Before: The Hon. Mr. Justice Knox
 
 

B E T W E E N

JUDGMENT
 
DATED: 12 July, 1996

Mr. Justice Knox:

Hillsdown Holdings plc (Hillsdown) appeals by way of originating motion dated 6 November 1995 from a determination of the Pensions Ombudsman dated 11 October 1995 (the determination) and asks for it to be set aside. By the determination the Pensions Ombudsman directed the return with interest by Hillsdown of gross payments of surplus from a pension fund, the HF Meat and Foods Processing Pension Scheme (the HF scheme), which the trustees thereof (the HF trustees) made to Hillsdown in December 1989 and June 1990. The HF trustees were enabled to make those payments of surplus to Hillsdown only because there had been on or shortly after 17 November 1989 a transfer to them, to form part of the HF scheme, of all the assets and liabilities of another pension scheme, the FMC Superannuation and Life Assurance Scheme (the FMC scheme). The FMC scheme prior to that transfer had a substantial surplus but under the FMC scheme deed and the rules made thereunder not only was there no available provision enabling repayment of surplus to the employers under the FMC scheme, of which Hillsdown was one, but there was also a provision prohibiting amendments resulting in the transfer of any assets held by the FMC trustees to any of the employers thereunder, subject to an irrelevant exception on the dissolution of the FMC scheme. The FMC scheme did contain a provision allowing transfers of liabilities and, by implication, of assets to other defined schemes and that power of transfer, which was the one used to effect the transfers from the FMC scheme to the HF scheme, did not itself contain any express terms prohibiting, or indeed permitting, transfer of assets to employers by the trustees of the transferee scheme. What I have said so far is a very condensed summary of events and provisions of the relevant documents which I must return to in greater detail, but it will serve as a very summary explanation of the context for the Pensions Ombudsman's essential conclusion which was that the transfer process from the FMC scheme to the HF scheme constituted what he called a fraud on the power but which might perhaps be more broadly and less technically described as the improper use of a power for a purpose other than the use for which the power was granted.

I start with the relevant legislation which conferred the power on the Pensions Ombudsman to make the determination and which confers the power on this court to hear and determine the appeal before me.

Section 145 of the Pension Schemes Act 1993 includes in sub-s (1):

"For the purpose of conducting investigations in accordance with this Part ... there shall be a commissioner to be known as the Pensions Ombudsman."

That Part was Pt X of the 1993 Act and it included the following provisions:

"146. (1) The Pensions Ombudsman may investigate and determine any complaint made to him in writing by or on behalf of an authorised complainant who alleges that he has sustained injustice in consequence of maladministration in connection with any act or omission of the trustees or managers of an occupational pension scheme or personal pension scheme.

(2) The Pensions Ombudsman may also investigate and determine any dispute of fact or law which arises in relation to such a scheme between — (a) the trustees or managers of the scheme, and (b) an authorised complainant, and which is referred to him in writing by or on behalf of the authorised complainant ..."

"Authorised complainant" is defined by sub-s (7) in terms which include "(a) a member of the scheme, (b) the widow or widower, or any surviving dependant, of a deceased member of the scheme ..." "Member" is defined by sub-s (8) in relation to a pension scheme in terms which include a person "(a) who is or has been in pensionable service under the scheme ..." The original authorised complainant was Lord Bradbury, a pensioner of the FMC scheme, but after his death the Pensions Ombudsman's predecessor in that office agreed to consider the complaint of Mr R E Burt, whom the Pensions Ombudsman treated as the lead complainant although he was supported by 51 other complainants, including Lord Bradbury's widow and Mr A J Bothwell, also a pensioner under the FMC scheme. The complaint investigated by the Pensions Ombudsman was that of Mr Burt who wished it to be supported by the documents relating to the complaint earlier submitted by Lord Bradbury. Both Mr Burt and Mr Bothwell are parties to the appeal as second and third respondents, but they have not been represented before me although Mr Bothwell has written two letters to the court and both gentlemen have been present during the hearing. There is no dispute but that Mr Burt and Mr Bothwell are within the definition of "authorised complainant" as was Lord Bradbury.

Section 146(4) of the 1993 Act conferred a power on the Secretary of State to provide by regulations that Pt X of the 1993 Act should apply in relation to (inter alios) the employer in relation to any category of employment to which an occupational pension scheme relates as it applies in relation to the trustees of such a scheme. That power was exercised by the Personal and Occupational Pension Schemes (Pensions Ombudsman) Regulations 1991, SI 1991/588 (made under the enactment which the 1993 Act re-enacts), with the result pursuant to reg 2 thereof that the Pensions Ombudsman may, in relation to an occupational pension scheme, investigate and determine any complaint or dispute involving an authorised complainant and the employer to which the scheme relates and where the Pensions Ombudsman commences any such investigation the provisions of what is now Pt X of the 1993 Act apply in relation to the employer as they would apply in relation to the trustees of such a scheme.

The Pensions Ombudsman has wide powers in relation to the conduct of investigations by him, including the power to hear oral evidence but this latter power was not exercised in the present case. What happened procedurally was that the three entities against whom allegations of maladministration causing injustice were made, that is to say the FMC trustees, the HF trustees and Hillsdown, were all invited to answer in writing the complaints made by the complainants and did so. Mr Burt made observations in reply and the Pensions Ombudsman gave all concerned a sight of a draft determination upon which they had an opportunity of commenting and did so, before the Pensions Ombudsman issued the determination in its final form. The procedure therefore was all in writing which is before the court.

The statutory provisions regarding the Pensions Ombudsman's determinations are contained in s 151 of the 1993 Act, which, so far as relevant, reads:

"(1) Where the Pensions Ombudsman has conducted an investigation under this Part he shall send a written statement of his determination of the complaint or dispute in question — (a) to the authorised complainant in question; and (b) to the trustees or managers of the scheme in question; and any such statement shall contain the reasons for his determination.

(2) Where the Pensions Ombudsman makes a determination under this Part ... he may direct the trustees or managers of the scheme concerned to take, or refrain from taking, such steps as he may specify in the statement referred to in subsection (1) or otherwise in writing.

(3) Subject to subsection (4), the determination by the Pensions Ombudsman of a complaint or dispute, and any direction given by him under subsection (2), shall he final and binding on — (a) the authorised complainant in question; (b) the trustees or managers of the scheme concerned; and (c) any person claiming under them respectively.

(4) An appeal on a point of law shall lie to the High Court ... from a determination or direction of the Pensions Ombudsman at the instance of any person falling within paragraphs (a) to (c) of subsection (3) ..."

Section 146(6) of the 1993 Act provides:

"The Pensions Ombudsman shall not investigate or determine a complaint or dispute — (a) if before the making of the complaint or the reference of the dispute proceedings have been begun in any court in respect of the matters which would be the subject of the investigation ..."

The terms in which Parliament has chosen to define the remedial powers of the Pensions Ombudsman in s 151(2) are remarkably widely stated. All that is said is that he may direct the taking or refraining from taking such steps as he may specify. That some limits must be placed upon the steps is self-evident but that subsection is silent on the subject and, unless one is to resort to what would to a lawyer be a counsel of despair and leave the limits to the unfettered discretion of the Pensions Ombudsman, so as to put him under the traditional palm tree, limits must be sought elsewhere. It was not suggested by any party before me that there are no limits upon the Pensions Ombudsman's powers to direct steps to be taken or not to be taken. The appeal to the court on a point of law suffices to show, if it needs to be shown, that the Pensions Ombudsman must operate within the law.

The limitations on the power given to the Pensions Ombudsman are to be found in the definition of his function, namely the investigation and determination of (i) complaints alleging injustice in consequence of maladministration and (ii) disputes of facts or law. As Robert Walker J has said in Westminster City Council v. Haywood [1996] 2 All ER 467 at 475 after a valuable summary of the Pensions Ombudsman's functions in the context of other pre-existing ombudsmen:

"It is ... easy to see the general legislative purpose behind these wide provisions, including the Pensions Ombudsman's unusual powers (not shared by other ombudsmen) to decide questions of law and give directions that are enforceable. A very important part of the legislative purpose was to provide a quick, inexpensive and informal means of settling complaints and disputes about occupational pensions, especially where an individual or small group of individuals (whether employees or pensioners) find themselves in conflict with trustees who have large resources and may sometimes (rightly or wrongly) be thought to be more attentive to the views of the employer than to those of the employees or pensioners.'

I would only add to that, that the object of providing a quick inexpensive and informal means of settling complaints was equally aimed at large cases where a large group of individual members was involved in such a dispute. The great majority of a large group of members would individually be likely to have resources far too slender to contemplate litigation in such a technical, difficult and thereby expensive, field of law.

Two important questions on the Pensions Ombudsman's jurisdiction were argued before me. The first was the extent to which the Pensions Ombudsman in directing steps to be taken by trustees or employers was entitled to include steps which went beyond curing the injustice through maladministration sustained by the complainant whose complaint he was investigating so as to permit the Pensions Ombudsman to direct the taking of steps which would in his view rectify any injustices through the same maladministration suffered by other persons, notably persons who would have been authorised complainants but did not make complaints to the Pensions Ombudsman.

The second question argued was whether the Pensions Ombudsman was limited in his choice of steps which he could lawfully direct to be taken, notably by an employer, to those which that person could be compelled to take by legal proceedings brought by the complainant and other persons (if any) for whose benefit steps could, pursuant to the answer to the first question above, be directed to be taken.

Both these important questions only arise if the central issue, whether the transactions whereby assets were transferred from the FMC scheme to the HF scheme and payments made out of the latter to Hillsdown, can now be impeached, and to that I now turn.

The FMC scheme was originally constituted by a definitive trust deed dated 24 July 1955 and made between the Fatstock Marketing Corp Ltd, later called "FMC Ltd", and other parties but it is not necessary to go back to any earlier version of that trust deed and rules thereunder than that which came into force with effect from 17 September 1981 and is contained in schedule V to a deed dated 21 March 1983 by which the provisions of the original trust deed of 24 July 1955 were amended. I shall refer to this version as "the 1983 FMC trust deed and rules". Under its provisions "the Corporation" was defined as "FMC Ltd". The 1983 FMC trust deed also included the following relevant provisions.

By cl 3 the trustees (an expression defined as the trustees for the time being thereof) undertook to administer the FMC scheme in accordance with the provisions of the FMC trust deed and the rules. Clause 4 read:

"(a) ANY company being a subsidiary of or associated with the Corporation may with the approval of the Corporation undertake by Deed with the Trustees to be bound by the provisions of this Deed and of the Rules as an Employer and may thereafter remain an Employer for the purposes of the Scheme but not if by so doing it would cause the Scheme to cease to have the approval of the Commissioners of Inland Revenue as an exempt approved scheme under Chapter II of Part II of the Finance Act 1970 or any statutory modification or re-enactment thereof for the time being in force.

(b) Notwithstanding the terms of paragraph (a) of this Clause a company which is for the purposes of Section 154(1) of the Companies Act, 1948 a subsidiary of the Corporation or of any other Employer will if the Corporation so directs and subject to the prior approval of the Commissioners of Inland Revenue become an Employer without executing a Deed similar to that described in paragraph (a) of this Clause but such company shall by a resolution of its board of directors undertake that it will comply with its obligations as an Employer under this Deed and the Rules. Any company which becomes an Employer pursuant to this subclause may thereafter remain an Employer but not if by so doing it would cause the Scheme to cease to have the approval of the Commissioners of Inland Revenue as an exempt approved scheme under Chapter II of Part II of the Finance Act 1970 or any statutory modification or re-enactment thereof for the time being in force."

Clause 5(a) read:

"EACH of the Employers undertakes to pay to the Trustees by way of contribution such sums as on the advice of the Actuary shall from time to time be required in addition to such from as are received by way of contributions from members of the Scheme to secure the benefits payable under the Scheme."

Clause 14 provided:

"THE Trustees with the consent of the Employers which shall be witnessed by the Corporation on behalf of itself and the other Employers being a party to the Deed of Amendment shall be entitled by Deed to alter modify or add to all and any of the provisions of this Deed and the Rules. Provided that no such alteration modification or addition shall: — (a) operate so as in the opinion of the Actuary (as defined in the Rules) substantially or unfairly to prejudice the rights or interests of any Member of the Scheme or of any person receiving any benefit under the Scheme by virtue of the membership of any deceased Member in so far as such rights or interests have been secured by virtue of service with any of the Employers prior to the date of such alteration modification or addition except with the written consent of the person whose rights or interests are so prejudiced, or (b) cause any alteration in the main purpose of the Scheme, or (c) cause any of the assets held by the Trustees under the trusts hereof to be used otherwise than for the purposes of the Scheme, or (d) result in the transfer of any of the assets held by the Trustees under the trusts hereof to any of the Employers but subject to the provisions of Clause 17(a)(iii) hereof. The Trustees shall notify in writing each Member affected by any alteration, modification or addition so made by them."

It was common ground that the prohibition on transfers of assets to the employers (subject to the exception in cl 17(a)(iii) dealing with ultimate surplus on winding up) was inserted because of the then current requirements of the Inland Revenue for approval of such schemes.

Clause 17 dealt with how the fund was to be dealt with on the termination of the FMC scheme and it will suffice for my purposes to say it required net assets after discharge of liabilities to be applied by providing for the purchase of annuities for pensioners and others such as widows and deferred pensioners and by cl 17(a)(iii) it was provided that any balance remaining thereafter should be applied to increase within the permitted limits approved by the Commissioners of Inland Revenue the pensions and annuities for which provision had earlier been directed to be made and subject thereto any ultimate balance should be returned to the employers.

The 1983 FMC scheme rules included the following relevant provisions besides normal provisions for benefits in defined circumstances. 'The Corporation' was defined as 'FMC Ltd'. 'The Group' was defined as —

"FMC Ltd and those of its subsidiary and associated companies which undertake in accordance with clause 4 of the Definitive Trust Deed to be bound by the provisions thereof and of the Rules."

"Employer" was defined as "any company for the time being comprised in the Group". Rule 21(a) is at the centre of this appeal. It was not in the rules as originally formulated but was inserted at an uncertain date before 21 March 1983 and read:

"TRANSFERS OF OBLIGATIONS (a) The Trustees may at any time or times with the consent of the Corporation and the Employers concerned and after obtaining the advice of the Actuary but otherwise in their discretion make arrangements upon such terms as they shall think fit for the transfer to some other retirements benefits scheme (approved under Chapter II of Part II of the Finance Act 1970 or Section 208 or Section 222 of the Income and Corporation Taxes Act 1970 or any other fund scheme or arrangement approved by the said Commissioners for the purposes of this Clause) of which the then Members concerned are or will thereupon become Members of the total or partial responsibility for securing and making payment of all or any particular benefits under the Scheme in respect of all or some of the Members (including, without prejudice to the generality of the foregoing, all the Members in or formerly in the service of a particular one of the Employers). Provided always that: (i) no such transfer shall without his consent increase the liability of any Member to make contributions; and (ii) the Trustees shall not implement any transfer under this Rule which in their opinion after obtaining the advice of the Actuary will or may seriously prejudice any person who is a Member or pensioner at the proposed transfer date."

Rule 22 provided for a duly qualified actuary to be appointed and included as one of his duties from time to time at the request of the corporation (and in any event once every five years after 1 July 1971) to make an actuarial valuation of and report to the trustees and employers on the scheme, together with such recommendations as he might think fit.

Rule 23 is also of considerable importance. It read:

"SURPLUS AND DEFICIENCY (a) If any periodic valuation by the Actuary shall disclose any surplus which the Actuary shall certify not to be required to cover the immediate and prospective liabilities of the Scheme the same shall be applied in accordance with the directions of the Trustees (who shall in relation to such application seek and have regard to but not be bound by the advice of the Actuary) in any either or both of the following ways, namely: (i) the holding of a reserve to meet any subsequent loss or deficiency; (ii) the reduction of future contributions of Members and/or Employers; (iii) an increase in the amount of any pensions then in course of payment or deferred pensions allocated but no such increase may be made if it would result in any deferred pensions exceeding the maximum pension approvable by the Commissioners of Inland Revenue at retirement or in any pensions in the course of payment being increased by an amount proportionally greater than any increase in the Index since their commencement; (iv) subject to the permitted limit an increase or improvement in the terms of all or any of the pensions or other benefits prospectively payable under the Rules. (b) If any periodic valuation by the Actuary shall disclose any deficiency or anticipated deficiency in the funds held for the purposes of the Scheme the Trustees shall (having regard to the advice of the Actuary and to any additional contributions to the Fund which the Employers may indicate their willingness to pay) make alterations to or modifications of the Rules to remedy the deficiency by one or other of the following means, namely: (i) an increase in the rate of Employers and/or Members' contributions; (ii) a reduction in the amount of all or any particular benefits not yet in course of payment (other than deferred pensions already allocated) for which the Rules provide ..."

There followed an irrelevant proviso limiting certain categories of reduction upon which nothing turns for present purposes.

The last of the important rules was r 35, which provided:

"REDUCTION SUSPENSION OR TERMINATION OF EMPLOYER'S LIABILITY (a) The Employers or any of them may at any time reduce suspend or terminate their liability to pay contributions under the Scheme by giving notice to the Trustees and without the concurrence of the Members. Upon receipt of such notice the liability of the Employer by which it was given shall be reduced suspended or terminated to the extent therein defined except in respect of payments due on or before the date of expiry of such notice and the Trustees shall notify individually in writing each Member who is affected by the contents of such notice ..."

The interrelation of rr 23 and 35 is a subject to which I must return, but it will suffice at this stage to note that r 23 confers a duty and powers upon the FMC trustees to give directions as to the application of a surplus certified by the actuary not to be required to cover the immediate and prospective liabilities of the FMC scheme and that neither the corporation nor the employer are required or entitled to give advice, let alone directions on the subject, by the terms of r 23. It is also to be observed that none of the possible modes of application of surplus provided for by r 23 includes a payment to the employers. At most there can be a reduction of employers' contributions, but where there is a large surplus it may well be that the employer is already not contributing. This was the position in relation to Hillsdown after 1985 in the FMC scheme. Rule 35, on the other hand, confers a unilateral right on the employers or any of them to reduce, suspend or terminate their liability. No question arises of a right in the trustees, members or pensioners to be consulted about, let alone consent to, any exercise of that power.

Hillsdown acquired the issued share capital of FMC plc in 1983. It was not until 30 November 1987 that the power in r 21 was exercised so as to create machinery for Hillsdown to become the corporation in place of FMC. The actual change was achieved by two stages in deeds executed on 30 November 1987 and 1 December 1987. By the first of those deeds the trustees added to the 1983 FMC trust deed a cl 22, which read:

"(1) If with the consent of the Corporation (unless it has been wound up) the New Corporation enters into an agreement with the Trustees under which the New Corporation undertakes the liabilities of the Corporation under the Fund the Corporation shall thereupon be released from all obligations under the provisions of the Scheme which shall thereafter have effect as if the New Corporation had been the 'Corporation' therein referred to.

(2) For the purpose of this Clause 'New Corporation' means any of the Employers (other than the Corporation) or any other subsidiary or associated company which enters into the agreement which is referred to in sub clause (1) above."

By the deed of the following day, 1 December 1987, Hillsdown with the consent of FMC covenanted with the FMC trustees to observe and perform such of the provisions in the 1983 FMC trust deed and rules as were to be observed and performed by the corporation and FMC was released by the FMC trustees with Hillsdown's approval as the corporation under the FMC scheme. By this slightly convoluted path Hillsdown became the corporation in place of FMC. The validity of the substitution of Hillsdown for FMC Ltd as the corporation was sought to be challenged before me by Mr Nugee on behalf of the Pensions Ombudsman although it was not challenged in the complaints to the Pensions Ombudsman and that is a subject to which I must return later.

The transactions which were the subject of the complaints to the Pensions Ombudsman and the subject of the determination were set in train initially by a letter dated 3 May 1989 written by the actuaries to Mr Jackson at Hillsdown, the employer, and not to the trustees. It included the following:

"As you are aware, we are in the process of carrying out an actuarial valuation of the FMC Superannuation Scheme as at 6 April 1988."

I interpose that it is common ground that such a valuation was indeed being done by the actuary as part of his duty to carry out periodical valuations. The letter continued:

"At the last valuation a substantial surplus was disclosed and it is likely that given investment conditions over the intervaluation period, the surplus will have increased. It is therefore important that the company come to a view on its attitude to surplus, not just for the FMC Scheme, but also for the other schemes in the group. Of course the flexibility available to the company is now restricted and the Inland Revenue will not allow surpluses to be carried forward indefinitely. This means the company will have to come to a decision on how any surplus disclosed at this valuation will have to be distributed. There are a number of choices open to the company. They can improve members' pension rights and/or suspend their contributions; the company could suspend its contributions but only for a maximum period of five years; the company could admit other companies to the Scheme; the company could take a repayment of surplus but subject to a penal tax charge of 40 per cent and of course the company could carry out a combination of the above. Alternatively the company could do nothing and thereby lose part of the fund's tax exempt status. I suggest that you come to a firm decision on your attitude to surplus and the trustees are made fully aware of your intentions."

This was not of course advice from a legal adviser but it is an unfortunate feature of this series of events that it is this letter, which ignored the fact that r 23 of the 1983 FMC scheme rules placed the duty to decide what to do with a surplus disclosed by a periodic valuation upon the FMC trustees alone, and not upon Hillsdown as employer, set the tone for the ensuing negotiations. This is shown by the letter which Mr Jackson for Hillsdown sent to the trustees of the FMC scheme the next day, 4 May 1989, in which he said:

"As you are aware there are now considerable restraints imposed by the Inland Revenue on the ability of a scheme to continue to carry forward surpluses from one valuation to the next. As a result of this, the company has decided that should a surplus emerge as a result of the current or any future valuation this will be used solely to reduce the company's contribution rate. The company feels that the benefits of the scheme are at a competitive and generous level and the company will not be considering any improvement to benefits in the foreseeable future. If the surplus is such that a contribution holiday for the FMC Schemes will not comply with the Inland Revenue's requirements then the company will restructure its other pension arrangements in such a way as to ensure that the surplus is brought within the prescribed limits. In practice this will mean adhering the various other group companies to the FMC Schemes and enjoining them in the company contribution holiday."

Four days later, on 8 May 1959, Mr Jackson for Hillsdown first raised the suggestion of a transfer of the FMC scheme assets and liabilities to the HF trustees as part of the HF scheme by writing again to the secretary to the FMC trustees. After describing the HF scheme and saying that it would in time become the only vehicle for future pension provision he went on:

"The company now requests that the trustees give consideration to agreeing to transfer all of the assets and liabilities of the FMC Superannuation Scheme to the new HF Scheme by virtue of the powers enjoyed by them under Rule 21 — TRANSFERS OF OBLIGATION of the Trust Deed and Rules dated 21st March 1983. If the trustees agree to transfer the assets and liabilities of the Scheme then the Company will agree to introduce the following substantial benefit improvements in the new scheme. (1) In respect of active members of the FMC Scheme: — An immediate uplift in the pension accrued to date by 5 percent of the value of the pension. For future leavers all of their pension accrued to the date of leaving will be indexed at 5 per cent p.a. (rather than just the post 1/1/85 accrued pension). (2) In respect of current pensioners: An enhancement exercise to increase their pensions in payment by 5 per cent. (3) In respect of deferred pensioners: — An enhancement of 5 per cent of the value of their deferred pension."

The FMC trustees held a meeting on 15 May 1989 with the FMC scheme actuary and Mr Ellison, a solicitor from a firm specialising in pensions advice, and another person described as a pensions consultant. The Pensions Ombudsman was provided with an unsigned draft of a report to the FMC trustees which contained the advice given by Mr Ellison. This referred to and quoted from rr 21 and 23 of the 1983 FMC rules and in relation to r 21 referred to what was called the Vauxhall decision (see Re Vauxhall Motors Pension Fund, Bullard v. Randall [1989] 1 Pensions LR 49), saying that following that decision —

"… it is now clear that the trustees have the power, even where there is no power to return surplus to the employer, to transfer in bulk fashion to another scheme which does have such a power, in certain circumstances."

What the circumstances were was not elaborated further. On the issue, described as one of the main questions for the trustees to decide, whether the FMC trustees had power to comply with Hillsdown's request to transfer all the assets to the HF trustees pursuant to r 21, it was said that the question divided into four parts. The first two were whether the specific conditions mentioned in r 21 itself were met, the third read:

"Whether directions as to the use of the surplus prohibit transfer to another scheme without such constraints to meet the requirements of clause 23."

The fourth was whether it was in the interests of the members generally. On whether, if there was power, the FMC trustees should exercise it, the advice was that they should take into account what would happen if they did not agree and whether they had achieved the best for their beneficiaries in the circumstances, considering the overriding powers of the employer. Finally, it was said that before coming to a final decision, the FMC trustees had the power if they thought it necessary, either to obtain the consent of the members or to apply to the court for ratification (perhaps on a construction summons) or to obtain counsel's opinion. It was added that the trustees might feel that none of the above steps was necessary as the issues were now simple and clear-cut and there was considerable experience in the repatriation of surpluses. Overall there is no doubt that the legal advice received by the FMC trustees was to the effect that they did have the power, if they thought they had struck the best bargain they could realistically hold out for, to agree to the proposals by Hillsdown.

The minutes of the FMC trustees' meeting of 15 May 1989 included the following:

"Consideration was given to the letters received from the company dated the 4th May 1989 and the 8th May 1989. Mr Ellison confirmed that the company were under no obligation to approve any pension augmentation unless they so choose. It was agreed that the trustees should consider the types of augmentation they might wish for members of the Scheme and see if it was at all possible to persuade the company to make an increase over and above that set out in their letter of the 8th May. It was considered that some thought should be given as to whether any benefit improvement might be weighted towards those with longer periods of service. It was agreed that once the advisors had had an opportunity to evaluate these ideas the trustees would meet again to formulate what they might seek in the way of benefit improvement from the employer."

This resulted in a counter-offer being made by the FMC trustees on 28 June 1989 in a letter signed by Mr B C Legg, who was one of the FMC trustees and a director of Hillsdown and was acting as secretary to the FMC trustees. One of the other FMC trustees, Mr H Solomon, was also a director of Hillsdown. It was in his capacity as secretary to the FMC trustees that Mr Legg wrote the letter of 28 June 1989. This included the following:

"If the trustees agreed to the bulk transfers requested, it would involve the incidental transfer of about £15m of actuarial surplus. As I am sure you appreciate, we have to ensure that this would be in the best interests of our members. We understand that the surplus may be reduced by additional benefits being awarded by the company to a particular group of employees and we also appreciate that the company could continue to introduce new members into the Scheme, both of which actions could adversely affect the amount of surplus and possibly the maintenance of the desired security target of 100%. In addition we fully understand the company's powers to close the Scheme. Nonetheless, after careful consideration, we feel the offer to enhance the benefits could be considerably improved and we attach with this letter our proposals which in value amounts to approximately three times your original offer."

The precise details of the offer are not material but they included a proposal that in addition to the benefits proposed by Hillsdown, costed at £1,050,000, there should be additional benefit improvements costed at £2,040,000. This found little favour with Hillsdown, which replied by a letter from Mr Jackson dated 10 July which included the following:

"I am afraid that if the trustees current attitude persists the company will have no alternative but to revise its plans and revert to its former practice of admitting new employees into the FMC Scheme. This would of course include the substantial and rapidly growing HF Scheme."

And a little further on under the heading "The quantum of surplus":

"Moreover you should realise that the company will suffer a substantial tax burden in its share of the surplus. Thus whilst the surplus is nominally £15m the impact of taxation reduces this to £9m. We feel that out of this figure we might be able to offer an improvement in the region of £1m."

Mr Legg for the trustees came back on 14 July 1989 saying inter alia:

"We are also greatly concerned about the tone of your letter which does appear to be some sort of veiled threat. Even if all you say is true — and we do not for one moment accept that this is so — you really must appreciate that we have a clear duty to our members to ensure that we get the best deal possible for them."

Hillsdown's reply by Mr Jackson dated 9 August 1989 included the following:

"It is apparent to us that you and the trustees are missing the point of the proposed re-organisation and that your attitude is coloured by this misconception. As far as the company is concerned we are simply seeking to accelerate a release of surplus that will accrue to the company in any event by way of a contribution holiday. We have estimated that the current surplus can be absorbed over 5 years by admitting the other allied Group Companies to the FMC Scheme, a course of action that we are now strongly minded to take. In these circumstances there would be no benefit improvement whatsoever for the members and the full benefit of the currant surplus would be enjoyed by the company. The financial advantage that the company might gain by withdrawing the surplus in one or perhaps two years is therefore not to be measured in terms of the absolute value of the surplus — since this will accrue in any event. Rather one should only consider the extra financial gain arising from the earlier use of these "contribution holiday years", a much lower figure indeed. We have calculated that the extra benefit to the company of obtaining the earlier use of these monies is in the region of £1m. In the light of this our offer of £1m for benefit improvements is extremely generous indeed. Given the above we do not feel there is much to be gained by continuing these discussions since the advantage to the company of having a refund rather than a contribution holiday is not that substantial, especially when you realise that a refund bears tax at 40% while a contribution holiday only effectively bears tax at our then marginal rate. The company is therefore minded to withdraw our offer of £1m surplus completely, if we do not have written agreement to our proposals within seven days."

The FMC trustees with their actuarial and solicitor advisers met to consider this letter of 9 August on 4 September 1989. The minutes of that meeting included the following:

"After legal and actuarial advice, the trustees reached the conclusion that the company's argument for recovery of surplus was a strong one. In particular, there was a real and strong possibility that the company would make good its threat to water down the surplus by introducing new members, which it was fully permitted to do, to the detriment of the existing beneficiaries. After discussion the trustees agreed to approach the company to see whether they would improve their offer from £1m to £1.5m, which was considered by the advisers to be a reasonable compromise."

Following meetings for further discussion Mr Jackson for Hillsdown wrote on 25 September 1989 to Mr Legg setting out the terms Hillsdown was prepared to offer. They were stated as follow:

"If the trustees agree to a reconstruction of the FMC pension arrangements and in particular use their power under Rule 21 ... to transfer all the assets and liabilities of the FMC ... Scheme to the HF ... Scheme, then the company will agree to the use of £173m of the surplus for the improvement of members' benefits."

Curiously, there is no record of a formal letter of acceptance but there is no doubt that the FMC trustees did agree to this proposed compromise of the differences expressed earlier in the correspondence. It was not suggested that the FMC trustees acted otherwise than in accordance with the professional advice given to them nor, a fortiori, was it suggested that they acted otherwise than in good faith.

On 5 October 1989 the individuals who were the FMC trustees were replaced by the FMC Trustee Co, whose full name was FMC Superannuation and Pension Scheme Trustees Ltd, and which I refer to hereafter as "the FMC trustee". Those individuals were Mr Legg, already mentioned above, Mr Solomon (now Sir Harry Solomon) chairman of Hillsdown, Mr A Hewitt and Mr C Jay. They were all four directors of the FMC trustee when it became the trustee of the FMC scheme.

By a deed dated 31 October 1989 the FMC trustee, with Hillsdown's consent, amended the 1983 FMC trust deed so as to provide for the FMC scheme to be wound up and the FMC trustee released if the responsibility for paying all benefits in respect of past and present members of the scheme was transferred.

The HF trustee was a limited company a majority of whose directors were trustees of the FMC trustee or, when that trusteeship changed to the limited company, were directors of that company, the FMC trustee. The directors of the HF trustee included the chairman of Hillsdown and the latter's company secretary. There were not shown to the Pensions Ombudsman on behalf of the HF trustee any minutes of board meetings of the HF trustee in relation to the transfer to it from the FMC trust and it is apparent from the determination that he did not accept as a fact that all the directors of the HF trustee knew about the negotiations with the FMC trustee. The HF scheme was regulated by a definitive trust deed dated 28 December 1984 (the HF trust deed). It was until 1989 a relatively small scheme with only 80 participating employees until 6 April 1989 when it was expanded by the admission of some 800 additional members and Hillsdown became what was called in the HF trust deed 'the Founder' in place of its subsidiary Hillsdown Ltd, which traded as Lockwoods Foods. The HF scheme in the autumn of 1989 had about £1m assets but no significant actuarial surplus. The HF trust deed contained a wide power to accept the assets of a retirements benefits scheme which had been operating for the benefit of the employees of a particular employer. It was not disputed but that the HF trustee had the power to accept the assets of the FMC trust. This was done through two deeds of 17 November 1989. By the first of those two deeds FMC and 14 other companies which were employers under the FMC scheme were admitted to participate in the HF scheme with the consent of Hillsdown as the founder thereof and of the HF trustee and covenanted to observe and perform the provisions of the HF scheme. In the second deed dated 17 November 1989 (which I shall refer to as 'the transfer agreement' and which was therein thus described) and made between Hillsdown, the FMC trustee, the HF trustee and FMC and the other 14 companies that had just been admitted to the HF scheme (called 'the employers') there were recitals that Hillsdown and the employers agreed to the transfer thereby effected, that the actuary to the FMC scheme by a letter dated 18 October 1989 had advised that the transfer neither would nor might prejudice any person who was a member or pensioner of the FMC scheme and that Inland Revenue consent had been obtained. The operative part contained an agreement by the FMC trustees to transfer the assets of the FMC scheme to the HF trustee. The latter agreed to accept those assets and to accept into membership of the HF scheme all persons to whom the assets transferred related and to undertake responsibility for securing and paying all benefits under the FMC scheme, to ensure that thereafter the liability of any member thus transferred to make contributions to the HF scheme should not be increased without his consent and to ensure that no such transferred member would or might be seriously prejudiced as a result of the transfer.

There is no doubt that the assets of the FMC trust were indeed transferred on or soon after 17 November 1989 to the HF trust although the precise date is not established. The next step was taken 17 days later on 4 December 1989 when the HF trustee with the consent of Hillsdown as the founder of the HF trust, a position which it had acquired on 8 June 1989, exercised a power in cl 11 of the HF trust deed to alter the terms thereof. This power was conferred on the HF trustee in very wide terms and only required the consent of the founder and its concurrence in the deed. There were no restrictive conditions attached to its exercise. The amending deed of 4 December 1989 inserted into the HF rules a provision for the founder (i.e. Hillsdown) to be the administrator of the scheme and another provision in the following terms:

"Reduction of Surpluses If the Founder shall decide to take action in accordance with Schedule 22 of the Income and Corporation Taxes Act 1988 to reduce the amount of the Fund the Founder shall decide which of the permitted methods is to be used to effect that reduction and appropriate action shall be taken accordingly PROVIDED THAT if a payment is to made out of the Fund the Administrator shall determine the apportionment out of the total paid and in particular may direct that either: (i) the payment shall be made to the Founder; or (ii) the payment shall be made to one or more of the Employers (including the Founder) and if to more than one such Employer in such proportions as the Administrator may at its sole discretion decide."

The actuary to the HF scheme valued the HF scheme as at 17 November 1989, i.e. immediately after the transfer of assets from the FMC trust, as having a past service surplus of £20,394,000. That figure was arrived at by deducting from the assessed value of the HF scheme's assets the liabilities in respect of current pensioners, deferred pensioners and active members in respect of past service. There was obviously no calculation involving liabilities in respect of future service of active members or a fortiori future members.

The scene was now set for the payment to Hillsdown for which it had negotiated. On 21 December 1989 £3,288,000, after the deduction of tax of £2,192,000, was paid to Hillsdown by the HF trustee. On 25 June 1990 a further £7,774,200, after deduction of tax of £5,182,800, was paid to Hillsdown by the HF trustee. Both sums of tax were accounted for by the HF trustee to the Inland Revenue. The liability to tax arose under s 601 of the Income and Corporation Taxes Act 1988, which makes the tax recoverable from the employer, i.e. Hillsdown.

So far as benefit increases in accordance with the bargain struck between Hillsdown and the FMC trustee were concerned the response by the HF trustee to the complaint made to the Pensions Ombudsman against the HF trustee included a statement that augmentation of the benefits of the former FMC scheme members, pensioners and deferred pensioners as previously negotiated between the FMC trustees and Hillsdown was put into effect. The pensioners' share of this augmentation was claimed by Mr Burt to be a 2% increase in pension on 1 May 1990. On the other hand, Hillsdown's response included a statement that the package of benefit augmentation within the HF scheme was subsequently costed at slightly in excess of £374m, in excess of the FMC trustees' estimate of £173m because salary levels proved to be higher than those used for the original costing. Those uncertainties are not of major significance since there was no claim that the bargain struck between Hillsdown and the FMC trustees was not honoured by Hillsdown.

Active members of the FMC scheme were informed of the merger of the scheme with the HF scheme, but not of the payments to Hillsdown of surplus. Pensioners were not even informed of the merger let alone the payment of funds to Hillsdown for a number of years. Mr Burt discovered that the merger had occurred in early 1992. No issue directly arises for decision by the court regarding this failure of communication but it provides the explanation for the delay that occurred before the validity of the actions taken in the autumn of 1989 was first challenged.

The Pensions Ombudsman dealt with the complaints against the FMC trustee, the HF trustee and Hillsdown in that order. In relation to the FMC trustee he considered, first, whether the transfer from the FMC scheme to the HF scheme was contrary to the 1983 FMC trust deed and rules and, so far as the express restrictions stated in r 21 itself were concerned, concluded that if the transfer was in the members' best interests the express terms of r 21 did not prevent payments being made to the HF scheme for the express purpose of effecting a payment of surplus to Hillsdown. No challenge was advanced by Hillsdown to that conclusion nor was it suggested to be wrong by Mr Nugee.

Secondly, the Pensions Ombudsman dealt with the question whether there were implied restrictions on the use of r 21. Under this head he criticised the reliance on the Vauxhall decision by the solicitor advising the FMC trustee, which I have quoted above, as misleading and he held that the Vauxhall decision was no more than a decision on the construction of a particular clause. That conclusion was challenged by Mr Oliver QC for Hillsdown. I deal with this below. The Pensions Ombudsman went on to hold that the doctrine of frauds on the power applied. He said:

"The transfer power was exercised in order that the HF Scheme could make a payment of surplus to Hillsdown which was prohibited from receiving any such payment from the FMC Scheme ... I have to conclude that the sole reason for the bulk transfer from the FMC Scheme to the HF Scheme was to secure a payment of surplus to Hillsdown. Although the transfer comes within the meaning of a fraud on a power, the underlying basis of the doctrine is the idea of purpose. It cannot be stated that the transfer went beyond the purpose of Rule 21 without considering the status of the proviso against payments of surplus in Clause 14."

The Pensions Ombudsman, basing himself on cl 14 of the 1983 FMC trust deed, held that the question of a payment of a surplus to Hillsdown was not negotiable — the FMC trustee was not empowered to grant a payment of surplus. This led to his conclusion that the use of the transfer power in order to secure a payment of surplus to Hillsdown was contrary to the purposes of the FMC scheme and that the FMC trustee was in breach of trust in using the power in this way. This is the critical conclusion in the determination and it was challenged by Mr Oliver on behalf of Hillsdown. An important feature of that challenge was the Pensions Ombudsman's finding that the FMC trustee did act in the members' best interests in agreeing to the transfer of assets to the HF scheme. He reached that conclusion on the basis that the deal struck between Hillsdown and the FMC trustee, whereby in exchange for an immediate reduction in the security of their accrued benefits the FMC scheme members received increased benefits, was in the latter's best interests because otherwise Hillsdown was going to absorb the surplus over five years by the admission of new employing companies. The loss of security was compensated he found by the benefit increases. Nevertheless, the Pensions Ombudsman found there was a breach of trust in using the transfer power to secure a payment of surplus to Hillsdown which was prohibited by the trust deed and rules of the FMC scheme. This constituted maladministration and involved injustice to Mr Burt and those supporting him in that they received a reduction in the security of their benefits and were deprived of the opportunity of further benefit increases.

The appeal by Hillsdown against this central finding was put on three basic grounds. (i) There was no such implied limitation as the Pensions Ombudsman found to exist on the power conferred by r 21, namely that it could not be used to achieve a purpose which could not have been carried out through an amendment to the FMC scheme. (ii) Even if that limitation existed the finding that the FMC trustee transgressed it was unsustainable. (iii) Even if there were a breach of trust the finding of maladministration occasioning injustice was inconsistent with the express finding that the FMC trustee acted in the best interests of the members of the FMC scheme and could not stand.

As to the first of these grounds the particular phrase in the determination used in Mr Oliver's submission for Hillsdown was in fact posed as a question to be answered rather than a finding and it somewhat obscures the difference between two quite separate legal concepts. The first is that, as a matter of construction, implications may be made restricting general provisions in a document such as pension fund rules. This can only be done within defined limits such as where it is shown that the implication is necessary to give business efficacy to the document in question. I accept that no case for any such implication was shown in the present case nor do I consider that the Pensions Ombudsman for all his references to implications intended so to decide. Quite separate from this concept, is that upon which the Pensions Ombudsman did in my view rely, namely that powers may not be exercised for a purpose or with an intention beyond the scope of or not justified by the instrument creating the power. This principle is commonly referred to as that of frauds on the power and the Pensions Ombudsman cited the classic statement by Lord Parker of Waddington in Vatcher v. Paull [1915] AC 372 at 378, from which I have taken a sentence. As Lord Parker went on to say in relation to powers of appointment, the context in which the doctrine of frauds on the power developed:

"The real vice of an appointment on condition that the appointee shall benefit the appointor or a third party is that the power is not used with the single purpose of benefiting its proper objects but in order to induce the appointee to confer a benefit on a stranger ..." (See [1915] AC 372 at 379.)

The first issue to be decided in relation to the question whether there was an improper and invalid exercise of power in r 21 is what was the purpose or intention of the FMC trustee in making the transfer to the HF trust on 17 November 1989. Mr Oliver for Hillsdown argued that the reason and purpose why the power was exercised as it was, was in fact to secure the augmentation of benefits to members or, if one looks at the problem on a literal basis, the purpose of the exercise of the power was to transfer the assets to another scheme and thereby achieve the price that was to be paid for the benefit of the beneficiaries of the FMC scheme. Strong criticism was made of the sentence I have quoted from the determination in which the Pensions Ombudsman said that the sole reason for the bulk transfer was to secure a payment of surplus to Hillsdown. In my view the purpose of the FMC trustee in exercising the power in r 21 was to give effect to the bargain which had been struck between Hillsdown and the FMC trustee. That bargain had two essential features, first, the payment of surplus to Hillsdown and, secondly, the augmentation of members' benefits. As Mr Oliver put it in opening the appeal:

"I squarely confront the position in this case that the purpose of these transactions was to ensure that there could be a return of surplus to Hillsdown in circumstances where the trust deed of the FMC Scheme did not on its terms permit it."

If it was the purpose of the transactions, it was also in my view one at least of the purposes of the exercise of the r 21 power. No one suggested that there was not a bargain struck between the FMC trustee and Hillsdown and the argument in support of the appeal very properly fully accepted the existence of that bargain.

I accept that if the Pensions Ombudsman intended to define the purpose of the exercise of the power under r 21 in saying that the sole reason for it was to secure the payment of surplus to Hillsdown, he was in error but I am not satisfied that he was doing anything more than identifying why the power under r 21 was used. It was a way, and probably the only way, in which Hillsdown could secure a very large part of the surplus in the FMC scheme. However that may be, I am satisfied that the purpose was as I have stated it. Nor is that conclusion escaped by describing the payment to Hillsdown as the price for securing the desired benefit. The person who pays a price for an article out of a fund under his control has inevitably, as part of his purpose, both the acquisition of the article and the payment of its price. No doubt his motive is to secure the article. But motive and purpose are not the same and it is the latter that counts. As Turner LJ said in Topham v. Duke of Portland (1863) 1 De G J & S 517 at 571, 46 ER 205 at 227:

"... it is one thing to examine into the purpose with which an act is done, and another thing to examine into the motives which led to that purpose ..."

So he declined to examine the propriety of the motive of the appointor in that case, the Duke of Portland, which was that the duke disapproved of the proposed marriage of one of his daughters to Colonel, later Sir William, Topham.

The solicitor advising the FMC trustee relied heavily on the Vauxhall decision. This was Re Vauxhall Motors Pension Fund, Bullard v. Randall [1989] 1 Pensions LR 49, a decision on motion of Browne-Wilkinson V-C. The report only contains the words of the judgment but it would appear that the motions were motions for interlocutory injunctions against trustees of a pensions fund in circumstances which bear a strong resemblance to the facts of the FMC scheme. "The Vauxhall fund", as I call it for short, had an actuarial surplus but under the trust deed governing it there was as Browne-Wilkinson V-C said: "To put it at its lowest no power to return any surplus of the fund to the employer contributors". What was proposed was a scheme where the Vauxhall fund trustees with the consent of some members would pay over assets to trustees of new pension funds under which assenting members would get larger benefits but the surplus assets would under the terms of the new scheme be returnable to the subscribing companies. There was also a fixed intention for such a return to take place. The plaintiffs did not assent and, although the report does not say so in terms, brought motions to restrain the trustees from implementing the scheme. The power to transfer to another approved pension scheme was couched in general terms but it contained a proviso (among others) requiring the trustees to notify the transferee, i.e. the other approved scheme to which assets were to be transferred, of any restrictions applicable to a certain category of assets. It was contended on behalf of the plaintiff non-assenting members that one such restriction which needed to be notified was a proviso to the general power contained in cl 55 of the trust deed to alter the terms thereof. That proviso was to the effect that no alteration should be made which would have the effect of, inter alia, resulting in the payment to the employer companies of any part of the trust fund. Browne-Wilkinson V-C prefaced his judgment by saying that, contrary to the usual practice, he was asked to decide on motion a short point of construction which was the only point raised in the proceedings and that, since the matter was urgent, he had acceded to the request and his judgment was therefore on the true construction of various clauses in the trust deed. The actual point of construction decided, the ambit of the words 'such restrictions' in the proviso to the power to transfer assets to another approved fund is of no relevance and I do not take time to state it. What is relied upon is the passage at the end of Browne-Wilkinson V-C's judgment, where he is recorded as having said (at 53):

"Say that clause 55 [the clause giving power to alter the terms of the trust deed] is or is capable of being a restriction on the assets. The only restriction imposed by clause 55 itself is a restriction on the power to amend the 1982 trust deed. I can not for myself see how such a restriction can be imported into the operation of the new trust deeds in any way that has any meaning. There can be no doubt that the restriction is a restriction on the amendment of the 1982 deed, a restriction which could not affect the funds in the hand of the new trustees. Mr Turner-Samuels [counsel for the plaintiff dissentient members] went further to suggest . . . that Proviso C to clause 55 in some way imposed a general restriction on the assets in the fund. I am bound to say I cannot see that that is so. Proviso C is simply a limitation on a power of amendment. It is not a restriction affecting an asset as such. Therefore in my judgment the claim based on the construction of the trust deed which the plaintiffs have put forward is not correct ..."

The argument advanced to me by Mr Oliver was that the proviso C to cl 55 in the Vauxhall case closely resembled the proviso to cl 14 of the 1983 FMC trust deed and the finding of Browne-Wilkinson V-C that the former could not affect the funds in the hands of new trustees should apply here. Secondly, that the restriction on the power of amendment of a trust deed was just that and not a restriction on assets. Thirdly, he submitted that if the argument which the Pensions Ombudsman has adopted in the determination was correct it would have prevented Browne-Wilkinson V-C deciding the case in the way he did decide it.

In my view Mr Oliver's submissions are correct in so far as they concern the construction of the FMC trust deed and the Vauxhall case is, I think, authority for the proposition, beyond the narrow and presently irrelevant point of construction actually decided in it, that one cannot as a matter of construction get an implication restricting the ambit of the power in r 21 of the 1983 FMC rules by reference to the proviso to cl 14 of the 1983 FMC trust deed. On the other hand, it is no authority on the question whether the power to transfer was proposed to be used for a collateral purpose in a way which would constitute a fraud on the power. There is absolutely no trace of that having been argued and it is clear that Browne-Wilkinson V-C did not regard himself as doing more than decide a question of construction. The highest the case can be put is to say that the argument on fraud on the power was open to the dissentient plaintiffs and was not taken. That might well have been enough to estop them thereafter from raising the point in relation to that particular transaction on the lines of the principle stated in Henderson v. Henderson (1843) 3 Hare 100, but it does not make Browne-Wilkinson V-C's decision a precedent on a subject not addressed by him because not argued before him, far less a binding precedent. For my part, therefore, I agree with the Pensions Ombudsman that the Vauxhall decision is not a relevant authority on the question of fraud on the power and that far too weight was placed upon it by the solicitor advising the FMC trustee.

There is therefore no impediment in the Vauxhall decision to a finding that the FMC trustee's exercise of the power in r 21 constituted a fraud on the power, or in more modern parlance an improper use of the power for a collateral purpose. The purpose for which it was exercised was the composite one of giving effect to the bargain struck with Hillsdown of which a major element was that of a payment of surplus to Hillsdown. That was well outside the proper ambit of r 21 which was to enable transfers of obligations and assets to other approved funds securing pension rights for members. In my view the Pensions Ombudsman was right in calling the transfer a fraud on the power.

It was also argued for Hillsdown that the inclusion of specific limitations on the r 21 power to transfer supported the proposition that it would be wrong to read other limitations in. This too seems to me a valid point so far as it goes which is on any question of construction but it does not in my view touch the question whether the power was used for a collateral purpose. A traditional power of appointment may well be hedged about with restrictions: a common one inserted for tax reasons is to exclude as an object any person to whom the settlor is married. No doubt as a matter of construction the power of appointment should not be impliedly restricted any further than the express exclusion warrants but that is of no relevance to an issue which might arise on any given appointment whether there had been a collateral purpose in the appointment such as to render it ineffectual.

I accept that if the Pensions Ombudsman intended to find that what the FMC trustee actually did was, when viewed objectively, something which operated in the best interests of the FMC members, that would conflict with a finding that the FMC trustee was guilty of maladministration which caused injustice to Mr Burt and the other complainants. This is really no more than a recognition that that which is beneficial causes no injustice. Maladministration and breach of trust are neither synonymous nor coterminous. There can be maladministration without a breach of trust; for example failure to give information when it should be given, as indeed incurred in the present case. There can also be breaches of trust without there being maladministration. Lord Lindley in National Trustees Co of Australasia Ltd v. General Finance Co of Australasia Ltd [1905] AC 373 at 375-376 corrected counsel's citation of his own quotation (in Perrins v. Bellamy [1899] 1 Ch 797 at 798) of what Selwyn LJ used to say, probably extra-judicially, viz: "The main duty of a trustee is to commit judicious breaches of trust", to read "the great use" of a trustee is to commit such breaches. Unauthorised but successful investments are a very common example of such breaches. Closer to this case is what Robert Walker J said in Westminster City Council v. Haywood [1996] 2 All ER 467 at 481-482: "It is not necessarily maladministration for a decision maker to take a wrong view of the law." A little later he continued:

"Taking and acting on a wrong view of the law may be maladministration if the decision-maker knows, or ought to know, that the state of the law is uncertain and that those who may be adversely affected by the uncertainty need to be warned about it."

In my view, the Pensions Ombudsman had ample material before him upon which to conclude that to transfer the entire assets of the fund to another set of trustees by a transaction which was ineffectual because it amounted to an exercise of a power at least in part for a collateral and unauthorised purpose was an act of maladministration although it was done with the advice and concurrence of an appropriately experienced solicitor. I do not consider that there is a conflict between that conclusion of the Pensions Ombudsman and his finding that the FMC trustee acted in the best interests of the members of the FMC scheme because that latter finding was in my view directed at an appreciation of what the FMC trustee was trying to do. The FMC trustee was under the impression at all material times (a) that Hillsdown was in a position over a period of some five years to obtain for itself by a policy of adhering further employers to the FMC scheme coupled with a suspension of its contributions under r 35, the whole of the surplus in the FMC scheme and (b) that it was open to FMC trustee properly to conduct negotiations with Hillsdown regarding the amount of surplus which Hillsdown should receive.

The FMC trustee held those views perfectly honestly. No one suggested the contrary to me. The Pensions Ombudsman agreed with the former of those impressions and disagreed with the latter. In my view, in saying that the FMC trustee acted in the best interests of the members, he was doing no more than assess the quality of their intentions. What they did was intrinsically in breach of trust and damaging to the interests of the members but, given the impressions that they had honestly formed, they were intending to act in the best interests of the members. If and to the extent that the Pensions Ombudsman in his determination concluded that objectively speaking what the FMC trustee did was beneficial to the members, I agree with Mr Oliver's submission that such a finding was repugnant to the rest of the determination but I would resolve the conflict, not by saying, as Mr Oliver would have me do, that the finding of maladministration causing injustice cannot stand, but rather by saying that the finding, if there was one, that what the FMC trustee did was beneficial to the members is in the circumstances a perverse finding which should be rejected. As I have attempted to explain I do not believe that the Pensions Ombudsman's finding was intended by him to extend beyond an assessment of the quality of the FMC trustee's intentions and on that footing no finding of perversity is needed or indeed called for.

I turn now to deal with an argument addressed to me by Mr Nugee that the FMC rustee in striking the deal that was negotiated with Hillsdown was acting under a mistaken view of the respective powers of Hillsdown and the FMC trustee.

Before me the validity of the creation by the deed dated 30 November 1987 of the power to substitute another company for FMC as the new corporation was sought to be challenged by Mr Nugee for the Pensions Ombudsman, although it had not been challenged at any stage before the Pensions Ombudsman who made no comment upon it, nor did he investigate or make any findings about the circumstances obtaining on or around 30 November and 1 December 1987. Mr Nugee accepted that it would not be right for this court to deal with a point of law not raised before the Pensions Ombudsman if factual findings were needed for its elucidation and those findings had not been embarked upon, let alone made. On that basis he accepted that it would not now be practicable or right for me to deal with the exercise of the power to appoint Hillsdown as "the Corporation" in place of FMC. He relied on what Millett J said in Re Courage Group's Pension Schemes, Ryan v. Imperial Brewing and Leisure Ltd [1987] 1 All ER 528 at 542:

"In my judgment, the validity of a power of substitution depends on the circumstances in which it is capable of being exercised and the characteristics which must be possessed by the company capable of being substituted; while the validity of any purported exercise of such a power depends on the purpose for which the substitution is made. The circumstances must be such that substitution is necessary or at least expedient in order to preserve the scheme for those far whose benefit it was established; and the substituted company must be recognisably the successor to the business and workforce of the company for which it is to be substituted. It is not enough that it is a member of the same group as, or even that it is the holding company of, the company for which it is substituted. It must have succeeded to all or much of the business of the former company and have taken over the employment of all or most of the former company's employees. In my judgment, the proposed power to substitute IBL's ultimate holding company for IBL in undefined circumstances is far too wide, alters and is capable of defeating the main purpose of the schemes, and is ultra vires."

Mr Nugee relied on the distinction drawn by Millett J between the validity of a power of substitution of the principal company in a pensions scheme on the one hand and the validity of the exercise of such power by an actual substitution on the other. While accepting that the latter demanded, as indeed Millett J himself said in terms, an examination of the circumstances surrounding the substitution, he submitted that to judge the validity of the creation of the power of substitution it was enough to look at the power itself and assess whether it was validly created by looking at the circumstances in which it was stated to be exercisable. I am not persuaded that such a hard and fast line can be drawn between the creation of a power of substitution and its exercise. It would not in my view be right to disregard the surrounding circumstances in assessing the validity of the deed of 30 November 1987 while taking them into account in relation to the validity of the deed of 1 December 1987.

It seems to me that the whole transaction would need to be investigated before a proper view could be formed regarding the validity of either of the deeds executed on successive dates.

An additional reason for not opening at this stage the question of the validity of the substitution of Hillsdown as the corporation in the FMC scheme is that there had been three employers added to the FMC scheme after Hillsdown's substitution on 1 December 1987 and August of 1989. There was no investigation of this aspect of the matter before the Pensions Ombudsman and it would not in my view be right to allow a new point of law to be raised at this late stage which might well have repercussions upon transactions in the past under which rights have probably accrued without those concerned being at least warned, if not represented.

Upon the basis that it is too late to challenge the substitution of Hillsdown as the corporation in the FMC scheme, there remains the question where the balance of power lay as between Hillsdown, as the corporation, and the FMC trustee in the FMC scheme in relation to the surplus. This needs to be addressed in order to assess Mr Nugee's argument that the FMC trustee was acting under a mistake in making the bargain which it did make with Hillsdown. I propose to consider first the FMC trustee's rights and duties and then those of Hillsdown.

Clause 19 of the 1983 FMC trust deed required the FMC trustees to cause a periodic valuation to be made by the actuary as provided by the rules and to deal with any surplus appearing on such valuation in accordance with r 23 which I have already set out. The provision in the rules (under r 22(b)(iii) regarding periodic valuations) was that one should be made in any event once in every five years after 1 July 1971. Regulation 8(3) of the Occupational Pensions Schemes (Disclosure of Information) Regulations 1986, SI 1986/1046 (the disclosure regulations), which was in force from 1 November 1986, required actuarial valuations to be obtained as at the later of 1 November 1987 and the day falling three years and six months after the previous valuation obtained before 1 November 1986. There was evidence before the Pensions Ombudsman that the actuary had embarked upon a valuation as at 6 April 1988 and the presumption is that this was in compliance with the obligation under the combined effect of the disclosure regulations and r 22(b)(iii). The formal valuation had not been obtained but there was an obligation under reg 8(5) as it stood in the summer of 1989 for it to be obtained as soon as reasonably practicable after the date as at which it was to be made. The FMC trustee had in fact been warned that a surplus would be shown by the valuation. The situation therefore was that the FMC trustee was under a duty to see that the valuation was obtained as soon as reasonably practicable and it was known to be pending. Once the valuation was obtained the FMC trustee would come under an obligation to see that it was applied in accordance with their directions (after taking and having regard to the advice of the actuary) in one or more of the permitted ways specified in r 23(a). This resulted in my view in there being an existing obligation at all times after 6 April 1988 and in particular by the summer of 1989 on the FMC trustee to deal with the surplus as directed by r 23(a) as and when the surplus was certified by the actuary. It would have been improper for the FMC trustee to regard itself as not being under any such obligation unless and until the surplus was certified even though the obligation could only be discharged once the surplus was certified or, alternatively but improbably, if a deficit rather than a surplus had been certified. The maxim "equity looks on that as done which ought to be done" would in my view clearly apply here so as to create the obligation to deal with surplus under r 23 even though the size of the surplus could not be exactly known.

The next problem raised in argument before me was exactly what the surplus envisaged by r 23(a) was. The relevant words in r 23(a) are "any surplus which the actuary shall certify not to be required to cover the immediate and prospective liabilities of the Scheme ..." In my view the liabilities in question are limited to those ascertainable as either immediate or prospective on the date as at which the valuation is made. Immediate liabilities would cover those liabilities that existed as liabilities. Typically that would include the pension of a pensioner and it would include the future payments as well as any existing arrears of such a pension. Prospective liabilities would in my view cover liabilities which could be seen to be in prospect and were susceptible of calculation by recognised actuarial techniques. Typically, that would include the pension of an active member not yet retired but who if he survived his retirement would become entitled to a pension. I do not take time to debate whether a deferred pensioner's right to his or her deferred pension would be an immediate or prospective liability. It certainly would be one or the other and for my purposes it matters not which. On the other hand, I would exclude as a prospective liability the liabilities that would come upon the FMC trustee if there was a prospect on the date as at which the surplus was to be certified of another employer being adhered to the FMC scheme in the future. The chance of such an event occurring is not included in the phrase 'immediate and prospective liabilities' however high the odds of it happening in the future. It is not a chance which is susceptible of actuarial evaluation and is radically different from such chances as mortality and fluctuations in interest rates. It is of course possible that the actuary, when consulted by the FMC trustee pursuant to r 23(a) before the FMC trustee decided how to apply a surplus, might properly in giving his advice have regard certainly to events which had occurred since the date as at which the surplus was certified, such as the adherence of an additional employer and, depending upon his professional judgment as to its relevance, to events which were known to be very likely to occur in the near future.

Mr Oliver's argument for Hillsdown was that what is known as the aggregate method of valuation illustrated what r 23 was directed at. His description of the aggregate method was accepted by Mr Nugee as accurate and it was stated as follows:

"The aggregate method values the liabilities of the scheme for total service (i.e. past and future service of members); it also values the assets which are (a) the assets actually held by the trustees at the time of the valuation, and (b) the discounted value of future contributions from members; the shortfall (if there is one) of assets as compared with liabilities is then eliminated by fixing a contribution rate from the employers to bring the scheme into balance."

Since all the assets actually held by the trustees at the time of valuation are included, it follows that there is already taken into account any part of those assets which might otherwise be regarded as surplus. Mr Oliver drew the conclusion, also in his argument, that it was only if no employers' contributions were necessary because the assets actually held and the discounted value of future contributions from members exceeded the liabilities for total service that there was a real surplus of assets over liabilities which could be applied under r 23. That conclusion, in itself quite accurate as an analysis of using the aggregate method, seems to me of itself to demonstrate that the aggregate method is quite inappropriate in relation to the operation of r 23. The principal reason for this is that r 23 specifically provides for one of the methods whereby the trustees can apply the surplus once identified to be in reduction of the employers' contributions. No method which necessarily involves the employers' contribution being at zero can possibly fit with the system envisaged by r 23(a) for ascertaining surplus. It was also pointed out that the aggregate method would also be inappropriate in relation to r 23(b), which deals with the situation where there is no surplus but a deficiency or anticipated deficiency and gives as one of the trustees' available remedies the increase of the rate of the employers' contributions. The application of the aggregate method as submitted by Mr Oliver would involve there always being a deficiency for the purposes of r 23 in any situation where the sum of the assets held by the trustees and the discounted future members' contributions was less than the total service liabilities and is not only irreconcilable with the possibility of increasing the employers' rate of contributions which is ex hypothesi non-existent but also a result which cannot have been contemplated.

I am not of course criticising the aggregate method as an appropriate technique for calculating a modified contribution rate, regard being had to the existence of a surplus. Not only am I very conscious that I am ill-equipped to do that but also I am only concerned with the true construction of r 23 and it is only in that connection that I express the decided view that the aggregate method, which is doubtless highly appropriate as a technique for calculating a modified contribution rate, is quite inappropriate as a technique for calculating a surplus under r 23.

I should mention that I am not expressing any further views as to the appropriate actuarial techniques for arriving at a surplus or deficiency under r 23. That is a matter for the actuary's professional judgment and may even be a subject upon which different techniques would be preferred by different experts. So long as the technique adopted is not one which, like the aggregate method, is directed at finding the appropriate contribution rate given the existing surplus or deficiency of assets, I see no problem in leaving the matter to the actuary's expertise.

Finally on this aspect I would say that there does not appear to have been any question raised at any stage in the actual negotiations which took place between the FMC trustee and their advisers on the one side and Hillsdown on the other concerning the appropriate actuarial techniques for calculating surplus under r 23. Nor is there any trace of a suggestion having been made at the time that the aggregate method should be adopted. The issue arose both in Mr Oliver's argument regarding the true construction of r 23 and in Mr Nugee's argument regarding the extent to which the trustees needed to obtain Hillsdown's agreement to the application of a surplus revealed by a periodical valuation by the actuary.

Hillsdown had power under cl 4(b) of the 1983 FMC trust deed to adhere other employers in the group of which it was the holding company and it is not necessary for me to deal with the position under cl 4(a) on the footing that FMC and not Hillsdown was the corporation because I have earlier held that the question whether Hillsdown was effectively substituted as the corporation can not now properly be raised. So I conclude that Hillsdown had this power and did not have to obtain the trustees' consent to its exercise. On the other hand, I accept Mr Nugee's submission that this power was one which Hillsdown held subject to the implied obligation in contracts of employment that powers should not be exercised so as to destroy or seriously damage the relationship of confidence and trust between the employer and its employees and former employees. This implication was made by Browne-Wilkinson V-C in Imperial Group Pension Trust Ltd v. Imperial Tobacco Ltd [1991] 2 All ER 597, the year after he decided the Vauxhall case [1989] Pensions LR 49, in relation to a power to give or withhold consent to an increase in pension benefits. Browne-Wilkinson V-C used the expression 'the obligation of good faith' as a form of shorthand for the implication set out above and in adopting it I should like to emphasise that it is a convenient shorthand only and, in particular, does not carry the implication that a failure to observe the implied obligation involved would amount to bad faith in the pejorative sense in which that expression is often used.

The practical implications which Browne-Wilkinson V-C drew from the obligation of good faith were, in the Imperial Group case [1991] 2 All ER 597 at 607, described as follows:

"... the obligation of good faith does require that the company should exercise its rights (a) with a view to the efficient running of the scheme established by the fund and (b) not for the collateral purpose of forcing the members to give up their accrued rights in the existing fund subject to this scheme."

In the context which existed in the Imperial Group case, he went on to say in relation to (b) above that in the context of a closed class of employees the power to consent to benefit improvements could not be used consistently with the obligation of good faith —

"for the purpose of coercing that class to give up its rights under the existing trust. The duty of good faith requires the company to preserve its employees' rights and pension fund, not to destroy them. If there are financial and other considerations which require the fund to be determined, so be it. But if the sole purpose of refusing to consent to an amendment increasing benefits is the collateral purpose of putting pressure on members to abandon their existing rights (including the right to surplus on determination) in my judgment the company would not be acting in good faith."

The other power which Hillsdown had was to suspend or determine its contributions under r 35. Clearly that power was given to it for its own benefit and there can be no question of fiduciary duty being owed in relation to its exercise. But where it does seem to me that the obligation of good faith would have applied to restrain Hillsdown's unilateral pursuit of its own interests without a proper regard to those of its employees and retired employees would have been in a combined operation of the power to adhere further employers while at the same time suspending its contributions which would otherwise have been payable in respect of them for the purpose of running down a surplus certified to have arisen ex hypothesi in relation to the service of the employees of other employers which were in the FMC scheme before the date as at which the surplus was certified. I say this for two reasons. The first is that the surplus thus certified was in the disposition of the trustees alone under the express terms of r 23(a) and Hillsdown had no right to interfere with its exercise and, secondly, because it would in my view constitute a breach of the implied obligation of good faith on the one hand to enlarge the class of employers and so bring in large categories of new members and at the same time to decline to make contributions in respect of such new members for the purpose of running off a surplus which had arisen in relation to other members who were members at the time as at which the surplus was certified. It is one thing for an employer to take a contributions holiday in respect of a category of existing members and quite another to introduce a large class of new members and take a contributions holiday in relation to them so as to accelerate the effect of the contributions holiday in relation to the existing members.

It was suggested to me that there is an apparent tension between the passages which I have quoted from Browne-Wilkinson V-C's judgment in the Imperial Group case and the passage in Millett J's judgment in the Courage case in which he contemplates as perfectly proper a process of bargaining between the trustees of a pension fund and the employer in the context of a desire by an employer to obtain payment of at least part of a surplus and a desire by the trustees to secure increased benefits for their members. The last sentence of the penultimate paragraph of Millett J's judgment in the Courage case [1987] 1 All ER 528 at 545 reads:

"Where the employer seeks repayment, the trustees or committee can be expected to press for generous treatment of employees and pensioners, and the employer to be influenced by a desire to maintain good industrial relations with its workforce."

Clearly a process of negotiation is there envisaged and it may be asked how one reconciles a freedom to negotiate with a duty to observe the implied obligation of good faith. I see no irreconcilable conflict in the two nor indeed anything out of line with many facets of employment relations where it is common for employers whilst under that implied obligation nevertheless to be free to negotiate with employees or their representatives. There is however an important distinction, which was not observed in the present case, between negotiating over issues in which both parties have a locus standi, a legitimate interest to preserve, on the one hand, and negotiating over a matter where one party has no legitimate interest to preserve and therefore no locus standi, on the other. In this case the mode of application of the surplus, once ascertained pursuant to r 23(a), was a matter for the FMC trustee alone, subject to consultation with the actuary. Hillsdown was not in a position to ask for a share of the surplus as a term of giving its consent because its consent was not needed. That is not to say that the FMC trustee should have cut itself off altogether from and ignored the principal employer under its scheme; but there is a very wide gulf between active bargaining for substantial financial payments and consultation with a view to ensuring that pension fund trustees take a decision which fits in, so far as practicable and permissible, with an employer's industrial strategy. The situation envisaged in Millett J's judgment, where negotiation in the shape of bargaining was contemplated with approval, was one where each side had something to give or withhold by way of necessary consent and there was no absolute bar on what was sought to be achieved, eg a change in the relevant rules to get rid of a prohibition upon the payment of funds to the employer.

Overall therefore my conclusion on the above analysis of the respective rights and duties of the FMC trustee and Hillsdown is that the Pensions Ombudsman was correct in his analysis that "the question of a payment of surplus to Hillsdown was not negotiable — FMC Trustee was not empowered to grant a payment of surplus" although I would base that conclusion not solely on the terms of and implications from cl 14 of the 1983 FMC trust deed, although it is a relevant background factor, but on a wider consideration of the rights and duties of the FMC trustee. The Pensions Ombudsman also said that the FMC trustee was not entitled to enter into negotiations of the type envisaged by Millett J in the Courage case. I would agree with that but I would add that Hillsdown was not entitled to enter into such negotiations, both because it was seeking to persuade the FMC trustee to do that which it ought not to have done and because it was itself in breach of its implied obligation of good faith in doing so.

I can deal much more briefly with the complaint against the HF trustee. The Pensions Ombudsman found that the power of amendment in cl 11 of the HF trust deed was wide enough to permit the introduction of amendments to permit payment of surplus to an employer. That was not challenged.

However, the Pensions Ombudsman went on to find in his determination that the HF trustee was in breach of its duty to act in the best interests of its members in effecting the amendment which permitted payment to Hillsdown without seeking to bargain with Hillsdown for some advantage to its members as the price for such an amendment. In reaching that conclusion the Pensions Ombudsman placed much stress upon the fact that the transfer agreement whereby the FMC scheme assets were agreed to be transferred to the HF scheme was dated 17 November 1989 whereas the amendment to the HF scheme was not made until 4 December 1989. The Pensions Ombudsman did not accept that the HF trustee was under a contractual obligation to give effect to the bargain struck between the FMC trustee and Hillsdown because there was no sufficient evidence of that, given the absence of any relevant HF trustee board minute and the fact that, although two of the members of the board of the HF trustee were also members of the FMC trustee, not all were. He also held that any moral obligation there might be on the HF trustee to give effect to the bargain between the FMC trustee and Hillsdown was insufficient to justify the HF trustee in failing to carry out its duty to bargain with Hillsdown on behalf of its members. Accordingly, he upheld the complaint against the HF trustee.

I do not think that decision can stand because it ignores the fact that the HF trustee would have had no defence to a claim to restitution of the assets paid and transferred over to it by the FMC trustee pursuant to the bargain between the FMC trustee and Hillsdown if it, the HF trustee, had declined to implement what it undoubtedly had clear notice of, namely the bargain regarding the application of the assets. Not only would it have been morally wrong for the HF trustee to accept assets known by it to be transferred to it solely for the purpose of implementing a particular bargain and then claim to keep those assets without giving effect to that bargain but it would also have been legally indefensible to claim to retain the assets and ignore and refuse to implement the known basis upon which the assets were transferred. Mr Nugee did not contend for the contrary. It is unnecessary for me to deal with the question whether there was a legally binding obligation on the HF trustee to implement the bargain between the FMC trustee and Hillsdown. Nor do I find it necessary to resolve questions how far it is proper for trustees to give effect to moral obligations which may conflict with the economic benefit of the beneficiaries. In the event, the complaint against the HF trustee is largely academic in that no relief was granted as against them although they are involved in the implementation of the relief which was granted. There was no appeal by the HF trustee against the determination and they were represented before me largely on the ground that questions arise in connection with the implementation of the relief granted upon which the HF trustee clearly should be heard. I did have the benefit of submissions by Mr Inglis-Jones QC on behalf of the HF trustee and they did extend to deal with certain aspects other than the issue of relief.

The complaint against Hillsdown was upheld by the Pensions Ombudsman on the basis that it was a breach of Hillsdown's duty of good faith for it to induce the FMC trustee to act in breach of trust by committing a fraud on the power.

On the other hand he also held that, in the light of the prospective loss of full tax exemption if the surplus in the FMC scheme was not reduced to the level permitted by the Inland Revenue, Hillsdown would not have been in breach of its duty of good faith had it adopted, as a means of avoiding the prospective tax liability, the option of opening the membership to other group employers whose employees had pensions which were underfunded or unfunded. I have already expressed the view that the combination of that option with the exercise of Hillsdown's power to suspend or terminate its contributions as a means of running off a surplus which had been certified to exist for the purposes of r 23 in relation to a membership which did not include the new members thus introduced would constitute a breach of the implied obligation of good faith. To that extent I disagree with the Pensions Ombudsman's conclusion regarding Hillsdown's powers. In my view he overestimated Hillsdown's powers in relation to the surplus as at 6 April 1988 but this is of relatively small importance given that in my view he was right in holding that there was a breach of that implied obligation of good faith in inducing the FMC trustee to act in breach of trust by the misuse of the power in r 21, a conclusion with which I agree. My reasons for agreeing with the conclusion is not the same as the Pensions Ombudsman's in reaching it and the difference is significant because, as will be seen later, it impinges on the question of remedies. I consider it to be significant that the process of negotiation used by Hillsdown, the threat to absorb surplus over five years by adhering other categories of employees coupled with the threat to use the power in r 35 to suspend or terminate employers' contributions was intrinsically a breach of the implied obligation of good faith so that not only was Hillsdown seeking to persuade the FMC trustee to commit a fraud on the power but also the technique by which that process of persuasion was brought to bear was intrinsically one which Hillsdown was not in my view entitled to use in relation to the surplus in the FMC scheme as at 6 April 1988. Mr Oliver's argument against the conclusion that Hillsdown induced the FMC trustee to commit a fraud on the power was based on the fact which is clearly established that neither Hillsdown nor the FMC trustee thought that what they were negotiating about would, if carried into effect, constitute a use of a power for a collateral and improper purpose and both were perfectly honest in that belief which was largely induced by advice from a reputable professional source. That argument would have had much more force had it not been for the additional factor that Hillsdown was in my view using as a negotiating tactic a threat to do something which was intrinsically improper. The case is therefore not just one of a third party negotiating with a trustee in such a way as, unbeknown to either the third party or the trustee, would cause the trustee to commit a breach of trust, but of a third party by threatening to do something which he was not entitled to do, persuading the trustee to do that which neither of them appreciated would constitute a breach of trust.

For those reasons I consider that the finding that Hillsdown was guilty of maladministration causing injustice was correctly made although my reasons for reaching that conclusion are not the same as the Pensions Ombudsman.

Before I turn to the question of remedies and the powers in that behalf of the Pensions Ombudsman I must deal with two additional arguments advanced by Mr Nugee for attacking the validity of the transfer agreement of 17 November 1989. The first was that the FMC trustee so misunderstood where the balance of power lay as between the FMC trustee and Hillsdown in thinking that Hillsdown was entitled to obtain the benefit of the surplus in the FMC scheme as at 6 April 1988 by adhering additional employers and suspending or terminating the liability to make employer's contributions, that there was a failure on the FMC trustee's part to take into account considerations which ought to have been taken into account. The next step in the argument was that if the FMC trustee had correctly appreciated what Hillsdown's powers were the FMC trustee would not have exercised its discretion to enter into the transfer agreement and the conclusion is that the court would in these circumstances have power to set the transfer agreement aside. The principle upon which that would be done was stated by Warner J, applying in a pension fund context the decision of the Court of Appeal in Re Hastings-Bass (decd), Hastings v. IRC [1975] Ch 25, in Mettoy Pension Trustees Ltd v. Evans [1991] 2 All ER 513 at 552-553 as follows:

"... where a trustee acts under a discretion given to him by the terms of the trust, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account."

He went on to hold that the extent of the trustee's duty to take into account relevant considerations was not affected by the quality of the advice received by the trustee (see [1991] 2 All ER 513 at 556). This argument was not addressed by the Pensions Ombudsman because he did not accept an important premise upon which the argument was founded, namely that the FMC trustee misunderstood Hillsdown's powers to absorb the FMC scheme surplus as at 6 April 1988 over a five-year period. For reasons already given, I do consider that the FMC trustee did misunderstand Hillsdown's powers in that connection and it follows that I do consider that the court would have been entitled to intervene under the Hastings-Bass principle. I have no doubt that the attitude of the FMC trustee in the negotiations with Hillsdown was critically affected by the conviction perfectly honestly, but in my view erroneously, formed that Hillsdown could properly absorb the surplus in question over a five-year period. However, since this does not add anything to the conclusion which I have earlier reached that the FMC trustee's purported exercise of the power conferred by r 21 was a fraud on the power, it is not in my view necessary to explore this aspect further and, in particular, I need not decide how far it would be proper on appeal to deal with a point of law not raised before the Pensions Ombudsman or dealt with by the determination. My impression is that it would be proper to deal with points of law not raised below or dealt with in the determination under appeal if, but only if, the resolution of the point of law does not involve an investigation of facts which have not been investigated. Since the Pensions Ombudsman's jurisdiction is largely inquisitorial it would in my view be proper to include among points of law, which can properly be investigated on appeal from his determination, points of law which could have been dealt with by him on the material before him but were not. There is a clear distinction between appeals from the Pensions Ombudsman and appeals to the Employment Appeal Tribunal from industrial tribunals, where a more restrictive approach to the taking of new points of law on appeal prevails.

The second additional argument advanced by Mr Nugee for attacking the validity of the transfer agreement of 17 November 1989 was that it was liable to be set aside as having been made in breach of the self-dealing rule. That rule was shortly stated by Megarry J in Tito v. Waddell (No 2) [1977] Ch 106 at 241 as follows:

"The self-dealing rule is (to put it very shortly) that if a trustee sells the trust property to himself, the sale is voidable by any beneficiary ex debito justitiae, however fair the transaction."

In the present case there were two persons, Mr Solomon and Mr Legg, who had a foot in three camps in that they were directors of Hillsdown (Mr Solomon was chairman), they were directors of the FMC trustee having previously been individual FMC trustees, and they were directors of the HF trustee. It is primarily in relation to the dual capacity regarding Hillsdown and the FMC trustee, between which bodies the critical bargaining took place, that the point is made. There is no doubt that Mr Legg in particular played an active part on behalf of the FMC trustee because he conducted the correspondence for them. Mr Nugee's submission was to the effect that the self-dealing rule applied so as to render a transaction voidable, no matter how fair and proper it was, if in the negotiations leading up to the transaction there was at least one person who was either a trustee or a director on both sides with a conflict of duties. That was not his formulation, which was that there was here an agreement between trustees and a company of which two of the trustees were directors and as such it would seem prima facie to be liable to be set aside ex debito justitiae at the request of any beneficiary. Even on that formulation it is only a prima facie result and is therefore not a necessary one. But apart from that point, which may be no more than verbal, I am not satisfied that the self-dealing rule is as hard and fast as to require a negotiation between pension fund trustees and the employer to be set aside automatically and without investigation if one or more of the trustees are directors of the employer. I accept that, unless there is an express provision in the relevant trust deed permitting a trustee to act in negotiations with the employer under the scheme notwithstanding that the trustee is a director or employee of the company, the fact that negotiations have been conducted by persons one of whom had a conflict of duties puts upon those who say the transaction in question should be upheld the onus of proving that it was indeed reasonable and proper. That of course involves an investigation of the facts.

In the present case there is nothing in the determination about the possible impact of the self-dealing rule. The nearest that one approaches to it is in the recital of Mr Burt's complaint, which includes the following:

'He [that is Mr Burt] believes that the decision was taken because the individuals who were directors of FMC Trustee were also directors of Hillsdown and that they failed to distinguish their competing fiduciary duties. His complaint against Hillsdown in this regard was that it brought undue influence to bear on FMC Trustee.'

It might be thought that this would have alerted the Pensions Ombudsman to the possible application if not of the self-dealing rule at least of a necessity for Hillsdown to show that there was in fact no operative conflict of duties in the negotiating process. But the fact is that no separate investigation on those lines was conducted although, as has already appeared, the bargain itself was investigated in some detail.

My reasons for holding that negotiations of the type conducted between Hillsdown and the FMC trustee are not automatically liable to be set aside at the request of a beneficiary are that the self-dealing rule does not in my view extend in its full stringency that far. The high-water mark is the decision of Vinelott J in Re Thompson's Settlement, Thompson v. Thompson [1986] Ch 99 in which a transaction amounting either to an assignment or a surrender and regrant of a lease between trustees on the one hand and a company on the other was held voidable under the self-dealing rule because one of the trustees was also a director and, with his wife, majority shareholder in the company. The transaction was therefore within the self-dealing rule. The significance of the decision for Mr Nugee's argument was that Vinelott J, in reply to an argument that the self-dealing, as opposed to the fair-dealing, rule only applied if there was a sale or purchase by trustees of trust property or something analogous to it, said ([1986] Ch 99 at 115):

"I do not think the self-dealing rule can be so confined. It is clear that the self-dealing rule is an application of the wider principle that a man must not put himself in a position where duty and interest conflict or where his duty to one conflicts with his duty to another (see in particular the opinion of Lord Dunedin in Wright v. Morgan [1926] AC 788 at 797) which I have cited. The principle is applied stringently in cases where a trustee concurs in a transaction which cannot be carried into effect without his concurrence and who also has an interest in or owes a fiduciary duty to another in relation to the same transaction. The transaction cannot stand if challenged by a beneficiary because in the absence of an express provision in the trust instrument the beneficiaries are entitled to require that the trustees act unanimously and that each brings to bear a mind unclouded by any contrary interest or duty in deciding whether it is the interest of the beneficiaries that the trustees concur in it."

Where a limited company is involved on one side there is however in my view on the authorities a less rigid line. That seems to me to be demonstrated by Farrar v. Farrars Ltd (1888) 40 Ch D 395, which fell on the fair-dealing side of the line where the individual concerned was interested in that he had a small shareholding and Re Thompson's Settlement, which, as already mentioned, fell on the self-dealing side of the line where the individual was a substantial shareholder and director. It suffices for my purpose to say that the position is not so clear-cut that the self-dealing rule applies to render the transfer agreement voidable that it would be right at this stage for me to hold that that was established as a point of law where the point of law was not dealt with in the determination nor were the relevant facts, such as the extent, if any, to which Mr Solomon and Mr Legg were involved on behalf of Hillsdown, investigated and established as facts upon which an appeal could be founded.

Two important issues arise here. The first is whether the Pensions Ombudsman has jurisdiction to direct steps to be taken under s 151(2) of the 1993 Act with a view to remedying any injustice caused by maladministration to anyone other than the complainant with whose complaint he is dealing, in this case Mr Burt. A half-way house on this issue would be to hold that steps could be directed to be taken in relation to the complaints actually received by the Pensions Ombudsman. They totalled 51 besides Mr Burt's. There were some 1,100 members of the FMC scheme. The 52 complaints were stated by the Pensions Ombudsman to be in substance identical. Mr Oliver not surprisingly recognised that his submission that only Mr Burt's injustice caused by maladministration (if there was one) could be the subject of remedial steps was not an attractive one because it would require separate treatment of all complaints and effectively prevent an effective system of taking a test case. Nowhere in the Act or the relevant regulations is there express provision for representation orders. In my view the argument advanced for thus limiting the Pensions Ombudsman's jurisdiction not only leads to inconvenient results but is also unsound in principle.

The jurisdiction is defined in s 151(2) of the 1993 Act in very wide terms. I have already set it out and there is no express limitation on the steps which the Pensions Ombudsman can direct to be taken or refrained from. Where, as here, the remedy discerned as appropriate by the Pensions Ombudsman is one which is equally applicable in relation to a large number of other authorised complainants on the same facts and it is a remedy to which the particular claimant in question is entitled then I have no doubt that there is jurisdiction to direct steps which grant that remedy. What has happened here upon the view which the Pensions Ombudsman in my view has correctly taken is that as a result of a breach of trust a large sum of money has been paid out of a pension trust to an employer. Where there is a continuing trust the remedy of a beneficiary under the trust which has payments made out of it in breach of trust is to have the trust fund restored. This rule has lately come under the scrutiny of the House of Lords in Target Holdings Ltd v. Redferns (a firm) [1996] AC 421. Lord Browne-Wilkinson said ([1996] AC 421 at 434):

"The basic right of a beneficiary is to have the trust duly administered in accordance with the provisions of the trust instrument, if any, and the general law. Thus, in relation to a traditional trust where the fund is held on trust for a number of beneficiaries having different, usually successive, equitable interests, eg A for life with remainder to B), the right of each beneficiary is to have the whole fund vested in the trustees so as to be available to satisfy his equitable interest when, and if, it falls into possession. Accordingly, in the case of a breach of such a trust involving the wrongful paying away of trust assets, the liability of the trustee is to restore to the trust fund, often called 'the trust estate', what ought to have been there."

Lord Browne-Wilkinson went on to hold that this well-established principle did not apply to a bare trust and that was the essential issue in the decision. Mr Inglis-Jones submitted that because the FMC scheme had been wound up, as it was shortly after the assets were transferred to the HF trust, the appropriate rule to apply was that appropriate to a bare trust as set out in Target Holdings Ltd v. Redferns (a firm) by the House of Lords so that each complainant would have to establish the individual quantum of injustice which he or she would have suffered — in effect a claim to damages. I am quite unable to accept that submission. Bringing the scheme to an end cannot be allowed to obscure the fact that what has happened and what calls for an appropriate remedy is that assets have improperly been taken out of a trust fund which had at the time continuing trusts to be performed. To suggest that those responsible for that improper act can mitigate or alter the quantum of their liability by determining the scheme is a startling proposition which I am quite unable to accept. I appreciate that with a pension fund events keep on happening, members retire and die, so there is no permanence at all in entitlement out of the fund. That no doubt complicates the issues regarding appropriate remedies, but it does nothing to persuade me that the appropriate remedy, even for a single complainant who shows that assets have been improperly taken out of a pension trust with continuing trusts, is not an order or determination that they should be put back.

This is both an important and difficult issue upon which there has been some measure, at least temporarily, of difference of opinion between my brethren Carnwath and Robert Walker JJ. The particular question upon which their opinions diverged was whether the Pensions Ombudsman had jurisdiction to direct the payment of compensation for distress and inconvenience caused by maladministration. In Miller v. Stapleton [1996] 2 All ER 449 at 465 Carnwath J obiter and reluctantly was inclined to agree that the Pensions Ombudsman had no power to direct such payment in circumstances where the court would not do so. In Westminster City Council v. Haywood [1996] 2 All ER 467 Robert Walker J held that there was power to direct the payment of reasonable compensation for distress and inconvenience and upheld just such an award and, finally, in Wild v. Pensions Ombudsman (1996) Times 17 April Carnwath J said that it seemed to him right that he should follow Robert Walker J's decision in spite of the doubts which he expressed in Miller's case unless and until the matter was considered by a higher court. It would not I think be fair to assume that because Carnwath J's readiness to follow Robert Walker J's decision was limited to the period before the matter was considered by a higher court that he intended to convey that the higher court in question would decide the point differently from Robert Walker J. Nevertheless both judges recognised that the point was a difficult one upon which there were cogent arguments either way. Those arguments are set out in those judgments and I do not take time to repeat them. My own view, in the different context of a complaint against an employer in respect of maladministration causing injustice to members in participation in a transaction involving the improper payment out of sums which in large measure found their way, as they were from the outset intended to do, into the employer's hands, is that it would not be permissible for the Pensions Ombudsman to require the employer to refund the sums it received unless the court would be in a position to make such an order. In reaching that conclusion I have not taken into account, as Mr Inglis-Jones submitted that I should, what was said in the House of Commons Standing Committee by the Under-Secretary of State during the debate on what has become the Pensions Act 1995 (see HC Official Report, SC D (Pensions Bill), 20 June 1995). In relation to a concern expressed by the then Pensions Ombudsman that while he could recommend compensation for distress, delay and inconvenience suffered by a complainant, he could not direct such compensation to be paid, the Under-Secretary of State said (col 758):

"If he were able to direct that that [sic] compensation be paid, he would have powers greater than those of any other ombudsman or of the courts. It would not be appropriate for the ombudsman to have those powers. The ombudsman's powers are correctly delineated by existing law and by the extensions introduced in the Bill."

While I accept that that is a clear expression of the Under-Secretary of State's understanding of the law as it then stood, I do not consider that it is admissible within the very narrow confines laid down by Lord Browne-Wilkinson in Pepper (Inspector of Taxes) v. Hart [1993] AC 593 at 634 in a speech with which the majority of the House agreed. He said:

"... subject to the questions of the privileges of the House of Commons, reference to parliamentary material should be permitted as an aid to the construction of legislation which is ambiguous or obscure or the literal meaning of which leads to an absurdity. Even in such cases references in court to parliamentary material should only be permitted where such material clearly discloses the mischief aimed at or the legislative intention lying behind the ambiguous or obscure words."

In my view what the Under-Secretary of State said in 1995 cannot amount to material clearly disclosing the legislative intention in the Pension Schemes Act 1993, or a fortiori, the earlier Act, the Social Security Act 1990, which the 1993 Act re-enacted. I appreciate that it is permissible to have regard to a later Act in order to construe earlier legislation, if but only if, the earlier legislation is ambiguous: see Kirkness (Inspector of Taxes) v. John Hudson & Co Ltd [1955] AC 696. I also appreciate that the Pensions Act 1995 amended (inter alia) s 151 of the 1993 Act and effectively re-enacted it as amended. Nevertheless, there is I believe a clear line to be drawn between parliamentary material evidencing the intention behind legislation then going through Parliament on the way to the statute book and parliamentary material evidencing the understanding of ministers of the current state of the law. It seems to me that what the Under-Secretary of State said on 20 June 1995 falls into the latter category and falls outside what Pepper v. Hart allows into evidence. It would follow that I consider that Robert Walker J was in my view rightly not told that he could get assistance from Hansard under the principle in Pepper v. Hart (see Westminster City Council v. Haywood [1996] 2 All ER 467 at 480).

My main reasons for holding the view that I have expressed regarding the Pensions Ombudsman's inability to direct an employer or trustee to replace funds improperly removed from a pension scheme unless the court itself could so order are twofold. First, it seems to me that there is a real distinction between ordering compensation for inconvenience and distress caused by maladministration as an adjunct to the power to remedy injustice caused by maladministration which, in line with Robert Walker J's decision, I take to be permissible, and requiring the repayment of what might well be, and in this case were, very substantial sums by way of payment out from a pension fund, on the other hand. It is trite law that pension funds must operate within the law and it does not seem to me right that there should be a different answer to the question "are you legally liable to repay this sum" according to the tribunal to which resort is had so that the answer is: "If I am sued in court, No, but if a complaint is made to the Pensions Ombudsman, Yes." The injustice through maladministration must in this case consist of the detriment suffered by the payment out itself and is in no sense ancillary as are claims to compensation for inconvenience and distress. My second reason is tied up with the first and is that s 146(6)(a) of the 1993 Act prevents the Pensions Ombudsman from investigating a complaint if before the complaint is made proceedings have been begun in court in respect of the matters which would be the subject of the investigation. That suggests that the two are intended to be mutually exclusive alternatives and it would be strange if it was contemplated that the alternatives would or might produce different results as to the substance of the dispute. I can well imagine that the two tribunals would be contemplated as having radically different procedures and it may be types of relief but I would not expect differences on such fundamental matters as whether there was a liability to repay capital sums. Also there would be a possibility of abuse if it were possible to avoid an impending complaint to the Pensions Ombudsman by a well-timed application for the determination of a dispute of fact or law.

The Pensions Ombudsman said in his determination:

"Since the transfer took place in breach of trust, the assets were received by HF Trustee as constructive trustee and the payment made to Hillsdown was received by Hillsdown as constructive trustee."

I fear that cuts some well-known corners in the law of constructive trusts. Notably, as Mr Oliver submitted, receipt of trust property by a third party does not, without more, constitute the recipient a constructive trustee. The categories of constructive trust in this field are usually referred to as "knowing assistance" and "knowing receipt" cases of constructive trust. In either category some form of knowledge is required. The knowing assistance cases are not relevant here since Hillsdown did receive the sums paid out by the HF trustee which came from the FMC scheme and was not guilty of any such dishonest conduct as is requisite in knowing assistance constructive trusts.

The knowing receipt cases on the other hand are rather more complex. I was referred by Mr Oliver to Carl-Zeiss-Stiftung v. Herbert Smith & Co (a firm) (No 2) [1969] 2 All ER 367, where claims that the defendant solicitors were liable to account as constructive trustees for sums received on account of their fees from the West German Zeiss foundation, all of whose assets were claimed to belong to the plaintiff East German foundation. Both facts and law were in dispute but what was not in dispute was the integrity of the solicitors. All that was said against them was that they had notice of the East German foundation claim that moneys paid to them belonged beneficially to the latter. The claim against the solicitors failed but the reasons given by the members of the Court of Appeal were not identical. Danckwerts LJ held that knowledge of a claim was not sufficient to amount to notice of a trust or of misapplication of the moneys (see [1969] 2 All ER 367 at 372-373). He approved of a passage taken from 38 Halsbury's Laws (3rd edn) para 1450, which included the following:

"A person does not, however, become a constructive trustee merely by acting as the solicitor or agent of trustees in transactions within their legal powers, although the transactions may be of a character of which a court of equity would disapprove, unless he receives and becomes chargeable with some part of the trust property, or unless he knowingly assists in a dishonest and fraudulent act on the part of the trustees." (See [1969] 2 All ER 367 at 373.)

The passage is largely based on the classic statement by Lord Selborne LC in Barnes v. Addy (1874) LR 9 Ch App 244 at 251-252 which Danckwerts LJ quoted. Danckwerts LJ rejected the argument that all the allegations in the statement of claim had at that interlocutory stage to be assumed to be true saying ([1969] 2 All ER 367 at 375):

"That will not do. What we have to deal with is the state of the defendants' knowledge (actual or imputed) at the date they received payments of their costs and disbursements. At that date they cannot have had more than knowledge of the claims ... It is not a case where the West German foundation were holding property on any express trust."

Sachs LJ emphasised the difference between knowledge and notice and held that "cognisance of what has been termed 'a doubtful equity' is not enough" to fix a stranger with constructive trusteeship (see [1969] 2 All ER 367 at 378). He also held that the solicitors were not under a duty to the plaintiffs to investigate the validity of the claims either as to the facts or the law. Sachs LJ said this, which Mr Oliver naturally relied upon ([1969] 2 All ER 367 at 379):

"It does not, however, seem to me that a stranger is necessarily shown to be both a constructive trustee and liable for a breach of the relevant trusts even if it is established that he has such notice. As at present advised, I am inclined to the view that a further element has to be proved, at any rate in a case such as the present one. That element is one of dishonesty or of consciously acting improperly, as opposed to an innocent failure to make what a court may later decide to have been proper enquiry. That would entail both actual knowledge of the trust's existence and actual knowledge that what is being done is improperly in breach of that trust — though, of course, in both cases a person wilfully shutting his eyes to the obvious is in no different position than if he had kept them open."

Edmund Davies LJ put the matter on a broad basis in the following passage ([1969] 2 All ER 367 at 381-382):

"English law provides no clear and all-embracing definition of a constructive trust. Its boundaries have been left perhaps deliberately vague, so as not to restrict the court by technicalities in deciding what the justice of a particular case may demand. But it appears that in this country unjust enrichment or other personal advantage is not a sine qua non . . . Nevertheless, the concept of unjust enrichment has its value as providing one example among many of what, for lack of a better phrase, I would call 'want of probity', a feature which recurs through and seems to connect all those cases drawn to the court's attention where a constructive trust has been held to exist. Snell's Equity (26th edition, 1966) at p. 201, expresses the same idea by stating that: 'A possible definition is that a constructive trust is a trust which is imposed by equity in order to satisfy the demands of justice and good conscience, without reference to any express or presumed intention of the parties.' It may be objected that, even assuming the correctness of the foregoing, it provides no assistance, inasmuch as reference to 'unjust enrichment', 'want of probity' and 'the demands of justice and good conscience' merely introduces vague concepts which are in turn incapable of definition and which, therefore, provide no yardstick. I do not agree. Concepts may defy definition and yet the presence in or absence from a situation of that which they denote may be beyond doubt. The concept of 'want of probity' appears to provide a useful touchstone in considering circumstances said to give rise to constructive trusts, and I have not found it misleading when applying it to the many authorities cited to this court. It is because of such a concept that evidence as to 'good faith', 'knowledge' and 'notice' plays so important a part in the reported decisions. It is true that not every situation where probity is lacking gives rise to a constructive trust. Nevertheless, the authorities appear to show that nothing short of it will do. Not even gross negligence will suffice."

Edmund Davies LJ emphasised the reluctance of the law to make agents liable as constructive trustees.

The Zeiss case is obviously factually distinguishable primarily on the basis that it was concerned with a claim to make an agent acting within the scope of his authority liable as a constructive trustee. Moreover, the solicitors plainly had no connection whatever with the breach of trust relied upon in the action. On the other hand, Sachs and Edmund Davies LJJ did emphasise the general need for want of probity, but in doing so Edmund Davies LJ accepted the usefulness of the concept of unjust enrichment as providing one of many examples of want of probity as he saw it.

The other authority on constructive trusts of the knowing receipt category to which Mr Oliver referred was Re Montagu's Settlement Trusts, Duke of Manchester v. National Westminster Bank Ltd [1987] Ch 264. In that case the settlor and tenant for life under an old-fashioned strict settlement which included a settlement of chattels had handed over to him various settled chattels in breach of an obligation imposed on the trustees of the settlement to select chattels suitable to be settled as family heirlooms. The life tenant was only entitled to receive what was left of the settled chattels after that selection was made and it never was. Megarry V-C found that the life tenant had notice, both actual and imputed through his solicitor, of the terms of the settlement but did not personally know that he was not entitled to take absolutely the chattels that were made over to him by the trustees and in those circumstances he declined to hold the life tenant liable as a constructive trustee. That was a case where to a lawyer, if he read the relevant clause (numbered 14B) attentively, it was clear that there was a duty on the trustees to make a selection of heirlooms and not a mere power to do so. To a layman however the situation was not obvious and there was an affirmative finding that the life tenant, who was not a lawyer, did not know that he was not absolutely entitled to the chattels handed over to him. Re Montagu's Settlement Trusts is, in my view, authority for the proposition that a person to whom trustees hand over property in breach of trust will not be treated as a constructive trustee unless he had actual knowledge or deliberately shut his eyes to the fact that the property was trust property or wilfully and recklessly failed to make such inquiries as a reasonable and honest man would make. There was a tracing claim in so far as tracing was possible but in the event that did not prove possible. Here again the facts, although closer to the present case than those in the Zeiss case, are in my view clearly distinguishable in that the life tenant did not have a hand in the trustees' breach of trust otherwise than as the recipient of what he thought he was entitled to receive. It was a case like the one before me of an honest muddle in that no one involved acted dishonestly and the trustees who committed the breach of trust had advice throughout but not good advice. The critical distinguishing feature in my view is that, in the case before me, Hillsdown were the instigators of the breach of trust, albeit that they did not appreciate that what was involved was a breach of trust. Moreover, the instigation took the form of a threat to do something which in my view Hillsdown as a matter of construction of the 1983 FMC trust deed was not entitled to do and the whole process of negotiation consisted of unwarranted interference with the duty of the FMC trustee after consulting the actuary to decide how to apply the surplus in the FMC scheme as at 6 April 1988.

Mr Oliver relied upon the fact that there was nothing in the 1983 FMC trust deed either by way of express provision or by way of necessary implication in terms prohibiting what was done. I have dealt with this argument in connection with the finding that there was a fraud on the power and need not do more than repeat that there may very easily be a fraud on the power if a power is used for a collateral purpose without there being an infringement of the letter of the power, eg an appointment to an object of the power which is only vitiated because there is a collateral agreement with the appointor to benefit a stranger.

I would respectfully adopt what Megarry V-C said in Re Montagu's Settlement Trusts [1987] Ch 264 at 285:

"In considering whether a constructive trust has arisen in a case of the knowing receipt of trust property, the basic question is whether the conscience of the recipient is sufficiently affected to justify the imposition of such a trust."

In my view, there has to be set in the scales over against the fact that Hillsdown honestly believed itself to be entitled to do and receive what it did and received the following factors. (a) Hillsdown took a very active part in persuading the FMC trustee to agree to what was a breach of trust. (b) Hillsdown's technique in that persuasion was to threaten to do something which Hillsdown was not entitled to do because: (i) it involved a combination of adhering additional employers and suspending employers' contributions in a manner which would have been a breach of implied good faith, as that expression is used by Browne-Wilkinson V-C in the Imperial Group case; (ii) it involved an interference with a discretion given exclusively to the FMC trustee under r 23(a) in relation to the surplus as at 6 April 1988. (c) Hillsdown was unjustly enriched by the receipt of £1874m less 40% tax and the FMC trust was the poorer by the same sum gross of that tax. There can be no doubt about the enrichment save possibly as regards quantum. As to its being unjust, in my view one only has to compare the position of Hillsdown who successfully wielded a big but misguided stick with that of the members of the FMC scheme who were never told anything of what was being done as regards the payment of surplus to Hillsdown to see which way the scales of justice fall.

Although it can be said in a sense that Hillsdown was an innocent instigator of a breach of trust in that it did not appreciate that a breach of trust was involved, it was also in a sense guilty because it played an active part in what was in my view an improper threat to interfere with that with which it had no right to interfere. That seems to me to constitute a quite different and lesser degree of innocence from that of the solicitors in the Zeiss case and the tenant for life in Re Montagu's Settlement Trusts.

For those reasons, I conclude that, subject to possible defences, Hillsdown could have been held liable by a court as a constructive trustee of the sums which it received from the HF trustee. Support can also be found for not permitting the instigator of a breach of trust to rely on his ignorance of the fact that the transaction which he instigated constituted a breach of trust in the authorities which deal with the allied questions (a) whether a beneficiary who has instigated or acquiesced in a breach of trust can nevertheless sue the trustee who is otherwise liable for the breach of trust and (b) whether a beneficiary who has thus initiated or acquiesced is liable to have his interest impounded to indemnify the trustee who has been made liable at the suit of other beneficiaries. The authorities were reviewed by Wilberforce J in Re Pauling's Settlement Trusts, Younghusband v. Coutts & Co [1961] 3 All ER 713 at 729-730, when he concluded that, subject to the court considering whether it is fair that a beneficiary who has been concerned in a transaction should be able to turn round and sue the trustees for breach of trust, it was not necessary that he should know that what he is concurring in is a breach of trust provided that he fully understands what it is he is concurring in. The Court of Appeal in Re Pauling's Settlement Trusts [1963] 3 All ER 1 at 20 put the question of acquiescence very broadly saying "a party cannot be held to have acquiesced unless he knew or ought to have known what his rights were". It is also to be noted that the principle set out by Wilberforce J in Re Pauling's Settlement Trusts above is described in Goff and Jones The Law of Restitution (4th edition, 1993) p 96 as a somewhat harsh rule.

If my conclusion on constructive trusteeship is wrong, there remain the alternative formulations of unjust enrichment, mistake and a tracing claim. As to unjust enrichment, I doubt whether at this stage of the development of English law it is appropriate for a judge at first instance to give effect to a claim in restitution where a claim in constructive trust fails. The authority upon which reliance would be placed for such an attitude would doubtless be Lipkin Gorman (a firm) v. Karpnale Ltd [1991] 2 AC 548, where such a form of proceeding in the context of a common law claim for money had and received succeeded. I have already stated my opinion that there was unjust enrichment here and in the circumstances I think it will suffice if I express my view on the defences which Mr Oliver relied upon by way of change of position. The first was the consent by Hillsdown to pension increases in the HF scheme and the second was the payment of tax. I do not accept that either of them would constitute an adequate defence of change of position. The consent to pension increases was not in my view something which was, so far as the FMC trust was concerned in respect of which the unjust enrichment really occurred, within Hillsdown's gift. Hillsdown had no right of veto there, certainly so far as the surplus in the FMC scheme was concerned. It is in my view right to regard the unjust enrichment claim as arising in the FMC scheme because the payments to the HF trustee and thence to Hillsdown were negotiated and carried through as a package deal. The HF trust was no more than a conduit pipe. On that basis Hillsdown did not do more than allow in part that which ought to have been done in the whole, i.e. apply the surplus as permitted by r 23(a). That does not seem to me to constitute a defence by way of change of position.

Equally the liability to tax should not in my view be allowed as a defence except to the extent that Hillsdown is unable to recover the tax. The Commissioners of Inland Revenue were not represented before me and there was no argument as to the recoverability of the tax paid. The fact that the tax was actually paid by the HF trustee on behalf of Hillsdown is neither here nor there. The liability to tax was Hillsdown's and there is no relevant change of position in having to pay the tax leviable on the footing that the transaction was lawful. On the other hand, I do accept that Hillsdown should not be made to account for irrecoverable tax. But that would merely be mitigation of liability and not enough to ground a defence on change of position.

So far as mistake is concerned, I do not consider that the situation is significantly different from that regarding constructive trusteeship which I have dealt with above. The validity of the decision in Chase Manhattan Bank NA v. Israel-British Bank (London) Ltd [1979] 3 All ER 1025 is at best doubtful after the House of Lords decision in Westdeutsche Landesbank Girozentrale v. Islington London BC [1996] AC 669 at 714-715.

The tracing claim was not explored by the Pensions Ombudsman in the determination and without any findings of fact on the subject it does not seem to me right to express views beyond saying that, since Hillsdown was clearly not a purchaser for value without notice, a tracing claim would in principle lie against it in respect of traceable assets as at the date when it had notice of the claimants' rights. When that was and how far there were then traceable assets remains unresolved. Had it been necessary to do so the matter could have been remitted for the relevant findings to be made but in the light of the view I have formed on constructive trusteeship that is not necessary.

I therefore conclude that so far as Hillsdown's liability to refund in principle is concerned the appeal should be dismissed but there are a number of points on the exact remedy to be granted which were not argued before the principal issues on liability were decided. I propose, therefore, subject to any arguments of counsel on the subject, to give an opportunity for submissions on remedies to be made. That the remedy should be proportionate to the injustice suffered is not, I imagine, likely to be challenged. How that is to be achieved may be less simple.