The Court of Appeal has overturned the High Court decision in Burgess v BIC, finding that increases to pensions in payment had not been validly introduced.
We commented on the High Court decision in our update last year.
Background
The inflation-linked annual increases had been introduced following a trustee meeting in 1991 and communicated to members in subsequent announcements. Increases were then applied from April 1992.
The scheme was in surplus, which the trustees were obliged to reduce. The minutes of the meeting, signed by only one of the trustees, recorded that the trustees resolved to use part of the surplus to increase pensions in payment to existing pensioners and improve future benefits. The ‘pre-1997 Increases’ would be made at the discretion of the Trustees. For pensionable service before 6 April 1997, there is no general statutory requirement to increase pensions in payment.
At first instance, Arnold J found that the original attempt to introduce the pre-1997 Increases was invalid for failure to comply with the necessary formalities in the ‘Fourth Edition’ version of the rules which governed the scheme at that time. However, he held that the increases had been validated by a new deed and rules (the ‘1993 Deed and Rules’) which superseded the Fourth Edition and were expressed to take effect retrospectively from 6 August 1990.
The amendment power in the 1993 Deed and Rules required the consent of the principal employer but allowed, in certain cases, amendments to be made by ‘resolution in writing’ of the trustees alone. Arnold J held that it was not ‘impermissibly rewriting history’ to rely on the powers in the 1993 Deed and Rules to give retrospective effect to the decision recorded in the 1991 trustee minutes.
Court of Appeal findings
The Court of Appeal judgment noted it was now common ground that the original attempt to introduce the pre-1997 increases was invalid. However, in ‘respectful disagreement with a very experienced judge’, Henderson LJ held that the approach adopted by the High Court, as described above, went a step too far.
While the saving provision in clause 1(a) of the 1993 Deed and Rules preserved previously valid transactions from being invalidated by the introduction of that deed, it did not (expressly or impliedly) validate previously invalid transactions that for whatever reasons had failed to achieve their objective.
Henderson LJ drew a distinction between having the power to do something and actually exercising the power. To validate past actions required some positive evidence that the trustees had considered the issue and decided to validate an otherwise invalid amendment. It also required evidence of some common intention with the employer to do so. The court would have expected to see such common intention reflected expressly in the documentation, such as in the recitals to the deed, if not a clause itself. As there was no such evidence, the 1993 Deed and Rules did not expressly authorise the Pre-1997 Increases, and it would be going further than the law allowed to suggest that the intention to do so was implied by the mere introduction of potentially validating powers with retrospective effect.
A ‘resolution in writing’
Henderson LJ also gave his provisional, non-binding view on what is meant by ‘a resolution (in writing)’ of the trustees. The 1991 minutes recorded proposals to increase pensions, followed by the statement ‘it was resolved that the proposed action be carried out as soon as possible’. Accordingly, the court’s view was that the minutes recorded a resolution on future policy but did not effect an immediate amendment to the rules of the scheme. Had this been intended, the court would have expected to find the text of amendments in a written document signed by all trustees, along with reference to the consent of the employer. Without this, the court’s provisional view was that the 1991 minutes were never intended to be a transactional document.
Recovery of overpayments
Henderson LJ did not consider on appeal the (obiter) statements made at first instance that no statutory limitation period applies to equitable recoupment by trustees. In the absence of any further judicial insight on this point, the obiter comments, whilst not legally binding, remain useful in giving an idea of how the court might approach the issue in the future. Therefore, it would be appropriate for trustees to note these comments when considering how to approach any overpayment cases.
Comment
The Court of Appeal in this case could find no ‘positive evidence’ of the common intention of the trustees and employer to validate the past invalid actions, nor any evidence of consideration of the issue or a decision to rectify the matter. Accordingly, there was no proper basis on which it could treat the trustees as having exercised, with retrospective effect, the potentially validating powers under the 1993 Deed and Rules.
This decision highlights the importance of evidencing intention in scheme amendments. This can be done by way of recitals and explanatory clauses, which can set out the facts and background to an amendment, as well as the reason for and intention behind any proposed change. Amendments to a scheme should be documented clearly and properly in accordance with its governing provisions. As well as paying attention to execution formalities, trustees and employers should consider carefully the form of wording where an amendment is made by written resolution, to ensure that the intended transaction takes effect.