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Transfer of Pension Funds: Authority and Detriment, Study notes of Law

A legal case in which an employee, Mr. Fraser, transferred his pension fund from Life of Jamaica Ltd to Island Life Insurance Company Limited. The case explores the question of whether the representatives of the companies had the authority to make the representation that the transfer had been properly and authorizedly carried out, and whether Mr. Fraser suffered any detriment as a result of the misrepresentation. The document also touches upon the concepts of ostensible authority and the burden of proof.

What you will learn

  • Did Mr. Fraser suffer any detriment as a result of the misrepresentation?
  • What is the concept of ostensible authority and how did it apply in this case?
  • What was the outcome of the court case regarding Mr. Fraser's pension transfer?
  • What was the burden of proof in this case and who had to prove what?

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[2012] UKPC 25
Privy Council Appeal No 0032 of 2011
JUDGMENT
Jacinth Kelly, Millicent Campbell, Claudia Davis,
Courtney Miller, Ernel Lewis (Appellants) v
Michael Fraser (Respondent)
From the Court of Appeal of Jamaica
before
Lady Hale
Lord Mance
Lord Wilson
Lord Sumption
Lord Carnwath
JUDGMENT DELIVERED BY
LORD SUMPTION
ON
12 July 2012
Heard on 8-9 May 2012
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pf5
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[2012] UKPC 25 Privy Council Appeal No 0032 of 2011

JUDGMENT

Jacinth Kelly, Millicent Campbell, Claudia Davis,

Courtney Miller, Ernel Lewis (Appellants) v

Michael Fraser (Respondent)

From the Court of Appeal of Jamaica

before

Lady Hale

Lord Mance

Lord Wilson

Lord Sumption

Lord Carnwath

JUDGMENT DELIVERED BY

LORD SUMPTION

ON

12 July 2012

Heard on 8-9 May 2012

Appellant Respondent R. N. A. Henriques QC Tiffany Scott Daniella Gentles (Instructed by MA Law (Solicitors) LLP)

(Instructed by Myers, Fletcher & Gordon)

employer’s pension scheme. The money was credited to the trustees of the Salaried Staff Pension Plan and invested with the other funds of the Plan.

  1. On 1 December 2000, Mr Masters wrote to Mr Fraser in the following terms:

“Re: Transfer of Pension Contributions

Further to your letter dated October 31 and subsequent discussions, we wish to confirm that the Trustees of the Life of Jamaica Pension Plan have transferred an amount of Fourteen Million Seven Hundred and Twenty-two Thousand Dollars ($14,722,000) to Island Life Salaried Staff Pension Plan... Your total contribution has been invested in our Diversified Investment Fund (DIF) as part of a United States Dollars (US$) denominated asset of the fund. The security purchased by the fund is the GOJ Global Bond 2007 with a maturity date of September 1 2007 and a coupon rate of 12.75%. Interest will be paid semi-annually. The value of your contribution expressed in United States Dollars was $327,074.53 at November 2, 2000 the date that the security was purchased.

Please bear in mind that the DIF is a Jamaican Dollar denominated fund. Therefore, all your contributions, past and current, will be shown on your certificates expressed in Jamaican Dollars.

Our commitment to you and other pension plan clients is tO maximize the returns on the contributions received while preserving the invested capital.

We look forward to serving you. Please call Clive Masters or Mrs L Johnson if you have any question on this matter.”

Thereafter, Mr Fraser received periodical statements from the Employee Benefits Division of Island Life recording the accumulated current value of his units in the fund, in which the fund transferred from the Life of Jamaica scheme was included as an additional contribution.

  1. The trial judge found that at the time the trustees of the Plan were not aware of the transfer request addressed to Life of Jamaica Ltd or of the receipt and investment of the transfer funds, or indeed of the correspondence and statements addressed to Mr

Fraser on the subject. They were therefore never in a position to approve the transfer or exercise their powers under rule 15 and did not in fact do so.

  1. With effect from 1 January 2003, Island Life merged with Life of Jamaica Ltd, and a large number of its employees were made redundant. As a result, it was resolved on 28 February 2003 to discontinue the Plan and wind it up. A firm of actuaries, Duggan Consulting Ltd, was retained to prepare a valuation with a view to ascertaining the amount of any surplus and determining how it should be distributed. It was in the course of their work that the trustees of the Plan learned about the transfer from Life of Jamaica in 2000. A total surplus of J$65,000,000 was ascertained. The company waived any entitlement to it, and the trustees resolved on the advice of Duggan Consulting to distribute it to contributors in proportion to their benefit entitlements as at 28 February 2003, irrespective of the duration of the period over which those entitlements had accrued. It was also decided that because the transfer from Life of Jamaica in 2000 had not been approved by the trustees, Mr Fraser’s share of the surplus should be calculated without regard to any benefit entitlement attributable to it. Accordingly, on 16 April 2004, Mr Fraser was paid a sum representing a gross entitlement before tax of J$29,816,406.17. That sum included J$15,094,406.17 attributable to the appreciation of his units, including the units acquired as a result of the transfer. But his share of the surplus was calculated by reference to the entitlement attributable to his ordinary contributions only. On that footing he was entitled to J$866,688.43 of the surplus. Had the whole of his entitlement been taken into account, he would have received J$6,809,571.00 from the surplus.
  2. The present proceedings were begun by the trustees in October 2006 for a declaration that (in effect) they were entitled to distribute the fund on this basis. Mr Fraser responded by claiming a share of the surplus based on his full entitlement including that part of it which was attributable to the transfer from Life of Jamaica. The trustees have always accepted that the transfer was received and invested in the assets of the Plan. They have not disputed that they could lawfully have approved that. There was at one stage an issue about whether they knew or must be taken as knowing at the time about the transfer, but that has been resolved in their favour by the judge’s findings. The sole issue before the Board is whether the trustees are estopped by Mr Masters’ letter of 1 December 2000 and the subsequent benefit statements from relying on the fact that they did not approve it. On the footing that they are estopped, the trustees have not argued that they would have been entitled to limit Mr Fraser’s share of the surplus in the way they did for some other reason.
  3. Mangatal J found that it was within the usual authority of the company, as the agents of the trustees, to administer the Plan, to communicate to Mr Fraser that the trustees had accepted the Life of Jamaica transfer. The way in which the trustees allowed the company to operate the Plan made it reasonable for Mr Fraser to conclude that Mr Masters had authority to confirm this to him as, on the face of it, he did. The

things could not have happened in the ordinary course unless all necessary internal approvals, including any that might be required of the trustees, had been obtained. In the Board’s opinion it is beyond argument that these documents unequivocally represented that they had been.

  1. The Board approaches the question whether the trustees were bound by these statements on the footing that neither Mr Masters nor any one else in the Employee Benefits Division had authority of any kind to approve the transfer into the Plan. Nor did they purport to have done so. Equally, none of them had any actual authority to tell Mr Fraser that everything was in order if it was not. The question, therefore, is whether they had ostensible authority to tell Mr Fraser that whatever steps needed to be taken to carry out his transaction regularly had been duly performed, if they had no authority to perform those steps themselves.
  2. The question could hardly have arisen in this form but for certain observations of Goff LJ in the Court of Appeal in Armagas Ltd v Mundogas SA (The “Ocean Frost”) [1986] AC 717, and of Lord Keith of Kinkel, delivering the leading speech in the House of Lords in the same case. The Ocean Frost was a decision on complex and extraordinary facts. Armagas was a vehicle company formed by two Danish shipowners to buy a ship from Mundogas, on the basis that Mundogas would then charter it back from them for three years. Negotiations for the deal were conducted between Armagas’s broker, who had been promised a substantial interest in Armagas if the deal went through, and a Mr Magelssen, who was a Vice-President and the chartering manager of Mundogas. The broker bribed Mr Magelssen to sign a spurious three year charter, purportedly on behalf of Mundogas. Mundogas had not authorised Mr Magelssen to do this, and indeed were unaware that he done it until much later. For their part, neither Armagas nor its two principals had any contact with any representative of Mundogas other than Mr Magelssen. They knew that Mr Magelssen had no authority to enter into the charterparty on behalf of Mundogas without the specific and express approval of his superiors, but they believed that he had obtained it because their own broker told them so. Armagas sought to hold Mundogas to the three-year charterparty, on the footing that although Mr Magelssen had neither actual nor ostensible authority to enter into it, they were entitled to rely on his execution of the agreement and his expression of Mundogas’s satisfaction that it had been concluded as constituting implied representations that he had obtained express authority from the top management of Mundogas. The trial judge had upheld that submission. He had held that by appointing Mr Magelssen as Vice-President and chartering manager, Mundogas had ostensibly clothed him with authority to make representations about his own authority to sign such agreements. The Court of Appeal did not agree. Goff LJ, delivering the leading judgment, considered that there was no basis for concluding on the facts of that case that, by appointing him as Vice-President and chartering manager, Mundogas had held him out as having power to make the particular representations relied upon: see pp 730-732. This was because the only authority of Mr Magelssen that would serve Armagas’s purposes was authority to enter into the charterparty, as he had purported to do. The principals of Armagas knew

that Mr Magelssen was not authorised to do that without the specific and express authority of his superiors. He cannot therefore have had any ostensible authority to do it simply by virtue of the appointments that he held in Mundogas. To say that he had ostensible authority by virtue of those appointments to communicate that he had express authority to contract, was only another of saying he had ostensible authority to contract. Every agent who enters into a contract thereby asserts that he has authority, but that alone cannot be enough to bind his principal. The House of Lords affirmed the decision of the Court of Appeal and endorsed Goff LJ’s analysis. Lord Keith, who delivered the sole reasoned speech, declared (p 779) that he was not willing to accept “the general proposition that ostensible authority of an agent to communicate agreement by his principal to a particular transaction is conceptually different from ostensible authority to enter into that particular transaction.” Like Goff LJ, Lord Keith thought that while it was conceptually possible to have a case of “ostensible specific authority to enter into a particular transaction”, such cases were bound to be rare (p 777). It is clear that the whole of this analysis is dependent on the fact that in the Ocean Frost the agent was in reality holding out himself as having authority to do a specific thing that the third party knew that he had no general authority to do. Such cases are necessarily fact-sensitive. The Ocean Frost is not authority for the broader proposition that a person without authority of any kind to enter into a transaction cannot as a matter of law occupy a position in which he has ostensible authority to tell a third party that the proper person has authorised it.

  1. To take an obvious example, the company secretary does not have the actual authority which the board of directors has, but he is likely to have its ostensible authority by virtue of his functions to communicate what the board has decided or to authenticate documents which record what it has decided. The ordinary authority to communicate a company’s authorisation of a transaction will generally be more widely distributed than that, especially in a bureaucratically complex organisation and in the case of routine transactions. It is not at all uncommon for the authority to approve transactions to be limited to a handful of very senior officers, but for their approval to be communicated in the ordinary course of the company’s administration by others whose function it is to do that. Browne-Wilkinson LJ was referring to situations of that kind when he said in Egyptian International Foreign Trade Co) v Soplex Wholesale Supplies Ltd [1985] 2 Lloyd’s Rep 36, 42-43:

“It is obviously correct that an agent who has no actual or apparent authority either (a) to enter into a transaction or (b) to make representations as to the transaction cannot hold himself out as having authority to enter into the transaction so as to effect the principal's position. But, suppose a company confers actual or apparent authority on X to make representations and X erroneously represents to a third party that Y has authority to enter into a transaction; why should not such a representation be relied upon as part of the holding out of Y by the company? By parity of reasoning, if a company confers actual or apparent authority on A to make representations on the company's

if he did not have authority to write letters informing contributors that they had been duly accepted and in respect of what contributions. Moreover, with or without the trustees’ approval, the transfer funds were in fact accepted, and accruals to the transfer funds notified in successive benefit statements. Subject to the question of reliance, the trustees cannot now disclaim all of this and treat the transfer funds for some purposes as if they had been received and for other purposes as if they had not.

Detrimental reliance

  1. The relevance of detrimental reliance in the law of estoppel by representation is that it is generally what makes it unjust for the representor to resile from his previously stated position. However, for this purpose, the ordinary rule is that the detriment is not the measure of the representee’s relief, and need not be commensurate with the loss that he would suffer if the representor did resile: see Avon County Council v Howlett [1983] 1 WLR 605, where the authorities are reviewed by Slade LJ at pp 620-625. Indeed, the detriment need not be financially quantifiable, let alone quantified, provided that it is substantial and such as to make it unjust for the representor to resile. A common form of detriment, possibly the commonest of all, is that as a result of his reliance on the representation, the representee has lost an opportunity to protect his interests by taking some alternative course of action. It is well established that the loss of such an opportunity may be a sufficient detriment if there were alternative courses available which offered a real prospect of benefit, notwithstanding that the prospect was contingent and uncertain: Greenwood v Martins Bank Ltd [1933] AC 51 and Ogilvie v West Australian Mortgage and Agency Corporation Ltd [1896] AC 257, 268, as explained in Fung Kai Sun v Chan Fui Hing [1951] AC 489, 505-6.
  2. Mr Fraser’s evidence was that he relied on Mr Masters’ letter and on the subsequent benefit statements. That, however, is all that he said. The trustees’ case is that it is not good enough, because it does not establish that his reliance on these statements was detrimental to him. They submit, relying on Spencer Bower, The Law Relating to Estoppel by Representation , 4 th^ ed (2009), para V.2.6 and Scottish Equitable Plc v Derby [2000] 3 All ER 793, 804, that there is no presumption of detriment, and that Mr Fraser had the burden of proving it. He does not satisfy that burden, they say, in the absence of evidence that without the representations he would have behaved differently, and been better off in consequence. The Board regards this submission as unrealistic. It is correct that detriment is not presumed and must be proved. But it may be proved, and often is, by establishing facts from which it can be inferred. Where a person has been led to assume that no issue arises as to the regularity of his transaction, he is unlikely at the time to apply his mind to alternative possibilities. The question what he would have done, and with what results, is in practice bound to be a matter for retrospective and hypothetical reconstruction. The fact that he has not engaged in this process in his written or oral evidence at trial will not necessarily prevent the court from doing so if there is some other proper evidential basis for the reconstruction.
  1. In the circumstances of the present case it is obvious that Mr Fraser would have acted differently if he had not been told that his transfer fund had been duly received and invested on the terms of the Plan. He would at the very least have enquired what was going on. The trustees and administrators of the Plan would have had no alternative but to find out and tell him. If Mr Fraser had been told that the trustees had not accepted his transfer fund, he must necessarily have responded in one of three ways: (i) done nothing; (ii) persuaded the trustees to approve the transfer; or (iii) transferred his fund to another pension provider. The first of these possibilities can be dismissed out of hand. It is inconceivable that having asked for the value of his accrued entitlement under his former scheme to be transferred to his new employer’s plan he would then have done nothing upon learning that the money was in limbo, having left the old scheme but not been accepted in the new one. As between alternatives (ii) and (iii), it is a sufficient detriment that as a result of the representations Mr Fraser was, without knowing it, at risk of having no legal entitlement in respect of substantial funds that ought to have been held in trust for him, and that either of those two alternatives would have allowed him to escape from that situation. But, in the circumstances of the present case, the Board would go further than that. The only realistic hypothesis is that Mr Fraser would have called on the trustees to regularise the position by giving their approval, and that they would then have done so. They had no rational reason to do anything else. The only reason why they had not approved at the outset is that they did not know that the money was there. They have never sought to suggest that if they had known that they would have rejected it. In 2000, Mr Fraser had just become the company’s President and Chief Executive, and there was as yet no question of merging with Life of Jamaica or winding up the Plan and distributing any surplus. The trustees’ legal duty would have been to apply their minds fairly to rule 15. The terms of that rule show that its purpose is not to empower the trustees to reject a transfer from an existing contributor’s former pension scheme according to their own caprice, but to enable them to determine the “manner” and the “terms and conditions” of the actual transfer. Once they are satisfied on these matters, the rule provides for the transferred fund to be credited to the Plan on the same basis as other contributions unless the trustees consider this to be “impractical, inadvisable or inexpedient”. The fact that Mr Fraser’s transfer fund was actually received and invested without difficulty, albeit without authority, makes it difficult to conceive that they could have thought that any of these three adjectives applied. The reality of the present case, as the Court of Appeal pointed out, is that the trustees have sought to take advantage of their own oversight and that of their managers to treat Mr Fraser in a manner different from that of every other contributor to the Plan.
  2. Mangatal J rejected Mr Fraser’s case on detriment because she asked herself the wrong question. The relevant question was whether Mr Fraser was worse off by being led to believe that his transfer fund had been duly invested on the term of the Plan, than he would have been if he had not been told that and had raised the issue at the time. Instead, what the judge asked herself was whether Mr Fraser was worse off by asking for the transfer in the first place than he would have been by leaving his