HR Trustees Ltd v German & Anor

A prospective costs order may be made for a pension-scheme member pursuing or resisting an appeal where the litigation is, in substance, brought on behalf of the fund as a whole. The jurisdiction is distinct from the stricter Buckton principles applicable to ordinary trust litigation. It is not confined to cases in which trustees actively oppose the member. The court must exercise the discretion having regard to the justice of the case, including the merits, the likely benefit to the fund or its members, the relationship between the appeal and existing proceedings, the availability of funding, and the likely costs. The order remains exceptional and the court should take care before committing another party’s money.

The Present Trustee sought directions concerning the purported conversion of the IMG Pension Plan from a final salary scheme to a money purchase scheme. In an earlier judgment, the court determined seven questions and granted IMG permission to appeal on questions 1, 2, 4 and 6. Mr German obtained conditional permission to cross-appeal on question 5 if IMG appealed.

IMG appealed. Mr German therefore applied for a prospective costs order under which IMG would fund his cross-appeal, irrespective of its outcome and without liability on his part for IMG’s costs. The issue was whether the jurisdiction existed and, if so, whether the discretion should be exercised in his favour.

1. Jurisdiction. The first-instance proceedings were a neutral trustee’s application for guidance and fell within the first Buckton category. However, the special protection applicable to trustees and beneficiaries at first instance does not automatically apply to appeals.
2. Pension-fund exception. Following McDonald v Horn [1995] 1 All ER 961, a pension-scheme member may obtain prospective costs protection where he is, in substance, alleging injury to the fund as a whole and seeking restitution or other relief for the fund. That jurisdiction is wider than the Buckton rule and is not limited to cases in which the trustees actively oppose the member. The neutral stance of the Present Trustee did not prevent its exercise.
3. Applicable approach. The reasoning of Rimer J and Carnwath J in the two decisions in Laws v National Grid plc was preferred to the narrower approach in Chessels v British Telecommunications plc. The court was not required to be satisfied that the Court of Appeal could only order indemnification if the appeal failed. The relevant question was whether, in the circumstances, justice required prospective protection.
4. Discretion. The proposed cross-appeal had a real prospect of success, arose from IMG’s appeal, concerned closely related issues, and could benefit a substantial section of the membership. The additional costs were modest in context, and alternative funding was realistically unavailable. Although success on question 5 would not necessarily produce increased benefits, the unresolved issues had to be approached as capable of being decided either way.
5. The threshold conditions were satisfied and the overall justice of the case favoured protection. The prospective costs order sought by Mr German was made.

The judgment records that the court had previously determined the underlying questions in [2009] EWHC 2785 (Ch) and dealt with permission to appeal in [2009] EWHC 3410 (Ch). IMG’s appeal and Mr German’s conditional cross-appeal were pending before the Court of Appeal. The present decision concerned only Mr German’s application for prospective costs protection for the proposed cross-appeal.