Barnardo’s v Buckinghamshire and others

A pension scheme is a formal, specialist and long-term instrument which confers important rights on non-parties. Its interpretation should therefore give particular weight to the text and less weight to background circumstances which members could not readily ascertain.

A definition permitting trustees to adopt a “replacement” for an officially published index does not empower them to select an alternative while the original index continues, where the wording and scheme require official replacement to occur first. Fiscal background may inform construction but cannot displace the language chosen. Commercial common sense must be assessed without hindsight, and the instrument must be construed neutrally between employer and members.

The Barnardo Staff Pension Scheme linked pension increases to the Retail Prices Index. Rule 53 defined that index as the officially published RPI or any replacement adopted by the trustees without prejudicing tax approval. Barnardo’s contended that the trustees could adopt the Consumer Prices Index while the RPI remained in publication. The representative members contended that the trustees could act only after the RPI had been officially replaced.

The trustees sought a ruling under Part 8 of the Civil Procedure Rules. Warren J held that the power arose only after official discontinuance and replacement of the RPI: [2015] EWHC 2200 (Ch); [2015] Pens LR 501. The Court of Appeal dismissed Barnardo’s appeal by a majority: [2016] EWCA Civ 1064. The central issue before the Supreme Court was whether rule 53 contemplated official replacement followed by trustee adoption, or permitted the trustees themselves to choose an alternative index.

1. Disposition. Lord Hodge, with whom Lady Hale, Lord Wilson, Lord Sumption and Lord Briggs agreed, dismissed the appeal. Rule 53 meant the RPI or an index which had officially replaced the RPI and was then adopted by the trustees. It did not empower the trustees to substitute the CPI while the RPI remained in publication.
2. Interpretative approach. Pension schemes are formal documents prepared by specialist draftsmen. They operate over long periods and confer important rights on members who were not parties to their creation. Courts should consequently give particular weight to textual analysis and less weight to factual background which later members could not readily discover. This remains a contextual and purposive exercise rather than literalism. The provisions should, so far as possible, receive reasonable and practical effect, consistently with In re Courage Group’s Pension Schemes [1987] 1 WLR 495.
3. Fiscal context. A pension scheme must be construed against its fiscal background. The approval regime under the Income and Corporation Taxes Act 1988 and the Revenue guidance showed that tax approval would not necessarily have prevented a power to choose another suitable index. They did not, however, establish that this scheme conferred such a power. The draftsman had not adopted the language of the guidance, and the scheme’s own wording prevailed.
4. Text and structure. “Replacement” did not naturally describe selecting an alternative while the existing index remained available. The word order indicated that replacement occurred first and trustee adoption followed. The second sentence of rule 53, the parallel Appendix definition and the references to the index being “replaced or re-based” indicated action by the official body responsible for the index. The Appendix formed part of the rules, and duplicated language could not be disregarded. The trustees’ discretion remained meaningful because more than one official replacement might be available.
5. Consequences and hindsight. Provision for official replacement had a rational long-term purpose. Later dissatisfaction with the RPI could not be used retrospectively to make the provision commercially unreasonable or to create flexibility which its draftsman had not conferred. The scheme had to be construed without a predisposition towards either the sponsoring employer or the members. Since the appeal failed, it was unnecessary to decide the cross-appeal concerning sections 67 and 67A–67I of the Pensions Act 1995.

1. United Kingdom Supreme Court: The court unanimously dismissed Barnardo’s appeal: [2018] UKSC 55.
2. Court of Appeal: By a majority, Lewison and McFarlane LJJ, with Vos LJ dissenting, the court dismissed Barnardo’s appeal from Warren J: [2016] EWCA Civ 1064.
3. High Court, Chancery Division: Warren J held that the definition did not permit the trustees to adopt an index other than the RPI unless the RPI had been officially discontinued and replaced: [2015] EWHC 2200 (Ch); [2015] Pens LR 501.