In the case of Kemp v Sims the High Court rejected an appeal made by a trustee of a defined benefit scheme following a Pensions Ombudsman determination. The Pensions Ombudsman had found an individual trustee to be liable for breach of trust after the trustees diverted to the employer the demutualised funds received from Scottish Widows.

Section 61 of the Trustee Act 1925 provides the court with the power to relieve trustees from personal liability where it appears to the court that a trustee is personally liable for a breach of trust but has acted honestly and reasonably and ought fairly to be excused.

The trustees had paid the demutualised funds to the employer and the Ombudsman found the trustees to be liable for breach of trust. However, the Ombudsman relieved all but one of the trustees under section 61 of the Trustee Act 1925. The Ombudsman had refused to relieve the final trustee as he was a qualified lawyer and could not take advantage of the defences available under section 61.

The High Court held that: 

  • even though the Ombudsman had been wrong as a matter of fact and law to observe that the trustee gained some indirect financial benefit that error did not undermine his overall decision; and 
  • the demutualisation fund belonged to the scheme and payment by the trustees to the employer was a breach of trust. Scottish Widows was buying out the trustees’ rights and they were the members of the Scottish Widows mutual society. Although the employer was obliged under the scheme rules to contribute to the scheme to fund the benefit, the employer did not own the investment.