Honda Motor Europe Limited (1) Honda of the UK Manufacturing Limited (2) v Powell (1) Honda Group – UK Pension Scheme Trustee Limited (2)

The Court of Appeal has upheld a High Court decision that the Honda manufacturing workers in Swindon are entitled to a higher scale of pension benefits than previously thought, causing an additional liability to the Honda UK Pension Scheme of between £47 million and £70 million.

In 1985 Honda started manufacturing cars in the UK, establishing a manufacturing subsidiary company (Honda of the UK Manufacturing – HUM). It was agreed that HUM could participate in Honda's existing pension scheme, but the HUM employees would receive less generous benefits than were available to existing (sales and marketing) UK Honda employees. An announcement was made to the HUM employees at the time setting out the specific benefits, and their pension benefits have always been accounted for and provided on that basis, but the HUM benefit scale was not formally added in to the Scheme's governing documents until 1998 – creating a 12 year window in which the Honda companies were at risk of funding the higher value benefits.

The High Court had been asked by the Honda companies to interpret a Deed of Adherence (which was expressed as 'extending the benefits of the Scheme to the HUM employees') as a reference to the HUM benefit scale. It was decided that although that Deed allowed the manufacturing company and its employees to participate in the Scheme, it only referred to the pre-existing (more valuable) benefits.

Having lost in the High Court, the companies asked the Court of Appeal to overturn the decision on interpretation, and also to apply the maxim (under the law of Equity) "equity regards as done that which ought to have been done". This maxim was most recently applied in a pensions case in HR Trustees Ltd v Wembley plc (in liquidation) and another [2011]. A Court of Appeal decision on the maxim is eagerly awaited.

The Court of Appeal refused the companies' application for permission to rely on the maxim and upheld the High Court decision on interpretation. It decided that the wording of the Deed of Adherence was clear and although something may have gone wrong with the implementation of the agreement between the parties, there was nothing wrong with the language used in the Deed and there was only one possible interpretation. In order to establish whether something had gone wrong with the Deed of Adherence, it would have been necessary to investigate facts outside the document, straying outside the limits of a construction claim into the territory of rectification.

Without further applications by the companies, steps will now have to be taken to amend the administration of the Scheme to give effect to the judgment.