A number of recent cases have revealed some novel approaches to managing aspects of pensions litigation, each of which may assist in managing costs. We have set out some of these below and would be delighted to discuss them further with you.
No Trustee or Sponsor wants to get involved in litigation. However, it is a fact of pensions life that disputes do arise and do reach the courts. Where this route is unavoidable, costs will be a key concern. Litigating pensions cases in the High Court has traditionally been seen as a costly exercise, not least given the complexity of pensions cases and the number of interested parties. However, as the cases below demonstrate, there are ways of managing these costs.
How to approach cases which may involve both declaratory proceedings and a professional negligence claim
When a problem arises with a scheme, Trustees and Sponsors will often consider (at least) two possible solutions. The first would be a declaratory action under Part 8 of the Civil Procedure Rules to ask the court to clarify the point in issue. The second would be a claim against any professional adviser who may be liable in respect of the problem which has arisen. It will be very important to consider how any such related actions should be organised to manage costs.
In Singapore Airlines v Buck Consultants Limited an action had been commenced by Singapore Airlines against Buck Consultants for negligence in re-drafting scheme documentation. In broad terms, the allegation made was that in re-drafting the documents, the draftsman inadvertently included terms which increased the level of members' benefits. An issue of construction was raised in defence which would potentially remove the basis for the professional negligence claim. (Broadly, being that the original scheme documentation already provided for the higher level of benefits alleged.)
This issue would typically have been resolved by way of a Part 8 claim for directions, but was in fact heard as a preliminary issue in the Part 7 professional negligence claim. In order to ensure that the beneficiaries were bound by the decision reached, a representative beneficiary was appointed by way of a representation order. In this case, Buck Consultants itself was appointed in this role. While most often the representative will be a member of the relevant class of beneficiaries, this approach was possible in this case because the arguments which Buck Consultants was advancing in its defence were aligned with the interests of the beneficiaries. As a result, the need for separate Part 8 proceedings was avoided and the ultimate costs order also reflected the fact that, although the preliminary issue was heard as if it was a traditional non-hostile Part 8 claim, Buck Consultants in fact had a direct financial interest in the outcome.
Whether or not this option is practical in any particular case, there will often be a need to consider how any Part 7 and Part 8 claims should be managed and organised. In Singapore Airlines the declaration was sought as part of the Part 7 professional negligence action; in other cases the professionals involved may be willing to fund the Part 8 declaratory action in order to reduce the chances of a Part 7 claim against them.
Do all different classes of beneficiary require separate legal representation?
Costs will increase if every representative beneficiary has his own legal representation. One way to avoid this is for different representative beneficiaries to have the same legal teams (or, failing that, the same Counsel). This might be possible where different representative beneficiaries have interests that are closely aligned. In the case of IBM United Kingdom Pensions Trust v IBM United Kingdom Holdings Limited and Others, there were three representative beneficiaries, and the first and second of these were represented by the same legal team, however the third representative beneficiary represented a class that had interests more aligned to the trustees and was to monitor the case from that perspective. Accordingly, it would have been inappropriate for him to have had the same legal representation.
Interests based representation is also now being used in appropriate cases, and may enable one representative to represent two different classes of beneficiary with the same interest in certain issues, regardless of whether the person is a particular type or category of member. This was the approach taken in the 2010 case of PNPF v Taylor, in which the trustees devised a system of interests based representation, necessitating 6 representative defendants (as opposed to the significantly larger number that would have been required had a class based approach been adopted). A similar approach had previously been seen in HR Trustees v German in which Mr German was appointed as a representative beneficiary on behalf of two classes of beneficiary with the same interest in a number of issues.
A yet further alternative is demonstrated by Alexander Forbes v Doe and Roe. In that case, two fictional defendants were named and provided with legal representation by the trustees to argue on behalf of two different classes of beneficiaries. This was considered desirable at the directions stage so that the argument was limited to the pure question of the propriety of application of trust assets, without the complication of fact sensitive matters also being raised. The court ultimately deciding the matter, however, commented that under CPR 8.2A the matter could be heard with no defendant named. Accordingly, while it made little difference in practice as to how the matter proceeded, the fiction of "Doe and Roe" was not necessary – no defendant was in fact required.
It is possible for interests to be represented by a representative beneficiary even where he does not himself have the same interest as the parties he is appointed to represent, and sometimes even when he would suffer a detriment if the position he is advancing is successful. In Thompson v Fresenius Kabi the representative beneficiary represented all those who would, on each issue at hand, benefit by a result that increased the scheme's liabilities (despite the fact that the representative beneficiary herself did not always fall within those classes). The relevant Employers then represented the rest of the beneficiaries in relation to each issue. The court decided that a potential conflict of interest was not an absolute bar to the individual being appointed but was to be considered in the balance against the disproportionate cost and difficulty of appointing multiple representative beneficiaries with different legal teams. In that case, a compromise had already been negotiated and the court found it easy to approve the representation after the event, having seen that the potential conflict had not affected her actions in practice. From a practical perspective, therefore, if considering such an arrangement advance consideration may need to be given to demonstrating how any conflicts or potential conflicts could be managed.
Rectification on summary judgment
Prior to Scania Ltd v Wager applications for rectification of scheme documentation were frequently lengthy affairs requiring full Court hearings. This changed however with Scania, in which the High Court granted rectification on a summary basis, without the need for a full trial. This can have material cost advantages. Since then, there have been a number of reported cases in which this route has been followed. It will always be worth considering how such hearings can be organised to minimise costs – for example whether the use of telephone or paper hearings would be appropriate.
Pensions litigation, by its nature, tends to be complex and involve a number of parties and lawyers, and hence be costly. Recent cases show, however, an increasing recognition of the benefits of strategies which may help streamline processes and help minimise costs. The key message is that strategic thought at the outset of a problem and throughout the life of a case may reap significant rewards in terms of the time and cost required to reach a proper resolution.