UK: High Court Grants Uncontested Rectification Of Drafting Mistake In Pension Scheme Documentation

Last Updated: 22 March 2016
Article by Emily Matthews

In the recent case of Hogg Robinson plc v Harvey, the Court granted rectification of a drafting mistake in a deed purporting to amend the Scheme rules, holding that the correct intention of the parties was clearly established.  Maybe the more liberal approach to putting right documentation errors taken in the BCA Pension Plan case, which we looked at our  January 2016 Bulletin, was not such a one-off after all.

The deed of amendment was intended to reduce the rate at which annual increases were made to pensions in payment and in deferment in the Hogg Robinson (1987) Pension Scheme (the "Scheme").  However, the Scheme's administrators made a mistake in the drafting of the deed so that the deed only amended the rate applying to pensions in payment, and not to deferred revaluation.  The judge held that there was convincing evidence of the intentions of the trustees and the employer, dating from before and after the deed of amendment, which made it clear that a mistake had been made in the drafting of the deed. 

The law of rectification

Rectification is founded in equitable principles and is a form of remedy which is discretionary, and which can only be granted on an application to the Court.  It is available where the following two conditions are met:

  • A written instrument fails to reflect the true intentions of its parties due to a mistake.
  • The mistake cannot be easily correct by other means.

If the Court grants rectification, it will amend the written instrument retrospectively so that it expresses its intended terms.  The aim of rectification is to put the parties in the position which they would have been in had the mistake not been made.

The burden of proof is on the party seeking rectification and convincing evidence is required to rebut the presumption that the parties intended to agree to the terms actually set out in the written instrument.

In this case, the judge applied the law on the rectification of pension trusts established four years ago in IBM United Kingdom Pensions Trust v IBM United Kingdom Holdings.  In IBM it was held that in order for rectification to be granted, there needs to be persuasive evidence of the intentions of the trustees and employer (where the scheme power of amendment requires the consent of both), and their collective intentions must be established objectively at the time of the execution of the deed of amendment.  It was also held that evidence from a later date is admissible to establish the intentions of the parties.

The Court has granted rectification on summary judgment on several occasions in recent years, in cases such as Industrial Acoustics v Crowhurst.  In order for an application on summary judgment to be successful, the claimant must demonstrate that the other party has no real prospect of successfully defending the claim and that there is no other reason for a trial to go ahead.  For further information on the rules relating to applications on summary judgment, please click here.

The facts of the case

Prior to 1999, the Scheme rules provided that pensions in payment should be increased, and deferred pensions revalued, by fixed 5% compound annual increases.  In 1998 the Scheme's secretary, its actuary and a trustee considered an amendment to the Scheme rules, which would reduce the increases made to pensions in payment and deferred pensions for future service, so that benefits would increase at the rate of annual RPI increases subject to a maximum of 5% (known as limited price indexation, or "LPI").  This was proposed because by 1998, the rate of inflation was considerably below 5% and was expected to stay at this level.

Further, under the Minimum Funding Requirement established by the Pensions Act 1995 the Scheme was underfunded, and therefore providing a fixed 5% increase would be very expensive.  The actuary had calculated that if the Scheme's rules on pension increases continued without amendment, the Scheme would require employer contributions to rise from 8.7% of salaries to 17.5%.  However, he calculated that if the rate of escalation and revaluation was reduced as suggested, contributions of 11.7% would be sufficient.

Under the power of amendment in the Scheme's trust deed and rules, the Company was able to amend the provisions of the Scheme rules by deed or resolution, subject to the consent of the Trustees.

The scheme actuary presented to the Main Board and Executive Board of the Company on the proposed changes, by reference to slides and a draft valuation of the Scheme as at 6 April 1998.  The draft valuation provided that the benefits in payment and in deferment would be increased on an LPI basis only for pension accrued from April 1999, and that the Company would contribute 12% of pensionable salaries.  The Executive Board recommended the changes at its meeting on 22 July 1998 and the changes were approved by the Main Board on 26 and 27 October 1998, conditional on the consent of the Trustees.

When the Trustees met in October 1998 it was noted that they anticipated that the Company would resolve to make the changes.  At a Trustee meeting in February 1999, it was noted that the Company had decided to make the amendments, and in the Trustee meeting in May 1999 the minutes recorded that the Trustees agreed to the proposed changes and noted that the members' booklet should be amended accordingly.

The Company prepared a member announcement, which was issued in July 1999, which provided that annual LPI-based increases would be applied in respect of pensionable service after 1 August 1999 to both escalation of pensions in payment, and revaluation of deferred benefits.  The Scheme's members' booklet was also amended to reflect the changes and was sent to the Trustees for their approval on 10 June 1999.

The deed of amendment was executed by the Company on 27 July 1999, and then by the Trustees on 8 September 1999.  However, the deed only amended the Scheme's rules in relation to pensions in payment, and neglected to amend the rule in relation to deferred pensions.  It also provided that the changes had effect from 1 August 1999, even though the deed was not executed by the Trustees until 8 September.

After the execution of the deed of amendment, the intentions of the Company and the Trustees to amend the increases for pensions in payment and in deferment continued to be evidenced in Scheme documentation.  For example, the Trustees' annual report for the financial year 1998/1999, published at the end of 1999 and subsequently issued to members, outlined how the rules had been changed so that pensions (both in payment and in deferment) would be inflation-proofed on an LPI basis in relation to pensionable service from 1 August 1999 onwards.

The Court's decision

The Court granted rectification of the drafting mistake in the deed of amendment so that LPI-based annual increase applied to both pensions in payment and deferred benefits.

The Court held that on the facts of the case and in the light of considerable evidence, the test for rectification established in IBM had been satisfied.  The judge found that the evidence acted to "compellingly establish that a mistake was made in the drafting of the Deed" such that the Company's and Trustees' intentions to amend the rules were not reflected in the documentation produced.  

It was held that there was "no doubt that, objectively assessed, the Company and the Trustees intended to amend the rules to reduce the rate of increase of benefits in payment and in deferment", when they decided to amend the rules and when they executed the deed of amendment.

The application was not challenged by either the appointed representative beneficiary, or the Trustees of the Scheme.  The judge held that he was "quite satisfied that every potential defence to rectification has been investigated, weighed and finally correctly rejected as a realistic basis on which to defend the claim". He found that there was no other reason for a trial to take place; and, in fact, that it was in all of the parties' interests that a full trial did not take place. 

The judge also indicated he would make a declaration that the changes introduced by the deed only applied to benefits accrued from 8 September 1999 (when the deed of amendment took effect), rather than the earlier date of 1 August 1999 that it erroneously stated.

WB comment

This is one of a number of recent cases where the Court has adopted a more practical approach towards the correcting of drafting mistakes in scheme documentation.  It demonstrates how, provided the necessary evidence is available, it is possible to dispose of an action in a quick and proportionate manner.  Where there is a good case for rectification, summary judgment is a time efficient and cost-effective approach to obtaining the necessary order or declaration. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.