In British Airways plc v Airways Pension Scheme Trustee Ltd, the Court of Appeal (in a 2:1 majority judgment) has allowed BA's appeal, holding that the trustees were not entitled to use the scheme's amendment power to increase pensions against the employer's wishes.

The background to the case was the government's decision in 2010 to change the statutory basis for calculating pension increases from RPI to CPI. The wording of the BA scheme rules meant that this would result in future increases under the BA scheme being based on CPI rather than RPI. Unusually, the Scheme's amendment power, which was exercisable by the Trustees, did not stipulate that employer consent was to an amendment was required. The Trustees amended the Scheme to give themselves a discretion to grant additional increases to those already provided by the Scheme rules. They subsequently exercised that power to award an additional increase.  BA challenged the trustees' actions in court.

The High Court rejected BA's challenge, but the Court of Appeal allowed BA's appeal, holding that the amendment which the trustees had purported to make went beyond the proper purpose of the scheme's amendment power.  Although the amendment power was drafted in broad terms, it had to be read in the light of the "constitutional functions" given to the trustees under the trust deed, namely to manage and administer the scheme.  By purporting to amend the scheme in the way they had done, the trustees had attempted to assume responsibility for designing the scheme rather than managing and administering it.  That was not the function of the trustees under the terms of the trust deed.

The scheme trustee has been granted permission to appeal and has said it will be meeting with its advisers in the first two weeks of September 2018 to decide whether to pursue an appeal.

Our thoughts

This judgment illustrates that the scope of a broadly worded amendment power can be more limited than an initial reading of the words might suggest, as the courts will consider the broader context of a power in a trust deed, not just the wording of an individual clause in isolation.

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Rachel Rawnsley

Rachel Rawnsley

Partner, Head of Pensions
United Kingdom

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Jade Murray

Jade Murray

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Catherine McAllister

Catherine McAllister

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Rachel Uttley

Rachel Uttley

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United Kingdom

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