High Court approves settlement of BA pension scheme litigation

Airways Pension Scheme Trustee Ltd v (1) Fielder (2) British Airways plc [2019] EWHC 3032 (Ch) and [2019] EWHC [3027] (Ch)

The long-running litigation between British Airways and the trustee of one of its pension schemes has been brought to an end with the approval by Mr Justice Zacaroli of the trustee’s decision to settle its appeal to the Supreme Court.

Henry Day, led by Jonathan Hilliard QC, acted for the trustee on the application.

Background

The dispute arose following the Government’s announcement in 2010 that it intended to use CPI instead of RPI for increasing public sector pensions under Pensions Increase (Review) Orders (“PIRO”). Due to its public sector origins, this new practice applied to the Airways Pension Scheme.

In 2011 the Scheme’s then trustees decided to use their unilateral power of amendment to amend the Scheme’s rules by inserting a power to grant discretionary pension increases. In 2013 the trustees exercised this power to grant an increase of 0.2%, being half the then gap between RPI and CPI.

BA issued proceedings in December 2013, challenging the trustees’ decisions on a wide range of grounds. Following a seven-week trial in 2016, those challenges were rejected by Mr Justice Morgan (British Airways plc v Airways Pension Scheme Trustee Ltd [2017] EWHC 1191 (Ch) and [2017] 5 WLUK 603).

BA appealed to the Court of Appeal, which in July 2018 held by a majority (Lewison and Peter Jackson LJJ, Patten LJ dissenting) that the 2011 decision was invalid because it was a use of the Scheme’s power of amendment for an improper purpose (British Airways plc v Airways Pension Scheme Trustee Ltd [2018] EWCA Civ 1533). The 2013 decision was therefore also held to be invalid. Unusually, the Court of Appeal granted the trustee permission to appeal to the Supreme Court.

In January 2019 Mr Justice Arnold granted the trustee Beddoe relief to pursue the Supreme Court appeal and an indemnity from Scheme funds in respect of its costs, holding that there is no inflexible rule against a trustee obtaining Beddoe relief for an appeal, the question for the court instead being whether the trustee would be acting in the interests of the trust as a whole by appealing (Airways Pension Scheme Trustee Ltd v Fielder [2019] EWHC 29 (Ch)).

 

Approval of settlement

In April 2019 BA and the trustee entered into a settlement under which (among other things) the trustee agreed to withdraw its appeal, and to relieve BA of its obligation to pay contributions into the Scheme (unless a deficit arises assuming PIRO increases), in exchange for the grant of certain guaranteed pension increases and a protocol for the payment of future discretionary increases out of Scheme surplus. The trustee then applied for court approval of its decision to settle.

Zacaroli J held that the test that the court had to apply in determining the application was whether the trustee’s decision was one that a reasonable body of trustees could reach (as in the second category of case identified in Public Trustee v Cooper [2001] WTLR 901).

Contrary to the submissions made on behalf of Mr Fielder, the Scheme’s representative beneficiary, the fact that the trustee had previously obtained Beddoe relief did not mean that, in order to maintain consistency, the court had to reach its own determination as to whether the settlement as a whole was now what was in the best interests of the Scheme.

Applying the rationality test, the judge was satisfied that the processes followed by the trustee in deciding to enter into the settlement were consistent with those of a rational trustee and that the settlement was one which a reasonable trustee could enter into. Approval was therefore granted.

The judgment on the applicable test is available here.

The judgment setting out the judge’s reasons for granting approval is available here.

Henry was instructed by Eversheds Sutherland (International) LLP.