Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 130
CA137/10	OPINION OF LORD MENZIES in the cause THE CITY OF EDINBURGH COUNCIL Pursuers; against (FIRST) SCOTTISH COUNCIL FOR RESEARCH IN EDUCATION and (SECOND) THE UNIVERSITY COURT OF THE UNIVERSITY OF GLASGOW Defenders: ___________

Pursuers: Sellar, Q.C., Cunningham; City of Edinburgh Council

Defenders: Munro; Dundas & Wilson CS (for the second defenders)

11 August 2011

Introduction
[1] This action concerns the proper construction of the Local Government Pension Scheme (Scotland) Regulations 1998 (S.I. 1998/366) ("the 1998 Regulations"). The pursuers are the administering authority of the Lothian Pension Fund ("the Fund"), which is one of the pension funds which form part of the Local Government Pension Scheme in Scotland. The Fund is regulated by the 1998 Regulations. The first defenders were a "scheme employer" of the Fund and paid contributions on behalf of those of their then employees who were active members of the Fund.

[2] On 31 July 2002 the first defenders were in effect taken over by the second defenders. The first defenders ceased to make contributions to the Fund; their eighteen employees as at that date became employees of the second defenders, and their pension entitlements were transferred to the Strathclyde Pension Fund. However, the pension entitlements of the first defenders' former employees were "left behind" in the Fund, and there is a deficit in the Fund so far as concerns these entitlements. The pursuers submit that there is a drafting error in the 1998 Regulations and that, properly construed, the 1998 Regulations enable the pursuers to rely on an actuarial valuation and revision of rates and adjustments certificate which would have the effect that the first defenders would be liable to make good this deficit. The second defenders accept that if any liability attached to the first defenders, the second defenders have inherited this liability, but they submit that on a proper construction of the Regulations no liability arose, and it cannot be retrospectively imposed.

The regulatory framework
[3] Although it appears that the original Admission Agreement (and any copies of it) cannot be found, it is not disputed that before reorganisation of local government in Scotland in 1975 the first defenders entered into such an agreement with the then Midlothian Council, which administered the "Midlothian Fund". Some reference was made in passing to the regulatory regime at and since that time; this included the Local Government Superannuation Acts of 1953 and 1972, the Local Government Superannuation (Scotland) Regulations 1974 (S.I. 1974/812), the Local Government Pension Scheme (Scotland) Regulations 1987 (S.I. 1987/1850) and the Local Government Pension Scheme (Transitional Provisions) (Scotland) Regulations 1998 (S.I. 1998/364). I was also referred to subsequent amendment to the regulatory regime in Scotland, namely the Local Government Pension Scheme (Scotland) Amendment Regulations 2000 (S.S.I. 2000/199) which came into force on 13 January 2000. Comparison was made with the English regime, and in particular the Local Government Pension Scheme Regulations 1997 (S.I. 1997/1612), the Local Government Pension Scheme (Miscellaneous Provisions) Regulations 1999 (S.I. 1999/1212) and the Local Government Pension Scheme (Amendment, Etc.) Regulations 1999 (S.I. 1999/3438). However, the central issue in this debate was the proper construction of the 1998 Regulations. The most important provisions of these Regulations for present purposes are as follows:

"Agreements to enable employees of non-Scheme employers to be members ('admission agreements')

4.-(1) An administering authority may make an admission agreement with any admission body.

(4) An admission agreement must terminate if the admission body ceases to be such a body.

(5) An admission agreement may make such other provision about its termination as the parties consider appropriate.

(8) These are admission bodies-

(a) a body which provides a public service in the United Kingdom otherwise than for the purposes of gain;

Admission agreement funds
74.-(1) An administering authority who have made an admission agreement may establish a further pension fund (an 'admission agreement fund') in addition to the fund maintained under regulation 73 ('the main fund').

(2) Immediately after an authority establishes an admission agreement fund they must give the Secretary of State notice in writing that they have done so.

(3) The notice must specify the admission bodies whose employees are eligible for benefits from the admission agreement fund ('the transferred bodies').

(5) When valuations under regulation 76 of both the main fund and the admission fund are first obtained after the admission agreement fund is established, the administering authority must obtain a transfer statement from the actuary appointed by them.

Actuarial valuations and certificates

76.-(1) Each administering authority must obtain-

(a) an actuarial valuation of the assets and liabilities of each of their pension funds as at 31^st March 1999 and in every third year afterwards;

(b) a report by an actuary; and

(c) a rates and adjustments certificate.

(2) Each of these documents must be obtained before the first anniversary of the date ('the valuation date') as at which the valuation is made or such later date as the Secretary of State may agree.

(3) A rates and adjustments certificate is a certificate specifying-

(a) the common rate of employer's contribution; and

(b) any individual adjustments,

for each year of the period of three years beginning with 1^st April in the year following that in which the valuation date falls.

(4) The common rate of employer's contribution is the amount which in the actuary's opinion should be paid to the fund by all bodies whose employees contribute to it so as to secure its solvency, expressed as a percentage of the pay of their employees who are active members.

Special circumstances where revised actuarial valuations and certificates must be obtained

77-(1) When obtaining a transfer statement under regulation 74(5) an administering authority must also obtain from the actuary a rates and adjustments certificate for the admission agreement fund for each remaining year of the period covered by the most recent such certificate for their main fund.

(2) Where an admission agreement ceases to have effect, the administering authority who made it must obtain-

(a) an actuarial valuation as at the date it ceases of the liabilities of the admission body which is ceasing to be a transferred body; and

(b) a revision of any rates and adjustments certificate for any fund which is affected, showing the revised contributions due from that admission body and any other admission body in respect of which revised contributions are due.

Employers' liability to make payments

Employers' contributions
78-(1) An employing authority must contribute to the appropriate fund in each year covered by a rates and adjustments certificate under regulation 76 or 77 the amount appropriate for that authority as calculated in accordance with the certificate and paragraph (4).

(2) During each of those years an employing authority must make payments to the appropriate fund on account of the amount required for the whole year."

Submissions
[4] Counsel for the pursuers and for the second defenders each helpfully provided the court with a written note of argument. I have had regard to the whole contents of these notes, together with the submissions made for each party at the bar.

Submissions for the second defenders
[5] By reason of the transfer and management agreement between the first and second defenders (No.6/10 of process) those eighteen persons who were as at 31 July 2002 employed by the first defenders had their employment transferred to the second defenders, and their pension entitlement was transferred out of the Fund into the Strathclyde Pension Fund. However, the entitlement of former employees of the first defenders to payment of a pension remains in the Fund. The first question in the present action is whether, when the Admission Agreement was terminated and the first defenders ceased to participate in the Fund, they became liable to pay to the Fund the amount of deficit attributable to the entitlement to pension of those former employees.

[6] It is common ground that the first defenders participated in the Fund pursuant to an Admission Agreement under Regulation 4 of the 1998 Regulations (or its predecessor). At no time thereafter did the pursuers (or their predecessors as administrators of the Fund) avail themselves of the power contained in Regulation 74 to establish an Admission Agreement Fund. Accordingly, the first defenders never became a "transferred body" for the purposes of Regulation 74.

[7] Regulation 76 of the 1998 Regulations imposed the primary duty on the administering authority to obtain triennial actuarial valuations of the assets and liabilities of the Fund in order to secure the solvency of the Fund. It was envisaged that during the three year lifetime of such a valuation, circumstances might arise which would require the assumptions underlying the triennial valuation, and the rate of employer's contribution, to be revisited. The mechanism for this is to be found in Regulation 77. There are three special circumstances specified therein which require revised actuarial valuations and certificates to be obtained. The first of these is where the administering authority establishes an Admission Agreement Fund. In such a situation the administering authority must obtain a certificate for the Admission Agreement Fund for each remaining year of the existing triennial valuation for the main Fund. This does not arise in the present case because no Admission Agreement Fund was established. The second circumstance was concerned with the converse situation, i.e. where a transferred body comes out of an Admission Agreement Fund (e.g. because it was returning to the main fund, or because it ceased to exist or was moving elsewhere). The third special circumstance is not relevant to the present case.

[8] The proper construction of Regulation 77 turns to a large extent on its place in the scheme of the Regulations. It is subsidiary to the primary duty to obtain a triennial valuation to ensure the solvency of the Fund. On the occurrence of certain defined circumstances, a revision of the valuation and certificate may be required to rebalance matters for the remainder of the triennial period; it is to this end that Regulation 77 is directed. Moreover, neither Regulation 76 nor Regulation 77 was a "charging" provision - R (South Tyneside Metropolitan Borough Council) v Lord Chancellor [2009] EWCA Civ 299, [2009] ICR 1352, per Moses LJ at para 12. Regulations 76 and 77 are merely administrative mechanisms - the source of an employer's liability to make contributions is found in Regulation 78. Unless one of the circumstances specified in Regulation 77 occurs, no revision of the rates and adjustments certificate is justified, and an employing authority's liability to contribute continues until the next valuation exercise.

[9] In the present case, relying on Regulation 77(2), the pursuers obtained a revised actuarial valuation dated 1 July 2010 but directed to the valuation of the liabilities attributable to the former employees of the first defenders as at 31 July 2002 (No.6/13 of process). This brings out a valuation of £1.146 million.

[10] The special circumstance referred to in Regulation 77(2) is confined to the situation where an Admission Agreement ceases to have effect and the admission body is ceasing to be a transferred body. However, a transferred body is only created when the administering authority has chosen to establish an Admission Agreement Fund. The pursuers never did this, so the first defenders were never a transferred body. The special circumstance requiring a revised valuation and rates and adjustments certificate has never occurred, so the purported revisal made in July 2010 is ineffective.

[11] The pursuers contend that the words "which is ceasing to be a transferred body" in Regulation 77(2) represent a drafting mistake. However, it is unlikely that such a mistake would have been made given the history of these Regulations. Section 7(6) of the Local Government Superannuation Act 1972 required the Secretary of State, before making these Regulations, to consult with, inter alia, local authorities and such representatives of other persons likely to be affected by the proposed Regulations. The preamble to the 1998 Regulations states that the Secretary of State carried out such consultation. By virtue of section 12(6) of the 1972 Act, the Regulations were subject to annulment in pursuance of a resolution of either House of Parliament. The equivalent English Regulations were also subject to consultation and came into force on the same day as the Scottish Regulations. They are to all intents and purposes identical to the Scottish Regulations except for the equivalent provision to the Scottish Regulation 77(2), namely Regulation 78(2). The Scottish Regulation 77(2) refers to the "liabilities of the admission body which is ceasing to be a transferred body", whereas the English Regulation refers to the "liabilities of each admission body". This distinction between the Scottish and English provisions persisted through several amendment procedures. The English Regulations were amended with effect from May 1999 to refer to the liabilities "of the admission body which is a party to that Admission Agreement ('the outgoing admission body')", but no equivalent amendment was made to the Scottish Regulation. Amendment was made to both the English and Scottish Regulations with effect from 13 January 2000; the amended Regulation 78(2) in the English Regulations referred to "the liabilities of the Fund in respect of current and former employees of the admission body which is a party to that Admission Agreement ('the outgoing admission body')", but in contrast the amended Scottish Regulation 77(2) referred to "the liabilities of the Fund in respect of current and former employees of the admission body which is ceasing to be a transferred body". The Scottish Regulations were amended yet again in 2005; at that time changes were made to Regulation 77(2A), but Regulation 77(2), with its reference to transferred bodies, remained unchanged. Notwithstanding repeated consultations with interested parties, continuing consideration and amendment by Parliamentary draftsmen, and Parliamentary scrutiny, the reference to "transferred bodies" in the 1998 Regulations remained unchanged until the entire structure of the Pension Regulations was comprehensively overhauled in 2008. Against this background it was surely highly unlikely that this was a drafting error. On the contrary, this history suggested that this was a deliberate policy.

[12] Notwithstanding the terms of Regulation 77(2), the pursuer have instructed a valuation report (No.6/13 of process) and a rates and adjustments certificate dated 7 April 2010 (No.6/14 of process), which amount to a revisal of the rates and adjustments certificate prepared for the triennial period commencing on 1 April 2000. The defenders maintain that, as they were never a transferred body, they did not cease to be a transferred body, and the pursuers cannot rely on Regulation 77(2). There is no burden on the defenders to persuade the court that Regulation 77(2) should be given its natural and ordinary meaning; on the contrary, there is a heavy burden on the pursuers to satisfy the court not merely that the reference in Regulation 77(2) to a transferred body was a drafting error, but also that this was an appropriate case for the exercise of the courts "rectifying jurisdiction". In support of this proposition counsel relied on the decision of the House of Lords in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, and in particular the speech of Lord Nicholls of Birkenhead at page 592, which was approved by an Extra Division in Scottish Water v Clydecare Ltd 2003 SC 330. She also relied on R (Passenger Transport UK) v Humber Bridge Board [2003] EWCA Civ 842, [2004] QB 310, Wilkinson v Secretary of State for Work and Pensions [2009] EWCA Civ 1111, and BP Oil (UK) Ltd v City of Edinburgh Licensing Board [2011] CSIH 29.

[13] It is clear from these authorities that the rectifying jurisdiction is exercised only very rarely, and the court must be abundantly satisfied that there was truly a fundamental and manifest error. The court should therefore require from the pursuers highly persuasive reasons why such an error has occurred. Only if the court is satisfied that there has been an error of such gravity, considering the three matters identified by Lord Nicholls of Birkenhead in Inco Europe at page 592F/G, should it go on to consider whether this is a case in which the discretion to rectify should be exercised. In the absence of clarity on these three matters, there is a risk of straying from the court's constitutional role of interpreting statutes or regulations into judicial legislation.

[14] Counsel suggested that the pursuers' position was as follows. Literally interpreted, Regulation 77(2) of the 1998 Regulations would only allow an administering authority to address the funding consequences of an admission body ceasing to participate in a fund in a limited class of cases (i.e. where the admission body is ceasing to be a transferred body), and if the administering authority does not create an Admission Agreement Fund the Regulation is of no avail to it. The pursuers suggest that this would be irrational, and that the differently worded English Regulations support the view that the Scottish wording was a drafting mistake. This comes nowhere close to meeting the high threshold or heavy burden of persuasiveness which rests with the pursuers.

[15] Several factors suggest that Regulation 77(2) does not contain a drafting error that must be rectified by the court:-

(a) The words "transferred body" was not only in the 1998 Regulations but was retained, notwithstanding a number of detailed amendments, until the comprehensive overhaul of the Scheme in 2008. If it was such an obvious, manifest and fundamental error it might be thought that it would have been corrected, and there were plenty of opportunities to do so.

(b) If there was a mistake, it was not a mistake of the draftsman alone - the provisions of Regulation 77(2) and subsequent amendments were the subject of consultation. If they resulted in absurdity, it might be expected that the statutory consultees would have pointed this out.

(c) Not only were the Regulations and subsequent amendments the subject of consultation, they were scrutinised by the Joint Committee on Statutory Instruments, which met weekly in the Parliamentary session in order to scrutinise Statutory Instruments for drafting defects. Several defects in the 1998 Regulations were noted, including a defect in Regulation 70, but the Committee found no defect in Regulation 77(2). Indeed, the Committee reiterated positive comments about the Regulations which it observed were for the most part drafted with admirable clarity and might be used as a model for the drafting of other Statutory Instruments. The Committee also scrutinised the equivalent English Regulations.

(d) With regard to the point made in paragraph 2.3.3 of the Note of Argument for the pursuers to the effect that the quality of drafting tends to be lower in delegated legislation in comparison with statutes, and regulations such as the 1998 Regulations do not receive the same attention and scrutiny, the paragraph relied on by the pursuers in Bennion on Statutory Interpretation (5^th ed.) at page 264 must be read in its context. The opening paragraph on that page is of at least as much importance as the fourth paragraph. Although a Statutory Instrument may not receive the same scrutiny as a Statute, it is clear that these regulations were subject to scrutiny by the Joint Committee, and they were kept under continuous review and were repeatedly amended. It cannot be argued that no one was paying proper attention to the drafting of Regulation 77(2).

(e) It is clear from the official reports of the Scottish Parliament Subordinate Legislation Committee that when the 1998 Regulations were amended in 2000, and again in 2005 (when changes were made to Regulation 77) scrutiny was given to this particular provision.,

[16] In light of these factors, the argument that Regulation 77(2) is fundamentally defective is untenable. The history of consultation and scrutiny is not consistent with the words "transferred body" being included in Regulation 77(2) by mistake, or remaining there by mistake. The consistent difference between the Scottish and English Regulations is indicative of a deliberate decision by the draftsman. The Scottish and English Regulations entered into force on the same date, the English Regulations being laid before Parliament in June/July 1997 and the Scottish Regulations being laid before Parliament on 10 March 1998. The drafting was carried out in London, and the English Regulations would provide a template for the drafters of the Scottish Regulations. That template was followed in all material respects with this single exception. It is important that the distinction consists not of words missed out of the Scottish Regulations (which might be more readily ascribed to mistake, oversight or inadvertence) but the insertion of quite different language.

[17] Moreover, the words make sense in the context of this part of the 1998 Regulations. The Regulations make provision for the establishment of an Admission Agreement Fund, and the transfer of assets into the Admission Agreement Fund, and that bodies who participate in the Admission Agreement Fund are transferred bodies. Regulation 77(1) provides for the situation in which an administering authority establishes an Admission Agreement Fund in the course of a triennial period, and requires the administering authority to obtain a rates and adjustments certificate in that event. Regulation 77(2) fits comfortably into that structure; there is no irrationality in making special provision for transferred bodies in this way. Regulation 77(2) means what it says.

[18] Even if the court took the view that there was a fundamental drafting error in Regulation 77(2), considerable caution should be exercised before revising the statutory language. The three criteria identified by Lord Nicholls of Birkenhead in Inco Europe are not met in this case. Regulation 77 expressly makes provision for special circumstances where revised actuarial valuations and certificates must be obtained, but the pursuers seek to extract from it a general power to revise charging and valuations whenever any Admission Agreement comes to an end. There is no justification for this approach. Regulation 77(2) is the converse of Regulation 77(1), which only occurs when an Admission Agreement Fund has been established. If this is incorrect, can it be said with certainty what the legislative purpose was? If the intention of Regulation 77(2) was not to make provision specifically for an admission body ceasing to be a transferred body, it cannot be said with the requisite certainty what the legislative purpose was, nor that through inadvertence effect was not given to that purpose. If Parliament had intended to confer a general rather than a particular power, this could easily have been achieved in a way which would not require the court to adopt a strained construction, far less resort to the doctrine of rectification.

[19] Counsel turned to her secondary submission to the effect that, even if there was a drafting error in Regulation 77(2), the pursuers cannot seek in 2010 to reopen a rates and adjustment certificate for a triennial period which ended in 2003. Although Regulation 77(2) provides for a revising power, that power can only be exercised within Regulations 76 and 77, namely the triennial valuation period. Regulation 77 envisages that special circumstances may require a valuation to be revisited before the end of the triennial period, but there is nothing to suggest that a valuation can be reopened for a period long since spent. Regulations 77 and 78 enable the administering authority to take steps, when the specified special circumstances occur so as to undermine the assumptions upon which a triennial valuation has been prepared, to rebalance matters until the next triennial valuation period. This is supported by the explanatory notes to the 1998 Regulations (at page 97), and also receives support from the actuary who provided the pursuers with an actuarial valuation of the Fund, who stated (at No. 6/14 of process) that "the rate for any employing authority may be revised before the end of the period if it appears to you as administering authority that additional liabilities are being imposed on the Fund over and above the assumptions or allowances made in the valuation". This correctly identifies the temporal limits on the revising power - it must be carried out before the end of the triennial period. For the reasons more fully advanced in paragraph 18 of the Note of Argument for the second defenders, the language of Regulations 77 and 78 is inconsistent with a power in an administering authority to reopen a rates and adjustments certificate many years after it has ceased to have effect, and to impose on a body a liability as if it were an employing authority (when in fact it had ceased to be so). Counsel found support for this analysis in R (South Tyneside Metropolitan Borough Council) v Lord Chancellor and Secretary of State for Justice. Although the pursuers sought to distinguish that case on its facts, because it was concerned with a rates adjustment certificate made in the context of a triennial valuation, it was still relevant to the present case. It was concerned with the funding of benefits to employees who have been "left behind", ie. pensioner members or deferred members. Moses LJ was at pains to emphasise the distinction between the administrative provisions of the English scheme (equivalent to Regulations 76 and 77 of the 1998 Regulations) and the charging provisions which impose a duty to contribute (equivalent to Regulation 78 of the 1998 Regulations). He held (at paragraph 30) that Regulation 79 of the English scheme (equivalent to Regulation 78 of the 1998 Regulations) "imposes a liability to contribute to any particular fund only on those whose employees contribute to that fund". By the time the certificate on which the pursuers rely was issued, neither of the defenders had been an employing authority for many years. The pursuers seek a "one-off payment"; it would be a curious result if they could trigger the charging mechanism in Regulation 78 to fix a liability on a body long after it has left the fund altogether and has no employees contributing to the fund when, on the approach of the Court of Appeal in South Tyneside, it was not possible to achieve that result through the medium of the statutory triennial regime for a body that was still within the scheme.

[20] The power (indeed, the obligation) to obtain a revised rates and adjustments certificate must be exercised within the triennial valuation period. This does not render the power otiose or redundant - the pursuers could have invoked the revising power in anticipation of the termination of the first defenders' involvement in the scheme. The court should not be swayed by considerations of a perceived unjust result arising from the cost of providing pensions to the first defenders' former employees falling on the fund - in that regard, the observations of Moses LJ at paragraph 32 of the South Tyneside case provide the complete answer. Moreover, as was observed in George Wilkinson v Secretary of State for Work and Pensions, the scope of the anomaly (if such it be) in the present case is likely to be very slight.

[21] For each of these reasons counsel invited me to sustain the fourth plea-in-law for the second defenders and to dismiss the action.

Submissions for the pursuers
[22] Senior counsel for the pursuers invited me to repel the fourth plea-in-law for the second defenders, to sustain the pursuers' fifth plea-in-law and to grant decree de plano. He identified two principal issues in this action - (i) correctly interpreted, is the use of the expression "a transferred body" in Regulation 77(2) of the 1998 Regulations a drafting mistake which should mean "admission body", and (ii) do the 1998 Regulations permit a revision in 2010 of the rates and adjustment certificates for the years to 31 March 2001, 2002 and 2003 on the first defenders ceasing to be an admission body. He accepted that the pursuers had to succeed on both of these issues if they were to obtain any remedy in the present proceedings.

[23] Senior counsel submitted that the question raised by the first issue should be answered in the affirmative - this was a drafting mistake which it was within the power of the court to correct by the application of the principles of statutory interpretation. He accepted that delegated legislation such as the 1998 Regulations is subject to the same principles of interpretation that apply to statutes, but the quality of drafting in delegated legislation tends to be lower than in statutes, and delegated legislation does not receive the same scrutiny as statutes receive, so there is less opportunity to correct drafting errors: Bennion on Statutory Interpretation (5^th Edition) at page 264. The overriding principle of statutory interpretation is to ascertain the meaning which Parliament intended the statutory words to have; this may not be the strictly literal meaning. The words must be read in the context of the whole statute, and in their historical context - R (Quintavalle) v Secretary of State for Health [2003] UKHL 13, [2003] 2 WLR 692. Any obvious drafting error will be rectified in order to give effect to the draftsman's clear intention, and the court may delete or substitute a word or words - Bennion, op cit, at page 875; Cross on Statutory Interpretation (3^rd Edition) at pages 49 and 102; Inco Europe (supra) at 592; Humber Bridge Board (supra). Moreover, a statutory provision must be interpreted in light of other provisions on the same subject matter, including later ones, but in determining whether a later provision alters the legal meaning of an earlier one, the test is whether the necessary Parliamentary intention to alter can be inferred (Bennion at page 708).

[24] Applying these principles of interpretation to the 1998 Regulations, senior counsel accepted that the literal meaning of Regulation 77(2) was clear, and it applied only to a "transferred body". However, this is not the correct interpretation and would not apply to the majority of circumstances in which an admission agreement comes to an end. It is clear from the structure of the 1998 Regulations that the reference to a transferred body is a drafting error. There are two categories of drafting error, one of which can be corrected by judicial interpretation and one of which cannot. An error in the construction of an entire piece of legislation - ie. an error in concept or structure - cannot be corrected, because this would be unconstitutional as amounting to judicial legislation. On the other hand, an error in the expressing of Parliament's intention - that is to say, an error in expression rather than an error in concept - can be corrected. The present case concerns an error in expression, so it can be corrected.

[25] Only one word needs to be changed to reflect Parliament's true intention - "transferred" in Regulation 77(2)(a) should be "admission". Although the defenders' submission that there was ample opportunity for this to be noticed and corrected is initially attractive, the same could be said of the error which was considered in the Humber Bridge Board case. No real assistance is to be gained from examples in different statutory contexts (see the Opinion of Clarke LJ in Humber Bridge Board at paragraph 41). It is perhaps even more surprising that the error in that case was not noticed, particularly as it was concerned with a less arcane area than the administration of local government pension funds. Despite consultation and Parliamentary scrutiny, it is not entirely surprising that an error in one word of the 1998 Regulations was not noticed, particularly in the context of amendments to existing regulations.

[26] Senior counsel accepted that the observations of an Extra Division in Scottish Water v Clydecare Limited were to the effect that the circumstances in which rectification will be appropriate are likely to be very rare, and that those arguing for it required to provide highly persuasive reasons why it was to be supposed that a fundamental error of draftsmanship had occurred. He also accepted the point made in submissions for the pursuers in that case that one way of testing whether there was such an error was whether there is any rational explanation for the literal meaning - but this must be a rational explanation in the context of the particular statutory instrument. Senior counsel also accepted that a similarly cautious approach to the exercise of the court's rectifying power was expressed by an Extra Division in BP Oil (UK) Limited v City of Edinburgh Licensing Board, although he observed that whether or not legislation was brought into force by a commencement order was a relatively simple and straightforward issue by comparison with the arcane complexities of local government pension schemes. George Wilkinson v Secretary of State for Work and Pensions was more analogous, as it dealt with pensions legislation. In that case the appellant complained that the legislation was unfair, and the court decided that there were no internal indications within the legislation that the literal wording was a mistake. They asked counsel for the respondent to research if there were any external indicators to suggest a mistake, and a negative answer was given. The result was that the literal meaning was correct, and if there was unfairness it arose from the structure of the legislation and not from an error in expression. Senior counsel emphasised that in the present case he did not rely on external aids to interpretation, but on the structure of the regulations as a whole. Despite the opportunities to notice and correct the mistaken reference to "transferred bodies" in Regulation 77(2), this was clearly a drafting error which was anomalous to the rest of the scheme contained in the regulations.

[27] Triennial valuations are an important element in this scheme (as in other such schemes). They take many months to prepare, because all employers within the fund require to give detailed information about the numbers of their employees, their ages, gender, remuneration and contributions. An employing authority may cease its participation in a scheme without giving any prior notice to the administering authority, yet until the administering authority is told of the termination of an agreement it can take no steps to prepare a revised rates and adjustment certificate. If transferred bodies are a sub-set, it is irrational for the 1998 Regulations to make automatic provision for the consequences of an employing authority ceasing to be an admission body, but no provision at all for the consequences of that by way of funding. Termination of any admission agreement is an obvious special circumstance under Regulation 77, and it is one which the 1998 Regulations would be expected rationally to deal with. There is no rational justification for confining the special circumstance to the situation where an admission body ceases to be a transferred body.

[28] Regulation 77(1) is clearly concerned with the situation where there is an admission agreement fund. Why did Regulation 77(2) begin with the words "where an admission agreement ceases to have effect" - it was odd that this was not tied in with the language of Regulation 77(1). The defenders were wrong to suggest that Regulation 77(2) was the other side of the coin of Regulation 77(1). If the first paragraph deals with an admission agreement fund being created, one might expect the second to apply when the admission agreement fund came to an end - but if the literal words are correct, they apply not to the termination of the admission agreement fund, but to an admission agreement ceasing to have effect. Why should the legislature rationally have adopted this approach, which is unfair by placing financial responsibility on other employers? The defenders have given no answer to this.

[29] The irrationality is compounded by the amendments to the regulations which were made in 2000. If Regulation 77(2A) was truly aimed at a transferred body, why is reference made only to "the outgoing admission body"? The amendment presupposes a legal liability which in practice cannot be enforced. The problem is compounded by the new Regulation 77(2B), which provides an orderly process for adjustment where an admission agreement is to end. How can it be rational in the scheme of the regulations for Regulation 77(2) to refer only to the sub-set of transferred bodies, and for Regulation 77(2B) to provide a voluntary procedure which applies beyond the sub-set?

[30] Furthermore, a literal interpretation of Regulation 77(2) would create a further anomaly between the Scottish and English regulations. The Scottish Regulation 76 and the English Regulation 77 are textually identical. The only distinction between the Scottish Regulation 77 and the English Regulation 78 is the reference to a transferred body; the English regulations refer to "an admission body", thus avoiding anomaly. One would expect Scottish and English provisions regarding local government pensions to be the same, unless there was a good reason to indicate the contrary. No reason has been indicated for the difference.

[31] The 2008 Regulations replace the words "a transferred body" with the words "an admission body". While the defenders might argue that this indicated a change of policy, it is equally consistent with the correction of a drafting error in the earlier regulations. The mere fact that the Joint Committee on Statutory Instruments identified three mistakes in the 1998 Regulations is not indicative that there were not others. The reports of the Scottish Parliament Subordinate Legislation Committee suggest that scrutiny of the amending regulations was somewhat perfunctory. In all the circumstances senior counsel submitted that this was an appropriate case for the exercise of the court's rectifying power.

[32] Turning to the second issue, senior counsel submitted that, correctly interpreted, Regulations 77(2) and 78 together permitted a certificate issued under Regulation 77(2)(b) ("a revised certificate") to revise the original certificate issued under Regulation 76(1)(c) at the most recent triennial valuation, and so to increase the contributions payable by a former admission body. The overall intention of the 1998 Regulations is (as set out in paragraphs 2.7 and 2.10 of the pursuers' Note of Argument) that each fund administered by an administering authority is to be funded by its participating employers (and their employees), so that it will be able in future to discharge its liabilities, including liabilities to deferred members. Regulations 76 and 78 together apply to ensure the solvency of the fund; Regulation 76 provides for a triennial valuation and rates and adjustments certificate, and Regulation 78 provides for payment by the employer in respect of the certificate. The reference in Regulation 77(2)(b) to "revision" of the certificate and "revised" contributions fits with this scheme; this wording can only have its primary meaning, namely altering with future effect something which already exists. Regulation 78(1) states that an employing authority must contribute to the fund, and refers expressly to a certificate under Regulation 77 as well as to one under Regulation 76. The reference to Regulation 77 can only be to a certificate of revised contributions under Regulation 77(2)(b), and a certificate can apply only when an employer has ceased to be an admission body. That clear meaning cannot be contradicted by an argument based on a literal meaning of "an employing authority" or of an "employer" in Regulation 78. The defenders' argument is twofold - (i) as the former admission body is no longer an employer or an employing authority, no obligation to make any further contributions is imposed on it, and (ii) the revised certificate must be issued before the triennial valuation is completed and the new certificate of contributions is issued under Regulation 76.

[33] These arguments for the defenders are misconceived. Regulation 77(2)(b) provides no timescale within which a revised certificate is to be issued - in contrast to the express provisions of Regulation 76(2). This contrast must be intentional. Moreover, no time limit can be implied. An admission agreement may terminate automatically without notice; an employer might cease to be an employing authority one week or one month before the triennial valuation, and the actuary could not complete his work under Regulation 77(2) within that period. Such an unworkable result cannot have been the statutory intention behind Regulation 77(2). The defenders argue that the process might drag on indefinitely, but the administering authority is under an obligation and there is no reason to suppose that it would not fulfil this obligation. There might even be circumstances in which the administering authority was unaware of the termination of the admission agreement. It is in the interests of the administering authority to obtain a revised certificate promptly. If Parliament had intended to set a time limit on this procedure, it could easily have done so. It did not.

[34] The defenders' argument that they ceased to be an employing authority when the admission agreement terminated, and so have no liability to pay under Regulation 78, is founded on the South Tyneside case, but the circumstances in that case were quite different. In that case, the alleged liability was based on a certificate of contributions made along with a triennial valuation - it did not concern the legal effect of a revised certificate issued under the equivalent of Regulation 77(2) (ie. Regulation 78(2) of the English Regulations). A revised certificate under Regulation 77(2) can be issued only when the former admission body has ceased to be an employing authority. So much is clear from paragraph 29 of the Opinion of Moses LJ in the South Tyneside case. There is no time limit imposed on an administering authority obtaining a revised certificate and requiring payment on it; far from the structure of the regulations implying such a limitation, the reverse is true, and a limitation in time such as is argued for by the defenders would be unworkable and unfair.

Reply for the second defenders
[35] Counsel for the second defenders observed that the distinction between the English and Scottish regulations was not, as suggested by senior counsel for the pursuers, a single word; a close examination of the English Regulation 78 and the Scottish Regulation 77 showed that the Scottish provisions were much more restricted, and the differences in the valuations and scope of the certificates remained in the 2000 Regulations.

[36] With regard to the effect of the amendments to Regulation 77 made in 2000, Regulation 77(2B) supported the defenders' construction. Regulation 77(2) was mandatory, whereas Regulation 77(2B) was discretionary. It made sense for an administering authority to have a power regarding the general set, but a duty regarding a sub-set which has been segregated. This fitted perfectly with the structure of the regulations - when an admission body ceases to be a transferred body, a duty falls on the administering authority to obtain an actuarial valuation, whereas the administering authority only has a power to obtain a revised certificate regarding the generality of admission bodies. A transferred body is given special treatment because it is special. Counsel reiterated that the error in the Humber Bridge Board case was an error of omission, which was not the same as the interpolation of different language which is what the pursuers seek in the present case. In that case there was not only a consultation process but also a public local inquiry culminating in a reporter's decision letter and a letter from the Secretary of State, from all of which it was quite clear what the intention was, and that intention was not captured by the regulations as drafted. That case does not assist the pursuers in the present case. It is impossible to say in the present case that there was a manifest and fundamental drafting error which was not picked up and corrected.

Further Procedure
[37] After I heard submissions in this case, the decision of the Second Division was issued in IO and LO v Aberdeen City Council [2011] CSIH 43, in which the principles set out in Inco Europe were applied. I gave parties the opportunity to present further submissions in light of this decision. Both parties indicated that they did not wish a further hearing in light of this decision, but wished to lodge short written submissions in light of it. These supplementary written submissions are Nos. 20 and 21 of Process.

Discussion
[38] There is no dispute between the parties as to the legal principles which fall to be applied by the court in the exercise of its "rectifying jurisdiction". These were set out clearly by Lord Nicholls of Birkenhead in Inco Europe (at page 592); the passage is well known, but it is worthwhile repeating excerpts at this point:

"It has long been established that the role of the courts in construing legislation is not confined to resolving ambiguities in statutory language. The court must be able to correct obvious drafting errors. In suitable cases, in discharging its interpretative function the court will add words, or omit words, or substitute words. ... This power is confined to plain cases of drafting mistakes. The courts are ever mindful that their constitutional role in this field is interpretative. They must abstain from any course which might have the appearance of judicial legislation. A statute is expressed in language approved and enacted by the legislature. So the courts exercise considerable caution before adding or omitting or substituting words. Before interpreting a statute in this way the court must be abundantly sure of three matters: (1) the intended purpose of the statute or provision in question; (2) that by inadvertence the draftsman and Parliament failed to give effect to that purpose in the provision in question; and (3) the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used, had the error in the Bill been noticed. The third of these conditions is of crucial importance. Otherwise any attempt to determine the meaning of the enactment would cross the boundary between construction and legislation. ... Sometimes, even when these conditions are met, the court may find itself inhibited from interpreting the statutory provision in accordance with what it is satisfied was the underlying intention of Parliament. The alteration in language may be too far reaching. In Western Bank Limited v Schindler [1977] Ch 1, 18, Scarman LJ observed that the insertion must not be too big, or too much at variance with the language used by the legislature."

[39] These principles were approved by the Inner House in Scottish Water v Clydecare Ltd, in which the court stated that the circumstances in which rectification will be appropriate are likely to be very rare, and that any party seeking rectification requires to provide highly persuasive reasons why it was to be supposed that a fundamental error of drafstmanship had occurred in the legislation. (With regard to the decision of the Second Division in IO and LO v Aberdeen City Council, the principles set out in Inco Europe were applied. In that case the court was unanimously of the view that the principles were satisfied, that there was an obvious drafting error in the legislation which required to be corrected, and that it was appropriate to rectify this. However, that decision was concerned with subordinate legislation in relation to a very different area of the law, namely the Adoption and Children (Scotland) Act 2007 (Commencement No 4, Transitional and Saving Provisions) Order 2009. Both counsel in the present case submitted that no real assistance is to be gained from examples in different statutory contexts. Moreover, it does not appear to me that the Second Division has innovated upon or developed the principles set out in Inco Europe and discussed in the other authorities placed before me. Having considered the supplementary written submissions for the parties, it does not appear to me that the decision provides ammunition for either side in the present dispute. Beyond noting it, I do not consider that it is of assistance to me in the present case).

[40] I do not consider that the pursuers have been able to provide such highly persuasive reasons as to why it is to be supposed that a fundamental error of draftsmanship has occurred in the wording of Regulation 77(2) to justify the exercise of the "rectifying jurisdiction" in the present case. Indeed, looking to the words of Regulation 77 in the context of the surrounding Regulations and the 1998 Regulations as a whole, I cannot be abundantly sure that there has been any error of draftsmanship at all. Regulation 74 imposes obligations on an administering authority which has established an admission agreement fund. An administering authority is not obliged to establish such a fund (and in the present case neither the pursuers nor their predecessors did so), but if it does so, certain specific obligations are imposed on it. It must give the Secretary of State notice that it has done so, and where valuations under Regulation 76 of both the main fund and the admission fund are first obtained after the admission agreement fund is established, it must obtain a transfer statement from the actuary. Regulation 76 provides for the general obligation to obtain a triennial valuation, and Regulation 77 deals specifically with special circumstances where revised actuarial valuations and certificates must be obtained. The first of these circumstances is when a transfer statement is required, after the admission agreement fund is established. On its literal wording, the second special circumstance deals with the situation in which a transferred body (i.e. an admission body whose employees are eligible for benefits from the admission agreement fund) ceases to be a transferred body.

[41] There is a logic to this within the structure of the 1998 Regulations. Regulation 74 deals with the particular situation in which an admission agreement fund is established. Regulation 77(1) deals with the need to obtain a revised actuarial valuation and certificate after the admission agreement fund is established, and Regulation 77(2) deals with the need to obtain an actuarial valuation and rates and adjustments certificate when an admission agreement ceases to have effect. Although I note the point made by senior counsel for the pursuers that Regulation 77(2) relates to the situation where an admission agreement ceases to have effect, rather than an admission agreement fund ceasing to have effect, I do not consider that this is material. Both Regulation 77(1) and (2) appear to me to be concerned with the situation in which an admission agreement fund has been established and they make provision for special circumstances consequent upon that. There is nothing illogical about this structure.

[42] Looking to the three principles stated by Lord Nicholls of Birkenhead in Inco Europe, I cannot be abundantly sure of the intended purpose of the 1998 provisions, beyond the establishment and regulation of a scheme for local government pensions in Scotland, with the intention of maintaining the solvency of the relevant funds so that qualifying employees may receive appropriate benefit therefrom. Resorting to the "rectifying jurisdiction" in accordance with the submissions for the pursuers would have the effect of placing a greater financial burden on bodies such as the first defenders which cease to be admission bodies, even when no admission agreement fund has been established in terms of Regulation 74. There is nothing in the scheme or the language of the Regulations which makes it abundantly clear to me that this was the intended purpose of the 1998 Regulations. Regulation 74 empowered an administering authority to establish an admission agreement fund. No such fund was ever established in this case. Regulation 77 is confined to the special circumstances arising from an admission agreement fund. It does not apply when such a fund has not been established. The consequence of this may be that the cost of maintaining the solvency of the Fund falls on those bodies which continue to participate in it as employing authorities, but I am unable to conclude that such a consequence is contrary to the intended purpose of the Regulations nor that it arises by inadvertence of the draftsman and Parliament in failing to give effect to the purpose of the Regulations.

[43] I am persuaded by the various factors to which counsel for the defenders made reference that it is unlikely that this was a drafting error. Without repeating at length the submissions for the second defenders summarised above, the drafting of the 1998 Regulations was carried out in London before the establishment of the Scottish Parliament, and generally followed the "template" of the English Regulations, with the exception of the reference to "transferred body" in Regulation 77(2). The presumption must be that this was a deliberate change. Both sets of Regulations came into force on the same day. The Regulations were the subject of consultation and thereafter Parliamentary scrutiny. Several defects were noted, but no consultee nor any member of the Joint Committee on Statutory Instruments flagged up the words "transferred body" in Regulation 77(2) as a drafting error. The words remained in the Regulations for about ten years, during which several detailed amendments were made to Regulation 77 and to its English equivalent. If this was a plain case of a drafting mistake, one might expect that it would be picked up by consultees (including administering authorities such as the pursuers), members of the relevant committees at Westminster and the Scottish Parliament, and by draftsmen when considering and preparing detailed amendments to this very Regulation. I am not persuaded that this is a plain case of a drafting mistake, nor can I be abundantly sure of the three matters listed by Lord Nicholls of Birkenhead.

[44] Even if I am wrong in the view expressed above, and this is indeed a drafting mistake, I should be reluctant to alter the words of the Regulations in the way sought by the pursuers for the reason touched on by Lord Nicholls in the last three sentences of the passage quoted above. What the pursuers seek is not the insertion of a word inadvertently omitted by the draftsman, or a change in punctuation. The substitution of the words "an admission body" for a "transferred body" (which was effected in the 2008 Regulations) has a significant, and for aught I know perhaps a widespread, consequence for bodies which, for whatever reason, cease to be admission bodies. It would oblige an administering authority to obtain revised actuarial valuations and rates and adjustment certificates not just for a subset of bodies involved in an admission agreement fund, but for the generality of all admission bodies which cease to be such. Even if the pursuers are correct in their submission that the reference to a "transferred body" in Regulation 77(2) was a drafting error, the alteration in language which they seek is in my view too far reaching. The substitution is too big, or too much at variance with the language used by the legislature. Were I to accede to the submissions for the pursuers, this would have the appearance of judicial legislation.

[45] It may be argued that the conclusion which I have reached is unfair or unjust in placing the burden of maintaining the solvency of the Fund, and of paying benefits to those employees of the first defenders who have been "left behind" in the Fund, not with the defenders but with those employing authorities which remain within the Fund. That may be so, but any such injustice (if injustice there be) arises from the legislation, and it is for Parliament to correct this. Moreover, I agree with the observations of Moses LJ in the South Tyneside case (at paragraph 32) as follows:

"Nor do I accept that it is possible to invoke the need to avoid injustice in so specialised and arcane a sphere as the funding of local government pensions. It is an area remote from those in which courts have construed legislation to achieve what they perceive to be a just result... The Regulations make no specific provision for cases in which former employers of those entitled to pensions under the Local Government Pension Scheme are abolished. The liabilities fall on those who remain responsible for securing the solvency of the funds in question. Whether that is unjust or not seems to me a matter of financial policy, to be formed by those endowed with functions and experience remote from those of the courts."

Although the circumstances of that case were not identical to the present case, I share the sentiments expressed.

[46] For these reasons I am not persuaded that this is an appropriate case for the court to exercise its "rectifying jurisdiction", and I answer the first issue identified by senior counsel for the pursuers (at paragraph [22] above) in the negative.

[47] That is sufficient for disposal of the action. However, in deference to the arguments advanced before me on the second issue, I turn to consider this. In this regard, the distinction which was made by Moses LJ in the South Tyneside case (particularly at paragraphs 12 and 30) between administrative mechanisms and charging provisions is important. Although senior counsel for the pursuers was correct to observe that the circumstances in South Tyneside were different from the present, this distinction is as important in the present case. Regulations 76 and 77 of the 1998 Regulations impose no liability on an employing authority to make payments to the Fund; rather, they impose obligations on an administering authority to obtain valuations and certificates. It is Regulation 78 of the 1998 Regulations which alone imposes a duty to contribute to the Fund. That duty is imposed only on an employing authority. "Employing authority" is defined in Schedule 1 to the 1998 Regulations as meaning a body employing an employee who is eligible to be a member. After 31 July 2002 the first defenders ceased to be an employing authority. The actuarial valuation and rates and adjustments certificates on which the pursuers rely were each carried out in 2010, although the report provides a "cessation valuation" as at 1 August 2002, and the certificate relates to the triennial period commencing 1 April 2000. By 2010 the first defenders had long ceased to be an employing authority for the purpose of Regulation 78 of the 1998 Regulations. I do not consider that either of the defenders has any obligation now to make payment to the pursuers in terms of Regulation 78.

[48] With rather more hesitation I also agree with the second point made by counsel for the second defenders in this regard, namely that any revised certificate must be issued before the triennial valuation is completed. The primary mechanism for protecting the solvency of the Fund is the triennial valuation and rates and adjustments certificate. Regulation 77 recognises that special circumstances may arise before the next triennial valuation which may require the assumptions underlying a valuation and rates and adjustments certificate to be revisited; however this exercise must be carried out within the constraints of the triennial valuation. Changes in the underlying assumptions which go beyond the triennium fall to be taken into account in the next triennial valuation and rates and adjustments certificate.

[49] I recognise the practical difficulties for an administering authority which this may cause. An admission body is not required to give notice to an administering authority that it will cease to be an admission body or an employing authority. It may cease to be such only days or weeks before the end of a triennial period, in which case it may be impossible for the administering authority to obtain timeously a revised valuation and rates and adjustments certificate. However, this supports the view that the scheme of the Regulations was not intended to enable an administering authority to levy a one-off charge on or after the date on which a body ceases to be an admission body. In any event, the language and structure of Chapter 1 of Part IV of the 1998 Regulations, in the context of the Regulations as a whole, drives me to the conclusion that it was not Parliament's intention to enable an administering authority to enforce a one-off payment from a body which is no longer an admission body or an employing authority.

[50] For these reasons I consider that the pursuers' averments are irrelevant. I shall sustain the fourth plea-in-law for the second defenders and dismiss the action.