Neutral Citation Number: [2008] EWHC 2926 (Ch) B e f o r e : THE HONOURABLE MR JUSTICE PATTEN. Between:

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1 Neutral Citation Number: [2008] EWHC 2926 (Ch) Case No: HC07C03485 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION Royal Courts of Justice Strand, London, WC2A 2LL 28th November 2008 B e f o r e : THE HONOURABLE MR JUSTICE PATTEN Between: FOSTER WHEELER LIMITED - and - ANDREW JOHN HANLEY DAVID WARDLAW GEORGE MIDGLEY NORMAN FREDERICK HARLEY TREVOR BRYAN STAPLES RICHARD GEORGE LARKIN RICHARD BRUCE CHACKSFIELD RUSSELL THOMAS FORRESTER EVANS (the trustees for the time being of the Foster Wheeler Pension Plan ("the Scheme")) RICHARD WILLIAMS DAMON HILL DUNCAN WHITE VERONICA GEE Claimant Defendants Richard Hitchcock and Farhaz Khan (instructed by Blake Lapthorn) appeared on behalf of the Claimants Andrew Simmonds QC (instructed by Clifford Chance LLP) appeared on behalf of Defendants (1) to (8) Keith Bryant (instructed by Bond Pearce LLP) appeared on behalf of Defendant (9) David E. Grant (instructed by Burges Salmon LLP) appeared on behalf of Defendant (10) Andrew Short (instructed by CMS Cameron McKenna LLP) appeared on behalf of Defendant (11) Nicolas Stallworthy (instructed by Wragge & Co LLP) appeared on behalf of Defendant (12) Hearing dates: 7th, 8th, 9th, 10th, 13th, 14th, 15th and 16th October 2008 HTML VERSION OF JUDGMENT Crown Copyright

2 The Hon Mr Justice Patten : Introduction 1. This is a Part 8 claim brought by Foster Wheeler Limited ("the Company") which is the Principal Employer (as defined) under the Foster Wheeler Pension Plan ("the Scheme"). The Scheme is a registered (formerly exempt approved) occupational pension scheme established in 1956 which provides benefits both on a defined benefit and defined contribution basis to different sections of members. The Scheme is currently governed by the provisions of a Definitive Trust Deed and Rules dated 9 th April 2002 as subsequently amended. 2. According to the evidence, the Scheme, as at the last triennial actuarial valuation in April 2005, had a total of 5,548 members, of whom all but 83 were members of the defined benefits section. The issues raised by the Part 8 claim relate solely to this section of the Scheme. 3. The Scheme is now in deficit. As at 1 st April 2005 it was estimated to have a funding deficiency of 68 million. Since then the Company has made additional monthly contributions of about 1 million in order to amortise the deficit but, despite this increased funding, the position has deteriorated further and the Scheme's actuary has indicated that the deficit may now exceed 100 million. This figure could be increased by between 18 million and 30 million, depending upon the answers to some of the issues raised in the claim. 4. The purpose of these proceedings is to resolve a number of questions which have arisen out of the attempts made by the Trustees of the Scheme and the Company to give effect to the decision of the European Court of Justice in Barber v Guardian Royal Exchange Assurance Group [1991] QB 344 ("Barber"). The ECJ held that pension payable under a private occupational scheme constituted "pay" for the purposes of Article 119 (now Article 141) of the EEC Treaty and that it was, therefore, unlawful for such a scheme to discriminate between men and women in similar employment by providing for their respective pension benefits to be payable at different ages. 5. Article 119 provides, inter alia, that: "Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied." 6. Most schemes (and this one is no exception) had stipulated 60 as the normal retirement age for women and 65 for men thereby mirroring their entitlement to the state pension. On 30 th January 1990 the Advocate General delivered his opinion in Barber indicating that Article 119 did apply to pension benefits. The judgment of the Court was delivered on 17 th May In paragraphs the ECJ stated that pension paid under a contracted-out scheme constitutes consideration paid by the employer to the worker in respect of his employment and, as a consequence, fell within the scope of Article 119. It made no difference, they said, that the scheme was set up as a trust administered by trustees independent of the employer because Article 119 also applied to consideration received indirectly from the employing company. 7. In Barber the issue was whether it was contrary to Article 119 for a male employee who was made compulsorily redundant at the age of 52 to be entitled only to a deferred pension at his normal pensionable age (62) when a woman in the same position would have received an immediate pension. 8. The Court confirmed that the principle of equal pay enshrined in Article 119 must be guaranteed and applied in respect of each element of the remuneration paid to workers rather than on a global basis and that it, therefore, precluded making payment of pension dependent on an age condition which varied according to the sex of the employee. 9. The Court of Appeal in its reference also sought guidance as to whether Article 119 had direct effect in the circumstances of the case. In answer to this question, the ECJ said in paragraph 39 of its judgment that Article 119 may be relied upon before the national courts and that it was for those courts to safeguard the rights which that provision conferred. The guidance was no more detailed

3 than that. The Court did, however, go on to state (see paragraphs 40 to 45) that, in view of the financial consequences its ruling would have for pension schemes if applied retrospectively, the direct effect of Article 119 could not be relied upon in order to claim entitlement to a pension with effect prior to the date of the judgment except in cases where employees had already commenced legal proceedings. 10. The importance of this last point is that it set 17 th May 1990 as the date beyond which it became unlawful for pension schemes to discriminate between men and women in similar work in terms of their normal retirement age and the rights contingent on them. But the decision offers no further guidance as to how the principle of equal pay should be implemented and, in particular, whether the direct application of Article 119 imposed on existing schemes an automatic re-formulation of the relevant rules or merely delegated to the trustees and the employer a margin of discretion as to how and in what form the changes required should be made. 11. Further guidance on these points was given by the ECJ in Coloroll Pension Trustees Ltd v Russell [1995] ICR 179 ("Coloroll") where, in relation to a defined benefit scheme, the trustees had sought rulings from the High Court as to the effect of the decision in Barber. The reference to the ECJ included questions as to whether members and their dependents could rely upon the direct effect of Article 119 in relation to claims made not against the employer but against the trustees; whether the effect of Article 119 was to require the trustees to administer the scheme as if the rules had been altered to reflect the principle of equal pay laid down by Article 119 or merely required the employer and the trustees to use such powers as they had (whether by way of amendment of the rules or otherwise) to secure that the benefits payable reflected the principle of equal pay; and whether the principle of equalisation required the benefits of the disadvantaged sex to be increased or those of the advantaged sex to be reduced. Clarification was also sought about the effect of the ruling in Barber that Article 119 should have no direct application prior to the date of the decision on 17 th May On the first issue, the Court ruled that the obligations imposed on an employer by Article 119 could not be avoided by setting up an occupational pension scheme in the form of a trust and, as a corollary to this, that the trustees, although not parties to the contract of employment, are required to pay benefits which retain their character of pay within the meaning of Article 119. It followed that employees did have the right to enforce their rights under Article 119 directly against the trustees of a pension scheme "who are bound, in the exercise of their powers and performance of their obligations as laid down in the trust deed, to observe the principle of equal treatment". 13. This leads directly to the question of how the requirements imposed by Article 119 are, as a matter of law, to be implemented. Are the rules and the provisions of the trust deed to be treated as revised and read in a way which conforms to the principle of equal pay or are the trustees and the employer to be given the opportunity of revising the rules of the scheme in a way which gives effect to the requirements of Article 119? This issue has particular relevance to the Company's arguments addressed on question 3 in the Part 8 claim form which rely, in part, on what might be described as the automatic imposition of an Article 119 regime as from 17 th May 1990 as overriding the subsequent attempts of the parties themselves to reform the rules of the scheme so as to make them compliant. 14. The ECJ addressed the question of implementation in paragraphs 25 to 36 of its judgment as follows: "25. By the second part of its first question the High Court asks whether, where certain rules of the scheme are incompatible with the principle of equal pay, the trustees must administer the scheme without regard to those rules, or whether the employer and the trustees must amend them so as to make them compatible with article 119. The High Court also asks whether the only way of bringing about equal treatment is in any event to increase the benefits of the disadvantaged class, or whether such equality may also be achieved by reducing the benefits of the advantaged class. 26. As regards the first part of the question, it must be remembered that the principle of equal pay is one of the foundations of the Community and that article 119 creates rights for individuals which the national courts must safeguard. Article 119 being mandatory in nature, the prohibition of discrimination between men and women applies not only to the acts of public authorities but also to

4 all contracts between private individuals and to all collective agreements intended to regulate paid employment: see Defrenne v Sabena (Case 43/75) [1976] ICR 547, 566, 568, paras. 12 and Employers and trustees cannot, therefore, be allowed to rely on the rules of their pension scheme, or those contained in the trust deed, in order to evade their obligation to ensure equal treatment in the matter of pay. 28. In so far as the relevant rules of national law prohibit them from acting beyond the scope of their powers or in disregard of the provisions of the trust deed, employers and trustees are bound, in order to ensure compliance with the principle of equal treatment, to use all the means available under domestic law, such as recourse to the national courts, especially where, as seems to be the case in this instance, involvement of the national courts is necessary to amend the provisions of the pension scheme or of the trust deed. 29. Furthermore, the court has consistently held that national courts are bound to provide the legal protection which individuals derive from the direct effect of provisions of the E.E.C. Treaty: see Reg. v Secretary of State for Transport, Ex parte Factortame Ltd (No. 2) Case C-213/89) [1991] 1 AC 603, 612, para. 19. They are therefore bound, particularly in the context of article 119, to the full extent of their discretion under national law, to interpret and apply the relevant domestic provisions in conformity with the requirements of Community law and, where that is not possible, to disapply any incompatible domestic provisions: see Murphy v Bord Telecom Eireann (Case 157/86) [1988] ICR 445, para As regards the second part of the question, concerning the method to be used to achieve equal treatment, in Defrenne v Sabena (Case 34/75) [1976] ICR 547, 566, para. 15, where there was a claim in the main proceedings for compensation for discrimination in relation to pay, the court ruled, in view of the connection between article 119 and harmonisation of working conditions while maintaining improvement, against the argument that compliance with article 119 could be achieved otherwise than by raising the lowest salaries. 31. Moreover, in Nimz v. Freie und Hansestadt Hamburg (Case C-184/89) [1991] ECR I-297, paras , the court held that the national court must set aside any discriminatory provision of national law, without having to request or await its prior removal by collective bargaining or by any other constitutional procedure, and to apply to members of the disadvantaged group the same arrangements as those enjoyed by the other employees, arrangements which, failing correct implementation of article 119 in national law, remained the only valid point of reference. 32. It follows that, once the court has found that discrimination in relation to pay exists and so long as measures for bringing about equal treatment have not been adopted by the scheme, the only proper way of complying with article 119 is to grant to the persons in the disadvantaged class the same advantages as those enjoyed by the persons in the favoured class. 33. The situation is different as regards periods of service completed after the entry into force of rules to eliminate discrimination, since article 119 does not then preclude measures to achieve equal treatment by reducing the advantages of the persons previously favoured. Article 119 merely requires that men and women should receive the same pay for the same work without imposing any specific level of pay. 34. Finally, as regards periods of service prior to 17 May 1990, the date of the judgment in Barber v Guardian Royal Exchange Assurance Group (Case C-262/88) [1990] ICR 616, it is sufficient here to say, as will be explained below in reply to the second question, that the Barber judgment excluded application of article 119 to pension benefits payable in respect of those periods, so that employers and trustees are not required to ensure equal treatment as far as those benefits are concerned. 35. It follows that, as far as those latter periods are concerned, Community law imposed no obligation which would justify retroactive reduction of the advantages enjoyed by women. 36. The answer to be given to the second part of the first question must therefore be that, in so far as national law prohibits employers and trustees from acting beyond the scope of their respective

5 powers or in disregard of the provisions of the trust deed, they are bound to use all the means available under domestic law, such as recourse to the national courts, in order to eliminate all discrimination in the matter of pay. Moreover, as regards periods of service completed after the court's finding of discrimination but before the entry into force of the measures designed to eliminate it, correct implementation of the principle of equal pay requires that the disadvantaged employees should be granted the same advantages as those previously enjoyed by the other employees. However, as regards periods of service subsequent to the entry into force of those measures, article 119 does not preclude equal treatment from being achieved by reducing the advantages which the advantaged employees used to enjoy. Finally, as regards periods of service prior to 17 May 1990, the date of the judgment in Barber, Community law imposed no obligation which would justify retroactive reduction of the advantages enjoyed by the favoured employees." 15. It seems clear from paragraph 27 of the judgment that the Court was of the view that provisions in a scheme and in its rules which, if applied, would create unequal treatment ceased to be enforceable on the direct application of Article 119. Most obviously this would preclude the application of different retirement ages for men and women as the condition for the payment of their pension entitlement. The same basic approach applies to statutory provisions which might have the same effect in their application to the scheme. They are to be interpreted (or perhaps even disapplied) so far as is necessary to give effect to Article 119: see paragraph 29. Paragraph 28 of the judgment is more of a puzzle where it refers to trustees seeking the assistance of the national courts in order to amend the relevant provisions of the pension scheme. But what it must mean in an English context is that the trustees should (so far as necessary) be prepared to obtain a ruling from the national court as to the construction and effect of the rules when read in the light of the application to them of Article These passages confirm that, from the date set by the ECJ in Barber for the application of Article 119 to pension schemes (i.e. 17 th May 1990), the provisions of the scheme have to be treated as modified to the extent necessary to become compliant with the principle of equalisation. Article 119 had a direct and immediate effect and did not simply impose upon trustees and employers an obligation to bring the scheme into conformity with what was required. This same approach has been adopted in section 62 of the Pensions Act 1995 which, by section 63(6) of the Act, is to be treated as having had effect in relation to any pensionable service on or after 17 th May These provisions were introduced in order to give effect to the requirements of Article 119 in relation to pension schemes in accordance with the decisions of the ECJ in Barber and Coloroll. Section 62 provides that: "62. The equal treatment rule (1) An occupational pension scheme which does not contain an equal treatment rule shall be treated as including one. (2) An equal treatment rule is a rule which relates to the terms on which (a) persons become members of the scheme, and (b) members of the scheme are treated. (3) Subject to subsection (6), an equal treatment rule has the effect that where (a) a woman is employed on like work with a man in the same employment, (b) a woman is employed on work rated as equivalent with that of a man in the same employment, or (c) a woman is employed on work which, not being work in relation to which paragraph (a) or (b) applies, is, in terms of the demands made on her (for instance under such headings as effort, skill and decision) of equal value to that of a man in the same employment, but (apart from the rule) any of the terms referred to in subsection (2) is or becomes less favourable to the woman than it is to the man, the term shall be treated as so modified as not to be less favourable.

6 (4) An equal treatment rule does not operate in relation to any difference as between a woman and a man in the operation of any of the terms referred to in subsection (2) if the trustees or managers of the scheme prove that the difference is genuinely due to a material factor which (a) is not the difference of sex, but (b) is a material difference between the woman's case and the man's case. (5) References in subsection (4) and sections 63 to 65 to the terms referred to in subsection (2), or the effect of any of those terms, include (a) a term which confers on the trustees or managers of an occupational pension scheme, or any other person, a discretion which, in a case within any of paragraphs (a) to (c) of subsection (3) (i) may be exercised so as to affect the way in which persons become members of the scheme, or members of the scheme are treated, and (ii) may (apart from the equal treatment rule) be so exercised in a way less favourable to the woman than to the man, and (b) the effect of any exercise of such a discretion; and references to the terms on which members of the scheme are treated are to be read accordingly. (6) In the case of a term within subsection (5)(a) the effect of an equal treatment rule is that the term shall be treated as so modified as not to permit the discretion to be exercised in a way less favourable to the woman than to the man." 17. It is clear that under section 62 the rules of the scheme are to be read as modified so as to conform with Article 119 and that this modification extends to provisions of the scheme which confer a discretion: see section 62(6). Modifications are defined by section 181 of the Pension Schemes Act 1993 (as applied by section 124(5) of the 1995 Act) as including "additions, omissions and amendments". 18. The judgment in Coloroll also indicates what form the imposed solution should take. The national court (see paragraphs 31-32) is required to set aside any discriminatory provisions of national law and to apply to the disadvantaged class of employees the arrangements enjoyed by the advantaged class. In a case like the present where the element of discrimination lies in unequal retirement ages this involved the reduction of the normal retirement age of 65 for men to 60 (which was the normal retirement age for women) for pensionable service after 17 th May But it is also apparent from the same paragraphs of the judgment in Coloroll that the immediate application of Article 119 in this way so as to render a scheme compliant with the principle of equal pay does not exclude the power of the trustees and the employer to resort to their rule-making powers contained in the scheme ("any other constitutional procedure") in order to create a new regime in respect of future pensionable service which is not discriminatory. That regime (unlike the one imposed by Article 119 with effect from 17 th May 1990) is not limited to equalising benefits by reference to the position of the formerly advantaged class. The only requirement is that the measures adopted should treat both sexes equally: see paragraph 33 of Coloroll. 20. The guidance set out in paragraph 33 was repeated verbatim in the judgment of the ECJ in Smith v Avdel Systems Ltd [1995] ICR 596 where the equalisation methods adopted to bring the scheme into line with Article 119 involved raising the normal retirement age of women employees from 60 to 65 to coincide with that of men. One of the issues raised was whether the employer could include in the rule changes (which in that case came into force on 1st July 1991) measures designed to mitigate the effect on women of having their normal retirement age raised to 65 in respect of pensionable service after the date of the amendment. The Court rejected this as incompatible with the application of Article 119:

7 "23. The point of the second question is whether, if Article 119 allows the retirement age for women to be raised to that for men, occupational pension schemes which equalize retirement ages in that way must minimize the adverse consequences of that change for women. 24. In view of the answer given to the first question, the second question arises only in relation to periods of service subsequent to the entry into force of the measures taken to achieve equality by raising the retirement age for women. 25. In reply to that point it is sufficient to say that equal treatment between men and women in relation to pay is a fundamental principle of Community law and that, given the direct effect of Article 119, its application by employers must be immediate and full. 26. It follows that, once discrimination has been found to exist, and an employer takes steps to achieve equality for the future by reducing the advantages of the favoured class, achievement of equality cannot be made progressive on a basis that still maintains discrimination, even if only temporarily. 27. The answer to the second question must therefore be that the step of raising the retirement age for women to that for men, which an employer decides to take in order to remove discrimination in relation to occupational pensions as regards benefits payable in respect of future periods of service, cannot be accompanied by measures, even if only transitional, designed to limit the adverse consequences which such a step may have for women." 21. The other question considered in Smith v Avdel Systems Ltd was whether the form of the equalisation measures imposed by Article 119 in respect of the period between 17 th May 1990 and the date of any subsequent equalising amendments to the scheme (commonly now referred to as the "Barber window") could take account of the financial difficulties that would be created for the scheme or the employer by equalising retirement ages down to those of women as the advantaged class. This was also rejected. "30. Even assuming that it would, in this context, be possible to take account of objectively justifiable considerations relating to the needs of the undertaking or of the occupational scheme concerned, the administrators of the occupational scheme could not reasonably plead, as justification for raising the retirement age for women during this period, financial difficulties as significant as those of which the Court took account in the Barber judgment, since the space of time involved is relatively short and attributable in any event to the conduct of the scheme administrators themselves. 31. The answer to the third question must therefore be that Article 119 of the Treaty precludes an occupational scheme, relying on its own difficulties or those of the undertaking concerned, from retrospectively raising the retirement age for women in relation to periods of service completed between 17 May 1990 and the date of entry into force of the measures by which equality is achieved in the scheme in question." The employers are to be treated as having the remedy in their own hands. 22. In summary, therefore, the following principles emerge from these three decisions of the ECJ: (i) In relation to pensionable service prior to 17 th May 1990, Article 119 has no application with the result that disparate retirement ages remain permissible and consequently the accrued pension rights of women based on a lower NRD of 60 remain unaffected by the application of Article 119 with effect from 17 th May 1990; (ii) As from 17 th May 1990, Article 119 has direct effect and ipso facto operates to amend a pension scheme so as to eliminate discriminatory provisions relating to pension entitlement. But the existence of the accrued rights of women (in a case like the present) to retire at 60 and the inability of employers or trustees to backdate subsequent equalisation measures to 17 th May 1990 mean that, for the Barber window, the only possible modification of the scheme in relation to retirement dates is the levelling up of retirement ages so as to grant members of the disadvantaged class the same rights as those of the advantaged class who, in most cases, will be women;

8 (iii) The adverse financial consequences for the employer and/or the pension scheme of the application of Article 119 after 17 th May 1990 do not justify any alternative interim regimes such as the levelling down of normal retirement age to 65 for both sexes; and (iv) The imposition of modifications to a scheme in this form with effect from 17 th May 1990 does not preclude the ability of the trustees and the employer to use their powers of amendment under the scheme to bring into effect measures of their own choosing which achieve equal treatment between men and women in relation to their pension based on future pensionable service. These measures can involve levelling down the normal retirement age so long as equality is maintained. 23. The consequence of these decisions is that, for the duration of the Barber window, male employees under the Scheme will have accrued pension entitlement and other rights on the basis of an earlier retirement age than that applied to their pensionable service prior to 17 th May Where the Barber window is subsequently closed by amendments to the scheme which level down the normal retirement ages for both sexes, they will then revert to pensionable service by reference to a retirement age of 65. In terms of accrual rates, the expense to the scheme and consequently to the employer can be mitigated by an early change to the rules. But the other consequence of the application of Article 119 so as to bring the rights of male employees into line with those of women was that they acquired a right to draw at 60 the pension accrued during the Barber window by reference to their 60 th birthday as a normal retirement date. This was necessary in order to equalise their position with that of female employees who as the advantaged class, of course, retained their right under the scheme to accrue and take a pension by reference to a retirement age of 60 unaffected by the application of Article The recognition of a male employee's right to take a pension based on an NRD of 60 is not evident in the judgments of the ECJ in the three cases I have referred to and raises a number of questions which have in part been considered in consequent English authorities. 25. Although not the first in time, it is convenient to begin with the decision of Warren J. in Harland and Wolff Pension Trustees Ltd v Aon Consulting Financial Services Ltd [2007] ICR 429. The issue for consideration was whether it was open to the trustees and the employer to close the Barber window by making amendments to a pension scheme which not merely equalised down retirement dates for men and women for pensionable service from the date of the amendments but also purported to utilise a retrospective power of amendment contained in the scheme deed so as to apply the same regime with effect from 17 th May This was intended to alter the already-accrued rights of both male and female employees to pension in respect of service during the Barber window at the lower retirement age applicable to women. 26. I should say at once that this issue does not arise in the present case because at all material times the Scheme has included a provision which does not allow amendments to alter accrued rights without the member's consent. But the decision is important for its analysis of the status of the rights acquired by men (as the disadvantaged class) during the Barber window. 27. Having referred to paragraphs of the judgment in Coloroll, Warren J. said this (at paragraph 21): "The position in relation to periods of service completed after the entry into force of rules designed to eliminate discrimination is different. Article 119 does not then preclude measures to achieve equal treatment by reducing the advantages of persons previously favoured, the reason, apparently being that "Article 119 merely requires that men and women should receive the same pay for the same work without imposing any specific level of pay"." 28. He then went on (at paragraph 44) to consider the decision of the ECJ in Smith (where the amendment used to close the Barber window did purport to have retrospective effect): "Another way of making this point is to look at the position immediately before the execution of the 1993 deed and rules in the present case. At that stage, before any attempt has been made to rewrite history by making a retrospective amendment, men are entitled to claim, in respect of service after 17 May 1990, benefits on the same basis as those accruing to women. The question is then asked: can this right which men have be adversely affected, as a matter of Community law, by amendment?

9 The answer to that question cannot, it seems to me, depend on the precise wording of the power under which it is sought to act. The question in all cases, assuming that the amendment is effective under national law, is whether levelling down is permitted. The Smith case [1995] ICR 596 has answered that question in the negative." 29. This reinforces what is common ground in this case which is that the starting point for considering the effect of any amendments made to close the Barber window is that female employees (who under the scheme as it stood in 1990 had a normal retirement date based on their 60 th birthday) retained pension rights linked to that date both up to and during the Barber window unaffected by Article 119 and that male employees (although having an NRD of 65 up to 17 th May 1990) acquired pension rights under Article 119 based on the lower NRD of 60 for pensionable service in the Barber window which cannot have been altered retrospectively by the modifications introduced to the scheme in This leads directly to the question of how rights which have accrued during the Barber window should be given effect to. This has been considered by Lewison J. in two cases: Trustee Solutions Ltd v Dubery [2006] EWHC 1426 and Hodgson v Toray Textiles Europe Ltd [2006] EWHC 2612; and subsequently by the Court of Appeal on appeal from him in Trustee Solutions sub nom Cripps v Trustee Solutions & Dubery [2007] EWCA Civ In Trustee Solutions the original rules of the scheme provided (as in this case) for male and female members to retire at 65 and 60 respectively. They also contained a power of amendment exercisable by writing under hand by the trustees and the company. In 1992 the trustees issued an announcement and a booklet informing female members that the normal retirement age of women was to be raised to 65. A further booklet referring to these changes was issued in In 2001 the company went into liquidation. The scheme was subsequently wound up and the trustees applied to the Court for directions as to the correct priority of payments out of the assets of the scheme under section 73 of the Pensions Act Certain preliminary issues also arose as to whether the modifications made to the scheme in 1992 were legally effective and (if not) whether the members (or any of them) were estopped from disputing a change in their normal retirement dates to 65 as a result of the announcements and other material issued in Lewison J. held that there had been no valid and effective modification of the scheme under the rules and that no group estoppel arose so as to have the same effect. He was therefore left to consider the application of section 73 on the basis that the Barber window had never closed and that the regime imposed directly by Article 119 with effect from 17 th May 1990 continued. 33. Section 73 of the 1995 Act specifies the order in which the assets of a salary related occupational pension scheme are to be applied on a winding up of the scheme. That order is set out in section 73(3). In its 2002 form (which Lewison J. had to consider) the order of priority was as follows: "(a) any liability for pensions or other benefits which, in the opinion of the trustees, are derived from the payment by any member of the scheme of voluntary contributions, (aa) where (i) the trustees or managers of the scheme are entitled to benefits under a contract of insurance which was entered into before 6th April 1997 with a view to securing the whole or part of the scheme's liability for any pension or other benefit payable in respect of one particular person whose entitlement to payment of a pension or other benefit has arisen and for any benefit which will be payable in respect of that person on his death, and (ii) either that contract may not be surrendered or the amount payable on surrender does not exceed the liability secured by the contract (but excluding liability for increases to pensions), the liability so secured,

10 (b) in a case not falling within paragraph (aa), where a person's entitlement to payment of pension or other benefit has arisen, liability for that pension or benefit and for any pension or other benefit which will be payable in respect of that person on his death (but excluding increases to pensions), (c) (d) any liability for increases to pensions referred to in paragraphs (aa) and (b), (e) any liability for increases to pensions referred to in paragraph (c), (f) so far as not included in paragraph (c) or (e) any liability for (i) pensions or other benefits which have accrued to or in respect of any members of the scheme (including increases to pensions) or (ii) future pensions, or other future benefits, attributable (directly or indirectly) to pension credits (including increases to pensions)." 34. The issue was whether in the case of a male member of the scheme with accrued pensionable service during the Barber window who had attained the age of 60 there arose an "entitlement to payment of pension" within the meaning of section 73(3)(b). The judge analysed this question as follows: "61. The argument in favour of an affirmative answer to this question runs as follows. The phrase "where a person's entitlement to payment of pension.. has arisen" is not confined to case where the pension is actually in payment. A person's entitlement to payment of pension may equally arise where he is entitled to call for immediate payment. For example he may have exercised an option to continue working after his Normal Retirement Date, and to defer his pension. He may cancel that option at any time and call for his pension to be paid. Such a person is one whose entitlement to payment of a pension has arisen. 62. A male member of the Scheme who has entitlement to pension accrued during a Barber window has the right to take pension accrued during that period at age 60. That is a right conferred upon him by European law. Moreover a female member had a right under the Scheme to retire at 60 and would have retained that right unless and until the Scheme was validly amended. An amendment of the Scheme cannot retrospectively remove accrued rights. The entitlement of which section 73 (3)(b) speaks is not restricted to any particular kind of entitlement. It applies to an entitlement under European law just as much as it applies to an entitlement under the rules of the Scheme. 63. Consequently a male member with an accrual of Barber window pension has an absolute right to take that pension at the age of 60. However, both the rules of the Scheme (which refer to the payment of "a pension", not "part of a pension") and the requirements of the Inland Revenue, which are relevant to the interpretation of the Scheme, do not allow only part of a pension to be taken. The whole of a pension must be taken at the same time. Accordingly, if a male member wishes to take his Barber window pension at the age of 60 he must retire, and accept the application of an early retirement factor to the remaining accruals (if they have been based on a Normal Retirement Age greater than 60). Although under the rules such a person would need the consent of the company to retire early, that consent cannot be refused, since to refuse it would be a breach of European law. Consequently, such a person has an entitlement to the immediate payment of pension once he has attained the age of Miss Rich's argument to the contrary depended for its central proposition on the contention that there can only ever be one Normal Retirement Date at any given time. If at the commencement of the winding up of the Scheme that Normal Retirement Date was 65, then no one had an entitlement to payment of pension unless he or she had attained that age. (I have decided that the factual premise is incorrect, but I ignore that for the purpose of deciding this question). 65. In my judgment this argument overlooks one of the primary functions of the Normal Retirement Date, which is to act as a calculator for the accrual of pension. An accrual in this sense is an entitlement to pension earned in a particular period of pensionable service. It is therefore possible for different Normal Retirement Dates to apply to different periods of pensionable service, even though

11 in the end there will only be one pension payable. Moreover, the effect of Barber was to confer on male members the right to retire at the age of 60; and that right cannot be taken away from them. 66. I conclude that the argument in favour of an affirmative answer to the question is correct. In my judgment the entitlement to pension of members who have the right to retire for part of their service and who had attained the age of 60 at the date of winding up falls within section 73 (3) (b) of the Pensions Act 1995." 35. Although this question arose in the context of section 73, Lewison J. did not give the words in section 73(3)(b) any limited or special meaning but applied them to the entitlement to payment of the male employee's pension accrued during the Barber window which he regarded as arising under European law. This was, I think, the first occasion on which a judge had spelt out clearly the right to retire and to receive payment inherent in the application of Article 119 to male members of a scheme who obtained a lower NRD on the opening of the Barber window. Until then it had been looked at largely in terms of its effect on accruals. 36. Lewison J. returned to this issue in Toray Textiles. In that case the Barber window had been effectively closed in November 2004 by equalising the retirement ages of men and women at 65. One of the issues raised was whether a male member who had accrued a pension entitlement through service during the Barber window was entitled post-november 2004 to retire at the age of 60 on a full pension or had to wait until he attained the age of 65 in order to receive pension accrued by pensionable service outside the Barber window. 37. The argument addressed to Lewison J. by Mr Simmonds QC is summarised in paragraph 115 of the judgment. Having quoted from paragraphs 62 and 63 of his judgment in Trustee Solutions, Lewison J. then says this: "Mr Simmonds says, in the politest possible way, that although my answer was right on the facts of that case, my reasoning was wrong. He accepts that a male member with a Barber window pension entitlement is entitled to retire at 60 and that such a right cannot be taken away from him. He accepts that Revenue practice at the time I was considering in Trustee Solutions forbade the taking of part only of a pension or, as he would put it, it forbade the taking of a pension which increased in the rate of payment by more than Revenue permitted limits. He also accepts, I think, that in the light of Revenue practice at the time, the trustees would have had to consent to retirement at 60 even if that meant that a retiree became entitled to his full pension. But he says that in referring to the rules of the scheme prohibiting the payment of "part of a pension" I was confusing entitlement to a pension and the rate at which pension is payable. Now that many of the old restrictions on payment of pensions have been abolished by the Finance Act 2004, the only question is whether the rules of the scheme permit pension to be paid at differing rates. Accordingly he submits that since the coming into force of the relevant parts of the Finance Act 2004 (6 April 2006 or "A-day") the trustees are entitled to refuse consent to a pre-equalisation member to draw unreduced at 60 the component of his pension that relates to service since equalisation, because that will not prevent that member from drawing the component of pension relating to service during the Barber window unreduced at age 60. The consequence of this is that a member retiring at 60 in order to draw his Barber window pension will have to wait until 65 before drawing pension accrued outside the window." 38. The judge rejected this argument largely because he considered that the subsequent changes to revenue law and practice introduced by the Finance Act 2004 which would permit the payment of pension in tranches or what has been called in this case a split pension had no application to the rules of the scheme which had survived unamended from a time before the changes in the Revenue rules took effect. He approached the matter on the same basis as in Trustee Solutions: i.e. that the rules only permitted payment of a single pension calculated on retirement and that the right of a mixed NRD member to take his NRD 60 pension at 60 fell to be exercised through the early retirement provisions which (in that case) enabled the member to take the entirety of his pension subject to a reduction for payment prior to his NRD. 39. There was an appeal in Trustee Solutions against that part of Lewison J's judgment which dealt with the entitlement of Mr Dubery to retire at 60 and to take the whole of his pension on the basis of early retirement. The Court of Appeal allowed the appeal and substituted for Lewison J's order a declaration that members of the scheme who had the right to retire at 60 in respect of any part of

12 their service and were aged between 60 and 64 at the date that the winding up of the scheme commenced fell within section 73(3)(b) but not in respect of pension accrued by service to which an NRD of 65 applied. 40. Although the issue of entitlement arose and was decided in the context of section 73 of the Pensions Act 1995, the reasoning of the Court of Appeal is relied on by the Company in this case to support the argument (rejected by Lewison J. in Toray Textiles) that the effect of Article 119 was to impose a split pension regime in respect of the NRD 60 rights accruing to a male mixed member as a result of pensionable service during the Barber window. This has led to argument as to the scope of the Court of Appeal's decision and the basis on which it was made. 41. The only reasoned judgment was that of Sir Peter Gibson with which the other members of the Court concurred. In paragraph 22 he refers to the argument of Mr Rowley QC who appeared for Mrs Cripps, the representative defendant entitled to a deferred pension who was joined to oppose the argument that Mr Dubery enjoyed priority in the winding up. As recorded in the judgment, Mr Rowley advanced three possible answers to the question of what entitlement Mr Dubery had. The first was that no entitlement to payment of pension had arisen at all; the second was that the only entitlement which had arisen was to payment of the Barber window benefits; and the third was that Mr Dubery was entitled to payment of the whole of his benefits (i.e. both the Barber window benefits and the pension accrued by reference to an NRD of 65). This was the solution which had been adopted by Lewison J. 42. On the appeal Mr Rowley contended primarily for the second alternative with the first as his fall-back position. Part of his argument turned on the meaning to be given to the words "where a person's entitlement to payment of pension or other benefit has arisen" in section 73(3)(b). These words indicated, he submitted, a pension in payment rather than merely an accrued right to such pension. He also contended that under section 73(3)(b) a right to call for payment of a pension was not the same as an entitlement to receive it. Ultimately, however, none of these arguments prevailed. Mr Rowley conceded that if "entitlement" in section 73(3)(b) had to be given a meaning which included (as the judge had held) an immediate and unconditional right to payment then Mr Dubery had such an entitlement as a result of the decisions in Barber and Coloroll at least in respect of the pension payable by reference to an NRD of 60. But the entitlement, he said, was limited to these rights. 43. Much of the discussion before me about Sir Peter Gibson's judgment centred on paragraph 30: "Mr Rowley submitted that the judge thereby erred. He had two routes to that conclusion, one being based on a construction of s 73 and the rules and the other being based on European law." 44. The first line of argument (as set out in paragraph 31 of the judgment) was that section 73 was not concerned with payment but with the application of the scheme assets on a winding up. Neither the rules of the scheme nor the Inland Revenue requirements at the time when the scheme came into effect contemplated differing retirement dates for any members. They all proceeded on the footing that the members' pension benefits fell to be determined by reference to a single point in time. The effect of Article 119 in relation to male members in service as at 17 th May 1990 was never contemplated and no provision was made for it. Mr Rowley in his Skeleton Argument (a copy of which I have been shown), therefore, contended that, in order to meet the introduction of a second NRD of 60 in relation to pensionable service within the Barber window, both the rules and the Inland Revenue requirements should be modified to allow the male members to take their Barber window benefits at 60 without that right being construed as applying to their remaining benefits under the scheme. 45. Sir Peter Gibson accepted this argument. In paragraphs of his judgment, he said this: "33. In my judgment Mr Rowley's submissions on possibility (b) are to be preferred. With all respect to the judge, he placed too much reliance on the fact that the rules and the Revenue requirements only contemplated a single pension payable on retirement at or after the NRD. But the rules and the Revenue requirements never contemplated the situation that has now arisen as a result of Barber and Coloroll with more than one NRD being required where there has been pensionable service both in and outside the Barber window and benefits have accrued by reference to different NRDs. I accept that the reference in s 73(3)(b) to 'entitlement to payment' takes one to the rules and that it is

13 permissible to construe them having regard to Revenue requirements, but the rules and Revenue requirements, both of which were drawn without reference to Barber and its complex consequences, must yield to European law and be modified accordingly. But I can see no good reason why the modification should extend beyond what is necessary to give effect to European law. The ECJ has made clear that Barber is not retrospective and accordingly the rules continue to apply save to the extent of the necessary modifications. The Revenue's requirements must also now take account of the fact that different benefits can accrue to a member by reference to more than one NRD. The judge had rightly recognised in para 65 of his judgment that there can be an entitlement to pension earned in a particular period to which one NRD applies and an entitlement to pension earned in another period to which another NRD applies. Section 73 itself recognises different tranches of pension to which different priorities apply. Accordingly, I would construe s 73(3)(b) as limited to pension and other benefits in payment or payment of which a member has a right to demand but as not extending to benefits accrued outside the Barber window when the member has not yet reached the NRD under the rules. 34. I confess that I am the happier to reach this conclusion because of the potentially distorting effect on the statutory priorities in s 73 which would otherwise result if the judge were correct. Take a case where, as in the present case if the attempt to close the Barber window had succeeded, the window had been closed from 1 October On the judge's decision a male member who had attained 60 at the commencement of the winding up and who had 40 years' pensionable service with benefits accruing both before 17 May 1990 and after 1 October 1991 would have not only his 17 months' Barber window benefits but also other benefits in respect of as much as 38 years 7 months' service prioritised. That would be an extraordinary result. If the judge's decision were correct, Mrs Cripps and those like her would have received nothing by way of pension benefit. 35. My conclusion in favour of (b) renders it unnecessary for me to consider Mr Rowley's alternative European law route to the same result." 46. Having looked at Mr Rowley's Skeleton Argument, it is not clear to me why Sir Peter Gibson refers to there being an alternative European law route to the same result. The arguments based on European law were those set out in paragraph 33 of the judgment which he and the other members of the Court of Appeal accepted. It is, of course, correct that these arguments were used to support a case about priorities under section 73 but section 73(3)(b) bases the order of payment on the individual member's entitlement to pension under the rules of the scheme and the general law and this is the question which Sir Peter Gibson was therefore dealing with in paragraph 33 of his judgment. 47. Although therefore Trustee Solutions is, strictly speaking, a decision about the order of payment under section 73, the reasoning of the Court of Appeal must, it seems to me, apply to cases where the issue is whether a mixed NRD member retiring at 60 during the Barber window has a right to receive not merely his NRD 60 pension benefits but also the whole of his pension including that referable to an NRD of 65. Given that Lewison J's decision in Toray Textiles was based on his reasoning in Trustee Solutions, it is argued by the Company that it is subject to the same criticisms even though in that case the Barber window had closed. 48. I shall return to consider the arguments on this point in more detail later in this judgment but, before dealing with the specific questions raised in the amended claim form, it is necessary to begin by outlining the changes made to the rules over the relevant period and the evidence about the factual background to these changes. The Scheme 49. The Scheme was established by a Trust Deed dated 21 st December 1956 but one can begin with the Trust Deed and Rules dated 8 th November 1979 which were in force at the date of the decision in Barber. Under the rules: ""Normal Retirement Date" in relation to a Member means the 65 th birthday if a male or the 60 th birthday if a female (which also coincides with the State pensionable age)."