The High Court has held that a notice to members can be effective in equalising scheme benefits and also to amend a subsequently executed definitive deed and rules.

The case of Vaitkus and others v Dresser-Rand UK Limited and another [2014] EWHC 170 (Ch) has provided a new twist to the long running saga of how schemes may, and may not, have properly effected equalisation of retirement ages in occupational schemes. Following a two day hearing at the end of January, His Honour Judge Jarman QC ruled that a notice sent to certain members was sufficient to amend the benefit provisions of an interim trust deed and, further, to bind a later executed definitive deed and rules which was alleged to have ‘unequalised’ the scheme. It seems that, almost a quarter of a century after the European Court of Justice delivered their decision in Barber v Guardian Royal Exchange [1991] QB 344 on 17 May 1990, the question of equalisation is still making legal headlines.

Background

The scheme operated by Dresser-Rand contained a particular section of female members, who were entitled to past service credit by virtue of transfers-in to the scheme of service accrued in predecessor schemes prior to 6 April 1988. Whilst the scheme’s normal retirement date had always been common at 65, the particular tranche of female members retained an entitlement to retire from age 60, without consent, on an unreduced pension. Comparator male members were also entitled to retire from age 60 without consent, but with a reduction in their accrued pension of 0.3% for each month between retirement and age 65.

The scheme was established by interim trust deed with effect from 6 April 1988, with explanatory literature having been sent to members in December 1987 and March 1988 which set out the benefit structure. Clause 11(a) of the interim deed said that “The Trustees will as far as is practicable operate the Scheme so as to give effect to the Explanatory Literature… …The decision of the Trustees as to all matters of interpretation of the Explanatory Literature and all matters arising in connection with the provision of benefits referred to in it is conclusive.”

Following the decision in Barber v Guardian Royal Exchange – and during the drafting of a new definitive deed with rules attached – discussions were held between the employer, trustees and their advisers on how to implement the requirements of equalising the scheme in respect of the female members entitled to take an unreduced pension without consent from the age of 60. As a result of those discussions a decision was taken to remove the more favourable early retirement conditions from the tranche of female members and apply a 0.3% per month reduction in respect of service from 6 April 1991.

A notice was drafted and sent to the affected female members which said “As discussed at a meeting of the Pension Committee… …the company is changing the Pension Plan with effect from 6th April 1991. The change will mean that the pension provided in respect of your Pensionable Service on and after the 6th April 1991 will be subject to the early retirement reduction factor of 0.3% per month should you decide to retire before your 65th birthday.”

Subsequently, the new definitive deed with rules attached was executed on 22 December 1992. Rule 7 of the new rules said that an early retirement pension would be subject to a reduction unless: “…the member is a Past Service Credit Female Member and has elected to retire at any time between the 60th and 65th anniversary of her birth…”

The questions for the High Court were whether (a) the notice in 1991 was effective in amending the scheme such that equalisation was achieved with effect from 6 April 1991; and (b) if so, whether the execution of the definitive deed and rules in 1992 had the effect of ‘unequalising’ the scheme given rule 7 appeared to have reintroduced the disparity between certain male and female members.

The 1991 Notice

The judge held that the notice drafted in 1991 did have the effect of amending the scheme such that the more beneficial early retirement provisions were removed from the affected female members.

It was clear that the parties had decided to give effect to the contents of the notice and such a decision showed an intention to act in accordance with the last sentence of Clause 11(a) wherein “The decision of the Trustees as to all matters of interpretation of the Explanatory Literature and all matters arising in connection with the provision of benefits referred to in it is conclusive”.

The judge held that an intention to amend the scheme was the purposive and practical construction of the events and the clause. It was therefore held that, in addressing the first question, the notice issued in 1991 was effective in amending the scheme.

Whilst, because of the passage of time, there were uncertainties over the manner in which the notice was published and whether it was in the appropriate form, it was held to be clear that the announcement comprised Explanatory Literature for the purposes of Clause 11(a).

The 1992 Rules

The second question followed that if the notice was effective in amending the scheme in 1991, did the provisions of the definitive deed and rules counteract that amendment following execution of the deed in 1992?

Interestingly, and significantly, the judge held that the definitive deed and rules took effect subject to the amendment by notice despite the fact that the notice was issued prior to the definitive deed.

Clause 1(a) of the 1992 deed said that “This deed shall be read and construed and shall take effect in like manner as if it had been executed on the same day as and immediately after the Interim Trust Deed.” Clause 1(b) said that “This Trust established by the Interim Trust Deed is hereby confirmed and shall be administered by the Trustees in accordance with the provisions of the Deed and Rules for the time being in force (hereinafter called “the Rules”) the initial Rules are annexed hereto.”

It was accepted that whilst the Trust was established in 1988, delays had occurred in obtaining the appropriate HMRC consent and it was held that the trust was analogous with an executory trust whereby a trust is created at the outset but details remain to be finalised. As a result of this and the construction of Clause 1(a) and (b), the judge held that the definitive deed and the rules should be held to have taken effect immediately after the execution of the interim deed in 1988.

If, as had been held, the definitive deed and rules were effective from 1988 then the question to be answered was that of the status of the notice issued in 1991 and the validity of the amendment to the scheme to effect equalisation.

The judge held that given the effective date of the definitive deed, the validity of the notice in amending the scheme would rest on whether it satisfied the amendment provisions of the definitive deed.

The amendment power in the definitive deed was contained in Clause 5 and allowed, in addition to a provision to amend the scheme by deed, that “…if notice in writing of any such alteration or modification shall be published in a form and manner agreed by the Trustees the trusts powers and provisions of this Deed and of the Rules shall pending the execution of the deed be deemed to be altered or modified in such manner and to such extent as the Principal Employer shall determine to give effect to the provisions set out in such a notice”.

The judge held that the notice issued in 1991, although not published in contemplation of the provisions of Clause 5 of the definitive deed, nonetheless satisfied the requirements of the clause and therefore validly amended the scheme such that the early retirement provisions were equalised notwithstanding the content of Rule 7 of the rules were executed a year after the announcement was made.

Comment

Although the judgement may be seen as counter intuitive by many, the judge rejected the notion that to say the notice amended the definitive deed which did not then exist would require a re-writing of history. He said “The definitive deed is to take effect as if it had been executed on the same day as and immediately after the interim trust deed. That it seems to me has the corollary that clause 5 is to take effect as it was in force on the same day and immediately after the interim trust deed. The company in issuing the notice did not know that, but it intended to bring about the result set out in the notice.”

Whilst there was a lack of clear evidence about the actions at the time of the announcement and the definitive deed which served to complicate matters, the judge took a constructive approach in determining the intention of the parties in arriving at his decision. The case seems to demonstrate that equalisation may continue to throw up unexpected cases – and judgements – for some time to come.