Carr v Thales Pension Trustees Ltd & Anor

Where pension scheme rules contain two potentially inconsistent methods for calculating increases, the court must construe the wording as a whole and determine which provision identifies the operative rate. A detailed and self-contained reference to RPI may take precedence over a later cross-reference to statutory revaluation orders, particularly where the cross-reference was originally intended only to identify the source of the figure. The court should not assume that statutory wording has priority merely because it appears in a cross-reference. A contra proferentem approach is not ordinarily the starting point for construing pension scheme rules.

Mr Carr, a pensioner member of the Thales UK Pension Scheme, challenged the decision to calculate increases to his transferred final-salary benefits by reference to CPI rather than RPI. The relevant 2000 rule stated that increases were to be calculated by reference to the rise in RPI, subject to a 5 per cent cap, “as specified by order” under Schedule 3 to the Pension Schemes Act 1993.

The Pensions Ombudsman upheld Mr Carr’s complaint. Thales UK appealed to the High Court on a point of law, arguing that the cross-reference to statutory revaluation orders should prevail after those orders switched from RPI to CPI. The central issue was whether the rule gave primacy to its RPI wording or to the statutory cross-reference.

1. Appeal dismissed. The Ombudsman had reached the correct conclusion. Rule 1.11 required increases by reference to RPI, capped at 5 per cent.
2. The two limbs of the rule were each comprehensible and originally produced the same result. The later divergence arose because statutory revaluation orders began using CPI. The difficulty was therefore not ambiguity in either limb, but deciding which provision prevailed.
3. The natural and ordinary reading gave primacy to Limb 1. It provided a detailed, complete identification of the rate: the percentage increase in RPI over the specified period, subject to a 5 per cent maximum. Limb 2 supplied additional information about that rate by referring to the relevant revaluation order. It did not identify a competing rate.
4. The legislative background did not alter that construction. Rule 1.11 referred to revaluation orders under the Pension Schemes Act 1993, not directly to the indexation provisions in the Pensions Act 1995. The statutory provisions therefore did not establish that Limb 2 was intended to have priority.
5. The subsidiary 2.5 per cent cap did not apply. The lower revaluation percentage introduced by amendments to Schedule 3 to the Pension Schemes Act 1993 applied to post-6 April 2009 accruals, whereas the relevant final-salary accruals ended in 2007. Rule 1.11 did not incorporate the separate 2.5 per cent cap applicable under the Pensions Act 1995.
6. Construction of pension scheme rules is a unitary exercise. Textual analysis may carry particular weight, but the court should not begin with a presumption favouring either members or the sponsoring employer. The contra proferentem rule was not needed and the Ombudsman was probably wrong to rely on it, although that did not affect the correctness of the outcome.
7. The authorities concerning dynamic interpretation, word order, inconsistent provisions and reading down did not justify giving priority to Limb 2. The wording adopted in Rule 1.11 was materially different from the provisions considered in those cases.

• High Court (Chancery Division): Thales UK’s appeal from the Pensions Ombudsman’s determination dated 12 December 2019 was dismissed.