Stena Line Ltd v Merchant Navy Ratings Pension Fund Trustees Ltd & Anor

This appeal concerns an occupational pension scheme known as the Merchant Navy Ratings Pension Fund (“the MNRPF”). In 2001, the trustee of the MNRPF adopted a scheme (“a deficit repair scheme”) to meet a substantial deficit which had emerged in the assets available to meet the MNRPF’s liabilities. As part of this scheme (“the 2001 scheme”), a provision in the rules of the MNRPF was removed. This had provided that the trusts should be terminated if (among other events) there was a deficiency and there were “no agreed measures acceptable to the Participating Employers” for overcoming that deficiency. There is now another very substantial deficit in the fund. (It is estimated at some £370m on the basis of the cost of transferring the liabilities to an insurer). In these circumstances the trustee is likely to propose another deficit repair scheme, involving, by way of further amendment to the rules, the imposition of an obligation that would affect all Participating Employers, not only the group of forty or so current employers invited to approve the 2001 scheme and required to contribute to it (called below “the Current Employers”). The question has arisen whether, in that event, the power of amendment in the rules must be interpreted as subject to an implied restriction that, if the new proposal is not acceptable to any of the Participating Employers (other than a Current Employer) who is affected by it, the trusts must determine. By his order dated 27 July 2010, Briggs J, in a careful and comprehensive judgment, answered this question of interpretation in the negative. The appellant, P & O Ferries Ltd, the party appointed to represent the Specified Employers, being the Participating Employers other than those who had consented to the 2001 scheme, appeals from that part of his order. The short point is whether it has now been deprived of its ability to rely on the rights conferred by the previous provisions of the rules in order to oppose the new deficit repair scheme.

I confine my description of the background to those matters which are relevant to this judgment. The MNRPF was constituted in 1978. It was originally a defined benefit scheme (“a DB scheme”). There is a sister scheme for merchant navy officers, known as the Merchant Navy Officers Pension Fund (“the MNOPF”), set up in 1937. The MNOPF was originally a money purchase scheme but in 1978 it became a DB scheme by reference to average earnings over the pensioner’s working life.

The basic governance structure of the MNRPF should be noted. At the outset the powers of management were exercisable by a council of management and the trustee was simply a custodian but in 1986 this system was altered. There is a now a corporate trustee and the trust deed provides that there should be equal representation of employers and employees on the board of the trustee. I will refer to the relevant organs as simply the “trustee”.

The MNRPF is governed by a trust deed and rules. Employers adhere to the trust deed and rules by executing an accession agreement, and then become “Participating Employers”. I refer to a rule in force immediately prior to the 2001 scheme by its number and the prefix “OR”. The provisions of the trust deed and rules have been varied from time to time, and new trust deeds have been adopted. The rules set out the basis for members’ and employers’ contributions. Immediately prior to the 2001 scheme, they contained the following further provisions:

“29.1

IF, as a result of the Actuary’s report, it shall appear that there is a deficiency or anticipated deficiency in the Scheme’s resources, the Trustees shall consider what if any action, having regard to any recommendations made by the Actuary in his report, should be taken either by way of increasing contributions or decreasing benefits to render the Scheme solvent. If necessary, the Trustees shall take such steps as are hereinafter laid down for amendment of this Deed and the Rules, or if the deficiency or anticipated deficiency cannot be made good, for the winding up of the Scheme.

29.2

IF the report shows a surplus, all or part of that surplus may be applied by the Trustees, having regard to any recommendations made by the Actuary, to do any one or more of the following:

(i)

to create a reserve fund;

The trust deed constituting the MNRPF contains the following power to amend the rules, which was, so far as material, identical in earlier versions of the trust deed:

“30.

THE provisions of the Trust Deed or of the Rules may be varied or added to in any way by Deed executed under the seal of the Trustees. Every such variation must first be approved by a majority of the full number of Participating Employers’ representatives and also a majority of the full number of the Members’ representatives serving as Trustees or as Directors on the Board of any Corporate Trustee which approval may be signified either by a resolution passed by such majorities or by an instrument in writing signed by such majorities PROVIDED that no variation or addition shall be made which:

a)

would have the effect of changing the main purposes of the Scheme, namely the provision of pensions for Members on retirement; or

b)

would operate in any way to diminish or prejudicially affect the rights in respect of any Member annuitant or other beneficiary already earned; unless the Actuary shall advise that no other course is reasonably practical having due regard to the interests of all persons interested in the Scheme; or

c)

would be contrary to the principle that the Participating Employers and the Members shall be equally represented on the Board of the Corporate Trustee of the scheme;

d)

would contravene the requirements of sections 67 to 67L of the 1995 Act.”

It will be observed that OR 31.0(ii) gave Participating Employers in effect a veto over the trustee's proposals for meeting a deficiency. In 1978 there were no statutory requirements for making good the deficit of a pension scheme which was wound up. The Pensions Acts of 1995 and 2004 have progressively increased the obligations of employers in the winding up of a pension scheme so that there would be little incentive today for an employer to seek to terminate a pension scheme and to wind it up. Thus, as of the date when the MNRPF was established, the Participating Employers might well have wished to bring the trusts established by the trust deed to an end in order to reduce their liabilities. That option would not be open to them in the same way today. However, the fact that the logic behind OR 31.0(ii) has changed does not mean that that provision ceases to be a binding obligation. If it was desired to eliminate this provision, the rule would have to be amended in accordance with clause 30 of the trust deed.

In 2000, it became apparent that there was a substantial deficiency of some £103m to £213m in the fund and the trustee made a proposal for amending the trust deed and rules so that the deficiency could be funded by the Current Employers. This proposal became the scheme to which I have referred above as the 2001 scheme. The trustee applied to the court for a direction that it be at liberty to enter into the scheme, and Blackburne J in due course heard the application. The trustee did not surrender its discretion to the court and accordingly the question for the court was not whether the scheme should be implemented but whether, in reaching its decision to implement the proposal, the trustee had taken into account irrelevant, improper or irrational factors, or reached a decision that no reasonable trustee properly directing himself could have reached (see generally Edge v Pensions Ombudsman [1998] Ch 512, approved by this court [2000] Ch 602). Blackburne J gave the direction that was sought. In his judgment he stated that the proposal had the support of all but two of the Participating Employers (and was opposed by none). But it is common ground in these proceedings that only the Participating Employers who were required to contribute to the then current deficit were consulted, and that there were some 200 other Participating Employers, including the appellant, who were not consulted.

The judgment of Blackburne J contains a useful summary of the 2001 scheme, and it is sufficient for me to set out part of that summary, omitting detail which is not necessary for the purposes of this judgment:

“1.

The establishment of a new contracted-in defined-contribution pension plan, to be called the Merchant Navy Ratings Pensions Plan (“MNRPP”), open to those who are currently contributing members of the scheme whose employers accede to it, as well as to new employees.

2.

The closure of the scheme to all future accruals of benefit immediately prior to the new plan starting to accept contributions…

3.

The establishment of a schedule of contributions by current employers (ie those who were participating employers on a given date), aimed at restoring the funding level of the scheme to 100% of MFR by April 2006 (which is one year earlier than as required by regs. 2(1) and 16(2) of the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996).

4.

The allocation of part of the scheme's MFR shortfall to each current employer by reference to those of the scheme's liabilities as at 31 October 1999 which accrued in respect of members of the scheme up to that date whilst in the service of that employer…  

5.

The voluntary payment on behalf of certain so-called debt employers (ie broadly, certain named former participating employers) of contributions to the scheme in addition to the discharge by those debt employers of the debts which they owe under s.75 of the Pensions Act 1995.

6.

The establishment of conditions under which a current employer can withdraw from the scheme…  

7.

The circumstances in which the current employers are able collectively to terminate the scheme. (Broadly stated, this is if all so require or if at least five current employers, representing not less than 30% by value of the scheme's liabilities, so decide and either the scheme has reached 100% MFR (on an equity/gilt basis) or annual contributions required to meet the MFR target exceed £16 million increased in line with the RPI [retail prices index] since 31 March 2000 or 31 March 2006 has been reached. The result is that it will no longer be possible for a single employer to bring the scheme to an end, for example in the event of a deficit.)

8.

Provision for the funding target of the scheme to be changed…

9.

The holding of ad hoc meetings between representatives of the trustee and of the employers to discuss investment matters.”

Item 7 in the summary makes it clear that there was at least a general view in 2001 that a single Participating Employer could force a winding up of the MNRPF, and this view seems to have been based on OR 31.0(ii) (set out in paragraph 4 above).

The fact, however, that OR 29 was retained even after the 2001 scheme shows that the need for a further deficit repair scheme necessitating changes to the rules was not ruled out.

Stena Line Limited (“Stena”) is the largest Current Employer. It is Stena’s case that it finds itself bearing approximately 60% of the MNRPF’s liabilities, most of which are attributable to the Specified Employers.

The appellant made an important concession (“the Concession”) in the course of the proceedings below that OR 31.0(ii) had been validly suspended and then removed in 2000/1 as part of the “measures” proposed to deal with the then deficit, and that this was a legitimate exercise of clause 30 of the trust deed because the removal of OR 31.0(ii) was acceptable to all Participating Employers affected by the measures agreed at the time for addressing the deficiency. It has not sought to resile from the Concession. The judge considered that the Concession was rightly made as he had formed the view, between paragraphs 110 and 118 of his judgment, that the expression “with no agreed measures acceptable to the Participating Employers …” (which I shall call “the Critical Expression”)

“is simply a reference back to 1994 Rule 29.1, and the words “agreed” and “acceptable to” are no more than shorthand for the processes which would have to be undertaken under Rule 29.1 before any such deficit repair regime could be put in place.”

The Concession was no doubt made with advice. It may well be for instance (though I am simply speculating) that, if the appellant were successful in showing that the amendments made in 2001 were not valid, the Current Employers might raise claims which would render the appellant liable to make greater contributions than it would be obliged to contribute under any future deficit repair scheme.

For the appellant to succeed on its appeal, it must show (1) that the power of amendment in clause 30 of the trust deed is subject to the implied constraint that a provision equivalent to OR 31.0(ii) must first be reintroduced if the new scheme affects Participating Employers who were not parties to the 2001 scheme (“the entrenchment issue”); and (2) that, on a true construction of OR 31.0(ii), the MNRPF could be forced into winding up if the affected Participating Employers do not consent to the new scheme for deficit repair (“the construction issue”).

Accordingly the issues on this appeal are concerned only with the interpretation of the trust deed and rules. We are not concerned with the propriety of any particular future exercise of the powers conferred on the trustee by the trust deed and rules for the purposes of repairing the current deficit.

It is necessary for the purposes of the entrenchment issue (if taken first) to assume that the answer to the construction issue is decided in the appellant’s favour.

The judge rejected the submissions of the appellant on the entrenchment issue principally for two reasons. The first was his view of the meaning of the Critical Expression which I have already set out above. His second reason was that the Critical Expression was not protected by a proviso to clause 30 of the trust deed in the same way that, for example, the rights of equal representation set out in proviso (c) to that clause are protected.

Before the judge, the appellant argued that the power to amend the scheme so as to introduce a new deficit repair contribution could not now be exercised against the Specified Employers by reason of convention estoppel as they had not objected to the 2001 scheme and made voluntary payments in the belief that obligations to make contributions could no longer be imposed on them. This claim failed and is not raised on this appeal. The nature of this separate claim usefully, however, focuses attention on the nature of the claims that are raised on this appeal. In substance the appellant, on its case, has been deprived, as a result of the 2001 scheme, of the ability to rely on OR 31.0(ii) to oppose a further amendment to the trust deed which imposes a deficit repair obligation on it. Understandably in view of the size of the deficit, it therefore wishes to pursue any means properly available to it of reviving the protection it then lost.  It has failed to establish that the amendment in 2001 was not binding on it and so, as I see it, it wishes by this appeal to achieve the same end but by a different analysis, namely by the implication into the power of amendment of a restriction that the trustee can only bring forward such an amendment in the future if it provides equivalent protection to the Specified Employers.

Mr Andrew Spink QC, for the appellant, accepts that it is within the scope of the power of amendment for the Specified Employers to be brought into a new deficit repair contribution scheme by a further rule amendment but submits that the protection through OR 31.0(ii) must first be reintroduced as a result of an implied restriction. This protection has been referred to as a form of mandatory “balancing provision”. On Mr Spink’s submission, OR 31.0(ii) was expressly deleted but it remains impliedly incorporated. It was removed from the rules as part of a package of temporary measures to amend the contribution rules. It was validly removed because that package of measures only affected a limited number of Participating Employers. The Specified Employers were not asked for their consent and so the protection which OR 31.0(ii) conferred was removed without their consent. Moreover, the measures did not permanently resolve deficit repair issues for all time. On Mr Spink’s submission, if the trustee seeks to introduce measures which would make the Specified Employers liable in the future, there would be an implied restraint on the power of amendment.

On Mr Spink’s submission the 2001 scheme did not change the position that existed before 2001. The power of amendment then conferred an important protection on the Specified Employers if the trustee wished to introduce measures to remove a deficit. What was formerly express is now implied. The judge accepted that an implied restriction on the power of amendment could arise in this way on the footing that the 2001 scheme entailed no permanent release of the rights conferred by OR 31.0(ii). As the judge said:

“The appropriate quid pro quo for the removal of Old Rule 31 would, on Mr Spink’s interpretation of it, not be a permanent narrowing in the scope of the amendment power, but an implied requirement for the Trustee to consider some form of replacement of Old Rule 31 in connection with the implementation of some replacement regime by amendment in which persons other than the Current Employers were under a legal obligation to make deficit repair contributions. In short, the protection for the Specified Employers would not be to make their release from contribution liability permanent, but to make the wholesale removal of Old Rule 31 temporary.” [extract, judgment, paragraph 122]

A proposal to amend OR 31.0(ii) would on Mr Spink’s submission be a “measure” within that sub-rule.

Mr Spink accepts that the judge was correct in law to seek an objective interpretation, and that, following Hole v Garnsey [1930] AC 472, the court has to determine, on an objective basis, whether the proposed amendment introducing a deficit repair contribution from the Specified Employers would constitute such an amendment as can reasonably be considered to have been within the contemplation of the parties when OR 29 was originally introduced.

Mr Spink submits that the implication of a restraint on the power of an amendment is necessary to give the rules business efficacy. The right conferred by OR 31.0(ii) was a fundamental protection for Participating Employers and its removal was ineffective as regards the Specified Employers, namely those Participating Employers other than the Current Employers for the purposes of the 2001 scheme.

Mr Spink submits that the governance arrangements do not give sufficient protection to employers in the position of Specified Employers. There is no specific representation of their interests.

Mr Brian Green QC, for Stena, submits that it is wrong to conclude, simply because the 2001 scheme was only a temporary set of measures, that the removal of OR 31.0(ii) was not a once and for all removal. The power of amendment, on his submission, is unlimited.

OR 32 provided that any of the rules could be amended in accordance with clause 30 of the trust deed. There was no hint that OR 31.0(ii) was excluded from this by entrenchment. The mere fact that the provision is important does not mean that it is by implication entrenched against modification or removal by the trustee. Mr Green submits that the judge’s acceptance that the removal of OR 31.0(ii) constituted a “measure” for the purposes of that provision was qualified. It is not a measure which in itself overcomes a given deficiency. It simply constitutes one of the rules of the scheme.

Mr Christopher Nugee QC, for the trustee, adopts a neutral position. However, he makes it clear that the overriding concern of the trustee is that nothing in these proceedings should force the winding up of the MNRPF against the trustee’s wishes. He points out that it is not clear whether all the Current Employers approved the 2001 scheme but submits that this is not a point that needs to concern this court as the proceedings before Blackburne J were representative proceedings.

Mr Nugee’s response to a question from the bench as to how the law protects an employer who was adversely affected by an amendment to the trust deed or rules was that, the Specified Employers in this case having adhered to this particular scheme providing for amendment and it being accepted that there was a valid removal of OR 31.0(ii), the only constraint is that the trustee must exercise its powers for the purposes for which they were conferred. Apart from the general law circumscribing the manner in which a trustee can exercise its powers, there was nothing else to which Specified Employers were entitled.

The general principles of interpretation are now very well established and were common ground before the judge and on this appeal. There is no doubt that they apply to pension schemes. Certain additional points can be made in the context of their application to pension schemes and these are discussed by Warren J in his judgment in The PNPF Trust Company Ltd v Taylor [2010] EWHC 1573 Ch. The judge was content to adopt, at the invitation of the parties, the discussion by Warren J. I too have found that a helpful discussion and propose to build on it, particularly using the three-part division of the subject used by Warren J, namely the general principles in their application to pension schemes, the case of Hole v Garnsey and then the recent case of Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988, though I propose to reverse the order of the last two parts.

In dealing with the general principles in their application to pension schemes, Warren J in turn adopted points which I had made in British Airways Pension Trustee Ltd v British Airways plc [2002] EWCA Civ 672:

“The interpretation of pension schemes

26.

There have been several reported cases about the interpretation of provisions of pension schemes in recent years. There are no special rules of construction but pension schemes have certain characteristics which tend to differentiate them from other analogous instruments. I mention some of those characteristics in the following paragraphs.

27.

First, members of a scheme are not volunteers: the benefits which they receive under the scheme are part of the remuneration for their services and this is so whether the scheme is contributory or non-contributory. This means that they are in a different position in some respects from beneficiaries of a private trust. Moreover, the relationship of members to the employer must be seen as running in parallel with their employment relationship. This factor, too, can in appropriate circumstances have an effect on the interpretation of the scheme.

28.

Second, a pension scheme should be construed so to give a reasonable and practical effect to the scheme. The administration of a pension fund is a complex matter and it seems to me that it would be crying for the moon to expect the draftsman to have legislated exhaustively for every eventuality. As Millett J said in Re Courage Group Pension Schemes [1987] 1 WLR 495 at 505:

“[its] provisions should wherever possible be construed so as to give reasonable and practical effect to the scheme, bearing in mind that it has to be operated against a constantly changing commercial background. It is important to avoid unduly fettering the power to amend the provisions of the scheme, thereby preventing the parties from making those changes which may be required by the exigencies of commercial life.”

In other words, it is necessary to test competing permissible constructions of a pension scheme against the consequences they produce in practice. Technicality is to be avoided. If the consequences are impractical or over-restrictive or technical in practice, that is an indication that some other interpretation is the appropriate one. Thus in the National Grid case, to which I refer below, where there was a choice of possible constructions, Lord Hoffmann held that the correct choice depended “upon the language of the scheme and the practical consequences of choosing one construction rather than the other.” (see [2001] 1WLR 864 at 887, paragraph 53).

29.

Third, in pension schemes, difficulties can arise where different provisions have been amended at different points in time. The effect is that the version of the scheme in issue may represent a “patchwork” of provisions: see per Robert Walker J in the National Grid case. Pension schemes are often subject to considerable amendment over time. The general principle is that each new provision should be considered against the circumstances prevailing at the date when it was adopted rather than as at the date of the original trust deed: see per Millett J in Re Courage Group's Pension Schemes, above, at 505–506. Likewise, the meaning of a clause in the scheme must be ascertained by examining the deed as it stood at the time the clause was first introduced. Thus, for instance, at the time clause 11 was introduced, neither clause 24 nor its predecessor formed part of the APS Trust Deed, so that clause is not to be taken into account in the interpretation of clause 11…

30.

Fourth, as with any other instrument, a provision of a trust deed must be interpreted in the light of the factual situation at the time it was created. This includes the practice and requirements of the Inland Revenue at that time, and may include common practice among practitioners in the field as evidenced by the works of practitioners at that time. It has been submitted to us that the factual background is only relevant if the document is ambiguous. I do not accept this submission, which is inconsistent with the approach laid down by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. In Lord Hoffmann's words “[i]nterpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background that would reasonably have been available to the parties in the situation in which they were at the time of the contract” (912H). Lord Hoffmann also distinguished the meaning of the words to be found in dictionaries from the meaning of documents:

“(4)

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.”

31.

Fifth, at the end of the day, however, the function of the court is to construe the document without any predisposition as to the correct philosophical approach. Both sides urged on us their respective philosophical approaches. Mr Inglis-Jones submitted that the overall approach of the APS Trust Deed was favourable to the members. BA submitted that it should be remembered that this was a balance of cost scheme and so the fact that there was a surplus meant that the employer had paid too much. As Brooke LJ, giving the judgment of this Court (Nourse, Schiemann, Brooke LJJ), said in the National Grid case [2000] ICR 174, 193

“The solution to the [problem of construction in that case] lies within the terms of the scheme itself, and not within a world populated by competing philosophies as to the true nature and ownership of an actuarial surplus.”

In the same case, in the House of Lords, the beneficiaries of the scheme argued that the surplus represented their contributions or their deferred remuneration. Lord Hoffmann rejected this approach. He expressed the view that, once it was established that the employer could exercise powers conferred by a scheme in its own interests, “I do not see the relevance of the way in which the surplus was funded” (page 869G). I discuss the National Grid case in detail below.

32.

Sixth, a pension scheme should be interpreted as a whole. The meaning of a particular clause should be considered in conjunction with other relevant clauses. To borrow John Donne's famous phrase, no clause “is an Island entire of itself.”

I propose to say a little more about the points being made in the following part of my third point above:

“The general principle is that each new provision should be considered against the circumstances prevailing at the date when it was adopted rather than as at the date of the original trust deed: see per Millett J in Re Courage Group's Pension Schemes, above, at 505–506. Likewise, the meaning of a clause in the scheme must be ascertained by examining the deed as it stood at the time the clause was first introduced. Thus, for instance, at the time clause 11 was introduced, neither clause 24 nor its predecessor formed part of the APS Trust Deed, so that clause is not to be taken into account in the interpretation of clause 11…”

The point under discussion here is the question whether, given that a clause in a trust deed (and, it would follow, a provision in the rules) should be interpreted against the relevant factual background, a clause should be interpreted in the light of the circumstances prevailing at the time of the execution of the trust deed notwithstanding that the clause in question was added later. My answer in the passage just quoted is in the negative. Rather, the circumstances should be those prevailing at the (later) date of the first introduction of the relevant clause. I go on to add that, similarly, the clause must be interpreted in the context of the rest of the deed as it stood at that time.

That passage was not directed to the situation which arises in the present appeal, where a clause in the original trust deed is adopted again when the deed is revised and replaced by a new trust deed, albeit one containing, to all and intents and purposes, the same clause and the question as to the meaning of the clause is one to be asked at the present time. Here clause 30 formed part of trust deed at all material times, but new trust deeds were adopted in substitution for the previous trust deed in 1985, 1994, 2001 and 2007. If an amendment is now proposed to deal with the current deficit, the question will be whether that amendment can now be carried out under that clause as it stands today.

I accept Mr Spink’s submission that, even though the very same clause is effectively re-adopted in the same form, its meaning may change on each re-introduction if the context in which it is re-adopted is materially different. Its meaning may be narrowed, or it may equally well have been widened, because of changes in the relevant background circumstances which fall to be taken into account in interpretation. Likewise I would also accept, as did the judge in paragraph 97 of his judgment, that it is possible that the meaning of a clause changes on re-adoption because there has been some material change in the scope or effect of some other clause in the period between its introduction and its re-introduction that has an impact on it. The case of Thellusson v Viscount Valentia [1907] 2 Ch 1, cited by the judge at paragraph 93 of his judgment, is an example of the narrowing of the meaning of a phrase as a result of a subsequent change in other wording of a document. The question for this court in that case was whether the rules of the Hurlingham Club could be altered so as to remove pigeon-shooting as one of its main objects. When the Club was set up, its sole purpose was “providing a ground for pigeon-shooting” but subsequently words were added to extend the purpose of the Club to other sports, such as polo. Although the power of amendment could not be used to change the purposes of the Club fundamentally, the provision of a ground for pigeon-shooting was no longer the sole purpose of the Club. The report is a very short one and there is no explanation as to what changes had taken place in the Club’s activities. If there had been evidence that they had changed before the amendment to the purpose of the Club, that evidence would have been admissible on the interpretation of the words “providing a ground for pigeon-shooting” because that phrase, following the amendment to include sports such as polo, fell to be interpreted in a new context. The more likely inference, however, from the re-adoption of a clause without any material change is that the clause retained its meaning without any material change.

Thus the meaning of a clause which is re-adopted from time to time has additionally to be considered in the context of circumstances subsequent to the date of its original adoption. It follows that regard should be had both to relevant circumstances at the date of its original adoption and to relevant circumstances at each subsequent re-adoption. Those circumstances can then be weighed in the balance to assess the impact of all the relevant circumstances on the interpretation exercise in hand. In this case, the most recent re-introduction of clause 30 was in 2007. However, where, as here, it is said that the meaning has changed as a result of some event occurring prior to its introduction or re-introduction, and it is common ground that nothing material had happened since, it may be convenient to take the circumstances at the time of the execution of that deed. So, in this case, the parties have taken the date of the adoption of the changes to the trust deed and rules in 2001 as the date at which the meaning of clause 30 should be ascertained, even though any further amendment would have to be within the scope of clause 30 at the time that it is sought to effect an amendment in reliance on this clause.

The Belize case constitutes an important and recent development in the principles of interpretation, which the courts are probably still absorbing and ingesting. It is appropriate to take the statement of principles in it in more detail since it is directly relevant to the issue that I am considering in this case. In Belize, the Privy Council analysed the case law on the implication of terms and decided that the implication of terms is, in essence, an exercise in interpretation. This development promotes the internal coherence of the law by emphasising the role played by the principles of interpretation not only in the context of the interpretation of documents simpliciter but also in the field of the implication of terms. Those principles are the unifying factor. The internal coherence of the law is important because it enables the courts to identify the aims and values that underpin the law and to pursue those values and aims so as to achieve consistency in the structure of the law.

Lord Hoffmann gave the opinion of the Board of the Privy Council in Belize. He held that the process of implying terms is one of interpretation, not of rewriting the parties’ agreement. The question of implying a term arises because the document is silent. However, Lord Hoffmann points out that, if the document makes no provision for something to happen in a particular event, the usual inference is that it has not been agreed. Otherwise the parties would have said spelt out what was to happen.

But that inference is not to be drawn in every case:

“[18] In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.”

Then Lord Hoffmann set out his test for the implication of terms, viewed from within the framework of the principles of the interpretation:

“[21] It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must 'go without saying', it must be 'necessary to give business efficacy to the contract' and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?”

Lord Hoffmann pointed out in this passage that in the past the courts have used a number of different formulae to define the circumstances in which it would be right to imply a term into an instrument or agreement. Another example which he gave of the formulae which the courts use was the following:

“[26] In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282–283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was 'not … necessary to review exhaustively the authorities on the implication of a term in a contract' but that the following conditions ('which may overlap') must be satisfied:

'(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying” (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.' ”

But, Lord Hoffmann emphasised, it must not be forgotten that the real task is always one of interpretation. The effect of the implication must be to make the instrument mean what it would reasonably be understood to mean. The danger of using formulae, such as “necessary to give the contract business efficacy”, is that such phrases can take on a “life of their own” and divert focus from the task of interpretation. Moreover, the process of interpretation is an objective one; the court does not ask what the parties intended any more that it asks what it would have been reasonable for them to agree. Indeed, the test propounded by Lord Hoffmann is written in the passive voice avoiding any suggestion that reasonableness is to be tested by reference to the views of a reasonable bystander or of one of the parties to the document.

In light of the development in Belize, I do not consider that assistance would be gained for present purposes by referring to Hole v Garnsey, discussed by Warren J, and indeed neither counsel asked us to consider it. I am content to adopt what Warren J has said about this case, and his helpful summary of the subsequent case law following Hole v Garnsey. This subsequent case law did not, however, concern pension schemes. Hole v Garnsey established the proposition that a power to alter the rules of an industrial and provident society did not extend to increasing the liability of members who had not consented to the alteration. Section 25 of the Companies Act 2006 is designed to prevent this kind of amendment in relation to companies. The substance of this provision was first enacted in 1928 and this may be one of the reasons why this particular line of case law has not been much developed.

The trust deed and rules of a pension scheme are generally long, technical documents that have evolved over several decades and cover many eventualities, as in this case. Thus, usefully for present purposes, Lord Hoffmann makes the point (at paragraph 25) that the implication does not have to be obvious, and that is unlikely in any event in the case of a complex document. He holds:

“…it is not necessary that the need for the implied term should be obvious in the sense of being immediately apparent, even upon a superficial consideration of the terms of the contract and the relevant background. The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument. In such circumstances, the fact that the actual parties might have said to the officious bystander 'Could you please explain that again?' does not matter.”

The implications of Belize on the case law on implied terms, which puts forward the different formulae referred to above, is not wholly clear. Lord Hoffmann accepts that the court may find it helpful to use one of those formulae, provided it does not use them as different or additional tests. We were invited to take that course. Moreover, it was accepted that we should follow Belize even though it is a decision of the Privy Council since it is based on authorities from this jurisdiction.

On the basis of the law as enunciated in Belize, the question whether the appellant’s case is to be seen as based on an implied restriction on the power of amendment or as a question of the interpretation of clause 30 is of no great importance in that the essential task of the court is the same:

“There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?” (per Lord Hoffmann)

I now turn to the judge’s judgment. In paragraph 97 of his judgment, the judge holds that:

“…the starting point in relation to powers to amend pension schemes is that they should be given a broad interpretation, consistent with the need to preserve their utility over a long period of unpredictable future events, and to be of practical use in circumstances which the original framers of the power may have been unable even to imagine, at the time of its inception.”

Again, at paragraph 105 of his judgment, the judge refers to “a legitimate predisposition to confer a broad interpretation on a power of amendment when contained in a pension scheme designed to last over many years, through unpredictable changes in circumstances, and changes in statutory structures.”

In this context, the process on which the court is engaged is one of interpretation according to the normal principles and not, for instance, the process on which the court is engaged when it is interpreting a statute to be compatible so far as possible with the rights conferred by the European Convention on Human Rights. When the court is engaged on interpretation according to normal principles, it has to be even-handed between the parties, and in general it has to give each word its full weight. If by “broad interpretation” the judge meant that the power of amendment should be interpreted with greater liberality than other documents purposively construed with a view to holding that an amendment is binding on Participating Employers who have not consented to it, I would disagree. In my judgment, a power of amendment should be interpreted precisely in accordance with its terms, neither more nor less. To construe otherwise is to favour the majority at the expense of the non-assenting minority. The parties have only agreed to amendments approved in accordance with the power of amendment on its true construction.

The approach to the interpretation of modification of rights clauses has been considered in the context of debenture stock deeds.  Power is often given to debenture stockholders by a majority to sanction a modification of rights by resolution.  But the transaction to be sanctioned must fall squarely within the terms of the modification of rights clause.  Thus, for example, in Mercantile Investment and General Trust Co v International Co of Mexico [1893] 1 Ch 484n, the defendant had issued debentures secured by a trust deed containing a modification of rights clause.  The defendant sold its undertaking to an English company and a resolution was passed, pursuant to the modification of rights clause, agreeing to the exchange of the debentures for preference shares in the new company.  There was power to approve by resolution any modification or compromise of the rights of debenture holders.  But there was no evidence that that was a difficulty in enforcing the rights of debenture holders.  This Court (Lindley, Fry and Bowen LJJ) held that the resolution was invalid. Lindley LJ held:

“The main question, however, is, whether the resolution is one by which it was competent for a majority of debenture-holders to bind a dissentient minority. This must depend upon the true construction of the 22nd clause of the deed of the 10th of March, 1888; and, in order to arrive at that construction, attention must be paid, not only to the language of the clause, but to the objects to attain which the clause itself was inserted.

Powers given to majorities to bind minorities are always liable to abuse; and, whilst full effect ought to be given to them in cases clearly falling within them, ambiguities of language ought not to be taken advantage of to strengthen them and make them applicable to cases not included in those which they were apparently intended to meet…. A power to compromise their rights presupposes some dispute about them or difficulties in enforcing them, and does not include a power to exchange their debentures for shares in another company, where there is no such dispute or difficulty. It is a mistake to suppose that a power to compromise a claim for money becomes a power to accept less than 20s. in the pound, if the debt is undisputed and the debtor can pay. …”

In the present case, the power to amend is exercisable not by a majority of the Participating Employers but by the trustee, with the approval of a majority of the representatives of the Participating Employers and of the representatives of the Members. However, the function of the power is the same so this distinction of fact does not alter the point that the power of amendment is essentially a power given to make a change in what has previously been the agreed framework binding on the parties without the consent of all of those parties. It should not, therefore, be construed to have greater effect than it ought to have on its true interpretation. That is the case even though powers in a trust deed must be interpreted so as to enable them to have effect notwithstanding changes in circumstances and the legislative framework over the period of time for which the trust deed is in force.

In view of the Concession, we have not had to consider what the position would have been if, contrary to the Concession, we had found that the amendments to OR 31.0(ii) in 2001 had effect only as regards the Current Employers and not the Specified Employers who were not affected by the 2001 regime and who were not then consulted.

It is well-established that a document must be given an objective interpretation; thus I agree with the judge that evidence of what the parties subjectively thought the Critical Expression meant at the time of the 2001 scheme would not be admissible as an aid to the interpretation of clause. Furthermore, the admissible background does not, for reasons of legal policy, include any pre-contractual negotiations as to its contents (Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101).

I have already made it clear that in my judgment the admissible background is not confined to that in existence in 1978 or 1994. To confine the meaning of clause 30 to the surrounding circumstances in 1978 or 1994 would be to ignore a relevant part of the background against which clause 30 now must be interpreted. In my judgment, as part of the admissible background, the court can look at the circular dated 8 May 2000 to the Current Employers. This circular enclosed a separate document describing the proposal for the 2001 scheme in detail. This made it clear that it was the trustee’s intention to amend the rules of the fund so as to permit OR 31.0(ii) to be suspended until the earlier of the completion of the proceedings or 31 May 2001 and that this was being done “to allow for the orderly conduct of the court proceedings”. The document also made it clear that once the court had approved the proposal the current OR 31.0(ii) would be deleted and replaced by a power for all the then Current Employers, or a specified percentage of them, to terminate the fund, although such termination was not permitted before a specified time. The circular shows that removal of the Critical Expression (and not its mere suspension) was an integral part of the package of measures deemed necessary for the purpose of dealing with the then deficit. It cannot reasonably have been thought that a further deficit could not arise. It would moreover be inconsistent with the scheme as described in the circular if OR 31.0(ii) were to survive by way of implication. Thus the sequence of events in 2000 and 2001 militates strongly against the case that the appellant advances. The trust deed and rules adopted as part of the 2001 scheme could not have been reasonably understood to mean that there would in future be implied a provision equivalent to the Critical Expression, which had been expressly removed.

Added to that, in my judgment, the Concession represents a further hurdle to the court concluding that a provision similar to that removed by the 2001 scheme can arise by implication. Mr Spink submits that the court must interpret clause 30 in the light of the statutory framework at the time of the original trust deed. At that time, employers were not restricted from curtailing their liabilities to pensioners by bringing a scheme to an end. For the reasons already given, however, I consider that clause 30 also has to be interpreted in the light of circumstances subsequent to 1978 and those circumstances would include the substantial changes made by subsequent legislation and the diminution in any incentive to put an end to the trusts established by the original trust deed. This factor makes it unlikely that the veto conferred by OR 31.0(ii) was intended to survive the amendment made to remove OR 31.0(ii), which by the Concession the appellant has conceded is effective.

I made the point above that, when a clause is simply repeated with no change or virtually no change, that may well suggest that in truth its meaning has not changed. In this case, that inference is underscored by the fact that clause 30 contains a number of restrictions and exceptions, and the restriction for which the appellant submits does not form one of them. Moreover, the structure of clause 30 suggests strongly that this list was intended to be an exhaustive list and that no other implied limitation was to be found from any other part of the trust deed or rules, let alone any implied limitation by virtue of something that had since ceased to form part of the trust deed. Mr Spink submits that clause 30 was not materially different prior to 2001 and that it was possible that the new proviso was not adopted because the existing clause was simply renewed, but in my judgment there was clearly an opportunity to amend clause 30 in 2001 and the question of protection for the Specified Employers was not obscured from view as the 2001 scheme involved the removal of OR 31.0(ii). In those circumstances clause 30 as re-adopted in 2001 cannot reasonably be interpreted as subject to the implied restriction for which the appellant contends.

Mr Spink also relies on a contrast between clause 30 and the power of amendment in the sister pension scheme set up in 1999 for officers in the Merchant Navy, the MNOPF. Rule 31.0 of this scheme expressly provided that the trust should continue until determined “by a resolution to determine the Scheme passed by the Trustee, which resolution shall not be passed unless the Trustees are satisfied after due enquiry that the majority, both of the Participating Employers and the Members, desire the Scheme shall be wound up.” Mr Spink submits in effect that it is noticeable that in the sister scheme a specific provision existed to enable the majority of employers and members to terminate the scheme. Where the parties intended the majority to have this power, the rules said so. I accept that the scheme for officers was a scheme closely associated with the MNRPF, but in my judgment Mr Spink’s submission here can only carry very limited weight as the MNRPF has to receive its own independent interpretation in view of the differences in wording and history.

On Mr Spink’s submission, OR 31.0(ii) is a fundamentally important and integral provision and it constitutes a crucial element in the balance of power under the scheme. In my judgment, that submission is not borne out by the trust deed and rules of the MNRPF. I accept that the documentation of the MNRPF is very complex. It is not impossible for the drafter of such a document to have forgotten a detailed provision. It is also not impossible to conceive of a situation in which a single Participating Employer would wish to force a winding up. But, even as at the date of the 2001 scheme, the winding up of the MNRPF would have triggered an obligation (imposed by the Pensions Act 1995) on the Participating Employers to make good any deficiency in the pension scheme's assets as compared with its liabilities (as actuarially calculated), thus making it less likely in 2001 than in 1978 that it was the intention of the trust deed and rules then adopted to preserve the Critical Expression by implication or that the Critical Expression should constitute an individual right of Participating Employers who did not assent to the 2001 scheme. Moreover, a further answer to this point is provided by Mr Green. He submits that proviso (c) to clause 30 provides for a different means of protecting the Participating Employers as in the form of an entrenched requirement for equal representation on the board of the trustee. This proviso in my judgment makes it much less likely that further protection was envisaged for the Specified Employers. It is not obvious why the implication sought to be made by the appellant should be made in the light of this provision. This provision gives some, albeit much more limited, protection to the Specified Employers. In those circumstances the implication cannot, for instance, pass the test previously used for implied terms that the implication should be necessary to give an agreement business efficacy in light of the provision already made.

Furthermore, the rules expressly recognised that OR 31.0(ii) is subject to modification. The reference in clause 29 of the 1994 trust deed to “such steps as are hereinafter laid down for amendment of this Deed and the Rules” is a reference to rule 32, which provides that the rules can be varied or added to in accordance with clause 30, making no distinction between OR 31.0(ii) and other rules. This too is a strong indication that OR 31.0(ii) could be deleted and that the Critical Expression was not a fundamental provision which was effectively entrenched for all time in this way. On that basis, the process of interpretation for which the appellant now contends cannot restore it.

There is a parallel here between Thellusson v Lord Valentia, summarised above. Once an alteration was validly made in that case to extend the purpose of the Club to the enjoyment of sports other than pigeon-shooting, it became impossible to contend that the purpose of pigeon-shooting was fundamental and could not be removed. In essence, what this case comes down to is that, once OR 31.0(ii) had been validly removed, it became impossible to contend that the Critical Expression contained in it conferred a fundamental right which must continue to be given effect as an implied restriction on clause 30.

As, in my judgment, the appellant fails on the entrenchment issue, it follows that I do not need to consider the construction issue. The parties addressed detailed argument on this issue but without intending any discourtesy to counsel, I do not propose to set out those submissions. I would dismiss this appeal.

I agree.

I also agree.