Hearn & Anor v Bell

When reviewing a trustee’s proposed exercise of discretion, the court asks whether a reasonable trustee, properly directed on the material before them, could reasonably make the decision. The court does not substitute its own view of the preferable outcome.

A trustee may choose certainty over a potentially greater but uncertain return, provided relevant interests and risks have been considered. The trustee must consider the interests of the beneficiaries as a whole and may balance different effects on different classes of member. Future statutory protection may be relevant, but uncertainty about its operation can properly reduce its weight.

The claimants sought directions concerning the proposed voting by the trustees of the Champion Pension Scheme on a Chapter 11 reorganisation plan for the Federal-Mogul group. The plan offered either continuation of the scheme on restricted funding terms or an immediate alternate payment of £11 million.

The trustees also required approval to undertake to support the necessary English scheme of arrangement or voluntary arrangement. Following the court’s earlier related judgment, [2004] EWHC 2448, the revised plan preserved the trustees’ English-law remedies if no such arrangement was approved. The central issues were whether the trustee could reasonably support the plan and whether choosing the alternate payment over continuation was a proper exercise of discretion.

1. Directions granted. The court approved the trustees’ proposed vote in favour of the plan, their undertaking to support the necessary English scheme of arrangement or voluntary arrangement, and their election for the Alternate Payout treatment.
2. The court’s function was supervisory. It had to determine whether Mrs Hearn, as a reasonable trustee properly directed on the material before her, could reasonably make the proposed decision. The court was not required to decide which option it would have chosen itself.
3. The revised plan narrowed the decision substantially. If the trustees supported the plan and the required English arrangement was approved, they could choose between continuation of the scheme and an immediate payment of £11 million. If no English arrangement was approved, the relevant plan treatment would not apply and the trustees would retain their remedies under English law. Supporting the plan therefore involved no identified disadvantage of that kind.
4. The evidence showed that a liquidation dividend was likely to be less than the plan payments and that the £11 million payment would provide full cover for pensioners and approximately 75 per cent cover for non-pensioners. Continuation might produce greater cover, but only if investment assumptions were fulfilled. It also carried investment and employer-solvency risks.
5. Choosing certainty over that uncertain prospect was permissible. Mrs Hearn had considered the interests of the membership as a whole, including the different effects on pensioners, deferred members and active members. The possible operation of the Pensions Act 2004, including financial support directions, pension protection and the Financial Assistance Scheme, did not provide sufficient assurance to outweigh the benefits of the alternate payment.