Stuart Pickford and Tom Wild look at the extent to which courts will help resolve problems caused by technical defects or amendment errors in documents.
Where a problem is found in pension scheme rules, the obvious first question is whether it can be fixed, potentially with the assistance of the court. The answer will often turn on the precise nature of the problem, with the law drawing distinctions which may not sit well with the common sense notion that technical issues should be fixable.
To illustrate this, let's take three fictional schemes where the future accrual rate was intended to be reduced. The trustees of scheme A announced the change to members but did not comply with the amendment formalities in the rules; the trustees of scheme B tried to follow those formalities, but did not get them right; and although the formalities were followed in respect of scheme C, the wording was incorrect.
Sometime later, these problems are identified and the trustees (and employers) hope that a common sense solution can be found - not least because their members have been getting precisely the benefits that they were notified they would be getting.
The starting point is that courts expect formalities to be complied with - so if the rules require a deed of amendment, then an attempt to amend by announcement alone will not work. Benefits will not be limited to whatever the announcement said and section 67 of the Pensions Act 1995 often stands in the way of a retrospective amendment to fix the problem. Not a promising start for scheme A or scheme B.
However, there have been notable cases where the court has taken more accommodating approach. In HR Trustees v Wembley, the trustees agreed to impose a 5% cap on future increases, but the amending documentation was only signed by four of the five trustees. The judge found a way to overcome this defect, noting that the law would look ridiculous if it were powerless to correct what he saw as an obvious administrative error. An encouraging sentiment, but the reasoning in Wembley has been doubted in other cases, so it would be wrong to see it as heralding a new approach where scheme amendment formalities are no longer important.
It is nonetheless possible to detect in recent pension cases a willingness to adopt a practical solution where one can be found. For example, in the recent decision concerning the BIC UK Pension Scheme, the court was prepared to treat a new Trust Deed and Rules put in place with retrospective effect as saving a benefit improvement which had been defective when made two years beforehand. In another case this year, the court found that there had been an agreement to change the identity of the principal employer of the Wandel & Goltermann Retirement Benefits Scheme, which avoided the conclusion that subsequent documents had been executed by the wrong employer.
These cases suggest that courts are willing to find practical (and sometimes ingenious) ways of fixing problems. But some cases don't allow room for a creative approach. Take the Gleeds case, where various deeds were not executed in accordance with statutory requirements. The court could not find any way to fix the problem, notwithstanding the serious financial consequences for the scheme involved.
Whether problems similar to those faced by schemes A and B can be fixed will depend on the terms of the power of amendment, quite what went wrong and whether the surrounding circumstances lend themselves to a creative solution - what works for one scheme may well not work for another.
Finally, scheme C finds itself with a properly executed but incorrectly worded amendment. It might be possible to read the wording in a way that overcomes the problem - but this will not always be an option and there may be real doubt over whether the document can be read in a particular way. Alternatively, the court has the power to put the document right through rectification (side-stepping section 67 by treating the document as having always been in its corrected form). Improvements in court procedures have made rectification applications quicker and cheaper, particularly in cases where there is an obvious mistake, but it will still require good evidence showing what the parties intended the document to say.
There will not be a satisfactory answer in all cases, but judges do not operate in a vacuum and do appreciate the difficulties encountered by pension schemes. Where the legal tools can be found to put things right, the signs are that judges can be persuaded to use them.
Stuart Pickford is head of pensions litigation and Tom Wild an associate at Mayer Brown International
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