Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 52
CA135/09	OPINION OF LORD MENZIES in the cause WILLIAM GRANT & SONS LIMITED and OTHERS Pursuers; against MERCER LIMITED Defender: ­­­­­­­­­­­­­­­­­________________

Pursuers: Cormack, Solicitor Advocate; McGrigors LLP

Defender: Martin, Q.C., Barne; Tods Murray LLP

9 April 2010

Introduction

[1] The first pursuer is a company engaged in the business of distilling whisky. It established three pension schemes for the benefit of its employees. In about 1993 these three schemes were amalgamated into the William Grant & Sons Limited Pension Scheme ("the Scheme"). The second pursuers are the trustees of the Scheme. The defender carries on business as a consulting actuary. Since at least 1989 the defender has provided consulting actuary services in relation to the Scheme and its predecessor Schemes. The defender provided consulting actuary services in relation to the Scheme to the first pursuer under a contract ("the Company Contract"). The defender provided consulting actuary services in relation to the Scheme to the second pursuers under a contract ("the Trustees' Contract").

[2] On 17 May 1990 the European Court of Justice gave its judgment in case C-262/88 Barber v Guardian Royal Exchange Group [1990] ECR I-1889 (the "Barber judgment"). In this judgment it was held that provisions in a pension Scheme laying down different retirement dates for male and female members of that Scheme were discriminatory, and consequently in breach of Article 119 (as it then was) of the EC Treaty. As at the date of the Barber judgment the rules of the Scheme provided that the normal retirement date for female members was 60 and that the normal retirement date for male members was 65. It thus became necessary for the scheme to be amended so as to provide that female and male members of the Scheme had the same normal retirement date. The defender drew the attention of both the company and the trustees to the Barber decision and its implications for the Scheme.

[3] At all material times the Scheme provided a procedure for amending the Scheme set out in Clause 5 of the Schedule to the Supplemental Definitive Deed and Rules dated 31^st October 1989 (the "Rules"). This provided:

"5. The Principal Employer shall have power to alter add or to repeal the provisions of this Deed and the Rules by deed or by resolution made in accordance with its articles or association deed or partnership or other its constitution and with the consent of the Trustees PROVIDED THAT

(a) it obtains such actuarial or other advice as may be necessary to satisfy the Trustees that the effect of any proposed alteration additional or repeal would be equitable as between the members existing at the effective date of such deed or resolution or

(b) the requirements of the following are observed

(1) Chapter 1 of Part XIV of the Income and Corporation Taxes Act 1988 and the preceding corresponding legislation

(2) Section 63 (preservation of benefits) of the Social Security Act 1973 and Schedule 16 thereto

(3) Part IV (equal access to occupational pension schemes) of the Pensions Act

(4) Part III (contracting-out) of the Pensions Act if the provisions of Rule 54 of the Rules are or become applicable."

The first pursuer was the Principal Employer for the purpose of the rules.

[4] In the present action the pursuers seek declarator that under the Scheme the normal retirement date for all members of the scheme was first equalised at aged 65 upon the execution of a Replacement Definitive Deed on 24 May 2001, and not at any earlier date. The pursuers also seek damages from the defender for loss, injury and damage which they aver they have suffered in consequence of the breach of contract and negligence of the defender. There are several issues focussed in the pleadings which are the subject of dispute between the parties, including the relevance of the pursuers' averments relating to whether the requirements of Clause 5 of the Rules were fulfilled and the Scheme was thereby amended to comply with the Barber judgment at a date earlier than 24 May 2001. There is a discrete issue between the parties as to whether Clause 16(B) of the Rules provided an alternative mechanism for amendment of the provisions of the Deed and the Rules.

[5] The matter came before me for debate on the defender's second plea-in-law, which was a standard plea to the relevancy and specification of the first and second pursuers' averments. Parties were agreed that this debate should relate solely to the "Clause 5 issue"; the "Clause 16(B) issue" involved substantially the same questions as were raised in another action involving the defender, which is presently at avizandum, and parties were agreed that they did not wish to argue that point, nor any of the other issues raised in the pleadings, at this time. This Opinion is accordingly directed only to the "Clause 5 issue".

Submissions for the defender

[6] In summary, senior counsel for the defender submitted that the averments for the pursuers did not disclose a sufficient basis on which liability, either under breach of contract or negligence, could be founded against the defender. The critical averments for the pursuers are to be found at the first three sentences of Article 7 of Condescendence in relation to "new joiners" (i.e. members joining the scheme on or after 1 January 1993), and in the first three sentences of Article 8 of Condescendence in relation to existing members of the scheme. The pursuers' position was that by February 1994 it was agreed that the normal retirement date for all members of the scheme should be equalised at the age of 65. The manner in which that was done is at the heart of the issue presently before the Court. The pursuers aver that the scheme was thereafter administered as if the normal retirement date had been equalised at the age of 65. A revised members' guide (number 6/9 of process) was issued to members of the scheme, which indicated that normal retirement date "means your 65^th birthday", and an announcement was made to members in August 1994 explaining the change (number 6/11 of process). The pursuers aver that the normal retirement date was not in fact equalised until the Replacement Definitive Deed and Rules dated 24 May 2001 was executed. The pursuers seek damages for losses which they aver they have incurred because the scheme was administered between 1993/4 and 24 May 2001 as if equalisation had occurred when it had not in fact occurred. It was therefore critical for the pursuers, if they were to succeed, to show that equalisation had not in fact taken place earlier than May 2001. If equalisation had occurred in 1993/4 the pursuers would have acted correctly throughout and would have sustained no loss. It was therefore incumbent on the pursuers to exclude such earlier equalisation.

[7] My attention was drawn to Clauses 3 and 5 of the Schedule to the Scheme in force at the material time (number 6/2 of process). Clause 3 provided that the first pursuer covenanted with the second pursuers "to observe and perform such of the provisions herein and in the Rules contained as are thereunder to be observed and performed by" the first pursuer. Clause 5 is quoted above. The effect of Clause 5 is that it is the company that alters the rules, and that alteration is completed by the trustees' consent. There are alternative methods by which the company may make the alteration, namely by deed or by resolution made in accordance with its articles. Although the alteration which was effected in 2001 was made by means of a deed, this was not required - a resolution in accordance with the articles of the company was sufficient. The pursuers make no averment that the defender had a duty to ensure that the decision making of the company was in compliance with company law and procedure; although the pursuers aver a direct contractual relationship between the defender and the first pursuer, they do not aver that as a result of this relationship the defender had a duty to monitor how the company administered itself as a limited company.

[8] The first sentence of Article 7 of Condescendence could only be read as an averment by the pursuers that the first pursuer had made a decision that the normal retirement date in the scheme should be equalised. There is no qualification to the effect that the first pursuer had not in fact made that decision and that accordingly the second pursuers and the defender were proceeding on a misapprehension; the averment could only be read as meaning that the company had in fact decided this in relation to new joiners. In relation to existing members, the averments in the opening sentences of Article 8 of Condescendence were inadequate and obscure; there was no averment that the first pursuer had not made a decision that the normal retirement date for existing members would be equalised at 65. Their averment that the trustees instructed the defender to carry on as if the company had made such a decision is inconsistent with such a proposition. Turning to the averments of breach of contractual and delictual duties at Articles 9 to 12 of Condescendence, the repeated use of the word "executed" indicated a misapprehension on the part of the pursuers - a resolution could be made informally by the company, and there was no requirement for a deed to be executed.

[9] Senior counsel submitted that in order to attribute liability to the defender in breach of contract or negligence the pursuers required to aver two critical things - (1) that there was not a decision of the first pursuer sufficient to constitute a resolution to alter the normal retirement date, and (2) even if that has been sufficiently averred, that the defender failed in a duty which it was under to ensure that the company did make such a resolution. If indeed the company did not make a resolution and there had been no change to the normal retirement date, it was not only the defender that had acted on a misapprehension, but also the second pursuers, who instructed the change to the scheme booklet and the issuing of the announcement. In the somewhat unusual circumstances of the present case senior counsel submitted that the onus was on the pursuers to aver and prove a negative, namely that the first pursuers did not alter the provisions of the deed and rules by resolution, because the whole basis of their case depended on no resolution having been made. No particular formality was necessary - if a company is empowered to do something by resolution of the directors, this can be achieved informally and need not be agreed at a board meeting as long as the directors have concurred in the resolution. In support of this proposition he referred me to In Re Bonelli's Telegraph Company [1871] LR 12 Eq 246, particularly at page 258, and Runciman v Walter Runciman Plc [1993] BCC 223 particularly at page 230. Even where a decision by directors is made informally, it is their actings which are the critical matter, not their inner thoughts - Hunter v Senate Support Services Limited [2004] EWHC 1085 (Ch); [2005] 1 BCLC 175. Senior counsel submitted that in the present case the pursuers' averments do not deal with the possibility that a resolution had in fact been passed. This was indicative of a lack of candour - what the company did or did not do is entirely within the knowledge of the first pursuer. On the pursuers' averments, all parties (including the first pursuer) acted as if a resolution had been made; at the very least the pursuers had to aver why it could not be said that a resolution had been made. For this reason the pursuers' averments are irrelevant and also lacking in specification as regards what the pursuers themselves aver was a decision of the company.

[10] In any event, senior counsel's second submission was to the effect that the defender was entitled to act as if there had been a resolution of the company, and it did not breach any duty in doing so. For the pursuers to succeed, they must aver a breach of duty on the part of the defender in failing to ensure that a resolution had been passed. They do not aver that the defender owed a duty as a consulting actuary to ensure that decisions of the first pursuer were made properly according to company law and procedure. As stated in paragraph [12] of the note of argument for the defender, where a party, such as a limited company and its directors, has acted towards third parties as if it has made a resolution which might be made informally, the third parties (including pension trustees, advisors such as the defender, and the company's employees) are entitled to assume that the resolution in question has been properly made without further enquiry: omnia rite acta praesumuntur. In support of this proposition senior counsel referred to Sovereign Trustees Limited v Glover [2007] EWHC 1750 (Ch), [2007] Pens LR 277; Royal British Bank v Turquand [1856] 6 E&B 327; Morris v Kanssen [1946] AC 459 (particularly the speech of Lord Simonds at 474 - 476), and Mahony v East Holyford Mining Co Ltd [1875] LR 7 HL 869 (particularly the speech of Lord Hatherley at 893/4). The effect of these authorities was to make it clear that the omnia rite principle is one on which third parties are entitled to rely, and that it is the duty of directors of a company to know their powers and responsibilities and to make decisions properly. It should be remembered in the present case that it is averred that the trustees were also directors of the company, and were acting on the decision which they themselves had made. It was incumbent on the pursuers to make averments to show that the defenders were not entitled to presume that the company had made a regular decision. The effect of the averments in Articles 7 and 8 was that the company was averring that the company and the trustees acted as if an alteration had been made.

[11] Senior counsel also drew my attention to Section 35A of the Companies Act 1985, which provides inter alia that

"in favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company's constitution, and for this purpose a person 'deals with' a company if he is party to any transaction or other act to which the company is a party."

The defender was within the category of persons dealing with the first pursuer, and was entitled to rely on the deeming provision of the section. Reference was also made to TCB Limited v Gray [1986] 1 Ch. 621. The pursuers in the present case have not averred that the defender was responsible for the internal regulation of the first pursuer to ensure that they complied with company law and procedure. The defender was assured that the company had made a decision, and it was entitled to assume that this had been correctly and effectively made. In order to overcome this, the pursuers would need to aver that the defenders were not entitled to rely on the first pursuer having made an effective resolution. Although the pursuers make reference in Article 5 of Condescendence to article 126 of the first pursuer's Articles of Association dated 4 November 1991, this article does not require a resolution to be made in writing nor by deed, and does not exclude other means of passing a resolution. The observations of Carnwath LJ in Smith v Henniker-Major and Co [2002] EWCA Civ 762, [2003] Ch 182, at paragraphs 103 to 110 were of relevance. The defender in the present case relied on the first pursuer's averment that the second pursuers had acted as if a decision had been taken by the first pursuer, and this is consistent with the first pursuer having made a decision. By reason of Section 35A of the Companies Act 1985 the defender is entitled to rely on the first pursuer having made the decision in question. It is for the pursuers to aver why the defender is not entitled to place itself in that position.

[12] On the question of where the burden of proof lies in the present case senior counsel referred me to Dickson on Evidence at paragraphs 26 and 27, the latter of which opens with the statement: "where the legal presumption is in favour of one party's plea, the party maintaining the opposite must prove it, although involving a negative." The onus in the present case falls on the first pursuer (and therefore the pursuers in general) to explain that they did not make a resolution. Moreover, whether the first pursuer did or did not make a resolution is a fact peculiarly within its own knowledge, so the burden of proving that the first pursuer did not make such a resolution rests with the pursuers. It is of critical importance to note that it is the pursuers who aver that all parties acted, after the trustees stated that they would consent to the equalised normal retirement date, as if a decision had been taken by the company; in such a situation it is for the pursuers to aver why the defender cannot rely on the presumption of regularity and on the terms of Section 35A of the Companies Act 1985. A concurrence of all the directors of the company, without any greater formality, would be sufficient to pass a resolution. Without any averment by the pursuers of any basis on which the defender is not entitled to rely on the principle enunciated in Turquand's case and the provisions of Section 35A, the pursuers' averments are both irrelevant and lacking in specification. For this reason the defender's second plea in law should be sustained and the action dismissed.

[13] In summary, senior counsel submitted that the existence or otherwise of a resolution by the company is not just one element of this action, it is critical to the whole action. If a resolution was made (however informally), it follows that all parties have acted lawfully throughout, and the whole of the pursuers' case would be destroyed - there would be no breach of duty, and no loss. If the first pursuer believed that it had passed a resolution, that would be an end of the matter, so it was critical to these proceedings to establish this fact. This was not a mere pleading point of lack of specification, but went to the root of the whole action.

Submissions for the pursuers

[14] The solicitor advocate for the pursuers submitted that the defender's position on the Clause 5 issue was based on a misunderstanding of the key averments at the beginning of Articles 7 and 8 of Condescendence, and that the pursuers' averments on this issue were relevant for enquiry. The principle of equal treatment of members of the scheme is something which both the first and second pursuers are bound to implement, the first pursuer being the ultimate funder of the scheme and the second pursuers being obliged to apply the terms of Article 119 (Foster Wheeler Limited v Hanley, [2008] EWHC 2926 (Ch) [2009] Pens LR 39, particularly at paragraph 22). If the "Barber window" was not closed until 2001, instead of 1993/4, this would result in much greater costs to the pursuers than would otherwise be the case.

[15] The pursuers' averments as to the services which the defender agreed to provide to the trustees are set out in Article 3 of Condescendence and included "advice as regards the law relating to pensions and pension schemes, Scheme amendments, including what amendments might be required and how these should be effected and implemented, and announcements to members regarding Scheme amendments." Similar averments were contained in Article 4 of Condescendence in relation to the services which it is averred the defender would provide to the company and included "advice as regards the law relating to pensions and pension schemes, day to day administration of the Scheme, Scheme amendments, including what amendments might be required and how these should be effected and implemented, drafting membership communications, providing first drafts of amending documentation, providing wording for Deeds which were required to amend the Scheme, ongoing legal advice and announcements to members regarding Scheme amendments." The deed which includes Clause 5 of the Rules was itself drafted by the defender. The pursuers went on to aver in Article 7 of Condescendence, in relation to "new joiners" that "the defender had failed to ensure that a deed or resolution of the first pursuer, which the defender knew or ought to have known was required in terms of Clause 5 of the Rules in order for a change to the rules to be effected, was drafted in appropriate terms and was executed." This and the preceding sentence was a clear averment that the necessary amendment to achieve equalisation was within the defender's remit and that it did not effect this until 24 May 2001. All that the pursuers required to aver is that an amendment to equalise the scheme was not effected in 1993 or 1994; that covers both means by which an amendment could have been effected, and amounts to an averment that there was neither the deed nor the resolution necessary under Clause 5 of the Rules.

[16] The presumption as to regularity did not apply, because nobody had communicated to the defender that a resolution had been passed, so there was nothing to which the presumption might apply. Moreover, the pursuers aver that the means for effecting amendment of the scheme was one of the matters on which the defender agreed to advise both pursuers; the defender was not in the position of an outsider in relation to this matter. Indeed, the pursuers aver in Article 7 of Condescendence that "on or about 7 February 1994 the defender advised the trustees that the retirement date for new joiners had been equalised at 65 years." When construing the averments in the first two sentences of Article 7, it was necessary to bear in mind that there is a distinction between the company indicating that it wished for the scheme to be changed in order to achieve equalisation, and a decision by the company that it was actually effecting such a change (subject to the trustees' consent). The averment is at least capable of being read as an averment of intention or wish to equalise rather than a resolution to amend the rules (and such an interpretation is consistent with the minutes of the trustees' meeting of 24 December 1992, number 6/6 of process). This distinction was discussed at paragraphs 26 to 31 of the Sovereign Trustees case.

[17] The word "executed" where it appears in the pursuers' pleadings is sufficiently wide to encompass "made" - Mr Cormack did not submit that a resolution had to be signed in order to be effective, but it is quite clear from the averments in both Articles 7 and 8 of Condescendence that the pursuers' position is that no amendment was made until May 2001. There was even less ambiguity about the first sentence of Article 8 of Condescendence; there is nothing in the pursuers' pleadings from which it could be inferred that the company had already made a decision regarding equalisation for existing members, nor that any representation was made to this effect to the defender. Both the averment and the minutes of the trustees' meeting of 7 February 1994 (number 6/8 of process) are inconsistent with the company having already resolved to amend the rule in relation to existing members. Read fairly and in context, the opening sentences of Articles 7 and 8 of Condescendence do not amount to averments of actings as if the company had made competent resolutions to amend the scheme. There is nothing to suggest that the directors of the company had agreed informally to alter or repeal the provisions of the rules, and neither set of averments is inconsistent with the clear averment that equalisation was not achieved until 2001. It cannot be said that the pursuers are bound to fail in establishing the position that amendment to equalise the normal retirement dates of members was only achieved in 2001. They certainly do not amount to averments of unanimous informed agreement by the directors of the company to amend the rules, which would be necessary for an informal resolution to be effective (see Runciman, page 230; Base Metal Trading Limited v Shamurin [2004] EWCA Civ 1316; [2005] 1 WLR 1157; Re Torvale Group Limited [2000] BCC 626.

[18] With regard to the submissions on behalf of the defender based on the presumption of regularity, the question is begged - what is presumed as being regular? What is it in the averments for the pursuers that is equivalent to a decision such as was being considered in Smith v Henniker-Major? The defender's submission falls when the averments for the pursuers are properly understood. The pursuers do not aver a decision by the company to effect an amendment subject only to the consent of the trustees. The presumption does not apply where the pursuers have averred that there was no effective amendment to equalise normal retirement date until 2001. The application of the presumption was discussed in a pensions case in Harwood-Smart and Others v Caws [2000] Pensions Law Reports 101, but it has no application where it is not averred that a decision was made at all. The presumption is concerned with ex facie regular decisions; there must be a decision in order for the presumption to have effect. In the present case Clause 5 of the Rules requires a deed or resolution to be made in accordance with the company's articles, but the pursuers' averments are not consistent with any such deed or resolution having been made.

[19] In any event, on the basis of the pursuers' averments these were not matters of internal management of the company to which the defender was a stranger; the defender was engaged to supply services to both the pursuers, and these services extended to advising about Scheme amendments, how these should be effected, and the steps necessary to achieve the equalisation amendment. An adviser cannot rely on the presumption on one of the very matters on which he was engaged to advise. The pursuers aver in Article 7 of Condescendence that "at no stage when equalisation was being discussed did the defender refer the pursuers to the amendment provisions or suggest that they obtain legal advice to ensure the Scheme was validly amended." The defender denies that averment but does not advance any positive case that it directed anyone's attention to Clause 5 or advised as to how amendment of the scheme should be effected. The observations of Lord Simonds in Morris v Kanssen at page 475 are relevant. The defender was under a duty to enquire, or at least to provide advice, as to what was necessary to effect the change. A professional adviser in such circumstances should advise, and take steps to see to it that the advice has been complied with. The defender had a long standing and close involvement in the Scheme. There is no room for the presumption of regularity in such circumstances.

[20] Section 35A of the Companies Act 1985 is not engaged as it favours a person who deals with a company. The defender was not a party to any transaction or act to which the company was a party. The parties to the Scheme were the company, the trustees and the members. The words "or other act" were inserted in the section in order that unilateral acts such as gifts were caught by the section. Although the defender may have been involved in an act to which the company was a party, it was not itself a party to that act. In any event, even if the section is engaged, what it does is to deem that the power of directors to bind the company is free of any defect under the company's constitution - it does not enable one to presume as a matter of fact that there was a unanimous but informal resolution of the directors such as was discussed in Runciman or Duomatic [1969] 2 Ch 365. The issue is not whether the directors could bind the company, but rather whether a decision (or resolution) was made at all.

[21] Mr Cormack summarised his submissions as follows. The authorities suggest that amendment powers in relation to pension schemes require to be strictly observed - Trustee Solutions Limited v Dubery [2006] EWHC 1426 (Ch); [2007] 1 All ER 308. Clause 5 of the Rules of the scheme required any amendment or alteration to be by deed or resolution in accordance with the company's articles. The averments in Articles 7 and 8 of Condescendence relied on by the defender go nowhere near suggesting that a resolution in accordance with the articles was made. There is nothing in the pleadings to suggest that the directors of the company had had the provisions of Clause 5 drawn to their attention, nor that they had had these in mind; there was nothing to suggest that the requirements of Clause 5 had been addressed by anybody. Read fairly, the opening averments of Article 7 are not averments of a decision having been taken by the first pursuer actually to alter the rules, and the second sentence of the article qualifies the first. The same point applies with greater force to the opening averments of Article 8. Because there was nothing to suggest that the directors were having regard to the requirements of Clause 5, matters such as announcements, amended booklets and administration of the scheme do not raise the inference that the directors had taken the decision actually to alter the scheme rules by resolution in accordance with the articles. The pursuers' averments are consistent with the pursuers relying on the defender, whom they aver to have assumed responsibility to both of them, to advise them of the steps required to effect the equalisation amendments. It is wrong to categorise this matter as "due corporate process" - it is more accurately categorised as the mechanism required to effect an amendment, on which the pursuers aver the defender had assumed responsibility. The pursuers have clear averments at Article 14 of Condescendence that they relied on the defender's professional expertise and were entitled to assume that all necessary steps had been taken. Read fairly, the pursuers' averments do not suggest that there was any exercise of the company's amendment power, even if an informal and unanimous resolution is capable of being in accordance with the articles of the company. For these reasons Mr Cormack invited me to refuse the defender's motion and to put the case out by order for discussion regarding further procedure, in light of the decision which is awaited on an analogous Clause 16B issue.

Response for the defender

[22] Senior counsel for the defender sought to distinguish the circumstances relied on at paragraph 27 of Sovereign Trustees, which were quite different from the present case. The unusual character of the present case was that the company could fulfil its part of the mechanism in Clause 5 of the Rules entirely unilaterally; a resolution in accordance with its articles was a completed act and did not require the trustees or the defender to do anything. At the point that the company made a resolution it had fulfilled its obligation, and it could only do this unilaterally. This falls to be distinguished from the circumstances considered in Sovereign Trustees. There is no averment for the pursuers that the defender was engaged under either contract to ensure that the company regulated its affairs as a matter of company law and procedure. Again, this case falls to be distinguished from the circumstances considered in Morris v Kanssen regarding a third party being put on inquiry; if the company made a decision, they made it - there was nothing to suggest that the defender should be put on its inquiry. The important point was that the pursuers have not averred that the defender was engaged to regulate the company's business, and so the defender was entitled to rely on the presumption as to regularity, and on Section 35A of the Companies Act. Senior counsel agreed that this matter should be put out by order following the issuing of the present opinion, to enable parties to consider the effect of the opinion on Clause 16B to be issued in Low and Bonar v Mercer, and to consider what further procedural steps are required (It should be noted that this Opinion has been issued recently - see [2010] CSOH 47).

Discussion

[23] I am not persuaded that the pursuers' averments in the opening sentences of Article 7 of Condescendence are only capable of being read as an averment that the pursuers had made a decision that the normal retirement date for new joiners in the scheme should be equalised. There are two points to note from these opening sentences. First, it is not averred that the company itself gave any confirmation to the defender. What is averred is that at a trustee meeting the trustees confirmed that the company had indicated something. It may or may not be the case that all or some of the trustees were also directors of the company, but the meeting was a meeting of the trustees. An indication by the trustees is not equivalent to the company itself indicating something. Second, what the trustees are averred to have confirmed was that the company "had indicated that the normal retirement date under the Scheme should be equalised ..."; this falls short of a statement that the company had resolved (however informally) or otherwise exercised its power under Rule 5 to alter the provisions of the Deed and Rules. The averments in the opening sentences of Article 8 of Condescendence fall further short of such a statement. All that is averred there is that at a trustee meeting on or around 7 February 1994 the trustees resolved that:

"subject to the first pursuer clarifying the position as regards employee relations, they would consent to an amendment to the Scheme whereby the normal retirement date under the Scheme would be equalised at age 65 for individuals already members of the Scheme as of 1 January 1994 (hereinafter referred to as 'existing members'). On 7 February 1994 the trustees instructed the defender that they were content that appropriate steps should be taken to amend the Scheme rules."

I am unable to infer from these sentences that the company had exercised its power to alter; all that is averred is that, subject to clarification, the trustees would consent to an amendment, and that they were content that appropriate steps should be taken to amend the rules.

[24] Reading the whole of the pursuers' pleadings, including all the averments in Articles 7, 8 and 14 of Condescendence, it is tolerably clear that it is the pursuers' position that equalisation of the notional retirement date was not effected prior to May 2001. It is that which the pursuers must prove (together with breach of duty by the defender and resultant loss) if they are to succeed in this action. I do not consider that the averments which were the subject of discussion in the opening sentences of Articles 7 and 8 of Condescendence contradict this position. I agree with the submission for the defender that the burden of proof rests with the pursuers, but there are sufficiently relevant and specific averments (particularly standing the fact that this is a commercial action) to enable the pursuers to attempt to discharge the burden of proving that equalisation of the notional retirement date was not effected prior to May 2001.

[25] The defender makes the further point that the pursuers do not aver that it had a duty to ensure that the decision making of the company was in compliance with company law and procedure, nor that as a result of its contractual relationship with the first pursuer it had a duty to monitor how the company administered itself as a limited company. This led to the second critical thing which senior counsel for the defender submitted that the pursuers had to aver (see paragraph [9] above), namely that the defender failed in a duty which it was under to ensure that the company did make such a resolution. It is correct that there is no averment in terms by the pursuers that the defender had a duty to ensure that the decision making of the company was in compliance with company law and procedure, nor any duty to monitor how the company administered itself as a limited company; but such averments would go far beyond what the pursuers would require to establish in order to succeed in this action. The pursuers make sufficiently specific averments of the services which the defender agreed to provide to them in Articles 3 and 4 of Condescendence, excerpts from which are quoted at paragraph [15] above, and they go on to aver failures in the fulfilment of duties and obligations in Articles 7 and 8 of Condescendence. It is not necessary for the pursuers to aver that the defender had a duty to monitor how the company administered itself as a limited company; I am satisfied that the averments in Article 3, 4, 7 and 8 of Condescendence amount to a sufficiently relevant case to go to enquiry on this point.

[26] Turning to the second branch of the submission for the defender, it was argued that the defender was entitled to act as if there had been a resolution of the company, on the basis of the presumption omnia rite acta praesumuntur. The defender as a third party dealing with the company was entitled to rely on the company having made a regular decision. I do not agree, essentially for the reasons advanced by the solicitor advocate for the pursuers and summarised at paragraphs [18] and [19] above. Where it is averred that a decision has been made by a company, in appropriate circumstances the presumption that the decision was made regularly may apply. The observations of Lindley L.J. in Harris v Knight (1890) 15 PD 170 at 179, quoted in Harwood-Smart v Caws, are worthy of note:

"The maxim expresses an inference which may reasonably be drawn when an intention to do some formal act is established; when the evidence is consistent with that intention having been carried into effect in a proper way; but when the actual observation of all due formalities can only be inferred as a matter of probability. The maxim is not wanted where such observance is proved, nor has it any place where such observance is disproved. The maxim only comes into operation where there is no proof one way or other ..."

In the present case, as I have already explained, I do not regard the pursuers' averments as amounting to an assertion that the company exercised its power under Rule 5 to alter the provisions of the Deed and the Rules. If it had exercised that power and had stated to the defender that it had done so, the presumption might avail the defender against an argument that there had been an absence of a necessary formality. However, without an assertion that the power had been exercised, there is nothing to which the presumption of regularity can apply. As Lord Simonds observed in Morris v Kanssen (at page 475):

"In the law relating to corporations its application is very similar. The wheels of business will not go smoothly round unless it may be assumed that that is in order which appears to be in order. But the maxim has its proper limits."

If there was averment that the company had exercised its power under Rule 5 to alter the provisions of the Deed and the Rules, or even if there was averment that the company itself had communicated to the defender that it had exercised this power, there might have been scope for the presumption in the face of an argument about a technical defect in procedure, but without such an averment I do not consider that it arises.

[27] Moreover, standing the averments made by the pursuers about the scope and extent of the services which the defender agreed to provide to the company, I do not consider that at this stage the defender can be regarded as truly in the position of a third party entirely independent of the company in matters relating to the scheme. It is averred by the pursuers that these services included:

"Advice as regards the law relating to pensions and pension schemes, day to day administration of the Scheme, Scheme amendments, including what amendments might be required and how these should be effected and implemented, drafting membership communications, providing first drafts of amending documentation, providing words for Deeds which were required to amend the Scheme, ongoing legal advice and announcements to members regarding Scheme amendments."

If the pursuers succeed in proving these averments, the method of effecting and implementing an amendment to the Scheme in order to achieve equalisation, and the day to day administration of the Scheme, were of crucial importance in the context of this action. I agree with the submission for the pursuers that an adviser cannot rely on the presumption of regularity on one of the matters on which he was engaged to advise: at the very least, he would be put on his enquiry. As Lord Simonds went on to observe in Morris v Kanssen, "he cannot assume in his own favour that things are rightly done if enquiry that he ought to make would tell him that they were wrongly done". Without enquiry into the extent of the services which the defender agreed to provide, it is impossible to reach a definitive view on this point. At the very least, at the stage of debate it cannot be asserted that the pursuers are bound to fail on it.

[28] Finally, turning to the argument based on Section 35A of the Companies Act 1985, I agree with the submissions made on behalf of the pursuers and summarised at paragraph [20] above. I do not consider that the section was intended to cover a situation such as this. The section was intended principally to take away from a third party contracting at arms length and in good faith with a company the need to investigate the company's constitution to ascertain whether what the directors of the company proposed to do in that transaction was within their powers. In the present case, as discussed above, the defender was not in the position of a third party dealing at arms length with the company on the question of amendment of the scheme, but (on the pursuers' averments) was giving advice to the company on that very matter. It was not "dealing with" the company within the meaning of Section 35A(2)(a) because it was not a party to a transaction or other act to which the company was a party. Amendment of the Scheme involved the company exercising its powers to amend under Rule 5 and the trustees consenting to the amendment. Although the defender had an involvement in this amendment, on the averments it was not a party to it; its involvement was in giving advice to each of the company and the trustees. In any event, the section does not entitle the defender to assume that the company had in fact exercised its powers to amend. The question of whether the board of directors of the company had power to bind the company is not in issue in this case; rather the issue is whether they exercised that power. I do not consider that Section 35A advances the defender's case.

[29] For these reasons I am not prepared to sustain the defender's second plea-in-law at this stage. Were Clause 5 of the Rules the only issue in this case, I should have been minded to allow to parties a proof before answer with all their pleas standing. However, because there are other issues raised in the pleadings, including the issue of Clause 16(B) of the Rules, and on the joint motion of parties, this case will be put out By Order in due course to enable parties to consider their positions as to further procedure.