TRUSTEES OF THE SCOTTISH SOLICITORS STAFF PENSION FUND AGAINST PATTISON AND SIM AND OTHERS
OUTER HOUSE, COURT OF SESSION
[2014] CSOH 119
CA63/13
OPINION OF LORD WOOLMAN
In the cause
TRUSTEES OF THE SCOTTISH SOLICITORS STAFF PENSION FUND
Pursuer;
against
PATTISON & SIM & OTHERS
Defender:
Pursuer: Connal QC, solicitor advocate; Pinsent Masons LLP
Defender: G MacColl; Pattison & Sim
1 August 2014
Introduction
[1] In this action for payment, the trustees of the Scottish Solicitors Staff Pension Fund seek to recover £50,224 from the firm of Pattison & Sim and its two partners. The trustees maintain that the original trust documents have been amended several times, and that rules adopted in 1990 now govern the Fund.
[2] The defenders deny liability. They question whether the formal amendment procedure set out in the original trust documents was followed. They contend that the trustees do not offer to prove that the various amending deeds are valid. Accordingly, the action is so fundamentally lacking in specification that it is irrelevant and should be dismissed.
[3] The matter came before me for debate. There are two issues for determination. First, are the amending documents valid? If the answer to that question is yes, then the trustees are entitled to decree. If, however, the answer is no then a second question arises. Are the defenders prevented from making the present challenge because of the principles of (a) approbate and reprobate (b) personal bar, or (c) abuse of process?
Background
The Fund
[4] The Fund provides pensions for employees of solicitors’ firms and their dependants. It was established in 1947 by a declaration of trust. The rules annexed to the trust deed contained detailed provisions for the operation of the scheme. They stipulated that (a) the Fund would be administered by twelve managers, six elected by the members (the employees) and six by the employers (who were known as ‘assenting employers’); (b) the employers and employees would make equal contributions; and (c) an employer’s liability to the Fund ceased when the employee retired.
[5] In 1980 and again in 1990 the trustees executed deeds of variation to comply with new tax and pension legislation. The trustees recorded the deeds in the Books of Council and Session. On each occasion the amending deeds cancelled the existing rules and replaced them with new rules.
[6] The 1980 rules provided a more elaborate scheme for the calculation of contributions. The employers had to make higher contributions, subject to a cap of twice the contributions made by the employee. They remained liable to contribute to the Fund only until the employee retired.
[7] The 1990 rules changed matters in an important way. They required the employers to undertake to the trustees that they will pay the contributions as they fall due. Rule V (b) provides that
“each assenting employer shall be liable to pay contributions to the Fund at such rate [as] the Managers, after obtaining the advice of the Actuary, determine are necessary to maintain the benefits of the Fund …”
[8] In the early years of this century, the Fund encountered financial difficulties. The problems stemmed from a fall in the value of the stock market. Like many other final salary pension schemes, the Fund had a deficit. The trustees took advice about how to address the contingent liabilities of existing members. At a meeting on 27 May 2003, it was decided to wind up the Fund, or alternatively to operate it as a closed-door paid-up arrangement. At an extraordinary general meeting held on 14 August 2003, the employers agreed to lift the cap on their contributions.
[9] Since 2003 the deficit has increased. The pursuers, who are the current trustees of the Fund, now seek to recover the employers’ contributions. They maintain that under the 1990 rules, the firm of Pattison & Sim and its two partners are among those liable to meet the deficit.
The Firm
[10] Pattison & Sim was founded as a solicitors’ practice in 1905. Since then various partnerships have traded under that name. I shall refer to them collectively as ‘the Firm’. William Sim became a partner in 1972 and in due course became the senior partner of the Firm. He decided to retire in 2005. At that stage he had two fellow partners: David Howat, who became a partner in 1991; and Bridget McLaren, who was assumed as a salaried partner in 1999 and became an equity partner in 2002. The three individuals negotiated a retirement settlement, in terms of which Mr Howat and Miss McLaren undertook to pay Mr Sim £175,000 by way of instalments of just under £3,000 per month.
[11] Between 1970 and 1998, the Firm employed Ronald Barr as a legal assistant. For most of that period it remitted the necessary pension contributions to the Fund. When Mr Barr retired, the Firm did not withdraw from the Fund.
[12] During the course of the negotiations leading up to his retirement settlement, Mr Sim knew that the Firm had a continuing liability to the Fund. As senior partner, he had received various communications about it. In December 2004 he sent the Fund a partnership cheque for £1,416 in response to a request from the trustees.
[13] Mr Howat and Miss McLaren were unaware of this matter. They assumed that any obligations to the Fund had terminated in 1998 upon Mr Barr’s retiral. When they learned of the true position in 2008, they were aggrieved with Mr Sim and ceased paying his monthly instalments. They believed that he had secured an unduly favourable retirement settlement. If they had known of the continuing liability to the Fund, they would have negotiated different terms.
[14] Mr Sim then raised an action to enforce his rights under the retirement agreement. The action came before Lord Hodge. He dealt with the matter in two stages. The first question was resolved following a debate. Mr Sim contended that the Firm had no liability to the Fund and he should therefore receive his full claim. He submitted that liability to the Fund had not transferred to the new partnership that came into being in 1999 when Miss McLaren was assumed as a partner. Lord Hodge rejected that argument. He held that liability had transferred, even though the Firm was no longer an assenting employer: Sim v Howat and McLaren [2011] CSOH 115.
[15] The second question concerned Mr Sim’s conduct during the course of the negotiations. After a proof Lord Hodge held (a) that his non-disclosure about the Fund did not amount to fraudulent misrepresentation; (b) that there was therefore no basis to reduce the retirement agreement, or to award damages; (c) that Mr Sim had, however, breached his fiduciary duty to his fellow partners; and (d) that did not afford Mr Howat and Miss McLaren a remedy, as they would not have wound up the Firm if they had known the true position at the time, because such a course would have been ‘financially catastrophic’: Sim v Howat and McLaren [2012] CSOH 171.
[16] Throughout the proceedings before Lord Hodge, neither party challenged the validity of the amendments to the rules. They accepted that the 1990 rules governed the Fund. Further, in the course of the litigation, the trustees supplied details of the Firm’s outstanding liability to the Fund at the request of the parties. That had important practical consequences. On the basis of those figures, Mr Sim reduced his claim to reflect his one third share of the liability to the Fund. The court pronounced its final interlocutor on that basis. No reclaiming motion was marked against either of Lord Hodge’s judgments.
The Amendment Procedure
[17] Article II of the 1947 trust deed stated that the Fund was to be “constituted and administered in terms of these presents and the Rules … as they may be amended from time to time”. Clause IX states:
“These presents, or any part of them (including the Rules) may be amended at any time, or from time to time in the same manner as is provided for amendment of the Rules …”
[18] That procedure is found in rule XXV, which states:
“Subject to the provisions of the Declaration of Trust constituting the Fund regarding amendment thereof, and of these Rules, these Rules or any of them may be altered, repealed, or added to with the approval of (a) a majority of two thirds of the votes cast by the assenting employers and members personally present and represented by proxy, at an Extraordinary General Meeting of the Fund called for the purpose of approving such alteration, repeal or addition; (b) a majority of two thirds of the contributing members personally present or represented by proxy at a separate General Meeting of such members called for the purpose of approving such alteration, repeal or addition; and (c) a majority of two thirds of votes cast by assenting employers personally present or represented by proxy at a separate General Meeting of such employers called for the purpose of approving such alteration, repeal or addition.”
[19] I agree with Mr MacColl’s characterisation of that procedure as a ‘triple-lock’ mechanism. It is designed to serve a protective purpose. Amendments can only be made by means of a formal procedure where each constituency has a voice.
The 1980 and 1990 Amendments
[20] The amending deeds of 1980 and 1990 both contain the following recital:
“It is provided in Clause IX of the Trust Deed that it or any part of it (including the Old Rules) may be amended in accordance with the provisions and conditions therein prescribed which provisions and conditions have been duly observed and performed for the purpose of the amendments hereinafter stated or referred to.”
Each also has the following declaration:
“NOW THIS DEED WITNESSETH and it is hereby agreed and declared as follows: -
…
2. The parties hereto, in exercise of the powers of amendment conferred upon them by Clause IX of the Trust Deed and of any [other] powers enabling them to do so, hereby amend the Old Rules by cancelling the Old Rules in their entirety … and substituting for them the Rules.”
(The word ‘other’ only appears in the 1980 deed.)
Further vouching
[21] From the outset of this action, the defenders have queried whether the ‘triple-lock’ mechanism was followed in respect of the various amendments to the 1947 scheme. They called on the trustees to disclose vouching documents in order to check that the necessary notices were published, the general meetings held and the two-thirds’ majorities secured. In response the trustees carried out extensive investigations. They examined over eighty boxes of documents and asked former chairmen of the trustees about their recollection. These enquiries were largely unsuccessful. The trustees did not, for example, discover minutes of the meetings specified by the triple lock mechanism.
[22] The trustees did unearth some relevant documents. They found a notice published in the Glasgow Herald on 15 September 1980. It intimated that the triple lock meetings would be held on 16 October 1980 to consider a resolution to approve the 1980 amendment. The trustees also located the minute of a meeting of the executive committee of the Fund held on 8 February 1990. It states that the 1990 deed was read over at the meeting and that the committee agreed that it would be signed at the ensuing managers’ meeting.
[23] Neither of these documents takes matters much further. The 1980 notice tends to suggest that the prescribed procedure was followed, the 1990 minute that it was not. But it is difficult to attach much weight to either of them.
Other amendments
[24] Several other amending deeds relating to the Fund, together with committee minutes, were produced and discussed in the course of the debate. Most of them are not relevant to the present dispute and I shall only mention two matters. First, in 1991 the managers were granted the power to amend the rules by a majority vote at their annual meeting.
[25] Second, the deeds executed between 1997 and 2003 all narrate the existence of a deed of amendment dated 26 January 1993, which subsequently came to be known as ‘the Erroneous Deed’. The recitals to the 2008 deed succinctly explain the position:
“D. The Fund’s legal adviser, the Fund actuary and the Trustees do not recall and cannot locate the Erroneous Deed;
E. The Trustees and their advisers having made all reasonable inquiries have ascertained that the Erroneous Deed is not in existence and has been narrated in each of the Subsequent Deeds in error; and
F. The Trustees being satisfied that the Erroneous Deed does not exist wish to declare that the Subsequent Deeds have erroneously referred to the Erroneous Deed and declare that the Erroneous Deed does not exist.”
Were the amending deeds valid?
[26] The defenders argue that as the trustees are unable to say when, how and by whom the supposed amendments were made, the claim must necessarily fail. On a proper construction of the 1980 and 1990 deeds, the trustees carried out the amendments without recourse to the triple lock mechanism. Mr MacColl also pointed to the chapter of events relating to ‘the Erroneous Deed’ as displacing any presumption of regularity in respect of the administration of the Fund.
[27] I begin with the deeds themselves. They provide the best evidence of what took place. The recitals narrate that the amendments were carried out in accordance with the appropriate procedure. I see no reason to peer behind those clear words. To my mind the defenders’ approach is unduly technical and legalistic. Their argument that the recitals are mere assertions which require further vouching subverts the purpose of formal deeds. Such documents provide a self-contained record upon which reliance can be placed.
[28] The general rule is that “deeds in themselves regular and complete must receive effect until reduced”: Anstruther v Mitchell & Cullen (1857) 19 D 674, at 680. In this case the remedy of reduction is not available, because restitutio in integrum cannot be achieved. It is impossible to unwind all the contributions and payments that have been made over the years: see Dowell’s Ltd v Heriot’s Trust 1941 SC 13. If the defenders’ argument were correct, they would elide the burden of proof that otherwise they would have to discharge. The episode relating to the Erroneous Deed is a curious one, but it relates to a separate matter and does not impact on the earlier deeds.
[29] My finding that the amending deeds are valid and that the 1990 rules govern the Fund is consistent with the aim of giving effect to long term pension schemes: Low & Bonar plc v Mercer Ltd [2010] CSOH 47. In this instance many members and employers are involved. Until now, no one has questioned the validity of the amendments or suggested that the trustees have acted in an irregular fashion. Monies have been paid in and paid out on the basis of the rules as they applied from time to time.
Are the defenders entitled to make this challenge?
[30] It is strictly unnecessary to address this question, but I propose to give my views. Because of the position adopted by Mr Howat and Miss McLaren in the earlier litigation, questions arise about their right to mount the present challenge. I make two preliminary observations about this chapter of the case. First, the three defenders have such a unity of interest that I am not inclined to distinguish between or among them. Second, there is a degree of overlap in the considerations that apply to the three issues upon which the pursuers rely.
Approbate and reprobate
[31] I hold that the conduct of Mr Howat and Miss McLaren in the earlier action amounted to approbation. They clearly sanctioned the validity of the 1990 rules: cf Highlands & Islands Airports Ltd v Shetland Islands Council [2012] CSOH 12. As a result, the defenders secured a practical benefit – Mr Sim reduced his claim to reflect his one third share of liability to the Fund. In such circumstances, it is inequitable to allow the defenders now to reprobate the same deed.
Personal bar
[32] This case has the flavour of personal bar, but whether that principle applies depends upon the issue of reliance. In Gatty v MacLaine 1921 SC (HL) 1, 7 Lord Chancellor Birkenhead provided the classic statement of the doctrine:
“Where A has by his words or conduct justified B in believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to affirm against B that a different state of facts existed at the same time.”
In this instance, the trustees administered the Fund on the basis that the amendments were valid. They did not act on the strength of anything said or done by the defenders. I therefor hold that the test is not met and that the defenders are not personally barred from mounting the present challenge.
Abuse of process
[33] The defenders have come to court in good faith on the basis of fresh legal advice to test the soundness of the trustees’ claim. Mr MacColl explained that they face a ‘potentially calamitous situation’, because if they lose this action the trustees will be entitled to make further claims upon them to meet the deficit in the Fund. This is not a case where the defenders (i) have no genuine belief in the merits of their argument: Shetland Sea Farms Ltd v Assuranceforeningen Skuld 2004 SLT 30; or (ii) are wasting the court’s time and resources: Clarke v Fennoscandia Ltd (No 3) 2008 SC (HL) 122. Accordingly, I reject the submission based on abuse of process.
Conclusion
[34] I propose to grant decree in favour of the pursuers. I shall fix a by order hearing for the parties to address me on the orders to pronounce in the light of this opinion. Mr Connal explained that the sum sought requires to be revised in the light of the latest actuarial figures. Meantime I reserve all questions of expenses.