British Airways Plc v Airways Pension Scheme Trustee Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 19 May 2017 |
| Neutral Citation | [2017] EWHC 1191 (Ch) |
| Docket Number | Case No: HC2012-000035 |
| Court | Chancery Division |
| Date | 19 May 2017 |
[2017] EWHC 1191 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
Mr Justice Morgan
Case No: HC2012-000035
Michael Tennet QC, Sebastian Allen and Michael Ashdown (instructed by Linklaters LLP) for the Claimant
Keith Rowley QC, Jonathan Hilliard QC and Henry Day (instructed by Eversheds LLP) for the Defendant
Hearing dates: 26–28 and 31 October, 1–4, 7–11, 14–18, 21–25, 28–30 November, and 5–9 December 2016 and written submissions thereafter
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.
| Heading | Paragraph number |
| The case in outline | 1 |
| The origin of the APS | 15 |
| The original 1948 trust deed and rules | 24 |
| The consolidated trust deed and rules | 35 |
| The litigation in Stevens v Bell | 51 |
| The management and administration of the APS | 54 |
| The APS trustees | 64 |
| The NAPS | 68 |
| The funding of the APS | 75 |
| The funding position of the APS and the NAPS | 90 |
| The 2010 funding agreements | 91 |
| The 2013 funding agreements | 95 |
| RPI and CPI | 98 |
| The operation of rule 15, before amendment | 105 |
| The challenged decisions | 110 |
| BA's pleaded case | 122 |
| BA's application for permission to amend | 128 |
| The issues | 136 |
| The evidence as to fact | 137 |
| From June 2010 to March 2011 | 148 |
| From March 2011 to July 2012 | 204 |
| From July 2012 to February 2013 | 257 |
| From February 2013 to November 2013 | 281 |
| The trustees' meeting on 19 November 2013 | 319 |
| The basic legal principles and terminology | 349 |
| The scope of the power to amend: introduction | 353 |
| The scope of the power to amend: submissions for BA at the trial | 358 |
| The scope of the power to amend: submissions for the trustees at the trial | 384 |
| The authorities relied upon by the trustees | 392 |
| The scope of the power to amend: further material and submissions | 402 |
| The scope of the power to amend: discussion and conclusions | 407 |
| The purpose of the power to amend | 431 |
| The alleged pre-determination in relation to the exercise of the power to amend | 433 |
| Conclusion as to the amendment to rule 15 | 437 |
| The decision of 28 February 2013 | 438 |
| The decision of 26 June 2013 | 440 |
| The decision of 19 November 2013 | 471 |
| The scope of the discretionary increase power | 472 |
| The purpose of the discretionary increase power | 480 |
| The decision-making in relation to the discretionary increase power: the law | 482 |
| BA's challenges to the decision of 19 November 2013 | 494 |
| The alleged pre-determination up to November 2013 | 496 |
| — Mr Douglas | 499 |
| — Mr Mallett | 512 |
| — Captain Pocock | 521 |
| — Mr Tomlin | 536 |
| —Mrs Sellers | 549 |
| — Mr Mitchell | 563 |
| — General remarks | 574 |
| Relevant and irrelevant considerations | 579 |
| The first challenge | 580 |
| The second challenge | 583 |
| The third challenge | 587 |
| The fourth challenge | 595 |
| The fifth challenge | 600 |
| The sixth challenge | 606 |
| The seventh challenge | 616 |
| The eighth challenge | 618 |
| The ninth challenge | 622 |
| Perversity | 630 |
| Concluding remarks | 631 |
| A summary of my conclusions | 635 |
The case in outline
The Airways Pension Scheme ("the APS") is a balance of cost, final salary, defined benefit, occupational pension scheme. It was originally established in 1948 and it was closed to new members from 31 March 1984. The APS is a mature scheme. As at 31 March 2012, it had 29,766 members, of whom 3% were active members, 7% deferred members and 90% pensioners. As at 31 March 2015, it had 27,268 members, of whom 2% were active members, 5% deferred members and 92% pensioners (the figures have been rounded off).
In general terms, the APS is a generous scheme. Rule 15 provided that the annual rate of pensions under the scheme would be adjusted upwards in accordance with annual Pension Increase Review Orders ("PIROs") made by the Treasury. For many years prior to 2010, PIROs had provided for an increase equivalent to the uplift in the Retail Price Index ("RPI"). The rules of the Scheme did not provide for any cap on the amount of the uplift in pensions which was therefore the full amount of the uplift provided by a PIRO. The absence of a cap was a particular advantage to the members of the scheme. Accordingly, the pensions payable under the APS had been described as "index-linked" or "inflation-proofed".
The reason that the APS provided for up-rating in accordance with PIROs was that the scheme originally related to employment in the public sector. By 1987, the sole sponsoring employer under the APS was British Airways plc ("BA") and it was privatised in 1987. However, rule 15 was not changed at that time so that it continued to provide for uprating pensions in accordance with PIROs.
On 22 June 2010, the Chancellor of the Exchequer announced that, in the future, public sector pensions would be uprated by reference to the Consumer Price Index ("CPI") rather than RPI. On 8 July 2010, the Department for Work and Penions announced that it would in future use CPI rather than RPI for Revaluation Orders under the Pension Schemes Act 1993 and indexation under the Pensions Act 1995, in relation to private sector schemes. The first PIRO after the Chancellor's announcement, taking effect from 11 April 2011, used CPI accordingly. Because rule 15 provided for uprating by reference to PIROs, these announcements affected the APS, even though it was at that time a scheme relating to employment in the private sector.
In and since 2010, the general expectation has been that the rate of increase in accordance with CPI will be lower than the rate of increase in accordance with RPI.
Many members and pensioners of the APS were concerned at the move from RPI to CPI. The trustees of the scheme considered what, if anything, they should do in response to this change. Some of the trustees wished to amend rule 15 so that it would provide for uprating in accordance with RPI. This was called "hardwiring RPI" into the rules.
On 3 February 2011, the trustees voted unanimously to amend rule 15 to introduce a discretionary power which would allow the trustees from time to time to uprate pensions by an amount in addition to the uprating directed by the PIRO.
On 25 March 2011, the trustees executed a supplemental deed which formally amended rule 15 to introduce the discretionary power referred to above. On the same date, the trustees voted on whether to exercise that power for the year from April 2011 but there was not a sufficient number of votes in favour of an exercise of the power.
BA initially appeared to accept that the amendment of rule 15 was valid but in August 2013 they contended that the decision taken by the trustees on 3 February 2011 and the supplemental deed of 25 March 2011 were of no effect. That issue now needs to be decided in these proceedings.
On 29 February 2012, the trustees again voted on whether to exercise the discretionary power, purportedly conferred by the amended rule 15, for the year from April 2012. On this occasion also, there were not sufficient votes in favour of the exercise of the power.
On 28 February 2013, the trustees unanimously agreed to grant a discretionary increase of 50% of the gap between RPI and CPI for 2013, namely an increase of 0.2%, but they also agreed that this decision remained open to later review.
On 26 June 2013, the trustees confirmed the decision taken on 28 February 2013 to grant a discretionary increase of 0.2%. There is an issue as to whether the trustees made an effective decision that such increase would take effect from 1 September 2013.
On 19 November 2013, the trustees by a majority voted to grant a discretionary increase of 0.2% with effect from 1 December 2013.
In these proceedings, issued on 6 December 2013, BA contends that (even if rule 15 had been validly amended in 2011) the decisions taken by the trustees on 28 February 2013, 26 June 2013 and 19 November 2013 were of no effect so that the uprating of pensions pursuant to rule 15, as amended, has been in accordance with the relevant PIRO and does not include a 0.2% discretionary increase above the rate fixed by the PIRO for 2013. Conversely, the trustees contend that they have made an effective decision to grant a discretionary increase of 0.2% above the rate directed by the PIRO for 2013, with effect from 1 September 2013, alternatively from 1 December 2013.
The origin of the APS
The British Overseas Airways Corporation was established by the British Overseas Airways Act 1939. The British European Airways Corporation and the British South American Airways Corporation were established by the Civil Aviation Act 1946. In the 1946 Act, these three corporations were referred to as "the three corporations". The three corporations were in public ownership and the 1946 Act conferred on the Minister of Civil Aviation a wide range of powers in relation to them.
Section 19 of the 1946 Act was headed "Terms and conditions of employment of staff, etc" and made some general provisions as to consultation in relation to machinery for the determination of terms and conditions of employment of persons by the three corporations.
Section 20 of the 1946 Act required the Minister by regulations to provide for the establishment or maintenance of one or more pension schemes for the purpose of providing pensions and other similar benefits in respect of the service of specified classes of employees of the three corporations and, in particular, to provide for...
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