Avon Cosmetics Ltd v Dalriada Trustees Ltd
| Jurisdiction | England & Wales |
| Judge | Davis-White |
| Judgment Date | 17 January 2024 |
| Neutral Citation | [2024] EWHC 34 (Ch) |
| Year | 2024 |
| Court | Chancery Division |
| Docket Number | Case No: PE-2019-000003 |
[2024] EWHC 34 (Ch)
HH JUDGE Davis-White KC
(SITTING AS A JUDGE OF THE CHANCERY DIVISION)
Case No: PE-2019-000003
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
PENSIONS
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Richard Hitchcock KC and Ms Lydia Seymour (instructed by Eversheds Sutherland (International) LLP) for the Claimant
Mr Paul Newman KC (instructed by Blake Morgan LLP) for the First to Sixth Defendants
Mr Keith Bryant KC and Ms Naomi Ling (instructed by Pennington Manches Cooper LLP) for the Seventh Defendant
Hearing dates: 5–6 December 2023
Approved Judgment
This judgment was handed down remotely at 10.00am on 17 January 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives (see eg https://www.bailii.org/ew/cases/EWCA/Civ/2022/1169.html).
HH JUDGE Davis-White KC
HH Judge Davis-White KC:
Introduction
This judgment is given in proceedings which raise questions as to the validity of one of a number of amendments made to a pension scheme referred to as the Avon Cosmetics Pension Plan (the “Plan”).
In short, the trust documents under which the Plan operated contained a power of amendment (the “Power of Amendment”). That Power of Amendment was subject to a proviso or fetter (the “Fetter”). The Fetter prevented any amendment which, at the date it was made, affected prejudicially (a) any pension in payment at that date or (b) any rights accrued or secured up to the date on which the amendment was made.
There is a point regarding the proper effective date from which the amendments took effect but I need not go into that point of detail in this judgment.
The relevant amendment that I was asked to consider comprised but one part of a series of amendments going well beyond simply affecting accrued rights falling within paragraph (b) of the Fetter. I am asked to assume that one part of that series of amendments (the “relevant CARE amendment”) did however prejudicially affect rights falling within paragraph (b) of the Fetter.
The change in question affected (or purported to affect) the accrued benefit rights of certain persons who, at the date of amendment, were continuing in service (i.e. employment). By “accrued rights” I mean pension rights that had already been acquired, though not then in payment. Such entitlements arose in respect of the relevant members' service before the date of amendment.
At the time of the amendments, the accrued benefit rights of the relevant persons were measured by reference to (eventual) final salary. The change made by the relevant CARE amendment was to sever this link to final salary. Instead, under the amendment, the relevant member was treated as having retired at or about the date of the amendments. For these purposes, that employee's then salary was taken as being their “final salary”. That benefit, that is, the amount to which the member would have been entitled if they had then retired, with his or her then (frozen) final pay, was to be valued and thereafter treated like a deferred benefit, being made subject to statutory revaluation each year by the applicable rate of the Retail Price Index (the “RPI”) (subject to the maxima set by the Pensions Schemes Act 1993). I refer to this ongoing changed position as involving benefits being determined on the “Revaluation Basis” and the position prior to amendment as being that benefits were determined on the final salary basis or “FS Basis”.
As I have said, the amendments as a whole affected more than the accrued rights, as at the date of the amendments, of those in continuing service and whose benefits had, prior to such amendment, been linked to final salary. As regards what had been the Final Pay Section of the Plan, that part of the Plan was closed, and so, as regards the future, benefits in respect of future service were also no longer based upon final salary but upon Career Average Revalued Earnings (“CARE”). The amendments as a whole have been referred to before me as the “CARE Amendments”.
More recently, it has been identified that, as regards accrued benefits as at the date of amendment for those whose accrued benefits were, prior to the amendment, to be valued on an (eventual) FS Basis, the CARE Amendments are capable of prejudicing some of these members. In the case of each relevant member, the precise effect on that member's accrued benefits of the CARE Amendments (if valid) can only be assessed when their benefits crystallise on retirement or other leaving of employment. Nevertheless, the current actuarial assessment is that, in financial terms, certain persons will be better off under the CARE Amendments and that others will be worse off. In the first case, this will be a result of, during the relevant period of service after the date of the amendments, the rate of inflation being higher than the increases in salary of the relevant persons. In the latter case, it is the result of the member's salary increases being greater than the rate of inflation.
The first category of members, that is those who are better off under the relevant CARE amendment, has been referred to before me as “Revaluation Winners”. The second category of members, that is those who are worse off under the relevant CARE amendment, has been referred to before me as “FS Winners”. As I have said, it is only possible to know precisely what the financial effect of the relevant CARE amendment (if valid) will have been on any particular individual member when their rights crystallise. That is because it is only at that point that the precise applicable RPI position will be known and the relevant final salary will be known.
In the case of FS Winners, it appears that the CARE Amendments are ones that, on the face of things, have or may have prejudiced the relevant members' accrued rights in a manner that is not permitted by the Fetter. The ultimate question raised by the proceedings is therefore what the consequence is of the Power of Amendment being exercised in such a way as results in a situation that may not have been permitted by the Fetter.
As originally conceived, the proceedings were to answer the question of whether or not the CARE Amendments were invalid such that members' rights in respect of the relevant accrued benefits could not be determined in all cases on the Revaluation Basis. If the Fetter had that effect then it was considered (on advice) that the consequence would be that the relevant accrued rights would be calculated on the Revaluation Basis (as per the CARE Amendments) but with what was called an “Underpin”, namely that if a calculation based on the unamended FS Basis yielded a greater value that would be substituted for the value achieved by applying the Revaluation Basis. Put another way, members' entitlements in respect of the relevant accrued benefits would be provided by way of an underpin entitling them to benefits calculated on the basis of the better of the FS or the Revaluation Bases. Thus, it was considered that the court would be deciding whether the relevant amendment was in breach of the Fetter and, if it was, precisely how the FS Winners' accrued entitlements as a consequence should be dealt with.
The broad basis for the assumption that the Underpin would apply if the Fetter operated to prevent the CARE Amendments taking effect, as regards relevant accrued rights at the date of amendment, in full was as follows:
(1) If the CARE Amendments prejudiced FS Winners, that was prevented by the Fetter. To that extent, under the Underpin, such persons would receive, as regards their accrued rights as at the date of amendment, the higher value by reference to the FS Basis;
(2) However, to the extent that the CARE Amendments resulted in members receiving a higher value in respect of their accrued rights as at the date of amendment as a result of the application of the Revaluation Basis as applied by the CARE Amendments, then such persons were not prejudiced, the Fetter did not apply, and they did not need to rely upon the Underpin, which had no application with regard to such persons.
However, in circumstances that I shall go on to explain, proceedings were intimated against various professionals which had been involved in advising the Trustees and the employer at the time of the CARE Amendments (the “Potential Part 7 Defendants”). They were defined in this way because proceedings in negligence under Part 7 CPR may be brought against such persons. In effect, by claim letter it has been said that the professionals in question failed to identify the potential problem, caused by the existence of the Fetter, in validly effecting the CARE Amendments.
The lawyers acting for one of the professionals noted that there was a duty to mitigate loss. At that stage, it had been estimated (as set out in a Watson Wyatt Report dated 25 September 2019, and taking a calculation date of 1 January 2018), that the extra costs of benefits, were a FS Basis to be applied to all relevant members' relevant accrued rights, would be in the order of £12.3 million whereas if the Underpin applied, the extra costs would be in the region of £17.8 million. Those figures have since been updated to deal with the assessment of the position on the basis of the membership position as at 1 January 2021 and the financial conditions as at 31 December 2022. Approximate liabilities at that stage were assessed as being in the region of £6.7m with a reinstated final salary link and £12 million to...
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