Gallaher Ltd. v Gallaher Pensions Ltd. & Ors

A pension-scheme amendment is construed objectively, in its factual context, but clear and ordinary words will not be given a different meaning merely because the parties previously followed another practice. Rectification is available where there is convincing proof of a continuing common intention which the executed deed failed to express. In this context, objective manifestation of that intention is not a separate legal requirement. Subsequent conduct may provide evidence of the parties’ intention and may objectively manifest it. A trustee’s failure to obtain essential actuarial costings and to consider the financial and discriminatory consequences of an amendment may engage the rule in Hastings-Bass.

Gallaher Ltd, principal employer under three occupational pension schemes, sought declarations concerning deeds introducing guaranteed annual 2% limited price indexation increases to pensions in payment. It contended that the increases should exclude the Guaranteed Minimum Pension element. Alternatively, it sought rectification or relief for mistake under Gibbon v Mitchell and the rule in Hastings-Bass. The trustee, Gallaher Pensions Ltd, remained neutral. Representative pensioner defendants opposed the relief. The central issues were the proper construction of the 1987 deeds, whether they should be rectified or set aside, and whether the 1989 deeds were affected.

1. Construction. The phrase “Pensions in payment from the Fund” in Rule 7A bore its natural and ordinary meaning and included the whole pension, including the GMP element. The historic policy of excluding GMPs from discretionary increases did not justify treating clear words as a shorthand for a different expression. The later conduct of the parties could not colour the construction of the 1987 deeds.
2. Rectification. Following AMP v Barker, rectification was available upon convincing proof of a continuing common intention of the employer and trustee which the deed failed to implement. There was no separate requirement for an outward expression or objective manifestation of that intention. On the evidence, the parties intended to guarantee for ten years the existing policy of granting increases only on the pension above the GMP. The 1987 deeds mistakenly failed to give effect to that intention. Subsequent pension payments, actuarial reports, booklets and communications reinforced that conclusion. Delay caused no prejudice.
3. Relief for mistake. Alternatively, the deeds were executed under a fundamental mistake as to their effect. The claimant intended to guarantee only the previously discretionary increases limited to the excess over the GMP. The court would therefore have set the deeds aside under the equitable jurisdiction described in Gibbon v Mitchell.
4. Hastings-Bass. The court did not resolve all disputed questions concerning the rule, including whether the relevant test was that the trustee would or might have acted differently. On the facts, both tests were satisfied. The trustee had failed to obtain actuarial costings for increases on the whole pension and had failed to consider the resulting financial, discriminatory and double-increase consequences. On the approach in Barr, that would have constituted a breach of fiduciary duty and made the decision voidable.
5. Order. The 1987 deeds were ordered to be rectified. No issue arose concerning the 1989 deeds.