Capita ATL Pension Trustees Ltd & Anor v Gellately & Ors

In this action, which was begun by a Part 8 claim form issued on 9 July 2010, the trustees (“the Trustees”) of the Sea Containers 1990 Pension Scheme (“the Scheme”) ask the court for directions about the administration of the Scheme. The Scheme is a defined benefits occupational pension scheme. The claim was issued after lengthy pre-action discussions between the parties, and sought in brief:

The claimants, Capita ATL Pension Trustees Limited and Mr David Stocks, are the present trustees of the Scheme. They are represented by Mr Jonathan Hilliard of counsel, instructed by Squire Saunders & Dempsey (UK) LLP.

The first defendant, Mr Paul John Gellately, is a current deferred member of the Scheme: that is to say, he was formerly an active member employed by a participating employer who accrued benefits under the Scheme, but he is no longer so employed and (being in his early forties) he is not yet in receipt of the Scheme benefits which he earned during his period of active membership. Mr Gellately is represented by Mr Jonathan Evans of counsel, instructed by Wragge & Co LLP. He has been joined in order to argue that the purported amendments were all invalid, thereby (in general, and subject to certain exceptions) increasing the value of members’ benefits.

The second defendant, Sea Containers Limited (“SCL”), is the Bermudan parent company of Sea Container Services Ltd (“SCSL”), the former principal employer of the Scheme. SCL is now in liquidation. It has been joined to argue that the purported amendments were effective. As I will explain, it is in SCL’s financial interests to do so, although the factual background is both unusual and a little complex. SCL is represented by Ms Sarah Asplin QC and Mr Fenner Moeran of counsel, instructed by Bingham McCutchen (London) LLP.

The third defendant, SCXCT Limited, is the Scheme’s only current participating employer. It was brought into existence for technical reasons, and has played no active role in the proceedings.

In a little more detail, the nature of the amendment issues is broadly as follows. The original documentation of the Scheme, although it was entered into a few months after the European Court of Justice had given its ground-breaking decision in the Barber case (Barber v Guardian Royal Exchange Assurance Co [1991] QB 344), nevertheless provided different minimum pension ages (“MPA”) and normal retirement dates (“NRD”) for men and women. An attempt was then made to equalise benefits for new joiners in 1991, but this was not done by deed as the relevant enabling provision required. However, the Scheme was then administered on the footing that the changes had been validly introduced, and in April 1995 a Definitive Deed and Rules were executed. In December 1995 a further attempt was made to equalise benefits, and to make various other changes to the benefit structure, for all members. Again, however, this was not done by deed, but by an announcement sent to members, and the position was only formalised by way of a deed in 2003. Meanwhile, the Trustees had administered the Scheme on the footing that the December 1995 changes, like their predecessors in 1991, were valid and effective.

By question 1 in the claim form the Trustees ask the court to determine whether the 1991 equalisation attempt was effective, and if so in relation to which categories of member. Questions 2 and 3 address the 1995 equalisation and amendment attempt, and ask whether it was effective on various possible grounds (namely the existence and exercise of a freestanding power to modify NRD by agreement, extrinsic agreement and estoppel), and if so on what basis and against whom. Questions 4 and 5 raise various consequential issues about the administration of the Scheme. Question 6 asks the court, in effect, to make a Benjamin order (see Re Benjamin [1902] 1 Ch 723) in relation to the British Rail Members.

In the event, there has proved to be a large amount of common ground between the parties about how the questions should be answered, and only a few live issues concerning the December 1995 transactions were fully argued before me. Those issues were, in short:

Nevertheless, the Trustees still seek declarations in relation to all the questions in the claim form, and it is therefore necessary for the court to be satisfied that it is appropriate to grant them, even if the parties are in agreement. I will therefore need to deal with all the questions, but I will do so briefly where there is no dispute. I can say at the outset that I agree with all of the proposed answers to the non-controversial questions, and I am satisfied that it is appropriate for the court to grant declaratory relief accordingly.

For similar reasons, although I still need to describe the relevant history and background to the case, I will do so in less detail than would be necessary if all the questions raised in the claim form were still live and contested.

On 15 October 2006 the Sea Containers group filed for protection under Chapter 11 of the United States Bankruptcy Code in Delaware. The group included SCL and SCSL. This left the Scheme with a large funding deficit which SCSL, as the principal employer, was unable to meet. The position was the same in relation to the Scheme’s larger sister scheme, the Sea Containers 1983 Pension Scheme (“the 1983 Scheme”), of which SCSL was also the principal employer.

On 15 June 2007 the Pensions Regulator, in exercise of the powers conferred on it by section 43 of the Pensions Act 2004, issued financial support directions to SCL in respect of both schemes. Following extensive negotiations, the financial support ultimately put in place, and approved by the Pensions Regulator, consisted of rights granted to the trustees of the two schemes under a Chapter 11 plan of re-organisation of SCL, SCSL and another Sea Containers group company, which itself gave effect to an earlier settlement agreement between SCL, SCSL and the trustees of the two schemes. The plan was confirmed by the US court on 24 November 2008, and became effective on 11 February 2009.

For present purposes the details of the Chapter 11 plan are not important. It is enough to note that:

These arrangements explain why it is in SCL’s interest to argue that all of the amendments were valid, thus making the equalisation claim as small as possible and increasing the amount left over after meeting the claim which SCL can use for other purposes. Moreover, a court decision on the amendment issues, whether by way of a substantive determination or the blessing of a compromise, is necessary under the escrow agreement in order to trigger the Trustees’ right to prove for the equalisation claim.

It is also convenient to deal at this point with the Scheme’s relationship with the Pension Protection Fund (“the PPF”). The position is clearly explained as follows in the skeleton argument of Mr Hilliard for the Trustees:

Mr Hilliard goes on to explain that the position of the Scheme in relation to the PPF has three important consequences for the claims now before the court.

First, it explains the interest of Scheme members in relation to the amendment issues. If the relevant amendments are invalid, this would affect the level of pensions that many Scheme members were entitled to receive under the Scheme rules, and in the vast majority of cases would increase their pensions. Accordingly, if the Scheme’s assets were transferred into the PPF, the invalidity of the amendments would increase the value of the PPF compensation that such members would receive (the level of PPF compensation being related to members’ entitlement under the rules). Similarly, if the Scheme were wound up outside the PPF, the invalidity of the amendments would increase the share of most members but decrease the share of others. The result of this is that it will be in the interests of most members to argue for the invalidity of the amendments, but it may be in the interest of others to argue that the amendments were valid. Given the difficulty of determining which members fall on either side of the line, it is intended that the class represented by Mr Gellately should be defined by reference to their interest in arguing that the amendments were invalid rather than by any other criterion.

Secondly, it explains why SCXCT came into existence and why (having no assets) it is content to play no role in the present proceedings.

Thirdly, it explains why the issue concerning the British Rail Members needs to be determined. If the Scheme winds up outside the PPF, the Trustees will need to distribute the Scheme assets between members, and they will therefore need to know who the British Rail Members are, or at least who they may safely assume the British Rail Members to be. Similarly, if the Scheme goes into the PPF, the PPF will itself need to know who the British Rail Members are, and it is likely that the PPF would require the Trustees to resolve the question before issuing a transfer notice to take over the assets of the Scheme. The PPF commonly requires trustees to sort out any issues about the benefit structure of a scheme before the end of the PPF assessment period: see for example Walker Morris Trustees Limited v Masterson [2009] EWHC 1955 (Ch).

The Sea Containers group originally operated only one pension scheme, namely the 1983 Scheme. In the mid 1980s the group acquired a number of companies, including the Sealink business associated with British Rail. This included businesses at various ports, such as Newhaven, Heysham and the Isle of Wight services. The employees of those businesses were members of a different pension scheme, the Sealink (UK) Limited Pension Scheme (the “Sealink Scheme”). From January 1986 the Sealink Scheme also contained a number of former members of the British Railways Superannuation Fund New Section, who transferred their benefits together with the relevant assets to the Sealink Scheme. Indeed, the result of this transfer was to multiply the assets of the Sealink Scheme approximately twelve fold.

At the beginning of 1990, the Sea Containers group was re-organised. Most of the Sealink side of the business was sold by SCL to Stena (UK) Ltd, but five or six of the smaller port businesses (including Newhaven and Heysham) remained in the Sea Containers group. In July 1990 Sealink issued a number of announcements relating to the Sealink Scheme which informed members, among other things, that it would no longer be possible for them to be contributing members of the Sealink Scheme; that a new scheme would be established with effect from 1 September 1990 which was designed to provide them with identical benefits; that they would be entitled to join the new scheme from its inception; and that they could either leave their past service benefits in the Sealink Scheme or transfer the assets representing such benefits into the new scheme.

The 1990 announcements attached a “Summary of the Benefits”, from which I quote the following extracts:

The Scheme was then established by an Interim Deed dated 21 August 1990, with effect from 1 September 1990 when the remaining members of the Sealink Scheme transferred across. In accordance with what was then the usual practice, the 1990 Interim Deed did not set out the structure of the Scheme in any detail, but instead expressly referred to the 1990 announcements which were annexed to it. The parties to the deed were SCSL, the six original participating companies, and seven individuals who were the initial trustees of the Scheme.

Recital (C) recorded that:

The operative clauses of the deed established the Scheme under irrevocable trusts with effect from the commencement date, and obliged SCSL and the Trustees to execute a definitive deed (and rules made thereunder) within two years or such longer period as the Board of Inland Revenue might agree. Subject thereto, the Scheme was to be implemented in the meantime (clause 5(f))

Clause 26 was headed “Amendment of Interim Trust Deed”, and provided as follows:

Although the 1990 announcements referred only to MPA (62 for men and 60 for women), and said nothing expressly about NRD for members, it is common ground that the NRD was always intended to be 65 for men and 60 for women. Accordingly, the Scheme from its inception provided a degree of flexibility for men (although not for women) about the age at which they could retire and take normal retirement benefits. However, this benefit structure was overlaid by the equal pay requirements of EU law. On 17 May 1990 the ECJ had given its decision in Barber, holding that pensions provided by private occupational pension schemes constituted pay for the purposes of Article 119 EEC, and therefore that in respect of pensionable service accruing on or after the date of the decision the pension benefits of the disadvantaged sex had to be levelled up to those of the advantaged sex.

The effect of this on the MPA and NRD provisions of the 1990 Interim Deed was as follows. Female members who wished to accrue a pension by reference to the MPA and NRD enjoyed by male members (namely MPA of 62 and NRD of 65) were free to do so in respect of service accrued on or after 17 May 1990. They might wish to do so if, for example, they preferred to accrue extra years of pensionable service and then have their pension calculated by reference to their salary at 65 rather than 60. In such a situation, women would be the disadvantaged sex. Conversely, male members who wished to accrue a pension by reference to the MPA and NRD enjoyed by female members (namely 60) were also free to do so in respect of service accrued on or after 17 May 1990. They might wish to do so if, for example, they preferred to take their pension at 60 and did not mind missing out on the extra years of pensionable service that they would otherwise accrue up to 62 or 65. In this type of situation, men would be the disadvantaged sex. It is important to note, however, that the effect of Barber was only prospective, because of the temporal limitation on the judgment imposed by the ECJ.

At the time of these purported amendments the Scheme was still governed by the 1990 Interim Deed, because a definitive deed and rules had not yet been executed. The evidence establishes that by late 1990 or early 1991 consideration was being given to increasing MPA for all new joiners to 62. Such a step would have been permitted by EU law to the extent that it was prospective, that is to say to the extent that it related to service accruing on or after the date of any such amendment. In January 1991, a draft announcement was prepared, saying that from 1 January 1991 all new “entrants” would have MPA of 62 and NRD of 65. The draft announcement was in the following terms:

There is no evidence, however, that this announcement was ever finalised or circulated to members, nor is there any evidence of presentations having been prepared or made to members at the relevant ports. It is material to note at this point that the Scheme was from the beginning administered at a local level by each of the participating employers. This means, in practice, that decisions are likely to have been implemented differently in different places; that it cannot safely be assumed that there was any uniformity of practice; and that there is no single source of comprehensive documentary information available.

Nevertheless, there appears to be no doubt that the Scheme was in fact administered by the Trustees on the basis that members who began employment on or after 1 January 1991 had an MPA of 62 in respect of service up to 1 February 1996 (when the 1995 amendments referred to below were intended to take effect). Consistently with this, fact sheets appear to have been issued to members in 1992 saying that MPA was 62 for male members and for all female members who joined the relevant company on or after 1 January 1991.

The 1990 Interim Deed was eventually superseded by a Definitive Deed and Rules dated 26 April 1995 (“the 1995 Deed and Rules”). Clause 1 of the 1995 Deed provided that it and the 1995 Rules were made in pursuance of the Interim Deed, and were intended to be construed and take effect “in like manner as if they had been executed on the same day as and immediately after the Interim Deed”. Clause 21, headed “Power of amendment”, provided as follows:

Rule 1 of the 1995 Rules contained definitions of MPA and NRD which I need to quote:

Rule 7 provides for payment upon retirement on the Retirement Date of a pension of n/60ths of average Scheme Pay during the last 12 months of service, together with a lump sump of n/40ths of Pensionable Pay. The lump sum was payable in addition to the pension and did not require any commutation. Rule 9 provided for early retirement before MPA, while rule 10 provided for late retirement after NRD. As one would expect, the benefits payable on early retirement were subject to reduction to reflect the fact that the pension would begin before MPA, while a pension paid following late retirement would be increased to reflect its later commencement date by the application of a late retirement factor. Alternatively, a member who retired late could elect to receive a normal retirement pension on NRD.

The effect of the definitions of MPA and NRD in the 1995 Rules was that MPA could be either 60 or 62, depending on the member’s sex and employment history, and NRD could be either 60 or 65, again depending on the member’s sex and employment history, but subject also to the qualifying words “except where otherwise stated or otherwise agreed by the Employers and the Trustees”. The definitions were clearly drawn on the footing that the 1991 attempt at equalisation had been valid, and was intended to put it on a formal basis. If, however, the 1991 equalisation attempt had been ineffective, it would not have been possible for the 1995 Deed and Rules to remove accrued post-Barber rights retrospectively: see Harland and Wolff Pension Trustees Ltd v Aon Consulting Financial Services Ltd [2007] ICR 439. Accordingly, it is common ground that for post-1990 new joiners, if the 1991 equalisation attempt was ineffective, the 1995 Deed and Rules could only raise MPA and NRD to 62 and 65 prospectively.

For those who became employees before 1 January 1991, the 1995 Deed and Rules replicated the position under the 1990 Interim Deed and the 1990 announcements, that is to say an MPA and NRD of 60 for women and an MPA of 62 and NRD of 65 for men.

A second attempt at equalisation took place by means of an announcement to members (“the 1995 Announcement”) under cover of a letter dated 21 December 1995. The main points covered by the 1995 Announcement were as follows:

NRD was henceforth to be 65 for both men and women, and the concept of MPA disappeared;

the definition of “Scheme Pay” was altered by reducing the deduction in respect of the Lower Earnings Limit from 150% to 100%, thereby increasing total contributions and benefits under the Scheme; and

cash lump sums were abolished for service after 31 January 1996.

The covering letter of 21 December 1995 read as follows:

The 1995 Announcement included the following passages:

Attached to the 1995 Announcement was an acknowledgement form stating:

The evidence indicates that the distribution and collection of the forms was not dealt with centrally, but was put in hand at a local level by each of the participating employers. The forms were then probably sent to head office. It has not been possible to track down the relevant local records.

The Trustees’ evidence sets out the steps that have been taken in an attempt to find out how many signed declarations were returned by members. The information was sought by way of a questionnaire sent to members in August 2009. The total number of members at that date was slightly less than 600, of whom 109 replied. Of the 109 responses:

There is also some evidence of presentations having been given to the members. In her witness statement Alison Clarke describes the procedure which was followed, and says that she travelled to the various sites and ports where the presentations were made with a representative of the Scheme administrators, Sedgwick Noble Lowndes Ltd. On 1 March 1996 she prepared a note for her fellow trustees of the Scheme recording the progress of the presentations, which had met with a generally favourable reception at Folkestone and Newhaven, but a degree of hostility at Heysham. Despite this, however:

In her statement Alison Clarke also says this:

Finally, on 29 October 2003 a replacement Definitive Deed and Rules were executed. There is no dispute that the benefit structure set out in this document included the changes made by the 1995 Announcement, and therefore that from 29 October 2003 at the latest all members accrued future pension benefits by reference to NRD of 65 and no MPA.

Against this background the first question that I need to consider is whether there is any basis upon which the purported equalisation in respect of new joiners in 1991 could have been valid. I frame the question in that way because clause 26 of the Interim Deed required any amendment to the deed or to the 1990 announcements to be effected by deed executed by SCSL with the consent of the Trustees, but there is no evidence that such a deed (or indeed any deed purporting to implement the necessary amendments) was ever executed.

All parties are agreed that this question should be answered in the negative. Their reasons are briefly as follows:

I agree with all of these reasons, and am therefore satisfied that question 1 on the claim form should be answered accordingly. The effect of this is that members who became employees on or after 1 January 1991, or who first joined the Scheme after that date although they had become employees earlier, were entitled to elect to accrue a pension by reference to MPA and NRD of 60 in respect of their pensionable service accrued between 17 May 1990 and 25 April 1995.

The next group of questions concerns the purported equalisation exercise in December 1995, and again the starting point is that there was no compliance with the express terms of the power of amendment, now contained in clause 21 of the 1995 Trust Deed. The changes set out in the 1995 Announcement were not incorporated in any deed until 2003, nor is there any evidence that a board resolution was passed by SCSL to amend the 1995 Rules in accordance with the announcement. However, it is argued by SCL that the words “or otherwise agreed by the Employers and the Trustees” in the definition of NRD in the 1995 Rules conferred a separate and free-standing power to alter NRD for new and existing members of the Scheme alike, and that this power must be taken to have been exercised even though the formal requirements of clause 21 were not satisfied. These contentions are opposed by Mr Gellately.

The argument advanced by Ms Asplin QC in favour of the existence of a free-standing power begins with the general principles applicable to the construction of pension scheme documents. She referred me to the well-known observations of Warner J in Mettoy Pension Trustees v Evans [1990] 1 WLR 1587 at 1610-11, where he said that “the court’s approach to the construction of documents relating to a pension scheme should be practical and purposive, rather than detached and literal”. Warner J went on to say that, although there are no special rules which govern the construction of pension scheme documents, the background facts or surrounding circumstances in the light of which they have to be construed include four special factors. The first factor is that the members are not volunteers, and their rights have contractual and commercial origins. Secondly, the documents have to be construed in the light of Inland Revenue (now HMRC) approval requirements. Thirdly, the background facts include “common practice from time to time in the field of pension schemes generally”. Fourthly:

Ms Asplin also referred me to the principles helpfully stated by Arden LJ (with whom Waller LJ and Auld LJ agreed) in British Airways Pension Trustees Limited v British Airways Plc [2002] PLR 247 at [26] to [32], including in particular the following statement at [28]:

With these principles in mind, Ms Asplin argues that the express inclusion of an exception to the general definition of NRD shows that there must be a power to modify NRDs by agreement, and that to hold otherwise would make the relevant words in the definition nugatory. The only question, therefore, is about the extent of the power. The words themselves are of the widest nature, and there is no reason to read them in a more restrictive way. Ms Asplin does not suggest, however, that there are no limits on how the power can be exercised in practice. She accepts that it must be exercised:

subject to statutory limits and EU law;

by the employers in accordance with their duty of trust and confidence (see Imperial Group Pension Trust Limited and others v Imperial Tobacco Limited and others [1991] 1 WLR 589);

reasonably; and

in the context of an Inland Revenue approved scheme, subject to the Inland Revenue requirements for approval.

On behalf of Mr Gellately, Mr Evans does not dispute any of the general principles on the construction of pension scheme documents which I have mentioned, but he warns against the danger of seeking to construe the scope of powers arising under the Scheme in such a way as to ensure that an intended result has been validly achieved. Where a pension scheme contains a power of amendment, but makes that power subject to compliance with certain formalities, the court should be very slow to permit that requirement to be avoided by accepting the efficacy of an amendment which does not comply with it. If the employers and the Trustees intended to make a change to the Scheme, but failed to comply with the necessary formalities, then they failed to amend the Scheme.

Mr Evans goes on to submit that, construing the 1995 Deed and Rules as a whole, the power to amend is contained in clause 21, and it would undermine the very real protections which clause 21 confers if the definition of NRD were read as enabling the Trustees and the employers to amend a member’s NRD without observing any formalities. The wording in the definition of NRD was included as a matter of cautious drafting, and allows for two possibilities. The first is that NRD might be defined differently elsewhere in the rules for particular purposes. Secondly, it allows for the possibility of an exclusion or carve-out from the general definition when a new member joins the Scheme. On this interpretation the wording does not confer a power to amend at all, and at most it provides for possible exclusions, on an individual basis, from the definition of NRD which would otherwise apply.

In support of his argument Mr Evans relied on the approach and reasoning of Morgan J in Capital Cranfield Trustees Limited v Beck [2008] EWHC 3181 (Ch), where the issue was again the relationship between a power conferred in the definition of NRD and the amendment provision in the scheme. The definition of NRD in that case was (in short) 60 for women and 65 for men, or

Having set out the competing arguments, Morgan J stated his conclusions as follows:

Morgan J then went on to deal with certain other arguments that had been raised, including an argument that the power in the definition of NRD was only available to be exercised at a time when the member in question decided whether or not to join the scheme. Morgan J left the point undecided, but commented in [40] “that the argument in favour of this suggested limitation on the power is a strong and persuasive one”.

In her oral submissions to me Ms Asplin suggested that the assistance which I could gain from Beck was limited, because the decision turned to a large extent on the precise wording of the power in paragraph (ii) of the definition. The wording in the present case, by contrast, is far more general, and is not confined to determination of a particular day in a particular case which then has to be notified to the member concerned. I have those differences well in mind, and it is of course true that a decision on the scope of a differently worded power in the context of a different pension scheme can be of no more than persuasive assistance to me. Nevertheless, I draw comfort from Morgan J’s approach in [38] to the relationship between the power in the definition and the general amendment power in rule 41, because it seems to me that a similar approach points the way to the solution in the present case.

In my view, construing the 1995 Deed and Rules as a whole, the parties did not intend that the power to agree a different NRD should be able to prevail over the formal requirements of clause 21 where the proposed change to NRD was of general application. Where a scheme-wide amendment to the rules is in issue, one expects to find that certain formalities have to be complied with, and it is to the amendment clause that one turns in order to find out what those formalities are. In the present case, the formalities are a deed or (in the case of the Rules) a deed or a board resolution. In either case, there will be a formal document setting out the changes and evidencing the requisite consent to them of the Trustees. It is inherently most improbable that the parties ever contemplated the possibility of making changes, across the board, to something as basic as NRD for all members, without having to comply with the formalities prescribed by clause 21. Furthermore, a definition in the Rules is not where one would expect to look to find a general power of that nature. I am satisfied, therefore, that the power in the definition should be construed as confined in its scope to special arrangements made in relation to individual members, and that it was not wide enough to authorise a general equalisation of NRD in respect of all future service. What is the point, one may ask, of having a circumscribed power of amendment, if it does not apply to something as fundamental as that?

In these circumstances it is unnecessary for me to decide whether the power in the definition was exercisable only when a member joined the Scheme, or whether it could also be exercised thereafter. I see much force in Mr Evans’ contention that the power ceased to be exercisable once a member had joined the Scheme and acquired a NRD, but as the point does not arise for decision I prefer to leave it open.

My conclusion on the scope of the power also makes it unnecessary for me to decide whether, if the power had been wide enough, it was in fact exercised. Since the point was fully argued, however, I will briefly state my views on it.

Ms Asplin argued that the necessary agreement between the Employers and the Trustees to make the changes to NRD set out in the 1995 Announcement should be inferred from:

Mr Evans disagreed, for a number of reasons. First, he argued that the 1995 Announcement was not itself an exercise of a power to amend NRD, nor did it evidence any such exercise. Rather, it was a notification to members of an intended rule change, and nothing more. Mr Evans relies in particular on the use of the future tense throughout the 1995 Announcement, and the explicit statement near the end that “Rule amendments and a revised fact sheet are being prepared. In the event of any conflict between this announcement and the formal documents, it is the formal documents which will prevail”. This wording, he says, is inconsistent with any intention to effect any change to the Scheme other than by means of a formal amendment complying with clause 21.

Secondly, Mr Evans submits that there is anyway no clear evidence of agreement by the Trustees to the changes, although the evidence does indicate that there was some discussion of the proposed changes at trustee meetings.

Thirdly, the agreement would have had to be with “the Employers”, not just with SCSL. “The Employers” are defined in the 1995 Rules as meaning:

Finally, Mr Evans submits that the words at the end of the 1995 Announcement quoted above show a positive intention not to exercise the power contained in the definition of NRD, with the result that no reliance can be placed on the principle in Davis v Richards & Wallington.

Had it been necessary to do so, I would again have preferred the submissions of Mr Evans on this part of the case. It is clear (and I do not think Ms Asplin disputed) that the 1995 Announcement itself did not purport to make any changes to NRD: it was just an announcement of intended future changes. Nor is there any evidence that the participating employers other than SCSL had at this stage given their formal consent to the changes. Thus the argument has to be that the necessary agreement between all of the employers and the Trustees can be inferred from the future administration of the Scheme by the Trustees on the footing that the changes had been validly made. But the evidence is equally compatible with the possibility that the Trustees mistakenly assumed that the changes had been validly made, in much the same way as they did in 1991. Given the history, that seems to me a much more realistic inference to draw than that the Trustees and the employers actually reached an agreement on the changes to NRD, separately from the rest of the changes proposed in the 1995 Announcement. It would have been most peculiar to reach an agreement only in relation to NRD, and not in relation to MPA (the definition of which did not admit of variation by agreement) or any of the other changes heralded in the announcement. Further, I agree with Mr Evans that the wording of the announcement evinced a clear intention to implement all of the proposed changes by means of the amendment power in clause 21, and thus negated any intention to rely on the power in the definition of NRD. There is therefore no room for operation of the principle in Davis v Richards & Wallington.

To conclude, for the reasons which I have given my answer to both limbs of question 2(a) on the claim form (as to the existence of a free-standing power) is No, and question 2(b) therefore does not arise; but if it did arise, I would have answered it too in the negative.

Question 3 on the claim form relates to the whole of the 1995 Announcement, and asks whether it was binding on any members (and, if so, which) as a result of (i) contract or (ii) estoppel. Having given the matter careful consideration, counsel for SCL concluded that there were no reasonable arguments which could be run on this issue in relation to the general membership of the Scheme as a whole. The reasons for this are briefly as follows. For an argument based on contract to get off the ground, it would be necessary to show an intention to create legal relations, offer, acceptance and consideration: compare South West Trains Limited v Wightman [1997] OPLR 249, [1998] PLR 113. In the present case, however, the only form of acceptance that could be relied upon would be the signature and return of the acknowledgement form at the end of the 1995 Announcement. Further, it would be hopeless to argue that merely continuing to work for the same employer after the 1995 proposed changes had in fact been implemented could constitute sufficient consideration to support a contract, given the absence of any provisions in members’ contracts of employment relating to pension benefits and the general difficulty of ever persuading a court that continuing to work can constitute consideration for a variation of a contract of employment, let alone for a free-standing extrinsic contract: see for example the decision of the Employment Appeal Tribunal in Jones v Associated Tunnelling Co Limited [1981] IRLR 477 at paragraphs 21-23. Accordingly, a pre-requisite of any successful argument founded on contract would have to be the return of signed acknowledgement forms. The position is the same in relation to estoppel, because estoppel by representation would require a representation to be made by the members, and estoppel by convention (or conduct) would need more than mere acquiescence, and in the case of the membership of the Scheme as a whole no such representation or conduct can plausibly be identified. Again, it is only in relation to those members who signed and returned the 1995 acknowledgement form that an argument based on estoppel can properly be advanced.

I agree, and therefore turn without more ado to the way in which the contract and estoppel arguments were advanced by Ms Asplin in respect of the relevant members, that is to say those who signed and returned the acknowledgement form appended to the 1995 Announcement. I have already referred to the evidence filed by the Trustees which establishes that at least 13 of the active members in 1995 signed and returned the form: see paragraph 42 above. I should add that Ms Asplin accepts that it cannot be inferred from this that all of the active members did likewise, because on the Trustees’ figures at least 9 of the active members recalled receiving the 1995 Announcement but did not confirm returning the form. Further, between 10 and 20 active members either did not receive, or did not recall receiving, the 1995 Announcement (the uncertainty arises because 10 of the responses were anonymous, so the status of the member could not be identified). These figures need to be assessed in the context of a total active membership in 1995 of approximately 120. In these circumstances, Ms Asplin’s submissions apply only to those cases where there is positive evidence to support the conclusion that a member signed and returned the form. Where there is positive evidence supporting the conclusion that the member did not sign and return the form, it is agreed that the Trustees should treat them as not bound by its terms. Where there is no positive evidence one way or the other, Ms Asplin says that the Trustees should for the time being treat them as not bound, but if evidence comes to light in future that a member did sign and return the form, he or she should then be treated accordingly.

The contract argument in relation to the actual signers runs briefly as follows. The 1995 Announcement made them an offer, either to agree to the proposed changes and sign the form, or to refuse and effectively cease membership of the Scheme. There is some evidence that this is how the matter was in fact presented to members in Alison Clarke’s memorandum of 1 March 1996, which records that at Heysham the union representative asked at the end of the meeting what would happen if he did not signify acceptance of increased contributions, to which the representative of the Scheme administrators (Mr Collins) “replied that this was his choice but, of course, he would be opting out from the Scheme”. Plainly, says Ms Asplin, this was not presented to the members as a fait accompli, and they accepted the offer by signing and returning the slip. There was an intention to create legal relations, shown most clearly by the reference to consent to money being deducted on the new basis, and there was consideration to support the contract because the benefit structure changed, including in particular the change in the definition of “Scheme Pay” which generally had the effect of increasing benefits for members. It follows that all the requirements for a binding legal agreement were in place, and in relation to the signing members the Scheme should be administered on that basis by the Trustees.

The argument based on estoppel is to similar effect. There was an express, positive representation by each signer that contributions could and should be taken from his pay, and that the Scheme should be administered, on the basis set out in the 1995 Announcement. The Trustees and the employers relied on those representations to their detriment, and it would be unconscionable to allow the members in question to go back on the representation today simply because a mistake was made about the formal amendment procedures.

Finally, Ms Asplin submits that whether the matter is analysed in contract or estoppel, all the changes announced in the 1995 Announcement must stand or fall together. There is no realistic way to distinguish between them, or to take some out and leave others in.

The contrary argument, advanced by Mr Evans, is that by signing and returning the form the member was doing no more than agreeing to the deduction of contributions from his pay at the new levels if and when the announced changes to the Scheme were validly introduced. The declaration on the form did two things: it acknowledged receipt and understanding of the changes set out in the 1995 Announcement, and it gave consent to the deduction of contributions on the basis set out in the 1995 Announcement. It was not, and did not purport to be, an agreement to accept the changes, nor was it an agreement not to contest their validity. If the purpose of the form had been to request the member’s consent to the changes, one would expect the Trustees to have taken active steps to obtain such consent before administering the Scheme as if the changes had been validly implemented; but the evidence suggests that the great majority of members did not return signed declarations, in which case, if obtaining consent was the object, the Trustees would have been bound to take active steps to obtain it. Their failure to do so is a clear indication that there was never any intention to create a contract by means of the 1995 Announcement, and therefore no offer and no acceptance.

The reality, submits Mr Evans, is that members were presented with a fait accompli and simply asked to say that they understood what was proposed. Further, the wording at the end of the 1995 Announcement, making clear that it was the formal Scheme document which would confer and determine the extent of the members’ legal entitlements, is fatal to any suggestion that the declaration on the form was intended to create contractual rights.

In relation to estoppel, Mr Evans says that the legal analysis is different but the factual analysis is similar. By signing the declaration, the relevant members were neither representing nor evincing an understanding or acceptance that the changes were valid, nor did they or the employers or the Trustees then act in reliance on such representation or in accordance with such an understanding. The members were simply indicating their understanding of a fait accompli. Further, it would be an unattractive conclusion if the court were to find that those few members in respect of whom there is evidence that they signed and returned the form are bound by some form of estoppel, yet the great majority of members then in active service for whom there is no such evidence are not. In effect, the co-operation and honesty of those members who responded to the Trustees’ requests for information about the 1995 Announcement would be penalised.

In considering these submissions I will begin with the contract argument. Looking at the matter objectively, and in the light of the surrounding circumstances, I ask myself whether a member who received the 1995 Announcement would reasonably have understood it to be an offer which would give rise to a concluded contract, binding him to accept its terms, if he signed and returned the attached form. In my view there are a number of factors which, both singly and in combination, tell strongly against any such analysis.

First, the terms of the 1995 Announcement itself say that it was intended as “a brief summary of the changes”, and that presentations would be held in January 1996 “when the changes will be fully explained and you will have the opportunity to ask questions”. It therefore did not purport to place the member in a position where he could fully understand the nature and effect of the proposed changes. That in turn makes it most improbable that anybody could reasonably have supposed it to be a document with potential contractual effect, and which would mature into a concluded contract upon acceptance.

Secondly, this impression is reinforced by the express statement that rule amendments were being prepared, and that in the event of any conflict with the amendments “it is the formal documents which will prevail”. The clear implication is that the 1995 Announcement was not itself a formal document, and that the necessary changes to the rules would be made in the usual way, by exercise of the power of amendment in clause 21 of the 1995 Trust Deed.

Thirdly, although the information contained in the 1995 Announcement was avowedly incomplete, and presentations were to be held in January, members were nevertheless asked in the covering letter to return the form “as soon as possible”. If the return of the form was intended to give rise to an immediate contract, one would expect the letter and the announcement to have said that the informed consent of all members was necessary, and that the form should not be signed and returned until the presentations had taken place, any questions which the member might have had been answered, and the member had a full understanding of the changes in their entirety.

Fourthly, if the 1995 Announcement was intended to give rise to a contract, it is wholly unclear who the parties to the contract are supposed to have been. The covering letter was written on the notepaper of SCSL, and the announcement was likewise signed on behalf of SCSL, which was the principal employer under the Scheme. But many of the members will have been employed by other participating employers, in which case one would expect the member’s employer to have been a party: after all, in the absence of centralised pay-roll arrangements (of which there is no evidence) it was the employer who would pay the member’s salary from which contributions in the new amount would be deducted. Nor is there any indication that the letter and the announcement were sent on behalf of, or intended to bind, the Trustees, although no amendment to the 1995 Trust Deed or Rules could be made without their consent.

Fifthly, there is no obvious reason why SCSL, the other participating employers or the Trustees should have sought to bind the members contractually to acceptance of the whole package of proposed changes. Clause 21 enabled the changes to be made by SCSL with the consent of the Trustees, and the 1995 Announcement itself envisaged that formal amendments to the Scheme would be made in exercise of that power. The consent of the members was therefore unnecessary. Further, if it had been necessary, one would not expect the employers and the Trustees to have set about obtaining it in this way, or the Trustees to have implemented the changes when so few signed acceptances had been returned.

Finally, the only consent expressly given by returning the form was to the deduction of increased contributions from the member’s earnings “on the basis outlined in [the 1995 Announcement]”. It is understandable that such consent should have been sought, even if it was not strictly necessary, because it would have an immediate impact on the member’s take-home pay, and the corresponding improvements in benefits would only materialise in the future, and would anyway affect different members in different ways. But to ask for a limited and prospective consent on that basis is a very different matter from seeking immediate agreement to the whole package of proposed changes to the Scheme.

For all these reasons, I am unable to accept Ms Asplin’s submission that there was an intention to create immediate legal relations by the communication to members of the 1995 Announcement and return of the form. Rather, in my judgment, it was the first step in informing the membership about changes to the Scheme that were in due course to be implemented by amendment, coupled with a request for consent to deduction of increased contributions if and when the proposed amendments took effect. I am satisfied that return of the form by a signing member did not bring any immediate contract into existence, nor did it prospectively bind the member to accept the proposed changes to the Scheme in the absence of any valid amendments.

For similar reasons I am unable to accept the alternative argument based on estoppel. In my view the only representation which members made by signing and returning the form was that they understood the preliminary information contained in the 1995 Announcement, and that they agreed to the deduction of contributions in the new amount if and when the Scheme was validly amended to implement the changes. Since no valid amendments were ever made, it follows that no question of detrimental reliance on the representation by SCSL or the Trustees can arise.

If, as I have held, both the 1991 and the 1995 equalisation attempts were ineffective, questions then arise about the recovery of overpayments of contributions by members, and underpayments and overpayments of pensions by the Trustees. In the event, there was no disagreement between the parties about how these problems should be dealt with, and I will therefore take them briefly.

The first problem concerns overpayment of contributions by members on the footing that the purported change to Scheme Pay announced in December 1995 was invalid. Members in service between 1 February 1996 and 28 October 2003 inclusive (the day before execution of the 2003 Trust Deed and Rules) will have paid higher contributions than they should have done. True, it cannot necessarily be said that the members paid greater contributions than were required under the Scheme rules, because the contributions required under rule 5 of the 1995 Rules were payable “at such annual rate as the Principal Company may require” after receipt of actuarial advice. Nevertheless, it seems plainly correct that the members paid the increased contributions on the mistaken basis that the changes announced in December 1995 had been validly implemented, and that they would therefore be entitled to recover their over-contributions by a restitutionary claim. It is therefore common ground, and I agree, that the overpayments of contributions should be returned to the members, together with compound interest at an appropriate rate. In the context of the settlement discussions between the parties the Scheme actuaries were asked to ascertain what average annual interest rate would equate to paying members compound interest at Bank of England base rate plus 1% over the relevant period, and they estimated the figure at 5.3% compounded annually. I see no reason to doubt that this is an appropriate rate, and that any element of rough justice in applying it uniformly over the whole period is more than compensated for by the administrative convenience of using a single rate.

The second problem concerns past underpayment of pensions and cash lump sums. Since the 1991 and 1995 changes are invalid, many pensioners will have received smaller pensions and lump sums than they should have done, because they will have been calculated on the incorrect basis that the changes were valid, with the consequence (among others) that MPA and NRD were less generous to members than they should have been, and that members did not receive the n/40ths cash lump sum in respect of service after January 1996 when, again, they should have done so.

The Trustees naturally accept, and nobody disputes, that past underpayments of this nature should now be made good by paying the affected members a lump sum representing the current capital value of the underpayments. Although a declaration to this effect is not sought in the claim form, it is now agreed that such a declaration should be made, and that the same average interest rate of 5.3% compounded annually should be used in making the necessary calculations.

The third problem concerns past overpayments of pension. The effect of the invalidity of the 1991 and 1995 changes is that most pensioners will have been underpaid. However, in the case of a very few widows of deceased members who are currently in receipt of dependants’ pensions the opposite is the case, and the net result of the invalidity of the 1991 and 1995 changes is that the member and widow taken together have been overpaid their pension to date. Accordingly, the question arises whether the Trustees should take any steps to recoup past overpayments of pension from future instalments of pension that are to be paid to the widow.

It appears from a report recently finalised by the Scheme actuaries that only three widows now fall into this category, and that the total capital value of the overpayments to them as at 30 November 2007 was no more than £10,200. In those circumstances the Trustees are reluctant to take any steps to remedy the position, partly because of the distress it would cause to the widows, but also because it would almost certainly not be cost-effective in view of the time and money that would have to be spent in explaining the position, communicating with the widows and trying to agree with them a suitable timetable for the recoupment. On behalf of Mr Gellately, Mr Evans accepts, for much the same reasons, that it is unnecessary for the overpayments to be recovered. On behalf of SCL, Ms Asplin is neutral on the issue. In view of the small scale of the problem, the distress that any attempt to recover the sums would inevitably cause, and the likelihood that the exercise would anyway not be cost-effective, I am satisfied that this is a case where the Trustees can properly be directed not to take any steps to recoup the overpayments.

This issue was fully explained to me at the hearing, and I heard argument on it both from counsel for the Trustees and from junior counsel for SCL, Mr Moeran, who had helpfully agreed to take on the role of checking the evidence and highlighting any particular issues which he felt should be drawn to the court’s attention. In summary, Mr Moeran was satisfied that there was nothing objectionable about the manner in which the Trustees had undertaken the exercise of trying to find out who the British Rail Members were; with one possible exception, he was unable to identify any case where the class appeared to have been drawn too widely; and he was satisfied that it would be in the interests of the Scheme to make the order sought, and that there was no real reason for any of the parties to have any concern about it. My assessment of the position is the same, and as the question is of no wider interest I do not propose to go into it in any further detail in this judgment. It is enough to say that I am prepared to make the order sought, and that in my view the one individual whose circumstances Mr Moeran drew to my attention should also be included in the class. The order should also be framed in a way which makes it clear that further members can be added to the class if evidence of their entitlement comes to light in the future.

It only remains for me to thank all counsel for the high quality of their written and oral submissions.