Table of Contents

Introduction and summary

Outline facts

The Principal Employer may by notice in writing to the Trustee direct that any specified person or class of persons shall not be eligible for membership, or shall cease to be a Member or Members.  Such a notice shall override any provisions of the Plan that are inconsistent with it.

i)                   All but certain specified members of the DB Plans were to be excluded from membership of those plans with effect from 6 April 2011, by virtue of notices served by Holdings under the Exclusion Power on 28 May 2010, thereby bringing to an end their accrual of DB pension rights for future service.

ii)                 A new early retirement policy was to be introduced as regards the DB section of the Main Plan with effect from 6 April 2010 under which consent would only be given on less advantageous terms, which involved an actuarial discount such as to make the process cost-neutral for the scheme.

iii)               The opportunity was offered to active members of the Main Plan DB section to retire early under the previous policy, if they registered their interest in doing so within a specified time; this is known as the Early Retirement Window.

iv)               Pay increases from 2009 onwards for DB members were to be non-pensionable, so that these increases would not count towards their final pensionable salary for the purposes of their accrued DB service up to 5 April 2011.

v)                 Active DB members of the Main Plan, though excluded under the Exclusion Notices, were offered the opportunity to join the DC section, and to do so on terms which gave their accrued DB benefits a new “hybrid deferred” status.  They were also offered alternative opportunities including to join a new personal pension scheme set up by IBM and administered by Standard Life.

The issues on the appeals

i)                   A threshold issue concerning the basis on which the judge decided that Holdings and UKL had breached their respective legal duties (Issue 1).

ii)                 Reasonable Expectations as a legal concept limiting (1) a Principal Employer’s freedom to cease accrual in the DB scheme, (2) a Principal Employer’s freedom to change its policy for the exercise of its discretion to allow early retirement benefits under the scheme and (3) an employer’s ability to offer pay rises on a non-pensionable basis (Issues 2, 3, 3a, 5 and 7).

iii)               The Reasonable Expectations found in this case (Issues 8 to 13).

iv)               Additional Reasonable Expectations not found by the judge but contended for in the Respondent’s Notice (Issues 14 to 16).

v)                 Additional factors on which the RBs contend the Judge should have placed reliance (Issues 17, 20 and 21).

vi)               Justification in this case for disappointing Reasonable Expectations (Issues 22 to 28).

vii)             Validity of non-pensionability contractual terms as between employer and employee (Issues 29 to 33).

viii)           Issues on remedies: effect of invalidity of non-pensionability contractual terms (Issues 34 to 36).

ix)               Supplemental issue: changing early retirement policy (Issue 37).

x)                 Consequential issue on remedies: effect of deficient consultation (Issue 38).

xi)               Cross-appeal: whether the Exclusion Power was used for an improper purpose (Issue 39).

i)                   A discussion of the Imperial duty and the contractual duty of trust and confidence: from paragraph [27].

ii)                 The burden of proof: from paragraph [47].

iii)               Reasonable Expectations: from paragraph [59].

iv)               The main facts: from paragraph [72].

v)                 The details of Project Waltz: from paragraph [142].

vi)               The validity of the Exclusion Notices: the cross-appeal (Issue 39): from paragraph [160].

vii)             The challenge to Project Waltz as a breach of duty, dealing first with the threshold issue (Issue 1) as to the basis on which the judge decided the case, and with Issues 2 and 5: from paragraph [176].

viii)           Issue 10: Reasonable Expectations and significant change in financial and economic circumstances: from paragraph [235].

ix)               Issues 11, 12, and 16: was the judge justified in finding the Reasonable Expectations as to DB accrual and early retirement policy proved?  This starts at paragraph [248], deals with the Reasonable Expectation as to the early retirement policy from paragraph [249] and then deals with the Reasonable Expectation as to DB accrual from paragraph [261].

x)                 Reasonable Expectations generally: Issues 7, 8 and 9: from paragraph [268].

xi)               Issue 13: the Early Retirement Window: from paragraph [274].

xii)             Issue 37: notice of a change of the early retirement policy: from paragraph [278].

xiii)           Respondent’s Notice points. Issues 14 and 15 as to non-discrimination in relation to salary increases: from paragraph [283].

xiv)           Issue 17: the aggressive investment policy adopted by the Trustee: from paragraph [290].

xv)             Issue 20: the rectification proceedings: from paragraph [293].

xvi)           Justification for breach of duty, starting at paragraph [296].  This includes Issues 23 and 24, treating the IBM group as one, starting at paragraph [341], Issue 26, an alternative course of action, starting at paragraph [374], Issue 27, the sequence of events, starting at paragraph [391] and Issue 26, the judge’s finding that IBM was disingenuous, starting at paragraph [395].

xvii)         NPAs: Issues 29 to 36: from paragraph [407].

xviii)       Defective consultation.  This includes Issue 21, whether the implementation of Project Waltz after the defective consultation was a breach of the Imperial duty, from paragraph [439], and Issue 38, whether in any event IBM should be required to carry out a new consultation process before implementing Project Waltz, from paragraph [454].

The relevant legal duties

Construed against the background of the contract of employment, in my judgment the pension trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.

My own view is that members’ interests and expectations may be of relevance when considering whether an employer has acted irrationally or perversely.  There could potentially be cases in which, say, a decision to override expectations which an employer had engendered would be irrational or perverse.  On the other hand it is important to remember that powers such as that at issue on the present case are not fiduciary.  As a result the donee of the power is … entitled to have regard to his own interests when making decisions … . That fact must limit severely the circumstances in which a decision could be said to be irrational or perverse.

It is of the essence of “Wednesbury reasonableness” (or “GCHQ rationality”) review to consider the rationality of the decision-making process rather than to concentrate on the outcome.  Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker.

16.         … There may in law be a breach of the implied term of trust and confidence in a decision to refuse to offer an employee a new contract in circumstances such as the present, just as in a decision to refuse to offer a variation. …

17.         … To single out an employee on capricious grounds and refuse to offer him the same terms as were offered to the rest of the workforce is, in my judgment, a breach of the implied term of trust and confidence.  There are few things which would be more likely to damage seriously (to put it no higher) the relationship of trust between an employer and employee than a capricious refusal, in present circumstances, to offer the same terms to a single employee.

Burden of proof

the burden of establishing that no rational bank in the City would have paid him a bonus of less than his line manager recommended is a very high one.  It would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the Bank in fluctuating market and labour conditions.

It is for the employee to establish the irrationality of the decision.  He must be able to demonstrate some feature of the award, or the circumstances in which it was made, which tends to show its perversity.  If he can do so, then the absence of any explanation … will lend powerful support to his case.  If there is nothing to show that the award is outwith the range of additional payments a reasonable employer, in similar circumstances, would award, I take the view that silence would not be sufficient to demonstrate irrationality.

[The judge] explained why he took the view that the guiding hand was Commerzbank.  There was an abundance of evidence which supported that inference, and the judge was entitled to have regard to the fact that no-one from Allianz or DBAG had come to explain why the decision had been taken.  This was a striking absence of evidence given that the onus of establishing a reasonable and proper cause lay on the employer, once the objective breach of trust and confidence had been established.

The employer now accepts that it is for it to show that the decision which it reached was a reasonable decision in the sense which is required by the contract.

In my judgment that is an over-simplification.  The claimant … had the burden of proof, but once he demonstrated that there were grounds for thinking that Niksun’s decision was not reasonable … the evidential burden shifted to Niksun to show that its decision was reasonable.  That is not precisely what Baroness Hale said, since the point as to burden of proof was conceded in Braganza, but it is in practice consistent with it.

Reasonable Expectations

i)                   A “mere expectation” is one which an employee may have in fact as to the future, in the sense that they anticipate, assume or expect that something (e.g. a discretionary increase) will happen in the ordinary course of events if things “carry on as they are”.  Employees may have a mere expectation independently of any encouragement by the employer.

ii)                 A “reasonable expectation” means an expectation as to what will happen in the future engendered by the employer’s own actions (and in relation to matters over which the employer has some control), which gives employees a positive reason to believe that things will take a certain course.

It is not possible to rule out “a priori” the possibility of an employer engendering such strong expectations, not amounting to promises or guarantees, among the members about how it will exercise a discretion in the future, that to act contrary to those expectations would seriously breach the relationship of trust and confidence on which the Imperial duty is based.

it seems to me that, were it not for the business case which IBM presents, with its global and local strands, the two elements of the Project Waltz changes (cessation of accrual of DB benefits and change to early retirement policy) relevant to the Imperial duty would, in the light of those conclusions, have given rise to a breach of Holdings’ Imperial duty.

I also consider that Holdings’ conduct in relation to the 2009 Non-Pensionability Agreements would, in the absence of the global and local strands, have given rise to a breach of the contractual duty of trust and confidence in the context of Project Waltz as a whole.

The central question is whether the global strand and the local strand lead to the result that Project Waltz did not give rise to a breach of Holdings’ Imperial duty or of its contractual duty of trust and confidence.   I avoid putting the question as whether the global strand and the local strand justify the breach of duty since that would be to adopt the “two-pronged” approach which I have rejected.

1525. ... The ultimate question is one of judgment, taking into account all of the factors which I have identified and addressed at length, and the submissions (many of which I have already dealt with) made.  My judgment is that Holdings was in breach of its Imperial duty and of its contractual duty of trust and confidence in imposing the Project Waltz changes and in presenting the members with the choice of signing non-pensionability agreements or receiving no pay increases in the future.

In the light of all the evidence, and in particular in the light of the factors to which I have referred in the last few paragraphs, it is my view that no reasonable employer in the position of Holdings in 2009 would have adopted the Project Waltz proposals in the form which they took.  Accordingly, I hold that Holdings was in breach of its Imperial duty so far as concerns accrual of benefits and change in early retirement policy and of its contractual duty of trust and confidence so far as concerns the 2009 Non-Pensionability Agreements.

The main facts

i)                   Mr William Chrystie, Chief Financial Officer of IBM UKI from Spring 2009 onwards;

ii)                 Mr Jonathan Ferrar, from 2007 to 2010 Director of Human Resources for IBM UKI, and part of the executive leadership team of IBM UKI, and since 2010 Vice President, Human Resources, Workforce Analytics, IBM Worldwide;

iii)               Mr David Heath, Human Resources Director for IBM UK from September 2003 to January 2007 when he left the company;

iv)               Mr Lawrence Koppl, who was at the times material to the proceedings Director of Pensions Analytics within the Finance function at CHQ;

v)                 Mr James Randall MacDonald, Senior Vice-President, Human Resources at CHQ, at all material times;

vi)               Mr Brendon Riley, who was General Manager of IBM UKI from April 2008 to January 2010.

It is not difficult to see that those who share Mr Gavin Wilson’s thinking would see the Gerstner approach as destructive of their hopes and aspirations and indeed what, for some of them, had become expectations.  But those expectations, led by the culture which Mr Gerstner deprecated in the then new harsh commercial world for IBM, were not necessarily expectations which employees could assert as legal rights, disappointment of which would result, in England, in a breach of the Imperial duty.  The questions are whether IBM could properly propose and implement Project Waltz and to what extent the new culture can properly be invoked to override any such Reasonable Expectations as can be established.

CHQ did not impose its view in the sense of compelling UK management to take particular action.  In practice, this was never an issue because UK management knew where the ultimate power lay and would follow CHQ policy and directions: there was no occasion on which they were faced with implementing something which they considered was wrong, in the sense of being against the interests of the UK companies.

My conclusion is that the influence of CHQ in the eventual Ocean changes was central.  Not only could those proposals not have been implemented without CHQ approval, the UK team in practice had to consider changes which they did not favour and were eventually persuaded to adopt them for presentation to the Trustee in the light of (i) the financial and economic information provided by CHQ and (ii) the pressure coming from CHQ (factors of even greater importance in relation to Soto).

Randy [i.e. Mr MacDonald] confirmed that in his opinion the current package of proposals put the IBM UK DB Plans on a very firm and sustainable footing for the foreseeable future in their current form. Whilst he (Randy) could not give a guarantee that pension structure would never change again in the future, he confirmed that he had no intention of looking at this subject again and that there were currently no plans to do so.

making no change to pensions benefits is not an option given the very competitive UK marketplace, the higher cost of doing business in established geographies, and the fact that many of its competitors do not have the same level of pensions costs as IBM.  These factors are particularly relevant in a services business where people cost is the major cost driver.

Although IBM is unwilling to give a commitment to the Trustee that there will be no further changes to pension benefits it has told the Trustee that it views these changes as long term and has no plans for further change.

Q. What guarantees do we have on this offer – will IBM guarantee to keep the C plan active for a period (e.g. 5 or 10 years) or do we have to go through the uncertainty and trauma every couple of years?

A.          IBM cannot offer any such guarantee that it will not make changes to its pension plans in the future. However, we believe that actions being proposed now will reduce the expense and volatility of the pension plans and therefore our current expectation is that it will provide a platform for future stability.

Ms Salinaro’s response was “We’ve been confidentially thinking similarly.  Behind the scenes…”.  That suggests strongly that the CHQ pensions team (perhaps other than Mr MacDonald) were well aware that Soto was not “really solving our future volatility”.  Further, it is hardly a ringing endorsement of the proposition that IBM saw the DB Plans as sustainable at that time; it even makes questionable the proposition that IBM had no current intention to make further changes in the near or even foreseeable future.  And it clearly shows that CHQ’s thoughts were not to be shared with UK management, something which Mr Koppl accepted.  That requirement for secrecy was, it seems to me, a reflection of the fact that CHQ knew things that it did not want UK management to know because it would undermine the message which CHQ was sending out about addressing volatility and sustainability.

But what is clear is that CHQ as a whole knew, and to a large extent directed, what was happening in the UK in relation to pensions.  The “powers reserved” system meant that the critical pension actions could not be taken without Armonk approval.  To come at that point from a different perspective, Holdings was part of a corporate structure, with IBM Corporation (and within it CHQ) at the top, whose governance resulted in the team at CHQ having significant control over certain aspects of Holdings’ activities including control of the direction of the pensions projects.

IBM Corporation and CHQ can, of course, make whatever business and commercial decision they like and this court, at least, cannot interfere with their decisions and actions.  But what this court can and should do, in my judgement, is to hold that, by imposing targets and requiring changes to the UK DB Plans, IBM Corporation runs the risk of putting Holdings in breach of its (Holdings’) Imperial duty.  Whether it actually does put Holdings in breach of its Imperial duty should be assessed by asking whether Project Waltz was an appropriate response to the problems facing IBM Corporation taking into account the Reasonable Expectations (if any) of members.

Clearly someone in CHQ approved the communications which were made on behalf of Holdings.

As to IBM Corporation/CHQ, whatever Mr MacDonald himself may have understood, I think it is clear that they collectively knew (using that word in the sense of the knowledge which is properly attributable to them) that the message which they intended to be given by the Soto communications, and which was in fact given, was not consistent with what they appreciated the reality to be.  The issue of volatility was addressed by CHQ in the sense of having been considered by them; but not even a partial solution was really provided.  I accept that the Soto changes had some positive effect on volatility but the extent of the amelioration was only small in the context of the problem which IBM Corporation was facing.  That CHQ knew a message was being given which was, at best, hugely optimistic, in all likelihood disingenuous and, on an extreme view, deliberately misleading, is underlined by its requirement for secrecy: CHQ knew things that it did not want UK management to know because it would undermine the message which CHQ was sending out about addressing volatility and sustainability.

i)                   Close the DB Plans to future accrual as at 5 April 2011 or 2012;

ii)                 No further pensionable salary increases up to closure;

iii)               Restrict approval of early retirement requests from 5 April 2010;

iv)               Offer an early retirement opportunity for 600 employees on the existing terms plus a cash lump sum in the first quarter of 2010;

v)                 DB members at closure to be entitled to join the DC section, though not on enhanced terms as under Project Soto.

Mr Murphy forwarded these to Mr Ferrar the next morning.  He wrote in his covering email: “you may want to spend a few mins scanning them in advance of when we go back to them with our solutions”.  There does not appear to have been any further consideration in fact given to them.

Project Waltz – the details

IBM United Kingdom Holdings Limited as Principal Employer for the purposes of the Plan hereby directs that all members currently accruing benefits under the Defined Benefit Rules shall cease to be members of the Plan with effect on and from the 6 April 2011.

For the avoidance of doubt:

(1)          …

(2)          This does not constitute a direction that the persons so ceasing shall not be eligible to join the M Plan pursuant to paragraph 1 of Schedule B to the Money Purchase Rules.

I am writing to you to explain that any salary increases offered as part of this and any future ESP will not be pensionable as long as you remain a member of a Defined Benefit pension plan, even if such salary increases are backdated. …

If you do agree to accept that any further salary increases will be non-pensionable for Defined Benefit plan purposes (by ticking the acceptance box in the tool below), further salary increases will be included in the calculation of pensionable salary for the purposes of an IBM Defined Contribution Plan.

If you do not agree to this term (either by ticking the non-acceptance box in the tool below or by not responding in accordance with the deadline set out below) you are advised that you will not be eligible to receive any salary increases.

Please find the tool below to register your acceptance or not of the terms described above which must be submitted no later than 5pm GMT on Tuesday 10th November.

I do not agree to this ... proposal and recognise that I shall not be eligible for any future increase to remuneration that would otherwise increase my DB Pensionable Pay.

The validity of the Exclusion Notices: the cross-appeal (Issue 39)

It does not matter that Hanson could have achieved the same, or nearly the same, result by commercial transactions without any amendments to the schemes.  It is one thing to remove members from the schemes by disposing of the companies by which they are employed.  It is quite another to remove the schemes from the members by manipulating the trust deeds and rules, either alone or in conjunction with a commercial transaction.

The challenge to Project Waltz as a breach of the Imperial duty and of the contractual duty

The threshold issue: on what basis did the judge decide the case? (Issue 1) and Issues 2 (Reasonable Expectations and the Imperial duty) and 5 (Reasonable Expectations and NPAs)

(i)            First, the exercise of a discretion, such as the exercise of the Exclusion Powers, requires “a genuine and rational” as opposed to an “empty or irrational” exercise of the discretion.

(ii)          Secondly, the correct test is not one of fairness.

(iii)         Thirdly, whatever the test is, it is a “severe” one.

(iv)         Fourthly, the test, whatever it is, is objective. 

(v)           Fifthly, the employer’s financial and other interests are relevant.

it seems to me that breach of expectations is, at root, an aspect of irrationality or perversity.  In other words, if expectations have been engendered by an employer, that may have been done in such a way that to disappoint those expectations would, absent some special change in circumstances, involve the employer acting in a way that no reasonable employer would act; in which case, irrationality or perversity, as those concepts are to be understood in this context, is established.  To that extent, reasonableness does come into the picture.  But this is not to bring in, by the back door, the test of fairness rejected in Imperial and cases following it since there is no question of choosing one person’s (the employer’s) idea of fairness rather than another person’s (the employee’s) idea of fairness.  Rather, it is an objective assessment of where the range of reasonable perceptions reaches its limits.

That passage is instructive because it shows that honesty, good faith and genuineness, on the one hand, and arbitrariness, capriciousness, perversity and irrationality are two sides of the same coin in the context of employer/employee (and I would say employer/member) relationships.   Adopting the approach of Burton J (the “no reasonable employer” approach) [in Clark v Nomura [2000] IRLR 766] to irrationality and perversity, an absence of good faith as properly understood can be seen to be the presence of irrationality or perversity in this sense since an employer could not, in good faith, act in a way in which no reasonable employer would act.

In my judgement, the test of irrationality or perversity in the sense in which I have described it [which we take to be a reference back to B441] is the correct test to apply in relation to the scope of the Imperial duty so far as that duty is relevant to the exercise of a discretion by an employer under a pension scheme.

It is straightforward to accommodate that proposition if the test is as I have identified it: it could in some circumstances be irrational or perverse for the employer to give precedence to its own financial interests rather than to the Reasonable Expectations of members although in other cases (e.g. radically changed financial and economic conditions) it may be entirely reasonable, on any view, to depart from those Expectations.

the question to ask is whether Project Waltz was an appropriate response this time to the combination of problems facing both IBM Corporation (the requirement to meet the 2010 EPS Roadmap) and Holdings (the need to improve competitiveness) taking into account the Reasonable Expectations (if any) of members.  This involves, of course, a careful consideration of IBM’s business case which I come to later.  It is not a straightforward exercise.

1391.     Such commitments [i.e. IBM’s commitments to investors] may need, however, to compete with other commitments.  Suppose, for example, that Holdings had, with CHQ’s knowledge and approval, made the clearest possible commitment (not amounting to a contractual promise or giving rise to an estoppel) giving rise to Reasonable Expectations that it would not, during the currency of the Funding Agreement, close the Plans to future accrual or alter the early retirement policy.  Adopting the test in relation to the Imperial duty which I have explained, the question would be whether making changes to the terms of pension provision would be within the range of decisions which a reasonable employer could take.  In this example, if IBM sought to close the Plans or change the early retirement policy on the basis that it needed to do so in order to achieve savings required to meet its commitment to investors, a close examination would be required of precisely what it had committed to investors and whether, in the light of its Imperial duty, it could properly have committed to what it did commit.  Even if that commitment had been properly given, a close examination would also be required to see whether IBM could meet that commitment whilst at the same time acting in compliance with the Reasonable Expectations which it had engendered.  Only if it could not do so, it seems to me, would IBM have an argument for saying that the commitment to investors trumped its obligations to members.

1392.     This is not to say that a significant change in financial conditions would not be capable of justifying changes to the Plans: but that is a different question.  The point is that a deterioration in financial conditions which produces problems for IBM in meeting its commitment to investors would not necessarily be a sufficient justification for changing the terms of pension provision.  It will all depend on the precise circumstances.

1393.     On the facts, the 2010 EPS Roadmap was first presented to investors in 2007.  This was after the date of the events said to give rise to the Reasonable Expectations relied on by the RBs.  Since certain Reasonable Expectations are, as explained, established, it follows, in my view, that IBM must do more than demonstrate that meeting the 2010 EPS Roadmap was a rational, commercially sensible, course but must show why the confounding of those Reasonable Expectations was within the range of decisions which a reasonable employer would take.

The contractual duty can be expressed differently: an employer must treat his employees fairly in his conduct of his business, and in his treatment of his employees, an employer must act responsibly and in good faith; he must act with due regard to trust and confidence (or fairness): see paragraph 407 above.  But as I have explained, to confound a Reasonable Expectation may, on the facts, be something that no reasonable employer would do in the way that is has been done. There may, accordingly, be no significant difference in the application of the two different tests to a particular set of closely related facts.

(iv)         The local strand, insofar as it is based on the need for operational improvements and savings unrelated to the requirement by CHQ to deliver pension savings in a manner designed to improve NPPC, would not render unobjectionable Holdings’ decision to adopt Project Waltz.  In the light of the Reasonable Expectations, Holdings could be expected to adopt proposals to meet such concerns as there were about the operational cost (including the cost, from a UK accounting and scheme-funding perspective, of meeting any UK DB Plan deficit) in ways which, so far as reasonably possible, were consistent with those Reasonable Expectations.  I have little doubt that, had the only need been to meet local objectives of that sort, proposals of far less severity could and would have been devised.  Indeed, Mr Riley effectively accepted that proposition.

(viii)       Had CHQ acknowledged that the members had the Reasonable Expectations which I have held they were entitled to hold and had CHQ recognised the need for Holdings to act, so far as possible, consistently with those Reasonable Expectations (and its own need, therefore, to enable Holdings to do so), CHQ should have given consideration to developing proposals which would meet the twin objectives of (i) meeting the EPS target in the 2010 EPS Roadmap and (ii) allowing effect to be given to the members’ Reasonable Expectations. 

(ix)         The evidence demonstrates that this was not done.  Instead, CHQ determined that delivery of NPPC savings and increases to PTI were to be effected in certain ways.  For the UK, that included pension savings of such a scale and having such attributes that the target set for the UK would be met.  I am wholly unconvinced that proposals could not have been developed which would have met those twin objectives; indeed, I am satisfied on a balance of probabilities that they could have been. In the first place, the necessary savings to meet the EPS target (in contrast with the savings in NPPC cost) did not need to come from DB Pension plans, let alone from the UK DB Plans.  If pension cost was an essential element, DC Plans could have been targeted: as the evidence (particularly from Mr Koppl) shows, that was an option and would have provided an easier solution.  Another option might have been to impose heavier burdens on other DB Plans in countries where members had no similar Reasonable Expectations or no remedies arising out of them.

The change in ER policy before 2014 was a breach of a Reasonable Expectation.  But even if that were not so, against the background of the totality of the communications to members during the course of Ocean and Soto, the early retirement window was unreasonably short.  Even if Holdings was entitled to change its ER policy, it could not do so overnight; it seems to have recognised that by providing, as it did, for an early retirement window.  But to expect members to make such an important decision under the sort of pressure which was put on them was not, in my view, consonant with Holding’s Imperial duty or its contractual duty of trust and confidence.  The fact that members were being asked to make their decisions in the context of those communications meant that they needed more time than might otherwise have been sufficient to consider their positions.  This is especially the case given that the communications gave rise, as I have held, to Reasonable Expectations.

By ‘irrationality’ I mean what can by now be succinctly referred to as ‘Wednesbury unreasonableness’. … It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.

Rationality is not the same as reasonableness.  Reasonableness is an external, objective standard applied to the outcome of a person’s thoughts or intentions …  A test of rationality, by comparison, applies a minimum objective standard to the relevant person’s mental processes.  It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and (which will usually amount to the same thing) an absence of arbitrariness, of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.

Issue 10: A significant change in financial and economic circumstances

I do not consider that the reasonable member could understand the statements in the Webcast about sustainability and commitment as creating an expectation that, even if the value of the funds fell significantly, the DB Plans would continue unchanged whether in relation to future service benefits or in relation to pension practice.

697.       Further, I do not consider that the reasonable member would form an expectation that further accrual would continue for any particular period (except perhaps in the very short term) regardless of changes in financial and economic circumstances (falling short of the changes which even Mr Tennet accepts would justify a change in future accrual).  His expectation would be qualified by an acceptance that such changes in financial and economic circumstances could justify a change.  Whether one categorises that situation as one where the extent of the Reasonable Expectation is circumscribed by the qualification or as one where a disappointment of that Expectation has no consequence does not matter much, if at all.

Issues 11, 12 and 16: was the judge justified in finding the Reasonable Expectations (A) as to early retirement and (B) as to DB accrual and proved?

(A) The Reasonable Expectation as to the continuance of the early retirement policy

in 2004 there was a widely-held perception on the part of members that they would be able to retire before NRD if they wished to do so and that in practice, even if consent was formally required, it would ordinarily not be refused; that was a perception engendered by Holdings which knew that the perception was widely held.  It was a Reasonable Expectation.  Action by Holdings contrary to that Reasonable Expectation is at least capable of engaging the Imperial duty.  The Expectation was, however, the result of a policy and a practice.  Policy and practice can obviously be changed for the future in respect of future service.  Whether it can be changed in respect of past service is a different question.  I do not think that it could be said that the expectation in respect of past service can never be changed without a breach of the Imperial duty.  For instance, it would be surprising if Holdings was unable to revise its policy and practice on early retirement in relation to a 35-year-old man with 4 years’ pensionable service in the DB Plans.  In contrast, it could well give rise to a breach of the Imperial duty to change the practice with only a month’s warning in relation to a 58-year-old man with 20 years’ pensionable service in the DB Plans.

(B) The Reasonable Expectation as to the continuance of DB accrual

Issues 7, 8 and 9: Reasonable Expectations generally

If Reasonable Expectations are legally relevant, must they meet minimum criteria (and if so what) of clarity, certainty and assumption of responsibility (Issue 7)?  If so, did the judge rely on Reasonable Expectations that failed to meet such criteria (Issue 8)? If no such criteria are required, was the judge wrong to find legally relevant Reasonable Expectations to be generated by the facts he found (Issue 9)?

Issue 13: The Early Retirement Window

Issue 37: notice of a change of the early retirement policy

This conclusion does not mean, however, that Holdings can simply implement a new policy without telling members that it has been adopted. It would not be open to Holdings to decide to adopt a new policy with immediate effect but not to inform the members of that change. A member might decide to leave service thinking that he would be entitled to take advantage of the Old early retirement terms only to be told, after he had left, that they were no longer available. That cannot be right. In my view, it is incumbent on Holdings to make an announcement informing members of the relevant change.

Respondent’s Notice points: Issues 14, 15, 17 and 20.

Issues 14 and 15: Non-discrimination as regards salary increases

Issue 17: The aggressive investment policy adopted by the Trustee

Issue 20: The rectification proceedings

justification for breach of duty

Scope of issues on justification

i)                   Stage 1: he pierced the corporate veil between Holdings and CHQ;

ii)                 Stage 2: he found that there was an alternative route to achieve relevant objectives even though they never formed part of the RBs’ case;

iii)               Stage 3: he relied on the fact that Reasonable Expectations were engendered before the business needs to depart from them arose;

iv)               Stage 4: he relied on the disingenuous nature of certain communications by CHQ.

Issues 23 and 24: Stage 1

Issue 26: Stage 2

Issue 27:  Stage 3

Issue 28:  Stage 4

Judge’s reasoning on justification

In addressing [IBM’s business justifications], it is right to say at this point that I agree with Mr Simmonds that the assessment of commercial matters and the making of business decisions is a matter for management.  It is not, as he says, for the Court to second-guess the business judgment of management.  That other managers might have taken a different course and made different decisions is beside the point.  (B531)

subject always to the impact of Holdings’ Imperial duty.

IBM’s case at the outset of the trial was that the Waltz changes were made for sound business reasons comprising a global strand and a local strand.  …In summary, the two strands were:

(i) The global strand of IBM Corporation requiring costs savings in all areas (including pensions).  This was required in order to meet its commitment to investors to improve EPS from $6.06 in 2006 to between $10 and $11 in 2010, contained in the 2010 EPS Roadmap and in the light of the global financial crisis of 2008 which was projected to have a dramatic effect on IBM’s ability to meet that commitment.

(ii) The local strand of Holdings’ need to address its current and future lack of competitiveness, demonstrated by its failure to meet its PTI targets and its relatively lowly position compared to other IMTs.   Holdings’ pensions costs were increasing by reason of the fall in asset values following the 2008 financial crisis. The answer to these problems was UKI Transformation under which it was sought to transform the UK business to increase its profit margin (and, hence, its contribution to the earnings of the global business) from 23% to 34% by the end of 2012. The Project Waltz changes served to assist in meeting the objectives of this project. Therefore, although the global and local strands of the business reasons for Project Waltz were separate they were nevertheless complementary. (B1329-30)

It is difficult to see how the need to address operational matters, even if that is in order to help meet the EPS target, can be said to be a strand of any sort in relation to pension changes. (B1386).

i)                   IBM’s desire to meet EPS targets is not a reasonable justification for breach.

ii)                 IBM UK’s performance targets and PTI were no justification to implement Project Waltz.

iii)               Headwinds and IBM’s concerns as to the future: Project Waltz was premature.

iv)               The Proposal to make I Plan changes was even less justifiable.

v)                 The other reasons IBM have cited are also not reasonable justifications for Project Waltz.

vi)               Parity.

vii)             Preference for DC as a matter of principle/policy. (B1388)

If I leave out of consideration for the moment (thus begging the major issue for the sake of the argument) the statements on which the RBs rely as giving rise to the alleged Reasonable Expectations, it seems to me that the response of IBM (by which I mean IBM Corporation/CHQ) and through it the response of group operating companies around the world to the 2008 crash made perfectly good commercial sense.  I agree with Mr Simmonds’ analysis that the facts demonstrate that the commitment to the 2010 EPS Roadmap was an entirely rational reason for the Project Waltz changes: it made perfect sense on the financial data available to IBM, as the savings made from the pension changes flowed into reductions in the NPPC, which in turn assisted in achieving the ultimate EPS target….  (B1354)

But that is from the perspective of IBM Corporation.  It is a different question whether Holdings could properly have implemented the Project Waltz changes given the Reasonable Expectations which have been established.  Accordingly, the rationality of the commercial decision by IBM Corporation is not the end of the matter as Mr Simmonds submits that it is. (B1354)

That is true.  Indeed, Mr Koppl accepted as much; and it is what is now done. And see further at paragraphs 1497 and 1498 below. However, he also explained that it was not done because no-one had thought of it at the time.

Q. But there was nothing stopping you doing this in 2007?

A.    Only that we hadn’t thought of it. It was like asking Thomas Edison, if he had invented the light bulb earlier, would the world be different?

So far as concerns the law, I have addressed the nature of the Imperial duty as it applies to the exercise of discretionary powers by an employer and reached the conclusion that the test is one of irrationality and perversity in the sense that no reasonable employer could act in the way that Holdings has acted in the present case.   The contractual duty can be expressed differently: an employer must treat his employees fairly in his conduct of his business, and in his treatment of his employees, an employer must act responsibly and in good faith; he must act with due regard to trust and confidence (or fairness): see paragraph 407 above.  But as I have explained, to confound a Reasonable Expectation may, on the facts, be something that no reasonable employer would do in the way that is has been done. There may, accordingly, be no significant difference in the application of the two different tests to a particular set of closely related facts. (B1507)

(iv) The local strand, insofar as it is based on the need for operational improvements and savings unrelated to the requirement by CHQ to deliver pension savings in a manner designed to improve NPPC, would not render unobjectionable Holdings’ decision to adopt Project Waltz.  In the light of the Reasonable Expectations, Holdings could be expected to adopt proposals to meet such concerns as there were about the operational cost (including the cost, from a UK accounting and scheme-funding perspective, of meeting any UK DB Plan deficit) in ways which, so far as reasonably possible, were consistent with those Reasonable Expectations [relevant to Issues 22 and 25].  I have little doubt that, had the only need been to meet local objectives of that sort, proposals of far less severity could and would have been devised [relevant to Issues 26].  Indeed, Mr Riley effectively accepted that proposition.  …

(vi) As to the global strand, the most important element of that strand was the requirement for operating units around the world to deliver NPPC improvements to meet the pensions-related requirements of the 2010 EPS Roadmap in relation to which it will be remembered that the evidence is that it was a requirement of CHQ that each element of the Roadmap had to be met.  The target set for the UK DB Plans was, in my judgement, the principal driver for the Project Waltz changes in the UK. 

(vii) The 2010 EPS Roadmap was itself a reflection of IBM Corporation’s commitment to Wall Street.  Although the language which gave rise to that commitment was, as Mr Tennet submits, weaker than the language which, according to IBM, did not give rise to a commitment to members concerning their pensions, I do not doubt that the senior managers in Armonk [location of CHQ] perceived what has been said to investors as a commitment and considered that to breach that commitment would not be good for the share price.  But two reminders need to be given and one additional point needs to be made:

(a) The first reminder is that the commitment to investors was given after the relevant communications to members had been made and the Reasonable Expectations engendered.  To prefer investors is not, of course, of itself a breach of duty.  That said, it does seem to me, however, that this is a factor which can be taken account of in deciding whether Holdings’ actions were such that no reasonable employer could take [relevant to Issue 27].

(b) The second reminder is that since 2011, retirement-related costs no longer feature as a performance indicator.  Again, as Mr Simmonds has said, it is not possible to derive a breach of the Imperial duty from a failure to adopt this course earlier than 2011.  As he put it in his closing written submissions:

With perfect hindsight, it is easy to say that what was done in 2011 should have been done in 2007; indeed, IBM may even be criticised as having been unimaginative in that respect, but that is a far cry from a finding of perversity or irrationality on the part of IBM.”… [relevant to Issue 26]

(d) The additional point is that the commitment to investors – or at least the one they cared about – was the delivery of the EPS target.  I am not persuaded that CHQ’s own requirement that the EPS target be delivered in accordance with the route set out in the 2010 EPS Roadmap was viewed as essential by investors.  Indeed, I have heard no suggestion that investors complained that when the contribution of pension profit/savings to the EPS was insufficient, CHQ found the necessary contribution in other ways [relevant to Issue 26].

(viii) Had CHQ acknowledged that the members had the Reasonable Expectations which I have held they were entitled to hold and had CHQ recognised the need for Holdings to act, so far as possible, consistently with those Reasonable Expectations (and its own need, therefore, to enable Holdings to do so), CHQ should have given consideration to developing proposals which would meet the twin objectives of (i) meeting the EPS target in the 2010 EPS Roadmap and (ii) allowing effect to be given to the members’ Reasonable Expectations [relevant to Issues 22 and 25]. 

(ix) The evidence demonstrates that this was not done.  Instead, CHQ determined that delivery of NPPC savings and increases to PTI were to be effected in certain ways.  For the UK, that included pension savings of such a scale and having such attributes that the target set for the UK would be met.  I am wholly unconvinced that proposals could not have been developed which would have met those twin objectives; indeed, I am satisfied on a balance of probabilities that they could have been. In the first place, the necessary savings to meet the EPS target (in contrast with the savings in NPPC cost) did not need to come from DB Pension plans, let alone from the UK DB Plans.  If pension cost was an essential element, DC Plans could have been targeted: as the evidence (particularly from Mr Koppl) shows, that was an option and would have provided an easier solution.  Another option might have been to impose heavier burdens on other DB Plans in countries where members had no similar Reasonable Expectations or no remedies arising out of them [relevant to Issues 22 and 25].

(x) Mr Simmonds would say that this sort of decision was one for management to make and that the court should not second-guess management.  But that would be to miss the point.  I am certainly not second-guessing management.  If they had a free hand, they may well have been entitled to act as they did; even Mr Tennet accepts that, absent Reasonable Expectations, the Project Waltz changes would not have given rise to a breach of duty even though many people would regard them as unfair.  The point is that they did not have a free hand; so that if they went beyond such freedom as they did have, the court can say that there has been a breach of duty.  I am guilty of some slightly truncated language there: IBM Corporation and CHQ did, of course, have a free hand in the sense that this court cannot control their actions; but they did not have a free hand in the sense (see paragraphs 1007ff above) that their actions and decisions can have no impact on Holdings’ own position and whether it has acted in breach of its duties [relevant to Issues 22 and 25].

(1)    preliminary: the correct analysis of the judge’s findings

Issue 22:  If, as IBM contend, the Judge found that (1) Holdings’ discretions were constrained by the existence of ‘Reasonable Expectations’, and (2) the disappointment of them required justification, was the Judge wrong to hold that there was insufficient business justification for Project Waltz?

Issue 25:  Had it been necessary to do so, should the Judge also have found that the reasons IBM UK stated were its reasons for entering into Project Waltz did not justify acting contrary to the Reasonable Expectations of members?

Submissions

IBM

RBs

Discussion

a different question whether Holdings could properly have implemented the Project Waltz changes given the Reasonable Expectations which have been established.  Accordingly, the rationality of the commercial decision by IBM Corporation is not the end of the matter as Mr Simmonds submits that it is. (B1354)

whether, even with such reliance, its actions can be justified. (B1111)

CHQ was in practical terms calling the shots.  But I am perfectly satisfied that the board made its own decision to proceed with Project Waltz on the basis of a business case which it perceived as justifying the changes.  It was not acting as a rubber stamp. (B1230)

(2)   stage 1:  treating the IBM group as one

Issue 23:  Did the Judge pierce the CHQ/Holdings corporate veil, and thereby err?

Issue 24:  In considering IBM UK’s justifications, should the Judge have had regard to CHQ’s motivations and knowledge (or the knowledge of persons at CHQ who directed UK pensions strategy) by one or more of the routes set out in RB 120-139, if and insofar as he did not do so?

Judge’s findings

shelter behind a business case (if justification is needed at all) based on the need to meet targets imposed by CHQ unless, in turn, a business case can be demonstrated justifying the imposition of the targets. (B448 and also B1509)

did not deprive Holdings of its power and authority to make its own corporate decisions.

The court should intervene in the present case only if there has been a breach of the Imperial duty which requires irrationality or perversity in the sense which I have described it.

In this context, it is important to note the following factors:

(a) the influence and control which CHQ had over the direction of pensions in the UK;

(b) the manner in which that influence and control was in fact exercised; and

(c) (although this may be part of ii)) the responsibility which CHQ must, in my view, take for the message which was given to members in both the Ocean and Soto communications.  Just as IBM worldwide is a global business with its local arms answerable to Armonk, so IBM Corporation/CHQ must take responsibility for the representations made to members with its knowledge and approval, especially bearing in mind that those representations were made with a view to obtaining the assent of members to proposals, in each case, driven by CHQ’s own agenda.

IBM Corporation is not, in relation to Ocean, Soto or Waltz, simply an (ultimate) 100% shareholder of Holdings.  I refer again to the factors mentioned in paragraph 1005 above, in particular factor iii).  I do not perceive IBM Corporation as standing in the same position as the shareholder which Mr Simmonds has referred to.  Nor would the members who have worked in a culture, under either the old Watson-style management or under the new Gerstner/Palmisano-style management, which sees IBM worldwide as a single enterprise to which all employees owe their loyalty. (B1014)

RBs

i)                   to treat the knowledge of persons at CHQ as relevant to whether Holdings was in breach, given CHQ’s central role in Holdings’ decision to implement Project Waltz; and

ii)                 to have regard to CHQ’s motivations because the members of the DB plans were encouraged by IBM to view, and did view, IBM as a single corporate group, and the question of whether there had been a breach of duty should be considered objectively with their point of view in mind.

Discussion

(3)   stage 2: finding an alternative method of achieving IBM’s aims

Issue 26:  Did the Judge err by finding that IBM could have developed proposals to deliver its business objectives in ways other than by implementing Project Waltz?

Submissions

IBM

and realistically, I would add, there was no way in which the targets could have been met without serious changes to the DB plans.

RBs

Discussion

(4)   Stage 3:  relevance of raising reasonable expectations before  agreeing the roadmap

Issue 27: Did the Judge err by placing reliance on the engendering of ‘Reasonable Expectations’ before the EPS targets were communicated to investors?

…the commitment to investors was given after the relevant communications to members had been made and the Reasonable Expectations engendered.  To prefer investors is not, of course, of itself a breach of duty.  That said, it does seem to me, however, that this is a factor which can be taken account of in deciding whether Holdings’ actions were such that no reasonable employer could take.

Discussion

(5)   stage 4: finding IBM to have been disingenuous with regard to Project Soto

Issue 28:  Did the Judge err by finding that CHQ was “disingenuous” in relation to the Project Soto communications to members and that this “counted against” Holdings?

The judge’s findings

 At paragraph 1060 above, I referred to the message being given by CHQ in the context of Soto as being in all likelihood disingenuous.   Where a Reasonable Expectation has been engendered by disingenuous statements which were misleading (whether or not deliberately so), the Court is entitled to take that into account in assessing whether Holdings’ conduct in acting contrary to those Reasonable Expectations is irrational or perverse.  When asking whether Holdings has acted in a way in which no reasonable employer would act, it is, in my view, relevant and counts against Holdings that some of the statements it made were disingenuous and misleading[.] (Italics and final full stop added)

 As to IBM Corporation/CHQ, whatever Mr MacDonald himself may have understood, I think it is clear that they collectively knew (using that word in the sense of the knowledge which is properly attributable to them) that the message which they intended to be given by the Soto communications, and which was in fact given, was not consistent with what they appreciated the reality to be.  The issue of volatility was addressed by CHQ in the sense of having been considered by them; but not even a partial solution was really provided.  I accept that the Soto changes had some positive effect on volatility but the extent of the amelioration was only small in the context of the problem which IBM Corporation was facing.   That CHQ knew a message was being given which was, at best, hugely optimistic, in all likelihood disingenuous and, on an extreme view, deliberately misleading, is underlined by its requirement for secrecy: CHQ knew things that it did not want UK management to know because it would undermine the message which CHQ was sending out about addressing volatility and sustainability.  (Italics added)

Submissions

IBM

RBs

Discussion

It is no part of the RBs’ case that any statement made by or on behalf of IBM in relation to its intention, hope, belief or expectation as to the future of the Plans was made other than bona fide…

It is not necessary to demonstrate irrational or perverse behaviour.   That is Mr Tennet’s position about the test for which Mr Simmonds contends.  But he would say that, at the end of the day, it does not matter because IBM is guilty of irrationality and perversity: its “conduct in relation to its DB pension schemes can fairly be described as both schizophrenic and perverse”. 

“Like all other members of the court, I consider that appellate review of a determination whether the threshold is crossed should be conducted by reference to simply whether it was wrong”.

(See also Lord Neuberger of Abbotsbury at 61, Lord Kerr of Tonaghmore at 110, Lord Clarke of Stone-cum-Ebony at 138, and Baroness Hale of Richmond at 202-3.)

defective consultation preparatory to Project Waltz

– relevance and consequences

Issue 21: Should the judge have found that the conduct of the consultation process that preceded the Project Waltz changes was an additional and/or alternative reason why implementing Project Waltz was substantively a breach of Holdings’ and UKL’s respective duties? See Respondents’ Notice 2(d)

Issue 38:  If the appeal on breach issues succeeds, should an injunction nevertheless be granted preventing the implementation of Project Waltz until a fresh consultation has been conducted?

How these issues arise

·         They had failed to make it clear to members that the driver behind Project Waltz was the 2010 EPS Roadmap (B1567). 

·         They had failed to provide information requested by the PCC (B1572). 

·         They had deliberately misstated the intention as to when it was intended to close the DB plan to future accrual. The correct date was April 2011 even though they told the Trustee that it was intended to close it in April 2010. IBM was “[playing] hardball” with the Trustee (B1552).

·         They did not consult with an open mind: B1563.  On the contrary, their minds had effectively been made up before the process began.

(1) The only remedies for a failure to comply with any obligations under regulations 6 to 16 in respect of any proposal or decision to make a listed change are—

(a) making a complaint to the Regulator,

(b) an improvement notice issued under section 13  of the Pensions Act 2004 (improvement notices), and

(c) a penalty imposed under regulation 18A.

The validity of any decision made in relation to an occupational pension scheme is not affected by any failure to comply with regulations under this section.

Submissions

Issue 21 (defective consultation and the Imperial duty)

Issue 38

Discussion

Issue 21 (defective consultation and the Imperial duty)

I consider that what I said in relation to consultation in the Breach Judgment and the Remedies Judgment can stand, substituting UKL for Holdings.   This is subject to two caveats.

The first is that this change does not mean that it is not open to the RBs to argue on an appeal (subject to obtaining permission to appeal) that Holdings was also in breach of duty in relation to its own conduct in the consultation.  At the Breach Hearing, no real distinction was drawn between Holdings and UKL in relation to consultation.  The consultation which actually took place related to the various elements of Project Waltz some of which were to be implemented by Holdings and some by UKL.  It was a consultation not just by UKL but also by Holdings – at least, no relevant distinction was ever drawn by IBM UK during the course of the exercise any more than it was at the Breach Hearing.  Having decided to consult at all, it can be argued strongly that Holdings, as much as UKL, should have consulted properly and that the members should have some sort of remedy for its failure to do so.

The Project Waltz changes gave rise to a breach by the Company [i.e. Holdings] of its duty of good faith to members and other beneficiaries of the Plans (the Imperial Duty) and/or of the Second Claimant’s [i.e. UKL’s] contractual duty of trust and confidence to employees (the Contractual Duty)

The Second Claimant acted in breach of its Contractual Duty and the Claimants acted in breach of the Occupational Pension Schemes (Consultation by Employers and Miscellaneous Amendments) Regulations 2006 (SI 2006/349) as a result of the manner in which they consulted on the Project Waltz proposals

A party who seeks to advance a different case, in circumstances such as this, bears a heavy burden as regards showing that the case could not have been conducted differently, in any material respect, as regards the evidence.

Issue 38 (order restraining Project Waltz’s implementation without new consultation)

summary of conclusions and order

i)                   Issue 1, the threshold issue:  The judge decided the case on the basis that the Reasonable Expectations which he held to have been generated must be satisfied unless there was no other possible course open to IBM than to disappoint them (paragraph [176] and following, especially from [217]).

ii)                 Issue 2: The judge was wrong to decide that a principal employer’s non-fiduciary discretion must be justified as a necessary and appropriate response to the circumstances.  Instead he should have applied a rationality test, equivalent to that in Wednesbury as set out in paragraph [46].  Issues 3 and 3(a) do not arise.

iii)               Issue 5: The judge was wrong to hold that an employer’s ability to offer discretionary salary increases on the basis that they would not be pensionable was restricted by the existence of Reasonable Expectations to the contrary.  He should have applied a rationality test equivalent to that in Wednesbury, as set out at paragraph [45].

iv)               The burden of proof was not one of the identified issues, but it was relevant to several of those that were agreed.  The judge was right on this, both to adopt a unitary approach to the question whether Holdings or UKL had acted in a manner incompatible with the relevant duty and whether its conduct was justified, and also to hold that the burden of proof lay on the RBs throughout, although an evidential burden could shift to the employer or principal employer in a case such as this to show what its reasons had been for acting in the relevant respects (paragraph [47] and following).

v)                 Issues 7, 8 and 9:  These issues do not arise, but if Reasonable Expectations were to be legally relevant on the basis adopted by the judge, they would have to meet minimum criteria of clarity, certainty and assumption of responsibility, which should be akin to those required for contract or estoppel (paragraph [268] and following).

vi)               Issue 10: the judge found that the Reasonable Expectations he relied on were qualified so as not to subsist after a significant change in financial or economic circumstances.  He ought to have considered and decided, but did not, whether Holdings or UKL could properly have concluded that such a significant change had occurred in 2008 (paragraph [235] and following).

vii)             Issue 11: The judge was wrong to hold that the Reasonable Expectations in respect of future DB accrual he identified were generated by the facts he found.  There was no adequate basis of fact or reasoning for his decision that such Reasonable Expectations had survived until 2011, still less until 2014 (paragraph [261] and following).

viii)           Issue 12: The judge was wrong to hold that the Reasonable Expectations in respect of the early retirement policy that he found had been generated by the facts he found.  There was no adequate basis for his finding that a Reasonable Expectation as to early retirement policy existed already in 2004, and no other proper basis for finding that such a Reasonable Expectation existed (paragraph [249] and following).

ix)               Issue 13:  The judge was wrong to find that there was a separate breach of the Imperial duty in respect of the duration of the Early Retirement Window, even if he had not been wrong to find a Reasonable Expectation about the early retirement policy (paragraph [274] and following).

x)                 Issues 14 and 15: The judge was right to hold that there was no Reasonable Expectation as to non-discrimination as regards pay policy between members who had elected to remain as DB members as part of Project Soto and DC members (paragraph [283] and following).

xi)               Issue 16:  Statements at the time of Projects Ocean and Soto regarding the effect of the changes on the stability and sustainability of the Plans over the long term did not by themselves give rise to a Reasonable Expectation that DB accrual would continue until at least 2014 (paragraphs [265], [266] and [xr])

xii)             Issue 17: The judge was justified in not finding that the investment policy adopted by the Trustee provided an additional reason for holding that Holdings and UKL acted in breach of their duties (paragraph [290] and following).

xiii)           Issue 20: The judge was right not to take into account, in deciding whether Holdings and UKL acted in breach of their duties in implementing Project Waltz, the fact that attention had been drawn to the facts which later became the subject of the rectification proceedings (paragraph [293] and following).

xiv)           Issue 21: The judge was right not to decide that Holdings’ conduct in implementing Project Waltz after a defective consultation process which did not comply with statutory requirements and involved a breach of its duties as employer by UKL, was a breach of the Imperial duty on the part of Holdings.  Such a case was not put to the judge, and it could not properly be raised on appeal (paragraph [439] and following).

xv)             Issues 22 and 25:  In our view the judge held that there would have been adequate business justification for Project Waltz but for the fact of the Reasonable Expectations, which he considered would be thwarted by the changes, and for his view that IBM had to show (and could not do so) that no other possible course of action was open to it (see in particular paragraph [308] as to justification apart from the Reasonable Expectations).

xvi)           Issues 23 and 24: The judge erred by treating the IBM group, including CHQ as well as Holdings and UKL, as one entity. The judge should not have had regard to the motivations and knowledge of CHQ (or of individuals within CHQ) in considering the motivation and justification for the acts of IBM UK (paragraph [363] and following).

xvii)         Issue 26: The judge was wrong to hold that IBM could have developed proposals to deliver its business objectives in other ways. No such case was advanced by the RBs, on whom the burden of proof lay (paragraph [389] and following).

xviii)       Issue 27: The judge was entitled to take into account the fact that (on his findings) the Reasonable Expectations had been generated before the commitments to investors were made by way of the 2010 EPS Roadmap (paragraph [394]).

xix)           Issue 28: The judge was wrong to find that CHQ was disingenuous in relation to the Project Soto communications to members and that this counted against Holdings.  No such case was advanced by the RBs (paragraph [402] and following).

xx)             Issues 29 to 31: As these depend on there being a Reasonable Expectation as found by the judge, on which we conclude that he was wrong, these issues do not arise (paragraph [407] and following).

xxi)           Issue 32: Insofar as the judge decided that the Initial 2009 NPAs and the 2011 NPAs were procured in breach of UKL’s Contractual duty because of a “threat”, he was wrong (paragraph [421]).

xxii)         Issue 33: The judge was wrong to hold that the NPAs were procured in breach of UKL’s Contractual duty because they formed part of Project Waltz (paragraph [415]).

xxiii)       Issues 34 to 36: These issues as to remedies do not arise, and we say nothing about them.

xxiv)       Issue 37: The judge was wrong to hold that before the early retirement policy was changed, Holdings had to announce that such a change would be made (paragraph [278] and following).

xxv)         Issue 38: Despite the unappealed breach of the Contractual duty by UKL and of the statutory duty by both Holdings and UKL, it would be wrong to require those companies to undertake a new consultation process before implementing Project Waltz (paragraph [454] and following).

xxvi)       Issue 39: The exercise of the Main Plan Exclusion Power by Holdings did not involve an exercise of the Exclusion Power for an improper purpose (paragraph [160] and following).

Conclusion

appendix 1

summarised list of issues agreed by the parties

APPENDIX 2

A hypothetical illustrative example of the effect of Project Waltz

1.       This is one of the three hypothetical examples supplied to us so as to illustrate the effect of Project Waltz.  The capital value of the pensions is given for ease of comparison; it uses the 1:20 factor recommended by the Government Actuary’s Department for use in calculating the value of a pension for Lifetime Allowance purposes.  The pension figures are taken from projections made for the Trustee in July 2010 by Towers Watson, the Scheme Actuary.  As noted under Case Two below, the post-Waltz projections in that case are too low.

2.       The hypothetical case is of a male employee who had joined the C Plan (the main DB part of the plan) at age 25, who was paid £40,000 p.a. on 6 April 2010 and who would be 55 on 5 April 2011. He would have the following pension benefits depending on his choice under Project Soto (PS), as between staying in the C Plan with continuing DB benefits, and moving to the Enhanced M Plan with DC benefits for future service.  In the first two cases he would (or might) be affected by the new early retirement (ER) policy.

Case One: early retirement at 55

3.       Thus, if the employee chose to remain in the DB Plan under PS, the pension taken at age 55 was projected to be lower by 30% because of the effect of the new ER policy and of the NPAs. 

4.       If he switched to the DC Plan under PS, his pension at age 55 was projected to be 23% lower because of the new ER policy.

Case Two: early retirement at 60:

5.       If the employee chose to remain in the DB Plan under PS, this shows the pension taken at age 60 was projected to be lower by 21% because of the effect of the New ER policy, of the NPAs, and the cessation of DB accrual. 

6.       If he switched to the DC Plan under PS, his pension at age 60 was projected to be 14% lower because of the new ER policy.

7.       However, these projections give too low a figure for the post-Waltz cases, because this hypothetical employee would be entitled to retire at 60 with the benefit of the pre-Waltz ER policy.  Thus the reduction would in fact be less than is shown in the figures above.

Case Three: retirement at Normal Retirement Date, age 63:

8.       If the employee remained in the DB Plan under PS, and remained in employment until NRD, his pension was projected to be 5% higher because the new ER policy would not affect him (even if it otherwise would have done), and the projected value of the DC element from 5 April 2011 would result in the higher pension figure.