OTC silks represent trustee and beneficiaries in IBM Project Waltz proceedings

A landmark judgment has been handed down in the IBM Project Waltz proceedings, in which Outer Temple Chambers (OTC) silks Andrew Spink QC and Nicolas Stallworthy QC appeared for the trustee of IBM’s two principal UK defined-benefit pension schemes and the representative beneficiaries respectively.

In 2009, IBM announced that, with effect from 2011, the two schemes would close to further benefit accrual, IBM UK’s longstanding early retirement policy would become much more restrictive and salary increases would only be offered in future to members of the schemes if they signed ‘non-pensionability agreements’ (under which any such increases would not count as ‘pensionable salary’ so as to feed into the calculation of their past service benefits).

This controversial package of proposals, named ‘Project Waltz’, became the subject of intense scrutiny last year in what was one of the most significant pieces of hostile litigation in the Chancery Division for many years and probably the largest-ever pensions trial to date.

The Project Waltz proceedings concerned: (1) the validity of the introduction of a so-called ‘exclusion power’ (a power to direct that any specified person or class of persons shall cease to be a member) into one of the schemes; (2) the scope of that power, as well as a similar power in the other scheme; (3) whether IBM used those powers for an improper purpose in purporting to exclude the vast majority of employees from membership of the schemes so as to terminate further benefit accrual; and (4) whether IBM had breached its ‘Imperial’ duty of good faith owed to members of the schemes and the contractual duty of trust of confidence owed to its employees both by proposing and introducing the elements of the Project Waltz package and by the way in which it conducted the statutory consultation process (the ‘good faith’ issue).

Warren J found in IBM’s favour on the first three issues, subject to the caveat that the exclusion powers could not be used to break the final salary link in respect of past service benefits.

On the ‘good faith’ issue, the judge undertook a comprehensive review of the law and, in relation to the facts, oral and documentary evidence spanning many years of IBM’s corporate activity in relation to its global and UK pension schemes. He concluded that IBM had breached both its ‘Imperial’ duty and the contractual duty of trust and confidence.

In summary, IBM’s conduct over several years prior to the announcement of the Project Waltz proposals had given rise to ‘reasonable expectations’ on the part of the members of the schemes that had been breached by the proposals and the manner in which they were implemented so as to give rise to breaches of duty notwithstanding the ‘business justification’ for the proposals put forward by IBM.

IBM has announced that it will seek permission to appeal against the ruling. In the meantime, steps are being taken by the parties to bring the case back before Warren J for a further hearing to determine the remedies available to members of the schemes having regard to his findings on breach of duty.

Andrew Spink QC of OTC was instructed with Edward Sawyer by Nabarro. Nicolas Stallworthy QC of OTC was instructed with Michael Tennet QC, Ben Faulker and Bobby Friedman by DLA Piper UK.

IBM was represented by Andrew Simmonds QC, Paul Newman QC, Henry Legge QC and Joseph Goldsmith, instructed by Bond Dickinson.