Aon Trust Corporation Ltd v KPMG and Others
| Jurisdiction | England & Wales |
| Judge | The Vice-Chancellor |
| Judgment Date | 29 July 2004 |
| Neutral Citation | [2004] EWHC 1844 (Ch) |
| Court | Chancery Division |
| Date | 29 July 2004 |
| Docket Number | Case No: HC04 C 00274 |
[2004] EWHC 1844 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Vice-Chancellor
Case No: HC04 C 00274
Mr. Christopher Nugee QC and Mr. Jonathan Evans (instructed by Messrs DLA) for the Claimant
Mr. Christopher Tidmarsh QC (instructed by Messrs Herbert Smith) for the 1 st Defendant
Mr. Nicholas Warren QC ( instructed by Messrs Pinsents) for the 2 nd Defendant
Mr. Brian Green QC and Ms Emily Campbell (instructed by Messrs Macfarlanes) for the 3 rd Defendant
Hearing dates : 14 th, 15 th and 16 th July 2004
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.
Introduction
What is now the KPMG Staff Pension Fund ("the Scheme") was constituted with effect from 1st July 1949 by a deed dated 20th June 1949. In essence it provided for both employees and the employer to pay into a fund constituted by the employer for the purpose of providing pensions for its permanent staff a sum equal to a specified percentage of that employee's salary for the time being. The deed provided both for amendments to the Scheme and for the adjustment of benefits by reference to either surpluses or deficits revealed by a quinquennial actuarial valuation. The benefit to which the member became entitled on retirement was a pension equal to the sum of the amounts arrived at by multiplying the payments into the fund made by the employee and employer by the factor set out in the table applicable at the time of payment. The factors shown in the tables in force from time to time varied in accordance with age and sex and were designed to give rise to a product equal to the prospective pension at normal retirement date to be expected from those payments on the basis of the actuarial assumptions made at that time.
Between 1954 and 1998 the periodic actuarial valuations indicated a surplus and bonuses were declared in relation to accruing benefits. But the actuarial valuation as at 31st March 1999 disclosed a deficit of £600,000. With effect from 31st March 2000 the Scheme was varied so as to constitute two funds, a Pre-2000 Fund and a Post-2000 Fund. The Post-2000 Fund is a conventional money purchase scheme with which I am not concerned. The Pre-2000 Fund became a closed fund.
The actuarial valuation carried out as at 31st March 2002 indicated that the deficit on the Pre-2000 Fund had increased to £71m, though it was capable of being reduced to £65m if half the fund was reinvested in equity investments, as, I understand, has now been done.
The Part 8 application now before me was issued on 27th January 2004 by Aon Trust Corporation Ltd which was appointed as sole trustee of the Scheme on 23rd December 2002. The Trustee seeks the determination of the Court in respect of five questions. Two of them, Questions 3 and 4, are designed to resolve the issue whether the first defendant, KPMG, the well known firm of chartered accountants, is liable to make good the deficit in the Pre-2000 Fund either as the employer under the provisions of ss.56 to 61 or s.75 Pensions Act 1995 ("the 1995 Act") or by virtue of an obligation in the Scheme itself. Questions 1 and 2 concern the ability (if any) of the Trustee to reduce pensions in payment to members so as, if thought fit, to reduce or eliminate the deficiency. Question 5 seeks, in effect, the directions of the Court as to what the Trustee should do in the light of the answers to the prior questions. It is agreed that Question 5 should be adjourned until after I have given judgment on the others or such of them as now arise.
The defendants are (1) KPMG, (2) Ruth Muir James and (3) Julian Walker. KPMG is joined because it is the Principal Employer under the Scheme and, depending on the answers to Questions 3 and 4, may be liable to make good the deficit. The second defendant ("the Pensioner Member") is a former employee of KPMG and a member of the Scheme. She is now receiving the pension due to her under the Scheme and has been joined to represent principally all other pensioners and also some members not yet in receipt of benefit. The third defendant ("the Active Member") is a member of the Scheme but has not retired. He is joined to represent all other members not in receipt of benefit. Appropriate representation orders are sought in respect of both the Pensioner Member and the Active Member.
The Scheme
The provisions of the Scheme have been revoked and replaced and amended on numerous occasions since its inception in 1949. The document currently governing the Pre-2000 Fund is the Consolidated Text of the Third Deed of Revision dated 24th April 1996 as amended by five Deeds of Variation the last of which was dated 2nd January 2001. Schedule 1 contains what are described as New Clauses, Schedule 2 the General Rules applying to either or both the Pre—and Post-2000 Funds and Schedule 3 the Revenue Limits Rules for approval of both Pre—and Post-2000 Funds.
There are 22 New Clauses in Schedule 1. They cover such matters as Interpretation, Trusts and Name of the Scheme, the Trustees, Investment and Safe Custody of the Fund and Accounts. Clause 8 deals with the Actuary and Actuarial Valuations. After providing for the appointment of an Actuary and for his valuations clauses 8.4 and 8.5 provide
"8.4 If an actuarial valuation or interim review of the Pre-2000 Fund shows a surplus the Trustees may with the consent of the Principal Employer and after taking the Actuary's advice and after making any such amendments to the Trust Deed and/or Rules as may be necessary, decrease the contributions of any Member and/or increase (by declaration of bonuses or interim bonuses or otherwise) the benefits or future benefits of any Member or other person entitled to receive any benefit from the Pre-2000 Fund.
8.5 If an actuarial valuation of the Pre-2000 Fund reveals a deficiency in the Pre-2000 Fund's resources the Trustees may with the consent of the Principal Employer make such adjustments and amendments to the benefits secured or thereafter accruing for and in respect of the Members as are necessary in the opinion of the Trustees after taking the Actuary's advice to secure the continued solvency of the Pre-2000 Fund."
Clause 9 confers certain powers on the Trustees. Clause 10 provides for the augmentation of benefits at the request of the employer. It enables the employer to ask the Trustees to grant additional or new benefits. Before doing so the Trustees are required to obtain an estimate of the cost of compliance and advice as to how to fund it. By clause 10.3 the Trustees are required to grant the benefits so requested subject to the Revenue Limits and subject to the employer making such additional contributions to the General Fund as are necessary to fund the increase. Clause 10.4 points out that other provisions for augmentation are to be found in clause 8.4 (para 7 above) and Rule 21 (para 16 below).
The Schedule continues with clauses concerning lump sum benefits, transfer payments, powers to buy or transfer out benefits, and employers. In the event of an employer ceasing to be a participating employer his obligation (clause 17.11.3) to pay any contributions ceases "except…any sum payable by it pursuant to Section 144 of the Pension Schemes Act 1993". Clause 18 provides that with the consent of the Principal Employer the Trustees have power
"at any time or times to alter, amend, add to and/or cancel all or any of the provisions of the Trust Deed or Rules provided that nothing shall be done which would:-
(a) cause the main purpose of the Scheme to cease to be that stated in Clause 2.3 or
(b) cause the payment or transfer of the Fund or any part of it to the Principal Employer or any Participating Employer."
Clause 19 provides that the Principal Employer and the Trustees may terminate the Scheme in circumstances specified for each of them. One of the consequences prescribed by Clause 19.4.3 is that
"The Employers shall cease to have any obligation to pay any contributions to the Scheme except contributions due but unpaid at the date of termination and any sum payable by them pursuant to Section 144 of the Pension Schemes Act."
Clause 20 deals with the winding up of the Scheme in the event of its termination. Clause 20.12 empowers the Trustees in the event of delay in realising the assets of the Scheme "including the discharge of any debt due to them from any of the Employers under Section 144 of the Pension Schemes Act" to apply assets of the Scheme in securing its liabilities. The remaining Clauses deal with a number of miscellaneous matters it is not necessary to describe.
The General Rules contained in Schedule 2 are divided into 9 sections and an Appendix. Sections I, II and VIII are of general application, Sections III to VII apply to benefits payable out of the Pre-2000 Fund. Section I comprises rules 1 to 4. They deal with questions of interpretation, eligibility, membership and temporary absence. Section II comprising rules 5 and 6 deal with the contributions to be paid by members and employers respectively. The rules are now much more complicated than they were in 1949 but, in essence both the member and the employer are required to pay contributions equal to a specified percentage of the member's salary varying in accordance with age and bands of income (rules 5.1–5.5 and 6.1–6.5). In addition a member may pay voluntary contributions, called additional voluntary contributions (rule 5.6). The destination and use of such additional voluntary contributions depends on whether the member has agreed with the Trustee that they...
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