Smithson & Ors v Hamilton

On 10 December 2007 Sir Andrew Park handed down judgment in the case of Smithson & Others v Hamilton, which is now reported at [2008] 1 WLR 1453. By his judgment he dismissed a claim and a counterclaim. The claimants were the trustees and participating companies of a company pension scheme. The defendant, Mr Hamilton, was a deferred member of the scheme. The scheme was established by an interim deed, which provided for its regulation on an interim basis until it was superseded by the definitive deed, which introduced scheme rules with retrospective effect. The parties to the definitive deed were the principal employer and the original trustees; they were all officers and employees of that company.

There was a defect in the drafting of the scheme rules and it is common ground that this was the result of a mistake. By a mistake the rules provided that a deferred member who had attained the age of 60 could take an immediate pension without any actuarial reduction for early payment. This was in contrast to the early retirement pension to which an active member was entitled on or after the age of 60. That was subject to actuarial reduction. The effects of the rule as it was drafted were not appreciated at the time of the execution of the definitive deed or for a period of about seven years thereafter.

The claimants started proceedings in September 2005. The application was not for rectification of the scheme. The claim sought that the offending rule, 3.5.2.1, should be set aside as regards relevant words or declared void in reliance on the principle that, where a trustee exercised a discretion pursuant to the terms of the trust and the effect of the exercise was different from that intended, the court would set aside his action if it was clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account, or taken into account considerations which he ought not to have taken into account.

The claimants submitted that the decision to introduce the rule by entering into a definitive deed was vitiated because the decision had been made without the original trustees taking any, or any proper, account of the true effect of the rule as drafted, the discrepancy between the position of deferred and active members on retirement between 60 and 65 and the effect on the cost of funding the scheme. Alternatively, relief was sought in equity from the consequences of the mistake.

As I said, Sir Andrew Park dismissed the claim and the counterclaim, for the very detailed reasons which are given in his judgment. There was an appeal to this court by the claimants and there was a cross-appeal by Mr Hamilton, the cross-appeal raising points of laches and also a separate point relating to the manner in which the trustees had equalised the normal retiring date in the scheme following the ruling of the Court of Justice.

The appeal was due to be heard by this court starting today. The court was then notified that a compromise had been reached between the parties and what was now sought from the court was approval of the compromise under part 19.7 CPR. 19.7 deals with the representation of interested parties who cannot be ascertained, and who are affected by other circumstances covered by the rule. 19.7 provides that the rule applies to, among other things, claims about “(c) the meaning of a document” and also, in (b), “property subject to a trust”. Paragraph (2) provides that: “The court can make an order appointing a person to represent any other person or persons in the claim where the person or persons to be represented…” and then (d) says: “…are a class of persons who have the same interest in a claim” and (i) says: “one or more persons of that class are within subparagraphs (a), (b) or (c)” -- that is, persons who are unborn, cannot be found, or cannot easily be ascertained -- or (ii) “to appoint a representative would further the overriding objective.” Under (3) an application for an order under paragraph (2) may be made by “(i) any person who seeks to be appointed under the order; or (ii) any party to the claim” and (b) “may be made at any time before or after the claim has started”. Provision is then made in (4) for the application notice for an order under paragraph (2) to be served on the parties there mentioned or other persons as directed by the court. (5) provides: “The court’s approval is required to settle a claim in which a party is acting as a representative under this rule”. (6): “The court may approve a settlement where it is satisfied that the settlement is for the benefit of all represented parties”. And (7): “Unless the court otherwise directs, any judgment or order given in a claim in which a party is acting as a representative under this rule – (a) is binding on all persons represented in the claim” and then (b) is not material to the circumstances of this case.

So what I have been asked to do is to make representation orders under CPR 19 and to approve the compromise in the terms of agreement contained in a schedule to the draft order if I am satisfied that it is for the benefit of all the persons represented by the foregoing representation orders.

The representation orders which I am asked to make and do make pursuant to 19.7.2 are that the respondent be appointed to represent: (1) all members of the scheme in whose interests it is or may be to argue that the relevant words should not be avoided; (2) all members of the scheme in whose interests it is or may be to argue that their normal retirement date as defined in the rules remains 60 in respect of pensionable service on or after 1 April 1992; and (3) all widows, widowers and dependants of persons falling within (1) or (2), having or potentially having an interest under the scheme.

I also make the representation order which is requested pursuant to CPR 19.7.2 that the sixth appellant (that is, Siemens Building Technologies Limited) be appointed to represent all other members of the scheme and the widows, widowers and dependants of such persons.

As regards the question whether the settlement which is contained in the schedule to the draft order is for the benefit of all the parties represented by those representation orders, I have had the benefit first of seeing not only the judgment in the court below, but the skeleton arguments which were prepared for the purposes of the appeal. I have also had written submissions, both from the appellants and the respondent on the question of the compromise. In addition to that, I have heard from Mr Newman who represents the appellants. I have heard from him, in the absence of the representatives of the respondents, submissions in respect of the approval of the scheme on the particular issue which is dealt with in the second witness statement of Nicola Siobhan Yarwood. That statement was made to provide the court with information as to the financial state of the scheme and of the companies who owe funding obligations to the scheme in order to assist the court in determining whether the proposed compromise in the appeal is in the interests of the beneficiaries represented by the sixth appellant, which is the principal employer of the scheme.

The material put before the court contains confidential material that is sensitive and I will not mention that. I was taken with care by Mr Newman through the contents of that witness statement. I have also heard submissions from Mr Nugee, in the absence of the appellant’s representatives, as to why he was contending that the compromise was in the interests of the members who are represented by the respondent and in addition to his written submissions on the proposed compromise he took me through the main points which are made in the opinion which is given by him and Mr Stallworthy on the merits of the compromise. I am able to say that I am satisfied by the submissions which I have heard, both with all parties present and in the case of each side with the other one being absent, that I ought to make an order stating that I am satisfied that the compromise in the terms of the agreement contained in the schedule to the draft order is for the benefit of all persons represented by both representation orders. I will formally approve the terms of compromise pursuant to the powers conferred by CPR rule 19.76 and I will order that the relevant words in the scheme be “treated as being avoided”. Those words make a slight amendment to the terms of the draft order put before me.

There is an uncontroversial provision in the order as to the costs and that is that the respondent’s costs are to be paid by the sixth appellant, and those costs are to be assessed on the indemnity basis if not agreed. That leaves only one matter on which I heard argument and that is whether, having approved the terms of compromise, I should simply say that the terms of compromise should be binding on all such persons, or whether I should say that they should only be binding as from a certain date allowing any such person on whom they would be binding to exercise a liberty to apply in the meantime to the court. I have heard rival submissions about this and I have to say I have not found it an easy matter. Mr Newman presented various arguments as to why it was unnecessary and undesirable to say more than simply that the terms of compromise would be binding on all the parties. If that was the view that I formed, and it is, then the effect of the approval of the compromise would be to bind everybody who was represented by the representation orders, and he said that to say that this was only to be effective from a certain date would lead to further expense being incurred on his side, which would be in the form of irrecoverable costs; that there was a risk of not having finality to this matter and it was placing on his clients an unnecessary burden. The whole point of having the procedure that is laid down in CPR 19 was to bring finality to a dispute that was compromised when the court was satisfied that it was for the benefit of those who were represented by the representation orders. He made strong points as to the administrative difficulties of and the costs that would be incurred in including in the order a provision that the compromise would only be binding as from a date before which parties had been at liberty to apply.

Nr Nugee, for the respondent, made it clear that he was not particularly urging on the court a provision that the terms of compromise should be binding only as from a certain date. His position was that, if the court directed it was not necessary to take this course, he and his clients would be satisfied simply by having raised the question with the court. It is, however, relevant to note the reason why he had raised the issue in the first place. He explained in paragraph 16 of his written submissions that he had raised the issue for three reasons: first to protect Mr Hamilton personally from any complaint by other members of the scheme that he should not have agreed to the settlement; two, to forestall any criticism of his instructing solicitors that they owed a duty to the represented parties; and three to answer any suggestion that it is a breach of a member’s Article 6 Convention rights to determine his civil rights by compromise without him personally being given an opportunity for a hearing. Mr Newman has drawn my attention to the commentary on Article 6 in the second edition of Lester and Pannick on Human Rights Law and Practice, submitting that there really is no ground under Article 6 for questioning the effectiveness of the provisions of CPR 19.7 and their compliance with Article 6. I am inclined to agree with him about that. On the other hand, I am influenced by the consideration that there may be people in the position of Mr Hamilton who know nothing about this compromise and may well be concerned that their rights have been affected by this order without them knowing anything at all about what is happening. On balance I think it would be preferable to include in the order a provision to this effect: that the terms of compromise be binding on all parties as from 28 days after the dispatch of a letter by the trustees to the members of the scheme affected by the compromise, any such person to be at liberty to apply in the meantime. I should make it clear, to allay as far as I can the concerns of the trustees, that I am not saying anything to encourage any such person to take advantage of this liberty to apply.

For the reasons which I have given, I am completely satisfied by consideration of the arguments and the documents that this compromise is for the benefit of everybody who is represented by the two representation orders. The only reason that I am including this provision is out of a concern, partly raised by Mr Nugee and some concern that I have taken on board as judge in this case, that parties may be more aggrieved by an order being made affecting them when they know nothing about it than they will be by the effect of the order on them. I think if they wish to have an explanation of what has happened then it should be given to them in advance of the order finally taking full effect. So I make it clear again I am not encouraging anybody to take this up. It is out of concern for the sensitivities of a situation in which the rights of a member of a pension scheme may be affected by the order that has been made.

That is the order that I propose to make. The only amendments to the draft putting the words “be treated as being avoided” instead of the relevant words “be avoided” and the provision which I have mentioned in relation to the terms being binding as from 28 days after the dispatch of the letter.