The PNPF Trust Company Ltd v Taylor & Ors

Contents table for Pilots Judgment

The Claimant, the PNPF Trust Company Limited (the “Trustee”), is the trustee of a pension scheme, the Pilots’ National Pension Fund (the “PNPF” or the “Scheme”), with a substantial funding deficit. The latest figures (as at 31 March 2009) show a deficit on the buy-out basis (ie on the basis that the Scheme’s liabilities are discharged by purchase of annuities) of just over £285m. By the Part 8 claim form, the Trustee seeks the guidance of the Court on the questions set out in paragraphs 1 to 10 of the claim form. The Claim Form has recently been amended to add a new question 4A as an 11^th question. Each question has been, in turn, subdivided into issues. There are a total of 39 issues on which a decision is requested.

With answers to those questions and resolution of the issues, the Trustee will be, it is hoped, in a position − it will certainly be in a better position than at present – to know how, if at all, it can go about repairing the deficit. In particular, it will be known what entities can be made liable to contribute to the Scheme to meet the benefits to which Members are entitled under the Rules.

There are two potential ways of redressing the deficit:

Unfortunately the scope of the Trustee’s options under both the Scheme rules and legislation is unclear. This is due to a combination of:

There is, in theory, a third way of addressing the deficit, namely the use of the existing contribution rules to require further contributions from active members and, in the case of members currently employed by a participating entity, their employers. However, the deficit is significantly greater than anything that might be expected to be addressed by ordinary ongoing contributions under the current contribution rule. As at 28 May 2009, there were only 197 active members but the deficit is the large figure which I have just mentioned.

The PNPF is the industry-wide scheme for UK marine pilots established on 1 April 1971. All members of the PNPF, save for a few persons providing administration services to the Trustee, or with ex-spouse pension credits in the Scheme, are marine pilots.

The primary responsibility of pilots is to ensure the safe navigation of vessels in their approach to, and departure from, ports. This requires expertise in ship-handling generally and particularly in manoeuvring vessels within ports.

While it has statutory origins and a lengthy history (which I will touch on later in this judgment), the Scheme is currently governed by deed and rules adopted on 25 May 1989 with effect from 1 October 1988 (the “1988 Rules”), as amended from time to time.

The persons involved in the PNPF are:

There are 53 Participating Bodies. Most, but not all, of them are CHAs (which are, essentially, port authorities). Most of the Participating Bodies that are not CHAs are entities that have other obligations in connection with administering coastal areas and/or waterways, such as conservancy boards. While it is the case that (a) not all CHAs are Participating Bodies, and that (b) not all Participating Bodies are CHAs, for the purposes of these proceedings, the terms “CHA” and “Participating Body” can in practice be used interchangeably.

In order to act as a marine pilot, a person must be authorised by the CHA in his area to do so: see section 3 of the Pilotage Act 1987 (“the 1987 Act”). Some of the CHAs employ all of their pilots (I refer to them as “Employer CHAs” or “ECHAs” for short), while others do not employ any of their pilots (I refer to them as “Self-Employed CHAs” or “SCHAs”). A handful of CHAs (“Mixed CHAs”) either currently, or in the past (but only since October 1988), have both employed pilots and authorised self-employed pilots.

For the purposes of these proceedings, the parties have sub-divided the categories of CHA further:

Members can be divided in much the same way as the CHAs. Some of them are employed by their CHA (“E Members”), but others are not (“S Members”). Similarly, both of these classes can be subdivided further:

The PNPF was established, as I have said, in 1971. CHAs did not exist at that time. They are an invention of the 1987 Act. Prior to the 1987 Act, pilots were licensed by different bodies, known as pilotage authorities. Such authorities were given power to employ (ie under a contract of service) their pilots under section 11 of the Merchant Shipping Act 1979. However, the vast majority did not do so; indeed, none of the authorities participating in the Scheme did so. Accordingly, prior to 1 October 1988 (when the majority of the provisions of the 1987 Act came into force), all active Members were self-employed. The result of this, and of the fact that self-employed service benefits going back many years prior to 1971 were transferred into the PNPF on its creation, is that the bulk of the current deficit in the Scheme relates to self-employed service.

The Scheme Actuary estimates that, as at 31 December 2007, the Scheme's liabilities can be categorised as follows:

The 1988 Rules in their original form contained only narrow ongoing contribution rules (Rules 13 and 14), but also contained a broad power of amendment exercisable by the Trustee alone (Rule 9). In 2005 and 2009, the Trustee introduced two further specific contribution rules, contained in Rules 13(4) and 14(4). I will come to the details of these Rules in due course.

Although Rule 10 does not lay down the formalities under which an entity may become a Participating Body, but simply requires the agreement of the Trustee, in practice CHAs join the Scheme by executing a standard form deed (a “Deed of Accession”) under which they covenant with the Trustee to observe the provisions of the Scheme so far as concerns Members in their employment. The precise effect of the standard form deed (and of variations relevant to some CHAs) is an issue with which I will need to deal.

The Questions on the claim form can be divided into four topics.

I set out in the Annex to this judgment the list of issues for determination; these have been helpfully agreed by all parties, against which I have set out very briefly my answers. Some of the terms used may not be immediately apparent, but they will become clear in the course of this judgment.

There is a wide range of different interests among the various Participating Bodies and the different classes of Member. Doing the best it could to keep separate representation to a minimum, the Trustee has devised a system of interest-based representation to achieve that end whilst allowing the Court to hear proper argument on all issues that it is asked to rule on by having one party to argue each side of each point. In light of the different points that arise on the different issues for different constituents involved in the Scheme, it proved necessary to have 6 representative defendants (the first 6 named defendants) to perform these tasks.

In due course, the seventh defendant, (“Bristol”) was, for perfectly sensible reasons which I need not go into, joined with the consent of all of the then parties in February 2009.

The eighth defendant (“Teesport”) applied to be joined to the proceedings to argue its own position. This application was resisted by the Trustee, primarily on the grounds of convenience, proportionality, delay and cost, and also on the fundamental basis that Teesport could demonstrate no distinction in terms of legal interest from that of Bristol (essentially the party to represent it in the proceedings), a point that was not disputed. However, on 10 July 2009 Proudman J allowed the application. Teesport does not, unlike all the other defendants, act in a representative capacity.

The structure of representation is interest-based, rather than category-based, that is to say that the class that a particular representative defendant represents on a particular issue is defined by reference to an interest in taking a particular stance, rather than by any other characteristics (such as whether the person is a particular type of Member or CHA). This follows the practice of some recent cases such as HR Trustees Ltd v German [2009] EWHC 2785 (Ch) (see paragraph 2 of the judgment) and Walker Morris Trustees Ltd v Masterson [2009] EWHC 1955 (Ch) (see paragraphs 11 to 12 of the judgment).

The eight Defendants are as follows:

A fifth CHA, Harwich Haven Authority (“Harwich”), ceased to employ any active members on 12 April 2008. This was after the changes to the Employer Debt Regulations came into force so that Harwich is in a different position from the Cessation CHAs and no issue arises in relation to it similar to the issues relevant to the Cessation CHAs.

This section in my judgment (down to and including paragraph 124) is taken largely from the written opening of the Trustee’s counsel, Michael Tennet QC and Jonathan Hilliard. I am most grateful to them. It takes account of any caveats expressed by other parties to the relevant part of that opening. The history which I set out forms the backdrop to the issues raised by the claim form, particularly the construction issues raised by Questions 1, 3 and 3A, and the issue underlying Questions 6 and 7 of what types of CHA can be regarded as “employers” for statutory purposes.

The pilotage industry as a whole underwent a fundamental change in 1988 with the enactment of the 1987 Act. Those changes were described in the review of the Pilotage Act 1987 by the Department of Environment, Transport and the Regions (“DETR”) in 1997 as “about the most radical changes ever to the provision of pilotage services in this country”. This had implications for the Scheme.

The relevant history can be divided into the following parts:

The 1913 Act was the first attempt to regulate the provision of pilotage services on a national basis. The system of pilotage regulation under the 1913 Act was a significantly centralised one with significant powers being vested in the Board of Trade.

At the time of the 1913 Act, almost all pilots were self-employed (as can be seen from the Green Paper “Marine Pilotage” dating from December 1984 which led, eventually to the 1987 Act (“the Green Paper”) and from the DETR Report which I have referred to). They were authorised or licensed by a pilotage authority – in most cases a Trinity House authority. The self-employed pilots’ working arrangements had certain features that would not ordinarily be associated with self-employment. I do not need to rehearse any of these arrangements since their status as self-employed persons is not open to challenge.

Nonetheless, it is worth noting that the special nature of the self-employment was reflected in the treatment afforded to self-employed pilots by the Inland Revenue. Although taxed on their earnings on the usual self-employed basis, they were, by a concession applicable since 1945, treated as employed persons for pension purposes.

For many years, pilots' earnings were fixed under an arrangement known as the Letch Agreement in accordance with recommendations made in a 1957 Report on pilots’ earnings to the Ministry of Transport by a committee under the chairmanship of Sir Robert Letch. This Report proposed nationally agreed rates of earnings of pilots in each area (or port), the intention being that pilotage rates, agreed between representatives of the pilots and of the ship-owners (not the pilotage authorities) should be fixed at levels designed to produce a pre-determined level of income, with those rates being adjusted if they produced an income more than 10% above or below the agreed figure.

The 1979 Act established the Pilotage Commission (“the Commission”), which replaced the Secretary of State’s Pilotage Advisory Committee that had been established under the 1913 Act. The Commission was intended to be an expert advisory body that would help to make pilotage more efficient. However, the Secretary of State retained the ability to make Pilotage Orders on a number of topics concerning the operation of pilotage authorities. By virtue, therefore, of the continued role of the Secretary of State, supplemented now by the Commission, the management of the industry remained centralised.

The 1979 Act provided for the first time that pilotage authorities had, and were to be deemed always to have had, the power to employ pilots, subject to a majority vote of their local pilots to the contrary. The understanding of the Trustee is that no pilotage authority that participated in the national scheme (as to which see below) actually employed any pilots prior to the coming into force of the 1987 Act.

The 1983 Act was largely a consolidating statute, bringing together the provisions of the 1913 Act, the Pilotage Authorities (Limitation of Liability) Act 1936, and the 1979 Act, and repealing those earlier Acts.

It also contained at section 13 a provision replicating the provisions of the 1979 Act giving pilotage authorities the power to employ pilots, subject to a majority vote of their pilots to the contrary. The Trustee believes that few pilots were in fact employed at this time, and none in any case became Members of the Scheme.

Regional pilots’ benefits funds

Prior to the establishment of the national scheme in 1971, pilotage authorities provided pensions for their pilots via regional pilots’ benefits funds, established pursuant to the 1913 Act.

Section 17(1)(h) of the 1913 Act gave each pilotage authority the power to make byelaws:

“[to] provide for a deduction being made from any sums received by pilots of any sums required for meeting the administrative expenses of the authority, or any contributions required for any fund established for the payment of pensions or any other benefits to pilots, their widows or children (in this Act referred to as a pilots’ benefit fund)”.

Pilotage authorities were therefore given the power to establish pension funds for their pilots (“regional pilots’ benefits funds”). Such byelaws required the confirmation of the Board of Trade to take effect: see section 17(2).

The establishment of a national pension scheme

In the late 1960s, there was a move to create a national scheme, because it was felt that this would be better able to make provision for pilots’ retirement and would make it easier for pilots to move from one port to another. It was agreed that the regional benefit fund of Trinity House, the pilotage authority for London and many other ports, would act as a host fund for the national scheme and that Trinity House would draft bye-laws for the Scheme in conjunction with other pilotage authorities.

The governing provisions of the national scheme

The national scheme was established by byelaws dated 29 March 1971, made by Trinity House and confirmed by the Secretary of State for Trade and Industry with effect from 1 April 1971.

The bye-laws were split into two: the bye-laws themselves, and the rules at Schedule 2 to the bye-laws (incorporated by bye-law 6). By bye-laws 2 and 31, the previous bye-laws governing the Trinity House regional benefits fund were repealed, to be replaced with the 29 March 1971 version.

The management of the national scheme

The Trustee understands that the regional benefits funds were managed by the respective pilotage authorities. In contrast, management of the national scheme was vested in a “Board of Management” (“BoM”) (see bye-law 14), appointed in accordance with bye-laws 15 to 23. The BoM was given (among other things) unilateral power to:

The BoM included representatives of the pilots, pilotage authorities and ship owners. Each of these groups was entitled to appoint 3 representatives.

Although the BoM was not described as a trustee, it exercised most of the powers that one nowadays might regard as the functions of “trustees” under an occupational pension scheme. Although the national scheme did have a separate trustee, it was essentially a custodian trustee, its powers being limited to investment of the fund. Trinity House was the first trustee of the national scheme. This was no doubt because its existing pension scheme was the host scheme, the vehicle which was converted into the national scheme (by amendment of its bye-laws) and into which transfers from regional schemes were made.

Participation of pilotage authorities in the national scheme

Putting to one side Trinity House, which automatically became a Participating Authority within the meaning of the national scheme, other pilotage authorities wishing to become Participating Authorities in the national scheme had to make bye-laws confirmed by the Secretary of State for Trade and Industry adopting the national scheme bye-laws.

The Trustee has obtained copies of the bye-laws of various individual pilotage authorities adopting the national scheme bye-laws, but does not have a complete set of such bye-laws for all relevant pilotage authorities. I am told that, so far as it has been able to establish, Milford Haven did not pass any such byelaws. So far as is relevant to the issues which I have to decide, the bye-laws which are available are all in materially identical form. To take an example, the relevant bye-laws for the Forth Pilotage Authority dated 30 December 1971, provide that:

“1.

The Forth Pilotage Authority shall on and from [1st January 1972] be a Participating Authority for the purposes of the Pilots’ National Pension Fund Bye-laws 1971 and accordingly those Bye-laws are hereby adopted and as on and from [1st January 1972] the Pilots Benefit Fund established by Bye-laws made on 17th July, 1951 by the Forth Pilotage Authority and confirmed by the Minister of Transport on 1st August, 1951 (hereinafter called “the Old Fund”) shall form part of the Pilots’ National Pension Fund and shall be subject to the provisions of the Pilots' National Pension Fund Bye-laws 1971. (emphasis added)

2.

On [1st January 1972] the Old Fund shall be transferred to the Trustee of the Pilots’ National Pension Fund.”

This was, therefore, a method for pilotage authorities to join the national scheme (namely, by means of adopting bye-laws) different from the method for CHAs to join the Scheme after 1988 (namely, by the execution of Deeds of Accession as to which see further at paragraph 109 below).

Where a pilotage authority became a Participating Authority, the assets of the relevant regional pilots’ benefits fund would thereafter be transferred into the national scheme which would take over responsibility for providing the pensions for the previous members of the regional fund. The regional benefit fund would repeal its own bye-laws in order to prevent these members retaining their rights to pensions from the regional benefit fund.

Benefits under the new national scheme

Under the national scheme, members were divided into two categories, “A members” (being those members who accrued service under the national scheme) and “B members” (being those members who had ceased to accrue benefits before their regional benefits fund transferred its assets into the national scheme). The benefits of each were dealt with in very different ways:

Contribution obligations under the national scheme

The contributions of pilotage authorities who became Participating Authorities in the national scheme were set out in bye-law 11. The only role of the pilotage authority under this bye-law was to collect contributions from its members equal to 15% of their gross earnings, or such lesser amount as might be prescribed by the BoM, and pay this to the Trustee each month. There was no contribution obligation on the part of a Participating Authority. Such contributions were received by the pilotage authority “as direct payments to the Fund” under bye-law 11(1).

Despite the possibility that the assets of the national scheme might not always be sufficient to pay all accrued benefits, there was no specific provision for making up any deficit that might arise (either from pilots or pilotage authorities). There was a provision for dealing with any surplus that arose on the transfer in of the assets of a regional pilots’ benefit fund; the amount of Pre-membership Service was to be increased thereby increasing pension or other benefits payable under the Rules. As a matter of fact, I do not understand there to have been a deficit on any transfer in, although it is noted on behalf of Tyne that such a deficit could have been dealt with by reducing benefits below the entitlement under the transferring scheme. But in the cases of both surplus and deficit, benefits attributable to pre-transfer service would be established at the time of the transfer-in. In the ongoing scheme, there was, however, no provision dealing with the possibility that the contributions of up to 15% gross earnings might not be sufficient to provide the 1/60ths benefits.

Amending the contribution provisions

Although the BoM had power to amend the rules, amendment to the byelaws could only be effected by Trinity House with the confirmation of the Secretary of State under section 17 of the 1913 Act. The contribution provisions were to be found in the byelaws rather than the rules so that any amendment to the contribution provisions would require a byelaw amendment. I suppose it might be said that some contribution obligations could be found in the byelaws and some in the rules but it has not been suggested that additional contribution obligations could be introduced other than by bye-law amendment.

However, the Trustee is not aware of any deficit emerging between 1971 and 1988, and therefore this gap in the governing provisions never had to be confronted in practice.

Cessation of participation

There was no express provision in the national scheme for a “Participating Authority” to cease to be a participating body. Nor did any of the bye-laws executed by each pilotage authority when joining the national scheme place any limits on the authority’s participation in the Scheme.

Provisions of the Pilotage Act 1983 relating to the national scheme

On being repealed, section 17 of the 1913 Act was replaced by section 15 of the 1983 Act, which conferred an equivalent (and continuing) authority for a pilotage authority to provide the Scheme. The relevant power to make bye-laws was as follows:

“(h)

provide for a deduction to be made from any sums received by pilots of any contributions required for any fund established for the payment of pensions or other benefits to pilots, their widows or children (in this Act referred to as a pilots’ benefit fund);

(i)

establish, either alone or in conjunction with any other pilotage authority, pilots’ benefit funds, and provide for the direct payment to any such fund of any contributions by pilots towards the fund, of any part of the ordinary receipts of the pilotage authority, and also for the administration of any such fund and for the conditions of participation in any such fund;”

New Byelaws – September 1983

In September 1983, new byelaws and rules were made by Trinity House. These were made under section 15 of the 1983 Act, the 1913 Act having been repealed. I do not need to go into a great deal of detail about the new provisions, save to say that the contributions by pilots were 10% of Gross Earnings together with such additional contributions as the Actuary determined to be necessary to secure benefits up to a maximum of 8% (or such larger amount as the Inland Revenue might agree).

By the 1980s, there was growing concern among ship owners about the cost of using British ports and dissatisfaction with the way pilotage services were organised. Indeed, the evidence before the Court suggests that there was also dissatisfaction from Harbour Authorities (which were essentially ports) about pilotage arrangements as early as 1971.

One perceived problem was the lack of control by ports over pilots: Harbour Authorities had responsibility for the regulation of shipping movements and the safety of navigation, but pilotage authorities had responsibility for pilotage. It was felt that this separation of responsibilities meant that pilotage authorities were not ensuring that pilotage was operated as an efficient component of the total package of services offered for vessels using ports. The Government view was certainly that pilotage should be treated as one of the ancillary services provided to port users (see paragraph 3.1 of the Green Paper).

Some of the perceived excessive costs to ship owners of using British ports were thought to arise from a surplus of qualified pilots, whose numbers had not declined despite a decline in the number of acts of pilotage required in British ports. In addition, the nationally negotiated arrangements for pilots' earnings (namely, the Letch Agreement, followed by the 1980 National Agreement) were increasingly recognised as having failed to take account of the true number of surplus pilots because local authorities were left to determine themselves how the calculation of the “proper number” of pilots (which formed a component in the calculation of a pilot’s earnings) should be carried out.

In an effort to address some of these problems, in the early 1980s there were attempts by the Government to broker an industry-wide “early retirement” (effectively a voluntary redundancy) programme, notwithstanding the fact that almost all pilots were, strictly speaking, self-employed. These proposals included (but did not relate exclusively to) what ultimately became the “early retirement scheme” under the 1987 Act and the Scheme Rules.

The Samuel Montagu report on Early Retirement

In or about early 1983, the merchant bank Samuel Montagu was asked by the Secretary of State for Trade and Industry to prepare a report to him setting out proposals for dealing with the problem of compensation for surplus pilots. In March 1983, they produced a draft report; it is not known whether they in fact produced a final report and certainly none is available. Their proposals involved (among other things) the Scheme providing enhanced early retirement benefits for pilots who agreed to retire. This proposal also envisaged the Commission reimbursing some or all of the additional costs to the PNPF on the basis that it could then recoup these costs via increases in pilotage charges paid by ship owners under section 2 of the 1979 Act.

The Samuel Montagu proposals did not take into account any contribution to the cost of the proposed early retirement programme from the funds of the Scheme itself (although those funds were then perceived to be in surplus), but Samuel Montagu did express the view that it would be a perfectly proper use of surplus to provide enhanced benefits in this way on the basis that “the surplus in the PNPF represents a cost which will already have been borne by users of pilotage service as a result of the manner in which pilotage rates are set”.

The Samuel Montagu report started a wider debate about whether the Government or the Commission should provide public funds for the early retirement scheme and as to whether the surplus of the Scheme could be used to fund the programme instead. Although the BoM eventually agreed in principle to part of the surplus being used in this way in July 1984, the proposals were effectively vetoed as unacceptable by the Chamber of Shipping representing the ship owners.

The British Ports Association's Commitment

The proposals which I describe in a moment for legislation (including a proposal for a statutory early retirement scheme) ensured a continuation of the debate about the use of the surplus in the Scheme to fund those proposals.

The initial stance of the British Ports Association (“BPA”) (which then represented ports and Harbour Authorities) was that the cost of any early retirement compensation should not fall on the Harbour Authorities. However, the BoM wanted assurances as to the impact on the Scheme if it permitted surplus to be used to fund the early retirement scheme.

It was in this context that the BPA finally gave a “commitment” by letter dated 1 October 1986 to Mr Frith, the then Chairman of the BoM, that:

“…the BPA’s main policy making committee have considered the matter of benefit maintenance for the PNPF and, subject to the caveats early [sic] expressed on financial stability, we would be prepared to give a commitment that the current pension benefits as outlined in the Rules, including the early retirement scheme set out in Mr Davidson’s letter dated 19th March 1986 to…the UKPA, will not be reduced.” [the UKPA is the United Kingdom Pilots' Association.]

On 18 November 1987, the BPA wrote to all of its members enclosing a copy of Guidelines in the form finally agreed between BPA/ABP (Associated British Ports) UKPA (Marine) and the Department of Transport. It was explained that this was not a legally binding agreement but expressed the hope that all members who were CHAs and employed their pilots would observe it. The Guidelines contained a section headed “Pensions” in which it was stated that the BPA had undertaken that benefits would be maintained at levels no less favourable than those in force at 1 October 1985; and it was stated that “The levels of contributions needed in future will be a matter for the bodies representing CHAs and pilots to decide”.

Legislative proposals

In December 1984 the Government proposed a wholesale reform of the system of pilotage in the Green Paper. This was followed by a White Paper embodying proposals for legislation in November 1986. The process culminated in the enactment of the 1987 Act. The Green and White Papers explain in detail the backdrop to the 1987 Act. Further detail is provided by the 1997 review of the 1987 Act by the DETR.

The centrepiece of the proposed reforms was locating responsibility for pilotage in the entity responsible for the regulation of shipping movements and safety of navigation, namely the Harbour Authorities that already had the latter responsibilities. Such a change was designed to reduce the cost of providing pilotage services and therefore make the industry more competitive with ports on the European continent as well as more efficient within the UK.

Many Harbour Authorities and ports were more substantial organisations than the pilotage authorities they were to replace, typically owning the land and infrastructure of the port or dock itself and providing a range of services to shipping much wider than pilotage. Pilotage was to be seen as an ancillary part of a much broader service provided for vessels using a port, to be managed by the CHAs, being the bodies with a direct interest in ensuring that their ports operated efficiently. CHAs were to be given broader powers than pilotage authorities enjoyed, in order to allow them to fulfil this role properly. Tied to this point, management of the pilotage authorities was to be decentralised, with a reduced role for the Secretary of State and the abolition of the Commission. Subject to certain statutory duties, CHAs were given the power to manage their pilotage services as they saw fit.

Under the 1987 Act, each pilotage authority ceased to exist as such an authority on 1 October 1988, the Commission was abolished and (subject to transitional savings) the 1983 Act was repealed. In the place of pilotage authorities, the statute created the concept of Competent Harbour Authorities, being any Harbour Authority that:

Not all Harbour Authorities became CHAs, because it was felt that they did not all need to become responsible for pilotage.

CHAs were given responsibility for determining what pilotage services were required in their geographical areas and ensuring that proper pilotage services were so provided. It should be noted that each CHA was under a positive duty to keep under consideration (a) whether any and, if so, what pilotage services needed to be provided to secure the safety of ships navigating in or in the approaches to its harbour; and (b) whether in the interests of safety pilotage should be compulsory and what pilotage services needed to be provided where pilotage was made compulsory.

CHAs were given a number of powers which went beyond the powers previously vested in pilotage authorities. I mention two of them:

The transfer of assets and liabilities from Pilotage Authorities to CHAs

In view of the replacement of pilotage authorities by CHAs, section 24 of the 1987 Act required schemes to be made to transfer the assets and liabilities of the former to the latter. It was not suggested by anyone that section 24 and orders made under it have any impact on the issues which I have to decide. I do not consider the provisions of section 24 further.

The employment of pilots

Under section 4 of the 1987 Act an obligation was placed upon CHAs to employ (in the conventional sense) their authorised pilots, unless the majority of the pilots in their area decided otherwise. As a result of these measures, in 1988 and 1989, employed active members of the PNPF marginally outnumbered self-employed active members but subsequently the active membership has become overwhelmingly self-employed. Indeed, a significant number of members have mixed periods of employed and self-employed service, having (a) been self-employed prior to 1 October 1988; (b) employed immediately after 1 October 1988 for a period; and then (c) reverted back to being self-employed some time thereafter.

The early retirement scheme under the 1987 Act

As already mentioned, one of the main drivers for the reforms under the 1987 Act was the policy of reducing the number of pilots. Over-manning was perceived as being an obstacle to efficiency and competitiveness of UK Ports. It was generally perceived that a reduction in this over-manning could be effected only if an early retirement scheme were introduced to compensate those pilots that had become surplus to requirements. This was catered for by section 28 of the 1987 Act which required a scheme to be put in place for doing so. The details of the scheme that emerged and its impact on the Scheme are set out in greater detail below.

Provisions of the 1987 Act relating to the Scheme

The 1987 Act contains specific provisions in relation to the Scheme and the relationship of CHAs to pension schemes for their pilots generally. Section 4(5) provides that:

“A competent harbour authority may pay into any pilots’ benefit fund established under paragraph (i) of section 15(1) of the Pilotage Act 1983 such contributions as may be required by the rules governing that fund in respect of any authorised pilot providing his services under such arrangements as mentioned in subsection (1) above.”

In other words, Parliament has granted all CHAs, whether ECHAs or SCHAs, a specific power to contribute to pension schemes for their pilots. Such pension schemes would include the Scheme.

Paragraph 4 of Schedule 1 of the 1987 Act provided for the continuation and future administration of the Scheme as follows:

“(1)

Any pilots’ benefit fund established under paragraph (i) of section 15(1) of the Pilotage Act 1983 shall continue in existence notwithstanding the repeal of that section by this Act and the Secretary of State may by order make such provision as he considers appropriate as to—

(a)

the operation after the repeal of that section of the byelaws under which any such fund was established;

(b)

the appointment of the managers of any such fund and any powers to be exercisable as respects the management of the fund by the persons who are to appoint those managers; and

(c)

the powers of any such managers to amend or revoke the byelaws or any other provision governing the fund.

(2)

Before making an order under sub-paragraph (1) above in respect of any fund the Secretary of State shall consult such persons or organisations as appear to him to be representative of competent harbour authorities and such persons or organisations as appear to him to be representative of the persons who may benefit from the fund.”

In exercise of the powers conferred by paragraph 4 of Schedule 1, the Secretary of State made the Pilotage Act 1987 (Pilots' National Pension Fund) Order 1987 (SI 1987/2139) (the “1987 Order”)

The 1987 Order

By the 1987 Order:

On 25 May 1989, in exercise of its power under Article 5, it appears that the Trustee resolved that from 1 October 1988 the Scheme should be governed by the 1988 Rules. A copy of the resolution itself is not in evidence; the minutes of the relevant meeting show that such a resolution was passed. No point is taken by any party about this.

I start by considering the Rules as they stood originally on 25 May 1989 when they were first adopted. Although dated, and expressed to take effect from, October 1988 (and therefore often referred to, and as I shall refer to them, as “the 1988 Rules”), the original rules of the Scheme were not finalised and adopted until 25 May 1989.

The role of the Trustee under the 1988 Rules

Pursuant to Rules 3 and 4, the assets held by the BoM under the previous incarnation of the national scheme (together with contributions made to the Scheme and transferred-in assets) were to be held by the Trustee on the trusts set out in the 1988 Rules. Under the 1988 Rules the Trustee was no longer a mere “custodian” of the assets, but had substantial and unilateral powers. I will look at the extent, if any, of the CHAs and the pilotspowers of influence over the Trustee at paragraphs 101ff below.

CHAs as Participating Bodies

The Rules refer to those entities becoming involved (to use a neutral word) with the Scheme as “Participating Bodies”. The definition of “Participating Body” is needed to make provision for the fact that pilots could now be employed as well as self-employed. Rule 10 provides:

“10.

(1) With the agreement of the Trust Company, any of the following may become Participating Bodies:-

(a)

the Competent Harbour Authority for an Area in which Pilots are self-employed, or

(b)

any person or body which is an employer of Pilots in any Area or Areas.

(2)

Where a Competent Harbour Authority which is a Participating Body has delegated any of its functions to any person or body, the Trust Company and that Competent Harbour Authority may agree that such person or body shall discharge all or any of the Competent Harbour Authority's powers or duties in relation to the Fund. In particular, this shall apply to entering into an Agreement to participate in the Fund, to the payment of contributions and to supplying information needed to administer the Fund.”

A “Competent Harbour Authority” is defined in the Rules simply as “a competent harbour authority under the Pilotage Act 1987”. “Area” is defined as “the harbour or area under the Pilotage Act 1987 of a Participating Body”.

The power of amendment under the 1988 Rules

Under the 1988 Rules the Trustee had vested in it what was, on the face of it, a broad and unilateral power of amendment set out in Rule 9(1)(a):

“9.

(1) The Trust Company shall have the following powers:-

(a)

after consultation with the Actuary, to alter cancel or add to any of the provisions of the Rules or to adopt an additional set or sets of Rules provided that no such alteration, cancellation, addition or adoption shall be made which would prejudice Approval”

The Trustee was also given what appears to be an augmentation power under Rule 9(1)(b):

“after consultation with the Actuary, to provide benefits to or in respect of any Member or to make increases in some or all of the benefits payable under the Rules but so that all such benefits or increased benefits are within the limits prescribed by Rule 16”

Ceasing to be a member of the Scheme

Rule 11 deals with the mechanism for becoming and ceasing to be a Member of the Scheme. This is relevant to Question 4 of the claim form, which concerns when CHAs trigger debts under Section 75. It is also relevant to Question 8 concerning the effect of Rule 14(4). I will consider Rule 11 and Rule 14 in more detail later.

Contribution rules

Under the current ongoing contribution rule, Rule 14, Active ECHAs are required to pay contributions equal to 1.5 times the contributions of their Active “E” Members. Under Rule 13, SCHAs are required to collect the contributions of their Active S Members and to remit such contributions to the Trustee. Formerly Active ECHAs are not required to make any contributions; this is subject to Rule 14(4) which was introduced by amendment on 28 June 2005 as I explain later.

Rule 13 provides the means by which contributions in respect of S Members are to be made. Rule 13 of the 1988 Rules provides:

“13.

(1) Each Participating Body shall collect contributions to the Fund, out of the Gross Contribution Earnings of each “S” Member in its Area, equal to 10 per cent of such Gross Contribution Earnings.

(2)

Each Participating Body shall collect, out of the Gross Contribution Earnings of each “S” Member in its Area, such additional contributions to the Fund as the Trust Company, after consultation with the Actuary, shall determine to be necessary to secure the benefits to be provided under the Fund but such additional contributions shall not exceed 8 per cent of such Gross Contributions Earnings or such greater amount as shall be agreed with the Board of the Inland Revenue.

[Following amendment, the limit of 8% etc is replaced by “100 per cent of his net earnings (or of the Earnings Cap, if less).”]

(3)

Each Participating Body shall pay to the Trust Company, on a date in each calendar month from time to time selected by the Trust Company, the amounts collected under (1) and (2) above in the previous month.”

Rule 14 in its original form made similar provision as regards “E” Members:

“14 (1) Each “E” Member shall, whilst he is a Pilot, pay contributions to the Fund equal to a percentage of his Pensionable Earnings (not exceeding the maximum that would not prejudice Approval) determined by the Trust Company.

[Following amendment, the words after “Pensionable Earnings” are replaced with “determined by the Trust Company but these contributions shall not exceed 100 per cent of his Pensionable Earnings (or of the Earnings Cap, if less).”]

(2)

Each Participating Body shall pay contributions to the Fund equal to 1.5 times the contributions under (1) above of each “E” Member in its employment.

(3)

Each Participating Body shall arrange for the collection of contributions under (1) above from the Members' pay and shall pay to the Trust Company, on a day in each calendar month from time to time selected by the Trust Company, the amounts due under (1) and (2) above in the previous month.”

As under the original national scheme, there was no specific provision for meeting deficits, other than that catering for extra costs caused by abuse of the Early Retirement Scheme (in Rule 25(6)). There are, however, two provisions which I should mention.

First, under Rule 15(2), the Trustee was empowered to receive lump sum contributions from various sources:

“The Trust Company may receive lump sum payments or annual contributions to the Fund from the Pilotage Commission, Her Majesty’s Government or any other source (other than direct contributions to the Fund out of the Gross Contribution Earnings or Pensionable Earnings of Pilots) in order to enable the Trust Company to provide or to increase the benefits from the Fund pursuant to Rule 9(1)(a) or (b).”

Secondly, Rule 25 of the 1988 Rules established a new early retirement scheme for pilots to cater for the anticipated reduction in the number of active pilots following the 1987 Act. This scheme involved CHAs which were Participating Bodies, whether ECHAs or SCHAs, certifying that each relevant Member qualified for the enhanced benefits offered by this scheme. Under Rule 25(6), where the Trustee considered that a CHA (again, whether an ECHA or SCHA) had abused the early retirement scheme by giving a particular certificate, the Trustee could demand such special contributions from the CHA in question as it saw fit.

Benefits

The basic benefit structure of the Scheme remained similar to the original national scheme in respect of pre-1 October 1988 service and similar provision was also made in respect of service accrued on or after 1 October 1988, subject to change in the calculation of the salary on which such accrual was based.

Transfers in

Rule 44 includes provisions which deal with the transfer in from other pension schemes of assets representing the member in question’s pension benefits under the other scheme. Rule 44(3) relates to “buy-outs” relevant to an argument raised by Teesport in relation to Question 1.

Cessation of participation

As under the initial national scheme, there was no provision for Participating Bodies to cease to be such.

Participating Bodies’ Influence in decision making

Despite the transfer of powers under the 1987 Order and the 1988 Rules from the BoM to a corporate trustee, the bodies involved in the scheme (CHAs and pilots’ representatives) retained some input into decision-making in relation to the Scheme through two mechanisms:

The second of these mechanisms (Article 72) gave both ECHAs and SCHAs some input into the exercise of the trustee’s powers, including the exercise of the broad power of amendment in Rule 9(1)(a) and Article 5 (which was used to promulgate the 1988 Rules).

In relation to both these Articles, it is necessary to note that although the BPF represented ports generally, membership was voluntary and not all CHAs were either under the ABP umbrella or members of the BPF. It would not be right to infer that every CHA had, by virtue of these provisions, some influence over the decision- making process. Nonetheless, it would not be right either to ignore these provisions as part of the balance of power in relation to rule changes. There is disagreement about the purpose and effect of these provisions which I will need to address in due course.

In the context of Article 72, I mention the advice of Mr Andrew White in May and June of 1987. Mr White was a partner of Rowe & Maw, the Trustee’s then solicitors, and had responsibility for dealing with the Scheme; he was the architect of the Articles and 1988 Rules. There is some dispute about the admissibility of Mr White’s advice. I think it right that I should refer to it here and identify what he said and leave dealing with questions of admissibility and relevance until later.

Having given some advice to Mrs Lemon of PNPF in a detailed letter dated 14 May 1987, he drafted a paper concerning the constitution of the new trust company. He sent this paper to Mr Connolly (of UKPA), Mr Finney and Mr Yates (of ABP and the BPA), Mr Frith (of PNPF) and Mrs Lemon. In the covering letter dated 16 June 1987, he referred to his paper as the “advice” he suggested should be submitted jointly by UKPA (Marine), the BPA and ABP to the Department of Transport in the context of the draft order (which became the 1987 Order). The following paragraphs are of relevance:

“It is not intended that the Trustee Directors should decide questions of policy concerning PNPF, e.g. contribution levels, alterations in the benefit structure, disposal of any surplus disclosed by an actuarial valuation, etc. These questions would be decided in a negotiating forum composed of representatives of the Ports and of the Pilots. The Trustee Directors would be expected to comply with and to implement decisions taken in this negotiating forum. There would therefore be a list of “reserved matters” set out in an agreed exchange of letters between UKPA (Marine), BPA and ABP on which decisions would be taken in the negotiating forum and not by the Trustee Directors. The decisions of the negotiating forum would not, of course, be binding on the Trustee Directors if compliance with them would involve the Trustee Directors in a breach of trust or of any legislation or would prejudice the tax approval of the PNPF.”

“It is not considered necessary for the Order to provide that PNPF Trust Company Limited should need to seek the consent of UKPA (Marine) and/or the BPA/ABP before exercising the power of amendment or any other power conferred on the company by the Order or the PNPF Bye-laws or Rules. (These bodies will have adequate control over PNPF Trust Company Limited because its Memorandum and Articles of Association will provide that these bodies between them appoint all the directors of the company).”

In 1987, prior to the formal adoption of the Articles of Association, the adoption of the 1988 Rules, and the execution of any of the Deeds of Accession, the National Negotiating Forum (“NNF”) envisaged in Article 72 was established. It is clear from Article 72 itself (without any need to refer to Mr White’s advice to this effect) that its purpose was to provide a forum in which representatives of pilots and CHAs (both SCHAs and ECHAs) could discuss, and negotiate from their respective different standpoints, changes to contributions and benefits (subject of course to the Trustee complying with its duties under statute and common law).

The first meeting of the NNF was held on 15 December 1987. Starting with this initial meeting, the NNF discussed alterations to the benefits, contributions and management structure of the PNPF under the proposed new 1988 Rules. This continued after the 1988 Rules had been adopted. I will need to address these discussions and negotiations in more detail in the context of the rival submissions which have been made to me about the scope of the amendment power in Rule 9 of the 1988 Rules but it is perhaps worth noting at this stage that at no point was there any discussion about SCHAs making contributions to the Scheme.

The Deeds of Accession

Rule 10 of the 1988 Rules provides that any of the entities mentioned in paragraphs (a) and (b) of the Rule may become Participating Bodies “with the agreement of the Trust Company”, without setting out any specific form for such agreement. Although Participating Bodies have been described in the course of submissions as “participating” in the Scheme, the Rules nowhere use that word except as part of a defined expression “Participating Bodies”. It is a word which, in the context of pension schemes, is almost a term of art indicating that the person participating is thereby under certain obligations particularly in relation to contributions. It must be borne in mind that the description of certain entities as “Participating Bodies” does not of itself necessarily mean that those entities “participate” in the Scheme in that rather technical sense.

In practice, many CHAs became a Participating Body by executing a standard form deed of accession produced by the Trustee (the Deed of Accession which I have mentioned in §17). Some CHAs did not execute a deed of accession at all and some executed a deed in modified form. The specimen deed used by many CHAs provided as follows:

“We                                      hereby covenant with the Trustees of the Pilots' National Pension Fund that with effect from                             we will comply with all the provisions of the Bye-laws and Rules of the Fund from time to time in force insofar as they relate to Members of the Fund who are:

(1)

employed by us

(2)

authorised by us to act as a pilot in any part of the area in relation to which we are the competent harbour authority.”

Upon execution of a DoA, most CHAs crossed out either paragraph (1) or (2) as appropriate, depending on whether they were an ECHA or SCHA. But not all of them did so: a few CHAs did not score through either (1) or (2), or where a CHA did score through one of the options, the one that it left un-scored did not accord with its true status.

Most of the DoAs were executed in November and December 1988, although some were executed as late as October 1989. Teesport only became involved much later on when it succeeded to the business of a previous CHA.

Each DoA (with a small number of exceptions) stated that the CHA covenanted with the Trustee with effect from 1 October 1988, the date from which the 1988 Rules were intended to take effect. Most of the Deeds of Accession were therefore executed a number of months before the 1988 Rules were actually adopted and before the final form of those rules had been agreed by the NNF or assented to by the Trustee.

Amendments to the contribution obligations of CHAs

Since the adoption of the 1988 Rules, two new specific contribution rules have been inserted: Rule 14(4), on 28 June 2005, and Rule 13(4), on 23 January 2009. Their validity and effect, if valid, are in question. They provide as follows:

“13…(4) Where a Participating Body that authorises “S” Members ceases on or after 26 January 2009 to authorise “S” Members, the Participating Body shall, if the Trustee Company consents, cease to be a Participating Body on the date it ceased to authorise any “S” Members and shall make such contributions (including lump sum contributions), if any, as the Trust Company, having regard to the advice of the Actuary, shall determine.

[...]

14…(4) Where a Participating Body which is on or after 8 June 2005 an employer of “E” Members in any Area ceases on or after 8 June 2005 to employ Pilots for that Area or (at the discretion of the Trust Company) to employ “E” Members for that Area, the Participating Body shall, if the Trust Company consents, cease to be a Participating Body in relation to the Area on the date it ceased to be such an employer and shall make such contributions (including lump sum contributions), if any, as the Trust Company, having regard to the advice of the Actuary shall determine. In determining such contributions, the Trust Company and the Actuary shall take into account, to the extent that they consider it appropriate:

(i)

the proportion of the amount of the deficiency or potential deficiency which the Fund's liabilities attributable to employment with the Participating Body in that Area bear to the total amount of the Fund's liabilities attributable to employment with all of the Participating Bodies which employ Pilots;

(ii)

any lump sums or other contributions paid, payable or prospectively payable by any Participating Body for the purpose of reducing or eliminating a deficiency or potential deficiency, whether under this Rule 14(4), section 75 of the 1995 Act or otherwise, and

(iii)

any debt which, in the opinion of the Trust Company, is unlikely to be recovered.

Such contributions shall be inclusive of (and therefore not less than) any amount currently or prospectively due to the Fund under section 75 of the 1995 Act from the Participating Body as the Participating Body in relation to that Area. After paying such contributions (and any other contributions to the Fund due from it in relation to the Area) the Participating Body shall have no further liability to the Fund as the Participating Body in relation to that Area.”

Both of these Rules were introduced in order to allow the Trustee to seek contributions, including lump sum contributions, from CHAs (ECHAs or SCHAs) as and when the conditions set out in the Rules were fulfilled and whether or not there would be a statutory liability in that situation under Section 75.

Rule 13(4) arose out of a concern that SCHAs might be able to take themselves out of the scope of the Trustee's power to amend the Scheme so as to demand contributions from them by ceasing to authorise any Members, a concern which was heightened by one SCHA actually threatening to terminate the service contract it had with the partnership of self-employed pilots that worked at its port, and to cease to authorise those Members, precisely in order to achieve this end.

The removal of Article 72

In introducing these new Rules, the Trustee did not go through the process of obtaining the authority of the NNF under Article 72 of its original Articles. This was because, at an extraordinary general meeting held on 18 February 2003, it was resolved that the NNF be abolished by the deletion of Article 72. The NNF had in fact been disbanded some time before, in August 2002. The Association of Participating Bodies in the PNPF had consulted its member CHAs about the proposal to disband the NNF, and, following that process, it was disbanded.

A number of the CHAs have suggested that there is a question-mark over whether Article 72 was in fact validly removed. The Trustee does not seek guidance in these proceedings on whether the Article was validly removed or not: submissions on that issue could not be satisfactorily addressed at trial. Accordingly, I am to decide the issues in this case on the footing that Article 72 has been deleted but without prejudice to the issue of the validity of that deletion.

Other amendments

In order to reflect (a) the introduction of section 67 of the Pensions Act 1995 with effect from 6 April 1997 and (b) the change in the tax regime effected by the Finance Act 2004 from a system of “approval” to a system of “registration”, Rule 9(1)(a) has since been amended so that it now reads (with changes shown in bold):

“9.

(1) The Trust Company shall have the following powers:

(a)

after consultation with the Actuary, to alter cancel or add to any of the provisions of the Rules or to adopt an additional set or sets of Rules provided that no such alteration, cancellation, addition or adoption shall be made which would prejudice Registration and that the requirements of section 67 of the [PA 1995] shall be satisfied in relation to any such alteration, cancellation, addition or adoption.”

One other new Rule should be mentioned, namely Rule 15(3). This was introduced on 15 August 2006 to cater for the attempt in 2006 to redress the deficit through voluntary payments. It provides as follows:

“…..the Trust Company may agree with any Participating Body on such terms as the Trust Company considers appropriate that there shall be additional contributions to the Fund, arranged in such a way that Participating Bodies of “S” Members are liable for the collection of those contributions and Participating Bodies of “E” Members are liable for the payment of those contributions in respect of their contributing Members, as notified by the Trust Company.”

That wording seems to envisage that additional contributions in respect of “S” Members would, like the existing contributions, come from the Members themselves in contrast with additional contributions in respect of “E” Members which would, at least in part and again like existing contributions, come from the Participating Bodies themselves. The Rule, however, imposes no obligation on anyone to make any payment.

At this stage, I should say a little about the Scheme's funding position from time to time. At the time of the adoption of the 1988 Rules in May 1989, the most recent actuarial valuation was the valuation as at 31 December 1987. The Scheme Actuary prepared a memorandum about the position of the Scheme in August 1988, followed by a supplementary memorandum signed off in January 1989. The formal full actuarial valuation report itself is dated 31 May 1990.

The previous actuarial valuation as at 31 December 1984 had revealed a past-service surplus of £24.3m.

The first memorandum on the position at 31 December 1987 indicated that the surplus had increased further to £44.5m. The supplementary memorandum, signed off in January 1989, took into account the 234 pilots who had accepted the benefits of the early retirement scheme to that date, at a then estimated cost of £10.1m. The actuary estimated that in light of this cost, the surplus was then £34.2m. For the current position, see paragraph 1 above.

That completes a rather lengthy review of the history of the Scheme and the context in which the questions asked by the Trustee arise. Lengthy as it is, I will need to examine some factual matters in rather more detail; I will do that in the context of, and so far as they are relevant to, those questions taken separately. I turn to the Questions raised on the Claim Form.

Question 1 is concerned with the scope of Rule 9 of the Rules and Article 5. In summary, the question is whether either of these provisions can be used to impose additional contribution obligations of any of the CHAs and, if so, what, if any, are the constraints on the scope of any intended exercise of these powers since the Trustee has not yet formulated how it would propose to exercise them. The questions for me are essentially questions of interpretation or construction. I will need to consider how the relevant (and well known) authorities on construction sit with a line of authorities relied on by Mr Newman (who appears for Milford Haven) concerning restrictions on the exercise of apparently wide powers of amendment contained in documents of varying types.

In answering this Question, it is necessary to consider the Deeds of Accession and the extent of the covenant which the CHAs have given. It is said by some, at least, of the CHAs that their obligations are restricted to those found in the Deed of Accession and that they would not be liable to contribute under a balance of cost obligation imposed by a purported amendment to the Rules (even assuming such an amendment could properly be made).

Construction

The proper approach to construction of an agreement or other document and the proper approach to the implication of terms are not controversial although the boundary between construction and implication is not always clear. Thus, in the present case the apparently wide words of Rule 9(1)(a) might be “read down” in one of three ways: first because, as a matter of construction, the words “alter cancel or add to” do not permit a change to the Rules which imposes additional obligations of the sorts identified in Question 1 in respect of each of the four categories of CHA; secondly because a term prohibiting such changes should be implied; or thirdly (which may be no more than a sub-category of the first two ways) in accordance with the line of authorities restricting the exercise of apparently wider powers. I therefore address in turn construction, implication and the line of authorities last mentioned.

The general principles underlying the process of interpretation are well-known and are set out by Lord Hoffmann in Investors’ Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912-913. They are summarised by him in Chartbrook v Persimmon [2009] 1 AC 1101, at paragraph [14]−

“There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors’ Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896, 912-913….. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”.

In the context of a pension scheme (such as the Scheme in the present case) something more can be said about the correct additional general approach. It is summarised by Arden LJ in British Airways Pension Trustees Ltd v British Airways plc [2002] EWCA Civ 672, [2002] PLR 247 at [26] to [32]:

“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's 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……

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…..

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] may include common practice among practitioners in the field as evidenced by the works of practitioners at that time…..

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……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)….

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.”“

It is to Lord Hoffmann, again, that one can turn in relation to the implication of terms. In A-G of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at paragraphs [16] to [28], he emphasises that the object of the task of interpretation including the implication of terms is to discover what the instrument means. The implication of the term is not an addition to the instrument. It only spells out what the instrument means. And, as he points out, the proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since a court has no power to alter what the instrument means) but also well supported by authority. 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.

He addressed various different ways in which this question can be reformulated, 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. These are not 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?”

He then cautions against the danger of treating alternative formulations as if they had a life of their own, for instance the question of whether the implied term is “necessary to give business efficacy” to the contract:

“The danger lies, however, in detaching the phrase “necessary to give business efficacy” from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case, at p 459, when he said that in that case an implication was necessary “to give effect to the reasonable expectations of the parties”.”

It is helpful to see what Lord Steyn did say in order to understand more fully the thrust of what Lord Hoffmann was saying. Lord Steyn said this:

“…..Such a term may be imputed to parties: it is not critically dependent on proof of an actual intention of the parties. The process “is one of construction of the agreement as a whole in its commercial setting”: Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191, 212E, per Lord Hoffmann. This principle is sparingly and cautiously used and may never be employed to imply a term in conflict with the express terms of the text. The legal test for the implication of such a term is a standard of strict necessity……. The inquiry is entirely constructional in nature….”

He then went on to identify a number of factors which led him to result concluding as follows:

“In my judgment an implication precluding the use of the directors' discretion in this way is strictly necessary. The implication is essential to give effect to the reasonable expectations of the parties. The stringent test applicable to the implication of terms is satisfied.”

Neither Lord Steyn nor Lord Hoffmann is to be read as saying that a term will always be implied to give effect to reasonable expectations – for instance, different parties may have different reasonable expectations. The important point is this: the fact that a contract may be workable does not preclude the implication of a term when the workable construction can be seen to be contrary to what the parties intended.

In relation to the well-known conditions set out by Lord Simon of Glaisdale in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283, “(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.” Lord Hoffmann concluded that…

“….this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so.”

The heading of this section is a reference to Hole v Garnsey [1930] AC 472 the case on which Mr Newman particularly relies in support of the proposition that the power of amendment in Rule 9(1)(a) cannot be used to change the essential structure of the contribution Rule applicable to “E” Members employed by an ECHA: in other words, the provision under which the ECHA pays 1.5 times the Member’s contributions. He identifies the principle that the effective scope of a power of amendment is restricted to those amendments that can reasonably be considered to have been in the contemplation of the parties when entering into the contract.

Hole v Garnsey involved a society registered under the Industrial and Provident Societies Act 1893. Under Rule 64 of the society, rules could be amended “by resolution of a three-fourths majority at a special general meeting”. Various amendments were carried by a three-fourths majority of the shareholders. The effect of one of the amendments, if valid, was to impose on many members an obligation to subscribe for additional shares. The appellant was a dissentient member who sought to challenge the power of the society to impose such an obligation. The appeal succeeded by a 4-1 majority in the House of Lords.

Lord Tomlin, at p 500, expressed the principle of construction in the following way:

“Does a power enabling a majority to amend the rules justify as against a dissenting member any alteration whatever, where, as here, neither by the statute nor by the rules themselves is any one rule expressed to be more fundamental and unalterable than any other?

The answer in my judgment must be in the negative. In construing such a power as this, it must, I think, be confined to such amendments as can reasonably be considered to have been within the contemplation of the parties when the contract was made, having regard to the nature and circumstances of the contract. I do not base this conclusion upon any narrow construction of the word “amend” in Rule 64, but upon a broad general principle applicable to all such powers.”

In Lord Napier and Ettrick v Kershaw [1997] LRLR 1 at [6], Nourse LJ referred to the penultimate sentence in those quoted passages as a statement of the principle in “terms which have not been bettered”. Arnold J has recently cited it with approval in HR Trustees Ltd v German [2009] EWHC 2785 (Ch) at [117].

The decision of the Court of Appeal in Lord Napier and Ettrick v Kershaw went on appeal to the House of Lords under the name Society of Lloyd’s v Robinson [1999] 1 WLR 756. The case concerned Lloyd’s Names who had been required to execute “Premium Trust Deeds”. Lloyd’s had power to amend the provisions of the deed and exercised that power so as to extend the scope of the security provided under that deed for the purpose of meeting the Names’ liabilities. It was argued that the exercise of the power was outside its scope, in accordance with the principle in Hole v Garnsey. This argument succeeded before the Court of Appeal, but failed in the House of Lords.

Giving the only reasoned judgment of the House of Lords, Lord Steyn, at pp 767-7, said this:

“In a careful argument counsel for the representative underwriter emphasised that the power of amendment was contained in a trust deed. He submitted that when a party to a trust deed containing a general power of amendment agrees that certain of his assets shall be subject to a trust it cannot be within the reasonable contemplation of the parties that the trust may be altered to extend to other assets. He argued that such a power of amendment must be confined to alterations to procedural rights and obligations. Moreover, counsel for the representative underwriter emphasised that the amendments were far reaching in their effect. In some contexts such arguments may be decisive. But the focus must be on the particular features of the present case.

The general propositions put forward by counsel must be qualified. First, it is true that clause 2(a)(i) uses the device of trust. But it is hardly a traditional trust created by the bounty of a settlor. It is a means of creating a form of security in favour of policyholders. It provides a guarantee that a Name will be able to meet his liabilities and it provides a mechanism for the payment of such liabilities. This is the context in which the amendments brought litigation recoveries within the scope of the trust. Secondly, it is true that there is a well established line of authority which holds that a power of amendment reserved in a trust must be exercised for the purpose for which it was granted: see Hole v Garnsey [1930] AC 472... This principle is closely linked with the general proposition that the power must not be exercised beyond the reasonable contemplation of the parties on which Nourse LJ founded his judgment. All this is hornbook law. But it is going too far to say that such a power of amendment may never be exercised to alter rights, or, specifically, to bring a new class of property within the scope of a trust.”

Then, after considering as an example the decision of the Court of Appeal in Allen v. Gold Reefs of West Africa Ltd [1900] 1 Ch. 656 and mentioning the decisions in Graham Australia Pty. Ltd. v. Perpetual Trustees W.A. Ltd [1989] 1 W.A.R. 65 and Kearns v. Hill (1990) 21 N.S.W.L.R. 107, he went on to say this:

“The 1995 amendments do not impose any new liability on Names. They do not require Names to pay more than they were already obliged to pay. They simply provide for additional security for pre-existing obligations. The amendments are therefore within the commercial purpose of the P.T.D. trust fund. Moreover, the amendments were required by an unprecedented crisis affecting Lloyd’s. From the 1980s the Lloyd’s market was beset by serious structural problems. There was a spiral of losses. Lloyd’s names apparently suffered losses of £8bn. in respect of the 1988 to 1992 underwriting years of account. By March 1995 when the amendments were introduced the unwillingness and inability of names to settle their underwriting liabilities confronted Lloyd’s with a crisis which imperilled its standing as an insurance market. Hobhouse LJ [dissenting in the Court of Appeal] observed [1997] L.R.L.R. 1, 17-18:

“In the present case the purpose of the trust deed is to impose obligations upon the Name and provide mechanisms for the purpose of facilitating the conduct of the Name’s activities at Lloyd’s including the discharge of his obligations within the market. In the exceptional situation which had arisen and the exceptional way in which the Names were having to enforce and obtain from their agents the financial consequences to which they were entitled arising out of their becoming names and participating in the market, it is both consistent and proper that the Council of Lloyd’s should have sought to amend clause 2 of the deed so as to bring the relevant litigation receipts within its scope and require the Name to pay such sums into the trust fund in so far as it is necessary to do so to enable his liabilities to be paid out of that fund. The situation which has arisen is exceptional. But the contemplation of the deed and the relationship between the parties to it is that the fund will be provided with sums of money which are sufficient to enable the Names’ liabilities to be met by payments out of that fund, using the mechanisms provided for in the deed.”

I am in complete agreement with this reasoning.”

In the passage preceding that which was set out by Lord Steyn, Hobhouse LJ, having reviewed a number of cases that illustrated that significant changes can legitimately be effected through exercise of a power of amendment, said this at [1997] LRLR p 17:

“These authorities confirm that the purpose for which the power has been granted must be observed. But, provided that it is, the power can be exercised so as to alter the rights, including the vested rights, of the relevant parties. In Hole v Garnsey the amendment was considered not only to lead to absurd and fundamentally unacceptable conclusions but also to be at variance with the essential nature of the transaction and the relationship between the parties. By contrast, in Allen v Gold Reefs the taking of a right of lien was not inconsistent with the structure of the relationship between the parties and the amendment furthered that purpose rather than derogated from it. In my judgment, the Council acted within the scope of the decided cases. The amendments do not lead to unacceptable conclusions; they do not conflict with the essential nature of the transaction or the relationship between the relevant parties. The amendments are designed to further the fundamental purpose of the deed to assure and assist the discharge of the Names’ liabilities to those they have undertaken to insure.” .

The “reasonable contemplation” of the parties, or rather what can “reasonably be considered to have been within the contemplation of the parties” imports an objective test. It is not, in my view, relevant to know what the parties did or did not actually consider. I am not, for instance, concerned with what the directors of any of the CHAs discussed in their boardroom or considered with their lawyers. That is consistent with descriptions of the restriction on the scope of a power to alter the objects or purposes of the trust; the amendment must not change the whole substratum of the trust (see in an analogous situation Re Ball’s Settlement Trusts [1968] 1 WLR 899; and also Kearns v Hill) or its basic purpose (see Bank of New Zealand v Board of Management of New Zealand Officers’ Provident Association [2003] UKPC 58).

There has been some debate about whether the principle in Hole v Garnsey has a separate life from the principles applicable to construction and implication. I see this as a somewhat arid debate. The object of the exercise in all three cases is to ascertain the meaning of the language which has been used. The question in the present case is whether the scope of the power under Rule 9(1)(a) is limited in one or more of the ways that some of the CHAs suggest, or is unlimited in the way that the Members suggest. I do not see a different answer to the question being given depending on whether the matter is viewed through a Hole v Garnsey telescope or a construction/implication telescope. And, as Lord Hoffmann has pointed out in relation to the implication of terms, there is a danger of alternative formulations (in the case of amendments we have reasonable contemplation, no change in whole substratum, no change in basic purpose) taking on a life of their own when the enquiry, as I see it, is what is meant by the words used.

There is one other general point which is made by Mr Ham with which I am in complete agreement. It is that the court should approach the matter of interpretation without any predisposition as to the correct philosophical approach. It is, as he says, the understandable contention of the Trustee that the 1988 Rules and the 1987 Order should be interpreted, or should be capable of being amended, in a way that permits contributions sufficient fully to fund the Scheme to be demanded from whatever source. But the Court should not start with any bias towards that conclusion. All depends on the terms of the instruments imposing the putative obligation – Mr Ham would say the Deeds of Accession but it may be that the Rules are themselves a source of obligation. It should not be overlooked that the pensions environment was very different in 1988 from today. As Mr Ham points out in his skeleton argument:

“……..one of the major defects in UK pension law and practice identified by the Goode committee was the absence of any obligation to back the “pensions promise” with sufficient funding to perform that promise. Hence the minimum solvency requirement the committee recommended, which ultimately became the MFR, inadequate though that proved to be. At the time when there were first employed pilots this was not the approach…..”.

I might not agree with some of the other descriptions which he gives of perceptions current at the time in the paragraph from which that quote is taken, but with the quote there can be no argument. It would have come as no surprise to lawyers and pension professionals, if not to members and possible employers, to discover that members’ benefits might not be in any sense guaranteed.

Before applying the principles established by those cases to the facts of the present case, I want to deal with the Deeds of Accession. It is said by some of the CHAs that these Deeds are the only source of their contribution obligations and that, properly construed, they do not permit the Trustee to impose additional contribution obligations of the type which are identified in Issues 1 to 20.

I have set out the form of the common standard form Deed of Accession at paragraph 109 above. Some Deeds of Accession are in slightly different forms and in one case there was no deed at all. I will deal with the standard form first and then say how I propose to deal with (or rather, not deal with) the other cases.

Let me take first the cases where the standard form Deed of Accession has been completed properly with the relevant CHA deleting only the correct part of the Deed. Thus an ECHA would be left with a covenant in relation to “Members of the Fund employed by us” and an SCHA would be left with a covenant in relation to “Members of the Fund authorised by us to act as a pilot….”.

The covenant in each case is that “we will comply with all the provisions of the Bye-laws and Rules of the Fund from time to time in force insofar as they relate to” the Members described above.

These covenants were given, for the main part, in November 1988, after the 1987 Order had taken effect and the CHAs had taken over the employment and authorisation of pilots but before the 1988 Rules had in fact been adopted. Accordingly, at that time the operative provisions of the Scheme were the 1983 Rules as continued in effect and varied by the 1987 Order. There was nothing, at that stage, which indicated what the contribution obligations of the CHAs should be. There was nothing which treated a CHA as if it were a pilotage authority and, even if there had been, no contribution obligation would have been imposed on any CHA under the byelaws and rules. However, the Scheme continued in existence and continued to operate under paragraph 4 of Schedule 1 to the 1987 Act. Accordingly, benefits continued to accrue and the pilots own contributions continued to fall due.

Since pilotage authorities ceased to exist, and since the 1983 Rules as varied by the 1987 Order did not treat CHAs as if they were pilotage authorities, there was on its face no obligation of any sort on a CHA. Possibly it would be right to treat a CHA as under the same obligation in relation to the collection and transfer of contributions as were the pilotage authorities. But apart from that there was nothing at that stage on which the covenant contained in a Deed of Accession could bite.

I want to say a little about the meaning of “Member” and about which Members the covenant in the Deed of Accession is capable of relating to. Under the 1983 Rules, a person who became a Member remained a Member so long as he remained licensed under the 1983 Act or was currently or prospectively entitled to receive a pension from the Scheme. Members fell into two classes, A and B Members. It was possible for some individuals to fall into both classes.

Under the 1988 Rules, individuals who were A Members under the 1983 Rules remained A Members under the 1988 Rules. Any person who becomes a Pilot for an area where there is a Participating Body may become an A Member. A person remains an A Member for so long as benefits are payable in respect of him under the Rules and a person who was a B Member under the 1983 Rules remains a B Member subject to the 1988 Rules. Accordingly, a person does not cease to be a Member for the purposes of the Deed of Accession by reason only that he ceases to be employed or authorised as a pilot. The provision under which an A Member under the 1983 Rules remains an A Member does not mean that such a person who continues to work as a pilot but who is not employed or authorised by a Participating Body may continue to accrue benefits. It is clear that benefits can accrue only in respect of S Members and “E” Members which requires them to be employed or authorised by a Participating Body.

The covenant in the Deed of Accession relates, in the case of employed pilots, to “Members of the Fund who are employed by us”. It is clear that this is not restricted to Members employed at the date of the relevant Deed of Accession. The covenant requires compliance with the provisions “from time to time in force” and there can be no doubt that the covenant relates to persons who are from time to time Members. If this were not so, ECHAs would have no contribution obligation in relation to pilots recruited after 1 October 1988 which cannot possibly be correct.

It is implicit in what I have just said that I regard the ECHAs’ contribution obligation under Rule 14 as one which relates to “Members….employed by us”. I regard that as self-evidently correct and no-one has suggested otherwise. However, it ought to be noted that the actual contributions under that Rule simply go into the general fund of the Scheme. They are not hypothecated to the benefits of the relevant Members. Given the size of the deficit, it may be the relevant Members will see little actual benefit from the payment of such contributions. Moreover, in a different scenario, that of surplus in the Scheme, these payments could exceed the sums necessary to provide benefits of the relevant Members. These factors go to emphasise that what is relevant is whether the provision relates to Members, not whether, in the case of a rule concerning contributions, the resulting contribution is earmarked for the Members concerned.

What is less clear is whether the covenant can ever apply in respect of persons who, whilst remaining Members, have ceased to be employed or authorised by the relevant CHA and if so the extent to which it extends. This question could arise in a variety of circumstances, for instance (i) the move by the relevant pilot to another port where his new CHA employer is not a Participating Body or (ii) the retirement of the Member altogether so that he ceases to be employed or authorised by any CHA. In my judgment, the covenant is capable of extending to Members who are no longer employed by the relevant CHA but only insofar as the relevant provisions “relate to” such Members. Suppose, for instance, that there were a modest deficit in the Scheme and that the actuary was able to attribute on a strongly defensible actuarial basis a certain amount of that deficit to under-funding in respect of the ex-employees of a relevant ECHA. Assuming that the Trustee has power under Rule 9(1)(a) to introduce a Rule which required the ECHA to pay that proportion of the deficit being clearly identified as a deficit attributable to the ex-employees, it would be strongly arguable that such a provision would “relate to” those ex-employees. If it does so relate, I consider that the covenant would bite: the contribution obligation arises in respect of the period of Membership when the Member was actually employed. In effect, “are…employed by us” is to be read as “are now or hereafter….” or, “are at any time….”.

This view is consistent with the way in which other rules operate. For instance:

I therefore reject the submission made by Mr Ham that the covenant under the Deed of Accession can only apply in relation to Members who are currently employed by the relevant CHA. Having concluded that the covenant is capable, in principle, of extending to ex-employees and to pilots no longer authorised by the relevant CHA, I turn to consider the scope of the covenant “insofar as etc” and in particular when a provision “relates to Members…. employed [or authorised] by us”. I shall address employment, but the analysis is the same for authorisation.

It is trite to observe that the deficit in the Scheme is the excess of the Scheme’s liabilities over its assets. It may not be easy to say that 100% of the deficit is attributable to the outstanding liabilities (some of it might be said to relate to liabilities which have already been met but which were under-funded); nor will it be simple to identify what part of the deficit is attributable to what liabilities. The answer, of course, depends on what one means by “attributable”.

The Scheme could, no doubt, have been amended in 1988 when CHAs first became involved by being sectionalised, that is to say by having separate allocated funds for each CHA with a separate fund being set aside for Members no longer accruing benefits under the Scheme. The liabilities and assets of the segregated fund would be clear; a provision (assuming it had been included or could be included by amendment) requiring the relevant CHA to make good any deficit in the segregated fund would, I consider, “relate to the Members…. employed by us”.

But this was not done. Instead there was and is a single fund for all Members including Members who have never been employed or authorised by a CHA which has been a Participating Body. Indeed, the liabilities of the Scheme in respect of those latter members is large and on any view a significant proportion of the deficit is attributable to them whatever reasonable meaning is given to “attributable”. It is not possible, at least without the application of enormously complicated, and doubtless expensive, actuarial techniques to say what part of the current assets represent contributions in respect of the current liabilities. Moreover, the deficit will have been generated partly by the payment of benefits which may themselves not have been fully funded when they were paid.

Notwithstanding this difficulty over “attribution”, it is possible, without too much difficulty, to ascertain the liabilities of the Scheme in respect of the Members who are or have been employed or authorised by each CHA, reflecting different periods of employment or authorisation with different employers. The total deficit in the Scheme could be allocated between the CHAs pro rata to those liabilities. Indeed, the same allocation exercise could be carried out taking account only of liabilities in respect of Active E or S Members for their period of service with or authorisation by the relevant CHA. Assuming that a valid Rule amendment could be introduced under which the CHAs were to contribute the amounts thus allocated to them, the question is the extent to which this new Rule would “relate to” the Members in respect of whom the allocation is calculated.

This question can be put more starkly in the context of the notional segregated fund which I have just mentioned. Suppose, in the example, that the benefits of Members who were never employed by a CHA were allocated on some rational basis between the separate funds. Each CHA’s segregated fund would therefore have allocated to it liabilities arising in respect of Members who had never been employed or authorised by it. Suppose that a contribution rule were introduced requiring the CHA to meet the whole deficit (in relation to the segregated fund) some, perhaps a large proportion, of which was attributable to those Members. Can it be said that the rule relates to the Members who were or who had been employed by the CHA?

Mr Nugee submits that a deficit contribution of the sort which I have been considering would be one which related to “Members employed by us”. It is only by ensuring that the Scheme is properly funded that the benefits of the Members employed by or authorised by the relevant CHA will be met. Accordingly, any provision which has one of its genuine objects the funding of such benefits is one which relates to those Members. In effect, a deficit contribution rule of this sort relates to all Members and thus relates, in particular, to “Members…..employed by us”. There would be difficulties with any other view, difficulties which therefore show that the covenant should be given a broad construction.

One of those difficulties is this. The covenant is wide enough, I think on any view and certainly in my view, to cover that part of the deficit which is attributable to those Members who clearly fall within the scope of the covenant (“Members ….who are employed by us”). Even if the deficit contribution is restricted to the share attributable to those Members, a deficit in respect of those same Members remains even after payment of the deficit contribution. This is because the contribution is not ear-marked to provide benefits for those Members but forms part of the (unsegregated) fund as a whole which remains in deficit. Accordingly, it is said, a further demand can be made, then another, then another and so on until the deficit has gone.

A second difficulty is this. If it is assumed that the contribution ratio can be changed for ECHAs and if it is assumed that a similar contribution structure can be introduced for SCHAs, then the multiple which the CHAs have to pay would be a provision which relates to the relevant Members. The multiple could be made very large so that, over a period of time, the deficit could be eliminated.

Those difficulties might be said not to present problems at all. As to the first, it might be acknowledged that it is permissible to take as the starting point an attribution of deficit pro rata to liabilities; it is a rational if not perfect starting place. But once payment has been made pursuant to the covenant, the covenant is exhausted unless and until a new deficit arises, for instance because of a fall in the market value of the assets. I do not think that that argument is a good one. The covenant is to comply with the provision of the Scheme insofar as they relate to the relevant Members: if the Scheme provides for contributions made by any CHA to go into a general pool and not to be earmarked, the effect of complying with the covenant is not to reduce by the amount of the contribution the deficit attributable to those Members. Accordingly, I consider that the iteration which Mr Nugee has identified would indeed take place.

As to the second difficulty, I see no answer to it as a matter of construction of the covenant. Just as an ECHA is currently obliged under its covenant to pay 1.5 times the contributions made by its employed pilots, so too the covenant would bite on the larger multiple if validly introduced.

This is not to say that the two difficulties are simply not real and are to be ignored. The Deeds of Accession are matters which need to be taken into account in determining what, if any, restrictions there are on the scope of the power of amendment in Rule 9(1)(a) and in deciding the propriety of any particular proposed exercise of the power. But it is at that level, and not at the level of the meaning and effect of the Deeds of Accession, that these problems are to be addressed.

Mr Newman of course submits that Mr Nugee’s approach (and indeed Mr Spink’s approach) is quite wrong. He is right to remind me that it is the whole phrase “insofar as they relate to Members employed by us” which must be construed and that one might fall into error, if I may put it that way, by focusing too much on the words “relate to”. He submits that the use of the words insofar as is crucial, and clearly shows that:

I do not agree with the first of those propositions. The words are not used to restrict a CHA’s obligations; they are there as part of the definition of those obligations. Take for example the obligation of an SCHA under Rule 13(1) to collect contributions from S Members. The Scheme itself does not require one CHA to collect the contributions from S Members authorised by another CHA. Although it is the same provision of the Scheme (namely Rule 13(1)) which requires each of the CHAs to collect the relevant contributions, that provision does not itself require one CHA to collect the contributions collectable by the other. Accordingly, the Deed of Accession might just as well have stopped short of the words “insofar as etc” in relation to the obligation under Rule 13(1). The covenant does not restrict in any way that which would have to be done in relation to the collection of contributions under the Rule.

Mr Ham, I note, made a similar submission to the effect that the words “insofar as etc” clearly restricted Shoreham’s liability. For the reasons given, I reject that submission too.

So far as I am aware, there is not a single provision of the 1988 Rules in their original form, or even as amended, which falls to be treated differently. In relation to every provision which imposed an obligation on a CHA, (to take another example, the payment under Rule 14(2) of contributions by an ECHA), the scope of that obligation appears precisely from the Rules: the covenant in the Deed of Accession does not cut it down at all. Far from restricting the obligation under the Rules, the Deed of Accession precisely reflects it. The words “insofar as etc” add nothing of substance but serve only to remind that a CHA’s obligations do not extend to those of another CHA.

As to Mr Newman’s second proposition, what he says is probably correct. But clearly a CHA’s covenant cannot, on any view, extend beyond the obligations which the Rules impose on it. Thus although Rule 14(1) obliges an employed pilot to pay contributions, the Rules do not also oblige an ECHA to pay (save as a collecting body) those contributions and the covenant in the Deed of Accession is of no relevance to them: obviously the covenant to “comply with all the provisions…” means only those provisions which cast an obligation on the CHAs. I am not aware of any provision of the 1988 Rules in their original form, or even as amended, which casts an obligation on a CHA in relation to Members other than those which are or have been employed or authorised by it. Accordingly, I do not think that Mr Newman’s point takes matters further.

He nonetheless submits that Mr Nugee’s construction gives no effect to the words insofar as, and wholly undermines the restriction of the scope of the ECHAs’ liability to the Scheme contained in the Deed of Accession for these reasons:

It is a matter of perception whether one regards the result as startling. I do not regard it as startling but simply as a consequence of the use of words which may not, in all circumstances appear entirely apposite. It is no more startling to my mind that the consequences which Mr Newman mentions result, than that the words which he describes as otiose have no function under the Rules as they stand. Further, if he is right in saying that the Scheme cannot, in any case, be amended to change the contribution ratio or to introduce a new contribution obligation, there never will be any contribution rule (and probably no rules of any sort) which the words “insofar as etc” would cut down: those words would always be otiose. I do not detect the fatal flaw which Mr Newman seeks to identify.

I reject the submission made by Mr Martin on behalf of Teesport that there is to be introduced into the Deed of Accession an implied term (or some parallel application of the principle in Hole v Garnsey) that amendments cannot be made to the Rules which would be contrary to the reasonable expectations of the parties. I do not perceive any room for the implication of such a term into the Deeds of Accession. If the scope of the power of amendment is so restricted, or is restricted in some other way, then the power cannot be exercised in breach of that restriction. If it is, then the exercise is invalid. The CHA is not then bound by its covenant in relation to a provision introduced in breach of that restriction: but this is not because of some implied term but because there is no valid provision in the first place to which the covenant could relate. But if the power is exercised within its permitted scope, it is not, in my judgment, possible to justify a conclusion that the Trustee had bound itself by contract not to exercise the power in certain ways within its permitted scope.

Mr Ham relied on the contra proferentem rule. The rule requires, according to him, words of documents to be taken strongly against the one who puts it forward, because in the words of Lord Mustill in Tam Wing Chuen v Bank of Credit and Commerce Hong Kong Ltd. [1996] 2 BLLC 69 at 77:

“a person who puts forward the wording of a proposed agreement may be assumed to have looked after his own interests, so that if words leave room for doubt about whether he is to have a particular benefit there is reason to suppose that he is not.”

He submits that this clearly applies to the Deeds of Accession, which were pro forma documents provided by the Trustee to Participating Bodies as a matter of form. He says that the rule, like other canons of construction, reflect the way in which the courts ascertain the ordinary meaning of the language which the parties have used. In contrast, Mr Nugee submits that the contra proeferentem rule is not really like that. It is not an ordinary way of understanding language. It is more of a tie-breaker. He says that I must struggle with the words rather than just apply mechanistically the old intellectual baggage. Both parties have relied on Lewison The Interpretation of Contracts (4^th Ed) , starting at section 7.08 where the rule is dealt with at some length. I have read the whole of Section 8 and looked at several of the authorities. By extracting citations here and there, either view could be justified. I do not propose, however, to resolve the competing arguments about the proper application of the principle.

I do not need to do so because I certainly accept that the principle only applies where there is a doubt or ambiguity and should not be used for the purpose of creating or magnifying one. The fact that there are difficulties about a point of construction does not mean that there is a doubt or ambiguity of a type to which the contra proferentem rule may be applicable. If conventional canons of construction are capable of resolving the issue, they should be applied. I do not consider that the meaning of the Deed of Accession is doubtful or ambiguous in that sense.

Mr Furness (who appears for Bristol) and Miss Asplin submit that when covenanting to comply with the Rules of the Scheme from time to time, SCHAs committed themselves to what was essentially an administrative role in the Scheme – collecting contributions from S Members and supplying information to the Trustee. To introduce a contribution obligation would totally transform the fundamental nature of the obligations which the SCHAs undertook when they executed the Deeds of Accession.

I cannot accept that submission. What the SCHAs covenanted to do was to comply with the provisions of the Scheme from time to time in force insofar as they related to the relevant Members. Mr Furness and Miss Asplin argue that the powers of amendment (whether found in Rule 9(1)(a) or, if still available, in Article 5) do not permit the Trustee to introduce a contribution obligation on the SCHAs. If they are right in that, then there is no need for the suggested restriction on the covenant – the subject matter of the covenant would never include a contribution obligation. But if the Scheme can be amended to introduce such an obligation, I do not see any reason for restricting, by way of construction, implication or otherwise, the scope of the covenant to purely administrative obligations. If the expectations of the SCHAs are insufficient to limit the scope of the available powers of amendment they are insufficient, in my judgment, to restrict the clear prima facie meaning of the words used.

It is, in any case, a false starting point to say that the covenant relates only to administrative matters under the Rules as they stand. As already pointed out, Rule 25(6) cast a contribution obligation on SCHAs as much as ECHAs. If it is said that the introduction of that Rule was not permitted in the first place because it was not authorised by Article 5, I reject that submission. For reasons appearing below, I consider that Article 5 is of the widest application whatever may be the restraints on the scope of Rule 9(1)(a).

In my judgment, therefore, Mr Nugee is correct in his submissions about the construction of the covenant contained in the standard form of Deed of Accession.

I have reached this conclusion on a fairly narrow textual approach. But there is another reason for reaching the same conclusion or at least for finding support for it. It is one which Mr Spink puts at the forefront of his submissions about the meaning of the Deed of Accession and which Mr Nugee puts as an alternative. I can explain it in this way.

Ordinarily, one would expect that a person becoming involved in an institution, be it a club, or a friendly society or a pension scheme, would expect to be bound by the rules governing that institution. If the club’s rules provide for a subscription of £150 per annum, it would require clear explanation how and why an individual could claim to be a member paying only £100 per annum. Likewise, if the rules of a pension scheme, as amended from time to time, require payment of certain contributions by participating employers, it would require clear explanation how and why a participating employer could participate and yet pay some lesser contribution. The Deeds of Accession should, as Mr Nugee submits, be construed against that background. I should, he submits, give to the Deeds of Accession a practical and purposive, or reasonable and realistic, construction so that the express obligation undertaken in the Deed of Accession tracks the obligation which would ordinarily be expected to arise as the result of participation in the Scheme.

He would then have me construe the Deed of Accession in this way: “are” is read as “are (now or hereafter)” and “insofar as they relate to” means in effect “so far as relevant to”. In effect the covenant is a covenant to comply with the rules so far as relevant to that CHA’s pilots. To do anything else would be to suppose that although the position absent the express covenant would be that the CHAs were bound to comply with the rules as duly made, the Deed of Accession imposed a more limited obligation on them, namely only to comply with some of the rules which would otherwise apply. There is no reason to suppose that this is what either party intended.

But what then does the express covenant add to the implied agreement? The answer according to Mr Nugee is that (i) it is a formal record of participation; (ii) it confirms for the benefit of the Trustee the name, identity and registered office of the CHA in question; (iii) it avoids the need for the Trustee to rely on the implied agreement; (iv) it avoids any argument over consideration; and (v) it gives the Trustee a longer limitation period.

This reasoning does not explain away the inclusion of the words “insofar as….” and the words following it. The CHAs say that some meaning must be given to those words otherwise the covenant might just as well have stopped short of those words. I do not dissent from the conclusion that those words were unnecessary if Mr Nugee is correct. But that is not to say that they have to be given some meaning so as to change what would otherwise be the meaning of the covenant in their absence. Indeed, the words do bring some clarity (as well as some confusion): on any view, there were obligations which would apply only in respect of the CHA’s own Members, such as collection and transfer to the Trustee of contributions and payment by an ECHA of contributions in respect of its own Members. That the covenant to comply with the Rules “insofar as etc” can be seen as reflecting the fact that some obligations are imposed on all or many CHAs but that an individual CHA is responsible for those obligations only insofar as relevant to it. It would not be correct to conclude that the express covenant is to be read as excluding any further obligation under the byelaws and Rules.

In a similar vein, Mr Spink submits that the Deed of Accession is not solely or even primarily concerned with a Participating Body’s contribution obligation. He identifies matters in relation to which a Participating Body had obligations which could only apply insofar as they related to Members employed or authorised by it; the presence of the words “insofar as etc” were inserted with good reason without it being necessary to construe those words as having an additional restrictive function in terms of limiting the ability of the Trustee to amend the Rules in the future.

I agree with these submissions and therefore accept Mr Nugee’s construction of the covenant in the standard form of Deed of Accession.

If, contrary to that view, the words “insofar as etc” limit the extent of the covenant, a number of limitations can be formulated including these.

In my view, it is the third of these possibilities, paragraph c., which would most accurately reflect the scope of the covenant if a limited meaning is to be given to it. For reasons already given, the covenant, whatever its true scope under the words “insofar as etc” must extend to liabilities in respect of Members both currently and formerly employed or authorised. I therefore reject the first and second possibilities. A principled limitation would, however, restrict the obligations of the relevant CHA to liabilities under the Scheme in respect of a Member’s period of employment or authorisation by that CHA. Thus, suppose a Member had been employed by CHA X for 10 years but is now employed by CHA Y and has been so employed for only a few months, it would not be right, in my view, for CHA Y to pick up the additional cost of providing for the Member’s benefits in respect of the whole of his period of service. I would therefore reject the fourth possibility.

In relation to those cases where the incorrect paragraph of the Deed has been struck out, so that the apparent covenant is given in respect of the wrong category of Member (employed rather than authorised and vice versa) I consider that this error is one which can be corrected as a matter of construction. It is, if I may say so, patently obvious that the CHA concerned was intending to give a covenant in respect of “its” Members and if it has mis-described them as employed rather than authorised, the mis-description is easily corrected. There is nothing in the point.

There are some Active and Formerly Active SCHAs whose position, as regards their Deed of Accession, is known to be different from the generality of the SCHAs in some particular or other. They fall within the class represented by Mr Furness. He takes no position on most of them. I do not decide anything about their respective positions which should not be taken as precluding any argument based on the particular provisions of the different deeds. In other words, any individual defences which such CHAs may have are preserved at the enforcement stage of these proceedings.

However, Mr Furness does raise the cases of three SCHAs whose circumstances give them, he says, a clear advantage over other SCHAs on the principal issue, because of the terms of their Deeds of Accession. He says that I should consider the particular position of these SCHAs and, if necessary, exempt them from any declaration as to the potential liability of SCHAs in general. The three SCHAs concerned are Poole, Gloucester and Fowey. I am not willing to carve these three SCHAs out for special treatment at this stage of the proceedings. The Trustee’s position in its skeleton argument in reply is this:

“The Trustee naturally wants concrete guidance on as many relevant issues from the Court as possible, but the Trustee is not persuaded that these individual defences can fairly be dealt with at this stage:

a.

Bristol has (despite repeated opportunities) never raised before the suggestion that the individual defences of these specific SCHAs be adjudicated upon at the January hearing or that these specific SCHAs be exempted from declarations, and therefore

b.

correspondingly none of the other parties, including particularly the non-SCHA defendants, D1-D4, has had a proper opportunity to investigate the factual position of these specific SCHAs, or seek further information about it.”

I see considerable force in that. From my own point of view, I do not feel that I should decide the issue relevant to these three SCHAs without the parties who wish to argue the point being given the opportunity to do so in the light of my approach to the Deeds of Accession generally. I say no more about them in this judgment.

If I am wrong on construction, the question then arises whether the express covenant in the Deed of Accession is exhaustive of the CHAs’ obligations or whether they are under some wider obligation as a result of their being Participating Bodies. A related question is whether it was open to the Trustee to accept the participation of CHAs on special terms. Could it accept participation on the basis of a covenant to comply with the Rules only insofar as they relate to relevant Members and, if not, what is the effect of the Deed of Accession?

Although it was as a result of concerns expressed by me that this issue came to be argued, I do not, in the end, propose to answer it. If I am right in my conclusions on construction, the question does not arise. But if I am wrong, it seems to me that the correct answer to the question is so closely connected with the question of construction that I could not properly answer it without understanding why I am wrong on construction. I think it is better that I say no more and, save for one point, to leave it, if matters go further, to the Court of Appeal which will have all the necessary material to answer the question if I am found to be wrong on construction.

The one point on which I want to say something more is this. Mr Nugee submits that, in relation to the possibility of a further amendment pursuant to Article 5, the Deeds of Accession are irrelevant. As he puts it: “Since the Trustee is not relying on the covenant in the Deeds of Accession but on its statutory power, the construction of the covenant is neither here nor there”. Things are not, in my view, that straightforward. The power of amendment under Article 5 is a power to amend the Scheme: it is not a freestanding power to impose obligations on a CHA. It is only through their obligations pursuant to the Scheme that CHAs are liable at all. Now it may be that those obligations are to be found in the Scheme rules or it may be that they have to be found in the Deeds of Accession. But the answer to where they are found does not depend on whether the Trustee is relying on their existing power (which I have held to be unrestricted) or pursuant to a new exercise of the Article 5 power. In either case, the only obligation on the CHA outside the Deeds of Accession is to be found in the 1988 Rules as amended from time to time.

Although the various arguments on behalf of the CHAs have focussed, quite understandably, on the scope of the power of amendment in the 1988 Rules as well as on the Deeds of Accession, I want to start my analysis rather earlier and to examine the scope of the power which was given to the Secretary of State under the 1987 Order.

In that context, it should be noted that the rules of construction and implication which I have considered above apply to all documents and utterances (see Lord Hoffmann in Chartbrook v Persimmon mentioned at paragraph 128 above). There does not need to be a contract. The principles apply to a unilateral document such as a declaration of trust or even a statutory provision. The same applies, I consider, when applying the principle in Hole v Garnsey if that is any different from construction and implication.

It will be remembered that the national scheme was established by byelaws dated 29 March 1971, made by Trinity House under section 17 of the 1913 Act and confirmed by the Secretary of State for Trade and Industry. This process did not involve any action on the part of any pilotage authority although it was, of course, envisaged that pilotage authorities would become Participating Authorities by themselves making byelaws. This was what happened, with pilotage authorities making byelaws adopting the byelaws of the national scheme pursuant to section 17.

An amendment to the contribution provision in the byelaws of the national scheme would, if it could be made at all, probably have had to be made by the making of a new byelaw with the confirmation of the Secretary of State under section 17 of the 1913 Act. It is unlikely that the Rule-making power vested in the BoM would have allowed it to make a contribution provision inconsistent with the byelaws. It is clear, in my view, that there would have been nothing to prevent Trinity House and the other Participating Bodies together adopting new byelaws with an entirely different benefit and contribution structure if they had wished. Section 17(i)(j) was unrestricted and there was no scope for an implied term or application of the principle in Hole v Garnsey which would have prevented the imposition of a balance of cost obligation on Participating Bodies (although whether any particular pilotage authority would in fact have become a Participating Body if those had been the terms and thus undertaken such an obligation is a different matter).

It is slightly curious that there was no general saving for byelaws made under the 1913 Act when it was repealed by the 1983 Act. Although section 17(1)(j) of the 1913 Act was effectively repeated by section 15(1)(i) of the 1983 Act, the national scheme was in fact constituted by an exercise of the former power. This is of no importance because, in September 1983, Trinity House promulgated new byelaws (together with Rules) under section 15 of the 1983 Act. It was provided that each Pilotage Authority which had become a Participating Body under the previous byelaws should be a Participating Body from the date of its original participation. The power under which these 1983 byelaws and rules were made was thus a statutory power and not a power of amendment contained in the original provisions governing the national scheme. As with section 17 of the 1913 Act, section 15 of the 1983 Act was a wide power and would, similarly, have permitted Trinity House to create a pension scheme containing a balance of cost obligation on Participating Bodies.

It is not entirely clear to me how other pilotage authorities in fact became Participating Bodies as if they had adopted the new byelaws and rules in the 1983 Rules. In relation to the original byelaws made by Trinity House in 1971, those were expressly adopted as byelaws made by each authority pursuant to section 17. Although each authority thereby became subject to the byelaws governing the Scheme (because it had, by its own byelaws, adopted them) there were, so far as I am aware, no subsequent byelaws made by any pilotage authority adopting the byelaws made by Trinity House in 1983 albeit that the 1983 Rules provided for them to continue as Participating Bodies: see Byelaw 3(2) of the 1983 Rules. There was nothing, either in the legislation or in any byelaws, which expressly provided that an authority adopting the original byelaws was thereby adopting any replacement or amended byelaws which might thereafter be made. It may be, but I think it unlikely and do not need to decide, that a participating pilotage authority would have been able successfully to argue that new or amended byelaws made under section 17, had they introduced new and more onerous contribution obligations, would not have been binding on it because it had not become a Participating Body under the new (or amended) byelaws. But I do not consider that it could successfully argue that the power of Trinity House to make new byelaws governing the Scheme had somehow become restricted in its scope.

With the coming into effect of the 1987 Act and the repeal of the 1983 Act, the position changed. I have already reviewed the provisions under which the national scheme continued and under which CHAs were enabled to become Participating Bodies. In summary,

Under Article 1 of that Order, the existing byelaws were to operate, after the repeal of section 15(1)(i), subject to the provisions of the Order. Under Article 3, all functions of the BoM were transferred to the Trustee. Under Article 4, various byelaws were revoked; this did not include Rule 9(1)(a) which thus remained in force so that the Trustee could amend the Rules (but not, under this Rule, the byelaws). However, under Article 5, the Trustee had power to revoke or amend the byelaws. The Trustee did so in May 1989 by introducing the 1988 Rules purportedly with retrospective effect to 1 October 1988.

The status of the CHAs so far as concern their involvement with the Scheme prior to the making of the Rules in 1989 is not entirely clear to me. The 1987 Order came into force on 1 February 1988; the pilotage authorities continued in existence until 1 October 1988 and they continued as Participating Bodies in the Scheme until then, with byelaw 3, concerning participation of pilotage authorities, remaining in force. CHAs were not such authorities and were not, in any case, intended to participate in the Scheme until taking over the functions of the pilotage authorities.

Although the 1988 Rules were not made until May 1989, many CHAs actually executed their own Deed of Accession (whether in the standard form or otherwise) many months before the Rules were adopted.

This probably does not matter a great deal. The Rules, when eventually executed, were expressed to have effect from 1 October 1988, a date before the earliest Deed of Accession. Further, Questionnaires were sent to CHAs before 1 October 1988 which stated that, from 1 October 1988, a body could only be a Participating Body if it was a CHA or an employer of pilots. Clearly it must have been in mind that changes would have to be made to the byelaws to reflect this. Nobody has ever taken a point – and none was taken in the lengthy hearing before me – that the CHAs which intended to become Participating Bodies and which executed Deeds of Accession had not in fact validly become such Bodies. I proceed, therefore, on the basis that the terms of participation of CHAs are to be derived from the combined effects of the 1988 Rules, the relevant Deeds of Accession and the actual operation of the Scheme since 1988.

Returning to the 1987 Act, there was, on the face of it, no restriction on the scope of the powers of amendment and revocation which the Secretary of State could grant to the managers. That the Secretary of State’s power should be a wide one is not entirely surprising. In the past, changes to the byelaws would have been made under section 15 of the 1983 Act by a pilotage authority with confirmation by the Secretary of State. In the new, privatised, world, the Secretary of State was to have a diminished role (or perhaps even no role at all – depending on whether he retained a residual power under paragraph 4 even after the making of the 1987 Order). Instead, amendments were to be in the power of the managers. Just as the power to make byelaws under the old provisions was wide, one might not be surprised to discover that a wide power to make amendments could be given to the managers.

The power of the Secretary of State under paragraph 4 of Schedule 1 to the 1987 Act was, I consider, unfettered: he was able to confer wide powers of amendment on the Trustee. Of course, the power under paragraph 4 (and any power created pursuant to it) could only be exercised for the purpose for which it was given (compare the words of Millett J in Re Courage Group's Pension Schemes) and not so as to defeat the objects of the Scheme. But in the context of this power, that purpose and those objects are to be viewed at a high level of generality. The purpose of the Secretary of State’s power was to enable him to confer powers of amendment on the Trustee in order that it would be able to ensure the continued effective operation of the Scheme as circumstances changed; and the objects of the Scheme were to be seen as the provision of benefits and not, at this high level, particular detail about contributions such as the ratio of employer and employee contributions.

Accordingly, the Secretary of State could, for instance, have provided expressly in the 1987 Order that the Trustee should have power to introduce new contribution provisions including a balance of cost obligation on employers which were employers of pilots accruing benefits under the Scheme and which were thus participating employers in the conventional sense. Had he done so, I do not consider that it would have been correct, whether by the introduction of an implied term or by applying the principle in Hole v Garnsey, to conclude that the statutory power should be read down so that such a power of amendment could not be validly introduced.

Thus if ECHAs themselves had wanted, going forward, a different benefit and contribution structure and if the Secretary of State had considered that to be desirable, I cannot see any reason why he could not have achieved that through an exercise of his powers under paragraph 4 enabling the managers to introduce the appropriate new provisions. Indeed, that is what in fact happened with the introduction, in the 1988 Rules for the first time, of an employer contribution under Rule 14. Moreover, an ECHA did not have to become a Participating Body: if it had not been willing to sign up to a different contribution obligation, it would not have had to do so.

There is no distinction to be drawn, so far as the introduction of contribution obligations was concerned, between CHAs which eventually became ECHAs and those which eventually became SCHAs. If there was power to impose an obligation through an exercise of the power under paragraph 4 on ECHAs there is no reason, so far as I can see, why an obligation could not have been imposed on SCHAs.

That is underlined by this fact: the ports did not know at the time when the 1987 Order was made whether they would become ECHAs or SCHAs. That was a matter for the pilots to decide under section 4(2) of the 1987 Act between 3 to 6 months before 1 October 1988 (the appointed day) and from time to time thereafter. As a matter of fact, ballots about this were, in some ports, taking place at late as June 1988. As Mr Spink amusingly notes: “At this stage, they were all in the same boat”.

This conclusion does not depend in any way upon the alleged special nature of pilots’ self-employment on which the representative Members rely as a part of the factual matrix. It may be that, in certain respects, there are unusual features about the nature of the self-employment of a pilot as compared with ordinary self-employment in other professions and trades. I think that these special features are relied on in support of an argument which starts with the proposition that contribution obligations can be imposed on CHAs which are employers (in the ordinary sense) of employed pilots; and that because the terms of a pilot’s self-employment are unusual and have many features of ordinary employment (or so it is said) that therefore the SCHAs can be made liable to make contributions. I reject that argument. The fact is that the S Members’ status is one of genuine self-employment (see for instance Bibby v Associated British Ports Ltd 25 March 2003) and they are not to be treated for pension purposes as though they were employed (whatever special treatment might have been afforded to them by the tax authorities). I do not, perhaps, do justice to the lengthy submissions which have been made on this topic, in particular by Miss Asplin. My clear conclusion, however, is that these special features have no material impact on the scope of the powers of the Secretary of State under paragraph 4, the powers of the Trustee under Article 5 or the powers of the Trustee under Rule 9(1)(a).

As with the imposition of a contribution obligation on ECHAs under Rule 14, the imposition of a contribution obligation on SCHAs, as well as ECHAs, was in fact effected under Rule 25(6). It is true, as Miss Asplin points out, that Rule 25 is a special rule dealing with the early retirement scheme and that Rule 25(6) had the special purpose of dealing with abuse of the Scheme. She suggests that a contribution under this Rule is not treated as part of the Scheme funds as a whole. She refers to Rule 3 which states that the Fund shall comprise a number of different identified assets with no mention being made of Rule 25. However, Rule 25(6) itself refers to the Fund three times and it is clear that the contribution goes into the Fund just as the benefit is paid from the Fund. The special contribution is not hypothecated to provision of the early retirement benefit which is simply a benefit under the Scheme. I do not consider that there is anything in Miss Asplin’s point.

The question then arises whether the power which the Secretary of State in fact conferred on the Trustee under Article 5 was restricted in its scope and, if so, how. Mr Newman has not argued that the scope of this power was restricted so as to prevent the introduction of any contribution on an ECHA. Indeed, if it were so restricted, the 1988 Rules themselves would have been invalid in introducing the obligation for ECHAs to contribute 1.5 times their employed pilots’ contributions. Mr Newman’s point is a different one which relates to the power of amendment under Rule 9(1)(a), a power which is contained in a set of Rules which provides for this ratio and which he says is an entrenched ratio.

Miss Asplin, however, submits that the position of self-employed pilots was totally different from that of employed pilots. Whatever may have been the correct position in relation to employed pilots, she submits that Article 5 is limited in its scope. Her actual argument is directed principally at the scope of the power under Rule 9(1)(a). She argues, as it seems to me, backwards. She argues that the power of amendment under Rule 9(1)(a) is limited so as to preclude an amendment contrary to the purpose of the Scheme concluding that it is difficult to see how such an amendment could be allowed under Article 5.

I would not dissent from the proposition that an amendment which is contrary to the purposes of the Scheme could not be made under either power. In the context of Article 5, the identification of the purpose is, as with paragraph 4, to be conducted at a high level of generality. It is a different question from the identification of any restriction on the apparently wide scope of the power under Rule 9(1)(a) as the result of an implied term or the application of the principle in Hole v Garnsey. I do not see the scope of the powers as necessarily being the same.

I therefore need to address the scope of Article 5 more generally at this stage. the answer to this issue will inform, in my view, the answer to the real question in issue which is whether the power of amendment contained in the 1988 Rules is restricted in its scope and, in particular, whether in the case of ECHAs the ratio of contributions is immutable.

The power which the Secretary of State in fact introduced is found in paragraph 5 of the 1987 Order. It is, on its face, a wide power. However, notwithstanding that the enabling power (paragraph 4) is wide, it can be argued, on the basis of an implied term or the principle in Hole v Garnsey, that it cannot have been in the reasonable contemplation of either the Secretary of State or the Trustee that the power in fact introduced could be used to bring about a fundamental change to the structure of the contribution byelaws. In other language, to do so would, on this argument, be to change the substratum or basic purpose of the Scheme. It cannot, of course, be argued that this power, in contrast with Rule 9(1)(a), fixes for ever and a day the ratio between employee and employer contributions for the simple reason that that ratio had not been agreed even in principle by the date of the 1987 Order, 10 December 1987.

I identify the Secretary of State and the Trustee as the persons whose reasonable contemplations might be relevant, and not the CHAs, because at the time when the 1987 Order was made, no CHA was a party to any arrangement; further, no CHA was obliged to become a Participating Body. That is not to say that the position of the CHAs was irrelevant. It was, without doubt, intended – by the Secretary of State, the Trustee and the CHAs themselves – that at least some if not all of the CHAs would become Participating Bodies; that is an important factor in ascertaining what, objectively, can reasonably be considered to have been in the contemplation of the relevant persons, that is to say the Secretary of State and the Trustee.

Having identified the argument, I reject it. Whatever may be the scope of the power of amendment in Rule 9(1)(a), there is, in my judgment, no justification for imposing any restriction, save at the highest level of generality already discussed in relation to paragraph 4 of Schedule 1 to the 1987 Act, on the power conferred by Article 5. The 1987 Order was made in December 1987 before final decisions had been made about benefits and contributions and before any drafts of the Deed of Accession had been sent to any CHA (or perhaps even been considered). I see no reason at all for restricting the authorisation power contained in Article 5.

There are essentially two reasons for reaching this conclusion. The first is that the shape of the 1987 Order follows in as minimalistic a way as one can imagine the shape of paragraph 4. Thus:

The second reason is because, in my view, there is no more reason to constrain the scope of the power conferred by the Secretary of State on the Trustee than there is to constrain the scope of the power conferred on him by Parliament pursuant to paragraph 4.

I must explain this in more depth because the obvious point to make against my conclusion is that there is no comparison between the two situations and every reason to restrict the scope of the Trustee’s power. Even if Parliament has seen fit to give the Secretary of State a wide power, it can be said that he is to be trusted to exercise that power fairly and proportionately. But once he has put it out of his own power to determine how the Scheme can be amended, it may be said that it cannot reasonably be considered to have been in the contemplation of the Secretary of State and the Trustee that the sort of alterations to which some of the CHAs object could be made; or to use alternative language, the Secretary of State ought not to give the Trustee a power which would enable it to undermine the substratum or change the basic purpose of the Scheme as it is alleged such alterations would do. There is, on this approach, a world of difference between the old provisions under which the byelaws could be amended only at the instigation of Trinity House (and even then possibly only with the consent of other Pilotage Authorities) on the one hand, and a unilateral power vested in the Trustee on the other hand.

In my judgment, the point made against my conclusion in relation to the power conferred on the Trustee by Article 5 of the 1987 Order is not a good one. I accept, of course, that there is a very real difference between the old provisions and the unilateral power vested in the Trustee under Article 5. However, the natural meaning of the words used is wide; I do not consider that there is anything which would justify cutting down the apparent width of the power (whether by reference to the reasonable contemplation of the Secretary of State or the Trustee, or by reference to the language of substratum and basic purpose). The Secretary of State could, in my view, therefore have given an express, and valid, power to the Trustee to amend the Scheme so as to impose a contribution obligation on any CHA, whether an Active or Formerly ECHA or an Active or Formerly Active SCHA.

I have, of course, been referred to the various negotiations and discussions which took place between the representatives of the CHAs and the pilots, in particular discussions at the Negotiating Forum, on which all parties seem to rely for different purposes. I will look at these in more detail in due course. Their importance lies principally in their possible impact on the scope of the power under Rule 9(1)(a). They do not, in my judgment, support an argument that the scope of the power under Article 5 was in some way restricted.

If those broad reasons for reaching that conclusion are insufficient to justify it, there is another important factor which comes into play, namely the effect of Article 72 – or rather, of the understanding behind what became Article 72 since it was not until 1 February 1988 that the Memorandum and Articles of the Trustee were adopted. It is of more significance in the context of the scope of the power of amendment which the Trustee included in the 1988 Rules and I will deal with it in that context.

In exercise of the power conferred on it by Article 5, the Trustee made the 1988 Rules. As I have said, I propose to take them as effective from 1 October 1988. I need to refer to some of the history to see how the benefits and contributions provisions took the form which they did.

The Department of Transport gave some guidance to CHAs about pension arrangements in a letter dated 31 July 1987 from a Mr Jackson. He explained that the Department would soon be consulting representatives of CHAs and pilots about the terms of an Order under paragraph 4:

“which will reconstitute the Pilots National Pension Fund to take account of the new relationship between CHAs and pilots. It is intended that the new arrangements will be brought into force well before the appointed day, during the autumn of 1987. New contribution arrangements, under which contributions in respect of pilots they have authorised will be made by CHAs, will however not come into force until the appointed day.”

On 18 November 1987, Mr Douglas, secretary and legal adviser of the BPA, circulated to all members a copy of some guidelines in a form which he described as “finally agreed between BPA/ABP and UKPA (Marine) and the Department of Transport”. Included in the paragraph under the heading “Pensions” was the following:

“The BPA has undertaken, subject to the provisions contained in the letter at Annex B of 1 October 1986 from Mr N H Finney of the British Ports Association, that benefits under the rules of the Pilots’ National Pension Fund will be maintained at levels no less favourable than those which applied at that date…..The levels of contributions needed in future will be for the bodies representing CHAs and pilots to decide”.

That passage appeared in the final version of the guidelines sent by the Department to Mrs Lemon on 10 December 1987, the day on which the 1987 Order was made. It lends some support to the suggestion made by Mr Nugee that the CHAs were aware of the possibility of the need for further contributions including contributions from the CHAs themselves. Of course there was no legal obligation: the level of contributions was for CHAs and pilots to decide. But it is fair to observe that a commitment not to decrease benefits is somewhat empty if the funding to provide the benefits is not available. It is a factor against the conclusion that it was not in the reasonable contemplation of the CHAs that they might have to make contributions in addition to those already provided in the Rules and in accordance with a different contribution structure.

I pause to interpose here the observation that that statement about contributions is at least consistent with the view which I have expressed about the scope of the powers under paragraph 4 and Article 5. It was envisaged that the negotiating bodies would make decisions about contributions so that it must have been contemplated, at least by the negotiating bodies, that what they agreed would be capable of implementation by way of rule amendment.

It is fair to say that discussions between the CHAs, the pilots and the BoM/Trustee proceeded on the basis that benefits would continue to accrue very much as before. A note prepared by the actuary (“Matters for Consideration by the Negotiating Forum”), which went through iterations in November 1987 and January and February 1988, records that a number of matters were thought to have been agreed one of which was that the current benefit scales were to be continued. The conclusion was drawn by the authors that the employers would meet the balance of cost (see paragraph 248 below).

Miss Asplin relies very much on the Actuary’s paper to show that it was appreciated and contemplated that employed and self-employed pilots were essentially different, that self-employed pilots’ earnings were under the control of the pilots and, that contributions paid by such self-employed pilots would be the same as the composite contributions paid by an employed pilot and his employer. It is quite possibly correct that that was the basis about Scheme funding on which the CHAs and the pilots were proceeding at that time.

But that is not the point. The point is to establish what if any restrictions there were, at that stage, on the scope of the power under Article 5 and what restrictions there would be on the scope of any power of amendment later included in the Rules. Otherwise, by parity of reasoning, it could be argued that it was appreciated and contemplated that the level of benefits would continue as under the previous byelaws and rules: that, however, would not mean that benefits were immutable and could not be increased pursuant to the amendment power under Rule 9(1)(a). And if it is said that that is not a surprising result because it cannot have been contemplated that the Trustee would have a unilateral power to increase benefits, the answer is that it did not have such a power since Article 72 did not allow it to do so, at least from the time of its introduction on 1 February 1988. Again, it must be remembered that a CHA did not have to become a Participating Body; a CHA which did become a Participating Body did so of its own choice in the knowledge (in the sense that they were publicly available documents) of the 1987 Order and the Memorandum and Association of the Trustee. Certainly the members of the Negotiating Forum were well aware of them.

It is possible to see some of the process of negotiation by looking at the Minutes of the Negotiating Forum. The notes for the meeting on 15 December 1987 show that there was some negotiation about the appropriate formula for ascertaining pensionable pay in relation to the calculation of benefits for employed pilots. But subject to that, the benefits were much the same and, in particular, it can be seen from the notes that the existing rule provision under which benefits were calculated on the highest average Pensionable Earnings for any 3 consecutive years out of the last 10 years should not be varied.

The question of contributions was also discussed. Taking the same note, at paragraph 3, it can be seen that the employers proposed an employee/employer ratio of 1:1.5 whilst the pilots’ representatives proposed that the whole contribution be paid by the employers. There was a debate about this. The employers rejected the possibility of a non-contributory scheme for pilots. Both sides agreed to examine their respective positions.

Areas for negotiation were agreed and recorded in the note as follows:

Contributions were considered again at the meeting on 15 February 1988. The pilots’ representatives said that they had considered the 1:1.5 ratio but remained of the view that the Scheme should be non-contributory. There seemed to be an impasse on this issue at the meeting held on 22 March 1988. At the meeting on 11 April 1988, there was once again a failure to reach agreement. I do not propose to go through the detail of each meeting. It is enough to note that the issue of contributions was regularly on the agenda.

I would, nonetheless, note the Scheme Actuary’s paper titled ‘Matters for Consideration by the Negotiating Forum’ of 15 February 1988. This was clearly seen by the members of the Forum. It included the following:

“(b)

The post-reorganisation benefits of the national fund are to be negotiated nationally - We understand from the negotiations to date that present benefit scales are to be continued subject to the finances of the Fund being regarded as satisfactory.

(c)

The comments under heading (b) suggest that after reorganisation:

(i)

The Fund is to continue to be a defined benefit scheme. …

(ii)

There is to be a single benefit scale covering all participating Districts.

(iii)

The Fund will be financed by the payment of whatever contributions are required from time to time to provide the defined benefits. For employed pilots presumably the pilots will contribute at a specified rate whilst the employer will meet the balance of cost whatever that may be.”

I do not suggest that the Actuary made that last observation because he had been told by representatives of the CHAs that this was what they intended. But it was not suggested by the representatives of the employers’ side that such an obligation simply could not be imposed by the powers which the Trustee already had (under Article 5) or which it would in the future have (once new Rules were adopted).

Matters progressed over the next meetings. Agreement was eventually reached, with a joint statement being agreed at the meeting on 6 June 1988. This was published by the Negotiating Forum and sent to all BPF members the next day. A contribution level of 21% for employed pilots was to apply for one year from 1 October 1988 with an employee/employer split of 1:1.5. It was recorded that in order to ensure that undue strain was not put upon the Fund through, in effect, early retirement it had been agreed that the Trustee be asked to draft a rule giving them the right to apply an additional levy on the CHAs concerned. Here, I note in passing, one sees another example of something which could probably not be done if the power under Article 5 was constrained by reference to the existing structure of the Scheme.

I do not consider that it is possible to spell out of the negotiations and the eventual agreement thus far any commitment that the ratio of contributions was fixed any more than the rate of contribution was fixed – the latter clearly being fixed for only one year. That the parties might have expected the ratio to remain the same may be correct; but even if it is, that expectation is not to be equated with the “reasonable contemplation” which is relevant to an application of the principle in Hole v Garnsey or, to use the corresponding language in the context of an implied term, the strict necessity required.

In the note of the meeting on 12 July 1988 it is recorded that both sides agreed that the contribution rate for self-employed pilots must be sufficient to fund current benefits and recommended the Trustee to take all necessary steps to ensure that this will be the case. There is no suggestion that SCHAs themselves would contribute. That is not surprising because there was, in fact, no intention at that time that they would do so nor had the pilots’ representatives asked them to do so. All benefits were, at that time, thought to be fully funded and no change from the approach under the old byelaws and rules was to be made. But it was recognised that contributions must be sufficient to fund current benefits. The fact that nothing was said about possible future deficits and the need for further contributions from some source does not of itself mean that it was not in the reasonable contemplation of SCHAs that they might need to make contributions.

On 15 August 1988, the BPF sent a letter to all BPF members giving guidance for local negotiations. It was noted that the 21% figure was agreed for one year only, to be reviewed in the light of funding needs for subsequent years but it “was not envisaged, however, that the ratio of employer and employee contributions would be reviewed”. Mr Newman relies on this, as part of his case on “reasonable contemplation” to show that the amendment power would not be applied in relation to the shared cost ratio. I disagree and think, if anything, that it points to a rather different conclusion. The guidance says nothing, in my view, at all about the power of amendment. What it does say is that it is not anticipated that the Negotiating Forum would revisit the split. But, as with any situation where matters are open to negotiation, it would not be possible to rule out a change of circumstances under which the ratio might be reviewed.

Some time in August 1988, Mrs Lemon sent, it is thought to all CHAs, an outline of the Scheme as it was proposed to apply to employed pilots. It reflected the benefits structure which had been discussed by the Negotiating Forum and included the contribution split of 1:1.5. Contributions would be at the rate specified by the actuary, at present 8.4% and 12.6%. The Trustee reserved “the right to alter or terminate the Fund at any time and not to replace it by any other scheme”.

On 5 September 1988, Mrs Lemon wrote to Mr Pender (secretary of the BPF). She stated that the Trustee Directors “noted the arrangements for referring matters to the Board by the Negotiating Forum and agreed with the recommendations covering referral of policy matters”. Unfortunately, the letter from Mr Pender (dated 26 July) to which this is a response is not in the bundle, but I take that quote to be a reference to the process by which matters of policy would be within the remit of the Negotiating Forum but would be implemented by the Trustee.

Meanwhile, some work had clearly been going on in the drafting of new rules. Unfortunately, the evidence does not disclose the extent of that work or where matters had reached at any particular time or who was informed about the contexts of any draft. It is not until the meeting of the Negotiating Forum on 10 July 1989 that one finds any mention of the actual rules described there as draft rules which the Trustee Directors had approved (which rules were presumably in the form of the 1988 Rules).

It can be seen from this discussion that the representatives of the two sides as well as the BoM and the board of the Trustee were, from at least early December 1987, proceeding on the basis that it would be for the Negotiating Forum to decide policy matters including the level of benefits and the amount of contributions by pilots and employers. By 1 February 1988, this had become formalised in the structure of the Scheme; on that date, the Memorandum and Articles of the Trustee were adopted. There was thus equal representation of each side on the Board. This was something which had been understood would be the case for months. Thus one finds in the draft guidelines circulated by Mr Douglas on 18 November 1987 the following passage under the same heading which I have already mentioned, “Pensions”:

“The new management board for the Fund will consist of equal representation of the CHAs and the pilots. The future arrangements for management of the PNPF would be discussed with representatives of the PNPF’s present Board of Management.”

It is worth noting here that the CHA representation on the board would include both ECHAs and SCHAs. One might wonder why there was to be any SCHA representation if the SCHAs were in such a radically different position from ECHAs as Miss Asplin submits they were (and are). It is curious that there should be such representation if, as she suggests, it would never be possible to cast any contribution obligation on them. It is true that the contribution to be made by S Members would have an impact on the contractual payments which the S Members would wish, from time to time, to negotiate with their authorising SCHAs. But given the proposition put forward by Miss Asplin that the total SCHA contribution would equal the total ECHA/E Member contributions, it is not easy to see why the interests of the SCHAs would not be fully represented by the ECHAs. It is a small point, but one which suggests that SCHAs had more interest in the Scheme than Miss Asplin’s submissions would seem to accept.

Importantly, Article 72 was included in the Articles of the Trustee. Both sides rely on this provision. Mr Nugee and Mr Spink rely on it to show that the possibility of CHA contributions was envisaged in the structure of the management of the Scheme with Article 72 reflecting in formal terms what had been agreed from an early stage (namely that decisions on benefits and contributions would be made by the Negotiating forum).

Miss Asplin relies on the detail of the provision. She focuses on the reference in Article 72(2) to the “rate of contribution…payable by any member….or the employer of any such member”. She observes that no reference is made to the rate of contribution payable by SCHAs. She concludes that this makes it clear that it was never envisaged that SCHAs would ever make such a contribution.

I do not accept her argument. Her conclusion takes no account of Article 72(1) which relates more generally to alterations of provisions “relating to benefits or contributions under the Fund”. This provision is directed at alterations to the provisions of the Scheme. It would cover the introduction of a contribution obligation of any sort on an SCHA or the introduction of a new obligation on an ECHA. Article 72(2), in contrast, is focusing on the rate of contribution payable under an existing rule. The rate of contribution might be capable of increase under the Rules without any amendment to the byelaws or rules being required. Indeed, Rule 14(1) is just such a Rule. The Trustee was restricted in the exercise of its power under that Rule to alter contributions by Article 72(1). It should be remembered that, by the time the latest drafts of the Articles were prepared, it was understood by everybody, and had been agreed by the Negotiating Forum, that the benefit structure would remain unchanged and that SCHA’s would not be contributing. The express restriction in Article 72(2) reflects the Rules which were about to be introduced.

The mechanism provided for by that Article was observed with the Trustee implementing, for instance, the agreed 1:1.5 split of employee/employer contributions and agreed benefits. There can be no doubt, so it seems to me, that the clear intention of the Trustee and the ABP and the BPA (as a body distinct from its members) and the UKPA, was that the Negotiating Forum should be the body where matters of policy should be determined. Equally, there can be no doubt that, such policy having been determined, those bodies at least intended that the Trustee should be able to implement them.

For reasons already given, the power given to the Trustee by Article 5 was wide. In exercise of that power, the Trustee could, in my judgment, have validly adopted a rule which expressly allowed it to amend the Scheme by changing the contribution obligations, even to the extent of imposing a balance of cost obligation on the employers. Given that the Trustee, the BPA/ABP and the UKPA were intended to have control over policy including benefits and contributions, I consider that, objectively judged, it was in the reasonable contemplation of all of them that the power of amendment which the Trustee had conferred on itself by the 1988 Rules pursuant to Article 5 should, like the power under Article 5 itself, be given the widest possible scope.

Mr Newman puts a slightly different skew on the Article 72 point. He sees the case against him as being that Article 72 provides a sufficient protection for CHAs. For my part, I do not see the issue as one of protection; rather, the issue is how Article 72 informs what it is that the CHAs are to be seen as having reasonably contemplated. They reasonably contemplated policy being governed by the Negotiating Forum and they reasonably contemplated amendments being made to give effect to policy decisions. They did not, therefore, reasonably contemplate any restriction on the scope of the power. The requirements of Article 72 are to be seen not as a restriction on that scope, but rather as constraints on the exercise of the power, as to which see below.

In my judgment, the same applies in relation to SCHAs. The Article 5 power was wide and could have been used by the Trustee to include, in the 1988 Rules, a power which expressly permitted it to impose a contribution obligation on an SCHA. I acknowledge, of course, that negotiations with the Negotiating Forum proceeded on the footing, which was agreed, that S Members would fund their own benefits; but then nobody had in mind the possibility of the large deficits which are now to be found in the Scheme. That is why everything which one sees in the documentation before the Court is consistent with the view that the SCHAs would never have to contribute. But equally, it is consistent with the documentation and the evidence that all of the provisions which it was anticipated would initially be included in the rules were subject to amendment. Article 72, as with ECHAs, supports the latter view and that the power of amendment could be used to introduce further contribution obligations on the SCHAs. I say “further obligations” because Rule 25(6) in fact introduced such an obligation, albeit in relation to special circumstances.

Miss Asplin relies on the fiscal background to the Scheme and the way in which the Rules were partly driven by Inland Revenue considerations. Interesting as this all is, I do not see these matters as leading to a different conclusion. It is true that the introduction of contributions by SCHAs (and the possibility of surplus being paid, in part, to them in some circumstances such as a winding up of the Scheme) could give rise to issues which would need to be resolved with the Inland Revenue. But Miss Asplin has not pointed to anything which is flatly inconsistent with the possibility of such contributions becoming payable.

There is, perhaps, more in another point she makes. She says that although arrangements differed in their detail, SCHAs and self-employed pilots clearly recognised that the only involvement of the SCHAs in the Fund was an administrative one related to collecting and passing on contributions.

This is the case of Tyne itself. It wrote to its pilots on 16 June 1988 setting out the final terms on which it was prepared to engage pilots. Tyne would pay for the period 1 October 1988 to 31 December 1989 “at the rate of 85% of the 1988 tariff (pilots to be responsible for their own pension fund arrangements)”. Miss Asplin gives examples of other SCHAs which have had no involvement in the pilots’ arrangements with the Scheme, with pilots making contributions direct and the SCHA having no knowledge of or control over them. She says that the Trustee itself sometimes positively acted on the basis that the SCHAs were only administratively involved in the Scheme. In particular, there were direct negotiations between the Scheme and the Gloucester pilots about what would be included within Pensionable Earnings with no involvement or input from the SCHA concerned. But the examples she gives post-date by some considerable time the adoption of the 1988 Rules. There is, it seems to me, no inconsistency between what happened in practice and the possibility that contributions for SCHAs might be introduced in the future. Suppose, for instance, that the Rules had expressly provided that amendments could be made to introduce new or different contribution obligations for both ECHAs and SCHAs. The existence of that power would not have made any difference to how the Scheme was operated unless and until the power was exercised. In my judgment, these factors are insufficient to show that, objectively, it was not within the reasonable contemplation of SCHAs that they could never be obliged to contribute to the Scheme.

That is, I think, a sensible result. Test it by an example. Suppose that the Scheme was in actuarial balance. Suppose that in their negotiations with their pilots, a significant number of the SCHAs agreed that they should contribute towards the future cost of pilots authorised by them. The construction of Rule 9(1)(a) for which Miss Asplin contends would prevent the Trustee from implementing such a change. The construction I consider to be correct allows that to be done.

It does not make any difference to these conclusions that any particular CHA was not a member of, and thus not represented in any sense by, the BPA or did not come under the ADP umbrella. Nor does it make any difference that the BPA and ABP had no authority to act as agent for, and therefore to bind, CHAs in general. These matters do not detract from the fact that the Negotiating Forum was perceived by the Trustee when it came to make the 1988 Rules as the policy-making body. It cannot sensibly be suggested, I think, that the Negotiating Forum itself could not put matters to the Trustee for implementation which differed significantly from the existing structure. Indeed, the very introduction of an employer contribution rule was itself a very significant change from the pre-existing byelaws but was not met with objection by any CHA which became a Participating Body. Accordingly, the scope of the power which the Trustee conferred on itself was wide.

That is not to say that its operation was not constrained. Indeed, it was constrained but this was by the constitution of the Trustee itself, under Article 72. The presence of that Article, however, means that there is no need, and no room, for the implication of a term to similar effect in the 1988 Rules (or for the application of the principle in Hole v Garnsey). If one asks whether, objectively, it was within the reasonable contemplation of a CHA that the Rules might be amended to change the contribution obligations, including a change which altered the ratio of employer/employee contributions, the answer must, I consider, be yes.

Test this by an example. Suppose that the Negotiating Forum had reached an agreement in say 1990 that the ratio should change to 1:2 in place of 1:1.5 and suppose that a majority of participating ECHAs agreed to that course. Can it be said that the Trustee could not implement the change if a single ECHA dissented? I do not think so. The constraint on the exercise of the power, in contrast with a restriction of its scope, is sufficient to preclude a blocking power of that sort.

The disbanding of the Negotiation Forum and the change to the Articles of the Trustee by the removal of Article 72 does not, in my judgment, have any impact on the scope of the amendment power contained in the 1988 Rules. The scope remains unaltered but the constraint on its exercise has been removed. Whether a particular proposed alteration can now properly be made is a question of the propriety of the exercise of the power in the way proposed and nothing to do with whether the exercise falls within the scope of the power.

It is a separate question whether such an alteration to the Rules would enable the Trustee to recover anything extra from a CHA. That depends on the effect of the Deed of Accession, an aspect with which I have already dealt.

In the light of this discussion, I now turn to answer the Issues under Question 1. I apply the results of the conclusions to be drawn from that discussion and make some additional comments.

Mr Newman submits that the 1:1.5 ratio of employee/employer contributions is a fundamental feature of the Scheme. A change to it was not, he submits, in the reasonable contemplation of the parties when ECHAs commenced their participation. An attempt to vary this structure through the Rule 9(1)(a) power of amendment will not be effective against a dissenting ECHA.

I pause here to observe that if it is not effective against a dissenting ECHA, it is not easy to see how it can be effective at all. The purpose of the implication of a term or the application of the principle in Hole v Garnsey is to give the words used the meaning which the parties intended or understood them to have. The scope of Rule 9(1)(a) is to be objectively ascertained. Either it does allow the ratio of employee/employer contributions to be altered or it does not. If its scope is wide enough to allow for such an alteration, it is not open, in my judgment, for a dissenting CHA to say that the alteration does not bind it. In contrast, if the dissentient is able to say that the alteration does not bind it, that is because the amendment goes beyond the scope of the power. The position in the case of a power vested in a third party as in the present case (where it is vested in the Trustee) is different from that in Hole v Garnsey. The power in question in that case was exercisable by the members of the association; the litigation was about whether a dissentient member could be bound. It was not necessary to decide whether the majority which assented to the amendment would be bound. But even if they could, it must surely be on the footing that they were agreeing amongst themselves to an additional obligation being imposed on them rather than because the power of amendment could be used to impose it. Consider, for instance, a member voting with the majority. He would reasonably expect that either the resolution would be carried or it would not and that, if it were carried, all members would be bound. He could reasonably say, I would have thought, that he never voted in favour of only some of the members being bound and that he, too, should be able to dissent. The position in the present case, where a unilateral power is vested in the Trustee, is entirely different. In my view, the issue is not the power of the Trustee to bind a dissentient CHA; rather it is about the scope of the Trustee’s power simpliciter.

It will be apparent from my analysis of Rule 9(1)(a) and the events leading up to its introduction that the answer to Issue 1 therefore is this: the Trustee does have power to amend the Rules to require Active ECHAs to make contributions more than 1.5 times the contributions made by Active Employed Members.

In reaching that conclusion, I have relied on Article 72. If I am wrong to do so, I would still reach the same conclusion although with some doubt. It is not suggested by Mr Newman that the contributions of an ECHA cannot be increased: what is said is that they can only be increased within the scope of the 1:1.5 contribution ratio. I do not consider that it must have been outside the reasonable contemplation of the CHAs in 1988/89 that the ratio might change. I see no reason for thinking that the ratio was seen as set in stone. If that is right, then there is no reason to pick any point beyond which one should not go. The conclusion must be that the answer to Issue 1 remains the same. Even if it was contended that contributions could not be increased at all (at least outside the scope of Rule 14 as it stands), I would reject that contention in the light of the analysis which I have carried out.

My analysis of the amendment power leads to the conclusion that its scope is sufficiently wide to allow for the introduction of a conventional balance of cost obligation on Active ECHAs. If it had been sought to introduce such a contribution obligation in 1989 when the Scheme was in a healthy financial state, and if the Negotiating Forum had agreed that that should be done, I do not consider that a dissentient ECHA would have been entitled to block an appropriate amendment. It is only the fact that the deficit is now so large that has led the CHAs to question whether it can possibly be the case that an amendment imposing this large new obligation can have been in the reasonable contemplation of anyone. Focusing on the question in that way points, of course, to the answer which the ECHAs urge on me. But it is not the right question. The question is whether, when the 1988 Rules were made, it was in the reasonable contemplation of the relevant persons (let me assume for the sake of the argument that this includes the CHAs) that amendments could be made to the contribution rule which ensured that the Scheme would remain adequately funded. I appreciate, of course, that the environment today is very different from what it was in 1988/9 when there was no statutory regime which could be used to extract further contributions from employers; schemes could be left under-funded with the pain being suffered by the members. But even so, many schemes were conventional balance of cost schemes and the idea that employers might have to pay further contributions into under-funded schemes was not something new.

I would think it an unsatisfactory and somewhat illogical result if the answer to Issue 2 was that further contributions had to be limited in the way suggested by the question. The Scheme is, after all, a single scheme and there is no ear-marking of its assets to particular Members. Accordingly, a contribution by a particular CHA could accrue principally for the benefit of Members who had been employed by another CHA or indeed only by pilotage authorities and never by an SCHA at all. Rejecting, as I do, the possibility of implied earmarking of contributions for particular Members, the curious result would be reached under which the liability of a CHA would be limited by reference to “its” employees without the payment made by it to meet its obligations being earmarked for their benefit.

Further, given the absence of ear-marking of that sort, Mr Nugee’s “iteration” argument appears to me to be correct. Accordingly, even if the contribution of a particular CHA was restricted to that part of the deficit which related to its Members, it would be open, in my judgment, to the Trustee to introduce a rule which allocated the total deficit among the Participating Bodies pro rata to the liabilities of the Members currently or formerly employed or authorised by them and in respect of their periods of employment or authorisation by that employer. Contributions having been made pursuant to such a rule, the exercise could be carried out again. But this would be no different from the imposition of a deficit contribution in the first place.

If the statutory power under Article 5 survives, it is, for the reasons given, of considerable width. The answers under both Issue 3 and 4 would be the same as under Issues 1 and 2 respectively. This would be so even if I am wrong, and Mr Newman is right, in relation to Issue 1 (or as a fall-back for him, Issue 2).

I do not consider that Article 5 was inherently restricted to a single exercise so that the Scheme would, forever, have to be operated in accordance with the amendments introduced by the Trustee. For instance, the Trustee, in exercise of its power under Article 5, might have made a minor amendment to the Rules for instance to amend its powers of investment. I do not consider that such an amendment could possibly have precluded a further exercise of the power under Article 5 for instance to bring in new benefits or new contribution provisions with the consent of the Negotiating Forum. This is the effect of sections 12, 14, 21 and 23 Interpretation Act 1978; it is the conclusion I would reach quite apart from those provisions.

Similarly, if the 1988 Rules had not contained a power of amendment at all, I see no reason for concluding that the power under Article 5 should not continue to be available.

The real question, it seems to me, is whether by introducing a new power of amendment the Trustee has effectively exhausted its subsisting power by replacing it with another. If I am right in my conclusions about the scope of Rule 9(1)(a) of the 1988 Rules, this is a complete non-issue because their scope is the same.

But what if I am wrong in that conclusion, so that the power under Rule 9(1)(a) is of narrower scope than the power under Article 5? Since it is clear, in my view, as just explained that the power under Article 5 is not subject to a general restriction allowing only for a single exercise, the argument that it has in fact been exhausted by the making of the 1988 Rules comes down to the suggestion that the power has been released, in whole or in part, for the future.

It is not clear whether the Trustee has power to release the Article 5 power which is held not for its own benefit but for the good administration of the Scheme. But, assuming that it did have power to do so, I incline to the view that it has been impliedly released. It would be strange if the power of amendment under Rule 9(1)(a) was restricted in its scope but the power under Article 5 remained available so as to circumvent that restriction. Conversely, if the power under Article 5 could not be released, that would provide another reason for holding the power under Rule 9(1)(a) to be unrestricted. I do not propose to resolve the doubt or express a final view on those two aspects. They do not arise in the light of my answers to Issues 1 and 2. Accordingly, I do not answer Issue 3.

As to Issue 4, if the power under Article 5 does survive, it is not subject to any limits.

The issue is whether the Trustee has power under Rule 9(1)(a) to amend the Rules to impose greater contribution obligations on Formerly Active ECHAs (that is to say, ECHAs which used to employ pilots accruing benefits but no longer do so).

The authorising power under paragraph 4 of Schedule 1 to the 1987 Act and Article 5 was wide enough, in my judgment, to have authorised the imposition of continuing contributions on an ECHA once it had ceased to be an Active, and had become a Formerly Active, ECHA. As I have already said, the Trustee with the consent of the Negotiating Forum was able to, and did in fact, validly introduce a contribution obligation on the ECHAs under Rule 14 of the 1988 Rules. It could have introduced, but did not do so, an obligation going beyond the 1.5 times employee contributions and could even have introduced a balance of cost obligation on the ECHAs. I see no reason to conclude that the Trustee would not have been able, with the consent of the Negotiating Forum, to have introduced into the 1988 Rules a contribution provision which bound an ECHA to make contributions to meet any deficit arising in the future.

If that is right, I consider that Rule 9(1)(a) is wide enough to allow such a contribution obligation to be introduced by amendment. I reach this conclusion for the same reasons as in concluding that such additional contribution obligations could be imposed on Active ECHAs. However, I acknowledge that the argument based on Article 72 is not so strong: the Negotiating Forum might be perceived as less concerned with the interests of Formerly Active ECHAs than of Active ECHAs just as it might be less concerned with the interests of pensioners and deferred members (ie Formerly Active E and S Members) than with the interests of Active “E” Members. Nonetheless I still reach the same conclusion principally because, as explained, I do not see Article 72 as concerned with protection. Rather, its presence indicates what was and was not within the reasonable contemplation of the CHAs.

As with Active ECHAs, if I am wrong to rely on Article 72, I would still reach the same conclusion although with even more doubt than in respect of Active ECHAs. I do not consider that it must have been outside the reasonable contemplation of the CHAs in 1988/89 that contributions might be needed in excess of those actually paid and that ECHAs might be obliged to contribute not only while they were Active ECHAs but also after they had ceased to be.

The answers to Issues 6, 7 and 8 follow the answers to Issues 2, 3 and 4. Amendments are not limited in the way suggested in Issue 6. I do not answer Issue 7. As to Issue 8, if the power does survive, it is not subject to any limits.

Even under the Scheme as it existed prior to the 1987 Act, there was nothing inherently impossible about a pilotage authority having to make contributions. If Trinity House had wished to do so, it could have created a pension scheme by making byelaws under section 17 of the 1913 Act and later under section 15 of the 1983 Act which provided for a pilotage authority which became a Participating Body to make contributions. The national scheme did not make such provision; but if that is what the pilotage authorities had wished to see, it could have been done.

When it comes to the scope of the power of the Secretary of State under paragraph 4 of Schedule 1 of the 1987 Act and to the scope of the power of the Trustee under Article 5, I see no material distinction between the position of SCHAs and ECHAs. It would, in my judgment, have been possible for the Secretary of State to have provided expressly in the 1987 Order that the Trustee, in exercise of its power of amendment, could impose contribution obligations on an Active or a Formerly Active SCHA in the same way as for an Active or Formerly Active ECHA. Had that been done, it would then have been open to the Trustee in fact to impose such an obligation in the exercise of the power given to it.

However, as with the ECHAs no such express provisions were included. But just as with Active ECHAs and by parity of reasoning, I consider that the power of amendment under Rule 9(1)(a) can now be used to impose further contribution obligations on Active SCHAs.

Mr Martin appears for Teesport and is principally concerned to argue Issue 9. He adopts the arguments of Miss Asplin and Mr Furness so far as they go. He points out, in addition, that if the Trustee does prima facie have the power for which Mr Nugee and Mr Spink contend, then a question will arise about whether the power can properly be exercised. That proposition is in some respects uncontentious. The power has not yet been exercised; but when it comes to be exercised, it must be exercised properly. That is not a matter for consideration in these proceedings.

Mr Martin has, however, a different but closely related point. He says that the circumstances which have given rise to the deficit are highly material in relation to what can, and cannot, be a proper exercise of the power. Thus, he contends, in similar vein to Miss Asplin and Mr Furness, that the Scheme was designed to operate without a conventional balance of cost covenant and that it is impermissible to use the power of amendment for the purpose of inserting what would in effect be such a covenant; but not only does he contend for that, he also contends that had the Scheme been operated properly according to its terms, no such covenant would have been needed. Let me put the crux of his argument by quoting from his skeleton argument:

“……The source of Teesport’s obligations in relation to the Fund is the Deed of Accession it signed. That Deed obliges it to comply with all the provisions of the bye-laws and Rules of the Fund from time to time in force insofar as they relate to members of the Fund who are authorised by it to act as pilots in any part of the area in relation to which it is the competent harbour authority. Although the Deed does not in terms say so, it is obvious that the underlying basis of Teesport’s acceptance of obligations under the bye-laws and Rules was that the Trustee – the counterparty to the Deed - was itself to comply with the provisions of the bye-laws and Rules. As trustee, the Trustee could not properly do otherwise. It follows that both parties to the Deed had a reasonable expectation that each would comply with the material provisions of the Rules. One such provision is rule 13(2). The effect of that rule is to require the payment by self-employed members of such additional contributions as the Trustee, after consultation with the actuary, determines to be “necessary to secure” the benefits to be provided. The presence of this provision explains the absence of any contribution obligation on the SCHAs: none can be necessary. It is demonstrable on the evidence filed by the Trustee that the Trustee and the previous scheme Actuary have failed to comply with rule 13(2). That failure is the cause of the deficit relating to self-employed members. Because it was outside the contemplation of the parties to the Deed of Accession that the Trustee would fail to comply with rule 13(2) and that a deficit would result, it was equally outside the contemplation of the parties that the amending power (whatever its apparent scope) could be used to make good a deficit resulting from the Trustee’s failure to comply with that or any other provision of the Rules. The amending power is accordingly subject to an implied limitation preventing it from being used in that way.”

The Trustee, unsurprisingly, takes the greatest exception to the allegation of breach of duty. I am bound to say that the mere presence of this substantial deficit does not necessarily indicate that there has been any breach of duty at all. I am not sure whether Mr Martin is alleging that the Trustee has been in breach of duty (over the last 20 years) for failing to set and collect contributions at rates which, it can now be seen with the benefit of hindsight, were sufficient to ensure that benefits are fully secured or whether he is alleging that they have failed to set and collect contributions at rates which complied with good actuarial practice. If he is saying the latter, I clearly cannot determine that in these proceedings. But if he accepts that the Trustee has acted in accordance with proper actuarial advice but is saying that, even so, the Trustee is in breach of duty, I totally reject the allegation.

Mr Martin’s submission rests on the proposition that Rule 13(2) requires the Trustee to ensure that Participating Bodies must collect from time to time sufficient contributions “to guarantee eventual payment of pensions at the accrual rate from time to time in force”. The word “secure” is to be given a strong meaning. In support of that, he relies on Rule 44(3) which gives the Trustee power to buy out the benefits of a Member entitled to a Deferred Pension by the purchase of “an annuity policy securing ….. the benefits which would otherwise be payable”.

In my judgment, that is not a tenable construction of Rule 13(2). The contribution which is required from time to time has nothing to do with the eventual guarantee (possibly in very different market conditions) of benefits. Rather the contributions under Rule 13(2) are those which the Trustee “after consultation with the Actuary, shall determine to be necessary to secure…”. In my judgment, it is clear that if the Trustee obtains advice from the Actuary about the appropriate contribution rate and if it follows that advice without having any reason to question it then the Trustee has done all that the Rule requires of it. There is no breach of duty at all. The Trustee does not have to ensure buy-out funding; it does not have to adopt a gilts-matching policy (and even that would not provide the sort of guarantee which Mr Martin submits the Rules require) and I am in any event wholly unpersuaded by the ingenuity shown by him (and by Mr Stephens, his most experienced junior) in his skeleton argument describing an appropriate investment policy which “can easily be managed”. Its obligations under this provision were different (compare Alitalia v Rotunno [2008] PLR 175) although no doubt discontinuance funding of some sort might have been a possible route. The fact that in 2010 such a funding objective is more common and is perceived as wise and cautious, is not a reason for saying that it is an objective which the Trustee should have ensured was met in years gone by. I do not consider that Rule 44(3) drives one to, or even points in the direction of, a different conclusion. The use of the word “secure” in Rule 44(3) merely describes precisely that which a purchased annuity is designed to do, namely provide the purchased benefit. But even insurance companies can have difficulties. What if the provider goes bust? Has the Trustee then failed to acquire a product which falls within Rule 44(3)? Of course not.

In any case, even if there has been a breach of duty which has resulted in the deficit being larger than it might otherwise have been (even perhaps larger than nil) I agree with Mr Nugee when he submits that the source of the deficit cannot affect the scope of the Trustee’s power of amendment nor the scope of Teesport’s covenant. The exercise of the power of amendment is not, in my judgment, restricted so as to prevent the Trustee from amending the Scheme so as to impose a contribution obligation simply by virtue of the fact (if it be a fact) that the deficit is attributable, or partly attributable, to its own breach of duty. [I say “simply by virtue” to emphasise that the amendment would have to be a proper one apart from the alleged breach by the Trustee.] The power to amend the Scheme is there to enable the Scheme to operate effectively in changing circumstances, including unforeseen circumstances. Its primary purpose, in the light of my analysis, must be to ensure that the benefits for which the Rules provide are delivered. It makes no difference to that whether the reason for a deficit is a fall in markets, a change in actuarial assumptions or a failure (in breach of duty) by the Trustee to ensure that the contribution rate is adequate or some other breach of duty.

I reject Mr Martin’s submissions. Accordingly, Issue 9 is answered in the affirmative. The Trustee has power under Rule 9(1)(a) to amend the Rules to impose contribution obligations on Active SCHAs.

The answers to Issues 10, 11 and 12 follow those of Issue 2, 3 and 4 as with Issues 6, 7 and 8.

Given my answer to Issue 9, Issue 13 raises the question whether an amendment can be made to seek contributions in respect of that part of the deficit referable to Pensionable Service that is credited to a Member on transferring into the Scheme. My answer is that there is power to do so. My analysis so far has not depended in any way upon the reason why further contributions might be required. In my view, the question of what level of contribution (if any) to impose on particular classes of CHA is a matter for the Trustee which has a wide power; the question becomes one of propriety, not of power.

Issue 14 is drafted in a way which makes it inherently difficult to answer. It refers to “a deficit arising in circumstances falling outside the scope of the reasonable expectations of the parties to the deeds of accession”. I did not understand quite what that meant when I first read it and I am afraid that I am no nearer an understanding (although I am perhaps better informed) after submissions made to me. It seems to me that if it is right, as some of the CHAs submit, that the contribution obligation is to be found in, and restricted by, the express covenants in the Deeds of Accession, then there is no need for any implied term such as is suggested in Issue 14. In contrast, if the obligation is found by reference to the Rules alone whatever the Deed of Accession may say, it is not the reasonable expectations referred to which are relevant (ie the factual position of a huge deficit was not expected) but rather the reasonable contemplation of the parties (ie might the amendment power be exercised to impose a further obligation in certain circumstances). Either way, the answer to Issue 14 is in the negative. The same answer is given in relation to Issue 15. Accordingly, Issue 16 does not arise.

The answers to the Issues here follow those in relation to Formerly Active ECHAs qualified by what I have said in relation to Active SHCAs. Accordingly the answer to Issue 17 is that the Trustee does have power under Rule 9(1)(a) to amend the Rules to impose contribution obligations on Formerly Active SHCAs. In relation to Issue 18, the power is not limited as suggested. The question of what level of contribution (if any) to impose on particular classes of CHA is a matter for the Trustee which has a wide power; the question becomes one of propriety, not of power.

The answers to Issues 19 and 20 follow those of Issues 11 and 12.

Question 2 asks whether, on the true construction of Rule 14(4) of the Rules, on satisfaction of either of the conditions set out in the first four lines of rule 14(4), the Trustee, having had regard to the advice of the Actuary (as defined in the Rules), is entitled to demand from an ECHA contributions calculated by reference to:

Assuming that Rule 14(4) is was validly introduced, it is not contested by Mr Green, who appears for the PLA which is joined to advance arguments that the power should be restricted, that on the construction of Rule 14(4)

Accordingly, the answer to Question 2 is in sense a. provided that the Rule was validly introduced.

It is to be noted that the parties have agreed that Questions 3 and 3A are to be answered without prejudice to the argument that Article 72 has not validly been removed by the date of the exercise of the power of amendment. For the record, I note that the Trustee’s position is that, by agreeing to this course, the Trustee is not to be taken as accepting that the parties to these proceedings have locus standi to raise arguments in relation to Article 72.

Question 3 asks, in the light of the answers to Questions 1 and 2, and in the events which have occurred, whether and if so to what extent the amendment of the Scheme which introduced rule 14(4) of the Rules was valid. In the light of the answer to Question 2, Mr Green accepts that the answer to Question 3, subject to one point, turns on the answer to Question 1. In the light of my analysis in answering Question 1 and in the light of the answers to the Issues arising under Question 1, the answer to Question 3 is that the introduction of Rule 14(4) was within the scope of the power of amendment under Rule 9(1)(a). Whether it was validly introduced raises a question of propriety. I will deal with that at the same time as dealing with a similar point under Rule 13(4). Although no issue is identified on this, Mr Green has drawn to my attention what he sees as the rather limited scope of the evidence which would justify the making of a declaration. He does not in any way wish to derail, as he put it, the proceedings in relation to Question 3.

Question 3A asks a similar question in relation to Rule 13(4). Bristol is joined to represent the interests of SCHAs (among others) on this issue. Mr Furness accepts that the answer to Question 3A turns on the answer to Question 1. In the light of my analysis in answering Question 1 and in the light of the answers to the Issues arising under Question 1, the answer to Question 3A is that it was within the scope of the power of amendment under Rule 9(1)(a) to introduce Rule 13(4). However, although Bristol does not suggest that there is any positive reason to doubt that the power of amendment was properly exercised in introducing Rule 13(4), it contends that the evidence before the Court is not sufficient for the Court to be able to grant a declaration that it was validly exercised. Mr Tennet quite reasonably says that the Trustee wants an answer to the question. It is raised on the Claim Form, the question being asked on its face “in the events that have occurred”. This gives rise to Issue 20A – was the power of amendment properly exercised in introducing Rule 13(4).

Mr Nugee has referred me to the evidence of Mr Williamson, a director of the Trustee, which explains why and how Rule 13(4) was introduced. Taken at face value with nothing more, and assuming that there is nothing more which could be said, the explanation would be enough to persuade me that the amendment was properly introduced. Mr Furness does not raise any positive case to say that the power was not properly exercised. He simply says that the evidence is not enough. Mr Williamson explains that the Rule was introduced because of a fear on the part of the Trustee that SCHAs could seek to limit their exposure by ceasing to authorise self-employed pilots. There is some evidence that Boston was in fact contemplating doing this. The new provision was inserted as a stop-gap.

Mr Furness does not challenge that. But he says that the evidence is incomplete because it can be seen from what Mr Williamson does say that legal advice was taken; but this advice has not been disclosed to the Court. It is only right, he says, that if the Trustee is seeking the protection of the Court by seeking a declaration – in effect asking for the imprimatur of the Court – that its actions are unimpeachable, it really ought to make full and frank disclosure of all the material on the basis of which it made its decision. No-one except the Trustee has seen that advice. Mr Furness suggests that it is possible that, if the advice were known, it might reveal an error of law or the taking into account of the wrong considerations.

Mr Nugee and Mr Tennet both say that the SCHAs, and the Members come to that, have no strict entitlement to see the advice. I think that they are right in that submission. It came into being in circumstances giving rise to litigation privilege. Indeed, Mr Furness accepts that the Trustee does not have to reveal it. It follows, as he accepts, that were an attack being made on the introduction of Rule 13(4) and a declaration sought that the Rule was invalid, the advice would not be revealed. And there being no other ammunition save, I suppose, some smoking gun (to mix my metaphors) revealed on disclosure, there would not really be any case for the Trustee to answer. I do not think that the SCHAs have been given anything other than the fullest opportunity to meet the evidence which Mr Williamson has produced. They flagged the point at the PTR that the evidence might be inadequate. Mr Tennet, giving evidence from the bar which was not disputed, said that the specific point about the legal advice was not made on that occasion but emerged for the first time in Mr Furness’ skeleton argument. In any event, no application was made for disclosure of the legal advice which, in any case, Mr Furness accepts would not have had to be disclosed.

I am prepared to make the declaration. I have Mr Williamson’s evidence of the process. He has given the reasons, which I have to say are entirely rational and accepted by Mr Furness as entirely rational, why the Rule was introduced. The legal advice is privileged. There is no reason not to make the declaration.

A similar point arises, although not the subject of a numbered issue, in relation to Rule 14(4). Mr Williamson has given evidence about that which, on its face, provides a rational explanation for the introduction of the Rule. The evidence is perhaps not as full as in relation to Rule 13(4) but there is not the point that legal advice has not been revealed. I am quite sure from the evidence and from what Mr Tennet has submitted that the issue of propriety was always intended to be raised by the Trustee and that the words on the Claim Form are wide enough to do so.

Before I can make a declaration there remain the points made by Mr Martin on behalf of Teesport to be dealt with. Teesport takes the same position as Bristol on the scope of the power of amendment. However, it contends that, if it is correct that the power of amendment is limited by an implied term that it cannot be used to impose a liability on SCHAs in circumstances falling outside the scope of the reasonable expectations of the parties to the deeds of accession, Question 3A cannot be answered in these proceedings. This gives rise to Issues 21 – (a) if the answers to Issue 14 and 15 are “yes”, was the insertion of Rule 13(4) within the reasonable expectations of the parties bearing in mind the answer to Issue 16; or (b) is it not possible to answer this Issue in these proceedings?

Given my answers to Issues 14 and 15, Issue 21 does not arise. Accordingly, I propose to make the declaration sought by the Trustee.

Question 6 asks whether an SCHA is an “employer” for the purposes of Section 75 PA 1995 (Issue 22) or for the purposes of Part 3 PA 2004 (Issue 23). The answers are not necessarily the same. Question 7 asks whether an S Member is an employer for the purposes of Section 75 (Issue 24).

I start by setting out or describing a number of statutory provisions. It is helpful, I think, to have the legislative history in mind in addressing each of these questions. I am conscious of the restrictions on the propriety of construing legislation by reference to predecessor provisions. I do not refer to the legislative history as an aid to construction but simply for a better understanding of the context in which the current provisions were enacted.

I start with the Social Security Pensions Act 1975 (“the SSPA 1975”). This Act contained, in Part III, provisions for contracting-out of the state earnings related pension scheme (which related to employed earners). There are frequent references in that Part to “earner” and “service” but these are all references to an employed earner and the service of such an earner. The SSPA 1975 also contained, in Part IV, provisions concerning occupational pension schemes relating to equal access, disclosure and priority in bankruptcy. Part IV applied in respect of membership of the scheme and thus was of potential application both to employed and self-employed persons where the relevant scheme had members of either (or both) of those classes of member. The SSPA 1975 contained, in its original form, no provisions imposing statutory debts on the insolvency of employers.

The SSPA 1975 contained a definition of “occupational pension scheme”. It was in the same terms as the definition later found in the Pension Schemes Act 1993 (the PSA 1993) to which I will come.

The SSPA 1975 contained no express definition of “employee” or “employer”. It was, however, to be read as if its provisions were contained in the Social Security Act 1973. That Act did contain some relevant definitions: “Employment” included any trade, business, profession, office or vocation and “Employed” was to be construed in accordance with “Employment” (except in the expression “employed earner”).. “Employed earner” was to be construed in accordance with sections 2 and 51 and “Self-employed earner” was to be construed in accordance with section 2. An employed earner meant a person employed under a contract of service or in an office chargeable to income tax under Schedule E and a self-employed earner meant a person gainfully employed otherwise than in employed earner’s employment (whether or not he was also employed in such employment). A person could thus be both an employed earner and a self-employed earner at the same time. The word “earnings” included any remuneration derived from an employment and thus included self-employed earnings.

The Social Security Act 1973 contained no definition of “Employer”. The SSPA 1975 however, contained in section 66(3) a provision extending the reference to “employer” in Parts III and IV in certain circumstances where regulations so provide. This provision is effectively repeated in section 181(2) of the Pension Schemes Act 1993 (“the PSA 1993”) which I consider later. Although “employment” included self-employment, the use of the phrases “employed earner” and “self-employed earner” suggests that the latter was not seen as having an “employer”. The only references in the Act to “employer” were all clearly references to a person who was an employer of employed earners. Accordingly, in that Act at least, there was no need for a self-employed person to have an “employer” at all. I do not overlook that “employed” was to be construed in accordance with “employment”. But this meant only that a self-employed person was employed for the purposes of the Act, not that he necessarily had an employer.

The next Act which I mention is the Social Security Act 1990 (“the SSA 1990”). This introduced a number of new provisions into the SSPA 1975. These included a new section 58B (“Deficiencies in the assets of a scheme on winding up”), the precursor of Section 75. Within the section was a definition of “the employer” meaning “the employer of persons in the description or category of employment to which the scheme relates”. There was power for the Secretary of State to make regulations modifying the section in a number of ways, in particular in its application (a) to a scheme “which applies to earners in employments under different employers” and (b) to a scheme where there were no members in pensionable service. Regulations (the Occupational Pension Schemes (Deficiency on Winding Up etc.) Regulations 1992 SI 1992/1555) were duly made under that section to make provision for multi-employer schemes (strictly, schemes which applied “to earners in employments under different employers”).

One can see, therefore, that after amendment by the Social Security Act 1990, the SSPA 1975 contained two regimes – one relating to contracting out and one relating to deficit contributions.

I mention in passing that the Social Security Contributions and Benefits Act 1992 which consolidated much of the existing social security legislation with amendments. It repeats various definitions which I have already mentioned. I do not think that I need to say anything about it.

I come next to the PSA 1993. This, according to its preamble, is an Act “to consolidate certain enactments relating to pension schemes with amendments to give effect to recommendations of the Law Commission and the Scottish Law Commission”. It contained as originally enacted a definition of occupational pension scheme very similar to that found in the SSPA 1975. It meant

“any scheme or arrangement which is comprised in one or more instruments or agreements and which has, or is capable of having, effect in relation to one or more descriptions or categories of employments so as to provide benefits, in the form of pensions or otherwise, payable on termination of service, or on death or retirement, to or in respect of earners with qualifying service in an employment of any such description or category.”

There is no definition of “qualifying service” in the PSA 1993. It almost certainly takes its meaning from section 70 and section 71(7) (reflecting the earlier provisions of Schedule 16 Social Security Act 1973). Section 70(2) (defining pensionable service) refers to service which qualifies the member for long-service benefit; and section 71(7) defines “2 years’ qualifying service” as meaning 2 years in which the member was at all times employed

“either -

(a)

in pensionable service under the scheme; or

(b)

in service in employment which was contracted-out by reference to the scheme; or

(c)

in linked qualifying service under another scheme.”

The definition of “pensionable service” is found in section 70(2). It is important and I should set it out:

“(2)

In this Act, unless the context otherwise requires, “pensionable service”, in relation to a scheme and a member of it, means, subject to subsection (3), service in relevant employment which qualifies the member (on the assumption that it continues for the appropriate period) for long service benefit under the scheme.”

The PSA 1993 defines “relevant employment” in relation to a scheme as “any employment to which the scheme applies”. Since employment (see the definition below) includes self-employment, “relevant employment” can in principle therefore include self-employment. It follows that an occupational pension scheme can include arrangements for providing pensions for self-employed individuals.

The definitions of pensionable service and relevant employment reflect those originally found in Schedule 16 to the Social Security Act 1973 which introduced what are known as the “preservation requirements”.

There are definitions in section 181(1) PSA 1993 as originally enacted which I must mention. These definitions apply “unless the context otherwise requires”.

The definition of “employee” is used principally in relation to contracting-out. That was concerned with employed earners and, in the context of contracting-out, an “employer” was clearly restricted to employers of employees within the definition. It is used also in Part VI of the PSA 1993 in the context of protection for scheme members in section 111A (introduced by the Welfare Reform and Pensions Act 1999). There are references in Chapter II of Part VI to “employee” but this is given the same meaning as in the employment protection legislation: see section 123(3). It is not, therefore, at all surprising to find that the definition of “employer” is linked to the definition of “employee”: in the provisions which I have referred to, it is only ever relevant to know who is the employer of an employee and the definition of “employer” tells us who that person is. And as with the Social Security Act 1975, the extension of “employment” and “employed” to cover the self-employed person does not necessarily entail that there is an “employer”.

However, section 181(2) has more to say about “employers”. It provides (without including the rubric “unless the context otherwise requires”) as follows:

“References to employers in the provisions of this Act (other than section 123 to 127, 157, 160 and section 137 [in part] (“the excluded provisions”)) are to be treated, in relation to persons within the application of an occupational pension scheme and qualifying or prospectively qualifying for its benefits, as including references to persons who in relation to them and their employment are treated by regulations as being employers for the purposes of those provisions”.

The PSA 1993 repealed the provisions of section 58B SSPA 1975. They were replaced by section 144 PSA 1993 to very similar effect. Section 144, like its predecessor, cast a statutory debt on the employer in the case of certain triggering events; the definition of “employer” found in sub-section (3) was almost exactly the same as before; it meant:

“the employer of persons of the description or category of employment to which the scheme relates”.

[Comparing the old and the new definition, the word “of” replaces “in” before the words “the description” but it reverted to its original wording in section 124(1) PA 1995. Nothing turns on these changes.]

A regulation-making power similar to that contained in section 58B was to be found in section 153(5). This gave the Secretary of State power to make regulations modifying Chapter 1 of Part VII (independent trustees on insolvency), section 129 (insofar as it related to that Chapter) and section 144 in their application, among other matters, “to any occupational pension scheme which applies to earners in employments under different employers”.

Each of sections 112 and 144 provided a special definition of “employer”. It was sensible to do so, indeed it was probably necessary to do so. This is because there is nothing in the sections, apart from the special definition, to identify who the employers are. It is, of course, necessary to establish some linkage between the scheme and the employer: the employer has to be connected with the scheme in some way. It could be said that the definition of “employer” in section 181(1) is to be applied so that the necessary connection is to be found in the employment by the employer of “employees” who themselves have a connection with the scheme. But the question then arises about the extent of the connection between the scheme and the employees sufficient to make the employer subject to the sections. A number of questions arise: Do the “employees” have to be currently employed? And if so, do they need to be active members of the scheme? Or is it enough that there are “employees” who have in the past been active members? Or that there are current employees eligible to join? There is another question: is it right, in any case, to restrict “employer” to employers of “employees” (ie employed earners) at all? After all, the different policy considerations which led to the insertion of section 112 and section 144 might be seen as applying equally to protect the benefits of members who were not employed earners. The special definition identifies the linkage which I have referred to in this way: for a person to be an “employer” he has to be “the employer of persons in the description or category of employment to which the scheme [in question] relates”. That gives rise to difficult questions of construction. I do not propose to answer them in the context of the PSA 1993 but answer the same or similar questions in the context of subsequent legislation.

I should, nonetheless, record one of Miss Asplin’s submissions. She says that section 144(3) does not discard the definition of “employer” in section 181(1) but rather limits it. Accordingly, where one sees the words “employer” in the phrases “means the employer of the persons….”, the definition in section 181(1) is to be applied. It does not make grammatical sense to effect a straight substitution of the words in the definition for the words “the employer” but by a simple reordering of words, we arrive at this:

“(3)

In this section –

“the employer” means

in the case of an employed earner of [in] the description or category of employment to which the scheme relates employed under a contract of service, his employer…”

with similar adjustments being made for office holders.

But this leaves open the question whether “the employer” is to be given any meaning at all where the category of employment concerned is self- employment. If the definition in section 181(1) is to be seen as exclusive, then there is force in Miss Asplin’s point. By exclusive, I mean that the definition means that there can be an employer for the purposes of the Act (“unless the context otherwise requires”) only where there is a relationship with an employed earner. On this approach, “employer” has no more meaning in relation to a self-employed person than it has in relation to, for instance, the widow of a deceased pensioner entitled to benefits under the scheme. But if it is not exclusive, Miss Asplin’s argument breaks down. In that case, although the definition tells you who the employer is in the case of an employed earner, it says nothing about the case of other earners.

It will be noted that the definition has two limbs. Without a definition of “employer” it might be thought that the use of the word in relation to an employee under a contract of service would have an obvious meaning. Indeed, it is precisely that obvious meaning that the definition adopts by identifying the “employer” as “his employer” where there is such a contract. The definition can be seen as confirming, for the purposes of the Act, (i) that an employee does indeed have an employer and (ii) who that employer is.

The second limb of the definition relates to holders of offices with emoluments. The office is clearly an “employment”. This is because an office with emoluments would as a matter of ordinary language be called an employment just as much as an ordinary contract of service. It has nothing to do with the inclusionary words in the express definition of “employment”. What is less clear is whether, as a matter of ordinary language, an office-holder has an employer; but that question is eliminated by the second limb which tells us for the purposes of the Act (whatever might be the position as a matter of ordinary language) that (i) there is a person who is an employer in relation to him and (ii) who that employer is.

That brings me to the PA 1995, an Act “to amend the law about pensions and for connected purposes”. It covers a considerable territory. In particular, it deals with funding matters in relation to pension schemes and, as part of that, replaces the employer-debt provisions of the PSA 1993. It is worth remarking that the PA 1995 did not cover contracting-out which was left to be dealt with by the pre-existing legislation. The starting point is that an “occupational pension scheme” has the same meaning as in the PSA 1993: see section 176 PA 1995.

Sections 112 and 144 of the PSA 1993 were repealed by the PA 1995 and were replaced by sections 40 and 75 of the PA 1995. The special definitions contained in the old provisions were not repeated in the new sections. Instead, the equivalent definition is found in section 124 which I will come to in a moment.

I have mentioned the provisions of Section 75 in outline. As originally enacted, it provided that where the value of the assets of a scheme was less than the amount of the liabilities of that scheme (ascertained on a prescribed basis) at “the applicable time”, an amount equal to the difference was to be treated “as a debt due from the employer” to the trustees or managers of the scheme. The “applicable time” was any time when the scheme was being wound up unless a relevant insolvency event had occurred in relation to the employer. Otherwise, it was the time immediately before the relevant insolvency event. As originally enacted, a relevant insolvency event meant, in the case of a company, the commencement of its liquidation or winding-up. A regulation-making power was contained within the section: regulations could “modify this section as it applied in prescribed circumstances”.

The definition of “employer”, which as I have mentioned, is found in section 124, applies for the purposes of the whole of the Act. The new definition does, however, track the wording of sections 112 and 144 PSA 1993. It reads as follows:

““employer”, in relation to an occupational pension scheme, means the employer of persons in the description or category of employment to which the scheme in question relates (but see section 125(3))”

Mr Furness makes a point in relation to section 124 PA 1995 and section 318 PA 2004 similar to that made by Miss Asplin in relation to section 144 PSA 1993 when he says those sections cannot be treated as defining the word “employer” because the term being defined (“employer”) appears in the definition. He says that the definitions are simply identifying, out of all the employers in the world, those who are employers in relation to a given pension scheme. He suggests that neither section defines “employer” itself but, rather, each defines the expression “employer in relation to an occupational pension scheme”. I do not think that that is quite right. There is no doubt, I think, that the definition is of the word “employer” but it is defined, not generally, but only in relation to an occupational pension scheme. This reflects the position under the PSA 1993. In section 144 “employer” was defined for the purposes of section 144. The inclusion of the words “in relation to an occupational pension scheme” was unnecessary in section 144(3) because the words “category of employment to which the scheme relates” was a reference back to the scheme identified in sub-section (1). In contrast, those earlier words did need to be included in section 124 otherwise the words “to which the scheme in question relates” would have had no reference.

But that slight quibble with how Mr Furness puts it does not detract from his main point which is that the word “employer” where it appears in the definition of the same word has to be given some meaning. He submits that it takes its meaning from section 181 PSA 1993 by virtue of section 124(5).

Section 124(5) provides that, subject to the provisions of the Act, expressions used in the Act have the same meanings as in the PSA 1993. This, it seems to me, is apposite to incorporate into the PA 1995 the definitions found in section 181 PSA 1993 subject of course to the provisions of the PA 1995 itself. Indeed, that is the only way in which the definitions of earner and employment would find their way into the PA 1995 (although why one then finds definitions of “normal pension age” and “public service pension scheme” adopting those of the PSA 1993 I do not know).

If it does not take its meaning from section 181, the word “employer” where it appears in the definition must, obviously, derive its meaning from something else. Thus, at one extreme, it might be said that since a person who is in self-employment is in “employment” and is “employed”, he must therefore have an employer (including possibly the person himself – this is Question 7, Issue 24). Or it might be said that “employer” has a meaning (applying the principles of construction which I have considered when answering Question 1) in the context of the PA 1995 and the PA 2004 which goes beyond the case of employment under a contract of service or the case of an office-holder but does not go so far as including all self-employments. I shall address these possibilities later.

Section 125(3) provides that regulations may extend the meaning of “employer” to include persons who have been employers in relation to the scheme. The definition of “employer” has, at least on one reading, a temporal limitation namely that a person is only an employer if it currently employs relevant persons. Sub-section (3) allows the definition to be extended to include a person who had at one time employed, but no longer employs, a relevant person. It does not allow any wider extension, for instance to include as an employer a person who has never fallen within the definition in section 124.

There is one other definition I should mention. This is the definition of “pensionable service” in section 124(1) which is differently worded from the definition in section 70(2) PSA 1993. In Part 1 PA 1995:

“in relation to a member of an occupational pension scheme, [it] means service in any description or category of employment to which the scheme relates which qualifies the member (on the assumption that it continues for the appropriate period) for pension or other benefits under the scheme.”

The definitions in section 181(1) PSA 1993 changed as a result of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”). I do not consider that these changes have any impact on the matters for decision in the present case.

The definition of an “occupational pension scheme” in the PSA 1993 was amended by section 239 PA 2004. This amendment, which came into force on 22 September 2005, was made as a result of two factors. First, the “simplification” of the tax regime meant that it might be more difficult than in the past to know whether a scheme was to be categorised as an occupational pension scheme or as a personal pension scheme (with their different regulatory regimes). Secondly, changes were necessary to comply with the EU Directive 2003/41/EC of June 2003 on The Activities and Supervision of Institutions for Occupational Provision (“the IORP Directive”).

The definition in section 1 PSA 1993 was amended to read as follows:

“(1)….occupational pension scheme” means a pension scheme–

(a)

that–

(i)

for the purpose of providing benefits to, or in respect of, people with service in employments of a description, or

(ii)

for that purpose and also for the purpose of providing benefits to, or in respect of, other people,

is established by, or by persons who include, a person to whom subsection (2) applies when the scheme is established or (as the case may be) to whom that subsection would have applied when the scheme was established had that subsection then been in force, and

(b)

that has its main administration in the United Kingdom or outside the EEA states,

or a pension scheme that is prescribed or is of a prescribed description…..

(2)

This subsection applies–

(a)

where people in employments of the description concerned are employed by someone, to a person who employs such people,

(b)

to a person in an employment of that description, and

(c)

to a person representing interests of a description framed so as to include–

(i)

interests of persons who employ people in employments of the description mentioned in paragraph (a), or

(ii)

interests of people in employments of that description.”

One further piece of legislation which needs to be noted in this context is The Pension Schemes (Categories) Regulations 2005 (SI 2005/2401). So far as relevant, this provides, at Regulation 2(1) and (6), that the Scheme is prescribed as an occupational pension scheme for the purposes of section 1 PSA 1993. Regulation 2(6) was inserted by Regulation 14 of the Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2007 and came into force on 6 April 2007.

Why, it might be asked, was this provision necessary? Miss Asplin submits, in effect, that this can only be because it was thought, rightly or wrongly, by the legislature (or as I would say, the Secretary of State) that, without it, the Scheme would no longer have been an occupational pension scheme. This, in turn could only be on the basis that it was considered that the person establishing the Scheme, that is to say Trinity House, was not when the Scheme was established (whether that was in 1971 or in 1983 does not matter) a person which then “employed” its pilots for the purposes of subsection (2)(a). She may be right that this is what was thought to be the case by those making the Regulations. If they did think so, they may have been wrong. But if they were right, it is a powerful indicator that PSA 1993 does not include, in any of its provisions (and in particular section 144) as an “employer”, a person who employs the services of a self-employed person.

The structure of subsection (2) suggests to me that it is possible to have an occupational pension scheme which does not have an employer. It is clear that “employment” has a wide meaning under section 181(1) PSA 1993. If all “employments” must have a related “employer”, then paragraph (a) is curiously worded in referring to cases “where people….are employed” because in all cases people would be so employed.

Further, the new section 1(3) of the PSA 1993 is consistent with that approach. This provides that if a person

“is in an employment of the description concerned by reason of holding an office…..and is entitled to remuneration for holding it, the person responsible for paying the remuneration shall be taken to employ the office-holder.”

This wording suggests to me that the draftsman of this provision did not regard an office-holder as “employed” and that the provision is needed because, without it, an office-holder would not be employed at all. Accordingly, it is provided that the payer of remuneration is taken to employ the office-holder thus telling us not only that there is an employer but identifying who that employer is. If the purpose of the provision had been only to identify the employer, it being the case that all office-holders already have an employer, more apposite wording would have been “shall be taken to be the employer of the office-holder”.

I do not overlook that this new provision post-dates PA 1995 and cannot properly be used as an aid to construction of it.

Miss Asplin relies on one other section of the PA 2004. I refer to it here in this review of the legislation. It is section 308 which provides as follows:

“(1)

Regulations may modify any provision of pensions legislation for the purpose of ensuring that it, or another provision of pensions legislation, does not purport to refer to the employer of a self-employed person.

(2)

Where a provision of pensions legislation contains a reference to an employer in connection with an occupational pension scheme, regulations may modify the provision, or another provision of pensions legislation, for the purpose of excluding from the reference an employer who is a person–

(a)

who does not participate in the scheme as regards people employed by him, or

(b)

who, as regards people employed by him, participates in the scheme only to a limited extent.

(3)

For the purposes of this section–

(a)

“pensions legislation” means any enactment contained in or made by virtue of–

(i)

the Pension Schemes Act 1993 (c. 48),

(ii)

Part 1 of the Pensions Act 1995 (c. 26), other than sections 62 to 66A of that Act (equal treatment),

(iii)

Part 1 of the Welfare Reform and Pensions Act 1999 (c. 30), or

(iv)

this Act;

(b)

a person is “self-employed” if he is in an employment but is not employed in it by someone else;

(c)

a person who holds an office (including an elective office), and is entitled to remuneration for holding it, shall be taken to be employed by the person responsible for paying the remuneration.

(4)

In subsection (3)(b) “employment” includes any trade, business, profession, office or vocation”.

This section is not yet in force. But clearly its presence in the PA 2004 can be taken account of. It is manifest, I consider, that the draftsman of this provision was using “self-employed” as including that concept as ordinarily understood. Self-employment is to be contrasted in this context with employment under a contract of service or in an office. The use of the phrase, in subsection (3)(b), “not employed in it by someone else” is instructive. Suppose I employ a self-employed solicitor to conduct a conveyancing transaction. From his point of view he is, assuming I pay my bill, gainfully employed using employed in the sense of carrying out a function. He is, both from his point of view and my point of view, engaged in an employment as defined in the legislation (ie as including a profession). In one sense he is employed, as a matter of ordinary language, too: I have employed him to carry out my conveyancing transaction. But in another sense, I have not employed him: he is certainly not my employee (whether in the sense defined in section 181 PSA 1993 or any other usual sense) and in that sense I am not his employer. If it is said that all cases of what would normally be called self-employment nonetheless gives rise to a relationship where the person providing the service is to be regarded as employed, it is difficult to see how anyone could ever fall within the definition in subsection (3)(b). But if some self-employed individuals (a shop-keeper for instance) are not employed by someone else, but others (self-employed pilots perhaps) are employed by someone else, difficult factual questions are bound to arise about where the line is to be drawn and the principles on which it is to be drawn.

The use of the word “purport” in subsection (1) is also significant (although the parties do not agree what that significance is). Miss Asplin says that the use of that word clearly shows that the legislature did not consider that such references would be effective: otherwise the words “purport to” could have been omitted. She contrasts that with subsection (2) where there is a regulation-making power directed at excluding from a reference to employers persons who actually are employers.

Miss Asplin’s conclusion from all of this, of course, is that the definition of employer in Section 75 includes only employers in the ordinary sense; as she puts it, they must be actual employers of employees. She asks and answers the question “What if Port of Tyne [her client] is wrong in this?”. The answer she says is that an impracticable and irrational result follows. I shall postpone dealing with her answer until I have considered Mr Green’s submissions to the effect that the SCHAs can indeed properly be seen, in practical terms, as employers and therefore as employers for the purposes of Section 75 (albeit not for other purposes, such as employment law or for tax generally).

The definition of “employer” in section 318 of the PA 2004 is virtually identical to that in section 124 PA 1995. However, the contexts of the two Acts are different, and in the PA 2004 the definition in relation to an occupational pension scheme is coupled with, and differs from, that in relation to a personal pension scheme. Miss Asplin submits that the same construction should be placed on both definitions. There is a great deal of force in that submission since (i) the two Acts are intended to operate together in the governance of pensions schemes and (ii) Part 3 of PA 2004 (Scheme Funding) is to be construed as one with Part 1 of the PA 1995 (see section 233 PA 2004). It would be odd if the regime for recovery of deficiency contributions and the SSF regime applied to different bodies.

In relation to a personal pension scheme, the definition reads:

““employer” – (b) in relation to a personal pension scheme, where direct payment arrangements exists in respect of one or more members of the scheme who are employees, means an employer with whom those arrangements exist.”

The definition of “direct payment arrangements” is the same as in section 111A PSA 1993. These arrangements relate to payment of contributions by or in respect of an “employee”. The definition of “employer” in relation to a personal pension scheme therefore clearly refers only to a person who employs another person under a contract of service or, in the case of an office-holder, to the person who is responsible for the office-holder’s remuneration. The substantive provisions in PA 2004 concerning personal pension schemes relates only to scheme where direct payment arrangements are in place. The question whether there can be an “employer” in respect of personal pension schemes where such arrangements are not in place does not, therefore arise. I do not consider that the definition in relation to personal pension schemes gives any guidance about the meaning of the definition in relation to occupational pension schemes.

Mr Furness has also referred to other provisions of the legislation, pointing to instances where, he says, the draftsman has proceeded on the basis that an employer will have employees. One such provision is section 17 PA 2004. This confers powers on the Regulator to recover unpaid employer contributions. Section 17(3) defines “employer contribution” as follows:

“(a)

in relation to an occupational pension scheme, means any contribution payable by or on behalf of the employer towards the scheme in accordance with a schedule of contributions under section 227 of this Act or a payment schedule under section 87 of the Pensions Act 1995 (c. 26) (schedules of payments to money purchase schemes) whether-

(i)

on the employer's own account (but in respect of one or more employees), or

(ii)

on behalf of an employee out of deductions from the employee's earnings …”

These provisions cover deductions made from the earnings of employees but say nothing about deductions from other amounts, such as the fees paid to self-employed contractors; more specifically, it would not cover contributions which SCHAs are obliged to collect and pay under Rule 13. If “employer” extended to persons engaging self-employed contractors Mr Furness says that one would have expected the section to be drafted so as to cover contributions deducted from the fees paid to the self-employed contractor. It is not possible to attribute a wider meaning to employee, so as to correspond to the wider meaning for employer, because employee is defined in the 2004 Act as having the same meaning as in the PSA 1993 in relation to which the meaning is clear. The section is drafted, according to Mr Furness, on the assumption that where an employer deducts contributions from a member’s earnings and pays them to the trustees, he will be doing so only in respect of an employee. The same assuming underlies sections 90(2)(g) and 150(6)(b) PA 2004.

Section 90(2)(g) refers to the duty imposed on trustees by section 49(9)(b) PA 1995, and describes one owed to report material failures “by employers to pay contributions dedutced from employees’ earnings”. The suggestion is made that this indicates that section 49(9)(b) only applies in relation to employees’ contributions; that does not appear to me to be correct. The duty arises in relation to a failure to comply with sub-section (8) which provided in its original form as follows:

“Where—

(a)

on making a payment of any earnings in respect of any employment there is deducted any amount corresponding to any contribution payable on behalf of an active member of an occupational pension scheme, and

(b)

the amount deducted is not, within a prescribed period, paid to the trustees or managers of the scheme and there is no reasonable excuse for the failure to do so,

the employer is guilty of an offence……”

The subsection has been amended by section 10(1) Welfare Reform and Pensions Act 1999, but the changes are not material for present purposes.

The references to “earnings”, “employment” and “active member” can be applied to self-employed persons as much as to employed persons. The person who one would expect to be guilty of an offence is the person who had failed to make the payment. In the present case, this provision would, it seems to me, apply in the case of a failure by an SCHA to comply with its obligations under Rule 13.

Mr Furness also refers to section 253 PA 2004 which imposes limits on the circumstances in which an employer can make contributions to a scheme with its administration outside the EEA. The restrictions are imposed in respect of contributions made on behalf of employees (which must mean “employees” as defined). He submits that it did not occur to the draftsman that an employer might make contributions on behalf of someone who was not an employee, but in respect of whom he was an employer. Likewise section 238 of the 2004 Act (not yet in force) provides for an employer to give information and advice about pensions and saving for retirement to “employees”. It was clearly not regarded as a possibility that the employer might be sponsoring members who were not employees.

I do not consider that these two sections are of assistance. The draftsman cannot have thought that only employees and their employers could participate in occupational pension schemes. He must be taken to have known that schemes with self-employed members could fall within the scope of the definition of occupational pension scheme. He must therefore be taken to have known that contributions could be made to a scheme by self-employed members themselves and perhaps by others in respect of them. For instance, in the present case, the original rules might have (although in fact they did not) imposed contribution obligations on an SCHA. In any case, a contribution which an SCHA is obliged to collect is one which, it seems to me, the SCHA will “cause” to be paid to the scheme. Accordingly, the draftsman must have understood (unless he had simply overlooked) that contributions might be made by persons (even if they were not employers) in relation to members other than employees. If he did not overlook this point, then his drafting must reflect a deliberate decision to give employees certain protections that were not to be afforded to the self-employed. But this gets one nowhere in deciding the scope of the definition of “employer”.

Mr Green appears for the PLA, a Formerly Active ECHA, which represents those persons who are interested in giving “employer” a wide meaning so as to share the statutory debt as widely as possible. He starts with a broad brush. He identifies the thrust of the Section 75 regime as being that someone is to stand behind a deficit in a pension scheme; that “someone” is not any member but is the person for whom the members work or, to put that another way, those whom the members serve. Consistently with that, he submits that the use of the word “employment” in the legislation was to distinguish between participating bodies which had adhered to relevant schemes and members who by reason of their service have accrued benefits. In other words, the distinction is between “employers” and “members”, not between “employers” and “employees”. No distinction is to be drawn between the different classes of member. Both employed and self-employed members have pensionable service; both accrue benefits in respect of that service; and liabilities must be provided for in respect of both classes. So, Mr Green says, the Section 75 regime imposes responsibility for those liabilities on the persons whom members have served. Importantly as part of this broad argument he says that characterisation of the working arrangements between the Participating Body and its members as being pursuant to one form of contract rather than another is of no rational significance so far as concerns the application of Section 75. In the particular case of the Scheme, he says that the working arrangements are so similar for employed and self-employed pilots that SCHAs are to be seen as “employers” for the purposes of Section 75.

Mr Green submits that the legislation supports his conclusion. I have already referred to the provisions of the primary legislation on which he relies. I will need to consider in due course some more subordinate legislation.

Let me take the most straightforward argument in stages:

In order to address that argument, I need to consider further the effect of the definition of “employer” in section 181 PSA 1993 in the context of section 144 of that Act, which this straightforward argument does not address. I have already raised the issue whether it is an exclusive definition. If it is an exclusive definition, then the use of that word in the definition in section 144 PSA 1993 of “employer” must mean that “employer” is restricted to cases where there is an “employee”. There would, in my view, be no room for excluding the section 181 definition from section 144 pursuant to the “unless the context otherwise requires” rubric at the beginning of section 181. The scheme would relate to the description or category of the employment in which the employees were working (and when an employer is readily identified) even if it is related also to other employments (eg of self-employed members of the scheme where there was no employer at all); that is enough to give perfectly sensible meaning to the phrase “persons [ie in this case, employees] of the description or category of employment to which the scheme relates”.

In my judgment, the same reasoning would apply to Section 75 PA 1995. The effect of section 124(5) is to incorporate into the PA 1995 the definitions of the PSA 1993. Mr Green positively asserts that in relation to the meaning of “employment” in Section 75 which he says is to be found in section 181. I see no reason why the same should not apply in relation to “employer” where that word is found within the definition in Section 75. Thus, focusing on different classes of person in the description or category of employment to which the scheme relates, and asking who is their employer (within the meaning of section 181) the answers are these:

Applying this to Section 75, the statutory debt under Section 75(1) falls on the “the employer” as defined which means the employer of an employee, or the prescribed or default person in the case of an office-holder but nobody else.

The position is different if the definition in section 181 is not exclusive. In that case, the definition tells us that there is an employer, and who that employer is, in cases where there is an employee (including an office – holder) but is silent on the questions (i) whether there is an employer at all in other cases and (ii) if there is, who that employer is. Accordingly, when it comes to establishing the meaning of the phrase “employer of persons in the description or category of employment to which the scheme in question relates” in section 124(1), the word “employer” has to be assigned a meaning which may be different from its definition in section 181. There are two scenarios to consider.

If the first scenario is correct, it is my judgment that, by adopting a definition which applies only in respect of certain classes of employment (employee, office-holder), the draftsman has restricted the “employer” to employers in respect of those classes of employment. I have to say that it would be curious, to say the least, if that was not so. The draftsman has recognised, in the definition in section 181, the need to define who the employer actually is in a case where that might not be clear, that is in the case of an office-holder. If he had intended to include within the definition of “employer” in section 124 a person (as an “employer”) who had some relevant relationship with a self-employed person, I would have expected him to provide a mechanism for the identification of that person just as he has done in relation to the office-holder.

I will address the need for this in more detail when considering Mr Green’s arguments concerning the relationship between CHAs and their pilots. But I can easily identify the sort of difficulty which could arise by reference to the SCHAs. Is the employer to be found in a group of one or more ship-owners who use the pilots and ultimately pay for their services? Is it the SCHA who is responsible for ensuring the provision of pilotage services in its area and who contracts with a third party for the provision by the pilots of pilotage services? Self-employed pilots provide their services in different ways – through companies, co-operatives or partnerships (I am not aware of any sole trader). Where a corporate body is used, is the “employer” that body rather than the SCHA? There is no obvious answer to those questions.

If the second scenario is correct then the definition in section 181 is irrelevant. That does not much matter in the case of an employee. But take the case of an office-holder. If it is said that every “employment” must have an “employer”, then the office-holder must have an employer. But is that the person who pays the office-holder, or the person (if different) prescribed under the definition in section 181 or some other person? In relation to other employments, the same difficulties arise as under the first scenario in identifying the “employer”.

All of this is a very strong pointer to the conclusion that the definition of employer in section 124(1) includes only employers who fall within the definition in section 181.

Mr Green relies on other legislative provisions in support of his conclusion. These are ones I have already mentioned: the original and new definitions of “occupational pension scheme”, the definitions of “employment” (which includes self-employment) and the corresponding meaning of “employed”, “earner”, “earnings” (which includes any remuneration or profit derived from an employment and thus includes the earnings of the employed and the self-employed) and “self-employed earner”. He says that these provisions clearly support the conclusion that an “occupational pension scheme” includes a scheme where pensionable service accrued in respect of periods of self-employment and the word “employment” included self-employment. I agree with all of that. I think it is common ground in any case. It does not add anything to what I have said already.

Like Miss Asplin, he refers to section 308 PA 2004 in order to support precisely the opposite conclusion from the one which she seeks to draw from it. He adopts what was said by Mr Tennet in his skeleton argument. Mr Tennet suggests that it seems to have been specifically contemplated by section 308 PA 2004 and the Parliamentary debates preceding it that an “employer” might, based on the definition of “employment”, extend to persons who engage self-employed persons. Mr Tennet also relies on the explanatory note to the PA 2004. It includes the following:

“The new definition of occupational pension scheme introduced by section 239, which amends section 1 of the Pension Schemes Act 1993, includes schemes which are not sponsored by a person who employs the scheme members. Certain references in pensions legislation to the 'employer' may not be appropriate for such schemes.

Subsection (1) is a regulation-making power to modify any provision of pensions legislation (as defined in subsection (3)) for the purpose of ensuring, in the light of the fact that self-employed people do not have employers (but only clients etc), that the legislation does not inappropriately refer to the employer of a self-employed person.”

Mr Tennet submits that two points seem clear:

It is highly unsafe to rely on that. What Parliament recognised was that some, unidentified, provisions of the legislation might be read as referring to employers in the context of self-employed persons. It does not actually record a belief that any such provisions, properly construed, actually do apply in that way. This is the point which Miss Asplin makes in relation to the use of the word “purports”. It does not identify, in any case, Section 75 as one of those provisions. Moreover, given the apparent belief as reflected in the note that this might have come about as the result of the introduction of a new definition of occupational pension scheme by section 239, that lack of safety is underlined. The fact that Parliament has not seen fit to bring the section into force suggests that the feared inappropriate references did not exist in the first place.

In my judgment, it is not possible to derive any assistance from section 308 in the interpretation of “employer” as defined in section 124(1) PA 1995 or in section 318(1) PA 2004.

I accordingly reject Mr Green’s argument that legislative support is to be found in the provisions which he has identified. This does not necessarily mean that his conclusion is wrong. But it does mean that he has to find the reasons for his conclusion somewhere else. He therefore relies on certain other statutory provisions, on a purposive construction and on the relationship between CHAs and the pilots employed or authorised by them.

Mr Green says that I must adopt a purposive approach to the construction of this legislation. A purposive construction is one which gives effect to, rather than frustrates, the objective of, and policy behind, the statute. But the courts are not free to make up their own objective or policy and seek to fit the words of the statute into it. Rather, the objectives and policy must be found within the legislation or derived from admissible materials.

So, what is the objective of, and policy behind, Section 75? Quite clearly, Section 75 is driven by a concern that the assets of an occupational pension scheme might be insufficient to meet the liabilities of the scheme. Section 75 introduces (or rather, re-states) a scheme under which, in its simplest form, a certain person is liable in certain circumstances for the shortfall (ascertained in accordance with regulations). That person is the “employer” and the circumstances are (i) when the scheme is being wound up or (ii) in the case of a corporate employer, when it goes into liquidation. If a scheme does not have an “employer”, the Section 75 regime is inapplicable.

That concern, however, does not identify the objective of, and policy behind, the Section 75 regime. It is not permissible for me to identify them as being to achieve a fully-funded scheme and thereby to make any person who “participated” in the scheme (whatever that may mean) liable regardless of its relationship with the members or its obligations under the scheme unless I can find that objective and policy inherent in the legislation or can find it in other admissible material. I have no material, apart from the legislation itself, which assists me one way or the other in deciding whether the policy was to make liable for a statutory debt a person who is not an employer as defined in section 181 PSA 1993.

As to the legislation, what can be said is that the Section 75 regime clearly does apply to an employer as so defined. The pension of an employee is part of his remuneration package (it is seen as “pay” for the purposes of EU law). It is not difficult to ascribe to Parliament a policy which makes an employer of employees responsible for this aspect of their welfare and thus liable to guarantee to a limited extent the pension expectation of the members. I say to a limited extent, because the regime as originally operating under Section 75 did not provide 100% cover for liabilities.

If that was Parliament’s policy in relation to the protection of pensions, and if its policy went no further, then it would only be cases where the employer had employees which would fall within the Section 75 regime. This would not be unique; employment protection legislation was, subject to the impact of Community law (now we call it European Union Law) restricted to protection of employees and not the self-employed. In that context, self-employed pilots are not “employees”: Bibby v Associated British Ports Ltd (unreported, 25 March 2003) and the policy which had led to extensive protection for employees does not extend to them.

Mr Green, however, says that no distinction is to be drawn between an ECHA and an SCHA in the context of the Section 75 regime. Both participate in the scheme: by becoming a Participating Body, an SCHA, as much as an ECHA, has “signed up” for participation and is subject to the Section 75 regime in the same way as an ECHA.

He says, and I agree with him at least about this proposition, that the absence of a covenant to meet a deficit is irrelevant. The Section 75 regime is applicable precisely because there is a need for a contribution when one cannot be recovered contractually. Indeed, that is the position in respect of ECHAs in the present case. But that does not help with the identification of the policy or the meaning of “employer”.

It is the participation as a Participating Body, and its nature, which Mr Green submits is critical. The point of the legislation is to remedy weaknesses in the covenanted commitments of those who are “employers”. As to that, he submits that the policy (which I take to mean the making good of a deficit) applies equally to all participant bodies irrespective of the terms and conditions on which the members work for them. There is no reason why a participating body which has entered into a Deed of Accession like an SCHA should be able to shelter behind the fact that its relations with its PNPF members happen to involve a contract for services rather than a contract of service. There is no reason, he submits, why Parliament in enacting the Section 75 regime should have been remotely concerned with that distinction in this context.

The specific legal arrangement under which an individual pilot or group of pilots carries out pilotage services for a CHA unsurprisingly varies from case to case. However, Mr Green submits that the nature of that particular characteristic is really not the point. The crucial fact is that each CHA (irrespective of whether it is an ECHA, an SCHA or a Mixed CHA) has acceded to the PNPF as a Participating Body. It is that feature which makes all CHAs “employers” for the purposes of the Section 75 regime.

Now, I am not sure that Mr Green would go so far as to say that all “employments” in relation to which members of a pension scheme accrue benefits must necessarily have an employer. What he does say, however, is that the relationship of self-employed pilots to an SCHA does have the result that the SCHAs are employers for the purpose of Section 75 in relation to the Scheme. I will come to his submissions on the details of that relationship in a moment. But unless he does go so far as to say that all pensionable self-employments have an employer, there must be legal and practical criteria by which one can judge whether or not a particular self-employment has an employer or does not. And in any particular case, a judgment will have to be made by reference to those criteria about whether there is an employer in relation to the self-employment concerned. I accept that in many cases of legal classification, there are border-line cases where different minds may take different views. It is not necessarily a fatal objection to Mr Green’s approach that in some cases of self-employment, such an enquiry might have to be undertaken: he would say that wherever the line is to be drawn, the SCHAs fall on the employer side of it. However, there are obvious concerns about bringing into the jurisprudence a category of self-employment which is of a special nature being so close (or, depending on your stance, close enough) to a contract of service that it is to be treated, for the purposes of the Section 75 regime, in the same way as service under such a contract. This is especially so given that this relationship remains one under which the individual concerned is still a “self-employed earner” and does not become an “employed earner” and under which he remains, for employment protection purposes, outside the definition of “employee”.

Mr Green therefore presents me with a plethora of factors showing that there is no material distinction for the purposes of the Section 75 regime as applied to the Scheme between pilots employed by an ECHA and a pilot authorised by an SCHA. Many of these factors point up a similarity between ECHAs and SCHAs in the context of the Scheme. That, it seems to me, is quite beside the point. It is not their functions under the Scheme which determine whether they are “employers”; it is whether the relationship which they have with the pilots which they authorise is one where they can properly be described as “employers”. Whether or not a person, in relation to a scheme, is the “employer” of a member cannot depend on the precise provisions of the scheme provided that the member is in pensionable service under the scheme.

Suppose, for instance, that the SCHAs and their pilots were in one scheme and the ECHAs and their pilots in another. The answer to the question whether or not the SCHAs are employers cannot turn on the similarities or dissimilarities in the provisions of the respective schemes.

Or take this example. Suppose that the Scheme had been divided into two in 1988, with one scheme for ECHAs and their pilots and one for SCHAs and their pilots (on the counter-factual assumption that it was known all along which CHAs would fall into which category initially). Suppose that the existing liabilities were apportioned on some rational basis between the two schemes and assets were divided pro rata to those liabilities. Finally, suppose that each scheme introduced an early retirement scheme similar to that actually introduced into the Scheme. The result would be that the SCHAs would have obtained the economic benefit of a share of the £15 million surplus actually used. Would the consequence of that utilisation in the SCHA scheme make the SCHAs employers for the purposes of Section 75 if, absent that utilisation, they would not have been? The clear answer, in my view, is that it would have made no difference at all. Either the SCHAs are employers by virtue of their ongoing relationship with their pilots or they are not. The introduction of particular benefits funded in a particular way can make no difference to that. Mr Green’s forensic reliance on the early retirement scheme gets him, in my view, nowhere.

Of more importance are the terms on which self-employed pilots are engaged as compared with employed pilots. I assume that, when piloting a ship, a pilot does precisely the same work whether he is employed by an ECHA or is providing services pursuant to some contractual obligations between an SCHA and another person (not necessarily the pilot himself). But as to the other work which pilots do, the evidence does not disclose precisely what happens. One might assume, for instance, that a self-employed pilot who provides his services through a co-operative and who receives his remuneration from the co-operative, might have administrative tasks to perform as part of his agreement with the co-operative; and similarly, a partner in a partnership providing pilotage services might have duties to perform outside his actual pilotage of ships. Quite possibly, employed pilots also have duties outside actual pilotage, the performance of which is reflected in their pay. The functions of the employed and the self-employed outside of actual pilotage may differ.

But putting those differences aside, Mr Green relies on the practical relationship between CHAs and pilots, both employed and self-employed. I take the gist of the following paragraphs from his helpful and detailed skeleton argument under his heading “Core relationship between all CHAs and their pilots”.

The lack of any material distinction between ECHAs and SCHAs in respect of the underlying relationship with their pilots is he says clear from the evidence of Mr Everitt and Mr Williamson. He identifies those core features of the relationship as follows:

Mr Green is no doubt correct in identifying these similarities between the position of ECHAs and SCHAs and between pilots employed by ECHAs and whose services are utilised by SCHAs. He submits that these similarities show that SCHAs are vis a vis their pilots as much “employers” as are ECHAs. They participate in the Scheme in very similar ways and should so far as the Scheme is concerned be treated in exactly the same way. If that is right, he submits that the interposition of a service company or a co-operative does not change a SCHA’s position as an adherent and Participating Body in the PNPF.

Mr Green goes on to say that it is difficult to imagine that an SCHA can discharge its statutory duties under the 1987 Act by keeping sufficient control over its pilots without giving rise to some (even if rudimentary) contractual relationship with its pilots. This view, he says, is endorsed by the decision in Transport and General Workers Union v Associated British Ports Ltd [2001] EWCA Civ 2032, in which the Court of Appeal held that ABP’s authorisation and the terms and conditions on which that the Humber Pilotage Area’s pilots carried out their work (albeit that such pilots had organised themselves through the incorporated co-operative Humber Pilots Limited with whom ABP had contractual relations) involved a direct contractual (and not merely statutory) relationship between such self-employed pilots and ABP. Assuming that the same reasoning would apply, on the facts, to all other self-employed pilots, the decision of the Court of Appeal shows that there is a contract between the pilot and the SCHA. This contract brought the case within section 296(1)(b) Trade Union and Labour Relations (Consolidation) Act 1992. Section 296(1) defines a “worker” as

“…an individual who works, or normally works or seeks to work –

(a)

under a contract of employment, or

(b)

under any other contract whereby he undertakes to do or perform personally any work or services for another party to the contract who is not a professional client of his”.

The Court of Appeal held that a pilot in the Humber Pilotage Area was a worker by virtue of paragraph (b); the pilot was clearly not employed under a contract of service within paragraph (a), nor was the pilot an “employee” as defined (since an employee was a person employed under a contract of service). However, “employer” was given an extended meaning; it was defined not by reference to an employee but by reference to a worker and meant a person “for whom one or more workers work, or have worked or normally work or seek to work”. This is just the sort of extended definition which the draftsman of the PA 1995 could have adopted if he had intended “employer” to go beyond the employer of an employee or beyond the extension which he did include, namely the employer of an office holder. Mr Green is right, no doubt, to say that this decision of the Court of Appeal shows that the concept of a person who is self-employed being treated as in a relationship with an “employer” for statutory purposes is not alien to English law. True; but what it does not show is that this treatment applies to the relationship between a self-employed person and the person who uses his services in the context of the legislation with which I am concerned.

Mr Green’s submissions can be encapsulated in this way: the underlying relationship between all CHAs and their pilots provides a sufficient nexus for an SCHA to be described as an “employer” for the purposes of the Section 75 regime. On an analysis of the core relationship between all CHAs and their pilots, there is no meaningful distinction to be drawn between the relationship of ECHAs and their pilots on the one hand and of SCHAs and their pilots on the other so as to justify an SCHA not being an “employer” for the purposes of the Section 75 regime whilst an ECHA is.

I am afraid that I see these submissions as little more than assertion – albeit elegantly crafted and attractively presented both in writing and orally – of the conclusion which Mr Green wishes to reach. It may be right to say that the core relationship to which Mr Green refers would have provided a sufficient nexus to justify, as a matter of policy, bringing SCHAs within the scope of Section 75 and being treated as an employer for the purposes of the section. No doubt, if Parliament had wanted to make persons in the position of SCHAs liable as employers, it could have done so. But Parliament did not expressly do so. For my part, I do not consider that the nexus which Mr Green identifies is sufficient to achieve that result in the absence of express language to that effect. One serious difficulty I have with his approach is that he nowhere identifies the principles by which one is to assess whether the relationship does or does not amount to one under which the SCHA is an “employer”. It cannot, I think, have been Parliament’s intention to introduce the need for factual enquiries about the detail of the relationship between the alleged employer and employee before knowing whether Section 75 was applicable; still less can it have intended to introduce what is, essentially, a matter of judgment. There would be no “right” answer in many cases; different minds might quite reasonably take different views about whether a particular relationship results in an entity being an “employer”. More importantly, different judges, if the matter were tested in court, could reasonably come to different views and would be open to appeal only if the decision fell outside the range of the reasonable.

Further, Miss Asplin makes a number of points which support the conclusion which I have reached as a matter of language, some of which I have touched on already.

First, there is the difficulty in ascertaining, objectively, who is the “employer” of a self-employed person. Mr Green identifies the SCHA as the employer. But he does that by arguing that there is no difference in substance between the position of “E” Members and S Members or between the participation of SCHAs and ECHAs so far as the Scheme is concerned. He also argues that the relationships between SCHAs and S Members, and between ECHAs and “E” Members are materially similar. Drawing on those factors, he would say that the SCHA is the “employer”. But I am far from clear that that would be correct. There is a powerful case for saying that it is the ship-owners who are the employers (if there has to be an employer at all). They could, as Miss Asplin submits, be said to be closer to an “employer” of the pilots than SCHAs ever are, especially in cases where they negotiate their fees and hire their services, although that is not the general position. Where there might be a doubt about who is, or who is to be treated as if it is, an “employer”, the draftsman has provided the answer in some cases eg in relation to office-holders. That suggests that, where it is not expressly stated that there is an employer in relation to an employment or an employee, the conclusion is that there is no employer. Mr Furness makes the same points.

Secondly, on whatever basis it is said that an SCHA is an “employer”, there is the problem, already noted, of identifying the test by which the “employer” is to be ascertained and the general application of such a test. The Court in every case would have to perform a qualitative exercise to determine when a person using the services of an ordinarily self-employed person becomes an “employer” for the purposes of a scheme. This would lead to considerable uncertainty and would give rise to further questions including:

Thirdly, what of the situations where an SCHA has delegated the responsibilities to a third party, such as a pilots’ co-operative, as is the case with Poole? Would the co-operative be an “employer”? By this stage, Miss Asplin says that the SCHA is nothing more than an authorising body, with the administrative interaction with the Scheme being undertaken by the co-operative, and all the relevant information being in the possession of the co-operative and (equally important) outside the possession or control of the SCHA. At what stage would the SCHA cease to be an “employer”, and the co-operative become one, and what test will the Court apply? There may be answers to those questions (I do not propose to give them); but they are not straightforward answers. It is a point against Mr Green’s approach that such questions should need to be asked.

In my judgment, an SCHA is not an “employer” for the purposes of Section 75. That conclusion gives to the section the meaning which I think is more straightforward and easier of application than the construction for which Mr Green contends. Mr Green’s arguments do not persuade me that the outcome for which he contends would be to give a “fairer” interpretation (whatever fairness may mean); still less do I feel compelled to reach the conclusion for which he argues.

The reasoning which leads to that conclusion is equally applicable to the interpretation of the PA 2004. I can see no sensible reason for giving a different answer to the interpretation of “employer” in that Act from its interpretation in the PA 1995 so far as it relates to the question whether an SCHA is an employer. Whether “employer” has a different meaning in other respects is a separate question and gives rise to Question 4A.

It follows that the self-employed pilots themselves are not “employers” for the purpose of either the PA 1995 or the PA 2004. There does not need to be an “employer” in all cases where there is an “employment”. The conclusion that a self-employed pilot is an “employer” would be so counter-intuitive that I would expect to see the clearest language before holding in favour of that conclusion. There is no such clear language. In any case, there are additional pointers against such a conclusion. In particular, it is difficult to see how the provisions of sections 22 and 40 PA 1995 (independent trustees and employer-related investments) could be made to work satisfactorily in such a case.

Accordingly the answers to Issues 22 to 24 are as follows:

I need to add one qualification to this. I have not considered the position of Mixed CHAs, in particular a CHA which was originally an SCHA and which begins to employ pilots where such pilots are eligible to become Members of the Scheme but do not in fact do so. The SCHA is not an employer prior to the time when it first employs a pilot eligible to join the Scheme. It might be thought that the employment of a pilot would not alter that position. Later in this judgment, in the context of Question 4, I consider the question whether the employment of a person eligible to be a Member, or of a person who is a deferred Member or a pensioner Member, means that the employer ceases to be an “employer of persons in the description of employment to which the scheme relates”. I wish to return to this later.

Question 5 asks whether, for the purposes of Sections 75(2) and 75(4)(a), “the value of the assets of [a] scheme is less than the amount at that time of the liabilities of the scheme” refers to all the assets and liabilities of the Scheme or only those attributable to employment with ECHAs.

This question arises in the light of my answer to Question 6, namely that an SCHA is not an “employer”. Sections 75(2) and (4) each refer to the assets and liabilities of a scheme. Section 75(5) states that, for the purposes of those subsections, the liabilities and assets to be taken into account and their amount or value must be determined, calculated and verified by a prescribed person (ie an actuary) in the prescribed manner. The Regulations which prescribe these aspects of the ascertainment of the debt on an employer are found in the Employer Debt Regulations in their forms before 6 April 2008 and after 5 April 2008.

The assets and liabilities to be taken into account are set out in Regulation 5 in either its old or new version. Prima facie, the reference to the assets and liabilities of a scheme is to the total assets and the total liabilities of the scheme. However, in the case of the Scheme, and since an SCHA is not an employer for the purpose of Section 75, this interpretation would require that the deficit attributable to Pensionable Service while self-employed would form part of any debt for which the employers, that is to say ECHAs, are liable.

Under both the old and the new versions of the Regulations, the share of each employer’s liability can be expressed as L1/L(all) x D where

The components “L1” and “L(all)” are without any doubt concerned exclusively with liabilities attributable to employment with “employers” under the Section 75 regime.

Mr Green, who argues on behalf of the PLA and other CHAs who are concerned to restrict the quantum of their potential liabilities, says that the real point arising out of Question 5 is a need for there to be consistency between the identification of the “employers” for the purposes of the Section 75 regime and the liabilities to be apportioned under that regime. An asymmetry arising out of ECHA liabilities only being taken into account for the purposes of “L1” and “L(all)”, but SCHA liabilities being included in “D”, suggests, he says that something fundamental will have gone wrong with the interpretation of the application of the Section 75 regime in relation to the Scheme. If SCHAs do not constitute “employers” for Section 75 purposes (as I have held in answer to Question 6), he submits that the logical conclusion is that Section 75 liabilities do not include liabilities attributable to Pensionable Service accrued by Members authorised by and working for such SCHAs.

In other words, if S Member liabilities are excluded from “L1” and “L(all)” (because SCHAs are not “employers”), then the Court should as a matter of consistency hold that S Member liabilities should be excluded from “D” as well.

It is easy to see the logic of Mr Green’s position. It is not quite, however, as logical as might appear since it is clear that the liabilities within “D” are not restricted to liabilities in respect of employment with current “employers”. In particular, as Mr Green acknowledges, “orphan” liabilities in respect of former employers who have long since ceased to participate and which may no longer exist, are taken into account. From the perspective of a current employer, what matters is that it has to pick up a liability in respect of benefits of Members for whom it has never been responsible; it should not make much, if any, difference to the disgruntled employer whether that liability arises in relation to individuals who were employed or self-employed.

Mr Spink identifies the following factors against Mr Green’s argument. They do present problems for that argument and I take them into account.

Returning to L1/L(all) x D, I can see no way, as a matter of construction of the statutory provisions, in which one can exclude from element “D” any of the assets or liabilities of the scheme. The language simply does not admit of such a construction. There would, in any case, be enormous practical difficulties. If the liabilities are to be restricted to those attributable to current employers, so too should be the assets. It is one thing to ascertain the liabilities attributable to current employers (elements “L1” and “L(all)”) but quite another to ascertain what share of the assets of the scheme should be so attributed. The Regulations give not a hint of how this should be done. And since the scheme is, ex hypothesi, not a sectionalised scheme, there is no obvious way of identifying the assets attributable to employment with employers (past or present) in contrast with those attributable to self-employment.

Now, this conclusion might suggest that my answer to Question 6 is wrong and that SCHAs are, contrary to my decision, “employers”. In answering Question 6, I had this point well in mind. It is, I acknowledge, a point in favour of the view that SCHAs are “employers”. But it is only one point and is not one which persuades me to reach that conclusion. The arguments in the other direction are too strong.

Accordingly, the answer to Issue 25 is that the assets and liabilities referred to in Section 75 are all of the assets and liabilities of the Scheme and not only those attributable to employment with ECHAs.

This Question raises a number of issues about the triggering of statutory debts under Section 75. It arises in respect of four Cessation CHAs which, it will be recollected, ceased to have active members in the period 2 September 2005 to 5 April 2008. The question is whether an employment-cessation event (as to which see below) occurred in relation to any of them, the answer to which depends on when an employer ceases to be “an employer employing persons in the description of employment to which the scheme relates” within the meaning of Regulation 6(4) of the Employer Debt Regulations.

I have already set out the legislative history leading to Section 75. It is to be noted that, like section 144 PSA 1993, Section 75 was drafted with its focus on a scheme with a single employer. Under Section 75(10), the section can be modified by regulations as it applies in prescribed circumstances. The extent of that power is not clear. But under section 118(1) PA 1995, regulations could modify any provisions of Part I (which include Section 75) in their application to a trust scheme (such as the Scheme):

PA 2004 amended Section 75 and introduced a new section 75A providing in more detail for a regulation making power in relation to multi-employer schemes (that is to say a trust scheme which applies to earners in employments under different employers).

It is instructive, I consider, to see how the Section 75 regime operated in relation to a single-employer scheme when the provisions applied in their original form. That regime was found in Section 75 together with the Occupational Pension Schemes (Deficiency on Winding Up etc.) Regulations 1996 (SI 1996/3128) (“the 1996 Deficiency Regulations”).

For present purposes, I need only refer at the moment to Regulations 4 and 5. Regulation 4 carries the heading “Multi-employer schemes”, a shorthand reference to a scheme “in relation to which there is more than one employer”. In relation to such a scheme, Section 75 applies with the modifications set out in the remainder of the Regulation (see Regulation 4(1)). Regulation 4(2) inserts new subsections (1A) to (1E) which apportion the Section 75 debt amongst the employers and make provision for sectionalised schemes.

Regulation 4(3) substitutes a new Section 75(3) which provides the definition of “the applicable time”. Under Section 75(3) as it appeared in PA 1995, the applicable time means:

“(a)

if the scheme is being wound up before a relevant insolvency event occurs in relation to the employer, any time when it is being wound up before such an event occurs; and

(b)

otherwise, immediately before the relevant insolvency event occurs.”

A “relevant insolvency event” occurs in relation to a company when it goes into liquidation.

In the case of multi-employer schemes the modified definition of “the applicable time” contains two limbs. The first limb (Section 75(3)(a)) applies to a scheme which is being wound up and means any time (i) after the commencement of the winding up and (ii) before an insolvency event has occurred in relation to “each of the employers to whom the scheme relates”.

The second limb (Section 75(3)(b)) applies to a scheme which is not being wound up when “the applicable time” means:

“(i)

in relation only to any employer who ceases to be a person employing persons in the description or category of employment to which the scheme relates at a time when at least one other person continues to employ such person, immediately before he so ceases, and

(ii)

in relation only to any employer in relation to whom a relevant insolvency event occurs, immediately before that event occurs.”

Regulation 4 does not apply to a scheme where there is and has only ever been a single employer. Accordingly, the original definition of “the applicable time” applies.

Regulation 5 carries the heading “Former employers”. It explains how Section 75 and the Regulations are to apply in certain cases.

The first case is where the scheme has no active members – that is to say there is no member in pensionable service under the scheme. In such a case, “the employer” includes:

“every person who employed persons in the description or category of employment to which the scheme relates immediately before the occurrence of the event after which the scheme ceased to have any active members”.

The second is more general and includes within the meaning of “the employer” :

“any person who has ceased, on or after 6 April 1997 and before the applicable time, to be a person employing persons in the description or category of employment to which the scheme relates” unless-

a.

when he so ceased the scheme was not being wound up and continued to have active members and

b.

one of the conditions in paragraph (3) is met”.

Those conditions are:

In the case of a single employer scheme, the employer might, before the scheme goes into winding up and before any insolvency event has occurred in relation to it, cease to employ any person who is an active member. This could be because it ceases to employ any persons who are eligible to be active members; or it may be because, although it has eligible employees, none of those employees are in pensionable service under the scheme. On any view, “the applicable time” has not arrived since the scheme is not being wound up and no insolvency event has occurred under Section 75(3) as originally drafted.

The definition of “employer” in section 124(1) appears to contemplate a person who is an employer of relevant persons at the time when its status is being addressed. By relevant persons, I mean “persons in the description or category of employment to which the scheme in question relates” within the definition in section 124(1), as to which there is a dispute which I will, in due course, come to. In other words, if a person falls within the definition but then ceases to employ relevant persons, it ceases to be an employer. This is not, perhaps, entirely clear looking at the definition in isolation, although it is, I consider, the natural reading. However, section 125(3) is a pretty clear pointer to the conclusion that, to fall within the definition at any given time, a person must actually employ relevant persons at that time. That is the conclusion which, in my judgment, is correct. It is a conclusion which is consistent with the approach of the draftsman which can be seen in Regulation 5. I proceed on that basis.

Accordingly, where an employer ceases to employ relevant persons, it ceases to fall within the definition of “employer”. Nonetheless, it clearly remains to be included as an employer for the purposes of Section 75 under one or both of Regulations 5(1) and (2). Where the employer has ceased to employ any eligible employees, it has ceased both to employ any active members and to employ any persons in the description or category of employment to which the scheme relates. The case falls within both sub-Regulations. Where the employer continues to employ eligible employees but in fact employs no active members, sub-Regulation (1) applies; but whether sub-Regulation (2) applies turns on whether “the persons in the description or category of employment to which the scheme relates” includes only active members or can include eligible employees.

There is a further level of complexity which I should mention. Not only is there a question whether it is sufficient to bring a person within the definition of “employer” that he employs eligible employees but no active members, the question arises whether the employments of employees who are not eligible but who are deferred or pensioner members, might also be enough. For instance, an employee may have been an active member and become a deferred member (for instance by opting-out of membership) or may have started to draw his pension at age 65 whilst remaining in (non-pensionable) employment. The argument which I will address later is that the scheme “relates” to such persons (in that it relates to all beneficiaries) so that, if he remains in employment with the same employer, that employer does not lose its status as an “employer”.

What is clear, however, is that in the case of a single employer scheme, no debt arises under Section 75 until the applicable time. Accordingly, a debt cannot arise until the earlier of an insolvency event in relation to the employer and the commencement of the winding up of the scheme. Whilst I cannot say that the majority of occupational pension schemes in the UK are single employer schemes, it cannot be suggested that there are not very many schemes which are single employer schemes. As I have already remarked, the focus of Section 75 is on single employer schemes and it is only through Regulations that appropriate provision is made for multi-employer schemes and for the position of former employers. In the light of the operation of the statutory scheme in relation to single employer schemes, it is not possible to detect any policy, as of 1996-7, that a debt should fall on such an employer as soon as it has ceased to have any real connection with the scheme by ceasing to have any employees who are active members or even eligible to be active members.

Although a debt on an employer in a single employer scheme (which is not in winding up) was not triggered by its ceasing to employ active members or (if different) by its ceasing to employ any persons in the description or category of employment to which the scheme relates, such a link was to be found in the case of multi-employer schemes. This follows from the change in definition of “the applicable time” by the inclusion of the new Section 75(3)(b) set out above. The relevant applicable time for present purposes is the occasion on which the employer “ceases to be a person employing persons in the description or category of employment to which the scheme relates” provided that some other person does remain an employer of such persons.

Where all the employers cease, at the same time, to employ such persons, the proviso is not fulfilled. Such cessation does not, therefore, give rise to a debt on any of the employers. As with the single employer scheme, a debt only arises when, subsequently, the scheme goes into winding up before all of the employers have suffered insolvency events or when each employer suffers an insolvency event triggering the applicable time in relation only to the relevant employer. Again, the statutory scheme does not disclose a policy, as of 1996-7, that statutory debts must in all cases arise whenever the employers cease to have any real connection in the way I have mentioned in relation to single employer schemes.

Turning to the expression “the employer” in section 124(1), it is, to repeat, defined by reference to employment of persons in the description or category of employment to which the scheme relates. It is not, as it could have been, defined by reference to “active members”, the definition of which the draftsman had introduced earlier in the same sub-section. If it had been intended to restrict the definition in that way, it is surprising that reference was not made to active members rather than the persons actually referred to.

The phrase “the employer of persons in the description or category of employment to which the scheme in question relates” in the definition of “the employer” must be construed as a whole. One way in which it is possible to approach the question of construction is to start with the provisions of the scheme and to ask what employments the scheme is capable of covering. A scheme might, for instance, apply only to certain grades of employee or it might apply only to employees working in particular locations. Once those descriptions or categories of employment have been identified, so that employees in those descriptions or categories are at least eligible to become active members, it can, on this approach, be said that the scheme “relates” to those descriptions or categories of employment. Starting with the provisions of the scheme, it is not necessary to ask whether there is, in fact, any eligible employee or, if there is, whether he is an active member. However, having identified the sorts of employment to which the scheme relates, it is only if there is a person who actually employs a person in one of those descriptions or categories of employment that there will be an “employer”. If there is such a person, then it is an “employer” and it makes no difference whether the relevant employees are active members so long as they are eligible to be active members.

On that approach, applying the same interpretation to the 1996 Deficiency Regulations, an employer does not cease to be a person employing persons in the description or category of employment to which the scheme relates for the purposes of the replacement Section 75(3) simply by virtue of ceasing to employ active members: there is accordingly no applicable time and no debt is triggered. It will only be later, if the scheme goes into winding up or the employer ceased to employ even eligible employees, that a debt will be triggered.

Although the answer to Question 4 turns on the meaning of the amended Section 75 and different regulations, I have looked at the old legislation because, so it seems to me, it helps throw some light on the proper interpretation of “the employer” as defined in section 124(1) in its application to Section 75. It is not that the definition has to be construed in the light of those Regulations. Rather, those Regulations illustrate one method by which the policy behind Section 75 can be given effect to in the context of multi-employer schemes and in relation to former employers. If the approach which I have just discussed in relation to the interpretation of “the employer” is correct, then it shows that the focus of the definition is not on employers of active members. Unless the definition has changed its meaning as a result of subsequent legislation, that remains the focus of the definition today.

Section 75, in the form relevant to the present case, was introduced by section 271 PA 2004. Statutory debts can arise where the scheme has gone into winding up (Section 75(2)) or where an insolvency event occurs in relation to the employer (Section 75(4), (6A)(a)). A statutory debt can also arise as a result of the Employer Debt Regulations in the case of an employment cessation event (an “ECE”). But an ECE can take place only in a multi-employer scheme, defined in the Regulations as a scheme in relation to which there is more than one employer.

An ECE is defined in Regulation 6(4); an ECE:

“occurs in relation to an employer if he ceases to be an employer employing persons in the description of employment to which the scheme relates at a time when at least one other person continues to employ such persons”

This provision adopts the same wording as the old provisions referring to persons in the description of employment to which the scheme relates. The omission of “category” does not, I think, make any difference. In the Regulations, “Employer” has the same meaning as in Section 75 (so that the definition in section 124(1) is incorporated): see Regulation 2(1). If there were any doubt about that, then the decision of Peter Smith J in Cemex to which I come in detail later is relevant since it was part of his reasoning that “employer” in Regulation 6(4) had the meaning given to it by section 124(1).

Regulation 9 makes provision for how matters are to operate in relation to former employers. It reflects to a considerable extent the provisions of Regulation 5 of the 1996 Deficiency Regulations with differences to reflect changes in the underlying legislation. As with the earlier Regulations, Regulation 9 says nothing about when a statutory debt arises nor about the amount of such debt attributable to any particular employer. It reads as follows in its original form:

“ 9 (1) In the application of section 75 of the 1995 Act and these Regulations to a scheme which has no active members, references to employers include every person who employed persons in the description of employment to which the scheme relates immediately before the occurrence of the event after which the scheme ceased to have any active members.”

The position in relation to a single employer scheme is therefore much as it was before in terms of the trigger point for the statutory debt. An employer under such a scheme does not become liable for any debt simply because it ceases to employ active members or, indeed, individuals eligible to become active members. The statutory debt is triggered only when the employer goes into liquidation or the scheme commences to be wound up. And again, as under the earlier Regulations, no immediate debt is triggered as the result of the simultaneous cessation by all employers of employment of the relevant persons. Accordingly, it is no more possible under the new Section 75 and the Employer Debt Regulations than it was under the old Section 75 and the 1996 Deficiency Regulations, to detect a policy which requires a debt to be thrown on an employer as soon as it ceases to employ active members.

The issue of the correct trigger point for an ECE has recently been dealt with by Peter Smith J in Cemex UK Marine Limited v MNOPF Trustees Limited [2009] EWHC 3258 (“Cemex”).

The facts in Cemex are helpfully set out in paragraphs 8 to 30 of the judgment. In outline, the case concerned whether one of the Participating Employers of the Merchant Navy Officers Pension Fund (“the MNOPF”), Cemex, had triggered a Section 75 debt on 28 November 2005.

Eligibility for the MNOPF was primarily limited to “Officers”. The scheme was generally closed to new members by deed of amendment dated 1 November 1996 but, under the MNOPF rules, the trustees retained a discretion to admit Officers as new members. Accordingly, the position is different from that in relation to the Scheme, where pilots are (under Rule 11(2)) entitled as of right to join the Scheme in the first 3 months of their employment or authorisation by a CHA, and it is only if they do not do so that they need Trustee consent to join.

In Cemex, it was common ground that, if the employer had triggered a Section 75 debt at all, it had done so on 28 November 2005 when its last active member became a deferred member (albeit one who continued in employment with Cemex). As at this date, although it had ceased to employ any active members, Cemex:

The specific question in Cemex was therefore whether any of the three factors above prevented an ECE occurring.

At the relevant time the statutory test for whether an ECE had occurred was as set out above; namely it depended on whether a person had “cease[d] to be an employer employing persons in the description of employment to which the scheme relates at a time when at least one other person continues to employ such persons”.

Peter Smith J accepted that the test cannot depend on “some ill defined uncertain intention on the part of the employer possibly to employ an employee who would satisfy the requirement in the future” (paragraph 55) and therefore an intention to employ an active member in the future did not suffice. I agree with what he says in that paragraph.

However he also decided that the test for an ECE in Regulation 6(4) of the Employer Debt Regulations was not based on whether the employer employed active members:

Peter Smith J then went on to conclude that a person remains “an employer employing persons in the description of employment to which the scheme relates” for the purposes of regulation 6(4) of the Employer Debt Regulations for so long as the person either:

Peter Smith J has given clear and cogent reasons for his conclusion that no ECE occurs whenever an employer ceases to employ active members. I would not depart from it unless I thought it was clearly wrong. Mr Spink submits that Peter Smith J’s decision was wrong and that I ought not to follow it.

He submits that the phrase “ceases to be an employer etc” in Regulation 6(4) means “stops being an employer of active members in pensionable service under the Scheme”. [He does not need both “active” and “in pensionable service” in his formulation, since an active member in relation to a scheme is defined as a person who is in pensionable service under the scheme, but nothing turns on that.]. This is because:

He says that the decision of Peter Smith J in Cemex is plainly wrong, having been reached without the Judge’s attention having been drawn to many of these critical interpretative factors. I deal with Mr Spink’s reasons in turn.

Like most if not all statutory instruments, the Employer Debt Regulations contain, at the end, an Explanatory Note. It is expressly stated that the Note is not part of the Regulations. The part of the Note on which Mr Spink relies reads as follows:

“Regulation 6 provides that a debt only arises under section 75(2) while a multi-employer scheme is being wound up if a deficit in the scheme assets occurs before a relevant event has occurred in relation to all the employers, and all the employers are then responsible for a share of the debt. But whether a debt arises under section 75(4) is judged by reference to each of the employers separately and debts under that section are also taken to arise as respects an employer if he ceases to have any employees in pensionable service to which the scheme applies. The debt on each employer under section 75(4) is his share of the deficit in the assets.”

Mr Spink says this explicit and unequivocal statement that a debt is triggered if an employer “ceases to have any employees in pensionable service to which the scheme applies” is a legitimate aid to construction: see for instance R (Confederation of Passenger Transport UK) v Humber Bridge Board [2003] EWCA Civ 842, [2004] QB 310 at [48]-[50] per Clarke LJ (with whom the rest of the Court agreed) holding that explanatory notes could be used “to help decide both whether any words were omitted from [a statutory instrument] and, if so, what those words were” and concluding at [52] that “the explanatory note … makes it clear beyond a peradventure what was intended”.

I do not doubt that, in appropriate circumstances, an Explanatory Note of this sort relating to a statutory instrument can be used as an aid to construction. Although not part of the instrument, the note “is of use in identifying the mischief which the regulations were attempting to remedy”: see Bennion on Statutory Interpretation (5^th edition, 2008) at p.265-266, citing Coventry and Solihull Waste Disposal Co Ltd v Russell (Valuation Officer) [1999] 1 WLR 2093 at 2103D-G. But like all aids to construction, it must be used with care. The note cannot be used, in my view, to create an ambiguity where none exists: if the meaning of the instrument is clear, a note which ascribes to the text a different meaning is not capable of overriding the clear meaning nor capable of creating an ambiguity where none exists. Similarly, if any ordinary meaning of the words used leads to an absurd conclusion (as in the Confederation of Passenger Transport UK case), or if it is clear that the draftsman has simply omitted something, the note can be referred to in order to produce a construction which eliminates the absurdity or fills the gap. But even in such a case, it must be possible to arrive at the end result by a process of construction (including the implication of terms). The Court cannot simply re-write the legislation.

A note can therefore be used as an aid. But there may be other factors pointing to a construction inconsistent with the note in which case the conclusion may be that the draftsman of the note has misunderstood the meaning of the instrument. Alternatively, the note may reflect the intention of the sponsoring department which has not been effectively reflected in the text of the instrument.

Thus, in the present case, there is a powerful argument for saying that the draftsman must have intended the phrase which he used in Regulation 6(4) to have the same meaning as the similar phrases in the definitions of “employer” and “pensionable service” in section 124(1). If those phrases have in section 124(1) a wider scope than active members, it is a strong pointer that Regulation 6(4), too, goes beyond active members.

Mr Spink says that it does not appear from the skeleton arguments or from the judgment in Cemex that the Judge was referred to this important Explanatory Note. That may be right; it does not mean that the Judge was not in fact referred to it although, if he was, it is reasonable to conclude that he did not think that it was of any help.

Mr Spink submits that, on any basis, a pension scheme does not “relate” to mere employment by a participating employer. The only “description of employment” to which any pension scheme “relates” is that which constitutes pensionable service (within the terms of the scheme’s rules) by which benefits are accrued. He focuses on the use of the present tense of the word “relates”, indicating that the focus is on employment which relates to the scheme at the present time (ie active pensionable service), not on historic employment which related to the scheme in the past.

I do not consider that the use of the present tense gets Mr Spink anywhere. I accept that it is necessary to see whether the test (employing persons in the description or category of employment to which the scheme relates) is fulfilled from time to time: after all, an ECE only takes place at time T1 if, immediately before T1, the test is fulfilled and immediately after T1 it is not fulfilled. It is therefore necessary to ask to what description or categories of employment the scheme relates (present tense) immediately before and immediately after T1. Suppose the scheme is one for works employees at a particular location. Suppose that at T1 the employer ceases to employ any active members (for instance because the last active member retires at T1) but, before and after T1 employs an individual, X, who has the right to join the scheme in question (either immediately or after a waiting period) because X is a recently employed works employee working at the specified location. It is at least (strongly) arguable that the scheme “relates” to the description of employment “works employee at specified location”; since X has the right to join the scheme, it can be said that the employer does employ a person in the category or description of employment to which the scheme relates. The argument may be right, it may be wrong; but what is certainly the case, in my judgment, is that the use of the present tense (relates) does not support the argument that Regulation 6(4) is concerned only with active members.

Mr Spink relies in this context on the decision of Morgan J in Hearn v Dobson [2008] EWHC 1620 who stated (obiter) at [71] that he had “considerable doubts about” the submission that a company might remain an “employer” for the purposes of section 124(1) PA 1995 merely by continuing to employ deferred members. I will be looking at that decision in some detail later, and say no more about it in the present context.

Mr Spink’s next argument is that the Regulations are not administratively workable in practice unless (as the Explanatory Note confirms) a debt is triggered if an employer “ceases to have any employees in pensionable service to which the scheme applies”. The argument, in summary is that the trustees of a pension scheme will not, routinely, know whether an employer still employs employees who may be eligible for membership of the scheme. This is particularly so in an industry-wide scheme such as the present. Indeed, the Trustee’s evidence (he says and I accept) illustrates the blissful ignorance in which trustees may rest.

Mr Spink says that the only information about employees which the trustees will know is the membership data; and in particular whether an employer still has members in pensionable service. That may be so in many cases, although in some cases I would not be surprised to find that the trustees had information about employees wanting to join the scheme after a waiting period. And they ought to have information about former employees who retain benefits in the scheme as deferred or pensioner members.

He then asserts that the only administratively workable trigger for the debt, in terms of the information routinely available to trustees, is if an employer “ceases to have any employees in pensionable service to which the scheme applies”. That is the trigger which the Regulations, entirely rationally, prescribe.

He may be right that this is the only administratively workable trigger in terms of the information routinely available. But that is to beg the question about what other information the trustees might obtain. In that context, he suggests that the trustees would only know that it was entitled to claim a statutory debt when the employer deigned to let the trustees know. That, it seems to me, is not the sort of forensic objection which reflects a practical and purposive approach. If the occurrence of an ECE or not turns on whether an employer employs persons eligible to join the scheme as of right (whether immediately or after a waiting period) the trustees’ course of action, in the absence of the necessary information, will surely be to communicate with the employer. It would be pointed out that the employer no longer had active members and that, absent information about eligible employees, the trustees would seek payment of the statutory debt. That would surely be bound to produce from the employer the information which would show that no debt was due.

Mr Spink makes the additional submission that this is the most practical and purposive interpretation for employers, in that it crystallizes exit liabilities when their active participation in a pension scheme ends. The conclusion in Cemex could leave employers “on the hook”, for very many years after terminating all active participation in a scheme, in relation to a deficit in a scheme with which they have no ongoing relationship and over which they may have no influence.

I do not consider that there is anything much in that argument. If an employer wants to crystallize a debt when it ceases to have active employees, it will often be possible for it to close the scheme to new members. It will then cease to have employees in the description or category of employment to which the scheme relates and thus crystalise the debt. That conclusion is, however, subject to the possibility that, by employing a person who is already a deferred or pensioner member, an ECE is avoided. For reasons which I will come to in due course, I do not consider that employment of such persons does avoid an ECE so that the possibility just mentioned can be ignored. In any case, Mr Spink’s proposition contains an unjustified assertion, namely that when an employer ceases to employ active members its “active participation” in the scheme ends. It depends, I suppose, on what he means by active participation. Quite apart from any statutory liability to make further payments to a scheme, an employer, or rather a former employer, may continue to have a liability to contribute to the scheme pursuant to the rules of the scheme. It hardly seems correct, in my view, to describe such an employer as other than active. Similarly, if an employer or former employer remains liable for contributions as the result of statutory provisions, it does not cease to be active. However, if what Mr Spink means by ceasing to be an active employer is that the employer has no further obligation in respect of the further accrual of benefits, it does not seem to me to assist his argument.

Mr Spink repeats his observation that it does not appear that Peter Smith J was referred in Cemex to this important Explanatory Note. As to that, I repeat my observations in paragraph 482 above.

It is said that the conclusion in Cemex leads to what Mr Spink describes as a funding gap between the employer ceasing active participation (in this context, an expression which I take to mean having employees who are active members) and the exit liability crystallizing. A trustee might have to wait potentially decades before being able to call in the statutory debt under Section 75. During this period, no contributions could be required under the SSF regime, because the company would not be an “employer” under the SSF regime. That result cannot have been intended. Cemex should therefore be held to be wrongly decided in order to restore coherence with the SSF regime.

I will look at the relevant SSF provisions later. In my view, they are of no help in reaching a proper interpretation of the Employer Debt Regulations. The latter were made on 11 March 2005, laid before Parliament on 16 March 2005 and came into force on 6 April 2005. The Occupational Pension Schemes (Scheme Funding) Regulations 2005 (S1 2005/3377) (“Scheme Funding Regulations”) were made on 8 December 2005, laid before Parliament on 9 December 2005 and came into force on 30 December 2005. I do not consider that the Scheme Funding Regulations, coming months after the Employer Debt Regulations, are of any assistance in construing the Employer Debt Regulations.

What might be of some assistance are the Regulations concerning funding which were in force when the Employer Debt Regulations were made. These were the Occupational Pension Schemes (Minimum Finding Requirement and Actuarial Valuations) Regulations 1996 (SI 1996/1536) as amended (“the MFR Regulations”) which were repealed by the Scheme Funding Regulations. Expressions used in the MFR Regulations (thus including “the employer”) have the same meanings as in PA 1995. There was, therefore, no funding gap such as that identified by Mr Spink as between the debt on the employer regime under Section 75 and the statutory funding requirement, ie the MFR.

Accordingly, I reject the argument based on the funding gap. In my view, the Scheme Funding Regulations are not relevant to the construction of the Employer Debt Regulations; and the MFR Regulations lend no support to such an argument.

Mr Spink relies on the legislative origins of the phrase “employer employing persons in the description of employment to which the scheme relates” in support of his argument that Regulation 6(4) of the Employer Debt Regulations has in its contemplation ceasing to employ active members. One must always be very careful about using earlier legislation to interpret later legislation even in the case of consolidating legislation and yet more so where the same or similar phrases are used in related, but different, areas. I propose, nonetheless, to go along with Mr Spink’s course and to look at the history. He says that the key phrase was always concerned with employers employing active members. However, the term “active member” first appeared in PA 1995, years after the key phrase first appeared in the legislation concerning statutory debts, for instance in section 144 PSA 1993. He suggests that the reason the Employer Debt Regulations did not use wording referring to “active members” (or indeed, to “pensionable service”) is because the draftsman was carrying over a legislative provision with an established meaning in the context of statutory debts and did not wish to confuse matters by changing the wording.

Far from supporting his conclusion, I consider that they actually reinforce the conclusion that the key phrase is not focusing on active members.

The first point to make is that earlier legislation did use the term “pensionable service” even though “active member” did not surface until PA 1995. Thus as long ago as 1973, paragraph 3 Schedule 16 SSA 1973, contained a definition of “pensionable service” which was carried though to Social Security Act 1990 (see section 58B SSPA 1975 introduced by paragraph 2 Schedule 4 Social Security Act 1990). More recently, section 70(2) PSA 1993 contained a similar definition when one traces the wording through “relevant employment”: see further on this aspect, paragraph 332 above. Even if one accepts that Mr Spink’s suggestion about the wording of the Employer Debt Regulations is correct, it remains the case that the draftsman of the earlier provisions used the words which he did and did not draft by reference to “pensionable service” which would, I would have thought, have been the obvious approach to take if the legislation was intended to mean what Mr Spink says it means. Exactly the same point can be made about the non-use of the definition of “pensionable service” as Peter Smith J made in Cemex about the non-use of “active member”.

However, Mr Spink has quite a lot to say about this point, submissions which I shall deal with later.

Mr Spink goes on to criticise Peter Smith J in Cemex for his reliance on the fact that the Employer Debt Regulations did not use the term “active member” to define an ECE (eg. as ceasing to employ [an active member]). On the basis of his suggestion about the reason for the adoption of the actual wording, he says that such reliance was entirely misplaced. I do not consider that such reliance was misplaced for two reasons.

Mr Spink has referred to a number of the provisions introduced by the S SA 1990. I propose to refer to only one of them which is section 58B SSPA 1975 (mentioned above). This was the first provision requiring an employer to make good deficiencies on winding up.

Section 58B(2) introduced, for the purposes of the section, the now familiar definition of “the employer” meaning “the employer of persons in the description or category of employment to which the scheme relates”. Section 58B(6) conferred on the Secretary of State a regulation-making power for a number of purposes including modifying the section “in its application….to any occupational pension scheme of which there are no members who are in pensionable service under the scheme as defined in paragraph 3 of Schedule 16 to the 1973 Act”.

The reason for the inclusion of this power was, according to Mr Spink, because if there were no “members in pensionable service under the scheme” there would be no person within the definition of “the employer” and thus no person ever liable to make good the deficiency in the scheme. But even on Mr Spink’s approach, the need to bring a former employer within the definition of “employer” when there are no active members is not the only reason for including such a power. For instance, it might have been thought appropriate in the case of a single employer scheme (although this was never done) to trigger the debt as soon as there were no active members for instance by amending the definition of “the applicable time”.

It does not follow, therefore, from the need always to have an employer “on the hook” that the regulation-making power has that as its sole purpose. Accordingly, I do not consider that Mr Spink’s argument is correct. Certainly, the regulation-making power can have real teeth if, contrary to Mr Spink’s case, an “employer” does not have to employ active members. The theoretical example given in the preceding paragraph is a case in point. Further, one can see an actual example in Regulation 5(1) of the 1996 Deficiency Regulations (made under PA 1995 rather than section 58B SSPA 1975 but nothing turns on that).

Regulation 5(1) provides, in the case of a scheme with no active members, that “the employer” includes every person who employed persons in the description or category of employment to which the scheme relates immediately before the scheme ceased to have any active members. If a wider construction is to be given to “employer”, this provision keeps “on the hook,” in a multi-employer scheme, an employer which has no employees who are active members but who still employs relevant employees immediately before the time when there cease to be active members. Thus suppose that two employers, E1 and E2, each employs active members. E1 ceases to do so but retains employees eligible to join the scheme. E2 then ceases to employ any active members. Under Regulation 5, E1 is included as an employer (and, moreover, remains an employer even if it subsequently ceases to employ relevant persons). There will have been no applicable time in relation to E1 under Regulation 4(3)(b) since, on this scenario, E1 does not cease to have relevant employees.

Mr Spink has referred me to a number of other statutory provisions. I do not propose to go through them in detail. They include section 144 PSA 1993, provisions relating to contracting-out in that Act and other Acts, the restriction (now found in section 37 PA 1995) of payment out of the resources of the scheme to an employer until provision had been made for pension increases, the Occupational Pension Schemes (Deficiency on Winding Up etc.) Regulations 1992 (SI 1992/1555) and the Occupational Pension Schemes (Deficiency on Winding Up etc.) Regulations 1994 SI 1994/895.

The point he makes about all of these pieces of legislation is that none contained or used the term “active member”. The statutory debt legislation evolved for 5 years from 1990 to 1995, with an established definition of “employer”, before the term “active member” came on the scene (for different purposes, in different contexts) in the PA 1995.

The term “active member” first appeared in legislation providing for the statutory debt in the PA 1995. However, even then the term “active member” was originally only introduced (and defined in section124 PA 1995 for Part I of that Act) for the purposes of:

This was why, according to Mr Spink, in Regulation 4(3) of the 1996 Deficiency Regulations the draftsman stuck with the established phrase “employer…. employing persons in the description or category of employment to which the scheme relates”, despite the new availability of the term “active member” which was used (for the first time in the context of statutory debt legislation) in Regulations 5, 6 & 9.

Indeed, he goes so far as to say that, far from indicating that the phrase is not concerned with having active members, the way in which the phrase is used in Regulations 5(1) & (2) in conjunction with the new term ‘active member’ serves to reinforce that the phrase is concerned with having active members.

His elegantly crafted argument indicates that there would be a consistency and, I dare say, simplicity if the construction for which he contends is correct. But nobody suggests otherwise. What is said against him is that a wider construction does not lead to any inconsistency; there is no identified policy which suggests that one approach rather than the other is correct; and that as a matter of language, the wider view is to be preferred.

I should, however, address one of his arguments expressly. He relies on the way in which Regulations 5, 6 and 9 use the words “active member” when addressing the scheme as a whole. In other words, those words are used when the question is whether the scheme has any active members and not whether any particular employer employs active members. In contrast, those words are not used in relation to an employer because, according to him, a person has to have active members to be an “employer”.

I cannot accept that, somewhat bootstrap-like, argument. It seems to me that the use of two entirely different wordings in the same provision to describe the same concepts would be very odd. In any case, the premise to the argument is that “employer” as defined in section 124(1) means an employer of active members. But if that is so, it is even more strange that the draftsman of the definitions did not use the definition of “active member” to define “the employer”.

Next, Mr Spink relied on the Consultation Paper issued by the DWP on 7 August 2007 in relation to “Amendments to the Occupational Pension Schemes (Employer Debt) Regulations 2005”. In that paper, it is stated that the changes in wording under the 2008 amendments

“are to clarify the existing definition i.e. the express reference to ceasing to employ any person who is an active member of the scheme”.

Being no more than a clarification (not a substantive alteration), no question for consultation arose in relation to that change in wording: see question 10-12 on p.22.

It is no doubt true that papers of this sort are admissible in evidence: see Craies on Legislation (9^th edition, 2008) at paragraph 27.1.11 and Melville Dundas Ltd v George Wimpey UK Ltd [2007] UKHL 18, [2007] 1 WLR 136 at [65], per Lord Neuberger. However, it is rare that such papers, being after all only consultations, will point conclusively to a particular interpretation. Further, a consultation which expressed a view about the existing statutory provisions cannot affect the proper interpretation of such provisions.

In the present case, I can attach no significance at all to that statement on which Mr Spink relies. At most, it represents a departmental view about what the existing legislation means. But it acknowledges (inevitably), by using the word clarify, that there is a doubt. I do not know the basis for this departmental view, in particular I do not know whether it is a view expressed about the meaning of Regulation 6(4) alone or whether the view about the meaning of that provision is premised on the same approach being adopted to the key phrase in the earlier legislation and in the definition of “the employer” in section 124. That the department may want, from their current policy perspectives, to reach the position for the past which they have now reached by new Regulations, I can understand. Their expressed views are quite probably driven in part by the desire. It is, in any case, for me to determine, as a matter of law, what these provisions mean and the views of the department carry little weight.

The new Regulations are in The Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2008 (SI 2008/731). Regulation 2 provides that:

“(3)

Paragraph (4) shall apply where before the commencement date –

(a)

a person ceased to employ at least one active member in relation to a scheme at a time when at least one other person continued to employ persons in the description of employment to which the scheme related, and

(b)

that event was not an employment-cessation event, under regulation 6(4) of the old Regulations, in relation to the scheme.”

That provision lends support to the view that Regulation 6(4) in its original version, was not focusing on employers of active members. The reference in the same paragraph (paragraph (a)) to a person employing active members and to a person employing persons in the description of employment to which the scheme relates entirely undermines Mr Spink’s argument that the draftsman refers to active members when he is dealing with a particular employer and uses the key phrase where he is dealing with the scheme as a whole. Further paragraph (b) appears to recognise that ceasing to employ active members did not necessarily give rise to an ECE. Of course, it can be argued that this entire provision was inserted to meet the concern that there is a doubt about the pre-existing provision. But it is hardly consistent with the view that the meaning of the old provisions was clear.

Finally, Mr Spink relies on guidance given by tPR. He submits that official statements by any authority concerned with legislation are to be taken into account as persuasive authority as to the proper construction of that legislation, as part of the contemporary exposition of the legislation, relying on Bennion on Statutory Interpretation (5^th edition, 2008) at p.702-706 which cites Chief Constable of Cumbria v Wright [2006] EWHC 3574 (Admin), [2007] 1 WLR 1407 at [17]-[20].

He points out that tPR not only supervises and enforces the operation of applicable pensions legislation generally but also fulfils various functions specifically entrusted to it under the Employer Debt Regulations: eg the approval of approved withdrawal arrangements. Accordingly, he submits that tPR is therefore clearly an authority whose official statements about the construction of the Employer Debt Regulations are of persuasive authority.

The relevant material is tPR’s November 2005 Guidance on Multi-Employer Withdrawal Arrangements which was issued specifically to address the Employer Debt Regulations. I do not need to set out the passages on which Mr Spink relies. They are clearly consistent only with tPR telling the reader that an ECE occurs when an employer ceases to employ active members at a time when some other employer does so.

Particular weight should, Mr Spink submits, be accorded to this Guidance, bearing in mind the clear likelihood that the pensions industry will (as intended by tPR) have relied upon it in administering pension schemes since November 2005. A conclusion over 4 years later that the Guidance was fundamentally misconceived about when an ECE occurs has the potential to cause significant disruption to the pensions industry.

I accept that guidance from tPR is something which I can and should take account of in construing the legislation. But it is important to understand what is meant by “persuasive authority” in this context. Let me quote Lloyd-Jones J in Chief Constable of Cumbria v Wright at [17]:

“[17] It is, of course, for the courts and not the executive to interpret legislation. However, in general, official statements by government departments administering an Act, or by any other authority concerned with an Act, may be taken into account as persuasive authority on the legal meaning of its provisions. That is the principle stated by Bennion −, Statutory Interpretation−, 4th ed (2002), section 232. In the present case we are concerned with guidance published by the Home Office, which is the government department which had responsibility for the enactment and operation of the legislation in question. In any given case, it may be helpful for a court to refer to the guidance in the interpretation of the legislation. It may be of some persuasive authority. However, to my mind that is the limit of its influence. It does not differ in that regard from a statement by an academic author in a textbook or an article. It does not enjoy any particular legal status. There seems to me to be no satisfactory basis for the submission that it gives rise to a presumption that the views it contains are correct and should be rejected only for good reason.

I cannot, in any case, accept the assertions which Mr Spink makes about the industry (whatever he means by that word). I would be entirely unsurprised to discover that there were many lawyers and other advisers who disagreed with tPR’s view. I have no evidence about what “the industry” may have thought or what reliance it placed on tPR’s views. I am certainly not willing to accept that a conclusion that tPR is wrong in its view will cause significant disruption to the pensions industry. But even if it were to do so, that is no reason for failing to give the correct interpretation to the statutory provisions.

In all the circumstances of the present case, I feel able to attach only the slightest weight to the views of tPR. I would be comforted, if I were to reach the conclusion that Regulation 6(4) is dealing with active members of the scheme, that my conclusion concurred with the view of the tPR. But I would have no sense of anxiety if my conclusion were to differ from that view.

In Cemex, Peter Smith J considered the decision of Morgan J in Hearn v Dobson which I have already mentioned. As he noted at paragraph [45] of his judgment, Morgan J was careful not to express any view about the Employer Debt Regulations. Equally he considered Morgan J’s decision on different regulations to be something about which he should not express any opinion either. And it seemed to him Morgan J’s decision based on a construction of different regulations had no relevance to the question he was asked to decide. I will need to say something about Morgan J’s decision since it impacts on matters which I do have to decide. As will be seen, that decision is not one which leads me to the conclusion that the employees referred to in Regulation 6(4) are confined to active members.

Mr Green submits that whatever my own views, I should follow the decision of Peter Smith J on this point. I certainly agree with his submission that I should follow the decision unless convinced that it is wrong. I am certainly not convinced that it is wrong and, accordingly, reject Mr Spink’s submission that the key phrase in Regulation 6(4) is confined to active members of a scheme.

I would not want matters to rest there. Far from being convinced that Peter Smith J was wrong, I consider that he was clearly correct in deciding that Regulation 6(4) is not confined to active members. The natural reading of the language of Regulation 6(4), just as is the case in relation to the definition of “the employer” in section 124, does not confine the key phrase to active members. I have addressed the arguments raised by Mr Spink to reach a different conclusion and have rejected each of them.

I would add this. Mr Spink’s interpretation effectively requires one to ignore the word “description of” (or the words “category or description of”) and to read the key phrase as if it provided “persons in employment to which the scheme relates”. If those words had been used, Mr Spink’s case would be stronger. The focus would then be on the employment in which the persons are currently engaged. If the employee is not an active member, then his current employment would not, it can be argued, be one to which the scheme (currently) relates. But the focus is clearly not on the current employment of particular employees; rather, it is on employment of a particular “description” (or “description or category”). The question is not whether a particular relationship between an actual employer and an actual employee is one to which the scheme relates; rather it is whether an employment of the type (“description” or “description or category”) in which an actual employee happens to be employed is one to which the scheme “relates”. That is a question which is to be answered by identifying the description of employment (Pilots in the present case) and by looking at the provisions of the scheme to see if it provides or is capable of providing benefits for persons in that description of employment.

To illustrate the important difference, suppose that a scheme provides benefits for works employees of a manufacturing company. Suppose that the only factory is destroyed by fire and all the workforce dismissed so that there are no active members. The employer intends to, and does, rebuild the factory and employs new works employees who join the scheme. During the period of closure, it seems to me that there remains a “description or category of employment to which the scheme relates” namely works employees. The fact that there are no persons, for the time being, employed in that description of employment does not mean that there has ceased to be a description of employment to which the scheme relates. In contrast, there is no (current) employment to which the scheme relates.

Take another illustration: assume a scheme providing benefits for works employees. Suppose the employer employs some persons who are active members of the scheme and some persons who remain eligible to join the scheme but have not done so. The active members are clearly in employment to which the scheme relates, whilst the eligible members are arguably not in such employment (because their actual employment has no consequences for the scheme at all which does not therefore relate to their employment). In contrast, so it seems to me, all of them are in a “description” of employment to which the scheme relates. Indeed, they are all in the same description of employment and it would be an odd use of language to say that the scheme did, or did not, relate (in the relevant sense as used in Regulation 6(4)) to the description of employment concerned (in the example, works employees) depending on whether the scheme related (in a different sense) to the actual employment of each employee.

I do not say that the words in the key phrase could not be interpreted in the way suggested by Mr Spink if that could be shown to be the intended meaning of the provision. I am nowhere near persuaded that I should depart from what I perceive as the straightforward construction which does not equate “persons in the description of employment to which the scheme relates” with active members. I conclude, therefore, that “persons in the description of employment to which the scheme relates” is not confined to active members and I reject Mr Spink’s submissions concerning the key phrase in Regulation 6(4).

The question then arises about precisely what groups of employees are covered by the key phrase other than active members who are clearly included on any view. There are several candidates. I can put the question this way: is it enough to prevent an ECE occurring in relation to the Scheme that the employer employs a person who falls in one of the following descriptions, and if so which? The descriptions are:

The second and third categories require some further explanation. Under Rule 11(2), a person who becomes a Pilot for an Area covered by a CHA is eligible to join the scheme as of right providing that he applies within 3 months after becoming a pilot and he is below the age of 55. If he does not exercise this right, he can still join but only with the Trustee’s consent.

There is another category of person who needs the Trustee’s consent to join the scheme. The Rules contemplate active Members who have elected under Rule 11(5) to leave Pensionable Service, but then elect (subject to the Trustee's consent) to recommence Pensionable Service (which they can do at least until the age of 55 is reached). Therefore, there can be an overlap between a person eligible to join the scheme and a deferred Member.

Peter Smith J held that the actual employment of a person who had already become a deferred Member or a pensioner Member was sufficient to prevent an ECE occurring. This was not, it is to be noted, because the past service which qualified the Member for benefits (as a deferred or pensioner Member) was an employment of the description to which the scheme related in the past (which obviously it was at the time of the employment). This would clearly not be good enough otherwise the employment (in Cemex) of a former Officer in a description of employment to which the scheme does not relate (eg a shore job in an administrative capacity) would be sufficient to prevent an ECE occurring which cannot be right. It is not right because the key phrase is concerned with the nature of the current employment, and the question is whether the employee is currently employed in a description of employment to which the scheme relates.

Peter Smith J took the view that the employment of an individual as an Officer was employment of a description to which the scheme in question related. Although he did not use these words, his approach was to ask the question: “In what description of employment is the employee employed?”, to which the answer would be “Merchant Navy Officers”. If you then asked “Does the scheme relate to Merchant Navy Officers” the answer would be “Yes”. As the Judge put it, Regulation 6(4) – or rather, I would say, the key phrase where it appears here and in other provisions − “addresses the status of employees of Cemex and not the status of employees as regards their membership in the MNOPF”.

Clearly the Judge did not mean that there need be no link between the employment and the scheme: clearly there must be. But the link, on his analysis, is not to be found in the relationship between the employee and the scheme, but between the scheme and the sort of employment (the “description” or “category”) in respect of which the scheme is designed to provide benefits (employment to which the scheme “relates”).

Mr Tennet politely wonders whether Peter Smith J went too far in thinking that it was enough for an employer to avoid an ECE to continue to employ a deferred Member or pensioner Member (Mr Blair) who was no longer eligible to be an active member of the scheme. He makes the following observations:

Unfortunately, this aspect of Peter Smith’s judgment is not entirely clear to me in its reasoning. What he said was this:

“I cannot accept that Mr Blair's attaining 61 would have had that effect [ie of preventing Cemex from saying that there had been no ECE.] It seems to me that Mr Blair's continuation in employment as a deferred then pensioner member meant that his continued employment prevented an ECE occurring for the reasons I have set out above. It was equally satisfied by issue 2 (a) in relation to the other potential members. Obviously a person who attains the normal retirement age cannot after that time become a member because it is not open to them but that does not seem to me to be the point.”

[The significance of age 61 is that that is the age at which an Officer ceased to be eligible to join the Scheme and the age at which Mr Blair ceased to be able to continue as an active member.]

It is to be noted that Mr Green, who appeared on behalf of Cemex, had conceded in relation to non-member “Officers” in the employment of Cemex that, if and when they attained normal pension age (61) and the possibility of the trustees consenting to their becoming members of the MNOPF for the first time had therefore ceased, Cemex could not have contended in relation to such persons that their continuing employment would have prevented the occurrence of an ECE. Peter Smith J seems to have accepted that concession; in any case, he clearly proceeded on the basis of the concession. I consider that the concession was correctly made.

The concession effectively recognised that the employment of an Officer over the age of 61 was not the employment of “a person in the description of employment to which the scheme relates”. But such a person was an Officer nonetheless.

It seems to me that the concession admits that the relevant employment is not, for the purpose of section 124(1), properly to be described at the high level of generality as “Officer” but is to be described at a high level of generality as “Officer under the age of 61” or “Officer eligible to join the scheme”. Another way of putting the point, but it comes to the same thing, is to say that a scheme cannot be said to relate to a description of employment where no employee with certain characteristics (eg being over 61) can accrue benefits under the scheme. Some people might be resistant to viewing that aspect of an employment as part of the description or categorisation of the employment. I consider that they would be wrong to be resistant. Perhaps the point can be made clearer by considering schemes such as might have been found when there was no law against sex discrimination. Suppose that an occupational pension scheme was provided for male works employees but not for female works employees notwithstanding that men and women were doing the same job. In relation to such a scheme women are not, I consider, employed in the description or category of employment to which the scheme relates. But this is not because there are in fact no female employees who are members of the scheme: it is because no female employee could ever join the scheme in the first place.

Having accepted, as Mr Green did and the Judge must be taken to have done, that the employment of an Officer over the age of 61 would not of itself prevent an ECE occurring, I have considerable difficulty in seeing why that is not so even if the relevant Officer had, in the past, been an active member. The Judge dealt with the point by referring to “the reasons I have set out above”. But there is nothing express in his reasoning which explains why there is any distinction between the case of an Officer who has never been a member and one who is a deferred Member.

The position is even more puzzling if one considers the case of a person in a slightly different position from Mr Blair. He, it will be remembered, had continuous employment through periods of time when he was an active member then a deferred member and finally a pensioner member. But suppose he had left Cemex to work elsewhere and become a deferred member; and then suppose that he had re-joined Cemex after reaching the age of 61 (when he would not have been eligible to rejoin the scheme). It is difficult to see why his position should then lead to different consequences than would follow in the case of an Officer who had never been a member of the scheme. Equally, it is difficult to see why his position should lead to different consequences from those which apply in the case of continuous employment. But both conclusions cannot stand together.

Since I do not understand the reason why the judge reached the conclusion which he did in relation to the employment of a deferred or pensioner member who is not eligible to join the scheme, I do not feel that I am compelled to follow his decision. Normally, as I have already accepted, I ought to follow the decision of another judge of this Division, but in these circumstances, the mere statement of a conclusion without clear reasons for reaching the conclusion permits me, I think, to reach my own view without having to be satisfied that Peter Smith J was clearly wrong. That is not to say that I would lightly depart from his decision let alone treat the case before me as though Peter Smith J had said nothing on the point.

However, I have reached a firm view that continuing to employ a deferred member or a pensioner member is not of itself sufficient to avoid an ECE. Of course, the mere fact that a person is a deferred member or pensioner member does not necessarily mean that the (current) employment of that person cannot be relied on to prevent an ECE occurring. To take a clear example, suppose that an employee leaves service and become a deferred member. He is re-employed 3 years later and re-joins the scheme as an active member but with his benefits in respect of his previous service remaining to be dealt with separately under the rules of the scheme. As an active employee, his employment is clearly enough to prevent an ECE and the employer is not disabled from relying on that simply because the employee is also entitled to deferred benefits.

In my judgment, the issue is one of eligibility. If an employee has a present right, without the consent of the trustees, the employer or any other person, to join the scheme, his employment is one of a description to which the scheme relates. Indeed, that conclusion is almost ex hypothesi since, if it were not, the employee would not be eligible to join the scheme in the first place.

The position is more difficult where a person is eligible to join the scheme only with the consent of the trustees, the employer or some other person. In my judgment, the result should in principle be the same as where the person is eligible to join the scheme as of right. The description of the employment is the same in either case; an examination of the rules of the scheme will tell one whether the scheme is open to persons in that description of employment even if some consent to membership is required. The case is different from that of Mr Blair in Cemex who was not in a description of employment to which the scheme relates because no-one over that age was then eligible to join.

But there has to be a current employee who fulfils the necessary criteria. It is not enough that the employer intends to employ a person, even an identified person, who once employed will actually join or be eligible to join the scheme. I agree with what Peter Smith J had to say about this in paragraph [55] of his judgment.

In reaching this conclusion, I reject Mr Green’s submission in relation to deferred and pensioner Members, his submission being that it is sufficient to prevent an ECE from occurring that a deferred Member or pensioner Member continues to be employed by a Participating Employer in work as a Pilot (under the Scheme) or as an Officer (under the MNOPF). He reaches that result by an analysis of the words “to which the scheme relates” which I do not entirely agree with.

Thus he says that a “scheme relates” to persons in a description or category of employment, if:

Accession to the scheme is not a concept which the statutory provisions which I am concerned with adopts. I do not think that the concept of accession adds anything to the need for a person to be an “employer” before those provisions can cast a statutory debt on it. In the case of the Scheme for a person to become a Member, he has to be employed by an employer identified as such for the purposes of the scheme. Mr Green is right, therefore, to say that such persons (ie persons in the description of employment to which the scheme relates) may become Members of the scheme but, as he points out, subject to satisfying any membership conditions. He then goes on to explain the meaning of the phrase “to which the scheme relates” by asserting that it does so if such persons carry out the type of work identified under the Rules.

That does not explain, however, why the Scheme relates (ie at the time when one is asking the question) to an employment of a person who cannot fulfil the eligibility criteria. I have analysed this above as part of the description of the employment – thus in the case of the MNOPF, no person over 61 was eligible to join the scheme so that it cannot be said the scheme relates to the employment of persons over that age, adopting the description of the employment of “Officer over age 61”. The description (and the same goes for category) of an employment is not limited by the work undertaken: the description of the employment (in contrast with the work undertaken) can certainly include different hours and different rates of pay for persons of different ages and can I think properly subsume different conditions of service such as access to pension provision.

I said, when considering Question 6, that I would return to consider the position of an SCHA which later employs a pilot eligible to join the Scheme but who does not in fact join. It might be thought that such an SCHA does not, by virtue of such employment, become an “employer” since it does not thereby employ an active Member of the Scheme.

There might be said to be an analogy between that case and the case of a CHA which has never participated in the scheme at all but which employs pilots who would be eligible to become Members if the CHA did participate. Quite clearly, such a CHA is not an “employer”. The reason for this is that employment by that employer is not employment of a description to which the Scheme relates. It is part of the description of the employment that it is one in which employees are employed as pilots by the particular CHA. It is not, therefore, one in respect of which employees in that employment can ever join the scheme or become entitled to benefits under it.

However, the analogy is, in my view, a false one. In the case of the Scheme, the SCHA has, ex hypothesi, become a Participating Body. It is true that it did so because it authorised (rather than employed) self-employed pilots. But the status of the SCHA as a Participating Body is enough, in my judgment, to make any pilot whom it subsequently employs eligible to become a Member under Rule 11(2) if the pilot satisfies the ordinary eligibility criteria and in particular is under the age of 55 as required by that Rule. Although a CHA can declare a pilot or group of pilots ineligible for Membership, where this has not been done the relevant employee remains eligible. The facts may need to be investigated further in relation to some CHAs (eg Tyne) so that I make no determination of the position of any particular CHA. If the employment of a pilot, eligible to become of Member of the scheme, by an ECHA means that it falls within the definition of “employer” in section 124(1) PA 1995 (as in my view it does) I see no reasons for reaching a different conclusion in relation to the employment of such a pilot by an SCHA.

In the light of this discussion the answers to Issues 26 to 31 are as follows:

Issue 26: Ceasing to employ an active Member prior to 6 April 2008 did not trigger an ECE if the ECHA in question employed at least one person eligible to become a Member whether with or without requiring the consent of the Trustee under Rule 11(2) of the Rules. It was not enough to prevent an ECE occurring that the ECHA in question continued to employ at least one person who was either a deferred Member or a pensioner Member nor that it might, in the future, employ a person eligible to become a Member.

I need to record at this point that it has been agreed that there should be “carved out” from Question 4 an issue, which I do not decide, which was referred to as the “OPS Issue”. The OPS Issue arises from the fact that the definition of “occupational pension scheme” in section 1 PSA 1993 was changed by the PA 2004 as from 22 September 2005. One ECHA which is not a party to the proceedings, Peterhead Port Services (“Peterhead”), has suggested that there is a doubt whether the new definition is apt to cover a scheme with the characteristics of the Scheme. Peterhead does not dispute that the Scheme fell within the previous definition. The position was clarified by statutory instrument (the Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2007, which specifically prescribed the PNPF as an occupational pension scheme) with effect from 6 April 2007, but this left (according to Peterhead) a hiatus period of possible doubt between 22 September 2005 and 6 April 2007.

The OPS Issue only appears to affect 2 CHAs (within the class of the Cessation CHAs) and only if they might otherwise have undergone ECEs in this period. It is not an issue that the Trustee feels is important enough to have determined in these proceedings at the expense of the Scheme.

Issues 27 and 28: in relation to the 4 Cessation CHAs the position is as follows.

Issue 29: although, in general, an SCHA is not an employer, a Formerly Active SCHA can start to employ a pilot. If such a pilot is eligible to become a Member of the Scheme in respect of his employment (which will be the case unless either (i) the SCHA has ceased to be a Participating Body in accordance with the Rules or (ii) the pilot is over the age of 55), the SCHA becomes an “employer” so that it can subsequently undergo an ECE (before or after 6 April 2008). However, whether it can thereby be rendered liable for any part of a funding deficiency is a different question.

Issues 30 and 31: an SCHA which becomes an “employer” falling within Regulation 6(4) will undergo an ECE when it ceases to be such an employer. This can occur when it ceases to be a Participating Body, in which case the employment of pilots by that SCHA ceases to be an employment to which the Scheme relates. Or it can happen when the SCHA ceases to employ eligible pilots, in which case it ceases to be such an employer as it has no current employees in employment of a description to which the Scheme relates. In this context, as previously, it makes no difference whether or not the consent of the Trustee is required before the employee may become a Member.

Question 4A asks when an “employer” for the purposes of Part 3 of the PA 2004 and the Regulations made thereunder ceases to be such an employer.

The question arises in this way.

Mr Nugee argues that the same meaning should be given to “employer” in both sets of Regulations so that the Section 75 regime and the SSF regime dovetail in an appropriate way. It does not matter for his argument what the correct meaning of “employer” is provided that the same answer is given in relation to both sets of provisions.

In Hearn v Dobson the scheme was a multi-employer scheme. 3 of the 4 employers gave successive notices withdrawing from the scheme (see paragraphs [5], [30]-[32]). The rules provided for separate funds to be set up for the withdrawing employers (paragraph [14]). The scheme was later amended so that the employees of the last employer (CC) ceased to be in pensionable service (and so ceased to be active members) (paragraph [34]). The scheme became a frozen scheme.

The question before Morgan J was whether the provision relating to separate funds meant that the scheme was a sectionalised scheme under which each section was to be treated as a separate scheme for SSF purposes. This turned on the application of paragraph 1 of schedule 2 to the Scheme Funding Regulations. That paragraph only applies to a scheme:

“in relation to which there is more than one employer…..”. (see paragraph 1(1)(a)).

Paragraph 3 of Schedule 2 is headed “Frozen or paid-up schemes”. It provides that:

“(1)

In the application of Part 3 [PA 2004] and these Regulations to a scheme which has no active members, references to the employer have effect as if they were references to the person who was the employer immediately before the occurrence of the event after which the scheme ceased to have any active members (“the freezing event”).

(2)

A person shall cease to be treated as an employer under paragraph (1) if after the freezing event he ceases to be treated as a former employer under regulation 9 of the [Employer Debt Regulations].”

That is the current wording of the Regulation (as from 6 April 2008). Prior to that date, the word “such” appeared in place of “active” before “members” at the end of the provision. Further, there was no paragraph 3(2) in the old version. I am not entirely clear when paragraph (2) might apply, but I do not think anything turns on that.

The question therefore was whether in the circumstances there was more than one employer. The Judge held that there was not. He concluded that a person is only an employer during such time as it employs active members of the scheme (paragraph [69]). He was careful to say that he was deciding what was meant by “employer” in paragraph 1 of Schedule 2 to the Scheme Funding Regulations, not what was meant by “employer” in section 124(1) PA 1995 (paragraph [71]). He said that paragraph 3 of Schedule 2 showed that the drafter of the Scheme Funding Regulations “plainly thought that one ceased to be an employer when one ceased to have active members”; and basing himself on that paragraph, found that, in the context of paragraph 1, a person ceases to be an employer when it ceases to employ active members, regarding paragraph 3 as a clear statement to that effect, and as providing a context to the interpretation of “employer” in paragraph 1 of schedule 2 different from its meaning in section 124(1) PA 1995 (see paragraph [72]).

Mr Ham submits that the ratio decidendi of Morgan J’s decision is that a person ceases to be an employer in the context of paragraph 1 when it ceases to employ active members.

Mr Nugee submits, and I agree, that it is not entirely clear from the judgment whether Morgan J considered that “employer” had this meaning (“employer of actives”) generally in the Scheme Funding Regulations or not. In terms, the judgment is concerned only with the meaning of “employer” in paragraph 1. But his reasoning would apply equally to the meaning of “employer” elsewhere in the Regulations. The reasoning goes as follows.

I agree with Mr Nugee when he says that this reasoning would apply equally to any other use of the word “employer” in the Regulations. In particular there is no basis for thinking Morgan J meant that a special meaning should be given to the word “employer” in paragraphs 1 and 3, but that other uses of the word “employer” in the Regulations should follow section 124. His actual decision is, however, confined to the meaning of “employer” in paragraph 1 and, if it has that limited application, does not present a significant problem, at least at present, for the Trustee in relation to the Scheme which is neither a sectionalised scheme nor a paid-up scheme and which does not, therefore, fall within either paragraph 1 or paragraph 3.

Mr Ham has this to say about Hearn v Dobson. He says that the decision leads to a coherent and logical statutory scheme relating to employers’ funding obligations:

Mr Ham goes on to submit that three other policy considerations show the practical good sense of the active member test adopted in Hearn v Dobson.

The next question I wish to examine is whether Hearn v Dobson is consistent with Cemex.

I have already decided, in relation to Question 4, that I should not follow Peter Smith J’s reasoning so far as it is based on the proposition that it is enough, in order to be an employer for the purposes of Regulation 6(4), that the employer employs a deferred Member or a pensioner Member. But there is no reason to doubt the actual decision since it was sufficient to prevent an ECE occurring that the employer employed persons eligible to join the scheme (the MNOPF in that case).

Similarly, if that approach is adopted to the meaning of “employer” under the Scheme Funding Regulations, there is no reason to doubt the correctness of the actual decision in Hearn v Dobson either. On the facts of that case, 3 of the 4 employers (HBF, HBM and CECA) had given notice withdrawing from the scheme terminating their liability to contribute. This was the effect of Rule M1.1: see paragraphs [5], [13] and [30]-[32]. As Morgan J himself pointed out, it was inconceivable that in these circumstances the employees of a company that had withdrawn would be admitted to membership unless it re-committed itself to making contributions (paragraph [69]). In this passage of his judgment, Morgan J does not reject the argument that eligibility to join a scheme is enough to make the employer of the eligible persons within the meaning of “employer”. What he clearly does reject is that the employees of CECA were in fact eligible. It follows that on the actual facts of Hearn v Dobson paragraph 1 of Schedule 2 had no application to the scheme as it was not a scheme with more than one employer at the relevant date.

However, Mr Nugee submits that Morgan J’s reasoning cannot survive Cemex.

Like Mr Ham, he points out that, pursuant to section 233 PA 2004, Part 3 of that Act (which contains the SSF provisions) is to be construed as one with Part 1 PA 1995. This, he submits, means that definitions defined for the purposes of Part 1 PA 1995 apply for the purposes of Part 3 PA 2004, including all of the definitions in section 124 PA 1995 (this was common ground in Hearn v Dobson and Morgan J proceeded on that basis: see paragraph [52]). In fact, as Morgan J records, PA 2004 has its own interpretation section, section 318, which contains a definition of “employer” as follows:

“(1)

In this Act, unless the context otherwise requires –

“employer” –

(a)

in relation to an occupational pension scheme, means the employer of persons in the description of employment to which the scheme in question relates (but see subsection (4)) …”

The fact that section 233 provides for Part 3 PA 2004 to be construed as one with Part 1 PA 1995 suggests that the definition of “employer” in section 124(1) PA 1995 applies. This would only matter if the definition in section 318 were different. As it happens, the wording of the definition of “employer” in section 318 as it applies to an occupational pension scheme is virtually identical to that in section 124 so that it would be unsurprising if, in fact, the two definitions meant the same thing. I can see no reason for construing “employer” in Part 3 PA 2004 differently from in Part 1 PA 1995; and nothing which Morgan J said in Hearn v Dobson leads to that conclusion. This is especially so given that the Scheme Funding Regulations are really of no assistance in construing the Act since they were made over a year after the Act received the Royal Assent. I can see no reason to construe the definitions in section 124(1) PA 1995 and section 318 PA 2004 in different ways.

The question then is what meaning is to be given to “employer” in the Scheme Funding Regulations and whether it has a different meaning in different places. I find it very difficult to see how “employer” can mean one thing in Part 3, but something else in the Regulations. Take for example the schedule of contributions for which provision is made under section 227.

It is instructive to see how these provisions work in the case of a multi-employer scheme. The regulation-making power under section 232 has been exercised to make modifications in relation to multi-employer schemes, but only to a limited extent, by the Scheme Funding Regulations. The modifications are found in paragraphs 1 and 2 of Schedule 2. These relate to a sectionalised scheme (paragraph 1) and to any multi-employer scheme (paragraph 2) but only so as to modify section 229.

The modification to section 229 provides that references to the employer are references to the person (if any) nominated by the employers or by the rules of the scheme to act as the employers’ representatives. In the absence of any nomination, the reference to the employer takes effect as a reference to all of the employers (other than any employer which has waived its rights under that sub-section), so that the consent of all the employers would be needed to the contents of any schedule of contributions.

There is no modification of section 227 or section 228. It is however, clear that a schedule of contributions actually agreed by all of the employers, or imposed by tPR, is nonetheless a schedule of contributions and that the references in those sections to “the employer” must be read as a reference to “the employers”. This is not a difficult exercise to justify since it is provided for by section 6(c) Interpretation Act 1978.

Regulation 10 sets out requirements concerning the content and certification of a schedule of contribution. It must show the rates and due dates of all contributions by “the employer and the active members”. It must show separately the rates and due dates of contributions payable by “active members” and “the employer”. In the case of a multi-employer scheme, it is perfectly clear that “the employer” is to be read as a reference to “the employers”.

If Cemex is right, the employers within Part 3 PA 2004 can include employers such as the PLA who do not currently employ active members: “the employer” in Part 3 includes “the employers” and “the employers” can include an employer employing no active members. One cannot, it seems to me, and as it seems to Mr Nugee, sensibly give “employer” a different meaning in the Scheme Funding Regulations, and in particular, one cannot do so in Regulation 10. The references in Regulation 10 must, if any sense is to be given to that provision, refer to the same persons as those referred to in section 227. Otherwise there could be an employer, being one of the employers within section 227, which would not be covered by Regulation 10 with the result that the schedule of contributions need make no reference to the contributions payable by that employer at all.

A similar point arises in relation to paragraph 2 of Schedule 2 of the Scheme Funding Regulations. This would be a very strange provision indeed if it did not bring within its scope a person which was an employer within section 229: the whole point of this paragraph is surely to ensure that those who are liable under the schedule of contributions must consent to it unless it is imposed by tPR. However if a person is an employer for the purposes of section 229 but not for the purposes of paragraph 2, its consent would not be required to a schedule of contributions by which it could be bound.

These points can be illustrated even more starkly if one considers the case of a single-employer scheme where the employer does not currently employ any active members but does employ individuals eligible to be members. If Cemex is correct, the employer falls within the definition of “employer” in section 124 PA 1995 and, for reasons already given, falls within the meaning of “employer” in Part 3 PA 2004. Accordingly, a schedule of contributions must be prepared under section 227 in relation to which this employer’s agreement is required under section 229. And it is this employer which is liable for any unpaid contributions under section 228. However, if such an employer is not within the meaning of “employer” in the body of the Regulations , Regulation 10 would not bite at all. This would be an absurd conclusion.

There would also be this curious result of excluding an employer (for the purposes of Part 3) from the operation of the Regulations. Consider the case of a sectionalised scheme with two employers (within the meaning of Part 3) one of which does, and the other of which does not, employ active members. If the latter employer is not an “employer” for the purposes of the Regulations, paragraph 1 of Schedule 2 would not apply (since the scheme does not have more than one employer on this basis). The separation which it is the policy of paragraph 1 to implement would not then take place.

Similarly, paragraph 3 of Schedule 2 would lead to a strange result. The purpose of paragraph 3 appears to be to keep “on the hook” for the purposes of an ongoing contribution liability any employer of active members at the moment before the scheme ceased to have an active member. Take, for example, a scheme with two employers (within the meaning of Part 3), one of which (E1), again, does, and the other of which (E2) does not, employ active members. Sections 227 and 228 apply to each of E1 and E2 since each is included in “the employer” in those sections; schedules of contributions will be prepared accordingly. Suppose then that E1 ceases to employ any active members. Paragraph 3 then bites because the scheme has no active members. References to “the employer” in Part 3 are to have effect as references to the person who was the employer immediately before the time when E1 ceased to employ active members.

If “the employer immediately before” that time is to be taken as a reference only to an employer of active members, the person – and only person – who is an employer after that time for the purposes of Part 3 is E1; E2 (which is not an employer on this hypothesis for the purposes of paragraph 2) ceases to be included in the reference to “the employer” in sections 227 and 228. The effect of a scheme becoming a frozen scheme would then be to remove from the scope of a schedule of contributions an employer which up until then remained exposed to liability under such a schedule.

In contrast, if “the employer” in paragraph 2 is given the same meaning (its Cemex meaning) as in Part 3, this anomaly disappears. E2 was on this approach an employer immediately before the time when E1 ceased to employ active members and remains subject to section 227 and 228. Morgan J nonetheless based his decision on paragraph 1 on the proposition that the employer referred to in paragraph 3 meant only an employer of active members.

If Cemex is correct, these examples show that giving the limited meaning to “employer” in the Scheme Funding Regulations (which is what Morgan J did in relation to paragraphs 1 and 3 in reliance on section 11 Interpretation Act 1978) produces incoherence in the interaction of Part 3 and the Regulations. There are two ways in which such incoherence could be avoided.

I have already said, in answering Question 4, that the decision in Hearn v Dobson does not lead me to think that Cemex was wrongly decided. It will have become apparent, from the discussion above of Hearn v Dobson, that I have substantial difficulties with some of the reasoning of Morgan J. The Judge himself did not regard himself as deciding anything about the meaning of section 124 PA 1995 nor did he appear to see anything wrong in the proposition, which was common ground, between the parties that “the employer” in Part 3 PA 2004 had the same meaning as in section 124 (a proposition which, for reasons given, I think is clearly correct). There is simply nothing in Hearn v Dobson which casts any doubt on the correctness of the decision in Cemex. I accordingly reject this route for avoiding incoherence.

As to the possibility that the Scheme Funding Regulations have modified Part 3 by changing the meaning of “employer”, there is clearly no express provision which has this effect. It is to be noted that such a modification would be to narrow, rather than to widen, the meaning of “employer”. It would be surprising if that were to be done without the use of the clearest language (which is absent) in the light of these statutory provisions.

However, that is not the complete picture. As already noted, section 232 provides that regulations may modify the provisions of Part 3 in prescribed circumstances. But where the Regulations do this, they do so expressly as for example, in the case of Regulation 19 introducing Schedule 2, reinforced by the express modifications of section 229 by paragraph 1 and of Part 3 as a whole by paragraph 2. Neither of those provisions, however, appears to modify the concept of “employer” (including, on the basis of Cemex, employers of persons eligible to be members) as that word is used within each paragraph, instead only identifying which employers within that concept are to be treated as employers in certain circumstances. As Mr Nugee puts it, to modify Part 3 in particular circumstances is a different exercise from preventing Part 3 from applying to certain types of employer at all, especially where Parliament has specifically provided that the meaning of employer can be extended but not restricted.

Morgan J’s decision was right on the facts and I do not depart from his conclusion at all. However, if his decision is to be taken as deciding the meaning of “employer” other than in paragraphs 1 and 3 of Schedule 2 to the Scheme Funding Regulations, I would decline to follow it. In my judgment, Cemex is clearly correct insofar as it decides that employment by an employer (which participates in a scheme) of employees eligible to join the scheme brings the employer within the definition of “employer” in Section 75 and the Employer Debt Regulations. Insofar as the reasoning of Morgan J can be said to apply to the meaning of “employer” in Part 3 PA 2004, or in any of the Scheme Funding Regulations other than paragraphs 1 and 3 of Schedule 2, I do not consider that it can withstand the contrary arguments giving “the employer” its wider meaning.

I do not need to decide that Morgan J was wrong to reach the conclusion which he did on the basis of his reasoning about the meaning of “employer” in paragraph 3. I do, however, have considerable reservations about it. But if (i) my conclusion that Cemex is correct and (ii) my conclusions about the meaning of “the employer” in Part 3 PA 2004 and in other provisions of the Scheme Funding Regulations are inconsistent with Hearn v Dobson, then I decline to follow Hearn v Dobson. In particular, I am troubled by Morgan J’s conclusion that paragraph 3 provided a “clear statement” that when an employer ceases to employ active members he ceases to be an employer (see paragraph [72]), the reason for that conclusion, in turn, appearing to be based on the proposition that the draftsman of the Scheme Funding Regulations “plainly thought that one ceased to be an employer when one ceased to have active members” (see paragraph [71]).

What is it, I ask rhetorically, in paragraph 3 that provides the clear statement which the Judge detected? I do not find it easy to see one and, like Mr Nugee, think that the Judge may have read too much into the provision. The following matters cause me difficulty.

I answer Issue 31A in this way: An “employer” for the purposes of Part 3 of the PA 2004 and the Regulations made thereunder ceases to be such an employer when it ceases to be an employer within the definition contained in section 124(1) PA 1995. Accordingly, it ceases to be an employer in the same circumstances as it ceases to be an employer for the purposes of Section 75 PA 1995 and the Employer Debt Regulations. I except from this answer the meaning to be attributed to “employer” in paragraphs 1 and 3 of Schedule 2 to the Scheme Funding Regulations.

Question 8 is in two parts. It asks:

There does not appear to be any dispute about the correct answers:

Question 8 does not ask whether either of the conditions set out in Rule 14(4) have been satisfied. However, the point has been argued. Mr Green says they have not been whereas Mr Spink says they have been. The two conditions are that an ECHA:

a.

ceases to employ Pilots for its Area; or

b.

ceases (at the discretion of the Trustee) to employ “E” Members for that Area.

It was not suggested at the hearing that the first condition has not been triggered in respect of any of the Cessation CHAs. When preparing this judgment, it occurred to me that this might not necessarily be the case because, under Rule 11(5), a Member falling within that Rule is treated, for the purposes of the Rules, as if he had ceased to be a Pilot. It is arguable, I consider, that such a Member could not, therefore, be treated as a Pilot for the purposes of Rule 14(4) in ascertaining whether an ECHA continued to employ Pilots. I raised this point (among others) in a communication with Counsel and have received further submissions.

In the light of the evidence to which Mr Green refers, the detail of which I was not previously aware, I am satisfied that three of the Cessation CHAs (the PLA, Sunderland and Peterhead) have in fact at all material times been the employer of either an active “E” Member or a Pilot eligible to become an “E” Member. It is not necessary to rely on the status of a Member within Rule 11(5) as a Pilot for the purposes of Rule 14(4) to establish that proposition. Accordingly, on the facts, the first condition is not triggered in relation to any of those Cessation CHAs.

Seaham is in a slightly different position. It employed active “E” Members up until 1 January 2007. On that date, the sole remaining active “E” Member started drawing his pension under Rule 21(2). He has then remained employed by Seaham as a Pilot.

Mr Spink argues that such a Member appears to be treated as a person who is not a Pilot for the purposes of at least some of the Rules. I do not need to decide whether that is so. Even if it is, there is nothing in my judgment which displaces the defined meaning of “Pilot” for the purposes of Rule 14(4). There is nothing in Rule 21(2) (in contrast with Rule 11(5)) which leads me to conclude that a Member drawing benefits under Rule 21(2) ceases to be a Pilot for the purposes of Rule 14(4). Accordingly, Seaham did not cease to employ Pilots on 1 January 2007 and has not done so since.

Question 8 is raised only in the context of the Cessation CHAs. I do not propose to answer the more general issues which might arise on different facts in the context of the first condition save so far as I have done so in addressing the position of Seaham. I am sorry to have put Counsel to some work which now appears to some extent to have been unnecessary.

Mr Green’s case is that the second condition has not been triggered either. He says that the (incorrect) view that the condition has been satisfied appears to be based on the mistaken assumption that “E” Members only include Active Members of the Scheme.

As to that, he submits that “E” Members may be active, deferred or pensioner Members. He says that this is clear from the Rules, especially Rules 11(4) and (6). Under Rule 11(4), “a person shall remain an “A” Member for so long as benefits are or may become payable in respect of him under the Fund”. Under Rule 11(6), any “A” Member who is a Pilot on or after 1st October 1988 shall be either an “S” Member or an “E” Member. Rule 11(6) also provides that, if the Member has ceased to be a Pilot, his status shall be determined according to whether he was employed or self-employed when he ceased to be a Pilot. On this basis, he says that, on the facts which I will come to, not all of the Cessation CHAs have ceased to employ “E” Members for their respective areas.

Mr Spink argues that condition (b) is fulfilled in relation to all the Cessation CHAs. He draws attention to the definitions contained in the Schedule to the Rules of A” Member, “B” Member, “E” Member, and “S” Member as having the respective meanings given in Rules 11, 12, 13 and 14. He submits that the meaning of “E” Member, particularly for the purposes of Rule 14, is to be found within Rule 14 given not only the reference in the definition to “respective” meanings, but also the heading of Rule 14 ““E” Members”.

On that basis, he suggests that ““E Member” has a different meaning in Rule 14 from that which might appear from Rule 11 and that Rule 14 relates only to active “E” Members. According to him, Rule 14(1) does not require deferred and pensioner “E” Members, while they remain employed as Pilots by the Participating Body, to continue to pay contributions to the Scheme in which they no longer accrue Pensionable Service because the reference to “E” Members in this context is intended to be a reference only to active “E” Members; and Rule 14(2) does not require a Participating Body to pay contributions equal to 1.5 times contributions of deferred and pensioner Members in its employment as Pilots because the reference to “E” Members in this context is intended to be a reference only to active “E” Members.

One difficulty with Mr Spink’s argument, it seems to me, is that it fails to take account of the opening words of Rule 14(1). It provides for an “E” Member to pay contributions “whilst he is a Pilot”. If an “E” Member within Rule 14 has to be an active”E” Member, he has to be a Pilot in any case; the words “whilst he is a Pilot” add nothing. Rule 14(1) does not, in any case, contain a definition of “E” Member; when the actual definition in the Schedule comes to be applied (“the respective meanings given in [the Rules]”, it is necessary to refer back to Rule 11 to understand what “E” Member means.

Further it is clear, I think, that for the purposes of Rule 11, an “E” Member can include a Member who is no longer an active Member namely a Member who has ceased to be a Pilot. Otherwise, the last sentence of Rule 11(6) makes no sense at all. Where a former Pilot has retired and ceased to be a Pilot, contributions are not due under Rules 14(1) and (2); this is not because he is no longer an “E” Member (since in my view he is); rather it is because he is not a Pilot. Likewise, if an active “E” Member elects to cease to pay contributions under Rule 11(5), he is no longer liable to pay contributions (because Rule 11(5) says as much) and, for the purposes of the Rules (and thus certainly for Rule 14(1)) he is treated as if he had ceased to be a Pilot.

In the light of this analysis, I conclude that Mr Spink is not right to say that Rules 14(1) and (2) attach a different meaning to “E” Member from that which it has in Rule 11.

Question 8 is concerned with the application of Rule 14(4). This Rule did not appear in the original version of Rule 14. It does not follow from the conclusion (which I have reached) that “E” Member has the same meaning in Rules 14(1) and (2) as it has in Rule 11 that it cannot have a different meaning in Rule 14(4) (although I would reject the proposition that the introduction of Rule 14(4) might have altered its meaning in Rules 14(1) and (2)). Rule 14(4) provides as follows:

“(4)

Where a Participating Body which is on or after 8 June 2005 an employer of “E” Members in any Area ceases on or after 8 June 2005 to employ Pilots for that Area or (at the discretion of the Trust Company) to employ “E” Members for that Area, the Participating Body shall, if the Trust Company consents, cease to be a Participating Body in relation to the Area on the date it ceased to be such an employer and shall make such contributions (including lump sum contributions), if any, as the Trust Company, having regard to the advice of the Actuary shall determine”.

On the basis that “E” Member has the same meaning in this Rule as it has in Rules 14(1) and (2) and in Rule 11 (as in my judgment it does), the answer to this part of the Question is clear: a Participating Body which continued to employ a deferred or pensioner Member who, when active, had been an “E” Member continues to employ an “E” Member so that condition (b) is not satisfied.

Mr Spink suggests that Rule 14(4) appears to have been inserted to make express provision for the payment of exit debts because of the debate within the pensions industry about whether an ECE occurred under Section 75 when an employer ceased to employ active members, resting that suggestion on the evidence of Mr Williamson. He argues that the second condition within Rule 14(4) was included to clarify matters by providing expressly that an exit debt could be claimed when an ECHA ceased to employ active “E” Members. I do not consider that the evidence, even if admissible, is enough to establish that intention. In any case, the language is, I think, such as to lead inevitably to the different conclusion that ceasing to employ active “E” Members is not enough provided that the ECHA continues to employ a deferred or pensioner “E” Member.

No doubt Mr Spink is correct when he says that ceasing to employ “E” Members was added as a second condition in order to achieve something additional to ceasing to “employ Pilots” (which is the first condition). He says that if the employment of a deferred or pensioner Member prevented the second condition being fulfilled, it would seem to do little different from the first condition, unless the only purpose of the second condition was to permit Rule 14(4) to be engaged where the Participating Body continued to employ only “S” Members as Pilots. While accepting that that is conceivable, it seems, he submits, more likely that the second condition was intended to permit Rule 14(4) to be engaged where a Participating Body ceased to employ active ““E” Members”.

I do not agree that the second condition is of the limited effect which Mr Spink identifies. It is not only the employment of Pilots who are already “S” Members which would otherwise prevent the first condition from applying; it would also be prevented from applying if the ECHA employed Pilots who had never been Members of the Scheme at all. Rule 14(4) would therefore not be engaged so long as an ECHA employs an “E” Member who is a Pilot whether or not he is an active “E” Member. It must be acknowledged that a literal reading of Rule 14(4) would prevent the second condition from being triggered even if the ECHA employed an “E” Member in some employment other than as a Pilot. That might be seen to be anomalous. But the point does not arise on the facts and, if it did, it might be right to address it by reading the second condition as applying where the ECHA ceases to employ “E” Members as Pilots. That approach, it seems to me, does less damage to the language of Rule 14(4) and the structure of Rules 11 and 14 read together than to read Rule 14(4) as applying only to active “E” Members.

In any case, if the intended result was that the Trustee should be able to make a contribution demand whenever an ECHA ceased to employ active “E” Members, I would have expected Rule 14(4) to say so clearly, which it could easily have done. After all, the concept of a Member not contributing to the Scheme was already familiar as can be seen from Rules 11(5) and 21(2).

In my judgment, therefore, the second condition is not fulfilled so long as the ECHA continues to employ an “E” Member as a Pilot whether or not he is an active “E” Member.

The factual positioning relation to the Cessation CHAs is as follows:

Accordingly, the second condition has never been fulfilled in relation to the PLA, Peterhead and Seaham; and it was fulfilled in relation to Sunderland only on 31 May 2007 at the earliest, and whether it was in fact fulfilled will turn on whether the Trustee has validly exercised its discretion.

Question 9 asks whether the SSF regime gives the Trustee the right to demand contributions over and above those that they could otherwise demand under the 1988 Rules. This Question, together with Question 10, deals with the interaction between the SSF regime introduced by Part 3 of PA 2004 and the power to raise contributions that the Trustee has under the 1988 Rules (whether in their current form or as amended to the extent permitted by the answer to Question 1).

I make one preliminary point in relation to this Question. In the light of my answer to Question 1, the primary argument raised by Mr Newman in support of the answer “No” to Question 9 can be eliminated. Putting matters very shortly, the primary argument is that any schedule of contributions under the SSF regime must respect the structure of the existing rules and thus reflect the ratio under Rule 14 of employer/member contributions. However, if the contribution rule is amended to remove that link between employer and member contributions, the basis for the primary argument disappears. The parties nonetheless want to have an answer to Question 9. Indeed, if I am wrong in my answer to Question 1, Question 9 raises real issues. I proceed, therefore, on the basis that the current Rules are the operative rules and cannot be amended to change the structure of the contribution rule.

The Scheme’s last actuarial valuation was as at 31 December 2004, signed off on 8 November 2005, under the MFR regime.

The transitional provisions dealing with the shift from the MFR to the SSF regime are set out in Schedule 4 to the Scheme Funding Regulations. Under paragraphs 3(2) and (3), the Trustee is obliged to obtain its first SSF valuation by reference to an effective date no later than 3 years from the effective date of the last Scheme valuation, here 31 December 2007. Pursuant to paragraph 4, the valuation should be received by the Trustee within 15 months of the effective date, namely by 31 March 2009.

By reason of the uncertainties over the Trustee’s powers to demand contributions, the Trustee has been unable to comply with such deadline. The Trustee alerted tPR to this fact early in 2008, and has continued to keep tPR informed of developments in these proceedings since then.

Question 9 breaks down into two issues, Issue 34 and Issue 35.

Given my answer to Question 1, it might be thought that Question 9 is unimportant because the statutory funding objective can be met by demanding contributions under the Scheme’s own new contribution rules. However, particularly given the suggestion of some CHA defendants that Article 72 has not been validly removed, the Trustee still needs an answer to Question 9.

My own decision in British Vita Unlimited v British Vita Pension Fund Trustees Limited [2007] EWHC 953 [2007] PLR 157 gives some detailed consideration to the SSF regime. It is perhaps of more relevance to Question 10, but it does contain an analysis to date of the effect of the SSF regime and its interrelationship with the scheme rules. It also contains what Mr Tennet kindly refers to as a useful summary of the MFR regime, established by the PA 1995, which preceded the SSF regime. The two regimes have many similar features, although the required level of funding under the SSF regime is significantly more prudent than the MFR regime.

My summary of the MFR regime can be found at paragraphs [22] to [29] of that judgment. The main features can be summarised as follows.

The MFR regime was set out in sections 56 to 61 of the PA 1995, and the MFR Regulations made thereunder. The principal requirements of the regime were as follows.

Turning to the determination of the contributions in the schedule of contributions, and the effect of such schedule:

The final and important provision relating to MFR is section 117(1) PA 1995:

“Where any provision mentioned in subsection (2) [which included sections 56 to 61] conflicts with the provisions of an occupational pension scheme-

(a)

the provision mentioned in subsection (2), to the extent that it conflicts, overrides the provisions of the scheme, and

(b)

the scheme has effect with such modifications as may be required in consequence of paragraph (a).”

In British Vita I drew the following conclusions about the MFR regime:

By the early 2000s, there was increasing dissatisfaction with the MFR regime, both because its funding requirements were very weak (by virtue of the methodology used for calculating the scheme’s MFR funding level) and because of the “one size fits all” nature of the regime, which did not take into account the particular circumstances of a scheme (such as the strength of the employer covenant) in determining whether the statutory funding requirements were met.

The other driver for change was Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provisions . I noted certain provisions of the IORP Directive at paragraph [31] of my judgment in British Vita:

“(a)

Recital (4): this stresses as an urgent priority the need to draw up a Directive on the prudential supervision of “institutions for occupational retirement provision”, a phrase which includes United Kingdom occupational pension schemes. The key role of such institutions, as major financial players, is recognised but it is observed that they are not subject to a coherent Community legislative framework allowing them to benefit fully from the advantages of the internal market.

(b)

Recital (7): the prudential rules laid down in the IORP Directive are intended “both to guarantee a high degree of security for future pensioners through the imposition of stringent supervisory standards, and to clear the way for the efficient management of occupational pension schemes”.

(c)

Recital (26): a prudent calculation of “technical provisions” (ie the amount required to make provision for a scheme's liabilities) is essential to ensure that obligations can be met. Technical provisions should be calculated on the basis of recognised actuarial methods and certified by qualified persons. The minimum amount of technical provisions should be both sufficient for benefits already in payment and to reflect commitment arising out of members' accrued pension rights.

(d)

Recital (28): sufficient and appropriate assets to cover the technical provisions protect the interests of members and beneficiaries in the case of employer insolvency. Cross-border activity leads to a requirement that the technical provisions be “fully funded at all times”.

(e)

Article 15(1): this provides for each Member State to ensure that an occupational pension scheme should “establish....an adequate amount of liabilities corresponding to the financial commitments which arise out of their portfolio of existing pension contracts”; in other words, the scheme's obligations must be valued in an appropriate manner.

“(f)

Article 15(4): this provides, at paragraph (a), that the minimum amount of the technical provisions shall be calculated by a sufficiently prudent actuarial valuation. It must be sufficient both for pensions and benefits already in payment and to reflect accrued rights.”

(g)

Article 16: this deals with asset cover. It requires each Member State to require every institution [ie including occupational pension schemes in the United Kingdom] to have at all times sufficient and appropriate assets to cover its technical provisions.”

I went on to say this:

“The thrust of the IORP Directive context of a UK pension scheme is, it can be seen, that the scheme should value its liabilities to pensioners and other beneficiaries adopting “a sufficiently prudent actuarial valuation”, the underlying economic and actuarial assumptions for the valuation of liabilities also being chosen prudently. The scheme is then to have “sufficient and appropriate” assets to cover its liabilities as thus ascertained. It is to be noted that Article 15(4) talks of a minimum amount of the technical provisions and that Article 16(1) requires the scheme to have enough assets to cover those technical provisions. There is nothing in the IORP Directive which prevents the technical provisions being calculated on a more generous basis than by reference to a “sufficiently prudent actuarial valuation” or which precludes a scheme holding more than “sufficient and appropriate assets” to cover the technical provisions on whatever basis those are established. There is nothing, therefore, which would have prevented the UK, when implementing the IORP Directive, from providing expressly that a scheme contribution rule, which resulted in higher technical provisions or greater asset cover than the IORP Directive required, could continue to have effect.”

In the UK, effect was given to the IORP Directive by the introduction of the SSF regime in Part 3 PA 2004.

The MFR is replaced, in the SSF regime, by the “statutory funding objective” set out in section 222(1) PA 2004 which provides that:

“Every scheme is subject to a requirement (“the statutory funding objective”) that it must have sufficient and appropriate assets to cover its technical provisions.”

A scheme’s “technical provisions” are defined by section 222(2) as:

“the amount required, on an actuarial calculation, to make provision for the scheme’s liabilities.”

Essentially, this means the current capital value of the scheme’s present and future liabilities, with a discount factor applied (if appropriate) to reflect the fact that such liabilities will only fall due in the future. It is to be noted that, as with the MFR regime, any provision of the scheme rules which limits the amount of the scheme’s liabilities by reference to the value of its assets is to be disregarded.

As had been the case under the MFR regime, the SSF regime envisages and requires the commissioning of regular actuarial valuations, followed by a plan for redressing any deficit revealed. The funding plan is to be embodied in a schedule of contributions payable by the “employer” and active members which is certified by the actuary. There is also provision in section 223 for a “statement of funding principles”, requiring the trustees to prepare and from time to time review a written statement of their policy for securing that the statutory funding objective is met.

Section 224 makes provision for obtaining actuarial valuations and reports by the trustees or managers. Trustees are obliged to obtain actuarial valuations at intervals of not more than one year or, if they obtain actuarial reports for the intervening years, at intervals of not more than 3 years (as under the MFR regime). [An actuarial valuation means a written report, prepared and signed by the actuary, valuing the scheme’s assets and calculating its technical provisions, the basis for the calculation of each being dealt with in detail in the Scheme Funding Regulations. An actuarial report is less formal and means a written report, prepared and signed by the actuary since the last actuarial valuation, on developments affecting the scheme’s technical provisions since the last actuarial valuation was prepared (see section 234(2)).]

The SSF contains at section 226 (headed “Recovery plan”) and section 227 (headed “Schedule of contributions”) provisions designed to ensure that a scheme meets its statutory funding objective. Under section 227, the trustees are to prepare and from time to time review and if necessary revise a schedule of contributions. This is:

“a statement showing

(a)

the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and

(b)

the dates on or before which such contributions are to be paid.”

I note here that the additional contributions required to give effect to a recovery plan (as to which see below) “must be shown separately from the rates and dates of contributions otherwise payable”: see Regulation 10(4) Scheme Funding Regulations.

The schedule of contributions must be certified by the actuary; the certificate must state that in the opinion of the actuary the schedule is consistent with the statement of funding principles and that the rates shown will, in effect, result in the statutory funding objective being met: see sections 227(5) and (6).

Where an actuarial valuation reveals that the statutory funding objective is not met the trustees must prepare a “recovery plan” under section 226. This has to be done within a prescribed period, normally 15 months. A “recovery plan”:

“must set out

(a)

the steps to be taken to meet the statutory funding objective, and

(b)

the period within which that is to be achieved.”

Where any amount payable in accordance with a schedule of contributions by or on behalf of the employer or an active member is not paid on the due date (ie as set out in the schedule), the amount unpaid (whether payable by the employer or not) if not a debt due from the employer to the trustees is treated as such a debt: see section 228(3) PA 2004. This applies equally to a schedule of contributions agreed by the employers and to one imposed by tPR.

The SSF regime imposes a uniform process for determining the technical provisions, the statement of funding principles, the schedule of contributions and any recovery plan. The relevant provisions are contained in section 229 PA 2004 and paragraph 9 of Schedule 2 to the Scheme Funding Regulations, which must be read together.

The starting point is section 229. This provides at section 229(1) for the trustees to obtain the agreement of the employer to (i) any decision as to the methods and assumptions to be used in calculating the scheme’s technical provisions, (ii) any matter to be included in the statement of funding principles, (iii) any provision of a recovery plan and, (iv) any matter to be included in a schedule of contributions.

However, the power contained in section 232 PA 2004 has been used to include paragraph 9(1) Schedule 2 to the Scheme Funding Regulations. This provides as follows:

“Schemes under which the rates of contributions are determined by the trustees or managers or by the actuary

9(1) In the case of a scheme under which:

(a)

the rates of contributions payable by the employer are determined by the trustees or managers without the agreement of the employer, and

(b)

no person other than the trustees or managers is permitted to reduce those rates or to suspend payment of contributions,

section 229 of the 2004 Act and regulation 13 shall apply as if they were subject to the modifications set out in sub-paragraphs (2) and (3), and the reference to section 229 in paragraph 8(2) above shall be read as a reference to that section as modified by sub-paragraph (2).”

The effect of paragraphs 9(2) and (3) is that where the conditions in 9(1) are satisfied (ie where the trustees have power under the scheme rules to determine contributions without employer agreement), they can equally determine contributions under the SSF regime subject to consulting the employer. But this is subject to paragraph 9(4) which provides as follows:

“Where the power of the trustees or managers to determine the rates of contributions payable by the employer without the employer’s agreement is subject to conditions, the modifications provided for in sub-paragraphs (2) and (3) have effect only in circumstances where the conditions are satisfied”.

Paragraphs 9(5) to (7) make further provision about the form of the actuary’s certificate when it is the actuary’s role to fix the contributions. The actuary has no such role under the 1988 Rules. I do not need to consider these paragraphs further.

In the case of multi-employer schemes (such as the Scheme), any requirement to consult or agree matters with the employer under the SSF regime is replaced by paragraph 2 of Schedule 2 to the Scheme Funding Regulations with a requirement to consult an employers’ representative (if such an employer is nominated by the employers or the rules of the scheme), no doubt in order to keep the provisions workable in practice. However, if no such representative is nominated, consultation or agreement with all employers is necessary, other than those (if any) that have waived their rights to such a role.

If the mechanism just described for determining the contents of the schedule of contributions, recovery plan, and assumptions underlying the technical provisions or statement of funding provisions breaks down (or is otherwise not complied with), tPR is given a number of powers to impose a solution under section 231 PA 2004. In relation to a schedule of contributions, tPR may:

“impose a schedule of contributions specifying-

(i)

the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and

(ii)

the dates on or before which such contributions are to be paid.”

Regulation 16 of the Scheme Funding Regulations has played a large part in the argument on Question 9. It relates to shared cost schemes. A “shared cost scheme” (see Regulation 16(2)) means a scheme under the provisions of which:

Regulation 16 defines the term “appropriate proportions” which means those specified proportions. Regulation 16(1) give the trustees of a shared cost scheme the power to modify the scheme:

“with a view to making such provision that, where any additional contributions are required to give effect to a recovery plan, those contributions are payable by the employer and the members in the appropriate proportions, unless the employer and the trustees or managers agree –

(a)

that the additional contributions should be payable by the employer alone, or

(b)

that he should pay a greater proportion than would otherwise fall to be paid by him.”

There is one other provision of PA 2004 which I should mention in this review of the SSF regime. It is section 306, a section which I considered in my judgment in British Vita. Under sections 306(1) and 306(2)(h) PA 2004, the provisions of Part 3 of the PA 2004 and any subordinate legislation made under Part 3 are of overriding effect:

“(1)

Where any provision mentioned in subsection (2) conflicts with the provisions of an occupational … pension scheme –

(a)

the provision mentioned in subsection (2), to the extent that it conflicts, overrides the provisions of the scheme, and

(b)

the scheme has effect with such modifications as may be required in consequence of paragraph (a).”

One of those provisions is paragraph (h) of subsection (2): “Part 3 and any subordinate legislation made under that Part.”

At this stage, I want to say a little more about my decision in British Vita. Both Mr Spink and Mr Newman have relied on statements in it; but those need to be read in context. It will be remembered that that case was one where no schedule of contributions was in place. The question was whether the trustees could make a demand under the contribution rule or whether the SSF provided an exclusive regime.

Having reviewed the statutory provisions, I said this (see paragraphs [81] and [82]):

“As I have mentioned, Mr Green says that the scheme of the legislation is to provide an exclusive code for the level of contributions to an ordinary defined benefit scheme with a conventional employer contribution rule. I am not sure if he says that it is part of that scheme that the target for funding must always be the statutory funding objective so that tPR could not impose a rate of contributions targeted at a better funding level or one which would reflect the scheme's own contribution rule. But whatever the general scheme of the legislation, it seems to me that the real question is whether there is a conflict, within the meaning of section 306, between the provisions of Part 3 and the Scheme Funding Regulations on the one hand and the rules of the schemes on the other.

82 If there is such a conflict, the rules are overridden to the extent of the conflict. But if there is no conflict, then I do not consider that the appeal which Mr Green makes to the overall scheme of Part 3 as providing a complete code has any force. I would take that view even in the absence of section 306. If a person's contractual or other rights are to be overridden or somehow qualified by legislation, that requires the use of clear words which, either expressly or by necessary implication, produce that result. Part 3 and the Regulations, in the absence of any conflict within section 306, do not, I consider, use such clear language. An examination of section 306 itself reinforces that conclusion. The section provides expressly that, in a case of conflict, the scheme rule is overridden: this suggests strongly to me that, in the absence of conflict, the scheme rule should continue to apply. For these reasons I reject any broad submission based on the proposition that Part 3 and the Scheme Funding Regulations provide a complete code for the making of contributions to a scheme. The search must be for a conflict if Mr Green's approach is to be upheld.”

A similar approach was applied in the context of the MFR regime by the Court of Appeal in Allied Domecq (Holdings) Ltd v Allied Domecq First Pension Trust Ltd [2008] EWCA Civ 1084 at [35]:

“The contractual provisions of an occupational pension scheme were not displaced by the statutory provisions which underlie the minimum funding requirement: (Footnote: ¹) save where the provisions were in conflict.”

That observation followed on from the quote from a passage in British Vita in which I explained why the MFR regime did not override a contribution obligation in a scheme so that the MFR regime did not prevent recovery of a greater contribution for which the rules provided. However, I do not think that that really adds anything to the current debate: the MFR regime is, in important ways, significantly different from the SSF regime. In particular, section 60 clearly imposes on the employer an obligation to ensure that serious underprovision is rectified.

In British Vita I went on to hold that, until a schedule of contributions was in place, there was no conflict between the legislation and the rules and that the contribution rule could be relied on by the trustees. I expressly left open the question whether, once a schedule of contributions was in place, the trustees were thereafter precluded from relying on the contribution rule without anything more, leaving unresolved the question whether there was a relevant conflict for the purposes of section 306.

In the present case, a similar issue arises but it is, if I may so put it, the other way round. The question is whether a schedule of contributions can be imposed which provides for a level of contribution which (a) does not reflect the existing structure of Rule 14 and (b) which provides for a larger level of contribution than under that Rule. This leads to Issue 34 which is to this effect: can (or must) the SSF regime be used to demand contributions over and above those payable under the 1988 Rules if appropriate to meet the statutory funding objective?

Mr Spink, who argues for the answer “Yes” to this issue, puts his primary case very shortly. He says that, if a scheme’s rules do not permit or require the trustees to obtain contributions sufficient to meet the statutory funding objective, those rules are overridden to permit the statutory funding objective to be met.

If that is wrong as a matter of interpretation of domestic legislation, he notes that Part 3 PA 2004 was enacted pursuant to the UK’s obligation to give effect to the IORP Directive. The IORP Directive, according to him, requires the UK to ensure that schemes are funded sufficiently to meet their technical provisions. Accordingly, Part 3 must be construed, so far as possible, to give effect to that obligation of the UK. In that context, he relies on what is known as the Marleasing principle (see Marleasing SA v La Comercial Internacional de Alimentacion SA: C-106/89, [1990] ECR I-4135 ECJ). That principle was stated in this way by Arden LJ in HMRC v IDT Card Service [2006] STC 1252 at paragraph [79]:

“The Court of Justice has held that the national court’s obligation is to interpret domestic legislation, so far as possible, in the light of the wording and the purpose of a directive in order to achieve the result pursued by the directive and thereby comply with Community obligations….. It is sometimes also referred to as the principle of conforming interpretation.”

This principle was considered at some length in the decision of myself and Upper Tribunal Judge Bishopp in John Wilkins (Motor Engineers) Ltd & others v HMRC [2009] UKUT 175 (TCC) where the relevant cases are referred to.

Mr Newman says that, if reliance needs to be placed on this principle, the IORP Directive is not clear in its requirements and that a reference would be necessary. As will appear, I find it possible without reliance on the IORP Directive to reach a clear conclusion. I do not need to consider it further in this judgment other than to mention some of its uncontroversial provisions.

Mr Newman argues for the answer “No”. His primary argument is that any schedule of contributions must respect the existing structure of the 1:1.5 ratio of contributions. He does not say, as I understand his argument, that as a general proposition greater contributions cannot be provided for in a schedule of contributions than are provided for under the rules of the scheme in question.

Consider this example. Take a conventional defined benefit scheme to which the members do not contribute. The employer’s obligation is to pay such contributions as the trustees and the employer agree. If the employer is unwilling to agree the rate of contributions which the trustees consider appropriate, and the actuary considers necessary, to meet the statutory funding objective, it cannot be compelled to do so. The trustees will be unable to recover the contributions which they consider appropriate pursuant to the rules of the scheme. Further, the employer will, of course, not be willing to agree to a schedule of contributions specifying the rate of contributions which the trustees wish to receive. Since the employer’s consent to the schedule of contributions is required (under section 229) the trustees will be unable to prepare one.

However, tPR is able to step in and itself impose a schedule of contributions under section 231(2). There is nothing, in my view, which would prevent tPR specifying a rate of contributions required to meet the statutory funding objective greater than that which the employer is prepared to agree and thus nothing to prevent tPR from imposing a schedule of contributions under which the employer is obliged to pay more than its contractual obligation under the rules. This may well be the only way in which the statutory funding objective (which it will be remembered is a requirement to which the scheme is subject) can be met.

If the employer then fails to pay the amounts specified in the schedule of contributions on their due dates, the provisions of section 228 apply (by virtue of section 228(5) expressly applying the section in relation to a schedule of contributions imposed by tPR). Although there is no contractual obligation under the rules for the employer to pay any greater amount than it is prepared to agree, section 228(3) treats the unpaid amount as a debt due from the employer.

It might be argued against this conclusion that sections 227(1) and 231(2), by referring to active members as well as to employers, restrict the contents of the schedule of contributions to the maximum amount which could be imposed under the rules. It can be said that the trustees are unable to impose on members an obligation to make contributions in excess of those which they can be compelled to make under the rules (eg in a conventional contributory scheme, the percentage of pensionable earnings specified in the rules). By parity of reasoning, the schedule of contributions cannot provide for a higher rate of employer contribution than the maximum which could be imposed on it under the rules.

I would reject such an argument. Those sections must be read in the context of the SSF regime as a whole, and particularly in conjunction with section 228(3). It would not make sense, I agree, for a schedule of contributions to provide for payment of a contribution in the absence of a source of obligation to make such payment. In the case of an active member, the only source of that obligation is to be found in the rules. However, in the case of an employer, that obligation has, potentially, two sources. The first, as with active members, is to be found in the rules. But if the rules do not impose, and cannot be modified to impose, an obligation on the employer to make the contributions (or some part of them) in question, there is a second source of obligation, namely section 228(3).

Accordingly, I remain of the view which I expressed in British Vita without deciding the point, that the SSF legislation supplements the scheme contribution rule by creating a statutory obligation to pay any excess contribution where the scheme contribution rule is inadequate to meet the statutory funding objective. I note here that this conclusion applies in both these situations:

It does not necessarily follow from my conclusion, or the reasoning by which I reached it, that Mr Newman is wrong in saying that the structure of the existing rules must be respected. He has a number of arguments. But he also makes a couple of preliminary points which I should deal with before turning to his main arguments.

First of all, he reserves the position of his clients in relation to the issue of the appropriateness of any recovery plan. Under section 226(3) PA 2004, a recovery plan “must be appropriate having regard to the nature and circumstances of the scheme”. He says, quite correctly, that the shared cost structure of the Scheme is clearly part of its nature; it therefore must be taken into account in deciding whether a proposed recovery plan is appropriate. He makes the point that there is, as yet, no proposed recovery plan at all; and that, when there is, it must be appropriate in fact, it being insufficient that the trustees considers it to be appropriate. I do not propose to go into that question at all, remarking only that, an objective test of appropriateness ought to be applied, and that I would find it surprising if the Court were to hold a recovery plan to be inappropriate unless the trustees had reached a view as to appropriateness which no reasonable trustee could have reached.

Mr Newman then says that it must be seriously doubtful whether in practice it could ever be appropriate, without the agreement of the employer, to prepare a recovery plan that does not reflect an underlying shared cost structure, given that such a structure is fundamental to the nature of any such scheme. Other things being equal, I can see that that may be so. But in the context of the Scheme, that is a submission divorced from reality. Even if active members were willing to remain in the Scheme if there were imposed on them the maximum contribution permissible under Rule 14 (100% of Pensionable Earnings) and even if their employers were then to pay 150% of those earnings, the total contributions would be nowhere near solving the funding problems of the Scheme. As the Actuary’s report explains, doubling Member contributions would barely scratch the surface of the deficit but would probably induce active Members to stop being active Members, because they would not receive ‘value for money’ if thereby making good a deficit which is almost entirely referable to deferred and pensioner members. The further the number of active Members dwindled, the further any percentage of their aggregate Pensionable earnings would become progressively more and more inadequate to repair the deficit. It seems highly improbable (to the point of disappearing), therefore, that a recovery plan which respected the shared cost nature of the scheme (in the sense of preserving the ratio of contributions) could be formulated. I see no reason, at present, why it must be said, a priori, that a recovery plan which recognises that reality is necessarily not appropriate.

That is not to say that, as a matter of construction of the legislation, it is permissible to prepare a recovery plan or, more importantly, to prepare a schedule of contributions which does not reflect the shared cost nature of the Scheme. Mr Newman’s argument is that Part 3 and section 306 PA 2004, and the Scheme Funding Regulations, are to be construed in such a way that any recovery plan and schedule of contributions must, absent the agreement of the employer, reflect the shared cost nature of the Scheme. The argument rests on the SSF framework and its interaction with the rules of pension schemes, and not simply on an abstract application of the “appropriateness” constraint in section 226(3).

I turn to Mr Newman’s substantive arguments. His central plank is that any schedule of contributions, whether proposed by the Trustee or, I suppose, imposed by tPR, must respect the structure of the current contribution rule. It cannot be used to impose a contribution obligation on the employers larger than 1.5 times the contribution imposed on active members.

Under the Scheme, contributions are, he says, payable according to a shared cost regime. There is a dispute about whether the Scheme is a “shared cost scheme” as defined in Regulation 16 of the Scheme Funding Regulations which I come to later. But using the phrase “shared cost regime” in a looser sense Mr Newman submits that, applying what the Court of Appeal has said and I have said, about the statutory provisions overriding the scheme rules, to the current case two propositions emerge:

In addressing the first of those two propositions, it is important to understand that what I said in the passage quoted about the need for clear words if a person’s contractual rights are to be overridden was said in the context of the possibility that a schedule of contributions might override, in the sense of disapply, the trustees’ right to claim contributions under a contribution rule. As a matter of decision, I held that there was no conflict on the facts of that case, and no reason, therefore, to disapply the contribution rule. I identified the possibility that the schedule of contributions might provide a rate of contribution which is different from the rate which the trustees could enforce under the scheme contribution rule as the only reason why the provisions of section 227 and the Regulations might arguably give rise to a conflict with the provisions of the rules.  In other words, the conflict, if it was to be found at all, was to be found not in the wording of the legislation and the rules, but in the result of applying the legislation and the rules to the facts as they exist at any relevant time.

There has been some debate before me about the nature of the conflict with which section 306 is concerned. Mr Newman submits that the rules can only be overridden by the contents of a schedule of contributions if the statutory provisions conflict with the provisions of the scheme. I have underlined the word provisions in each case because his submission is that the conflict must be one which is apparent from the face of the two sets of provisions without reference to the factual circumstances. Mr Spink says that that is manifestly wrong and that the question of conflict has to be judged by reference to the facts and the practical effects of the legislation and the rules.

I do not consider that Mr Newman can be right, at least not to the extreme extent of his submission as I have (perhaps mistakenly) stated it. A scheme does not exist in a vacuum. A scheme is an institution (to use the Euro-concept) whose purpose is to provide real benefits to real people in the real world. It may be possible, in relation to particular a provision of the legislation to assess whether the provision (and not just its effect) conflicts with a provision of the relevant scheme (again, not just its effect) in ignorance of the facts. Consider, for instance, section 222 again. The scheme is subject to the statutory funding objective. The contribution rule under the scheme may be wholly inadequate, on the facts at a particular time, to provide sufficient contributions to meet that objective. In those circumstances, can it be said that the provisions of section 222 conflict with the provisions of the scheme? In my judgement they clearly do conflict; and it is no answer to say to that on different facts the rule would produce sufficient funding to meet the objective so that there would be no conflict.

Test the matter this way. Suppose that the relevant scheme contains a rule (“the funding requirement”) which states that the scheme must have “sufficient and appropriate assets to cover its technical provisions” but, unhelpfully, does not say how that is to be achieved. And suppose that the scheme’s contribution rule may sometimes be adequate and sometimes be inadequate to ensure that the funding requirement is satisfied. In my view, it is quite clear that, at a time when the contribution rule is inadequate to meet the funding requirement, the rule setting out the funding requirement conflicts with the contribution rule.

I must put this gloss on what I have just said. It might be said – and indeed it may well be correct to say – that when one rule (the contribution rule) obliges the employer to pay one amount £X and another rule (for instance the funding requirement in the last example) requires the funding requirement to be met, that the imposition of a further obligation on the employer does not conflict with the contribution rule but is simply to be seen as an additional obligation. By analogy, an express rule in a scheme requiring extra contributions to be paid in certain circumstances (eg to pay for the added cost of early retirement or to make a deficit contribution) would not be seen as conflicting with an ordinary contribution rule. In contrast, if a contribution rule were drafted with an express cap on the amount recoverable from the employer, it might more easily be said that there is a potential for conflict.

Further, as Mr Spink points out, as part of the regime for ensuring compliance, a recovery plan must be prepared in certain circumstances. Such a plan “must be appropriate having regard to the nature and circumstances of the scheme”: see section 226(3) PA 2004. And “In preparing or revising a recovery plan, the trustees … must take account of [the listed matters]”: see Regulation 8(2) of the Scheme Funding Regulations. There can be no doubt that, in preparing a recovery plan, the trustees must take account of the factual circumstances of the scheme. Indeed, if one were to have no regard to the factual circumstances of the scheme, the very object of the legislation, satisfaction of the statutory funding objective, would be defeated. This is, I think, a pointer to the conclusion that section 306 is not restricted in the technical way for which Mr Newman contends.

This brings me back to the example which I have discussed in paragraph 677 above. I did not, in that discussion, consider the issue of conflict between the legislation and the rules. In that example, there is a conflict between the legislation and the scheme rules. Under the legislation, the scheme must satisfy the statutory funding objective; but under the rules, that can be achieved only if the employer agrees to make the necessary contributions (which on the facts it is not willing to do). I suppose that one could say that, even on the face of the provisions of the legislation and of the scheme rules, there is a conflict because there is always a potential for conflict (in that the employer might always refuse to agree a sufficient level of funding to meet the statutory funding objective). But taking a less absolute view, there is, on the facts and in accordance with the analysis which I have just performed, a conflict as soon as the employer refuses to agree a suitable schedule of contributions.

Accordingly, effect must be given to the statutory funding objective. Neither Part 3 PA 2004 nor the Scheme Funding Regulations prescribe precisely how this is to be achieved other than to require the preparation of a recovery plan. However, in a case of conflict, section 306(1)(b) states that the scheme is to have effect with such modifications “as may be required in consequence” of the statutory provisions overriding the provisions of the scheme. The word “required” is important: that means that only necessary modifications can take effect. It would not be open to the trustees, for instance, to treat the scheme as having effect so as to impose a contribution obligation on active members which could not be imposed under the scheme provisions. Indeed, a modification imposing an additional obligation on the employer under the rules would not be required either: this is because, in contrast with the position of an active member, an employer will be liable to make payment under section 228(3) if the relevant payment is required by the schedule of contributions, which does not require a modification to the scheme at all. In this situation, I do not see why the trustees should not prepare, or tPR impose, a schedule of contributions specifying a greater contribution payable than could be imposed under the scheme provisions.

If that is wrong, it is difficult to perceive any other, or at least any satisfactory, route to the conclusion, in the example, that a schedule of contributions can be prepared or imposed. The alternative would then be that no recovery plan could be implemented with the possible (indeed probable) result that the scheme would be forced into winding-up with funding being dealt with under the Section 75 regime. That would be an astonishing result. It would mean that there was no mechanism for ensuring satisfaction of the statutory funding basis of an on-going scheme except in cases where the contribution rule already produces that result. Whenever the contribution rule is inadequate – in particular where the employer’s consent to the requisite level of funding is needed but is refused – it would be impermissible for tPR to impose a schedule of contributions to achieve the statutory objective.

But if I am right in relation to the example, the position is prima facie the same in relation to the Scheme. The Rules unless amended are inadequate to ensure satisfaction of the statutory funding objective; there is therefore a conflict between section 222 and the Rules. The Rules are then to take effect as if modified to give effect to the overriding requirement of section 222. The Trustee can then attempt to agree a schedule of contributions under section 227 but, if agreement cannot be reached, a schedule of contributions can be imposed by tPR.

Of course, Mr Newman does not accept that conclusion nor even the prima facie position. He relies in particular on Regulation 16 of the Scheme Funding Regulations as lending support to the conclusion for which he contends. I must now address that Regulation to see whether the prima facie position should be qualified or, indeed, whether it is altogether wrong.

Mr Newman suggests that the words “additional contributions are required to give effect to a recovery plan” in Regulation 16(4) are contributions necessary to give effect to a recovery plan unless already payable under the scheme. I am not sure that anything turns on this. But I must say that I do not agree with him and consider that there is no justification for the words which I have highlighted. The relevant phrase is found not only in Regulation 16(1) but also in Regulation 10(4); it is, I think, to be given the same meaning in each paragraph and must, in my view, mean the contributions set out in the schedule of contributions over and above those which would be needed in the absence of the need for a recovery plan. This has nothing to do with what contributions the rules may provide for.

To illustrate this, suppose that a scheme is in deficit at a time at the beginning of a period to which a schedule of contributions is to relate, so that the statutory funding objective is not then met. Suppose that the scheme contribution rule is adequate to enable the trustees to demand from the employer sufficient contributions (a) to meet the cost of current benefit accrual and (b) to eliminate the deficit over a period assessed by the actuary of, say, 2 years. The trustees prepare a recovery plan which shows that the deficit will be eliminated by payment of the contributions within item (b). A schedule of contributions is set accordingly for 2 years. Regulation 10(4) requires the additional contributions to be shown separately from the rate of contributions otherwise payable, that is to say the contributions payable under item (a). It is the contributions within item (b) which are the “additional contributions required to give effect to a recovery plan” (for the purpose of both Regulations). The fact that those contributions are payable under the rules does not detract from that conclusion.

It is not altogether easy to understand precisely what the purpose of Regulation 16 is. Both Mr Spink and Mr Newman have referred to the similar provision which applied in relation to the MFR. I will refer to it as well, but I am bound to say that the provisions of the MFR regime are materially different and provide little guidance to the meaning of Regulation 16 (although those provisions may give rise to a suggestion that the draftsman has transposed the old provisions without thinking through clearly how they apply under the new regime).

The previous provisions are found in Regulation 24 of the MFR Regulations. Regulation 24(1) provides as follows:

“The trustees of a shared cost scheme to which section 56 applies may by resolution modify the scheme with a view to making such provision that, if there is a serious shortfall valuation for the scheme, then the cost of any payments which the employer is obliged to make under section 60 as a result of that valuation is borne by the employer and the members in the appropriate proportions (in the case of the members, either by provision for them to make payments or for their rights to benefits under the scheme to be modified or both), unless the employer and the trustees or managers agree

(a)

that the cost of the payments resulting from that valuation is to be borne by the employer alone; or

(b)

that he should bear a greater proportion of it than would otherwise fall to be borne by him.”

“Shared cost scheme” and “the appropriate portions” are defined in identical terms to Regulation 16(2) of the Scheme Funding Regulations.

The context of Regulation 24 of the MFR Regulations is different from that of Regulation 16 of the Scheme Funding Regulations in the light of the effect of section 60 PA 1995. That section provides (insofar as is material) that, in circumstances of serious underprovision, the employer must secure an increase in the value of scheme assets that removes the relevant shortfall (section 60(2)) and that if the employer fails to secure such an increase, the remaining shortfall “shall, if not a debt due from the employer to the trustees…be treated…as such a debt” (section 60(5)). Accordingly, the statute, by section 60, may result in the employer having to make a payment to the scheme. There is nothing in section 60 which provides for the cost of that payment to be borne by any other person (although the amount of the payment will take account of contributions, including member contributions, to the scheme which fall within the closing words of section 60(2)).

Regulation 24 makes provision for a different sharing of the cost in the case of a “shared cost scheme” where there is a serious shortfall valuation. What Regulation 24 appears to have been doing was to give the trustees of a shared cost scheme power (without imposing an obligation) to write into the scheme rules, even in advance of the MFR funding dipping below 90%, a rule providing that the employer and members would bear the costs of getting funding back to 90% in the same proportions in which they had previously been contributing to the scheme subject to the employer agreeing to bear a larger (up to the whole) proportion. If Regulation 24 was not used and a situation of serious underprovision occurred, it was the employer that was to be on the hook for the payments under section 60. A number of difficulties of construction arise in relation to the precise meaning and effect of Regulation 24 which I do not need to go into. The important point, for present purposes, is that, in a shared cost scheme, contributions are ordinarily made in the appropriate proportions; Regulation 24 provides, or at least appears to provide, that the burden of the debt which section 60 throws onto the employer can be re-allocated between the employer and the members in the appropriate proportions.

Returning to Regulation 16 of the Scheme Funding Regulations, Mr Newman says that the purpose of the Regulation would appear to be to allow the trustees to modify a shared cost scheme so that the employer is not liable for amounts for which it would otherwise be liable under section 228(3) PA 2004. He may be right in identifying that as one of the purposes, although given the condition set out in Regulation 16(2)(c) for a scheme to be a shared cost scheme, the section would be of limited application. This is because section 228(3) only bites where the payment due from the employer under the schedule of contributions is not already due as a contribution under the rules. But if the trustees wish to reallocate the section 228(3) debt from the employer to the members, they might well be able do this under the scheme rules given the nature of the condition required by Regulation 16(2)(c).

There may however be a different purpose. Suppose that there is a shortfall which needs to be addressed by a recovery plan but which can be dealt with under the scheme contribution rule (under which, ex hypothesi, the employer and the active members will share the cost in the appropriate proportions). Regulation 16 provides for a modification to be made, in advance of such a shortfall being revealed, with a view to making a provision under which those proportionate contributions will be payable unless an agreement within paragraphs (a) or (b) of Regulation 16(1) is made. In other words, Regulation 16 is not concerned only with situations where the contribution rule is inadequate to deal with the recovery plan: indeed, that may not even be its primary focus.

It seems to me that neither of these purposes provides an entirely satisfactory explanation of the Regulation. The structure of the Regulation suggests to me that the draftsman has based himself pretty much on Regulation 24 of the MFR Regulations without appreciating that the different structures of the MFR regime and the SSF regime required rather more adjustment than he had allowed for. That does not assist in construing Regulation 16, but it provides a reason for not struggling overly to make complete sense of it.

However, given the purpose which Mr Newman identifies, he submits that it gives an insight into the workings of the SSF regime. He suggests that if there was freedom to override a shared cost structure when setting a schedule of contributions, one would expect Regulation 16 to provide for the possibility of modifying the scheme so that the employer is liable for the amounts set out in the schedule of contributions, not for the amounts provided for under the scheme rules.

I do not agree with that suggestion. Regulation 16 is concerned with recovery plans where additional contributions are required. For reasons already explained, additional contributions may be ones which the rules are adequate to impose or they may be ones which have to be collected through section 228(3). Mr Newman’s argument does not allow for the ways in which Regulation 16 may operate apart from the purpose he identifies. In any case, even his own argument could not, I consider, take him further than a rather more limited result. Even if the schedule of contributions has to respect the shared cost structure in the case of a shared cost scheme in relation to additional contributions, that respect should not take one further than the operation of the shared cost structure in the context of the particular scheme under consideration. The argument cannot lead to the conclusion that a schedule of contributions must go further than the rules require in reflecting the shared cost structure.

Take the Scheme itself. Rule 14(1) imposes a shared contribution obligation. But the Trustee is not permitted to require payment by the member of more than 100% of his Pensionable Earnings. The Rule does not, in any case, impose an obligation on the Trustee to require payment of that percentage: it simply gives it power to set the contribution that high. If it chooses to set a lower rate, that is the rate which the Scheme Rules provide for. Nothing in Regulation 16, in my judgment, leads to the conclusion that the recovery plan or any schedule of contributions must reflect a shared cost preserving the ratio contained in Rule 14.

The final point to make about Regulation 16 is that it has no effect on tPR’s powers to under section 231. Regulation 16 simply gives power to the trustees to modify a scheme. It remains the responsibility of tPR to ensure that the statutory funding objective is met by the imposition of a schedule of contributions to achieve that result. Mr Newman says “not so”: according to him, one would expect contributions imposed by tPR under section 231(2)(c) PA 2004 to address a deficit to be treated as contributions required “to give effect to a recovery plan” for the purposes of Regulation 16 so that, once the modification power had been exercised, and unless the employer agreed, it could not be liable for more than the proportion specified in the rules of the scheme. I disagree. There is no requirement for tPR to formulate a recovery plan and I see no reason to treat its imposition of a schedule of contributions as a recovery plan the preparation of which is the responsibility of the trustees. In any case, his argument only begins once it is assumed that the modification power has been exercised, which it might not be.

In my view the answer to Issue 34 is that the trustees of a scheme are not restricted to proposing a schedule of contributions which (a) provides for no greater a level of contribution than can be recovered under the provisions of the scheme or (b) maintains, in the case of a shared cost scheme, the “appropriate proportions” as between the employer and the employee in respect of additional contributions required to give effect to a recovery plan; nor does a recovery plan have to reflect or maintain those appropriate proportions. If the trustees are unable to impose a schedule of contributions (for instance because the consent of the employer is required under section 229 which is not forthcoming) it follows that the trustees cannot prepare a schedule of contributions. In that case, tPR can impose a schedule of contributions. Regulation 16 does not restrict the trustees or tPR from proposing, preparing or imposing (as the case may be) a schedule of contributions which does not maintain the appropriate proportion as between employer and member contributions. The answer to Issue 34 follows accordingly.

It is not, in any case, clear that the Scheme is in fact a shared cost scheme. I rather doubt that it is given the requirement of Regulation 16(2)(c). Apart from the fact that the Scheme makes no express reference to the rate of contributions being increased in the case of a shortfall, an increase in contributions can be made only within the limits specified in Rule 14, that is to say based on a maximum contribution from members of 100% of Pensionable salary. These factors lead me to think that the Scheme is not a shared cost scheme. Further, contributions are not made in respect of S Members by any “employer”. Clearly the Scheme as a whole is not, therefore, a shared cost scheme. It is very doubtful, I consider, that the Scheme can be severed, as it were, so as to treat each employer separately.

The next issue dealt with in Question 9 (Issue 35) is whether CHAs who are liable to make contributions under any schedule of contributions and recovery plan are required to do so without their consent being necessary, or whether their consent (or the consent of a representative appointed by them under the statutory provisions) is required.

The starting point (under section 229 of PA 2004) is that consent to the contents of a recovery plan or a schedule of contributions is required. However, this is subject to the provisions of Regulation 9 of the Scheme Funding Regulations which I have set out above. This displaces the consent requirement where the two conditions set out in paragraph 9(1) Schedule 2 to the Scheme Funding Regulations are fulfilled. The scheme must be one under which:

“(a)

the rates of contributions payable by the employer are determined by the trustees or managers without the agreement of the employer, and

(b)

no person other than the trustees or managers is permitted to reduce those rates or to suspend payment of contributions.”

There is an issue as to whether condition (a) of paragraph 9(1) is satisfied by the 1988 Rules as they currently stand. At present, the Trustee does have the power to set the rate of contributions payable by ECHAs in the sense that, once the contribution rate for members is set under Rule 14(1), the contribution rate for employers follows. But this is subject to the constraint imposed by Rule 14 which does not permit contributions of more than 100% of Pensionable Earnings to be set for active members.

Looking at paragraphs 9(1) and (2) without reference to the later provisions of paragraph 9, there is no clear answer. On the one hand, the rates of contribution which can be set are actually set by the Trustee without the agreement of the employers. On the other hand, the Trustee has no power at all to set a contribution rate which goes beyond the limit set out in Rule 14 let alone to do so without the agreement of the employer.

That said, in a different scheme where the trustees’ power to set contributions is at large, it is clear that paragraph 9(1) does apply. The policy, it is reasonably apparent, is that the trustees’ powers under the scheme rules should not, in those circumstances, be watered down. In contrast, it is reasonably apparent from the provisions of section 229, that the general policy of the SSF regime is to give the employer a say in the rate of contributions which are to be paid (particular by the employer itself) or the other matters specified in section 229(1). The former takes precedence over the latter, general, policy.

However, what paragraph 9(1) does not make clear is how the tension between those two policies is to be resolved when the rules of the scheme provide for the trustees to set contributions up to a limit but where they have no power at all to set contributions above that limit and where, instead, further contributions are to be obtained through the mechanism of a schedule of contributions together, in cases of current underfunding, with a recovery plan. Paragraph 9(1) by itself could be interpreted either way. Unfortunately, it cannot be given a construction half way between the extremes. I have in mind a construction which would dispose of the need for employer consent to the extent that a recovery plan or a schedule of contributions can be implemented within the limit of the trustees’ powers to set contributions; but which would at the same time, maintain the need for consent if the recovery plan or the schedule of contributions steps outside those limits.

Both parties have referred me to the statement by Baroness Hollis in the House of Lords when what became paragraph 9 was passing through the House (see Hansard (HL Debates 13 September 2004)). I myself referred to part of the statement in my judgment in British Vita at [123]. I do not propose to refer to those passages although note that Mr Newman submits that the clear purpose of paragraph 9 is “simply to avoid dilution of unilateral trustee powers (and in particular is not to expand unilateral trustee powers)”. As to reliance on the statement, what I said in British Vita was this:

“Although the interlinking provisions of Part 3 and the Scheme Funding Regulations are quite complex, I have been able to resolve the point of construction……applying ordinary canons of construction. I do not find there to be an ambiguity, rather than a difficulty, which justifies reference to Hansard to resolve it. On the contrary, I think this is a case where the effect of reading Hansard is to create an ambiguity when none was otherwise present.”

Whether there is an ambiguity, in the sense required by Pepper (HMIT) v Hart [1993] AC 593, present in paragraph 9 is not entirely obvious. But even if there is, I do not find the passages referred to by Mr Newman and Mr Spink as providing a clear answer to the issue. They support the conclusion that the purpose of paragraph 9 is to ensure that the trustees’ powers are not overridden by the SSF regime in the way which Mr Newman expresses the purpose. But they give no help in providing an answer to what is to happen when what the trustees wish to provide for in the recovery plan and the schedule of contributions goes beyond their powers in the scheme provisions.

Nor, for the same reason, do I gain any further assistance from what was said by Blackburne J in Allied Domecq at [14] (in a passage adopted by Sir John Chadwick, when the matter came to the Court of Appeal, at [11]):

“Although in many scheme rules contributions are set by agreement between the employer and the trustees …, under some they are set by the trustees alone …. Rules in this form are potentially favourable to the members of the scheme because funding rates can be set without regard to a veto from the employer. When it came to making the 2005 Regulations, Parliament evidently felt that it was unacceptable that the statutory regime, as set out in the 2004 Act, should give the employer a greater say in the terms on which the scheme should be funded than the employer would have had under the scheme rules unmodified by statute. Hence paragraph 9 of schedule 2 to the 2005 Regulations, headed ‘Schemes under which the rates of contributions are determined by the trustees or managers or by the actuary’.”

In broad terms, that reflects what was said by Baroness Hollis. But this statement was made in the context of consideration of the respective powers of trustees and employers. If trustees have a power to fix contributions without employer input, that power is to continue. What Blackburne J said in that case does not, however, answer the question where employer consent is required whether the trustees do not have power to fix contributions in excess of a specified amount and where even up to that amount, it is only in the context of a shared cost provision.

The issue does not, however, end with paragraph 9(1). There is also paragraph 9(4) to consider. In that context, it is necessary to consider what is meant when the provision refers to a power to determine the rate of contributions being “subject to conditions”. Mr Spink says that a “condition” in this context is a condition precedent and is not referring to a limitation or constraint within the contribution rule restricting the amount of contribution which can be demanded or a requirement such as that imposed by the shared cost structure of Rule 14. In contrast, Mr Newman says that a perfectly permissible interpretation of “condition” includes just such a limitation or constraint and that to adopt such an interpretation would give a practical effect to the provisions which would more accurately reflect the policy considerations which I have discussed than a meaning which restricts “condition” to condition precedent.

Of the two interpretations, I agree with Mr Newman that one which reads “condition” as including “limitation” or “restraint” would produce a more rational and coherent result. Under that interpretation, the trustees would be entitled to prepare a recovery plan and set a schedule of contributions without the employer’s consent in cases where the plan and the schedule reflect what they could do, without employer agreement, under the scheme provisions. At the same time, it would not allow them to proceed without agreement where what they wish to do goes beyond their powers and where it might be expected − I would certainly expect it − that the employer’s agreement would be required. The employer needs some protection against decisions of trustees to impose perhaps large additional obligations on it; that protection is found in its right to refuse to agree leaving it to an independent third party, tPR, to impose a fair and objective schedule of contributions.

Is such an interpretation permissible without doing unacceptable damage to the language? Can that result be reached simply as a matter of interpretation? In my judgment, the answer is clearly “Yes” to those questions. Indeed, paragraph 9(4) is, even read in isolation, at best ambiguous. When it is read as part of paragraph 9(1) in the context of Part 3 PA 2004, the proper meaning becomes, I think, reasonably apparent.

Accordingly, the answer to Issue 35 is that the Trustee may prepare a recovery plan and set a schedule of contributions without the need for the consent of the employers but only where the plan or the schedule do not result in or provide for contributions in excess of those which the Trustee is able to set conformably with Rule 14. The “condition” in the case of Rule 14 reflects both elements of the limitation on the Trustee’s powers, that is to say the shared cost structure (the employer/active member ratio) and the absolute limit (150% Pensionable Earnings). If the Trustee wishes to set a contribution rate payable by the employer in excess of 150% Pensionable Earnings, it requires the employer’s agreement under section 229. If the Trustee restricts itself to setting a contribution rate within that limit, it must, at the same time, ensure that the schedule of contributions reflects the ratio of contributions set out in Rule 14. If it wishes to depart from that ratio, it must obtain the employer’s agreement, failing which, it will be for tPR to decide whether to impose such a schedule of contributions.

This question asks whether the SSF regime restricts the Trustee’s ability to demand contributions under the 1988 Rules. It raised three issues, Issues 36 to 38.

I have decided, in answer to Issue 23, that an SCHA is not an employer for the purposes of the SSF regime (unless it has become an employer of persons eligible to join the Scheme: I exclude such SCHAs from Issues 36 and 37 since they are “employers” within the meaning of the SSF regime). I have discussed earlier in this judgment at some length the relationship between the SSF regime and the provisions of a scheme, reflecting what I said (in some respects obiter) in British Vita. I have concluded that the only argument for saying that the scheme contribution provisions might be wholly displaced by a schedule of contributions is because that gives rise to a material inconsistency between what the schedule of contributions provides and what the rules provide. However, the schedule of contributions is concerned only with contributions from employers and active members. It has nothing to say about contributions from persons other than employers and active members. In particular, if the Trustee were (following my answer to Question 1) to impose a contribution obligation on SCHAs, there is nothing in a schedule of contributions, relating only to employers and active members, which would be inconsistent with such an obligation continuing. Nor is there anything, in my judgment, in an argument based on Regulation 10(4) Scheme Funding Regulations. It is quite obvious, in my view, that that provision is dealing with contributions which fall within Regulation 10(1) that is to say contributions from employers and active members (as required by section 227 itself).

I regard the answers to Issues 36 and 37 as clear: the answer in each case is “No”. Indeed, if the answer were otherwise, it would mean that the SCHAs could not be made to contribute to the Scheme even if from its inception a contribution had been required from them. Mr Furness, who represents Active SCHAs in whose interests it is to have the answer “Yes”, regards the argument for that answer as being so unmeritorious as to be not worth advancing. Mr Ham does not think the point is a good one either in relation to any “non-employer” as it were. I am grateful for their realistic assessments.

I should, however, except for the moment from that answer, active Members in respect of whom it might be argued, as much as in relation to employers, that a schedule of contributions restricts the total amount of contributions recoverable.

Issue 38 is more difficult. It only concerns ECHAs in the light of my answer to Issue 23. The question is whether the Trustee is entitled to rely on a contribution rule permitting or requiring contributions in excess of the amount due under a schedule of contributions from persons obliged to contribute under such a schedule.

In a real sense, this question is likely to be of only academic significance so far as the Scheme is concerned. In practice, it must be unlikely that the Trustee will wish to seek contributions which go beyond those necessary to meet the statutory funding objective. The schedule of contributions (whether agreed by the employer or set by tPR) itself will have to provide for contributions which do meet that objective. The questions which I raised in paragraph 116 of my judgment in British Vita are unlikely to arise. If the schedule of contributions proved to be inadequate and its revision were necessary, the Trustee will attempt to obtain agreement to a revised schedule and, failing such an agreement, tPR can impose a revised schedule to ensure compliance with the statutory funding objective. Although section 231(2) does not expressly confer power on tPR to revise a schedule which he has imposed, there must, in my view, be such a power.

In any case, amendment will be needed to the Rules in order to give the Trustee power to seek additional contributions. It will surely be the case that if such a power is introduced it will be one which is exercisable without the agreement of the employers. Accordingly, the Trustee will be able to prepare a schedule of contributions without the agreement of the employers since paragraph 9 of Schedule 2 to the Scheme Funding Regulations will apply. This will not be so if tPR has already imposed a schedule (see section 227(10)) but this is unlikely, I anticipate, to happen in the light of my answer to Question 1.

Indeed, in any scheme where the trustees determine the rate of contributions without the agreement of the employer, it seems to me to make little difference what answer is given to Issue 38. If the trustees are entitled to seek contributions determined by them different from those set out in a schedule which has previously been prepared by the trustees and agreed by the employer, the schedule must be revised in order that section 227(1) read with Regulation 10 is complied with. In contrast, if the trustees can only recover the amounts shown in the schedule, they must revise it in order to obtain any further contributions but, on the hypothesis now under consideration (viz that the trustees are entitled under the rule to make an additional demand for contributions determined by them without the agreement of the employer), they will able to do so without the agreement of the employer. Either way, the contractual obligation and the schedule of contributions will need to match.

The position is more complex if the original schedule of contributions has been set by tPR. I will return to this situation in a moment.

Nonetheless, the Trustee and the employers ask me to give an answer to Issue 38. For reasons which will become apparent, I find it difficult to do so although I hope to give some guidance.

I carried out an analysis of the way in which I saw the provisions working in paragraphs [102]ff of my judgment in British Vita. I do not propose to set those paragraphs out in this judgment although I will need to cover the same territory to some extent. In paragraph [116] I raised a number of questions, the answers to which might have an impact on the proper view of the interrelationship between a scheme contribution rule and the SSF regime. In particular, the powers and duties of tPR under section 231(2) might be relevant.

Mr Ham accepts that the thrust of my judgment was against him and in favour of the view that a scheme rule was not overriden – or disapplied – by a schedule of contributions. He is right to categorise the general direction of my analysis in that way. But I left open the question whether the trustees could recover a higher rate of contribution under the scheme rules in a case where tPR has imposed a schedule of contributions precisely because I thought that the answer was unclear in the light of the uncertainty concerning tPR’s powers: see [116] to [121].

In order to persuade me now to answer Issue 38 in the affirmative, Mr Ham raises some new arguments. First, he submits that one of the purposes of the SSF regime was to introduce, as it is put in a DWP Memorandum, a “greater focus on partnership with trustees working with the sponsoring employer to develop and agree an appropriate funding strategy for their scheme”. I have no difficulty accepting that proposition. But I wonder if Mr Ham goes rather too far in saying that “arguably the greatest problem facing occupational pension schemes in recent years has been the withdrawal of support by employers in the face of volatile funding obligations over which they have no control”. I would have thought that it was not so much the volatility but the absolute cost which was causing problems.

Be that as it may, he submits that to allow trustees to set contributions outside the SSF regime would conflict with the consent requirements under section 229. The SSF regime sets out a process to satisfy the statutory funding objective – a sufficiency of appropriate assets to meet the liabilities. Permitting a different process is inconsistent with the statutory process.

Secondly, as a separate, albeit related point, he says that it was also part of the purpose of the SSF to simplify. I am not sure that that is correct, this aspect of purpose was not so much to simplify but to replace the “one size fits all” approach of the MFR regime with a regime that is scheme specific. I would, in any case, question whether on any view the SSF regime could be said to be simpler than the MFR regime either in its design or operation.

But assuming that he were right in identifying that purpose, he says that if a non-statutory regime continued to have effect outside the SSF regime, it would have had the opposite effect. There would be a statutory scheme specific regime and a parallel scheme specific regime under the scheme rules. There can be no sensible reason, in his submission, for that, bearing in mind the statutory funding objective – a sufficiency of appropriate assets to meet the liabilities. There can be no justification for allowing a non-statutory regime parallel to the statutory one, the effect of which could only be to circumvent the carefully worked out procedure of the SSF regime or to permit the imposition of funding obligations intended to provide more than sufficient assets.

Thirdly, in identifying the correct approach to the meaning and effect of Part 3 PA 2004, Mr Ham submits that I am entitled to take into account the meaning and effect of the Scheme Funding Regulations. I agree, of course, that the answer to Issue 38 will depend not only on Part 3 but also on the Regulations and the manner in which they impact on schemes in the context of the SSF regime generally.

In this context, he refers to paragraph 9 of Schedule 2 to the Scheme Funding Regulations. He suggests that, in British Vita, I did not fully appreciate the significance of that paragraph. He says this:

These are, collectively, powerful submissions. But they do not meet a number of points.

First, the statutory provision which imposes a payment obligation on an employer is section 228(3). It is only if the unpaid amount is not already a debt that it is treated as a debt. Where the payment liability is already a debt, it does not fall within section 228(3). Typically this will be so where the payment obligation arises under the contribution rule; but it could also be the case if the employer has given a one-off covenant outside the rules to meet a specific funding deficit. It would not be right, therefore, to suggest that the statutory funding regime replaces the scheme provisions; rather, the scheme provisions are typically to be reflected in the schedule of contributions.

Secondly, as the answers to Issues 36 and 37 show, there can be contribution obligations which are not affected by the SSF regime. It might be thought curious that the Trustee in the present case (following amendment of the Scheme in the light of my answer to Question 1) might wish to impose very similar contribution obligations on both SCHAs and ECHAs only to find itself unable to enforce a contractual right against the ECHAs because the SSF regime displaces the contratural provision, thus casting a greater burden on the SCHAs (which are not affected by that regime).

Thirdly, even if it is right to take the Regulations into account in working out how the SSF regime impacts on contractual rights under scheme provisions, they will not be determinative of the meaning of the provisions of Part 3 itself. Paragraph 9 was introduced, it appears, to reflect the policy that the powers of trustees to demand contributions should not be watered down, that their unilateral powers should not be diluted. I have already discussed this aspect in answering Question 9. Parliament considered, nonetheless, that there should be an obligation at least to consult, consistent no doubt with the consensual approach which Mr Ham says it was the policy of the legislation to encourage. But Parliament might have decided that the unilateral power to fix contributions should be capable of exercise even without consultation. Further, Parliament might have made Regulations which provided that the schedule need only show the contributions required to meet the statutory funding objective rather than providing, as they do, that all contributions should be shown. I say “all” but even that is not quite correct because voluntary contributions do not have to be included. It could not be maintained, I think, that such provisions would have been outside the enabling powers. Accordingly, it is, I think, the effect of the Scheme Funding Regulations which is critical; and in that context it is to be remembered that the inconsistency with which section 306 is concerned is between the rules on the one hand and Part 3 and any subordinate legislation (see section 306(2)(h)) on the other.

The focus, it seems to me, of the SSF regime is on ensuring that the statutory funding objective is satisfied. It is not part of those provisions (or indeed of the IORP Directive) to prevent a scheme being better funded than that. I can detect no policy, either at an EU level or at a domestic level, to prevent trustees from enforcing payment obligations in excess of those required to meet the statutory funding objective.

Mr Ham, of course, points out that that is precisely what paragraph 9 allows the trustees to achieve but it does so through the schedule of contributions. In my view that is not an answer. The starting point must be, as I said in British Vita, the scheme rules and if they are to be overridden – by which I meant disapplied − there must be clear language having that effect.

I acknowledge, as I must, that the position under paragraph 9 might then seem rather odd. The trustees would be obliged to consult the employer about the contents of a schedule of contributions, but would be entitled to make recovery under the scheme rule notwithstanding that the rule provided for a different level of benefit from the schedule. But a moment’s (or a few moments’ perhaps) reflection show that that is not as odd as it might seem. The trustees may have the power to impose a particular level of contribution. If they exercise that power before the schedule of contributions is revised, they must bring the schedule into line with the contractual obligation under section 227 and regulation 10(1). Since the schedule can only be revised after consultation with the employer, the employer will in practice have the opportunity to make its view known – if the trustees are persuaded that the contribution which they have set is too large, they should then revise it (assuming they have power to do so).

As the first example in paragraph 762 below shows, section 229 can apply so as to require the employer’s consent to a schedule of contributions even where the rules allow a contribution to be imposed on it. Accordingly the provisions of section 229 (or of that section modified by paragraph 9 in the relevant circumstances) are not rendered redundant if trustees are nonetheless able to rely on the contribution rules to obtain additional contributions not shown in the schedule.

Notwithstanding Mr Ham’s submission, there remains a great deal to be said, therefore, in favour of the conclusion that the trustees can rely on the rules of the scheme to require payment of a larger contribution than has been shown in the schedule of contributions. One starts with the rules. The amounts which the employer has to pay are found in a combination of the rules and its obligations under section 229(3).

If it were not for the way in which tPR becomes involved in cases to which section 231 applies, I would have little doubt that the correct answer to Issue 38 would be that the Trustee would not be prevented from relying on the Rules to obtain different contributions to the Scheme. Thus, consider a scheme within paragraph (1) where the trustees have set a contribution rate under the rules which has been adopted in a schedule of contributions. Suppose that circumstances change and a further contribution is required to meet the statutory funding objective and suppose that such further contribution can be imposed under the rules without the employer’s consent. I can see very little merit in an argument which restricts the amount recoverable to that shown in the original schedule of contributions. Rather, the additional contribution is a liability of the employer but section 227 and Regulation 10(1) require the schedule to be revised to show the additional amount payable.

However, the provisions in Part 3 relating to tPR make the position more complex and because they are not, to my mind, entirely clear in their effect, the correct answer to Issue 38 is not clear either.

The first uncertainty relates to Regulation 10(1). For reasons given in [118] of my judgment in British Vita, I consider it to be unclear whether Regulation 10 applies in the case of a schedule of contributions imposed by tPR. Mr Ham suggests that the drafter has not realised that what he has provided does not fit where tPR imposes a schedule of contributions, and that the correct approach − rather than, in effect, ignoring the Regulation − must be to treat the imposition of the schedule as the equivalent of certification in that case. It would therefore be inconsistent with the statutory scheme to permit the trustees to demand contributions in excess of those set out in the schedule – at any rate until it has been revised. In making that last qualification, Mr Ham appears to accept that a schedule imposed by tPR can be revised by it, a proposition which I think must be correct.

Now, Mr Ham may be right. But he is not clearly right and, indeed, I incline to the view that he is wrong. If he is wrong, then the schedule of contributions which tPR imposes may well not have to show all contributions due from the employer, but only those necessary to ensure that the statutory funding objective is met: after all, it is with that objective that tPR is centrally concerned and, tPR may be completely uninterested in examining and giving effect to scheme rules. If this is the true interpretation of Regulation 10(1) and the correct approach to the contents of an imposed schedule of contributions, there is nothing to lead to the conclusion that the schedule is in any way inconsistent with the continuing existence of an obligation under the rules to pay an amount larger than that shown in the schedule.

In contrast, if Mr Ham is right, then the schedule of contributions must show all of the contributions payable (other than voluntary contributions). The question is what this means. Does it mean that tPR must ascertain what contributions are payable under the rules and provide, in the schedule of contributions, that such contributions are payable? Or does it mean that tPR decides what contributions should be payable and include only those in the schedule of contributions, in which case it can be argued that since (a) tPR decides what is to go into the schedule and (b) the schedule shows all amounts payable, therefore nothing more can be required from the employer?

The factual scenarios in which this question can arise are very constrained. I do not propose to set out a list of situations in which it could arise, but I will give two examples.

In the absence of tPR, I am not willing to decide these issues concerning the duties and powers imposed on or given to tPR under Part 3 and the Regulations. It is not necessary for me to decide Issue 38 – at least at the present time – which raises a hypothetical question. I very much doubt that it will ever arise for decision in the context of the Scheme. If it does, it can be addressed further on a different occasion with the active involvement of tPR.

Having said that, I should say that I incline, at present, to the view that Regulation 10(1) does not apply to a schedule of contributions imposed by tPR and that the contents of such a schedule are not, therefore, conclusive as to the amounts for which the employer is liable to the trustees. On that basis, I would answer Issue 38 in the negative, so that the Trustee may rely on the Rules to claim contributions different from those set out in the schedule of contributions.