Matheson successfully defended the trustees of the Element Six
Contributory Pension Plan in a claim taken against them by members
of the Plan. This was a landmark decision as it was the first
decision to consider pension scheme trustees' obligations when
considering the winding up of a defined benefit pension plan.
Element Six Limited was the sponsoring employer of the Element Six
Contributory Pension Plan. The company proposed to wind up
the Plan and make one final contribution of €23.1 million to
the Plan to fund the Plan to the statutory funding
standard under the Pension Act 1990 (without post retirement
pension increases). The company also proposed to make a
contribution of €14 million to its defined contribution scheme
in order to enhance the benefits of active members. At
the time, the Plan had a deficit of approximately €129 million
on a statutory funding standard basis. The company clearly
stated that this was the only offer available and that the offer
would be withdrawn if the trustees sought to make the company
liable for any higher amount.
Under the governing documentation of the Plan, the company was
required to give one month's notice to the trustees of its
intention to wind up the Plan. Once that notice period
expired, the trustees could not require the company to make any
further contributions to the Plan.
After detailed consideration and having obtained expert advices,
the six trustees of the Plan voted on the company's
proposal. The trustees were evenly split and the chairman, a
company appointed trustee, used his casting vote to accept the
proposal.
128 members of the Plan later sued the trustees in the High Court
for breach of trust, negligence and breach of duty for accepting
the company's proposal instead of issuing a contribution demand
to the company to fund the total deficit in the Plan. The
members also alleged that the trustees had been influenced by
certain conflicts of interest in their decision-making
process.
The plaintiffs' claim failed on all grounds. Mr Justice
Charleton held that the trustees had at all times acted honestly
and in good faith and that their decision to accept the
company's proposal was made solely in the best interests of the
beneficiaries taking all relevant factors into consideration.
The judgment offers insight into how the decision-making process of trustees will be evaluated and reviewed by the Courts and confirmed the following:
- When making decisions, it is the trustees' duty to act honestly and in good faith having taken account of all relevant considerations and ignoring all irrelevant considerations.
- Once a consideration is relevant, it is up to the trustees to give as much or as little weight to that consideration as they think fit in light of the information and advice available to them.
- The Court will only interfere with the trustees' decision or the weight attached to any consideration, if it can be shown that no reasonable body of trustees would have made such a decision.
- Trustees are only obliged to seek directions from the High Court in circumstances where their ability to make a decision is crippled to such an extent that they must, as a reasonable body of trustees, have their discretion exercised by a judge.
- Where the governing documentation of a pension scheme allows a trustee to act notwithstanding a conflict of interest, then generally no decision of the trustees can be challenged on that ground. While the Court acknowledged that conflicts of interest are inherent in pension schemes in Ireland, it stated that if a conflict prevents trustees from acting in good faith and in the best interests of beneficiaries, such a decision cannot stand as this is the irreducible minimum that beneficiaries are entitled to expect from trustees.
This decision gives some clarity to employers, trustees and their respective advisers when faced with the difficulties that can arise in considering the termination of an underfunded pension scheme. While the judgment does not answer all the legal questions, it is a very significant step forward in this difficult area of pensions law.
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.