News analysis: Schemes and their advisers do not have to fear a Supreme Court judgment that has been predicted to make it harder for trustees to rectify mistakes, lawyers have said.
Key points
The judgment clarified the tests for effectively correcting mistakes and help in cases where a scheme has overpaid.
Trustees are not in breach if advice they followed turns out to be wrong.
Schemes tend to favour the 'rectification' procedure rather than Hastings-Bass to correct any errors.
Justices upheld an earlier Court of Appeal judgment in 2011 that had overturned the Hastings-Bass rule. The principle had given trustees a way to undo any significant errors such as paying a pension to the wrong person.
Though it has been predicted to lead to lawsuits from schemes against their advisers to redress mistakes, legal experts have said the verdict could help them correct some errors, and have questioned how much schemes had relied on the principle.
The judgment followed two cases, Pitt v Holt and Futter v Futter in 2011. The Pitt v Holt aspect, where the Supreme Court clarified the tests for effectively correcting mistakes, could actually help in cases where a scheme had paid out more than it should, said Giles Orton, partner at law firm Eversheds.
“In those sorts of cases, where it is clear something has been given away by mistake, the Pitt part of this judgment is helpful and should make it easier to undo mistakes,” Orton said. But it still removes an automatic “get out of jail free card”, he added.
Another consequence of the decision concerns whether trustees are in breach of trust if they follow advice that later turns out to be incorrect.
In the judgment, Lord Walker said: “Apart from exceptional circumstances (such as an impasse reached by honest and reasonable trustees) only breach of fiduciary duty justifies judicial intervention.”
Rosalind Connor, partner at Taylor Wessing, said: “One of the effects is that from the trustee’s point of view, the trustees are not acting in breach of trust if they follow advice that turns out to be wrong.”
If the advice did turn out to be wrong and a member loses out as a result, the member could no longer sue the scheme. “The member may want to look at ways in which they could sue the adviser directly themselves, and that is always a possibility, but it’s a harder claim to bring,” Connor added.
The rule, however, has not been widely used in pensions cases. “In the pensions area, we have been dealing with mistakes in documents for quite a while and I don’t think many have actually been relying on the Hastings-Bass doctrine to reverse things,” said Camilla Barry, partner at Macfarlanes.
Schemes and their lawyers had been relying on ‘rectification’ – a legal procedure to correct an unintended error – rather than the Hastings-Bass rule to make any changes needed. “I am not sure it is really going to change a lot of things, but it may be some people are sitting on big mistakes I don’t know about,” Barry said.
