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Going to court

Given the complexity of many occupational pension schemes and the ever-changing legislation that applies to them, it is unsurprising that cases concerning occupational pension schemes are quite common in the High Court.

Some of the more common pension issues dealt with by the courts are: 

  • the construction of scheme rules;
  • applications by trustees seeking the court’s blessing for a proposed course of action;
  • disputes about scheme amendments;
  • rectification actions; and
  • professional negligence.

The nature of a dispute affects how it should be managed through the courts – under the Civil Procedure Rules (the CPR), there are two different procedures for bringing a claim.

Generally speaking, pension disputes fall within two camps: non-hostile litigation (‘directions applications’) and hostile litigation. These are covered by Part 8 and Part 7 of the CPR respectively; which route is most appropriate in a particular case will depend on whether there is a ‘substantial dispute of fact’.

The High Court also deals with appeals from the Pensions Ombudsman – different procedures govern these appeals. To read more, visit www.allenovery.com/TPO.

Directions application (Part 8)

Most pension disputes are non-hostile and typically involve the trustees seeking directions from the court as to how a scheme should be administered – trustees have an express power under the CPR to ask the court for guidance.

Directions applications are made under Part 8 of the CPR which is a simplified and streamlined procedure. This often avoids a lot of the expensive and time-consuming elements of hostile litigation, such as disclosure of documents and witness evidence.

Trustees (or employers) may make a directions application to ask the court:

  • what a particular rule means – for example, what is the scope of the amendment power, winding-up power, or funding powers;
  • how the rules interact with legislation in areas such as funding or winding-up; and
  • whether the trustees have the ability to take certain steps (eg to amend the scheme, to impose a pensionable pay cap, to switch from RPI to CPI, or to pursue litigation).

You can read more about the procedure for a Part 8 claim in the table below.

Procedure for Part 8 claim

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Parties

Typically the trustees will seek directions from the court but it is open to the employer, or another party, to do so. Assuming the trustees bring the application then they will be the claimants. The sponsoring employer will be a defendant and, more often than not, a third party is added to the proceedings – a representative beneficiary. 

A representative beneficiary is a party appointed to represent the interests of the scheme members who will be affected by the court’s decisions. Normally, to bind someone to a court decision, you add them as a party. This is not possible where there are thousands of scheme members, so one individual (it need not be a member) is appointed to represent the interests of the members. Having a party to the proceedings who represents members’ interests is important because it allows the trustees to obtain a representation order, which binds members to the court’s decision.

Procedural stages

There are four stages to a directions application:

1. Issue and serve the claim form and evidence

  • The trustees will issue the claim form and serve it on the other parties to the claim. The form will set out the questions that the trustees want the court to decide and the remedy sought.
  • Attached to the claim form will be the trustees’ evidence. This will take the form of a witness statement that will set out the details of the directions application. Any documentary evidence that the trustees wish to rely on will be exhibited to the witness statement. 

2. Acknowledgment of service and defendant’s evidence

  • The defendants to the action will, within 14 days of receiving the claim form, acknowledge receipt of the claim and file any evidence that they wish to file.
  • In practice, this is not enough time for complex pensions disputes and the parties will agree an extension (if the extension is for more than a further 14 days, court approval is needed).

3. Case management directions

  • The court will use its case management powers to ensure that the matter moves swiftly to a hearing. In directions applications, there is little the court needs to do and often the only substantive direction is to set a date/window for the hearing. 
  • In practice, the parties tend to agree directions and ask the court to approve these. 

4. Hearing

  • The hearing will normally comprise a summary by the various counsel of their positions based on the written witness evidence. The court may require or permit a party to give oral evidence, for example if there is doubt as to the credibility of a witness, but this is unusual.

Costs

The costs of a directions application will ordinarily come out of the scheme assets. The employer may meet the costs in some cases, for example if the trustees are only seeking directions to give effect to a change that the employer wants, such as a switch from RPI to CPI. The representative beneficiary will need to ensure that their costs are met from the fund or by the employer.

✕

Parties

Typically the trustees will seek directions from the court but it is open to the employer, or another party, to do so. Assuming the trustees bring the application then they will be the claimants. The sponsoring employer will be a defendant and, more often than not, a third party is added to the proceedings – a representative beneficiary. 

A representative beneficiary is a party appointed to represent the interests of the scheme members who will be affected by the court’s decisions. Normally, to bind someone to a court decision, you add them as a party. This is not possible where there are thousands of scheme members, so one individual (it need not be a member) is appointed to represent the interests of the members. Having a party to the proceedings who represents members’ interests is important because it allows the trustees to obtain a representation order, which binds members to the court’s decision.

Procedural stages

There are four stages to a directions application:

1. Issue and serve the claim form and evidence

  • The trustees will issue the claim form and serve it on the other parties to the claim. The form will set out the questions that the trustees want the court to decide and the remedy sought.
  • Attached to the claim form will be the trustees’ evidence. This will take the form of a witness statement that will set out the details of the directions application. Any documentary evidence that the trustees wish to rely on will be exhibited to the witness statement. 

2. Acknowledgment of service and defendant’s evidence

  • The defendants to the action will, within 14 days of receiving the claim form, acknowledge receipt of the claim and file any evidence that they wish to file.
  • In practice, this is not enough time for complex pensions disputes and the parties will agree an extension (if the extension is for more than a further 14 days, court approval is needed).

3. Case management directions

  • The court will use its case management powers to ensure that the matter moves swiftly to a hearing. In directions applications, there is little the court needs to do and often the only substantive direction is to set a date/window for the hearing. 
  • In practice, the parties tend to agree directions and ask the court to approve these. 

4. Hearing

  • The hearing will normally comprise a summary by the various counsel of their positions based on the written witness evidence. The court may require or permit a party to give oral evidence, for example if there is doubt as to the credibility of a witness, but this is unusual.

Costs

The costs of a directions application will ordinarily come out of the scheme assets. The employer may meet the costs in some cases, for example if the trustees are only seeking directions to give effect to a change that the employer wants, such as a switch from RPI to CPI. The representative beneficiary will need to ensure that their costs are met from the fund or by the employer.

Practical points

  • The trustees need to be clear as to the questions they would like the court to answer and ensure that all the questions they want to be answered are before the court.
  • The representative beneficiary is normally selected by the employer or the trustees. The representative beneficiary will need their own advisers and will need to have their costs met by the employer or the scheme. This is usually achieved through a costs agreement or by seeking a Prospective Costs Order from the court.
  • It may be necessary to have more than one representative beneficiary, depending on the facts of the case.
  • The trustees will want to make sure that all relevant and material documentation is put before the court in order to avoid the court’s order being challenged for material non disclosure. 
     

Hostile litigation (Part 7)

A hostile litigation is a matter that involves a substantive dispute of fact, which will need to be resolved under Part 7 of the CPR. The most common example in the pensions context is a professional negligence action against the scheme’s advisers or former advisers. It may also be used by members to bring a claim against the trustees of their scheme – although most individual member disputes will be heard by the Pensions Ombudsman, as this route is cheaper for the member and avoids the risk of adverse costs orders being made. 

Procedure for Part 7 claims

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Parties

Typically the employer and trustees will both be claimants in any action against negligent advisers. In relation to a claim commenced by a member, the member would be the claimant and the trustees and/or employer would be the defendant. Occasionally, there may be a hostile dispute between the employer and the trustees. Whoever commences the litigation will be the claimant.

Procedural stages

Contentious litigation under Part 7 is a much more complex process than a directions application under Part 8.

Issue and service of claim form and particulars of claim

  • Proceedings start with the issue of a claim form. The particulars of claim can be set out in the claim form or in a separate document. Both the claim form and the particulars of claim must be dispatched to the defendant within four months of issue.

Acknowledgement of service and defence

  • If the defendant intends to defend the claim, it must serve and file a defence. The time limit is generally 14 days from the service of the particulars of claim or, if an acknowledgment has been filed, then 28 days from the service of the particulars of claim.

Counterclaim and reply (and defence to any counterclaim)

  • If the defendant wishes to serve a counterclaim, this should be served with the defence.
  • If the claimant wants to allege new facts to address facts raised in the defence, the claimant can serve a reply. If the defendant has served a counterclaim, the claimant must serve the defence to the counterclaim and reply at the same time. If a reply is served, it is usually served at the same time as the allocation questionnaire (see below).

The allocation questionnaire

  • The parties must complete an allocation questionnaire for the court to decide how to allocate the case (there are different tracks depending on the amount of money at stake and the complexity of the matter). Nearly all pensions cases will be allocated to the Multi-track.

Case management conferences

  • These are used by the court to manage the timetable of events leading up to the hearing, most notably the disclosure of documents and the exchange of factual and expert witness evidence. 

Disclosure of documents

  • Parties will normally be required to disclose all documents on which they rely as well as all documents which adversely affect their case, or which support or adversely affect another party’s case. This is referred to as ‘standard disclosure’.  

Witness evidence (witnesses of fact)

  • The parties may call any witness to give evidence at trial although, in practice, a witness usually first records his evidence in a statement collated by the party with whom he is most readily identified. The parties exchange their written witness statements (usually simultaneously) in advance of the trial, on a date agreed between them or set by the court.
  • The general rule is that a witness of fact must give oral evidence at the trial. The witness’s statement will normally stand as evidence in chief (the witness will confirm his statement under oath) and then the witness may be cross-examined.

Expert evidence

  • Expert evidence is common in pensions cases, particularly in determining the financial impact of the point in dispute on the scheme’s funding or on members’ benefits.
  • Expert evidence may only be adduced with the permission of the court, which will restrict such evidence to that which is reasonably required to resolve the proceedings.  

Trial

  • Trial takes place in open court. Each party’s counsel will make oral submissions and the witnesses and experts will give oral evidence and be cross-examined.

Costs

The general rule in English litigation is that the unsuccessful party pays the costs of the successful party; however, the court has complete discretion in this matter and may decide to make a different order. The court will take into account a number of factors, including the conduct of the parties before and during the proceedings. 

Given this ‘loser pays’ rule, the issue of costs is extremely important in contentious pensions cases. This is particularly so where the trustees are individual trustees. Trustees will need to ensure that they are protected against the risk that they, as trustees, will have to pay the other side’s costs in the event that they bring a claim which is unsuccessful. Protection can take a number of different forms, including an indemnity from the employer or a Beddoe order from the court.

✕

Parties

Typically the employer and trustees will both be claimants in any action against negligent advisers. In relation to a claim commenced by a member, the member would be the claimant and the trustees and/or employer would be the defendant. Occasionally, there may be a hostile dispute between the employer and the trustees. Whoever commences the litigation will be the claimant.

Procedural stages

Contentious litigation under Part 7 is a much more complex process than a directions application under Part 8.

Issue and service of claim form and particulars of claim

  • Proceedings start with the issue of a claim form. The particulars of claim can be set out in the claim form or in a separate document. Both the claim form and the particulars of claim must be dispatched to the defendant within four months of issue.

Acknowledgement of service and defence

  • If the defendant intends to defend the claim, it must serve and file a defence. The time limit is generally 14 days from the service of the particulars of claim or, if an acknowledgment has been filed, then 28 days from the service of the particulars of claim.

Counterclaim and reply (and defence to any counterclaim)

  • If the defendant wishes to serve a counterclaim, this should be served with the defence.
  • If the claimant wants to allege new facts to address facts raised in the defence, the claimant can serve a reply. If the defendant has served a counterclaim, the claimant must serve the defence to the counterclaim and reply at the same time. If a reply is served, it is usually served at the same time as the allocation questionnaire (see below).

The allocation questionnaire

  • The parties must complete an allocation questionnaire for the court to decide how to allocate the case (there are different tracks depending on the amount of money at stake and the complexity of the matter). Nearly all pensions cases will be allocated to the Multi-track.

Case management conferences

  • These are used by the court to manage the timetable of events leading up to the hearing, most notably the disclosure of documents and the exchange of factual and expert witness evidence. 

Disclosure of documents

  • Parties will normally be required to disclose all documents on which they rely as well as all documents which adversely affect their case, or which support or adversely affect another party’s case. This is referred to as ‘standard disclosure’.  

Witness evidence (witnesses of fact)

  • The parties may call any witness to give evidence at trial although, in practice, a witness usually first records his evidence in a statement collated by the party with whom he is most readily identified. The parties exchange their written witness statements (usually simultaneously) in advance of the trial, on a date agreed between them or set by the court.
  • The general rule is that a witness of fact must give oral evidence at the trial. The witness’s statement will normally stand as evidence in chief (the witness will confirm his statement under oath) and then the witness may be cross-examined.

Expert evidence

  • Expert evidence is common in pensions cases, particularly in determining the financial impact of the point in dispute on the scheme’s funding or on members’ benefits.
  • Expert evidence may only be adduced with the permission of the court, which will restrict such evidence to that which is reasonably required to resolve the proceedings.  

Trial

  • Trial takes place in open court. Each party’s counsel will make oral submissions and the witnesses and experts will give oral evidence and be cross-examined.

Costs

The general rule in English litigation is that the unsuccessful party pays the costs of the successful party; however, the court has complete discretion in this matter and may decide to make a different order. The court will take into account a number of factors, including the conduct of the parties before and during the proceedings. 

Given this ‘loser pays’ rule, the issue of costs is extremely important in contentious pensions cases. This is particularly so where the trustees are individual trustees. Trustees will need to ensure that they are protected against the risk that they, as trustees, will have to pay the other side’s costs in the event that they bring a claim which is unsuccessful. Protection can take a number of different forms, including an indemnity from the employer or a Beddoe order from the court.

Practical points

  • Claimants should comply with the Pre‑Action Protocol before issuing proceedings. This broadly involves sending the defendants a detailed letter of claim setting out the claim against them. The defendants have three months to respond to that letter.
  • It is important to undertake a thorough search for documents at an early stage to help assess the strength of the case.
  • It is important to retain documents that would be necessary to defend a future claim, whilst ensuring that your policies and practices on retaining personal data comply with data protection requirements. Court procedures contain obligations for disclosing documents to the other side (unless they are privileged etc).
  • There can often be a dispute about the amount of loss suffered by the scheme. Expert evidence from an actuary will be required in such cases – it is useful to obtain that evidence sooner rather than later.
  • Trustees embarking on hostile litigation should ensure that they are protected against the risk of a costs order being made against them (not just in respect of their own costs but also the other side’s costs). There is a real risk that, if the trustees embark upon such litigation and lose, they will not be able to take the costs of the litigation out of the assets of the scheme.

Rectification – a special case

Rectification actions are common in the world of occupational pension schemes – to read more visit www.allenovery.com/rectification. Most rectification cases are brought under Part 7 but they can be brought under Part 8 when there is no substantial dispute of fact, ie when the representative beneficiary does not intend to contest the request for rectification.

Rectification actions will usually be brought by the employer. The trustees will be named as defendants in the action but will typically take a neutral role in proceedings, leaving it to the employer and representative beneficiary to argue for and against the granting of rectification. The representative beneficiary will decide whether or not there are grounds to contest the rectification application.

A contested rectification application will proceed to a full trial under Part 7. An uncontested matter is likely to be dealt with by way of a summary judgment application. It is increasingly common for pensions rectification cases to be resolved by way of summary judgment – this can save considerable costs.

 

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