Hearn v Younger
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE ETHERTON,Mr Justice |
| Judgment Date | 15 May 2002 |
| Neutral Citation | [2002] EWHC 963 (Ch) |
| Court | Chancery Division |
| Docket Number | HC 00–2718 |
| Date | 15 May 2002 |
[2002] EWHC 963 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Etherton
HC 00–2718
Mr C Tidmarsh QC (instructed by Herbert Smith) for the Claimants
Mr R Hitchcock (instructed by Thompsons) for the First Defendant
Mr Burroughs (instructed by Denton Wilde Sapte) for the Second Defendant
Mr K Rowley QC (instructed by Denton Wilde Sapte) for the Third, Fourth and Fifth Defendants
Hearing dates: 16 April 2002 to 26 April 2002
JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
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.
Mr Justice : Etherton
INTRODUCTION
These proceedings concern an occupational pension scheme known as the Crosfield Pension Fund ("the Scheme").
The Scheme was established on 28 September 1960 by the Third Defendant, Crosfield Electronics Limited ("the Company"). It is a final salary scheme. Save as to some immaterial recent amendments, it is presently governed by the provisions of a deed of amendment dated 17 January 1990, the First Schedule to which contains the provisions of the governing trust deed as amended ("the Trust Deed"), and the Second Schedule to which contains the governing rules as amended ("the Rules").
The Scheme is currently being wound up. In these proceedings the Claimant trustees ("the Trustees", which expression I shall use to refer to the trustees from time to time) seek directions as to what steps they should take, in the winding up of the Scheme, in relation to certain claims or potential claims by members of the Scheme ("the Claims").
The Claims arise out of a situation in which the guaranteed minimum pension ("the GMP") of certain members of the Scheme has exceeded or may exceed in the future the member's State Earnings Related Pension ("SERP") at state pension age ("SPA"). The Claims are to the effect that, in such a case, the Scheme is bound to ensure that the GMP is increased annually after SPA by the lesser of the Retail Prices Index and 5% ("5% LPI").
THE STATUTORY BACKGROUND TO THE CLAIMS
The state earnings related pension scheme ("the SERPS") is a state scheme that pays at SPA an earning-related supplementary pension, assured by further contributions, on top of the basic pension assured by the payment of Class 1 National Insurance contributions. SPA is 60 for women and 65 for men.
Part III of the Social Security Pensions Act 1975 created a statutory scheme for employees to be exempted from the additional contributions and benefits associated with the SERPS where corresponding benefits were available under an occupational pension scheme provided by the employer. A qualifying occupational scheme that chose to take advantage of these provisions was referred to as a "contracted out" scheme. The provisions were later replaced by those in Part III of the Pension Schemes Act 1993 ("PSA 1993"). The essence of a "contracted out" scheme is that it is certified under that Act as meeting certain statutory requirements, one of which is that the employee should be entitled at SPA to receive a weekly pension not less than the GMP. Sections 8 and 13–24 of PSA 1993 contain provisions for calculating a GMP. The GMP so calculated is substantially equivalent to the earnings-related pension which would have been payable to the employee under the SERPS. At SPA the amount of the GMP is deducted from the SERP, to which the individual would otherwise be entitled, and the State pays the resulting figure from time to time. That resulting figure is called "the Additional Pension": PSA 1993 s.46(1). That calculation is carried out each year after SPA.
An individual's Additional Pension may change from time to time, since the GMP may increase at a different rate from the individual's SERP. After SPA, the individual's SERP is increased in line with the Retail Prices Index ("RPI"): Social Security Administration Act 1992 s.150. The GMP, on the other hand, is increased each year after SPA by the pension scheme by the lesser of 3% or RPI (£3% LPI") on the individual's service after 6 April 1988: PSA 1993 s.109.
Although an individual's GMP and SERP are calculated in a broadly similar way, they are rarely identical. There are three principal reasons for this. Firstly, for individuals reaching SPA before 6 April 2009, the accrual rate for their SERP is higher than that for their GMP. In the second place, the SERP of an individual who leaves service before SPA is increased in line with National Average Earnings ("NAE") until SPA is reached. The GMP, on the other hand, may be increased until SPA at a different rate or rates: see PSA 1993 s.16. One of the permitted rates is a fixed rate prescribed by statutory instrument and set for each individual at the date of leaving service. In the case of the Scheme, this fixed rate revaluation ("FRR") was chosen for members leaving after 1 August 1990. Since 1991 those fixed rates have exceeded the rate of increase in NAE. In the third place, the relationship between an individual's GMP and SERP may be affected by his or her employment record. A member may, for example, have been employed by different employers and been a member of different schemes that might be contracted in or out, and the member may have had breaks in employment.
As I have explained, at SPA a member will receive an Additional Pension if the member's GMP is less than the SERP. If, however, the member's GMP is the same as or greater than the SERP, the member will not receive an Additional Pension until (if ever) the differential in increases after SPA results in the SERP exceeding the GMP. The consequence is that, until the member begins to receive an Additional Pension, the member's GMP will only be increased annually by 3% LPI in respect of service after 6 April 1988. If the member has service prior to that date, or if RPI exceeds 3%, the GMP, in contrast to what would have been the position if the member had only had a SERP, will not keep pace with RPI.
The Claims, which have been notified to the Trustees by certain members of the Scheme, are to the effect that the Scheme has been required since May 1993 to guarantee annual 5% LPI increases in the whole of members' pensions following retirement, including the GMP element, but taking into account increases by the State to the GMP element. The Claims rest on two principal bases. First, it is said that the Scheme's Rules were amended in May 1993 so as to guarantee members an annual increase in the whole of their pension, following retirement, including the GMP element, at 5% LPI. Second, it has been claimed that, whether or not the Rules were so amended, written statements have been made to members that the Rules were so amended and that their pensions, including the GMP element, would be so increased.
THE FACTUAL BACKGROUND IN MORE DETAIL
The First Defendant ("Mr Younger") was born on 23 April 1935. He began working for the Company on 26 April 1976.
The Scheme became contracted-out in 1978.
From about April 1989 the Company enjoyed a holiday from paying contributions to the Scheme.
At that time the Company carried on business as a manufacturer of electronic equipment for the printing and allied trades. Prior to 5 October 1989 the Company was a subsidiary of The De La Rue Company plc ("De La Rue"). On that date the Company was acquired by the Fourth Defendant, Fuji Photo Film Company Ltd ("Fuji"), and the Fifth Defendant, E.I. Du Pont De Nemours and Company ("Du Pont"). The Company was acquired by them through the vehicle of a joint venture company, Dr Pont Fuji Electronic Imaging Ltd ("DFEI"). The whole of the Company's issued share capital has, since October 1989, been held by DFEI. Du Pont and Fuji each appointed one director of Company's board of directors.
Until 1990 GMPs in the Scheme were revalued in line with NAE up to a maximum of 5%. In 1990 the Trustees adopted FRR. At that date FRR was 7.5%, which was below NAE, which was 10.10%. In subsequent years, however, FRR exceeded NAE.
The new provisions of the Trust Deed and new Rules were introduced to the Scheme by the deed of amendment of 17 January 1990, to which I have already referred. This introduced, for the first time, provision for guaranteed minimum increases on pensions. Rule 23 provided, so far as material, as follows:
"23.1 Each pension as hereinafter specified shall be increased at yearly intervals in accordance with the following provisions:
(A) In the case of a pension payable to a Member under Rule 9 or Rule 18, the amount of such pension shall be increased on each Pension Increase Date while it is in payment by the lesser of 3% and the percentage increase in the Index over the preceding twelve months.
…
The amount of pension to which this sub-Rule applies shall exclude the Guaranteed Minimum Pension …
23.2 Pensions in payment under the Scheme shall be reviewed by the Principal Employer and the Trustees at regular intervals and … shall be increased by such amounts (if any), in addition to the increases provided under the foregoing provisions of this Rule, as the Principal Employer and the Trustees shall at their discretion determine having regard to the availability of funds. In pursuance of this sub-Rule 23.2 the Principal Employer and the Trustees shall use their best endeavours … to ensure that pensions in payment are increased at an annual rate at least equal to the lesser of 5% and the percentage increase in the Index over the relevant twelve months.
23.3 The Trustees may, at the request or with the consent of the Employer and subject to...
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