BT v BT Pension scheme trustees Ltd & another

- - - - - - - - - - - - - - - - - - - - -

Neutral Citation Number: [2018] EWCA Civ 2694

Case Nos: A3/2018/0353 and A3/2018/0389

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

(CHANCERY DIVISION)

The Hon. Mr Justice Zacaroli

[2018] EWHC 69 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 04/12/2018

Before:

LORD JUSTICE PATTEN

LORD JUSTICE DAVID RICHARDS

and

LADY JUSTICE ASPLIN

Between:

British Telecommunications PLC Appellant

- and -

(1) BT Pension Scheme Trustees Limited Respondents

(2) Linda Bruce-Watt (Representative Beneficiary)

Andrew Spink QC, Dinah Rose QC and Farhaz Khan (instructed by CMS Cameron

McKenna Nabarro Olswang LLP) for the Appellant in Appeal A3/2018/0353 and the

Second Respondent in the Cross-Appeal A3/2018/0389

Lord Pannick QC, Michael Furness QC and James McCreath (instructed by Stephenson

Harwood LLP) for the Second Respondent in Appeal A3/2018/0353 and the Appellant in

the Cross Appeal A3/2018/0389

Brian Green QC (instructed by Slaughter and May) for the First Respondent to both

Appeals

Hearing dates: 9, 10 and 11 October 2018

Approved Judgment

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

Lady Justice Asplin:

1. These appeals arise out of the order of Zacaroli J sitting in the Business and Property

Courts of England and Wales (Chancery Division) of the High Court. The citation for

his judgment is [2018] EWHC 69 (Ch). The appeals are concerned with the proper

construction of certain provisions of the BT Pension Scheme, (the “Scheme”) their

meaning and effect. They relate to the appropriate cost of living index to be used for

the purposes of calculating increases in pensions in payment.

2. British Telecommunications plc (“BT”) is the Principal Employer of the Scheme which

was established in 1983. In 1986 BT established the British Telecommunications plc

New Pension Scheme which was merged with the Scheme in 1994 and now forms

Section C of the Scheme. Section C alone has over 80,000 members of which around

24,000 are current pensioners. All sections of the Scheme are funded from a single pool

of assets. For the purposes of the litigation BT was appointed to represent the interests

of all members of the Scheme and those claiming through, or in respect of them, in

whose interests it is to argue that pension increases for Section C members should not

continue to be linked to the Retail Prices Index (“RPI”).

3. In essence, BT contends that it has the power (whether in consultation with the Trustees

of the Scheme or otherwise) to determine whether RPI has become inappropriate for

the purposes of calculating increases to pensions in payment for Section C members

and that RPI is inappropriate. It is common ground that once it is decided that RPI has

become inappropriate, it is for BT, in consultation with the Trustees, to decide what

other measure of the cost of living should be used. A change in the index used will not

only affect the level of pensions in payment for Section C members but will also affect

the level of funding of the Scheme as a whole.

4. BT Pension Trustees Limited, the First Respondent, is the present trustee of the Scheme

(the “Trustees”). They were represented before us by Mr Brian Green QC. Mr Green

made submissions in relation to the proper construction of the rules of the Scheme. The

primary position of the Trustees, however, was that they sought to assist the Court and

to ensure that a practical and workable outcome for the Scheme is arrived at. Mr

Green’s submissions in relation to the construction of the rules took those instructed on

behalf of BT by surprise and as a result, we allowed BT to make written submissions

in response after the close of the hearing.

5. Ms Linda Bruce-Watt, the Second Respondent, is a beneficiary of the Scheme and was

appointed to represent all Section C members in whose interests it is to argue that

pension increases for Section C members should continue to be linked to RPI. Put

simply and in very brief summary, she seeks to support the Judge’s decision that the

question of whether RPI has become inappropriate must be determined objectively and

is not for BT to decide. She goes on to contend, amongst other things, that it is not open

to the appropriate decision-maker to rely upon matters or events which occurred before

5 April 2016 when determining whether RPI has become inappropriate.

6. The Grounds of Appeal and Cross Appeal and the matters raised in the Respondent’s

Notices are lengthy and complex. They are more easily understood and digested in an

incremental and thematic way in the light of the relevant Scheme provisions and issues

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

as they arise. I propose to introduce them as and when they become relevant. The same

is true in relation to the Judge’s findings.

Essential Materials and Applicable Principles

Materials

7. The central issues turn on the construction of the relevant Rules of the Scheme and the

way in which they interleave with each other. There are five sets of Scheme Rules

which are relevant. They are dated 1 January 1993 (the “1993 Rules”), 1 May 2002 (the

“2002 Rules”), 1 June 2004, 20 March 2009 and 5 April 2016 (the “2016 Rules”)

respectively. For the most part, the issues on these appeals arise from just two rules:

rule 10.2 of the 2016 Rules and rule 25 of Appendix E of the 1993 Rules.

8. Rule 25 of Appendix E of the 1993 Rules where relevant states:

“(1) 5% increase to excess over guaranteed minimum

pension:

(a) On 1 April 1993 (or such other date as the Trustees may, with

the agreement of the Principal Company, decide) and in each year

thereafter the annual amount of pension … shall be increased by

the lesser of 5% and the percentage ratio (calculated to the nearest

one place of decimals) by which the index figure of the General

Index for the month of January (or such other month as the

Trustees may, with the agreement of the Principal Company

decide) in the year in which the increase takes effect exceeds the

index figure for the same month in the immediately preceding

year.

. . .

(3) Changes to the General Index

If the General Index ceases to be published, or is so amended as

to invalidate it in the view of the Principal Company as a

continuous basis for purposes of calculating increases, the

Principal Company shall substitute such other index or

appropriate basis of comparison as it shall in consultation with the

Trustees decide.

(4) Meaning of “General Index”

The “General Index” means the General Index of Retail Prices for

all Items in the Digest of Statistics published by the Central

Statistical Office.”

9. The 1993 Consolidating Deed and Rules which included the 1993 Rules was amended

by a deed of 1 May 2002 and was expressly stated to have been “restate[d] as amended

by replacing it with the provisions of these [the 2002] Rules and special editions of

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

these Rules executed on the same day with effect from the date of these Rules.”

Increases in pensions in payment were dealt with in Rule 10.2 of the 2002 Rules and

the wording has remained materially identical in all the further iterations of the Rules.

In BT Pension Scheme Trustees Ltd v British Telecommunications plc & Anr [2010]

PLR 487 at [19] Mann J recorded the unchallenged evidence of the then chairman of

the Trustees, Mr Roderick Kent, that the purpose of the “Rules revision [in 2002] was

consolidation and turning the words into plain English.”

10. The most recent iteration is contained in Rule 10.2 of the 2016 Rules which provides

as follows:

“On each 1 April or such other date as the Trustees with the

agreement of the Principal Company decide each pension in

payment, except for any GMP which is payable and any pension

attributable to additional voluntary contributions, will be

increased by the increase in the cost of living during the 12

months up to and including the previous January (or such other

month as the Trustees with the agreement of the Principal

Company decide) subject to a maximum increase in each year of

5%. The pension may be increased by a higher percentage in

respect of that period if the Trustees and the Principal Company

agree. The cost of living will be measured by the Government’s

published General (All Items) Index of Retail Prices or if this

ceases to be published or becomes inappropriate, such other

measure as the Principal Company, in consultation with the

Trustees, decides.”

Applicable Principles

11. A number of the grounds of appeal are concerned with the proper construction of

various provisions of the Scheme documentation. What are the appropriate principles

to apply when conducting such an exercise? We were referred to the well-known

passage in the judgment of Arden LJ as she then was in British Airways Pension Trustee

Ltd v British Airways plc [2002] PLR 247, [2002] EWCA Civ 672 at [26] – [32] and to

the passage in the judgment of Lewison LJ in Barnardo’s & Ors v Buckinghamshire &

Ors [2016] EWCA Civ 1064, [2017] Pens LR 2 at [8] – [11] where he considered the

appropriate approach for the court to adopt post Arnold v Britton [2015] UKSC 36,

[2015] AC 1619.

12. Since the hearing in this matter, the judgment of the Supreme Court in the Barnardo’s

case has been handed down, the citation of which is [2018] UKSC 55. Lord Hodge with

whom Lady Hale, Lord Wilson, Lord Sumption and Lord Briggs agreed, addressed the

issue of the construction of pensions schemes at [13] – [18] of his judgment. He referred

first to the guidance on the general approach to the construction of contracts and other

instruments provided in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Arnold v

Britton [2015] AC 1619 and Wood v Capita Insurance Services Ltd [2017] AC 1173.

He went on to note that “[I]n deciding which interpretative tools will best assist in

ascertaining the meaning of an instrument, and the weight to be given to each of the

relevant interpretative tools, the court must have regard to the nature and circumstances

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

of the particular instrument”: see [13]. He, then, turned to pension schemes, in

particular, as follows:

“14. A pension scheme, such as the one in issue on this

appeal, has several distinctive characteristics which are relevant

to the court’s selection of the appropriate interpretative tools.

First, it is a formal legal document which has been prepared by

skilled and specialist legal draftsmen. Secondly, unlike many

commercial contracts, it is not the product of commercial

negotiation between parties who may have conflicting interests

and who may conclude their agreement under considerable

pressure of time, leaving loose ends to be sorted out in future.

Thirdly, it is an instrument which is designed to operate in the

long term, defining people’s rights long after the economic and

other circumstances, which existed at the time when it was signed,

may have ceased to exist. Fourthly, the scheme confers important

rights on parties, the members of the pension scheme, who were

not parties to the instrument and who may have joined the scheme

many years after it was initiated. Fifthly, members of a pension

scheme may not have easy access to expert legal advice or be able

readily to ascertain the circumstances which existed when the

scheme was established.

15. Judges have recognised that these characteristics make it

appropriate for the court to give weight to textual analysis, by

concentrating on the words which the draftsman has chosen to use

and by attaching less weight to the background factual matrix than

might be appropriate in certain commercial contracts: Spooner v

British Telecommunications plc [2000] Pens LR 65, Jonathan

Parker J at paras 75-76; BESTrustees v Stuart [2001] Pens LR

283, Neuberger J at para 33; Safeway Ltd v Newton [2018] Pens

LR 2, Lord Briggs, giving the judgment of the Court of Appeal,

at paras 21-23. In Safeway, Lord Briggs stated (para 22):

“the Deed exists primarily for the benefit of non-parties,

that is the employees upon whom pension rights are

conferred whether as members or potential members of

the Scheme, and upon members of their families (for

example in the event of their death). It is therefore a

context which is inherently antipathetic to the

recognition, by way of departure from plain language, of

some common understanding between the principal

employer and the trustee, or common dictionary which

they may have employed, or even some widespread

practice within the pension industry which might

illuminate, or give some strained meaning to, the words

used.”

I agree with that approach. In this context I do not think that the

court is assisted by assertions as to whether or not the pensions

industry in 1991 could have foreseen or did foresee the criticisms

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

of the suitability of the RPI, which later emerged in the public

domain, or then thought that it was or was not likely that the RPI

would be superseded.

16. The emphasis on textual analysis as an interpretative tool

does not derogate from the need both to avoid undue technicality

and to have regard to the practical consequences of any

construction. Such an analysis does not involve literalism but

includes a purposive construction when that is appropriate. As

Millett J stated in In re Courage Group’s Pension Schemes [1987]

1 WLR 495, 505 there are no special rules of construction

applicable to a pension scheme but “its provisions should

wherever possible be construed to give reasonable and practical

effect to the scheme”. Instead, the focus on textual analysis

operates as a constraint on the contribution which background

factual circumstances, which existed at the time when the scheme

was entered into but which would not readily be accessible to its

members as time passed, can make to the construction of the

scheme.

17. It is nevertheless relevant to the construction of pension

schemes that they are drafted to comply with tax rules so as to

preserve the considerable benefits which the United Kingdom’s

tax regime confers on such schemes. They must be construed

“against their fiscal backgrounds”: National Grid Co plc v Mayes

[2001] 1 WLR 864, para 18 per Lord Hoffmann; British Airways

Pension Trustees Ltd v British Airways Plc [2002] Pens LR 247,

Arden LJ at para 30. . . .

18. Finally, a focus on textual analysis in the context of the

deed containing the scheme must not prevent the court from being

alive to the possibility that the draftsman has made a mistake in

the use of language or grammar which can be corrected by

construction, as occurred in Chartbrook Ltd v Persimmon Homes

Ltd [2009] AC 1101, where the court can clearly identify both the

mistake and the nature of the correction.”

In addition, at [28] Lord Hodge reiterated the well-known principle that the Court must

construe a pension scheme “without any preconceptions as to whether a construction

should favour the sponsoring employer or the members: British Airways Pension

Trustees (above), Arden LJ at para 31”.

Proper Construction of 2016 Rule 10.2 and Application of the “Wednesbury” Test

13. With those principles in mind, I turn to one of the central issues of this appeal being the

proper construction of Rule 10.2 of the 2016 Rules. The Judge found that both limbs of

the “gateway” in Rule 10.2 ((i) RPI has ceased to be published and (ii) RPI becomes

inappropriate) are questions of objective fact and that the question of whether RPI has

become inappropriate is a binary one for the Court to answer: see [17], [39] and [90] of

the judgment. At [17] the Judge addressed the express words of Rule 10.2 and, in

particular, the use of the phrase “becomes inappropriate” without express reference to

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

a decision-maker which he contrasted with the final words of the provision which

confer power on BT in consultation with the Trustees to decide on an alternative

measure if RPI has become inappropriate. He also noted that it was common ground

that the first limb of the “gateway”, (RPI has ceased to be published) raises an issue of

objective fact.

14. The Judge addressed the submission that “becomes inappropriate” is an inherently

broad concept which involves a value judgment in relation to which reasonable people

can differ and that such decisions are typically left to the trustee or the principal

employer of a scheme, in part because the potential for having to refer disputes to the

Court is reduced if the hurdle for challenge is one of rationality. He concluded as

follows:

“19. . . . These are powerful points, but in my judgment the

furthest they lead is to the conclusion that it might, or even would,

be better if the 2016 Rule had conferred a power on BT (whether

alone or jointly with the Trustee). The fact that an alternative

solution may have been a better one falls far short of establishing

that the parties to the Rules intended that solution. The breadth of

the concept (becomes inappropriate) does not mean that it is

impossible, or even unsuitable, for it to be determined by the court

in case of disagreement. The court is well used to reaching a

decision on matters that involve value judgments in a number of

different areas.”

15. At [21] the Judge noted the fact that there are numerous other powers of determination

conferred on BT or on BT and the Trustees jointly in other parts of the 2016 Rule and

concluded that the inclusion of those express provisions tended to suggest that where

such a power had been intended it had been expressly included and that by implication

where the power was not conferred by the express language used, it was intended that

the question should be an objective one. He decided that the point had particular force

in relation to the final sentence of Rule 10.2 since it was common ground that as a

matter of language the words conferring a power on BT to decide (in consultation with

the Trustees) relate solely to the second limb of the sentence, in other words, the choice

of measure once the gateway has been satisfied or successfully navigated.

16. The Judge rejected Mr Spink QC’s submission on behalf of BT that Rule 10.2 is all

about finding a replacement index where the default index has become inappropriate

and since the second half of the exercise involves a determination by BT so should the

first, on the basis that although it might have been better to do so, “there is no

inconsistency between BT having a choice as to what measure to turn to but only if, as

a matter of objective fact, RPI had either ceased to exist or become inappropriate”. See

[22].

17. Further, the Judge was not assisted by the terms of Rule 25 of the 1993 Rules. At [24]

he concluded that: “. . . to the extent it is permissible to look to the 1993 Rule, the fact

that it expressly conferred a power on BT to make a decision in relation to the gateway

for departing from RPI as the measure of indexation tends to suggest that the absence

of an equivalent express power in the 2016 Rule indicated a deliberate change in

approach.” Lastly, the Judge considered what Mr Spink had described as the

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

unsatisfactory consequences and, in particular, the delay in the implementation of any

change in index which would flow if “becomes inappropriate” is a matter of objective

fact for the Court to decide. He concluded at [25]:

“. . . In my judgment, these potential consequences do not

outweigh the construction reached on the basis of the ordinary

meaning of the language. In reality, whether the determination is

an objective or a subjective one, nothing will happen unless and

until BT makes a decision. The essential difference between the

two alternatives, therefore, lies in the circumstances in which that

decision can be challenged. If the determination is an objective

one, then the decision can be challenged if the court itself

concludes, on the balance of probabilities, that RPI has become

inappropriate. If the determination is a subjective one, then BT

remains throughout the decision-maker, and its decision can only

be challenged if the court concludes that BT’s decision failed the

test of rationality and good faith. The potential for delay exists in

either case.”

18. BT contends that having taken proper account of the relevant factors, the Judge ought

to have found that on the proper construction of Rule 10.2 of the 2016 Rules, the

question of whether RPI has become inappropriate is for BT to assess in consultation with

the Trustees. It is submitted that the exercise of the power is subject to the “Imperial” duty of

good faith and that there is no single right answer but that the question of whether RPI has

become inappropriate is a matter of evaluation, in relation to which there is a range of

reasonable opinions. Accordingly, it is said that BT’s assessment can be challenged

only on the grounds that it was “Wednesbury” unreasonable and that the conclusion

holds good whether the question of whether RPI has become inappropriate is treated as

a subjective matter of opinion for BT or as an objective question of fact, because the

pre-condition itself is so imprecise and evaluative.

Conclusion:

19. I approach the construction of Rule 10.2 with all of Lord Hodge’s guidance in the

Barnardo’s case in mind and give due weight to textual analysis by concentrating on

the words that the draftsman chose to use. The first sentence of Rule 10.2 contains the

mechanism by which pensions in payment are to be increased and contains express

provision for the Trustees with the agreement of BT to decide upon a different date

from 1 April from which annual increases are to take effect and to substitute a different

month other than January for the start of the 12-month period over which the increase

in the cost of living is to be measured, subject to a cap of 5%. The second sentence also

states in express terms, that pensions may be increased by a higher percentage if the

Trustees and BT agree. The manner in which the cost of living is to be measured is then

addressed in the final sentence which I will set out again for convenience. It is as

follows:

“The cost of living will be measured by the Government’s

published General (All Items) Index of Retail Prices or if this

ceases to be published or becomes inappropriate, such other

measure as the Principal Company, in consultation with the

Trustees, decides.”

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

20. The clause as a whole allows for the increase in pensions in payment by the increase in

the cost of living in the previous 12 months, subject to a 5% cap which is itself subject

to the ability of BT and the Trustees to agree a higher rate of increase. It seems clear,

therefore, that its purpose is to protect pensions in payment from inflation, subject to

the cap and the potential for a more generous uplift. The rule provides that the cost of

living is to be measured by RPI unless either of the eventualities set out in the last

sentence occurs, in which case RPI will be replaced by another “measure”. It goes

without saying that that substituted “measure” would have to be suitable for the

purposes of Rule 10.2 as a whole, namely, the increase of pensions in payment for

Section C members of the Scheme.

21. It seems to me that as a matter of textual analysis of Rule 10.2 and the third sentence

in particular, the existence of either of the circumstances in the first part of the third

sentence of Rule 10.2 is a condition precedent to the replacement of RPI. There is no

express reference to BT, or the Trustees for that matter, in the first part of the sentence,

in relation to what have been termed the “gateways” or the “triggers” for substitution.

As the Judge noted, this is to be contrasted both with the express references to BT and

the Trustees in the earlier sentences of the Rule and in the final part of the third

sentence. It seems to me that the Judge was right to note that the draftsman made

express reference to the person or body intended to make a decision where necessary,

and to infer from the lack of such a reference in the first part of the third sentence that,

on the face of the language, the determination of whether RPI was no longer published

or had become inappropriate was not for BT to determine, with or without consulting

the Trustees.

22. It also seems to me that, as the Judge found, the lack of such an express reference to

BT in the first part of the third sentence cannot be made good by seeking to read the

whole of the sentence together, as Miss Rose QC on behalf of BT suggested. She

submitted that the task of determining what “other measure” should replace RPI is

inextricably linked with and very similar to the decision as to whether RPI has

“become[s] inappropriate” and that BT’s duty to decide on a substitute (in consultation

with the Trustees) is naturally triggered by its judgment that RPI has become

inappropriate. She submitted, therefore, that there is but a single process and that one

cannot decide the first question, namely, whether RPI has become inappropriate,

without also determining the second. Lord Pannick QC, on behalf of Ms Bruce-Watt,

accepted quite rightly that the existence of an alternative appropriate measure of the

cost of living for the purposes of the Rule is a relevant factor when determining whether

RPI has become inappropriate. However, I agree with him that the point is neutral and

takes the matter no further forward. The existence of such a substitute is relevant to the

determination of the preceding issue whether or not it is for BT to decide the question.

It does not lead inevitably to the conclusion that it is for BT to determine whether the

gateway requirement is satisfied.

23. In any event, as I have already mentioned, it seems to me that that is not a natural and

ordinary meaning of the words which the parties used. The need to replace RPI as the

index to be used to measure the cost of living for the purposes of the increase of

pensions in payment arises either if RPI ceases to be published or if it “becomes

inappropriate”. As a matter of ordinary language, read in the context of the rule as a

whole and taking into account its purpose, it seems to me that the gateways are

expressed as conditions precedent to the exercise of the obligation to select a substitute

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

“measure”. Although the majority of the submissions made to us were on the basis that

the last sentence of Rule 10.2 contains a power to determine whether RPI has become

inappropriate and that the task is to determine the person or body in whom the power

is vested, it seems to me that the natural meaning of the words does not lead to such a

conclusion at all. The language used is not in terms of a power. It is in terms of

conditions precedent or gateways to the substitution of a new measure.

24. Both gateways are states of affairs. The first is obviously readily ascertainable and to

use the Judge’s terminology, is an objective fact. The existence or fulfilment of the

second, however, is more difficult to determine. Miss Rose submits that it is a matter

of evaluative judgment which is susceptible to a range of reasonable opinions which it

is appropriate for BT to decide, and can only be challenged on “Wednesbury” grounds

if BT’s opinion is outside the reasonable range. Although I agree that the existence of

the state of affairs in relation to the second gateway must inevitably be determined as

a result of an evaluative process, it seems to me that in the end, RPI is either appropriate

or it has become inappropriate. As the Judge stated, the question is binary.

25. Furthermore, the Judge was right to record at [16] of his judgment that in practice, in

default of agreement by BT and the Trustees as to whether the second and alternative

condition or gateway has been satisfied, the matter would fall to be decided by the

Court which, as the Judge noted at [19] of his judgment, is well able to reach a decision

by means of an evaluative process. This is not the same as construing the provision to

mean that BT, BT and the Trustees or the Court has a “power” to decide the question

of whether RPI has become inappropriate. It is merely the practical outworking and

consequence of the provision itself, given its natural and ordinary meaning. The use of

the term “agreement” is misleading, perhaps. If it is clear that RPI has become

inappropriate, BT and the Trustees will not dispute the point. If a dispute arises, the

issue will be decided by the Court.

26. This is relevant to Miss Rose’s submission that given the evaluative nature of the

decision-making process and the requirement that BT choose a substitute measure for

the cost of living, having consulted the Trustees, the practical effects of a construction

which do not place the decision-making power in the hands of BT would cause

difficulties and delay and that such consequences militate against the construction

being correct in the first place. In this regard, I agree with Lord Pannick that the

perceived practical difficulties are a neutral factor or to put it as the Judge did at [25],

the potential for delay exists whether the determination to be made is objective or

subjective. It is true that whether the condition precedent is satisfied is highly fact

sensitive. That is in the nature of the condition itself. Equally, it is true that if BT and

the Trustees do not both consider that it is established that RPI has become

inappropriate and, accordingly, that the condition precedent to choosing another

measure has been satisfied, as I have already mentioned, it would be necessary to seek

the directions and determination of the issue by the Court. Such a step would not cause

any difficulty or uncertainty in relation to the choice of another “measure” because the

obligation to do so cannot arise until it is clear that the condition precedent has been

satisfied and BT will either be aware of the reasons for RPI having become

inappropriate, because they are patently obvious and a matter of agreement between it

and the Trustees, or the Court will have made its reasoning clear.

27. It is equally true that even if BT and the Trustees were ad idem, the Trustees might seek

the directions of the Court, nevertheless, in an abundance of caution. Furthermore, it

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

would be open to any member of the Scheme and, in particular, a Section C Member,

to challenge BT and the Trustees’ conclusion that the condition had been satisfied. That

would be the case even if BT were entitled to decide the issue as a matter of its own

opinion (with or without consulting the Trustees). Although the basis for such a

challenge would be different and, in practice, BT’s decision might be more difficult to

overturn, it would remain subject to potential challenge nevertheless. It seems to me

therefore, that the practical difficulties do not take the matter any further.

28. The argument that a term should be implied into Rule 10.2 was not pursued before us.

However, Miss Rose introduced a new argument which was not addressed to the Judge.

She sought to draw, by analogy, on public law principles and submitted that the

circumstances arising under Rule 10.2 are analogous to those in R (A) v Croydon

London Borough Council (Secretary of State for the Home Department and another

intervening) R (M) v Lambeth London Borough Council (Secretary of State for the

Home Department and another intervening) [2009] 1 WLR 2557 [2009] UKSC 8. She

says that where the trigger for a duty or obligation is a matter of evaluation, it is a matter

for the decision-maker rather than the Court.

29. The cases were concerned with whether on a proper construction of section 20(1)

Children Act 1989 it was for the Court or the local authority to determine whether a

person is a “child” in the light of the local authority’s obligation to provide

accommodation for “any child in need within their area who appears to them to require

accommodation . . .” as a result of specific circumstances set out in the sub-section. As

a matter of statutory construction, Baroness Hale, with whom Lords Neuberger, Scott

and Walker agreed, decided that although the Court was capable of determining

whether any individual is or was a “child”, whether that person was a “child in need”

for the purposes of section 20(1) was for the local authority to determine. Baroness

Hale dealt with the matter in the following way:

“24. . . . We are deciding where Parliament intended that the

lines be drawn under the Children Act 1989. The task in all these

cases is to decide what Parliament intended. In the Shah case, it

was common ground between the parties on all sides that it was

for the local education authority to decide the facts. No one

mounted an argument such as has been mounted in this case. We

do not need to decide how it would have fared in 1983, any more

than we need to speculate upon how it might be decided now. In

the Puhlhofer case [1986] AC 484 the statutory duty to provide

accommodation for the homeless was clearly expressed in terms

that the local authority was satisfied that the criteria existed, as

indeed is its successor today. Lord Brightman emphasised, at p

518, that the 1977 Act ‘abounds with the formula when, or if the

housing authority are satisfied as to this, or that, or have reason to

believe this, or that’ in support of his conclusion that ‘Parliament

intended the local authority to be the judge of fact’.

…

26. . . .The 1989 Act draws a clear and sensible distinction

between different kinds of question. The question whether a child

is ‘in need’ requires a number of different value judgments. What

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

would be a reasonable standard of health or development for this

particular child? How likely is he to achieve it? What services

might bring that standard up to a reasonable level? What amounts

to a significant impairment of health or development? How likely

is that? What services might avoid it? Questions like this are

sometimes decided by the courts in the course of care or other

proceedings under the Act. Courts are quite used to deciding

them upon the evidence for the purpose of deciding what order, if

any, to make. But where the issue is not, what order should the

court make, but what service should the local authority provide,

it is entirely reasonable to assume that Parliament intended such

evaluative questions to be determined by the public authority,

subject to the control of the courts on the ordinary principles of

judicial review. Within the limits of fair process and

‘Wednesbury reasonableness’ there are no clear cut right or wrong

answers.

27. But the question whether a person is a ‘child’ is a

different kind of question. There is a right or a wrong answer. It

may be difficult to determine what that answer is. The decision-

makers may have to do their best on the basis of less than perfect

or conclusive evidence. But that is true of many questions of fact

which regularly come before the courts. That does not prevent

them from being questions for the courts rather than for other

kinds of decision-makers.

28. The arguments advanced by Mr Béar might have to

provide an answer in cases where Parliament has not made its

intentions plain. But in this case it appears to me that Parliament

has done just that. In section 20(1) a clear distinction is drawn

between the question whether there is a ‘child in need within their

area’ and the question whether it appears to the local authority

that the child requires accommodation for one of the listed

reasons. In section 17(10) a clear distinction is drawn between

whether the person is a ‘child’ and whether that child is to be

‘taken to be’ in need within the meaning of the Act. ‘Taken to

be’ imports an element of judgment, even an element of deeming

in the case of a disabled child, which Parliament may well have

intended to be left to the local authority rather than the courts.”

30. I gain very little assistance from the Croydon and Lambeth cases. As Lord Pannick

pointed out, the Supreme Court was concerned with a question of statutory

interpretation of a particular provision. Baroness Hale’s conclusion was not that

evaluative judgments are not for the Court to make. She was seeking to determine what

Parliament had intended by the statutory provisions in question. Further, it seems to me

that there is no general analogy to be drawn. The natural and ordinary meaning of the

words in the second gateway in the first part of the final sentence of Rule 10.2 do not

create a dichotomy between a matter of objective fact and a matter of judgment, both

of which must be determined. They create a single gateway which must be satisfied in

order to trigger the substitution obligation. There is no competition as to which of BT

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

and the Court should make the decision as to whether the gateway condition has been

satisfied. It requires the exercise of an evaluative judgment in order to determine

whether it has been fulfilled. It is only if BT and the Trustees do not consider the

position to be clear that, as a last resort, it is for the Court to determine whether the

condition has been satisfied.

31. Lastly, Rule 25 of the 1993 Rules is prayed in aid. It is said that there is no warrant for

the Judge’s conclusion at [24] of his judgment that there was a deliberate change of

approach in 2002. On the contrary, Miss Rose submits that Rule 10.2 should be

construed as having the same effect as its forebear in Rule 25 of the 1993 Rules.

32. Before considering the terms of the 1993 Rule, it is important to bear in mind that both

Robert Walker J (as he then was) in National Grid Co plc v Laws & Ors [1997] PLR

157 at [73] and more recently, Lewison LJ in the Barnardo’s case, made clear that

pension scheme archaeology is unlikely to be of much assistance. This is as a result of

the fourth distinctive characteristic to which Lord Hodge referred at [14] of his

judgment in the Barnardo’s case, namely that members of a scheme are not parties to

the instrument which confers significant rights upon them and may have joined the

scheme many years after it was initiated. In such circumstances, background facts have

a very limited role to play in the task of interpretation.

33. In any event, I agree with the Judge that to the extent that anything can be gleaned from

Rule 25 of the 1993 Rules, it militates against BT’s construction. It seems to me quite

clear that there was a substantial change in the wording of the rule in 2002 when Rule

10.2 was first introduced. In Rule 25 the conditions precedent to a substitution of RPI

are either that the index has ceased to be published or that it is “so amended as to

invalidate it in the view of the Principal Company as a continuous basis for purposes

of calculating increases . . .” Not only is the second condition precedent expressed in

subjective form being dependent upon the “view” of BT alone, the view is as to whether

the index is “so amended as to invalidate it . . . as a continuous basis for the purposes

of calculating increases . . . ”. As the Judge noted at [24] of his judgment, the differences

in the language used in the 1993 and the 2016 Rules reveal a change. The change is as

to the entirety of the test. In the 1993 Rules, it was for BT to form its own view of the

relevant matters. The wording of Rule 10.2 is significantly different. I do not

understand the Judge’s reference to a “deliberate change in approach” to have any more

significance than that. There is no evidence as to the reasons behind the change in the

wording of the provision and in any event subjective intention would not be relevant.

34. Further, the wording of Rule 25 itself is of no real assistance to Ms Rose. Rule 25

provides for the decision to be made by BT alone. However, if Rule 10.2 is to be

construed in the way Miss Rose submitted in oral submissions that it ought to be, the

decision would not be that of BT alone (as in Rule 25) but that of BT in consultation

with the Trustees.

35. The evidence recorded by Mann J in BT Pension Scheme Trustees Ltd v British

Telecommunications plc & Anr (supra) does not assist Miss Rose either. The 2002

Rules in which Rule 10.2 first appeared may well have been intended as a plain English

“re-write” as Mann J recorded and may well have been so. To the extent that the

evidence is a record of subjective intention, it is inadmissible as an aid to construction.

To the extent that it can be characterised as a circumstance known to or assumed by the

parties at the time the rule was drafted, it should be given little weight. As Lord Hodge

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

explained at [16] of his judgment in the Barnardo’s case “the focus on textual analysis

operates as a constraint on the contribution which background factual circumstances,

which existed at the time when the scheme was entered into but which would not readily

be accessible to its members as time passed, can make to the construction of the

scheme.” In any event, in the light of the substantive differences between Rule 25 and

Rule 10.2, such a statement takes the matter no further. Although it appears that the

general intention was to use plain English in the 2016 version of the Rules, Rule 10.2

contains substantive changes which cannot be explained merely by clarity of

expression.

36. The same is true of the “comfort letters” to which we were referred. BT submit that the

Judge was wrong not to give them more weight. As the Judge recorded at [23] of his

judgment, the letters, dated 9 January 2000 and 18 February 2002 respectively, were

written by BT to the then secretary of the Trustees. They included the statement that:

“I confirm that in the event of any unforeseen problems, e.g., ambiguities arising in the

interpretation of the re-written BTPS Rules, reference will be made to the pre-existing

Trust Deed and Rules with a view to resolving such problems.” It seems to me that

they are a good example of the kind of common understanding between principal

employer and trustee to which Lord Briggs referred in the Court of Appeal in the

Safeway case and to which Lord Hodge referred in Barnardo’s at [15] and accordingly,

should not cause one to depart from the ordinary and natural meaning of the plain

language used. In any event, it seems to me that the statement is of no assistance to BT

in circumstances such as these, where Rule 10.2 has a significantly different structure

and content from its predecessor.

37. It seems to me, therefore, that the Judge was right about the proper construction of Rule

10.2. Whether RPI has become inappropriate is an objective state of affairs which, if it

exists, triggers the obligation to choose another measure of the cost of living. Whether

the state of affairs exists is inevitably fact sensitive and a matter of evaluative judgment

and if there is any dispute, will have to be determined by the Court.

Is the “Clock Re-set” in 2016?

38. Mr Furness QC, on behalf of Ms Bruce-Watt, submits that the execution of the Deed

of Amendment dated 5 April 2016 (the “Deed of Amendment”) by which the 2016

Rules were brought into effect had the effect of “re-setting the clock” for the purposes

of the appropriateness of RPI and that the Judge was wrong to construe the Deed of

Amendment solely as an amending deed as he did at [35] of his judgment. Mr Furness

says that by executing that deed, BT and the Trustees were agreeing that RPI was

appropriate as at that date because Rule 10.2 was contained in the new 2016 Rules and

is forward-looking. Accordingly, the reasonable reader would conclude that RPI was

agreed to have been appropriate as at the date of the Deed of Amendment itself. I have

turned to this issue now because if, in fact, the clock is re-set as at 5 April 2016, there

is no need to consider the significance of at least some of the various events relied upon

by BT to show that RPI has “become inappropriate” which were dealt with at length by

the expert witnesses and the Judge and were also the subject of lengthy submissions

before us.

39. The following provisions of the Deed of Amendment are relevant:

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

“3. The Scheme is governed by Rules dated 20 March 2009

as amended from time to time.

. . .

5. The power to amend the Rules is contained in Rule 37

(Changing the Rules) of the main edition of the Rules which

states that except as prohibited by the Pensions Act 1995 and

subject to the British Telecommunications Act 1981, the

Principal Company and the Trustees may together by deed

change the provisions of any or all of the Rules from time to time

in force (and may do so retrospectively) subject to certain

exceptions. This Power is a reiteration of the power of

amendment contained in the Trust Deed and Rules dated 2 March

1983 which established the Scheme and is capable of amending

any provision of the Scheme effective on or after that date. All

the amendments included in this deed are permitted under this

amendment power.

6. In exercise of [the Scheme’s] amendment power, the

Principal Company and the Trustees amend the current Rules as

set out in the Operative part below.

. . .

Operative part

. . .

11. The Special Edition of the Section C Rules dated 20

March 2009, as amended, are replaced with the rules set out in

Schedule C and, without prejudice to the generality of the

foregoing, are amended so that:-

11.1 the words or other text that are shown as crossed out in

Schedule C are omitted; and

11.2 the words or other text that are shown as underlined in

Schedule C are inserted.

. . .

12. Except as set out in: …

. . .

the amendments in Schedule A, B and C take effect on and from

6 April 2016.

. . .

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

17. Clean copies of the amended Section A Rules, Section B

Rules and Section C Rules are respectively appended to this deed

at Schedules D, E and F.

. . .

Schedule F

Section C Rules (Clean)

. . .

Main Edition of the Rules including provisions applicable to

Section C Members . . .

. . .”

40. The Judge’s conclusion was as follows:

“34. In my judgment, BT’s interpretation is to be preferred. It

is clear, in particular from the terms of clause 6, that the operative

part of the deed was concerned with amending the 2009 Rules.

This is reinforced by rule 12.2 which causes the amendments in

the Schedules to take effect from 6 April 2016. There is no

equivalent provision which causes those parts of the 2009 Rules

which have not been amended to come into effect on any

particular date. Nor is there anything purporting to restate the

prior rules.

35. . . . I consider that the reasonable recipient of the

amending deed would assume that the drafter's intention was

limited to amending the existing Rules and, in particular, that the

drafter did not intend to alter in any way those provisions of the

existing Rules, including Rule 10.2, that had not been identified

in Schedule C as being amended.

36. The second Defendant's argument, however, would

mean that the drafter had made a substantive alteration to the

terms of Rule 10.2: whereas, on 4 April 2016 it had meant

"becomes inappropriate [after the date the relevant prior rules

came into force]", on 5 April 2016 it now meant "becomes

inappropriate [after 5 April 2016]". . . I consider that the

reasonable recipient of the document would consider that the

"replacement" of the prior rules by the 2016 Rules was intended

to be no more than a convenient way of setting out the now

amended rules (in contrast to the more cumbersome mechanic of

setting out either the amendments to be made, or the amended

provisions, but no more, in a schedule).”

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

41. Mr Furness, for Ms Bruce-Watt, places reliance on the use of the words “are replaced

with the rules set out in Schedule C” in clause 11. He submits that “replaced” means

what it says. The new rules replaced the old and the inclusion of Rule 10.2 containing

the phrase “becomes inappropriate”, which is a forward-looking provision, amounts to

an affirmation that RPI was not “inappropriate” as at the date of the Deed of

Amendment, being 5 April 2016. Mr Furness submits that Rule 10.2 is a temporal

provision and accordingly, it is not necessary to amend it in order to change its effect.

It is necessary only to execute a new deed. He says that such a construction is supported

by the use of the phrase “without prejudice to the generality of the foregoing, are

amended . . .” which also appears in clause 11. He submits that if one reads clause 11

as a whole, specific amendments are made to the Rules without prejudice to the

generality of that wholesale replacement. While he acknowledges that only the

amendments are stated to take effect from 6 April 2016 (see clause 12) he submits that

the replacement of the remainder of the rules – i.e. all of the un-amended rules - takes

effect from the date of the deed itself, 5 April 2016.

42. In support of his construction, Mr Furness points out that it would have been possible

to amend the Rules in order to change the applicable index altogether but that the parties

to the Deed of Amendment did not do so. Furthermore, he says that the Judge’s answer

to what was Issue 8, which is not appealed, reinforces the conclusion that the 2016

Rules re-set the clock for the purposes of when RPI can become inappropriate. Issue 8

was concerned with which rule in relation to increases in pensions in payment applied

to pre-2002 leavers. Having considered various transitional provisions, the Judge held

that it was the 2016 Rule rather than its predecessor, Rule 25 of the 1993 Rules. See

the judgment at [80] – [85].

Conclusion:

43. I agree with Mr Spink on behalf of BT that the Judge was correct in his conclusions on

this matter. It seems to me that the reasonable reader of the Deed of Amendment (which

is how it is described on its title page) knowing all of the relevant background, and

having considered the provisions which I have set out, including in particular, clauses

6, 11 and 12, and the schedules containing the amended versions of the Rules in tracked

change form and the clean copies in schedules D, E and F, (the Section C Rules

appearing in Schedule F) would conclude that the intention was to amend the Rules as

from 6 April 2016 in the manner set out as a result of the tracked changes. If clause 11

is read in the context of clauses 6 and 12 and the Deed of Amendment as a whole,

“replace” in clause 11 should, as the Judge put it, be interpreted as no more than a

convenient way of setting out the rules in their new and partially amended form.

44. I come to this conclusion despite the fact that it renders the phrase “without prejudice

to the generality of the foregoing” in clause 11 redundant. It seems to me that such a

consequence is outweighed by the context to which I have referred and in particular,

by the fact that clause 12 provides for the amendments to take effect from 6 April 2016.

In contrast there is no express reference to the date from which what might be termed

“re-affirmed rules” are to take effect. As a matter of practicality, that would be the date

of the Deed of Amendment itself, being 5 April 2016. I agree with Mr Spink that this

is a strong indicator that the Deed of Amendment was not intended both as a deed of

amendment and as a deed of re-affirmation of rules which had not been changed.

Furthermore, as the Judge points out at [36] of his judgment, Mr Furness’ argument

requires one to read the final sentence of Rule 10.2 as if it had been amended to include

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

the phrase “becomes inappropriate after 5 April 2016. . .” These are all indicators in

favour of the Judge’s construction, with which I agree.

Meaning of “becomes inappropriate”. Did the Judge err in holding that matters can be

taken into account if they occurred before 1 May 2002 as long as they were unknown to

BT and the Trustees at that date?

45. BT contends that the Judge erred in law in holding at [30] of his judgment that matters

may be taken into account when determining whether RPI “becomes inappropriate”

whether or not they occurred before 1 May 2002 when Rule 10.2 was first introduced,

as long as they were unknown to BT and the Trustees as at that date. The Judge

considered what he viewed as the “logically prior point namely whether the 2016 Rule

precludes a switch being made from RPI if it had already become inappropriate as at 1

May 2002, upon the adoption of the 2002 Rules, when the language which became the

2002 Rule was first incorporated . . .”. Before turning to [30] of the judgment, it is

important to note that it was accepted that it was possible that RPI could become

inappropriate as a result of a combination of events over time, some of which occurred

before 2016, as long as an event occurred after that date which was the “tipping point”.

One might term this the “snowball effect”.

46. The relevant part of [30] is as follows:

“30. . .

(4) Even if construing the rule as being forward-looking had the

potential for damaging the interests of members, I do not agree

that this would provide a sufficient basis for construing it

otherwise. Mr Spink relied in this respect on the possibility that

events had occurred which, unbeknown to BT or the Trustee

caused RPI to have already become inappropriate at the time that

the 2002 Rule came into effect. In my judgment, if that had

occurred (and no-one suggests it in fact did occur) then it would

not preclude a switch from RPI being made. That is because a

reasonable recipient of the Rules would make the assumption that

neither BT nor the Trustee was aware, at the time the Rules came

into effect, that RPI had already become inappropriate. Absent

that assumption, the rule could not have achieved its purpose, of

ensuring that members' pensions were increased by reference to

an appropriate index. Accordingly, "becomes" inappropriate is to

be construed as encompassing matters, whether or not they

occurred before 1 May 2002, provided they were unknown to BT

and the Trustee as at that date.”

47. During oral submissions before us, Mr Spink accepted that the use of the phrase

“becomes inappropriate” in Rule 10.2 in May 2002 was forward looking. Further, BT

is not, in fact, relying on events which occurred before May 2002 in order to support

its contention that RPI has become inappropriate, nor is it suggesting that RPI was

inappropriate as at 1 May 2002. Furthermore, it is accepted on Ms Bruce-Watt’s behalf

that the Judge’s reliance upon the actual knowledge of BT and the Trustees of matters

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

which occurred before 1 May 2002 is misplaced. It seems therefore, that there is very

little left in this ground of appeal.

Conclusion:

48. For the avoidance of doubt, it seems to me quite clear from the natural and ordinary

meaning of the language used in Rule 10.2 in May 2002, that “becomes inappropriate”

is forward-looking from that date. There is no need to consider the subjective intention

of the parties and, in any event, it would be impermissible to do so. As it was put in the

written submissions on behalf of Ms Bruce-Watt, the meaning of a document does not

depend on whether the parties consciously determined that the words they used should

have one meaning rather than another. Their knowledge of events is only relevant to

the extent that such events form part of the background factual matrix. Furthermore, it

is irrelevant whether the tacit assumption underlying the use of “becomes

inappropriate” (that RPI was appropriate at the time) was entirely unconscious or not.

It is also irrelevant whether the parties considered that they had no choice other than to

adopt RPI in 2002 as a result of section 51 Pensions Act 1995, as BT submits. It is

equally irrelevant whether RPI was inappropriate as at that date. It is a matter of

objective interpretation of the words chosen by the parties and used in their context. I

agree with BT, therefore, that the actual knowledge of the parties as to events before

May 2002 is irrelevant and that the Judge’s reasoning at [30(4)] was wrong.

Was the Judge wrong to conclude that none of the “clothing change”, the “freeze” or “de-

designation” when viewed in isolation or cumulatively have caused RPI to become

inappropriate?

“becomes inappropriate”

49. The effect of the “clothing change”, the “freeze” and “de-designation” upon RPI (each

of which are described below) and whether in isolation or together, they rendered it

inappropriate, took up a large part of the time on the appeal and are dealt with at length

and in detail in the judgment. Before turning to those matters the Judge considered the

meaning of “becomes inappropriate” for the purposes of Rule 10.2 at [86] – [98] of his

judgment. I will set out his findings here, both as to the meaning of “becomes

inappropriate” and as to the usefulness of the expert evidence in order to place the

Judge’s conclusions and the submissions made to us in relation to each of the events

relied upon in context.

50. The Judge concluded that “it is not enough that it would be better to use another index,

or that another index has become more appropriate, or that RPI is merely undesirable”,

that the “hurdle is therefore a high one”, that the “concept of appropriateness does not

exist in a vacuum, but relates to some other thing or purpose” which in this case was

the purposes for which Rule 10.2 exists being the calculation of increases in pensions

in payment “so as to reflect increases in the cost of living of pensioners receiving

benefits under the Scheme”. See [86], [87] and [88].

51. As I have already mentioned, he also decided that the question of whether RPI had

become inappropriate was for the Court, and went on to conclude that the fact that a

respectable body of opinion believes it to be appropriate to use the index was a factor

to be weighed in the balance but was not determinative and to record that it was

common ground that “becomes” inappropriate denotes a change in appropriateness:

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

[90] and [92] of the judgment. He also accepted that: “[I]t may be sufficient, to

demonstrate that RPI had "become" inappropriate, that there had been a wholesale loss

of confidence in it as an accurate measure of inflation and its widespread

discontinuance” but concluded that the point was likely to be theoretical, “since it is

unlikely that there would be such consequences without RPI also being de-designated

as a National Statistic, which the second Defendant accepts is the sort of indirect change

which could cause the gateway to be passed through.” See [96] of the judgment.

The experts and the nature of their evidence

52. The Judge heard evidence from two eminent experts in the fields of economics and

statistics in relation to the appropriateness of RPI. Each had produced a lengthy report

and both had agreed a joint statement. He also heard both experts cross-examined. Mr

Paul Johnson, who was called on behalf of BT, is director of the Institute for Fiscal

Studies and was formerly director and chief micro-economist at HM Treasury and

deputy head of the Government Economic Service. In May 2013, he was asked by the

chairman of the United Kingdom Statistics Authority (“UKSA”) to carry out a review

of the UK price indices. He published a far-reaching report in January 2015. Mr Simon

Briscoe who was called on behalf of Ms Bruce-Watt, sits on the Council of the Royal

Statistical Society ("RSS"), has worked in the civil service and investment banking,

was statistics editor of the Financial Times over a three-decade career as a statistician

and economist, and has written several books on economic statistics.

53. The Judge recorded that the experts had provided him with “a wide-ranging review of

the history, and respective merits, of RPI and its main rival, the consumer prices index

(“CPI”)” which subject to important qualifications, he found of considerable assistance

in two respects:

“102. First, in providing a comprehensive picture of how price

indices are compiled, the various purposes for which they are

produced, and of the advantages and disadvantages of RPI in that

context. An understanding of these issues is critical, since the

ultimate question to be decided is whether – having regard to the

purpose for which reference to an inflation index is necessary

under the 2016 Rule and the package of merits/disadvantages of

RPI – RPI has become inappropriate for that purpose.

103. Second, in identifying the materials relied on by either

side as relevant to the ultimate issue, including materials

emanating from statutory bodies such as the UKSA and the Office

of National Statistics ("ONS") and papers from other respected

commentators in the field.

104. In both respects, there was much common ground

between the experts, particularly relating to the history of RPI and

CPI, and the differences between them.”

He also noted, however, that much of the expert evidence was focussed on the question

of the appropriateness of RPI generally rather than whether it had become inappropriate

for the purposes of Rule 10.2.

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

The Judge’s Treatment of the “clothing change”, the “freeze” and “de-designation”

54. The Judge’s unchallenged explanation of what has been referred to as the “clothing

change” is at [117] of his judgment:

“The clothing change – 2010

117. In 2010, as part of the numerous routine changes made

to both CPI and RPI from year to year, the ONS implemented

what were intended to be improvements in the collection and use

of clothing prices. As explained by Mr Johnson (and agreed by

Mr Briscoe), in collecting and comparing prices, a definition is

needed for what counts as the same good one month to the next.

If a price collector cannot find the same item in a shop this month

as they found last month, then a new item is selected and the new

index starts. Because of frequent changes in styles and fashions a

large fraction of clothing items were classed as not comparable

between one month and the next. The change implemented in

2010 consisted of guidance so as to allow more direct month-to-

month comparisons to be made. In other words more items of

clothing were henceforth to be considered comparable to one

another.”

He went on to describe its effect at [118]:

“. . . Between 2001 and 2009 clothing and footwear prices in the

CPI fell by 5.3% on average, and by 2.5% on average in the RPI.

In 2011 they rose by 2.3% in the CPI and by 11.5% in the RPI.

More importantly, for present purposes, the clothing change

resulted in an increase in the formula effect of between 0.4% and

0.5%. Since 2010 the formula effect has resulted in RPI being on

average between 0.9% and 1% higher than CPI.”

The Judge then set out the evidence in relation to RPI in chronological order, from [128]

- [190] of his judgment. At [144] he referred to the report published by UKSA under

the provisions of the Statistics and Registration Service Act 2007 containing the UKSA

assessment of compliance with the Code of Practice for Official Statistics which,

amongst other things, covered RPI. He noted the Office of National Statistics’

recommendation to “effectively freeze” the formula used in RPI at [146] and recorded

at [147] that:

“As a consequence of failing to meet the requirements of the code,

paragraph 1.2.3 of the document stated that the UKSA "has

cancelled the designation of RPI, including the sub-indices and

variants listed in section 1.1.2, as National Statistics".

55. Having set out the remainder of the evidence relied upon at [148] – [190], the Judge

addressed the clothing change, the freeze and the de-designation of RPI, amongst other

things, in isolation before addressing the question of whether by reference to all of the

matters cumulatively, RPI had become inappropriate within the meaning of Rule 10.2

of the 2016 Rules.

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

56. He addressed the clothing change first, in isolation at [193]. As Mr Spink criticises the

Judge’s reasoning, I will set out the paragraph in full:

“The clothing change undoubtedly had a significant impact on the

formula effect, and is an important factor to take into account

when considering the cumulative effect of the seven matters

relied on by BT. In itself, however, I do not regard it as having

caused RPI to become inappropriate, for two main reasons. The

first relates to the broader points I make below in connection with

the cumulative effect of the matters relied on, namely that the

formula effect, and the 'upward bias' had been known factors in

RPI in 2002. RPI was not inappropriate for the purposes of the

2016 Rule before the clothing change, and the only impact of the

clothing change was to increase, in percentage terms, the formula

effect. This is an instance where, in my judgment, it is relevant to

consider the impact on the protection for pensioners if RPI was

replaced by any other index. In particular, given that any other

index would remove not only that part of the upward bias

introduced by the clothing change, but the whole of the upward

bias (already running at an average of 0.5%) which had always

been present, that would deprive the pensioners of an important

element of protection which opting for the index with in-built

upward bias gave them. The second reason is that RPI remained

a National Statistic, and continued to have widespread support (as

shown by the responses to the consultation in 2012) for some time

after 2010.”

The Judge considered the “freeze” of RPI in isolation at [194] – [198] as follows:

“The 'freeze' of RPI

194. The initial 'freeze' in RPI occurred with the

announcement of the National Statistician in January 2013. It was

far from a complete freeze, however, since it envisaged that

changes would continue to be made to RPI relating "…to issues

such as the annual update of the basket and weights,

improvements to data validation and quality assurance etc." What

was not to change was "the basic formulation of the RPI", which

was accepted as currently defined. This meant, in particular, that

the RPI would continue to be based, to the same extent as it

currently was, on the Carli formula.

195. The 'freeze' was reiterated in the statement from Mr

Pullinger, the National Statistician, in March 2016. This

confirmed that routine changes would continue to be made,

including so as to update the basket and weights, computer

systems upgrades and improvements to data validation and

quality assurance methods. These were described as examples of

changes that would continue to be made as "required to continue

production of a consistent, fit for purpose RPI". Whereas in 2013

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

it had been stated that there would be no change to the basic

formulation of RPI, it was now stated that "methodological

changes" to RPI would be made if those changes were necessary

in order to make improvements to CPI and CPIH.

196. In my judgment, the imposition of the freeze in 2013 did

not cause RPI to become inappropriate for the purposes of

calculating pension increases under the Scheme. As was made

clear in the March 2016 announcement, the freeze did not prevent

RPI from remaining "fit for purpose". That announcement also

recognised that RPI continued to be widely used for legacy

purposes. The legacy uses of RPI included its widespread use in

private pension schemes – as the responses to the UKSA's 2012

consultation made clear (in particular, those from the RSS and the

Pensions Management Institute). These legacy purposes were

those for which RPI's fitness was to be maintained. As Mr

Johnson accepts, the imposition of the freeze has not so far caused

any change. His concerns as to possible future uncertainty are

met, in my judgment, by the fact that the UKSA is committed to

ensuring that RPI remains fit for purpose, as well as by the fact

that, if by reason of its inability to change, RPI in the future

becomes inappropriate, then any decision made now does not

inhibit a different conclusion being reached then.

197. The UKSA's and ONS's reasons for the imposition of the

freeze do not detract from this conclusion. The ONS's paper of

January 2013 notes – as the negative qualities of RPI – that it is

its use of Carli which is the primary source of the formula effect,

and that Carli does not meet current international standards. These

were matters that were known to be attributes of RPI in 2002, and

thus not matters which can be said to have caused RPI to become

inappropriate since 2002. In any event, the essential conclusion

of the ONS was to reject the proposals for change, in large part

because "…Carli's properties are well understood and there is

significant value to users in continuity of the RPI's long time

series." This was expanded upon (at p.11 of the ONS paper), as

follows: "…the respondents' views, that the properties of the Carli

are known and have been used in the construction of the RPI since

its creation are also pertinent, especially in the context of the Code

of Practice for Official Statistics." At paragraph 28, the "weight

of users' requirements and the desire for continuity" were cited as

reasons militating against change. While the ONS (1) stated that

it would not advocate the use of Carli in the construction of a price

increase index if it were starting from scratch, (2) recognised

there were counterbalancing arguments for change, and (3) noted

that "[t]he RPI's continued use should be reassessed by users, and

other indices that are closer to international best standards should

be considered as alternatives", I do not consider that the views of

the ONS, derived from the paper as a whole, constituted a

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

conclusion that it was inappropriate for RPI to continue to be used

in the legacy contexts where it was already in use.

198. The reiteration of the 'freeze' in 2016 cannot – if the

original imposition had not rendered RPI inappropriate as from

2013 – render it inappropriate from 2016. There was no

substantive worsening of the 'freeze'. If anything, there was a

minor relaxation to the extent that it made clear that

methodological changes would continue to be made, if necessary

so as to improve CPI/CPIH.”

57. He went on to conclude at [202] that de-designation of RPI as a National Statistic, taken

alone, was insufficient to cause RPI to become inappropriate for the purposes

calculating pension increases under the Scheme despite the fact that “such a decision

by the UK authority charged with oversight of statistics is a very important factor in

considering the appropriateness, generally speaking, of RPI as a measure of inflation.”

He gained textual support for his conclusion from the first gateway in the third sentence

of Rule 10.2, being cessation of the publication of RPI altogether and concluded that

whilst de-designation “may well be a factor when considering whether [RPI] has

become inappropriate”, it was “not in itself determinative of that question”. He also

concluded that its continued publication by the UKSA and “its maintenance for the

express purpose of ensuring it remains "fit for purpose" preclude the conclusion that it

has become – by reason of its de-designation as a National Statistic alone –

inappropriate (i.e. unfit for purpose) for the legacy purposes for which it is being

maintained”.

58. The Judge went on to consider the cumulative effect of the matters relied upon at [203]

– [219] and held:

“219. Having regard to the totality of the matters relied on by

BT and the second Defendant [Ms Bruce-Watt] as demonstrating,

respectively, the disadvantages and merits of RPI,

notwithstanding the powerful statements from the UKSA, ONS

and others to the effect that RPI is flawed and that it ought not to

be used as a measure of inflation, I have reached the conclusion

for the above reasons that RPI has not at this time "become

inappropriate" for the purposes of uprating pensions, within the

meaning of that phrase in the 2016 Rule so as to meet the gateway

threshold.”

The Court’s Approach

59. BT’s criticisms of the Judge’s approach are numerous. However, before turning to the

details, it is important to be clear about the role of the Court in relation to this ground

of the appeal. We were not asked to conduct a re-hearing and it would not have been

appropriate to do so. It is for us to conduct a review and to determine whether the Judge

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

was wrong about whether RPI had become inappropriate as a result of the “clothing

change”, the “freeze” or the “de-designation” taken in isolation or together, for the

reasons set out in the grounds of appeal. The Judge came to an evaluative judgment

having considered the plethora of written evidence before him, including detailed

expert evidence and having heard the experts explain their evidence in cross-

examination. As Sales LJ explained in Smech Properties Limited v Runnymede

Borough Council, Crest Nicholson Operations Limited, CGNU Life Assurance Limited

[2016] EWCA Civ 42 at 27, (a case concerned with the exercise of judicial discretion)

in such circumstances:

“…the task for this court in looking to see whether the judge was

‘wrong’ so that the appeal should be allowed is to ask whether

the judge had legitimate and proper grounds for reaching the

decision [s]he did, rather than simply for this court to approach

the matter completely afresh and make up its own mind without

regard to what the judge decided.”

Sales LJ went on, where relevant, as follows:

“29…Where an appeal is to proceed, like this one, by way of a

review of the judgment below rather than a re-hearing, it will

often be appropriate for this court to give weight to the

assessment of the facts made by the judge below, even where

that assessment has been made on the basis of written evidence

which is also available to this court. The weight to be given to

the judge’s own assessment will vary depending on the

circumstances of each particular case, the nature of the finding

or factual assessment which has been made and the nature and

range of evidential materials bearing upon it. Often a judge will

make a factual assessment by taking into account expressly or

implicitly a range of written evidence and making an overall

evaluation of what it shows. Even if this court might disagree if

it approached the matter afresh for itself on a re-hearing, it does

not follow that the judge lacked legitimate and proper grounds

for making her own assessment and hence it does not follow that

it can be said that her decision was ‘wrong’.”

60. Similar statements of principle can be found in the speech of Lord Hoffman in Biogen

Inc v Medeva plc [1997] 38 BMLR 149 (at page 165) and in the often-quoted judgment

of Clarke LJ in Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR

577 at [16] where he said:

“Some conclusions of fact are, however, not conclusions of

primary fact of the kind to which I have just referred. They

involve an assessment of a number of different factors which

have to be weighed against each other. This is sometimes called

an evaluation of the facts and is often a matter of degree upon

which different judges can legitimately differ. Such cases may

be closely analogous to the exercise of a discretion and, in my

opinion, appellate courts should approach them in a similar

way.”

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

61. This passage was approved by Lord Mance in Datec Electronic Holdings Ltd v United

Parcels Service Ltd [2007] 1 WLR 1325 at [46] as the correct test for the Court of

Appeal to apply when faced with appeals against evaluative judgments. It is

appropriate therefore, to give proper weight to the Judge’s assessment of the evidential

materials in this case including the explanations provided by the experts and having

done so to determine whether he had legitimate and proper grounds for reaching the

decision he did rather than approaching the matter entirely afresh.

Structure of the Criticisms

62. BT submits that the Judge was wrong to conclude at [193], [196-7] and [202] that none

of the clothing change, the freeze or the de-designation of RPI as a National Statistic

when viewed in isolation has caused RPI to become inappropriate or alternatively that

the Judge erred in concluding that the cumulative effect of the matters relied upon had

not caused it to become inappropriate having regard in particular to ten matters set out

at sub-grounds 3(a) – (j). The matters referred to in the first three sub-grounds are

described as “three fundamentally flawed premises” upon which the Judge’s decision

was based. The remaining sub-grounds at (d) – (j) are described as reasons why the

Judge’s decision was contrary to the evidence. In addition, Mr Spink developed a

number of other alleged flaws in the Judge’s reasoning. They were reliance upon the

principle of “pensioner protection” and the alleged failure to take account of the 0.5%

increase in RPI as a result of the clothing change. I will consider each of the individual

matters set out in sub-grounds 3(a) – (j) first and then turn to the treatment of each of

the clothing change, the freeze and de-designation and the overarching complaints

made about the Judge’s approach and reasoning in relation to those matters.

Sub-grounds 3(a), (b) and (c) – Knowledge of BT, Trustees and Draftsman and the Statutory

Underpin

63. First, BT submits that the Judge’s decision was based upon three fundamentally flawed

premises. They are: (a) the Judge’s assumptions or findings as to the knowledge of BT

and the Trustees in 2002; (b) his assumptions or findings as to the knowledge of the

draftsman of the 2002 Rules; and (c) his assumption that the draftsman had a free hand

to select an index, ignoring the effect of section 51 Pensions Act 1995. In its written

submissions, in relation to (a) and (b), BT contends that the Judge was wrong to find

that BT and the Trustees knew or ought to have known of the fact and extent of the

formula effect when adopting the 2002 Rules and that he was equally wrong to find that

the draftsman of the 2002 Rules opted for RPI in the knowledge that CPI produced a

lower rate of inflation. It is said that there was no evidence as to the knowledge of BT

and the Trustees or the draftsman at the time.

64. The first two criticisms arise from paragraphs [207] and [208] of the judgment in which

the Judge addresses the presence of flaws in RPI in 2002 when Rule 10.2 was first

adopted. These paragraphs flow from the Judge’s formulation of the question for him

to determine, which he explored at [205] and which he had foreshadowed at [87]. He

concluded that he had to decide whether RPI was “inappropriate specifically for the

purpose of uprating pensions within the meaning of the 2016 Rule” rather than whether

it was inappropriate generally. The flaws which the Judge addressed were specifically

the fact that: RPI uses the Carli formula (a mathematical formulation) which does not

comply with internationally recognised standards; and that it contains an upward bias,

as a result of using the Carli formula, compared with CPI or other indices which use

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

the Jevons formula. At [206] the Judge points out that these flaws underlie each of the

matters relied upon by BT before him, including the “freeze” and de-designation. He

went on as follows:

“207. These are flaws which pre-date the first introduction of

the relevant wording, in the 2002 Rules. As noted above, in the

HM Treasury document published in December 2003, the

formula effect was identified as having contributed

approximately 0.5% to the gap between CPI and RPIX since

1997. Similarly, David Fenwick's 1999 paper for the ONS

referred to the formula effect as a known quantity, commented on

the fact that a formula based on a geometric mean would always

produce a lower number than that based on an arithmetic mean,

noted that the formula effect was particularly pronounced for

clothing, and noted that the introduction of broader item

descriptions in 1996 contributed to the formula effect. Mr

Johnson, in cross-examination, acknowledged that the criticisms

which he makes of RPI, including that it 'overstated' inflation by

a percentage point a year could have been made equally in 2002,

albeit that the extent of the 'overstatement' was increased as a

result of the clothing changes in 2010. He also acknowledged that

the fact that RPI failed the axiomatic test had been known for a

long time, and certainly in 2002 (Q: If you were doing the

research from scratch in 2002, let us say, you, like Professor

Diewert, would have identified these axioms and would have

noted that going back for a long time before then academic

statisticians had identified the problem with the arithmetic mean

and the failure of the time reversibility: it was well-known? A:

Yes, that has been known for a long period.")

208. Two consequences follow, in my judgment, from this.

First, the starting point for considering whether RPI has become

inappropriate within the meaning of the 2016 Rule is that RPI

must be taken to have been appropriate, for the purposes of

calculating increases in pensions payable under the Scheme,

notwithstanding the fact that RPI is based on a formula that failed

parts of the axiomatic tests and that it produced a headline number

for inflation that was 0.5% higher than CPI. Second, the drafter

of the 2016 Rule has opted, in the knowledge that CPI produced

a lower rate of inflation, to identify as the default index for

increasing pension payments, an index which (by reason of the

formula on which it is based) produced a higher rate of inflation

than an index based on a different formula, in particular CPI.

Members therefore had the protection of an index known to have

built into it the same upward bias which is the main focus of the

current objection to RPI.”

65. Sub-ground 3(a) can be dealt with very shortly. First, the Judge based his conclusions

upon the premise that Rule 10.2 as adopted in 2002 was forward looking and should be

treated as reflecting the fact that the parties had agreed to use RPI and that as a result,

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

the objective meaning of the words used, in their proper context, can be taken to mean

that RPI was accepted as being appropriate at that stage. He came to that conclusion on

the basis of the factual background which he set out at [207]. That included widespread

knowledge of and criticism of the formula effect and knowledge of the fact that it led

to an overstatement of inflation of approximately 0.5%. The first finding at [208]

therefore, that RPI must be taken to have been appropriate as at 2002, is not framed in

terms of the subjective knowledge of the parties to the 2002 Deed and there was no

need for any evidence on that point. In fact, such evidence would have been

inadmissible. It was based quite properly upon the relevant factual matrix.

66. The Judge’s second point at [208] which is the subject of sub-ground 3(b) is of the same

nature and is susceptible to the same answer. The Judge was merely pointing out that

any competent draftsman should be taken to be aware of the factual background

outlined in [207] when choosing RPI and if construed objectively against its factual

matrix, it must be assumed that the draftsman and therefore, the parties to the deed,

chose RPI and forward-looking wording with the objective intention that RPI should

be considered appropriate as at the date of the deed. In this regard it is to be noted that

BT does not rely upon any facts or matters which arose before 2009 and that it was

accepted in oral submissions that Rule 10.2 as adopted in 2002 is to be construed as

forward looking.

67. The specific matter relied upon at sub-ground (c) is that the Judge disregarded the

statutory underpin in 2002 based on RPI. This is a reference to the effect of section 51

Pensions Act 1995. It appears that this is relied upon to show that there was no

conscious determination to use RPI as the appropriate index in 2002, or at least that the

draftsman did not have a free hand. It seems to me that this too, can be dealt with

shortly. As I have already mentioned, the Judge was seeking to interpret the meaning

of Rule 10.2 when it was first adopted in 2002, objectively. In doing so, he had no need

to consider the actual, subjective intention of the parties and did not do so. Whether the

parties actively chose RPI, felt they had no choice or did not address their minds to the

issue is irrelevant. Furthermore, the relevant issue with which the Judge was concerned

was not whether BT had no choice but to adopt RPI as the primary measure, but the

nature and stringency of the “becomes inappropriate” gateway.

68. In any event, as Mr Furness explained the section did not require RPI to be used for all

statutory pension increases. Section 51 applies only to pensions accrued on or after 6

April 1997 and requires them to be increased by the “appropriate percentage”, specified

by the Secretary of State each year, subject to a cap of 5% for benefits accrued between

6 April 1997 and 5 April 2005 and 2.5% for benefits accrued on or after 6 April 2005.

As a matter of practice, the Secretary of State has adopted the percentage increases in

RPI. It was open to a scheme to avoid the obligation if its rules provided for at least

RPI increases up to the relevant caps for pensions earned on or after 6 April 1997.

Sub-ground 3(d) – Continued Use of RPI by Others

69. The remaining matters at sub-grounds 3(d) – (j) go to the general submission that the

Judge’s decision was contrary to the evidence. I will consider them each in turn. Sub-

ground 3(d) can be addressed shortly. It is contended that the Judge placed undue

reliance upon the apparent continued use of RPI by others, without consideration of or

evidence as to whether such users had any choice in using RPI. In this regard, I agree

with the written submissions on behalf of Ms Bruce-Watt. Such consideration would

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

have been irrelevant. At [196] the Judge noted that it was the ONS’ own view that the

freeze did not prevent RPI being kept fit for purpose and one of those purposes was for

use in relation to private pension schemes. It seems to me therefore, that it is irrelevant

whether there was choice in the matter.

Sub-ground 3(e) - Weight to be Given to the Views of the Office of National Statistics

70. This ground is that the Judge failed to have proper regard to the status, role and statutory

responsibilities of the ONS and the UKSA and, accordingly, to their views and

recommendations as to the appropriateness of RPI and the expert evidence of Mr

Johnson in this regard. In fact, in submissions, Mr Spink put this matter somewhat

higher. He submitted that in view of its status as the guardian of quality in relation to

statistics, the views of the ONS together with those of UKSA should have been treated

as being decisive. The ONS no longer considers that RPI is an appropriate measure of

inflation. As I understand it, the matter was not put before the Judge in this way and

does not feature in the amended grounds of appeal or the skeleton arguments for this

appeal in that form.

71. In order to make good his point, Mr Spink took us to the Statistics and Registration

Service Act 2007 under which the Statistics Board (the UKSA) was established with

“the objective of promoting and safeguarding the production and publication of official

statistics that serve the public good” and the obligation upon the Board to prepare, adopt

and publish a Code of Practice for Statistics is created: sections 7(1) and 10(1). He also

drew our attention to sections 12 and 14 of the 2007 Act under which the Board must

assess whether the Code of Practice has been complied with and if it has, must designate

statistics as “National Statistics” or otherwise decline to designate them as such and

must do so in relation to statistics already designated as “National Statistics.” Section

21 provides that the Board must compile, maintain and publish the RPI and goes on to

provide that before making any change to the coverage or the basic calculation of RPI,

it must consult the Bank of England as to whether the changes would affect the interests

of the holders of relevant index-linked gilt-edged securities and if the Bank considers

it would, may not make the change without the consent of the Chancellor of the

Exchequer: see section 21(2) and (3) of the 2007 Act.

72. Mr Spink explained that UKSA oversees the ONS. Further, sections 30 and 31 of the

2007 Act provide that the National Statistician is to be the chief executive of the Board

and its principal adviser on, amongst other things, the quality of official statistics and

that the Board must have regard to the National Statistician’s advice in relation to such

matters.

73. In the light of this background, Mr Spink drew our attention to: the view of the ONS,

stated in its Assessment Report of December 2010, as to the compliance of the

consumer prices indices produced by the ONS with the Code of Practice for Official

Statistics, that “it is not always clear whether the methods that have been developed in

the past to produce the Retail Prices Index (RPI) remain the most appropriate methods

today”; the decision to “de-designate RPI as a National Statistic, based upon the

conclusions in the UKSA Assessment Report of March 2013, that the methods used to

produce RPI are not consistent with internationally recognised best practices and the

decision to freeze the methods used to produce RPI and contemplate only “routine”

changes”; the statement in the same report that it had been noted that “the statistical

properties of the Carli meant it was unsuitable (for use in an “elementary index”)” (Carli

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

being the arithmetical formula used to produce the statistics); and the further statement

in the same report that the decision effectively to freeze the formula used and

contemplate only routine changes was inconsistent with the requirements of the Code

of Practice.

74. Mr Spink also drew attention to an ONS news release of 10 January 2013, entitled

“National Statistician announces outcome of consultation on RPI” which had recorded

that the National Statistician had concluded that the formula used to produce the RPI

(the Carli formula) did not meet international standards and recommended the

publication of a new index, had noted that the Carli formula was the “primary source

of the formula effect difference between the RPI and the CPI” and that a new “RPI-

based index” would be published from March 2013 using the Jevons geometric

formulation. It was also noted that there was “significant value to users in maintaining

the continuity of . . . RPI’s long time series without major change, so that it may

continue to be used for long-term indexation and for index-linked gilts and bonds . . .”

Lastly, it was stated that although the arithmetic formulation would not be used if the

ONS were constructing a new price index, the National Statistician recommended that

the formulae used in RPI remain unchanged.

75. Although the evidence, including the statements upon which Mr Spink relies, is

addressed in detail in the judgment at [128] – [189], he submits that the Judge did not

address the significance and importance of these statements, emanating as they did from

the statutory, independent body charged with maintaining the quality of the very

statistics in question, the National Statistician and the ONS. He says that he should have

decided that the “tipping point” in relation to whether RPI had become inappropriate

had been reached as a result of the statements and actions of the UKSA, ONS and

National Statistician in 2013 or at the very latest in March 2016 when the then National

Statistician, John Pullinger, wrote to the Chair of UKSA. The terms of the letter are

addressed in some detail at [170] – [174] of the judgment. The particular passage to

which our attention was drawn is as follows:

“. . .

Third, users have sought clarification on the future of the retail

prices Index (RPI). Put simply, I believe that the RPI is not a

good measure of inflation and does not realistically have the

potential to become one. I strongly discourage the use of RPI as

a measure of inflation as there are far superior alternatives.

Nonetheless, RPI is still used for a number of legacy purposes

and its production is mandated by legislation. My intention is

that from the start of 2017, ONS would publish the minimum of

RPI-related data necessary to ensure the critical and essential

needs of existing users are met. . . .

The RPI would continue to be maintained through routine

changes. This covers all changes required to continue production

of a consistent, fit for purpose RPI (for example the annual update

of the basket and weights, computer systems upgrades and

improvements to data validation and quality assurance methods).

With due consideration to the requirements of the Statistics and

Registration Services Act 2007, ONS would only consider

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

making methodological changes to the RPI if to not do so would

inhibit the improvement of CPIH and the Consumer Prices

Index.”

Conclusion:

76. It seems to me that the Judge was fully entitled to give the weight to the views of the

ONS and UKSA which he did, having considered the evidence and the views of the

experts. It was a matter for him, and other than the issues in relation to pensioner

protection and the 0.5% increase in RPI as a result of the clothing change, to which I

refer below, BT did not point to any alleged error of principle in the Judge’s approach.

The matters referred to in sub-ground 3(e) as drafted, along with 3(d) and (f) – (j), to

which I shall refer below, all amount to challenges to the weight which the Judge gave

to various pieces of evidence. In this case it is appropriate to give due weight to the

Judge’s assessment of the facts, including the explanations provided by the experts,

even though, for the most part, it was based on written evidence which was also

available to this Court. As I have already mentioned, the way in which Mr Spink put

the ONS issue before us is new and as a result was not addressed by the Judge at all. In

any event, it seems to me that an appeal on such a ground would be bound to fail.

Neither the ONS nor UKSA were asked to determine whether RPI had become

inappropriate (for whatever purpose) since 2002 nor were they asked to determine

whether it is inappropriate specifically as a result of the matters relied upon by BT.

Accordingly, even if he had been asked to do so, the Judge would not have been wrong

not to treat the ONS’ views or those of the UKSA as decisive of the issue before him.

Sub-grounds 3(f), (i) and (j)

77. The matters set out in sub-grounds (f), (i) and (j) can be taken together. They are

concerned essentially with the Judge’s evaluation of the evidence. They are: (f)

excessive reliance on views and conclusions expressed in various individual papers or

consultation response submissions; (i) undue weight given to the evidence of Mr

Briscoe; and (j) that the Judge’s decision produced a result which was contrary to the

overwhelming effect of the evidence. These were not addressed directly in oral

submissions. However, Mr Spink drew our attention to a large number of matters which

are relevant to the sub-grounds in general terms.

78. He highlighted the review of UK price indices conducted by Mr Johnson (the expert on

behalf of BT) on behalf of UKSA, described in the judgment at [149] – [154], in which

Mr Johnson called on the UKSA to monitor use of consumer prices statistics and speak

out against inappropriate use, particularly of RPI. Mr Spink also noted the UKSA’s

2015 consultation described in the judgment at [157] – [166] and, in particular, the

response to the consultation of the Royal Statistical Society (the “RSS”) which the

Judge describes in some detail at [159] – [161] of his judgment. He drew particular

attention to the RSS view that RPI should not be frozen and should be improved and

updated.

79. In its skeleton argument on Ms Bruce-Watt’s cross-appeal, in relation to matters which

post-date the execution of the Deed of Amendment in 2016, BT also relies upon: a

DWP Notice dated April 2016 which is referred to at [175] of the judgment and

concluded that “the current position . . . makes an ongoing use of RPI in our publication

untenable”; the decision of OFWAT in May 2016 to move from RPI to CPI or CPIH

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

with effect from 2019 in relation to revenue indexation and in phases from 2020 to 2025

for capital value indexation, referred to at [176] of the judgment; a letter from the

National Statistician, John Pullinger to the Chair of the RPI CPI User Group, dated 9

December 2016, and described at [182] of the judgment, in which CPI was considered

and so far as RPI was concerned the letter stated that it would be “impractical to cease

its publication” and that it would therefore continue “for these legacy purposes”; and

the statement of the ONS Director General made in August 2017 and referred to at

[185] of the judgment, which was posted on the ONS website commenting that CPIH

was now its “lead measure of inflation" and which continued: “We will continue to

produce RPI for legacy uses. However, the RPI is a flawed measure of inflation with

serious shortcomings and we do not recommend its use.”

80. Mr Spink also referred us to a letter from Sir David Norgrove, the Chair of the UKSA

to a Mr Chris Giles dated 15 September 2017, which the Judge described at [187] of

the Judgment, in which Sir David observes amongst other things that: “[T]he Authority

has been clear publicly for some years that the RPI is a poor measure of inflation”; and

“. . . RPI is not an appropriate method for calculating inflation.

81. Mr Spink also relied upon a letter written by Hetan Shah, the Executive Director of the

RSS to the Chancellor of the Exchequer which is dated 15 November 2017 and was

produced at the hearing, shortly before Mr Briscoe, (the expert on behalf of Ms Bruce-

Watt) was cross examined. It was dealt with in the judgment in the following way:

“189. On 15 November 2017, the Executive Director of the RSS wrote

to the Chancellor of the Exchequer expressing the RSS members'

increasing concern at the continuing use of two different inflation indices

for what is essentially the same purpose i.e. compensation for changing

prices. The letter complained in particular that all too often government

formulae which affected people's incomes (such as pensions and benefit

increases) used CPI, which normally provided a lower estimate of

inflation, whereas many key formulae which affected people's outgoings

(such as student loan repayments and rail fares) were related to RPI,

which generally gives a higher estimate. This was described as not only

unfair but unjustifiable. In particular it was said that it was indefensible

that millions of people's outgoings are still being linked to RPI nearly 5

years after its technical shortcomings led to it losing National Statistics

status. Particularly as it seemed unlikely RPI would ever regain that status

after the ONS had made it clear it had no intention of "in effect, repairing

this index". The last paragraph read as follows: "accordingly we urge you

to announce, in your budget, a timetable for ending long-standing but

increasingly untenable uses of the retail prices index so that, in future,

people's incomings and outgoings are both increased in ways which –

unlike RPI – command widespread confidence and are, statistically, fit

for purpose."

190. I record that the second Defendant objected to the late

introduction of this document into evidence, the timing of which

precluded Mr Briscoe from undertaking any research into the view of the

RSS, and in particular whether the RSS had changed the views it had

previously expressed in September 2015 when responding to the UKSA's

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

consultation paper dated June 2015. In my judgment, and paying due

regard to the Second Defendant's and Mr Briscoe's lack of opportunity to

carry out investigations into the RSS's current views, this letter does not

demonstrate that the RSS has changed its views as to the appropriateness

of RPI, per se, as expressed in September 2015. I note, in particular, that

the thrust of this document is an objection to the mis-match between RPI

being used for the purposes of increasing millions of people's outgoings,

but CPI was used for the purposes of increasing their income. Beyond

this, I consider that the letter demonstrates no more than an acceptance

by the RSS that its recommendations made in responding to the UKSA's

2015 consultation (including its recommendation that RPI ought not to

be frozen) had not been taken on board.”

Lastly, Mr Spink sought to rely upon an ONS article entitled “Shortcomings of the

Retail Prices Index as a measure of inflation” which was released on 8 March 2018 and

accordingly, post-dates the hearing and judgment in this matter.

Applications to Admit Fresh Evidence

82. The late production of the “Hetan Shah” letter coupled with BT’s reliance upon it to show

that the RSS had changed its mind on RPI, despite the Judge’s conclusions at [190] of

the judgment, and BT’s desire to rely upon the ONS article which post-dates the hearing

and the judgment, have led to applications to admit fresh evidence pursuant to CPR

52.21(2)(b) both on behalf of BT and Ms Bruce-Watt. It is appropriate to consider them

now before turning to the issue of whether the Judge was entitled to come to the view he

did on the evidence or whether his decision was contrary to the overwhelming effect of

that evidence.

Ms Bruce-Watt’s Application

83. For the sake of convenience, I will consider the application made on behalf of Ms

Bruce-Watt first. Permission is sought to admit the written evidence of the RSS to the

House of Lords Economic Affairs Committee as part of that committee’s ongoing

inquiry into RPI. The evidence was published on the House of Lords website on 5

September 2018 and the RSS published a link on its website to its evidence. Ms Bruce-

Watt seeks to rely upon the evidence to support the Judge’s refusal at [190] of the

judgment, to draw the inference from the Hetan Shah letter that the views of the RSS

had changed from those set out in the 2012 and 2015 consultation responses, which

were summarised in [136] and [159] – [166] of the judgment.

Parliamentary Privilege

84. Before turning to the matters relevant to the exercise of the discretion to admit fresh

evidence itself, it is necessary to consider whether the evidence upon which Ms Bruce-

Watt seeks to rely is the subject of Parliamentary privilege. Those instructed on behalf

of Ms Bruce-Watt gave notice of the application to the Lord Speaker of the House of

Lords and to the Attorney General. In a letter from James Cooper, Counsel to the

Chairman of Committees, of 5 October 2018, Mr Cooper points out that it is for the

Court to decide whether use of the evidence would infringe Article 9 of the Bill of

Rights 1689 (cp R v Chaytor [2011] 1 AC 684). Article 9 provides: “That the Freedome

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

of Speech and Debates or Proceedings in Parlyament ought not to be impeached or

questioned in any Court or Place out of Parlyament.”

85. Mr Cooper also pointed out that whether the RSS evidence is consistent with the views

it expressed in the 2012 and 2015 consultations would require an assessment to be made

and inferences to be drawn which “has the potential to lead to conflicting views” which

the Court would have to determine. He stated at paragraph 9 of his letter that:

“We agree that parliamentary privilege generally will not apply to

statements made outside of Parliament even if those statements simply

repeat what has been said inside Parliament. But we do not agree with the

suggestion in your letter that “parliamentary privilege does not apply to

statements made within Parliament and then affirmed outside it”. This

implies that in such a case parliamentary privilege ceases to apply to the

statements made inside Parliament as well as not attaching to the

statements made outside if it. In our view, the principle is limited to the

effect of parliamentary privilege on statements made outside parliament

and does not imply any loss of privilege for the statements made inside

Parliament. . .”

He also pointed out quite rightly that whether or not the steps taken by the RSS amount

to an affirmation of its statements to Parliament is a question of fact.

86. In a witness statement sworn by Ms Berman on behalf of Ms Bruce-Watt, Ms Berman

has explained the steps taken by the RSS outside the Houses of Parliament. She exhibits

a print out of the RSS webpage headed “Official and national statistics policy” under

which it is stated that “Our policy statements and reports, correspondence and

consultation responses relating to official and national statistics are available below”.

The page is accessible to the public. A large number of weblinks are then listed, the

first of which is entitled: “RESPONSE to the inquiry into “The Use of the Retail Prices

Index (RPI) currently conducted by the House of Lords Economic Affairs Committee.

Issued: 5 September 2018.” The link takes one to the evidence given on behalf of the

RSS, set out on the Parliamentary website.

87. In this regard, Lord Pannick took us to the Chaytor case and in particular, to a passage

in the speech of Lord Phillips of Worth Matravers PSC at [45] and [46] concerning

affirmation outside the Houses of Parliament of a statement made inside. In fact, it is

convenient to view that extract in the context of the passage from [45] – [47] as follows:

“45. The same point can, however, be made where a Member of

Parliament affirms outside the House a statement made in the House.

Such an affirmation can found a claim in defamation. This may well

involve a challenge to the good faith of the defendant in affirming the

statement, which will inferentially challenge his good faith in making the

original statement. Lord Bingham of Cornhill dealt with this point when

giving the advice of the Judicial Committee of the Privy Council in

Buchanan v Jennings (Attorney General of New Zealand intervening)

[2005] 1 AC 115, para 13:

‘It is common ground in this appeal that statements made outside

Parliament are not protected by absolute privilege even if they simply

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

repeat what was said therein. That proposition, established by R v

Abingdon (1749) 1 Esp 226 and R v Creevey (1813) 1 M & S 273 was

more recently applied by the High Court of Ontario in Stopforth v

Goyer (1978) 87 DLR (3d) 373 and the Supreme Court of the United

States in Hutchinson v Proxmire (1979) 143 US 111, 126 et seq. In

such a case there will inevitably be an inquiry at the trial into the

honesty of what the defendant had said, and if the defendant’s extra-

parliamentary statement is found to have been untrue or dishonest the

same conclusion would ordinarily, although not always, apply to the

parliamentary statement also. But such an inquiry and such a

conclusion are not precluded by article 9, because the plaintiff is

founding his claim on the extra-parliamentary publication and not the

parliamentary publication.’

46. Lord Bingham went on to hold that it made no difference that,

in that case, the repetition of what had been said in Parliament was merely

by reference. At para 17 Lord Bingham tested this conclusion for

compliance with the principle underlying the absolute privilege accorded

to parliamentary statements, namely the right of Members of Parliament

to speak their minds in parliament without any risk of incurring liability

as a result. He concluded that liability for repeating outside Parliament

what had been said within did not conflict with this principle.

47. The jurisprudence to which I have referred is sparse and does

not bear directly on the facts of these appeals. It supports the proposition,

however, that the principal matter to which article 9 is directed is freedom

of speech and debate in the Houses of Parliament and in parliamentary

committees. This is where the core or essential business of Parliament

takes place. In considering whether actions outside the Houses and

committees fall within parliamentary proceedings because of their

connection to them, it is necessary to consider the nature of that

connection and whether, if such actions do not enjoy privilege, this is

likely to impact adversely on the core or essential business of

Parliament.”

88. He also drew attention to a passage in the judgment of Stanley Burnton J in Office of

Government Commerce v Information Commissioner (Attorney General intervening)

[2010] QB 98 at [49]: “. . . There is no reason why the courts should not receive

evidence of the proceedings of Parliament when they are simply relevant historical facts

or events: no “questioning” arises in such a case . . .”

89. I agree with Lord Pannick that reliance upon the evidence given to the Committee is

not contrary to Parliamentary privilege. Reliance upon the statement made by the RSS

would not lead to questioning of the evidence before the Committee. It is relied upon

purely as a matter of historical fact of the views most recently espoused by the RSS.

Furthermore, it seems to me that on the facts, the statements made by the RSS to the

Committee were repeated on the RSS website. The weblink was a shorthand way of

setting out the entirety of the submissions to the Committee which were published on

the RSS webpage as its own views. The link appeared under a number of opening

paragraphs which state that they contain “[O]ur policy statements and reports,

correspondence and consultation responses relating to official and national statistics . .

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

.” As Lord Bingham is recorded as having pointed out in Buchanan v Jennings

(Attorney General of New Zealand intervening) [2005] 1 AC 115 at [46] of the Chaytor

case, it makes no difference whether the repetition of what was said in Parliament is

merely by reference. However, it is not necessary for me to decide this issue on this

second ground.

Conclusion in Relation to Ms Bruce-Watt’s Application

90. I must now turn to whether it is appropriate to exercise the Court’s discretion to admit

the new evidence in the form of the statement on this appeal. The discretion contained

in CPR 52.21(2)(b) must be exercised in accordance with the overriding objective. In

determining whether the discretion should be exercised, the criteria in Ladd v Marshall

[1954] 1 WLR 1489 are no longer the primary rules constitutive of the Court’s power,

but nevertheless, are highly relevant to the exercise of the discretion: Terluk v

Berezovsky [2011] EWCA Civ 1534. In this case: the statement could not have been

obtained at the time of the hearing because it post-dates it; it seems to me that the

statement would have an important influence on the outcome of the question of whether

the Judge was right to conclude as he did at [190] of the judgment that despite the Hetan

Shah letter, the RSS had not changed its views, something which was important to the

outcome of the case; and no question arises about whether the statement is credible. All

of the “Ladd v Marshall” criteria are satisfied therefore. Furthermore, it seems to me

that the admission of the statement is consistent with the overriding objective and

overall fairness. The Hetan Shah letter was introduced at the last minute, immediately

before the cross examination of the experts and left no time for further investigation. It

is only fair that Ms Bruce-Watt should have the opportunity to meet the issue which it

raises.

91. Accordingly, it is also relevant on this appeal to have regard to the statement which is

in the following form:

“Royal Statistical Society – written evidence (RPI00001) :

“1. This note provides evidence from the Royal Statistical Society

(RSS) to the inquiry into ‘The Use of the Retail Prices Index’ (RPI)

currently being conducted by the House of Lords Economic Affairs

Committee.

2. The RSS is a learned society and professional body for statisticians

and data analysts. We have around 9,000 members worldwide – but the

majority of our membership is UK-based.

Key points

3. The RSS welcomes this important and timely inquiry by the Economic

Affairs committee. We would particularly like to make the four key

points, which follow below:

a. in the RSS’s view, no one consumer price index can meet all user

needs. In particular, different indices are needed for (i) macroeconomic

purposes and (ii) measuring the impact of inflation on households

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

b. the Office for National Statistics (ONS) is currently developing the

new Household Costs Indices (HCIs). Subject to their satisfactory

development, we believe the HCIs could ultimately replace, or become

an alternative to, the RPI

c. however, the RPI is likely to remain in widespread use for many

decades, due to the extent to which it is embedded in countless contracts.

Accordingly, we believe the index should be managed so that it is the

best measure possible; changes should not be restricted to routine

updating

d. the RSS recently convened and hosted an important and well-attended

meeting on ‘The Future of the RPI’, which involved many distinguished

speakers. A wide range of views were expressed but there was broad

agreement that the current situation is unsatisfactory, change is needed

and clarity about the RPI’s future is essential.”

It seems to me that the statement is some support for and confirmation of the conclusion

which the Judge quite properly reached at [190] of his judgment.

BT’s Application

92. BT seeks to rely upon new evidence in the form of an ONS article dated 8 March 2018

entitled “Shortcomings of the Retail Prices Index as a measure of inflation.” As I have

already mentioned, it post-dates the trial and the judgment. It is described as an event

which either on its own or in combination with other events is sufficient to require the

Court to find that RPI has now become inappropriate and as a neat summary of the ONS

view on RPI.

93. Quite clearly it could not have been produced with due diligence at the trial because it

did not exist at that stage. Would it have had an important influence on the outcome of

the case? In this regard, I agree with those instructed on behalf of Ms Bruce-Watt that

the issue was whether RPI had become inappropriate as at the date of the trial. If the

further evidence is to be deployed as an event in itself or in combination with others, it

can only be relevant to whether RPI has become inappropriate as at the date of the

appeal. In effect, BT would be extending the list of events and matters upon which it

seeks to rely to include those which have occurred since the trial in December 2017.

The premise assumes that this Court is determining the original issue before the Judge

but as at the date of the appeal. That is not the exercise which the Court is undertaking

on this appeal. Alternatively, if the evidence is merely a neat summary of the views of

the ONS, it seems to me that it cannot be characterised as having an important influence

on the case. Clearly, the third “Ladd v Marshall” requirement is satisfied.

94. It seems to me that having taken account of the “Ladd v Marshall” factors in the light

of the overriding objective, it would not be appropriate to exercise the Court’s

discretion in order to admit this new evidence. Not only is the second “Ladd v

Marshall” factor not satisfied but also the admission of the evidence would be unfair.

It would have the effect of “moving the goal posts”. Ms Bruce-Watt might well seek

to rely upon further evidence as a result, and the finality of litigation would be

undermined. BT’s application is dismissed, therefore.

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

Conclusion in Relation to Sub-grounds (f), (i) and (j)

95. Despite the large number of matters brought to our attention by Mr Spink, chosen from

the plethora of evidence drawn to the Judge’s attention, in the absence of an error in

principle, it seems to me that BT cannot succeed on these sub-grounds. They amount

to no more than a difference of opinion about the weight to be given to the evidence.

There is no basis for concluding that the Judge did not have legitimate and proper

grounds for reaching the decision he did, or to conclude that his conclusions lay outside

the bounds within which reasonable disagreement is possible. It is clear from [213] of

the judgment that overall, the Judge accepted the evidence of Mr Briscoe in preference

to that of Mr Johnson, which he was entitled to do, having heard both of them being

cross-examined and having taken account of the evidence as a whole. Mr Briscoe had

also endorsed each of the papers to which the Judge refers and considered the responses

to the 2012 and the 2015 consultation.

96. The Judge was entitled to take a view of the other materials drawn to his attention,

based upon the explanations provided by the experts in relation to them in their reports

and in cross-examination, and the submissions made at the time. In oral submissions

Mr Spink criticised the Judge specifically for relying upon Dr Altmann’s evidence

which he summarised at [135] and referred to at [156] and [213] of his judgment on the

grounds that she was not qualified and because her paper was based on a discredited

theory in relation to consumer substitution behaviour. This criticism of Dr Altmann was

not raised at trial and Mr Briscoe, who relied upon her paper, was not cross-examined

about why he was relying upon a paper based upon an allegedly discredited theory and

written by a person who was allegedly not an expert in the field. It seems to me that in

the circumstances, it is much too late to seek to raise these matters now.

97. Further, when considering the large amount of evidence drawn to our attention on this

appeal and the evidence as a whole, it is important to bear in mind, as the Judge did,

that the views of the ONS, the UKSA and the RSS, the correspondence and papers to

which we have been referred and which the Judge considered, were just that. They were

views about RPI and what ought to be done in order to create a more accurate measure

of inflation. It seems to me that the Judge was entitled to approach them as he did. He

found they were not directed at whether RPI had become inappropriate for the purposes

of Rule 10.2, which was the issue with which he was concerned and therefore, they

were not decisive.

Sub-paragraphs 3(g) and (h)

98. The matters at sub-grounds 3(g) and (h) are slightly different. Sub-ground 3(g) is

concerned with the Judge’s alleged misconception as to the views of the ONS/UKSA

as to the “fitness for purpose” of RPI for calculating pension increases. It is said that

the Judge misunderstood the following lines from the National Statistician’s March

2016 statement:

“The RPI would continue to be maintained through routine changes. This

covers all changes required to continue production of a consistent, fit for

purpose RPI.”

The Judge considered this statement in the context of the “freeze” at [196] of his

judgment and it seems to me quite clear that he was under no misapprehension. He

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

expressly stated that it was for legacy purposes that RPI’s fitness for purposes was to

be maintained. He did not suggest that the statement was an overall endorsement of

RPI’s appropriateness. In the circumstances, it seems to me that this ground is entirely

misconceived.

99. Sub-ground 3(h) is concerned with the Judge’s alleged misconception as to the

assistance that could properly be provided to the Court by the expert evidence. At [124]

the Judge stated:

“In the end, I find that little assistance is to be gained from the respective

experts' views on the ultimate question for two reasons. First, because

their views on the "appropriateness" or otherwise of RPI, generally or in

respect of uprating pensions generally, is of only limited relevance to the

question of its appropriateness specifically for the purpose of calculating

pensions increases under the Scheme. Second, because the question

whether RPI has "become" inappropriate – again with specific reference

to the meaning of that phrase in the 2016 Rule – is not one in respect of

which either expert can claim any particular expertise.”

100. It seems to me that there is nothing of any substance in this criticism. The Judge was

right to take account of the evidence as a whole and come to his own evaluative

judgment as to whether RPI had become inappropriate for the purposes of Rule 10.2.

The question was ultimately for him. The question was not whether RPI was generally

suitable for use in relation to the increase of pensions but was specific to the purposes

of Rule 10.2 itself. The Judge relied upon the expert evidence to assist him in the way

which he explained at [101] – [103] and ultimately weighed the evidence in a way

which was consonant with Mr Briscoe’s expert evidence.

Did the Judge Err in Principle?

“Pensioner Protection”

101. Did the Judge misdirect himself in a way which tainted his reasoning and his treatment

of the evidence in relation to the appropriateness of RPI? Mr Spink says that the Judge

erred in approaching the matter through the spectrum of “pensioner protection” and as

a result came to an erroneous conclusion. As I have already mentioned, the issue is

foreshadowed at [87] and is addressed at [205] and at [209] and [211] – [213] of the

judgment:

“205. The question I have to determine, however, is not whether RPI

is inappropriate, generally speaking, as a measure of inflation, but

whether it is inappropriate specifically for the purpose of uprating

pensions within the meaning of the 2016 Rule. Similar to the analysis

undertaken by the ONS when determining to retain the Carli formula in

RPI in January 2013, while it may well be true that it would be

inappropriate to use RPI if starting from scratch, for example in a pension

scheme created today, it does not necessarily follow that RPI has

"become inappropriate" for the purposes of uprating pensions in the

Scheme. In this context, I consider that two factors (developed in the

following paragraphs) are particularly important: first, the flaws which

underlie all of the matters relied on by BT were present, and known to be

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

present, in RPI in 2002, albeit that the formula effect has worsened, and

the perception of those flaws has hardened, in the intervening years; and

second, the purpose of the 2016 Rule is to provide protection for

pensioners against increases in the real cost of living to which they are

likely to be subjected.

. . . .

209. While I acknowledge (as noted above) the limitations in an

appeal in the abstract to the purpose of an uprating provision being to

protect pensioners nevertheless in considering the concept of

"appropriateness" within the rule it is in my judgment legitimate to have

regard to that purpose. In particular, it would be an important factor

against concluding that RPI has become inappropriate if jettisoning RPI

would introduce a material risk that increases in pensions would not keep

rate with increases in the cost of living likely to be experienced by the

relevant pensioners. This is particularly so taking into account that the

pension is likely to constitute the principal, if not the sole, source of

income for the relevant pensioners.

210. On the basis of the evidence I have summarised above, I

consider that there are reasonable grounds to conclude that jettisoning

RPI would lead to such a material risk for the pensioners under the

Scheme.

211. First, as is common ground, inflation is a latent variable, and any

index can do no more than provide an estimate of the increase in cost of

living as experienced by any given household, or even type of household.

Thus, it is impossible to say that RPI is wrong and CPI is right, or even

that RPI is more wrong (or right) than CPI, as an estimate of the likely

increase in cost of living for pensioners under the Scheme.

212. Mr Johnson, while accepting that this is so, says nevertheless

that "if you know there is a problem in the construction of an index in the

way that the Carli creates biases, then whilst you might not know the right

answer, you do know that you are trying to get there in the wrong way."

This is, however, not a complete answer to the latent variable point, since

it is common ground that there is no established correlation between the

fact that Carli fails certain of the axioms, and the extent of the formula

effect.

213. Second, there is convincing evidence (see, for example, the

papers cited above from Dr Altmann, the Rowntree Foundation, Donald

Hirsch and the RSS) to support Mr Briscoe's conclusion that there are

certain respects in which CPI might be said to underestimate inflation

(albeit probably to a lesser extent) as well as respects in which RPI might

be said to overestimate it, and that in some instances pensioners are likely

to be particularly affected. While the most significant cause of the

difference between RPI and CPI is the formula effect, there are other

material causes, including property costs, which accounted on average

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

for 0.5% of the increase. Although another factor – termed "weights" in

the Office of Budgetary Responsibility's revised assumptions for the

long-run wedge between CPI and RPI – accounts for a negative

difference of -0.4%, that does not detract from the point that there are

reasons why RPI is greater than CPI which are not in themselves

sufficient to render RPI inappropriate (and in any event have not caused

RPI to become inappropriate since 2002). As I have noted in connection

with the clothing change, a consequence of replacing RPI by an index

based on Jevons would wholly remove the upward bias, a substantial part

of which was inherent in RPI on its adoption as the default index in

2002.”

102. In this regard, I agree with Mr Furness on behalf of Ms Bruce-Watt. It seems to me that

when read as a whole, the Judge’s conclusions were not tainted, as Mr Spink would

have it, by his conclusions in relation to “pensioner protection”. The Judge was right

to approach the concept of “appropriateness” from the context in which it arises, rather

than in the abstract. It is necessary to determine whether RPI has become inappropriate

as the measure of the cost of living for the purposes of Rule 10.2 which itself provides

for the increase in pensions in payment under the Scheme. One must begin, therefore,

from the premise that RPI was the chosen index and consider whether that index has

become inappropriate for the task for which it is employed under the rule. I do not read

the Judge’s conclusions at [205] and [209] – [213] of his judgment and [209] and [210]

in particular, as recording anything more than the need to consider “appropriateness”

in context. It is an out-working of his conclusion in relation to the meaning of “becomes

inappropriate” at [87]. He was not treating pensioners as a special class. He was merely

weighing the totality of the evidence in the light of the fact that inflation is a latent

variable, RPI was the chosen index and the task for which the index is required. His

approach was in accordance with the purpose of Rule 10.2 and, accordingly, does not

vitiate his weighing of the evidence.

Comparison of RPI with CPI

103. It is also submitted that the Judge was wrong to compare RPI with CPI at [211] - [213]

when seeking to determine whether RPI had become inappropriate. This was not a

ground of appeal. However, it seems to me that it, too is a short point. The existence

and nature of an alternative index is relevant to the question of whether RPI is

inappropriate. If there were no other index at all, or only one which was inappropriate

for the task, it would have a direct bearing on the appropriateness or otherwise of RPI.

The Judge’s approach reveals no error.

Formula Effect, the Clothing Change and the 0.5%

104. Mr Spink also drew attention to the fact that, as the Judge recorded at [111] of his

judgment, the experts were “agreed that as a consequence of using Carli, RPI has an

“upward bias” such that it is consistently higher than CPI . . .”, a consequence which

was referred to as “the formula effect.” As I have already mentioned, the Judge recorded

that the formula effect contributed approximately 0.5% to the gap between RPI and CPI

from 1997 to 2010 and that the improvement in the collection of clothing prices in 2010

had a dramatic effect: see [116] - [119] of the judgment. In particular, the Judge set out

the changes caused by the clothing change at [118] to which I referred at [54] above.

He went on to deal with the clothing change in more detail at [193].

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

105. Mr Spink submitted that the Judge’s reasoning was flawed because it is underpinned

by his principle of “pensioner protection” which I have already considered. He also

submitted that the Judge failed to take account of the doubling of the formula effect as

a result of the clothing change both in itself and as an indicator of the

“inappropriateness” of RPI as a cost of living indicator. Mr Spink says that it was quite

obvious that inflation cannot have gone up by 0.5%. Lastly, given that de-designation

took place in 2013, only after a long process of review and consultation which had

begun in 2010/2011, Mr Spink says that there is nothing in the Judge’s temporal point

at [193].

106. Mr Furness submits that the point taken in relation to what is said to be the Judge’s

error in failing to take account of the 0.5% increase caused by the clothing change is

entirely new and he objects to it being taken now. He points out that the Judge noted at

[118] that the clothing change had an upward effect both on RPI and CPI. He also points

out that the point was not put to either of the experts and that all that can be said is that

the true measure of inflation is unknown and that RPI produces a higher percentage

than CPI.

107. In my judgment, the Judge was entitled to come to the view he did on the evidence

before him. He concluded that the clothing change merely magnified the effect of the

Carli formula which was already well known (and was known before 2002) and did

not, in itself cause RPI to become inappropriate. It is not for us to re-assess and re-

evaluate the evidence. Furthermore, it is too late to raise new points which were not

before the Judge and were not addressed by the experts in their lengthy reports, joint

statement and cross examination.

“The Freeze” and De-designation

108. Mr Spink submits that as a result of the freeze, RPI lost its fundamental quality which

a statistic has to have if it is to live up to the Code of Practice, namely the quality of

continuous improvement. Accordingly, he says that this was not merely a change of

opinion, but a fundamental difference in RPI itself. Furthermore, he says that the freeze

locked in the flaws in RPI which render it a poor measure of inflation. Accordingly, Mr

Spink submits that the Judge erred at [196] of his judgment in basing his reasoning on

Mr Pullinger’s announcement in March 2016 that the freeze did not prevent RPI from

being fit for purpose. He says it is clear that the ONS had in mind fitness for purposes

for the legacy user, in the sense of those tied to the use of RPI in the long term, including

the index-linked gilt market, and that it is a misunderstanding of the evidence to

conclude that it was fit for purpose for pension schemes generally.

109. As Mr Furness pointed out, the experts agreed in their joint statement that it is not

possible to identify any changes to RPI as a result of the “freeze” or de- designation

and that it is not possible to identify any changes which would have been made had

those decisions not been made. In such circumstances, it seems to me that it is

impossible to argue that the Judge was not entitled to come to the conclusion he did on

the evidence whether as to the effect of the freeze or de-designation upon the

appropriateness of RPI for the purposes of Rule 10.2, whether taken alone or

cumulatively.

110. For all the reasons set out above, I consider that the Judge was entitled to come to the

decision he did on the evidence. I do not consider that he erred in his approach or in

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

principle. He was entitled to conclude that RPI had not become inappropriate as a result

of the clothing change, the freeze or de-designation, taken separately or together and

his reasoning was not subject to an error in principle.

Proper construction of Rule 25 of the 1993 Rules

111. Grounds 4-6 of BT’s Appeal are concerned with Rule 25 of the 1993 Rules. In the light

of our conclusions in relation to the construction of rule 10.2 and whether the Judge’s

decision in relation to whether RPI has become inappropriate can be successfully

challenged, it seems likely that any issues arising in relation to the 1993 Rules will be

academic. Nevertheless, for the sake of completeness and in case any issues remain, I

will address the grounds here.

112. How should Rule 25 of the 1993 Rules be construed? What is the meaning of “...so

amended as to invalidate it . . . as a continuous basis for calculation of pension increases

. . .?” The Judge dealt with the matter at [222] – [226] of his judgment. It is said that

the Judge’s interpretation of the gateway test in the 1993 Rule was wrong in numerous

respects. First, he was wrong in finding at [223] that “amendment” is different from

“change” and that “amendment” should be construed to connote an alteration to the

formula or method of calculation of RPI. Secondly, he was wrong at [225] and [226] to

decide that “. . .as to invalidate it as a continuous basis for calculating pension

increases” has a “significantly narrowing effect on the gateway” and that sub-rule (3)

of the 1993 Rule was concerned with discontinuity between consecutive years rather

than whether RPI remained valid for use on a continuous basis, in the sense of a

consistent and reliable basis over time.

113. BT submits that the same broad range of facts and matters can be taken into account by

the decision-maker in determining whether the gateway has been passed through,

whether under the 1993 or the 2016 Rule. It is said that the decision-maker is not

confined to considering merely amendments to the compilation of RPI, but can decide

if RPI can now be said to be invalid as a continuous basis for the purposes of calculating

increases, whether as a result of (1) operational changes, (2) direct effects of those

changes, such as de-designation, or (3) other consequences flowing from those changes

and their direct effects.

114. In this regard, Miss Rose, on behalf of BT, submitted that although the wording of rule

25 of the 1993 Rules is more technical, it is not significantly different from the 2002

wording and she relied upon the “comfort letters” for support for the proposition that

the effect of rule 25 and rule 10.2 was not intended to be different. I have already

expressed a view about the limited effect of the “comfort letters”. In any event, there

can be no question of reading back from the wording of Rule 10.2 of the 2016 Rules to

Rule 25, in order to seek to broaden the meaning of its express wording which is what

Miss Rose’s submission would entail. Neither the “comfort letters” nor the terms of

Rule 10.2 itself can be an aid to construction of the earlier provision.

115. I consider that the Judge was right to come to the conclusions he did. First, it seems to

me that the ordinary and natural meaning of the word “. . . amended …” when read in

the context of the rule as a whole, having taken account of its purpose, requires an

amendment to RPI itself, being a direct change to its compilation or the way in which

it is calculated. De-designation, freezing in the sense of restricting the range of changes

to be made in the future, or changes in perception as to suitability, would be insufficient.

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

Secondly, any amendment must have occurred since the 1993 Rules were made. I

understand that to be common ground. Thirdly, as the Judge points out, the amendment

in question must be one which “invalidates it [RPI]. . . as a continuous basis for the

purposes of calculating increases. . .”. I agree with the submission on behalf of Ms

Bruce-Watt and with the Judge in this regard. The ordinary and natural meaning of the

words is that the amendment to RPI must be one which has the effect of preventing a

year on year comparison for the purposes of calculating increases. It is to enable a

comparison of like with like rather than of apples with pears, as the Judge put it. As the

Judge points out, that construction is supported by the wording in the remainder of the

rule which provides that if the gateway is passed, the alternative method chosen for

calculating increases must be either another index or an “alternative basis of

comparison.”

116. The Judge went on to consider the application of the gateway in Rule 25 of the 1993

Rule at [231] – [234] of his judgment. Having delineated the exercise he was being

required to undertake, the Judge stated at [232] that in view of his conclusion as to the

meaning of “amendment” only one matter qualified and that was what has been referred

to as the “clothing change”. He went on at [233] to state that in the light of his decision

about the meaning of “so as to invalidate . . .” the clothing change “could only fall

within the definition of the 1993 Rules if it invalidated the continuity of RPI, so as to

prevent a like-for-like comparison between the current and prior year.” He went on as

follows:

“233. . . In my judgment, given the routine nature of the clothing change,

and the fact that its impact was limited to contributing to a widening of

the already existing formula effect, it does not qualify as such an

amendment. More importantly, I do not consider that a rational decision-

maker in the position of BT could determine otherwise, because to do so

would constitute a mis-interpretation of the rule.

234. Finally, the widening of the formula effect occurred in 2010.

Even if that had the effect of precluding a valid comparison as between

2009 and 2010, then for the reasons given in paragraph 228 above, the

formula effect has remained constant ever since so that the clothing

change, in 2010, cannot have constituted an amendment that rendered

RPI invalid for the purposes of comparison as between any of the

consecutive years since 2011.”

117. First, Mr Spink submits that the “freeze” was an “amendment” for the purposes of Rule

25 of the 1993 Rule because as a result, RPI lost an inherent characteristic, namely,

benefitting from continuous improvement. As a result, he says that the inherent

operation and suitability of RPI changed. He submits that accordingly, the Judge ought

to have held that the “freeze” amounted to an amendment for the purposes of Rule 25.

118. Furthermore, Mr Spink submits that the Judge was wrong to decide that the clothing

change, whilst being an “amendment” did not satisfy the remainder of the gateway

requirements. In his written submissions, Mr Spink states that the Judge was wrong to

hold that the impact of the clothing change was limited to a widening of the existing

formula effect. He says that it led to the freeze, the de-designation of RPI as a National

Statistic and the subsequent events relied upon by BT under Issue 3. Further, even if

one ignores the wider implications of the clothing change, Mr Spink submits that it was

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

illogical to find that the doubling of the formula effect caused by the clothing change

did not, of itself, meet the gateway test.

119. In relation to the “freeze” I agree with Mr Furness. The short answer is that the experts

agreed that the freeze had made no difference to RPI to date. They agreed in their Joint

Statement that: it is not possible to identify any changes to RPI made as a result of the

decision to “freeze”, nor as a result of de-designation, and that it is not possible to

identify any changes that would have been made to RPI had the decision to freeze not

been taken. Furthermore, it was the unchallenged evidence at trial that notwithstanding

the freeze, RPI had continued to be updated and improved in light of changes in

spending habits and improvements in data sources. As a result, it seems to me that it is

impossible to argue the Judge was wrong to come to the conclusion that neither the

freeze or de-designation amounted to an amendment to RPI itself which fell within the

parameters of Rule 25(3) of the 1993 Rules.

120. What about the clothing change? It is accepted that that was an amendment for the

purposes of Rule 25(3). Did the Judge err in concluding as he did at [233] and [234]

that no reasonable decision-maker would conclude that the clothing change was such

as to invalidate RPI as a continuous basis for the purposes of calculating increases? In

my judgment, he did not. As the written submissions on behalf of Ms Bruce-Watt point

out: RPI continued to be used for a multitude of purposes after 2010 including by

government, pension schemes, investors and private enterprises and there is no

suggestion that a valid comparison could not be made; and perhaps more importantly,

Mr Johnson, the expert on behalf of BT, does not suggest in his reports that the clothing

change created a discontinuity in the compilation of RPI such that it cannot be used as

a continuous basis of comparison. At paragraph 4 of his first report he set out a number

of matters which in his opinion are necessary in order that a measure of inflation be

considered “continuous”. This included: “keep[ing] up to date. . .. being a continuous

measure absolutely does not mean that nothing changes. At least the basket of goods

and the weight applied need to keep pace with actual consumer behaviours”, and

“achieve an appropriate balance between continuous improvement and ensuring

continuity of measuring the same thing. In general, when better data becomes available

or it becomes evident that a different measure of prices is a better reflection of actual

prices then continuity is best served by change. . .”

Must the “powers” in Rule 10.2 and Rule 25(3) respectively be Exercised Within a

Reasonable Time?

121. In the light of my conclusions, it is not necessary to consider Grounds 2 and 3 of Ms

Bruce-Watt’s Cross Appeal. Ground 2 proceeded on the false premise that the second

gateway as to whether RPI had become inappropriate for the purposes of Rule 10.2 of

the 2016 Rules was framed as a power and that that power could be exercised by BT

with or without consulting the Trustees. In summary, it was concerned with whether

the Judge had erred in holding that a failure to exercise that purported power within a

reasonable time of the occurrence or event sufficient to permit the decision-maker

properly to make the determination, did not cause the power to lapse. It was contended

that the Court should have held that a reasonable time had elapsed since each of the

events or matters relied upon by BT and accordingly, it was no longer open to it to

decide that RPI has become inappropriate relying upon those matters. Ground 3 was to

the same effect as Ground 2 but related to BT’s power under Rule 25(3) of the 1993

Rules.

Judgment Approved by the court for handing down. BT PLC v BT Pension Scheme Trustees Ltd & An

122. It has been unnecessary to consider the arguments put forward by analogy with the

treatment of powers in family trusts in relation to either of these grounds and I should

not be taken to have affirmed any of the analyses put forward.

123. For all of the reasons set out above, I would dismiss the appeal.

Lord Justice David Richards:

124. I agree that this appeal should be dismissed for the reasons given by Asplin LJ in her

judgment.

125. As my Lady records, the application by the respondent to adduce in evidence the text

of the evidence given by the Royal Statistical Society (the RSS) to the House of Lords

Economic Affairs Committee raised the issue whether the receipt of that evidence

would contravene article 9 of the Bill of Rights, thereby breaching Parliamentary

privilege. I agree with Asplin LJ that no breach was involved, because its purpose was

simply to show the views expressed by the RSS in that evidence, not to place any weight

on the evidence and thereby open it to any questioning in breach of article 9.

126. Asplin LJ goes on to express the view, without resting her decision on this ground, that

the weblink on the RSS website to its evidence to the Committee constituted a repetition

of the evidence outside Parliament, so that privilege did not attach to it. If correct, this

would go beyond those cases in which a repetition of or reference to statements in

Parliament has previously been found: see the comprehensive review of those cases by

Lord Bingham in Buchanan v Jennings (Attorney General of New Zealand intervening)

[2004] UKPC 36; [2005] 1 AC 115 (in which it was held that, where an MP had said

outside Parliament that he did not resile from a statement he had made in Parliament,

he had adopted and confirmed the statement such that he could be liable in defamation).

It may be noted that in this case the weblink was to Parliament’s own website.

127. I prefer to express no view on this point but to leave it to a case where it is necessary to

the Court’s decision.

Lord Justice Patten:

128. I agree that the appeal should be dismissed for the reasons given by Asplin LJ. Like

David Richards LJ, I prefer to treat the RSS evidence as not covered by Parliamentary

privilege on the simple ground that its only purpose was to confirm what the views of

the RSS are and I express no opinion about the issue of repetition.