ON APPEAL FROM THE HIGH COURT OF JUSTICE
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOULSON
LORD JUSTICE RIMER
| STENA LINE LIMITED
|- and -
|(1) MERCHANT NAVY RATINGS PENSION FUND TRUSTEES LIMITED
(2) P & O FERRIES LIMITED
Mr Brian Green QC and Mr Jonathan Hilliard (instructed by Travers Smith LLP) for the First Respondent
Mr Christopher Nugee QC and Mr Edward Sawyer (instructed by Mayer Brown International LLP) for the Second Respondent
Hearing dates : 28-29 March 2011
Crown Copyright ©
Lady Justice Arden :
"29.1 IF, as a result of the Actuary's report, it shall appear that there is a deficiency or anticipated deficiency in the Scheme's resources, the Trustees shall consider what if any action, having regard to any recommendations made by the Actuary in his report, should be taken either by way of increasing contributions or decreasing benefits to render the Scheme solvent. If necessary, the Trustees shall take such steps as are hereinafter laid down for amendment of this Deed and the Rules, or if the deficiency or anticipated deficiency cannot be made good, for the winding up of the Scheme.
29.2 IF the report shows a surplus, all or part of that surplus may be applied by the Trustees, having regard to any recommendations made by the Actuary, to do any one or more of the following:
(i) to create a reserve fund;
(ii) to decrease contributions;
(iii) to increase or extend benefits; or
(iv) to lower the pensionable age.
The Trustees' approval to such application as aforesaid shall be signified in like manner as is laid down under the Trust Deed for an alteration of the Rules except that a Deed executed under the seal of the Trustees shall not be required to give effect to such application.
31.0 THE trusts hereby constituted shall continue unless and until:
(i) determined by a resolution to determine the Scheme passed by the Trustees in accordance with the Trust Deed; or
(ii) there be a deficiency or anticipated deficiency in the Scheme's resources with no agreed measures acceptable to the Participating Employers and approved by the Actuary for overcoming that deficiency.
32. THESE Rules may be varied or added to in accordance with the provisions of the Trust Deed (Clause 30)."
"30. THE provisions of the Trust Deed or of the Rules may be varied or added to in any way by Deed executed under the seal of the Trustees. Every such variation must first be approved by a majority of the full number of Participating Employers' representatives and also a majority of the full number of the Members' representatives serving as Trustees or as Directors on the Board of any Corporate Trustee which approval may be signified either by a resolution passed by such majorities or by an instrument in writing signed by such majorities PROVIDED that no variation or addition shall be made which:
a) would have the effect of changing the main purposes of the Scheme, namely the provision of pensions for Members on retirement; or
b) would operate in any way to diminish or prejudicially affect the rights in respect of any Member annuitant or other beneficiary already earned; unless the Actuary shall advise that no other course is reasonably practical having due regard to the interests of all persons interested in the Scheme; or
c) would be contrary to the principle that the Participating Employers and the Members shall be equally represented on the Board of the Corporate Trustee of the scheme;
d) would contravene the requirements of sections 67 to 67L of the 1995 Act."
"1. The establishment of a new contracted-in defined-contribution pension plan, to be called the Merchant Navy Ratings Pensions Plan ("MNRPP"), open to those who are currently contributing members of the scheme whose employers accede to it, as well as to new employees.
2. The closure of the scheme to all future accruals of benefit immediately prior to the new plan starting to accept contributions…
3. The establishment of a schedule of contributions by current employers (ie those who were participating employers on a given date), aimed at restoring the funding level of the scheme to 100% of MFR by April 2006 (which is one year earlier than as required by regs. 2(1) and 16(2) of the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996).
4. The allocation of part of the scheme's MFR shortfall to each current employer by reference to those of the scheme's liabilities as at 31 October 1999 which accrued in respect of members of the scheme up to that date whilst in the service of that employer…
5. The voluntary payment on behalf of certain so-called debt employers (ie broadly, certain named former participating employers) of contributions to the scheme in addition to the discharge by those debt employers of the debts which they owe under s.75 of the Pensions Act 1995.
6. The establishment of conditions under which a current employer can withdraw from the scheme…
7. The circumstances in which the current employers are able collectively to terminate the scheme. (Broadly stated, this is if all so require or if at least five current employers, representing not less than 30% by value of the scheme's liabilities, so decide and either the scheme has reached 100% MFR (on an equity/gilt basis) or annual contributions required to meet the MFR target exceed £16 million increased in line with the RPI [retail prices index] since 31 March 2000 or 31 March 2006 has been reached. The result is that it will no longer be possible for a single employer to bring the scheme to an end, for example in the event of a deficit.)
8. Provision for the funding target of the scheme to be changed…
9. The holding of ad hoc meetings between representatives of the trustee and of the employers to discuss investment matters."
Concession as to the validity of the alteration of the Rules by the deletion of OR31.0(ii)
"is simply a reference back to 1994 Rule 29.1, and the words "agreed" and "acceptable to" are no more than shorthand for the processes which would have to be undertaken under Rule 29.1 before any such deficit repair regime could be put in place."
Issues on this appeal
The appellant's submissions on the entrenchment issue
"The appropriate quid pro quo for the removal of Old Rule 31 would, on Mr Spink's interpretation of it, not be a permanent narrowing in the scope of the amendment power, but an implied requirement for the Trustee to consider some form of replacement of Old Rule 31 in connection with the implementation of some replacement regime by amendment in which persons other than the Current Employers were under a legal obligation to make deficit repair contributions. In short, the protection for the Specified Employers would not be to make their release from contribution liability permanent, but to make the wholesale removal of Old Rule 31 temporary." [extract, judgment, paragraph 122]
The respondents' arguments on the entrenchment issue
Analysis and conclusions
"The interpretation of pension schemes
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.
28. Second, a pension scheme should be construed so to give a reasonable and practical effect to the scheme. The administration of a pension fund is a complex matter and it seems to me that it would be crying for the moon to expect the draftsman to have legislated exhaustively for every eventuality. As Millett J said in Re Courage Group Pension Schemes  1 WLR 495 at 505:
"[its] provisions should wherever possible be construed so as to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life."
In other words, it is necessary to test competing permissible constructions of a pension scheme against the consequences they produce in practice. Technicality is to be avoided. If the consequences are impractical or over-restrictive or technical in practice, that is an indication that some other interpretation is the appropriate one. Thus in the National Grid case, to which I refer below, where there was a choice of possible constructions, Lord Hoffmann held that the correct choice depended "upon the language of the scheme and the practical consequences of choosing one construction rather than the other." (see  1WLR 864 at 887, paragraph 53).
29. Third, in pension schemes, difficulties can arise where different provisions have been amended at different points in time. The effect is that the version of the scheme in issue may represent a "patchwork" of provisions: see per Robert Walker J in the National Grid case. Pension schemes are often subject to considerable amendment over time. The general principle is that each new provision should be considered against the circumstances prevailing at the date when it was adopted rather than as at the date of the original trust deed: see per Millett J in Re Courage Group's Pension Schemes, above, at 505–506. Likewise, the meaning of a clause in the scheme must be ascertained by examining the deed as it stood at the time the clause was first introduced. Thus, for instance, at the time clause 11 was introduced, neither clause 24 nor its predecessor formed part of the APS Trust Deed, so that clause is not to be taken into account in the interpretation of clause 11…
30. Fourth, as with any other instrument, a provision of a trust deed must be interpreted in the light of the factual situation at the time it was created. This includes the practice and requirements of the Inland Revenue at that time, and may include common practice among practitioners in the field as evidenced by the works of practitioners at that time. It has been submitted to us that the factual background is only relevant if the document is ambiguous. I do not accept this submission, which is inconsistent with the approach laid down by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society  1 WLR 896. In Lord Hoffmann's words "[i]nterpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background that would reasonably have been available to the parties in the situation in which they were at the time of the contract" (912H). Lord Hoffmann also distinguished the meaning of the words to be found in dictionaries from the meaning of documents:
"(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749."
31. Fifth, at the end of the day, however, the function of the court is to construe the document without any predisposition as to the correct philosophical approach. Both sides urged on us their respective philosophical approaches. Mr Inglis-Jones submitted that the overall approach of the APS Trust Deed was favourable to the members. BA submitted that it should be remembered that this was a balance of cost scheme and so the fact that there was a surplus meant that the employer had paid too much. As Brooke LJ, giving the judgment of this Court (Nourse, Schiemann, Brooke LJJ), said in the National Grid case  ICR 174, 193
"The solution to the [problem of construction in that case] lies within the terms of the scheme itself, and not within a world populated by competing philosophies as to the true nature and ownership of an actuarial surplus."
In the same case, in the House of Lords, the beneficiaries of the scheme argued that the surplus represented their contributions or their deferred remuneration. Lord Hoffmann rejected this approach. He expressed the view that, once it was established that the employer could exercise powers conferred by a scheme in its own interests, "I do not see the relevance of the way in which the surplus was funded" (page 869G). I discuss the National Grid case in detail below.
32. Sixth, a pension scheme should be interpreted as a whole. The meaning of a particular clause should be considered in conjunction with other relevant clauses. To borrow John Donne's famous phrase, no clause "is an Island entire of itself."
"The general principle is that each new provision should be considered against the circumstances prevailing at the date when it was adopted rather than as at the date of the original trust deed: see per Millett J in Re Courage Group's Pension Schemes, above, at 505–506. Likewise, the meaning of a clause in the scheme must be ascertained by examining the deed as it stood at the time the clause was first introduced. Thus, for instance, at the time clause 11 was introduced, neither clause 24 nor its predecessor formed part of the APS Trust Deed, so that clause is not to be taken into account in the interpretation of clause 11…"
" In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means."
" It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must 'go without saying', it must be 'necessary to give business efficacy to the contract' and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"
" In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282–283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was 'not … necessary to review exhaustively the authorities on the implication of a term in a contract' but that the following conditions ('which may overlap') must be satisfied:
'(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying" (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.' "
"…it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander 'Could you please explain that again?' does not matter."
"There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?" (per Lord Hoffmann)
"…the starting point in relation to powers to amend pension schemes is that they should be given a broad interpretation, consistent with the need to preserve their utility over a long period of unpredictable future events, and to be of practical use in circumstances which the original framers of the power may have been unable even to imagine, at the time of its inception."
"The main question, however, is, whether the resolution is one by which it was competent for a majority of debenture-holders to bind a dissentient minority. This must depend upon the true construction of the 22nd clause of the deed of the 10th of March, 1888; and, in order to arrive at that construction, attention must be paid, not only to the language of the clause, but to the objects to attain which the clause itself was inserted.
Powers given to majorities to bind minorities are always liable to abuse; and, whilst full effect ought to be given to them in cases clearly falling within them, ambiguities of language ought not to be taken advantage of to strengthen them and make them applicable to cases not included in those which they were apparently intended to meet…. A power to compromise their rights presupposes some dispute about them or difficulties in enforcing them, and does not include a power to exchange their debentures for shares in another company, where there is no such dispute or difficulty. It is a mistake to suppose that a power to compromise a claim for money becomes a power to accept less than 20s. in the pound, if the debt is undisputed and the debtor can pay. …"
Lord Justice Toulson:
Lord Justice Rimer: