Unstuck on the rules – equity to the rescue?

A number of claims against pension professionals arise due to a failure to strictly follow the amendment power. There are many examples; failure to execute a deed, obtain the signatures of all the trustees, or the consent of both the principal employer and the trustees. The Courts have, up until now, taken a strict view, requiring those involved in amending a trust deed and rules to adhere to the letter of the amendment power. Some consider this consistent, others pedantic. A recent High Court decision has found that it may not always be fatal to fail to follow the amendment power given the equitable principle that “equity looks on that as done which ought to be done”.

HR Trustees Limited v Wembley

In HR Trustees Limited v (1) Wembley Plc (in liquidation) ¹ the High Court was asked to decide whether an attempted amendment to change the rule for increases in pensions in payment from a fixed 5% per annum to, RPI subject to a maximum of 5%, had been validly effected. If the amendment was ineffective, scheme liabilities would increase by £3.4 million.

The scheme’s amendment power required a number of steps to be taken.

• The principal employer had to authorise the trustees in writing to make the amendment. 
• The trustees had to declare the amendment “in writing under their hands”, with the amendment taking effect from the date of the trustees’ declaration.
• The trustees then had to notify, or arrange for the notification, of each member in writing.

In November 1999 the trustees met. Four out of five of the trustees were present. They resolved to amend the pension in payment provision from April 2000. The principal employer authorised the trustees to make the amendments by board resolution in December 1999.

The trustees met again in January 2000 where they resolved to alter the scheme’s rules. The secretary of the trustees agreed to produce the necessary documentation to reflect the amendments.

The amendments then took effect on 6 April 2000. The trustees met again to sign the relevant documentation in July 2000. At the meeting only four out of the five trustees were present. Those present signed the amendment, but the missing trustee did not sign and was not asked to do so.

An announcement was then sent to members in July 2000 explaining the amendment, including the date it took effect.

In August 2005 the principal employer was subject to a winding up order. The scheme also entered wind up and the question arose as to whether the amendment had been validly made.

Had the amendment been validly made?

The Court considered each limb of the amendment power – authorisation by the principal employer, declaration by the trustees and notification to members.

Relying on earlier case law, the Court found that the trustees had to make the declaration under the terms of the amendment power ² and an amendment “in writing under their hands” required each of the trustees to sign up to the amendment ³.

As only four out of the five trustees had signed the amendment, it had not been effected “in writing under their hands”. The error was fatal to the amendment, it had not been validly effected.

Did the equitable maxim “equity looks on that as done which ought to be done” apply?

The principal employer asserted that despite the fact that the formal amendment power had not been followed, the amendment should stand.

The Court referred to two pension cases where the equitable maxim had been previously relied upon, one in which the Court used the maxim to find that a definitive deed had been executed although it had been executed by the holding company and not certain subsidiary companies, and another where a provision in an interim deed, left out of the definitive deed in error, was found to be part of the definitive deed ⁴.

Against application of the equitable maxim, it was argued that moving away from strict adherence to the amendment power would leave the position unclear in similar cases.

The Court found that this was a case apt for the use of the equitable maxim. Having been authorised by the principal employer to make the amendment the trustees resolved by majority to declare the amendment. The failure to declare the amendment underhand of all the trustees was a mere administrative oversight. The trustees had exercised their discretion to amend the rule.

As to the members, they had been notified of the amendment and would not have known the position was any different.

Comment

Although it might have been hoped that the application by the Court of the equitable maxim was a movement away from strict adherence to the wording of an amendment power, on a closer look the Court appears to have been persuaded by the terms of the amendment power itself. It had been exercised in all material respects other than evidencing the signature of one trustee.

Indeed the Court seemed at pains to point out that the equitable maxim could only be invoked where an administrative error had been made and nothing more.

The application of the Court of the equitable maxim can be seen as a step in the right direction. It is a useful addition to a professional adviser’s armoury when faced with a professional negligence claim for failure to effect an amendment, sitting alongside rectification, construction and estoppel.

However, it is disappointing that in its judgment the Court sought to limit the future application of the equitable maxim. One can only hope that in the future a Court may be emboldened to apply the principle a little more ambitiously.