Amp (UK) Ltd plc v Barker and others





B Green QC and M Tennet for the Claimants; N Inglis-Jones QC and R Hitchcock for the First to Fifth Defendants; A Simmonds QC and A Spink for the Sixth Defendant




I Introduction

1. In September 1998 the Trustees of the Pension Scheme ("the Scheme") of the National Provident Institution ("NPI") passed a resolution to amend the rules of the Scheme so as to increase the benefits payable to those who were forced to leave service as a result of incapacity. The Scheme was a non-contributory one and the cost to NPI of the increased benefits would have been comparatively small. The proposal for increased incapacity benefits had resulted from a review by the NPI Human Resources Department, and the rule changes were approved by NPI in accordance with the Scheme rules.

2. The increased benefits for those forced to leave as a result of incapacity ["incapacity" meant incapacity which prevented a member from following his normal occupation or seriously impaired his earning capacity, and was distinguished in the rule changes from "serious incapacity" which prevented a member from following any occupation, and ended his earning capacity] were, broadly, these: a member who left because of incapacity could choose an immediate pension based on actual scheme service, plus a proportion of the future scheme service he would have completed to normal retirement date had he not left: for those who left with less than 10 years' scheme service the proportion would be 25% of the further scheme service, and for those with 10 or more years' service the proportion would be 50% [For those leaving on account of serious incapacity, the proportion would be 100%]. A person aged 25 years with 2 years scheme service who was forced to leave service through ill health would get an immediate pension based on 10.75 years' service, representing a 437.5% increase in the total value of his pension entitlement. A person aged 33 with 10 years' scheme service who was forced to leave through ill health would get an immediate pension based on 23.5 years' scheme service, representing a 135% increase in the total value of his pension entitlement.

3. The Trustees, and the members of the board of NPI who had approved the rule changes, and all other NPI executives involved, had overlooked the fact that the Scheme rules provided that the deferred pension payable to those leaving with 2 or more years' qualifying service was to be calculated as if the member were retiring because of incapacity. If these increases were available to all early leavers, and not only to those who left on account of incapacity, the potential cost would be enormous.

4. NPI was taken over by AMP (UK) plc ("AMP") on January 1, 2000. A few weeks later the secretary to the Scheme realised the implications of the link in the rules between early leavers and those retiring on account of incapacity. In May 2000 a deed of amendment was executed in order to "cap" the problem, by removing the link for the future, but without affecting accrued rights.

II The Proceedings

5. In these proceedings AMP claims that the rule amendments were made as a result of a mistake by the Trustees and by NPI, and seeks rectification of the rule changes to remove the link between ill health benefits and early leaver benefits. Alternatively it seeks an order setting aside the amendments on the basis that NPI's consent was vitiated by mistake, or an order declaring void or setting aside the amendments on the basis that the Trustees' resolution was vitiated by their failure to take into account material considerations which would or might have affected their decision.

6. The claimants are AMP and AMP (UK) Services Ltd ("AMP Services"), a wholly owned indirect subsidiary of AMP. When NPI was taken over by AMP, it ceased to have any employees, joining with AMP and the Trustees in a deed of substitution whereby AMP became Principal Employer in its place, succeeding by way of express assignment to all NPI's rights as former Principal Employer under the Scheme.

7. AMP Services is a participating employer in the Scheme and is the largest employer of active members in the Scheme, including the great majority of members who were employees of NPI when the amendments were made, and of whom more than 1100 now remain employed within the AMP group.

8. The first five defendants are the Trustees of the Scheme. They accept AMP's contention that there was a mistake but, as trustees, they have elected formally not to admit that the claimants are entitled to the relief sought. The sixth defendant, Mr Pearson, has been joined as a representative beneficiary defendant, with the benefit of a pre-emptive costs indemnity. He is an early leaver who left for reasons other than incapacity with just under 10 years' service. He has been joined in order to put such arguments against the relief sought as might have been put by the Trustees had they been in a position to oppose the claims. In order to achieve comprehensive coverage of the beneficial interest in relation to the claims, AMP and AMP Services represent all other persons beneficially interested under the Scheme who would not benefit from the amendments if they were allowed to stand in their current form: eg pensioners and category 2 members [Category 2 members are non-executive directors, who were not affected by the amendments, and will be ignored for the purposes of this judgment].

III The link between early leaver benefits and incapacity benefits

9. At all material times the Scheme provided for its members who left service on or after normal retirement date a pension based on 1/60th of final scheme salary for each year of service. By the time of the events which gave rise to these proceedings, normal retirement date for both men and women was 60. The earliest age at which a person could join the Scheme was 23.

10. In 1980, [A formal amendment had been made in 1978 acknowledging that the Rules would be operated in accordance with the preservation requirements] following the Social Security Act 1973, the rules were amended, and a link between early leavers' benefit and incapacity benefit was first established by the rules, which provided that a member who retired due to incapacity would be entitled to an immediate pension based on final scheme salary with his actual retirement date substituted for normal retirement date (r 4(b)(1)); and an early leaver would be entitled to a pension at normal retirement date "equal to the immediate pension to which he would be entitled if at the time of his leaving Service ie were retiring from Service owing to Incapacity" (r 13(4)).

11. The 1989 Rules replaced the 1980 Rules, and provided in r 4.2(2)(1):

"A Member who leaves Service before Normal Retirement Date because of Incapacity may, if his Employer agrees, choose an immediate pension calculated as in Rule 4.1 above except that

(i) his actual date of retirement will be substituted for his Normal Retirement Date . . ."

and in r 8.4(1):

"If a Member leaves the Scheme with at least two years' qualifying service, he will be entitled to a preserved pension at Normal Retirement Date. The amount of the pension will be calculated as if, at the date of leaving, he were retiring because of Incapacity (see Rule 4.2)."

12. In 1997 new Rules were adopted, perpetuating the link:

(1) by r 4.I.4.1(1). The pension payable at normal retirement was, as before, based on 1/60th of final scheme salary for each year of service;

(2) by r 4.I.4.2(2):

"A Member who leaves Service before Normal Retirement Date because of Incapacity may, if his Employer agrees, choose an immediate pension . . . but with the substitution of his actual date of retirement for his Normal Retirement Date. There will be no deduction for the Basic State Pension . . . until the Member reaches State Pension Age."

13. The preserved pension for early leavers was, as in the 1989 Rules, dealt with in r 8.4. The preservation requirements are now in the Pension Schemes Act 1993. Section 72(1) lays down the basic principle that a scheme must not contain any rule which results, or can result, in a member being treated less favourably for any purpose relating to short service benefit than he is, or is entitled to be, treated for the corresponding purpose relating to long service benefit; and s 74(1) provides that a scheme must provide for short service benefit to be computed on the same basis as long service benefit. Rule 8.4 generally mirrors the statutory requirements. [There was some minor disagreement on the extent to which it has this effect, but the differences between the parties on this point are not material to any issue in this case]. Rule 8.4(1) sets out the basic principle that a person who leaves with at least two years' qualifying service is entitled to a preserved pension, but it continued the link, established in the 1980 Rules and continued in the 1989 Rules, between early leavers' benefit payable at normal retirement date and incapacity benefit payable immediately, in the sense that each was based on the same proportion of final salary (1/60th) for each year of service:

"If a Member leaves the Scheme with at least two years' qualifying service, he will be entitled to a preserved pension at Normal Retirement Date. The amount of the pension will be calculated as if, at the date of leaving, he were retiring because of Incapacity (see Rule 4.I.4.2)"

14. The 1997 Rules were drafted by Mr Huggett, a member of NPI's Pensions Documentation team, and were designed to take account of legislation, including the Pension Schemes Act 1993 and the Pensions Act 1995. Mr Huggett produced a paper on the changes, but there was no discussion of the relationship between early leaver benefits and incapacity benefits. Mr Shaw, a member of the NPI Group Legal Department, produced a legal review of the new rules for the Trustees confirming that the rules had been brought up to date in terms of legislative requirements.

IV The Resolution and NPI Board Approval

15. On September 24, 1998 the Trustees adopted a resolution amending the Scheme rules, against the background of a review of incapacity benefits which had been proceeding since 1993. The Chairman of the Trustees, Mr Martin, is an eminent actuary with 45 years experience and a former President of the Institute of Actuaries. He was also at the relevant time a non-executive director of NPI

16. Rules 4.I.4.2(2) (para 12(2), above) was deleted, and replaced by the following:

"(2)(a) A Member who leaves Service before Normal Retirement Date because of Incapacity may, if his Employer agrees, choose an immediate pension calculated as in Rule 4.1 above based on his Scheme Service up to the date of leaving service, plus a proportion of the further Scheme Service he would have completed to Normal Retirement Date had he not left Service. For a Member who leaves having completed less than 10 years' Service, the proportion referred to in the previous sentence will be 25% of the further Scheme Service he would have completed to Normal Retirement Date had he not left Service; for a Member who leaves having completed 10 or more years' Service, the proportion will be 50% of the further Scheme Service he would have completed to Normal Retirement Date had he not left Service.

(b) A Member who leaves Service before Normal Retirement Date because of Serious Incapacity may, if his Employer agrees and if the Trustees believe the Member's Serious Incapacity to be permanent, choose an immediate pension calculated as in Rule 4.1 above based on his actual Scheme Service up to the date of leaving Service, plus the further Scheme Service he would have completed up to Normal Retirement Date had he not left Service. Provided however, that if the Member's actual Scheme Service plus the further Scheme Service he would have completed to Normal Retirement Date had he not left Service is greater than 30 years, the pension will be based on 30 years' Scheme Service. Where actual Scheme Service alone exceeds 30 years, the pension will be based solely on actual Scheme Service, but actual Scheme Service will not be limited to 30 years.

In the case of either (a) or (b) above, there will be no deduction for the Basic State Pension (see Rule 4.I.4.1) until the Member reaches State Pension Age. The Trustees and/or the Employer may require the Member to submit to a medical examination as a condition of his application for an immediate pension. A copy of the report produced following the examination may be disclosed to the Trustees without the consent of the Member."

17. But r 8.4(1) was not amended. It continued to provide that the amount of the preserved pension payable to early leavers:

"will be calculated as if, at the date of leaving, he were retiring because of incapacity (see Rule 4.I.4.2 . . .)."

18. The enhanced incapacity benefits differentiated between (a) "incapacity", defined in the 1997 Rules to mean:

"physical or mental incapacity which, in the Trustees' opinion, prevents a Member from following his normal occupation or seriously impairs his earning capacity"

and (b) "serious incapacity" which was a new definition added by the September 1998 resolution to mean:

"physical or mental incapacity which, in the Trustees' opinion, prevents a Member from following any occupation and ends his earning capacity."

19. The consequence of the link between early leavers' benefits and the enhanced benefits payable to those leaving because of incapacity (as defined) would be this: a member leaving early with less than 10 years' service would have his or her deferred pension increased by reference to 25% of the number of years to normal retirement date, and a person with more than 10 years' service would have his or her deferred pension increased by reference to 50% of the number of years to normal retirement date.

20. Thus Mr Pearson, the sixth defendant, joined the scheme at the age of 23 and left after almost, but not quite, 10 years (9 years and 11 months). His final salary was 67,000, and he would normally expect a pension (revalued in deferment at an assumed 5% per annum) of about 40,000 at normal retirement date (9.9/60 x 67,000 revalued). If he had completed 10 years' service, the application of the 50% increase formula for incapacity would increase the deferred pension (similarly revalued) to 97,000 (ie 23.5/60 x 67,000 revalued).

21. As indicated above, the potential cost to the Scheme of such an increase in early leaver benefits would be enormous. The Scheme fund is worth more than 150 million. If members leave in accordance with the rate assumed by the actuaries (ie normal rate of leaving) the cost could be as much as 12.2 million. The estimates of the cost do not take account of the limits imposed by the Inland Revenue on the benefits payable under the Scheme. The calculation of the limits is complex, and depends on when a member joined the Scheme. The limits are set out in r 23. For those joining after 1989 their broad effect is to limit the benefit to 1/30th of final remuneration (as defined) for each year of service. [The consequence, if the ill health benefit were payable to all early leavers, would be that an early leaver with 10 years' service would be limited to 1/30th of final remuneration, so that if prospective service is more than 20 years the limit may apply; and for an early leaver with more than 2 years' service the limit may apply if the prospective service were more than 8 years.] There is no limit for those leaving on account of incapacity. But it is possible that the benefits are such that many more members would have an incentive to leave early, in which case the figure could be considerably higher, and possibly (it is said) as much as 30 million.

22. Under r 14(1) the Scheme Rules may be altered or replaced by the Trustees after obtaining the consent of the Principal Employer.

23. On December 17, 1997 the Board of NPI established a committee comprising Mr Brindley (subsequently replaced by Mr Moore) and Mr Martin (a non-executive director and also Chairman of the Trustees) to deal with "any routine amendments to the Scheme". The minutes state:

"Any issues involving a significant cost to NPI or dealing with non-routine issues would still have to be approved by the Board"

24. The sub-committee of the NPI Board agreed the changes on January 28, 1999. Mr Moore (Financial Director of NPI) and Mr Martin were present, and Mr Harman, Scheme secretary, and Mr Shaw, a member of NPI's legal department, were in attendance.

V The Facts

25. The Human Resources Department of NPI conducted a review of ill-health benefits from 1993. One of the problems the review sought to address was that there was no clear policy for determining whether an employee leaving because of ill-health would be put on permanent health insurance benefits (which were self-insured benefits provided by NPI itself rather than under the Scheme) or on an ill-health retirement pension.

26. The ill-health benefit review took some time to reach fruition. It proceeded slowly partly because it was not a major issue, since ill-health benefits were not being paid to many employees and the cost was not large, and partly because of difficulties in securing consensus within NPI. From 1993 a series of papers was produced for consideration by the Internal Staff Committee (the "ISC"). The ISC was an NPI management committee responsible for considering human resources issues, which was headed by Kevin McBrien, the General Manager of NPI, who was also then a Trustee of the Scheme.

27. In March 1996 Mr Banfield, the Human Resources Operations Manager, put together proposals for consideration by the ISC. His proposal was that those who were unable to follow any occupation at all (serious incapacity) would on leaving service have their pensions augmented by being treated as having completed 100% of prospective service. Those who left through an inability to follow their normal occupation (called simply "incapacity") with less than 10 years' actual service would have benefits calculated as if, in addition to actual service, the member had served 25% of prospective service, ie service between the date of leaving and the normal retirement date; with 10 years' or more actual service, 50% of the prospective service would be added. These were the proposals which were ultimately implemented.

28. A recurrent feature of the discussions is that the cost of implementation of these proposals would be very small and would in fact represent a saving to NPI on its existing practice of making discretionary payments. The position in March 1996 was that NPI then had 11 staff receiving ill-health pensions, which represented annual pension payments of 131,000 and an unfunded cost of 338,000. The annual cost of those on permanent health insurance was 1.127 million. The effect of the proposals was that the estimated annual cost of NPI funding them would be 1.052m for those who would have been on permanent health insurance, and 196,000 for the others, representing a reduction of exposure of 75,000 in respect of the former and 142,000 in respect of the latter.

29. At a meeting in October 1996 the ISC agreed in principle the proposals put forward by the Human Resources Department. The paper for the meeting again noted that the unfunded augmentation cost of retirement would be reduced by 141,000.

30. At subsequent meetings of the ISC it was agreed that it would be necessary to determine the cost implications of the proposals, and on December 3, 1996, Mr Grundy of Watson Wyatt Partners, actuaries, advised that the underlying employer contribution rate to the Scheme (then 15.7%) might be expected to increase by up to some 0.3% on account of the changes, ie about 95,000 pa. But he also advised that the actual rate of contribution might well not increase following the actuarial valuation as at April 5, 1997. Accordingly the proposal, if implemented, would not require an immediate increase in Scheme contributions.

31. A definitive proposal was produced by Mr Pickthall (Head of Human Resources) for consideration by the ISC in March 1997. The report noted Mr Grundy's advice that the actual rate of contribution was unlikely to increase assuming the experience of the Scheme had bettered the assumptions used in the 1994 valuation. Mr Pickthall noted that, given the good investment returns enjoyed by the Scheme and the control exercised on increases to the pay bill, it seemed likely that the actual rate of contribution would not need to increase. Following that meeting there was a period of consultation with the NPI employment representative body, the Joint Consultative Committee. That process of consultation was concluded by December 1997.

32. Early in January 1998 Mr Harman, NPI staff pension manager (and also secretary/ administrator to the Scheme) asked Mr Huggett (who, as I have said, was a member of NPI's Pensions Documentation Team) to prepare drafts to implement the proposed rule changes. In his memorandum of January 9, 1998 Mr Harman informed Mr Huggett that a sub-committee had been set up by the-Board to agree rule changes on behalf of NPI:

"unless the change has a significant impact on the Scheme, in which case it will be referred to the full Board."

Mr Harman's evidence is that, as was apparent from the memorandum and its attachments, the ill-health benefits rule changes he was asking Mr Huggett to draft related only to cases of early retirement through ill health. It was his understanding that NPI, through the ISC, had authorised the changes to the Scheme rules.

33. Mr Grundy was asked to confirm his actuarial advice early in 1998. He confirmed that he was content that his recommended current contribution rate to the Scheme should remain in force after the change to the ill-health benefits. He noted that the experience under the new ill-health benefits structure would be investigated and the financial implications assessed as part of the next triennial valuation of the fund which was due to be made as at April 5, 2000. Mr Grundy's evidence was that if he had been advising on the basis that the proposal would apply not just to cases of early retirement through ill-health but to all early leavers, he would have wished to raise with NPI the fact that such a proposal would lead to substantial additional liabilities for the Scheme and would require a substantial early increase in the rate of contributions; that the proposal would produce a very unusual, indeed unprecedented, benefits structure; that some of the ordinary early leavers could be expected to suffer a reduction in benefits from the level contemplated due to the impact of Inland Revenue benefit limits which were applicable; and that the proposal would be likely to encourage a higher incidence of voluntary withdrawal which would lead to an even greater cost for NPI. In such circumstances he would have wished to have been satisfied that the Trustees of the Scheme were aware of the need for and the extent of the increased contributions to the Scheme.

34. In January 1998 the Human Resources Department drafted a paper on "Long Term Ill Health Incapacity Benefits Policy" for insertion in NPI's Employment Policies and Procedures Manual. On 13 January 1998 there was a joint JCC/HR Working Group meeting at which Mr Banfield reported that it was planned to issue the new policy on ill health within the next Manual update with an effective date of 1 April 1998.

35. On 25 March 1998 there was a meeting of the Trustees. One of the agenda items was the proposed rule changes. The Trustees had been circulated with Mr Harman's paper on the proposed rule changes, and with Mr Huggett's draft Resolution. Both the paper and the draft Resolution dealt with changes other than those relating to incapacity benefits: they also took account of proposals to revise employees' reward structure (as a result of incorporation of the annual bonus into pay) and the change of the salary review date to April 1 in each year. Mr Harman's paper noted that the draft Resolution would be reviewed by the Scheme actuary and by the Trustees' legal adviser (Mr Shaw).

36. Prior to the meeting Mr Harman wrote to Mr Shaw, after receiving the draft resolution from Mr Huggett, to say:

"I will be giving a copy of the draft Resolution to the Trustees at their meeting on 25 March. The intention is to warm them up to the changes so that it does not come as a complete surprise to them when they are asked to sign the Resolution. However, I will emphasise that legal and actuarial advice is being sought and NPI needs to consent to the changes."

37. The meeting was attended by Mr Martin, Mr Barker, Mr Harris and Mr Savage (Trustees), and Mr Harman (together with others) was also there. Mr Batchelor was not able to be present. As the minutes confirm, most of the meeting was taken up with a discussion of investment policy. The minutes note Mr Harman's paper and state that the Trustees would be asked to sign the Resolution as soon as the changes were formally agreed by NPI, and that Mr Harman was asked to check the legal position "on operating to these changes before they were formally agreed". The Trustees were asked about this phrase, and it was put to them that it showed that it was intended that the changes in policy were going to be put into effect before a Resolution to change the rules was passed. Only Mr Barker was not prepared to accede to that suggestion.

38. Mr Harman's evidence was that he did not recall what sort of presentation he made to the Trustees in relation to the proposed rule changes at this meeting. He did not recall the content of the discussion although he believed there was some discussion. An oral explanation of the proposal would have followed the substance of his explanatory paper. Mr Martin said that he understood that the proposal related only to employees retiring on grounds of ill health. He recalled that at the meeting there was a brief discussion of the draft Resolution as a whole. They were still awaiting the actuarial certificate and legal comments relating to all the matters, including the improvement in ill-health benefits and, other than noting the paper, he could not recall further discussion. Mr Barker said he would have read the papers before the meeting, but does not recall any extensive discussion of the ill-health proposal. Mr Batchelor did not attend because he was ill, but he would have read the papers in advance. Mr Harris had no recollection of any discussion of the draft resolution. Mr Savage had no recollection of discussions at the meeting and assumes that, as usual, Mr Harman presented the items on the agenda and the Trustees commented on them.

39. On 23 April 1998 an e-mail was sent (via the local access network) to all staff notifying them that the Employment Policies and Procedures Manual had been updated and that the updating included a number of matters including clarification of the permanent ill-health insurance, and ill-health early retirement benefits policy. None of the Trustees (including of course, Mr Martin, who was also a member of the Board sub-committee) was aware of the announcement in April of the changes in incapacity policy, although Mr Harris thought he must have seen it, but had no specific recollection of it. Nor was Mr Moore as a member of the Board sub-committee aware of it. Mr Harman's evidence was that he assumed that it was Mr Banfield who decided to announce the change of policy at this stage, consistently with the notes of the JCC/HR Working Group Meeting on 13 January 1998. Mr Harman supposed that, as the change to the Scheme rules was driven by the company, represented an improvement to benefits and had minimal impact on funding, it was assumed that the Trustees would not have any difficulties with approving the change.

40. On 17 September 1998 Mr Grundy issued a certificate for the purposes of s 67 of the Pensions Act 1995 and s 37 of the Pension Schemes Act 1993. The certificate in respect of the former was that the modifications to the Scheme to be made by the draft Resolution did not adversely affect any member of the Scheme in respect of his entitlement or accrued rights acquired before the date of the deed. Mr Grundy's evidence was that when he signed the certificate he understood that this was on the basis that the rule change to which the certificate related would apply only to immediate pensions payable following early retirement by reason of ill-health, and he did not intend to issue a s 67 certificate in relation to any wider rule change.

41. On September 24, 1998 a meeting of the Trustees passed the Resolution. Mr Harman's note for the meeting noted that actuarial and legal advice had been finalised, and attached the final version of the Resolution, together with a revised paper on the changes, the actuarial certificate and Mr Shaw's legal advice on the Trustees' power to make the amendments and their compliance with legislation. Mr Shaw's advice records that the changes had been sponsored by NPI and that its consent would be sought formally through the relevant Board sub-committee.

42. The Resolution had been amended from Mr Huggett's first draft in two minor respects, which were the subject of some speculation in cross-examination, but which are not relevant. I am satisfied, for the purposes of the issues I have to decide.

43. The persons present were Messrs Martin, Barker, Harris, Batchelor, and Savage; in attendance were Mr Harman (as Scheme Secretary and Administrator); Mr Jones (Investment Manager); Mr Waring (Manager); Mr Savage (Manager); Mr Shaw (Legal Adviser); and Mr Arscott (Legal Adviser). The minutes record Mr Shaw's oral advice that, as the rule changes involved improvements to benefits, there were no legal issues which should prevent the Trustees from signing the Resolution. The minutes also record that the Resolution was signed, and that, subject to NPI's formal approval, the amendments would be implemented. The Trustees, not knowing of the April announcement, asked for the improvements to be communicated to members.

44. The evidence of the Trustees was that each of them would have read the papers before the meeting, although only Mr Martin, as chairman, had a specific recollection of having done so. He had discussed the changes with Mr Harman on the telephone a few days before the meeting. The Trustees had no specific recollection of the details of the discussion of the changes at the meeting, but all (with the possible exception of Mr Savage) were aware of the fact that actuarial advice had been taken and that the funding implications were trivial: Mr Harman was not sure whether the Trustees had been informed of this at the March or September meeting. Each of the Trustees gave evidence that he intended to affect only the ill-health benefits, and none of them was aware of the link in r 8 between early leaver benefits and incapacity benefits.

45. When asked to speculate as to what his reaction would have been had he known that the effect of the Resolution was that the increased benefits were to apply to all early leavers, Mr Martin's evidence was that he would not have agreed to the Resolution without the fullest provision of actuarial advice as to its implications and with a clear advance indication that this was what NPI intended; Mr Barker, Mr Batchelor and Mr Savage gave similar evidence, and Mr Batchelor added that he would have been concerned that such a change would have been contrary to Inland Revenue limits.

46. The sub-committee of the board met on 28 January 1999 to approve the rule changes. Mr Martin and Mr Moore (who had replaced Mr Brindley as Finance Director) were present. Mr Harman was in attendance. Mr Harman's evidence was that he does not recall there was much discussion of the rule changes since Mr Martin was well acquainted with the Resolution as chairman of the Trustees and Mr Moore was aware that the rule changes had been proposed by NPI before he joined the company. Mr Martin's evidence was that he did not consider that the sub-committee was going beyond what he understood to be its remit when it approved the rule changes, which had been proposed by NPI and agreed by the Trustees. If a proposal to give the same benefits to all early leavers had been put before the Board, he would have spoken very strongly indeed against it, and he did not think it would have been accepted.

47. Mr Moore had reviewed the Trustees' resolution and Mr Harman's explanatory paper and he did not analyse in detail the drafting, as he assumed it reflected the proposal set out in Mr Harman's paper. He had considerable experience as an actuary and he did not imagine that such a change would have significant cost implications. He certainly would not have expected all early leavers to be entitled to the same generosity. The explanatory paper was extremely clear. He had no recollection of what was actually discussed, but if he had known of the link between early leaver benefits and incapacity benefits he would certainly not have approved the Resolution, because such a change could not have been "non-material". If such a proposal had been tabled at a meeting of the full NPI Board he would certainly have urged the Board not to approve it, because it would have been an incentive for NPI staff to retire early and would have had serious cost implications for NPI. If it had been submitted to the Board, "it would have been rejected out of hand".

VI Conclusions on the facts

48. There was no challenge to the veracity of the witnesses, although Mr Andrew Simmonds QC (for the Sixth Defendant) invited me to take account of the fact that they were not disinterested. Such differences of recollection as there were are not material to any of the issues. It is clear that both NPI and the Trustees had in mind only increased benefits for incapacity and that neither NPI nor the Trustees had any intention to benefit early leavers in general. On September 24, 1998 the Trustees intended to make amendments to the 1997 Rules, subject to the subsequent approval of NPI. By mistake the Resolution which was made departed from, or failed to give effect to, that intention. The Trustees continued to have that intention down to the approval by the NPI Board sub-committee on January 28, 1999. The NPI Board sub-committee had the same intention when it gave its approval.

49. So far as NPI is concerned:

(a) all of the internal policy papers produced by the Human Resources Department in 1996 and 1997 were concerned with incapacity benefit, and none with early leavers' benefit;

(b) the decision by the ISC in 1996 to agree the proposals in principle was based on a Human Resources Department paper dealing with incapacity benefits;

(c) Mr Grundy, the actuary, was asked to consider only, and did consider only, the effect of the increased incapacity benefits both in his initial advice in late 1996 and in his later advice in 1998, and also for the purposes of his certificate under s 67 of the Pensions Act 1995;

(d) the definitive proposal produced by the Human Resources Department for the ISC in March 1997 dealt with incapacity benefit only;

(e) the ISC approval in March 1997 and the consultation with the Joint Consultative Committee was conducted on the basis that the proposal related to incapacity benefit;

(f) Mr Harman, as NPI staff pension manager, asked Mr Huggett, as a member of the Pensions Documentation team, to prepare a draft Resolution to deal with the increased incapacity benefits;

(g) Mr Huggett produced the draft Resolution on that basis;

(h) the announcement in the staff Manual in April 1998 related solely to incapacity benefits;

(i) the legal advice given on the draft Resolution to the Trustees by Mr Shaw, a member of NPI's legal department, was given on the basis of the proposals made by NPI;

(j) both members of the Board sub-committee were qualified actuaries, and they approved the Resolution on the basis that it dealt only with incapacity benefits, which they knew involved a small cost, and the sub-committee would not have had authority to approve a resolution with the financial implications for NPI which it would have had if the Resolution increased early leavers' benefits in the same way;

(k) the Board sub-committee only had authority to approve non-controversial amendments, and if a proposal to give the same benefits to all early leavers had been submitted to the Board it would have been rejected out of hand;

(l) when the Scheme booklet was amended to take account of the increased benefits, it dealt with them solely by reference to persons leaving through ill health;

(m) the cost to NPI of extending the benefit to all early leavers would have been enormous and there is no trace whatever that it was ever contemplated.

50. The Trustees also passed the Resolution on the basis that it was dealing solely with incapacity benefits:

(a) the Trustees discussed the matter at their meeting in March 1998 on the basis of a paper dealing with incapacity benefits, and were given an oral presentation by Mr Harman dealing with the proposals on the same basis;

(b) the Trustees passed the Resolution in September 1998 on the basis of the NPI paper, the actuarial advice, and the legal advice, all of which dealt exclusively with the proposals relating to incapacity benefit;

(c) each of the Trustees gave evidence that he intended to deal only with incapacity benefits in the relevant part of the Resolution;

(d) two of the Trustees (Mr Martin and Mr Harris) were actuaries, and each of the Trustees (with the possible exception of Mr Savage) was well aware of the actuarial advice and the relatively trivial cost of the exercise.

51. No-one involved had in mind the cross-reference in r 8.4(1). There was no evidence of any similar clause in any other scheme. Mr Shaw said,

"I feel very badly about it and responsible . . . But at the time I thought the Rule [Rule 4]was self-contained. It never crossed my mind - I realise, you know, that is wrong. At the time it just never crossed my mind that there would be a reference somewhere else in the rules determining the calculation of benefits by reference to a rule somewhere else; and in particular the rule I was looking at."

52. It was put to the Trustees that they had no intention to break the link between early leaver benefits and incapacity benefits. But they had no knowledge of any such link, and they had no intention in relation to it, except that they intended to improve incapacity benefits and nothing else. This exchange with Mr Martin, Chairman of the Trustees and a non-executive director (and, as I have said, a very distinguished actuary), who was also on the Board sub-committee, is illustrative:

"Q. Mr Martin one subject on which I think we can agree, it is right, is it not, that at neither of the meetings in March and September was there any discussion of amending Rule 8.4, sub rule 1, the reference to incapacity benefits?

A. Not at all.

Q. There was no intention on the part of the Trustees to break the link that was established in that rule?

A. The Trustees had no idea that such a link existed, and I certainly did not, and do not think any of them did at all.

Q. Therefore the answer to my question must be yes?

A. Could you repeat your question, I am sorry.

Q. The Trustees had no intention to break the link established in Rule 8.4 between normal early leaver benefits and incapacity benefits?

A. I think I repeat, my answer is the Trustees, I am sure, had no idea that such a link existed.

Q. Therefore the answer to my question is yes, is it not, Mr Martin?

A. I think so, yes, but I am not a lawyer."

53. It was suggested that the Trustees were involved in a "rubber-stamping" exercise when they approved the Resolution. I do not accept this suggestion, which was used to support an argument that when they signed the Resolution they had no intention other than to sign whatever was put before them. It is true that NPI announced the changes before they had come into effect: the announcement in April 1998 was made before the Resolution was passed in September 1998, and before the Board sub-committee gave its consent in January 1999, and the Scheme booklet was amended in November 1998 before the Board sub-committee gave its consent. It is also true that the most natural meaning of the minute of the March 1998 Trustees' meeting is that it was contemplated that the changes might (subject to legal advice) be brought into effect before the formal processes had been completed. But none of the Trustees (with the possible exception of Mr Harris) was aware of the announcement, and the fact that they asked for the change to be announced after they had passed the Resolution in September strongly supports that. In any event, I am satisfied by the evidence that Mr Martin, as Chairman of the Trustees, and Mr Harman, as Scheme secretary, ensured that each of the Trustees was properly informed of the background to any decision which was to be taken and ensured there was an opportunity for debate. The decision, of course, was not a difficult one, given NPI's policy, and the relatively small cost, but I am wholly satisfied that the matter was properly considered, and that the Trustees intended to affect incapacity benefits and no other.

54. The Trustees were asked in cross-examination to assume that they had been presented with the same Resolution but with the knowledge that NPI intended to apply the change to all early leavers and had appreciated the cost implications. The purpose was to show that if they had known that the Resolution was intended to benefit early leavers in general they would not necessarily have refused to pass the Resolution. Thus the hypothesis put by Mr Andrew Simmonds QC to (for example) Mr Batchelor was as follows:

"Assume that it was being made, assume it was being promoted by the company. The company understood that this amendment operated so as to enhance the benefits of all early leavers. It understood what the cost implications of that were. If you make that assumption - and assuming the company says:

'Yes, this is what we want to do. We obviously will pay increased contributions to cover the cost.'

Would you have had any difficulty with that as a Trustee?"

That unrealistic hypothesis met resistance from the Trustees, but some at least were prepared to agree that they might have accepted the proposal: Mr Harris said he might have accepted it after a lot of debate; Mr Savage said he might have accepted it, although it did not feel right; Mr Batchelor would not have agreed to it because it would have given the impression to the Inland Revenue that the Trustees did not know how to run a scheme, and Mr Barker would not have subscribed to it because it would have been "bizarre"; but Mr Martin accepted that if the company, "however misguidedly," wanted to pursue such a policy it was not for the Trustees to tell the company what its policy should be.

55. The hypothesis was wholly unreal. The reality of the matter is that the trustees did not appreciate that they were increasing early leaver benefits at a cost of 12 to 30 million. If they had appreciated it, they would also appreciated the absurd nature of what was being done, and would have required an assurance (which would never have been given) that NPI would meet the cost.

VI Legal principles and their application

56. The primary relief which is sought by the Claimants is rectification of the amendments made by the Resolution to reflect the true intentions of the Trustees and of NPI, namely to affect incapacity benefits only.

57. Alternatively (but only if rectification is refused) they seek an order setting aside the amendments (in whole or in part) on the basis that NPI's consent was vitiated by mistake; or an order setting aside the amendments on the basis (the principle in Re Hastings-Bass [1975] Ch 25, [1974] 2 All ER 193) that the Trustees' Resolution was vitiated by the Trustees' failure to take into account material considerations which would or might have affected their decision.

58. The principal (but not the only) questions which divide the Claimants and the Trustees from the Sixth Defendant are these:

(a) for the purposes of rectification;

(I) Is this case to be treated as equivalent to a contract case, so that (as the Sixth Defendant contends) a common accord between the Trustees and NPI must be shown, or is to be treated as a case of the exercise of joint powers so that it is only necessary to show a common intention?

(II) Is the Sixth Defendant right in maintaining that there was no intention to abolish the link between early leavers' benefit and incapacity benefit?

(III) Is the defence of bona fide purchaser available to the Sixth Defendant?

(IV) Is the claimed rectification effective to achieve the desired result?

(b) is there any basis in principle for setting aside NPI's consent on the ground of mistake?

(c) is there any basis for the application of the principle in Re Hastings-Bass in a case where the Trustees' duty is said to be owed to the members, and where its application would deprive the members of accrued or vested rights?


59. The starting point is free from difficulty. In the case of a bilateral transaction, there must be convincing proof that the concluded instrument does not represent the common intention of the parties. The policy reason for the need for convincing proof is that certainty and ready enforceability of transactions would otherwise be hindered by constant attempts to cloud the issue: The Olympic Pride [1980] 2 Lloyd's Rep 67, at 72. The claimant does not have to meet more than the civil standard of balance of probabilities, but convincing proof is required to counteract the cogent evidence of the parties' intention displayed by the instrument: Thomas Bates and Sons v Wyndham's Ltd [1981] 1 All ER 1077, [1981] 1 WLR 505, 521 (CA); Grand Metropolitan plc v William Hill Group Ltd [1997] 1 BCLC 390 at 394; Lansing Linde Ltd v Alber [2000] Pensions LR 15, 44.

60. The claimant must show some outward expression of accord or evidence of a continuing common intention, outwardly manifested. But it is not necessary to have a concluded and binding contract antecedent to the agreement which it is sought to rectify. In a well known passage in Frederick E Rose Ltd v William H Pim & Co Ltd (CA) [1953] 2 QB 450, [1953] 2 All ER 739, at 461-462 of the former report Denning LJ said:

"Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties - into their intentions - any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in the coming to their agreement, and then compare it, with the document that they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice. It is not necessary that all the formalities of the contract should have been executed so as to make it enforceable at law . . . but, formalities apart, there must have been a concluded contract. There is a passage in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, 664] which suggests that a continuing common intention alone will not suffice; but I am clearly of the opinion that a continuing common intention is not sufficient unless it has found expression in outward agreement. There could be no certainty at all in business transactions if a party who had entered into a firm contract could afterwards turn round and claim to have it rectified on the ground that the parties intended something different. He is allowed to prove, if he can, that they agreed something different . . . but not that they intended something different."

61. In Joscelyne v Nissen [1970] 2 QB 86, [1970] 1 All ER 1213, at p 97 of the former report, however, the Court of Appeal said that Rose v Pim did not assert or reinstate the view that an antecedent complete concluded contract was required for rectification. It only showed that prior accord on a term or meaning of a phrase to be used must have been outwardly expressed or communicated between the parties. The Court of Appeal expressly approved the reference by Simonds J in Crane v Hegeman-Harris Co Inc [1939] 1 All ER 662, [1971] 1 WLR 1390, at 664 of the former report to "common continuing intention", with the qualification that some outward expression of accord is required. I accept the submissions of Mr Brian Green QC that these are not two separate conditions, but rather different sides of the same coin, since an uncommunicated inward intention is wholly irrelevant.

62. In the case of unilateral transactions, ie transactions which create rights for persons other than the maker of the instrument, but which are not the result of a bargain, eg voluntary settlements, the court has a discretion to rectify in the case of mistake. In this type of case there is, of course, no question of having to show common mistake. The jurisdiction to rectify in such cases has a long history: see Walker v Armstrong (1856) 8 De GM & G 531. The leading modern authority is Re Butlin's Settlement [1976] Ch 251, [1976] 2 All ER 483. In that case the settlor, Sir Billy Butlin, had executed a voluntary settlement which was intended to give a majority of five trustees power to exercise the power given them by the settlement over capital and income. As a result of a drafting error by counsel, the settlement did not give effect to this intention. It was held that the court had power to rectify the settlement notwithstanding that only one of the original trustees knew of the intention. Brightman J said (at 260-261):

"There is, in my judgment, no doubt that the court has power to rectify a settlement notwithstanding that it is a voluntary settlement and not the result of a bargain, such as an ante-nuptial marriage settlement. Lackersteen v Lactersteen (1860) 30 LJ Ch 5, a decision of Page-Wood VC and Behrens v Heilbut (1956) 222 LJ Jo 290, a decision of Harman J, are cases in which voluntary settlements were actually rectified. There are also obiter dicta to the like effect in cases where rectification was in fact refused; see Bonhote v Henderson [1895] 1 Ch 642; [1895] 1 Ch 202."

63. The Rose v Pim contractual line of authority was referred to, obiter, in Lansing Linde v Alber [2000] Pensions LR 15, where pension scheme rules were amended to defer the normal retirement date for women to 65. The rules gave the company power to amend the rules with the consent of the Trustees. The new rules also gave men and women the right to retire between 60 and 65 on an immediate pension unreduced by reason of the fact that it was being taken early. The original rules permitted early retirement on an immediate, but actuarially reduced, pension. Under the original rules, members of the scheme in service (actives) required the consent of the trustees and the company to take early retirement; those who had left service (deferreds) required the trustees' consent. The company claimed that the omission of the requirement for consent in the new rules was in error and that it was always intended that the right should be subject to consent of the company and trustees. The cost to the company of there being no requirement of consent was considerable, particularly with regard to the valuation of the benefits of deferreds. The memoranda and minutes of the trustees' meetings made no reference to consent being required for early retirement. In relation to the actives, Rimer J decided that there was insufficient evidence that the absence in the new rules of the need for consent for early retirement between 60 and 65 on an unreduced pension failed to give effect to the intentions of the company and the trustees. But with regard to the deferreds, there was no positive intention to change their position. But rectification was refused, even as regards the deferreds, because (at 49):

"The evidence shows that, when they executed the deed, they had no clear common understanding of what it provided, and no clear common intention as to what it should provide. The only common thread of intention which appears to link the signatories was an intention to sign, wholly blindly, the document which was put before them on the basis that, as it was prepared by [the scheme administrators and scheme solicitors], it must be one they could safely sign. In short, their intention was no more complicated than to sign a deed in the form produced to them, whatever it in fact provided, and knowing that in material respects it had gone beyond the limits of what had been resolved . . ."

He then went on to hold that in any event there was no outward expression of accord. It was argued for the company that, since this was not a contract case, the applicable principles were those in Re Butlin's Settlement, and there was no need for outward expression of accord. Rimer J said (at 50):

"I agree . . . that the present claim is not one to rectify a contract, since no authority has been cited to me which expressly identifies the rectification requirements in a claim such as the present. I agree also that it may be said that to apply the Rose v Pim requirement of an outward expression of accord to the present case does involve a development of the principles. If so, however, I take the view that such a development requires only the smallest of steps."

64. I have had the benefit of a more elaborate argument on the requirement of common accord in a case like the present one. The rules give the Trustees power to alter the Rules by written resolution or deed, after obtaining the consent of the Principal Employer: r 14(1). What happened in the present case was that NPI proposed the changes, and that they were formally approved by a Board sub-committee after the Trustees passed the necessary resolution. It is agreed that nothing turns on the point that the formal approval was given after the Trustees' Resolution, despite the fact that the rules envisage that the Principal Employer's consent should be given before the Trustees alter the rules. No agreement between the Principal Employer and the Trustees is envisaged by the rules. The Principal Employer simply has to consent to the exercise of the power of amendment by the Trustees. But the consent is not to the exercise of the power of amendment in general. The Principal Employer must consent to the actual amendments. It probably does not matter whether this is regarded as a joint power of the Trustees and the Principal Employer to amend the Rules, or (probably more accurately) as a power vested in the Trustees but subject to the consent of the Principal Employer: cf Re Earl of Coventry's Indenture [1974] Ch 77, [1973] 3 All ER 1. The reason that it does not matter for present purposes is that, although a power exercisable with consent is not the same as a joint power, the Trustees cannot act unless their "wishes happen to coincide with those" of NPI (cf [1974] Ch at 91).

65. Consequently, the intentions of the Trustees and the Principal Employer must converge. But they do not have to agree inter se. The Resolution, however cannot be rectified to reflect the intentions of the Trustees when that is not also the intention of the Principal Employer, for otherwise the Resolution could take a form to which the Principal Employer had not consented, and the consent of the Principal Employer is an essential part of the machinery of amendment.

66. There must, therefore, be cogent evidence of the intentions both of the Trustees and of NPI, but not necessarily of their agreement or accord. In some of the earlier cases on voluntary settlements, rectification was ordered on the uncontradicted affidavit evidence of the settlor without any need for objective manifestation of intention: see, eg, Hanley v Pearson (1879) 13 Ch D 545. Mr Nigel Inglis-Jones QC for the Trustees suggested that a similar approach would be appropriate in a case such as this. It may be that the need for objective manifestation in the case of a unilateral transaction is simply one element of the need for convincing proof of the mistake. It was present in the two leading modern cases on mistake in unilateral transactions, Re Butlin's Settlement and Gibbon v Mitchell [1990] 3 All ER 338, [1990] 1 WLR 1304, infra, para 81. The certainty of transactions would be undermined if the court could act, otherwise than in exceptional circumstances, simply on the assertion of a party to the transaction. But when one is considering the intentions of a collective body such as a group of trustees or a committee of a board it is their collective intention which is relevant, and it would be a very odd case (and certainly not this one) if that collective intention were not objectively manifested.

67. Consequently what AMP has to show convincingly is a continuing common intention by the Trustees and the NPI to affect only incapacity benefits. It is clear from the factual findings that there is overwhelming evidence that their intentions were limited to improving the benefits for those leaving on account of incapacity, and they had not the slightest intention to benefit early leavers in general. If objective manifestation of their intentions is a separate requirement, then there can be no doubt that it is fulfilled in abundance.

68. If it were necessary also to show a common accord to the same effect, then it would not be straining the facts to hold that there was in effect such an accord in view of the fact that Mr Martin, as Chairman of the Trustees and a member (in his capacity as a non-executive director) of the Board sub-committee and Mr Harman, as scheme secretary and scheme administrator, provided a link between the Trustees and the Board sub-committee. NPI made proposals to the Trustees which the Trustees accepted by passing the Resolution and which NPI ratified by giving its consent to the amendments.

69. The next question is whether the right to rectification is affected by the fact that the Trustees and the Board sub-committee intended to pass, or consent to, the very wording in the Resolution. It is plain that it is not so affected. Re Butlin's Settlement illustrates another general proposition in the law of rectification, which is that rectification may be available even if the parties have quite deliberately used the wording in the instrument. Brightman J said (at 261-2):

". . . rectification is available not only in a case where particular words have been added, omitted or wrongly written as a result of careless copying or the like. It is also available where the words of the document are purposely used but it was mistakenly considered that they bore a different meaning as a matter of true construction. In such a case . . . the court will rectify the wording so that it expresses the true intention . . ."

70. Consequently rectification may be available if the document contains the very wording that it was intended to contain, but it has in law or as a matter of true construction an effect or meaning different from that which was intended: Whiteside v Whiteside [1950] Ch 65, [1949] 2 All ER 913, at p 74 of the former report; Grand Metropolitan plc v William Hill Group Ltd [1997] 1 BCLC 390, 394. It is sometimes said that equitable relief against mistake is not available if the mistake relates only to the consequences of the transaction or the advantages to be gained by entering into it: cf Whiteside v Whiteside [1950] Ch 65, [1949] 2 All ER 913, at p 74 of the former report; Gibbon v Mitchell [1990] 3 All ER 338, [1990] 1 WLR 1304, 1309. This distinction seems to have been derived in the former case from the 1929 edition of Kerr on Fraud and Mistake. If anything, it is simply a formula designed to ensure that the policy involved in equitable relief is effectuated to keep it within reasonable bounds and to ensure that it is not used simply when parties are mistaken about the commercial effects of their transactions or have second thoughts about them. The cases certainly establish that relief may be available if there is a mistake as to law or the legal consequences of an agreement or settlement, and in the present case Mr Simmonds QC ultimately accepted that, if there was a mistake, it was a mistake as to legal effect and not merely as to consequences.

71. It is therefore quite unreal to contend that the intention of the Trustees and NPI was simply to pass a Resolution containing the words which it did in fact contain, or that they did not intend or agree to abolish the link between the calculation of benefits under rr 4.1 and 8.4(1). Nor can it be said that they intended (as was held in Lansing Linde ([2000] Pensions LR 15)) simply to sign anything which was put before them. The Resolution was the subject of preparation, advice and discussion. It was not the result of a rubber-stamping exercise, and the fact that, as result of an oversight or of negligence (see Walker v Armstrong (1856) 8 De GM & G 531) it had an effect going far beyond the intentions of the Trustees and NPI not only does not prevent rectification, but is a ground for it.

Bona Fide purchaser: the position of scheme members

72. It is clear that a bona fide purchaser may resist rectification of an instrument under which he has acquired rights: Snell's Equity, 30th edn 2000, ed McGhee, para 43-21. It is argued on behalf of the Sixth Defendant that the scheme members are bona fide purchasers, and take free from the equitable right to rectification.

73. The position of scheme members, who are beneficiaries of the trust, has been considered in a number of decisions. In Kerr v British Leyland (Staff Trustees) Ltd, unreported, 26 March 1986 in confirming that trustees did not have an uncontrolled discretion to determine whether incapacity was permanent, Fox LJ said:

"Now this is not a case of trust where the beneficiaries are simply volunteers. The beneficiaries here are not volunteers. Their rights derive from contractual and commercial origins. They have purchased their rights as part of their terms of employment. Consistently with that, the power of the trustee to decline acceptance of the claim cannot be simply an uncontrolled discretion."

This statement was applied in Stannard v Fisons Pensions Trust Ltd [1991] Pensions LR 225, 232 per Dillon LJ, also in the context of the exercise of the Trustees' discretion.

74. So also in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 2 All ER 597, [1991] 1 WLR 589 Sir Nicolas Browne-Wilkinson VC held that the power of the company to withhold consent to benefit increases must be exercised in good faith. In reaching that conclusion he said (at 597):

"Pension scheme trusts are of quite a different nature to traditional trusts. The traditional trust is one under which the settlor, by way of bounty, transfers property to trustees to be administered for the beneficiaries as objects of his bounty. Normally, there is no legal relationship between the parties apart from the trust. The beneficiaries have given no consideration for what they receive. The settlor, as donor, can impose such limits on his bounty as he chooses, including imposing a requirement that the consent of himself or some other person shall be required to the exercise of the powers.

As the Court of Appeal have pointed out in Mihlenstedt v Barclays Bank International Ltd [1989] IRLR 522 a pension scheme is quite different. Pension benefits are part of the consideration which an employee receives in return for the rendering of his services. In many cases, including the present, membership of the pension scheme is a requirement of employment. In contributory schemes, such as this, the employee is himself bound to pay for his or her contributions. Beneficiaries of the scheme, the members, far from being volunteers have been given valuable consideration. The company employer is not conferring a bounty. In my judgment, the scheme is established against the background of such employment and falls to be interpreted against that background."

75. The same point was made in McDonald v Horn [1995] 1 All ER 961, [1995] ICR 685 in extending the Wallersteiner v Moir (No 29 pre-emptive costs order from minority shareholders in derivative actions to pension fund members in actions against trustees for breach of trust. Hoffmann LJ said (at 972-973):

". . . if one looks at the economic relationships involved, there does seem to me to be a compelling analogy between a minority shareholder's action for damages on behalf of the company and an action by a member of a pension fund to compel trustees or others to account to a fund. In both cases a person with a limited interest in a fund, whether a company's assets or a pension fund, is alleging injury to the fund as a whole and seeking restitution on behalf of the fund. And what distinguishes the shareholder and pension fund member, on the one hand, from the ordinary trust beneficiary, on the other, is that the former have both given consideration for their interests. They are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration for the services of the employee. Pension funds are such a special form of trust and the analogy between them and companies with shareholders is so much stronger than in the case of ordinary trusts that, in my judgment, that it would do no violence to established authority if we were to apply to them the Wallersteiner v Moir (No 2) procedure."

76. Essentially the same point is being made in each of these cases. The pension is not a gift by the company. The employee has worked for the right to a pension, and he has given consideration for it. Whether or not the scheme is a contributory scheme, the payments from the scheme are part of the consideration for the services of the employee. It follows that in three of these cases the discretion of the employer was limited as a result, and in the fourth that the members of the scheme could benefit from an order that they be indemnified out of the scheme assets.

77. Mr Andrew Simmonds QC for the Sixth Defendant argues that members have acquired vested or accrued rights as a result of what, for the purpose of this part of the argument, must be regarded as a mistake. The Scheme is a special form of trust in which the members as beneficiaries have acquired for value rights as a result of the mistake. It is accepted that before the mistake was discovered early leavers or those in service had no expectation or intention of receiving enhanced benefits on the basis of the rule changes. In my judgment early leavers such as the Sixth Defendant, or other members of the Scheme, are not in the position of bona fide purchasers. It is true that they give consideration for their pension rights, but they gave no additional consideration for the "rights" which the rule changes mistakenly conferred on them, and it is wholly unrealistic to treat them as purchasers of anything in the present context other than such rights as were properly granted in the rules.

78. The next question is whether the proposed rectification is effective. The proposed rectification does not delete the reference in r 8.4(1) to incapacity, but provides that the new rule on incapacity:

"will apply in actual cases of Incapacity and Serious Incapacity (but for no other purpose under the Rules)."

In my judgment this is effective to cut the link between early leaver benefit and incapacity benefits.

79. Accordingly, I will order rectification as asked. It is not therefore necessary for me to deal with the alternative claims, but since they were the subject of elaborate and interesting argument I will deal shortly with them.

Setting aside for mistake

80. Where a document is executed under a mistake as to its effect, it may be set aside. This jurisdiction in relation to unilateral transactions [See, for bilateral transactions, Solle v Butcher [1950] 1 KB 671, [1949] 2 All ER 1107; and, in the context of pension schemes, Spooner v British Telecommunications [2000] IDS Pensions LR 65] also has a long pedigree: see Lady Hood of Avalon v Mackinnon [1909] 1 Ch 476. In that case Lady Hood made an appointment in favour of her elder daughter, in order to place her in the same position as her younger daughter to whom she had already made large appointments. But in doing so she (and her solicitor) had forgotten that she had, several years before, made a large appointment to the elder daughter on her marriage. It was held that the appointment to the elder daughter would be rescinded because Lady Hood, intending only to bring about equality between her daughters, was labouring under a mistake, since the effect of the appointment "was to bring about that which Lady Hood never intended and never contemplated" (at 484).

81. The most notable modern authority is the decision of Millett J in Gibbon v Mitchell [1990] 3 All ER 338, [1990] 1 WLR 1304. In this case Mr Gibbon executed a deed surrendering his life interest in a trust fund in order to vest the property in his two children: the deed did not have that effect because of two errors (one of which was ignoring the fact that his life interest was subject to protective trusts), with the result that the fund became subject to discretionary trusts for the remainder of his life and only then would it vest in his two children, and also in further as yet unborn children. It was held that this was a case, not for rectification, but for setting aside for mistake. Millett J said (at 1309):

". . . wherever there is a voluntary transaction by which one party intends to confer bounty on another, the deed will be set aside if the court is satisfied that the disponer did not intend the transaction to have the effect that it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it."

82. There is no reason in principle why this jurisdiction should be limited to voluntary settlements in the strict sense. As Millett J emphasised (at 1307) there is a wide equitable jurisdiction to relieve from the consequences of mistake, and I would have decided that this would have been an appropriate case for setting aside NPI's consent for mistake.

The Re Hastings-Bass principle

83. Finally, it is said that, if for some reason rectification is not available, the Resolution should be declared void because the Trustees failed to give any or proper consideration to the enormous cost of giving early leavers the enhanced benefits, or to the fact that it would have capricious effects, and encourage employees to leave NPI. If they had realised that the proposed changes had that effect they might not, or would not, have signed the Resolution.

84. In Re Hastings-Bass (CA) [1975] Ch 25, [1974] 2 All ER 193 trustees of a settlement had exercised their power of advancement under s 32 of the Trustee Act 1925, in order to save estate duty, by transferring investments to be held on the trusts of a later settlement. But the effect of the advancement was that the trusts in remainder after the life interest of the settlor's son were void for perpetuity as a result of the decision in Pilkington v Inland Revenue Commissioners [1964] AC 612, [1962] 3 All ER 622. The Revenue contended that the exercise of the power of advancement was invalid (with the consequence that estate duty would be payable as if the advancement had never been made) on the basis that the trustees had not given due weight to all relevant factors. It was held that the trustees' prime consideration in making the advancement was to give the son a life interest and the failure for perpetuity of the ulterior trusts of the sub-settlement did not affect that benefit. Consequently the trustees had not failed to ask themselves the right questions or to arrive in good faith at a reasonable conclusion. The statement of general principle was expressed negatively in these terms (at 41):

". . . where by the terms of a trust . . . a trustee is given discretion under some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorised by the power conferred on him, or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account."

85. In Mettoy Pension Trustees v Evans [1991] 2 All ER 513, [1990] 1 WLR 1587, 1624 Warner J accepted that Re Hastings-Bass had laid down a principle that where a trustee acts under a discretion given to him by the terms of a trust, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account. In such cases, he held, the purported exercise of discretion would be declared void, in whole or in part, if it were clear that, had the trustees had the proper understanding of the effect of their act, "they would not have acted as they did." In that case it was contended that pension scheme rule changes augmenting employee benefits were invalid because the trustees had not taken into account (inter alia) the deteriorating financial position of the company. It was held that they had failed to consider relevant matters, but that it had not been shown they would have acted otherwise if they had taken those matters into account.

86. In Kerr British Leyland Staff (Trustees) Ltd, unreported March 26, 1986 (CA) it was held that pension scheme trustees had failed to consider properly medical reports in rejecting Mr Kerr's claim that he was permanently incapacitated. After emphasising that scheme members are not simply volunteers, Fox LJ said:

". . . the power of the trustees to decline acceptance of the claim cannot be simply an uncontrolled discretion. It seems to me that the duty of the trustee was to give properly informed consideration to the application

. . .

It seems to me that . . . the decision of the trustee was simply ineffective since the Board did not carry out their duty to give a properly informed consideration to the claim."

87. Re Hastings-Bass was not referred to in that case, but it seems to rest on the same basis, which, in my judgment, is confirmed by the decision in Stannard v Fisons Pensions Trust Ltd [1991] Pensions LR 225 (CA). In that case Fisons had sold their fertiliser division to Norsk Hydro. Acting on advice of actuaries and thinking that the fund was in deficit, the trustees made a transfer to a new fund to provide for pensions of transferring employees in accordance with a method of calculation which placed upon the new employer the burden of carrying on employer contributions at the current rate. But at the time of the transfer the trustees were not informed that rises in the stock market meant that the fund was in surplus. If they had known, another method of calculation would have been used which would have resulted in a reduction of employer's contributions or the possibility of augmented benefits. It was held that there should be a recalculation, because the trustees had failed to take into account a highly material factor. Dillon LJ applied Kerr v British Leyland Staff (Trustees) Ltd and held that it might materially have affected the Trustees' decision if they had been properly informed as to the then current value of the Fund and the implications of its value. He went on (at 233):

"I should add that I have no difficulty in reconciling the judgment in Kerr v. British Leyland (Staff Trustees Ltd with the decision of this court in Re Hastings-Bass [1975] Ch 25 to which we were also referred. What was material in Hastings-Bass was that in order to save estate duty the trustees wanted by way of advancement to create an immediate life interest in the funds in question. This they had effectively done. Had they appreciated that the trusts in remainder after the life interest which they also purported to appoint would be void for perpetuity, they would no doubt have appointed other, valid, trusts in remainder. But they would still have created the same life interest, and any difference in the trusts in remainder was immaterial to that."

88.Each of these decisions puts the test as whether, if the trustees had taken the right matters into consideration "it might have materially affected their decision".

89. For completeness I should refer to two cases decided earlier this year. In Green v Cobham, unreported, 19 January 2000, as a result of his retirement from practice the solicitor to a non-resident will trust was no longer treated as non-resident for capital gains tax purposes, with the result that there was no longer a majority of non-resident trustees and the will trust became a United Kingdom resident trust. Jonathan Parker J applied Re Hastings-Bass to declare void a deed of appointment made under the will trust because the trustees gave no thought to the capital gains tax consequences of what they had done. In Breadner v Granville-Grossman [2000] 4 All ER 705, Park J recognised that the principle was at an early stage of development but noted that:

"it cannot be right, whenever trustees do something which they later regret and think they ought not to have done, they can say they never did it in the first place." (at 722)

90. There was much debate in these proceedings on (a) whether an act by Trustees which could be impugned on this principle was to regarded as void or voidable; and (b) whether it required a showing that the Trustees would have acted otherwise, or simply might have acted otherwise. All I think it is necessary to say is that the language of the cases strongly suggests that the application of the principle leads to the act being void rather than voidable. In the present case that would have only been significant in the context of the standing to sue of AMP Services for reasons on which it is not necessary to elaborate. In any event AMP itself would have standing as a beneficiary, and the fact that it approved the Resolution (on this hypothesis also on a mistaken basis) could not prevent it from claiming that the Trustees did not exercise their discretion properly. On the second question, "would" or "might?", Re Hastings-Bass indicates the former, but the later decisions of the Court of Appeal in Kerr and Stannard, by which I am bound, hold that "might" is the appropriate test. In the present case it would not have mattered, since it is plain that the Trustees would not have passed the Resolution if they had taken these matters into account, and I would have held it void on that account.

91. I should not end this judgment without acknowledging the excellent arguments of Mr Brian Green QC, Mr Nigel Inglis-Jones QC and Mr Andrew Simmonds QC and the helpful way in which the evidence was prepared and documented for the court by Messrs Freshfields Bruckhaus Deringer.

Judgment accordingly.

Freshfields Bruckhaus Deringer; Baker & McKenzie; CMS Cameron McKenna