High Court Rectifies Pension Increase Provisions In Mitchells & Butlers Pension Plan

• Published date: 17 November 2021
• Subject Matter: Employment and HR, Retirement, Superannuation & Pensions, Employee Benefits & Compensation
• Law Firm: Gowling WLG
• Author: Mr Ian Gordon, Charlotte Scholes and Josh Sheppard

The Court has upheld a claim by the Trustee of the Mitchells & Butlers Pension Plan (the "Plan") to rectify the pension increase provisions in three deeds that were executed in 1996, 2002 and 2006.

The Court considered evidence from 19 witnesses (16 of whom were cross-examined) and heard an argument by the Plan's Principal Employer, Mitchells & Butlers plc ("M&B"), that it was a "bona fide purchaser for value without notice" and so had a defence to the Trustee's claim to rectify the deeds executed in 1996 and 2002.

In another aspect of the case, Mr Justice Trower declared that the amendments by which the pension increase provisions were introduced should be set aside.

Gowling WLG's Pension Disputes Team (instructing Michael Tennet QC, Edward Sawyer and Jonathan Chew) acted on behalf of the Trustee and the members it represented.

The Mitchells & Butlers case was unusual in various respects, not least because it appeared to be the first case in which a court had to consider a defence to rectification based on the argument that an entity became the scheme's Principal Employer as a bona fide purchaser.

Background in brief

Before the deeds in question were executed, the increase rule provided that pensions in payment in excess of Guaranteed Minimum Pension (GMP) were to be increased by reference to the percentage increase in the "Official Index of Retail Prices", which was defined as "the index of retail prices published by the Department of Employment or any other index selected by the Trustees" up to a maximum of 4%, which was later increased to 5%.

In other words, members received 5% LPI increases, subject to the Trustee's ability to choose another index (the "Index Selection Power") by reference to which increases would be made.

In 1996, a new Definitive Deed & Rules was executed. The Index Selection Power was (it turned out mistakenly) replaced by a power held by the Principal Employer (at that time, Bass plc) by which pensions in payment would be increased by reference to the percentage increase in the "Retail Prices Index ... subject to a maximum increase of five per cent. per year ... (or any other rate decided by the Principal Employer" (the "Increase Alteration Power").

In other words, the Trustee lost its power to move away from the default index by which pensions in payment were increased and the power to select the rate of increase moved to the Plan's Principal Employer.

The Increase Alteration Power was repeated in a further iteration of the Plan's Deed & Rules in 2002, by which time Bass plc had been re-named Six Continents plc.

The judge found that the parties to the 1996 deed had not intended to replace the (Trustee) Index Selection Power with the (Principal Employer) Increase Alteration Power, and that the 2002 deed had mistakenly perpetuated that error. M&B accepted that position (although in order to grant rectification it was still necessary to satisfy the Court of the same). However, M&B argued that, when it became Principal Employer in 2003, it did so as a "bona fide purchaser for value without notice" and so taking free of the Trustee's claim to rectify the 1996 and 2002 deeds.

As for the 2006 deed, M&B argued that the parties had intended to replicate the pension increase provisions in the form contained in the 1996 and 2002...