Resolving mistakes in trust deeds and wills – a new, cheaper and quicker approach?

08 February 2016. Published by Rachael Healey, Partner

Claims are often made against professionals arising out of errors in trust deeds and wills.

This is particularly the case in relation to pension professionals and amendments to a pension scheme’s governing documents.  The position is often resolved by either a rectification or construction claim, with the costs of that claim met by a professional’s professional indemnity insurers. 

A recent case in the pension's area, BCA Pension Trustees Limited, raises the possibility of a quicker and less costly approach by way of an application under Section 48 of the Administration of Justice Act (Section 48).

Factual background

The background to the application was an error in the wording of a pension scheme’s governing documentation following a consolidation exercise – where the governing deed was consolidated with later amendments.  The error was in relation to the wording of the pension increase rule, with some text having been erroneously omitted from the consolidated text.

The original pension increase rule was contained in the trust deed and rules dated 24 March 1998 and reflected the statutory position at the time, increasing pensions by the lesser of 5% or RPI over from 6 April 1997.  A deed of amendment was then entered into on 30 March 2005 reducing the rate of increase to the lesser of 2.5% or RPI to reflect a statutory change.  The reduction in the applicable increase was not to apply to pensions in payment as at 6 April 2005 or to pension benefits earned before 6 April 2005.

Solicitors undertook a consolidation exercise that resulted in a consolidated trust deed and rules dated 2 November 2011. The consolidated rules were unclear and seemingly provided for different rates of increase to the same pension; effectively allowing members to elect which rate of increase applied.

It was not possible for the trustees to retrospectively amend the rule as to do so arguably reduced accrued benefits. Accordingly, the trustees obtained an opinion from a Q.C. and in reliance on that opinion sought an order from the court that they be authorised to administer the scheme on the basis that the erroneously deleted words, setting out which increase rule applied to which part of the pension, be read back into the scheme’s documentation. 

Section 48

Section 48 provides that where any question of construction has arisen out of the terms of a will or a trust and an opinion in writing given by a person who has a 10 year High Court qualification has been obtained by the personal representatives or trustees under the will or trust, the High Court may on the application of the personal representative or trustees without hearing argument, make an order authorising those persons to take such steps in reliance on the opinion. 

The High Court is not to make an order under Section 48 if it appears that a dispute exists which would make it inappropriate to make the order without hearing argument.

The High Court’s Approach

The High Court asked itself three questions – (1) what was the interpretation of the relevant pension increase rule, (2) what was the scope of section 48 and (3) what notification should be given to members of the pension scheme. Although the High Court acknowledged that an application under section 48 should normally be dealt with on paper, a short hearing took place to consider these issues.

The High Court set out the principles on which it will consider construction and rectification claims and then turned to the written opinion provided to the Court under Section 48.   The Court agreed that there was a mistake in the consolidated rules and that the pension increase rule did not make any sense; it could not be the case that on a consolidation exercise it could be envisaged that there would be such a radical change in the rules whereby members could pick the basis on which their pension increased. 

The Court also agreed that the construction necessary to cure the error was obvious – adding back in the part in the original rule omitted in error.  The Court concluded that adding in this wording did not create a new contractual provision in the rules that would otherwise work without the missing wording; the inclusion of the additional wording was necessary to make the wording work.

However, the High Court then went on to clarify that the decision did not bind members or beneficiaries who were not parties to the proceedings and with no representation order having been made.  The effect of an order under Section 48 was to protect the trustees against a complaint that they had incorrectly administered the scheme.

The High Court also ordered that given the decision related to the level of benefits payable to members, members should be told of the order unless there were compelling reasons to the contrary.  In this case a notification should be provided to members and this could form part of the usual update.

Limited effect?

As an order under Section 48 cannot bind members of a scheme or beneficiaries under a will, arguably in contentious cases Section 48 will not be the most appropriate course of action for trustees or a personal representative to take. 

Although more expensive, it is more likely than not that rectification or a construction claim are more appropriate to put the position beyond doubt.

However, in cases where an obvious error has been made, taking into account relevant documentation as a whole the correct position is obvious and therefore a successful challenge unlikely, Section 48 may offer a cheaper alternative to resolve an error for trustees, personal representatives and their professional advisers alike.

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