Capita Atl Pension Trustees Ltd v Zurkinskas

The court considered a Part 8 claim by the trustees of the Sea Containers 1983 Pension Scheme challenging the validity of steps taken to equalise normal retirement ages and alter accrual rates and considered an application by three defendants for court approval of a global compromise. Key legal principles applied were the equal treatment requirement derived from Article 119 EEC Treaty and implemented by ss.62–66 and s.117 of the Pensions Act 1995, the court's power to make representation orders under CPR r.19.7(2), and the interaction of any compromise with the Pension Protection Fund regime (Schedule 7, paragraph 35, Pensions Act 2004).

The Chancellor held that (i) representation orders in the form sought were authorised by CPR r.19.7(2), (ii) actuarial evidence justified the view that crystallising a compromise liability of £17.5m would not oblige immediate wind-up and so would not render benefits illusory, (iii) approval of the compromise could amount to a rule change but such changes were excepted from the Schedule 7 paragraph 35 disregarding provisions because they were required by the equal treatment rules (s.117 Pensions Act 1995 and related enactments, including ss.64–71 Equality Act 2010), and (iv) the negotiated "percentage method" used to quantify contingent chances of success required careful scrutiny but could produce a benefit to members and creditors by bringing forward distributions (notably SeaCo shares) under the restructuring Plan. The court granted approval in principle, gave a declaration regarding paragraph 35, and reserved liberty to apply on detailed form of order.

The Sea Containers 1983 Pension Scheme (a final salary scheme) adopted a definitive deed and rules in 1988 and a replacement deed and rules from 2004/2005. Rule 1 defined normal retirement age as 65 for men and 60 for women except where otherwise agreed. A sequence of measures followed the decision in GRE v Barber, which required equal treatment of men and women in occupational pension schemes: a 1993 deed (purporting with retrospective effect to equalise certain members at 65), a 1994 decision to equalise normal retirement dates, a 2002 decision to change accrual rates subject to member consent for higher contribution, and a replacement deed and rules dated 2005. The 1993 deed was common-ground ineffective insofar as it purported retrospective effect; the 2005 deed was effective for accruals after its execution. Uncertainties remained about the legal validity of the 1994 and 2002 decisions.

(i) Nature of the application: The first three defendants sought the court’s approval of a compromise intended to resolve all outstanding issues instead of litigating the Part 8 claim to final judgment. The compromise crystallised an agreed liability of £17.5m, used a negotiated "percentage method" to translate chances of success on various legal grounds into monetary compensation and depended on the treatment of SeaCo shares received under a US Chapter 11 Plan.

(ii) Issues framed by the court: The court identified and addressed (a) whether CPR r.19.7(2) authorised the proposed representation orders for classes and particular issues; (b) whether the Scheme would remain solvent if the compromise liability were accepted; (c) whether approval of the compromise would be treated as a "recent rule change" under Schedule 7 paragraph 35 Pensions Act 2004 thereby being disregarded for PPF compensation purposes; (d) the propriety of the percentage method of quantifying contingent claims; (e) whether, on balance, the proposed compromise was for the benefit of members and employers; and (f) the appropriate form of order and declarations to bind the PPF.

(iii) Reasoning and conclusions: On representation the Chancellor concluded CPR r.19.7(2 authorised the form of orders sought, reading the rule so as to permit representation in respect of parts of a claim or issues and, alternatively, as being justified under the rule’s overriding objective. On solvency the court accepted actuarial evidence (various valuations and a PPF funding update) that crystallising a £17.5m liability would not inevitably force wind-up and that inclusion or likely future receipt of SeaCo shares could materially improve funding. On the PPF issue the Chancellor held that approval of the compromise could amount to a "rule change" but that such changes were excepted from the paragraph 35 disregarding rule because they were required by the equal treatment obligations derived from GRE v Barber and s.117 Pensions Act 1995 (and related enactments such as ss.64–71 Equality Act 2010). The PPF was given the material and declined to make submissions. The court scrutinised the percentage method, noted its hazards when representing small chances as substantial monetary sums, but accepted the genuineness of negotiation and that overall the compromise would produce benefits: avoid significant litigation costs, simplify future administration, and accelerate receipt of escrowed SeaCo shares, thereby assisting funding. The Chancellor therefore approved the compromise in principle, directed that a declaration be made to bind the PPF, and gave liberty to apply as to the form of the order.

The court authorised the representation orders sought under CPR r.19.7(2), accepted that actuarial evidence justified crystallising the proposed £17.5m compromise liability without precipitating wind-up, and held that while approval of the compromise could amount to a rule change for PPF purposes the changes were excepted from Schedule 7 paragraph 35 because they were required to give effect to equal treatment obligations (s.117 Pensions Act 1995 and related enactments). The court therefore approved the compromise in principle, ordered a declaration to bind the PPF, and granted liberty to apply as to the precise form of order.