UK - Unilever's claim against Merrill Lynch Investment Management (MLIM) will hinge on the wording of the contract between the two parties, the judge presiding over the case indicated in the High Court today.
Mr Justice Colman drew attention to clause 6.1 in the contract and said the question of whether it was an enforceable provision would be key.
The clause refers to the target return of 1% asked of Mercury Asset Management, the firm MLIM bought for £3.1bn in 1997.
The clause is expressed in terms of “an expectation” and qualified with the words “in normal circumstances”. Mr Justice Colman said the case could hinge on whether such language meant “the standard of trying [on the part of Mercury] was weaker.”
Unilever alleges MLIM acted negligently by failing to operate adequate risk controls in the running of £1bn of its assets in 1997. It is claiming £130m. MLIM says MAM’s return in the 15 month period under review was absolute growth of 20.65%, worth £200m.
Ian Glick QC, representing MLIM, said that at a lunch on October 28, 1996, Alistair Lennard, the fund manager responsible for the MLIM portfolio, was told by Wendy Mayall, the CIO of the Unilever Superannuation Fund, that she “wanted him to carry on exactly as he was doing. That’s not surprising because it was the largest portfolio within the fund managed by Mercury. It was the engine of the very satisfactory performance achieved up to then.”
Glick said the downside tolerance of 3% was applied to the entire fund and “would be approached by different managers in different ways.” The specific percentages of the tolerances were not included in the scheme’s statement of investment principles.
Glick said MLIM’s expert witnesses, then London MLIM co-head Carol Galley and former Phillips & Drew CIO Tony Dye, “are one in saying no one involved in pension administration would try to change their manager’s attitude to risk.”
Glick emphasised that the tolerances were not guarantees but targets to be achieved over the medium to long term, adding: “It is arithmetically obvious that from time-to-time you will have to get more than 1% to make up for the times when you don’t get 1%.” He said the 1% outperformance target was “a stretching objective.”
After today the case adjourns until Thursday October 25.
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