(1 min read)
What happens when there's a question mark over the validity of past pension scheme amendments, with the effect of later amendments dependent on whether earlier amendments were valid? This was the scenario faced by the parties in Places for People Pension Trustee Limited v Places for People Group Limited, who identified 34 different possible outcomes depending on which amendments had been validly made. We take a look at the judgment in which the court approved a settlement based on estimating the probability of each outcome occurring if the court were to rule on every issue.
In the case of Places for People Pension Trustee Limited v Places for People Group Limited, the court has approved a settlement on a “probabilistic” basis where the legal effect of a whole series of purported amendments was unclear. The scheme had been administered on the understanding that all purported amendments had been validly made. However, it was subsequently identified that there were a number of purported amendments where there was a question mark over the validity of the amendment. In some cases there were potential issues with the execution of the document (eg a failure to observe the legal formalities for a deed). In other cases the question over validity arose due to an apparent failure to obtain a “section 37 certificate” from the scheme actuary.
The overall picture was extremely complicated because the effect of many purported amendments depended on whether one or more previous purported amendments were valid or not. The parties had identified 13 different “junctures” at which a person tasked with calculating benefits under the scheme would need to make a judgment call regarding whether a particular purported amendment was valid or not. The 13 junctures resulted in 34 different scenarios having due regard to the effect of earlier junctures on later junctures. Under the proposed settlement, additional benefits were granted in respect of some members to reflect the possibility that the issues with the various purported amendments might mean that the member had a higher benefit entitlement than that previously assumed for the purposes of scheme administration. The additional benefits were calculated by estimating the overall probability of each of the 34 scenarios occurring.
The judge approved the settlement. He noted that if all the issues identified were litigated “the trial would be of quite formidable complexity and cost”. The judge commented that in the course of the pre-reading and the hearing, he had been ever more struck by the rigour of the process which the parties adopted. The judge commented that the legal test to be applied when deciding whether to approve the settlement was whether the settlement was “within a range of reasonable settlements”.
Our thoughts
It is not uncommon to encounter situations where the issues caused by a question mark over the validity of one amendment can be compounded by subsequent amendments. It is therefore helpful that if there are multiple possible benefit calculations depending on the answers to a series of “What if…?” questions, the courts are prepared to agree a settlement based on an estimated probability of what would have happened had all the issues been fully litigated.
