BT Pension Scheme Trustees Ltd v British Telecommunications Plc & Anor

This is a trial in which the court is invited to determine various questions all of which revolve around the extent of a statutory “guarantee” given by the Secretary of State (now the Secretary of State for Business, Innovation and Skills) in 1984 for the liabilities of the then newly formed and about to be floated British Telecommunications plc (“BT”), so far as it extended to the liabilities of BT under its pension scheme. The claimant is the current trustee of that scheme and it maintains that the guarantee is extremely wide. The Secretary of State contends that it is narrow in various respects to which I will come. They are both parties to these proceedings. The other party is BT itself. It is neutral on the extent of the guarantee, but takes a point in relation to the extent of its own liabilities and advances a point relating to how any guarantee payments should be appropriated.

The parties have prepared various issues to be placed before the court, but it seemed to me that it was not necessary to deal with all of them at one hearing. Indeed, I questioned whether it was appropriate to deal with some of them at all, since on one footing the questions raised were academic and not sufficiently real. In the circumstances, the parties were confined to just some of the issues. If and in so far as any issues remain live and worthy of litigation after this judgment, then directions can be given for their determination.

Before 1969, those engaged in the telecommunications business now conducted by BT were employed by the Post Office, and were effectively civil servants. However, in 1969 the Post Office was separated out from the rest of the Civil Service and became a statutory corporation. It was given power to establish a pension scheme and its 400,000 employees became members of a new Post Office Staff Superannuation Scheme (“POSSS”). Hitherto the employees had enjoyed unfunded civil service pensions. In order that the employees of the Post Office should not lose the benefits of having a civil service pension it was announced that they would have the option of having equivalent benefits within the new scheme. The new scheme was established by a deed dated 24^th September 1969, and it did indeed provide for equivalent benefits to those that they had previously enjoyed. Their pensions were funded by the Post Office. In 1971 the scheme was amended so as to create three sections. The first comprised the then existing non-contributory section. This was closed to new entrants. The second was a new contributory Section A, which attracted civil service benefits and which was also closed to new entrants, and the third was a contributory Section B, which although having civil service benefits on establishment could be amended to provide different benefits. New employees could only join Section B.

In 1981 the telecommunications business at the Post Office was hived off to a new statutory corporation, the British Telecommunications Corporation (the “Corporation”), pursuant to the Telecommunications Act 1981. In 1983 the telecommunications element of the pensions was de-merged from POSSS, and the relevant part of its assets was transferred to a new scheme, the British Telecommunications Staff Superannuation Scheme (“BTSSS”), established by a definitive deed and rules dated 2^nd March 1983. This mirrored the provisions of POSSS. The BTSSS had sections equivalent to those within POSSS, but like POSSS it was not sectionalised in terms of any segregation of funds. The sections merely (for these purposes) reflected the nature of the benefits. The fund was administered as one overall fund.

It is now necessary to turn to the provisions of the deed of the BTSSS. It recites:

“Whereas:

(1)

British Telecommunications acting in pursuance of the provisions of the British Telecommunications Act 1981 has determined that there shall be established under irrevocable trusts a scheme to be known as British Telecommunications Staff Superannuation Scheme … to be interpreted by English Law and having as its primary purpose the securing of pensions and other benefits for or in respect of some or all of the present and future employees of British Telecommunications and the present and future Members of the Corporation in accordance with the Rules set out in the Schedules … hereto.”

The first nine provisions are background and administration. The first important provision is clause 10 dealing with the employer’s contributions.

“Contributions by the Corporation

10.

The Corporation shall contribute to the Fund by monthly instalments:

“(a)

such contributions as are certified by the Actuary as needed to meet the cost of benefits under the Schedule 1 Rules, excluding a member’s contributions towards the cost of family and dependants’ benefits;

(b)

such sums as may be due under Rule 12 of the General Rules;

(c)

such further contributions as may from time to time be required to repair any deficiency reported by the Actuary.”

Clause 12 provides for periodic actuarial valuations and for the making up of deficiencies.

“Actuarial valuations

12(1) on or before the 31^st day of March 1988 and thereafter at the end of such periods not exceeding 5 years as the Trustees shall from time to time determine the Actuary shall make an actuarial valuation of the assets and liabilities of the Fund and shall make a report upon the financial position thereof making therein any recommendations he thinks fit to the Trustees who shall forthwith transmit to the Corporation and to such organisation or organisations as are mentioned in Clause 3(2) a copy of such report and any recommendations they may wish to make in regard thereto.

(2)

Where on any such valuation the Actuary certifies that a deficiency or a disposable surplus in the fund is disclosed the Corporation shall within 3 months after receiving the valuation and report and the Trustees’ recommendations (if any) make arrangements which in the opinion of the Corporation are expedient for making good the deficiency or as the case may require for dealing with the surplus.

(3)

Subject to the provisions of sub-clause (4) if a deficiency is certified in the Fund any arrangements made shall provide for an annual deficiency contribution of such amount as may be certified by the Actuary to be required to make good the deficiency over such period not exceeding 40 years from the date of the valuation as the Corporation may determine.”

For the purposes of this case the contributions to be made under this Clause can be called the “deficiency contributions”.

Clause 17 provides for amendment of the scheme and rules (the latter being technically part of the former for these purposes). Both the Corporation and the Trustees have to participate in such an amendment. No amendment was permitted which would alter the primary purpose of the Scheme or which would reduce the benefits of any person who was at the time entitled to receipt of a pension. I do not need to set out the detailed provisions of that clause.

Clause 20 contains the provision which lies at the heart of this case. It is headed “Termination” and reads as follows:

“20(1) If the Scheme terminates an actuarial investigation shall be made and the Fund shall be realised and subject to the payment of all costs charges and expenses and the Trustees’ liabilities to creditors properly payable thereout the monies then in hand together with such sums as may be due from the Corporation to restore the solvency of the Fund shall be applied under the advice of the Actuary, where appropriate, so far as they permit to the purposes and with the priorities indicated in the following sub-clauses.

…

(3)

On a winding-up of the Scheme, any liabilities of the Scheme in respect of [various obligations including pensions in payment] shall be accorded priority over other liabilities under the Scheme.

(4)

If the assets of the Scheme are not sufficient to meet in full the liabilities specified in sub-clause (3) above, the assets shall be applied to meet those liabilities in the order of priority in which those liabilities are specified in sub-clause (3).

(5)

If after the liabilities specified in sub-clause (3) have been met there are assets in hand then such assets together with any sum due from the Corporation to restore the solvency of the Fund shall be applied under the advice of the Actuary to the following purposes (if and to the extent that those purposes have not been satisfied under sub-clause (3) above), and with the priorities indicated, namely:

First in the purchase from the Government or from any insurance company to which the Insurance Companies Acts 1974 and 1981 apply of non-commutable non-assignable annuities payable under the same conditions as payments receivable under the Rules for those persons who immediately before the winding-up were entitled whether immediately or in reversion to pensions out of the Fund such annuities to be of amounts equal to the pensions to which those persons are then entitled;

Secondly in the purchase in like manner of non-assignable (and in so far as the Trustees may with the consent of the Commissioners of Inland Revenue determine non-commutable) deferred annuities for members and others who might at some future date become entitled to benefits out of the Fund regard being had to their respective prospects of becoming so entitled had the fund continued to exist the amount of their service reckonable for such benefits and the amount of such benefits at the date of termination of the Scheme;

Thirdly any monies which remain after the first two purposes set out in this sub-clause (5) have been satisfied shall be returned to the Corporation.”

The italics in that provision are mine. They emphasise words which are said by the Trustees to import an obligation to contribute on the part of the Corporation.

Rule 12 of the General Rules provides for periodic contributions by the Corporation – it is cross-referenced by clause 10(b) of the deed (above).

Within a fairly short time of the creation of that Scheme the telecommunications business was privatised by means of a government flotation. This was achieved via the Telecommunications Act 1984, with effect from 6^th August 1984 (the transfer date). From that date the business of the Corporation (described in the Act as British Telecommunications) was transferred to BT. The Act contains various provisions for achieving that, some of which are material to this application. For present purposes the principal relevant provisions are sections 60 and 68, and 2 paragraphs in Schedule 5. Section 60 is a general vesting provision:

“60(1) On such day as the Secretary of State may by order appoint for the purposes of this Part (in this Act referred to as ‘the transfer date’) all the property, rights and liabilities…to which British Telecommunications was entitled or subject immediately before that date shall (subject to the following provisions of this section) become by virtue of this section property, rights and liabilities of a company nominated for the purposes of this section by the Secretary of State (in this Act referred to as ‘the successor company’).

…

(4)

References in this Act to property, rights and liabilities of British Telecommunications are references to all such property, rights and liabilities, whether or not capable of being transferred or assigned by British Telecommunications.”

The “successor company” was BT.

Schedule 5 of the Act contains “General transitional provisions and savings”, and two paragraphs are relevant to this action:

“36(1) Except as otherwise provided by the foregoing provisions of this Part of this Schedule (whether expressly or by necessary implication), any agreement made, transaction effected or other thing done by, to or in relation to British Telecommunications which is in force or effective immediately before the transfer date shall have effect as from that date as if made, effected or done by, to or in relation to the successor company, in all respects as if the successor company were the same person, in law, as British Telecommunications, and accordingly references to British Telecommunications

(a)

in any agreement (whether or not in writing) and in any deed, bond or instrument;

…

(c)

in any other document whatsoever (other than an enactment) relating to or affecting any property, right or liability of British Telecommunications which vests by virtue of section 60 of this Act in the successor company,

shall be taken as from the transfer date as referring to the successor company.

…

37(1) It is hereby declared for the avoidance of doubt that

(a)

the effect of section 60 of this Act in relation to any contract of employment with British Telecommunications in force immediately before the transfer date is merely to modify the contract (as from that date) by substituting the successor company as the employer (and not to terminate the contract or vary it in any other way); and

(b)

that section is effective to vest the rights and liabilities of British Telecommunications under any agreement or arrangement for the payment of pensions, allowances or gratuities in the successor company along with all other rights and liabilities of British Telecommunications…

and accordingly for the purposes of any such agreement or arrangement (as it has effect by virtue of paragraph 36 above in relation to employment with the successor company or with a wholly owned subsidiary of that company) any period of employment with British Telecommunications shall count as employment with the successor company or (as the case may be) with a wholly owned subsidiary of that company.”

Thus all employees of the Corporation became employees of BT and their contracts continued as though they had always been employed by BT. All liabilities of the Corporation became liabilities of BT, including the liabilities in relation to pensions. As will become apparent, one of the questions which arises in this action is: What liabilities? In particular, the question is said to arise as to whether those liabilities include liabilities to contribute in respect of employees who became employees of BT, and therefore members of the Scheme, after the transfer date. I shall call them “post-transfer joiners” to distinguish them from “pre-transfer joiners”.

The obligations of BT were backed up by a guarantee given in section 68:

“68(1) This section applies where –

(a)

a resolution has been passed, in accordance with the Companies Act 1948, for the voluntary winding up of the successor company, otherwise than merely for the purpose of reconstruction or amalgamation with another company; or

(b)

without any such resolution have been passed beforehand, an order has been made for the winding up of the successor company by the court under that Act.

(2)

The Secretary of State shall become liable on the commencement of the winding up to discharge any outstanding liability of the successor company which vested in that company by virtue of section 60 above.”

The existence of this guarantee (the “Crown guarantee”) lies at the heart of this case. Its presence, and its effect on various ancillary matters, has made it necessary to deal with the questions that have been raised in this case.

At the date of privatisation of BT the non-contributory section of the BTSSS and Section A were both already closed. Section B initially remained open to new members i.e. new employees of BT. In 1986 BT established a new defined benefits pension scheme, known as BTNPS. New employees were offered membership of this scheme and Section B of the earlier Scheme was, in practice, closed to new entrants as from 1^st April 1986. It was formally closed by amending the Rules in 1989. The BTNPS was a separate scheme, but in 1993 it was merged into the BTSSS by way of a bulk transfer of assets and liabilities. A new section, Section C, of the BTSSS was established, and BTNPS members were transferred into this. The merged scheme changed its name to the British Telecommunications Pension Scheme (“BTPS”). The funds were still not segregated. The sections of the fund remained the mechanism for defining benefits, not segregating funds. From 31^st March 2001 Section C was closed to new entrants. As a result, the BTPS became, and remains, a closed scheme.

The Communications Act 2003 amended the Telecommunications Act 1984. Words were introduced into section 68(2) so that it read as follows (the introduced words being underlined):

“(2)

The Secretary of State shall become liable on the commencement of the winding-up to discharge any outstanding liability of the successor company for the payment of pensions which vested in that company by virtue of section 60 above.”

An explanatory note to the bill reveals that it was thought that the only outstanding liability of BT for which the Secretary of State might be responsible was the payment of pensions.

In 2002 there was a revision of the deed and Rules. The evidence of Mr Roderick Kent, the current Chairman of the claimant (the corporate trustee of BTPS) is that the purpose of the Rules revision was consolidation and turning the words into plain English. Mr Kent was not connected with the Scheme at the time, but his evidence was unchallenged. There was some limited and desultory debate as to whether or not this was material to which it was proper to have regard in relation to a construction question, but I find that I can. The expression of purpose (rather like the description of an Act as a consolidating Act) is part of the relevant factual matrix if clearly enough expressed, and reference to it is admissible. In the end, however, little turns on this.

Rule 31.2 is the apparent equivalent of Clause 20 of the 1983 deed. So far as material it reads:

“31.1

Effect of termination

If the Scheme terminates:

31.1

the Trustees, in applying assets for Members and others who might at some future date become entitled to benefits from the Scheme, will have regard to their respective prospects of becoming so entitled had the Scheme not terminated, the length of their Pensionable Service and the amount of their benefits on the date of termination;

31.1.2

the Trustees will wind up the Scheme as described in this Rule 31.

31.2

Use of Assets

After the Trustees have decided to wind up the Scheme, they will pay all sums that became due for payment before the winding-up started, including lump sums in respect of Members who died before the winding-up started. The Trustees will then set aside sufficient assets to pay the expenses of the winding-up and other liabilities of the Trustees. The Trustees will then use the rest of the Scheme assets together with any amount due from the Principal Company to restore the solvency of the Scheme as described in Rules 31.3 to 31.8 below.”

Clause 3.1 dealt with “contributions by employers”:

“Subject to Rule 27.2 (Actuarial valuations and statements), the Principal Company will

•

Contribute to the Scheme by monthly instalments at a rate not less than that which the Actuary determines is required, after taking account of the contributions payable by Members, to meet the benefits (other than those which are met by additional contributions under Rule 21.3 (Discretionary benefits)) and the costs and expenses payable out of the assets of the Scheme and

•

Make any additional contributions from time to time determined under Rule 27.2 (Actuarial valuations and statements).”

Rule 27.2 contains an apparent equivalent to the old Clause 12, but reducing the period of valuations and reducing the period of time over which a deficit must be reduced:

“27.2

…at such intervals not exceeding three years as the Trustees from time to time determine, the Actuary will make an actuarial valuation of the assets and liabilities of the Scheme. The Actuary will report to the Trustees on the Scheme’s financial position and will make any recommendations in that report that he or she thinks fit…

Where any such valuation discloses a surplus the Principal Company will, within three months of receipt of the Trustees’ recommendations (if any) or the expiry of the period within which the Trustees are required to make such recommendations (whichever first occurs), and after consultation with the Trustees decide how to use the surplus. The maximum period of any reduction or suspension in the contributions payable by the Principal Company will be decided by the Actuary.

Where any such valuation discloses a deficiency on an ongoing basis, the Principal Company will make arrangements for the payment of such contributions as the Actuary advises to repair that deficiency. The period over which these contributions are made will be 20 years from the effective date of the valuation report unless the Principal Company decides on a shorter period. Deficiency contributions shall be made at least annually.”

One of the questions which arises is whether those provisions in the 2002 Rules, and in particular Rule 31, brings about any change to such obligations as might have been imposed by Clause 20 of the 1983 deed.

To complete the picture, there was a further amendment of the Rules in 2009. Although not absolutely identical in wording, the corresponding provisions to those that I have set out from the 2002 Rules are reproduced sufficiently closely in the 2009 Rules to mean that I do not need to have to set them out. The Rule numbering was slightly different; Rule 31 of the 2002 Rules became Rule 33 in the 2009 Rules.

The Fund currently has about 344,000 members. It is the biggest private sector pension fund in the UK. At its last actuarial valuation at the end of 2008 it had assets worth £31.3 billion, a decrease of about £4 billion from the preceding valuation three years before that. On an ongoing basis there are liabilities of £40.4 billion, so there is a deficiency. I was told that that was currently being addressed by deficiency contributions. Measured in terms of liabilities, roughly 80% of the liabilities of the Fund relate to pre-transfer joiners. 20% relates to post-transfer joiners. About 7,000 of the members are employees of participating companies. The original 1983 Scheme did not provide for participating companies. They were allowed in by amendment at some later date.

The issues in this case (at this stage) come back to two points. First, what is the scope, if any, of BT’s obligation under what is now Rule 33 in the event of a termination of the Scheme should the Scheme at that point be insolvent? The Trustee’s contention is that the full implementation of Rule 33 requires the purchase of annuities, and that if the Scheme does not have sufficient funds to purchase those annuities (after providing for its other obligations) then BT is obliged to top it up. It calls this a “buy-out obligation”. BT actually accepts that it is under such an obligation. The Secretary of State, however, does not. He is interested in that point because of the terms of the Crown guarantee. The second major point concerns the extent of that guarantee. Put shortly, the Secretary of State’s position is that it extends only to such liabilities as existed at the date of the transfer. Most significantly for present purposes, it is said not to extend to any liabilities which BT might be under in respect of post-transfer joiners.

I should stress that these questions do not arise because it is perceived that there is any risk that BT is, or is about to become, insolvent, or will otherwise default on its obligations in respect of pensions. Rather, the point arises because of certain collateral proceedings or relationships. The first relates to the Pension Protection Fund (“the PPF”). That is a statutorily established fund which provides assistance in relation to underfunded schemes. The Fund is itself in part funded by levies from eligible schemes. A scheme is not eligible if it is a beneficiary of a public authority guarantee; and levies are abated to the extent that there is a partial guarantee. The details do not matter. For present purposes it is sufficient to note that the extent to which the Crown guarantee operates may affect the extent to which the present BT scheme is obliged to participate in the PPF in certain circumstances, and it may impact on other pension-related obligations.

Those are perhaps the principal reason that the questions are being asked, but there are other reasons as well, including the apparent desire of the Trustees to know where the Scheme stands in relation to certain matters. I do not need to go into those. They may become relevant if and when the court is called upon to address issues going beyond those dealt with in this judgment. It may be that some of the issues which have been expressly raised fall within the realms of the academic which it is not appropriate for the court to resolve. However, I do not need to go into that either. I am satisfied that there are good reasons why this court should deal with the issues which this judgment addresses. The merits of dealing with other issues can be dealt with in due course if and when those other issues are pursued.

For the purposes of the rest of this judgment I take the definition of the issues from a list of issues agreed by the parties.

It is not necessary for the purposes of this issue to address the circumstances in which the Scheme might terminate. The only express provision for termination contained in the original Scheme documentation is one which brings the Scheme to an end on the expiry of a perpetuity period based on a Royal lives clause or a later date if permitted by law. No other events of termination are provided for. However, it is common ground that there may be other such events, for example a winding-up by the court or Pensions Regulator.

This issue turns on the wording of clause 20(1). In particular it turns on the words that appear italicised in the clause as set out above. The essence of the Trustee’s submissions is that those words clearly import an obligation to pay sums on a termination, and the sums in question can only realistically be those required to enable the sub-clause (3) payments to be made, and then to allow the annuities, referred to in sub-clause (5), to be bought. Solvency has an obvious meaning – it means an ability to meet obligations. The plain way in which solvency is to be measured is by reference to the sums necessary to purchase the annuities referred to in the sub-clause (and provide for the sums which were earlier given priority). There is no other sensible candidate meaning, and in particular it is not sensible to take the words as a reference back to the deficiency contributions in clause 12. BT supports this stance and particularly emphasises the preceding Post Office scheme as background.

The Secretary of State does not accept that that obligation is imported via this provision. He says that “solvency” is a term with too many meanings and would not have been used by a sensible draftsman to describe the obligation to buy annuities. The words are too vague to import the large obligation relied on by the Trustees; if the draftsman had really intended that he would, and could easily, have used clearer words. The words “so far as they permit” suggest the sums available might be inadequate to purchase annuities, thus undermining any suggestion that annuity purchase is a measure of the obligation itself. The words presuppose, and do not create, an obligation, and an obvious candidate for that presupposed obligation is at hand in the form of the deficiency contribution obligation in clause 12.

In my view the Trustee and BT are right on this point. I think that a number of powerful points combine to point clearly in that direction.

The first is the background in the form of the preceding Post Office trust deed. Mr Simmonds QC, who appeared for BT, took me back to the relevant deed which is dated 24^th September 1969. Its structure and content have a lot in common with the 1983 deed. In particular its clauses 9 and 11 mirror the 1983 deed’s clauses 10 and 12 (contributions and deficiency payments). Clause 19 of the earlier deed mirrors clause 20 of the later deed though in shorter form:

“If the Scheme terminates an actuarial investigation shall be made and the Fund shall be realised and subject to the payment of all costs charges and expenses properly payable thereout the monies then in hand together with such sums as may be due from the Post Office to restore the solvency of the Fund shall be applied under the advice of the Actuary so far as they permit to the following purposes and with the priorities indicated namely:

first in the purchase from the Government or from any insurance company … of non-commutable non-assignable annuities … [etc]

secondly in the purchase in like manner of non-assignable (and except insofar as the Trustees may with the consent of the Commissioners of Inland Revenue determine, non-commutable) deferred annuities … [etc]

thirdly any monies which remain after the first two purposes set out above have been completed shall be returned to the Post Office

The 1969 scheme was created in the context of the creation of the new Post Office as a statutory corporation, pursuant to which the employees lost their civil service status and civil service pension benefits. The preceding White Paper (1967 Cmnd 3233) dealt with “Position of the Staff” and contained or referred to undertakings on four issues. The fourth was “Superannuation”:

“The Corporation’s superannuation arrangements will be the subject of negotiation with the appropriate staff organisations. As with other nationalised industries, these arrangements will be subject to approval by the responsible Minister.

The aim will be a scheme which can be applicable both to staff transferred to the Corporation and to new entrants; but whatever the details of any new scheme, existing Civil Servants will be entitled to opt instead to have the benefits they would have enjoyed had they not been transferred from the Civil Service…”

This background affords strong support for the Trustee’s and BT’s case in relation to the 1983 deed. The same wording is used within the same structure, and the same security for members is likely to have been intended.

This conclusion is strengthened by the absence of any likely alternative meaning. The Secretary of State, acknowledging that some effect has to be given to the restoration wording, points to the deficiency obligations in clause 12 as being that to which it refers, and thereby provides the only possible candidate for an alternate meaning. This point obviously requires careful consideration. The argument has the following elements:

I find these arguments to be unconvincing both individually and in aggregate. I take them one by one.

Point (i) on the actual words used is a reasonable starting point for the argument, but the force of the point depends on there being a realistic candidate for a cross-reference. It is true that the words used are more apt to describe an obligation referred to somewhere else than to create a new obligation, but they are capable of supporting an inference of a new obligation if other circumstances justify or require it. It is true, but not conclusive, that the draftsman could have achieved the Trustee’s result by clearer words, but that can be said in virtually every construction or implication case.

So the real point is whether the clause 12 deficiency contributions are likely to be the intended cross-reference for the words. I do not think that they are, for a number of reasons. First, it is odd to describe the deficiency contributions, which (on this hypothesis) have been fixed as a result of a periodic review, as being funds which will “restore … solvency” to the fund on a termination. The deficiency payments are designed to replenish deficiencies of a scheme which is a continuing scheme, not a terminating one. The bases of valuation are likely to be different. Second, the deficiency payments are assessed on valuations which might be 5 years apart, so at any given termination date the payments may have been assessed on the basis of a valuation which might be almost 5 years old. It is unlikely that the restoration wording would have been intended to re-iterate an obligation based on such an old valuation. Third, and most telling, under the terms of the 1983 deed in its original form (as indeed under the 1969 deed) the obligation on the employer is to pay the deficiency contributions over a period which might be as great as 40 years. If the restoration wording is intended to do no more than reflect that obligation then the moneys would still be coming in over, potentially, decades, and would hardly be readily available for the purchase of annuities. The apparent purpose of the restoration wording is to give the Trustee funds on the termination, at which point they are obliged to pay capital to buy annuities. Distantly spread out payments are completely inconsistent with that.

Point (ii) is an equally unsatisfactory point from the Secretary of State’s point of view. It is related to the first. There is no particular difficulty in finding a sensible meaning of the word “solvency”, and the absence of any determining mechanism is not fatal. It can be taken to mean a state of affairs in which the assets match the liabilities. That actually underlies Miss Asplin’s point, on a proper analysis of it. The question is by reference to what date, and by reference to what liabilities, does one measure it. Of course, a deficiency is related to solvency in that if there is a deficiency then there cannot be solvency, but the point is no stronger than that. The real question is that just identified. Miss Asplin’s submission requires solvency (or insolvency) to be measured at some potentially quite historic date and by reference to a different measure (continuing fund vs terminating fund). It is her meaning which is, in the context of this subclause, unnatural. Whether or not it is linguistically sensible, it is not commercially sensible. What is more sensible, and therefore a more likely construction, is to measure solvency by reference to the event which has just happened (termination), and that has to be measured by reference to the obligation to purchase annuities.

Point (iii) has some attraction. It is said that if the clause were really talking about restoring the fund to solvency in the sense of requiring the employer to make up the funds so that there was enough to purchase the annuities, then there would be no question of the funds not being sufficient. So the obligation must be referring to something which might leave a shortfall. The answer to this point is that the section requires the employer to pay up, but acknowledges the possibility that it will not fulfil that obligation. In that event there will be a shortfall and the qualifications come into play. I accept that the order of the wording is to some extent inconsistent with that. The wording “so far as they permit” seems to be referring to a fund already restored to solvency. However, I think that this is an inelegancy of the drafting. It may well have been caused by the draftsman taking a precedent and then introducing words at the wrong point (there was evidence of the likely precedent before me), but whether or not that is true as a matter of factual background that is a more satisfactory explanation than an explanation which leaves commercially unrealistic effects in place.

This conclusion is strengthened by submissions made by Mr Simmonds as to the likely genesis of the wording in terms of precedents and identifying the likely precedent used for the deed. He went back to the 1969 roots of the 1983 deed, and put the 1969 deed in its context. To attract the required tax benefits, schemes required Inland Revenue approval, and guidance as to the content of schemes was issued by the Inland Revenue so that schemes knew how to get that approval. I was shown that guidance in a booklet published by the Life Offices’ Association in 1968. The guidance provides that on a discontinuance the fund should be realised and used to secure benefits for members. With limited exceptions, pensions were all to be non-commutable and non-assignable. Annuities with those qualities are also referred to. It was accepted by all parties before me that this guidance would be known to those setting up and running pensions schemes, and I find that it is part of the factual background which I can legitimately take into account in construing the various deeds I have to construe. It is doubtless because of this requirement that clause 19 of the 1969 deed provides for the annuities in the way that it did. At the time of the 1969 deed there were very few precedents for pension deeds, and the most authoritative was a book written by William Phillips. I was shown the 1957 edition. It was not suggested that there was a more up to date version by 1969. In Chapter 9 he provides a precedent for a “Simple non-contributory scheme”. Clause 10 of that precedent bears such striking resemblance to clause 19 of the Post Office 1969 deed that it is likely to have been used as the starting point. It reads:

“10.

If the Scheme is terminated under the provisions of the last preceding Clause an actuarial valuation shall be made and the Fund shall be realised and the moneys then in hand shall be applied under the advice of the Actuary so far as they permit to the following purposes and with the respective priorities indicated:

(1)

In the purchase from the Government or from an insurance company of uncommutable non-assignable immediate annuities payable under the same conditions as payments receivable hereunder for those persons then entitled to pensions out of the Fund such annuities to be amounts equal to the pensions to which those persons are then entitled

(2)

In the purchase in like manner of uncommutable non-assignable deferred annuities for those Members entitled in anticipation to pension benefits out of the Fund regard being had to their respective prospects of becoming entitled to pensions and the amount thereof had the Fund continued to exist – [proviso as to trivial amounts]

Any moneys which remain after purposes (1) and (2) have been completed shall be returned to the Company.”

The wording has been modernised a little, but a lot of it shines through into the wording of clause 19 of the 1969 deed. I have emphasised by italics words which are significant for present purposes. They are repeated in the 1969 deed. I think it plain that the 1969 draftsman had regard to this seminal work, wishing to reflect it whilst adding words requiring a contribution by the employer which could probably have been better placed.

Point (iv) has little weight. If there are outstanding periodic payments due under clause 12 at the date of termination, and clause 20 requires a large capital sum to be paid to restore to solvency, then obviously any outstanding clause 12 payments will be discharged to avoid double counting. That would be an obvious implication. The failure to spell it out expressly does not mean that there is an inconsistency which points one towards the Secretary of State’s construction.

Overall, therefore, I think that the Trustee’s construction is more compelling and I so find. That means that the measure of insolvency is determined by reference to the need to buy annuities. I therefore determine issue 1 in the sense: Yes.

It turned out that this ceased to be a truly independent issue. The Secretary of State’s case relied on an assumption that the Trustee’s case on Issue 1 depended on the actuarial investigation referred to in clause 20. It was thought that the Trustee was going to say that those words contained the mechanism which went to determine solvency, so that their omission in the 2002 rules was significant and gave rise to a change which removed the buy-out obligation if it had hitherto existed. However, the submissions of the Trustee, and BT, disclaimed any such reliance. They made their cases on the footing that the words were irrelevant because the Actuary did not determine insolvency. Mr Simmonds demonstrated that the words were probably a hangover from the precedent to which I have referred.

I confess that I am not wholly convinced that the role of the Actuary has nothing to do with the establishment of solvency, but I agree that solvency can be determined without the Actuary. Had I had to decide it, I would probably have decided that even if the Actuary was to be the determiner of solvency under the 1983 Deed, his omission did not have the effect of fundamentally changing the obligation under the 2002 rules (and thereafter). It would not have made sense to intend to change the obligation of the employer in such a fundamental way by such a drafting sidewind. Had that been the intention in 2002, the words of (implicit) obligation would have been changed instead.

However, either way, the 1983 deed imposed the buy-out obligation, and the 2002 rules were to no different effect. I therefore answer this issue in the sense: Yes.

Issues 4 to 12 by and large deal with possible refinements of the situation if the answer to the rest of this question is Yes. I therefore do not need to consider them in the course of answering this question apart from Issue 4, which I do decide.

The Crown guarantee under section 68 is to discharge only those liabilities which were “vested in [BT] by virtue of section 60”. There is no suggestion that there is or could be any mis-match between liabilities vesting in BT and the liability under the crown guarantee for the purposes of each section, and Mr Glick expressly disclaimed reliance on any such distinction. So since the Crown’s liabilities are fixed by reference to the liabilities assumed by BT, it becomes necessary to focus on the meaning and effect of section 60.

The significance is this. Immediately before the transfer to BT, the Corporation was under certain liabilities under the terms of the pension trust deed. As at that moment, its actual liabilities would be measured by reference to the then existing members. However, the scheme allowed for new members to join the scheme (post-transfer joiners) in the future. When they joined, BT’s liabilities would be measured commensurately. Issue 3 raises the question whether those liabilities are liabilities assumed under section 60 (for which the crown guarantee would stand as backing) or whether they are not (in which case the Crown guarantee would not back them). The Crown says they are not; the Trustees says that they are.

I was taken to various authorities showing the potential width of meaning of the word “liabilities”. Bromilow v Edwards v IRC [1969] 1 WLR 1180 was a case about the word “liability” in tax legislation relating to dividends. Megarry J said (at page 1189H):

“There is a further consideration, namely, the ambit of the word "liability". I refrain from any detailed attempt to explore the various possible meanings of this word. All that I need say is that I have looked at the entries under that word and under "liable" in Words and Phrases (1944) and in Stroud's Judicial Dictionary (1952), 3rd ed., and that it seems plain that "liability" is a word capable of some amplitude of meaning. I say this without discussing the meaning that that word bears in the celebrated classification in Hohfeld's Fundamental Legal Conceptions (1923), where it is the correlative of "power" and the opposite of "immunity”. I do not think that the meaning of the word can be limited … to a present, and enforcible liability, excluding any contingent or potential liability. “…Used simpliciter, the word seems to me to be fully capable of embracing the latter form of liability, as in a surety's liability for his principal before there has been any default."

Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd [2002] VSC 576 concerned when a “liability” for making solvency payments accrued. A company had a pension scheme which provided that it would make contributions at a level not less than that required by solvency requirements set out in legislation. Administrators were appointed to a company and after the administration certificates were provided which determined the liability. The question in that case (or one of them) was whether or not a liability was “incurred by” the administrators in the course of the administration. The Supreme Court of Victoria held it was not. The obligations which were created variously by the trust deed, legislation and employment contracts all arose before the date of the appointment of the administrators.

“As at [the date of appointment] there was an existing obligation and from such obligation arose a liability to pay an amount that would arise upon a future event.” (para. 372)

This case is relied on by the Trustee as demonstrating the concept of a liability which exists on day 1 notwithstanding the fact that the obligation to pay would not actually arise until some future date and where that obligation arose out of future events, such as the continuing employment of employees and the employment of new employees.

What this case really illustrates is the concept of a contingent liability (which hardly needs demonstrating as a concept) and (more significantly) what the concept of liability meant in the context of the question that arose in that case. It supports the proposition that it is not a misuse of the word “liabilities” to use it to cover the obligations that the Trustee relies on, but the context of that case was very different from the context of the present case.

In Gleave v PPF [2008] EWHC 1099 the dispute was as to the valuation of a “claim” under a CVA. A claim was made under section 75 of the Pensions Act 1995 by virtue of the withdrawal of companies from the scheme in 2004, and the relevant actuary’s certificate was provided in 2006. It was common ground, apparently, that there was a contingent claim in 2001, and the judge appears to have accepted that (see para. 18). There was then a dispute as to how to value those claims.

Again the context of this case was different, and the word “claim”, not liability, is the relevant one. It demonstrates that a contingent claim was, in the context of the case, a claim which could be made. For the purposes of the CVA it was valued on the hindsight principle. That context differs from the context that I have to consider.

In Walters v Babergh (1983) 82 LGR 235 the “liabilities” of a local authority were transferred to another authority. This was held to include the “liability” arising out of facts which had occurred before the transfer date (the negligent approval of construction) but which had not yet given rise to a cause of action. Woolf J regarded the word “‘liabilities’ as having some amplitude in meaning” (page 243), following Bromilow & Edwards, and held that it covered the case before him. The Trustee relies on this as justifying a wide meaning being given to the word in the case before me. In my view, context is again all important, as indeed Woolf J himself said:

“It is always dangerous to look to decisions on similar words in different Acts of Parliament as aids to interpretation.” (page 242).

Mr Glick drew my attention to various cases summarised by Norris J in Unite (the Union) v Nortel Networks UK Ltd [2010] EWHC 826 (Ch) which demonstrated a number of instances in which debts were, or were not, held to be bankruptcy debts, depending on the nature of the contingency to which they were subject. These were all cases on their particular facts and in their particular contexts. They do not assist in determining what the relevant word means in the case before me.

It is important to bear in mind the interaction between section 60 and paragraphs 36 and 37. Their combined effect is clearly enough to substitute BT as the employer for all purposes under the pension arrangements, and to make it the counterparty to the pension arrangements for all purposes. It is only the question that arises in this litigation that makes it necessary to work out where section 60 starts and stops. If the Secretary of State is correct then the balance of obligations of BT under the pension arrangements are imposed by paragraph 36 which substitutes BT as the counterparty under the pension deed. If the Trustee is correct then section 60 has a bigger effect, and paragraph 36 sweeps up matters that may not be regarded as rights or liabilities as at the transfer date.

The Trustee argues that the contribution obligations under the pension deed are all a single indivisible liability to pay money. The amount of money payable varies from time to time, and in particular it varies as employees come and go (and in particular come), but the liability to pay the money was imposed at the outset and it was the same immediately before the transfer moment as it was after it, and remained the same when the next new post-transfer employee was engaged. It was that liability that was transferred by section 60. The wording of the deed and the Act are clear, and it is that liability that is “guaranteed” by section 68 because it is that liability that is vested. This construction is said to have the additional benefit of workability. The scheme does not distinguish between pre-and post-transfer joiners, so any moneys paid under the guarantee would swell the general funds of the scheme. There is no way in which a limited payment, intended to be paid purely for the benefit of the pre-transfer joiners, could be applied for only that purpose. (For further elaboration see the section entitled “The hypothecation point” below.) The only way of benefiting pre-transfer joiners to the full extent is to pay in enough to satisfy the obligations of the post-transfer joiners as well.

The Secretary of State advances an argument with more refinements. It looks at the situation as at the transfer date and points out that the obligations as at that date (or immediately before the transfer) could relate only to the then members (pre-transfer joiners). As at that date, there was no obligation to contribute to the scheme in respect of post-transfer joiners, because by definition there were no such people at that point. “Liabilities” at that time could not include liabilities that had no existence then and which would only arise by reason of future matters (within the control of BT) after that date. The submissions sought to draw a parallel with an as yet unmade order for costs to which a litigant might be exposed, which was held not to be even a contingent liability in Glenister v Rowe [2000] Ch 76. Reliance was also placed on R (on the application of the National Grid plc) v Environment Agency [2007] 1 WLR 1780 in which the House of Lords held that a subsequently created statutory liability could not be treated as a “liability” transferred by previous transferring Acts when it did not exist as a liability at the time of those Acts. The argument goes on to rely on absurdity – it is said that it would be absurd to attribute to Parliament an intention to create a statutory guarantee for employer contributions in respect of all members of the BT scheme, whenever they joined. As at the transfer date there was no provision for termination of the scheme, and it was prospectively open in perpetuity (though it happened subsequently to have been closed to new entrants), with the potential for a huge and unjustified liability under the guarantee. Furthermore, such a guarantee liability might have amounted to unlawful state aid, which Parliament should not be taken to have intended. Last, in resisting the wide interpretation advocated by the Trustees the Secretary of State relies on statements made in the House of Lords during the passage of the bill, under the rule in Pepper v Hart.

Part of the Secretary of State’s case depends on approaching the matter through section 68, and not through section 60. The absurdity argument (and probably the Pepper v Hart point, as will appear) depends on looking at the effect of the guarantee provision if “liabilities” in section 60 means what it the Trustee says it means. Since sections 60 and 68 are part of the same statute there is nothing wrong, in principle, in looking at them together in order to reach an answer on the construction of one of them, but the technique must be kept in its place and it is important to keep an eye on what it is that is being construed.

In my view what is being construed is section 60. No party (not even the Secretary of State) argued that the expression “liability” in section 68 might bear a different meaning from that which its plural form bears in section 60. That seems to me to be right. The material expression in section 68 is “any outstanding liability of the successor company which vested in [BT] by virtue of section 60…”. So the exercise involves working out what the effect of section 60 is in terms of liabilities, and then applying section 68 to that.

Section 60 is an important part of the scheme in which a successor company is set up and takes over the enterprise of the Corporation. As part of that scheme benefits and detriments (to use a neutral word) have to be transferred. BT has to stand, in all respects (apart from some immaterial excepted respects), in the shoes of the Corporation. Section 60 is the section which performs the important vesting function. It transfers rights and “liabilities”. One would expect all contractual liabilities, to their fullest extent, to be incorporated in that word. Otherwise the scheme cannot work. Paragraph 36 has a useful sort of mopping up function to perform in this area (amongst other important functions), because it effectively substitutes BT as a party to all transactions in which the Corporation was a named party, so if there was something which might or might not have been a liability, but which affected the Corporation anyway, then it affects BT equally. But one would expect section 60 to be the primary section.

There can be no doubt that BT has become liable to make contributions in respect of post transfer joiners under the pension trust deed. The question for me is whether it is liable because of section 60 alone, or because of a combination of section 60 (dealing with pre-transfer joiners) and paragraph 36 (which brings in obligations in respect of post-transfer joiners).

The “liability” under consideration is one which arises under the pension trust deed. It is a liability to the Trustee, not to individual members. The obligation arises under covenants. The covenants are to pay money from time to time in the future, that money being measured in various ways – some mechanical (depending on the contributions of others – see Rule 12), some dependent on the assessment of the actuary. Those moneys will be affected, inter alia, by the number of employees from time to time. However, the liability remains the same. I agree with Mr Steinfeld that the liability is a single, indivisible liability. The obligation, in legal terms, remained the same either side of the transfer date. The same is true of the liability. Its quantum is measured differently from time to time, but in legal terms the liability is the same. It is not divided up by reference to classes of members, or those who are members from time to time. It is one obligation (liability) to a trustee, not a series of obligations to employees.

It is this “liability” that is transferred on the transfer date. Immediately before that date it is a single liability, extending into the future. After the transfer date it is the same thing. It is true that at that moment it is measured by reference to the then existing members; but that is its measure. No new “liability” arises when a new employee is taken on and becomes a member. The existing liability merely increases in amount.

The Secretary of State’s case is that the liabilities immediately before the transfer date fall to be identified and that those are transferred under section 60. So far as the pension deed is concerned, those liabilities amounted to a package which did not include an indirect liability to make contributions referable to post-transfer joiners. Mr Glick described an indirect liability as arising to them when BT chose to employ them, and that indirect liability arose only after the transfer date and therefore did not transfer under section 60. That seems to me to be false analysis. The corporation had no liabilities at all to any employees (in a meaningful sense of that concept) under the deed. It had a liability to the Trustee. There was no “indirect” obligation to employees.

That seems to be the natural way of reading section 60. Other than points arising out of the guarantee there is no reason for reading it any other way. It would be possible to make the transfer mechanisms work if “liabilities” were narrowly construed, and that is because of paragraph 36. Thus if “liabilities” were given the very narrow meaning (adverted to, but not seriously advanced, by Mr Glick) of accrued liabilities but not future liabilities (so that in the terms of pensions it would cover merely sums actually due and unpaid, but no more) then future payments would become payable by BT by virtue of the operation of paragraph 36. Similarly if in fact one viewed sums due in respect of present and future entitlements of pre-transfer members as the only liabilities which transferred under section 60 (as the Secretary of State would have it), paragraph 36 would fix BT with liability for the rest. However, the fact that a rational overall structure would be produced in that way is no reason for forcing what seems to me to be an artificial construction of “liabilities” on section 60. It must be remembered that section 60 operates across the whole business of the Corporation. It is not confined to pensions. It is a blunt but effective instrument, designed to shift property, contractual and other rights and obligations from the old entity to the new. If the old entity is liable, then and to the same extent so is the new. If there is, for example, a lease with a rent review clause in, then the liability to pay future rent is, in my view, a liability, and that liability includes the reviewed rent. Any division of the rental obligation between pre-and post-transfer rent periods, or pre-review and post-review rent, for the purposes of section 60 would be an artificial and forced reading of the section. It is the same with pre- and post-transfer date pension payments under the deed, whether in respect of pre-transfer joiners or post-transfer joiners. They are all part of the one liability. The parallel which is sought be drawn between the as yet unmade costs order in Glenister v Rowe and the liability in respect of future members is not a good one. Neither is it appropriate to describe the liabilities in respect of post-transfer joiners as “inchoate” (as Mr Glick did) as at the time of the transfer. They were perfectly choate – they had just not been quantified.

The Secretary of State advances various reasons why a different analysis is required; I have referred to them, or some of them, above. On analysis most if not all of them stem from the operation of section 68. If it were not for that section the question would not arise at all – indeed, it would not be apparent that there was a question.

The first is absurdity. It is said that it would be absurd to suppose that Parliament intended that the Crown should assume the risk, unlimited in time and quantum, for payment in respect of employer contributions for all present and future members, and all benefit increases that BT might think fit to give.

The first thing to note about this argument is that it is not directly an argument about section 60. It is an argument about the alleged absurdity of the guarantee in section 68. It is not at all absurd that section 60 should transfer the liabilities of the Corporation under the trust deed both in respect of the pre-transfer joiners and the post-transfer joiners. It is a perfectly sensible transfer mechanism. What this argument seeks to do is to use the alleged absurdity to give a meaning to “liabilities” in section 60 which it would not otherwise be thought to bear, or perhaps more accurately to require an analysis of the concept of liability under the deed, for the purposes of section 60, which it would not otherwise bear. This is an approach which must be treated with care. I accept the principle that statutes should be construed, if possible, to avoid absurdity, but this approach aims absurdity at the wrong target. It requires a vesting provision to be viewed so as to make sure that the secondary guarantee provision does not have an absurd effect. I do not think that that is a legitimate exercise in this case. The vesting provision is itself a vital provision which must be given proper effect. I think that that effect is (for these purposes) clear. In the context of the pension deed it does not draw any distinction between pre-transfer joiners and post-transfer joiners. If the guarantee goes too far then that is a problem with section 68, not section 60. I do not think that it would be appropriate to use it to construe section 60 differently.

All that assumes that the provision is as absurd as the Secretary of State says it is. The Secretary of State pushes the consequences of the Trustee’s argument to an extreme in order to set up the absurdity. He seems to say that it would mean that, via section 60, the guarantee would catch whatever liabilities BT decided to impose in itself by way of augmentation of benefits, amendment of the deed and Rules or (probably) otherwise.

In my view this extreme position is not required by a decision that liabilities to post-transfer joiners are within the Crown guarantee. One needs to consider carefully just what liabilities fell within section 60 – just what liabilities were transferred? This involves trespassing into the area covered by the fourth question which I am asked to decide.

So far as the trust deed was concerned it was the liabilities under the trust deed as it then stood. As at the transfer date those liabilities were defined by the deed and the Rules in their then state, and would be measured accordingly. Those liabilities are measured by reference to future events in relation to the fund, but they still fell to be measured by reference to the documents as they then stood. If a new employee were taken on by BT, the liability remained the same though the amount payable might increase.

The deed contained a power of amendment. Take the case of a voluntary increase in the amount of the obligation imposed by BT brought about by an amendment of the deed or (more likely) the Rules. That would be a consensual variation of the original liability. I do not see that it is inevitable that that would be a liability which vested under section 60. In my view it would no longer be the same liability as originally vested. BT would be liable, but not purely by virtue of section 60. It would be liable by virtue of the operation of paragraph 36 which effectively substitutes BT as a party to the pension deed and binds it to the Rules when amended. Accordingly, at least to the extent that the nature of the liability is now greater in extent as a consequence of the amendment, it is not the liability which vested under section 60. This seems to me to be a perfectly sensible analysis which undermines Mr Glick’s absurdity arguments.

Anticipating questions which arise later, the same in my view applies to amendments which bring in another class of members, namely the employees of subsidiaries. The deed contained such a power, and it was in due course exercised. However, any new obligation which arises and arose by virtue of an amendment does not impose a liability which vested at the transfer date under section 60. It is a new liability. It is greater in scope, and it is a liability to which BT is subject, but in my view it does not vest under section 60. It arises by virtue of the fact that paragraph 36 had put BT in the shoes of the Corporation so far as the pension scheme is concerned.

This explains why liabilities in respect of the employees of newly adhering companies are not within the scope of the Crown Guarantee. The liabilities did not vest under section 60; those liabilities did not exist at the transfer date. As will appear, it provides the answer to the fourth question which I am asked to decide.

This sort of analysis would not normally be necessary. In the course of BT’s general operations, it is clear that a combination of section 60 and paragraph 36 (and paragraph 37) puts BT for all purposes in the shoes of the Corporation so far as the pension arrangements are concerned. It would not normally matter exactly how that happens. But section 68 makes it important, because it only guarantees the liabilities which vest under section 60, so a degree of dissection becomes necessary. Liabilities which arise otherwise are not guaranteed. In my view a liability which arises as a result of an amendment of the deed or Rules is no longer exactly the same liability as vested under section 60.

This is the answer (or part of it) to Mr Glick’s absurdity point. He makes his case by putting the potential liabilities under section 68 too high. It demonstrates that the combined effects of section 60 and section 68 is not inevitably to burden the Secretary of State with potential liabilities of huge scope at the whim of BT if the Trustees’ arguments on post-transfer joiners are correct.

This analysis is actually in line with another of Mr Glick’s submissions which he invoked in relation to question 4. He drew an analogy with the general law of guarantees and said that a guarantor was not liable for additional liabilities arising from variations of the principal contract unless it is clearly agreed – see (it is said) Triodos Bank NV v Dobbs [2005] EWCA Civ 630. I agree that it would require clear wording in the statute to allow BT to have the sort of blank cheque that Mr Glick’s absurdity arguments presuppose, and that that wording is not present. The potential liabilities under the guarantee are therefore not at the absurd level required by Mr Glick’s submissions.

Accordingly Mr Glick’s absurdity arguments do not assist him at this stage in the argument.

The next point taken is that if the Trustee’s case were right then it would “create additional difficulties in terms of prohibited State aid under EU law” (to take the description appearing in Mr Glick’s skeleton argument). The difficulties are said to be that the existence of the guarantee might amount to unlawful state aid under European legislation. The point is not that the Trustee’s case would mean that the guarantee would clearly amount to unlawful state aid; it is no higher than that it might have that effect and that the more post-transfer joiners’ benefits were within it, the greater the risk that it would amount to unlawful state aid.

This is a point of no weight. I accept that if one of two constructions of a statute would amount to an unlawful state of affairs under community legislation and the other one did not then that would be an important pointer against the former construction because Parliament would be unlikely to intend its statute to have that effect. However, the present case is nothing like that. It is put no higher than “might”, and the extent of that risk was not debated or demonstrated before me. Furthermore, if it assists, and as appears below, it was actually the government’s view that what prevented its being state aid was not the fact that it did not cover post transfer joiners, but the fact that the guarantee operated only in the event of a winding-up, and not whilst the company was trading. That would seem to coincide with the European Commission’s view. In 2009 it gave a decision on a complaint about the guarantee (No C 55/2007). By this time domestic legislation about pensions had materially changed the landscape, and that was the real context of the consideration of the guarantee on this occasion. Its decision records an earlier decision in 2007 thus:

“(38)

In that decision, the Commission held the view that, on its own, the Crown guarantee on BT’s pension liabilities in case of BT’s insolvency, after being wound up is of benefit only to employees and therefore does not confer any advantage to BT since it does not affect the credit rating, investment, or employment policy of BT. The Commission therefore concluded that the Crown guarantee … did not constitute State aid within the meaning of Article 87(1)EC.”

It cannot be said that this Commission decision determined that there was no problem with a guarantee relating to post-transfer joiners, because at the time it was the common position of all the parties, including the Trustee, that it did not. What can be said is that the Commission’s decision is based on a reason which would apparently still apply even if post-transfer joiners were covered, so it is not clear that their being covered would have made any difference. Therefore it remains very uncertain whether that factor would give rise to state aid, and it remains in the realms of “might”, not “would”, which deals with the Secretary of State’s point.

It also suffers from the same difficulties as the previous point. It is a point about the scope of the guarantee, not the meaning of “liability” in section 60, which is where all parties seem to consider the debate has to start.

The strongest point that the Secretary of State has is the next one, which is a Pepper v Hart point. During the passage of the Bill Lord Mackay, apparently then piloting the bill through the House of Lords for the government, made pronouncements as to the intention of the government upon which the Secretary of State now relies.

Pepper v Hart [1993] AC 593 allows for reference to be made to Parliamentary material, in aid of the construction of a statute, The essential principles are encapsulated in the speech of Lord Browne-Wilkinson at page 634:

“In my judgment … reference to Parliamentary material should be permitted as an aid to the construction of legislation which is ambiguous or obscure or the literal meaning of which leads to an absurdity. Even in such cases references in court to Parliamentary material should only be permitted where such material clearly discloses the mischief aimed at the legislative intention lying behind the ambiguous or obscure words. In the case of statements made in Parliament, as at present advised I cannot foresee that any statement other than the statement of the Minister or other promoter of the Bill is likely to meet these criteria.”

The statement made by Lord Mackay on which reliance is placed fulfils the criterion in the last of those sentences. The debate in the present case centred around whether the wording was sufficiently ambiguous, obscure or absurd to fall within the first of the three tests in that paragraph. Mr Steinfeld submitted that the words used in the statute were not ambiguous or obscure, and did not lead to an absurdity, so one never got as far as looking at what was said in Parliament. Mr Glick did not go so far as to say they were obscure, but he did say they were ambiguous, and he relied on an absurdity in the effect of the guarantee if it was to cover all liabilities to pre-and post-transfer joiners.

Mr Steinfeld drew attention to what Lord Hoffman said in Robinson v Secretary of State for Northern Ireland [2002] UKHL 32 at para. 40:

“I am not sure that it is sufficiently understood that it will be very rare indeed for an Act of Parliament to be construed by the courts as meaning something different from what it would be understood to mean by a member of the public who was aware of all the material forming the background to its enactment but who was not privy to what had been said by individual members (including Ministers) during the debates in one or other House of Parliament.”

I should therefore start by considering the possible meanings of the relevant words to see if the ambiguity/absurdity gate is passed through. I do so again bearing in mind that the principal word that is being construed is “liabilities” in section 60, not the words “liability of the successor company which vested … by virtue of section 60” in section 68.

If one looks at section 60 in that light, it is hard to see why it is ambiguous for present purposes. One does not necessarily consider ambiguity in some sort of factual vacuum. Any ambiguity can really only arise in a context. Here the context is the burden of the pension deed. In that context “liabilities” prima facie means the obligation of the Corporation under the trust deed. I think that that is unambiguous. It is not rendered ambiguous because the attentions and ingenuity of lawyers have managed to posit a breakdown of those liabilities between those which relate to (in the sense of being quantified by reference to) pre-transfer joiners and those which related to post-transfer joiners. One can look at that particular “partition” of the liabilities and identify it as rather an odd contrivance for the purposes of section 60. The section works perfectly well (indeed better) without it. There is, in my view, no ambiguity in the wording. Nor is any ambiguity introduced by the presence of section 68. This merely follows the earlier section.

Mr Glick’s other point was on absurdity. I have referred to this above, and dealt with it there. For the reasons I have already given, section 60 does not give rise to the absurdity referred to, and the guarantee is not of arguably absurd width either. I agree that if the inclusion of post-transfer joiners brought in a wide range of “liabilities” which Mr Glick relied on in his absurdity argument the position would be very strange. But that is not an inevitable consequence of extending the construction of “liabilities” beyond those reflecting the claims of pre-transfer joiners.

Again therefore it seems to me that Mr Glick’s absurdity argument is one which itself sets up a deliberately extreme argument in order to be able to set up the absurdity that he seeks to rely on. That is not a sound foundation for allowing the introduction of the Parliamentary material. I would not allow it in.

However, even if that conclusion is wrong, and the material is admissible because there is potential absurdity, I do not think that in the end it assists the Secretary of State’s case. The material is as follows.

At the time of Lord Mackay’s statement what became section 68 was numbered clause 66. He made his statement because of a question raised by Lord Weinstock. The question was one about subsidies. Lord Mackay replied:

“… the Secretary of State is taking responsibility for the liabilities of British Telecom as at the date of transfer if the successor company, on being wound up, does not meet those liabilities. The reason for that is that up until the time of transfer British Telecom, being a nationalised operation, would be understood to be supported by the Government and, therefore, those who were creditors of it would have become creditors on that basis.

“Among these obligations perhaps the one of most interest is that relating to the pension provision for the employees of British Telecom as at that date. I think that that is perhaps particularly the point to which the noble Lord, Lord Weinstock, referred. Under Clause 66 the Government stand behind British Telecom plc in backing the fulfilment of those pension liabilities which are vested in British Telecom plc at the transfer date, so that the employees as at that date have the backing of the Government for their pension arrangements, which seems a very reasonable provision.”

One of the liabilities so vested would be a requirement under the pension fund trust deed to ensure that there are sufficient funds available to meet the pension entitlements of current employees who are already members of the pension scheme at the time of the transfer when they come to retire in the future. Accordingly, the Government stand behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after the transfer date.

The Government also stand behind the British Telecom public limited company's liability to ensure that there are sufficient funds available to meet the entitlement of British Telecom pensioners at the time of the transfer; that is to say, those who are already pensioners. However, there will not be any Government backing for pension obligations for new recruits who will join British Telecom plc and the pension scheme after the transfer date.

This is not a subsidy because, first, the Government guarantee would come into effect only if British Telecom plc were to go into liquidation, and would be directed to recompensing the creditors, not saving the company. The guarantee -- and this is the second reason why it is not a subsidy -- does not apply to fresh obligations which British Telecom plc would take on after the transfer date....

.... It is concerned only with making certain that so far as current employees' pension entitlements are concerned, they have the same backing for the performance of these as they would have if the company were in state ownership."

It is thus apparent that what Lord Mackay was referring to was section 68, and section 68 alone. He was expressing a view as to what the guarantee covered, so far as pension liabilities were concerned. But the section does not just deal with pension liabilities; it deals with the complete range of liabilities of the Corporation. So Lord Mackay was not dealing with the purpose of, or the mischief behind, the section; he is expressing a view as to one of its effects. That is a statement of a lesser order than a statement about the intended purpose of or mischief behind a section. It is also a statement about the wrong section for present purposes. Because of the clear cross-reference back to section 60, and an apparent equation of the liabilities in each section (which equation Mr Glick accepted) the real question is what was meant by “liabilities” in section 60. If these statements of Lord Mackay were to assist the Secretary of State’s case they would have to be translated into statements about what “liabilities” meant in section 60, but it is apparently no such thing. For the Secretary of State to be able to deploy this material this Parliamentary exchange would have to be taken to be an indication as to the intention of Parliament as to the effect of section 60. I do not think it can be read as that. The guarantee is (in traditional parlance) a secondary liability, and while, as I have acknowledged, it might be possible to use a guarantee provision to construe the primary liability, that is not a sensible approach in this case, and it would not be proper to take this apparent expression of intention as to one of the effects of the guarantee as expressing the intention of Parliament as to the effect of the primary provision. Mr Glick pointed out that in Pepper v Hart itself Parliament’s view of one provision of the Finance Act had an effect on another (the charging provision), but that was a different sort of case. That case concerned the meaning of a definition section. Once the definition section was properly construed, it obviously had an effect on the charging provision which it supported. There is no parallel with the present case.

The conclusion that one thus arrives at is not wholly comfortable, because it appears that in the case of the pension trust deed the Act does not operate as the relevant Minister considered that it would. However, it is unlikely to be the first time that this sort of thing has happened.

In the circumstances I do not consider that a reference to the Parliamentary material assists the Secretary of State’s case.

In the circumstances the liability under the section 68 guarantee is not limited to those who were members of the scheme at the time of the transfer, and post-transfer joiners are capable of being included.

This question arises because, since the transfer date, the employees of employers other than BT have become members of the scheme. The Trustee claims that these are post-transfer joiners, and that the liability in respect of them is the same as the liability in respect of those who joined BT itself after the transfer date, so the guarantee covers them. The Secretary of State disputes that position. In doing so, he says that “liabilities” does not include liabilities created for the first time after the transfer date, that the liabilities in respect of this class of member are new for these purposes and that they came into existence by reason of BT’s own actions and choices. He also relies, by way of analogy, with principles extracted from the law of contractual guarantees which are said to provide that a guarantor is not liable for additional liabilities arising by way of variation the principal contract, unless that is clearly agreed – see (it is said) Triodos Bank NV v Dobbs [2005] EWCA Civ 630.

The factual position was that, as at the transfer date, there was no power to admit the employees of companies other than BT into the scheme. The power to admit them was created in 1986 by an agreed variation of the scheme. As pointed out above, the deed contained a power to vary by agreement between the Trustee and BT, but until that power was exercised so as to permit the introduction of these members they could not be introduced. Their introduction was and (if it happens again) will be the result of two types of acts of choice on the part of BT – varying the deed, and acquiring the subsidiaries whose members were and will be allowed to join the scheme.

Once again the answer to this question depends on a careful analysis of the “liabilities” vested under section 60, bearing in mind the interaction with, and operation of, paragraph 36, and that answer appears above. As at the transfer date the liabilities in respect of the pension were as they were defined by the deed (and Rules). They amounted (for these purposes) to an obligation to make certain contributions, and those contributions took place against the background of the rules as they then stood. True it is that the deed and rules could be varied, but that variation would be the result of an act of choice by BT. When varied by allowing the adherence of other companies, the liability under the deed then becomes, in my view, different. The original liability vested under section 60. Thereafter BT was substituted as a party to the deed by virtue of paragraph 36, and any alteration in its liability under the deed is imposed not by virtue of the vesting under section 60 but by virtue of its being a deemed party to the deed by virtue of paragraph 36. It is, if one likes, a new liability, but it is certainly not the old one any more. It is not one which could have been imposed without BT’s agreement; it arises only because BT has agreed to allow it to be imposed. So it was not part of what was vested under section 60.

This analysis makes sense in the context of section 68 (and is perhaps an example of what I have referred to above, namely using a guarantee provision to assist in the construction of the liability provision which it guarantees). The legal liabilities, as liabilities, which were vesting could be seen at the date of the Act. One looked at the deed to see what they were. It makes sense to guarantee those. One could at least identify them even if their financial scope, and their practical scope, were uncertain at that time. What does not make sense is to have the guarantee extend to self-imposed liabilities arising out of an amendment of the liability-creating document itself. That would give BT an absurdly free hand in increasing the benefit of the guarantee. I agree that there are some limited analogies with contractual guarantees here – one would require such a thing to be clearly spelled out. It is highly unlikely that Parliament would intend that, and the sensible interaction of the statutory provisions does not require it.

The factor of choice is not, by itself, a method of determining whether something is within sections 60 and 68 or not. The engagement of a new employee within BT is an act of choice, and capable of swelling the liability to contribute to the pension fund, but that does not, in my view, somehow exclude that part of BT’s obligations from the scope of section 60. The nature of BT’s contractual obligations under the deed is unaffected by the engagement of the employee; its liability to pay is the same as the liability to pay in respect of pre-transfer joiners; it therefore vested under section 60. “Choice” does not affect that analysis. Where choice does come in is where it results in a variation of the contractual liability itself (and not merely its quantum). The introduction of employees of another group company is as a result of such a variation of the original liability (as defined by the deed and rules as at the transfer date).

I acknowledge that there is an unsatisfactory random element about this distinction. If BT decides to take on employees directly, rather than taking on a subsidiary which employs them, or taking them on through its own subsidiary, then it would be liable for contributions in respect of them by virtue of the vesting of liability under section 60. However, that is a consequence of the drafting of the statute, with its generalised provisions, and the complex operation of pensions schemes.

So far I have been assuming a case in which the employees in question were never BT employees – cases such as takeovers and establishing subsidiaries with fresh employees. The position of liabilities in respect of BT employees who transfer out to a subsidiary and remain members of the scheme might be different. There is a limit to the hypothetical refinements which can be appropriately considered in proceedings such as these. I say nothing about that at present.

I therefore consider, in relation to question 4, that liabilities in respect of service with participating employers other than BT are not covered by the crown guarantee, at least where the employee in question was not originally employed by BT.

This point was not formally raised in any of the formulated questions before the court, but it is a point that arises and it is of significance to the members of the fund. It arose against the background of the possibility that the guarantee would apply in relation to pre-transfer joiners only. The point is this. The pension fund is unsegregated – it is not partitioned as between the various classes of the members. Assume that the guarantee applies only to pre-transfer joiners (as the Secretary of State contended). In the event of an insolvency of BT, and a shortfall in the pension fund, a sum would have been payable under the guarantee calculated by reference to the claims of those pre-transfer joiners. But since the fund is unsegregated, and in the absence of some mechanism providing to the contrary, the guarantee contribution would simply go into the unsegregated fund and be applied across the board and not merely in favour of pre-transfer joiners, thus diluting its effect for pre-transfer joiners and defeating the object of the guarantee.

Mr Simmonds, appearing for BT but taking the point on behalf of pre-transfer joiners, argued that the answer to that was that the circumstances required a hypothecation of the guarantee contribution, that is to say that the guarantee contribution would be applied purely to those for whose benefit it was intended. He argued for this conclusion as a matter of statutory construction – one should read words into section 68 so that it ended:

“… and, in the case of such a liability owed to trustees under any arrangement for the payment of pensions, the benefit of this provision shall be held by such trustees for the benefit exclusively of the person to whom such pensions are payable.”

This would seem to me to be a pretty ambitious piece of construction, but I do not propose to decide anything about the point, for at least two reasons. First, the premise of the argument (that only pre-transfer joiners are covered by the guarantee) is not correct, and it is not clear how the argument would run on the footing of what I consider to be the correct construction of the two statutory provisions. Second, persons other than the parties before me are interested in the argument. The PPF apparently has an interest, and they were specifically told that the point would not be dealt with at the hearing before me. They might well have wished to make representations if they had known it was being debated after all, but have been deprived of the opportunity of doing so. So if the point still exists, it would be wrong for me to decide anything about it at this stage.

Accordingly I make no determination on the hypothecation point.