Barnardo's and Others v Buckinghamshire and Others
| Jurisdiction | England & Wales |
| Judge | Lord Sumption,Lady Hale,Lord Hodge,Lord Wilson,Lord Briggs |
| Judgment Date | 07 November 2018 |
| Neutral Citation | [2018] UKSC 55 |
| Court | Supreme Court |
| Date | 07 November 2018 |
[2018] UKSC 55
Lady Hale, President
Lord Wilson
Lord Sumption
Lord Hodge
Lord Briggs
Appellant
Brian Green QC
Emily Campbell
(Instructed by Eversheds Sutherland (International) LLP)
Respondents (1–7)
Nicolas Stallworthy QC
(Instructed by Stephenson Harwood LLP)
Respondents (8th and 9th)
Andrew Simmonds QC
Fraser Campbell
(Instructed by Dentons UK and Middle East LLP (London))
Respondents:
Trustees of the Barnardo Staff Pension Scheme –
1. Miles Buckinghamshire
2. Neil Braithwaite
3. Alexis Cleveland
4. Elaine Diver
5. Lesley Lee
6. Hugh Mackintosh
7. Christopher Close (following the retirement of John Bartlett)
Representative Members of the scheme –
8. Janet Forrest
9. Malcolm Dick
Heard on 11 June 2018
( with whom Lady Hale, Lord Wilson, Lord Sumption and Lord Briggs agree)
This appeal raises a question of interpretation of a clause in a pension scheme trust deed which defines the phrase “Retail Prices Index” and which allows the trustees of the pension scheme to adopt a “replacement” of the officially published Retail Prices Index (“the RPI”).
The background is the recognised need for private pension schemes to provide some form of indexation of pensions to protect the value of members' pensions against price inflation. As discussed below, the question is whether the clause allows the pension scheme trustees to adopt an index of price inflation, such as the Consumer Prices Index (“the CPI”), when the official body responsible for compiling the RPI (now the Office of National Statistics) has not discontinued the RPI, thereby requiring its replacement.
Barnardo's, the well-known charity who is the sponsoring employer, argues that the clause empowers the trustees to adopt another index which they consider a suitable measure of price inflation, whether or not the RPI continues to be published. Barnardo's see the CPI as a more appropriate measure of inflation which will also enable a reduction of the scheme's deficit. Representatives of the members of the scheme, who are concerned that the adoption of the CPI as the index would over time reduce the benefits which they receive from the scheme, argue that the clause does not empower the trustees to depart from the RPI for the purposes of indexation if the RPI continues to be published. The trustees adopt a neutral stance on the question.
In 1984 Barnardo's adopted a staff pension scheme which took effect from 1978. In 1991 Barnardo's adopted a new pension scheme which took effect from 1 April 1988 and completely superseded the 1978 scheme. The 1988 rules have subsequently been amended and adopted with effect from 2001, 2004 and 2007. But the relevant provisions of the current rules are in substance the same as those in the 1988 rules, to which counsel referred in their submissions. I therefore set out the relevant provisions from the 1988 rules.
Rule 7 of the scheme gave members a pension of 1/60th of their final pensionable earnings for each complete year of pensionable service. Rule 30 provided for pensions in the course of payment to be increased “by the prescribed rate”. Rule 30.1.3 provided:
“For the purpose of this rule 30 ‘the prescribed rate’ means an increase at the rate of the lesser of:-
(a) 5%, and
(b) the percentage rise in the Retail Prices Index (if any) over the year ending on the previous 31 December.”
Rule 53, which contains a definition of “Retail Prices Index” lies at the heart of the dispute. An important part of the argument concerns the relationship between the first and second sentences of the definition. In order to assist comprehension I present the definition in a disaggregated manner, adding “(i)” and “(ii)” before each sentence, although the text of the definition is simply an undifferentiated paragraph, and highlighting in italics the critical part of the definition. The rule 53 definition (“the Definition”) is as follows:
“‘ Retail Prices Index’ (i) means the General Index of Retail Prices published by the Department of Employment or any replacement adopted by the Trustees without prejudicing Approval.
(ii) Where an amount is to be increased ‘in line with the Retail Prices Index’ over a period, the increase as a percentage of the original amount will be equal to the percentage increase between the figures in the Retail Prices Index published immediately prior to dates when the period began and ended, with an appropriate restatement of the later figure if the Retail Prices Index has been replaced or re-based during the period.”
The Appendix to the Rules of the 1988 rules contains a summary of the rules by which the Commissioners of Inland Revenue (“the CIR”) then imposed limits on the benefits which a private pension scheme could confer if it were to obtain the approval to which I refer in para 8 below. The basic limit for a pension of a member who retired at or before the normal retirement date was 1/60th of the final remuneration for each year of service. In several places in the Appendix the text referred to the indexation of benefits “in line with RPI”. Thus, for example, in para 6 it was stated that the maximum pension may be increased whilst in payment at 3% per year compound or (if greater) in line with RPI. In para 10 the Appendix defined the phrase in these terms:
“‘ in line with RPI’ over a period means in proportion to increases between figures in the General Index of Retail Prices published by the Department of Employment (or a replacement of that Index not prejudicing Approval), immediately prior to the dates when the period began and ended with appropriate restatement of the later figure if the Index has been replaced or re-based during the period.”
The reference to “Approval” in the Rules and in the Appendix was a reference to the discretionary approval of the scheme by the CIR as an exempt approved scheme under Chapter 1 of Part XIV of the Income and Corporation Taxes Act 1988. The definitions of “Tax Approval” in the Rules and of “Approval” in the Appendix were to this effect.
Lewison LJ in the Court of Appeal (para 6) neatly summarised the principal question in the appeal in this way:
“The critical words in the definition of the RPI are ‘or any replacement adopted by the Trustees without prejudicing Approval.’ Does the definition mean:
(i) the RPI or any index that replaces the RPI and is adopted by the trustees; or
(ii) the RPI or any index that is adopted by the trustees as a replacement for the RPI?”
The first meaning involves a two-stage process by which the RPI is replaced by an official body responsible for its publication and the trustees then adopt the replacement or one of several indices produced as replacements. The second meaning, which Barnardo's advances, involves a single step and would allow the trustees to choose another index as a replacement of the RPI, whether or not the RPI continued to be published.
The trustees of the pension scheme sought a ruling on the meaning of the Definition by a claim under Part 8 of the Civil Procedure Rules. In a judgment ( [2015] EWHC 2200 (Ch); [2015] Pens LR 501) Warren J held that, on a proper construction, the Definition did not empower the trustees to adopt an index other than the RPI unless the RPI had been discontinued as an officially published index and replaced. The Court of Appeal by majority (Lewison and McFarlane LJJ, Vos LJ dissenting) dismissed Barnardo's appeal. Barnardo's sought permission to appeal. This court gave permission to appeal on the understanding that there might be clauses in many pension schemes which contained similar wording. But it is not clear whether that is so.
Mr Brian Green QC presented the case on behalf of Barnardo's. I mean no disrespect to his elegant submissions if I summarise them briefly. First, he explained that the scheme had been subject to the CIR's discretionary approval. He referred to the CIR guidance known as IR 12 (1979) which set out the limits on the benefits which the CIR allowed. The arrangement for CIR approval was superseded by the Finance Act 2004 but the requirement for that approval explained the repeated reference in the scheme, including in the definition of RPI in rule 53, to “Approval”. Mr Green submitted that the first sentence of the Definition fell to be construed as “RPI or any alternative adopted by the trustees”. The phrase, he submitted, contained pointers which supported his interpretation. It was not disputed that the trustees had to exercise discretion in deciding to adopt a replacement. There might be no room for the exercise of discretion if the official body which published the RPI replaced it with another index. Similarly, the requirement that the adopted replacement did not prejudice CIR approval pointed to a circumstance where there was a possibility that the trustees' choice of replacement might not receive CIR approval. That eventuality was very unlikely if the clause operated only when the RPI was replaced by another official index. He also submitted that it was inherently improbable in 1991 that the Government would discontinue the RPI. While recognising that the second sentence of the Definition also referred to “replaced”, he submitted that that sentence was of no relevance to a proper understanding of the first sentence as it referred to the phrase, “in line with the Retail Prices Index”, which did not appear in the Rules but only in the Appendix. “Replacement” in sentence 1 did not necessarily have the same meaning as “replaced” in sentence 2.
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