The Court of Appeal has found in favour of British Airways in British Airways plc v Airways Pension Scheme Trustee Ltd.

Under the scheme’s rules, pensions were increased in accordance with the Pensions Increase (Review) Orders. These were set with reference to RPI but, since 2011, have been set by reference to CPI.

In 2011, the trustees used their unilateral amendment power to give themselves a new power to grant discretionary increases. In 2013, the trustees exercised that new power to award an increase of 0.2%, which was halfway between CPI and RPI for that particular year. British Airways opposed the decision. The scheme was already in deficit and the discretionary increase would increase liabilities by about £12 million.

The majority of the Court of Appeal found that the exercise of the amendment power to introduce a discretionary increase was within the scope of the express wording of the power but that it was invalid nevertheless, as it was for an ‘improper purpose’.

The trust deed described the trustees’ role as to “manage and administer the Scheme”. The majority of the judges considered that the trustees’ purported amendment to introduce a power to award discretionary increases “resulted in a scheme with a different overall purpose” in which the trustees were “paymaster” as well as managers and administrators.

As such, the Court also found that there was no valid discretionary increase.

Whilst it is unusual for trustees to have a unilateral amendment power, the Court’s reasoning around the ‘improper purpose’ principle will have wider application. The trustees have now been given permission to appeal to the Supreme Court.

Read more about the case here.