Commercial judge refuses to sift action for outstanding pension contributions raised by fund trustees

A commercial judge in the Outer House of the Court of Session has refused to sist proceedings brought by the trustees of a pension fund against the sole employer liable to pay contributions to it.

It was averred by the defender, British Polar Engines Ltd, that the matter of dispute in the action raised by Peter Morton, Gareth Robertson, and Stewart McLaughlin Davis fell to be determined by an arbitration clause in accordance with the terms of the trust deed that governed the fund.

The case was heard by Lord Braid. The pursuers were represented by Manson, advocate, and the defender by Young, advocate.

Funding shortfall

The pension fund involved in the dispute had been established in 1974 and governed by a trust deed and rules dated to 15 January 1982. The defender acceded to the scheme in 1987, and later became the sole remaining employer liable to pay contributions to each substantive part of the fund. The fund was categorised as an Occupational Pension scheme within the meaning provided by the Pensions Act 2004.

Having discovered a shortfall in the fund, the pursuers sent the defender a schedule of contributions that were payable from 31 March 2018 to 31 March 2031, which it signed in June 2017. The schedule also stated that contributions of approximately £117,000 per annum were payable in order to address the shortfall. It was averred by the pursuers that thus far the defender had failed to pay any of these contributions and owed the fund a total of £348,733.

It was contended by the defender that a claim for the unpaid contributions fell under the ambit of the arbitration clause contained in the 1982 trust deed, which provided that “all questions, disputes or differences as to the true intent and meaning of these Rules or as to the execution of the trusts of the Scheme” were to be referred to arbitration.

The pursuers disputed this position, arguing that the clause ought to be construed restrictively as relating only to the interpretation and execution of the trusts and not to the obligations of the defender. Counsel for the defender, drawing upon English authority, submitted that a reasonable person viewing the agreement would have understood the parties to have agreed to resolve all issues via arbitration, even those created by later documents.

Focused on trustees

In his decision, Lord Braid began by saying: “I do not proceed on the basis that there is a presumption against fragmentation of dispute resolution or to different agreements between the parties having different mechanisms for the resolution of disputes. The question here is simply whether, viewed objectively, the parties intended that the arbitration clause in the 1982 deed should apply to the agreement reached in the 2017 schedule.”

Considering the wording of the arbitration clause, Lord Braid said: “The disputes which fall to be referred to arbitration are qualified in two ways: either the dispute must be one as to the intent and meaning of the Rules , or it must be a dispute as to the execution of the trusts. The necessary implication from that wording is that there may be disputes which fall outwith the scope of the arbitration clause because they relate neither to interpretation of the Rules nor to the execution of the trusts.”

He went on to say: “The reference to the execution of the trusts does, as counsel for the pursuers submitted, focus on the behaviour or powers of the trustees rather than on the obligations of the defender. It is difficult to see how, on the ordinary and natural meaning of the words used, a dispute as to the obligation of the defender to make payment is one which can be viewed as a dispute as to the execution of the trusts, whatever the prevalence of that phrase in different contexts.”

Lord Braid concluded: “Having regard to the commercial background, and to the policy underpinning the schedule of contributions, the parties cannot objectively have intended that the jurisdiction of the court was to be ousted where the employer had failed to pay a contribution which was due. Such a result would undermine the underlying policy. While arbitration may be quicker than court action where both parties are willing participants, that is not invariably the case and arbitration offers greater scope for a recalcitrant debtor to delay matters.”

Addressing a submission from the pursuers that the defender had lost any right to found on the clause by virtue of section 10 of the Arbitration (Scotland) Act 2010, Lord Braid added: “By both lodging defences, and agreeing the joint note, the defender has failed to comply with the provisions of section 10(1)(d) read as a whole. Had I not repelled the defender’s first plea in law, I would in any event have refused the motion to sist (in consequence of which the arbitration clause would then have been rendered void in relation to these proceedings, by virtue of section 10(2) of the 2010 Act.”

The defender’s pleas in law were therefore repelled, and the case was put out by order to discuss further procedure.

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