The Trustee's Role is to Administer a Fund

The Court of Appeal has emphatically confirmed that “the function of the trustees is to manage and administer the scheme; not to design it” in a recent judgement handed down in the UK.

Following an appeal of the first instance judgement by British Airways (BA), on 5 July 2018 the UK Court of Appeal has handed down its judgement in British Airways Plc v Airways Pension Scheme Trustee Limited.  The case involves the (then) trustees of the Airways Pension Scheme using their unilateral power of amendment to amend the rules and introduce a trustee power to grant discretionary pension increases. The trustees then used this power in 2013 to award a discretionary increase of 0.2% on pensions in payment.

Despite losing the case before the High Court, BA was given permission to appeal on two points. The first point was that the 2013 discretionary increase breached the express prohibition in trust deed on making “benevolent or compassionate” payments. On this, the Court found in the Trustee’s favour stating that although the Trustee’s motivation “may include an element of generosity” this did not make it “benevolent”.

However, perhaps the more interesting point from an Australian trust law perspective is whether, in exercising the power of amendment to introduce the discretionary increase rule, the Trustee had acted for an “improper purpose”.  On this point, by majority, the Court found in BA’s favour and held that:

• “the function of the trustees is to manage and administer the scheme; not to design it”
• “there is nothing to suggest that the power of amendment was intended to give the trustees the right to remodel the balance of powers between themselves and the employer”; and
• the trustees’ actions (i.e. amending the rules to give themselves the power to award discretionary increases) had “resulted in a scheme with a different overall purpose, in which the trustees effectively added the role of paymaster to their existing responsibilities as managers and administrator”.

Whist it is unusual for trustees to be able to amend schemes on a unilateral basis, the case reaffirms the position that – regardless of the balance of power - the role of trustees is to administer the fund. Trustees cannot use powers that are granted to them in the trust deed to expand their role or to change the purpose of the trust, as to do so would be to use those powers for an improper purpose.

The Court of Appeal has granted the Trustee permission to appeal to the Supreme Court.