Case No. HC09C00708

These proceedings have been brought to determine whether an “Employment Cessation Event” (“ECE”) has occurred in respect of the Claimant, Cemex UK Marine Ltd (“Cemex”) which is a participating employer in the Merchant Navy Officers Pension Fund (“MNOPF”). It is a multi employer defined benefit occupational pension scheme.

It is common ground that if an ECE occurred at all in relation to Cemex it occurred on 28th November 2005. The Defendant (“the Trustee”) for the MNOPF claims that the ECE did occur on that date. Cemex denies it.

If an ECE has occurred then Cemex will have become liable for a debt under section 75 Pensions Act 1995 (“Section 75”- “Section 75 Debt”). As at 28th November 2005 the definition of an ECE was contained in the then current version of the Occupational Pension Schemes (Employer Debt) Regulations 2005 (2005/678) (“Regulations”). Those regulations had been brought into force on 6th April 2005.

The definition of ECE in the Regulations uses the same wording as had been included in all sets of regulations made for the purpose of Section 75 since that Section had come into substantive force on 6th April 1997. The first set of such regulations was the Occupational Pension Schemes (Deficiency on Winding Up etc) Regulations 1996 (1996/3128) (“the 1996 Regulations”).

Section 75 imposes a debt on an “Employer” in the case of a defined benefit Occupational Pension Scheme in cases where:-

The Scheme in which the Employer participates goes into Winding Up (Section 75 (2) PA 1995); or

The Employer which participates in the Scheme suffers an “Insolvency Event” (even though the Scheme might not then automatically go into Winding Up) (Section 75 (4) and 6 (a) PA 1995).

ECEs are specific to multi employer schemes and constitute the only other circumstances in which a Section 75 Debt arises under the relevant legislation.

ECE was defined by Regulation 6 (4) of the Regulations as follows:-

From and after 6th April 2008 the definition of ECE has been changed. The definition is now found in Regulation 2 (1) of the current amended edition of the Occupational Pension Schemes (Employer Debt) Regulations 2005 (2005/678) (“New Regulations”) which provides in material part that an ECE:-

The New Regulations (Regulation 6A) however mitigated the effects of this by providing for a 12 month period of grace in which an employer who ceases to employ any active members of the scheme can commence to employ another active member and so avoid the occurrence of an ECE in relation to it.

The MNOPF is a defined benefit occupational scheme providing pension benefits for “Officers” of the Merchant Navy employed by participating employers of which Cemex has at all material times been one and remains one. As at 31st March 2008 the total membership of MNOPF was 53,167 comprising 1,635 active members, 27,380 deferred members and 24,150 pensioner members.

The MNOPF was originally established by a Trust Deed and Rules dated 29th October 1937. However it is currently governed by a Trust Deed and Rules dated 25th June 1999 (as amended from time to time) (“the Trust Deed and Rules”).

The MNOPF enables qualifying employers to participate and so provide retirement benefits for officers in their employment who satisfy the conditions for membership of the MNOPF. It is common practice for officers to change employers in their careers yet remain in the industry. Thus the MNOPF provides officers with the opportunity for continuity in their pension provision despite a change in their employment from one participating employer to another. Assets of the MNOPF are pooled there are no individual sections for each participating employer.

Cemex is a subsidiary of Cemex Investments Ltd which is part of the Cemex Group. Its business consists of dredging sand and gravel from the sea and it is in that connection that it has for at least 28 years employed officers of the British Merchant Marine. It commenced participating in the MNOPF as a condition of being a member of the British Chamber of Shipping.

Eligibility of the MNOPF is primarily limited to “Officers”. By rule 3.0 of the Trust Deed and Rules it is provided that “[it] means and includes Masters, Navigating Officers, Engineer Officers, Radio Officers (excluding trainees), Refrigerator Engineers, Electrical Engineers, Boilermakers, Pursers and Catering Officers and such other persons as the Trustees may from time to time regard as holding any position of authority on board ship and shall include such officers engaged on the shore staff of the Participating Employers”. The MNOPF was generally closed to new members by deed of amendment dated 1st November 1996. However the Trustees retain a discretion to admit members to the membership of the MNOPF under rule 4 subject to their consent. Thus even after 1st November 1996 Officers could become members of the MNOPF so long as the Trustees’ consent was obtained.

Cemex has always allowed those of its employees who were eligible for the MNOPF the opportunity to join. It does provide a separate pension scheme (the Cemex UK Pension Fund) and as will be seen some of the relevant potential members of MNOPF actually elected to join that scheme instead of the MNOPF.

Like many pension funds the MNOPF is in deficit. Its deficit calculated on a discontinuance basis was £950,000,000 as at 31st March 2006, £784,000,000 as at 31st March 2007 and £961,000,000 as at 31st March 2008. On an ongoing basis the deficit for the respective years are £151,000,000, £103,000,000, and £83,000,000.

The discontinuance deficit as at 28th November 2005 calculated for Section 75 purposes was £1,210,000,000. The amount Cemex will be liable to pay if the ECE has occurred is alleged to be £20,282,426.

As a participating employer it is still liable to make up the deficits and is currently making annual deficit contributions of £177,099 (commenced 30th September 2005 and continuing through to March 2014). Cemex will still be liable under the MNOPF Rules to continue to fund the MNOPF deficit even if an ECE has occurred. Further, it is possible that if an ECE event has occurred in the circumstances of this case Cemex will be liable to have a further ECE when its present active members cease to be such. The possibility is far from academic as will appear.

There is no suggestion that Cemex will not fund the ECE if established.

There are a number of potential categories of members. First there is “an active member” which in relation to an occupational pension scheme means a person who is in pensionable service under the scheme (PA 1995 Section 124 (1)). A “deferred member” means a person other than active or pensioner member who has accrued rights under the scheme (ibid). Finally a “pensioner member” means a person who in respect of his pensionable service under the scheme or by reason of transfer credits is entitled to the present payment of pension or other benefits and who is not an active member of the scheme (ibid).

Expressions in the Regulations have the same meaning and effect as in Part 1 of the 1995 Act (section 124).

Significantly Regulation 6 (4) does not activate an ECE by reference to any of the above defined categories of members. It activates it by reference to a category of employee of Cemex. This is to be contrasted with other parts of the Regulations. See for example Regulation 9 (1) which differentiates between active members and the lack of active members. This is important because the Trustees contention is that the words in Regulation 6 (4) “employing persons in the description of employment to which the scheme relates at a time when at least one other person continues to employ such persons” relates to active members.

On 27th November 2005 Cemex employed one “active member” of the MNOPF namely Mr Blair.

On 28th November 2005 Mr Blair attained his normal pension age but continued to be employed by Cemex as “an Officer”. In consequence from that date he became a “deferred member” of MNOPF (i.e. a member of MNOPF whose pension in due course would be paid from the MNOPF if and when he called for it; see the definition above).

On 1st January 2006 Mr Blair elected to start drawing his pension from the MNOPF but continued to be employed by Cemex as an “Officer”. In consequence Mr Blair became a “pensioner member” of the MNOPF in accordance with the definitions set out above.

On 31st March 2006/1st April 2006 Mr Blair’s job at Cemex was taken over by another “Officer” Mr Hunter who was at all material times (i.e. before and after that date and continuing today) an “active member” of the MNOPF.

Between 28th November 2005 and 1st April 2006 Mr Hunter had been employed as an “Officer” by Cemex’s sister company Cemex Marine (Guernsey) Ltd (“Cemex Guernsey”). It itself participated in the MNOPF over which period Mr Hunter gradually took over Mr Blair’s job at Cemex. However of course during that period between 28th November 2005 and 1st April 2006 as set out above Mr Hunter was not an employee of Cemex so his employment during that period does not qualify for the purposes of Cemex’s potential liability under Regulation 6 (4).

Between 28th November 2005 and 1st April 2006 Cemex employed 4 other “Officers” who where not members of the MNOPF but fell within the definition of that expression in rule 3 of the MNOPF Rules. They were not members of the MNOPF but they fell within the definition of Officers defined in the Rules. They were not of course “members” of whatever designation. Further they have never become members of the MNOPF. They are identified in paragraph 42 of the witness statement of Michael Leslie Collins on behalf of Cemex dated 6th March 2009. All were given the option to join the MNOPF but all of them elected instead to apply to join the Cemex UK Pension Fund. All applied so to elect well before 28th November 2005. Two of the four had previously been a members of the MNOPF and had taken a refund of contributions and then decided not to apply to rejoin the MNOPF but elected to apply to join the Cemex UK Pension Fund.

In those circumstances it seems to me unlikely that any of the four will apply to become members of the MNOPF. However they are eligible so to apply and could become members subject to the consent of the Trustee.

Currently Cemex employs two “Officers” who are “active members” of the MNOPF namely Mr Hunter and another. However neither of them was an “active member” as at 28th November 2005. On that date Cemex had no Officer employees who were active members. There was a gap of having such membership between the 28th November 2005 when Mr Blair ceased to be an active member and became a deferred member and the employment of Mr Hunter on 31st March 2006/1st April 2006 when he then became an active member.

The present dispute therefore is about the consequences of Cemex not employing an active member Officer employee during that period. Cemex contends it makes no difference. The Trustees contend that it does because Regulation 6 (4) is to be construed as applying to a cessation to have an active member.

As set out above Cemex is still a participating employer and is still making shortfall contributions in the same way as it did before 28th November 2005 and its commitments remain unchanged.

These submissions were set out in its comprehensive skeleton argument and were supplemented by Mr Green QC’s oral submissions. In essence given the fact that Cemex at all material times always employed people who were Officers and eligible for membership of the MNOPF and/or employed an Officer (Mr Blair) who was in some form of membership in the MNOPF, it is extraordinary it contends that the construction of Regulation 6 (4) could be such as to impose an ECE when it has that employment situation. This it also contends is reinforced by the fact that before and after the alleged ECE it continued to be a participating employer itself and had continuing contribution obligations. Finally it points out (as set out above) if the Trustees contention is correct it could lead to further ECE charges being levied if it at any time in the future ceased to have any active members despite employing people who were Officers and eligible for membership of the MNOPF and whilst it still continued to be a participating employer.

Cemex is not it submits seeking to evade Section 75; it will still be subject potentially to a Section 75 Debt (on its analysis) if a genuine (as it contends) ECE occurs in relation to it under Regulation 2 (1) of the New Regulations if after 6th April 2008 it ceases to have an active member. However as I have said earlier in this judgment there is a 12 month period of grace whereby Cemex in that eventuality will be able to avoid an ECE by again taking on at least one active member.

Its primary submission is based on the fact that Regulation 6 (4) does not address an ECE occurring when a particular membership status changes. It could have been quite easy when the regulation was drafted to identify the ECE occurring when the participating employer ceased to employ an active member (like the New Regulations). Cemex submits that is telling. In my view that is correct. It reinforces the fact that Regulation 6 (4) addresses the status of employees of Cemex and not the status of employees as regards their membership in the MNOPF.

The definitions of an active member and a deferred member under section 124 (1) PA 1995 have been set out above. An “active member” means a person who is in pensionable service under the scheme. “Pensionable service in relation to a member of an occupational pension scheme means service in any description or category of employment to which the scheme relates (emphasis added) which qualifies the member …. for pension or other benefits under the scheme.” (ibid). The underlined wording is precisely the same wording to be found in Regulation 6 (4) and it is therefore a strong indication that the wording in Regulation 6 (4) cannot mean “active member”. If it were to then it would equally have that effect in section 124 (1) PA which would then make a nonsense of the definitions of active member and pensionable service respectively. This is especially the case given the fact that the definition of pensionable service clearly indicates that there is something more to being an active member than being in the description of employment to which the scheme relates. It would also make a nonsense of Regulation 9 (1). For example Regulation 9 (1) provides:-

The suggestion the words “persons in the description of employment to which the scheme relates” means active members makes the expression entirely surplus in Regulation 9 (1). That applies equally to Regulation 9 (2) where the same expression is to be found in contrast to the expression “active members” to be found in regulation 9(2) (b) (i).

It seems to me that Regulation 9 which differentiates between active members and employers who employ persons “in the description of the employment” is fatal to the Trustees stance. I will further expand on this when I address the decision of Morgan J in Hearn & Ors v Dobson [2008] EWHC 1620, 82 PBLR. It seems to me that the wording of Regulation 9 supports Cemex’s submissions rather than that of the Trustees.

In my judgment one should be wary of using other regulations (even if they were issued at the same time), earlier regulations and later regulations as an aid to construing a particular regulation. This is well exemplified by the fact that the New Regulations expressly linked the ECE to an employer ceasing to employ at least one person as an active member. Regulations are often changed to address issues of construction of earlier regulations. Thus the fact that the New Regulations expressly refer to an active member does not mean it can be used by Cemex to argue that the earlier regulation therefore plainly did not cover an active member. Equally it is not open to the Trustee in my view to argue that the use of the words active member in the later regulations is a guidance to suggest what regulation 6(4) of the Regulations meant.

Equally Mr Furness QC during the course of his submissions took me through the gestation of the earlier regulations and regulations concerning deficiencies (for example the 1996 Regulations.

The purpose of this exercise was to show that a decision in respect of Regulation 6(4) of the Regulations ought to follow the decision of Morgan J in Hearn v Dobson. In that case he was (inter alia) asked to construe the meaning of employer for the purposes of schedule 2 paragraph 1 of the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (2005/3377) (“the SF Regulations”) in their form as in force as at 6th April 2008. In that decision Morgan J declined to reach a conclusion based on the meaning of employer for the purpose of section 124 (1) PA 1995 but limited himself to ruling on the meaning of that word for the purposes of the SF Regulations. It is submitted by Mr Furness QC that the decision is significant in that Morgan J determined the meaning of employer for the purpose of those regulations in view of schedule 2 paragraph 3 (1) and declined to reach a conclusion on the meaning of employer for the purpose of section 124 (1) PA 1995.

This is hardly surprising given the clear wording of schedule 2 paragraph 3 (1):-

Morgan J [paragraph 72] determined “in my judgment, the provisions of paragraph 3 (1) of Schedule 2 are a clear statement that when an employer ceases to employ active members he ceases to be an employer…. If I had been minded to give a different meaning to the word “employer” in section 124 then I would not apply that different meaning to an “employer” in paragraph 1 of Schedule 2 because the context provided by paragraph 3 otherwise requires”.

That latter reference refers back to paragraph [71] when he declined to apply the definition of employer in section 124. He did so because he determined that the definition in Schedule 2 paragraph 3 (1) demonstrated a contrary intention for the purpose of the Interpretation Act 1978. That legislation provides (in this context) “where an Act confers power to make subordinate legislation, expressions used in that legislation have, unless the contrary intention appears, the meaning which they bear in the Act”. It will be recalled that the definition of employer in section 124 is identical to the one to be found in Regulation 6 (4) of the Regulations.

Morgan J also dealt with submissions in respect of section 124. Thus in paragraph [69] and following he set out why he dis-applied section 124. In paragraph [71] he observed that whilst he would have had considerable doubts about Mr Newman’s submission he would find the question more difficult to answer if he applied section 124. That is a reference to Mr Newman’s submission that if an employer employed persons who were deferred members and they were current employees then they were employers “relating to the description of employment in question…”

It is plain that Morgan J did not consider the definition of employer in section 124 in the relevant provision for the purpose of those regulations. Equally he rejected any consideration of Regulation 9 of the Regulations as being relevant. In paragraph [76] he declined to express any view on Regulation 9 of the Regulations saying “having answered the question raised in these proceedings, it is not necessary, and does not seem to me to be appropriate, to discuss the further contingencies that might come about which might produce certain results under the [Regulations]”.

Morgan J therefore was careful not to express any view about the Regulations. Equally it seems to me that his decision on different regulations is something about which I should not express any opinion either. Further it seems to me that his decision based on a construction of different regulations has no relevance to the question I am asked to decide.

It seems to me plain that when one looks at Regulation 6(4) and Regulation 9 (1) and (2) contrary to the submissions of Mr Furness QC these provisions are not to be construed as equating the words “employing persons in the description of employment to which the scheme relates” to active members only. I see nothing in the regulations to displace the meaning of employer under section 124 PA 1995. I see no justification therefore in considering section 11 IA 1978.

There is in my view no difficulty. As I have said earlier in this judgment the relevant description is a description of the employer and not the status of the member. If an employer has anyone who is an employee in the description of the employment in my view such an employer remains an employer for the purpose of these regulations.

Mr Furness QC also took me through the antecedent regulations in an attempt to show that Regulation 6 (4) and 9 (1) of the Regulations

must

There is nothing therefore in my view that provides assistance in the other legislation and statutory instruments made under the legislation which assists me in answering the question which I am required to answer. For the reasons I set out above I also find no assistance from the decision in Hearn.

I should observe that after the hearing concluded Mr Green QC wrote to me (with the agreement of Mr Furness QC) in order to clarify his submissions in respect of Mr Blair, in circumstances where Mr Green had conceded in relation to non-member “Officers” in the employment of Cemex that, if and when they attained normal pension age (61) and the possibility of the Trustees consenting to their becoming members of the MNOPF had therefore ceased, Cemex could not have contended in relation to such persons that their continuing employment would have prevented the occurrence of an ECE. He attained 61 on 28th November 2005. On that date he ceased to be an active member but became a deferred member. On 1st January 2006 he elected to start drawing his pension but continued to be employed by Cemex as an Officer. He then became a pensioner member.

Mr Green asked me to include a determination in my judgment of the effect of Mr Blair as a deferred member having attained the age of 61 and to deal in particular with whether his continuing employment once he had attained 61 would not enable Cemex to say that it satisfied 2 (b).

I cannot accept that Mr Blair’s attaining 61 would have had that effect. It seems to me that Mr Blair’s continuation in employment as a deferred then pensioner member meant that his continued employment prevented an ECE occurring for the reasons I have set out above. It was equally satisfied by issue 2 (a) in relation to the other potential members. Obviously a person who attains the normal retirement age cannot after that time become a member because it is not open to them but that does not seem to me to be the point.

The questions to be decided are those which Cemex appended to their skeleton argument as follows:-

In my judgment the answers to the issues is as follows:-

No

In respect of issue 2 (c) I was reminded by Counsel for all sides after I reserved judgment of an exchange that took place between Mr Green QC and myself concerning issue 2(c). I am grateful for them reminding me of this exchange. As I indicated during the argument it seemed to me that a subjective intention by an employer to employ an employee who would fall within the description under Regulation 6 (4) cannot in my view prevent an ECE occurring when at a particular time the employer has no employee who satisfies the requirement of Regulation 6 (4) as set out above. In my view it is a question of fact from time to time. Does the employer have an employee who satisfies Regulation 6 (4) as determined by me earlier in these proceedings. If he does not then an ECE occurs. That cannot be deflected by some ill defined uncertain intention on the part of the employer possibly to employ an employee who would satisfy the requirement in the future. One only has to put it to realise how unlikely such a proposition is. Can an employer express that subjective intention forever? If there is a time limit imposed on it (perhaps a reasonable time whatever that might mean) would that define it? I cannot see that the Regulations would have been intended to operate in such a varied way. It seems to me that either the employer has an employee that satisfies Regulation 6 (4) or it does not. For those reasons the answer to question 2 (c) is yes.

I am grateful to Counsel for their helpful written and oral submissions.