Court of Appeal upholds Honda's liability for workplace pensions caused by faulty legal documents

Out-Law News | 23 Apr 2014 | 11:24 am | 2 min. read

A recent Court of Appeal decision committing car company Honda to between £47 million and £70m in additional pension scheme benefits due to a mistake in one of the documents is "another lesson in the importance of getting pension scheme documents right", an expert has said.

Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Court of Appeal upheld an earlier High Court decision in favour of employees in its car manufacturing workforce. The mistake occurred when it extended its existing defined benefit (DB) scheme for sales and marketing staff, employed by Honda Motor Europe Ltd (HME), to the manufacturing staff employed by new subsidiary Honda of the UK Manufacturing Ltd (HUM).

"The judge has confirmed the courts' reluctance to reinterpret documents in a way that suits the parties unless something has clearly gone wrong with the wording," said Tyler, a pensions expert.

Honda provided defined benefits to its UK employees through the Honda Group UK Pension Scheme. In 1986, it decided to provide DB pensions to employees in its new car plant in Swindon through the same scheme. It did so through a 'deed of adherence' admitting HUM employees into the scheme with effect from 1 August 1986. Although it was the company's intention, as set out in member communications, that the HUM employees be entitled to less generous benefits than the HME employees, the deed merely stated that it "[extended] the benefits of the scheme" to HUM employees.

Details of the specific benefits provided to HUM employees were not formally added to the scheme's governing documents until 1998, at which point it became common ground that the HUM employees became entitled to the less favourable rate of benefits. The question for the High Court judge was whether they were entitled to the more generous benefits under the original scheme before this date.

In his Court of Appeal judgment, Lord Justice Lewison said that the answer depended on what the phrase "extends the benefits of the scheme" would have meant to a reasonable reader. He said that the question was not "what the parties meant to say; but what is the meaning of what they did say". In this case, the reasonable reader would look to the definitive deed governing the existing scheme to find out what the provisions of the scheme being extended to the new members was, he said.

"I cannot see anything in the Deed of Adherence which would, on the one hand, incorporate the definition of eligibility contained in the rules but, on the other hand, exclude the scale benefits contained in those rules," he said. "Simply as a matter of what the deed actually says, I cannot draw from it the conclusion that it varied the scheme (as defined) except by extending it to a new participating employer and a new category of potential members."

"I cannot see what is impractical, over-restrictive or technical about this interpretation. Any problem would have been instantly cured if the 1981 Trust Deed and Rules had been amended by the exercise of the power of amendment contained in [the rules]. This is the consequence of the parties' omission to follow through the whole of what they intended to do," he said.

The court indicated that Honda could still pursue alternative arguments, such as an application for rectification.  "If a document makes sense, but doesn't achieve what the parties intended, the parties can bring a claim for rectification", said Tyler.  "The problem with rectification is that it requires substantial witness evidence, which can add considerably to the costs. It is not therefore surprising that the parties chose to try other arguments first in this case."