Contracts and the limits of corrective construction

When William Blake wrote that “Hindsight is a wonderful thing but foresight is better”, he probably didn’t have contractual interpretation in mind. However, the quotation could well apply to the challenges the common law seemingly faces in trying to establish a set of recognisable principles which are applicable to understanding the agreements we all enter into as part and parcel of our daily lives. So far as hindsight is concerned, the courts are always interpreting contracts after the event. By way of contrast, I suspect that those of us who draft and negotiate contracts for a living could do with some more foresight, especially in relation to which principles will apply to the contracts we are working on. Britvic PLC v Britvic Pensions Ltd and another [2021] EWCA Civ 867 is a good example of this conundrum. The Court of Appeal had to decide which of those principles applied to a clause in Britvic’s pension plan. The plan allowed for the members’ pensions to increase in accordance with inflation. This was subject to some caps (5% and 2.5%, depending on the dates when the member had actually been employed) and possible adjustment by Britvic: “The rate of increase is the percentage increase in the retail prices index during the year ending the previous 31 May but subject to… [the maximums of 5% and 2.5%]… or any other rate decided by… [Britvic].” The dispute The dispute was over the meaning of the words “or any other rate”. Did they mean that Britvic could (i) set any rate – that is one that could be lower as well as higher than the caps – or, as the members of the scheme argued, (ii) only set a rate higher than the caps? At first instance ([2020] EWHC 118 (Ch)), Judge Hodge QC, relying on a range of factors, including background information provided to members when they joined the scheme which stated that Britvic’s discretionary power was to award higher increases only, agreed with the members. Britvic could only adjust the rate by a percentage higher than the caps. The appeal The Court of Appeal (Sir Geoffrey Vos MR and Coulson and Nugee LJJ) disagreed. Other meant “higher or lower” and not “higher”. In reaching that decision, the judges considered the myriad leading judgments on contract interpretation including Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] PLSCS 150, Investors Compensation Scheme v West Bromwich Building Society [1997] UKHL 28, Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 EGLR 119, Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Arnold v Britton [2015] UKSC 36; [2015] EGLR 53, Wood v Capita Insurance Services Ltd [2017] UKSC 24 and, in a Supreme Court authority dealing with the interpretation of pension schemes, Barnardo’s v Buckinghamshire and others [2018] UKSC 55. In an added quirk, two of the panel had been the successful advocates in two of the leading cases – Sir Geoffrey Vos MR in Investors Compensation Scheme and Nugee LJ in Chartbrook. The former gave the leading judgment. He stressed a number of points: Following Barnardo’s, pension schemes tend to have special characteristics that affect how they are to be interpreted. They are formal legal documents prepared by skilled professionals, in the absence of commercial negotiation (where different parties may have conflicting interests and the final agreement is often a compromise reached under considerable commercial pressure) and are intended to operate for long periods of time (well after the economic and other circumstances which existed at the time it was signed may have ceased to exist). Further, members join schemes long after the drafting has been agreed and may do so without access to expert advice or being aware of the factual circumstances which existed at the time the scheme was created. All of these point to the courts enforcing the words actually used. Additionally, Rainy Sky, Arnold and Wood all stress that, where the parties use unambiguous language, that language must be used. Corrective construction – where the courts can correct mistakes in drafting – should only be used where there is “really an obvious mistake on the face of the document” (such as an incorrect date, which was the issue being considered in Mannai). While an objective observer may wish to improve the drafting, that desire is not enough (again relying on Rainy Sky and the other cases) to allow the court to depart from the clear language used, a principle that was particularly applicable to interpreting pension schemes. A possible mistake The Court of Appeal reached this conclusion notwithstanding the fact that it accepted that there might have been a mistake in the drafting. The wording in the plan appeared to have been copied from a previous plan, and Sir Geoffrey Vos accepted that the wording was unsatisfactory and inconsistent with surrounding (and more recently drafted) provisions. Nugee LJ went further. He accepted that some of the members had been told the scheme only entitled Britvic to adjust the rate by an amount higher than the cap. The difficulty was that the communication to the members was not actually a part of the pension scheme being considered. The judges had to interpret the words actually used. The importance of the judgment This is a Court of Appeal decision and, strictly speaking, not of equal authority as the House of Lords and Supreme Court judgments on which the judges in Britvic relied. However, it is a decision of a highly distinguished court comprising judges who are experts in the field. I think it will be a key (and very welcome) addition to the authorities on contractual interpretation for years to come. Key point The court can only depart from the clear language of an agreement where there is an obvious mistake on the face of the document Stuart Pemble is a partner at Mills & Reeve Image © David Cole/Shutterstock