Could Recent Developments In The UK High Court Affect Irish Pension Schemes?

Two recent High Court cases in the UK could be of significance to both sponsoring employers and trustees in the context of amending and restructuring pension schemes. While these decisions are of persuasive authority only, and therefore not binding in Irish law, trustees, sponsoring employers and indeed their advisers would be well advised to be aware of these judicial developments.

IBM UK Holdings & another v Dalgleish and Ors1

In this case the UK High Court found IBM to be in breach of both its implied contractual duty of mutual trust and confidence and its Imperial2 duty of good faith to its employees for the manner in which it implemented the closure of its defined benefit pension schemes and imposed a new early retirement policy. This is the first time an employer has been found to be in breach of these duties to its employees in the context of a pension scheme closure.

The Imperial duty of good faith can be summarised in the words of Browne-Wilkinson VC in the Imperial case as follows,

"In any contract of employment there is an implied term: "that an employer will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee;". ... I will call this implied term 'the implied obligation of good faith'. In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer."

From an Irish law perspective, the Imperial duty of good faith was recognised in the Supreme Court in 2009 in an employment law context3 and in the High Court in 2007 in a pensions law context4.

By way of background, in 2009, following two previous benefit restructuring exercises, IBM announced the closure of its defined benefit pension schemes to future accrual (along with other amendments). The trustees of the schemes had doubts as to the lawfulness of the proposed changes. Consequently IBM sought a declaration from the High Court on the lawfulness of its actions.

The Court held that IBM's actions, when viewed as a whole, amounted to a breach of its contractual and Imperial duties. In terms of the Imperial duty, the Court found that the necessary irrationality and perversity on the part of IBM, as the employer, was evident. Notably, it was not the nature of the schemes' changes themselves that constituted the breach...