Fawlty Towers. Series 1 Episode 6. Comic genius John Cleese’s finest half hour. Well, except for episode nine of the first series of Monty Python’s Flying Circus. You know. The one with the Lumberjack Song in it. And the films, obviously, but they were more than half an hour. So comic genius John Cleese’s second finest half hour, not counting the films. It was absolutely hilarious! “Don’t mention the war!”
Faulty pension scheme documents. Not funny at all.
A recent case (Honda Motor Europe Ltd and another v Powell and another (2014) highlights the risks associated with documenting amendments to pension schemes.
The first case related to the Honda Group UK Pension Scheme (the Scheme). Honda Motor Europe Ltd (HME) decided to extend membership of the Scheme to employees of Honda UK Manufacturing Ltd (HUM). The intention was that HUM’s employees would receive less generous benefits in the Scheme than those available to existing HME members. Although an announcement to this effect was made by HME to the HUM employees, the new HUM benefit scale was not formally incorporated into the Scheme’s trust deed at the time.
A deed of adherence in respect of HME was executed on 6 October 1986 with effect from 1 August 1986 which was expressed to “extend the benefits of the Scheme” to HUM’s employees. The HUM benefit scale was not formally documented until 10 December 1998.
The question arose as to which benefit scale applied to HUM employees’ pension accruals between 1 August 1986 and 10 December 1998, and whether the correct formalities had been undertaken to introduce the HUM benefit scale into the Scheme. Now I’m not a lawyer, but given the reported wording of the deed of adherence, it seems unsurprising that the Courts concluded that the only benefits which could have been extended to the new members were the HME benefits in force at that time. In the beautifully understated language of the Court construing the effect of the various documents to mean that the benefit scale had properly been amended for HUM employess in 1986 “require[d] too much of the construction process”. This decision was, unsurprisingly, appealed by the employer.
Dismissing the employers’ appeal, the Court of Appeal held there was no indication anything had “gone wrong with the language” of the deed of adherence. The deed had to be interpreted on the basis of what its words would have meant to a reasonable reader, and on the basis of what they were meant to say. As such, the deed’s meaning and effect were reasonably clear. As part of their appeal the employers sought to rely on the equitable maxim that “equity regards that as done which ought to be done” or, as we have previously blogged, if it looks like a duck, quacks like a duck and walks like a duck then, legally, it’s a duck.
The Court of Appeal was apparently keen to maintain the distinction between rectification and construction. The Court of Appeal also noted the parties had agreed to put rectification to one side pending the outcome of the interpretation claim, but they would be entitled to pursue the rectification route (or claim that it was, legally, a duck) in separate proceedings if they wished.
The estimated cost of unintentionally providing the “excess” benefits is £47 million.