High Court Approves Compromise in Avon Cosmetics Pension Amendment Dispute

Citation: [2024] EWHC 317 (Ch)
Judgment on

Introduction

The case of Avon Cosmetics Limited v Dalriada Trustees Limited & Ors concerned questions of pension scheme amendments’ validity and represented a significant examination of the balance between the rights of pension scheme members and the interests of employers in amending pension plans. This analysis delves into the legal principles at play and unpacks the High Court’s approach to resolving the pension amendment dispute at hand.

Key Facts

The central issue in Avon Cosmetics Limited v Dalriada Trustees Limited & Ors ([2024] EWHC 317 (Ch)) revolved around the validity of amendments made to the Avon Cosmetics Pension Plan (the “Plan”). Specifically, the amendments in question changed the basis on which certain accrued pension rights were calculated, shifting from a final salary basis (FS Basis) to a Career Average Revalued Earnings (CARE) or Revaluation Basis.

There were different member categories affected by these amendments: FS Winners, whose accrued benefits potentially decreased due to the amendments, and Revaluation Winners, whose accrued benefits could increase under the new amendments. Additionally, sub-categories within FS Winners were identified, such as FS Transferees and FS Dependants, each with specific interests in the amendments’ validity.

The court addressed whether the amendments were lawful under the power of amendment contained in the plan’s trust documents with a particular focus on a proviso or fetter (the “Fetter”) that protected accrued rights.

Several legal principles underpin the court’s reasoning in this case:

  1. Representative Litigation (CPR r19.9): The court made an order appointing representatives for different classes of claimants and defendants under CPR r19.9, which allows for representation of parties with the same interest in a claim. This facilitated the settlement negotiations, leading to a compromise mutually beneficial for the groups represented.

  2. Validity of Pension Amendments (Clause 22(4)(a)(ii)): A crucial element was the interpretation of the Plan’s power of amendment clause, which contained the Fetter against prejudicially affecting accrued or secured rights. The court considered case law such as Courage Group’s Pension Schemes [1986] 1 WLR 495 and Newell Trustees Limited v Newell Rubbermaid UK Services Ltd [2024] EWHC 48 (Ch) in its deliberation about the validity of the amendments under this clause.

  3. Compromise Agreement (CPR 19.9(5) and (6)): Under CPR r19.9(5) and (6), court approval was necessary for the compromise agreed upon by the representatives of the affected parties, ensuring its legality and that it was for the benefit of all represented persons.

  4. Prohibition Against Surrender of Pensions (s91 Pensions Act 1995): The court referenced s91 of the Pensions Act 1995, which prevents scheme members from surrendering pension rights and determined that this statutory provision did not preclude the compromise agreement in this case.

Outcomes

After thorough negotiations between the representatives, a compromise was constructed that balanced the interests of the FS Winners, FS Transferees, FS Dependants, and the LAM and LAM Transferees sub-categories. The compromise agreement provided a percentage-based adjustment for members affected by the amendments, ensuring that pensions for FS Winners would be based on the higher amount between the FS or Revaluation Bases with additional payments to FS Transferees and other affected sub-categories. The agreement circumvented further litigation by calculating the actual impact on members’ benefits and providing resolutions that considered tax implications and mitigation of future uncertainty.

HH Judge Davis-White KC, applying the relevant principles detailed above, approved the compromise noting it advanced the interests of all parties involved and facilitated the Plan’s administration. The compromise’s fairness and practicability satisfied the criteria for court approval.

Conclusion

Avon Cosmetics Limited v Dalriada Trustees Limited & Ors addressed complex questions concerning amendments to pension schemes and the safeguards for members’ accrued rights. The court effectively used representative orders to streamline negotiations and endorsed a compromise that honored the Fetter protecting members’ rights while offering flexibility to the employer. The case reflects a balanced judicial approach, reconciling diverse interests within pension schemes and establishing a precedent for similarly structured compromises.