Judgment Delivered in 'Pensions Case of the Decade'

LONDON, 30 June 2010 - Judgment was handed down today in the "Pilots litigation" (PNPF Trust Company Ltd v Geoff Taylor and others) by Mr Justice Warren in the Chancery Division of the High Court. 

The highly innovative proceedings were brought by the corporate Trustee of the Pilots National Pension Fund.  Angela Dimsdale Gill, the partner at Hogan Lovells who acted for the Trustee, said today:

"This is a wonderful result for our client and the Trustee is very grateful to the Court for giving such comprehensive guidance on its powers to recover the deficit.

The judgment is also a much needed clarification of vital legislative provisions for multi-employer, industry-wide schemes such as this one. It tells employers when they have an obligation to pay periodic contributions into their schemes and when they become liable to make lump sum payments into the scheme in order to secure benefits.

It is true however that Finance Directors generally will now need to go back to the books and carefully evaluate whether their pension liabilities have increased as a result of this judgment. It is even possible that there will be employers who have thought they have left their pension liabilities behind them and who will now find that they are still "on the hook". There could be some sleepless nights. But there was no perfect solution to reconciling the different legislative provisions and the Court has given an interpretation which is rigorously analysed and a tour de force of all the relevant provisions. Most of all it is certain, which is what the industry needed.

Whatever the wider implications for the general business and pension communities, it is clear that the decision is marvellous news for the members of the PNPF. The judge has found the largest number of available resources to plug the deficit in their scheme, giving them peace of mind after the uncertainty of the last few years.

The judgment will now allow the Trustee to move forward and put the funding of the Scheme on an even keel. The Trustee is deeply appreciative of the effort by the port industry as a whole to resolve this matter in a sensible way and without recourse to adversarial litigation.

There is considerable work yet to put the judgment into effect, but the Trustee of the Fund believes the judgment is the right one on principle as well as law – it has always considered the deficit in the scheme to be an industry-wide problem (the scheme is after all itself industry-wide), and the judgment gives an industry-wide solution."

Speaking in further detail about the case, Dimsdale Gill continued:

"In the wake of the Maxwell scandal in the early 1990s the government passed a mass of legislation seeking to protect pension scheme members from future raiders and sheer mismanagement. Amongst the statutory obligations imposed were (i) to pay towards the costs of a scheme whilst still involved in it and (ii) to pay a one-off sum towards any deficit in a scheme when ceasing to be involved in it (famously under section 75 of the Pensions Act 1995 – hence a "section 75 debt"). Previously such commitments (if any) had been only contractual. It wasn't entirely clear, though, when one ceased to be involved in a pension scheme for the purposes of the legislation (and therefore became liable to pay the lump sum). More recently, a question has also arisen as to whether an employer is always under one or the other duty – i.e., does the obligation to pay the lump sum on ceasing to be involved in a scheme get triggered at the same time as the obligation to make ongoing contributions ceases, or is there a gap between the two when an employer is under no duty to pay anything.

It is a victory for common sense that the Judge has held unequivocally that that there is no gap between the obligations. While the Judge's decision on when an employer ceases to be involved in a scheme does seem absolutely right on the wording of the legislation, many within the pensions community (indeed the Department for Work and Pensions and The Pensions Regulator apparently amongst them) had thought that the trigger was a different one. This very authoritative interpretation of the legislation by the Judge also has potential consequences not anticipated by Parliament--some employers will have paid a section 75 debt on the basis of what is now understood to be the incorrect interpretation of the legislation. It also means that some companies which had assumed that they had no further obligations in respect of a particular pension scheme are actually still liable for the scheme's liabilities. These difficulties arise not from the judgment, but from regulations that have not been the product of very joined up drafting. No doubt the situation will give rise to calls for yet more legislation in what is already something of a legal minefield.

Another problematic issue resulting from the new legislation was whether it overruled the existing terms of a pension scheme (found in its trust deed and rules) – which in some cases imposed higher obligations on employers to contribute, or at least conferred greater powers on trustees to demand contributions. In many respects the legislation and a pension scheme's trust deed and rules are uneasy bedfellows – they both try to occupy the same part of the bed.

Mr Justice Warren has clarified, to the relief of pension scheme trustees, that the statutory rules underpin the pension scheme rules and do not override them. Generally speaking (and within limits) trustees can now use whichever power allows them to demand more money."

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