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Home / News and Insights / Blogs / Pensions / 53: Court of Appeal rules on interpretation of pension increase provision in Britvic scheme

The Court of Appeal has ruled in Britvic PLC v Britvic Pensions Ltd and another that a pension increase rule allowed the principal employer to substitute a rate that was higher or lower than the retail prices index (RPI). This overturns the High Court’s decision that the rate could only be higher than RPI. The decision provides further guidance on the approach that the courts will take to corrective construction of pension scheme documents.

Background

The Britvic Pension Plan provided for pensions to increase in line with RPI, subject to a capped increase of either 2.5% or 5%, depending on the date of service, or ‘any other rate decided by the Principal Employer’. Britvic argued that this wording meant it was entitled to choose any other rate of increase, whether higher or lower. Relying on the background context and documentation provided to them when they joined the scheme, the pension plan beneficiaries argued that Britvic could only set a higher rate of increase.

The High Court held that Britvic’s interpretation was excessively literal. It construed the provision to give ‘reasonable and practical’ effect to the scheme, concluding that the drafter had intended the word ‘higher’ to be used rather than the word ‘other’. This meant that Britvic would have to continue to base pension increases on RPI as the default rate unless it exercised its discretion and substituted a higher rate.

The High Court’s conclusion was based on both: the construction of the wording – the court considered that the drafter would clearly have had section 51 of the Pensions Act 1995 in mind and would have seen increases in line with the ‘relevant percentage’ (as defined in section 51(3)) as the default, minimum rate; and the relevant factual context – including a benefit statement given to the pension plan beneficiaries.

The Court of Appeal decision

The Court of Appeal has now overturned the High Court’s judgment, ruling that where unambiguous language has been used, a court must follow it. In this instance, the drafter had used the unambiguous phrase ‘any other rate’, which has the natural meaning of higher or lower and in such a situation, where the meaning of the words is clear, interpretation should be unaffected by context or arguments of commerciality.

Further, there had been no obvious mistake in the drafting, and as such there was no reason to apply corrective construction (ie giving effect to what is considered to be the intended meaning where something has clearly gone wrong with the drafting). Even if there was a mistake in the drafting, it was not at all apparent what the cure for such a mistake should be.

The Court of Appeal also rejected the beneficiaries’ argument that the employer could not decide on a rate of 0% because the power was to fix the rate of ‘increase’ and a zero rate would not be an increase. Britvic could therefore choose a rate of 0%. The Court’s findings were also held to apply to the rule for revaluation of deferred pensions.

Comment

This is the latest in a line of cases where the courts have been asked to interpret pension scheme documentation.

These decisions will depend on the specific facts and circumstances, but the Court of Appeal has confirmed that the courts will only correct a provision where there is a very obvious mistake for which the cure is clear (whether based on the wording itself or taking into account the factual background) or where applying a natural reading of the words would lead to an irrational result.

If the parties to a document are dissatisfied with the natural reading of the words and are clear that the meaning does not reflect their shared intention, then they may need to consider an application for rectification. Our experienced pension team can help with matters of interpretation, construction and rectification.

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