Dutton & Ors v FDR Ltd

A pension scheme amendment must be construed as a whole and in the context existing when it was made. The court should prefer a reasonable and practical construction, avoiding technical or impractical consequences. Where an amendment is subject to a proviso protecting accrued rights, the amended provision operates subject to that protection. Here, the preserved 3% compound annual increase and the later 5% RPI increase formed a composite right. For benefits accrued before the amendment, pensions in payment were therefore to be increased annually by the greater of 3% and 5% RPI. A cumulative calculation based on comparing values from retirement was rejected because it was unnatural, technically complex and could produce annual increases below 3%.

The claim was brought under CPR Part 8 by the trustees of the FDR Limited Pension Scheme against its principal employer. The parties sought the court’s construction of the pension-increase rule introduced by the deed dated 20 June 1991, read with the proviso protecting pensions in payment and accrued rights in the earlier scheme rules.

The dispute concerned benefits accrued from service before 20 June 1991. The trustees favoured an annual approach, under which the relevant pension element received the greater of a 3% increase and 5% RPI. The company favoured a modified cumulative approach, with separate cumulative calculations from retirement. The central issue was the proper construction of the amended rule subject to the proviso.

1. Construction principles. Pension scheme provisions are construed as a whole, having regard to the language, the circumstances and factual background at the time of amendment. The court should give the scheme reasonable and practical effect, avoid technicality, and consider the practical consequences of competing constructions: Stevens & Ors v Bell & Ors [2002] OPLR 207; Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50.
2. The proviso preserved so much of the Old Rule 16(e) as was necessary to prevent prejudice to accrued benefits. The amended rule and the preserved rule were properly treated as a composite or blended right, rather than as wholly separate streams.
3. The proper construction was that the pre-20 June 1991 element of each pension in payment had to be increased annually by the greater of 3% compound and 5% RPI. This gave effect to the wording referring to an increase at each anniversary and was straightforward to operate in 1991.
4. The modified cumulative approach was rejected. It imposed an artificial comparison with cumulative increases from retirement, had no basis in either rule, required complex calculations, and could result in an actual annual increase below 3%, contrary to the protection preserved by the proviso. The alternative approach was also rejected as still more convoluted. The claim was determined accordingly.

First-instance decision of the High Court (Chancery Division). No prior appellate decision is stated in the judgment.