“Subjective” test for pensions rectification applied to unilateral power of amendment

• United Kingdom

• Litigation and dispute management
• Pensions disputes

23-09-2020

SPS Technologies Limited v Moitt & Ors [2020] EWHC 2421 (Ch)

Background

Pensions deeds are long, complex documents, occasionally drafted under time pressure which can unfortunately contain errors. Sometimes, a slip of the pen inadvertently grants members more generous benefits than intended. As a result of the restrictions in s.67 of the Pensions Act 1995 (which, broadly, limits changes to scheme documents which reduce the amount of pension payable retrospectively), the only party with the power to correct an error in those circumstances is the Court.

Rectification is an equitable remedy, granted at the Court’s discretion, which allows a scheme document to be corrected as if a drafting error had never been made. Broadly, it is available where a document mistakenly fails to capture the intentions of the parties to it. In the recent case of FSHC[1] the Court of Appeal held that, in the pensions context, this test should be concerned with the subjective intentions of the parties, rather than what an objective observer of those parties might assess their intentions to be.

FSHC was concerned with so-called bilateral (i.e. two party) documents, such as pension deeds that require both company and trustee agreement to an amendment. It was not concerned with scheme documents that can be amended unilaterally (i.e. with only one party’s consent).

SPS Technologies: a rare case involving a unilateral power of amendment

The power of amendment in the SPS Technologies UK Pension Plan was unilateral: it only required the Company’s consent before changes could be made to the Plan. It is relatively rare to come across such schemes in practice; by far the majority of scheme amendment powers require both company and trustee consent before changes can be introduced.

Under the Plan, three deeds dating from the late 1990s and early 2000s had inadvertently granted certain members more generous benefits if they took early retirement from deferment, rather than from active service. The Company applied for rectification of those deeds.

The High Court (Chief Master Marsh) granted rectification on an application for summary judgment. Summary judgment is a procedure which allows the Court to determine a case and give judgment without trial, where the claim/defence has no real prospect of success and there is no compelling reason for a trial. The Court held that the subjective test of intention in FSHC applied to unilateral, as well as bilateral, powers of amendment: the difference between the two “is only likely to have significance in practice where the evidence shows a difference of intention between the principal employer and the trustees or the weight of the evidence lies in one direction or another”. The Court could not see any reason “why the nature of the intention that the court must ascertain should vary between unilateral and bilateral transactions”.

Comment: objective subjectivity?

Between FSHC and SPS Technologies came the High Court’s decision in Univar[2] which, broadly, held that where events had occurred some time ago and memories may have faded, the subjective intentions of the parties to a document are best discerned by reference to objective evidence, i.e. documents.

These recent decisions suggest that whether either a bilateral (FSHC) or unilateral (SPS) power of amendment is under consideration, a Court is likely to place emphasis on the available documents, rather than witnesses’ ailing memories, when discerning the parties’ intentions at the time a document was executed. That said, the expectation remains that evidence will be required in the form of witness statements from those involved in executing a document and advising at the relevant time, and that the stronger that evidence the greater the likelihood of summary judgment being granted.

[1]   FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2019] EWCA Civ 1361

[2]   Univar UK Ltd v Smith & Ors [2020] EWHC 1596 (Ch)

For more information, please contact our Pensions Disputes team