British Telecommunications Plc v BT Pension Scheme Trustees Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Patten,Lady Justice Asplin,Lord Justice David Richards
Judgment Date04 December 2018
Neutral Citation[2018] EWCA Civ 2694
Docket NumberCase Nos: A3/2018/0353 and A3/2018/0389
Date04 December 2018

[2018] EWCA Civ 2694

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

(CHANCERY DIVISION)

The Hon. Mr Justice Zacaroli

[2018] EWHC 69 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Patten

Lord Justice David Richards

and

Lady Justice Asplin

Case Nos: A3/2018/0353 and A3/2018/0389

Between:
British Telecommunications Plc
Appellant
and
(1) BT Pension Scheme Trustees Limited
(2) Linda Bruce-watt (Representative Beneficiary)
Respondents

Andrew Spink QC, Dinah RoseQC and Farhaz Khan (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the Appellant in Appeal A3/2018/0353 and the Second Respondent in the Cross-Appeal A3/2018/0389

Lord Pannick QC, Michael FurnessQC and James McCreath (instructed by Stephenson Harwood LLP) for the Second Respondent in Appeal A3/2018/0353 and the Appellant in the Cross Appeal A3/2018/0389

Brian Green QC (instructed by Slaughter and May) for the First Respondent to both Appeals

Hearing dates: 9, 10 and 11 October 2018

Judgment Approved

Lady Justice Asplin
1

These appeals arise out of the order of Zacaroli J sitting in the Business and Property Courts of England and Wales (Chancery Division) of the High Court. The citation for his judgment is [2018] EWHC 69 (Ch). The appeals are concerned with the proper construction of certain provisions of the BT Pension Scheme, (the “Scheme”) their meaning and effect. They relate to the appropriate cost of living index to be used for the purposes of calculating increases in pensions in payment.

2

British Telecommunications plc (“BT”) is the Principal Employer of the Scheme which was established in 1983. In 1986 BT established the British Telecommunications plc New Pension Scheme which was merged with the Scheme in 1994 and now forms Section C of the Scheme. Section C alone has over 80,000 members of which around 24,000 are current pensioners. All sections of the Scheme are funded from a single pool of assets. For the purposes of the litigation BT was appointed to represent the interests of all members of the Scheme and those claiming through, or in respect of them, in whose interests it is to argue that pension increases for Section C members should not continue to be linked to the Retail Prices Index (“RPI”).

3

In essence, BT contends that it has the power (whether in consultation with the Trustees of the Scheme or otherwise) to determine whether RPI has become inappropriate for the purposes of calculating increases to pensions in payment for Section C members and that RPI is inappropriate. It is common ground that once it is decided that RPI has become inappropriate, it is for BT, in consultation with the Trustees, to decide what other measure of the cost of living should be used. A change in the index used will not only affect the level of pensions in payment for Section C members but will also affect the level of funding of the Scheme as a whole.

4

BT Pension Trustees Limited, the First Respondent, is the present trustee of the Scheme (the “Trustees”). They were represented before us by Mr Brian Green QC. Mr Green made submissions in relation to the proper construction of the rules of the Scheme. The primary position of the Trustees, however, was that they sought to assist the Court and to ensure that a practical and workable outcome for the Scheme is arrived at. Mr Green's submissions in relation to the construction of the rules took those instructed on behalf of BT by surprise and as a result, we allowed BT to make written submissions in response after the close of the hearing.

5

Ms Linda Bruce-Watt, the Second Respondent, is a beneficiary of the Scheme and was appointed to represent all Section C members in whose interests it is to argue that pension increases for Section C members should continue to be linked to RPI. Put simply and in very brief summary, she seeks to support the Judge's decision that the question of whether RPI has become inappropriate must be determined objectively and is not for BT to decide. She goes on to contend, amongst other things, that it is not open to the appropriate decision-maker to rely upon matters or events which occurred before 5 April 2016 when determining whether RPI has become inappropriate.

6

The Grounds of Appeal and Cross Appeal and the matters raised in the Respondent's Notices are lengthy and complex. They are more easily understood and digested in an incremental and thematic way in the light of the relevant Scheme provisions and issues as they arise. I propose to introduce them as and when they become relevant. The same is true in relation to the Judge's findings.

Essential Materials and Applicable Principles

Materials

7

The central issues turn on the construction of the relevant Rules of the Scheme and the way in which they interleave with each other. There are five sets of Scheme Rules which are relevant. They are dated 1 January 1993 (the “1993 Rules”), 1 May 2002 (the “2002 Rules”), 1 June 2004, 20 March 2009 and 5 April 2016 (the “2016 Rules”) respectively. For the most part, the issues on these appeals arise from just two rules: rule 10.2 of the 2016 Rules and rule 25 of Appendix E of the 1993 Rules.

8

Rule 25 of Appendix E of the 1993 Rules where relevant states:

“(1) 5% increase to excess over guaranteed minimum pension:

(a) On 1 April 1993 (or such other date as the Trustees may, with the agreement of the Principal Company, decide) and in each year thereafter the annual amount of pension … shall be increased by the lesser of 5% and the percentage ratio (calculated to the nearest one place of decimals) by which the index figure of the General Index for the month of January (or such other month as the Trustees may, with the agreement of the Principal Company decide) in the year in which the increase takes effect exceeds the index figure for the same month in the immediately preceding year.

(3) Changes to the General Index

If the General Index ceases to be published, or is so amended as to invalidate it in the view of the Principal Company as a continuous basis for purposes of calculating increases, the Principal Company shall substitute such other index or appropriate basis of comparison as it shall in consultation with the Trustees decide.

(4) Meaning of “General Index”

The “General Index” means the General Index of Retail Prices for all Items in the Digest of Statistics published by the Central Statistical Office.”

9

The 1993 Consolidating Deed and Rules which included the 1993 Rules was amended by a deed of 1 May 2002 and was expressly stated to have been “restate[d] as amended by replacing it with the provisions of these [the 2002] Rules and special editions of these Rules executed on the same day with effect from the date of these Rules.” Increases in pensions in payment were dealt with in Rule 10.2 of the 2002 Rules and the wording has remained materially identical in all the further iterations of the Rules. In BT Pension Scheme Trustees Ltd v British Telecommunications plc & Anr [2010] PLR 487 at [19] Mann J recorded the unchallenged evidence of the then chairman of the Trustees, Mr Roderick Kent, that the purpose of the “Rules revision [in 2002] was consolidation and turning the words into plain English.”

10

The most recent iteration is contained in Rule 10.2 of the 2016 Rules which provides as follows:

“On each 1 April or such other date as the Trustees with the agreement of the Principal Company decide each pension in payment, except for any GMP which is payable and any pension attributable to additional voluntary contributions, will be increased by the increase in the cost of living during the 12 months up to and including the previous January (or such other month as the Trustees with the agreement of the Principal Company decide) subject to a maximum increase in each year of 5%. The pension may be increased by a higher percentage in respect of that period if the Trustees and the Principal Company agree. The cost of living will be measured by the Government's published General (All Items) Index of Retail Prices or if this ceases to be published or becomes inappropriate, such other measure as the Principal Company, in consultation with the Trustees, decides.”

Applicable Principles

11

A number of the grounds of appeal are concerned with the proper construction of various provisions of the Scheme documentation. What are the appropriate principles to apply when conducting such an exercise? We were referred to the well-known passage in the judgment of Arden LJ as she then was in British Airways Pension Trustee Ltd v British Airways plc [2002] PLR 247, [2002] EWCA Civ 672 at [26] – [32] and to the passage in the judgment of Lewison LJ in Barnardo's & Ors v Buckinghamshire & Ors [2016] EWCA Civ 1064, [2017] Pens LR 2 at [8] – [11] where he considered the appropriate approach for the court to adopt post Arnold v Britton [2015] UKSC 36, [2015] AC 1619.

12

Since the hearing in this matter, the judgment of the Supreme Court in the Barnardo's case has been handed down, the citation of which is [2018] UKSC 55. Lord Hodge with whom Lady Hale, Lord Wilson, Lord Sumption and Lord Briggs agreed, addressed the issue of the construction of pensions schemes at [13] – [18] of his judgment. He referred first to the guidance on the general approach to the construction of contracts and other instruments provided in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Arnold v Britton [2015] AC 1619 and Wood v Capita Insurance Services Ltd [2017] AC 1173. He went on to note that “[I]n deciding which interpretative tools will best assist in ascertaining the meaning of an instrument, and the weight to be given to each of the relevant interpretative tools, the court must have regard to the nature and circumstances of the particular instrument”: see [13]. He, then, turned to pension schemes, in particular, as follows:

“14. A...

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