UK: Pension Trustee Decisions Become Harder To Unwind

It has become more difficult to unwind decisions made by pension trustees which they took under a mistaken impression and they (or others) have come to regret.

This is because the Supreme Court has finally laid to rest the "rule in Hastings- Bass", a principle which influenced pensions law for nearly a quarter of a century.

The birth of the "rule in Hastings-Bass"

The original case of Re Hastings-Bass was decided by the Court of Appeal in 1974. The question was whether the trustees of one trust had the power to make a transfer of assets to a second trust (their motive being to avoid estate duty). The Court found that they did, but it affirmed the general principle that an act of trustees was void if it lay outside their powers.

In later years, Re Hastings-Bass was cited as authority for a very different proposition – that acts of trustees which lie within their powers are voidable (but not automatically void) if the trustees fail to take the correct considerations into account.

The turning point came in the 1990 case of Mettoy Pension Trustees Ltd v Evans, in which the question was whether a pension scheme's trust deed was void. Citing Hastings-Bass, the judge accepted that an act of trustees could be voided if they "did not have a proper understanding of the effect of their act" and if "had they had a proper understanding of it, they would not have acted as they did".

The judge considered that the professional advice received by the trustees was not relevant to whether their decision could be overturned. What mattered was whether the trustees had taken the right factors into account, even if their advisers had failed to brief them properly on those factors.

The demise of the "rule in Hastings-Bass"

The recent litigation before the Supreme Court consisted of two cases, known as Pitt and Futter. Both related to "private" trustees and fiduciaries rather than pension trustees.

Seven Supreme Court justices unanimously held that there was no "rule in Hastings-Bass". The judge in Mettoy had simply got it wrong. The true position was that a trustee's decision was voidable (but not automatically void) if the trustee had breached his legal duties in arriving at it. The trustee was required to take account of all relevant considerations (and no irrelevant ones), but the Court emphasised that not every failure to weigh the correct considerations in the best possible manner would invalidate a decision:

The Court appeared to take the view that trustees would normally not be in breach of duty if they took and acted on professional advice, even if such advice was later shown to be incorrect.

The consequences for pension schemes

The 1990s and 2000s saw a string of pensions claims citing the "rule in Hastings- Bass". It was often pleaded as an alternative to rectification where a document had been incorrectly drafted. However, when we look more closely at the cases, it is unclear how much difference the "rule" made.

The "rule" did make a difference in Stannard v Fisons Pension Trusts Ltd [1991]. The trustees had decided to make a transfer, valued on a certain basis, to another scheme. Unknown to them, their scheme had moved from its previous position of deficit into surplus. The transfer was held void: if the trustees had known about the movement in funding, they might have determined to use a more generous valuation basis. This is a straightforward example of the "rule" being applied, and a court might be unlikely to reach the same conclusion following the Pitt and Futter decisions.

In other cases, however, the "rule" made no difference to the outcome:

• AMP (UK) Plc v Barker [2001] concerned rule amendments which had had the unforeseen effect of increasing early leavers' benefits. The judge granted rectification, while noting that relief would also have been available under Hastings-Bass
• In Gallaher Ltd v Gallaher Pensions Ltd [2005] a rule on pension increases was introduced into three schemes. It was claimed that the rule's scope was broader than the employer and the trustees had intended. The judge granted rectification, while stating that he would have also granted relief under Hastings-Bass.

If these cases were decided today, the result would probably be the same, since the remedy of rectification remains unaffected by Pitt and Futter.

In other cases, such as the following one, Hastings-Bass arguments failed due to the specific facts:

• In Betafence v Veys [2006], an informal amendment was made in 1991 which was intended to allow all members to retire at 60. Without telling the trustees, the employer sought to add a requirement for its consent to such retirements. This requirement was incorporated into a further amendment in 1993 without the trustees noticing. The judge upheld the 1993 amendment because he could not be sure that the trustees would have acted differently if they had realised the truth.

If this case got to court today, it is unlikely, in the light of Pitt and Futter, that the claimant would be able to advance a Hastings-Bass–type argument at all.

Clyde & Co Comment

Trustees can now have greater certainty that their decisions will not be vulnerable to challenge years down the line because they misunderstood or received poor advice on their consequences. Nevertheless, it is important to keep some perspective. While Hastings-Bass was often pleaded in pensions cases, it rarely made the difference between a claim succeeding or failing. Most of the previous cases in this area would probably reach a similar outcome if they were decided today.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.