and - (1) WEMBLEY PLC (IN LIQUIDATION) (2) MR PAUL LORBER

Transcription

1 Neutral Citation Number: [2011] EWHC 2974 (Ch) IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Claim No: HC11C00113 Royal Courts of Justice Strand London WC2A 2LL Tuesday, 25 October 2011 BEFORE: MR JUSTICE VOS BETWEEN: HR TRUSTEES LIMITED Claimant - and - (1) WEMBLEY PLC (IN LIQUIDATION) (2) MR PAUL LORBER Defendant MR OLIVER HILTON (Instructed by Messrs Clifford Chance) appeared on behalf of the Claimant MR PAUL NEWMAN QC (Instructed by Messrs Baker & McKenzie LLP) appeared on behalf of the First Defendant MR FENNER MOERAN (Instructed by Messrs Clifford Chance) appeared on behalf of the Second Defendant Approved Judgment Crown Copyright Amended under CPR on 17 th November Digital Transcript of Wordwave International, a Merrill Communications Company 165 Fleet Street, 8th Floor, London, EC4A 2DY Tel No: Fax No: Web: mlstape@merrillcorp.com (Official Shorthand Writers to the Court) Tuesday, 25 October 2011 No of Folios: 207 No of Words: 14,901

2 J U D G M E N T MR JUSTICE VOS: Introduction 1. This is a part 8 application in which the claimant trustee, HR Trustees Limited ("the claimant" or "the trustee"), has sought directions pursuant to CPR 64.2(a)(ii) concerning the validity of a scheme amendment authority ("the amendment") dated 5 July 2000 which purported to amend the rules of the Wembley 1989 Pension Scheme ("the scheme"). The amendment provided in outline that benefits accrued after 6 April 2000 would increase at the Retail Prices Index subject to a maximum of 5 per cent per annum instead of, as previously, at 5 per cent per annum. The amendment was signed by four rather than all five of the trustees. The power contained in the scheme's definitive Trust Deed dated 29 September 1994 ("the definitive deed") provided for the trustees to declare any such alteration "in writing under their hands". One of the main questions before me is whether they have done so. 2. The claimant as trustee of the scheme takes a neutral stance. The first defendant, Wembley Plc ("the employer"), which is the scheme's principal employer and is now in the process of being wound up, is represented by Mr Paul Newman QC. It contends that the amendment was validly made. It also represents the interests of a class of scheme members whose benefits were not to be affected by the amendment, namely those whose benefits ceased accruing before 6 April 2000 and those referred to as the former scheme B members (as to which see below), about whom I shall say a little more in due course. 3. The second defendant, Mr Paul Lorber ("Mr Lorber"), represents all other members of the Scheme including former scheme A members (as to which see below) whose benefits include benefits accrued after 6 April 2000 and who will have been adversely affected by the amendment if it is valid. For that reason Mr Lorber, represented by Mr Fenner Moeran of counsel, contends that the amendment was not validly made. If the amendment was ineffective the liabilities of the scheme will increase considerably and there will be an estimated excess of liabilities over assets of some million. The employer has deposited some 4.9 million in an escrow account to cover the possible deficit. 4. The amendment which is in question in this litigation was printed on Legal and General notepaper and was headed "Scheme Amendment Authority". It then provided as follows: "Wembley plc 1989 Pension Scheme "Group Policy Number G "The Trustees of the Scheme have resolved, with the agreement of the Principal Employer, to make the following alterations to the scheme and the Legal and General is hereby authorised to implement the following action with effect from 6 April 2000.

3 1) This alteration applies to all members with the exception of those who retained the old Wembley Stadium benefit formulae [former scheme B members] Pensions in payment in respect of benefits accrued after 6 April 2000 will increase at the Retail Prices Index subject to a maximum of 5 % per annum 2) This alteration applies to all members including those who retained the old Wembley Stadium benefit formulae. The revaluation to be added to a members (sic) leaving service benefit, on benefits accrued after 6 April, 2000 will be at the Retail Prices Index subject to a maximum of 5 % per annum. "There are no special terms or conditions." 5. Messrs Potter, Kelly and Dawkins and Ms Harper signed the amendment as trustees, but the fifth trustee as at 5 July 2000, Ms Bromley, did not sign it. Mr McGrath signed the amendment as Assistant Company Secretary of the employer. It is common ground that he was authorised to do so by the employer. Mr Potter, one of the trustees, was also Chief Financial Officer of the employer at the relevant time and later became Chief Executive Officer of the employer. It will be observed from the terms of the amendment that there is a reference to the exclusion of former scheme B members from the decision. There is a question about the order in which the document was signed at a meeting on 5 July 2000, but there is no evidence about that question. Nonetheless I shall return to it. 6. Two points should be noted at the outset. First, the amendment was intended to bring the provisions of the scheme as regards increases in pensions in payment into line with the statutory provisions found in section 51 of the Pensions Act 1995, which at that time required pensions to be increased annually at a rate of the lower of RPI or 5 per cent. Secondly, the second provision of the amendment concerns early leavers and is not relevant to the issue before me. It will be observed, however, that the first provision (which is in issue) excludes former scheme B members from its operation, whilst the second provision (which is not in issue) includes former scheme B members in its operation. Chronological background 7. On 20 May 1958 the Wembley Plc Pension and Assurance Scheme (the former scheme A) was established. On 31 December 1975 the Wembley Stadium 1976 Pension and Assurance Scheme (the former scheme B) was established. On 30 May 1989 the scheme was established by the employer, which was the former owner of Wembley Stadium and a track based gaming group, as the successor to former scheme A and former scheme B, which were then merged into the scheme on 1 June An interim Trust Deed took effect on 30 May The definitive Trust Deed and rules relating to the scheme were executed on 29 September Those documents included the following provisions. Rule 16(e) as unamended provided for increases in pensions as follows:

4 "A pension payable under these Rules shall (other than any guaranteed minimum pension described in the Overriding Appendix - GMP Model Rules), subject to Rule 17 and except as provided below, be increased at each anniversary of the date of its institution by 5 per cent. compound in respect of a Former Scheme A Member or any other Member (other than a Former Scheme B Member), and 3 per cent. compound in respect of a Member who is a Former Scheme B Member. For this purpose the date of its institution shall be regarded as the date on which a pension became payable to the Member under the Scheme or the date of the Member's death if earlier." 8. The power of the trustees to amend the rules of the scheme is contained at clause 16 of the definitive deed, dated 29 September 1994, as follows: "The Principal Employer may from time to time without the concurrence of the Members authorise the Trustees in writing to alter or add to the terms and provisions of the Rules and/or the trusts, powers and provisions of this Deed and any such alteration or addition may have retrospective effect. The Trustees shall forthwith declare any such alteration or addition to the Rules in writing under their hands and any such alteration or addition to this Deed by deed except that any alteration or addition to this Deed which is solely for the purpose of enabling the Scheme to satisfy any requirements of Relevant Legislation (and any variation or termination of such alteration or addition) may be under the Trustees' hands only and shall be as effective in all respects as if it had been by deed. This Deed and/or the Rules shall stand amended accordingly with effect from the date of such declaration or from such other date (whether future or past) as is stated in such declaration. In the event of the Trustees making any such alteration or addition to the Rules the Trustees shall forthwith notify or arrange for the notification of each Member affected thereby individually in writing of the effect thereof. "Provided always that no such alteration or addition shall (1) operate so as to affect in any way prejudicially (a) any pension already being paid in accordance with the Rules or this Deed at the date such alteration or addition takes effect or (b) any rights or interests which shall have accrued to each prospective beneficiary in respect of pension or other retirement benefits secured under the Scheme up to the date on which such alteration or addition takes effect unless such operation (whether retrospective or otherwise) is necessary in order to enable the Scheme to satisfy any requirements of Relevant Legislation or (2) authorise or permit, or have the effect of authorising or permitting, the payment or transfer (or any increase in the payment or transfer) to any of the Employers of any part of the Scheme Assets except where such payment or transfer (or increase in payment or transfer) would not prevent the continued approval of the Scheme under the 1988 Act or (3) create any surplus of Scheme Assets if such surplus would prevent the continued approval of the Scheme under the 1988 Act or (4) affect in any way the duration of the Trust Period except to extend it to such other period (whether limited or unlimited) as may for the time being be allowed by law." 9. Rule 1(c) provided in relation to amendment as follows:

5 "Where the Principal Employer wishes to amend these Rules in respect of an individual Member but not in respect of the membership generally then, notwithstanding anything to the contrary contained in the Trust Deed or these Rules, the Principal Employer may at its discretion, with the agreement of the Trustees and subject to the terms of the proviso to Clause 16 of the Trust Deed, by means of a letter from the Principal Employer or the Trustees or jointly as may be decided and addressed to any particular Member amend the terms and provisions of these Rules in respect of that Member, provided always that no amendment shall be made that would prejudice the approval of the Scheme under the 1988 Act. The Trustees shall furnish a copy of any such letter to the Board of Inland Revenue, if required by such Board." 10. Clause 2(b) of the deed provided as follows: "Unless a corporate trustee is the sole Trustee hereof (in which case the provisions of the Articles of Association of the corporate trustee shall prevail) the Trustees may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. All the business brought before a meeting of the Trustees shall be decided by a majority of the votes of the Trustees present and voting thereon and in the event of an equality of votes the chairman of the meeting shall have a second or casting vote (provided that a resolution in writing signed as approved by all the Trustees shall be as effectual as if it had been passed at a meeting of the Trustees and so that the same may consist of two or more documents in similar form signed by one or more of the Trustees)..." 11. Clause 3 provided as follows: "THE Trustees shall have the following special powers in addition to all ordinary powers vested in them by this Deed and by statute, viz:- (i) power to act generally by majority vote." 12. On 30 November 1999 the trustees of the scheme met. Four of the five then trustees, Messrs Potter, Kelly, Whittingham and Ms Bromley were present. Mr Dawkins, the fifth trustee, was absent. The trustees present agreed that in respect of benefits accrued on 6 April 2000 the rate of annual increase to pensions in payment and revaluation in deferment would be RPI capped at 5 per cent. The relevant minute, numbered 10.6, provided as follows: "The Trustees expressed their concern at the increase in the contribution rate and considered what alternatives existed. Following discussion they agreed to amend the overall benefit formulae by amending the level of revaluation of a member's leaving service benefit as well as reducing the annual pensions increase received on pensions when they become payable. At present both benefits increase at 5 % p.a.. "It was agreed that for leavers after April 2000, the leaving service benefit accrued to 5 April 2000 date would be increased between date of leaving and Normal Retirement Date by 5 % p.a. and the benefit accrued from 6 April

6 2000 would be increased by the Retail Prices Index (RPI) up to a maximum of 5 % p.a.. For active scheme members as at 6 April 2000, the pension earned to that date would retain the current 5 % p.a. pension increase when in payment whilst all future pension earned after the above date would attract increases in payment at RPI to a maximum of 5 % p.a.. The Trustees noted that this would reduce the ongoing contribution rate by around 2 % on both the ongoing and MFR bases." It will be observed that there is no reference to the exclusion of former scheme B members from the decision to reduce increases to the lower of RPI or 5 per cent. 13. On 8 December 1999 the board of the employer discussed the proposed reduction in pensions in payment. The minute of that discussion reads as follows: "In the light of the projected increase in the funding rate of the Final Salary Pension Scheme measures were being taken to reduce it. John Fooks recommended closing the Scheme to new entrants and setting up a money purchase scheme and changing the 5 % increase to pensions in payment to the lower of 5 % pa or the rate of inflation. Peter Harris recommended challenging the actuary's assumptions." Again it will be observed that there is no reference to the exclusion of former scheme B members from any recommendation. 14. On 18 January 2000 the trustees (then Messrs Potter, Dawkins, Kelly, Whittingham and Ms Bromley) all met and unanimously agreed to alter of scheme rules so that in respect of benefits accrued from 6 April 2000 the rate of annual increase to pensions in payment and revaluation in deferment would be RPI capped at 5 per cent. The relevant minute provided as follows: "5.2. The Trustees discussed at length the details of the Report on the future of the 1989 Pension Scheme submitted to them prior to the meeting. The Trustees agreed to the following changes: (a) that increases to pensions in payment in respect of benefit earned after 6 April 2000 would be at a level of Retail Prices Index subject to a maximum of 5 % p.a., (b) that the revaluation to be added to a members (sic) leaving service benefit on that part earned after 6 April 2000, would be at a level of Retail Prices Index subject to a maximum of 5 % p.a.... "5.3. The Secretary agreed to produce the necessary documentation to reflect the above actions." 15. Mr Cadman was the Secretary to the trustees and he was employed, as I understand it, by Legal and General. It was he, as I have said, who agreed to produce the necessary documentation to reflect the decision that the trustees had taken. It will be observed that the indication that Mr Cadman would produce the necessary documentation to reflect the above actions infers that the trustees thought that they had taken an action or, more properly, a decision. Again it will be observed that there is no reference in the minute to the exclusion of former scheme B members from the decision thereby

7 recorded. 16. At the end of February 2000 Mr Whittingham retired as a trustee and was replaced by Ms Harper. On 6 April 2000 the effective date of the changes to the revaluation and increases in pension in payment came about. On 5 July 2000 there was a further meeting of the trustees, attended this time by Messrs Potter, Kelly and Dawkins and Ms Harper, but not attended by Ms Bromley. The amendment was signed by the four trustees present, as I have already indicated. I have already read out the terms of the amendment. It is common ground however that Ms Bromley, the missing trustee, was not asked to sign the amendment. She in her evidence considers that this was an administrative oversight. It is clear and common ground also that she would be prepared to sign the amendment today if asked to do so, although she is no longer a trustee. The minute of that meeting relevantly records as follows: "2.1. Apologies were received from Diana Bromley... "4.1. The Secretary provided the Trustees with a draft announcement to members regarding the changes to pension increases in payment and in deferment. It was agreed that this would be issued to the membership by Mike McGrath." 17. The minutes were signed by Mr Potter, Ms Harper and Mr Kelly, but not by Mr Dawkins or Ms Bromley. Later in July 2000 there was a trustees' announcement to members of the scheme, headed "Trustees' Announcement to Members". It provided as follows: "As you know, inflation has been at a consistently low level for a number of years and looks likely to remain low for a number of years to come. In the current climate it therefore seems appropriate to consider the increases that we pay to pensions when you retire. At present all of your pension, when it is paid (in excess of the Guaranteed Minimum Pension) will increase annually by 5%. "Bearing in mind the consistently low level of inflation together with the present Government's intention to retain the low level, the Trustees have resolved, with effect from 6 April 2000, to reduce the level of annual increases when your pension becomes payable. "Increases to pensions in payment for benefit accrued after 6 April 2000 will be in line with the Retail Prices Index (RPI) but subject to an upper limit of 5 % p.a. The pension in excess of the GMP earned prior to that date will continue to increase in payment by 5 % p.a. "In the same way, if you were to leave service, the benefits in excess of the GMP accrued would increase from date of leaving until retirement date at 5 % p.a. Again, this looks high in a period of low inflation. Consequently, all benefit earned after 6 April 2000 will now increase in line with RPI but subject to a maximum of 5 % p.a.

8 "Should you have any questions regarding these changes, please contact: Mike McGrath..." 18. According to Mr McGrath, the notification was sent out to "all relevant members" with their pay slips and was displayed at company premises on notice boards. It will be observed once again that there was no reference to the exclusion of former scheme B members from the decision. 19. On 21 March 2003 Mr Lorber was appointed as a trustee of the scheme. On 25 May 2005 the claimant was appointed as the trustee of the scheme. On 31 August 2005 the employer went into members' voluntary winding up. Messrs Spratt and O'Connell (who was later replaced by Mr Milsom) of KPMG were appointed as liquidators. The employer and the then trustees entered into the Deed of Compromise and Escrow, to which I have already referred, whereby 4.9 million was to be deposited. On 20 January 2011 the Claim Form was served. The substantive relief claimed in the Claim Form was as follows: "The Claimant seeks the determination of the following questions and/or the following relief pursuant to Part 64 of the Civil Procedure Rules and/or the inherent jurisdiction of the Court: (1) Whether or not, on the true construction of the Scheme's definitive trust deed dated 29 September 1994 and in the events that have happened, a document titled 'Scheme Amendment Authority' signed by only four of the then five trustees of the Scheme dated 5 July 2000 was a sufficient and effective declaration in writing 'under the hands' of the trustees so as to effect (subject to question (2)) a valid amendment to the rules of the Scheme. (2) If the answer to question (4)(1) is yes, whether or not the amendment, in so far as it purports to operate retrospectively from 6 April 2000, affects prejudicially pension rights of members which had accrued up to the date on which the amendment took effect and is thereby invalid; (3) If the answer to question (4)(2) is yes, whether the invalid part can and should be severed from the valid part so as to operate prospectively from 5 July 2000 only." 20. On 28 January 2011 Master Teverson made a prospective costs order in favour of the claimant trustees and the second defendant on the grounds that the claim is likely to fall within the first category of cases set out in In re Buckton [1907] 2 Ch 406 at 414, and also made appropriate representation orders in respect of the first and second defendants. The four requirements under clause It is common ground that the provisions of clause 16 comprise four important requirements for an alteration of the rules to be effective. First, the principal employer must:

9 "Authorise the Trustees in writing to alter or add to the terms and provisions of the Rules..." I shall refer to this requirement as the "authorisation requirement". Secondly, the trustees: "Shall forthwith declare any such alteration or addition to the Rules in writing under their hands." I shall refer to this requirement as the declaration requirement. Thirdly, the trustees: "Shall forthwith notify or arrange for the notification of each Member affected thereby individually in writing of the effect thereof." I shall refer to this third requirement as the "notification requirement". Mr Lorber's contention here is that the notification requirement was not complied with because the notification did not mention the exclusion of the former scheme B members from the amendment. Fourthly, the amendment must not breach the provisos, including in particular that no amendment should: "Operate so as to affect in any way prejudicially... any rights or interests which shall have accrued to each prospective beneficiary in respect of pension or other retirement benefits secured under the Scheme up to the date on which such alteration or addition takes effect." I shall refer to this fourth requirement as the non-prejudice requirement. It is however common ground that, provided the amendment only takes effect from 5 July 2000, when it was signed, rather than from 5 April 2000, on which date it purported to take effect, the non-prejudice requirement is not breached. I will not therefore need to say any more about this question. Main issues 22. Against the above background it seems to me that the main issues that I need to determine are as follows:- (1) Whether on a true construction of the definitive deed the declaration requirement is either (a) a non-substantive or incidental provision which is not a requirement of a valid amendment to the rules, or (b) a non-discretionary provision requiring the trustees to effect a declaration if authorised by the employer, or (c) a discretionary provision allowing the trustees to effect a declaration if they choose to do so. If the answer is (a) then the amendment is obviously valid as it is common ground that the amendment was duly authorised. (2) Whether, if the answer is (b) and the declaration requirement is a non-discretionary provision requiring the trustees to effect a declaration if authorised by the employer, a valid declaration has been effected even though not signed by the fifth trustee. (3) Whether, if the declaration requirement is a discretionary provision, (a) the trustees have exercised their discretion to make the amendment, and if so when, and (b) a valid declaration has been effected even though not signed by the fifth trustee. (4) If the declaration requirement has not been satisfied, can the court cure the defect by the application of the maxim that equity looks on matters done which ought to be done

10 or in some other way? (5) Whether the validity of the amendment is vitiated by the order in which the authority requirement and the declaration requirement are satisfied? (6) Whether the validity of the amendment is vitiated by the failure of the notification to mention the exclusion of former scheme B members from the amendment? Principles of construction 23. The principles of construction of pension schemes were common ground between the parties. It is nonetheless useful to set out some short passages from two of the most important recent cases. In National Grid Company Plc v. Mayes [2001] 1 WLR 864 Lord Hoffmann said the following at paragraph 57: "More important than these linguistic points, as it seems to me, are the practical consequences of insisting that the arrangements should be made by amendment. The operation of the pension scheme should not be encumbered by unnecessary technicalities. On the other hand, if the amendment procedure provides some important safeguards for the members or the trustees, that might be a good reason to construe the scheme as requiring the employer to adopt it." 24. In Stena Line Limited v. Merchant Navy Ratings Pension Fund [2011] EWCA Civ 543 Arden LJ (with whom Toulson and Rimer LJJ agreed) said this at paragraph 29 to 30: "The general principles of interpretation are now very well established and were common ground before the judge and on this appeal. There is no doubt that they apply to pension schemes. Certain additional points can be made in the context of their application to pension schemes and these are discussed by Warren J in his judgment in The PNPF Trust Company Limited v Taylor [2010] EWHC 1573 Ch. The judge was content to adopt, at the invitation of the parties, the discussion by Warren J. I too have found that a helpful discussion and propose to build on it, particularly using the three-part division of the subject used by Warren J, namely the general principles in their application to pension schemes, the case of Hole v Garnsey and then the recent case of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, though I propose to reverse the order of the last two parts. "In dealing with the general principles in their application to pension schemes, Warren J in turn adopted points which I had made in British Airways Pension Trustee Ltd v British Airways Plc [2002] EWCA Civ 672: "'The interpretation of pension schemes "'26. There have been several reported cases about the interpretation of provisions of pension schemes in recent years. There are no special rules of construction but pension schemes have certain characteristics which tend to differentiate them from other analogous instruments. I mention some of those characteristics in the following paragraphs. "'27. First, members of a scheme are not volunteers: the benefits which they receive under the scheme are part of the remuneration for their

11 services and this is so whether the scheme is contributory or non-contributory. This means that they are in a different position in some respects from beneficiaries of a private trust. Moreover, the relationship of members to the employer must be seen as running in parallel with their employment relationship. This factor, too, can in appropriate circumstances have an effect on the interpretation of the scheme. "'28. Second, a pension scheme should be construed so as to give a reasonable and practical effect to the scheme. The administration of a pension fund is a complex matter and it seems to me that it would be crying for the moon to expect the draftsman to have legislated exhaustively for every eventuality. As Millett J said in Re Courage Group Pension Schemes [1987] 1 WLR 495 at 505: "'"[its] provisions should wherever possible be construed so as to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life."'" 25. In other words, it is necessary to test competing permissible constructions of the pension scheme against the consequences they produce in practice. Technicality is to be avoided. If the consequences are impractical or over restrictive or technical in practice, that is an indication that some other interpretation is the appropriate one. Thus in the National Grid case, to which I refer below, where there was a possible choice of constructions, Lord Hoffmann held that the correct choice depended: "... upon the language of the scheme and the practical consequences of choosing one construction rather than the other..." The BESTrustees case 26. Both parties have relied on the decision of Neuberger J in BESTrustees Plc v. Stuart and Others [2001] OPLR 341. In that case the court was considering a power that was to all intents and purposes identical to that in issue before me. The differences are immaterial to the issues I have sought to set out above. It is important that I set out the details of the BESTrustees case in a little detail because Mr Newman asks me to say that it was wrongly decided. 27. The issue in BESTrustees was whether a scheme had been validly amended so as to close what is known colloquially as the "Barber window" so as to harmonise retiring dates for men and women. In that case, the employer and the trustee were the same entity. There was an authorisation and an announcement, but no declaration. The authorisation is set out at page 346A in the report and reads as follows: "'The trustees of the Scheme have resolved with the agreement of the principal employer to make the following alterations to the Scheme, and the Legal and General is hereby authorised to implement the alterations

12 with effect from 6 April '" 28. The announcement is set out at page 346, D to F, in the report and was as follows: "'Dear Member, Equalisation of benefits. The... Scheme, like most other UK company schemes, currently fixes the normal retirement ages at the date the State pension becomes payable, 65 for men and 60 for women. It is now clear that this difference is in breach of European law... that company pension schemes must provide equal benefits for men and women. The Company is therefore required to make certain changes to the Scheme, and these are set out below. The formal Scheme rules are being amended with effect from 6 April 1994 to give effect to the changes. Although this requirement is restricted to benefits earned in respect of pensionable service after 17 May 1990, the Company have decided not to split your benefits approved before and after 17 May " 29. Neuberger J held that the authorisation satisfied the authorisation requirement, at pages 348F to 349B, as follows: "So far as the first requirement, the principal employer authorising the trustee, is concerned, it seems to me that it has an air of unreality about it where, as here, the principal employer and the trustees are identical, namely, the Company. As Miss Rich says, one can scarcely authorise oneself to do something as a matter of normal language. One simply does it. That accords with common sense. Nonetheless, it does seem to me that there must be some document recording the fact that the principal employer, in this case the Company, considered the proposed amendments and in some way authorised them, in its capacity as principal employer. The mere fact that the trustees and principal employer were the same person as at April 1994 does not alter the fact that there should be some document recording the approval or authority of the Company as principal employer. "In this connection, I bear in mind that a pension scheme is likely to continue for a substantial period of time and that those most affected by them and entitled to protection from trustees, the employer and indeed the court, will be people who are comparatively poor, who will not have easy access to expert legal advice, and who will not know what has been going on in relation to the management of the Scheme. In those circumstances, it seems to me that protection of the beneficiaries requires the court to be very careful before it permits a departure from the plain wording and plain requirements of the trust deed. Further, it is not as if this was a case where at the date of the trust deed there was a difference of identity between the trustees and the employer: they were the same person even then. Accordingly, I think the court should be particularly careful before effectively overriding the requirement that there is some sort of written record which can be said to amount to an authority within the meaning of clause 16 of the definitive deed. "Having said that, it appears to me that the document of 19 April does satisfy the requirement. It was signed by the company secretary expressly for and on

13 behalf of the principal employer, and it referred to the fact that the trustees have resolved to make the alterations 'with the agreement of the principal employer'. Although it is true that that record post-dated the apparent resolution referred to, it appears to me to have preceded the actual implementation of the decision, if there was such an implementation. The fact that it referred to the agreement, rather than the authorisation of the principal employer seems to me to be playing with words rather than going to the substance of the matter. Accordingly, I consider that the first requirement identified by Miss Rich is satisfied." 30. Neuberger J held that the announcement could not satisfy the declaration requirement because its terms properly understood were prospective rather than actually constituting a declaration. He said this in that regard at page 349, E to G: "The question as to whether the announcement is a sufficient declaration and amounts to a document under which the trustees 'forthwith declare' any alteration 'in writing under their hands' raises greater difficulty. It seems to me important to bear in mind, when considering this issue, that the announcement was sent to members of the Scheme, some of whom were receiving pensions, and most of whom were deferred members of the Scheme. They were individuals who were not legally qualified, and it is through their eyes, to my mind, that the document should be read. Although I do not find the point easy, I have come to the conclusion that Miss Lacey is right when she contends that such a person reading the announcement would not have thought it was a declaration as contemplated by clause 16 of the definitive Deed. In the end, it seems to me that the argument centres around the sentence: 'The formal Scheme rules are being amended with effect from 6 April 1994 to give effect to the changes.' As a matter of narrow syntax, the use of the present tense could be said to be consistent with the view that the Scheme rules are being amended by this very document. Indeed, to a foreigner unfamiliar with the different nuances of the present tense in the English language, that could well be how it might read. But it seems to me that a normal person with English as his first language, even a lawyer, reading the announcement, would have thought that it meant that, around the time this letter was being sent, the trustees were taking steps to amend the rules under a separate document. To a lawyer as well as to a normal lay person, I think that, rather than 'the formal Scheme rules are being amended', one would expect phraseology such as 'the formal scheme rules are hereby amended', if the announcement was intended to be the declaration itself." 31. But one important ratio of the decision was in Neuberger J's holding that the declaration requirement was discretionary, in other words, that on a true construction of the amendment provision, in that case as in this, the trustees had a discretion as to whether to amend the rule in the way authorised. Neuberger J said this at pages 349H to 350E: "However, Miss Rich argues, one should not be too strict about a further requirement of a separate declaration, because the terms of clause 16 effectively require the trustees to make the amendment and forthwith to declare it, if and when they are so authorised by the principal employer. It

14 appears to me that it cannot have been intended that the trustees would have no power to refuse to do what the principal employer required, even if they thought it was unlawful or inappropriate. However, even assuming Miss Rich's argument is correct, the mere fact that they were obliged to put into effect what the principal employer authorised them to do does not alter the fact that they still have to make the appropriate declaration before the alteration can be effective. "I refer back to the point to which I have already made reference, namely, that bearing in mind that this is a trust, and bearing in mind the likely long life of this trust and the ignorance as to what has been going on on the part of the beneficiaries, it seems to me that the court should not be too ready to waive a requirement of written documentation when the Scheme, and the trust deed under which it is set up, specifically require it. Of course, in this sort of case one often finds oneself treading the somewhat blurred line between requiring the terms of a particular deed to be complied with, while not being too pedantic and exacting in one's requirements. Miss Rich has put up a powerful argument as to why my analysis is too pedantic, but to my mind, as there is no document which can fairly be called a declaration satisfying the provisions of clause 16 of the definitive deed, I think that the announcement was ineffective because no declaration was made..." (emphasis added). Accordingly Neuberger J held that the trustees had not made the necessary declaration after exercising their discretion to do so. Trustee Solutions v. Dubery 32. In Trustee Solutions v. Dubery [2007] 1 All ER 308 Lewison J (whose decision was partly overturned on appeal but not on the relevant point) explained at paragraph 34 the reasons why technicalities need to be complied with as follows: "I do not regard these observations as suggesting that the court has power to sanction any departure from the requirements of the deed as properly construed. An avoidance of pedantry, and the need to protect beneficiaries may well be powerful factors in choosing between rival constructions; but once the requirements of a valid means of alteration of the rules has been determined as a matter of construction, either a document satisfies those requirements or it does not. Nor do I think that Neuberger J can have meant that the court had power to waive the requirements of the deed as properly construed. It is always open to the parties to a contract to waive one of its requirements, but that is a matter for them; not for the court... "Is there any reason to construe rule 38 otherwise than in accordance with ordinary usage? In my judgment there is not. Elsewhere in the rules, the draftsman has used the expression 'notice in writing' without the additional requirement of writing 'under the hand' of a particular person. Indeed the phrase 'notice in writing' appears in the concluding part of rule 38 itself. One would naturally expect the two different phrases to have different meanings. It is also the case that rule 38 refers to the 'formal variation' of the rules; although it is fair to say that, depending on how the rule is punctuated, that phrase could be restricted to amendment by deed. I do not accept Miss Rich's submission

15 that there is no rational basis for requiring a signature as a substantive requirement of a document amending the rules. As it seems to me there are a number of possible reasons (each of which I would regard as being at least rational): (i) as a means of definitively authenticating documents amending the rules; (ii) as a means of preserving evidence of amendments long after trustees have ceased to hold office; (iii) as a means of reminding signatories of the importance of the decisions they are making; (iv) as a means of ensuring that the trustees act and are seen to act unanimously; and (v) as a means of protecting the beneficiaries under the trust." The facts in that case were however rather different in that the memorandum and the announcement relied upon as the 'writing effected under hand by the trustees' were both unsigned. With that introduction I turn to the issues. Issue 1: the question of construction 33. Mr Newman submitted that clause 16 of the definitive Trust Deed could be construed in three possible ways: First, as a non-substantive or incidental provision which forms no part of the requirements of a valid amendment to the rules; Secondly, as a non-discretionary provision requiring the trustees to effect a declaration; Thirdly, as a discretionary provision allowing the trustees to effect a declaration if they chose to do so. Mr Newman contends for one or other of the first two constructions and Mr Moeran contends for the third. 34. Mr Newman's argument seems at first sight compelling. He drew attention to the distinction between the words "may" in the first sentence of clause 16 concerning authorisation and "shall" in the second sentence concerning the trustees' declaration. The words, he said, gave the trustees no discretion and gave rise only to a claim for damages for breach, but had no effect on the validity of an amendment once authorised. He relied on the decision of Lightman J in Betafence Limited v. Veys [2006] PLR 137 where he dealt with the effect of the absence of a valid notification. The rule in question in that case read: "'The [Trustees] may, with the consent of the Principal Employer, from time to time amend all or any of the provisions of the Rules provided that no amendment shall be made so as to affect prejudicially the benefit secured in respect of any Member up to the date of the amendment (except... if the Member has consented to the amendment). The Administrator shall notify in writing each Member of any amendment which affects the benefit entitlement in respect of him under the Scheme.'" 35. Lightman J said this at paragraphs 66 to 67 as follows: "The first issue is whether the 1993 Amendment is invalidated by the failure of the Trustees to notify the members of its making. The Trustees were under a duty under Rule 23 of the 1988 Rules to notify beneficiaries of the 1993 Amendment, because according to its terms it affected their entitlement: it conditioned their right to retire between the ages of 60 and 65 without

16 deduction upon obtaining the consent of the Employer. "There are two separate questions. The first is one of fact whether the Trustees complied with the obligation of notification. The obligation was clearly and unequivocally to notify the members of the amendment. Whilst one of the booklets notified new entrants of their rights under the 1993 Rules, I do not think that the booklet adequately notified existing members of the 1993 Amendment to their rights and (quite reasonably) the Beneficiaries where not so alerted to the change. But the second is one of law whether the failure to notify in any way invalidated the 1993 Amendment. In my judgment there is no basis for holding that the breach of duty by the Trustees in failing to notify in any way invalidated the 1993 Amendment. Neither the language of Rule 23 nor any rule of law lends any support to any argument in favour of invalidation. There may be a failure to notify members (or some of them) for any of a variety of reasons. The amendment may be for the member's advantage or disadvantage. The accident of a failure of notification cannot prejudice the legal effect of the amendment. What it might do is afford to members who are able show that they have been prejudiced by the failure to communicate, the possible basis for a claim for compensation against the Trustees." 36. It seems to me that Mr Newman's first point, namely that no declaration was needed at all, runs entirely contrary to the whole thrust of the clause, which makes it clear that the amendments are only to take effect from the date of such declaration. The fact that other earlier dates are possible does not help Mr Newman because those dates are only such as are "stated in such a direction". Lightman J's dictum in connection with announcements did not help either because announcements succeed the making of the amendment, whereas the declaration requirement is an essential step required before any amendment is made at all. Mr Newman referred to the words "such alteration" in the second sentence of clause 16 as meaning that the alteration was already effected by the authorisation or that the words referred to such authorisation "as may have been authorised", indicating it had already been done. I do not think that is the case. The key to the construction, as Mr Moeran pointed out, is the word "authorised" in the first sentence, which he said connoted just that, namely that the trustees are permitted to do something, not that it is done simply by the authorisation. 37. Mr Newman's response to this point was threefold. He said, first, that the word "authorise" does not necessarily carry with it a discretion. It can bear a mandatory meaning, as is clear from the seventh definition in the Oxford English Dictionary: "To give legal or formal warrant to (a person) to do something." Secondly, he said it is wrong to construe the terms of a relevant power (that in the second sentence of clause 16) by reference to the terms of a different power (that in the first sentence). "Authorisation" in clause 16, says Mr Newman, is exclusively directed as what the employer can do, but we are concerned with the question of the trustees' powers in the second sentence. Thirdly, Mr Newman submits that, even if Mr Moeran is right that "shall" can bear a permissive as well as a mandatory meaning and even if "authorise" can have both meanings referred to above, the word "may" in the first sentence must be construed as having a different meaning from the word "shall" in the second sentence. So, he says, "shall" must be mandatory and "may" must be permissive.

17 38. None of these ingenious arguments, in my judgment, avails Mr Newman. First, the Oxford English Dictionary makes clear that "authorise" can indeed simply imply a discretion in the person authorised. Secondly, the clause must be read as a whole and not be cut and diced into its constituent parts or construed in watertight compartments. Thirdly, it seems to me that the fact that one word has one meaning does not lead inexorably to the conclusion that another word has a different meaning. The words must be given their most natural and sensible meaning within the four corners of the document, and that is what I have tried to do. 39. It seems to me obvious that the authorisation sentence gives the trustees the power to make amendments within the particular compass of the authorisation. Thus when one comes to the second sentence, that is what it must be assumed will have happened. At that point the trustees are indeed enjoined by the word "shall" to declare "any such alteration"... under their hands. The "any such alteration" clearly implies that it is any such alteration as they shall so declare within the terms of the authorisation. The words "any such alteration" do not relate back precisely to what is authorised but to what is within the scope of the authorisation. I have no doubt therefore that the need for a declaration, discretionary or not, is an essential part of the machinery of clause 16. That means that Mr Newman's first construction is wrong. 40. The second point, namely whether the declaration is discretionary or not, was, I thought initially, rather more difficult. Mr Newman drew attention here to the distinction between a trust power and a mere power. He said that this was a trust power where the trustees had to exercise it, not a mere power which comprised (a) an exercise of their discretion, followed by (b) the exercise of the power. He referred me to Goulding J's decision in In re Locker's Settlement [1977] 1 WLR 1323 and Park J's decision in Breadner v. Granville-Grossman [2001] Ch 523. The power in Locker was as follows: "'... the trustees shall... pay divide or apply the income of the trust fund to or between or for the maintenance support education or benefit of all or any one or more to the exclusion of the other or others of the beneficiaries as the trustees shall in their absolute discretion determine.'" 41. In respect of that power Goulding J said this at pages 1325 to 1326: "Paying too deferential a respect to the settlor's subsequent wishes, the trustees omitted to distribute income until It then seems to have become apparent to them that they might be failing to carry out their trust. They have since dealt in the purported exercise of their discretion with the trust income which has arisen since April 5, But they retain a substantial fund representing income of the period from December 3, 1965, to April 5, This application is brought to decide how it ought to be dealt with. The trustees themselves would like to exercise their own discretion over the distribution of the fund if they are not too late. "It is common ground that it was the duty of the trustees to distribute the trust income within a reasonable time after it came into their hands... "From that basis let me first express my own views as a matter of elementary principle and then see how far they can stand in the face of reported

18 authorities. A court of equity, where trustees have failed to discharge their duty of prompt discretionary distribution of income, is concerned to make them as owners of the trust assets at law dispose of them in accordance with the requirements of conscience, that is, to give benefits to the cestuis que trust in accordance with the confidence that the settlor reposed in them, the trustees. In a case such as the present, where the trustees desire to repair their breach of duty, and to make restitution by doing late what they ought to have done early, and where they are in no way disabled from doing so, the court should, in my judgment, permit and encourage them to take that course. A tardy distribution at the discretion of the trustees is, after all, nearer to prompt distribution at the discretion of the trustees, which is what the settlor intended, than tardy distribution by the trustees at the discretion of someone else. There are, no doubt, cases where a manifestation of obstinacy or bias on the part of the trustees, or of hostility and suspicion... on the part of the potential cestuis que trust, or some other circumstance, must make such a solution of the problem inadvisable. The court may readily listen to the misgivings of potential beneficiaries who have been unable to get the trustees to exercise their discretion after repeated requests and are hoping themselves, if they have the locus standi to do so, to invoke the court's jurisdiction. The other solutions recommended by Lord Wilberforce are then available to the court. There is however no evidence of any disqualifying circumstances in the affidavits before me today, and it is not suggested that the trustees, if permitted to do so, will exercise anything other than a proper discretion..." 42. In Breadner, Park J said this about the distinction between trust powers and mere powers at paragraphs 50 to 52: "It is trite law that there is a distinction between two kinds of dispositive discretion which may be vested in trustees. There are discretions which the trustees have a duty to exercise (sometimes called 'trust powers') and discretions which the trustees may exercise but have no duty to exercise (sometimes called 'mere powers'). The distinction is most familiar in the context of discretions to distribute income. In cases of trust powers the trustees are bound to distribute the income, but have a discretion as to how it should be divided between the beneficiaries. In cases of mere powers the trustees have two discretions: first, a discretion whether to distribute the income or not; and second, if they decide that they will exercise the first discretion, a further discretion as to how to divide the income between the beneficiaries. In the latter kind of case there will usually be a default trust which deals with the income if the trustees do not exercise their discretion to distribute it. Typically the default trust will provide for the undistributed income to be accumulated or to be paid as of right to a beneficiary whose interest in it is vested but defeasible by the trustees exercising their discretion to distribute... "Sometimes the distinction does not matter, but there is an important difference between the two kinds of case if the trustees do not exercise the discretion to distribute income within the normal time for exercising it. That time is usually 'a reasonable time'. If there is a trust power and, although the trustees are required to exercise it within a reasonable time, they do not do so,