Correspondence with Sackers
Extracts from Correspondence with the HPS Trustee's Solicitor.
The guarantee referred to in the EY report was that from HHL, not from HGL.
Thank you for the clarification. However, what is relevant is the statement made by CH2M, which the Trustees and tPR appear to have ignored in their recent negotiations. The key point of issue is whether or not CH2M undertook to honour the 2008 recovery plan. We believe the facts are not in contention:
• The covenant review was submitted to the High Court in November 2011 in a witness statement by Claire Southern, a partner of Hogan Lovells LLP, solicitors for CH2M;
• The covenant review was prepared by Ernst & Young at the request of CH2M;
• In the covering letter, Mr Taylor Dewar, partner of Ernst & Young, states "CH2M Hill's management have reviewed the contents of our report. Comments from CH2M on factual accuracy have been sought and incorporated where appropriate";
• The Executive Summary consists in essence of a review of eleven considerations under four headings, the third of which is entitled Covenant Consideration - Post Proposed Transaction;
• The entry under this heading reads, "CH2M Hill has stated that they will honour payments under the existing recovery plan";
• This statement is not qualified in any way in the review with respect to the duration of payments or the company making them;
• The recovery plan existing at that time was the one detailed in the Halcrow Pension Scheme Report on actuarial valuation as at 31 st December 2008;
• The payments are those listed year-by-year in the last column of the Table headed, "Summary of Cash Considerations due to be paid in the calendar year shown";
• The sum of contributions in the years 2016 to 2016 is in excess of £204 million;
• The purpose of the 2008 recovery plan was to eliminate the deficit in the HPS by the end of year 2026.
However, please advise if you do not agree.
It is important to be clear about the trustees’ position in relation to the takeover. In Dr Pollock’s letter he stated, among other things, that:
· The legal advice they had received was to the effect that there was “no current cause of action by the trustees against any of the parties involved in the scheme of arrangement to require additional funds to be made available to HPS.”
· The trustees understanding was “that [the Company's] financial position is worsening and therefore any delay to the proposed transaction is unlikely to be in the interests of HPS members”.
· “The advice on the covenant of [the Company] and [Group] provided by Ernst & Young and reviewed by Lane Clark & Peacock LLP indicates that there will be no material detriment to the covenant of [Company] and [Group] as a result of the scheme of arrangement and should, in practice, be an improvement (with the replacement of secured debt by an unsecured inter-company loan).”
If the Trustees and their advisors had been in court on 7th November 2011 with Dr Brichieri-Colombi, they would have heard the remark by Mr Justice Vos, when presented with this statement, to the effect that he thought he, rather than Counsel, should have been the judge of whether the HPS had a cause.
There is no basis for saying that CH2M guaranteed payment of anything to HPS.
The points made here appear to be in defence of CH2M's actions, rather than those of the Trustees. Could you please clarify if you are taking instructions from them as well as the Trustees, or whether you regard the two parties as inseparable on this issue?
The Trustee also wishes to respond to the following additional statement in your client’s Newsletter No.17:“The HPA is concerned that scheme members ability to evaluate the true position of the HPS is hampered by the absence of the information that should have been supplied in the Valuation Reports for 2011 and 2014. The 2014 scheme report to members is also overdue. We consider that no pensioner should be obliged to chose [sic] between two unpleasant alternatives while information that might allow a better alternative is illegally withheld.”
It is true that the actuarial valuations as at 2011 and 2014 remain outstanding. However, the reason for this is because, despite the Trustees’ best efforts, they have been unable to reach the necessary agreement with the employers in HPS as to the matters required by legislation. Shortly after the expiry of the specified 15 month period for the 2011 actuarial valuation, the Trustees informed the Regulator of their being unable to reach agreement with the employers (as was required by legislation (s.229(5) PA04)). Although the Regulator has certain powers that it can exercise where an actuarial valuation is not agreed within the specified period, it has not sought to exercise those powers in relation to the HPS to date. I should add for completeness that the Regulator is also aware of the parties not having reached agreement in relation to the 2014 actuarial valuation.
We agree that tPR have repeatedly failed to use their powers. The point remains that members of the HPS have not been given the information to which they are legally entitled, and this impairs their ability to make informed judgments, now or in the future.
We believe it would be possible for the Trustees themselves to request the tPR to assign values to the assumptions needed for assessing the Technical Provisions in the same format as the 2008 Valuation Report, (and we should be grateful if you would clarify if the Trustees have already made such a request); or to make reasonable assumptions themselves. We understand that little if any input is required from CH2M/Halcrow beyond what is available from company reports showing rates of salary increases for the small number of active members. This would go some considerable way towards bridging the information gap.
Finally, the Trustee also notes that, in a post made yesterday on your client’s forum, Mr Brichieri-Colombi refers to a “third choice” made possible “if tPR insists that CH2M honour its commitment to paying £204 into HPS over the next 11 years under the 2008 recovery plan.” As noted above, Mr Justice Vos made clear that there was no such commitment and it is positively misleading (and potentially detrimental to other members who may believe it) for Mr Brichieri-Colombi to be saying so.
We continue to believe there is a third way. If you do not agree, please explain what you believe was meant by the words, "CH2M Hill has stated that they will honour payments under the existing recovery plan", in a document prepared by a top flight company and submitted as evidence in court on behalf of CH2M, in which it is also stated the directors of CH2M had checked the document for factual accuracy. We do not know whether Mr Justice Vos read this document very carefully, as it was one in a deluge of documents he received at the same time. But he did note that, "There is no evidence that it would be to the commercial advantage of USCo to do other than to comply with the Company's obligations to the HPS, and I should say that I very much hope that this will prove to be the case." The commercial advantages of paying contributions of around £65 million over the next 11 years under the proposed HPS2, rather than £204 million under the existing recovery plan, seem to be obvious. It certainly seemed obvious to the Trustees at the time.