Equity To The Rescue!

Equity is the name given to an historic set of legal principles which promote fairness. They supplement strict rules of law which if applied, could result in harsh consequences for some or all parties. The Courts tend to use these principles as general guidelines in reaching a decision.

The principle that "equity regards as done what ought to be done" can amongst other things, give effect to an agreement as if it had been executed properly, even when it was not. Up until now, the Courts have been reluctant to recognise this principle when it comes to amending pension scheme documentation – instead the Courts have applied the strict requirements of amendment powers.

However, a recent High Court decision has found that it may not always be fatal to fail to follow the fine detail of an amendment power.

HR Trustees v Wembley1

In this case, the High Court was asked to decide on the validity of an attempted amendment to the rules of the Wembley plc 1989 Pension Scheme (the "Scheme"). The proposed amendment purported to change the pension increase rule from a fixed 5% per annum, to the annual increase in the RPI capped at 5%. If the amendment was found to be ineffective, scheme liabilities would increase by £3.4 million.

The Scheme's amendment contained the following elements:

the principal employer could require the trustees in writing to make the amendment; the trustees had to declare the amendment "in writing under their hands", with the amendment taking effect from the date of such declaration (the "Declaration Requirement"); the trustees were also required to notify, or arrange for the notification, of each member in writing; and any such amendment must not prejudice the rights or interests of any member accrued before the amendment took effect. In January 2000 the Scheme trustees unanimously resolved to alter the Scheme's rules in relation to pension increases. The secretary of the trustees agreed to produce the necessary documentation. The amendments took effect on 6 April 2000 and the trustees met again in July 2000 to sign the relevant documentation. At that meeting, only four out of five trustees were present. Those present signed the amendment, but the missing trustee did not sign and was not asked to do so.

In July 2000 an announcement was sent to members explaining the amendment, including the date it took effect.

Validity of the amendment?

The Court considered each element of the amendment power – paying particular attention to the...