Blatchford Ltd (formerly Chas A Blatchford & Sons Ltd) v Brian Stephen Blatchford
| Jurisdiction | England & Wales |
| Judge | Chief Master Marsh |
| Judgment Date | 24 October 2019 |
| Neutral Citation | [2019] EWHC 2743 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: PE-2019-000009 |
[2019] EWHC 2743 (Ch)
Chief Master Marsh
Case No: PE-2019-000009
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
BUSINESS LIST (ChD)
PENSIONS
In the matter of the Chas A Blatchford & Sons Limited Group Pension Scheme (“the Scheme”)
Rolls Building, Fetter lane,
London EC4A 1NL
Andrew Short QC (instructed by Eversheds Sutherland (International) LLP) for the Claimant
Thomas Robinson (instructed by BDM Pitmans LLP for the Trustees
David E Grant (instructed by Pinsent Masons LLP) for the Representative Beneficiary
Hearing date: 18 September 2019
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.
At the disposal hearing of this Part 8 claim on 18 September 2019 I made an order for rectification of Rules 39.6.3 and 39.6.4 of the governing documentation of the Chas A Blatchford & Sons Limited Group Pension Scheme (“the Scheme”) comprising part of the definitive deed and rules made on 22 October 1996 (“the 1996 Rules”). This judgment provides my reasons for making that order.
The claimant (“the Company”) is the principal sponsoring employer of the Scheme. The first to seventh defendants are the current trustees of the Scheme (“the Trustees”). Under a representation order made on the same occasion as the order for rectification, I appointed the Company to represent all employers, members and other beneficiaries of the Scheme in whose interests it is to argue that the 1996 Rules should be rectified in the form sought by the Company. The eighth defendant (“Mr Tanner”) was appointed to represent all members and other beneficiaries of the Scheme in whose interests it is to argue that the 1996 Rules should not be rectified in the form sought by the Company.
The 1996 Rules provided four categories of member of the Scheme who were identified in terms of their seniority and value to the Company. In descending order, they are categorised from A to D. Category A comprised the directors of the Company, Category B its senior management and Category C its “Key Employees”. Category D, which included by far the largest group, comprised staff employees, or former employees, who received the least beneficial terms under the Scheme. The issues in this claim affect only them and their survivors. As at August 2017 there were 238 Category D members in the Scheme comprising 107 deferred members and 131 members with pensions in payment.
Capita Employee Benefits Limited, which is the current administrator of the Scheme, has estimated that without rectification the additional cost to the Scheme from Rules 39.6.3 and 39.6.4 in their unrectified form is between £9 and £10 million.
Scheme History
The Scheme commenced on 1 April 1961 having been established by an Interim Trust Deed dated 10 February 1961. The relevant history starts with the adoption on 11 September 1989 of the “1990 Rules”. Under those rules, Category D members, unlike other members of the Scheme, had no entitlement to increases on their pension in excess of their Guaranteed Minimum Pension (GMP).
Rule 17 of the 1990 Rules permitted the Scheme's trustees to augment pensions with the consent of the Company and under Rule 49 the Company, with the consent of the Scheme's trustees, the Company was permitted, subject to some restrictions, to alter the rules. Alterations could be made by a resolution of or a written memorandum signed by the Company.
On 10 April 1992, the Company announced a beneficial change to the Scheme as it affected Category D members and their survivors from 6 April 1991. The genesis of the change appears to have been provisions in the Social Security Act 1990, albeit that they were not subsequently brought into force. The announcement, which was signed by Sandra Bishop who was the Company's Personnel Manager, stated that with effect from the alteration date staff entitlement in excess of GMP would “… increase by 5% compound or the increase in the Retail Price Index (RPI) if less, every year for which it is paid.” In pension jargon this is known as “5% Limited Price Indexation” or more commonly “5% LPI”. The wording of the announcement made it clear that the increase would be the lesser of 5% or the increase in the RPI. In other words, 5% was a cap on the amount by which pensions could increase. Thus, in periods of high inflation rises would be no greater than 5%; and, in periods of low inflation, rises would be no greater than increases in RPI.
Although documentary evidence from the early 1990's is sparse due the passage of time, it is clear that the change was put into effect in accordance with the announcement and it must, therefore, have had the consent of the then trustees. Implementation of the change can be seen from a number of sources including the 1993 and 1995 staff booklets which both include reference to the increase in the same terms as the announcement. At the time, Pointon York provided administration and actuarial services to the Scheme and their reports for the period that followed the announcement in 1992 refer to Category D members benefitting from 5% LPI.
A new set of rules, the 1996 Rules, running to more than 100 pages, were implemented by a definitive trust deed made between the Company and the Trustees on 22 October 1996. The deed did more than update the 1990 Rules because the Company had decided in early 1996 to close the final salary scheme and to commence a money purchase scheme for new employees. The deed therefore contained rules for the continuation of the Scheme and the creation of a new scheme.
The issue before the court arises from the 1996 Rules and is apparent from the following extract from Rule 39 of the Scheme that deals with pension increases:
“Rule 39 Payment of pensions and lump sum benefits
39.6 Any pension … payable to a Member … shall be reviewed annually by the Trustees and shall be increased on the Anniversary Date by:
39.6.1 in the case of a pension for or in respect of a Category A Member or a Category B Member eight and a half per cent (8 1/2%) per annum
39.6.2 in the case of a pension for or in respect of a Category C Member five per cent (5%) per annum
39.6.3 in the case of a pension for or in respect of a Category D Member (other than a pension payable under Rule 18) the greater of five per cent (5%) per annum and the increase in the Retail Index in respect of that part of the pension which exceeds the Guaranteed Minimum Pension and which relates to Pensionable Service after 6 th April 1991, and
39.6.4 in the case of a pension in respect of a Category D Member payable under Rule 18 the greater of five per cent (5%) per annum and the increase in the Retail Index if less” [emphasis added]
Several points are immediately noticeable about Rule 39.6.3:
(1) Category A, B and C members were entitled to a fixed increase that is not related to RPI. The increase was not subject to either a collar or a cap.
(2) There was a significant increase in the benefit attributable to Category D members. Under the 1992 Announcement they were entitled to the lesser of 5% or RPI. This was transformed in the 1996 Rules into an entitlement to a minimum 5% increase. What had been a cap of 5% was changed into a collar of 5%. In periods of high inflation, Category D members would receive increases at the rate of RPI but in periods of low inflation they would receive increases of not less than 5%.
(3) By contrast, Category A, B and C members remained entitled only to a fixed increase. It follows that in a period of high price inflation, Category D members might be entitled to a greater increase than employees who were regarded as being key to the business.
Similar observations can be made about Rule 39.6.4, if the final puzzling words “if less” are ignored. When they are taken into account, the meaning of Rule 39.6.4 is far from clear. Indeed, it is not easy to see how Rule 39.6.4 could be construed to make any sense without undertaking radical linguistic surgery.
Later, with effect from 8 October 2008, the Scheme was governed by a new Supplementary Deed and Rules. These new rules were several years in gestation and during that period what are said to be errors of drafting in Rules 39.6.3 and 39.6.4 were discovered. An attempt was made to change the 1996 Rules in the Supplemental Deed and Rules made in 2008. Recital C and clause 1 of the 2008 deed provided:
“(C) The Principal Employer and the Trustees agree that Rules 39.6.3 and 39.6.4 of the 1996 Definitive Deed do not correctly reflect the common intention of the Principal Employer and the Trustees when adopting the 1996 Definitive Deed nor the past and present practice of the Plan. The Principal Employer and the Trustees accordingly now wish to confirm and rectify Rules 39.6.3 and 39.6.4 of the 1996 Definitive Deed in the manner specified in this Deed.
…
OPERATIVE PROVISIONS
1. The Principal Employer and the Trustees declare that with effect from the date of the 1996 Definitive Deed and by way of rectification and clarification Rules 39.6.3 and 39.6.4 as they currently appear in the 1996 Deed shall be construed as if the word “greater” in each case were replaced by the word “lesser”.”
Rules 9.2.1.3 and 9.2.1.4 of the 2008 Rules were in a similar form to Rules 39.6.3 and 39.6.4 of the final salary section of the 1996 Rules other than “lesser” was substituted for “greater” and “if less” was removed. The...
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