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Powers in the past

15 May 17

Pensions briefing: a new decision shows the Scottish courts adopting a commonsense approach to the question whether amendments to a pension scheme in the 1990s were effectively made

by Katie Kerr

In Trustees of the Johnston Press Pension Plan v Sedgwick Noble Lowndes Ltd [2017] CSOH 21 (10 February 2017), the Court of Session adopted a commonsense approach to interpretation of pension scheme documentation which means the wheels of business can keep going smoothly round.

Background

Following the judgment of the European Court of Justice in Barber v Guardian Royal Exchange Assurance Group [1990] ECR I-1889, employers and trustees of pension schemes are obliged to equalise normal retirement ages for men and women. Most achieve this by amending their schemes to raise the retirement age for women (typically 60) to that for men (typically 65). For the period of time between the date of the Barber judgment (17 May 1990) and the date on which normal retirement ages are equalised (known as the “Barber window”), benefits of the disadvantaged sex have to be “levelled up” to those of the advantaged sex. Any changes to a normal retirement age should be implemented in a way which complies with the terms of a scheme’s amendment power, and if the change was not implemented when first thought, this can cause a significant increase in the liabilities of the scheme.

Johnston Press concerned four separate pension schemes whose assets and liabilities were transferred into the Johnston Press Pension Plan. It was believed that normal retirement ages were equalised for men and women at age 65 in 1993-94, but on reviewing matters two decades later, there was concern that the correct amendment formalities had not been properly followed. An action for breach of contract and delictual duties against the professional advisers at the time was raised in the Court of Session. The defenders denied any breach of duty and argued on the basis of narrated facts and documentation that it could reasonably be inferred that the necessary steps were taken to close the Barber window in each scheme, with the consequence that no additional benefits would be due to members. As the events giving rise to the action had taken place more than 20 years ago, the documentation remaining after such a long passage of time was incomplete despite extensive searches having been carried out. After considering the steps taken by each of the schemes individually to equalise normal retirement ages, Commercial Court judge Lord Tyre concluded that the trustees of each scheme had equalised benefits when they intended.

In reaching his decisions Lord Tyre applied the Latin maxim omnia praesumuntur rite esse acta (also known as the presumption of regularity), which in essence means “all things are presumed to have been done duly and in the usual manner”. He referred to a number of recent equalisation cases, including the Inner House Scottish Solicitors’ Staff Pension Fund v Pattison & Sim 2016 SC 284, in which Lord Drummond Young noted: “In considering transactions that have taken place a significant time in the past, there is a general presumption that all necessary procedures have been properly followed, the result being that the burden of proving otherwise rests with any party who challenges the transaction.” He referred to the lack of challenge at the time the amendment was made, and the fact that all concerned had proceeded on the basis that the amendment had been validly made. He held that those challenging the amendments in Johnston Press had failed to rebut the presumption of regularity. Absolvitor was granted in favour of the professional advisers.    

Commentary

The case will be of particular interest to trustees and employers of pension schemes who are concerned about past amendments, especially as the potential additional equalisation liability can be significant. It is the latest in a series of pension scheme equalisation cases in which the Scottish courts (with some exceptions) seem to be adopting a practical, less strict approach to the interpretation of pension scheme documentation. This contrasts with the English courts which generally appear to adopt a more strict and literal interpretation. It is a welcome decision in the commercial world where, as Lord Drummond Young commented in Scottish Solicitors Staff Pension Scheme, transactions do not stand alone but are relied on by the parties and others in their future dealings. Allowing a party to challenge the validity of a transaction long after the event “would be an intolerable situation, both in the commercial world and elsewhere”.  

Katie Kerr, senior associate, Pensions, DWF LLP

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