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The opdu Report - Issue 21, November 2006 Introduction One of the most intriguing decisions over the last 12 months was that of Mr Justice Peter Smith in the case of Steria Limited -v- Hutchison. The case dealt with a number of issues. The one that has captured the most attention concerned the degree of reliance pension scheme members could place on the scheme booklet where this contradicted the provisions of the Definitive Trust Deed and Rules. Background Mr Hutchison commenced employment with Bull Information Systems Limited (“Bull”) in 1974 joining a final salary pension scheme known as the Information Systems Retirement Plan. Upon his promotion to a management position within Bull, Mr Hutchison was given the opportunity of transferring his accrued benefit to, and becoming a member in respect of future service of, the Information Systems Management Plan (“the Scheme”). The booklet defined Normal Retirement Date as being age 65 and the section on early retirement provided that a member could retire early with the consent of the Company at any time from age 50. It went on to say that the pension was reduced because it was paid early but that members who had completed 20 years’ service or more might retire early from age 62 onwards without the application of the reduction factor that would otherwise apply. At the time that Mr Hutchison joined the scheme, the relevant provisions of the Trust Deed and Rules stated that Normal Retirement Date was age 65 for male members and that members could, with the consent of the Principal Employer, retire on pension before Normal Retirement Date but after the age of 50 with a pension that would be actuarially reduced for early payment. There was no provision in the Trust Deed and Rules entitling a member with 20 years’ pensionable service to retire early from age 62 on an unreduced pension. In 2002 as a result of a sale of part of the UK business of Bull, Mr Hutchison became a deferred member of the scheme. In subsequent correspondence he queried his pension benefits believing he was entitled to an unreduced pension from age 62. The arguments at first instance Before the Pensions Ombudsman and on the subsequent appeal to the High Court, it was argued, on behalf of the Trustees, that as a matter of construction the booklet could not be said to make the representation Mr Hutchison alleged and, in any event, that the estoppel he alleged could not be based on anything contained in the booklet when that was expressed to be a summary of the benefits provided under the Scheme and stated that the governing provisions of the Scheme prevailed on any question of interpretation. In answer, Mr Hutchison relied, amongst other things, on the fact that case law did not absolutely prevent estoppel arguments from being based on pension scheme booklets that contained disclaimers, the booklets were produced by trustees in order to satisfy obligations they had under the Disclosure Regulations (a fact which made earlier cases, in which attempts to base an estoppel argument on scheme booklets containing disclaimers had failed, distinguishable) and, as pension scheme deeds and rules are highly complicated, to permit trustees and employers to preclude booklet estoppels by the routine inclusion of a disclaimer would be inequitable. The first instance decision The Judge found the proposition that statement in booklets could not be regarded as clear and ambiguous by virtue of the existence of the disclaimer an unattractive one. He felt that this would see scheme booklets completely failing to achieve their intended purpose with the risk of inaccuracy passed to the member instead of falling on the creators of the statement. The Judge decided that this issue had not been properly considered by the Ombudsman and therefore preceded to consider the point as an alternative to remitting the matter to the Ombudsman for further decision. Faced with these difficulties, the Judge turned to cases in the context of misrepresentation concerned with ‘no reliance’ clauses. (‘No reliance’ clauses are commonly found in contracts containing ‘entire agreement’ clauses which provide that the document constitutes the entirety of the agreement between the parties.) The Judge considered the circumstances of the Steria case to be strongly analogous to the no reliance cases. Whilst his judgment suggests that he might have reached a different conclusion had he regarded the error in the booklet as relating to a complicated issue, where the issue was not of a technical or difficult legal nature, he did not think that the trustees could rely on traditional disclaimer wording. Issues arising The decision of Mr Justice Peter Smith has been the subject of further appeal. That appeal was heard last month and the decision is awaited. It is hoped that the Court of Appeal will give some guidance on this issue, which, for a number of reasons, is currently unsatisfactory. The Judge’s decision stands the purposes for which booklets are issued on its head. Booklets cannot, and do not seek to be, more than a general summary. They are always subject to the overriding effect of the Definitive Trust Deed and Rules. The attempt to distinguish cases based on whether the issue covered in the booklet is a complicated legal/technical one or not could be difficult to apply in practice. The section in the booklet in question in this case was concerned with what had been a discretionary augmentation policy of the sponsoring employer. It was not the clear-cut benefit entitlement that the Judge perceived it to be. The Judge was wrong to reject the very clear line of authorities which have concluded that disclaimer notices could be effective. A number of those cases contained statements strongly supportive of the appellants’ position but were ignored in favour of contractual cases which were an inappropriate analogy. Whilst the decision of the Court of Appeal is awaited, from the arguments presented to the Court, the following potential issues emerge which trustees might wish to consider in the interim:
Peter Shave |
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