The Court of Appeal has, in the case of Smithson v Hamilton , approved a compromise agreement allowing certain scheme rules “to be treated as avoided”, where the scheme rules were the result of a mistake, but ordered for the terms of the agreement to become binding only after the trustee notified members affected by the compromise.

In this case there was a defect in the drafting of the scheme rules that was widely acknowledged to be the result of a mistake. In the High Court Sir Andrew Park had rejected a request to set aside the rule or for it to be declared void. The parties had not requested rectification as a remedy but had requested relief based on the principles from the Hasting –Bass case.

The parties had appealed the High Court’s decision but have now agreed a compromise agreement ahead of the Court of Appeal hearing the appeal. The parties requested for the Court of Appeal to make representation orders under Civil Procedure Rule 19 (CPR 19) appointing the respondent to represent various class of members of the scheme and for the court to approve the compromise agreement treating the relevant words in the scheme as avoided.

CPR 19 allows the court to make an order appointing a person to represent specified persons, including a class of persons having the same interest. Lord Justice Mummery in the of Court of Appeal was satisfied that that the compromise agreement was for the benefit of all those who were represented by the representation orders. He however refused to make the terms of the compromise agreement immediately binding on all the parties. Instead he ordered the terms of the compromise agreement to be binding on all parties as from 28 days after the trustees sent letters to members of the scheme affected by the compromise (allowing any such person to apply in the meantime).

The Court of Appeal approved the draft order providing for the relevant rules to be “treated as avoided”.

Comment

The settlement means that:

  1. it is not safe to assume automatically that a mistake in documentation can be treated as cured by reliance on the Hastings-Bass principle;
  2. the safest way to proceed therefore is to make every effort to find sufficient evidence for rectification; but
  3. given that the matter was thought capable of compromise by the Court of Appeal no less this leaves some hope that the High Court judgment might one day be capable of being reversed.