Univar UK Limited v Smith and others (High Court, 19 June 2020)

The High Court has granted rectification in respect of the Univar Company Pension Scheme (1978) (“the Scheme”), where an update to the rules of the Scheme had (unintentionally, it was argued) hard-coded RPI.

Facts

Univar UK Limited (“the Company”) sought rectification of the definitive deed and rules dated 13 March 2008 (the “2008 DDR”) which governed the Scheme. The two rules in question were those which provided for increases to pensions in payment and revaluation on pensions in deferment in the final salary section of the Scheme.

The previous iteration of the rules had provided for increases and revaluation to be calculated on the statutory basis, which had meant that, via the Government’s Orders, RPI would have applied until 2010, but that CPI would have been used from 2011 (following the Government’s move to CPI for indexation and revaluation purposes at that time).

The rectification sought was deletion of the references in the 2008 DDR to calculations being specifically based on RPI, and replacement with statutory references (which would in turn lead to CPI being the applicable index). The Company argued that neither it nor the trustees had intended to make a change to the Scheme’s rules to hard-code RPI. The change was calculated as costing the scheme an estimated £3 million.

The Representative Beneficiary argued against the rectification.

Judgment

The judge, Mr Justice Trower, found that it was clear on the facts that, while the trustees and the Company were involved in the drafting process and aware of the changes in wording being made, they did not understand the “significance or legal effect” of the proposed changes.

In order to be successful in a claim for rectification, a scheme needs to demonstrate that:

• the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified, and that this existed at the time of execution of the instrument
• the common continuing intention can be established objectively (that is to say by reference to what an objective observer would have thought the intentions of the parties to be), and
• by mistake, the instrument did not reflect that common intention.

The judge considered earlier authorities on rectification. He noted that:

• the intentions of a body such as a board of trustees will normally be established “by (or at least with the support of) documentary means” – that is, their subjective intent is most clearly established by the related (objective) documentation
• an “outward expression of accord” between parties is not required in cases where a pension scheme is concerned, and where trustees exercise their power to amend rules with the consent of the employer
• the intention not to make any specific change can be inferred from the absence of any evidence that there was an intention to make it; ie, the absence of any discussion of a change “may itself be evidence that the parties did not intend it”
• the fact that a party intends a particular form of words in the mistaken belief that it is achieving his intention does not prevent the court giving effect to the true common intention.

The judge held that it had been established that parties did not intend the increase and revaluation rules to gain the legal effect they had in the rewrite of the Scheme documentation. Amongst other things, the advisers’ “schedule of changes” to the drafting of the 2008 DDR did not identify the change.

Rectification was granted.

Comment

There appears to be a growing willingness on the part of the courts to grant rectification of pension scheme documents. However, this case demonstrates the critical importance of the factual information that would evidence the intention of those involved at the time. The fact that a mistake is “obvious” is not sufficient in and of itself to allow rectification; the legal test is well established, and the standard of proof is not insignificant.

Whilst many rectification cases are dealt with summarily, this cannot be assumed in all cases; here, a full hearing with witness evidence was required, as both parties had arguments that justified such an approach.