Professional negligence claim against Aon goes ahead

Punter Southall Governance Services, the professional trustee of the Robert Horne Group Pension Scheme, brought the claim against Aon that was heard at the High Court on July 29.

The scheme purported to close to new members in 2003 and to future accrual in 2007. However, in both cases, the scheme’s amendment power was not properly complied with, as the deeds used to make the changes were not executed until some time afterwards.

Aon argued that the claim breached the statutory limitation periods, and that the trustee was aware of the situation at a time that allowed them to bring the claim several years before it did.

In reality, people forget documents or recall them imperfectly, and they rely on their advisers to act competently

Tom Kent, Linklaters

Justice Miles, however, rejected this argument, and concluded that the claim could be heard in a full court setting.

Did the trustee have the requisite knowledge?

Robert Horne Group entered administration on April 1 2015, and its scheme entered an assessment period at the Pension Protection Fund. Aon acted as its scheme’s consultant, actuary and administrator.

In its claim against Aon, Punter Southall — which took over as scheme trustee from Robert Horne Pensions Trustees in 2015 — alleged that the consultant had acted negligently and in breach of its duties concerning the closure of the scheme to new members, and its subsequent closure to future accrual.

The trustee argued that Aon negligently failed to advise that these amendments could only be made via deed or resolution, under its scheme rules. These rules incorporate restrictions to amendments as set out in the Pensions Act 1995. 

Punter Southall said that Aon allowed the dates when the amendments were intended to take effect to pass by, without any amending deed having been executed or any resolution having been made or passed. 

Instead, Aon later advised the trustee and employer to implement the amendments by entering deeds retrospectively. This did not work in accordance with the law, Punter Southall said.

The 2003 amendment was made by a definitive trust deed and rules carried out on March 26 2004, which purported to introduce the new model with effect from January 1 2003 for the closure of the scheme to new members and April 1 2003 for other changes, which included modifications in the early retirement provisions. 

The 2007 amendments — aimed at reducing costs by closing the defined benefit section of the scheme to future accrual and severing the link with final salaries — were made by deed executed on June 30 2008, implementing the changes from July 1 2007.

Punter Southall alleged that Aon treated the amendments as having taken effect from their intended dates, even though no valid or effective deed of amendment or resolution had been enacted before or on those dates.

Aon instead continued to advise and carry out actuarial valuations on the basis that these amendments had taken place with effect from those dates. The scheme was administered and members’ benefits were measured and paid on the same incorrect basis.

As a result of the “faulty process” of implementing the amendments, the scheme has incurred additional and unintended liabilities, including the costs of rectifying the underpayment of benefits to members, Punter Southall claimed.

It also alleged that Aon was under a continuing duty to administer the scheme until 2015, when its retainer ended, and that it had failed to rectify or draw attention to the earlier defaults.

Around October 2014, the scheme’s trustee and employer became aware of the issues concerning the 2007 amendments. Punter Southall claimed that it was only then that it received legal advice from a firm of solicitors that it was unusual to have sought to close a scheme to future accrual retrospectively. 

The trustee and Aon entered into a standstill agreement regarding the 2007 amendments on June 30 2015. They entered into a similar agreement in 2016 concerning the 2003 amendments.

The limitation period applying to negligence claims of this type is six years from the date when the negligence occurred, or, if later, three years from when the claimant knew or ought reasonably to have known about the negligence.

Punter Southall alleged that the trustee and Robert Horne Group lacked the necessary knowledge before, at the earliest, December 29 2013 for the 2003 benefit changes, and June 30 2012 for the 2007 amendments.

Aon argued, however, that they did have the knowledge required to bring an action for damages in respect of the relevant damage before those dates. 

The consultancy claimed that the information and advice available to its client showed that there were real risks about the validity of the process by which the amendments to the rules were made. 

Aon therefore argued that the trustee and employer might reasonably have been expected to seek further legal advice about the implementation of these amendments. Such advice would have shown that they could not be made effectively without formal, prospective documentation being executed.

Schemes rely on advisers ‘to act competently’

The judgment did not determine whether or not the limitation period has passed, and this will be decided in a future hearing. 

However, the judge found it unconvincing to say that trustees should seek an independent legal opinion “to second guess the advice of other advisers who are dealing with implementation of a change or adoption of a document”, Arc Pensions Law partner Vikki Massarano said.

The judge said that trustees can reasonably expect their legal advisers to raise any issues about implementation of documents and can assume their advisers are acting properly. He also concluded that a professional trustee should not automatically be taken to know when an adviser has been negligent.

“While in other cases where there are more than one set of advisers involved, the exact responsibilities of each adviser may be less obvious than in this case,” Massarano said.

“The judgment shows an unwillingness to allow advisers to try to ‘wriggle off the hook’ by blaming each other, or by saying trustees should have checked the advice given — doubtless a relief to trustees who might otherwise be caught in a spiral of second and third legal opinions before they can do anything,” she added.

Linklaters managing associate Tom Kent observed that the judgment “takes a practical approach to the way in which trustees actually receive advice”. 

“In reality, people forget documents or recall them imperfectly, and they rely on their advisers to act competently,” he said.

Kent added that the judgment also shows a reluctance from the courts to knock out negligence claims at an early stage where arguments can be made that they were not brought out of time. 

He said this represented good news for potential claimants and bad news for historic advisers when issues are identified.

Punter Southall argued that because of Aon’s retainer, the consultancy owed its clients an ongoing obligation to advise them that the rule changes could only take effect from the dates on which the formal documentation recording them was executed. If this argument was correct, then limitation would not come into play.

The judge, however, rejected this argument, referring to a 2015 case involving Capita, where the Court of Appeal concluded that there was no continuing duty, and held that such a continuing obligation would be tantamount to a duty to correct the earlier negligence. 

“It was said in the Capita case that in the normal way it is impossible to construct a continuing contractual obligation in the sense of one which gives rise to a fresh breach on a daily basis,” Pinsent Masons partner Ian Gordon said.

Freshfields partner Dawn Heath added: “Advisers can take comfort from the court’s confirmation of the Capita decision that they are not under a continuing duty to look back for earlier legal errors in circumstances where advice is continuing.”