The on-going struggle between pragmatism on the one hand and insisting on a strict compliance with formalities on the other has been illustrated by two recent High Court decisions: Briggs and others v Gleeds and others  EWHC 1178 (Ch) concerning the execution of documents and Vaitkus and others v Dresser-Rand UK Ltd and others  EWHC 170 (Ch) concerning equalisation.
The strict approach
In Briggs v Gleeds the High Court refused to uphold the validity of a number of significant changes to a final salary pension scheme following the discovery that a number of deeds of amendments had not been executed correctly.
The deeds in question did not meet the requirements of the Law of Property (Miscellaneous Provisions) Act 1980 (the Act). The employer was a partnership and the Act required each partner’s signature to be attested by a witness. However, this was not done. The employer argued that the consultants who advised the scheme impliedly represented that the deeds could be executed in the manner adopted. The consultant’s representations could be attributed to the trustees as they acted on the trustees’ instructions. The employer sought to rely on the representations and argued that the members and trustee should be prevented (or estopped) from challenging the validity of the deeds.
The High Court rejected this argument and held that the deeds were ineffective as they failed to meet the formalities required by the Act.
The decision has significant consequences for the scheme, the employer and the members. A number of important changes to the scheme made purportedly by the defective deeds of amendment are invalid. These include the introduction of new defined contribution sections, the introduction of member contributions and the closure of the defined benefit section to future accrual. As a result of the decision, a number of members who believed they were members of a money purchase section never in fact became members and the scheme deficit on an on-going basis could be increased by approximately £45million.
The case illustrates the willingness of the High Court to adopt a strict approach with regard to the interpretation and construction of pension scheme documents, with the full knowledge of the effect this may have on schemes and their members. Mr Justice Newey stated that “unfortunate consequences are, I am afraid, unsurprising when so many documents have not been validly executed”.
The decision serves as a sobering reminder of the importance of ensuring documents are executed in accordance with the statutory requirements. Failure to do so may render the documents invalid. The decision also goes to illustrate that the Court is prepared to adopt a very strict approach with regard to such formalities. This can be contrasted with the more pragmatic approach adopted in another recent case.
The pragmatic approach
In Vaitkus v Dresser-Rand the Court adopted a pragmatic approach in interpreting pension scheme documents and related member announcements. The case concerned equalisation.
The normal retirement age was age 65 although members could retire from age 60 with the imposition of early retirement discount factors. However, some explanatory literature stated that female members could retire from age 60 without early retirement discount factors being imposed.
The scheme rules required the Trustees to operate the scheme so as to give effect to “Explanatory Literature” issued to members. In 1991 a notice was issued to certain female members that had the effect of equalising the scheme’s normal retirement age for men and women to age 65. However, in 1992 a definitive trust deed and rules was executed which had the effect of
permitting certain female members to retire at any time between ages 60 and 65. In effect, this appeared to reverse the equalisation brought about by the 1991 notice, although this was not the employer’s intention. The parties sought directions from the Court as to whether the 1991 notice was effective to amend the scheme and, if so, whether this was reversed by the 1992 deed.
The High Court held that the 1991 notice amounted to “Explanatory Literature” and was valid and effective. It was also held that the 1991 notice was effective to amend the 1992 deed, even though it pre-dated the deed. The Court apparently chose to give effect to the employer’s desire to equalise benefits and adopted a constructive approach to the interpretation of the documents concerned.
Although the two cases concerned unrelated areas of law, they serve to illustrate the tension between adopting a strict approach to interpretation as opposed to a more pragmatic and constructive approach. In order to avoid questions concerning the validity of scheme changes, the clear message for trustees and employers is to ensure that:
- documents meet with formalities required by statute and by the scheme rules; and
- amendments do not inadvertently call into question the validity of earlier changes.