The dispute between the parties arose from an alleged failure by Mercer (the defendant) to correctly carry out an amendment to a  defined benefit pension scheme to effect equalisation between men and women. That alleged error led  to an increased funding liability for the scheme.

Facts

The dispute related to events which took place between 1990 and 2001. In 2000, the principal  employer of the Britax Pension Fund (the “Fund”) was sold to the first claimant, Seton House Group.  The trustees of the Fund, Britax Pensions Trust Ltd, were the second claimant. At all material  times Mercer, the defendant, provided actuarial and investment services to the Fund.

In 1990, Mercer recommended that the normal retirement age of all future employees should be raised  to 65 (previously it was 65 for men and 60 for women). An explanatory booklet and communications notifying members of the equalisation of retirement ages with effect from 1 April 1991 were issued. However, it was not until a deed of amendment in 2000 that the Fund’s  trust deed and rules were amended to effect equalisation, despite Mercer allegedly advising the  Fund on a number of occasions between 1990 and early 2000 that equalisation had taken place in  April 1991.

In 2000, a subsidiary of the principal employer (and a participating employer in the Fund) was sold  to a third party purchaser. The purchaser’s accountants produced a financial due diligence report which dealt, in part, with the Fund. The report identified that, although normal retirement age for men and women had  apparently been equalised in accordance with the legislation, the communications to members  differed from the amendments to the scheme and were not in accordance with the legislation and that  equalisation had, in fact, been ineffective.

Claim

In litigation commenced in 2011, the claimants argued that Mercer had provided negligent advice  that equalisation had been effective in 1991. 

Mercer denied liability and, in addition, raised a defence based on the Limitation Act 1980 (the Act). The standard limitation period in  relation to negligence claims is six years from the negligent act, however, section  14A(10) of the  Act extends the limitation period for “latent damage” claims in negligence, so that the period runs  for three years from the date at which the claimant knew, or reasonably ought to have known, that  negligence had occurred. The claimants argued that this exception applied to their claim, thus  allowing them to commence proceedings more than six years after the negligence had occurred.

Mercer applied to the court for summary judgment, arguing that the accountants’ report from 2000  had come to the attention of the claimants and had provided them with sufficient information about  the possible negligence such that the three year limitation clock started running at that stage.  Thus, Mercer argued, the limitation period within which the claimants were required to bring their  claim had expired.

The application was successful and the claim was dismissed. The claimants appealed against this  decision, but the High Court dismissed their appeal, holding that, in a situation such as this, it  is necessary to establish:

  • what the claimant could himself have ascertained about the potential claim; and
  • whether, in light of that, it would have been reasonable for him to carry out further enquiries  which would have led to additional knowledge about the potential claim.

The claimants argued that they did not look at the accountants’ report to see what concerns had been identified in the context of the  sale, and that they could not reasonably have been expected to do so. The High Court dismissed that  argument, stating: “…given the importance of the transaction and the significance of the report,  the conclusion that both the claimants could reasonably be expected to look at its content was  inevitable. It would have been slapdash not to do so… Pensions and the transfer from the pension  fund were material parts of the transaction and it was inevitable that the seller, and the trustee,  could reasonably be expected to review what the purchaser has discovered in relation  to its due  diligence.”

It was held that the contents of the report, and thus the concerns raised by the accountants which  cast doubt on whether the equalisation was effective, fell within the scope of the constructive  knowledge of the claimants. It would, therefore, have been reasonable to expect the claimants to  subsequently take advice and carry out further investigations into the issue.

Lessons to be learned

This case is yet a further example of the extensive and costly litigation that has followed the  Barber equalisation decision. More broadly, it is also a salutary reminder to trustees and  employers to carefully consider documentation produced as part of any transaction or due diligence  exercise, and to take further advice if necessary. If reports which consider pension issues have  been prepared and handed over to trustees and 

employers, the recipients will be deemed to have constructive knowledge of their contents and will subsequently be prevented from  adopting a “head in the sand” approach in order to argue that they were not furnished with  sufficient knowledge.

Seton House Limited and Britax Pensions Trust Limited v Mercer Limited