Royal Mail Group Ltd v Evans & Ors

When construing pension scheme rules, the court must read the words in their factual and commercial context and give the scheme a reasonable and practical effect. Where the literal wording produces an empty or unworkable class and it is clear what the parties intended, the court may correct the language as a matter of construction. A provision stating that a member’s existing entitlement shall continue may require continuation of the substantive indexation arrangement previously enjoyed, even though the rule describes it inaccurately. Commercial common sense may resolve genuine ambiguity, but cannot justify rewriting unambiguous language.

Royal Mail sought a declaration concerning the construction of Rule 19.2 of the 2010 Deed and Rules governing the Royal Mail Senior Executive Pension Plan. The defendants, as trustees, represented beneficiaries with competing interests under CPR Rule 19.7(2) representation orders.

The issue was whether Relevant Members were entitled to uncapped increases by reference to RPI, as the rule stated, or to continuation of the public-sector-style indexation previously applicable under Sections A and B of the Post Office Pension Plan. The same issue arose under the materially identical Rule 17.2 of the 2000 Rules.

1. The court construed Rule 19.2 and Rule 17.2 in favour of Royal Mail. Relevant Members were entitled to have their pensions increased by the increases applicable under the Rules governing Sections A or B of POPP as they stood at the relevant transfer date, namely 1971 Act Indexation, rather than by uncapped RPI as a new and independent entitlement.

2. The exercise was a unitary construction of the words used in their relevant background. The court applied the principles stated in ICS v West Bromwich [1998] 1 WLR 896, Chartbrook v Persimmon Homes [2009] UKHL 38 and [2009] 1 AC 1101, and Rainy Sky v Kookmin Bank [2011] 1 WLR 2900.

3. The reference to RPI was shorthand for the indexation provisions that had applied to the Relevant Members’ POPP benefits in practice. Reading it literally would leave the qualifying class empty, because no member had an entitlement to unlimited RPI increases. It would also deprive the words “shall continue” and “so entitled” of meaning.

4. The relevant background included the history of the pension arrangements and the statutory framework for public-sector indexation. The construction preserved and extended an existing benefit when the Executive Pension Plan became stand-alone. It therefore gave the scheme a reasonable and practical effect, consistently with Stevens v Bell [2002] PLR 247.

5. The alternative commercial-common-sense analysis led to the same result. The court also rejected the proposed insertion of “in fact” into limb [3], since the Relevant Members were active members and had not then been entitled to increases in payment or deferment in fact.

6. Section 67 of the Pensions Act 1995 did not affect the construction because Section A was a new section with new rules and benefits, and members could choose whether to transfer.

Declaration made in the terms identified at paragraph 55 of the judgment.

First-instance Part 8 claim. No prior appellate decision was stated in the judgment.