A reminder was given to trustees and advisors that there exists a cheaper alternative to the normal litigious routes for having a trust deed rectified – s48 of the Administration of Justice Act 1985 (“AJA 1985”). Though not without its limitations, the case of Re BCA Pension Plan demonstrates that if there is a undisputed mistake in a trust deed which renders the document unworkable, then the trustees might consider an application under s48 which would avoid the need for a hearing of arguments.

Background

The application concerned an occupation pension scheme, the BCA Pension Plan (the “Plan”), and BCA Pension Trustees Limited (the “Trustee”) was the sole trustee.

In 2011 the Trustee sought to consolidate their trust deed and rules into a single document and so a consolidated trust deed and rules was prepared and executed (the “Consolidated Deed”).

Unfortunately the part of the new rules which dealt with pension increases (Rule 22) accidently omitted the sub-section of the rules which identified the elements of pension to which the different rates of increase were to apply.

Without the sub-section, if read alone, it was not readily apparent on what basis the annual pension increases should be provided.

The Trustees therefore applied to the court under section 48 of the AJA 1985 contending that the new Rule 22 should be read as if the words which had been included in the original version of the rules (the “Original Deed”) were reinstated.

In brief, Section 48(1) AJA 1985 can be used:

  • Where a ‘question of construction has arisen out of the terms of a … trust’; an
  • ‘an opinion in writing given by a person who has a 10 year High Court qualification…has been obtained on that question by the…trustees under the…trust’.

However the High Court cannot make an order under s48(1) ‘if it appears to the court that a dispute exists which would make it inappropriate for the court to make an order without hearing argument.’ (s48(2)).

The Decision

Mr Justice Snowden was prepared to read into the Consolidation Deed the additional words which had been used in the Original Deed as he contended it would not create a new contractual provision in the Rules which would have worked without them; but rather their inclusion is necessary to make the existing rules work.

In reaching this decision Mr Justice Snowden made the following crucial observations:

  1. The usual principles of construction applied - ICM v Stribley [2013] PLR 409 (Asplin J) ‘The question is ultimately what meaning would be conveyed to a reasonable reader of a document who has all the background knowledge which would have been reasonably available to the parties…at the date of execution of the document.’
  2. It has been established the court will correct obvious and easily-correctable mistakes made in documents as a matter of construction – Coles v Hume (1828) 8 B&C 568. Two conditions – ‘there must be a clear mistake on the face of the instrument’ and ‘it must be clear what correction ought to be made in order to cure the mistake.’
  3. Earlier contractual documents can be used as part of the background knowledge, but this excludes drafts produced in negotiation – Cherry Tree Investments Ltd v Landmain Ltd [2013] CH 305; KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336. The earlier agreed draft of a lease in KPMG was admissible in interpreting the final lease.
  4. As a matter of construction the court will neither:
    1. read a whole clause into a document which has been omitted in error where the document makes sense without it (Cherry Tree Investments); nor
    2. will they use perceived flaws as an opportunity to reconstruct the contract. (ING Bank NV v Ros Roca SA [2011] EWCA Civ 353)
  5. The Trustee’s subjective intention and subsequent administration of the Plan is not admissible on the question of construction.
  6. The Original Deed and an interim Deed of Alteration were admissible as part of the background knowledge to the construction of the Consolidated Deed. (National Grid Co plc v Laws [2001] 1 WLR 864).
  7. Orders under s48 AJA 1985 do not bind any of the members or potential beneficiaries of the Pension Scheme.
    1. The Trustees are protected against any complaint of wrongful administration; but
    2. The members are free to contend a different construction should apply.

The ruling is sure to be a prompt for Trustees and Pensions lawyers who are likewise faced with obvious mistakes of construction to use this simpler application for correcting the scheme Rules. However it will not apply in every instance as there are clear limitations, in particular, regarding whether the alteration is disputed and whether the mistake is both obviously noticeable and obviously remedied.