Singapore Airlines case shows importance of clear rules

An ongoing Court of Appeal case has highlighted the need for schemes to ensure their rules are drafted with clarity to avoid expensive court applications.

The Singapore Airlines case involves a negligence claim against Buck Consultants for amendments made to the pension scheme's deed.

Lawyers have urged schemes to carry out an audit of their rules and deeds every 10 years to make sure they are up to date and relate to scheme practice.

Schemes that have been through mergers are especially encouraged to make regular checks as errors are more likely to occur in situations with consolidated rules and deeds.

Failure to ensure rules are up to date could lead to costly legal battles for schemes.

Singapore Airlines case

Buck Consultants changed the definition of pensionable pay in a 2000 deed, amending the 1981 rules of the Singapore Airlines Pension and Life Assurance Scheme. This affected the company’s ability to pay.

The airline took its claim to the Court of Appeal, having lost the original case in the High Court earlier this year.

The deed is open to human error and something could be missed at the drafting stage

The meaning of "fluctuating emoluments", mentioned in the scheme rules, was thrashed out in the Court of Appeal claim.

Michael Furness, QC at Wilberforce Chambers, referred to three sentences in the 1981 deed regarding what constituted pensionable pay. These related to earnings, fluctuating emoluments and hourly-paid workers.

He said the emphasis was on the definition of earnings from the annual rate of an employee’s basic remuneration. “[This] clearly doesn’t include anything that fluctuates,” he said.

The original judgement, handed down in January 2011, found in favour of the consultants.

The judge decided the 1981 rules already provided for fluctuating payments, so the 2000 deed just replicated them.

Wider implications

Parminder Latimer, director at Pitmans Lawyers, said clients should take a regular review of scheme documentation and compare them to scheme practice.

New documents, such as a members’ booklet or actuarial evaluations, should be checked by administrators to ensure the benefits actuaries are calculating for are correctly calculated in the scheme rules, Latimer said.

Rules that have the effect of uplifting benefits will continue to be under intense scrutiny

Errors may crop up with changes in the deeds of amendment that refer to other deeds, or through the consolidating of rules, taking on previous deeds of amendment.

Schemes should keep documents up to date, Latimer said. Good general practice is to carry out a check every 10 years.

The errors often involve historical documents as legalisation surrounding drafting practice has only recently tightened up.

“The deed is open to human error and something could be missed at the drafting stage between all parties,” she said.

“It is then executed and becomes an issue later on when other things arise. That’s been the case for a lot of disputes.”

Zoe Lynch, partner at Sackers, said: “Ultimately, although it was a victory for the draftsman of the rules, the Singapore Airlines case reminds us of the importance of clear and concise drafting of scheme documentation, as well as careful analysis of previous rules in place.”

Following recent cases highlighting the importance of clear scheme documentation, including Futter v Futter, Lynch added: “Given the financial pressure on schemes, rules that have the effect of uplifting benefits will continue to be under intense scrutiny.”