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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> MCP Pension Trustees Ltd v AON Pension Trustees Ltd [2009] EWHC 1351 (Ch) (18 June 2009) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2009/1351.html Cite as: [2009] EWHC 1351 (Ch), [2009] Pens LR 247, [2010] WTLR 1331, [2010] 2 WLR 268, [2010] 1 All ER (Comm) 323 |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
Sitting as a Deputy Judge of the Chancery Division
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MCP PENSION TRUSTEES LIMITED |
Claimant |
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- and - |
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AON PENSION TRUSTEES LIMITED |
Defendant |
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Mr David E Grant (instructed by Messrs CMS Cameron McKenna LLP, of Mitre House, 160, Aldersgate Street, LONDON EC1A 4DD) for the Defendant
Hearing date: 14th May 2009
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Crown Copyright ©
THE DEPUTY JUDGE:
BACKGROUND
THE FACTS
"(1) At all material times the Claimant was the trustee of the Maxwell Communications Works Pension Scheme ("the Works Scheme").
(2) The Defendant provided administration services to the Works Scheme from around 1992 until late 1997.
(3) The winding up of the Works Scheme commenced in 2003. The Claimant took out two insurance policies as part of the process of winding up the Works Scheme including an overlooked beneficiary policy.
(4) The Claimant used all the assets of the Works Scheme in securing the benefits of all members of the Works Scheme that it knew of, and using an apparent surplus to augment those members benefits. Thereafter the Claimant became aware of 32 individuals whom the Claimant believes to have been members of the Works Scheme who did not have benefits secured for them when the Works Scheme winding up commenced. These individuals were formally members of the Diemer & Reynolds Limited Retirement and Death Benefit Plan ("the D&R Scheme" and the "D&R Works Transferees" respectively).
(5) Of these 32 D&R Works Transferees it was unnecessary to make provision for 17 of them, leaving 15 members to make provision for. Consequently the Claimant made a claim on the overlooked beneficiary policy, paying out £868,472 to these 15 members. It has recently become apparent that there may be a further liability in relation to 4 of those 15 members, which is currently being investigated.
(6) Although the question of liability is not an issue at the forthcoming Preliminary Hearing and a number of matters asserted by the Claimant in the Particulars of Claim and the Witness Statement of Mr Derek Bambury made on 23 December 2008 on behalf of the Claimant are not accepted, for the purposes of the hearing of the preliminary issue only, the Defendant is content to proceed on the basis that the D&R Works Transferees transferred to the Works Scheme in around 1996.
…
(8) The Claimant has not been wilful or negligent in the exercise of its duties as trustee of the Works Scheme and the Claimant has acted honestly and reasonably.
(9) The Claimant undertook an extensive advertising campaign calling for former members of the Works Scheme to notify it of claims, and in accordance with the requirements of section 27 Trustee Act 1925. The outcome of this advertising was that only 3 individuals, who were not already known to be Works Scheme members, were identified. The D&R Works Transferees did not respond to the advertising.
(10) At the time of the distribution of the assets of the Works Scheme, the Claimant was not aware of the D&R Works Transferees.
..."
THE PRELIMINARY ISSUE
"Whether on the true construction of section 27 Trustee Act 1925 the Claimant is not liable to the D&R Works Transferees".
THE SUBMISSIONS FOR AON
The provisions of section 27
"27 Protection by means of advertisements
(1) With a view to the conveyance to or distribution among the persons entitled to any real or personal property, the trustees of a settlement [, trustees of land, trustees for sale of personal property] or personal representatives, may give notice by advertisement in the Gazette, and [in a newspaper circulating in the district in which the land is situated] and such other like notices, including notices elsewhere than in England and Wales, as would, in any special case, have been directed by a court of competent jurisdiction in an action for administration, of their intention to make such conveyance or distribution as aforesaid, and requiring any person interested to send to the trustees or personal representatives within the time, not being less than two months, fixed in the notice or, where more than one notice is given, in the last of the notices, particulars of his claim in respect of the property or any part thereof to which the notice relates.
(2) At the expiration of the time fixed by the notice the trustees or personal representatives may convey or distribute the property or any part thereof to which the notice relates, to or among the persons entitled thereto, having regard only to the claims, whether formal or not, of which the trustees or personal representatives then had notice and shall not, as respects the property so conveyed or distributed, be liable to any person of whose claim the trustees or personal representatives have not had notice at the time of conveyance or distribution; but nothing in this section—
(a) prejudices the right of any person to follow the property, or any property representing the same, into the hands of any person, other than a purchaser, who may have received it; or
(b) frees the trustees or personal representatives from any obligation to make searches or obtain official certificates of search similar to those which an intending purchaser would be advised to make or obtain.
(3) This section applies notwithstanding anything to the contrary in the will or other instrument, if any, creating the trust."
Application of section 27 of the Trustee Act 1925 to Pension Schemes
"… the trustees of a settlement, trustees of land, trustees for sale of personal property or personal representatives".
"… the trustees of a settlement or of a disposition on trust for sale or personal representatives".
"Trustees distributing the assets of a pension scheme upon winding up may also protect themselves by means of advertisement under section 27 of the Trustee Act 1925."
The position where a trustee has notice
"Then comes the question whether the administratrix had notice before she distributed the assets that her niece was alive. There certainly was evidence upon which a jury might reasonably have found that she had no notice. I feel it to be so important that persons having claims against the estates of testators or intestates should not upon light grounds be shut out from the opportunity of asserting them, that I should have been inclined to send this matter back to be ascertained by a jury, had it not been the wish of both sides that that expense should be avoided. Under these circumstances, my brother Lindley will consent to have the administratrix, and her only, examined before him and, if he reports to us that he is satisfied that she had no such notice, the verdict will be for the defendant; if otherwise, the verdict for the plaintiff will stand.
"It falls, therefore, to be decided in accordance with the well established principles of equity. One of those principles is that if a trustee or other person in a fiduciary capacity has received notice that a fund in his possession is, or may be, claimed by A, he will be liable to A if he deals with the fund in disregard of that notice should the claim subsequently prove to be well founded."
Suggested limitations as to what constitutes "notice"
"(i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. More accurately, apart from actual knowledge they are formulations of the circumstances which may lead the court to impute knowledge of the facts to the alleged constructive trustee even though he lacked actual knowledge of those facts."
"I summarise therefore the principles of law that, in my judgment, I must apply in respect of the claim in equity as follows. (1) The plaintiffs must show (a) the existence of a trust affecting the $4m. deposited by B.C.B. with S.G.; (b) the fraudulent and dishonest design on the part of the directors of B.C.B. who gave instructions to S.G. to transfer the $4m. to Panama; (c) the assistance by S.G. in that design; (d) S.G.'s knowledge of (a), (b) and (c). (2) The knowledge must be actual knowledge or knowledge which it would have obtained but for shutting its eyes to the obvious or wilfully and recklessly refraining from making such inquiries as the reasonable banker would have made from the circumstances known to S.G. or would have obtained from inquiries which the reasonable banker would have made, the onus being on the plaintiffs to establish that S.G. possessed that knowledge."
"The doctrine of notice was developed in the context of conveyancing, and the rules developed in the conveyancing context may have only limited application in commercial and other contexts. The doctrine of constructive notice, as developed in the conveyancing context, does not apply to commercial transactions. In the conveyancing context the question is what enquiries ought reasonably as a matter of prudence, having regard to usual conveyancing practice, to be made by a purchaser through his solicitor in relation to the vendor's title to land. However in the constructive trust context the question is usually what enquiries, if any, ought to have been made by a defendant if he has actual knowledge of facts which point to the existence of a breach of trust, so as to avoid the charge that he has knowledge within types (3) or (5) of the Baden classification. The circumstances are quite different and thus the rules about notice developed in the conveyancing context are of limited assistance. In the conveyancing context a high standard of care is required, but outside this context the court is not astute to impute knowledge where no actual knowledge exists. Even where a question of constructive trust arises in a conveyancing context, that is where a person purchases trust land transferred in breach of trust, it has been questioned whether the purchaser's liability for knowing receipt should be determined by reference to the doctrine of notice, since constructive trusteeship involves personal liability, and is not concerned merely with proprietary interests."
"... as regards the extension of the equitable doctrines of constructive notice to commercial transactions, the Courts have always set their faces resolutely against it. The equitable doctrines of constructive notice are common enough in dealing with land and estates, with which the Court is familiar; but there have been repeated protests against the introduction into commercial transactions of anything like an extension of those doctrines, and the protest is founded on perfect good sense. In dealing with estates in land title is everything, and it can be leisurely investigated; in commercial transactions possession is everything, and there is no time to investigate title; and if we were to extend the doctrine of constructive notice to commercial transactions we should be doing infinite mischief and paralyzing the trade of the country."
Notice by imputation
The protection of trustees
The construction of the statutory provisions
"Where an executor or administrator shall have given such or the like notices (i) as in the opinion of the court in which such executor or administrator is thought to be charged would have been given by the Court of Chancery in an administration suit, for creditors, and others, to send into the executor or administrator their claims against the estate of the testator or intestate, such executor or administrator shall at the expiration of the time named in the said notices or the last of the said notices for sending such claims, be at liberty to distribute the assets of the testator or intestate, or any part thereof, amongst the parties entitled thereto, having regard to the claims of which such executor or administrator has then notice (ii) and shall not be liable for the assets or any part thereof so distributed to any person of whose claim such executor or administrator shall not have had notice at the time of distribution of the same assets or a part thereof, as the case may be …".
Restricting the meaning of "notice"
"The issue of constructive notice is of particular relevance to pension fund trustees. In many situations, trustees will have actual notice of those who are beneficiaries of the scheme. But sometimes this will not be so. For example, a group of deferred pensioners may have been missed off trustees' records but may have been noted as being beneficiaries in separate records kept by a participating employer. Equally trustees may be uncertain whether indirect discrimination has taken place against part-time employees in circumstances which would give these employees rights as scheme beneficiaries. Whether or not trustees would have constructive notice of these beneficiaries would depend very much on the circumstances. It turns on whether or not the trustees ought to have made further enquiries. In the first example, where a group of members were simply left off a list in circumstances where the trustees had no reason to suppose this to be the case, it would be harsh to impute constructive notice."
"Placing a section 27 advertisement will not protect a trustee from any claim of which he has actual or constructive notice. This is irrespective of whether or not the claimant replies to the advertisement."
In Re Montagu's Settlement Trusts
"In the books and the authorities the word "notice" is often used in place of the word "knowledge," usually without any real explanation of its meaning. This seems to me to be a fertile source of confusion; for whatever meaning the layman may attach to those words, centuries of equity jurisprudence have attached a detailed and technical meaning to the term "notice," without doing the same for "knowledge." The classification of "notice" into actual notice, constructive notice and imputed notice has been developed in relation to the doctrine that a bona fide purchaser for value of a legal estate takes free from any equitable interests of which he has no notice. I need not discuss this classification beyond saying that I use the term "imputed notice" as meaning any actual or constructive notice that a solicitor or other agent for the purchaser acquires in the course of the transaction in question, such notice being imputed to the purchaser. Some of the cases describe any constructive notice that a purchaser himself obtains as being "imputed" to him; but I confine "imputed" to notice obtained by another which equity imputes to the purchaser.
Now until recently I do not think there had been any classification of "knowledge" which corresponded with the classification of "notice". However, in the Baden case, at p. 407, the judgment sets out five categories of knowledge, or of the circumstances in which the court may treat a person as having knowledge. Counsel in that case were substantially in agreement in treating all five types as being relevant for the purpose of a constructive trust; and the judge agreed with them: p. 415. These categories are (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. If I pause there, it can be said that these categories of knowledge correspond to two categories of notice: Type (i) corresponds to actual notice, and types (ii), (iii), (iv) and (v) correspond to constructive notice. Nothing, however, is said (at least in terms) about imputed knowledge. This is important, because in the case before me Mr. Taylor strongly contended that Mr. Lickfold's knowledge must be imputed to the Duke, and that this was of the essence of his case.
It seems to me that one must be very careful about applying to constructive trusts either the accepted concepts of notice or any analogy to them. In determining whether a constructive trust has been created, the fundamental question is whether the conscience of the recipient is bound in such a way as to justify equity in imposing a trust on him. The rules concerning a purchaser without notice seem to me to provide little guidance on this and to be liable to be misleading. First, they are irrelevant unless there is a purchase. A volunteer is bound by an equitable interest even if he has no notice of it; but in many cases of alleged constructive trusts the disposition has been voluntary and not for value, and yet notice or knowledge is plainly relevant. Second, although a purchaser normally employs solicitors, and so questions of imputed notice may arise, it is unusual for a volunteer to employ solicitors when about to receive bounty. Even if he does, he is unlikely to employ them in order to investigate the right of the donor to make the gift or of the trustees or personal representatives to make the distribution; and until this case came before me I had never heard it suggested that a volunteer would be fixed with imputed notice of all that his solicitors would have discovered had he employed solicitors and had instructed them to investigate his right to receive the property."
…
"There is a further question that I should consider, and that is forgetfulness. Little was said about this in argument; but in a case in which at one time the true position was known to Mr.Lickfold, and possibly to the Duke, I must say something about it. If a person once has clear and distinct knowledge of some fact, is he to be treated as knowing that fact for the rest of his life, even after he has genuinely forgotten all about it? To me, such a question almost answers itself. I suppose that there may be some remarkable beings for whom once known is never forgotten; but apart from them, the generality of mankind probably forgets far more than is remembered. So far as the doctrine of notice is concerned, there is authority, in relation to the rule in Dearie v. Hall (1828) 3 Russ. 1 , for saying that the question is whether at the time in question notice previously obtained continues to operate on the mind of the recipient: see Ipswich Permanent Money Club Ltd. v. Arihy [1920] 2 Ch. 257 . Of course, since 1925 there is a statutory scheme under section 137 of the Law of Property Act 1925 for regulating priority by means of the receipt of written notices; and nothing I say is intended to suggest that such notices might lose their effect if the recipient or anyone else forgets them. But apart from such statutory provisions, it seems to me that a person should not be said to have knowledge of a fact that he once knew if at the time in question he has genuinely forgotten all about it, so that it could not be said to operate on his mind any longer. This is emphasised in relation to constructive trusts in that, in my view, it would be wrong to hold that a person's conscience is affected by something that he does not know about. Even if section 199 of the Law of Property Act 1925 had any application, and notice were in issue, I cannot accept Mr. Taylor's contention that the section shows that what a person once knew he is conclusively presumed still to have notice of; for the section is framed in terms of what "is" within the purchaser's own knowledge, and not "is or ever has been" within his knowledge."
Temporal limitations upon notice
(i) The wording of section 27(2) itself ("then had notice") and the wording of section 29 of Lord St. Leonard's Act ("has then notice").
(ii) Mr Docking's article suggesting that it might be harsh to impose constructive notice upon a trustee in circumstances where trustees have no reason to suppose that members had simply been left off a list.
(iii) The observations of Sir Robert Megarry V-C in particular at page 284G of the decision in Re Montagu (cited above).
No relevant claims
SUBMISSIONS FOR MCP
"A trustee or personal representative acting for the purposes of more than one trust or estate shall not, in the absence of fraud, be affected by notice of any instrument, matter, fact or thing in relation to any particular trust or estate if he has obtained notice thereof merely by reason of his acting or having acted for the purposes of another trust or estate."
Imputed notice
"2.1: Maintaining a membership record database for all classes of member, updated regularly to reflect membership changes …
2.7: Storage of all relevant documentation to include members "expressly of wish" forms. [I suspect that this should have read "expressions of wish".]
2.8: Preparing summaries of the membership as required by MCP for reporting and other purposes.
…
2.13: Liaison with MCP regarding benefit payments.
2.14: Provision of regular administration and membership reports as required by MCP and its advisers.
…
5.1: Maintaining a continuously updated database …".
The significance of actual notice
"Third, there seems to me to be a fundamental difference between the questions that arise in respect of the doctrine of purchaser without notice and constructive trusts. As I said in my previous judgment, ante, pp. 272H - 273B:
'The former is concerned with the question whether a person takes property subject to or free from some equity. The latter is concerned with whether or not a person is to have imposed upon him the personal burdens and obligations of trusteeship. I do not see why one of the touchstones for determining the burdens on property should be the same as that for deciding whether to impose a personal obligation on a man. The cold calculus of constructive and imputed notice does not seem to me to be an appropriate instrument for deciding whether a man's conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee.'
I can see no reason to resile from that statement, save that to meet possible susceptibilities I would alter "man" to "person." I would only add that there is more to being made a trustee than merely taking property subject to an equity."
The relevance of forgotten facts
"However "notice" is often used in a sense or in contexts where the facts do not support the inference of knowledge. A man may have actual notice of a fact and yet not know it. He may have been supplied in the course of a conveyancing transaction with a document and so have actual notice of its content, but he may not in fact have read it; or he may have read it some time ago and have forgotten its content. Sir Robert Megarry V.-C. observed in In re Montagu's Settlement Trusts [1987] Ch. 264 ,284: "I suppose that there may be some remarkable beings for whom once known is never forgotten; but apart from them, the generality of mankind probably forgets far more than is remembered." So also by statute a man may be deemed to have actual notice of a fact which is clearly not within his knowledge.
Constructive and imputed notice are most frequently, though not invariably, used in contrast to knowledge — to describe a situation in which a man is treated for some purposes as if he had knowledge of facts which were clearly not known to him. Lord Esher in English and Scottish Mercantile Investment Co. Ltd. v. Brunton [1892] 2 QB 700 , 708 described the doctrine of constructive notice as "wholly founded on the assumption that a man does not know the facts." Moreover, a man may be affected by constructive notice even if there has been not only no want of probity but no carelessness on his part. He may have imputed to him notice of matters of which his counsel, solicitor or other agent had notice, actual or constructive, in the same transaction in which the question of notice arises: see section 199 of the Law of Property Act 1925 , re-enacting section 3(2) of the Conveyancing Act 1882(45 & 46 Vict. c. 39) which in turn was largely declaratory of the law.
In the field of conveyancing the law has historically set a very high standard; so much so that Maitland observed that "in reading some of the cases about constructive notice we may be inclined to say that equity demanded not the care of the most prudent father of a family but the care of the most prudent solicitor of a family aided by the skill of the most expert conveyancer:" see Maitland's Equity, 2nded. (1936), p. 119.
It is often said that man has constructive notice of matters which he would have discovered if he had made those inquiries which he ought reasonably to have made. But as Lindley L.J. pointed out in Bailey v. Barnes [1894] 1 Ch 25 , 35:
"'Ought' here does not import a duty or obligation; for a purchaser need make no inquiry. The expression 'ought reasonably' must mean ought as matter of prudence, having regard to what is usually done by men of business under similar circumstances."
What amounted to a claim?
ANALYSIS
"(1) A purchaser shall not be prejudicially affected by notice of—
...
(ii) any other instrument or matter or any fact or thing unless—
(a) it is within his own knowledge, or would have come to his knowledge if such inquiries and inspections had been made as ought reasonably to have been made by him; or
(b) in the same transaction with respect to which a question of notice to the purchaser arises, it has come to the knowledge of his counsel, as such, or of his solicitor or other agent, as such, or would have come to the knowledge of his solicitor or other agent, as such, if such inquiries and inspections had been made as ought reasonably to have been made by the solicitor or other agent."
DISPOSAL