The magician’s wand – invalid amendments put right?

28 / 05 / 2019

In this article Clive Weber reviews the recent interesting Court of Appeal judgment on 10 May 2019 in BIC UK Limited v Burgess. The Court concluded there was no legal magic wand available to rescue pension increases previously minuted and announced.

Timeline

1990/1992 Trustees’ minutes and Member Announcement awarding pension increases for members’ pre-6 April 1997 service (“Increases”).
1993 New Deed and Rules retrospective to August 1990.
2011 The Employer, BIC UK Limited argues the Increases are invalid.
2018 High Court decides the Increases are valid.
2019 Court of Appeal unanimously disagrees with the High Court – the Increases are not valid.

Legal arguments

The scheme’s 1991 Rules permitted amendments by deed, or by “writing effected under hand by the Trustees and the Principal Employer“. The trustees argued the 1991 Minutes were sufficient for this purpose or, if not, the maximum equity looks on that as done which should have been done cures the problem.

The High Court decided the 1991 Minutes were not valid amendments as they were signed by only one of the three trustees, and were not signed by the Principal Employer. This was accepted by the parties when the case reached the Court of Appeal.

The argument before the Court of Appeal focused on whether the 1993 Deed, which retrospectively  introduced various powers such as to award increases, could also be treated as an exercise of those powers so as to validate the 1991 Increases.

Court of Appeal’s approach

The Court accepted that the 1993 Deed and Rules retrospectively introduced the relevant powers which, had they existed in 1991, could have been used validly to introduce the Increases. However, there was no evidence of such powers having been exercised. The Court was not prepared to read in an exercise of the power: “events which never took place cannot later be turned by magic into events which did in fact happen“. The Court agreed that scheme provisions can be expressly altered retrospectively, but neither the 2003 Deed (nor the subsequent 2006 Deed) contained any express exercises of powers regarding the Increases.

The trustees pointed to the legal principle that in appropriate circumstances a clear intention to exercise a power, can itself be treated as an exercise of the power. But the Court of Appeal held firstly that the power must be a power existing at the time of its exercise and not under a power introduced retrospectively; and, secondly, the intention was incompatible with the terms of the 1993 Deed which provided only for increases to GMPs and not any further increases.

Wedlake Bell comments

A lot at stake here – the Increases being legally invalid reduced the scheme’s member liabilities by some £5 million. Members being deprived of Increases (some 14 years after their award in some cases) is harsh. Especially when viewed against the background of the employer’s intention – one wonders why there was not more focus on the employer being bound by its past intentions, and on its delay of some 18 years in raising objection. The scheme was administered from 1991 as if the Increases were valid and, it seems, the employer was aware of this throughout. Rather than the trustees seeking to bring the magic wand of retrospective amendments out of the tool box, one wonders whether legal principles relating to delay and estoppel would have been more productive from the trustees’ and members’ perspectives. As the Court of Appeal commented, it would have been open to the trustees and the principal employer to use their alteration power to validate the amendments had “the Trustees and BIC UK directed their minds to the problem“. This promotes the question whether there was a legal duty on both parties to direct their minds much sooner to the problem and to have validated the Increases.