Pitmans Trustees Ltd. & Ors v The Telecommunications Group Plc

The BETEC Retirement Benefits Plan ("the BETEC Plan") was constituted in July 1959 to provide benefits for the employees of Clayhithe Group plc ("Clayhithe") and the other companies therein specified on a final salary basis only. On 8th April 1998 Clayhithe and its subsidiaries were acquired by the Defendant then called Roxspur plc ("Roxspur"). The employees of Roxspur had the benefit of the Roxspur Money Purchase Scheme ("the Roxspur Scheme") which, as its name implies, provided retirement benefits on a money purchase basis.

The rules of both the BETEC Plan and the Roxspur Scheme permitted the transfer of the assets and liabilities of the latter to the trustees of the former. Such a transfer was effected by a Deed of Amendment dated 26th April 1999 ("the Deed of Amendment") and a Transfer Agreement ("the Transfer Agreement") dated 30th April 1999. Thereafter the BETEC Plan as amended by the Deed of Amendment ("the Plan") was operated in accordance with its terms so as to provide both final salary benefits for the former employees of Clayhithe and its subsidiaries and money purchase benefits for the former employees of Roxspur and its subsidiaries. The claimants ("the Trustees") are the present trustees of the Plan.

On 24th January 2002 the principal employer, Roxspur Pension Schemes Ltd (formerly Clevedon Fasteners Ltd), the businesses of all the subsidiaries of either Clayhithe or Roxspur having been sold, gave notice under Rule 26A to terminate the Plan with immediate effect. On 28th May 2002 the Trustees, pursuant to Rule 26C, resolved that the Plan be wound up. One consequence of the winding-up of an occupational pension scheme which is not a money purchase scheme is that the trustees are entitled to recover any deficiency from the employer pursuant to the provisions of s.75 Pensions Act 1995. The assets of the Plan were and are insufficient to provide for all the benefits due to the 588 pensioner and 586 deferred pensioner members.

In May 2003 it came to the notice of the Trustees that Globex Investments Ltd ("Globex") was interested in procuring a merger of Roxspur with another company in order to secure the use of the cash resources of Roxspur to fund future growth. The Trustees were concerned lest these plans should affect the right they believed they had under s.75 Pensions Act 1995 to recover the deficiency in the Plan from Roxspur. The amount of the deficiency depended on the valuation of the liabilities for final salary benefits which, in turn, would be affected if the Trustees adopted what is called a "gilts-matching policy". The Trustees claim to have done so on 29th May 2003.

On 4th June 2003 the Plan Actuary certified the deficiency as at 31st May 2003 to be £4,409,003 and the Trustees demanded payment of that amount from Roxspur. Roxspur did not pay and this action was commenced by the issue of a claim form the same day. Following service of a defence and counterclaim and a reply and defence to counterclaim, on 22nd October 2003 the Trustees issued an application under CPR Rule 24 seeking summary judgment for £4,409,003 or in the alternative the determination of three specified issues. This was met by the issue of an application by Roxspur under CPR Rule 24 seeking the summary dismissal of the claim or alternatively that the second and third of the issues raised by the Trustees be determined in a specified manner in favour of Roxspur. Those are the applications now before me.

The issues fall into three broad groups. The first group raises issues as to whether Roxspur can be liable as claimed given that the deficiency arose from the final salary element of the Plan, not the money purchase element. The two issues are (1) whether the Plan is a single scheme comprising both elements to which s.75 applies as a whole, and if so (2) whether the provisions of s.75(1B), to be applied in accordance with the Occupational Pension Schemes (Deficiency on Winding-up etc) Regulations 1996 SI No:3128 ("the Deficiency Regulations"), nevertheless require the two elements to be treated as separate schemes for the purpose of s.75. The second group arises from the claim of the Trustees to have adopted a gilts-matching policy on 29th May 2003. The issues are (3) whether the condition for consultation with the employer before adopting a revised statement of investment principles imposed by s.35(5)(b) Pensions Act 1995 was satisfied, and if so (4) whether the revised statement of investment principles adopted on 29th May 2003 was or included a gilts-matching policy. The third group of issues arises from the answers to issues (3) and (4) and may be summarised as (5) what is the consequence of a negative answer to either or both issues (3) and (4)? They relate to the proper interpretation and effect of the phrase "the applicable time" in s.75(3) Pensions Act 1995. Common to all these issues is a consideration of complicated primary and secondary legislation relating to pension schemes. But first I must explain the relevant terms of the BETEC Plan, the Roxspur Scheme, the effect of the Deed of Amendment and Transfer Agreement and the legislative framework, both primary and secondary. They are relevant to all the issues I have to decide.

The relevant rules of the BETEC Plan are those adopted on 19th July 1993. I will, in due course, quote the relevant rules as amended by the Deed of Amendment. Rule 2 provided for automatic membership of those whose contracts of employment with Clayhithe or another participating employer stated that such employee was eligible. The membership was divided into those who were over or under the age of 35, described as upper or lower tier members. Contributions were payable by employer and employee at prescribed rates. (Rule 3) Provision was made for Additional Voluntary Contributions by Rule 4. Rule 5 provided for pensions for members on the basis of a percentage of final pensionable salary dependent on length of service and the tier of membership. Adjustments to the amount of the pension were made for those who retired late or early. Rules 6 to 17 dealt with the payment of lump sum and dependent benefits, death in service, guaranteed minima, early leavers, rights to transfer in or out, absences from work, cesser of eligibility, opting and contracting out. Rule 18 contained special provisions for certain classes of member, including part time employees and those who joined before 1st June 1989 or left before 1st April 1991. Rule 19 contained general rules about benefits.

Rule 20 conferred various discretionary powers on the trustees. Rule 20D, pursuant to which the transfer from the Roxspur Scheme was accepted, provided

Rule 26 provided for the termination of the plan by notice from the Principal Employer and its consequences. Rule 27 permitted the Trustees, with the consent of the Principal Employer, to amend the rules subject to certain limitations. Rule 28 provided that the Plan and its administration were to be governed by English law.

The Roxspur Scheme started on 1st January 1995. Its rules provided (Rule 1(4)) that

Rule 11 dealt with transfers out. By paragraph (2) the Trustees were obliged to give effect to any exercise of a beneficiary’s right to require the cash equivalent of his accrued rights to be transferred to another scheme of his choice. Paragraph (3) provided

The consequence of a transfer payment was prescribed by paragraph (6) in the following terms

The Transfer Agreement was made on 30th April 1999 between the then trustees of the Roxspur Scheme (1), Roxspur (2), the then trustees of the BETEC Plan (3) and Clevedon Fasteners Ltd (4). (Clevedon Fasteners Ltd was a subsidiary of Roxspur. It became the principal employer in succession to Clayhithe as part of the takeover. It subsequently changed its name to Roxspur Pension Schemes Ltd ("RPSL")). Transferring Members were defined in clause 7 as those members who had given a notice in the form set out in the Appendix. The notice stated that the Roxspur Scheme would "be merged into the Betec Retirement Benefits Plan" so that "for future service you will continue to receive identical benefits under the ‘merged’ scheme". The notice pointed out that members had options where to transfer their current entitlement, one of which was to transfer their existing benefits to the Betec Plan. They were invited to complete a form indicating which option they wished to adopt. The notice concluded by pointing out that

The Transfer Agreement provided for the transfer from the trustees of the Roxspur Scheme to the trustees of the Betec Plan of cash and securities to a value equal to the proportion of the assets of the Roxspur Scheme attributable to the Transferring Members. Clause 8 provided that in return for the transfer the trustees of the Betec Plan should provide benefits (including death benefits) under the Betec Plan for each transferring member from the Roxspur Scheme for whom benefits would otherwise have been provided from the Roxspur Scheme. Clause 9 required the Betec Plan to provide for transferring members of the Roxspur Scheme who were active and who became active members of the Betec Plan "benefits....which are the same as those that would otherwise have been provided for the member under the" Roxspur Scheme.

The Deed of Amendment was made on 26th April 1999 by Clayhithe (1) and the then trustees of the BETEC Plan (2). It provided for amendments to, amongst others Rules 2, 3 and 18. So far as relevant such amended rules, the amendments being indicated by italics, provide as follows:

No amendment was made to Rule 21A which continued to provide that

Rule 26 was not amended either. Rule 26B requires each member to be treated on termination as if he had on that day left employment with a preserved pension. Rule 26C provides that when the Plan terminates, subject to a power to defer the winding up, the Trustees will wind it up as provided in that Rule. The rule requires that when the Trustees wind up the Plan they will pay all sums due before the winding up started, will then "set aside sufficient assets" to pay the expenses of winding up and "will then use the rest of the Plan assets as described below". Rule 26D requires the trustees to buy annuities and insurance policies for beneficiaries to provide benefits as nearly as practicable the same as such person’s entitlement under the Plan. "If any assets remain" the trustees are to increase or provide additional benefits to the extent they consider appropriate after consulting the Principal Employer. But "if the assets are insufficient" then benefits to members are to be paid in the following order of priority (1) benefits to pensioners and members who had reached Normal Pension Date before the winding up started, (2) benefits accrued up to 6th April 1978 based on service and earnings before that date and (3) guaranteed minimum pensions not yet payable.

By a deed dated 10th May 2000 Roxspur and other associated companies adhered to the Plan as associated employers. As I have already indicated the Plan was terminated by a notice given by RPSL on 24th January 2002, the businesses of the subsidiaries of Roxspur having by then been sold. Such subsidiaries were put into members voluntary liquidation in March 2002. On 28th May 2002 the trustees of the Plan resolved that it should be wound up in accordance with Rule 26C.

The date that the winding up of the Plan commenced is the convenient moment at which to consider issues (1) and (2). The last and by then the only employer was Roxspur. There were 588 pensioner and 586 deferred pensioner members. The benefits due to the members were either final salary or money purchase benefits. For the most part the former were due to those who had been members of the BETEC Plan before the merger with the Roxspur Scheme. The deficit is due to the value of the final salary benefits due to them.

Pensions Act 1995 made substantial amendments to the Pension Schemes Act 1993 and itself introduced substantive provisions relating to supervision and the qualification, selection and functions of trustees. In relation to the investment duties and powers of trustees s.35 requires them to prepare, maintain and revise a written statement of the principles governing decisions about investments. Subsections (5) and (6) provide

S.56 introduces the minimum funding requirement. Subsection (1) subjects every occupational pension scheme to which the section applies to a requirement that the value of the assets of the scheme is not less than the amount of the liabilities of the scheme. But, by subsection (2)(a), the section does not apply to "a money purchase scheme", as defined in Pension Schemes Act 1993 s.181(1) incorporated into Pensions Act 1995 by s.124(5). The following are the relevant definitions

The liabilities and assets to be taken into account are those to be prescribed by regulations. They are the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996 SI No: 1536 ("the Minimum Funding Regulations"). Reg.3(1) requires the liabilities and assets to be determined, calculated and verified by the actuary in accordance with the provisions mentioned in the succeeding sub-paragraphs. By reg.4(1) assets are to be given the values ascribed to them in the relevant accounts as defined. Liabilities are to be determined and valued in accordance with the provisions of reg. 7.

Sub-paragraphs (2),(3),(7),(8),(8A) and (9) of Regulation 7 provide

GN 27, which provides guidance as to the valuation of liabilities, provides (para 2.1.3) that equity returns are assumed to exceed gilt returns by 2% per annum. Thus the effect of reg.7(8) is to increase the liability in any case in which a gilts-matching policy, as defined in reg.7(9)(a), has been validly adopted. It is for this reason that issues (3) and (4) are important.

Subsequent sections, in particular s.75, contain provisions for securing that the minimum funding requirement is made good. S.75, so far as relevant provides

The prescribed regulations are the Deficiency Regulations to which I referred in paragraph 6 above. In exercise of the power conferred by s.75(10) reg.4 modifies s.75 in its application to a scheme in relation to which there is more than one employer. In such a case reg. 4(2) requires the insertion after subsection (1) of three additional subsections, (1A), (1B) and (1C). Two of them (1B) and (1C) detail the circumstances in which a single scheme is to be treated as two or more separate schemes. They are

Reg. 2(4) requires the word "scheme" to be construed in appropriate cases in accordance with subsections (1B) and (1C). Regulations 3 to 6 deal with schemes which are not money purchase schemes, regulations 7 to 9 deal with those which are. Regulation 3(1)(b) requires assets and liabilities to be determined, calculated and verified by the actuary in accordance with regulations 4 to 8 of the Minimum Funding Regulations.

S.149 provides for so-called hybrid schemes, namely those which provide for both final salary and money purchase benefits. It provides that the Secretary of State may by regulations prescribe the circumstances in which such a scheme is to be treated as two separate schemes. He has done so in the Occupational Pension Schemes (Mixed Benefit Contracted-out Schemes) Regulations 1996 SI No:1977, but in terms which, it is common ground, do not apply to the Plan.

This is the first issue to which I refer in paragraph 6 above. Its importance arises from the fact that the deficiency in the Plan is attributable to the final salary benefits due to members of the former BETEC Plan rather than the money purchase benefits arising from the Roxspur Scheme. If the Plan is to be treated as divided on those lines and recognised for the purposes of s.75 as two separate schemes then Roxspur cannot be liable for any part of the deficiency as it was never an employer for the purposes of the BETEC Plan either before or after the merger.

The Trustees contend that there is no basis for such treatment. They point out that Roxspur was the only employer still employing members of the Plan on 24th January 2002 when the Plan was determined by notice and, as there was no deficit when the subsidiaries ceased to participate in the Plan, it alone is liable in accordance with Deficiency Regulation 5. They contend that a necessary but insufficient requirement for part of a scheme to be recognised and treated as a separate scheme in its own right is the existence of two separate trust funds, one held exclusively for members accruing benefits on a final salary basis, the other exclusively for members accruing benefits on a money purchase basis. They submit that the documentation regulating the Plan shows that there are no such separate trusts. The Trustees contend that even if there are separate trusts the documentation as a whole shows there to be but one scheme, namely the Plan. They point out that special provision for a single scheme to be treated as two or more schemes has been made in a variety of circumstances but that none covers this case. They rely on the definition of the Plan in Rule 1 and the recognition of a single plan or scheme in the appointment of a new trustee made on 25th January 2000 and in the deed dated 10th May 2000 by which Roxspur agreed to participate.

This is disputed by Roxspur. It points out that it is inherent in a final salary scheme, but, in the absence of misapplication, not in a money purchase scheme, that at any given point of time there may be a deficiency. Thus both ss.56 and 75 exclude a money purchase scheme as defined in s.181 Pension Schemes Act 1993, that is to say a scheme under which all the benefits are money purchase benefits. Roxspur accepts that it is possible to have a single scheme which provides benefits of both descriptions but contends that where there are two self-contained and segregated trust funds each should be treated for the purposes of ss. 56 and 75 as a separate scheme. This argument requires Roxspur to establish both that (a) there are two distinct and segregated trust funds and that (b) the proper interpretation of the word "scheme" appearing in both sections requires that distinction to be applied.

At one stage in his argument counsel for Roxspur submitted that the first proposition depended on issues of fact which could only be determined after disclosure and cross-examination at a trial. However such issues all concerned subsequent conduct of the Trustees and others which were not alleged to give rise to legal rights or obligations, such as an estoppel or collateral contract, on their own. In my view, as I understood counsel for Roxspur subsequently to accept, such conduct is inadmissible for the purpose of interpreting and applying the various documents constituting the Plan. Accordingly both propositions are susceptible of being determined on an application under CPR Part 24.

Counsel for Roxspur relied on the facts that the BETEC Plan and the Roxspur Scheme had separate and different provisions for contributions, termination and winding up. Following the merger the accounts showed separate funds for the final salary and money purchase benefits, albeit the accounting regulations so required. He invited me to infer that it could not have been or was not the intention of those involved that after the merger there should be a single trust fund with the consequence that a deficit on the final salary part would be subsidised by the money purchase assets. I was referred to the judgment of Rimer J in Kemble v Hicks [1999] PLR 287 and of Neuberger J in Barclays Bank plc v Holmes [2000] PLR 339. As the terms of the pension schemes in those cases were materially different they do not assist me.

I prefer the arguments for the Trustees. There can be no doubt that the trustees of the Roxspur Scheme held the assets thereof in a fiduciary capacity of which the members could compel due performance, but the members did not have a beneficial interest in those assets, see Rule 8. The powers of the trustees of the Roxspur Scheme included the power to make a transfer to the trustees of a new scheme under Rule 11(3). It is not suggested that such power was not properly exercised. The consequence, prescribed by Rule 11(6), is that the trustees of the Roxspur Scheme were thereby discharged from all liabilities in respect of all transferring beneficiaries. I do not accept the analysis advanced by counsel for Roxspur that the assets transferred by the trustees of the Roxspur Scheme were somehow impressed with a trust separate and distinct from and having priority over the trusts imposed by the Plan, being the BETEC Plan as amended by the Deed of Amendment, on receipt of the assets from the Roxspur Scheme.

The trustees of the Plan received the assets from the Roxspur Scheme in accordance with the provisions of Rule 20D as amended, namely subject to the provisions of Appendix II to the Plan in the case of assets representing protected rights and otherwise subject to the obligation to provide such benefits consistent with Revenue Approval and with the Preservation, Revaluation and Transfer Value Laws (as defined) as they might decide were appropriate after considering actuarial advice. But any discretion apparently conferred by Rule 20D was fettered by the express provisions of Rule 18D as amended. In accordance with the amendment the benefits to be provided to transferring members were to be "as described in the rules of the [Roxspur Scheme]". That description included Rule 8. Thereafter the transferring member was obliged to pay such contributions as were notified to him in accordance with amended rule 3B.

In those circumstances effect must be given to the express provisions of Rule 21A. The assets transferred by the Roxspur Trustees and the subsequent contributions made by transferring members were all received by the trustees of the Plan as such. Such trustees also held and subsequently received assets and contributions relating to the final salary benefits due to the members of the BETEC Plan. Rule 21A required the Trustees to hold all such assets and contributions and all income thereof on trust to pay the benefits under the Plan. No distinction was drawn dependent on the source or application of the assets. The expenses of operating the Plan came out of the Plan’s assets generally. Rule 26, dealing with the application of the assets in the winding up of the Plan, similarly treated the Plan’s assets generally.

The priorities for which Rule 26 provided are altered by the combined effect of s.73 Pensions Act 1995 and Regulation 13 of the Occupational Pension Schemes (Winding up) Regulations 1996 SI No:3126 so that money purchase benefits and the assets by reference to which those assets are to be calculated are treated separately for the purposes of priority in a winding up. These provisions do not alter the fact that Rule 26 treated all the assets of the Plan as one fund but they do undermine the submission for Roxspur that it cannot have been intended that a deficiency in respect of the final salary benefits should be made good from the assets transferred from the Roxspur Scheme. The fact is that these provisions provide for an altered order of priorities so as to exclude such a cross-subsidy and are part of the statutory background to the merger of the BETEC Plan and the Roxspur Scheme.

Further, the intention to merge the two distinct funds into one by means of the Transfer Agreement, the Deed of Amendment and the transfer of assets made by the trustees of the Roxspur Scheme must be attributed to the parties to those deeds and transactions. If that was not their intention there was no purpose to those deeds and transactions. Similarly the notice given to the transferring members of the Roxspur Scheme would have been misleading.

For all these reasons I conclude that the Plan comprised but one trust fund from which both the final salary and money purchase benefits were payable. It follows that the issue as to the proper construction of the word "scheme" in s.75 does not arise. But in case this case goes further I should indicate my view.

The word "scheme" is capable of embracing any plan or arrangement. In the related field of the power of the Inland Revenue to approve retirement benefit schemes "scheme" is defined in s.611(2) Income and Corporation Taxes Act 1988 as including "a deed, agreement, series of agreements or other arrangements providing for relevant benefits..". In the Pension Schemes Act 1993 and Pensions Act 1995 the word "scheme" is used in conjunction with additional words which operate to limit its scope. Thus s.1 Pension Schemes Act 1993 defines "occupational pension scheme", "personal pension scheme" and "public service pension scheme" by reference to "any scheme or arrangement which..". The definition of a "money purchase scheme" in s.181(1) Pension Schemes Act 1993 is by reference to "a pension scheme under which...". All these definitions are incorporated into the Pensions Act 1995 by ss.124(5) and 176. In addition s.124(1) Pensions Act 1995 defines a "trust scheme" as an occupational pension scheme established under a trust. The form of all these definitions indicates a clear parliamentary intention that the word "scheme" should retain its generality.

Similarly when it is intended that a single scheme in the wide sense of the word should be treated as two or more separate schemes the legislation, primary or secondary, makes specific provision to that effect. Thus provision is made for sectionalisation in s.75(1B) and (1C) Pensions Act 1995 as inserted by Deficiency Regulation 4(2) and in Deficiency Regulation Schedule 2 paras 1 and 3. Not only is there no comparable provision to deal with cases where there are separate and distinct trusts but both s.73 Pensions Act, as applied by Regulation 13 of the Occupational Pension Schemes (Winding up) Regulations 1996 SI No:3126 and s.149 Pensions Act 1995 recognise the existence of "hybrid schemes" as schemes from which both final salary and money purchase benefits are payable. But there is no provision for treating hybrid schemes which comprise two or more separate and distinct trusts as constituting two or more separate schemes. Thus the limitation on the width of the word "scheme" which Roxspur seeks to imply would be inconsistent with all the relevant primary and secondary legislation.

For these reasons also I reject the submission of Roxspur that the scheme to which s.75 applies is limited to that part of the Plan which provides final salary benefits for those formerly employed by Clayhithe. In my judgment, subject to issue 2, the Plan is a single scheme for the purposes of s.75.

I have set out the terms of the sub-section in paragraph 26 above. It imposes three conditions. The argument before me concentrated on condition (a). Counsel for Roxspur contended that such condition was satisfied because Rule 2A of the Plan made eligibility for membership depend on the terms of the employee’s contract of employment. As no employer provided both final salary benefits and money purchase benefits different sections of the Plan applied to different employers.

I cannot accept this argument. The focus of the regulation by which the subsection is made to apply is on a multiplicity of employers. It is concerned with provisions of the scheme by which different sections of the scheme apply to different employers or groups of employers. But that is not the purpose or effect of Rule 2A. Rule 2A applies to the employee and provides for his eligibility to join the Plan. Far from dividing the Plan into two or more sections by reference to the employer it seeks to collect the employees of all participating employers into one class by a standard test of eligibility.

In any event my conclusion on the first issue involves holding that condition (c) is not satisfied either. Indeed I do not think that the provisions of Subsection (1B) can provide an alternative route to the conclusion Roxspur seeks. For all these reasons I conclude that s.75(1B) does not apply and I resolve the second issue in favour of the Trustees.

It is not disputed that the Trustees had not adopted a gilts-matching policy, as defined in regulation 7(9)(a) Minimum Funding Regulations, by the time, 28th May 2002, the Trustees resolved that the Plan should be wound up. They were prompted to do so by a circular to the members of Roxspur from the Chairman dated 9th May 2003. The circular indicated that Globex, a new shareholder, sought to reconstitute the board of Roxspur with its own nominees at an EGM convened for 4th June 2003 and to engineer a transaction whereby Roxspur became a subsidiary of an unidentified quoted company. The Chairman considered that the attraction of Roxspur was its cash resources which could be used to fund future growth. Plainly this suggestion caused concern to the Trustees.

The Trustees sought the advice of Entegria Ltd, the Trustees’ appointed investment adviser. In the light of that advice, on 23rd May 2003 Mr Archer, a director of the first claimant, wrote to Mr Martin Eberhardt, a director of Roxspur indicating that having taken appropriate advice the Trustees wished to adopt a gilts matched investment policy and intended to do so immediately. He continued:

The letter was faxed to the office of Mr Eberhardt at 4.06 pm on the afternoon of Friday 23rd May. Monday 26th May was the late spring Bank Holiday. The letter was not received by Mr Eberhardt until his return to work on Monday 3rd June. When he then received it he sent it on to the liquidators of the subsidiary companies of Roxspur and informed the Trustees’ solicitors that he doubted if they would be able to respond in the time requested.

On Wednesday 28th May 2003 Entegria Ltd wrote to the Trustees

Mr Archer replied by e-mail, at 2148 on the same day, indicating that he would be out of the office for the next two days and continued

The witness statement of Mr Whitehead, with which that of Mr Bracey-Wright agrees, records that the two of them met on the morning of 29th May, considered the fax from Mr Archer and agreed to follow the investment advice and to adopt the Statement of Investment Principles. Mr Whitehead instructed his colleague, Mrs Jean Abbott, to confirm their agreement to Entegria. The confirmation was in the form of an e-mail from Mrs Abbott to Entegria, with a copy to Mr Archer, sent at 1220 on 29th May stating

The Statement of Investment Principles, so far as relevant, provides

On 4th June 2003 the Chief Actuary, Mr Stormont, to whom a draft of the statement had been sent by Entegria on 28th May, wrote to the Trustees with his certificate for the purposes of Regulation 3 of the Deficiency Regulations. In fact there were two certificates because of an uncertainty as to the need to guarantee certain benefits but neither side relies on this circumstance. The Trustees rely on the lower of the two certificates by which Mr Stormont certified the deficiency to be £4,409,003.

As the certificate makes plain, the valuation is made as at 31st May 2003 in accordance with s.75(5) Pensions Act 1995 and the Deficiency Regulations. It is a valuation of the assets and liabilities of the Plan as a whole. In the light of my conclusion on issues (1) and (2) there is no reason why it should not have been. But it is also made on the footing that the Trustees had validly adopted a gilts-matching policy. Whether or not the Actuary was entitled to value on that basis depends on issues (3) and (4) to which I now turn.

I have quoted the material parts of s.35 in paragraph 20 above. It is plain from subsection (5) that the Trustees must consult the employer "before" a statement is prepared or revised. Roxspur contends that (a) there was no consultation within the meaning of the subsection with the consequence that (b) the Statement was not validly adopted. The Trustees dispute both propositions.

It is plain that consultation requires more than the mere giving of notice. In Agricultural, Horticultural and Forestry Industry Training Board v Aylesbury Mushrooms Ltd [1972] 1 AER 280, 284d-f Donaldson J indicated that the mere sending of a letter did not suffice. He added that "the essence of consultation is the communication of a genuine invitation, extended with a receptive mind, to give advice". In R v Secretary of State for Social Services, ex parte Association of Metropolitan Authorities [1986] 1 AER 164, 167g Webster J said

Counsel for Roxspur contends that there was no consultation because the Trustees did not send with the letter of 23rd May a draft of the Statement of Investment Principles they were minded to adopt and allowed only two working days in which Roxspur could respond. He submits that Roxspur was provided with neither the information nor the time needed for consultation.

These contentions are disputed by counsel for the Trustees. He points out that s.35(5)(b) prescribes no time for the prior consultation. He contends that the short time allowed was justified by the facts that the intended change was slight, the matter was urgent in view of the threat from Globex and there were no grounds on which Roxspur might reasonably object to what the Trustees proposed.

I have no hesitation in accepting the submissions for Roxspur. S.35(5)(b) requires the Trustees to consult Roxspur on the revised statement they intend to adopt. The letter of 23rd May made no attempt to do that. No draft was included and a copy was only to be furnished to Roxspur after its adoption and for information only. The "gilts matched investment policy" to which the letter did refer was part only of the Statement. Roxspur was invited to comment on the proposal to adopt such a policy but in the context that the Trustees intended to adopt it immediately. It cannot be assumed that Roxspur could not make any comment worthy of consideration. The time allowed, two working days immediately after a Bank Holiday weekend, was wholly inadequate to enable Roxspur to obtain and consider advice of its own to enable it to comment on the proposal. No steps were taken to ensure that the letter would be received by Mr Eberhardt or anyone on his behalf within the time allowed for comments. In fact it was not. This was not "consultation". There was no genuine invitation to give advice nor a receptive mind to receive it.

The Trustees submit that a failure to consult does not vitiate the adoption of the Statement of Investment Principles. They point out that in the case of s.35(5)(a) subsection (6) imposes the sanctions provided for by ss. 3 and 10. They submit that by parity of reasoning some other sanction must be found for a failure to comply with s.35(5)(b). Whether or not such an alternative sanction exists in the case of a failure to observe s.35(5)(b) is not clear but appears to me to be irrelevant. It is clear from the terms of subsection (5) that prior consultation is a pre-condition to the existence and exercise of the power. If, as in this case it has not been satisfied then the power has not arisen and the purported exercise of it is of no effect.

For all these reasons I conclude in respect of issue (3) that there was no prior consultation by the Trustees with Roxspur as required by s.35(5)(b) and the purported adoption of the revised Statement of Investment Principles was invalid and of no effect. It follows that the valuation of the liabilities was made by the Actuary on an incorrect basis so that the certificate issued by him is also invalid.

The relevant definition is that contained in Regulation 7(9)(a) of the Minimum Funding Regulations quoted in paragraph 23 above. It is to be applied to paragraph 4.1 of the Statement quoted in paragraph 52 above. Does that paragraph

Paragraph 4.1 is somewhat convoluted but I do not think that there can be any doubt as to what it is saying. The first sentence is dealing with maximising and discharging the liabilities to members. The second sentence prescribes that the liabilities are to be discharged in due course in the purchase of annuities. The third sentence records that the Trustees have decided to invest in gilts with which to match the cost of the annuities. To my mind this is a statement that the Trustees intend to discharge the liabilities to members out of the proceeds of sale of gilt-edged investments, that is "from" such investments. For these reasons I would reject the contention of Roxspur and hold that paragraph 4.1 of the Statement does satisfy the requirements of Regulation 7(9)(a) of the Minimum Funding Regulations.

At this point it is convenient to note three other arguments advanced by Roxspur. The first is that the adoption of the gilts-matching policy was a sham. The second is that it was invalid because it was done for an improper purpose, namely maximising the Trustees’ claim under s.75, and without regard to the interests of Roxspur. Thirdly such policy was not in fact implemented. In view of my conclusion in respect of issue (3) it is unnecessary to deal with any of these arguments. But, in case this case goes further I ought to indicate my prima facie views.

I would have rejected all three arguments. First, there is absolutely no evidence that the purported adoption of the gilts-matching policy was a sham in the sense of that word as explained by Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2 QB 787, 802. Though this is an issue of fact it is incumbent on Roxspur, if it is to show a real prospect of success, to adduce or point to some evidence in support of this defence. They have not done so. Second, the adoption of the revised statement of investment principles was plainly done with the intention that a gilts-matching policy be adopted. The fact, if it be one, that one of the motives for such an adoption was to maximise the Trustees’ claim under s.75 would not vitiate the exercise of the power. The submission appears to me to confuse intention and motive. Third, the valuation of liabilities to deferred members required by Regulation 7(8) of the Minimum Funding Regulations applied by Regulation 3(1)(b) of the Deficiency Regulations depends on whether the scheme "has a gilts-matching policy". If it has such a policy the extent to which it has been implemented is immaterial.

I have quoted the definition of "applicable time" contained in s.75(3) in paragraph 25 above. There has been no relevant insolvency event as described in s.75(4). Accordingly the period in which the applicable time must occur commenced with the winding up of the Plan on 28th May 2002 and is still running. Roxspur contends that the Trustees may only select one point of time within that period for the ascertainment of the amount of the debt. The Trustees submit that they can select as many points of time within that period as they think fit, giving credit for sums paid in response to earlier notices, so as to pick up any increase in liability due to a decline in the value of the assets. They rely on s.6 of the Interpretation Act 1978 for the proposition that in the absence of a contrary context the single includes the plural. They also rely on the reference to "any time" in subsection (3)(a).

If a relevant insolvency event, as defined in s.75(4), occurs then only one point of time is applicable namely the moment immediately before the occurrence of that event. Similarly in the case of a multiplicity of employers under a scheme which is not being wound up the definition substituted by Regulation 4(3)(b)(i) of the Deficiency Regulations allows only one point of time, namely the moment immediately before an employer ceases to participate in the scheme. Further there are no provisions for the revaluation of a certificate in the light of subsequent events, regulating how often trustees may require the debt to be ascertained by the Actuary, or taking account of previous demands or payments. In these circumstances it would be odd if the reference to "any time" in s.75(3)(a) allowed more than one point of time within the period from the commencement of the winding up of the scheme to the occurrence of a relevant insolvency event. Accordingly I am inclined to agree with the views of Mr Charles Aldous QC sitting as a deputy High Court judge in Bradstock Group Pension Scheme Trustees Ltd v Bradstock Group plc [2002] PLR 327 para 16.

But, I do not think it is necessary to reach a final conclusion in this case either. The failure to consult vitiated both the adoption of the revised Statement of Investment Principles and the Actuary’s certificate. It follows that the debt on which the Trustees rely has not been established in accordance with s.75(5) and their claim must be dismissed. The unsuccessful attempt to recover the debt as at 31st May 2003, the valuation date for the purposes of the invalid Certificate, cannot amount to an irrevocable election to claim as at that date so as to preclude a proper valuation and valid certificate at a later date during the permitted period. I see nothing to exclude a claim based on such a certificate.

In summary I conclude that