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.
- 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.
- 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.