Dalriada Trustees Ltd v Woodward & Ors

A pension scheme member’s accounting entitlement does not create a separate sub-trust of scheme assets. The assets remain subject to a single trust, and their application is the responsibility of the trustees.

A trustee’s allegedly unauthorised application of scheme assets may be pursued by a new trustee on behalf of all beneficiaries. The claim is not defeated merely because the application might be voidable rather than void. A recipient with notice of the misapplication cannot rely on the good-faith purchaser defence.

Claims alleging that pension transfers were outside the trustees’ powers, fraudulent exercises of power, unauthorised payments or breaches of investment duties had real prospects of success and were not suitable for summary dismissal.

Dalriada Trustees Ltd was appointed trustee of two occupational pension schemes after the Pensions Regulator intervened. The schemes’ assets had been transferred into preference shares in a group of companies, which then made loans to scheme members and invested in other assets.

Dalriada alleged that the transfers were outside the trustees’ powers, constituted a fraud on the powers, involved unauthorised member payments and breached statutory investment duties. The recipient companies applied for summary judgment under CPR rule 24.2(a)(i), arguing that the transactions were at most voidable and could be challenged only by individual members.

The central issues were the nature of members’ interests, Dalriada’s standing to recover misapplied trust property, and whether the pleaded claims had a real prospect of success.

1. Application dismissed. The claims against the corporate defendants were arguable and had real prospects of success. Summary judgment was therefore refused.
2. The schemes were single occupational pension trusts, not collections of separate sub-trusts for individual members. The separate accounts required by clause 13 were accounting mechanisms reflecting the amount available to provide each member’s benefits. They did not segregate the assets beneficially or make each member the sole beneficiary of a sub-trust.
3. The assets were legally owned and controlled by the trustees. Their application was therefore a matter for the trustees as trustees of the schemes, rather than for individual members. The analysis in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399, concerning the rule against perpetuities, did not establish the existence of individual sub-trusts.
4. A new trustee may sue defaulting trustees or recipients to secure the return of trust property for all beneficiaries. The court applied the principle discussed in Young v Murphy [1996] V.R 279. The availability of defences in an individual beneficiary’s claim, as discussed in Target Holdings Ltd v Redfern [1996] 1 AC 421, did not defeat Dalriada’s claim.
5. The claim did not depend on resolving whether the trustees’ acts were void or voidable. If voidable, the good-faith purchaser defence would not assist recipients alleged to have notice of the misapplication. It was therefore unnecessary at this stage to place the transactions within the categories discussed in Pitt v Holt [2012] Ch 132.
6. The pleaded allegations concerning the purpose of the transfers, the alleged pension-liberation plan, unauthorised payments and failures to comply with investment requirements were supported by the undisputed elements of the plan and the statutory investment criteria. Each had real prospects of success.