A company pension scheme had been operating for many years, with increases being provided for under one rule. A new rule was introduced to provide regular increases. The company was taken over, and the trustees sought clarification of the company’s obligations.
Held: The new rule provided a minimum increase but no right for the trustees to grant unilateral increases above that minimum. It was not possible to imply a condition of reasonableness as to the exercise of the company’s discretion, but there was an obligation to act in good faith as in every contract of employment. There existed an implied obligation that the discretion should not be exercised so as to destroy or seriously damage the relationship of trust and confidence between the company and its employees and former employees. The power of the company to withhold consent to benefit increases must be exercised in good faith. ‘Pension scheme trusts are of quite a different nature to traditional trusts. The traditional trust is one under which the settlor, by way of bounty, transfers property to trustees to be administered for the beneficiaries as objects of his bounty. Normally, there is no legal relationship between the parties apart from the trust. The beneficiaries have given no consideration for what they receive. The settlor, as donor, can impose such limits on his bounty as he chooses, including imposing a requirement that the consent of himself or some other person shall be required to the exercise of the powers. As the Court of Appeal have pointed out in Mihlenstedt v. Barclays Bank International Ltd [1989] I.R.L.R. 522 a pension scheme is quite different. Pension benefits are part of the consideration which an employee receives in return for the rendering of his services. In many cases, including the present, membership of the pension scheme is a requirement of employment. In contributory schemes, such as this, the employee is himself bound to pay for his or her contributions. Beneficiaries of the scheme, the members, far from being volunteers have been given valuable consideration. The company employer is not conferring a bounty. In my judgment, the scheme is established against the background of such employment and falls to be interpreted against that background’
Sir Nicolas Browne-Wilkinson VC discussed the implied term of trust and confidence between employer and employee: ‘I will call this implied term ‘the implied obligation of good faith.’ In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer. Say, in purported exercise of its right to give or withhold consent, the company were to say, capriciously, that it would consent to an increase in the pension benefits of members of union A but not of the members of union B. In my judgment, the members of union B would have a good claim in contract for breach of the implied obligation of good faith: see Mihlenstedt v Barclays Bank International Ltd [1989] IRLR 522′.
Judges:
Sir Nicolas Browne-Wilkinson VC
Citations:
[1991] ICR 524, [1991] 2 All ER 597, [1991] 1 WLR 589
Jurisdiction:
England and Wales
Citing:
Applied – Woods v W M Car Services (Peterborough) Ltd EAT 1981
An employer will be guilty of a breach which entitles an employee to resign and claim constructive dismissal if the employer behaves in such a way as to destroy the relationship of trust and confidence. An employer shall not ‘without reasonable and . .
Cited – Mihlenstedt v Barclays Bank International CA 1989
The company’s pension scheme provided that the trustees were to form an opinion as to the employee’s ability or otherwise to work. The plaintiff sought payment of an ill-health pension under the Bank Pension Scheme.
Held: A pension scheme . .
Cited by:
Cited – AMP (UK) Plc and Another v Barker and Others ChD 8-Dec-2000
The claimants were interested under a pension scheme. Alterations had been made, which the said had been in error, and they sought rectification to remove a link between early leaver benefits and incapacity benefits. The defendant trustees agreed . .
Cited – Horkulak v Cantor Fitzgerald International QBD 31-Jul-2003
The claimant sought damages for constructive dismissal. He said that verbal abuse he had suffered from the manager damaged his health and destroyed the relationship of trust and confidence.
Held: The manager was dictatorial and saw it as his . .
Cited – National Grid Co Plc v Mayes and Others; International Power Plc (Formerly National Power Plc) v Healy and Others HL 7-Jun-2001
The release by the trustees of a sum due to the pension scheme from the employers, did not make funds payable to the employer, so as to trigger the clause within the scheme trust deed which would restrain such a payment. Where an actuarial surplus . .
Cited – Reda, Abdul-Jalil v Flag Limited PC 11-Jul-2002
PC (Bermuda) The courts should be reluctant to accept a fetter on the employer’s right to dismiss on notice where there is an express term in the contract empowering the employer to do so.
Lord Millet . .
Cited – RDF Media Group Plc and Another v Clements QBD 5-Dec-2007
The defendant had sold his business to the claimants and in part consideration had accepted restrictive covenants as to his not competing with them. On indicating his desire to leave the claimants and work for a competitor, made statements which the . .
Cited – Transco Plc v O’Brien CA 7-Mar-2002
The company appealed against a finding that they were in breach of their contract of employment in not including the claimant in those considered for an enhanced redundancy package.
Held: The appeal failed. Tribunals should be cautious before . .
Lists of cited by and citing cases may be incomplete.
Employment, Trusts, Company
Updated: 13 July 2022; Ref: scu.182111
