Bic UK Ltd v Burgess  EWCA Civ 806
On Friday 10 May 2019, the Court of Appeal (CA) handed down its judgment in the case of Bic UK Ltd v Burgess. The CA allowed the appeal by BIC UK, unanimously ruling that a retrospective amendment to the deed and rules of the BIC UK Pension Scheme (the Scheme) was invalid. This article summarises the judgment and considers what trustees and employers of occupational pension schemes should take from it.
In 1991, the trustees of the Scheme resolved to award to members increases to pensions in payment, and this was stated to have effect from 1992. However, the increase award was not validly made, as the amendment power in the then-current rules of the Scheme required both the Trustees and Employer to make the amendment in writing, whereas the only written record was a Trustee minute signed by one of the three Trustees.
In 1993, a new deed and rules was introduced and expressed to have retrospective effect from 1990. The new amendment power required only the Trustees – and not the Employer - to make an amendment in writing, providing that the Employer had consented.
A disagreement arose thereafter in respect of retrospectivity and whether or not the increases had been validly awarded in accordance with the Scheme's documentation; in other words, could the 1991 increase award be retrospectively validated by the 1993 change to the Scheme's amendment rule? If the 1991 increases had been validly awarded, the Scheme's liabilities would have been increased by around £5.6m.
What did the High Court decide?
In the High Court ruling handed down on 17 April 2018, Arnold J held that the powers given by the 1993 Deed were to be treated as having been available and exercisable from 1990 and that the amendment simply gave effect to what, as a matter of historical record, was in fact decided and done.
The judge noted that whilst he had "found this a difficult question to resolve" and that reliance on the 1993 Deed involved "an element of re-writing history", he ultimately concluded that it did "not involve doing so impermissibly".
What did the Court of Appeal decide?
In contrast, the CA unanimously held that in order for the new amendment power introduced by the 1993 Deed to validate an otherwise-invalid previous amendment, it was necessary to demonstrate that this was the common intention of the Employer and Trustees, for example by explicitly setting this out in the recitals in the 1993 Deed. That common intention was not supported by the documents; the 1993 Deed did state that previous, valid amendments were not to be treated as having been invalidated by the 1993 Deed, but the CA found that this was not sufficient wording to have the reverse effect, of validating previously-invalid amendments.
Furthermore, the CA expressed doubts (albeit not a binding view, as the decision described above made the question irrelevant in this case) as to whether the 1991 increase award would have complied with the 1993 Scheme amendment power, even if that amendment power had been in force at the relevant time.
In particular and of potentially wider interest, the CA was inclined to take the view that the fact that the Trustees' 1991 resolution was passed orally and subsequently recorded in minutes (without, for example, setting out the actual text of the amendment), did not constitute "a resolution (in writing)" for the purposes of the Scheme's 1993 amendment power. Indeed, the CA took the view that the Trustees' 1991 minutes recorded a resolution on future policy, with there being no immediate amendment to the Scheme rules. The CA found that if an immediate amendment was intended, the text of the necessary amendments should have been set out in a written document and signed by all three trustees. Furthermore, formal reference should have been made in the amending document to the consent given by BIC.
Scheme amendment powers found in standard form pension scheme documentation frequently require "a resolution (in writing)" and this case is the first in the CA to consider how this aspect of such powers is to be interpreted. The decision seems to reflect a move towards a more legalistic interpretation of, and approach to, formalities, rather than the more liberal approach favoured by the High Court.
In summary, the CA concluded, "in respectful disagreement with a very experienced judge", that the solution adopted by Arnold J "went a step too far and involved the re-writing of history to an impermissible extent".
As a result of this decision, some members of the Scheme have been overpaid benefits for many years, and those overpayments will be recoverable from members unless individual members can show reasons why that approach would be unjust in their own particular circumstances.
The CA's ruling in this case serves as a stark reminder and warning to employers and trustees of the need to comply to the letter with all the formalities set out in their trust deed and rules when it comes to making amendments. The CA judges confirmed that formalities have a purpose and failing to comply with them will never produce the intended result. Indeed, in cases such as these, what is at risk is the validity of the amendments being challenged and, potentially, an expensive and protracted court battle.
The decision also highlights the importance of ensuring that pension scheme trust deeds and other documentation contain transparent wording, including in the recitals at the beginning of the documents, setting out what they intend to achieve in practice.