Advisory
Service Forum:
Applications for Directions By Scheme Trustees
by Ian Hammond
Most people associate Court proceedings with hostile litigation, with one or other party successful and the loser paying the winner's costs. In the occupational pension scheme context, however, Court proceedings can often mean an application by the trustees for a declaration, or directions, as to how they should act in a particular set of circumstances. Applications of that nature are not hostile, statements of case are not exchanged, and there are limited disclosure obligations. Such proceedings can, however, impose a significant administrative burden on trustees. That is because the rules of Court which govern these applications have always required that amongst other things, members of every different class of beneficiary be made party to the application, and that the application be heard in Court, with all parties being given the opportunity to be heard.
When the English Civil Procedure Rules were rewritten in a more modern, streamlined form last year, the rules governing this type of application were left largely unchanged, for no better reason than there had not been time to update them before the reforms as a whole took effect. Some changes were made to the terminology; for example, an Originating Summons became a Part 8 Claim Form, but there were no changes of substance. Now, the rules governing applications by trustees for directions have been looked at, and a practice direction issued which looks likely to have a substantial impact on the way in which applications of this nature are dealt with in the future.
Representative Beneficiaries
The new practice direction recognises that, in the case of a pension trust, it may not be necessary for members of every possible different class of beneficiaries to be joined. Indeed, if the trustees feel that the Court could properly give directions without hearing from any other interested party, they may now issue the Claim Form without naming any defendants at all. Such cases will be rare. More usually, trustees may know that some beneficiaries should be made Defendants, but be unsure which to include. In that situation, trustees may now issue without any names and at the same time seek directions as to which beneficiaries, or classes of beneficiary, they need to involve.
This increased flexibility in terms of how applications can be made is very welcome. It recognises the fact that, although there may be many different classes of beneficiary, there may be only two or three points of view which need be put to the Court. The touchstone for the Courts will be whether or not every major aspect of the argument can be put by one or other group of beneficiaries, or by the trustees themselves. If it can, then there should be no need to go to the time and trouble of involving every class of beneficiary in the Court process.
Applications on Paper
The new practice direction states that the Court "will always consider whether it is possible to deal with the application on paper without a hearing". This is a change from the previous position, whereby applications were invariably heard in Court. If anything, the onus will now be on the trustees to explain in their evidence why they feel that a hearing is necessary. If the Court feels able to come to a decision on the basis of the papers alone, it will notify the parties accordingly and give them the opportunity to ask for a hearing if they think it necessary. Again, this simplification of the process in more straightforward cases is welcome, and should lead to significant costs savings. In relation to one type of application, the new practice direction goes even further. Where the trustees are seeking directions as to whether or not they should pursue or defend adversarial litigation, the practice direction recognises that there will be cases where it is so clear that the trustees should proceed as they wish that the costs of a directions application, even on a simplified paper-only basis, would be disproportionate to the size of the fund and there is no need for the trustees to make the application at all.
Where an application for directions concerning litigation is needed, it must be supported by the opinion of an appropriately qualified lawyer. A cost estimate for the litigation should also be provided, as well as a draft of any proposed statement of case. In accordance with the Courts' new focus on alternative dispute resolution, the trustees' evidence should also say whether or not they have attempted to resolve the litigation by mediation, or some other form of ADR and, if not, why not.
Supporting Evidence
One other change of specific relevance to occupational pension schemes is that the evidence to be filed by the scheme trustees should include the latest actuarial valuation, should describe the membership profile and, if a deficit on winding-up is likely, should set out the priority provisions and their likely effect. The evidence should also explain what, if any, consultation process has taken place with the beneficiaries prior to the application being made.
No particular form of consultation is recommended for pension trusts, although the practice direction does state that, if there have not been any consultations, the Court can direct that meetings of one or more classes of beneficiary be held to consider the application and as a possible preliminary to deciding whether members of a particular class should be joined as Defendants. In common with most other applications under the new Rules, evidence will generally now be in the form of witness state-ments, rather than sworn affidavits.
Where a hearing is necessary, in order to preserve confidentiality - often an important consideration where scheme trustees are seeking guidance on how to proceed - most applications will be heard in private. As a result, the only publicly-available document will be the Part 8 Claim Form by which the pro-ceedings are begun. Even the Claim Form can be drafted in very general terms, so as to keep the precise nature of the relief sought confidential as between the parties.
Costs
As a general rule, provided that they have approached the application in a reasonable and non-partisan way, the trustees' costs of an application for directions will be payable out of the trust fund on a full indemnity basis. The costs of beneficiaries who were joined as Defendants to the application will generally also come out of the fund, provided again that they have acted reasonably.
Taken together, these changes reflect a welcome relaxation of some of the formalities - many of which had their origins in the last century and most of which were more appropriate to small private settlements than to large occupational pension schemes - which had previously made this sort of application administratively burden-some and time-consuming. This in turn should mean that such applications, which trustees of all schemes are likely to have to make from time to time, can in future be run on a more streamlined and cost-effective basis.
Ian Hammond is Head of the Pensions& Life Company Litigation
Group at Simmons & Simmons.
ian.hammond@ simmons-simmons.com
www.simmons-simmons.com
