KO UK Pension Trustees Ltd v Susan Margaret Barker

1. This is my extemporary judgment on the hearing of a Part 8 claim issued on 5 April 2024. The claimant is KO UK Pension Trustees Ltd, which is the trustee of the Coca-Cola Company Pension and Assurance Scheme. That is a defined benefit, occupational pension scheme. The principal employer is Coca-Cola (Holdings) UK Ltd. The participating employer is Beverage Services Ltd, a subsidiary of Holdings. That entity employs the five remaining active members who continue to accrue benefits in the scheme. There are, I understand, 286 pensioners, 494 deferred pensioners, and five active members as at 31 May 2022. The average age of the pensioners was then over 73; and their average pension was a little over £14,000 per annum. Any material delay in winding up the scheme would carry the risk of them dying before augmentations are granted or, at the very least, before any augmented pensions flowing from the transaction proposed by the claimant have been in payment for long enough to allow the pensioners to enjoy real advantage from such augmentations. The deferred pensioners’ average age is 54.9 years, and their average pension some £8,785 per annum. Their accrual within the scheme has already ceased. The average age of active members is 55, which is very slightly greater than that of the deferred pensioners. Whilst the data before the court does not show their average accrued pensions, it does show substantial average pensionable salaries.

2. The sole defendant to this Part 8 claim is Mrs Susan Margaret Barker. She is a former director of the claimant, having served as such from 1 June 2013 to 31 May 2020. She ceased to be a director before the present proposals were in contemplation; but she has the great virtue, and advantage, of knowing how this pension scheme operates. The claimant trustee is represented by Mr Nicolas Stallworthy KC. The defendant, who is put forward as a representative beneficiary to protect the interests of those who may be disadvantaged by the proposals, is represented by Mr Richard Hitchcock KC. Both counsel have produced detailed, and helpful, written skeleton arguments, which were exchanged sequentially, with Mr Stallworthy’s being dated the 5 th , and Mr Hitchcock’s 9 th , July 2024. In addition, I have had the benefit - denied to Mr Stallworthy - of being able to read a confidential opinion that forms part of a confidential bundle that has been placed before the court dated 9 May 2024, giving advice to the defendant. That opinion extends to some 33 pages and 99 paragraphs.

3. The trustee applies for the court’s blessing to two decisions which the trustee has reached in principle. The first is to undertake the transaction contemplated by the heads of terms. In summary, the trustee proposes to agree to vary a termination payment, payable on termination of the scheme’s existing buy-in insurance arrangements, reducing that payment so as to match the cost of a new, cheaper, replacement buy-in policy, covering the same liabilities. That agreement would be in return for the scheme’s principal employer giving notice to terminate the scheme, thereby allowing the trustee to crystallise and access surplus from which to make augmentations of the pension entitlements during the scheme’s winding up.

4. The second in-principle decision to which the court’s blessing is sought is to exercise the power to make augmentations to pensioners’ benefits from the surplus released during the winding up by giving all beneficiaries an equal percentage augmentation, which may be as much as something in the order of 27% of their present benefits. The claimant recognises that this is a momentous decision because it would lead to the scheme’s termination and winding up. It is for that reason that the claimant seeks the court’s blessing to their proposed decisions, under the second limb of the test in Public Trustee v Cooper [2001] WTLR 901 at page 923 B-F. In formulating that - and the other - tests, Hart J founded himself upon an earlier analysis provided by Robert Walker J in an unreported judgment, given in chambers, relating to the Egerton Trust Retirement Benefit Scheme. In summary, the combined effect of the two proposed decisions would involve, in effect, swapping a contingent possibility of a greater surplus in the future, which would fall to be shared between fewer beneficiaries because certain scheme members are likely to have passed on, for present, or imminent, augmentations for a larger number of beneficiaries. The insurance arrangements involved are, I am told, relatively unusual.

5. The evidence before the court comprises a first witness statement of Mr Edward George Levy, dated 4 April 2024, together with exhibit ‘EGL1’. He is the trustee chair of the board of the claimant company, in his capacity as a director of the professional trustee, which is the Law Debenture Pension Trust Corporation PLC. He has exhibited various documents in exhibit ‘EGL1’. Directions were given by Deputy Master Rhys, in an order of 25 April 2024. Prior to that order, the defendant had filed an acknowledgment of service in which she had made it clear that she does not oppose the making of a ‘blessings’ order in the terms proposed by the claimant. She has set out her reasons for taking that position in her evidence, which is contained in a witness statement dated 9 May 2024. That exhibits, amongst other things, a briefing note from the solicitors acting for the principal employer and the claimant trustee company, together with further letters passing between the solicitors acting for the claimant and the defendant, which further flesh out the history of the evolution of the present proposals. There is a second witness statement from Mr Levy, dated 13 June 2024.

6. I have had the opportunity of a day spent pre-reading the skeleton arguments, Mr Hitchcock’s confidential opinion, the witness statements and relevant documents to which my attention was drawn in a helpful reading list uploaded to the CE-file for this case.

7. The background is helpfully summarised at paragraphs 4-6 of Mr Levy’s first witness statement. He explains that the application is to seek the court’s approval to the trustee’s decisions, in principle, and subject to such approval: (i) to undertake the proposed transaction contemplated in the heads of terms dated 16 November 2023, which is exhibited with his witness statement, and which is the culmination of negotiations between the principal employer and the trustee company which began as long ago as 3 October 2022; and (ii) to distribute surplus scheme assets as part of that transaction through augmentation to member benefits, to the extent, and in the manner, described in paragraph 58 of Mr Levy’s first witness statement.

8. In summary, the proposal involves varying, and terminating, complex insurance arrangements in which the scheme is invested, with consequent financial advantage to the employer, Coca-Cola Group, in return for the principal employer of the scheme agreeing to terminate the scheme, thereby allowing the trustee to crystallise, and access, a surplus, which the trustee can then use to augment member benefits’. That expression is used as a shorthand for the benefits derived from membership of the scheme, including survivor benefits payable to spouses, partners, children and dependents. The augmentations are proposed for all the scheme’s beneficiaries. The trustee is of the view, based on the context which Mr Levy explains in his statement, that the course of action proposed to be taken is a proper exercise of its powers. Notwithstanding this, given that the proposed course of action would result in the termination, and the winding up of the scheme, the trustee considers it appropriate to make the present application, on the grounds that the decision is particularly momentous for the scheme, and involves consideration of arrangements which are said to be relatively novel in the pensions industry.

9. It is proposed that the defendant should be appointed as representative beneficiary, pursuant to CPR 19.9(2), to represent all the beneficiaries of the scheme in whose interests it might be to oppose the relief sought. She took early retirement in 2014 and, as such, she is a pensioner. The defendant has received information and documentation from the claimant’s solicitors, and she had received the benefit of her own legal advice in advance of the issue of the present application. Having scrutinised the trustee’s evidence, and interrogated matters further in correspondence, with the benefit of her independent legal advice from both reputable solicitors and counsel, the defendant, as evidenced by her acknowledgment of service, has concluded that there are no realistic grounds to challenge the propriety of the trustee’s decisions. She therefore does not actively oppose the court granting the relief sought. She has filed a confidential opinion, without loss of legal privilege, explaining why she does not oppose the application. The correspondence that has passed between the solicitors for the trustee and the defendant is confidential because it discusses the trustee’s negotiating position in relation to the principal employer and its wider group. If the court were to refuse its blessing, then the interest of the scheme’s beneficiaries might be adversely affected by the loss of the confidentiality attaching to such discussions.

10. Mr Stallworthy has addressed the existing insurance and re-insurance arrangements at paragraphs 8 through to 14 of his skeleton argument. The scheme commenced in 1958. It closed to new members in 2006. I have already referred to the membership and breakdown of that membership of the scheme. The scheme’s benefit liabilities are almost entirely secured by a ‘buy-in’ insurance agreement with AXA as a ‘fronting’ insurer. The insurance agreement presently permits additional contributions to be paid each year to secure additional accrual by the five remaining active members of the scheme. Those insured liabilities are then reinsured by AXA under an essentially back-to-back arrangement with a ‘captive’ reinsurer within the Coca-Cola corporate group, which is referred to as ‘KO’. The reinsurer in question is Red Life Reinsurance Ltd. The premium paid by the trustee to AXA flowed through to Red Life Reinsurance Ltd (to which I shall refer as ‘RLR’) as reinsurer, less, of course, a fee retained by AXA. As a reinsurer regulated in Bermuda, RLR is required to hold substantial capital in respect of its reinsurance obligations under the reinsurance agreement. This it does in a segregated ‘cell’. These back-to-back insurance and reinsurance arrangements are known as ‘PenCap II’, which replaced previous arrangements. I am told that such back-to-back arrangements are relatively unusual within the pensions industry; and they are described by Mr Levy in his first witness statement.

11. As well as the benefit of the insurance agreement with AXA, the trustee also holds about £46,000,000 of other assets. Since the insurance agreement covers the great majority of the scheme’s liabilities, with AXA paying the trustee the sums necessary to cover instalments of pensions in payment, these other assets are largely ‘surplus’ to requirements (subject to matters such as expenses, additional liabilities arising from a recent court decision, and so forth). The insurance agreement provides for the trustee potentially to receive a ‘termination payment’ in the event of termination of the insurance agreement. Such termination would trigger a correlative termination payment from RLR under the reinsurance agreement. Due to variables since PenCap II was put in place, in particular, changes to the pricing of pension insurance policies, any termination payment would currently be greater than the cost of a replacement insurance policy covering precisely the same liabilities (such as could be purchased by the trustee on a new ‘buy-in’). Any such termination payment, if paid at its presently prescribed amount, would therefore create an even larger surplus within the scheme, ultimately funded by RLR’s correlative termination payment under the reinsurance agreement (which KO is reluctant to trigger).

12. Unfortunately, the trustee’s ability to terminate the insurance agreement to access any such termination payment is restricted to the circumstances listed in clause 18.1 of the insurance agreement. Of those circumstances, the key one is clause 18.1(g). That permits the trustee to terminate the insurance agreement if there is a ‘scheme event’ within paragraphs (b) to (d) of the definition of ‘scheme event’. In particular, paragraph (b) would permit the trustee to terminate the insurance agreement, and thereby crystallise the ‘termination payment’, if a winding up of the scheme commenced.

13. Mr Stallworthy addresses the trustee’s powers to trigger winding up and augment benefits at paragraphs 15 to 16 of his skeleton. Despite the existing surplus, the trustee has no power under the scheme’s trust deed to amend or augment benefits unilaterally, that is to say, without the consent of the principal employer, whilst the scheme is still ongoing. Whilst the trustee would have unilateral powers to augment benefits from any eventual surplus during any winding up of the scheme, the trustee has no unilateral power to trigger the winding up of the scheme. It is only the principal employer who can give notice to terminate the scheme under clause 10.1. Absent such notice, the trustee’s only power to terminate the scheme, and proceed to winding up, is if it appears to the trustee that the objects for which the scheme was established no longer exist, or that its administration cannot conveniently be carried on. The objects for which the scheme was established were clearly the provision of pensions and other benefits, and those objects plainly continue to exist. The scheme’s administration can conveniently be carrying on indefinitely, not least because of the insurance agreement. The result is that the trustee cannot trigger a winding up of the scheme, and thereby acquire the power to grant augmentations from any surplus, without the principal employer’s agreement.

14. Mr Stallworthy addresses the commercial context at paragraphs 17 through to 22 of his skeleton. Given the current favourable pricing in the marketplace for securing benefits under insurance policies, in October 2022 KO proposed to the trustee that the PenCap II structure should be terminated consensually, with the termination payment reduced to such balance over the other assets held by the trustee as might be required to cover the cost of a new replacement policy with a new insurer. A ‘buy-in’ policy held in the name of the trustee would be converted to a ‘buy-out’ - under which every member would have an individual policy in their own name - upon winding up of the scheme. KO’s interest in such a termination of the PenCap II structure includes the release of the regulatory capital held by RLR in respect of its obligations under the reinsurance agreement. It is important to bear in mind that none of that capital is an asset of the scheme. The trustee has no right of access to regulatory capital held by RLR (including any excess capital which RLR may currently choose to maintain as a buffer against volatility in the markets).

15. From KO’s perspective, the principal employer could simply allow the scheme, which closed to new members in 2006, to run on until the last beneficiary died. At that point, once there were no members left to receive augmentations on winding up, the principal employer could then trigger a winding up, and receive all surplus assets back via the resulting trust which would arise on any dissolution. In that regard, I was referred to observations of Lord Millett, speaking for the Privy Council, in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 at page 1412 between letters A and F; and, more recently, the decision of the Inner House of the Court of Session, delivered by Lord Tyre, in the case of Re abrdn (SLSPS) v Roxburgh [2023] CSIH 31, reported at [2024 Pens LR at paragraph 33.

16. Perhaps understandably, KO is reluctant to trigger any termination of the scheme upon which the trustee could commence winding up, terminate the insurance agreement and, thereby cause RLR to have to make a massive termination payment under the reinsurance agreement, thereby ultimately increasing the surplus held by the trustee. It is estimated that, as at 31 March 2024: (i) Termination would have entitled the trustee to a termination payment of £232,000,000, whereas the cost of buying out the same liabilities would be only between £150,000,000 and £160,000,000. On that basis, the scheme’s surplus assets (subject to expenses and additional liabilities) would increase from some £46,000,000 to £118,000,000 to £128,000,000. (ii) The required regulatory capital in the RLR ‘cell’ which would have been released for KO would have been £41,000,000 (as the further £273,000,000 of excess capital is a buffer against market volatility that KO could withdraw as of right at any time). The outcome is that the trustee cannot access the surplus without the principal employer giving notice to terminate the scheme, thereby permitting the trustee to proceed to a winding up, where augmentations could then be granted under clause 10.3.5. However, the principal employer will not give notice to terminate the scheme unless termination payments under the PenCap II structure (ultimately payable by RLR) are reduced. For the defendant, Mr Hitchcock confirms her agreement with those facts and that analysis.

17. Mr Stallworthy sets out the proposed heads of terms at paragraphs 23 to 29 of his skeleton argument. In summary, the compromise deal with KO that is proposed to be entered into would involve: (i) the trustee exercising its investment powers (under clause 6 of the deed) to agree to vary the termination payment to match the cost of a new, replacement ‘buy-in’ policy covering the same liabilities as are already insured under the insurance agreement; in return for (ii) the scheme’s principal employer giving notice to terminate the scheme, thereby allowing the trustee to trigger a winding up in order to crystalise, and access, surplus from which to make augmentations during winding up. Allowing for items not already covered by the insurance agreement (such as further accrual by the remaining five active members, additional liabilities to equalise benefits in respect of guaranteed minimum pensions, and expenses and so forth, which would have to be funded out of the other assets held by the trustee), this deal may allow existing member benefits to be augmented for all beneficiaries by up to a figure in the order of 27%.

18. The proposed deal involves the trustee swapping its existing insurance asset (namely the insurance agreement) for a replacement insurance asset (in the form of a new policy) with an equivalent present value (because it would secure the same liabilities). However, it would also involve giving up the contingent possibility that there might come a time in the future when the principal employer might choose to terminate the scheme, or events outside its control (such as insolvency) might do so. In that event, applicable insurance market pricing might cause a termination payment to deliver greater surplus than is available under the present proposal. The trustee would only do so in order to crystallise and gain control over the existing surplus, so that the trustee could grant immediate augmentations during winding up (as a certainty).

19. In short, the trustee would be taking a ‘bird in the hand’, represented by the present surplus from uninsured assets, but giving up the contingent possibility of a greater surplus at some future date when there may be fewer beneficiaries left to share in such surplus. Effectively, the deal presently proposed would prevent the scheme from becoming a form of tontine, under which a dwindling cohort of the longest living scheme members may, in future, ‘scoop the pool’ if KO were to terminate the scheme (rather than awaiting the death of the last beneficiary and recovery of the then surplus by way of a resulting trust). It is a relevant consideration that the employer group (KO) can simply wait matters out in a way that members (who have finite lifespans) cannot.

20. Having reviewed all the materials supplied to the defendant and her solicitors, the defendant does not suggest that the trustee has failed to take account of any relevant factors, or has taken any irrelevant factors into account, in reaching the non-binding heads of term with KO and the principal employer.

21. Mr Stallworthy points out that the termination payment is likely, in any event, to abate by 15% if the present proposed deal does not take place because of a pending revision of mortality assumptions under the insurance agreement (as explained by Mr Levy, and discussed in the minutes of a meeting of the trustees on 9 November 2023).

22. The heads of terms include (at clause 12) mechanisms by which the five active members could receive additional augmentations (before they receive the augmentation in common with all other beneficiaries) so as to mitigate the cessation of their defined benefit accrual. These non-binding heads of terms cannot fix augmentations to mitigate cessation of accrual for the active members because there is a statutory requirement for a consultation process before any such cessation of accrual, and the heads of terms cannot pre-judge the outcome of that consultation process. Clause 12.2 simply seeks to preserve (to the greatest extent possible) all of the rights and discretions which the trustee would otherwise have to agree precisely when the accrual of active members ceases. KO may propose a mitigation package, to include components outside the scheme (such as ongoing life assurance, enhanced defined contribution arrangements for future service, or cash) as part of the active members’ overall remuneration package. Whilst the five active members may have no present right to any particular mitigation in respect of their accrual ceasing, the trustee, as a fiduciary, has sought to preserve leverage by requiring the trustee’s agreement to any mitigation package that may be offered (in clause 12.3 of the heads of terms). If such mitigation is proposed as additional augmentations within the scheme, funded out of the uninsured surplus assets (and thus, effectively, at the expense of other beneficiaries), the heads of terms set a ‘cap’ on how big a percentage augmentation can be funded from those surplus assets in order to protect the other beneficiaries; see clause 12.5 of the heads of terms. Mr Stallworthy points out that in exercising its discretion under section 12 of the heads of terms, the trustee will remain subject to its fiduciary obligations as a trustee of the scheme.

23. Mr Hitchcock points out that the proposed distribution, which is the method chosen by the trustee (if approved) for augmenting all members’ benefits, is a uniform percentage uplift to be applied to pensioners, and deferred pensioners, and the active scheme members, equally. This decision has been made with the benefit of legal and actuarial expert advice.

24. Mr Stallworthy addresses the law on trustee decision-making at paragraphs 30 and 31 of his skeleton. He refers to the recent summary of the applicable law, provided in the context of another pension scheme trustee’s application for approval by Richard Smith J in the case of Brass Trustees Ltd v Goldstone [2023] EWHC 1978 (Ch) , reported at 2024 Pens LR 1. The relevant paragraphs of Richard Smith J’s judgment are paragraphs 46 to 48. Omitting citation of authority, these read as follows:

46. When exercising a fiduciary power, trustees are required to inform themselves of the relevant facts and take into account relevant factors and ignore irrelevant ones … As Lewin on Trusts points out, although a number of authorities talk of taking into account ‘ all relevant matters ’, the range of circumstances required to be taken into account will depend on context. For example, time, urgency, quantum and cost may play a part. Lewin considers that the duty to take into consideration relevant matters is best regarded as an element of the duty to act responsibly. Trustees must have a rational basis for a decision, but will be in breach only if a given matter is so significant that a failure to take it into account would be irrational. As to what is a relevant matter to take into account, the authorities, such as they are, indicate that this too depends on context, including the nature of the trust and power under consideration …

47. Trustees should also act rationally (sometimes expressed as not acting capriciously) and reasonably. The distinction between rationality and reasonableness was explained (in a different context) in Hayes v Willoughby [2013] 1 WLR 935 at [14] in the following terms:- ‘Rationality is not the same as reasonableness. Reasonableness is an external, objective standard applied to the outcome of a person’s thoughts or intentions. A test of rationality, by comparison, applies a minimum objective standard to the relevant person’s mental processes. It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and (which will usually amount to the same thing) an absence of arbitrariness, of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse’.

48. The test of reasonableness is often described as Wednesbury reasonableness … This requires the trustee not to act as no reasonable trustee would. In Edge v Pensions Ombudsman [1998] Ch 512 , this was put in terms of not taking a decision that ‘ that no reasonable body of trustees properly directing themselves could have reached ’ ( Edge at 534, affirmed by the Court of Appeal in [2000] Ch 602 ).

25. Mr Stallworthy points out that the Court of Appeal decision in Edge illustrates that the exercise of their fiduciary powers will often require trustees to weigh the interests of one cohort of beneficiaries against the interests of another. Provided trustees have considered matters properly, in the words of Chadwick LJ, delivering the judgment of the Court of Appeal in Edge at page 627 between letters C and F: They cannot be criticised if they reach a decision which appears to prefer the claims of one interest, whether that of employers, current employees or pensioners, over others. The preference will be the result of proper exercise of the discretionary power. Here, given the imponderable contingencies, Mr Stallworthy submits that accepting a compromise deal which gives certainty of large augmentations now for the greatest number of beneficiaries seems plainly within the bounds of rationality.

26. In the course of his oral submissions, Mr Stallworthy also referred me to observations of Floyd J in the case of NBPF Pension Trustees Ltd v Warnock-Smith [2008] EWHC 455 (Ch) , reported at [2008] 2 All ER (Comm) 740. In particular, he directed my attention to paragraphs 19 through to 22. There, Floyd J said that provided the trustees have taken into account no “irrelevant, improper or irrational factors”, and have not reached a decision that no reasonable body of trustees, properly directing themselves, could have reached, it is for the trustees alone to weigh up the various factors which impact on their proposals. Their decision cannot be challenged merely because another view might have been taken unless it is so unreasonable that no reasonable trustee could have reached it. It follows that, where taking into account the material available, there are a number of rational schemes for distribution which a trustee may take, it is for the trustees, and not for the court ,to decide between them. Provided all relevant factors have been taken into account, it is for the trustee to make decisions on any discretionary power that has been entrusted to them; and there are very narrow grounds on which such an exercise of their discretionary powers can properly be challenged.

27. Mr Stallworthy has also addressed the role of the court on a trustee’s application for directions, where reliance is placed upon the second of the matters identified in Cooper . He has referred me to the summary at paragraphs 49 to 62 in the Brass Trustees case. At paragraph 50, Richard Smith J said this:

50. The role of the court in a ‘blessing’ application such as this is limited, namely, to see that the proposed exercise of the trustees’ powers is lawful and within the power, and that it does not infringe the trustees’ duty to act as ordinary, reasonable and prudent trustees might act, ignoring irrelevant, improper or irrational factors. In doing this, it requires to be satisfied only that:- (a) The trustees have, in fact, formed the opinion that they should act in the way for which they seek approval; (b) The opinion of the trustees was one which a reasonable body of trustees, correctly instructed as to the meaning of the relevant clause, could properly have arrived at, including taking into account relevant considerations and ignoring irrelevant considerations; and (c) The opinion was not vitiated by any conflict of interest under which any of the trustees was labouring.

51. As Lewin puts it at paragraph 39-095: ‘In other words, once it appears that the proposed exercise is within the terms of the power, the court is concerned with limits of rationality and honesty; it does not withhold approval merely because it would not itself have exercised the power in the way proposed’.

28. To that summary, Mr Stallworthy adds the guidance about such applications given by the Court of Appeal in Cotton v Brudenell-Bruce, Earl of Cardigan [2014] EWCA Civ 1312 reported at [2015] WTLR 39. Amongst other matters: (i) The procedure is intended to be quick and accessible. (ii) Disputes on the facts should not frequently arise because the trustees are not asking the court to find facts. They are asking the court to decide whether they have presented sufficient evidence to satisfy it that the trustees have fulfilled their duties to their beneficiaries in deciding upon the transaction in question, and have formed a view which, in all the circumstances, reasonable trustees could properly have formed. This is a very different exercise from the situation after the event, where a beneficiary is seeking to prove that the trustees have failed in their duties. (iii) Trustees are permitted to rely on competent professional advice. (iv) The court is not a rubber stamp, but it must not place insurmountable hurdles in the way of trustees. The court has a supervisory jurisdiction that needs to be exercised in appropriate circumstances. ‘Caution cuts both ways’. (v) The fact that the beneficiary is in a weaker position than he would be after full disclosure and cross-examination at the trial of an action to challenge the trustees’ actions cannot, by itself, mean that the court should withhold consent. It is true that court approval would prevent a later challenge; but if the court is given sufficient, and appropriate, material on which to act, it should not withhold consent just in case something better might, in the future, turn up.

29. In his skeleton argument, Mr Hitchcock points out that in considering an application of the present kind, the court is not principally concerned with the merits, or otherwise, of the decision that the trustee has made. Rather, the role of the court is to consider four principal matters which, together, are directed towards ensuring that the decision made is lawful and within the terms of the power relied upon by the trustees to make it, that it has been reached honestly and reasonably, and ignoring improper, irrelevant or irrational factors. The court must therefore be satisfied that: (i) As a matter of fact, the trustees have made the in-principle decision for which they seek approval. (ii) They have approached their decision prudently, taking all relevant considerations into account, and ignoring irrelevant considerations. (iii) The decision reached following that process was one which a reasonable body of trustees, correctly advised as to the meaning of the relevant power could make; and (iv) The decision was not vitiated by any conflict of interest. I do not discern any difference in the approach of Mr Stallworthy and Mr Hitchcock.

30. The role of the representative beneficiary, on an application of the present kind, is informed, and confined, by the nature of the court’s role, as previously outlined, and the confined grounds on which a trustee’s exercise of fiduciary duty can legitimately be challenged. Absent realistic grounds for doing so, a representative beneficiary is not obliged by her role to oppose court approval being granted. By way of analogy, Mr Stallworthy drew my attention to the guidance given by Master Teverson as to the role of a representative beneficiary in opposing a pension scheme rectification claim that was cited by Chief Master Marsh in the case of Blatchford Ltd v Blatchford [2019] EWHC 2743 (Ch) , reported at [2020] Pens LR 5 at paragraph 33: The role of those acting for the representative beneficiary is to satisfy themselves, both legally and evidentially, that the requirements for the rectification sought are met. There is a need in carrying out that role for the investigation to be carried out with rigour, because the representative beneficiary is in effect acting on behalf of a significant number of members.

31. Against that background, Mr Stallworthy submits that the transaction contemplated by the heads of terms is plainly within the scope of the trustee’s investment powers. It involves varying one investment, and then disinvesting and reinvesting, but securing the same liabilities so as to give the beneficiaries substantially improved benefits. The transaction is also within the proper purposes of the trustee’s powers of investment. Like many changes in investment, it involves giving up a theoretical contingent potential upside, from retaining one existing investment, in order to secure more certain and immediate, financial improvements for the greatest number of beneficiaries. Mr Stallworthy points out that, as to the three further preconditions for approval: (i) the trustee’s decision in principle on 9 November 2023 is recorded in the minutes; (ii) the decision was one which a reasonable body of trustee could properly have arrived at, after taking relevant considerations into account, and ignoring irrelevant considerations; and (iii) the decision has not been vitiated by any conflict of interest or duty.

32. Insofar as the augmentations proposed are concerned, the trustees’ deliberations about how to share out the surplus which will be accessed by the transaction are detailed at paragraphs 55 to 69 of Mr Levy’s first witness statement. In order to assist with its decision-making, the trustee has received advice from the scheme actuary. The trustee’s in-principle decision, on 12 December 2023, is recorded in the minutes. The decision for which approval is sought is to apply a uniform percentage increase to all the beneficiaries’ benefits (in the case of active members, after any additional augmentation applied in mitigation of accrual ceasing, in accordance with clause 12 of the heads of terms) .

33. Mr Stallworthy submits that the decision is plainly one which a reasonable body of trustees could reach. There is no suggestion that the trustee has failed to take key factors into account, or that it has wrongly taken account of any irrelevant factors, nor is the decision vitiated by any conflict of interest or duty. All potential for conflict has been declared and addressed, including by delegating the decision to the two directors who are not members of the scheme, and thus have no personal interest in the decision. The trustee’s proposals have been announced to members on 3 June 2024. Three responses have been received, which are addressed at paragraph 43 of Mr Stallworthy’s skeleton argument.

34. The trustee has engaged with all of the issues raised by the defendant’s detailed and probing enquiries in correspondence, which are set out in the exhibit to the defendant’s witness statement. Having undertaken those enquiries, the defendant has confirmed, in her acknowledgment of service, and her witness statement, that she does not oppose the order sought. For those reasons, Mr Stallworthy invites the court to grant the trustee approval for its proposals in terms of the draft order .

35. In her witness statement, and for the reasons set out in his confidential opinion, Mr Hitchcock makes it clear that the defendant does not oppose the claimant’s application. She has done so after receiving the advice set out in Mr Hitchcock’s opinion, and discussing this with leading counsel in conference. However, Mr Hitchcock makes it clear that at the time his opinion was written, he and the defendant both understood that there would be further developments in relation to the particular treatment of the active members. It is the defendant’s position that there should be additional meaningful compensation for those five active members. Mr Hitchcock points out that there has been no additional further comfort on the issue of ensuring that these five active members will receive some measure of additional compensation. He addresses that position at paragraphs 23 to 29 of his skeleton. Notwithstanding all of that, however, the defendant’s position remains that she does not oppose the present application. That is made clear both in Mr Hitchcock’s skeleton argument, and in his oral submissions to the court this morning.

36. During the course of this hearing, I invited Mr Stallworthy to address Mr Hitchcock’s expressed concerns in relation to the active members, as set out at paragraphs 23 through to 29 of his written skeleton argument. This, Mr Stallworthy did in his oral submissions. Mr Stallworthy made the following points: (i) That one of the five active members is one of the trustees. Another of the five active members has communicated with the trustees in response to the announcement made concerning the present application. I have looked at the full details of the email exchanges with that active member. Mr Stallworthy makes the point that no great concern has been raised by any of the five active members. (ii) Mr Stallworthy makes the point that the active members will receive the augmentation that is applicable to all scheme members. If it is in the order of 27%, then that would be equivalent to a number of years of additional service. (iii) Mr Stallworthy makes the point that it would be invidious for the trustee to pre-empt the results of the necessary statutory consultations that need to be undertaken with active scheme members, and which are envisaged by clause 12 of the heads of terms. (iv) Mr Stallworthy points out that the employer of the active members may propose some form of mitigation package, outside the terms of the pension scheme, as part of the active members’ overall remuneration and benefits package. (v) Mr Stallworthy makes the point that, to some extent, any mitigation package would have to be funded from within the pension scheme, and so could only be undertaken at the expense of other beneficiaries. To balance the interests of all scheme members, the trustees wish to preserve a degree of flexibility.

37. Mr Stallworthy submits that it is manifest that the interests of the active members have been, and are being, and will be, taken into account, and given appropriate, and substantial, weight. In any event, they will receive a very substantial augmentation to their benefits, in common with everyone else. In response to those submissions, Mr Hitchcock emphasised that the defendant does not say that what he described as ‘the confused position’ in relation to the five active members constitutes any good grounds for challenging the decisions of trustees. He likened the present position to ‘bringing a horse quite close to water but not yet allowing the horse to drink any of it’. Mr Hitchcock emphasised that the additional augmentation proposed originally for active scheme members was not proposed to be taken from the notional sum of some £40,000,000 that is to be used to augment the benefits of scheme members generally. He also made the point that there is no guarantee that the active members will receive anything. He likened the present position to the ‘dangling thread that needs to be gently tugged’.

38. Mr Stallworthy emphasised, in response, the need for the trustee to retain a degree of flexibility, to allow all the circumstances to be taken into account. There is no certainty coded into the heads of terms that there will be any additional augmentation for active members of the scheme. Nevertheless, the trustee has secured, within the heads of terms, a mechanism that acknowledges their discrete interests; and regard will be had to them as the heads of terms move towards a more detailed conclusion. Mr Stallworthy also emphasised that the negotiations had been ongoing since 3 October 2022, and the trustee has, in no way, failed fully to apprehend his bargaining position. There is the risk of the employer group, KO, simply waiting it out. Unlike the scheme members, with their finite lifespans, the employer group can simply wait matters out until all the scheme members have passed away. Those are the submissions.

39. I am entirely satisfied that it is appropriate to make the representation order in relation to the defendant that is sought. I am satisfied that she has properly discharged the role of ensuring that the interests of those beneficiaries, in whose interest it is to oppose the proposals, have been properly considered, with the benefit of reputable legal advice; and that these have been properly understood, and presented to the court. I will therefore make the representation order that is sought in relation to the defendant. The court is grateful for the rigour with which she, and those advising her, have gone about their task. I am also satisfied that the test for approval indicated in the Cooper case, and the other authorities cited to me, has been met.

40. Specifically, I am satisfied that: (i) The claimant trustee has, in fact, formed the opinion that it should act in the way for which it presently seeks approval, both in relation to the variation of the termination payment payable on termination of the scheme’s existing ‘buy-in’ insurance arrangements, and in exercising the power to make benefit augmentations from the surplus achieved during winding up, by giving all scheme members an equal percentage augmentation. (ii) The position of the active member is presently under active consideration, and due regard will be had to their discrete interests. (iii) The opinion that the trustee has reached is one which a reasonable trustee, correctly directed could properly have arrived at. (iv) The trustee has taken into account all relevant considerations, and has ignored those considerations which are irrelevant. (v) The opinion at which the trustee has arrived is not vitiated by any conflict of interest under which any individual trustee may have been labouring.

41. In reaching those conclusions I am, of course, reinforced in my views by the approach taken by the defendant in her representation of the members, and beneficiaries, of the scheme, and her conclusion, aided by expert legal advice, that there are no credible grounds for opposing either the analysis provided by Mr Stallworthy, or the decision at which the trustee has arrived. For those reasons, therefore, I propose to approve an order in the terms of the draft minute which appears at pages 8 and 9 of the open hearing bundle.

42. I will order: (i) That the decision by the claimant to undertake the transaction contemplated, or a transaction the key terms of which are substantially similar to those of the transactions contemplated, in the heads of terms exhibited as tab 1 of exhibit ‘EGL1’ to Mr Levy’s witness statement is approved. (ii) That the decision to distribute surplus scheme assets, as part of that transaction, through augmentation to benefits of members, and other beneficiaries, to the extent, and in a manner, substantially similar to that described in paragraph 58 of Mr Levy’s witness statement is approved. (iii) That the claimant is appointed to represent all members and other beneficiaries of the scheme in whose interest it is, or might in the future prove to have been, that the trustee carries out the proposed action specified in paragraphs 1 and 2 of the order. (iv) That the defendant is appointed to represent all other members, and beneficiaries, of the scheme, being those in whose interest it is, or might in the future prove to have been, to oppose the relief sought.

43. At the outset of this hearing, I suggested the inclusion of an additional provision along the lines of a permission to the claimant trustee, or indeed, for either party, to apply to the court if any of the assumptions upon which the trustee proposes to enter into the proposed transactions should cease to hold good. Having taken instructions, Mr Stallworthy indicated that he would be content to see included in the order a modified version of that permission to apply, under which the claimant alone, after consultation with the defendant and her legal advisors, might make such an application. I have indicated that I would be content to reserve any such application to myself, if available. I can safely leave it to Mr Stallworthy, in consultation with Mr Hitchcock, to draft an appropriate form of words, which will, no doubt, be an improvement on my original suggestion.

44. Insofar as the costs are concerned, I will order that the claimant should be entitled to its costs of and incidental to these proceedings on the indemnity basis out of the funds of the scheme, pursuant to CPR 46.3; and that the defendant’s costs of and incidental to these proceedings should also be paid out of the scheme funds, to be assessed on the indemnity basis if not agreed by the claimant.

45. That, I think, concludes all the matters which I need to address, and therefore concludes this extemporary judgment. I am sorry that it has gone on for so long. End of Judgment Transcript of a recording by Acolad UK Ltd 291-299 Borough High Street, London SE1 1JG Tel: 020 7269 0370 [email protected] Acolad UK Ltd hereby certify that the above is an accurate and complete record of the proceedings or part thereof