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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> LAW Construction Company Ltd & Ors v LAW Holdings Ltd & Ors [1998] ScotCS 2 (9 April 1998) URL: http://www.bailii.org/scot/cases/ScotCS/1998/2.html Cite as: [1998] ScotCS 2

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The first to sixth pursuers and the first to sixth defenders are employer members of a group pension scheme called the "L.A.W. Pension and Life Assurance Scheme". The first to sixth pursuers are in receivership, and the seventh pursuers are their receivers. The companies are also in liquidation. Winding up in each case began on 1 April, 1997. The first to sixth defenders are the holding company and operating members of the continuing L.A.W. group. For convenience, I shall refer to them as the defenders for present purposes, ignoring the seventh defenders, who have taken no active part in the litigation for present purposes. On or about 301 July, 1997, the defenders executed a deed which bore to substitute the first named defenders for the first named pursuers as principal employer for the purposes of the scheme. The pursuers are apprehensive that the defenders will proceed to appoint an additional or substitute trustee for the purposes of the scheme. The pursuers seek production and reduction of the deed, and also interdict against the defenders from representing that they are entitled to exercise the rights and powers of principal employer and from proceeding to change the present trustee. The conclusions reflect the pursuers' wider assertion of a continuing interest in the scheme as employers.

The defenders contend that the pursuers have no interest to seek the orders set out in the conclusions of the summons, and that the action should be dismissed, on the pleadings as they stand, or alternatively after preliminary proof restricted to the pursuers' interest to sue. Central to the issue between parties is the proper construction of certain of the provisions of the definitive trust deed and rules applying to the scheme, in the events which happened. At 1 April, 1997 none of the first to sixth pursuers had any employees. Following their appointment, the seventh pursuers sold or closed the businesses of all of the companies in receivership. The pursuers contend that in these circumstances there requires to be a partial winding up of the scheme so far as it affects their interests and the interests of their former employees and their dependants. They contend that if that were to take place, then, depending on valuation, there might be a surplus which could be distributed to them or some of them, or a deficiency for which they or some of them might be liable. They say that as parties to a contract with such potential rights or obligations, they have an interest to enforce the provisions of the scheme. The defenders contend that the pursuers' interpretation of the material provisions of the scheme is wrong, and that in any event, even if they were correct, interest to sue is a matter of substance and would require enquiry into the value of the funds and the liabilities to determine whether the pursuers' expectation of a distributable surplus or their apprehension of liability were realistic. The pursuers would have an interest to sue if and only if they had real rights or liabilities on a proper application of actuarial principles to the funds and accrued liabilities. The parties lodged written notes of argument setting out the principal submissions which were developed at debate.

The scheme was drafted as a contributory scheme intended to qualify for approval under Part II, chapter II, of the Finance Act, 1970, which is referred throughout the constituent documents as the "Approving Act". It is notorious that in the 1970's the conditions of approval of retirement benefits schemes stipulated by the Inland Revenue were among the most significant influences on the drafting of the trust deeds and rules. The accumulation of regulations and statements of practice, varied and amended from time to time, and the less formal arrangements under which approval was negotiated, may well have resulted in deeds and rules which were drafted and executed in the terms they bore because they satisfied Revenue requirements or perceived requirements rather than because they passed the scrutiny of a skilled legal draftsman. It would be inappropriate to consider or comment on such matters without expert evidence of contemporary practice. But the provisions of the 1970 Act provide some guidance as to certain conditions of approval which have a bearing on the means available to employers to create retirement benefits schemes with a view to Revenue approval, and may explain some of the forms and language in use at the material time. Section 26 defined certain expressions used in the Act, and, in particular, the expressions "employee" and "employer". "Employee" was defined to include, necessarily in addition to those in current employment, "in relation to any employer" "a person who is to be or has been an employee". "Service" was defined as "service as an employee of the employer in question". There were definitions of and restrictions on the benefits which might be provided. Section 25 allowed for benefits to start immediately on the making of the scheme. Approval might be available, therefore, to schemes which provided for former employees, current employees and future employees of a participating employer. The expression "employee" extended to individuals in all three categories for the purposes of the Act. Past service met the qualifying conditions as well as current and future service. On the language of the Act, an employer might obtain approval for a scheme which extended to some only of these categories, however. The Act did not contain any provision requiring all possible categories of employee to be included, however, and an employer might obtain approval for a scheme which extended to some only of the permitted categories. The way in which an employer sought to take advantage of the 1970 provisions might depend on whether there were pre-existing schemes for some or all of the classes of potential beneficiaries involved.

It seems probable that the L.A.W. scheme superseded an earlier scheme or schemes, at least so far as concerned persons in employment of a participating group employer at the commencement of the current scheme. Earlier legislation derived from the Finance Act, 1921 made provision for approved superannuation and retirement benefits schemes, and there are indications in the present rules that there may have been such schemes in force in the L.A.W. group. The 1970 Act replaced Part IX, Chapter I of the Income and Corporation Taxes Act, 1970, which consolidated earlier pension schemes legislation. There are indications in the present rules that there may have been such schemes in force in the L.A.W. group. The treatment of prior qualifying service in the present rules, and in particular the definition of the term "Linked Qualifying Service", which refers to earlier scheme rules, tend to indicate that there were such schemes. The computation of ranking service included service prior to the date of commencement of the scheme in the case of employees transferring into the scheme at the date of commencement, on 1 September, 1975. And, in the same vein, the definition of the expression "Five Years' Qualifying Service" included service prior to the date of commencement of the scheme. It is possible, though it is not a matter of express provision in the scheme, that any prior scheme or schemes remained in operation for the benefit of former employees and dependants of former employees who had retired prior to the commencement of the current scheme. This might be of importance in understanding some of the provisions in dispute.

In terms of the current scheme, membership is open to all eligible employees of a participating company. The expression "eligible employee" is defined as:

who meets certain qualifying criteria relating to age, post and duration of employment. Any of these qualifying criteria may be waived by the employer. The only essential condition of membership which cannot be waived is that the person is "a person in the service" of a participating employer. But, generally, membership requires a minimum period of actual service at the date of admission of one year. It is an oddity of the rules that it is not made clear whether the year's service must be after the date of commencement, or might be established by service prior to the date of commencement. One would incline to the latter view, in particular because it would relate more naturally to the definition of qualifying service, and avoid a disregard of service prior to the date of commencement in the case of employees with less than a qualifying period of service under any of the superseded schemes which applied in his case. Given the employer's discretion to waive the requirement, any problem which might have arisen in that connection would have been of little practical importance at the commencement of the scheme, but the treatment of a person in that position could bear on the proper interpretation of the scheme documents.

"Member" in relation to the scheme is defined as:

Other relevant definitions are:

These definitions were relied on in argument as the provisions most directly relevant to the interpretation of rule 18, which lies at the heart of the dispute. Rule 18 (a) provides:

Briefly, the issue between parties is whether rule 18(a) provides for the winding up of the scheme so far, and only so far, as concerns persons currently in the service of an employer at the date of liquidation or dissolution of theirat employer. Sub-rule (a) is of wide application. Sub-rule (b) applies to liquidation or dissolution for the purposes of reconstruction, reconstitution or amalgamation only. Sub-rule (a) therefore applies, irrespective of the state of solvency or insolvency of the employer, except where the purpose of the winding up or dissolution is within the scope of sub-rule (b). It would apply on voluntary liquidation following the disposal of the business of an employer, as it would on winding up by the court on a creditor's application. It would apply where an employer company was struck off for failure to comply with statutory or regulatory requirements, whatever its state of affairs otherwise. This width of application appears to result necessarily from the relative narrowness of the exceptions. It may make it difficult to construe consequential provisions narrowly.

The general approach to the interpretation of commercial documents such as those involved in this case was not a matter of serious dispute between counsel. There were differences of emphasis, with Mr Sellar relying more particularly on the language of the clauses, in their context, and Mr Drummond Young seeking rather to find scope for the provisions in the purposes which the subscribers must have had in mind. Mr Sellar contended that in the case of professionally drafted documents one should assume that the draftsman meant what he said, though ultimately the meaning of the deeds depended on what an independent third party knowledgeable of the background would take them to mean: Gloag on Contract second edition page 398. This approach was consistent with Lord Hoffmann's observations in Investors Compensation Scheme Limited v West Bromwich Building Society 147 NLJ 989, and Lord Wilberforce's observations in Prenn v Simmonds [1971] 1 W.L.R. 1381 at 1383. The onus was on the pursuers to displace the meaning the words appeared to bear. Mr Drummond Young argued that the court's approach should be practical and purposive: Mettoy Pension Trustees Limited v Evans & Others [1990] 1 W.L.R. 1587.

The starting point for the discussion of the correct approach to interpretation in this case is appears to me to be Lord Wilberforce's observation in Prenn v Simmonds that:

That observation was approved by Lord Simon of Glaisdale, expressing the view of the majority of the Privy Council, in B.P. Refinery (Westernport) Pty Ltd v Hastings Shire Council [1978] 52 A.L.J.R. 20, and has been given added emphasis more recently, in particular in the observations of Lord Hoffmann in a series of cases culminating in Investors Compensation Scheme Limited v West Bromwich Building Society. It is unnecessary for present purposes to consider the developing discussion of the scope for extrinsic evidence in cases such as National Bank of Sharjah v Dellborg, 9 July, 1997, Court of Appeal, and Scottish Power Plc v Britoil (Exploration) Limited, 18 November, 1997, Court of Appeal. Lord Hoffmann's observations that:

may have been considered to be too wide. But on any view they give emphasis to the need to construe commercial documents in a wider context than that defined by the documents themselves. In Mettoy Warner J said:

That appears to me to be the appropriate approach for present purposes. Moreover, it is consistent with the established position in Scotland as expressed by Professor Gloag: page 373. Evidence of the circumstances surrounding parties at the time when the contract was made is always relevant.

However, as the debate developed, there was considerable discussion of the language of the documents, and it is necessary to deal with the linguistic argument at the outset, especially in relation to the reliance placed on the precise terms of rule 18 (a). Mr Sellar argued that the language of rule 18 (a) should be given its natural meaning, in the context of the scheme documents, and have full effect accordingly. The words used clearly applied to those who were current employees at the relevant date. "In the service" of the employer did not include those who were formerly in the service of the employer, on any ordinary use of language. The provision looked only to the active, contributing, members of the scheme at the time. There was no obligation to wind up the scheme as respects those who formerly were employees but had ceased to be in that category at the date of liquidation, which was the relevant date in this case. The reference to members or others receiving benefit, in rule 18 (b), might only be words of caution. Turning to the surrounding provisions, Mr Sellar argued that rule 19 should be construed in the light of all of the provisions to which it was ancillary. Rule 19 was a provision of wide application. There might be possible difficulties in relating rule 19 to rule 18(a), as construed by the defenders, but those difficulties would be of relatively little significance if other applications of the rule 19 explained the generality of the language used. Its terms were intelligible when one had proper regard to its scope and to its application in respect of other triggering provisions. Clause Third of the definitive deed and rule 17 related to events which were more likely to arise than events within rule 18, in a practical sense. Transfer and redundancy, where the existing employer closed down his operations while the corporate entity carried on, were more frequent occurrences than insolvent liquidation. One could see in the context of these two provisions that rule 19 had adequate application even if it did not tie in well with rule 18. Mr Sellar accepted that a purposive construction was appropriate. Mettoy was decided after proof: evidence was available. That was particularly important when one had to deal with complicated technical documents. Mr Drummond Young's argument that rule 19 could not work unless his construction of rule 18 was accepted was unsustainable. On Mr Drummond Young's approach the draftsman had to be assumed to have had in mind the paradigm case of an insolvent liquidation. But the true paradigm was the total winding up of the scheme involving all of the participant companies. The present case envisaged something different, where part of the scheme would continue and part only would be wound up. It was not sensible to assume the application of the provisions in such a context and then use the consequential provisions of rule 19 to interpret rule 18 in an unnatural way. Even if the scheme as a whole were wound up, there might be no active members or members in any particular category. The provisions for deficiency in rule 19 (iv) suggested that the draftsman had in mind a total winding up. In any case one had to bear in mind that the funds in this case were and had always been a policy with Scottish Amicable, and not a managed fund held in the trustees' names. Benefits of the deferred pensioners under rule 13 were fixed. If the scheme were fully funded at the relevant time, and thereafter moved into deficit, that could only affect continuing employees. The obligation to provide for continuing active members lay on the continuing employers, if any. Mr Drummond Young was attempting to re-draft the deed to improve its operation: that was illegitimate. He had to go too far. Further, deferred beneficiaries might be better off under a continuing scheme than having annuities bought at what might be considerable expense. The statutory context favoured the defenders'

Mr Drummond Young did not meet the linguistic argument directly, but sought rather to demonstrate that, on the structure of the documents as a whole, the interpretation of rule 18 for which Mr Sellar contended was not sensible. He argued that the structure of the documents showed that the scheme operated on an employer by employer basis for the benefit of active members, and of deferred and pensioner members alike. Winding up only made sense if the whole of the part of the scheme applicable to the particular employer was dealt with. All three classes of employee had to be provided for. Otherwise deferred and pensioner members and dependants might be left in a rump scheme without the secured rights rule 19 was intended to provide, and without an employer to make further contributions on their behalf under clause Fourth of the definitive deed of trust. The function of the critical words in rule 18 (a) was to identify members in respect of whose interests the scheme was to be wound up, that is the members connected with the company in liquidation. In that context one would expect the draftsman to have all of the categories in mind. Reading the expression as extending to those in and formerly in the employment of the employer did no violence to the language, and allowed the persons connected with the employer to be identified.

Mr Drummond Young argued that Rule 19 provided important indicators of the scope of Rule 18. It provided an element in a coherent scheme for dealing with the interests of all of the members of the scheme in the "spoke" of the employer going into liquidation. In applying the test of the reasonable bystander, one had to consider the paradigm case rather than more extreme hypotheses which would not have been in contemplation. Insolvent liquidation of the employer was that case. Construction according to the scheme's purpose was impossible unless considered in that context. The discretionary powers conferred on the employer, the trustees and the principal employer were not typically found in an arms' length commercial contract. The employer's liabilities did not terminate when a person ceased to be in employment. There was no other part of the scheme in respect of which the division of interests which resulted from Mr Sellar's approach arose. Mr Drummond Young referred to the top up provisions of clause Fourth of the definitive deed of trust. Sub-clause (b) applied to all categories of members of the scheme, active deferred and pensioner. This was the clearest possible indication that the different classes were perceived to be members of the employer's spoke. The top up provisions could be brought into play in response to changes in statutory requirements, or by the voluntary act of the employer in terms of clauses Nineteenth and Twentieth, rules 4 to 6, and in development of the argument to rules 14 and 17. Rule 18 (a) fitted well with the pattern which emerged. If Mr Sellar was correct, and the employer's spoke were detached from the hub, the employer's liability to make top up payments in terms of clause Fourth would cease, but the affected deferred and pensioner members' interests would not be provided for, even where the liquidation was a solvent, voluntary winding up of the employer company. The scheme would remain in existence so far as they were concerned, but it would be altered in its character by the termination of the topping up provisions in particular, without crystallisation of the scheme for their benefit. Rule 19 in its structure and terms assumed that the interests of such persons would be involved. Further, Mr Drummond Young argued that both the deficiency provisions and the provisions for distribution of any surplus which were provided in rule 19 would be frustrated if Mr Sellar were correct. In a deficiency situation the interests of pensioner members were provided for first, and active and deferred members were treated separately, and provided with guaranteed minimum benefits. The earlier parts of rule 19 contemplated winding up in whole or part. Rule 19 (iv4) showed that the provision could apply to a single company. In a case where there was an initial deficit, and one employer could not afford to make his contribution, the deficiency would arise only as regard the employees of that employer. This demonstrated that a deficiency could arise in the case of a single employer only. It was plain that the intention was that rule 19 (iv) should apply as regard those employees. If there was a surplus, there was of necessity a resulting trust in favour of the employer. The scheme as a whole could not operate if rule 18 applied as proposed by the defenders. Mr Drummond Young argued that Mr Sellar's argument based on other triggering provisions was wrong. If one read rule 17 in the same way as Mr Sellar sought to construe rule 18, it could never be an answer. One would be left in a rule 18 situation without scope for the mandatory provisions to operate because there would be, ex hypothesis, no active member of the scheme. Pensioners and deferred members would be left in limbo. There would be no possibility of topping up, no cost of living increases, and they would simply have their accrued benefits under a scheme which was no longer able to operate as envisaged because there was no cont

In my opinion the construction of the material provisions of the constituent documents of the scheme cannot be resolved without proof. Counsel were agreed that the definitive trust deed and the rules suffered from certain imperfections of structure and expression, at least when viewed with the benefit of hindsight. There have been material changesdevelopments in the legislation governing the approval of retirement benefits schemes, and practice has developed over the last twenty-five years. It is necessary to bear in mind that the documents in issue pre-date many of these developments and may reflect a level of professional understanding of the requirements of drafting which was very different from that which would be found on enquiry now to inform those involved in such work. There may be difficulty in re-creating in evidence the commercial and professional atmosphere and understandings of the time. But the focus must be on contemporary, and not on subsequent, pensions law and practice. Superficially, and dealing with the issue linguistically, there are some apparent deficiencies in the language of the provisions already referred to. As a matter of language, it appears at first sight that rule 18 (a) distinguishes a sub-class of persons currently in the service of an employer going into liquidation. It is not clear why the draftsman introduced the expression "the persons in the service of the Employer" in this provision, given the definition provisions already provided and available for the identification of classes of persons who might be affected by winding up. One would incline to the view that it must have been to provide for some situation which would not be met by employing those definitions. But the point of such a distinction is not obvious. If the purpose were intended was to distinguish sub-groups of those who would be "eligible employees", but might or might not be "members" there would be no apparent purpose served by the distinction it would not be clear why that should be of interest. Persons who are not members, not having been admitted to membership, do not appear to be within the scope of the scheme at all, and would not naturally have been persons for whom the draftsman would have wished to make provision, or even to acknowledge. The definition provisions envisage the application of the scheme to directors and permanent staff employees, a relatively narrow group of officers and employees of participating companies in an industrial enterprise, and in that respect probably typical of schemes of the period. But so far as that is concerned the qualifying class would have been defined adequately as the class of members, with such additional limitations and exclusions, if any, as the draftsman intended. There might, at the relevant date, be persons admitted to membership who did not meet the specified criteria, on an exercise of the employer's dispensing power. But, in the context of rule 18, there would be no apparent reason why they should be treated in any different way from other current employees who were admitted to membership on satisfying those criteria. A winding up of the scheme could only be of relevance to members, so far as the persons currently in employment were concerned. Given the definitions of member and eligible employee, there is no obvious sub-class of persons in service who could ever be relevant to the operation of rule 18 (a). None is the subject of averment or referred to in parties' written representations. As a matter of language only, one might have understood a reference to a sub-class of members who were in the service of the employer, given the constituencies of the two groups, but that is not what is provided for. The structure and language of rule 18 (a) appears to give rise to perplexing problems in these circumstances.

The wider terms of rule 18 do not sit well with Mr Sellar's argument. Rule 18 (a) is disapplied where the liquidation or dissolution of a participating company is carried out for the purposes of reconstruction, reconstitution or amalgamation. In cases to which sub-rule (b) applies, the trustees are empowered to enter into agreements with employers in the reformed group, as if the members of the reformed group "were in fact the Employer or a continuance thereof" subject to provisions for the protection of pensioner members and dependants from prejudice. These provisions appear to envisage that provision may be made for beneficiaries other than active members in the event of liquidation or dissolution in circumstances within sub-rule (b), and that regard must in any event be had to their interests. Mr Sellar's argument that the provisions may simply be a reflection of caution on the part of the draftsman is not compelling as an aspect of a linguistic analysis of the rule, whatever impact it might have after proof. If Mr Sellar were correct in his construction of rule 18 (a), one would have a situation in which thought had to be given to the interests of deferred and pensioner members, and to dependants, on a reconstruction or amalgamation, but that there was no provision for such persons on liquidation or dissolution within rule 18 (a), whether following on insolvency or otherwise. It may be impossible at the end of the day to avoid the conclusion that something must have gone wrong with the drafting of rule 18 (a). But, in any event, there is something to explain about its language. I am not satisfied that one can proceed safely on linguistic analysis of the sub-clause without proof.

The search for a conclusive interpretation in the language of the definitive trust deed and rules as a whole is equally unrewarding, in my opinion. Counsel were agreed that, unless determined by the precise language of the sub-rule, construction of rule 18 (a) required to be considered in the context of the documents as a whole, and in the light of relevant circumstances. I shall deal first of all with the interaction of rules 18 and 19. Rule 19 provides:

Winding up is treated as an event, rather than a process. And the trustees are obliged to give notice of the event to each "Member or other person in receipt of benefit under the Scheme who is affected thereby". The requirement to give notice to other persons in receipt of benefit, set in contrast with the term "member", would appear to apply only to dependant beneficiaries. In the context of rule 18(a) it would appear to be clear that these words could not apply to employees who had not become eligible for membership. The words "who is affected thereby" would be redundant in relation to members in the current employment of the company in question. But they would have meaning in respect of dependants. It may be appropriate in these circumstances to construe "Member" quite generally. That would involve reading "Member" and "other person or persons in receipt of benefit" disjunctively as self contained expressions. That may be the correct view. One finds provision for intimation to active members of the scheme only by reading "Member" and "other person or persons in receipt of benefit" disjunctively in that way. If that is correct, the reference to "Member" then would be used to encompass retired employees in receipt of pension, deferred members, and active members as a single conglomerate grouping in a provision which, ex hypothyesi of Mr Sellar's approach to rule 18 (a), in a context such as the present, should contain only active, contributing members of the scheme. On any view the requirements for notice to the whole class of members would have content in the context of rule 18 as a whole case if Mr Drummond Young were correct in his approach to construction of sub-rule (a), but would appear to make little sense if Mr Sellar were correct. If the scheme were to be wound up only as respects employees in service at the relevant date, it would of necessity be continued in operation for members and dependants in receipt of benefit. It is not obvious that persons in those categories would be persons affected by the winding up, being outwith the scope of the winding up, and provision for notice in their case would be redundant. Again it might be that evidence of contemporary practice might shed light on the intent of such a provision. Further, the expression "the Scheme" is deemed to refer to the part relating to a particular employer where such a part only was to be wound up. These initial provisions themselves cause difficulty. The words "the Scheme or a part of the Scheme" appear to be quite general. The reference to "a part", in isolation, could apply to some of the range of benefits applicable generally. But it appears that that is not the intention, given the words in parentheses which follow. Those words themselves are difficultperplexing. There are at least two possible interpretations. They may contemplate that in the remainder of the rule the only part winding up situation which is contemplated is where the whole scheme relating to a particular employer is wound up. Alternatively they may contemplate that it is only where the scheme is wound up in part as it relates to a particular employer that the rule applies. The second alternative may make little sense. It would mean that the expression "the Scheme" in the remainder of the rule did not apply where as respects every participating employer the scheme was wound up in part. That could happen where, for example, the employers' pension arrangements were modified to exclude all directors on alternative provision being made for them, or all permanent staff other than directors if a wider scheme for all non-director employees were instituted. To be effective in such a situation, the provision would have tothen allow a distinction to be drawn between different classes of member. The provision is anything but clear, in its own terms an

It is necessary next to consider the wider context. Mr Sellar's analysis of rule 19 proceeded on the footing that it was that it was a provision of wide application and was intelligible in relation to the other circumstances in which it applied. Any infelicities is relation to rule 18 (a) were insignificant. The first relevant provision on this approach was clause Third of the definitive trust deed. Clause Third applies where a participating employer ceases to be a member of the L.A.W. group, in the sense necessary to ensure the continued approval of the scheme, as it related to that employer, under the Finance Act, 1970 provisions applicable at the time. In that event, the trustees are directed to procure the equitable apportionment of the assets of the scheme. The part of the assets relating to the seceding employer "and the persons in the service of such Employer" who are members are to be separated from the residue of the assets and that part of the assets is then applied either as if the scheme were wound up, that is under rule 19, or transferred to another scheme "in each case for the benefit of those Members who are employees of such Employer". It appears to me that this provision does not assist the resolution of the problem in the absence of evidence of relevant background facts and circumstances. It uses the same language as rule 18. As construed by Mr Drummond Young, the interests of retired and deferred members would require to be provided for, and the words "are employees" would require to mean members of the class of employee, whether current or past. There would be no provision for dependant beneficiaries on that view, however, and it may not be a satisfactory response to the point. As construed by Mr Sellar, the reference to persons who "are employees" would refer to persons currently in service at the date of the relevant event. If that were so, the impact of rule 19 would be the same as in the case of rule 18, and the clause would be subject to all of the criticisms already discussed. Mr Drummond Young pointed to the need to protect all members and other beneficiaries in this case as in rule 18. So one is no further forward, looking at the issue as one of language only. Both parties accepted that the material expressions would have the same meanings in clause Third and rule 18. There are difficulties which would require to be resolved on either approach. If Mr Sellar were correct in the construction he advanced, clause Third would leave unaffected the rights of members and dependants other than active employee members of the company leaving the group. But that might imply that those remaining within the scheme were caught in a relationship with a former employer whose status had so altered that the benefits provided by the residual scheme no longer had the advantages available to approved schemes. I am not persuaded that clause Third assists in the resolution of the issue without proof.

Rule 17 applies where the employers or some of them by notice reduce suspend or terminate their liability to pay contributions in respect of benefits for or in respect of members under the scheme without the concurrence of the members. The reference to members raises again the question of relevance of the identification of this class as distinct from all interested beneficiaries and future beneficiaries. Contributions might be required under clause Fourth (b) "in respect of the Members in or previously in" the employment of a participating employer. Deferred rights appear to be within the contemplation of the clause. The rule provides for notice to be given to "each Member who is an employee of the Employer which has given such notice and such notice shall identify .. which benefits or prospective benefits will be cancelled or reduced in consequence...". "Benefits" could be "cancelled", it appears, as distinct from prospective benefits, only in the case of persons already enjoying benefit, that is pensioner members of the scheme or dependants. It would appear to make little sense, if that were so, to provide for notice to members who were at the time employees, if that expression were to have the meaning for which the defenders contend. Again, therefore, it appears that precisely the same issues arise in relation to rule 17 as are found in rule 18 (a). Rule 17 (b) provides that the trustees have a discretion whether to wind up the scheme in the event of termination "so far as it concerns the employees of such Employer." Again the rule does not help as a matter of language alone. The expression "the employees" has no colour. It could mean the current employees or all employees. It clearly does not include beneficiaries who never were employees. But it does not point to a clear distinction between persons currently in employment and other classes of employee member.

Neither of these provisions so clearly provides scope for Rule 19 in relation exclusively to active members that one could reject Mr Drummond Young's interpretation without enquiry. On the contrary, the whole provisions referred to are open to construction in the light of the relevant factual matrix instructed by evidence. In my opinion, the provisions which refer to Rule 19 do not determine the issue. One must consider next the context in the most general sense to see whether there are other provisions which might assist in construction of rule 18. In rule 19, I was directed to the distinctions which are clearly drawn between sub-classes of beneficiary by reference to past service and current service at the relevant date. Those references certainly point to an appreciation of the need to distinguish the sub-groups in any distribution of assets. However that appears to be of little assistance in the interpretation of rule 18 (a) unless as Mr Drummond Young contends that sub-rule applies to groups which include the sub-groups so identified and provided for, and that is the main issue. I was referred to clause Fourth of the definitive deed. In that clause, there is, as already mentioned, a clear distinction between the sub-groups of "Members in or previously in" the employment of an employer. Mr Sellar also pointed to the distinctions drawn in the definition of qualifying service to which I have already referred. Mr Sellar contended that these provisions demonstrated that the draftsman was alert to the distinction and to the need to provide for the different classes where that was intended. Up to point one might agree with Mr Sellar. But it appears to me that in their context the definitions may have had a particular application to the position at the commencement of the scheme and very little application thereafter. If that is correct, the position would be sufficiently distinct to be of little help in the present context. But such issues would require proof of the circumstances obtaining prior to the coming into effect of the present scheme. There are in any event possible difficulties with clause Fourth and the use sought to be made of its terms. Firstly, there is no reference to the need, equally obvious to a careful draftsman as the need to mention present and former employees, to make express provision for the dependant widows and children of deceased members. Relevant benefits are provided for them in clause Twentieth of the deed. Secondly there is such a failure to use language consistently in this set of documents that one would be slow to infer from a casual acknowledgement of a relevant distinction on one occasion any view as to the intention elsewhere in the deed. None of these other provisions is determinative of the issue.

I have referred to the wider context provided by the Finance Act, 1970 and the regulations and practices developed under it. Evidence of the practices which had developed around the legislation at the material time could have a significant bearing on the proper interpretation of the definitive trust deed and rules. It would be inappropriate to anticipate that evidence. The commentary on section 208 of the consolidating Act of 1970 in Current Law Statutes noted that approval of a scheme under the pre-Finance Act 1970 regime was subject to conditions "around which a body of practice has been built up". I have already referred to the notoriety of the existence of such a body of practice. It would be wholly inappropriate to form or express any view on such a body of practice without evidence from qualified practitioners in the field at the time.

In my opinion, accordingly, the proper construction of rule 18 requires proof of relevant contemporary facts and circumstances. One would have inclined to such a view on the authorities in any event. But the language of the documents in this case is sufficiently obscure, and the context so particular that it would be difficult and dangerous to proceed without evidence. It would be premature to express any concluded view on the issue of construction between the parties until they had had an opportunity to lead the evidence they respectively consider relevant to the issue. The submissions after proof will reflect the evidence, and may differ considerably from those which I heard. The general statements of parties' positions in their written notes are sufficiently specific for development in due course in the light of what emerges at proof.

The defenders' plea of no title to sue can only succeed if, as a matter of averment or after preliminary proof, the pursuers have no material interest in the resolution of any difficulties there might be in the construction of the documents. Underlying the argument is the proposition that even if there were an actuarial surplus, no part of it would be available for distribution to employers. It is far from clear that that could be the test in any event. Whatever the valuation of the funds, the pursuers have a legitimate concern to ensure that the benefits intended for the former employees of the pursuer companies and the other beneficiaries participating currently or potentially in the funds are protected. And, until the construction of rule 18 is decided, there could be a surplus in which the pursuers might be entitled to participate, or there could be a deficit giving rise to a liability. There could be an asset in the receivership of one or more of the pursuer companies, or there could be a liability entitled to a ranking. In arriving at a view on these matters, it will be necessary to have full regard to the employee and other interests for which the pursuers have a responsibility. In the course of argument Mr Sellar accepted, correctly in my view, that the plea of no title to sue depended on success in the construction of rule 18 for which he contended. Without a concluded view on the issue of construction, there could be no proper basis on which those concerned to submit evidence of valuation could properly be instructed. In Hannah v Hannah's Trustees 1958 S.L.T. (Notes) 9, it was held that a beneficiary in a discretionary trust had an interest to sue even though the exercise of the discretionary power might not be to his financial advantage. The discussion in Lord Hamilton's opinion in the first case between the parties and the authorities cited there support the pursuers' interest in having the issues resolved. Given that approach, there is no basis for a determination of the question of interest to sue against the pursuers until the construction of the documents has been resolved. If there are issues of construction alive in the case which affect the position of the pursuers as parties to the scheme and which can only be resolved after proof they must have an interest to insist in the action. In Agnew v Laughlan at page 659 Lord Mackintosh said that before the court would entertain a bare action of reduction:

In the present case, the pursuers seek to resolve questions of their rights and obligations under the scheme in the events which have come about. That is an intelligible purpose, in my opinion. I shall repel the plea of no title to sue accordingly.

Since there was full argument on the application of the 1993 Act, I should make some comments on it. As the pleadings stand the pursuers have averments relating to the Pensions Act, 1995. The agreement that the liquidations began on 1 April, 1997 made it plain that the relevant statute was the 1993 Act. Section 144 provides that a deficiency in the case of an occupational pension scheme at "the applicable time" shall be treated as a debt due from the employer to the trustees of the scheme. Sub-section (3) provides:

Regulation 11 (3) of the 1997 Commencement Order applying to the 1995 Act provides that:

There is little difficulty in understanding the application of the 1993 provisions in a case where steps have been taken to wind up a pension scheme prior to the relevant insolvency event. The language perhaps lacks elegance. But it is plain that the "applicable time" is any time in the period between the commencement of the winding up of the scheme and the relevant insolvency event affecting the employer. If a debt is quantified in that period, it ranks in the insolvency of the employer as a debt which is taken to have arisen immediately before the relevant insolvency event. The problem focused in argument related to the word "otherwise" in section 144 (3) (b). In my opinion Mr Drummond Young's argument is to be preferred. "Otherwise" relates to the remaining cases not covered by sub-section (3) (b) in which there is a need to provide for the ranking of the deficiency as a debt in the insolvency of the employer. To read the word as referring only to the introductory words of paragraph (a): "if the scheme is being wound up before a relevant insolvency event", and as providing only for cases in which the scheme begins to be wound up on or after the relevant insolvency event would leave uncovered any case in which in the events which happened there was no winding up of the scheme prior to the dissolution of the company. In particular there would be no provision deeming a deficiency in such a case to be a debt ranking in the insolvency. The potential for a "black hole", as Mr Drummond young described it, is sufficiently real to be a cause for concern about the defenders' construction. The 1997 commencement order was clearly drafted on the basis that there were two situations only that required to be provided for, where the process of winding up the scheme had begun prior to the first operative date, and where there were debts which arose prior to the second operative date on an application of section 144. The gap between the selected operative dates may cause difficulties in some cases, but they are not material for present purposes. Since any deficiency which arose on a sound construction and application of the provisions of the scheme would be deemed to have arisen as a debt immediately before the insolvency event on 1 April, 1997, I consider that the pursuers would have an interest to insist in the present action on that basis also.

I shall repel the defenders' plea of no title to sue. The case will be put out By Order on 23 April 1998 at 10.00am for discussion of further procedure. on

for discussion of further procedure.