Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 14 May 2012 |
| Neutral Citation | [2012] EWHC 1257 (Ch) |
| Court | Chancery Division |
| Date | 14 May 2012 |
| Docket Number | Case No: HC09C04768 |
[2012] EWHC 1257 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
The Honourable Mr. Justice Hildyard
Case No: HC09C04768
Mr Christopher Nugee QC (instructed by Jones Day) and Mr Stephen Brown (of Jones Day) for the Claimant
Mr James Clifford and Mr Joseph Barrett (instructed by Reynolds Porter Chamberlain LLP) for the Defendants
Hearing dates: 17,18,19,20 October 2011
Introduction
This Judgment relates to one of two actions relating to the sale in 2007 by The Procter & Gamble Company ("P&G"), an Ohio corporation, to Svenska Cellulosa Aktiebolaget ("SCA"), a Swedish corporation, of its European tissue towel business (facial tissues, toilet paper and kitchen towel, known collectively within P&G as "Family Care"). These actions were ordered to be tried consecutively by the same Trial Judge. The two actions have a common background and relate to the same contracts; but they raise distinct and very different questions. I have previously given judgment in the first of these actions, which concerned whether the parties had agreed and provided for a fixed exchange rate for converting into Sterling fixed prices stated in Euros.
This second action concerns the interpretation and operation of certain contractual and statutory provisions relating to pensions benefits, and in particular, contractual provisions for adjustments to the purchase price according to whether or not certain accrued pension liabilities transferred to SCA by operation of the Transfer of Undertakings (Protection of Employment) Regulations 2006 SI 2006/246 ("TUPE").
The contractual provision in issue is Schedule 7.09 of the Asset Sale and Purchase Agreement dated 12 th March 2007 ("the ASPA") whereby P&G sold its European tissue towel business to SCA. That Schedule (and section 7.09 of the ASPA to which it relates) applies to pension liabilities in each of P&G's five European operations. However, the present dispute only relates to the pensions of the employees at P&G's Manchester manufacturing site who transferred to SCA under or pursuant to TUPE.
TUPE applies to a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom "where there is a transfer of an economic entity which retains its identity" and gives effect in the United Kingdom to Council Directive 2001/23/EC ("the 2001 Directive").
P&G operated a pension scheme for its employees called The Procter & Gamble Pension Fund ("the P&G Fund"). This has a defined benefit ("DB") section and a defined contribution ("DC") section. The DB section (with which this case is exclusively concerned, the DC section raising no issue) makes provision for Early Retirement Benefits ("ERBs"). 129 of the Manchester transferring employees were members of the DB section of the P&G Fund.
Although Regulation 10(1) of TUPE appears to provide that so much of a contract of employment as relates to an occupational pension scheme does not transfer under Regulation 4 of TUPE, Regulation 10(2) stipulates that provisions of such a scheme which are not "benefits for old age, invalidity or survivors" are within Article 4 and do transfer under TUPE. Thus, only provisions in such a scheme which do relate to "benefits for old age or invalidity or survivors" (for brevity, "old age benefits") do not transfer.
It is common ground that SCA did not want to take on any UK pension liability; but the parties were aware that, as a result of two decisions of what was then called the European Court of Justice ("the ECJ"), but which has since been re-named The Court of Justice for the European Union ("the CJEU"), liability for ERBs might transfer under TUPE, regardless of the parties' intentions. (The two cases are Beckmann v Dynamco Ltd [2003] ICR 50 (" Beckmann") and Martin and Others v South Bank University [2004] 1 CMLR 472 (" Martin")).
Accordingly, section 7.09 of the ASPA recognised that SCA would be liable for any pension obligations which passed by operation of law under TUPE; and Schedule 7.09 of the ASPA provides for an actuarial valuation of any liabilities in respect of the P&G Fund "for and in respect of each Transferring Employee in respect of accrued pensionable service" which transfer to SCA, and for P&G in effect to pay SCA for such liability (by way of adjustment to the purchase price).
Summary of dispute
The dispute between the parties is (a) whether the provision for ERBs in the P&G Fund constitutes an obligation of such a nature that it transfers to SCA under or pursuant to TUPE, and if so (b) whether the obligation so transferred constitutes a liability for the purposes of Schedule 7.09 of the ASPA to be taken into account in calculating the adjustment to the purchase price.
The questions thus raised are of substantial financial significance to the parties; and they raise issues which have proved controversial and are of importance beyond the immediate case. Both Counsel, part perhaps by way of encouragement and part perhaps by way of warning, were agreed, and indicated to me, that it is a significant case for the pension industry generally. The terms of the P&G Fund are not unusual, and the same issues would be likely to arise in the context of any sale of a business in which there is or was a DB scheme in operation.
Especially given that TUPE in its present form is simply the latest incarnation of legislation reflecting European Directives going back to the Acquired Rights Directive of 1977 (Council Directive 77/187/EEC) it may seem odd that such issues raised have not been adjudicated previously. Counsel for P&G sought to explain this on the basis that the uncertainties as to the interpretation and application of TUPE in this sort of context are usually dealt with by way of an appropriate indemnity (apparently often called a " Beckmannindemnity", so named after one of the two European cases to which I have alluded above).
I further understand that P&G have made an open offer of such an indemnity to SCA; but SCA has not accepted it, and no such indemnity has been agreed in this case. I mention this only by way of explanation: I mean no criticism of either side. P&G can only ask; in response SCA are entitled to rely on the bargain they struck, which they contend provided for a sum calculated at a moment in time which might or might not prove sufficient to meet the transferred liabilities as they perceive them to be, but which drew the line once and for all. I should, however, record that Counsel for SCA did not accept that a " Beckmannindemnity" would be the usual solution, though I note that he did not provide any other explanation why the issues raised by this case have never yet been decided. At all events, the uncertainty now falls to be resolved: if I can be confident of the answer, by this Court, but if necessary, upon reference to the CJEU.
The P&G Fund
It is first necessary to give a little more detail about the pension arrangements provided for by the P&G Fund that have given rise to this dispute.
The DB section of the P&G Fund is a non-contributory pension scheme of the final salary type which provides defined benefits. Its membership closed to new entrants on 1 July 2003. All its present members of whatever category thus have at least 2 years' Qualifying Service (as to which see below).
There are, in the usual way, 3 categories or classes of members: (1) "active" members, who are current members of the scheme in Pensionable Service and are currently accruing benefits; (2) "deferred" members, who have left Pensionable Service without an immediate pension but who retain a right to a deferred pension payable later; and (3) "pensioner" members, who are entitled to a current pension (either because they left Pensionable Service on immediate pension, or because they left with a deferred pension which has subsequently come into payment). (Benefits may also be payable to widow(er)s and dependants on death of a member; but they are not members of the P&G Fund and it is unnecessary in this context to consider them further.)
The structure of the Rules of the P&G Fund follows what I understand is a typical pattern, which is to set out separately (a) the benefits of those who retire from active service on immediate pension (whether at or before or after Normal Retirement Age ("NRA")); and (b) the benefits payable to those who leave active service without an immediate pension but with a right to a deferred pension.
In this scheme, NRA is 65, and Normal Retirement Date ("NRD") is the last day of the month or week in which an employee attains that age. On retirement (that is, leaving active service on immediate pension) at NRD a member is entitled to a normal retirement pension calculated in accordance with a prescribed formula ("the Standard Formula").
The Standard Formula for the calculation of benefits is set out in the First Schedule to the P&G Fund Rules. It is complex. A simplified version, which suffices for present purposes, is given in the Explanatory Guide to the P&G Fund, which is provided to all members. As there set out, the target is an overall pension from the state and scheme equal to 2% of final Pensionable Pay for each year of Pensionable Service (or "n/50").
The P&G Fund is what is sometimes called an "integrated scheme", in that the scheme pension has a "state pension offset", so that the combined amount of both scheme benefits and benefits from the State should reach the target. There is a complication in consequence of the fact that there are two state pensions: the Basic State Pension,...
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