Scottish Court of Session Decisions

Pursuers: McNeill QC, MacRoberts LLP

Defenders: Dean of Faculty, Maclay Murray and Spens

18 June 2009

Introduction

[1] The pursuers are the Trustees of the Scottish Solicitors Staff Pension Fund ("the Fund") pursuant to a Declaration of Trust dated 17, 19, 22 and 27 December 1947 as amended. The defender is designed in the instance as

"NEIL JAMES CRICHTON, as the holder, between March 1998 and 25^th of September 2008, of the office of AUDITOR OF THE COURT OF SESSION, Parliament House, Edinburgh, EH1 1RQ"

That designation is substantially repeated in Article 1 of Condescendence though, in place of the words "as the holder", the words "in his capacity as holder" are used. It is to be noted that he was at an earlier stage sued "as an individual and also in his capacity as holder" of that office. Mr Crichton in his capacity as holder of that office between those dates is referred to in Article 1 as "the Auditor", which is clearly intended to be a defined term in the Summons. The current auditor, Kenneth Cumming, was at one point joined as second defender, but the pursuers have not pressed their case against him and have consented to decree of absolvitor. Because of Mr Cumming's transient presence in the proceedings, Mr Crichton is designed in the instance as the first defender, but the word "first" is now unnecessary and I do not propose to use it.

[2] The matter comes before the court for debate on the defender's first and second pleas-in-law, which are pleas to the competency of the action and the relevancy of the pursuers' averments.

The pursuers' case on record

[3] The pursuers conclude for declarator (1) that with effect from 1 June 2008 "the Auditor of the Court of Session" ceased to be an assenting employer and became a withdrawing employer, all in terms of Rules of Scottish Solicitors' Staff Pension Fund (as amended) and (2) that in terms of the Rules of the Scottish Solicitors' Staff Pension Fund (as amended) and the Pensions Act 1995, "the Auditor of the Court of Session" as a withdrawing employer is obliged to make payment to the pursuers of a sum calculated in terms of Rule XIX(6) of the said Rules and section 75 of the said Act; and for payment by the defender of (3) £28,802 and (4) £415,000, together with interest on each sum. It is to be observed that the first and second Conclusions are directed to the change in status, from assenting employer to withdrawing employer, of "the Auditor of the Court of Session", not "the Auditor" (i.e. the defender).

[4] The background to the present dispute is set out in Articles 2 and 3 of Condescendence. In Article 2, the pursuers aver that the Fund came into operation on 1 March 1948, when it was known as The Scottish Law Assistants' Pension Fund. The present Fund Actuary is David Kershaw of Buck Consultants Ltd., Edinburgh. The Fund is an industry-wide multi-employer defined benefit occupational pension scheme providing benefits to solicitors' staff. By a Supplemental Trust Deed in July and August 1980, new Rules were adopted for the Fund. The Rules have since been amended from time to time. The pursuers are the present Managers of the Fund, as the Fund Trustees are called in the preamble to the Declaration of Trust.

[5] In Article 3, the pursuers aver that from the 1980s until about 2002 the Fund was in surplus. For a period prior to September 2003, contributions were payable by employers only in respect of the future service of active members of the Fund. The Fund's Actuarial Valuation dated 1 April 2002 disclosed a deficit of over £2 million between the value of the assets in the Fund and the amount of the Fund's liabilities. Employer contribution rates were therefore increased in 2002 and, from September 2003, the Managers further sought contributions from employers of members who, though no longer in employment, either were pensioners or were not yet eligible to receive pensions from the Fund. The latter were known as "deferred members". With effect from 30 September 2003, accrual of benefits for future service ceased and the Fund began to operate as a closed or paid up arrangement. The Fund is therefore a closed fund, and no contributions are taken from employee members of the Fund. By 1 April 2005, as shown by the Actuarial Valuation of that date, the deficit had increased to nearly £8.5 million. In accordance with s.58 of the Pensions Act 1995 and the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996, a Schedule of Contributions was executed on 25 January 2006, in terms of which assenting employers are, between them, to pay a total sum of £1,200,000 per annum in quarterly instalments, with the first instalment being due no later than 31 March 2006. The Fund Actuary has certified in his Actuarial Certificate dated 25 January 2006 that the rates of contributions payable in accordance with the Schedule of Contributions are adequate for the purpose of securing that, by the end of the ten year period that it covers, the Fund will meet the minimum funding requirements imposed by s.56(1) of the Act and by Reg.17 of the Regulations.

[6] In Article 4 of Condescendence, the pursuers aver that "the Auditor of the Court of Session" has been making employer contributions to the Fund in respect of employees' pensionable service since 1 January 1949 "and was an assenting employer in terms of Rule IV(1) of the Fund Rules until 1 June 2008". Accordingly, they contend, "the Auditor" was obliged during this period to make certain regular contributions to the Fund in terms of Rules IV and V. Like other employers, they say, "the Auditor" also requires to pay contributions in terms of the said Schedule of Contributions in order to eliminate the deficit in the Fund, including the deficit in so far as it is attributable to the Fund's liabilities in relation to employees who are no longer in the employer's employment. Such contributions to the Fund required to be made to eliminate deficits attributable to the past pensionable service of both existing pensioners and deferred members, as well as deficits attributable to the service of present employees. "The Auditor", they say, is responsible for the payment of all such contributions in respect of seven members of the Fund, namely (i) deferred members Mrs Cameron and Mrs McPhail and (ii) pensioner members Mrs Buck, Mrs Senogles, Mrs Hastings, Mrs Lavery and Mrs Maclachlan. The quarterly contribution exigible from "the Auditor" in respect of such members since 2006 has been £7,866. In respect of the quarterly payments due to be paid by 30 September 2007, 31 December 2007, 31 March 2008 and 30 June 2008, the Auditor has paid only £10 on each occasion, instead of £7,866.

[7] In Article 5 of Condescendence, the pursuers aver that by letter dated 4 March 2008 addressed to the Fund Actuary, "the first defender as Auditor" intimated that his appointment as Auditor would cease on 25 September 2008. This letter was expressly stated to be "written pursuant to Rule XIX of the fund rules". Rule XIX provides that an employer may terminate its obligation to the Fund at any time on six months' previous notice in writing, without prejudice to the Managers' right to recover any sums due to the Fund by the employer. On the expiry of the six-month period, any employer who has given notice ceases to be an assenting employer and to participate in the Fund, and becomes a "withdrawing employer". In such circumstances, the Managers are required to treat the Fund as being wound up but only in respect of the withdrawing employer, and are entitled to take steps to recover from the withdrawing employer an appropriate portion of the deficit in the Fund at the time when he ceased to participate in it.

[8] The pursuers continue in Article 5 by averring that their agents responded by letter dated the 30 April 2008 setting out the payments required in the event that "the Auditor" intended to cease to be an assenting employer. In that letter, they claimed the sum of £23,568 by way of outstanding quarterly contributions and estimated that a further sum of about £431,000 fell to be paid as a one-off payment to buy out the pensions of the relevant members of the fund. Further, they stated that, failing payment of the sum of £23,568 within fourteen days of the letter, the Trustees would use their powers under Rule IV to declare that the Auditor would cease to be an assenting employer with effect from 1 June 2008 and that consequently a "section 75 debt" would be calculated under the Act. No payment was received. A formal Declaration to that effect was executed on 28 May 2008. The Fund Actuary has estimated the section 75 debt due on the termination of "the Auditor's" participation in the Fund as £415,000. It is clear from the correspondence lodged in process that this calculation proceeds on the basis that the two deferred members and the five pensioners referred to in Article 4 of Condescendence (see para.[6] above) were all employed by "the Auditor of the Court of Session". According to the pursuers, the unpaid contributions as at 1 August 2008 amounted to £28,802.

[9] In Article 6 of Condescendence, the pursuers aver that they have called upon the Auditor to make payment of the said sums but he has failed to do so. They explain that the relevant sums are due by the defender "as holder of the office of Auditor of the Court of Session" at the material times, namely (i) between March 1988 and September 2008 and (ii) as at the date of the Declaration of 28 May 2008 and the date he ceased to be an assenting employer, namely 1 June 2008.

[10] The pursuers go on to say that if "the first defender maintains that such obligations to the fund incumbent upon him have been transferred to the second defender, he is called upon to explain the basis and method of such transfer. In the event that the said liabilities are due by the office of the Auditor and thereby its holder from time to time, the relevant sums are due by the second defender as present holder of the said office ...". The point about liabilities having been transferred to the defender's successor as Auditor does not arise on the arguments presented to me at debate. There is also a plea of personal bar, but I was told that this related only to the second defender and will be deleted.

[11] The pursuers' pleas in law are each founded upon "the Auditor" having ceased to be an assenting employer in terms of the Fund Rules and being indebted to the pursuers in terms of the Fund Rules and s.75 of the Pensions Act 1995.

The relevant Fund Rules

[12] The Rules of the Fund, as amended, so far as relevant, are set out by the pursuers in Article 2 of Condescendence. They include definitions of an "eligible employer" and an "assenting employer". An "eligible employer" means "a solicitor practising in Scotland or any society of Scottish solicitors or the Law Society of Scotland or any service company for providing staff exclusively for members of the solicitor branch of the legal profession in Scotland or the Fund." An "assenting employer" is an eligible employer who has undertaken to the Managers the obligations set out in Rule IV. That Rule provides inter alia that, to enable his employees to become or remain contributing members of the Fund, an eligible employer must have undertaken to the Managers to pay all contributions as they fall due in respect of members of the Fund in his employment from time to time. Rule IV also states that the Managers may at any time after due notice declare that any employer who has failed to implement the obligations which he has undertaken with reference to the Fund has ceased to be an assenting employer, without prejudice to their right to recover any sums due to the Fund by such employer. I have already sufficiently summarised the relevant parts of Rule XIX (see para.[7] above). There is also a definition of a "member". Read short, membership of the Fund is open to any person who is in the service of an assenting employer at various relevant dates.

Submissions

[13] For the defender, the Dean of Faculty argued that the Summons was incompetent and/or irrelevant and should be dismissed. Mr Crichton did not seek to contend that he was under no obligations for pension contributions in respect of those persons employed by him, while they were employed by him. That was not an issue in this action. In this action the pursuers sought to make him liable for contributions in respect of persons who had been employed within the office of the Auditor of Court before he became Auditor; and in respect of persons whom he employed on taking office, the pursuers seek to make him liable for contributions in respect of those persons referable to the period before he took office. The pursuers' claim, as manifested in the first and second (declaratory) Conclusions, appeared to be based upon the proposition that there was a single assenting employer throughout the whole period from 1948 until mid-2008; and that that single assenting employer was "the Auditor of the Court of Session" rather than the several holders of that office. Those Conclusions sought declarator of the status of "the Auditor of the Court of Session" - meaning the office, not the individual - as employer. Nonetheless, the third and fourth (pecuniary) Conclusions in the Summons were directed against Mr Crichton personally. The problem faced by the pursuers was that "the Auditor of the Court of Session", as distinct from the particular office holder, was not a legal personality. The appointment of a person to the office of Auditor began with an Act of Sederunt at the beginning of the nineteenth century; and the office of Auditor was simply an office within the Court of Session, like that of the Deputy Principal Clerk of Session (albeit there was a difference in the manner of remuneration in the case of the Auditor as compared with other offices within the Court of Session). Not being a legal personality, the office of Auditor of the Court of Session, as opposed to the holder of the office, did not employ anyone; and even if it did, it could be neither an eligible nor an assenting employer, since any employer had to be a solicitor practising in Scotland, which the office of Auditor was not (and nor, incidentally, was Mr Crichton), and an assenting employer had to have given the undertakings to the Managers referred to in Rule IV, which the office of Auditor had not (and not had Mr Crichton). However, even if, somehow, the office of the Auditor of the Court of Session were to be treated as the assenting employer, no basis was put forward for saying that all of its liabilities in respect of pension contributions for personnel employed from 1948 onwards should be borne by Mr Crichton, the holder of the office for part only of that period (from 1998-2008), still less now that he had demitted that office. More particularly, the fact that Mr Crichton gave notice that his appointment as Auditor of the Court of Session would cease on 25 September 2008, could not render him personally liable for what the pursuers assert is an obligation of the office of Auditor.

[14] The defender's submissions could be summarised under four heads: (1) the office of Auditor of the Court of Session was not a legal personality and therefore could not be an eligible employer; (2) for that reason, and also because it had not given the requisite undertakings, it could not be an assenting employer; (3) it followed that the entire basis of the declarator sought in the first and second Conclusions was misconceived; and (4), esto the Auditor of the Court of Session was a legal personality or was in some other was to be regarded as an eligible and assenting employer under the Scheme, Neil Crichton could have no personal liability for the obligations of that office. The only apparent basis for the action was the argument that the Auditor of the Court of Session was an eligible employer continuously from 1949 until the Declaration made by the Trustees on 28 May 2008. That argument was bad, but even if it were sound it did not point to the liability falling on Mr Crichton. It was clear from the correspondence that the Trustees of the Fund thought that the Scottish Executive/ Government stood behind the office of Auditor of the Court of Session and therefore behind Mr Crichton whom the pursuers sought to make liable for the obligations which they contended pertained to that office.

[15] For the pursuers, Mr McNeill QC invited me to refuse the defender's motion and allow a proof before answer. By way of introduction, he pointed to the flexible nature of the procedure in commercial actions, to the fact that the Trustees of the Fund had a duty to seek to ensure that all those with potential liability were held to account, and to the fact that the office of the Auditor of the Court of Session is, as he put it, "a somewhat singular office". The development of the pleadings showed that the parties were struggling to identify the nature of the employer in question. That was a matter of some complexity. It was not an office held under the Crown - rather it was an office within the Court of Session. This action brought together two singular matters, namely the office of Auditor of the Court of Session and litigation in respect of a Pension Scheme, of which there had been little until the last 10 or 15 years with the result that many of the issues which should have been addressed had not yet been addressed. There had been a lack of formality in the way that the position of the office of the Auditor of the Court of Session had been dealt with under the Scheme. The records were deficient and it was not possible to say exactly what had happened. It appeared that the Scheme had been administered on the assumption that the Auditor of the Court of Session could be an employer. So far as the Trustees were concerned, it might be that all that had happened throughout the life of the Scheme was that various individuals within the employment of the office of the Auditor had become members, and payments had been made in respect of them, without any indication given to the Trustees concerning a change of employer. It had not been possible to find any application by Neil Crichton or his predecessors to become an assenting employer - there is only the letter to Mrs Buck acknowledging that the name of her employer had changed. But for any individual to become a member of the Fund - and the defender accepted that individual employees had been members of the Fund - there had to be an employer. Mr Crichton did not seek to put forward any document or clear line of argument to the effect that, on becoming Auditor of the Court of Session in 1998, he considered himself to be a new employer for the purpose of the Scheme. He certainly made payments under the Scheme. This was a matter of some complexity and uncertainty which should not be determined at debate. A proof before answer was necessary. In particular, it was necessary to consider and hear evidence about what had happened at the changeover between Mr Haldane Tait (the previous holder of the office) and Mr Crichton, and about the whole operation of the pension scheme and the crystallisation of pension liabilities.

[16] Mr McNeill explained that the first and second Conclusions were in that form because of the way in which the Declaration made by the Trustees on 28 May 2008 set the matter out. The action was framed on the basis that the office of Auditor of the Court of Session was the employer throughout. If the Declaration by the Trustees was valid, there was no problem with those Conclusions. Nor was there any sound competency objection to the third and fourth Conclusions. The only objection to them could be one of relevancy. The defender had to be a legal person. The proper defender was the holder of the office at the time the action was raised. The action was brought against Neil Crichton while he was still the holder of the office of Auditor, so the objection based upon him having demitted office was unsound. Mr Crichton had always accepted some element of liability to make payments to the Trustees. There were, of course, questions as to the extent of the defender's liability, but this was not a case where the defender contended that he was not in a position of any obligation whatever to the party suing.

[17] The starting point of any analysis of the problem, he submitted, must be the Scheme documents. It was true that Rules IV and XIX, when read with the definitions, seemed to say that it was impossible that the office of Auditor could be an assenting employer; and even seemed to say that the individual holder of the office of Auditor for the time being could not be an assenting employer. But since the employees had been members of the Fund and payments had been made in respect of them from time to time, nothing turned on the definitions. The question was: who was the employer? On taking office, Mr Crichton did not intimate to the Trustees that one employer was leaving the Scheme and a new employer seeking to enter it. The Trustees dealt with it as though the office of Auditor of the Court of Session remained the employer throughout. Nor, it appears, did Mr Crichton think that any formal steps were needed by him to become an assenting employer - he simply continued to make payments requested by the Trustees, as his predecessors had done. The problems in 2006 to 2008 culminated in Mr Crichton giving notice and ceasing to be the Accountant of the Court of Session. His letter of 4 March 2008 bore to be written pursuant to Rule XIX of the Rules. That gave a clear indication that Mr Crichton regarded the change as an important one. On a proper reading of that letter, it meant that either the office of Auditor or Neil Crichton, as the individual then holding that office, was ceasing to be an employer under the Scheme. If the employer under the Scheme was, in fact, the office of Auditor and not the individual, then the letter referring to Rule XIX must by implication cover the position of the office of Auditor.

Discussion

[18] It seems to me that, in the particular circumstances of this case, the main issues between the parties can properly be decided at debate. Mr McNeill pointed to areas of uncertainty about the way in which the Fund had been administered over the years and about what had happened when one holder of the office of Auditor resigned and was replaced by another. But he accepted that the court had the only relevant documentation which could be found, and that the pursuers made no averments of fact which would justify the examination and cross-examination of witnesses at a proof. When I asked him what the proof would be about, he was unable to point to anything which might be of importance to a resolution of the issue.

[19] The essential facts are not in dispute. Mr Crichton took up office as Auditor on 1 April 1998 and his appointment ceased on 25 September 2008. He employed three people to work for him when he assumed office on 1 April 1998. They were: Mrs Buck; Mrs Senogles; and Mrs Cameron. Each had been employed by the previous Auditor and each had been a member of the Pension Scheme prior to Mr Crichton becoming Auditor on 1 April 1998. It is clear from the letter from Watson Wyatt Partners to Mrs Buck dated 31 March 1998, to which I was referred, that the Administrator of the Pension Scheme was advised of the impending change of employer in about the second half of 1997, and he acknowledged that change. Mrs Buck retired in 2000 and Mrs Senogles in 2004. Mrs Cameron remained in the employment of Mr Crichton as principal clerk throughout his tenure of office, though at some time during that period she ceased to be a member of the Fund. The Fund went into deficit in about 2002 and closed to new members. From about 2006, the Scheme Administrator endeavoured to obtain from Mr Crichton contributions in respect of pension liabilities relating to persons whom he had never employed. This generated correspondence to which I need not refer in detail. The principal issue in this action emerges clearly from it: does Mr Crichton, as Auditor of the Court of Session during the period from 1998 to 2008, have any liabilities in respect of pension contributions relating to members of the Fund employed by the Auditor of Court prior to Mr Crichton's appointment to that office and while so employed?

[20] I have referred to Mrs Buck, Mrs Senogles and Mrs Cameron being in the employed by Mr Crichton rather than by the office of Auditor of the Court of Session. I did not understand this to be disputed. Although no contracts of employment were lodged in process, it is clear from para.6 of the letter from the Scottish Courts Administration dated 25 March 1998, setting out "the basis of the arrangements" between the Secretary of State and Mr Crichton which would apply when Mr Crichton took up his post as Auditor, that Mr Crichton was to be responsible for the employment and dismissal of staff within the Auditor's office. It is difficult to conceive of any other possibility, if employment of staff was to be kept within the Auditor's office since the individual holder of the office is a legal personality whereas the office of Auditor is not. This is consistent with the defender's averment in Answer 4, which is admitted by the pursuers in Article 4 of Condescendence (under reservation about the time to which it applied), that the defender considered his liability to the Fund to be determinable by reference to the pensionable service of the members of staff "actually employed by him". The pursuers do not suggest that Mrs Buck, Mrs Senogles and Mrs Cameron were not "actually employed" by Mr Crichton; nor do they contend that Mrs McPhail, Mrs Hastings, Mrs Lavery or Mrs Maclachlan were "actually employed" by him. Nor did Mr McNeill suggest that the question of "actual employment" was one of the matters on which a proof was required.

[21] It is clear that, in terms of the definitions in the Fund Rules, the office of Auditor of the Court of Session cannot be either an eligible or an assenting employer. The office of Auditor itself, as opposed to the individual holding the office, has no legal personality. It is not a solicitor and there is no averment that it, rather than any individual holder of the office, has ever given the undertaking referred to in Rule IV. Nor can the individual employees be seen as falling within the definition of "member" by reference to any actual employment by the office of Auditor rather than the individual holder of the office. Not having a legal personality, the office of Auditor, as opposed to the holder of the office, cannot be an employer. I accept, of course, that there are also difficulties in fitting the individual holder of the office into the definition of eligible or assenting employer, but these arise only from the fact that the individual appointed to the office of Auditor ceases upon taking up his post to be a practising solicitor. That difficulty is easily overcome. As Mr McNeill pointed out, the individual employees have been treated as members of the Scheme, and Mr Crichton (and no doubt his predecessors) has made payments in respect of them. If they are treated as employees within the Scheme, they must have employers (or persons treated as such) within the Scheme also. However, I do not see why that points to the employer being the office of Auditor rather than the individual office holder from time to time. In one way or another, the Rules have been adapted to fit the circumstances of the case. The informality of the arrangements suggest that little or no attention was given to the fact that the Auditor ceased to be a practising solicitor, or as to the precise legal consequences of a change of Auditor in terms of the employment of the various individual employees; but there is no reason in principle why the holder of the office of Auditor from time to time is not to be regarded as the assenting employer who, by virtue of his payments to the fund, has impliedly given the undertaking in Rule IV. But I do not need to go this far. The pursuers' case is predicated on the contention that the office of the Auditor was the assenting employer. I am unable to accept this contention. The lack of legal personality is, to my mind, fatal to the notion that the office of Auditor was an employer within the Rules or for any purpose.

[22] The declarators in the first and second Conclusions to the Summons are not sought against the office of the Auditor of the Court of Session. They are sought against the defender, Mr Crichton, in terms declaring the status of the office of Auditor as the employer at certain times. They are not, therefore, incompetent; but nonetheless they fail the test of relevancy. The third and fourth Conclusions, which depend upon the success of the first and second, must therefore also fail. In those circumstances, the action must be dismissed.

[23] I should add that even if I had been persuaded that the relevant employer under the Scheme was the Auditor of the Court of Session, as an office, I would still have found difficulty in taking the next step and finding the individual holder of the office at a particular time liable for all of the obligations of the office whenever accrued, and in particular the obligation to make payments either in respect of employees who were never employed by that individual or in respect of periods when the employee was employed by a different holder of the office. No legal basis for such a transmission of liabilities was suggested and I can think of none. I would not, however, have accepted the subsidiary point argued by the Dean of Faculty, to the effect that Mr Crichton could not be liable because he had demitted office. He was the Auditor both at the time of the Trustees' Declaration and at the time the action was raised; and, had the pursuers' contentions been otherwise sound, the fact that he had subsequently demitted office would be irrelevant

Decision

[24] For the above reasons, I shall sustain the second plea-in-law for the defender and dismiss the action. I assume that expenses will follow success, but since I was not addressed on this point I shall reserve all questions of expenses.