Grenville Holden Hampshire v The Board of the Pension Protection Fund Secretary of State for Work and Pensions (Interested Party)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten |
| Judgment Date | 28 July 2016 |
| Neutral Citation | [2016] EWCA Civ 786 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 July 2016 |
| Docket Number | Case No: A3/2015/0237 |
[2016] EWCA Civ 786
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
Chancery Division, Birmingham District Registry
HH Judge Cooke
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
Lady Justice Gloster
and
Mr Justice Baker
Case No: A3/2015/0237
and
Gerry Facenna QC and James Bourke (instructed by Walkers Solicitors) for the Appellant
Nigel Giffin QC (instructed by Stephenson Harwood) for the Respondent
Jason Coppel QC (instructed by the Government Legal Department) for the Interested Party
Hearing dates: 22 and 23 June 2016
Judgment Approved
This is the judgment of the Court.
This is an appeal by Mr Grenville Hampshire against an order of HH Judge Cooke (sitting as a judge of the Chancery Division) dated 23 December 2014. The order was made on the hearing of various preliminary issues which Morgan J had directed on 23 June 2014 in the context of an appeal by Mr Hampshire under s.217 of the Pensions Act 2004 ("the 2004 Act").
The appeal relates to the decision of the Board of the Pension Protection Fund ("the Board") to approve a valuation of the assets and protected liabilities of the T & N Retirement Benefits Scheme (1989) ("the Scheme") pursuant to s.144 of the 2004 Act. The valuation was obtained by the Board in order to determine whether it was obliged to assume responsibility for the Scheme following what is described in s.127 of the 2004 Act as a qualifying insolvency event: in this case the insolvency in 2006 of Turner & Newall Limited ("T&N") and a number of other Scheme employers.
In the event of a qualifying insolvency event the Board is required to assume responsibility for the Scheme if, amongst other conditions, the value of the assets of the Scheme at the relevant time was less than the amount of the protected liabilities at that time: see s.127(2)(a). The relevant time means the time immediately before the qualifying insolvency event occurred: s.127(4)(b). Protected liabilities are principally the cost of securing benefits for members of the Scheme which correspond in amount to the compensation that would be payable in accordance with the provisions of s.162 of the 2004 Act were the Board to be required to assume responsibility for those payments under the industry-funded Pension Protection Fund ("PPF"): see s.131. If the Scheme assets (at the date of the insolvency) are sufficient to meet the cost of the protected liabilities then the Scheme will be wound up by the trustees in accordance with s.154 of the 2004 Act. The protected liabilities will continue to be met out of the Scheme's own funds and the trustees of the Scheme will ordinarily use the assets to purchase annuities to ensure the payment of pensions in that amount. If, on the other hand, there is a deficit in the value of the Scheme assets then the property and liabilities of the Scheme are transferred by s.161(2) to the Board; the trustees of the Scheme are discharged from further liability; and the Scheme is treated as wound up with immediate effect after that time. Compensation is then payable by the PPF to the members of the Scheme in accordance with Schedule 7 of the 2004 Act.
The determination of whether following a qualifying insolvency event the Scheme continues to be administered by its own trustees using the assets of the Scheme or compensation becomes payable by the PPF depends on the actuarial valuation of the scheme assets and protected liabilities which is carried out in accordance with s.143. Once such a valuation is obtained and approved by the Board it becomes binding, subject to review, and is conclusive for the purpose of determining whether the s.127(2)(a) condition for the transfer of liability to the PPF is satisfied.
Mr Hampshire worked for T&N from 1971 to 1998 and was ultimately the Group Managing Director of its operations in Zambia and Zimbabwe. He was a member of the Scheme throughout his period of employment. In 1998 he became redundant following the takeover of T&N by the Federal-Mogul Corporation of America and took early retirement. He was then 51. He was notified by the trustees of the Scheme that his pension would be £48,781.80 per annum before tax subject to increase at a minimum rate of 3% per annum.
Federal-Mogul filed for Chapter 11 protection in the United States in 2001 and the T&N Scheme entered PPF assessment on 10 July 2006, the relevant insolvency event being a proposal for a company voluntary arrangement in respect of a number of T&N group companies. At that time the Scheme had 34,285 members and assets of £1,188.4m. The normal pension age for employees under the Scheme in the case of Mr Hampshire was 62. At the time of the relevant insolvency event he was 58. Schedule 7 of the 2004 Act provides for compensation to be paid to members of a qualifying scheme amounting to either 90% or 100% of the pension payable under the scheme rules depending on whether the pensioner has attained normal pension age before the PPF assessment date; in this case in July 2006: see Schedule 7, paragraph 3. But pensioners who have not attained normal pension age by that date are also subject to the compensation cap imposed by paragraph 26. This limits the pension payable at age 65 to the cap fraction set out in paragraph 26(5) in cases where the compensation payable exceeds the amount of the compensation cap which is set annually by statutory instrument. From 1 April 2006 the cap at age 65 was £28,944.45: see the Pension Protection Fund (Pension Compensation Cap) Order 2006: 2006 SI No. 347. The Board is required to adjust the compensation cap by actuarial factors for those under the age of 65.
According to his evidence, for Mr Hampshire this meant that his 2006 pension (after adjustment for a lump sum) was reduced to £19,819 per annum, a reduction of about 67% in the pension he was contractually entitled to receive. The 2004 Act also limits the indexation of PPF compensation payments to pension entitlement attributable to post-1997 pensionable service so that Mr Hampshire has also lost most of his rights to have increases in respect of the pension payable. Accordingly, his pension has remained at about £20,000 per annum. But for the insolvency of T&N and the operation of Schedule 7 of the 2004 Act, he calculates that his pension entitlement would be approximately £76,302 per annum. Had Mr Hampshire reached normal pension age before the date of assessment in 2006 he would have been entitled to 100% of his starting pension entitlement without reduction by the compensation cap (although the position on pension increases would have been unaffected).
Mr Hampshire has challenged the level of pension payments he is entitled to under the 2004 Act in a number of ways. He and a group of other affected T&N pensioners have lobbied the government to make changes to the legislation in respect of long-service workers who, like him, have suffered significant reductions in their pensions due to the imposition of the cap. It is accepted that the cap applies only to a statistically small number of pensioners (about 0.1–0.2% of the total membership of the PPF) but that in the case of some of those affected it has the potential to cause hardship because they receive a level of compensation significantly lower than the pensions they were entitled to receive from their schemes. Ministers have also accepted that the cap was primarily intended to apply to highly remunerated executives who were members of a scheme for only short periods of time before the qualifying insolvency event and not to long-serving executives who may have worked all their life for the one company and who may have no alternative financial or pension arrangements from which to supplement their income. In their case the moral hazard justification for the cap is much less evident. There have been promises to bring forward legislation to raise the compensation cap. Provisions (not yet in force) were included in the Pensions Act 2014 which adjust the cap for employees with more than 20 years' pensionable service but these provisions do not allow for the backdating of increased payments.
Mr Hampshire has therefore made a legal challenge to the level of compensation he is entitled to under the 2004 Act by relying on Article 8 of Directive 80/987/EEC ("the Directive") which deals with the protection of employees in the event of the insolvency of their employer. The Directive has now been superseded by Directive 2008/94/EC which, so far as material, is in all but identical terms but I shall concentrate on the Directive which was in force at the date of the qualifying insolvency.
The Directive in its terms operates at a relatively high level of generality. The background circumstances identified in its first recital are that:
"it is necessary to provide for the protection of employees in the event of the insolvency of their employer, in particular in order to guarantee payment of their outstanding claims, while taking account of the need for balanced economic and social development in the Community;"
Article 1 which deals with the scope of the Directive states that it shall apply:
"to employees' claims arising from contracts of employment or employment relationships and existing against employers who are in a state of insolvency within the meaning of Article 2(1)."
Article 3 deals in terms with claims for outstanding pay and Article 4 entitles member states to limit the liability of the guarantee...
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Court Of Appeal Refers The PPF Compensation Cap To The European Court
...Court of Appeal delivered judgment on 28 July 2016 in the case of Hampshire v The Board of the Pension Protection Fund [2016] EWCA Civ 786. The case concerned Article 8 of the EU Insolvency Directive, which requires Member States to ensure that "necessary measures" are taken to protect the ......