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South West Trains Ltd v. Wightman & Others


Chancery Division

Collective agreement on pension rights between employees and employers following restructuring of working practices and remuneration binding on individual employees.

Following the privatisation of British Rail, the new Railways Pension Scheme ('RPS') was established for the industry, governed by a Trustee (the third defendant). The employees of the plaintiff company, South West Trains (SWT) were covered by the SWT sub-section ('the Section') of the Shared Costs Section of the RPS, to which a proportion of the assets of the Shared Costs Section was transferred. A Pensions Committee representing employer and employees was set up and the fourth to ninth defendants were the first members of that committee. The pension was calculated by reference to the 'Pay' received in the last year of service. SWT renegotiated the terms and conditions of three categories of staff, drivers, revenue protection inspectors and fleet staff. The case of the drivers was typical and the case was decided on that basis. Under the old system the drivers had been paid #11-12,000 in salary (on which the pension was calculated) and another #11,000 in allowances (which were not taken into account for pension purposes). Under the new system, each driver received a salary of #25,000 pa with no significant allowances, with the pension being calculated on a notional pay of #18,000 pa. In relation to the years of service up to restructuring a driver's pay was to be treated as being #11,950 pa. The drivers voted in favour of these proposals and they were put into effect. However, when SWT and the Trustee sought the approval of the Pensions Committee for a draft Deed to change the Rules of the Section to reflect the agreement, Mr Brady (the eighth defendant) objected to the Deed on the ground that it appeared to worsen the position of the drivers. SWT sought a declaration that the drivers were debarred from obtaining pensions at a higher rate than those contained in the proposals and consequential relief, including an authorisation for the Trustee to execute a Deed amending the Rules of the Section appropriately and a declaration that the Pensions Committee ought to request the Trustee to execute such a deed. It was common ground that the Deed before the court reflected the enforceable agreement (if there was one) between SWT and the drivers. The first and second defendants represented the drivers and their dependants. The tenth defendant represented the employees who did not fall into one of the three categories affected by the restructuring, who would be adversely affected if SWT failed in the proceedings, as there would be a substantial deficit in the assets of the Section. The issues in the case were as follows; (1) On the assumption that, as a matter of common law, there was a binding pensions agreement which would otherwise be fully enforceable by SWT against the drivers, would that agreement fall foul of the Railways Pensions Scheme Order 1994 in relation to drivers who were employed by the Board on 31 May 1994 (when the 1994 Order came into force)? (2) Assuming that there would otherwise be such a binding pensions agreement, was any aspect of it invalidated by s.67 of the Pensions Act 1995? (3) Was there in fact a binding pension agreement between each driver and SWT? (4) If there were such an agreement, (a) could it be enforced and (b) could the Section be varied so as to reflect that agreement? The possible issues of estoppel, good faith or obligation to co-operate were not in the event decided.

HELD: (1) The drivers were not correct in their argument that the agreement contravened Art 6(1) of the 1994 Order, in that the 'relevant pension rights' under the RPS would be 'less favourable' than the 'relevant pension rights' under the British Rail Pension Scheme ('BRPS'). This fell foul of practical common sense. The combined effect of Art.6(1) and para.6(2) and (3) of Sch.11 of the Railways Act 1993 was to require one to compare the pension rights which a protected person will have immediately after a proposed amendment to the new scheme, with the pension rights which he had on 31 May 1994 under the old scheme. The RPS rights retained and improved upon the BRPS rights. On the construction of the 1994 Order and Sch.11 of the 1993 Act under which it was made, it was permissible to look outside the terms of the two schemes in order to see if one is 'less favourable' than the other and 'relevant pension rights' should be judged in financial rather than conceptual terms and this was supported by Art.6(3) (transfer of pension rights) which made a 'value comparison'. Art.4(3), which gave specific guidance on determining whether new rights were less favourable than old, did not contradict this interpretation and nor did Art 6(5). In assessing 'relevant pension rights' one should not assume that an employee would receive any future increases in pay as of right, although any increase would be taken into account in assessing the pension. Whether one looked at the position before or after restructuring, it was a matter of negotiation between employer and employee as to how any increase was treated for the purpose of pensionable pay – ie how it was apportioned between pensionable and non-pensionable elements of the drivers' total pay. (2) As the drivers did not have 'any entitlement or accrued right' to a pension based on #25,000 subject to increase, s.67 of the 1995 Act would not prevent the trustees from executing the deed. There was nothing in the policy of s.67 to indicate that an agreement, entered into before s.67 came into force, but which would otherwise be binding, should not be effective and enforceable merely because it did not comply with "the consent requirements". The section should not be given retrospective effect. (3) The agreement which was approved by the union and endorsed by ballot, under cl.16 of the drivers' employment contract (incorporation of trade union agreements), became binding on each driver. All aspects of the restructuring proposals, in particular those relating to pay and by extension, pensions were of a nature apt to become enforceable terms of an individual's contract. (4) It was implicit in the binding pensions agreement between SWT and each of the drivers that the drivers would not claim pensions at a higher level than that agreed and that, were the drivers to seek to claim a higher pension, SWT could obtain an injunction restraining them from doing so. Otherwise, an important aspect of the contract embodied in the restructuring proposals was rendered nugatory and the burden of contributions on SWT and other employees would be much higher. The other employees would have a powerful argument open to them that SWT had a duty to restrain the drivers. (5) The trustee should be permitted to execute the amended deed. SWT was entitled to the relief it sought.


[1997] OPLR 249 : [1998] Pens LR 113 : Times, January 14, 1998

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