In Christopher James Briggs & others and Gleeds (Head Office) and Gleeds (UK) and others , the High Court has held that members of the Gleeds Pension scheme were not prevented from denying that some 30 deeds (including deeds of amendment and deeds of appointment and retirement of trustees) were validly executed. The documents in question had not been validly executed as they failed to comply with the execution formalities for deeds set out in the Law of Property (Miscellaneous Provisions) Act 1989, in that the Gleeds' partners' signatures to the deeds had not been witnessed. The decision has serious implications for the scheme, not least that the cost cutting measures purportedly introduced by the deeds of amendment had not been effective, resulting in a significant increase in the scheme's on-going deficit and that some 20 years of the scheme's history may now have to be unravelled and benefits recalculated on the basis that the deeds are not valid. In light of this and given that the deeds were compliant with all other execution requirements other than that the partners' signatures had not been witnessed, the judgment seems quite harsh. Although just 40 pages long, the judgment also packs in some interesting points around construction of accrued rights restrictions in the amendment powers often found in scheme's trust deed and rules.
The central issue before the Court was whether members of the Gleeds pension scheme were estopped from denying that various deeds of amendment and deeds of appointment and retirement of trustees had been validly executed.
The Gleeds Group, which provides management and construction consultancy services, trades through partnership; its most senior partners are partners in the firms, Gleeds (Head Office) and Gleeds (UK). The Gleeds pension scheme, established by an interim trust deed and rules dated 8 March 1974 was originally a non-contributory defined benefit scheme open to all full-time permanent employees; in 1987, scheme membership was restricted to full-time permanent chartered quantity surveyors.
From March 1991, some thirty deeds (including deeds of amendment and deeds of appointment and retirement of trustees of the scheme) were entered into which failed to comply with the execution formalities for deeds set out in the Law of Property (Miscellaneous Provisions) Act 1989, (which came into force on 1 August 1990). The Act, among other things, requires that for a document to be validly executed as a deed by an individual, it must be signed "by him in the presence of a witness who attests the signature". These requirements meant that each Gleeds' partner's signature to the deeds should have been attested by a witness. In the case of some thirty documents, this did not happen. Of these, the key documents were:
- The "1993 Definitive Deed", which purported to replace the earlier 1979 deed and rules in their entirety.
- The "1997 Supplemental Trust Deed", which introduced a money purchase section (the "1997 Money Purchase Section").
- A deed of amendment dated 13 December 2004 which reflected amendments approved by a written trustee resolution (the "2003 Resolution") that the Scheme was to be amended that year to introduce member contributions, to cut the annual accrual rate and to remove the minimum annual increase to pensions in payment of 4% per annum (regardless of inflation).
- A "2006 Deed of Amendment" closing the final salary section to further accrual with an option for members of that section to join a new money purchase section (the "2005 Money Purchase Section").
The individual trustees of the Scheme and its corporate trustee (the claimants in the case) and Gleeds (Head Office) and Gleeds (UK) and two representative beneficiaries (the defendants in this case) were in agreement that the deeds had not been validly executed in accordance with the requirements of the 1989 Act.
The main issue before the High Court was whether the Scheme members were nevertheless estopped from denying that the defective deeds were validly executed. The Court was also asked to consider a number of ancillary issues in connection with the invalidly executed deeds (including construction of the scheme's amendment power).
Were the Scheme members estopped from denying that the defective deeds were validly executed?
The estoppel by representation argument, raised by Gleeds, ran along the following lines:
- All the documentation that failed to satisfy the execution requirements had been prepared by the Scheme Administrators (the "Administrators") which provided pension administration and other services for the scheme. The draft documentation supplied by the Administrators made provision for trustees' signatures, but not those of Gleeds' partners, to be witnessed. On a few occasions, the Administrators also seemed to have provided an instruction document on how deeds were to be completed; one such document found in a deeds packet, explained that there "should be a witness to each trustee's signature", but did not specifically mention partners.
- Gleeds relied on these representations to their detriment and, as the Administrators were acting on instructions from the trustees at that time, the representations made by the Administrators should be attributed to the trustees.
- An estoppel by representation had arisen precluding the trustees and the scheme members from challenging whether or not the deeds had been validly executed. Alternatively, an estoppel by convention would produce the same result.
Newey J concluded that members of the Scheme were not estopped from denying that the defective deeds were validly executed since (a) estoppel cannot be invoked to circumvent the 1989 Act in circumstances such as these and (b) the Administrators cannot be said to have made representation on the trustees' behalf to Gleeds in relation to the execution of the defective deeds. In reaching his decision, he considered the following issues:
- Can a representation of law be the basis of an estoppel by representation?
Whilst the traditional position has been that an estoppel by representation has to be founded on a representation as to fact and that one of pure law cannot suffice, later cases such in Kleinwort Benson Limited v Lincoln City Council  (a House of Lords decision) have established that an estoppel by representation may be founded on a representation as to the law.
How far could estoppel be invoked where a statutory requirement for a deed has not been satisfied
However, Newey J emphasised an important qualification in this regard in that estoppel in relation to a misrepresentation as to the law cannot be invoked where a document does not even appear to comply with the 1989 Act or, at any rate, it could not be invoked in the circumstances of the present case. Parliament had decided that for an individual validly to execute a deed, he must sign in the presence of a witness who attests the signature and that these objectives and the objectives of Parliament behind this requirement would be undermined to a "serious extent" if estoppel could be invoked in circumstances where these requirements clearly had not been complied with. This was the case in the present circumstances where partners' signatures simply had not been witnessed.
Could any representation by the Administrators to Gleeds also be attributed to the members?
The facts showed that the Administrators was acting for both Gleeds as well as the trustees. In light of this, Newey J said that he was not persuaded that the Administrators could be said to have made representations on the trustees' behalf to Gleeds in relation to the execution of the defective deeds; fact that the Administrators acted for both parties was "fatal to both the estoppel by representation and estoppel by convention arguments".
Interpretation of the Scheme's amendment power
The Scheme amendment power under the 1979 Definitive Deed provided, subject to certain provisos, that the principal employer and the trustees may "jointly from time to time without the consent of the members by deed" amend the rules of the Scheme. However, the version in the 1993 Definitive Deed differed significantly in that in addition to this wording it required that the principal employer and the trustees "shall forthwith declare such alteration or addition in writing and the Deed and/or Rules shall stand amended accordingly".
Gleeds argued that the second sentence provided a less formal alternative to an amendment by deed. The representative beneficiaries contended that the second sentence was an additional requirement rather than creating an alternative to an amendment by deed - Newey J agreed with the representative beneficiaries, also adding that the failure to declare an amendment as required in the second sentence did not invalidate the amendment itself (although the failure could form a possible basis for a claim for compensation by the members against the trustees).
In the judgment, Newey J also referred to the controversial decision of the High Court in HR Trustees Limited v Wembley plc . In that case, Vos J had held that the equitable maxim that "equity regards as done that which ought to be done" could be applied so as to hold that an amendment had been effected properly, notwithstanding that a technical formality for amending the scheme rules was not complied with (in this case, four of the trustees had signed the deed but a fifth trustee had not) - for our update on that decision, click here. Newey J was critical of the Wembley decision:
- It would have made no difference in Wembley if none of the trustees had signed the deed, or, if the documentation had never been prepared. What mattered in Wembley was the trustees had decided to make an amendment; the fact that the power provided for an amendment to be declared in writing or by deed was unimportant. The formalities were, for practical purposes, of no significance.
- A "snag" with the Wembley approach was that a scheme's formally executed document may not provide a reliable guide to the terms of the scheme; someone wanting to establish the terms would also have to check the minutes of the trustees' meetings to see whether trustees had made decisions that have not been, or were not fully, implemented.
- The maxim "equity looks on matters done which ought to be done" could not be used (as had been in Wembley) to justify a Court in deeming an amendment made that was prejudicial to the scheme's members.
Were scheme members entitled to a 4% increase to pensions in payment?
The 1993 Definitive Deed contained a rule for pensions in payment to be increased by 4% per year on a compound basis. The question arose as to whether members were entitled to that increase given that the deed had not been validly executed. On the facts, the Scheme had been administered on this basis since April 1983 and various communications to members had also stated that these increases would be provided.
There was a power in the scheme rules for members' benefits to be augmented jointly by the employer and the trustees and counsel for the representative beneficiaries argued that Gleeds and the trustees must have exercised that power of augmentation in 1983 in order for the scheme to be administered on that basis.
Despite the fact that evidence as to formal exercise of the augmentation power was rather limited, Newey J concluded that by 1983 Gleeds and the trustees must have decided that pensions in payment should be increased by 4% a year. That the 1993 Definitive Deed was ineffective did not mean that that arrangement should have come to an end.
Effect of restriction in the Scheme's power of amendment in relation to benefits "accrued"
The power of amendment in the 1979 Definitive Deed provided for the principal employer and the trustees to amend the rules by deed provided that no such amendment shall be such as "would prejudice or impair the benefits accrued in respect of membership up to that time". A question arose as to whether the restriction in relation to "benefits accrued" effectively meant that the link to final salary had to be maintained when amending member's benefits. Newey J held that on balance, the restriction must be interpreted as meaning that "benefits accrued" included the link to final salary. Amongst reasons given, he cited the provision in the 1979 Rules which provided for a member to receive a pension of "1/70th part of his final pensionable salary for each complete year of Service as the Member". As a matter of language, he said, "a right to a pension of 1/70th part of ….final pensionable salary" could be described as "accruing" with each year's service. This was the case, regardless of whether any payment had yet fallen due or necessarily would.
He also cited the decision in re Courage Group's Pension Schemes in which Millet J considered that benefits that had been "secured" included "the prospective entitlement to pensions based on final salary" and Newey J went on to add that he could not see a compelling reason for taking "accrued" to have a narrower meaning than "secured" in the present context.
Did the forms completed by members mean that those members were contractually bound to accept the choices made?
Members of the Scheme who wished to join the 1997 Money Purchase Section and to transfer their final salary benefits into that section had been asked to complete an application form applying for membership of the Section, agreeing to abide by the rules of the Scheme and authorising the deduction of appropriate contributions from their salary as well as to transfer their final salary benefits into the Money Purchase Section.
Similarly, in relation to the 2003 changes, Gleeds sent a letter to members of the Scheme who it believed belonged to the final salary section describing the changes, which included introduction of a 5% employee contribution. This was followed by a letter from the HR Manager enclosing a number of forms requiring the members to complete them and confirming their decision whether to remain in the (changed) final salary section or to join the Money Purchase Section. The letter enclosed a warning that if members did not complete these forms and return them by 30 June 2003, they would be treated as having refused the offer to remain in the final salary section or to join the Money Purchase Section and would be treated as having left the Scheme altogether from 1 July 2003. All but 4 of the 145 active members of the Final Salary Section signed and returned the form.
Counsel for Gleeds argued that the principle in South West Trains Limited v Whiteman applied here so that the relevant members by completing the various forms in relation to each of these changes had contractually bound themselves to accept the pension benefits on the basis of those documents even if the deeds of amendment that purported to introduce those changes were not otherwise effective. (Under this principle, broadly, employers are able to implement changes to employees' pension arrangements via contractual agreement with the members even when that would not be possible under the pension scheme rules).
Newey J held that the principle did not apply here. The principle in South West Trains applied where there was a contractual offer made by the employer and agreed by the employees. However, because the options given to members were in relation to their rights under the pension scheme and members were being asked to exercise those rights under the scheme, not to agree to vary those rights, no contractual offer was actually being made. Further, in signing and returning the forms, members sought to exercise rights under the pension scheme, not either to accept or to make a contractual offer.
Application in relation to the 2006 Deed of Amendment
So far as the changes under the 2006 Deed of Amendment are concerned, Gleeds had earlier written to members in relation to those changes; the letters stated that even though Gleeds had been advised that they were permitted to implement the change, it was offering a one-off salary increase to all final salary section members if they signed and returned the enclosed copy of the letter by 10 May 2006. 103 of the 106 active members of the Final Salary Section signed and returned the letter. Those that did were given the one-off salary increase; those who did not were not given the salary increase.
Counsel for the representative beneficiaries argued that as with the other changes, members had been presented with a fait accompliand that the one-off salary increases represented an ex-gratia payment to soften the blow of the changes to members. By accepting the ex-gratia payment, no contract arose and if a contract did arise, it was not a term of that contract that members had accepted the changes to the Scheme.
However, Newey J said that salary increases were not ex-gratia payments; had they been, Gleeds could simply have awarded them to all the members; they would not have made the increases conditional on the members signing and returning the letters. The documentation that members were required to sign made various references to them accepting the changes to the pension scheme in order to be entitled to the one-off salary increase. The better view therefore was that the 103 members who signed and returned the letter bound themselves to accept the changes to the scheme and to accept benefits in accordance with the 2006 Deed of Amendment.
Was there an estoppel by convention?
Counsel for Gleeds also argued that there was an estoppel by convention so that scheme members were precluded from disputing that they had accrued benefits on the basis of the 1997 Supplemental Trust Deed, the 2003 Resolution and the 2006 Deed of Amendment.
Newey J held that this argument did not apply to the 103 members of the Scheme who he held to have accepted the 2006 changes. However, in relation to other members affected by the changes, he cited the decision in Redrow plc v Pedley , where it was said that an estoppel by convention had to be "applied with caution when seeking to establish an estoppel between the trustees and the general body of members so as to bind them all to an interpretation of the trust deed which it does not bear". One of the reasons given in that case is that for an argument for estoppel to succeed, every member must by his "course of dealing" have "put a particular interpretation on the terms of the rules" or "acted upon the agreed assumption that a given state of facts is to be accepted between them as true". This involves more than merely passive acceptance by the members. Newey J held that in this case, there was no more than passive acceptance from the relevant members of the pension scheme. They were told the changes that were taking place, not asked to agree to them.
Also, there was no shared assumption as to the effectiveness of the various deeds between Gleeds and the relevant members of the Scheme. Gleeds would have relied on the Administrators advisers as to the effectiveness of those deeds. Members would have submitted the various forms that were required to complete in relation to the changes but Gleeds would not have relied on these forms as regards the terms of the scheme or the effectiveness of the various deeds. In short, Gleeds' understanding of the effectiveness of the deeds was based on the professional advice it received not by the fact of the members returning the various forms.
The decision has very serious implications for the pension scheme and the Gleeds partners participating in the Scheme in that the Scheme deficit on an on-going basis could be increased by some £45 million as a result.
There will be winners and losers; the members of the Final Salary Section who thought they had ceased to accrue benefits would be entitled to continued accrual of a final salary basis. However, those members who joined the Money Purchase sections would be held not to have in fact become members of the scheme (as the deeds introducing the sections were held to be invalid). Newey J did say that this did not mean that they will not have acquired any rights as a result of the contributions made by them to the scheme and by Gleeds for their benefit but did not elaborate as to precisely what those rights would be. Apart from the monetary implications, there will certainly be some considerable and complex unravelling to do for the scheme trustees and its administrators in putting the scheme back on track on the basis that the deeds were not valid.
Newey J may also be regarded as having taken an unusually hard line on execution of documents over a period of years. The lack of a witness to signatures (which would not have been required were the employer a company but was required because it was a partnership) was held to invalidate 20 years' worth of amendments. This is hard to reconcile with the LRT vs Hatt line of decisions which tend to support the view that one can ignore lack of formalities if it is clear what all parties intended.
The comments in relation to Wembley (which probably takes the principle to an extreme), however, are likely to be shared by many in the industry. It must be remembered though that in Wembley, the change to the scheme was being enforced by the trustees and not as in the present case, by the employer.
The decision should also be noted for the points raised in connection with construction of the scheme's amendment power. In particular, Newey J's interpretation of "accrued benefits" is unsurprising (as including salary linkage) and is at odds with s67 but is a welcome clarification in relation to scheme amendment restrictions. It has long been thought that the decision of Millet J in Courage established that a restriction in relation to benefits 'secured' or 'accrued' rights meant that any amendment to members' benefits had to maintain the final salary link; many schemes which have express restrictions on amendments which affect accrued rights or benefits secured in their schemes have either maintained the final salary link or used the promise of greater DC benefits to secure the member's consent to severing it. The distinction between accrued rights for Section 67 purposes and for scheme amendment power purposes is often forgotten.