British Airways Plc v Airways Pension Scheme Trustee Ltd

The Court of Appeal considered whether the trustees of the Airways Pension Scheme validly amended the scheme under clause 18 to confer a power (an amended Rule 15) to apply discretionary pension increases, and whether the trustees lawfully exercised that power in November 2013 to award a 0.2% increase above CPI. The court examined the limits on trustees' powers under trust law, in particular the equitable / "proper purpose" rule, and whether the awards would amount to "benevolent or compassionate" payments prohibited by clause 2 of the Trust Deed. The majority held that, although the 0.2% increase was not a benevolent or compassionate payment, the trustees had exceeded the proper purpose of the amendment by effectively assuming a role to design and impose additional employer-funded remuneration; accordingly the appeal was allowed. Patten LJ dissented and would have dismissed the appeal, holding the amendment and exercise were within the trustees' powers and were not benevolent payments.

This case concerned two linked questions arising from the Airways Pension Scheme (APS): (i) whether the Management Trustees validly exercised the clause 18 power of amendment on 25 March 2011 to add a proviso to Rule 15 permitting discretionary increases above the Annual Review Orders; and (ii) whether the amended Rule 15 power was validly exercised on 19 November 2013 to award a 0.2% discretionary increase above CPI.

Background and procedural posture

• The APS is a balance of cost defined benefit occupational scheme established by a 1948 Trust Deed. Clause 18 gave a broadly drawn power to amend the Trust Deed and Rules subject to specified provisos; clause 2 stated the scheme was not a benevolent scheme and should not make benevolent or compassionate payments.
• Following the Government decision to switch indexation for public service pensions from RPI to CPI with effect from 2011 (confirmed to be lawful in R (FDA) v Secretary of State for Work and Pensions), the trustees in March 2011 amended Rule 15 to create a discretionary uplift power exercisable by a two‑thirds trustee majority and on professional advice. In November 2013 the trustees voted to grant a 0.2% increase above CPI for December 2013.
• BA challenged both the 2011 amendment and the 2013 exercise on multiple grounds in the High Court; Morgan J held both the amendment and the exercise were lawful. BA appealed to the Court of Appeal.

Issues framed

• Whether the amendment to Rule 15 was ultra vires clause 18 or was made for an improper purpose (the proper purpose doctrine), in particular whether the trustees had stepped beyond their role as managers/administers into designing employer-funded remuneration.
• Whether the 2013 award was ultra vires because it constituted a "benevolent or compassionate" payment contrary to clause 2.

Reasoning and outcome

• The court analysed the proper purpose principle and relevant authorities (including Equitable Life v Hyman, Eclairs, Re Courage, Bank of New Zealand) and examined the APS deed structure, employer funding obligations (clause 11 and clause 24) and the trustees' constitutional role under clause 4.
• Patten LJ (dissenting on outcome) concluded the amendment and the 2013 exercise were within the trustees' powers, that the proper purpose rule had no application in a way that invalidated what was done, and that the increases were not benevolent or compassionate payments.
• Lewison LJ and Peter Jackson LJ (majority) concluded that, although the 0.2% was not a benevolent payment, the 2011 amendment and the 2013 exercise were for a purpose beyond that for which the amendment power was conferred: they placed on trustees a role akin to designing and imposing additional employer-funded remuneration (a "paymaster" role) in circumstances where the scheme and deed allocated the design of benefits and remedial funding measures to the employer and specified procedures for deficits and surplus; accordingly the amendment/exercise was an abuse of power and the appeal should be allowed.

The majority therefore allowed the appeal on proper purpose grounds while accepting the increases were not "benevolent or compassionate" within clause 2.

Appeal allowed by majority. The majority concluded that, although the additional 0.2% award was not a "benevolent or compassionate" payment, the trustees had gone beyond the proper purpose of the clause 18 amendment by effectively assuming a role to design and impose additional employer-funded remuneration (an abuse of power / improper purpose). Patten LJ dissented, concluding the amendment and the exercise were within the trustees' powers and did not infringe clause 2.

Appeal from Morgan J in the Chancery Division, High Court of Justice: Morgan J [2017] EWHC 1191 (Ch); then heard in the Court of Appeal (this judgment) [2018] EWCA Civ 1533. The Court of Appeal gave a majority decision allowing the appeal (Lewison LJ and Peter Jackson LJ) with Patten LJ dissenting.