Out-Law Analysis | 19 Jan 2016 | 10:20 am | 2 min. read
Lord Drummond Young's judgment in the Court of Session will give comfort to those administering pension schemes, long-term trusts and contractual arrangements in Scotland, with its supportive approach to the realities of pension administration. In an important statement of principle, the court rejected "unnecessary technicalities" preventing trustees from exercising their powers of amendment in such a way as to secure the benefits due to members.
In reaching its decision, the court stressed the same point more than once: that without such an approach the "sensible administration of pension funds, and indeed other long-term contracts and trusts, would be rendered unacceptably difficult". A different approach could have had serious implications for many schemes and other commercial arrangements. It would be a rare scheme that lasted for many decades and was able to produce unchallengeable paperwork to vouch for every process and decision made over that time.
The court highlighted that pension schemes:
For these reasons, courts should not be "unduly technical or restrictive in considering the niceties" of the exercise by trustees of their powers of amendment. The 'presumption of regularity' was critical: the "wheels of business will not go smoothly round unless it may be assumed that that is in order which appears to be in order".
In this case, the challengers' attempt to make the trustees of the Scottish Solicitors Staff Pension Fund prove that they had followed a formal 'triple-lock' amendment procedure set out in the scheme's original trust documents was rejected. The challengers, who had argued that the amendments were invalid because it was not possible to prove that the formal amendment procedure had been followed, were liable to pay contributions in respect of a former employee, the court ruled.
The judgment is likely to be of practical importance in future disputes involving amendments to long-term commercial agreements because:
To quote Lord Drummond Young, "no pension fund could seriously carry on its administration under such a threat".
The practical difficulties of unwinding a long-running scheme – including the revenue consequences – would make it a near-impossible task. The Court of Session has set the bar high for any challenge seeking that outcome. Challengers will have to consider carefully if they can meet the evidential burden before embarking on such claims. If serious or material procedural irregularities are suspected, specialist advice should be sought immediately.
The ruling in this case is in line with the approach taken in previous cases in Scotland, although it is possible that courts in England and Wales will not follow this approach.
Craig Connal QC is a litigation and Ian Gordon is a finance expert at Pinsent Masons, the law firm behind Out-Law.com, and acted for the trustees of the Scottish Solicitors Staff Pension Fund in this case.