'He is good for social justice but he sometimes goes too far”

Pensions Ombudsman Julian Farrand's recent public attack on an Eversheds partner has unearthed deep-rooted feelings of discontent, says Robert Lindsay.

There has not been anybody quite like him since Lord Denning. He is good for the legal profession and good for social justice… but he sometimes goes a little bit too far.” – Taylor Joynson Garrett pensions partner Christopher Belk on Britain's feisty pensions ombudsman, Julian Farrand.

Farrand's extraordinary public tiff with pensions lawyer Robin Ellison of Eversheds (see Backstabber, page 14) is just the tip of an iceberg of discontent among pensions advisers that has built up in the three years since the former law commissioner took up his post.

Farrand has not pulled his punches in his rulings against employers who help themselves to pension fund surpluses. But increasingly the rulings are being overturned by High Court judges and pensions lawyers are beginning to mutter publicly that he is going too far.

A group of pensions practitioners, including members of the judiciary, are meeting in the autumn to set up a Pensions Litigation Forum – its aim being to lobby on Farrand's wide-ranging powers.

Farrand's finest hour was probably when he ruled against Hillsdown Holdings, the food processing group that helped itself to £18.4m from one of its pension funds. Hillsdown appealed, but the High Court upheld Farrand's ruling.

Hillsdown had to pay the money back to pensioners. Pensions lawyers agree that if Farrand had not been there justice would not have been served because the pensioners would not have been able to afford to take Hillsdown to court.

But other cases have not received such a straightforward reception from the judges.

National Grid pensioners complained to Farrand about the company taking £75m from the pension fund surplus to pay for redundancies following its privatisation.

Farrand ruled that this was unlawful and ordered the company to repay the money. Several pensions lawyers attacked Farrand's determination.

“A fairly brief judgment, not thoroughly reasoned, done by a junior which he then approved” said one.

“His legal arguments were quite thin,” said another.

Nabarro Nathanson partner John Quarrell is even more scathing of the ombudsman's determinations, calling some of them “half-garbled”.

Farrand himself seems particularly stung by a ruling of Mr Justice Lightman, who overturned his determination against architects firm Seifert. Farrand ordered the company to make up a shortfall in a former employee's pension. Seifert appealed to the High Court, saying it had not had a “fair crack of the whip”. Judge Lightman agreed.

Farrand, in his annual report published last week, took a sideswipe at Lightman, saying: “Unfortunately, the attitude of certain members of the judiciary seems somewhat inimical to the ombudsman idea. Alternative dispute resolution is supposed to be different from the High Court. We should not be condemned for being informal and inquisitorial rather than legalistic and adversarial.”

He has a point. One pensions partner confesses: “Reading that took me by surprise. I had not ever thought of his role like that before. I had seen him acting as an industrial tribunal.”

Is he right? This lawyer did not know. He questions whether alternative dispute resolution was the right way to resolve multi-million pound cases that involved thousands of pensioners, but conceded that the thousands of Hillsdown Holdings pensioners would never have been compensated had Farrand not taken the case on.

Quarrell and others blame the under-resourcing of Farrand's office for the quality of some of his determinations.

But Quarrell has called for the courts to listen to Farrand more. He adds: “You have to ask yourself why people are sitting there giving judgment who do not know anything about pensions, listening to the arguments of people who do not know anything about pensions. At least the ombudsman is learning.”

The problem, according to Ellison, lies in Farrand's peculiarly far-reaching powers which he calls a “constitutional anomaly”.

Belk, who is advising National Bus Company pensioners, adds: “He is the only ombudsman with the power to make decisions of law. He has the power to behave like a judge. Ombudsmen's powers are usually limited to dealing with maladministration.”

Belk thinks he has the answer: “Where [cases] involve millions of pounds, he should recommend the company or the trustees seek a ruling on points of law in the High Court and fund it out of the pension fund.”

Belk cites the ITN pension scheme as a case in point. Farrand ruled in part against pensioners, awarding them each less compensation than they were seeking.

The pensioners thought they would not be able to afford an appeal, says Belk, so they had to accept the ruling.

National Grid pensioners later demonstrated that appeals could be funded from the pension fund, obtaining a ruling to this effect from the courts. To make matters worse for the pensioners, ITN appealed against the part of the ruling that went against it, and got it overturned.

“He should consider,” says Belk, “the cost effects of deciding these massive points of law himself, especially when they are points of interpretation rather than points of blame.”

Part of the ill feeling is generated by Farrand himself. He is the only ombudsman who appears in the High Court in person to explain his decisions to the judge. Pensions lawyers frown at his critiques of the judges who overturn his rulings.

“You would not get a judge whose ruling is overturned on appeal commenting to the press,” seethes Eversheds pensions partner Giles Orton.

But judges have their careers in the judiciary to think about. Why should Farrand, a former law professor, keep mum?

Before taking on pensions, Farrand was Insurance Ombudsman for more than five years. He resigned in disgust in August 1994 because most of his powers had been taken away by the Personal Investment Authority. Many thought the insurance companies had frozen him out because he was too “customer-friendly”.

A similar thing could happen again. Belk warns: “My worry is that if he is not careful he could end up having some of his powers taken away.”

Lord Denning, he points out, had a habit of deciding what was fair and then making the law fit. This “worked” because other judges followed his precedents.

“Unfortunately,” Belk concludes, “Farrand is not Master of the Rolls.”