Britvic allowed to adopt lower rate for pension indexation

Potential error in drafting was not identifiable, Court of Appeal says

James Phillips
clock • 2 min read

The Britvic Pension Plan did not have an identifiable drafting error in its scheme rules in relation to how its rate of pension increase is calculated, the Court of Appeal has ruled.

In the Britvic v Britvic Pensions and Another judgment yesterday (10 June), Master of the Rolls Sir Geoffrey Vos, alongside Lord Justice Coulson and Lord Justice Nugee disagreed with a prior High Court judgment that had decided an exact interpretation of the rules.

The case centred around whether the words "or any other rate decided by the principal employer" allowed for a lower rate to be used than otherwise specified in the rules.

As written in the trust deed and rules, the rate of increase on pensions above GMPs should increase by a maximum of 5% for benefits accrued up to 30 June 2008, and 2.5% for after that - but with the additional proviso that "any other rate" could be decided by the employer.

In a judgment last January, however, High Court Judge Hodge ruled that the meaning of the words could only be construed to allow for a higher rate to be adopted, stating that the draftsman had "intended" for it to be interpreted this way, with a "pellucidly clear" legislative and documentary background.

This had the effect of blocking a change in the scheme's indexation from the Retail Prices Index.

Yet, in the Court of Appeal case, which was heard last month, it was agreed that the rule could not, on the face of the document, be considered a drafting error, and a "corrective construction" could not be applied.

While members had previously been told that there was a 5% minimum rate in the case of pre-June 2008 benefits, the rules were carried over predecessor plans, where this clause was included.

As such, one judge suggested, it was not possible to identify whether there was a mistake on the part of the person who drafted the communication to members - or whether the draftsman of the amalgamated rules was aware of the communication.

In essence, the court concluded there was no way to identify whether there was in fact a mistake in the rules, and therefore it was not possible to infer the exact "higher" interpretation that the High Court suggested.

Gowling WLG pensions partner Ian Gordon, who acted for the scheme trustees, said the case joined a "long line" of similar judgments which helped to understand where potential drafting errors could be rectified.

"It appears from the Court of Appeal's decision that corrective construction is likely to be limited to cases where there is an obvious mistake on the face of the document or where applying the document's natural reading would lead to an irrational result.

"That apart, the document will be given its natural meaning and the parties will be left to other remedies such as rectification."

James Phillips
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James Phillips

Professional Pensions journalist from 2016-2022

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