Mitchells & Butlers Pension Plan: Successful Rectification of Plan Increase Rules

Michael Tennet QC, Edward Sawyer and Jonathan Chew (instructed by Gowling WLG led by Ian Gordon and Charlotte Scholes) acted for the successful trustee of the Mitchells & Butlers Pension Plan on a series of rectification and other claims, following a three week trial in July 2021.

Trower J found that amendments in 1996 which introduced a Company power to set the rate of pension increases and removed the  existing Trustee power to select the index by which pensions were increased were mistakes and as a result ordered rectification. Restatements of the rules in 2002 and 2006 were also held to be mistaken and rectified. The Judge held that in any event the amendments were invalid as a result of a failure properly to consult the actuary.

The claim affected thousands of members. The question of mistake was determined on the basis of 19 witnesses, with 16 giving evidence, including as part of a hybrid trial by some witnesses giving evidence remotely. It is a rare example of rectification being sought on behalf of members against the sponsoring employer.

While there are many issues determined in the judgment and the approach to the rectification claim on the facts is a good guide to the level and extent of evidence needed to prove rectification, we note the following points of law or interpretation of more general application:

• The Court accepted the principle of “serial rectification” whereby later deeds in which the error was repeated were also rectified, building on the decision in IBM [2012] Pens LR 469. Warren J there set out a distinction between an intention to give effect members entitlements as a matter of law which would found rectification of a later deed, and an intention than to do no more than to reflect the rules as they then stood, in which case rectification would fail (IBM at [448]). Trower J held a further intention would suffice where (as here) the decision-makers had a positive erroneous understanding of the relevant rules: an intention to reflect what the parties in fact thought the rules said would suffice for serial rectification: [286].
• The Company argued it was a bona fide purchaser as it became Principal Employer of the Plan after the 1996 Deed (and 2002 Deed) had been executed. This novel argument was rejected, primarily on the basis that the Plan’s power of substitution did not effect a transfer of property to which the doctrine could apply (see [231]). While this analysis is based on the terms of the particular power, the nature and commercial effect of such powers is likely to be similar in similar schemes (as the judge recognised at [233]-[235]). The consideration of bona fide purchase was more detailed and involved than in previous judgments, the issue having been considered most notably in AMP v Barker [2001] Pens LR 77. In so doing, the judge addressed the question of the state of knowledge required to get rectification against third parties which is of wider importance. He held that if the decision-makers at the third party had the same mistaken subjective intention as the original parties, the third party would be burdened with the equity to rectify: [267]. The judge emphasised the burden on a third party to investigate to avoid being fixed with constructive notice: [272].
• As well as rectification, the judge held that the amendments were void for failure to comply with the consultation requirement of the power of amendment. Consultation with the actuary was a condition precedent of its exercise such that failure to comply was void (following Pitmans Trustees [2004] EWHC 181 (Ch) at [61]: [349]-[350]). The judge expanded on the analysis in Pitmans (and Trower J’s earlier decision in Univar) and analysed what constituted sufficient consultation. Most importantly, the Judge held that it was not sufficient just for the relevant materials to be provided to the consultee: [355], holding that the role of e.g. actuarial consultation was to give an actuarial perspective on the proposed amendment, which required the actuary to identify the change or at least to have appeared to identify the change: [357]-[358]. This more detailed analysis of what the concept of “consultation” entails is likely to be of general application. It is also notable that the failure to consult resulted in the 1996 amendment being void even though it did not adversely prejudice anyone’s accrued rights (as found at [410]).
• The judgment also contains the first substantial analysis in a reported case of when an amendment will be void under section 67 of the Pensions Act 1995 (as then in force) due to errors when instructing the Scheme Actuary to provide a section 67 certificate.

You can download a copy of the full judgment here.

The counsel team will be giving a talk on the issues of general application arising out of this decision and more information will be provided in due course.

 

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