NEWSLETTER    |     March 21, 2024

Amendments can be partially invalid

The High Court in Avon Cosmetics Limited v Dalriada Trustees Ltd & Ors [2024] EWHC 34 (Ch) decided, using a construction and severance approach, that an amendment was invalid only to the extent that those it affected would be worse off.

In this case, a scheme closed its final salary section to future accrual and introduced career average revalued earnings (“CARE”) benefits for future service.  Some members, depending on how the rate of inflation used to calculate CARE benefits, may have improved benefits under this amendment, however a number of members would receive worse benefits which would not have been permitted by the amendment power which protected rights accrued or secured up to the date of the purported amendment.

The High Court had to decide whether the amendment was wholly invalid or only invalid in respect of those who would be worse off.

The Court held that it would be naturally inclined to uphold the validity of the amendment exercise as far as it can and applied the two legal principles to save the valid part of the exercise of a power (ie the part which did not infringe the fetter). It used:

  • a construction approach – were the valid and invalid parts of the amendment sufficiently conceptually different; and
  • a severance approach – would the survival of the valid part substantially change the purpose and effect of the amendment?

The Court held that the exercise of the amendment power could be conceptually separated into a valid exercise of the amendment power and an invalid exercise of the amendment power.  The Court took the view that, it does not matter if a construction approach was taken or a severance approach was taken, the answer is the same.  As a result, the Judge held that the amendment is invalid to the extent that a member would be worse off. If a member would be better off under the CARE amendment, then the amendment remains valid.

Key takeaway

The Court showed that it is willing to uphold an amendment power as far as it can, using a construction and severance approach.

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