High Court clarifies cost effective procedure allowing pension trustees to correct mistakes

Out-Law News | 15 Jan 2016 | 4:31 pm | 2 min. read

The High Court has taken the unusual step of publishing a short judgment which sets out how pension scheme trustees can use an administrative procedure to correct errors in the scheme rules in a cost effective way.

Pension litigation expert Hayley Goldstone of Pinsent Masons, the law firm behind Out-Law.com, said that the case was "certainly not the first time" that section 48 of the 1985 Administration of Justice Act had been used in the context of a pension scheme. The provision enables trustees to apply to the High Court for an order authorising them to take certain steps with the backing of senior counsel, providing that there is no underlying dispute.

"Section 48 is a useful procedure to follow where a mistake has been made in scheme documents," she said. "It avoids the cost of a full trial and protects the trustees from any personal liability, but it does not prevent a scheme member from claiming that the scheme should be administered in a different way from the section 48 order."

"This is certainly not the first time this procedure has been used in the context of a pension scheme: Pinsent Masons has helped some pension clients obtain a section 48 order in the past. It is just unusual that a judgment should be published when this procedure has been followed - but the judgment is helpful in clarifying the procedure," she said.

In November 2015, the sole trustee of the BCA Pension Plan applied to the court for authority to re-insert some words into the plan's pension increase rule that had been inadvertently left out when the scheme rules were consolidated in 2011. The trustee had obtained an opinion on the correct interpretation of the rule from Paul Newman QC, described by the court as "leading pensions counsel".

High Court judge Mr Justice Snowden agreed with Newman that it was "self-evident that there [had] been a mistake" in the way in which the relevant rule had been transposed into the consolidated rules. The drafting error effectively gave scheme members the option to choose how increases to their pension contributions would be calculated, which the judge said could lead to "administrative chaos" if allowed to stand.

The judge agreed with the QC that "the nature of the mistake and the corrective construction necessary to cure it" was "obvious". Reference to the original rules showed "precisely what was omitted in error", he said.

In addition, the consequence of the change was "not to create a new contractual provision in rules that would work without it". Rather, its inclusion was "necessary to make the existing rules work", he said.

The section 48 procedure allows a trustee to make the change applied for, with protection against any complaints from members or beneficiaries that it has wrongly administered the plan if it does so. However, as the members or beneficiaries are not parties to the proceedings, they remain entitled to content that a different construction of the relevant rules should apply, the judge explained.

The trustee intends to notify scheme members of the change to the rules as part of its next round of member communications, it told the court. The judge said that this was a "sensible and proportionate" method of doing so, provided that the trustee used appropriate wording and offered to provide hard copies of the judgment, judge's order and evidence relied on by the judge to any members that asked to see them.