Clive Weber
- Consultant
- Pensions & Employee Benefits
On 3rd February 2025 the High Court approved the merger of the Arcadia Executive Scheme (“Executive Scheme”) with the Arcadia Staff Scheme (“Staff Scheme”).
Key Point: The case revolves around whether proposed scheme amendments were for a scheme’s proper purposes.
Both the Executive Scheme and the Staff Scheme were winding up. The Executive Scheme was in deficit and the Staff Scheme in surplus. There was a proposed transfer of the assets and member liabilities of the Executive Scheme into the Staff Scheme.
What were the legal issues?
There were numerous legal issues including:
- As both schemes were winding-up, could the scheme’s amendment power be used?
- Would the merger be proper?
- In particular, as the merger was to be on an unsegregated basis (meaning the incoming funds would be treated as one with the Staff Scheme funds and not held separately), did it matter that the pre-existing members of the Staff Scheme would in future have less prospect of benefiting from surplus as the Staff Scheme surplus would be reduced by the deficit in the Executive Scheme?
- A 2010 amendment to the Staff Scheme prohibited future transfers – in to the Staff Scheme (“Transfer Bar”). Could the Transfer Bar properly be reversed?
High Court Decision
- The fact that both schemes were winding – up did not prevent the exercise of the Staff Scheme’s amendment power; the Staff Scheme’s amendment power was expressly stated to remain exercisable during the winding up of the scheme; and
- The proposed amendments would be within the proper purposes of the Staff Scheme and would be a proper exercise of the Staff Scheme’s amendment power.
Finding the “proper purposes” of a trust
The High Court particularly considered the Privy Council’s decision in 2023 in Grand View Private Trust (“Grand View”), an appeal from the Bermuda Court of Appeal to the UK Privy Council. Although Privy Council decisions are generally only “persuasive” in the UK Courts, the judges in Privy Council cases are generally drawn from the UK’s Supreme Court and so their decisions usually carry considerable force.
In Grand View, two trusts were established and it was proposed in effect to add the beneficiaries of one trust to another. The Privy Council, after considering various decided cases including pension cases, decided that adding these beneficiaries would be contrary to the proper purposes of the trust. The Privy Council explained how to identify the “proper purposes” of a trust.
High Court Conclusions in “Arcadia” on Proper Purposes
Bearing in mind the “proper purpose” principles in Grand View and in other past cases, and considering the context and background to the proposed merger of the schemes, the High Court was satisfied that the Staff Scheme amendments and the merger itself would be for the proper purposes of the Staff Scheme. The Court pointed out that, as defined in the rules of the Staff Scheme, the pre-existing members’ entitlements were merely to their scale benefits and they had only a contingent interest in surplus, and that the reduction in their potential benefit from surplus in the Staff Scheme on the merger did not interfere with the members’ accrued entitlements.
The Court also reviewed the Staff Scheme trustee’s decision making process and was satisfied with this. In particular, delegating the final decision to the only one of the trustees who was not potentially conflicted was unobjectionable.
The Court also made it clear that in these types of cases the Court is not making the trustees’ decision for them. The Pensions Compass April 2025 wedlakebell.com 17 It is merely satisfying itself, in answer to the questions asked, that the trustees’ view is one which a “reasonable body of trustees “ could reasonably arrive at.
The factual context is always important. In “Arcadia” the Executive Scheme and the Staff Scheme were regarded and to a degree operated as “sister” schemes.
Key Point: The “Arcadia” case well illustrates how in time scheme circumstances can change and in suitable cases such changes can be recognised, even to the extent of lawfully lifting a Transfer Bar thereby admitting a previously prohibited new class of beneficiaries to the scheme.
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