The Court of Appeal has allowed an employer (“Britvic”) appeal, favouring their interpretation of a rule regarding DB increases from the Britvic Pension Plan (“BPP”).
The BPP had two sections, a staff section and an executive section, which contained (essentially) the same pension increase rule. This rule had been imported from the predecessor scheme from which staff (but not executive) members had transferred.
The relevant rule C.10(2) (drafted in 2003, and subsequently consolidated, with statutory changes made over the years as appropriate) stated that increases were to be made in line with RPI, subject to a cap of 2.5% or 5% (depending on the time period),”or any other rate decided by the principal employer“. (The former executive scheme had required increases by RPI during the year ending the previous 31 May, capped at 5%.)
The main issue in this appeal was “beguilingly simple”: whether the words “or any other rate” meant “any higher rate” or “any other rate, whether higher or lower”. The High Court judge, HH Judge Hodge QC had decided in favour of the former interpretation. Britvic had appealed. The trustee held a neutral position.
In 2003, limited price indexation (“LPI”) legislation required pension attributable to service from 6 April 1997 to be increased either:
In 2020, the High Court had rejected Britvic’s interpretation of the increases rule, finding that the employer’s interpretation – that it was entitled to choose a higher or lower rate – was “excessively literal”. It held that the wording allowed the employer to substitute only a rate that was higher than would otherwise apply.
The “better interpretation”, in accordance with the principles of construction applicable to pension schemes (following Barnardo’s and other cases), was that the phrase “any other rate” created a “two-stage mechanism”: RPI was to be applied as the default unless the employer exercised its discretion and substituted a higher rate. The court held that this conclusion was supported by the legislation and admissible documentary background evidence.
HHJ Hodge argued that the drafter of Rule C.10(2) would have had statutory requirements in mind and would have wanted to create a provision that complied with s.51(3), requiring increases of at least the “relevant percentage”. This background evidence included a benefit summary sent to prospective members of the BPP in 2002 that had stated that benefits would replicate those of the predecessor plans and which HHJ Hodge argued that members had relied on when consenting to the transfer of their benefits to the BPP.
Court of Appeal
Sir Geoffrey Vos, the Master of the Rolls, agreed that allowing Britvic a discretion limited to increasing the rate would be more consistent “with the admissible factual matrix and the legislative background”. However, he held that the approach indicated by case law including Barnardo’s was clear: “in construing a pension scheme deed, one starts with the language used and identifies its possible meaning or meanings by reference to the admissible context, adopting a unitary process to ascertain what a reasonable person with all the background knowledge reasonably available to the parties at the time would have understood the parties to have meant”. If, however, the parties had used unambiguous language, the court must apply it.
In this case, the drafter had used the unambiguous words “or any other rate”, which did “not naturally mean “or any higher rate”. The scope for importing a limitation on the words in this case are, therefore, rather limited, despite the obvious advantages of doing so.”
He was not able to find that there had been a clear mistake on the face of Rule C.10(2). and, whist reading in the word “higher” might be a desirable alteration, “it is very far from the only possible redrafting that would cure the mistake just as well”.
Lord Justices Coulson and Nugee gave concurring judgments with additional explanations of the reasons for their decisions.
Other grounds of appeal
Britvic also succeeded in other areas, including the Court of Appeal finding that the rule could be applied for a period of more than one year, and that the rate Britvic chose could include 0%. The findings should also be read into the rule for increases to deferred pensions.
As ever with such cases, the decision is very specific to the precise wording of the rule in question, and the “factual matrix” behind it. It does, however, offer further consideration and detail on how the courts will look at issues of construction and interpretation, and provides a useful example of where the wording means exactly what it says on the tin.