British Airways v APS Trustees Ltd.- A flight of fancy for Trustees?

OK, I’ll admit that I started writing this blog at the airport with my flight delayed by over an hour.   To be fair the airline in question wasn’t the World’s favourite (as it would like to be remembered) but I did have a copy of the recent judgement in British Airways PLC v Airways Pension Scheme Trustees Ltd in my briefcase and, well, who could resist passing the time with it?  A weighty tome which sits at 164 pages and 636 paragraphs which reflects a case that started on 26 October 2016 and finished on 9 December 2016.  My compliments to Mr Justice Morgan for sitting through the complexities of the arguments and writing a novella at the end.

So what was the fuss all about and why should trustees pay heed to the conclusions?  It’s difficult to sum up a complex case and why it is important in a few words but here goes.

Under the rules of the BA Scheme, pension increases were calculated in relation to annual pension increase review orders issued by the government which were historically linked to RPI as a measure.  This was a throwback to when BA was a publically owned company.  In 2010 the government switched to CPI as a measure for these orders from April 2011.  In February 2011 the Trustees of the BA Scheme decided that they had a discretionary, and unilateral, power of amendment to introduce a new trustee power to allow discretionary increases subject to certain restrictions not being breached. This is what they did.  Having introduced this new power they decided, in November 2013, to exercise it and awarded a discretionary increase of 0.2% for 2013 (half of the difference between RPI and CPI).  British Airways PLC, who is the principal employer, challenged the amendment that the Trustees made and the decision to award the increase citing an improper use of the amendment power.

As you will gather the arguments were complex but to cut a very long story short the High Court held that the Trustees decision to amend the Rules to allow the discretionary increase was allowed as a valid exercise of the Scheme’s power of amendment  and was not beyond the scope of what the power allowed.  Secondly the Court held that decision to award the discretionary 0.2% increase was valid.  It should be said that BA have obtained leave to appeal and they also obtained injunctive relief to stop the Trustees applying the discretionary increase whilst an appeal was being considered. BA is appealing on the grounds that the payment was “benevolent” and as such breached one of the restrictions to the amendment power.  This flight to the Court clearly has some distance to run.

As with all cases the facts pertaining to the case are critical in why the Court finds for or against.  However in the analysis of the arguments there are some lessons for trustees to take away.

    • Trustees must fully understand how their scheme documents are constructed, the powers available to both the trustees and the principal employer and the proper process for exercising decisions.
    • The decision making process must be followed to the letter and with proper advice.  This is critical in protecting trustees from a challenge from a principal employer.  There will be times that the trustees and a principal employer will disagree on a decision.  That a trustee takes a different view from a principal employer and makes a different decision to one the principal employer might want them to take will not invalidate that decision if it was made properly and was not unreasonable.
    • The decision making process must be properly documented.  In other words make sure the minutes are right and are detailed enough to stand up to the scrutiny of the Court.  Minute taking is an art, not an afterthought.  If you look back and can’t figure out why a decision is made then the minutes are not doing their job

I can now remove the judgement from my briefcase which is a good thing.  I was worried that I might be exceeding the weight limit for hand luggage.

Mike Crowe
Mike Crowe

Mike currently works as a Trustee Representative supporting the firm with new appointments and on-going trustee appointments made by the Pensions Regulator.