Equalisation rumbles on in the Courts

Posted by John Hamilton on
A recent case in the High Court Tadas Vaitkus and others v Dresser-Rand UK Ltd [2014] EWHC 170 (Ch) has considered what happens when a Definitive Deed and Rules containing unequal pension benefits is executed with retrospective effect, when equalisation had previously been brought into effect in line with the terms of the original interim deed.

The pension scheme in question was established under an interim trust deed. The interim trust deed provided that the trustees would operate the scheme so as to give effect to the explanatory literature (which predated the interim deed).

The terms of the scheme discriminated in favour of females and, following the case of Barber v Guardian Royal Exchange Assurance Group, it was decided that benefits going forwards would accrue by reference to the calculation already used for male members. A notice was drawn up to that effect and issued to female members in 1991. In 1992, a definitive deed was executed which was expressed to take effect retrospectively to the commencement date of the scheme.

This Definitive Deed continued to provide different benefits for men and women and did not contain the power to operate the scheme so as to give effect to the explanatory literature. Instead, benefits could be changed using an express power of amendment which required certain formalities to be met.

The Court was asked to decide

(1) whether the announcement to the female members amounted to the explanatory literature of the Scheme in the first place so as to be effective, (2) if so, whether this was reversed by the adoption of the Definitive Deed and Rules containing the unequal benefits and (3) alternatively, whether the announcement might be considered to be effective by complying with a power to introduce special terms in the Definitive Deed and Rules.

The Court decided that:

(1) The announcement was effective to amend the explanatory literature of the Scheme and only needed to be provided to those members whose explanatory literature, as it applied to them, would have required amendment from the original version (in this case the females) rather than members generally.

(2) The retrospective effect of the Definitive Deed and Rules meant that the announcement had to comply with the new power of amendment in order to amend the provisions of the Definitive Deed and Rules.

(3) The announcement fulfilled the requirements of the power of amendment, including the requirement to publish notice in writing of the alteration, and that it therefore validly amended the Definitive Deed and Rules. It was not a barrier that the Definitive Deed and Rules were not in physical existence at the time of the amendment as the terms on which the parties intended the Scheme to operate at the time of the announcement were clear.

On this basis, it was not necessary to answer the question relating to the exercise of the separate power to impose special terms. However, the Court decided that not all of the express requirements in this power were complied with, and therefore the announcement would not have been an effective exercise of this power.

Under the former Inland Revenue approval regime, it was an established practice for schemes to operate on the basis of interim documentation pending the execution of a definitive deed and rules. This case highlights the dangers of adopting documentation retrospectively without fully considering any amendments that have been effectively made in the interim.

Whilst many schemes would not necessarily have made changes between the execution of their interim and definitive documentation, the Dresser-Rand case provides another indication that the Court will expect the overriding formalities of the trust documentation that applies at the time the amendment is made to be complied with on their terms.

About the Author

John advises corporate and trustee clients on pensions law and is a director of Blake Morgan's Pension Trustees Limited, the firm’s independent trustee company.

John Hamilton
Email John
023 8085 7089

View Profile