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Monday 22 June 2020

Univar UK Ltd v Smith [2020] EWHC 1596 (Ch): rectification of pension schemes after FSHC

On 19 June 2020, Mr Justice Trower handed down judgment granting rectification of the Univar Company Pension Scheme (1978), in the first pension rectification claim decided after a full trial since the landmark decision of the Court of Appeal in FSHC Group Holdings Ltd v GLAS Trust Corp Ltd [2019] EWCA Civ 1361.

The Claimant sought rectification of the rule in the definitive deed and rules dated 13 March 2008 (“2008 DDR”), which required increases to pensions in payment and revaluation of pensions in deferment to be calculated by reference to the Retail Prices Index (“RPI”). The previous deed and rules had provided for increases to pensions in payment and revaluation of pensions in deferment to be calculated on the statutory basis. Statutory pension increases and revaluation were calculated by reference to RPI until 2010, but since then have been calculated by reference to the Consumer Prices Index (“CPI”), which generally provides a lower level of increase. The Claimant contended that the 2008 DDR failed to reflect the common intention of the company and the trustees that the pension increase and revaluation rules would reflect the pre-existing basis for pension increases and revaluation (namely to increase benefits by whatever the statute required from time to time), because it mistakenly wrote the then statutory regime (calculated by reference to RPI) into the rules of the scheme. This had the consequence that under the 2008 DDR members continued to be entitled to RPI-based increases even after the statutory regime had switched to providing CPI-based increases.

On the facts, it was clear that the trustees and the company were well aware of the actual words used (which had been discussed and amended in the course of the drafting process), but did not understand the legal implications of what was said. The case was complicated by the fact that, as the trustees were aware, the words used in the 2008 DDR did reflect the actual practice of the scheme at the date it was executed, because the words enacted the statutory regimes for indexation and revaluation as they were then in force. The changes which the Claimant contended were unintended were therefore rather more subtle than in many rectification cases of this sort.

The judge considered FSHC and earlier authorities, and explained that in the context of rectification of a pension scheme:

  • the exercise was to ascertain the actual (subjective) collective intent of the trustees and the company, but that as a matter of evidence the intentions of a body such as a group of trustees or a board will normally be established by (or at least with the support of) documentary means (i.e. the subjective intent will normally be objectively manifested);
  • it is not necessary to show an “outward expression of accord” in such cases;
  • the absence of discussion of a particular change by the parties can in an appropriate case be taken as evidence that it was not intended;
  • the fact that the parties intended to use a particular form of words is no bar to rectification on the basis that they misunderstood its legal effect.

On the facts, the judge found that the Claimant had established that neither it nor the trustees actually intended the pension increase and revaluation rules in the 2008 DDR to have the legal effect they did. The oral and documentary evidence established that the company and trustees intended that no change of substance would be made unless it was included on the “schedule of changes” supplied by the solicitors who drafted the 2008 DDR. The change from the statutory basis to pension increases and revaluation being tied to RPI was a change in legal effect that was not identified on the schedule of changes, and therefore the change was not intended. The judge therefore granted rectification.

The judge also offered some obiter observations on the approach to be taken when not all of the trustees share the same subjective intentions (obiter because in the event he found that they all shared the same intention) and discussed the difference between a mistake as to legal effect, and a mistake merely as to the legal consequences, of the words used.

Read the full judgment here.

Michael Furness QC and Tim Matthewson acted for the successful Claimant, instructed by Pinsent Masons (Manchester).

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