An alternative way to correct mistakes in scheme documents

But trustees may also be able to take advantage of section 48 of the Administration of Justice Act 1985, which was the action taken in the case of Re BCA Pension Plan.

Rectification or construction application?

Rectification is available if a drafting mistake means a document fails to express the parties’ common intentions and correction by other means is not conveniently achievable.

The evidential burden for rectification is high, requiring statements from representative beneficiaries and expert witnesses to, among other things, prove the parties’ common intention.

This, coupled with the fact that the parties’ historic intentions may be hard to establish – due to possible gaps in records and the passage of time – can make the rectification process long and costly.

There has been a recent trend for rectification cases to be dealt with by way of summary judgment, avoiding a full trial.

However, the appropriate test for securing summary judgment is high: the representative beneficiary must have no real prospect of successfully defending the rectification claim, and there must be no other compelling reason why the case should go to a full hearing.

And even where the application is clear and there are no grounds for objection, obtaining a hearing date can take months.

The judge agreed there had been an obvious drafting mistake, and the intention could not have been to allow members effectively to choose the most favourable level of increase

A speedier route is a ‘construction application’, which empowers a court to grant an order authorising a trustee to take a certain action under the scheme rules, relying on an opinion from a barrister with at least 10 years’ call.

This approach does not involve a hearing, and the employer is not represented unless the construction of the rules is disputed.

The BCA case

In this case, the rules provided various levels of increase for benefits accrued during different periods of service.

Following a consolidation exercise, crucial wording clarifying the benefits to which the different rates of increase applied was mistakenly omitted.

A barrister’s opinion stated that this made the consolidated rules unworkable and the court could therefore conclude that a drafting error had occurred.

The trustee made a section 48 application, requesting a court order for the plan to continue to be administered as though the wrongly deleted words had not been omitted.

The judge agreed there had been an obvious drafting mistake as the increase rule no longer made sense, and the intention could not have been to allow members effectively to choose the most favourable level of increase.

The court therefore granted the trustee’s application, allowing the omitted words to be read into the increase rule.

A viable but not an easy route

A disadvantage to the section 48 procedure is that while a court order protects the trustees against claims of maladministration, it does not bind scheme members.

The members are free to contend that a different construction of the rules should apply. However, in BCA, the judge accepted the trustee’s argument that notifying all members individually of the order was impractical, and that this could be achieved via the next regular scheme communication.

After BCA, using a construction application to correct scheme mistakes appears to be a more viable option, and it is easy to see why employers might prefer to avoid the costs and management time involved in a full rectification claim.

However, to view a construction application as an easy option would be wrong. In BCA, previous versions of the plan’s rules showed that the consolidated version was obviously unworkable.

Such clear evidence is uncommon, making section 48 applications unsuitable in many cases. Where rules make sense but do not reflect the parties’ intentions, the appropriate course of action remains rectification.

Lesley Harrold is a senior knowledge lawyer and Susan Dingwall a partner at law firm Norton Rose Fulbright