Extended exposure

As advisers to professionals and their insurers, we have noticed a recent upturn in claims against advisers to trustees of pension schemes involving stale allegations. The main targets are actuaries and solicitors. Invariably, advice was provided many years before the claim emerged and this not only raises practical evidential difficulties for those involved, but means that limitation can be a thorny issue.

For insurers, it can mean paying a claim that was not foreseen and not adequately priced into recent premiums. Standard claims-made wordings are premised upon the fact that claims usually emerge within six years of the relevant events. Claims which emerge 10 or 20 years after the relevant events are closer to the model applicable for occurrence-based underwriting.

Equal pension provision

A long-running theme is the failure to provide properly for the equalisation
of retirement ages for men and women. As many readers will be aware, Barber v GRE [1991] 1 QB 344 in
the European Court of Justice was
the first of a run of cases including Coloroll Pension Trustees Ltd v Russell [1995] ICR 179 and Advel Systems Ltd [1995] ICR 596.

These cases address the need to ensure equal pension provision for men and women. It was some time before the full impact of these decisions was appreciated by trustees and their advisers, leading to an inevitable lag in effecting changes in scheme documentation and uncertainty about the precise way to apply their requirements. These cases have been followed by a raft of legislation over the past 25 years, with a consequent need for increased expertise from trustees and advisers alike. The question in many cases is whether changes to the scheme deeds and rules were made in precisely the way required.

Negligence

While reported cases involve different legal issues, the common theme emerging from these cases is the length of time between the events in question and the allegations of negligence. Seton House Group Ltd v Mercer Ltd, on appeal from a decision of Senior Master Marsh, relates to a failure to equalise pension ages dating back to 1991.

In that case the defendant actuary sought summary judgment under Civil Procedure Rules (CPR) part 24. They argued that the claim was time barred, both on the basis of the primary limitation period, and under section 14A of the Limitation Act 1980, which extends the period for three years from the date of knowledge. Although the employees had been informed that retirement ages had been equalised at 65 in April 1991, it was not until 2000 that a deed reflecting this was prepared. Even then it is alleged that that deed was ineffective, as it sought to make the change retrospectively. Proceedings were deemed issued for limitation purposes on 10 September 2010.

It was conceded that the primary limitation period had expired, but the claimants sought to argue that they did not have the requisite knowledge until 2010. The defendant relied on a report prepared by Ernst & Young in 2000 on the sale of the business, which highlighted inconsistencies in the documentation regarding equalisation and recommended legal advice be sought. Having considered all the circumstances, in a well-crafted judgment, Master Marsh concluded the claimants had had sufficient knowledge to have justified investigating the possibility of prior negligence. Thus,
the claim was time barred. Whether
this decision will be overturned on appeal remains to be seen. At present, the finding ameliorates some of the harsh consequences of stale claims
listed below.

Limitation period

In another case involving one of the same parties, Mercer Ltd v Ballinger [2014] EWCA Civ 996 (judgment 17 July 2014) the Court of Appeal considered whether to allow amendments to a statement of case. CPR 17.4 restricts amendments in respect of a new claim after the expiry of the limitation period to claims arising out of substantially the same facts.

The allegations in this case are that negligent scheme valuations were prepared in 1996, 1999 and 2001, resulting in a shortfall in contributions from the employer. The claimants then sought by amendment to add allegations in respect of valuations prepared in 2002. As the claimants had contended that they had the requisite knowledge for limitation purposes in August 2007, the defendants said these new claims must have been time barred three years later, in August 2010.

Having considered the detailed facts of the case, the Court of Appeal found that the proposed amendments should not be allowed. The court noted that if the defendant can show a prima facie defence of limitation, the burden must be on the claimant to show that the defence is not reasonably arguable.

We are also currently advising a client where the allegations of negligence date back to the 1980s
in circumstances not dissimilar to the Seton case. Quite apart from the limitation issues outlined above, such historic allegations raise particular difficulties for those pursuing or defending such claims. They include:

• The existence of relevant documentation. Most professional practices destroy files after six years, reflecting the primary limitation period to bring claims in contract or tort.

• Establishing what material was available to advisers 20 years ago. This was before the use of email, which can provide a clearer indication of who had what,
  and when.

• The unavailability or unwillingness of witnesses to assist. They will no longer be employed by the parties or may now be elderly or infirm.

• The impossibility of clear witness recollection to supplement the documentary evidence that is available.

• The changing nature of practice over the last 25 years. Retainer letters, setting out the precise scope of what each professional is and is not advising on, are now part of common practice. They are required as part of money laundering procedures and to meet professional standards. This was not the position 20 years ago.

• The rigorous approach of the courts to technical requirements developed long after the events in question, resulting in a defendant being judged by a different standard.

• Valuation difficulties, especially if there are multiple apparent causes of the losses, not all of which can be blamed on the professionals.

• The existence of limitation arguments to counter the perceived unfairness of a stale claim. This is a factor in all of the cases to which we have referred.

How should professionals react if they may be on the receiving end of such claims? One straightforward step that can be taken is to preserve files for far longer than six years. The files also need to be indexed effectively (electronic storage should be explored), so they can be retrieved without a massive search of the archives being required.

Where this is not practical, early legal advice should be sought to ensure that steps can be taken to address the difficulties identified above, if there is the hint of a future claim. Professional indemnity policies invariably require early notification of circumstances which give rise to a claim. This is the point at which action should be taken. This will enable steps to be taken to ensure that such documentation as does exist is properly preserved. Witnesses can be traced and interviewed if necessary.

We shall await the outcome of the Seton House appeal with interest. So far as equalisation cases are concerned,
we also look forward to the judgment in 20-20 Trustee Services Ltd v Wragge
& Co, due for trial in November 2014.

Both cases are salutary reminders that professional advisers in pensions cases have lengthy exposure to claims, whatever the final outcome in those cases may be.

Julian Miller is a partner in the global group at international law firm DAC Beachcroft and Sara Robertson is an associate at the firm