Neutral Citation Number: [2007] EWHC 438 (Ch)
Case No:  CH/2006/APP/0578
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 8th March 2007 

Before :

THE HONOURABLE MR JUSTICE PUMFREY
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Between :

	PHILLIP DAVIES	Appellant	
	
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	(1)	SAINT-GOBAIN CALMAR LIMITED
(2)	TRUSTEES OF THE SOLAGLAS PENSION PLAN	

Respondents	

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Geoffrey Topham (instructed by Eversheds LLP) for the Appellant
Edward Nugee QC (instructed by Martineau Johnson) for the Respondents

Hearing date: 24th January 2007
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Judgment

Mr Justice Pumfrey : 
1.	Mr Phillip Davies appeals against the determination of the Pensions Ombudsman (David Laverick) dated 14th July 2006.  Five grounds of complaint were raised by Mr Davies and were correctly identified by the Ombudsman as complaints of maladministration, disputes of fact or law, and perhaps a combination of all three.  The Ombudsman by his decision sought to deal with outstanding questions of fact and law, and, so far as necessary, to determine whether there had been maladministration causing injustice to Mr Davies.  The first respondent was Mr Davies’ employer until he left his employment on 31st December 2000, having been made redundant.  The second respondent played no part in the appeal, and no question is raised in relation to the Solaglas Pension Plan.  I shall refer to the first respondent as “the Company”.
2.	The undisputed facts are as follows.  Mr Davies commenced employment with a company called Hartmann Fibre Limited (“Hartmann”), a company associated with a predecessor of the Company, in November 1974.  On 1st March 1977, Mr Davies became a member of the Hartmann Pension Scheme (“ the Hartmann Plan”).  It seems that Hartmann ceased to be associated with the Company in 1983 and Mr Davies entered into a new service contract with the Company as from 23rd September 1983.  The service agreement, which is dated 27th January 1984, employs Mr Davies as sales manager, a director and company secretary of the Company.  It provides for an aggregate remuneration of £13,872 p.a., together with a minimum bonus of 1/12 of that sum, payable at the Company’s discretion.  There is no provision in the service agreement for the payment of a pension.
3.	On 6th December 1984, Bain Dawes & Partners Limited (“Bain Dawes”) wrote to Mr Davies a letter setting out benefit specifications and costings for his retirement benefits and death benefit cover, together with disability cover.  Annexed to this letter is a “benefit specifications and costings” in respect of Mr Davies’ retirement and death benefit provision.  It is divided into three parts, respectively headed Data, Benefits and Costs.  Costings are based upon a projected salary at age 65 which represents Mr Davies’ then basic salary increased by 5% per annum compound to age 65.  The principal benefit is stated to be a personal pension at 65 of two-thirds of the projected salary.  The costs are stated to be “as quoted by Schroder Life. Retirement costs based on 14% investment growth assumption”.  The Company agreed “to the pension plan for you as suggested with letter dated 6th December 1984 from Bain Davies [sic]”.  The Ombudsman found that “it was also agreed between the Company and Mr Davies that a pension fund would be set up for Mr Davies, namely the Calmar Plan…. The pension benefits promised to Mr Davies by the Company were to be secured by the Company investing in an executive pension plan policy issued by an insurance company (“the Provider”)”.  The plan in question was issued by Schroder Life Assurance Limited as provider, and the Declaration of Trust by the Company was executed both by Mr Davies and by Mr Pfannhauser, another director of the Company, some time in early 1985, but was expressed to take effect from 1st December 1984.  The Declaration of Trust was in a printed form provided by Schroder Life Assurance Limited (subsequently Friends Provident Life Assurance Limited) and appears to have been accompanied by a copy of the executive pension plan rules, which were supplied to Mr Davies.
4.	I can take the ensuing history directly from the Ombudsman’s determination:
“6.	In early 1990, enquiries were made by the Adviser after contact with Mr Davies, who was responsible for overseeing the Calmar Plan on behalf of the Company at that time, as to what level of contribution would be required if Mr Davies’ Normal Pensionable Date (NRD) under the Calmar Plan were to be reduced from age 65 to age 60.  This change was confirmed by the Provider by letter to the Adviser in January 1992.
  7.	In 1994, Mr Davies changed positions within the Company and was appointed Managing Director of its Asia-Pacific operation and relocated to Singapore.  His letter of appointment, dated 31 August 1994, stated that his pension benefits “will be maintained in (his) new assignment on the same basis as in “his” current position” and that “pension specialists will assist in achieving this objective”.
  8.	Whilst looking into the pension arrangements for Mr Davies, the Company became concerned by the funding requirements it was being asked to meet under the Calmar Plan.  The Company was concerned with commissions it was paying, the assumptions that were being used and the effect of changing the NRD from age 65 to age 60.  Discussions appear to have taken place about changing Mr Davies’ NRD back to age 65.  Mr Perong, Director of Human Resources of Calmar Inc (the Company’s parent), told the Adviser, on 14 August 1995 that the Company was not willing to fund Mr Davies’ pension otherwise than on the basis that his NRD was at age 65.  The Company’s position was communicated to Mr Davies by Mr Perong in a memorandum dated 1 September 1995.  Mr Davies appears to have accepted, in a fax to Mr Perong dated 2 October 1995, that having an NRD at age 60 was not feasible.  In the fax he said:
‘In view of the decision that you have passed to me that the cost of funding a pension for me at 2/3 of my earnings at age 60 is not feasible, I would request then that arrangements be put in place so I maintain the option of retirement at 60, as was my option under the Hartmann Scheme, albeit at a lower pension’ ”
5.	The first question that the Ombudsman had to deal with was the legal basis of Mr Davies’ pension entitlement.  Under the heading “Mr Davies’ entitlements”, the Ombudsman says this:
“43.	When Mr Davies’ service contract was renewed in 1984, no mention was made of his pension entitlement.  However, it was separately agreed between Mr Davies and the Company (acting through Mr Pfannhauser) that new pension arrangements should be made for Mr Davies so as to provide approximately the same benefits as he had under the Hartmann Plan.  Mr Pfannhauser appears to have signalled his consent to the pension scheme proposed by the Adviser in his internal memorandum to Mr Davies dated 11 December 1984.  The central provision of that proposed scheme was that Mr Davies would be entitled to 2/3 of final salary with an NRD at 65 years of age.
  44.	In order to put this pension promise into effect a Declaration of Trust was executed.  This document clearly established the Calmar Plan and declared the Company as trustee and administrator, holding the policy that had been secured in accordance with the Calmar Plan Rules.  Mr Davies was then given a copy of the Calmar Plan Rules.
  45.	The effect of these events is that Mr Davies was promised one thing by the Company (and was contractually entitled to be treated in accordance with that promise) but then the Calmar Plan was established providing different benefits.  The Company has argued that Mr Davies was only ever entitled to what he had been promised and that the Calmar Plan was simply a way of funding that promise.  From Mr Davies’ point of view, it was reasonable for Mr Davies to believe that he was entitled to what he had been promised and that the Calmar Plan Rules would reflect that.
  46.	Given that setup, Mr Davies could not have been expected to realise that the Calmar Plan Rules (which had been given to him) did not govern his pension and that his entitlement stemmed only from the contractual promise by the Company.  Furthermore, where the Company had agreed to a change in his pension entitlement under the Calmar Plan Rules, Mr Davies was entitled to believe that this change was effective in respect of his entitlement from the Company (i.e. in respect of the contractual promise too).
  Final Salary
  47.	I am satisfied that the definition of Final Salary that was to apply to Mr Davies was as stated in the Calmar Plan Rules, as contended by Mr Davies.  Nothing in the submissions on behalf of the Company leads me to believe that it had been agreed between Mr Davies and the Company that a different definition should apply.
  48.	The Company has placed reliance upon a fax dated 2 October 1995 from Mr Davies to Mr Perong.  In this fax, Mr Davies refers to Final Salary in the Calmar Plan as the “average of the last 3 years of employment”.  However, it is clear from the preceding pages of this fax that this definition is based upon information supplied by Mr Perong to Mr Davies in respect of his pension entitlement.  Given that this definition does not accord with the Calmar Plan Rules (and there is no evidence that it was otherwise agreed), Mr Davies had been incorrectly informed by Mr Perong of his pension entitlement.  Accordingly, Mr Davies was not in a position to give an informed consent to a proposal that the definition of Final Salary provided by Mr Perong should apply to his pension entitlement.  Therefore, the definition under the Calmar Plan Rules remained.
  49.	In respect of the definition of ‘total emoluments’ under the Calmar Plan Rules, the most natural interpretation is that all of Mr Davies’ emoluments that were assessable to Schedule ‘E’ tax (or would have been had he continued employment in the United Kingdom) are to be taken into account unless specifically excluded.  Therefore, items to be excluded are a) those items specified in Mr Davies’ letter of appointment dated 31 August 1994 (International Assignment Premium and Cost of Living Adjustment) and b) any elements of Mr Davies’ employment package  that are not assessable to income tax in the UK under Schedule E.  Items such as housing allowance, home leave, airfares etc, would not be assessable in this way, and thus not be eligible for inclusion in the calculation.”
6.	It is obvious that the Ombudsman is correct in his treatment of the Calmar Plan, in that this was not a defined benefit scheme and was, to put it shortly, a policy which at maturity would give Mr Davies whatever it was worth.  The Company accepted before the Ombudsman, as it accepted before me, that it had agreed to pay Mr Davies two-thirds of his final salary with a normal retirement date of 65 years of age, and the findings of paragraph 46 are accordingly crucial.  I read this paragraph as quite clearly stating that Mr Davies has a contractual entitlement to a pension of two-thirds of Final Salary, and that the meaning of the words “Final Salary” was that contained within the Rules.  There is no appeal against that determination.  It is a question of mixed fact and law, and if there had been no evidence capable of supporting it, that would, of course, be an error of law.
7.	The cornerstone of Mr Davies’ appeal is the finding in paragraph 49 that “all of Mr Davies’ emoluments that were assessable to Schedule ‘E’ tax (or would have been had he continued employment in the United Kingdom) are to be taken into account unless specifically excluded”.  It was accepted on Mr Davies’ behalf that the Ombudsman was correct to exclude those items specified in Mr Davies’ letter of appointment dated 31st August 1994 (see Paragraph 7 of the Determination).  It is said that in excluding “items such as housing allowance, home leave, airfares etc” the Ombudsman was wrong, those items falling into charge under Schedule E, had Mr Davies been assessable to income tax in the United Kingdom.
8.	For the Company, Mr Nugee QC submits that the true function of the definition of “Final Salary” in the Calmar Plan Rules is merely to provide a criterion for the maximum payable under that policy as a pension.  In this he is obviously correct, since, as I have indicated, the plan was not a defined benefit plan.  The structure for Mr Davies’ pension is summarised by the Ombudsman in paragraph 76 of his Determination in the following terms:
“Given that the Company (as it admits) owes Mr Davies a contractual promise to deliver the pension which it has agreed with him, I do not see that the funding level of the Calmar Plan is particularly relevant.  Whether or not the Calmar Plan is adequately funded, the Company still has the obligation to meet its contractual promise to Mr Davies.”
9.	The direction given by the Ombudsman in paragraph 81 is as follows:
“I direct that Mr Davies’ pension entitlement under the Calmar Plan be administered on the following basis:
81.1	The definition of Final Salary be in accordance with that provided under the Calmar Plan Rules;
81.2	Mr Davies’ benefits under the Hartmann Plan be taken into account in determining his benefits under the Calmar Plan;
81.3	Mr Davies’ SERPS benefits not be taken into account in determining his benefits under the Calmar Plan;
81.4	Mr Davies’ NRD be when he attained age 65 years;
81.5	Mr Davies’ Pensionable Service be taken as commencing from 1 March 1977;
81.6	Mr Davies is not entitled to a five year guarantee of his pension in payment.”
The Appeal
10.	The subject matter of the appeal is accordingly very short.  While the effect of the Income Tax (Earnings and Pensions) Act 2003 (hereinafter “ITEPA”) were perhaps relied on by the Ombudsman, who received submissions on the point from Messrs Martineau Johnson, the solicitors for the Company, it seems plain that, as it appears in the Calmar Plan Rules, the reference to “emoluments assessable to Schedule ‘E’ tax” is to be construed as of the date on which the Rules became binding as between the Company and Mr Davies.  There was no submission to the contrary.  The Ombudsman, rightly in my view, took the view that any emolument expressly excluded from counting towards his final salary by agreement would be excluded – see paragraph 49 of the Determination, quoted above.  But what gives rise to difficulty is the final sentence of paragraph 49, which states baldly that “items such as housing allowance, home leave, airfares etc, would not be assessable [to income tax under Schedule E]”.  Mr Davies submits that housing allowance, home leave airfares, transportation allowance and storage costs all fall into charge under Schedule E, as it then was, and accordingly count towards Mr Davies’ final salary, which, it will be remembered, is defined using a formula intended to calculate a maximum.
11.	Mr Nugee QC’s approach before me was to submit, first, that the effect of the direction given in paragraph 81 of the Determination is that Mr Davies’ pension entitlements are only those produced by the Calmar Plan itself – in other words, the “entitlement from the Company” referred to in paragraph 46 quoted above was of no effect, although he emphasised that the Company had always been willing to pay a pension based on final salary and years of service.  This submission I consider to be hopeless, reading the Determination as a whole.  Given that there was no appeal by the Company against the substance of the Determination, and that permission to appeal out of time was not sought, it seems to me that Mr Nugee’s attack on the function attributed to the definition of “Final Salary” by the Determination – a function which might be seen as diametrically opposed, on one view, to the function which it fulfils in the Rules – is equally not open to him.  
12.	His next submission was that, on the assumption that Mr Davies’ final salary is to be taken as the “Final Salary” defined in the Calmar Rules, Mr Davies was not, in the years immediately before his employment ceased while he was still in Singapore, assessed to Schedule E tax:  he did not pay Schedule E tax at all.  Accordingly, no portion of the emoluments was assessable to Schedule E tax and there were no total emoluments.  The Ombudsman again determined, in the passages in paragraph 49 to which I have referred, that the agreement between Mr Davies and the Company was that the whole provision was to apply as if Mr Davies were employed and paid in the United Kingdom.  There is no appeal against this determination.  I am certainly not in a position to say that there was no evidence to support the Ombudsman’s determination, because I have no idea of the entirety of the documentation which he had seen.  It appears to be common ground that the reference to Schedule E is, subject to the Company’s submissions, relevant.
13.	That brings me to the explicit exclusions contained in the Letter of Appointment dated 31st August 1994 to which the Ombudsman refers.  Two matters referred to by the Ombudsman are explicitly excluded from being taken into account when computing other benefits.  These are the International Assignment Premium (a premium of 10% net on top of base salary, payable each year of Mr Davies’ assignment in Asia) and a cost of living adjustment, to be determined by an independent administrator.  Mr Topham, on behalf of Mr Davies, contends that all the other items of payment set out in the letter of engagement which would fall into charge under Schedule E should, however, be taken into account in computing his Final Salary.  These include (i) his transport allowance (Sing $51,120 per annum), (ii) home leave airfares, (iii) cost of storing and insuring furniture in the UK, (iv) life, accident, medical and permanent ill-health insurance premiums, (v) schooling allowance, (vi) club fees and dues, and (vii) housing allowance.  Each of these, it is contended, would in principle fall into charge under Schedule E, Class I or Class II tax, although certain adjustments would have to be made.  For the Company, it is contended that whether or not housing allowance, home leave airfares, transportation allowance and storage costs are explicitly excluded in the calculation of Mr Davies’ pension, as a matter of clear implication from the letter itself they must be excluded.  Mr Nugee submits that once the two obvious recurrent payments (International Assignment Premium and Cost of Living Supplement) are excluded, even though both of them are regular payments of a very similar nature to salary, it is plain that the parties cannot have intended that other payments, less regular and more substantial, were to be taken into account.  There are a number of ways, I think, of formulating this contention, but they come down to the basic argument that the parties cannot have intended to incorporate into the calculation of pension sums which were essentially paid to compensate Mr Davies for disbursements arising in consequence of his posting to Singapore.
14.	Two specific problems arise.  First, I have not been told what information was before the Ombudsman in respect of the various payments made to Mr Davies.  I do not even know whether he had a car allowance in the UK.  If he did, then there is no distinction in principle between what he received in the UK and what he received in Singapore in this respect.  Second, this is not a case where general words have been used, and it is sought to cut down general words by reference to a specific genus identifiable as such.  I think the letter has only to be examined to show that there is here no genus in any recognisable sense.  While I accept entirely the force of the submission that the two matters expressly referred to are undoubtedly “salary-like”, that is true also of the cash allowance for transport, the yearly return trip to the United Kingdom, and the housing allowance.  The provision relating to housing allowance is particularly interesting, since it was clearly closely negotiated – it is substantially amended in manuscript – and involves an express provision for Mr Davies’ paying 15% of his “net base pay” toward the cost of housing provided by the Company.  This suggests careful consideration of the individual terms by the parties.  
15.	It is trite law that the court will not imply words into a contractual document unless it is necessary to do so in order to make the contract work as the parties must have intended it.  In Philips v. BSB [1995] 1 EMLR 472, Sir Thomas Bingham, MR, warned:
“The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract.  So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear.  Tempting, but wrong.”
16.	It is a commonplace that implication of a term can be undertaken only with a proper knowledge of the whole of the relevant factual matrix relating to the agreement in question.  I am far from satisfied that I have sufficient information relating to the circumstances in which this agreement was made to enable me confidently to imply any term of the kind that Mr Nugee submits is appropriate.  Neither as a matter of construction is it possible to qualify the list in the way that is suggested, nor is it possible, on the material available to me, to imply a term such as that suggested.  It follows that Mr Davies’ appeal succeeds to the extent indicated.