1. 89% of pension scheme members belong to final salary schemes. See ‘National Association of Pension Funds Annual Survey of Pension Schemes 1993’. table 66, p44.

2. Such defined benefit schemes may be contrasted with what are commonly called money purchase schemes, in which the size of the trust fund, or at least a member's individual share of that fund, defines the size of the pension received. The variety of pension schemes on offer is described in para 2.2 of the ‘Report of the Pension Law Review Committee’ (the ‘Goode Committee’) (Cm 4243–1, 1993).

3. See ‘Confederation of British Industry: Evidence to the Goode Committee’, Occupational Pension Schemes: Securing the Future (1992).

4. The employer's liability to meet deficits arising on winding up only dates from 1992. Social Security Act 1990, Sch 4, para 2; Occupational Pension Schemes (Deficiency on Winding Up) Regulations 1992 (SI 1992/1555).

5. Above n 3, p 14.

6. ‘The Charter for Pension Fund Democracy's Submission to the Goode Committee’, p 31, para 5.2. (emphasis added).

7. See Social Security Committee Second Report ‘The Operation of Pension Funds’ HC 61-II 1991/2, para 284.

8. For example, Knon J in LRT Pension Fund Trustee Company Ltd v Hatt [1993] Pension Law Reports 227 at 267, stated that it was ‘quite impossible, as well as simplistic, to try to identify the owner or owners of a [pension fund] surplus’.

9. The sort of understanding which would be contained within a statement like ‘He owns that umbrella’. AT Honoré in ‘Ownership’, ch 5 in AG Guest (ed), Oxford Essays in Jurisprudence (OUP, 1961), calls this the liberal concept of ownership, which he claims has 11 aspects.

10. Cowan v Scargill [1985] Ch 270.

11. Following the Finance Act 1970, the Inland Revenue introduced a requirement that the winding-up clause in all new schemes should provide for the employer to receive any surplus arising on winding up.

12. See Nobles Pensions, Employment and the Law (Clarendon Press, 1993) ch 6 ‘Funding, and the Role of the Actuary’.

13. B Escolme, D Hudson and P Greenwood Hoskings Pension Schemes and Retirement Benefits, (Sweet & Maxwell, 1991, 6th edn), para 3.06.

14. Ibid para 3.07.

15. Income and Corporation Taxes Act 1988 Sch 22; Pension Scheme Surpluses (Valuation) Regulations 1987, SI 19871417; Pension Scheme Surpluses (Valuation) (Amendment) Regulations 1989, SI 1989/2290.

16. Section 64A of the Social Security Act 1973, as amended by the Social Security Act 1986, Sch 10, para 3.

17. A term used by Browne-Wilkinson VC both to distinguish such surpluses from those arising on winding up, and to stress that a surplus which rises as a result of a valuation of liabilities and assets may not result in a surplus if the scheme actually had to wind up: there could then be a deficit: Speech given at an Australian conference on superannuation in 1992: ‘Equity and it's Relevance to Superannuation Today’.

18. In Re Courage Group's Pension Schemes; Ryan et a1 v Imperial Brewing and Leisure Ltd et a1 [1987] 1 All ER 528, the court had to decide whether the power to amend had been given solely to the employer, or shared between the trustees and the employer, with the trustees having a right to veto proposed amendments. In Stannard v Fisons [1992] IRLR 27, CA, the court had to consider whether the calculation of a bulk transfer payment was a matter solely for the scheme actuary, or also required the trustees to satisfy themselves that the amount transferred was ‘fair’.

19. Thus in Cowan v Scargill [1985] Ch 270, the court had to consider whether the trustees' duty to act in the beneficiaries' best interests allowed them to take into account the members' interest in continued employment in the mining industry. In Re Imperial Foods [1986] 1 WLR 717 and Stannard v Fisons above, the Court of Appeal gave directions as to the matters which needed to be considered by trustees when deciding how ‘fairly’ to divide a group pension fund when some of the group's subsidiaries or businesses are sold off. In Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597 the court examined how an employer might exercise its veto over benefit increases. For a discussion of the way in which duties of care relate to the particular rules of each trust, see M Cullity ‘Judicial Control of Trustees’ Discretions'(1975) 25 University of Toronto W 99.

20. Above n 18.

21. For example, on whether Hanson allowed benefit increases, or opened the scheme to new employees and used the surplus to fund their benefits.

22. [1987] 1 All ER 528, 535.

23. Ibid p 536. On the problems of establishing natural or ‘plain’ meanings, see S Fish, ‘The Law Wishes to have a Formal Existence’ in A Nome (ed) Closure or Critique (Edinburgh University Press, 1993).

24. Ibid.

25. See Nobles ‘Don't Trust the Trustee’ (1990) 53 MLR 377.

26. This viewpoint borrows from R Dworkin Law's Empire (Fontana 1986) the idea that judges seek to present their interpretations as the best possible one, and from S Fish Is There a Text In This Class: the Authority of Interpretative Communities (Harvard University Press, 1980), the acceptance that an interpretation cannot be seen as appropriate, let alone best, without identifying the relevant interpretive community.

27. R Cotterrell ‘Power, Property and the Law of Trusts: A Partial Agenda for Critical Legal Scholarship’ in P Fitzpatrick and A Hunt Critical Legal Studies (Blackwell, 1987).

28. Ibid at p 88.

29. ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’ Harv LR 85 (1972): 1089.

30. On the contrast between lay and Hohfeldian concepts of property, see S Munzer A Theory of Property (Cambridge University Press, 1990) ch 2.

31. For example, the development of bona vacantia, the law of charities, and the courts' reluctance to recognise private purpose trusts. See n 27 above, and R Cotterrell ‘Some Sociological Aspects of the Controversy Around the Legal Validity of Private Purpose Trusts’, in S Goldstein (ed) Equity and Contemporary Legal Developments (Jerusalem, The Hebrew University, 1992).

32. See C Donahue Jr ‘The Future of the Concept of Property Predicted From Its Past’ in J Pennock and J Chapman (eds) Properly (New York 1980).

33. [1971] AC 424.

34. R Cotterrell acknowledges the courts' tendency to sacrifice theory when it stands in the way of pragmatic considerations. See ‘The Law of Property and Legal Theory’ in W Twining (ed) Legal Theory and Common Low (Oxford, 1986), p 88.

35. The courts' attitude to the exercise of a trustee's power of appointment is captured in the words of Templeman J in Re Manisty's Settlement [1974] 1 Ch 17 at 26: ‘The court may be also persuaded to intervene if the trustees act “capriciously”, that is to say, act for any reasons which I apprehend could be said to be irrational, perverse, or irrelevant to any sensible expectation of the settlor… the trustees have an absolute discretion and cannot be obliged to take any form of action save to consider the exercise of power and a request from a person who is within the ambit of the power.’

36. Ibid.

37. See Barclays Bank Ltd v Quistclose Investments Ltd [1979] AC 567, and P Millett ‘The Quisclose Trust, Who Can Enforce It?’ 101 LQR 269.

38. LRT, above n 8, p 265.

39. A power to increase benefits on winding up, coupled with a provision for any surplus to be returned to the employer, may be logically incompatible with a duty to act in the members' best financial interests. Such a duty would remove the possibility of a surplus ever returning to the employer. See Nobles Employment, above n 12 pp 79–81.

40. Such powers would not automatically result in benefit increases, since it is not in the members' interests to be promised larger pensions than the employer is willing and able to fund. This would ensure that persons acting in the members’ best interests acted ‘responsibly’. See Aitken v Christy Hunt [1991] Pension Law Reports 1.

41. Repealed by the Wages Act 1986.

42. The fact that wages were accepted as property may provide a better explanation of the Truck Acts than any economic or social welfare rationale. GW Hilton The Truck Acts (Cambridge, 1960) pp 1–63, could find no convincing reason for the passing of the Acts other than the fact that truck was unpopular with employees and their grievances were generally felt to be legitimate.

43. I do not mean to claim that employees must point to some material ‘thing’ outside the law, to which they may lay claim through law. I accept that the ‘thing’ which members are claiming is constructed through law (the assets of the pension fund are themselves legal constructs, and their grouping together in a single pension fund is also achieved through law). I also accept that the use within law of ideas which have parallel forms in other social spheres is not simple or straightforward, and may be best captured by systems' concepts such as ‘interference’ and ‘coupling’ see G Teubner Law as an Autopoietic System (Blackwell, 1993), ch 5, or non system ones such as ‘relative autonomy’ see Richard Lempert ‘The Autonomy of Law: Two Vision's compared’ in G Teubner (ed) Autopoietic Law: A New Approach to Law & Society (de Gruyter 1988) p 153.

44. [1986] 1 WLR 717.

45. Ibid at 728. Knott J reached similar conclusions on the basis of the same reasoning: since the employees would most likely have to share the benefit of the surplus with the employer, it was ‘simplistic’ to say that one or other of these parties owned it. See n 8 above.

46. [1991] 2 All ER 563.

47. See Nobles ‘Davis v Richard & Wallington Industries’ (1990) 19 IW 24.

48. In Davis v Richard & Wallington Industries, the decision not to return assets generated by the employer's contributions to employees can be explained by the difficulty of establishing a property relationship. But the judge's decision not to allow members of a contributory pension scheme to participate in the resulting trust on a pro-rata basis has been criticised as running contrary to property reasoning. See the report of the case in the [1990] Pension Law Reports 125.

49. Above n 18 p 537.

50. [1991] 2 All ER 513; [1990] 1 WLR 1587.

51. Above n 19 at 597.

52. Ibid at 606. See also Thrells v Lomax [1993] All ER 546 in which the Vice-Chancellor was asked to exercise a power to augment benefits on winding up. He accepted that the employer's contributions were earned by the members, and that the members therefore had reasonable expectation that the power would be exercised to an extent that was fair and equitable with regard to its purpose (which in this scheme was to compensate for the fact that the accrued benefits of employees would have been calculated on a more generous basis if the scheme had continued).

53. Above n 8.

54. Ibid. The Goode Committee's Report shares this concern with protecting the members' accrued rights. They believed that the current law might allow an employer to remove accrued benefits through the exercise of an unfettered power of amendment, and recommended that such powers be restrained by statute. See n 2 above at para 4.2.8. One pension barrister has claimed that such apparently unfettered powers would usually be read as being subject to an implied restriction against removing accrued benefits, Nigel Inglis Jones QC The Law of Occupntional Pension Schemes (Sweet & Maxwell, 1989) p 116.

55. Without the benefit of that casting vote, disagreements over the use of actuarial surpluses would result in a deadlock, with the surplus simply being used to increase the security of the members' accrued benefits. With the benefit of that casting vote, the employer appointed trustees could decide to use a surplus to release the employer from its obligation to continue making contributions.

56. See Nobles, above n 12 p 4.

57. Ibid p 5.

58. Whilst the law of trusts allows the exercise of a discretion to be restricted by implied terms where these can be justified as part of the likely intention of the settlor (using the doctrine of a fraud on a power) the courts seem reluctant to take this approach in the absence of a unitary settlor.

59. Above n 19.

60. Ibid at 608. A similar approach can be seen in Courage, if the power of amendment allowed the employer to introduce whatever amendments it saw fit. all of the members entitlements under the scheme would be placed at risk.

61. The V-C seemed to think that the employees were being forced to give up their rights on winding up, by transforming from a scheme in which the company could not benefit from a winding up into one where it could enjoy any residual surplus. But the surplus was not something to which the members were ‘entitled’ now, or on the determination of the scheme. The surplus was currently being used for a contribution holiday. In the event of winding up a residuary surplus would not go to the members, but to the crown or, if Davis v Richard & Wallington Industries n 47 above applied, to the employer.

62. One can see parallels with the decision in LRT: because property entitlements should not be defeated through the exercise of broad powers, such powers will be interpreted restrictively in order to afford protection.

63. See generally Dworkin, R. Taking Rights Seriously (London, Duckworth. 1977) p 31.Google ScholarPubMed

64. Above, n 50.

65. [1989] IRLR 522.

66. CA Reich ‘The New Property’ (1964) 73 Yale Law Journal 734. In LRT above n 8 at 265, Knox J describes the members' right against their employer as the ‘correlative’ of the duty of good faith, and distinguishes it from their rights against the trustees, which he regards as part of their entitlement to benefits. Applying Hohfeldian analysis, both kinds of rights are the correlative of their respective duties. What Knox J seems to be saying is that rights against trustees are part of the members’ property rights, whilst those against the employer are not.

67. See A Leff ‘Contract as a Thing’ (1970) 19 American University Law Review 131.

68. S Gardner An Introduction To The Law Of Trusts (Clarendon Press, 1990).

69. Outside of a winding up situation, the courts have proved reluctant to accept that conflicts of interest will prevent trustees from acting properly. Thus in LRT, Knox J was not prepared to accept, in the absence of evidence to the contrary, that LRT's appointees would always prefer the employer's interests. On this basis, he would not restore the earlier balance of power, in which member and employer appointed trustees had equal voting rights on the board of trustees. In Manning v Drexel Burnham Larnbert Holdings Ltd [1994] Pension Law Reports 75, Lindsay J did not accept that the conflict of interest rule prevented trustees who also beneficiaries from exercising a discretion to grant themselves increased benefits, at least where the exercise of that power was approved by the court. But of Vinelott J in British Coal Corporation v British Coal Staff Superannuation Scheme Ltd [1993] Pension Law Reports 303 at 312.

70. See Aitken v Christy Hunt above n 40.

71. See R Unger ‘The Critical Legal Studies Movement’ (1983) 96 Harv L R 561,564–565.

72. G Moffat ‘Pension Funds, a Fragmentation of Trust Law’ (1992) 55 MLR 123.

73. A Fox Beyond Contract: Work, Power and Trust Relations (1974) p 185, 248–9.

74. Ibid p 184.

75. Ibid p 196.

76. Above n 18.

77. Ibid at 545 (emphasis added). The concern that take-overs may lead to a change from a paternalistic management style to a more profit orientated approach is also evidenced in the Occupational Pension Board's 1989 Report, ‘Protecting Pensions: Safeguarding Benefits in a changing Environment’ (Cmd 573) which devotes three chapters to the problems which may follow take-overs.

78. The Goode Committee have adopted a somewhat higher standard: seeking legislation to require what they regarded as ‘best practice’ (n 2 above para 1.1.14).

79. Collins, H. Justice in Dismissal (Clarendon Press, Oxford 1992) p 39.CrossRefGoogle Scholar Collins likens the shift from a test of what is reasonable to one of what is wholly unreasonable, to the assessment of the sharpness of a knife. Requiring a sharp knife means that all knives that are not sharp must be rejected. (This is like a test of reasonableness - all unreasonable behaviour is an abuse). Saying that the knife must not be blunt, means that any knife with some cutting edge must be accepted. (Any action which is not clearly an abuse has to be accepted). One should note that Browne-Wilkinson V-C in Imperial Tobacco, above n 19 expressly rejected reasonableness as a basis for the exercise of employer's powers, preferring a lower standard of good faith.