A recent case1 involving the BCA Pension Plan has attracted much interest because of the use of a procedure which is not commonly known for being used where there are errors in pension scheme documents. In this case, certain words were omitted from a pension increase rule in a consolidation exercise which meant that the rule did not make sense and could not be applied. Following an application by the trustees under s48 of the Administration of Justice Act 1985, the High Court made an order that the scheme could be operated as if those missing words were included. In doing so, the judge pointed out that he was not making a new contractual provision in rules that would work without it; rather its inclusion was necessary to make the existing rules work.
The s48 procedure is relatively simple, requiring the opinion of a Counsel having at least 10 years’ High Court qualification within the meaning of s71 of the Courts and Legal Services Act 1990, which is then effectively “signed off” by the Court. However, it can only be used in limited circumstances, for example, an order will not be made under this section if it appears to the Court that a dispute exists which would make it inappropriate to make an order without hearing arguments about that dispute.
The s48 procedure can be contrasted with e.g. rectification, which is commonly sought where there have been documentation errors, and which can be a time consuming and costly process.
A potential disadvantage of the s48 procedure, however, which the judge in the BCA case was at pains to make clear, is that although a s48 order will protect trustees when administering the pension scheme in accordance with it, the order does not bind the members or other beneficiaries of the scheme. So, a member or other beneficiary is free to challenge the position later, although the reality is that it is likely that key new information would have to come to light, if the member or other beneficiary is to be successful.
Nevertheless, as the matter related to the level of members’ benefits, the judge said that the members must be notified of the order and the reasons for it.
Given the interest that this case has given rise to, it may be that more trustees are willing to consider the s48 procedure in the event that there are obvious scheme documentation errors similar to those in the BCA case. However, it is important for employers (who ultimately bear the costs in relation to their pension schemes) to understand the implications of dealing with scheme documentation errors in this way as opposed to e.g. traditional contested “construction” or rectification proceedings, which bind members and therefore provide greater certainty. Employers should therefore maintain a dialogue with trustees about proposed solutions if these sorts of difficulties with their scheme’s documentation arise.