Sovereign Trustees Case

Legal Principles

An instrument that purports to amend the terms of a trust must comply with the conditions and restrictions imposed by the amending power, otherwise the purported instrument amending the terms of the trust will be void and invalid under the doctrine of an “excessive exercise” of the amending power (Power of Amendment).

 

In the Sovereign Trustees Case the High Court of England and Wales ruled that a purported money-purchase sub-plan of a Defined Benefit pension fund as invalid since the terms of the pension trust {Regulations of the Fund} had not been validly amended in accordance with the amending power provided in the Trust Deed.

 

The Case

Sovereign Trustees Ltd & Anor v Glover & Ors [2007] EWHC 1750 (Ch) was a case before the Chancellor of the High Court.

Oldham Signs Ltd Pension and Life Assurance Scheme (“the Scheme”) was constituted with effect from 6th April 1989 by an Interim Trust Deed (“the Interim Trust Deed”) dated 20th February 1989 made between Oldham Signs Ltd (“the Company”) as the principal employer (1) and four individuals as the trustees thereof (2). The Interim Trust Deed provided for the execution of a definitive trust deed to bring into operation rules for the administration of the Scheme. Such rules were to be written to enable the Scheme to comply with certain statutory provisions (cl.4(b)) and might be amended by a resolution of the trustees (cl.16). The Interim Trust Deed provided for a majority of the trustees to constitute a quorum for any meeting of trustees (cl.9(i)) and that a resolution in writing signed by all the trustees should have the same legal effect as a resolution properly passed at a meeting of all the trustees (cl.10).

The Power of Amendment Rule 23 provided for amendments to the Rules in the following terms:

“The [Trustees] may, with the consent of the Principal Employer, from time to time amend all or any of the provisions of the Rules provided that no amendment shall be made so as to affect prejudicially the benefit entitlement under the Scheme secured or accrued in respect of any Member up to the effective date of the amendment….The [Trustees] shall notify in writing each Member of any amendment which affects the benefit entitlement in respect of him under the Scheme.”

Thus the power of amendment may only be exercised by a resolution of the Trustees passed in accordance with those provisions. The first occasion on which the power was exercised was in August 1996. On that occasion a resolution was passed by the three trustees at a meeting held on 27th August 1996. It is recorded in a minute countersigned by all three trustees and on behalf of the Company as the principal employer by a director and the secretary. It recites the Interim Trust Deed, the Definitive Deed and the Rules and continues:
“3. Certain alterations are to be made to the Rules primarily to secure the approval or continued approval of the Scheme by the Board of Inland Revenue.  
However when a proposal was adopted by the Trustees for a money-purchase sub-plan to be implemented no written consent of the Principal Employer was obtained by the Trustees.   The Chancellor ruled at [35}:   It was not contended by counsel for the Trustees that the Rules had been amended by any means other than the Resolution as evidenced by the Minute. Accordingly for the reasons I have explained I will, subject to any further argument on the form of my order, declare in response to the issue raised by the application notice dated 2nd October 1996 and paragraph 1(a) of the Part 8 claim that:

“the money purchase section of the Oldham Signs Pension Scheme of which the claimants are the trustees was not validly created so as to give members an entitlement under its terms in respect of benefits arising from the transfer payments or contributions.”