Walker Morris Trustees Ltd.v Masterson & Anor [2009] EWHC 1955 (Ch)

[2009] EWHC 1955 (Ch)Case No HC08C01338
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 31/07/2009
Before
MR JUSTICE PETER SMITH
Between
Walker Morris Trustees LtdClaimants(1) Andrew Robert MastersonDefendants(2) Sally Anne LodgeDefendant
Michael Furness QC (instructed by DLA Piper UK LLP) for ClaimantKeith Rowley QC (instructed by Pinsent Masons LLP) for First DefendantMichael Tennet QC (instructed by Hammonds LLP) for Second DefendantHearing Hearing dates: 2nd, 3rd and 6th April 2009
Judgment

Peter Smith J :

[1]The Claimant Walker Morris Trustees Ltd (“WMTL”) is the trustee of the Yorkshire Chemicals Pension Scheme (“the Scheme”). The action is an application by WMTL for declarations and directions which will enable it either to transfer the Scheme’s assets and liabilities to the Pension Protection Fund (“PPF”) or to wind up the Scheme by securing the members’ benefits by annuity policies or transfer payments.[2]WMTL is a professional trustee authorised by the Pensions Regulator to act as an independent trustee for the purpose of the Pensions Act 1995. It was appointed as an independent trustee of the Scheme on 22nd November 2004 by the Insolvency Practitioner appointed in respect of Yorkshire Chemicals PLC (the Principal Employer in the Scheme). Since its appointment it has had the responsibility of operating the Scheme pending its acceptance by the PPF or its winding up.[3]The task has apparently been complicated by the fact that the terms of the benefits to which the members are entitled are a matter of considerable uncertainty. This arises from the fact that the benefits in the Scheme have been altered on numerous occasions since the Scheme was established in 1974 but in most cases (as is shown by this judgment) the validity of the change is open to serious question. Neither a transfer to the PPF nor a winding up can be completed until it is known precisely what the benefits are.[4]In the meantime pending determination by the Court benefits have been reduced on the assumption that the relevant amendments (other than the 1986 Deed as to which see below) may be invalid.[5]At the outset WMTL’s Counsel in its skeleton argument asked the Court to consider two matters:- 1) It is highly unlikely the Scheme will have sufficient assets to buy out all benefits in full. This meant that it was not necessarily in any given member’s interest to argue for all the benefit improvements to be valid. A member might benefit from arguing against a benefit improvement being valid if by so doing he denied other members an improvement which was not available to him because that could increase his share of the assets on winding up relative to those other members. 2) That some of the arguments might appear to be unmeritorious. The reason for that is that it has been impossible apparently to compromise the issues in the action because no member could know where his or her best interests lay on any given issue without knowing the answer to various other interlocking issues and without a detailed understanding of funding implications.

BACKGROUND

[6]I refer to the first witness statement of Andrew Donald Charlton Turnbull dated 19th May 2008. He is a director of WMTL.[7]Originally there were 2 companies participating as employers in the Scheme while it was an ongoing scheme namely the principal employer Yorkshire Chemicals PLC (“Chemicals”) and Yorkshire Group PLC (“Group”). These companies went into receivership on 25th October 2004 and 31st October 2004 respectively. WMTL was appointed as statutory independent trustee by the Receiver of Chemicals on 22nd November 2004.[8]Chemicals went into liquidation on 10th January 2006 and Group went into liquidation on 6th February 2007.[9]No member of the Scheme has accrued any benefits since June 2005. As a consequence of the liquidations of Chemicals and Group assessment periods for the purpose of the PPF commenced on 10th January 2006 in relation to the Scheme’s pension liabilities attributable to the former employees of Chemicals and on 6th February 2007 in relation to the Scheme’s pension liabilities attributable to the former employees of Group.

MEMBERSHIP OF THE SCHEME

[10]As at 31st March 2008 there were 647 deferred members and 466 pensioner members drawing benefits. The Scheme has assets of approximately £46.5 million.

REPRESENTATION

[11]As the consideration of the issues developed it became apparent that it was by no means easy to identify any particular potential beneficiary who could clearly argue all the points in a consistent manner. Some beneficiaries might have an interest in arguing for total invalidity of the resolutions; others might be interested in a partial invalidity. Accordingly a Counsel only conference took place on 31st July 2008. It was suggested at that conference that professional representative beneficiaries might be appropriate. Accordingly it was agreed that a professional First Defendant would be appointed to argue for the validity of all provisions and a professional Second Defendant would be appointed to argue against the validity of all the deeds and resolutions in issue. Accordingly it was proposed that Andrew Masterson a partner in Pinsent Masons LLP would be appointed as the First Defendant to argue all points in favour of the deeds and resolutions. Similarly Sally Lodge a partner in Hammonds LLP would be appointed Second Defendant to argue for the invalidity of the deeds and resolutions in issue.[12]The parties signed a consent order to that effect. Mr Masterson instructed Mr Keith Rowley QC and Ms Lodge instructed Michael Tennet QC. This meant that Counsel because they were required to present all arguments in favour of their particular stance had to put up arguments in respect of which they were less than enthusiastic. However I accept that the only way forward was the suggestion which was implemented; otherwise some points might be left un-argued and un-disposed of.

THE SCHEME DOCUMENTS

[13]The Scheme was established by an Interim Deed dated 30th March 1974. This envisaged that a Definitive Deed would be executed in due course setting out the detailed provisions of the Scheme. I will refer to these documents in more detail further in this judgment. The Definitive Deed was executed in 1977 by which time it had been decided that the Scheme would be divided into 2 Schemes the A Scheme and the B Scheme for staff and works employees respectively.[14]Accordingly 2 Definitive Deeds were executed on 1st November 1977 one for each Scheme. Save for differences in the benefits structure and a slight difference in the wording used by the A Scheme and the B Scheme in their respective versions of clause 12 the terms of the Deeds were identical.[15]Thereafter a new Definitive Deed was executed for the A Scheme on 26th November 1981 which was followed by a Deed of Variation for the A Scheme executed on 22nd June 1984. For the B Scheme it appears a new Definitive Deed may have been executed on 26th July 1982 although only an unexecuted draft is now available. The parties agreed that the 1982 B Deed had been executed but the only issue was the validity of the amendments. The B Scheme was like the A Scheme purportedly further varied by a Deed of Variation dated 22nd June 1984.[16]With effect from 1st January 1985 the A Scheme was merged into the B Scheme and the Scheme has been operated as a single Scheme ever since. A Deed dated 27th February 1986 effecting a transfer of assets from the Trustee of the A Scheme to the Trustee of the B Scheme as Trustee of the merged Scheme was executed.[17]Following the merger various Deeds were executed in relation to the Scheme:- 1) Trust Deed and Rules dated 20th June 1986 2) Definitive Trust Deed and Rules dated 17th March 1994 3) Deed of Substitution of Principal Employer dated 24th February 1999 4) Deed of Rectification dated 9th December 1999 5) Deed of Amendment dated 30th October 2001 6) Deed of Amendment dated 24th June 2003

THE INVALIDITY ISSUE

[18]Doubts have arisen as to the effectiveness of the various changes since the original Definitive Deeds were executed which were done pursuant to clause 12 of each of the Definitive Deeds dated 1st November 1977.[19]The power of amendment in the A Scheme Definitive Deed is as follows:- “12. THE Trustees with the consent of the Employer may from time to time by deed alter or modify all or any of the trusts or provisions of this Deed or of the Rules by resolution or by deed provided that except to secure Inland Revenue approval or continuation thereof or to enable the Scheme to be treated as a contracted out Scheme conforming to Part III of the Social Security Pensions Act 1975 no such alteration or modification shall be made:-(a) unless in the written opinion of the Actuary or other advisers employed by the Trustees the rights and interest of any Member or of the widow or legal personal representatives of a deceased Member would not thereby be prejudiced insofar as such rights and interests concern benefits secured in terms of the Scheme prior to the date on which the proposed alteration or modification would be made or if such rights and interests would in the opinion of the advisers concerned be so prejudiced then unless and until the alteration or modification shall be sanctioned by a resolution passed by a simple majority of the Members voting either in person or by proxy at a meeting specially convened for that purpose by the Trustees of which meeting not les than 30 days’ notice shall have been given or sent by post to each Member such period of 30 days been reckoned from but excluding the day of giving or posting such notice or(b) by which the main purpose of the Scheme would cease to be that of providing pensions for Employees on retirement or(c) which would result in the Scheme ceasing to conform with the Preservation requirements set out in the Act or(d) which would result in the withdrawal of Inland Revenue approval because of the payment or transfer of any part of the Fund to any Employer or of the creation of any surplus of the Fund the liabilities of the Scheme”[20]The B Scheme power of amendment in its Definitive Deed is as follows:- “12. THE Trustees with the consent of the Employer may from time to time by deed alter or modify all or any of the trusts or provisions of this Deed or of the Rules by resolution or by deed provided that except to secure Inland Revenue approval or continuation thereof or to enable the Scheme to be treated as a contracted out Scheme conforming to Part III of the Social Security Pensions Act 1975 no such alterations or modifications shall be made:-(a) unless in the written opinion of the Actuary or other advisers employed by the Trustees the rights and interest of any Member or of the widow or legal personal representatives of a deceased Member would not thereby be substantially prejudiced insofar as such rights and interests concern benefits secured in terms of the Scheme prior to the date on which the proposed alteration or modification would be made or if such rights and interests would in the opinion of the advisers concerned be so prejudiced then unless and until the alteration or modification shall be sanctioned by a resolution passed by a simple majority of the Members voting either in person or by proxy at a meeting specially convened for that purpose by the Trustees of which meeting not les than 30 days’ notice shall have been given or sent by post to each Member such period of 30 days been reckoned from but excluding the day of giving or posting such notice or(b) by which the main purpose of the Scheme would cease to be that of providing pensions for Employees on retirement or(c) which would result in the Scheme ceasing to conform with the Preservation requirements set out in the Act or(d) which would result in the withdrawal of Inland Revenue approval because of the payment or transfer of any part of the Fund to any Employer or of the creation of any surplus of the Fund the liabilities of the Scheme”[21]The only difference is that under the A Scheme Deed it refers to the rights of members being “prejudiced” where under the B Scheme the wording is to the rights and interests of members being “substantially prejudiced”.

THE ISSUE

[22]It appears that in respect of any of the amending Deeds referred to above no such actuarial advice as contemplated by clause 12 was ever obtained save in respect of the 1986 Deed. Further there is no recital in any of the Deeds to the effect that such advice was obtained. There are minutes of the Trustee meetings but there is only one reference to written advice of the sort contemplated by clause 12 the minute of the AGM of the former Trustee company on 20th June 1986 which refers to an advice letter relating to the execution of the Trust Deed and Rules on 20th June 1986.

SEARCHES FOR DOCUMENTS

[23]WMTL communicated with all former directors of the Trustee of the Scheme whose addresses were available for their recollections. None of them can recall written advice being obtained specifically about the effect of the amendments though a number of them did say that at all times they acted on professional advice. The former actuaries Clay & Partners cannot locate any papers relating to the Scheme. The former solicitors Ford & Warren are unable to locate any documents. They were responsible for drafting all of the Scheme’s Trust Deeds and Rules prior to the Definitive Deeds and Rules dated 17th March 1994.[24]WMTL has been in correspondence with Xafinity and a succession of predecessor companies who provided a range of services to the Scheme. It is believed that Xafinity’s predecessors were responsible for the drafting of all Scheme’s Trust Deeds and Rules from 17th March 1994. No documents have been identified in the files of Xafinity or in PricewaterhouseCoopers (“PWC”) the Administrative Receivers of Chemicals and Group.[25]It was not suggested before me that there might be such documents but they have been lost. The hearing proceeded on the basis that no such actuarial advice as contemplated on the face by the relevant clause had ever been obtained save in respect of the 1986 Deed.[26]If the Amending Deeds are invalid that will impact on benefits. Many of the amendments were designed to improve benefits. The vast majority of members would seek to urge the amendments were valid. However some members will benefit from the Deeds being invalid because one effect of the invalidity would be to negate the equalisation of the normal retirement age at 65 leaving open the possibility that members could have continued to accrue benefits by reference to the normal retirement age of 60.[27]The consequence of the issue as I have said is that WMTL has taken steps to reduce the payment of benefits to pensioners to the level that those benefits will be payable if the Amending Deeds other than the 1986 Deed were invalid. The impact of the reduction on an individual pensioner will be varied because they are affected according to their category of membership and of which Amending Deed originally applied to calculate their benefits. The pension reductions were done at the rate of 10% per month until the time the pension reflected the amount payable under the Scheme’s benefit structure as advised by Counsel. In a number of cases the reduction is more than 50% and WMTL decided that the reduction should be limited to 50% for the time being. An investigation by Capita has established that only 12 deferred members will receive better benefits if the Amending Deeds are ultimately invalid.

RESOLUTION/DECISION IN ISSUE

[28]There are a total of 26 decisions made by the Trustees over the life of the Scheme. Of those decisions the following numbers (of the list of decisions) namely 3-4, 7, 16-17, 24 and 26 are the ones in issue.[29]Of those 6 have been put into category 1. These are Deeds which according to their terms operated to effect benefit improvements, either prospectively or retrospectively or both they are:- 1) The 1981 Scheme A Deed and Rules (prospectively) (3) 2) The 1982 Scheme B Deed and Rules (prospectively) (4) 3) The 2001 Amendment (both retrospectively and prospectively) (24)[30]In category 2 are to be found Deeds which according to their terms would operate to do all of the following:- 1) Effect benefit improvements, either retrospectively or prospectively or both; 2) Actually or potentially reduce benefits with retrospective effects 3) Actually or potentially reduce the rate at which future benefits would accrue. These are:- a) the 1984 Scheme A Deed of Amendment (7) b) the 1994 Deed & Rules (17) c) the 2003 Deed of Amendment (26)[31]The 1991 resolution (16) is in a category of its own and is dealt with separately.[32]There is a separate point as to whether or not the 2001 and 2003 Deeds of Amendment satisfy the requirements of the Scheme Actuary in that on both occasions the Scheme Actuary provided a certificate under section 67 of the Pensions Act 1995 (“the section 67 issue”). The argument is whether those certificates could be regarded as constituting the requisite written advice for the purposes of the power of Amendment in the Definitive Deeds.[33]In addition there are arguments put forward that if the Trustees decisions are invalid because no written advice of the Actuary has been obtained whether it is possible to interpret them as an exercise of a power to augment prospective pensions in respect of any member. Under clause 23 of the 1986 Trust Deed is to be found such a provision. This was an argument put forward (following the agreed deployment of the respective arguments) by WMTL.[34]Initially it was thought there were 5 potential Deeds that could be the subject matter of an augmentation argument (as set out in WMTL’s skeleton argument paragraph 18). However as the case developed it transpired that only the 1986 Deed had a power of augmentation. That reduced the number of potential augmentation arguments to 3 namely the 1991 Resolution (16) the 1994 Deed (17) and the 2001 Deed (24).

MAIN ARGUMENT

[35]The main argument centres on the wording of clause 12 of the Definitive Deeds. On its face it gives the power to the Trustees with the consent of the Employer to alter or modify all or any of the trusts or provisions of the Deed or of the Rules. However “no such alterations or modification shall be made” (except to secure Inland Revenue approval or continuation thereof or to enable the Scheme to be treated as a contracted out Scheme), unless in the written opinion of the Actuary or other advisers employed by the Trustees the rights and interests of any member or of the widow or legal personal representative of a deceased member would not thereby be prejudiced in so far as such rights and interests concerned benefits secured in terms of the Scheme prior to the date on which the proposed alteration or modification would be made or if such rights and interests would in the opinion of the advisers concerned be so prejudiced, for the implementation to be effective the alteration or modification is required to be sanctioned by resolution passed by a simple majority of the members. There are other restrictions none of which is relevant.[36]The clause at first sight appears to me to be relatively straight forward. First the draftsman has provided for the Trustees to have power to alter “all or any of the trusts or provisions of this Deed or of the Rules…” The restraint however is the need to have the appropriate written opinion of the actuary that any such proposed alteration will not adversely impact on the existing interests of existing members or their personal representatives. That seems to me to be an easy clause to operate. In many cases rule changes could not possibly have that impact. However the draftsman it seems to me was faced with a dilemma. Either he attempted to identify the types of variations which might have such an impact and limit that power. That would require careful draftsmanship and it would require him to look prospectively. He would need to consider every possible exercise of the power for the future under the terms of the Deed and Rules and attempt to identify those which might have that possible impact. The Trustees would have to be satisfied that his identification was correct. Alternatively (based on the arguments put forward by Mr Rowley QC for the First Defendant) the Trustees would have to identify whether or not the proposed alteration might have the impact contemplated by the clause. In that eventuality they would need the Actuarial opinion. If the proposed alteration definitely did not have that impact there would be no need to have Actuarial advice. The difficulty of course is the grey area between the two. There may be some proposed alterations which might have an adverse effect. It is always possible to think of arguments either way in cases like this. The Trustees therefore whenever they considered changing the Trust Deed or Rules would first of all have to consider whether or not a proposed alteration would have the impact identified in the clause. If it did they would need the Actuarial advice. If it did not they would not need it. This seems to me to be creating difficulties and potential problems for the Trustees.[37]The other way to approach it in my view is to look at it with a view to giving effect to the clause which makes the Trustees’ decision making process the easiest and most uncontroversial. If one applies it according to the clear wording every decision requires an Actuary’s view in writing. In the case of some it would be obvious that there could be no impact (for example a change to the arbitration clause 15). In that eventuality the exchange of correspondence between the Trustees and the Actuary would be commendably brief. The Actuary would simply write “there are no potential problems for this exercise”. That gives certainty however and resolves the possibility of any difficulty or ambiguity arising after the event. It is simple and straightforward. It is “artless chancery simplicity at its best”.

THE FIRST DEFENDENT’S COUNTER ARGUMENTS

[38]In respect of the category 1 Deeds the First Defendant submits that the power of amendment did not require written advice where the proposed amendment took the form of improvement of benefits whether retrospective, prospective or both. It is submitted that this conclusion is reached by one of two alternative routes namely(1) by the adoption of a practical and purposive construction of the power of amendment and(2) alternatively an implication of a term in to the power of amendment to the effect that the requirement of written advice should be treated as satisfied where it is clear that had the appropriate professional been requested to provide that advice he would have done so. In the case of the category 2 Deeds the First Defendant as regards improvements to benefits the First Defendant makes the same submissions as he does in respect of category 1. In respect of retrospective benefit reductions the First Defendant accepts that the absence of Actuarial advice the amendment would be ineffective to that extent. Third as regards reduction in future accrual rates the First Defendant submits that on its true construction the requirement for written advice does not apply to the amendments of this character to the extent that they are prospective in effect.

GENERAL PRINCIPLES OF CONSTRUCTION

[39]I was referred to the general observations of Millett J in Re Courage Pension Schemes [1987] 1 WLR 495 at 505 d-e as follows :- “The next question is whether the plaintiffs are entitled, if so minded, to join in executing the amending deeds. They may do so only if the proposed amendments are within the power to amend the trust deeds and rules, and can properly be made. They must not infringe the provisos to the rule-amending power, particularly the express prohibition to be found in all three schemes against altering the main purpose of the schemes, namely the provision of pensions on retirement at a specified age for members. This is a restriction which cannot be deleted by amendment, since it would be implicit anyway. It is trite law that a power can be exercised only for the purpose for which it is conferred and not for any extraneous or ulterior purpose. The rule-amending power is given for the purpose of promoting the purposes of the scheme, not altering them. Before I consider this question, I should make some general observations on the approach which I conceive ought to be adopted by the court to the construction of the trust deed and rules of a pension scheme. First, there are no special rules of construction applicable to a pension scheme; nevertheless its provisions should wherever possible be construed to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life. This is particularly the case where the scheme is intended to be for the benefit not of the employees of a single company, but a group of companies. The composition of the group may constantly change as companies are disposed of and new companies are acquired; and such changes may need to be reflected by modifications to the schemes”.[40]All of these observations were drawn together by Arden LJ in British Airways Pension Trustees Ltd v British Airways PLC [2002] PLR 247 as follows:- “The interpretation of pension schemes 26 There have been several reported cases about the interpretation of provisions of pension schemes in recent years. There are no special rules of construction but pension schemes have certain characteristics which tend to differentiate them from other analogous instruments. I mention some of those characteristics in the following paragraphs. 27 First, members of a scheme are not volunteers: the benefits which they receive under the scheme are part of the remuneration for their services and this is so whether the scheme is contributory or non-contributory. This means that they are in a different position in some respects from beneficiaries of a private trust. Moreover, the relationship of members to the employer must be seen as running in parallel with their employment relationship. This factor, too, can in appropriate circumstances have an effect on the interpretation of the scheme. 28 Second, a pension scheme should be construed so to give a reasonable and practical effect to the scheme. The administration of a pension fund is a complex matter and it seems to me that it would be crying for the moon to expect the draftsman to have legislated exhaustively for every eventuality. As Millett J said in Re Courage Group’s Pension Schemes [1987] 1 WLR 495 at 505: [its] provisions should wherever possible be construed so as to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life. In other words, it is necessary to test competing permissible constructions of a pension scheme against the consequences they produce in practice. Technicality is to be avoided. If the consequences are impractical or over-restrictive or technical in practice, that is an indication that some other interpretation is the appropriate one. Thus in the National Grid case, to which I refer below, where there was a choice of possible constructions, Lord Hoffmann held that the correct choice depended ‘upon the language of the scheme and the practical consequences of choosing one construction rather than the other.’ (see [2001] 1 WLR 864 at 887, para 53). 29 Third, in pension schemes, difficulties can arise where different provisions have been amended at different points in time. The effect is that the version of the scheme in issue may represent a ‘patchwork’ of provisions: see per Robert Walker J in the National Grid case. Pension schemes are often subject to considerable amendment over time. The general principle is that each new provision should be considered against the circumstances prevailing at the date when it was adopted rather than as at the date of the original trust deed: see per Millett J in Re Courage Group’s Pension Schemes, above, at 505–506. Likewise, the meaning of a clause in the scheme must be ascertained by examining the deed as it stood at the time the clause was first introduced. Thus, for instance, at the time clause 11 was introduced, neither clause 24 nor its predecessor formed part of the APS Trust Deed, so that clause is not to be taken into account in the interpretation of clause 11. (I should add that the appellants have recently made a complaint to the Pensions Ombudsman about the introduction of clause 24. We are not concerned with that complaint.) 30 Fourth, as with any other instrument, a provision of a trust deed must be interpreted in the light of the factual situation at the time it was created. This includes the practice and requirements of the Inland Revenue at that time, and may include common practice among practitioners in the field as evidenced by the works of practitioners at that time. It has been submitted to us that the factual background is only relevant if the document is ambiguous. I do not accept this submission, which is inconsistent with the approach laid down by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. In Lord Hoffmann’s words ‘[i]nterpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background that would reasonably have been available to the parties in the situation in which they were at the time of the contract’ (912H). Lord Hoffmann also distinguished the meaning of the words to be found in dictionaries from the meaning of documents: (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. 31 Fifth, at the end of the day, however, the function of the court is to construe the document without any predisposition as to the correct philosophical approach. Both sides urged on us their respective philosophical approaches. Mr Inglis-Jones submitted that the overall approach of the APS Trust Deed was favourable to the members. BA submitted that it should be remembered that this was a balance of cost scheme and so the fact that there was a surplus meant that the employer had paid too much. As Brooke LJ, giving the judgment of this court (Nourse, Schiemann, Brooke LJJ), said in the National Grid case [2000] ICR 174, 193 The solution to the [problem of construction in that case] lies within the terms of the scheme itself, and not within a world populated by competing philosophies as to the true nature and ownership of an actuarial surplus. In the same case, in the House of Lords, the beneficiaries of the scheme argued that the surplus represented their contributions or their deferred remuneration. Lord Hoffmann rejected this approach. He expressed the view that, once it was established that the employer could exercise powers conferred by a scheme in its own interests:
‘I do not see the relevance of the way in which the surplus was funded’ (page 869G). I discuss the National Grid case in detail below. 32 Sixth, a pension scheme should be interpreted as a whole. The meaning of a particular clause should be considered in conjunction with other relevant clauses. To borrow John Donne’s famous phrase, no clause ‘is an Island entire of itself.’
[41]Finally I was referred to the judgment of Sir Andrew Morritt VC (as he then was) in Armitage v Staveley Industries PLC [2006] PLR 191 at 196-197 paragraph 29:- “if more than one interpretation is possible, the correct choice may depend on the practical consequence of choosing one interpretation rather than the other”[42]With those general principles in mind the First Defendant submits that the power of amendment in the Trust Deeds is unusual in its terms with its requirement for written advice and its principle of “majority rule” it is by no means clear where the source of these provisions were to be found. It appears to have been drafted by Ford and Warren who acted as solicitors for the Scheme for many years.[43]I was referred by the First Defendant to a number of other forms. The nearest provision of similarity appears to be clause 12 from the Encyclopedia of Forms and Precedents (3rd edition 1943) Vol 17 at page 426. It is unlike clause 26 to be found in the EFP (4th edition 1973) page 221. Paradoxically the current form of the EFP (5th edition) does include similar provisions in clause 19 at page 137. The Definitive Deed and Rules in Sweet & Maxwells “Law of Occupational Pension Schemes “ refers to a certificate by an Actuary but that is are under section 67 of the Pensions Act 1995.[44]The nearest clause seems to be the out of date EFP (1943) issue. The use of old precedents books can be dangerous see Re Leverhulme (No 2) [1943] 2 All ER 274.[45]However I do not see that the reference to the various different precedents helps me to construe the Trust Deed. After all it is established the draftsman’s opinion is not admissible so I do not see how other Trust Deeds can possibly assist me in construing this Trust Deed. Equally I do not see that the amendment provisions in the Interim Deed which themselves are different and of course cease to be of effect when the A/B Definitive Trust Deeds came into force are of any assistance either.[46]The First Defendant submits that the construction put forward by him is practical and sensible and that a literal reading would produce a perverse result. In my view this is to use the unfortunate consequence of the amendments being held to be void through lack of actuarial advice as a justification for construing the Deed a particular way. Categorising “a literal interpretation” as producing a “perverse result” is simply to criticise the wording of a clear clause because the result is unfortunate. It is equally wrong in my view to criticise such a construction as being “technical”.[47]It must be appreciated that the “perverse result” so called does not arise out of a literal or technical construction of the clause. In my view it has simply arisen because it is clear that the Trustees over the years never looked at the clause under which they were proposing to amend the Trust Deed. Anyone reading it would see clearly what it meant. It required the Trustees to obtain an Actuarial opinion as to the impact of any proposed power. This is not difficult. On the contrary it is easy and practical. To suggest that the application of the clear wording of the requirement to any decision produces a perverse result could be said to be perverse itself.[48]It is simply with respect to the First Defendant insufficient to state that the amendment provisions should be construed to avoid technicality and promote the purpose of the Scheme which is to provide not deprive members of benefits. This is to misunderstand the problem. It is not the clause and its construction that is the difficulty; it is the failure of the Trustees to consider the clause and its impact. This is shown by the fact there is evidence of consideration of the provision only on one occasion. Had anyone read the clause it might at least have alerted someone that on occasions the written opinion of an Actuary might be required. I accept that the consequences are unfortunate. However one cannot bend the construction and try and find an ambiguity or difficulty so as to re-draft the clause to dispense with what was considered to be a fundamental requirement by the draftsman. I reject the submission of the First Defendant that this would provide a practical reasonable requirement. That was demonstrated by the fact that it is virtually impossible to re-draft the clause so as to identify when the Actuary’s advice might be required and when it might not. This would present a nightmare to the Trustees as they would be required to construe the Deed, understand it and then decide whether an Actuary’s opinion was required. That seems to me to be putting an undue pressure on the Trustees. I cannot conceive that that is what the draftsman intended. He simply in my view intended to create a simple all embracing regime which was readily and easily understood. The problem of the case is not the clause; it is the inaction of the Trustees.[49]It seems to me that I should follow the course recommended by Lewison J in Trustee Solutions v Dubery [2006] 36 P.L.R [2006] EWHC 1426 (Ch) at paragraph 17:- “17. The Rules of a Pension Scheme must be interpreted in a practical and purposive way. The fiscal background is also of importance. The ultimate question is what the words of the Scheme would mean to a reasonable reader with the background knowledge of the parties…… 20. I do not regard these observations as suggesting that the court has power to sanction any departure from the requirements of the Deeds as properly construed. An avoidance of pedantry, and the need to protect beneficiaries may well be powerful factors in choosing between rival constructions; but once the requirements of a valid means of alteration of the rule has been determined as a matter of construction, either a document satisfies those requirements or it does not. Nor do I think that Neuburger J [interpelation in Bestrustees v Stuart [2001] PLR 283 can have meant that the court had power to waive the requirements of the Deed as properly construed. It is always open to the parties to a contract to waive one of its requirements, but that is a matter for them; not for the court.”[50]It will be appreciated that any amendment was capable of taking effect by a simple majority vote. It seems to me that the First Defendant’s submissions fall into the trap of requiring me to allow the consequences of the avoidance of the various Trust documents to dictate how the clause is construed. This is quite wrong for the reasons set out by Lewison J above. It is impossible to come up with a definitive and clear re-drafting of the clause to give effect to the desire of the First Defendant to save the offending variations. To do so must necessarily include an attempt to categorise those decisions which do not require the Actuarial advice in writing and those that do. I cannot see that it can be done clearly as there will be some provisions which might be the subject matter of a dispute: see in particular below concerning the impact of section 67 and the various competing authorities there.[51]Further I accept the Second Defendant’s submission (paragraph 11 of the skeleton argument) that to sanction these amendments in effect by determining that the Actuarial written advice is not required is to override the other requirements or possibilities set out in the clause such as variation by majority beneficiaries, the powers only being capable of being exercised prospectively and by formal resolution.[52]All of this shows that in my view it is impossible to stretch or alter or re-construe clause 12 to allow these amendments to escape the consequences of the failure to obtain the clearly required Actuarial advice.[53]I therefore reject the First Defendant’s primary argument as regards construction of clause 12.[54]For the same reason I can see no basis for implying a term as suggested. It is unworkable and in reality is only being invoked retrospectively in a hopeless attempt to save the amendments from the failure to seek appropriate Actuarial advice.

THE SECTION 67 ISSUE

[55]Certificates under section 67 of the 1995 Act in its then form were given by the Scheme Actuary in respect of both the 2001 and 2003 Deeds of Amendment.[56]The First Defendant submits that if necessary those certificates can do double duty to both section 67 and the power of amendment on three grounds:- 1) According to their terms the certificates satisfy the written advice requirement in the power of amendment 2) If necessary the test of both section 67 and the power of amendment is the same 3) If necessary the court ought not to follow certain observations of Millett J in Re Courage in this context.[57]The section in its original form was concerned with an exercise of a power of amendment to provide:- “the power cannot be exercised on any occasion in a manner which would or might affect any entitlement accrued right or pension credit right of any member of the Scheme acquired before the power is exercised……”[58]The word “entitlement” was interpreted in Aon Trust Corporation v KPMG [2006] 1 WLR 97 at 123 B-C as meaning a pension already in payment.[59]The “accrued right” is defined in section 124 (2) of the 1995 Act on the hypothesis that the member has opted to leave service.[60]I accept the Second Defendant’s submission that the section 67 certificate is not carrying out the same exercise. As I have said under section 124 (2) the exercise there is to take into account those benefits that an employee would have received on the assumption that he has already left service. Thus no account is taken of the fact that because the member is still in service his ultimate benefits in respect of service up to the date of the amendment will be based not on his salary at the date of the amendment but on his final leaving salary which could be significantly higher than the salary at the date of the amendment.[61]Under the Trust Deed clause 12 (a) the Actuary is required to advise on the benefits “secured in terms of the Scheme prior to the date on which the proposed alteration or modification would be made” would not be substantially prejudiced. The Second Defendant therefore submits that the Actuary is required to consider prejudice to benefits based on the service to the date of the amendment and on the beneficiaries’ anticipated final pensionable salaries not their pensionable salaries at the date of the amendment.[62]This is in line with the actual reasoning in Courage as follows:- “There was some dispute whether “benefits already secured by past contributions” means the same thing, or includes the prospective entitlement to pensions based on final salary. In the absence of express definition, I see no reason to exclude any benefit to which a member is prospectively entitled if he continues in the same employment and which has been acquired by past contributions, and no reason to assume that he has retired from such employment on the date of the employer’s secession when he has not. The contrary argument places a meaning on “secured” and “accrued” which is not justified.”[63]The Courage decision appears to have been endorsed (without clear reference in my view) in Lloyds Trust Corporation v Lloyds Bank PLC [1996] PLR 263 see paragraph 42.[64]The reasoning in Courage is at first sight equally applicable to the construction of clause 12. Of course one should always be wary about applying a construction of a clause under a different Deed as an aid to another. However it is the reasoning in Courage which is compelling in my view. The same reasoning is equally applicable to the construction of the Trust Deed.[65]The First Defendant referred me to criticism of the decision of Courage in Sweet & Maxwell’s “Law of Pension Schemes” at paragraph 7-37-38. In my view the criticism there is based on a hope that the Trust Deeds in the future would be construed to give flexibility to an amendment clause as opposed to protection of rights of members. Thus the Lloyds Bank decision is described as an interesting decision which showed the lack of flexibility.[66]Faced with the Courage decision and the Lloyds Bank decision the First Defendant whilst relying on Courage for general guidance (see above) invited me to decline to follow it.[67]As I have said decisions on the construction of other clauses and other deeds are not necessarily helpful in determining the construction of the particular deed under consideration. Nevertheless I reject the First Defendant’s submission. In so doing I construe the clause as having the effect as argued for by the Second Defendant I am therefore arriving at a result similar to Courage and Lloyds Bank but my decision is based on a construction of this Deed and not following those.[68]Thus in my view the section 67 certificates are designed for a different purpose and those certificates cannot be used to save the proposed amendments from the consequences of not having an Actuarial statement in writing as clearly required by clause 12. I therefore reject the First Defendant’s argument based on section 67 certificates. Once again I am of the view that where the clause is clear one needs to apply the clause to the powers even though the consequence is that the proposed amendments are ineffective. In that context I am adopting the observations of Lewison J in the Trustee Solutions case.

CATEGORY 2 DEEDS

[69]These Deeds are ineffective for the same reason that I have determined that the category 1 Deeds are ineffective namely they all require Actuary’s written advice.[70]The same in my view applies to the future reduction of accrual rates in the category 2 Deeds. These too are amendments.

THE 1991 RESOLUTION

[71]By this resolution the Trustee made benefit improvements in respect of the surplus disclosed by the 1990 valuation. They were as follows:- 1) All members were given the right to retire at 60 without penalty 2) Contributions were set at 4% for all members 3) Death in service cash was increased to 4 x salary for all members 4) Members were given the right to retire on full pension after 40 years’ service 5) Actuarial reduction for retirement before 60 was reduced from half to one quarter % per month 6) Increases in pensions in payment were improved[72]There are 4 legal issues in respect of this document:- 1) Can the changes be justified as amendments “to secure Inland Revenue approval or the continuation thereof” within the opening words of clause 12 2) If not can the resolution be treated as utilisation of surplus within clause 10 of the 1986 Deed 3) If not can the amendment effecting benefit improvements be valid absent the necessary advice in writing if not 4) Can a resolution which purportedly improves benefits for the future by amendment be given partial effect as an augmentation of benefits for those members existing at the date of the Deed.[73]The 1986 Deed which took effect from 1st June 1984 is accepted as valid. Clause 12 is identical to the earlier provisions in the earlier Trust Deeds. It therefore suffers in my view from the same requirement namely for there to be a written opinion of the Actuary for any alteration or modification of the Trust or the provisions of the Deed (except to secure Inland Revenue Approval or continuation thereof).[74]I will deal with the augmentation issue further in this judgment.

JUSTIFICATION TO SECURE INLAND REVENUE APPROVAL OR THE CONTINUATION THEREOF

[75]The factual background appears to be the Scheme Actuary produced a “Summary Annual Report” on the Scheme’s actuarial valuation as at 1st April 1990 which drew attention to the surplus in the Scheme and to the statutory requirement that action should be taken to eliminate it. That report was presented to the Scheme’s council of management at a meeting held on 14th February 1991. The meeting took a decision to extinguish the surplus over a 5 year period by a combination of benefit improvements and the reduction of members’ and employers’ contribution rates.[76]The First Defendant submits that the Scheme Actuary’s advice was entirely correct: elimination of surplus was required under paragraphs 4-6 of schedule 12 of the Finance Act 1986 and the Pension Scheme Surplus (Valuation) Regulations 1987 (S.I. 1987 No 412). It should be noted that the decision was to eliminate the surplus rather than merely reduce it to the permitted 5% level.[77]The First Defendant submits that the fact that the resolution went beyond the statutory requirement to reduce the surplus to the 5% level is irrelevant.[78]The Second Defendant submits the opposite. His submission is that the exception can only be relied upon insofar as the amendments are necessary for securing Inland Revenue approval. The effect of the decision was not merely to eliminate all the surplus identified in the Actuarial report (which amounted to 31% or £5,532,000) but actually put the Scheme into deficit. The resolution provided a combination of benefit improvements and the reduction of members’ and employers’ contribution rates.[79]There is no doubt that the surplus had to be addressed. The minutes dealing with the 1991 resolution (B4/890) are brief. It is quite clear that they decided not merely to eliminate the surplus but also go into a relatively modest deficit.[80]Nevertheless the exercise is carried out so as to continue to obtain Inland Revenue approval. Although it goes further than strictly required I do not see that is a basis for suggesting that the decision was invalid.[81]In this case therefore I accept the First Defendant’s submissions in respect of the 1991 resolution.

UTILISATION OF SURPLUS

[82]Clause 10 of the Trust Deed requires the position of the Scheme to be submitted to an Actuary at the expiration of 5 years calculated on 1st April 1974 and 5 yearly thereafter. That was the exercise contemplated by the Trustees when they effected the 1991 resolution. Any surplus or part thereof of the fund over the liability of the Scheme “shall be utilised for such purposes of the Scheme as the Principal Employer and the Trustee shall on the written advice of the Actuary agree”. As the minute referred to above concerning the 1991 resolution shows the Actuary presented his initial report and indicated various options available and how to apply the surplus available of 31% over the next 5 years. The Trustees considered that and decided to utilise the surplus to benefit all sections of the Scheme membership and the employer and adopted the various recommendations.[83]The Second Defendant submits that clause 10 is not a free standing power to improve benefits free from restrictions of the powers of amendment. Further she submits that even if it is a free standing power an intention to exercise the power must be discerned from the circumstances in which the alteration to benefits were made.[84]In my view neither of these is an argument which holds water. First it is plain that clause 10 gives a separate free standing power to the Trustees as they wish (acting of course bona fide as Trustees) in dealing with the surplus. Second it is plain that they dealt with the surplus and that is probably why in my view they went beyond the minimum requirements for the Inland Revenue purposes.[85]The First Defendant referred me to the speech of Lord Hoffmann in National Grid v Mayes [2001] 1 WLR 864 at 873 F-H paragraph 35. There Lord Hoffmann said as follows:- “[35] I agree with the judge that the language of clause 14(5) is apt to confer upon the employer the power to make the arrangements which he considers necessary to deal with a surplus. The word "shall" in my opinion connotes not only a duty but also the power to discharge that duty. I do not think that it requires the employer to scratch around among the other provisions of the scheme to find specific powers. But I would not go so far as the judge in saying (as he did in paragraph 83) that the employer's powers were not intended to be restricted "either specifically by clause 41(2)(b) or by what the employer could do under other clauses of the scheme, or generally by the context and purpose of the scheme". I find it difficult to believe that the general words of clause 14(5) were intended to give the employer power, without amendment, to do something which would contradict the express provisions of the scheme. [36] It may also be that, as the Ombudsman thought, the power is subject to implied limitations deducible from the context and purpose of the scheme. He said that there was an implied prohibition against paying the employer money from the fund. He derived this implication from clause 41(2)(b), which he said would make no sense if clause 14(5) conferred a wide power for the employer to pay himself out of surplus. The suggestion that clause 41(2)(b) was intended only to prevent payments otherwise than out of surplus was implausible. I think that there is considerable force in this argument, at any rate if one tries to construe the scheme as a consistent whole. [37] Of course the fact that the scheme cannot be amended to allow something to be done does not necessarily mean that a limited power to do that thing does not already exist within the scheme: see In re Vauxhall Motor Pension Fund [1989] PLR 49, 53. But such a prohibition is rather odd if the scheme already contains a very wide power. The trouble is that this scheme may not be altogether consistent. In the old predecessor schemes, there was no inconsistency because the equivalent of clause 14(5) restricted the powers of the employer to dealing with surplus in certain specified ways: cancelling liability to pay deficiency contributions, retaining it in the fund or reducing the employers' standard contributions. There was nothing anywhere in the old scheme which could be construed as a power to pay money to the employers. The new scheme created the difficulty by removing all the restrictions on what the employer could do about disposing of the surplus but leaving the prohibition on any amendment which would allow payments to the employer. My Lords, I do not intend to try to solve this puzzle because on the construction which I have given to making payments to the employer out of the fund, it does not arise. [38] The real question, as it seems to me, is whether the arrangements which the employers made to relieve themselves of liabilities contradicted the express provisions of the scheme. For this purpose it is necessary to explain in more detail what they were”.[86]Lord Slynn, Lord Steyn, and Lord Clyde all agreed with that paragraph. Lord Scott looked at it differently he said:- “[76] There was considerable debate in the courts below and before your Lordships as to whether clause 14(5) merely imposed a duty or whether it conferred also a power to implement the arrangements that the employer desired to make. The provision confers power to "make arrangements". To that extent it is certainly a power-conferring provision. But it does not follow that it confers power upon the employer to amend the scheme. Clause 41 contains an express power to amend the scheme. The provisions of the scheme must be construed as a whole and, so construed, clause 14(5) cannot, in my opinion, be regarded as conferring on the employer a power of amendment free from the safeguards to which the clause 41 power of amendment is subject.” [77] In my opinion, to the extent that "arrangements" made by the employer under clause 14(5) are inconsistent with one or other of the provisions or rules of the scheme, the implementation of those arrangements requires the amendment of the scheme pursuant to clause 41. [78] Accordingly:(i) Arrangements made under clause 14(5) which involve altering the contribution obligations of either the employer or the employees under clause 13(1)(a) require, in my opinion, an amendment of the scheme.(ii) An increase of the benefits payable under the rules, whether the increase takes the form of a lump sum one-off payment or any other form, requires, in my opinion, amendment of the scheme.(iii) But the appropriation of surplus to meet accrued obligations of the employer under clause 13(1)(e) or (f) does not, in my opinion, require any amendment of the scheme. It was argued in relation to clause 13(1)(e) that the appropriation of surplus to meet an employer's obligation to make additional contributions to meet the extra cost to the fund of early retirements would be inconsistent with the terms of rule 16(3). If so, it would, consistently, with the principle I have expressed, require an amendment. In my opinion, however, the purpose of rule 16(3) was to identify which employer would have to bear the cost of an employee's early retirement. If there were adequate surplus in the fund, and a direction certified by the actuary as reasonable had been made under clause 14(5) for surplus to be appropriated to meet the cost of early retirement, no more would be needed. There would be no inconsistency between the clause 14(5) direction and the other provisions of the scheme. However, there is, in my opinion, no reason why a clause 41 amendment of the scheme should not release, or confirm the release, of an accrued but still unpaid liability in respect of contributions. I agree with Lord Hoffmann that the clause 41(2)(b) limitation on the power of amendment does not bar an amendment which releases an employer's accrued liability to pay contributions that have not yet been paid. I, too, regard British Coal Corpn v British Coal Staff Superannuation Scheme Trustees Ltd [1994] ICR 537 as having been wrongly decided on this point.(iv) Arrangements made by the employer under clause 14(5) could take the form of a direction to the fund trustees, first, to set aside the surplus, or part of it, as a reserve fund, and, second, to appropriate the reserve fund in or towards payment of future contributions falling due under clause 13(1)(a). Directions of this character would not, in my opinion, require any amendment of the scheme unless the result were to reduce the current monthly contribution obligation of the employer to less than twice that of the members. If that were the result, an amendment of clause 13(1)(a) would be required.(v) Arrangements made under clause 14(5) cannot take the form of a payment out of the pension fund to the employer. Absent an amendment to the scheme, the trustees could not justify making such a payment. And an amendment authorising such a payment would be barred by clause 41(2)(b).(vi) The 5% increase in lump sum benefits on retirement provided by National Power as part of the arrangements for dealing with the 1995 surplus ought to have been included among the benefits confirmed by National Power's deed of amendment of 11 May 1999. But since no one objects to the payment of this extra benefit, the omission perhaps does not matter.[87]I confess to having some difficulty with paragraph 35 in particular the last sentence “I find it difficult to believe that the general words of clause 14 (5) were intended to give the employer power, without amendment, to do something which would contradict the express provisions of the Scheme”.[88]In that decision they concluded that the matter sought to be done (the cancellation of debt) did not fall within the prohibition of the amendment requirements.[89]It is important to provide for pension funds which last for many many years (subject to the changing economic climate of course) to be flexible and practical. One should not fetter the decisions by undue technicality. However this flexibility does not entitle one to construe provisions in a strained way to save a decision of the Trustees. Of course the need to have Actuarial advice is not “a technicality”. However I am mindful of the observations of Lord Hoffmann in the National Grid case at paragraph 57 as follows:- “More important than these linguistic points, as it seems to me, are the practical consequences of insisting that the arrangements should be made by amendment. The operation of the pension scheme should not be encumbered by unnecessary technicalities. On the other hand, if the amendment procedure provides some important safe guards for the members or the Trustees, that might be a good reason to construe the Scheme as requiring the employer to adopt it”[90]The objection generally to the resolutions and deeds is that no Actuarial advice as required by clause 12 has been obtained. In this instant case Actuarial advice was had because the Actuary identified a surplus and the surplus was distributed as between the employer and the employees. There can be no question in my view of it being capable of being argued that the 1991 resolution actually had any potential downside for any member of the Scheme. If it had done so the Actuary would have identified and reported accordingly. It is a technicality in my view to strike down a decision made with the Actuary’s advice because it was not expressly given under clause 12 in respect of a prospective amendment. This is not the same of course as the rejected implied term referred to above.[91]It seems to me that clause 10 is a free standing provision. I of course accept what Lord Hoffmann says namely that it could not be used to override an express provision to the contrary elsewhere in the Deed. In the present case however clause 10 also requires the advice of an Actuary. It does not therefore override the need for an Actuarial valuation in clause 12. Looking at it practically and sensibly therefore it seems to me that the utilisation of a surplus did not require the further complication of an Actuarial valuation under clause 12. In my view clause 10 creates a mandatory provision as to how the surplus should be dealt with and the Trustees have complied completely with clause 10.[92]I therefore accept that this is an alternative way for upholding the 1991 resolution as being valid.

AUGMENTATION

[93]This point by agreement between the parties was argued by WMTL.[94]Clause 23 of the 1986 Deed (there is no corresponding provision in the earlier Deeds) provides :- “The Trustees may in their absolute discretion acting on the advice of the Actuary but subject to the following proviso [and with] the agreement of the Employer and to the payment of such additional contribution or contributions (if any) by the Employer or member (as the case may be) to the Fund and to such terms as the Trustees may require:-(i) augment the prospective pension payable in respect of any member(ii) augment the pension which has already commenced to be payable in respect of any person(iii) augment any benefits payable under the Scheme on the death of any member whilst in service or whilst on retirement on pension…..”[95]There is a proviso putting limits on the amount of augmentation thus possible. That does not fall for consideration.[96]WMTL Claimant accepts that as the rule is aimed at increasing the benefits of specific members it is not possible to argue that the rule permits the Trustee to increase benefits for prospective members of the Scheme. It accepts that would turn the rule into an alternative form of amending power which it is clearly not intended to be. It can only be used to augment the benefit of a “member” that is defined (see rule 3 of the 1986 Deed) as someone who was a member on 1st June 1984 or who had become a member of the Scheme as provided in Part ii of the Rules. It is submitted that the power of augmentation is therefore limited to augmenting the benefits of particular members.[97]The Claimant submits that it does not matter that the particular power was in the Trustees’ mind (I suppose like the Khedive’s rights whatever they might have been) so long as there is a power which could have been exercised in the way in which they acted see Farwell on “Powers” 3rd edition at pages 218-221. It is also submitted it is possible to sever that part of the Trustees’ decision which can be validly effected from that part which cannot and that part only of the Trustees decision can be upheld as an exercise of power or augmentation even though the other parts of the decision are struck down.[98]In support of that last proposition the Claimant relies upon the case of Bestrustees v Stuart [2001] PLR 283 where Neuburger J (as he then was) said this:- “[48] To my mind, the correct approach is not one of language – it is one of concept. One is, after all, here concerned with equity. I consider, therefore, that one looks to see what is the valid exercise of the power and what is the invalid exercise. The valid exercise, if there was an exercise of power, was to effect a variation with effect from 26 April prospectively. The invalid attempted exercise was to effect a variation retrospectively to 6 April 1994. To my mind, conceptually those two components of the single exercise are easily separable one from the other. It seems to me, however, that one must not only ask oneself whether they are easily severable conceptually, but also whether there is anything in the exercise of the power which leads one to believe that, had the trustee been told that it was not entitled to exercise the power retrospectively, it would not have exercised the power as it purported to do prospectively at all, or, in the alternative, in the way that it did. In that connection, it seems to me that that approach is consistent with the approach of the Court of Appeal in Re Hastings-Bass [1975] Ch 25, to which I shall refer in a little more detail shortly. [49] In my judgment, both conceptually and as a matter of common sense, the invalid exercise of the power in 1974, if the power was exercised then, would and should be severable from the valid exercise of the power. Therefore, I would not have held that this particular aspect of the exercise of power, if there had been an exercise, would have rendered it invalid.”[99]The third proposition set out by the Claimant above is derived from the well known decision in this area of Re Hastings Bass [1975] Ch 25 where Buckley LJ giving the judgment in the Court of Appeal at page 41 said this:- “To sum up the preceding observations, in our judgment, where by the terms of a trust (as under section 32) a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless(1) what he has achieved is unauthorised by the power conferred upon him, or(2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account. In the present case (2) above has not, in our judgment, been established; but the commissioners contend that for reasons stated in their third submission, sub-head (a), and their final submission what the trustees achieved in the present case was in excess of their power.”[100]WMTL said in its skeleton argument (paragraph 28) Hastings Bass has spawned a large number of subsequent decisions on the extent to which Trustee discretions can be attacked on the basis that they proceed on erroneous appreciation of the facts or the legal consequence of what they were doing.[101]This argument is only sustainable in respect of the 1991 resolution and the 1994 Deed.[102]With regard to the former I have already determined that that resolution is valid so my observations as regards this part are strictly not necessary. It is fair to say that the alterations almost all comprise benefits. As I said above it is difficult to see any disadvantage that can be clearly discerned. Further as I have said again the resolution had the benefit of an Actuarial report in any event.[103]The 1994 Deed introduced improvements as well as reductions. The only provisions argued for by WMTL in the 1994 Deed under the power of augmentation is the improvement in ill health provisions for category B members. WMTL submits I should infer the Actuary approved it because he attended the meeting where the resolution was passed so that it can be inferred he approved this benefit increase for present and future members. The employer consented to it because it executed the 1994 Deed. Of course the augmentation argument can only apply to present members and those extra benefits will be denied to prospective members.[104]The 1994 Deed effected significant changes. They are summarised in paragraph 43 of Mr Furness QC’s Opinion dated 11th February 2009. As he says the purport of the 1994 Deed appeared to incorporate amendments agreed in the 1991 resolution plus changes required by statute. However as he says the 1994 Deed went beyond the making of the benefit changes decided on in 1991. I have determined that the 1991 changes were valid.[105]Thus WMTL submits that it must have been the Trustees’ intention when executing the 1994 Deed that at least those members of the Scheme in existence at that date should have the benefit of the improvements.[106]It follows that a careful exercise will be required to select out parts of the benefits which cannot be saved by the augmentation of power.[107]There is the difficulty that there is no clear case (although it can probably be inferred) that Actuarial advice as required by clause 23 itself was obtained.[108]It seems to me that this is a classic situation where one should not tiptoe around the various provisions in the hope that one can save part of the offending provisions. As the Second Defendant submits in his skeleton argument (paragraphs 33-36) the power of augmentation is not intended to be used to alter general class benefits. There was thus no intention to benefit by way of augmentation only those who happen to be members of the Scheme at the date of exercise of the power. Thus I accept that itself shows a clear intention not to exercise the power of augmentation it makes the benefit structure even more complicated and creates problems of administration. This in my view is why the principles (if they be principles) enunciated in Hastings Bass will throw up great difficulties. As Lewison J said in Trustee Solutions v Dubery [2006] PLR 177:- “17 The rules of a pension scheme must be interpreted in a practical and purposive way. The fiscal background is always important. The ultimate question is what the words of the Scheme would mean to a reasonable reader with the background knowledge of the parties.”[109]Approaching it that way and taking into account the factors he set out in paragraph 20 of the judgment it seems to me it is really impossible to reconstitute the Trustees’ decision as being an exercise of power of augmentation as regards some of the benefits they intended to create. That is going beyond the bounds of sustainability even if one applies Hastings Bass at its most generous.[110]I therefore determine that the power of augmentation will not save the relevant Trustee decisions.[111]I am grateful to all Counsel for their comprehensive written and oral submissions which have assisted me greatly in delivering this judgment.

Cited in 7 later judgments