The Court has set guidelines for anyone seeking to rectify a mistake in pension scheme rules without a public court hearing. The aim is to remove any impression that the employer and the trustees have done a deal behind closed doors.

Court hearings are normally held in public but it has become common in clear cut cases for judges to make a decision to rectify scheme rules before the issue reaches open court. This practical approach saves significant time and cost. 

The decision in Girls' Day School Trust v GDST Pension Trustees (2016) will change how the courts deal with applications to rectify rules without a hearing. In future, all the evidence will have to be open to inspection on the court file.

Before the Court will rectify scheme rules by amending them retrospectively, it must be satisfied there is clear evidence that, at the time of signing, the trustees and employer had a common intention the rules would say one thing but, in error, they said something else. The rectified rules are then read as if the mistake had never been made.

The rest of this article looks at the decision in more technical detail. 

Facts

The Girls' Day School Trust ("GDST") participated in an industry-wide pension scheme (the "Original Scheme"). In November 2012, GDST created a new scheme for new members (the "New Scheme") with a view to transferring past benefits from the Original Scheme in the future. The New Scheme was originally intended to mirror the benefits provided by the Original Scheme.

The first round of negotiations between the GDST and the trustees of the Original Scheme resulted in Version 1A of the new scheme rules. Negotiations continued until a further draft, Version 2, was agreed by GDST and the trustees. Version 2 was significantly different to Version 1A, in that it provided for a new benefit structure, created to contain the scheme deficit and to avoid closure.

In error, Version 1A, rather than Version 2, was signed.

Decision – rectification was granted

The judge was satisfied that the version of the rules executed by the parties was not the version intended and that there were sufficient grounds to grant rectification by summary judgment without a hearing. 

Impact on future applications - no longer a 'deal behind closed doors'

The use of a summary judgment application without a hearing is becoming a well-established route for rectification. In clear cut cases, it can be used to good effect saving the time and costs of a full hearing. 

However, the combination of confidential evidence and no public hearing can taint the decision; it can give the impression that the trustees, employer and representative beneficiary are pushing a deal through behind closed doors.

This case tackles these concerns head on. To dispel any impression of secrecy, the judge, Norris J, set guidelines for future parties seeking to rectify a mistake in pension scheme rules by obtaining an order for summary judgment without a hearing: 

  • If a compromise is granted, all evidence will be open to inspection on the Court file including any confidential opinion provided by the representative beneficiary.
  • In future, any confidential opinions must be drafted with a future lay reader in mind.
  • If disclosure of the confidential material is not acceptable, the application for summary judgment must be listed for a public hearing with notice given to all members. If no members give notice of intention to attend, the hearing can be vacated. This was the process followed in University of Wales, Trinity St David v Davies where our pensions disputes team represented the representative beneficiary.

Key points for practitioners

The impact of this judgment will be felt. To ensure future applications are not tainted with an air of secrecy, the following should be considered:

  • Care should be taken to ensure that members are fully informed. Member announcements about court applications will become increasingly important, in particular the timings of the announcement. Consider issuing announcements at the point the representative beneficiary is chosen, when proceedings are issued and when it becomes clear whether or not the application will be opposed.
  • To give members the opportunity to voice any concerns following judgment, Courts can make a conditional order to take effect weeks after delivery of the judgment. This is not the clean result many employers seek. Such conditional orders may be avoided if members are fully informed throughout the process.
  • Counsel's confidential opinion must be drafted with a future lay reader in mind.