National Grid Plc v Mayes & Ors

In construing an occupational pension scheme, the court must adopt a practical and purposive approach, while giving effect to the scheme’s actual language. An employer exercising powers under the scheme is not generally a fiduciary, but remains subject to the implied duty of good faith owed to employees. Members have no proprietary right to an actuarial surplus, although they may reasonably expect dealings with it to have fair regard to their interests.

A power requiring an employer to make arrangements to deal with a surplus does not, without clear words, permit unilateral forgiveness of accrued contribution liabilities. Such liabilities cannot be cancelled without an appropriate scheme amendment and, where required by the scheme, the agreement of the relevant trustees.

The appeals arose from judgments of Mr Justice Robert Walker delivered on 10 June and 30 July 1997, concerning actuarial surpluses in the Electricity Supply Pension Scheme. The National Grid appeals challenged determinations of the Pensions Ombudsman concerning the employers’ cancellation of accrued contribution liabilities. National Power’s originating summons raised similar issues and its cross-appeal concerned payment of deficiency contributions by instalments.

The central questions were the scope of Clause 14(5), which required arrangements to deal with an actuarial surplus, its relationship with Clause 41(2)(b), and the contractual or fiduciary constraints on the employers’ powers.

1. Appeals and cross-appeal. The appeals by Mr Laws, Mr Mayes and Mr Machin were allowed. National Power’s cross-appeal was dismissed. The precise form of relief was left for further argument.
2. Construction of the scheme. Pension scheme documents should be construed practically and purposively, so far as possible giving them reasonable and practical effect. The court had to interpret this particular scheme, which gave employers unusually extensive unilateral powers, rather than apply general theories about ownership or treatment of pension surpluses.
3. Good faith and members’ expectations. An employer is not a fiduciary when exercising powers vested by a pension scheme. It nevertheless owes employees an implied obligation of good faith and must not, without reasonable and proper cause, seriously damage the relationship of confidence and trust. Members have no proprietary rights in an actuarial surplus, but may reasonably expect dealings with it to pay fair regard to their interests.
4. Accrued liabilities. Clause 13(1)(a) to (f), read with its proviso, required employers’ contribution obligations to be honoured and did not permit them to be whittled away by unilateral decisions. Clause 14(5) required arrangements certified by the actuary as reasonable to deal with a surplus, but did not itself confer a power to forgive accrued liabilities already due and payable to the group trustees. The employers therefore could not unilaterally cancel those liabilities without an appropriate amendment and, on the existing scheme, without the trustees’ agreement.
5. Deficiency payments by instalments. The express provisions governing supplementary pensions showed that, where instalment payment was intended, the scheme required an undertaking equivalent in value and approval by the group trustees. National Power therefore had no unilateral power to determine that Clause 13(1)(e) deficiency payments could be made by instalments.
6. Possible amendment. The court did not decide conclusively whether Clause 41(2)(b) would prevent an amendment under Clause 41(4) enabling employers to cancel accrued liabilities. It observed that the amendment machinery could have been used and that questions concerning Inland Revenue approval could have been addressed through that procedure. The employers had not taken that course.

• Court of Appeal (Civil Division) Appeals from judgments of Mr Justice Robert Walker delivered on 10 June and 30 July 1997. The appeals were allowed and National Power’s cross-appeal was dismissed.
• High Court of Justice, Chancery Division The judge had allowed the National Grid appeals, set aside the Ombudsman’s directions and declared National Power’s surplus arrangements valid. The Court of Appeal reversed the relevant conclusions.
• Pensions Ombudsman The Ombudsman had determined on 7 February 1997 that Clause 14(5) did not authorise the employers’ unilateral cancellation of accrued liabilities.