|Delayed - 07/30 11:35:20 am|
Britvic : Court Of Appeal Overturns High Court Decision In Britvic On Pension Increase Provision
|06/15/2021 | 01:20am|
The Judge construed the words "any other rate" as meaning "any higher rate", the effect of which was that
The decision, another in a line of cases in which the courts have had to construe a pension increase rule, throws light on how the courts will approach "corrective construction" cases where it is argued that something had clearly gone wrong with the drafting.
Background to the issue
The Plan's rules contain a pension increase provision that on its face gives
The provision was first set out in Trust Deed and Rules dated
"(2) The part of a pension which exceeds any guaranteed minimum pension in payment is increased on 1 October in each year. The rate of increase is the percentage increase in the retail prices index during the year ending the previous 31 May but subject to a maximum of 5 per cent. [in relation to Pensionable Employment up to and including
The Plan's rules were consolidated in 2007 (the "2007 Rules") and Rule C.10 remained as set out above. The words in square brackets were added by a deed dated
HHJ Hodge was asked to construe Rule C.10(2) in the 2003 Rules (and 2007 Rules) as amended by the 2008 Deed and, in particular, the meaning of the words we have highlighted above.
HHJ Hodge concluded that Rule C.10(2) created a two-stage mechanism for increases to pensions in payment whereby:
- The Trustee would calculate and apply guaranteed increases based on the increase in RPI over the year to 31 May capped at 5% or 2.5% depending on period of service, described as the "default rate".
Britvicthen had a discretion to direct that a higher, but not a lower, rate of increase should be applied.
HHJ Hodge found that Rule C2(2) provided that increases to deferred pensions should be applied in the same way.
HHJ Hodge stated that he had construed the rule "with an eye to giving reasonable and practical effect to the scheme". Doing this, he concluded that
As part of what he considered to be admissible factual background, HHJ Hodge noted an outline benefit summary sent to prospective members of the Plan in 2002 that had stated that Plan benefits would replicate those of the Six Continents Pension Plan and the Six Continents Executive Pension Plan (the "Six Continents Plans"). The latter plan did not include a power to alter the rate of increase and an outline benefit summary for the former stated that increases were guaranteed at RPI up to 5%, with discretion for the employer to award a higher rate of increase. HHJ Hodge stated that members had consented to the transfer of their benefits from the Six Continents Plans to the Plan on the basis of such documents.
HHJ Hodge also said that the drafter of Rule C.10(2) would have had section 51 of the Pensions Act 1995 in mind and have had wanted to create a provision that complied with section 51(3) by requiring increases of at least the "relevant percentage" (as defined in the Act).
The Court of Appeal decision
The Master of the Rolls concluded that, "this is not a case where there has been sloppy or unclear drafting". It appeared that the drafter of the relevant provision had lifted the wording from the Six Continents Pension Plan, maybe without realising that the words "or any other rate decided by the Principal Employer" were not in the Six Continents Executive Pension Plan.
Summarising the case law on construction (including
The other four grounds of appeal
There were other aspects of the case on which
First, the Court decided that the words "any other rate" could mean "any other rate or rates" such that
Secondly, the Court found that
Thirdly, the Court found that the rate of increase chosen by
Fourthly, the Court found that HHJ Hodge had been wrong to decide that any figure decided on by
The Master of the Rolls concluded that Rule C.10(2) does not satisfy section 51(3) of the Pensions Act 1995 because the rule does not "require" increases of at least the "relevant percentage". This is because the
The practical effect of this (as acknowledged by Lord Justice Nugee) is that the rate of increase will oscillate between the rate to be applied under the Plan and the "appropriate percentage" under section 51(2) of the Act.
The Court of Appeal's judgment is another in the long line of cases on the approach to take when interpreting documents.
The Court placed heavy reliance on Barnardo's, in which the
A body of case law has developed on "corrective construction" whereby a court can, when interpreting a provision, make a correction when something has obviously gone wrong with the drafting. However, the
It appears from the
Those situations apart, the words of the document will be given their natural meaning and the parties will need to consider other remedies, such as rectification, if they are unhappy with the consequences of applying that natural meaning.
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