|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Seton House Group Ltd & Anor v Mercer Ltd  EWHC 4234 (Ch) (12 December 2014)
Cite as:  EWHC 4234 (Ch)
[New search] [Context] [View without highlighting] [Printable RTF version] [Help]
On Appeal from Master Marsh
Rolls Building, London, WC4A 1NL
B e f o r e :
| Seton House Group Ltd (1)
Britax Pensions Trust Ltd (2)
|- and -
Peter de Verneuil Smith (instructed by Maurice Turnor Gardner LLP) for the Respondent
Hearing dates: 7-8 October 2014
Crown Copyright ©
HHJ David Cooke :
2. This claim was issued on 22nd December 2011. It was preceded by standstill agreements entered into between the parties on 30th September 2010 and 27th September 2011. Under those agreements the claim was, for limitation purposes, deemed to have been issued on 30th September 2010…
3. The events that are material to this claim took place between 1990 and mid-2000. The company that is defined as "BSG" in the particulars of claim was the principal employer of the Britax Pension Fund ("BPF") from the date the BPF was set up in 1981 until 4 July 2001 when it was sold to the First Claimant ("the Company"). In 2005, certain assets, liabilities and members of the BPF were transferred into the Public Safety Equipment Limited Pension Fund ("PSE Scheme"). The Company's title to bring these proceedings arises out of assignments dated 12th October and 20th December 2011. The Second Claimant is the trustee ("the Trustee") of the BPF and the PSE Scheme. Mercer has at all material times provided actuarial and investment consultancy services to the BPF although the precise scope of Mercer's retainer and duties in the period between 1990 and mid-2000 is in issue.
4. The claim arises out of the events that followed the decision of the European Court of Justice in Barber-v-Guardian Royal Exchange Group (C-262/88)  1 QB 344. The ECJ held that it was unlawful to discriminate between men and women in conditions of employment. As a consequence of the decision, it was necessary for BSG to equalise the normal pensionable age ("NPA") of members of the BPF. In 1990, Mercer recommended that the NPA of all future employees should be raised to 65 at the earliest opportunity and Mercer was instructed to take the necessary steps…
5. An addendum to the explanatory booklet of the BPF was issued in October 1990 informing members of the equalisation of retirement ages at age 65 for new employees from 1st July 1990. An announcement was then made in February 1991 informing employees of the equalisation of retirement ages with effect from 1st April 1991. However, no amendment to the BPF rules under its 1981 Deed and Rules was made. On 21st December 1995, a new Trust Deed and Rules was executed retaining the NPA for female members at age 60 and male members at age 65. On 10th March 2000 a further new Trust Deed and Rules was executed providing for equalisation of NPA at age 65 for both men and women with effect from 1st April 1991.
6. It is alleged that Mercer advised on a number of occasions between 1990 and early 2000 that equalisation had taken place on 1st April 1991. Furthermore, the Claimants' case is that the 2000 Trust Deed and Rules was ineffective to change the NPA as from 1991 as the change could not be made retrospectively. They say that Mercer owed duties to each of them and that Mercer was negligent in the advice it provided following the Barber decision. Loss is claimed totalling £5.4 million plus £750,000 being the cost of investigations carried out by the Claimants…
7. Liability is denied by Mercers but for the purposes of the Part 24 application I will proceed on the assumption that, disregarding the limitation issue, the Claimants have a real prospect of succeeding at a trial.
8. The limitation issue arises out of paragraphs 42, 43 and 62 of the defence. In 2000, Britax Wingard Limited, a subsidiary of BSG, and a participating employer in the BPF, was sold to Reitter & Schefenacker GmBH & Co KG ("Reitter"). In the course of the sale, Reitter commissioned a financial due diligence report from Ernst & Young ("E&Y") and they produced a report dated 28th April 2000 running to 237 pages plus 12 appendices. Appendix 2 to the report comprises two letters from a firm of actuaries, Lane Clark & Peacock ("LCP"), addressed to Reitter. The first letter ("the LCP Letter") is 8 pages in length and deals with their findings concerning BSG's UK pension arrangements. The second letter deals with international pension arrangements. Paragraph 2 of the LCP Letter is headed "Britax Pension Fund". Paragraph 2.1 includes the following paragraph (it is one of eight paragraphs):
"It appears that the normal retirement ages were equalised at age 65 for males and females on 1st April 1991. Previously, the normal retirement ages were 65 for men and 60 for women. The method of equalising the benefits as set out in the Fund's rules appears to comply with legislative requirements. However, a different method and non-compliant method of equalising the benefits is set out in communications to members. We recommend that legal advice is sought on this inconsistency in the Fund's documentation."
[this paragraph was referred to before the Master and before me as "the Passage"]
9. In paragraph 43 of the defence, Mercer pleads:
"It can reasonably be inferred from the circumstances that the E & Y report was provided to and seen by [BSG], the Trustee and/or their legal advisers."
In paragraph 62 of the defence Mercer pleads that the primary limitation period expired prior to 1st October 2004 and that the material facts on which the claims set out in the particulars of claims are based were known, or ought reasonably to have been known, by the Claimants prior to 1st October 2007. Thus, Mercer asserts that both the primary and secondary limitation periods had expired prior to the deemed date of issue of the claim.
10. The Claimants chose not to serve a reply to the defence...
12. The position in relation to limitation when the matter first came before me on 15th July 2013 can be summarised as follows:
(a) In the particulars of claim at paragraph 33 the Claimants asserted that they first acquired the requisite knowledge for the purposes of section 14A in 2010 when the failure validly to implement equalisation was discovered by advisers to the Trustee.
(b) Mercer asserted in the defence that the requisite knowledge for the purposes of section 14A was acquired in or around 2000 or, at the very least, prior to 1st October 2007 (being three years before the first standstill agreement).
(c) In the absence of a reply, the Claimants were taken not to admit the matters relevant to limitation raised in the defence but the Claimant had not made a positive case concerning whether or not the requisite knowledge had been obtained in 2000.
13. It is not now in dispute that the primary 6 year limitation period expired before the deemed date of issue of the claim under the standstill agreements… Mercer's case relies upon the provisions of section 14A [Limitation Act 1980] which provides that the limitation period is three years from the "starting date" as defined in section 14A(5). "
i) denied that the Passage had been (para 9.1) or ought reasonably to have been (para 10.2) seen or read by any director or sufficiently senior employee of the principal employer (BSG) or Trustee;
ii) denied that if the Passage had been read the employer or trustee would or ought reasonably to have known that the equalisation of pensions was 'non compliant' and ineffective (para 10.3);
iii) pleaded that the claimants (presumably referring to the Trustee and BSG) had taken all reasonable steps to obtain expert advice from the solicitors acting on the purchase (Eversheds) and from the defendants themselves but no matters had been brought to their attention which ought to have put them on enquiry, so that they did not acquire any knowledge relevant for s 14A at the time of the 2000 transaction, and
iv) pleaded that the claimants were first alerted to the defects alleged when the scheme documentation was reviewed by the Trustee's solicitors (Wragge & Co LLP) on a date after 20 May 2010.
"14A Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual
…(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.
(4) That period is …
(b) three years from the starting date as defined by subsection (5) below...
(5) … the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.
(6) In subsection (5) above "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both—
(a) of the material facts about the damage in respect of which damages are claimed; and
(b) of the other facts relevant to the current action mentioned in subsection (8) below.
(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.
(8) The other facts referred to in subsection (6)(b) above are—
(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and
(b) the identity of the defendant…
(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.
(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire—
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;
but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."
61. An evaluation of the evidence for the purposes of Mercer's application has to be underpinned by the principles that are applicable to a Part 24 application. At a trial, it will be for the Claimants to establish that they are entitled to the benefit of section 14A and that they did not acquire knowledge, as defined in that section, before 29th September 2007. I have to consider whether they each have a real prospect of doing so. I must not conduct a mini-trial but, equally, the court need not be credulous about the Claimants' evidence or ignore the gaps in it. The likelihood of anyone having a recollection of events 13 years ago in the absence of contemporaneous documents is plainly a material factor here. And I have already remarked about the lack of any evidence concerning the likelihood of (a) Eversheds' file being available and/or (b) Mr Selway providing a statement that assists the Claimants. This is not a case in which the Claimants can demonstrate that further evidence of a helpful nature can reasonably be expected to be available at a trial. It does not appear to me the Claimants can realistically say that a trial will lead to a fuller investigation of the facts that has a real prospect of providing additional evidence that is helpful to the Claimants in discharging the burden on them.
62. Mercer's application is based upon constructive knowledge, rather than actual knowledge, but given the very limited evidence that the Claimants have provided the distance between the two on the facts of this case is not great. Mercer's case is that Appendix 2 must have been read by someone of suitable seniority as part of Project Rhinestone but for the purposes of the Part 24 application actual knowledge is not relied upon. In considering whether the Claimants had constructive knowledge for the purposes of section 14A I have to look at two elements. First, is it fanciful to think that the Passage ought reasonably to have been read by an employee of both Claimants of sufficient seniority? Secondly, if that threshold is passed, is it fanciful to think that the statutory test as to knowledge will not be met on the facts of this case."
Grounds of Appeal
i) The Master had applied the wrong test in determining the issue of constructive knowledge, wrongly relying on a passage from Haward v Fawcetts  1 WLR 682 which it is said applies only to actual knowledge (the "Wrong Test" ground)
ii) The Master despite stating that he should not conduct a mini trial of disputed fact then proceeded to do so, in the course of which he relied on his own views as to how a corporate transaction should have been conducted, wrongly refused to admit expert evidence tendered by the claimant on that issue and made findings of fact without hearing evidence and on the balance of probability, rather than asking whether it was fanciful to suppose the claimants could make good their case at trial (the "Summary Judgment Approach" ground)
iii) The Passage had been wrongly construed to reach the conclusion that it alerted the reader to a potential problem with equalisation (the "Passage Construction" ground)
iv) The Master had wrongly concluded that Eversheds' retainer in 2000 did not extend to pensions issues (the "Expert evidence" ground) and
v) It was wrong to conclude that having instructed both Eversheds and Mercer their collective retainers did not amount to taking all reasonable steps to seek expert advice (the "Collective Retainers" ground).
"66. Applying the Haward test, would BSG and the Trustee have obtained sufficient knowledge to justify setting about investigating the possibility that Mercer had been negligent in the steps taken upon their advice to equalise NRD at 65? The reader of the LCP letter was not directed to Mercer's involvement with equalisation but that does not matter. In my judgment, the reader of the letter was plainly informed that something serious might be wrong with the method of equalisation and it would have been obvious that such a problem might have caused significant financial loss. I agree with Mr De Verneuil Smith that it is fanciful to think other than that had legal advice been sought, the legal advisors would have required to see the Fund's rules in place at the time of Barber, and subsequently, together with the booklets and communications to members. A review of those documents in the light of the query about whether a compliant methodology had been used would have led to a review of the methodology recommended by Mercer and, on the balance of probabilities, the issue that forms the subject matter of this claim would have been revealed. This is not just speculation, as Mr Anderson QC suggested, but a deduction based on the facts. It is fanciful to think that the obtaining of legal advice would not have revealed the problem. The Passage was, therefore sufficient knowledge to make it reasonable for the Claimants to begin to investigate further."
61. An evaluation of the evidence for the purposes of Mercer's application, has to be underpinned by the principles that are applicable to a Part 24 application. At a trial, it will be for the Claimants to establish that they are entitled to the benefit of section 14A and that they did not acquire knowledge, as defined in that section, before 29th September 2007. I have to consider whether they each have a real prospect of doing so. I must not conduct a mini-trial but, equally, the court need not be credulous about the Claimants' evidence or ignore the gaps in it. The likelihood of anyone having a recollection of events 13 years ago in the absence of contemporaneous documents is plainly a material factor here. And I have already remarked about the lack of any evidence concerning the likelihood of (a) Eversheds' file being available and/or (b) Mr Selway providing a statement that assists the Claimants. This is not a case in which the Claimants can demonstrate that further evidence of a helpful nature can reasonably be expected to be available at a trial. It does not appear to me the Claimants can realistically say that a trial will lead to a fuller investigation of the facts that has a real prospect of providing additional evidence that is helpful to the Claimants in discharging the burden on them.
62. Mercer's application is based upon constructive knowledge, rather than actual knowledge, but given the very limited evidence that the Claimants have provided the distance between the two on the facts of this case is not great. Mercer's case is that Appendix 2 must have been read by someone of suitable seniority as part of Project Rhinestone but for the purposes of the Part 24 application actual knowledge is not relied upon. In considering whether the Claimants had constructive knowledge for the purposes of section 14A I have to look at two elements. First, is it fanciful to think that the Passage ought reasonably to have been read by an employee of both Claimants of sufficient seniority? Secondly, if that threshold is passed, is it fanciful to think that the statutory test as to knowledge will not be met on the facts of this case.
63. As to the first stage, it seems to me it is fanciful to think that the Claimants will succeed at trial in establishing that the Passage ought not to have been read by a senior employee of BSG. The factors that lead me to that conclusion include:
(a) Project Rhinestone was a substantial transaction that warranted attention from senior management of BSG and the Trustee. BSG was a large business and should have had adequate resources to devote to the transaction. It could not reasonably have been left to the advisers to run with 'light touch' supervision by management and by the Trustee. Undoubtedly Mr Selway was very actively involved but it is fanciful to think that it was reasonable for him to have handled a £180 million transaction largely on his own, save for the involvement of Lazards and Eversheds. As a matter of common sense, other senior managers were needed to assist him, to attend meetings and to consider the project documentation. Persons other than Mr Selway and Mr Duffield must have attended the PowerPoint presentation and could reasonably have been expected to do so.
(b) Even if pensions were not at the heart of the transaction, they were a material consideration and both the UK and international pension position had the capacity to affect the purchase price and the scope of liabilities BSG would retain either in the form of potential liability under warranties or by way of the indemnity. Furthermore, the UK pension position had to be considered because a transfer value was negotiated and agreed. That exercise may have been carried by external consultants but they had to be instructed by a senior manager to do so. It follows that it is reasonable to expect documents about pensions provided by Reitter as part of the E&Y Report to have been read, and fanciful to think otherwise.
(c) The terms of the pension warranties and the indemnity had to be negotiated. Appendix 2 should have been of vital interest to BSG in that connection, particularly in relation to the giving of an indemnity.
(d) The Trustee owed fiduciary duties to members of the BPF and a document such as Appendix 2 was one the Trustee was bound to review.
(e) BSG could not reasonably have taken account only of the executive summary to the E&Y Report. Both Claimants had the full report in their possession and responsible management of the purchase would have involved arranging a review of the entire report by senior managers with the relevant expertise. A superficial review of the E&Y Report would have easily spotted that Appendix 2 dealt with pensions and arrangement for someone with suitable experience to review it. It is fanciful to think that it would not reasonably have been passed on to the Trustee for review.
(f) The draft reply (and I will assume there would have been a willingness for a director of each Claimant to have signed the statement of truth) at paragraph 9.1 denies the Passage in the LCP letter "was seen or read by any director or requisite senior employee …" of each of the claimants. I am bound to say that I do not see how that denial could be made in the absence of evidence from Mr Selway and in view of the equivocal nature of the remaining evidence.
64. Assuming that the Passage ought reasonably to have been read by a person of suitable seniority, what, applying the test as explained in Haward, should the words have conveyed and did that amount to Section 14A knowledge. The test is what should the words have conveyed regardless of that person having any special understanding of pensions or the BSP scheme?
65. The LCP Letter conveyed that there was an inconsistency between the Fund's rules and communications to members. The inconsistency concerned whether a compliant method of achieving equalisation had been used. The rules demonstrated, according to the letter, that a compliant method had been used. Communications to members said otherwise. Furthermore, and crucially in my judgment, the letter would have conveyed the sense that the inconsistency was sufficiently serious to warrant obtaining legal advice. Such a statement from an actuary who could be expected to have a good deal of expertise in the field to my mind should have been seen as a 'red light'. Even if the advice could have been seen as cautious, it would have been incautious to have ignored it. To paraphrase, the letter from LCP was saying: "we are not certain that there is a problem with the method of equalisation, but there may be and it ought to be investigated by taking legal advice"."
Summary Judgment Approach, Expert Evidence and Collective Retainer
"Even if the solicitor is to be regarded as an appropriate expert, the facts were ascertainable by him without the use of legal expertise. The proviso is not intended to give an extended period of limitation to a person whose solicitor acts dilatorily in acquiring information which is obtainable without particular expertise."
The same would apply in the case of an expert such as Mercer, to the extent that the relevant "fact" is only the content of the document the expert is asked to read. It cannot make a difference that the adviser is at fault in failing to pass information on at all to his client rather than merely delaying in doing so.