This update contains summaries of two recent practical court decisions which provide confirmation that trust law in Ireland relating to trustee decision making, related responsibilities and potential liability for breach of trust is consistent with previous expectations. These decisions while welcome do not change the position as it was previously understood. As such they provide a significant degree of comfort that provided that trustees act in good faith, having taken appropriate professional advice, the Courts are very unlikely to interfere with their decisions.

To the extent that there is anything novel in the two decisions, the most significant confirmation is that, as a general principle, it is appropriate for trustees to take into account arrangements being made outside the scheme for active members.

We also provide an update on further EU regulation, the European Market Infrastructure Regulations (EMIR), which affects schemes using derivatives (including those which use them solely for hedging through their custodian). These regulations require pension scheme trustees to organise reporting of the entering into and closing out of derivative transactions in a relatively short timeframe. In most cases this will be dealt with by the custodians (who have reporting obligations) but we are aware that there are some onerous reporting agreements being proposed to trustees which have inappropriate indemnities in them.

Finally we have information updates on the pensions levy and revaluation.


The recent High Court determination in the case of Greene & ors v Coady & ors [2014] IEHC 38 on 4 February, dealt with the standard of care that trustees in Ireland must apply in carrying out their duties in respect of pension schemes.


The judgment provides confirmation under Irish case law on the manner in which trustees of pension schemes should conduct themselves and the level of care that is required in order for trustees to be considered to have carried out their responsibilities effectively and in a manner that is in the best interests of the beneficiaries of the scheme. The case confirms the state of the law on a number of issues such as: how trustees make decisions; whether it is appropriate for trustees to take into account external considerations (such as job security and contributions to other schemes for active members); and what constitutes "wilful default" in considering whether there has been a breach of trust.

Trustees can take comfort that the Courts will not lightly entertain a challenge to their decisions where they have acted honestly, in good faith and on professional advice.


Set out below are some of the key confirmations arising from the case.

124 members of the Element Six Limited Pension Scheme, the principal employer of which was Element Six Limited sued the Scheme trustees for breach of trust by accepting an offer from Element Six Limited of €37.1 million instead of demanding the entire minimum funding standard funding deficit of €129.2 million. Among the complaints of the members were that the trustees acted in "wilful default" of their duties; that they were conflicted in their duties; and that they considered irrelevant factors in reaching their decision to accept the Company's offer.

The plaintiffs' claim failed on all grounds. The judge concluded that the trustees had conducted their duties in a manner that was honest and in the best interests of the members of the Scheme.


The case endorses the familiar formula for trustee decision making and case confirms that the Court does not apply its own judgment in relation to the facts. Instead the Court considers the trustees' position at the time of making the decision and the materials that were or ought to have been available to the trustees in reaching their decision. It then considers whether the trustees acted in good faith for the benefit of the members of the Scheme. Once a factor is relevant, it is a matter for the trustees to decide how much weight to attach to it, even if the Court might have considered the factor to be of greater or lesser importance. Therefore, unless the weight attached to a factor was outside the range of what a reasonable body of trustees would have given to it, the trustees' decision would stand.


Beneficiaries are entitled to expect that trustees pursue the trust's aims and objectives in an honest manner and in good faith. The judge noted that this cannot happen if a conflict of interest or duty is such as to "paralyse any trustee so that he or she cannot rationally approach and decide upon a problem."

It was noted that sometimes in pension schemes there are unavoidable conflicts of interest because trustees often owe duties to their employer in respect of their contract of employment and duties to members in respect of the Scheme. This kind of conflict is often unavoidable but not sufficient to warrant the appointment of professional trustees. However, where a trustee assumes responsibilities or duties which are outside the normal contemplation of duties associated with the trust, and which conflict with the trustee's duties to the trust, that would be considered a breach of trust.


The High Court has inherent jurisdiction to assist trustees who find themselves in situations of conflict. The plaintiffs argued that the trustees ought to have applied to the court for assistance in considering the company's offer. They argued that the trustees should have asked the court whether they should demand greater contributions from the company or whether they should accept the Company's contention that if the trustees were to pursue the level contributions that the Shannon plant would be forced to close. The Judge held that while the trustees did have discretion to ask the court for assistance in making the decision, the mere fact that they did not choose to exercise this discretion did not invalidate their decision.


The plaintiffs' claim that the trustees acted with wilful default by failing to make a contribution demand was considered and it was decided that in order for the trustees to be found liable for wilful default, it would be necessary for the beneficiaries to show that the trustees' decision in refraining from making a contribution demand was made consciously and was known to be a purposeful breach of duty. It was held that if a failure to act is voluntary, then in order for liability to be found, it would be necessary to prove that the trustees acted in a manner that infringed the core duties of managing the trust honestly and in good faith. On the facts, it was found that there was no evidence of the trustees acting in a manner that could be described as dishonest or in bad faith and therefore no wilful default was found.

This decision confirms that "wilful default" is something more than an intentional breach of trust and eliminates the line of argument put forward by some commentators that an intentional breach of trust amounted to wilful default. The importance of this decision is that where trustees, as a result of unforeseen circumstances, are faced with two unpalatable decisions both of which are arguably in breach of a duty - the fact that trustees must choose one of the courses of action does not amount to an actionable breach of trust where that choice has been made properly, honestly and in good faith. The case confirms that the hurdle faced by members attempting to demonstrate bad faith is a high one.


While not strictly at issue in the case, the Court expressed the view on the facts that the funding proposal amounted to a contract between the company as funder and the trustees. As such the judge felt that, on the particular facts of the case, the trustees had a right to sue the company in respect of the contributions due. However, the trustees had received legal advice that the funding proposal might not be interpreted as binding before the courts. Relying on this legal opinion did not make their decision to refrain from issuing a contribution demand in respect of the outstanding sum irresponsible.


The case confirms that the threats of closure of the Company did appear to be serious and that the trustees were entitled to take those threats and the potential loss of employment into account when refusing to issue contribution demands to the Company. It was also appropriate to take into account that some of the monies from the company were to be paid to another Defined Contribution (DC) arrangement for the benefit of active members.


The "EMIR" EU regulation was established on 16th August 2012. It is a measure proposed to ensure greater transparency in the financial system. In particular, it aims to regulate over-thecounter derivatives (OTCs) which are "privately negotiated contracts." Pension funds which use derivatives e.g. to hedge against interest rate, inflation or currency risks, fall within the scope of EMIR albeit with some exemptions from the full force of the Regulation. In practice dealing with the detail is likely to be delegated to the manager dealing with the derivatives or a scheme's custodian. However, the trustees remain responsible for ensuring compliance.


Trustees of schemes using derivatives can expect to see EMIR reporting agreements from their custodian or derivative manager. These agreements are based on a template prepared by ISDA (the international swaps and derivatives association). Unsurprisingly not all of the terms of the agreement (which is targeted at financial trading institutions) are appropriate for pension scheme trustees and it may be appropriate to seek amendments to the standard documents.


EMIR divides market participants in derivatives into two categories-1. Financial Counterparties (FCs) and 2. non-financial counterparties (NFCs). Pension schemes are included in the FC category. EMIR is targeted at financial institutions (banks, hedge funds, custodians) and pension funds have been exempted from compliance with some aspects for a considerable period (see below).


From 12 February 2014, trustees of pension schemes or investment funds will have to report any new OTC derivatives or exchange traded derivatives which they enter into to the Trade Repository within one business day of entering the contract. In order to do this, trustees must acquire a Global Legal Entity Identifier (LEI) LEIs are essentially reference codes which identify parties who engage in financial transactions. Trustees are entitled to delegate their duty to report to investment managers.

Any amendments to the terms of derivative transactions and any early terminations of derivative transactions must also be reported from 12 February 2014 onwards. Any derivative transactions that were entered into on or after 16 August 2012 and which remain outstanding on 12 February 2014 also have to be reported on 12 February 2014. Generally, both counterparties to a transaction are required to report on that transaction. However, one counterparty may report on behalf of the other if there is a prior agreement to do so.


All counterparties are also under an obligation to maintain a record of concluded or modified derivative transactions for at least five years after they have been concluded/ modified.


Pension schemes have been exempted from the clearing requirements for certain derivative trades until 2015.


The UK Pensions Ombudsman recently confirmed that it is not a breach of the employer's duty of good faith to use an amendment in an employment contract to achieve changes to a pension scheme.

Mr Bradbury, a BBC employee and member of its defined benefit pension scheme, made a complaint to the UK Pensions Ombudsman in relation to the BBC's decision to introduce a 1% cap on increases to pensionable salary. Mr Bradbury complained that the 1% cap was unlawful on the grounds that it was a breach of the implied duties of trust and confidence or good faith by the BBC to effect the change through its employees' contracts of employment.

The initial complaint in three parts was dismissed by the Ombudsman. On appeal the High Court upheld the Ombudsman's decision on two parts and referred the third part regarding the breach of trust and confidence back to the Ombudsman.

The Ombudsman dismissed Mr Bradbury's complaint ruling that the BBC had not been unreasonable in its approach to addressing the deficit and it was noted that the 1% cap was primarily introduced to ameliorate the problem of the scheme deficit rather than to be detrimental to the employees.


This decision is not binding in either the UK or Ireland but the UK Ombudsman's careful reasoning and conclusion that there were no collateral motives inconsistent with duty of good faith offer support for this method of approaching pension change where there are restrictions in a scheme's amendment power.


Pursuant to s.33 of the Pension Act 1990, the Minister for Social Protection, Joan Burton, signed a new Statutory Regulation (S.I. No. 71 of 2014) into law on 30th January 2014 which states that there is to be an increase/revaluationof 0.5% in preserved pension benefits for 2013. This percentage increase is referenced to the increase in the consumer price index (CPI) in 2013 of 0.5%.


The new increase will be most pertinent to employers who operate Career Average Revalued Earnings (CARE) schemes, benefits under which are revalued in line with the CPI. All pension arrangements are subject to an annual Government pension levy of 0.75% payable in 2014. (The previous levy was at 0.6%) It may therefore be preferable for employers who operate CARE Schemes to have the annual levy for 2013 paid out of the increase in benefits. This would mean that pensioners would not actually receive the increase to their benefits for the year 2013, but would at least not have their benefits significantly reduced in order to pay the pension levy.

In cases where the trustees have accepted that the levy will be passed on to members, trustees will need to decide whether to roll over the "unallocated" levy of 0.25% and take it from next year's pension/revaluation increase (along with the 2015 levy of 0.15%).

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.