HR Trustees Ltd v German and another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Wilson,Lord Justice Patten |
| Judgment Date | 01 December 2010 |
| Neutral Citation | [2010] EWCA Civ 1349 |
| Docket Number | Case No: A3/2010/0045&/0608 |
| Court | Court of Appeal (Civil Division) |
| Date | 01 December 2010 |
[2010] EWCA Civ 1349
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Hon Mr Justice Arnold
Before: Lord Justice Mummery
Lord Justice Wilson
and
Lord Justice Patten
Case No: A3/2010/0045&/0608
Claim No HC08C02564
Mr Keith Rowley Qc And Ms Elizabeth Ovey (Instructed By Macfarlanes Llp) For The Appellant
Mr Richard Hitchcock And Mr Farhaz Khan (Instructed By Baker & Mckenzie Llp) For The First Respondent
Mr Nicolas Stallworthy (Instructed By Hogan Lovells International Llp) For The Second Respondent
Lord Justice Mummery:
The court gave an oral ruling on a preliminary point of law at the end of the hearing on 18 June. Written reasons were to follow. It was hoped that the ex tempore decision would assist the parties in their negotiations for a compromise, which could then be put before the court for approval.
The preliminary point is whether s91 of the Pensions Act 1995, as amended, (the 1995 Act) prevents the parties from entering into and the court from approving a compromise of the appeal. Does the proposed compromise involve an unenforceable “surrender”, or an unenforceable agreement to effect a “surrender”, of inalienable pension entitlements or rights by members of the pension scheme? The court unanimously concluded that s91 does not prevent the parties from making, or the court from approving or enforcing, a bona fide compromise of disputed or doubtful entitlements or rights under an occupational pension scheme.
The background
The appeal and the cross-appeal are from the main judgment handed down by Arnold J on 10 November 2009 ( [2009] EWHC 2785 (Ch)) and a supplementary judgment on 2 December 2009 ( [2009] EWHC 3410 (Ch)). The judge answered a number of questions on the construction of an occupational pension scheme dating from October 1977 (the Pension Plan). The present trustee of the Pension Plan brought the proceedings in order to clarify its terms, benefits, entitlements and rights. The parties informed the Court of Appeal shortly before the hearing that they wanted, if possible, to obtain this court's approval to a compromise of the appeal, which would bind the parties and those whose interests are represented in the proceedings. In the light of Arnold J's answer to one of the questions (question 6), s91 was seen as a possible obstacle to the court's approval of a global compromise.
The material parts of the section read-
“Assignment, forfeiture, bankruptcy etc
91. Inalienability of occupational pension
(1) Subject to subsection (5), where a person is entitled to a pension under an occupational pension scheme or has a right to a future pension under such a scheme-
(a) the entitlement or right cannot be assigned, commuted or surrendered,
(b) the entitlement or right cannot be charged or a lien exercised in respect of it, and
(c) no set-off can be exercised in respect of it,
and an agreement to effect any of those things is unenforceable.
[subsections (2),(3) and (4) are omitted as immaterial]
(5) In the case of a person ('the person in question') who is entitled to a pension under an occupational pension scheme, or has a right to a future pension under such a scheme, subsection (1) does not apply to any of the following, or any agreement to effect any of the following-
(a) [omitted as immaterial]
(b) a surrender, at the option of the person in question, for the purpose of-
(i) providing benefits for that person's widow, widower, surviving civil partner or dependant, or
(ii) acquiring for the person in question entitlement to further benefits under the scheme…”
Question 6 in the proceedings is whether s91 rendered unenforceable certain agreements with members of the Pensions Plan relied on by the principal employer, International Management Group (UK) Limited (IMG), as binding compromises of genuine past disputes about whether or not a person had an entitlement or right to a pension benefit. Although the agreements were not so described, they were in substance compromises involving purported surrenders of entitlements or accrued rights claimed by the members under the Pension Plan. The judge observed the absence from the 1995 Act of a statutory definition of what constitutes a “surrender”. He concluded that the relevant agreements between IMG and existing members of the Pension Plan constituted “surrenders”, or agreements to effect a “surrender”, of pension entitlements or rights that were rendered unenforceable by s91. He said that under those compromises the members had waived or agreed to waive rights to which, but for the compromise, they would have been entitled. S91 applied even in cases where there was a bona fide dispute about the existence of the entitlement or right.
IMG appeals from that ruling. It submits that s91 does not invalidate a bona fide compromise of a disputed or doubtful claim. If the compromise involves giving up, or an agreement to give up, a claim to an entitlement or right, that is not a “surrender”, or an agreement to effect a surrender, of an entitlement or right rendered inalienable by s91. The judge's reasoning, if correct, would appear to have a wide application affecting the competence of the parties to enter into, and the power of the court to approve, a proposed compromise of the whole appeal.
A global compromise of this appeal approved by the court would mean that the particular question of past compromises between IMG and the members would not have to be decided in this case. The question in this court is a different one: whether a global compromise of all the issues in the appeal is caught by s91, even if it has been approved by the court. Although the precise issue for this court is not the same as question 6 decided by the judge on past compromises, the judge's reasoning is nevertheless relevant to the determination of the preliminary point.
In order to avoid any misunderstanding or confusion the court asked the parties to agree upon the formulation of the point for decision. Their agreed formulation is in the following terms-
“Would s91 of the Pensions Act 1995 render unenforceable a court-approved compromise of all the issues in the appeal and the cross-appeal?”
At the time of the hearing before this court the parties (namely, IMG, Mr Peter German, as a representative beneficiary under the Pension Plan, and HR Trustees Limited, the present independent trustee of the Pension Plan) were stuck at the stage of “in principle” discussions on the terms of the compromise. “Core terms” had been agreed, but the parties were not in a position at the hearing to put an agreed draft or a concluded compromise before the court for approval. In those circumstances the court, having given its ruling on the agreed question, adjourned the remainder of the appeal for settlement discussions to continue.
On 23 July 2010 the solicitors for IMG (Macfarlanes) informed the court that it had not been possible for the parties to come back to the court with a joint settlement proposal for approval. In the course of the discussions it became apparent that tax issues present potential difficulties. Guidance from Her Majesty's Revenue & Customs (HMRC) was desirable. The potential difficulties are said by Macfarlanes to arise from “provisions in the Finance Act 2004, some of which have significant similarities with the language of s91 and as to the construction of which the Court's interpretation of s91 will probably be relevant.” Accordingly this court's reasons for its ruling on the construction of s91 will, the parties' advisers consider, probably be relevant to the Finance Act sections upon which HMRC's guidance is sought and be of considerable assistance to the parties and HMRC. Inquiries were made as to when this court would be able to hand down written reasons for the preliminary ruling. Unfortunately, it was not possible for me to complete this judgment in the last week of the Trinity Term.
This judgment is solely on the construction of s91. I express no view on the construction of the similar provisions of the Finance Act 2004. They are not in issue in this appeal. The court has heard no arguments on them. HMRC are not even parties to these proceedings. The effect of the sections in the Finance Act on the negotiations for a compromise must be a matter for the parties and their advisers.
Judgment of Arnold J
Question 6 was formulated for the judge as follows:
“Does any purported compromise and/or waiver of pension entitlements or rights entered into by a Member on or after 6 April 1997 constitute an unenforceable surrender of such entitlements or rights by virtue of section 91 of the Pensions Act 1995?”
The judge gave an affirmative answer to the question, describing it as a “very short point of statutory construction”. On one side, the representative member contended that the compromise agreements relied on by IMG were unenforceable as involving prohibited surrenders of, or agreements to surrender, an entitlement or right. On the other side, IMG contended that s91(1) did not render unenforceable “compromises of genuine disputes as to whether or not a person has an entitlement or right”. The judge cited passages from the report of the Pension Law Committee chaired by Professor Sir Roy Goode (Pension Law Reform—September 1993, “The Goode Report” paragraphs 4.14.3 and 4.14.4) as demonstrating that s91 was intended to make...
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