Roderick Donald Armitage and Staveley Industries Plc

JurisdictionEngland & Wales
JudgeLady Justice Arden,Lord Justice Keene
Judgment Date01 July 2005
Neutral Citation[2005] EWCA Civ 792
Docket NumberCase No: A3/2004/2316
CourtCourt of Appeal (Civil Division)
Date01 July 2005

[2005] EWCA Civ 792

[2004] EWHC 2320 (Ch)




The Hon. Mr. Justice Lewison

Royal Courts of Justice

Strand, London, WC2A 2LL


The Vice Chancellor

Lady Justice Arden and

Lord Justice Keene

Case No: A3/2004/2316

Roderick Donald Armitage
Staveley Industries Plc

Mr Brian Green QC and Mr Richard Hitchcock (instructed by CMS Cameron McKenna LLP) for the Appellant

Mr Charles Aldous QC and Geoffrey Topham (instructed by Eversheds) for the Respondent

The Vice-Chancellor:



Roderick Donald Armitage ("Mr Armitage") joined Staveley Industries plc ("the Company") on 1st December 1979. He was then a little over 36, having been born on 14th September 1943. In due course he became legal director and company secretary and retired on 1st May 1999. Throughout his employment with the Company he was a category A member of the Staveley Executive Pension Scheme (or the Staveley Industries Retirement Benefit Scheme which later undertook its liabilities) to which I shall refer as "SEPS".


SEPS was a defined benefit scheme based on final salary. In addition it was an exempt approved scheme under Chapter I of Part XIV Income and Corporation Taxes Act 1970. Accordingly the defined benefits payable under SEPS were necessarily restricted to those permitted by the Inland Revenue as a condition for its continued approval. The defined benefits relevant to this appeal are (1) the pension to which a member is entitled on retirement at normal retirement date, which was 60, and (2) the annual increases due in respect of pensions in payment on 1st January in each year. In relation to each of those benefits the Inland Revenue imposed limits.


The relevant benefits and limits applicable to Mr Armitage, shorn of their irrelevant details, are:

Pension Benefit: 2/3 x Final Pensionable Salary (as defined) at Normal Retirement Age (as also defined).

Pension Benefit limit: in the case of members with 'Pre 17 March 1987 Continued Rights', 2/3 Final Remuneratoin (as defined) on retirement at Normal Retirement Age after 10 yeaers' Pensionable Service (as defined).

Pension Increase: 5% per annum, compound.

Pension Increase limit: 3% per annum, compound, or, if greater, the % increase in RPI since the pension came into payment.


In July 1992 Mr Armitage received two letters each dated 16th July 1992, one from the Company the other from the Management Committee of SEPS. The letter from the Company read as follows:

"I am writing to confirm that the Board has reduced your retirement age for the purpose of your service contract to your 58th birthday.

Your pension entitlement will be calculated as though the term Normal Retirement Age used in the rules of [SEPS] is this age. If it is not possible to pay the whole of the pension out of the Scheme because of Inland Revenue limits, then the balance will be paid by Staveley Industries."


The letter from the Management Committee was in the following terms:

"I refer to the Company's letter to you of 16 July 1992 informing you that for pension purposes your Normal Retirement Age will be your 58th birthday. I am pleased to be able to tell you that the Management Committee of [SEPS] has agreed that your benefits under the Scheme should be augmented as far as is reasonably practicable to this end under clause 18 of the Scheme's governing documents, within Inland Revenue limits. The exact level of pension that the Scheme can provide will depend on your earnings and inflation in the period up to your retirement; but the likelihood is that an element of the overall pension promise will have to be met from the Company."


As will have been apparent from the dates I have mentioned in paragraph 1 above Mr Armitage retired four and a half months before his 56th birthday. He took an immediate but reduced pension appropriate to his final pensionable salary (as defined) on the footing of a normal retirement age of 58. Part of the pension so calculated was in excess of the Inland Revenue limit and has been paid by the Company. Over the years since 1999 Mr Armitage has also been paid the annual increases to which he is entitled under SEPS, that is to say 5% subject to the Inland Revenue limit of 3% or, if greater, the percentage increase in RPI. He has not been paid any increase in excess of the Inland Revenue limit.


Mr Armitage claims that the effect of the letter from the Company which I have quoted in paragraph 4 above renders the Company liable for annual increases of 5% less any amount thereof which, because it was below the Inland Revenue limit, was paid by SEPS. The Company did not agree and these proceedings were commenced by a Part 8 claim issued by Mr Armitage on 16th March 2004. The matter came before Lewison J who upheld the contentions of Mr Armitage. By his order dated 18th October 2004 he declared that Mr Armitage was entitled to be paid by the Company such increases as would be payable to him under SEPS if the relevant Inland Revenue limit did not apply less the amounts paid by SEPS. He ordered the Company to pay to Mr Armitage £26,002.00 by way of arrears and interest thereon of £3,707.14.


This is the appeal of the Company. It contends that the judge attributed to the letter of 16th July 1992 an effect beyond what is justified by the context in which it was written or the words which appear in it. In summary it submits that the context was the reduction of the normal retirement age from 60 to 58 and the Inland Revenue limits referred to are those which, in Mr Armitage's case, restrict the basic pension to 2/3 Final Remuneration and not the distinct limit on pension increases.

The Provisions of SEPS


SEPS was originally constituted by a Trust Deed dated 23rd March 1977 and the Rules contained in it. Clauses 1 to 20 of the original Trust Deed and all the original rules were superseded by the provisions of a Trust Deed and Rules thereto attached made in 1996 with effect from 1st April 1995. The arguments addressed to us have assumed that the relevant provisions of the Trust Deed and Rules in July 1992 were to the same material effect as those adopted with effect from 1st April 1995. Counsel for both parties invited us to make that assumption too. Accordingly I will assume that the context in which the letters of July 1992 were written was the same as that provided by the later Trust Deed and Rules.


On 7th September 1998 the assets of SEPS were taken over by the Staveley Industries Retirement Benefit Scheme on the undertaking of the latter to provide for the remaining members of SEPS the benefits to which they were entitled under SEPS. The issue we have to determine arises only in relation to the provisions of SEPS so that the terms of the Retirement Benefit Scheme are irrelevant.


For completeness I should also mention that when Mr Armitage became a member of SEPS he was entitled to and, in effect, brought with him a service credit of 1 year and 2 months. Whilst he was a member of SEPS he was granted bonus service credits for the years 1986, 1989 and 1991 in the aggregate amount of 11 months. In addition he was awarded an extra service credit of 2 years on his retirement in 1999. Each of these elements is relevant to the calculation of the pension due to Mr Armitage on his retirement. As there is no issue as to that calculation and as the provisions relating to service and bonus credits merely complicate and obscure the point we have to decide I shall not refer to them. It follows that any figures I may refer to are illustrative only and not descriptive of Mr Armitage's actual pension entitlement.


The only provision in the Trust Deed to which I need to refer is clause 18. That clause entitles the Management Committee, at the request or with the agreement of the Company, to direct the trustees to increase pensions and other benefits payable under SEPS provided that Inland Revenue approval would not thereby be prejudiced. It is to the exercise of that power that the letter from the Management Committee which I have quoted in paragraph 5 above refers.


The Rules are in three parts with an appendix. We are only concerned with Part I and the appendix which sets out the Inland Revenue limits. All references to rules are to rules contained in Part I. Paragraph references are to paragraphs in the Appendix.


Rule 1 contains a number of material definitions to which I shall refer in the context of the appropriate rule. Rule 4 specifies the pension benefits to which a member is entitled in the respective circumstances specified in the various sub-paragraphs. The basic provision is in Rule 4(a). This provides that

"upon retirement at Normal Retirement Age a member shall be entitled under the Scheme to the amount by which

(i) his Maximum Pension;


(ii) [pension benefits payable to him under other Group retirement benefit schemes]"

"Normal Retirement Age" is defined in Rule 1 as meaning a member's 60th birthday or such earlier date as might be approved by the Inland Revenue and notified to the member by the Employer following a change in the terms of employment of that member. "Maximum Pension" is defined in Rule 1 as two-thirds of Final Pensionable Salary and "Final Pensionable Salary" is defined as the highest rate of basic salary as at the previous 6th April with specified additions for director's fees and bonuses. It is the cumulative effect of these definitions which gives rise to the formula set out in paragraph 3 above, namely that the basic pension entitlement is 2/3 x Final Pensionable Salary at Normal Retirement Age.


Rule 4(b) provides for...

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