Storm Funding Ltd, Re [2013] EWHC 4019 (Ch)

Cases No: 7942, 7944, 8210, 8211, 8243, 8603, 8604, 8953, 9434, 9579, 9580, 9635, 9851 and 11056 of 2008[2013] EWHC 4019 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 18/12/2013
Before
MR JUSTICE DAVID RICHARDS
IN THE MATTERS OF STORM FUNDING LIMITED (IN ADMINISTRATION)
AND OTHER COMPANIES IN ADMINISTRATION
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Hearing Hearing dates: 15-17 October 2013
MR PAUL NEWMAN QC, MR DANIEL BAYFIELD and MR JAMES WALMSLEY (instructed by Linklaters LLP) appeared on behalf of the Applicants
MR MARK ARNOLD QC and MR RICHARD HITCHCOCK (instructed by Weil, Gotshal & Manges) appeared on behalf of Lehman Brothers Holdings Inc.
MR NICOLAS STALLWORTHY QC (instructed by Travers Smith LLP) appeared on behalf of the Trustees
MS RAQUEL AGNELLO QC, MR JONATHAN HILLIARD and MR THOMAS ROBINSON appeared on behalf of the Pensions Regulator
Judgment
Mr Justice David Richards :
Introduction
[1]The administrators of 14 companies in the Lehman Brothers group apply for directions as to the potential liabilities of those companies to make payments to or for the benefit of the Lehman Brothers Pension Scheme (the scheme) established principally for the benefit of persons employed by Lehman Brothers Limited (LBL) but seconded to work for other group companies. I will refer to the 14 companies as the Applicant Companies.[2]LBL was a service company, providing a range of services to other companies in the Lehman group in the UK and Europe. It was the main employer in the UK for the Lehman group and seconded staff as required to other companies in the group. On 15 September 2008, administrators were appointed to the principal UK-based companies in the Lehman group, including LBL. All the companies were insolvent.[3]The appointment of administrators of LBL constituted a relevant event under section 75 of the Pensions Act 1995 (the 1995 Act). This gave rise to a liability of LBL to pay to the trustees of the scheme (the trustees) an amount equal to its share of the deficit in the scheme as at the date of the appointment of the administrators (the section 75 debt). In accordance with the provisions of section 75, the amount of the liability was subsequently certified as £119m. This represented LBL’s share of a total deficit on the scheme of £121m. By reason of section 75(4A), this debt is taken for the purposes of insolvency law applicable to LBL to have arisen immediately before the appointment of the administrators and is, accordingly, a provable debt in the administration and any subsequent liquidation of LBL. The amount of dividends which LBL will be able to pay to its creditors is currently unclear and therefore the amount which the trustees will receive from LBL is presently unknown.[4]In the circumstances which apply to LBL and its pension scheme, the Pensions Regulator (the Regulator) is empowered by the Pensions Act 2004 (the 2004 Act) to issue a direction to other companies in the same group as LBL, requiring them to provide financial support for the scheme. In default of the provision of such support, the Regulator is empowered to issue “a notice to any one or more of the persons to whom the direction was issued stating that the person is under a liability to pay to the trustees or managers of the scheme the sum specified in the notice (a “contribution notice”)”: section 47(2) of the 2004 Act. The sum specified in a contribution notice “may be either the whole or a specified part of the shortfall sum in relation to the scheme”: section 48(1). In this case, the shortfall sum is the amount of the section 75 debt due from LBL, i.e. £119m. In Re Nortel and Lehman Brothers [2013] UKSC 52 (Nortel), the Supreme Court held that possible claims under contribution notices yet to be issued are contingent liabilities capable of proof in the administration or liquidation of potential targets, such as the Applicant Companies.[5]The principal issue arising on this application is whether, in circumstances where two or more contribution notices are issued, the aggregate maximum amount which may be either specified in the contribution notices or recovered pursuant to them is limited to the shortfall sum, i.e. in this case £119m.[6]The difference depending on the answer to this question is substantial in the present case and could be even more so in other cases. Based on actuarial estimates provided to the trustees of the scheme, they are advised that the current buy-out deficit is substantially greater than that certified as at 15 September 2008. The buy-out deficit fluctuates from month to month, having regard to changes in gilt yields and buy-out assumptions, investment returns and other factors. Estimates of the deficit on the scheme on a buy-out basis given in the first half of 2013 ranged from £214 million to £275 million. If neither of the suggested limits apply, the Applicant Companies may be exposed to additional liabilities considerably in excess of £100 million.[7]The companies are in a position to make distributions to their unsecured creditors and each will have to make a reserve against its contingent liability to contribute to the scheme. The administrators of the Applicant Companies hold net realisations of approximately £600 million and estimate that the total sums that will in due course become available for distribution will be in excess of £1 billion. On 24 June 2013, permission was given pursuant to paragraph 65 of schedule B1 to the Insolvency Act 1986 to make distributions to the unsecured creditors of the Applicant Companies.[8]The issue is raised purely as a question of construction of the relevant provisions of the 2004 Act. There is no issue raised as to the amounts which might reasonably be specified in or recovered under contribution notices. Any such issue would not be appropriate for determination on an application for directions under the Insolvency Act.[9]The submissions of the administrators of the Applicant Companies are supported by submissions made on behalf of Lehman Brothers Holdings Inc. (LBHI), which is a direct or indirect creditor of the Applicant Companies with almost £4 billion of admitted claims. It is also the ultimate parent company of the Lehman group. Submissions in opposition are made on behalf of the trustees and the Regulator.

The facts

[10]By way of expansion of the outline of facts given above, the scheme was established in 1965 and provides defined benefits on a final salary basis in relation to service up to 30 April 1999 and predominantly defined contribution benefits for service after that date. On and after 1 May 1999, the scheme continued to provide defined benefit accrual for a small group of members and also to increase the past service benefits of other pre-May 1999 members by continuing to define those past service benefits by reference to a member’s final salary whilst employed in the Lehman group. There are approximately 2300 members of the scheme with defined benefits.[11]On 24 May 2010, the Regulator issued a warning notice to certain companies within the Lehman group. The warning notice, issued pursuant to sections 43 and 96(2) of the 2004 Act, stated that the Regulator believed that it was reasonable to require those companies to put in place financial support for the scheme.[12]The warning notice sought the issue of a financial support direction (FSD) under section 43 of the 2004 Act to 73 entities, subsequently increased to 74 entities. Following representations, this number was reduced to 44 entities, including the Applicant Companies and LBHI. The power to issue FSDs is exercised by the Determinations Panel, an independent statutory panel of the Regulator. On 13 September 2010, the Determinations Panel issued a determination notice providing that an FSD be issued to six out of the 44 entities identified by the Regulator. The six companies included three Applicant Companies.[13]The determination notice was referred under the provisions of the 2004 Act to the Upper Tribunal both by the companies to whom FSDs were to be issued and also by the trustees, who sought a direction for the inclusion in the FSD of the remaining 38 companies (in practice now 37 companies, following the dissolution of one of them). Those 38 companies applied to the Upper Tribunal to strike out the trustees’ reference. By a decision handed down on 14 June 2012, the Upper Tribunal refused the application and an appeal was dismissed by the Court of Appeal on 21 June 2013: LB Re Financing No 1 Ltd v The Trustees of the Lehman Brothers Pension Scheme [2013] EWCA Civ 751. A directions hearing for the substantive references to the Upper Tribunal is scheduled for early 2014. Accordingly, all the Applicant Companies will or may be the subject of an FSD and, potentially, a subsequent contribution notice.

The directions sought by the administrators

[14]The application notice (as amended) seeks directions under three paragraphs. Paragraph 3, which sets out the only direction sought by the application notice as originally issued, is directed to the principal issue described above and is as follows:
“As to whether, on the true construction of ss.48(1) and 49 of the 2004 Act, the Regulator may issue contribution notices under s.47 of the 2004 Act (“CNs”) to more than one qualifying target which in aggregate specify a sum which is in excess of the maximum shortfall sum in relation to the relevant scheme under s.48(2)(a) of the 2004 Act, so as to enable (if the Regulator or other person empowered to recover the debt arising from the said CNs so chooses) recovery from those targets of an aggregate sum greater than the said shortfall sum.”
[15]The administrators regard this as the critical issue for decision at this stage, because it will assist them in determining the level of distributions to unsecured creditors which they can proceed to make, reserving as appropriate for liabilities in respect of the scheme. Although it would or might otherwise arise as an issue in the present or future references to the Upper Tribunal, it is because of this need to proceed as quickly as possible with distributions that a decision of this court is sought at this stage. It raises an issue of statutory construction, not dependent on any particular facts or on the exercise of any discretion. The trustees and the Regulator are content for the issue to be determined on the present application and have fully participated in these proceedings.[16]Paragraph 2 of the amended application also seeks the determination of a pure question of construction. It is in the following terms:
“As to whether, on the true construction of s.48 of the 2004 Act, the shortfall sum (as defined in s.48(2) of the 2004 Act): (i) is limited to the debt (the “s.75 Debt”) which has been certified as due from Lehman Brothers Limited (“LBL”) by virtue of s.75 of the Pensions Act 1995 (“the 1995 Act”); (ii) can be measured by reference to the liability under s.75 of the 1995 Act to which LBL would be subject if such debt were re-assessed by reference to the value of the deficiency in the Lehman Brothers Pension Scheme (calculated on the basis prescribed for the purposes of s.75(5) of the 1995 Act) as at the time of non-compliance (as defined in s.48(3) of the 2004 Act); or (iii) is limited, or is to be measured by reference, to some other (and if so, what) basis.”
All parties agree that the correct answer to this issue is that stated in sub-paragraph (i), at least in the circumstances of this case where a section 75 debt from the employer, LBL, has already been triggered and certified and no part of that debt has been paid.[17]Paragraph 1 of the amended application raises a rather different issue, namely what financial support arrangements proposed under section 45 of the 2004 Act it would be reasonable for the Regulator to refuse. As framed in the amended application notice, paragraph 1 is in the following terms:
“As to whether on the true construction of s.45 of the Pensions Act 2004 (the “2004 Act”), the Pensions Regulator (“the Regulator”) may lawfully refuse to issue a notice under s.45(1) of the 2004 Act in respect of one or more arrangements(s) under s.45(2) of the 2004 Act which in aggregate make(s) provision for an amount equal to the whole of the employer’s pensions liabilities in relation to a scheme (as defined in s.45(4) of the 2004 Act) (“the amount”), on the ground that the Regulator is not satisfied that the amount is reasonable.”
[18]In the skeleton argument of counsel for the administrators, and as foreshadowed in correspondence from the administrators’ solicitors shortly before the hearing, the administrators sought to reframe this question not in terms of the construction of statutory provisions but in terms of whether the Regulator could reasonably take a particular course. The trustees and the Regulator objected to such issue being decided by this court on this application. They submitted that questions as to what is reasonable in terms of an FSD or in terms of a contribution notice are matters for the Determinations Panel and, following a reference, the Upper Tribunal, or perhaps the Administrative Court on an application for judicial review. After some discussion, the administrators withdrew paragraph 1 of their application.

The legislation

[19]The legislation relevant to the issue in this case is detailed and complex. For convenience, I have scheduled the text of the most relevant provisions to this judgment. I shall here summarise the content and effect of those parts of the provisions which are most in point to the present issue. So far as relevant, the provisions apply to occupational pension schemes other than money purchase schemes and certain prescribed schemes. Their principal effect, certainly so far as the present case is concerned, relates to defined benefit schemes.[20]There are very helpful summaries of the legislation in the judgment of Briggs J at first instance in Nortel [2010] EWHC 3010 (Ch), [2011] Pens LR 37 and in the judgment of Lord Neuberger in the Supreme Court. The issues in that case were different from the issue arising in this case and the summaries, while comprehensive, are directed primarily to the provisions relevant to those issues. The summary which follows in this judgment covers much of the ground of those summaries but is, likewise, principally directed to the provisions most in point to the issue on this application. I have nonetheless been greatly assisted by those summaries, as I believe will any reader of this judgment.[21]Section 75 of the 1995 Act, which itself was amended by the 2004 Act, creates in certain circumstances a statutory debt due from the employer in relation to a scheme to the trustees or managers of the scheme.[22]There are two broad categories of case in which this debt may arise, one affecting the scheme and the other affecting the employer. The first is where the scheme is being wound up and no “relevant event” has occurred in relation to the employer during the winding-up of the scheme. If at any time during the winding up, the value of the assets of the scheme is less than the amount at that time of its liabilities, the trustees or managers of the scheme may designate that time for the purposes of giving rise to the statutory debt, which will be an amount equal to the difference. The overall effect is that, provided an insolvency event does not occur in relation to the employer, the trustees of a scheme in winding-up have the flexibility to select a date to calculate the deficit and create the section 75 debt. In practice trustees will usually wait until the end of the winding-up process, so that the debt will match as closely as possible the actual deficit in the scheme which needs to be secured by the purchase of annuities.[23]The second category of case in which a section 75 debt may arise is where “a relevant event” occurs in relation to the employer. A relevant event may be either an insolvency event (as defined), the passing of a resolution for a members’ voluntary winding-up of the employer, or the occurrence of particular circumstances under section 129 of the 2004 Act. An insolvency event is defined to include all formal insolvency proceedings under English law, including administration and liquidation: section 75(6C)(a) of the 1995 Act and section 121 of the 2004 Act. Section 129 applies where an employer satisfying prescribed requirements is unlikely to continue as a going concern. It is apparent from the regulations setting out the prescribed requirements that section 129 is intended to apply to organisations and entities to which the provisions of the Insolvency Act 1986 would not apply, such as public bodies, charities and trade unions.[24]Where, in any of these cases, the value of the assets of the scheme is immediately before the relevant event less than the amount at that time of its liabilities, an amount equal to the difference is treated as a debt due from the employer to the trustees or managers of the scheme. The trustees therefore enjoy no flexibility to select the date for calculation of the deficit. The effect of section 75(4A) is that the debt is provable in the insolvency of the employer, but, by virtue of section 75(8), is not to be regarded as a preferential debt. In the case of a scheme which is being wound up, the trustees or managers of the scheme may not exercise their powers to take the steps necessary to create a debt equal to the deficit on the scheme at any time after the occurrence of a relevant event in relation to the employer.[25]In all circumstances, the assets and liabilities of the scheme are certified by the scheme actuary and the amount of the resulting deficit, which is also certified by the actuary, is the amount of the section 75 debt. The determination of the assets and liabilities of a scheme is a complex matter, governed by detailed regulations. It is not necessary for the purposes of the present case to consider those regulations.[26]Section 75A provides a third category of case in which a section 75 debt may arise. This applies in relation to multi-employer schemes, where one of the employers leaves the scheme. It is not necessary to consider this category or the provisions applicable to it for the purposes of the present application.[27]Sections 38 to 57 of the 2004 Act contain provisions whereby persons other than the employer can be required to provide financial support or make contributions to a relevant pension scheme. Within those sections, there are effectively three separate regimes, each dealing with different circumstances. Sections 38 to 42, under the heading Contribution notices where avoidance of employer debt, provide for the issue by the Regulator of contribution notices requiring a person to make payments to the trustees or managers of the scheme, in circumstances where the person was a party to an act or a deliberate failure to act with the purpose of preventing the recovery of the whole or any part of the debt which was or might become due from the employer under section 75 or to prevent such a debt becoming due or compromising such a debt or reducing its amount. Sections 43 to 51, under the heading Financial support directions, are the provisions directly in point in the present case. Sections 52 to 56, under the heading Transactions at an undervalue, enable the Regulator to make what is called a restoration order to reverse the effect of a transaction at an undervalue carried out to the detriment of the scheme. In the event of a failure to comply with a restoration order, the Regulator may issue a contribution notice, imposing a liability to pay the sum specified in the notice to or for the benefit of the scheme, such sum being the whole or a specified part of the loss suffered by the scheme as a result of the transaction.[28]It is necessary to consider in detail the provisions of sections 43 to 51. They apply if the Regulator is satisfied that the employer is either “a service company” or “is insufficiently resourced” at “the relevant time”. The relevant time is defined by section 43(9) to mean a time falling within a prescribed period (2 years) ending (so far as relevant to the present case) with the determination by the Regulator to exercise the power to issue an FSD. The end-date for the period was amended by the Pensions Act 2011 to the date on which a warning notice in respect of an FSD is given, but it does not apply to the present case under the transitional provisions.[29]An FSD may be issued in relation to a scheme only where the employer either is a service company or is insufficiently resourced: section 43(2). These terms are defined by section 44 of the 2004 Act.[30]Section 44(2) defines a service company as a company (as defined in section 1(1) of the Companies Act 2006) which is a member of a group of companies and whose turnover as shown in its latest available individual accounts is “solely or principally derived from amounts charged for the provision of the services of employees of [the service company] to other members of that group.” It is not in dispute that LBL qualified as a service company for these purposes and the steps so far taken by the Regulator under these sections have been taken on that basis.[31]The criteria for determining whether an employer is “insufficiently resourced” are more complex and are set out in section 44(3)-(4). In very broad terms, they require the combination of an under-resourced employer and an over-resourced connected or associated person or persons, often referred to as the “rich man/poor man test”.[32]The first criterion for an insufficiently resourced employer is that at the relevant time “the value of the resources of the employer is less than the amount which is a prescribed percentage of the estimated section 75 debt in relation to the scheme”. The prescribed percentage is 50 per cent. The estimated section 75 debt is defined by section 44(5) to mean the amount which the Regulator estimates would be the section 75 debt if(a) section 75(2) applied and(b) the time designated by the trustees or managers of the scheme for the purposes of section 75(2) were the relevant time. This criterion therefore depends on a notional application of section 75(2).[33]The second criterion is the satisfaction of condition A or condition B. Condition A is defined in section 44(3A). It has two requirements. First, there must at the relevant time be or have been one or more associates of the employer or persons connected with the employer. This includes any company which is in the same group as the employer. Secondly the value at the relevant time of the resources of the connected or associated person must not be less than the relevant deficit, meaning the difference between the value of the resources of the employer and the prescribed percentage of the estimated section 75 debt. Condition B is defined in section 44(3B) to require at the relevant time two or more persons who are both associated or connected persons of the employer and connected with or associates of each other, whose aggregate resources are not less than the relevant deficit. The resources of a person are determined and calculated in accordance with regulations and their detail is not relevant for present purposes.[34]An important point to note at this stage is that the power of the Regulator to issue an FSD may arise in circumstances which are clearly different from those in which a section 75 debt may arise. For the purposes of the issue of an FSD, it is not necessary either that the scheme should be in the course of winding up or that an insolvency event or other “relevant event” should have occurred in relation to the employer. It may frequently be the case that FSDs are issued in circumstances also giving rise to a section 75 debt but it is not necessary that they should do so.[35]An FSD may be issued to one or more persons: section 43(4). An FSD may be issued only to persons who were the employer or its associates or connected persons at the relevant time determined by the Regulator (i.e. at a time within the two years before the decision to issue the FSD). The fact that an FSD may be issued to the employer emphasises the disconnection between a section 75 debt and the issue of an FSD. An FSD may be issued to any such person only if “the Regulator is of the opinion that it is reasonable to impose the requirements of the direction on that person”: section 43(5)(b). Section 43(7) requires the Regulator, when deciding whether it is reasonable to issue an FSD to a particular person, to have regard to such matters as the Regulator considers relevant including, where relevant, certain specified matters.[36]An FSD is defined by section 43(3) in terms which it is convenient to set out in full:
“(3) A financial support direction in relation to a scheme is a direction which requires the person or persons to whom it is issued to secure- (a) that financial support for the scheme is put in place within the period specified in the direction, (b) that thereafter that financial support or other financial support remains in place while the scheme is in existence, and (c) that the Regulator is notified in writing of prescribed events in respect of the financial support as soon as reasonably practicable after the event occurs. ”
A scheme is in existence for the purposes of paragraph (b) until it is wound up: section 43(10). The prescribed events referred to in paragraph (c) are events which call into question the continued provision of the required financial support and include any failure to comply with arrangements put in place pursuant to an FSD. (a) that financial support for the scheme is put in place within the period specified in the direction, (b) that thereafter that financial support or other financial support remains in place while the scheme is in existence, and (c) that the Regulator is notified in writing of prescribed events in respect of the financial support as soon as reasonably practicable after the event occurs. ”[37]Financial support for the purposes of FSDs issued under section 43 is defined by section 45. It means one or more of the arrangements set out in section 45(2). Section 45(2) provides as follows:
“(2) The arrangements falling within this subsection are- (a) an arrangement whereby, at any time when the employer is a member of a group of companies, all the members of the group are jointly and severally liable for the whole or part of the employer’s pension liabilities in relation to the scheme; (b) an arrangement whereby, at any time when the employer is a member of a group of companies, a company ( [within the meaning of section 1159 of the Companies Act 2006(c. 6)] ) which meets prescribed requirements and is the holding company of the group is liable for the whole or part of the employer’s pension liabilities in relation to the scheme; (c) an arrangement which meets prescribed requirements and whereby additional financial resources are provided to the scheme; (d) such other arrangements as may be prescribed.” (a) an arrangement whereby, at any time when the employer is a member of a group of companies, all the members of the group are jointly and severally liable for the whole or part of the employer’s pension liabilities in relation to the scheme; (b) an arrangement whereby, at any time when the employer is a member of a group of companies, a company ( [within the meaning of section 1159 of the Companies Act 2006(c. 6)] ) which meets prescribed requirements and is the holding company of the group is liable for the whole or part of the employer’s pension liabilities in relation to the scheme; (c) an arrangement which meets prescribed requirements and whereby additional financial resources are provided to the scheme; (d) such other arrangements as may be prescribed.”
[38]Section 45(4) defines “employer’s pension liabilities” in relation to a scheme to mean:
“(a) the liabilities for any amounts payable by or on behalf of the employer towards the scheme (whether on his own account or otherwise) in accordance with a schedule of contributions under section 277, and (b) the liabilities for any debt which is or may become due to the trustees or managers of the scheme from the employer whether by virtue of section 75 of the Pensions Act 1995 (deficiencies in the scheme assets) or otherwise. ”
The schedule of contributions prepared under section 227 is a statement, prepared and from time to time reviewed and if necessary revised by the trustees or managers of the scheme, showing the rates of contribution payable towards the scheme by or on behalf of the employer and the active members of the scheme and the dates on or before which those contributions are to be paid. It must satisfy prescribed requirements and must be certified by the scheme’s actuary.[39]While a debt which is or may become due under section 75 is included within the definition of the employer’s pension liabilities, it is to be noted that it goes a good deal wider than that, so as to include both the employer’s liabilities under the schedule of contributions and any debt which may become due to the scheme from the employer “otherwise”, for example under the terms of the scheme itself.[40]The prescribed requirements which arrangements under section 45(2)(b) or (c) must meet are contained in regulation 13 of The Pensions Regulator (Financial Support Directions etc.) Regulations 2005. They are that the party or parties to the arrangement consent to the jurisdiction of the courts of England and Wales and, where there is more than one party to the arrangement, those parties enter into a legally enforceable agreement. These are also the requirements for arrangements prescribed under section 45(2)(d): regulation 14.[41]It is therefore apparent that, while paragraphs (a) and (b) define precisely two categories of financial support, paragraphs (c) and (d) are drawn in the widest possible terms. The recipients of FSDs are therefore given a free hand in the arrangements which they may propose, and the only limit is that the Regulator must be satisfied that the arrangements are reasonable in the circumstances: section 45(3).[42]The consequences of non-compliance with an FSD are provided for in sections 47-50 of the 2004 Act, which establishes the regime for contribution notices: see section 47(1).[43]In the event of non-compliance with an FSD, section 47(2) provides:
“The Regulator may issue a notice to any one or more of the persons to whom the direction was issued stating that the person is under a liability to pay to the trustees or managers of the scheme the sum specified in the notice (a “contribution notice”).”
The obligation imposed by an FSD to formulate and provide financial support may therefore be replaced in the event of non-compliance with a precise monetary liability.[44]The Regulator’s power to issue a contribution notice is restricted by section 47(3) which provides that a contribution notice may be issued to a person “only if the Regulator is of the opinion that it is reasonable to impose liability on the person to pay the sum specified in the notice.” This is a double requirement. The Regulator must be satisfied both that it is reasonable to issue a contribution notice to that particular person and that it is reasonable to impose liability for the particular amount specified in the notice. Section 47(4) requires the Regulator to have regard to such matters as he considers relevant including, where relevant, the matters stated in sub-paragraphs (a)-(g). These include any connection or involvement of the person with the scheme and the financial circumstances of that person.[45]Section 48 provides for the sum which may be specified in a contribution notice. It may be “either the whole or a specified part of the shortfall sum in relation to the scheme”: section 48(1). The shortfall sum is defined in section 48(2):
“(2) The shortfall sum in relation to a scheme is- (a) in a case where, at the time of non-compliance, a debt was due from the employer to the trustees or managers of the scheme under section 75 of the Pensions Act 1995 (c.26) (“the 1995 Act”) (deficiencies in the scheme assets), the amount which the Regulator estimates to be the amount of that debt at that time, and (b) in a case where, at the time of non-compliance, no such debt was due, the amount which the Regulator estimates to be the amount of the debt under section 75 of the 1995 Act which would become due if- (i) subsection (2) of that section applied, and (ii) the time designated by the trustees or managers of the scheme for the purposes of that subsection were the time of non-compliance. ” (a) in a case where, at the time of non-compliance, a debt was due from the employer to the trustees or managers of the scheme under section 75 of the Pensions Act 1995 (c.26) (“the 1995 Act”) (deficiencies in the scheme assets), the amount which the Regulator estimates to be the amount of that debt at that time, and (b) in a case where, at the time of non-compliance, no such debt was due, the amount which the Regulator estimates to be the amount of the debt under section 75 of the 1995 Act which would become due if- (i) subsection (2) of that section applied, and (ii) the time designated by the trustees or managers of the scheme for the purposes of that subsection were the time of non-compliance. ”
[46]The shortfall sum is therefore tied to an employer’s liability under section 75. If at the time of non-compliance there is an outstanding debt due under section 75, the shortfall sum is the amount of that debt. If no such debt was due at the time of non-compliance, the shortfall sum is the Regulator’s estimate of a notional section 75 debt calculated as at the time of non-compliance. The liability imposed by a contribution notice is therefore by no means the same or even consistent with the scope of the obligation imposed by an FSD. The latter, while including actual or potential section 75 debts, extends as already noted to liabilities payable in accordance with a schedule of contributions and liabilities which are or may become due under contractual or other provisions other than section 75. Whether the obligation imposed by a contribution notice would be more or less onerous or extensive than that imposed by an FSD will depend on the circumstances of the individual case.[47]It should further be noted that the amount of the shortfall sum may differ depending on whether the case falls within paragraph (a) or (b) of section 48(2). If there is an actual section 75 debt outstanding at the time of non-compliance, it fixes the maximum amount which may be specified in the contribution notice. Necessarily the deficit in the scheme giving rise to that debt will have been calculated as at an earlier date and it follows that the notional section 75 debt calculated under paragraph (b) may be smaller or larger than an actual section 75 debt. Given the volatility of some of the factors which determine the amount of the deficit, it is unlikely to be the same.[48]Section 49 requires a contribution notice to specify the sum which the person to whom it is issued is liable to pay and further provides that such sum is to be treated as a debt due from that person to the trustees or managers of the scheme. The debt may be recovered by the Regulator and, in certain circumstances, by the Board of Pension Protection Fund, but always for the benefit of the scheme.[49]While the shortfall sum is the maximum amount which may be stated as due in a contribution notice, it is for the Regulator to determine in the case of each contribution notice the amount to be specified in the notice, which may be the whole or a specified part of the shortfall sum. I have earlier referred to the restrictions imposed on the Regulator by section 47(3).[50]It follows that different amounts may be specified in different contribution notices. Where the same amount is specified in two or more notices issued in respect of the same non-compliance with an FSD, the persons to whom they are issued will be treated as jointly and severally liable for the debt but only if the contribution notices so specify: section 49(8) and (9).[51]Section 50 makes provision for the relationship between the liability imposed by a contribution notice and any section 75 debt due when the contribution notice was issued or becoming due after its issue. The Regulator may direct the trustees or managers of the scheme not to take any steps to recover the section 75 debt due to them pending recovery of all or part of the debt due by virtue of the contribution notice: section 50(4). Any sums paid pursuant to a contribution notice are to be treated as reducing the amount of the section 75 debt: section 50(6). There is not a similar automatic reduction in the amount or amounts due under contribution notices by virtue of payments made by the employer in respect of the section 75 debt, but application may be made to the Regulator to reduce the amount specified in a contribution notice and the Regulator may reduce the amount specified in a contribution notice, if appropriate and having regard to all relevant considerations including, where relevant, the matters specified in section 50(10).[52]As will be apparent from the foregoing summary, the Regulator is given wide discretionary powers to determine whether and to whom FSDs should be issued, to decide whether to approve the financial support proposed in response to FSDs and to decide whether and to whom contribution notices should be issued. Likewise, the Regulator has a wide discretion as to the amounts to be specified in each contribution notice and, where the same amount is specified in two or more notices, whether to provide for the liability to be joint and several.[53]As a public body, the Regulator is required by law to exercise its powers reasonably, having regard to its objectives. Section 5(1) of the 2004 Act set out the “main objectives of the Regulator in exercising its functions” as being, so far as principally relevant to the present case:
“(a) to protect the benefits under occupational pension schemes of, or in respect of, members of such schemes, (b) …. (c) to reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund, (ca) …. (d) to promote, and to improve understanding of, the good administration of work-based pension schemes. ”
[54]There are additional specific statutory requirements imposed on the Regulator. Section 100 of the 2004 Act requires the Regulator, in determining whether to exercise any regulatory function relevant to the present case, to have regard to the interests of the generality of the members of the scheme in question and to the interests of such persons as appear to the Regulator to be directly affected by the proposed exercise of its powers. Potential targets of an FSD or a contribution notice are within the second category and, while creditors of those targets are not “directly affected” and so are not within that category, it is accepted by the Regulator that in considering the interests of an insolvent target it must necessarily take account of the inability of the target to pay its debts in full. Additionally, as I have indicated in the course of my summary of the statutory provisions, there are imposed on the Regulator express requirements to have regard to all relevant matters, including the financial circumstances of potential targets of an FSD or contribution notices: sections 43(3)(d) and 47(4)(f).[55]Although the Regulator is the initial decision-maker in relation to the issue of FSDs and contribution notices, and in relation to the amounts to be specified in contribution notices, those decisions are required by the 2004 Act to be taken by the Determinations Panel, a statutorily-constituted panel independent of the executive of the Regulator. There is a procedure for representations and so on to be made to that panel. Parties affected by its decisions are entitled to refer the decision to the Upper Tribunal which will make the decision afresh and is entitled to receive new evidence. Decisions as to whether to accept proposals for financial support made in response to FSDs are initially made by the executive of the Regulator but may likewise be referred to the Upper Tribunal for a fresh decision.

The parties’ submissions

[56]The issue on this application is whether, on the proper construction of the relevant statutory provisions, there is any and, if so, what limit on the aggregate amount which may be specified in or recovered under two or more contribution notices issued in respect of the same non-compliance with an FSD.[57]The position of the trustees of the LBL scheme and of the Regulator is that any limit derives from the requirement that the exercise of the Regulator’s powers must be reasonable. They therefore accept that it would not be a proper exercise of those powers to require payment of sums which in total would be more than sufficient to provide for the pension liabilities of the scheme. Neither the aggregate amounts which may be specified in contribution notices nor the aggregate amounts of recoveries under the contribution notices are limited to the shortfall sum as defined.[58]The administrators submit that, having regard to the choice of the shortfall sum as being the maximum that may be specified in a contribution notice, it is necessarily implicit that this also limits the amount which may be recovered by the issue of contribution notices in respect of the same non-compliance. The administrators submit that this overall limit is achieved by requiring the aggregate amount specified in all the contribution notices not to exceed the maximum of the shortfall amount, for this purpose treating any notices issued on a joint and several basis as being a single notice. LBHI supported the submission of the administrators, but also advanced as an alternative submission that, while the aggregate amounts specified in the contribution notices could be more than the shortfall sum, the shortfall amount represented the maximum which could be recovered under the contribution notices. The administrators supported this alternative submission.[59]The effect of the rival contentions is well illustrated by taking the figures in the present case. The section 75 debt of LBL is £119m. The administrators and LBHI contend that, one way or the other, the trustees of the scheme will not be able to recover more than a total of £119m from the companies to which contribution notices are issued. The submissions of the trustees and the Regulator have the result that the maximum amount which may be recovered is not limited to £119m. The limit, derived from the statutory limits on the exercise of the Regulator’s powers and the requirement to act reasonably, is the deficit on the scheme when recoveries are made. In the present case, this would permit a total recovery substantially in excess of £119m, although the amount recovered from any one target could not exceed £119m.[60]The administrators and LBHI accept that their submissions involve reading into the relevant legislation limitations which are not expressly spelt out.[61]The bedrock of the submissions for the administrators and LBHI is the identification as the shortfall sum of the actual or notional section 75 debt and related provisions. If the legislative intention was to enable the Regulator to provide for the recovery of sufficient sums to meet the entire deficit, why did Parliament not so provide in terms rather than taking as a yardstick a figure which may well be substantially less, as is the case here, than the current deficit?[62]Further, the amount which may be recovered is dependent on the number of associated or connected persons. There are many companies in the Lehman group, enabling multiple contribution notices to be issued and therefore, on the construction of the legislation put forward by the trustees and the Regulator, enabling a sum substantially in excess of the shortfall sum to be recovered. But in other circumstances there might be only one or a small number of other companies in the group. If the legislative purpose of contribution notices is to enable the full deficit in a pension scheme to be met, it is very odd that the ability to do so may be limited by the number of companies to which contribution notices may be issued.[63]Moreover, if that is the legislative intention, it is difficult to understand why payments pursuant to contribution notices automatically reduce the amount of the employer’s section 75 debt. This, it is submitted, strongly suggests that the purpose of the contribution notices is to recover for the benefit of the scheme the actual or potential section 75 debt and no more.[64]Mr Newman QC submitted that the purpose of the provisions enabling the issue of FSDs is to make up for the actual or potential inability of the employer as the person with the primary liability to provide sufficient resources to support its pension obligations, in circumstances where it was or might be unable to do so either because it was a service company or because it was insufficiently resourced. He relied on some parliamentary materials to establish that this was the purpose of the provisions, but it seems to me in any case self-evident from the terms of sections 43-45.[65]Mr Newman also relied on the judgment of Briggs J in Nortel at first instance at [12]-[13] and the judgment of Lloyd LJ in the Court of Appeal [2011] EWCA Civ 1124, [2011] Pens LR 397 at [3]-[4], for a submission that a narrower purpose of the provisions relating to FSDs was to alleviate the problem that the employer would be unable to pay a section 75 debt. While that clearly is a problem at which the power to issue FSDs is aimed, it seems to me clear from the terms of the relevant provisions, and in particular from the definition of the employer’s pension liabilities in section 45(4), that the purpose of FSDs goes wider. I do not read the passages relied on from the judgments of Briggs J and Lloyd LJ as suggesting otherwise. The point is made clear in Nortel by Lord Neuberger at [21] (final sentence).[66]This is not however fatal to Mr Newman’s submissions, because he went on to contrast the breadth of the employer’s pension liabilities, as defined, with the narrow prescription involved in limiting the amount of any contribution notice issued under sections 47-50 to the actual or notional section 75 debt.[67]All these submissions were made in support of the basic proposition advanced by Mr Newman that the purpose of the provisions for the issue of contribution notices was to enable the trustees of a scheme to recover up to, but no more than, the outstanding actual or notional section 75 debt. The relevant provisions had to be read and construed to give effect to that purpose and not in a way which would undermine it. If the trustees were permitted to recover not only the amount of the actual or notional section 75 debt calculated as required by the legislation as at the relevant time, but also further sums needed to fund increases in the deficit since that time, the purpose of the legislation would be undermined.[68]Mr Newman accepted that there was no express limit on the amount which may be specified in a contribution notice other than the shortfall sum. He submitted that in order to give effect to the purpose of the sections, there should be implied a limit such that the aggregate amount specified in the contribution notices issued in respect of the same non-compliance should not exceed the shortfall sum, treating for these purposes as a single notice any notices issued on a joint and several basis.[69]Mr Arnold QC on behalf of LBHI adopted the submissions of Mr Newman, and additionally, made further submissions in support of the construction of the relevant sections advanced by the administrators. He submitted that there was a need to construe the relevant provisions of the 2004 Act consistently and coherently with the statutory insolvency regime. Not only do those provisions expressly contemplate insolvency but it is apparent that in many, although not all, cases the provisions of the 2004 Act will come into play in relation to insolvent employers, as of course they have done in this case and Nortel.[70]In an administration, the value of this contingent claim must be estimated in accordance with rule 2.81 of the Insolvency Rules 1986 and any such estimate may be revised by reference to any change in circumstances or information becoming available. An obvious change in circumstances would be the issue of a contribution notice and, applying the hindsight principle, the value put on the liability would be revised to the actual liability arising under the contribution notice. The purpose in making provision for the estimation of the value of contingent claims is to enable an administration or liquidation to proceed to a conclusion as speedily as may be reasonable in the circumstances of the case. This is so even in the case of a solvent liquidation: see In re Danka Business Systems plc [2013] EWCA Civ 92, [2013] 2 WLR 1398. Where, as here and as will frequently be the case, a section 75 debt is due from the employer to the trustees of the scheme, the administrators’ construction of the relevant provisions will greatly assist the achievement of these objectives, by imposing a ceiling on the amount which may be claimed against all the companies to which contribution notices are or may be issued and by eliminating the uncertainty which will arise if contribution notices may be used to recover sums necessary to meet subsequent adverse market and other changes affecting the deficit in the pension scheme.[71]Mr Arnold accepts that even on the administrators’ construction there will be an element of uncertainty, but he submits that permitting recovery of an aggregate amount greater than the section 75 debt reflecting, for example, whatever the scheme shortfall may be at that time is likely to lead to greater uncertainty precisely because it will be very difficult, if not impossible, to estimate in advance the amount of the aggregate liability and, accordingly, the liability of each target company. The extent of the liability of each target company would fall to be determined not by reference to the section 75 debt but by reference instead to the scheme shortfall as at a different and necessarily later time. The only certainty would be the maximum of the section 75 debt on the amount of each contribution notice. Knowledge at an early stage of the aggregate maximum liability of the potential target companies would enable the administrators of those companies to put in place arrangements agreed between them for reserving against that liability, as opposed to each company being required to reserve up to the full amount of the section 75 debt in order to provide for an as yet indeterminate liability.[72]In support of these submissions, Mr Arnold relied on the decision of Sales J in Best Trustees plc v Kaupthing Singer and Freelander Ltd [2012] EWHC 629 (Ch), [2012] Pens LR 187. The issue there was the correct time for the calculation of the buy-out valuation to be performed for the purposes of ascertaining a section 75 debt. This was the time to be notionally assumed when the trustees go into the market to purchase annuities to meet the accrued pension liabilities of the scheme. The choice in that case was between the date when the employer went into administration and the later date as at which the cost of the notional annuities was assessed and certified by the actuaries. Sales J said at [34]:
“In my view, in construing the legislation it is a reasonable inference that it was intended to operate in a way which would promote the purposes of the insolvency regime, including allowing distribution as to creditors at the earliest possible time.”
This was a significant consideration in support of the judge’s conclusion that the earlier date was the correct date, thereby permitting an earlier estimation of the section 75 debt and, therefore, an earlier distribution to creditors: see [11]-[13] and [33]-[34].[73]Mr Arnold advanced an alternative submission, based on the general principle that a creditor is not permitted to recover more than 100% of what is in substance the same debt. I will come back to this submission later in the judgment.[74]The trustees submit that on the true construction of the relevant provisions the Regulator may issue contribution notices to more than one qualifying target specifying in aggregate a sum in excess of the maximum shortfall sum and enabling recovery from those targets of an aggregate sum greater than the shortfall sum, provided that it is reasonable and in accordance with the Regulator’s statutory objectives to do so. The trustees rely on the express terms of section 48(1), enabling the Regulator to specify in a contribution notice “either the whole or part of the shortfall sum in relation to the scheme”. The sum so specified is to be treated as a debt due to the trustees and the Regulator is permitted to issue contribution notices to more than one target. Under section 49(8), even in a case where the same sum is specified in two or more contribution notices, the liability is joint and several only at the option of the Regulator: section 49(8).[75]The trustees submit it follows from a plain reading of the relevant provisions that the debts due under several contribution notices, each of which may be for the full amount of the actual or notional section 75 debt, can be for an aggregate sum in excess of the section 75 debt.[76]Mr Stallworthy QC, on behalf of the trustees, submitted that it made good sense that the recovery that may be made under contribution notices should not be limited in aggregate to the actual or notional section 75 debt. In particular in circumstances where an actual section 75 debt has arisen by virtue of an insolvency event or otherwise, the elaborate machinery provided by the 2004 Act for the determination and issue of FSDs and contribution notices inevitably leads to a situation where there may be a considerable passage of time between the ascertainment of the section 75 debt and the issue of contribution notices. It is equally foreseeable that in that time the deficit on a scheme would worsen. The underlying policy of the 2004 Act, to protect the position of pension scheme members and to reduce the circumstances in which calls are made on the Pension Protection Fund, points to a conclusion that the amount recoverable by virtue of contribution notices should not be restricted to a historic deficit.[77]The trustees relied on a number of significant features of the statutory scheme as supporting their case. At this stage I will simply identify them, and deal with them in the course of my discussion of the issue. First, they rely on the statutory objectives of the Regulator set out in section 5(1) of the 2004 Act. Secondly, they rely on the implied and express obligations of the Regulator to act reasonably in the furtherance of its objectives. Thirdly, they point out that the power to issue contribution notices arises not on the failure of an employer to pay a section 75 debt but on non-compliance with an FSD. Accordingly, it is important to analyse carefully the provisions relating to FSDs to identify the scope of obligations which may be imposed by the issue of an FSD. Financial support may be provided in a wide variety of ways and, importantly, for amounts in excess of a section 75 debt. A further important feature is that FSDs are intended to be available not only in the context of insolvencies but also where the weakness of an employer’s funding covenant renders a scheme vulnerable, even though the employer continues to trade. Fourthly, the trustees point out that there is no provision regulating the amount which may be required under a contribution notice in circumstances where some financial support has been provided by another target in compliance with an FSD. In such circumstances, there is no requirement that a contribution notice should be issued for a sum which gives credit for such financial support, thereby reducing the amount specified in a contribution notice to less than the section 75 debt.[78]The Regulator made submissions in support of the case advanced by the trustees. It emphasised the flexibility of the statutory scheme created by the 2004 Act in relation to FSDs and contribution notices, and the statutory objectives of the Regulator and the requirement that it should act reasonably in pursuit of those objectives. It emphasised too that obligations are imposed under this scheme through a judicial process, by a decision of the Upper Tribunal, if the target takes issue with any decision reached by the Regulator or the Determinations Panel.[79]As regards the submissions made in support of the administrators’ case by LBHI, both the trustees and the Regulator submitted that it was important to note that the scheme created by the 2004 Act operates not only where employers and targets become insolvent but also where they continue to trade outside insolvency and benefits continue to accrue within the scheme. While of course accepting that the legislation contemplates that these provisions may be operated in the context of an insolvency, they should not be construed on the basis that they operate only in an insolvency. Even in an insolvency, the scheme does not apply only to companies within the insolvent group. Obligations may be imposed on shareholders in such a group, which may well be solvent companies. The difficulties in estimating the exposure of each target company, on which Mr Arnold relied, would also arise if there were an aggregate cap equal to the section 75 debt. Depending on the size of that debt, it could still be difficult for the administrators or liquidators of each company to estimate the amount which should be reserved. Whether or not there is the aggregate cap for which the administrators and LBHI contend, reasonably reliable estimates can be made if the administrators or liquidators engage with the Regulator.

Discussion

[80]Before considering detailed points of construction, it is important to have regard to the overall scheme of the legislation, including the statutory objectives of the Regulator and the regime provided for the exercise of its powers. This would be the right approach even if the case made by the administrators and LBHI did not, as they acknowledge, require a limitation to be implied into the express provisions of the relevant sections, in order to give effect to what they say is the purpose of those sections, but that feature provides extra reason to have regard to the overall picture.[81]While section 75 of the 1995 Act imposes a debt of an ascertainable amount in certain specified circumstances, the relevant provisions of the 2004 Act create a regime where obligations are imposed by the exercise of discretionary powers by a statutory body or, on a reference, by a judicial body. The exercise of such powers must be consistent with and in furtherance of the statutory purposes. The Regulator is established by Part 1 of the 2004 Act. I have earlier set out the main objectives of the Regulator in exercising its functions, as stated in section 5 of the Act. Those which are relevant to the present case are the protection of members’ benefits under pension schemes and the reduction of the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund. The imposition of caps on the amounts which may be recoverable from persons required pursuant to the Act to provide support may limit the ability of the Regulator to achieve these objectives. A balance is no doubt required between the achievement of those objectives and the amounts which it is reasonable to require such persons to pay. The striking of that balance is a policy issue which is properly a matter for Parliament when enacting the legislation. The legislation does contain a number of such limits. For example, there is the limit, central to this case, on the amount which may be required under any individual contribution notice. These considerations tell against the imposition of further, implicit limitations.[82]The elaborate scheme for the imposition of obligations under the 2004 Act is designed to achieve results which are fair and proportionate in the circumstances of each individual case. It is not just that the Regulator is required to act reasonably in the furtherance of its objectives, thus, as it acknowledges, restricting the obligations that may be imposed to a maximum of what may be required to secure the benefits under a scheme, nor is it just that the exercise of the Regulator’s powers is subject to the requirement to have regard, where relevant, to a number of considerations specified in the legislation. It is also that the structure established for decision-making is designed to achieve results which are fair and proportionate. The initial decisions by the Regulator to issue FSDs and contribution notices are not taken by the executive but by an independent Determinations Panel established by the Act. The Panel’s decisions can in turn be referred to a judicial body, the Upper Tribunal, for the decisions to be taken afresh. Thus, full submissions and full evidence can be put before the decision-maker before obligations are finally imposed. This too tends against the imposition of implied limitations. In Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965, the decision of the House of Lords as to the width of the discretionary power to award costs in litigation, it was a relevant consideration against the implication of a limitation that a power was conferred in wide terms on a judicial body, although it is fair to add that the ability to impose limitations under rules of court was also relevant: see Lord Goff of Chieveley at pp 972E-G, 975E-H, 979C-E, 979H-980A and 931A-B.[83]Turning to the statutory provisions in issue, it is right to start with sections 43-46 which deal with FSDs. This is because, as section 47(2) provides, the power to issue contribution notices arises “where there is non-compliance with a financial support direction issued in relation to a scheme under section 43.” FSDs are not only part of the context for contribution notices, their issue is a necessary pre-condition to the exercise of the power to issue contribution notices. That power is the response provided by statute for the failure to comply with an FSD. Again it is not that the provisions relating to FSDs dictate the proper construction of the sections relating to contribution notices, but they are certainly highly relevant to their construction.[84]There are a number of important features of the sections relating to FSDs which have a bearing on the issue relating to contribution notices.[85]First, the purpose of an FSD is, in part, to secure both that financial support for the scheme in question is put in place and that financial support remains in place while the scheme is in existence: section 43(3). Unsurprisingly the focus is on the needs of the scheme, consistently with the statutory objectives of the Regulator.[86]Secondly, the power to issue an FSD does not arise because there is a section 75 debt or because the employer is insolvent. It arises, as earlier described, where, in the opinion of the Regulator, the employer is either a service company or is insufficiently resourced. As section 43(3) makes clear by providing that one of the purposes of an FSD is to secure that financial support remains in place while the scheme is in existence, the purpose of an FSD may be as much to keep an active scheme in being as it is to provide for the deficit of a scheme which is being wound up.[87]Thirdly, the definition of “financial support” in section 45 shows that it is not co-extensive with any actual or estimated section 75 debt but may go beyond it. Section 45(2) defines the arrangements constituting “financial support” in very broad terms. Paragraphs (c) and (d) refer only to arrangements, without identifying the liabilities for which they must provide. Paragraphs (a) and (b) expressly link the arrangements referred to in those paragraphs to “the employer’s pension liabilities in relation to the scheme”. That phrase is defined in section 45(4) in terms which make clear that the employer’s pension liabilities go wider than any section 75 debt. Paragraph (a) refers to the employer’s liability for contributions in accordance with a schedule under section 227, that is to say the employer’s ongoing funding obligations. Paragraph (b) refers to the liabilities for any debt which is or may become due from the employer “whether by virtue of section 75…or otherwise”. This paragraph therefore refers both to actual and potential liabilities under section 75 and liabilities arising “otherwise”, most obviously under the terms of the pension scheme deed or rules.[88]Fourthly, although a single FSD may be issued to a number of targets, more than one FSD may be issued in respect of the same scheme. Financial support may be provided in any one or more of the ways set out in section 45(2) or by a combination of them and different forms of arrangements may be put in place by different targets.[89]The absence in sections 43-46 of any limit to the financial support that may be required by reference to the amount of a section 75 debt is as well explicable in the case of an employer going into an insolvency process, thereby triggering a section 75 debt, as it is in the case where there is no such insolvency or section 75 debt. If the process for issuing an FSD starts only after the employer’s insolvency, it is apparent from the procedure laid down by the sections that, as in this particular case, there may be very considerable delays before the issue of one or more FSDs. Over that period, the estimate of the scheme’s liabilities may fluctuate to a very considerable extent, leading to a need for more (or less) financial support for the scheme by the time that an FSD is issued.[90]I turn now to sections 47-51, which set out the regime for contribution notices. It is non-compliance with an FSD which triggers the power to issue a contribution notice. Contribution notices may be issued to one or more of the persons to whom the FSD was issued and may impose on each person a liability to pay the sum specified in the notice. The specified sum is a debt due to the trustees or managers of the scheme. The debt may be enforced by the Regulator as well as by the trustees or managers or, in specified circumstances, by the Board of the Pension Protection Fund to the exclusion of others, but always for the benefit of the scheme. Different sums may be specified in contribution notices in respect of different persons. Section 47(3) requires the Regulator to be of the opinion “that it is reasonable to impose liability on the person to pay the sum specified in the notice”. Section 47(4) provides that when deciding “whether it is reasonable to impose liability on a particular person to pay the sum specified in the notice”, the Regulator must have regard to various specified matters, if relevant. Where the Regulator issues contribution notices to a number of persons for the same amount, it may, but need not, also provide that they will be jointly and severally liable in that amount.[91]The case made by the administrators and LBHI is based largely on the provisions for the maximum amount that may be specified in a contribution notice and the effect of payment of a sum due under a contribution notice on the employer’s section 75 debt. I have earlier described the relevant provisions. By way of brief summary, section 48(1) provides that the sum specified in a contribution notice “may be either the whole or a specified part of the shortfall sum in relation to the scheme”. The shortfall sum is defined by section 48(2) to mean, in a case where at the time of non-compliance a debt was due from the employer under section 75, the amount of that debt at the time of non-compliance. Where no such debt was due, an estimate of the section 75 debt as at the time of non-compliance is the shortfall sum. Section 50(6) provides that any sum paid in respect of a debt due by virtue of a contribution notice is “to be treated as reducing the amount of the debt due to the trustees or managers or, as the case may be, to the Board under section 75 of the 1995 Act”.[92]Were it not for section 50(6), there would in my view be very little basis for treating liabilities created by contribution notices as being in effect guarantees of the section 75 debt, requiring some limitation on the amounts that may be specified in or recovered under a number of contribution notices. Section 48 does no more than specify the maximum sum which may be stated in a contribution notice. If the issue of contribution notices was provided as the response to a failure by an employer to pay its section 75 debt, there would be greater force in the implied limitation for which the administrators and LBHI contend. But, as I have sought to demonstrate, the issue of contribution notices is not a response to such non-payment but is a response to non-compliance with one or more FSDs. The purpose of FSDs is to secure for a scheme financial support which may be different from, and larger than, any section 75 debt. In these circumstances, there seems little logic in linking the aggregate amounts which may be stated in contribution notices to the section 75 debt.[93]If it were intended that the total amount to be specified in the contribution notices issued in respect of a non-compliance with an FSD should not exceed the shortfall sum, as the administrators submit, one would expect to see such limit expressly provided. In the absence of such express limitation, the administrators’ submission requires the express words of section 48(1) to be cut down by an implicit limitation. The only limit imposed by section 48(1) on the amount so specified is the shortfall sum. The Regulator is at liberty to state either the whole or a specified part of that sum in any notice. Sections 47 and 48 therefore empower the Regulator to issue a number of contribution notices to a number of different people, each of which may by the express terms of the sections specify the whole of the shortfall sum. Each contribution notice must identify any other persons to whom contribution notices have been issued in respect of the non-compliance in question and the sum specified in each of those notices. There is no suggestion in the terms of these sections that the amount specified in each such contribution notice must in any way be limited, save that by virtue of section 48(1) it cannot exceed the shortfall sum.[94]The provisions of section 49(7)-(9) are very telling in this respect. Where the same sum is specified in two or more contribution notices, and they are issued in respect of the same non-compliance with an FSD, the contribution notices may, but need not, provide that the liability under them is joint and several. The Act therefore expressly provides for limited circumstances in which the amount recoverable under a number of different contribution notices is to be limited to a maximum which cannot be more than the shortfall sum. These provisions therefore have two consequences which tell against the case made by the administrators and LBHI. First, it would seem to follow that sums may be specified in a number of contribution notices which in aggregate exceed the shortfall sum. Secondly, it is a matter of decision by the Determinations Panel or the Upper Tribunal whether to impose joint and several liability and thereby limit total recovery under a number of different contribution notices by reference to the amount specified in each of them. It cannot be suggested, and is not suggested, that contribution notices imposing a joint and several liability cannot specify the full amount of the shortfall sum. If that is so, it is difficult to see why each such contribution notice cannot specify the whole of the shortfall sum if they are not stated to create a joint and several liability. Mr Newman’s suggestion was that, for the purposes of his submission that there was an overall cap on the amounts that may be specified in contribution notices, notices imposing a joint and several liability should be treated as a single notice. There is, as I see it, nothing in the legislation which gives substance to this suggestion.[95]It is a legitimate question to ask why the shortfall sum is provided as the maximum which may be specified in any contribution notice. The likely answer, as it seems to me, is that it was not considered appropriate to impose on any target of a contribution notice a liability larger than the debt which had been or could be imposed on the employer under section 75. This, as it also seems to me, provides an answer to another point very fairly made by Mr Newman on behalf of the administrators. The imposition of the actual or notional section 75 debt as the limit on any one target’s liability under a contribution notice means that the amount which may be recovered is dependent on the number of targets. It may be mere happenstance whether a group of companies is organised in a way which involves a large number of connected persons or only a small number. An understandable policy of limiting each target’s liability in this way must logically apply however many or few potential targets there are, and will therefore inevitably have the effect of reducing recoveries in those cases where there are only a small number of potential targets.[96]A further objection to the administrators’ case, that there is an implied limitation so that the aggregate amount specified in the relevant contribution notices cannot in aggregate exceed the shortfall sum, is that in any case where one or more of the persons to whom contribution notices have been issued are insolvent, it will necessarily follow that there will not be recovered in total even as much as the shortfall sum. As the Supreme Court held in Nortel, liabilities which may be imposed by contribution notices are provable in the insolvency of the persons to whom they are issued. The trustees of the scheme will therefore recover in respect of any contribution notice issued to an insolvent person only that proportion of the contribution notice debt for which there are assets available for distribution among unsecured creditors. The only way of dealing with this, consistently with the administrators’ case, would be for the contribution notices to specify in each case the full amount of the shortfall sum, on the basis of joint and several liability. This might well, however, not be lawful, because it is the statutory obligation of the person authorising the issue of contribution notices to determine the particular amount which it is appropriate should be paid by each specified person.[97]The administrators limit their case for an overall cap to contribution notices which are issued in respect of the same non-compliance with the same FSD. Given the terms of section 47(1), it would be very difficult, if not impossible, not to limit the submission in this way. But it creates its own illogicality. More than one FSD may be issued in respect of the same scheme, and there may be more than one instance of non-compliance with a single FSD. The suggested cap would operate in respect of each set of contribution notices in respect of the same non-compliance. It follows that the trustees could recover by virtue of the FSD/contribution notices regime more than the section 75 debt from the targets of contribution notices. Moreover, financial support may have been provided by some of the persons to whom an FSD has been issued, but on any footing the full amount of the shortfall debt can be specified in contribution notices issued to those who have not complied with the FSD, without giving credit for the financial support provided by the others.[98]The administrators place considerable emphasis on section 50(6) which provides that any sum paid in respect of a debt due by virtue of a contribution notice is to be treated as reducing the amount of any section 75 debt. The administrators submit that, if the purpose of the contribution notice regime were more generally to provide financial support for a scheme, there would be no reason to, and every reason not to, reduce automatically the section 75 debt in such circumstances.[99]As part of their response to this point, the trustees refer to the provisions applying in the contrary case, where the employer pays in whole or in part the section 75 debt. In such circumstances, there is no automatic reduction of debts due under contribution notices, but section 50(7)-(11) applies. Under those provisions, persons to whom contribution notices have been issued may apply to the Regulator for a reduction in the amount specified in the contribution notices. The Regulator is empowered, if it believes it appropriate to do so, to reduce the amount specified in each such contribution notice by an amount which it considers reasonable. Section 50(10) sets out the matters to which the Regulator must have regard, if relevant. The trustees submitted that if it was truly the case that the contribution notices were intended simply as a means of recovering a section 75 debt, there would be an automatic reduction. In my judgment, Mr Newman provided the answer to this particular point. Because contribution notices may be issued to a number of different persons in varying amounts, it would not be appropriate to have an automatic reduction of the same amount in each of them. For example, assuming there were a section 75 debt of £100 and contribution notices had been issued to A for £70 and to B for £30, it would not necessarily be appropriate that each should be reduced by £25 if the employer were to pay £25 in reduction of its section 75 debt. The existing provisions enable the Regulator to fashion the right result having regard to all relevant circumstances.[100]The difficulty for the administrators is that section 50(6), even taken with the other features of the legislation on which the administrators rely, is a slender basis on which to argue for a significant limitation, which is nowhere expressed in the legislation and which is in many respects contrary to both the express terms of the legislation and its purpose and structure. What then is the purpose of section 50(6)? The trustees and the Regulator submit that its purpose is to reduce the burden on the employer in circumstances where sums due under contribution notices are paid. They note correctly that these provisions apply not only where the employer is insolvent and in an insolvency process. The employer may still be carrying on business and the scheme may still be active. It is the circumstances which can give rise to the issue of FSDs and hence to contribution notices that provide the answer. As previously discussed, the circumstances are limited to cases where either the employer is a service company or the employer is under-resourced and connected or associated persons are over-resourced. In the first case, the employer is subject to financial strains in circumstances where it has been incurring pension liabilities in respect of persons employed effectively for the benefit of its associated or connected persons. In the second case it does not have the necessary financial resources but as at the relevant time associated or connected persons did. As it seems to me, this provides the likely explanation for the inclusion of section 50(6).[101]In their position paper, and briefly at paragraph 33 of their written submissions, the administrators advanced an argument based on the application of section 6 of the Interpretation Act 1978 to section 48(1) of the 2004 Act. Section 48(1) provides that “The sum specified by the Regulator in a contribution notice under section 47 may be either the whole or a specified part of the shortfall sum in relation to the scheme.” The suggested application of section 6 is that the reference to “a contribution notice” should be read as “a contribution notice or notices”. This, it is suggested, would have the effect of imposing an aggregate cap of the shortfall sum in respect of all contribution notices served under section 47. Section 6 applies unless the contrary intention appears. In my judgment, the contrary intention clearly appears in this context. It is common ground that section 47 provides for the issue of a single contribution notice to each target. The same contribution notice cannot be issued to two or more targets. While this is, as it seems to me, tolerably clear from section 47(2) and (3), the point is put beyond doubt by other provisions, such as section 49(1), (2), (3) and (7)-(9) and section 50(7), (9) and (11). It follows that section 48, as well as section 49(1)-(3), are directed to a single contribution notice.[102]LBHI submits, in support of the administrators’ position, that the regime for contribution notices should be construed consistently and coherently with insolvency legislation and the insolvency regime. It points out that both section 75 and the FSD/contribution notice regime are drafted on the basis that the insolvency of the employer is a likely, albeit not essential, reason or context for a section 75 debt. Equally, it may well be the case that some or all of the connected or associated persons will also be insolvent. One must, however, guard against too sweeping an assumption on this. It does not necessarily follow that every company in the same group as an insolvent employer will also be insolvent and, even if they are, other connected persons such as shareholders may not be insolvent. Nonetheless, I accept that if a particular construction of the pensions legislation was inconsistent with or undermined the insolvency regime, it would be a significant factor to take into account when considering whether the construction was correct.[103]In his written submissions Mr Arnold, for LBHI, argued that it would be contrary to the pari passu rule and the rule that contingent liabilities are valued as at the date of the insolvency if a total in excess of the section 75 debt could be recovered through enforcement of contribution notices, where the excess over the amount of the section 75 debt resulted from events, such as changes in market values, occurring after the commencement of the insolvency of the employer or target of the contribution notice. Mr Arnold did not develop this in his oral submissions.[104]I do not consider this argument to be well-founded. The estimate of the contingent liability in respect of a potential contribution notice is to be assessed as at the date of the commencement of the insolvency of the target in question, subject to amendment in the light of later events. What has to be estimated is the chance of a contribution notice being served and the sum which may be specified in it (subject to the maximum of the shortfall sum). This is in principle no different from the estimation of many contingent liabilities, for example a guarantee, subject to a maximum, of a fluctuating debt. Later events may cause the amount admitted to proof to be greater or less than an estimate made on the basis of circumstances existing as at the date of the insolvency. That being the position in relation to each target of a contribution notice, there is no warrant in insolvency law for restricting their liability to the section 75 debt of the employer. Any such restriction must therefore spring, if at all, from the pensions legislation.[105]Mr Arnold concentrated in his oral submissions on the different argument, also set out in his written submissions, that permitting recovery of an aggregate amount greater than the section 75 debt is likely to lead to greater uncertainty. It will be very difficult, if not impossible, to estimate in advance the amount of the aggregate liability and, accordingly, the liability of each target company. I do not regard this as a persuasive consideration. Clearly, the estimation of contingent liabilities arising out of the potential issue of contribution notices poses problems for administrators and liquidators. Such problems of estimation are by no means unique to these circumstances. Expert actuarial advice and engagement with the trustees and Regulator should bring a greater degree of certainty to the process of estimation. Moreover, as Mr Arnold acknowledged, significant problems of estimation of the liability of each potential target exist even if the aggregate cap put forward by the administrators and LBHI were to apply.[106]LBHI’s alternative case, introduced for the first time at the start of the hearing, is that if contribution notices can be issued under section 47 to more than one target specifying in aggregate a sum in excess of the shortfall sum, the maximum aggregate amount that may be recovered under such contribution notices is limited to the shortfall sum. Mr Arnold accepts that this is not expressly provided in the relevant sections, but he bases it on a general legal principle that creditors are not permitted to recover more than 100% of what is in substance the same debt. That being a general legal principle, it will apply unless expressly or by necessary implication excluded by the legislation.[107]It is not in doubt that this general principle exists. A creditor with the benefit of a guarantee cannot recover from the principal debtor and the guarantor more than the relevant debt. While its most common application is in relation to guaranteed debts, there is no reason why it should not apply in all cases where there is in substance the same debt. In an insolvency context, it prevents recovery of what is substantially the same debt from two estates, commonly referred to as double dipping. The creditor may lodge and maintain proofs in the insolvency of each of two or more debtors for the full amount of its debt, but it may not in aggregate recover more than that amount. It is closely related to the well-established rule against double proof against the same estate, which prevents, for example, a principal creditor and a guarantor from simultaneously proving against the estate of the principal debtor. In that context, the Court of Appeal held in Barclays Bank v TOSG Trust Fund [1984] AC 626 that it applied in all cases where there existed, as a matter of substance, the same debt: see Oliver LJ at p.636.[108]Mr Arnold submitted that the relevant provisions of the 2004 Act strongly indicated that a section 75 debt and contribution notices issued following non-compliance with an FSD are, in substance, the same debt. He relied on a number of provisions to which I have already extensively referred. First, where a section 75 debt has been certified, the maximum amount that may be specified in any contribution notice is limited to the amount of that debt. Secondly if, following certification, a section 75 debt is paid by the employer, no contribution notice can be issued under section 48(2)(a). Thirdly, when a sum is paid pursuant to a contribution notice, the amount of the relevant section 75 debt is automatically reduced by the same amount. Fourthly, in exercising its power to reduce the amount specified in contribution notices following payment of a sum in respect of a section 75 debt, there is no suggestion in section 50(10) that a relevant factor is the amount of the existing shortfall in the scheme. Nothing in that provision suggests that more than the full amount of the section 75 debt is recoverable.[109]The foundation for this alternative case is largely the same as that for the administrators’ case. It relies on demonstrating that the purpose of the legislation is to enable there to be recovered for the benefit of the scheme the amount of the outstanding section 75 debt, and no more. If that were the underlying purpose of the legislation, then it is a very short step to saying that the section 75 debt and the debts created by contribution notices are, in substance, one and the same debt. The alternative case reaches in substance the same result as the administrators’ case, but does so where the implied limitation sought to be introduced by the administrators is untenable, as a matter of statutory construction.[110]I will not set out again the reasons why I have concluded that the underlying basis of the administrators’ case is wrong. It seems to me that it follows that LBHI’s alternative case cannot succeed.[111]There are, in any event, further difficulties with this alternative case.[112]First, the question whether two claims are in substance the same debt depends on the legal substance of the claims, not on their economic substance: Re Polly Peck International plc [1996] 2 All ER 433. The statutory regimes governing the creation of section 75 debts and debts under contribution notices are quite different. A section 75 debt is automatically triggered by certain events, including insolvency. A contribution notice is a discretionary remedy, which is imposed, as a result of a failure to comply with an FSD, by the Determinations Panel or the Upper Tribunal where it is reasonable to do so and in an amount which is reasonable as regards the particular target.[113]Secondly, the power of the Regulator or other issuing authority to make liability for the same amount due under two or more contribution notices joint and several, under section 49(8)-(9), is unnecessary if the alternative case were correct. The presence of those provisions makes significant the absence of any provision that the total amount recoverable under the contribution notices cannot exceed the section 75 debt. It may be inferred from the existence of a power, but not a requirement, to make liability for the same amount joint and several that in cases where the power is not exercised the full amount of each contribution notice may be recovered. Similarly, nothing is provided about the total amount recoverable in cases where contribution notices are issued for different amounts.[114]Thirdly, the alternative case by definition applies only where there is a certified section 75 debt. But the provisions for contribution notices apply also in circumstances where the shortfall sum is determined by reference to a notional section 75 debt. If in such circumstances total recoveries under a number of different contribution notices are limited to the amount of the shortfall sum, it cannot be by reference to the principle on which Mr Arnold bases his submission. Yet there can be no principled basis for distinguishing between the cases of certified and notional section 75 debts.[115]For these reasons, I reject the alternative case put forward by LBHI.[116]My conclusion overall therefore is that I reject both of the cases put forward by the administrators and LBHI on the issue raised by paragraph 3 of the application for directions. In short, on the true construction of the relevant provisions of the 2004 Act, contribution notices may be issued under section 47 to more than one qualifying target which in aggregate specify a sum in excess of the maximum shortfall sum, as defined in section 48(2), and there may be recovered under such contribution notices an aggregate sum in excess of the shortfall sum.