In the case of Soufflet Bairds Malt Limited v Dear the High Court has ordered rectification of a deed which introduced a “Courage fetter” on the amendment power where the parties had not intended to introduce any such fetter.
A “Courage fetter” is broadly a restriction on amending accrued rights. Such a fetter prevents amendments which would sever the link to final salary for accrued benefits.
The law of rectification allows the court to order amendments to the wording of a document where the court is satisfied that the document did not reflect the intention of the parties due to a mistake in the wording. In the case in question there was ample evidence that the parties to the relevant deed did not intend to restrict the power of amendment by introducing a Courage fetter:
- explanatory guides prepared by professional advisers to accompany successive drafts of the deed had stated that the amendment clause continued to apply the same restrictions on amendments as were included in the current governing document;
- detailed minutes of the trustees’ discussions had been prepared, but made no mention of introducing a Courage fetter;
- at the time the deed was executed, the scheme was facing funding pressures and possible closure to future accrual, so the introduction of a Courage fetter would have been a matter of obvious significance requiring discussion;
- records showed that the deed had been based on a precedent that included a Courage fetter, with no evidence that the draftsperson had considered whether it was appropriate to include the fetter or that its effect had been explained to the trustees or employer;
- at the point when the advisers were instructed to draft the deed, the actuarial advisers had asked that the deed allow maximum flexibility for future alterations, as closure of the scheme was being considered.
Our thoughts
Where restrictions to a scheme’s amendment power were added via an amendment (rather than having been present on establishment of the scheme or at least since its first definitive documentation) it may be worth considering whether the restrictions were added by mistake and the wording could potentially be subject to rectification. However, it should be borne in mind that before granting rectification the court will want to see compelling evidence that the wording in the relevant document was included by mistake. Where an amendment was made many years ago, relevant files may since have been lost or destroyed and there may in practice be minimal or no records that evidence the thinking of the parties at the time.
