PS Independent Trustees Ltd v Kershaw & Ors [2007] ScotCS CSOH

1.(a) For payment by the first, second, third, fourth and fifth defenders jointly and severally or severally, to the pursuers of the sum of THREE MILLION AND FORTY FOUR THOUSAND POUNDS (£3,044,000) STERLING, together with interest thereon at the rate of eight per cent a year from 1 April 2001, or such other date or dates as to the court shall seem appropriate, until payment.

(b) For payment by the first, second, fourth and fifth defenders, jointly and

severally, or severally, to the pursuers of the sum of FIVE HUNDRED AND SEVENTEEN THOUSAND ONE HUNDRED AND SIXTY EIGHT POUNDS (£517,168) STERLING, together with interest thereon at the rate of eight per cent a year from 1 April 2001, or such other date or dates as to the court shall seem appropriate, until payment.

(c) For production and reduction of the resolution of the former Trustees of the Blyth & Blyth Pension Scheme made in March, April or May 2002 to allow early retirement on full pension benefits to the third, fourth and sixth defenders.

(d) For suspension of the resolution of the former Trustees of the Blyth & Blyth Pension Scheme made in March, April or May 2002 to allow early retirement on full pension benefits by the third fourth and sixth defenders; and for suspension ad interim.

(e) For payment by the third defender to the pursuers of the sum of ONE HUNDRED AND SIXTY FIVE THOUSAND NINE HUNDRED AND SEVEN POUNDS AND EIGHTY EIGHT PENCE (£165,907.88) STERLING, together with interest thereon at the rate of eight per cent a year from 3 May 2002, or such other date or dates as to the court shall seem appropriate, until payment.

(f) For payment by the fourth defender to the pursuers of the sum of ONE HUNDRED AND FORTY FIVE THOUSAND, FOUR HUNDRED AND SEVEN POUNDS AND THIRTY TWO PENCE (£145,407.32) STERLING, together with interest thereon at the rate of eight per cent a year from 3 May 2002, or such other date or dates as to the court shall seem appropriate, until payment.

(g) For payment by the sixth defender to the pursuers of the sum of ONE HUNDRED AND FOURTEEN THOUSAND FOUR HUNDRED AND THIRTY FOUR POUNDS AND FIFTY NINE PENCE (£114,434.59) STERLING, together with interest thereon at the rate of eight per cent a year from 29 March 2002, or such other date or dates as to the court shall seem appropriate, until payment.

2. Alternatively,

(a) For payment by the first, second, third, fourth and fifth defenders jointly and severally to the pursuers of the sum of FIVE MILLION FOUR HUNDRED AND EIGHTY EIGHT THOUSAND POUNDS (£5,488,000) STERLING together with interest thereon at the rate of eight per cent a year from 1 April 2001, or such other date or dates as to the court shall seem appropriate, until payment;

(b) For payment by the first, second, fourth and fifth defenders, jointly and severally, or severally, to the pursuers of the sum of FIVE HUNDRED AND SEVENTEEN THOUSAND ONE HUNDRED AND SIXTY EIGHT POUNDS (£517,168) STERLING, together with interest thereon at the rate of eight per cent a year from 1 April 2001, or such other date or dates as to the court shall seem appropriate, until payment.

The basis for concluding in these terms is explained in Article 25 in the following passage (which is to be found immediately after the quantification of loss resulting from each of the four heads of claim). The third defender ceased to be trustee on about 26 April 2002. He is accordingly liable for the loss caused in relation to contributions which should have been made and enforced to that date (being 12/19 of £798,000, that is £504,000), the investment losses of £2,540,000 and the early retirement losses of £2,444,000. The fourth defender was a trustee throughout the material period and the fifth defender was in position to advise switching from April 2002. The first, second, third, fourth and fifth defenders, as joint wrongdoers, are jointly and severally liable for the pursuers' said losses. Esto they are not joint wrongdoers, the first and second defenders' fault and negligence et separatim the third, fourth and fifth defenders' breaches of trust each materially contributed to each of the heads of loss hereinbefore condescended upon and they are severally liable therefor. In the event that decree for reduction of the Trustees' decision in breach of trust to allow the third, fourth and sixth defenders early retirement on full benefit, and repetition of sums paid in excess of what would have been their entitlement but for the said breach of trust is granted as concluded for, the loss to the Scheme will be reduced by £2,444,000 to the sum of £3,563,000. The first and second defenders fault and negligence et separatim the fourth and fifth defender's breaches of trust caused or at least materially contributed to all of the said loss. The third defender's breaches of trust caused or at least materially contributed to £3,044,000 of the said loss. Accordingly, the sum concluded for in conclusion 1(a) is £3,044,000 in respect of which the first, second, third, fourth and fifth defenders are all jointly and severally, or severally, liable and the sum concluded for in conclusion 1(b) is the remaining £517,168, for which all defenders except the third defender are jointly and severally, or severally, liable, if decree of reduction and repetition are granted as aforesaid. In the event that decree of reduction and repetition are not granted, the total loss suffered by the pursuers is £6,005,168. The third defender's breaches of trust caused or at least materially contributed to £5,488,000 of the said loss and that is the sum concluded for in conclusion 2(a). The sum concluded for in conclusion 2(b) is £517,168, being the difference between £6,005,168 and £5,488,000, and being a loss caused or materially contributed to by the fault and negligence of the first and second defenders et separatim the breaches of trust of the fourth and fifth defenders, and in respect of which all except the third defender are jointly and severally, or severally, liable

Submissions for the third, fourth and fifth defenders

[31 ] Submissions were made by Mrs Munro for the third defender and by Mr Thomson for the fifth defender. The fourth defender appeared in person and, not unnaturally, adopted the submissions made by counsel for the other defenders in so far as they were applicable to the case against him. Since Mrs Munro spoke first, her submissions covered many of the points of which Mr Thomson had given notice. In such a case, Mr Thomson sensibly adopted Mrs Munro's submissions. It is inevitable, therefore, that in reciting the submissions made on behalf of the defenders, I should focus principally on those made by Mrs Munro.

[32 ] In opening her submissions for the third defender, Mrs Munro contrasted the basis on which the claim was laid against the trustees with that on which it was laid against the actuaries. The case against the actuaries was founded on an averment of breach of a duty of care owed at common law and/or by an implied term of the contract pursuant to which they were appointed. The case against the trustees, on the other hand, was based on allegations of breach of trust. The trustees could not be made liable for breach of trust simpliciter. She referred me to s.3(d) of the Trusts (Scotland) Act 1921, in terms of which, unless the contrary was expressed in the trust deed, a trustee was liable only for his own acts and intromissions (not for those of co-trustees) and was not liable for omissions. Clause 18 of the Deed made it clear that "no trustee ... shall be personally responsible or liable for anything whatever except breach of trust knowingly and intentionally committed by him". She accepted, however, at least for the purpose of this debate, that that clause did not protect her client from liability for intromissions which were grossly negligent: Lutea Trustees Limited v Orbis Trustees Guernsey Limited 1997 SC 255. She invited me to proceed on that basis. Gross negligence, however, was quite different from mere breach of a duty of care. It consisted here, in terms of the pursuers' averments, of a "reckless disregard for the consequences of their acts or omissions". To this extent there was no issue, for present purposes at least, with the formulation used by the pursuers in the various Articles of condescendence where liability was asserted on the grounds of gross negligence thus defined.

The joint and several conclusion

[33 ] Mrs Munro dealt first with the joint and several conclusions. She pointed out that by their amended conclusions 1(a) and 2(a), the pursuers sought payment by the actuaries and trustees jointly and severally, or severally, of single lump sums said to represent losses to the Scheme arising from various alleged acts and omissions between April 2001 and April 2002. Such conclusions are only competent, she submitted, where the pursuers make relevant averments that each defender is liable for the whole sum so concluded for: see Fleming v Gemmill 1908 SC 340, 345, Grunwald v Hughes 1965 SLT 209, 214, Ellerman Lines Ltd. v Trustees of the Clyde Navigation and another 1909 SC 690 and Maclaren, Court of Session Practice at p.266. She accepted that a joint and several, or several, conclusion was competent against two or more defenders who were both at fault, one in delict and the other in contract; and also where the wrongs complained of were breaches of separate contracts: see also MacGillivray v Davidson 1993 SLT 693, Belmont Laundry Company Ltd. v Aberdeen Steam Laundry Company Ltd. (1898) 1 F 45 and Rose Street Foundry and Engineering Co. v Lewis & Sons 1917 SC 341. It was fundamental, however, that the wrongs should not be disconnected; and that both defenders, by their respective faults, should have contributed to the same loss.

[34] Mrs Munro submitted that the pursuers had failed relevantly to aver any basis upon which the actuaries, on the one hand, and the trustees, on the other, might competently be held liable jointly for a single lump sum. The actuaries are convened on the basis of a common law duty of reasonable care and/or an identical duty imposed upon them by way of an implied term. These trustees are convened on the basis of alleged breaches of trust knowingly and intentionally committed by them and/or consisting of gross negligence or a reckless disregard of the consequences of their acts or omissions. The alleged wrongs were thus wholly distinct. They could properly be described as separate and disconnected. Mrs Munro developed this submission by arguing that the liability of the trustees and that of the actuaries were in fact mutually exclusive. As a matter of causation both could not be liable. If the trustees acted without regard to the advice given to them by the actuaries, they might be liable to the pursuers; but on that hypothesis the actuaries' advice, even if negligent, was not causative of any loss. If, on the other hand, the trustees acted upon the advice of the actuaries, how could they be said to have been grossly negligent; and how could it be argued (in such a case) that the trustees' actings, as opposed to the negligence of the actuaries, caused any loss to the pursuers. In truth, she submitted, the liability of the actuaries and trustees was alternative; the wrong of one must involve the immunity of the other. They should be sued in the alternative, but they could not be sued jointly and severally. She sought to derive some support for this from the case of Rae v Meek, reported at various stages at (1886) 13 R 1036, (1888) 15 R 1033, at 1042, (1889) 16 R (HL) 31. However, even if it were possible that both could be liable to the pursuers, it was inappropriate that there should be a joint and several conclusion. The degrees of culpability might be very different, yet, if a joint and several conclusion were competent, the actuaries and trustees might both be found liable for the whole losses. This was wrong. Furthermore, there were different limits of recovery. In the case of the actuaries, where the alleged liability was for breach of a duty of care, issues of foreseeability and remoteness arose. Those issues did not arise in the case of the trustees.

[35] Returning, at the end of her submissions, to the point that the liability of actuary and trustee in this case was mutually exclusive, Mrs Munro referred to Armitage v Nurse [1998] Ch 241, a decision of the Court of Appeal in which the meaning of fraud (as used in the context of an allegation of breach of trust) is discussed. At p.251 Millet LJ, having modified it, quotes with approval the submission made on behalf of the respondents that fraud

"connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not".

The recklessness alleged by the pursuers is, she submitted, tantamount to fraud. In terms of the alleged liability of the actuaries, it could hardly be said that they should foresee that the trustees would act fraudulently. Nor could they reasonably be expected to foresee that the trustees would act recklessly. If the trustees were liable, the actuaries could not be, and vice versa.

[36] The fourth and fifth defenders both adopted the above submissions as to competency.

[37 ] Mrs Munro's Note of Argument, in its original form before the pursuer had amended, had complained of a "temporal" defect in the pursuers' case against the third defender which was carried through to the conclusions. This defect was that that the pursuers' unamended case sought to make the third defender liable for losses to the Scheme even after he ceased to be a trustee towards the end of April 2002. The amendment sought to cure this by separating out the losses arising after April 2002 from those arising before that date: see para.[30] above. Mrs Munro accepted that this had been successful in part, but in light of her temporal criticisms of some other aspects of the pursuers' case (see below), at the end of her submissions she continued to insist that the pursuers required to "disaggregate" their claims to deal with those matters.

[38 ] For the fifth defender, Mr Thomson advanced a like objection based on the fact that his client only became a trustee from 26 April 2002. By clause 18 of the Deed, and by section 3(d) of the Trusts (Scotland) Act 1921, a trustee is liable only for his own acts and intromissions and is not be liable for the acts and intromissions of co-trustees; nor is he liable for omissions: see Mackenzie Stuart, The Law of Trusts and Mackenzie's Executor v Thomson's Trustees 1965 SC 154. He submitted that the pursuers had failed to aver any basis upon which the fifth defender could be held liable for losses arising from acts or omissions before 26 April 2002. The action against the fifth defender was irrelevant so far as it related to such losses; and consequently, conclusions 1(a) and 2(a), alleging joint and several liability, were incompetent so far as directed against the fifth defender.

The contributions claim

[39 ] Mrs Munro submitted that the averments relating to the contributions claim were irrelevant et separatim lacking in specification, insofar as directed against the third defender, for a number of reasons. Her submissions fell under two broad heads: (a) that the averments did not provide an adequate basis for any inference of any knowing or intentional breach of trust or of gross negligence of the type to which the pursuers pinned their case, i.e. "gross negligence consisting of a reckless disregard for the consequences of their acts or omissions"; and (b) that there were no relevant averments of loss to the Scheme.

[41 ] Developing her submissions by reference to her detailed Note of Argument, Mrs Munro drew my attention to the pursuers' averment that, having regard to the company's statutory accounts for the period to 31 March 2001, trading losses which continued in the following financial year, the company's "significant overdraft" and its failure to make the required contribution to the Scheme at the rate of 27% of pensionable earnings, the third and fourth defenders knew or ought to have known that the company could not afford the contributions required in terms of the various schedules of contributions prepared over the relevant period; and should, by April 2001 at the latest, have considered either winding the Scheme up or ceasing the accrual of benefits. She submitted that those averments did not disclose a relevant basis for the inference that the trustees knew or ought to have known that the company could not continue to make contributions to the Scheme, far less for the inference that the trustees intentionally or recklessly breached their trust or were grossly negligent so as to render them liable to the pursuers. Losses in a given year of account, the existence of an overdraft facility and the failure to make a contribution required in terms of a particular schedule of contributions (assuming that there was such a failure) did not of themselves denote an inability to continue to fund a pension Scheme. In any event, on the pursuers' own averments, the company continued to make contributions to the Scheme until May 2002. Had the trustees wound up the Scheme or ceased benefits accrual in April 2001, as the pursuers aver they ought to have done, no further contributions would have been made to the Scheme after that date.

[42 ] Mrs Munro pointed to the pursuers' averments that the various schedules of contribution were prepared by the first defender in his capacity as the Scheme Actuary. They did not aver that the third defender, or indeed any of the trustees, had any special skill in actuarial matters. Accordingly, she submitted, the third defender (as well as the other trustees) was obliged to exercise the same care and diligence as would a man of ordinary prudence in the management of his own affairs. The pursuers sought to hold the trustees liable jointly and severally with the actuaries for loss said to have been occasioned by the actuary's negligent advice; but they did not aver what should have led the trustees, as laymen, to question the skilled advice of the actuary. Accordingly, there was no relevant basis in the pursuers' averments for the inference that the trustees acted knowingly and wilfully in breach of trust, or with gross negligence or recklessness.

[43 ] Mrs Munro went on to point out that while the pursuers averred that the trustees knew, or ought to have known, that the contributions specified in the various schedules of contributions were "unaffordable", they also aver that the trustees could and should have required the company to pay £798,000 into the Scheme over the course of the relevant period, even at the cost of precipitating the company's insolvency. Had the company been rendered insolvent, no further contributions would have been made to the Scheme. The Scheme would have been an unsecured creditor in respect of outstanding contributions, if any, then due to it. Accordingly, the pursuers had failed relevantly to aver a basis for the inference that, in refraining from enforcing payment of particular contributions by the company, the trustees acted in breach of trust.

[44 ] Finally, under this chapter of her submissions, Mrs Munro submitted that the averments of loss in Article 25 were irrelevant and lacking in specification. On the pursuers' own hypotheses, it was the duty of the trustees either to enforce contributions payable by the company or to cause the Scheme to be wound up or at least to cease benefits accrual by April 2001. In any of these events, no further contributions would have been made to the Scheme after that date. In the event, as the pursuers acknowledged, contributions continued to be made by the company to the Scheme up to May 2002. In those circumstances, the pursuers had failed relevantly to aver any basis upon which the Company should have been obliged by the trustees to make monthly contributions of £42,000 to the Scheme throughout the relevant period.

[45 ] The fourth defender adopted these submissions. For the fifth defender, Mr Thomson also adopted Mrs Munro's submissions but went on to point out that the fifth defender only became a trustee on 26 April 2002. He could only be liable for his acts and omissions after that date. All the matters of which the pursuers complained preceded his appointment. He pointed in particular to the averments of breach of duty in Article 21 of Condescendence (at p.54), all of which related to acts or omissions prior to that date.

The investments claim

[46 ] Turning to the investments claim, Mrs Munro pointed out that, in this respect also, the pursuers did not aver that the trustees had any special skill or expertise in investment matters, and it followed that they were obliged only to exercise the same care and diligence as would a man of ordinary care and prudence in the management of his own affairs. The pursuers aver in Articles 10 and 22 that the trustees failed to accept and act upon certain advice and recommendations so as to reduce the exposure of the Scheme to a downturn in the market. But it is not averred that they were bound to follow that advice. Nor is it averred that they failed to give consideration to the advice that they were given. There were no averments at all which would support the inference that the trustees were negligent, let alone that they "acted with gross negligence consisting of a reckless disregard for the consequences of their acts and omissions".

[47 ] Mrs Munro reminded me that the third defender ceased to be a trustee after 26 April 2002. In so far as the pursuers' complaints extended in time to acts or omissions after that date (including the trustees' continuing failure to act upon the advice, despite having agreed to do so), there was no basis for holding the third defender liable. Nor were there any averments showing, as a matter of causation, that the trustees' acts or omissions before that date caused the losses alleged to have been caused by the continued fall in the market after his resignation.

[48 ] Further, and in any event, the pursuers' averments of loss in Article 25 were irrelevant and/or lacking in specification. It is averred that the trustees had a duty to switch £6 million from equities to fixed interest investments beginning in April 2001. In particular, it is averred that they should have instituted a programme of switching from equities into fixed interest investments in three tranches, each of £2 million, on each of 1 April, 1 July and 1 October 2001. But there are no averments as to why such a programme was incumbent upon the trustees, or of any recommendation made to the trustees from which an obligation to follow such a programme could be inferred. The pursuers go on to aver that had such a programme been instituted, with £1 million of each tranche being invested in "government stock" and £1 million in "corporate bonds", the value of the Scheme's investments would have increased over the relevant period. Again, she submitted, there is no basis for these averments. In any event, the fact that it might be said with hindsight that particular investment decisions resulted in losses to the Scheme does not by itself instruct a relevant basis for the inference that the trustees "acted with gross negligence consisting of a reckless disregard for the consequences of their acts and omissions" so as to be held liable. She submitted that there was a mismatch between the averments in Article 10 and those in Article 25.

[49 ] The fourth defender adopted these submissions, save for those relating to timing which were peculiar to the third defender. Mr Thomson, for the fifth defender, made the point that the majority of the averments in Articles 10 and 22, and all of the averments of loss in Article 25, were founded upon acts or omissions of the trustees at a time before his client became a trustee on 26 April 2002. No relevant case was pled against his client. There was no averment from which it could be inferred that he was responsible for what had happened before be became a trustee. Nor was there any case directed specifically at what he ought to have done after his appointment and how his alleged failures after his appointment caused any and, if so, what loss.

The early retirements claim

[50 ] Mrs Munro then turned her attention to the early retirements claim. The pursuers aver that the third and fourth defenders took early retirement in breach of their duty to administer the Scheme for the benefit of all members with an interest therein (including a duty to ensure equivalence between the position of members taking transfer values and members taking pensions on early retirement), notwithstanding the company's financial difficulties as elaborated upon in Article 8, and in the knowledge that taking early retirement would damage the ability of the Scheme to meet its liabilities. It is further averred that the third and fourth defenders, as directors of the company, were among its most highly-paid employees, with the result that their pension entitlements were substantially in excess of the average entitlements of members of the Scheme.

[51 ] Mrs Munro submitted that those averments were irrelevant and provided no basis for the inference that the trustees, including the third defender, acted "knowingly and intentionally in breach of trust" and/or "with gross negligence consisting of a reckless disregard for the consequences of their acts and omissions". On the pursuers' own averments, the third defender took early retirement with his "full benefit entitlement under the Scheme Rules". There is no foundation for the averment that the trustees of the Scheme were obliged to secure equivalence between members transferring out of the Scheme and members taking early retirement. There is no averment that the retiring directors were treated differently from others who took retirement early. There were no averments that the trustees knew that the Scheme was about to be wound up; indeed there are averments to the effect that a rescue package was being put together. But if the complaint was that the trustees knew or should have known that the Scheme was to be wound up, the complaint ought to relate to their treatment of all who took early retirement, not just the two directors. Further, even if the third and fourth defenders had a conflict of interest in the matter of their own retirements, there is no averment that the remaining trustees, or the trustees as a body, were thereby barred from consenting to their early retirement; or that the third and fourth defenders were barred from taking it in accordance with the Scheme Rules.

[52 ] In those circumstances, and in any event, the averments of loss in Article 25 as regards the early retirements were irrelevant and lacking in specification. In the absence of any averment that the third and fourth defenders were not entitled to take early retirement in 2002, the pursuers must be taken to concede that they were entitled to payment in some amount at that time and subsequently. Accordingly, there was no basis for the averment that the third defender's early retirement represents a loss to the Scheme in the amount of £1,006,000 plus the income that would have been earned on that amount had it been invested in government securities and corporate bonds.

[53 ] Again, the fourth defender associated himself with Mrs Munro's submissions. For the fifth defender, Mr Thomson also adopted what Mrs Munro had said, and added, by reference to the fact that his client had only become a trustee on 26 April 2002, that there were no averments that the fifth defender was a trustee at the time when any relevant decisions were taken. The pursuers averred that the relevant decisions were taken by the trustees "between about March and 3 May 2002". It was clear from reading the averments in full, and in particular the averment (at p.42B) that at the trustee's meeting of 31 March 2002 the forthcoming early retirement of the third and fourth defenders was noted, that in fact all relevant decisions had been taken before then. He noted also that, since the fifth defender had never been a member of the Scheme, he could not have been placed in a position of conflict of interest.

The repayment of expenses claim

[54 ] The repayment of expenses claim relates to a resolution made by the trustees in May 2002 and, accordingly, was not directed against the third defender. Mrs Munro therefore made no submissions on this part of the case. Instead, Mr Thomson made submissions on behalf of the fifth defender to the effect that the averments in support of this part of the claim were irrelevant et separatim lacking in specification so far as directed at the trustees. The fourth defender adopted Mr Thomson's submissions.

[55 ] Mr Thomson pointed to the pursuers' averments in Article 14 that these repayments were made by setting them off against contributions due from the company between May and November 2002. Thus, no money was actually paid out by the trust. According to Article 8 of Condescendence, no contributions were actually collected during this period. The contributions claim already includes the total value of the contributions which, allegedly, should have been collected during this period. Accordingly, Mr Thomson submitted, this head of claim would give rise to a double recovery in respect of the same alleged loss.

[56 ] The pursuers aver that the actuary's calculations failed to disclose the effect on the fund of making the repayments. They claim damages from the actuary on the basis that the loss was occasioned by his negligent advice. But there are no averments of any matters which should have led the trustees, as laymen, to recognise any defect in this advice. Accordingly there was no basis for the inference that the trustees "acted with gross negligence consisting of a reckless disregard for the consequences of their acts and omissions".

Submissions for the pursuers

[57 ] Mr Clark, for the pursuers, invited me to refuse the defenders' motions and allow a proof before answer. He reminded me of the test to be applied at a discussion on the Procedure Roll. The court should dismiss the action only if, giving the pursuer's averments a fair reading, it was bound to fail even if the pursuer proves all the facts within the scope of his averments. The words "within the scope of his averments" were, he submitted, a gloss on the way the test was usually expressed. The gloss was justified by the case of Cosar Ltd. v UPS Ltd. 1999 SLT 259,264E. However, he requested that, if I was against him, I should put the case out By Order rather than simply dismiss the action or delete any of the claims.

[58 ] Although Mr Clark was content to deal with the matter on a claim by claim basis, he urged me to view each claim in the context of the action as a whole. By this I understood him to mean not only that some averments made under one claim might be relevant to other claims, but also that the wide range and number of complaints made by the pursuer on record might, after a proof, and to the extent proved, be relevant to an assessment of whether the trustees actions were merely negligent or crossed the line into gross negligence or recklessness.

Joint and Several Conclusions

[59 ] Mr Clark explained that the first Conclusion, as now amended, stripped out the global claim for "early retirement". Conclusion 1(a) was for all losses except (i) the early retirement claim, (ii) the contribution claim in respect of the period after 26 April 2002 (when the third defender ceased to be a trustee) and (iii) the repayment of expenses claim. Conclusion 1(b) was for the contribution claim after 26 April 2002 and the repayment of expenses claim. Conclusions 1(c) and (d) related to the claim for reduction of the decisions on early retirement. Conclusions 1(e) and (f) proceeded on the basis that those decisions were reduced, and were for recovery of the early retirement payments made to the third and fourth defenders. Conclusion 2 proceeded, in the alternative, on the basis that the decisions to allow early retirement were not reduced, in which case the claims were added in to the sums concluded for against the trustees qua trustees.

[60 ] Dealing with the question of gross negligence and recklessness as a basis for asserting a case against the trustees, Mr Clark said that the formulation employed in the pleadings was not intended to infer fraud and did not do so. His averments lacked any element of an averment of dishonesty. He referred to Erskine's definition of fraud as a "machination or contrivance to deceive" (Institute III, 1, 16): see Stair Memorial Encyclopaedia (1990), vol.11, at para.719. Gross negligence was a species of negligence, not to be equiparated with fraud. The allegations of gross negligence here could not be regarded as allegations of a machination or contrivance to deceive. Millet LJ was wrong in Armitage v Nurse to apply the notion that recklessness was equivalent to fraud (as used in the English tort of deceit) to conduct other than statements; but in any event his remarks did not represent Scots law. In Hunter v Hanley 1955 SC 200 the court had used the test of gross negligence, culpa lata or crassa negligentia for the liability of trustees claiming protection under an immunity clause in a trust deed (see, in particular p.205). In Wyman v Paterson 1900 2F 37, 40, Lord Halsbury LC confessed to having "great difficulty in weighing the exact amount of what is described as negligence" required to hold a trustee liable. Those cases showed that, in Scots law, gross negligence and fraud as the basis of a trustee's liability were distinct concepts. Mr Clark submitted that the question of whether in any given case there was gross negligence was a question of fact. The speech of Lord Herschell in Raes v Meek (in the report of the decision of the House of Lords, at p.35) showed that it was "impossible to draw any hard and fast line between the want of that care which a man of ordinary prudence would display in the management of his own affairs and that high degree of negligence which is termed culpa lata". Such questions should be determined after the evidence was led.

[61] Turning to the question of whether it was competent in a case such as this to have a conclusion for joint and several liability, Mr Clark submitted that the conclusions were not only competent but they were the appropriate conclusions for a case such as this. He referred to Fleming v Gemill, and in particular the Opinion of Lord Pearson at page 345, to suggest that this type of conclusion was highly flexible. Under reference to McGillivray v Davidson, he emphasised that part of the purpose of a joint and several conclusion was to enable rights of contribution and apportionment to be worked out between the defenders. He submitted that the case of Rae v Meek, when it first came before the Second Division, supported the competency of a joint and several conclusion in a case such as the present. Nothing in the report of the case when it came back before the Inner House altered this. It was difficult to see what the Lord President had in mind in referring to the fact that the conclusions were directed against both the trustees and the law agents jointly and severally as "one of the peculiarities of the case". In any event, the Court did not decide that there was anything untoward in having such a conclusion. He relied upon the case of Grunwald v Hughes at page 213-4 as supporting the proposition that a joint and several conclusion was possible even where one defender was sued in negligence and the other on the basis of a breach of a strict obligation. It was incorrect to say that the wrongs alleged against the actuaries and the trustees were disconnected. The statutory framework was set out article 4 of condescendence. There were detailed averments about the involvement of the actuary and the trustees. They required to work closely together. The pursuers offered to prove that there was a connection between their actings and their wrongs. The Court could not, at least at this stage, say that the wrongs were clearly disconnected so that there could not be joint and several liability. Far from it, he submitted, the wrongs were enmeshed together.

[62 ] As to the argument that, as a matter of causation, the liability of one was inconsistent with that of the other, he asked, rhetorically, whether the Court could say now that the liabilities were plainly mutually exclusive and could not stand alongside each other as contributory causes of the loss. He suggested that the answer was in the negative. That was sufficient to require the Court to repel the defenders' argument. No authority had been cited for the proposition that gross negligence or recklessness of the type averred against the trustees necessarily interrupts causation. He could understand the argument in the context of an allegation of fraud or dishonesty against the trustees, but that was not what was alleged here. Absent authority that gross negligence or recklessness always interrupts causation, there was no basis on which to hold the joint and several conclusion to be competent. Mr Clark suggested that there might be a question of where the onus of pleading lay on an issue such as this. He accepted that if the liability of the actuary and the trustees were, in truth, mutually inconsistent, then he could not have a joint and several conclusion.

[63 ] Mr Clark returned to this question towards the end of his submissions. He referred me to the decision of Mance J in Red Sea Tankers Ltd v Papachristidis (The "Hellespont Ardent") [1997] 2 Lloyds Rep 547. That case concerned the sale and purchase of a tanker on terms which included an exemption from liability except where the damage resulted from acts or omissions which (a) were the result of gross negligence, and (b) constituted wilful misconduct. In reviewing the authorities, Mance J referred, at page 586, to the ordinary meaning of the expression "gross negligence" as, in that context, appearing to embrace "serious negligence amounting to reckless disregard, without any necessary implication of consciousness of the high degree of risk or the likely consequences of the conduct on the part of the person acting or omitting to act". He went on to say that "gross" negligence

"... is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence. But as a matter of ordinary language and general impression, the concept of gross negligence seems to me capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk".

He referred to various authorities, in particular a decision of Megaw J in Shawinigan Ltd v Vokins & Co Ltd [1961] 2 Lloyds Rep 153. In that case Megaw J had emphasised that each case had to be viewed on its own particular facts. He suggested that the test was an objective one. Mance J concluded his summary of the cases by saying this: "The heedlessness, indifference or disregard need not be conscious". A number of factors, including the seriousness or otherwise of any injury which might arise, the degree of likelihood of its arising and the extent to which someone takes any care at all, were all potentially material when considering whether particular conduct should be regarded as so aberrant as to attract the epithet of "gross" negligence. Relying upon this discussion of the meaning of "gross negligence", Mr Clark submitted that any consideration of whether a case fell within or without that term was best dealt with after enquiry. He referred me also to the Scottish Law Commission's discussion paper on breach of trust at paragraphs 3.13, 3.16, 3.19, 3.23 and 3.30. The authors of that discussion paper took the view that "gross negligence" was a workable concept, but recognised that it was impossible to draw a hard and fast line between negligence and gross negligence. Whether or not a particular set of circumstances amounted to gross negligence was a matter of fact to be resolved after the evidence was heard. It was impossible to tell how extreme the negligence was or whether it would interrupt causation until the Court had heard the evidence.

The contributions claim

[64 ] Mr Clark identified the three building blocks, as he called them, of this part of the pursuers' case against the trustees. First, there was the duty to set and collect appropriate levels of contribution. Second, there was the duty not to re-schedule or keep putting off payments due to be made by the company. And third, there was the duty not to allow an artificial increase in the retirement age to 75. As to the first, he pointed to averments relevant to the defenders' knowledge. They were directors and trustees, and as directors would have knowledge of the company's financial position. It was to be noted that the winding up commenced soon after their retirements in November 2002. In Article 6 there were averments about the MFR deficit and the requirement for a fourfold increase in contributions required from the Company. In Article 8 there were averments relating to the trustees' awareness of the problems faced by the pension fund and of the reduction in value of members funds. The pursuer did not suggest that the Company was required to make payment of the 27 % or the 31%; the pursuers were simply saying that those were the figures, the Company did not pay those amounts and the trustees knew that. It was averred that, as at July 2001, there was no reasonable likelihood that the £500,000 lump sum would be paid. In reality, Mr Clark submitted, all that is being said is that in the context of the duty to set and collect, the trustees set that figure, knew that it would not be paid, but did not seek to get it paid. He emphasised that the duty was to set and collect appropriate levels of contribution. There was repeated re-scheduling of contributions, and unaffordable lump sums were required to be paid. Matters had reached the stage by mid to late 2002 (page 21C-D) that there was such a deficit that contributions should not only have been set but should have been collected. The pursuers' case is that the trustees should have set and collected additional contributions of £42,000 per month. The figures are explained in the averments of loss at page 58 of the Record. Mr Clark submitted that the pleadings gave fair notice of the pursuers' case.

[65 ] As to the second duty, the duty not to reschedule or keep putting off the payments from the Company, this was an alternative to the first. In other words, if the trustees set certain levels of contribution and payments were not made, the trustees should not be re-scheduling the contributions but should be enforcing payment.

[66 ] The third duty was not to allow the artificial increase in the retirement age up to 75. It is suggested that the trustees went along with the scheme of representing to the bank the reduced figures without questioning them. This fed into the trustees' disregard for their duties as trustees. The whole purpose was to put before the bank a lower figure to secure future funding.

[67 ] Mr Clark turned to the points taken by the defenders. The first was that there was no enforceable duty as regards payment by the Company of the 27% and, subsequently, 31%. He said that the pursuers were not suggesting that there was such a duty. The purpose of the averment was simply to show knowledge on the part of the trustees as to the affordability of payments by the Company. The second point was that no payment was actually due from the Company because of revisions to the schedule of contributions before the payments fell due. Mr Clark accepted this. No doubt, he said, the trustees were entitled to revise the schedule of contributions. But that did not exonerate them from breaches of duty: they could not just "revise away the problem". He said that the pursuers offered to prove that repeated re-scheduling amounted to gross negligence. The third point was that there were no averments as to what was paid. He said that it was clear that 13% continued to be paid. His complaint was that the trustees did not set and collect the other sums. Next, he said, the defenders questioned how the idea of enforcing contributions after April 2001 fitted with the pursuers' case that the Scheme should have been wound up. He said that the pursuers' primary case was that the Scheme should have been wound up. It was in the context of a failure to wind up the Scheme that the duty of setting and collecting came into play.

The investments claim

[68 ] In dealing with the investments claim Mr Clark took me through Articles 9 and 10 and to the averments of fault in Article 22. He submitted that the pursuers had pled enough to justify the inference that the trustees must have disregarded the interests of the trust. They had failed to follow the advice of their professional advisers. Whether this was a failure to consider it or a failure, having considered it, to follow it, was something that the pursuers did not at the moment know. It was sufficient for them to say that the trustees' actions were wholly unexplained and, in the absence of explanation, inexplicable. The pursuers had pled enough to be able to ask the court to draw the inference that the trustees must have disregarded the interests of the trust. By April 2002 the trustees had agreed to implement changes in the balance of the investments. They did not in fact implement these changes until late 2002. The pursuers' averment was that they should have started by April 2002 at latest. There may have been any number of strategies, but the details of those strategies were for proof.

[69 ] As to the points taken against the pursuers' pleadings, the first was that the third defender had ceased to be a trustee on 26 April 2002. Mr Clark said that he could see that there might be a causation argument, but that ought to be dealt with after the evidence. All the material failures, he said, occurred "on his watch", meaning the watch of the third defender. The second point was in relation to the averment (on page 35) that, on 22 April 2002, the trustees met and agreed in principle to reduce the percentage holding of the Scheme's investments in equities but took no action to do so. He maintained the position that since the third defender was present and in place on that date, he was liable for the failures thereafter to act upon that decision.

The early retirements claim

[70 ] Mr Clark next addressed the early retirements claim. The essence of the pursuers' case, he submitted, was that not only was the writing on the wall by the time the early retirements were taken, but that the trustees put themselves in a better position than others in the Scheme. Mr Clark said that the pursuers offered to prove that the decision to take early retirement was a breach of duty. He pointed to the averments in Article 11 to the effect that the directors needed the consent of the trustees to retire early. In Article 12, there was a reference to the Company's accounts. Although not incorporated brevitatis causa, the accounts to 31 March 2001 were shown to me without objection. They were signed on 30 April 2002. The last page referred to post-balance sheet events including "closure of pension Scheme" on 30 April 2002. There was an early reduction in transfer values under the Scheme, and the pursuers offered to prove, at page 42D, that the trustees would have been aware at the time of making any decision to approve the early retirement of the third and fifth defenders that the transfer values would be reduced to little or nothing by May 2002. Mr Clark suggested that there was a conflict of interest between the defenders as trustees and the defenders as directors. As directors of the Company, the third, fourth and fifth defenders had intimate knowledge of the Company's affairs and of those of the Scheme. Mr Clark accepted that he could not and did not invoke some analogy to insider dealing. However, the third, fourth and fifth defenders had a fuller picture of what was going on and their knowledge had a bearing on the case made against them. As trustees, they could have prevented the early retirements. The case fell fairly and squarely on their duty as trustees not to approve the early retirements. It had to be the case, Mr Clark accepted, that the complaint would apply equally to their approval of early retirements of individuals other than the third, fourth and fifth defenders. In this context, he emphasised that he did not suggest that the defenders, as trustees, had treated themselves as retiring directors worse than any other directors or employees.

The position of the fifth defender
[71 ] At this point Mr Clark turned his attention on the arguments raised by the fifth defender. He accepted much of what had been said by Mr Thomson as regards the temporal difficulty in his claim against the fifth defender. To some extent, he submitted, the division of the conclusions into 1(a) and 1(b) sought to divide the losses between those which occurred before 26 April 2002 and those which occurred afterwards. The conclusions in 2(a) and 2(b) were split in the same way. As regards the contribution claim, he accepted that the fifth defender should not be liable for any failure to enforce contributions from the Company before he became a trustee. As regards the investments claim, he accepted, as I understood it, that the fifth defender could not be held liable for any failures before 26 April 2002 but there was a further slide, he said, in the period between 26 April 2002 and October 2002. The details of that slide would need to be brought out in evidence. The fact was that the fifth defender was in place as a trustee for a few months of inactivity and disregard of the advice given by the professional advisers. As to the early retirement claim, Mr Clark accepted that the fifth defender was a trustee for only a matter of days before the early retirements took effect. He accepted, as I understood it, that the decision, according to the pursuers' own averments at page 42 of the Record, must have been taken by about 31 March or at any rate before the fifth defender became a trustee. So far as concerned the joint and several conclusions, in so far as they concerned the fifth defender, Mr Clark referred to Duthie v Caledonian Railway Company 1898 25 R 934. In that case there had been a decree jointly and severally against both defenders for a certain sum (representing the statutory limit of the liability of one of them) and several liability against the other for the balance. This showed the general flexibility of the joint and several conclusion and could apply in the present case if after proof, it turned out that the fifth defender was not liable for substantial parts of the claim. If there was a technical problem in leaving the fifth defender in, however, he could be deleted from conclusions 1(a) and 2(a).

The expenses claim

[72 ] Finally, Mr Clark turned to the expenses claim. He recognised, as I understood it, that there would be double counting if the pursuers recovered an award in full under this claim as well as under the contribution claim. However, he submitted, it would be wrong at this stage to delete this part of the claim.

[73 ] Mr Clark, in summary, invited the Court to allow a proof before answer on all the averments on Record. If I was minded to do otherwise, he asked that I should put the case out by order rather than dismiss it or any particular part of it.

Response for the defenders

[74 ] In a brief response, Mrs Munro submitted that, in substance, the pursuer alleged a fraud on the trust. There was always a high burden on a pleader alleging fraud, and this applied whether it was fraudulent misrepresentation or the type of conduct which would render a trustee liable for breach of trust.

[75 ] Turning to the question of gross negligence or recklessness, she referred me to Transco plc v HM Advocate 2004 SLT 41 where, at paragraph 4, the Court had appeared to equate recklessness with "gross and wicked negligence". She sought to take a similar equivalence from the unreported Opinion of Lord Eassie in Anderson v Express Investments Co Ltd (4 September 2002). She submitted that in a trust context this equivalence must obtain. If gross negligence or recklessness was not equivalent to fraud, no relevant case would be pled against the trustees.

[76] She went on to submit that if, as she said was the case, we were in the territory of fraud, there was a particular responsibility on counsel pleading fraud. She referred to Royal Bank of Scotland v Holmes 1999 SLT 563 at 569 KL. The same high degree of responsibility applied to the pleading of gross negligence in the trust context. She caricatured Mr Clark's submission as having been to the effect that the Court should read the averments as a whole, give them a fair reading, look at them in the round and have regard to their general tenor. She submitted that this fell far short of the standard required. It was not sufficient to make more or less pejorative averments and then seek to extract from the fog various inferences from which the liability of the trustees could be established.

[77] Returning to the question of causation, and whether the liability of the actuaries and that of the trustees was mutually inconsistent, Mrs Munro accepted (under reference to Stansbie v Troman [1948] 2 KB 48) that when a negligent act was followed by an act of a third party, even a negligent act of a third party, that subsequent act may not necessarily break the chain of causation. Whether the subsequent act has the effect of breaking causation depends on whether the second wrongful act could be said to have been within the scope of the duty owed. When an adviser or agent undertakes duties such as those undertaken by the actuaries in this case, the duty of reasonable care does not extend to a duty to avoid the fraud or gross negligence of the trustees. It is within the contemplation of the actuary that the trustees will rely upon his advice. It is not within his contemplation that they will fraudulently or recklessly disregard it. If the trustees have culpably relied upon the advice given by the actuary, the actuary cannot be held liable. The position is a fortiori if the trustees have not relied upon that advice. Finally, she referred me to Thomson v Ross (unreported, Lord Eassie, 18 July 2000) for the proposition that rules are rules, however technical. In that case, a joint and several conclusion had been held to be incompetent.

[78 ] For the fifth defender, Mr Thomson adopted Mrs Munro's additional submissions. In addition to the cases that he had previously brought under my attention on the question of competency of the joint and several conclusion, he referred me to Barr v Neilson 1868 6 M 651 and Sinclair v The Caithness Flagstone Company Ltd 1898 25 R 703 where joint and several conclusions had been held to be incompetent. He said that those cases were more easily squared with the facts of the present case.

Discussion

[79] It is convenient to deal with the issues in the order in which they were addressed by counsel, albeit that it will be necessary to return to the form of the conclusions after I have given my decision upon the matters of substance.

The joint and several conclusions

[80 ] The meaning of a joint and several conclusion was made clear by Lord McLaren in Fleming v Gemmill at page 345:

"the word 'severally' implies that against whatever number of defenders there now proceeds, each is liable for the whole sum sued for, and the words 'jointly' or 'conjunctly' secures to those against whom the decree is made operative the right of rateable relieve against the persons who have not paid".

This explanation was approved by Lord Walker in Grunwald v Hughes at page 214-5. It is reflected in the opinion of the Lord President in Ellerman Lines Limited v Trustees of the Clyde Navigation, at page 692:

"That where you have joint delinquents it is quite clear, I think, that the pursuer can sue these joint delinquents, and that the meaning of a conclusion for a sum of damages jointly and severally, or severally, as the case may be, is that if he is able to show that they are joint delinquents he will get a joint and several decree against both, which he may make good against either, leaving the person who is so distressed to make good his claim of relief if he can. With that the pursuer has nothing to do, but if, on the other hand, he does not prove, that they are both delinquents, but that only one of the delinquent, then he may get a decree for the same sum of damages against the one who, upon the proof, is shown to be the delinquent".

It is not necessary on this point to refer to the other authorities which were cited to me, since, thus far at least, the principle is uncontroversial.

[81 ] There are three matters to be noticed at this stage. The first is that the wrongs allegedly committed by the various defenders should be connected or, as it is more commonly put in the negative, "not disconnected". This is made clear in a number of authorities including Barr v Neilsons and Sinclair v Caithness Flagstone Co. The cases and the principles emerging therefrom are discussed in the opinions of the Lord Justice Clerk and Lord Strachan in Grunwald v Hughes. The question whether wrongs are connected or disconnected is, to my mind, illustrated by considering the difference between, on the one hand, two wrongs committed by two different defenders on different occasions, each of which causes the pursuer some loss or damage. In some cases, the damage caused by the second incident may overlap with that caused by the first, but that does not make the wrongs connected, though it may give rise to difficult issues of quantification. For the wrongs to be connected it must be shown that the separate acts have together contributed to one common result: see per Lord Strachan in Grunwald v Hughes at page 213.

[82 ] The second point is that there is no requirement for the different wrongs to be of the same character. The cases show instances of a conclusion for joint and several liability, where one defender was sued in delict and the other for breach of contract: see Grunwald v Hughes. Nor is it essential that the basis of liability in the case of both defenders, or indeed either of them, should involve negligence. Belmonte Laundry Co v Aberdeen Steam Laundry Co Ltd was a case where one defender was sued for breach of contract and the other for what would now be called inducement to breach of contract. In Rae v Meek, over which counsel exercised much ingenuity, the pursuers, beneficiaries under a trust, sued both the trustees and the law agent appointed by them to advise on investments. The question of competency for a joint and several conclusion was raised but not decided, at any rate expressly; the case eventually went to proof against both defenders with that conclusion still standing, and the law agent was assoilzied on the basis that, having been appointed by the trustees, he owed no duty to the beneficiaries. Although it is, perhaps, going too far to cite this case as an authority for the proposition that there can be joint and several conclusions where the claim is against professional advisors for negligence and trustees for gross negligence or culpa lata, the case does at least provide an illustration of that having occurred.

[83 ] The third point to notice is that there is no requirement that each defenders' breach was a material cause of the whole damage: see McGillivray v Davidson. It is sufficient if the individual fault of each defender contributed in a material way to a single common result. It is a fortiori that there is no requirement that there be equal or commensurate fault on the part of the various defenders.

[84 ] Mrs Munro's main submission was that there could not be a conclusion for joint and several liability in a case where it was impossible that both defenders should be liable. Mr Clark accepted this. That concession was, in my view, properly made. It is clear from cases such as Ellerman Lines Limited v Clyde Navigation Trustees that a pursuer may put forward a conclusion for joint and several liability on the basis of an offer to prove that the liability of two or more defenders jointly contributed to his wrong. The fact that he may not make good his case against more than one of them does not, retrospectively, render incompetent the conclusion for joint and several liability. In such a case, having gone to proof on his joint and several conclusions, he is entitled to such decree in his favour as his proof allows him against the one defender against whom he has established liability. But it must, I think, be right that in a case where the liability of the two defenders can be shown at the outset necessarily to be mutually inconsistent, then a pursuer cannot competently conclude for joint and several liability. I therefore turn to consider whether this is such a case.

[85 ] The issue, as presented by Mrs Munro for the third defender, and adopted by the fourth and fifth defenders, is one of causation. Assume, so the argument goes, that the actuaries acted negligently, whether by proffering negligent advice or otherwise. It is not averred against the trustees that they had any specialist knowledge in the matters in respect of which the actuaries were engaged to advise. In such circumstances, if the trustees followed the advice proffered by the actuary, how could they be convicted of negligence, let alone gross negligence or recklessness, that being the minimum standard required to establish their liability? If, on other hand, the trustees disregarded the advice given by the actuary, and did so recklessly or with gross negligence, how could the advice given by the actuary, albeit negligent, have caused any loss to the pursuers? In developing her argument, Mrs Munro was at pains to emphasise that the gross negligence or recklessness alleged against the Trustees was equivalent to fraud. It was impossible to envisage, she argued, that the actuary in giving advice should reasonably foresee that the trustees would act fraudulently. As I understood it, Mr Clark was minded to accept that in such a case it might be difficult to conceive of any basis upon which both actuary and trustee could be held liable. In practice I suspect that this is right, though I do not find it impossible to conceive of a situation in which the trustee, being fraudulent and therefore not relying upon the actuary's advice, nonetheless seeks to avail himself of the opportunity afforded to him by that advice or, perhaps, to clothe himself with the protection given by the fact that that advice coincides with his proposed course of action. In such an event there might still be the possibility of both being liable, since without the negligent advice by the actuary the trustees would have been unable to act in such a way.

[86 ] Such considerations, however, are somewhat removed from the circumstances of the present case. Although at one point it appeared that, despite the initial concession by Mrs Munro that the trustees might be held liable on a finding of gross negligence, I was being asked to decide whether it was necessary for the pursuers to aver fraud to plead a relevant case against them, I consider, on reflection, that the characterisation of the requisite conduct as "fraudulent" or "grossly negligent" had the more limited aim of seeking to focus the argument on causation. If that was its purpose, I do not think that it assists. Rather than seeking to attach a particular label to the averments of liability made against the trustees, it is better, in my opinion, to look to see what charges are laid at their door. In the case of the contribution claim it is averred (at article 21 of condescendence) that the Trustees "knowingly and wilfully in breach of trust, or in any event with gross negligence consisting of their reckless disregard for the consequences of their acts or omissions". As regard the investments claim, it is averred (in article 22) that the Trustees "acted with gross negligence consisting of a reckless disregard for the consequences of their acts and omissions". As regard the early retirement claims, the averments in (Article 23) are first that the Trustees acted knowingly and intentionally in breach of trust, but if they did not, they acted "with gross negligence consisting of a recklessly regard for the consequences of their acts and omissions". There is no averment of knowing and intentional breach of trust in respect of the expenses claimed but it is averred (in article 24) that they acted with gross negligence using the same formulation as previously. Stripping out, for present purposes, the allegations of knowing and intentional breach of trust, the less extreme case against the trustees is that they acted with gross negligence, which the pursuers equate with a reckless disregard for the consequences of their acts and omission. It may, in some circumstance, be appropriate to attach to such a case the label "fraud". But I do not think that that helps in answering the question about whether an actuary, under a duty of care in respect of the advice that he gives, should reasonably foresee that it might be acted upon by trustees acting in the manner in the pursuers aver that they acted. It does not help to ask whether the actuary could reasonably have foreseen that the trustees would act fraudulently, since what is averred is that they acted with gross negligence amounting to recklessness. If one asks that question in the abstract, the answer, to mind, is far from obvious.

[87 ] In truth, the answer will usually be: it depends on the particular circumstances. No argument was addressed to me, by reference to the particular circumstances alleged against the trustees in respect of the four individual heads of claim, to the effect that the trustees' particular acts or omissions were acts or omissions which could not reasonably have been foreseen by the actuaries. Absent such a detailed analysis, it is, in my view, impossible at this stage for the trustees to establish that their liability and that of the actuaries are necessarily mutually exclusive. In saying this, I have in mind that, as the cases make clear, it is impossible to draw "any hard and fast line between the want of that care which a man of ordinary prudence would display in a management of his own affairs and that high degree of negligence which is termed culpa lata", as Lord Hershaw put it in Rae v Meek (1889) 16R (HL) at 3135; and see the discussion of this topic by the Scottish Law Commission in its Discussion Paper No. 123 ("Discussion Paper on Breach of Trust") at para 3.30. I have to assume that the court may make findings of fact when the matter comes to proof which are at what one may call the lower end of the gross negligence spectrum, just sufficient to justify a finding of liability against the trustees. It is impossible, so it seems to me, to identify precisely the threshold which the pursuers have to cross in order for the trustees to be found guilty of gross negligence and therefore liable in damages. So also it is impossible, before evidence is led, to be certain that they will only be liable upon proof of acts or omissions which are so far outwith the reasonable contemplation of the actuaries that any possible causative link between their negligence (if proved) and the pursuers' loss will be broken.

[88 ] For these reasons, it seems to me that the causation argument, upon which depends the question whether the liability of the actuaries and that of the trustees is mutually exclusive, is a question that cannot be decided before proof. At this stage, therefore, it is impossible to say that the joint and several conclusions are incompetent; and, since competency must be decided at this stage, it must follow that the joint and several conclusions are competent.

[89 ] I shall return later to the other objections made to the joint and several conclusions based upon the different dates at which the various defenders became or ceased to be Trustees.

The contributions claim
[90 ] In considering the contributions claim, and indeed all claims in this action, I approach the matter according to the well known principles stated in Jamieson v Jamieson 1952 SC (HL) 44. That test, as re-stated in Cosar v UPS Limited at page 264E, requires a defender, who is seeking to exclude a head of claim at debate, to satisfy the court that even were the pursuer to prove the facts within the scope of his averments, and the judge of fact hearing the proof were to interpret those facts as liberally in favour of the pursuer as he might legitimately do, the pursuers' claim would be bound to fail. One must not underestimate the importance of the expression "within the scope of his averments" within that test. In my opinion, Mrs Munro was correct in submitting, under reference to Royal Bank of Scotland v Holmes, that charges of this sort made against trustees required to be carefully and precisely pled. Although the case against them is not strictly put in terms of fraud, the allegation of recklessness is, as Millet L J points out in Armitage v Nurse at 251F, in effect a charge of dishonesty ("if he acts in a way which he does not honestly believe is in their interests then he is acting dishonestly"). In considering the challenge to the relevancy of the pursuers' averments against the trustees under the various heads of claim, I must, so it seems to me, scrutinise the pursuers' averments with care to see whether those averments against the trustees are sufficiently cogent, clear and precise to support such a claim.

[91 ] The averments of fault are in Article 21. The pursuers' case there is that by failing in "the said respects" the trustees acted knowingly and wilfully in breach of trust or, in any event, with gross negligence consisting of reckless disregard for the consequences of their acts or omissions. The "said respects" must refer back to the respects in which it is earlier alleged in that same Article that the trustees failed. There are two such matters. The first is that the trustees allowed the Company to postpone its contributions on a number of occasions. The second is that they allowed the minimum contributions payable by the company to be artificially reduced by allowing the minimum retirement age to be nominally increased to 75. Reading further back into Article 21, those matters are, I think, said to be breaches of the certain other duties. Those duties are: a duty to set and collect an appropriate level of contribution from the Company; and a duty not to allow the minimum contribution payable by the company to be artificially reduced by allowing the minimum retirement age to be nominally increased to 75. These averments of duty are coupled with a duty to consider whether the contributions are affordable and a duty to consider the winding up of the Scheme or at least cessation of benefit accrual thereunder; as well as a duty to use their powers to this effect.

[92 ] Underlying Mrs Munro's argument was a submission that the pursuers had failed in their pleaded case to differentiate between the role of the actuaries and that of the trustees; and had misstated the obligations placed on the trustees in respect of setting and collecting payment. It is necessary to look in a little more detail at the provisions of the Pensions Act 1995.

[93 ] S.47(1)(b) of the 1995 Act provides that for every occupational pension scheme there shall be an individual appointed by the trustees or managers as actuary. In the present case the actuary is sued as the first defender. It is the actuary who is required to prepare and sign the actuarial valuations referred to in s.57 of the Act, that is to say, written evaluations of the assets and liabilities relevant to a determination of whether the minimum funding requirement is satisfied (see s.56). In terms of s.57, on certain occasions the actuary must also prepare a certificate stating whether or not in his opinion the contributions payable towards the scheme are adequate for the purpose of securing that the minimum funding requirement will continue to be met throughout the prescribed period, or will be met by the end of that period. The obligation of the trustees is, on prescribed occasions or within a prescribed period, to obtain the actuarial valuation and the certificate prepared by the actuary. S.58 of the Act requires the trustees to secure the preparation, maintenance and periodical revision of a schedule of contributions. It is to be observed that the trustees are not required themselves to prepare this schedule. It is a matter of agreement by all parties on Record that the schedule of contributions, or at least the revised schedule of contributions, was in fact prepared by the actuary. No criticism is made of this. Although s.58 is silent as to who is required to prepare the schedule of contributions, its preparation is closely tied in with the actuarial valuation; and the rates of contribution, both in the original schedule of contributions and in any revised schedule, must be certified by the actuary. It therefore comes as no surprise that the actuary in this case has prepared the schedule of contributions and the revisions thereto.

[94 ] Against that statutory background, it seems to me that the role of the trustees in relation to the contributions payable by the company is essentially administrative or facilitative in nature. They obtain an actuarial valuation. They procure that a schedule of contributions is prepared. They procure that the contributions referred to in that schedule are certified by the actuary. If there is to be criticism of their action or inaction in relation to the schedule of contributions, one would expect the criticism to focus upon the duties which, it may be contended, the trustees owe to ensure that the schedule of contributions and any revisions thereto are properly made. In a case where the revised contributions are certified by the actuaries, one would expect some averment as to the circumstances in which the trustees ought to have second-guessed that certification. One would expect also to see averments as to the skill or expertise which the trustees possessed, ought to have possessed or, by virtue of having accepted office as trustees, held themselves out as possessing, so as to inform the criticisms of what they did or did not do. Without such averments it is difficult to see how the criticisms levelled against the trustees in respect of the schedule of contributions could ever be made good.

[95 ] The pursuers go some way towards attempting to address these points. In my opinion they do not go far enough. The specific duties said to be owed in relation to these matters are those which I have already summarised from Article 21. The pursuers aver, first, that it was the trustees' duty "to set and collect an appropriate level of contributions from the Company". But in terms of the statutory scheme, their duty did not extend beyond securing that a schedule of contributions was prepared, maintained and from time to time revised. It was the schedule of contributions, prepared by someone other than the trustees (in the event prepared by the actuary) which set the appropriate level of contributions. It is not quite clear what is meant by saying that the trustees had a duty to "collect" an appropriate level of contributions, save to the extent that this would involve them in, at least, making a demand of the Company for payment. However, this does not matter since there are no averments that the Company was at any time in default, the schedule of contributions having been revised from time to time on dates before the lump sum payments, which are the subject matter of the real complaint, fell due. The complaint about the trustees' failure to collect the appropriate level of contributions therefore merges into the complaint, which I have already considered, that the trustees should not have allowed the schedule of contributions to be revised in the way it was revised. Secondly, there is said to be a duty to enforce the additional annual payments required from the company after August 2000. This refers to the lump sum payments of varying amounts identified in Article 8. However, again, the criticism is really a criticism that the schedule of contributions should not have been revised so as to postpone the obligation to pay, and I have already pointed out that there is no basis set out on Record for a criticism of the trustees in this regard. Next, it is said, it was the duty of the trustees to consider whether the contributions were affordable in view of the cash flow of the company. Nothing in the averments on a record or in the statutory scheme which I have identified appears to support the existence of such a duty. Nor are there any averments as to the trustees' expertise and skill in such matters that to support the existence of such a duty when the level of contribution is set and certified by the actuary. Finally, it is said that, being aware that there was no reasonable prospect that the company could afford to pay the contribution levels which were being set, it was the trustees' duty to consider winding up the scheme or at least the cessation of benefit accrual; and, indeed, that it was their duty to use their powers to require that the scheme be wound up or that benefit accrual should cease. But, as I have said, there are no averments which would instruct a case that the trustees should be expected to second-guess the actuary, still less that their failure to do so amounts either to a knowing and wilful breach of trust or to gross negligence or recklessness.

[96 ] I therefore consider that the arguments for the trustees on this aspect are substantially correct and that the contributions claim as presently pled is irrelevant.

[97 ] Having come to this conclusion, it is unnecessary for me to consider in detail each of the allegations in Article 8 of Condescendence. In general terms, it seems to me that many of them are subject to the same criticisms which I have already identified. Thus, at page 20A-B there is an averment that in late 2001 the trustees did not seek to enforce payment by the Company of the lump sum contribution of £500,000 identified in the schedule of contributions. At that time (i.e. in late 2001) that payment was not due until April 2002 at the earliest. Before April 2002 the schedule of contributions was revised; and, as a result, there was never any moment when the Company was in default of its obligation in respect of the lump sum contribution of £500,000. The same applies mutatis mutandis to the revised lump sum contributions set out in the various revisions to the schedule of contributions, on various dates in early 2003. Again, at page 21B, there is the averment that the trustees accepted the reduction in contributions by the company (the reduction having been achieved by the increase of the normal retirement age to 75) without questioning it. But there are no averments such as would be necessary to inform the existence of a duty on the part of the trustees, or even to demonstrate an ability on their part, to question such a reduction. Another averment at page 21C-D is, simply, that the trustees "failed to enforce contributions from the company". Such an allegation has no basis in law or in fact for the reasons I have given. Stripped of these key components, the averments in Articles 7, 8 and 21 cannot stand as part of any relevant claim against the trustees in respect of contributions.

[98 ] Article 25 of Condescendence sets out the losses allegedly sustained as a result of the actions or inactions of the trustees under all four heads of claim. It follows from what I have said so far that that part of Article 25 relating to loss suffered in relation to the contributions claim must be deleted. However, even if I had not been minded to accept the defenders' arguments on the relevancy of the averments in Articles 7, 8 and 21, I would still not have allowed the averments in Article 25 anent the contributions claim to have gone to probation in their present form. The averment in Article 25 is that the scheme suffered a loss of contribution which should have been received from the company during the period April 2001 to November 2002. This is, as it was explained to me, calculated on the basis that during the nineteen months between April 2001 and November 2002 the company should have made contributions at the rate of £42,000 per month. This is not based upon any figure in the schedule of contributions. Rather it is based on the pursuers' analysis of what sums the company ought to have paid to make good the amount of the MFR deficit below 90%; and seems to assume that the trustees themselves ought to have set the level of contributions based upon their own analysis of the MFR deficit. As I have indicated, such a claim is irrelevant. But the claim also appears to assume that the Company paid no contributions during that period. In fact the pursuers accept that the Company continued to pay contributions up to the end of May 2002. It ceased to make contributions after that date because, as the pursuers themselves aver, it could not. In such circumstances there seems to be no way in which, on the present averments, the pursuers can relevantly claim that the Scheme lost that sum, or any sum, as a result of the trustees' alleged breaches of duty.

[99 ] The position of the fifth defender requires separate consideration. Mr Clark accepts that he cannot be held liable for any failures by the trustees to enforce contributions from the Company before he became a trustee in late April 2002. Whether that leaves over any claim against him in respect of contributions (even if that claim were otherwise good) is unclear. If a claim under this head was to be proved against the fifth defender, it would require averments focusing the issues on when he became a trustee, what he should or could have done or not done from then on, and the consequences of him having done or not done it. On this ground, even if I had reached a different conclusion as to the arguability of the contributions claim, I would not have allowed it to proceed as against the fifth defender on the present state of the pleadings.

The investments claim
[100 ] The investments claim against the trustees is not fraught with the same difficulties, at least insofar as concerns the averments relating to liability. There is no requirement to consider the interrelationship between the role of the actuary and that of the trustees. Nor is there any need to consider the circumstances in which the trustees ought to have second-guessed the advice of their professional advisers. The pursuers' case is based upon the proposition that the trustees ought to have accepted the advice of their professional advisers; and, further, that having belatedly accepted that advice, they failed to implement the agreed changes until much later and until the value of the equities had decreased yet further. In such circumstances, the criticism made by Mrs Munro that the pursuers do not make any averment that the trustees had any special skill or expertise in investment matters carries less weight. Without wishing to prejudge the outcome of any proof before answer on this aspect of the case, the lack of any such averment by either the pursuers or the trustees raises questions as to why the trustees did not act and act promptly upon the advice that they were given. But, as I say, that is for another day. Subject to the points made below, I would in principle be minded to allow a proof before answer on this claim.

[101 ] The first of the points that gives cause for concern is that the pursuers have not addressed what has been referred to as the "temporal" question, namely the fact that the third defender ceased to be a trustee on 26 April 2002 and the fifth defender only became a trustee on that date. In order to make a relevant case against the third defender for any losses or decrease in value of the equities occurring after he ceased to be a trustee, there would need to be averments directed at showing how his acts or omissions before that date caused or contributed to the loss arising thereafter. This is not mere formalism. The question of causation is one of substance. Equally, and perhaps with more force, in order to make the fifth defender liable for all or part of the loss claimed to have been sustained, there would require to be averments directed to his role on becoming trustee, what he ought to have known and what steps he ought to have taken thereafter and how it is said that he became liable for losses occurring before that date. There are no such averments in the present case. In the case of the fifth defender, the point is rendered more forceful by the fact that, in Article 25, the loss under this head is premised upon the notion that the trustees should have switched from equity investments on three specific dates, all arising before the fifth defender became a trustee. Clearly he could not be expected to have done anything as a trustee on those dates. There is no indication of what the case is against him in terms of the loss said to arise from his acts or omissions.

[102 ] The second point picks up on the averments of loss in Article 25. The basis of calculation of the loss, based upon the three dates on which the trustees allegedly should have switched from equities into fixed interest securities, are not foreshadowed by any factual averments, for example as to the advice that the trustees were given, which would justify the assessment of damages on this basis. The calculation appears to be totally arbitrary. It was submitted that this is simply illustrative of how the loss was suffered. However, that does not give the trustees fair notice of how the case is put against them on quantum.

[103 ] In those circumstances, I would not be minded to allow the claim in its present form to proceed to proof against the third and fifth defender. I would, however, be prepared to give the pursuers an opportunity of making substantial amendments to tie in that liability of the third and fifth defenders and to give fair notice of how the claim for damages is put as against them.

The early retirements claim
[104 ] The pursuers' case in respect of the early retirements claim seems to me to be based on two propositions: first, that the trustees were under a duty to ensure that persons taking early retirement were not placed in a favourable position vis-à-vis other members of the Scheme; and, second, that the third and fourth defenders, as trustees and as directors seeking to take early retirement, had a substantial conflict of interest. From this it is alleged to follow that, in taking and approving the early retirements on full benefits, the third and fourth trustees acted in breach of duty as trustees, whether knowingly and intentionally or at any rate with gross negligence.

[105 ] The pursuers offer to prove that the trustees knew, at the material times, or could have made themselves aware, that the Scheme was in substantial deficit; and that transfer values had been reduced and would be further reduced, so that those who took early retirement on full benefit would inevitably benefit compared with others in the Scheme who did not. It seems to me that there is sufficient in the averments on Record, as supplemented by the Company's accounts to which I was referred without objection, to entitle the pursuers to seek to prove these facts. I do not accept the submission for the trustees that there is no basis for the averment that the trustees knew that the scheme was about to be wound up. That is a matter for proof.

[106 ] However, I do not think that these facts, even if proved, take the pursuers very far. In my opinion Mrs Munro was correct in submitting that the pursuers have not averred any basis for the alleged duty to ensure that persons taking early retirement were not placed in a favourable position vis-à-vis other members of the Scheme. The pursuers rely upon the fact that, in accordance with the Rule 7(1)(a) of the Scheme Rules, where a member opts to take early retirement for reasons other than incapacity, his pension entitlement may be reduced. That Rule provides that the reduction is to be by such amount as the trustees, on actuarial advice, shall determine. That advice, and that determination, is to be by reference to the period by which the retirement is brought forward from his normal retirement date. That is a classic actuarial calculation, and has nothing to do with trying to match the benefits of those taking early retirement with the position of those receiving transfer value payments. It is, as I read the averments, the only reduction in the pension entitlement of someone taking early retirement permitted by the Rules. The pursuers also refer to the provision in the 1995 Act that where a pension Scheme has insufficient funding to meet its liabilities, priority is given to persons in receipt of pensions over both deferred and active members. From that, when taken in conjunction with the duty on the trustees to administer the fund for the benefit of all members having an interest in it, they seek to spell out a further duty on the trustees to ensure, with advice from the Scheme actuary, that the pension entitlements of those taking early retirement should be reduced commensurate with the reduced transfer value payments made to those staying within the Scheme. This does not seem to me to be consistent with the actuarially based reduction, essentially for acceleration, expressly allowed by the Scheme Rules. I would have thought that a person taking early retirement would be entitled to complain if the trustees sought to reduce his pension entitlements otherwise than a reduction calculated in accordance with Rule 7(1)(a) by reference to the period by which the retirement is brought forward from his normal retirement date. It is notable that the pursuers do not aver that the trustees should simply have refused to allow the third, fourth and sixth defenders to take early retirement. This is, no doubt, in part because of the difficulty of arguing that the trustees should have put into effect an "across the board" policy of refusing to allow any early retirements after some identified date.

[107 ] It is a curious feature of the pursuers' case that their complaint against the trustees under this head of claim relates only to the trustees' approval of the early retirements on full benefit entitlement of the third, fourth and sixth defenders. If the trustees were under a duty, derived from the duty to administer the fund for the benefit of all members taken together with their knowledge of the precarious state of the fund, to reduce the benefit entitlements of those taking early retirement, that duty would surely apply so as to require them to reduce the benefit entitlement of all of those taking early retirement. Yet there is no hint in the pursuers' case on Record of any complaint that the trustees should have reduced the pension entitlement of others who took early retirement. The reason appears to be that one aspect of the complaint was that the third and fourth defenders had a conflict of interest since they were, on the one hand, directors seeking to take early retirement on full entitlement and, on the other, trustees making decisions about whether to approve their early retirements and the reduction of their entitlement; and another aspect of the complaint is that the third, fourth and sixth defenders were being put in an unduly favourable position compared with others interested in the Scheme. However, Mr Clark confirmed to me that others had taken early retirement in the relevant period, and the pursuers made no complaint that the third, fourth and sixth defenders had been preferentially treated as compared to these others. On the basis that the pursuers did not object to these others taking early retirement, it would surely have to have been the pursuers' position, if their case on Record is to be justified, that the trustees should have treated the third, fourth and sixth defenders less favourably than others taking early retirement - but Mr Clark very sensibly baulked at this proposition.

[108 ] In light of the above, I can see no coherent argument in support of the pursuers' case under this head of claim. In case I am wrong on this, however, I should deal with the separate submissions made by Mr Thomson on behalf of the fifth defender.

[109 ] It seemed to me that Mr Thomson was correct in saying that insofar as the claim was based against the fifth defender it was clearly irrelevant. The averments in Article 12 make it clear that the decision to allow the early retirements of the third and fourth defenders from the scheme was taken before the end of March 2002. Although their retirements did not take effect until 3 May 2002, the pursuers make no averments on the basis of which it could be said that the fifth defender ought to have taken some step in the days immediately following his appointment to undo that decision. Nor is it alleged that he could have done so. Further, the sixth defender had already retired in early April 2002, before the fifth defender became a trustee. In those circumstances this claim as against the fifth defender must be dismissed.

[110 ] I should add that, even if I had thought that the pursuers should be allowed to take this head of claim forward to a proof before answer on liability, I would have been minded to uphold Mrs Munro's criticisms relative to the averments of loss in Article 25. On the assumption that the trustees both could and should have reduced the pension entitlements of the third, fourth and sixth defenders, any claim for damages should address the question of what such a reduced entitlement would be. Only then can any reasonable estimate be made of the cost to the fund of paying the full entitlement to those defenders. The pursuers' averments do not address this issue at all.

The expenses claim
[111] This claim relates to the repayment of expenses. The complaint is that the Company should not have been re-imbursed the expenses of administration from the fund, because the trustees knew, or ought to have realised, that such payment from the fund would prejudice the benefits provided by the fund. The decision was taken by the trustees in May 2002 to re-imburse the Company by setting off the sums to be re-imbursed against contributions payable by the Company. By then it was clear that the fund was in substantial deficit.

[112 ] It is sufficient, on this head of claim, to say that the pursuers have in my opinion pled sufficient to allow them to proof before answer. The fact that the actuary's calculations did not disclose the effect on the fund of making the repayments to the Company does not, in my opinion, lead inevitably to the conclusion that the trustees cannot be liable either by themselves or along with the actuaries. Since allowing a proof before answer, I should say no more about this claim at this stage.

[113 ] It is accepted by the pursuers that the rules against double recovery mean that this claim cannot succeed in addition to the contributions claim. But this is not an obstacle to my allowing a proof before answer. I have refused to admit the contributions claim to probation. If that refusal stands, the risk of double recovery is removed. And in any event, even if I had taken a different view of the contributions claim, it would be wrong at this stage to pre-judge the outcome of the proof.

Disposal

[114 ] In the course of this Opinion I have indicated that certain claims fall to be excluded from probation, whether because they are, in my opinion, fundamentally irrelevant or because certain of the averments are insufficiently specific to focus the claim against particular defenders. My conclusions on the substantive claims will have an impact also upon the conclusions, since it is apparent that the third and fifth defenders' roles as trustees did not overlap and it is therefore difficult to see any basis, on the present averments, for their liability, if any, to be joint and several.

[115 ] I propose to put the case out By Order to enable parties, and in particular the pursuers, to decide how they wish to proceed. I shall make no other order in the meantime save to extend further the time allowed to the defenders to initiate an amendment process answering the amendments made by the pursuers immediately before the Procedure Roll hearing. I shall reserve all questions of expenses.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> PS Independent Trustees Ltd v Kershaw & Ors [2007] ScotCS CSOH_50 (09 March 2007) URL: http://www.bailii.org/scot/cases/ScotCS/2007/CSOH_50.html Cite as: [2007] ScotCS CSOH_50, [2007] CSOH 50

Scottish Court of Session Decisions

Introduction

The pursuers' case on Record against the trustees

Submissions for the third, fourth and fifth defenders

The joint and several conclusion

The investments claim

The early retirements claim

Joint and Several Conclusions