The Procter & Gamble Company v Svenska Cellulosa Aktiebolaget SCA & Anor [2012] EWHC 1257 (Ch)

Case No HC09C04768

[2012] EWHC 1257 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Rolls Building, Fetter Lane,

Date 14/05/2012

London, EC4A 1NL

Before

THE HONOURABLE MR. JUSTICE HILDYARD

Between

THE PROCTER & GAMBLE COMPANYClaimant

SVENSKA CELLULOSA AKTIEBOLAGET SCADefendants

SCA HYGIENE PRODUCTS MANCHESTER LIMITEDDefendant

Mr Christopher Nugee QC (instructed by Jones Day) and Mr Stephen Brown (of Jones Day) for Claimant

Mr James Clifford and Mr Joseph Barrett (instructed by Reynolds Porter Chamberlain LLP) for Defendants

Hearing Hearing dates: 17,18,19,20 October 2011

Judgment

Introduction

[1]This Judgment relates to one of two actions relating to the sale in 2007 by The Procter & Gamble Company (“P&G”), an Ohio corporation, to Svenska Cellulosa Aktiebolaget (“SCA”), a Swedish corporation, of its European tissue towel business (facial tissues, toilet paper and kitchen towel, known collectively within P&G as “Family Care”). These actions were ordered to be tried consecutively by the same Trial Judge. The two actions have a common background and relate to the same contracts; but they raise distinct and very different questions. I have previously given judgment in the first of these actions, which concerned whether the parties had agreed and provided for a fixed exchange rate for converting into Sterling fixed prices stated in Euros.

[2]This second action concerns the interpretation and operation of certain contractual and statutory provisions relating to pensions benefits, and in particular, contractual provisions for adjustments to the purchase price according to whether or not certain accrued pension liabilities transferred to SCA by operation of the Transfer of Undertakings (Protection of Employment) Regulations 2006 SI 2006/246 (“TUPE”).

[3]The contractual provision in issue is Schedule 7.09 of the Asset Sale and Purchase Agreement dated 12th March 2007 (“the ASPA”) whereby P&G sold its European tissue towel business to SCA. That Schedule (and section 7.09 of the ASPA to which it relates) applies to pension liabilities in each of P&G’s five European operations. However, the present dispute only relates to the pensions of the employees at P&G’s Manchester manufacturing site who transferred to SCA under or pursuant to TUPE.

[4]TUPE applies to a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom “where there is a transfer of an economic entity which retains its identity” and gives effect in the United Kingdom to Council Directive 2001/23/EC (“the 2001 Directive”).

[5]P&G operated a pension scheme for its employees called The Procter & Gamble Pension Fund (“the P&G Fund”). This has a defined benefit (“DB”) section and a defined contribution (“DC”) section. The DB section (with which this case is exclusively concerned, the DC section raising no issue) makes provision for Early Retirement Benefits (“ERBs”). 129 of the Manchester transferring employees were members of the DB section of the P&G Fund.

[6]Although Regulation 10(1) of TUPE appears to provide that so much of a contract of employment as relates to an occupational pension scheme does not transfer under Regulation 4 of TUPE, Regulation 10(2) stipulates that provisions of such a scheme which are not “benefits for old age, invalidity or survivors” are within Article 4 and do transfer under TUPE. Thus, only provisions in such a scheme which do relate to “benefits for old age or invalidity or survivors” (for brevity, “old age benefits”) do not transfer.

[7]It is common ground that SCA did not want to take on any UK pension liability; but the parties were aware that, as a result of two decisions of what was then called the European Court of Justice (“the ECJ”), but which has since been re-named The Court of Justice for the European Union (“the CJEU”), liability for ERBs might transfer under TUPE, regardless of the parties’ intentions. (The two cases are Beckmann v Dynamco Ltd

[2003] ICR 50

(“Beckmann”) and Martin and Others v South Bank University

[2004] 1 CMLR 472

(“Martin”)).

[8]Accordingly, section 7.09 of the ASPA recognised that SCA would be liable for any pension obligations which passed by operation of law under TUPE; and Schedule 7.09 of the ASPA provides for an actuarial valuation of any liabilities in respect of the P&G Fund “for and in respect of each Transferring Employee in respect of accrued pensionable service” which transfer to SCA, and for P&G in effect to pay SCA for such liability (by way of adjustment to the purchase price).

Summary of dispute

[9]The dispute between the parties is(a) whether the provision for ERBs in the P&G Fund constitutes an obligation of such a nature that it transfers to SCA under or pursuant to TUPE, and if so

(b) whether the obligation so transferred constitutes a liability for the purposes of Schedule 7.09 of the ASPA to be taken into account in calculating the adjustment to the purchase price.

[10]The questions thus raised are of substantial financial significance to the parties; and they raise issues which have proved controversial and are of importance beyond the immediate case. Both Counsel, part perhaps by way of encouragement and part perhaps by way of warning, were agreed, and indicated to me, that it is a significant case for the pension industry generally. The terms of the P&G Fund are not unusual, and the same issues would be likely to arise in the context of any sale of a business in which there is or was a DB scheme in operation.

[11]Especially given that TUPE in its present form is simply the latest incarnation of legislation reflecting European Directives going back to the Acquired Rights Directive of 1977 (Council Directive 77/187/EEC) it may seem odd that such issues raised have not been adjudicated previously. Counsel for P&G sought to explain this on the basis that the uncertainties as to the interpretation and application of TUPE in this sort of context are usually dealt with by way of an appropriate indemnity (apparently often called a “Beckmann indemnity”, so named after one of the two European cases to which I have alluded above).

[12]I further understand that P&G have made an open offer of such an indemnity to SCA; but SCA has not accepted it, and no such indemnity has been agreed in this case. I mention this only by way of explanation: I mean no criticism of either side. P&G can only ask; in response SCA are entitled to rely on the bargain they struck, which they contend provided for a sum calculated at a moment in time which might or might not prove sufficient to meet the transferred liabilities as they perceive them to be, but which drew the line once and for all. I should, however, record that Counsel for SCA did not accept that a “Beckmann indemnity” would be the usual solution, though I note that he did not provide any other explanation why the issues raised by this case have never yet been decided. At all events, the uncertainty now falls to be resolved: if I can be confident of the answer, by this Court, but if necessary, upon reference to the CJEU.

The P&G Fund

[13]It is first necessary to give a little more detail about the pension arrangements provided for by the P&G Fund that have given rise to this dispute.

[14]The DB section of the P&G Fund is a non-contributory pension scheme of the final salary type which provides defined benefits. Its membership closed to new entrants on 1 July 2003. All its present members of whatever category thus have at least 2 years’ Qualifying Service (as to which see below).

[15]There are, in the usual way, 3 categories or classes of members:(1) “active” members, who are current members of the scheme in Pensionable Service and are currently accruing benefits;

(2) “deferred” members, who have left Pensionable Service without an immediate pension but who retain a right to a deferred pension payable later; and

(3) “pensioner” members, who are entitled to a current pension (either because they left Pensionable Service on immediate pension, or because they left with a deferred pension which has subsequently come into payment). (Benefits may also be payable to widow(er)s and dependants on death of a member; but they are not members of the P&G Fund and it is unnecessary in this context to consider them further.)

[16]The structure of the Rules of the P&G Fund follows what I understand is a typical pattern, which is to set out separately(a) the benefits of those who retire from active service on immediate pension (whether at or before or after Normal Retirement Age (“NRA”)); and

(b) the benefits payable to those who leave active service without an immediate pension but with a right to a deferred pension.

[17]In this scheme, NRA is 65, and Normal Retirement Date (“NRD”) is the last day of the month or week in which an employee attains that age. On retirement (that is, leaving active service on immediate pension) at NRD a member is entitled to a normal retirement pension calculated in accordance with a prescribed formula (“the Standard Formula”).

[18]The Standard Formula for the calculation of benefits is set out in the First Schedule to the P&G Fund Rules. It is complex. A simplified version, which suffices for present purposes, is given in the Explanatory Guide to the P&G Fund, which is provided to all members. As there set out, the target is an overall pension from the state and scheme equal to 2% of final Pensionable Pay for each year of Pensionable Service (or “n/50”).

[19]The P&G Fund is what is sometimes called an “integrated scheme”, in that the scheme pension has a “state pension offset”, so that the combined amount of both scheme benefits and benefits from the State should reach the target. There is a complication in consequence of the fact that there are two state pensions: the Basic State Pension, payable at a fixed rate, and a State Second Pension (previously called a State Earnings Related Pension Scheme or “SERPS”, and now called “S2P”) which is based on earnings bands, and so varies from member to member. The formulae provide for this.

[20]Early retirement is provided for and is dealt with in two rules. Rule 10 states who is eligible. Rule 11 sets out how much the pension is to be. So far as relevant:(1) Rule 10(1)(a)(ii) provides that a member may opt to retire at any time after age 55 subject to the consent of his employer. Rule 10(3) then cross-refers to the early retirement rule. (Rule 10(1)(a)(i) is not engaged: it applies to those over 60 on 31 March 1997; and such member must have reached NRA by 31 March 2002, long before the ASPA was signed.)

(2) Rule 11(2) is the relevant early retirement rule. It provides that a member who takes early retirement receives two pensions: (a) a pension for life based on the Standard Formula but reduced by a reduction factor (an “early retirement pension”); and (b) a temporary pension to Statutory Retirement Age (i.e. State Pension Age). Such a temporary pension is usually called a “bridging pension”, and is quite a common feature of integrated schemes. Its purpose is to make up for the fact that the member will not receive any state pension until State Pension Age; in the P&G Fund the amount of the bridging pension is the deduction for the State Second Pension.

[21]Provision is also made for early retirement through disability Rules 10(1)(b), 11(3), (4)). These provisions provide pensions which are “invalidity” benefits within the meaning of TUPE and are expressly excluded from its operation. They are not of relevance in this case.

[22]Schedule 1 part 2 gives the relevant reduction factors:(1) paragraph 1(a) provides that if the member has 15 years’ continuous service, the reduction factor is 4/12 % (1/3 %) for each month by which retirement precedes 60 (i.e. 4% pa); in other words if the member is aged 60-65 there is no reduction, whereas the maximum reduction at age 55 is 20%;

(2) paragraph 1(b) provides that if the member has less than 15 years’ Continuous Service, the reduction factor is given by the table there set out: this is based on years before NRA rather than 60, and is less generous.

[23]The entitlements of a deferred member, being a member whose Pensionable Service terminates otherwise than by his retirement (whether at NRA or, with consent, earlier) or death, and who is thus not entitled to an immediate pension, are set out in Rule 12 under the heading “Short Service Benefits”. “Short Service Benefit” is the statutory language for a preserved or deferred pension. “Preservation” of benefit for early leavers with at least 2 years’ Qualifying Service is a long-standing statutory requirement. A pension is described as deferred when it is not immediately payable but is deferred to NRA.

[24]As to this:(a) Rule 12(1) provides that a member whose Pensionable Service terminates otherwise than by retirement or death and has 2 years’ Qualifying Service is entitled to Short Service Benefit.

(b) Rule 12(2) provides that Short Service Benefit consists of a pension at NRA for life calculated in accordance with the Standard Formula (a “deferred pension”, so called because the pension is deferred to NRA).

[25]The Standard Formula has already been explained, except that Part I paragraph (C) applies as well. This adds “revaluation” to deferred pensions as required by the Pension Schemes Act 1993. A statutory requirement for revaluation was first introduced by the Social Security Act 1985 and is now to be found in Chapter II of Part IV of the Pension Schemes Act 1993: it in effect requires a deferred pension to be increased by a minimum amount between leaving Pensionable Service and NRA. For many years the requirement was the lesser of 5% and RPI, known as Limited Price Indexation or 5% LPI. The current requirement is 2 ½ % LPI. The details do not matter. This is often referred to as “statutory revaluation”. It is designed to compensate for the fact that a deferred pension is based on final salary on “exit” (that is, leaving active membership of the scheme). There is also a subtle difference in the offset of the State Second Pension. The effect is that deferred members with more than 20 years’ potential service to NRA have a smaller deduction.

[26]Rule 17gives a deferred member a right to take his benefits early. He can take a reduced benefit at any time from age 60 (or in certain circumstances age 55).

[27]The reduction for a deferred member taking his benefit early is the same as that for an active member taking early retirement, namely 4/12 % per month (4% pa) below age 60 if he has 15 years’ Continuous Service, and otherwise the reduction specified in the table at schedule 1 part II paragraph 1(b). Schedule 1 part II paragraph 5 provides that for these purposes references to the date of early retirement should be read as references to the date of early commencement of the pension.

[28]At the Manchester Closing Date in relation to the ASPA (“Manchester Closing”, being the date of the closing of the transfer to SCA of the assets used in P&G’s operations in Manchester), the Transferring Employees (defined in Schedule 7.09 to the ASPA, and in effect denoting the 129 employees in P&G’s business in Manchester, whose employment carried across to SCA by virtue of TUPE and who were until then members of the P&G Fund), became deferred members of the P&G Fund.

[29]This is because:(1) the transferee company, SCA has never participated in the P&G Fund (and by Rule 1(2)(a) participation is limited to associated or subsidiary companies of P&G Limited or its ultimate parent company (The Proctor & Gamble Company of Cincinnati) or persons approved by the Inland Revenue);

(2) SCA is thus not, and cannot become, an “Employing Company” and service with it is therefore not “Pensionable Service” as defined in Rule 2; so that

(3) The Transferring Employees’ Pensionable Service terminated otherwise than on retirement or death.

[30]By becoming deferred members in the P&G Fund Transferring Employees did not lose any of their accrued rights. They remain entitled to a pension on the Standard Formula at NRA. But they did lose the potential benefit of two provisions of the P&G Fund Rules concerned with early retirement. More particularly:(1) they lost the possibility of taking Early Retirement (Rule 10) by retiring at any time after the age of 55 with the consent of the Employing Company and of thereby qualifying for a Rule 11(2)(b) “bridging pension” payable from and after that early retirement date until the Statutory Retirement Age; and

(2) those who had not yet had 15 years’ continuous service lost the possibility of accruing further service to bring them up to 15 years’ continuous service, and thus benefiting from the more generous reduction factors. (This has no application (a) to those who already had 15 years’ continuous service, since they could still benefit from the more generous reduction factors by taking their deferred pensions early or (b) to those (if any) who joined after the age of 50 and so could not complete 15 years’ continuous service in any event.)

[31]P&G has labelled these possible potential benefits “the Enhancements”. P&G stressed in this regard, however, that members could not be said to have any legal entitlement to the Enhancements since:(1) P&G reserved the right on 6 months’ notice to the Trustees to terminate and discontinue the P&G Fund altogether (Rule 51(1)(a)), in which case active members would become deferred members (Rule 51(3)(a));

(2) P&G reserved the right to amend the P&G Fund, and there was no restriction on removing the so-called Enhancements;

(3) In any event, a member could only take Early Retirement with the consent of the Employing Company, and the Employing Company has a discretion whether to give or refuse such consent.

[32]The lost chance of accruing further Pensionable Service has two concomitants. One is that for members affected, the Standard Formula as applied to them will be based only on the number of years served before the Closing Date. The second is that the salary used for calculating the Standard Formula will be the member’s final salary at the date of exit (rather than the salary level he or she might have attained if service had continued until NRA). This latter ‘loss’ is in part mitigated though the process of “statutory revaluation” (which applies only to deferred pensions). (The revaluation is likely only to mitigate, and not eradicate, the loss because it is capped, and also because it is pegged to RPI and salary increases often exceed RPI.)

[33]I return to the question whether the loss of the so-called Enhancements is something for which P&G can and should be held liable to SCA after outlining first, the relevant provisions of TUPE not so far addressed, and secondly, the relevant provisions not so far addressed of the ASPA.

TUPE and the Directive

[34]TUPE came into force on 6 April 2006. The 2001 Directive replaced Council Directive 77/187/EEC, which had been implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 1981.

[35]There is no doubt that TUPE applies to the transfer to SCA of the business of P&G undertaken in Manchester: that is clear from Regulation 3(1)(a) of TUPE. For present purposes, the other relevant provisions of TUPE, and the requirements of the 2001 Directive that they implement, are as follows.

[36]Regulation 4 is the relevant substantive provision, to be read with the definitional Regulation 2. It implements in domestic law the provisions of Article 3 of the 2001 Directive. Article 3.1 provides as follows:

“The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee. Member States may provide that, after the date of transfer, the transferor and the transferee shall be jointly and severally liable in respect of obligations which arose before the date of transfer from a contract of employment or an employment relationship existing on the date of the transfer. …”

[37]Regulations 2 and 4 of TUPE provide (in relevant part) as follows:

“2.— Interpretation (1) In these Regulations— …“contract of employment” means any agreement between an employee and his employer determining the terms and conditions of his employment… 4.— Effect of relevant transfer on contracts of employment (1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee. (2) Without prejudice to paragraph (1), [but subject to paragraph (6), and regulations 8 and 15(9)][none of which is relevant] , on the completion of a relevant transfer— (a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and (b) any act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organised grouping of resources or employees, shall be deemed to have been an act or omission of or in relation to the transferee. … (6) Paragraph (2) shall not transfer or otherwise affect the liability of any person to be prosecuted for, convicted of and sentenced for any offence. (7) Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee…” (1) In these Regulations— …“contract of employment” means any agreement between an employee and his employer determining the terms and conditions of his employment… (1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee. (2) Without prejudice to paragraph (1), [but subject to paragraph (6), and regulations 8 and 15(9)][none of which is relevant] , on the completion of a relevant transfer— (a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee; and (b) any act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organised grouping of resources or employees, shall be deemed to have been an act or omission of or in relation to the transferee. … (6) Paragraph (2) shall not transfer or otherwise affect the liability of any person to be prosecuted for, convicted of and sentenced for any offence. (7) Paragraphs (1) and (2) shall not operate to transfer the contract of employment and the rights, powers, duties and liabilities under or in connection with it of an employee who informs the transferor or the transferee that he objects to becoming employed by the transferee…”

[38]The application of these provisions is modified in the case of pension obligations under occupational pension schemes (such as is the P&G Fund, within the meaning of section 1(1) of the Pension Schemes Act 1993) by Regulation 10. Regulation 10 reflects Article 3 paragraph 4 of the 2001 Directive, which permitted Member States to carve out certain benefits from the provisions of Article 3, paragraphs 1 and 3. Article 3 of the 2001 Directive provides in relevant part as follows:

“4. (a) Unless Member States provide otherwise, paragraphs 1 and 3 shall not apply in relation to employees' rights to old-age, invalidity or survivors' benefits under supplementary company or intercompany pension schemes outside the statutory social security schemes in Member States.

(a) ”

[39]Regulation 10 of TUPE provides as follows:

“(1) Regulations 4 and 5 shall not apply- (a) to so much of a contract of employment or collective agreement as relates to an occupational pension scheme within the meaning of the Pension Schemes Act 1993; or (b) to any rights, powers, duties or liabilities under or in connection with any such contract or subsisting by virtue of any such agreement and relating to such a scheme or otherwise in connection with that person’s employment and relating to such a scheme. (2) For the purposes of paragraphs (1) and (3), any provisions of an occupational pension scheme which do not relate to benefits for old age, invalidity or survivors shall not be treated as being part of the scheme. (3) An employee whose contract of employment is transferred in the circumstances described in regulation 4(1) shall not be entitled to bring a claim against the transferor for- (a) breach of contract; or (b) constructive unfair dismissal under section 95(1)(c) of the 1996 Act, arising out of a loss or reduction in his rights under an occupational pension scheme in consequence of the transfer, save insofar as the alleged breach of contract or dismissal (as the case may be) occurred prior to the date on which these Regulations took effect.” (a) to so much of a contract of employment or collective agreement as relates to an occupational pension scheme within the meaning of the Pension Schemes Act 1993; or (b) to any rights, powers, duties or liabilities under or in connection with any such contract or subsisting by virtue of any such agreement and relating to such a scheme or otherwise in connection with that person’s employment and relating to such a scheme. (b) constructive unfair dismissal under section 95(1)(c) of the 1996 Act, arising out of a loss or reduction in his rights under an occupational pension scheme in consequence of the transfer, save insofar as the alleged breach of contract or dismissal (as the case may be) occurred prior to the date on which these Regulations took effect.”

[40]It is common ground that when interpreting the Directive and TUPE a purposive (or, as Counsel for SCA preferred, “teleological”) approach to construction is to be adopted. In H.P. Bulmer Ltd and Another v J. Bollinger SA and Others

[1974] 1 Ch 401

, 426C-E Lord Denning MR explained the required approach (albeit in the context of interpreting a Directive as distinct from the UK legislation implementing it) as follows:

“…what are the English courts to do when they are faced with a problem of interpretation? They must follow the European pattern. No longer must they examine the words in meticulous detail. No longer must they argue about the precise grammatical sense. They must look to the purpose or intent. To quote the words of the European court in the Da Costa case [1963] C.M.L.R. 224, 237, they must deduce “from the wording and the spirit of the Treaty the meaning of the community rules”….They must divine the spirit of the Treaty and gain inspiration from it. If they find a gap, they must fill it as best they can. They must do what the framers of the instrument would have done if they had thought about it…”

[41]More recently, and with specific regard to the interpretation of UK domestic legislation required and intended to implement a Directive, the ECJ emphasised in Marks & Spencer plc v Commissioners of Customs & Excise C62/00 [2002] ECR 1-06325 (para. 24) that:

“…it should be remembered, first, that the Member States’ obligation under a directive to achieve the result envisaged by the directive and their duty under Article 5 of the EC Treaty (now Article 10 EC) to take all appropriate measures, whether general or particular, to ensure fulfilment of that obligation are binding on all the authorities of the Member States, including, for matters within their jurisdiction, the courts…It follows that in applying domestic law the national court called upon to interpret that law is required to do so, as far as possible, in the light of the wording and purpose of the directive and thereby comply with the third paragraph of Article 189 of the EC Treaty (now the third paragraph of Article 249 EC) (see, in particular, Case C-106/89 Marleasing [1990] ECR 1-4135, paragraph 8, and Case C-334/92 Wagner Miret [1993] ECR 1-6911, paragraph 20).”

[42]This approach has been endorsed, and confirmed to be well established in relation to the 2001 Directive and TUPE, by the UK Supreme Court in Alamo-Herron v Parkwood Leisure Ltd

[2011] ICR 920

[43]Conformity of interpretation in all Member States being a facet of the required approach, the decisions of the ECJ/CJEU on a directive and any domestic legislation implementing it, are of obvious and especial importance. Hence the focus on Beckmann and Martin,even though the factual context of those decisions was very different than obtains in this case. I shall come to their application to the present dispute in due course.

[44]For the present suffice it to say that the intent and purpose of TUPE is to effect by statutory process a transfer of employment contracts (and certain pension benefits) which, being personal, would otherwise not be transferable (see Nokes v Doncaster Amalgamated Collieries Ltd

[1940] AC 1014

), and to provide to transferred employees entitlements which are commensurate with the rights they had before transfer: not substantially less, but not substantially more either, since just as it is not the objective of TUPE to protect employers so too it is not its objective to confer additional rights on the employee or to improve the situation of the employee: and see Jackson v Computershare Investor Services plc

[2008] IRLR 70

in the English Court of Appeal, where Mummery LJ cited in support the case (decided by the EFTA Court of Justice) of Viggósdóttir v ĺslandspóttur HF (Case E-301)

[2002] IRLR 425

, paragraphs 35-39.

Schedule 7.09 of the APSA in more detail

[45]I next need to explain the relevant contractual provisions, and in particular Schedule 7.09 of the ASPA. This provides for an adjustment to the purchase price payable under the ASPA in respect of the value of certain pension liabilities assumed by SCA. This adjustment is required to be done in 2 stages.

[46]At the first stage, at Manchester Closing (see paragraph 28 above), P&G’s actuary was required to provide a good faith estimate of what is termed the “ABO Adjustment”, to be deducted from the purchase price payable by SCA at Manchester Closing as the Initial Pension Adjustment Amount (“the IPAA”). The ABO Adjustment is defined in the ASPA as follows:

“a calculation by application where necessary of the Actuarial Assumptions of the Accumulated Benefit Obligation as defined in FAS87 of US GAAP (and, where applicable, the APBO assumptions as defined in FAS106 of US GAAP) at the Completion Date of the liabilities in respect of the relevant Seller’s Schemes for and in respect of each Transferring Employee in respect of accrued pensionable service in the Seller’s Schemes or granted in respect of any transfer payment received by the relevant Seller’s Schemes prior to the relevant Closing Date.”

[47]The Seller’s Schemes are the schemes specified in Part 2 of Schedule 7.09. It will be recalled that the ASPA provided for the sale and purchase of a number of plants and businesses operated by P&G in Europe, as well as Manchester. For Germany, France and Italy these are any post employment plans (or post employment medical plans) which fall within FAS 87 or FAS 106. In these cases the entire liability under the scheme goes across, and the valuation of the ABO Adjustment is a valuation of that part of the liability which has accrued by the Closing Date. But in the UK the position is different.

[48]In the case of the UK business, the Seller’s Schemes means:

“any post employment plans as fall within the remit of FAS 87 …, to the extent any liabilities and benefits accrued under the same prior to the relevant Closing Date transfer pursuant to [TUPE]” [Emphasis supplied]

That requires there to be identified what (if any) liability or benefits, accrued prior to the Closing Date, transferred to SCA pursuant to TUPE.

[49]The ABO Adjustment is required to be calculated by reference to the liability and benefits thus identified. Once it is clarified what it is that falls to be valued, it is then possible to find the ABO Adjustment. This refers (above) to a calculation of the Accumulated Benefit Obligation (“ABO”) as defined in FAS87 of US GAAP of the relevant liabilities. A reference to the “APBO assumptions as defined in FAS 106” can be ignored as FAS 106 only applies to post retirement benefits other than pensions. The definition of ABO in FAS 87 is:

“the actuarial present value of benefits (whether vested or nonvested) attributed by the pension benefit formula to employee service rendered before a specified date and based on employee service and compensation (if applicable) prior to that date.”

[50]Thus, the calculation is made at a particular point in time: a line is drawn at the relevant date and the calculation made is of the employee’s then pensionable service and pensionable pay and the benefit as it then stands. The resulting adjustment could be more than the aggregate of the liabilities eventually transferred, or it could be less, since the actual figures would not yet be known at the calculation date.

[51]The PBO Adjustment is similar, but is a calculation of the Projected Benefit Obligation (“PBO”) as defined in FAS 87. This is:

“the actuarial present value as of a date of all benefits attributed by the pension benefit formula to employee service rendered prior to that date. The [PBO] is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future compensation levels (pay-related, final-pay, final-average-pay, or career-average-pay plans).”

[52]In effect, a line is drawn at the relevant date and, having established the employee’s then pensionable service, a projection forward of his future pensionable pay is to be made. Again, and as in the ABO adjustment, the resulting PBO adjustment could be more than the aggregate of the liabilities eventually transferred, or it could be less, since the actual figures would not yet be known at the calculation date.

[53]The PBO Adjustment is not relevant at the first stage of the process of price adjustment. The IPAA, it will have been noted, is based on the Seller’s Actuary’s estimate of the ABO Adjustment alone, the PBO Adjustment playing no part at that first stage. At the second stage, the Seller’s Actuary is required (within 45 days of Manchester Closing) to provide a detailed breakdown of the Final Pension Adjustment Amount (“the FPAA”). The FPAA is defined as an amount equal to the sum of the ABO Adjustment and the Relevant Excess Amount (defined as the excess (if any) over €5 million of the positive amount (if any) of the PBO Adjustment less the ABO Adjustment). Once agreed (or determined in default of agreement) the difference between the FPAA and the IPAA is required either (if the FPAA exceeded the IPAA) to be paid by P&G to SCA by way of repayment of the purchase price, or (if the FPAA is less than the IPAA) to be paid by SCA to P&G by way of additional purchase price.

[54]The PBO Adjustment can potentially play a part at the second stage of the process of adjusting the purchase price. However, it does so only if it exceeds the ABO Adjustment by at least €5 million: this is the effect of the definitions of the FPAA and the Relevant Excess Amount. In the event, my understanding is that SCA do not suggest that the PBO Adjustment exceeds the ABO Adjustment by €5m; on that basis, the PBO Adjustment will have no application in fact. That simplifies the analysis a little: it is accepted that the complications caused by potential future salary growth can be ignored.

The gap between the parties in financial terms

[55]Even so confined, the difference between the parties is substantial. On 14 August 2008, P&G’s actuaries, Watson Wyatt (now called Towers Watson), stated their view that the ABO Adjustment (and PBO Adjustment) were both zero. On 9 September 2008, SCA, on the basis of advice from KPMG, their actuaries, gave their estimate of the ABO Adjustment as £19m.

[56]It is clear from the letter and KPMG’s letters of 9 September 2008 and 6 October 2008 that what KPMG have valued is the full cost of early retirement pensions for all or almost all employees, without making any allowance for the deferred pensions which they remain entitled to from the P&G Fund, and without drawing any distinction between the pension paid up to NRA and the pension paid after NRA. This remains SCA’s position.

[57]In terms of Schedule 7.09, therefore, the final IPAA and FPAA have not yet been agreed or determined in accordance with paragraphs 3.2 and 3.3, and it is not possible for them to be agreed or determined until it is known what should be valued. Hence these proceedings.

The three questions raised

[58]I can now turn to address the three questions that have been identified and agreed to be necessary to answer to resolve or enable the resolution of this dispute. I rehearse them in the order in which they were put forward and argued in P&G’s Skeleton Argument and then by both parties at trial. First question: had the transferring members/employees rights and the transferring company obligations such as to transfer pursuant to TUPE?

[59]P&G’s definition of the first issue, and the focus of its case in that regard, has changed substantially since its adumbration in its Claim Form; indeed it shifted markedly over the course of the hearing before me.

[60]In its original adumbration, P&G’s primary case was as bold as it was simple; to quote from paragraphs 9 and 36.1 of the Re-Amended Particulars of Claim:

“9. P&G UK was a participating company in the P&G Fund and had made available membership of the P&G Fund to the Transferring Employees. Neither P&G nor P&G UK, however, undertook any contractual obligation to the Transferring Employees to pay pensions and other benefits or to procure that pensions be paid to them. 36.1 …neither P&G nor P&G UK owed any contractual obligations to provide pension benefits to the Transferring Employees and consequently no such obligations passed under the TUPE Regulations to SCA or SCA Manchester.”

[61]One difficulty with this iteration of P&G’s case was and is that neither the Directive nor TUPE is confined in its operation to contractual liabilities; both extend to “rights and obligations” (in the language of Article 3) and “rights, powers, duties and liabilities” (in the language of Regulation 4) “arising from a contract of employment or from an employment relationship existing on the day of transfer” (Article 3) or “under or in connection with” any contract of employment subject to the relevant transfer. Mr Nugee QC conceded in opening, correctly in my view, that a pension scheme such as the P&G Fund plainly is an arrangement in connection with a contract of employment: it is well established that sums paid into a pension fund are in fact delayed remuneration (see per Lord Reid in Parry v Cleaver [1970] A.C. 1 (at 16C) and also Mettoy Pension Trustees v Evans

[1990] 1 WLR 1587

per Warner J at 1610G).

[62]Having made that concession, P&G’s case (both in its Skeleton Argument and Mr Nugee’s opening submissions under this head) focused instead on the nature of the provision in the P&G Fund Rules for ERBs, emphasising the fact (as it is) that the provisions are not only subject to amendment or even termination, but also discretionary (any entitlement being subject to P&G’s consent).

[63]On this basis, Mr Nugee in his opening contended that the provision for ERBs is not a right or obligation falling within Article 3(1), nor a right, power, duty or liability within the meaning of Regulation 4 of TUPE: accordingly, neither the benefit nor the burden of the provision transferred under TUPE at all. As Mr Nugee put it in his Skeleton Argument, “[t]he upshot is that P&G had no duty or liability in respect of early retirement pensions that had not yet come into payment. It did not promise its employees that they would be available in the future, or that they would take any particular form, or that the Fund would continue at all, or that even if it continues unamended it would give its consent to a member taking early retirement. The only effective promise was that once a pension had been earned, it would not be taken away. But P&G has kept this promise, because the members remain entitled to the pensions that have been earned to the date of the transfer of employment in the shape of their deferred pensions. Ex hypothesi they had not by then acquired any right to early retirement pensions (as if they had they would not have transferred); and P&G had made no promises that they ever would.”

[64]Mr Clifford, on behalf of SCA, submitted in response that this was to misunderstand the nature and quality of the right thus provided for, which was a right of substance; and further, that the suggestion that, because the right in question was contingent upon the concurrence of the employer, it was not such as could be transferred by TUPE, could not be maintained in light of the decision of the European Court in Martin.

[65]In Martin, the first question that the ECJ had to consider (it considered two others of relevance to this case, as to which see below) was “essentially whether rights contingent upon dismissal or the grant of early retirement by agreement with the employer fall within the concept of “rights and obligations” within the meaning of Article 3(1) of the directive.” Its answer was that they do. The ECJ drew a distinction between, on the one hand, a right and obligation and, on the other hand, their implementation (which may be contingent on a given event or circumstance): the right and obligation fall within Article 3(1) notwithstanding that their implementation is discretionary.

[66]The distinction under domestic law between an expectationand a right, or between a discretionary additional benefit and a contingent right, was not explored by the ECJ. This may perhaps have been because it had no resonance in European law, but perhaps also because the UK Government was arguing that the ‘rights’ did indeed fall within Article 3(1), and SBU did not actively challenge that assessment.

[67]However that may be, the actual decision on this first question in Martin does indeed seem to establish that the fact that the entitlement is discretionary, and may be varied or even terminated unilaterally by the employer, does not take it out of Article 3(1): I agree with Mr Clifford in this respect.

[68]In my judgment, the phrase “rights and obligations” in Article 3(1) and in TUPE is to be liberally interpreted without regard to domestic distinctions between a discretionary entitlement and a legally enforceable right. The entitlement of the transferring employees, and its concomitant obligation, though discretionary, are such as to transfer by operation of TUPE accordingly.

[69]Indeed, in his submissions in Reply, Mr Nugee was inclined to accept this: he acknowledged that it was “going too far” to argue that nothing in respect of the ERBs transferred under TUPE at all. I must, however, address Mr Nugee’s variant on his original case in this regard, which he advanced in reply, and which he submitted unlocked the whole dispute.

[70]His modified submission was to the effect that, even accepting that the right transfers, it was never a right to be given ERBs: it was a right to apply for ERBs, and to have that application properly considered by P&G (and after transfer by SCA) in its discretion (which is unfettered, and exercisable having regard to the company’s own financial and other interests, subject only to the implied obligation of good faith, or ‘Imperial duty’, as explained by Sir Nicolas Browne-Wilkinson V.-C (as he then was) in Imperial Group Pension Trust Ltd and Others v Imperial Tobacco Ltd and Others

[1991] 1 WLR 589

at 597).

[71]This modified argument on the part of P&G has a different focus than did its original argument. Whereas previously the entire focus was on whether the burden of the provision comprised a liability or obligation (or right, power, duty or liability) such as to transfer by operation of TUPE, the focus of the modified argument is on whether the right to be considered falls within the scope of Schedule 7.09 for the purposes of calculating the ABO Adjustment. Mr Nugee went on to contend that such a right to be considered for ERBs was not an accrued liability at the point of transfer, and that in any event a zero value should be attributed to such a right, because (he submitted) it makes no sense to value a duty to consider.

[72]In rejoinder Mr Clifford objected that this was a new point, but I did not understand him then to submit it should not be considered. However, in the course of preparing this judgment, I came to the conclusion that the point required further elaboration, both as to whether it was open to P&G to take it, and as to its viability and effect. I therefore asked for, and was duly provided with, additional submissions in writing. These struck me as comprehensive: it did not seem to me, and it was not suggested, that an oral hearing was necessary.

[73]I need to deal first with Mr Clifford’s objection that this new point, taken and elaborated in reply, should not be open to P&G. As to this, his primary submission was to the effect that had it been properly pleaded SCA would have sought appropriate disclosure from P&G in respect of its actual historic practice regarding granting or withholding consent. That, he contended, might have revealed a practice or custom such as to establish a contractual entitlement to ERBs either(a) on the basis that the provision as written no longer comprised the agreement in fact (see Autoclenz Ltd v Belcher

[2011] ICR 1157

) or

(b) on the basis that in appropriate circumstances an employer’s practice and custom in consenting to discretionary benefits can create a contractual right to receipt of the benefit(s): see Albion Automotive Ltd v Walker

[2002] EWCA 946

(especially per Peter Gibson LJ at para.18).

[74]P&G accepted, correctly in my view, both legal propositions on which the argument was based: that is to say, that(a) in the context of employment law, in certain circumstances the written terms may not fully or properly express the true agreement between the parties and the Court will give effect to the latter and

(b) discretionary practices may harden into contractual rights. However, P&G rejected the suggestion that SCA had been deprived of an opportunity it would otherwise have taken up to explore and put forward an argument that one or other or both had in fact happened in this case. Mr Nugee submitted that the nature and quality of the right comprised in the provisions for ERB had always been in contention and that SCA had never disputed that the members of the P&G Fund could only have the ERBs with the consent of their employer, and that this was a genuinely discretionary benefit and had not become an entitlement. With some misgivings, I accept P&G’s submissions in this regard, and I turn therefore to the merits of the modified argument and its effect.

[75]It seems to me that in the absence of any suggestion of a long standing and settled practice adopted by the relevant company and such as to confer some greater right on an employee, Mr Nugee’s description or characterisation of the right is plainly correct; and that for the purposes of English domestic law at any rate what relevant employees had was not a contractual right subject to a contingency, but only the expectation of being fairly treated (in accordance with the ‘Imperial duty’) in exercising their entitlement to be considered for ERBs. The question then is what difference this characterisation of the ‘rights’ makes.

[76]As to that, three issues seem to me to arise. The first is whether the right to be considered is a liability within the meaning of Schedule 7.09 at all. If it is, the second is whether, and if so how, it falls to be satisfied by SCA. Depending on that, the third is how it is to be taken into account in “calculating” the ABO Adjustment in Schedule 7.09.

[77]The first issue is to be determined according to the true construction of Section 7.09 and Schedule 7.09 in the context of the ASPA read as a whole, applying ordinary principles of contractual interpretation under English law (being, by clause 11.13, the expressly selected governing law).

[78]In accordance with those principles, which are in substance familiar, though still in detail constantly the subject of debate and refinement, the ultimate task and objective is classically stated by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society

[1998] 1 WLR 896

AT 912H):

“the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

[79]Emphasising that the test is thus an objective one, and that the subjective intentions of the parties are irrelevant and indeed inadmissible, Lord Hoffmann then elaborated on this (at 913C) as follows:

“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.”

[80]If there is a difference between the teleological approach required in construing European law or law enacted to give effect to European law, and the approach required in an English domestic law context, it seems to me that the European approach leans more heavily towards extracting the meaning from the purpose or intended application; the domestic approach is to extract the meaning from the words, relying on the purpose to inform and (but only if clearly necessary) modify their meaning in order to conform the words to that purpose. The domestic ‘blend’, which still raises elusive questions, was described by Sir Thomas Bingham MR (as he then was) in Arbuthnott v Fagan [1995] C.L.C. 1396:

“Courts will never construe words in a vacuum. To a greater or lesser extent, depending on the subject matter, they will wish to be informed of what may variously be described as the context, the background, the factual matrix or the mischief. To seek to construe any instrument in ignorance or disregard of the circumstances which gave rise to it or the situation in which it was expected to take effect is in my view pedantic, sterile and productive of error. But that is not to say that an initial judgment of what an instrument was or should reasonably have been intended to achieve should be permitted to override the clear language of the instrument, since what an author says is usually the surest guide to what he meant. To my mind, construction is a composite exercise, neither uncompromisingly literal nor unswervingly purposive: the instrument must speak for itself, but it must do so in situ and not be transported to the laboratory for microscopic analysis.”

[81]What, then, applying these principles of domestic law, is the true interpretation of the relevant words in Schedule 7.09 of the ASPA, that is to say “liabilities in respect of the Seller’s Schemes”? More particularly, are those words to be taken as intended to extend to or comprehend expectations of fair treatment as well as contractual liabilities and obligations? Put another way: are those words to be given the extended meaning of “rights and obligations” in Article 3 and “rights, powers, duties and liabilities” in section 4(1) of TUPE?

[82]“Liabilities” is a word which under English law is ordinarily widely construed to extend to present, future, and contingent liabilities (see, for example, per Lord Evershed MR In re Delhi Electrical Supply and Traction Co. Ltd

[1954] Ch 131

at 160); but it does not always or even ordinarily extend to unenforceable obligations (see ibid. and Marshal Shipping Co v Board of Trade

[1923] 2 KB 343

, where (at 356) Atkin LJ described an unenforceable liability as a contradiction in terms), nor to obligations which are discretionary (see Glenister v Rowe

[2000] Ch 76

per Mummery LJ at 84). But, in accordance with the approach to construction referred to above, the meaning of a word in an instrument may well depend on its particular context, and be informed by the purpose of the provisions in which it is used.

[83]In my view, and taking into account especially both the overall purpose of Schedule 7.09 (to provide a calculated measure of protection for SCA in respect of obligations automatically transferred pursuant to TUPE) and the juxtaposition of the word liabilities with the word “benefits” in the definition of Seller’s Schemes in Schedule 7.09, the word should be treated in the context of this case as extending to any liability, obligation, right or benefit which would be treated as transferring pursuant to TUPE, subject to one proviso. The proviso is that, given that the substantive purpose of Schedule 7.09 is to provide for a pension price adjustment by way of a calculated monetary sum, the “liability” must (as it seems to me) be such as to be capable of “calculation”.

[84]As foreshadowed earlier, Mr Nugee’s submission in this regard was forthright: a “duty to consider properly…is not something which either falls within the wording of Schedule 7.09 or can be valued. You can’t value a duty to consider. It doesn’t make any sense”. He did not elaborate: he submitted it was self-evident, stressing that the question should not arise, there being no liability to be valued anyway.

[85]However, Mr Nugee anticipated that Mr Clifford would rely on the Actuarial Assumptions as expressly defined in Schedule 7.09 and the further assumptions imported from US GAAP by the definition of ABO Adjustment also in that Schedule; and Mr Clifford duly did so, with some detail, referring especially to the following:(1) the provisions of FAS87 of US GAAP, which direct, in relation to the determination of the actuarial present value of benefits, the use of assumptions which expressly include “assumptions as to mortality, turnover, early retirement, and so forth”, and

(2) the definition of “Actuarial Assumptions” in Schedule 7.09 as “…the actuarial assumptions and methods used and applied in the preparation of [P&G’s] audited group accounts for the year ended 30 June 2008…”, which expressly include “pre-retirement demographic assumptions for in-service mortality, ill-health retirement, early retirement, and withdrawal from active service [as] specified…” [my emphasis]

(3) express provision in e-mail exchanges between Watson Wyatt and KPMG for particular demographic assumptions in relation to, inter alia, “pre-retirement decrements” as set out in an attached spreadsheet which includes a heading “Voluntary age retirement rates”.

[86]Although as a matter of semantic accuracy, I do not agree that the word “calculating” (which to my mind connotes an objective mathematical standard) is the same as “valuing” (which to my mind connotes a subjective assessment) I have concluded that the various assumptions imported into the definitions in Schedule 7.09 were intended to and should be construed as enabling a “calculation” of, amongst other benefits, the ERBs.

[87]It follows, in my judgment, that Mr Nugee’s modified argument, although (in my view) correct in its characterisation of the nature of the provision for ERBs in the P&G Fund, does not avail P&G. The provision must be treated as a liability which transfers to SCA and (subject to questions 2 and 3 below) falls to be calculated on the basis of the assumptions referred to in the definition of ABO Adjustment in Schedule 7.09 of the ASPA.

[88]It seems to me that this conclusion is also consistent with, and should promote, the objective of TUPE and Article 3 of safeguarding the interests of Transferring Employees by vesting the discretionary power to provide ERBs in the management of the entity that employs them.

[89]I turn therefore to question 2. Second question:whether liability for all ERBs or only liability in respect of the Enhancements, transfers under TUPE

[90]The answer obviously and substantially affects the price payable (by the machinery of the ABO Adjustment) by P&G to SCA under or pursuant to Schedule 7.09 of the ASPA.

[91]During the hearing the second questioncame to be referred to as the “windfall” or “smiling pensioner” point, and sometimes “the double pension issue”. These various shorthand descriptions convey, I think, the essence of the question involved: given (as is common ground) that the Transferring Members are all already entitled to deferred pensions from the P&G Fund, can it be right that the operation of TUPE entitles them also to claim from SCA pension benefits which (together with the Enhancements) substantially duplicate deferred pension benefits (so that P&G would be required by Schedule 7.09 to pay SCA the cost of providing duplicate pensions when it is already liable to fund the deferred pensions in the P&G Fund)? Such a windfall to a pensioner might well occasion him or her to smile, if it dawned on them to make such a claim so as to obtain a double pension; and SCA’s grin might be even broader if they do not, so that, having obtained payment from P&G, it is thus entitled to pocket the payment itself.

[92]Mr Nugee submitted variously that such a result would be ‘grotesque’ and ‘outlandish’; and that such a bizarre result cannot have been intended and cannot survive a teleological approach. He urged that TUPE must be interpreted in such a way as to achieve its objectives of safeguarding and maintaining employees’ rights (see Martin v Lancashire County Council, Bernadone v Pall Mall Services Group Ltd and Others

[2001] ICR 197

, (“Bernadone”) paras. 16, 42, and 49), but not enhancing, still less duplicating them.

[93]Mr Clifford responded (in effect) that the arrangement was appropriate because pursuant to TUPE, the obligation to ensure full funding of all the relevant members’ interests (including vested deferred pension benefits) would pass to SCA; that although in the real world a deferred pensioner would look to the P&G Fund to meet deferred pension benefits the liability nevertheless transferred to SCA; that Schedule 7.09 of the ASPA requires calculation of the gross liabilities without having any regard to any means of discharging those liabilities; and that whatever windfall might eventuate (whether to a pensioner or, more likely, SCA) [T/S 2/103] a contract is a contract: like Portia, he says “it appeareth due upon the bond”.

[94]It will be apparent that this ‘double pension problem’ has two facets. One facet is whether the gross liability for all ERBs (without credit or deduction for the fact that the larger part of the benefits has already vested in the form of deferred pension) transfers pursuant to TUPE (so that transferring members become entitled to claim a duplicate pension from SCA as well as their entitlement to deferred pensions from the P&G Fund). As to that, it is accepted that any liability of P&G under or in connection with any contract of employment does transfer under TUPE; but I agree with Mr Nugee that the question as to the nature of P&G’s liability and also whether the provision of a deferred pension (and the interest in the P&G Fund which thereby vests) discharges pro tanto the liability to provide ERBs is, in each case, a matter of English domestic law.

[95]The other facet of the question is whether Schedule 7.09 of the ASPA may, and to achieve a commercially sensible result, must, be interpreted in such a way as to avoid the ‘grotesque’ windfall at P&G’s expense. That is essentially a matter of contractual interpretation, governed by English law.

[96]To answer these twin facets of the question it is necessary to delve a little further into the context and source of the ‘double pension problem’, the nature of a deferred member’s entitlement under a scheme such as the P&G Fund, and also into the statutory funding requirements for pension obligations.

[97]In terms of the context in which both facets of the second question arise it is common ground that(a) all the transferring members/employees are and will remain entitled to accrued rights by way of deferred pension as against the P&G Fund;

(b) if there had been no transfer a member could never have had both ERBs and a deferred pension: he could have had an early retirement pension if he had opted for early retirement and P&G had consented; or a deferred pension if he or they had not; but never both. It is also common ground that the package or bundle of rights comprising ERBs consist principally of a pension calculated on the Standard Formula, but improved by the Enhancements.

[98]Thus, but for the transfer there would be no question of a double pension or any duplication of benefit. The problem which gives rise to the second question only arises if and when (upon a transfer) a transferring employee/member(a) retains both the full package of contractual entitlements (which become exercisable against the transferee) and also

(b) an interest in the trust fund derived from the crystallisation of some part of those entitlements (the obligors being the Fund Trustees), and

[99]In that regard, the entitlement to a deferred pension is not a future contractual entitlement enforceable against the employer (P&G); it is an entitlement to be paid (in due course) the relevant deferred pension out of the P&G Fund. That entitlement against the P&G Fund is not affected or dissolved by the transfer. It may have derived from, but no longer has any other connection with, a contract of employment: it is a right which is, as Mr Nugee put it, “divorced from the continuance of the employment relationship.” The right is to payment of the contractually agreed benefit (the contract being between the company and its employee(s)) by the Trustees of the P&G Fund out of the assets of the P&G Fund.

[100]The accrued right to benefit is a vested interest in the P&G Fund. It is in the nature of an interest under a trust. It is inalienable and transportable (in the sense that the deferred member may take a cash equivalent transfer value to a different pension arrangement). That vested interest is not affected by the transfer of the whole or any part of the employer company’s business: there is no continuing contractual obligation between the employee and the employer in relation to the interest at all.

[101]Although a person entitled to a deferred pension is not entitled to actual cash the scheme trustees are required by statute to provide to any member a “statement of entitlement” of the amount of the cash equivalent at the guarantee date of any benefits which have accrued to or in respect of him (see section 93A Pensions Schemes Act 1993), and any member who has received a statement of entitlement and who makes a relevant application within 3 months acquires the right to a “guaranteed cash equivalent” in the amount so stated (see section 94 ibid.). This guaranteed cash equivalent may be taken in any of the ways adumbrated in section 95 (ibid.).

[102]The employer company (here P&G) remains under an obligation, reinforced by statute, to continue to fund or ensure funding of the scheme (here, the P&G Fund). Part 3 of the Pensions Act 2004 contains detailed provisions elaborating the funding obligation; the fundamental requirement, defined as “the statutory funding objective” (see section 222), is that every scheme must have sufficient and appropriate assets to cover its “technical provisions” (defined as “the amount required, on an actuarial calculation, to make provision for the scheme’s liabilities”) Members are further protected, in the event of insolvency, by the Pension Protection Fund. . But that is an obligation owed to the trustees of the fund, and not to the employee; and such liability is in respect of the fund as a whole.

[103]Pausing there, and to put the matter a different way, the following obligations and interests can be discerned and, to answer this first facet of the second question, must be allocated in order to calculate the extent of the obligation of P&G pursuant to the ASPA to pay SCA (by the mechanism of an actuarially calculated reduction in the overall purchase price payable by SCA) the ABO Adjustment.(1) the qualified entitlement of each transferring member to be considered in good faith for ERBs;

(2) the obligation of P&G to provide a deferred pension to each transferring employee;

(3) the interest of each transferring employee in the P&G Fund by virtue of his or her deferred pension (and its statutory concomitant of a portable cash equivalent);

(4) the obligation of P&G to continue to fund the P&G Fund in accordance with statutory requirements.

[104]As to (1), I have already concluded that the entitlement to good faith consideration for ERBs transfer to SCA. As to (2), the obligation to provide a standard pension is met by the vesting of a deferred pension. As to (3), the entitlement to deferred pension, once vested, confers an interest in the P&G Fund which is the property of the relevant transferring member and is unaffected by his future employment and the transfer of that employment to SCA. The possibly more difficult question is as to (4): is the continuing obligation of P&G to the P&G Fund Trustees and under statute to fund the P&G Fund such as to transfer, insofar as it relates to the funding of deferred pension benefits, to SCA by operation of TUPE?

[105]On this issue, as I see it, the parties are diametrically opposed. P&G’s position is simply stated, even if its analysis is less straightforward: Mr Nugee submitted that the question simply does not arise, because the obligation to fund is a matter entirely between the company (P&G) and the trustees of the scheme (the P&G Fund). As between P&G and its employees the only relevant obligation owed by P&G was to provide a right to participate in the P&G Fund in proportion to the relevant employees’ accrued benefit entitlements. The only relevant obligation of P&G was to provide a deferred pension; it did so; and that is the end of the matter. He submitted, in short, that the issue of funding is irrelevant.

[106]On behalf of SCA, on the other hand, Mr Clifford submitted that the obligation to fund the P&G Fund is a liability that transfers to SCA pursuant to TUPE, and that it is this uncertain liability so transferred to SCA to ensure funding sufficient to meet relevant benefit entitlements that explains and justifies the arrangements made in Schedule 7.09 of the ASPA. The ABO Adjustment is there to compensate SCA for its exposure to claims in respect of any funding shortfall. Mr Clifford deployed in this context an analogy with a keg of beer that requires constant replenishment: P&G must fund the beer to keep full the keg. Mr Clifford assumed that the funding obligation in relation to ERBs could be separately identified and calculated; and that the liability in respect of that obligation should be treated as a liability in connection with the employment relationship which transferred under TUPE like any other such liability.

[107]A major difficulty, to my mind, with Mr Clifford’s analysis, which I asked about somewhat repetitively at the hearing, is what then becomes of P&G’s obligation to the P&G Fund trustees, and under statute? He contended that, to accord with fundamental principle, any liabilities of P&G in respect of obligations transferred to SCA by operation of TUPE were extinguished; indeed it was on this basis that he submitted that any solution posited on any continuing obligation on the part of P&G had to be rejected. It was likewise on this basis that he invited me to reject any suggestion that, if the relevant obligation transferred, P&G would be required to “double-fund” (if it had both to continue to fund the P&G Fund and also to pay SCA enough to cover the funding liability). However, I have remained unclear as to how this can be so, given that P&G’s funding obligations are owed to the P&G Fund trustees, are underpinned by statute, and are referable to accrued benefits and in the case of deferred pensions, vested interests in the P&G Fund.

[108]Mr Clifford’s submissions on this issue of the funding liability have given me much pause for thought. However, and as indicated previously, I have concluded that they are not correct.

[109]I accept Mr Nugee’s analysis that the acquisition by the employee member of a vested interest and thereby a guaranteed cash equivalent in the prescribed amount under the trusts of the P&G Fund satisfies and discharges the contractual obligation of the employer company as against the employee member in respect of deferred or short service benefit (save for additional entitlements such as the Enhancements). The only relevant obligations in respect of the package of benefits comprising ERBs, apart from those relating to the Enhancements, are entirely satisfied by the provision of deferred pensions in the P&G Fund administered by trustees and funded in accordance with obligations which are not owed to, and are not enforceable by, the relevant transferring employees. In my judgment, any liability of P&G arising under or in connection with the relevant contract of employment is satisfied and discharged.

[110]The corollary is that P&G’s liability in respect of ERBs having been satisfied except as regards the Enhancements, the only obligation left to transfer, and which does accordingly indeed transfer under TUPE, is liability in respect of the Enhancements.

[111]I should perhaps add that this result seems to me to accord with, and give effect to, the objectives of TUPE and the Directive which it is intended to implement; and to the extent that my conclusion involves issues of European law I consider it clear that it cannot have been the intended effect of TUPE or the Directive that further to the transfer there should be a dual liability to ensure the funding of the scheme, which (given the lack of any basis or mechanism for extinguishing the obligations of P&G to the trustees of the P&G Fund) is what would result if the funding obligation were to be treated as transferred. (For completeness I should note further that although the Directive does, by Article 3.1, permit Member States to provide for joint and several liability of both transferor and transferee, the UK did not take that course.)

[112]That conclusion suffices to determine the second question in the sense urged by P&G. However, in case the analysis on which my conclusion is based is not accepted, I should also consider an alternative solution to the second question, which was fully argued before me.

[113]This alternative argument relies on regulation 4.2(b) of TUPE, and it differs from the first (and Mr Nugee’s preferred) solution in that, whereas the premise of that first solution is that except in relation to the Enhancements there is no liability in respect of the ERBs outstanding to transfer, the premise of this alternative solution is that the entire package of benefits comprising ERBs does transfer, but everything done prior to transfer by P&G is treated as done by SCA in satisfaction of those benefits. This alternative solution, which depends purely on the construction of TUPE in the context of the Directive, requires a purposive or teleological approach.

[114]Regulation 4(2)(b) of TUPE provides (so far as relevant) as follows:

“any act…before the transfer is completed, of or in relation to the transferor in respect of that contract or [a transferring employee], shall be deemed to have been an act…of or in relation to the transferee.”

[115]For SCA, Mr Clifford portrayed Mr Nugee’s attempted recourse to that provision as misconceived. He submitted that reliance on the provision to benefit the employer would subvert the purpose of the Directive and TUPE, which is to protect the rights of employees. He cited in this regard Power v Regent Security Services Ltd

[2008] ICR 442

(especially paragraph 10 per Mummery LJ) and Alamo-Herron and others v Parkwood Leisure Ltd

[2011] ICR 920

(especially paragraphs 14 and 46 per Lord Hope).

[116]For my part, though I quite accept that the purpose of the Directive and TUPE is to safeguard employees’ rights, and to that end to approximate (though not harmonise) the laws of member states in this regard, I do not read these cases, either in terms of their result or their analysis, as precluding or even discouraging the interpretation of Regulation 4(2) (b) advanced by Mr Nugee. That interpretation seems to me plainly available on the wording; and a teleological approach to construction would seem to me to support it.

[117]More generally, the fulfilment of the purposes and intent of TUPE requires a flexible and pragmatic, rather than literal and “black letter”, approach. Indeed, as it seems to me, a more than ordinary flexibility is often required: for that is the price, or at least a necessary concomitant, of the conclusion that every sort of right, even an expectation which is subject to the exercise of a discretionary power, is to be transferred pursuant to TUPE. Rights that in other circumstances would be considered either too personal, or spectral or uncertain, or which call for benefits that as a matter of fact the transferee has not the power to provide, can only be treated as transferable if, when circumstances require, something more flexible than their literal replication is permitted.

[118]Further, what is important throughout is not the label but the substance of the right, power, duty and liability concerned: to satisfy the objectives of TUPE, it is necessary in each case to unpack the economic components, with a view to providing for substantial identity (or failing which substantive equivalence) of economic benefit after the transfer as before.

[119]MITIE Management Services Ltd v French and others

[2002] ICR 1395

, a decision of the Employment Appeals Tribunal in which Maurice Kay J gave the judgment, illustrates this. The problem in that case, in a nutshell, was that it was impossible for the transferee to provide the transferred employees with the benefits they had enjoyed as employees because such benefits derived from a profit-sharing scheme under which they received annually either a cash payment or an award of shares in the transferor company, the extent of the benefit depending on the transferor company’s profits. Replication of the rights was, as a practical matter, either inappropriate or impossible:(a) it could not be appropriate for transferring employees to have their profit-related benefits controlled by the profitability of a company for which they no longer worked;

(b) it altered the nature of the benefit that the rules of the transferor scheme would be subject to alteration without input from the transferee;

(d) any access to commercially sensitive information necessary to calculate the annual pay-out; and

(e) all these difficulties would multiply in the event of subsequent further transfers.

[120]It was urged on the EAT by the applicant transferred employees that TUPE provided for and required the transferee to ensure rigorous fulfilment of the entitlements precisely as enjoyed prior to the TUPE transfer, or to negotiate a consensual scheme of benefits acceptable in lieu by the transferring employees. They contended that failing consensual variation, or possibly dismissal and re-engagement on new terms, the transferee company would be exposed to liability for breach of the transferring contracts of employment. However, this “black letter” approach was rejected. It was held that the entitlement of the transferred employees was to “participation in a scheme of substantial equivalence but one which is free from unjust, absurd or impossible features” (see page 1404E).

[121]It does seem to me that part of the problem in this case is nomenclature. The naming and definition of ERBs may tend to obscure the fact that ERB is simply a name for a package or bundle of economic benefits, some already fulfilled, some prospective, some contingent, some barely more than in the nature of an expectation. What is required to achieve the safeguarding of the rights of transferring employees is to ensure the provision from some source of an equivalent result in respect of the individual benefits comprised in the bundle. What to my mind is plainly required is to unpack the rights comprised in the package marked “ERB”, forget nomenclature, and split out rights which have already been fulfilled, are already vested and will remain exercisable against the P&G Fund trustees, from the remainder (which transfer to SCA).

[122]In my view, adopting a process of teleological interpretation, regulation 4(2)(a) and (b) of TUPE should be construed together so as to confine the rights, powers, duties and liabilities to be transferred by statutory process to those rights, powers, duties and liabilities under or in respect of a continuing contract of employment that have not already been substantially satisfied, performed, exercised or discharged by the transferor, whether in cash or kind.

[123]More particularly, in my view, regulation 4(2)(a) should be construed as referable only to liabilities which have not been substantively satisfied in economic terms; and regulation 4(2)(b) should be construed as treating the deferred pension provided as an act in relation to the transferor which is treated as an act of or in relation to the transferee such as to meet that element of the package of benefits that ERBs comprise.

[124]Whichever of these analyses is correct the result is substantively the same. Thus, in this case, as it seems to me, any (but only) transferred rights or benefits comprised within ERBs which have not already been met in economic substance by virtue of transferring members becoming entitled to deferred pensions in the P&G Fund will transfer over to SCA. In effect that means that only the obligation to which P&G was subject in relation to the Enhancements transfers to SCA.

[125]My conclusion that TUPE does not effect a transfer of a liability that has already been substantively satisfied by the transferor company prior to the transfer means that the second facet of the second question does not strictly arise: no-one has contended that Schedule 7.09 imposes liability in respect of rights or obligations not transferred. However, in my view, focus on this second facet also provides a further or alternative reason for the conclusion that P&G cannot be required to pay a second time for benefits that it has already procured to be provided and funded (in the form of deferred pensions), so that only the value of the Enhancements needs to be calculated for the purposes of the ABO Adjustment.

[126]This second facet of the second question raises an issue of domestic law: it is a matter of contractual interpretation of a contract (the ASPA) which is governed by, and to be construed according to, English law. I have set out briefly the applicable principles in paragraphs 77 to 79 above. I would add to these:(1) the statement of Lord Diplock in The Antaios

[1984] AC 191

at 201 that: “If detailed and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense it must yield to business common sense.”

(2) The further explanation of this statement by Hoffmann LJ (as he then was) in Co-operative Wholesale Society Ltd v National Westminster Bank plc

[1995] 1 EGLR 97

, at 98: “This robust declaration does not, however, mean that one can rewrite the language which the parties have used in order to make the contract conform to business common sense. But language is a very flexible instrument and, if it is capable of more than one construction, one chooses that which seems most likely to give effect to the commercial purpose of the agreement.”

(3) The approval of these statements by the Supreme Court in Rainy Sky S.A. and others v Kookmin Bank

[2011] UKSC 50

[127]I can be relatively brief on this aspect of the matter. I cannot accept that it was ever intended that Schedule 7.09 should operate in such a way as to give SCA a windfall profit. Its intention was plainly to provide SCA with a payment, by way of adjustment of the purchase price, calculated to hold it harmless against a liability externally imposed by virtue of the operation of TUPE.

[128]I accept Mr Nugee’s submission that it cannot have been the intention of the parties that P&G should pay again for benefits it had already provided and remains liable to fund; or that SCA should receive money or value which it would not actually have to pay out: such a result would be absurd and flout common sense; or at the very least it would be a conclusion only to be reached if the words admitted no other meaning.

[129]I accept also his submission that Schedule 7.09 can, consistently with the principles of contractual interpretation I have briefly explained, be construed to produce a commercially sensible result by reading “liabilities” in Schedule 7.09 Part 2 as referring to the actual net liability of SCA to the member in the real world, not its theoretical liability. It is limited to compensating SCA for what is in the real world the most that SCA would actually have to pay (and cf Charter Reinsurance Co Ltd v Fagan

[1997] AC 313

[130]By contrast I do not accept Mr Clifford’s submission to the effect that all that is necessary to determine P&G’s liability under Schedule 7.09 is to determine what liabilities are transferred, and calculate them adopting the prescribed assumptions. That would, in my judgment, be an overly literal and unrealistic approach. Its result (of either a smiling pensioner with a duplicate pension or a grinning SCA, having been indemnified against a non-existent liability) is so arresting and so unlikely to have been intended that a solution must be provided. To my mind, Mr Clifford provided no satisfactory alternative solution.

[131]He suggested that the deferred pension entitlement might be treated as in part exoneration of any right to ERBs; but in wiping the smile off the face of the (until then) smiling pensioner, he provided no real answer to the resulting windfall to SCA, and did not dissent that it would then be “in the bag”. In the end, I think, he was constrained to accept that the transferring liability was to be read as importing and imposing an “obligation of result” on SCA such that SCA would be able to rely on the deferred pension as discharging to that extent its obligation, leaving it only to fund the enhancements. As Mr Nugee pointed out, that solution almost mirrored his own, save that it did not then go on to provide for this to be taken into account in calculating the ABO Adjustment and thereby the “Final Pension Adjustment Amount”. I consider that the acceptance of that corollary is required to resolve the conundrum.

[132]My conclusions on the second question may reduce the financial significance to the parties of the third question; but both Counsel invited me to address it nonetheless. Third question: the scope of Regulation 10(2) of TUPE and the meaning of “old age benefit”

[133]As will be recalled (see paragraph 6 above), by a tortuous series of double-negatives, or exclusions from exclusions, old age benefits are not transferred pursuant to Regulation 4 of TUPE.

[134]Although dealt with last, this is perhaps the question of most general interest. Unlike the other questions it is exclusively concerned with an issue of interpretation of TUPE and Article 3. In the event of any uncertainty as to the answer, I need to consider whether it is necessary to refer the question to the CJEU.

[135]As foreshadowed previously, SCA submits that Beckmann and Martin provide clear guidance as to the scope of the “old age benefits” exclusion which is determinative of the present case. Put shortly, SCA’s contention is that a pension which provides a unitary benefit payment of which commences prior to NRA cannot be or become an old age-benefit. SCA further contends that the issue is acte clair for the purposes of EU law and falls to be determined in favour of SCA; and that a reference would only be necessary if I were to take it upon myself to consider those cases not to be determinative.

[136]P&G, on the other hand, submits that neither case is directly in point, since those cases concerned benefits exclusively payable prior to NRA, triggered by redundancy, and thus neither concerned the sort of benefits in issue in this case.

[137]I should record, since at one point Mr Clifford suggested that he was making a broader submission that no element of the ERBs transferred, that Mr Nugee clarified that he did not seek to contend that benefits payable prior to NRA are old age benefits, even though payable under a pension which also provides for post-NRA benefits. His contention was restricted to this: that benefits after NRA, under a pension which is payable for life and which is not additional but in lieu of an ordinary pension, plainly and obviously constitute old age benefits, whether or not the pension entitlement initially commenced before NRA; and even if that were not clear no reference is necessary unless it is on this issue that the outcome of the case depends.

[138]The dispute in relation to the third question thus turns upon the scope and rationale of these two decisions, both of which concerned the proper characterisation of early retirement benefits triggered by redundancy and payable by the Secretary of State for Health from the National Health Service Superannuation Scheme pursuant to section 46 (“section 46”) of the General Whitley Council conditions of service. These conditions of service are negotiated across the public sector, and in the case of the National Health Service are implemented by the National Health Service Pension Scheme Regulations 1995 and the National Health Service (Compensation for Premature Retirement) Regulations 1981 (“the NHS Regulations”). The relevant benefits comprised(a) an early retirement pension, based on reckonable years of pensionable service, paid from the date of redundancy to the NRA;

(b) early payment of a lump sum normally paid on retirement;

(d) a lump sum compensation being 3 times the annual allowance. Such benefits are payable under section 46 in three circumstances: dismissal for redundancy; retirement in the interests of the efficiency of the service; or premature retirement on organisational change.

[139]Although I accept, of course, that the ECJ/CJEU is a systemic court, which gives rulings as to the interpretation and application of Directives (among other acts of the institutions of the European Union) which are not confined to the facts of a particular case, interpretation cannot altogether be shorn of context. In addition to the background I have briefly summarised it seems to me that it remains necessary to consider what the question(s) was/were that elicited the answers provided in the judgment(s) under review. As to that: (1) In Beckmann the relevant question for these purposes was:

“Is the employee’s entitlement to early payment of pension and retirement lump sum and/or the annual allowance and lump sum compensation, a right to an old-age, invalidity or survivor’s benefit within the meaning of article 3(3) of Directive 77/187?” (2) In Martin, the relevant question for these purposes was: “Is the employees’ entitlement to the payment of early superannuation benefits and lump sum compensation on redundancy/in the interests of the efficiency of the service/on organisational change, a right to an old-age, invalidity or survivors’ benefit within the meaning of the Directive?”

[140]Accordingly, neither case was concerned at all with benefits payable after NRA: both concerned benefits triggered by early retirement on an event of redundancy, payable under arrangements distinct (even though under the same ‘umbrella scheme’) from the benefits payable after NRA. In consequence neither touched upon the characterisation of a suite of benefits which are to be paid after NRA.

[141]One of the principal questions raised in Beckmann was whether these benefits payable pursuant to section 46 of the GW Conditions constituted old age benefits. The ECJ held they did not. It held that the early retirement benefits and benefits payable under section 46 and intended to enhance the conditions of such retirement, paid in the event of dismissal to employees who have reached a certain age, are not old age benefits. Having emphasised that the exception in respect of old age benefits was required to be interpreted strictly in order to promote the intention of safeguarding the rights of employees upon a transfer of undertakings, the ECJ explained its conclusion as follows (at paragraph 31):

“…it is only benefits paid from the time when an employee reaches the end of his normal working life, as laid down by the structure of the pension scheme in question, and not benefits paid in circumstances such as those in point in the main proceedings (dismissal for redundancy) that can be classified as old age benefits, even if they are calculated by reference to the rules for calculating normal pension benefits.”

[142]The case thus concerned a benefit payable only in the event of dismissal and then only until NRA: it is not difficult to understand the conclusion; but the context is very different from that obtaining here. In the present case, all that is in issue is the characterisation of (to adopt the wording of the ECJ’s Judgment) “benefits paid from the time when an employee reaches the end of his working life”. They are not triggered by dismissal for redundancy or any other reason. It is not necessary to consider whether ERBs payable only after the attainment of a given minimum retirement age in line with ordinarily accepted norms for early retirement (for example, 55 being the minimum according to the requirements of HMRC) and without any other qualifying or triggering event except the agreement of the employer, might also be characterised as ‘old age benefits’ (as the Advocate-General seems to indicate in paragraph 73 of his opinion in Beckmann): Mr Nugee has clarified that that is not his case. Only benefits in each case to support the recipient post-NRA and thus in old age are in issue; and the ECJ’s judgment appears to me to confirm the intuitive reaction that these are indeed ‘old age benefits’.

[143]The Martin case again concerned the issue of whether a transferee was bound to honour GW conditions of service with regard to enhanced pension entitlements and other compensation payable on cessation of work by reason of redundancy, efficiency or organisational changes. The claimant, Ms Martin, was a nursing lecturer who was employed in the NHS subject to the GW conditions. Her employment was transferred to the defendant, the South Bank University, on a reorganisation of nursing teaching. Three years after that she accepted an offer of voluntary severance, which was held to bring her case within section 46 of the GW Conditions.

[144]So similar are the factual circumstances that it seems unlikely that Martin would have been referred had Beckmann by then been decided. This is indeed intimated by the Advocate-General Siegber Alber, (who also gave the opinion in Beckmann) in his opinion (see paragraphs 32 and 60). The benefits at issue were the same in both cases. The only substantial difference was that in Beckmann early retirement was triggered by redundancy (which was plainly within section 46); whereas in Martin it was triggered by voluntary agreement after the South Bank University had written to all members of staff offering one last chance of early retirement before new financial arrangements entered into force: this was treated as being within section 46 on the basis that early retirement was offered and accepted in the interests of the efficiency of the service within the scope of that section. In other words, in both cases the real trigger or sine qua non for retirement benefits was in reality redundancy, in one case this was occasioned by dismissal and in the other case it was occasioned by voluntary agreement.

[145]In a very similarly constituted court as heard and decided Beckmann the ECJ at paragraphs 34 and 35 of its judgment stated as follows:

“In the light of the grounds of the judgment in Beckmann…there is no reason to treat benefits applied for upon dismissal by reason of redundancy any differently from those applied for upon early retirement agreed between the employer and the employee which does not correspond to the departure of an employee at the end of his or her normal working life as laid down by the general structure of the pension scheme of which he or she is a member. The answer…must therefore be that early retirement benefits and benefits intended to enhance the conditions of such retirement, paid in the event of early retirement arising by agreement between the employer and the employee to employees who have reached a certain age, such as the benefits at issue in the main proceedings, are not old-age, invalidity or survivors’ benefits…”

[146]Thus the question really becomes whether benefits first triggered as Early Retirement benefits must be treated as such even after NRA; in other words, whether the categorisation is so absolute and the stamp so indelible that possibly many years after NRA the benefits thus triggered are to be treated as early retirement benefits, and never as old age benefits: whether, in other words, a restrictive interpretation requires a rule that “once an early retirement benefit, never an old age benefit”.

[147]To my mind, and even taking fully into account the prescription of a restrictive approach and its premise that “in general, the employees are more likely to be protected if the rights and obligations to be transferred are more rather than less comprehensive” (see per Peter Gibson LJ in Bernadone at para. 34) There may be some irony in a case where the transferor has a DB scheme and the transferee has not, or where (as here) the transferee’s DB scheme is not one which was available to the transferring employees. , such a rule would be (to put it no higher) counter-intuitive. Unless persuaded that the CJEU has indicated such a rule, I would consider it plain and obvious that instalments of pension paid to someone after NRA, where the characteristic of the benefit and its obvious and only purpose has always been to support the recipient after retirement having attained a specified age and without any other trigger, fall to be characterised as old-age benefits, and none the less so simply because the pension had first come into payment before NRA.

[148]So the question is whether there is anything in Beckmann or Martin that mandates such a conclusion, or even which on a fair reading opens the way to reasonable doubt what the correct conclusion should be. In my judgment there is not. Having carefully, indeed anxiously, considered both cases, mindful of my duty loyally to apply the CJEU’s systemic guidance if it is clearly applicable or to refer the matter to the CJEU if I am left in doubt, I do not consider that there is anything in either that mandates or suggests the conclusion that, for example, a pension being paid to a 100-year old is not an old-age benefit simply because by consent of the employer it initiated at 64 and not 65.

[149]By way of elaboration I should perhaps confirm that I have taken into account especially SCA’s argument that what is all important is what “triggers” the entitlement, and in particular Mr Clifford’s submission that the Advocate-General made that clear in his opinion in Martin at paragraphs AG62 and 63, and that this was accepted by the ECJ at paragraph 34 of its judgment. However, I do not read either the opinion or the judgment in that way.

[150]On the contrary, as I read the Advocate-General’s opinion (and especially those paragraphs of it) the burden of his advice was that a benefit that is(a) payable through life

(b) only after the attainment of a given minimum age in line with accepted norms for early retirement (for example, 55 being the minimum acceptable to HMRC)

(c) without any other qualifying or triggering event except the agreement of the employer would be an ‘old age benefit’ (and see also his opinion in Beckmann, especially at paragraph 73). In my view, the ECJ’s judgment is expressed in more general or less nuanced terms, and I accept that paragraph 34 might conceivably be read as connoting that only benefits payable under a pension commencing at the end of the employee’s normal working life would qualify as ‘old age benefits’; but having regard to the question it was answering I am confident that that is not what was intended: the ECJ had in mind only benefits payable from early retirement until NRA and not benefits thereafter.

[151]There are other arguments against SCA’s contention that Beckmann and Martin apply in this case to determine it in their favour. One such argument is that Beckmann and Martin must be confined to the context of public sector schemes, where early retirement enhancements are contractual and cannot be either removed or withheld, and where the contract for such enhancements comprises a separate bundle of rights applicable only to a fixed period, which is supplementary to, but separate or at least severable from, the bundle of rights comprised in the basic pension arrangements. The argument has been advanced not only in this case but in a number of articles and discussions as providing a clear mandate to distinguish Beckmann and Martin.

[152]Another argument or uncertainty is whether it makes a substantive difference in terms of this issue that in the context of a private sector pension arrangement the obligation to pay benefits may be borne (as in this case) by trustees rather than directly by the transferor employer.

[153]However, although I think it right to record them, I do not think it necessary to say more about those arguments, having reached a clear view without resort to them. That is especially so since they give rise to issues that if raised by themselves might give rise to referable points.

On the basis of my conclusions no reference is required

[154]As it is, in light of my conclusions I do not consider that any reference to the CJEU is required.

Conclusions and Form of Order

[155]In the result, in my judgment question (1) is to be answered in the sense urged by SCA: the right to be considered for ERB’s transfers under TUPE. The two other questions are to be answered in the sense urged by P&G.

[156]Thus, put shortly and (at this stage) without the precision and definition that will be necessary in formulating declarations, my answer to question (2) is to the effect that the liability transferring to SCA under TUPE is the liability to provide the Enhancements.

[157]Again put shortly (and subject to the same caveat), my answer to question (3) is that benefits payable after NRA are properly characterised as ‘old age benefits’ even if paid pursuant to a unitary pension under which benefits were first paid before NRA by reason of the member in question having reached the age of 55 and the company having agreed to provide ERBs.

[158]I will need the assistance of Counsel in formulating declarations to reflect more precisely my conclusions. For that purpose a hearing after formal handing down of this judgment will be required at which the exact form of order and other questions (including costs) can be addressed.

[159]In that regard, and by arrangement between the parties, I will hand this judgment down on Monday 14th May 2012, but I do not expect the attendance of the parties or their legal representatives on that occasion, when I shall adjourn the question of costs, the other matters I have mentioned, and any other applications, to a hearing to be fixed. The time for appealing any order on this judgment will not start to run until the conclusion of that adjourned hearing.

[160]In the meantime it remains only for me to express my thanks to Counsel and their supporting teams, who have given me assistance of the highest quality.

Cited in 1 later judgment

Sea Containers Services Ltd 2012