THE HIGH COURT 1988 No.60Sp
IN THE MATTER OF ORDER 37 OF THE RULES OF THE SUPERIOR COURTS
IRISH PENSIONS TRUST LIMITED Applicant
THE FIRST NATIONAL BANK OF CHICAGO BRIAN CROWLEY AND BERNADETTE FEEHILY Respondents
TRANSCRIPT OF JUDGMENT
DELIVERED BY THE HONOURABLE MR JUSTICE FRANK MURPHY ON 15TH FEBRUARY 1989
Whilst the documentation in relation to this matter is voluminous and complicated, the issues which Counsel have identified establish that the dispute between the parties relates primarily to matters of construction. As I have had full and clear argument on this topic, it ,.• seems to me that there is no need to postpone my judgment and there is nothing to be gained by so doing. The issue concerns the proper construction of the pension scheme and the rules made thereunder.
The background to the case is this: The First National Bank of Chicago (to whom I shall ref er to as "the Bank") carried on busines in Ireland up to the end of the year 1987. The Bank employed a staff in Ireland which varied from forty to sixteen when it ceased to carry on business here. The Bank provided a pension for their staff. The scheme was created by a definitive deed or Declaration
of Trust dated 15th January 1975. The Plaintiffs, Irish Pensions Trust Limited (whom I shall refer to as "the trustees") were the trustees of the scheme. The employees, who included Brian Crowley and Bernadette Feehily (the second and third-named Respondents) were employees of the Bank and beneficiaries under the pension scheme. The contributions to the scheme were paid exclusively by the Bank.
Of course, the main purpose of the scheme was to provide pensions for the employees when they attained the normal retirement age of 65. The broad concept of the scheme was that employees would receive two-thirds of their final salaries by way of pension or, more correctly, one-sixtieth of their final salaries for each year of service not exceeding a total of 40 years. In addition, the employees and members of the scheme were entitled to certain benefits in the event of their death or disability in the course of their service with the Bank.
There is no doubt that one of the features of schemes of this nature is the expertise of the actuaries who determine or advise the premium or contribution which it is necessary to pay annually to create and maintain a fund out of which benefits of this nature can be met and discharged over a long period of time and in circumstances which may of course vary radically during that period.
Up to the year 1984 the premium or contribution paid annually by the Bank amounted to 9.2 per cent of the Bank's payroll in Ireland. In 1984 that figure was increased to 11 per cent to meet improved and extended benefits.
On a review carried out as of January 1987 by Mr Maxwell, one of the actuaries who gave evidence before the Court, he advised that the contribution could be reduced subsequent to that date to 9.2 per cent as he had identified a substantial surplus over the estimated potential liabilities involved in the scheme.
When the Bank ceased to carry on business here the pension scheme was wound up and it is common case that the funds available to the trustees were duly and properly applied (1) in securing pensions to those employees or former employees of the Bank who were entitled to a pension, that is, those who had attained the normal retirement age or who had, perhaps, retired prematurely in accordance with the provisions of the scheme. (2) Moneys were applied in making the provision which the trustees were bound to make under the express terms of the scheme for those employees had not become entitled to a pension as such.
Those commitments and any appropriate expenses having been discharged, the trustees were left with a sum of approximately £345,000. As the trustees claimed no interest in those moneys and had reason to anticipate that the Bank and the, remaining employees had conflicting interests in respect of the sum of the surplus, the trustees lodged those moneys in Court and the Court has directed an issue to be tried as to the rights of the Bank and the employees to that sum.
As I say, the trust fund was set up by the document sometimes known as "the Declaration of Trust" and sometimes known as "the Definitive Trust Deed", dated 15th January 1975, together with the rules annexed thereto and known as "the general rules". The second document, as I understand it, is effectively the accession of the Bank as subscriber to the definitive trust deed which was
dated 4th April 1975. The general rules were then replaced on 3rd December 1976 by new special rules which replaced the general .J rules annexed to the definitive deed. On 2nd August 1977 certain amendments were made to the definitive deed and then on the 8th September 1987 additional special rules were made and they had the effect of altering or substituting certain rules for the special rules which had been brought in on 3rd December 1976 and also had the effect or at least had the potential for altering or amending not only the rules but the definitive deed itself.
That is the documentation which has been explored by Counsel on both sides in seeking to establish the rights of their respective clients to the surplus moneys lodged in Court.
What the employees say, firstly, is that they are the beneficiaries under the trust fund and as such are entitled to any surplus that exists for any reason, they being the only beneficiaries and all other parties being excluded therefrom unless there is some clear provision to the contrary. Secondly, it is said that under the definitive deed and more particularly Clause 19 thereof there is a clause which is perhaps discretionary in form (but which the employees would say is mandatory in its effect in all the circumstances) under which additional provision may be made for the beneficiaries over and above the discharge of their specific legal rights. Thirdly, the employees say that the Bank is expressly excluded from any benefit under the pension scheme by virtue of the most recent amendment of 1987 save in two cases to which I will make reference, neither of which is applicable in the present circumstances. Fourthly, it is said that the Bank is estopped by virtue of a memorandum dated July 1984 from claiming
any part of the fund for themselves or, indeed, from disputing the rights of the employees to any surplus remaining in the fund in the circumstances which have occurred.
Perhaps it is convenient to deal first with the claim of the employee evolving from or depending on section 19 of the 1975 deed. That section deals with the circumstances which arise, as the clause says "upon the determination of the plan". In that event paragraph 19(b) directs the trustees to "apply the fund" in three methods clearly expressed and identified in the clauses which follow in that sub
paragraph. The first and second of these are clear. The first method provides for securing pensions to those who are already in receipt of pensions. The second provides in a manner which is somewhat complex, and no doubt necessarily so, for securing benefice to those members who have not reached normal pension date, and
the duty imposed on the trustees, and then goes on in the paragraph headed "THIRD"
"in respect of such part of the balance of the Fund then remaining unexpended in its. hands as the Trustee in consultation with the Subscriber shall decide in augmenting the pensions under the FIRST and SECOND applications of this sub-clause or in providing benefits for Beneficiaries or for Dependants subject always to any limitations set out in the Rules; "
This crucial third provision is clearly discretionary in the sense that it is something that must be done if the trustees decide to do it. They (the trustees) have the option of deciding in consultation with the Bank (the subscriber) whether or not to take this course.
To the extent to which the first and second modes of application do not exhaust the fund, the discretionary provisions of the third paragraph arise. And if and to the extent that there is any
surplus then remaining, clause 19(c) provides as follows:
"If after having provided the benefits under the FIRST, SECON and THIRD applications of sub-clause (b) of this Clause, any balance of the Fund then remains unexpended, the Trustee shall refund such balance to the Employers in such proportions as shall be determined by it."
In a case such as the present one that would necessarily mean repaying the entire to the Bank because the trust deed there was dealing with a variety of employers, but in the present case there is only one employer, namely, the Bank. So to the extent that the first, second and third procedures did not exhaust the fund, the remainder would necessarily be paid to the Bank under subclause (c) of section 19 of the Deed.
Attention has been properly drawn to a variety of details which ma cast some light on the intention of the parties. However, the substantive issue arises and is clearly identified by reference to the final amendment of the rules in so far as it concerned the relationship between the Bank and its employees, that is to say, the rules of September 1987.
Before turning to the two material rules, sections 11 and 13 in the documentation, it is appropriate to advert again to the introductory page by which these amendments were implemented, and it. says:
"The Schedule attached hereto is substituted for the Schedule attached to the Special Rules dated 3rd December 1976 with effect as from the 1st July 1984."
"In the event that any of the provisions of the 15th January 1975 IPT Retirement Benefits Trust Declaration, or any alteration or amendment thereof, shall be inconsistent with theme provisions of Section 13 of the attached Schedule, or any alteration or amendment thereof, the latter provisions shall apply "
Thus the rules were given the capacity to override the provisions of the deed but only to the extent that they were inconsistent with them so that the first issue between the parties really raises the -+ question whether or not section 13, in particular section 13, subsection 4, is inconsistent with clause 19 of the definitive deed or some part of it.
Section 13.4 of the 1987 rules deals with distribution on termination and has much in common with clause 19 of the definitive deed. It provides that after the payment of expenses and on termination of the plan the moneys shall be applied in a particular priority, and it this case since 1987 the first priority is a refund of members' contributions. There was no comparable provision in the 1975 documentation because at that stage the members were not permitted to make contributions. That was an innovation at a later stage. So this first mode of distribution is neither in conflict nor in conformity with the earlier clause 19. But the second mode of distribution under clause 19.4(b) provides for securing pensions to persons who have become entitled to receive pensions before
the termination of the scheme, as I understand it. The third mode of application is set out in sub-paragraph (c) of section 13.4. That sub-section deals with the payment or securing of benefits to employees who are not entitled under the previous paragraph and to whom pensions have not accrued. Their rights, such rights as they have, under the pension scheme are discharged.
But it is not so much what those clauses provide. Clearly they are doing by one means or another what the first and second modes of distribution had done under clause 19 of the 1975 deed. What is significant is the absence of any provision comparable to what I have called the discretionary provision in clause 19. It is said on behalf of the employees that the failure to repeat that provision or the failure to make any reference to it is in no sense inconsistent with it and that the discretionary provision in clause 19, if that is what it was, continued to have full force and effect because it is not inconsistent with section 13.4.
In my view that argument is unsustainable for the reason that in the final sentence of clause 13.4 the rule provides
"Any amount remaining credited to an employer under the Deed after the allocations required under this subsection upon a termination of the Plan as to that employer will be refunded to that employer in accordance with Section 11. "
There are two aspects to that important sentence. Firstly, it gives directions as to the surplus remaining after making the allocations specified in what are effectively paragraphs (a), (b) and (c) of clause 13.4. That being so, there is no room to interpose any other mode of distribution, be it a new formal provision whether mandatory or discretionary. When the payments required to be made under clause 13.4 and specified in paragraphs (a), (b) and (c) thereof have been made, a surplus may remain and the rule expressly provides how that surplus is to be dealt with. It
follows, accordingly, that the third mode of distribution as provided for in clause 19 has been repealed and is certainly inconsistent with the provisions of clause 13.4.
But the next question that arises under the sentence which I have quoted from clause 13.4 is: What is to become of the moneys? They are to be "refunded to that 'employer"', which, again in this case, necessarily refers to the Bank. If the sentence had stopped there, there could have been no doubt as to the positive directions given to the trustees as regards the surplus of £345,000. It is the reference to section 11 and the use of the words "in accordance" which has given rise to the greatest controversy.
Section 11 is introduced by a clear prohibition on the Bank having or--obtaining any right, title or interest in the assets held under the deed and includes the express provision that no part of the assets will at any time revert or be repaid to the employer directly or indirectly, subject only to two exceptions. The first exception is where the assets continuing to be held under the deed are attributable to prior contributions made by the employer because of an "erroneous actuarial computation". That is one circumstance in which the employer (the Bank in this case) might have an interest in the fund. The other exception is where there is a contribution made by the employer as a result of a mistake of fact. It is not suggested that a mistake of fact arose at any material point in this case.
It is said on behalf of the employees that, at best, any surplus remaining after the implementation of clause 13.4 is subject to section 11; that unless it can be demonstrated that the surplus was created as a result of an erroneous actuarial computation the Bank would have no entitlement to it.
For the Bank it is said that clause 13.4 says no such thing. It is not expressed to be subject to section 11. The payment is to be made in accordance with it.
Indeed, it is ironic that both parties have precisely the same argument but in relation to different sections.
On behalf of the employees it is said that section 11 does not say that that section or the limitation on the Bank's rights is "subject to section 13;' and the Bank, for their part, emphasise that in section 13 it is not said that the rights of the Bank are" subject to" section 11 but merely that the payment should be made in accordance with it.
No doubt the matter could have been phrased more happily. It is always easy to see with hindsight that anything could have been done better. But it seems to me that the direction to repay to the employer is emphatic and the absence of the words "subject to" in section 13 is significant. It seems to me, however, that perhaps the better answer is that the two clauses can be reconciled by a proper interpretation of the words "erroneous actuarial computation Counsel on behalf of the employees contends that these words and particularly the word "computation" were appropriate only to a miscalculation of what was effectively an arithmetical matter, whereas on behalf of the Bank it was contended that the error resulting in an over-contribution to the scheme could be such as would result from an erroneous assumption and that the key phrase in section 11was wide enough to carry errors of actuarial assumption as well as errors of actuarial calculation.
In my view the argument made on behalf of the Bank in this connection is correct in the context of the scheme. It seems to me that there is much to be said for both arguments; that whilst the J word "computation" would ordinarily connote a specific calculation based upon figures, the word "actuary" connotes, if it does not expressly mean, a person whose business activities include dealing in probabilities based upon assumptions and statistics. So a `J combination of the words "actuarial computation" has a broader meaning than a mere arithmetical exercise, an error in which could
Where repayments arise, the whole case concerns an excess in assets because of erroneous actuarial computations. In that context it seems to me that such an excess or surplus is most likely to arise because of such misguided generosity on the part of an employer. That he has, in fact, over-provided due to circumstances outside his control as a result of acting on the best advice available (that of the actuary) which subsequent events prove to have been erroneous.
Not only would I regard that construction as tenable but it seems to me that it is the method by which the words used at the conclusion of clause 13.4 can best be reconciled with section 11, that is to say, the money was to be repaid in accordance with section 11, the draftsman clearly accepting that any surplus which thus arose necessarily was the result of an actuarial error in computation; that all liabilities having been discharged, the surplus falls to be paid under section 11 because the very existence of a surplus itself is evidence of an erroneous actuarial computation.
For those reasons it seems to me that the moneys would correctly be distributed pursuant to section 13.4 and in accordance with section 11.
The argument, then, that the employees are entitled to the moneys as beneficiaries cannot succeed on its own. If there is an express provision, as I have held there is, requiring that the surplus be repaid to the Bank in accordance with the proper construction of the documents and in the events which have happened, then the claim of the employees simply based upon rights as beneficiaries cannot be sustained.
There remains an argument based upon a document referred to as memorandum to the staff members dated 2nd July 1984 and circulated under the name of James J Ruane, General Manager of the Dublin Branch of the Bank. That document does undoubtedly in the penultimate paragraph thereof contain the following sentence:
"If the pension plan should be terminated, the money in the trust must be used to provide benefits to plan participants."
It is understandable that Counsel on behalf of the employees should advert to this provision and rely strongly on it. Firstly, it was relied upon as an aid in construing the documentation which I have already dealt with. In my view it would not be admissible for that purpose. Even if Mr Ruane or those more expert than he, including Ms O'Leary, were to express it as their opinion that this is what the document meant, it would, I think, be inadmissible in this Court in construing the rights of the parties under the complex documentation. It is, however, also argued as a separate matter and quite apart from any issue of construction that this constituted a promissory estoppel and that the Bank, having informed their employees that the money in the trust would be used in a particular way, could not now resile from that position.
It seems to me that that case cannot be made on the existing evidence. There is no evidence to show that this was a statement upon which any particular employee or employees relied. However, most of all it seems to me that that particular sentence, whilst undoubtedly significant in the context of the present case and which, understandably, appeals to the individual employees with whom one can have sympathy, one must look at that one sentence in the light of a document of some ten pages which is dealing with matters of very considerable interest - extensions of the scheme, complex references to rights and benefits, examples and demonstrations. To take that one sentence alone is to take it very unfairly out of context, particularly when the immediately preceding paragraph expressly provides:
"This summary describes the highlights of the Dublin Branch Benefits Program. Each Plan herein described is subject to the terms and conditions of the formal documentation which govern the obligations and benefits provided under the various plans. "
Any reasonable person realises that this is a complex matter, as the argument over the last twenty-four hours has demonstrated. If one wants to consider matters of detail and the precise rights of parties, one would have to refer to the underlying documentation and perhaps get legal assistance in relation to it. It seems to me, therefore, that this memorandum is not admissible to aid construction and that it does not operate and has not been shown to operate as an estoppel against the Bank.
In these circumstances it seems to me that the Bank are entitled to the surplus and that they are not estopped from claiming that right.