Capital Cranfield Trustees Ltd v Walsh & Anor

Where a pension scheme deed gives trustees power to require employer contributions which they consider appropriate after actuarial advice, that power may extend to a lump sum calculated by reference to a buy-out deficit. Before an effective termination notice, the power may be exercised on that basis.

Once the employer’s termination notice has taken effect and the scheme is administered as a closed scheme, employer contributions cease under the scheme. That cessation continues when the scheme later enters winding-up, unless the deed expressly provides otherwise. Statutory liabilities, including any liability under section 75 of the Pensions Act 1995, are distinct from contractual liabilities under the scheme deed.

The Trustee administered a defined-benefit occupational pension scheme established for employees of K & J Holdings Ltd. The Company served notice under the scheme deed terminating its liability to contribute and expressing a wish that the Scheme terminate. The Trustees then administered it as a closed scheme and later resolved to wind it up.

The Trustee submitted a proof of debt claiming the buy-out deficit needed to secure members’ benefits with an insurance company. The Liquidators rejected that claim. In related negligence proceedings, the Trustee also alleged that former solicitors had negligently failed to advise that such a claim was available.

The preliminary construction issues were whether clause L.1.1 permitted a buy-out contribution before termination took effect and whether that power continued after termination, including during winding-up.

1. The court held that clause L.1.1 was expressed in sufficiently wide terms to permit a contribution in the form of a lump sum, including a sum calculated to make good a buy-out deficit, provided the Trustees had taken actuarial advice and determined the amount to be appropriate.

2. Before 31 March 1998, when the termination notice took effect, the Trustee therefore had power under clause L.1.1 to demand a contribution sufficient to make good any buy-out deficit then obtaining. The fact that the precise figure could not be calculated to the last penny did not prevent a contribution being appropriate.

3. After the termination notice took effect, and once the Scheme was administered as a closed scheme under clause J.2, the contributions of the Employers ceased. The word “while” in J.2 was not merely suspensory. It helped define the characteristics of the Scheme’s administration as a closed scheme, including the cessation of employer contributions.

4. That cessation was not revived when the Trustees later moved to winding-up under clause J.4. The Scheme could remain a closed scheme during winding-up, and nothing in J.4 expressly provided for post-termination employer contributions. A liability of the kind contended for would have required clear provision in the deed.

5. Clause L.1.3 did not assist the Company. It concerned an Employer other than the Principal Employer withdrawing from an ongoing Scheme and did not permit the Principal Employer to terminate its liability in the circumstances. The 22 October 1997 notice was therefore inept insofar as it purported to rely on L.1.3.

6. McClelland v Unisys New Zealand Ltd [2002] OPLR 39 supported the conclusion that a contribution power could extend to substantial payments calculated by reference to accrued benefits. It did not establish that a termination notice necessarily left employer contributions continuing, because the scheme and notice in that case materially differed.

7. The statutory provisions concerning minimum funding and statutory debt did not assist in construing the deed. Any possible liability under section 75 of the Pensions Act 1995 remained separate and was not determined.

8. The preliminary issue concerning contributions before the effective termination date was answered yes. The issue concerning contributions on or after 11 April 2003 was answered no.