Airways Pension Scheme Trustee Ltd v Fielder & Anor

When trustees seek the court’s approval of a particularly momentous decision within their powers, the court generally applies a rationality test. It asks whether the decision is one which a reasonable body of trustees could have reached, subject to proper limits of honesty and rationality. The court does not substitute its own view merely because it would have made a different decision.

A prior order authorising trustees to use trust assets to pursue litigation does not require the court later to decide for itself whether settlement is in the beneficiaries’ best interests. The earlier order authorises litigation but does not select litigation over settlement. The court may therefore assess the propriety of funding the litigation while deferring to the trustees on whether the dispute should be compromised.

The corporate trustee of the Airways Pension Scheme sought approval of a settlement agreement with British Airways plc. The settlement included compromise of pending Supreme Court proceedings and resolved related matters.

The representative beneficiary argued that, because the court had previously authorised expenditure of Scheme funds on the litigation under the Beddoe jurisdiction, the court should determine for itself whether settlement was in the Scheme’s best interests. The trustee and British Airways submitted that the ordinary rationality test applied to a momentous trustee decision.

The central issue was whether the previous authorisation of litigation required a different or hybrid approach to approval of the subsequent settlement.

1. The ordinary rationality test applied. The court accepted that the case fell within the second category identified in Public Trustee v Cooper [2001] WTLR 901. Where the proposed action is within the trustees’ powers, the question is whether it is one that a reasonable body of trustees could reach, subject to the limits of rationality and honesty.
2. The court’s function on a Beddoe application is different. The court authorises the use of trust assets to fund proposed litigation; it does not direct the trustees to litigate or choose litigation over settlement. The trustees retain responsibility for that decision.
3. Accordingly, a prior order authorising the pursuit of litigation does not amount to a determination that litigation is in the Scheme’s best interests. There is therefore no inconsistency between authorising litigation and later approving a rational decision to compromise it.
4. The earlier Beddoe order remained relevant background when assessing the rationality of the settlement decision, but it did not alter the applicable test. The fact that the settlement extended beyond the issues in the main proceedings provided an additional distinction from the Beddoe jurisdiction, although the court did not need to rely on it.
5. The court’s decision on the application was announced during the hearing: the rationality test applied. The judgment gave the reasons for that conclusion.

• High Court (Chancery Division): the judgment records that earlier proceedings concerning the Scheme had been determined by the High Court and Court of Appeal, with a pending appeal to the Supreme Court. The present judgment determined the test applicable to approval of the proposed settlement.