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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Allan v Rea Brothers Trustees Ltd. [2002] EWCA Civ 85 (8th February, 2002) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2002/85.html Cite as: [2002] EWCA Civ 85 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HH JUDGE BEHRENS)
Strand, London, WC2A 2LL | ||
B e f o r e :
LORD JUSTICE ROBERT WALKER
and
LORD JUSTICE KEENE
____________________
ALLANAppellant - and - REA BROTHERS TRUSTEES LTD Respondent
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Miss Beverly-Ann Rogers (instructed by James Chapman & Co, Manchester) for the respondent
____________________
AS APPROVED BY THE COURT
Crown Copyright ©
Lord Justice Robert Walker:
Introduction
The regulatory background
“ ... 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 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,
control of funding, and
control of investments.”
“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.”
“(a) is approved by the Board [of Inland Revenue] to act as such, and
(b) is not connected with –
(i) a scheme member,
any other trustee of the scheme, or
a person who is an employer in relation to the scheme.”
The facts
“It is clear from that statement that Mr Allan was looking for a way of generating an income for himself. I am quite satisfied that Mr Allan was at all times aware that an income could not be provided to him without breaking the rules of the scheme. He was after all a trustee of the [EW] scheme and was aware of the basic provisions of the scheme.”
“In any event given that Mr Allan was introduced in the context of the execution of the assignment of the AXA policies I am satisfied, on the balance of probabilities, that he was introduced as an actual employee and an actual member of the Basdring Pension Scheme. This was a misleading introduction designed to mislead Mr Hesketh so that he would execute the assignment. Mr Hesketh was duly misled. I am satisfied that Mr Allan was fully aware of the deceit.”
“Up till that time Mr Hesketh had no reason to doubt that Mr Allan was in fact employed by Basdring Ltd. He had been introduced as an employee and had completed the form as an employee.”
Mr James Bonney QC (appearing with Mr Matthew Caswell for Mr Allan) sought to attack this finding as contrary to the weight of the evidence, but he did not press this submission very hard and it cannot succeed. The judge made a careful assessment of the oral evidence, relating it to the large volume of documentary evidence which was before him. He found Mr Hesketh and Mr Robin Larby (both of the trustee company) to be honest and in general reliable witnesses. He found Mr Allan’s evidence to be in some respects unreliable.
“As trustees (ie you and [the trustee company]) we have a legal responsibility vis-à-vis pension scheme investments and I for one am not prepared to sanction any new investments until the overall position is clear and all scheme members agree to such investment.”
By then the trustees seem to have had little or no cash available for investment. Mr Hesketh pressed for information (in the form of P60 forms or otherwise) as to the employment of each member by Basdring. He and others at the trust company continued to do so, with no success, for over a year until the trust company eventually gave notice of resignation on 9 April 1997.
The judgment below and the issues on the appeal
“Mr Allan contends that as he was not an employee of the principal employer he was never a member of the new scheme and thus the trusts failed. He goes on to assert that there was a resulting trust in favour of the old scheme. Accordingly the pensioneer trustee (together with the other two trustees) are liable to make good to the old trustees the £300,000 together with interest or with an enquiry on the footing of wilful default. In the alternative he contends that the new trustees – including the pensioneer trustee – have been in breach of trust in a number of ways for which he is entitled to compensation.
The pensioneer trustee disputes that there is any resulting trust and/or that it has been in breach of trust. It raises a number of defences including estoppel, acquiescence, and concurrence in breach of trust. In addition it seeks to rely on an exemption clause in the Trust Deed.”
“In my judgment, therefore, Miss Rogers’ arguments on this point are to be preferred. In particular it is clear that [the trustee company] had no knowledge that Mr Allan was not an employee until the end of January 1996. By that time the £300,000 had been mixed with other funds belonging to the Basdring Pension Scheme and could not be separately identified. It follows that there was no resulting trust.”
“The resulting trust is outside that scheme and thus not subject to its rules and its exclusion clauses.”
Miss Rogers has criticised that part of his judgment.
“do not in my view come within a measurable distance of satisfying the above test.”
Mr Bonney has criticised that part of his judgment.
Resulting trust
“The bank contended that where, under a pre-existing trust, B is entitled to an equitable interest in trust property, if the trust property comes into the hands of a third party, X (not being a purchaser for value of the legal interest without notice), B is entitled to enforce his equitable interest against the property in the hands of X because X is a trustee for B. In my view the third party, X, is not necessarily a trustee for B: B’s equitable right is enforceable against the property in just the same way as any other specifically enforceable equitable right can be enforced against a third party. Even if the third party, X, is not aware that what he has received is trust property B is entitled to assert his title in that property. If X has the necessary degree of knowledge, X may himself become a constructive trustee for B on the basis of knowing receipt. But unless he has the requisite knowledge he is not personally liable to account as trustee: In re Diplock; Diplock v Wintle [1948] Ch 465, 478; In re Montagu’s Settlement Trusts [1987] Ch 264. Therefore, innocent receipt of property by X subject to an existing equitable interest does not by itself make X a trustee despite the severance of the legal and equitable titles. Underhill and Hayton, Law of Trusts and Trustees, pp.369-370, whilst accepting that X is under no personal liability to account unless and until he becomes aware of B’s rights, does describe X as being a constructive trustee. This may only be a question of semantics: on either footing, in the present case the local authority could not have become accountable for profits until it knew that the contract was void.”
“ ... based on the assertion by [the claimants] of their equitable proprietary interest in identified property.”
The other (as Lord Browne-Wilkinson said in Westdeutsche at 705) depends on the conscience of the legal owner being affected. The special feature of the present case (which does not make it unique, but does distinguish it from many of the authorities that were cited) is that the trustee company knew (at all material times) that the AXA policies and their proceeds were trust property but did not know (on the judge’s findings, until January 1996 at the earliest) that there was doubt as to what the relevant trusts were.
“go back to – or, more properly I think, never left – the [original settlement].”
“For the principle to apply however, it is not enough that it should be shown that the trustees did not have a proper understanding of the effect of their act. It must also be clear that, had they had a proper understanding of it, they would not have acted as they did.”
This court formulated the test in less demanding terms in Stannard v Fisons Pensions Trust Ltd [1992] IRLR 27, but in this case even the most demanding test would lead to invalidity.
Claims for breach of trust
(1) investing the transfer payment in freehold property when the trustees knew that the payment ought not to have been made;
(2) failing to realise investments (promptly or at all) in order to make a refund to the EW scheme;
(3) failing to advise Mr Allan that he could not be a member of the scheme;
(4) investing £195,000 in the purchase of the two Singleton Road properties despite Mr Thompson’s conviction or impending trial for offences of dishonesty;
(5) investing the transfer payment without Mr Allan’s approval;
(6) failing as pensioneer trustee to protect the trust property, in particular by failing to exercise control over the trustees’ bank account, by failing to get Mr Thompson replaced, and by abrogating its responsibilities by resigning as trustee.
The allegations at (1) to (5) above were also made (and found to be established) against Mr Nolan and Mr Thompson, but there is no appeal by either of them.
“Mr Bonney QC criticised [the trustee company] for delegating to the other trustees the day to day administration of the trust. [The trustee company] were in breach of trust in failing to prevent the use of the bank account which would have prevented the use of trust moneys without their consent. No expert evidence was called before me as to the practice of pensioneer trustees but the evidence from both Mr Hesketh and Mr Larby was to the effect that it was common practice for the pensioneer trustee to delegate the day to day administration of the trust to the other trustees. This is confirmed by the express power to delegate contained in rule 28.2 and 31 of the Rules. Furthermore the letter from PSO dated 11th August 1997 sets out the purpose of the appointment of a pensioneer trustee. As at that date it was not a normal function to monitor investments.”
The indemnity clause
“In the professed execution of the trusts and powers hereof none of the Trustees or the Administrator shall be liable for any loss arising by reason of any improper investment made in good faith or for the negligence or fraud of any agent employed by such Trustee or by any other Trustee hereof or by the Administrator although the employment of such agent was not strictly necessary or expedient or by reason of any mistake or omission made in good faith by any Trustee hereof or by the Administrator or by reason of any other matter or thing except wilful and individual fraud or wrongdoing on the part of the person who is sought to be made liable and except as aforesaid the Trustees and the Administrator shall be indemnified against all liabilities incurred by them in the professed execution of the trusts and powers hereof and the management and administration of the Scheme and shall have a lien on the funds of the Scheme for such indemnity.”
“ ... the exemption clause is part of the rules of the Basdring Pension Scheme. The resulting trust is outside that scheme and thus not subject to its rules and its exclusion clauses.”
I cannot agree with that, for the reasons already stated in paragraph 56 above. Mr Allan had joined in deceiving the trustee company into believing that it was in receipt of a valid transfer payment to be held on and subject to the trusts, powers and provisions of the Basdring scheme, and he could not now be heard to object to the trustee company’s reliance on the indemnity clause applicable under the rules of that scheme.
Lord Justice Keene:
Lord Justice Aldous: