Singapore Airlines Ltd & Anor v Buck Consultants Ltd

This hearing arises out of a short point concerning the construction of the wording of the rules of the Singapore Airlines Pension and Life Assurance Scheme (“the Scheme”) dated October 1981 (“the 1981 Rules”). The short point was extremely well argued by both sides.

The action is a claim by the employer (“the Company”) in respect of the Scheme operated by the 1981 Rules and the trustees (“the Trustees”) of the Scheme (together (“the Claimants”) for damages for negligence against Buck Consultants Ltd (the Defendant) arising out of its drafting of the Deed (“the 2000 Deed”) making amendments to the Scheme in 2000.

The Claimants contend that the 2000 Deed made certain employee payments pensionable which they claim were not previously pensionable. It thereby (the Claimants contend) unintentionally increased Members’ Benefits and thus the Company’s liability to pay the balance of the cost of those benefits.

It is said that the amendment arose out of the negligence of the Defendant and the disregard of its instructions. The Trustees are also Claimants because they will have suffered loss in the form of costs and expenses incurred in re-computing benefits if it is established that the Defendant was negligent.

An important element in the claim is the proposition advanced by the Claimants that the effect of the 2000 Deed was to increase Members’ Benefit entitlements. That depends on the precise scope of those entitlements under the 1981 Deed which the 2000 Deed altered.

The true construction of the 1981 Deed would have to be decided between the Company and the Trustees and the members in any event even if the present proceedings against the Defendant had never been brought. The Company and the Trustees original plan was to defer progress on these proceedings pending a Part 8 claim to determine the construction issues on the 1981 Rules. The Defendant however determined that the most expeditious course was to have the construction determined as a preliminary issue in these proceedings.

The Company and the Trustees acceded to that request on the condition that the Defendant assumed responsibility for representing the interests of the affected Members of the Scheme. It agreed to do so and a representation order has been made to that effect.

I am accordingly not concerned with the negligence claim itself; the only issue which falls to be decided is a pure question of construction to be considered in isolation.

The parties have provided an agreed Statement of Facts and an agreed Statement of Issues which was amended on the first day of the hearing. Those issues are as follows:-

The issue is over what emoluments received by employees of the Company are “Earnings” for the purposes of the computation of “Pensionable Earnings” and “Final Pensionable Earnings”.

The latter is the basis for the computation of the Members’ Benefits when they leave service or retire (Rule 5 of the 1981 Rules). A member’s contributions to the Scheme are computed by reference to Pensionable Earnings (Rule 7 (a)).

“Earnings” is a component part of both Final Pensionable Earnings and Pensionable Earnings. The concept of Earnings is crucial to the issues before me.

The definition of earnings are to be found in the appendix to the 1981 Rules as follows:-

The debate circles around 3 types of emoluments as appears from the questions to be determined. First there are “13 month payments”. This is a payment of an additional month’s pay at the end of each calendar year. This was paid annually from (approximately) 1976 and until 1985 was known as “Holiday Pay”. It was therefore paid from around the same time as the Scheme first came into existence. The second payment is the “London Weighting Allowance” (“LWA”). This was paid from around 1971 to staff living in the London area. Historically and subject to staff grades the regularity of the payments of LWA for employees varied (weekly, monthly and annually).

In addition there are benefits in kind which are paid to employees. These clearly fluctuate from year to year (and possibly month to month). These have been taxed as emoluments since 1976 in respect of highly paid employees and directors. The former were defined as employees who earned more than £8,500. That limit as I understand it has not been lifted with the passage of time so that the description “highly paid employee” has rapidly become a misnomer.

As appears from paragraph 14 of the agreed Statement of Facts LWA has always been as a matter of practice treated at material times as pensionable under the Scheme by the Company and the Trustees. The 13th month payment was only so treated with effect from 1985 for management employees. Bonus was never treated as being material as pensionable. However it is not suggested that the way in which the various items have been treated during the history of the Scheme has any relevance on the question of construction. It is also not contended that any documentation which might have been issued to Members (letters or booklets) have any relevance. The meaning of the words in the 1981 Rules is to be derived from a consideration of the wording alone. It is suggested that I can draw assistance from Inland Revenue Statements over a period of time. I suspect that they will be of doubtful assistance to me in determining the questions I am asked to determine however. Thus for example Mr Newman QC who appears for the Defendant and the affected Members referred me to the Model Rules for Approval of Occupational Pension Schemes issued in August 2002. The earliest version he was able to find was 1995. He also referred me to the Pension Schemes Office manual of HMRC on the various meanings of the words “remuneration” and “fluctuating emoluments”. The earliest of these was once again 1995. I do not see how these documents can help me in determining what rules created in 1981 meant.

The other area which has been argued to be of some (albeit slight) significance is the wording of the original 1976 Deed. That too however in my view is also of limited assistance.

The 1976 Deed was commendably brief and certain. The definition of “salary” was “… for each Member the annual rate of his basic remuneration from the Employers and London Weighting Allowance (if applicable) excluding any other emoluments.”

It seems to me that the 1976 Deed therefore distinguished between basic salary and added on also London Weighting Allowance. However it expressly excluded all other emoluments. Therefore all other fluctuating (and indeed non fluctuating) emoluments (of whatever nature) would not be included. That would extend to benefit in kind payments treated as emoluments. In addition the 13th month payment would prima facie be excluded if it does not fall within the “basic remuneration”. The 1976 Deed therefore covered all forms of emoluments.

I should also in this context refer to clause 2 (b) of the 1976 Deed which provided:

Mr Newman QC relied upon this clause to show how the Trustees could determine the amount of a benefit in kind emolument in monetary terms for the purpose of the Scheme. This was to deflect Mr Furness QC’s argument (he was appearing for the Company and the Trustees) that it would be extremely difficult to quantify the benefits in kind. They have never been included and if my decision is that they are to be included there will be a re-opening back to 1981 and possibly 1976.

The primary definition of earnings is the same as that to be found in the 1981 Rule as follows:-

However “pensionable” earnings is calculated as meaning Earnings together with any bonus payments plus LWA.

It will be seen that the paragraph in the appendix to the 1981 Rules when dealing with fluctuating emoluments requires the annual rate of such emoluments to be included in Earnings to be averaged over the last 3 years.

In addition limitations on benefits are found in clause 17. The limits are as regards pension and lump sum. In addition final remuneration (paragraph (k)) means:-

The purpose of this clause was to reflect Inland Revenue restrictions on total benefits paid on retirement. The purpose was to ensure that a pension would not be artificially inflated by a large fluctuating payment or a large bonus which bore no relation to the earnings actually earned in previous years. Thus IR 12 (paragraph 6.12) provided:-

IR 12 paragraph 6.16 also expressed the view that benefits in kind might be taken into account when they are assessed to income tax as emoluments and would normally be regarded as fluctuating emoluments.

The Claimants’ primary argument is that only the first sentence and the third sentence in the relevant part of the appendix of the 1981 Rules is part of the definition of Earnings. Thus it is submitted that earnings for each member is basic remuneration. In the case of hourly paid employees only the standard working week hours are included multiplied by 52 for the annual rate.

Thus the Claimants contend first that no extra emoluments form part of Earnings for the purposes of the appendix beyond Basic Remuneration (whatever that means).

The Claimants in their skeleton argument (paragraph 11) suggest that Basic Remuneration equates to a member’s minimum salary entitlement excluding additional payments which might arise by virtue of commission, overtime, bonuses etc. That might be right but there is no definition of basic remuneration in any of the Trust Deeds. I might have been assisted by seeing what was said to the Employees in their Terms of Employment. It is not unusual for Terms of Contract to say you will have a basic salary of £x and extra sums of £y (depending on what they are).

The second difficulty is that if one assumes that Basic Remuneration in the 1981 Rules has the same meaning as the same phrase in the 1976 Deed the variation involves a removal of LWA which is expressly included as being remuneration for the purpose of the 1976 Deed. Mr Furness QC acknowledged that that would involve a retrospective removal of an entitlement. It would also involve in effect disallowing the benefit of contributions made by employees whose salary for the purpose of assessing their contributions would include LWA. It has been included as Earnings since before the commencement of the 1976 Deed. However at the time of the 1981 Rules there was no power to make retrospective amendments which affect prejudicially members’ accrued rights. Mr Furness QC in his submissions said that he would not “go to the wall” for LWA but that (whilst understandable) does not help me in assessing how LWA is to be treated given this apparent removal by the 1981 Rules.

Equally I can see no reason in principle as to why the 13th month payments should not be treated in exactly the same way as LWA except for the fact that they were not treated in the same way in the 1976 Deed. Nevertheless the Claimants’ primary submission is that neither LWA nor the 13th month payments fall within the phrase “Basic Remuneration”.

Fluctuating emoluments, the Claimants contend mean additional payments which arise by way of commission, overtime, bonuses etc and self evidently are variable so they fluctuate. Mr Newman QC for the Defendant submits that fluctuating means variable. Thus he submits that both LWA and the 13th month payments could qualify as fluctuating emoluments because they are liable to changes each year. I do not accept that submission because that would mean that every form of remuneration even basic remuneration will be categorised as fluctuating because it might change annually. I accept the Claimants’ definition of fluctuating emoluments. As the LWA and 13th month payments are there as part of the remuneration and do not fluctuate I do not see that they can be regarded as fluctuating emoluments.

Thus the Claimants contend that LWA and the 13th month payments are neither basic remuneration nor fluctuating emoluments. Mr Newman QC graphically described this as arguing that some parts of the emoluments therefore fell into a Black Hole. Graphic as that is, that does not necessarily lead to an adverse conclusion. There are equally other parts of emoluments which do not form basic remuneration and do not qualify as fluctuating emoluments. For example if the test set out in the second paragraph of the definitions of Earnings means that any fluctuating emoluments exceed the average of the previous 3 years’ employment, then those will be fluctuating emoluments that would not count as regards earnings and the assessment of pensionable earnings. Such emoluments would equally fall within a Black Hole (albeit a different one).

The thrust of the Claimants’ case is that the second paragraph of the definition of Earnings which refers to fluctuating emoluments and caps them on the average basis is that it has no purpose whatsoever. Their submission is that Earnings, as I say, is limited to the Basic Remuneration and does not include the fluctuating emoluments. Equally the logical conclusion of this submission is that rule 17 (k) is irrelevant. It is irrelevant because there is no need to apply a cap on the fluctuating emoluments averaged over 3 years, again because according to the Claimants’ case fluctuating emoluments do not feature at all.

On this analysis the 2 clauses are entirely redundant as Mr Furness QC accepted.

I was referred to the authorities referred to in Lewison “The Interpretation of Contracts” paragraph 7.03 in particular Lord Romilly MR in Re Strand Music Hall Co Ltd (1865) 35 Beav 153:-

Mr Furness QC requires me to do precisely that as he was unable to point to any purpose of these two clauses in reality if his submission was upheld. I do not accept therefore his submission that the clause is there for the purpose of calculating a benefit, when on the Claimants’ case no such emoluments are included for the purpose of calculating the benefit. There is no need to apply a cap because there is nothing to cap.

Mr Newman QC’s submissions are in my view to be preferred. He submits that the second paragraph introduces for the purposes of calculating the Earnings (and including them in Earnings) fluctuating emoluments at the 3 year averaged rate. It is true that there is no clear linkage spelled out between the various clauses such as earnings means (for example) (a) basic remuneration….… and (b) ……. the fluctuating emoluments and (c) the standard working hours of the weekly paid employees. However it seems to me reasonably clear that the draftsman intended the third clause to be included. The Claimants accept that. I can see no reason for believing that the draftsman inserted between the first clause and the third clause, the second clausse and did not mean it to have any kind of effect. Given that, it seems to me that the most likely construction is that he has set out three parts of emoluments which qualify as Earnings. He may have done it clumsily but the intent to my mind is clear.

Further there is logic in Mr Newman QC’s submission that when one looks at the third category, the hourly paid employees, that their basic emoluments are the prima facie entitlement as set out in the third limb. However if they have overtime or the like then those also fall to be included in the second limb subject to the 3 year averaging rules as fluctuating emoluments.

Thus I am of the opinion and so determine that fluctuating emoluments are included as Earnings for the purpose of the 1981 Rules. I accept Mr Newman QC’s submission that this makes sense when one refers back to rule 17 which is designed to provide an overall revenue cap of the fluctuating emoluments. I cannot see any other logical conclusion to draw from the clause. I reject the Claimants’ submission that I should simply ignore it.

I therefore determine that the answer to issue (a) is yes.

The question here is whether or not the LWA and the 13th month payments are included in the expression “fluctuating emoluments”.

This too is simply a matter of impression. I do not see as I have said earlier in this judgment that these two payments fluctuate within the meaning of the phrase fluctuating emoluments. It seems on the material I have that the employees had a contractual right to LWA and 13th Month Payments. These are clearly fixed amounts in the sense that each year an LWA is determined and each year the employee receives an additional 13th month payment. Merely because the salary and the allowance on a general basis might be reviewed does not in my view make them fluctuate. They are therefore not in my view fluctuating emoluments.

I would therefore answer issue (b) as being no as regards both LWA and the 13th month payment.

The question here is whether or not the self same payments form part of “Basic Remuneration”.

I have had very little assistance as to what the words “Basic Remuneration” mean. It is easy to remove from it things like bonuses, commissions and other similar matters. The 1976 draftsman as I have said seemed to think that LWA was not part of Basic Remuneration. Had he thought otherwise he would not have needed to expressly set out that entitlement. However he was very careful to exclude all other emoluments although he provided no definition of Basic Remuneration either.

If I apply that principle to the 1981 Rules then neither LWA nor 13th month payments is included.

I refer to the way in which payments have been treated but it seems to me I should disregard that as those methods of treatment cannot be used for the purposes of determining what remuneration qualified under the 1981 Rules. Equally I have come to the conclusion that I should not take into account the apparent drafting of the 1976 Rules.

It seems to me unlikely that the draftsman of the 1981 Rules would have intended retrospectively to remove benefits by his drafting when he had no power to do so. I will assume unless there is evidence to the contrary that when he drafted the 1981 Rules he knew the restrictions that were applicable. It seems to me on that slender ground that I do not believe that the draftsman of the 1981 Rules intended to remove LWA. Thus I conclude that he intended LWA to be part of the “Basic Remuneration”. This has a certain logic to it in that it appears to be a regular sum payable as part of the reward for the standard work done by the employee.

I therefore conclude that the draftsman intended basic remuneration to include LWA.

Once that conclusion is reached I can see no reason for distinguishing from the 13th month payment. I accept that the 1976 draftsman did not expressly include that payment. Indeed he impliedly excluded it by excluding all emoluments apart from basic renumeration and LWA. The 1976 draftsman clearly set out what he intended to be the relevant qualifying emoluments. It is unfortunate that the 1981 draftsman has not made the position as clear.

Once again and with more hesitation I conclude that there is no basis for distinguishing the treatment of 13th month payments from LWA. I therefore conclude that 13th month payments also form part of the Basic Remuneration for the purpose of the 1981 Rules (issue ba).

This relates to issue (c) and asks whether or not there is any limit to the type and the amount of fluctuating emoluments save the averaging over the last 3 years. This deals with the question of benefits in kind. As I have already observed benefits in kind became taxable emoluments in 1976 as regards Directors and highly paid employees as defined. That was the same year that the Scheme came into being. The Employer will therefore for the purposes of income tax have to agree with the Revenue the monetary value of any benefit in kind provided to the employees. That would not affect all employees because of the limitation. I have not been provided with any evidence suggesting how many employees over the period of time had been caught by this tax on benefits in kind. Obviously with the failure of the government to raise the threshold the figure will increase.

It is said by the Claimants that because the 1981 Rules made no provision for ascertainment of the value in emolument terms of the benefits in kind that is an indication that they were not intended to be included in Earnings. In this context reliance is based on the decision of the Vice-Chancellor in Redrow v Pedley [2002] PLR 339.

In that case the Vice-Chancellor determined that the absence of any reference to benefits in kind and the omission of any mechanism whereby such a benefit could be valued led him to conclude that they did not fall within the “total pay” for the purpose of construing that phrase. In paragraph 32 of his judgment he expressed the view that the omission of any machinery for valuing such contributions was “astonishing”.

In addition Mr Furness QC pointed out the difficulty of assessing the value because of the difficulty of valuing (for example) a free flight in a commercial airliner. In addition until agreement was made with the Revenue the Trustees would need to be collecting contributions monthly by reference to the value of the benefits in kind but they would be unable to do that as they would at that time be unascertained. Finally he pointed out that tax values were computed by reference to fiscal years but prior to the 1981 Rules the computed benefits and contributions were calculated to years beginning 1st July.

I feel that these difficulties are overstated. They are matters of machinery. If the document is defective of machinery then the courts will supply the necessary machinery rather than let the relevant trust provision fail; see Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444.

In addition Mr Newman QC pointed out that the supposed difficulties over timing could easily be addressed by on account payments and readjustments.

I agree with Mr Newman QC’s submissions. There is nothing in my view in the 1981 Rules which suggests only some fluctuating emoluments are included. There is therefore no basis for removing some of the fluctuating emoluments. The fact that they might be difficult to ascertain (but not impossible) is irrelevant. I have already pointed out that a number of these calculations will have already been done for the purposes of Income Tax. I observe what the Vice-Chancellor said in the Redrow case that when one looks at the Deed in question in that case whilst I can have sympathy with his astonishment at the exclusion I am not so astonished when one looks at the 1981 Rules. It is fair to say that the draftsman has not expressed himself clearly in these paragraphs and in my view the failure to include any machinery is a justification for putting in this machinery if necessary. I say if necessary because equally I accept that clause 2 (a) of the 1976 Deed can be utilised to enable the Trustees to make a determination.

I would expect them to make a determination on the same basis that the benefits in kind were taxed.

Once again a clause similar to clause 2(b) of the 1976 Deed was also to be found in the Trust Deed in the Redrow case but was not apparently referred to in argument. One should always be wary of following other cases that make determinations on different Trust Deeds. I therefore note with due respect the observations of the Vice-Chancellor but I find them of no assistance in this case. I therefore answer issue (c) with no.

Answers to the various questions are as follows:-