Whitney v Monster Worldwide Ltd

Introduction

This claim concerns the pension rights of the Claimant (“Mr Whitney”). Mr Whitney was employed by MSL Group Limited (“MSL”) between 1975 and 1997. In February 1997 the share capital of the holding company of MSL was acquired by TMP Worldwide Holdings Limited (“Holdings”). In July 1997 the trading activities of MSL were transferred to a subsidiary of Holdings – TMP Worldwide Limited. [TMP Worldwide Limited subsequently changed its name to Monster Worldwide Limited. I shall however refer to it as “TMP”]. Mr Whitney was employed by TMP from July 1997 until 31^st December 1997.

Whilst employed by MSL Mr Whitney joined the HAY-MSL Pension Plan in January 1979 at the age of 33. In broad terms this was a final salary pension scheme which paid two thirds of final salary to members after 30 years membership.

In 1989 the HAY-MSL Pension Plan was wound up. It was replaced by a money purchase scheme known as the MSL Money Purchase Scheme. It is not in dispute that the pension benefits under the MSL Money Purchase Scheme were likely to be significantly worse than under the HAY-MSL Pension Plan.

MSL was aware of this and of the risk that certain key employees (including Mr Whitney) might leave as a result of the inferior pension under the MSL Money Purchase Scheme. It is accordingly Mr Whitney’s case that he (and about 27 other key employees) became legally entitled to what has been described as a “no detriment guarantee”. Under the no detriment guarantee he would be no worse off than he would have been under the HAY-MSL Pension Plan. Any shortfall between the amount payable under the MSL Money Purchase Scheme and the sum which would have been payable under the HAY-MSL Pension Plan would be paid by MSL, his employer.

It is common ground between the parties that there were discussions at various board meetings about the creation of some sort of scheme for the key employees. It is also accepted that a number of payments were made by MSL to several of the key employees under the no detriment guarantee. Furthermore in December 1991 Joan Blakeley, the Company Secretary and the person most involved in the pension affairs of MSL, wrote to Mr Whitney’s financial adviser confirming the existence of a legal obligation on the part of MSL to make up the shortfall.

TMP does not accept that there was ever a legal obligation on MSL to make up the shortfall. Whilst there was an intention to give 30 key employees including Mr Whitney a no detriment guarantee it contends that the arrangements were never concluded. Furthermore there was no consideration for any agreement and the arrangements lacked certainty. First it was unclear whether to qualify for the no detriment guarantee the key employee had to work for MSL until he was 60 or whether he was entitled to it if he was made redundant or took early retirement before his 60^th birthday. Second it was unclear whether in calculating the amounts payable under the no detriment guarantee MSL was bound to assume that any pension payable under the HAY-MSL Pension Plan would have increased at the compound rate of 5% per annum

Thus the first issue to be determined is whether there was a legally enforceable contract between Mr Whitney and MSL under which Mr Whitney was entitled to the no detriment guarantee. If so there are issues as to the terms under which Mr Whitney was entitled to the benefit of no detriment guarantee.

If Mr Whitney succeeds on the first issue the second major issue is whether the no detriment guarantee is binding on TMP. It will be recalled that the shares in MSL’s holding company were acquired by Holdings in February 1997 and that in July 1997 the trade and assets of MSL were transferred to TMP. It is common ground that Mr Whitney’s employment was transferred to it by operation of law pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”). It is also common ground that under regulation 7 there is no statutory transfer of rights under an occupational pension scheme. However Mr Whitney contends that as a matter of ordinary contract TMP agreed to continue/replicate the pension entitlement of transferred employees. In support of this Mr Whitney relies on a number of matters including what he alleges were repeated assurances that their terms and conditions would remain the same after the transfer of ownership and the fact that on any view TMP novated the MSL Money Purchase Scheme. TMP disputes that any liability under the no detriment guarantee has been validly transferred.

If Mr Whitney succeeds on the first two issues there are a number of live issues of quantum. It is convenient to deal with the issues on quantum later in the judgment.

Evidence

Most of the events with which I am concerned took place either in 1989 or 1990 when the HAY-MSL Pension Plan was closed and between 1997 and 1998 when Holdings obtained control of MSL and Mr Whitney left TMP. Although a large number of witnesses were called to give evidence before me it is not surprising that their detailed memories of events 20 or 10 years ago was somewhat hazy.

Documentary Evidence

There is considerable documentary evidence dealing with a number of controversial areas in the case. There are documents relating to the creation or otherwise of no detriment guarantee. These comprise:

Position Papers and Memoranda prepared by Joan Blakeley, the Company Secretary relating to the closure of the HAY-MSL Pension Plan and its effect on employees.

Board Minutes relating to the winding-up of HAY-MSL Pension Plan,

An Addendum to a Memorandum written by Barry Curnow to the 30 key employees who are said to have been entitled to the no detriment guarantee.

There are documents that acknowledge the existence and contractual nature of the no detriment guarantee. These comprise:

Board Minutes, Notes or Memoranda prepared by the Company Secretary - Joan Blakeley - acknowledging the existence of the no detriment guarantee and payments made under it,

Correspondence between Joan Blakeley and employees (including Mr Whitney) acknowledging the existence and enforceability of no detriment guarantee

Correspondence between Garry Long (the then Chairman and owner of MSL) and employees setting out his view on the extent and enforceability of the no detriment guarantee.

There are documents relating to and following the takeover of MSL by TMP. These comprise:

The Disclosure Letter and warranties given by Garry Long in the Share Purchase Agreement

The Letter to Equitable Life under which TMP novated the contracts with the employees for MSL Money Purchase Scheme

Correspondence and/or file notes relating to the assessment of Mr Whitney’s compensation package following the decision of TMP to terminate his employment in December 1997.

Correspondence and/or file notes between TMP and two other employees (David Mather and John Lilley) in response to claims by those employees to entitlement under the no detriment guarantee.

Correspondence relating to a claim that Garry Long was liable under the warranties contained in the Share Purchase Agreement.

It is perhaps unsurprising that much of the trial was taken with a detailed look at this documentary evidence. Indeed the central submission of TMP on the first issue is that the Board Minutes establish only an intention to set up a scheme for 29 key employees. They do not establish that any such scheme was in fact made a term of the employee’s employment contract.

Oral Evidence

Despite the length of time that had elapsed a large number of witnesses were called to give evidence.

Mr Whitney was a member of the Executive Committee of MSL International (UK) Ltd from September 1989. He attended a Reward Meeting before being appointed to the Executive and most of the Board meetings thereafter where the pension arrangements were discussed. He was also involved in the discussions following the decision in October 1997 to terminate his contract.

Joan Blakeley was the Company Secretary for MSL. She was a Director of MSL International (UK) Ltd between 25^th April 1988 and 21^st January 1991. She was also a trustee of both the MSL Money Purchase Scheme and the HAY-MSL Pension Plan. She was highly involved in the discussions surrounding the closure of the HAY-MSL Pension Plan and was the author of a number of the memoranda and discussion papers that have survived. Following her retirement she was in receipt of benefits under the no detriment guarantee and is the author of a number of documents explaining the working of the no detriment guarantee.

Barry Curnow was the Chairman of MSL until January 1991. He was on the Hay Group Board and involved in the implementation of the decision to close the HAY-MSL Pension Plan. Following his departure he was a recipient of a payment under the no detriment guarantee.

Mr Brown was employed by MSL between 1985 and 1995. He ended up as a Regional Director in the Leeds Office. He became a Trustee of the HAY-MSL Pension Plan and was thus involved in the discussions leading to its winding-up. Mr Brown himself took early retirement and was in receipt of benefits under the no detriment guarantee.

Mr Lilley and Mr Mather were the two other key employees of MSL who have made claims against TMP under the no detriment guarantee. Mr Lilley wrote a letter to TMP in 1998 in which he asserted a claim to the no detriment guarantee. It was not answered by TMP. His claim against TMP is currently unresolved. Mr Mather entered into negotiations in 1998 to cap his rights under the no detriment guarantee. He took early retirement 2000. When he sought to enforce his no detriment guarantee at the age of 60 TMP refused to honour it. He issued proceedings which were ultimately compromised.

Mr Maxwell joined MSL as Group Financial Director in 1992. He was thus not involved with the no detriment guarantee at the outset. He was involved at the time of share purchase agreement and attended the meetings at which assurances were said to have been given as to the continuity of the terms of contracts of employment. He was also directly involved in writing the letter to Equitable Life which had the effect of TMP taking over and continuing the MSL Money Purchase Scheme.

TMP called no oral evidence relating to the events prior to the Share Purchase Agreement. It did, however, call a number of the Executives who were appointed by TMP in 1997 immediately after the take-over. These included Mr Dolphin and Mr Wilkinson, the Chairman and CEO of TMP at the time of the acquisition. Mr Dolphin was responsible for strategic decisions; Mr Wilkinson for running the day to day operations. In addition I heard evidence from Mr Upwood, the Company Secretary, Mr Farrant, a Consultant specifically engaged to negotiate Mr Whitney’s retirement package and Mr Cooney the then current Chief Financial Officer of TMP. One of the features of all of the witnesses called by TMP was that they had almost no recollection of any of the events surrounding the acquisition of MSL and the negotiations with Mr Whitney. The events took place nearly 12 years ago. Furthermore as both Mr Wilkinson and Mr Dolphin point out TMP was extremely acquisitive with the result that they were involved in over 200 companies all making demands on their time.

The Facts

Background

There are a number of companies within the “MSL” umbrella. No doubt for good commercial or historical reasons these companies were incorporated at different times and have had different names. Helpfully TMP’s solicitors have prepared a table showing the various companies and their name changes. I have included that table as an Appendix to this judgment to avoid setting the details out here.

In 1955 the first of the MSL companies was formed as a Management Selection Company. In 1963 together with the Hay Consulting Group (“Hay”) it formed Hay-MSL Selection and Advertising Limited. This Company was initially owned equally between MSL and Hay. However in the early 1980’s Mr Garry Long, MSL’s Chairman and majority shareholder sold MSL to Hay with the result that MSL became American owned.

In 1986 Hay together with its subsidiary, MSL, was sold to Saatchi & Saatchi. On 2^nd November 1992 MSL’s former Chairman, Garry Long purchased MSL from Saatchi & Saatchi. On 28^th February 1997 Garry Long entered into a Sale and Purchase Agreement under which he sold the shares in MSL to Holdings. As already noted with effect from 1^st July 1997 the trading activities in MSL were transferred to TMP.

Before 1983 MSL had its own pension fund for employees. However on 31^st December 1983 the MSL and Hay Pension Plans merged to become the HAY-MSL Pension Plan. Joan Blakeley became a trustee of the MSL pension fund in 1976 and remained a trustee of the merged fund after the merger.

For present purposes it is necessary only to set out the main terms:

Employees could join at the age of 30 and take benefits on retirement at 60.

It was a final salary scheme. The member was entitled to one forty-fifth of his final for each year of service whilst a member of the scheme. Thus after 30 years service a member would be entitled to two-thirds of final salary.

It was a contributory scheme. The employee would contribute 6% of his salary. The remainder of the contributions would be provided by the employer.

The trustees had a discretion as to whether to increase pensions. In deciding whether to exercise the discretion they were obliged to have regard to any increases in the RPI. In practice increases had occurred. The increases were never greater than 5% and usually were somewhat less.

The Scheme contained provisions relating to early retirement.

On the closure of the HAY-MSL Pension Plan there came into existence the MSL Money Purchase Scheme. This was also a scheme under which contributions were made by both MSL and the member. In summary:

Employees could join at the age of 25.

Employees who contributed would be entitled to a Company contribution of twice their own contribution up to certain ceiling limits that depended on the age of the employee. The limit was 8.75% of base salary up to the age of 35 rising to 17.5% at the age of 56.

For existing HAY-MSL Pension Plan members aged between 46 and 60 who contributed 6% of his earnings the Company would contribute the ceiling figure.

The normal retirement age was 60 but there were provisions for early retirement.

As at the date of retirement the moneys within the retiring member’s pension pot were used to purchase benefits. There were no guaranteed benefits as in a Final Salary Scheme such as the HAY-MSL Pension Plan.

Mr Whitney was born on 21^st April 1946. After leaving university he worked with CWS and United Biscuits. He joined MSL on 1^st January 1975 as a junior consultant in the advertising division. There is no doubt that he was a successful and key employee. In September 1989 he became a member of the Executive of MSL International (UK) Limited.

Mr Whitney joined the original MSL pension scheme on 1^st January 1979. He duly transferred to the HAY-MSL Pension Plan when the schemes merged in 1984. Following the closure of the HAY-MSL Pension Plan in 1989 he became a member of the MSL Money Purchase Scheme. There was some confusion in the evidence as to the precise date he joined MSL Money Purchase Scheme. However it was his evidence, supported by Joan Blakeley, that there was no gap in his pension contributions.

The Closure of the HAY-MSL Pension Plan

At the time of the sale of Hay to Saatchi & Saatchi a 3 year incentive plan was offered to a “marzipan” layer of management provided certain profit targets were achieved. In addition towards the end of the three year period there was considerable pressure from Saatchi & Saatchi to deliver profits.

According to the advice received from their actuary there was a surplus of funds in HAY-MSL Pension Plan over to the amount required to meet the pensions of the all current members of staff when they came to retire. The surplus had, of course accrued from the employer and employee contributions of Hay and MSL.

Accordingly there was a proposal by Hay to close the HAY-MSL Pension Plan and return the surplus to the respective companies. This would enhance the profits of the respective Companies for the purpose of the incentive plan and also relieve some of the pressure from Saatchi & Saatchi.

In view of the considerable amount of time that has passed since 1989 when the HAY-MSL Pension Plan was wound up it is fortunate that almost all of the contemporaneous documents relating to the closure have survived.

At this meeting Barry Curnow – the Chairman of MSL and a member of the Hay partnership – reported that Hay had implemented the decision to close the HAY-MSL Pension Plan to new members with effect from 1/10/1988. However the decision to operate a final salary scheme was the correct one for MSL.

At this meeting Barry Curnow stressed that Hay were keen to split the fund as soon as possible.

It was noted that a decision had been taken to split the Pension fund and that professional advice was being sought on the best way of safeguarding pensions.

On 20^th February 1989 Joan Blakeley prepared a memorandum on Pensions to the MSL International (UK) Ltd Board. In it she expressed her personal view of the position and also attempted to pose some of the questions and issues that confronted the Trustees of the Pension fund and MSL as an employing company.

A number of points emerge from this memorandum:

In paragraph 4 Joan Blakeley drew attention to the difference between the attitude in the USA and the UK to the closure of pension funds in order to obtain a refund of pension fund surplus. It is not common in the UK.

In paragraph 6 she drew attention to the advantages of a final salary scheme in that they confer protection against inflation. She also drew attention to the tacit agreement that pension fund surpluses would be used to fund discretionary increases in pensions payable to members.

In paragraph 10 she expressed a preference for MSL continuing with a final salary scheme with a 5% cost of living increase written into the rules in the event of a winding up.

In paragraph 11 she drew attention to what she described as the possible breach of trust to long serving members if any part of the surplus was refunded.

Joan Blakeley’s memorandum was considered by the Board on 16^th March 1989. It is plain from the minutes that there was a discussion on the issues that would arise if the scheme was wound up. A number of points were discussed including the reasons for the winding up (believed to be wrong), the possibly prohibitive costs of providing the same benefits under a new scheme. The Board resolved to take advice on the legal implications of winding up the existing scheme and the possible cost of a new scheme.

When he gave evidence Barry Curnow emphasised that he regarded the pension as part of the deferred remuneration of MSL’s employees. It was a key part of MSL’s success in keeping and attracting talented people that it had a generous remuneration policy. In his view it was regarded as shocking in the UK to contemplate the return of the pension surplus to the employing company.

There was further lengthy discussion of the Hay Group proposal to wind up the fund at the next board meeting on 11^th April 1989. Joan Blakeley was asked to prepare a position paper for the purposes of a meeting of the Pension Trustees due to take place on 18 April 1989.

The position paper is a lengthy 8 page document covering some of the same ground as the Memorandum she had prepared. After setting out a detailed historical perspective it sets out in 9 paragraphs MSL’s view on the proposal. Amongst the points made are:

The Board do not support the basic premise that a substantial repayment of past contributions should be made. Pensions in the minds of employees are ‘deferred pay’.

Existing employees should be dealt with on a “best fit basis” so as to ensure that there is no substantial loss of expectations within available funds.

There would need to be a “floor plan” to fund the pension entitlement under the winding up and the pension promised under the contract of employment and promises made from time to time. If accepted this would enable continuity of benefits to be maintained.

The Board believe that serious employee relations issues would ensue leading to probable defections unless proposals such as those summarised in the paper are put into effect.

When he gave evidence Barry Curnow made the point that he had opposed the decision to split the pension funds when it was discussed by the Hay Main Board on substantially the reasons set out in the paper. However he was overruled and thus had to implement the decision.

The position paper was tabled at the meeting of the Pension Trustees on 18^th April 1989. The Trustees sought advice from the scheme actuary on the benefits to be secured on dissolution of the plan, the costs of the floor plan and the benefits of winding up the plan. The trustees met again on 15^th May 1989 in order to consider the advice they had received. A report was prepared for the Board Meeting to be held on 18^th May 1989. In that report the cost of the floor plan was estimated to be £115,400. It made a number of recommendations to the Board including a recommendation that the contributions to the floor plan be a post profit sharing expense.

At the meeting of the Board the proposals in the report were accepted subject to a period of 7 days for further reflection.

Mr Whitney and Mr Evans were each invited to attend a meeting of the Reward Committee on 19^th June 1989 where the subject of Pensions was going to be discussed. Accordingly Joan Blakeley prepared “For Their Eyes Only” a Memorandum setting out the position as at that date.

Mr Whitney was not a Director of MSL at that stage and thus had not attended any of the previous Board meetings. When he gave evidence Mr Whitney said that he thought he learned about the impending changes in early 1989. He learned that Saatchi & Saatchi wanted a change and that Hay and MSL were going in different directions.

In the Memorandum Joan Blakeley summarised the salient points including:

Hay Group [meaning according to Barry Curnow Hay Group UK] had agreed to the winding up of the fund on condition that existing employees who were members of the fund were dealt with on a ‘no detriment’ basis

Notice had been given to the Trustees of the intention to wind up the fund with effect from 30^th September 1989.

At the meeting of the Trustees on 15^th April 1989 Mr Shapiro (an US actuary on behalf of Hay Group) put forward 3 proposals. Two more proposals were subsequently proposed one of which turned out not to be viable.

The Trustees felt unable to accept the proposals without taking views from the other partners in MSL. The Trustees felt that an opportunity should be given for the winding up notice to be withdrawn. If it is not withdrawn the Trustees would have no option but to proceed with the winding up.

Of the three options proposed by Mr Shapiro the Trustees favoured the first but were concerned that it was not just and equitable to active members.

Mr Whitney had some recollection of the meeting although, not surprisingly he could not remember the detailed discussion of the options. He said that his main concern was to protect the people who had been with MSL for a long time. He remembers that the meeting got quite heated and that people had objected to Saatchi & Saatchi trying to take money out of the pension fund. He said that there was a strong feeling that the company needed to be protected by making sure that key people were locked in.. He understood this to be by way of giving them a no detriment guarantee

At this meeting Joan Blakeley reported that the current proposal was to wind up the Pension Fund :

When she gave evidence Joan Blakeley agreed that there was a problem over affordability. She said that she thought this was the reason that the Board decided to limit the no detriment guarantee to the key group of workers.

There is a curiosity over dates. It is apparent from later minutes that the meeting of the Hay Group Board did not in fact take place until 20/7/89. Nothing turns on this.

On 3/8/89 Joan Blakeley wrote to the scheme actuaries informing them that MSL had agreed in principle to replace the HAY-MSL Pension Plan with a Money Purchase Scheme. She set out the contributions to be provided by MSL for employees of varying ages. The letter continued:

The letter contained relevant details of the 24 people then considered to be eligible for the no detriment guarantee.

On 8/8/89 the actuary replied providing a list of additional contributions necessary for each of the 24 employees. The additional contribution varied from 1% in the case of Joan Blakeley to 18% in the case of Mr B Jeffries.

On 31^st August 1989 the Trustees of the HAY-MSL Pension Plan sent a Memorandum to all Members setting out the proposals for the winding up of the scheme on 30^th September 1989 and the then proposals relating to the purchase of annuities for existing pensioners and members in service.

On the same day Barry Curnow sent a Memorandum to all MSL employees who were contributing to the HAY-MSL Pension Plan explaining the new pension arrangements under the MSL Money Purchase Scheme as summarised earlier in this judgment.

Barry Curnow also sent to approximately 30 employees (whose names were on a list headed “MSL No Detriment Guarantee”) an Addendum which stated

As might be expected there was a considerable amount of cross-examination devoted to this Addendum. On behalf of TMP Mr Croxford stressed the provisional nature of the arrangement and the fact that nothing was in place at that stage.

Mr Whitney’s evidence was to the effect that he had a number of conversations with Barry Curnow between the date of the June reward meeting and the date he received the addendum. Barry Curnow told him he had nothing to worry about. He was told that his pension would be protected and that he would be given a no detriment guarantee. When he got the Addendum he filed it. He was aware that there was no Top Up Scheme in Place. However he had been told that he had the no detriment guarantee and he trusted Barry Curnow.

Barry Curnow did not accept that employees who received the addendum were not being given a no detriment guarantee. In his view the no detriment guarantee came into effect when the Hay Group Board agreed to it (on July 20). There was ongoing work as to the implementation of the new scheme and to keep the staff motivated. In his view the no detriment guarantee was in force at the time and he was informing people of progress towards the new arrangements.

His evidence was that in those days employees trusted the Company. It would have been incomprehensible for the Company to break its word. They were told that they would be no worse off as a result of the employers seeking to extract the surplus form the scheme.

David Mather joined MSL in 1987 as Regional Manager based in Manchester. He joined the HAY-MSL Pension Plan and was one of the 30 key employees who received the Addendum prepared by Barry Curnow. He remembered discussions with his line manager – John Hodgson – relating to the no detriment guarantee. John Hogson confirmed to him that the no detriment guarantee had come into effect. He was aware of discussions that were going on but he had what he described as “constant reassurance from colleagues that the no detriment guarantee applied” and that he was entitled to it. That was one of the reasons he stayed on.

Anthony Brown joined MSL in 1985. He became Regional Director for the north of England and remained based at MSL’s Leeds office throughout his employment. He joined the HAY-MSL Pension Plan and was also a trustee of the scheme from 1987. In his witness statement he, too referred to considerable degree of trust between employees and managers. He received addendum and knew that discussions were taking place. As far as he was aware no Top Up Scheme was ever created. Nevertheless he was of the view that there was in existence a contractual right to the no detriment guarantee. Indeed in paragraphs 17 and 18 of his witness statement he emphasises that as a trustee he was only prepared to agree to the transfer of assets to the MSL Money Purchase Scheme on the basis that the funds would be used to enhance existing members’ benefits. Part of this was the contractual right to the no detriment guarantee.

John Lilley joined MSL in 1985 and became a Regional Director for Nottingham. He received the addendum. As far as he was aware there was no Top Up scheme created. He was told later that he was a beneficiary of the no detriment guarantee. He did not pursue the matter earlier because he had been told to keep matters confidential and did so.

This was the first meeting attended by Mr Whitney as a new member of the Board. Barry Curnow reported the agreement of the Trustees to the level of benefits to the existing members on the winding up of the scheme. He also reported the resolution passed by the Hay Group Board on 20^th July 1989 of a no detriment guarantee including increases guaranteed at 5% for pensions in payment. The Minute continues:

The Minute went on to suggest that the Company would provide additional contributions by means of a separate pot within the MSL Money Purchase Scheme to fund the potential shortfall. These contributions were estimated to be 12% of the salaries of those given the guarantee or about £120,000 per annum

In fact this did not happen. There was no side letter. There was no separate “pot”. There was no reference to the no detriment guarantee in the accounts.

Despite this Mr Whitney, Barry Curnow, and Joan Blakeley were all adamant that the no detriment guarantee was a contractual obligation and had come into effect.

The next reference to the no detriment guarantee appears in the Minutes of this Meeting. After noting that there had been no further communication since the 30^th August Memorandum to the 30 members who are to be part of the “Top Hat” Scheme the Minute continues:

When she gave evidence Joan Blakeley made the point that the route suggested in the Minute was not followed. The technical difficulties referred to in the Minute are set out in paragraph 15 of Joan Blakeley’s statement. There were ongoing discussions with the Superannuation Funds Office (SFO) whose approval was necessary before any repayment of the residual surplus to the employer. The conditions set by the SFO would have disadvantaged some members of the HAY-MSL Pension Plan. This eventually led to the decision to rescind the surplus to the employers being rescinded.

It is plain from the Minutes at this meeting that the question was revisited but that no progress had been made:

When he gave evidence Barry Curnow accepted that there was no Top Hat Scheme at that stage; however it was his view that there was a no detriment guarantee. This was also Mr Whitney’s view. He accepted that there was a delay in setting up the funding for the scheme but, in his view, the no detriment guarantee had been given.

The next references to the arrangements in the Minutes are contained in the minutes for the meeting on 24^th January 1990. At that stage the Trustees were awaiting SFO approval before paying Transfer values. A number of replies were outstanding from active members concerning the winding up options from the HAY-MSL Scheme. Allan Jones of Equitable Life had been instructed to investigate methods of separating funding for the Top Hat part of the Money Purchase Scheme.

There is some doubt whether Joan Blakeley did send this letter to the 30 members. Barry Curnow thought that none was sent. Joan Blakeley had no specific recollection but expected that she did send a letter. If she did send it, it has not survived.

At this meeting concern was expressed at the delay in winding up the old HAY-MSL Pension Scheme. However Barry Curnow advised that SFO approval had finally been obtained so that the winding up could be completed.

The distribution of the surplus had been agreed and was to be transferred to the Trustees of the two new Hay and MSL funds. The minutes record 2 action points:

Transfer values, including interest were to be paid to members in June 1990

The Company was to write to employees confirming the new pension arrangements where they were unclear.

No letter was sent to employees. At some date, although it is not clear when, Transfer values were credited to the MSL Money Purchase Scheme. It was Joan Blakeley’s view that the no detriment guarantee was in place at that stage even though there was no formal “Top Hat” Scheme.

At this meeting Joan Blakeley reported that the winding up of the HAY-MSL Pension Plan was nearing completion, that the surplus was likely to be close to £3 million rather than the £1.7 million that had been predicted. As a result a special one off payment of 4% was made to all pensioners.

According to Joan Blakeley the no detriment guarantee was thus to be funded out of the surplus rather than any contributions from MSL.

In fact the surplus amounted to £2,880,000. On 3^rd October 1990 this sum was paid to The Equitable Life Assurance Society (“Equitable Life”) which was also receiving the contributions to the MSL Money Purchase Scheme. A further sum of £306,000 was paid to the Equitable Life in February 1991, making a total surplus of £3,186,000. Equitable Life managed the contributions to the MSL Money Purchase Scheme and the surplus under two different references.

On 7^th January 1991 Barry Curnow resigned as Chairman of MSL. It is not necessary to go into the reasons. They are set out in the Minutes of the Board Meeting. The meeting was attended by Patrick Wiener who was a representative from Saatchi & Saatchi the then ultimate owners of MSL.

Following the resignation Barry Curnow agreed severance terms with Patrick Wiener. Those terms included a payment to Barry Curnow in respect of the no detriment guarantee. When he gave evidence Barry Curnow said that it was clear to everyone that he was entitled to a payment under no detriment guarantee. As one of the 30 key employees he was entitled to be no worse off than under the old HAY-MSL Pension Plan.

Garry Long became Chairman of MSL following the departure of Barry Curnow. In November 1992 he acquired ownership of MSL from Saatchi & Saatchi.

At the request of Garry Long on 13^th February 1991 Joan Blakeley prepared a memorandum on the Pension Fund Surplus. Paragraphs 5, 6 and 7 deal with the no detriment guarantee.

Paragraph 5 includes the following:

The list provided by Joan Blakeley included Mr Whitney. In paragraph 6 she estimated the then value of the surplus as being £3,113k In paragraph 7 she estimated the funding requirements of Barry Curnow’s and her early retirement and benefit under the no detriment guarantee as being such as to reduce the £3,113k to £2,897k

In a further Memorandum prepared by Joan Blakeley on 27^th January 1992 she recorded that the surplus pot had funded the no detriment guarantee for 3 people:

On 27^th November 1991 Mr Whitney’s financial advisors, Stafford & Co wrote to Joan Blakeley with a query about Mr Whitney’s pension entitlement. After setting out details of the transfer to the MSL Money Purchase Scheme the letter goes on:

Joan Blakeley replied on 16^th December 1991 in unequivocal terms:

The letter sets out how the pension Mr Whitney would have received from the HAY-MSL Pension Plan was calculated and finishes:

On 5^th May 1992 Joan Blakeley wrote to the actuary asking for an estimate of the costs of funding the no detriment guarantee in respect of the eleven people still potentially eligible to claim under it. She invited the actuary to make various assumptions on salary increases and yields on the fund. She included in her letter the 5% escalator in respect of the pension. The list included Mr Whitney. It is not necessary to set out details of the reply. The estimate of costs varied considerably depending on the assumptions that were made.

In a Memorandum dated 3^rd September 1992 that Joan Blakeley sent to Garry Long she stated that the fund was valued at £2,662.716 and gave a maximum budget for buying out the no detriment guarantee as being £578,000. It appears that by that time a further payment of £45,206 had been made in respect of the no detriment guarantee.

In October 1992 David Mather raised the question of the no detriment guarantee with Joan Blakeley. On 13^th October 1992 Joan Blakeley wrote to him a letter in very similar terms to the letter of 16^th December 1991. In effect she said that Barry Curnow’s Addendum had “evolved” into the no detriment guarantee. She then set out her understanding of the guarantee in the same terms as in the letter of 16^th December 1991.

In evidence she was asked why she used the word “evolved”. She did not know but said that the whole matter went back to the Board meeting after Barry Curnow came back from the Hay main board meeting in America [presumably she was referring to the meeting of 20^th July 1989].

It will be recalled that Garry Long acquired ownership of MSL in November 1992. In the middle of 1993 there was a proposal to make Richard Town redundant. Mr Town had been one of the 29 employees on Barry Curnow’s list and thus was eligible for the no detriment guarantee in so far as it was enforceable. There was some correspondence relating to Mr Town’s redundancy package which included some discussion of the no detriment guarantee.

On 23^rd March 1993 Garry Long wrote to Mr Town a letter making various suggestions. The letter included the following paragraph:

The solicitors acting for Mr Town wrote to Garry Long raising a number of queries one of which related to the no detriment guarantee. On 23^rd April 1993 Garry Long replied:

A compromise was reached with Mr Town over his redundancy package. The terms are recorded in a letter dated 30^th June 1993 which he signed. It is plain from the terms of the compromise that MSL honoured the no detriment guarantee and Mr Town was provided with an enhanced pension.

In a memorandum sent by Joan Blakeley to Garry Long on 4^th February 2004 it was recorded that £73,713.56 had been paid in respect of Mr Town’s no detriment guarantee. At that time the pension fund surplus was valued at £2,506,258.42.

In April 1994 Joan Blakeley requested from the actuary a further estimate of the cost of funding the no detriment guarantee. At that time there were some 7 of the 30 employees still employed by MSL. On 25^th April 1994 the actuary provided 4 separate estimates varying between £220,000 and £591,000

In late 1994 there was a proposal to refund part of the pension surplus to the Company (by then MSL Group Ltd). It is plain from the Board Minutes of a Meeting held on 19^th December 1994 that Joan Blakeley presented a report on the topic. Amongst the matters that were discussed by the Board was a proposal to ‘ring fence’ a reserve fund for the seven members with a no detriment guarantee. The Minutes also record the Board’s view that the surplus did not belong to current members of the MSL Money Purchase Scheme with the exception of those with the no detriment guarantee.

Joan Blakeley prepared a further report for a Board Meeting to be held on 19^th January 1995 in which she repeated the views that had been expressed in the previous Board Meeting.

The matter was further considered at a Board Meeting on 15^th February 1995. By that time the proposal to ring fence part of the surplus had been dropped but the no detriment guarantee was expressly recognised as a company undertaking. The minutes include:

In 1996 there were a number of proposals either to float or sell MSL. As already noted the sale to Holdings did not in fact take place until February 1997. On 11^th September 1996 David Mather wrote to Garry Long about his pension. In the letter he referred to the commitment given to him at the time the HAY-MSL Pension Plan that his final pension would be no worse than the previous final salary scheme. He made the point that fewer people remain at MSL to whom this commitment was made and he asked if an appropriate injection could be made into his basic money purchase fund to achieve the agreed commitment.

Garry Long replied on 2^nd October 1996. In it he said:

When he gave evidence Mr Mather described this response as somewhat terse. He however said that he had many conversations about the no detriment guarantee when it had repeatedly been confirmed that it applied to him. He said that he was originally informed that changes were being made to the pension scheme. He was told that the Board wanted to keep key personnel and that the no detriment guarantee would apply to him.

I was referred to a number of other documents relating to the period prior to the sale to Holdings. They add little, if anything to the picture painted by the other documentation. I list them only for completeness:

In January 1995 some £93,521.35 was paid to fund the no detriment guarantee for Anthony Brown

In May 1996 Joan Blakeley send a Memorandum to Bertie Maxwell (the then Group Finance Director) setting out that there were then 6 employees with a no detriment guarantee and giving an estimate that

The Sale and Purchase Agreement

The share sale agreement from Garry Long to Holdings contained a number of warranties. Warranty 12 relates to Pensions. Under warranty 12(f) there is express reference to the no detriment guarantee as follows:

The Disclosure letter contains details of the no detriment guarantee. In particular it states that a no detriment guarantee was given to key employees on the winding up of the HAY-MSL Pension Plan. Included within the documents so disclosed was a Background Brief which included:

An explanation of the surplus on the winding up of the HAY-MSL Pension Plan.

A statement that MSL’s share of the surplus was being used to fund MSL’s then current contributions and also the no detriment guarantee given to key employees at the time.

An explanation of the effect of the guarantee including an assertion that it included increases of 5% per annum for pensions in payment.

A statement that there were 6 employees with a no detriment guarantee.

A statement that as at 31^st December 1996 the reserve fund amounted to £1,568,000 of which possibly £200K+ should be earmarked for the no detriment guarantee.

In addition to the information in the disclosure letter some further information was provided in letter sent by Joan Blakeley to Mr Jason Butler at Jackson Batten Financial Group (who were advising Holdings) on 12^th February 1997

Thus full disclosure of the no detriment guarantee was made at the time of the sale to Holdings. Furthermore there was no suggestion in the documentation that it was anything other than a contractual undertaking by MSL.

Events following the Share Sale

Meetings at the time of the transfer.

TMP was ultimately owned in the United States by Andrew McKelvey. At or about that time Mr McKelvey was highly acquisitive and purchased a large number of Companies. In the course of his evidence Mr Dolphin told me that by 2006 there were some 4,500 employees in over 35 countries. Mr Cooney told me that for much of the relevant time he was a Director of some 290 companies.

In any event Mr Whitney’s evidence is that on 24^th January 1997 (that is to say about a month before the completion of the sale) the whole of the staff from all of the offices attended a meeting at London Zoo attended by both Garry Long and Mr McKelvey. At that meeting Mr McKelvey made it clear that no-one would lose their job and that TMP would honour every MSL commitment including pay and benefits.

Shortly after the completion of the share sale there was a meeting at 32 Aybrook Street attended by all the advertising directors of MSL including Mr Whitney, Mr McKelvey, Mr Wilkinson (who was appointed Chief Executive of TMP) and Mr Dolphin (who was appointed Chairman of TMP). Mr Whitney recollects being told at that meeting that the contracts of employment and benefit packages would remain unaltered for the time being. It was accepted that there might be anomalies but there was no intention to do anything about it whilst agencies were being bought. Mr Whitney’s evidence about both these meetings is corroborated by the evidence of Bertie Maxwell.

In cross-examination Mr Whitney stuck to this evidence even though he accepted that he had originally thought that the London Zoo meeting took place after the acquisition. He said that at the Aybrook Street meeting people were asking questions about their jobs. He said that the TMP management were at pains to put everyone’s minds at rest. He made the point that his biggest job was to integrate the agency and to do this he had to spread the word that everyone’s terms and conditions would remain unaltered.

Mr Wilkinson and Mr Dolphin were asked about these meetings and the assurances. Both remembered that the meeting at Aybrook Street had taken place but neither could remember what was said. Both emphasised how busy they were at the time. In his witness statement Mr Dolphin says that it is unlikely that he would have discussed the terms and conditions of the employment of senior managers.

Transfer of Pension Fund.

In March 1997 – that is to say after the share sale but before the transfer of the business to TMP – a payment was made to Mr Jeffries under the no detriment guarantee. £144,813 was transferred to Mr Jeffries’ personal pension plan.

On 9^th July 1997 Joan Blakeley sent a long briefing note to Bertie Maxwell about the MSL pension scheme. Paragraph 6 of the briefing note deals with the no detriment guarantee. It points out that 5 people have the benefit of the guarantee and contains information on how it is to be calculated.

On 31^st July 1997 Bertie Maxwell, as Finance Director of TMP, wrote to Equitable Life informing them of the sale to Holdings on February 28^th 1997 and of the transfer of the trade and employees of MSL to TMP on 1^st July 1997. It also stated that the pension scheme would continue with future contributions being made by TMP.

It is common ground that the MSL Money Purchase Scheme did indeed continue and that employer contributions were subsequently made by TMP. Those contributions did, however, come out of the surplus. TMP therefore continued the pension holiday that MSL had enjoyed prior to the share sale agreement.

Termination of Mr Whitney’s employment and subsequent negotiations.

It is not necessary to go into the reasons why TMP decided to dispense with Mr Whitney’s services. It is, however, common ground that Mr Dolphin came to Mr Whitney’s office on 8^th October 1997 and informed him that TMP wished him to leave. According to Mr Whitney he stated he was prepared to leave on the understanding that there was a swift agreement on a number of matters including his pension rights. Mr Whitney explained to Mr Dolphin that the pension provisions were complicated and he mentioned the no detriment guarantee.

Mr Dolphin had no recollection of this or indeed of anything that was said at the meeting. He said it was unusual for someone who was dismissed to go into the terms at the first meeting. Normally they needed a day or two to reflect before they started negotiating the leaving package.

According to Mr Whitney he had a number of meetings with Mr Farrant over the next month to discuss his package. During the course of the conversations he specifically mentioned the no detriment guarantee.

On 29^th October 1997 Mr Farrant sent Mr Wilkinson a memo setting out the points discussed. It is plain from the memo that one of the issues still remaining related to his pension. There is a specific note to the effect that:

By the end of October it had been decided that Mr Whitney would leave at the end of the year.

According to Mr Whitney he met with Mr Wilkinson and Mr Dolphin on 12^th November 2007. He says that a leaving package of £105,000 was agreed at that meeting. Mr Whitney says that he was assured that he would receive in full what ever he was entitled to under his pension and that TMP would honour any pension entitlements due from MSL.

Neither Mr Wilkinson nor Mr Dolphin had any recollection of this meeting. Mr Wilkinson recollects that at some time in the negotiations he became aware of the no detriment guarantee. He does not remember ever giving any assurance that it would be honoured.

Mr Whitney says that he accepted the package on the basis of the assurances.

There was at that stage a significant (and to Mr Whitney very annoying) delay in obtaining the figures in relation to the no detriment guarantee. On 22^nd December 1997 Mr Whitney wrote and hand delivered to Mr Dolphin a letter complaining about the 10 week delay in obtaining figures for his pension entitlement. The letter specifically drew Mr Dolphin’s attention to the fact that the quotation from the Equitable Life under the MSL Money Purchase Scheme was much less what he would have expected under the HAY-MSL Pension Plan.

On 23^rd December 1997 Mr Farrant wrote to the Equitable Life seeking a calculation of the pension that Mr Whitney would be entitled to at 60 under the HAY-MSL Pension Plan and the amount that TMP would have to put into the MSL Money Purchase Scheme in order to ensure that he would get a pension equal to that under the HAY-MSL Pension Plan.

Mr Farrant received the figures from Equitable Life. With the approval of the Company Secretary – John Upwood he then wrote to Mr Whitney giving him 2 options – Retirement at 60 - £63,431 p.a or at 52 - £36,156 p.a. He asked Mr Whitney which option he was going to take in order to make the necessary arrangements.

Mr Whitney consulted his own financial advisor who wrote to Mr Farrant seeking a transfer value. Equitable Life provided a transfer value of £1,061,778. As the current transfer value of Mr Whitney’s benefits under the MSL Money Purchase Scheme amounted to £292,013 this gave rise to a potential claim under the no detriment guarantee of £769,765

It is not necessary to go into detail of the events following this. Mr Whitney suggests that on 30^th April 1998 he had a conversation with Mr Cooney. In that conversation he was told that there was a large pension gap and that as a result TMP were going to reduce his package to £46,000. Mr Whitney wrote a letter to Mr Cooney with a copy to Mr Dolphin complaining about this. In that letter he made the point that at no stage previously had there been any dispute as to TMP’s agreement to fund his pension entitlement.

Potential claim against Garry Long

On 30^th April 1998 Orchards on behalf of TMP wrote to Garry Long giving formal notice of a claim under warranty 12(f) of the Share Purchase Agreement. The letter pointed out that Mr Whitney was only one of 6 employees to which the no detriment guarantee applied. In the light of the size of his claim the amount required to fund the no detriment guarantee was likely to exceed the pension fund surplus of £1,568,000.

On 20^th May 1998 Rowe & Maw on behalf of Garry Long replied. The letter included:

In a more detailed letter dated 22^nd June 1998 Rowe & Maw elaborated on the assertion that the no detriment guarantee was not intended to be contractually binding. It is not necessary for me to set out the reasons put forward in the letter.

The matter seems to have rested there. No claim was ever made by TMP against Garry Long under the terms of warranty 12(f).

Harmonisation, John Lilley and David Mather

In March 1998 TMP set about trying to harmonise the contracts of employment of its employees many of whom had been acquired as a result of different acquisitions. In the result a letter was sent out by Mr Wilkinson to employees setting out existing benefits, TMP’s proposals as to future benefits and (where appropriate) an offer of compensation in respect of any loss of benefits. Mr Whitney, of course, did not receive such a letter.

The letter that was sent to both Mr Lilley and Mr Mather stated that existing pension schemes were closed to new members but that existing membership would continue. The schedule indicated that they were members of the MSL scheme. Mr Lilley responded to the letter on 9^th April 1998. Amongst other points he raised in the response was that his pension rights were protected at the levels of the HAY-MSL Pension Plan. In his witness statement Mr Mather says that he sent a handwritten note to Mr Wilkinson making the same point. There was no reply to the letter or note.

In December 1998 an attempt was made by TMP to freeze the rights of Mr Mather and Mr Lilley under the no detriment guarantee. In effect they were invited to freeze their pensionable salary at its then current level. If they did not agree there would be no more salary increases. In a memorandum dated 10^th December 1998 Mr Mather agreed to the cap on his pensionable salary on the basis that the no detriment guarantee would be in force for a salary of £65,000. The memorandum has some relevance to another issue because it refers to the annual increase as being 4% or RPI as opposed to the 5% referred to in Joan Blakeley’s letter. There is evidence that TMP agreed to this because in November 1999 there is an e-mail from Mr Upwood to Mr Wilkinson and Mr Dolphin referring to “the augmentation promise” made to MSL employees. The e-mail appears to acknowledge that Mr Mather is entitled to make contributions of 6% up to the salary cap and 8.75% on his salary over the augmentation promise.

Mr Mather took early voluntary redundancy in March 2000. Following his 60^th birthday he sought to enforce the no detriment guarantee. It was necessary for him to issue proceedings which were compromised. In evidence he stated that his claim was for £365,000 and compromised for £125,000.

Mr Lilley did not accept the proposal to freeze his pensionable salary and in consequence did not receive any salary increases. He, too, took voluntary redundancy in March 2000. His solicitors entered into some “without prejudice” correspondence relating to his redundancy package. In the course of that correspondence TMP acknowledged that Mr Lilley was one of the 30 employees provided with a “no detriment promise” by former management and that the application of “the promise” was unaffected by the compromise. Mr Lilley’s position is that he expects TMP to honour the no detriment guarantee in full.

The First Issue – Was Mr Whitney entitled to a legally enforceable no detriment guarantee against MSL?

It is convenient to deal with questions such as lack of certainty and lack of consideration after considering the fundamental question of whether there was ever an agreement to provide 30 key employees with a no detriment guarantee at all.

Was there an agreement?

As already noted Mr Croxford’s principal submission is that there was no concluded agreement to give the 30 key employees a legally enforceable no detriment guarantee. He accepts that there was an intention to benefit the 30 key employees but it was an intention that was never put into effect.

He relies heavily on the contemporaneous documents all of which I have set out earlier in this judgment. In particular he drew my attention to:

the 31/8/89 Addendum. He referred to the words “with a view to introducing a Supplementary Executive Top Up Scheme”. This shows that there was no scheme in force at that date.

the 19/9/89 Board Meeting. Whilst the minutes refer to the giving of the guarantee, there was no side letter as envisaged by the Minutes. Furthermore the method of funding (additional contributions) never took place. Thus the proposals in that Minute did not come into effect.

the 30/11/89 Board Minute. Whilst the Minute referred to the no detriment guarantee it also referred to technical difficulties, the sending of a holding letter to the 30 key employees, and the proposal to pay contributions to the individuals. Thus the proposals did not come into effect.

the 30/12/89 Board Minute. The reference to a further communication and the technical difficulties showed that no detriment guarantee was not by then in force.

the 24/1/90 Board Minutes. Mr Croxford relied specifically on the investigations then being carried out by Allan Jones and the reference to the delay in implementing the Top Hat Scheme.

the lack of any further reference in the Minutes to the no detriment guarantee, the Top Hat Scheme or the Supplementary Executive Top Up Scheme at the time (May 1990) when it became apparent that the surplus was not being returned to the employer but was being kept as a separate fund or at the time (September 1990) when the surplus was paid to the Pension Fund Trustees.

Mr Croxford reminded me that the relevant events took place more than 20 years ago. In those circumstances he invited me to reject the oral evidence of Mr Whitney’s witnesses where it was inconsistent with the Minutes. He submitted that Joan Blakeley was mistaken in the 13/2/91 Memorandum to Garry Long when she said that ‘the no detriment … has not been implemented in a contractual way other than to 30 key employees’. Letters written by Joan Blakeley to Mr Whitney in December 1991, to Mr Mather in December 1992 were vitiated by the same mistake.

He referred me to the correspondence from Rowe & Maw in 1998 and to Mr Town in 1993 as exemplifying Garry Long’s view that there was in fact no contractual right to a no detriment guarantee.

He accepted that payments had been made pursuant to the no detriment guarantee. He submitted that there was no contractual obligation to make them. He pointed out two of the first three payments were to Joan Blakeley and Barry Curnow. He suggested that many of the payments were made as a result of compromises and thus did not establish a liability to pay.

Whilst I see the force of Mr Croxford’s submissions I cannot accept them. In my view the no detriment guarantee had evolved from a statement of intention to (subject to points relating to certainty and consideration) a legally enforceable obligation in respect of the 30 key employees. My reasons – which largely follow the very careful and full submissions of Mr Carr Q.C. are as follows:

Whilst it is true that relevant events took place 20 years ago there is a consistent body of oral evidence to the effect that the 30 key employees were contractually entitled to the no detriment guarantee. In particular Mr Whitney, Barry Curnow, Anthony Brown, Joan Blakeley, Mr Mather and Mr Lilley all gave evidence to the same effect albeit that their sources of information were different. It was not suggested that any of them were dishonest witnesses. Thus TMP would in effect have to show that their combined recollections were all wrong.

There was, as is plain from the Position Papers and the Minutes, a good commercial reason for giving key employees a no detriment guarantee. As was made clear MSL’s business success depended on the skill and loyalty of its key employees. The final salary scheme provided a means to keep its staff. There was recognised to be a risk that key employees would leave if the reduced pension provision of the MSL Money Purchase Scheme was provided.

It may well be that up until May 1990 there was no enforceable no detriment guarantee. It is plain that in the autumn of 1989 and the early part of 1990 concerns were being expressed as to the method of funding the no detriment guarantee. I do not have to decide whether it was in force at the time those concerns were being expressed. Barry Curnow, Mr Whitney and Joan Blakeley all seemed to think it was. The position changed radically in May and September 1990 when it was appreciated that the pension fund surplus of nearly £3 million was to remain within the assets of the pension fund. Such a sum was believed to be more than sufficient to fund the no detriment guarantee. In those circumstances there were no further problems or technical difficulties in the way of the no detriment guarantee.

Whilst there are no contemporaneous documents at the time of the creation of the no detriment guarantee which confirm its existence, the Memorandum of 13/2/91, the letters of 16/12/91, 13/10/92 from Joan Blakeley, 23/3/93 and 2/10/96 from Garry Long all recognise a contractual entitlement to a no detriment guarantee. Thus there are near contemporaneous documents that support Mr Whitney’s case. There is no reason to believe that Joan Blakeley was mistaken in her description of the contractually binding nature of the no detriment guarantee.

The Board Minute of 15/2/95 expressly recognised that “the no detriment undertakings … ultimately remain, as now, a company undertaking”. Thus there was express recognition in the Board Minutes of the contractual nature of the no detriment guarantee.

Whilst it is true that Garry Long has expressed the view that the no detriment guarantee was not binding, that was at a time when he was facing a claim under the warranty and is inconsistent with the other documents outlined above including documents written by Garry Long himself.

The payments that have been made under no detriment guarantee are, to put it no higher, consistent with having been made under a contractual obligation.

It was common ground between Mr Croxford and Mr Carr Q.C that I have to view the matter objectively and to look at all the circumstances in determining whether the no detriment guarantee amounted to a contractual obligation rather than a mere statement of intent. For the above reasons I have come to the relatively clear conclusion that at least after October 1990 the no detriment guarantee amounted to a contractual obligation rather than a non-binding statement of intent.

Was there consideration?

As I noted in the introduction it was at one stage suggested that Mr Whitney gave no consideration for the no detriment guarantee. This was not a point that Mr Croxford pushed very hard in his closing submissions but, as I understood it, he did not abandon it.

In any event I agree with Mr Carr Q.C that it is a bad point. I accept Mr Whitney’s evidence that he was aware of the no detriment guarantee and he continued to work for MSL when it was in place.

Mr Carr Q.C referred me to the decision of Connell J in Lee v GEC Plessey [1993] IRLR 383 paragraph 117 – 118 where he accepted the argument that a continuation to work normally amounts to adequate consideration for any change in the terms of the employment.

In this case, of course, MSL were seeking to change the terms of Mr Whitney’s employment by removing him from the HAY-MSL Pension Plan. In those circumstances the continuation of employment was more than adequate consideration for the no detriment guarantee.

Is it void for lack of certainty?

As Mr Carr Q.C point out this is an unattractive point and only marginally less so than if it were being made by MSL prior to the transfer to TMP. It is particularly unattractive in circumstances where Mr Whitney remained in employment with MSL for many years after the no detriment guarantee was given and on the basis that it had been given and left only when forced to do so by the Defendant in 1997

Even if the no detriment guarantee is not comprehensively spelt out in a written document, the contractual intention is clear enough – the 30 key employees were to be no worse off than they would have been had they remained as members of the Hay-MSL Scheme. .

There is no requirement that the no detriment guarantee be “drafted with strict legal precision”. As Chitty records:

Both MSL and various beneficiaries of the no detriment guarantee have acted on the no detriment guarantee since 1990.

In my view the no detriment guarantee does not fail for lack of certainty.

What were the controversial terms?

There are 2 areas where there has been some doubt as to the terms of the no detriment guarantee.. The first relates to an alleged entitlement to a 5% increase per annum compound in respect of pensions in payment. Such a term would place Mr Whitney in a better position than he would have been under the HAY-MSL Pension Plan. Under that scheme the Trustees had a discretion to increase payments on an annual basis having regard to the increase in the cost of living.

The first clear enunciation of this alleged term appears in the Letter from Joan Blakeley of 16/12/91. Other documents refer to different figures. Thus in the letter of 3/8/89 to the actuaries Joan Blakeley referred to a 5% RPI increase. Other documents contain references to 3%. Mr Mather’s Memorandum referred to 4%.

In his closing submissions Mr Carr Q.C referred me to the Board Minute of 19/9/89. However whilst it is true that that Minute proposed increases of 5% per annum for pensions in payment it also proposed quite different proposals for members in service such as Mr Whitney.

As at 1989 the increases approved by the Trustees had in fact been less than 5%. In all the circumstances I am not satisfied that it was ever an express term of the no detriment guarantee that the recipient should be entitled to automatic increases of 5% p.a. Rather Mr Whitney is merely entitled to be put in no worse position than he would have been under the HAY-MSL Pension Plan.

The second area of supposed uncertainty relates to early retirement/dismissal. It is suggested by TMP that the no detriment guarantee only comes into play if the employee works for MSL until the age of 60 (or perhaps takes early retirement). Different views have been expressed on this in the correspondence. Furthermore it has to be acknowledged that in almost every case where the no detriment guarantee has been honoured the recipient has been under 60. It is by no means clear that he or she has retired. There is nothing in the Minutes to suggest that such a term was ever expressed. The HAY-MSL Pension Plan contained rights to a deferred pension in the case of early departure. If a term such as this was to be incorporated into the no detriment guarantee the recipient would be in a worse position than under the HAY-MSL Pension Plan in the event of early retirement. In all the circumstances I am not satisfied that any such term is to be incorporated.

Issue 2 – Was the liability of MSL transferred to TMP following the transfer on 1 July 1997?

TUPE

There is now no dispute between the parties as to the effect of TUPE. I can therefore summarise the position from Mr Croxford’s closing submissions (with minor amendments):

to so much of a contract of employment or collective agreement as relates to an occupational pension scheme within the meaning of the Social Security Pensions Act 1975[...]; or

to any rights, powers, duties or liabilities under or in connection with any such contract or subsisting by virtue of any such agreement and relating to such a scheme or otherwise arising in connection with that person's employment and relating to such a scheme.

Novation

Mr Croxford submits that there was no novation of Mr Whitney’s rights when the trade and assets of MSL were merged into TMP in July 1997. In support of this submission he made a number of points:

He invited me to reject the evidence of Mr Whitney and Mr Maxwell that assurances were given at the meetings at London Zoo and immediately after the acquisition. He made the point that both Mr Whitney and Mr Maxwell made mistakes in their first witness statement in suggesting the London Zoo meeting took place after the acquisition. He sought to rely on Mr Dolphin and Mr Wilkinson’s evidence that it is unlikely that there was any such assurance at the initial meetings.

He made the point that Mr McKelvey was not an officer of TMP and thus any assurance by him would not bind TMP. Furthermore assurances related to the period following the share purchase in February 1997 and not to the Transfer of the undertaking in July 1997.

He suggested that the words used at the two meetings were “warm words” and did not have any contractual force.

He said that Mr Whitney was not entitled to rely on the information contained in the Disclosure Letter. He made the point that Holdings and not TMP were the purchaser of the shares. Information imparted to Holdings could not be imputed to TMP notwithstanding that TMP was a wholly owned subsidiary of Holdings.

He refuted any suggestion that the burden of proof lay on TMP to establish that it had not agreed to be bound by the no detriment guarantee. He maintained that it was for Mr Whitney to establish that TMP had so agreed.

He made the point that there was no express documentation or other conversation between Mr Whitney and TMP relating to the no detriment guarantee. Indeed the only relevant documentation was the letter sent by Mr Maxwell to Equitable Life on 31^st July 1997. That letter only applied to the MSL Money Purchase Scheme. Thus he submitted that the letter can only be regarded as an acceptance of responsibility for providing contributions to the MSL Money Purchase Scheme, and nothing more. It therefore shows that the provision of that self-contained scheme was novated to TMP, with no attendant novation of any separate no detriment guarantee.

Whilst he accepted that this construction might seem harsh it was, he submitted in accordance with the policy underlying TUPE.

Mr Carr Q.C made the following submissions in support of the submission that TMP had in fact assumed the obligation to honour the no detriment guarantee:

He invited me to accept the evidence of Mr Whitney and his witnesses to the effect that assurances were given at both meetings that terms and conditions would be unchanged. He submits that these were not “warm words”. He relies on the fact that there were no changes in the terms and conditions until the harmonisation process began in March 1998.

He submitted that there were no changes to the pension entitlements in this acquisition or, as far as can be ascertained in any of the other 5 entities that were acquired by TMP and administered by Mr Upwood.

He made the point that when the new terms and conditions were introduced in 1998 it was on the basis that existing pension arrangements would be unchanged

He submitted that Mr Maxwell’s letter of 31/7/97 was consistent with his understanding that TMP would honour all the obligations undertaken by MSL.

He did not accept that Mr Whitney is seeking to reverse the burden of proof. He, however, relies on the fact that MSL Money Purchase Scheme did transfer to TMP with the consequence that it was able to use the surplus for the purpose of providing contribution holidays for TMP and (probably) funding the no detriment guarantee settlements in relation to other staff.

He made the point that Mr Whitney continued to make contributions of 6% of his salary which constituted part of the consideration for the no detriment guarantee.

He pointed out that this was not the usual situation where undertakings are transferred. At the time of the transfer both entities were subsidiaries of Holdings. In those circumstances and in the light of the assurances given it was easier to infer that the whole of the obligations been transferred.

He pointed that TMP have not called any evidence to explain how the takeover of the MSL Money Purchase Scheme came about.

He relied on TMP’s conduct in the negotiations with Mr Whitney. During the whole of the negotiations until April 2008 there was no reason to doubt that the no detriment guarantee would be honoured. Only when they realised that the liability was so large did they seek to repudiate liability.

He relied on the position of Mr Mather and Mr Lilley. He submits that the documents establish that TMP appears to have recognised that the no detriment guarantee applied to them and Mr Whitney’s position is no different.

In his Reply Mr Carr Q.C showed a Minute of the Meeting attended by Mr Wilkinson on 28^th February 1997 at which the Disclosure Documents were produced.

I agree with Mr Croxford that not very much assistance can be gained from the negotiations with Mr Mather and Mr Lilley. Whilst it would appear that there were discussions in relation to the freezing of Mr Mather’s pensionable salary under the no detriment guarantee it does not follow that TMP formally admitted that it was binding on it. Furthermore the fact that Mr Mather finally compromised his £365,000 claim for £125,000 shows that there may well have been an element of doubt about his entitlement. Similarly the position with regard to Mr Lilley is unresolved.

Apart from that I find myself broadly in agreement with the submissions of Mr Carr Q.C. I accept the evidence of Mr Whitney, Mr Maxwell and others to the effect that assurances at the two meetings were given that terms and conditions would remain unaltered at least for the time being. I also accept that those assurances were of importance to Mr Whitney because of the integration process he was asked to undertake.

It is plain that some form of novation in relation to pension rights took place in July 1997 when TMP took over the MSL Money Purchase Scheme and became entitled to use the pension surplus. As is now common ground this was not a statutory novation under TUPE and thus can only have been contractual. There were no express discussions between TMP and Mr Whitney. The question to be considered is thus a narrow one; that is to say whether the proper inference is that the novation related to all of Mr Whitney’s pension rights or simply to his rights under the MSL Money Purchase Scheme.

Largely for the reasons given by Mr Carr Q.C I have concluded that the novation related to all of Mr Whitney’s pension rights. TMP had, in my view been informed of the existence of the no detriment guarantee. It believed that the pension surplus was more than sufficient to cover it. The estimate of £200,000 in the Disclosure material was almost certainly wrong but that is beside the point. The surplus was over £1.5 million. Mr Whitney was told that his rights would be preserved. In taking over the MSL Money Purchase Scheme (and gaining access to the surplus) there is no reason to believe that TMP did not intend to honour the no detriment guarantee. Mr Maxwell believed it did. Mr Whitney believed it did. TMP’s conduct in the early stages of the negotiations led him to believe that they intended to honour the no detriment guarantee. TMP have, as Mr Carr Q.C pointed out, adduced no positive evidence in relation to the takeover of Mr Whitney’s pension rights.

In those circumstances I agree with Mr Carr Q.C that the novation of Mr Whitney’s pension rights did extend to his rights under the no detriment guarantee.

Conclusion on Liability

In his closing submissions Mr Croxford made two further submissions. First he submitted that there was no consideration for the novation; second he submitted that as Mr Whitney did not work till he was 60 there was no entitlement under the no detriment guarantee.

I have considered each of these points earlier in the judgment. For reasons already given there is nothing in either of them.

It follows that Mr Whitney’s claim succeeds.

Quantum

Mr Whitney and TMP had the benefit of actuaries for them. Fortunately for me there was a large measure of agreement between them. Furthermore when they gave evidence it was perfectly plain that they were each highly expert and attempting to assist the court. Indeed it was heartening to see how often they agreed with each other on points requiring their actuarial expertise.

There were, however, a number of unresolved points of principle on the question of quantum. In the course of the hearing I indicated that I proposed in this judgment simply to express a view on the points of principle and leave it to the parties (and/or the actuaries) to work out the financial consequences of the judgment.

In order to calculate the value of the no detriment guarantee it is necessary first to calculate what benefits Mr Whitney would have been entitled under the HAY-MSL Pension Plan and then to deduct the benefits he has in fact received from the MSL Money Purchase Scheme.

There are a number of issues relating to the benefits to which Mr Whitney would have been entitled under the HAY-MSL Pension Plan.

Pensionable Salary

The first set of issues relate to Mr Whitney’s pensionable salary. For this purpose I shall adopt the definitions in the Amended Appendix C of Mr Punter’s report

It is common ground that Mr Whitney’s guaranteed pension at NRD is 1/45(Pensionable Service x Pensionable Salary). It is further now common ground that the pensionable service is 19 years (DOL – DJS).

It is also common ground that the issues relating to Mr Whitney’s Pensionable Salary are matters of construction of the definition sections of the HAY-MSL Pension Plan Rules. They are not matters of actuarial expertise.

There are 3 relevant Definitions

It is common ground that Mr Whitney’s Basic Salary as at 31/12/97 was £92,000. It is also common ground that the period between DOL and NRD is 8 years and 4 months. The issues that arise are whether there should be any uprating at all for the period between DOL and NRD and, if so as to the application of the formula.

Uprating

At one stage it was suggested that as this uprating was not mentioned in Joan Blakeley’s letter of December 1991 there should be no uprating. This argument was not pursued by Mr Croxford who accepted that it ran the risk of leaving Mr Whitney is a worse position than he would have been under the HAY-MSL Pension Plan.

Mr Croxford however argued that there should be a reduction to the 5% to reflect the risk that the Trustees would have agreed a lower rate than 5%. The decision of the Trustees has to be made on the advice of the Actuary at DOL. The pension fund was in substantial surplus as at that date. No evidence has been adduced before me that an Actuary would in fact have advised a reduction to the 5%. In those circumstances I regard the chance that the Trustees would have agreed a lower figure as fanciful and propose to ignore it.

Application of Formula

Two points arise here. Mr Punter and Mr Croxford point out that the definition of Projected Pensionable Salary requires the Court to work out the Projected Basic Salary for the 3 years prior to NRD and then to take the average of them to arrive at the Projected Pensionable Salary. I agree with that submission.

There is then a dispute as to whether there should be 8 upratings or 9. It is said (with some force) that 8 upratings is unfair to Mr Whitney and 9 upratings unfair to TMP. The fair solution is to have 8¹/₃ but it is said that cannot be achieved as a matter of construction.

I agree with that there should be 8 upratings. In my view the reference in the Rules to uprating with yearly rests indicates that the uprating should be carried out annually. I also think that there should be a completed year before an uprating takes place. In his evidence Mr Waddingham very fairly accepted that this was usual practice.

It follows that I agree with Mr Punter that the Pensionable Salary at DOL would be £129,556 and the Guaranteed Pension was £54,701.

Increases in Pensions in Payment

Despite the forceful arguments of Mr Carr Q.C in his closing submissions I have rejected Mr Whitney’s primary case that it was an express term of the no detriment guarantee that the pensions in payment should increase by 5%. Mr Whitney is thus thrown back on the provisions of the HAY-MSL Pension Plan:

There is thus no certainty that pensions in payment would have increased at all. Increases were at the discretion of the trustees who were specifically required to consider the financial position of the fund and the rise in RPI since the previous year.

Historically the Trustees did in fact increase pensions in payment on an annual basis. Increases were less than 5%.

Mr Croxford recognises that Mr Whitney’s loss has to be assessed on the basis of a loss of a chance. He however submits that there is a realistic chance of there being no increase at all. Equally he submits that there was in reality no chance of the Trustees awarding an increase of 5% especially where this is significantly more than the increase in RPI. He drew my attention to the contribution holiday that had been taken by the employer.

I agree with Mr Croxford that the chance of the Trustees awarding an increase over RPI is very small. I also think that the chance of an award of less than RPI increase is very small and that these in fact cancel each other out. I think that the overwhelming probability is that there would have been increases at RPI.

Commutation

Commutation has advantages for both the pensioner – because of the tax free lump sum – and the pension provider – because the cost of providing the commuted pension are likely to be less than providing the actual pension without commutation. This is especially true if commutation rates are low. More than 85% of pensioners in fact take some form of commutation. Mr Croxford accordingly submitted that it was probable that Mr Whitney would have commuted some of his rights under the no detriment guarantee.

Mr Whitney said that he would not have commuted any of his pension. He would have taken advice and abided by it. He pointed out that he had received £400,000 from the sale of share options and was not in need of any capital. If, as appears to be the case, it was financially disadvantageous for him to commute he would not have done so.

At the time of the negotiations in 1998 he was negotiating to transfer the pension to a SIPP. Indeed it was the transfer value of his rights under the SIPP which sparked off the original claim to Garry Long under the terms of the warranty.

I see no reason not to accept the evidence of Mr Whitney on these points. I do not on balance of probabilities think that he would have commuted any part of his pension. I equally do not think that he would have bought an annuity. He would have transferred it in his SIPP.

If contrary to my view any part would have been commuted I would have taken a commutation rate of 15.

Secured/ Funded

It is plain from a very helpful spreadsheet prepared as part of the joint experts report that it is more expensive to purchase an annuity than to calculate the cost of funding a pension on an FRS17 basis. TMP accordingly argued that damages should be assessed on an FRS 17 basis; Mr Whitney argued that they should be assessed on the basis of the cost of purchasing an annuity.

At one time I was attracted to Mr Carr Q.C’s submission on the basis that Mr Whitney was entitled to be put into the position he would have been if the no detriment guarantee had been honoured and that could only be done by the purchase of an annuity.

However, as I have accepted, Mr Whitney would not in fact have purchased an annuity in 2006. He would have transferred the benefit of the no detriment guarantee into a SIPP. Mr Waddingham accepted that the transfer value of a fund was not the same as the cost of the purchase of an annuity and was more akin to the FRS 17 approach.

In those circumstances I accept the submission of Mr Croxford that damages should be assessed on a FRS17 basis.

Interest

It is, I think, common ground that Mr Whitney is entitled to interest under section 35A of the Supreme Court Act 1981. It is furthermore common ground that I have a discretion both as to the period and the rate. The parties are agreed that the period is from NRD (21/4/06) to the date of judgment. There is, however a dispute as to the applicable rate.

Mr Carr Q.C submits that the judgment rate of 8% is appropriate. Mr Croxford submits that base rate would be a more appropriate rate. Mr Croxford makes the point that if Mr Whitney had invested the money in a SIPP he might well have lost money. He points out that the FTSE is lower than it was in 2006.

I have looked at the passage at paragraph 7.017 of the 2009 White Book in relation to rates of interest. There is a full discussion of rates in commercial cases in the judgment of Jackson J in Claymore v Nautilus [2007] EWHC 805 paragraphs 61 to 82. I shall not lengthen this judgment by setting out the whole of that passage. However Jackson J after rejecting the judgment rate as a basis for awarding damages in commercial cases included a passage from the judgment of Forbes J in Tate & Lyle v GLC [1982] 1 WLR 149:

In one sense of the word this is not a commercial case in that involves Mr Whitney’s pension rights and it is likely that he would have invested the moneys in his SIPP.

I have looked at the table of base rates set out in the White Book. I agree with Mr Croxford that an award at the judgment rate of 8% would be inappropriate. If I had thought this was an ordinary commercial case I would have awarded base rate plus 3% in line with the cases cited in the White Book. In the circumstances of this case, however I propose to award base rate plus 1% for the relevant period.