Mandrake Holdings Ltd & Anor v Balanus Ltd

A contractual indemnity covering pension mis-selling liabilities is construed from its language, structure and commercial context. Where regulatory guidance treated priority cases as a subset of a wider review, a general exclusion for investors requiring investigation does not, without clear words, confine liability to priority cases or those subject to active review.

The ordinary meaning of investigation is not necessarily narrower than ordinary review. Non-priority cases may therefore remain within the indemnity where the deed’s other provisions and the regulatory materials support that construction.

Mandrake Holdings Ltd acquired the shares in Mandrake Associates Ltd from Balanus Ltd under a deed requiring Balanus to meet defined pension liabilities. The dispute concerned whether the deed excluded liabilities relating to non-priority pension transfer, opt-out and non-joiner cases under clause 2.3.1.6.

HH Judge Norris QC, sitting in the Chancery Division, construed the deed as extending beyond priority cases and made a declaration accordingly. He also made findings concerning rectification, but permission on that issue was granted only for an appeal. The Court of Appeal heard the construction issue and did not hear argument on rectification.

The appeal was dismissed on the construction issue, and no order was made on the cross-appeal. The Chancellor gave the reasons, with Lord Justice Hooper and Lord Justice Lloyd agreeing.

1. The SIB 1994 Review comprised identification of cases, fact gathering, compliance assessment, loss assessment and redress. Priority categories were subsets of the wider cases in question. The published material did not indicate that non-priority cases were outside the review or incapable of generating liability.
2. Clause 2.2 defined the relevant business by reference to transfers, opt-outs and non-joiners. Clause 2.3 imposed specific exclusions by reference to categories of investor. In that structure, clause 2.3.1.6 operated as a sweeping-up provision and did not introduce a further exclusion for all non-priority investors.
3. As a matter of ordinary English, investigation was not more closely equated with active review than with ordinary review. If Balanus intended to exclude priority categories, the deed could readily have referred expressly to those categories or to active review. The deed’s references to the wider SIB Review, the conduct of claims and the power of attorney confirmed the broader construction.
4. The court reached that conclusion from the words used, the deed as a whole and the circumstances surrounding execution. It was unnecessary to determine the parties’ accounting treatment or compliance with sections 151 to 156 of the Companies Act 1985. The construction rules relied on in Youell v Bland Welch [1992] 2 Ll.L.R. 127 likewise did not arise.
5. Because the construction appeal was dismissed, the alternative rectification issue was not argued or determined in the Court of Appeal.

• Court of Appeal (Civil Division): dismissed the appeal on the construction of the Pensions Deed. The court did not hear argument on rectification and made no order on the cross-appeal: [2006] EWCA Civ 1716.
• Chancery Division: HH Judge Norris QC construed the deed as extending beyond priority cases and made a declaration by order dated 3 March 2006. He made findings on rectification but stated that he would reject that claim if it arose.