On the go: Soft drinks manufacturer Britvic will be able to reduce the inflation-proofing it provides for its defined benefit pension scheme, as the Court of Appeal has ruled in its favour.
In January 2020, the sponsor of the Britvic Pension Plan saw the High Court reject its interpretation of powers under its pension scheme rules, which at the time meant the scheme would have to continue to base its pension increases on the retail price index.
Judge David Hodge ruled at the time that the company can only implement a higher rate than the one mentioned in the scheme rules, but not a lower one, such as the consumer price index.
RPI generally runs at about 1 percentage point higher than CPI and is currently 2.9 per cent, compared with 1.5 per cent for CPI. Compounded over the years, the choice of the less generous index can result in pensioners losing thousands of pounds, despite CPI being considered a more accurate index.
In the High Court decision, the judge said that by including the words ‘or any other rate’ in parentheses in rule C.10 in the scheme’s trust deed, the draftsman of the pension rules could not have intended that the so-called altering power of the employer allowed it to apply either a higher or a lower rate of increase each year, as argued by Britvic.
In the decision of the Court of Appeal, Master of the Rolls Sir Geoffrey Vos came to a different conclusion, accepting that including the word ‘higher’ instead of ‘or any other rate’ would be “a desirable alteration, but it is very far from the only possible redrafting that would cure the mistake just as well”.
He said: “There are several quite reasonable possibilities, and neither the Britvic Pension Plan itself nor the admissible factual background tell the objective observer for sure which it should be.”
Vos allowed the Britvic appeal on each of its grounds, noting that the words ‘or any other rate’ “allow the employer to fix a rate of increase that is higher or lower than the capped limited price indexation for which the rule provides”.
Ian Gordon, head of pensions disputes at law firm Gowling WLG, which acted for the scheme trustees, noted that this judgment “is another in the long line of cases on the approach to take when interpreting documents”.
He said: “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 Court of Appeal's decision reflects a limit on such an approach to the interpretation of provisions in legal documentation,” Gordon noted, adding that “corrective construction is likely to be limited to cases where there is an obvious mistake on the face of the document or where applying the document's natural reading would lead to an irrational result”.
He added: “That apart, the document will be given its natural meaning and the parties will be left to other remedies such as rectification."
