High Court hits Daventry DC with £2.4m pension fund liability

The High Court has ruled that Daventry District Council is liable for a multi-million pound pension fund deficit.

In Daventry District Council v Daventry & District Housing Ltd [2010] EWHC 1935, the local authority had entered into a contract on 5 November 2007 to transfer its council housing stock to the newly-created registered social landlord.

The council also agreed to transfer its housing department staff, who were members of the section of the Local Government Pension Scheme administered by Nottinghamshire County Council.

As part of the arrangements it was agreed that staff would remain members of the LGPS and Daventry & District Housing (DDH) would become a participating employer in the scheme. It was envisaged that DDH would embark on its new role with a fully-funded scheme.

In the transfer contract there was a clause stating that the council should make a payment of £2.4m to make up the pension fund deficit.

The local authority did not deny that its solicitors and lead negotiator had consented to inclusion of the clause in question, but said it was mistaken in giving that consent.

The district council argued that DDH had agreed to pay £2.4m less for the transfer of the housing stock on the basis that the housing association would cover the deficit.

Daventry District Council therefore applied for rectification on the grounds of mutual, alternatively unilateral, mistake.

Mr Justice Vos rejected the council’s claim, ruling that – following an exchange of emails between the two sides’ solicitors on 1 November 2007 – the parties should be taken to have intended to include the clause and that it unambiguously provided that Daventry District Council should pay the deficit to the county council.

The judge said: “The commercial negotiators were not involved directly in the debate, and the reason for the clause was purely to give the funders comfort, and was not intended to effect a change in the deal. But the parties are bound by the actions of their properly authorised solicitors. They cannot be heard to say that they did not properly instruct them.”

He added that once the council’s solicitors had approved the clause, they had changed the council’s objectively viewed intentions, “whatever DDC might itself have thought”. The judge added that the council’s lawyers were “seemingly out of the commercial negotiation loop”.

Mr Justice Vos added that the district council had failed to establish the requirements for unilateral mistake, including that DDH was aware of the council’s mistake and that it had omitted to draw that mistake to its attention.

Simon Bovey, Managing Director of Daventry District Council, said it was very disappointed that the judgement had not been made in its favour.

He added: “The council decided to commence legal proceedings in the interests of protecting public funds and, following the outcome of this case, we will now consider what future course of action is available to us.

“It would not be appropriate at this stage for us to comment on the wider implications of this until our future legal options have been looked at.”