Bank of New Zealand Officers Provident Association Management Board v Bank of New Zealand
| Jurisdiction | UK Non-devolved |
| Judge | Lord Walker of Gestingthorpe |
| Judgment Date | 14 July 2003 |
| Neutral Citation | [2003] UKPC 58 |
| Court | Privy Council |
| Docket Number | Appeal No. 73 of 2002 |
| Date | 14 July 2003 |
[2003] UKPC 58
Present at the hearing:-
Lord Hoffmann
Lord Hobhouse of Woodborough
Lord Millett
Lord Walker of Gestingthorpe
Sir Andrew Leggatt
Privy Council
[Delivered by Lord Walker of Gestingthorpe]
The Bank of New Zealand Officers' Provident Association ("the Association") is a body originally incorporated under a slightly different name by a private Act of Parliament, the Bank of New Zealand Officers' Guarantee and Provident Association Act 1900 ("the 1900 Act"). It had previously existed as an unincorporated association, established in 1887. It was reincorporated by the Bank of New Zealand Officers' Provident Association Act 1971 ("the 1971 Act"), a private Act of Parliament which repealed and replaced the 1900 Act.
Under the 1900 Act the Association (like its unincorporated predecessor) had two main purposes. One was to provide security, as banking law then required, for the due discharge of their duties by officers of the Bank of New Zealand ("the Bank"). This purpose was effected by members of the Association paying subscriptions to a guarantee fund which was to be used to indemnify the Bank, within specified limits, against losses sustained through the dishonesty of any member. That purpose lapsed some time before the passing of the 1971 Act.
The other main purpose of the Association in its original form, and now its only main purpose, is to provide a provident fund (or superannuation fund) for the Bank's employees. Originally only male employees were admitted to membership, but that discrimination ended in 1974. According to an affidavit of Mr Allan Taylor, a member of the Association's Board of Management ("the Board of Management") the Association is the oldest private sector superannuation scheme in New Zealand, and is still one of the largest. It is registered under the Superannuation Schemes Act 1989 but (because it is established by Act of Parliament rather than by a trust deed) several important provisions of that Act (and especially section 9, which restricts the exercise of powers of amendment) do not apply to it: see the decision of the Court of Appeal of New Zealand in Board of Management of BNZ Officers' Provident Fund Assn v Alexander (1998) 1 NZSC 40, 381.
This appeal is the latest (and, it is to be hoped, the last) round in a protracted sequence of litigation which has so far led to three sets of proceedings and two appeals to the Court of Appeal. The problems have arisen, unusually and paradoxically, not because the superannuation scheme is under-funded but because it is over-funded. In order to explain the problems (which come before their Lordships as a single issue as to the validity of rule amendments proposed by the Board of Management) it is necessary to set out some of the provisions of the 1900 Act and the 1971 Act, and the rules scheduled to those respective Acts; to describe the major reorganisation of the superannuation scheme which took place in 1990; and to summarise the factual position as it has developed since 1990. The facts are set out at length in the affidavit evidence and the exhibits (there are three affidavits made by Mr Taylor, one made by Mr Mark Dowland, the Bank's General Counsel and Company Secretary, and one each from two actuaries, Mr John Errington and Mr John Melville). But for present purposes a relatively brief summary is sufficient. It is common ground that if the proposed amendments can lawfully be made, their terms will have to be carefully reconsidered in the light of changes in circumstances since they were first formulated. Their Lordships are concerned with the principle of the matter, not with the financial detail.
The preamble to the 1900 Act referred to the original unincorporated association and its second purpose:
"… of maintaining and increasing the Provident Fund by the contributions of such officers [sc of the Bank], and of providing pensions and allowances for officers of the said Bank, and for other cognate purposes."
Section 7 provided as follows:
"The rules for the conduct and management of the business and affairs of the Association shall consist of the rules set out in the Schedule to this Act, with such additions as may be made from time to time, but subject to any alterations or amendments that may be made therein by the Association in the manner prescribed in and by such rules. Any copy of the rules of the Association sealed with its seal shall be prima facie evidence that they were duly made and are the rules for the time being in force."
The rules in the schedule set out the Association's objects (rule 2):
"(a) To provide a guarantee to the Bank for the fidelity of officers now or at any future time in its service, and to maintain a Guarantee Fund for that purpose.
(b) To maintain a Provident Fund to be applied for the benefit of full members of the Association."
The reference to full members leads the reader to rule 6:
"The members of the Association shall consist of the persons who were formerly on the staff of the Bank but are now pensioners, and such other persons as are now or may at any time hereafter be placed on the staff of the Bank, and they shall be divided into three classes:-
(1) Full members, ie, members who contribute to both the Provident Fund and Guarantee Fund, or who are full members as provided in Rule 18 [relating to an alternative guarantee fund].
(2) Members who contribute to the Guarantee Fund only.
(3) Pensioners."
Rule 9 provided (subject to an exception which is not now material) that a member of the Association continued to be a member only so long as he was an officer in the employment of the Bank or in receipt of a pension from the Association.
Rule 28 provided as follows:-
"These rules shall not be cancelled varied or added to without the assent of a majority of the votes of full members at any ballot, of which reasonable notice, with particulars of the proposed alteration, shall have been previously given by circular addressed to them, nor shall any such alteration be effective until it has received the sanction of the Board of Directors of the Bank; but such sanction shall not be withheld unless the proposed alteration would prejudicially affect either the Guarantee Fund or Provident Fund or the interests of the Association.
Any dispute under this rule shall be subject to the final decision of a Judge of the Supreme Court in the same way as a dispute under Rule 26 [giving the Board of Management full control of the Provident Fund]."
Some of these provisions produce an element of circularity which cropped up repeatedly in the course of argument. The objects of the Association are defined in terms of full membership, which is regulated mainly by rules 6 and 9. But those rules are capable of being amended, so long as the amendments do not conflict with the basic purpose of the scheme to which they relate (see In re Courage Group's Pension Schemes Ryan v Imperial Brewing and Leisure Ltd [1987] 1 WLR 495, 505, discussed below). The basic purpose of a scheme may not be entirely apparent from the face of its documentation. In particular, an objects clause containing words or expressions which are specially defined, but may be capable of amendment, is not necessarily a reliable guide to the scheme's basic purpose.
The 1971 Act follows the same general lines as the 1900 Act, except that the guarantee fund has disappeared. Section 7 (1) of the 1971 Act is similar to section 7 of the 1900 Act:
"The rules for the conduct and management of the business and affairs of the Association shall consist of the rules in force at the passing of this Act, with such additions, alterations, and amendments as may from time to time be made in accordance with those rules."
The rules scheduled to the 1971 Act set out the superannuation scheme as it then stood. It was a contributory, defined benefit scheme (that is a scheme under which a member's benefits on retirement are calculated by reference to his final pensionable salary and his years of pensionable service). Membership of the scheme was compulsory for all permanent staff. As is well known, defined benefit schemes often deviate from the actuarial ideal of equilibrium for a variety of reasons, including good or bad investment performance, redundancies, and changes in the financial and demographic assumptions made by actuaries. In the late 1970s the Association's fund had a modest deficit. But by the end of 1989 this had turned in to a surplus of about $278m. This was caused partly by successful investment, and partly by the Bank continuing to make contributions in excess of the level required by the actuary. However since 1990 the Bank has made no further contributions to the fund.
In 1990 there was a major restructuring of the scheme, effected by amendment of the rules. Mr Taylor described the changes as follows:
"In 1990 the rules were redrawn so as to create two divisions. Division 1 was for existing pensioners and those existing members who wished to remain part of the traditional pension scheme, while Division 2 provided for a new cash accumulation benefit structure. Within this new Division, members' benefits were defined by reference to the members' individual contributions and those made by the employer, together with earnings on those contributions. Members could elect to transfer to the new division of the scheme. Those members who transferred across to the cash accumulation division took with them a 'transfer value' that reflected the actuarial value of their accrued pension based benefits. Over 95% of members elected to transfer to Division 2. As membership of Division 2 was voluntary, a number of members chose to exit the existing scheme...
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