Important guidance from the Court of Appeal on the interpretation of Pension Scheme Trust Deeds and Rules

In Stena Line Limited v (1) Merchant Navy Ratings Pension Fund Trustees Limited and (2) P&O Ferries Limited, the Court of Appeal has given important guidance on how pension scheme Trust Deeds and Rules should be interpreted where they have been amended over time.  

Key Points

Where a Trust Deed and Rules have been amended so that a new provision has been added or an existing provision been re-adopted in the same terms , those provisions should be interpreted against the relevant factual context at the time the amendment was made rather than looking back to when the original Trust Deed and Rules were first executed.

Where the Trust Deed and Rules are amended or updated, this may alter the meaning of provisions which have been re-adopted in the same terms if the factual context is now materially different. Their “new” meaning has to be considered in the light of the factual context when the other amendments were made.

Powers of amendment should not be interpreted more liberally than other clauses or rules – they should be interpreted in accordance with an objective analysis of the specific terms – any assumption that they should be given a broad interpretation is misplaced.

The case itself

The appeal arose in the context of an industry-wide occupational pension scheme, although the Court of Appeal’s comments on the interpretation of pension scheme Trust Deeds and Rules are likely to be of wider application.

In outline, the key issue was whether the trustee’s power of amendment should be read as being subject to an implied restriction which limited the trustee’s ability to impose deficit repair contributions on certain participating employers under the scheme.

In 2001, certain employers (the “Current Employers”) agreed to make further contributions as part of a package which included the trustee making various rule amendments – one of which was the deletion of a provision which was thought to give employers the ability to veto any proposals made by the trustee to meet a deficit in the scheme’s funding.  

In 2009, an application to the Court was made by the Current Employers to determine whether the trustee could amend the rules to impose deficit repair contributions on the employers (the “Specified Employers”) who were not making contributions under the 2001 regime. The Specified Employers accepted that the 2001 amendments had been validly made, but they argued that, as their effect was to deprive them of the veto, they could only be called upon to make further contributions if they were given an equivalent to the veto protection that had been removed in 2001.  

Interpreting documents which have been amended over time

It is a well-established general legal principle that the court’s task when interpreting a document is to ascertain what a reasonable person, having regard to the factual situation at the relevant time, would have understood the document to mean.  

Provisions added by amendments

A particular issue that often arises in the context of pension scheme Trust Deeds and Rules (but which can apply to other longstanding commercial agreements) is that, as they are amended over time, they may come to represent a “patchwork” of provisions introduced at different points.

There is existing case law that where provisions are added or modified by amendment, they should be interpreted in the relevant factual context at the time of the amendment, rather than looking back to when the original document was first executed.

However, this appeal was concerned with the opposite situation – the interpretation of a provision, in this case the power of amendment – which had not been revised when the Trust Deed and Rules were amended.  

Provisions which remain in place when others are amended  

The Court of Appeal accepted in principle that where a provision is effectively re-adopted in the same terms, its meaning may change if the factual context in which it is re-adopted is materially different from when it was first adopted.  

The specific issue in this case was whether the power of amendment, which was originally drafted in broad terms - and which was not amended as part of the 2001 package of amendments - could take on a different meaning as a result of those other amendments. In particular, following the deletion of a particular provision (the veto) in 2001, was the scope of the power of amendment now subject to a restriction so that certain amendments could only be made if that deleted veto provision was also restored?  

Although the Court rejected the argument that the meaning and scope of the power of amendment had changed in this case, the possibility that the meaning of a particular provision can change over time as other 2011amendments are made has important implications for the interpretation of pension scheme Trust Deeds and Rules.

Not only must each provision be considered within the factual context when it was introduced, but it is also necessary to consider the impact of subsequent amendments to other provisions. The circumstances when those other amendments are made could well affect the proper interpretation of provisions which have not been amended.  

The need to “test” whether the meaning of a clause or rule in the governing Trust Deed and Rules might have changed as a result of subsequent amendments adds a layer of complexity to working out the meaning of those clauses and rules. Therefore, you should bear in mind that when trustees are exercising important powers, it may be prudent to check whether any other scheme amendments mean that the meaning of the clause or rule in question has changed as a consequence.