We review the High Court’s recent “constructive” approach to interpreting a power of amendment.
On 3 July 2015, the High Court gave an oral, as yet unreported, judgment in the case of Sterling Insurance Trustees Ltd v Sterling Insurance Group Ltd.
The case discussed the meaning of the phrase "benefits accrued due in respect of any member up to [the date of the amendment]". This wording was part of a restriction on a power of amendment, which prohibited any amendment that would substantially reduce the value of any such benefits.
In this case, an amendment had been made that terminated the accrual of final salary benefits. The amendment was made in such a way that the link between past service benefits and future salary increases was broken. The question was whether the breaking of this final salary link was valid or whether the restriction on the amendment power rendered the amendment ineffective.
The parties agreed on the meaning of the words “accrued” and “due” within the context. However, there was a question over the meaning of the composite phrase "accrued due".
The employer argued that the phrase "accrued due" meant "become due" and therefore referred to benefits already due to be paid. The court did not accept this position.
The court followed the process of "correction by construction" discussed in Chartbrook Ltd v Persimmon Homes and others  UKHL 38, and was satisfied that "something must have gone wrong with the language" of the clause. One of the reasons for this was the fact that, as construed by the employer, the proviso would have had very limited effect and would have been almost entirely redundant given the protection afforded by section 67 of the Pensions Act 1995.
The court determined that the proviso was to be construed as if the word “due” was not included meaning that the final salary link was maintained. Permission to appeal has been granted.
It is important that trustees and employers understand the power of amendment contained within scheme documentation, including any restrictions on this. Doing so will help to ensure that any amendments made to the scheme are valid.
Author: Jennifer CrawfordThis information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.