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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Secretary of State for Culture, Media And Sport v BT Pension Scheme Trustees Ltd & Anor [2014] EWCA Civ 958 (16 July 2014) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2014/958.html Cite as: [2014] EWCA Civ 958

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Mann
[2010] EWHC 2642 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		16th July 2014

Lord Justice Rimer :

Introduction

1. This appeal concerns the extent of a statutory guarantee ('the Crown guarantee') given by the Secretary of State under section 68 of the Telecommunications Act 1984 upon the privatisation in 1984 of the British Telecommunications Corporation, a statutory corporation ('the Corporation'), by way of the flotation of the newly formed British Telecommunications plc ('BT'). It concerns, in particular, the application of the Crown guarantee to the BT Pension Scheme ('the Scheme').
2. The appellant is the Secretary of State for Culture, Media and Sport ('the Secretary of State'), represented by James Eadie QC and Jonathan Evans QC. The first respondent is BT Pension Scheme Trustees Limited ('the trustee'), the trustee of the Scheme, represented by Alan Steinfeld QC and Jonathan Hilliard. The second respondent is BT, the principal employer under the Scheme, represented by Andrew Simmonds QC and Henry Legge QC.
3. The appeal, brought with the permission of the judge, Mann J, is against declarations in paragraphs 1 and 2 of his order made in the Chancery Division on 1 May 2013. His judgment was delivered some 30 months earlier, on 21 October 2010. In between, Mann J also had to decide other issues arising out of findings he had made in that judgment, which he did by judgments dated 28 July 2011 and 16 December 2011, with which the appeal is not concerned; and it then took an unusual time to finalise the order, which also covered many other matters.
4. The Corporation established the Scheme by a deed of 2 March 1983, which preceded the privatisation. The 1984 privatisation involved the transfer of the assets and liabilities of the Corporation to BT. Paragraph 1 of the judge's order declared that the 1983 deed and all subsequent versions of the Scheme rules obliged the Corporation 'to pay the Buy-Out Lump Sum on Scheme termination', a declaration that binds BT as the successor employer. That lump sum is an amount equal to any deficit in the Scheme on its termination, measured on the assumption that liabilities for benefits will be discharged by the purchase of annuities. The declaration reflected what the judge held to be the effect of clause 20 of the 1983 deed. If he was right on that, the Secretary of State does not dispute that he was right also to hold that subsequent versions of the Scheme's rules imposed a like funding obligation on BT. But the Secretary of State disputes the judge's interpretation of clause 20, which he says imposed no such funding obligation upon the Corporation, or therefore upon BT. The Secretary of State's interest in so arguing is that the extent of the Crown guarantee is directly related to the true interpretation of clause 20. Its interpretation is the subject of the first head of the Secretary of State's appeal.
5. Paragraph 2 of the judge's order declared that the Crown guarantee was 'not limited to covering Contributions in respect of the benefits of Pre-Transfer Date Joiners, and is capable of covering Contributions in respect of Post-Transfer Date Joiners.' The Secretary of State challenges this declaration as well, and asserts that the guarantee is confined to BT's liability in respect of pre-transfer date joiners: that is to say, members of the Scheme who became such prior to the privatisation. This ground of the appeal raises a question of construction of various provisions of the Telecommunications Act 1984.
6. Both respondents advanced arguments in support of the declarations made by the judge.
7. Before saying more, I should say this. It is agreed that the Crown guarantee bites only if BT were to go into voluntary winding up (otherwise than for the purposes of reconstruction or amalgamation with another company) or compulsory winding up. BT is a solvent and prosperous company and the prospect of its ever going into insolvent liquidation is remote. Despite this, the trustee considered that there were good reasons why it should seek the court's determination of the extent of the Crown guarantee, as it did by its claim in these proceedings, to which BT and the Secretary of State were defendants. These reasons are as follows.
8. First, such determination is relevant to the issues of whether and, if so, to what extent the Scheme is eligible for protection from the Pension Protection Fund established by Part 2 of the Pensions Act 2004 and liable to the amount of the annual levy payable to that Fund. Second, it is relevant to the application to the Scheme of sections 75 and 75A of the Pensions Act 1995, which imposes in relation to applicable schemes a statutory exit debt when a participating employer ceases to participate in it. Third, it is relevant to the application to the Scheme of the so-called 'scheme specific funding regime' provided for in Part 3 of the Pensions Act 2004, which imposes in relation to schemes to which it applies a framework of ongoing funding requirements. Fourth, it will enable the trustee to give proper answers to questions as to the scope of the Crown guarantee from members who, whether rightly or not, are or may be concerned as to the security of their pensions. Those are the considerations that provoked the bringing of these proceedings by the trustee.

The background to the Scheme

9. By way of history, I gratefully draw, in part verbatim, on the judge's judgment: [2010] EWHC 2642 (Ch). Before 1969, those engaged in the telecommunications business now conducted by BT were employed by the Post Office. In 1969, the Post Office was separated from the rest of the civil service and became a statutory corporation ('the Post Office'). It was empowered, by section 43 of the Post Office Act 1969, to establish a pension scheme and some 400,000 of its employees became members of the new Post Office Staff Superannuation Scheme ('the POSS Scheme'), which was established by a deed of 24 September 1969. The POSS Scheme was funded by the Post Office and provided benefits similar to those which its members had previously enjoyed under the unfunded civil service pension scheme.
10. In 1971, the POSS Scheme was amended so as to create three sections: (i) the then existing non-contributory section, which was closed to new entrants; (ii) a new contributory Section A, which provided civil service benefits and was also closed to new entrants; and (iii) a contributory Section B, which provided civil service benefits on establishment but could be amended to provide different benefits; new employees could only join Section B.
11. In 1981, the Post Office's telecommunications business was hived off to a new statutory corporation, the Corporation, under the British Telecommunications Act 1981. In 1983, the telecommunications element of the pensions provided under the POSS Scheme was de-merged from that scheme and the assets were transferred to a new scheme, the British Telecommunications Staff Superannuation Scheme (i.e. the Scheme). This was established by a deed and rules dated 2 March 1983, which substantially mirrored the provisions of the POSS Scheme: and it is the Scheme which is the subject of the appeal. The Scheme had sections equivalent to those within the POSS Scheme and was similarly not sectionalised in terms of any segregation of its funds: it was administered as one fund. It took effect from 31 March 1983. I must explain its material provisions.

The material provisions of the Scheme

12. Recital 1 recorded that the Corporation had determined to establish the Scheme, which was:

'… to be interpreted by English law and having as its primary purpose the securing of pensions and other benefits for or in respect of some or all of the present and future employees of [the Corporation] and the present and future Members of the Corporation in accordance with [the scheduled Rules].'

13. Clauses 1 to 9 dealt with general matters going to the administration of the Scheme, to which it is unnecessary to refer beyond noting that clause 3 originally provided for there to be nine trustees, four being representatives of the Corporation (the employer), four being representatives of the Scheme members and one being the chairman. Clause 10, headed 'Contributions by the Corporation', and which is important, provides:

'10. The Corporation shall contribute to the Fund by monthly instalments:

(a) such contributions as are certified by the Actuary as needed to meet the cost of benefits under the Schedule 1 Rules, excluding a member's contributions towards the cost of family and dependants' benefits;

(b) such sums as may be due under Rule 12 of the General Rules;

(c) such further contributions as may from time to time be required to repair any deficiency reported by the Actuary'

Clause 1 defines 'the Fund' as 'all moneys from time to time held by or on account of the Trustees and any Custodian Trustee in pursuance of this Deed and the investments and securities for the time being representing the same.'

14. Clause 12, headed 'Actuarial Valuations', provides for the making of regular actuarial valuations and for the making up of any deficiency that any valuation might reveal. The argument focused exclusively on clauses 12(1) to (3), but I shall set out the whole clause:

'12. (1) On or before [31 March 1988] and thereafter at the end of such periods not exceeding 5 years as the Trustees shall from time to time determine the Actuary shall make an actuarial valuation of the assets and liabilities of the Fund and shall make a report upon the financial position thereof making therein any recommendations he thinks fit to the Trustees who shall forthwith transmit to the Corporation and to such organisation or organisations as are mentioned in Clause 3(2) a copy of such report and any recommendations they may wish to make in regard thereto.

(2) Where on any such valuation the Actuary certifies that a deficiency or a disposable surplus in the Fund is disclosed the Corporation shall within 3 months after receiving the valuation and report and the Trustees' recommendations (if any) make arrangements which in the opinion of the Corporation are expedient for making good the deficiency or as the case may require for dealing with the surplus.

(3) Subject to the provisions of sub-clause (4) if a deficiency is certified in the Fund any arrangements made shall provide for an annual deficiency contribution of such amount as may be certified by the Actuary to be required to make good the deficiency over such period not exceeding 40 years from the date of the valuation as the Corporation may determine.

(4) The Corporation may instead of arrangements in accordance with sub-clause (3) or in substitution at any time for any such arrangements previously made make arrangements consisting of:-

(a) an undertaking by the Corporation by deed to make to the Trustees payments of such equal or unequal amounts as the Corporation may determine and specify in the deed payable in the case of arrangements pursuant to sub-clause (2) at such time or times in every year during such period not exceeding 40 years from the date of the valuation as the Corporation may determine and so specify or in the case of substitutionary arrangements at such time or times in every year during a period co-terminous with the outstanding term of the arrangements replaced as the Corporation may determine and so specify; and (unless the Actuary certifies that in his opinion no further provision is required);

(b) provision for an annual deficiency contribution of such amount as may be certified by the Actuary to be required in his opinion to make good over such period not exceeding 40 years from the date of the valuation or (in the case of substitutionary arrangements) from the date of the last valuation as the Corporation may determine that part of the total deficiency disclosed on the valuation or (in the case of substitutionary arrangements) on the last valuation which remains after taking account of the provision made by the said deed and (in the case of substitutionary arrangements) the total amount paid by way of deficiency contribution since the date of the deed or (if earlier) the beginning of the month in which payments under the deed are deemed to be first due.'

15. Clause 13 sets out, over some seven pages, the investment powers in relation to the fund. Clause 14 relates to trustee meetings. Clause 17 deals with the power to amend the deed. Clause 19 provides for the trusts created by the Scheme to continue during a defined royal lives period plus 21 years.
16. I come to clause 20, upon which all turns. Let it be said straight away, it is a poor piece of drafting. It is headed 'Termination', although the Scheme itself provides for no means of termination other than the arrival of the end of its royal lives perpetuity period. Clause 20 provides:

20. (1) If the Scheme terminates an actuarial investigation shall be made and the Fund shall be realised and subject to the payment of all costs charges and expenses and the Trustees' liabilities to creditors properly payable thereout the monies then in hand together with such sums as may be due from the Corporation to restore the solvency of the Fund shall be applied under the advice of the Actuary, where appropriate, so far as they permit to the purposes and with the priorities indicated in the following sub-clauses.

(2) The words and expressions used in this clause shall have the same meanings as in the Social Security Pensions Act 1975 as amended from time to time.

(3) On a winding up of the Scheme, any liabilities of the Scheme in respect of:-

(a) guaranteed minimum pensions and accrued rights to guaranteed minimum pensions;

(b) any such benefits as are excluded by Section 33(5) of the Social Security Pensions Act 1975 from earners' guaranteed minimum pensions;

(c) pensions and other benefits in respect of which entitlement to payment has already arisen; and

(d) state scheme premiums; shall be accorded priority over other liabilities under the Scheme.

(4) If the assets of the Scheme are not sufficient to meet in full the liabilities specified in sub-clause (3) above, the assets shall be applied to meet those liabilities in the order of priority in which those liabilities are specified in sub-clause (3).

(5) If after the liabilities specified in sub-clause (3) have been met there are assets in hand then such assets together with any sums due from the Corporation to restore the solvency of the Fund shall be applied under the advice of the Actuary to the following purposes (if and to the extent that those purposes have not been satisfied under sub-clause (3) above), and with the priorities indicated, namely:-

first in the purchase from the Government or from any insurance company to which the Insurance Companies Acts 1974 and 1981 apply of non-commutable non-assignable annuities payable under the same conditions as payments receivable under the Rules for those persons who immediately before the winding up were entitled whether immediately or in reversion to pensions out of the Fund such annuities to be of amounts equal to the pensions to which those persons are then entitled;

secondly in the purchase in like manner of non-assignable (and except in so far as the Trustees may with the consent of the Commissioners of Inland Revenue determine non-commutable) deferred annuities for members and others who might at some future date become entitled to the benefits out of the Fund regard being had to their respective prospects of becoming so entitled had the Fund continued to exist the amount of their service reckonable for such benefits and the amount of such benefits at the date of termination of the Scheme;

thirdly any moneys which remain after the first two purposes set out in this sub-clause (5) have been satisfied shall be returned to the Corporation.'

By way of just one example of the imprecision of the drafting, it will be noted that whereas clause 20(3) gives priority on a winding up to the provision for, inter alia, pensions in payment (see sub-paragraph (c)), clause 20(5) then provides for the provision for the same liability. No doubt the draftsman included clause 20(3) so as to give effect to the statutory priority requirements on a winding up. But he appears to have given little thought to that when he came to draft the subsequent provisions of the clause.

17. Clause 10, quoted above, cross-refers to 'The Rules of the Non-Contributory Part of the Scheme', in schedule 1; and to rule 12 of the 'The General Rules of the Contributory Part of the Scheme', in schedule 2. Rule 12 provides:

'12. The Corporation from [1 April 1983] shall contribute to the Fund by monthly instalments.

(a) a monthly sum equal to 1½ times the standard contributions of all members (excluding those members for whom an approved employer pays the Corporation's contributions);

(b) a monthly sum as calculated by the Actuary equal to its members' contributions in respect of family benefits in so far as such provision has not already been made;

(c) a monthly sum equal to all members' contributions for dependants' benefits;

(d) such sums as are certified by the Actuary as necessary to cover the purchase of added years including the normal family benefits related to those years at the Corporation's sole expense;

(e) such sums as are certified by the Actuary as necessary to cover the cost of enhancement of service under Rule 1 of Section A.

(f) such sums as are certified by the Actuary as necessary to cover the cost of enhancement of service under Rules 4(a) and (b), 5, 7(3)(b) and 12(1) of Section B including family benefits related to those years.'

The privatisation

18. The telecommunications business was privatised within 18 months of the birth of the Scheme. It was achieved by the Telecommunications Act 1984, whose effect was that, as from 6 August 1984, the business of the Corporation was transferred to BT. The provisions of the 1984 Act relevant to the appeal are sections 60 and 68 and two paragraphs of Schedule 5.
19. Part V of the 1984 Act, which includes the relevant sections, is headed 'Transfer of Undertaking of British Telecommunications' (what I have called the Corporation). It is sub-headed 'Vesting of property etc, of British Telecommunications in a company nominated by the Secretary of State'. Section 60 provides materially:

'60. (1) On such day as the Secretary of State may by order appoint for the purposes of this Part (in this Act referred to as "the transfer date"), all the property, rights and liabilities … to which British Telecommunications was entitled or subject immediately before that date shall (subject to the following provisions of this section) become by virtue of this section property, rights and liabilities of a company nominated for the purposes of this section by the Secretary of State (in this Act referred to as "the successor company"). …

(4) References in this Act to property, rights and liabilities of British Telecommunications are references to all such property, rights and liabilities, whether or not capable of being transferred or assigned by British Telecommunications.'

The 'successor company' was BT.

20. Section 109(4) of the 1984 Act provides that Schedule 5 'shall have effect', and paragraphs 36 and 37 of Schedule 5 provide materially:

'36. – (1) Except as otherwise provided by the foregoing provisions of this Part of this Schedule (whether expressly or by necessary implication), any agreement made, transaction effected or other thing done by, to or in relation to British Telecommunications which is in force or effective immediately before the transfer date shall have effect as from that date as if made, effected or done by, to or in relation to the successor company, in all respects as if the successor company were the same person, in law, as British Telecommunications, and accordingly references to British Telecommunications –

(a) in any agreement (whether or not in writing) and in any deed, bond or instrument;

(b) in any process or other document issued, prepared or employed for the purpose of any proceeding before any court or other tribunal or authority; and

(c) in any other document whatsoever (other than an enactment) relating to or affecting any property, right or liability of British Telecommunications which vests by virtue of section 60 of this Act in the successor company,

shall be taken as from the transfer date as referring to the successor company. …

37. – (1) It is hereby declared for the avoidance of doubt that –

(a) the effect of section 60 of this Act in relation to any contract of employment with British Telecommunications in force immediately before the transfer date is merely to modify the contract (as from that date) by substituting the successor company as the employer (and not to terminate the contract or vary it in any other way); and

(b) that section is effective to vest the rights and liabilities of British Telecommunications under any agreement or arrangement for the payment of pensions, allowances or gratuities in the successor company along with all other rights and liabilities of British Telecommunications; and accordingly for the purposes of any such agreement or arrangement (as it has effect by virtue of paragraph 36 above in relation to employment with the successor company or with a wholly owned subsidiary of that company) any period of employment with British Telecommunications shall count as employment with the successor company or (as the case may be) with a wholly owned subsidiary of that company. …'

21. Finally, I come to the material provisions of section 68, by which the Crown guarantee was created:

'68. Liability of Secretary of State in respect of liabilities vesting in successor company

(1) This section applies where –

(a) a resolution has been passed, in accordance with the Companies Act 1948, for the voluntary winding up of the successor company, otherwise than merely for the purpose of reconstruction or amalgamation with another company; or

(b) without any such resolution having been passed beforehand, an order has been made for the winding up of the successor company by the court under that Act.

(2) The Secretary of State shall become liable on the commencement of the winding up to discharge any outstanding liability of the successor company which vested in that company by virtue of section 60 above.'

More history

22. The judge described the subsequent history of the Scheme in some detail in paragraphs 17 to 24 of his judgment, to which the interested reader can refer, but whilst it was necessary for him to do so in light of the issues he had to decide, there is no need for the purposes of the limited issues raised by the appeal to explain it in the same detail. I add only that, with the arrival of the Insolvency Act 1986, a reference to that Act was substituted for the reference to the Companies Act 1948 in section 68(1) of the 1984 Act; and the Communications Act 2003 inserted the words 'for the payment of pensions' immediately after the words 'successor company' in section 68(2). As the judge said, an explanatory note to the Bill revealed that it was thought that by then the only outstanding liability of BT for which the Secretary of State might be responsible under the Crown guarantee was in respect of the payment of pensions. There were also certain changes to the Scheme's rules in 2002 and 2009, but there is no need to refer to them.
23. As for the size and membership of the Scheme the judge explained that:

'25. The Fund currently has about 344,000 members. It is the biggest private sector pension fund in the UK. At its last actuarial valuation at the end of 2008 it had assets worth £31.3 billion, a decrease of about £4 billion from the preceding valuation three years before that. On an ongoing basis there are liabilities of £40.4 billion, so there is a deficiency. I was told that that was currently being addressed by deficiency contributions. Measured in terms of liabilities, roughly 80% of the liabilities of the Fund relate to pre-transfer joiners. 20% relates to post-transfer joiners. About 7,000 of the members are employees of participating companies. The original 1983 Scheme did not provide for participating companies. They were allowed in by amendment at some later date.'

Issue 1: does clause 20 impose a 'buy-out lump sum' obligation?

24. The rival positions are clear. Mr Eadie, for the Secretary of State, said that clause 20 imposes no obligation upon BT, upon the termination of the Scheme, to ensure that it is fully funded so as to enable it to meet in full all its obligations under clause 20, including the purchase of annuities. By contrast, BT and the trustee assert that it does, as the judge held. The heart of the difference between the parties turns on the words in clause 20(1) – which are, oddly, substantially repeated in clause 20(5) – reading '… together with such sums as may be due from the Corporation to restore the solvency of the Fund …'. Mr Eadie's case is that those words do no more than refer to any obligation to which the Corporation may earlier have become subject under clause 10, being an obligation imposed when the Scheme was an ongoing one, and thus refer merely to obligations to which the Corporation is already subject at termination. The respondents' case is that upon the termination of the Scheme, the words impose a new obligation upon the Corporation to fund the winding up of the Scheme in full so as to enable the purchase of annuities to meet the members' entitlements.
25. The judge accepted the arguments of the respondents. He was, first, impressed that clause 20 mirrored the termination provision in clause 19 of the POSS Scheme, which included the like key language. He referred to the White Paper (1967 Cmnd 3233) which preceded the establishment of the POSS Scheme and derived from it that that scheme was intended to provide its members with the like security for the payment of their pensions as they had enjoyed under their prior civil service pensions; and he considered that such security would only be provided upon a termination if the trustee was able to buy the annuities provided for by clause 19. He said that such funding would have to come from the Post Office, the employer, if from anywhere. He accepted that the key language of clause 19 'was intended to, and is sufficient, to achieve that.' He considered it unlikely that it was intended to refer merely to the deficiency provisions in clause 11, which are mirrored by the like provisions of clause 12 of the Scheme.
26. The judge therefore regarded this background as supporting the application of the same interpretation to clause 20 of the Scheme, saying at [36] that 'The same wording is used within the same structure, and the same security for members is likely to have been intended.' In [37] to [46], he engaged in a careful explanation and critique of the arguments advanced by the Secretary of State as to why the language of clause 20 could not sustain the weight that BT and the trustee submitted it should bear. He explained why he was unconvinced by them, and why he therefore concluded that the sense of the key words in clause 20 was, upon termination, to impose an obligation upon the Corporation, so far as necessary, to fund the Scheme so as to enable the purchase of all necessary annuities. His reasoning is full and detailed, but I shall not repeat it. Essentially the same arguments advanced to him were re-run before us; the question of the true interpretation of clause 20 is one of law and we must make up our own minds as to what the answer to it is.
27. We were referred to Stevens and others v. Bell and others [2002] EWCA Civ 672, where Arden LJ summarised the principles to be applied in the interpretation of pension schemes: see [26] to [32]. She noted that no special rules of construction applied, but that a pension scheme should be construed so as to give a reasonable and practical effect to it: 'it is necessary to test competing permissible constructions of a pension scheme against the consequences they produce in practice. Technicality is to be avoided.' And, as with any other instrument:

'… a provision of a trust deed must be interpreted in the light of the factual situation at the time it was created. This includes the practice and requirements of the Inland Revenue at that time, and may include common practice among practitioners in the field as evidenced by the works of practitioners at that time.'

The arguments on the appeal

28. The submissions advanced by Mr Eadie and Mr Evans, for the Secretary of State, against the judge's construction dealt both with the reliance placed by the judge on the origins of clause 20 in the POSS Scheme and on the language of clause 20. Their submissions were that the assistance that the judge derived from the POSS Scheme was misplaced and that the interpretation of clause 20, read in the context of the deed as a whole, told compellingly against the interpretation that the judge favoured.
29. As for the language of clause 20, the submission was that there is nothing in its language that imposes the obligation upon the Corporation that the judge derived from it. Such obligation was a brand new obligation upon the Corporation arising upon the termination of the Scheme, being one under which the Corporation was required to underwrite the liabilities of the Scheme to meet obligations described in clauses 20(3), (4) and (5). That would require the Corporation to finance the buying of annuities.
30. If that is the obligation, by what words does clause 20 impose it? The only linguistic candidate is clause 20(1)'s reference to the trustee's obligation, after paying all costs, charges, expenses and liabilities to creditors, to apply 'the monies then in hand together with such sums as may be due from the Corporation to restore the solvency of the Fund so far as they permit' to the purposes described in sub-paragraphs (3) to (5). The submission was that such words are inapt to impose a new obligation upon the Corporation to make payments sufficient to underwrite the winding up. Had that been the intention, the draftsman would have used unambiguous words of obligation providing that 'the Corporation shall pay …'. The premise of clause 20(1) is an insolvency, yet all the clause refers to as being due from the Corporation in that event is 'such sums as may be due from [it] to restore the solvency of the Fund'. Given the premise, there cannot, on the judge's interpretation, be any question of 'may' being sufficient. Nothing less than 'shall' will do.
31. This shows, said Mr Eadie, that the key words in clause 20(1) are not there to impose a new funding obligation upon the Corporation. They do no more than refer to the need for the trustee to get in 'such sums as may be due from the Corporation to restore the solvency of the Fund', which must be sums that are or may be due under another provision of the deed. That is their ordinary sense and Mr Eadie invoked the support of the judge himself, who accepted, at [39], that it was 'true that the words used are more apt to describe an obligation referred to somewhere else than to create a new obligation'. The judge, however, nevertheless did not regard this as the answer, as he also considered that the key words were:

'… capable of supporting an inference of a new obligation if other circumstances justify or require it. It is true, but not conclusive, that the draftsman could have achieved the Trustee's result by clearer words, but that can be said in virtually every construction or implication case.'

32. The Secretary of State disagrees. Mr Eadie's submission was that, for reasons given, the key words in clause 20(1) can only be referring to any obligation to which the Corporation 'may' be subject at the termination under clause 10. Clause 10 opens with the words 'The Corporation shall contribute to the Fund by monthly instalments' the contributions and sums referred to in sub-paragraphs (a) to (c). That shows that the draftsman was well able to impose an unambiguous payment obligation when he wanted to, which he did not do in clause 20. The clause 10 obligation of particular relevance is that under clause 10(c), being 'such further contributions as may from time to time be required to repair any deficiency reported by the Actuary'. In the case of such a deficiency, the Corporation may be required to repair it by monthly payments over a period not exceeding 40 years: see clause 12. Such, if any, payment obligation may still be continuing at the termination of the Scheme and the reference in the key words in clause 20(1) is obviously, and naturally, to that obligation, if any: hence the 'may' in the key words.
33. Second, it is said that the nature of the obligation said to have been created by clause 20 is, in financial terms, extremely significant. It will likely be very substantially in excess of any deficit contributions that the Corporation may be liable to make under clause 10. The quantum of the deficiency that will be revealed will be different if it is valued on an ongoing basis of a five-yearly cycle of valuations under clause 12 than it would be on a termination under clause 20. That is because, on termination, the liabilities are valued on the hypothesis that they will be secured by the purchase of annuities (which are expensive), whereas on an ongoing valuation basis the assumption is that the liabilities will be paid out of Scheme assets as they fall due (which is a lot less expensive). It was common ground before us that the deficiency shown on an ongoing, five-yearly valuation, and hence the Corporation's contributions which are required to be paid as a result, would not, even if paid over the full 40-year period (or any shorter one the Corporation might decide upon), result in a fully-funded scheme on a buy-out basis. Mr Eadie accepted that, even if it were possible to factor or otherwise realise the income stream imposed on the Corporation under clause 10, the Scheme would still be underfunded for buy-out purposes. But although there will be this quantum difference, contributions under clause 10 are also directed at 'restoring the solvency' of the fund and so are equally capable of being what clause 20 is referring to. Were clause 20 directed at imposing the much more significant obligation involved in the buying of annuities, clearer words of definition and obligation would have been required and used. The problem with the respondents' case is that they were not.
34. Third, it is said that the focus of clause 20 is simply upon the administration and application of the Scheme's assets on a termination. Its natural sense is not concerned with the imposition on the Corporation of obligations to fund the Scheme upon termination. The Corporation's funding obligations are the focus of clause 10.
35. Fourth, it is said that the natural sense of the critical words in clause 20(1) as no more than descriptive of particular types of asset that are to be got in and applied in the administration of the fund on termination is supported by other parts of clause 20. The money to be so applied under Clause 20(1) is 'the monies then in hand together with such sums as may be due …'. That this is referring to existing assets of the Scheme, not to money due under new obligations imposed on the Corporation, is underlined by clause 20(5), which uses the like, although not identical, descriptive language. If clause 20(1) is to be read as imposing a new buy-out obligation upon the Corporation, clause 20(5) would not need to do so again. The words in clause 20(5) are, it is said, obviously descriptive rather than creative; and so must be the like words in clause 20(1).
36. It is accepted by the Secretary of State that at the date of termination of the Scheme, the Corporation may be subject to an obligation perhaps extending for up to 40 years to make contributions under clause 10. It is also conceded that that obligation continues upon termination. But what is said is that it will be open to the trustee to make of it what it can by realising it, perhaps by factoring it; or the Corporation, now BT, might agree to commute it.
37. Moving to the context in which the Scheme came to be created, Mr Eadie and Mr Evans pointed out that at the respective dates of both the POSS Scheme and the Scheme, pension schemes did not generally contain funding obligations directed at ensuring that the benefits were fully funded even on an ongoing basis, let alone on a buy-out basis upon termination. As they explained in their skeleton argument, schemes were funded using long-term assumptions as to the time frame over which the liability to pay benefits would have to be met; and until minimum funding requirements were introduced by the Pensions Act 1995, there was no mandatory minimum funding obligation on employers. The extent and adequacy of the funding obligation were determined by the rules of the scheme and the assumptions used to set the contribution rate. Schemes were not generally funded at 'buy-out' levels. A solvent employer could walk away from its pension scheme without being compelled to fund the buy-out costs of the benefits promised to members. There was no guarantee that benefits would be paid in full and there was generally no mechanism to compel employers to achieve that result, even on the termination of a scheme. It was this perceived defect that led to a programme of incremental statutory reform, one that began in 1992 with the introduction of a statutory debt on employers in the event of a scheme termination (see section 58B of the Social Security Pensions Act 1975, inserted with effect from 29 June 1992 by section 14(1) of, and paragraph 2 of Part 1 of Schedule 4 to, the Social Security Act 1990); and it was not until March 2004 that the statutory debt on solvent employers fell to be calculated at the full buy-out cost, in respect of schemes entering winding-up after 11 June 2003. The position described by the Secretary of State in relation to pension schemes in the 1980s was supported by what Warren J, a judge with considerable pension law experience, said in The PNPF Trust Company Ltd and Another v. Taylor and Others [2010] EWHC 1573 (Ch), at [146] to [147].
38. This, therefore, it was said, was the factual context against which both the POSS Scheme and the Scheme fall to be interpreted: one in which it was by no means the norm for a full buy-out obligation to be imposed upon employers upon the termination of a scheme. The judge, however, derived from the POSS Scheme that the members were to receive the like security for their benefits as they had under their prior Civil Service schemes, which he found supported an interpretation of clause 19 of the POSS Scheme (which contains identical wording to the key wording reproduced in clause 20 of the Scheme) as imposing a full buy-out obligation on the Post Office under the POSS Scheme, and thus also on the Corporation under the Scheme.
39. The judge relied on the March 1967 White Paper, 'Reorganisation of the Post Office', Cmnd. 3233. The critical section, 'Superannuation', reads:

'[The Post Office's] superannuation arrangements will be the subject of a negotiation with the appropriate staff organisations. As with other nationalised industries, these arrangements will be subject to approval by the responsible Minister.

The aim will be a scheme which can be applicable both to staff transferred to the Corporation and to new entrants; but whatever the details of any new scheme, existing Civil Servants will be entitled to opt instead to have the benefits they would have enjoyed had they not been transferred from the Civil Service. In any case the Government will require [the Post Office] to ensure that all reckonable service before the transfer took place is counted as reckonable service for the purpose of [the Post Office's] arrangements.

The Civil Service scheme will apply pending the introduction of the [the Post Office's] new arrangements.

[The Post Office], in negotiation with the staff, will be free to modify the initital superannuation arrangements in the light of the prevailing circumstances and subject to the approval by the responsible Ministers.'

40. The judge's view of those provisions, at [35], was that the POSS Scheme was intended to fulfil those undertakings. Having a civil service pension would have provided considerable security for the payment of pensions, and his view was that the POSS Scheme was intended to provide like security. Such security would only be provided if the trustee was able to buy the annuities referred to in clause 19 of the POSS Scheme, it could only do so if it was properly funded, and such funding could only come from the Post Office. The judge said this background strongly supported the view that clause 20 of the Scheme imposed a similar funding obligation upon the Corporation.
41. Mr Eadie submitted that the judge was simply wrong. The relevant part of the White Paper said nothing about the security for the payment of pensions. All it was referring to was that the members of the POSS Scheme would be entitled to opt for the same benefits they would have enjoyed under the civil service scheme. It was a reference, purely and simply, to the benefits under the POSS Scheme, not to the security for their payment. Therefore, the judge was wrong to read what he did into clause 19 of the POSS Scheme and make a like reading into clause 20 of the Scheme.
42. Mr Steinfeld, for the trustee, acknowledged that clause 20 was an ill-drawn clause, but said it was important to interpret it practically and purposively, which he said the Secretary of State's interpretation did not. He acknowledged that many private sector pension schemes in place at the time of the birth of the Scheme did not impose upon the employer an obligation to pick up the responsibility for deficiencies in a scheme upon its termination; but he said that at least some schemes then in place did impose such an obligation, so that it was not appropriate to approach the Scheme with a preconceived notion as to whether such an obligation was or was not intended to be imposed.
43. As for the key words in clause 20(1), Mr Steinfeld acknowledged they were puzzling, but said they were plainly intended to have some effect. He conceded that the immediate impression they conveyed is that they are merely referring to some other obligation – as the judge had recognised – but he said the difficulty with that is in identifying that other obligation.
44. In particular, the difficulty with the suggestion that the obligation is that imposed under clause 10(c) is, he said, that clause 10 says nothing about solvency. That word is nowhere used in clauses 10 and 12, which refer simply to deficiencies, and are simply directed at preventing an insolvency situation from arising. The second difficulty is that to interpret the key words as referring to any clause 10 obligation – perhaps one imposed on an actuarial valuation, say, four years before – is improbable when compliance with that obligation will foreseeably be unlikely to meet the insolvency of the fund disclosed on the 'actuarial investigation' that falls to be made under clause 20 upon the termination of the Scheme.
45. Mr Steinfeld also advanced the further submission that any obligation upon the employer imposed by clause 10, being contributions made in the context of an ongoing scheme, will necessarily cease upon the termination of the Scheme. Any obligation by the employees to make contributions would, he said, obviously then cease, and so equally must the Corporation's obligations under clause 10. If, therefore, at the termination date the Corporation is under a liability to make contributions totalling, say, £1 million over the next 36 years, the liability to pay the unpaid amount will forthwith terminate. It is then replaced by the new obligation imposed by the key words in clause 20. In Mr Steinfeld's submission, it follows that the key words cannot be referring back to the clause 10 obligations. In particular, the draftsman used different wording in clause 20: he did not there match the language of clause 10(c) which refers to the 'repair [of] any deficiency'. Mr Steinfeld submitted that it was unlikely that the draftsman had in mind that any long-term clause 10(c) obligations could or would survive the termination of the Scheme; and even if they did, there would likely be a practical difficulty in factoring them. Mr Steinfeld recognised that clause 20 did not expressly impose a new payment obligation upon the Corporation, but said that a practical and purposive approach required the words 'as may be due' as meaning 'as shall be due'. He recognised that clause 20(5) repeated the same suggested obligation, but said that was just clumsy drafting and was not a pointer to the correctness or otherwise of either of the rival submissions.
46. Mr Simmonds, for BT, defended the judge's reliance on the POSS Scheme, with its origins in the 1967 White Paper, as supporting the construction of clause 20 that the judge favoured. He submitted that, in order to serve the purpose of giving the civil servants the re-assurance that, in moving to the new statutory corporation, they would not be any worse off in pension terms, the White Paper was giving them an implicit undertaking that they would enjoy the same security for their benefits under the POSS Scheme. He disagreed that the reference to 'benefits' in the context in which the word was used in the White Paper's 'Superannuation' section was limited to a reference to the nature of the benefits to which they would be entitled under the POSS Scheme. It was, he said, plainly an indication that the Corporation would give the POSS Scheme members the same security assurance as to the payment of their pensions as they would have enjoyed under their unfunded civil service pensions. It supported, he said, the conclusion that the sensible construction to attach to clause 19 of that scheme (and, therefore, also to clause 20 of the Scheme) was that the employer was assuming an obligation, upon any insolvency on termination, to finance the buy-out of annuities to meet in full, and so underwrite, the members' pension entitlements.

Conclusion on the interpretation of clause 20

47. I respectfully disagree with the judge's conclusion on this issue. I agree with the Secretary of State that clause 20(1) imposed no obligation upon the Corporation, or therefore upon BT, to pay the buy-out lump sum on the termination of the Scheme.
48. Unlike the judge, I derive no assistance from 1967 White Paper to the effect that the POSS Scheme was intended to give its scheme members, who had formerly been civil servants, the like security for the payments of their pension benefits as they would have enjoyed as retired civil servants, and that therefore the key words in clause 19 of the POSS Scheme should be interpreted as intended to give such security. I regard it as impossible to derive any such intention from any part of the White Paper, including its 'Superannuation' section. That section was simply talking about pension benefits; it was not addressing the question of the security for their payment. In my view, the antecedents to the Scheme provide no assistance in the interpretation of clause 20, which must simply be interpreted in the conventional way in which the provisions of any pension scheme are interpreted.
49. In setting out what follows, I record my indebtedness to the closing submissions of Mr Evans in reply, which I regarded as cogently identifying the error in every element of the respondents' contrary case.
50. First, so far as a 'purposive' approach to the construction of clause 20 is concerned, it is common ground that it was not the norm for pension schemes in the 1980s to include provisions imposing obligations upon the employer to ensure full funding of the pension scheme on termination for all the benefits. It may perhaps be that some schemes did so provide (there was, however, no evidence before us to that effect), but what is clear is that it was the fact that, across the industry, such provisions were relatively unusual that resulted in Parliament in due course considering it appropriate to intervene by way of the introduction of primary legislation directing at ensuring such protection. The process began in 1990 and it was not until 2004 that a full protection obligation was imposed on employers upon termination. I do not, therefore, approach clause 20(1) on the basis of any assumption that its likely purpose was to ensure the imposing upon the Corporation of a full funding obligation upon termination.
51. Second, the language of the 1983 deed reflects a clear distinction between words imposing a payment obligation on a party and words adopted merely to cross-refer to such obligations elsewhere. Thus, clause 10 opens with words unambiguously imposing a payment obligation upon the Corporation – 'The Corporation shall contribute to the Fund by monthly instalments' – and is then promptly followed, in clause 10(b), by a reference to sums falling due under another provision of the Scheme, which it does by using the words 'such sums as may be due under Rule 12 of the General Rules.' The words just quoted are mirrored in clause 20(1). If one then refers to Rule 12, referred to in clause 10(b), that too opens with the unambiguous imposition upon the Corporation of a payment obligation – 'The Corporation … shall contribute to the Fund by monthly instalments' the payments then listed in sub-paragraphs (a) to (f). Strictly, the words of obligation in Rule 12 are unnecessary, because the payment obligation has already been imposed by the opening words of clause 10: but a consideration of clause 10 and Rule 12 shows that the draftsman knows how to impose a primary payment obligation when he wants to. A further example of the point is to be found in clause 10(c), which again uses cross-referencing language, although not in this case in words mirrored by clause 20: it refers to 'such further contributions as may from time to time be required to repair any deficiency reported by the Actuary', a cross-reference to the provisions of clause 12. The relevant cross-reference in the case of the certification by the actuary of a deficiency is clause 12(2), which does not itself impose a payment obligation upon the Corporation: it does not need to, because it has already been imposed by clause 10.
52. When, therefore, clause 20(1) uses the key words in dispute, it is using language identical to the cross-referencing language in clause 10(b). The language of the POSS Scheme similarly reflected a like distinction between language of primary obligation and cross-referencing language. The interpretation of clause 20(1) in the context of the deed as a whole thus supports the conclusion that the key words 'such sums as may be due from the Corporation to restore the solvency of the Fund' are cross-referencing words, not words of obligation, and are doing no more than to refer back to any sums due under the deficiency repair provisions of clause 10.
53. Third, the respondents' suggested interpretation of those key words in clause 20(1) requires too much of the wording. Upon their construction, the words serve to impose potentially massive financial obligations upon the Corporation (and thus, perhaps, also upon the Secretary of State under the Crown guarantee). To derive such an obligation from language so inapt to impose it is, in my view, a step too far; and the point is underlined by the remarkable fact that the words of alleged obligation in clause 20(1) are then closely repeated in clause 20(5). The best that the respondents can say of that is that it is clumsy drafting. The drafting is, it is agreed, of poor quality. We must, however, do the best we can with the work of a draftsman whose talents as such were limited; and for the respondents to dismiss the dual reference in clause 20(5) as mere clumsiness is the most feeble of apologias. If the words in clause 20(1) imposed a primary buy-out obligation, the draftsman must be taken to have intended that; and, if so, it can make no sense that even he (or she) would have thought it necessary to repeat the imposing of the obligation in clause 20(5). The repetition points against a primary obligation having been imposed by clause 20(1). It simply underlines, unnecessarily, that the key words perform no more than a cross-referencing function.
54. In addition, the respondents say that the words serve to replace and supersede any subsisting clause 10 deficiency contribution obligation by a new, super buy-out obligation imposed by clause 20(1), with the clause 10 obligation automatically coming to an end upon the termination of the Scheme. Whereas I accept, as is agreed, that the mechanism for the clause 12 five-yearly valuations comes to an end upon termination, I do not accept that any payment obligation imposed upon the Corporation under clause 10 under a pre-termination valuation will also automatically come to an end upon termination. Why should it? It represents an obligation imposed upon the Corporation directed at repairing any deficiency in the Scheme and there can be no rational reason why it should so end. It is in my view obvious that the clause 20(1) words are simply referring to any continuing obligation under clause 10, being an obligation to repair any deficiency and thus directed to restoring the solvency of the fund.
55. There is a practical question, and perhaps a potential practical difficulty, as to what is to be done upon termination with any such clause 10 income stream. It might be capable of being factored, or commuted, and so turned into a capital sum that can be used to finance the benefits that fall to be met and provided for on a winding up. If it cannot be factored or commuted, the trustee might wish to keep the winding up process in being, and allow the payments to come in; or else the trustee might take the view that it is not in the members' interests to defer the winding up for, perhaps, years and may simply forego the future payments and proceed to a rapid winding up of the Scheme. These alternatives may not be comprehensively satisfactory. But since I cannot see how or why any clause 10 payment obligation still subsisting on termination would thereupon be extinguished, the trustee would, on termination, simply have to deal with the income stream as best it could in the interests of the members.
56. Fourth, all this is consistent with clause 20 having a function limited to identifying what the trustee is to do upon a termination of the Scheme, in particular in circumstances when the Scheme is insolvent. Clause 20 identifies four steps the trustee must go through: (i) the actuarial investigation; (ii) the realisation of the fund, by turning it into cash; (iii) the payment of costs, charges and expenses; and (iv) the application of the assets in the priorities provided by the clause. The key words in clause 20(1) are, in that context, merely a reference to assets that need to be got in for the purposes of winding up the Scheme and meeting the benefit obligations. Those assets include 'the monies then in hand', being those resulting from the realisation of the assets of the fund; and, secondly, as I would hold they mean, any clause 10 money due from the Corporation. It was sensible to refer expressly to the latter, because strictly such money is not part of 'the Fund' within the Scheme definition, but such money would obviously be available for application in the winding up to meet members' benefits. Whilst I agree that the key words are most naturally referable to a liability under clause 10(c), they can in my view equally be read as referring to money due under clause 10 generally, and there is no good reason for not regarding such money as payable 'to restore the solvency of the Fund'. The whole point of the obligations under clause 10 was to ensure that the Corporation would make contributions to the Scheme that would enable it to meet its benefit obligations, and so achieve, or move towards, 'solvency' (the clause 20 word) and avoid a 'deficiency' (the clause 10 word).
57. Fifth, whilst the drafting of clause 20(1) is unsatisfactory, I regard its sense overall as more in line with the Secretary of State's case than that of the respondents.
58. In my judgment, therefore, the judge's declaration as to the sense of clause 20(1) was arrived at in error. I would allow the Secretary of State's appeal against that declaration and invite counsel to agree a form of declaration recording that, upon termination, clause 20(1) imposed no obligation upon the Corporation, or therefore upon BT, to pay the buy-out lump sum on the termination of the Scheme.

Issue 2: the Crown Guarantee issue

59. The issue here is whether, as the Secretary of State contends, the Crown guarantee assumed by section 68 of the 1984 Act – one identified by reference to the obligations of the Corporation under section 60, and thus to the pension 'liabilities' to which it was subject 'immediately before' privatisation – was confined to a guarantee of BT's liabilities under the Scheme in respect of members of the Scheme as at the date of privatisation, and did not extend to liabilities in respect of members joining afterwards; or whether, as BT and the trustee contend, there was no such limitation upon the Crown guarantee.
60. The problem is that whilst the Corporation's Scheme liabilities immediately before privatisation could be measured by reference to its obligations as at privatisation towards existing members, it was the employer of a Scheme that allowed new members to join, being members who would immediately enjoy rights under the Scheme deriving from the obligations assumed by the Corporation and the trustee from the inception of the Scheme; and, following privatisation, the employer's liabilities towards the trustee were the same as immediately before privatisation, albeit that they might increase in quantum by reason of the adherence of such new members. Is it possible to interpret 'liabilities' in section 60 in the selective way advanced by the Secretary of State?
61. The judge's judgment, at [50] to [102], contains a valuable discussion of the problems raised by this issue. He pointed out that the section 68 guarantee is to discharge only those 'liabilities' which 'vested in [BT] by virtue of section 60', so that the critical question was as to what, as regards pensions, those 'liabilities' were. He referred to Megarry J's observations in Bromilow &. Edwards Ltd v. Inland Revenue Commissioners [1969] 1 WLR 1180, at 1190:

'… I do not think that the meaning of the word [liability] can be limited … to a present, enforceable liability, excluding any contingent or potential liability. Used simpliciter, the word seems to me to be fully capable of embracing the latter form of liability, as in a surety's liability for his principal before there has been any default.'

62. The judge did not, however, regard that case as answering the question before him: even though the word 'liability' is capable of a wide meaning, there will always be a question of whether it catches the borderline case at the margins. He also referred to other authorities, not cited to us, but regarded them as turning on their own contexts and as not providing direct assistance for the purposes of interpreting section 60.
63. The judge, at [61], noted the interaction between section 60 and paragraphs 36 and 37 of Schedule 5. He said their combined effect was clearly to substitute BT as the employer for all purposes under the pension arrangements. The critical question was where section 60 starts and stops. He summarised the rival arguments as follows:

'62. The Trustee argues that the contribution obligations under the pension deed are all a single indivisible liability to pay money. The amount of money payable varies from time to time, and in particular varies as employees come and go (and in particular come), but the liability to pay the money was imposed at the outset and it was the same immediately before the transfer moment as it was after it, and remained the same when the next new post-transfer employee was engaged. It was that liability that was transferred by section 60. The wording of the deed and the Act are clear, and it is that liability that is "guaranteed" by section 68 because it is that liability that is vested. This construction is said to have the additional benefit of workability. The scheme does not distinguish between pre- and post-transfer joiners, so any moneys paid under the guarantee would swell the general funds of the scheme. There is no way in which a limited payment, intended to be paid purely for the benefit of the pre-transfer joiners, could be applied for only that purpose. … The only way of benefiting pre-transfer joiners to the full extent is to pay in enough to satisfy the obligations of the post-transfer joiners as well.

63. The Secretary of State advances an argument with more refinements. It looks at the situation as at the transfer date and points out that the obligations as at that date (or immediately before the transfer) could relate only to the then members (pre-transfer joiners). As at that date, there was no obligation to contribute to the scheme in respect of post-transfer joiners, because by definition there were no such people at that point. "Liabilities" at that time could not include liabilities that had no existence then and which could only arise by reason of future matters (within the control of BT) after that date. … The argument goes on to rely on absurdity – it is said that it would be absurd to attribute to Parliament an intention to create a statutory guarantee for employer contributions in respect of all members of the BT scheme, whenever they joined. …'.

64. In the judge's view, all that was being construed was section 60. Section 60 was an important part of the scheme under which the successor company was set up to take over the enterprise of the Corporation. BT, as such successor, had to stand in all respects (apart from immaterial exceptions) in the Corporation's shoes. Section 60 performed the vesting function: it transferred rights and 'liabilities'. One would expect all contractual liabilities, to their fullest extent, to be incorporated in that word. The judge noted that:

'66. … Paragraph 36 has a useful sort of mopping up function to perform in this area (amongst other important functions), because it effectively substitutes BT as a party to all transactions in which the Corporation was a named party, so if there was something which might or might not have been a liability, but which affected the Corporation anyway, then it affects BT equally. But one would expect section 60 to be the primary section.'

65. The judge expressed his conclusions as follows:

'67. There can be no doubt that BT has become liable to make contributions in respect of post-transfer joiners under the pension trust deed. The question for me is whether it is liable because of section 60 alone, or because of a combination of section 60 (dealing with pre-transfer joiners) and paragraph 36 (which brings in obligations in respect of post-transfer joiners).

68. The "liability" under consideration is one which arises under the pension trust deed. It is a liability to the Trustees, not to the individual members. The obligation arises under covenants. The covenants are to pay money from time to time in the future, that money being measured in various ways – some mechanical (depending on the contributions of others – see Rule 12), some dependent on the assessment of the actuary. Those moneys will be affected, inter alia, by the numbers of employees from time to time. However, the liability remains the same. I agree with Mr Steinfeld that the liability is a single, indivisible liability. The obligation, in legal terms, remained the same either side of the transfer date. The same is true of the liability. Its quantum is measured differently from time to time, but in legal terms the liability is the same. It is not divided up by reference to classes of members, or those who are members from time to time. It is one obligation (liability) to a trustee, not a series of obligations to employees.

69. It is this "liability" that is transferred on the transfer date. Immediately before that date it is a single liability, extending into the future. After the transfer date it is the same thing. It is true that at that moment it is measured by reference to the then existing members; but that is its measure. No new "liability" arises when a new employee is taken on an becomes a new member. The existing liability merely increases in amount. …

71. … It must be remembered that section 60 operates across the whole business of the Corporation. It is not confined to pensions. It is a blunt but effective instrument, designed to shift property, contractual and other rights and obligations from the old entity to the new. If the old entity is liable, then and to the same extent is the new. If there is, for example, a lease with a rent review clause in, then the liability to pay future rent is, in my view, a liability, and that liability includes the reviewed rent. Any division of the rental obligation between pre- and post-transfer rent periods, or pre-review and post-review rent, for the purposes of section 60 would be an artificial and forced reading of the section. It is the same with pre- and post-transfer date pension payments under the deed, whether in respect of pre-transfer joiners or post-transfer joiners. They are all part of the one liability. …'

66. The judge was unimpressed by the Secretary of State's argument that it was absurd to suppose that Parliament intended the Crown to assume such a risk, one unlimited in time and quantum. There was, he said, nothing absurd about construing section 60 in the way he favoured: it was a sensible transfer mechanism. The absurdity, if any, lay in the guarantee that the Secretary of State assumed under section 68. Whereas the argument was that section 60 should be construed so as to limit the Crown's secondary obligation under section 68, the judge did not regard that as a legitimate exercise. Section 60 was a vital provision which must be given proper effect. If the guarantee goes too far, it is because section 68 went too far.
67. The judge recognised, however, that the guarantee would not catch all future obligations to which BT might become subject. If, for example, the Scheme deed was amended after the transfer so as to increase BT's obligations under it, the judge did not regard such increased liability as inevitably vesting under section 60: whilst BT would be liable, it would not be so liable purely by section 60, but by virtue of paragraph 36 'which effectively substitutes BT as a party to the pension deed and binds it to the Rules when amended.' The judge was of a like view with regard to amendments directed at bringing into the Scheme another class of members, such as employees of subsidiary companies. Again, such a liability would not have vested under section 60.
68. Before us, Mr Eadie submitted that if the judge was right in his interpretation of section 60, it must follow that Parliament intended to provide a guarantee benefiting a category of persons beyond ex-civil servants: it would be open-ended as to group and would cover those new employees taken on by BT after the transfer. The court, it was said, should start from the position that Parliament can only have intended to protect the position of those who were the members of the Scheme at the date of the privatisation; and that 'liabilities' in section 60 should therefore be read as referring only to the Corporation's liabilities under the Scheme towards such members at that date. Of course, the Corporation had no direct liabilities towards members, its liabilities under the Scheme being to make payments to the trustee towards funding the Scheme benefits. Mr Eadie accepted, indeed asserted, that such liabilities at the transfer date included not just the Corporation's liabilities to the trustee in respect of the then members' service with the Corporation to date, which could be regarded as its then present liabilities; but that they also included its liabilities to the trustee in respect of pension benefits earned by its then members for their future service after the transfer to BT, which could be regarded as contingent liabilities. He nevertheless submitted that no contingent liabilities in respect of new members joining the Scheme after the transfer date passed to BT under section 60. This submission was advanced even though section 60 drew no such overt distinction as regards the sense of the 'liabilities' to which it was referring, and paragraph 37(1)(b) of Schedule 5 explained that section 60 was 'effective to vest the … liabilities of [the Corporation] under any agreement or arrangement for the payment of pensions … in [BT] along with all other rights and liabilities of [the Corporation].' Those words might be thought to show that a wider interpretation needs to be bestowed on the word 'liabilities' in section 60 than the Secretary of State was prepared to recognise.
69. The Secretary of State, in support of his suggested interpretation, invoked Pepper (Inspector of Taxes) v. Hart [1993] AC 593, and referred us to the well-known passage in the speech of Lord Browne-Wilkinson, with which all their other Lordships agreed, save (somewhat ironically, as will appear) for Lord Mackay of Clashfern, who dissented. Lord Browne-Wilkinson said, at 634C to 635B:

'My Lords, I have come to the conclusion that, as a matter of law, there are sound reasons for making a limited modification to the existing rule (subject to strict safeguards) unless there are constitutional or practical reasons which outweigh them. In my judgment, subject to the questions of the privileges of the House of Commons, reference to Parliamentary material should be permitted as an aid to the construction of legislation which is ambiguous or obscure or the literal meaning of which leads to an absurdity. Even in such cases references in court to Parliamentary material should only be permitted where such material clearly discloses the mischief aimed at or the legislative intention lying behind the ambiguous or obscure words. In the case of statements made in Parliament, as at present advised I cannot foresee that any statement other than the statement of the Minister or other promoter of the Bill is likely to meet these criteria.

… Statute law consists of the words that Parliament has enacted. It is for the courts to construe those words and it is the court's duty in so doing to give effect to the intention of Parliament in using those words. It is an inescapable fact that, despite all the care taken in passing legislation, some statutory provisions when applied to the circumstances under consideration in any specific case are found to be ambiguous. One of the reasons for such ambiguity is that the members of the legislature in enacting the statutory provision may have been told what result those words are intended to achieve. Faced with a given set of words which are capable of conveying that meaning it is not surprising if the words are accepted as having that meaning. Parliament never intends to enact an ambiguity. Contrast with that the position of the courts. The courts are faced simply with a set of words which are in fact capable of bearing two meanings. The courts are ignorant of the underlying Parliamentary purpose. Unless something in other parts of the legislation discloses such purpose, the courts are forced to adopt one of the two possible meanings using highly technical rules of construction. In many, I suspect most, cases references to Parliamentary materials will not throw any light on the matter. But in a few cases it may emerge that the very question was considered by Parliament in passing the legislation. Why in such a case should the courts blind themselves to a clear indication of what Parliament intended in using the words? The court cannot attach a meaning to words which they cannot bear, but if the words are capable of bearing more than one meaning why should not Parliament's true intention be enforced rather than thwarted?'

70. The irony to which I have referred is that the Ministerial statement upon which Mr Eadie relied in order to resolve what he said was either an ambiguity, or potential absurdity, in the interpretation of section 60 is that of Lord Mackay of Clashfern, who had dissented in Pepper. Reliance was placed on his explanation in the House of Lords of clause 66 of the Telecommunications Bill, which became section 68 of the 1984 Act. He said:

'As I understood the point which the noble Lord, Lord Weinstock, made earlier, it was that the Secretary of State is taking responsibility for the liabilities of British Telecom as at the date of transfer if the successor company, on being wound up, does not meet those liabilities. The reason for that is that up until the time of transfer British Telecom, being a nationalised operation, would be understood to be supported by the Government and, therefore, those who were creditors of it would have become creditors on that basis.

Among those obligations perhaps the one of most interest is that relating to the pension provision for the employees of British Telecom as at that date. I think that that is perhaps particularly the point to which the noble Lord, Lord Weinstock, referred. Under Clause 66 the Government stand behind British Telecom plc in backing the fulfilment of those pension liabilities which are vested in British Telecom plc at the transfer date, so that the employees as at that date have the backing of the Government for their pension arrangements, which seems a very reasonable provision.

One of the liabilities so vested would be a requirement under the pension fund trust deed to ensure that there are sufficient funds available to meet the pension entitlements of current employees who are already members of the pension scheme at the time of the transfer when they come to retire in the future. Accordingly, the Government stand behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after the transfer date.

The Government also stand behind the British Telecom public limited company's liability to ensure that there are sufficient funds available to meet the entitlement of British Telecom pensioners at the time of the transfer; that is to say, those who are already pensioners. However, there will not be any Government backing for pension obligations for new recruits who join British Telecom plc and the pension scheme after the transfer date.

This is not a subsidy because, first, the Government guarantee would come into effect only if British Telecom plc were to go into liquidation, and would be directed to recompensing the creditors, not saving the company. The guarantee – and this is the second reason why it is not a subsidy – does not apply to fresh obligations which British Telecom plc would take on after the transfer date. Therefore, while making clear the nature of the obligations which are covered by this clause, I do not accept that these amount in any sense to a subsidy to British Telecom plc.'

71. That lucid explanation of clause 66 was no doubt a comfort to the House. The problem, however, is that it reflects an apparently incomplete understanding by Lord Mackay, or of his advisers, of either (i) the way in which the stated intention was translated into the legislation, or (ii) how the Scheme worked. As for point (i), the critical section is not section 68, which was all that Lord Mackay was talking about, but section 60, which identifies the 'liabilities' that were to pass, namely all liabilities: it is that section to which he should have addressed his explanation. The problem that section 60 throws up is that it is difficult to derive from it the selective guarantee that Lord Mackay was identifying, namely a reference exclusively to the Corporation's present and contingent liabilities to the then existing members of the Scheme. Why should 'liabilities' in section 60 not refer also to the Corporation's contingent liabilities to post-transfer new members of the Scheme? As for point (ii), I shall return to this in [82] below.
72. Despite these difficulties, Mr Eadie's submission was that unless section 68 and/or section 60 are read restrictively as referring respectively only to pre-transfer employees, and only to present and contingent liabilities as regards such employees, the legislation results in an absurdity, namely the committing of public money to guaranteeing the pensions of private sector employees who, as Lord Mackay's statement made clear, were not intended to enjoy the benefit of any guarantee; and the legislation should not be construed so as to attribute to Parliament an intention to achieve the absurd.
73. Mr Steinfeld submitted that there is no problem in the interpretation of section 68(2). The real question is as to the interpretation of section 60, in particular as to what 'liabilities' vested in BT under it. That section makes it clear that the liabilities so vesting were all the liabilities of the Corporation at the date of the transfer; and it was important that it should do so, because following the transfer to BT, the Corporation was going to be dissolved. Far from there being a context enabling or requiring the word 'liabilities' to be construed narrowly, the context points to it as intending to include all the Corporation's liabilities, present, future and contingent. Paragraph 36 of Schedule 5 is, said Mr Steinfeld, not there to replace section 60, but to supplement it by way of what he called a tidying-up operation. It is directed, for example, at things already done by the Corporation before the transfer date and is intended to make clear that they are to have effect as if they had been done by BT. As for paragraph 37, that is of particular significance, because it deals expressly with the Corporation's pension obligations and declares that such obligations vest in BT 'along with all other rights and liabilities' of the Corporation.
74. In support of his 'all' liabilities submission, Mr Steinfeld said that if, for example, the Corporation had been a lessee of premises which included a five-yearly rent review, the liability which would vest in BT would obviously include the contingent liability to answer the higher reviewed rent at the next review. On the other hand, if BT were then to take on additional premises on the same terms as that of the lease, the liability in respect of the additional premises would not be a liability that would have passed to it on the transfer. That would have been a fresh liability voluntarily taken on after the transfer.
75. Likewise, as regards the Scheme liabilities, the relevant liabilities passing to BT under section 60 included a liability to pay the sums necessary to fund the Scheme after taking account of the employees' contributions. In 1983, the Scheme was an open one in the sense that the contributory section was open to new members. The contingent liability in respect of such new members was therefore a liability to which the Corporation was subject and which passed to BT. When a new member joins the Scheme post-transfer, the employer's liability towards the trustee does not change. It is the same liability that it was under pre-transfer, and it makes no difference that, as the membership increases, the quantum of the money that the employer has to provide in discharge of that liability increases.
76. Mr Simmonds, in succinct submissions supporting Mr Steinfeld's argument, identified the Secretary of State's dilemma. The critical section is section 60, under which the relevant 'liabilities' pass to BT. Mr Simmonds agreed with Mr Eadie that they refer to the Corporation's present and contingent liabilities to the pre-transfer members, that is to say liabilities towards funding the Scheme in respect of such members' benefits in respect of their accrued service to date and also their future service under BT. But, said Mr Simmonds, there is no legitimate way of reading 'liabilities' in section 60 as limited to liabilities towards existing members. If, as Mr Eadie accepts, 'liabilities' in section 60 includes contingent liabilities in respect of existing members, it must also include the Corporation's contingent liabilities in respect of new, post-transfer members. Both types of liability derive from the Scheme deed, and the creditor under the liabilities is the same, namely the trustee. It makes no difference that the contingent liabilities occur as a result of voluntary acts by BT. That is accepted by Mr Eadie as regards existing members, who may have their salaries increased by BT, or who may be promoted to higher salaried posts; and there can be no relevant difference as regards the taking on by BT of new employees post-transfer, who choose to adhere to the Scheme and may then enjoy like salary increases and promotion. It is in the contemplation of the 1983 deed that such things will happen, and the Corporation's liabilities to the trustee extended to them by reason of the obligations it assumed in the 1983 deed. By contrast, it is not in the contemplation of the deed that the Corporation would fund pension benefits arising from, for example, the extension of the Scheme, by way of amendment, to subsidiary companies. That is why the judge was correct to recognise the limits on the liabilities that would pass under section 60.

Conclusion on the Crown guarantee issue

77. I would dismiss the Secretary of State's appeal against the judge's conclusion on the Crown guarantee issue. I agree with the judge that the Crown guarantee covers contributions by BT in respect of post-transfer joiners. This may not be what Lord Mackay and his advisers intended section 68 to achieve. There is, however, in my view no doubt that it is what it did achieve.
78. The words we have to interpret are not those in section 68(2), which are the only ones to which Lord Mackay addressed his remarks, but those in section 60, to which he made no reference. That is because whilst section 68(2) imposes the guarantee liability, it does not explain what the liability was except by reference to section 60. It is therefore section 60 on which the attention must be focused. The Crown guarantee is in respect of 'any outstanding liability of [BT] which vested in [BT] by virtue of section 60 …'.
79. Section 60 applies not just to the Corporation's liabilities to the trustee under the Scheme, but to all liabilities (other than immaterial excepted ones) 'to which [the Corporation] was … subject immediately before [the transfer] date …', those being the liabilities that vest in BT. The point of the section was to put BT in the same position as regards property, rights and liabilities as the Corporation was in immediately prior to the transfer and so there is no reason to give the word 'all' other than its usual wide meaning. In the context, 'liabilities' is naturally to be read as including not just present liabilities, but also the Corporation's future and contingent liabilities, including under the Scheme. There can be no sound reason to interpret it more narrowly. Paragraph 37(1)(b) of Schedule 5 is consistent with the ascribing of a wide reading to it.
80. Mr Eadie's argument is, however, that 'liabilities' in section 60 means, and means only, as regards pensions, the Corporation's liabilities to members of the Scheme immediately before the transfer date. He accepted and asserted that it applied not just to the Corporation's present liabilities in respect of such members, but also to its contingent liabilities in respect of them, so that BT assumed towards the trustee a liability to make increased contributions in respect of such members' post-transfer service and/or, for example, their service in higher paid posts to which they may be promoted. But, he says, 'liabilities' in section 60 does not refer to the Corporation's contingent liabilities in respect of new, post-transfer members at all. The argument, presumably, is that the contingent liabilities in respect of new members passed, if at all, only under paragraph 36, although I do not read paragraph 36 as directed at identifying a class of liabilities that BT is intended to assume, but which do not pass under section 60: in that context, note the closing words of paragraph 36(1)(c).
81. I would not accept Mr Eadie's submission as to the limited sense of 'liabilities' in section 60. Its sense, as a matter of ordinary construction, is plain: namely, that all the Corporation's pension obligations to the trustee – present, future and contingent – vested in BT and there is no sound argument for interpreting it more restrictively. There is no ambiguity in its language, which I regard as admitting of only one interpretation.
82. Mr Eadie says, however, that that interpretation results in an absurdity, in that it attributes to Parliament an intention to extend the Crown guarantee not just to members as at the date of vesting, but also to post-transfer members. I accept that that is a result that Lord Mackay and his advisers did not intend, and I expect the legislature would probably regard such an interpretation of the legislation as resulting in an absurdity. But how does the claimed absurdity arise? The legislation proceeded, according to what we were told, on the basis of a statement made by Lord Mackay to the House of Lords that (a) related to the irrelevant section 68, and (b) was apparently made in ignorance of the terms of what became section 60. A consideration of what became section 60 would or should have told Parliament that the legislation, according to the ordinary interpretation of its language, failed to confine the Crown guarantee as Lord Mackay had explained. Moreover, if Lord Mackay, his advisers and Parliament had given any thought to how the Scheme worked, they would have seen that even the guarantee Parliament intended to give would not, upon the termination of the Scheme, have accrued exclusively to the benefit of the pre-transfer members. That is because the Scheme was not sectionalised as between pre- and post-transfer members, so that any guarantee payments made on a termination shortfall would simply serve to increase the available fund applicable for the benefit of both pre- and post-transfer members. If Parliament had given proper consideration to what the Crown guarantee was intended to achieve, it would have required the Corporation to close the Scheme to new members, and BT to open a new scheme for such members. The guarantee could then have been given in respect of the closed fund.
83. The problem the Secretary of State faces is, therefore, the fruit of shortcomings on the part of the Government in relation to the legislation intended to effect the offered guarantee. The outcome was legislation that, upon its ordinary construction, results in the guarantee taking effect as a guarantee of any outstanding liability of BT that vested in it under section 60. I can identify no proper basis upon which the court can interpret the legislation so as to provide the Crown with an escape from the guarantee to which our legislators voted to subject it. That would not be to interpret section 60, it would be to re-write it.
84. I would dismiss the appeal against the judge's declaration under paragraph 2 of his order.

Lady Justice Gloster :

85. I agree.

Sir Stanley Burnton :

86. I also agree.