A personal view of where the Ombudsman enquiry is heading

by Brian Marks

CAN THE OMBUDSMAN BE EFFECTIVE?

This article is one person's opinion, but the Webmaster has allowed it on the website as a contribution to debate and because it has some quotes and facts that you might want to know about.

Newsletter 3 maintained "...in the final analysis, with right and logic on our side and with your support, we shall achieve our joint aims". The British have more reason than most to believe that things come right in the end, but in the meantime corporate "might is right" philosophy may prevail. (As with the world's experiment with its climate). Right and logic are not the only things relevant to the Ombudsman enquiry.

The Ombudsman's Office has said of the IBM complaints: "We have dealt with these issues before". Maybe one should not worry too much about this, because in sense it is bound to be true - all the complaints the Office handles are about pensions and within that category they only differ in specifics. A possible reason for worry is the inference that any investigator will have a pre-existing set of formulas and will aim to force any IBM complaint into one of them. One element of the IBM complaints is about pensions in payment. Consider this situation.

Suppose the Office has previously had a complaint along these lines: Some enthusiastic manager told Joe Bloggs that he would get a "good" pension, and then Joe Bloggs complained to the Ombudsman that he is not receiving a "good" pension in retirement.

An investigator might think the framework in which that complaint was dealt with would do to handle an IBM complaint about what employees were told not matching pensions in payment. The investigator would then try to fit the IBM specifics into the framework. However, they don't fit. What we were told was a Corporate position. How the pensions would be maintained was well specified - it was to be by comparison with other companies. The decision not to honour that was a Corporate one. [Two of the US CEO's lieutenants flown in for the crucial UK Trust meetings.] The specifics are so different that a different way of thinking by the investigator seems essential. We don't have descriptions of all previous Ombudsman cases, but surely a previous one about a rogue international company would have made the media. And if there was one, it would have been different anyway - the surveys indicate that no big company has a pensions in payment policy as poor as IBM's is now. Decade of Decline(2)

Joe Bloggs, by the way, might have got compensation for being messed around but was most unlikely to have got a better pension (however good his records of what the manager said) unless there were other reasons why people like him should get better pensions. This is explained in the Ombudsman's report www.pensions-ombudsman.org.uk

There has been some confusion about how the Ombudsman's Office aims to operate, probably a confusion between impartiality and "levelling the playing field". Everyone expects the Ombudsman's Office to be impartial, and everyone is confident that they are. So they do not start out in the belief that one side's case will be better than the other's, and they don't deliberately exhibit any bias in what they choose to investigate or conclude. Impartiality is not the same as "levelling the playing field". Levelling the playing field is meant to ensure that justice is not impeded by a disparity of resources, such as money or experience or information, between the two sides. This levelling, aka equality of opportunity, is a concern at all stages of resolution. If an Ombudsman's decision is appealed by a trust then the judge may say that the trust has to bear the costs of the appeal for both sides, so as to avoid the situation where the complainant has to give up through lack of money.

There is an immense disparity between IBM and its UK retirees. As a measure of money available, the IBM US CEO can take from IBM at a rate which is a thousand times the Ombudsman's salary. With this sort of money available, IBM can have as many as it likes of the most experienced pensions lawyers in the UK. The retirees have nothing but what they have learned in the months since this affair was exposed, and the help they can gather from one-time colleagues. IBM knows most about what actually happened in IBM and Trust meetings. What the law requires them to tell the retirees is limited. Our elected trustees cannot express their own opinions because all opinions released have to be filtered by the board, with its majority of IBM appointed trustees. IBM retirees do not have noticeable union backing.

Given this disparity, can the Ombudsman's organisation come close to making it not matter? The organisation in year 2000 had 31 people, including 2 Legal Advisers and including the administrative staff. These are all talented people and most of them could earn more if they were not so keen to help the public. These 31 were dealing with about 3000 cases per year, some 700 of which reached the investigation stage. This year a proportion of the resources available will go to investigating and analysing the half dozen or so IBM related complaints.

The Ombudsman's Office has the advantage that it can choose for itself what it looks into. (A tribunal can only hear arguments put to it.) This lessens the adversarial nature of the investigation itself, although that has to seen in the context of the Ombudsman's role in the potential full process of complaint resolution. Potentially, the Ombudsman is the filling in a sandwich comprising the Internal Dispute Resolution Process leading to an Ombudsman decision leading to the Courts. The IDRP sets the agenda for the investigations and the Courts pass judgement on the legal aspects of the Ombudsman's decision (aka determination). The IDRP is adversarial, in fact it can look like little more than each side saying the other is wrong, without their aiming to understand more. The disparity of resource is very apparent at this stage, where the company can benefit from its use of solicitors and familiarity with the procedures.

Perhaps the IBM scheme members were disadvantaged in the pre-investigation stage, since the investigations seem to have been set up to look at complaints in a fragmented way, with no investigation taking an holistic view of IBM's behaviour. (We can't actually know that was what IBM wanted, but it is a reasonable supposition.)

On the other side of the sandwich are the High Court judges. The judges seem to have a professional antagonism towards the Ombudsman. This is hardly surprising since the Ombudsman has a judicial role and they think such individual powers should be reserved for judges. (They think the Ombudsman judicial role should be replaced by a tribunal). It is surprising, perhaps, that one of the judges who openly favours abolishing the Ombudsman judicial role should also be one of the judges chosen to rule on appeals against Ombudsman decisions. See http://www.apl.org.uk/FullText/Ombudsman Lightman lecture 2001 final.htm

Pensions issues rely heavily on Trust Law and may not be clearcut. See Decade of Confusion

So the Ombudsman has to consider the possibility that his determination will be appealed and he will lose the appeal, particularly where the behaviour of the trustees is dubious. The courts may allow correction of the trustee actions, but may not. An article in the periodical "Occupational Pensions" put it this way: "In practice, the courts will still intervene if they mistrust the motives of the trustees - the Ombudsman's difficulty is that, if he should choose to do the same thing, his decisions are reviewable by the courts, which may take a different view of the trustees' motives from him". Might the Ombudsman be influenced in his decisions by a risk of loss of face, and unrecoverable costs? (External legal costs for the Ombudsman's Office were £226,000 in 1997/1998). Would the probability of an appeal, and the calibre of the legal team to be pitted against him, be a consideration? At best the prospects will have no effect on the IBM retirees' chances. At less than best, they will have a chilling effect on the Ombudsman's willingness to find in favour of the retirees.

When considering risking the uncertainties of what judges might do, the Ombudsman has to consider the approach they will take. You might think it fair if the test for a trustee mistake was "on the balance of probabilities" or "beyond reasonable doubt" but the hurdle is far higher.

The high hurdle is associated with a test of "reasonableness", known as "Wednesbury reasonableness" after a case that introduced it. Protection of trustees from challenge is a good thing when the aims of trustees and beneficiaries coincide. (If you were rich enough to set up a fund for your kids, you would choose appropriate trustees and would not want their decisions easily challenged.) In the Wednesbury case, the decision makers were the local government authority and the decision questioned involved childrens' welfare.

The extreme nature of this particular judicial "reasonableness" test is less appropriate when there are weaker grounds for assuming that the trustees have interests aligned with the members. Referring to the situation before there were elected trustees, a House of Commons Select Committee reported (according to "Occupational Pensions", Dec 1992 p14):

"Trust law presupposes that the interests of the settlor and the beneficiaries coincide, but in reality there is a potential conflict between the interests of the employer and those of members."

"Under the guise of a trust, the employer can maintain effective and total control of the trustees, the investment policies and the power of amendment."

"Employers can manipulate trustee meetings, agendas and minutes to serve their own interests, and it is very difficult for trustees to stop this happening"

Decisions made before there were elected trustees form part of what the IBM retirees complain about. If the Ombudsman contemplates supporting their complaint, how can he know whether a reviewing judge will have the same view as the MPs about "reality", or whether alternatively the judge will choose to assume trustees are infallible whatever the stresses on them?

So we come to the question of what sort of person the Ombudsman is. The first Ombudsman avoided difficult issues, for example by not taking cases about surpluses. Dr Farrand has pushed the boundaries in combating maladministration. David Laverick we do not know about but he may not wish to take risks while finding his feet. We can't blame IBM for that! It was IBM's choice that our earliest elected trustees were faced with momentous decisions to rubber-stamp at their first meeting, before they could acquire confidence, but it is just bad luck that we get a new Ombudsman at a time when we are looking for confident thinking.

In summary, it is not clear to me that the Ombudsman's Office can be effective, despite the undoubted talents and impartiality of the staff, because:

The workload makes them look to force-fit each complaint into one of a set of formula cases.

They may not able to prevent the disparity of resources between IBM and the complainants having its effect on justice.

Uncertainty about the view a judge will take means that the Ombudsman will have to balance risk and cost as well as what he regards as justice when making a decision. This is pressure in the direction of avoiding an IBM appeal.

The new Ombudsman may not want to make a stir while still finding his feet in the job.