Mitchells & Butlers trustees win ‘significant’ inflation court case

The decision in favour of the trustees, made on Friday, followed a three-week trial focused on whether a change in the schemes’ rules on who had the power to set the default inflation index for pension payment rises were drafted as intended.

A 1996 deed moved the authority to the sponsoring employer, rather than the trustee, and was subsequently perpetrated by two further deeds in 2002 and 2006. Prior to this, the trustee held the power to change the default index on behalf of the scheme’s 20,000 members.

The pension trustee first filed its lawsuit in 2018.

It is unusual in that rectification was obtained on behalf of members against a scheme’s employer. Also unusually, the court was asked to rectify a pension increase rule so as to take away an employer power and replace it with a trustee power

Ian Gordon, Gowling WLG

Three deeds voided

Witnesses told the trial that they were not properly notified about the changeover and that the scheme’s actuaries were not properly consulted — a breach of the scheme’s rules.

The witnesses said they were confident that they would have known about such a proposal if the information had been made available, “which in their evidence it was not”, the judge added.

As such, High Court judge William Trower said that although details were sometimes “imprecise”, the “more general themes” were convincing.

“As valid consultation was a condition precedent to the effectiveness of that aspect of the alteration to the plan’s deed and rules, I am satisfied that the modification of the pension increase provisions by the 1996 deed was invalid and of no effect,” the judge said.

While Mitchells & Butlers did accept that shortcomings were made in the drafting of the rules in the 1996 document that were successively copied into other deeds, the pub operator told the court that burden stemming from the modification of the 1996 and 2002 plans should be placed on its predecessor companies.

The company told the court that it had only become the “principal employer” in 2003, and did so as a bona fide purchaser for value without notice, enabling it to avoid the trustee’s claim to rectify the 1996 and 2002 deeds.

The judge rejected this argument, stating in the judgment that there was a “considerable overlap of directors” between the companies.

The judge acknowledged the witnesses’ description of “essential continuity of management before and after its completion”.

Mitchells & Butlers PLC succeeded from Mitchells & Butlers Retail Ltd, formerly known as Six Continents Retail Ltd, which had itself succeeded Six Continents PLC, formerly Bass PLC, according to the judgment.

The business “knew that they were taking on obligations and duties under the deeds”, the judge added.

As a result, the court has rectified all three deeds to reinstate the trustee power.   

A ‘ground-breaking’ case

Commenting on the judgment, Ian Gordon, partner at Gowling WLG, who represented the trustees, noted that the ruling was “one of the most significant pension rectification cases in recent years, involving the cross-examination of 16 witnesses, some of whom gave evidence remotely because of Covid”.

He said: “It is unusual in that rectification was obtained on behalf of members against a scheme’s employer. Also unusually, the court was asked to rectify a pension increase rule so as to take away an employer power and replace it with a trustee power.

“It is so far the only 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.”

Gordon added that the ruling may create a new precedent for effective actuary consulting, and the ruling is “likely to be of interest to other schemes”.