BIC UK Limited v Burgess: Court of Appeal rules that retrospective amendment was invalid

In BIC UK Limited v Burgess and others, the Court of Appeal has ruled that benefit improvements which were not validly introduced in 1991 could not be retrospectively validated by subsequent changes to the rules of the scheme. If the Court had ruled that the improvements had been validly granted, the scheme’s liabilities would have increased by around £5.06 million.

In 1991, the minutes of a trustees’ meeting signed by one of the trustees of the BIC UK Pension Scheme recorded a trustee resolution to introduce increases to pensions in payment earned before 6 April 1997. However, this attempt to introduce increases was invalid, due to a failure to comply with the Scheme’s amendment power at that time, which required both the trustees and the employer to make the amendment in writing. In 2011, the trustees sought to argue that new rules, which were introduced in 1993, and which were expressed to have retrospective effect from 1990, retrospectively validated the steps taken to introduce the increases in 1991. The amendment power in the new rules required a deed executed by the trustees and the employer or, in certain cases, a resolution in writing of the trustees alone.

The High Court ruled in favour of the trustees, concluding that, although relying on the 1993 changes involved an element of re-writing history, it was permissible. However, in a unanimous decision, the Court of Appeal overturned the High Court’s judgment, ruling that the trustees could not rely on the retrospective powers of the 1993 rules to validate the mistakes made in 1991.

The Court of Appeal stressed that although the law should lean in favour of validating transactions undertaken by trustees in good faith wherever possible, it must also recognise that formal requirements have a purpose, and that if they are not complied with, the transaction will have no legal effect. It also held that there would need to be positive evidence that the trustees had intended to exercise a power with retrospective effect. In this case, there was no evidence that the trustees and the employer had explicitly tried to validate any previously invalid amendments when they introduced the new rules in 1993. Although the 1993 rules were backdated to 1990, this was for reasons wholly unconnected to the increases. The Court of Appeal concluded that the High Court had therefore gone a step too far in deciding that the 1993 rules could retrospectively validate the invalid steps taken in 1991.

The Court of Appeal’s judgment is of interest as, more unusually, it concerns the retrospective improvement (rather than reduction) of benefits which, if valid, would have caused prejudice to the employer. The effect of the judgment is that some members have been overpaid benefits, since the increases were applied in practice since 1992. The High Court’s ruling on the correct method to recoup these overpayments was not subject to the appeal and therefore remains good law. As such, there will be no statutory limitation period for equitable recoupment, which is where overpayments are recovered from members by making deductions from future payments payable to them.

The Court of Appeal noted in its judgment that history cannot be re-written. A previously invalid exercise of a power of amendment cannot be validated simply by introducing a potentially validating power with retrospective effect. There would need to have been evidence of a common intention on the part of the trustees and employer to validate an otherwise invalid amendment. The case also highlights the need for trustees and employers to comply with all necessary formalities of the amendment power under the scheme rules and to seek legal advice if there is any doubt as to the correct procedure.