Prudential Staff Pensions Ltd v the Prudential Assurance Company Ltd and Others

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Newey
Judgment Date14 April 2011
Neutral Citation[2011] EWHC 960 (Ch)
Docket NumberCase No: HC09C02813

[2011] EWHC 960 (Ch)




Royal Courts of Justice

Strand, London, WC2A 2LL


Mr Justice Newey

Case No: HC09C02813

Prudential Staff Pensions Limited
(1) the Prudential Assurance Company Limited
(2) William Anthony Charles Arthur Copp
(3) Hugh Norman
(4) Malcolm Lloyd
(5) Terence Robert Cladingboel

Mr Andrew Simmonds QC and Mr Joseph Goldsmith (instructed by Mayer Brown International LLP) for the Claimant

Mr Michael Tennet QC and Mr Rupert Reed (instructed by Allen & Overy LLP) for the First Defendant

Mr Keith Rowley QC and Miss Elizabeth Ovey (instructed by Sacker & Partners LLP) for the Second to Fifth Defendants

Hearing dates: 17–21, 24–28 and 31 January and 1–3 and 9–11 February 2011

Further written submissions: 21 and 25 March 2011

Mr Justice Newey



The Prudential Staff Pension Scheme ("the Scheme") provides retirement and other benefits for employees and former employees of the First Defendant, the Prudential Assurance Company Limited ("PAC"), and other companies in the Prudential group. For convenience, I shall refer to the employer companies simply as "Prudential".


The present proceedings have their origins in a decision which Prudential took in November 2005 as to the policy which it would in future adopt in relation to increases to pensions in payment to members of the "DB Section" of the Scheme (as to which, see paragraph 11 below). There is an issue between the parties as to precisely what the policy was, but, in general terms, it was to the effect that increases would in future be "in line with RPI subject to a normal maximum of 2.5%pa" (to quote from board minutes). In the years which have followed, pension increases have failed to keep up with the retail prices index ("RPI"). Prudential had previously awarded pension increases on a more generous basis.


What is before me is an application for directions brought by the trustee of the Scheme, Prudential Staff Pensions Limited ("the Trustee"). I am asked, specifically, to determine questions set out in an agreed list of issues ("the List of Issues").


The Second to Fifth Defendants are intended to represent various categories of Scheme member. The Second Defendant, Mr William Copp ("Mr Copp"), is intended to represent members of the DB Section of the Scheme generally; the Third Defendant, Mr Hugh Norman ("Mr Norman"), members of the DB Section who have made additional voluntary contributions (or "AVCs") to the Scheme; the Fourth Defendant, Mr Malcolm Lloyd ("Mr Lloyd"), members of the DB Section who have transferred other pension rights to the Scheme; and the Fifth Defendant, Mr Terence Cladingboel ("Mr Cladingboel"), members of the DB Section whose pensions have been augmented as a result of decisions by Prudential that they should receive additional benefits as part of severance packages (or otherwise). I shall refer to the Second to Fifth Defendants collectively as "the Beneficiaries" and to the classes of member represented by the Third, Fourth and Fifth Defendants as respectively "the Category I Members", "the Category II Members" and "the Category III Members".


The issues raised by the proceedings can be summarised as follows:

i) whether the decision which Prudential took in November 2005 as to its policy in relation to pension increases ("the 2005 Decision") and/or subsequent decisions on pension increases breached what Browne-Wilkinson V-C in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589 called "the implied obligation of good faith" as regards members of the DB Section generally or Category I, II and III Members respectively ("the Good Faith Issues");

ii) whether Prudential is estopped from denying that members of the DB Section generally (or at least Category I, II and III Members) are entitled to have pensions in payment increased on the basis of what the Beneficiaries have termed "RPI with the proviso" (in other words, in line with RPI except in times of high inflation, when lower rates of increase might be awarded but on the basis that there would later be a "catch-up" exercise) ("the Estoppel Issues");

iii) whether Category I, II and III Members respectively are contractually entitled as against the Trustee to annual or other periodic increases to pensions in payment ("the Contract Issues");

iv) whether, as regards Category I and II Members, the Trustee has power to grant pensions which carry an automatic right to annual or other periodic increases ("the Construction Issues");

v) whether decisions to grant pensions to Category I and II Members which did not carry an automatic right to annual or other periodic increases were valid and, if not, with what consequences ("the Hastings-Bass Issues").


The Good Faith Issues are addressed in paragraphs 118–196 below, the Estoppel Issues in paragraphs 197–219 below, the Contract Issues in paragraph 220 below, the Construction Issues in paragraphs 221–227 below and the Hastings-Bass Issues in paragraphs 228–239 below.



The Trustee called Mr Michael Abrahams ("Mr Abrahams"), who has been the chairman of the Trustee's board since 1991; Mr Graham Clay, who was a director of the Trustee between 1989 and 2000; Mr Bernard Dawkins ("Mr Dawkins"), who was the Staff Pensions Manager from 1986 to 1999; Mr David Linnell ("Mr Linnell"), who was a director of the Trustee from 1984 to 1997; Mr Andrew Parncutt ("Mr Parncutt"), who was the Staff Pensions Manager from 1999 to 2010; Mr Graham Robilliard ("Mr Robilliard"), who was the Actuary to the Scheme between 1995 and 1998; and Mr Colin Singer ("Mr Singer"), who has been the Scheme Actuary since 2006 and had previously assisted a colleague at Watson Wyatt with matters relating to the Scheme. Prudential's factual witnesses comprised Mr John Betteridge ("Mr Betteridge"), the Director of Investments for Prudential's Portfolio Management Group; Mr Alan Cook ("Mr Cook"), who was a director of the Trustee between 1997 and 2000; Mr Andrew Jones ("Mr Jones"), who was formerly a Director of Group Reward and Employee Relations for Prudential; and Mr Geoffrey Keeys, who was a director of the Trustee from 1988 to 1995. The Beneficiaries (Mr Copp, Mr Norman, Mr Lloyd and Mr Cladingboel) gave evidence themselves and also called Mr Robert Bridges ("Mr Bridges"), who was a director of the Trustee from the mid-1980s until 1994; Mr John Gould ("Mr Gould"), who prior to retirement was a senior client relationship manager with Prudential (and a director of the Trustee from 1990 to 2002); Mr Malcolm Hall ("Mr Hall"), who was formerly a senior administration manager with Prudential; and Mr David Metcalfe ("Mr Metcalfe"), another retired senior client relationship manager.


All the witnesses seemed to me to be truthful. That is not, of course, to say that their evidence was invariably correct. Understandably, given the lapse of time, witnesses' recollection of events was not always perfect. There were also, unsurprisingly, some differences in the witnesses' interpretations of events.


Mr Peter Fudge ("Mr Fudge"), who was the Scheme Actuary from 1985 to 1994, provided a witness statement. He was not, unfortunately, well enough to give oral evidence. Mr Ronald Dougall, who until his retirement was a customer service manager with Prudential, provided a witness statement too.


I also had the benefit of expert actuarial evidence from Mr Gordon Pollock ("Mr Pollock"), who was called by Prudential, and Mr Ronnie Bowie ("Mr Bowie"), who was called by the Beneficiaries. I found the evidence of both helpful.

The Scheme


The Scheme was established in 1918. In its present form, it has two parts. One of them, the "DB Section", provides final-salary benefits, the other, the "DC Section", money-purchase (or defined-contribution) benefits. The present proceedings relate exclusively to the DB Section, members of which are referred to as "DB Members".


The DB Section closed to new members in July 2003 and the number of active members has fallen substantially since then. At 5 April 2003, the DB Section had 5,260 active members. By 5 April 2010, the effective date of the Scheme's most recent annual report, there were only 1,152 active members left. There were much larger numbers of deferred members (20,929) and pensions in payment to members or dependants (18,554).


The Scheme is very large. As at 5 April 2010, the DB Section alone had net assets in excess of £5 billion.

The Rules

The current Rules


The current version of the rules governing the DB Section ("the Rules") was introduced with effect from 1 July 2005 by a deed of variation dated 23 June 2005.


The Rules provide for members to receive a range of benefits. A member retiring on or after "Normal Pensionable Date" is entitled under rule 3.1(1) to an immediate pension, the annual amount of which is pursuant to rule 3.1(3) to be ascertained in accordance with a schedule. In respect, for example, of members entering eligible service from 1 April 1980 who were not "Services Staff Members", the first schedule gives the scale of retirement pensions as:

"In respect of each completed month (subject to a maximum of 480 months) of Pensionable Service pension shall accrue at the rate of 1/720th part of the DB Member's Final Pensionable Earnings."


Pension increases are addressed in rule 7.1. Rule 7.1.1 states:

"(1) The Employers shall make regular reviews of each pension and annuity currently in payment.

(2) That part of a pension or annuity currently in payment which is attributable to Pensionable Service on or after 6 th April 1997 will be increased each year by the amount required under Sections 51, 52, 53, 54 and 55 of the Pensions Act. No additional increases shall apply unless the Employers...

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