The Court has upheld a claim by the Trustee of the Mitchells & Butlers Pension Plan (the "Plan") to rectify the pension increase provisions in three deeds that were executed in 1996, 2002 and 2006.
The Court considered evidence from 19 witnesses (16 of whom were cross-examined) and heard an argument by the Plan's
In another aspect of the case, Mr
The
Background in brief
Before the deeds in question were executed, the increase rule provided that pensions in payment in excess of Guaranteed Minimum Pension (GMP) were to be increased by reference to the percentage increase in the "Official Index of Retail Prices", which was defined as "the index of retail prices published by the
In other words, members received 5% LPI increases, subject to the Trustee's ability to choose another index (the "
In 1996, a new Definitive Deed & Rules was executed.
In other words, the Trustee lost its power to move away from the default index by which pensions in payment were increased and the power to select the rate of increase moved to the Plan's Principal Employer.
The judge found that the parties to the 1996 deed had not intended to replace the (Trustee)
As for the 2006 deed, M&B argued that the parties had intended to replicate the pension increase provisions in the form contained in the 1996 and 2002 deeds, so that deed should not be rectified.
As an alternative to its rectification claim, the Trustee argued that the increase provisions in the 1996, 2002 and 2006 deeds were ineffective as their introduction contravened the Plan's amendment power because the Plan actuaries had not been properly consulted (alternatively, the introduction of the increase provisions by the 2002 and 2006 deeds contravened section 67 of the Pensions Act 1995).
The trial was held over three weeks and involved the Court considering evidence from 19 witnesses, 16 of whom were cross-examined, some remotely via video-link from witness "hubs" set up in Gowling's offices in view of the ongoing pandemic.
What follows is only a very brief account of a judgment running to 410 paragraphs and 97 pages.
Rectification of the 1996 and 2002 deeds
Rectification is a remedy by which the Court amends a document so that it reflects the true intention of the parties to it. Convincing proof is needed to persuade the Court that the document did not reflect the parties' actual intention.
Rectification is available, not only where particular words have been misused, but also where words have been used intentionally but the parties mistakenly thought that the words they had used had a meaning different from what which the words in fact have.
Where a consolidating deed repeats a rectifiable error in an earlier deed, it may be possible to rectify the later deed if the evidence shows that the parties intended that the consolidating deed should reflect members' substantive legal entitlements under the earlier deed, including the right to rectify. If, however, the intention was to replicate the language of the earlier deed as it then stood, a claim to rectify might not be established. It is necessary to consider carefully evidence of what the parties intended at each relevant point in time.
Although M&B conceded that the 1996 and 2002 deeds were rectifiable against
The evidence that the introduction of the
To the extent any decision-makers read the pension increase provisions in the 1996 deed, they did not appreciate the effect of the
The 2002 deed was a consolidation exercise. The evidence was compelling that the parties did not intend to change the basis on which pensions were increased, namely, RPI increases up to a maximum of 5%.
Accordingly, subject to M&B's "purchaser defence", both the 1996 and 2002 deeds should be rectified.
"Bona fide purchaser for value without notice"
M&B became the Plan's Principal Employer in
This aspect of the case was novel because, the Judge noted, this argument by a pension scheme's employer was not one that had been previously been presented to any Court or considered by legal commentators.
There was no dispute that rectification will not be granted to the prejudice of someone who purchased property in good faith for value without notice of the ability of another party to rectify. The issue was whether the doctrine applied to the circumstances in which M&B had become the Principal Employer.
The Court decided that the defence was not made out. Mr
An important aspect of the Court's conclusion was the Judge's finding on the nature of the power pursuant to which M&B had become Principal Employer, the primary purpose of which was for the new Principal Employer to agree to "assume its position". This made clear, the Judge held, that the power was concerned with substitution and succession, not with the sale of property or the transfer of rights.
The Court concluded that the purpose of the power of substitution was to ensure a seamless transition from one entity holding the position of Principal Employer to another. The effect of the substitution was limited to changing the entity of the person holding that position.
Rectification of the 2006 deed
M&B argued that whether or not the Court should rectify the 2006 deed would be affected by the Court's conclusion on the bona fide purchaser defence because, if the 2002 deed were not rectified, it could be said that the parties intended to do no more in 2006 than perpetuate the substance of the unrectified provisions of the 2002 deed.
Since it did not uphold M&B's defence to the rectification of the 2002 deed, on M&B's argument the Court could have proceeded to rectify the 2006 deed. However, Mr
Accordingly, the 2006 deed was rectified too.
Invalidity
Mr
The Plan's power of amendment contained the following words:
"After consulting the Actuary the Trustees may ... with the consent of the Principal Employer alter or modify all or any of the trusts powers or provisions of this Deed or of the Rules ...
Provided always as follows:- ...
(iii) no alteration or modification shall be made which in the opinion of the Actuary shall operate substantially to prejudice the rights or interests in respect of service prior to the effective date of the alteration or modification of any person already a Member at such date; ..."
M&B accepted that consultation with the Plan actuary was a condition precedent to the effective exercise of the power of amendment. This followed from the language of the power, which opened with the words "After consulting the Actuary." The judge accepted this concession was correct. However, there was an issue as to whether there had been effective consultation with the Plan actuaries before each of the 1996, 2002 and 2006 deeds had been executed.
The Court concluded that there had been no effective consultation. What was necessary, the Judge found, was for sufficient information to be provided by the consulting party (i.e., the Trustee) to the consulted party (i.e., the Plan actuary) to enable him to give advice on the subject matter of the proposed changes from the perspective of the particular professional field of the consulted party (i.e. to advise from an actuarial perspective on the change, not a legal one).
If the proposed changes were not brought to the attention of the person consulted (even inadvertently), effective consultation will not have taken place. In practice, this meant that, for an amendment to be valid, appropriate steps had to be taken to ensure that the Plan actuary was made aware of the proposed amendment on which he was consulted.
It was not enough that the Plan actuary had been sent the draft deed, asking him to confirm that he would approve the proposed changes. The evidence was that the Plan actuary did not appreciate he was being asked to express an opinion on the proposed introduction of the
Mr
Although not necessary for his decision, the Judge also held that the proposed introduction of the
The position was different for the 2006 deed because, by then, a breach of section 67 rendered any exercise of a power to modify voidable, not void. The Judge saw no useful purpose in declaring that the purported amendment was voidable under section 67 given he had ordered rectification and found it was invalid under the Plan's rules, in circumstances where the
Conclusion
First, the Court rectified a pension increase rule so as to take away an employer power and replace it with a trustee power. Rectifying so as to change the identity of the holder of a power away from the party which appears to possess it (i.e., not just rectifying to change the contents of the power) is unusual.
Secondly, and usefully in a pensions context, this is another case in which a court has been prepared to order rectification of a number of successive deeds that contained the same mistake even when it could not be shown that the parties had specifically addressed their minds to the provision it was later argued was mistaken.
Thirdly,
Finally, what the Judge said about what is required for an effective consultation in the context of the purported exercise of a scheme's amendment power is likely to be of practical interest for other pension schemes.
Next steps
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Mr
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