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 The company clearly stated that this was the only offer available and that the offer would be withdrawn if the trustees sought to make the company liable for any higher amount.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.