In our November 2009 pensions update and pensions briefing, we examined the judgment in relation to IMG’s attempt, as sponsoring employer, to convert its pension scheme from one providing final salary benefits to one providing money purchase benefits.

On 26 February 2010, the High Court (Arnold J.) gave judgment in this second action, ordering that IMG should pay the costs of German (G), the representative beneficiary, in respect of a cross appeal.

Arnold J was not satisfied that the only costs order that the CA could make would be in favour of G. It was held that G fell within the McDonald v Horn [1995] jurisdiction: that is, where a beneficiary brings an action with the aim of ensuring that a scheme is properly administered, he should be indemnified out of that scheme. G represented the interests of a sufficiently large portion of the beneficiaries to entitle him to such an indemnity.

Arnold J applied the principles used in Laws v National Grid [1998], placing emphasis on the third guiding principle used in that case, "the justice of the application". To that end, he considered as follows:

  • the cross-appeal had a real prospect of success;
  • IMG had already agreed to pay G's costs for the appeal and the cross-appeal would only add an extra 1/2 - 1 day, therefore, it would not increase costs significantly;
  • G only appealed because IMG had;
  • the factual background to the cross-appeal is the same as the appeal;
  • G represents the interests of the majority of the beneficiaries of the scheme and those whose interests he does not represent will not suffer any effect as a result of the cross-appeal. While some issues were left undecided in the first judgment in relation to the increase of benefits of members, Arnold J felt that he must act as if each of those points could be decided either way; and
  • it would be difficult for G to find an alternative means of funding the cross-appeal in the time available.

IMG's arguments that it was of modest means and that exposure to immediate liability would affect its cash flows were rejected. The prospective costs order was granted to G.

Comment: the legal action to the date of this judgment has cost IMG £1,882,263. In 1992 when the amendment converting the scheme to one providing money purchase benefits was made, the pension fund was worth approximately £1.5 million.