England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice 7 Rolls Building, Fetter Lane London, EC4A 1NL
		04/07/2014

The Hon. Mr Justice Popplewell :

Introduction

1. The First Claimant ("Capita Banstead") is a private company previously named FPS Group Limited. The Second Claimant ("CHBC") is a private company previously named Robert Fleming Benefit Consultants Limited. They bring a claim against the Defendant ("RFIB") under an indemnity in a share purchase agreement dated 28 April 2004 ("the SPA") by which RFIB sold the entire issued share capital in CHBC to Capita Banstead. At the relevant times CHBC carried on business as a specialist benefits consultancy, whose services included in particular providing pension scheme advice, and pension scheme management and administration services. One of its clients was the Queen Elizabeth's Foundation for Disabled People ("QEF"). CHBC gave advice and provided services to the trustees of QEF's occupational pension scheme, a defined benefits scheme known as the Queen Elizabeth's Foundation for Disabled People Pension and Assurance Scheme ("the Scheme"). QEF and the trustees of the Scheme brought a claim against CHBC for negligence and other wrongdoing in relation to the Scheme between 2000 and 2008. The QEF Claim was settled at a mediation and the settlement embodied in a written agreement dated 11 October 2011 by which CHBC agreed to pay QEF and the Scheme trustees the total sum of £3,850,000 in settlement of their claim against CHBC. Capita Banstead paid the sum due from CHBC under the settlement agreement. The Claimants also claim to have incurred £66,831.46 in legal costs in dealing with QEF's claim. Capita Banstead and CHBC seek to recover those sums from RFIB under clause 5.8.5 of the SPA which provides:

5.8 The Seller [RFIB] undertakes to indemnify and keep indemnified the Buyer [Capita Banstead] on behalf of itself and the Company [CHBC] and the Subsidiaries from any liabilities costs claims demands or expenses which any of them may suffer or incur arising directly or indirectly from ...

5.8.5 any services or products supplied by the Company [CHBC] or any of its Subsidiaries or any advice provided by the Company [CHBC] or any of its Subsidiaries (or any of their employees or agents) prior to the Transfer Date [close of business on 30 April 2004."

2. RFIB resists the claim on two grounds. First, it contends that the indemnity only bites on losses caused by wrongdoing prior to the Transfer Date, 30 April 2004, and that no more than 45% of the settlement sum is attributable to wrongdoing by CHBC prior to that date. Secondly, neither Claimant has a valid claim for that amount because CHBC's liability to QEF for the settlement sum was discharged by a payment by Capita Banstead. CHBC has no claim because it therefore suffered no loss; Capita Banstead has no claim because it was under no liability which falls within the scope of the indemnity. RFIB also disputes that either Claimant was liable for, or paid, any part of the £66,831.46 in legal costs being claimed.
3. The Claimants say that as a matter of the construction of the indemnity no apportionment falls to be made to account for events after the Transfer Date. The entirety of the QEF claim comprised a claim which arose directly or indirectly from services supplied or advice provided by CHBC prior to 30 April 2004, and the settlement concerned that claim. Those services and that advice were the effective cause of the QEF claim as a whole, and the fact that some of the events relied upon by QEF occurred after 30 April 2004 is not material. Alternatively if an apportionment falls to be made, 75% should be attributed to the period prior to the transfer as falling within the indemnity. The validity of RFIB's title to sue points is disputed.

THE QEF CLAIM

4. The claim by QEF was set out in a Protocol letter from its solicitors of 16 April 2010. The gist of the QEF Claim was as follows. QEF and the trustees were advised on all aspects of the day-to-day management of the Scheme by CHBC. CHBC's employee, Anthony Le Cras, was the consultant dealing with QEF between 2000 and 2006. The trustees, in consultation with CHBC, acting through Mr Le Cras, decided to make various amendments to the Scheme with the objective of reducing liabilities to members and therefore the cost of funding those liabilities. Those amendments were announced to members and ought to have taken effect on various dates between 6 April 2000 and 1 April 2004. The amendments and the dates on which they ought to have taken effect were:

(1) The introduction of a cap of RPI (with a maximum of 5%) for increases in pension benefits, with effect from 6 April 2000 (announced March 2000).

(2) The introduction of the same cap for revaluation of deferred pensions, with effect from 6 April 2000 (announced January 2001).

(3) A reduction of the annual accrual rate from 1/60^th to 1/80^th, with effect from 1 July 2001.

(4) A reduction of dependants' pensions on a member's death from ? to ½ with effect from 1 April 2004 (announced March 2004).

(5) An increase in the active members' contribution rate from 5% to 7%, with effect from 1 April 2004 (announced March 2004).

Formal amendments to the rules of the Scheme, signed by the trustees, were required in order to implement the proposed changes, so that the announcements issued to the members of the Scheme were ineffective. CHBC was negligent and in breach of contract in failing to ensure that the amendments were made. In addition, from April 2004 CHBC, acting through Mr Le Cras, appreciated that amendments to the Scheme rules were required, such that in making subsequent representations that the amendments were in place he was guilty of deceit. The error was appreciated by QEF in October 2007 and amendments to the Scheme rules effected on 30 July 2008. Because of the effect of s. 67 of the Pensions Act 1995, these changes could only be made prospectively, save for the increase in contributions from 5% to 7%. Save in the latter respect, as a result of CHBC's wrongdoing the liabilities of the Scheme between 1 April 2000 and 30 July 2008 were substantially greater than would have been the case if the required amendments to the rules of the Scheme had been properly made in a timely fashion. This had in turn increased the cost of funding the Scheme. The amount was estimated at £4.2 million. In addition approximately £88,000 was claimed in respect of costs.

5. Shortly before this letter QEF and the Trustees had commenced proceedings against CHBC in the High Court by the issue of a claim form on 30 March 2010. The Particulars of Claim served on 26 July 2010 articulated the claim as follows:

"2000/2001 Amendments

13. On 8 March 2000 Mr Le Cras of RFBC attended a Trustees' Meeting at Leatherhead Court at which:

a. An actuarial report in relation to MFR requirements was considered and it was noted that the Actuary had stated that it would now be possible for the Foundation to maintain the funding rate provided that the future pension increase rate was reduced from a fixed 5% per annum to RPI to a maximum of 5%;

b. Mr Le Cras was instructed to take all necessary steps so as to ensure that such an amendment to the Scheme was effected as from 1 April 2000 and to prepare a suitable announcement for issue for employees informing them of the Scheme change.

14. Thereafter an announcement prepared by Mr Le Cras dated March 2000 was issued to members. In this announcement Mr Le Cras represented that as from 6 April 2000 the Scheme had been changed so that all pension earned from 6 April 2000 would, when it was paid, increase annually by the lower of 5% or the change in the Retail Price Index each year.

15. In fact, although at the material time the Foundation and the Trustees were led to believe by Mr Le Cras that the above change in benefits had been effected by way of the announcement to members dated March 2000, this did not in fact occur. In particular Mr Le Cras:

a. Represented that the above change had been effected when this was in fact not the case;

b. Failed to take any or adequate steps to arrange for the above change to be effected, and in particular to ensure that it was incorporated into the Rules of the Scheme. Clause 16 of the Third Definitive Trust Deed dated July 1999 expressly specified the manner in which amendments to the rules were required to be made, namely in writing under the hands of the Trustees. However, negligently and in breach of duty Mr Le Cras and RFBC proceeded on the basis that amendments could be made simply by way of an announcement to members;

c. Failed to provide any advice to the Foundation and the Trustees that it was necessary to amend the rules of the Scheme in order to give effect to the above change but instead led them to believe that an announcement to members in respect of the proposed change was sufficient;

d. Failed to ensure that a change to the Scheme was effected which covered both pensions in payment and the revaluation of deferred pensions.

16. In January 2001 Mr Le Cras prepared a further announcement to members which represented that:

a. in March 2000 the intention of the Foundation and the Trustees had been that the previously fixed 5% increase rate would be changed to the lower of 5% or the change in the Retail Prices Index and that this alteration would apply both to pensions in payment and the excess over the Guaranteed Minimum Pension for members who left the Scheme prior to retirement;

b. Although the new booklet which had been issued in October 2000 covered the intended situation, the March 2000 announcement (which had been prepared by Mr Le Cras) only referred to pensions in payment;

c. Consequently the change in respect of benefits on leaving the Scheme other than by retirement would be brought into effect from 6 April 2001.

17. In fact, although at the material time the Foundation and the Trustees were misled by Mr Le Cras into believing that the above change in benefits had been effected by way of the announcement of members dated January 2001, this did not in fact occur and paragraphs 15a to 15c are repeated mutatis mutandis. In addition, even if they had been effected, Mr Le Cras negligently failed to ensure that the March 2000 amendments covered both pensions in payment and the revaluation of deferred pensions.

18. On 1 March 2001 Mr Le Cras attended a meeting of certain Trustees at which:

a. The options available in respect of the future design of the Scheme were discussed as the Foundation was unable to meet the additional cost required to maintain the then present benefit structure;

b. After examining the alternatives (including the complete discontinuance of the Scheme) it was decided that a change to money purchase accrual would be deferred but that future service pension accrual should be reduced to 1/80 from 1/60;

c. Mr Le Cras was instructed to effect the above change to the Scheme which he again incorrectly represented could be achieved by way of an announcement to members.

19. The proposed amendment referred to in paragraph 18 above was sanctioned by all trustees at their meeting on 14 March 2001.

20. In fact, although at the material time The Foundation and the Trustees were misled by Mr Le Cras into believing that the above change in benefits had been effected by way of an announcement to members, this did not in fact occur and paragraphs l5a to 15c are repeated mutatis mutandis.

2004 Amendments

21. At a meeting of the Trustees at Leatherhead Court on 8 October 2003 which was attended by Mr Le Cras it was agreed that the following changes to the Scheme should be implemented as quickly as possible: an increase in member contributions of 1% and a reduction in the spouse's pension benefit from two thirds of a member's pension to one half of the member's pension for service after the date of change. Mr Le Cras was instructed to effect the change and to prepare a suitable Notice to Members (to include figures showing the actual impact of the changes). Subsequently, it was agreed at a meeting of the Trustees on 10 March 2004 (which was attended by Mr Le Cras) that the change should be implemented by RFBC with a 2% increase in member contributions.

22, Thereafter Mr Le Cras prepared an announcement to members which was issued on 18 March 2004 and which incorrectly represented that the following amendments to the Scheme and its practice would take effect from 1 April 2004 in order to ensure the future viability of the Scheme:

a. The rate of employees' contributions would be increased from 5% to 7%;

b. The dependants' pensions would be reduced by two thirds to one half so as to bring it in line with most other schemes;

c. No early retirements from the Scheme would be permitted for the foreseeable future.

23. The change referred to at paragraph 22c above was a change in practice and did not require an amendment to the Rules of the Scheme. By contrast, the changes at paragraphs 22a and 22b above did require such amendment but Mr Le Cras failed to ensure that the changes referred to at paragraphs 22a and 22b above were effectively implemented on or before 1 April 2004 and/or failed to give the Foundation and the Trustees adequate advice in relation to the same.

24. On 6 April 2004 Mr Le Cras instructed Burges Salmon to prepare a deed of amendment in relation to the Scheme to reflect the contribution and benefit changes announced to members in March 2004.

25. On 14 April 2004 Burges Salmon sent a letter to Mr Le Cras advising him, amongst other things, as follows:

"In relation to the effective date for the changes, I should mention at this stage that, in my view, the earliest date these changes can become effective is the date on which the deed of amendment is signed. To give the deed retrospective effect would require the consent of the members under section 67 of the Pensions Act 1995 due to the adverse effect the amendment would have on rights and entitlements accrued in respect of members prior to the date of the amendment..."

26. Thus by 14 April 2004 Mr Le Cras was aware (if he was not so aware before) that (a) intended changes to benefits could not be made by way of announcement to members and (b) the rules could not be amended with retrospective effect so as to adversely affect members' existing rights without raising section 67 issues. Mr Le Cras should have but failed to immediately (on receiving this advice) advise the Trustees of the same and further failed to advise them that the 2000/2001 amendments had not in fact been effected.

27. On 22 April 2004 Mr Le Cras provided Burges Salmon with, amongst other things, copies of the Announcements to Members dated March 2000 and January 2001 together with details of the further changes intended to have been effected in July 2001. He requested that Burges Salmon include such changes in the Deed of Amendment which they were preparing. He further requested that Burges Salmon delete or amend Clause 5 of the then existing draft Deed of Amendment which related to the effective date of the changes.

28. On 10 May 2004 Burges Salmon sent a revised draft deed of amendment to Mr Le Cras for his approval under cover of a letter which stated, amongst other things, as follows:

"...the effective dates for the amendments in the deed are those stipulated in the announcements in accordance with your instructions..,.

...As you know we have expressed reservations about making the amendments retrospective in view of section 67 of the Pensions Act 1995 but you have instructed us to make the amendments retrospective. You have also confirmed that the actuary has said he is prepared to give a certificate. We have drafted the amendments on that basis but express no view as to whether they are legally watertight"

29. Mr Le Cras again failed to forward the above letter to the Foundation and the Trustees and omitted to inform them of the content of the above advice.

30. During June and July 2004 Burges Salmon sent four further drafts of the proposed deed of amendment to Mr Le Cras. On the basis of the documentation provided to the Claimants to date, this correspondence culminated in an email dated 5 July 2004 from Burges Salmon to Mr Le Cras confirming that the changes requested by him had been made and requesting his instructions in relation to two outstanding issues (namely whether there were any Dorincourt members and the potential payment period for childrens' pensions).

31. The Claimants have not to date been provided with any documentation to show that Mr Le Cras responded to the above request for instructions (as he ought to have done). Further the draft Deed was not provided to the Foundation and the Trustees so as to enable the changes to the Scheme to be effected nor were the Foundation and the Trustees provided with any advice in relation to the effect of the failure to execute the Deed. Instead, as set out in paragraphs 32 and 33 below, Mr Le Cras continued to make positive representations to the Foundation, the Trustees and Members that the intended changes had been validly made (when he was expressly aware that this was not the case).

Material Events after 2004

32. At all material times after July 2004 until he left RFBC's employment, Mr Le Cras continued to falsely, alternatively negligently, misrepresent that the changes to the Scheme referred to in paragraph 12 above had been validly made.

33. In particular:

a. The minutes of the Trustees meeting held on 13 April 2005 (which were prepared by RFBC and circulated under cover of a letter from Mr Le Cras dated 6 July 2005) represented at paragraph 7 that "the Scheme had reduced accrual rate from 60ths to 80ths in 2001";

b. During late 2004/2005 Mr Le Cras produced an updated version of the guidance booklet issued to members of the Scheme which purported to state the position in relation to the Scheme as at September 2004. Mr Le Cras prepared the booklet on the basis that each of the changes referred to in paragraph 12 had been validly effected when he in fact knew this was not the case;

c. In October 2005 Mr Le Cras failed to correct the Scheme Actuary's assumption that the changes referred to in paragraph 12 had been effected as set out in the draft actuarial valuation as at 6 April 2005 which was discussed at the 12 October 2005 Trustees' meeting;

d. In a letter to the Foundation dated 5 December 2005 Mr Le Cras reiterated that reductions to benefits had been made in 2001 and 2004 despite being aware that those changes were not effective.

Breaches of duty/negligence/deceit/misrepresentation

34. Acting on, and in reliance upon the advice provided and the representations made by RFBC (and in particular Mr Le Cras), the Foundation and the Trustees did not take any steps to obtain legal or other professional advice in respect of the intended Scheme changes which they reasonably assumed, on the basis of the false, alternatively negligent, representations made by Mr Le Cras had been effectively implemented. It was only in or about October 2007 that the Claimants first became aware that this was in fact not the case when Burges Salmon advised them of this (following Burges Salmon having chased for payment in respect of the work carried out in relation to the draft Deed in 2004 and the Foundation having queried what work the outstanding invoice related to).

35. At this stage the Foundation and the Trustees became aware that Mr Cras [sic] and RFBC had not taken any or any adequate steps to ensure that the changes were validly effected from the intended dates and paragraphs 13 to 33 above are repeated.

36. Mr Le Cras knew that the representations identified in paragraph 33 above were false or did not believe them to be true or was reckless as to whether they were true or not, and accordingly was guilty of the tort of deceit for which RFBC is responsible.

37. Further or in the alternative, RFBC, by Mr Le Cras, was negligent in making the above statements and representations and/or acted in breach of contact and/or negligently in failing to give the Foundation and the Trustees competent advice and/or to manage the Scheme competently.

PARTICULARS

a. Paragraphs 15, 17, 20, 22, 23, 26, 29, 31, 32 and 33 above are repeated;

b. Failing to ensure that the changes to the Scheme referred to in paragraph 12 above were properly incorporated into the rules of the Scheme and validly effected;

c. Failing to inform and/or advise the Foundation and the Trustees that the changes referred to in paragraph 12 above had not been validly effected or properly incorporated within the rules of the Scheme and/or that section 67 of the Pensions Act 1995 affected the extent to which such amendments could be backdated to the date when they ought to have taken effect;

d. Advising the Foundation and the Trustees that the changes referred to in paragraph 12 had been validly effected when it was aware this was not in fact the case. The Claimants' primary position is that such representations were made in circumstances where Mr Le Cras knew that they were incorrect or where he had no belief in the truth of the same or where he was reckless as to whether they were correct. Alternatively such representations were negligently made;

e. Failing to obtain legal advice in respect of the intended changes to the Scheme's rules prior to April 2004;

f. Failing to advise the Foundation and the Trustees of the legal advice received;

g. Failing to advise the Foundation and the Trustees of RFBC's own prior breach of contract and negligence in light of the advice received from Burges Salmon in April 2004 and/or of their right to take independent advice in relation to the same;

h. Failing to ensure that the draft Deed produced by Burges Salmon was produced and provided for execution by 1 April 2004, and when it was produced failing to ensure that the same was finalised and executed as soon as possible;

i. Failing to advise the Foundation and the Trustees that the Scheme's liabilities were substantially greater than they had understood to [sic] the case in light of the failure by RFBC to validly effect the intended changes.

38. Yet further, by virtue of section 2(1) of the Misrepresentation Act 1967 the Claimants are entitled to and claim damages in respect of the misrepresentations set out above.

Loss and Damage

39. Had the Claimants been properly advised and/or had RFBC acted with reasonable skill and care, the proposed amendments to the Scheme would have been implemented by the dates referred to in paragraph 12 above (save for the proposed amendment referred to at paragraph 12b which should have been implemented by 6 April 2000).

40. As set out above, the purpose of the amendments referred to in paragraph 12 above was to reduce the Scheme's liabilities and the cost of funding such liabilities but this did not occur.

41. In order to seek to mitigate their losses the Claimants have;

a. sought legal advice in relation to the possibility of retrospective amendments in respect of the matters referred to in paragraph 12 being made but, save in relation to the change to the contribution rate, have been advised that there is no realistic prospect of this being achieved. The effect of section 67 of the Pensions Act 1995 is that it is not possible to make amendments which adversely affect any member in respect of his or her accrued rights without obtaining (i) the member's consent or (ii) a certificate from the Scheme Actuary to the effect that the member is not prejudiced by such amendment. The latter does not apply in the present case and the members' consent has been sought but was not forthcoming;

b. put in place a Deed of Amendment on 30 July 2008 effecting all of the changes which should previously have been put in place by RFBC so as to prevent further losses being incurred after that date and recording that the change in the contribution rate was effective from 1 April 2004 onwards.

42. Thus, by reason of the matters aforesaid, the Claimants have suffered loss and damage.

PARTICULARS

a. Difference in the Scheme's liabilities between 6 April 2000 and 30 July 2008 and cost of funding such liabilities. Expert evidence will be provided in this regard in due course but the loss is presently estimated as being in the region of £4,200,000;

b. Costs incurred in seeking to mitigate the above losses: approximately £88,000.

43. In the premises RFBC is liable to pay damages to the Foundation and the Trustees for its breaches of contract and/or breaches of duty and/or deceit and/or the misrepresentations referred to above.

Limitation

44. If and to the extent that RFBC seeks to contend that any claim in relation to the 2000/2001 amendments is statute barred, any applicable limitation period had in fact not expired as at the date of the issue of the present claim by reason of the following:

a. RFBC's continuing breaches of contract and/or negligence in relation to the 2000/2001 amendments which continued into 2004 and beyond as set out in paragraphs 21 to 32 above; and/or

b. Section 14A of the Limitation Act 1980 pursuant to which the Claimants did not have the requisite knowledge until in or about October 2007;

c. Section 32 of the Limitation Act 1980 by reason of Mr Le Cras's deliberate concealment of the facts relevant to the present cause of action."

6. Nabarro LLP were instructed to defend the claim. They were retained jointly by CHBC and RFIB against the background of a dispute whether the indemnity responded to any part of the claim. The relevant allegations in the Defence can be summarised as follows:

(1) Legal & General, the Scheme's administrators, were responsible for advising on the procedure necessary to effect amendments.

(2) Mr Le Cras was aware at all material times of the need to document changes to the Scheme by means of a rule amendment and that changes to benefits could not be made by way of announcement to members; it was not admitted that he knew that such changes could not be made retrospectively.

(3) The allegations in deceit were denied.

(4) The trustees were contributorily negligent in failing to appreciate the need for a formal rule change.

(5) QEF and the trustees failed to act reasonably to mitigate the loss by executing a formal amendment as soon as the problem was identified in October 2007.

(6) There was a limitation defence in respect of breaches or losses occurring prior to 30 March 2004, being six years prior to commencement of the claim. The three ways of avoiding such limitation averred by paragraph 44 of the Particulars of Claim were disputed.

7. Following disclosure, the claim was settled at the second day of a mediation on 11 October 2011, by execution of a settlement agreement of that date under which CHBC agreed to pay £3.85m in full and final settlement within 28 days. The mediation was attended by lawyers from Plexus Law representing the interests of CHBC, and Nabarro LLP as solicitors on the record for CHBC and representing RFIB's interests. In a letter dated 11 October 2011 delivered by hand during the mediation RFIB stated that it considered the terms to be a reasonable settlement, and requested that Capita Banstead should do all things necessary to ensure that a binding settlement agreement on those terms was entered into between QEF and CHBC. It is not surprising therefore that before me RFIB did not dispute that the £3.85m was a reasonable settlement of QEF's claim.
8. Before me the parties put in evidence much of the written material relevant to the QEF allegations and the CHBC defences on liability. I had no evidence from Mr Le Cras. I had no evidence supporting the quantum of QEF's claim. I had no evidence of the attitude taken by either RFIB or CHBC at the time of the settlement to the strengths or weaknesses of particular aspects of the claim or defence, nor as to any internal apportionment of the settlement sum in that respect. On the basis of the material before me I have reached the following conclusions about the QEF claim and the settlement.
9. The claim was a very strong one which was likely to succeed. The only defence with a real prospect of success was the mitigation argument. I attribute the reduction of the claim from almost £4.3 million to £3.85 million to the strength of this argument. Once the problem had been identified by QEF in October 2007, a formal amendment to the Scheme Rules should have been executed by 1 December 2007. The settlement sum therefore falls to be treated as referable to losses suffered between 1 April 2000 and 1 December 2007.
10. By the Transfer Date, 30 April 2004, CHBC had been in breach of contract and duty in respect of all the amendments in failing to ensure that they were effectively made by a formal amendment to the Scheme rules prior to the date on which they were intended to have effect i.e. 6 April 2000, 1 July 2001 and 6 April 2004 respectively.
11. CHBC was also in continuing breach of duty in this respect from day to day throughout the period from the Transfer Date to December 2007. The nature of CHBC's retainer, set out in a Services and Fees Agreement dated 1 July 1995, was that it had a continuing role in advising and assisting the trustees and QEF in relation to the Scheme, which included considering the changes previously made, or purportedly made, and considering the implementation of the amendments in the context of subsequent dealings with the trustees. This is apparent from the activity which founded QEF's misrepresentation claim, which involved Mr Le Cras adverting to the previous changes for the purposes of subsequent dealings with the trustees and members of the Scheme. It is also apparent from the activity in the period immediately before and shortly after the Transfer Date. From the end of March 2004 Mr Le Cras had liaised with Burges Salmon who were instructed to include the April 2004 amendments in a draft deed of amendment to the Scheme rules to be executed by the trustees. By 19 April 2004 his instructions included the drafting of amendments to reflect the 2000 and 2001 changes. Discussions with Burges Salmon continued sporadically until July 2004. The last relevant communication appears to have been a letter of 20 September 2004 from Burges Salmon in which the latter notified Mr Le Cras that the partner previously handling the matter had left the firm and asking whether the draft deed of amendment he had sent by email on 5 July was ready to be finalised or whether any further changes were necessary. This is a case which falls on the Midland Bank side of the line (Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] Ch 384) as distinct from one concerned with a retainer to advise on, or carry out, a single transaction such as that in Bell v Peter Browne Co [1990] 2 QB 495 or Nouri v Marvi [2011] PNLR 7. CHBC's retainer included a duty to assist in maintaining a state of affairs, namely that the scheme in force from time to time should reflect the decisions of the Trustees. As such it involved a continuing duty in the sense explained by Dixon J in Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221 at 236:

"If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being forever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided. The distinction may be difficult of application in a given case but it must be regarded as one depending upon the meaning of the covenant."

12. The claim against CHBC based on deceit by Mr Le Cras after the Transfer Date was a strong one. The instances of misrepresentation relied on by QEF were supported by the documents before me, the first of which was the production in late 2004 or 2005 of an updated version of the guidance booklet issued to members of the Scheme purporting to state the position at September 2004. All the misrepresentations took place after the Transfer Date. As to Mr Le Cras' mental state, I bear in mind the heightened cogency of evidence which is necessary for a finding of fraud in this context, and that I have not heard any evidence from Mr Le Cras. Nor have I necessarily had sight of all the evidence which bears on the issue. I should not therefore be taken to be making a finding of fraud. Nevertheless the content of Burges Salmon's letter of 10 May 2004 suggests that the deceit allegation was a strong one. By letter of 14 April 2004, Burges Salmon had advised that the 2004 amendments (which at that stage were the only ones they had been asked to include in a deed of amendment to the Scheme rules), could not become effective before the deed of amendment was signed because of the effect of section 67 of the Pensions Act 1995. In Burges Salmon's letter of 10 May 2004 enclosing a draft deed of amendment for approval, they recorded that they had drafted the deed as purporting to make the changes retrospective (now including the 2000 and 2001 changes) notwithstanding that they had expressed reservations about the efficacy of that approach in the light of s. 67 of the Pensions Act 1995; and that they had done so on the instructions of Mr Le Cras who had confirmed that the Scheme actuary was prepared to provide a certificate. I had no evidence that the Scheme actuary was prepared to or did provide any such certificate, and it is common ground that he could not properly have done so. When taken in conjunction with the admissions made in the Defence that Mr Le Cras appreciated that a formal amendment to the Scheme rules was required in order to render changes effective, this strongly suggests that Mr Le Cras must have been aware from at least this stage that the changes had not been effectively made and could only be made effective prospectively by a formal amendment to the Scheme rules (with the exception of the 5% to 7% increase in contributions amendment which Burges Salmon correctly advised could be made retrospectively).
13. The limitation defence would have failed irrespective of such deceit; s. 14A of the Limitation Act 1980 would have applied, and the allegation of a continuing breach of duty was an answer to the limitation defence in respect of losses after 30 March 2004.

The scope of the indemnity

14. The principles applicable to construction of contracts in general are well known. I gratefully adopt the recent summary by the Chancellor in Napier Park European Credit Opportunities Fund Limited v Harbourmaster Pro-Rata Clo 2 BV [2014] EWHC 1083 (Ch):

"36. The principles of interpretation of documents have been the subject of continuous judicial refinement over many years. The period of modem development may he said to have begun with Lord Wilberforce's speeches in Prenn v Simmonds [1971] 1 WLR 1381 and Reardon Smith Ltd v Yngvar Hansen-Tangen (The Diana Prosperity) [1976] 1 WLR 989. Particularly important milestones since then have been Lord Hoffmann's summary of general principles in Investors compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 (subsequently qualified by him in Bank of Credit and Commerce International SA v Munawar Ali [2001] UKHL 8, [2002] 1 AC 251 Lord Hoffman's speech in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 and Lord Clarke's judgment in Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900. In the course of oral submissions I was also referred to Re Sigma Finance [2009] UKSC 2, [2010] 1 All ER 571 (SC), [2008] EWCA Civ 1303, [2009] BCC 393 (CA), Pink Floyd Music Ltd v EMI Records Ltd [2010] EWCA Civ 1429, [2011] 1 WLR 770, BMA Special Opportunity Hub Fund Ltd v African Minerals Finance Ltd [2013] EWCA Civ 416, Lewison, The Interpretation of Contracts (5^th ed), and Lord Grabiner QC, The Iterative Process of Contractual Interpretation, (2012) 128 LQR 41. Further authorities were cited in the skeleton arguments. Leaving implied terms to one side, the reported cases present a reasonably coherent jurisprudence although there will always be some cases where the application of the law gives rise to difficulty and understandable disagreement between judges as well as the parties.

37. I do not intend, and it would be unwise of me, to attempt a comprehensive statement of the principles of contractual interpretation to be derived from the case law. For the purposes of the present proceedings, the following points are of particular relevance. Firstly, the overriding objective of the interpretation of a contract is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (excluding, for policy reasons, prior negotiations and declarations of subjective intent). Secondly, in carrying out that exercise the starting point is always the ordinary, natural and grammatical sense of the language used by the parties in its context because the assumption is that people usually intend the words they use to have their natural and ordinary meaning. The context includes the document and the transaction as a whole. Where it is clear from the context that the parties have adopted a specialist vocabulary, the starting point is the natural and ordinary technical meaning of the specialist terms. Thirdly, in cases where in its context the language used is ambiguous, in the sense that it is capable of bearing more than one meaning, that interpretation is to be preferred which is most consistent with business common sense, that is to say most consistent with the commercial purpose of the transaction. Fourthly, where it is clear both that a mistake has been made in the language used and what a reasonable person would have understood the parties to have meant, the contractual provision must be interpreted in accordance with that meaning. Fifthly, if the words in their context are unambiguous and it cannot be said that something must have gone wrong with the language, then, subject to a successful claim to rectification, the court must apply that unambiguous meaning even though some other language or meaning would be more commercial. The fact that it would produce a poor bargain for one of the parties is not sufficient to adopt another meaning. The objective of interpretation is to interpret the contract and not to re-write it in the light of hindsight and the judge's, let alone one party's, own notion of what would have been a reasonable solution if the parties, as reasonable people, had ever thought about it."

15. Terms which are relied on to exempt a party from the consequences of his own negligence, or to indemnify him against loss caused by such negligence, have received special treatment. A threefold test was propounded in the judgment of Lord Morton when delivering the advice of the Privy Counsel in Canada Steamship Lines v R [1952] AC 192, by which if a clause was wide enough to cover negligence but contained no express reference to negligence, it was not to be construed as exempting liability for negligence if there was any other potential basis of liability which fell within its wording, which was other than fanciful. In Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165 this principle was held to apply equally to indemnity clauses. The Canada Steamship approach has been the subject matter of consideration by the House of Lords in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964, and HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349 and more recently by the Court of Appeal in Lictor Anstalt v Mir Steel UK Ltd [2013] 2 All ER (Comm) 54, from which I derive the following principles:

(1) A clear intention must appear from the words used before the Court will reach the conclusion that one party has agreed to exempt the other from the consequences of his own negligence or indemnify him against losses so caused. The underlying rationale is that clear words are needed because it is inherently improbable that one party should agree to assume responsibility for the consequences of the other's negligence: Smith at p. 168D-E; Ailsa Craig at p. 970; HIH at [11], [63]; Lictor at [36].

(2) The Canada Steamship principles are not to be applied mechanistically and ought to be considered as no more than guidelines; the task is always to ascertain what the parties intended in their particular commercial context in accordance with the established principles of construction: Smith at p. 177; Ailsa Craig at p. 970; HIH at [11], [61]-[63], [116]; Lictor at [35]. They nevertheless form a useful guide to the approach where the commercial context makes it improbable that in the absence of clear words one party would have agreed to assume responsibility for the relevant negligence of the other.

(3) These principles apply with even greater force to dishonest wrongdoing, because of the inherent improbability of one party assuming responsibility for the consequences of dishonest wrongdoing by the other. The law, on public policy grounds, does not permit a party to exclude liability for the consequences of his own fraud; and if the consequences of fraudulent or dishonest misrepresentation or deceit by his agent are to be excluded, such intention must be expressed in clear and unmistakeable terms on the face of the contract. General words will not serve. The language must be such as will alert a commercial party to the extraordinary bargain he is invited to make because in the absence of words which expressly refer to dishonesty the common assumption is that the parties will act honestly: HIH at [16], [68]-[75], [97].

16. The critical words in clause 5.8.5 of the SPA are "liabilities…[or]…claims….arising directly or indirectly from…any services…or any advice provided by [CHBC]...or any of their employees… prior to the Transfer Date". An indemnity against claims is what Brandon LJ in Comyn Ching & Co Ltd (1979) 17 BLR 47, 92 described as a somewhat telescopic expression which means an indemnity against losses sustained as a consequence of claims.
17. In my judgment RFIB is correct in its contention that the clause draws a line between wrongful conduct before and after the Transfer Date. It confines the scope of indemnity to liabilities or losses whose effective cause is wrongful conduct prior to the Transfer Date.
18. The commercial context is an SPA in which the price was paid for a business which was thereafter Capita Banstead's to do what it wanted with. The vast majority of the consideration was not dependent upon the future performance of the business: the fixed element of the price was £1.7m; a relatively small adjustment fell to be made in the form of additional consideration if the 2005 trading income surpassed certain thresholds. This resulted in further payments totalling £150,000. Conduct after the Transfer Date could not reduce the price receivable by RFIB. After the Transfer Date, Capita Banstead assumed responsibility for the running of the business and had the power to supervise and control the behaviour of its employees. RFIB had no such power or control after the Transfer Date. The allocation of risk inherent in such a transaction is that the consequences of the conduct of employees after the transfer, including any losses which that conduct might cause to the business, are for the buyer's account.
19. Therefore, as one would expect, the words "services or products supplied…or any advice provided…prior to the Transfer Date" direct attention to when the relevant conduct occurs, drawing a line at the time at which the commercial allocation of risk changes from seller to buyer. The clause does not refer to wrongdoing as such; it only requires (a) services/advice provided before the Transfer Date and (b) whatever causal link between the services/advice and the liability or claim is connoted by the words "arising directly or indirectly from". There can be no claim or liability, however, within the scope of the clause, without some conduct which founds the claim or liability, and wrongdoing is here just a shorthand for such conduct, even if gives rise to strict liability which does not require proof of fault. The natural reading of the clause is that the conduct prior to the Transfer Date, in the form of provision of services or advice, must be the wrongdoing which "directly or indirectly" causes the loss or liability.
20. The scope of this causal link takes its colour from the nature of the clause. When applied to claims or liabilities, it is to indemnify against liabilities which are imposed as a result of the conduct in question, or against claims which give rise to losses which are recoverable as a result of the conduct in question. The words "arising directly or indirectly from" require a causal link which is sufficient to make the wrongdoing legally causative of the liability. It includes the words "or indirectly" to make clear that it provides the widest link allowed by the law in establishing liability for the relevant conduct. It covers, for example, liability for losses within the second limb of Hadley v Baxendale, which is commonly a head intended to be connoted in exclusion clauses by the expression "indirect losses" (see the summary in Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] 1 All ER (Comm) 750). But it cannot encompass a test of causation more remote than that. It cannot cover conduct which merely sets the background, or is causative merely under a "but for" test of causation. The conduct must be a real and effective cause of the liability or the loss consequent on the claim.
21. This would be the natural construction of the clause in its commercial context even if the conduct in question gave rise to some form of strict liability. Breach of a statutory regulation as the foundation for liability would naturally fall for the buyer's account if the conduct which gave rise to the liability took place after the transfer. The approach to construction exemplified by Canada Steamship makes this all the more so where the conduct in question is negligence, because it is inherently improbable in this commercial context that a seller should agree to indemnify a buyer against liabilities incurred by negligence of the employees of the business whilst the business is under the supervision and control of the buyer. The inherent improbability becomes more extreme if the conduct in question is dishonest or involves intentional wrongdoing.
22. Before moving on from this aspect of the argument, I should record that Mr Kitchener QC relied on the fact that clauses 5.9.2 and 5.13 of the SPA gave the buyer an absolute right to handle the conduct of disputes concerning fraud or gross negligence falling within the scope of the clause. These made it clear that the indemnity was intended to cover intentional wrongdoing, which, it was submitted, would make it all the more improbable that the indemnity should extend to the consequences of wrongdoing after the Transfer Date. I do not consider that this advances the argument. Even without the reference in the dispute handling clauses, it must have been envisaged that claims or liabilities might arise from the fraud or intentional wrongdoing of employees. The allocation of responsibility for such liabilities can be determined by construing the indemnity clause itself in accordance with the well established principles of construction.
23. The analysis thus far is not, however, dispositive of the issue in the case. It is well known that a loss may have two or more effective causes, or as they are termed in the insurance context, proximate causes. The losses after the Transfer Date fall into this category. CHBC had been in breach of contract and duty in respect of all the amendments in failing to ensure that they were effectively made by a formal amendment to the Scheme rules prior to the date on which they were intended to have effect i.e. 6 April 2000, 1 July 2001 and 6 April 2004 respectively. Those breaches were a continuing effective cause of the losses throughout the period after the Transfer Date. The losses after 30 April 2004 were also proximately caused by CHBC's wrongdoing thereafter in the form of the continuing breaches of duty and the misrepresentations which founded QEF's claim in deceit. Mr Kitchener argued that the chain of causation for the pre Transfer Date conduct was broken by what was at least gross negligence on the part of Mr Le Cras after the Transfer Date. He relied on a dictum of Henry LJ in Webb v Barclays Bank Plc [2001] EWCA Civ 1141 at [55], endorsing the view of the editors of Clerk & Lindsell on Torts that in a claim for personal injuries only medical treatment so grossly negligent as to be a completely inappropriate response to the injury inflicted by the defendant should be treated as sufficient to break the chain of causation. That remark was made in a completely different context and is of no relevance to the causation question in this case. The post Transfer Date losses would not have occurred but for the pre Transfer Date wrongdoing, and would not have occurred but for the post Transfer Date wrongdoing. Each was an effective cause of the losses.
24. The question which therefore arises is whether the clause responds to losses flowing from liabilities with two efficient and effective causes, one being wrongdoing before the Transfer Date and the other wrongdoing after it. Although the clause is concerned with the date of conduct rather than the date of the losses caused by that conduct, no distinction need be made in the circumstances of this case between the date of the wrongful conduct and the date of the losses, because immediately after the Transfer Date CHBC was in continuing breach of duty which gave rise to the continuing losses on a day to day basis.
25. Helpful guidance is to be found in the approach of Hobhouse J and the Court of Appeal to an indemnity clause in EE Caledonia Ltd v Orbit Valve Co Europe [1994] 1 WLR 221; [1994] 1 WLR 1515. In that case the operator of the Piper Alpha platform sought to recover in respect of its liability to the estate of a service engineer, Mr Quinn, who died in the disastrous fire. Mr Quinn was an employee of the defendant company which had contracted to provide the services he was performing. The contract contained a mutual exemption and indemnity clause, of some complexity, under which, broadly speaking, each party agreed to assume responsibility for losses consequent on the personal injury or death of its own employees. The clause was construed as not extending to losses due to the negligence of the claimant, applying the Canada Steamship principles of construction. The fire, and therefore the liability to the deceased's estate, had been caused by conduct on the part of the claimant which constituted both negligence and a breach of statutory duty giving rise to strict liability. The scope of the clause covered strict liability. Hobhouse J and the Court of Appeal rejected the claimant's argument that it was sufficient to engage the indemnity that one ground for liability, apart from negligence, was strict liability under statute. Both courts did so by an analysis of causation.
26. Hobhouse J said at p. 231G-232D:

"The question is one of construction but is not one which derives much assistance from a detailed analysis of the language of article 10(b). That clause makes no reference to statutory duties or to negligence. The question which I have to consider arises from the rules of construction which I have to apply to that clause and the principles upon which those rules of construction are based.

I consider that the plaintiffs' arguments cannot be accepted. Where there are concurrent causes, each cause is a cause of the consequent event. If the event would have occurred in the absence of a particular fault, that fault is not a cause of the event. Accordingly, it is not correct to say in the present case that the plaintiffs were liable in respect of the death of Mr. Quinn because of the breaches of statutory duty; they were liable because of the breaches of statutory duty and the negligence of their servant. It was the concurrent effect of both those causes that gave rise to the death of Mr. Quinn and without either of those causes that death would not have occurred and the plaintiffs would not have been liable. Therefore the correct question remains whether the plaintiffs have a right to an indemnity from the defendants in respect of a liability of which a cause was the negligence of one of their servants. It is still necessary to ask whether, as a matter of the construction of the clause, it does cover such liability.

For the purposes of considering the first question I have already quoted from judgments which state the principle to be applied. The principle is that in the absence of clear words the parties to a contract are not to be taken to have intended that an exemption or indemnity clause should apply to the consequences of a party's negligence. Applying that principle and adopting a correct understanding of causation, the parties to a contract such as that with which I am concerned should not be taken to have intended that a party whose servant has been negligent should be entitled to an exemption or an indemnity although there has also been, as a concurrent cause of the relevant loss, a breach of a strict statutory duty. The principle still applies."

27. In the Court of Appeal Steyn LJ said at p. 1524H-1526B :

"I agree with the judge that on the supposition that article 10(b) does not apply to negligence, there is still a question of interpretation to be addressed, namely whether, despite their negligence, the plaintiffs are nevertheless entitled to an indemnity by the defendants. I further agree that the judge answered that question correctly. I would, however, express my reasons for that conclusion somewhat differently.

I start with the question of causation. This aspect must be approached on the basis that the facts set out in the points of claim and in the affidavit of Mr. Christopher Sprague (the plaintiffs' solicitor) are assumed to be correct. That is how the matter came before the judge, and that is how it was placed before us. On those assumed facts we are not concerned with the notions of causa sine qua non or other abstruse theories of causation. The law is concerned with practical affairs and takes a common sense view. On the assumed facts there were two concurrent causes, each of which was in the eye of the law effective to cause the event which led to Mr. Quinn's death. The plaintiffs' negligence was an effective cause of Mr. Quinn's death and the plaintiffs' breaches of statutory duty were also an effective cause of Mr. Quinn's death.

That brings me directly to the issue of construction. It seems to me right to approach the interpretation of article 10(b) not in a technical way but in the way in which the commercial parties to the agreement would probably have approached it. The observations of Lord Diplock in Photo Production Ltd. v. Securicor Transport Ltd. [1980] AC 827, 85lF-G, encourage me to think that such an approach to the construction of article 10(b) is realistic. And the supposition is that article 10(b) does not apply to negligence. Given this premise it seems realistic to view article 10(b), operating as it does by way of reciprocal exceptions and indemnities, as an agreed distribution or allocation of risks. The rationale was that each party would bear the risk in respect of his own property and employees. To the extent that they released each other from liability, they thereby contractually assumed the risk. But article 10(b) should be construed as containing a reservation of each party's right to sue the other in negligence, and a correlative agreement that the indemnities would not avail either if so sued in negligence. Properly construed article 10(b) provides that each party shall bear and assume the risk of his own negligence. If the approach I have adopted is correct, as I believe it is, the consequence is that article 10(b) should be construed as providing that the indemnities are not applicable if the event in question has been caused not only by a party's breach of statutory duty but also by his negligence. The short point is that the plaintiffs have contractually assumed the risk of their own negligence and cannot seek to avoid the consequences of that assumption of risk by seeking to rely on a breach of statutory duty. If it were necessary to do so, I would base my view on a constructional implication in article 10(b): see Gillespie Bros. & Co. Ltd. v. Roy Bowles Transport Ltd. [1973] Q.B. 400, 420F-G, per Buckley L.J. But I consider that the better view is that it arises as a matter of construction pure and simple. Mr. Aikens said that the plaintiffs could have sued only on the breach of statutory duty. But the point is one of substance. The defendants were entitled to raise it by way of defence as they have in fact done. As a matter of analysis I therefore have come to the conclusion that the judge answered the second question correctly.

But I would add that this interpretation also better matches the reasonable expectations of the parties than the somewhat technical approach of the plaintiffs. Given that article 10(b) must be construed as not covering negligence, the judge's interpretation is in my view the more reasonable interpretation. After all, it is inherently improbable even in a bilateral clause such as article 10(b) that a party would be willing to assume a risk of loss caused by the negligence of the other, notably when there is probably an imbalance and inequality in the risks of negligence by the one employee of the defendants and the many employees of the defendants."

28. A similar approach to the construction of clause 5.8.5 of the SPA is justified. The clause assigns to the buyer the risk of losses and liabilities arising from the negligence or intentional wrongdoing of employees of the business after the acquisition. The buyer has contractually assumed the risk of such negligence or dishonesty and cannot seek to rely on conduct prior to the transfer as a concurrent cause. Had there not been the negligence and dishonesty alleged against CHBC in the period after the transfer, the losses after the Transfer Date would not have occurred. The pre transfer conduct was only a continuing and effective cause of those losses because of the negligent and allegedly dishonest failings after the transfer. The approach to construction in cases of negligence and intentional wrongdoing points to the conclusion that the parties are not to be taken to have intended that liability should fall on the buyer in such circumstances. This accords with commercial good sense and the allocation of risk and reward inherent in the SPA because it is Capita Banstead, as the buyer, who has control and supervision and who is in a position to put an end to the losses by ensuring compliance with the continuing duty owed to the client.
29. Accordingly RFIB is only liable for the settlement sums to the extent that they are in reasonable settlement of the claim for losses occurring prior to the Transfer Date. It is not liable insofar as the sum represents settlement of the claim for losses occurring after that date.

Apportionment

30. Each side called an expert actuary on the question of apportionment. They had very little material to work on. They did not have any detail of how the quantum of QEF's claim was made up, or details of the changing profile of the membership of the Scheme over the relevant period. Mr Barton, on behalf of RFIB, undertook an analysis based on a weighted apportionment of time. He took the dates on which each of the amendments ought to have been effected and calculated what percentage of time lay either side of the Transfer Date. The results were as follows:

RPI cap on pension increases: Before: 48.91% After: 51.09%

RPI cap on deferred pension increases Before: 41.93% After: 58.07%

Reduction of accrual rate to 1/80^th Before: 40.01% After: 59.99%

Reduction of pendants' pension Before: 1.90% After: 98.10%

Increase in active members contributions Before: 1.90% After: 98.10%

31. Mr Barton then drew on his experience as a pension scheme actuary to weight the varying effect of the different amendments on the cost of funding the Scheme. He discounted the last amendment, the 5% to 7% increase in active member contributions, because that amendment could be, and was, made retrospectively in 2008. He identified the first and third as the dominant factors, with the second the next most weighty. He concluded that based on these figures the range for pre Transfer Date losses was between 40% and 50% and that 45% was a reasonable figure to take as the centre of the range. He recognised that this method was only an approximation and was not theoretically accurate; and that a detailed calculation based on Scheme membership and liability information (which he did not have) might produce a materially different answer. He maintained, however, that if the Scheme membership remained constant, his 45% gave a good estimation of the apportionment of losses over the period.
32. The Claimants' expert, Mr Punter, criticised Mr Barton's methodology by illustrating that the correct apportionment depended on the profile of membership and liabilities over the relevant period. He did not in his report put forward any alternative apportionment figure, or address the scale of the error which the limitations in the exercise might produce. In cross examination he said that the variance around the 45% might be very wide, which he quantified in re examination as meaning that it could easily be a variance in the range of 10% to 15% from the 45% figure.
33. I accept that Mr Barton's methodology is a valid approximation, albeit an imperfect one in the absence of data about the membership and liability of the Scheme. Since Mr Punter's estimation of a possible variation of 10% to 15% involves a variation either side of this figure, it does not assist the Claimants in arguing for a higher figure. Mr Tolley QC submitted that the number of members of the Scheme had been falling over the relevant period, which would have the effect of giving a greater weighting of the losses to the period prior to the Transfer Date. However the only evidence relied on to support such a fall was a passage in the minutes of a meeting of the trustees on 8 December 2005 which referred to there having been "a reduction in the membership over the last three years (down from 266 in 2002 to 136 in 2005)…", together with documents showing that the Scheme was temporarily closed to new entrants in 2004 and that this temporary closure was made permanent in November 2005. Mr Tolley submitted that after closure to new entrants in 2004 the membership numbers could only have fallen, not increased. That does not, however, justify treating the snapshot of the position in 2002 and 2005 as a sufficient foundation for giving a greater weighting to pre Transfer Date losses because such would only be justified on the basis of a fall between 1 April 2000 and 30 April 2004 as well as a fall post 30 April 2004. There was no evidence of whether and to what extent there was a rise or fall in membership numbers within the earlier period. The evidence is consistent, hypothetically, with membership numbers being at or below 136 in April 2000 and at 136 in April 2004.
34. There are two adjustments which do require to be made to Mr Barton's 45% figure. First, he took the relevant starting date for the introduction of the RPI cap on revaluation of deferred pensions as 6 April 2001 when it should have been 6 April 2000. Although this was not the category of amendment which had the greatest or second greatest weighting, it must nevertheless have resulted in some over apportionment of the losses to the later period. Secondly, he calculated the proportionate periods of time up to 30 July 2008, whereas I have concluded that the settlement sum of £3.85 million is attributable to losses up to 1 December 2007 by reason of the mitigation defence. This requires a greater weighting to be given to the losses before the Transfer Date.
35. Doing the best I can, in what can only be a rough and ready approximation, I conclude that 50% of the settlement sum is attributable to QEF losses suffered prior to the Transfer Date, which is to say that 50% is the proportion of the settlement sum which comprised a reasonable settlement of the claim and liability for losses of which the sole effective cause was advice and/or services prior to the Transfer Date. Accordingly the Claimants are entitled to recover half the settlement sum, namely £1,925,000, subject to RFIB's title to sue argument.

Title to sue

36. By clauses 5.1 to 5.3 of the Settlement Agreement it was agreed that CHBC would pay QEF £3.85 million by 8 November 2011, by bank transfer to QEF's solicitors. RFIB refused to fund any part of the settlement. CHBC could not fund the payment of the settlement sum from its own resources. Capita Banstead was by this time a non-trading company and did not have a bank account. By this time Capita Banstead no longer owned the shares in CHBC, but both were subsidiaries of the Capita group whose ultimate parent company was Capita Plc. Capita Holdings Ltd was another group company. The following arrangements were made within the Capita group to effect payment:

(1) Capita Holdings Ltd loaned the sum of £3.85 million to Capita Banstead. This loan was recorded in a Deed of Loan dated 7 November 2011.

(2) On 7 November 2011, Capita Holdings transferred the £3.85 million to Plexus, solicitors for Capita Banstead and CHBC, for the purposes of discharging the liability of CHBC under the settlement agreement.

(3) On 8 November 2011 Plexus paid this sum to QEF's solicitors.

(4) Capita Banstead entered into a deed of discharge with CHBC dated 9 November 2011 recording that the payment by Capita Banstead was on behalf of CHBC and that it was in discharge of CHBC's liability under the settlement agreement.

37. The group accounts recorded the transaction consistently with these arrangements. Capita Banstead owed a liability under the loan to Capita Holdings. CHBC incurred no liability to Capita Banstead and none was recorded in the accounts of either company.
38. The payment by Capita Banstead is therefore to be treated as a gratuitous payment by Capita Banstead, made on behalf of CHBC and at CHBC's request, for the purpose of discharging CHBC's liability to QEF.
39. Mr Tolley put his argument on title to sue in three alternative ways:

(1) Capita Banstead has suffered a loss by funding the settlement, and is entitled under the terms of clause 5.8.5 to be indemnified "on behalf of itself".

(2) CHBC incurred the liability to QEF in respect of which Capita Banstead is entitled under clause 5.8.5 to claim indemnity on its behalf; it is irrelevant that the liability was discharged by a gratuitous payment by Capita Banstead.

(3) CHBC suffered a loss because Capita Banstead's discharge of its liability to QEF gave rise to a liability on the part of CHBC to Capita Banstead in unjust enrichment.

40. The second of these arguments is sufficient to found the claim. When the settlement agreement was entered into on 11 October 2011, CHBC had an ascertained liability which fell within the scope of the indemnity in clause 5.8.5. There is no condition of prior payment implied in such an indemnity and an action may be maintained prior to payment, albeit that the old common law forms of action were inadequate to achieve this; the obligation of the indemnifier is to prevent the indemnified party from suffering any loss in the first place, and requires that the party to be indemnified is put in funds to discharge the liability because otherwise the indemnifier is in breach of the obligation to hold the indemnified harmless: see Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 at 28A-C, 35F-36C, 40C -41G.
41. Accordingly Capita Banstead was entitled to sue RFIB on the indemnity, on behalf of CHBC, on 11 October 2011. This cause of action was not extinguished by Capita Banstead's payment on 8 November 2011. That was a gratuitous payment by a third party which was not intended to give rise to any liability on the part of CHBC. Gratuitous payments privately conferred by third parties out of benevolence are not generally benefits which fall to be taken into account in reducing the liability of a wrongdoer: Parry v Cleaver [1970] AC 1; Hodgson v Trapp [1989] AC 807.
42. Moreover, if the gratuitous payment by Capita Banstead were to be taken into account as extinguishing RFIB's liability to indemnify CHBC, that would not assist RFIB in this case. In order for a benefit to be taken into account in reducing the loss recoverable by the innocent party for a breach of contract, it is generally speaking a necessary condition that the benefit is caused by the breach: see the line of cases from Bradburn v The Great Western Railway Company (1874) LR 10 Ex 1 to Dalwood Marine Co v Nordana Line A/S (The Elbrus) [2010] 2 Lloyd's Rep 315 whose effect I endeavoured to summarise in Fulton Shipping Inc of Panama v Globalia Business Travel SAU [2014] EWHC 1547 (Comm). If Capita Banstead's payment were sufficiently caused by RFIB's breach (in failing to prevent CHBC suffering harm) to be taken into account as a benefit extinguishing CHBC's right to indemnity, it would fall within the scope of clause 5.8.5 as something for which Capita Banstead is entitled to indemnity "on its own behalf" as sufficiently caused by QEF's claim. In other words, in those circumstances Mr Tolley's first argument would succeed.

Legal expenses

43. The Claimants adduced in evidence a costs schedule signed by a partner of Plexus Law quantifying the legal costs and expenses incurred between 6 May 2010 and 8 November 2011 in connection with the QEF claim at £66,831.46 and certifying that those costs do not exceed the costs which the Claimants have paid in respect of the work covered by the schedule. Mr Kitchener argued that this was inconsistent with the audited accounts of CHBC and Capita Banstead for the calendar year 2011. The CHBC audited accounts for 2011 record that the company did not trade and incurred no expenditure during the year. The balance sheet recorded creditors of only £4, and that minor sum as owed to group undertakings and undertakings in which the company had a participating interest. The Capita Banstead audited accounts for 2011 recorded expenses of £3.85 million, which is the settlement sum. The balance sheet recorded some £5.09 m as owed to creditors with a note that this all represented "amounts owed to parent and fellow subsidiary undertakings". When Mr Mayall, the group reporting director for the Capita group, came to give evidence about the arrangements for the payment of the settlement sum, he was cross examined about how these costs were treated in the accounts. He confirmed that the 2011 accounts recorded no payments by either Claimant in 2011 of legal fees to Plexus.
44. I see no necessary inconsistency between the certificate on the costs schedule and these accounts, which were only the 2011 accounts. If money were paid to Plexus Law on account of such costs in 2010, the payment would not feature as an item of expenditure in the 2011 profit and loss account; nor would a liability for costs be recorded under creditors in the balance sheet. Accordingly the Claimants have proved this head of loss and are entitled to recover 50% as attributable to the claim for losses which fall within the indemnity, i.e. £33,415.73.

Conclusion

45. Capita Banstead's claim succeeds to the extent of £1,958,415.73 plus interest.