Secretary of State for Culture, Media And Sport v BT Pension Scheme Trustees Ltd & Anor

The Court of Appeal considered (i) whether clause 20 of the 1983 scheme deed imposed an obligation on the employer to pay a buy-out lump sum on termination (an obligation to restore solvency sufficient to purchase annuities) and (ii) the scope of the Crown guarantee created by section 68 of the Telecommunications Act 1984 as informed by section 60 and Schedule 5. The court held that clause 20(1) does not impose a new, primary buy-out funding obligation on the employer on termination; its phrasing is best read as cross-referencing pre-existing contribution obligations in the deed (notably clause 10 and the actuarial/deficiency provisions in clause 12). By contrast the court held that, as a matter of statutory construction, the vesting provision in section 60 transferred to the successor company the Corporation’s liabilities generally (including contingent liabilities in respect of post-transfer joiners) and therefore the Crown guarantee under section 68 can cover contributions in respect of post-transfer joiners.

The trustee of the BT Pension Scheme sought declarations as to (i) whether the 1983 deed (clause 20) obligated the employer to pay a buy-out lump sum on scheme termination and (ii) whether the Crown guarantee under section 68 of the Telecommunications Act 1984 was confined to liabilities in respect of members who were members at the transfer date or extended to liabilities in respect of members joining after the transfer date.

Procedural posture: This was an appeal from Mann J’s declarations (Chancery Division) arising from a claim by the trustee. The appeal followed the judgment of Mann J ([2010] EWHC 2642 (Ch)) and an order made on 1 May 2013; the appeal proceeded with permission.

Issues framed:

• Issue 1 — construction of clause 20 of the 1983 Scheme deed: whether clause 20(1)’s reference to "such sums as may be due from the Corporation to restore the solvency of the Fund" imposed a primary obligation on the employer to fund buy-out on termination.
• Issue 2 — scope of the Crown guarantee under sections 60 and 68 of the Telecommunications Act 1984: whether the Secretary of State’s liability was limited to liabilities relating to pre-transfer joiners only.

Court’s reasoning (concise):

• On clause 20 the court applied ordinary principles of instrument construction (including the approach applicable to pension schemes) and analysed the deed as a whole. It identified a clear drafting practice within the deed distinguishing primary payment obligations (clause 10 and schedule rules) from cross-referencing language. Clause 20(1)’s wording is apt as a cross-reference to sums already due under the deed (for example contribution/deficiency obligations under clause 10 read with clause 12), rather than as an express, new and potentially very large buy-out obligation. The repetition of similar language in clause 20(5), and the industry context whereby buy-out obligations on termination were not the industry norm in the 1980s, supported a non-creation interpretation.
• On the Crown guarantee the court focused on section 60 (the vesting provision) read with Schedule 5. Section 60 transferred "all ... rights and liabilities" of the Corporation to the successor company. The word "liabilities" was read in its ordinary wide sense to include present, future and contingent liabilities arising under the scheme, including contingent liabilities in respect of post-transfer joiners. The court rejected a restrictive reading that would confine the vesting to liabilities only in respect of persons who were members at the transfer date, noting that any attempt to rewrite section 60 to narrow the guarantee would be judicial legislation rather than construction.

Subsidiary and practical findings: the court recognised poor drafting in clause 20 and noted practical options for dealing with any continuing clause 10 income stream on termination (factoring, commutation, continuing winding-up), but held that clause 10 obligations do not automatically cease on termination; clause 20 should be read as identifying assets to be realised on winding up, including monies due from the employer under the deed.

Appeal allowed in part. The court allowed the Secretary of State’s appeal on the interpretation of clause 20, holding that clause 20(1) did not impose a new employer obligation to pay a buy-out lump sum on termination and is best read as cross-referencing pre-existing contribution/deficiency obligations in the deed. The court dismissed the Secretary of State’s appeal on the Crown guarantee: section 60 vested the Corporation’s liabilities (including contingent liabilities in respect of post-transfer joiners) in the successor company and the Crown guarantee under section 68 can cover contributions in respect of post-transfer joiners.

On appeal from the High Court (Chancery Division, Mann J [2010] EWHC 2642 (Ch)). The judge’s order containing the challenged declarations was made on 1 May 2013; appeal heard in the Court of Appeal and determined 16 July 2014 (neutral citation [2014] EWCA Civ 958).