National Grid Company Plc v Mayes and Others International Power Plc (formerly National Power Plc) v Healy and Others
| Jurisdiction | UK Non-devolved |
| Judge | LORD SLYNN OF HADLEY,LORD STEYN,LORD HOFFMANN,LORD CLYDE,LORD SCOTT OF FOSCOTE |
| Judgment Date | 04 April 2001 |
| Neutral Citation | [2001] UKHL 20 |
| Date | 04 April 2001 |
| Court | House of Lords |
and others
and others
and others
[2001] UKHL 20
Lord Slynn of Hadley
Lord Steyn
Lord Hoffmann
Lord Clyde
Lord Scott of Foscote
HOUSE OF LORDS
My Lords,
For the reasons given in the speeches of my noble and learned friends Lord Hoffmann and Lord Scott of Foscote, the text of which I have had the advantage of reading, I too would allow the appeals.
My Lords,
I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Scott of Foscote. For the reasons they give, I would also allow the appeals.
The Electricity Supply Pension Scheme
My Lords,
These appeals concern the validity of arrangements which two companies in the electricity industry made in 1992 and 1995 to deal with actuarial surpluses which had arisen in a pension scheme established for the benefit of their employees. The scheme is called the Electricity Supply Pension Scheme and was established in 1983 when the industry was in public ownership. It replaced two schemes which had been established at the time of nationalisation in 1947 and, as we shall see, perpetuated certain ancestral features. After privatisation in 1990 the scheme was substantially amended to become, in effect, separate schemes for a number of "groups" corresponding to the various companies (and their subsidiaries) which had succeeded to the assets and liabilities of the former state-owned corporations. Each operated by reference to the same instrument and with unitised holdings in a single trust fund, but with its own employers and members. The amended scheme contains many provisions designed to ensure that the assets and liabilities of each group are kept separate and that so far as possible they operate independently.
The scheme is funded, contributory and fixed benefit. Benefits are defined by the rules and not related (as in the case of a money purchase scheme) to the value of the fund. On the contrary, it is ultimately the responsibility of the employer to ensure that the fund has enough money to pay the benefits. Members contribute 6% of pensionable salary to a trust fund upon which their benefits are secured. The employers, under various heads, contribute the rest. The provisions for the employers' contributions are, by modern standards, unusual, because they do not simply contribute whatever may be from time to time considered necessary to keep the scheme fully funded. Instead, they contribute various sums which are in theory fixed without reference to the state of the fund. At periodic intervals a valuation is made by the scheme actuary and arrangements are made to deal with any deficiency or surplus which may be disclosed. I say that in theory the employers' periodic contributions have no reference to the state of the fund but the scheme provides for voluntary contributions and in practice the actuary advises the employers as to the amount of voluntary contributions needed to avoid a deficiency at the next valuation. As we shall see, the actuary may also advise on measures to reduce a prospective surplus.
Dealing with a surplus
These appeals concern the provisions for periodic valuation followed by arrangements to deal with deficiency or surplus. Clause 14(1) requires a triennial valuation in a form which enables the assets and liabilities of each group to be considered separately. Valuations were made under this clause as at 31 March 1992 and 31 March 1995. In 1992 the actuary certified a surplus of £258m in respect of the group of which National Power Plc ("National Power", now called International Power Plc) was the principal employer and £62.3m in respect of the group of which National Grid Plc ("National Grid") was the principal employer. In 1995 he certified a surplus of £73.7m in the National Power group.
Clause 14(5) provides that if the actuary certifies that (on the assumptions there stated) there is a surplus in the fund, the principal employer of the group "shall make arrangements, certified by the Actuary as reasonable, to deal with the surplus". The clause requires that notice of the arrangements be given to persons performing various functions under the scheme, but the only express restriction on the arrangements which can be made is that they must be certified by the actuary as reasonable. The issue in these appeals is whether the arrangements made by National Power and National Grid were within the powers conferred upon them by the scheme.
There are only two ways of dealing with an actuarial surplus. You can pay more money out of the scheme or you can reduce the amount of money coming in. Both National Power and National Grid decided to use part of the surpluses by paying out more money in the form of increased benefits for members and their dependants. They also decided to reduce the amounts which the employers paid in. There is no dispute about the payments for the benefit of members, which absorbed about a third of the surpluses. As the employers paid a standard contribution of twice that of the members (besides various additional payments) the result was that the part of the surpluses used to improve benefits was roughly in proportion to what the members had paid in. But some of the National Grid members objected to it using any part of the 1992 surplus to reduce the employers' payments into the fund.
The Ombudsman's decision
The members complained to Dr Julian Farrand, the Pensions Ombudsman. He upheld the complaints on two grounds. First, he said that in exercising any powers under the scheme, the employers had an implied obligation to act in good faith. This obligation exists by virtue of the relationship of employer and employee and requires that the employer should not exercise his powers for a collateral purpose or in a way which would destroy or seriously damage the relationship of trust and confidence with his employees: see Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589. The Ombudsman considered that National Grid had been in breach of this obligation by using a substantial part of the surplus in its own interest.
Secondly, the Ombudsman noted that the way National Grid proposed to reduce its contributions was by treating certain accrued liabilities to the fund as discharged. I shall have to describe the nature of these liabilities in more detail later, but for the moment it is enough to say that they were not merely contributions which might become payable at some future date, depending (for example) on whether the employer was still in business, how many people were employed and what they were earning. They were actual debts payable to the fund, incurred to fund extra benefits for specific employees who had been made redundant. The Ombudsman then drew attention to the clause dealing with amendment of the scheme. By clauses 41(1) and (4), the employer had a wide power of amendment. But clause 41(2)(b) prohibited an amendment "making any of the moneys of the Scheme payable to any of the Employers". The Ombudsman said that the release of an accrued debt from the employer to the scheme amounted to paying him an equivalent in money. If such an amendment was prohibited, the draftsman must have assumed that no power to make such payments existed within the scheme. Clause 14(5) could not therefore be construed as conferring such a power.
The High Court decision
National Grid appealed against the Ombudsman's decision to the High Court. National Power, which had made similar arrangements in respect of the 1992 and 1995 surpluses, took the opportunity to issue a summons seeking a declaration that its own arrangements were valid. Both proceedings came before Robert Walker J.
The judge held that the Ombudsman had interpreted the implied duty of good faith too strictly. The employer was not a trustee. He was entitled to act in his own interests provided that he had regard to the reasonable expectations of the members. The arrangements satisfied that requirement. On this point the members now accept that the judge was right.
The Ombudsman's other ground remains central to the dispute. Robert Walker J. said that the employer's duty under clause 14(5) to make arrangements to deal with the surplus conferred a power in the broadest terms to do whatever he thought appropriate. It was not restricted by other provisions of the scheme, such as the limits on the power of amendment. It could include the repayment of money to himself. The judge therefore did not need to decide whether the discharge of an accrued liability amounted to a payment to the employer. On either view, the arrangements were valid.
The Court of Appeal decision
The members appealed to the Court of Appeal (Nourse, Schiemann and Brooke LJ). They differed from both the Ombudsman and the judge. They said that clause 14(5) conferred no power upon the employer to discharge his debts to the fund. The only way in which this could be done was by an amendment of the scheme. As there had been no amendment, the arrangements were invalid and the appeal was allowed. But, contrary to the views of the Ombudsman and the judge, the Court of Appeal were not inclined to think that the discharge of a debt was a payment to the employer within the meaning of clause 41(2)(b). It followed that the employers would be able to give effect to their arrangements by an amendment, which under clause 41 could be retrospective.
The deeds of amendment
The employers acted upon this suggestion and executed suitable deeds of amendment. Your Lordships have given leave, by consent of all the parties, for the question of...
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