HR Trustees Ltd v German & Others
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE ARNOLD,MR JUSTICE ARNOLD,OR |
| Judgment Date | 10 November 2009 |
| Neutral Citation | [2009] EWHC 2785 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC08C025464 |
| Date | 10 November 2009 |
[2009] EWHC 2785 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: The Hon MR Justice Arnold
In the Matter of the Img Pension Plan
Case No: HC08C025464
Andrew Spink Q.C. and Nicolas Stallworthy (instructed by Lovells LLP) for the Claimant
Richard Hitchcock and Farhaz Khan (instructed by Baker & McKenzie LLP) for the First Defendant
Keith Rowley Q.C. and Elizabeth Ovey (instructed by Macfarlanes LLP) for the Second Defendant
Hearing dates: 14–16, 19–23 October 2009
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR JUSTICE ARNOLD :
Contents
Topic Paragraphs
| Introduction | 1–4 |
| The witnesses | 5–15 |
| The facts | 16–99 |
| Key provisions of the 1977 Deed | 100–101 |
| Key provisions of the 1981 Rules | 102–104 |
| The 1992 Deed | 105–109 |
| General principles of construction of pension schemes | 110 |
| Question 1 | 111–127 |
| The Employers' first argument: rule 27 substituted for clause 7(1) |
|
| under clause 3 | 112–114 |
| The Employers' second argument: clause 7(i) amended to rule 27 | 115–126 |
| The scope of the power of amendment | 117–125 |
| The exercise of the power | 126 |
| Conclusion | 127 |
| Question 2 | 128–149 |
| The effect of the Fetter | 129–143 |
| Retrospective amendment | 144–148 |
| Conclusion | 149 |
| Question 3 | 150 |
| Question 4 | 151–190 |
| Contract | 153–174 |
| Estoppel by representation | 175–184 |
| Estoppel by convention | 185–189 |
| Members who joined between 1 January and 3 March 1992 | 190 |
| Conclusion | 191 |
| Question 5 | 192–222 |
| The facts | 193–202 |
| The Existing Members' first argument: fraud on the power of |
|
| appointment | 203–209 |
| The Existing Members' second argument: equitable non est factum | 210–217 |
| The Existing Members' third argument: excessive or improper |
|
| exercise of power | 218–2220 |
| The rule in Hastings-Bass | 221 |
| Conclusion | 222 |
| Question 6 | 223–235 |
| Conclusion | 235 |
| Question 7 | 236–243 |
| Mr A | 239–241 |
| Mr D | 242–243 |
Introduction
The Claimant (“the Present Trustee”), which is a professional independent trustee, is the sole trustee of the IMG Pension Plan (“the Plan”). The Plan is an occupational pension scheme for employees of companies in the IMG Group, a group of companies founded by the late Mark McCormack in the 1960s (“the Group”). The Plan was established by deed dated 12 October 1977 (“the 1977 Deed”) as a defined benefit or “final salary” scheme, but was purportedly converted into a defined contribution or “money purchase” scheme with effect from 1 January 1992 by a deed dated 3 March 1992 (“the 1992 Deed”). By this claim the Present Trustee seeks the determination of a number of questions pursuant to CPR Part 64 so as to resolve uncertainties about the validity and effect of the conversion and about the validity and effect of compromise provisions in agreements entered into by certain members of the Plan with their employers under which the members waived such defined benefit entitlements as they may have had under the Plan. Questions 1 and 2 are questions about the amendment power under which the 1992 Deed was executed. Question 3 raises some supplemental points in relation to amendment. Question 4 is concerned with the effect of various extrinsic materials on the conversion. Question 5 is about the validity and effect of the trustees' decision-making in executing the 1992 Deed. Questions 6 and 7 are questions about the enforceability and construction of the compromise provisions.
The Present Trustee is entirely neutral in these proceedings, having been appointed well after the purported conversion. The First Defendant (“Mr German”) is a deferred member of the Plan. He commenced membership on 6 April 1990 and ceased to be an active member on 16 December 2005, although he remains employed by IMG. In 2005 Mr German signed a compromise agreement which IMG contends precludes him retaining any defined benefit entitlements under the Plan. Mr German thus has a direct personal interest in the questions raised by the claim form. During the trial I made a representation order under CPR rule 19.7(2)(d)(ii) appointing Mr German to act as a representative beneficiary under an “issues-based” representation order; i.e. to represent those beneficiaries in whose interests it would be to argue for particular answers to the questions raised. Broadly speaking, these are the existing members of the Plan at the time of the purported conversion (“the Existing Members”). The Second Defendant (“IMG”) is the Plan's Principal Employer. The representation order which I made appointed IMG to represent (i) all the Plan's Employers, (ii) in relation to each question, any beneficiaries of the Plan not represented by Mr German in respect of that question and (iii) other companies within the IMG group who, while not being Employers participating in the Plan, are parties to and/or entitled to enforce the compromise provisions which are the subject of questions 6 and 7 (I shall refer to all the parties represented by IMG as “the Employers”).
The proceedings were brought under CPR Part 8. As it has turned out, the questions were not entirely suitable for determination by the Part 8 procedure for two reasons. First, the questions are of some complexity and accordingly it has been necessary for the parties to set out in some detail their respective cases. Secondly, there are certain issues of fact. The parties have, however, co-operated in a sensible way to enable the case to be tried. So far as the first point is concerned, the parties set out their respective cases in advance of trial by witness statement and/or letter. As to the second point, the parties served witness statements from a number of witnesses, some of whom were cross-examined at trial. Although there was no order for disclosure, the parties have voluntarily searched for and disclosed relevant documents.
I am indebted to all counsel and their instructing solicitors for their clear, thorough and helpful presentation of the case.
The witnesses
Steven Ross is the Managing Director of the Present Trustee. He has no personal knowledge of the facts giving rise to the proceedings. He made two witness statements setting out the factual background and the issues arising based on his understanding of the documents which had been provided to the Present Trustee. He was not required to attend for cross-examination.
Arthur Joseph Lafave Jr (known as “Jay”) obtained an LLB from Yale Law School in 1958. In 1960 he joined Arter Hadden Wyckoff & Van Duzen in Cleveland, Ohio, where he met Mr McCormack. Shortly afterwards, he began to work with Mr McCormack. After a few years he and Mr McCormack left to set up what became the Group. Mr McCormack was the principal beneficial owner of the Group, as well as its Chairman and Chief Executive, but Mr Lafave had a minority interest. Mr Lafave was the Chief Financial Officer of the Group from 1980 to 2000. He was also a member of the Corporate Finance Committee (“the CFC”), a body convened by Mr McCormack to advise him on financial matters. From 2000 to November 2004 Mr Lafave was Vice Chairman. In November 2004, following the death of Mr McCormack, the McCormack family and Mr Lafave sold the Group to Forstmann Little. Since then Mr Lafave has remained employed by a company in the Group, but he no longer has significant responsibilities. Understandably, Mr Lafave had no great recollection of the events in question, but he had some and he had refreshed his memory from the documents. He gave evidence by videolink from Cleveland. He was a clear and candid witness.
Ian Todd qualified as a solicitor in 1971, having been an articled clerk with Brian Clark (as to whom, see below). Mr Todd joined IMG in the same year. From 1972 to 1973 he worked for the Group in Cleveland. From 1973 to 1977 he worked in Geneva. In 1977 he returned to London as Senior Vice President Europe Middle East and Africa. By the early 1990s he was head of Europe Middle East and Africa. At that time he was friendly with Peter Kuhn (as to whom, see below). He left the Group in 1998, but returned in 2007. He is now President of IMG International. Mr Todd was a member of the Plan both before and after 1992, but he explained that he paid very little attention to it from that perspective. Mr Todd's recollection of the events in question was poor, but he did his best to assist me.
Brian Clark obtained a law degree from the London School of Economics in 1958. He was an articled clerk with Goodman Derrick from 1958 to 1961. After qualification he stayed with the firm for eight years, becoming a partner specialising in corporate and intellectual property law. In 1969 he joined IMG as an executive, and was instrumental in setting up the Group's UK operation, but left after about 18 months. In 1971 he joined Nabarro Nathanson (“NN”) as a corporate partner. From 1975 to 1993 he was the senior corporate partner. During this period he was the client partner for the Group, and NN did a considerable amount of work for the Group. Mr Clark mainly dealt with the Group's UK executives such as Mr Kuhn, but he also had dealings with Mr Lafave and, to a lesser extent, Mr McCormack. Mr Clark was not a trust lawyer, still less a pensions lawyer. As I shall explain in more detail below, he relied upon his colleagues in NN's pensions department. On about 1 May 1993 Mr Clark became the IMG Group's Director of European Legal Affairs. He carried out that role until 2000, when he began to reduce his...
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