England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		07 December 2007

Mr Justice Blackburne :

Introduction

1. This claim, brought under Part 8, concerns two pension schemes. The questions raised turn on the construction of the Occupational Pension Schemes (Scheme Funding) Regulations 2005 ("the 2005 Regulations") and the contribution rules of the two schemes.
2. The 2005 Regulations are made for the most part under Part 3 of the Pensions Act 2004 ("the 2004 Act") and, together with the provisions in that Part, are intended to implement article 15 and the funding requirements in article 16 of EU Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision. They replace the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996. Part 3 of the 2004 Act, which sets out the new regime (and does so in place of the Minimum Funding Requirement imposed by the Pensions Act 1995), has applied to the two schemes with effect from actuarial valuations due as at 5 April 2006.
3. These proceedings are about whether an exception to the general rules on the mechanism for computing contributions applies to these schemes. For most schemes, the employer and trustees have to agree the contributions on the advice of the actuary. That, essentially, is the model for setting contributions which is enshrined in the 2004 Act. Under the Act the trustees have the obligation to ensure that the fund is properly funded but at all of the important points in the stage of setting the contributions the employer has the right to agree or not to agree with what is proposed. There are limits on what the trustees can and cannot do which are policed by the scheme actuary. But within the limits of what the actuary is prepared to certify there is a degree of latitude for the employer and trustees to agree the timescale over which contributions are to be paid if there is a deficit, and the rate and manner in which contributions are to be paid. There is also some leeway for deciding the basis on which the liabilities of the scheme are to be calculated.
4. However, many pension schemes have a mechanism in the scheme rules for setting contributions other than by the employer and the trustee simply agreeing to it. Some schemes provide that the employer alone sets the contribution rate on the advice of the actuary. Others provide that the trustees alone set the contribution rate, again on the advice of the actuary. Yet others give the job of setting the contribution rate to the actuary. The legislation has therefore to deal with scheme rules which take those rather different forms. Where the employer alone sets the contribution rate the effect of the 2004 Act is to take this function away from the employer and give it to the trustees but with the employer having the right to agree. It is no longer therefore possible to have a scheme satisfying the statutory requirements for funding where the employer alone sets the rate.
5. The basic issue in these proceedings is whether the rates of contribution in the two schemes are determined by the actuary, or in some respects are determined on the advice of the actuary, without (in either case) employer consent. If so, there are three relevant provisions of the 2005 Regulations which apply. They are regulations 5(3)(b) and 8(2)(e), and paragraph 9(5) of schedule 2 to the 2005 Regulations. Regulations 5(3)(b) and 8(2)(e) apply if the scheme is:

"…a scheme under which the rates of contributions payable by the employer are determined -

(i) by or in accordance with the advice of a person other than the trustees or managers and

(ii) without the employer's agreement …"

Paragraph 9(5) applies if the scheme is:

"…a scheme under which the rates of contributions payable by the employer are determined by the actuary without the agreement of the employer…"

The claimant, which appears by Mr Michael Furness QC, contends that none of these provisions applies. The trustees, which appear by Mr Andrew Simmonds QC, contend that all of them do.

6. The claimant is the "Principal Company" under each of the two schemes, of which the first is referred to in the evidence as "the Main Scheme" and the second as "the Executive Scheme". Each scheme is governed by a trust deed and rules, dated 27 May 2005. The Main Scheme has assets worth approximately £1.5 billion. Its latest actuarial valuation (as at 5 April 2006) disclosed a funding deficiency of £445 million. The corresponding figures for the Executive Scheme are £488 million and £252 million respectively.
7. The first defendant is the trustee of the Main Scheme and the second defendant is the trustee of the Executive Scheme. Including the claimant, there are three employers participating in the Main Scheme and four in the Executive Scheme. Each therefore is a multi-employer scheme.

The statutory context

8. In order to answer the questions raised, it is necessary to understand in more detail than I have so far explained the statutory context in which the relevant provisions of the 2005 Regulations apply and against which the construction of the relevant scheme rules falls to be considered. I start with Part 3 (sections 221 to 233) of the 2004 Act.
9. Unless exempted by or under section 221 - which the two schemes are not - every scheme is subject to the "statutory funding objective" imposed by section 222(1). This requires that a scheme "must have sufficient and appropriate assets to cover its technical provisions". For this purpose "technical provisions" means, by section 222(2), "the amount required, on an actuarial calculation, to make provision for the scheme's liabilities".
10. The subsequent sections of Part 3 then set out a mechanism for ensuring that schemes meet this objective. The mechanism comprises the following elements: (1) a "statement of funding principles", as prescribed by section 223, namely a written statement to be prepared and from time to time reviewed by the trustees or managers setting out, inter alia, "their policy for securing that the statutory funding objective is met", including any decisions by them as to the basis on which the scheme's technical provisions have been calculated and the period within which and manner in which any failure to meet the funding objective is to be remedied; (2) actuarial valuations, as prescribed by section 224, to be obtained by the trustees or managers at intervals of not more than one year or, if they obtain actuarial reports for intervening years, at intervals of not more than three years; (3) a "recovery plan", as prescribed by section 226, if "having obtained an actuarial valuation it appears to the trustees or managers of the scheme that the statutory funding objective was not met [ie the scheme was in deficit] on the effective date of the valuation", with a requirement that such recovery plan set out the steps to be taken to meet the statutory funding objective and the period within which it is to be achieved; and (4) the preparation and, from time to time, review by the trustees or managers of a "schedule of contributions", as prescribed by section 227, comprising a statement showing the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and the dates on or before which such contributions are to be paid.
11. Although the duty to procure the statement of funding principles, the recovery plan and the schedule of contributions is imposed on the trustees, the scheme actuary and the employer also have a role in their preparation. Thus, by section 225(1), the scheme actuary is required to certify that the calculation of the technical provisions in any valuation is in accordance with the 2005 Regulations. By section 227(6) he must certify that the schedule of contributions is consistent with the statement of funding principles and that the rates shown in the schedule are such that the statutory funding objective will continue to be met during the period for which the schedule is in force, or, as the case may be, that it will in future be met within the period specified by the recovery plan. Section 230 sets out matters on which, before doing any of them, the trustees or managers must obtain the advice of the actuary. There are therefore limits on what the trustees and employer can do which are circumscribed by the actuary. Nevertheless, the basic scheme of the Act is that funding is set by agreement between the trustees and the employer within the parameters of what the actuary will certify.
12. Section 229(1) requires the trustees or managers to obtain the employer's agreement to:

"(a) any decision as to the methods and assumptions to be used in calculating the scheme's technical provisions…;

(b) any matter to be included in the statement of funding principles…;

(c) any provision of a recovery plan…;

(d) any matter to be included in the schedule of contributions… ."

Of particular relevance to these proceedings is sub-section (1)(c).

13. Where the statutory funding objective is not met on the effective date of the valuation, a copy of the recovery plan and of the schedule of contributions must be sent to the Pensions Regulator. Section 231 sets out the powers of the Regulator. They are exercisable when the actuary is unable to give either of the certificates referred to in sections 225 and 227 and in other circumstances, including where the trustees and the employer cannot agree on the matters to which, by section 229, the employer is required to agree. The Regulator's powers under section 231(2) are (a) to modify the scheme as regards the future accrual of benefits, (b) to direct how the technical provisions are to be calculated or the period or manner in which any failure to meet the statutory funding objective is to be met, and (c) to impose a schedule of contributions. In all of these and in other circumstances where the mechanism for ensuring that the statutory funding objective is met has not been properly carried into effect, the Regulator can intervene. In the last resort other, wider, powers are available to him.
14. From the above summary it is apparent, as Mr Furness pointed out, that under the 2004 Act the employer has considerable influence over the terms on which a scheme is funded. It can happen, however, that the employer under the regime set out in the 2004 Act would have more influence than it would otherwise have under the particular scheme rules. Although in many scheme rules contributions are set by agreement between the employer and the trustees, usually after having taken the advice of the actuary, under some they are set by the trustees alone, or by the actuary alone. Rules in this form are potentially favourable to the members of the scheme because funding rates can be set without regard to a veto from the employer. When it came to making the 2005 Regulations, Parliament evidently felt that it was unacceptable that the statutory regime, as set out in the 2004 Act, should give the employer a greater say in the terms on which the scheme should be funded than the employer would have had under the scheme rules unmodified by statute. Hence paragraph 9 of schedule 2 to the 2005 Regulations, headed "Schemes under which the rates of contributions are determined by the trustees or managers or by the actuary". (Schedule 2 has effect, by regulation 19 of the 2005 Regulations, for the purposes of modifying Part 3 and the 2005 Regulations.)

The particular statutory provisions

15. Paragraph 9 of Schedule 2 deals essentially with two situations. Paragraphs (1) to (4) deal with the situation where the trustees or managers set the contribution rates payable by the employer under the scheme rules without the agreement of the employer, and no one else is permitted to reduce the rates or suspend the contributions. In that situation section 229 is modified so as to remove the requirement for employer consent to the matters set out in section 229(1). Instead, the trustees or managers are merely required to consult the employer on those matters. (Paragraph 9(2) sets out the particular modifications of section 229; paragraph 9(3) sets out modifications of regulation 13 (which, in its turn, sets out the period within which, where they are required under section 229 to obtain it, the trustees or managers must obtain the employer's agreement); and paragraph 9(4) provides that where the power of the trustees or managers to determine the rates of contributions payable by the employer without the employer's agreement is subject to conditions the modifications provided for in sub-paragraphs (2) and (3) have effect only in the circumstances where the conditions are satisfied.) It is not suggested by the defendants that paragraphs 9(1) to (4) apply.
16. Paragraph 9(5) deals with the situation where, under the scheme rules, the actuary sets the contribution rates payable by the employer but does so without the employer's agreement. It provides:

"In the case of the scheme under which the rates of contributions payable by the employer are determined by the actuary without the agreement of the employer, section 227(6) of the 2004 Act shall apply as if it required that, in addition to the matters specified there, the actuary's certificate must state that the rates shown in the schedule of contributions are not lower than the rates he would have provided for if he, rather than the trustees or managers of the scheme, had the responsibility of preparing or revising the schedule, the statement of funding principles and any recovery plan."

17. Thus, where paragraph 9(5) applies, the actuary has to provide an extra element of certification when he certifies the schedule of contributions. He has to certify that the rates shown in the schedule of contributions are not lower than the rates he would have specified if he alone had responsibility for preparing the schedule, the statement of funding principles and any recovery plan. This is dealt with by paragraph 9(6) which provides that where paragraph 9(5) applies, regulation 10(6) and schedule 1 (which sets out the form of the actuary's certificate) apply as if the form of certification of the adequacy of the rates of contributions shown in the schedule of contributions included the statement set out in that sub-paragraph.
18. Paragraph 9(5) thus introduces what was referred to in argument as the "actuarial underpin". This is because what the sub-paragraph does is require the actuary, regardless of what the trustees and the employer have agreed, to certify that if he, the actuary, had been left to his own devices he would have set a rate which was no greater than what the trustees and the employer have agreed.
19. As Mr Furness explained, the thinking behind the whole of paragraph 9 is that the statutory regime set out in the 2004 Act has effectively supplanted the funding mechanism in the scheme rules with the result that, in order to comply with the 2004 Act, it is the trustees and the employer who generally will be setting the terms of the recovery plan and the schedule of contributions. In the case of paragraph 9(5), however, the draftsman is acknowledging that the 2004 Act is removing from the scheme something that might be of benefit to the members, namely the fact that the actuary has an unfettered right to set the rate. In those circumstances the overriding provisions of the Act are modified in order to reintroduce an element of actuarial scrutiny on the actual level of contribution setting. Paragraph 9 is therefore an acknowledgment that at some points the terms of the scheme rules ought to influence and modify the overriding statutory regime.
20. Similar wording to paragraph 9(5) also appears in regulations 5(3)(b) and 8(2)(e). Regulation 5 deals with the calculation of the scheme's technical provisions. Regulation 5(3)(b) provides:

"(3) In determining which accrued benefits funding method and which assumptions are to be used, the trustees or managers must:

…

(b) in the case of a scheme under which the rates of contributions payable by the employer are determined -

(i) by or in accordance with the advice of a person other than the trustees or managers, and

(ii) without the employer's agreement,

take account of the recommendations of that person."

21. Regulation 8 deals with recovery plans. Regulation 8(2)(e) provides that:

"(2) In preparing or revising a recovery plan, the trustees or managers must take account of the following matters:

…

(e) In the case of a scheme under which the rates of contributions payable by the employer are determined -

(i) by or in accordance with the advice of a person other than the trustees or managers, and

(ii) without the agreement of the employer,

the recommendations of that person."

22. The effect of these two regulations is that if the actuary is the person who determines the employers' rates of contribution and he is empowered to do so without the agreement of the employer, the trustees or managers must take account of his advice in calculating the scheme's technical provisions or in preparing and revising the recovery plan. It has a consequence on the exercise by the Pensions Regulator of his powers under section 231. This is because regulation 14(1) provides that in exercising any of his powers conferred by that section in the case of a scheme of the kind referred to in regulations 5(3)(b) and 8(2)(e), "the Regulator must take into account any relevant recommendations made to the trustees or managers under those regulations".
23. The particular question which has divided the parties is whether, in relation to the two schemes, the provisions of regulations 5(3)(b) and 8(2)(e) and paragraph 9(5) of schedule 2 are applicable and, accordingly, whether the actuary must provide the additional certificate to the schedule of contributions specified in paragraphs 9(5) and (6) and whether the Pensions Regulator would, in exercising his section 231 powers, be required by regulation 14(1) to take into account the actuary's recommendations in relation to contributions.
24. Mr Furness submits that it is not entirely clear, certainly where the person who fulfils the description of regulations 5(3)(b) and 8(2)(e) is the actuary whose recommendations are obviously of weight in any event, how much difference to any funding negotiation or regulatory intervention the application of those two regulations makes. But, he says, the claimant wishes to know, in case it should make a difference, whether these regulations in fact apply to the two schemes. The more significant issue from the claimant's point of view, he says, is paragraph 9(5) because, on the undisputed facts, the actuarial underpin provided by that paragraph does make a difference to the schedule of contributions that the claimant is required to pay into the schemes. The evidence before the court indicated that, if the underpin applies, the monthly contributions for the period 1 August 2007 to 5 April 2020 (which is the period of the recovery plan in the case of each scheme) are greater for the period January 2008 to March 2013 than they are for that period if the underpin does not apply, whereas for the period April 2013 to March 2020 the position is reversed: the contributions are smaller if the underpin applies than they would be if it does not. The overall amount to be paid is the same but, where the actuarial underpin applies, the monthly contributions are, as it was put, "front loaded" to the extent (across both schemes) of an additional £7.8 million annually in the period to March 2013 and thus of material consequence to the employers' cash flow. Indeed, since the statutory timetable has required the 2006 valuations to be finalised within the relevant prescribed period the parties have proceeded on the provisional footing that the answers to the questions raised by the claim form are both "yes" (ie that the three statutory provisions do apply to the two schemes) but with an agreed mechanism for adjusting future employer contributions downwards if that is not the correct answer.
25. From the claimant's perspective, the commercial substance behind the construction issues, to which I will shortly come, is that, although any disagreement on contribution rates will ultimately have to be resolved by the Regulator, the claimant feels that its bargaining position will be stronger if the Regulator is not required by regulation 14(1) to take into account the actuary's recommendations, even though the Regulator might be expected in any event to have regard to them. From the defendants' perspective, if paragraph 9(5) applies, the requirement for the actuarial underpin may, as has happened in relation to the 2006 valuation, lead to agreement on a higher or accelerated employer contribution rate without any need for Regulator involvement. Moreover, while trustees are always bound to obtain the actuary's advice in relation to scheme funding matters (see section 230), regulations 5(3)(b) and 8(2)(e), if applicable, require them to take account of his recommendations, which may be of value in negotiations with the employer.

The two schemes

26. With that introduction to the 2004 Act and to the 2005 Regulations, so far as material to the two schemes, and also to the practical impact on the parties of the outcome of this dispute, I come to the scheme rules. It is common ground that, for present purposes, the trust deed and rules of each scheme are identical and that the questions raised by these proceedings will be answered in the same way in each case. I therefore confine myself, as did counsel, to the rules of the Main Scheme.
27. There are two scheme rules which are of relevance. The first is rule 12.1. Headed "Employers' Contributions" it provides, so far as material, as follows:

"12.1.1 What contributions the Participating Companies must pay

The Participating Companies shall pay to the Trustees such contributions as will, in the opinion of the Actuary, (as expressed in the last report made by him pursuant to Rule 18.7.2), enable the Trustees to make due provision of the Benefits payable under the Fund Schemes for the Fund.

12.1.2 Apportionment of contributions amongst the Participating Companies

The contributions payable by the Participating Companies under the provisions of Rule 12.1.1 shall be borne by the several Participating Companies in their respective due proportions, as determined by the Trustees, and the Trustees shall, by notice in writing, (on or before each 6 April), inform each one of the Participating Companies of the contributions, (or the basis of the contributions), required from it for the ensuing year for the Fund Schemes.

12.1.3 When Participating Companies' contributions to be paid

The contributions so payable by the Participating Companies shall be paid to the Trustees at such intervals as may be agreed between the Trustees and the Participating Companies…"

"Participating Companies" is defined by rule 1 to mean "the Principal Company [the claimant] and any subsidiary or associated companies which have bound themselves by deed to observe and perform the rules of any of the Fund Schemes so long as they remain subsidiary or associated companies of the Principal Company…".

28. The other scheme rule is rule 18.7 which is headed "Actuarial Valuations". So far as material it provides as follows:

"18.7.1 Appointment and removal of Actuary

The Trustees shall appoint the Actuary to the Fund and may remove any person (or firm) so appointed.

18.7.2 Requirements for actuarial valuations of the Fund

(i) The Fund shall be actuarially valued by the Actuary at intervals of not exceeding three years and, for that purpose, all necessary accounts and information shall be supplied to the Actuary who shall report in writing to the Trustees and the Principal Company;

(ii) Without prejudice to sub rule (i) above, the Trustees must obtain an actuarial valuation which satisfies the requirements of the Occupational Pensions Schemes (Minimum Funding Requirements and Actuarial Valuations) Regulations 1996 prepared by the Actuary when required by those to do so."

Rule 18.7.3 is engaged if the valuation shows a surplus. If there is a deficiency rule 18.7.5 comes into play. It provides that:

"18.7.5 Restoration of solvency in the event of a deficiency

If the Actuary's report in accordance with Rule 18.7.2 discloses a deficiency in the Fund, the Participating Companies shall collectively pay such an amount by lump sum and/or periodic payments (to be certified by the Actuary) as, after taking into account any reserve and making such other adjustments as the Actuary may consider appropriate, will, in the opinion of the Actuary restore the solvency of the Fund; such amount to be paid by the Participating Companies in such proportions as the Actuary shall certify and within such period as the Trustees may, on the advice of the Actuary, agree with the Principal Company."

The claimant's case

29. Mr Furness accepts that in the case of a multi-employer scheme (such as the Main Scheme) it is not necessary, if paragraph 9(5) is to apply, that the actuary must both set the overall contribution rate and also divide up that overall rate between the employers. He accepts that what matters for scheme funding purposes is the overall rate of contribution and that the thrust of the legislation is aimed at making sure that trustees receive from the employers collectively a rate of contribution which will fund the scheme as a whole. He therefore accepts that when the legislation asks whether the actuary in paragraph 9(5), or the trustees (or managers) in paragraph 9(1), determines the contribution rates it is the global rates which are in point, not the rates which each individual employer pays. From this it follows that rule 12.1.2 does not prevent paragraph 9(5) from applying. Nor does he seek to argue that the role of the Principal Company under rule 12.1.3 - in having to agree with the trustees the intervals at which contributions are payable - prevents paragraph 9(5) from applying. He accepts that this aspect of the computation does not have the consequence that the rate is not set by the actuary as, viewed on its own, rule 12.1.1 provides. That being so, he concedes that rule 12.1 is within paragraph 9(5). For the same reasons he concedes that rule 12.1 does not prevent regulations 5(3)(b) and 8(2)(e) from applying.
30. That leaves whether an analysis of rule 18.7.5 leads to the same conclusion. This in turn raises two prior questions: first, the interrelationship of the two rules and, second, the consequence if paragraph 9(5) and the two regulations apply to the one rule but not to the other.
31. As regards the second of those two questions, it is common ground - and I accept - that it is sufficient to disapply paragraph 9(5), and also the two regulations, that either contributions under rule 12.1 or contributions under 18.7.5 are outside the terms of those provisions. This is because those provisions refer to "rates" in the plural with the consequence that it would not be feasible to apply the legislation on the basis that some of the contributions fall within the relevant provisions and others do not. In short, in order to establish that neither paragraph 9(5) nor regulations 5(3)(b) and 8(2)(e) apply to the Main Scheme at a time when rule 18.7.5 applies to it, the claimant needs only to show that rule 18.7.5 is outside those provisions. Or, as Mr Simmonds put it in his skeleton argument, the relevant provisions of the 2005 Regulations operate on a scheme-wide basis so that there is no scope for the provisions to apply in respect of one contribution rule but not in respect of another within the same scheme.
32. This concession makes it unnecessary to determine the other prior question, which is the precise scope and interrelationship of the two rules. That said, I would accept the submission of Mr Furness that paragraph 12.1 is, on its face, a rule of general application whereas rule 18.7.5 is a rule of limited application which only applies where there is a deficiency. The reconciliation of the two is that where rule 18.7.5 is in point it is that rule which applies, thus leaving rule 12.1 to apply in other circumstances.
33. That leaves for decision whether, as Mr Furness submits but as Mr Simmonds disputes, the terms of rule 18.7.5 are such that the conditions for the application of paragraph 9(5) are not satisfied (eg because the rates of contribution are not determined by the actuary, or they are but only with the employer's agreement).
34. As to that, Mr Furness submits that the basic requirement of the rule is that where there is a deficiency the Participating Companies are to pay an amount which, in the opinion of the actuary, will restore the solvency of the Fund. The rule also provides that the amount in question is to be paid "by lump sum and/or periodic payments (to be certified by the Actuary)...". Mr Furness submits that, if the rule had finished at the semi-colon, ie after the words "restore the solvency of the Fund", and the remainder of the rule had been omitted, one might have inferred that the actuary is to decide what the amount of those instalments should be and thus is to determine the rates of contribution without the employer's agreement (because there would, on that basis, be no reference to any employer involvement in the process). But, he says, the presence within the rule of the words "…and within such period as the Trustees may, on the advice of the Actuary, agree with the Principal Company" means that the period within which the amount is to be paid is a matter for agreement with the employer. Since a rate of contribution is an amount per unit of time it is plain, he submits, that the employer's agreement is an essential component in the setting of the contribution rate: until the Principal Company - as employer or on behalf of the employers - has agreed what the payment period is to be, no rates can be determined. In truth, he says, once the actuary has delivered his valuation report under rule 18.7.2 disclosing a deficiency (the prerequisite for the operation of rule 18.7.5), the actuary's role thereafter is to certify what, in the light of the payment period agreed by the trustees with the employer, the payments are which are needed to discharge the deficiency. In effect, the employer's agreement is essential to determine the contribution rates.
35. He goes on to submit that this produces a reasonable result: if, he says, there is a scheme rule such as rule 18.7.5 where the actuary sets the amount of the deficiency but the employer has to agree the period of payment, it is perfectly reasonable that paragraph 9(5) should not apply. This is because the purpose of the 2004 Act is to ensure that schemes where the actuary or the trustees have a free hand are not overridden by a legislative requirement that the employer has to consent to contribution rates and so forth. But where under the scheme the employer has a major say in the setting of the contributions there is no reason to suppose that it was the policy of the legislation to take that power away given that the general scheme of the legislation is favourable to the need for employer agreement.
36. He therefore submits that, on a proper understanding of rule 18.7.5, paragraph 9(5) and the two regulations do not apply to that rule and, therefore, do not apply to the Main Scheme as a whole. Since the two schemes are in this respect identical, the same is true of the Executive Scheme.

The trustees' case

37. Mr Simmonds submits that, given the claimant's concession that the three provisions refer to collective rates of contribution payable by the employers under a multi-employer scheme and not to their apportionment between the individual employers, there are effectively two main questions which must be answered in respect of the operation of rule 18.7.5. The first is whether, as the claimant contends, it is the trustees and the Principal Company who decide the overall period within which the deficiency disclosed by the actuary's report under rule 18.7.2 must be made good, and thus, effectively, the contribution rates that are to apply, or whether, as the trustees contend, it is the actuary who makes that decision. The second question, which only arises if the trustees are wrong and the answer to the first question is that it is the trustees and the Principal Company who determine that period, is whether it necessarily follows from that conclusion that paragraph 9(5) and the other two provisions do not apply.
38. As regards the first and principal question, Mr Simmonds submits that rule 18.7.5 falls into two distinct parts and is not to be construed as a single seamless provision. He submits that the first part, down to the semi-colon, deals with the determination of the collective rate, whereas the words after the semi-colon deal with the apportionment of that collective rate between the participating companies. That this is so is emphasised, he says, by the reference to "collectively" appearing in the first part, in the expression "…the Participating Companies shall collectively pay such an amount …" and by the overall concern of the first part, namely that "…the Participating Companies shall collectively pay such an amount [ie the deficiency disclosed by the actuary's report]…as…will, in the opinion of the Actuary restore the solvency of the Fund;". The first part also provides that the Participating Companies are to pay an amount sufficient, in the opinion of the actuary, to restore the solvency of the fund "by lump sum and/or periodic payments (to be certified by the Actuary)…" The second part after the semi-colon moves on, he says, to apportionment between the individual employers, ie (a) apportionment of the collective rate among the participating companies (in that it provides that "such amount [is] to be paid by the Participating Companies in such proportions as the Actuary shall certify …") and (b) the intervals at which the apportioned contributions are to be paid (see the words "such amount to be paid by the Participating Companies …within such period as the Trustees may, on the advice of the Actuary, agree with the Principal Company)" (emphasis added). If the claimant's approach were correct, the actuary's role would be largely mechanical if the period for payment of the deficiency is determined by the trustees and the Principal Company. In short, he says, the matters dealt with by the words after the semi-colon correspond broadly with the matters dealt with, in the context of rule 12.1, by rules 12.1.2 and 12.1.3 which, the claimant rightly concedes, do not prevent paragraph 9(5) and the other two statutory provisions from applying whereas the words down to the semi-colon correspond to what is contained in rule 12.1.1 which the claimant concedes do cause those provisions to apply. On this basis it is clear, he submits, that the Principal Company and, indeed, the trustees have no role under rule 18.7.5 until the second stage is reached of apportioning the collective rate. Accordingly, the collective rate, which is the rate in issue, is determined by the actuary alone. From this it follows, he says, that paragraph 9(5) - and the other two provisions - do apply to the scheme.
39. Mr Simmonds supports this approach by reference to the following further considerations. The first is the oddity, if the claimant's approach is correct, that whereas under rule 12.1, concerned with future service contributions, it is the actuary alone (as the claimant concedes) who determines the collective rates of contribution, nevertheless rule 18.7.5 (concerned to put the scheme back into equilibrium in relation to past accrued service benefits that have not, as it has turned out, been adequately funded) the determination of the collective rates of contribution is dealt with differently. Second, if the claimant's construction of rule 18.7.5 is correct the rule has been drafted, so to speak, back to front: what the claimant says it means is that the Participating Companies shall collectively pay a rate agreed between the trustees and the Principal Company which the actuary then has to certify as being sufficient to restore solvency whereas, as drafted, the rule is the other way round: it deals first with actuarial certification and it is only when one reaches the last line and a half that there is any mention of the trustees and the Principal Company. Although this is a possible way of drafting the matter it is, says Mr Simmonds, a very odd way of doing so.
40. Mr Simmonds then calls in aid a general principle of construction applicable to the construction of pension schemes (and more widely) that a scheme should be construed so as to give it a reasonable and practical effect and that "...it is necessary to test competing permissible constructions of a pension scheme against the consequences they produce in practice… If the consequences are impractical or over-restrictive or technical in practice, that is an indication that some other interpretation is the appropriate one." See Arden LJ in British Airways Pensions Trustees Ltd & ors v British Airways plc & ors [2002] PLR 247 at [28]. Accepting that the claimant's approach to the construction of rule 18.7.5 is possible, Mr Simmonds submits that the guidance in that authority requires the court to ask which of the competing constructions is the more practical: is it the one favoured by the claimant which, because it depends on agreement being reached between the trustees and the Principal Company (if the collective rates are to be established at all), may result in a deadlock, or is it that favoured by the trustees which runs no such risk since the collective rates are to be determined by the actuary alone? Mr Simmonds submits that the trustees' approach is to be preferred as the more practical both because, having taken the trouble to include a special rule to deal with remedying deficiencies, it is scarcely likely that the draftsman would opt for a mechanism which, as a result of deadlock, might not fulfil its purpose and also because in rule 12.1 the draftsman has adopted a mechanism which, as the claimant concedes, does not involve the risk of deadlock.
41. Mr Furness seeks to answer these arguments by pointing to what he submits is the clear and unqualified wording to be found after the semi-colon. He agrees that, whereas rule 12.1 is concerned with contributions going forward into the future, rule 18.7.5 is concerned with making good past deficiencies, but submits that that fact provides no reason for equating the two in terms of who has the responsibility of determining the collective contribution rates in question. An employer, he argues, might well say that while he is content for the actuary to set the ongoing contribution rates (under rule 12.1) nevertheless where, as here, there is a deficiency in funding he wants a say in the period over which he has to pay it off. Mr Furness says therefore that there is a good reason why the two rules might be and, he says, are differently framed. In any event, he submits, rule 18.6.6 gives to the trustees (admittedly not the employers) a right to submit to arbitration any "matters or things relating in any manner to the Fund" so that if a deadlock were to arise it would be in the trustees' power (if not the employers') to bring about a resolution.

Conclusion

42. In my judgment, Mr Simmonds' construction is to be preferred and broadly for the reasons which he gives. In particular, I agree that rule 18.7.5 has the two parts to it which Mr Simmonds identifies and that it mirrors the approach adopted by rule 12.1, ie that the words after the semi-colon provide for apportionment between the individual employers of the collective contribution rates which have been determined by the actuary in the words down to the semi-colon.
43. Forcefully as Mr Furness's points were put, I am not persuaded that they lead me to prefer the claimant's construction of the rule. Whether or not the collective contribution rates set by the actuary under rule 12.1.1 result in an adequately funded scheme inevitably involves, as Mr Simmonds points out, an element of guesswork. Rule 18.7 deals with what is to happen if, as a result of the actuary's valuation, it should turn out that the scheme is either over-funded (for which rule 18.7.3 caters) or under-funded (for which rule 18.7.5 caters). In agreement with Mr Simmonds, I would not have expected the draftsman to have approached the mechanism for setting the overall contribution rates differently depending upon whether what is being funded are future accruing service benefits as distinct from making good a deficiency in past accrued service benefits.

The further arguments

44. This conclusion means that it is not necessary for me to consider Mr Simmonds' further arguments that even if he is wrong on the question of how rule 18.7.5 is to be construed it does not follow that paragraph 9(5) and the two other provisions of the 2005 Regulations do not apply to the two schemes. Nevertheless, I shall briefly summarise the arguments and state my conclusions.
45. Mr Simmonds' first point is that, even if the words after the semi-colon relate to the setting of the collective contribution rates referred to in what precedes the semi-colon, the words do no more than set the overall deficit restoration period: they leave the actuary free to set the contribution rates within that overall period, for example, whether they should be front-loaded. Mr Simmonds then goes on to submit that the phrase "determined by the actuary without the agreement of the employer" does not mean "by the actuary alone" but only that the agreement of the employer is not required; it matters not, he says, that the rates determined by the actuary may be subject to other conditions or may require the agreement of persons other than the employer. He accepts that if, as Mr Furness submits, the words "determined by the actuary" mean "determined by the actuary alone" and that Mr Furness is right also about the overall construction of the rule (discussed earlier) then paragraph 9(5) does not apply. He argues, however, that even if that is so as regards paragraph 9(5) it does not follow that regulations 5(3)(b) and 8(2)(e) likewise do not apply. This is because, in contrast to paragraph 9(5), those two regulations do not require a determination by the actuary but speak only of contribution rates determined "by or in accordance with the advice of a person other than the trustees or managers …", in the instant case, the actuary. On any view, he says, the rates are being determined with the actuary's advice which is a lesser threshold than the actuary's determination required by paragraph 9(5). Mr Furness's response is to say that rule 18.7.5 does not confer on the actuary the freedom to fix how, within the period, the deficit is to be paid off but merely that the right to "certify" that payment is by "lump sum and/or instalments" and that it is the trustees and the Principal Company that set the actual timetable and amounts of payments. He goes on to submit that even if that is wrong and the actuary does determine how the deficit is to be paid off during the period fixed by the trustees and the Principal Company the reality is that the actuary's freedom of action is heavily circumscribed by the period so fixed and therefore that it cannot be said that the actuary is fixing the contribution rates alone: on any view the employer (in the person of the Principal Company) has some say in the overall task of setting the contribution rates and that is sufficient to prevent paragraph 9(5) and the two regulations from applying.
46. Mr Simmonds' next, and related, point is that, just as the word "employer" in the first line of paragraph 9(5) is to be understood in a plural sense to mean all of the employers collectively, so also must it be understood in that sense in the expression "without the agreement of the employer", so that paragraph 9(5) will only apply if the employer's agreement to which it refers is a collective agreement of all of the employers participating in the particular scheme. Mr Furness's response to this is to say that the expression "employer" as used in paragraph 9 cannot possibly mean "all the employers collectively". He submits that the expression, wherever it appears in paragraph 9 including therefore paragraph 9(5), means "an employer" or "any employer".
47. This leads to Mr Simmonds' final argument which is that if he is right in his second argument and the word "employer" in the expression "without the agreement of the employer" does mean all of the employers (in the case of a multi-employer scheme) that requirement is not in any event satisfied in rule 18.7.5 where the only agreement referred to - appearing in the words after the semi-colon - is that of the trustees "with the Principal Company". It does not require the agreement of the participating companies, whether individually or collectively. Mr Furness's response to this is to argue that under the scheme rules the agreement of the Principal Company is effectively the agreement of the employers as a body. He gives as an example the power of amendment set out in clause 6.1 of the trust deed whereby the Principal Company has the power from time to time with the consent of the trustees to amend, inter alia, the rules. He submits that any such amendment is binding on all of the participating companies because, by becoming participating companies, the employers in question bind themselves to observe and perform the rules. He argues that for the purposes of paragraph 9(5) the agreement of the Principal Company is effectively the agreement of the participating companies as a whole because all are bound by what the Principal Company does. Mr Simmonds seeks to answer this by arguing that where in the 2005 Regulations it is intended that one employer should be entitled to act as the nominee of other employers the regulation says so. He cites paragraph 2 of schedule 2 as an example. The absence of any such mention in paragraph 9(5) suggests that there is no such understanding in the reference to "employer" in that sub-paragraph.
48. In my view, when paragraph 9(5) and regulations 5(3)(b) and 8(2)(e) refer to the determination of contribution rates "without the agreement of the employer", the draftsman is concerned with a scheme where the employer has no veto in the determination process. It matters not if others have a veto or a right to be consulted. In the case of a multi-employer scheme, the obvious meaning is that the contribution rates should be determined without the need for the agreement of any of the employers. By withholding agreement to the fixing of the period within which the deficit is to be made good, the employer would be exercising that power of veto. That leaves only for decision whether in the case of rule 18.7.5 it is the employer whose agreement to the fixing of the contribution rates is required where the reference is to the agreement of the "Principal Company" (rather than to the participating companies or any of them). The Principal Company is an employer. That apart, the plain intention of the rule is that in giving (or withholding) its agreement the Principal Company is representing all of the participating companies.
49. If, therefore, I had accepted Mr Furness's interpretation of rule 18.7.5 I would not have concluded that any of the points raised by Mr Simmonds would have resulted in paragraph 9(5) or either of the two regulations applying.

Result

50. I shall answer the first and second questions in the claim form by declaring that all three provisions apply to the schemes.az