The 2010 decision in Low & Bonar PLC v Mercer Ltd indicated that a common-sense approach would be taken to assessment of the validity of amendments to pension schemes. In The Trustees of Scottish Solicitors Staff Pension Fund v Pattison & Sim, decided on 30 December 2015, the Inner House of the Court of Session (“IH”) (Scotland’s civil appeal court) has approved that approach, and confirmed the general application of important principles to the interpretation of amendments: (i) practical effect must be given to the scheme and substance trumps form, (ii) the onus is on a party challenging an amendment to show the amendment provision was not complied with, and (iii) in determining if the prescribed formalities were complied with, the presumption that all things are presumed to have been done duly and in the usual manner applies.
This is an important decision that confirms the more practical approach adopted by the Scottish courts, as compared to the more technical approach applied in some English decisions.
In this case the Trustees sought contributions from the solicitor partnership of Pattison & Sim as member employers of the scheme. The contributions sought, amounting to around £50,000, were based on amendments to the original scheme documentation. The defender partners argued that the amendments were not valid, as the specific requirements of the amendment provision had not been complied with and therefore no contributions were due.
The amendment provision had a triple-lock mechanism, requiring that any amendment be approved by a 2/3rds majority at three separate meetings. While the amendments were in signed deeds, evidence of the required meetings and votes could not be located. The defenders argued that as no evidence of the required meetings and votes was offered, the claim must fail, and they sought to debate this point in the Commercial Court of the Outer House of the Court of Session. The Lord Ordinary held that the amendments were valid and granted decree against the defenders. The defenders appealed (reclaimed) to the Inner House.
The IH agreed with the Lord Ordinary, finding that the amendments were valid and in doing so made the following important points:
- upholding the general approach to the interpretation of pension scheme documents previously referred to by Lord Drummond Young in Low & Bonar PLC v Mercer Ltd, the IH agreed that conditions imposed by an amendment provision must be satisfied, but “In considering such conditions….. the primary aim is that the exercise of the power should be clear and certain and should be put into some sort of permanent form. Provided that that is done, we do not think that the court should be unduly technical or restrictive in considering the niceties of its manner of exercise,”
- the IH applied the principle of omnia praesumuntur rite et solemniter acta esse: all things are presumed to have been done duly and in the usual manner, noting that “In considering transactions that have taken place a significant time in the past, there is a general presumption that all the necessary procedures have been properly followed, the result being that the burden of proving otherwise rests on any party who challenges the transaction,”
- the court noted that the above principle is of wide application and is equally applicable where there is no formal deed recording the amendment, as was the case for one of the amendments at issue. This is because the policy considerations underlying the maxim are equally applicable where there is not amending deed, the policy considerations being:
- “any defect in procedure tends to be a matter of form rather than substance”, and “substance is more important than form,”
- “if there is a substantial objection to the transaction, it is likely that there will be an immediate challenge,”
- “when a considerable time is allowed to pass after a transaction has been carried out, evidence will frequently be lost. If the onus fell on those who carried out a transaction to prove, possibly many years after the event, that it had been carried through according to proper form, the practical difficulties might be enormous,”
- “transactions do not stand alone…. If a transaction were open to challenge, possibly long after it was carried out, on the ground that it was impossible to prove that proper procedures had been used, all subsequent dealings that proceeded on the faith of that transaction would also be potentially open to challenge. That would be an intolerable situation, both in the commercial world and elsewhere.”
Essentially, the Scottish courts will apply common-sense. If it appears that the parties intended the amendment to be made, they thought it had been validly made and they proceeded to act on that basis for a lengthy period of time, it would be contrary to common-sense for the court to strike down the amendment on the basis of form, unravelling many years of subsequent practice.
Importantly, if a party wishes to challenge an amendment many years later, the onus will rest squarely on their shoulders to prove that the amendment provision was not complied with. It will not be sufficient to call for evidence of compliance, failing which the amendment should be held invalid, which has been the approach taken by pursuers in the past.
This decision will be very useful for those considering the validity of pension scheme amendments, where it may well be in everyone’s interest for the amendment to be valid, avoiding the unravelling of decades of scheme administration and a revisiting of individual pension benefits.
While the decision in Low & Bonar turned on the application of the Scots law meaning of “deed” the Pattison decision does not turn on any rule of law peculiar to Scotland; it is a decision based on general principles of interpretation.
It is also clear that in adopting this approach the Scottish courts do not consider themselves to be departing from English precedent. In Pattison, the Inner House agreed with the approach taken in English cases such as National Grid co PLC v Mayes, (2001) 1 WLR 864, where Lord Hoffman noted that the operation of a pension scheme should not be encumbered by unnecessary technicalities, but that if the amendment procedure set out specific safeguards they ought to be complied with. The Inner House did not disagree with that, noting that in considering those safeguards the onus will be on the challenger, the Scottish courts will take a “substantive approach,” and the analysis will be informed by the omnia praesumuntur rite esse acta principle. It is, therefore, an approach that is also open to the English courts to adopt. Indeed, this more common-sense approach was seen in some English decisions such as Premier Foods v RHM Pension Trust  PLR 151 and HR Trustees Limited v Wembley PLC  EWHC 2974 (Ch) (where the English equivalent of the above maxim was applied).