Sarjeant & Ors v Rigid Group Ltd

The Court of Appeal was asked to decide whether the trustees of two occupational pension schemes had power under Rules 21A–21C to effect a staged buy-out (a Headway arrangement) when winding up the schemes. The court held that the trustees did have that power. The decisive legal principles were (i) the purposive construction of pension scheme rules, (ii) the duty in Rule 21C to buy insurance policies or annuities to provide benefits "as nearly as practicable the same" as scheme entitlements, and (iii) the implication of such ancillary powers as are necessary to perform that duty, including the ability to carry out the buy-out in stages and to obtain a pro tanto discharge on a benefit-for-benefit basis.

The court rejected the company’s arguments that the absence of express words conferring a partial discharge, and the language of Rules 10A and 14F, required a single, once-and-for-all buy-out. The judge concluded that the Rules employed an open-textured style and should be read to permit flexible staged buy-outs where that best fulfils the trustees’ core duty on winding-up.

This appeal arose from Part 8 proceedings concerning construction of the rules of two defined-benefit occupational pension schemes (the Rigid Containers Staff Pension Fund and the Rigid Containers Group Works Pension Fund) which were being wound up. The trustees (respondents) had resolved to wind up and to apply scheme assets to purchase annuities for members. The principal employer (appellant) challenged paragraph 5 of the High Court order and appealed to the Court of Appeal.

(i) Nature of the claim: The Part 8 claim sought a determination whether the trustees had power under Rules 21A–21C to effect a staged buy-out of members' entitlements (a Headway arrangement) in order to increase the recoverable s.75 debt and thereby maximise funds available to provide members’ benefits.

(ii) Issues framed: The central issues were whether the Rules permitted a partial (staged) buy-out and, if so, whether a partial buy-out would discharge the trustees pro tanto and on a benefit-for-benefit basis (which is necessary for the Headway technique to increase the s.75 debt). Secondary issues were the relevance of Rules 10A and 14F and whether the absence of express drafting permitting staged buy-outs or express partial discharge required a narrow construction.

(iii) Reasoning and outcome: The court placed emphasis on purposive construction of pension rules, noting the trustees’ core duty in Rule 21C to purchase policies or annuities to provide benefits as nearly as practicable equivalent to scheme entitlements. That duty does not specify timing or single-stage performance and therefore permits performance in stages where that is best calculated to achieve the statutory and scheme objectives. The court accepted that ancillary powers necessary to perform the duty should be implied, including a power to effect staged buy-outs and to be discharged pro tanto on a benefit-for-benefit basis at each completed stage. The court held Rules 10A and 14F did not require a contrary construction. The appeal was dismissed.

Appeal dismissed. The Court of Appeal held that Rules 21A–21C must be construed purposively to give trustees the flexibility necessary to perform their core duty on winding-up to buy policies or annuities providing benefits as nearly as practicable equivalent to scheme entitlements. That duty may be performed in stages; the trustees therefore have implied powers to effect a staged buy-out (Headway) and to obtain a pro tanto discharge on a benefit-for-benefit basis. Rules 10A and 14F did not compel a narrow, single-stage construction.

Appeal from the High Court of Justice, Chancery Division (His Honour Judge David Cooke) HC12C00610, order dated 20 December 2012; appeal heard in the Court of Appeal (Civil Division), neutral citation [2013] EWCA Civ 1714.