Merchant Navy Officers Pension Fund Trustees Ltd (MNOPF) v Watkins

This is the trial of a claim for rectification of the current Trust Deed and rules governing the operation of the Merchant Navy Officers Pension Fund which came into effect in 1999. The claimant is the trustee of the fund and the defendant is a member of the scheme. It is intended that he will be appointed to represent all members whose interests would be adversely affected if the rectification claim which the claimant advances were to succeed.

It will be convenient to deal at the outset with the question of representation. The defendant’s solicitors have conducted a consultation exercise over a period of four weeks from 5 November 2013. I am satisfied that that period is sufficient in all the circumstances, including the fact that there may be a small number of persons affected who will have been at sea during that period. The number is likely to be small because, in order to be affected, they will have had to have been in pensionable service prior to 5 April 1978 and still be in service now - which will have the inevitable effect of limiting their numbers.

I have read the responses received from the consultation exercise and I am satisfied that they raise no substantial ground for resisting the claim. Two themes run through them; one is delay and the other is a concern that existing benefits will be removed. As to delay, the problem to which these proceedings are directed arose only in the course of 2012 and the trustee has acted promptly since it did arise. As to the latter, the consultation announcement made clear that if the rectification claim succeeds there will be no effect on existing benefits. All the rectification position would produce if it were to fail would be that there would be an increase over what the members have up until now expected to receive. I have also heard from the defendant’s counsel, Mr Tennet, Queen’s Counsel, and I am satisfied that he is right in his careful and thorough assessment that no argument can properly be advanced against rectification.

I can now turn to the substance. It is necessary for me to do so in some little detail since the fact that the claim is not opposed does not automatically mean that it must succeed. It is necessary for the claimant to satisfy the court that there is sufficiently compelling evidence that a mistake has been made in that the deed and rules as executed did not or might not have accurately represented the true intention of the claimant at the time.

The MNOPF is an industry-wide multi-employer occupational pension scheme which has two sections called the old section and the new section. The old section provides benefits in respect of contributions paid during service up to 5 April 1978 and the new section provides benefits in respect of service accrued on or after that date. The scheme has always been administered on the basis that in respect of old section benefits (in contrast to the position in respect of new section benefits) there is no guaranteed revaluation of deferred pensions. Instead the claimant may each year, having taken actuarial advice, award a discretionary increase. The approach to which I have just referred is consistent with the relevant statutory requirements.

However, in the course of 2012 it emerged that the policy of giving merely discretionary increases might fall foul of the requirements of Rule 10.1 of the 1999 Deed and Rules. Prior to an amendment made in 1999, with which amendment these proceedings are concerned, Rule 10.1 of the Trust Deed and rules as it appeared in the 1995 iteration of the deed was in the following terms:

“A deferred pension to commence on attainment of Normal Pension Age or earlier retirement permitted under these Rules of an annual amount in the aggregate of;

(i)

1/40th of his Average Revalued Pensionable Salary (proportionately for part of a year) for each year of his Service [a defined term meaning service after 5 April 1978], and

(ii)

for his pre 78 Service the pension secured to him at Normal Pension Age by the contributions paid in respect of him to the pre 1978 section.

In respect of those Deferred Pensioners who left service on or after 1 January 1986 and started to draw their pension before 1 April 1990 the part of their Deferred Pension under (i) above that is in excess of the Guaranteed Minimum Pension shall be increased at Normal Pension Age by the appropriate amount as prescribed in the 1993 Act”.

There then followed provision for increase at different rates depending upon the date on which the pension came into payment.

The deed and rules were amended in 1999 and as amended Rule 10.1 read as follows:

“10.1.1

A deferred pension to commence on attainment of Normal Pension Age or earlier retirement permitted under these Rules of an annual amount calculated in accordance with Rule 6.0.

10.1.2

In respect of those Deferred Pensioners who left Service on or after 1 January 1986 and started to draw their pension at Normal Pension Age before 1 April 1990 the part of their Deferred Pension under Rule 10.1.1 that is in excess of the GMP shall be increased at Normal Pension Age by the appropriate percentage as prescribed in the 1993 Act.”

Subsequent provisions of the rule again applied different rates of increase depending upon when the pension came into payment.

In the version of Rule 10.1 as it appears in the 1995 deed it is clear from the reference to increase to “the part of the deferred pension under (i) above” that it is only the new section benefits which are to be subject to automatic increase. By contrast, the apparent effect of the amendment made in 1999 is that, because of the reference to Rule 6.0 (which defines the entirety of the pension, including the old section benefits), the increase is to apply not merely to new section benefits but also to old section benefits. The claimant says that this was not the intention and that if what it does is to require a revaluation of the old service benefits as well as the new service benefits, it is a mistake.

The claimant is not in these proceedings seeking to have the true construction of the 1999 version of Rule 10.1 determined. What it says instead is that the existence of uncertainty as to its meaning is sufficient to justify the claimant in seeking rectification without incurring the expense of time and money that would be involved in first construing the provision, particularly since that construction exercise will be conducted against the background of what as the claimant said, and I have already indicated I agree, is a strong rectification case. Although at first sight I found it surprising that it is possible to mount a rectification claim in circumstances where the documents sought to be rectified may actually accord with the true intention, the approach is one which is supported by authority and I am happy to follow that authority. The authority to which I refer is in two cases, Walker v Armstrong [1856] 8 De G.M & G at page 542 by Knight Bruce J and Re Hampel Discretionary Trust 1999 [2012] EWHC 2395 Ch. by Henderson J, paragraph 16.

It is a feature of the present case that the power to amend is given unilaterally to the claimant. The consent of one or more of the scheme employers is not necessary. In those circumstances, the relevant intention that has to be ascertained is that of the claimant itself and not of any other person. The claimant operates through a trustee board and it is the collective intention of the board that is relevant as being in effect the intention of the claimant company. The position appears to me to be analogous to that of a trustee power of amendment in a private trust context where no consent is required. In that context, rectification clearly is available (see Re Butlins Settlement [1976] Ch 251). I see no reason why the same should not apply in a case like the present. It is nevertheless as always in a rectification claim necessary to find compelling evidence that the words of the document (in this case of Rule 10.1) did not in fact reflect the intention of the trustee board.

The relevant case on that matter is fully rehearsed in the Details of Claim and I shall need to make limited reference to those only. However, I am satisfied that the whole of the Details of Claim document accurately reflects facts which are vouched for in the evidence. The material on which the claimant relies in support of the rectification claim comes under seven categories. The first category is contemporary expressed statements of intention, in particular as set out in documents of the trustee meetings and correspondence with those drafting them. I need to refer to three elements of that material, all which relate to the board meeting held on 24 March 1999 at which the trustee board resolved to make the amendments, including the amendment to Rule10.1. Material leading up to that meeting is also relevant and is again set out in the Details of Claim and I do not feel it necessary to set it out here.

However, I feel that it is necessary to make reference first of all to a letter from the solicitors who were engaged in the drafting of the revised deed, Messrs Rowe & Maw. On 16 March 1999 they wrote a letter which was intended to be put before the members of the trustee board in which they commented on the revised draft. Among other things they said this:

“Our brief in preparing the revised definitive Trust Deed and Rules has been to update the Trust Deed and Rules dated 27 January 1995 to include the following:

(a)

The amendments introduced by all subsequent completed Deeds of Variation;

(b)

Our proposed amendments to Rule 6.2 (Postponed Retirement), now Rule 6.1;

(c)

Two rule changes proposed at point 5 of an Announcement dated March 1997 to Members relating to Rule 6.2.0(d) (ill-health pension) and Rule 8.1 (widow’s/widower’s pension);

(d)

Changes to Rules 5.5, 9.5 and 12.0 which are described below;

(e)

Updated statutory references and other changes to take account of the Pensions Schemes Act, 1993 and the Pensions Act 1995.”

That list of matters included in their brief is important, because none of the five items which they list is capable of covering the compulsory accruer that Rule 10.1 appears to provide for. Their letter also contained the recommendation that the claimant could “in our view properly agree to the amendments to the Trust Deed and Rules contained in the draft”. As is the custom for meetings of the trustee board, they were provided with what is called an “Administration Report” for the purposes of the meeting and the one circulated in advance of the meeting of 24 March 1999 included the following statement:

“Over the last year or so the Working Party and Rowe & Maw have been revising the January 1995 Trust Deed and Rules principally to incorporate the subsequent Deeds of Variation (largely relating to the restructuring of the Fund in 1996) and to make changes consequent upon the Pensions Act 1995. The opportunity has also been taken to make a few changes of detail to clarify rules which from experience have proved to be awkwardly worded.

Attached as appendix 3a is a letter from Rowe & Maw confirming that it is in order for the trustee to approve the revised Trust Deed and Rules for signature and drawing attention to various matters. The revised Trust Deed and Rules is bound separately as appendix 3b.

The Actuary has been approached regarding “Section 67” and the “Regulation 42” certificates mentioned by Rowe & Maw.

The Board is asked to authorise John Newman and William Everard to witness the sealing of the Deed, subject to confirmation from the Actuary that he can give the above certificates.”

I finally quote from the minutes of the board meeting held on 24 March 1999:

“The Chairman reported that the new draft version of the Trust Deed and Rules had been completed by the working party with input from Rowe & Maw. He said that the Board was hugely indebted to the work of Mr McEwen and Mr Lusted in preparing this draft. The Board noted its collective responsibility for its accuracy.

Mr Thompson of Rowe & Maw said that some minor amendments had been made to some Rules to clarify their meaning and it was noted that an actuarial certificate was needed under the requirements of Section 67 of the Pensions Act 1995, certifying that no changes had been made to the Trust Deed and Rules which would prejudicially affect the accrued rights of members.

Mr Lockhouse, the Fund actuary, commented that subject to a minor issue being resolved, he should be able to provide this certificate. The Board discussed the draft Trust Deed and Rules and, in reply to a question, Mr Thompson confirmed that Rule 3(1)(i) would not be applicable retrospectively.

The Board unanimously approved the Trust Deed and Rules and authorised the Chairman and Vice Chairman to witness its sealing subject to any minor drafting changes and receipt the actuarial certificate discussed earlier.”

What that sequence of quotations appears to me to demonstrate is that what the trustee board conceived itself to be doing was approving a Trust Deed and Rules that were consistent with the brief as defined in Rowe & Maw’s letter. The reference in the board minute to the board noting its collective responsibility for its accuracy indicates that the entirety of the board subscribed to the accuracy of the document and in particular, its consistency with the brief as described by Rowe & Maw. No substantial change was intended to be made to the substance of that brief; the only matters being left outstanding were minor drafting changes. That material together with the earlier material contained or referred to in the Details of Claim appears to me strongly to support the proposition that what the board intended was no more than the incorporation of those matters which are referred to in the brief and, in particular, they did not intend to make any change in the way in which deferred pensions were revalued.

The second category of material that the claimant relies on is a negative one; it is the absence of any material indicating that any consideration was given to introducing guaranteed increases for old section benefits, whether by way of work from the actuary or otherwise. It is indeed the case that the actuary was not asked to advise on the potential funding impact of the change to the revaluation approach. It is the case that nothing in the surrounding material indicated that there was any intention to do anything to the revaluation operation, certainly not what appears to have been done by Rule 10.1. It is also the case that at the very same meeting as approved the amendments the trustee board considered the position in respect of discretionary increases for pensions in payment and pensions in deferment. Having considered advice on the funding position of the scheme, the claimant decided to defer a discretionary increase that had previously been planned for 1 April 1999. The claimant says, and I agree, that it would be a very odd thought process that apparently adopted automatic revaluation provisions such as Rule 10.1 appears to provide for in circumstances where they on the same occasion decided that they did not have the money to make the discretionary revaluation increase that they had previously been contemplating.

The third category is the clear explanation which is said to emerge from the drafting history as to how the cross-referencing error arose. I have not hitherto referred to this in the narrative of the events but I am satisfied that what happened was that a suggestion that was made on behalf of the trustee board to solve a drafting problem had an unrecognised and unintended effect through the substitution of a reference to Rule 6.0 for the original reference to sub-paragraph (i). This was not picked up and there was insufficient thought given to how the effect of that might have an impact on other provisions in the rules.

The fourth category is the fact that after the execution of the amendments, there was in fact no change in respect of revaluation of old section benefits. So far as the law is concerned, it is legitimate to have regard to what happened subsequently for the purpose of ascertaining what was the true intention of those responsible (see Gallaher v Gallaher Pensions Limited [2005] PLR 103 by Etherton J at paragraph 141). So far as the facts are concerned, it is the case that the practice in respect of revaluation of section benefits did not change at any time between the execution of the 1999 deed and the discovery of the problem which gives rise to these proceedings. If it truly had been the intention that Rule 10.1 should require revaluation of old section benefits, it would be extraordinary that it should apparently be at once forgotten and at no stage subsequently carried into effect. The fact that it was not, by contrast suggests that it never was the intention to do that.

The fifth category I have already largely referred to, which was that the funding state of the scheme in 1999 was on the face of it inadequate to permit an amendment to make revaluation compulsory. As I have already said, at the same meeting in March 1999 at which the amendments were approved, discretionary increases which triggered discretionary revaluation which had previously been intended were deferred. It would indeed have been strange on the one hand to make compulsory something which there was insufficient money to do voluntarily.

The sixth category relates to the scope of the members who would have been included in an intentional change on the lines of that apparently made by Rule 10.1. Construed in the context of the 1999 deed and rules as a whole, Rule 10.1 could only have effect in respect of those members of the scheme who were still in service on 6 April 1997 which is the date from which the amendments were to take effect. That would mean that if Rule10.1 means what it appears to say, guaranteed increases would have been introduced in respect of those section benefits not for all deferred pensioners but merely for those members of the scheme who had accrued old section benefits and were still in service on 6 April 1997. The claimant says and I agree that there is no reason why the claimant would have intended to introduce so capricious a result.

The final category concerns the written evidence of the witnesses involved at the time. There is some controversy in the authorities as to whether it is relevant and, if relevant, permissible to have regard to the subjective intentions of the parties whose intention is relevant. Given the view that I have taken of the strength of the material I have already referred to, I do not intend to embark on making a contribution to that debate. I have not in deciding whether or not rectification should be granted had regard to such evidence as there is, and it is fair to say there is quite a lot, of those who were the prime movers in the trustee board in March 1999; but I have approached it simply on the basis that I should at least have half an eye to it as a cross check to ensure that there is nothing in it suggesting that the view that I have formed on the documents and material previously mentioned in this judgment is the wrong view, and that actually the subjective intention was to introduce compulsory revaluation in the way that Rule 10.1 appears to do.

For all these reasons I am satisfied that there is a compelling case that a mistake was made and that the strict requirements for rectification are satisfied. It seems to me that the claimant has acted promptly since the discovery of the problem and in all the circumstances I think that it is appropriate to make the order for rectification that is sought by the claimant. That order as I understand it will be that the deed is to be rectified so that on each occasion the words, “Deferred Pension under Rule 10.1.1” are used in Rule 10.1 they are to be replaced with the words, “Deferred Pension in respect of Service (but for the avoidance of doubt not for Pre 78 Service) under Rule 10.1.1”.

I will also make an order that the defendant be appointed to represent all members in whose interest it would be for the rectification claim to be rejected by the court.