BIC UK Ltd v Burgess & Ors

Retrospective effect given to pension-scheme rules does not, without more, validate an earlier purported exercise of a power that failed for non-compliance with formalities. The court must distinguish between having a power and exercising it. A later deed may preserve decisions and exercises of power that were valid when made, but a saving clause does not validate a failed transaction or imply an exercise of powers unavailable at the time. Validation requires positive evidence, or at least a common intention, that the parties meant to cure the earlier defect. An implied exercise doctrine also requires the power to have existed when the disposition occurred. Although an innocent formal defect may in principle be remedied by a later amendment, that remedy must actually be exercised.

The trustees and principal employer of a defined benefit occupational pension scheme had introduced inflation-linked increases to pensions earned before 6 April 1997. It was common ground that the 1991/2 attempt was invalid because the formal requirements of the then-governing rules had not been met.

A later deed and rules, executed in 1993 but expressed to take effect retrospectively from 6 August 1990, contained several potentially validating powers. The High Court, in [2018] EWHC 785 (Ch), held that the retrospective deed could validate the increases and that four of the provisions were sufficient to do so. The employer appealed. The central issue was whether retrospective replacement of the scheme rules could itself cure the earlier failure.

1. Appeal allowed. Henderson LJ gave the leading judgment, with Nugee J and Vos C agreeing. The 1991/2 steps introducing the pre-1997 increases were not retrospectively validated by the 1993 Deed and Rules.
2. Retrospective operation is principally a matter of construction. Parties may agree that past legal relations are to be treated as modified for specified purposes, and back-dating does not itself invalidate an amendment whose substance falls within the power. It cannot, however, alter the historical fact of what was or was not done, or validate an amendment beyond the scope of the power.
3. The saving provision in clause 1(a) preserved prior decisions and exercises of power that were valid when made. It did not validate a failed purported amendment. The existence of potentially enabling powers in the retrospectively dated deed did not amount to their exercise in 1991/2. Positive evidence, or at least a common intention, to cure the earlier defect was required. The absence of any express recital or provision addressing the pre-1997 increases was significant.
4. The doctrine of implied or imputed exercise of a power could not assist. The power had to exist when the disposition occurred, and an intention not to exercise it could not be inferable. A power subsequently conferred could not be treated as exercised at an earlier date merely because it could then have authorised the transaction.
5. The court rejected the broader submission that an innocent formal breach could never be remedied by a later amendment. The comments in Dalriada Trustees Ltd v Faulds [2012] 2 All ER 734 concerned deliberate conduct outside the proper scope of the powers. An innocent formal defect might in principle be remedied, but no actual remedial exercise had occurred here.
6. By way of alternative reasoning, rule 9(a) was a free-standing power capable of authorising the increases, and clause 9 was similarly wide. The scope of rule 3(c)(iii) and the sufficiency of the 1991 Minutes under clause 4 were left uncertain or open. The Works Scheme issue was academic and could not assist without an actual exercise of a relevant discretion.

• Court of Appeal (Civil Division): Allowed BIC UK’s appeal and held that the pre-1997 increases had never been validly introduced.
• High Court of Justice, Business and Property Courts: In [2018] EWHC 785 (Ch), Arnold J held that the retrospectively dated 1993 Deed and Rules validated the increases and that four provisions were individually sufficient.