Parties work together for summary judgment to rectify a pension agreement

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In CitiFinancial Europe plc v Davidson and others, [1] the High Court made a practical decision to correct inaccurate terms in two pension agreements to reflect what the parties had originally agreed. In doing so, the court endorsed the use of the summary judgment procedure to effect the rectification of the agreements thereby giving the parties a decision more quickly and cost effectively than might have been the case had the issues proceeded to trial. We consider the key issues reviewed by the court and explain the hurdles the Claimant had to jump (in this case with the help of the Defendants) to gain summary judgment for rectification.

The Facts
The facts were summarised succinctly in the first paragraph of the judgment by the judge:

‘1-This is an application for summary judgment for rectification of the provisions of two documents forming part of a pension scheme. The scheme is divided into two sections. One is a “final salary” section under which defined benefits are calculated by reference to salary and length of pensionable services; this section of the scheme closed to new members in 1999 (“the DB Section”). The other section is a “money purchase” section, under which defined contributions are calculated by reference to actual contributions paid by members (“the DC Section”); this section of the scheme was available to both old and new members upon closure of the other section. The reason for having two sections was historical and arose as a result of the amalgamation of two different schemes.’

A replacement scheme document was issued in 2003 and was followed by a deed of amendment in 2004. Unfortunately, the wrong definition of ‘salary’ was mistakenly given to the DC section despite the parties’ intentions to the contrary.

When the parties discovered the error, they started court proceedings to rectify the two documents. An application for summary judgment followed.

The Claimant applied successfully under CPR rule 19.7(2)(d) for the Third Defendant, who was one of the members of the DC section, to represent all his fellow members and beneficiaries.

The First and Second Defendants were trustees of the pension scheme and adopted a neutral position in relation to the application for summary judgment. Their role was to ensure that the Third Defendant had properly considered all the possible arguments on behalf of the members and beneficiaries. The Third Defendant reviewed the issues and concluded that the Claimant’s application for summary judgment could not be defended with a real prospect of success.

Could rectification be granted?
With all parties broadly supportive of the application, the judge then had to consider whether rectification could be granted on a summary judgment application. Only a court can rectify an agreement and in order to do so, a claimant has to show that the parties have a common and continuing intention from the point of the incorrect agreement being executed which would have been apparent to an outsider and that by mistake, the agreement did not reflect that intention [2].

On the facts, the judge concluded:

  1. there had to be convincing proof that the documents as executed did not correspond with the parties’ continuing intentions [3];
  2. for summary judgment to be granted, the Claimant had to show there was no realistic prospect of a successful defence to the claim. Further there had to be no other reason for a trial to take place [4];
  3. while the rules referred to 1 and 2 set a high threshold, the court has power to grant rectification in an appropriate case by way of an application for summary judgment [5];
  4. the test for rectification of a pension scheme (as set out in the IBM case of 2012 [6]) required the court “to be satisfied by cogent evidence, objectively manifested that the Claimant as Principal Employer and the Trustees as a collective body each had the same continuing intention which by mistake was not reflected in the documents” [7];
  5. it did not need to be proved that the members shared the same intention as the Claimant and the Trustees (members are not to be treated as bona fide purchasers for value [8]).(The judge was surprised by this but satisfied that the members’ handbook reflected the Claimants’ and the Trustees’ intentions and therefore the members could not have been reasonably misled about what was intended.)

The judge reviewed the evidence which included witness statements, draft agreements, correspondence and various notes of meetings and was persuaded that it amounted to the ‘convincing proof’ needed that the parties had always and still intended that the DB and DC sections would each have a different definition of salary.

One point the evidence did not make clear was how the error had come to be made. This did not prove fatal however despite the inadvertent change to the documents being a fundamental one: in the absence of specific evidence showing that the change was intended by the parties, the judge relied on the decision in Industrial Acoustics Co Ltd v Crowhurst [2012] PLR 371 paragraph 45: ‘where a party intends that a revised deed will continue the status quo, the court may infer the requisite intention from the absence of express evidence to make the change’.

The judge therefore granted rectification which meant that the agreements were amended with retrospective effect to reflect the intentions of the parties.

Summary judgment – a useful process if the parties agree
The hearing of this matter lasted only a day and the judgment is short despite the complex legal issues involved. This is largely due to the fact that the parties and their legal teams appear to have collaborated throughout the summary judgment procedure and were in broad agreement that the parties’ intentions had not been reflected in the two agreements. In granting summary judgment, the judge thought it particularly important that the Third Defendant had agreed there was no reasonable chance of successfully defending this matter. In order to be sure of this point, the judge had even read the Third Defendant’s counsel’s advice on the matter – albeit in private.

In short, in appropriate circumstances, the summary judgment procedure is an efficient way of obtaining a speedy and cost effective rectification of errors in your pension schemes.

[1] CitiFinancial Europe plc v Davidson and others [2014] EWHC 1802 (Ch)
[2] As set out in Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153
[3] Thomas Bates & Son ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505, (at 521)
[3] Swain v Hillman [2001] 1 All ER 91
[4] Misys Ltd v Misys Retirement Benefits Transfers Ltd [2012] EWHC 4250 (Ch)
[5] Paragraphs [14] to [15] of IBM United Kingdom Pensions Trust Ltd. V IBM United Kingdom Holdings Ltd [2012] PLR 469
[6] Taken from paragraph 10 of the CitiFinancial judgment
[7] AMP (UK) plc v Barker [2001] PLR 77