Capita Atl Pension Trustees Ltd v Zurkinskas

The court may approve a compromise affecting pension-scheme members where suitable representation orders are made and the compromise demonstrably benefits those represented. Representation may be organised by reference to the answer sought on particular issues, especially where different members may have different interests on alternative questions.

A percentage-based compromise is permissible, but requires particularly careful scrutiny where litigation probabilities are converted into substantial pension liabilities. The court should consider solvency, the costs and uncertainty of trial, administrative simplicity, the interests of the Pension Protection Fund and any accelerated distribution of assets.

The trustees of the Sea Containers 1983 Pension Scheme sought approval of a compromise with participating employers concerning the validity of changes to normal retirement ages, accrual rates and contribution arrangements. The scheme was in deficit, closed to further accruals and had no sponsoring employer able to support it.

The compromise would crystallise a liability of approximately £17.5 million and provide for compensation calculated by a percentage method. The court had to determine whether representation orders could be made, whether the scheme could remain viable, whether the compromise would bind the Pension Protection Fund, and whether approval was beneficial to the represented members and employers.

An earlier issue concerning the 1993 deed had been resolved by summary judgment given by Arnold J on 24 November 2010.

1. Representation orders. CPR rule 19.7(2) authorised orders appointing the first defendant to represent members according to whether it was in their interests to argue for particular answers to specified questions. The word “claim” could be read as including part of a claim or an issue. Alternatively, CPR rule 19.7(2)(d)(ii) applied because representative orders furthered the overriding objective and avoided multiple Part 8 claims. The orders therefore conferred jurisdiction to approve the compromise.

2. Solvency. The evidence justified the conclusion that accepting a crystallised liability of about £17.5 million would not prevent the scheme continuing as a closed fund for the foreseeable future. The benefits relied upon to justify the compromise were therefore not illusory.

3. Pension Protection Fund. The court was not prepared, on the material before it, to conclude that approval could not constitute a rule change. However, if the changes were rule changes, they were excluded from the operation of paragraph 35(2) of Schedule 7 to the Pensions Act 2004 because they were required by the overriding equal-treatment requirement in section 117 of the Pensions Act 1995 or were reasonably necessary to comply with the equal-pay provisions of the Equality Act 2010. The court directed that an appropriate declaration be made binding on the PPF.

4. Percentage method and merits. The percentage method was permissible, but the agreed figures required more than usual scrutiny because even a small and illusory litigation prospect could generate a substantial liability. The court nevertheless accepted that the negotiating process was genuine and that benefits accrued to the members and employers.

5. Approval avoided substantial costs and uncertainty, simplified future administration, and accelerated the release of further assets under the escrow arrangements. The compromise was accordingly for the benefit of all represented parties. The court exercised its residual discretion under CPR rule 19.7(6), approved the compromise, made the indicated declaration and gave liberty to apply.

This was a first-instance application. On 24 November 2010, Arnold J gave summary judgment concerning the invalid retrospective effect of the 1993 deed. The present judgment determined the remaining compromise and approval issues.