to reject the new clause, for two reasons. The first reason is that it gives the courts a power that they already have. That is a fundamental objection. The second reason is that there are other ways which are more effective than legal action by which scheme members may pursue their concerns. I suggest to the House that new clause 6 is unnecessary.
I shall first go through the other and more effective ways, which the House will consider important. The first avenue open to members who have concerns about their pension scheme will be the dispute procedures which trustees will be required to implement under the provisions in clause 49. Any member who has a grievance will be able to pursue it first with the scheme administrator and—if he remains dissatisfied—with the trustees or managers. It is right that scheme members should be able to ask the trustees to account for the decisions they make, and it is in the interests of both the schemes and the members that, if possible, disputes should be resolved by the schemes themselves.
If the member remains concerned after using the new dispute procedures, he will as now be able to take the matter to the occupational pensions advisory service and the pensions ombudsman. The member can be told how to get in touch with those bodies in the scheme documentation, and I have a couple of scheme documentations here—these are visual aids and props—to show precisely how the important bodies are drawn to the attention of members of pension schemes.
The Pension Law Review Committee recognised that any redress system should be effective and should have the full confidence of those using it. It should also be easily accessible and cost-effective. All those attributes are provided by the occupational pensions advisory service and by the pensions ombudsman. The occupational pensions advisory service offers free and independent advice to any scheme member who has a problem with his pension scheme.
The Pension Law Review Committee has recognised the worthwhile work carried out by the occupational pensions advisory service, and the Government remain committed to providing financial support for that valuable service. There may have been some confusion about what has been said about the powers of the ombudsman and the occupational pensions regulatory authority to seek the direction of the courts, as those directions would be funded by the levy and the funding of litigation costs.
I should now cover the services of the pensions ombudsman which are also available to scheme members free of charge. This was the subject of some considerable discussion in Committee, particularly in relation to my role as a Chancery barrister. The pensions ombudsman was set up in 1991 to provide scheme members with an easily accessible and cost-effective way of resolving disputes with pension schemes. He has wide-ranging and flexible powers, which allow him to deal with the sometimes complicated disputes that arise in pensions cases.
The ombudsman may consider complaints about injustice caused by maladministration and disputes of fact or law. I make it clear that that includes complaints and disputes involving trust law as well as breaches of statute. The ombudsman has the same power as the courts in requiring information and the examination of witnesses, 394 and I should emphasise that his determinations—unlike those of other ombudsmen—are final and binding on the parties to a dispute, subject only to an appeal to the High Court on a point of law. Effectively, his determinations have the same force as court rulings.
The Pension Law Review Committee recognised the expertise and experience of the ombudsman in pursuing a variety of complex cases. Indeed, it recommended that his jurisdiction should be extended and should be available for the resolution of a wider range of pension disputes.
It would be productive at this stage to refer to the report of the Pension Law Review Committee. Paragraph 4.13.42 states:We have also considered whether to recommend that a tribunal be set up in place of the Pensions Ombudsman but we have not been persuaded by arguments in favour of a change of this sort. Whilst a tribunal is less formal than a court, creating a tribunal for pension disputes would still involve some of the elements that lay people find daunting: oral evidence, and an adversarial procedure, in which the protagonists confront each other and ask questions whilst the tribunal listens to the evidence, as opposed to the inquisitorial approach used by the Ombudsman, who investigates the facts and then decides on the basis of them. The Ombudsman's office has only been in place for a short time, during which it has established a good working relationship with OPAS and has investigated a number of cases in considerable detail and with great persistence. We therefore prefer to see changes implemented not by replacing the Ombudsman with a Pensions Tribunal but by introducing a series of rather smaller changes in the operation of existing institutions.Although the new clause does not suggest that the ombudsman should be replaced by a pensions tribunal, it is instructive to listen to what the Goode committee considers to be the successes of the ombudsman.
§ Mr. Ingram
I accept that conclusion of the Goode committee, but it is worth while putting on record why it reached it. It received representations from the Council on Tribunals, which advised the committee that nothing less than an expert, properly constituted independent tribunal with a legal chairman would be apt for the purpose.
I hope that the Minister is not trying to suggest that the Goode committee recommendation represents the only judgment on the matter, and that therefore any other suggestions were unimportant, especially when a responsible body such as the Council on Tribunals has made such a strong recommendation that contradicts the conclusion reached by that committee.
§ Mr. Arbuthnot
I would not for a moment suggest that there are no arguments in favour of a tribunal. The Goode committee heard those arguments, and considered them carefully. It then published a report that is not small, and came to the conclusion that I have just read out.
At the moment, the ombudsman's jurisdiction is restricted to cases referred to him by individual members of pension schemes, but, as the Pension Law Review Committee recommended, in future he will also be able to handle complaints and disputes between employers and trustees and between the trustees of different schemes. Again, that will include cases involving breaches of trust law.
The Council on Tribunals has been fully consulted on the provisions relating to the ombudsman's jurisdiction. Although it might, understandably, want a tribunal to be created, I understand that it does not currently raise any objections to the ombudsman's jurisdiction and the extension of it under the Bill.
395 We recognise that it may not be appropriate for the ombudsman to investigate all pension scheme disputes. Certain matters will be specifically excluded from his jurisdiction, because the Occupation Pensions Regulatory Authority will have enforcement powers that are more likely to be effective in securing compliance with the legislation in certain matters.
My noble Friend Lord Mackay of Ardbrecknish explained in another place that we intend to make regulations which will exclude from the ombudsman's jurisdiction cases involving payment from surplus to an employer; failure to meet the minimum funding requirement; failure to comply with audit requirements; and the procedures for the appointment of member-nominated trustees and the scheme actuary. Concerns that scheme members may have about such matters will fall exclusively to the regulatory authority, which will have a wide range of powers to ensure compliance with statutory obligations.
I recognise that court action is expensive. It is also time-consuming, and it may be daunting for members of pension schemes. Through the occupational pensions advisory service, the pensions ombudsman and the introduction of the Occupational Pensions Regulatory Authority, we have provided the means for scheme members to seek effective redress for their grievances without the need for lengthy and costly litigation. Effective means of redress, other than court action, is therefore available to scheme members.
However, we certainly do not want to deny members access to the courts if that is what they want, and assistance is available for those members who decide to go to the courts. New clause 6 would allow members to apply to have the costs of legal advice met by the scheme trustees where the members are pursuing a case involving a breach of trust.
As I said, the courts already have that power. In the Melton Medes case, to which the hon. Member for East Kilbride (Mr. Ingram) referred, a number of scheme members brought an action against the trustees of their pension scheme. The members applied successfully for a protective cost order allowing their costs to be met from the scheme, regardless of the outcome of the case.
The hon. Member for East Kilbride read out parts of that judgment. However, I suspect that he may have read out those parts of the judgment that were modified by the conclusions reached by Lord Justice Hoffman. I suspect that the hon. Gentleman may have read out the historical position rather than the current position. If I am wrong about that, I hope that the hon. Gentleman will correct me immediately.
Perhaps it would be best if I were to read the summary in the "All England Law Reports", which states:An action by a member of a pension fund to compel the trustees or others to account to the fund was analogous to a derivative action by a minority shareholder on behalf of a company in that pension funds were a special form of trust and the analogy between them and the company/shareholder relationship was much stronger than ordinary trusts and, in both cases, a person who had given consideration for a limited interest in a fund (whether a pension fund or the company's assets) was alleging injury to the fund as a whole and seeking restitution on behalf of the fund. Since a minority shareholder was entitled to a pre-emptive costs order indemnifying him out of the assets against his costs and any costs he might be ordered to pay to the other party, the court could also make a similar order in favour of a pension fund member pursuant to s 51 of the Supreme Court Act 1981.396 I do not believe that that finding is as restrictive as the hon. Gentleman suggested. The Court of Appeal made that ruling, and I understand that it will not be appealed further. Therefore, I suggest that new clause 6 is unnecessary.
§ Mr. Ingram
Does the Minister agree that the matter is not being pursued further in a higher court because a settlement was reached in the case, and therefore the reference to the Law Lords was withdrawn? If the case had gone to a higher court, a different decision might have been reached. I said that there was some doubt and uncertainty arising from the judgment and I based my argument on that point.
I have visual aids as well, and I could read out the whole judgment if that is what the Minister wants. However, I think that we should make some progress on the matter. I stand by my earlier remarks about the uncertainties that can prevail. We are still in a grey area, because the judgment was not considered in a higher court of law.
§ Mr. Arbuthnot
I am not entirely sure that the hon. Gentleman could read out the whole judgment, because I think I am the only person who has it. I have not spoken to the parties in the case, and I do not know what motivated them to come to a settlement after the finding of the Court of Appeal. However, until that judgment is overturned in the House of Lords—whether in this case or in another case—it remains the law of the land.
I believe that new clause 6 is unnecessary, because it provides a power that the courts already have and that they have exercised. It extends to scheme members the principle known as the Beddoes principle, under which trustees can apply to the court for an order indemnifying them from the trust fund against the costs of legal action taken on behalf of a scheme.
I have described a wide range of measures that provide scheme members with various means of challenging the actions of the scheme trustees. Schemes will have to provide dispute resolution procedures and they have access to an excellent means of redress through the free services of the occupational pensions advisory scheme, the ombudsman and the Occupational Pensions Regulatory Authority.
Following the Melton Medes case, it is clear that they can apply to the courts for protective costs orders if they prefer to take their case to the courts. I am therefore unable to accept that the new clause would serve any useful purpose. I hope that the hon. Gentleman will not press it to a division, because it would not improve the Bill.
§ Question put and negatived.