Turning a blind eye...

Turning a blind eye...

Published:

Author: Heather Chandler

The case of Webber v Department for Education has finally been decided definitively.

This case was a dispute between Mr Webber (who was a teacher) and the Teachers' Pension Scheme (TPS) and went before the Pensions Ombudsman, then the High Court, was reverted back to the Pensions Ombudsman for a second determination and ultimately appealed on a point of law before the High Court. The High Court gave its final judgment on 19 December 2014.

The TPS is a statutory occupational scheme established under the Superannuation Act 1972. The rules of this scheme are set out in secondary legislation (which has been replaced over time) and the current regulations are set out in the Teachers' Pensions Regulations 2010 (TPR). Each set of these regulations held a provision entitled 'The Abatement of Retirement Pensions during further employment'. The basis of that provision was that an individual who had retired from teaching and was receiving a pension from the TPS could, in certain circumstances, expect that pension to be abated if they returned to employment as a teacher. The TPS is administered by Teachers' Pensions (TP).

Mr Webber retired as a teacher at the age of 50 but then returned to work a few years later. On his return to work in 2001, Mr Webber telephoned TP and had a conversation about how much he could earn and the level of his 'salary of reference' for the purpose of establishing his maximum earnings before any need for abatement to his pension would arise. He was initially told could earn up to £24,000 per annum without triggering a pension abatement. TP also wrote to Mr Webber directly and he was made aware that if he returned to employment he should inform the Pensioner Services Section at the TP and that his pension could reduce if:

  • 'you work full time and your salary rate and annual pension exceeded the index linked salary of reference'
  • and that his salary of reference would be 'the highest salary you have received during your last three years of teaching or the highest annual rate you received during the three years before you are entitled to your pension'

TP believed his earnings to be £14,491 for the period from 6 April 2001 to 5 April 2002 (in reality this was his salary for only a 7 months period) and his earning limit (salary of reference) for the relevant tax year was £20,837.10.

Over the intervening years Mr Webber continued working and engaged in a number of expenditures including getting married, having a family, and travelling to and from the Ukraine where his wife was from.

Eventually he was contacted by TP in 2009 who confirmed that they had calculated that he had exceeded his 'salary of reference' in each tax year from 2002/2003 to 2008/2009 and that Mr Webber had therefore been overpaid from his pension to the tune of £37,572.30 which, following a tax adjustment, left overpayments of £36,282.53.

The decision

The High Court found that the facts were such that it was surprising that given the information that was available to Mr Webber he did not make any further enquiries as to whether or not he was being overpaid. Although Mr Webber may not have known he was definitely being overpaid the High Court found that he must have been aware that there was a possibility that overpayment could happen and that he had 'turned a blind eye' in the hope that, if there was an overpayment, it would go unnoticed.

This was not negligence or simply mistake.

Mr Webber argued that the communications he had received from TP were unclear and he had misread one letter in particular to construe a different meaning. However, the High Court found that any reading of the letter concerned would, at worse, leave the recipient in some doubt as to whether it was necessary to get in contact with TP and (in view of that doubt) it was not clear why Mr Webber did not act. It would have been a simple thing to make contact to find out definitively what action he needed to take.

The High Court also found that it must have been the case that the quoted salary of £14,491 in the letter to Mr Webber from TP referred only to 7 months of pay, roughly equivalent to the £24,000 per year. Given Mr Webber's earning limit, 'salary of reference' was stated to be circa £21,000 in writing in October 2001, it did not seem to make any sense to rely on a figure of £25,000 given in a tentative phone call made in April 2001. Also, given that figure and Mr Webber's knowledge that his annual salary was in fact £24,000, it was not clear (and Mr Webber could not clarify) why he didn't appreciate there was a risk he was earning over the allocated limit. At the very least he should have appreciated that there was a risk of that happening.

The High Court therefore upheld the Pensions Ombudsman's decision on this point and reasserted the importance of the 'state of mind' of a defendant seeking to rely on a change of position defence.

Turning a blind eye was not a reference to negligence so no sharp practice was needed. If an individual has grounds for believing that a payment may have been made by mistake (or there is a possibility it has) but cannot be sure, then to ignore it and not make any enquiry is effectively to take the view that they will assume the risk that if there was any payment in error, it would go unnoticed.

The High Court's decision follows the comments of Lord Mersey in Kerrison v Glyn, Mills Currie and Co. (1912) which refer to good faith dictating that an enquiry be made of a payer in such circumstances.

Clearly the nature and extent of the enquiry will depend on the circumstances in any case. Lord Mersey stated 'I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making enquiries of the person from whom he received it'. This line is followed in Lipkin Gorman v Karpnale Ltd (1991) where Lord Goff confirmed it was 'bad faith' to pay away money in knowledge of facts giving rise to the payer's potential right to restitution.

This case confirms the need for those seeking to rely on a change of position defence to be able to show good faith in the manner set out. Members should note the need not to ignore possible errors hoping they will all go away, especially where simply enquiries can be made to clarify. It appears that where circumstances, information or just common sense point to the possibility of error members who do not enquire, where it is possible to do are likely to find themselves without the defence of change of position if restitution is sought by the payer in the future. Turning a blind eye is not a sensible option.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.