Foster Wheeler Ltd v Hanley and Others
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Lloyd |
| Judgment Date | 08 July 2009 |
| Neutral Citation | [2009] EWCA Civ 651 |
| Date | 08 July 2009 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case Nos: A3/2009/0065 |
[2009] EWCA Civ 651
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
Patten J
Before: Lady Justice Arden
Lord Justice Lloyd
Mr Justice Richards
Case Nos: A3/2009/0065
Brian Green QC & Jonathan Hilliard (instructed by Messrs Freshfields Bruckhaus Deringer LLP) for the Appellant
Andrew Simmonds QC (instructed by Messrs Clifford Chance LLP) for the Respondents (1) to (8)
Andrew Spink QC & Keith Bryant (instructed by Messrs Bond Pearce LLP) for the Respondent (9)
Hearing dates: 17–18 March 2009
Lady Justice Arden:
This appeal requires the court to decide how the Foster Wheeler pension scheme should pay benefits to members in circumstances where, due to developments in European law on pensions equalisation, (1) those members have accrued benefits with two different normal retirement dates (“NRDs”), (2) they choose to retire between those dates, and (3) there is no specific provision in the pension scheme to address this situation. The judge was offered three possible solutions: payment in full of all benefits, payment with a discount for benefits paid early and payment of two separate (or split) pensions. The judge preferred the first solution. Each solution is feasible, and so the court has to decide the criteria for selecting one of the solutions in this situation, and to determine which solution fulfils those criteria.
Background
The developments in the law on pensions equalisation are not in dispute. Pursuant to decisions of the European Court of Justice (“the Court of Justice”) in Barber v Guardian Royal Exchange [1991] QB 344, Coloroll Pension Trustees Ltd v Russell [1995] ICR 179 and Smith v Avdel Systems Ltd [1995] ICR 596, pension benefits are equivalent to “pay” for the purposes of art 119 (now 141) of the EC Treaty. They are, therefore, subject to the requirement for equal treatment contained in that article. This requirement operates with effect only from 17 May 1990. As from this date, where a pension scheme did not comply with art 141, the persons in the disadvantaged class had to be given the same advantages as those enjoyed by persons in the favoured class: this obligation could not be avoided on the ground of cost to the employer. Pension schemes may be amended so that the benefits for both sexes are reduced as the company and trustees think fit, thus giving them a discretion in relation to such amendments. Rights acquired by operation of European law are called “ Barber rights”. The period between 17 May 1990 and the date (if any) on which a non- Barber compliant pension scheme is altered so as to comply with the equal treatment rule is called “the Barber window”. Ss 62 to 65 of the Pensions Act 1995 (“the 1995 Act”) now give effect to this case law by making it clear that all occupational pension schemes are deemed to have a term for equal treatment, and any discretion under the scheme is modified so that it could not be exercised in any way less favourable to a woman than to a man (s 62(6)).
The issues on this appeal turn largely on the provisions of the Foster Wheeler pension scheme. This is an occupational pension scheme and it was established in 1956. It is a defined benefit scheme. I need only deal with the principal elements of its history. I refer to the principal employer as “the company”. As of 17 May 1990, benefits for male and female employees in pensionable service with the Foster Wheeler group were accrued by reference to different retirement dates: age 60 for women and age 65 for men. Members of the Foster Wheeler pension scheme accordingly acquired Barber rights as from 17 May 1990 by operation of European law.
By virtue of the jurisprudence of the Court of Justice summarised above, the Foster Wheeler pension scheme was to be treated as automatically eliminating the effect of different retirement ages as from 17 May 1990. Accordingly, from that date, men became entitled to accrue pension benefits at the lower retirement age enjoyed by women and women became entitled to accrue pension benefits until the higher retirement age enjoyed by men.
The company and the trustees took advice as to what to do in the light of Barber. The pension scheme contained a procedure for modifying the scheme by deed but no amendment could affect any accrued right without the member's consent. On 16 August 1993, the rules of the pension scheme were amended so as to be Barber–compliant for future service: from that date the NRD for all employees, irrespective of sex, was their 65th birthday. In the language of pensions equalisation, the Barber window was then closed.
As to early retirement, prior to August 1993 the scheme imposed a requirement for the consent of the company and it provided for a deduction of 0.5% for each year prior to NRD. In the light of Barber, the company adopted a policy of permitting early retirements by members of either sex after age 60 without the company's permission and without any reduction. Thus, from 16 August 1993, in practice a member could from age 60 retire with the consent of the company and receive his full pension without any discount for early payment (rule 8(1)). However, from about April 1999, and at all times since, the scheme was in deficit. Consequently, the early retirement rule was altered (with effect only from 30 April 2003) so that on early retirement after age 60 the member would receive only an actuarially reduced pension and would require the consent of the company. As already explained, a rule change could not operate retrospectively to alter the rights of the employees in pensionable service. This meant that any employee who had accrued a right to benefits calculated on the basis of a retirement age of 60 before 30 April 2003 would remain entitled to those benefits even after the 2003 rule change. This is common ground. Finally, when the company (where it is entitled to do so) declines to give its consent under the early retirement provision, and the member leaves, he will on his retirement receive a leaving service benefit and, on the due date for payment, his pension.
It follows from the decision in Barber that there are now a number of employees who have pension entitlements by reference to NRDs of both 65 and 60. These entitlements are referred to as mixed NRDs. Despite the change to the NRD in 1993, the rules of the pension scheme do not deal expressly with the payment of pension to members with mixed NRDs. The rules provide simply for the payment of what appears to be a single pension at age 65.
In these proceedings the company sought the determination of a number of questions about the operation of the scheme, but we are concerned only with the issue already summarised in [1] above. As already indicated, the court was invited to choose one of three options: the relevant question thus asked whether, if a member of the scheme with mixed NRDs wishes to take any pension between 60 and 65 years, he or she would be entitled to:
Option 1
a single pension calculated on the basis that all the benefits had fallen due for payment on the date of retirement; or
Option 2
a single pension payable in full, save that the pension payable by reference to benefits accrued with a NRD of 65 must be discounted for early payment ; or
Option 3
split pensions, meaning for this purpose (and the purposes of this judgment), separate pensions payable from each NRD respectively.
It is common ground that the company could impose a discount for early retirement in respect of retirement between 60 and 65 years on benefits accrued as from 30 April 2003, but not earlier. Option 1 has thus to be read subject to that rule change with effect from 30 April 2003 so that benefits accrued after that date may be discounted for early payment. This judgment is not concerned with those benefits.
The judge's approach
In a lucid and closely-reasoned judgment given on 28 November 2008, Patten J held in favour of option 1. Following Lewison J in Hodgson v Toray Textiles Europe Ltd [2006] EWHC 2616 (Ch), the judge held that the single pension required by the Foster Wheeler pension scheme for members with mixed NRDs could be achieved by invoking the early retirement rule and that, since European law underpinned his pension entitlement during the Barber window, the provision that the member could only take early retirement with the company's consent had to be disapplied. Accordingly, the pension entitlement accrued by reference to a NRD of 65 had to be paid in full even though the member had not achieved the age of 65. It is from this part of the judge's decision that the company now appeals.
The essential reasoning of the judge was that, consistently with the margin of appreciation which the Court of Justice gave to employers and trustees to formulate the terms of pension schemes, he was bound to follow the terms of the trust deed as closely as possible and to utilise routes which it provided for giving effect to rights accrued in the Barber window. In formulating his approach, he relied on the decision of Neuberger J (as he then was) in Bestrustees v Stuart [2001] PLR 283. He identified the early retirement route for this...
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