Britvic PLC v Britvic Pensions: Court of Appeal Decision Overturns High Court on Interpretation and “Corrective Construction”

The Court of Appeal has just handed down its decision in Britvic PLC v Britvic Pensions [2021] EWCA CIV 867, overturning the first instance High Court decision. It is a major decision on interpretation (applying principles applicable to contracts and other documents, and not just pension schemes). This note focuses on the interpretation issue of general application; a second note will touch on the pensions-specific aspects.

The decision is a clear restatement of the current primacy of the words used by the parties and the limits on what is called “corrective” construction. The prospect of successfully using background context to get a “sensible” or “commercial” outcome which strains the natural meaning of contractual words has receded further.

Those with an interest in the developments of construction may note this Panel has a long history with this issue: Vos MR was (successful) leading counsel in ICS v West Bromwich [1998] 1 WLR 896 and Nugee LJ was (again successful) leading counsel in Chartbrook v Persimmon Homes [2009] 1 AC 1101. The Master of Rolls said “It does not seem to me to be profitable to consider whether or not the applicable principles have developed over the years…”.

The Main Issue

Simplifying the drafting background hugely, the Britvic Pension Plan contained provisions for members’ pensions to increase in accordance with inflation. Those provisions were subject to a power of the employer to set the rate: the dispute was how to interpret that power. There are certain statutory protections providing for pension increases (relevantly under s51 Pensions Act 1995) which gives further limited protection.

The pension increase rule (C.10) had a sub- rule first providing that each pension increases in each year starts to be paid, then:

“C.10(2) The part of a pension which exceeds any guaranteed minimum pension in payment is increased on 1 October in each year. The rate of increase is the percentage increase in the retail prices index during the year ending the previous 31 May but subject to a maximum of 5 per cent… (or any other rate decided by the Principal Employer).”  (emphasis added)

The issue related to the words in brackets. Did it mean the Principal Employer could set any other right, higher or lower, or (as the members argued) did it mean the Principal Employer could only set a higher rate.

The members succeeded below ([2020] EWHC 118 (Ch), [2020] Pens LR 11). The judge relied on a range of factors, including the background documentation provided to members when they joined the scheme (which proceeded on the basis of RPI increases and a discretion to award increases above 5%)(see the appeal decision at [5]-[7]). According to a strong Court of Appeal Panel (Vos MR, Coulson LJ, Nugee LJ), he was wrong to do so: other meant other, not higher.

The Court of Appeal Leads with the Words

Vos MR traced the well-known history of interpretation cases from ICS and Chartbrook through Rainy Sky [2011] 1 WLR 2900, Arnold v Britton [2015] AC 1619 and Wood v Capita [2017] AC 1173. He derived from those cases the key proposition that where the parties have used unambiguous language it must be applied (at [29]-[30). Since “any other rate” is unambiguous and naturally means “higher or lower”, the Court applied it. All of the Panel adopted that approach.

Two points warrant emphasis:

1. This decision makes it clear that “corrective construction” is functionally treated by the Courts as a different exercise to the construction exercise of working out what the words mean. A “corrective construction” exercise “is only normally adopted where there really is an obvious mistake on the face of the document” (Vos MR at [33], and similarly Coulson LJ at [60]-[61] and Nugee LJ at [75], [77]) – such as the wrong date in Mannai, or wrongly naming a pub when it was clear which pub was referred to. The cure for the mistake also needs to be clear: [32]. So, it appears rather than there being a spectrum of interpretation having regard to literal wording at one end, and emphasising background context at the other, the exercises of “what do the words mean” and “was there a mistake” are different. Importantly, all of the Panel proceeded on the basis that unless there is ambiguity, there is no scope for use of context to “rewrite” the clear words (Vos MR [29]-[30]; Coulson LJ [56]-[57]; Nugee LJ at [70] There needs to be “a basis in the words used and the factual matrix for identifying a rival meaning” (see Coulson LJ at [57] quoting Rainy Sky).
2. The Panel applied the strict words even though they recognised that this result “may or may not give the transferring members grounds for complaint” (Nugee LJ at [74]) and that “I can quite see there may have been a mistake” (Vos MR at [32], original emphasis). Certainly, by allowing the appeal, the Court of Appeal gave full effect to the words used, and was not swayed from that outcome by the explanations in relation to the factual background and other materials that arise. As counsel for the Trustee, it would be inappropriate to comment further.

Jonathan Chew acted for the Britvic Trustee, instructed by Gowling WLG (UK) LLP (the team led by Ian Gordon), both in the Court of Appeal and below. The Court of Appeal’s judgment is available here.