High Court highlights power of contemporaneous evidence in pensions rectification

The High Court granted rectification of two deeds after ruling that a restriction on the second scheme’s power of amendment was included in error.

The case, in which Pinsent Masons acted for both the employer and the pension scheme trustee, marks the first knowingly reported instance in which the courts in England and Wales have rectified scheme documentation to remove an inadvertently introduced 'Courage fetter' on the trustees' amendment power.

The issue arose from amendment powers contained within a 2004 trust deed and a subsequent 2012 consolidating deed.

It was common ground that this wording constituted a Courage-type fetter within the meaning of the 1987 Re Courage Group's Pension Schemes case, in which the court decided that the scheme amendment power could not be used to break the link between members’ past accrual and their salaries while they remain in service. However, if left uncorrected, the scheme's closure to future accrual in 2010 would not have severed the final salary link for active members, potentially creating significant additional liabilities for the scheme.

In its judgment, the court found that although a restriction on the amendment power was not present in the original scheme’s governing documentation in the 1990s, it was later introduced in error and unwittingly in 2004 when the scheme’s documentation was modified. In 2012, the deed was consolidated and this restriction was “carried forward without substantive reconsideration”, resulting in the error being passed on to the second deed.

The decision is likely to become a helpful if not novel addition to the developing body of pension rectification case law and another example of serial rectification.

The power of contemporaneous evidence

While witness evidence was extremely important, contemporaneous explanatory guides were deemed critical, as was the absence of any evidence that such a significant restriction was ever consciously intended. In particular, Chief Master Shuman placed striking weight on explanatory guides prepared by the scheme’s lawyers for trustees and employers during the drafting process. Those guides ultimately proved to be some of the most compelling evidence of what the parties intended and, critically, what they never considered at all.

What makes the case unusual is that many rectification claims concerning amendment powers involve attempts to preserve employer flexibility or correct drafting mistakes affecting benefit structures. Here, however, the court was asked to remove a fetter on the amendment power itself.

Although Courage issues have generated substantial litigation concerning the interpretation and effect of amendment powers, there are no reported cases where a court has rectified pension scheme documentation specifically to eliminate an unintended Courage fetter. This case therefore sits at the intersection of two important strands of pensions jurisprudence: rectification and amendment power restrictions.

The concise judgment given by Chief Master Shuman following a summary disposal hearing in which he ran through the well-known rectification principles summarised by Mr Justice Trower in the 2021 Mitchells & Butlers decision.

The claimants relied on a pattern of contemporaneous evidence which consistently pointed in one direction. Chief Master Shuman described the documentary evidence as "particularly compelling". It included trustee minutes, actuarial advice, correspondence with advisers and witness evidence from six individuals who had participated in the relevant decisions.

Yet among all that material, one category of document stood out - explanatory guides prepared by professional advisers and circulated alongside drafts of the 2004 deed. Their purpose was straightforward: to explain to decision-makers what the draft documents would and would not change. As the court observed, these guides were designed specifically for lay decision-makers who could not realistically be expected to analyse lengthy deeds line-by-line.

In relation to the amendment power, the guides expressly stated that the existing restrictions were being carried forward and that the only relevant amendments reflected statutory changes. They did not identify the introduction of any new restriction on future amendments. Indeed, the guides positively assured readers that there was no substantive change.

Chief Master Shuman regarded this as highly significant. The guides were particularly persuasive because they sat within a wider evidential picture characterised by silence.

The court accepted that deliberately introducing a fetter capable of preventing future flexibility would have been commercially significant, particularly against a backdrop of financial pressure and consideration of future closure options. As the judgment notes, if such a restriction had truly been intended, one would expect it to have generated discussion at board or trustee level. No such discussions were found.

The case therefore demonstrates an important evidential point. In rectification claims, contemporaneous silence can sometimes be as revealing as contemporaneous statements. Where a change would inevitably have attracted attention had it been intended, the absence of any recorded consideration may itself support rectification.

Lessons on drafting practice

The evidence demonstrated that the 2004 deed had been built from a standard precedent which already contained wording protecting accrued or secured benefits. There was no evidence that anyone specifically considered whether that wording was appropriate for the scheme or appreciated its implications.

The court concluded that the most natural inference was that the provision had been imported mechanically from the precedent rather than deliberately selected to alter members' rights.

That finding will resonate with many pensions practitioners. Scheme consolidations frequently involve adapting precedent documentation. The judgment serves as a reminder of the risks inherent in that exercise and of the importance of ensuring that precedent language is properly interrogated rather than merely carried forward. Once rectification of the 2004 deed was established, the 2012 deed followed relatively easily.

However, the evidence showed that the 2012 exercise was intended to be a consolidation rather than a substantive rewrite. Guidance notes repeatedly described it in this manner and indicated that material changes would be highlighted. The amendment power was said merely to reflect the existing 2004 position. There was no evidence of any fresh decision to adopt a Courage fetter.

The court therefore treated the case as a classic example of serial rectification. The original error had simply been carried forward into a later consolidating document without reconsideration. Rectification of the later deed was necessary to ensure that it reflected the parties' intended legal position.

Main takeaways

The judgment offers several practical lessons. Firstly, compelling contemporaneous evidence remains the foundation of successful rectification claims.

Secondly, explanatory guides, change summaries and similar implementation materials can become critically important years later. Advisers often regard such documents as administrative aids. This case demonstrates that they may become the strongest evidence available when determining what decision-makers actually intended.

Finally, the decision is a noteworthy development in the context of Courage fetters. While disputes about the effect of such restrictions are familiar, rectification claims seeking to remove an inadvertently introduced Courage fetter are far less common.

The judgment demonstrates that, where convincing evidence establishes that the restriction arose through an unnoticed drafting error rather than a conscious policy choice, rectification will remain available.

Ultimately, the case is a reminder that pension rectification cases are won not by hindsight, but by evidence. Here, the decisive evidence came from documents created precisely to explain a transaction at the time it occurred.

The explanatory guides showed not merely what the parties intended, but what they believed they were being asked to approve. In doing so, they provided the compelling evidential foundation required to remove an unintended Courage fetter and correct the scheme's governing documentation more than two decades later.