Mr Justice Warren:
- In this part 8 claim, the Claimant, Thales UK Limited, ("the Company") asks a number of questions concerning the meaning of the provisions of the Thales UK Pension Scheme ("the Scheme"). The Company is the principal employer under the Scheme. The first Defendant is the trustee of the Scheme. The second and third Defendants are parties to the Definitive Deed constituting the Scheme and Rules dated 9 January 2008 and carry out certain functions which are not relevant for the purposes of this claim. I shall refer to the Defendants together as ("the Trustees"), adopting the Claim Form in that respect. The questions raised are concerned with the powers which the Company and the Trustees have under the rules of the Scheme to change the index by reference to which (i) pensions in payment are to be increased and (ii) the rate of revaluation of annual salary for the purpose of calculating career average revalued earnings benefits is to be calculated.
- The current index by reference to which benefits are increased and revalued is the index commonly known as the Retail Prices Index, or RPI. The Company wishes to replace RPI with another index which will cost less to implement than RPI. The candidate index favoured by the Company is the index commonly known as the Consumer Prices Index, or CPI. I am concerned only with questions of construction of the rules. If, as a matter of construction, it is possible to change the index, separate questions will arise as to whether the Trustee will exercise such discretions as it has to effect the change or to consent to a change which the Company has power to effect.
- The Scheme is currently governed by the Second Definitive Deed and Rules dated 30 June 2008. The Scheme received transfer payments from some final salary schemes and, broadly speaking, it provides (a) final salary style benefits in accordance with the trust provisions and rules of each of the transferor schemes in respect of the benefits transferred in, and (b) career average revalued earnings ("CARE") style benefits in respect of service from January 2008. It is closed to new entrants.
- It is common ground that, in the case of provisions governing CARE benefits, the Court can answer the questions raised by reference to the rules relating to CARE for Former Racal Decca Beneficiaries, without having to consider the other Rules, which are mutatis mutandis in the same terms. The principal question here is whether the compilation of the RPI has been "materially changed" within the meaning of the relevant rule. I will refer to these rules as "the CARE Rules".
- Another group of members, transferred in from the Thales Optronics Pension Scheme ("TOPS"), are entitled to final salary benefits calculated in accordance with the Deed and Rules dated 16 September 1991 of the Barr & Stroud Limited Pension and Life Assurance Scheme. The principal question here is whether the RPI has been "otherwise altered" within the meaning of the relevant rule. I will refer to these rules as "the TOPS Rules".
- Although the Rules are long and complex, as the result of the merger of a number of schemes, there are not many rules to which it is necessary to refer. I take the CARE Rules and the TOPS Rules in turn.
- For the purposes of this case, I have been provided with the CARE Rules to be found in Appendix One and Two of Schedule One of Part E of the Rules forming part of the June 2008 Deed and Rules. The parties are agreed that the other relevant provisions in the Rules are materially identical. I mention the following:
i) Rule 4 deals with the calculation of the CARE pension. Rule 4.1 provides a formula for the calculation. The pension is (X-Y) x Z. "X" is defined as 1/720th of Averaged Revalued CARE Salary for each complete calendar month of Pensionable CARE Service earned up to the date when an active member leaves pensionable service. It is not necessary for present purposes to consider or understand "Y" and "Z" which concern certain deductions and a longevity adjustment factor.
ii) Rule 4.2 contains a number of definitions relevant to that formula.
iii) "Averaged Revalued CARE Salary" is (i) the aggregate of Revalued CARE Salary at each 1 April during pensionable service divided by (ii) the number of years in which the member was in pensionable service on a 1 April.
iv) "Revalued CARE Salary" is the active CARE member's salary "as at each 1 April revalued by the Revaluation Factor up to 1 April immediately preceding the date [when the member leaves pensionable service]".
v) "Revaluation Factor" is "the Revaluation Rate compounded over the Revaluation Period". That period is the period from 1 April to which the relevant CARE Salary relates to the 1 April immediately preceding the date the member leaves pensionable service.
vi) "Revaluation Rate" is "the rise in the Government retail prices index for all items compound each year for the "Revaluation Period". This is capped at the "Maximum Revaluation Rate" which is what the Revaluation Rate would be if the rise in that index was 8% compound for each year for the Revaluation Period.
vii) The rise in that index used for the Revaluation Rate is the one published before each 1 April for the immediately preceding month of September.
viii) Rule 14 deals with increases to pensions in payment. Increases can, for present purposes, be taken to be at "the annual rise in the published Government retail prices index for all items for the immediately preceding month of September". Increases take place on 1 April each year. In other words, the increase on 1 April in a particular year is assessed by reference to the increase in the RPI between the September 19 months earlier and the September 7 months earlier.
ix) It is not necessary to consider separately the benefits for early leavers. An early leaver is entitled to a deferred pension under Rule 6.2 calculated under Rule 4 up to the date when he leaves service with statutory revaluation on that amount.
- The critical provisions which I need to construe are found in Rule 4.2(vi) (so far as concerns the amount of the initial pension) and Rule 14.1(C) (so far as concerns increases to pensions in payment). Each is in identical terms and provides as follows:
"If the Government retail prices index for all items is not published or its compilation is materially changed, the Principal Employer, with the agreement of the Trustees, will determine the nearest alternative index to be applied."
The principal questions which arise are whether the compilation of the RPI has been "materially changed" and if so what are the candidates for the "nearest alternative index".
- The TOPS Rules are to be found in the Deed and Rules dated 16 September 1991 of the Barr & Stroud Limited Pensions and Life Assurance Scheme. I mention the following:
i) "Retail Price Index" is defined as:
"the General Index of Retail Prices maintained by the Department of Employment or any Index which may replace that Index for the purposes of determining the value of the principal on repayment of Index Linked Government Stock and which is approved by the Trustees for the purpose of the Scheme".
Although the RPI is no longer maintained by the DoE, it is clear that the current RPI falls within this definition.
ii) "Relevant Retail Price Index" on any particular date means the RPI figure applicable to the month which commences 3 months before the month in which that particular date occurs.
iii) Rule 4.4 deals with increases to pensions in payment. The rate of increase to pension in excess of guaranteed minimum pension is to be found in Rule 4.4.1(b) is
"the normal rate detailed in Rule 4.4.4, or such other rate, if any, as the Trustees, with the agreement of the Employer, shall from time to time decide…."
iv) Under Rule 4.4.4, the normal rate of increases is the lesser of (a) 5% pa compound and (b) the amount of the increases if any in the Relevant Retail Prices Index at the date of calculation over the Relevant Retail Prices Index 12 months earlier. But that is subject to the following provisos which are the critical provisions for present purposes:
"(i) if the Retail Prices Index is revised to a new base or if that Index is otherwise altered after a date which is relevant in respect of a pension in terms of this Rule, all subsequent variations in that pension will be on a basis determined by the Trustees having regard to the alteration made to the Retail Prices Index; and
(ii) if the Retail Prices Index is not published for a month for which it is relevant for the purposes of this Rule, a substitute figure determined by the Trustees will be used for the purpose of this Rule and no adjustment will be made in the event of the subsequent publication of the Relevant Retail Prices Index; and
(iii) if at the date on which a pension is due to be varied in terms of this Rule there are not Government Index Linked Stocks available for the investment of funds from exempt approved retirement benefit schemes, the variation in the amount of the pension will be on a basis determined by the Trustees and certified as reasonable by an actuary."
The principal questions which arise are whether the RPI has been "otherwise altered" and if so what are the candidates for the basis which the Trustees may determine.
- I set out in the Annex to this judgment the questions raised in paragraph 10 of the Claim Form and my answers to them.
- I have been presented with four expert reports, namely an initial report and a supplemental report from the expert for each side. I have also been presented with two joint statements following the initial reports and the supplemental reports. Neither expert was called as a witness.
- Both experts appear eminently qualified to give evidence concerning the function and compilation of price indices and the merits and demerits of the different indices available.
- The Company's expert is Mr Paul Johnson. He is currently Director of the Institute for Fiscal Studies. Before that (proceeding backwards in time) he has held posts as a Senior Associate at Frontier Economics (a large European economics consultancy), Director of Public Services and Growth Directorate at HM Treasury, Chief Economist and Director of Analytical Services at the Department for Education and Skills and Head of Economics of Financial Regulation at the (then named) Financial Services Authority.
- The Trustee's expert is Ms Jill Leyland. She has worked, first as a statistician and then as an economist, since 1968, in both public and private sectors. At different times, she has been a staff member of, or an adviser to, the Department of Trade and Industry (now the Department for Business, Energy and Industrial Strategy), the Organisation for Economic Co-operation and Development, the Economist Intelligence Unit, the Financial Times, the Central Statistical Office (now the Office of National Statistics), the former Department of Employment, British Invisibles (now part of TheCityUK), the World Gold Council and the Commodity Research Unit, as well as several smaller organisations. Throughout her professional life she has been either a producer of, adviser on, or a user of, economic statistics in the UK and overseas, including consumer price indices. She has been a member of the Royal Statistical Society since 1972. From 2006 to date, she been a member of its National Statistics Advisory Group (formerly its National Statistics Working Party), which is responsible for developing the Society's policy as regards official statistics.
- At this stage, I do not propose to address any detail of the expert evidence. I simply note that the experts were asked a number of questions by those instructing them. They produced lengthy reports and supplemental reports on which I have drawn in drafting this judgment. There is a considerable amount of agreement between Mr Johnson and Ms Leyland as indicated in the two joint statements. Where there is disagreement on a matter which I address, I hope that I have identified it.
Approach to construction
- The approach to construction of the Rules is common ground and is now well known. It is usefully set out by Lewison LJ in Barnardo's v Buckinghamshire  EWCA Civ 1064 ("Barnado's") at ff:
"8. The rules of a pension scheme are, in principle, to be interpreted in the same way as any other written instrument. As the Supreme Court said in Arnold v Britton  UKSC 36,  AC 1619 at  the court must focus on the meaning of the relevant words in their documentary, factual and commercial context.
"That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the [instrument], (iii) the overall purpose of the clause and the [instrument], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions"
9. Reliance on background and commercial common sense must not be allowed to undervalue the importance of the words of the instrument. In addition commercial common sense cannot be invoked retrospectively.
10. There are, however, at least three points of special relevance to the interpretation of pension schemes. First, all or almost all pension schemes are intended to be tax efficient and to comply with Inland Revenue requirements. So Inland Revenue requirements are relevant to their interpretation. Second, pension schemes should be interpreted to have reasonable and practical effect. Third, since the rules of a pension scheme affect all those who join it (in some cases many years after its inception) other background facts have a very limited role to play."
See also my judgment at first instance in Barnardo's  EWHC 2200 (Ch),  PLR 501 at  to  endorsed by Vos C at , and what he described as the "useful summary of the principles applicable to pension schemes" in Arden LJ's judgment in the British Airways surplus case  PLR 247, at  to .
- The expert evidence has enabled me to acquire an understanding of the compilation of price indices, of their different purposes and of the merits and demerits of different indices. I must be careful, however, in the use of that understanding when approaching the issue of construction, not to impute the understanding which I have gained to the relevant users of the Rules. In this context, the relevant users are the Company and the Trustees in which are vested the discretions to adopt a different index of basis of determination of variations to pensions. They are not experts in the field. In deciding whether there has been a material change in the compilation of the RPI for the purposes of CARE benefits or a relevant alteration to RPI for the purposes of TOPS benefits, they will need to take expert advice; they will need to take such advice as well in order to determine the nearest alternative index or the basis for ongoing benefit improvements. I do not consider it right to expect the Company or the Trustees to take advice (or be compelled to take advice in order to carry out their duties) from persons with the level of expertise of Mr Johnson and Ms Leyland. It cannot be right to expect them, through their advisers, to drill down into the sort of detail with which I have been provided, every time they need to consider whether some change to the RPI has resulted in a material change (CARE) or alteration (TOPS). A broader-brush approach is required, an approach which allows the Scheme to be operated in an administratively sensible and commercial way.
- Mr Ham says that the words must be interpreted as they would be understood by a reasonable person, not by an economist, or a statistician or a philosopher. Critical to that approach is what is meant by the "reasonable person". The understanding of a person in fact having no real appreciation of the compilation of price indices (which may well include the relevant human minds within the Company and the Trustees) cannot be the touchstone for interpretation. Such a person, being reasonable, would not venture an interpretation of his or her own – "well, obviously it means such-and-such" – but would seek advice in the way in which I have indicated in the preceding paragraph. If that is what Mr Ham envisages the reasonable person would do, I agree; but if he is going further, I would not agree.
- Further, I must take account only of the relevant parts of the expert evidence. To take one aspect by way of example, there has been an examination of the relative merits of RPI and CPI. In that context, Mr Johnson rejects RPI as a suitable index for upgrading pensions in payment or deferment. Indeed, so it appears to me, Mr Johnson considers that RPI is so flawed that it is not fit for any purpose. Although Ms Leyland recognises the shortcomings of RPI, she is of the view that it retains advantages over CPI for the upgrading of pensions and disagrees with Mr Johnson. This case, however, is not concerned with, and is not the place to debate, the suitability of RPI for that purpose let alone whether some other index, with CPI the main candidate advocated by Mr Johnson, is somehow "better". Still less should I take any account of the views of the parties on the respective merits of RPI and CPI as appropriate measures for increases in pensions.
- There is one other general point to make at this stage. As Mr Green submits, abstract appeals to the purpose of the provisions being to "protect members from the effect of price inflation" (as it is put in the Company's skeleton argument) are empty without an attempt to see what provision is actually made in these particular Rules as to how that should be done. Of course the purpose of the provisions is, at a high level, to protect members from the effect of price inflation. Both RPI and CPI achieve that. The question is how is that protection to be afforded; and that is a matter of construction of the relevant rules which do not spell out in unequivocal terms how it is to be done.
Compilation of an index
- In order to interpret the CARE provision, it is necessary to understand what is involved in the compilation of an index, in particular the compilation of RPI. This is obviously so since we are concerned to identify a material change in the compilation of the RPI. Such an understanding will inform what it means for the RPI to be altered within the meaning of the TOPS rules.
- The experts are agreed that the words "compile" and "compilation" are not terms of art. They are agreed that the words are not strictly defined in a statistical context but there is a generally accepted sense that it covers the steps needed to construct the index. It appears to me that this generally accepted sense of the words is eminently sensible and is one which I propose to adopt. It is also agreed that the word "materially" does not have any special technical sense in the context of "compilation is materially changed". It is ultimately a question for the Court whether the circumstances of the present case have given rise to a change which is material.
- The elements involved in compiling an index include the following:
i) the basic concepts, principles and classifications underlying the index;
ii) the scope or coverage of an index, including population coverage;
iii) the make-up of the basket of goods and services; the weighting attributable to items in the basket, and the underlying methodology governing the application and management of weights;
iv) the source of price quotes;
v) price collection, including the methodology for price collection;
vi) the methodology for aggregating and averaging prices and their change over time;
vii) chain linking;
viii) adjusting for changes in quality;
ix) the process and methodology for substituting items;
x) the process of continuous improvement, both to ensure that the basket of goods and services reflects consumer preferences and behaviour, and to ensure that data on spending patterns remains useful and accurate;
xi) governance arrangements for production of the index and making of any changes to it.
There are doubtless other elements but it is not necessary to identify them or refer to them for present purposes.
- Elements i) and ii) determine how the purpose and aim of the index is defined in practice and are in general terms more fundamental elements than the other elements.
- The compilation of any well-managed price index will in practice never be static. This is true of both RPI and CPI (and what have been referred to as their families, which I will come to). As Ms Leyland puts it (with which I agree):
"If the index is to be fit for its fundamental purpose, whether that is to measure the inflation experience of households or in the general level of prices, it has to evolve to follow changes in society, lifestyle and product availability, as well as new sources of information or statistical techniques."
- Ms Leyland's view is that this non-static, or 'dynamic' aspect of a consumer price index is part of its inherent working and machinery. I do not understand Mr Johnson to disagree with that. Where they part company is over the questions of whether an adjustment (to use a neutral term) to the compilation of an index is a change in the index and whether a change is material. I will return to those questions later, but in the broadest of summaries, Mr Johnson takes the view that in assessing whether an alteration materially changes an index it is permissible to take into account the effect of that change and it is permissible to take into account the cumulative effect of a series of alterations. As we will see in due course, one alteration (namely, to the way in which clothing and footwear are taken into account) took place as part of the ordinary good management of the index. It had the wholly unanticipated effect of increasing the RPI by a significant amount. Ms Leyland considers that material changes to compilation are changes to the construction of an index which "go to the conceptual foundation of an index from which it is constructed and which therefore make it in some sense a changed index." She does not consider that the effect of an alteration taking place as the result of dynamic evolution of the index can be said to be a change in that sense. For there to be a change, or at least a material change to the RPI, there has to be an alteration which goes to the concepts underlying the RPI, or affects the essential character of the index. As she puts it:
"3.5 This non-static, or 'dynamic' aspect of a consumer price index is a part of its inherent working and machinery. The working through of these features is not a change to a given index as such, but the index in operation. It has to evolve.
3.6 On the surface these inherent "changes" [ie those mentioned in the quote in the preceding paragraph] can be quite frequent for one or more of the following reasons:
a) to reflect changes in purchasing patterns or new goods and services that become available;
b) to reflect new information that becomes available;
c) to incorporate new and improved statistical or computing techniques;
d) as a result of improved knowledge or understanding or to correct imperfections that become apparent.
3.7 Changes falling within these categories are part and parcel of the normal management of an index. Lifestyles and goods and services, and the information and techniques available, can alter radically over time. Changes designed to adapt to this are simply part of the ordinary good management of an index, to ensure it remains true to its fundamental purpose."
- Subject to one point, I do not understand Mr Johnson to disagree with that. But even if he does, I accept it as accurate. The caveat is that Mr Johnson and Ms Leyland have different approaches to what is material.
RPI and CPI – similarities and differences
- It is common ground that in the UK there are two "families" of consumer price indices: RPI and its derivatives, and CPI and its derivatives. It should however be noted, as Ms Leyland does, that the 'derivatives' are no less proper indices than RPI and CPI themselves.
- There is also a large measure of agreement as to the characteristics of those indices:
i) They have much in common in that both are based on a fixed basket of goods and services, updated annually.
ii) RPI is primarily designed to measure inflation as experienced by "typical" households.
iii) Although the CPI is in theory revisable (it must be revised if an error is discovered) in practice, it is effectively non-revisable. RPI is not revisable. Once RPI has been published for a particular period, it is never revised, even if an error is discovered. Ms Leyland considers that this is because of its widespread use in contractual and other private arrangements, where the published figure may already have been relied on. I do not know if Mr Johnson agrees with that: it seems a common-sense conclusion but nothing turns on it.
iv) RPI and CPI have a different population base: CPI is based on spending by the whole UK population and spending by foreign visitors. RPI excludes institutional households, foreign visitors, the top 4% by income and pensioner households dependent on state pensions and benefits for 75% of their income. It includes, at least notionally, spending by UK households abroad. I add that an exclusion can be achieved in respect of a large proportion of the contents of the "basket" only by weighting: see further at [70(v)] below.
v) CPI excludes owner occupied housing costs. RPI includes mortgage interest, a measure of depreciation, council tax, ground rent, building insurance and conveyancing fees.
vi) At the elementary stage of aggregation (the initial stage of aggregation where weights are not known), both indices use weighted averages for approximately one third of items. RPI uses Dutot for approximately one third and Carli for approximately one third of items. CPI uses Dutot for approximately 5% of items and Jevons for all items where weighted averages or Dutot is not used. Dutot and Carli are both arithmetic means; Jevons is a geometric means. RPIJ uses Jevons where RPI uses Carli. I add my conclusion on the evidence overall that the difference between use of arithmetic and geometric means is the single most important difference between CPI and RPI.
vii) Mr Johnson has produced at Table 10.1 of his first report a table showing the main characteristics of four indices – CPI, CPIH, RPIJ and RPI (as to CPIH and RPIJ, see below). This Table is agreed. He has also set out at Table 10.1 a list of the variant price indices published by the ONS with a brief description of how they vary from CPI or RPI as the case may be. I add that there is one index which is not on the list, namely RPIJ, which has been produced since 2013 in order to analyse the impact of using different formulae, and which uses the Jevons formula rather than the Carli formula. It is agreed that RPIJ is different from RPI in only one respect in that where RPI uses Carli, RPIJ uses Jevons. RPIJ uses Dutot where RPI uses Dutot. It is also agreed that RPI-X is the same as RPI except that it excludes mortgage interest rates; CPIH is the same as CPI except that it includes owner occupied housing costs measured by the rental equivalence method.
viii) It is agreed that RPI is not used as extensively as in the past and that it has been replaced by CPI for a number of purposes especially by Government, but that it is still widely used including in private sector pension schemes.
ix) RPI no longer has national statistic status reflecting concerns over a fundamental element of its calculation (that is to say the use of Carli). The National Statistician strongly discourages RPI as a measure of inflation.
- However, there is some disagreement:
i) The experts disagree about the current purpose of the CPI. It is agreed that its initial purpose was somewhat different from RPI. As Ms Leyland explains, the UK Harmonised Index of Consumer Prices ("HICP") reflecting European requirements, it was designed to compare inflation rates between countries; the HICP for Eurozone countries combined is also the inflation target for the European Central Bank. This difference in purpose is apparent in the initial EU regulation setting out the framework for the HICP:
"Whereas there is a need for the Community and particularly its fiscal and monetary authorities to have regular and timely consumer price indexes for the purpose of providing comparisons of inflation in the macro-economic and international context as distinct from indexes for national and micro-economic purposes..."
ii) Ms Leyland considers that the purpose of the CPI has not changed. She accepts that it is used by Government in a number of ways but that it was not designed for such use and in her opinion has a number of disadvantages for such use. She agrees that it is the ONS's headline index but points out that the ONS is always careful to leave it to users to decide on its suitability. Mr Johnson believes it is, and is intended to be, a measure of consumer price inflation across the economy and is not in any sense just a "macroeconomic" measure as Ms Leyland contends. I do not need to resolve this difference, which in any case I see largely as a difference of emphasis.
iii) Although it is agreed that RPI is not used as extensively as in the past (see [29 viii)] above), there is a disagreement which is a question of emphasis. For the detail, which I do not think is relevant, see item 4 on the first agreed experts' statement.
- The experts agree that there have been the following developments, including a very recent development:
1991 – 2008: relevant only to TOPS
i) 1993 community charge replaced by council tax
ii) 1993 inclusion of foreign holidays
iii) 1994 inclusion of domestic holidays
iv) 1994 inclusion of a measure of depreciation in owner occupied housing
v) 2004 introduction of hedonic methodology
2008 onwards: relevant to TOPS and CARE
vi) 2010 changes to the price collection for some items of clothing and footwear
vii) 2010 change to the measurement of mortgage interest rates from using the standard variable rate to the average effective change rate
viii) 2011 improving the treatment of seasonal items by using price movements in similar items for missing months
ix) 2012 estimating new car prices by reference to prices from car dealer websites rather than movements in second hand prices
x) 2013 change to the collection of private housing rents by using rental data from the Valuation Office Agency rather than from private letting agents
xi) 2013 the UKSA (through the ONS) announced that it would "freeze" the formula used to determine RPI (although it is not common ground that this is a change at all)
xii) 2017 change to house price index
- As to item xi), the background, which I take from Ms Leyland's first report, is this:
i) In 2011 the ONS started a major investigation into the formula effect (which I explain in a moment) testing whether alternative price collection methods for clothing (and some other items) would reverse the widening seen since 2010, assessing the statistical merits of the different formulae and investigating international practice.
ii) This led the ONS to propose changing one of the formulae, the "Carli", used in the RPI and it started a consultation on this. As she explains later in her report, the consultation following this investigation showed considerable opposition to any change in the basis of calculation of RPI.
iii) Faced with this response the then National Statistician recommended to the Board of the UK Statistics Authority (UKSA) - which is the governing body of the ONS - that the basis of calculation of the RPI should remain unchanged.
iv) She further took a decision regarding future developments to the RPI. That decision has subsequently been described as a decision to 'freeze' the RPI, apart from required updating. The word 'freeze' has been used by way of description for ease, but quite what this decision involves was and remains quite unclear – it is not apparent that any practical effect has been had on the basis of compilation of RPI since the 'freeze' was introduced. It does appear clear, however, that routine changes will be made to keep the RPI 'fit for purpose'.
- It is agreed by the experts that the decision to freeze falls into a different category from other changes. It is not a single specified change to methodology. Rather it is a stated change in intent which could see the RPI not being improved and updated as in the past and hence could see it change relative to what would have happened had no such decision been made. It refers to something that may or may not have an effect on compilation in the future. To date, as far as the experts are aware, it has not had an effect.
- Although the questions of change, materiality and alteration are ultimately for the Court, the experts have both expressed views about these matters and in particular about materiality. It would have been difficult for them to have avoided expressing some view about materiality in particular in explaining how compilation of an index is carried out and how the impact of changes to compilation flows through to a change in the level of the index at any stage.
Construction of CARE Rules
- Although the arguments concerning CARE and TOPS overlap to some extent, it is important to note that the answers in each case may be different, depending, as they do, on the precise meaning of the words used in each set of Rules. I therefore propose to address the CARE Rules first and, as a separate exercise, then to address the TOPS Rules.
The CARE Rules
- The critical provisions of the CARE Rules, Rules Rule 4.2(vi) and Rule 14.1(C), contain two limbs. The first limb describes a gateway (to adopt the word used by Mr Green) which comprises two subsidiary limbs, namely (i) the non-publication of the RPI and (ii) a material change in compilation. The second limb describes a destination. Having passed through the gateway, the Company and the Trustees do not find themselves in an unrestricted space where they can do whatever they like about the level of the initial pension or its increase once in payment. Instead they can enter only the door marked "nearest alternative index" where they may find a (limited) selection available to them. They have no entry permit to pass through the different door marked "best available index" unless, perchance, there is a single door bearing both markings.
- The present case does not concern the first of the two subsidiary limbs. The RPI has not ceased to be published. That was the decision which the Court of Appeal (upholding my decision) reached in Barnado's in the context of the relevant rules in that case. (Parenthetically, I note that this point, as I understand it, is not being pursued in the application to the Supreme Court for permission to appeal.) The present case is concerned only with whether there has been a material change to the compilation of the RPI. That is not to say that the first subsidiary limb is not relevant. In my view, it is relevant to the point of construction because the first subsidiary limb informs the meaning of the second.
- I have already addressed the approach to construction. Both the background to the drafting of the CARE Rules and the purpose of the provision in the Rules are relevant.
- As to background, Mr Ham contends that the relevant background includes the general awareness (or rather lack of it) of CPI at the date when the CARE Rules were made, January 2008. He points out, correctly, that CPI was not in common use in the way that it is today. The awareness of CPI, he says, arose as a result of the 2010 emergency budget when CPI was introduced as the measure for public sector schemes and statutory revaluation. There is, I observe, no evidence about that and I am not sure that I can take judicial notice of it.
- Why does Mr Ham consider that this point is of any importance? It is because, according to him, the parties would not have appreciated the differences between RPI and CPI. True, they could have taken advice from an expert and compared and contrasted RPI and CPI. But that cannot be taken as relevant background material because the draftsman would not have had it in mind and would have simply adopted RPI without really thinking about it. Mr Ham raises this point in order, I think, to counter Mr Green's submission that the adoption of RPI was a "deliberate choice" taken in the context where CPI was an alternative available index. I can sympathise, in this context, with Mr Ham's suggestion that it is wholly unrealistic to think that the advisers to the Company and the Trustees would have sat them down and explained the detail of RPI and CPI and asked them to make a choice. It would be pure speculation to reach any conclusion on that, so I cannot accept Mr Green's submission that this was a "deliberate choice" if by that he means a conscious informed decision on the part of the relevant minds of the Company and the Trustees.
- As to purpose, Mr Ham submits that the purpose of the provision is to protect members from the effects of price inflation. He rejects the proposition (which he imputes to the Trustees) that the purpose was to confer benefits based specifically on RPI. I do not consider that this submission assists. It is of course true that, at a conceptual level, the purpose of the provision is to provide some level of protection against inflation. It is, however, only by a detailed analysis of the provision that it is possible to understand what the level of that protection is intended to be. The RPI, for all its flaws, remains an index which still fulfils precisely the purpose which Mr Ham identifies. Some people, including Mr Johnson, clearly consider that another index – notably CPI – provides a better method of fulfilling that purpose; others, including Ms Leyland, consider, however, that RPI has advantages in the context of pension protection. That divergence of view provides no warrant for discounting the importance of RPI when it comes to (i) determining when the gateway conditions are fulfilled or (ii) identifying the nearest alternative index when those conditions are fulfilled.
- It is common ground that an alteration in the compilation of the RPI which is methodologically significant will constitute a material change for the purposes of the CARE Rules. Thus, had RPIJ been brought about not as a new index but as a change to RPI, that would clearly have been a material change: the substitution of Jevons for Carli would have changed in an essential way the compilation of the RPI; and this would be so even if, in the event, albeit a highly unlikely event, the actual impact turned out, for whatever variety of factors arising, to be negligible. Mr Ham submits that a change which is not in itself methodologically significant but which has a significant effect on how the RPI behaves will also satisfy the test (the word significant is his in both instances). A change may not be methodologically significant either because it is not a methodological change, but simply one of the routine changes which I have mentioned, or because, although methodological, it is not significant. In the first category falls the change in 2010 to the way in which clothing and footwear are treated in compiling the RPI. Although of itself not a material change in the RPI, the significant effect of the change results, on Mr Ham's submissions, in a situation where "its compilation is materially changed".
- In my judgment, Mr Ham's submission is to be rejected. As a matter of language, what needs to be identified is a material change in the compilation of the RPI. The gateway is not stated to include either (i) a change in compilation having a material effect on the index or (ii) a material change in the index. If (ii) had been the case it would then be arguable that the change could be in the compilation or the effect of the index. But that is not the actual position, so that the provision has to be construed, if the Company is to succeed, in sense (i) notwithstanding an absence of express words to that effect. I appreciate, of course, the weakness in the common argument in construction cases that if a draftsman meant X but did not expressly say so, he could easily have added a few words which would have made that result clear; and that he did not do so shows he cannot have meant X. I am bound to say, however, that the most natural meaning of the words actually used – "its compilation is materially changed" – directs attention to the actual compilation and not to the impact which that change might have. The present case is not one where the draftsman could have made matters clearer; rather it is one where it is unlikely that he would have used the words which he actually did if he had intended them to have the meaning for which the Company contends.
- I say "might have" in the preceding paragraph because there will be many circumstances where the actual impact is not anticipated. Indeed, in the present case, the actual impact of the change in relation to clothes and footwear in 2010 was not anticipated; the change was part of the routine review of the RPI to keep it up-to-date and fit for purpose. There was no work carried out to attempt to ascertain the likely impact. It is an unsatisfactory aspect of the construction for which Mr Ham contends that the Company and the Trustees will not necessarily know whether a change in the compilation of the RPI is material when the change is made or even for a considerable time thereafter. An unexpected impact of a change, such as in the case of clothes and footwear in 2010, might not become apparent for some time. I understand that the impact of that particular change did become apparent quite soon after it had been made; but that will not always be so. Indeed, it may even be that the actual material impact does not occur – rather than simply not become apparent – until much later.
- In this context, if a material effect is to be treated as giving rise to a material change in compilation, then the question arises: When does the change take place? If the impact of a change does not occur for a considerable period, or even if it occurs earlier but does not become apparent until later, it cannot be said, when the actual change takes place, that it is material. When the material impact occurs, there is no change in the compilation since that had already taken place a considerable time earlier. It cannot, I think, be right that the change is somehow retrospectively to be treated as material: revaluation and pension increases in the interim are surely to be left in place. This suggests strongly to me that it is wrong to construe the provision in the way for which Mr Ham contends.
- Moreover, the approach which rejects effect as relevant is supported by reference to the first subsidiary limb of the first limb of the provision. This provides a gateway when the RPI is not published, typically its permanent discontinuance. That limb is clearly concerned with the operation, and not the effect, of the provision. That lends support to the view that the second subsidiary limb is also concerned with operation and not effect.
- It is relevant, when construing the provision, to consider what the results of the rival contentions would be. I do not need to consider the questions of construction of the second limb which arise whichever approach to the meaning of the first limb is correct, since the answers would not favour one construction of the first limb over the other. Such questions would include, for instance, whether the nearest alternative index (Index A) determined by the Company (with the agreement of the Trustees) is then entrenched or whether instead (i) it is possible to adopt different alternative indices from time to time depending on which is nearest to RPI as it stood before the material change in compilation and (ii) a material change in Index A triggers the provisions and if so whether the new nearest alternative index is to be determined by reference to RPI or Index A.
- It is helpful, in contrast, to consider the nature and extent of the duties of the Company and the Trustees in determining the nearest alternative index. If there is a material change in compilation, the Company is under a duty to determine an alternative index and the Trustees are under a duty (a fiduciary duty) to consider whether to agree to the Company's determination. If the effect of a change in compilation is to be taken into account, the Company will need to engage in a constant monitoring of the RPI. It will not be enough to look each year at the changes in compilation but it will be necessary to examine on a regular basis precisely how and why the level of the index has changed and the extent to which particular past changes (perhaps a considerable time in the past) have had an effect on that level. The Trustees too, in deciding whether to agree to the Company's determination, will need to consider the same matters in order to satisfy themselves that there has been a material change in compilation.
- In contrast, if effect is not relevant, then all that needs to be done is to consider changes in compilation. Routine changes of the sort which I have already mentioned to keep the index fit for purpose can be ignored: indeed, on one view it would not be necessary even for the Company to consider these changes but only to satisfy itself that no changes other than routine changes have been made. Changes of a non-routine nature would be likely to be given some publicity and would no doubt come to the notice of the Company's and the Trustees' professional advisers and be taken account of accordingly.
- It seems unlikely to me that the draftsman intended to cast on the Company and the Trustees the onerous obligations which follow from the Company's contention that the effects of a change in compilation are relevant to the question whether there has been a material change in compilation. This lends support to the conclusion which I have already reached that such effects are not relevant.
- It follows from this conclusion that Mr Ham's argument based on the cumulative effect of a number of sequential changes to the RPI must fail. Indeed, the obligations on the Company and the Trustees which I have considered in  above would be even more onerous. Since the effect of a change in compilation cannot of itself result in a material change in compilation, so too the cumulating of such changes cannot do so. Mr Ham's submission, reflecting Mr Johnson's expression of his opinion on the ultimate question which is for me, relies on the cumulative effect of the changes, each of which taken by itself (subject to the exceptions to which I will come) is immaterial. I do not understand him to argue that the changes can be taken cumulatively to establish a material change in the compilation of the index independently of their cumulative effect.
- There is, in any case, a conceptual difficulty which provides a separate reason for rejecting Mr Ham's submissions about the cumulative effect of the changes in compilation. If a change ("the earlier change") takes place which is not, of itself, material in its effect (and therefore even on Mr Ham's approach not a material change) the RPI continues to be the applicable index. But it is that index as altered by the earlier change which is then the relevant reference index by which a subsequent change ("the next change") is to be judged. It is not possible, on the next change, to refer back to the RPI as it was before the earlier change (so as to cumulate its effect with that of the next change) in assessing the materiality of the next change. A similar objection would apply to the cumulating of changes in compilation not based on their cumulative effect but on the materiality of the change as a change in compilation.
- The expert evidence shows that routine changes in the compilation of the RPI are an inherent aspect of its maintenance as an index which is fit for purpose. Having rejected the effect of the changes as a relevant factor in assessing materiality, my judgment is that routine changes in compilation adopted to improve the RPI and keep it fit for purpose are not material changes in its compilation; a routine change in compilation will never be a material change.
- The experts have reached a measure of agreement about which of the changes to RPI since 2008 fall within the category of changes of a routine nature inherent in the maintenance of a well-managed index. The position is now as follows:
i) It is agreed that the treatment of mortgage interest rates, seasonal items, estimating new car prices and use of new rental data considered individually are not material changes in compilation as they were improvements in data or methods that can be considered as normal management. Since I have rejected effect and accumulation as relevant, it follows that these changes did not satisfy the gateway test.
ii) It is agreed that the change to the collection of clothing and shoe prices in 2010 was intended to be minor. It is agreed that the changes in procedure were minor. Although the joint statement does not expressly so state, I conclude that, taken in isolation and ignoring its impact, this change was not a material change in compilation of the RPI. Although it is common ground that the evidence points towards the impact of inflation as measured by RPI having been significant and that this change led to a significant divergence between RPI and CPI, I have rejected Mr Johnson's approach to the relevance of the effect of the change and concluded that that effect is not relevant in considering the materiality of the change in compilation. The result is that the change in relation to clothing and footwear was not a material change to the RPI.
iii) There is one other point in relation to this last change which I should address. It is suggested on behalf of the Company that the change, through the operation of the Carli formula, made RPI a worse measure of inflation which, on the Company's case, is a factor to be taken into account in assessing materiality. Mr Johnson's view, as recorded in the first joint statement, is this:
"This change was clearly material. It not only raised inflation as measured by the RPI it substantially increased the upward bias in inflation as measured by the RPI. It also increased the gap between the RPI and other more accurate measures of inflation like CPI and RPIJ, with the gap between RPI and CPI widening by about 0.5% per year, a very substantial change. This rendered RPI substantially more wrong (less accurate as a measure of inflation). It directly precipitated the decision to remove national statistics status from the RPI and the national statistician's warning to users to avoid using the RPI wherever possible."
That is no doubt all perfectly correct, reading "clearly material" in the first sentence as "clearly of material effect". But nothing which Mr Johnson says here detracts from my conclusion. Once it is accepted that a material effect does not lead to the conclusion that a change in compilation which brings about that effect is a material change, it is beside the point that that material effect arises because of a deficiency in RPI.
- I need to consider next the two most contentious areas – the so-called "freeze" and the change in 2017 to the house price index.
- So far as the so-called "freeze" is concerned, the experts have reached a measure of agreement as explained in  above. Mr Ham nonetheless contends that the freeze constitutes a material change in the compilation of RPI whereas Mr Green submits that it is not a change at all, let alone a material change. To resolve that dispute, I must go into some detail.
- Mr Ham describes the freeze as a policy decision to limit the extent to which RPI will be revised in the future. In the past, RPI was subject to continuous improvement; but that, he says, has ceased. There remains some uncertainty as to the scope or extent of the freeze, but the Company's position is that the decision to limit future revisions can itself be seen as a material change.
- In January 2013, the Consumer Prices Advisory Committee announced the following recommendation by the ONS:
" …the basic formulation of RPI is accepted as currently defined, and that any future changes should be limited to issues such as the annual update of the basket and weights, improvements to data validation and quality assurance etc…"
- This policy decision was reflected in the ONS's assessment of the compliance of RPI with the Code of Practice for Official Statistics in March 2013. The review stated:
"Compliance with the Code requires producers to seek to achieve continuous improvement in statistical processes. ONS now proposes that "the basic formulation of the RPI is accepted as currently defined and that any future changes should be limited to issues such as the annual update of the basket and weights, improvements to data validation and quality assurance etc". The Assessment team considers that the decision to effectively freeze the formula used at the elementary aggregate level in the RPI, and contemplate only "routine" changes is inconsistent with the requirement in the Code to seek to achieve continuous improvement."
- In March 2016, the National Statistician, John Pullinger, clarified this decision, saying:
"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 making methodological changes to the RPI if to not do so would inhibit the improvement of CPIH and the Consumer Prices Index."
- The experts agree that the effect in practice of the decision to freeze RPI going forward is uncertain. But what is clear, in Mr Ham's submission, is that the ONS has decided that methodological changes will not be made unless such a stance would otherwise inhibit the improvement of CPIH and CPI. He contends that this represents a major break with past practice, and a substantial qualification to the policy (representing an inherent feature in the compilation of RPI) that RPI must be subject to a process of continuous improvement.
- It is therefore submitted that the decision to freeze RPI for the future amounts to a material change to the compilation of RPI. It is not necessary to identify precisely what impact this will have. The material change is the policy to freeze RPI itself, not the manner in which it is to be implemented in practice.
- Mr Green submits that this is all wrong. There are, he says, two reasons why the freeze cannot possibly constitute a "material change" in the compilation of RPI. Taking verbatim from his skeleton argument:
"First, it is not even a change in compilation. It is simply a stated change in policy potentially affecting whether there may occur certain changes in the future. Second, and fatal to any suggestion that it can be held to be material, no one in fact knows what that change in policy actually will involve for the RPI in the future. It may be that at some stage in the future as a result of this change in policy there will be a material change in compilation. More likely, given the wording "freeze", the result in the future will be that there will not be a change in compilation, let alone a material change in compilation. But whatever, nothing has actually happened yet, and there is no way of knowing whether or when it might."
- In the light of the uncertainty just identified, Mr Green contends that the extent of the agreement between the experts disposes of any suggestion that this is a "material change" in compilation:
i) First, they are agreed that it is not a change in the compilation of RPI itself, but a change in future intent: see  above. He says that they are also agreed, in that regard, that there have not actually been any changes in compilation attendant on it yet; it is possible only to speculate whether there may be in future. That is not quite right. What the experts agree is that the freeze refers to something that may or may not have an effect on compilation in the future: that effect could be that a change in compilation will not be made when otherwise it would have been. It is not so much that there will be changes attendant on the freeze; rather it is that there will be a lack of changes attendant on the freeze.
ii) Secondly, the experts are agreed that it is impossible to know on the basis of the statements of the ONS what the policy in fact involves: where the line lies between the "routine changes" which it is said will still be made and those other changes which are precluded by the new policy. Thus the experts' joint statement contains these two items:
"We both consider that the March 2016 statement, as did its predecessor, leaves considerable doubt as to its exact meaning and its future effect. It may or may not make a material difference to the future compilation of the RPI – we are unable to say…Whatever actually happens we agree it could be taken as implying a change in intent with respect to compilation. But what that change might be we are unable to say…
We agree that it is not possible to say whether this will lead to a material change in compilation or not…though it could be taken as implying a change in intent with respect to compilation. Rather as indicated above it is a stated change in intent which could see the RPI not being improved and updated as in the past and hence could see it change relative to what would have happened had no such decision been made."
- On this issue, I prefer Mr Green's submissions. It is not really possible to elaborate on them. In my judgment, the "freeze" is so opaque and its consequences so unpredictable that it cannot sensibly be described as a change in compilation at all. And the fact that it appears to have had no effect, let alone a material effect, on the level of the index suggests that there has been no material change in compilation even on the Company's approach to materiality.
The house price index
- It has recently come to light that there is to be a change in the housing components of the RPI. Previously, the housing cost component of RPI was measured using the House Prices Index ("the HPI"). However, the ONS has started publishing a new house price index ("the UK HPI"), and a specially tailored version of this is to be used instead in future in RPI.
- The changes and the reasons for them appear in the experts' joint statement; they both consider the UK HPI to be superior to HPI. It is agreed that the adoption of UK HPI is a change in the compilation of RPI. The ONS considered this change to be "non-routine" which I find as a fact to be the case.
- Reasons for proposal to make the change: The UK HPI is based on substantially more sources of data than the HPI and includes cash purchases, accounting for around 30% of house purchases, which the HPI excluded. The experts consider that the changes appear to have been made for two reasons. First, the new house price index is substantially superior to the old one and ONS seem to have judged that the disadvantages of change, and of the fact the new index does not reflect the RPI's reference population as closely as the previous one (see below), are outweighed by the advantage of moving to a better measure. Second, since the HPI is no longer needed for other purposes it would be inconvenient, expensive and potentially confusing for the ONS to continue it solely for RPI purposes. Such compromises are not infrequent in economic statistics. This is all common ground.
- Manner in which UK HPI will be introduced to RPI: A special version of the UK HPI will be compiled for RPI purposes (just as a special version of the HPI was compiled in the past). The special version of the UK HPI will be compiled using the arithmetic mean in line with RPI methodology instead of the geometric mean used in the main UK HPI. HPI had used an arithmetic mean. This is common ground.
- Differences between adapted versions of HPI and UK HPI use in the RPI:
i) Sources of data: The HPI, and the adapted version used in the RPI, was based solely on data from mortgage lenders. The adapted version of the UK HPI combines data from the Land Registry, Registers of Scotland, mortgage lenders and the Valuation Office Agency. This allows cash buyers to be included. This is common ground.
ii) Updating of set of properties: The set will be updated every five years; the HPI was based on a reference set from the year 2000. This is common ground.
iii) Exclusion of Northern Ireland: Due to timing and legal constraints it is not possible for Northern Ireland to be included in the special version of the UK HPI. While the RPI is intended to cover all of the UK, the experts have been informed by ONS that there are some other examples, of lesser importance, where Northern Ireland is excluded for practical reasons. Northern Ireland has a weight of only around 2% in the UK HPI. Hence the ONS says: "differences in growth between a UK and GB series are minimal given the small weight attributed to Northern Ireland data". This information has been provided by ONS. This is common ground and I accept what ONS states as correct.
iv) Treatment of prices paid by the top 4%: The adapted version of the HPI previously used was trimmed specifically for RPI purposes to remove transactions where the income recorded on the mortgage application was above the top 4% threshold. This is not what happens for other goods in the RPI but was possible for housing because of the data sources used. It has not been possible to do this for the adapted series of the UK HPI due to the inclusion of cash purchases for which this information is not available. For other goods in the RPI it is not possible anyway to exclude the top 4% in the price indicator series so their exclusion is only reflected by not including their expenditure (or that of the excluded pensioners) in calculating weights; for housing the exclusions are also reflected in the weights calculation to the extent possible. This is common ground.
v) Treatment of top 4% for the purpose of calculating weights: The situation is best summed up by quoting the ONS: "The methods and sources used to calculate weights of items affected by the new house price index in the RPI remain unchanged and reflect the RPI's reference population as much as they did previously. On the whole using the new house price index in the RPI has no effect on the weights, the one exception to this is in mortgage interest payments (MIPS) where there is some impact". This is common ground.
- Paragraph v) requires some further explanation. RPI, as a measure relating to the typical household, in principle excludes those at the bottom and top end of the incomes scale. At the top, it is the top 4% of households by income who are to be excluded. As Mr Johnson explains in his first report, in order to construct an inflation measure one needs to know not only what is happening to prices but also how much of each good or service is purchased. Prices are collected for instance by price collectors or centrally or in the case of house prices under HPI from mortgage lenders. The RPI derives information on how much of each good or service is purchased exclusively from a household survey – the Living Costs and Food Survey ("LCFS") – which is carried out annually and asks a sample of households to record how much they spend in a fortnight on a detailed list of items. Under HPI, the top 4% could be left out of account: a mortgage lender – the source of the relevant data – would of course know the income of the borrower so that transactions carried out by those above a certain income level could be ignored. That income data is not available from the data sources used for the UK HPI and so it is not possible to adjust UK HPI to exclude the top 4% of purchasers by income. In consequence, the prices paid by the top 4% will be included in the RPI version of UK HPI even though the top 4% of the population by income are ordinarily excluded from RPI.
- Ms Leyland does not disagree with that. However, she gives the following evidence which I accept. The previous exclusion from the HPI of prices paid by the top 4% was almost unique as regards component price indices used in the RPI. In general terms, the top 4% are excluded from RPI only for the purpose of calculating the weights used in the index; it is not normally practical to exclude prices paid by the top 4% for the purposes of calculating the prices used in the index. This is because members of the reference population do not buy entirely different items from the top 4%. There is no way for a price collector to know who has bought a particular item.
- Thus, in this respect, she considers that the change to UK HPI in the RPI brings the house price index component into alignment with the generality of the index in this respect, not the opposite. As to weighting in this context, see [70 v)] above.
- The house prices element of RPI accounts for more than 10% of the components of RPI by weight: see Mr Johnson's second report which I accept in this respect. He describes the introduction of UK HPI as a substantial methodological change to a major component of RPI. Mr Ham relies heavily on Mr Johnson's assessment, submitting in particular that the adoption of the UK HPI moves away from the principle that RPI excludes the 4% richest purchasers by income: as it is not possible to exclude that element from the UK HPI, it will now be incorporated into the calculation of RPI. This contrasts with Ms Leyland who sees the change as not only consistent with that principle but a move towards the method by which that principle is reflected in relation to a large number of components of the Index. That may be so, but it does not follow from the fact that UK HPI has those features (and, overall, is agreed to be said to be an improvement on HPI) that its introduction is not therefore a material change in compilation. Further, Mr Ham is surely correct when he says that the underlying data source is part of the compilation so that where there is a change in the nature of the data source, there is change in compilation. Ms Leyland is correct when she says that the inclusion of the top 4% is a consequence of the limitation of the data source being relied on, but it does not follow that this inclusion is not a change to the basis of compilation of the index as she suggests. Even routine changes in the course of the good management of the RPI are precisely that ie changes. It is because they are not material changes that there is no occasion for the adoption of an alternative index.
- Mr Ham does not challenge Ms Leyland's evidence that the previous exclusion from the HPI of prices paid by the top 4% was almost unique as regards component price indices used in the RPI. He submits, however, that this is a reason why the departure from that unique treatment would be a significant change to RPI. The fact that the change brings the house price index component into alignment with the generality of the index is irrelevant. What matters is that there has been a significant change in the treatment of house prices which is not simply a routine change in the ordinary management of the index.
- Mr Ham also relies on the exclusion from the UK HPI of households in Northern Ireland, whereas the RPI has been calculated on the basis that it is representative of the UK as a whole. He submits that, although the impact of the change is likely to be small, the intrinsic change itself is material. I think that it is in this context that Mr Johnson says that the change "involves measuring a price, which affects more than 10% of the basket of goods on which the RPI is based, for a different population than that for which the RPI has historically been based". He says that the exclusion, whilst quantitatively important, is a highly unusual step representing a departure from the previous population base. As to this last point, I agree that it is one which must be brought into account in assessing whether the overall change is material. The weight of the point, however, must be assessed in the light of the population concerned: it could not be contended, I consider, that if it had been necessary to exclude only the city of Londonderry, that the resulting change in the compilation of the RPI would have been material. In this context, the evidence establishes, as Ms Leyland observes, that Northern Ireland accounts for only about 2% of the UK house price index as a whole.
- Mr Green contends that the changes brought about by the replacement of HPI by UK HPI are not material changes although in my view he has to accept that it is not a routine change.
- As to the exclusion of the top 4%, Mr Green emphasises two aspects which I have already noted:
i) First, that the reason for the inclusion of the top 4% flows from data limitation (ie the lack of information concerning the income of cash purchasers in contrast with the available information for mortgage borrowers). There is therefore no reason to say that there is a material change in compilation: there is no new approach and no effect on the essence of the RPI. There has been no decision in principle that the RPI ought in future to start to cover the expenditure of the top 4% of the population by income. This is simply a compromise having regard to the limitations of the data available to allow the advantages of UK HPI to be enjoyed.
ii) And secondly, that the spending of the top 4% of the population by income on houses will now be brought into line with the way in which it is treated in the index generally, an aspect which he regards as crucial to understanding why there is nothing remarkable or 'material' about what he describes as a compromise.
- The inclusion of the top 4% is dealt with in reaching the ultimate figure for RPI as part of the appropriate weighting allocated to the various goods and services in the basket and the spending on these items by households taking part in the LCFS. As Ms Leyland observes, the methods and sources used to calculate the weights of items affected by UK HPI remain unchanged. But in Mr Ham's submission, that does not detract from the fact that the underlying price data relating to housing will now include prices paid by the top 4% by income, whereas these would previously have been excluded. As the ONS is not proposing to change the weighting for the house price index, the index will be affected by the prices paid by the top 4% in a way that it was not previously affected.
- As to the exclusion of Northern Ireland, Mr Green submits that that is on any view de minimis. The position of the ONS is that differences in growth between the whole of the UK and just Great Britain are 'minimal' given the small weight attached to Northern Ireland: the evidence establishes, and as Ms Leyland observes, it accounts for only about 2% of the UK house price index as a whole. Mr Green correctly comments, relying on Ms Leyland, that the reason it is excluded is not some decision in principle that house prices in Northern Ireland should no longer be covered by RPI, but a simple compromise in order to achieve what is overall a better result for RPI, and one under which it continues to be apposite to the UK as a whole, reflecting the fact that available data limitations mean that the arithmetic mean version of UK HPI used in RPI cannot utilise Northern Ireland data. And so he submits that, on no sensible basis can a judgment such as that, designed to include data which is overall better, and excluding data which has a de minimis effect on the compilation of the index, be considered material.
- It is important to note that Mr Green's argument is not that the effect of the change so far as concerns Northern Ireland is not material, although that may well be the case. His point is that the exclusion of Northern Ireland is not a material change in the actual compilation of the RPI. It is not material, on his argument, because (a) it produces a better index (b) the use of the better index involves a compromise involving the exclusion of Northern Ireland through lack of data and (c) in the context of the small data set excluded (about 2% of the UK house index as a whole) the change in compilation is de minimis.
- In addressing those competing submissions, I need to return to the question of what it means for a change in compilation to be material. I have concluded that Mr Ham's primary contention that the effect of the change is a material consideration is to be rejected. I have also concluded (it was effectively common ground) that routine changes in the ordinary course of the management of the RPI to keep it fit for purpose are not material changes. Those conclusions have enabled me to deal with many of the changes which were relied on by Mr Ham. Those conclusions do not, however, provide an answer to the introduction of UK HPI which is (a) a methodological change whose materiality does not rely on its effect and (b) a change which is not routine.
- Ms Leyland's focus has been on a change which goes to the conceptual foundation of any index; or a change in the essential character of the index. These are elusive concepts but that is not surprising since we are trying to capture an elusive creature. On the one hand, it is certainly the case that a change which goes to the conceptual foundation of the index is a material change (although perhaps as many different views may be held about what is part of the conceptual foundation or what is an essential feature as may be held about the meaning of "material change"). On the other hand, it cannot be right that just because a change is designed to improve the index, it is therefore not material: even a fundamental change will be intended to improve the index.
- However, I do consider that the first limb of the provision (RPI not published) is a helpful aid. As I have said, each limb of the provision informs the other. It might be said that the cessation of publication of the RPI is fundamental or goes to an essential element of it. That, however, is not what I derive from it. Rather, so it seems to me, the first limb is to do with the functioning and operation of the RPI. Total cessation of its function and operation as a result of non-publication is at the extreme end of what the provision is all about. A change is material, I suggest, if it results in the RPI functioning and operating in a way which either does not fulfil its original purpose (to provide a measure of inflation for the typical household) or does so in a way which is materially different from the way in which it did so before the change. It is possible to use different words – significant, important – but ultimately that is not a helpful approach. Instead, the Court must apply an ordinary meaning of the word material. It is a question of judgment on which different minds might take different views.
- In my judgment, the introduction of UK HPI does result in a material change to the compilation of the RPI. Mr Green may be right in his contention that the exclusion of Northern Ireland is not a material change being de minimis. By de minimis I do not mean to say of minimal effect: rather the change is minimal because Northern Ireland has a weight of only around 2% in the UK HPI. I do not need to decide that particular issue which, in any case, I see as finely balanced. I do not need to do so because in my judgment the inclusion of the top 4% does result in a material change in compilation. I attach considerable weight to Mr Ham's argument described in  above.
- In reaching my conclusions on the correct approach to take in construing the relevant provisions, I have not overlooked the reference which has been made the Bank of England's expression of opinion that the exclusion of Northern Ireland from the UK HPI would be a fundamental change. The Bank expressed this view in relation to its duties under section 21 of the Statistics and Registration Service Act 2007. In communicating that opinion, the Bank said this:
"In reaching that determination, the committee noted that – albeit for perfectly understandable reasons of data limitations – the proposals imply that items with a coverage weight of around 11% of the RPI would now include housing transactions of households outside the RPI's reference population and exclude price quotes from Northern Ireland. While not unprecedented, these would represent a deviation from the traditional reference population of the RPI for a material proportion of the index basket."
- That expression of opinion was given in the context of section 21(2) which reads as follows:
"Before making any change to the coverage or the basic calculation of the retail prices index, the Board must consult the Bank of England as to whether the change constitutes a fundamental change in the index which would be materially detrimental to the interests of the holders of relevant index-linked gilt-edged securities."
- That statutory context is wholly different from the context in which the Rules must be construed. The subsection is concerned with the effect of the change as is clear from the requirement to consider whether the change would be detrimental to the holders of gilts. It is not necessarily the case, I accept, that simply because a change is not materially detrimental it is not therefore fundamental: there could be a change which is fundamental but which improves the position of owners of gilts. That would appear to be why the Bank did not consider that the introduction of UK HPI would be detrimental whilst at the same time considering the change to be fundamental. Nonetheless, the Bank appears to have judged materiality, at least in part, by reference to the effect of the change which is not, for the reasons which I have given, the correct approach to the relevant provisions of the CARE Rules. Further, it is clear that for the purposes of section 21 whether a change is fundamental has to be judged once and for all before the change is made since the Bank is to be consulted before the change is made and the Bank is obviously to make its position known before the change is made: there can be no question of a change (such as the 2010 change to the treatment of clothes and footwear) becoming a fundamental change in the light of the actual experience of the index. I have to say that I have gained no assistance from reference to the Bank's opinion.
- My conclusion is that there had been a material change in the RPI within the meaning of the provisions in question as a result of the introduction of UK HPI into the RPI. The answers to Question 10(1) on the Claim Form are (i) No: the RPI is still published and (ii) Yes: the RPI has materially changed since 30 June 2008 as a result of the introduction of UK HPI into the RPI.
Company to determine nearest alternative index
- In the light of the answer to Question 10(1), Questions 10(2), (3) and (4) arise only in relation to the material change in compilation brought about by the introduction of UK HPI into the RPI.
- It is common ground, with which I agree, that the Company is required, and not merely authorised, to determine (or decide) the nearest alternative index. Question 10(2) does not raise the question of when the power must be exercised but the parties have raised it and I propose to answer it. In my judgment, the Company must comply with the requirement within a reasonable time. If it does not act within a reasonable time, it would be open to disappointed beneficiaries under the CARE Rules (if they considered it in their interests to do so) to seek a remedy for breach by the Company of its obligations, possibly basing their claim on a breach of the Company's duties of trust and confidence towards its employees and past employees in accordance with well-established principles which I do not need to rehearse here. But it would not, in my view be open to the Company to rely on the relevant provisions after a reasonable time in order to adopt an alternative index more favourable (ie cheaper to implement) than RPI as changed by the material alteration. It cannot rely on its own breach of duty in its own favour.
- I cannot answer the hypothetical future questions as to what would be a reasonable time which will depend upon the particular facts of the timing and nature of the material change in compilation and also when the change came to the notice of the Company. I would be unsurprised if the Company were required to make its determination after a material change before the next date for determining revaluation of salary and implementing increases to pensions in payment. In relation to the introduction of UK HPI into the RPI, the reasonable time has clearly not yet expired.
Identification of nearest alternative index
- Question 10(3) asks what are the candidate indices for the nearest alternative index and in particular whether RPI as changed is in principle excluded from the range of possible indices which the Company could determine. The questions are expressly asked as a matter or construction and not as a matter of the propriety of the exercise of any power. Nonetheless, as I understand it, I am being asked to decide whether, applying the Rules in the actual circumstances of the case, it is open to the Company to adopt any of the indices mentioned in Question 10(3) on the Claim Form. Accordingly, if I were to decide that no reasonable company could properly adopt a particular index, I understand that I am being invited to say so even though, in one sense, that is a question of propriety.
- When determining the nearest alternative index, it is of course open to the Company to survey the whole range of indices. It may be possible to reject some out of hand and to narrow the field. Of those it would be possible to say that no reasonable employer under the Scheme in the position of the Company could reasonably determine such indices. Having then surveyed the potential candidates in more detail, it might then be possible to say that certain of the narrowed field of indices are not ones which the Company could properly adopt. But whether that is so could only be assessed against the possible real choices. Thus Index A might be the appropriate index if only Index A and Index B were out there in the world. But if there were a third Index, Index C, which was clearly the nearest alternative index, it is not just that Index C should be preferred: it would be that Index A and Index B could not reasonably be adopted. To put what I have said in the preceding paragraph in slightly different words, Question 10(3) appears to be asking whether the listed indices are ones which the Company could select, rather than ones it could consider. In other words, I am being asked to say which of the indices is in the frame for actual selection.
- In order to even begin answering that question, it needs to be determined as a point of principle what are the criteria for determining the nearest alternative index. The answer to that point, in my view, is that the nearest alternative index must be the one which most closely reflects the existing elements of the RPI. The trigger for the determination of an alternative index is a change in the compilation of RPI. A central consideration is thus whether the compilation of the alternative index is the nearest to that of the RPI before the change. I do not say that compilation is the only relevant factor in determining the nearest alternative index, but it is of fundamental importance. So far as concerns compilation, some aspects of the compilation of the RPI are of great significance, such as the use of Carli, whereas others will of less significance; indeed non-material aspects of the compilation will carry little, if any, weight. An important aspect will be whether the replacement index is designed to track inflation experienced by the typical household or whether it adopts a very different population. Those are but two examples of factors to be taken into account. It is impossible to set out a comprehensive list since it will depend on a close examination of the range of reasonably possible candidates to see what factors might be relevant.
- As a matter of principle, I do not consider that RPI as altered by the relevant material change in compilation is automatically to be excluded as a candidate. It may very well be that the RPI as so changed is, indeed, the nearest alternative index.
- What is clear to me is that an alternative index cannot be adopted simply because it is perceived as a "better" index. Mr Johnson, for example, sees RPI as deeply flawed with CPI being a far "better" measure of inflation. CPI may or may not be the nearest alternative index following a relevant event, be it cessation of publication of the RPI or a material change in its compilation. Having said that, I am bound to say that in a competition between CPI on the one hand and RPI including UK HPI on the other hand, I find it hard to see how CPI can win the competition.
- Since I need to answer the question of identification of the nearest alternative index in the context of the introduction of the UK HPI being the only material change in compilation, it is my judgment, on the evidence and arguments before me, that RPI with that change is the nearest alternative index. I do not consider that the Company could reasonably adopt any other index. Although I have not accepted Mr Green's submission about why the introduction of UK HPI was not a material change in compilation, his arguments on that issue are, to my mind, compelling arguments in favour of RPI remaining the nearest alternative index. It continues to serve all of the functions of RPI prior to the change and retains all of the features of RPI with the exception of inclusion of the top 4% and the exclusion of Northern Ireland.
- The exclusion of Northern Ireland by itself would not justify departure from the RPI: not only is the exclusion of housing carrying a weight of only around 2% in the UK HPI small, everyone concerned considers that the new index is superior to the old one, that is to say in making RPI more accurately serve is purpose of providing an indication of inflation experienced by typical households.
- The same point, that the inclusion of UK HPI produces a superior index, can be made about the inclusion of the top 4%. It seems to me impossible to argue that any other of the indices mentioned in the Claim Form, and no other index has been suggested, can be said to be nearer to RPI using HPI than RPI using UK HPI.
- I have addressed Question 10(3) only in the context of the introduction of UK HPI into the RPI. If I am wrong in my rejection of effect (including cumulative effect) as a relevant factor in deciding whether a change is material and in my conclusion that the Company cannot, in its own interests, determine an alternative measure, then some difficult questions will arise about what, how and when the nearest alternative index is to be ascertained. The precise questions cannot be identified, let alone answered, without knowing the precise reasons for my errors. I am not willing to address Question 10(3) any further than I have already done.
Single or multiple alternative indices
- Question 10(4) asks, in effect, whether under the relevant provisions the Company (with the agreement of the Trustees) are to determine the nearest alternative index (i) only once or (ii) on each occasion on which benefits fall to be uprated or (iii) otherwise from time to time.
- Mr Ham submits that there is no requirement to reconsider the applicable index unless and until the alternative index ceases publication or becomes subject to a material change in its compilation. The nearest alternative index determined following a material change in compilation of the RPI becomes the prevailing index and is substituted for RPI in the definitions of "Revaluation Factor" and "Rate". Mr Green submits that the nearest alternative index must be determined each time at which the index falls to be applied. He contends that there is no basis for saying that the index chosen on the first occasion is to be applied unless and until the compilation of that index is itself materially changed.
- This possibility is that the new alternative index becomes entrenched. I find this option intrinsically unattractive although the apparent unsatisfactory result might be capable of amelioration (something would have to be done if, for instance, publication of the index ceased) by an exercise of the Scheme's amendment power. I have not been taken to this and it is not in the Core Bundle.
- Contrary to Mr Green's submission, I consider that Mr Ham's approach is open as a matter of construction of the CARE Rules. The relevant provisions provide for the determination of the nearest alternative index "to be applied". There is no express provision about the purpose for which the alternative index is to be applied. The relevant provisions appear in the definitions of "Revaluation Factor" and "Rate" in the provisions relating to revaluation of CARE salary and increase in pensions. Each definition contains in its opening lines a primary definition followed by a number of "Conditions". In each case, the relevant provision appears as one of those Conditions (paragraph (vi) in the case of CARE salary and paragraph (C) in the case of pension increases). I see no difficulty, as a matter of construction, in reading "to be applied" as meaning "to be applied for all the purposes of this definition of [Revaluation Factor/Rate]".
- In my judgment, reading the relevant provisions as a whole, Mr Ham's approach substituting the new index as the prevailing index is correct. The relevant provisions operate only once in relation to a particular material change in compilation. That last proposition appears to me to be the clear natural reading of the relevant provisions which can be given effect to without difficulty once it is recognised that the new index replaces RPI for the purposes of the definitions of Revaluation Factor and Rate. There is nothing, in my judgment, to justify a departure from that meaning so as to impose a continuing obligation on the Company. I say obligation, rather than power, because I can see no justification at all for reading "will determine" as directive in relation to the first determination (which it clearly is) but only permissive in relation to a second or later determination. Once an alternative index has been determined, the operative material change to compilation has become spent and the Company can no longer refer back to it. The Company is not obliged, indeed, has no power to review each year whether the new index remains the nearest index to RPI as it stood before the material change in compilation to the RPI.
- My answer to Question 10(4) is therefore No, although of course, on my approach the relevant provisions will operate in relation to any subsequent non-publication or material change in the compilation of the replacement index.
The TOPS Rules
- Under the provisions of the TOPS Rules there are a number of events on which there is to be a switch of index. One such event, under the definition of "the Retail Price Index" is the replacement of the RPI for the purpose of determining the value of the principal on repayment of index-liked gilts. Other events under Rule 4.4.4(b)(i) are the revision of the RPI to a new base or the RPI being "otherwise altered". Another event under Rule 4.4.4(b)(ii) is non-publication of the RPI for any month in question. And another is where, although RPI continues to exist unaltered, there are no gilts available for the investment of the funds of an exempt approved retirement benefits scheme. The Company relies only on the RPI being "otherwise altered". That does not mean that other potential events can be ignored since they may have an impact on the true meaning of "otherwise altered".
- I mention that Mr Ham has properly drawn attention to the fact that these provisions are expressed to be governed by Scots law, but that neither side has sought to rely on Scots law.
- As a preliminary point, I consider the meaning of "new base". One common meaning – perhaps the most common - of that phrase is a change in reference date, that is to say the year from which the reference index is calculated. Rebasing can bring about substantive changes. Thus, the base value for capital gains tax (that is to say, the base by reference to which gains are to be calculated) was rebased in 1982; assets held at 31 March 1982 were treated as though they had been acquired at their market value on that date so that gains or losses relating to changes in value before that date were not taken into account for capital gains tax purpose. In the context of an index, such as RPI, rebasing as commonly understood has no substantive effect. If the index starts at the start of year 1 showing a figure of 100 and has risen to a figure of 110 at the start of year 3, rebasing the index would simply mean that the index would show a figure of 100 at the start of year 3. The index might then rise by, say 3%, in the next year. The index would have shown a figure 113.3. The rebased index will show 103. But both those figures reflect precisely the same rise. This is all elementary.
- It appears that for a statistician, "new base" may have a different meaning. Neither of the experts is clear what "revised to a new base" within the meaning of the TOPS Rules might be. They express the view that the most obvious meaning (a change to reference period as I have attempted to describe above) does not make sense, as its impact on uprating would be minimal. They each, in their separate first expert reports, describe different senses in which "base" may be used: see paragraph 2.5 of the Specific Questions dealt with by Mr Johnson on pages 65 and 66 of his report and section 8 of Ms Leyland's report. I have found Ms Leyland's explanation in section 8.4 of assistance:
"8.4 There is one other possible meaning in a statistical context. For many index series a change in the arithmetic base is associated with a change in the weighting of the individual items. Indeed many statisticians would argue that this is the true meaning of a "new base" rather than merely a change in reference year. However in the case of both RPI and CPI such a change does not happen since weights are updated each year so that any one change in weight has limited impact. For an index series where the weights are not frequently updated a change in weights when it does occur can have a substantial effect."
- It seems to me inherently unlikely that the draftsman of the TOPS Rules had this technical meaning in mind. If he had done, it is almost inconceivable to my mind that he would have dealt with the matter so briefly and without explanation, in a document intended to be used and understood by persons without the expertise of a professional statistician.
- I appreciate why the experts reached the view which they did in rejecting "revised to a new base" as referring to a simple change to reference period. I accept that such a change would be minimal – indeed, I would have thought that it would non-existent rather than minimal. But the impact is small only if the TOPS Rules can be construed in a way which, in practice, allows for continuity of the index. I can well see, however, that the draftsman might have asked himself: What will happen if the RPI is rebased [in the simple sense]? He would know of the definition of "Relevant Retail Price Index" for a particular date and know that it is the "Retail Prices Index" 3 months earlier. The actual figure in the Index would reflect the rebasing which had occurred. In the example which I have given, the figure for "the Retail Prices Index" would be 103 and not 113.3. It might be said to be obvious that the correct figure to apply would ignore the rebasing which had occurred: but it is not so obvious, in my view, that the draftsman could simply ignore it. At least, good drafting should avoid any possible point being taken. In my view, therefore, it makes perfectly good sense for there to be a reference to revision of the RPI to a new base even though that revision will have minimal effect. In my judgment, that is what the provision is referring to.
- Mr Ham submits that the relevant provision is drafted in very wide terms. On its face, it contemplates an alteration of any form. The Oxford English Dictionary defines the word "alter" to mean:
"Change in character or composition, typically in a comparatively small but significant way."
- The term does not, he says, mean a "fundamental change" or a "change to the essential character". That is not the normal meaning of the phrase "otherwise altered". To construe the provision as referring to a fundamental change or a change to the essential character of the RPI (which is Ms Leyland's approach) would involve implying an additional qualification into the wording used by the draftsman, and does not pass the test of "strict necessity" for this purpose: see in this context Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd  AC 742 at .
- Moreover, the term "otherwise altered" must be read by reference to the whole of the Barr & Stroud Rules, including the express reference in rule 4.4.4(b)(i) to RPI being revised to a new base. The experts agree that changing the reference period to RPI would have a minimal impact on uprating. It would not, therefore, amount to a fundamental change to RPI or one affecting the essential character of the index. Nevertheless, the Condition expressly provides that a change to the reference period will be an "alteration" triggering an exercise by the Trustees of their power to determine the basis on which subsequent variations to the pension should take place. In the light of this there is no scope for limiting the meaning of "altered" by reference to the ejusdem generis rule or anything of that sort.
- I do not consider that reference to the ejusem generis principle is of assistance. It is not a rule (the word used by Mr Ham) but an aid to construction which the Court must apply with some restraint. In the context of the present exercise of construction, I prefer to say simply that the meaning of the first element (revision to a new base) informs the meaning of the second element (otherwise altered).
- Mr Green contends that this wide meaning of "otherwise altered" cannot be right. To repeat briefly the points already made when considering the CARE Rules, the compilation of RPI, as with any well managed index, is updated and changed frequently; the baskets of goods and services are updated annually, and changes such as those considered above to improve its ability to serve its function are repeatedly made. Those are part and parcel of the nature of the index. Were changes such as these intended to trigger the gateway for a change in RPI, it would, he says, be triggered constantly – at least annually – and as such the reasons for imposing it in the first place would be wholly arbitrary. Why not, Mr Green asks, just grant a general discretion rather than a gateway which will inevitably be opened almost the moment that RPI is specifically adopted?
- Let me get that rhetorical question out of the way. There is not, on any view, a general discretion. Instead, the Trustees are to determine the basis of variations to pension "having regard to the alteration made to [the RPI]". The gateway is necessary in order to circumscribe how the Trustees are to act.
- Mr Green's next point is to draw attention to the fact that the TOPS Rules do not, in contrast with the CARE Rules, refer to the compilation of the index having been altered: they refer to the RPI itself being altered. This is a contrast which I have mentioned in the context of construing the CARE Rules: see  above. And so he identifies the question as being whether, as a result of what has occurred, the index, viewed as a whole, constitutes a different (altered) index by comparison with the index that it was before. Of course, to put it that way is, at one level, to beg the question. It assumes equivalence between different and altered. The question for me, however, is not whether the changes in the compilation of RPI have resulted in a different index but whether they have altered the RPI.
- Mr Green relies on his submissions in relation to the CARE Rules, noting that there are certain features of RPI that distinguish it from other indices and which constitute its central character. These are the features which make RPI what it is. If one or more of those features is taken away, then RPI can be said to lose part of its essential character. In other words, it is in that scenario that it may be said to be an "altered index".
- It is right, of course, that changes of that sort would result in RPI having been "otherwise altered". It does not follow, however, that for RPI to have been "otherwise altered" there must be a change to one or more the central features which Mr Green identifies or that there must be a change in the essential character of the RPI.
- There is, nonetheless, considerable force in the point that alteration is not concerned with the routine updates and other changes aimed at improving RPI in the fulfilment of its purpose as a measure of inflation experienced by the typical household. Those sorts of changes are inherent in the operation of a well-managed index so that, as Mr Green puts it, "far from leading to an 'altered' index, they are part and parcel of what the index, as a well-managed and dynamic index, involves".
- Mr Green then contends that I should reject Mr Ham's point that one specific trigger – the rebasing of the RPI which is, as the experts agree, of minimal impact – leads to the conclusion that other triggers do not need to go to an essential feature of the RPI. He has a number of reasons why I should do so:
i) Revision to a new base is extremely uncommon, having previously occurred only in 1974 and 1987, and has not occurred since. This suggests that the "otherwise altered" is not focusing on something that would be expected to take place routinely but is focused on the uncommon event of an alteration to an essential feature of the RPI.
ii) Since neither of the experts is clear about the meaning of the expression "revised to a new base", those words form an unsound basis from which to allow its meaning to exert an influence on (or inform, to use my word) the expression "otherwise altered".
iii) Further, even though revision to a new base is a trigger for consideration of the adoption of an alternative index, the restriction "having regard to the alteration made" operates as a safeguard, since if all that is occurring is a change of reference date, that would be no justification for abandoning RPI.
- Commenting on each of those reasons:
i) I do not agree with the suggestion that the rare occurrence of a revision to a new base is a reason for restricting the scope of "alteration" to events which are themselves rare. It is a different point, to which I will come, that alteration cannot be concerned with the routine changes taking place in the course of operation of a well-managed index.
ii) I do not agree with this submission. As it happens, I have concluded that the provision is referring to rebasing in the sense of a simple change to reference period (in which case, I might add, rebasing in the extended sense discussed by the experts would, as it seems to me, fall within the words "otherwise altered"). But even if that conclusion is wrong, rebasing in that sense is certainly, I consider, included within those words. Mr Ham's point that the rebasing provision relates to an alteration having minimal impact remains a good one.
iii) Mr Green's third point is correct. I do not understand, however, why it is a reason in favour of rejecting the proposition that the rebasing provision provides support for the wider meaning of "otherwise altered" for which Mr Ham contends. As a matter of fact, rebasing will provide no justification for abandoning RPI. But a different alteration may justify modifying the (altered) RPI or even adopting a different index altogether provided that the change to that new index can be justified "having regard to the alteration".
- In my judgement, the phrase "otherwise altered" is to be given the wide meaning for which Mr Ham contends. Although there is force in Mr Green's argument that an alteration does not include a routine change of the type already mentioned many times in this judgment, I do not consider that it carries the day. In effect, Mr Green asks me to construe "otherwise altered" as meaning "otherwise materially altered" in the same way as a change to the compilation of the RPI must be a material change for it to be replaced under the CARE Rules. I do not consider that it is correct to limit the meaning of the ordinary English word "altered" to arrive at that result.
- Before considering the actual alterations made (both those already considered in relation to the CARE Rules and alterations taking place before those Rules came into force), I wish to consider the extent of the Trustees' powers and duties on the assumption that an alteration has in fact been made.
- Rule 4.4.4(b)(i) provides that where an alteration is made to the RPI "all subsequent variations in that pension will be on a basis determined by the Trustees having regard to the alteration made to the [RPI]". This does not give the Trustees a free range to adopt whatever basis they like. To illustrate how the provision operates, I consider a case of rebasing rather than a case of "otherwise altered". Suppose that RPI were to be based on June 2018. It cannot, in my view, be contended that the Trustees can determine CPI, for instance, to be the basis on which future increases are to be awarded. Far from having regard to the alteration which occasioned the exercise of their power to determine, the Trustees would, it seems to me, be acting in flagrant disregard to the direction that they should do so. The manifest purpose of the words "having regard to" is to adopt a basis which reflects the manner in which the alteration causes a departure from RPI as it stood before the alteration.
- Just as rebasing should not bring about a departure from RPI, so too it is not to be expected that a routine change of the type discussed earlier in the judgment should bring about a need to depart from the RPI before the routine change. It is here that Mr Green's submission, albeit made in the context of the meaning of alteration rather than in the context of the result of the alteration, is to be given effect. It would require compelling circumstances, in my view, for the Trustees to depart from RPI as altered by a routine change of that type. They must have regard to the alteration in the sense of giving practical recognition to the fact that it is the alteration which is the occasion for the exercise of their power. If the alteration makes no material difference at all, it would be wrong for Trustees to depart from RPI as altered.
- Mr Ham submits that a construction under which the Trustees enjoy wide discretion to determine the applicable basis for uprating pensions derives support from the provisions giving effect to those pension increases. He relies on Rules 4.4.1, 4.4.2 and 4.4.3 which expressly confer upon the Trustees (with the approval of the Company) discretion to apply such other rate for increasing benefits as the Trustees shall from time to time decide. And so he says, the draftsman did not have in mind that the basis by reference to which pension increases would be applied should be limited in any way, let alone by reference to RPI. I reject that submission. The determination of a basis under Rule 4.4.4(b)(i) is to made "having regard to" the alteration. In contrast, the power under Rule 4.4.1(b)(i) is an unfettered power: providing that the Trustees act properly in the exercise of that power, taking into account that which they ought to take into account, and leaving out of account that which they ought to leave out of account, it is open to them to adopt whatever basis of pension increase they wish. Indeed, it is open to them to exercise that power in the absence of any change to the RPI at all.
- As a matter of principle, the Trustees do not have to adopt an index at all as the basis on which pension increases will be determined. But in practice, they will do so, and the question, as with the CARE Rules, is what index they should adopt.
- There are other questions which arise. One important question is whether, as with the CARE Rules, the determination of a basis for pension increases is a one-off determination or whether the Trustees must consider changing circumstances and, if appropriate, adopt a different basis. For instance, an alteration to RPI might result in the Trustees continuing with RPI as altered or in their adopting a different index, Index A. In turn, RPI as altered might be materially altered again or Index A might be materially altered. What should the Trustees do? If RPI as altered has been adopted, a further alteration will again trigger Rule 4.4.4(b)(i). But if Index A has been adopted there is no warrant, in contrast with the position under the CARE Rules, for substituting Index A for the RPI, leaving the Trustees with a difficulty.
- As to that last point, Mr Ham argues (applying his reasoning to the specific example) that Index A becomes the basis of the "normal rate" under Rule 4.4.1(b)(i) and continues to apply until it, in turn, is altered. That cannot be right, in my view. The substituted index, Index A, is one determined by the Trustees in the adoption of which the Company has no role to play under the rules. In contrast, the adoption of a new normal rate by the Trustees under Rule 4.4.1(b)(i) requires the agreement of the Company. The two provisions are there for different reasons. The power in Rule 4.4.1(b)(i) is a wide power which allows the Trustees and the Company to agree to substitute a new normal rate when the circumstances require: a new normal rate can, in principle, be adopted whether or not there is an alteration in RPI and, even where there is a change in RPI, the new normal rate is not restricted to one "having regard to the alteration". Under this power, any index might be selected – CPI for instance – provided that the Trustees act properly in the exercise of their fiduciary obligations, typically if they considered it to be in the interests of the beneficiaries of the Scheme to do so. The way in which the Trustees can exercise their power is, of course, constrained not only by their fiduciary duties but also by the need for the agreement of the Company. They could not, therefore, impose a more costly index without the Company's consent.
- In contrast, the determination of a basis of pension increase under Rule 4.4.4(b)(i) is for the Trustees alone. They are, as under Rule 4.4.1(b)(i), subject to fiduciary obligations when making the determination: it would require exceptional circumstance for them to adopt an alternative index, such as CPI, in order to reduce the costs to the Company if, in so doing (as in current circumstances would be the case), they would be acting to the detriment of the beneficiaries of the Scheme. I accept, of course, that a change in the RPI may result in the Trustees having to choose a new index and that their practical choice may be between one, such as CPI, which saves the Company money and makes the beneficiaries worse off, and one, such as the RPI as altered, which costs the Company money and makes the beneficiaries better off. Their choice must be one which they can properly make in accordance with their fiduciary duties and must be made "having regard to the alteration". It is difficult to see how they could properly adopt an index acting under Rule 4.4.4(b)(i) unless it would also be within their powers under Rule 4.4.1(b)(i).
- In relation to the example just given of Index A, one answer may be that Index A becomes entrenched in the sense that the Trustees cannot depart from it in reliance on Rule 4.4.4(b)(i): they would have to rely instead on Rule 4.4.1(b)(i). If Rule 4.4.4(b)(i) cannot be made to work in given circumstances, the answer is to fall back on Rule 4.4.1(b)(i).
- Another answer may be that the Trustees must consider the appropriate basis on which to award pension increases under Rule 4.4.4(b)(i) on each occasion of increase. The Rule provides for "all subsequent variations" to "be on a basis determined by the Trustees". It can be argued that there is no difficulty in construing those words as providing that, on each subsequent variation the Trustees will determine on what basis that variation is to be made. In other words, "determined" is to be read as "determined from time to time". This construction is consonant with Rule 4.4.1(b)(i) which expressly provides for "such other rate" to be decided on "from time to time".
- In favour of this latter answer, it then becomes possible to take into account the effect of a change in the RPI even some time after it had been made. Thus an alteration which has no impact before the first occasion of pension increases may have an impact some time after that. There would be no need, "having regard to the alteration" as directed, to depart from RPI on that first occasion but it would be possible to do so after that when the impact has become apparent. Thus in contrast with the CARE Rules, an unexpected impact (such at that which took place in relation to the change in the treatment of clothes and footwear in 2010) could be reflected in a change of basis once that impact had become apparent.
- But against that answer, it is argued that it casts a considerable burden on the Trustees who must, each year, review whether the basis which they have adopted remains appropriate. The Trustees would be under a fiduciary duty constantly to monitor their alternative basis (typically either a new basis or RPI as altered) to see if it remained appropriate. I do not consider that this is as significant an objection as has been contended by Mr Ham. The Trustees are in any case under a duty to consider from time to time the exercise of their powers under Rule 4.4.1(b)(i) to decide on a rate different from the normal rate. Their duties under Rule 4.4.4(b)(i), in terms of surveying the options, add little if anything to Rule 4.4.1(b)(i), although how the Trustees actually react to the information which they learn may be different depending on whether they are acting under Rule 4.4.1(b)(i) or Rule 4.4.4(b)(i) since the latter is constrained by reference to the need to have regard to the alteration. In practice, there is not likely to be any substantial difficulty. In cases where an alteration has not resulted in a move away from RPI at the next date for pension increases (eg because the change is routine), it is unlikely that a subsequent significant effect (in its nature unexpected if the alteration was routine) will pass unnoticed by the Trustees (or their advisers). If there are no special circumstances such as that, it is not easy to think of cases where the Trustees would need to revisit their original decision.
- There is this further difficulty of construction which was not raised at the hearing but which I have raised with the parties since. It has an impact on the answer to the question whether or not the determination of a basis for pension increases is a one-off determination. Rule 4.4.4(b)(i) refers to an alteration in the RPI which takes place "after a date which is relevant in respect of a pension in terms of this Rule". Suppose that an alteration is made to the RPI at a time before a member has started to draw his pension. This would be the case for an active member at the date of the alteration (although it should be noted that there have been no members in active service under the TOPS Rules since 1997) or for a deferred member (of whom there may still be some) or for a member who only joined the Scheme after the alteration (again, that could not have been after 1997). Mr Ham relies on some quite old alterations to RPI, including one alteration (spending on holidays) as long ago as 1993, which trigger the operation of Rule 4.4.4(b)(i) and permit the Trustees to adopt a substitute index.
- It is clear that where Rule 4.4.4(b)(i) applies at all, it applies only to instalments of pension arising after the relevant alteration to the RPI. It may be that that is all the provision was meant to achieve but if that is the case, the words "after a date which is relevant in respect of a pension in terms of this Rule" would not have been needed, although the substitution of "all variations after that date" for "all subsequent variations" would have been appropriate. In that case, the provision would have applied in relation to increases in respect of all pensioners whether the alteration in RPI occurred before or after they had retired (or even joined the Scheme).
- But that is not what the provision says. It appears to apply, and in my judgment does apply, only where a pension is in payment at the time when the relevant change to the RPI is made and only if there has already been at least one occasion for the application of Rule 4.4.4 in respect of that pension. For such a pension, there will have been a "date which is relevant in terms of this Rule" (ie Rule 4.4 headed "Increase in Pensions") and so that on each later occasion for review ("all subsequent variations") of the particular pension in question ("that pension") will be on a revised basis. But if a person has not started to draw a pension, there will have been no occasion for the application of any part of Rule 4.4 so that an alteration before the pension commences will not be "after a date which is relevant in respect of" that person's pension. I do not consider that, as a matter of construction, it is possible to treat the provision as if the words "after a date [etc]" were not there.
- Accordingly, a person retiring after the date of an alteration to the RPI is not affected by that alteration under Rule 4.4.4(b)(i). Instead, such a person is entitled to increases in benefits without regard to Rule 4.4.4(b)(i), that is to say in accordance with RPI as it stands from time to time (subject of course to the application of Rule 4.4.4(b)(i) in respect of later alteration). This result may seem surprising but it is not as surprising as it may seem.
- First, Rule 4.4.4(b) provides that increases under the normal rate are calculated by a simple mathematical comparison between the level of RPI at the date of variation and its level a year previously. The focus of the proviso in Rule 4.4.4(b)(i) and (ii) is on situations where that simple mathematical comparison cannot be effected. Thus under paragraph (i) the one situation positively identified is the revision to a new base. If RPI is rebased, a direct mathematical comparison between the index as it stood on the date for increase in pensions in one year and that date in the next year is not possible. Rule 4.4.4(b)(i) allows the Trustees to take account of that rebasing in a straightforward way for instance by applying in the later (and subsequent) years the figure which would have appeared had rebasing not taken place: this would be a simple arithmetical exercise. But there is no need to do this in relation to a person retiring after the date of the alteration since the application of the rebased RPI to him without an alteration at all achieves the "correct" result. Under paragraph (ii), an adjustment is necessary only in relation to a person whose pension falls to be increased in circumstances where the reference month for that increase is one in which the RPI is not published. The Trustees cannot apply the actual RPI since it is not published; but paragraph (ii) allows them to adopt a substituted figure.
- Secondly, the Trustees, for consistency, are likely to want to treat the pension of such a person, when he retires, in the same way as pensions which are affected by previous alterations in the RPI. It is open to the Trustees, with the agreement of the Company, to achieve that result through the operation of Rule 4.4.1(b)(i). In situations where RPI has altered so as to increase the cost to the Company and the Trustees have adopted a basis ameliorating the Company's position, such agreement is likely to be forthcoming. In situations where RPI has altered so as to reduce the cost to the Company, it may be that the Company would refuse its consent. In that case, the new pensioner will be left with precisely that which he could have expected, namely increases in accordance with RPI. He could have no expectation of some other basis of increase since Rule 4.4.4(b)(i) on its true interpretation does not apply to him. This aspect of the operation of Rule 4.4.4(b)(i) has an impact on the question whether the Trustees are under an obligation on each occasion for the review of a pension to revisit the basis on which they are to award increases.
- I will come to that impact shortly, but before I do I should state my conclusion in answer to Question 10(8) on the Claim Form that, quite apart from this aspect, the Trustees are not required nor do they have power, following a particular alteration, to review the basis on which pensions are paid every year thereafter. They must do so on the first occasion for pension increases after the alteration, but having determined a particular basis, that basis will apply to all subsequent variations in pension. That appears to me to be a more natural meaning of the words that an interpretation that reads the words "from time to time" into the provision after "on a basis determined". And there is considerable force in the arguments rehearsed above in favour of this view. The arguments rehearsed above in favour of the contrary view are not enough to persuade me that that contrary view is correct. Some support for that view can be found in the contrast between Rule 4.4.1(b)(i) providing for the normal rate to be RPI or such other rate as the Trustees from time to time on the one hand and Rule 4.4.4(b)(i) which contains no such wording. It is a small point but a point nonetheless.
- My conclusion is further supported by consideration of the aspect of Rule 4.4.4(b)(i), which I have just discussed at some length. It would be an odd result, I consider, for the Trustees to be under an obligation to review annually the appropriate basis of the pension increases to be awarded to a person retiring before a relevant alteration to the RPI but to have no power to do so in relation to a person retiring after the relevant alteration. It is one thing to have to accept, as a result of the wording of Rule 4.4.4(b)(i), that there will be some difference between the two pensioners as a result of the impact of the alteration on the first pension review in respect of the earlier retiree; it is another to conclude that the Trustees are able subsequently to take account, by way of review, of the alteration in relation to the earlier retiree but not the later retiree. It is pursuant to Rule 4.4.1(b)(i), and not Rule 4.4.4(b)(i), which the Trustees should invoke to effect later reviews of the basis of increase in pensions and, in all likelihood, in such a way as to achieve parity between the two.
- My conclusions are (a) that the Trustees are only obliged under Rule 4.4.4(b)(i) to determine a basis once following an alteration in the RPI and (b) that Rule 4.4.4(b)(i) only applies in respect of a pension when the first occasion for the review of that pension has occurred before the relevant alteration in the RPI.
- Where there has been a relevant alteration in the RPI, the Trustees' duty is to consider whether to depart from RPI or whether they should determine some other basis, in which latter case they should do so. They should do so in time for their decision to be implemented at the date for implementation of any increases to pension.
- In the light of my conclusions concerning the meaning of "otherwise altered", it can be stated that there have been a number of changes each of which has resulted in the RPI in fact being "otherwise altered". Those include all of the changes which I have considered in relation to CARE. They also include many changes in the past (although whether they can be relied on a different matter) namely:
i) 1993: Replacement of the community charge by council tax. This is agreed to be non-material and could be considered as simply the normal updating of the basket.
ii) 1993 and 1994: inclusion of foreign and domestic holidays. Mr Johnson's view is that the introduction of holidays amounted to a material change in the coverage of RPI. Ms Leyland agrees that the introduction of foreign and domestic holidays extended the coverage of the series, although it did not affect the inherent character of RPI.
iii) 1995: inclusion of a measure of depreciation of owner-occupied housing. As Mr Johnson explains, this change effectively introduced a measure of house prices for the first time. He considers that it fundamentally altered the conceptual basis for measured housing costs for owner-occupiers. Ms Leyland agrees that this was a significant change to the measurement of an important element of RPI, albeit that it is her view that this change did not alter the fundamental purpose of RPI.
iv) 2004: the introduction of hedonic methodology. The experts' joint view is that this could not be said to alter RPI as it simply takes advantage of new techniques and also affects only a small percentage of the Index.
- I consider that items ii) and iii) in that list amount to alterations which fall with the meaning of "other alterations" in Rule 4.4.4(b)(i).
- The next question (Question 10(7) on the Claim From) is whether, as a matter of construction and not as a matter of the propriety of the exercise of any power, it is open to the Trustees to determine that RPI, CPI, RPI J, CPI H or some other index should be applied. I am not clear precisely what this question is actually asking. As a matter of construction, the words "on a basis determined by the Trustees" are wide enough to cover any index. That, however, is trivial and does not assist the Trustees or the Company at all. That cannot be what the question is directed at.
- My understanding, as with Question 10(3), is that I am being asked to decide whether, applying the Rules in the actual circumstances of the case, it is open to the Trustees to adopt any of the indices mentioned in Question 10(7) on the Claim Form. Accordingly, if I were to decide that no reasonable trustee could properly determine a particular basis, I understand that I am being invited to say so even though, in one sense, that is a question of propriety.
- I have already considered the constraints on the exercise of the discretion at  and  above where I gave examples of how such constraints would operate. It is clear that the Trustees do not have a free range to adopt whatever basis they like. I repeat (i) that the manifest purpose of the words "having regard to" is to adopt a basis which reflects the manner in which the alteration causes a departure from RPI as it stood before the alteration and (ii) that it would require compelling circumstances for the Trustees to depart from RPI as altered by a routine change. They must have regard to the alteration in the sense of giving practical recognition to the fact that it is the alteration which is the occasion for the exercise of their power. If the alteration makes no material difference at all, it would be wrong for Trustees to depart from RPI as altered.
- I have already concluded that the Trustees' determination of a basis under Rule 4.4.4(b)(i) is a one-off determination. It follows that if the determination is to retain RPI, then a further alteration to it will bring Rule 4.4.4(b) into play again. The Trustees' role is to consider the basis on which increases in pension should be made to the RPI as it stood at the time of the further alteration, not at the time of the original alternation; the determination must be made having regard to the further alteration.
- The most material alteration is introduction of UK HPI into the RPI. Taking that by itself, I consider that RPI as varied by the introduction is the only basis which the Trustees could properly determine, for the same reasons that it is the nearest alternative index under the CARE Rules.
- It does not appear to me that any of the earlier alterations now relied on by the Company was, by itself, an alteration which would have justified the Trustees adopting any of the alternative indices listed in Question 10(7) on the Claim Form (or such of them as existed at the relevant time). The consequence is RPI has continued to apply throughout the period since the first alteration since no alteration was an occasion on which the Trustees should have departed from it. On that footing, there is no question of cumulating the alterations to treat what was a series of alterations none of which, by itself, has resulted in a move away from RPI as one large alteration which would justify such a move. The relevant comparison is to be made following each alteration: it is not correct to compare the position today with that which obtained at the date of the earliest alteration relied on.
- If that analysis is wrong so that the Trustees could have adopted some other basis following each alteration, the Company would need to show that the Trustees are still in a position to exercise their discretion in reliance on alterations taking place in 1993 (foreign holidays) and 1995 (depreciation of owner-occupied housing). Mr Green submits that the discretion in respect of those alterations has long ceased to be available by reason of the passage of time. Mr Ham submits otherwise. I am unwilling to address this line of argument in the light of the conclusions which I have already reached. It is a far from straightforward point which would require adding to this already overlong judgment including citation and analysis of authority. The parties require my decision as a matter of some urgency. It is not appropriate to delay in order to deal with the point.
- In the light of the above discussion and of otherwise agreed positions, my answers to Questions 10(6) to (8) on the Claim Form are as follows:
i) Question 10(6):
a) RPI continues to be published.
b) RPI has not since 1 June 1991 been revised to a new base.
c) RPI has been "otherwise altered" for the purposes of Rule 4.4.4(b)(i) of the TOPS Rules.
ii) Question 10(7): Current RPI (thus including the material change in its compilation by the introduction of UK HPI) should be the basis determined by the Trustees for the purposes of Rule 4.4.4(b)(i) of the TOPS Rules. It is not open to the Trustees in response to that material change in compilation to adopt any other index.
iii) Question 10(8): The Trustees have no power under Rule 4.4.4(b)(i) of the TOPS Rules to review the applicable rate. If the applicable rate is RPI, Rule 4.4.4(b)(i) will apply to any subsequent alteration.
- That leaves only Question 10(5) on the Claim Form to be dealt with. It is common ground that the answer to this Question is "No" since as a matter of fact RPI has not been replaced for the purposes of determining the value of the principal on repayment of Index Linked Government Stock. I do not, in any case, understand the relevance of this question. I will answer the question in that sense.
QUESTIONS RAISED AT PARAGRAPH 10 OF THE CLAIM FORM
Answers appear in bold type-face
(1) In relation to the benefits under the Scheme which are uprated by reference to the "Revaluation Rate" or the "Rate", that it may be determined whether on the true construction of the condition to the definition of "Revaluation Rate" and "Rate" set out in paragraph 5 above and in the events which have happened:
(i) the Government retail prices index for all items is no longer published; and/or
(ii) the compilation of the Government retail prices index is materially changed.
RPI continues to be published.
The compilation of RPI has materially changed as a result of the introduction of UK HPI into it.
(2) If so, whether the effect of that is on the true construction of the condition to the definition of "Revaluation Rate" and "Rate" set out above to:
(i) require; or
the Principal Employer, with the agreement of the Trustees, to determine (or decide, as the case may be) the nearest alternative index to be applied.
The Principal Employer is required to determine, with the agreement of the Trustees, the nearest alternative index to be applied. This must be done within a reasonable time from the relevant material change in compilation.
(3) If the answer to 10(1) above is in the affirmative, and having regard to the answer to 10(2) above, whether under the condition to the definition of "Revaluation Rate" and "Rate" set out above and in the events which have happened, it is as at the date of the trial in this matter open to the Principal Employer and the Trustees (as a matter of construction and not, for the avoidance of doubt, as a matter of the propriety of the exercise of any power) to determine (or decide) that "the nearest alternative index" for the purpose of uprating benefits under the Scheme which are uprated by reference to the "Revaluation Rate" or the "Rate" is any and if so which of the following:
(i) RPI (in the event that the Court has found that the circumstances mentioned in 10(1)(ii) above exist);
(iv) CPIH; or
(v) Some other (and if so what) index.
The nearest alternative index is the RPI following the change in its compilation by the introduction of UK HPI. It is not open to the Principal Employer in response to that material change in compilation to determine any other index.
(4) If the answer to question 10(1) is in the affirmative (or would at some future time be in the affirmative) whether thereafter the Principal Employer and the Trustees are (or would be) required or authorised to determine (or decide) (as the case may be) what "the nearest alternative index" is for the purpose of uprating benefits under the Scheme which are uprated by reference to the "Revaluation Rate" or the "Rate":
(i) on each occasion on which such benefits fall to be uprated, or
(ii) otherwise from time to time (and if so at what intervals).
(5) In relation to the benefits of the Barr & Stroud Members under the Scheme that are uprated by reference to the "normal rate", that it may be determined whether on the true construction of the definition of Retail Price Index set out in paragraph 8 above and in the events which have happened the Retail Price Index has been replaced for the purpose of determining the value of the principal on repayment of Index Linked Government Stock, and if so by what (and if this question is answered in the affirmative, in question 10(6) below references to the "Retail Prices Index" shall be construed as references to the index which has been found to have replaced the Retail Price Index for this purpose).
RPI has not been replaced for the purposes of determining the value of the principal on repayment of Index Linked Government Stock.
(6) In relation to the benefits of the Barr & Stroud Members under the Scheme that are uprated by reference to the "normal rate", that it may be determined whether on the true construction of the provisos to the definition of "normal rate" set out in paragraph 9 above and in the events which have happened:
(i) the Retail Prices Index is no longer published;
(ii) the Retail Prices Index is revised to a new base; and/or
(iii) the Retail Prices Index is otherwise altered.
RPI continues to be published.
RPI has not since 1 June 1991 been revised to a new base.
RPI has been "otherwise altered" for the purposes of Rule 4.4.4(b)(i) of the TOPS Rules.
(7) If the answer to 10(6) above is in the affirmative, whether it would be as at the date of the trial in this matter open to the Trustees (as a matter of construction of the provisos, and not, for the avoidance of doubt, as a matter of the propriety of the exercise of any power) to determine that:
(i) RPI (in the event that the Court has found that the circumstances mentioned in 10(6)(ii) or (iii) above exist);
(v) some other (and if so what) index
should be applied.
Current RPI (thus including the material change in its compilation by the introduction of UK HPI) should be the basis determined by the Trustees for the purposes of Rule 4.4.4(b)(i) of the TOPS Rules. It is not open to the Trustees in response to that material change in compilation to adopt any other index.
(8) If the answer to question 10(6) is in the affirmative (or would at some future time be in the affirmative), whether thereafter the Trustees are required or authorised to determine what index should be applied to uprate the benefits of the Barr & Stroud Members:
(i) on each occasion on which such benefits fall to be uprated, or
(ii) otherwise from time to time (and if so at what intervals).
The Trustees have no power under Rule 4.4.4(b)(i) of the TOPS Rules to review the applicable rate. If the applicable rate is RPI, Rule 4.4.4(b)(i) will apply to any subsequent alteration.