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Could recent developments in the UK High Court affect Irish pension schemes?

AUTHOR(S): Deirdre Cummins
PRACTICE AREA GROUP: Employment, Pensions and Benefits
DATE: 11.06.2014

Two recent High Court cases in the UK could be of significance to both sponsoring employers and trustees in the context of amending and restructuring pension schemes. While these decisions are of persuasive authority only, and therefore not binding in Irish law, trustees, sponsoring employers and indeed their advisers would be well advised to be aware of these judicial developments.

IBM UK Holdings & another v Dalgleish and Ors(1)

In this case the UK High Court found IBM to be in breach of both its implied contractual duty of mutual trust and confidence and its Imperial(2) duty of good faith to its employees for the manner in which it implemented the closure of its defined benefit pension schemes and imposed a new early retirement policy. This is the first time an employer has been found to be in breach of these duties to its employees in the context of a pension scheme closure.

The Imperial duty of good faith can be summarised in the words of Browne-Wilkinson VC in the Imperial case as follows,

“In any contract of employment there is an implied term: “that an employer will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee;”. ... I will call this implied term ‘the implied obligation of good faith’.
In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer.”

From an Irish law perspective, the Imperial duty of good faith was recognised in the Supreme Court in 2009 in an employment law context(3) and in the High Court in 2007 in a pensions law context(4).

By way of background, in 2009, following two previous benefit restructuring exercises, IBM announced the closure of its defined benefit pension schemes to future accrual (along with other amendments). The trustees of the schemes had doubts as to the lawfulness of the proposed changes. Consequently IBM sought a declaration from the High Court on the lawfulness of its actions.

The Court held that IBM’s actions, when viewed as a whole, amounted to a breach of its contractual and Imperial duties. In terms of the Imperial duty, the Court found that the necessary irrationality and perversity on the part of IBM, as the employer, was evident. Notably, it was not the nature of the schemes’ changes themselves that constituted the breach but the fact that the changes were at odds with the members’ “reasonable expectations” of continuing accrual generated from the employer’s own past actions. In this regard, communications issued by the Company in the context of the previous restructuring exercises were central to the Court’s finding.

This case will be of particular concern to employers who are considering making significant changes to the benefit provisions of their pension schemes, particularly where previous communications or the actions of the employer could be seen to have led to “reasonable expectations” on the part of the employees with respect to the continued operation of the scheme in its current form. The case also highlighted that where a consultation exercise is required to be carried out, the employer must carefully consider any submissions and not pre-determine the matter.

From a practical perspective when advising on issues such as these, it is no longer sufficient to simply review the governing trust documentation of the scheme in question; it is also important to examine the conduct of the employer prior to the implementation of the proposed actions or amendments and to consider in particular any prior communications between the employer and the pension scheme members.

Briggs & Ors v Gleeds(5)

This case highlights the importance of ensuring the proper execution of deeds. It concerned a defined benefit pension scheme for employees of certain partnerships within the Gleeds Group.

The trustees of the scheme initiated proceedings in the UK High Court seeking a determination on a number of issues, including the validity of a number of deeds, when it came to light that some thirty deeds, dating back more than twenty years, which had purported to amend the scheme, had not been properly executed.

The deeds were executed on behalf of the partnership by certain partners; however their signatures had not been independently witnessed. The Gleeds partnerships, as defendants in the proceedings (along with two representative beneficiaries of the scheme), made some interesting arguments about the operation of estoppel and the equitable principle that “equity looks on that as done which ought to be done”.

In dismissing these arguments, Newey J in a carefully reasoned judgment, held that the failure to have the signatures independently witnessed was fatal as it did not meet the requirements of the Law of Property (Miscellaneous Provisions) Act 1989 which prescribed that individual signatures required to be attested by a witness.

This finding meant that many of the significant cost cutting measures purportedly introduced by the deeds in question were invalid. These measures included the introduction of member contributions and a defined contribution section to the scheme, the reduction in accrual rates and the closure of the scheme to future accrual. This finding will therefore have serious implications for both the employer and members and as a result the scheme deficit on an on-going basis could be increased by approximately £45 million. Another hearing will be necessary to determine the impact of this judgment on scheme members.

In an Irish law context, the Land and Conveyancing Law Reform Act 2009 provides that, in the case of an individual executing a deed, the individual’s signature must be witnessed. In the case of execution by an Irish registered company, execution must be in accordance with its articles of association. This is usually under seal in accordance with the articles (usually two directors or one director and the company secretary attest the affixing of the seal).

In conclusion, care needs to be taken when dealing with issues of this nature and appropriate advices should be obtained by both trustees and sponsoring employers when contemplating scheme amendments.

1 [2014] EWHC 980 (Ch)
2 Named after the Imperial Group Pensions Trusts Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589 case in which the duty was first recognised as applying to pension schemes by Browne-Wilkinson V-C.
3 Berber v Dunnes Stores Limited [2009] IESC 10
4 Boliden Tara Mines Limited v Cosgrove & Ors [2007] IEHC 60
5 [2014] EWHC 1178 (Ch)

This article was first published in Irish Pensions Magazine Summer 2014


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