This judgment will be of interest to all schemes in respect of which a PPF levy arises. Trustees will need to ensure that information is kept up-to-date to avoid an anomalous result in the levy calculation.

The case concerned an appeal by the PPF to the High Court from a decision of the PPF Ombudsman in February 2013 who, in a rare move, upheld a complaint against the PPF. It concerned the calculation of a scheme’s risk-based levy on the grounds that the employer’s Dun & Bradstreet (D&B) failure score failed to take into account up-to-date financial statements filed with the Luxembourg companies registry.

The High Court found in favour of the PPF, on a point of construction, that the PPF did not have a discretion to amend or seek a revised D&B failure score where the failure score provided was calculated in D&B’s ordinary course of business.  The general implication for trustees is that they must ensure that their employer’s D&B failure score is accurate before the measurement time for the PPF levy year.

Background

The case concerned the Scheme’s 2010/11 PPF levy, which was vastly inflated as compared with previous years’ levies, due to an incorrect failure score being used to calculate the sponsoring employer’s risk-based levy. The Trustees were initially unsuccessful in appealing the failure score with D&B, and appealing the levy calculation with the PPF. However, the Trustees successfully pursued the matter with the Deputy PPF Ombudsman, who found in the Trustees’ favour that:

  • it was not unreasonable for the Trustees to assume that D&B Luxembourg would collect publicly filed accounts from the Luxembourg companies registry, particularly given D&B’s practice in the UK, the lack of clear guidance to the contrary, and the fact that D&B had obtained the 2007 accounts without the Trustees having previously provided them to D&B for failure score purposes;
  • using the failure score provided by D&B did not produce a levy based on the sponsoring employer’s true risk of insolvency, which was unfair and contrary to the PPF’s policy aims; and
  • the PPF had a discretion to review a levy calculation where it became apparent that materially incorrect information had been used, and a failure score based on out-of-date financial information could not be correct and legitimate in itself.

The Deputy Ombudsman also ordered that interest for late payment of the levy would not be charged, and that the PPF should contribute £10,000 towards the Trustees’ costs.

The High Court appeal

This was the PPF’s first appeal to the High Court on a point of law, which challenged both the Deputy Ombudsman’s substantive decision and her jurisdiction to make the directions set out in her decision. The Court had to decide whether the PPF’s decision to use a failure score based on out of date information (where up to date information was available, albeit not provided directly to D&B) was irrational and/or procedurally unfair, or whether the PPF was entitled to take a D&B failure score calculated in the ordinary course of its business at face value. The Court also had to consider whether the PPF had a discretion to revise the levy calculation in the circumstances of the case, and the scope of the Ombudsman’s power to direct the PPF to exercise any such discretion. The Deputy Ombudsman’s power to make directions in respect of interest and costs also had to be considered.

The High Court’s decision was founded on the construction of the relevant provisions of the 2010/11 levy Determination, and the High Court favoured the arguments put forward by the PPF. In particular, it was held that there is no scope in the levy Determination for the PPF to depart from a failure score provided in the ordinary course of D&B’s business. It was not unfair or unreasonable for the PPF to set out hard edged rules in the levy Determination, and the PPF did not have to consider whether D&B’s failure score calculation was fair.

The High Court also commented on some of the other issues raised in the case, including the scope of the PPF Ombudsman’s jurisdiction. The High Court agreed with the Deputy Ombudsman that her powers extended to directing that a decision of the Reconsideration Committee be revoked, and that it be replaced with a decision specified by the Deputy Ombudsman. However, it was not appropriate to do so in this case. As to the PPF Ombudsman’s powers to make orders as to costs, these are specifically limited by regulations. However, an order can be made for compensation where additional expenditure has been incurred.

Comment

It is perhaps helpful that the PPF Ombudsman’s jurisdiction and the PPF’s powers in relation to failure scores have been clarified. Nevertheless, this clearly raises issues for the Trustees. According to the High Court’s interpretation, the PPF followed the levy Determination correctly in using the failure score calculated in the ordinary course of D&B’s business, but the end result (due to D&B’s failure to take into account up-to-date information, which the Trustees had no reason to believe would not be used) was that the Scheme’s levy was not based on the sponsoring employer’s true risk of insolvency.

Trustees and scheme employers must be careful to ensure that D&B has up-to-date financial information at the relevant time. Although not relevant in the West of England case, trustees should be aware of the recent change in D&B’s failure score calculation methodology. Insolvency risk is measured using the average failure score of each sponsoring employer measured on the last working day of each month, from 30 April 2013 to 31 March 2014. Therefore, trustees will need to ensure that information is kept up-to-date to avoid an anomalous result.

It will be interesting to see how Experian’s appointment as insolvency risk provider (from the 2015/16 levy year), and the proposal that a bespoke failure score system will be developed, will affect trustees and employers, and whether similar issues can be avoided in future.