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The Art of Rectification

Asking a court to rectify a mistake in pension documents is an arduous task. The law is complex and the evidence required is detailed. The recent High Court case of Re Mitchells and Butlers Pension Plan provides a leading example of how to do it right.

In this case, a clause concerning pensions increases was mistakenly changed by the draftsman of a new definitive deed in 1996, without the change being highlighted in the drafting process and without either the trustees or the employer or even the actuary being aware. The error was significant, reversing the balance of powers concerning the choice of a reference index for inflation proofing from the trustee to the employer. The erroneous wording was restated in further definitive deeds in 2002 and 2006.

The trustee provided extensive and incontrovertible evidence that the trustees, the employer, and the actuary held the clear belief that the pre-1996 wording continued to apply and the scheme was administered accordingly throughout. On that basis, rectification back to the previous wording was granted by the court across all three definitive deeds.

Two interesting points were considered in the detailed judgment, which provides an excellent summary of the law concerning rectification.

The first concerned the question whether rectification was available for the 2006 deed which was a consolidation: was the intention of the parties to these deeds merely to replicate the language of the earlier deed as it then stood – in which case a claim to rectify might not succeed – or was the intention to reflect the substantive entitlements of members under the earlier deed, which included any claim for rectification – in which case the claim would succeed? The difference is subtle, but the evidence adduced by the trustees was decisive: the trustees and the employer held a joint and clear understanding of the entitlements of members which included the old wording concerning increases and they held that understanding before and after each of the definitive deeds, which were therefore not mere mechanical repetitions of language. Things may well have been different if one party or the other had changed their understanding and taken the view that the new wording applied for a period of time before the proceedings. The facts of the case were vital to the survival of the right to rectify through the consolidation, where the mistaken wording was not spotted or commented on in any way by anyone involved in the process.

The second interesting point was the first use of the bona fide purchaser for value without notice defence in a pensions rectification case. A new principal employer had been substituted for the old in between two definitive deeds, in 2003. The new employer raised the bona fide defence against the rectification of the 1996 and 2002 deeds, arguing that the defence was effective against the equitable right to rectify. However, the court held that a substitution of employers was not a purchase per se and hence the defence did not apply; furthermore the new employer was an offshoot of the old one with the same directors who had held the understanding of the rules as discussed above, hence the defence would have failed even if the substitution was considered a purchase, there being notice. But could the situation be different where the principal employer is indeed purchased by a third party for value without notice and the position of principal employer subsequently substituted? Arguably, in such circumstances, the 2006 consolidation might then have been the mere mechanical repetition of language the employer argued it to be, as the necessary common understanding would no longer be held by all parties. Maybe this defence will make a second appearance in court in the future …

For more information or if you have any questions on the above please do not hesitate to contact Tristan Mander or a member of our expert Team.

Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.

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