Lawyers demand simpler system to rectify drafting mistakes

According to the law reporting service Law360, the court endorsed proposed changes to a Lloyds Bank employee pension plan on December 11 last year, allowing the bank to add a paragraph that it says was inadvertently left out of three deeds and could have cost it £25m.

Such errors are not uncommon. In November, it was reported that an orthotics and prosthetics manufacturer was forced to go to court to amend a word in rules drafted 20 years ago, which if left unchanged would have cost the plan £10m.

In the Lloyds case, Chief Master Matthew Marsh granted the bank permission to reinsert a sentence on the application of the state pension adjustment, a feature that reduces member benefits once they reach state pension age. Chief Master Marsh said the claim raised no difficulty because it was “absolutely plain” that an error had occurred.

Anything else the courts could do to simplify the process of correcting obvious errors would be a very good thing

Stephen Scholefield, Pinsent Masons

After an important paragraph was deleted during drafting, the typographical error was then duplicated in other versions.

Lloyds Banking Group Pensions Trustees Ltd and Michael Comben, a representative member of the pension plan, were co-defendants in the case. The court heard that the trustee was neutral in the action and Mr Comben had not opposed the application. “The group welcomes the court’s decision,” a Lloyds Banking Group spokesperson said in a statement.

Commenting on the case, Jane Kola, a partner at Arc Pensions Law, said: “It’s another in an increasingly long line of cases where the courts have been prepared to correct obvious errors in deeds, as long as there is a substantial body of documentary and other evidence to support the view that it is just an error and not a rewriting of history.

“Decided by a master as a part of a summary judgment process rather than full-blown High Court litigation, this continues the trend towards the correction of errors being dealt with less expensively than in the past, but this is still a relatively costly business.”

Need for reform

“Correcting obvious errors in deeds still remains far too expensive,” Ms Kola added. “Clients who rightly want certainty have little choice but to seek a court order to gain that certainty as the law stands. This is clearly an area which needs reform so that the courts are only troubled by the cases where there is a real doubt on what the deeds were intended to achieve or mean.”

Stephen Scholefield, a partner at Pinsent Masons, agreed: “There are lots of rectification cases like this, and given the complexity of pension scheme documentation it is not surprising that errors occur from times when people are drafting things.”

He said the process for correcting these errors is well-established, but that its costs are still significant.  

“Anything else the courts could do to simplify the process of correcting obvious errors would be a very good thing,” he said. 

“Drafting documents is a painstaking and sometimes thankless task and one that is not always valued very highly by trustees. The cost of having to deal with correcting errors far outweighs the cost of spending a bit more time in the first place and triple checking these things.”

Careful documentation strengthens case

Aside from investing in quality drafting, trustees can also safeguard themselves against costly errors by carefully documenting meetings.

“The lesson from this and the many cases before is that it pays to keep all of the old files so evidence of the parties’ intentions survive,” Ms Kola stressed.

She added that checking deeds for errors regularly increases the chance that the documentation needed for rectification will survive. “If the error is less than 15 years old it may also be possible to seek a contribution towards the costs of correction from the party responsible for the error,” she said.