BIC UK Ltd v Michael John Burgess

JurisdictionEngland & Wales
JudgeLord Justice Henderson,Nugee J,Sir Geoffrey Vos
Judgment Date10 May 2019
Neutral Citation[2019] EWCA Civ 806
Docket NumberCase No: A3/2018/1291
CourtCourt of Appeal (Civil Division)
Date10 May 2019
Between:
BIC UK Limited
Appellant
and
(1) Michael John Burgess
(2) Benoit Chambonnet
(3) David Everitt
Respondents

[2019] EWCA Civ 806

Before:

Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT

Lord Justice Henderson

and

Mr Justice Nugee

Case No: A3/2018/1291

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

[2018] EWHC 785 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Keith Rowley QC and Ms Elizabeth Ovey (instructed by Trowers & Hamlins LLP) for the Appellant

Mr Andrew Short QC and Mr Saaman Pourghadiri (instructed by Stephenson Harwood LLP) for the Respondents

Hearing dates: 6 & 7 February 2019

Approved Judgment

Lord Justice Henderson

Introduction

1

This appeal concerns an attempt by the trustees and the principal employer of a private sector defined benefit occupational pension scheme to introduce inflation-linked annual increases to the pensions of members of the scheme earned by service before 6 April 1997. The relevance of that date is that under section 51 of the Pensions Act 1995 such increases were first required by statute to be made to pensions earned by service from and after 6 April 1997.

2

It is now common ground that the original attempt to introduce these increases (“the pre-1997 Increases”) in 1991/2 was invalid for failure to comply with the necessary formal requirements in the version of the rules which then governed the scheme (“the Fourth Edition”). However, the invalidity was not perceived at the time, and the pre-1997 Increases were not only added to pensions in payment, but were also taken into account in calculating accruals of future pension entitlements and the funding of the scheme, until the problem first came to light some twenty years later in 2011.

3

The Fourth Edition was superseded by a new Definitive Deed and Rules dated 29 May 1993 (“the 1993 Deed and Rules”), which as it happens (for reasons unconnected with the present problem) were expressed to take effect retrospectively from 6 August 1990. At least arguably, however, certain powers contained in the 1993 Deed and Rules, had they been in force and exercised at the relevant times in 1991/2, would have validated the steps which were then taken to introduce the pre-1997 Increases. Two main questions therefore arose after the present problem had come to light. The first question, broadly stated, is whether the back-dated effect of the 1993 Deed and Rules could in principle be relied upon so as to validate the steps which had in fact been taken in 1991/2 to introduce the pre-1997 Increases, even though the only rules then in force were the Fourth Edition. If the answer to that question is yes, the second main question is whether, on the true construction of the 1993 Deed and Rules, any of the relevant powers would, if exercised, have achieved the objective of validly introducing the pre-1997 Increases.

4

These questions, together with the logically prior issue whether the steps taken in 1991/2 had in fact complied with the formal requirements of the Fourth Edition, were debated at the trial of the present action before Arnold J in March 2018. The claimants are the present trustees (“the Trustees”) of the BIC UK Pension Scheme (“the Scheme”), and the defendant, BIC UK Limited (“BIC UK”), has at all material times been the principal employer of the Scheme. Representation orders were made by consent pursuant to CPR rule 19.7, appointing the claimants to represent those in whose interests it was to argue for an affirmative answer to the question whether the pre-1997 Increases were properly made (and for a negative answer to certain consequential issues with which we are not concerned), and appointing BIC UK to argue for the contrary outcome.

5

In his reserved judgment handed down on 17 April 2018, the neutral citation of which is [2018] EWHC 785 (Ch), the judge answered both the questions which I have identified in favour of the claimants. In relation to the first question, the judge said at [125] that he had found it difficult to resolve but he preferred the submissions of counsel for the claimants, for reasons which he then summarised as follows (ibid):

“The 1993 Deed and Rules were deliberately expressed to have retrospective effect, and for good reason (albeit a reason unconnected with the Pre-97 Increases). I see the force of the point that the 1993 Deed and Rules did not themselves provide for the payment of the Pre-97 Increases, but in my view that does not prevent effect from being given to the decision recorded in [ the] 1991 Minutes if that does not involve impermissibly rewriting history (assuming, for this purpose, that the 1993 Deed and Rules enable this to be done). I also see the force of the point that the Claimants' case involves relying upon different powers contained in the 1993 Deed and Rules to validate an amendment that was not validly made under rule 36 of the Fourth Edition. But, as I see it, the key point is that the amendment could have been made under rule 36, and the only reason why it was not validly made is due to the failure to observe the correct formalities. It is true that reliance upon the powers in the 1993 Deed and Rules involves an element of re-writing history, but that will often be the case where an instrument is expressed to have retrospective effect. In my judgment, however, it does not involve doing so impermissibly. Rather, it enables effect to be given to what, as a matter of historical record, was in fact decided and done.”

6

The judge next considered the five separate provisions of the 1993 Deed and Rules which were relied upon as validating the decision to pay the pre-1997 Increases, and held that four of them were individually sufficient to achieve that purpose: see the judgment at [127] to [146].

7

Finally, the judge also dealt briefly with a subsidiary question of construction which concerned the position of certain members of a previously separate scheme for hourly paid BIC employees (“the Works Scheme”) which had been amalgamated with the Scheme by an Amalgamation Deed dated 12 October 1992 (“the Amalgamation Deed”).

8

BIC UK now appeals to this court, with permission granted by the judge, from his decisions on the two main questions and the subsidiary issue relating to the Works Scheme. There is no appeal, as I have already indicated, from the judge's decision on the prior question whether the pre-1997 Increases were validly effected under the Fourth Edition rules. It is now common ground that they were not. Nor is there any appeal in relation to the judge's adverse decision on the fifth of the possible validating provisions contained in the 1993 Deed and Rules.

The facts

9

The relevant facts were found with exemplary clarity by the judge. They are no longer in dispute. The account which follows is largely based on the helpful summary provided by counsel for the appellant (Keith Rowley QC, leading Elizabeth Ovey) in their skeleton argument in support of the appeal.

(a) The current state of the Scheme

10

The Scheme closed to future accrual on 1 December 2010. At the last triennial valuation, made as at 5 April 2015, the Scheme had assets of £34,230,000 against liabilities of £40,060,000 on the Scheme's ongoing funding basis, excluding liabilities in respect of the pre-1997 Increases. If those liabilities had been included, the total liabilities would have amounted to £45,120,000, an increase of £5.06 million. Payment of the pre-1997 Increases has been suspended since March 2013.

11

As at 6 April 2017, the Scheme had 377 members, of whom 219 were pensioners and 158 were deferred members. Of the pensioner members, 25 have never received pre-1997 Increases and would not receive them if they were reinstated. Of the deferred members, 54 would not receive pre-1997 Increases if they were reinstated. There is accordingly a significant body of members and beneficiaries who do not benefit as a result of the judge's decision, either because their pensionable service all post-dates 5 April 1997 or because they have no benefits in excess of their guaranteed minimum. Payment of these members' benefits could potentially be affected by the increase in the Scheme's liabilities of approximately £5 million resulting from the judge's decision, although we were told that this is not likely to be a practical concern given the financial health of the BIC group.

(b) The history of the Scheme

12

The Scheme was established with effect from 1 October 1951 by an Interim Deed of Trust dated 27 September 1951. Following other intervening Deeds, the Fourth Edition rules were adopted by a Deed of Variation dated 10 October 1977. Amendments were then made by a written instrument dated 1 February 1978 to enable the Scheme to become contracted out from the state earnings-related pension scheme (“SERPS”). As a result, members acquired rights to a guaranteed minimum pension (“GMP”) and, with effect from 6 April 1988, to statutory increases on their GMPs. The Fourth Edition rules, as originally adopted and as amended, did not confer on members any general right to increases to pensions in payment.

13

The Works Scheme, designed for BIC employees who were not covered by the Scheme and who were paid on an hourly basis, was established by an Interim Trust Deed dated 29 September 1967, and was also amended so that it could become contracted out. The Works Scheme was amalgamated with the Scheme by the Amalgamation Deed, with retrospective effect from 6 August 1990 (therein defined as “the Effective Date”). Members of the Works Scheme had no right to increases to pensions in payment except in relation to their GMPs.

14

In February 1984, Noble Lowndes Associated Pensions Limited (“Noble Lowndes”) were appointed as the advisers, administrators and actuaries of the Scheme and the (still separate) Works Scheme. Noble Lowndes or...

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