Honda Motor Europe Ltd & Anor v Powell & Anor

A deed admitting a new employer and its employees to an occupational pension scheme must be construed by reference to its language, the scheme documents incorporated by that language and the admissible background. Extending the existing scheme’s benefits ordinarily confers the benefits defined by its existing rules. A distinct scale cannot be introduced without an effective exercise of the scheme’s amendment power.

The court may correct contractual language only where it is clear that the language has gone wrong and clear what a reasonable reader would have understood. An omission in implementing the parties’ intended arrangements does not alter the instrument’s meaning. Such an omission may instead engage rectification.

Two associated employers appealed from the decision of Asplin J, reported at [2013] EWHC 3149 (Ch) and [2013] Pens LR 417. She held that a 1986 Deed of Adherence did not confer on employees of the newly participating employer a separate and less generous scale of pension benefits.

The deed extended the benefits of the existing pension scheme to eligible employees and directors of the new employer. Although the employers intended those employees to receive the less generous scale announced to them, that scale was not formally incorporated into the trust deed and rules until 1998.

The central questions were whether the deed itself introduced the separate benefit scale and, if so, whether it effectively exercised the amendment power in clause 16 of the 1981 trust deed and rules.

1. Appeal dismissed. The natural meaning of the Deed of Adherence was that the existing scheme, including the benefits defined by its rules, was extended to the new employer’s eligible employees. The deed exercised the admission power in clause 15. It did not amend the scheme to introduce a different benefit scale. The scheme was a defined term, and the reasonable reader would look to the definitive deed and rules to ascertain its provisions and benefits: per Lewison LJ, with whom Sir Stanley Burnton and Maurice Kay LJ agreed.
2. The verb “extends” indicated that pre-existing benefits were being made available to a new category of potential members. Nothing in the deed justified using the rules to identify eligible employees while excluding the scale of benefits defined by the same rules. The deed did not refer to the employee announcement or to the amendment power in clause 16. Its language tracked the admission power in clause 15: paras 26–28.
3. The admissible background did not displace that construction. Participation in the existing arrangements and selection of a less generous benefit scale had been treated as separate matters. The intended result could readily have been achieved by a separate written exercise of the amendment power. The failure to complete that step concerned implementation rather than the meaning of the deed: paras 29–34.
4. The corrective principle discussed in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 applies only where something has gone wrong with the instrument’s language and the reasonable reader’s understanding is clear. The deed’s language was sensible and effective. Any failure lay in omitting a separate amendment. That was classic territory for rectification, not interpretation: paras 35–38 and 46.
5. A power may be exercised without express reference to it where the disposition cannot otherwise take effect and an intention not to exercise the power cannot be inferred. That principle did not assist because the disposition made by the deed did not purport to incorporate the separate benefit scale: paras 39–40.
6. Permission was refused to argue for the first time on appeal that equity deemed the amendment power exercised. The contention depended upon a specifically enforceable obligation and factual findings not made below. It fell outside the interpretation issues agreed for determination and was closely connected with the reserved rectification claim: paras 41–43.

1. Court of Appeal (Civil Division): The employers’ appeal was dismissed. The Deed of Adherence admitted the new employer and extended the existing scheme benefits to its eligible employees, but did not introduce the intended separate benefit scale: [2014] EWCA Civ 437.
2. High Court, Chancery Division: Asplin J held that the Deed of Adherence did not confer a benefit scale differing from that under the existing scheme: [2013] EWHC 3149 (Ch); [2013] Pens LR 417.