• Bradbury v British Broadcasting Corporation [2012] - High Court Accepts Cap on Pensionable Salary Achieved By Extrinsic Contract
  • June 23, 2012
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • Introduction
    This was an appeal to the High Court by Mr Bradbury against a determination of the Pensions Ombudsman. The BBC had altered pension benefits under the BBC Pension Scheme (the Scheme) without changing the Scheme rules. This was achieved by making a pay increase subject to employees accepting that only 1 per cent of it would be pensionable.

    Mr Bradbury claimed that:

    • the 1 per cent cap was inconsistent with the Scheme rules.

    The Court disagreed. There was nothing to the contrary in the Scheme rules. The Court upheld the decision in South West Trains v Wightman (1998) in which a collective agreement reached on behalf of members by their union was binding on all the members. In the BBC case, the extrinsic agreement was effective to impose the 1 per cent cap on increases to pensionable pay.

    • the cap contravened the inalienability provisions of section 91 of the Pensions Act 1995 (Section 91).

    The Court rejected this argument too. It held that Mr Bradbury had no existing right to a pension based on a salary in excess of his current salary level, so not receiving that increased level of salary, and therefore a higher pension based on it, could not be a contravention of Section 91.

    • the employer had breached the implied duties of trust and confidence and good faith owed to its employees.

    The Court was unwilling to consider what it termed the Implied Duties, as these issues could not be raised for the first time on appeal to the High Court. The judge invited the parties to reach agreement on the Implied Duties issue and to submit that to the Court for approval, or, alternatively, to make a subsequent claim.



    Background
    The Courts have traditionally taken a strict approach to the formalities for amending pension scheme deeds, and also to construing associated documentation such as member communications, and any terms set out in extrinsic documents like members’ contracts of employment. However, as the South West Trains judgment shows, it is possible to achieve changes by other means where no provision to the contrary is included in the scheme’s rules.

    The Courts have traditionally taken a strict approach to the formalities for amending pension scheme deeds, and also to construing associated documentation such as member communications, and any terms set out in extrinsic documents like members’ contracts of employment. However, as the South West Trains judgment shows, it is possible to achieve changes by other means where no provision to the contrary is included in the scheme’s rules.

    In South West Trains, train drivers formerly employed by British Rail were transferred to a private sector employer, South West Trains (SWT). Amendments to contracts of employment which affected calculations of pensionable salary were agreed between SWT and the union, and endorsed by the union’s members by ballot. The Court held that the collective agreement reached between SWT and the union was contractually binding on each of the drivers individually.

    In the BBC case, the Court upheld the decision in South West Trains and distinguished the High Court decision in IMG Pension Plan HR Trustees Ltd v German and another (2009). Warren J held that, where there is no contrary provision in a scheme’s rules, if the employer provides clear communications to members on the pensions effect of accepting a pay rise, the agreement is binding on the employee, even where the employee’s agreement is not in writing.

     


    Comment
    It remains to be seen whether the parties reach agreement on whether or not to return to the Pensions Ombudsman or the Court for a decision on the good faith issue. Subject to the good faith question though, the BBC was permitted to rely on a contractual agreement to cap pensionable salary. However, it is possible that a breach of the Implied Duties could render such an extrinsic contract ineffective.

    The judgment has been welcomed as a positive indicator that what have been known as South West Trains agreements can be effective in overriding scheme provisions, in circumstances where there is nothing to the contrary in the scheme documentation. In a climate where employers face increasing financial pressure and are likely to seek alternative ways of reducing their pension costs, a decision clarifying how this may be achieved with member agreement but without involving the trustees is reassuring.