Ballinger and another v Mercer Ltd and another

Hearing date: 24 June 2014

CPR 17.4 permits, in certain cases, an amendment to a statement of case to introduce a new cause of action after the expiry of the limitation period applicable thereto. It gives effect to s.35 of the Limitation Act 1980. The circumstances in which such a claim may be introduced are that it arises out of the same facts, or substantially the same facts, as those already in issue in the claims as currently pleaded in the proceedings. Two questions arise on this appeal from His Honour Judge Pelling QC, sitting as a judge of the Chancery Division in Manchester. First, on the interlocutory application to amend, what is the proper approach to the determination of the threshold question whether the proposed new claim is time-barred, and in particular upon whom lies the burden of persuasion? Second, did the judge here reach a permissible conclusion on the question whether the proposed new claims arise out of the same facts, or substantially the same facts, as those already in issue in the claims as then currently pleaded in the proceedings?

In the description of the proceedings and of the judge's decision which follows I have borrowed extensively, with gratitude and without attribution, from the exceptionally clear and helpful skeleton arguments submitted by counsel on both sides.

The underlying claim is a professional negligence claim brought by the Claimants/Respondents who are the present trustees of an occupational pension scheme. The scheme provides contracted-out final salary type benefits to former employees of FirstCity Insurance Brokers Ltd later renamed FirstCity Partnership Ltd ("FirstCity"). The scheme closed to further accrual of benefits in 2001. FirstCity entered into liquidation following the sale of its business in May 2010. The scheme is in substantial deficit.

The claim is against the Appellants/Defendants who between 1993 and 1 January 2004 provided administrative and actuarial services to the scheme's then trustees. The claim concerns the preparation of actuarial valuation reports ("AVRs") by which the Appellants valued the assets and liabilities of the scheme and gave advice to the trustees regarding the level at which contributions to the scheme should be sought by the trustees from the employer, FirstCity. It is alleged that the Appellants were negligent in their valuations with the consequence that the liabilities of the scheme were understated. It is further alleged that in consequence of the Appellants' negligence the contributions sought by the trustees from FirstCity were lower than they should have been. The trustees are of course no longer able to seek further contributions from the employer. Their claim is therefore for the present value of such contributions as it is alleged would have been made had the trustees been properly advised as to the liabilities of the scheme and the level at which contributions should be sought from FirstCity. The loss claimed by the trustees is of the order of £14–15 million.

By way of brief explanation:

i) Where a member of a pension scheme leaves pensionable service before he is entitled to an immediate pension, then his accrued pension rights are 'deferred' until future payment. For example, if he left employment aged 40 and is not due a pension until age 65 it is 'deferred' in the interim.

ii) Because of the effects of inflation in the intervening period, pensions are now generally 're-valued' in the interim period.

iii) Some pension schemes are 'contracted-out' of the state pension scheme. This means that the members pay reduced national insurance scheme contributions, and lose their rights to a state earnings related pension scheme ('SERPS') pension, and instead their private pension scheme must provide certain minimum benefits. In relation to benefits accrued between 1 January 1985 and 6 April 1997 those minimum benefits are the "Guaranteed Minimum Pension" or "GMP".

iv) There are specific rules on the revaluation of the GMP element of contracted-out pensions.

v) There are various different, statutory, requirements for revaluation of the element of pensions in excess of GMP, but pension schemes can also make different provision for revaluation depending on their own terms, albeit within various tax related limits.

vi) Trustees of occupational pension schemes are required to obtain an AVR at regular intervals. Each AVR contains valuations of the scheme's assets and liabilities on a number of different bases of valuation. Thus, the AVR will usually contain an "ongoing" valuation (which assumes that the scheme will continue receiving contributions and paying benefits out of scheme assets) and a "discontinuance" or "solvency" valuation (which assumes that the scheme will terminate and pay such benefits as have accrued to date, generally by the purchase of immediate and deferred annuities). Further, between April 1997 (when the relevant provisions of the Pensions Act 1995 came into force) and December 2004 (when those provisions were repealed and replaced by the current statutory funding regime contained in the Pensions Act 2004), trustees were obliged to obtain a valuation of assets and liabilities on the prescribed statutory basis known as the Minimum Funding Requirement or "MFR". The MFR valuation was often contained within the AVR, although it required separate certification.

The Claim Form was issued on 3 July 2012. It alleged negligence and/or breach of contract in the period 1 January 1993 – 1 January 2004.

The Claim Form and Particulars of Claim were served on 14 December 2012 pursuant to an agreement to extend time for service of both. The Particulars of Claim alleged negligence by the Appellants in relation to three AVRs, namely those for 1996, 1999 and 2001.

The alleged defects in the 1996, 1999 and 2001 AVRs as pleaded in the Particulars of Claim are as follows:

i) Revaluation of deferred pensions in excess of GMP. The Respondents allege that the Appellants valued deferred pensions incorrectly. The incorrect rate of increase during the period of deferment (known as revaluation) was applied. The correct rate was 5% but the Appellants valued the benefit on the basis of a rate of the lower of 5% and RPI. This error is alleged in relation to each of the 1996, 1999 and 2001 AVRs.

ii) Increases to GMPs in payment. The Respondents allege that the Appellants valued GMPs incorrectly. The incorrect rate of increase once the GMP was in payment was applied. The correct rate was 3%, applicable to the entire GMP, but the Appellants valued the benefit on the basis of a lower rate of increase and/or at the correct rate, but applicable only to part of the GMP rather than the whole of it. This error is alleged in relation to the 1999 and 2001 AVRs only (the 1996 AVR was correct in this respect).

iii) Uniform accrual rate. The Respondents allege that the Appellants adopted an inappropriate assumption regarding the rate at which certain members' benefits would accrue under the Scheme. The correct rate of accrual was as stated in the rules of the Scheme for each category of member. The amount of a pension is subject to the Inland Revenue maximum limits, but a reduction is only to be applied to a member's pension if that limit is reached: in those circumstances, one way of reducing the pension so as to stay within the overall limit is to apply a reduced rate of accrual over the entire period during which the pension accrued. However, the Appellants assumed that a reduced rate of accrual applied to all members, irrespective of whether their benefits in fact infringed Revenue limits, calculated so as to ensure that all members' benefits would necessarily remain within the overriding limitations on the maximum value of their benefits at retirement age (a "uniform accrual rate" assumption). That resulted in liabilities being understated because reductions were assumed across the board, whereas only some benefits would in fact have had to be reduced. This error is alleged in relation to each of the 1996, 1999 and 2001 AVRs.

iv) Allowance for promotional increases. The Respondents allege that when valuing the Scheme's liabilities the Appellants should have included an allowance for increases in the value of members' benefits consequent on promotion to a higher salary band. Some such promotions would result in significant increases in pension benefits, because they would result in members moving to a higher accrual rate for all of their pensionable service. The Appellants made no allowance for this possible increase in liabilities. This error is alleged in relation to each of the 1996, 1999 and 2001 AVRs.

On 19 August 2013 the Appellants served their Defence. They contended that any alleged cause of action for negligence and/or breach of tortious duty is time-barred notwithstanding s.14A of the Limitation Act 1980. It is accepted that any contractual cause of action is time-barred. It is also...