International Management Group (UK) Limited v (1) Peter German, (2) HR Trustees Limited (Court of Appeal) – 1 December 2010

The Court of Appeal has confirmed that section 91 of the Pensions Act 1995 does not prohibit the compromise of a genuine dispute as to whether pension rights in a scheme exist.

Background

In November 2009, the High Court ruled that a restriction in the original amendment power in the governing documentation of the IMG Pension Plan (the Plan), which prevented any amendment having “the effect of reducing the value of benefits secured by contributions already made”, should not have been removed by a later deed. Consequently, members of the scheme who were in service when benefits under the Plan were purportedly converted from DB to DC in January 1992, were deemed to benefit from a final salary underpin.

A number of members who had left service, or otherwise complained about their entitlements in the years between the amendment being made and the High Court case being brought, had entered into compromise agreements with the International Management Group (UK) Limited (IMG). In these agreements, IMG gave the members concerned additional employment benefits, in return for the member confirming that they did not have DB rights under the Plan. At first instance, the members argued that these compromise agreements were unenforceable because of section 91 of the Pensions Act 1995.

The Appeal

Section 91 prevents the surrender, assignment or commutation by a member of his/her rights under a pension scheme, except in certain limited circumstances. At the relevant times, this section stated that:

“…where a person is entitled to a pension under an occupational pension scheme or has a right to future pension under such a scheme … the entitlement or right cannot be assigned, commuted or surrendered …and an agreement to effect any of those things is unenforceable.”

Arnold J in the High Court found that in general these agreements were unenforceable under section 91 because they amounted to a surrender of rights. As a preliminary matter,the Court of Appeal was asked whether section 91 would render unenforceable a court-approved compromise.

IMG raised two arguments on appeal:

• section 91 does not apply because a legitimate compromise of disputed or doubtful entitlements and rights does not involve a surrender or agreement to surrender a pension entitlement or right; and
• if compromise agreements are unenforceable, this does not affect the court’s power to approve a compromise under the Civil Procedure Rules.

Decision

The Court of Appeal held that section 91 would not render unenforceable a compromise agreement on disputes as to whether a right exists. Applying the ordinary meaning of the wording in section 91, Lord Justice Mummery found it “most unlikely” that the prohibition against surrender or agreement to surrender applied to the settlement of claims to a putative or alleged entitlement or right. If this were the case, he explained that all disputes over entitlements or rights would have to be resolved by legal proceedings and authoritative determination – an “inconvenient result”.

Mummery LJ also considered that public policy aims for encouraging, upholding and enforcing compromises would not be met if it were not possible to compromise a dispute about pension entitlements or rights.

In addition, the Court of Appeal confirmed a court-approved compromise (a free standing power under the Civil Procedure Rules) remains available.

Comment

This is the first Court of Appeal decision on the scope of section 91 and, as such, provides clarity as to its operation. Given the court’s interpretation of section 91, it helpfully supports the use of compromise agreements where there is a genuine dispute as to whether or not a pension right exists.