Secretary of State for Culture, Media and Sport v BT Pension Scheme Trustees Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lady Justice Gloster,Sir Stanley Burnton |
| Judgment Date | 16 July 2014 |
| Neutral Citation | [2014] EWCA Civ 958 |
| Docket Number | Case Nos: A3/2013/1148; A3/2013/1613; A3/2013/1621 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 July 2014 |
[2014] EWCA Civ 958
Lord Justice Rimer
Lady Justice Gloster
and
Sir Stanley Burnton
Case Nos: A3/2013/1148; A3/2013/1613; A3/2013/1621
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Mann
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr James Eadie QC and Mr Jonathan EvansQC (instructed by the Treasury Solicitor) for the Appellant
Mr Alan Steinfeld QC and Mr Jonathan Hilliard (instructed by Hogan Lovells International LLP) for the First Respondent
Mr Andrew Simmonds QC and Mr Henry LeggeQC (instructed by BT Legal) for the Second Respondent
Hearing dates: 1 and 2 May 2014
Introduction
This appeal concerns the extent of a statutory guarantee ('the Crown guarantee') given by the Secretary of State under section 68 of the Telecommunications Act 1984 upon the privatisation in 1984 of the British Telecommunications Corporation, a statutory corporation ('the Corporation'), by way of the flotation of the newly formed British Telecommunications plc ('BT'). It concerns, in particular, the application of the Crown guarantee to the BT Pension Scheme ('the Scheme').
The appellant is the Secretary of State for Culture, Media and Sport ('the Secretary of State'), represented by James Eadie QC and Jonathan Evans QC. The first respondent is BT Pension Scheme Trustees Limited ('the trustee'), the trustee of the Scheme, represented by Alan Steinfeld QC and Jonathan Hilliard. The second respondent is BT, the principal employer under the Scheme, represented by Andrew Simmonds QC and Henry Legge QC.
The appeal, brought with the permission of the judge, Mann J, is against declarations in paragraphs 1 and 2 of his order made in the Chancery Division on 1 May 2013. His judgment was delivered some 30 months earlier, on 21 October 2010. In between, Mann J also had to decide other issues arising out of findings he had made in that judgment, which he did by judgments dated 28 July 2011 and 16 December 2011, with which the appeal is not concerned; and it then took an unusual time to finalise the order, which also covered many other matters.
The Corporation established the Scheme by a deed of 2 March 1983, which preceded the privatisation. The 1984 privatisation involved the transfer of the assets and liabilities of the Corporation to BT. Paragraph 1 of the judge's order declared that the 1983 deed and all subsequent versions of the Scheme rules obliged the Corporation 'to pay the Buy-Out Lump Sum on Scheme termination', a declaration that binds BT as the successor employer. That lump sum is an amount equal to any deficit in the Scheme on its termination, measured on the assumption that liabilities for benefits will be discharged by the purchase of annuities. The declaration reflected what the judge held to be the effect of clause 20 of the 1983 deed. If he was right on that, the Secretary of State does not dispute that he was right also to hold that subsequent versions of the Scheme's rules imposed a like funding obligation on BT. But the Secretary of State disputes the judge's interpretation of clause 20, which he says imposed no such funding obligation upon the Corporation, or therefore upon BT. The Secretary of State's interest in so arguing is that the extent of the Crown guarantee is directly related to the true interpretation of clause 20. Its interpretation is the subject of the first head of the Secretary of State's appeal.
Paragraph 2 of the judge's order declared that the Crown guarantee was 'not limited to covering Contributions in respect of the benefits of Pre-Transfer Date Joiners, and is capable of covering Contributions in respect of Post-Transfer Date Joiners.' The Secretary of State challenges this declaration as well, and asserts that the guarantee is confined to BT's liability in respect of pre-transfer date joiners: that is to say, members of the Scheme who became such prior to the privatisation. This ground of the appeal raises a question of construction of various provisions of the Telecommunications Act 1984.
Both respondents advanced arguments in support of the declarations made by the judge.
Before saying more, I should say this. It is agreed that the Crown guarantee bites only if BT were to go into voluntary winding up (otherwise than for the purposes of reconstruction or amalgamation with another company) or compulsory winding up. BT is a solvent and prosperous company and the prospect of its ever going into insolvent liquidation is remote. Despite this, the trustee considered that there were good reasons why it should seek the court's determination of the extent of the Crown guarantee, as it did by its claim in these proceedings, to which BT and the Secretary of State were defendants. These reasons are as follows.
First, such determination is relevant to the issues of whether and, if so, to what extent the Scheme is eligible for protection from the Pension Protection Fund established by Part 2 of the Pensions Act 2004 and liable to the amount of the annual levy payable to that Fund. Second, it is relevant to the application to the Scheme of sections 75 and 75A of the Pensions Act 1995, which imposes in relation to applicable schemes a statutory exit debt when a participating employer ceases to participate in it. Third, it is relevant to the application to the Scheme of the so-called 'scheme specific funding regime' provided for in Part 3 of the Pensions Act 2004, which imposes in relation to schemes to which it applies a framework of ongoing funding requirements. Fourth, it will enable the trustee to give proper answers to questions as to the scope of the Crown guarantee from members who, whether rightly or not, are or may be concerned as to the security of their pensions. Those are the considerations that provoked the bringing of these proceedings by the trustee.
The background to the Scheme
By way of history, I gratefully draw, in part verbatim, on the judge's judgment: [2010] EWHC 2642 (Ch). Before 1969, those engaged in the telecommunications business now conducted by BT were employed by the Post Office. In 1969, the Post Office was separated from the rest of the civil service and became a statutory corporation ('the Post Office'). It was empowered, by section 43 of the Post Office Act 1969, to establish a pension scheme and some 400,000 of its employees became members of the new Post Office Staff Superannuation Scheme ('the POSS Scheme'), which was established by a deed of 24 September 1969. The POSS Scheme was funded by the Post Office and provided benefits similar to those which its members had previously enjoyed under the unfunded civil service pension scheme.
In 1971, the POSS Scheme was amended so as to create three sections: (i) the then existing non-contributory section, which was closed to new entrants; (ii) a new contributory Section A, which provided civil service benefits and was also closed to new entrants; and (iii) a contributory Section B, which provided civil service benefits on establishment but could be amended to provide different benefits; new employees could only join Section B.
In 1981, the Post Office's telecommunications business was hived off to a new statutory corporation, the Corporation, under the British Telecommunications Act 1981. In 1983, the telecommunications element of the pensions provided under the POSS Scheme was de-merged from that scheme and the assets were transferred to a new scheme, the British Telecommunications Staff Superannuation Scheme (i.e. the Scheme). This was established by a deed and rules dated 2 March 1983, which substantially mirrored the provisions of the POSS Scheme: and it is the Scheme which is the subject of the appeal. The Scheme had sections equivalent to those within the POSS Scheme and was similarly not sectionalised in terms of any segregation of its funds: it was administered as one fund. It took effect from 31 March 1983. I must explain its material provisions.
The material provisions of the Scheme
Recital 1 recorded that the Corporation had determined to establish the Scheme, which was:
'… to be interpreted by English law and having as its primary purpose the securing of pensions and other benefits for or in respect of some or all of the present and future employees of [the Corporation] and the present and future Members of the Corporation in accordance with [the scheduled Rules].'
Clauses 1 to 9 dealt with general matters going to the administration of the Scheme, to which it is unnecessary to refer beyond noting that clause 3 originally provided for there to be nine trustees, four being representatives of the Corporation (the employer), four being representatives of the Scheme members and one being the chairman. Clause 10, headed 'Contributions by the Corporation', and which is important, provides:
'10. The Corporation shall contribute to the Fund by monthly instalments:
(a) such contributions as are certified by the Actuary as needed to meet the cost of benefits under the Schedule 1 Rules, excluding a member's contributions towards the cost of family and dependants' benefits;
(b) such sums as may be due under Rule 12 of the General Rules;
(c) such further contributions as may from time to time be required to repair any deficiency reported by the Actuary'
Clause 1 defines 'the Fund' as 'all moneys from time to time held by or on account of the Trustees and any Custodian Trustee in pursuance of this...
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Thomas Banks Hamilton v Secretary of State for Business, Energy and Industrial Strategy
...86 An example given for this proposition is Secretary of State for Culture, Media and Sport v BT Pension Scheme Trustees Ltd [2014] EWCA Civ 958. The Court of Appeal was concerned with the interpretation of an enactment that guaranteed certain liabilities. The question was whether the guar......