Sir Andrew Park
Abbreviations, glossary, dramatis personae, etc
- These are as follows.
| Allen, Ms |
Gill Allen; personnel manager of PFPL at the time when the PFP scheme was established; also a trustee of the scheme at the earlier times relevant to this case. |
| Aon |
Aon Consulting Ltd, the name by which the company formerly known as Godwins (see below) is now known. |
| Barber |
The case of Barber v Guardian Royal Exchange Assurance Group decided by the ECJ on 17 May 1990; reported at (among other places) [1991] 1 QB 344. |
| Barber window |
See the explanation in paragraph 21 of this judgment. |
| Darbon, Mr |
Bernard Darbon; one of the original trustees of the PFPL pension scheme; a witness. |
| Definitive Deed |
The deed dated 1 June 1992 which superseded the Interim Deed (see below) and brought into effect the attached Rules of the PFP scheme. |
| ECJ, the |
The Court of Justice of the European Community |
| Evans, Mr |
Mr J T Evans, employed in the consultancy division of Godwins (later Aon); a witness. |
| Godwins |
Godwins Ltd, a company carrying on business as, among other things, pension consultants; later renamed Aon Consulting Ltd. |
| Hamilton, Mr |
David Hamilton; the representative defendant; a deferred member of the PFP scheme; a witness. |
| Hastings-Bass |
Sometimes a reference to the case of re Hastings-Bass decd [1975] Ch 25; sometimes a reference to the rule (or the principle) in Hastings-Bass, the scope and application of which is a major issue in this case. |
| Holmes, Mr |
Michael John Holmes, managing director of PFPL in the first part of the 1990s; a trustee of the PFP scheme; a witness. |
| Interim Deed, the |
A deed dated 30 March 1990 which established the PFP scheme and provided for it to be regulated on an interim basis until it was superseded by the Definitive Deed. |
| Kelly, Glenys |
Former secretary of Mr Holmes; a trustee of the PFP scheme at relevant times; has made a witness statement to the effect that she remembers little or nothing about the subject matter of this case. |
| Kidde |
Walter Kidde plc; a company which sold part of its business to PFPL in November 1989. |
| KPMG |
Successor to Godwins as administrator of the PFP scheme. |
| Main, Mr |
Actuary to the PFP scheme in the early 1990s; a witness. |
| Newman, Mr |
Paul Newman; counsel for the claimants. |
| Perrett, Mr |
Finance director of PFPL and a trustee of the PFP scheme at relevant times; a witness. |
| PFPL |
The seventh claimant; a company originally called Preussag Fire Protection Ltd; purchased part of the business of Kidde in November 1989; 'the Principal Employer' under the PFP scheme; now called Siemens Building Technologies FE Ltd. |
| PFP scheme, the |
The pension scheme some aspects of which are the subject matter of this case; stated in the Definitive Deed to be known as the Preussag Fire Protection Pension Scheme. |
| Rule 3.5.2.1 |
Rule or sub-rule contained in the Rules of the PFP scheme; at the centre of the issues raised by the claim. |
| Shurville, Mr |
Stephen Shurville; at relevant times Assistant Director in the legal and documentation division of Godwins; the principal draftsman of the Definitive Deed and Rules of the PFP scheme; a witness. |
| Sieff v Fox |
Case decided by Lloyd LJ (having been heard by him before he became elevated to the Court of Appeal); neutral citation [2005] EWHC 1312 (Ch); reported at (among other places) [2005] 1 WLR 3811. Lloyd LJ's judgment contains a detailed analysis of the rule (or principle) in Hastings-Bass. |
| Stallworthy, Mr |
Nicolas Stallworthy, counsel for Mr Hamilton, the representative defendant. |
| Whiting, Mr |
David Whiting; one of the original trustees of the PFPL pension scheme; a witness. |
Introduction and Overview
- This is a case about a company pension scheme. The scheme is now known as the Siemens Fire Safety and Security (PFP) Pension Scheme, but at the times which were mainly relevant to the case it was known as the Preussag Fire Protection Pension Scheme. In general in this judgment I shall simply refer to it as the scheme, but occasionally, if it might not be clear whether I am referring to this particular scheme or not, I shall use the expression 'the PFP scheme'. The first to fifth claimants are the current trustees of the scheme.
- Typically a pension scheme is established by an employer company, and there are one or more participating employers during its existence. This scheme was established by a company which at the time was called Preussag Fire Protection Ltd and (having been acquired by the Siemens group in 2001) now is called Siemens Building Technologies FE Ltd. Since most of the events relevant to this case occurred before 2001 I will refer to it in this judgment as PFPL. That company is the seventh claimant, and it is still a participating employer under the scheme. I think I am right that originally it was the only participating employer. There are now two more, and they are the sixth and eighth claimants.
- Another typical, though not inevitable, feature of a company pension scheme is that it has trustees. In broad terms the responsibility of the trustees is to administer the scheme and, in the course of doing so, to ensure that the pension benefits for which the scheme provides are duly paid. The first to fifth claimants are the present trustees of the scheme.
- The case involves a claim and a counterclaim. The claim is brought by the participating companies and the trustees of the scheme. The defendant, Mr David Hamilton, is sued as a representative deferred member of the scheme. (The expression 'deferred member' will be familiar to many I suspect most readers of this judgment. For readers to whom it is not familiar I give a brief explanation later: see paragraph 13(iii) below.) At the heart of the claim is an assertion by the claimants that something went wrong in the drafting of the scheme, and that one of the provisions in the Rules governing the scheme confers an unintentionally over-generous benefit on a particular kind of deferred member. The claimants say that the provision was a mistake, and they wish to have it removed.
- Initially the claimants relied exclusively on the principle, developed in a series of relatively recent cases, which has come to be known as the principle (or the rule) in Hastings-Bass. (The name is derived from the case of re Hastings-Bass decd, [1975] Ch 25.) For the reasons which I will explain in this judgment I consider that that argument on the part of the claimants cannot succeed. In the course of the trial Mr Newman, counsel for the claimants, indicated that, while the foremost basis of his submissions remains the Hastings-Bass principle, he wished additionally or alternatively to seek relief in equity from the consequences of a mistake. In this respect he prays in aid a principle which has been applied in several cases, a well-known one being Gibbon v Mitchell [1990] 1 WLR 1304, a decision of Millett J. I gave permission for the particulars of claim to be amended, but I am unable to accept this argument either. For the reasons which I will explain as this judgment progresses, I conclude that the claim advanced by the participating companies and the trustees fails.
- The counterclaim was introduced not long before the case was due to come to trial. It raises issues which in some respects are more far-reaching than the comparatively narrow (but difficult and, for PFPL, potentially costly) issue raised by the claim. The claim is a challenge to a single provision of the Rules which govern the scheme. The counterclaim is a challenge to far more than that.
- There are two elements of the counterclaim. One is a challenge to the adoption by the Rules of a normal retirement age of 65 for the purpose of determining the rate at which prospective pension benefits accrue. On behalf of the representative defendant it is argued that the use by the Rules of that age should be set aside by virtue of the rule in Hastings-Bass. The argument, if correct, would have a radical impact on the benefits provided by the scheme and on the cost to PFPL and the other participating employers of putting the trustees in funds to provide them. The second element in the counterclaim goes yet further, and asserts that the Rules adopted for the scheme by a Definitive Deed made by PFPL and the trustees in 1992 are void in their entirety. The effect if the argument was correct would be that the scheme would continue to be governed in part by an Interim Deed (of which more later) which the Definitive Deed and Rules of 1992 were intended to supersede, and in part by a decision of the ECJ given in 1990.
- For the reasons which I will explain as this judgment progresses I do not accept either element of the counterclaim, which therefore fails.
- In the regrettably long judgment which follows I first make some general points and then I give an account of the relevant facts. I shall then consider the arguments which arise from the claim and explain my reasons for not accepting it. Finally I shall deal with the counterclaim and explain my reasons for not accepting that either.
- I record that Mr Paul Newman appeared for the claimants, and that Mr Nicolas Stallworthy appeared for the representative defendant. They are both formidable experts in all aspects of the law relating to pension schemes, and I am grateful for their help and guidance in this difficult and demanding case. A feature of the case has been that each counsel was pressing upon me his own Hastings-Bass argument. I do not know whether that inhibited either of them from opposing some of the arguments being advanced by his opponent. I did feel from time to time that I was ploughing a lone furrow in querying some aspects of the submissions that the Hastings-Bass principle was applicable to particular events that had occurred.
Pension schemes: some general points
- Before I come to the specific issues presented by the case it may be helpful to sketch in some background features which commonly arise in pension schemes. There are three features which I wish to identify.
Kinds of members of pension schemes.
- Actual or prospective pensioners are commonly described as members of their schemes. There are three main kinds of members, usually referred to as pensioner members, active members (or simply 'actives'), and deferred members (or simply 'deferreds').
i) Pensioner members are pensioners who have retired and whose pensions are already in payment. This case is not primarily concerned with the treatment of pensioner members under the PFP scheme, though it could affect the rate at which some parts of their pensions are taken to have accrued.
ii) Active members are current employees of a participating employer who have not yet retired and whose pensions are not yet in payment. This case is not concerned with the treatment of them under this scheme (or at least it is not directly so concerned).
iii) Deferred members are former active members of a scheme who have ceased to be employees of a participating employer, who remain entitled under the rules of the scheme to receive pensions in future, but who have not commenced to receive them yet. A conventional example is someone who was employed by a participating employer under a scheme and was an active member of that scheme, but who has left the employment and taken a job elsewhere before he or she has reached the qualifying retirement age specified in the scheme. In such a case statute law generally requires that he or she should have 'preserved rights'. One thing that he or she can do is to stay in the scheme, but as a deferred member. In that case he or she remains prospectively entitled to a future pension under the scheme of the former employer. Typically the pension will become payable when the deferred member reaches the qualifying retirement age under the scheme. The part of this case which deals with the claim is concerned with one aspect of the pensions payable to deferred pensioners under the PFP scheme.
The age or ages at which a pension can come into payment; actuarial reductions of pensions taken early
- The second feature of pension schemes which I wish to highlight concerns the age at which a pension can commence, and the possibility of the amount of it being reduced if the pensioner commences to receive it sooner rather than later. It is usual, and happened in the case of the PFP scheme, for a scheme to provide for what is often called a normal retirement date or a normal retirement age. If an active member retires on or after his or her normal retirement date or age, he or she will typically become entitled to receive the full pension which has accrued to him or her over the length of time that he or she has been a member of the scheme.
- Further, a scheme will in all probability provide for what happens if a member retires before the normal retirement date or normal retirement age specified in the scheme. Provisions about an active member becoming a deferred member are one aspect of this. However, for present purposes I need to highlight provisions which provide that a member can retire before the normal date or age under the rules of the scheme and still be entitled to an immediate pension rather than a preserved pension. A common example is a scheme which provides for a normal retirement date of the member's 65th birthday, but which contains an additional provision that, if the member chooses to retire at or after the age of 60, he or she can commence to draw a pension immediately. Sometimes the rules will provide that a member may only receive an immediate pension in such circumstances if the employer consents. Alternatively or additionally the rules may provide that, although the pension will or may commence to be payable immediately on retirement before the normal date, the amount of the pension will be actuarially reduced to reflect the fact that it is commencing to be paid sooner rather than later.
- For example, the rules of two schemes may each provide for a normal retirement date of a member's 65th birthday, and also may each provide that a member may, if he or she chooses, retire at or after the age of 60 and draw an immediate pension. But the rules of one of the two schemes may provide that a member who retires early in such a case will have his or her pension actuarially reduced, whereas the rules of the other scheme may provide that the member will receive his or her full pension without actuarial reduction. As I will explain, that distinction (between a rule that does and a rule that does not provide for actuarial reduction of a pension commencing before normal retirement date) is at the heart of the claim in this case. A rule which does not provide for actuarial reduction is significantly more beneficial to pensioners and significantly more expensive for participating employers.
Male and female members of schemes; the Barber case; 'equalisation'
- The third feature of pension schemes which I wish to identify here concerns differences or similarities between the entitlements of male and female employees. Before the decision of the ECJ in Barber (see the Glossary in paragraph 1 above) many schemes had different normal retirement ages for males and females: often 65 for males but 60 for females. All of that was fundamentally affected by the ECJ decision, which was released on 17 May 1990.
- The Barber case concerned a pension scheme which had an age 65 normal retirement date for males and an age 60 normal retirement date for females. The effect was that males had a less favourable pension accrual than females. The ECJ held that that was a form of discrimination contrary to an article of the EC treaty. From the date of the decision pension accrual had to take place at the same rate for males and females. That applied both to new schemes and to existing schemes, but in the case of existing schemes it applied only to accrual of future pension benefits from 17 May 1990. (This last point that the decision did not have a retrospective effect on accrual which had already taken place under existing schemes was not entirely clear from the Barber case itself, but was confirmed by another ECJ decision a few years later: Coloroll Pension Trustees Ltd v Russell [1995] ICR 179.)
- If an existing scheme had differential normal retirement dates (as many schemes did, including the scheme involved in the Barber case itself) the effect for the future was that Community law overrode the terms of the scheme, and pension accrual for all active and deferred members had to take place at the more favourable of the two rates unless and until the scheme was amended to have the same normal retirement date for both sexes.
- Most schemes were amended in the years after the Barber decision, a process which is generally referred to as equalisation. If an existing scheme had normal retirement ages of 60 for females and 65 for males the ECJ judgment meant that, until equalisation took place, male members (except pensioner members whose pensions were already in payment) benefited because their rates of pension accrual, instead of being calculated by reference to a normal retirement age of 65 (which was what the scheme rules said), were calculated by reference to a normal retirement age of 60.
- What happened after equalisation depended on what form equalisation took. If males and females were equalised through both having, under the amended rules of the scheme, normal retirement ages of 65, male members' pension accrual rates for the future were calculated by reference to that age. So for periods after equalisation the position for them was probably restored to what it had been before the Barber decision. But they did not lose the advantage of the more favourable accrual that had taken place in the period from 17 May 1990 until equalisation. That period is commonly referred to by specialists as the Barber window. The position of female members would be less favourable if there was equalisation at 65. Under the pre-Barber and pre-equalisation rules their pension accrual rates probably provided full pensions at age 60, but equalisation at 65 meant that, from the time of equalisation on, they would have an accrual which was less favourable because it was by reference to a period which was five years longer.
- There is one other point which, for completeness, I mention in connection with equalisation. Although I shall be concentrating in this judgment on equalisation either at 60 or at 65, it was possible for males and females to be equalised in other ways, for example by the choice of an intermediate date falling anywhere between 60 and 65.
The problem presented by the Rules of the PFP scheme
- In this part of my judgment I will describe the specific problem which has been identified in the Rules of the PFP scheme, and which the participating companies and the trustees wish to have removed. In the next part of the judgment I will seek to put the problem in its context by outlining the relevant facts in this case. I believe that the significance of the facts will emerge more clearly if I have already explained what it is about the Rules which the claimants say is a mistake and which they want, either under the Hastings-Bass principle or by way of relief in equity for mistake, to have corrected.
- The PFP scheme was established on 1 April 1990 by a deed described as an Interim Deed. However, the full rules of the scheme were introduced by a Definitive Deed dated 1 June 1992 and expressed to have retrospective effect. The parties to the Definitive Deed are PFPL, described as the Principal Employer and (I imagine but am not sure) the only employer at the time, and the trustees of the scheme. The only operative provision of the deed itself is the following:
"DECLARATION
The Principal Employer and the Trustees declare that this deed is intended to be the Definitive Deed and the attached rules are intended to be the Rules referred to in clause 5 of the Interim Deed and shall take effect from 1 April 1990 in place of the provisions of the Interim Deed and its Schedules."
Detailed rules follow. There are 32 of them and they occupy 72 double-spaced pages. Most of them are not affected by the issues in this case.
- I will now set out the provisions which are relevant to this case, occasionally commenting on them in the course of doing so. It may be helpful for me to say now that ultimately the issue with which I am concerned on the claim arises under rule 3.5.2.1, and concerns whether pensions payable to deferred members on retirement after attaining 60 but before age 65 are subject to actuarial reduction. However, rule 3.5.2.1 needs to be placed in its context, so I will set out certain of the other rules and make some observations about them before coming to rule 3.5.2.1 itself.
i) Definitions are in rule 32. I need only quote one of them:
" 'Normal Retirement Date' is a Member's
(i) 65th birthday, if a male, or if a female whose Pensionable Service ends after 31 March 1992, or
(ii) 60th birthday, if a female whose Pensionable Service ends before 1 April 1992."
It is convenient for me to observe here that the decision had been taken to equalise the treatment of male and female members by adopting a common normal retirement age for both of 65, and that that revised treatment would commence on 1 April 1992. Although the Definitive Deed and its rules were not executed until 1 June 1992, the decision to equalise by reference to a common age of 65 for both sexes had been taken before 1 April 1992 and had been notified to members of the scheme. The essence of the definition is that the normal retirement date for all members, male and female alike, is the 65th birthday. The complications in the drafting arise only because the rules took retrospective effect back to 1 April 1990, and there had to be a special saving for females who had retired between that date and 1 April 1992.
ii) Rule 3.1 contains the basic rule for a member who retires at normal retirement date.
"3.1 If a Member's Pensionable Service and Service end at Normal Retirement Date he will be entitled to a pension payable for his life equal to [a formula set out in the rule]."
iii) Rule 3.2 is headed 'Early Retirement'. It contains several provisions about circumstances in which a pension may become payable on retirement before the member's normal retirement date. The following quotation is only a small part of the rule, but it is sufficient for the purposes of this judgment.
"3.2 A Member may receive an immediate pension
if he retires from Pensionable Service and Service before Normal Retirement Date
3.2.1 for any reason after attaining age 60.
The pension shall be calculated as described in rule 3.6 (preserved pension) and reduced Actuarially to take account of early payment."
The critical point for this case is that, if an active member retired before age 65 but at or after age 60 he could draw an immediate pension without needing the employer's consent, but his pension would be subject to actuarial adjustment. I mention for completeness that a later sub-rule of rule 3.2 disapplies the actuarial reduction of a rule 3.2 pension in two cases. One is for males retiring after reaching age 60, but only in respect of any pension that accrued to them in the 'Barber window' (which meant in their case the period from 17 May 1990 to 31 March 1992). The other is for females retiring between ages 60 and 65, but only in respect of any pension that accrued to them up to 31 March 1992. These detailed points do not impact on the issues which I have to decide.
iv) Rule 3.5.1 is headed 'Entitlement to preserved pension'. It does not use the term 'deferred member', but it is directed at the treatment of deferred members within the meaning that I have described in paragraph 13(iii) above. Its effect, standing alone, is that deferred members who complete at least two years qualifying service with PFPL (or with PFPL and Kidde in the case of Kidde employees who transferred from the Kidde pension scheme to the PFP scheme see paragraph 34 below) will be entitled to receive their preserved pensions under the PFP scheme from the age of 65. (In relation to Kidde, see the Abbreviations, etc. in paragraph 1 above). Rule 3.5.1 is as follows:
"3.5.1 A Member whose Pensionable Service ends before Normal Retirement Date will be entitled to a preserved pension calculated under rule 3.6 and payable from Normal Retirement Date if
he has completed at least 2 years' Qualifying Service
."
v) However, the rules go on to provide for the possibility of early or late payment of a preserved pension. Rule 3.5.2 is headed 'Early and late payment of preserved pension'. That means earlier or later than the time provided for in rule 3.5.1. As I have just described, the time so provided for is the deferred member's 65th birthday. Rule 3.5.2 begins with 'If', but the condition which follows will be satisfied in all realistic circumstances, and I can ignore it for the purposes of this case. Rule 3.5.2.1 contains provisions describing circumstances in which a preserved pension may become payable to a member earlier than his or her 65th birthday, and rule 3.5.2.2 contains provisions describing circumstances in which a preserved pension may become payable to a member later than his or her 65th birthday. It is rule 3.5.2.1 which has given rise to the issue in this case. The issue arises in the case of deferred members who are between the ages of 60 and 65. I now reproduce rule 3.5.2.1.
"3.5.2.1 a Member who is no longer an Employee may receive his preserved pension after reaching age 60, or, with his Employer's and the Trustees' agreement, between the ages of 50 and 60 or at any time if he is in ill-health (see rule 3.2.2) but, if the pension is received before reaching age 60, it shall be reduced actuarially under rule 3.2 to take account of early payment.
"
- The rule clearly and unmistakably provides: (a) that a deferred member who has attained the age of 60 can take an immediate pension; (b) that he or she does not need any consent to do that (in contrast to the limited cases where the rule provides for a pension to be paid to a deferred member who is less than 60 years old); and (c), crucially for this case, that the pension is not subject to actuarial reduction. If rule 3.5.2.1 stands and takes effect according to its terms it has significantly advantageous consequences for deferred members once they have attained the age of 60, and correspondingly has significantly disadvantageous consequences for the employing company: the company is obliged to fund the scheme so that it (the scheme) can meet its liabilities to pensioners. It is accepted by Mr Newman that the word 'may' in the first line of the rule gives a discretion to the member to require early payment of his or her pension, but does not give a discretion to the trustees or to the employer to refuse early payment of the pension to a member who is 60 or older and who does require payment of it.
- There is, as it seems to me, a difference between the qualitative character of the feature of the scheme which I have described and its quantitative impact. Admittedly the feature that a deferred member, like an active member, can commence to draw his pension at 60 without needing the employer's consent but, unlike an active member, does not have the pension actuarially reduced is anomalous and out of line. But qualitatively I cannot see it as going to the heart of the benefit structure created by the scheme. It gives the impression of being a detailed matter where the rule is not quite right and needs changing. It does not give the impression of being fundamental.
- Quantitatively, however, this apparently minor anomaly in the drafting of the rules was and is capable of having a major impact on the cost of the scheme to the employing company. The cost would be comparatively modest if the operation of rule 3.5.2.1 was confined to what might be described as conventional deferred members: members who left the service of PFPL some time ago to work for another employer and who later reached the age of sixty. It is unlikely that there would be enough such members for the cost of their deferred pensions commencing on an unreduced basis at age 60 rather than 65 to be substantial. However, the major problem is that the rules are so formulated that a similar effect can be achieved by active members as well, as long as they are prepared to retire at 60 rather than at 65.
- Assume a PFPL employee who is an active member of the scheme, who has just become 60, and who is considering retiring and drawing his pension. The rule which is intended to cater for him is rule 3.2 (see paragraph 25(iii) above). If he proceeds under that rule he is entitled to an immediate pension, but it will be reduced actuarially to take account of it coming into payment five years early. However, it is possible for him to do the following. He retires from employment with PFPL, and notifies the company and the scheme trustees that he does not wish to receive an immediate pension under rule 3.2. He can do that because of the word 'may' at the beginning of the rule. (See paragraph 26 above.) Quite soon afterwards he notifies the company and the trustees that he requires to be paid an immediate pension, not under rule 3.2, but under rule 3.5.2.1. A glance at the wording of rule 3.5.2.1 will show that he can do that (1) because he is no longer an Employee; (2) because he has reached age 60; and (3) because of the word 'may', which appears in rule 3.5.2.1 as well as in rule 3.2. As explained in paragraph 26 above Mr Newman accepts that a member of the scheme who calls for his pension is entitled to receive it, and 'may' does not mean that the trustees or the company have any discretion to refuse to pay it. And the critical point is that, in the case of a member who is already aged 60 when he calls for payment of his rule 3.5.2.1 pension (in contrast to the case of members below that age), there is no provision for the pension to be reduced actuarially by reason of its coming into payment five years early.
- The potential cost of the rule, and its possible manipulation in the manner which I have just described, is a serious matter. Mr Paul Main was the actuary with Godwins at the time of the Definitive Deed. He gave evidence that, if it had been appreciated that active members as well as deferred members could, by the manoeuvre which I have described, retire at 60 on full pension, the additional liability would at that time have had a value of £400,000, and the employer's contributions to the scheme, which had been estimated at 13.9% of members' pensionable earnings, would have increased to 22.3%. (I should mention that Mr Stallworthy made submissions that in some respects Mr Main's figures, on this and some other matters, were overly pessimistic. The submissions do not affect my conclusions. The company and the trustees certainly think that the consequences of rule 3.5.2.1, if it takes effect according to its terms, are serious enough to justify this case having been brought, and I do not propose to second-guess them on that, particularly in the absence of any expert evidence called on behalf of the defendant.)
- Mr Paul Bamford is the current scheme actuary. He gives evidence that, if the relief sought in this case is not granted, the true cost to the scheme at 1 July 2006 (and, through the scheme, to the participating companies) would be £1,525,000 on an ongoing basis and £1,873,000 on a discontinuance basis. Mr Bamford has assumed that all deferred members of the scheme would take the option to claim an unreduced pension at 60, and also (more significantly) that all active members would take the same option by proceeding as I described in paragraph 29 above. I am in no position to question that it is correct under actuarial principles to make those assumptions, but it does seem to me that the figures have been calculated on a 'worst case' basis. In particular I can imagine that some actives would prefer to work on at full salary to 65 even if it was possible for them to retire at 60 on a full pension. Nevertheless, I do accept that, if rule 3.5.2.1 remains in the scheme and takes effect according to its terms, the additional costs falling on the scheme will be substantial.
- It may be appropriate to add here a point which I will return to later: the additional costs will fall entirely on the participating companies. Under the Rules of the scheme the contributions of the employees are fixed at 5% of their pensionable salaries, and the employers are required to contribute the remainder of what is needed for the trustees to pay the pensions and other expenditures of the scheme. So if the benefits provided by the scheme turn out to be more costly than had been anticipated, the contributions to the scheme by employees do not go up but the contributions by the participating employers do.
The relevant facts in this case
- Having identified in the previous section of this judgment the effect of rule 3.5.2.1 and the potentially serious consequences of it for the employing companies, I will now describe the historical and factual context.
- PFPL commenced business in the supply of fire protection systems and equipment in this country in late 1989. It was a subsidiary of the Preussag group, which was based in Germany. It did not establish a new business, but rather acquired one division of the business or businesses carried on by Kidde. Some 250 employees of Kidde transferred and became employees of PFPL. Kidde had a pension scheme, and 61 of the transferring employees were active members of it. PFPL was to have its own pension scheme, and the policy was that the scheme should at least match the benefits of the Kidde scheme. There was a short period after the business transfer and before the commencement of PFPL's own scheme while the transferring members of the Kidde scheme remained with that scheme.
- I should mention that the members of the Kidde scheme who were not employed in the division of Kidde's business that was transferred to PFPL continued to be members of the Kidde pension scheme. As it happened that scheme closed soon afterwards and its members became members of a scheme called the Williams Holdings pension scheme. I imagine that Kidde was a member of a group of which the principal member was a company called Williams Holdings. From time to time in the course of the hearing before me comparisons were made between the treatments over the years of members of the PFP scheme and of members of the Williams Holdings scheme. I shall not examine those matters in this judgment, because in my view they are not of sufficient relevance.
- PFPL's own scheme, which is the PFP scheme involved in this case, was established on 1 April 1990. Its initial members were (1) the former members of the Kidde scheme who had become employees of PFPL, and (2) any new employees of PFPL who had joined the company on the basis that they would be members of its pension scheme. As it happens Mr Hamilton, the representative defendant in this case, was one of those new employees of PFPL. The PFP scheme took over the accrued pension liabilities to the former Kidde scheme members. It granted them credit under its scheme for their periods of service as members of the Kidde scheme, and it received an appropriate transfer of funds from the Kidde scheme for the liabilities which it was assuming.
- The PFP scheme was formally established by an Interim Deed dated 30 March 1990. The parties to the Deed were PFPL and six individual trustees who were all officers or employees of the company. A full scale ('definitive') deed to regulate the scheme was still in preparation. Clause 5(a) of the Interim Deed is as follows:
"The Principal Company and the Trustees undertake that they will within 24 months of the date of this Deed make a Definitive Deed adopting rules ('the Rules') under which the Scheme and the Fund shall be administered from the Scheme's commencement date."
As the closing words indicate, the Definitive Deed, when executed, would operate retrospectively, but something was needed to regulate the rights of members in the interim period. In the main that was accomplished by clause 6(E) of the Interim Deed:
"6. INTERIM POWERS OF THE TRUSTEES
(E) Explanatory Literature
The Trustees shall administer the Scheme in accordance with the explanatory literature given or to be given to persons who are eligible for membership of the Scheme, a copy of which is attached to this Deed, outlining the benefits and contributions under the Scheme in respect of them and in accordance with any further explanatory literature issued to members by the Principal Company."
So far as relevant to this case the explanatory literature provided for differential normal retirement dates: age 65 for males and age 60 for females. It also said that members of the scheme could, if PFPL agreed, receive pensions on retiring at age 50 or above (or earlier in cases of ill health), but in that case the pensions would be reduced 'to account for early payment'.
- That was how matters stood on 1 April 1990. They did not stand that way for long, because only about six weeks later the ECJ released its decision in the Barber case. I identify three main effects for the PFP scheme.
i) Since differential normal retirement dates for males and females were now known to be contrary to Community law the Definitive Deed, when it came into effect, would plainly need to equalise the treatments of males and females. (Or, to be more theoretically precise, if the Definitive Deed did not provide for equal retirement dates for males and females, the Barber decision would override the deed; Barber would impose a common retirement age; and that age would be the lower of the two for which the deed provided. In practice the Definitive Deed would undoubtedly equalise the retirement ages.)
ii) Unless and until the Definitive Deed provided otherwise female members of the scheme would carry on accruing their pensions by reference to a normal retirement date of age 60, as had been the position before the Barber decision. Their rights might be changed by equalisation when it happened, but they were not changed by the decision.
iii) Unless and until the Definitive Deed provided otherwise, the position of male members was changed by the Barber decision, and changed to their advantage. Before Barber, by reason of the Interim Deed and the 'explanatory literature', they would need to remain in service until 65 to accrue full pensions. After Barber they were in their 'Barber window', and future accrual would be by reference to a normal retirement date of only 60.
- It took about two years to prepare and execute the Definitive Deed. PFPL and the trustees of the scheme were advised by Godwins Ltd, a company carrying on business as independent financial advisers, actuaries, and employee benefit consultants. (The company is now called Aon Consulting Ltd, doubtless in consequence of a change of ownership.) Mr Evans of Godwins was in contact from time to time with the Finance Director of PFPL, Mr Perrett, and the personnel manager, Ms Allen. Mr Shurville of Godwins was the principal draftsman of the deed. I do not need at this point to go into any of the detailed exchanges between Godwins and PFPL, though I will refer to one or two aspects of them later when discussing the contested issues in the case.
- The company decided to equalise the retirement ages of male and female members of the scheme at 65. There is evidence that this was in line with what was done in most company pension schemes. A circular from the company to members of the scheme, apparently distributed at some time in February 1992 (see the last paragraph of a letter from Ms Allen, the personnel manager of PFPL and also a trustee of the scheme, to Mr Evans of Godwins dated 10 February 1992), notified members that with effect from 1 April 1992 'Normal Retirement Date for all members will be the 65th birthday'. I add the observation that this seems clearly to have been regarded by PFPL as a company decision to be taken by it. There is no evidence that the trustees of the scheme had been involved so far.
- There were six trustees at the time. They were:
i) Mr Holmes, the Managing Director of PFPL at the time.
ii) Mr Perrett, the Finance Director of PFPL.
iii) Ms Allen, the personnel manager.
iv) Glenys Kelly (now Mrs Brown), at the time Mr Holmes' Secretary. Mr Holmes states that she was made a trustee with a view to being representative of head office staff.
v) Mr Whiting, who (as Mr Holmes states) was a trustee to represent the field staff involved on installation and maintenance of equipment supplied by PFPL to customers.
vi) Mr Darbon, who (again as Mr Holmes states) was a trustee from the production centre representing the membership employed on the shop floor.
- There was a meeting on 1 March 1992, attended by Mr Holmes, Mr Perrett, Miss Kelly and Ms Allen. Mr Whiting and Mr Darbon were not there. The minutes, so far as relevant, state:
"A brief meeting was held to discuss and agree the following points:-
Equalisation of Pension Ages
After consultation with our adviser, Godwins, it was decided that the Normal Retirement Age for men and women should be age 65 and the Scheme Rules are to be amended accordingly from 01.04.92."
It is not altogether clear from the minutes whether or not the meeting was perceived as a meeting of the trustees. As I have said above Mr Whiting and Mr Darbon were not there, and there was nothing in the Interim Deed (nor is there anything in the Definitive Deed either) which enabled the trustees to act by a majority. However, the minutes are headed 'Preussag Fire Protection Pension Scheme', and the minutes of a later meeting on 14 May 1992 (see paragraph 44 below), which certainly was a meeting of the trustees, include this sentence: 'The minutes of previous Meeting on 1/3/92 were agreed'.
- The documents show that by the beginning of April 1992 Mr Shurville of Godwins had drafted the Definitive Deed and the rules, and that PFPL, through Ms Allen, had notified Godwins that the company approved them.
- There was a meeting of the trustees of the scheme on 14 May 1992. This is the meeting which I mentioned in paragraph 42 above. Two paragraphs of the minutes are relevant, as follows:
"1 Trust Deed and Rules
All Trustees present signed and approved the definitive Trust Deed and Rules. B Darbon is currently on holiday but will sign on his return.
5 Equalisation of Pension Ages
The change to equal retirement age for men and women at 65 has been agreed and implemented within the company. No problem has arisen over this change. However, it was agreed that the Pension Handbook and Staff Hand Book should have a printed addendum inserted stating the above change."
Mr Darbon did return from holiday and sign the deed. He confirms in his witness statement that he and Ms Allen had spoken before he went away, and that he had told her then that he would sign the deed when he got back.
- The Definitive Deed, executed on behalf of PFPL and signed by all six trustees as I have described was dated 1 June 1992, and came into force retrospectively back to 1 April 1990, superseding the Interim Deed. The rules attached to the Definitive Deed contained the provisions in rule 3 which I described in paragraph 25 above. In particular they contained rule 3.5.2.1, which as drafted had the potentially costly consequences which I explained in paragraphs 28 to 31 above: deferred members of the scheme could take their preserved pensions at age 60 without any actuarial reduction for early payment; further, active members of the scheme could effectively put themselves in the same position by retiring, not taking the reduced pensions which they could have taken under rule 3.2, and shortly afterwards calling for the payment of unreduced pensions under rule 3.5.2.1.
- However, those effects of the rule were not appreciated at the time or for about seven years after the execution of the Definitive Deed. I think I am right that Godwins acted as administrators of the scheme on behalf of the trustees. On the rare occasions when a deferred member elected to take his preserved pension at 60 Godwins and the trustees operated the scheme on the basis that the pension was subject to actuarial reduction. As far as I know there was no case when an astute active member of the scheme sought to take an unreduced pension at 60 by the technique which I described in paragraph 29 above.
- There is some doubt about when it was that the problem created by rule 3.5.2.1 was first noticed, but it seems likely to have been in 1999. Godwins (by then known as Aon) had ceased to be the scheme administrators and their place had been taken by KPMG. A minute of a trustees' meeting of 19 May 1999 records that the KPMG representative in attendance drew the apparent meaning of rule 3.5.2.1 to the attention of the trustees. The minute includes this: 'It is likely that this was a drafting error at outset; however the trustees noticed the position and will address the issue in due course.'
- I feel sure that the point which KPMG had raised caused some consternation, but nothing specific was done about it for some two years. Some documents from that period show that there was discussion of seeking an order from the court for rectification. But that course was not adopted and is not adopted now. There is no application for rectification before me. It appears that the point about the effect of rule 3.5.2.1 did come to the attention of at least two members of the scheme in 1999 or 2000. One was Mr Perrett, the former Finance Director of PFPL and one of the original trustees of the scheme. He had ceased to be a trustee in the meantime. The other was Mr Hamilton, the representative defendant in the present case. He was a deferred member of the scheme at the time. Mr Perrett and Mr Hamilton each wrote letters to the company or to KPMG enquiring about the position, and somewhat inconclusive correspondence followed. I have to say that the word stonewalling comes to mind.
- On 25 May 2001 PFPL, as principal employer under the scheme, with the consent of the trustees exercised a power of amendment contained in rule 31 of the scheme rules. The amendment changed the position, but only prospectively. It replaced the original rule 3.5.2.1 with a complicated provision which distinguished between deferred members' pensions accrued by future service after 25 May 2001 (the date of the amendment) and deferred members' pensions accrued by service on or before that date. The former could be taken from age 60 but subject to actuarial reduction. The latter could be taken from age 60 without actuarial reduction 'unless its actuarial reduction is held to be applicable in consequence of any legal advice or ruling.' The claimants say in their particulars of claim:
"The Claimants were and remain precluded by section 67 of the Pensions Act 1995 from correcting the said error by amendment in respect of benefits accrued prior to the said date."
So after the amendment of 25 May 2001 the company and the trustees remained committed to pay to deferred members of the scheme who retired at 60 or older the full pensions which they had earned by their years of service up to that date, and to pay those pensions without actuarial reduction. However, the amendment reserved the possibility of that position being changed by a future 'legal advice or ruling'. Had I accepted the claimants' submissions it would have been so changed. Since I do not the position is not changed (subject of course to any appeal which may be brought).
- That was in May 2001. I feel sure that over the next four years things were happening in connection with the operation of clause 3.5.2.1. However those things, whatever they were, were happening behind the scenes so far as my knowledge is concerned, and I can move three and a half years forward. In the latter part of 2004 Mr Hamilton was identified as a suitable person to be a representative defendant in proceedings which the participating companies and the trustees were proposing to commence. In August 2005 they did commence the present proceedings by issuing the claim form in this case. I am told that it was served, together with particulars of claim and some other materials, in November 2005. A defence was put in, dated 8 May 2006. There have been some amendments to the pleadings since. One was the addition of the counterclaim. Another (which I mentioned briefly in the Introduction and Overview at the beginning of this judgment) was an amendment to the particulars of claim to plead reliance on relief in equity for a mistake. That amendment was made in the course of the trial.
- There is one other matter to mention. On 19 June this year, some two years after the claim was commenced, the Principal Employer under the scheme (PFPL, but by then called Siemens Building Technologies FE Ltd) and the present trustees (acting by one of their number) executed a document which began 'This Undertaking'. The undertaking is expressed to be in favour of Mr Hamilton (the representative defendant) and the Chancery Division of the High Court. There are recitals. One is that the claimants in this case are seeking an order of the court that rule 3.5.2.1 is void or should be set aside. Another is to acknowledge that the effect of such an order would be entirely to remove the right of deferred members to take early retirement from the scheme. The principal employer and the trustees undertake to each other, to Mr Hamilton, and to the court, that, if the court grants the order sought, they will execute a deed of amendment which would insert the following in rule 3.5.2:
"3.5.2.1 a Member who is no longer an Employee may receive his preserved pension after reaching age 60, or with his Employer's and the Trustees' agreement, between the ages of 50 and 60 or at any time if he is in ill health (see rule 3.2.2), but if the pension is received before normal retirement date it shall be reduced Actuarially under rule 3.2 to take account of early payment. The Trustees shall only agree if the provisions of rule 3.3 are satisfied."
A further amendment has been made to the particulars of claim to describe the undertaking and the proposed new rule 3.5.2.1. I should perhaps add, lest there be any doubt about it, that neither the court nor Mr Hamilton asked for the undertaking.
Discussion and analysis: the claim based on the principle in Hastings-Bass
- The principle, or the rule, in Hastings-Bass is an important development in recent case law concerning actions taken by trustees, either of private settlements or of pension trusts. It has been comprehensively expounded and discussed in the recent judgment of Lloyd LJ in Sieff v Fox [2005] EWHC 1312 (Ch), [2005] 1 WLR 3811. (Although Lloyd LJ was a Lord Justice of Appeal when he delivered the judgment, it is technically a judgment of the High Court, since the case had been heard by the judge in the High Court before he was elevated to the Court of Appeal.) In the circumstances I will not attempt any sort of lengthy description of the principle myself in this judgment. Many readers of this judgment will be familiar with it already. As respects readers who are not I gratefully refer them to Lloyd LJ's comprehensive and learned exposition.
- I will venture only a few general remarks before turning to consider whether the principle applies in the present case. Lloyd LJ formulates the principle in the following terms in paragraph 49 of his judgment:
"Where a trustee acts under a discretion given to him by the terms of the trust, but the effect of the exercise is different from that which he intended, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account, or taken into account considerations which he ought not to have taken into account."
There are two observations which, with some diffidence, I will make.
i) The learned Lord Justice begins by referring to a trustee acting under a discretion given to him by the trust. That is the commonest situation where the principle may arise, but (as Lloyd LJ explains at other points in his judgment) it can also apply where the trust imposes an obligation on the trustee to act but the precise way in which he acts is left for him to determine. I make this point because Mr Newman submits that the present case is, or at least may be, of that nature. (More specifically Mr Newman relies on the feature that the trustees and PFPL made the Definitive Deed and the Rules pursuant to an obligation assumed by them under clause 5(a) of the Interim Deed (see paragraph 37 above)).
ii) Early in Lloyd LJ's formulation he uses the expression 'the effect of the exercise is different from that which [the trustee] intended'. I may be wrong, but I think it likely that, by 'the effect', the Lord Justice had in mind the direct legal effect of whatever it is that the trustee does, and not the secondary consequences which follow from that direct legal effect. The main argument which had been put to him to oppose the application in Sieff v Fox of the Hastings-Bass principle rested on the distinction between the direct legal effect of an act by a trustee and its indirect consequences:
"'Mr Herbert submits that, for the Hastings-Bass principle to apply, the appointment must have an effect different from that which was intended by the trustees, and that this is limited to the substantive effect under the settlement, and does not extend to consequential matters such as fiscal charges." (Paragraph 31 of the judgment.)
If it is indeed the case that Lloyd LJ used 'effect' in that sense in the words from paragraph 49 of the judgment which I quoted above I tentatively suggest that his formulation of the Hastings-Bass principle, instead of saying 'but the effect of the exercise is different from that which he intended', might say 'whether or not the effect of the exercise is different from that which he intended'. The judge did not accept the submission which counsel had made to him, and it is certainly not the case that the Hastings-Bass principle only applies where an action taken by trustees fails to achieve the direct legal effect which they intended. Indeed, at least in cases involving private trusts the usual situation is that the action which the trustees take achieves exactly the legal effect intended, but has unwelcome consequences, usually tax consequences, which the trustees failed to foresee. Sieff v Fox was itself a case of that nature, and there is a lengthening list of others.
- I move on to explain how the Hastings-Bass argument is formulated in this case. The starting point is that rule 3.5.2.1 of the Definitive Deed contained a mistake. The mistake was not that the rule permitted a deferred member of the pension scheme to take his pension (without needing the employing company's consent) from the age of 60 rather than from the normal retirement date of his 65th birthday: that was an intended result. The mistake was that the rule permitted such a deferred member to take his pension early without an actuarial deduction.
- I say now that I accept this aspect of the claimants' case. I think that there must have been an oversight in the drafting of the rule when a provision for actuarial reduction was omitted. The rules were drafted by Godwins, and it seems likely that it was at that stage that the mistake occurred. Mr Evans of Godwins was not personally involved in the drafting (at least not in any detailed way). He says in his witness statement:
"Before the final version of the 1992 Deed was sent to the client, I will have looked through it but I would not, at that stage, have read it looking for errors, as I expect documents to be properly formulated by the time I see them. I would not have been looking for the type of error contained in rule 3.5.2.1 and I certainly did not notice it."
Mr Shurville of Godwins was the draftsman of the rules. In his witness statement he describes how he was contacted about rule 3.5.2.1 in 1999. That was shortly after KPMG noticed the point, as I have described in paragraph 33 above. The witness statement says:
"I believe now, as then, that the wording in rule 3.5.2.1 is an error. I would never have intentionally or knowingly drafted the wording to produce such a result without a very specific instruction from the client and I certainly never received such a request."
I observe in passing that, given that there was this error in the formulation of the rule, the present case probably is one to which Lloyd LJ's words in Sieff v Fox, 'but the effect of the exercise is different from that which he intended', apply without the modification to the wording which I suggested in paragraph 53(ii) above.
- I continue my account of how the Hastings-Bass argument is put. The particulars of claim plead that the trustees' decision to introduce rule 3.5.2.1 by entering into the Definitive Deed was 'vitiated' because the decision was made without the Original Trustees taking any, or any proper account of' several matters, including the true effect of the rule as drafted, the discrepancy between the positions of deferred and active members on retirement between ages 60 and 65, and the effect on the cost of funding of the scheme. The conclusion which the argument seeks to reach is that rule 3.5.2.1 is void by reason of the Hastings-Bass principle. The particulars of claim do not specifically refer to the principle by name, but it was and remains the basis for this part of the claim.
- For completeness I should spell out that, although (as I have described in paragraphs 28 and 29 above) the financial cost to the company of the mistake in the drafting of rule 3.5.2.1 is greatly increased by the ability of an active member to retire at 60 without taking the actuarially reduced pension which he could take under rule 3.2 and shortly thereafter to take the unreduced pension which he could in those circumstances take under rule 3.5.2.1, there is no challenge to the feature of the rules whereby, if an active member retires at, say, 60, but prefers to wait until he becomes 65 before drawing his pension, he can do that.
- I preface my examination of the reasons which have led me to conclude that the rule in Hastings-Bass does not apply in this case by making this observation (which partly repeats something that I have already said in paragraph 32 above). It is important to appreciate that the adverse effect of the deficiency in Rule 3.5.2.1 was an effect adverse to PFPL, not to the members of the scheme. This claim is brought in the interests of PFPL and the two other participating employers under the scheme. The claim is not brought in the interests of the members of the scheme, who are the equivalent of the beneficiaries under a private trust. Rule 3.5.2.1, assuming that it is not set aside, increases the funding commitment of the participating employers. It does not increase the contributions of the members of the scheme, nor does it diminish the benefits under the scheme of any of the members. On the contrary, the respect in which the claimants find it unacceptable is that it increases the benefits available to some of the members, doing so to a greater extent than was intended.
- There is no suggestion that the employers will not be able to meet the increased funding commitments which rule 3.5.2.1 imposes on them, unwelcome and unexpected though they doubtless are. Thus it is not argued that the rule could indirectly affect the members of the scheme because it might drive the employers into difficulties such that they could no longer meet their liabilities under it. In that connection it may also be appropriate for me to mention two matters. First, a negligence claim has been made by PFPL against Godwins, the company which drafted the Definitive Deed and Rules. That claim is presumably awaiting the outcome of this case. Second, in the documentation covering the sale of PFPL by its original German parent company to a purchaser in the Siemens group there are provisions whereunder the burden of complying with rule 3.5.2.1, if it is not eliminated by this case, is to be borne by the vendor.
- I move on to analyse and discuss the issues which I consider to be relevant to whether Mr Newman's Hastings-Bass arguments can succeed. In my judgment there are several different reasons why the contention that rule 3.5.2.1 is ineffective on Hastings-Bass grounds cannot be upheld. I develop them in the following paragraphs, and I will set them out under three sub-headings, which are as follows. First: There should be no rectification by the back door. Second: The Hastings-Bass principle does not apply because the adoption of the Definitive Deed and Rules was essentially the act of PFPL and not of the trustees. Third: The trustees had fiduciary responsibilities in connection with the making of the Definitive Deed and Rules, but they were not such as to cause the rule in Hastings-Bass to apply to rule 3.5.2.1.
There should be no rectification by the back door
- The key points which I make in this part of my judgment are the following. The nature of the mistake in rule 3.5.2.1 was such that it could only be corrected by changing the rule, as opposed to nullifying it. The only way to change the rule retrospectively was by an order of rectification. That could only be achieved if the circumstances of the case qualified for rectification, but they did not. Where the rule in Hastings-Bass applies the effect is not to change something that trustees have done, but rather to set it aside altogether. But in this case rule 3.5.2.1 needed to be changed, not set aside. The claimants seek to navigate round this obstacle by their undertaking that, if the court sets the rule aside, they will make an amendment which introduces a new rule 3.5.2.1 that does not suffer from the mistake contained in the present one. This is rectification by the back door, and in my judgment it is not an acceptable way for the court to proceed.
- I now develop those points in more detail.
- It is to my mind a significant feature of the present case that there is no application for rectification. Suppose that a lawyer is consulted by a client who says that he appears to be bound by a provision in a legal document which he accepts he signed, but that there was a mistake in the wording of the provision. The lawyer's thoughts will turn immediately to whether the document can be rectified. Rectification is, if not the only possible remedy to correct mistakes in the wording of binding documents, certainly the primary remedy. If rectification is not available in a particular case it would be, to put the matter at the lowest, surprising if another remedy is available instead.
- It seems fairly clear that the lawyers advising PFPL and the trustees in this matter reacted like the hypothetical lawyer I postulated in the foregoing paragraph. Once the problem presented by the wording of rule 3.5.2.1 had been discovered in 1999, there are several references in the documents to rectification. See the following:
i) Minutes of trustees' meeting of 7 September 1999: 'Alternatively we can apply to the Court and request a Court Order to allow us to rectify the Deed, but this would be difficult
'
ii) An internal memorandum within PFPL of 14 August 2000: 'Although we are applying to the court to rectify, our application still may fail'.
iii) An extract from a disclosure letter at the time of the sale of the company to Siemens, which was in July or August 2001: 'The trustees intend to apply to the court to rectify an error in the Rules of the Scheme'.
iv) A letter from KPMG to Mr Perrett (by then a deferred member of the PFP scheme, no longer a trustee, and no longer the finance director of PFPL) dated 26 September 2001: 'The trustees are currently making further enquiries with a view to making an application to court for the deed and rules of the scheme to be rectified.'
- Despite all of that, when this case was commenced no claim for rectification was made. There was very little discussion of why not in the hearing. Mr Newman said that information of that nature was privileged, and, whether it was or not, I sympathised with his preference not to have to enlarge on what led to the decision not to pursue a rectification remedy. I can of course speculate. It seems to me quite likely that the decision of Rimer J to refuse rectification in Lansing Linde v Alber [2000] PLR 15, a case the circumstances of which had some affinities to the background of the present case, had something to do with it.
- Whatever the reasoning may have been, the objective facts are that the participating companies and the trustees of the PFP scheme considered making an application for rectification but have not made one. Instead they have made an application that relies principally on the Hastings-Bass principle. I believe that I am fully entitled to approach that application on the basis that the claimants have tacitly conceded that the circumstances do not support a claim for rectification. If the employing companies and the trustees in this case cannot obtain through rectification the relief they would like to have, it would in my view be surprising if they could somehow outflank the requirements of the law of rectification and obtain the same relief through the different and (so it would seem) less demanding process of an application under the Hastings-Bass principle.
- All the more is that the case when one reflects about what are in principle the significantly different consequences of successful applications under the two kinds of proceeding. If rectification is obtainable the court will alter the wording of a document so that it ceases to say what it had mistakenly been expressed to say and instead says the different thing that it had been intended to say: the court substitutes a correct version for the incorrect version which the party or parties had mistakenly brought into effect.
- The rule in Hastings-Bass is a much blunter instrument. If an action taken by trustees is of a kind to attract the operation of the rule, then the effect is that what the trustees apparently did is void (or possibly voidable a controversial issue which I do not propose to go into in this judgment). The court does not change what the trustees mistakenly did so that it becomes what they had intended to do in the first place. Rather the court sets aside what the trustees had apparently done, and leaves them either as (a) having done nothing, or as (b) having done a part of what they set out to do but not the whole of it.
- Situation (a) arises if the successful Hastings-Bass application relates to the whole of a step apparently taken by the trustees, such as exercising a power of appointment or of advancement (as in Sieff v Fox). Situation (b) arises if the successful Hastings-Bass application relates only to one part of a larger step taken by the trustees. In an early case discussing the Hastings-Bass principle, Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587, Warner J rejected an argument that the principle was one of 'all or nothing': either the whole of whatever document the trustees made is struck down or none of it. The judge could see no reason why it should not be possible to set aside one provision in a larger document, leaving the rest of it to stand. In the event he did not set anything aside in the Mettoy case, but that was for different reasons. I was referred to other cases which repeated what Warner J had said, and to at least one case where part of an appointment was set aside under Hastings-Bass, and the other part was left to stand: Burrell v Burrell [2005] EWHC 245 (Ch) (Mann J).
- Nevertheless there may in my view be significant differences between what I have described as situation (a) and situation (b). Situation (a) typically arises in the context of private trusts, where the trustees exercise a power of appointment or of advancement but have failed to take an important consideration into account. In that situation, to set aside the whole exercise of the power simply means that the trustees are back where they started. They can reconsider the whole matter and decide what, if anything, they now wish to do instead of the exercise of the power which has been set aside.
- Situation (b) can sometimes be different, because there could be cases where to set aside just one provision in an instrument effected by trustees would cure one deficiency but create another instead. It does not go back to the beginning. Rather it leaves an incomplete document behind. As I will explain, the present case could be of that nature. Burrell v Burrell (mentioned at the end of paragraph 69 above), in contrast, was not. A deed of appointment divided the fund into two parts, and appointed different trusts of each part. On Hastings-Bass grounds Mann J set aside the appointment so far as it affected one part of the fund. However, the factor which rendered it appropriate to do that was irrelevant to the other part of the fund, so there was no difficulty over setting aside one part of the deed but leaving the other part to stand. A similar point arose in connection with one aspect of the order made by Neuberger J in Bestrustees v Smart [2001] PLR 283. An exercise of the power to amend a pension trust deed purported to amend the deed both prospectively and retrospectively. The prospective amendment was valid, but the retrospective amendment was not, and one reason why not was the operation of the Hastings-Bass principle. The judge was willing to excise the provision in the amendment which provided for retrospectivity, while leaving the rest of the amendment in full effect. In the circumstances of that case setting aside one part of the amendment did not create any problems over the continued operation of the rest of it.
- In my judgment the same is not true in this case. The claimants' application in this case is of type (b): they do not seek to have the whole of the Definitive Deed and Rules set aside, but only rule 3.5.2.1. Such an order would have an effect significantly different from what would have been the effect of rectification if rectification could have been obtained. The claimants' case must be that the intention when the rules were being prepared was that rule 3.5.2.1 should do six things:
i) It should give to deferred members a right to commence to draw their preserved pensions under the PFP scheme from the age of 60 rather than 65 without needing the consent of anyone.
ii) It should give to deferred members who were between the ages of 50 and 60 a right to commence to draw their preserved pensions under the scheme immediately, but only if the employer and the trustees consented.
iii) It should give to deferred members who were in ill-health at any age a right to draw their preserved pensions under the scheme immediately, but only if the employer and the trustees consented.
iv) It should provide that in a case within (i) the pension would be reduced actuarially to reflect the early commencement of payment.
v) It should provide that in a case within (ii) the pension would be reduced actuarially to reflect the early commencement of payment.
vi) It should provide that in a case within (iii) the pension would be reduced actuarially to reflect the early commencement of payment.
The rule as drafted did (i), (ii), (iii), (v) and (vi), but it omitted to do (iv). Rectification, if available, would have altered the rule so that it did all six things. On the face of it the application of the rule in Hastings-Bass would mean that the rule did none of the six things, since the particulars of claim invite the court to set aside rule 3.5.2.1 in its entirety. Plainly, if the rule was set aside in its entirety it could do none of the things which I have itemised as (i) to (vi). So the problem of pensions taken by deferred members of the scheme at 60 not being reduced actuarially would no longer arise, but the reason why not would be that there would be no provision at all for deferred members to commence to draw pensions at any age before 65.
- At this point I am afraid that several complications come into the picture, and I shall have to take a little time to explain them. They lead up to the deed of undertaking which I described in paragraph 51 above. I am not certain that I have all the details exactly right, but I hope that what I say in the next few paragraphs is reasonably accurate. In (probably) 2005 a decision was reached that an application should be made to the court to set rule 3.5.2.1 aside. The parties were to be (and became) PFPL and the trustees as claimants, and a deferred member of the scheme (in the event Mr Hamilton) as representative defendant. For each party solicitors were appointed, and there were contacts between them and the firm which represented the trustees on all matters except this case. In the course of those contacts it was noted that, if rule 3.5.2.1 was set aside, an effect would be that deferred members of the scheme would have no early retirement rights. From that there emerged the proposal that there should be a deed of undertaking of the nature which was eventually executed. However, at the time of the original particulars of claim no such deed yet existed. That being so, two of the points made in response in the defence were: first, that, if the rule went, there would (for complex reasons which I will not attempt to describe) be a continuing breach of the principle of equality between males and females prescribed by the ECJ in the Barber case; and, second, that there would also be discrimination between active and deferred members of the scheme: the actives would have the right to retire and commence receiving pensions (albeit reduced pensions) at 60 if they chose, but the deferreds would have no right to commence receiving any pensions, even reduced ones, until they became 65. That would have been contrary to provisions of United Kingdom statutes generally referred to as the preservation legislation.
- In addition to those specific points arising from the Barber decision and from the preservation legislation, being points which were identified in the original defence, there was a more general point of which the claimants were undoubtedly aware. The manifest intention of the draftsman of the Rules was that a deferred member of the scheme, like an active member, should have the right to commence drawing his pension at 60 rather than 65 if he wanted; yet to set aside rule 3.5.2.1 would, without more, mean that he had no such right.
- The next matter relevant to the evolution of the case which I am explaining now was that the principal employer and the trustees executed the undertaking of 19 June 2007 which I have described in paragraph 51 above. It was an undertaking, expressed to be in favour of Mr Hamilton and the Court, that, if the court did set aside rule 3.5.2.1, the rules would be amended so as to give deferred members a right to receive their preserved pensions from age 60, but subject to actuarial reduction. In the most recent pleadings the points made in the original defence about the Barber case and about the preservation legislation have been removed.
- After that digression into the pleadings and associated matters I return to the theme that, in this case where the appropriate remedy, if the conditions for it to be granted are present, would be an order of rectification modifying rule 3.5.2.1, a Hastings-Bass order, which could not modify the rule but could only set it aside in its entirety, is not an acceptable alternative. It is suggested to me that, while that might be true without the claimants' undertaking to amend the rules so as to replace the set-aside rule 3.5.2.1 with a different rule, it becomes acceptable for the court to proceed under Hastings-Bass once the claimants have given the undertaking. I cannot see it that way. If the court takes the view that the Hastings-Bass principle does not apply by reference to what happened when the rules were adopted in 1991, I do not think that the principle can become applicable after all in consequence of an undertaking given in 2007. (Nor, to be fair, do I think that Mr Newman puts his case in that way. I believe his position to be that the principle in Hastings-Bass obliges the court to set aside the rule 3.5.2.1 in its entirety despite the consequences going beyond the deficiency in the rule which brings the principle into play. But PFPL and the trustees would not wish that to become the position for the long-term future, and the deed makes their intentions clear.) I add here that, in expressing my own view earlier in this paragraph, I have assumed that, if the Hastings-Bass principle applies to something which trustees purport to do, it renders their action void ab initio, not voidable. I touched on the void/voidable distinction in paragraph 68 above.
- In the foregoing few paragraphs I have described my understanding of the circumstances in which the undertaking to introduce a new rule 3.5.2.1 by way of amendment of the scheme was given, but I cannot put out of my mind that there is at least a hint of tacit bargaining with the court. Why should the undertaking have been expressed to be given to the court (which has not asked for it), if not with a view to increasing the prospect that the court might do something which appeared to go beyond what the circumstances justified and which it might otherwise have been reluctant to do?
- I should mention that something similar to the undertaking was a feature of an earlier case, and would not have discouraged the judge from applying the rule in Hastings-Bass. The case is Gallaher Ltd v Gallaher Pensions Ltd [2005] EWHC 42 (Ch), [2005] PLR 103. A difference from this case was that Etherton J held on the facts before him that rectification was available to put right a mistake in the drafting of an amendment which on its terms increased pensions to a greater extent than was intended. The bulk of his judgment is directed to the rectification issue, and his decision upon it is clearly the ratio of the case. However, there was an alternative Hastings-Bass argument, and obiter the learned judge held that he would have accepted it. There had been an undertaking on the part of the employer and the trustees that, if the amending deeds which contained the mistake were set aside, they would continue to make payments of increased pensions up to the amounts which had been intended but not up to the greater amounts which had not been intended. Etherton J held that the undertaking removed any objection that might have been raised based on lapse of time. It is not lapse of time which I see as an obstacle to the Hastings-Bass argument in this case. Nevertheless, Etherton J was plainly not troubled by the use by the claimants of the technique of an undertaking to defuse what might otherwise have been an objection to the claim. All I can say is that I am troubled by it in this case.
- Before I conclude this part of my judgment there is one other specific point to make. As I understand it, neither counsel submits that the rule in Hastings-Bass is an absolute one in the sense that, if the conditions described by Lloyd LJ in Sieff v Fox are present in particular if the trustees take some action in circumstances where they have not taken a relevant consideration into account then their action is always void, and there is no possibility of exceptional cases arising where it would not be void. For example Mr Newman submitted (in the context, if I have remembered correctly, of the counterclaim to which his clients are the defendants) that, if to set aside on Hastings-Bass grounds an act done by trustees would result in something that was illegal, then the act should not be set aside. Mr Stallworthy did not disagree with the principle, though he did not accept that the possible illegality which Mr Newman was invoking in this case would have been an illegality at all. The point can, I suggest, be put more generally in this way. If an action taken by trustees comes within the circumstances to which the Hastings-Bass principle appears to apply, then the action will be set aside unless there is good reason in the particular circumstances of the case why it should not be set aside. In subsequent sections of this judgment I will endeavour to explain why the circumstances of this case are not ones to which the Hastings-Bass principle appears to apply, but even if it does I suggest that, for the reasons which I have explained at somewhat laborious length in this section of the judgment, there is good reason why rule 3.5.2.1 should not be set aside.
- I headed this section of my judgment 'There should be no rectification by the back door'. In this case rectification is not available. (In the Gallaher case, Etherton J's case, it was.) What the claimants are seeking by the combination of a Hastings-Bass order setting aside the original rule 3.5.2.1 and an undertaking to the court to introduce a new rule 3.5.2.1 in its place amounts to exactly the same thing as an order of rectification. I believe that it would be rectification by the back door, and, while the principle in Hastings-Bass is a relatively new and still expanding jurisdiction the limits of which have not yet become established, I believe that the use of the principle to circumvent the quite strict conditions which have to be present before an order of rectification can be obtained goes beyond wherever the limits will eventually be set.
The Hastings-Bass principle does not apply because the adoption of the Definitive Deed and Rules was essentially the act of PFPL and not of the trustees.
- I begin by advancing two propositions which relate to the facts of the case and to considerations which may affect whether the rule in Hastings-Bass is capable of applying to them. The first proposition is that the adoption of the Definitive Deed and of the associated Rules (which include rule 3.5.2.1) was essentially the act of PFPL and not of the trustees. The second proposition is that the things which the trustees did or ought to have done in connection with the adoption of the Definitive Deed and Rules were not such as to attract the operation of the Hastings-Bass rule. Under this sub-heading I develop and enlarge on the first proposition. Under the next sub-heading I develop and enlarge on the second proposition.
- The first proposition is important because the rule in Hastings-Bass applies to things done by trustees. It does not apply to things done by settlors in the context of private trusts or by employers in the context of pension trusts. The claimants seek to set aside something which was part of the adoption of the Definitive Deed and Rules, namely the inclusion in the rules of the unsatisfactorily formulated rule 3.5.2.1. However, in my opinion the person principally responsible for the formulation and making of the Definitive Deed and Rules (including rule 3.5.2.1) was the employing company, PFPL. The trustees' main role in connection with the scheme is to administer it in accordance with the Deed and the Rules. I do not say that the trustees had no role to perform in connection with the adoption of the deed and rules. They did have a role, but it was a lesser role than the role of PFPL. I return to this aspect of the case under the next sub-heading to what the trustees' role did comprehend and what it did not, but for the moment I concentrate on the role of PFPL.
- Turning more specifically to the circumstances in which the Definitive Deed and rules were brought into effect, by clause 5(a) of the Interim Deed of 30 March 1990 (quoted in paragraph 37 above) PFPL and the trustees undertook that they would execute a Definitive Deed and Rules. The undertakings were presumably mutual: that is PFPL's undertaking was given to the trustees and the trustees' undertaking was given to PFPL. At any rate there is no indication that the undertakings were given to anyone else. In 1991 and 1992 PFPL instructed Godwins to prepare a Definitive Deed and Rules. Although the trustees were already in office at that time by virtue of the Interim Deed, there is no indication that they were involved in the instructions to Godwins or in considering drafts which Godwins prepared. The contacts were between Mr Evans or Mr Shurville of Godwins and Ms Gill Allen, the personnel manager of PFPL. She reported to Mr Perrett, the Finance Director, and through him to Mr Holmes, the Managing Director. Ms Allen, Mr Perrett and Mr Holmes were also trustees of the pension scheme, but it is clear that in dealings between Ms Allen and Godwins she was acting in her managerial capacity, not her trustee capacity. Likewise, when she reported to Mr Perrett and to Mr Holmes she was reporting to them in their managerial capacities. She did not report to the three other trustees. (That should not be read as any sort of implied criticism. It seems to me that the business reality in the period after the Interim Deed was that it was for the company, not for the trustees, to take steps towards a Definitive Deed and Rules being prepared.)
- There is a letter of 27 February 1992 from Mr Shurville to Ms Allen, which concludes as follows:
"On receiving your confirmation that you have no further queries or comments on the draft Trust Deed and Rules, I shall prepare a further copy in a form suitable for execution."
Ms Allen replied on 1 April:
"
we now confirm that we have no further comments or queries on the draft Trust Deed and Rules and that it will be in order for you to go ahead with the final draft."
It is, I think, plain that 'we' in that sentence meant PFPL. It did not mean the trustees, nor did it mean PFPL and the trustees.
- I have described earlier how, at a meeting of the trustees on 14 May 1992, the five trustees present 'signed and approved the definitive Trust Deed and Rules' (a quotation from the minutes); Mr Darbon, the absent trustee, had confirmed to Ms Allen that he would sign the deed on his return, which he did. The trustees thereby complied with their undertaking in clause 5(a) of the Interim Deed. PFPL, described in the Definitive Deed as 'the Principal Employer', also executed the deed, and was the first party to it.
- The question I have to consider in this part of my judgment is whether the trustees' acts in approving the terms of the Definitive Deed and of the rules and in executing the deed meant that rule 3.5.2.1 was liable to be set aside under the principle in Hastings-Bass. In my judgment they did not. I make this point with some hesitation, because, although it supports the result for which Mr Stallworthy contends, he does not support this particular reason for reaching that result. I nevertheless consider that the point is valid and correct, and I will seek to explain and justify it in the paragraphs which follow.
- A decision to have a pension scheme and the consequential decisions about the structure and design of the scheme are matters for the employer, or at least matters primarily for the employer. If the scheme is to have a pension trust fund there will be trustees, but the design of the scheme is still a matter for the employer, not for the trustees. This is not to say that the trustees are compelled to accept the employer's design. If the trustees object to it they cannot be compelled to join in executing the Deed and Rules. However, I persist that it is the employer which takes the lead in formulating the design of the scheme. If in the event the trustees do not object and are content to execute the documents in the terms prepared by the employer or the employer's advisers, then the scheme is the employer's scheme, not the trustees' scheme. Once the scheme is established the trustees will have important functions to carry out and duties of a fiduciary nature to perform in connection with the scheme, but the trustees do not have a major role in determining what the rules of the scheme are to be.
- It is not inevitable or by any means invariable for a pension scheme to have trustees, and in such a case there is in the nature of things nothing to which the rule in Hastings-Bass could apply. Suppose that there is a 'pay as you go' scheme where the contracts of employment between an employer and employees provide that the employees who are members of the scheme will be entitled to receive directly from the employer the pension benefits provided for by the contracts or by rules incorporated by reference into the contracts. Suppose that one of the rules contains a deficiency of drafting like the deficiency in the drafting of rule 3.5.2.1. Could the defective provision be set aside under the rule in Hastings-Bass? Plainly not: it came about simply from the act of the employer, and, if it cannot be changed by rectification, the employer is bound by it.
- Now change the example by assuming that there are trustees of the pension scheme, but that the scheme is established from the outset with its full Definitive Deed and Rules prepared in advance so that they come into operation from the moment that the deed is executed by the employer and the original trustees. The difference from the present case is that there is not an initial period regulated by an Interim Deed, and thus there is no prior deed or other instrument which imposes an obligation on the trustees to join with the employer in bringing the Rules into effect. (I understand that the example would be rare in practice, but it is certainly not impossible.) Make the same assumption as before that the initial Rules contain an overly generous provision like rule 3.5.2.1. Can that rule be set aside under the principle in Hastings-Bass because there were trustees who joined with the employer in the legal steps required to bring the deed and rules into effect? My answer to the question is: no: the deed and the rules are the employer's documents, and do not become the trustees' documents by reason of the trustees joining in executing them.
- Consider the analogy of a private settlement. Suppose that a settlor executes a trust deed between himself and trustees, that the deed includes a provision which has harmful fiscal consequences for him, and that (echoing the words of Lloyd LJ in Sieff v Fox) he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account. Can he escape the harmful fiscal consequences by having the deed set aside under the rule in Hastings-Bass, arguing that the case is brought within the scope of Hastings-Bass because trustees as well as he himself executed the deed? The answer is: obviously not; and in my opinion the example of a pension trust deed which I gave in the foregoing paragraph is in principle the same.
- Finally I come to this case. The differences are that in this case there was first the Interim Deed and later the Definitive Deed and Rules, and that the Interim Deed obliged the trustees, together with the employing company, PFPL, to 'make a Definitive Deed adopting rules ('the Rules') under which the Scheme and the Fund shall be administered
'. Mr Newman submits that the obligation which was thereby imposed on the trustees brings the Rules within the potential ambit of the principle in Hastings-Bass, and that rule 3.5.2.1 falls to be set aside under that principle.
- I cannot agree. I accept that, in contrast to the example I considered above of a case where the Definitive Deed and rules were not preceded by an Interim Deed, the trustees do have a role to play in connection with the Definitive Deed and Rules, because they have a prior obligation to join with the company in creating them. (I say more about this under the next sub-heading.) Further, I entirely accept that it is a proper part of the trustees' role for them to consider the proposed structure of the scheme, and, if there are aspects of it with which they are unhappy, to say so and, if they think fit, to raise their concerns in discussion with the employer. However, it remains true that the scheme is essentially the employer's scheme, and is not the trustees' scheme. In a formal sense it might be regarded as a joint scheme of the employer and the trustees, but in substance the reality is that the employer is the party responsible for the contents of the Definitive Deed and Rules. In this case I assert that the Deed and Rules were and still are predominantly indeed, I would say overwhelmingly PFPL's documents, not the trustees' documents.
- It should not be forgotten that it is the employer which has to meet a large proportion of the costs of a contributory scheme. If trustees, considering a draft deed and rules produced by or for an employer, consider that the benefits should be more generous, they can seek to persuade the employer to improve them. The employer may or may not agree. If it does not there is little or nothing that the trustees can do about it, other than to resign and leave the employer to find other persons who are prepared to act as trustees. Even if the employer does agree to improve the benefits under the scheme the outcome remains the employer's scheme, not the trustees' scheme.
- The evidence in this case was that the decision to equalise the normal retirement date for males and females at the 65th birthday was reached by PFPL on the advice of Godwins. The decision was notified to members of the scheme by PFPL before the trustees had met and approved it. When the trustees met they accepted the draft Definitive Deed and rules (including in particular the equalised retirement age of 65) without, it seems, any significant discussion and without raising alternatives. It is argued as part of the counterclaim that the trustees should have pressed for a different equalised retirement age, but I do not think that the evidence of the trustees gave any real support to the argument. Three of them were, so to speak, from the management of the company: Mr Holmes, Mr Perrett and Ms Allen. Ms Allen had been the principal contact between PFPL and Godwins. Those three were not, in their trustee capacities, going to question the scheme and rules which Godwins had prepared and PFPL had accepted.
- One of the other three trustees was Mr Holmes' secretary. Her witness statement says that she cannot remember anything about the matter. The other two, Mr Darbon and Mr Whiting, had not questioned the benefit structure proposed in the Deed and Rules. They both said in their evidence that the company was quite new and was, as they saw the matter at the time, not in a position to fund generous benefits for members of the scheme. Mr Whiting, in the course of his cross-examination, said that, if he had been aware of some matters which were put to him by Mr Stallworthy, he might have wished to discuss some improvements in benefits, but in re-examination he accepted that, if that had happened but the company had dug its heels in, he imagined that the trustees would have gone along with the equalised retirement age of 65.
- I conclude that, while the trustees had an obligation under the Interim Deed to join with PFPL in making a Definitive Deed and Rules, and although in performing that obligation they did have a real role to fulfil, nevertheless the adoption of the Deed and Rules, which included rule 3.5.2.1, was substantially the act of PFPL, not the act of the trustees. Since the rule in Hastings-Bass applies only to strike down things done by trustees I consider that it is incapable of striking down rule 3.5.2.1. In substance PFPL and its advisers, Godwins, were responsible for that rule, and it would be an unacceptable extension of the rule in Hastings-Bass to apply it so as to set the rule aside on the ground that the trustees as well as PFPL joined in executing the Deed.
The trustees had fiduciary responsibilities in connection with the making of the Definitive Deed and Rules, but they were not such as to cause the rule in Hastings-Bass to apply to rule 3.5.2.1
- A fundamental point which I made under the previous sub-heading was that the rule in Hastings-Bass does not apply to things done by settlors of private trusts or by employers who establish pension scheme trusts. In connection with that I said that the rule applies to things done by trustees. However, I now qualify that by saying that the rule does not apply to everything done by trustees: it applies to things done by trustees as respects which they have a fiduciary duty or responsibility to the beneficiaries (who in the case of a pension trust, are the members of the pension scheme). Further, the circumstances must have been such that a part of the trustees' fiduciary duty or responsibility was either to take into account a consideration which, in the event, they failed to take into account or to refrain from taking into account a consideration which, in the event, they did take into account.
- The key point which I shall develop over the next few paragraphs is that the role which it fell to the trustees of the PFP scheme to perform when they decided to accept the draft Definitive Deed and Rules did not extend to identifying the deficiency in rule 3.5.2.1 which the claimants now wish to have removed by means of the rule in Hastings-Bass.
- I do of course accept that the trustees had a role to perform in connection with the making of the Definitive Deed and the Rules. The trustees had given their undertaking under the Interim Deed that they and PFPL would make the Deed and Rules. I do not suggest that their role in that respect was a purely formal one under which they were expected to do no more than sign without thought whatever document PFPL and its advisers, Godwins, put before them. The trustees, while accepting realistically that the work involved in preparation of a Definitive Deed and Rules would be undertaken by PFPL and Godwins (and would, to the advantage of the scheme, be paid for by PFPL), had a fiduciary responsibility to the members of the scheme to be satisfied, before joining in executing the Deed, that the outcome of the work was an acceptable scheme providing the kinds of retirement benefits that the members expected.
- I suspect that, arising from discussion in the course of the hearing, both Mr Newman and Mr Stallworthy were concerned that I entertain the notion that the trustees had no fiduciary role and responsibilities at the time when they decided to join in executing the Definitive Deed. I do not entertain any such notion. The trustees did have fiduciary responsibilities. They were, however, responsibilities owed primarily to the members of the scheme, not to PFPL.
- That is not to say that, if the trustees had happened to notice a feature of the Rules (like rule 3.5.2.1) which appeared to be unintentionally onerous upon PFPL, they (the trustees) would have been obliged to keep quiet about it. If they thought that something had gone wrong in the drafting to the detriment of PFPL though not of members of the scheme, they were fully entitled to draw it to PFPL's attention. Mr Newman has said, in his written reply to Mr Stallworthy's submissions that 'no decision of the trustees should be made without the employer's interests being considered and taken into account'. I accept that, but I do not think that it has any impact on this case.
- For all that trustees ought not to disregard the impact on the employer of something which they contemplate doing (and with that in mind the composition of trustee boards almost invariably includes significant employer representation, as Mr Newman reminds me), it must surely be accepted that the trustees are in place essentially to look after the interests of the members of the scheme, not of the employer. In considering whether the rule in Hastings-Bass applied I need to ask myself what the trustees ought to have done but did not do in connection with the making of the Definitive Deed and Rules. There was nothing in the Rules which was disadvantageous to the members. Certainly rule 3.5.2.1 was not disadvantageous to them. The problem with it was that it was too advantageous. It is true that something went wrong on this occasion to the detriment of PFPL, but surely the trustees could reasonably believe that PFPL was well capable of looking after itself. Indeed, assuming realistically that they all knew that PFPL had instructed Godwins to advise it and to draft the Rules, they no doubt did believe that PFPL was looking after itself.
- So far as the point which I am addressing now is concerned the key words in Lloyd LJ's formulation of the Hastings-Bass principle in Sieff v Fox are: 'had he [a trustee] not failed to take into account considerations which he ought to have taken into account.' The argument that rule 3.5.2.1 should be set aside under Hastings-Bass has to be that the trustees ought to have taken into account the consideration that the rule omitted any provision for actuarial reduction of a pension taken by a deferred member at an age between 60 and 65. In my judgment that was a consideration that PFPL ought to have taken into account. It was not a consideration that the trustees ought to have taken into account. In paragraph 82 of his judgment in Sieff v Fox Lloyd LJ set out three ways in which the court could control the application of the Hastings-Bass principle. The second was : '(b) to take a reasonable and not over-exigent view of what it is that the trustees ought to have taken into account'. In my judgment it would be unreasonable and grossly over-exigent to say that, when the trustees had to consider whether to accept the Definitive Deed and Rules as drafted by Godwins and presented to them (the trustees) by PFPL, they ought to have identified the error in rule 3.5.2.1 and taken it into account.
- I need to add something here about reliance on professional advice. It was obviously reasonable for the trustees to rely on the expertise of Godwins, as several of the trustee witnesses stressed that they did. I acknowledge, however, that there can be cases where the rule in Hastings-Bass causes an act taken by trustees on professional advice to be set aside, not because the trustees should have worked out for themselves some technical issue on which they needed advice, but because the professional advice was itself wrong. Several of the private trust cases where an act by trustees has been set aside in reliance on the rule have been of that nature. Sieff v Fox is one of them. But I do not think that this case is of that nature. Godwins were advising PFPL, not the trustees, and if Godwins had noticed the error in rule 3.5.2.1 that would have been a matter for them to advise PFPL about, not the trustees. The adverse consequences would have been consequences for PFPL, not for the pension trust fund or for the members of the scheme, who were the beneficiaries to whom the trustees owed the generality of their fiduciary duties. (At the risk of repeating myself, I do not say that the trustees had no fiduciary obligations to PFPL, but I do say that they did not have a fiduciary obligation to discover for the benefit of PFPL deficiencies in the Rules like the deficiency in rule 3.5.2.1.)
The claim in reliance on the principle in Hastings-Bass: conclusion
- For the reasons which I have explained, I conclude that, although there is a mistake in the drafting of rule 3.5.2.1, it is not something which can be cured by means of the principle in Hastings-Bass. There were several other issues canvassed in the hearing which would or might have arisen if I had come to a different conclusion about the possibility of the principle applying. As it is they do not arise. This judgment is going to be quite long enough already, so I will not prolong it be discussing matters which, on the view which I take of the main issue of principle, do not arise.
Discussion and analysis: the claim based on relief in equity from the consequences of a mistake
- Given that I do not accept Mr Newman's submission that rule 3.5.2.1 can be set aside by virtue of the principle in Hastings-Bass, he contends in the alternative that the rule falls to be set aside because of a principle of equity under which in some circumstances relief may be granted by the court from the consequences of a mistake. The relevant amendment to the particulars of claim pleads that PFPL did not intend rule 3.5.2.1 to have the effect which its terms create, 'but intended [the rule] to have the same effect with regard to deferred members as rule 3.2 had with regard to active members
. The Seventh Claimant [PFPL] thereby entered into the 1992 Deed under a mistake as to the effect of rule 3.5.2.1 and accordingly rule 3.5.2.1 of the Rules is void and or liable to be set aside'
- It will be recalled that one of the reasons why I am unable to accept Mr Newman's submissions in reliance on the Hastings-Bass principle is that that principle can strike down acts of trustees, whereas in my opinion the effective decision to adopt the rules which included rule 3.5.2.1 was a decision of PFPL. The alternative submission which I am considering now is not affected by the same problem, since it is fairly and squarely based on the proposition that the rule came into force by reason of a mistake by PFPL, rather than by reason of a mistake by the trustees. Nevertheless, for the reasons which I will explain, I am unable to accept this alternative way in which Mr Newman puts his case.
- The argument rests on a principle of equity which has been applied in several cases over the years, some of considerable antiquity. A fairly recent example is the decision of Millett J in Gibbon v Mitchell [1990] 1 WLR 1304. Mr Gibbon had a life interest under a settlement made by his parents years ago. On professional advice and with a view to mitigating inheritance tax he executed a deed which stated that he surrendered his life interest in favour of his two children. The advice had been wrong, because the life interest was a protected life interest. So by virtue of section 33 of the Trustee Act 1925 the purported surrender in favour of the children did not take effect, and discretionary trusts arose instead. Millett J held that the deed should be set aside for mistake. After considering several earlier cases he stated the principle in this way:
"In my judgment these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as it is a mistake as to the legal effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it."
In applying that principle to the facts of the case Millett J added the following:
"The parties whose interest it would be to oppose the setting aside of the deed are the unborn future children of Mr Gibbon and the objects of [the] discretionary trust to arise on forfeiture, that is to say his grandchildren, nephews and nieces. They are all volunteers. In my judgment they could not conscionably insist upon their legal rights under the deed once they had become aware of the circumstances under which they had acquired them."
- I will not review other cases in which the same principle has actually been applied, but as far as I can see they are all similar in nature to Gibbon v Mitchell. They have all been cases where a voluntary transaction has been set aside because the person who carried out the transaction was mistaken as to its legal effect. The mistake also has to be a serious one: see Ogilvie v Allen (1899) 15 TLR 294, a decision of the House of Lords not cited to Millett J (though in no way inconsistent with his decision) but discussed by Lloyd LJ in Sieff v Fox at [2005] 1 WLR 3842, 3843 and 3845. Further, as far as I know all of the cases in which the principle of equitable relief for mistake has been applied have been ones where an entire transaction has been set aside. In this case, of course, the entire transaction was the creation of the Definitive Deed and Rules, and what is sought to be set aside is only one relatively short provision in them.
- Mr Stallworthy said that all the cases where the principle has actually been applied (in contrast to being referred to by way of obiter dicta) have been private trust cases having four characteristics: (a) a settlor or other disponor, (b) unilaterally, (c) confers a gift or bounty out of property to which the disponor was otherwise entitled, (d) on a volunteer. I accept that what Mr Stallworthy says is true, at least so far as appears from the cases referred to me or of which I am aware.
- Mr Stallworthy then submits, and I agree, that the present case is different in all the foregoing respects from those in which the equitable principle of relief for mistake has been applied. This case is not a private trust case: a pension trust is not a private trust. With reference to Mr Stallworthy's characteristics (a) to (d) I make the following observations.
i) As to (a), PFPL is not a settlor or other disponor. That is to say it did not establish the pension trust by way of a 'voluntary transaction' (Millett J's expression in Gibbon v Mitchell at p.1309E) or by way of a 'voluntary disposition' (Lloyd LJ's expression in Sieff v Fox at 3843E and 3844H). PFPL established the pension trust pursuant to the contracts of employment with those of its employees who became members of the scheme, and pursuant to the contract with Kidde (which provided for a PFP scheme to take on the pension liabilities of the Kidde scheme to Kidde employees who were transferring to PFPL).
ii) As to (b), PFPL did not establish the trust unilaterally. It established it pursuant to the bilateral (or multilateral) contracts of employment and the Kidde contract.
iii) As to (c), PFPL was not conferring gifts or bounty on the members of the scheme. The creation of the trust was a contractual matter, being part of the commercial relationship between an employer and its employees. Further, in the particular circumstances of this scheme it is for the most part not correct that the funds of the trust were provided by PFPL out of property to which it was otherwise entitled. Most of the initial funding of the trust came from Kidde as part of the arrangement whereby members of the former Kidde pension scheme became members of the PFPL scheme on transferring and becoming employees of PFPL.
iv) As to (d), the members of the scheme were not volunteers. They gave consideration, in the form of their services as employees, for the rights which they had under the pension scheme.
- If the cases stopped at that point I do not think that there would be an argument for setting aside rule 3.5.2.1 of the PFP scheme on the authority of the principles applied in cases like Gibbon v Mitchell. There are, however, obiter dicta in three recent cases to the contrary effect. The first and most important of the cases is AMP v Barker [2001] PLR 77, a decision of Lawrence Collins J. The trustees of a pension scheme passed a resolution to amend the scheme so as to increase the benefits payable to members who had to leave service by reason of incapacity. The amendment required the consent of the employer (NPI), which was given. The trustees and NPI (and, no doubt, their advisers) mistakenly overlooked another rule which tied the pensions payable to all early leavers to the amounts payable to members leaving by reason of incapacity. So an amendment intended to benefit only incapacitated early leavers, if it took effect according to its terms, would have a wholly unintended and very costly knock-on effect because it would benefit all early leavers.
- Lawrence Collins J's decision was that the matter could and should be cured by rectification, but it had been submitted to him that a similar result could be achieved by means of either or both of the rule in Hastings-Bass and the principle of setting aside in equity for mistake. At the end of his judgment he referred to those arguments, and indicated (clearly obiter) that he would have been prepared to accept them. He addresses relief for mistake in three paragraphs. In the first (paragraph 82 of the judgment) he says:
"Where a document is executed under a mistake as to its effect it may be set aside. This jurisdiction in relation to unilateral transactions also has a long history."
He then summarises a case of 1909 in which a unilateral appointment was set aside because the appointor had forgotten that she had previously made a large appointment in favour of the appointee, her daughter: see Lady Hood of Avalon v Mackinnon [1909] 1 Ch 476. In the next paragraph Lawrence Collins J summarises Gibbon v Mitchell. In the third paragraph (paragraph 84 of the judgment) the learned judge concludes as follows:
"There is no reason in principle why this jurisdiction should be limited to voluntary settlements in the strict sense. As Millett J emphasised (at 1307) there is a wide equitable jurisdiction to relieve from the consequences of mistake, and I would have decided that this would have been an appropriate case for setting aside NPI's consent for mistake."
- I have to say that, for myself, I do not find the two cases which the judge describes particularly instructive for the case before him. For my part I am unhappy about the jurisdiction being extended to commercial and contractual matters in which the mechanism of a trust has been used as part of the commercial structure. Pension trusts are, of course, of that nature. In my view the law provides a remedy for cases like AMP v Barker. That remedy is, of course, rectification, and that was the remedy which Lawrence Collins J applied as his actual decision in the case. I note, although Lawrence Collins J does not mention it, that to set aside the amendment to the rules in AMP v Barker (that being the result of NPI's consent being set aside) would be unsatisfactory, because the original intention was to amend the rules so as to increase the benefits payable to disabled early leavers. Rectification (the remedy which the judge actually awarded) enabled that result to be achieved while removing the unintended consequential effect on other early leavers. Setting aside would not have done that because it would have removed the provision for benefits to be paid to disabled early leavers. I can believe that the trustees and the company would in practice have made the increased payments to disabled leavers, but I do not think that it would be satisfactory to ignore the point on that basis.
- There is one other point arising from Lawrence Collins J's judgment which I need to explain. The only cases to which he referred in the text of his judgment were the two which I have mentioned: Lady Hood of Avalon v Mackinnon and Gibbon v Mitchell. However, he added a footnote to some words in the first of the three paragraphs. In paragraph 113 above I have quoted the two first sentences in the paragraph. The second one is :
"This jurisdiction in relation to unilateral transactions also has a long pedigree
"
After 'unilateral transactions' there is a reference to a footnote. The footnote reads:
"See, for bilateral transactions, Solle v Butcher [1950] 1 KB 671; and, in the context of pension schemes, Spooner v British Telecommunications [2000] PLR 65."
Spooner v British Telecommunications was not about anything done by trustees of a pension scheme, but about elections which members had made to shift their benefits from one category to another. They mistakenly believed that the other category of benefit would be more favourable for them, and had been given erroneous advice to that effect by the employer. The question was whether their elections could be set aside for mistake, and the answer which Jonathan Parker J gave was that they could. I cannot see that the case is relevant in the circumstances with which I am concerned.
- Solle v Butcher may be a different matter. It is a well known case, and has been problematic ever since it was decided. It concerned whether a contract (in fact a tenancy of a house) could be set aside for mistake. The landlord and tenant had believed that the house was not subject to rent control and could be let at an unregulated rent. Their belief was mistaken, and the rent which the landlord could recover was reduced by force of statute to a lower amount than that provided for in the contract. Contract is in the main a common law subject. The circumstances in which an apparent contract is void at common law on grounds of mistake had been authoritatively determined by the House of Lords in the celebrated case of Bell v Lever Brothers Ltd [1932] AC 161. They are quite restricted. The mistake has to be 'as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be.' (see Lord Atkin at [1932] AC 218). In Solle v Butcher it was accepted that the mistake was not of that kind. The house without the quality of freedom from rent control was not essentially different from the house as it had been believed to be. It was still the same house. Nevertheless the Court of Appeal, and in particular Lord Denning MR, held that, although the contract of tenancy was not invalid at common law for mistake, it was nevertheless capable of being set aside in equity by reason of exactly the same mistake.
- In AMP v Barker it seems likely that Lawrence Collins J took the view that, although the mistake that had been made in the rules of the pension scheme with which he was concerned was not of the nature described in Bell v Lever Brothers and therefore at common law the rules were binding in accordance with their terms, nevertheless the mistake still enabled the court to set the particular rule aside in equity. The authority for this proposition must, I take it, have been Solle v Butcher.
- However, there has been a most important development in this part of the law since Lawrence Collins J's decision. In Great Peace Shipping Ltd v Tsavliris Salvage Ltd [2002] EWCA Civ 1407, [2003] QB 679, the Court of Appeal held that Solle v Butcher was irreconcilable with Bell v Lever Brothers and should not be followed. In paragraph 160 of the court's single judgment it considered whether a line of authority about the doctrine of binding precedent 'goes far enough to permit us to hold that Solle v Butcher is not good law.' The court considered that it did. Paragraph 160 concludes as follows:
"In this case we have heard full argument, which has provided what we believe has been the first opportunity in this court for a full and mature consideration of the relation between Bell v Lever Bros Ltd and Solle v Butcher. In the light of that consideration we can see no way that Solle v Butcher can stand with Bell v Lever Bros Ltd. In these circumstances we can see no option but so to hold."
If the Great Peace Shipping case had been decided before Lawrence Collins J decided AMP v Barker it is possible perhaps probable that he would not have said obiter that the mistaken rule in the pension scheme before him could, as an alternative to being rectified, have been set aside in equity on the ground of mistake.
- My own view on this is that I respectfully disagree with the view which Lawrence Collins J, obiter and briefly, expressed. I agree that the line of cases of which Gibbon v Mitchell is one supports the proposition that there is an equitable jurisdiction under which voluntary dispositions may be set aside on grounds of mistake, but I do not accept that those cases provide support for the existence of an equitable jurisdiction to set aside a rule in a pension scheme for mistake. Nor do I feel able to agree that there is no reason why the jurisdiction should be limited to voluntary settlements or dispositions. Particularly since the decision of the Court of Appeal in the Great Peace Shipping case I believe that a rule in a pension scheme can only be nullified for mistake if the mistake was of the kind described in Bell v Lever Bros. The mistake in this case was not. The rules were still a pension scheme, albeit one which, because of the mistake, was going to be more expensive for the employer.
- It is perhaps worth making one further point. It is true that the Rules were attached to and brought into effect by a deed (the Definitive Deed) to which trustees were parties. But that does not mean that the question of whether one of the Rules is inapplicable because of a mistake somehow moves out of the scope of common law and into the scope of equity. Pension schemes are contractual matters, and are part of the commercial relationship between a business enterprise and its employees. It is not inevitable that there should be a trust and trustees in order to have a pension scheme. As I have said earlier (see paragraph 88 above) a pay as you go scheme does not need to have trustees, but could still be affected by a mistake of the same nature as the one in this case. Where there is a trust, as there is in this case, the trust is simply part of the machinery to implement one element in the contractual and commercial relationship between an employer and its employees.
- I said in paragraph 112 above that there are three cases in which it has been said obiter that a pension scheme rule affected by a mistake could, in addition to being corrected by rectification, also or alternatively be set aside by way of equitable relief for mistake. AMP v Barker was the first. The second is Gallaher Ltd v Gallaher Pensions Ltd [2005] EWHC 42 (Ch), [2005] PLR 103, a decision of Etherton J to which I have already referred on a different point. As in the AMP case the judge found that the facts sufficiently established that the mistake could be cured by rectification. He ordered rectification, and that was the ratio of his judgment. He added obiter (in paragraphs 150 et seq) that the mistake made by the trustees of the pension scheme would have been 'sufficient to invoke the court's equitable jurisdiction to set aside the 1987 Deeds.' In essence he reached that conclusion by citing and following Lawrence Collins J's statement in AMP that there was no reason in principle why that jurisdiction should not be appropriate for the situation in that case. I have already said that I respectfully do not agree with Lawrence Collins J in that respect, and I take the same respectful view in relation to what Etherton J said about the same matter. As far as I can see he was not informed that the Court of Appeal had declared Solle v Butcher to be bad law. I do not know whether, if he had been so informed, he might have modified what he said on this issue.
- The third case in which there have been obiter dicta of a similar nature is Irish Pensions Trust v Central Remedial Clinic [2006] 22 PBLR, a decision of Kelly J in the High Court of Ireland in March 2005. It is another case in which the judge held by way of ratio that a mistake could and should be corrected by rectification, and then added obiter that he would also have been prepared to set the particular rule aside under the equitable jurisdiction described by Millett J in Gibbon v Mitchell. He observed that Millett J's observations were made in the context of a voluntary transaction, but he then referred to Lawrence Collins J's view in AMP that there was no reason in principle why they should be so limited. Kelly J also placed some reliance on an earlier Irish case in which Solle v Butcher had been cited by the court for the proposition that 'the court may, in the exercise of its equitable jurisdiction, set aside an agreement even though it is not avoided by common shared mistake'. It seems that Kelly J was not informed that Solle v Butcher had been disapproved by the Court of Appeal of England and Wales in the meantime.
- For the reasons which I have explained I do not accept Mr Newman's argument that, by way of alternative to his submissions based on the rule in Hastings-Bass, equitable relief for mistake provides a valid basis for setting aside rule 3.5.2.1 in the present case. I add in relation to that issue, as I did at the end of paragraph 105 above in relation to the claim in so far as it was based on the rule in Hastings-Bass, that in order not to prolong this judgment excessively I do not discuss matters (such as, in the context of equitable relief for mistake, defences based on laches or acquiescence) which in my view do not arise. The overall result so far as the claim is concerned is that, since in my view neither the rule in Hastings-Bass nor the principle of equitable relief for mistake applies in this case, the claim is dismissed.
The counterclaim
- The counterclaim (which was added to the pleadings only about a month before the trial) gives the impression that it raises considerably wider issues than the claim, which is about the validity or otherwise of rule 3.5.2.1. Perhaps it does, but I can deal with it at less length.
- Paragraph 24 of the amended defence and counterclaim sets out the counterclaim as follows:
"By reason of those facts and matters, the change in NRD [normal retirement date] under the 1992 Deed and rules from the NRD provided by the Interim Deed is void/and or liable to be set aside, so that the unequalised NRDs provided by the Interim Deed persist (alternatively, the 1992 Deed and Rules as a whole is void and/or liable to be set aside)."
Two different contentions are made in that paragraph.
i) The contention made in the brackets at the end (beginning 'alternatively') is logically prior to the contention made in the earlier part of the paragraph. It asserts that the Definitive Deed and Rules are wholly void. If they are the Interim Deed remains in force, but subject to the variation required by Community law (as decided in the Barber case) that the benefits accruing to members of the scheme would be calculated by reference to an equalised normal retirement date of 60 for males as well as females.
ii) The earlier contention in paragraph 24 accepts that the Definitive Deed and Rules remain in force, but with the variation that, instead of the normal retirement date being 65, which is what the Rules say, the Rules are to operate on the basis that the normal retirement date, both for males and for females, is 60. That position would continue until 25 May 2001, the date when the Rules were amended prospectively as described in paragraph 49 above. In other words the scheme's Barber window (see paragraph 21 above), which PFPL and the trustees believed had closed on 1 April 1992, remained open until 25 May 2001.
I add that, as I understand Mr Stallworthy's arguments, he developed a third submission based on equitable relief for mistake by analogy with the Gibbon v Mitchell line of cases. I doubt that that submission is strictly covered by the counterclaim as pleaded, but I will say something about it in any event.
- I will consider first the more far-reaching contention that the Definitive Deed and Rules are completely void. I hope that I have correctly understood the grounds for this striking assertion. I believe that Mr Stallworthy advances two points: one is that the case is similar to Turner v Turner [1984] Ch 100, a decision of Mervyn Davies J which I describe in the next paragraph; the other is that the trustees had to act unanimously, and there was insufficient participation by all of the trustees for them to have validly joined with PFPL in executing the Definitive Deed.
- In Turner v Turner Mervyn Davies J set aside three purported deeds of appointment which had been signed by the three persons who were the trustees of a private settlement. He did so on the ground that, as the trustees and the settlor readily acknowledged, the trustees simply signed anything that was placed before them, and had no idea of what they were doing. They understood virtually nothing about what a settlement was and about what was involved in being a trustee. The judge did not use the expression, but the settlement and everything to do with it were a shambles.
- I do not accept Mr Stallworthy's submission that the present case, so far as the trustees' participation in the making of the Definitive Deed and Rules was concerned, was comparable to Turner v Turner. On the basis of the evidence of the four trustees who gave oral evidence I consider that they took their position seriously and conscientiously. I feel sure that the same applied to Ms Allen. She was the personnel director at the time, and was heavily involved in the exchanges with Godwins which led to the preparation of the Deed and Rules. She now lives in Cyprus and declined to become involved in the case. I have no reason to suppose otherwise about Glenys Kelly (now Mrs Brown), who was at the time the secretary of Mr Holmes, then the managing director of the company and an original trustee who gave oral evidence. Mrs Brown also lives abroad. She gave evidence, but only in the form of a witness statement which said that she could scarcely remember anything about the matter.
- I do not suggest that, before signing the Definitive Deed, each of the trustees familiarised himself or herself in detail with what it contained. I have no doubt that those of them who were not involved in their managerial (non-trustee) capacities in the preparation of the draft Deed and Rules by Godwins left PFPL to take the lead in getting the Deed and Rules planned and drafted. I see nothing wrong with that, and indeed it would be unrealistic to expect anything else. When the Deed and Rules were ready and the next stage was for them to be brought into effect I see no reason to doubt that the trustees of the scheme, unlike the trustees in Turner v Turner, understood what they would be doing. They understood that they would be taking the important step of bringing into legal effect the Rules which were going to govern the scheme for the future. They (except perhaps Ms Allen) did not know the details of the Rules, but they did know that the Rules had been drafted by Godwins, a company which specialised in advising on pension schemes. They knew that three of their number Mr Holmes, Mr Perrett and Ms Allen were already satisfied with the draft documents. They knew that Ms Allen, one of their number, had been the main contact between PFPL and Godwins during the process of the Deed and Rules being prepared. They knew, or if they had thought about it they would have assumed, that the managing director, the finance director and the personnel manager of PFPL had confidence in Godwins to do a satisfactory job in preparing the documents.
- I assert that it is common for trustees (or other bodies of similar size, like boards of directors) who need to enter into a transaction which needs to be documented in a way that requires specialist skills to instruct specialist consultants (like Godwins) to prepare the documentation. Possibly they may delegate the responsibility for liaising with the consultants to one of their own number who has some familiarity with the subject. When the documents are ready for execution the other trustees will in all probability ask the consultants to confirm that in their expert opinion they are suitable. (In this case Mr Evans of Godwins was in attendance at the meeting on 14 May 1992 when the five trustees present accepted and signed the Deed and Rules). If one of the trustees' own number has been the contact with the consultants they may ask him or her to confirm that he or she is content with what the consultants have produced. If the trustees receive satisfactory answers they are likely to proceed and join in executing the document or documents. It is to my mind inconceivable that, if there turns out to be something wrong with a document after all, they or anyone else can say that they are not bound by it because they did not take adequate steps to inform themselves about the contents of it before signing it. At root that is what Mr Stallworthy's submission on this part of the case amounts to.
- Turner v Turner is an extreme and highly exceptional case. I do not accept that this case is of a similar nature.
- I move on to Mr Stallworthy's argument based on the proposition that the trustees had to act unanimously. He correctly points out that there is no provision in the Interim Deed for majority decisions. However, clause 5(a) of the Interim Deed merely provided:
'The Principal Company and the Trustees undertake that they will
make a Definitive Deed adopting rules
'
In my view the Principal Company (PFPL) and the trustees did make a Definitive Deed, and the deed did adopt rules. The Definitive Deed stated that the attached rules were the rules of the scheme. The deed was signed and sealed on behalf of the company, and was also executed as a deed by each of the six trustees. Five of the trustees signed the deed at the meeting held on 14 May 1992, their signatures being witnessed by Mr Evans of Godwins, who was present. Mr Darbon signed the deed at a later date, his signature being witnessed by another person. In my judgment that complied with clause 5(a), and, independently of that sub-clause, in any event constituted execution of the deed by all the persons who needed to execute it for it to take effect. All six trustees had to execute the deed, but I cannot see any requirement that they all had to execute it at the same time and in the presence of each other, or that there had to be some form of prior formal resolution of all six trustees that the deed should be executed. In any case, as I have described earlier (see paragraph 44 above), before the meeting on 14 May 1992 Mr Darbon had informed Ms Allen that he would sign the deed on his return, and she reported to that effect at the meeting.
- It is true that there had been a meeting on 1 March 1992 where Mr Darbon and Mr Whiting were not present, but that was not a meeting at which any formal steps were taken. The minutes recorded a decision that the normal retirement date should be 65 for males and females. That may not have been a decision which formally bound the trustees, but the question of whether it was or not cannot affect the critical points, which are that PFPL and all six trustees duly executed the Definitive Deed, and that the Rules which were brought into effect by the Deed provided that the normal retirement date was to be 65 for both sexes.
- For the foregoing reasons I do not accept the part of the counterclaim which alleges that the Definitive Deed and Rules as a whole were void or liable to be set aside.
- I move on to the contention in the earlier part of paragraph 24 of the defence and counterclaim that the change in the normal retirement date from age 60 to 65 was void and/or liable to be set aside. It will be recalled that, before the Definitive Deed and Rules took effect, there were two reasons why the normal retirement date was at age 60. For females it always had been because of clause 6(E) of the Interim Deed and the company's explanatory literature as provided to members of the scheme. For males the normal retirement date had been age 65 (because that was what the explanatory literature said) until the decision in the Barber case, but from the date of that decision (17 May 1990) it became 60 by the force of Community law as declared by the court. That position continued during the PFP scheme's Barber window, that is until the scheme adopted new rules which equalised the normal retirement dates for males and females.
- Mr Stallworthy's argument that the elements of the Rules which adopted an equalised normal retirement date of age 65 were void or liable to be set aside rests essentially on the principle in Hastings-Bass. The particular application of the principle which Mr Stallworthy puts to me is that, in deciding upon an equalised retirement age of 65, the trustees failed to take into account relevant considerations which they ought to have taken into account, and that, if they had taken those considerations into account, they would, or at least might, have equalised the normal retirement date for males and females at a different age, and in particular at 60. He says that in this case 'might' rather than 'would' is enough, because the trustees had, not a mere power to bring a new Deed and Rules into effect, but a duty to do so by virtue of their undertaking in clause 5(a) of the Interim Deed. For the proposition that 'might' is enough to bring the Hastings-Bass principle into play where trustees are acting under a duty rather than a power see Lloyd LJ in Sieff v Fox at paragraph 77.
- Mr Stallworthy says that the trustees failed to realise that the adoption of 65 as the normal retirement age worsened the position, not only of females, but also of males. Although the normal retirement date for males under the scheme (as under the earlier Kidde scheme from which most of the members had transferred) had been 65, the effect of the Barber decision was to confer on them a lower normal retirement date of age 60. The Rules adopted in 1992 took that normal retirement date for males away. Mr Stallworthy says that the pension fund at the time had a surplus which could have been used to support an earlier normal retirement date, and that the trustees failed to take account of that factor. He says that the advice given at the time may have been incorrect or incomplete in some respects. More generally Mr Stallworthy says that PFPL and the company could at very little extra cost have afforded to equalise the normal retirement date at age 60 rather than 65. He adds that to adopt the age of 60 might have been expected to improve employee relations and assist recruitment of motivated and high quality employees. For those and other reasons he says that there was a substantial argument for equalising at 60, not at 65; the trustees did not take that argument into account; and because this is a 'might' case, not a 'would' case, the rule in Hastings-Bass applies. The elements of the Rules which proceeded by reference to the age 65 should be set aside. The result would be, so it was submitted, that the original normal retirement ages specified in the explanatory literature (referred to in the Interim Deed)would persist; but since those ages were unequal (60 for females and 65 for males) the Barber decision would continue to operate so as the impose equal normal retirement ages of 60 for both sexes. This substitution of 60 for 65 would apply for all accruals of pension rights for service until 25 May 2001, the date of the prospective amendment of the Rules to remove rule 3.5.2.1.
- Persuasively though Mr Stallworthy advances those submissions, I cannot accept them. One reason arises from Lloyd LJ's observation (to which I referred in paragraph 103 above) that one way of controlling the application of the Hastings-Bass principle is for the courts 'to take a reasonable and not over-exigent view of what it is that the trustees ought to have taken into account'. In my opinion Mr Stallworthy's submissions on this point set far too exacting a standard for the trustees.
- There is in any event a more fundamental point. A major weakness in Mr Stallworthy's submission is that it seems frequently to proceed on the basis that the decision about how to equalise the normal retirement date was one simply for the trustees. But it was not. The decision was in form one for the trustees and PFPL to take jointly, and (I assert) in substance a decision predominantly for PFPL to take. I believe on the evidence that that there was no possibility of the company adopting any normal retirement date other than age 65. Godwins had advised the company of the various possibilities, but I think it is clear that Godwins' recommendation was that equalisation should be at 65. The information which Godwins supplied to the company was that most schemes were equalising at 65. The actuary was proceeding on the basis of a 65th birthday normal retirement date. And a critical point is that, as it appears to me, the company had firmly decided that equalisation should be at 65 for males and females. The minutes of the meeting on 1 March 1992 include this:
"Equalisation of Pension Ages
After consultation with our adviser, Godwins, it was decided that the Normal Retirement Age for men and women should be age 65 and the Scheme Rules are to be amended accordingly from 1 May 1992."
That meeting was attended by the managing director, the finance director and the personnel manager, who between them were obviously the key decision makers in the management of the company. Also present was Glenys Kelly, the managing director's secretary and a trustee of the pension scheme. At a date which I do not think is known exactly but which seems to have been slightly earlier than the time of the meeting the company circularised employees with information that the normal retirement date from 1 April 1992 was going to be 65.
- In my opinion it was plainly not the case that, if the trustees (including the four persons present at the above meeting) had thought about Mr Stallworthy's points or some of them and had invited PFPL to consider a normal retirement date of an age lower than 65 (probably 60), the company would have reconsidered. Let me suppose that Mr Stallworthy's points or some of them are or might be right and that PFPL could sensibly have decided to adopt a normal retirement age of 60. That makes no difference. The company had decided on 65 and it is fanciful to suppose that the company would have changed its decision. Nor is it as if the age of 65 was controversial in the minds of the trustees. Four of the six trustees had been present at the 1 March 1992 meeting and had made the decision that the age should be 65. Mr Darbon, who was not present, said in his evidence that he considered that the decision was one for the company to take, and I believe that Mr Whiting in re-examination accepted the inevitable in the same respect (see paragraph 95 above). It is not as if the age of 65 was inherently unreasonable or unacceptable. Sixty-five is a common retirement age in this country, and possibly the commonest age of all for businesses in the private sector.
- Suppose that when the trustees were invited to join with PFPL in executing the Definitive Deed and Rules, with the normal retirement age of 65 in them, the trustees or some of them had asked the company to consider adopting a lower normal retirement age instead. What would have happened? In my opinion the company would have said no. It would have said that it had firmly decided on 65, and that there was no point in reconsidering the matter. Those are, in my opinion, matters of what would have happened, not just of what might have happened. And what would have happened next? In my opinion the trustees would (again would, not might) have accepted the company's decision and joined with it in executing the Definitive Deed and Rules.
- So, to formulate the question in the form in which it arises in the specific context of the Hastings-Bass principle: if the trustees had considered the sort of matters which Mr Stallworthy has raised and which he says they ought to have considered but did not, 'might' the Rules have come to be expressed in terms of a normal retirement date, not of 65, but of a lower age such as 60? I answer the question: no, the rules 'would' not have adopted a lower normal retirement date; they 'would' still have adopted the normal retirement date of age 65
- For those reasons I do not accept the part of the counterclaim which seeks to set aside the choice of age 65 as the normal retirement date in the Rules which were adopted by PFPL and the trustees in 1992.
- I said in paragraph 125 above that Mr Stallworthy also advanced an argument that seeks to rely on equitable principles relating to mistake. The argument was that PFPL believed that the Rules which were adopted in 1992 mirrored the rules of the old Kidde scheme from which most of the members of the new PFP scheme had transferred when PFPL acquired one of the divisions of the former Kidde business. Mr Stallworthy says that PFPL was mistaken in that respect, and therefore provisions of the 1992 Rules which were less advantageous than provisions of the old Kidde scheme should be set aside by way of equitable relief for mistake.
- This is a comparatively small issue in the case, and fortunately I do not have to go into it. The reason is that Mr Stallworthy said that, if I accepted his submission, discussed earlier (see paragraphs 110 et seq above), that the doctrine of equitable relief for mistake has no application in the context of non-voluntary transactions like pension schemes, notwithstanding the obiter dicta in the AMP, Gallaher, and Irish Pensions cases that it does, he does not maintain his argument that the principle could apply in the manner which I have described in the foregoing paragraph. I have accepted Mr Stallworthy's submission in that respect, and in the circumstances I will not extend this already over-long judgment further by dealing with this argument which would take me back to the old Kidde scheme.
Conclusion
- I believe that I have now dealt with all the matters which require to be covered in this judgment. For the reasons which I have sought to explain I dismiss both the claim and the counterclaim.
