The High Court has handed down a helpful decision in Premier Foods Group Services Ltd and another v RHM Pension Trust Ltd [2012] EWHC 447 (Ch), that a brief deed (called a deed of intention) to equalise the normal retirement age for men and women was effective, from the date of the deed, in equalising the scheme's normal retirement age (NRA) for men and women. The Court held that despite its extreme brevity (announcing the scheme would be administered on an equalised basis), the deed was effective in amending the pension scheme and that no actual textual changes to the written rules were required (although these were made over two years later). To hold otherwise, Warren J said, would have resulted in "unsatisfactory…legal and practical consequences" - the cost of equalisation to the scheme if the deed of intention had not been held to be effective in equalising NRA would have been around £19m. The decision will be welcomed by employers and is another example in a spate of recent cases where the court has taken a practical, purposive approach to the construction of pension scheme documentation.

Background

In Barber v Guardian Royal Exchange Case C-262/88 [1991] 1 QB 344, the European Court of Justice (as it was then known) established that pension benefits under a defined benefit scheme are "pay" for the purposes of the equal pay provisions of the EU Treaty. Accordingly, unequal pension ages for men and women are unlawful.

The case concerned a Part 8 claim brought by the current employers of the RHM Pension Scheme about whether a deed of intention ("Deed of Intention") to equalise the scheme's normal retirement age ("NRA") to 65 was effective from its date.

Following the decision in Barber, the scheme trustee had taken the following actions to equalise NRA:

  • Passing a trustee resolution to equalise NRA at 65 and making an announcement to that effect to the scheme members.
  • On 15 November 1990, executing the Deed of Intention.
  • Later, executing a deed of amendment ("the Amending Deed") dated 18 February 1993, which provided among other things for a common NRA of 65 for men and women.

The amendment power

Under the rules of the scheme, the scheme trustee had a unilateral power by deed to "alter modify or add to all or any of the provisions" of the scheme's trust deed and rules.

What did the Deed of Intention say?

Broadly, paragraph 1 of the Deed of Intention provided (among other things), that the scheme's employer at the time and the scheme trustee "declare their intention" to amend the scheme's trust deed and rules from 25 August 1990 to equalise the scheme's NRA.

Clause 2 of the Deed provided as follows:

"Pending the amendment of the Trust Deed and Rules as described in Clause 1 hereof, the Trustee shall continue to administer the Fund in accordance with the Trust Deed and Rules... subject to the alteration described in the said paragraphs 1 ….."

Common grounds and issues of contention between the parties

It was common ground that the resolution and announcement were ineffective to equalise NRA and that the 1993 Amending Deed was effective in doing so if the Deed of Intention had not already achieved this. The issue before the Court was whether the Deed of Intention was effective in equalising NRA from its date or at the date of the Amending Deed. If the former, the additional cost to the scheme would have been just over £1 million; if the latter, the extra cost to the scheme would be almost £19 million.

The employer claimants argued that the Deed of Intention was effective to equalise NRA at 65 from 15 November 1990. The trustee submitted that the Deed of Intention had merely expressed an intention to amend the scheme's rules at a later date and that there had been no actual amendment until the Amending Deed was executed. The trustee remained neutral as to the outcome but had argued the case on behalf of the members so as to avoid having to add, at additional cost, a representative member or beneficiary of the scheme.   Decision

Warren J agreed with the common ground between the trustee and the employers that the trustee resolution and the announcement to members did not constitute an amendment to the scheme rules as the scheme's amendment power required rule amendments to be made by deed. Whichever of the Deed of Intention or the Amending Deed was effective in amending the scheme rules, the amendments under both deeds took effect prospectively even though they were expressed to operate from an earlier date. In forming his view, Warren J cited a number of earlier cases, including Bestrustees v Stuart [2001] PLR 283, in which it was said that a court should be very careful before permitting departure from the plain wording and plain requirement of a trust deed. It was also held in that case that an amendment which purported to be retrospective but was not actually retrospective was nevertheless valid going forwards.

When considering if the Deed of Intention was effective in amending the scheme rules, Warren J cited the following legal principles as established by the courts to date:

  • There are no special rules of construction applying to pension schemes.
  • The approach to construction should be practical and purposive.
  • In choosing between an interpretation which makes an instrument valid and effective and one which makes it invalid or ineffective, the court should lean towards the construction which saves the instrument (the legal principle of "ut res margis").

Warren J said that paragraph 1 of the Deed of Intention was just an expression of intention and had no operative effect. However, paragraph 2 of the Deed was, contrary to the trustee's interpretation, more than an expression of intention. It required the trustee to operate the scheme subject to the specified alterations. Those alterations impacted on benefits and the trustee had to operate the scheme in all respects just as it would run if full textual amendments effecting the alterations had been made. He rejected the trustee's submission that paragraph 2 was simply an undertaking by the trustee to administer the scheme on the footing that it had been altered without it in fact having been altered. This interpretation was at "odds with the more natural meaning of the language" and was "unsatisfactory in its legal and practical consequences".

The Deed of Intention was effective to equalise NRA at 65 from 15 November 1990.  

Comment

The decision will be welcomed by employers - Warren J was prepared to construe that a short deed about how to administer the scheme was also effective in amending the scheme rules; if the deed of intention had not been so effective, the extra cost to the scheme of equalisation would have been significant.

Whilst courts have been reluctant (as Warren J was here) to find announcements are effective in amending schemes, particularly in an equalisation context, this decision sits neatly alongside the recent decision in HR Trustees v Wembley PLC [2011] EWHC 2974, in which the High Court held a deed of amendment to be valid even though one of the trustees had not signed the deed. For our e-alert on the Wembley case, click here. It is always dangerous to predict a trend based on one or two cases; each case turns on its own facts. But even if it is too early to conclude a more pragmatic judicial approach to construction of pension scheme documentation, it is welcome that not every court will take the conservative approach to construction as we saw in cases such as Walker Morris Trustees Ltd v Masterson [2009] EWHC 1955 (Ch). In that case, the High Court had held that certain scheme amendments were not valid because the trustees had failed to obtain written actuarial advice, as had been required under the scheme's amendment power.