Sarjeant & Ors v Rigid Group Ltd

Occupational pension scheme rules should be construed purposively, in their commercial and administrative context, to give reasonable and practical effect to the scheme. Where the rules impose a duty on trustees to secure benefits on a winding-up, the absence of express wording requiring a single transaction does not prevent the implication of powers enabling a staged buy-out. The implied powers should provide maximum flexibility unless the rules expressly restrict them. A partial buy-out may therefore discharge the trustees pro tanto on a benefit-for-benefit basis where that is necessary to perform the winding-up duty and best achieves the promised benefits.

Two occupational defined-benefit pension schemes were being wound up. The employer challenged the trustees’ proposed use of a staged buy-out arrangement designed to increase the debt payable under section 75 of the Pensions Act 1995. The employer argued that the scheme rules permitted only a single, complete buy-out and did not provide for a pro tanto discharge of the trustees’ liabilities. The trustees contended that the rules created a broad framework allowing flexible implementation of the winding-up duty.

The High Court rejected the employer’s construction. The Court of Appeal considered whether rules 21A–21C permitted the trustees to buy annuities in stages, with the first stage operating as a partial buy-out on a benefit-for-benefit basis.

1. Appeal dismissed. The scheme rules permitted the trustees to carry out a staged buy-out of members’ entitlements under rule 21C.
2. The rules were to be construed purposively, consistently with the approach described in British Airways Pension Trustee Ltd v British Airways plc [2002] EWCA Civ 672. Pension schemes should be given a reasonable and practical construction in their changing commercial context. Competing constructions should be tested against their practical consequences, and technical or unduly restrictive interpretations should be avoided.
3. Rule 21C imposed a core duty to buy insurance policies or annuity contracts providing benefits as nearly as practicable equivalent to the beneficiaries’ scheme entitlements. That duty did not prescribe the period over which it had to be performed or require one operation. A staged process capable of increasing the assets available to fund members’ benefits was consistent with the duty.
4. The necessary powers were therefore implied, including power to effect a partial buy-out and to discharge the trustees pro tanto at the first stage. The discharge operated on a benefit-for-benefit basis, as confirmed by rule 21C(c), rather than on a value-for-value basis. The absence of express wording on timing or discharge reflected the open-textured drafting of the rules and did not exclude those powers.
5. Rules 10A and 14F did not alter that conclusion. Rule 10A reflected a deferred member’s statutory rights under the Pension Schemes Act 1993, while rule 14F concerned trustee discretion in a continuing scheme. Neither provision governed the different context of a winding-up.

• Court of Appeal (Civil Division) — The appeal from paragraph 5 of the order of His Honour Judge David Cooke, made on 20 December 2012 in CPR Part 8 proceedings in the Chancery Division, was dismissed.