A Balancing Act: Trustees' Duties And Employers' Interests

The recent UK High Court decision in the case of Merchant Navy Ratings Pension Fund Trustees Limited and P&O Ferries Limited v Stena Line Limited and Ors1 will be of interest to both pension scheme trustees and sponsoring employers. The decision considers complex issues including the duties of pension scheme trustees when making decisions and the role of employers' interests in trustee decision making.

The Merchant Navy Ratings Pension Fund ("MNRPF") is an industry-wide defined benefit pension scheme. It has a large number of participating employers (both current and historic), many of which are competitors within the industry. The MNRPF had been in significant deficit since the late 1990s and its preliminary 2014 valuation showed a deficit, on an ongoing basis, of circa Stg£325 million. Under its rules, only current employers were liable to repair the deficit.

The case involved an application to the High Court by a trustee of the MNRPF to approve a proposed rule amendment under which former participating employers would also be made liable for the deficit. The power to amend the rules was vested solely in the trustee (although the employer was entitled to be represented on the trustee board).

In making this application, the trustee was seeking the Court's confirmation that its proposed course of action in amending the rules in the manner set out was within the scope of the proper exercise of its powers, and that it had applied the correct legal test as to the discharge of its duties.

The historic employers opposed the proposed amendment. In addition, a representative beneficiary of the MNRPF opposed the trustee's proposal to change the contribution regime, arguing that the trustee had failed to recognise its duty to act in the best interests of members and that the amendment was for the improper purpose of benefiting the current employers.

Asplin J stated that there is no paramount stand-alone duty of a trustee to act in the best interests of the beneficiaries. Rather, that principle is, at most, a shorthand for a trustee's duty to promote the purpose for which the trust was created (ie, to provide pensions for members).

In exploring this point, detailed arguments were made to the Court on the extent to which the trustee could properly take account of the interests of the employers. The Court held that as long as the primary purpose of securing the benefits is furthered and the employer covenant is sufficiently strong to fulfil that...