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05.07.18

Court of Appeal hands down judgment in British Airways pension scheme litigation

British Airways Plc v Airways Pension Scheme Trustee Limited [2018] EWCA Civ 1533

Keith Rowley QC and Henry Day acted for the Trustee of the Airways Pension Scheme in British Airways’ appeal against the first instance decision of Mr Justice Morgan ([2017] EWHC 1191 (Ch)).

The appeal concerned whether the Scheme had been effectively amended to include a trustee power to award discretionary pension increases and whether the subsequent exercise of that power was valid.

Background

The dispute originally arose following the Government’s announcement in 2010 that it intended to use CPI instead of RPI for increasing public sector pensions. As a consequence of its public sector origins, this new practice applied to the Scheme.

In March 2011 the Scheme’s Trustees decided to use their unilateral power of amendment to amend the Scheme’s Rules by inserting a power to grant discretionary increases. In June 2013 the Trustees decided to exercise this power to grant a discretionary increase of 0.2%, being half the gap between RPI and CPI. In November 2013, following a challenge to that decision by BA as the Scheme’s sponsoring employer, the Trustees took their decision afresh and reached the same result.

BA issued proceedings in December 2013, challenging the Trustees’ decisions on a wide range of grounds.

The trial was heard between October and December 2016. Shortly before it commenced the Trustees were replaced by a corporate Trustee.

Morgan J gave judgment for the Trustee, holding that the amendment of the Scheme’s rules in March 2011 and the exercise of the discretionary increase power in November 2013 were valid and effective.

BA appealed Morgan J’s decision in two limited respects, arguing that the introduction of the discretionary increase power was beyond the scope and contrary to the purpose of the Scheme’s power of amendment, and that the discretionary increase constituted a “benevolent or compassionate” payment (such payments being prohibited by the Scheme’s objects clause).

Decision

The Court unanimously held that the “benevolent or compassionate” prohibition was intended to draw a distinction between, on the one hand, the provision of pension benefits on retirement and, on the other, purely gratuitous payments of a benevolent or compassionate kind not made by way of pension. The prohibition was not therefore infringed by the grant of a discretionary increase.

By a majority, however, the Court allowed the appeal on the basis that, in introducing the discretionary increase power, the Trustees had sought to “design” the Scheme, when their proper role was merely to “manage and administer” it, and so had acted contrary to the proper purpose of the power of amendment.

Lord Justice Patten dissented, holding that BA’s argument was based on a novel application of the proper purpose rule and concluding, after careful analysis, that the question was in substance a matter of vires, as Morgan J had held, on which issue he agreed with the judge, and that the appeal should therefore be dismissed.

Permission to appeal

Unusually, the Court of Appeal granted the Trustee permission to appeal to the Supreme Court. It also refused BA’s application for permission to cross-appeal on the “benevolent or compassionate” point

Keith and Henry were instructed with Jonathan Hilliard QC by Eversheds Sutherland (International) LLP.

The full judgment is available here.