The IBM Judgment – An Update

13 / 02 / 2013

Following on from our previous article covering the High Court’s October 2012 decision in IBM United Kingdom Pensions Trust Limited v IBM United Kingdom Holdings Limited & ors we bring you an update on the latest decision given by Mr Justice Warren on 13 December 2012 of the same name.

First IBM Case

You will recall that in the October case the IBM Trustee sought correction of various deeds and rules governing the “C Plan”, a defined benefit sub-section of the IBM Pension Plan. The IBM Trustee applied for rectification of the 1983 rules in relation to both active and deferred members’ rights to retire on an unreduced pension without employer consent from age 60. Warren J granted rectification in respect of the active members but found no intention that the deferred members should enjoy equivalent rights. Therefore, deferred members pensions would only be payable from age 63 unreduced and without employer consent.

The IBM Trustee subsequently made a further application requesting that Warren J reconsider the case for amending the deferred members’ early retirement rights.

Second IBM Case

In this second case,  Warren J re-examined the preservation legistation applicable to the C Plan’s deferred members and whether IBM could be said to be acting in breach of its duty of good faith to the affected employees if it refused to consent to the IBM Trustee’s proposed amendment under the C Plan’s trust deed and rules. The power of amendment read as follows:

“In order to maintain the Revenue Approval and to ensure that the Plan complies with the preservation requirements and the contracting-out provisions of the 1993 Act:

the Trustee with the consent of the Principal Employer may by Deed make any changes necessary in this Trust Deed and/ or the Rules….”

Following the first case, the IBM Trustee had requested that IBM consent to an amendment, the effect of which would be to bring the deferred members’ rights into line with the preservation legislation as enacted between 1983 and 6 April 2005. By granting this amendment, deferred members would obtain equivalent rights to the C Plan’s active members, enabling them to retire with unreduced pensions at age 60 without the employer’s consent.

The IBM Trustee argued that allowing IBM to withhold its consent to the proposed amendment would in effect have permitted IBM to establish a scheme whose provisions were contrary to the preservation legislation in force at that time. By contrast, IBM argued that the duty to ensure compliance with the preservation legislation fell on the IBM Trustee not IBM as employer. Further, even if the IBM Trustee had approached the employer with the proposed amendment at the correct time, IBM could still have offered a counter-proposal rather than give immediate consent to the IBM Trustee’s change.

Finding in favour of IBM, Warren J held that the parties’ intention in 1983 (the year in which the C Plan was established) was confined to permitting deferred members a right to retire unreduced at age 63 without employer consent, even though both parties at the time were unaware that such a provision was in breach of the preservation legislation. As the provision at the hearing date did not breach the post 6 April 2005 preservation legislation, there was no need to accept the IBM Trustee’s proposed amendment.  Finally, IBM was under no obligation to consent to the provision of benefits which neither party had ever intended and was therefore not in breach of its duty of good faith.

Comment

This second IBM decision sheds further light on rectification issues and the employer’s duty of good faith. However, further IBM litigation is pending including the “Project Waltz” proceedings which are due to be heard later this month.