Providence Capitol Trustees Ltd v Ayres 2

Reference: (1996) OPLR 215

The appellant was the pensioneer trustee of a small self-administered scheme. The other two trustees were the respondents, Mr Ayres and Mr Dormer, who along with Mrs Dormer were the three members of the scheme. The scheme assets were invested in insurance policies allocated to the individual members, the purchase and lease back of a property occupied by the company and various loans to the company.

Mr Ayres retired on grounds of ill- health on 31 March 1990. At a meeting on 27 February 1990 the trustees, including Mr Ayres, agreed that he should receive a tax free lump sum of GBP 45,000, a reduced pension of GBP 15,000 per annum guaranteed for 5 years, a widow's pension of GBP 7,500 per annum on his death and annual increases of 5 per cent. The tax-free lump sum was funded from the proceeds of the policy allocated to Mr Ayres and from cash held by the trustees. The remainder of the scheme assets was not sufficiently liquid to enable the trustees to purchase an annuity. Thus the monthly pension payments were funded out of company contributions.

Mr Ayres was removed as a trustee in April 1991 and the company went into liquidation in January 1992. On 6 April 1992 the pensioneer trustee advised that the scheme was to be wound up and pension payments were suspended from 31 March 1992. In February 1993 Mr Ayres was informed that his entitlement under the scheme was to be reduced to the extent that his share of the fund would only be sufficient to purchase an annuity to the value of GBP 3,402.60 with no widow's pension or annual increases.

Mr Ayres made a complaint against the pensioneer trustee to the Ombudsman. He alleged that the pensioneer trustee had failed to safeguard the assets of the scheme in relation to the loans to the company. This complaint was not upheld by the Ombudsman on the grounds that Mr Ayres acquiesced in the granting of those loans. Mr Ayres also complained in relation to the sale of the property held by the trust to Mr Dormer's brother. This sale was at a lower price to the valuation obtained by Mr Ayres. The Ombudsman upheld this complaint, partly on the ground that the sale risked prejudicing the approval of the scheme by the Inland Revenue. In addition, he held that the trustees were in breach of their equitable and fiduciary duty. The third head of complaint was that the trustees were wrong to reduce Mr Ayres' pension. The Ombudsman also upheld this complaint on the ground that the trustees were wrong to apportion the fund amongst the members in the manner which they had determined. He held that Mr Ayres was entitled to receive benefits on the basis of the trustee decision in February 1990. Where there was a shortfall of funds on the winding up of the scheme, the assets should be apportioned between the members in accordance with the liability of the scheme to those members. Mr Ayres should have received benefits calculated on the basis of his enhanced rights as stated in the February 1990 trustee decision.

Providence Capitol Trustees Limited appealed to the High Court. Chadwick J allowed their appeal. He held that, in relation to the sale of the property, there was no evidence that the purchase price was not the best price reasonably obtainable. Nor was there any evidence that the trustees had been in any way colluding with the purchaser in the sale. In any event, under the interim trust deed of the scheme, the trustees were exonerated from liability except to the extent that conscious bad faith could be shown. There was no evidence to support such a finding. The judge also rejected the suggestion that the sale to Mr Dormer's brother could have prejudiced the approval of the scheme.

In relation to the calculation of Mr Ayres' pension benefit, the judge held that, being a defined-contribution scheme, its members' equitable interest in the non-insured assets of the scheme was the proportion of the aggregate contributions made on his or her behalf and invested in the non-insured assets as against the total aggregate contributions invested in the non- insured assets. Given that the interim trust deed did not provide for any prioritisation on winding up, the trustees did not have the power to provide Mr Ayres with benefits out of assets held on behalf of the other members. The funding shortfall could only be recovered from the company. Mr Ayres' real complaint was that the trustees failed to enforce this obligation against the company prior to liquidation. There was no evidence that this obligation could practically have been enforced and there could therefore be no finding that the trustees were in breach of duty. In particular, there could be no finding of personal liability against the trustees as there was no conscious act of bad faith on their part.

Chadwick J rejected an application for costs for the appellant. Neither the respondent nor the Ombudsman was represented at the appeal (although the Ombudsman did attend in relation to the application for costs). The judge held that it would be oppressive and unfair to make an order for costs against the Ombudsman as he had no choice as to whether or not he was to be named as a respondent and no power once so named to set aside his own determination in order to avoid the appeal. There was no evidence that Parliament had intended to impose on the Ombudsman an obligation to pay the costs of all successful appeals.