Alexander Forbes Trustee Services Ltd v (1) Geoffrey Alan Clarke (2) John Morgan Lewis (3) Robert Frederick Unwin
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE HENDERSON,The Honourable Mr Justice Henderson |
| Judgment Date | 05 February 2008 |
| Neutral Citation | [2008] EWHC 153 (Ch) |
| Docket Number | Case No: HC06C02041 |
| Court | Chancery Division |
| Date | 05 February 2008 |
[2008] EWHC 153 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Henderson
Case No: HC06C02041
Mr Geoffrey Topham (instructed by Eversheds) for the Claimant
Mr Nigel Burroughs (instructed by Hammonds) for the First Defendant
Mr Nicolas Stallworthy (instructed by Wragge & Co) for the Second Defendant
Mr Jonathan Evans (instructed by Wragge & Co) for the Third Defendant
Hearing dates: 16 and 17 January 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
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Introduction
The Demaglass Pension Scheme (“the Scheme”) is a contributory defined benefits occupational pension scheme which was placed into winding up on 23 May 2000 following the insolvency of the principal (and only) employer Demaglass Limited. The Scheme is being wound up in deficit. As at the date of the last full actuarial valuation, 1 April 2003, the assets of the Scheme were £15,093,000 and its total liabilities were £24,817,000, with the result that it was only 61% funded on a winding up basis and had a deficit of £9,764,000.
Demaglass Limited went into receivership on 21 March 2000, and on 29 March 2000 the claimant, Alexander Forbes Trustee Services Limited, then named Bradstock Trustee Services Limited, was appointed as the statutory independent trustee of the Scheme. By the date when the resolution to terminate the Scheme was passed on 23 May 2000 the other trustees had already resigned, and at all material times the claimant has been the sole trustee of the Scheme.
As at the winding up date the membership of the Scheme was as follows:
(a) Pensioners with pensions in payment— 235
(b) Deferred pensioners who had attained 50 years — 129
(c) Deferred pensioners who had not attained 50 years — 201
(d) Active members— 369
In these proceedings, which were started by a Part 8 claim form issued on 24 May 2006, the Trustee seeks directions as to the appropriate order of priority for application of the net assets of the Scheme between the different classes of beneficiaries, having regard to the provisions (as in force at the relevant time) of section 73 of the Pensions Act 1995. By virtue of section 73(3)(b), priority was given in the winding up to the pension (but not future pension increases) of any member whose “entitlement to payment of pension or other benefit has arisen”. At the bottom of the statutory order of priority, by contrast, was “any liability for pensions or other benefits which have accrued to or in respect of any members of the scheme (including increases to pensions)”: section 73(3)(f).
In the light of the recent decision of the Court of Appeal in Cripps v Trustee Solutions Ltd [2007] EWCA Civ 771, [2007] PLR 237 (“Cripps”), on appeal from Trustee Solutions Ltd v Dubery [2006] EWHC 1426 (Ch), [2006] PLR 177, it is clear that section 73(3)(b) applies at least to members whose pensions are already in payment, or who have satisfied all the conditions under the scheme rules which entitle them to immediate payment of a pension or other benefit. It remains unclear, however, whether section 73(3)(b) also affords priority to a member who has not at the relevant date satisfied all the conditions which would entitle him to immediate payment of a pension, but who would be able to do so by taking one or more steps which are within his own power and do not require the consent or intervention of any third party. In particular, does section 73(3)(b) apply to a member who is currently entitled to a deferred pension at a future date (typically on reaching normal retirement age), but who has the option to take an actuarially-reduced immediate pension by giving notice of his wish to do so? And if so, does section 73(3)(b) apply only to members who have already left service, or does it also extend to members who are still in pensionable service at the relevant date, but who have the right to retire early with a deferred pension? These are in broad terms the questions which fall for decision in the present case.
The second and third defendants, Mr Lewis and Mr Unwin, are members of the Scheme who have been joined to represent, respectively:
(a) members over the age of 50 who had left service on 23 May 2000 and were entitled to deferred pensions, but had not exercised any right to take a reduced pension with immediate effect; and
(b) members over the age of 50 who had not left service and were still employed by Demaglass Limited on 23 May 2000, but who had the right to take early retirement.
The first defendant, Mr Clarke, is a former member-nominated trustee of the Scheme. He was born in February 1944 and has been a member of the Scheme since a date in the early or mid 1990s when the company for which he previously worked was taken over by Demaglass Limited. He was offered voluntary redundancy and took early retirement, with the consent of Demaglass Limited, with effect from 30 September 1998. He was then aged 54. He exercised his right to take an immediate pension, and has received it ever since (although, in common with all the other pensioner members, he has received no increases to his pension since the date of winding up). He has been joined to represent all members and beneficiaries of the Scheme apart from those represented by the second and third defendants, including in particular all members whose pensions were already in payment on 23 May 2000.
The representation of the parties before me was as follows. Mr Geoffrey Topham, instructed by Eversheds, appeared for the Trustee. Mr Nigel Burroughs, instructed by Hammonds, appeared for the first defendant. Mr Nicolas Stallworthy, instructed by Wragge & Co, appeared for the second defendant; and Mr Jonathan Evans, also instructed by Wragge & Co, appeared for the third defendant. I am grateful to all counsel for their clear and helpful arguments. I should add that, although Mr Topham's position on behalf of the Trustee was one of neutrality, he did also at my invitation make some submissions on a few points which had not been covered in the opening arguments of the other three counsel. They then had an opportunity to reply on these points, as well as to each others' arguments.
Statutory Provisions
I shall begin by setting out the relevant provisions of section 73, as amended and in force at the winding up date.
“73 Preferential liabilities on winding up
(1) This section applies, where a salary related occupational pension scheme … is being wound up, to determine the order in which the assets of the scheme are to be applied towards satisfying the liabilities in respect of pensions and other benefits (including increases in pensions).
(2) The assets of the scheme must be applied first towards satisfying the amounts of the liabilities mentioned in subsection (3) and, if the assets are insufficient to satisfy those amounts in full, then –
(a) the assets must be applied first towards satisfying the amounts of the liabilities mentioned in earlier paragraphs of subsection (3) before the amounts of the liabilities mentioned in later paragraphs, and
(b) where the amounts of the liabilities mentioned in one of those paragraphs cannot be satisfied in full, those amounts must be satisfied in the same proportions.
(3) The liabilities referred to in subsection (2) are –
(a) any liability for pensions or other benefits which, in the opinion of the trustees, are derived from the payment by any member of the scheme of voluntary contributions,
(aa) …
(b) in a case not falling within paragraph (aa), where a person's entitlement to payment of pension or other benefit has arisen, liability for that pension or benefit and for any pension or other benefit which will be payable in respect of that person on his death (but excluding increases to pensions),
(c) any liability –
(i) for equivalent pension benefits (within the meaning of section 57(1) of the National Insurance Act 1965), guaranteed minimum pensions, protected rights or section 9(2B) rights (within the meaning of regulation 1(2) of the Contracting-out (Transfer and Transfer Payments) Regulations 1996) (but excluding increases to pensions), or
(ii) in respect of members with less than two years pensionable service who are not entitled to accrued rights under the scheme, for the return of contributions,
(d) any liability for increases to pensions referred to in paragraphs (aa) and (b),
(e) any liability for increases to pensions referred to in paragraph (c),
(f) so far as not included in paragraph (c) or (e), any liability for pensions or other benefits which have accrued to or in respect of any members of the scheme (including increases to pensions)
and, for the purposes of subsection (2), the amounts of the liabilities mentioned in paragraphs (aa) to (f) are to be taken to be the amounts calculated and verified in the prescribed manner.
(4) To the extent that any liabilities, as calculated in accordance with the rules of the scheme, have not been satisfied under subsection (2), any remaining assets of the scheme must then be applied towards satisfying those liabilities (as so calculated) in the order provided for in the rules of the scheme.
…”
It will be seen from the above provisions that the order of priority set out in subsection (3) takes precedence over any order of priority in the scheme rules, and the scheme rules can only take effect in relation to any liabilities which have not been satisfied under the statutory scheme. Within the statutory order of priority, liabilities in the earlier...
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