British Telecommunications Plc v (1) BT Pension Scheme Trustees Ltd & Anor

Factual and Procedural Background

The Plaintiff, Company A, is the principal employer of the Company A Pension Scheme ("the Scheme"), established in March 1983 by the predecessor entity. The Scheme originally comprised Sections A and B, mirroring the civil service Post Office scheme. In 1986, Company A established a new pension scheme merged into the Scheme in 1994 as Section C. The Scheme maintains a single asset pool funding benefits across Sections A, B, and C.

This action was brought by Company A against Company A Pension Scheme Trustees Limited ("the Trustee") and a representative beneficiary ("the Representative Beneficiary") concerning only Section C of the Scheme. The dispute focuses on the rules governing inflation-related pension increases under Section C.

The Plaintiff filed an amended claim form on 1 September 2017, with expedited trial proceedings following an order dated 7 September 2017. The claim form was re-amended on 28 November 2017.

Five sets of Scheme rules are relevant: those dated 1 January 1993, 1 May 2002, 1 June 2004, 20 March 2009, and 5 April 2016. The principal dispute concerns two specific rules: rule 10.2 of the 2016 Rules ("the 2016 Rule") and rule 25 of Appendix E of the 1993 Rules ("the 1993 Rule").

Legal Issues Presented

1. Whether the determination that the Retail Prices Index (RPI) has "become inappropriate" under the 2016 Rule is:
   1. a matter for Company A alone to decide;
   2. a matter for Company A in consultation with the Trustee;
   3. a matter for Company A and the Trustee jointly to decide; or
   4. an objective question of construction.
2. Whether matters or events occurring on or prior to 5 April 2016 can be taken into account in determining if RPI has "become inappropriate" under the 2016 Rule.
3. Whether specified matters or events (detailed in the Re-Amended Claim Form) are sufficient to permit:
   1. the relevant decision-maker to decide RPI has "become inappropriate" if the answer to any of issues 1.1 to 1.3 is "yes";
   2. the court to find RPI has "become inappropriate" as an objective matter if the answer to issue 1.4 is "yes".
4. If the answer to issue 3 is "yes", which matters or events give rise to such conclusion?
5. Whether, considering passage of time or other events since those matters or events, it remains open to the relevant decision-maker to decide RPI has become inappropriate, addressing:
   1. whether the decision must be made within a reasonable time;
   2. whether a reasonable time has elapsed;
   3. whether the adoption of the 2016 Rules constituted an implied exercise that RPI had not become inappropriate;
   4. whether it remains open to decide RPI has become inappropriate notwithstanding prior implied determinations or reliance on pre-April 2016 events.
6. Under the 1993 Rule, whether specified matters or events permit Company A to form the view that RPI has been "so amended as to invalidate it as a continuous basis" for pension increases, and if so, which matters or events give rise to such conclusion.
7. Whether, considering passage of time or other events since such matters or events, Company A (in consultation with the Trustee) may decide RPI has been so amended, addressing similar sub-questions as in issue 5.
8. Which rule governs pension increases for Section C members who died or left service prior to 1 May 2002, 1 June 2004, 20 March 2009, and 5 April 2016, respectively:
   1. the 2016 Rule;
   2. the respective rule 10.2 of the 2002, 2004, and 2009 Rules;
   3. the 1993 Rule; or
   4. a combination of these rules, and if so, what combination?

Arguments of the Parties

Plaintiff's Arguments

• The 2016 Rule confers a power on Company A to determine whether RPI has become inappropriate; alternatively, such a power should be implied.
• The term "becomes inappropriate" is broad and involves a value judgment, thus suited to a power of determination rather than an objective test.
• Finality and certainty in pension scheme administration support construing the Rule as conferring a power to avoid frequent litigation.
• Prior rules and correspondence indicate that ambiguities should be resolved by reference to earlier rules, supporting a power-based interpretation.
• It is unnecessary for there to be a direct amendment to RPI for it to be considered inappropriate; changes in consensus and usage are sufficient.
• Matters or events prior to 5 April 2016 can be considered in determining RPI's appropriateness.
• The clothing change in 2010, the 'freeze' in RPI, its de-designation as a National Statistic, and other factors cumulatively render RPI inappropriate.
• The 2002, 2004, 2009, and 2016 Rules replaced earlier Rules, applying forward-looking provisions.
• Rule 10.2 of the 2004 Rules applies to members who left service before 20 March 2009, including pre-2002 leavers.

Defendants' Arguments

• The question of whether RPI has become inappropriate is an objective question for the Court, not a matter of power vested in Company A or the Trustee.
• Where the 2016 Rule confers a power to choose an alternative measure, it does so expressly; the gateway question is separate and objective.
• Only amendments to RPI's compilation or formula can engage the 1993 Rule; changes in status or opinion do not suffice.
• The failure to exercise any power within a reasonable time does not cause the power to lapse under either the 2016 or 1993 Rules.
• The 2016 Rule does not "reset the clock" on the appropriateness of RPI as of 5 April 2016; pre-2016 events remain relevant.
• For pre-2002 leavers, the 1993 Rule continues to apply due to transitional provisions, contrary to Plaintiff's contention.
• The adoption of the 2016 Rules did not constitute an implied exercise of any power to determine RPI's appropriateness.
• RPI has not become inappropriate for the purposes of uprating pensions under the Scheme within the meaning of the 2016 Rule.
• Expert evidence focusing on general merits or flaws of RPI is of limited assistance in determining the specific contractual question.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed construction of the 2016 Rule and the 1993 Rule, applying established principles of statutory and contractual interpretation, including the need to focus on the natural and ordinary meaning of the words in their documentary, factual, and commercial context, and to avoid importing subjective intentions.

On Issue 1, the court concluded that the phrase "becomes inappropriate" in the 2016 Rule is an objective test rather than a power conferred on Company A or the Trustee to decide subjectively. The court reasoned that where the drafter intended to confer a power, it was expressly stated elsewhere in the Rule, and the absence of such express language in the gateway provision indicated an objective determination was intended.

The court rejected arguments that the broad and value-laden nature of "becomes inappropriate" required a subjective power, noting courts are well equipped to make objective determinations involving value judgments.

Regarding Issue 2, the court held that events or matters occurring prior to 5 April 2016 may be taken into account in deciding whether RPI has become inappropriate. The 2016 Rules did not "reset the clock" on the appropriateness of RPI, and the reasonable recipient would understand the 2016 amendments as limited to amending existing rules rather than altering all prior determinations.

On Issues 3 and 4, the court found that the matters and events identified by Company A as causing RPI to have become inappropriate were insufficient either individually or cumulatively to meet the high threshold required by the 2016 Rule. The court emphasized that known flaws in RPI, including the formula effect and the 2010 clothing price collection change, were longstanding and known at the time the relevant rules were adopted.

The court considered expert evidence but found it of limited assistance on the ultimate question, which was a matter of contractual construction rather than statistical expertise. It noted that while RPI has recognized flaws, it remains appropriate for the specific purpose of uprating pensions under the Scheme.

On the question of whether failure to exercise any power to determine in a reasonable time causes the power to lapse (Issues 5.1, 5.2, 7.1, and 7.2), the court distinguished the Scheme's powers from mere powers in family trust cases. It held that the Scheme's powers do not lapse by non-exercise, because the default position is the continuation of RPI, not the vesting of property in another beneficiary.

The court rejected the contention that the adoption of the 2016 Rules constituted an implied exercise of the power to determine RPI's appropriateness (Issues 5.3, 5.4, 7.3, and 7.4), finding no basis to infer such an implied exercise.

On Issue 6, concerning the 1993 Rule, the court held that only direct amendments to RPI's compilation or formula that invalidate it as a continuous basis for calculating increases can trigger the gateway. Changes in status or opinion do not suffice. The court found that the 2010 clothing change, while an amendment, did not invalidate RPI's continuity as required.

Regarding Issue 8, the court concluded that the 2016 Rule applies to all Section C members, including those who left service prior to 2002. The court reasoned that transitional provisions and the history of rule amendments support this interpretation, avoiding impractical outcomes and inconsistent application of different legal standards.

Holding and Implications

HOLDING: The court held that:

• The question whether RPI has become inappropriate under the 2016 Rule is an objective one for the court to determine.
• Events prior to 5 April 2016 may be considered in determining appropriateness.
• The matters relied upon by the Plaintiff do not establish that RPI has become inappropriate for the purposes of the 2016 Rule.
• The powers to determine appropriateness under both the 2016 Rule and the 1993 Rule do not lapse by reason of non-exercise within a reasonable time.
• The adoption of the 2016 Rules did not constitute an implied exercise of any power to determine RPI's appropriateness.
• The 2016 Rule governs pension increases for all Section C members, including pre-2002 leavers.
• The 1993 Rule's gateway is narrowly construed and was not triggered by any amendment to RPI.

Implications: The decision maintains the status quo, confirming that RPI remains the appropriate index for uprating pensions under the Scheme until and unless it objectively becomes inappropriate. No new powers were conferred on Company A or the Trustee to make subjective determinations, and no implied terms were introduced. The ruling clarifies the interpretation of transitional provisions, ensuring uniform application of the 2016 Rule to all Section C members. The court did not set new precedent beyond the immediate contractual context, focusing on faithful construction of the Scheme's rules.