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Landmark High Court decision provides clarity on the duties of pension scheme trustees
Greene & Ors v Coady & Ors 2012 / 7254 P
Matheson represented the trustees of the Element Six Contributory Pension Plan in successfully defending a claim taken against them by 128 members of the Plan for alleged breach of duty.
This landmark High Court decision was delivered by Mr Justice Charleton on 4 February 2014. The judgment provides welcome clarity on the duties of pension scheme trustees and the role of the Court in examining trustees’ decision-making processes. It also offers useful commentary on a range of ancillary issues, including contribution demands, conflicts of interest issues and the nature of funding proposals.
In 2011, Element Six Limited, the sponsoring employer of the Plan indicated to the trustees that it was seeking to manage its defined benefit pension exposure. Ultimately, it took the view that the only way of doing this was to wind up the Plan. At the time, the Plan had a deficit of €129 million on the statutory funding standard basis.
On wind up, the sponsor would make a final contribution to the Plan of €23.1 million to bring active and deferred members to 100% funded on the statutory funding standard basis without pension increases. An additional sum €14 million would be made available outside the Plan to provide enhanced defined contribution benefits to active members and top-up benefits to certain other identified categories of members. The company clearly stated that this was the only offer available and that it would be withdrawn if the trustees sought to make it liable for any higher amount.
Under the governing trust documentation of the Plan, the company was required to give one month’s notice to the trustees of its intention to terminate contributions to the Plan. Once that notice period expired, the trustees could not require the company to make any further contributions.
After detailed consideration over the course of a number of meetings and having obtained expert advice, the six trustees of the Plan voted on the company’s proposal. The trustees were evenly split and the chairman, a company appointed trustee, used his casting vote to accept the proposal.
Shortly afterwards, 128 members of the Plan initiated proceedings against the trustees in the High Court, claiming damages for breach of trust, breach of fiduciary duty, negligence and breach of duty (including breach of statutory duty) for accepting the company’s proposal in full and final settlement of all sums payable by the company to the Plan, without issuing a contribution demand to the company to fund the total deficit in the Plan. The members also alleged that the trustees had been influenced by certain conflicts of interest in their decision-making process.
Commercial Court Decision
The case was heard over a four week period in November and December 2013 before Mr Justice Charleton in the Commercial Court. On 4 February 2014, he found in favour of the trustees in a detailed written judgement, fully accepting their evidence and the case put forward in their defence. In summary, he held that the trustees had at all times acted honestly and in good faith and that their decision to accept the company’s proposal was made solely in the best interests of the beneficiaries, taking all relevant factors into consideration.
The comprehensive judgment of the Court offers a valuable insight into how the decision-making process of trustees will be evaluated and reviewed. The Court confirmed the following:
- When examining the trustees’ decision, it is not for the Court to be better informed or to make a better judgment than the trustees. The law requires the Court to place itself in the shoes of the trustees at the time the decision was made, with the same information and considerations as were available to the trustees at the time.
- When making decisions, it is the trustees’ duty to act honestly and in good faith, having taken account of all relevant considerations and ignoring all irrelevant considerations.
- Once a consideration is relevant, it is up to the trustees to give as much or as little weight to that consideration as they think fit in light of the information and advice available to them. The Court will not substitute its own judgement in this regard: relevance is a matter of law for the Court, weight is a matter of discretion for the decision maker.
- The Court will only interfere with the trustees’ decision or the weight attached to any consideration, if it can be shown that no reasonable body of trustees would have made such a decision.
- Although trustees have the ability to seek directions from the High Court, they are only obliged to do so where their ability to make a decision is overwhelmed or crippled to such an extent that they must, as a reasonable body of trustees, have their discretion exercised by a judge.
- Where the governing documentation of a pension scheme allows a trustee to act notwithstanding a conflict of interest, then in normal course no decision of the trustees can be challenged on that ground. While the Court acknowledged that conflicts of interest arise from the inherent nature of pension schemes in Ireland, it also stated that if the conflict of interest is such as to prevent trustees from acting in good faith and in the best interests of the beneficiaries, such a decision cannot stand as this is the irreducible minimum that beneficiaries are entitled to expect from trustees.
- The Court stated that funding proposals could be viewed as enforceable contracts. This part of the judgment will require careful consideration by pension advisers.
The phrase ‘wilful default’ has a particular resonance in pension trust law and requires nothing less than “conscious and wilful misconduct”. It is not sufficient for the act to be done deliberately; it must also contain an element of wrongfulness.
This decision gives some welcome legal clarity to employers, trustees and their respective advisers when faced with the difficulties that can arise in considering the termination of an underfunded pension scheme. While the judgment does not answer all the legal questions, it is a very significant step forward in this difficult area of pensions law.
This article was co-authored by associate Orlaith Ní Bhroin.