Trustee Solutions 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.

 

In the Trustee Solutions Case the High Court of England and Wales ruled that a purported amendments to a pension  fund were 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 which required an agreement under hand between the Trustees and representatives of the Employer.

A memorandum had been circulated to staff advising of purported changes but there was no document signed under hand by the Trustees and representatives of the Principal Company.

 

The Case

Trustee Solutions Ltd & Ors v Dubery & Anor [2006] EWHC 1426 (Ch) was before Mr Justice Lewison. The Colour Processing Pension Scheme (“the Scheme”) was originally constituted by a deed of trust made on 3 October 1960. It was a pension scheme for the employees of Colour Processing Laboratories Ltd. On 10 November 1986 the then trustees of the Scheme, with the consent of the company, resolved to adopt a new set of rules. That set of rules was the third edition of the rules. The resolution was signed by each of the trustees, and by the company secretary, acting by order of the board.   The power to amend the “Rules” was provided by Rule 38:
“… the Trustees may from time to time and at any time with the consent of the Principal Company by way of formal variation of these Rules adopted by any deed or deeds executed by the Trustees and the Principal Company or by any writing effected under hand by the Trustees and the Principal Company alter or modify all or any provisions of the Scheme Provided that no such alteration or modification as aforesaid shall be made which would have the effect of varying or affecting any benefits … applicable to Pensionable Service completed before the alteration or modification …without the consent of any Member affected thereby and Provided further that no such alteration or modification as aforesaid shall be permissible if it would result in any payment refund or transfer to the Employers or any of them.

Notice in writing of any such alteration or modification as aforesaid shall before the same takes effect be given to every Member who will be affected thereby.”

Lewison J stated at [16]:
    The principle question of construction turns on the requirement that the document amending the rules must be either a deed (which is not suggested in this case) or “writing effected under hand”.

Lewison J then stated at [18]:

I was taken to the decision of Neuberger J inBestrustees v Stuart[2001] Pens LR 283 Neuberger J was considering the requirements of a document that was said to have altered the rules in accordance with a power of alteration contained in clause 16 of the scheme under consideration in that case. Neuberger J said in para 33 of his judgement:

“I bear in mind that a pension scheme is likely to continue for a substantial period of time and that those most affected by them and entitled to protection from the trustees, the employer and indeed the Court, will be people who are comparatively poor, who will not have easy access to expert legal advice, and who will not know what has been going on in relation to the management of the Scheme. In those circumstances, it seems to me that protection of the beneficiaries requires the Court to be very careful before it permits a departure from the plain wording and plain requirements of the trust deed. Further, it is not as if this was a case where at the date of the trust deed there was a difference of identity between the trustees and the employer: they were the same person even then. Accordingly, I think the Court should be particularly careful before effectively overriding the requirement that there is some sort of written record which can be said to amount to an authority within the meaning of clause 16 of the definitive deed.”

    In para 40 he said:

“I refer back to the point to which I have already made reference, namely, that bearing in mind that this is a trust, and bearing in mind the likely long life of this trust and the ignorance as to what has been going on on the part of the beneficiaries, it seems to me that the Court should not be too ready to waive a requirement of written documentation when the Scheme, and the trust deed under which it is set up, specifically require it. Of course, in this sort of case one often finds oneself treading the somewhat blurred line between requiring the terms of a particular deed to be complied with, while not being too pedantic and exacting in one’s requirements.”

I do not regard these observations as suggesting that the court has power to sanction any departure from the requirements of the deed as properly construed An avoidance of pedantry, and the need to protect beneficiaries may well be powerful factors in choosing between rival constructions; but once the requirements of a valid means of alteration of the rules has been determined as a matter of construction, either a document satisfies those requirements or it does not.”

 

Lewison J ruled at [36-37]:

    In my judgement, it was a substantive requirement of a document amending the rules that it was signed by the trustees and by or on behalf of the company. Since, in my judgment, the court has no power to authorise a departure from the rules, or to waive one of their requirements, it follows that the rules have never been validly amended.
Adequacy of the documents
    Had I reached the opposite conclusion, I would have held that in any event the documents relied on were inadequate to amend the rules. The memorandum from the trustees did not purport to amend the rules. On the contrary, it set out three possible options. The announcement did not purport to come from the trustees. It came from the board of the company. It did not say that the trustees had decided anything; it said that the board had made the decision. The board was entitled to act in the interests of the company. The trustees were required to act in the interests of the beneficiaries. Those interests might well have conflicted. A statement that the board had reached a decision is, in my judgement, inadequate to count as a decision by the trustees. I would also have had considerable difficulty in reading the announcement with the memorandum; since the latter did not refer to the former. But even if they were read together, the memorandum only sets out choices; and consequently it cannot show what the trustees (as opposed to the board) actually decided.
 

Key Point

The High Court of England and Wales ruled in Trustee Solutions v Dubery [2006] 36 P.L.R [2006] EWHC 1426 (Ch) at paragraph 20:

“……but once the requirements of a valid means of alteration of the rule has been determined as a matter of construction, either a document satisfies those requirements or it does not.”

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This tab updated on 2 June 2015