8: High Court grants rectification of pension scheme rules

BDB Pitmans recently acted for the trustees in an application to the High Court to change the wording of pension scheme rules drafted over 20 years ago. In Blatchford Limited (formerly Chas A Blatchford and Sons Limited) v Brian Stephen Blatchford (the trustees) and seven others, the High Court agreed to rectify a drafting error that would have cost the company around £10 million if it had been left uncorrected.

In 1996, two amendments were made in error to the provisions of a pensions increase rule in the Chas A Blatchford & Sons Ltd Group Pension Scheme. The effect of the error was to change the limit on pension increases for one category of members so that they would receive increases on pensions in payment at the ‘greater’ of 5% or the increase in RPI, as opposed to the ‘lesser’ under previous rules.

Rectification is an equitable remedy which may be granted by the court where, as the result of a mistake, a document fails to express the intentions of the parties and the mistake cannot easily be corrected by other means. The court will amend the document retrospectively so that it reflects the terms intended by the parties.

The company argued that neither the company nor the trustees intended to make the change but there was no evidence that they had considered the wording. The court set out that the three tests for rectification in these circumstances were whether:

• the company and trustees had a common subjective intention that there should be no change to the scheme rules;
• that common intention persisted until the relevant document was executed; and
• the change made to the scheme conflicted with their continuing common intention that no change should be made.

Given the strength of the evidence in this case, the High Court held that the mistake should be rectified. There was no evidence that the rule change had been given any significant consideration especially as to cost, it amounted to a ‘radical departure’ from previous pension increase provisions, there was no reason why the company and trustees would have wished to increase members’ benefits at a time when they were seeking to control costs and in practice the Scheme was administered as though the original level of pension increases applied.

This is the first published judgment on rectification in a pension context since the test for rectification was clarified in the Court of Appeal decision in FSHC Group Holdings Ltd v GLAS Trust Corporation Limited. The High Court applied the FSHC principle that it is the subjective intention that is relevant and an outward expression of agreement is not required.

Historic errors of this type are common in pension schemes and the High Court decision provides useful guidance on the types of evidence that are persuasive in determining intention – what was not said can often be telling – and the recollection of witnesses can be key.

BDB Pitmans has a huge amount of experience in this area, not just in helping to unravel past errors, but also in ensuring that trustees and employers fully understand and consider the changes they make to schemes and that their common intention is properly and accurately documented.