Allen & Overy LLP

Reminding us of the importance of the literal meaning of the words, the Court of Appeal interpreted the phrase “any other rate” in a pension increases rule to mean simply “any other rate, whether higher or lower”. It overruled the High Court’s decision that “any other rate” meant “any higher rate” which had been made “with an eye to giving reasonable and practical effect to the scheme”.

The Britvic Pension Plan contained the following pension increases rule:

“The part of a pension which exceeds any guaranteed minimum pension in payment is increased … each year. The rate of increase is the percentage increase in the retail prices index during the year … but subject to a maximum of 5 per cent … (or any other rate decided by the Principal Employer).”

The question was whether “any other rate” meant “any higher rate” (as the High Court had held)?

Two factors supported the High Court's reading:

  1. Pension members who transferred to the plan were told that pension increases were guaranteed at the retail price index (capped at five per cent), with discretionary increases on top.
  2. The Pensions Act 1995 obliges a pension scheme to increase certain accruals by at least the “appropriate percentage”, unless the rules of the scheme require them to be increased by the “relevant percentage”. If the Britvic pension increases rule did not not permit the employer to reduce the rate of increase, this would satisfy the “relevant percentage” requirement (without further recourse to the “appropriate percentage”). This was said to be more straightforward and simpler than the alternative.

Unconvinced by these factors, the Court of Appeal held that “any other rate” simply meant “any other rate, whether higher or lower”. The employer may choose a lower rate of increase.

Following previous authorities, the court’s starting point was the plain language used and its possible meaning, by reference to the admissible context. What would a reasonable person with the relevant background knowledge have understood the parties to have meant?

Cue the basic rule: “Where the parties have used unambiguous language, the court must apply it.”

Sir Geoffrey Vos accepted that there “may” have been a mistake in the drafting of the rule, while Lord Justice Nugee thought that a literal construction of the rule “is liable to cause practical difficulties”. However, these did not justify a corrective construction of the rule.

The court would only depart from the ordinary meaning of clear language where there “really is an obvious mistake on the face of the document” (and an “obvious solution”). There was none here.

The court observed that “this is not a case where there has been sloppy or unclear drafting”. The natural reading of “any other rate”, to mean any higher or lower rate, does not lead to a wholly irrational result. In the face of such unambiguous language, other arguments (such as those relating to commercial common sense and excessive literalism) were given little weight.

Judgment: Britvic Plc v Britvic Pensions Ltd