Barnardo's & Ors v Buckinghamshire & Ors

The construction of pension scheme rules begins with their natural and ordinary meaning, read in documentary, factual and commercial context. Tax requirements and practical effect are relevant, but later events and hindsight cannot displace the words used. A definition of the RPI as the published index or any replacement adopted by trustees refers to an index first replaced by the publishing authority and then adopted by the trustees. It does not give trustees a free-standing power to substitute the CPI while the RPI remains in place. On an assumed alternative construction, an entitlement to one of two possible indices would not be an accrued right to one particular index before the trustees made their choice.

The sponsoring employer appealed Warren J’s decision in [2015] EWHC 2200 (Ch), also reported at [2015] Pens LR 501. The dispute concerned whether the trustees of the 1988 Barnardo’s pension scheme could replace the Retail Prices Index with the Consumer Prices Index or another index.

The scheme members cross-appealed on whether selecting another index would amount to a detrimental modification under the Pensions Act 1995. The central questions were the proper construction of the definition of the Retail Prices Index and the nature of members’ accrued rights.

1. Disposition. The employer’s appeal was dismissed by a majority. Lewison LJ and McFarlane LJ held that the trustees had no power under the 1988 Rules to select the CPI or another index while the RPI remained in place. The members’ cross-appeal was also dismissed. All three judges agreed on that issue.
2. Interpretation. Pension scheme rules are interpreted as written instruments. The court considers natural and ordinary meaning, the other provisions, purpose, contemporaneous facts and commercial common sense, while giving proper weight to the language used and avoiding hindsight. Tax requirements, practical effect and the limited relevance of background facts to later joiners are particularly relevant. The approach in Arnold v Britton [2015] UKSC 36 was applied.
3. Main construction. The definition in rule 53 was read as a whole and in conjunction with the Appendix. The second sentence, the linked definition of “in line with RPI”, and the consistent use of “replaced” and “re-based” indicated that replacement was action by the authority publishing the index. The replacement therefore had to precede adoption by the trustees. The definition did not confer a free-standing discretion to choose another index merely because it would be commercially preferable. The 1978 Rules, IR12, other schemes and later economic developments did not justify a different construction.
4. Section 67 cross-appeal. Lewison LJ held, obiter, that if the employer’s construction had been correct, a member would have had a right to an increase measured by one of the alternatives, rather than an accrued right to the RPI specifically. Until the trustees exercised their choice, there would be no right to an increase measured by a particular index. The analysis drew on Aon Trust Corpn v KPMG (a firm) [2005] EWCA Civ 1004, Danks v QinetiQ Holdings Ltd [2012] EWHC 570 (Ch) and Arcadia Group Ltd v Arcadia Group Pension Trust Ltd [2014] EWHC 2683 (Ch).
5. Dissent. Sir Geoffrey Vos considered the wording ambiguous and would have allowed the main appeal. He regarded the 1978 Rules, IR12, contemporary index practice and business common sense as indicating a meaningful discretion for the trustees. He agreed, however, that the cross-appeal should be dismissed.

• Court of Appeal (Civil Division) The employer’s appeal from the High Court was dismissed by a majority. The members’ cross-appeal concerning the Pensions Act 1995 was dismissed.
• High Court of Justice, Chancery Division Warren J held that, under the 1988 Rules, the trustees had no current power to substitute the CPI or another index for the RPI: [2015] EWHC 2200 (Ch); [2015] Pens LR 501.