Equal Opportunities

LEGAL
Equal opportunities
Pension schemes seeking compensation for past equalisation mistakes
are running out of time, says Anthony Harrington. For many, it is already
too late.
48
PensionsInsight / Augustt 2009
www.pensions-insight.co.uk
went up significantly, by around £30 million for a
case and Smith versus Advel. The Barber case
mid range scheme such as Foster Wheeler
(Barber versus Guardian Royal Exchange)
according to some experts.
established that pension benefits are equivalent to
pay and therefore subject to the European Union’s
A race against time
equal treatment rule. This rule was set in stone by
Article 141 of the European Economic Community
Naturally enough, schemes up and down the country
Treaty, which required pension schemes to amend
raced to amend members’ entitlements in order to
their rules to eliminate the discriminatory effect of
close the Barber window and limit it to as brief
different normal
a period as possible.
retirement ages for
Remember, four years
men and women with
had already passed
Trustees are being forced into
effect from 17 May
before the Coloroll
a frenzied dash for the courts if
1990 (the date of
judgement established
they don’t want their actions to
the Barber
the rules for levelling
judgement).
down.
fall foul of a 15-year deadline
The problem
This is where the fun
with Article 141,
begins. David Hosford,
however, and with the Barber case, was that
a partner at solicitors Pitmans, points out that
though it established unequivocally that
through the halcyon days of the 1980s, when
pensions were pay within the
companies wanted to alter scheme benefits, it
meaning of what is now Article
was usually to the advantage of the members in
141, neither the Article itself nor
one way or another. “People got used to making
the Barber judgement explained
amendments by simply announcing the changes
how companies should go
to members. No one objected since no one minds
about equalising benefits.
getting improved benefits,” he says.
As Maclay Murray & Spens
Accordingly, having consulted their scheme
head of pensions Gary Cullen
advisors to help them understand the implications
observes the decision left
of Coloroll and so on, trustees and companies were
companies with a range of
happy to have the consultants write to the members
options. Companies could pick any
explaining the change. Everyone then went about
of a range of age dates between 60
their business assuming that the Barber window
and 65, with levelling both sexes to
had been closed. Trustees had plenty of other
65 being the least expensive option for
issues on their plates through the 1990s with the
the scheme. The problem with levelling
raft of new legislation and regulations that
down to 60 for males is that it gives
them an earlier retirement age, with no
casehistory
penal actuarial deductions for early
retirement.
A few years after the Barber case the
he Court of Appeal’s judgement in
Coloroll case began, concluding four years
Foster Wheeler is being hailed by many
after Barber, and the judgement there
law firms, including Wragge & Co, the
created the so-called “Barber window”.
solicitors acting for the Britannia Trustees,
The court in Coloroll ruled that for the
as “the most important case to be decided
period following the Barber judgement in
in the last decade”. However, Norton Rose
1990 up to the point where an organisation
partner Lesley Browning explains that Foster
amended its scheme to level down to 65 for
Wheeler goes not so much to the Barber
both sexes, male members were entitled to
Window, as to the matter of how to interpret
enjoy the age 60 retirement date accorded to
the drafting of deeds to close the Barber
their female colleagues. Any “levelling”
Window and effect equalisation. Here too,
amendment could only affect future
it seems, there are traps awaiting the
service. With male members accruing
unwary. See Analysis on page 21 and
pension rights on the basis of an earlier
Briefings page 13.
retirement age, the cost to the scheme
[
“
“
P
rofessional courtesy was a disregarded
casualty when Wragg & Co, acting for
Britannia Building Society Pension Scheme
Trustees, filed an action against law firm Eversheds
and HR consultants Mercer. The first Eversheds
heard of the impending action against the firm was
when a journalist from The Lawyer rang them up
to ask them how they felt about it.
“To say we are annoyed with this way of
discovering an action against us would be
putting it mildly. What made it worse,”
a spokesperson for Eversheds told
Pensions Insight, “was that when we
contacted Wragge to ask them for
more details, they told us they
needed more time to put their
case together.”
Unfortunately for those who
expect litigation to proceed in
a more genteel fashion, for
pension equalisation cases
involving the so-called
“Barber window” there
is now no time for
professional niceties.
Trustees of pension funds
up and down the country
are being forced into a
frenzied dash for the
courts if they don’t want
their actions to fall foul of
a 15-year deadline. In fact,
according to Lesley
Browning, a partner
at Norton Rose, trustees
who believe that they were
misadvised on any pensions
equalisation action they may
have taken following the
landmark Barber versus Guardian
Royal Exchange ruling back on 17
June 1990, may already have run
out of time.
Nevertheless, Eversheds are unlikely
to be the last law firm to discover that
pensions advisory activities they might
have been involved in almost two
decades ago are now rising from the
dead in the guise of potential multimillion pound law suits.
The whole issue stretches back to the
Barber case at the start of the 1990s
and to two further cases, the Coloroll
T
]
started to come their way.
Unfortunately, as Maclay’s Cullen explains, in
an unknown, but potentially rather large number
of cases, the Barber window had not, in fact, been
closed at all. “What scheme trustees and sponsor
companies overlooked is that there have been a
number of cases over the years where the courts
have ruled that alterations which are not done by
the book under the scheme’s ‘alteration power’,
which often requires a specific amendment
to the scheme trust deeds, have
no validity.”
No valid alteration means no
closure for the Barber window.
That creates a painful liability if
you are a trustee of a scheme that
has just discovered that the
“window” you thought
you’d closed in 1994 is
still open in 2009,
creating 15 years’ of
additional liabilities.
Suing whoever was
the advisor at the
time seems a natural
course of action –
especially if said
advisors happen to be
a large firm with deep
pockets.
However this
is where multiple
“time traps” come in.
As Pitman’s Hosford
explains, any action is
subject to a cut off point
of six years from the date
of the breach of contract.
There is a further period of
grace, in that an action can be
brought at a later date if it can
be reasonably argued that the
plaintiff had no reason to be
aware of the breach at an earlier
point. Here too, there is a cut off
point. Action has to be brought
within three years of a point
where the plaintiff should
reasonably have known of the
breach.
Going deeply to sleep for a
prolonged period, in other
words, is not a defence against
the cut off rule. There is also a final, absolute cut
off rule of 15 years, the so called “long stop” rule,
where even “reasonable ignorance” won’t keep an
action alive. If you add Coloroll to Barber the 15
year long stop rule comes out at 2009; ie. now.
Filing an action stops the clock and the law firm
involved then has a grace period of four months to
put their case together, Hosford explains.
A lucky find
What really annoyed Eversheds was the fact that they
thought, mistakenly, as it turns out, that the other
side had “briefed” The Lawyer on the story
without telling Eversheds first. In point of fact,
as The Lawyer told Pensions Insight, the only
reason the journal picked up on the
Eversheds story was that it has someone
regularly going through court lists.
Wragge, it seems, had dashed to file
an action, even in advance of
building a coherent case which it
could present to Eversheds, simply
in order to squeak inside one or
other of the time limitations.
Norton Rose’s Browning
points out that a key case
for the Barber window and
scheme amendment rules
was the Trustee Solutions
vs Dubery case, which again
reiterated the need for proper,
written, formal amendment.
Crucially, judgement in this
scheme was handed down on 21
June 2006 – and irrespective of
the 15 year limitation, which still
lurks, the three year time guillotine
could reasonably be argued to have
started running within days, or, if the
court is feeling lenient, possibly weeks of
the judgement being available.
To conclude, trustees of schemes that
have reason to doubt the effectiveness of
any action taken to close off the Barber
window are perilously close to “timing
out” as far as remedial action against
advisors is concerned. From the advisors’
perspective, many of whom will at
least arguably have some liability for past,
defective advice, the best defence going
forward will undoubtedly be that time
has already run out for all further
actions. I
The Scottish perspective
ensions law is not a devolved matter,
but pensions equalisation litigation
plays inside a Scots law context which
has different “cut off ” periods to English
law. Martha Quinn, partner and head of
pensions at Brodies LLP says that the
pensions equalisation issue is every bit
as big in Scotland as it is in England. Ian
Gordon, a partner in McGrigors, has two
actions in the Scottish courts at present
where the firm is representing pension
scheme trustees who are suing pension
administrators for allegedly making invalid
amendments to the Barber window. Gordon
says that in his experience “the number of
schemes in Scotland that made valid
amendments to close their Barber window
are well outnumbered by schemes that have
made invalid amendments.”
Interestingly, the Scottish “long stop” rule
is 20 years, not 15 as in England, so Scottish
cases could play on long after English cases
have been stopped out. Also Scotland has a
five year limitation on commercial actions,
not six as in England. But Gordon believes
that Scottish pensions advisors and fund
administrators are much less likely than
their English counterparts to be able to
“wriggle off the hook” on a time limitation
plea. “In Scottish law the five year rule
starts either from the time when losses
started to accrue or from the point where
scheme trustees should have been aware
that there was a problem. Since we are only
now getting Court judgements on scheme
specific invalid amendments, the Court may
well decide that the five year rule is only
just beginning in Scotland. However, the
matter now has such a high profile that
trustees would be well advised to consider
that the clock is now running,” he says.
Mark Hamilton, a partner in Maclay Murray
& Spens's pensions team says scheme
trustees and their advisors will be watching
the current cases going through the
Scottish courts with great interest and
treating them as test cases. He expects
a dash to litigation to follow the first
judgements.
P
August 2009 / PensionsInsight
www.pensions-insight.co.uk
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