The problem at hand where the pension rules made no provision for the surplus of funds Essay

The problem at hand where the pension rules made no provision for the surplus of funds Essay

The problem that presents itself is not dissimilar to the facts of the case of Davis v Richards & Wallington Industries. In this case a pension fund was wound up after the company ran into financial difficulty. The surplus of the fund came to a total of three million pounds. The company in this case, made reference to a trust deed, which contained instructions on how to deal with the surplus of the fund. The trust deed in this case stipulated that the trustees had the authority to increase pensions and pay any remaining money back to the company. The deed was held to be valid by the court but LJ Scott went on to consider what the appropriate action would have been if in fact the deed was not valid or if there was no provisional deed at all. This returns us to the problem at hand where the pension rules made no provision for the surplus of funds. In this type of situation it is relevant to look at the law on surplus of funds from dissolutions of unincorporated associations. In this light we can see how LJ Scott came to his decision in Davis v Richards & Wallington Industries.

Previous case law on the subject of dissolution of unincorporated associations has pointed to the funds of the association being held in one of two ways. Firstly the money could be held on trust by and officer of the incorporation specifically for the purposes of the association. It is understood that the funds are merely being held on trust and that upon dissolution of the association the surplus of the funds are to benefit the donor under a resulting trust. This principle was laid out in the case of Re West Sussex Constabularys Widows, Children and Benevolent (1930) Fund Trusts . This followed the judgement Re Denleys Trust which established that a member could hold money on trust specifically for the purposes of the association.

The second way of holding the funds is by contract whereby the officer of the association holds the money absolutely, but there are strict rules governing the association and the members as to how they spend the funds. Under this contractual analysis the association can effectively hold money without creating a trust. Under such a contract, surplus funds on dissolution may be distributed per capita between the members of the association. This was the direction in Re Rechers Will Trusts . In the case of Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society it was held that even if there was no deed governing the distribution of funds between members upon dissolution, that this would be an implied term of the contract found by the courts. It appears that when voluntary contributions are made to the fund this gives rise to a resulting trust. However, non-voluntary contributions are made under a contractual obligation and are therefore governed by the rules of the association. This was not the decision made in the case of Davis v Richards & Wallington Industries . Upon finding no deed formally stating the rules governing the association, LJ Scott would have been expected to refer to the previous judgement in Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society and imply a term of distribution among members of the pension scheme.

A fundamental question arises in the context of the contractual rules governing the association. If indeed a contractual relationship was in force then how could a resulting trust arise? Previous case law such as Cunnack v Edwards and Re West Sussex Constabularys Widow and Children Benevolent Trust Fund was changed in Davis v Richards & Wallington Industries . LJ Scott stated the fact that a payment into a fund has been made under a contract and that the payer has obtained all that he bargained for under the contract is not necessarily a decisive argument against resulting trust. In fact LJ Scott in Davis v Richards & Wallington Industries did indeed find a resulting trust for the employers. This was because the fund was treated as deriving primarily from the employees and so furthermore, primarily from the employers who had paid more than was necessary. LJ Scott read the contract in this case that the employer retained an interest in the fund by settling onto the trust fund directly rather than paying the money absolutely. He also found that it would be too difficult to establish how much the employees had contributed and that a resulting trust in their favour would offend certain tax principles.

From this analysis in Davis v Richards & Wallington Industries the present problem would be resolved on this basis; any employers contributions would be returned to the employer on resulting trust. This decision was based on the finding that so long as the surplus of funds was derived from the employers over-payment this would lead to a resulting trust in the favour of the employer unless such a trust was expressly or impliedly excluded. Lord Scott did not find that a resulting trust for the employees in this case was applicable. This decision however was later to be over ruled in Air Jamaica Ltd v Charlton where Lord Mullett stated It is not obvious when employees are promised certain benefits under a scheme to which they contributed more than was necessary to fund them, they should not expect to obtain a return of their excess contributions. Therefore, in this particular scenario the employees would be found to have a resulting trust and the existing pension funds of companies within the group would also be held on resulting trust for the employer.

However, profits from social events would be classed as bona vacantia. This is because when money is raised in such a way it is presumed that people intend to give their money absolutely. The finding of a resulting trust in situations such as these would be far too complex as there would be difficulty in establishing who had contributed and secondly, contribution itself is unlikely to be a large or substantially significant amount. This is supported in the case of Re West Sussex Constabularys Widows Children and Benevolent Fund Trust where it was held that money placed into collection boxes was given absolutely. However, this appears to confuse the law on trusts with the law of contracts governing unincorporated associations.

If it was established that the pension fund was based on contract with rules governing the association and its members as to how the surplus of funds should be distributed upon dissolution then the leading case would be Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society . Its judgement that there would be an implied term that the fund should be distributed per capita amongst its members would be applicable. The case of Davis v Richards & Wallington Industries seems to blur the distinction between the two areas in presuming a pension scheme is an unincorporated association. The two areas should be dealt with separately and the decision in Air Jamaica Ltd v Charlton goes some way to rectify this.

Henceforth we can see that if this problem arose in terms of unincorporated associations then the outcome would be more straightforward and pose less problems than the judgement that L J Scott reached in Davis v Richards & Wallington Industries .

If the same problem arose in the context of unincorporated associations, the dissolution of surplus funds would depend on whether the funds in question were held on trust or governed by contract.

If the funds were found to be held on trust then the decision in Air Jamaica v Charlton would apply. This is supported by two earlier cases. In Re Printers & Transfers Society subscriptions to a fund were found to be held on resulting trust for those who had contributed and in proportion to the contribution made. This was also the decision in Re Hoburn Aero Components Air Raid Distress Fund . Therefore the precedent in Air Jamaica v Charlton that resulting trusts do apply would be followed.

If, however, it was found that the funds were held on a contractual basis the outcome would differ. The case of Cunnark v Edwards held that no resulting trust could be implied and that the funds of the association were governed by contract. Therefore, the personal representatives of the decreased were not entitled to the surplus. It was held to be bona vacantia. In Re West Sussex Constabularys Widows Children and Benevolent Fund Trust a claim to the surplus of funds was rejected on the basis that the members had received all that they had contracted for under the rules of association. If there were no rules however, the courts will imply a term requiring the surplus of funds to be distributed amongst the members as in Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society.

The modern solution exercised by the courts in such a situation is to treat unincorporated associations on the basis of contract and if not follow the Re Bucks Constabulary Widows’ and Orphans’ Fund Friendly Society decision.

Bibliography

  • Hanbury and Martin, Modern Equity, 16th Edition, Sweet and Maxwell 2001
  • Phillip and Pettit, Equity and Law of Trusts, 9th Edition, Butterworths 2001
  • Pearce and Stephens, The Law on Trusts and Equitable Obligations, 3rd Edition, Butterworths 2002
  • Gardner, New Angles on Unincorporated Associations (1992) Conv 41
  • Jill. E Martin, Casenotes, Editors Notes, (1991) Conv Sept/Oct 364-369

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