Smithson & Ors v Hamilton [2008] EWCA Civ 996

In our February briefing we looked in detail at the High Court decision in Smithson v Hamilton [2007] EWHC (Ch). In this case, a mistake in the scheme’s rules permitted deferred members to take an unreduced early retirement pension from age 60. The scheme’s normal retirement age was 65. The equivalent rule for active members taking early retirement from age 60 required an actuarial reduction to reflect early payment. The trustees and employers of the scheme sought to have the erroneous rule corrected by the court.

Instead of seeking a court order for rectification of the scheme rules, the claimants in the original case sought relief by way of one of two alternative remedies:

  • under the principle in Hastings-Bass following a mistake by the trustees; or
  • in equity from the consequences of a mistake.

This application was unsuccessful. The High Court decided that where the "obvious" remedy was rectification, but the requirements for rectification had not been met, the parties could not side-step the evidential requirements by using the principle in Hastings-Bass. The judge also rejected the argument that the court's power to grant relief from the consequences of a mistake should be applied to the pension scheme in this case.

The trustees and the employers appealed, and it was hoped that the appeal would provide clarification of the extent to which courts would permit parties to use methods other than rectification to correct errors in scheme documentation. However, before the appeals were due to be heard, a compromise was reached between the parties, under 19.7 of the Civil Procedure Rules (CPR), by which it was agreed to treat certain wording in the scheme rules as avoided and the parties then sought the court's approval of that compromise, together with representation orders to bind represented persons to the terms of the compromise.

The Court of Appeal approved the compromise between the parties. It also addressed concerns about the use of the representative procedure under CPR 19.7 to bind members who might be unaware of the compromise by requiring the trustees to write to the affected scheme members and to allow a short window of time after this for applications to be made to stay, set aside or vary the agreed order.

Comment: it is possible that this case could lead to the future reform of the court’s representative procedure. While notification of all potentially interested parties is not currently required under the CPR where there is an application for a representative order, (and indeed, it is recognised that such requirements would be onerous for schemes with a large membership), trustees should take note of this case and the potential issues arising where decisions are reached which compromise members’ rights.

View the decision.