In HR Trustees v Wembley PLC, the High Court has held a deed of amendment to be valid even though a technical formality for amending the scheme rules was not complied with. The amendment power under the rules of the Wembley 1989 Pension Scheme required, among other things, that the scheme trustees must "declare" the amendment "in writing under their hands", which Vos J held meant that all the trustees had to sign the amendment. The amendment was not, however, signed by one of the trustees. Vos J accepted that this was an administrative error and, applying the equitable maxim that "equity regards as done that which ought to be done", held that the law should give effect to the amendment as if it had been effected properly. The decision will be welcomed by employers and trustees of pension schemes who may, when amending the scheme rules, have failed to comply with a technicality under the scheme's power of amendment.
Equity is an historic set of legal principles that supplement the law and promote fairness. Equitable maxims are particular principles of equity that the courts may use as general guidelines in reaching a decision. The maxim that "equity regards as done what ought to be done" can, amongst other things, give effect to an agreement as if it had been executed properly, even when it was not. In the eyes of the law, the agreement is viewed as if it had been executed properly.
HR Trustees v Wembley PLC  EWHC 2974 concerned an application to the High Court on the validity of a purported amendment to the rules of the Wembley 1989 Pension Scheme. The scheme's principal employer and the trustees had tried to amend the rules to change the basis on which pensions in payment were increased, namely from 5% per annum, to the annual increases in the Retail Prices Index capped at 5%.
The Scheme's amendment power (which Vos J broke down into four elements) contained the following requirements:
- An Authorisation Requirement - a requirement that the Scheme's principal employer must "authorise the Trustees in writing to alter or add to terms and provisions of the Rules…"
- A Declaration Requirement, which required that the trustees "shall forthwith declare any such alteration or addition to the [Scheme] Rules in writing under their hands."
- The Notification Requirement: which required that the trustees "shall forthwith notify or arrange for the notification of each Member affected thereby individually in writing of the effect thereof."
- The Non-prejudice Requirement: a requirement that no amendment should prejudice the rights or interests of any member accrued before the amendment took effect.
On 18 January 2000, the Scheme trustees unanimously agreed to amend the rules of the Scheme in relation to increases in pensions. A "scheme amendment authority" dated 5 July 2000 was then issued setting out the trustees' decision to amend the pension increases rules. The authority, however, was signed by the assistant company secretary (on behalf of the Schemes' principal employer) but only by four of the five trustees. The main area of dispute was whether the trustees had satisfied the Declaration Requirement.
Vos J interpreted the declaration requirement as being part discretionary and part mandatory. The Trustees could choose whether or how to make the amendment (the discretionary requirement) and, having done so, they were required, among other things, to validly declare the amendment (the mandatory requirement). Vos J then posed the following two questions:
- Had the trustees validly exercised their discretion to make the amendment?
- Had a valid declaration been effected?
Vos J held that the first question was satisfied by the unanimous decision of the trustees on 18 January 2000 to amend the rules (as recorded in the minutes of the trustees' meeting).
In determining the second question, Vos J held that the phrase "in writing under their hands" required that the declaration be signed by all the trustees, not just the four trustees who had signed the amendment on the 5 July 2000. He rejected the principal employer's argument that, as the scheme rules allowed the trustees to make certain decisions by majority, this meant that the declaration could be signed by a majority of the trustees. The Judge said that if declarations were meant to be achievable by majority, this would have been explicit. The Declaration Requirement had not therefore been complied with.
Vos J then considered whether it would be appropriate to cure this technical deficiency by applying the equitable maxim that "equity regards as done that which ought to be done". On the facts, he was convinced that the trustees had at all times intended to make a valid declaration following their valid exercise of discretion but made an error by not obtaining the fifth trustee's signature; he was also convinced, on the facts, that the fifth trustee, who had not been present at the meeting when the declaration was signed by the others, would have signed it and still would. Vos J described this as a classic case in which the maxim can and should be properly applied to cure an administrative error:
"It seems clear to me that the trustees exercised their discretion to amend the rule in the way contained in the amendment. They were obliged, having done so under clause 16, to make an appropriate declaration in a particular form. They could have been compelled on behalf of the members, who are not volunteers, to specifically perform their exercise of the power. Not to make a valid declaration was a breach of the terms of the definitive deed. Thus, in my judgment, this is a classic case in which the maxim of equity can and should properly be applied. Mr Moeran is wrong, in my judgment, to submit that this is an extension of the doctrine. It may be that there has never been before a case on all fours with the present, but law and equity would be made to look ridiculous if it were powerless to correct what has been an obvious administrative error like the one made in this case. Moreover, none of the members of the scheme in any category have any reason to feel aggrieved."
The equitable maxim was therefore applied and the amendment deemed to be valid.
On the face of it, Vos J's decision appears to extend the equitable maxim into new territory, an idea rejected by the judge. The judgement may be seen as the court adopting the approach towards failure to comply with technical formalities under a statutory power to amalgamate pension schemes in LRT Pension Fund Trustee Company Limited v Hatt  PLR 227. The formalities related to timing of a board resolution and requirements for public notice to be given. In this case Knox J said that:
"The court will be legitimately averse to the frustration of bona fide transactions by technical points which passed unperceived by all concerned at the time of the transaction in question. However there are limits to the extent to which rules of law, whether or not properly described as technicalities or even merest technicalities, can be circumvented… It is perfectly clear what the LRT Board intended to do throughout and there is no question but that all concerned thought that the technique adopted was effective. The technical objections are just that, and despite Mr Inglis-Jones' submissions to the contrary, I am wholly unpersuaded that there is a point of substance here."
This was also the approach taken in Low & Bonar plc v Mercer  CSOH 47 where Lord Drummond Young held that the courts should not be unduly technical or restrictive when asking whether the formalities for exercising a power had been fulfilled.
By contrast, in Walker Morris Trustees Ltd v Masterson  EWHC 1955 (Ch) Peter Smith J held that the requirement in the scheme rules for the trustees to obtain an actuary's opinion before making an amendment could not be disregarded just because it was "technical" . He said, "Categorising “a literal interpretation” as producing a “perverse result” is simply to criticise the wording of a clear clause because the result is unfortunate. It is equally wrong in my view to criticise such a construction as being “technical”… one cannot bend the construction and try and find an ambiguity or difficulty so as to re-draft the clause to dispense with what was considered to be a fundamental requirement by the draftsman."
The limits of what would amount to a technical oversight under HR Trustees v Wembley are unclear. Would an amendment by a memorandum, agreed, but not signed by any Trustees amount to a technical oversight remediable by the equitable maxim? The limits of HR Trustees v Wembley will, no doubt, be explored in further cases.