British Airways Plc v Airways Pension Scheme Trustee Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Lewison,Lord Justice Peter Jackson |
| Judgment Date | 05 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1533 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/1684 |
| Date | 05 July 2018 |
[2018] EWCA Civ 1533
Lord Justice Patten
Lord Justice Lewison
and
Lord Justice Peter Jackson
Case No: A3/2017/1684
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MORGAN J
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Tennet QC, Sebastian Allen and Michael Ashdown (Instructed by Linklaters LLP) for the Appellant
Keith Rowley QC, Jonathan HilliardQC and Henry Day (Instructed by Eversheds Sutherland International LLP) for the Respondent
Hearing dates: 1 to 2 May 2018
Judgment Approved
There are two principal issues on this appeal. The first is whether the Trustees of the Airways Pension Scheme (“APS”) validly exercised the power of amendment contained in clause 18 of the APS Trust Deed of 8 October 1948 (“the Trust Deed”) when they conferred on themselves a power to review and at their discretion increase the annual rate of pension payable under the APS beyond what would otherwise be permitted under Rule 15 of the APS Rules. The second issue is whether, assuming that the change in the Rules was validly made, the power created by the amendment to Rule 15 was validly exercised in November 2013 when it was used to grant an additional pension increase of 0.2% over and above the increase stipulated by the application of the Consumer Price Index (“CPI”). British Airways Plc (“BA”) which is the employer for the purposes of the APS and is required to fund the additional pension increase challenges both decisions as unlawful. Morgan J (see [2017] EWHC 1191 (Ch)) held that both the clause 18 power to amend and the Rule 15 power to increase the pensions payable had been validly exercised.
The APS is a balance of cost defined benefit scheme which was established in 1948 as the pension scheme for the employees of BA and its predecessors including British Overseas Airways Corporation, British European Airways Corporation and British South American Airways Corporation (together “the Corporations”) all of which were established as state owned corporations under the provisions of the Civil Aviation Act 1946 (“ CAA 1946”). The Minister was required by s.20 CAA 1946 to make regulations setting up one or more pension schemes to provide “pensions and similar benefits” in respect of the service of employees of the Corporations including benefits in the case of injury or death and the public ownership of the Corporations was reflected in the requirement in clause 18 of the Trust Deed as originally executed that the power of the Management Trustees to amend the provisions of the Trust Deed should take effect subject to regulations made by the Minister under s.20 CAA 1946. Regulation 7 of the Airways Corporations (General Staff Pensions) Regulations 1948 (“the 1948 Regulations”) provided that no amendment of or addition to the Trust Deed should have effect unless confirmed by Regulations made under s.20. The consent of the Minister (by regulation) to any rule change was therefore mandatory.
The 1948 Regulations and CAA 1946 were subsequently amended so that the reference in regulation 7 to s.20 CAA 1946 had by 1971 become a reference to s.24 of the Air Corporations Act 1967 (“ACA 1967”). But in 1971 a significant change occurred when the Secretary of State (in exercise of the powers contained in s.24 ACA 1967) made the Air Corporations (General Staff, Pilots and Officers Pensions) (Amendment) (No. 2) Regulations which by regulation 3(1) removed the requirement under regulation 7 of the 1948 Regulations that any amendment or addition to the provisions of the Trust Deed was required to be confirmed by regulations made under s.24 ACA 1967. The only exception to this was in respect of an amendment which provided for the admission to the APS of the employees of a corporation whose employees had not previously been admitted as members: see regulation 3(2).
There have been a number of amendments to the Trust Deed and to the APS Rules including by the introduction in 1973 of what is now Part VI of the Rules which contain the provisions in Rule 15 for the adjustment of pensions and allowances. Rules 9–14 of the original Rules which were contained in the schedule to the Trust Deed set out by reference to the First Table to the Rules the pensions payable to members based on their salary and contributions. Rule 28 provided that the Rules might be amended or added to in accordance with the provisions of the Trust Deed but there was no express provision in the original Rules for any pension increases and the evidence before the judge was that increases were occasionally granted on an ex gratia basis presumably by an ad hoc amendment to the APS under clause 18.
In April 2008 the Trustees prepared and approved a consolidated trust deed which contained the provisions of the original Trust Deed as amended up to 1 April 2008 together with Part VI of the Rules also as amended up to that date. Clause 23 of the consolidated Trust Deed (which I will continue to refer to as “the Trust Deed”) recorded the fact that the APS was closed to new members with effect from 31 March 1984 in advance of the privatisation of BA in 1987. The April 2008 version of the Trust Deed and the Rules remained current until the amendment to Rule 15 made on 25 March 2011 and the proceedings have been conducted on the basis that there were no material amendments to the APS between 1 April 2008 and that date.
As of 1 April 2008 the following were the most important and relevant provisions of the Trust Deed for the purposes of what we have to decide. The main object of the APS is set out in clause 2:
“The main object of the scheme is to provide pension benefits on retirement and a subsidiary object is to provide benefits in cases of injury or death for the staff of the Employers in accordance with the Rules. The scheme is not in any sense a benevolent scheme and no benevolent or compassionate payments can be made therefrom.”
In clause 3 each “Employer” covenants with the Trustees to pay “all contributions to be contributed by it and by members in its employment in accordance with the Rules”. By 1987 BA was the sole sponsoring employer under the APS.
The administration of the APS is carried out by the Trustees. At the time when the Rule 15 power was amended in March 2011 and subsequently exercised in 2013 the Management Trustees referred to in the Trust Deed were all individuals but they have subsequently been replaced by a corporate trustee which is the defendant and respondent to this appeal. Clause 4(a) provides:
“The Management Trustees shall manage and administer the scheme and shall have power to perform all acts incidental or conducive to such management and administration and the Custodian Trustees shall concur in and perform all acts necessary or expedient to enable the Management Trustees to exercise their powers of management or any other power or discretion vested in them accordingly for which purpose the Custodian Trustees shall have vested in them the power for and on behalf of and (if necessary) in the name of the Management Trustees to execute any deed or other instrument giving effect to the exercise by the Management Trustees of any power vested in them and the Custodian Trustees shall deal with the Fund and the income thereof as the Management Trustees shall from time to time direct and the Custodian Trustees shall be under no liability otherwise than by recourse to the trust property vested in them for making any sale or investment of or otherwise dealing with the trust property and/or the income thereof as directed by the Management Trustees.”
The Management Trustees are given (under clause 4(b)) the usual powers to raise money together with the power (in clause 4(b)(ix)) to do all such other things as are “incidental or conducive to the attainment of the objects of the scheme or any of them”. Their powers of investment are set out in clause 6. Under clause 10 they must produce accounts made up to 31 March in each year and supply them to the auditor.
Clause 11 sets out the duties of the scheme actuary. He is appointed and removed by the Management Trustees with the consent of BA: see clause 8. The actuary is required to carry out actuarial calculations of the assets and liabilities of the APS fund at least every three years and to provide a report and recommendations to the Management Trustees: see clause 11(a). As part of this exercise he must certify the amount of any deficiency or disposable surplus:
“(b) ….. if the Actuary certifies that a deficiency or disposable surplus as the case may be is attributable to an Employer he shall certify the amount thereof and the Management Trustees shall within three months after receiving such certificate make a scheme for making good the deficiency or as the case may require disposing of the disposable surplus PROVIDED THAT any such scheme shall be subject to the agreement of the Employer to which it applies or in default of agreement shall be referred to a Fellow of the Institute of Actuaries to be appointed in default of agreement on the application of either the Employer or the Management Trustees by the President for the time being of the Institute of Actuaries and shall come into force subject to such amendments (if any) as that Actuary may direct.
(c) If the Actuary certifies that there is a deficiency attributable to an Employer the scheme referred to in paragraph (b) above shall provide that the Employer shall contribute to the Fund in addition to any existing deficiency contribution payable under this clause and to the contributions prescribed by the Rules an equal annual deficiency contribution calculated to make good the deficiency over a period not exceeding forty...
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