City split over pensions ruling

The taxpayer may have to foot the bill for legal costs after a series of High Court rulings overturning decisions by the Pensions Ombudsman.

However, City lawyers at Hammond Suddards and Paisner & Co, acting on either side in a recent case, disagree on whether a recent judgment will open the floodgates for successful appeals.

They also disagree on whether the judge, Mr Justice Carnwath, even ruled on the important issue of ombudsman powers. And a number of other appeals in the pipeline could also raise the issue.

The case involved a successful challenge by trustees of the group pension scheme of insolvent Rockwood Holdings. The challenge was over a claim made through the ombudsman and concerned the distribution of pension scheme assets between its members.

Hammond Suddards, for the trustees, said last week that it had “argued successfully that the complaint of maladministration against the trustees was wholly unfounded and, in what will be regarded as a test case on the point, that the Pensions Ombudsman could not award damages for distress and inconvenience to a complainant”.

Pensioners were also protected from having their benefits reduced by an award of compensation for distress and inconvenience in favour of the plaintiff, John Thomas Stapleton, said Hammond Suddards.

Jane Marshall, the firm's head of pensions, said: “If the decision had gone the other way, it could have opened the floodgates for thousands of similar claims at the expense of pension scheme members all over the country.”

The firm added that this is the first successful appeal where all costs have been awarded against the ombudsman.

But David Parkin, litigation head at Paisner & Co, which acts for the ombudsman, dismissed Hammond Suddard's claims. “We certainly do not think this case will be considered a test case,” he said.

Parkin added that the judge “did not deal with the question” relating to compensation for distress and inconvenience as a result of maladministration.

“In fact, both the ombudsman and I are disappointed that we didn't get a ruling [on this]. It has left a possibly worse position than before.”

Ombudsman Dr Julian Farrand, holder of the post since last year, has been “quite bullish” on behalf of plaintiffs in recent decisions, said Gary Cullen, a senior pensions litigator at Hammond Suddards.

Farrand has made a number of determinations for compensation for distress and inconvenience in those decisions, added Cullen.

But the judgment – that the ombudsman may not determine compensation for distress and inconvenience for maladministration – could pave the way for appellants awaiting hearings to successfully appeal and win costs following Rockwood, he said.

Matters may become clearer in Westminster City Council v Haywood and the Pensions Ombudsman, for which a ruling by Mr Justice Walter is imminent. “One would hope Mr Justice Walker will address the issue. The point was fully argued,” said Parkin.