Allan v Rea Brothers Trustees Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Robert Walker,Lord Justice Keene,Lord Justice Aldous |
| Judgment Date | 08 February 2002 |
| Neutral Citation | [2002] EWCA Civ 85 |
| Docket Number | Case No: A3/2001/0709 |
| Court | Court of Appeal (Civil Division) |
| Date | 08 February 2002 |
[2002] EWCA Civ 85
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HH JUDGE BEHRENS)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Aldous
Lord Justice Robert Walker and
Lord Justice Keene
Case No: A3/2001/0709
Mr James Bonney QC and Mr Matthew Caswell (instructed by Levi & Co, Leeds) for the appellant
Miss Beverly-Ann Rogers (instructed by James Chapman & Co, Manchester) for the respondent
Introduction
This is an appeal by Mr Stuart Allan, the claimant below, against an order of His Honour Judge Behrens made on 12 March 2001 when he was sitting at Leeds as an additional judge of the Chancery Division of the High Court. Mr Allan had brought proceedings for breach of trust and associated claims against (for practical purposes) three defendants, Mr Peter Nolan, Mr Nigel Thompson and Rea Brothers Trustees Ltd (formerly called DJT Actuarial & Trustee Services Limited—"the trustee company"). Mr Allan obtained judgment against Mr Nolan and Mr Thompson but that judgment seems unlikely to bring him any financial benefit. Mr Allan's claim against the trustee company was dismissed, and that is what Mr Allan seeks to overturn on appeal (although his permission to appeal is limited to a single ground, a point which it will be necessary to return to).
This appeal is concerned with events which occurred between 1994 and 1997 in the management of two small self-administered occupational pension schemes. Those events are deeply disturbing. They suggest that despite the impact of the Maxwell scandal and the well-publicised steps taken to prevent further abuses (the Goode Committee report, the Pension Schemes Act 1993, the Pensions Act 1995 and numerous statutory instruments made under those Acts) it was between 1995 and 1997 still possible for regulatory restrictions to be flouted and for official safeguards to be shown to be ineffectual. As will become apparent, Mr Allan willingly participated in flouting the law when he thought it was in his interests to do so. He has since had a change of heart and in his action he has sought to be treated as the innocent victim of breaches of fiduciary duty on the part of the defendants.
In the course of his thorough judgment the judge made detailed findings of fact which are largely unchAllanged in this court. It is therefore possible to summarise the facts (unusual though they are) relatively briefly. But the judge did not give any systematic account of the legislative and regulatory background of small self-administered occupational pension schemes such as the two schemes relevant to this appeal (the Elsie Whiteley Retirements Benefit Scheme, which I will call "the EW scheme", and the Basdring Pension Scheme, which I will call "the Basdring scheme").
The judge's omission to explain the background to schemes of this sort may have reflected a similar gap in the papers and in counsel's submissions before him. It is a remarkable fact that the documents regulating the EW scheme seem not to have been before the court at all, although they were the obvious starting-point of any enquiry into the equitable ownership of assets transferred, in exercise of a fiduciary power, from the EW scheme to the Basdring scheme. It is therefore appropriate to give some explanation of the background before coming on to the facts as found by the judge.
The regulatory background
Occupational pension schemes and their trustees are subject to three separate sets of regulatory controls which have statutory force and are aimed at different (and indeed to some extent conflicting) objectives. The Inland Revenue is concerned to ensure that the valuable exemptions and reliefs available to exempt approved schemes are not abused. This objective is achieved largely by the provisions now contained in Part XIV, Chapter 1 of the Income and Corporation Taxes Act 1988 (" ICTA 1988") and statutory instruments made under its powers. The second objective (which was given a new and powerful impetus by the Maxwell scandal) is to ensure that the interests of current and prospective pensioneers are protected by an adequately funded scheme honestly and efficiently managed, under the supervision of actuaries and other professionals, and under the ultimate supervision of a regulatory body—now the Occupational Pensions Regulatory Body ("OPRA"), replacing the Occupational Pensions Board. There is a degree of tension between these two objectives in the sense that the Inland Revenue disapproves of excessive actuarial surpluses (as not deserving exemption from tax) while OPRA disapproves of inadequately funded schemes (as providing insufficient protection for pensioneers' rights). However it is not necessary to pursue that point further in this case. The third objective of competent and prudent investment is the province of the Financial Services Act 1986 and statutory instruments made under its powers (section 191 of the Act being particularly in point).
The term 'small self-administered scheme' ('SSAS') is a term of art in the law of occupational pension schemes. It reflects the fact that small schemes (defined as those having fewer than twelve members) are, unless managed by an independent external administrator (such as a life office) particularly vulnerable to irregularity or abuse. This point was explained in Memorandum No 58 (Small Self-Administered Schemes) published in 1979 by the Joint Office of the Inland Revenue Superannuation Funds Office and the Occupational Pensions Board:
"… such schemes cannot be treated in the same way as either self-administered schemes catering for large numbers of rank and file employees, or as insured schemes. Employers have been encouraged by press articles referring to 'tax havens' and 'captive funds' to regard a small self-administered scheme as more than just an arrangement 'for the sole purpose of providing relevant benefits' (see section 19(2) Finance Act 1970) and the progressively more critical approach adopted by the SFO in individual cases has followed inevitably from proposals which seem designed either for tax avoidance or to benefit the employer's business financially, rather than as straightforward arrangements for providing financial support for the members in old age."
The point is also explained in the 1991 edition of the official publication Practical Notes on Approval of Occupational Pension Schemes (IR 12), paras 20.2 and 20.3:
"The reasons why the Inland Revenue consider special requirements necessary for the approval of such schemes are:
(a) Under trust law which evolved before the advent of pension schemes, a trust with one or a few beneficiaries is susceptible to being broken regardless of the terms in which the trust is constituted.
(b) The funding of a self-administered scheme for a few members is difficult because the small membership limits the extent to which statistical fluctuations can be smoothed out (eg for mortality).
(c) Small self-administered schemes are usually established to provide benefits for directors. Often the scheme members control the employer company and are also trustees of the scheme. This multiplicity of roles can face a trustee with a conflict of interests leading to actions concerning the scheme being take for reasons other than the provision of benefits on retirement.
The special requirements thus fall into three categories viz:
(a) control of the format of the trust,
(b) control of funding, and
(c) control of investments."
It is also relevant to note para 20.11:
"It is not permissible for an approved small self-administered scheme to secure a member's benefits against particular trust assets. There is no objection to the calculation of the amount of the member's benefits being notionally linked to the value of particular assets but the trust provisions must ensure that the member's entitlement to benefit is against the funds of the trust as a whole."
These and other special requirements were imposed by statutory instrument made under s.591(6) of ICTA 1988, that is the Retirement Benefits Schemes (Restriction on Discretion to Approve) (Small Self-Administered Schemes) Regulations 1991 (S.I. 1991 No.1614). These regulations introduce another concept which is a term of art, a pensioneer trustee. This curious expression seems to have been invented by the Inland Revenue. A pensioneer trustee is defined (in regulation 2(1)) as a trustee of a scheme who
"(a) is approved by the Board [of Inland Revenue] to act as such, and
(b) is not connected with —
(i) a scheme member,
(ii) any other trustee of the scheme, or
(iii) a person who is an employer in relation to the scheme."
The effect of regulations 3(b) and 9 is to ensure that every SSAS will at all times have one pensioneer trustee. The evident purpose of this requirement is to ensure that there is one independent trustee to supervise its management, and in particular to ensure that there is no premature termination of the scheme (that is not spelled out in the regulations, but it appears from IR 12, para 20.4, that a pensioneer trustee is required to give the Superannuation Funds Office an undertaking to that effect).
So a pensioneer trustee has a particular status and a particular function for Inland Revenue purposes. But there appears to be nothing in the regulations to alter or qualify a pensioneer trustee's general duties under the ordinary principles of trust law. A pensioneer trustee (like a member-nominated trustee appointed under sections 16 ff of the Pensions Act 1995) is subject to the same...
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