Curtis v Capital Cranfield Trustees Ltd

Rules of a defined-benefit occupational pension scheme should be construed as a whole, giving practical and purposive effect to their language and commercial purpose. A power requiring an employer to pay contributions which trustees, after actuarial advice, consider appropriate to fund promised benefits may extend to a lump-sum contribution covering a buy-out deficit. The power remains exercisable during the employer’s notice period, while the rules remain in force, but ends when termination takes effect. The trustees need not be confined to regular ongoing funding or to an exact calculation made before the notice expires. They may assess the amount needed to secure accrued benefits, provided the contribution does not create a surplus or enhance benefits beyond those promised.

Capital Cranfield Trustees Limited, the present trustee of a defined-benefit occupational pension scheme, brought a professional negligence claim against Pinsent Curtis. A preliminary issue concerned the construction of rule L.1.1, which empowered the trustees, after actuarial advice, to require appropriate employer contributions.

The employer had given notice that it would cease contributions and terminate the Scheme on 31 March 1998. Lindsay J held that the trustees could require a contribution to meet a buy-out deficit before the termination date, but had no such power afterwards: [2004] EWHC 2874 (Ch). The solicitor firm appealed the pre-termination ruling. The central issue was whether rule L.1.1 authorised a lump-sum buy-out contribution during the notice period.

1. Disposition. The appeal was dismissed. Mummery LJ gave the leading judgment, Smith LJ agreed and added further reasons, and Aldous LJ agreed with Mummery LJ.
2. Construction of the rule. Rule L.1.1 had to be read in the context of the Scheme as a whole and its practical purpose. Its key term, appropriate, meant sufficient to fund the benefits promised by the Scheme in the circumstances. The rule did not authorise contributions intended to build a surplus or increase members’ benefits beyond those promised.
3. Buy-out deficit. The power was nevertheless wide enough to permit the trustees, after taking actuarial advice, to require a lump-sum contribution to meet a buy-out shortfall. This gave practical effect to the purpose of funding members’ deferred remuneration on a winding up. The employer’s liability continued throughout the notice period, while the Rules remained in force, and ended only when termination took effect. No contribution could be demanded after that date.
4. Practicality. The rule did not require a precise final calculation before a demand could be made. An assessment or estimate of the appropriate amount was sufficient, and any excess could be repaid to the employer. The analogous decision in McClelland v Unisys New Zealand, [2002] OPLR 39, provided some support, although the decision rested on the construction of this Scheme’s Rules.
5. Additional reasoning. Smith LJ considered that reasonable notice of withdrawal should be implied because immediate withdrawal would make the Scheme virtually unworkable. The trustees could decide during the notice period how to manage the fund after withdrawal, including considering a transfer or buy-out under rule J.3. Six months’ notice had been given, so it was unnecessary to determine what period would be reasonable.

1. Court of Appeal (Civil Division): Appeal dismissed on 13 July 2005.
2. High Court (Chancery Division): Lindsay J determined the preliminary construction issue on 9 December 2004, holding that the trustees could demand a buy-out deficit contribution before the termination date but not afterwards: [2004] EWHC 2874 (Ch).