Sovereign Trustees Ltd & Anor v Lewis [2016] EWHC 2593 (Ch)

Case No HC-2016-001313[2016] EWHC 2593 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Rolls Building, Fetter LaneDate 18/10/2016
London EC4Y 1NL
Before
CHIEF MASTER MARSH
Between
SOVEREIGN TRUSTEES LTDClaimants1LIFE MANAGEMENT SOLUTIONS LTDClaimantPATRICIA LEWISDefendant
Michael Furness QC (instructed by DLA Piper UK LLP) for ClaimantsDavid E. Grant (instructed by Squire Patton Boggs (UK) LLP) for DefendantHearing Hearing date: 19 July 2016
JudgmentChief Master Marsh :
[1]The Claimants apply by a Part 8 claim seeking orders for rectification of what was formerly known as the Leisure Connection Pension Scheme (“the Scheme”).[2]The First Claimant (“Sovereign”) is the current trustee of the Scheme. The Second Claimant is the principal employer (“Leisure Connection”). The Defendant (“Mrs Lewis”) is a pensioner member of the Scheme and represents all those members and beneficiaries of the relevant section of the Scheme. Sovereign represents all other members and beneficiaries of the Scheme.[3]On 19 July 2016 I heard an application made by the Claimants for summary judgment under CPR Part 24.2 against the Defendant on the basis that the Defendant has no real prospect of defending the claim and there is no other compelling reason for the case to be disposed of at a trial. Part 8 claims are markedly different to Part 7 claims. Although there is no bar to issuing a Part 24 application in a Part 8 claim, it will rarely be necessary for the claimant to do so where it is seeking judgment on the whole of the claim. In part this is because the second limb of CPR 24.2 will normally have no application because there will be no ‘trial’ as such. Part 8 claims are normally resolved at a ‘disposal hearing’. This is made clear by paragraph 8.1 of Practice Direction 8A which states:
“8.1 The court may on the hearing date— (i) proceed to hear the case and dispose of the claim; (ii) give case management directions.”
It follows that in most Part 8 claims, where the relief sought is unopposed, or cannot realistically be opposed, it will suffice for the claimant to ask the court to fix a disposal hearing at which the court may determine whether or not the relief sought by the claimant should be granted.[4]The Scheme was established on 5 August 1996. The original Trust Deed and Rules are dated 18 December 1998. The power of amendment in the 1998 Rules is contained in rule B13 which permits the Trustee and the Employer to amend, extend or replace all or any of the trusts, powers or provisions of the Trust Deed or the Rules.[5]The 1998 Rules contained provisions for the increase of a Scheme pension.

(d) provided that:

“Any pension… shall increase at the rate specified in the Schedule…”
[6]The relevant provision in the schedule is: “5% per annum compound, or the increase in the Index if less, on the pension element of the Formula Benefit which is in excess of GMPs. 3% per annum compound, or the increase in the Index if less, on GMPs. 5% per annum compound on the Qualifying Spouse’s death in service pensions.” (“GMP” means guaranteed minimum pension) The focus of this claim is on the final sentence which made provision for an enhanced rate of increase solely where the member of the Scheme died in the course of employment. (“GMP” means guaranteed minimum pension)[7]In 2011, the Trust Deed was amended by a Deed of Amendment dated 4 April 2011 (“the April Deed”). This, as a matter of drafting convenience, took the form of a complete revocation and re-making of the original Trust Deed and Rules, but it was only intended to make certain limited amendments. As a result of a drafting error in the April Deed, a change was introduced to the way in which spouses’ pensions (other than pensions payable to spouses whose husband or wife dies in service) were computed. The Claimants’ case is that this change was not intended either by Sovereign or Leisure Connection.[8]By a further amending deed dated 31 October 2011 (“the October Deed”), the April Deed in turn was revoked and re-made. Again, the intention was to make certain limited amendments which did not include a change to spouses’ pensions. The same wording dealing with spouses’ pensions which had been included in the April Deed was re-enacted as part of the October Deed.[9]In 2012 the error about spouses’ pensions came to light. Pending rectification, it was decided to make an amendment which would stop spouses’ pensions being earned on the erroneous basis for the future. This was done by a Deed of Amendment dated 21 January 2013 (“the January Deed”). Unfortunately, a form of words was used which suggested that the error was being confirmed for the past. The Claimants’ case is that this was not their intention.[10]Under the 1998 Trust Deed the general rule was that pensions increased at 5% or at the RPI rate, if less, save for pensions payable to spouses whose husband or wife died in service. In the latter case, the rate of increase was a straight 5%. Thus spouses where the member died in service obtained a more favourable rate of increase, in times of low inflation, than spouses where the member died after leaving service.[11]The April Deed dealt with pension increases in rule 11 of the Final Salary section. It simply provided that:
“Spouses pensions shall be increased by 5% per annum compound.”
Thus, it made no distinction between the spouse of a person who died in service and the spouse of a person who died in retirement. All spouses’ pensions were given the straight 5% increase.[12]The mistake was not spotted immediately. The October Deed was intended to make limited amendments which did not include the change to spouses’ pensions. The April Deed was revoked and re-made with the same wording on spouses’ pensions as in the April Deed without anyone noticing the error. Thus, the claim for rectification in respect of the April Deed and the October Deed gives rise to very similar considerations. The issues concerning the 2013 Deed are different in nature as by then the error had been noted.

The Law

[13]At the hearing on 19 July 2016, having received full and helpful submissions from Mr Furness QC and Mr Grant, I indicated that I was satisfied the Claimants had made out on the facts, and in accordance with the applicable principles of law, a basis for the court granting rectification and the court in the exercise of its discretion was willing to make such orders. The purpose of this judgment, therefore, is to provide reasons for that decision. In those circumstances, given that there is no controversy about the legal principles, it is appropriate to provide reasons briefly.[14]Mr Furness QC and Mr Grant have both referred me to the summary of the relevant principles provided by Warren J in IBM United Kingdom Pensions Trust Ltd v IBM United Kingdom Holdings Ltd [2012] PLR 469 at [15]-[24]. He refers to the four-fold test set out in Daventry DC v Daventry District Housing Ltd [2012] 1 WLR 1333 which can be summarised by the following questions: i) Did the employer and the trustee have a common continuing intention, whether or not amounting to an agreement, in respect of the proposed amendment? ii) Did any such common intention exist at the time the relevant deed was executed? iii) Can any such common intention be established objectively? iv) By mistake, did the relevant deed fail to reflect that common intention?[15]Particular points to emphasise are: i) In the case of deeds of amendment for pension schemes, it is not necessary that the outward expression of accord needs to involve the mutual communication of the shared intention between the parties – see AMP v Barker [2001] PLR 77 per Lawrence Collins J, cited with approval by Warren J in IBM [19]. ii) The evidence must comprise contemporaneous words or conduct from which a reasonable observer would infer the existence of the requisite intention. That evidence may be comprised in contemporaneous documents, or it may be in the form of a witness’ recollection of events. iii) Conduct after the date of the relevant document can constitute evidence of the intention of the person effecting it at the time of the transaction – per Warren J in Drake Insurance v MacDonald [2005] PLR 401 [33]-[36]. iv) Rectification will only be granted if there is convincing proof that, on the balance of probabilities, the employer and the trustees held the requisite common intention as to the meaning or effect of the document – Drake Insurance.

The Evidence

[16]I was provided with witness statements from six witnesses giving evidence on behalf of the Claimants. None of their evidence is challenged. It is necessary to review the circumstances in which the claim for rectification is made in relation to each of the three documents. I will summarise the evidence which is available in each case and subsequently discuss briefly its adequacy.

The April Deed

[17]In November 2009 Leisure Connection was appointed the preferred bidder in respect of a contract with Boston Borough Council for the operation of two leisure centres for a ten year period. As the provider of outsourced services to public sector clients, Leisure Connection had to put in place pension arrangements to address the likelihood that public sector employees would, upon outsourcing arrangements being entered into, transfer into its employment pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006. Leisure Connection dealt with this by putting in place a scheme broadly comparable to that enjoyed by public sector employees and obtaining a certificate from the Government Actuary’s Department (a “GAD certificate”) certifying this. However, the GAD certificate applicable to the Scheme lapsed in 2007.[18]Jonathan Stewart, who is a director of Sovereign, sets out in his witness statement the circumstances in which Sovereign was approached in November 2009 by Leisure Connection and the instruction of DLA Piper to undertake the necessary amendments to enable the scheme to become GAD certified. His instructions to DLA Piper in connection with the giving of an estimate and subsequent instruction to undertake work make it clear that the primary purpose of the amendment was to enable a GAD certificate to be obtained. He confirms that DLA Piper were not instructed to draft any amendments to the rule providing for an increase to spouses’ pensions. Such a change was not asked for by Leisure Connection, nor did Mr Stewart perceive that such a change was necessary.[19]A first draft of the amended Trust Deed and Rules was produced by DLA Piper with an explanatory note stating:
“The intention behind the Deed is to enable the Scheme to apply for a GAD Certificate and also to encapsulate the existing rules relating to both the Final Salary Scheme and the Staff Scheme.”
[20]Mr Stewart did not notice that the revised draft included the change concerning which rectification is now sought. The April Deed was executed by Mr Stewart and another director, Stuart Mansfield, in accordance with a resolution of the directors of Sovereign permitting execution to take place without formal trustee minutes recording the event. Mr Stewart says he explained the intended effect of the amendment to Mr Mansfield before they jointly executed the April Deed. Neither of them was aware of the change to spouses’ benefits and, therefore, the subject did not come up for discussion. Mr Stewart goes on to say in relation to the change to spouses’ benefits:
“This change was not intended by either myself or Sovereign, on whose behalf I was acting. Nor to my knowledge was it intended by Leisure Connection. In my view, the error crept in during the process of re-casting the Original Deed and was not picked up at a later stage probably because the emphasis was on other parts of the draft deed, in particular the new LGPS section which was required so that a GAD certificate could be obtained.”
[21]Vikki Massarano, who is a partner with DLA Piper, provides confirmation that the amendment in respect of spouses’ benefits was a drafting error which was not intended.[22]Evidence on behalf of Leisure Connection is provided by Richard Still, who was at the time the Chief Financial Officer of Leisure Connection and by Neil Lancaster, who was the company’s HR director. Mr Still was responsible for the overall financial management both of Leisure Connection and the wider group of which Leisure Connection forms part. He had little day-to-day involvement with the amendment to the pension Trust Deed. Pension issues were discussed at business review meetings and he was aware of Leisure Connection’s intention to update the Scheme’s documentation to enable it to obtain a GAD certificate. He is confident that neither Neil Lancaster, nor Andrew Marshall, who was the managing director, would have authorised or initiated a change to the rule regarding increases to spouses’ pension payments. He explains that during the material period, both Leisure Connection and its holding company were in severe financial difficulty and had there been an intention to enhance benefits, unrelated to obtaining GAD approval, it would have had to have been escalated further up the management line to the board and the investors of the holding company. Mr Still has no recollection of signing the April Deed but says he would not have signed it without first being informed what the document was and having had it explained to him. Mr Lancaster recalls explaining the purpose of the Deed to Mr Still. Neither he nor Mr Still were aware of there being any benefit increases arising from the amendments over and above those required for GAD purposes. Mr Lancaster says that had he known there were any unnecessary benefit enhancements arising from the amendments he would have insisted that they were removed prior to presenting the April Deed to Mr Still for signature or sought specific approval for them.

The October Deed

[23]The October deed was commissioned by Sovereign and Leisure Connection for a very specific and limited purpose. Leisure Connection wanted to have the Scheme ‘sectionalised’ so as to ensure that each participating employer was liable only for the funding deficit in its own section. Mr Stewart instructed DLA Piper on this basis. Nothing was said about changing benefits. The deed was intended to replicate existing benefit structures.[24]As a consequence, as Mr Stewart explains in his evidence, there was no need to review the existing benefit provisions because they were not being changed. Unsurprisingly, no-one, including Ms Massarano, or anyone from her team, picked up the continuing discrepancy between the original deed and the provisions of the April and October Deeds.[25]The October Deed was executed for Sovereign by Mr Stewart with another co-director, Ms Parkinson. Mr Stewart’s understanding of the October Deed was provided by him to Miss Parkinson. The deed was signed by Mr Still and Mr Millman for Leisure Connection.[26]There was another party to the October deed but it had no interest in the final salary section of the Scheme with which these proceedings were concerned.

The January Deed

[27]In about July 2012 the Scheme’s Actuary discovered the drafting errors in the April and October Deeds and in September 2012 both DLA Piper and Mr Still became aware of the position. It was acknowledged by DLA Piper that a drafting error had occurred. They obtained counsel’s advice to the effect that it was possible to execute a deed of amendment amending the relevant rule for future pensionable service but this could not be done in respect of past pensionable service. The January Deed was drafted on the basis that it was intended to place a cap on the unintended effect of the April and October Deeds so as to alter the position for the future, but to leave open the possibility of applying for rectification. DLA Piper were instructed on 5th December 2012 by Mr Stewart to prepare the deed on this basis. DLA Piper provided a draft deed of amendment on 21st December 2012 which included the following amendment: “1.1 PENSION INCREASES Any pensions in payment in excess of GMP (other than Spouses’ pensions) shall be increased each year on the anniversary on the first payment by 5% per annum compound or the percentage increase in the Index for that year if less. Spouses’ pensions following the death of an Active or Deferred Pensioner shall increase each year on the anniversary of the first payment as follows: Spouses’ pension attributable to the Members [sic] Pensionable Service prior to 1February 2013 shall be increased by 5% per annum compound. Spouses’ pension attributable to the Members Pensionable Service on and after 1 February 2013 shall be increased by 5% per annum compound or the percentage increase in the Index for that year if less. Spouses’ pension payable following the death of a Pensioner shall be increased on the anniversary of the first payment to the Pensioner as set out in the preceding two paragraphs for other spouses’ pensions”.[28]The draft deed was circulated to Mr Still by Mr Stewart. In his covering e-mail he explained that the deed had been prepared to correct what was described as the “anomalies” with effect from 1st February 2013. He went on to say:
“The deed has been prepared on an avoidance of doubt basis, in case the anomalies cannot be corrected. As I mention above, given that the insertion of higher spouse pension increases is clearly a drafting error, we are hopeful that steps can be taken to rectify the error.”
[29]In early January Mr Stewart had several conversations with DLA Piper which indicate clearly that the intention was to deal with the problem for future service but not to deal with the “retrospective issue”. This is confirmed by Ms Massarano.[30]The January Deed was executed by Mr Still and J S Nicholls on behalf of Leisure Connection and by Mr Stewart and Mrs J L Garner on behalf of Sovereign.[31]Unfortunately, the January Deed repeated the offending wording from the April and October Deeds. On this subject Mr Stewart says:
“It has been pointed out to me that the repetition in the January deed of the erroneous wording in the earlier deeds might appear to be confirming the correctness of that earlier wording. That was certainly not my intention, nor, I believe, the intention of Mrs Garner. My intention was that the possibility of rectification would be preserved. It was my understanding that the earlier word was repeated in the January deed simply because, pending rectification, it was the actual wording the Scheme documentation enforced at the time.”
[32]Mr Still confirms that his intention when the January Deed was executed by him and Mr Nicholls on behalf of Leisure Connection was to leave open the possibility of rectification.

Members of the final salary section of the Scheme

[33]Sovereign has provided notification of these proceedings, and the reasons why they have been brought, to all members of the final salary section of the Scheme. A small number of enquiries were received in response seeking clarification about the meaning of the announcement. Sovereign has responded to all such queries. No members have notified Sovereign or the actuary that they intend to object to the claim for rectification.[34]Mrs Lewis has been joined as a Defendant to this claim. She was an active member of the final salary section of the Scheme between April 2011 and January 2013 which is the period to which this claim relates. She has agreed to represent all members of the Scheme and she confirms she is content to be appointed as a representative defendant. She has received advice from Squire Patton Boggs (UK) LLP and David E. Grant of counsel. Although Mrs Lewis filed an acknowledgement of service giving notice of her intention to contest the claim, in the event, and in the light of negotiations which have taken place to amend the relief sought, the claim and the application are not opposed. I am satisfied that it is appropriate to make a representation order in respect of Mrs Lewis.[35]Although Mrs Lewis has not opposed the making of the rectification orders, the court has had the benefit of receiving a confidential opinion from Mr David E. Grant and of hearing submissions from him in the absence of the Claimants and Mr Furness QC. This procedure, which is similar to the procedure used in compromise and Beddoe proceedings, is noted at paragraph at 29.96 of the Chancery Guide 2016. There is judicial approval for the approach in the two cases noted in that paragraph. However, the practice has come in for comment recently. In Girls’ Day School Trust v GDST Pension Trustees Ltd [2016] EWHC 1254 (Ch), Norris J disposed of an application for rectification without a hearing. He endorsed the approach adopted in this case but made observations concerning publication of the evidence where rectification is granted on a summary judgment application without a hearing. At paragraph [50] he laid down a marker that in future where an application for summary judgment is dealt with without a hearing, it is likely the court will insist that after judgment all the evidence is open to inspection including evidence marked confidential.[36]In SAGA Group Ltd and another v Paul [2016] EWHC 2344 (Ch) His Honour Judge Hodge QC (sitting as a Judge of the High Court) observed that legal advice given to a representative member of the pension scheme should be freely available notwithstanding the established practice identified in paragraph 29.96 of the Chancery Guide 2016 – paragraphs [13] to [24].[37]The hearing in this case took place prior to the decision in Saga Group v Paul. It is unnecessary for me to say more than that the established practice, which is referred to the Chancery Guide 2016 to my mind, operated well and I found it helpful. The decision to retain confidentiality in Mr Grant’s opinion, made on 19th July 2016, stands. Although the application was uncontested, the Court’s ability to consider with counsel acting for a party who does not oppose the relief sought by the claimants, a confidential opinion exploring the margins of the application, added a degree of stringency to the process which is particularly important in rectification claims. It was possible to explore the strength and weaknesses of the Claimants’ application with a degree of candour which might not be possible if the opinion becomes public.[38]In case it is thought to be a relevant factor in any future case, there is no difficulty with the confidentiality of a particular document being preserved on the court’s electronic file (CE-File). A document, such as a confidential opinion, can remain on the file but not be detectable save by authorised persons.

Analysis

[39]I consider that there is ample objective evidence to support the Claimants’ case for rectification of the April Deed. The initial instructions by Mr Stewart to DLA Piper indicate the limited purpose behind the amendment, namely to enable an up to date GAD certificate to be obtained and the financial circumstances of Leisure Connection strongly point against an increase in benefits having been intended. As Mr Still identifies, any benefit enhancement would have had to have been referred to the board and the investors in Leisure Connection’s holding company. Further indicators supporting the claim for rectification include: i) There was no reason for an increase in benefits in April 2011. ii) There was no reference to such an increase either in the instructions to DLA Piper or in their summary of the proposed changes. Indeed, the evidence points firmly towards the preservation of the status quo. iii) There was no announcement to members of the change. Had there been an increase in benefits it is inherently likely that it would have been drawn to the attention of the relevant members. Instead, the announcement to members dated 19th October 2005 referred to a minor adjustment to the scheme.[40]I consider that there is adequate evidence both as to Sovereign’s and Leisure Connection’s intention at the material time.[41]The position concerning the October Deed is essentially the same because the change effected by the April Deed was carried over without any consideration.[42]The position concerning the January Deed is different because the wording in question was positively intended and in the knowledge that the change affected by the April and October Deeds had not been intended. Although the drafting of the January Deed may, with the benefit of hindsight, be seen as inappropriate, there is sufficient objective evidence to support rectification on the basis that the intention of both Sovereign and Leisure Connection was only to change the position as to the future and not retrospectively. The underlying purpose behind the 2013 Deed was to preserve the possibility of rectification, having resolved the position for the future, not to, in its own right, effect a change similar to the April and October Deeds. This analysis is supported by the evidence from Ms Massarano, Mr Stewart and Mr Still. Objective evidence showing their intention can be derived from the correspondence.

Conclusion

[43]At the hearing I was satisfied that orders for rectification should be made and an order was sealed by the Court on 22nd July 2016. The order records that the confidential opinion of Mr Grant was considered with him in private but otherwise the hearing took place in public. I need only, in addition, record that the order was amended under the slip rule on 13th September 2016 to correct minor errors in it.