UK: National Grid - Whose Victory?

Last Updated: 4 March 1999
Article written by Scott Redpath and Tom Collinge, Pensions Lawyers at national law firm Hammond Suddards

The long awaited decision of the Court of Appeal on the treatment of pension fund surplus by National Grid and National Power has been hailed by some commentators as a victory for individual pensioners and a sharp reminder to employers tempted to "grab" fund surplus. The truth is not so simple.

Although the initial complaint to the Pensions Ombudsman that the employer had misused surplus was simple enough, at that time the legal pegs upon which these complaints were hung were far from settled. In the event, the Pensions Ombudsman decided for the members. On appeal, the High Court found for the employers. The Court of Appeal has again decided for the members. At each stage the law has evolved and each decision has a strikingly different complexion. The importance of the recent decision is that the legal principles have been reaffirmed and appear now to be settled.

The legal significance of the recent decision can be seen in two ways.

In narrow terms, a pension scheme's governing rules must be closely observed, since they provide a vital key to understanding an employer's powers, in other words, what the employer may or may not do. As trite as this reminder may seem, much of the Court of Appeal's decision emphasises this point. On this basis the Court held that the employer had misinterpreted the rules binding it. Indeed, it even suggested that if the rules had been followed, the employer might have amended them in such a way as to make their claim to actuarial surplus permissible.

Nevertheless, because of the particular rules of the schemes, there was scope for argument as to the nature of the employer's obligations to the members in relation to scheme surplus. The Court of Appeal held that the employer's obligations were not fiduciary, that is in exercising their powers over the scheme surplus, they did not have to consider the members interests above their own. This does not mean that the employer does not have to consider the interests of the members at all. Indeed, the employer must consider them, and the members are entitled to have their interests considered, not ignored. This is what is at the heart of the duty of good faith owed by the employer to the scheme members. The Court of Appeal has confirmed that this duty, raised a little more than ten years ago in the Courage case, is now a matter of "settled law".

In broader terms, the decision will have ramifications. The Court of Appeal has confirmed that pensions are a kind of "deferred pay" bringing pension provision more firmly within the ambit of the contract of employment. This link to the contract of employment has become much closer in recent years. The Court of Appeal has demonstrated this link forms an essential part of the way that the pensions promise must be understood - and perhaps even controlled by the Court. By bringing pensions more fully into the ambit of the contract of employment, it is possible that there is further scope for members to assert their entitlements under the pension scheme, not just as beneficiaries under the scheme but also as employees under their contract of employment. Employers may find this an unwelcome intrusion.

Part of the earlier High Court decision in Southwest Trains is also instructive for employers. Exemplifying the growing link between pensions and the contract of employment, this decision touched on benefit changes which arise from collective bargaining agreements. Where such an agreement has the effect that the contribution rate in the contract of employment diverges from the rate set out in the terms of the pension, it will be the agreement which takes precedence even if the deed were more favourable. The reason that benefit changes may arise quite properly this way is that the employees have, collectively, agreed to the alteration. This may give a message to some employers that their role in the pension arrangements has changed somewhat. It is not necessarily true that this is a change for the worse. This may be seen as another way of giving employers more control over their pension arrangements through the employment relationship.

What is starting to emerge is a new relationship between the parties to the pension scheme. To borrow a currently popular word this gives scheme members more of a "stakeholder" role. From the employers' point of view, new mechanisms are becoming available to agree changes in the benefits a scheme will provide. Furthermore, a new clarity and legal certainty will help them structure their strategy and actions when they contemplate changes to benefits and contributions.

While some employers may be comfortable with this, others will be more sceptical about the growing involvement of employment issues in pensions matters. They may take some solace in the fact that the Court of Appeal has clearly restated the principle that employers' powers under a pension scheme are not fiduciary in nature.

The effect of this is helpful. Following the initial decision in National Grid by the Pensions Ombudsman it had been feared that employers would be precluded from considering their own interests when deciding upon a strategy for the use of surplus. That contention has now been dismissed. In place of a ruling that might have dissuaded many employers from persisting with final salary schemes, there is a more subtle yardstick by which to measure employers' actions.

This is the reaffirmation of the relationship of confidence and trust between the employer and employee. It will take future pensions cases to define precisely where the limits to this duty lie, but the importance lies in the fact that employers have been permitted considerable scope to act in their own interests. So long as the duty to their employees is not breached, the continuing use of surplus to support commercial objectives is still quite permissible.

It may be premature to draw the line under National Grid quite yet. There are further hearings on the mechanics of implementing the judgment and at least one party is contemplating an appeal to the House of Lords. This flags up one more pertinent message from this long-running saga. The sheer cost of the actions to date has been in the many hundreds of thousands of pounds. While lawyers may be satisfied by the clarifications that the process has brought to the law, other observers may be less happy about this use of funds. A more positive outcome of the National Grid case would be if, capitalising upon the legal lessons, aggrieved parties were more inclined to use alternative methods to achieve the resolution of disputes. This could become a victory for all sides.

For further information please contact Jane Marshall, e-mail: Click Contact Link , 7 Devonshire Square, Cutlers Gardens, London EC2M 4YH, UK, Tel: + 44 171 655 1000

This article was first published in the March 1999 Hammond Suddards Money Marketing Newsletter

The information and opinions contained in this article are provided by Hammond Suddards. They should not be applied to any particular set of facts without appropriate legal or other professional advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.