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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 78
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A416/04
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OPINION OF LORD GLENNIE
in the cause
PS INDEPENDENT
TRUSTEES LIMITED and OTHERS
Pursuers;
against
DAVID KERSHAW and
OTHERS
Defenders:
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Pursuers: Clark, Q.C.; Biggart Baillie
First & Second Defenders: Cunningham;
CMS Cameron McKenna
Third Defenders: Brodies
Fourth Defender: John MacLennan, Party
Fifth Defender: Mackenzie; Morton Fraser
23 May 2008
INTRODUCTION
[1] This
opinion arises out of a further discussion on the Procedure Roll in this
action. For those who are interested, the
subject matter of the proceedings is explained in my earlier Opinions dated
9 March and 10 July 2007
(respectively 2007 CSOH 50 and 2007 CSOH 122).
Since the second of those Opinions, there has been a further lengthy amendment
process at the instance of the pursuers.
At the beginning of this hearing I granted leave to amend in terms of
the Minute of Amendment and Answers all as adjusted to that date. The Procedure
Roll discussion took place on the basis of the Record as so amended. In its present amended form the Record runs
to over 150 pages, though this includes passages which have been deleted during
the amendment process, it having been anticipated (wrongly, as it turned out)
that, since the motion to amend was opposed, there would be a detailed
consideration of individual proposed amendments. By the end of the hearing it became apparent
that the pursuers required to make further small amendments to incorporate
schedules of loss upon which they wished to rely and I granted them leave so to
do.
[2] The
debate leading to my decision of March 2007 was at the instance of the third,
fourth and fifth defenders ("the trustees"), who were all at various times trustees
of the Blyth & Blyth Pension Scheme ("the Scheme"). I held the claims against the third defender
to be irrelevant, as a result of which the pursuers are no longer continuing at
all against the third defender. So far
as concerns the fourth and fifth defenders - to whom I shall refer as "the remaining
trustees" - I held that both the contributions claim and the early retirements
claim as pled against them were irrelevant.
The pursuers have made it clear that they do not seek to reclaim that
decision. I expressed the view in
paras.[100]-[103] that the investments claim pled against them was not
necessarily irrelevant, and I gave the pursuers an opportunity to amend to save
it. In respect of the expenses claim as
directed against them, I allowed a proof before answer.
[3] The
investments claim and the expenses claim, therefore, remain potentially live as
against the remaining trustees. However,
the pleadings relative to all claims have undergone very substantial amendment
and on the basis of that the remaining trustees now seek to exclude both the
investments claim and the expenses claim from probation.
[4] The
first and second defenders, respectively the Scheme Actuary and his employers,
to whom I shall refer as "the actuary" or "the actuaries" as appropriate, took
no part in the first debate, but seek at this stage to raise issues as to the
claims made against them.
[5] In
para.[30] of my Opinion of March 2007, I set out in full the conclusions to the
Summons as they then stood. These have
been substantially re-cast during the amendment process. They now read as follows:
"1. For payment by the first
and second defenders jointly and severally to the pursuers of the sum of
[£6,267,643] together with interest thereon at the rate of eight per cent a
year from 30 April 2001, or such other date or dates as to the court shall seem
proper, until payment.
2. Alternatively to Conclusion 1 hereof,
(i) For payment by the first, second,
fourth and fifth defenders jointly and severally or severally to the pursuers of
the sum of [£1,992,621] together with interest thereon at the rate of eight per
cent a year from 31 May 2002, or such other date as to the court shall seem
proper, until payment.
(ii) For payment by the first, second, fourth
and fifth defenders jointly and severally or severally of the sum of [£223,168]
together with interest thereon at the rate of eight per cent a year from 31 May
2002, or such other date as to the court shall seem proper, until payment.
(iii) For payment by the first and second
defenders, jointly and severally, of the sum of [£2,444,000] together with
interest thereon at the rate of eight per cent a year from 31 May 2002, or such other date as to the court
shall seem proper, until payment.
Only conclusions 2(i) and (ii) now
assert any liability on the part of the remaining trustees, and those are on
the basis that their liability is joint and several with that of the actuaries. Conclusion 2(i) arises from the investments
claim while conclusion 2(ii) arises from the expenses claim.
[6] I
propose first to consider the arguments between the pursuers and the actuaries
and then go on to deal with those between the pursuers and the trustees.
THE CLAIMS AGAINST THE ACTUARIES
[7] The
pursuers allege in Article 15 that the fund of which they were trustees
sustained loss and damage as a consequence of the actuaries' breach of contract
and/or fault and negligence. They aver
that it was the first defender's duty as Scheme Actuary, in carrying out his
duties and functions, to take reasonable care to exercise the degree of skill
and care reasonably to be expected of an ordinary competent actuary holding
himself out as competent to assume the role of the Scheme Actuary of a pension
scheme such as the one with which the action is concerned. The second defenders are alleged to be
vicariously liable for those breaches of contract or duty by the first defender,
and it is not disputed that they will be vicariously liable for any such
breaches as may be established against the first defender.
[8] The
pursuers' claims against the actuaries were originally advanced under the same
heads as were those against the trustees, viz.:
the contributions claim; the investments claim; the early retirements claim;
and the expenses claim. In the Amended
Summons, the investments claim is no longer pressed as against them. That leaves, as against the actuaries, the
contributions claim, the early retirements claim and the expenses claim.
[9] The contributions claim: The summary of the contributions claim set
out in paras.[9]-[14] of my Opinion of March 2007 provides the broad background
for an understanding of the way the claim is put against the actuaries. The trustees are required to obtain advice
from the Scheme Actuary in respect of the minimum funding requirement ("MFR")
for the Scheme; and, depending upon that advice, are themselves under certain
duties in relation to the funding of the Scheme by the employer. The main factual averments are in Article
8. In their present form, now directed
solely against the actuaries, those averments have been considerably amplified
but for present purposes it is not necessary to set out the additional material
in any detail, save to say that they include averments that the first defender
knew that the company (the employer) could not make contributions to the Scheme
at the recommended rate. The criticisms
of the actuaries under this head are focused in Article 16. It is said that the first defender had a duty
to advise the trustees for the purpose of the trustees' setting of employer
contribution rates to the Scheme;
"and in the
exercise of the said duty (i) not to put forward a Schedule of Contributions
which required contributions from the Company which they knew or ought to have
known could not be met, and (ii) to advise the trustees that he had given the
Company advice to the effect that it could avoid, by indefinite postponement,
the making of its lump sum contributions."
Various other duties are averred in
detail. They include the following:
"It was his duty
to give advice to the Trustees which was consistent with the aim, stated in the
SIP, of having sufficient assets to exceed MFR liabilities by an adequate
margin. As was or ought to have been
obvious to him, he had a clear and significant conflict of interest. He advised the Company how to delay, minimise
or avoid MFR contributions. He advised
the Company that a means of mitigating the MFR deficit was to increase the
normal retirement age for members of the Scheme to 75 for all of their benefits
even though it only applied to one month's benefit accrual. It was his duty to advise the Trustees that
increasing the pension age (for example to normal retirement date of 75) could
not and would not reduce the actual liabilities which the Scheme had to its
members in respect of entitlements up to the date of the change in NRD, as it
did not have retrospective effect. It
was his duty to advise the Trustees of the implications for the financing and
solvency of the Scheme of the changes to the Schedule of Contributions from
monthly contributions to substantially reduced monthly contributions and
substantial lump sum payments which could be postponed. It was his duty not to put the interests of
the Company before the interests of the Trustees."
There is then this passage:
"The first
defender knew or ought to have known at the latest by 31 March 2001 that because of the inability of
the Company to make the required contributions the Scheme would not be able to
meet its liabilities. It was his duty to
advise the Trustees at that time that the Scheme should be wound up. He knew or ought to have known that, if he
did not so advise, the scheme's investments might well decline in value, and
early retirements might well occur and expenses might well be paid from the
scheme. In each and all of said duties
he failed. No actuary of ordinary
competence exercising reasonable care and skill and providing the services of
Scheme Actuary to a pension scheme would have failed in the said respects. But for his said failures the loss and damage
hereinafter condescended upon would not have occurred. In relation to his conduct as Scheme Actuary
for the Scheme, the first defender was charged, in terms of the Faculty of
Actuaries Disciplinary Scheme, with being guilty of professional
misconduct. On about 26 October 2007,
the Faculty of Actuaries Disciplinary Tribunal Panel found that eight of the
charges of professional misconduct were proved.
In relation to contributions, it was found proved that the first
defender failed to deal appropriately with a potential conflict of interest
between the Trustees and the company when providing advice following the April
2000 valuation. It was also found proved
that the first defender failed to advise the Trustees to consider other options
when considering the changes to the Schedule of Contributions and to the Normal
Retirement Date, and in so doing he failed to ensure that the Trustees'
interests were protected. It was also
found proved that the first defender failed to advise the Trustees of the
effect of changes to the Schedule of Contributions on the financing and
solvency of the Scheme."
Article 16 then goes on to answer
the averments made by the defenders.
[10] The early retirements
claim: The background to the early
retirements claim as presented against the trustees is summarised, sufficiently
for present purposes, in paras.[21]-[23] of my Opinion of March 2007. As directed against the actuaries, the claim
is focused in Article 18 of the Amended Summons in the following terms:
"... the first
defender had a duty to warn the Trustees of the implications, including that
the MFR deficit would be increased by some £995,000, for the Scheme of allowing
early retirement on their full benefit entitlements under the Scheme Rules by
the third, fourth and sixth defenders.
It was his duty to take account of and advise the Trustees as to the
impact on funding of the Scheme of the said early retirements. It was his duty when advising the Trustees on
the reasonableness of the proposed revised contribution rate by the Company of
£230,000 per annum to take account of the impact of said early retirements on
the fund. In each and all of said duties
he failed. No actuary of ordinary
competence exercising reasonable care and skill and providing the services of
Scheme Actuary to a pension scheme would have failed in the said respects. But for his said failures the loss and damage
hereinafter condescended upon would not have occurred. In its findings on about 26 October
2007, the Faculty of Actuaries Disciplinary Tribunal Panel found, in relation
to the said early retirements, that it was proved that the first defender had failed
to advise the Trustees on the implications of their actions with regard to
allowing early retirements."
[11] The expenses claim: The background to the expenses claim as
presented against the trustees is summarised in paras.[26]-[28] of my Opinion
of March 2007. Complaint is made of
their decision in May 2002 to repay administrative expenses to the Company from
the Scheme at a time when the Scheme was in substantial deficit. The amount repaid between May and November
2002 was £223,168. It is said that a
significant portion of this sum repaid to it was used by the company to pay
professional fees to the actuaries. It
is averred (in Article 14) that the first defender was aware that the company
and the second defender (his employers) each had a direct financial interest in
relation to expenses. It is averred that
the first defender gave advice broadly to the effect that it would be
appropriate for the Fund to repay the expenses to the company. The complaint is that the first defender did
not make clear to the trustees what assumptions about the level and incidence
of expenses he was making in giving that advice; nor did he disclose the
actuaries' financial interest in the repayment of expenses about which he was
giving advice. It is said that he put
the interests of the actuaries and the company ahead of those of the
trustees. The alleged breaches of duty
in these respects are focused in Article 19 where it is said that the first
defender had a duty to advise the trustees: (a) of the consequences of their
actions in respect of refunds of expenses; (b) of the implications for the Fund
of refunding expenses; and (c) that the effect of the refund of expenses would
be further to reduce security of benefits of Scheme members. Further, it is alleged that it was his duty
to make clear what assumptions about the level and incidence of expenses he was
making when giving the advice about payment of expenses; to disclose his
employers' (i.e. the actuaries') financial interest when giving such advice;
and not to put the interests of the actuaries and the company before those of
the trustees. In each of those duties it
is averred that the first defender failed and that but for that failure the
loss and damage condescended upon would not have occurred. The pursuers then go on to make reference to
the findings of the Faculty of Actuaries Disciplinary Tribunal Panel. They aver that the Panel found
"in relation to
expenses, that it was proved that the first defender failed to state clearly
what assumptions he was making when giving advice concerning payment of
expenses ... It was also found proved that
the first defender had failed to disclose his employers' financial interest
when giving advice about the repayment of expenses. It was also found proved that the first
defender had failed to deal appropriately with a conflict of interest between
the Trustees and the Company when providing advice about the Scheme expenses."
[12] Some of the averments concerning the findings of the
Disciplinary Tribunal Panel were picked up and relied upon by the fourth and
fifth defenders in their pleadings. I
need not set them out.
Mr Cunningham, who appeared for the actuaries, provided me with a
full list of references; and the points he made apply equally to all of these
references.
[13] Mr
Cunningham presented his arguments under reference to a Note of Argument and
under a number of headings. I take each point
in turn.
(i) Averments relating to the Disciplinary
Scheme of the Faculty of Actuaries
[14] Mr Cunningham sought to exclude from probation all the
averments relating to the findings by the Disciplinary Tribunal Panel. He argued that they were not relevant to the
issues in the action. The disciplinary
proceedings were governed by the Disciplinary Scheme of the Faculty of
Actuaries. The purpose of proceedings
under that Disciplinary Scheme was quite different from that of civil
proceedings in court. Disciplinary
proceedings were brought out of concern for the public interest. The test for misconduct under the
Disciplinary Scheme was not the same as that for professional negligence set
out in Hunter v Hanley 1955 S.C. (H.L.) 200.
He took me to the Scheme itself and explained the various stages of the
complaints process. He submitted that
the Panel was not a purely specialist panel.
He emphasised that witnesses were not compellable in disciplinary
proceedings. He suggested that if the
findings of the Disciplinary Tribunal Panel were to be relied on at proof, that
might lead to a close examination of the charges, the processes before the panel
and other relevant matters, all of which would considerably extend the length
of the proof.
[15] I accept that the findings of the Disciplinary Tribunal Panel
are not determinative in a civil proceeding against the actuaries. I also accept that the issue before the
Disciplinary Tribunal Panel is, to some extent, different from that which is
before the court in a civil negligence action.
However, I note that Rule 1.6 of the Disciplinary Rules defines
misconduct as inter alia
"any conduct by
a Member ... in the course of carrying out professional duties or otherwise
constituting a failure by that member to comply with the standards of ...
competence or professional judgment which other Members or the public might
reasonably expect of a Member having regard to any advice, guidance, memorandum
or statement of professional conduct, practice or duties which may be given and
published by the Faculty ... and to all other relevant circumstances."
Whilst this definition does not
mirror precisely the test in Hunter v
Hanley, it clearly overlaps with
it. It seems to me inevitable,
therefore, that criticisms of the first defender by his peers under a formal
system of adjudicating upon complaints will be referred to in evidence in any
proof. It may, for example, be used to
cross-examine any expert witness called by the first defender. Mr Cunningham accepted that the
Disciplinary Scheme itself might well be relevant at the proof as helping to
show what was required of an actuary. If
that is so, it must surely be relevant, albeit not decisive, to ascertain what findings
have been made about his alleged shortcomings and on what basis. On that basis it is sensible, though it might
be argued that it is not strictly necessary, that the pursuers should refer in
their pleadings to the findings of the Disciplinary Panel on which they rely;
otherwise they might be at risk of having relevant evidence excluded or cross
examination stopped for lack of record.
The averments give notice of the line to be taken by the pursuers. I see
no reason why those averments should be excluded from probation.
(ii) Relevancy and Specification Generally
[16] Under this heading, Mr Cunningham raised a number of discrete
points of relevancy and specification. For
example, he argued that in certain passages in the pleadings the pursuers had
failed to give adequate specification in support of their averments of what the
first defender knew, how he is said to have acquired such knowledge, or what he
ought to have known and why. Other
passages of which he complained dealt with other matters. I need not set out any of these passages in
detail. As the argument developed, it
became clear that these were really points about fair notice rather than
relevancy. In this context, Mr
Cunningham referred me to the test of fair notice propounded by Lord Guthrie in
Morrison's Associated Companies Ltd. v James Rome & Sons Ltd 1964 SC 160
at 190. I considered each of these
points carefully, but I am satisfied in respect of each of them that fair
notice is given in the pursuers' averments of these points, sufficient notice,
in other words, to enable the actuaries fully to anticipate the case made against
them and to attempt to meet it. I do not
propose to say more about these matters.
(iii) Early Retirements (as a head of loss)
[17] Next, Mr Cunningham submitted that the claim against the
actuaries for the loss resulting from the early retirements was
irrelevant. The passage complained of is
a passage in Article 25 to the following effect: had the actuaries given the
advice which they ought to have given concerning contributions, and had the
trustees followed such advice (as, in all the circumstances, they would have
had to do, or at any rate would have done), the Scheme would have been wound up
in April 2001, the losses caused to the fund would not have occurred; in particular, upon the Scheme being would up,
no early retirements would have been permitted unless they were cost neutral,
and the cost to the fund of the early retirements that were allowed would have
been avoided. Mr Cunningham pointed out
that since the case against the trustees in respect of early retirements had
now been deleted, the pursuers no longer made any averments that the trustees
should have withheld their consent to the early retirements; and he said that
there were no averments that the trustees exercised their discretion on the
question of early retirements unlawfully, whether in bad faith or merely unreasonably. It follows, so he said, that the actuaries
too cannot be held liable for any loss arising from the (ex hypothesi lawful) grant of early retirement.
[18] It seems to me, and I think this became clear during the course
of argument, that this rather misses the point.
The fact that the trustees are no longer criticised for the decisions
which they made in respect of early retirements does not mean that the
decisions were correctly made, since the trustees could only be found to be
liable if they acted with gross negligence or recklessness (to adopt and
paraphrase the phraseology used in the pursuers' case). Still less does it mean that there cannot be
legitimate criticism of the actuaries' advice upon which, it is said, they
acted.
[19] In any event, the averments with which Mr Cunningham takes
issue here are not the averments of breach of duty in respect of allowing early
retirement, which form the subject of a separate head of claim, but are averments
of loss flowing from the actuaries' alleged breach of duty in respect of
contributions. As I have already mentioned, the claim in this respect flows
from the contention that if the actuaries had given proper advice in respect of
the contributions to the Scheme, that would have led to the Scheme being wound
up in April 2001 and a number of things which happened after April 2001 -
including the early retirements in April and May 2002 - would not have
happened. The absence of any criticism of the trustees
for allowing early retirements fortifies rather than undermines the causative
link. On this basis, it does not matter
whether any breach of duty is alleged against the actuaries in respect of the trustees'
decision to allow early retirements since this is not what this part of the
claim is concerned with.
(iv) Quantum: Early Retirements
[20] Mr Cunningham raised a further point about the early
retirements claim. The pursuers quantify
their claim under this head as follows (in Article 25):
"In relation to
early retirement of the third, fourth and sixth defenders, the loss suffered by
the Scheme is represented by the market cost of purchasing the early retirement
pensions in May 2002 and the loss of income which would otherwise have been
generated by investing the sum in Government Securities and Corporate
Bonds. Assuming normal health for each
of the third, fourth and sixth defenders, life expectancy in accordance with
standard actuarial tables, interest at 5% per annum, and life office profit at
2% of the capital value of the annuities, the open market cost to the Scheme of
the early retirement pension in May 2002 for the third defender was £1,006,000,
for the fourth defender was £678,000 and for the sixth defender was
£498,000. The total loss as at May 2002
was therefore £2,182,000. Had the said
sum been invested, as it would have been, in Government Securities and
Corporate Bonds, it would have grown to £2,444,000 by October 2002. That is the sum alternatively concluded for
in conclusion 2(iii) hereof."
Mr Cunningham questioned
whether it was appropriate to take the market value rather than look at what
actually happened. Quantification on a
notional basis such as that was irrelevant.
But he went further. The effect
of the early retirements was not in any way to diminish the assets of the
Scheme, he argued. All it meant was that
the claims of the third, fourth and sixth defenders were given preference. It might be that other beneficiaries of the
Scheme lost out in consequence of those early retirements but this did not mean
that the Scheme itself had suffered a loss.
If the trustees are not criticised for the way in which they exercised
their discretion - and, on the basis of cases such as Board of Management for Dundee General Hospitals v Bell's Trustees 1950 S.C. 406 and Edge v Pensions Ombudsman [2003] 3 W.L.R. 79, they could not be criticised
- how could the actuaries be criticised in respect of their advice which led
the trustees to exercise their discretion in the way they did? And how could any loss to the Scheme be said
to flow from the exercise by the trustees of their discretion one way or the
other?
[21] The fact that the trustees are not, and possibly could not be,
criticised for the way in which they exercised their discretion so as to prefer
(in the events which happened) the claims of some persons over those of others
does not, so it seems to me, mean that those who gave the advice on the basis
of which the discretion was exercised in a particular way cannot be held
accountable for the advice that they gave.
If a trustee acts upon professional advice he may well escape being held
liable in negligence himself; but the very fact that he is likely, without being
criticised, to act in reliance upon that advice means that those who give the
advice are liable to be held accountable for it. Accordingly, on that issue, I see no reason
not to allow the claim to go forward.
[22] On the question of taking the open market cost of purchasing an
annuity as the measure of loss, Mr Clarke QC, who appeared for the pursuers,
argued that whilst that might not be the only way of assessing the loss, it was
one possible way and a reasonable one at that.
It was for others to knock it down.
I accept this submission. The
pursuers' claim advances a possible way of estimating the loss. Whether it is an appropriate way, still less
the best way, cannot be decided until all the evidence has been led.
[23] As to the argument about there having been no loss to the
Scheme, it seems to me that this argument focuses too narrowly upon the overall
assets of the Scheme and not sufficiently upon the way in which the Scheme is
administered. It is clear from the
authorities that a trustee may be liable in certain circumstances for
preferring one beneficiary over another.
In a sense, it may be said that the Scheme has lost nothing by such
conduct; yet it has never, so far as I am aware, been held that that prevents
the trustees being held accountable for their, ex hypothesi, wrongful administration of the trust; and I did not
see why they should not in such circumstances be held to account by persons who
come in as trustees after them. If that
is right, then actuaries or other professional advisers giving advice to the trustees,
upon the basis of which the trustees make decisions, cannot be in a better
position. In truth, the present trustees
of the Scheme sue to ensure the proper administration of the Scheme and are as
much concerned with the fact that, for example, one beneficiary is improperly
preferred to another as with any overall reduction in the assets of the Scheme. However, I do not need to reach any final
decision on the point. It is better that
a final decision be taken after all the facts have emerged at proof.
Disposal
[24] For the reasons that I have given I shall allow a proof before
answer of the whole of that part of the pursuers' case.
THE CASE AGAINST THE REMAINING TRUSTEES.
[25] As I have already indicated, only the investments claim and the
expenses claim remain live as against the remaining trustees. Both have undergone very substantial revision
since the previous time the matter came before the court. At this hearing both the remaining trustees
sought dismissal of both claims as directed against them. Mr Mackenzie, who appeared for the fifth
defender, presented his submissions first.
Those submissions were largely adopted by the fourth defender, Mr MacLennan,
who also made some additional submissions.
The
investment claim
[26] In paras.[15]-[19] of my Opinion of March 2007 I summarised the
investment claim as it then stood. The
pursuers' case at that time was that the trustees had failed to follow advice
from as far back as August 2000; and that
they ought, by April 2001 at latest, to have addressed the mismatch between
equities and fixed investments by instituting a programme to begin switching
£6m of equities to fixed investments. It
was also averred that the trustees had received an updated Investment Strategy
Report by Buck Investment Consultants Ltd. ("Buck") dated 5 April 2002 which
had recommended a reduction in the percentage holding of equities to 34%; and
that on 22 April 2002 they had met and agreed "in principle" to reduce the
percentage holding of equities to that figure (from 80%); but that they took no
action to implement this decision. The loss
was calculated solely on the basis that the trustees should have made the
switch from equities to fixed investments in three tranches of £2m each on 1
April, 1 July and 1 October 2001,
£1m of each tranche being put into government stock and £1m into corporate
bonds.
[27] I held that, subject to two matters, the pursuers ought to be
allowed a proof before answer on this case: see paras.[100]-[103] of that
Opinion. Those two matters were (a) the
"temporal question", i.e. difficulties caused by the date (26 April 2002) upon which the third defender
ceased to be a trustee and the fifth defender became a trustee; and (b) the
basis of the calculation of loss. As to
the latter, I said this:
"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 (sic) 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."
I concluded that the trustees were
not given fair notice of how the claim on quantum was put against them.
[26] The claim has now been substantially reformulated. The averment (in Article 10) that by
August 2000 the trustees (and others) knew that the percentage of investments
held in equities represented a high investment risk remains, as do the averments
(also in Article 10) about the 5 April 2002 Report and the trustees' meeting of
22 April 2002 at which the trustees met and agreed - the words "in principle"
are deleted - to reduce the percentage in equities to 34% but took no action to
do so. But the averments of loss have
changed. Against the actuaries it is
said that had they given the advice which they ought to have given, the Fund
would have been wound up in April 2001 and, in consequence, the investments in
equities would have been required to be put into bonds at that time. The case against the trustees is now a case, alternative to that made against
the actuaries, centred upon their failure to implement the decision of 22 April 2002. It is no longer contended as against the
trustees that the switch from equities should have been made in three tranches
in April, July and October 2001, or indeed that anything should have been done
by the trustees in 2001. The case now
put forward is that the trustees should have made the recommended investment
switch from equities (to which they had agreed at their meeting of 22 April 2002) by 31 May 2002. A comparison is then made, as at 13 November 2002 (when the Scheme
was eventually wound up), between the value of the investment portfolio as it
was comprised at that time and the value it would have had if the recommended switch
had been made on 31 May 2002. The resulting figure is £1,992,621, the sum
claimed in the new conclusion 2(i).
The
expenses claim
[27] The expenses claim as it was then formulated is summarised at
paras.[25]-[29] of my Opinion of March 2007.
At paras.[111]-[113] I concluded that the pursuers had pled enough to
justify the allowance of a proof before answer. Since then, the pleadings have undergone
extensive revision though, as against the remaining trustees, the case remains essentially
the same. The case put forward by the
pursuers is that in deciding whether the expenses of administration of the
Scheme should be met by the fund - and in taking a decision that, in so far as
the company had borne such expenses in the first instance, the fund should
repay those to the company by setting off against sums due by the company to
the fund - the trustees failed properly to consider whether such expenses could
be met by the fund without prejudicing the benefits to be provided under the
Scheme. In so doing, they acted with
gross negligence consisting of a reckless disregard for the consequences of
their acts and omissions. It is averred
that, in consequence, the Scheme suffered loss in the sum of £223,168, the
amount refunded to the company. The expansion
of the pursuers' pleadings during the amendment process has been largely
responsive to the averments made by the various defenders in their answers. In light of the new pleadings, the remaining
trustees, as they are entitled to do, seek to argue anew that the claim is
irrelevant. They found particularly on
the admissions now made by the pursuers on record.
Submissions
for the defenders
[28] Mr Mackenzie, for the fifth defender, submitted that the
investments case was irrelevant for three reasons. First, the pursuers had failed to aver why a
one-off switch ought to have occurred by 31 May 2002, and had therefore failed
to aver a sufficient factual basis for the alleged duty on the trustees to
procure that a one-off switch occurred by that date. The investment claim was based on an alleged
failure to follow advice contained in the April 2002 report, which advice was
accepted at the meeting of 22 April
2002. But nowhere in their
pleadings do the pursuers aver that the trustees were advised that the switch
should be made immediately or by 31
May 2002. They do not aver
that the April 2002 report contained any advice regarding the timing of the
switch and, since the investment case is perilled on the terms of that report
and the trustee's acceptance of it, that omission renders the investment case
irrelevant.
[29] Secondly, Mr Mackenzie argued that the pursuers did not offer
to satisfy the necessary test upon which discretionary decisions could be
called into question. The courts would
only interfere with the exercise by trustees of their discretion on grounds
akin to illegality or irrationality. The
pursuers did not offer to prove that the trustee's failure to make the switch
by 31 May 2002 could be so
categorised. He referred me to Edge v Pensions Ombudsman [2000] Ch 602 and in particular to passages at
pp.618-9, 626-631 and 636. The court in Edge emphasised the similarity of that
test with the well-known test for judicial review, though it stopped short of
equating the two. He also referred to
certain Scottish authorities, in particular Board
of Management for the Dundee General Hospitals v Sharp 1952 SC (HL) 78 at 87-8, 90, 92 and 95, and Joy Manufacturing Holdings Ltd. Pension and
Life Assurance Scheme Trustees, Petitioners (Inner House, 29 January 1999,
reported on other issues at 2000 SLT 843) at pp.9-13. In the Dundee
General Hospitals case, Lord Normand at pp.87-8 was not prepared to say
that the analogy with the test for what we now call judicial review was
misleading, though both he, Lord Morton (at p.90) and Lord Reid (p.92) appear
to have thought that the burden on a person seeking to interfere with the
exercise of a discretion by trustees might well be heavier. Gloag & Henderson, The Law of Scotland,
12th ed., at para.42.12, state that the exercise of discretionary powers
by trustees could not be reviewed by the court unless the trustees had
"considered the wrong question, did not apply their minds, perversely shut
their eyes to facts, did not act honestly, or the decision was so irrational
that no sensible trustees could have made it"; and see also Mackenzie Stuart,
The Law of Trusts, at pp.250-1 and Wilson & Duncan, Trusts, Trustees and
Executors, 2nd ed., at para.24-83.
Having accepted at their meeting of 22 April 2002 that a switch from
equities to fixed interest investments should be made, the trustees required to
exercise their judgement (based on advice they received about the market) as to
when and how the switch should be made.
There was no doubt a range of options open to them. Although it was averred (at p.58C-D) that a
man of ordinary prudence exercising the requisite degree of diligence (i.e.
that degree of diligence which a man of ordinary prudence would exercise in the
management of his own affairs) would have followed and implemented the advice in
the April 2002 report and would have done so by 31 May 2002, nowhere do the
pursuers aver that no body of trustees acting reasonably would have failed to
implement a one-off switch by 31 May 2002, nor were there any averments of fact
to support such a case. The case against
the trustees involved an allegation of bad faith and such a case required to be
carefully and precisely pled. He
reminded me, under reference to para.[90] of my Opinion of March 2007 and the
cases mentioned there, that the pursuers' averments in support of such a claim
required to be cogent, clear and precise.
This was particularly so in light of the admissions on record made by
the pursuers to which I refer in the next paragraph.
[30] Third, Mr Mackenzie submitted that the pursuers' admissions
contradicted and destroyed any such case.
For example, between p.51B and 52B, the pursuers admit the following
matters relating to the consideration which the trustees gave prior to the end
of May 2002 to the question of switching investments: that (according to a
report from Buck) at a meeting on 13 February 2002, EFM (who managed the fund
for the trustees) advised them that they favoured equities over bonds for the
following 12 months at least; that at that meeting on 13 February 2002 Mr
Walbaum (the trustees' investment consultant) confirmed that Buck did not
advise on timing but gave as his opinion that most commentators were suggesting
that equities were likely to outperform bonds over the next 12 months, so that
this might not be the right time to make a one-off switch from equities to
bonds; that at the meeting of 13 February 2002 the trustees suggested delaying
any switch until the equity market had risen to about 5600, a rise of about 10%;
that no target date was set in the 5 April 2002 Report for implementation of
the switch; that in the April 2002 Report advice was given, albeit that this
was in the context of retiring members, that the trustees might prefer to take
any additional disinvestments required from the sale of the equity portfolio and
gradually reduce equity exposure over time; that, at the trustees' meeting of
22 April 2002, the trustees, having decided to implement the April 2002 Report,
decided to adopt a passive management approach and to set up a meeting with
Buck to advise on implementation; and that on 27 May 2002 the trustees
confirmed the matching strategy (which, in this case, meant reducing the
proportion of the investments held in equities). The pursuers also admit (on p.56) that Mr
Walbaum, was not present at the trustees' meeting of 22 April 2002 and (on
p.52) that the trustees were in contact with Mr Walbaum after May 2002; that on
13 June 2002 it was agreed between him (Mr Walbaum) and them that making
the investment switch to achieve the appropriate mix "was an objective which
was best achieved over a longer period of time"; and that as late as September
2002 in an
e-mail Mr Walbaum told the trustees
that he looked forward to receiving instructions "in due course" regarding
restructuring the investment portfolio "and again noted that Buck did not
advise on timing". These admissions, he
submitted, fatally undermined any case that the pursuers might wish to advance
that no reasonable body of trustees acting with the requisite degree of care
could have failed to effect the switch by 31 May 2002.
[31] On the expenses claim, Mr Mackenzie's argument for the remaining
trustees is simple. The pursuers admit
that historically the expenses had been repaid by the Scheme to the company;
that the actuaries failed properly to advise the trustees on this matter (this
being part of the case made against the actuaries); and that in reaching their
decisions the trustees took advice and received approval from the actuaries. In light of those admissions, how can the
trustees be said to have been negligent, let alone grossly negligent or
reckless?
[32] There is a discrete point made by the fifth defender in
relation to the expenses claim, namely that he became a trustee after the
trustees had decided, on the basis of advice given by the actuaries, or at
least to their knowledge, that in future the Scheme would pay such
expenses. He submits that he cannot be
held responsible for the actions of the trustees in implementation of a
decision taken before he joined.
[33] Further, the trustees complained that they were given no fair
notice of how the sum of £223,168 was made up.
What payments were made, when and in respect of which expenses? Against what sums due from the company to the
Scheme were the expenses set off? This
was not just a fair notice point, where the relevant details would be clear in
due course. It was an attack on the
relevancy of the claim since unless such specification was given there was no
factual basis for the allegation that the trustees were in breach of duty.
[34] The fourth defender, Mr MacLennan, adopted the submissions made
by Mr Mackenzie. He made certain additional
remarks by reference to the pursuers' case as pled against him. He noted that in Article 22 the pursuers aver
that, in failing to make the switch of investments by 31 May 2002, he (and,
from the time of his appointment, the fifth defender) "acted with gross
negligence consisting of a reckless disregard for the consequences of their
acts and omissions with regard to investment."
However, he submitted, the allegations against him underpinning that
averment were vague and wholly lacking in specification. It was very difficult to identify exactly
what the pursuers say he did wrong or wrongly failed to do about the
implementation of the decision taken by the trustees on 22 April 2002 to follow
the recommendation in the April 2002 Report.
A trustee is only liable for his own acts and omissions. The pursuers therefore require to aver the
particular steps that he ought to have taken or ought not to have taken, and
when and why and how it would have affected the outcome.
[35] Mr MacLennan pointed out that the pursuers plead (at p.48A-B) that
after the meeting on 22 April 2002,
the trustees took no action to implement the recommendation in the April 2002 Report;
yet they admit, for example that the trustees set up a meeting with Buck to
advise on implementation of the decision.
It had to be borne in mind that he, as a trustee, might well have been
open to an allegation of breach of duty if (assuming that he was able to do so)
he had pushed through the implementation of the switch immediately after the
meeting of 22 April 2002, without waiting to speak to Mr Walbaum, without
waiting to see the benefits of passive management and without attempting to
reduce EFM's fees for switching the investments. Further, the pursuers make no averments about
what steps could or should have been taken to achieve the switch by 31 May 2002 even if the trustees had sought
to implement their decision immediately after the 22 April meeting.
[36] Finally, Mr MacLennan advanced an argument in support of his
plea of "all parties not called". The
pursuers had been selective in only bringing some of the trustees before the
court. This was, he said, impermissible.
Submissions
for the pursuers
[37] In his response, Mr Clarke referred to a number of authorities
of general application to the arguments before me. On the question of quantification of the
investments claim, he cited Prudential
Assurance Co. Ltd. v James Grant
& Co (West) Ltd. 1982 SLT 423 to show that there might be many
different ways in which a pursuer might legitimately seek to quantify his loss
but it was not incumbent on him to enumerate them all in his pleadings. William
S. Hood v George Mackay Fraser
1949 SC 24 was authority for the proposition that where all the relevant facts
were known to the defender, there was a limit on what the pursuer could be
expected to say. On the question of the
liability of individual trustees, Mr Clarke cited Norrie and Scobie, Trusts, at p.146-7 for the proposition
that, although each trustee was only liable for his own acts and intromissions,
"trustees are assumed to act as a body, and this imposes a duty on each of them
to oversee the actions of the others."
This appeared also to be the position in England:
see Parker and Mellows, The Modern Law of
Trusts, 8th Ed. at p.776-8.
That proposition was illustrated by cases such as Morrison v Miller (1827)
5 S 322, Clarke v Clarke's Trs 1925 SC 693, Sym
v Charles (1830) 8 S 741, Home v Menzies (1845) 7 D 1010, Bahin
v Hughes (1886) 31 Ch D 390 and Carruthers v Cairns (1890) 17 R 769. In Re Mulligan (deceased) [1998] 1 NZLR 481,
a decision of the High Court of New Zealand, Panckhurst J discussed the
separate responsibility of each trustee where there are co-trustees in a
passage beginning at p.502. He explained
that it was "elementary that a duty of diligence rests upon each trustee". That was illustrated, he said, by the law
with regard to delegation and the approach to the issue of contribution between
trustees. He concluded that "just as
trustees must act together, they are liable together, for any breach of
trust." Having cited with approval the
remarks of Fry LJ in Bahin v Hughes, he went on in these terms:
"In my view,
upon entering the office, each individual trustee has a separate responsibility
to ensure that the terms of trust are carried out. It is not open for one trustee to defer to
the wishes of another trustee in the absence of proper reasons for doing so."
In a number of passages in that
case, Panckhurst J emphasised the need to determine questions of breach of
trust once all the evidence had been heard.
In response to the fourth defender's submission of "all parties not
called", Mr Clarke cited Croskery v Gilmour's Trs (1890) 17 R 697 as
authority for the proposition that a beneficiary suing in delict for breach of trust did not require to call more than one of
the trustees as a defender to the action.
[38] Turning to consider the criticisms made of the averments
relating to the investment claim against the trustees, Mr Clarke pointed out
that Article 8, although largely directed against the first defenders,
contained averments about the background of the company's financial
difficulties which were relevant to the claim against the trustees. The averments in Article 10 drew attention to
the mismatch of investments. It is
averred that at the meeting of 22
April 2002 the trustees accepted the proposal in the Report of 5
April to reduce the percentage holding of the Scheme's investments in equities
to 34% with 66% being invested in bonds.
The words "in principle" have been deleted because they do not appear in
the minute of the meeting. Although the
fifth defender only became a trustee on 26
April 2002, after the meeting, he was present at the meeting in his
capacity of director. He had also been
present at meetings of the trustees on 13 February and 4 March 2002 at which the matching of the Fund's
investments was discussed. Mr Clarke
pointed out that the fifth defender admits on Record that he was appointed a
director of the company in January 2002 and that his duties as director
included those of Scheme Administrator.
It was artificial to approach the matter simply on the basis that the
fourth defender did not become a trustee until 26 April 2002.
His knowledge acquired as a director and Scheme Administrator had to be
taken into account, even though he could not have acted as a trustee until his
appointment as such. The minutes of the
meeting of 5 April also record that the trustees agreed to implement the
recommendations in the 5 April Report and state: "Instructions to be given
to Buck Consultants on implementation".
Against that entry the fifth defender's initials, "BWM", appear,
indicating that he took responsibility for passing on those instructions. In those circumstances the case against the
fifth defender as trustee from 26 April was fit to go to proof. The cases showed that in such cases all the
facts required to be investigated. The
pursuers aver that a man of ordinary prudence exercising the degree of
diligence appropriate to the management of his own affairs would have followed
and implemented the advice in the 5
April 2002 Report and would have done so by 31 May 2002. Mr Clarke referred me to para.[100] of my
March 2007 Opinion. The pursuers were
not saying that the trustees should have second-guessed the advice of their
professional advisers. On the contrary,
they should have followed and implemented that advice. The pursuers offer to prove (in Article 22)
that from 26 April 2002
it would have taken no longer than until 31 May 2002 for the investment switch to be
implemented. The trustees gave
instructions for the decision to be implemented. The fifth defender, initially qua director, was to give instructions
to Buck investments. The pursuers do not
criticise that method of implementing the decision. When the trustees left the
meeting, they had done all that they were meant to do at that time. However, the instructions were not given to
Buck Investments. The fifth defender
became a trustee and, on becoming a trustee, was aware that instructions had
not been given to Buck Investments. The
other trustees were saddled with that knowledge and, more generally, were
liable for the failure to follow up their instructions so as to ensure that the
necessary instructions were given to Buck Investments. Trustees cannot simply abdicate
responsibility. The pursuers were
offering to prove that, despite their knowledge of what needed to be done, the
trustees did nothing. On a fair reading,
the case pled against the trustees was one of inaction. All the circumstances indicated the need to
act promptly and with urgency. As to why
the decision should have been implemented within the time frame averred by the
pursuers, that was a matter for expert evidence. Mr Clarke said that he did not
take issue with the principles upon which a trustee's actings could be
criticised. The pursuers alleged gross
negligence and irrationality. This was
shown by reference to how a man of ordinary prudence would have acted. The basic averment was that the trustees
should have acted as would a man of ordinary prudence. Expert evidence would flesh out how a man of
ordinary prudence would have acted and why.
[39] Mr Clarke referred to the various admissions on record upon
which Mr Mackenzie had relied. He
submitted that, taken overall, they did not contradict the pursuers' pleaded
case, certainly not to the extent of ruling out the possibility of success at
proof. Some of the admissions, he submitted, concerned advice
or suggestions in February 2002, some two months before the meeting of 22 April 2002, and therefore did not touch the pleaded case. Other admissions related to advice or
decisions in May, June and September 2002 which were much too late to affect
the question of whether the trustees acted in breach of trust in taking or not
taking steps in late April and early to mid May 2002 to implement their
decision. The advice was "not all in one
direction". Further, certain admissions
as to the advice given in the 5 April 2002 Report related to advice
given in a different part of the report; it was dangerous to seek to draw
inferences from such passages taken in isolation when the Report itself was not
incorporated into the pleadings. All
these matters would, of course, be relevant in the context of an investigation
of all the facts surrounding the advice given to the trustees, the decisions
they made and the action they took or failed to take to implement that
decision. But it was not sufficient to
enable the court to say that the case should not be remitted to proof.
[40] As to the expenses claim, Mr Clarke submitted that I had dealt
with the criticisms of this claim in paras.[111]-[112] of my earlier Opinion
and should adhere to my decision on this aspect. The admissions relied upon did not preclude
the possibility of the trustees being held liable. Admissions, for example, that the trustees
"discussed" matters with the actuaries, or that the trustees "sent" certain information
to the actuaries, were either wholly neutral or very weak. So also the admission that the independent
trustee (the first pursuer) was party to the approval of the Scheme accounts
for the year ended 31 March 2003, which accounts disclosed
the treatment of expenses now complained of.
The points of specification referred to were now met by the pursuers in
a spreadsheet. That point therefore fell
away.
Discussion
[41] I approach the matter, as before, on the basis of the
principles set out in Jamieson v Jamieson 1952 SC (HL) 44. The court will not dismiss a claim or exclude
a part of a claim from probation unless it is satisfied that the pursuer must
fail even if he proves all the facts which he offers to prove. In considering what the pursuer offers to prove
and the possible ambit of evidence which might legitimately be led at proof, it
is desirable to adopt a liberal approach and give the benefit of any doubt to
the pursuer. Bare averments of fact on
record seldom give the full flavour of the evidence which might be adduced; and
the court will be anxious not to exclude a claim from probation unless it is
satisfied that the claim cannot possibly succeed even on the most generous view
of what might emerge from the evidence in support of those averments. There are many cases where the nuances of
fact as they emerge from the evidence are vital to the identification of the
duties that are owed and the fleshing out of criticisms levelled against the
defender. The case of R v
Mulligan (deceased) shows that
this is particularly true in the case of claims against trustees, and I take
those warnings on board.
[42] However, I also take on board that a trustee is not to be held
liable for mere negligence. Mr Clark did
not take issue with the line of authorities cited to me by Mr McKenzie to the
effect that the Court would not interfere with decisions taken by trustees
except on grounds of illegality or irrationality. Accordingly, I do not need to decide whether
the test is precisely equivalent to that applicable in the case of judicial
review, as some of the cases seem to suggest, or whether the threshold is
somewhat higher. In the present case
that does not arise, since the pursuers, in offering to prove that the trustees
acted knowingly and wilfully in breach of trust and/or with gross negligence
consisting of a reckless disregard for the consequences of their acts or
omissions, have themselves set the bar at a height which falls within or even
at the higher end of that judicial review test.
Mr Clark does not seek to argue that he can succeed by showing anything
less than that; and Mr McKenzie does not suggest that the trustees would escape
liability if conduct of that character were established.
[43] It is not possible to apply the Jamieson v Jamieson test
without identifying the ambit of the evidence which might be allowed at proof. The only evidence which might come out is
that for which adequate notice is given on record. Nor is it sufficient on record simply to
apply a label to the conduct of the trustees which is sought to be
impugned. There must be averments of
fact capable of justifying that label and which will allow evidence to be led
sufficient to support the case against them.
In the present case, as has already been noted, the pursuers label the trustees'
conduct as grossly negligent and reckless in its disregard of the consequences
of their acts or omissions. That formula
is repeated with minor changes in respect of each of the claims against the
trustees. But such a label does not in
itself contain any averment of primary fact.
It is simply a legal label which the pursuers seek to apply to the
trustees' actings so as to justify their contention that the trustees are to be
held accountable in law for what they did.
For the claim to be relevant there must be averments of fact which
provide a basis upon which evidence could be led sufficient to establish that
gross negligence or recklessness. This
is where, so it seems to me, the pursuers' case runs into trouble.
[44] The case as it is now pled against the trustees is that, having
decided at their meeting of 22 April 2002 to accept the recommendations made in
the 5 April Report, they ought to have implemented that decision promptly so as
to achieve the switch in investments recommended by the Report 31 May 2002 at
latest. What material is relied upon in
support of this? I have considered the
pleadings carefully but can find nothing.
The pursuers make no averments, for example, to the effect that the
trustees were advised in that Report that they ought to affect the switch of
investments promptly or without delay.
Indeed, the pursuers admit that the Report contained no target date for
implementation of the switch. Nor are
there any averments of fact, for example by reference to the movements in the stock
market or by reference to advice circulating at the time, which would form the
basis for an inference that the trustees ought to have been aware of the need
to move fast after their meeting on 22 April 2002. In paragraph [100] of my Opinion of March
2007, I noted that the pursuers' case, as it then stood, was based upon a
proposition that the trustees ought to have accepted the advice of their
professional advisors. That was in the
context of the trustees not having taken any action to affect a switch for a
very long period after advice had been given on a number of occasions. As the case is now formulated, the position
is very different. It is the pursuers'
case that the trustees accepted the advice of their professional advisors
contained in the 5 April 2002 Report. That had always been part of their case, but
previously its only significance had been that it was a belated acceptance by
the trustees of the need to switch investments, the complaint at that time
being that they should have switched investments during 2001. In the present formulation of the claim, it is
the trustees' acceptance of the advice of their professional advisors which
forms the basis of the complaint that they failed to act so as to make that
switch within the following five weeks. But
there is no averment of any advice from professional advisors to the effect
that they ought to have recognised the need to make the switch within that
time. Accordingly, the case as now put
forward is very different from that which I had to consider earlier. Put shortly, there is simply nothing to
justify the inference that the trustees ought to have acted so as to make the
switch by 31 May 2002, still less to support the
inference that in failing to do so they were negligent, let alone grossly
negligent or reckless.
[45] Mr Clark submits that the court should not form a view at this
stage. The allegations of gross
negligence and recklessness will be fleshed out in the expert reports and the court
should hear the expert evidence before forming a view. I note, however, that no expert reports have
been lodged as yet. This is not a case,
therefore, of the pursuer seeking to supplement averments on record by
reference to a report or other documents lodged in process. The submission comes to no more than saying:
wait and see what comes out. I have
already referred to the defect in that submission, namely that, unless there
are relevant averments on record, evidence will not be admissible. I do not see how an expert could be allowed
to say that the trustees ought to have known of the need for urgency because,
for example, of their knowledge of the way the market was moving, or because
there was some consensus of opinion amongst commentators of which they ought to
have been aware, unless it was averred on record that they had such knowledge
or that there was such consensus. Without
being able to refer to any such material, the expert report would be of no
value.
[46] In my opinion, therefore, the investment case made against the
trustees is irrelevant. I have come to
this view without regard to most of the admissions upon which Mr McKenzie
relied in his submissions. However,
those admissions fortify me in that conclusion.
Put shortly, those admissions confirm that the trustees were told both
before and after the 5 April 2002 Report that Buck did not advise
on timing. This ties in with the
admission that the April 2002 Report did not set any time for implementation of
the switch. To my mind, these admissions
make it clear that no inference can be drawn that the trustees ought to have
realised that the switch should be made promptly. Further, there is an admission that the
trustees decided to adopt a passive management approach, and set up a meeting
with Buck to advise on implementation of the switch; and that the trustees were
subsequently in contact with Mr Walbaum.
This negates any inference that the trustees simply sat back and did
nothing. If the pursuers want to make a
case that what they did was inadequate, they should say so and say why. Further, it is admitted that both in February
and as late as September there was at least a view amongst those involved in
giving investment advice that equities were going to out-perform bonds for a
period of 12 months or more. Against
this background it requires, so it seems to me, specific averments to make it
clear on what basis the trustees can be said to have adopted a course of action
which no reasonable trustee could have adopted.
This is, as I have indicated, putting the bar at its lowest. Specific averments would need to be made to
show a case of gross negligence or recklessness. As I noted at para.[90] of my Opinion of
March 2007, the averments against the trustees amount, in effect, to a
charge of dishonesty: see Armitage v Nurse per Millet LJ at 251F. Any such plea, whether characterised as
dishonesty or simply as gross negligence or recklessness, requires careful and
precise averments of fact. Those are wholly
lacking in the present case.
[47] In my opinion the expenses claim falls to
be dismissed for similar reasons. It
seems to me that the position is now different from that which obtained when I
last had to consider this claim. The
admissions made by the pursuers - and they are properly and responsibly made -
make it difficult if not impossible for the pursuers to sustain a case that in
deciding that the expenses should be repaid to the company the trustees acted
with gross negligence or recklessness.
Those admissions mean that if they are to succeed they will have to address
the fact that, for example, the trustees discussed these matters with
professional advisers. They put the onus
on the pursuers to aver precisely why the trustees can be said to have acted
"recklessly" by agreeing to the re-payment in such circumstances. In my opinion the pursuers have averred
nothing to overcome the effect of these admissions. It seems to me that their pleaded case does
not instruct a case of gross negligence or recklessness and must accordingly be
refused probation.
[48] It is unnecessary in light of this to deal
in any detail with certain ancillary points which were made. I shall simply indicate that I would have
repelled Mr MacLennan's plea of all parties not called, for the reason
given by Mr Clarke. I would have left
the question of the individual liabilities of the trustees to be decided after
proof.
DISPOSAL
[49] For the reasons set out in this Opinion, I propose to allow a
proof before answer on the claims as directed against the first and second
defenders but dismiss the remaining claims directed against the fourth and
fifth defenders. Before pronouncing an
interlocutor to that effect, I shall put the case out By Order for
discussion of any other orders which may be required, including such order as
may be necessary to dispose of the action in so far as directed against the
third defender, and to deal with all questions of expenses.
