Hodgson and others v Toray Textiles Europe Limited  EWHC 444(Ch)
In this case the High Court held that the trustees of the Toray Textiles Europe Pension Scheme (the Scheme) did not exceed their powers when they executed a definitive deed in 1993 that contained different conditions regarding early retirement pensions compared to the Scheme’s interim deed.
Mr Skinner had been an employee of Courtaulds plc and a member of the Courtaulds pension scheme (the Courtaulds Scheme). In 1989 part of the Courtaulds business was bought by Toray Textiles Europe (Toray). Following the sale, Mr Skinner transferred to the Scheme. In 1989 Toray made an announcement to members which stated that the benefits under the Scheme would be “identical” to those in the Courtaulds Scheme. In October 2006 the High Court held that the Scheme’s benefits should be interpreted by reference to that announcement.
The Courtaulds Scheme contained a restriction to the effect that a retrospective amendment could not be used to reduce an accrued “benefit”. The Scheme’s interim deed, executed in 1990, contained a power of amendment that allowed the employer (with the trustees’ consent) to amend or add to the rules with retrospective effect.
Under the Scheme’s definitive deed, executed in 1993, the method of calculating early retirement pensions differed from the Courtaulds Scheme in a way that was less favourable to members. Mr Skinner argued that since the benefits in the Scheme were to be identical to those in the Courtaulds Scheme, he had a right to retire early on a pension referred to in the Courtaulds Scheme. He submitted that the right to an early retirement was an accrued “benefit” under the Courtaulds Scheme that could not be removed retrospectively.
Mr Skinner's application was dismissed. The Court held that his arguments read too much into the 1989 announcement to members. The announcement did not mean that benefits in the Scheme would always be identical to those in the Courtaulds Scheme. For example, the Scheme’s amendment power allowed prospective amendments to be made, and so the announcement could not be interpreted as an assurance that the benefits in the Toray scheme would never be changed.
- Mr Skinner did not have an accrued right in any event at the date of the announcement, because an early retirement pension required his employer's consent;
- The right to be considered for an award of an early retirement pension did not amount to a "benefit";
- The announcement itself preceded Barber, and so did not by definition contemplate equalised benefits;
- The benefits to be imported into the Scheme did not include the administrative provisions, such as the power of amendment. The suggestion that these provisions had been transposed to the Scheme had not been raised in the 2006 hearing;
- The implication of the suggested term conflicted with the express power of amendment, which did not restrict retrospective amendments.
This is a welcome decision on the interpretation of announcements, particularly as it gives comfort that documents are made subject to the exercise of the power of amendment.
Pensions Ombudsman Determinations Q00547 (Mrs Joan Holloway) and R00077 (Mrs E M Lewis)
In two separate cases the Pension Ombudsman has found that Wiltshire County Council and the South Yorkshire Pensions Authority were guilty of maladministration by providing incorrect information to two widows about their pension entitlement under the Local Government Pension Scheme (the LGPS).
The facts of the two cases are broadly similar.
Mrs Joan Holloway
Mr Holloway was employed by Wiltshire County Council and was a member of the LGPS until his retirement in 1968. Following retirement, he continued working for the Council on a part-time basis, while receiving his pension.
After the death of his first wife in 1971, Mr Holloway married Mrs Joan Holloway in 1973. He ceased work shortly thereafter. In 1990 he wrote to the Council to ask them to confirm that Mrs Holloway would be entitled to a widow’s pension after his death. The Council replied that "she would be entitled to a pension of 1/3 of your pension, currently £2,214.01 per annum".
When Mr Holloway died in 2004, his estate was inherited by his surviving child and his widow in equal shares. Mrs Holloway asked the Council about widow’s benefits, only to be informed that under the Local Government Superannuation (Benefits) Regulations 1954 (the Regulations), she had no such entitlement because her marriage to Mr Holloway took place after his retirement in 1968. The internal dispute resolution procedure, initiated by Mrs Holloway found that although the Council had provided incorrect information in 1990, it was impossible to pay a pension to Mrs Holloway because that would be in breach of the Regulations. Mrs Holloway then applied to the Pensions Ombudsman (the Ombudsman).
Mrs E M Lewis
Like Mr Holloway, Mr Lewis was a member of the LGPS until his retirement in 1976. He married Mrs Lewis in April 1978. In May 1978 he notified the South Yorkshire County Council by letter of his marriage.
In 1984 the Council sent Mr Lewis a standard letter, informing him that after his death his widow would receive his full monthly pension for three months, after which she would be entitled to a long-term pension amounting to one-half of the pension he was receiving immediately before his death.
After Mr Lewis' death in 2005, Mrs Lewis contacted the Council about her widow’s benefits, but, like Mrs Holloway, she was informed that under the Regulations no widow’s pension was payable. She applied to the Pensions Ombudsman.
The Ombudsman concluded that pensions for the widows of post-retirement marriages were not payable under the Regulations. Although subsequent legislation introduced such benefits into the Scheme on 6 April 1978, the changes were not retrospective and did not apply to the two applicants.
In both situations there was maladministration by the Councils in the way they provided incorrect information to the applicants. The receipt of mistaken information, however, does not give rise to a liability to make payments to the recipient in line with that mistake. The entitlement to widow’s benefits was set out in the Regulations, not in the letters from the administrators of the LGPS. The Councils were obliged to apply the legislation.
Nor was the Ombudsman convinced that the applicants had altered their position to their detriment in reliance on the incorrect information.
Mrs Holloway's submission that had her husband known the correct position, he would have made different arrangements in his will, was too speculative to succeed on the evidence that was available.
Mrs Lewis' argument that had the true position been explained to her husband, they would have purchased a deferred annuity in 1985, could not be upheld either. Firstly, the date that any annuity would come into payment was too uncertain to speculate about the terms of such a policy. Secondly, the longer such a purchase was deferred, the less cost was involved, and thirdly, by not purchasing an annuity, Mrs Lewis had the benefit of the capital sum.
In neither case was it possible to conclude that the mistaken information provided by the Council caused any financial loss. Each applicant, however, was awarded £250 as compensation for distress and inconvenience.
Pensions Ombudsman Determination N00578 (The Trustees of the Middle East Airlines S.A.L. Retirement Benefits Plan (1978) (the Trustees))
The case concerned the interpretation of a rule in the Middle East Airlines S.A.L. Retirement Benefits Plan (1978) (the Plan) which described the way in which employer contributions were determined. The employer - Middle East Airlines Airliban S.A.L. (the Company) - disputed the amount which had been suggested by the Trustees acting on the advice of the scheme actuary (the Actuary).
The Plan was governed by a Trust Deed and Rules dated 1 October 1984 (the Rules). Under Rule 3(b) of the Rules, the contributions of the employer were to be determined as follows:
"(i) Each Employer shall from time to time make such contributions to the Fund as shall be determined by the Appropriate Authority to be required together with the contributions (if any) of the Members under sub-rule (a) of this Rule to enable the Trustees to provide the benefits of the Plan.
(ii) The said contributions shall be calculated on a basis agreed between the Trustees and the Principal Employer and shall be subject to review at intervals of not more than five years."
The term "Appropriate Authority" was not defined in the Rules, but an interim deed (the Interim Deed) of January 1978 defined "Determined by the Appropriate Authority" as:
"certified by a pension consultant of good repute or by an Actuary or by a firm of Actuaries or by a corporate body acting on advice given to it by an Actuary or evidenced by the quotation of an approved underwriter."
In April 2002 an actuarial valuation of the Plan reported a deficit. The Actuary proposed a funding schedule which envisaged employer contributions of 18.2%. The schedule, however, could not be agreed between the Trustees and the Company. The attempts to find an amicable solution failed and the Trustees referred the dispute to the Ombudsman.
The Trustees submitted that:
- The term "Appropriate Authority" in Rule 3(b), although not defined, must refer to the Actuary. The Interim Deed definition of "Determined by the Appropriate Authority" should be adopted as an aid to construction. As the Rules were not inconsistent with the Interim Deed, nor did they delete or amend this definition, the Interim Deed definition must have been incorporated in the Rules;
- The provisions of the Pensions Act 1995 and Scheme Administration Regulations 1996 required the Trustees to rely on the advice of an actuary;
- A members’ booklet issued in 1999 was relevant in interpreting the Rules, as it pointed to the surrounding circumstances and common industry practice. The booklet stated that "the cost of providing the benefits under the Plan is calculated by professional advisers to the Trustees";
- In any case, it would be inconceivable if the basis of the employer contributions were merely a matter for agreement between the Trustees and the Company - first, because of the lack of appropriate expertise, and secondly, because of an inherent conflict of interest.
The Company submitted that:
- Under Rule 3(b), the Company's agreement was required to impose a contribution rate determined by the Actuary. Since only an unsigned and undated copy of the Interim Deed could be produced, the document could not be relied upon as evidence;
- In any case, the Interim Deed definition of "Determined by the Appropriate Authority" did not refer exclusively to the Actuary, but also included a corporate body;
- In the absence of a definition in the Rules, the term "Appropriate Authority" must be void for uncertainty. An actuary appointed by the Trustees could not be considered the Appropriate Authority, since such interpretation would be favourable to the Trustees;
- The 1999 members' booklet was irrelevant, as it could not alter the meaning of the Rules;
- The Company could not have agreed to a Rule which placed the determination of the employer contributions solely in the hands of the Trustees and the Actuary.
The Ombudsman decided that case law allowed him to refer to the Interim Deed as an aid to construction of the Rules. Even though only an unsigned and undated copy of the Interim Deed could be produced, it was the best available evidence. In the absence of evidence seeking to disprove it, the document could be relied upon.
In accordance with case law, a practical and purposive approach to the interpretation of the Rules must be adopted. Such approach requires the interpretation of Rule 3(b) to ensure that the Company makes contributions to the Fund to enable the Trustees to provide benefits to members, while offering both Company and Trustees the protection of having to agree the basis of those contributions.
Although the Appropriate Authority does not have to be the Actuary appointed by the Trustees, and can include a corporate body, such corporate body would have to be acting on the advice of an actuary. To overcome any concerns about impartiality, the Actuary could be appointed by a Court.
Since a schedule of contributions had been agreed by the time the case was referred to the Ombudsman, no direction from the Ombudsman as to the amount of contributions was necessary.