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.
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.
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