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Governing Law And The Case Of The Disappearing £45 Million Funding Deficit

Governing Law And The Case Of The Disappearing £45 Million Funding Deficit

Sarah Phillips

The case of Briggs & Ors v Gleeds (Head Office) & Ors, is a salutary lesson on taking care to comply with the required formalities when executing deeds.

Around thirty deeds dated between 1993 and 2006, which were intended to amend the pension scheme documentation, were found to be invalid because the signatures of the partners in the employing partnership had not been witnessed.

Various amendments, intended to establish money purchase sections, require members to make contributions, reduce the rate of accrual, cut the rate of pension increases and close the scheme to further accrual, were all found to have been invalidly executed. This meant that none of the changes could take effect as intended, and the pension scheme’s deficit was some £45 million more than originally anticipated.

The Gleeds scheme was governed by English Law, but would the same apply if the scheme had been governed by the Laws of Scotland or could there be a “get out of jail” card available?

In England and Wales, a deed requires each signatory to be witnessed in order to achieve formal validity. In Scotland, no such requirement exists. A signature makes the agreement valid, the witnessing makes the deed probative or ‘self-evidencing’.

If Gleeds had been a Scottish case, the question for the court to consider would not have been one of validity, based on the absence of a witness’ signature. Validity could of course be challenged, but for some other reason (for example on the grounds that the signature on the deed was not that of the required person), where the matter for the court would be one of evidence.

It would also be possible for the employer to apply to the court for the deed to be granted probative status using extrinsic evidence (for example, an affidavit as to the signatories’ handwriting), which would create a presumption that the deed accurately reflected the intention of the parties who signed it. In any event, unless and until the validity of the deed was successfully challenged, it would be regarded as valid and the amendments would be effective.

Many occupational pension schemes are already experiencing spiralling deficits, even before the validity of their documentation gets called in to question. Given the costs involved, the importance of identifying the governing law (which is not always clear on the face of the deeds) and a potential solution can’t be overstated. In this example, if the scheme had been governed by the Laws of Scotland, it could possibly have the effect of giving effect to the amendments and wiping out the £45 million deficit.

Sarah Phillips

Cameron McCulloch
Senior Solicitor