Imperial Tobacco had been taken over by Hanson Trust plc, and the rule 64A was introduced as an apparent poison pill, because the previous position was that employees’ pensions were only updated ad hoc and usually below inflation.
Employees holding entitlements to the old scheme, if they transferred, would take their aliquot share, including surpluses (there was an estimated £130m at the time).
The trust alleged that, if the committee did have to obtain management’s consent to update the entitlements to keep pace with inflation, the offer given was a breach of a duty of good faith because it was compelling employees to forgo their acquired rights.
Sir Nicolas Browne-Wilkinson VC held that rule 64A could not be construed as allowing the committee to make increases without management’s consent.
However, the company management could not use its discretion to withhold its consent in a way that undermined good faith, and mutual trust and confidence.
A collateral purpose of coercing members to relinquish their accrued rights for the company to benefit from the surplus, was bad faith.