Jones v Bright Capital Ltd & Ors

In construing a compromise concerning pension benefits, the court asks what the parties’ words would reasonably have conveyed against the relevant background. Pre-contract correspondence may be admissible where it explains the genesis, subject matter and meaning of the agreed provision, rather than being relied on to prove subjective intention. A stated annual pension is not necessarily a fixed annual sum. Where the compromise adopts an entitlement under a pension scheme, the entitlement carries the scheme’s applicable incidents, including increases payable when the pension is in payment, unless the agreement clearly provides otherwise.

The claimant, a former chief executive, brought proceedings concerning contractual and pension entitlements following his redundancy. The parties compromised the proceedings. The compromise incorporated paragraph 38(3)(a) of the defendants’ defence, under which the claimant was to receive an annual pension of £157,633 from 2 September 2011, subject to specified revaluation in deferment.

A dispute later arose concerning the third component of that pension, namely whether the amount payable by way of contractual top-up was itself to increase when the pension came into payment under Rule 23(1) of the pension scheme. The court also had to decide whether pre-action correspondence could be considered in construing the compromise.

1. The court applied the contractual interpretation test stated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896: the question was what the parties, using the relevant words against the admissible background, would reasonably have understood them to mean. The Scheme and its Rules, the Service Agreement, the Pension Benefits Letter, the pleadings, the actuarial valuation and the pre-action correspondence formed part of that background.

2. Following Prenn v Simmonds [1971] 1 WLR 1381, the court distinguished reliance on negotiations to establish subjective intention from reliance on correspondence to explain the genesis and subject matter of an agreement. The relevant letters were therefore admissible because they explained the figures and terms incorporated into the compromise.

3. The words “£157,633 per annum” described the frequency of payment, not an immutable amount. The express provision for revaluation during deferment did not exclude increases after payment commenced. The surrounding contractual history showed a continuing pattern of obligations concerning pension benefits payable under the Scheme, with its ordinary incidents.

4. Paragraph 38(3)(a) was properly construed as referring to a pension payable under the Scheme, rather than merely to an unqualified annual payment obligation. Accordingly, the pension was to be revalued in deferment, increased in payment under Rule 23(1), and otherwise treated in accordance with the Scheme’s Rules.

5. Because the claim was against the defendants and the Trustees were not parties, the appropriate relief was a limited declaration against the defendants. The proposed declaration was subject to the Trustees being given notice and an opportunity to make submissions.