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

A pension scheme deed must be construed in its contractual and factual context. A purposive approach cannot create a substantial employer funding obligation from language that merely cross-refers to existing liabilities. Winding-up provisions concerning the application of scheme assets do not, without clear words, impose a new obligation to fund benefits at buy-out level.

For a statutory transfer of an undertaking, “liabilities” ordinarily includes present, future and contingent liabilities arising under an existing pension arrangement. A statutory guarantee referring to liabilities vested on transfer therefore covers liabilities relating to employees who join the scheme after the transfer, unless the legislation clearly provides otherwise.

The Secretary of State appealed declarations made by Mann J in the Chancery Division concerning the Crown guarantee given on the privatisation of the British Telecommunications Corporation. The first declaration held that the pension scheme deed required the employer to pay a buy-out lump sum on termination. The second held that the guarantee was capable of covering contributions relating to members who joined after the transfer date.

The appeal raised two questions: whether clause 20 of the scheme deed imposed a termination funding obligation, and whether “liabilities” vested under section 60 of the Telecommunications Act 1984, and consequently guaranteed by section 68, included liabilities relating to post-transfer joiners.

1. Clause 20. The appeal was allowed on the first issue. Clause 20(1) did not impose on the Corporation, and therefore did not impose on BT, an obligation to fund the Scheme so as to pay the buy-out lump sum on termination. Its reference to sums due from the Corporation to restore the solvency of the Fund was cross-referential. It referred to continuing liabilities under clause 10, particularly deficiency contributions, rather than creating a new primary payment obligation. The repetition of substantially similar wording in clause 20(5), and the deed’s use elsewhere of clear words when imposing payment obligations, reinforced that conclusion.
2. The Scheme had to be construed conventionally and in context. The 1967 White Paper did not establish an intention to provide former civil servants with the same security for payment as under the civil service scheme. Nor was there a sound basis for assuming that a full buy-out obligation was intended, since such obligations were not then the norm in pension schemes.
3. Crown guarantee. The appeal was dismissed on the second issue. Section 68 imposed the guarantee by reference to liabilities vested under section 60 of the Telecommunications Act 1984. Section 60 transferred all liabilities to which the Corporation was subject immediately before the transfer date. In context, “liabilities” included present, future and contingent pension obligations owed to the trustee under the existing Scheme. Paragraph 37(1)(b) of Schedule 5 was consistent with that broad construction.
4. The court rejected the proposed restriction to liabilities concerning members existing at privatisation. The apparent mismatch between the statutory language and Lord Mackay’s parliamentary explanation could not justify rewriting section 60. The fact that the Scheme was not sectionalised meant that guarantee payments would in any event benefit the common fund, including post-transfer joiners. The judge’s second declaration therefore stood.
5. Lord Justice Rimer invited counsel to agree a declaration recording the effect of clause 20. Lady Justice Gloster and Sir Stanley Burnton agreed with his judgment.

• Court of Appeal (Civil Division): The appeal from the Chancery Division was allowed on the clause 20 declaration and dismissed on the scope of the Crown guarantee.
• High Court of Justice, Chancery Division: Mann J made the declarations in paragraphs 1 and 2 of the order, following his judgment at [2010] EWHC 2642 (Ch).