Hogan Lovells

Key Dates

Mitchells & Butlers Pensions Limited v Mitchells & Butlers plc [2021] EWHC 3017 (Ch).

Judgment given on 12 November 2021.


Summary

The High Court has given judgment in a case concerning the rectification of a pension increase rule. 

Pension increase rule

The pension increase rule in the 1988 Trust Deed and Rules provided for pensions in payment to increase by the lower of 4% and the “Official Index of Retail Prices”.  The “Official Index of Retail Prices” was defined as the index of retail prices published by the Department of Employment or “any other index selected by the Trustees”.  The 4% limit was increased to 5% in 1991 as part of an arrangement for use of surplus. 

The 1988 Deed and Rules were superseded by the 1996 Deed and Rules (and subsequently by further trust deeds and rules in 2002 and 2006). The 1996 Rules (and the 2002 Rules and the 2006 Rules) provided for pensions in payment to increase in line with RPI to a maximum of 5% “or any other rate decided by the Principal Employer”. 

The current principal employer (“M&B”) accepted that there had been mistakes in the drafting of the 1996 Deed and Rules (and in the subsequent 2002 Deed and Rules) and that the mistake was rectifiable against the principal employer at the time of those deeds.  However, M&B had become principal employer in 2003 and it argued that, in assuming this role in 2003, it was a bona fide purchaser for value without notice and so took free from the trustee’s equitable claim for rectification. 

Was the new principal employer a bona fide purchaser for value?

The Court held that M&B could not rely on the bona fide purchaser doctrine.  The starting point was the power under the trust deed to replace the principal employer.  This power was concerned with substitution and succession of the principal employer and its proper purpose was to preserve the scheme for the benefit of the members, not to agree the sale of property for consideration under which the trustee could potentially release members’ rights.       

Amendment power: consultation with actuary

The 1988 Deed and Rules gave the trustees power to amend the scheme with the principal employer’s consent, subject to:

The Court held that it was for the trustee as the consulting party to identify the matters on which consultation was required and to give sufficient information to the person consulted to enable it to give helpful advice.  The actuary had been sent the proposed 1996 Deed and Rules, with some accompanying material which identified certain other amendments but not the alteration to the pension increase rule.   The Court concluded that there had not been consultation on the alteration to the pension increase rule in the 1996 Deed and it followed that the amendment was invalid.  Using similar reasoning, subsequent amendment of the pension increase rule by the 2002 or 2006 Deeds was also invalid for failure to satisfy the consultation requirement. 

Did section 67 impact any of the amendments?

Section 67 Pensions Act 1995 was not yet in force at the time of the 1996 Deed but had come into force by the time of the 2002 Deed.  The Court considered the impact of section 67 on amendments made by the 2002 Deed, on the assumption that the pension increase amendments first had effect in the 2002 Deed.

M&B argued that the actuary had been asked to give a section 67 certificate with regard to the statutory criteria and had done so.  The trustee countered that the certificate had not been directed at the relevant modification and so section 67 had not been complied with.  The Court agreed with the trustee and held that the pension increase changes as reflected in the 2002 Deed were therefore invalid and of no effect.

By the time of the 2006 Deed, section 67 had been amended so that (among other changes), an amendment which did not satisfy the statutory requirements was not void but was voidable at the instance of the Pensions Regulator.  The Court refused to make a declaration on the potential voidability of amendments under the 2006 Deed.  In light of the Court’s other conclusions it was unclear why such a declaration was necessary and, if needed, the trustee could rely on the Court’s findings. 



Date Accessed: 28/05/2022