Allan v Rea Brothers Trustees Ltd

Where trustees purport to transfer assets held on an express pension trust by exercising a fiduciary transfer power for an improper purpose, the legal title may pass but the beneficial interest remains in the original trust. The proper analysis is a continuing proprietary interest, not a resulting trust.

An innocent recipient trustee is not personally liable merely because it receives trust assets. Personal liability requires the recipient’s conscience to be affected by the requisite knowledge and a practical ability to account. A pensioneer trustee remains subject to ordinary fiduciary duties, and any delegation requires responsible safeguards. However, a beneficiary cannot obtain relief for a breach of trust in which he knowingly participated or acquiesced.

The claimant had procured the transfer of policies held under his former employer’s occupational pension scheme to the Basdring Pension Scheme. He falsely represented, with others, that he was genuinely employed by Basdring and eligible for membership. The policies were surrendered and their proceeds were spent.

He sued the pensioneer trustee, Rea Brothers Trustees Ltd, alleging that the transfer failed and that the company was personally liable for breach of trust. His claim against that company was dismissed by His Honour Judge Behrens, sitting as an additional judge of the Chancery Division on 12 March 2001. The appeal raised the beneficial ownership of the transferred assets, the trustee company’s duties, the claimant’s complicity, and the effect of an indemnity clause.

Appeal dismissed unanimously. Robert Walker LJ gave the judgment of the court, with which Keene and Aldous LJJ agreed.

1. The judge had wrongly treated the question as one of a resulting trust. The policies were already held on the express trusts of the former scheme. The power to make a transfer payment was fiduciary and could be exercised only in good faith for its proper purpose: a transfer between genuine pensionable employments. As the claimant knowingly participated in a deceit which made that purpose absent, the purported transfer was invalid. Although legal title passed under the assignments, the beneficial interest never validly left the former scheme.

2. That conclusion gave the former trustees a proprietary claim to the money or its traceable proceeds. It did not establish personal liability of the trustee company. The distinction drawn in Westdeutsche Bank v Islington LBC [1996] AC 669 between proprietary enforcement and personal accountability applied. The trustee company did not know that the transfer was invalid until after the policies had been realised and the proceeds spent. It never had both the requisite knowledge and the means to identify or raise a sum repayable to the former scheme.

3. A pensioneer trustee’s special status under the regulations did not qualify its ordinary fiduciary obligations. Delegation of day-to-day administration could protect a trustee only if exercised responsibly, with safeguards, reporting and monitoring. Nevertheless, the claimant knew that management had been delegated and hoped to exploit that arrangement to obtain improper benefits. Applying the principle illustrated by Fletcher v Collis [1905] 2 Ch 24 and Habib Bank Ltd v Habib Bank AG [1981] 1 WLR 1265, it was unconscionable for him to complain of those shortcomings. The eventual resignation was not a breach of trust.

4. The indemnity issue was not necessary to the result. In any event, the claimant could not object to reliance on the Basdring scheme’s indemnity after inducing the trustee company to believe that the transfer was governed by that scheme. Any unbarred shortcomings fell far short of wilful and individual fraud or wrongdoing. The approach in Armitage v Nurse [1998] Ch 241 supported that conclusion.

• Court of Appeal (Civil Division) Dismissed the claimant’s appeal against the dismissal of his claim against the pensioneer trustee.
• High Court of Justice, Chancery Division His Honour Judge Behrens, sitting as an additional judge, dismissed the claim against the trustee company on 12 March 2001. Citation not stated in the judgment.