In the original case of Burgess & others v Bic, the High Court had to determine whether pension in payment increases referable to pre April 1997 pensionable service had been validly granted.

The sponsoring employer successfully argued that the original attempt to introduce these increases (the pre-1997 increases) in 1991/2 was invalid as there was a failure to comply with the formal requirements of the rules governing the pension scheme.

However, the invalidity was not recognised at the time, meaning that pre-1997 increases were added to pensions in payment and included in the future funding of the scheme. It was only some 20 years later that the issue came to light and the sponsoring employer looked to address the issue.

The High Court looked at whether a later set of trust deed and rules (the 1993 Deed and Rules), which were expressed to take effect retrospectively from 1990, would have validated the steps then taken to introduce the pre-1997 increases.

The judge found the issue difficult to resolve but decided that, whilst relying on the retrospective powers in the 1993 Deed and Rules involved an element of re-writing history, in his view, that wasn't impermissible. To that end, the High Court considered the pre-1997 increases were validly granted.

The sponsoring employer naturally sought to question whether it was correct that invalid steps taken in 1991/2 to introduce the pre-1997 increases could be validated by the back-dated effect of the 1993 Deed and Rules. It was granted leave to appeal to the Court of Appeal on this primary question of principle.

The Court of Appeal considered a key issue was not only whether there was the relevant enabling power in the 1993 Deed and Rules, but also whether there was a proper basis for regarding that power as having been exercised at the material time.

The judges flatly rejected the trustees' arguments that the intention to exercise a power with retrospective effect could be implied or imputed. They considered that it was necessary to find positive evidence that the trustees had applied their minds to the issue and address the matter explicitly.

The employer successfully argued that the fundamental problem with the trustees' argument (and the High Court's decision) was that they failed to explain how the mere introduction of the 1993 Deed and Rules, backdated to 1990 for reasons unconnected with the increases issue, brought about the deemed exercise of the power to validate the invalid steps taken in 1991/2 to introduce the pre-1997 increases.

In common with the ground-breaking High Court case, the judgment raises issues that will be of significant interest to pensions practitioners. The outcome of the Court of Appeal's decision offers a salutary lesson to trustees to comply with the necessary formalities under the scheme in order for there to be a valid exercise of a power. The judges confirmed that formal requirements have a purpose and if they are not complied with, then the consequence is that the intended result has no effect.

The basis of the appeal didn't disturb all of the findings of the High Court. In particular, the principle that equitable recoupment could be applied to future pension payments in order to make good any overpaid amounts was not challenged. It remains the case that recoupment is not subject to a limitation period.

Equally, the High Court judge's ruling that the Pensions Ombudsman was not a “competent court” for the purpose of making an order enforcing the obligation to allow for recoupment was not appealed. The Pensions Ombudsman's office has already made its position clear on this point.

The case will resonate widely among the pensions community. It demonstrates clear authority for the proposition that a previously invalid exercise of a power of amendment cannot be retrospectively validated by the mere introduction, with retrospective effect, of a potentially validating power.

The employer was represented by Martin McFall and Michael Rhode of Trowers & Hamlins LLP.

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