UK: Rectification Revisited: Fresh Guidance On The Role And Types Of Evidence

Last Updated: 3 November 2014
Article by Marcus Kealey

Cases involving the rectification of pension scheme documents are always of interest. Whilst heard some time ago now (December 2013), the transcript of the High Court's decision in MNOPF Trustees Limited v Bryan Watkins was only recently made available. The decision offers useful guidance as to the Courts' approach in reviewing various forms of evidence used to support an application for rectification.

Claims for rectification

Rectification is an equitable remedy which can only be granted by a Court. To qualify for an award of rectification a party must establish that on the balance of probabilities a legal or factual mistake was made in the drafting of a written scheme document, with the result that the document fails to express the true common intention of the parties.

It is now generally accepted that it is the parties' common intention viewed objectively that must be established. The subjective intentions of the parties themselves are not normally taken into consideration, although interestingly the judge in this case considered that brief consideration of the parties' subjective intentions might serve as a final "cross-check" on the Court's overall decision.

Assuming sufficient evidence can be produced to substantiate the application, there is the further requirement that the mistake for which rectification is sought cannot be easily remedied by alternative means. Where those administering the scheme cannot remedy the mistake by such other means, they are obliged either to apply to Court to seek rectification or alternatively, continue to administer the scheme and award benefits on the assumption that the mistake is in fact correct.

Where a Court exercises its discretion and grants rectification, the scheme document is amended retrospectively so that it reflects the terms that the parties actually intended. Rectification therefore seeks to restore the parties to the position they would have been in had the mistake not been made.

In practice, rectification claims are nearly always brought where a mistake was made resulting in members being awarded benefits that were greater than originally intended. Whilst rectification claims are generally not time-barred, a Court can refuse to grant rectification where a party has been particularly lax in pursuing their claim. Parties seeking rectification are therefore advised to apply for rectification as soon as they become aware it is a possibility.

The case

The MNOPF is an industry-wide multi-employer occupational pension scheme which had two sections – the old section and the new section. The old section provided benefits relating to contributions paid during service up to 5 April 1978, with the new section providing benefits for service accrued after that date.

Historically, the Scheme was administered on the basis that there was no guaranteed revaluation of deferred pensions accrued under the old section. Instead, the Trustee had a discretion as to whether to grant revaluation in respect of the old section benefits, having taken actuarial advice. Difficulties arose when the new 1999 Trust Deed and Rules (the "99 TD&R") inadvertently altered the Scheme's rules so that both old and new section benefits were subject to automatic revaluation.

On discovering the error, in 2012 the Trustee sought rectification arguing that there was no intention to automatically revalue benefits accrued under the old section. In making these assertions, the Trustee sought to rely on what the judge referred to as the "seven categories" of evidence which comprised the following:

  • Expressed statements of intention

These statements could be derived from the documents, minutes of trustee meetings and relevant correspondence produced at the time that the 99 TD&R was being drafted.

The judge placed considerable weight on the brief contained in a solicitors' letter setting out the changes that would be made in the draft 99 TD&R.  Critically, the brief omitted any reference to a proposal to introduce compulsory revaluation of old section benefits. In addition, the minutes of a Trustee meeting indicated that the changes in the draft 99 TD&R were confined to those set out in the solicitors' brief.

  • The "negative" category

The second category of evidence on which the Trustee sought to rely was the absence of any material indicating that consideration was being given to introduce guaranteed increases for old section benefits. For example, there was no record of the scheme actuary being asked to advise on the funding impact of giving guaranteed increases on the old section benefits.

Further, records showed that a short time prior to the drafting of the 99 TD&R the Trustee had in fact decided to defer a discretionary increase in the old section benefits because the scheme's funding position was too weak. It was argued that it would be an odd result to impose automatic revaluation provisions in such circumstances.

  • Explanation of the apparent error

The Trustee was able to produce evidence indicating how the error had actually occurred. It transpired that the scheme's solicitors had made a suggestion as to how a drafting problem could be rectified. However, the solicitors' suggestion had been poorly thought out with the result that it had various unintended effects.

  • Approach to revaluation remained unaltered following adoption of 99 TD&R

After the execution of the 99 TD&R there was no change in respect of revaluation of old section benefits: the judge confirmed that it was acceptable in law to have regard to what had happened subsequently in determining the true original intention of the parties.

  • Scheme insufficiently funded

The scheme was insufficiently funded in 1999 to make revaluation compulsory and this was supported by the Trustee's earlier decision not to grant discretionary increases.

  • Members affected

If granted, the guaranteed increases would be confined to a class of members who had accrued old section benefits and were still in service on 6 April 1997. There was no explanation as to why the Trustee could have only intended to benefit this group of members to the exclusion of other categories of member.

  • Parties' subjective intentions at the time

The final evidential category concerned the written evidence of witnesses involved at the time. the judge highlighted that whether it was possible to have regard to the subjective intentions of the parties remained controversial based on the legal authorities. Instead, he viewed the witnesses' evidence as something to cross-check against the other evidential findings.

Wedlake Bell Comment

It is worth noting that in this case, the power of amendment was vested solely in the Trustee and therefore it was only the intentions of the members of the trustee board which fell for consideration. By contrast, in many cases an amendment power will be vested in both the trustee and principal employer, which will clearly necessitate an analysis of the common intention of both parties. In this actual case, the judge had little difficulty in deciding to grant rectification by way of Court order.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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