England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
HHJ NORRIS QC
HC03C02231

		Royal Courts of Justice Strand, London, WC2A 2LL
		13th December 2006

The Chancellor :

Introduction
1. Mandrake Associates Ltd ("MAL"), the second claimant, carried on business as an independent financial adviser specialising in pension life assurance products. On 29th April 1988 (A-Day) it became subject to regulation in accordance with the Financial Services Act 1986. On 1st July 1988 personal pensions, as permitted by Social Security Act 1986 and Finance (No 2) Act 1987, were introduced. A personal pension was and is a money purchase savings scheme. For the self-employed it replaced the retirement annuity policy, for the employed it provided an alternative to an occupational pension scheme. Thereafter a large number of individuals took out a personal pension in preference to joining or remaining in their employers' occupational pension scheme. They fell into three classes, namely (1) those who failed to join such a scheme ("non-joiners"), (2) those who withdrew from such a scheme ("opt-outs") and (3) those who transferred to a personal pension the value of the benefits accruing to them under such a scheme ("transfers").
2. In October 1994, following extensive investigations over the previous two years, the Securities and Investments Board ("SIB") published its review entitled "SIB Pensions Transfers and Opt-outs Review of Past Business" ("SIB 1994 Review"). In Part I it outlined

"a programme of review by investment firms of pension transfer and opt-out business transacted between 1988 and 1994 and for the provision of redress to investors where due".

Part II set out detailed procedures for firms to follow in conducting such an exercise. I shall refer to the SIB 1994 Review in greater detail later but, in essence, it required firms to carry out their reviews in a number of stages described as (1) identification of the cases in question, (2) fact gathering, (3) assessment of compliance at the time, (4) assessment of loss by the investor and (5) provision of redress. In addition it prescribed certain categories of case to which priority was to be given. There followed a number of publications of SIB and others implementing or advising how to implement this policy to which I shall refer later.

3. On 1st March 1996 the defendant ("Hambro"), then called Hambro Countrywide Plc, the parent company of MAL, agreed to sell all its shares in MAL to the first claimant, Mandrake Holdings Ltd ("MHL"), a company formed for the purpose and controlled by Mr Pirie, a director of MAL, and Mr Pritchard, a director of one of the appointed agents of MAL, for £469,120. It was a term of that agreement that Hambro should execute 'the Pensions Deed'. The Pensions Deed is a deed dated 1st March 1996 and made between Hambro (1) MHL (2), MAL (3) and Mr Pirie (4). It recites that Hambro had agreed to sell its shares in MAL (described therein as 'the Company') to MHL and that MAL was a member of the Personal Investment Authority ("PIA") and continues

"(C) The Securities & Investment Board ("SIB") has required all insurance companies and pensions advisers to carry out a review of the advice given on a case by case basis in relation to pension products since 29th April 1988

(D) As a result of this review it is apprehended that the Company may be liable to make compensation payments if it is unable to prove that best advice has been given and that this has resulted in those being advised incurring a loss

(E) [Hambro] has agreed to make certain payments to [MHL] in the circumstances and upon and subject to the conditions set out in this Deed"

4. By clause 1 of the Pensions Deed MAL agreed (and MHL agreed to procure it to do so) to continue with and complete at its own expense its review of that part of its business relating to the sale of personal pensions "in accordance with the standards and requirements of SIB and PIA as published from time to time". MAL also agreed to comply with the rules, regulations, guidelines and recommendations of SIB and/or PIA. By clause 2, subject to MHL and MAL observing and performing their obligations thereunder Hambro covenanted with MHL to pay to MAL or, at the option of Hambro, the relevant investor an amount equal to "each Pension Liability". Pension Liability is defined in clause 2.2 and 2.3 in the following terms:

"2.2 For the purpose of this Deed and except as provided in 2.3 below the expression "Pension Liability" means a liability suffered or incurred by the Company (including the legal fees and expenses of any claimant awarded against the Company) to the extent that it arises from:-

2.2.1 the transfer of a person's rights or entitlements under any pension; or

2.2.2 the opting or contracting by a person into or out of any pension scheme; or

2.2.3 a person not becoming a member of or not accepting any pension scheme

in each case to the extent the liability results directly from advice given prior to the date of this Deed by the Company or its representatives where such advice proves to have been in breach or in contravention of any applicable laws, regulations, conduct of business rules or mandatory industry guidelines in force at the time the relevant advice was given.

2.3 The expression "Pension Liability" shall not include and [Hambro] shall not be liable in respect of:-

2.3.1 any liability or alleged liability of the Company where the investor or investors claiming against the Company fall into any one or more of the following categories:-

2.3.1.1 a self-employed person,

2.3.1.2 a person contracting in or out of the State Earnings Pension Scheme (SERPS) otherwise than in conjunction with leaving, joining or transferring benefits from an occupational pension scheme; or

2.3.1.3 a person who is a member of a group personal pension arranged by his employer; or

2.3.1.4 a person transferring from one occupational pension scheme to another; or

2.3.1.5 a person who bought any personal pension policy before 29th April 1988; or

2.3.1.6 a person not falling within any class of business or category of investor requiring investigation according to the published recommendations of SIB or PIA at the date of this Deed; or

2.3.1.7 any person whose claim was not duly notified to and received by C.E.Heath Corporate Risks Ltd ("C.E.Heath") in writing by the Company on or before 30th May 1995 and any dispute as to whether notification was duly made and/or received by such date shall be determined solely by C.E.Heath."

Further exclusions are contained in clauses 2.3.2 to 2.3.4 but are not material to any issue in these proceedings. Clause 3 contained provisions as to the conduct of claims against MAL. By clause 4 MAL constituted Hambro to be its attorney in respect of all matters dealt with in the Pensions Deed.

5. On 14th August 1998 the Financial Services Authority ("FSA"), the successor to SIB, published guidance as to the procedures to be followed for "those categories of pension transfer and opt-out business transacted between the relevant dates that do not fall within the priority categories". Paragraph 3 stated:

"Phase 2 covers any pension transfer and opt out/non-joiner business transacted between 29 April 1988 and 30 June 1994 that does not fall within the priority categories defined by the SIB in previous regulatory guidance, and in respect of which an investor has not by the effective date of this phase 2 guidance already requested a review. Phase 2 also covers any investors who fall within the priority categories and who, having not previously responded to communications from the firm, now die, retire or decide to request a review."

In consequence the review of the priority categories set up by the SIB 1994 Review were renamed and thenceforward called 'phase 1' and 'phase 2' cases.

6. Hambro maintained that its liability under the Pensions Deed did not extend to Phase 2 cases because of the terms of clause 2.3.1.6. They contended that investors in relation to Phase 2 cases did not fall "within any class of business or category of investor requiring investigation according to the published recommendations of SIB or PIA at" 1st March 1996. MAL and MHL did not agree. On 18th June 2003 they issued the claim form in these proceedings claiming (1) a declaration to the effect that on the true construction of the Pensions Deed Hambro was liable in respect of pension transfer and opt out business transacted between 29th April 1988 and 30th June 1994 except those specified in clauses 2.3.1.1 and 2.3.1.3 of the Pensions Deed and two other limited categories and, in the alternative, (2) rectification of the Pensions Deed so as to produce that result.
7. The proceedings came before HH Judge Norris QC, sitting as a deputy judge of the Chancery Division, in July 2005. For the reasons explained in his judgment handed down on 10th February 2006 he accepted the contentions of MAL and MHL as to the true construction of the Pensions Deed and by his order dated 3rd March 2006 made a declaration to the appropriate effect. He also considered the alternative claim for rectification and made the requisite findings of fact. He concluded that, had the point arisen before him and on those findings, he would have rejected the alternative claim. Judge Norris QC gave permission to appeal on the construction point but refused such permission on the rectification point. Permission to MHL to appeal on the latter point was given by Neuberger LJ on 26th May 2006.
8. We heard full argument on the construction point on 21st November 2006. We concluded that the judge was right on that point and informed the parties that we would dismiss the appeal and give our reasons later. Accordingly, as agreed, we did not hear any argument on the rectification point. What follows are my reasons for concluding that the judge was right on the construction point.
Pensions Mis-selling and SIB Guidance
9. The Pensions Deed was executed against the background of the concern of SIB and the Self Regulating Organisations ("SROs") constituted under the Financial Services Act 1986 in relation to the selling of personal pensions to employed persons. The reason for that concern is described by the agreed witness statement of the expert instructed by Hambro in this case, Mr Steve Dixon, and the various publications issued by SIB, PIA and others. The position was admirably summarised by Judge Norris QC in paragraphs 7 and 8 of his judgment in the following terms:

"7.... In July 1988 retirement annuity contracts were replaced by a new product called a 'personal pension'. Under a personal pension the ultimate sum available for pension provision was based on the value of the fund created by the contributions made. The growth rate assumptions which providers and advisers where permitted to make meant that the anticipated returns made personal pensions apparently far more attractive than other pension arrangements. In particular, they were apparently more attractive than occupational pension schemes where the ultimate pension provision depended on (and was limited by) final salary and length of service.

8. Personal pensions became very popular amongst both the self-employed and the employed. Amongst the employed three particular types of client could be identified for whom the consequences of an inadequate comparison between a personal pension and other pension provision might be serious:

(a) active members of an occupational pension scheme who withdrew from the scheme whilst continuing in the employment that gave rise to their scheme membership, taking out a personal pension contract as a vehicle for their future pension contributions ('opt-outs');

(b) people who were eligible to join an occupational pension scheme but who decided not to do so, taking out a personal pension contract as a vehicle for their pension contributions ('non-joiners'); and

(c) active members of an occupational pension scheme who took the cash equivalent of their occupational pension scheme benefits and used that transfer value to purchase benefits under a personal pension contract ('transfers').

In relation to each of these three categories there was a risk that an accurate comparison had not been made between the two forms of pension provision: although equally there would be many cases where a rigorous comparison was made and the purchase of a personal pension was financially justifiable. But the 'pensions misselling' situation was complex. On the one hand, overoptimistic advice might equally taint the purchase of personal pensions by self-employed people, or those who took from the government a rebate of their SERPS contributions for investment in a personal pension ('rebate-onlys'), or those who made freestanding additional voluntary contributions ('FSAVCs'), or those who took out executive pension plans ('EPPs'). On the other hand, not everyone in the three categories of employee I have identified would be affected in the same way by any advice given. The effect perhaps depended on individual circumstances. For example, employees who had frequently changed job (and so would never have built up any substantial entitlement in any one occupational pension scheme) would not suffer in the same way as someone who remained in the same job. Again, there might be no causal link between the taking out of a personal pension and the advice which preceded it – perhaps because the investor was an 'insistent client' (proceeding in spite of the advice given). In other cases the effect perhaps depended on more general circumstances. For example, if the transfer was occasioned because the occupational pension scheme was in any event being wound up or because the trustees had simply determined to make the change ('bulk transfers'), or because the transfer was out of a 'money purchase' occupational scheme."

10. The SIB 1994 Review contained a Summary of Statement of Policy, a Statement of Policy and, in part II, detailed procedures for firms to follow. I have summarised it in paragraph 2 above but I should now refer to certain passages for further details.

(1) "This review of past business is expected to take firms at least two years to complete substantially and will call for a major administrative effort on their part..In determining the scale and focus of the review of past business, SIB has been guided by the principle that effort should be concentrated on those cases where investors are most likely to have suffered loss. Firms will be expected, as a priority, actively to review certain categories of business." [Summary of Policy para 2]

(2) One year from now, SIB will consider the experience and information gained from the early stages of the review work carried out by firms, and will assess with the other regulators whether further categories of business should be actively reviewed on an industry wide basis....In addition to the active review of priority categories of business any other investor who received relevant pensions advice between 1988 and 1994 may ask the investment firm to review his or her case on a similar timetable." [Summary of Policy para 3] The category of investor referred to in the second sentence are known as 'write-ins'.

(3) In paragraph 4 of the summary SIB referred to 'opt out cases'. It recognised that "identifying among the large number of personal pension policy holders those who are employed rather than self-employed will be a major administrative task for firms. SIB has come to the conclusion that the best way of eliciting this information will be for each firm to send a simple questionnaire to those investors (excluding the self-employed at that time) whose personal pension policies it arranged." The self-employed were excluded because as the only pension provision available to them were money purchase schemes the opportunities for misselling were negligible.

(4) Paragraphs 14 to 16 of the Statement of Policy SIB explained the problem with regard to opt outs and non-joiners. It set out the priority categories and target completion dates which firms should aim to meet. They were divided into three tranches dependent on age at the time of the transaction in question. In paragraphs 18 and 19 the Statement of Policy did the same in relation to transfers. In this case the priority categories were divided into two tranches.

(5) The Review Process was described in paragraphs 20 to 23. SIB explained that for analytical purposes it could be divided into a number of stages, namely "identification of the cases in question, fact gathering, compliance assessment, loss assessment and the provision of redress where due". It stated that

"A fundamental principle of the whole process is that redress will be due only where the investor...can reasonably be said to have suffered loss and the loss is caused by a material compliance fault...on the part of the firm on which he or she relied. A full assessment thus requires three questions to be answered:

i) was there a material compliance fault?

ii) is there any actual or prospective loss?

iii) if so, is the loss the result of that fault?"

11. In the light of this statement of policy PIA, the SRO of which MAL was a member, changed its rules in February 1995 in order that it might compel its members to carry out the review that SIB recommended. In April 1995 PIA issued to its members a series of process maps to indicate how the review should be carried out. They show clearly the various stages of the review. Thus, as the map specifies, the member should:

(1) identify from own records personal pension plans advised on and arranged between 1st July 1988 and 30th June 1994,

(2) exclude from further consideration any investor who was not an opt-out or non-joiner because there was no occupational pension scheme available,

(3) prioritise the remainder in accordance with the categories set out in the SIB's Statement of Policy as summarised in paragraph 10(4) above,

(4) in accordance with the priorities proceed to gather information necessary for assessment against the criteria of compliance, fault and loss.

12. On 16th January 1996 SIB issued a Progress Report in relation to the Pensions Review. It recorded that the response rate was particularly high where vulnerable groups such as public service employees or the older investors were concerned. In paragraph 17 it stated:

"No grounds have so far emerged from the work undertaken by the industry and the regulators to suggest that the priority categories established by SIB in 1994 should be changed. SIB and other regulators will keep this under review during 1996, as more information and statistics about the outcome of cases within the existing categories become available."

Other aspects of the financial background
13. In the light of parts of the judgment of Judge Norris QC there are two other aspects of the circumstances surrounding the execution of the Pensions Deed to which I should refer. The first relates to the accounts of MAL and MHL for the year ended 31st December 1995 which were approved by their Boards and signed by Mr Pirie on 27th February 1996. In December 1994 the Institute of Actuaries issued guidance to the boards of Life Offices pointing out that the Review applied in all cases so that reserves should not be restricted to prospective liabilities in a priority category. In a Technical Release issued by the Institute of Chartered Accountants for England and Wales in January 1995 it was suggested that directors of intermediaries and personal pension providers would need to include in their estimate of the total anticipated financial effect of the investigation and compensation not just those associated with priority cases. It was suggested that in non priority cases provision should be made for that proportion of cases where the pension purchasers were themselves likely to seek redress.
14. On 23rd February 1996 the actuarial department of Hambro reported that provision should be made in the sum of £550,000. In a note headed Non-Priority Business it was stated:

"According to guidance from both the Institute of Actuaries... and the Institute of Chartered Accountants....we are required not to restrict our provision to just the priority cases. Approximately 60% of the above provision relates to non-priority business."

In the event the provision was made in the accounts of Hambro, not MAL, and the provision made was £250,000 not the £550,000 reported by the actuarial department.

15. The second aspect arises from the fact, as recognised at the time, that the acquisition of the issued share capital of MAL by MHL took a form (the payment of a dividend by MAL to Hambro whereby the debt of Hambro to MAL was pro tanto repaid) which would involve an infringement of s.151 Companies Act 1985 unless the circumstances were brought within the provisions of s.155 Companies Act 1985. The latter section, by subsection (2), permits a private company, which MAL was, to give financial assistance in connection with the acquisition of its own shares

"if the company has net assets which are not thereby reduced, or to the extent that they are reduced, if the assistance is provided out of distributable profits."

16. In addition ss.155(6) and 156 required the directors of MAL to make a statutory declaration stating that

"the directors have formed the opinion, as regards the initial situation immediately following the date on which the assistance is proposed to be given that there will be no ground on which it could then be found to be unable to pay its debts; and....that the company will be able to pay its debts as they fall due during the year immediately following that date."

S.156(3) makes it plain that in forming such opinions the directors must take account of contingent and prospective liabilities. The requisite statutory declaration was made by Mr Pirie and Mr Pritchard as directors of MAL on 1st March 1996. They did so in the light of pro forma balance sheets immediately before and after completion of the sale on 1st March 1996 but in each case after the declaration and payment of the dividend. Such accounts showed net assets of £261,000. But current assets less the amounts of debts due to creditors falling due within one year showed a deficiency of £6,647.

The judgment of HH Judge Norris QC
17. After describing the nature of the claims the judge correctly directed himself [paragraph 3] that he should be careful to distinguish between facts and evidence admissible on the question of construction and those relevant to the claim for rectification. In paragraph 4 he directed himself as to the principles to be applied in determining the true construction of the Pensions Deed. In particular he noted that "excluded from the process are the negotiations of the parties and their declarations of subjective intent". No criticism is made of any of these passages. In paragraphs 5 to 29 he set out the facts and passages from the relevant documents substantially as I have already done. In paragraph 30 he stated his conclusion:

"I hold that upon its true construction the obligation imposed by the deed on [Hambro] in respect of Pension Liability was not confined to priority cases, ie those under active review at the date of the deed."

In paragraphs 31 to 39 he explained his reasons for that conclusion.

18. The judge's reasons fell into five categories which he described as (1) the extent of the problem, (2) the financial context, (3) the range of the agreement, (4) the structure of the Deed and (5) the language of subclause 2.3.1.6.
19. In relation to the extent of the problem Judge Norris observed in paragraph 32:

"The possibility of pensions misselling was a feature of many classes of business and many categories of investor. [MAL's] exposure to claims arose from its having undertaken such business. But the SIB had identified one particular type of investor (those who had the alternative of an occupational pension scheme) and three particular contexts ('opt-outs', 'non-joiners' and 'transfers') where there was a risk of potentially significant damage. The purpose of the review was to identify this 'eligible population'. Recital (C) to the deed appears to recognize this context. Within this eligible population there were some investors who were peculiarly at risk and on whom limited resources had to be concentrated: these were the subject of the active review. But it was well understood that liabilities generated by the active review of artificially defined classes could not properly be taken as the limit of exposure."

He then commented on the fact that the reserve was made by Hambro, not Mandrake, and its extent.

20. In relation to the financial context the judge dealt, in paragraph 33, with four points. The first related to the fact that MAL made no provision in its accounts against any liability for mis-selling but was, by contrast, paying a substantial dividend. He considered it possible, but unlikely, that the board of a listed company intended to strip a subsidiary of its assets without making proper provision for its liabilities. The second consideration, consequential on the first, was to the effect that following the sale of the shares in MAL its accounts would not comply with the guidance given by the Institute of Accountants for England and Wales, to which I have referred in paragraph 13 above. The third point arose from the provision of £250,000 in the accounts of Hambro in relation to both priority and non-priority cases. The judge commented that if Hambro were not liable for the non-priority cases why was it making provision for them. The fourth point related to the balance sheet of MAL prepared by Hambro for the purposes of ss.151-156 Companies Act 1985. It contained no provision for any pension mis-selling liability arising over the next 12 months or at all. Of the three possible explanations for such an omission he considered that the existence of an unqualified indemnity from a third party was the most likely.
21. In paragraph 34 Judge Norris dealt with what he described as the range of the Pensions Deed. He said:

"It is clear that the draftsman understood the scope of the review and [Hambro]'s interest in seeing that it was properly completed. The deed imposed obligations on [MAL] in relation to the review (not simply the active review) in clauses 1.1, 1.2 and 1.5. Clause 4 granted a power of attorney in relation to all matters referred to in the deed (not simply the conduct of the active review and the settlement of claims arising therefrom). One would objectively expect the rights and powers of [Hambro] under the deed to bear some relationship to its liabilities under the deed. One would not expect [MAL] to promise [Hambro] to conduct the review in accordance with the future requirements of the SIB if the conduct of the review and its outcome was of no consequence to [Hambro]. One would not expect [Hambro] to have insisted upon a power of attorney in relation to the conduct of claims where the liability for the claim rested with [MAL] and was of no consequence to [Hambro]."

22. In paragraphs 35 and 36 he dealt with the structure of the Pensions Deed. He considered that clauses 2.1 and 2.2 contained a broadly worded obligation from which clause 2.3 excluded certain classes of investor and certain types of liability. He recognised that, although each part of clause 2.3 was intended to have a real function it did not create discrete categories of exclusion because there was some overlap.
23. Judge Norris then turned to the language of clause 2.3. He recognised (paragraph 37) that this was the starting point and gave rise to a number of points not all tending the same way. First the excluded categories should not be over literally construed. Second, the phrase "category of investor" in clause 2.3.1.6 does not necessarily mean 'priority case'. Third, what was to be investigated was not the client database but "any class of business" or "any category of investor" so that it is known what or who they are before any "investigation" begins. Fourth, those classes or categories are not clear. Fifth, the phrase "published recommendations at the date of this deed" shows that it was intended to draw a line somewhere. Sixth the provisions of clause 2.3.1.7 could lead to some oddity.
24. In paragraphs 38 and 39 Judge Norris repeated his conclusion and summarised his reasons in the following terms:

"38. Trying to discern the true meaning of the deed from these clues, and reminding myself that my task is to ascertain the reasonable meaning of the agreement that the parties have made, not to make a reasonable agreement for them, I have concluded that the deed is not confined in scope in the manner suggested to the priority classes in Phase 1 together with 'write-ins'. In my judgment it extends to all pension opt out/non-joiner and transfer of business transacted between 29 April 1988 and 30 June 1994 other than those who were self-employed, were not eligible to join an occupational pension scheme, were members of group personal pension schemes, were 'rebate only' or (though this was not the subject of detailed argument) were members of defined contribution schemes.

39. The matters that have most influenced me to this view are:

(a) the industry-wide knowledge of the risk of claims from non-priority classes of investor (emphasised in the ICAEW Technical Release and in the SIB Press Release);

(b) the absence of any clear language in the deed allocating that risk to [MAL] (the structure of the deed being the assumption of a broad obligation by [Hambro] which is then qualified or made subject of exceptions);

(c) the use of language which is no less consistent with the meaning for which [MAL] contends than it is with the meaning for which [Hambro] contends;

(d) the financial context;

(e) the imposition of obligations on [MAL] in relation to and the granting to [Hambro] of control over claims by investors to whom (on [Hambro]'s reading) it was not liable;

(f) the provision of financial assistance by [MAL] to [MHL] with the active participation of [Hambro], being dependent on prospective liabilities either not existing or being covered by an indemnity.

These are the principal features: I am sure that the other matters which I have noted above have contributed to the overall understanding that I have gained from scanning the language of the document and the context in which the transaction occurred."

25. The judge noted that in the light of this conclusion the alternative claim for rectification did not arise before him but he went on to make the requisite findings of fact in case it did on appeal. In the circumstances, as I have explained, the issue of rectification does not arise in this court either. Accordingly it is unnecessary to consider any of the judge's later conclusions.
The submissions for the parties
26. Counsel for Hambro submitted that the judge was wrong. He contended that the essential point is the true meaning of the word "investigation" in clause 2.3.1.6. He submitted that it is co-extensive with 'active review' as required by the SIB 1994 Review in the case of the priority categories and the 'write-ins'. He argued that the financial context, as seen by the judge, added nothing or, in some cases, is inadmissible on the issue of construction. He accepted that if he were right on the question of construction then sub-paragraphs 1 to 5 of sub-clause 2.3.1 added nothing because they would be excluded by sub-paragraph 6 anyway.
27. On the meaning of the word "investigation" he submitted that it was a more stringent term than 'review' and was naturally to be equated with the 'active review' of the priority categories for which SIB 1994 Review provided. He suggested that Judge Norris had wrongly equated "investigation" with identification. Taking the example of the self-employed he suggested that they were not a "class of business or a category of investor" requiring any investigation for they were excluded for all purposes.
28. In relation to the various points made by the Judge in paragraph 39 of his judgment (see paragraph 24 above) he commented that in sub-paragraph (a) the judge had confused the risk of SIB extending the priority categories with the risk of write-ins. In respect of sub-paragraph (b) he suggested that it was not necessary to find clear words to limit the indemnity as the question was what on its true construction was its ambit. The factor mentioned in sub-paragraph (c) was on its face neutral.
29. In relation to the financial context he submitted that what (if any) provision the parties made in the accounts of MAL was an irrelevant or inadmissible consideration. The accounts to the year ended 31st December 1995 were no part of the factual matrix in which the Pensions Deed was agreed and executed and so were irrelevant. The balance sheet prepared as at the day before completion for the purposes of ss.151 to 156 Companies Act 1985 could only reflect the subjective understanding of MAL and MHL as to the effect of the Pensions Deed. As such it was inadmissible. In any event the requisite statutory declaration was made and there was no ground for suggesting that it should not have been made.
30. Counsel for MAL and MHL submitted that the judge was right for, essentially, the reasons he gave. He agreed that the issue was the true meaning of the phrase "requiring investigation" but submitted that it extended beyond the priority categories and write-ins. He submitted that clause 2.3.1.6 was intended to sweep up those cases not specifically excluded by the prior sub-paragraphs. He pointed to the width of the review envisaged by Recitals (C) and (D) and the fact that the words used were 'requiring investigation' and not 'active review'. He relied, as he had at the trial before Judge Norris, on the financial background and the general proposition that where one of two possible constructions would lead to illegality the court should prefer the other, see Carney v Herbert [1985] 1 AC 301, 317 and Neilson v Stewart [1991] BCC 713, 716.
31. Counsel for MAL and MHL also relied on the dictum of Staughton LJ in Youell v Bland Welch [1992] 2 Ll.L.R. 127. At p.134 he said:

"There are two well established rules of construction, although one is perhaps more often relied on with success than the other. The first is that, in case of doubt, wording in a contract is to be construed against a party who seeks to rely on it to diminish or exclude his basic obligation or any common law duty which arises apart from contract. The second is that in case of doubt wording is to be construed against the party who proposed it for inclusion in the contract: it was up to him to make it clear."

He relied on the fact that the terms of clause 2.3.1.6 were first proposed by the solicitors for Hambro.

Conclusions
32. There can be no doubt that the immediate context of and background to the Pensions Deed was the SIB 1994 Review. I have set out or described the material parts of it in paragraphs 2, 9 and 10 above. Its practical implications had also been considered in the PIA process maps referred to in paragraph 11 and the guidance given by Institute of Actuaries and Institute of Chartered Accountants for England and Wales referred to in paragraph 13. At that time there was no distinction between phases 1 and 2 for that did not arise until the publication by FSA of its 1998 Review. The SIB 1994 Review clearly showed that the review comprised the five stages of (1) identification of the cases in question, (2) fact gathering, (3) assessment of compliance at the time, (4) assessment of loss by the investor and (5) provision of redress. The priority categories were sub-sets of the 'cases in question' identified at stage 1 to whom priority should be given in implementing stages (2) to (4). They were to be subjected to an 'active review'. There was no suggestion in any of the literature dealing with the review published before the execution of the Pensions Deed that 'a case in question' not coming within a priority category was excepted from the review or was incapable of giving rise to a liability to provide redress at stage (5).
33. Recitals (C) and (D) clearly referred to the review as a whole "of the advice given on a case by case basis...since 29th April 1988" some of which might give rise to a liability. Clause 1 imposed on MAL the obligation to continue with and complete its "review of that part of its business relating to the sale of personal pension policies in accordance with the standards and requirements of SIB and PIA as published from time to time". At the date of execution of the Pensions Deed the obligation to review extended to all 'cases in question' not merely those falling into a priority category.
34. Clause 2.2 limits the 'cases in question' by reference to certain types of personal pension business, namely transfers, opt-outs and non-joiners. It does not purport to limit liability by reference to any priority category. Clause 2.3, by contrast, seeks to limit liability by reference to categories of investor. Such categories are the self-employed, those that contracted out of SERPS otherwise than in connection with an occupational pension scheme, those who are in and are to remain in an occupational pension scheme and those who bought a personal pension policy before A-day. These categories are excluded by sub-paragraphs 1 to 5. None of these exclusions is linked to the priority categories.
35. In its context clause 2.3.1.6 appears to be a sweeping up provision in relation to the classes of business dealt with in clause 2.2 and categories of investor referred to in the earlier sub-paragraphs of clause 2.3. It seems to me to be inherently unlikely that a sweeping up provision in that context should impose for the first time an exclusion by reference to priority categories. Priority categories have no bearing on 'classes of business'. Whilst they can have a direct bearing on 'categories of investor' there seems to be no good reason to exclude from the definition all those non-priority investors to whom MAL was liable when, as the published material at the time showed, the review continued to apply to them.
36. As counsel for Hambro rightly observed it all depends on the meaning to be attributed to the words "requiring investigation according to the published recommendations of SIB....at the date of this Deed". As a matter of ordinary English I do not think that "investigation" is more akin to 'active' as opposed to ordinary 'review'. Non-priority investors in the appropriate class of business did require such investigation. Had it been intended to exclude them it could so easily have been done by reference to priority categories as set out in paragraphs 16 and 19 of the SIB 1994 Review or by reference to the 'active review' envisaged by SIB in the case of those in the priority categories. But no such course was taken and there is no reason to think that it must have been intended.
37. This approach is confirmed by the further provisions of the Pensions Deed. Thus clause 2.3.4 refers to the SIB Review, not the active review. The provisions of clause 3 dealing with the conduct of claims by MAL, MHL or Mr Pirie are not limited to investors falling within a priority category. Similarly the power of attorney conferred on Hambro goes much further than would be needed if pension liabilities were limited to those investors who fell into a priority category.
38. For my part I think that the judge was right in the conclusion to which he came simply on the basis of the words used in the context of the deed as a whole and the factual circumstances surrounding its execution. I do not find it necessary to consider the parties' accounting treatment or the steps taken to comply with the provisions of s.151 to 156 Companies Act 1985. Counsel for Hambro did not seek to rely on any of them as supporting his case. In my view counsel for MAL and MHL does not need to do so. Nor in my view does any question of the application of the rules to which Staughton LJ referred in Youell v Bland Welch [1992] 2 Ll.L.R. 127 arise.
39. The foregoing are my reasons for dismissing the appeal. In the circumstances I would make no order on the cross-appeal.

Lord Justice Hooper :

40. I agree.

Lord Justice Lloyd :

41. I also agree.