England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/05/2009

HH JUDGE TOULMIN CMG, QC :

1. This is an application by the Claimant for Summary Judgment under CPR 24.2 for an order for rectification of the Rules of the Colorcon Ltd (Colorcon) Staff Benefits Plan (the Scheme) relating to deferred pensions. The Plan is an occupational pension scheme providing benefits for employees on a defined benefits basis.
2. The current scheme is governed by a Definitive Deed dated 9 September 1996 (the Definitive Deed) and the Rules annexed thereto, as amended, (the 1996 Rules).
3. The alleged error which the Claimant seeks to rectify relates to the provision setting out the annual rate of increase for deferred pensions. The Scheme, as presently drafted, provides for an annual revaluation of 5% whereas it is alleged that it was the common intention of the Claimant and the Trustees who executed the Definitive Deed and the 1996 Rules, that the annual rate of revaluation would be 5% or the rate of increase of the Retail Price Index (if lower). This is commonly referred to as 5% LPI.
4. The Claimant is the principal employer in respect of the Scheme. The first five Defendants are the current trustees for the time being of the Scheme. They have, properly, adopted a position of neutrality and have submitted to act as the court may direct. Having regard to the position taken by the Sixth Defendant after receiving specialist advice from specialist counsel, they took the decision that they did not need to be separately represented.
5. The Sixth Defendant is a member of the Scheme who has been joined to represent the interests of all the members of the Scheme whose interests are opposed to those of the Claimant. A formal Application is made pursuant to CPR 19.7(2) for Mr Tasker, as Sixth Defendant, to represent all Relevant Members of the Scheme and those beneficiaries claiming through or under such members.
6. Mr Tasker is separately represented by Mr Jonathan Evans of Wilberforce Chambers, a specialist practitioner in the field of pension law. I have read a separate opinion from him which, in accordance with normal practice, has not been made available to the Claimant. In addition he has given valuable independent assistance at the hearing.
7. I find on the evidence before me that the conditions set out in CPR 19.7(2) have been satisfied and I make the Order that Mr Tasker should be appointed to represent all Relevant Members of the Scheme and those beneficiaries claiming through or under such members.
8. After receiving advice from Mr Evans and his solicitors, Mr Tasker has indicated that he will not serve a defence and has consented to the Claimant applying for Summary Judgment.
9. Mr Tasker has, however, drawn the court's attention to the position of Mr James Taylor who is a member of the deferred scheme, and who would be potentially adversely affected. Mr Taylor wrote a letter dated 2 April 2009 disagreeing that the terms of the proposed rectification should apply to him. Having considered his letter I conclude that he should not be shut out from making submissions on a personal basis. This is accepted by the Claimant and was suggested by them in their fall back position. The Order sets out the basis on which Mr Taylor may make further representations not withstanding this judgment. In making this special provision I should not be taken as expressing any view on the merits of whether or not he should take this matter further.
10. In addition to the expert assistance to which I have referred I have the witness statement of Mr Shave, solicitor acting for the Claimant setting out the procedure which the Claimant has adopted. It appends to his witness statement a number of witness statements relating to the facts both from executives of Colorcon, the Trustees of the Pension Scheme and from employees of Gissings Consultancy Services (Gissings) who replaced Mercers as Consulting Actuaries in 2002. I have also had regard to the extensive bundles of documents placed before me. I shall summarise the effect of the evidence in due course.
11. Before setting out the facts and my conclusions it is convenient to set out the applicable law relating to rectification. This has been developed in a series of decisions since 2000. These have culminated in a decision by the Chancellor sitting in the Chancery Division in 2007 in Scania v Wager [2007] EWHC 711 (Ch); [2007] 50 PBLR.
12. After referring to the previous Authorities the Chancellor summarised the principles at Paragraph 17 of his judgment as showing:

"First that documents relating to pension schemes, be they trust deeds, rules or amendments to either, are as amenable to rectification as any other document with a legal effect. Second, it is necessary to show that the relevant employer or employers and the trustees shared the same intention, whether or not an outward expression of accord is required, down to the execution of the deed in question. Third rectification will only be granted if there is convincing proof on the balance of probabilities, that the employer and the trustees held the requisite common intention as to the meaning or effect of the relevant documents."

13. There remains the unresolved issue of whether there needs to be convincing proof of "an outward expression of accord". In Munt v Beasley [2006] EWCA Civ 370 Mummery LJ said at paragraph 36 of the judgment that it was wrong to treat "an outward expression of accord" as a strict legal requirement in a case where the other parties to the transaction (the pension trustees) have admitted that their true state of belief when they entered into the transaction was the same as that of the other party and there was therefore a continuing common intention which, by mistake, was not given in effect in the relevant legal document.
14. Mummery LJ went on:

"I agree with the trend in recent cases to treat the expression "outward expression of accord" more as an evidential factor rather than a strict legal requirement in all cases of rectification"

15. In the case of a collective body such as a group of trustees it is, of course, their collective intention which is relevant – see Lawrence Collins J at para 67 in AMP v Barker [2000] 71 PBLR (judgment 8 December 2000).
16. I note that in claims for rectification it is permissible to have regard to events after the transaction is entered into as evidence of the parties' intention at the time of the transaction and (where required) as objectively manifesting that intention – see Gallaher v Gallaher Pensions [2005] EWHC 42 at Paragraph 141 (and the cases there cited).
17. The 1996 Rules as executed, provide as follows:

a) Rule 12(g)(i) provides that pensions in deferment in excess of GMP (Guaranteed Minimum Pension) be increased "by such an amount as has been notified by the Member in accordance with Rule 1(b) and which, in any event, will not be less than 5 per cent per annum compound or, if less, the appropriate revaluation percentage as prescribed by the Secretary of State for Social Security."

b) Rule 1(b) provides that "Any notification to a Member or any other person required by the provisions of the Rules shall be made in writing by the Trustees or by the Employer on behalf of the Trustees."

c) Rule 1(c) provides that benefits "shall be of such amount or at such rate as the Employer, with the Trustees' consent, in its absolute discretion, decides and as shall be notified to the Member in accordance with Rule 1(b)…Except, where the Member is notified otherwise, in the case of a Specified Member the amount or rate of any such benefit shall be as set out in Parts III and IV of the Schedule.

18. It is common ground that there has been no notification under Rule 1(b) and that therefore Paragraph 1 of Part IV applies. This paragraph sets out the formula to be used in calculating that part of a deferred Member's pension which is in excess of GMP.
19. As drafted the formula reads as follows:

"A is 5% per annum compound for each complete year between the date of termination of Pensionable Service and Normal Pension Date

B is the amount of the Member's Basic Pension

C is any part of the amount in B above which consists of the Member's Guaranteed Minimum Pension at the date on which the Member's Pensionable Service terminates…"

20. This provision is in conflict with Rule 12(g)(i) but the clear effect of the wording as drafted, is that pensions in excess of GMP are revalued in deferment at 5% per annum whereas it is said that the clear intention of the Claimant and the Trustees, at the time when the deed was entered into, was that the annual increases would be 5% LPI i.e. 5% or the rate of increase in the Retail Price Index (if lower).
21. The background to the coming into being of the 1996 Definitive Deed and the Rules is derived from the witness statements and the documents. In 1990 Colorcon instituted a review of its pensions provision. The review was undertaken by Mr Iskander, Human Resources Manager (a deponent) and Mr Stokes, then the Finance Director. Mercers were appointed consulting actuaries and administrators to the Scheme. The decision was made to change the basis of accrual for Colorcon employees from defined contributions to a defined benefits Scheme.
22. The change was announced to Scheme Members by Mr Parsons, the new Finance Director (a deponent) on 31 May 1991.
23. The booklet dated May 1991 included the following passage:

"Inflation Protection

To help offset the effects of inflation your Final salary based preserved pension will be increased each year. The GMP element of your preserved pension will be increased at a rate set by the Government, currently 7.5% compound for each tax year to State Pension age. In addition the Plan will increase the balance of your preserved pension in line with increases in prices up to a maximum of 5% compound between the date you leave and the date you retire."

24. The same provisions are to be found in the Scheme booklet for July 1992 and, significantly, for August 1996 (page 24 of the booklet) which was sent one month before the Definitive Deed and the Rules were executed on 9 September 1996. The same formula is also to be found in the Booklet sent to Members in November 2001.
25. The 1996 Rules were executed by Mr Parsons, Mr Hogan, Mr Iskander and Mrs Sampson as the Pension trustees and by Mr Blaney on behalf of Colorcon. All have given witness statements.
26. The substance of their evidence is that in executing the Definitive Deed and the 1996 Rules there was no intention to change the benefit for deferred pensioners from an annual increase of 5% LPI to 5%. No one can recall any discussion about this issue and none of the deponents can think of any reason why Colorcon would wish to provide better benefits for deferred persons than was normal for other schemes or why, as Mrs Sampson observes, there was any reason why the Company would wish to treat deferred pensioners more generously than other pensioners.
27. The draft actuarial valuation of the Scheme dated 12 December 1997, with an effective date of valuation of 1 July 1997 provided a summary of Scheme benefits. In relation to deferred pensions it noted at Appendix A of the Valuation Report that "the pension at exit in excess of GMP will be revalued to normal retirement age at 5% pa compound, or the increase in the retail prices index if less."
28. The actuarial valuation of the scheme in April 2001 with an effective date of 1 July 2000 stated that "the balance of the preserved pension will be increased at the lower of the rise of the retail prices index or 5% pa for each complete year between the date of leaving and normal pension age".
29. In the valuation of June 2004 a similar basis of valuation is repeated.
30. Gissings succeeded Mercers as consulting actuaries and administrators of the Scheme in 2002. In March 2004 Mr David Jarman of Gissings (a deponent) took over as the Scheme Actuary. In the course of familiarising himself with the Scheme, he noticed the discrepancy between the wording of Paragraph 1 of Part IV of the Schedule of the 1996 Rules and the basis on which the scheme had been administered, namely that the wording of the Schedule specified an annual increase of 5% whereas the basis on which pensions in deferment were being revalued was 5% LPI.
31. In his 2003 actuarial valuation (made in June 2004) Mr Jarman highlighted the discrepancy by saying that:

"There is a question over the level of increases that members are entitled to in respect of the excess over GMP. I have discussed this with the trustees and have based my calculations on the above benefit levels. In the event that the benefit was greater then I would suggest that the funding position is reviewed."

32. The Scheme Annual Reports for the years 1998, 1999, 2000, 2002, 2003, 2005 and 2006 all state that "preserved pensions were increased in accordance with statutory requirements" each Report sets out the actuarial assumption in relation to pension increases. In each case it was below 5% and therefore consistent with 5% LPI.
33. The Claimant issued the current proceedings on 17 March 2008. They were served on the First to Fifth Defendants on the 27 June 2008. As I have said, these defendants have expressed neutrality as to the result. They only require the position to be certain.
34. In a representative capacity the sixth Defendant was served with current proceedings on 29 May 2008. In addition to the witness statements to which I have referred he and his advisors had received:

a) Normal Retirement Quotations;

b) Statement of Benefits;

c) Transfer Out Member Statements;

d) Other documents which they requested.

35. This formidable body of evidence was considered by counsel instructed by Sixth Defendant. In an Opinion dated 17 November 2008 he concluded that the evidence would meet the high evidential hurdle required for rectification and he could see no basis for a successful challenge to that evidence. On the basis of his advice Mr Tasker has not and will not put in a defence and supports the current application as serving the best interest of the class which he represents and as the best way of avoiding further costs.
36. Conclusion

Applying the test set out by the Chancellor in Scania v Wager I am satisfied on the evidence before me and I find:

a) At the time when the Definitive Deed and the 1996 Rules were executed the Claimant and the trustees, acting collectively, shared the same intention, namely that the deferred pensions would be revalued annually at 5% LPI i.e. 5% or the rate of increase in the Retail Price Index (if lower).

b) There is convincing proof on all the evidence on the balance of probabilities that the employer and the trustees held the requisite common intention that this was intended to be the effect of the relevant documents.

c) Following Munt v Beasley, it is not necessary, in the circumstances where the Trustees have admitted that this was their state of belief, to demonstrate an outward expression of joint accord. If a demonstration is required, the various documents approved by the Trustees since 1996 provide that proof.

d) I am satisfied that rectification in the form proposed would give effect to the relevant intention and would cure the defect in the existing Rules.

e) I have, therefore, applying the test in Civil Procedure Rule 24.2, no difficulty in concluding that the Defendants have no real prospect of defending the claim and that there is no other compelling reason why the case or issue should be disposed of at trial.