Sovereign Trustees Ltd and Another v Patricia Lewis
| Jurisdiction | England & Wales |
| Judge | Chief Master Marsh |
| Judgment Date | 18 October 2016 |
| Neutral Citation | [2016] EWHC 2593 (Ch) |
| Docket Number | Case No: HC-2016-001313 |
| Court | Chancery Division |
| Date | 18 October 2016 |
[2016] EWHC 2593 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building, Fetter Lane
London EC4Y 1NL
Chief Master Marsh
Case No: HC-2016-001313
Michael Furness QC (instructed by DLA Piper UK LLP) for the Claimants
David E. Grant (instructed by Squire Patton Boggs (UK) LLP) for the Defendant
Hearing date: 19 July 2016
The Claimants apply by a Part 8 claim seeking orders for rectification of what was formerly known as the Leisure Connection Pension Scheme ("the Scheme").
The First Claimant ("Sovereign") is the current trustee of the Scheme. The Second Claimant is the principal employer ("Leisure Connection"). The Defendant ("Mrs Lewis") is a pensioner member of the Scheme and represents all those members and beneficiaries of the relevant section of the Scheme. Sovereign represents all other members and beneficiaries of the Scheme.
On 19 July 2016 I heard an application made by the Claimants for summary judgment under CPR Part 24.2 against the Defendant on the basis that the Defendant has no real prospect of defending the claim and there is no other compelling reason for the case to be disposed of at a trial. Part 8 claims are markedly different to Part 7 claims. Although there is no bar to issuing a Part 24 application in a Part 8 claim, it will rarely be necessary for the claimant to do so where it is seeking judgment on the whole of the claim. In part this is because the second limb of CPR 24.2 will normally have no application because there will be no 'trial' as such. Part 8 claims are normally resolved at a 'disposal hearing'. This is made clear by paragraph 8.1 of Practice Direction 8A which states:
"8.1 The court may on the hearing date—
(i) proceed to hear the case and dispose of the claim;
(ii) give case management directions."
It follows that in most Part 8 claims, where the relief sought is unopposed, or cannot realistically be opposed, it will suffice for the claimant to ask the court to fix a disposal hearing at which the court may determine whether or not the relief sought by the claimant should be granted.
The Scheme was established on 5 August 1996. The original Trust Deed and Rules are dated 18 December 1998. The power of amendment in the 1998 Rules is contained in rule B13 which permits the Trustee and the Employer to amend, extend or replace all or any of the trusts, powers or provisions of the Trust Deed or the Rules.
The 1998 Rules contained provisions for the increase of a Scheme pension. Rule A11(d) provided that:
"Any pension… shall increase at the rate specified in the Schedule…"
The relevant provision in the schedule is:
"5% per annum compound, or the increase in the Index if less, on the pension element of the Formula Benefit which is in excess of GMPs. 3% per annum compound, or the increase in the Index if less, on GMPs. 5% per annum compound on the Qualifying Spouse's death in service pensions."
("GMP" means guaranteed minimum pension)
The focus of this claim is on the final sentence which made provision for an enhanced rate of increase solely where the member of the Scheme died in the course of employment.
In 2011, the Trust Deed was amended by a Deed of Amendment dated 4 April 2011 ("the April Deed"). This, as a matter of drafting convenience, took the form of a complete revocation and re-making of the original Trust Deed and Rules, but it was only intended to make certain limited amendments. As a result of a drafting error in the April Deed, a change was introduced to the way in which spouses' pensions (other than pensions payable to spouses whose husband or wife dies in service) were computed. The Claimants' case is that this change was not intended either by Sovereign or Leisure Connection.
By a further amending deed dated 31 October 2011 ("the October Deed"), the April Deed in turn was revoked and re-made. Again, the intention was to make certain limited amendments which did not include a change to spouses' pensions. The same wording dealing with spouses' pensions which had been included in the April Deed was re-enacted as part of the October Deed.
In 2012 the error about spouses' pensions came to light. Pending rectification, it was decided to make an amendment which would stop spouses' pensions being earned on the erroneous basis for the future. This was done by a Deed of Amendment dated 21 January 2013 ("the January Deed"). Unfortunately, a form of words was used which suggested that the error was being confirmed for the past. The Claimants' case is that this was not their intention.
Under the 1998 Trust Deed the general rule was that pensions increased at 5% or at the RPI rate, if less, save for pensions payable to spouses whose husband or wife died in service. In the latter case, the rate of increase was a straight 5%. Thus spouses where the member died in service obtained a more favourable rate of increase, in times of low inflation, than spouses where the member died after leaving service.
The April Deed dealt with pension increases in rule 11 of the Final Salary section. It simply provided that:
"Spouses pensions shall be increased by 5% per annum compound."
Thus, it made no distinction between the spouse of a person who died in service and the spouse of a person who died in retirement. All spouses' pensions were given the straight 5% increase.
The mistake was not spotted immediately. The October Deed was intended to make limited amendments which did not include the change to spouses' pensions. The April Deed was revoked and re-made with the same wording on spouses' pensions as in the April Deed without anyone noticing the error. Thus, the claim for rectification in respect of the April Deed and the October Deed gives rise to very similar considerations. The issues concerning the 2013 Deed are different in nature as by then the error had been noted.
The Law
At the hearing on 19 July 2016, having received full and helpful submissions from Mr Furness QC and Mr Grant, I indicated that I was satisfied the Claimants had made out on the facts, and in accordance with the applicable principles of law, a basis for the court granting rectification and the court in the exercise of its discretion was willing to make such orders. The purpose of this judgment, therefore, is to provide reasons for that decision. In those circumstances, given that there is no controversy about the legal principles, it is appropriate to provide reasons briefly.
Mr Furness QC and Mr Grant have both referred me to the summary of the relevant principles provided by Warren J in IBM United Kingdom Pensions Trust Ltd v IBM United Kingdom Holdings Ltd [2012] PLR 469 at [15]–[24]. He refers to the four-fold test set out in Daventry DC v Daventry District Housing Ltd [2012] 1 WLR 1333 which can be summarised by the following questions:
i) Did the employer and the trustee have a common continuing intention, whether or not amounting to an agreement, in respect of the proposed amendment?
ii) Did any such common intention exist at the time the relevant deed was executed?
iii) Can any such common intention be established objectively?
iv) By mistake, did the relevant deed fail to reflect that common intention?
Particular points to emphasise are:
i) In the case of deeds of amendment for pension schemes, it is not necessary that the outward expression of accord needs to involve the mutual communication of the shared intention between the parties – see AMP v Barker [2001] PLR 77 per Lawrence Collins J, cited with approval by Warren J in IBM [19].
ii) The evidence must comprise contemporaneous words or conduct from which a reasonable observer would infer the existence of the requisite intention. That evidence may be comprised in contemporaneous documents, or it may be in the form of a witness' recollection of events.
iii) Conduct after the date of the relevant document can constitute evidence of the intention of the person effecting it at the time of the transaction – per Warren J in Drake Insurance v MacDonald [2005] PLR 401 [33]–[36].
iv) Rectification will only be granted if there is convincing proof that, on the balance of probabilities, the employer and the trustees held the requisite common intention as to the meaning or effect of the document – Drake Insurance.
The Evidence
I was provided with witness statements from six witnesses giving evidence on behalf of the Claimants. None of their evidence is challenged. It is necessary to review the circumstances in which the claim for rectification is made in relation to each of the three documents. I will summarise the evidence which is available in each case and subsequently discuss briefly its adequacy.
The April Deed
In November 2009 Leisure Connection was appointed the preferred bidder in respect of a contract with Boston Borough Council for the operation of two leisure centres for a ten year period. As the provider of outsourced services to public sector clients, Leisure Connection had to put in place pension arrangements to address the likelihood that public sector employees would, upon outsourcing arrangements being entered into, transfer into its employment pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006. Leisure Connection dealt with this by putting in place a scheme broadly comparable to that enjoyed by public sector employees and obtaining a certificate from the Government Actuary's Department (a "GAD certificate") certifying this. However, the GAD certificate applicable to the Scheme lapsed in 2007.
Jonathan Stewart, who is a director of Sovereign, sets out in his witness statement the circumstances in which Sovereign was approached in November 2009 by Leisure Connection and the instruction of...
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