A recent pensions case involving the Britax Pension Fund (the "Britax Scheme") addresses the issue of when limitation periods start to run where damage claimed is not immediately apparent.

Background

In 2010, nearly twenty years after the Barber equalisation judgment held that pension benefits had to be equalised between men and women, it was discovered that this equalisation of normal pension ages under the Britax Scheme was not properly executed. Equalisation of normal pension ages had been treated as having taken place from 1 April 1991. Unfortunately, there had been no rule amendment to achieve this until 2000, when a new trust deed and rules was entered into which purported to equalise with retrospective effect from 1 April 1991, however this was ineffective. Mercer had been the main adviser in relation to the Britax Scheme during the period in question. Once again, this is an example of a benefit consultant taking on the role of legal adviser where specialist advice should have been sought. Mercer acted on instructions to take the necessary steps to equalise the Britax Scheme but their efforts were not correct.

A negligence claim was brought against Mercer, alleging that they had been negligent in their advice regarding equalisation. The loss to the Britax Scheme for the failure to equalise between April 1991 and the execution of the 2000 deed and rules was claimed at £5.4m, plus costs of investigations.

Limitation Timeframes

The standard time limits for bringing claims under English law are:

1. Breach of contract   

  • for a simple contract, six years from the date of the breach; or
  • if the contract is made by deed, 12 years from the date of the breach.

2. Negligence

  • six years from the date that damage has been suffered as a result of the negligent act or omission, which may be extended where there is "latent damage".  

For negligence claims, where there is "latent damage" (i.e. damage that the claimants did not know about – and could not reasonably have been expected to have discovered), the limitation period can extend beyond the usual six years. In such cases, the time limit for bringing a claim is the later of:

  • the usual limitation period of six years from the date of the damage; and  
  • three years from the date on which the claimant first knew, or ought to have known, the relevant facts, up to a "longstop date" of 15 years from the date of the damage.

Parties may enter into a "standstill agreement", being a contract under which the parties agree that the claim form will be deemed to have been issued at an earlier date and the defendant will not seek to enforce the statutory time limits. The defendant may agree to this to avoid the claimant issuing a claim form immediately, giving more time for negotiation before court proceedings are started. This method can keep alive the chance to bring a claim beyond the statutory time limit, and was used in the Britax case.

Where the standard six year limitation period for negligence has passed, it is then necessary to consider whether the claimants have had knowledge of the relevant facts pertinent to the claim within the past three years. If so, they will be precluded from bringing any action as the claim will be out of time. The three year limitation here starts to run even if the claimant did not have actual knowledge of all the relevant facts. Instead, what is required is that the claimant "might reasonably have been expected" to obtain the necessary knowledge, either directly from facts available to them, or from facts ascertainable with the help of expert advice that it would be reasonable for them to seek.

Case outcome - Britax specific approach

Ultimately, the Britax claim against Mercer was dismissed on the grounds that limitation rules precluded a claim from being made. This was on the basis that a recommendation contained within a due diligence report commissioned by a purchaser gave the trustee and employer enough knowledge so as to start the limitation time running.

Master Marsh considered that senior people within both the trustee and the employer ought reasonably to have read the pensions sections of the report, and so ought to have seen the concerns expressed about equalisation. Further, he found that the recommendation in the appendix regarding equalisation should have been seen as a "red light", with the result that the trustee was made adequately aware that there was a potential issue with the equalisation exercise. Master Marsh also went further and stated that the trustee could not run an argument to the effect that it was for Mercer to alert them to any issue. This was because:

  • Mercer’s role as actuaries and benefit consultants meant that they were not the correct persons to provide legal advice of the nature required; and
  • Mercer, as the main advisor, was likely to have been responsible for any equalisation issue arising in the first place and so a separate advisor should have been instructed to review the position.

Some have commented that the Master’s approach in deciding what the claimants ought to have known or investigated seems fairly draconian, particularly taking into account that the due diligence report was 237 pages long; it was not addressed to the trustees or the employer, and was only disclosed to the employer for the purposes of price negotiation. It was not as though the document was readily accessible to both parties. Also, crucially, the reference to the potential failure to equalise was not in the main body of the report but was in an appendix, and even then not referred to in the executive summary to the same.

Conclusion

Following this case it is clear that  trustees and employers should be aware that documents which come into their possession might contain information which would start the clock for limitation where there is latent damage. All documents should be treated as potentially providing crucial information and thorough reviews of the same should be carried out where necessary.

It is therefore critical for any trustees or employers considering making a claim against an advisor to do so as soon as possible, so as to maximise the chances of avoiding being time barred.