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
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.