The Court of Appeal has ruled that drinks company Britvic can switch the inflation index measure used for its defined benefit (DB) pension scheme, the Britvic Pension Plan (BPP), away from the Retail Prices Index (RPI).

In January 2020, the High Court ruled that the firm could not change the inflation measure from RPI to the Consumer Prices Index (CPI) due to the judge’s interpretation of the scheme rules.

However, the Court of Appeal has now said that there had not been a “clear mistake” in the wording of the scheme rules.

The case centred around wording in Rule C.10(2) that stated that the rate of increase was to be in line with the RPI, subject to a capped increase each year of either 2.5 per cent or 5 per cent (depending on the date of service) “or any other rate decided by the principal employer”.

Britvic argued that this should allow the company to switch its inflation measure for the Britvic Pension Plan (BPP) from RPI to CPI.

The High Court sided with the scheme members and interpreted that “any other rate” was meant to mean ‘any higher rate’, and the person who drafted the rules had used the incorrect term.

However, the Court of Appeal sided with Britvic, ruling that the wording was to be interpreted literally and that the firm could change its scheme’s inflation measure.

Master of the Rolls, Sir Geoffrey Vos, said, unlike the judge in the High Court case, he could not conclude that there had been a “clear mistake” in the wording of the rules.

He continued: “I can quite see that there may have been such a mistake. I can even see, as I have said, that it looks suspiciously likely that the draftsman simply pulled Rule C.10(2) from the Six Continents Pension Plan without considering that it had not appeared in the Six Continents Executive Pension Plan, so that continuity for all members was thereby jeopardised.

“I can see also that the provision as drafted is unsatisfactory in the ways eloquently expostulated by Mr Bryant (who appeared on behalf of the representative member of the BPP), and arguably inconsistent with some of the immediately surrounding materials.

“What I find impossible to hold, however, is that the cure for the mistake (if mistake it was) is clear. I accept that substituting the word ‘higher’ to make Rule C.10(2) read ‘or any higher rate’ would be a desirable alteration, but it is very far from the only possible redrafting that would cure the mistake just as well.

“One might, for example, add a percentage range for the employer's discretion above Limited Price Indexation (LPI). There are several quite reasonable possibilities, and neither the BPP itself nor the admissible factual background tell the objective observer for sure which it should be.”

Vos also allowed Britvic’s appeal on four other grounds, which centred around the High Court judge not allowing the employer to decide upon a different rate in relation to pension attributable to different periods of service, not allowing the rule to be exercised annually, that a rate of increase of 0 per cent could not be used, and that any figure decided upon by the employer for the purposes of Rule C.10(2) would automatically be read across into Rule C.2(2) relating to increases in deferred pensions. 

Gowling WLG acted for the trustee of BPP, Britvic Pensions Limited, in the case, Arc Pensions Law appeared on behalf of the representative member of BPP, and Addleshaw Goddard acted for Britvic.

Commenting on the ruling, Gowling WLG head of pensions disputes, Ian Gordon, said: "This judgment is another in the long line of cases on the approach to take when interpreting documents. A body of case law has developed on ‘corrective construction’ whereby a court can, when interpreting a provision, make a correction when something has obviously gone wrong with the drafting. However, the Court of Appeal's decision reflects a limit on such an approach to the interpretation of provisions in legal documentation.

“It appears from the Court of Appeal's decision that corrective construction is likely to be limited to cases where there is an obvious mistake on the face of the document or where applying the document's natural reading would lead to an irrational result.  That apart, the document will be given its natural meaning and the parties will be left to other remedies such as rectification."

In the case, the trustee of the scheme was neutral.

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