Rectification is a remedy exercised in the court's discretion to re-write mistaken wording in a legal document so that it accords with what the parties to the document had intended. In a pensions context, rectification is often, but not always, sought by the employer and the document is usually a deed or the rules of the scheme.
In this article, our Pensions Disputes team explains the important things for employers, trustees and representative beneficiaries to note about rectification and when the court will grant it.
A common context for a rectification claim is the discovery that, owing to a mistake in the wording of a scheme document, members' benefits, and hence the scheme's liabilities, are greater than had been intended. Rectifying the document will correct the mistake retrospectively to the date the document was executed, thereby enabling the employer and trustees to proceed on the intended basis, as if the document had always contained the correct wording.
This remedy is particularly beneficial in circumstances in which a scheme has been administered and its liabilities valued on the basis of what the parties had intended the scheme's legal documentation to say, rather than on the basis of the unintended effect of the erroneously worded documentation.
Although less common, rectification claims have also been made (including by trustees) in relation to provisions in scheme documentation dealing with matters other than benefits, for example, provisions concerning the powers of the scheme's employers and trustees.
How do you obtain rectification?
The party seeking to obtain a rectification order will need to persuade the court that it has the power to make the order. Some applications are contested, usually on behalf of the scheme's members, in which case rectification would only be ordered after a full trial, usually involving evidence from witnesses. In other cases, applications to rectification are unopposed, usually where the evidence is very clear and there is no defence to the rectification claim.
Who will be party to the application?
There are often three parties to the rectification claim:
In appropriate cases, it may be possible to slim down the parties involved, for example, where the trustee is able to represent members in whose interests it is that rectification be refused.
When will the court grant rectification?
Before it can order rectification the court will have to be satisfied that the parties to the document had a common intention about the subject-matter of the provision to be rectified which continued up until the document was executed but which, because of a mistake, was not reflected in the document itself.
In deciding whether the parties had such a common intention the court will ask itself what the parties actually intended, in other words it will apply a subjective test.
Even if the court decides that it can rectify the document on the basis the above test has been met, the court still has a discretion as to whether it should do so (although, in most cases, once the test has been satisfied the court will go on to rectify).
Given the court will need to see evidence of what the parties actually intended the document to say, the collation and presentation of evidence of what the parties intended will be critical to any rectification application.
As soon as a mistake has been identified in documentation, attempts should be made to speak to individuals who were involved in the preparation and execution of the document and who may be able to provide information as to what the parties intended.
To assist those individuals' recollection of events which may have occurred many years before, attempts should be made to obtain and review potentially relevant contemporaneous documentation, such as minutes of employer and trustee meetings, memoranda and reports, booklets and announcements, and communications with the scheme's advisers, particularly those who drafted the document in question.
Are witnesses needed?
In light of the need to establish what the parties actually intended, the recollection of individuals who were involved at the relevant time, is likely to be important, although the court will also look at the contemporaneous documentation.
Witness evidence could come from a range individuals involved in the preparation and execution of the document, including:
- Employer executives
- Individual(s) who drafted the document
- Scheme secretary
- Scheme Actuary
Is it ever too late to seek to rectify?
There have been a number of pension cases in which the courts have rectified documentation executed years, sometimes decades, before the application was made. Although the courts have the ability to decline to rectify where there has been culpable delay in making the rectification application, the passage of time itself does not usually result in an application being declined.
However, a substantial gap between when the document was executed and when the matter comes before the court can give rise to practical problems when it comes to demonstrating what the parties intended.
Can the process be streamlined?
If the party seeking rectification has established by the evidence it has collated that there is no defence to the application, the representative beneficiary (acting on behalf of affected members and with their own legal representation), may agree not to oppose the application. If the court agrees, the application can then be granted by summary judgment, i.e., without a trial or other contested hearing.
What about costs?
The work involved in collating evidence of the parties' intentions is often costly, even if the case is ultimately resolved by means of summary judgment in the way described above - but can still be substantially less than the cost of the unintended benefit.
In most cases the costs involved in the application (including those of the representative beneficiary) will be met by the scheme's employer or, failing that, from the scheme's assets.
If, in parallel to the rectification application, there is a professional negligence claim against those responsible for the mistake, sometimes the allegedly negligent adviser will agree to fund the rectification application, in whole in part. In other cases, the costs paid by the employer or out of the scheme are sought subsequently by way of damages in the negligence claim.
We have substantial experience of rectification claims stretching back many years acting for employers, trustees and representative beneficiaries. That means we know what issues are likely to be material to all stakeholders, ensuring matters can be dealt with cost-effectively.
If you have any questions or would like more information covered in this insight, please contact Ian Gordon or Charlotte Scholes.