Court rejects call by council for pensions set-off from officer convicted of fraud

The High Court has rejected a London borough’s bid to set off the pension benefits of a former senior finance officer who defrauded the council.

The case of The London Borough of Enfield v Jossa [2017] EWHC 2749 concerned John Jossa, who had been employed in local government for 36 years until reorganisation resulted in his redundancy in 2010. By this time he had become "Head of Finance - SAP Support and Development" at Enfield.

A member of the Local Government Pension Scheme, his pension benefits have been valued at £476,300.

Between June 2008 and December 2010 Jossa dishonestly abused his position of trust to cause 104 payments to be made from his employer's bank account to his own account.

Shortly before he left his employment, he deleted his bank details from the system in the hope of minimising the prospect of detection.

However, after he had left the employment he was caught and sentenced to 4 years' imprisonment.

Judgment was entered against him for £509,889 but this remains unsatisfied.

Jossa was made bankrupt and has been discharged but the debt remains payable because it was incurred through fraud.

Upon being made redundant, but before his fraud had been discovered, Jossa became entitled to be paid his pension.

The fraud having been discovered, Enfield, which is the administering authority and holds the LGPS’s funds as trustee, wished to withhold Jossa's benefits.

Both parties agreed (and the appeal to the High Court proceeded on the basis) that Enfield was not entitled to an equitable or legal set-off its of its rights as a judgment creditor against its obligations as trustee.

Enfield accepted that the only potential right of set-off was that provided by the rules of the Scheme, which are contained in the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 ("the 2007 Regulations") and in the Local Government Pension Scheme (Administration) Regulations 2008 ("the 2008 Regulations"), both made by the Secretary of State pursuant to section 7 of the Superannuation Act 1972.

The appeal in The London Borough of Enfield v Jossa was an appeal from the Pensions Ombudsman and concerned the true meaning of Regulation 74 of the 2008 Regulations.

The Ombudsman had ruled that the statutory set-off was not available to Enfield because the words "in consequence of" in Regulation 74 imported an unequivocal causative requirement, with the result that an employing authority cannot recover or retain benefits in satisfaction of a member's monetary obligation arising from a criminal, negligent or fraudulent act or omission in connection with the employment unless the employment came to an end in consequence of the act or omission.

Since it was common ground that Jossa's employment was terminated for redundancy before his fraud was found out, the Ombudsman ruled that Regulation 74 did not apply.

Enfield would still be able to obtain an attachment of earnings order, under which it would be entitled to retain some of Jossa’s pension benefits. However, it would be an inferior outcome to statutory set-off from the council’s perspective as Regulation 74 would permit the immediate transfer of most of the £476,300 from the pension scheme to taxpayers’ funds without a court order.

In the Chancery Division of the High Court the judge, Mark Anderson QC, this month ruled against Enfield. The judge said Regulation 74 provided that misconduct obligations only gave rise to a set-off against a person if at least four requirements were satisfied:

1. The person must have "left an employment... in consequence of a criminal, negligent or fraudulent act or omission on his part".
2. The act or omission must have occurred "in connection with the employment".
3. The person must have been a member of the Scheme at some point during his/her employment by the authority seeking the set-off.
4. If it is disputed, the obligation must be embodied in the judgment of a court.

The judge said he agreed with the Ombudsman that the wording of regulation 74 was clear and precise in its requirement that the person left the employment in consequence of the misconduct.

“Yet Enfield asks me to construe it to include the opposite scenario as well, where the person does not leave the employment in consequence of the misconduct. In effect, I am asked to conclude that in stipulating that the person must have left in consequence of the misconduct, the author was intending to mean, and was impliedly saying, ‘or would have done so if the misconduct had been discovered in time’. I agree with Mr Feltham [counsel for Jossa] that that is a very ambitious submission in light of the express wording of the regulation.”

Judge Anderson said that the fact that the causative requirement appeared, and was very clearly expressed, four times in different regulations reinforced his impression that its wording was quite deliberate.

The judge agreed with counsel for Enfield that it was “difficult to discern, on the limited material available to him, why the Minister would have chosen to include only misconduct which results in termination, and not misconduct discovered later even if serious enough to have resulted in termination”.

He also agreed with him that the words which he said should be implied into the regulation would not carry any obvious risk of creating anomalies of their own.

“However none of this is sufficient for me to conclude that the Minister cannot have intended to draw the line where his express words leave it. The 2007 and 2008 Regulations together form a complex scheme of some sophistication. I would not lightly conclude that its language was not intended to bear its literal meaning, even if it gives rise to an anomaly,” Judge Anderson said.

“Moreover termination of employment is of central importance to this sophisticated scheme because a member's right to benefits will usually not arise until termination and usually will arise on termination if the pensionable age has been reached. With these considerations in mind, it is impossible in my judgment to conclude that express language which clearly requires a causative link between misconduct and termination calls for the implication of words to alter that requirement.”

The judge said although one might speculate about whether the minister considered all the potential consequences of drawing the line where the express language of the regulations drew it, such speculation did not lead to the conclusion that he did not intend to draw it there but somewhere else.

“Even if I concluded that the causative requirement has no rational basis and is absurd, in my judgment it would still be wrong to conclude that I must therefore by necessary implication find words which reverse or curtail it,” Judge Anderson said.

“The causative requirement appears four times in regulations 72, 74, 75 and 76 although different wording is used across these provisions. I cannot conclude that the express language of those regulations, even bearing in mind that it gives rise to the situation in which Enfield finds itself in this case, shows that the regulation must necessarily have included the implied words contended for.”

Enfield Council has been approached for comment.