ON APPEAL FROM THE CHANCERY DIVISION,
MANCHESTER DISTRICT REGISTRY
His Honour Judge Pelling (sitting as a High Court Judge)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE TOMLINSON
LORD JUSTICE BRIGGS
| (1) Mercer Limited
(2) Sedgwick Noble Lowndes Limited
|Appellants / Defendants
|- and -
|(1) Leslie Francis Ballinger
(2) Nosko Trustees Limited
|Respondents / Claimants
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Jonathan Evans QC and Bobby Friedman (instructed by Squire Patton Boggs (UK) LLP) for the Respondents
Hearing date : 24 June 2014
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Lord Justice Tomlinson :
i) Where a member of a pension scheme leaves pensionable service before he is entitled to an immediate pension, then his accrued pension rights are 'deferred' until future payment. For example, if he left employment aged 40 and is not due a pension until age 65 it is 'deferred' in the interim.
ii) Because of the effects of inflation in the intervening period, pensions are now generally 're-valued' in the interim period.
iii) Some pension schemes are 'contracted-out' of the state pension scheme. This means that the members pay reduced national insurance scheme contributions, and lose their rights to a state earnings related pension scheme ('SERPS') pension, and instead their private pension scheme must provide certain minimum benefits. In relation to benefits accrued between 1 January 1985 and 6 April 1997 those minimum benefits are the "Guaranteed Minimum Pension" or "GMP".
iv) There are specific rules on the revaluation of the GMP element of contracted-out pensions.
v) There are various different, statutory, requirements for revaluation of the element of pensions in excess of GMP, but pension schemes can also make different provision for revaluation depending on their own terms, albeit within various tax related limits.
vi) Trustees of occupational pension schemes are required to obtain an AVR at regular intervals. Each AVR contains valuations of the scheme's assets and liabilities on a number of different bases of valuation. Thus, the AVR will usually contain an "ongoing" valuation (which assumes that the scheme will continue receiving contributions and paying benefits out of scheme assets) and a "discontinuance" or "solvency" valuation (which assumes that the scheme will terminate and pay such benefits as have accrued to date, generally by the purchase of immediate and deferred annuities). Further, between April 1997 (when the relevant provisions of the Pensions Act 1995 came into force) and December 2004 (when those provisions were repealed and replaced by the current statutory funding regime contained in the Pensions Act 2004), trustees were obliged to obtain a valuation of assets and liabilities on the prescribed statutory basis known as the Minimum Funding Requirement or "MFR". The MFR valuation was often contained within the AVR, although it required separate certification.
i) Revaluation of deferred pensions in excess of GMP. The Respondents allege that the Appellants valued deferred pensions incorrectly. The incorrect rate of increase during the period of deferment (known as revaluation) was applied. The correct rate was 5% but the Appellants valued the benefit on the basis of a rate of the lower of 5% and RPI. This error is alleged in relation to each of the 1996, 1999 and 2001 AVRs.
ii) Increases to GMPs in payment. The Respondents allege that the Appellants valued GMPs incorrectly. The incorrect rate of increase once the GMP was in payment was applied. The correct rate was 3%, applicable to the entire GMP, but the Appellants valued the benefit on the basis of a lower rate of increase and/or at the correct rate, but applicable only to part of the GMP rather than the whole of it. This error is alleged in relation to the 1999 and 2001 AVRs only (the 1996 AVR was correct in this respect).
iii) Uniform accrual rate. The Respondents allege that the Appellants adopted an inappropriate assumption regarding the rate at which certain members' benefits would accrue under the Scheme. The correct rate of accrual was as stated in the rules of the Scheme for each category of member. The amount of a pension is subject to the Inland Revenue maximum limits, but a reduction is only to be applied to a member's pension if that limit is reached: in those circumstances, one way of reducing the pension so as to stay within the overall limit is to apply a reduced rate of accrual over the entire period during which the pension accrued. However, the Appellants assumed that a reduced rate of accrual applied to all members, irrespective of whether their benefits in fact infringed Revenue limits, calculated so as to ensure that all members' benefits would necessarily remain within the overriding limitations on the maximum value of their benefits at retirement age (a "uniform accrual rate" assumption). That resulted in liabilities being understated because reductions were assumed across the board, whereas only some benefits would in fact have had to be reduced. This error is alleged in relation to each of the 1996, 1999 and 2001 AVRs.
iv) Allowance for promotional increases. The Respondents allege that when valuing the Scheme's liabilities the Appellants should have included an allowance for increases in the value of members' benefits consequent on promotion to a higher salary band. Some such promotions would result in significant increases in pension benefits, because they would result in members moving to a higher accrual rate for all of their pensionable service. The Appellants made no allowance for this possible increase in liabilities. This error is alleged in relation to each of the 1996, 1999 and 2001 AVRs.
"[Request 7]: With reference to paragraph 5 of the Defence, please specify and explain the earlier [sic] date on which the Claimants or any person in whom the cause of action was vested before them first had both the knowledge required for bringing an action of damages in respect of the relevant damage and a right to bring such an action (the 'Starting Date') within the meaning of section 14A of the Limitation Act 1980.
Response: The earliest date on which the Claimants had relevant knowledge within the meaning and for the purposes of section 14A of the Limitation Act 1980 was shortly after 31 August 2007, as explained in numbered paragraph 2 of Squire Sanders (UK) LLP's [Claimants' solicitors] letter to Maurice Turnor Gardner LLP [Defendants' solicitors] dated 9 July 2013. The Claimants are unable to be more precise than this, but they did not have relevant knowledge before 31 August 2007."
i) The Category 4 Amendments sought to introduce a claim in respect of further valuations prepared by the Appellants in 2002. The Respondents allege that the valuations in 2002 contained the same errors as those that are the subject of the existing claim as described above, namely as regards the revaluation of deferred pensions, GMP increases, uniform accrual and promotional increases. In short, the Category 4 Amendments seek to plead the same errors in relation to the valuations in 2002 as are already in issue in the existing claim. The Judge gave permission for these amendments. The Appellants appeal that decision and the Respondents seek to uphold it on an additional ground, as explained below.
ii) The Category 5(i) Amendments sought to allege a further breach of duty in relation to the error regarding the uniform accrual rate assumption that is already in issue in the claim. The original claim alleges that this error was negligent because the assumption adopted by the Appellants is contrary to the rules of the scheme. The amendment sought to allege that the same error was negligent for the additional reason that, as regards each of the MFR valuations, the assumption was contrary to the prescribed MFR valuation methodology. In short, the Category 5(i) Amendments sought to allege that the same error as is already in issue was negligent for a further reason. The Judge gave permission for these amendments. The Appellants appeal that decision, but only insofar as it relates to the valuations in 2002, and the Respondents again seek to uphold it on the same additional ground, as explained below.
iii) The Category 5(ii) Amendments sought to allege a new error (pension increases). This concerns the basis on which pensions (in excess of GMP) in payment were valued. The Respondents contend that pensions in excess of GMP should have been valued on the basis that they increase in payment at 5% per annum but the Appellants valued them at a lower rate of increase, namely the lower of 5% and RPI, subject to a minimum rate of 3%. The Respondents allege that this was negligent both as being contrary to the rules of the Scheme and as being contrary to the prescribed MFR methodology. The former (rules-based) breach arises in relation to each of the 1996, 1999 and 2001 AVRs and the 2002 Valuation Letter; the latter (MFR) breach arises only in relation to the 1999, 2001 and 2002 MFR valuations – there being no MFR valuation in 1996. In short, the Category 5(ii) Amendments sought to introduce a new allegation of breach of duty, in relation to both the AVRs that are already in issue (1996, 1999 and 2001) and the valuations in 2002 that it is sought to include by these amendments. The Judge refused permission for these amendments and the Respondents seek permission to appeal that decision.
"(1) This rule applies where –
(a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and
(b) a period of limitation has expired under –
(i) the Limitation Act 1980;
(ii) the Foreign Limitation Periods Act 1984; or
(iii) any other enactment which allows such an amendment, or under which such an amendment is allowed.
(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.
(3) The court may allow an amendment to correct a mistake as to the name of a party, but only where the mistake was genuine and not one which would cause reasonable doubt as to the identity of the party in question.
(4) The court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired."
"35 New claims in pending actions: rules of court.E+W
(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—
(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and
(b) in the case of any other new claim, on the same date as the original action.
(2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either—
(a) the addition or substitution of a new cause of action; or
(b) the addition or substitution of a new party;
and "third party proceedings" means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings.
(3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor the county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim.
For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.
(4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose."
(5) The conditions referred to in subsection (4) above are the following—
(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and
(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.
. . ."
i) Is it reasonably arguable that the opposed amendments are outside the applicable limitation period?
ii) If so, do they seek to add or substitute a new cause of action?
iii) If so, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim?
"7.1 . . .the Disputed Amendments relate to 3 issues; the extension of the claims currently pleaded to include the 2002 AVR, a breach of duty in relation to the prescribed MFR valuation methodology and a breach of duty in relation to the calculation of pension increases in excess of GMP.
7.2 All these issues first came to the Claimants' attention as potential claims against the Defendants in July 2013 during the course of discussions with their expert actuary who was instructed to advise on the quantum of the claim."
1. that the Appellants had a reasonably arguable case that the new claims (i.e. those contained in the Category 4, Category 5(i) and Category 5(ii) Amendments) are all statute-barred and
2. that the Category 4 and Category 5(i) Amendments did, but the Category 5(ii) Amendments did not, arise out of the same or substantially the same facts as are already in issue in the proceedings.
1. the Respondents argue that the Judge's decision on the limitation issue was wrong and that his decision to permit the Category 4 and Category 5(i) amendments should be upheld for the additional or different reason that, the limitation period not having expired, permission should be granted under CPR 17.1(2)(b), which provides that where a statement of case has been served a party may amend it with the permission of the court;
2. the Appellants have permission to appeal the Judge's decision on the "substantially the same facts" issue as regards the Category 4 and Category 5(i) Amendments, insofar as they relate to the 2002 valuations;
3. the Respondents have permission to appeal the Judge's decision on the "substantially the same facts" issue as regards the Category 5(ii) Amendments.
"If the claimant had the knowledge relevant to the pleaded claims relating to the 1996, 1999 and 2001 AVR in or about August 2007, it is wholly unexplained why the claimant did not have or could not reasonably have acquired the same knowledge in relation to what is described by the claimants as the 2002 AVR."
"17. I now turn to the category 5 proposed amendments. Miss Lee's (sic) evidence relevant to the issue I am now considering is little more than bare assertion. It is asserted that in fact knowledge that the loss allegedly attributable to the breaches the claimant now wishes to advance were attributable to the negligence of the defendant was only acquired as a result of advice from an expert. What is not explained at all is why it was reasonable for such expert advice in relation to what, on any view, is a technically complex case, to be taken or given in July 2013, rather than prior to the commencement of the proceedings or why, if expert advice was taken prior to the commencement of the claim, that advice did not include that which it is asserted was first given in July 2013. This sort of piecemeal approach to litigation adds greatly to the length, complexity and thus the cost of litigation, involves a disproportionate use of court time as the hearing of this application demonstrates and is at least arguably contrary to the Overriding Objective as it is now formulated. In any event, the date when the claimant might reasonably have been expected to acquire the relevant knowledge will depend on a factual investigation at trial following disclosure and cross-examination. That is not possible on an application of this sort. As I have noted already, both parties asked me to determine this application as a conventional application for permission to amend.
18. In my judgment, the defendant has passed the relatively low threshold test applicable to the question I am now considering in the context of an application for permission to amend because (i) the claims are and have for some time been barred applying the six-year limitation period, (ii) an earlier date of knowledge has been asserted in relation to the claims currently pleaded without explaining, in detail and otherwise than by bare assertion, why the same date could not reasonably apply to the proposed new claim; (iii) no explanation is offered as to why the relevant knowledge could only be acquired with the help of an expert when such was apparently not the case in respect of the claims as they are currently pleaded, or (iv) if an expert was consulted prior to the commencement of proceedings why the relevant advice could not reasonably have been given at that stage."
"65. If a claimant seeks to raise a new claim by amendment and the defendant objects that it is barred by limitation, the court must decide how to proceed. There are two options. First the court could deal with the matter as a conventional amendment application. Alternatively, the court could direct that the question of limitation be determined as a preliminary issue.
66. If, as is usually the case, the court adopts the first option, it will not descend into factual issues which are seriously in dispute. The court will limit itself to considering whether the defendant has a "reasonably arguable case on limitation": see WDA at 1425 H. If so, the court will refuse the claimant's application. If not, the court will have a discretion to allow the amendment if it sees fit in all the circumstances.
67. If the court refuses permission to amend, the claimant's remedy will be to issue separate proceedings in respect of the new claim. The defendant can plead its limitation defence. The limitation issue will then be determined at trial and the defendant will not be prejudiced by the operation of relation back under section 35 (1) of the 1980 Act."
The same or substantially the same facts
"52.At first instance in Goode v. Martin  3 All ER 562 I considered the purpose of Section 35(5) in the following passage:
"Whether one factual basis is 'substantially the same' as another factual basis obviously involves a value judgment, but the relevant criteria must clearly have regard to the main purpose for which the qualification to the power to give permission to amend is introduced. That purpose is to avoid placing a defendant in the position where if the amendment is allowed he will be obliged after expiration of the limitation period to investigate facts and obtain evidence of matters which are completely outside the ambit of, and unrelated to those facts which he could reasonably be assumed to have investigated for the purpose of defending the unamended claim."
53. In Lloyd's Bank plc v. Rogers  TLR 154 Hobhouse LJ. said of Section 35:
"The policy of the section was that, if factual issues were in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts."
54. The substance of the purpose of the exception in subsection (5) is thus based on the assumption that the party against whom the proposed amendment is directed will not be prejudiced because that party will, for the purposes of the pre-existing matters [in] issue, already have had to investigate the same or substantially the same facts."
"In borderline cases this may be so. In others it must be a question of analysis."
The Category 4 Amendments
"We would need to discuss whether or not [Basis D] would be appropriate as it uses a higher equity risk premium now than as at the valuation date."
Manifestly, the Appellants would be required now to investigate the shape of the discussions which took place in response thereto. The question also arises as to whether in different financial conditions from those which had obtained earlier the scheme trustees would have had to consider reducing benefits rather than simply increasing contributions.
The Category 5(i) Amendments
The Category 5(ii) Amendments
Lord Justice Briggs :
The Master of the Rolls :