Stevens & Ors v Bell & Ors

A pension scheme provision requiring trustees to make a scheme for disposing of a certified disposable surplus may confer both a duty and the powers needed to perform it. The whole surplus must receive an affirmative allocation, but it may be allocated to a properly constituted reserve against future or contingent scheme liabilities.

Such a power remains subject to the scheme read as a whole. It does not authorise amendments reserved to a separate amendment power or override restrictions protecting members. A power to dispose of surplus in an ongoing scheme does not, without clear authority, permit cash refunds of employer contributions where the deed prohibits amendment for that purpose.

The Airways Pension Scheme was a closed, balance-of-cost defined benefit scheme with a substantial actuarial surplus. Its management trustees brought a Part 8 claim seeking construction of the trust deed, particularly clause 11, which required them to make a scheme for disposing of any disposable surplus certified by the actuary.

Lloyd J held that clause 11(b) was a free-standing power extending beyond the applications specified in clauses 11(d) and 11(e). He concluded that it permitted reserves, benefit improvements, reduced member contributions and payments to the employer, subject principally to the scheme's objects and Revenue constraints.

Representative beneficiaries appealed aspects of that order, and British Airways served a respondent's notice. The principal questions were the scope of clause 11(b), whether surplus could be allocated to reserves, and whether contributions could be refunded to the employer.

Appeal allowed to the limited extent indicated. Arden LJ delivered the judgment of the court. Waller and Auld LJJ agreed.

1. Clause 11(b) was not confined to the applications expressly identified in clauses 11(d) and 11(e). Its reference to making a “scheme” was broad, and the duty related to the whole certified disposable surplus. A construction leaving residual surplus outside the prescribed procedure would impair the provision's practical purpose of restoring funding equilibrium.

2. The direction to “make a scheme” conferred the powers reasonably necessary to discharge that duty. Those powers nevertheless remained subject to the trust deed read as a whole. Clause 11(b) did not confer a general power to amend or add to the deed. Any constitutional change ordinarily had to comply with clause 18, including its special-majority safeguards and substantive restrictions.

3. The whole disposable surplus had to receive an affirmative allocation. Trustees could not comply merely by postponing their decision or doing nothing. They could, however, allocate all or part of the surplus to a reserve against future or contingent scheme liabilities. Such a reserve generally had to reflect the estimated present value of a liability and could not concern an object for which scheme assets could not lawfully be used.

4. A reserve could not be ring-fenced against the future operation of clause 24 without amendment. Ring-fencing would fetter the trustees' future discretion and conflict with the actuary's responsibility to decide whether the employer must fund benefits directed under that clause.

5. Clause 11 did not prevent the actuary from certifying, or the trustees from disposing of, a surplus merely because there was a material risk that the employer might later resume ordinary or deficiency contributions. Those evaluative decisions were entrusted respectively to the actuary and trustees.

6. Clause 11(b) did not permit a cash return of employer contributions. Such a power was inconsistent with clause 18's prohibition on amendments producing that result, the winding-up provisions, and the Revenue background. Refunds therefore could not be introduced by amendment either. The employer nevertheless retained its mandatory contribution holiday under clause 11(d)(ii), and disposable surplus could be set against debts owed by it to the scheme.

1. Court of Appeal (Civil Division): The appeal was allowed to the limited extent that Lloyd J's answers were varied. Clause 11(b) was held subject to the trust deed as a whole and not to permit a return of employer contributions.
2. High Court, Chancery Division: Lloyd J answered the Part 8 construction questions on 16 February 2001. He held, among other matters, that clause 11(b) was a free-standing power permitting reserves and payments to the employer.