ON APPEAL FROM THE HIGH COURT OF JUSTICE
PETER SMITH J
Strand, London, WC2A 2LL
B e f o r e :
LADY JUSTICE ARDEN
SIR MARK POTTER
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Mr Paul Newman QC (instructed by Linklaters LLP) for the Respondent
Hearing date : 24 November 2011
Crown Copyright ©
Lady Justice Arden:
"'Salary' means for each Member the annual rate of his basic remuneration from the Employers and London Weighting Allowance (if applicable) excluding any other emoluments."
"[Limb 1] 'Earnings' means for each Member the annual rate of his basic remuneration from the Employers.
[Limb 2] For the purposes of calculating Earnings of an employee who is in receipt of fluctuating emoluments, the annual rate of any such emoluments to be included in his Earnings shall be taken as the average annual amount received over the last three years, or over such shorter period as he has been in receipt of such emoluments.
[Limb 3] For the purposes of calculating Earnings of an employee paid on an hourly basis, remuneration in respect of any hours of work in excess of the Employer's standard working week for the time being in operation which is appropriate to the nature of such employee's employment will be ignored and the annual rate of his remuneration will be 52 times the weekly rate."
Neither the 1976 nor the 1981 rules define "basic remuneration" or "fluctuating emoluments".
"(b) the Trustees shall have full power to determine all questions and matters of doubt arising in connection with the Scheme whether relating to the construction thereof or the benefits thereunder or otherwise . . ."
"In this rule, 'Final Remuneration' means in relation to a Member at Normal Retiring Date, or the date of termination of his Service if earlier, the highest of –
(i) his highest total yearly remuneration from the Employers for any one of the last five years (except that in calculating such remuneration the amount of any fluctuating emoluments shall be taken as the yearly average over the period of three or more years, or such lesser period as the Member has been in receipt of such emoluments, ending on the last day of that year); and
(ii) the highest yearly average of his total emoluments from the Employers for any period of three or more consecutive years ending not more than ten years before the said date; and
(iii) in the case of a deceased Member only, the yearly average of any fluctuating emoluments over the period of three or more years (or such lesser period as he was in receipt of such emoluments) ending at the date of his death together with the yearly rate of all other remuneration from the Employers applicable immediately before the date of his death; and
(iv) in the case of a deceased member only, his highest total emoluments from the Employers for any year ending not more than three years before the date of his death;
provided that –
(1) a Member's remuneration shall for this purpose include remuneration from a sick pay or permanent health insurance scheme of the Employer (being a scheme under which benefit will not continue beyond Normal Retiring Date) benefits in kind to the extent that they are assessed or assessable under Schedule E as emoluments and otherwise to the extent agreed by the Commissioners of Inland revenue for this purpose, and directors' fees other than any to which the Member is not beneficially entitled or any which are treated for tax purposes as a receipt of a profession; and …"
Issue 1: whether the definition of Earnings in the 1981 rules includes "fluctuating emoluments";
Issue 2: whether the payments known as "13th month payments" ("the 13MP") and "London Weighting Allowance" ("the LWA") constitute either "fluctuating emoluments" or "basic remuneration"; and
Issue 3: whether any limit applies to the type or amount of fluctuating emoluments included in the definition of Earnings.
Judgment of Peter Smith J
Grounds of appeal
Issue 1: whether the definition of Earnings in the 1981 rules includes "fluctuating emoluments"
"26. There have been several reported cases about the interpretation of provisions of pension schemes in recent years. There are no special rules of construction but pension schemes have certain characteristics which tend to differentiate them from other analogous instruments. I mention some of those characteristics in the following paragraphs.
27. First, members of a scheme are not volunteers: the benefits which they receive under the scheme are part of the remuneration for their services and this is so whether the scheme is contributory or non-contributory. This means that they are in a different position in some respects from beneficiaries of a private trust. Moreover, the relationship of members to the employer must be seen as running in parallel with their employment relationship. This factor, too, can in appropriate circumstances have an effect on the interpretation of the scheme."
" Further there is logic in Mr Newman QC's submission that when one looks at the third category, the hourly paid employees, that their basic emoluments are the prima facie entitlement as set out in the third limb. However if they have overtime or the like then those also fall to be included in the second limb subject to the three year averaging rules as fluctuating emoluments."
Issue 2: whether either "fluctuating emoluments" or "basic remuneration" include payments known as 13 MP and the LWA
Issue 3: whether any limit applies to the type or amount of fluctuating emoluments included in the definition of Earnings
"The solution suggested by counsel for the Employees is that a term should be implied to the effect that the provisions of ICTA relating to such matters should be applied by the trustees. But the provisions of ICTA cannot be so applied without amendment; both uncertainty as to the amount until after the year end, the problems of time apportionment when switching from a tax year to a scheme year and the valuation of non-taxable benefits in kind preclude a simple application of ICTA."
Issue 4: was the judge wrong in principle in the order which he made as to the costs of preliminary issue?
"Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale."
"Conventionally [proceedings for the construction of a trust instrument] are treated as being divisible into three categories following the classification in the leading case Re Buckton  2 Ch 406 at 413 to 417:
(1) Proceedings brought by the trustee to have the guidance of the court as to the construction of the trust instrument or some other question of law arising in the administration of the trust or in relation to the trusts on which the trust property is held. In such cases, the costs of all parties are, whatever the outcome, usually treated as necessarily incurred for the benefit of the trust fund and ordered to be paid out of it….
(2) Proceedings in which the application is made by someone other than the trustee, but raises the same kind of point as in the first category and would have justified an application by the trustee. Such proceedings differ in form but not in substance from the first category and similar considerations apply as to costs.
(3) Proceedings in which the application is made by someone other than the trustee, but differ in substance from the second category, and in substance as well as form from the first category, in that they have the character of a hostile claim founded on a point of construction or law raised by someone other than the trustee to a beneficial interest in or entitlement to the trust fund. The distinction, though one not easy to draw in practice, between this kind of litigation and litigation within the first two categories, is that the claim is brought not in substance for the benefit of the trust fund, but for the benefit of the claimant, and is resisted for a similar reason. … Here the general principles as to costs of hostile litigation apply between the claimant and the party against whom the claim is directed, and so the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, subject to the general qualifications which apply in ordinary hostile litigation."
Disposal of this appeal
Issue 1: The definition of "Earnings" in the appendix to the 1981 rules includes fluctuating emoluments.
Issue 2: "Basic remuneration" includes the 13th month payment and the London Weighting allowance.
Issue 3: The taxable amount of benefits in kind for car allowance, entertainment allowance and free travel constitute "fluctuating emoluments" for the purpose of the definition of "Earnings".
Issue 4: Only one half of the difference between the amount of the costs incurred by BC on the preliminary issue on a standard basis and its costs on an indemnity basis should be paid out of the Scheme assets.
Sir Mark Potter:
Lord Justice Pill: