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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Ibekwe v London General Transport Services Ltd.  EWCA Civ 1075 (25 July 2003)
Cite as:  OPLR 1,  EWCA Civ 1075,  Pens LR 277,  IRLR 697
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM BOW COUNTY COURT
(His Honour Judge Bradbury)
London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
LORD JUSTICE SCOTT BAKER
| Daniel Ibekwe
| - and -
| London General Transport
Smith Bernal Worwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Russell Bailey (instructed by Moorhead James) for the Respondent
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
Crown Copyright ©
Lady Justice Arden :
(1) The extent to which, if at all, [LG] had a duty to inform [Mr Ibekwe] of the proposed alterations to his pension arrangements which would arise on privatisation and in particular of the availability of a transfer of his interest in the LRT pension scheme with a special enhancement.
[Breach of duty]
(2) Whether or not [LG] satisfied that duty.
(3) If [LG] was in breach of any duty to[Mr Ibekwe], whether that breach of duty caused [Mr Ibekwe's] omission to apply for a transfer with special enhancement and, if so, whether, if he had applied, he would have received a transfer with special enhancement.
It is agreed whether or not [Mr Ibekwe] would have qualified for an early pension on medical grounds and the valuation of those benefits on that basis or otherwise are matters to be dealt with as quantum."
The judgment below
"I recognise that a quite different situation might arise where the pension rights available to an employee in connection with his employment were not part of the terms of his contract of employment but arose out of a separate contract between the employee and an insurance company or the trustees of a pension fund. But that is not this case. Here there is no doubt whatever that the terms of the superannuation scheme as laid down in the regulations in force from time to time were embodied in the terms of the contract of employment of each plaintiff. Since the relevant board was in each case the employer upon whom, although acting as agent for the department, all liabilities were imposed by paragraph 2 of the Schedule 1 to the Order of 1972, it seems to me beyond question that the legal obligation, if there was one, to notify the plaintiffs of their rights in relation to the purchase of added years rested in each case on the board, not on the department.
Will the law then imply a term in the contract of employment imposing such an obligation on the employer? The implication cannot, of course, be justified as necessary to give business efficacy to the contract of employment as a whole. I think there is force in the submission that, since the employee's entitlement to enhance his pension rights by the purchase of added years is of no effect unless he is aware of it and since he cannot be expected to become aware of it unless it is drawn to his attention, it is necessary to imply an obligation on the employer to bring it to his attention to render efficacious the very benefit which the contractual right to purchase added years was intended to confer. But this may be stretching the doctrine of implication for the sake of business efficacy beyond its proper reach. A clear distinction is drawn in the speeches of Viscount Simonds in Lister v Romford Ice and Cold Storage Co Ltd  AC 555 and Lord Wilberforce in Liverpool City Council v Irwin  AC 239 between the search for an implied term necessary to give business efficacy to a particular contract and the search, based on wider considerations, for a term which the law will imply as a necessary incident of a definable category of contractual relationship. If any implication is appropriate here, it is, I think, of this latter type. Carswell J accepted the submission that any formulation of an implied term of this kind which would be effective to sustain the plaintiffs' claims in this case must necessarily be too wide in its ambit to be acceptable as of general application. I believe however that this difficulty is surmounted if the category of contractual relationship in which the implication will arise is defined with sufficient precision. I would define it as the relationship of employer and employee where the following circumstances obtain:
(1) the terms of the contract of employment have not been negotiated with the individual employee but result from negotiation with a representative body or are otherwise incorporated by reference;
(2) a particular term of the contract makes available to the employee a valuable right contingent upon action being taken by him to avail himself of its benefit;
(3) the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention. I fully appreciate that the criterion to justify an implication of this kind is necessity, not reasonableness. But I take the view that it is not merely reasonable, but necessary, in the circumstances postulated to imply an obligation on the employer to take reasonable steps to bring the term of the contract in question to the employee's attention, so that he may be in a position to enjoy its benefit. Accordingly I would hold that there was an implied term in each of the plaintiffs' contracts of employment of which the boards were in each case in breach."
"43. On the evidence, I have already found that probably the Claimant received the letter of 17 October 1994, with its accompanying announcement notice. That was a letter direct from the Defendants. On a balance of probabilities, the Claimant probably also received the letter from the London Transport Executive of 2 November 1994 that stated there would be an option to transfer the value of the deferred pension to the new scheme on a specially enhanced basis. Other documents, on my findings, were not received. LG did have an explanation for a policy of attaching documents to payslips, namely that employees may change home addresses and not notify LG. I am satisfied with the reasonableness of that explanation, coupled with the back-up system by the provision of notices in garages, which in itself reasonably anticipates that employees will look at notice boards.
44. Taking all the circumstances together, I am satisfied that if the Claimant had benefited from the Scally provisions, he would still not succeed in his claim against LG, because they had taken reasonable steps to bring any implied contractual term [sic] to his attention."
Significance of letter of 22 December 1994
Preliminary issue (1) (duty)
Preliminary issue (2) (breach)
Preliminary issue (3) (causation)
Lord Justice Scott Baker
Lord Justice Brooke
Paragraphs 5 to 31 of judgment of His Honour Judge Bradbury on 5 December 2002
London Regional Transport, during negotiations leading up to the sale of LG share to Mokett, stated that those who became employees of Mokett could not continue as contributing members of the LRT Pension Scheme. In consequence, LG had to set up its own pension scheme. The employees of LG then paid exactly the same contributions after privatisation as before. However, employees were asked to exercise an option relating to their accrued benefits under the LRT Pension Scheme. Employees could either (a) transfer accrued benefits to the LG scheme, (b) leave accrued benefits in the LRT scheme, or (c) transfer accrued benefits into a private scheme. Part of the pension arrangements involved the availability of an enhanced transfer value if an employee opted for a transfer of accrued rights from the LRT scheme to the LG scheme.
"4. Employees did transfer their accrued rights to the new scheme. They were able to do so with an enhancement. The enhancement requires some explanation. When a business is transferred on terms where the transferred employees are not able to remain as members of the sellers scheme, the employees become deferred pensioners after completion. They then receive a deferred pension based on service up to completion and salary at completion payable from normal retirement age. The pension would increase over the period from completion to retirement, broadly in line with price inflation. Prior to the disposal, their pension benefits would have been linked to final salary. Therefore, if they had remained with the original employer, their pension at retirement would have been based upon salary at retirement. Since wage inflation is expected to rise faster than price inflation, the employees are, to that extent, worse off as a result of leaving the sellers scheme.
6. It is common practice, however, where there is a bulk pension transfer from the fund of the seller to the fund of the buyer, for the sale agreement to make provision for transfer at enhanced values, i.e. to take into account wage inflation rather than price inflation. It is a matter for commercial negotiation between vendor and purchaser. Usually these negotiations are completed and documented in a sale and purchase agreement prior to completion of the deal. However, administrative reasons generally dictate that such enhanced transfer values are calculated and agreed by the parties' actuaries after completion."
"Dear Colleague, London General Future Pension Arrangements. London Transport will no longer permit employees of the LBL bus companies to continue in membership of the LRT Pension Fund (LRTPF) after privatisation.
This has been known since the Sales Memorandum was published in March 1994, and negotiations have been proceeding with your Trade Union representatives over the past seven months to decide the benefit structure and arrangements for a new London General Pension Fund (LGPF). The final package of benefits represents the best that the Company can afford given the intense competition for local bus services in London, and will apply provided the MEBO [Management Employee Buy-Out] bid for London General is successful.
The LGPF will be managed by a Board of Trustees who will be drawn from Company management and from the employees. The process for appointing employee Pension Trustees will be outlined to you after privatisation.
The information enclosed with this letter is important, and I would ask you to give some time to carefully read through it. The pack contains:-
1. Announcement Notice.
2. Summary of the LGPF Benefits.
3. Notice of Intention to Elect to Contract-Out.
4. Expression of Wishes Form (MUST BE COMPLETED).
If you have any query regarding any of this information, you should raise the matter with your local Manager. Information meetings will also be arranged at each garage at which management and trade union representatives will be present.
You will see that an 'Expression of Wishes Form' has been included with this package of information. It is very important that you complete this form and return it to your Manager to ensure that the Trustees of the LGPF may be aware of your wishes in the event of your death in service. It is also important to complete a new form if at any time you decide to change your wishes or levels of apportionment.
You will subsequently receive advice on your entitlements in the LRTPF, and will be entitled to independent professional advice to help you make a decision regarding your LRTPF benefits. Yours sincerely."
It is signed "K.L. Ludeman, Managing Director."
"London General Future Pension Arrangements. Announcement to employees of London General Transport Services Limited.
Membership of the London Regional Transport Pension Scheme (LRT Scheme) will cease upon privatisation. This announcement details the arrangements which will operate in respect of pension benefits in the new London General Pension Fund (LGPF) provided the MEBO bid is successfully completed later this month.
We have conducted negotiations with your Trade Union representatives regarding the structure of the LGPF, and the parties acknowledge that, in order to remain competitive, the benefits of the Scheme are the best that the Company can afford.
One of the consequences of these discussions is that the new LGPF will operate from the first day of independent trading, currently anticipated to be 22nd October 1994.
All existing members of the LRT Scheme will be considered members of the LGPF from that date, and pension contributions will continue to be deducted from your earnings at the same percentage rate as applied under the LRT scheme. A summary of the benefits of and the contributions to the LGPF are shown alongside this notice.
IF YOU WISH TO DISCUSS THE CONTINUATION OF DEDUCTION OF YOUR CONTRIBUTIONS, OR IF YOU DO NOT WISH TO BECOME A MEMBER OF THE LGPF FROM THIS TIME, YOU SHOULD INFORM YOUR LOCAL GARAGE MANAGER IN WRITING BY 21ST OCTOBER 1994.
These arrangements will be in place temporarily. Each eligible member of staff will later receive a personal copy of the benefit summary of the LGPF, together with an application form, which should be completed and returned to your local nominated manager, to indicate whether you wish to continue as an active member of the LGPF.
At the same time, independent pensions advice will be provided by London Transport (LT) to help each member of the LRT Fund decide whether to leave accrued past service benefits in the LRT Fund, to transfer them to the LGPF, or to a personal pension. Alternatively, you could choose to take a refund of contributions if you have less than two years in the LRT Fund, or take an immediate pension.
If, following the distribution of the benefit summary of the LGPF and the garage meetings you decide to leave LGPF, you will be treated as never having joined the fund. Your contributions will be refunded to you, less an appropriate amount of tax, representing the tax relief you received against these contributions and a deduction equal to the saving you will have received on your National Insurance contributions."
That announcement was signed by Mr. Ludeman, Mr. O.L Jackson of the TGWU, Mr. C. Cutler of the TSSA, and Mr. B. Camp of "Craft Alliance".
"2. Privatisation of London General Buses: Future Pension Arrangements.
Following privatisation, this and next sections are designed to give you an initial and advance outline of the pension effects.
The new company will offer you membership of its own scheme. They will issue details to you. You cannot continue in contributory membership of the LT scheme.
3. Privatisation: Existing Pension Benefits.
For benefits already earned in the LT scheme, you will have various options, i.e. they are not lost.
Full personal details of your own options and figures will be advised to you (hopefully within three months of sale). This effectively then overtakes and replaces the 1994 statements, as described in part 1 above.
However, for your prior information, I give below a broad outline of the various options that will be available to you. You can choose one of these options, and you will have the opportunity to discuss them with an independent advisor.
A. Deferred Pension.
The pension you have earned in the LT scheme will become payable at age 60. It will be based on your pensionable LT service and on your average pensionable pay over the last twelve months of service.
Under this option you can transfer the value of your deferred pension to the new scheme. The amount of this transfer value will be calculated on a specially enhanced basis to reflect the circumstances of the sale. It will buy you benefits in the new scheme as determined by them.
The decision to make this transfer is quite separate to your decision to join the new scheme, and transfer will not be made unless you specifically request it.
A similar transfer could alternatively be made to a personal pension with an insurance company. The transfer value in this case would be on the standard basis only."
The document is headed, "Important information for members of the LRT Pension Fund. No action is required from you at this stage. Further details will follow as described. (Non-members should see part 4)." The letter ends:
"I trust the above is helpful. Further details will follow as described, until when no further action is needed on your part."
"To Operating Managers…"
He then gives a series of references, which includes Stockwell.
"…from Personnel Manager, 8th November 1994, holding letter LRT Pension Fund.
I am enclosing herewith sufficient copies of a holding letter from the LRT Pension Fund, which should be issued this week, together with the payslips, to all members of staff."
The Claimant says he never received a copy, and it is not known exactly when and how the letter was distributed.
"The Purchaser shall procure that the Company does everything in its power (and cooperates with the Vendor and trustees of the Pension Fund as requested by them) to ensure that all of its employees cease to be in pensionable service under the Pension Fund with effect from the day before the Pension Transfer Date."
Clause 3.2 reads:
"The Purchaser shall procure that such of the Pensionable Employees as have not:
(a) ceased to be in the employment of the Company; or
(b) attained age 65;
at the Pension Transfer Date will be offered membership of the Purchaser's Scheme with effect on and from the Pension Transfer Date on terms complying with paragraph 7 of this Schedule."
Clause 4.5 reads:
"The Purchaser shall procure that the Company does everything in its power (and cooperates with the Vendor and trustees of the Pension Fund as requested by them) to facilitate communication by the Vendor, London Buses Limited or the trustees of the Pension Fund to the Pensionable Employees, including:
(a) providing information on the Purchaser's Scheme within two months of Completion;
(b) passing communications to employees; and
(c) cooperating to allow presentations at the Company's premises by an independent pensions adviser nominated by the Vendor or London Buses Limited to give independent advice to employees of the Company."
This last clause is one upon which Mr. Hartman, counsel acting for the Claimant, has especially relied. Clause 7.1 reads:
"Subject to receipt of transfer payments by the Purchaser's Scheme (as envisaged in paragraph 5 of this Schedule) or of shortfall payments (as envisaged in paragraph 6 of this Schedule), the Purchaser shall procure that the Purchaser's Scheme shall grant to Transferring Employees in respect of their pensionable service in (or credited in) the Pension Fund before the Pension Transfer Date benefits which are, in the opinion of the Vendor's Actuary, broadly equivalent to and no less valuable overall (on the basis of the Actuarial Assumptions) with the benefits of the Pension Fund (ignoring any benefits attributable to the AVC Fund) applicable to such Transferring Employees."
"7.1.Upon privatisation of the Company you will have automatically entered the London General Pension Fund unless you were not a member of the LRT Pension Fund or you subsequently opted out of the London General Scheme.
7.2. Full details of the London General Pension Fund will be made available to you.
A contracting-out certificate will be applied for in respect of the Pension Fund."
That whole document is then signed by the Personnel Manager of LG, and there is an area beneath that signature for the employee to acknowledge. The acknowledgement reads:
"I acknowledge receipt of the changes in my terms and conditions as detailed above."
There is then a space for signature, date and address. The copy supplied to the Court bears no signature. The Claimant says he did not receive this document, and LG are not able to produce a copy with his signature thereon. The date of distribution of that document is unknown. It does bear a reference "11/94" in the corner of each page. There are paragraphs in the document, which, by their content, suggest that distribution was intended for November 1994.
"Each member will make a decision based on his/her individual circumstances. Employees who have opted out of LRT membership will have been making separate pension arrangements either through a personal pension or State SERPS scheme. In these cases no changes are necessary and provision continues unchanged."
"Dear Mr. Pearch, I am pleased to now advise you of your leaving-service benefits under the LRT Pension Fund, as earned up to 1st November 1994 ( following the Management Buy Out of London General Transport Services Ltd.
You have several options as outlined below and summarised in the attached Form together with appropriate figures. When you have decided which option suits you best, please complete the Form by ticking one box as appropriate and returning it to me; I shall then make arrangements accordingly. (Please note that depending on your age/membership as indicated, some of the options in this letter may not apply to you, and so are deleted on the Form).
1. Transfer Payment.
This is your main option, and a Transfer Payment would be paid to the new London General Pension Fund. This would be calculated on a special basis to reflect the circumstances of the privatisation. Full details of the amount of benefits you would get in the new Scheme is for them to advise you.
This option is of course not available if you have chosen not to join the new London General Pension Fund.
2. Deferred Pension.
Your other main option is to defer rights with the Fund itself. In this way your pension already earned will become payable on later retirement at age 60. It would be increased each year to help protect against inflation."
I need not read the remainder of the letter, which contains other paragraphs relating to immediate pension, transfer payment to other schemes, and refund of contributions. The letter concludes:
"PLEASE NOTE – I must receive your completed option form by 1st May 1995 at the latest. After this date the Special Transfer Payment to the London General Pension Fund will no longer be available to you."
"To the Secretary of the Pension Fund.
I note your recent advice of my benefit entitlement under the Pension Fund, and I hereby advise you that I wish to receive benefits as indicated below. Please arrange that accordingly."
There are then set out seven options, of which option 1 reads:
"Special transfer payment. I give my consent to a transfer payment relating to and in respect of me from the LRT Pension Fund to the London General Pension Fund. I understand that I shall be entitled to rights under the London General Pension Fund as described in their announcement which I have read."
The other options relate to deferred pensions, immediate pensions – of which there are three varieties – standard transfer payment and refund of contributions.
"LRT Pension Fund statement of options. Please find herewith the LRT Pension Fund Statements for employees at your location, which should be made available for collection with this week's payslips.
I am also enclosing a supply of notices to staff on the subject, which I shall be obliged if you will arrange to be posted in all areas of the garage."
The notice to which Mr. Pearch refers, to be posted in garages reads:
"London General Transport Services Ltd. LRT Pension Fund Statement of Options.
As you are aware, following the privatisation of London General, membership of the LRT Pension Fund (LRTPF) ceased and it was agreed that individual statements would be produced for each member detailing their future benefits and options.
These statements will be available for collection with this week's payslips, however, they are incomplete in that they do not include details of the main option which is the very special transfer payment that may be paid into the London General Pension Fund. This payment will be calculated on a special basis to reflect the circumstances of privatisation.
The LGPF actuaries have not yet received the information from the LRTPF to enable full details to be provided of the amount of benefit individual members would get in the LGPF. Hopefully these details will be available to members by mid February.
Likewise, as soon as the availability of the special transfer benefits are known, arrangements will be made with the independent advisors appointed by LT to set up the Garage Seminars and Pensions Helpline."
That is then signed, "R.J. Pearch, Personnel Manager", and is dated 17th January 1995.
"Mr. Roberts said that, whilst he accepted that Driver Ibekwe's account of his condition was truthful, the Company could not carry the driver on its books indefinitely. He accepted that some progress towards recovery was apparent, but this progress was slow. It was apparent that Driver Ibekwe would not be in a position to resume his duties in the foreseeable future, and as a result he had no alternative but to terminate Driver Ibekwe's services on the grounds of medical incapacity.
Driver Ibekwe was advised of his right of appeal against this decision, and an appropriate Notice of Appeal form was issued."
"…Mr. Ibekwe might well recover from this episode of back pain in due course, but is more than likely to experience recurrences in the future. I would recommend that a target of 1st March should be set in which Mr. Ibekwe should return to work fully fit as a driver. If he is not so, a management decision should be made for his continued employment."
However, the decision to dismiss had been taken six days before the date of that letter.
"Dear Mr. Ibekwe, I have been advised that you have ceased employment with London General. The options available to you in respect of your membership of the LRT Pension Fund are outlined in the enclosed. Please note that option one, a special transfer payment to the LGB Pension Fund, no longer applies.
When you have decided which option suits you best, please indicate on the attached form and return to this office.
Please let me know if you require any further information."
The format of that letter was in a standard form, with only the words "London General" and "LGB Pension Fund" handwritten. The probability is that, if the Claimant had been denied the opportunity to accept and to receive a special transfer payment to the LG Pension Fund, he has suffered economic loss.
"We are not aware that Mr. Ibekwe was asked to sign a new contract of employment. It is believed you are referring to a written statement of changes to terms and conditions which became effective on 5th November 1994, which we are required to issue on a personal basis to all staff under legislation arising from the Trade Union Reform and Employment Rights Act 1993. The request to sign was to acknowledge receipt of the document."
The solicitors replied on 20th March. I read the first paragraph and the first numbered paragraph:
"We are grateful to you for your guidance in this matter and would raise the following matters, adopting the numbering used by you in your letter:-
1. Thank you for the indication. May we please see the copy notification of changes to Terms and Conditions effective as from 5th November 1994."
"By the time I was sacked, I had not received any notice of changed terms and I told my solicitors I was not in possession of such a document. In the four weeks between my dismissal and my solicitors' first letter, I had spoken by telephone with a female former colleague working at Putney (not my garage), who had received notice of changed terms, and she had been asked to sign for them. I had not seen this notice. I told my solicitor staff were being forced to accept new terms and conditions, and may well have mentioned that the Defendant had been distributing notice of changed terms for employees to sign. He must have taken this as meaning that I had once received my own copy, but he knew I did not possess and so could not given him a copy, as on 22nd February 1995 and again on 20th March 1995 he had to write to the Defendant asking for a copy. If he thought I had such a document, he would have asked me instead. When I eventually received my own notice of changed terms some time later, it emerged that it was quite different from the notice of changed terms at Putney."
"This letter was distributed to employees in the following way. It was placed in an envelope addressed to the employee in question. In particular, the envelope had on it the employee's name and personnel number. The envelope was issued to the employee at the Traffic Office counter of the garage at which the employee worked, together with the employee's payslips. When the letter of 17th October 1994 was distributed to staff, the Claimant was still attending work. It was not until 23rd October that the Claimant went off sick. Issuing letters from the Traffic Office to members of staff was considered to be the normal and a reliable means of sending letters to staff."
November and 22nd December would have been distributed in the same way as he had described in relation to the letter of 17th October. He went on in his witness statement to make the following assertions at paragraph 21(f):
"It is not unreasonable to suppose that given the Claimant's long-term sickness the issue of his ill health benefits would have been uppermost in his mind and that the Claimant would, therefore, have been aware long before he was dismissed on 25th January 1995 that for him to be eligible for any benefits under the London General Pension Fund he would have had to transfer his accrued service benefits to the new scheme."
He ended his statement in this way, paragraph 22:
"I would also like to stress that whilst the option to transfer benefits to the London General Pension Fund was the main option for employees, this was not necessarily the best option for everyone, and it was made clear at all times that the decision to transfer would depend on the individual's circumstances."