Avon Cosmetics Ltd v Dalriada Trustees Ltd [2024] High Court finds scheme amendment severing final salary link found to be partially valid

In this case, the High Court considered the validity and effect of an amendment to a scheme which closed its final salary section to future accrual and introduced career average revalued earnings (CARE) benefits for future service. The effect of the amendment was to sever the final salary link for the then active members of the scheme's final salary section.

Later, it became apparent that the amendment could be in breach of the scheme's power of amendment which prohibited changes prejudicially affecting members' accrued benefits. Although the effect of the amendment on individual members would only be clear once their rights had crystallised, members could be categorised into those who would be worse off following the amendment and those who would be better off, depending on salary increases and the rate at which their deferred final salary benefits were revalued.

The court was told that a compromise had been agreed with those members who would be worse off following the amendment. The question was whether, on the assumption that the change infringed the scheme's amendment power, the infringement rendered the amendment wholly invalid, or invalid only as regards those members who would be worse off.

The judge concluded that, whilst the amendment would be in breach of the amendment power and therefore invalid in respect of those who would be worse off, it was nevertheless valid as regards those members who would be better off.

Where there had been an excessive execution of a power, the court would naturally incline to uphold the validity of the exercise of the power insofar as it could. Where the exercise of the power could be separated into distinct parts, valid and invalid, it was, in principle, possible to save the valid part of the exercise of the power. That could be done by implying a limitation on the terms of the exercise of the power such that it was read as only effecting the valid part of the exercise, or by severing the valid part and preserving it.

Read the judgment.