MCP Pension Trustees Ltd v AON Pension Trustees Ltd

In this case the Claimant, MCP Pension Trustees Limited (“MCP”), seeks damages (together with such further or other relief as may be appropriate) in respect of loss alleged to have been suffered as a result of the Defendant’s, AON Pension Trustees Limited’s (“AON”), breach of contract or negligence in the provision of pension fund administration services in relation to the Maxwell Communication Works Pension Scheme (“the Scheme”). In essence MCP’s case is that it retained AON to administer the Scheme between 1992 and 1997. In about 1996, MCP maintains, some 32 persons were transferred into the Scheme from a plan operated by another employer. MCP alleges that because at some point after the transfer AON incorrectly amended the records of the Scheme so as to remove reference to the 32 transferred members, those persons were overlooked when the Scheme was wound-up in 2003. When this was subsequently discovered, provision had to be made for 15 of the transferred members at substantial cost.

MCP had previously arranged insurance cover to deal with this very kind of problem. Appropriate sums have been paid out to the transferred members. The claim now brought by MCP is therefore pursued by its insurers.

AON disputes liability in this case on many grounds. Its case is summarised in paragraph 2 of its Amended Defence. AON contends, amongst other things, that any claim is time barred pursuant to sections 2 and 5 of the Limitation Act 1980, and denies that it was in breach of contract or negligent in the way it administered the scheme. It alleges that MCP was contributorily negligent, and, of particular reference to the preliminary issue which I have to determine, it relies on the fact that MCP undertook an extensive advertising campaign, calling for former members of the scheme to notify it of any claims, in accordance with the requirements of section 27 of the Trustee Act 1925. AON contends that since none of the former members of the scheme who were overlooked responded to this notice, and that MCP did not have notice of “the claims” of the former members, MCP was protected by the operation of section 27 so that it had no liability to the former members of the Scheme who were overlooked when the Scheme was wound-up. AON maintains that in the circumstances section 27 provides a complete answer to MCP’s claim.

Given the potential importance of the defence raised under section 27 of the 1925 Act, the parties ultimately agreed that a preliminary issue should be tried, as I shall explain below.

In order to facilitate the trial of the preliminary issue the parties have helpfully agreed a Statement of Facts. I should explain that some of these facts agreed for the purposes of the preliminary issue will be disputed by AON at any subsequent trial in the event that the preliminary issue is resolved against AON.

The agreed facts relevant to the preliminary issue, which I take from the Statement of Facts, are as follows:

“(1)

At all material times the Claimant was the trustee of the Maxwell Communications Works Pension Scheme (“the Works Scheme”).

(2)

The Defendant provided administration services to the Works Scheme from around 1992 until late 1997.

(3)

The winding up of the Works Scheme commenced in 2003. The Claimant took out two insurance policies as part of the process of winding up the Works Scheme including an overlooked beneficiary policy.

(4)

The Claimant used all the assets of the Works Scheme in securing the benefits of all members of the Works Scheme that it knew of, and using an apparent surplus to augment those members benefits. Thereafter the Claimant became aware of 32 individuals whom the Claimant believes to have been members of the Works Scheme who did not have benefits secured for them when the Works Scheme winding up commenced. These individuals were formally members of the Diemer & Reynolds Limited Retirement and Death Benefit Plan (“the D&R Scheme” and the “D&R Works Transferees” respectively).

(5)

Of these 32 D&R Works Transferees it was unnecessary to make provision for 17 of them, leaving 15 members to make provision for. Consequently the Claimant made a claim on the overlooked beneficiary policy, paying out £868,472 to these 15 members. It has recently become apparent that there may be a further liability in relation to 4 of those 15 members, which is currently being investigated.

(6)

Although the question of liability is not an issue at the forthcoming Preliminary Hearing and a number of matters asserted by the Claimant in the Particulars of Claim and the Witness Statement of Mr Derek Bambury made on 23 December 2008 on behalf of the Claimant are not accepted, for the purposes of the hearing of the preliminary issue only, the Defendant is content to proceed on the basis that the D&R Works Transferees transferred to the Works Scheme in around 1996.

…

(8)

The Claimant has not been wilful or negligent in the exercise of its duties as trustee of the Works Scheme and the Claimant has acted honestly and reasonably.

(9)

The Claimant undertook an extensive advertising campaign calling for former members of the Works Scheme to notify it of claims, and in accordance with the requirements of section 27 Trustee Act 1925. The outcome of this advertising was that only 3 individuals, who were not already known to be Works Scheme members, were identified. The D&R Works Transferees did not respond to the advertising.

(10)

At the time of the distribution of the assets of the Works Scheme, the Claimant was not aware of the D&R Works Transferees.

...”

On 19^th June 2008 by order of Chief Master Winegarten it was provided that there should be a Preliminary Issue to consider certain matters. Initially it was envisaged that three substantive points should be determined. However AON subsequently confirmed that it was not advancing a case in relation to two of those points so that only one remains for consideration of the Court namely:

“Whether on the true construction of section 27 Trustee Act 1925 the Claimant is not liable to the D&R Works Transferees”.

MCP accepts that if this Preliminary Issue is resolved in favour of AON then this would be determinative of the action, which should be dismissed.

At the trial of the Preliminary Issue, at which of course no oral evidence was adduced, it was agreed between the parties that submissions should first be made by Mr David E. Grant, learned counsel for AON, to be followed by submissions to be made by Mr Fenner Moeran, learned counsel for MCP, to be followed by submissions in reply from Mr Grant.

Mr Grant drew my attention to the provisions of 27 of the Trustee Act 1925which provides as follows:

“27 Protection by means of advertisements

(1)

With a view to the conveyance to or distribution among the persons entitled to any real or personal property, the trustees of a settlement [, trustees of land, trustees for sale of personal property] or personal representatives, may give notice by advertisement in the Gazette, and [in a newspaper circulating in the district in which the land is situated] and such other like notices, including notices elsewhere than in England and Wales, as would, in any special case, have been directed by a court of competent jurisdiction in an action for administration, of their intention to make such conveyance or distribution as aforesaid, and requiring any person interested to send to the trustees or personal representatives within the time, not being less than two months, fixed in the notice or, where more than one notice is given, in the last of the notices, particulars of his claim in respect of the property or any part thereof to which the notice relates.

(2)

At the expiration of the time fixed by the notice the trustees or personal representatives may convey or distribute the property or any part thereof to which the notice relates, to or among the persons entitled thereto, having regard only to the claims, whether formal or not, of which the trustees or personal representatives then had notice and shall not, as respects the property so conveyed or distributed, be liable to any person of whose claim the trustees or personal representatives have not had notice at the time of conveyance or distribution; but nothing in this section—

(a)

prejudices the right of any person to follow the property, or any property representing the same, into the hands of any person, other than a purchaser, who may have received it; or

(b)

frees the trustees or personal representatives from any obligation to make searches or obtain official certificates of search similar to those which an intending purchaser would be advised to make or obtain.

(3)

This section applies notwithstanding anything to the contrary in the will or other instrument, if any, creating the trust.”

The first words in square brackets were inserted by amendment by the Trusts of Land and Appointment of Trustees Act 1996, the second words in square brackets were inserted by amendment by the Law of Property (Amendment) Act 1926.

Mr Moeran did not submit, on behalf of MCP, that section 27 had no application to pension schemes. However, in his helpful and thoroughly researched submissions, Mr Grant addressed the question of whether the section does have such an application, drawing my attention to the fact that there is no authority, which has been decided with the benefit of argument, as to whether the section does so apply. He invited me, in giving judgment, to express a view on the issue, which he suggested might be of assistance generally to pension scheme trustees. In support of the proposition that the section does apply to pension schemes, Mr Grant made nine submissions. First, he contended that the section is very broad and specifically applies to:

“… the trustees of a settlement, trustees of land, trustees for sale of personal property or personal representatives”.

He drew my attention to the wording of the Act before amendment by the 1996 Act:

“… the trustees of a settlement or of a disposition on trust for sale or personal representatives”.

Mr Grant submitted that it was self-evident that occupational pension schemes are trusts for sale of personal property within the meaning of the section. It seems to me that that submission is well founded. Secondly and thirdly, he referred to two reported cases, Kemble v Hicks (No. 2) [1999] PLR 287, and NBPF Pension Trustees Ltd v Warnock-Smith & ors [2008] 33 PDLR, in which it appears to have been assumed, at least on the part of the trustees, that the section would apply to pension schemes.

Fourthly, he relied upon a passage in Mr Nigel Inglis-Jones QC’s book, The Law of Pension Schemes, which states at paragraph 13-22:

“Trustees distributing the assets of a pension scheme upon winding up may also protect themselves by means of advertisement under section 27 of the Trustee Act 1925.”

Fifthly, Mr Grant referred to an article by Mr Peter Docking, a solicitor of great experience in this field of the law, in Trusts Law International, Volume 9, No. 4, 1995. This article is mentioned with approval in Hanbury & Martin, Modern Equity, 18^th Edition, 2009 at paragraph 18-028, in a footnote. Mr Docking expressed the view that even before its relatively recent amendment the wording of section 27 was sufficiently wide as to include pension schemes.

Sixthly, Mr Grant submitted that it was noteworthy that no leading practitioner book on trusts suggested that section 27 did not apply to pension schemes.

Seventhly, he placed reliance on the fact that he and his instructing solicitors (all of whom are experienced pensions law practitioners) have been involved in many pensions cases in which section 27 notices have been used.

Eighthly, Mr Grant submitted that it was of relevance that in the present case, MCP had adopted section 27 procedure.

Ninthly, Mr Grant argued that given the size of membership of many pension schemes, and the duration of such schemes, they are exactly the kind of trusts in relation to which the section should apply.

Mr Grant’s submissions persuade me that there is a very widespread body of opinion amongst those experienced in pension schemes practice that the section is of application. Of course the most powerful consideration is the wording of the section itself. As I have explained, I have not had the benefit of argument from both counsel on this point, but I am persuaded that the section is sufficiently widely worded as to be applicable, as a matter of principle, to pension schemes.

Mr Grant realistically accepted that the section would not protect trustees in respect of claims by persons entitled to the property concerned, even where those persons had not responded to an advertisement placed by the trustees, if the trustees had notice of the claims at the time of distribution. A number of cases established this point very clearly. First in the case of Re Land Credit Company of Ireland, Markwell’s Case (1872) 21 WR at 135, Mr Markwell was settled on the list of contributories of the company concerned. He died before his liability had been discharged. By his Will his wife was appointed his executrix, and she was a residuary legatee. She proved the Will, and shortly thereafter placed advertisements for creditors in newspapers, requiring persons with claims against her husband’s estate to notify her of particulars. The official liquidator of the company made no claim in answer to the advertisement. Subsequently Mrs Markwell executed a voluntary settlement of her beneficial interest under the Will and thereafter, in contemplation of marriage, settled such interest under the voluntary settlement. The official liquidator then applied to have her name placed on the list of contributories as the executrix of Mr Markwell. Lord Romilly MR held that Mrs Markwell had notice of the liquidator’s claim “and could not avoid satisfying it by the mere publication of advertisements, and consequently that she must be on the list of contributories as executrix”.

In Newton v Sherry & ors (1876) 1 CPD 246, an administratrix placed advertisements calling for notification of claims. At trial it was not established whether the administratrix had known that the plaintiff was alive at the time of distribution of the assets of the estate. All three members of the Divisional Court (Mr Justice Brett, as he then was, Mr Justice Archibald and Mr Justice Lindley, as he then was) held that the case should be determined upon the question whether the administratrix had notice that the plaintiff was alive at the relevant time. Mr Justice Brett said at page 256:

“Then comes the question whether the administratrix had notice before she distributed the assets that her niece was alive. There certainly was evidence upon which a jury might reasonably have found that she had no notice. I feel it to be so important that persons having claims against the estates of testators or intestates should not upon light grounds be shut out from the opportunity of asserting them, that I should have been inclined to send this matter back to be ascertained by a jury, had it not been the wish of both sides that that expense should be avoided. Under these circumstances, my brother Lindley will consent to have the administratrix, and her only, examined before him and, if he reports to us that he is satisfied that she had no such notice, the verdict will be for the defendant; if otherwise, the verdict for the plaintiff will stand.

Mr Justice Archibald and Mr Justice Lindley delivered concurring judgments. Mr Justice Lindley, having heard evidence, concluded that the administratrix had not had notice of the plaintiff’s being alive and judgment was accordingly given for the administratrix.

In Guardian Trust & Executors Company of New Zealand Limited v Public Trustee of New Zealand [1942] AC 115, the executors of a Will, having obtained probate, but with notice of the fact that the next of kin intended to apply for revocation of the grant of probate on the ground of want of testamentary capacity, paid out pecuniary legacies under the terms of the Will. The Privy Council held that the executors were liable to the deceased’s estate for the sums so paid when probate was subsequently recalled. The opinion of the Board (Viscount Simon, the Lord Chancellor, Lord Thankerton, Lord Romer and Lord Justice Clauson) was delivered by Lord Romer, who said at page 127:

“It falls, therefore, to be decided in accordance with the well established principles of equity. One of those principles is that if a trustee or other person in a fiduciary capacity has received notice that a fund in his possession is, or may be, claimed by A, he will be liable to A if he deals with the fund in disregard of that notice should the claim subsequently prove to be well founded.”

Markwell’s case and Newton v Sherry were decided under the provisions of section 29 of Lord St. Leonard’s Act (22 and 23 Vict c35), the terms of which I set out below because they are material to the submissions made by Mr Grant. The Guardian Trust case was decided under New Zealand’s Trustee Act 1908 which made similar, but not identical provision, to section 29 of Lord St. Leonard’s Act.

Whilst these three decisions make it clear that a trustee who has “notice” of a claim will not be protected by the placing of an advertisement under the relevant statutory provision, and the absence of a relevant response thereto, these cases do not decide what constitutes such notice.

Mr Grant submitted that there are a number of reasons why the meaning of “notice” within section 27 must be limited to, at most, the first three classifications of knowledge in the case of Baden & ors v Société GénéralePour Favoriser le Developpement du Commerce et de L’Industrie en France SA [1993] 1 WLR 509. Mr Justice Peter Gibson, as he then was, at page 250 identified some five classifications of knowledge which had been enumerated in the submissions of counsel:

“(i)

actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest andreasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. More accurately, apart from actual knowledge they are formulations of the circumstances which may lead the court to impute knowledge of the facts to the alleged constructive trustee even though he lacked actual knowledge of those facts.”

In developing this submission in argument, Mr Grant emphasised in particular Mr Justice Peter Gibson’s summary of the applicable principles of law which he set out at paragraph 287 of his judgment:

“I summarise therefore the principles of law that, in my judgment, I must apply in respect of the claim in equity as follows. (1) The plaintiffs must show (a) the existence of a trust affecting the $4m. deposited by B.C.B. with S.G.; (b) the fraudulent and dishonest design on the part of the directors of B.C.B. who gave instructions to S.G. to transfer the $4m. to Panama; (c) the assistance by S.G. in that design; (d) S.G.’s knowledge of (a), (b) and (c). (2) The knowledge must be actual knowledge or knowledge which it would have obtained but for shutting its eyes to the obvious or wilfully and recklessly refraining from making such inquiries as the reasonable banker would have made from the circumstances known to S.G. or would have obtained from inquiries which the reasonable banker would have made, the onus being on the plaintiffs to establish that S.G. possessed that knowledge.”

In the light of this submission, it is important to remember that Baden, in this respect, was a case concerned with the degree of knowledge necessary to found liability as a constructive trustee. It was not a case concerned with whether an actual trustee had notice of a particular fact or claim.

Mr Grant recognised the distinction between knowledge and notice in his submission and drew my attention to paragraph 42-50 of Lewin on Trusts, 18^th Edition, where the point is discussed. Mr Grant placed particular reliance upon the following passage:

“The doctrine of notice was developed in the context of conveyancing, and the rules developed in the conveyancing context may have only limited application in commercial and other contexts. The doctrine of constructive notice, as developed in the conveyancing context, does not apply to commercial transactions. In the conveyancing context the question is what enquiries ought reasonably as a matter of prudence, having regard to usual conveyancing practice, to be made by a purchaser through his solicitor in relation to the vendor’s title to land. However in the constructive trust context the question is usually what enquiries, if any, ought to have been made by a defendant if he has actual knowledge of facts which point to the existence of a breach of trust, so as to avoid the charge that he has knowledge within types (3) or (5) of the Baden classification. The circumstances are quite different and thus the rules about notice developed in the conveyancing context are of limited assistance. In the conveyancing context a high standard of care is required, but outside this context the court is not astute to impute knowledge where no actual knowledge exists. Even where a question of constructive trust arises in a conveyancing context, that is where a person purchases trust land transferred in breach of trust, it has been questioned whether the purchaser’s liability for knowing receipt should be determined by reference to the doctrine of notice, since constructive trusteeship involves personal liability, and is not concerned merely with proprietary interests.”

On this basis, Mr Grant submitted that it is not safe to adopt principles of notice from the conveyancing context and apply them to the Trustee Act 1925.

For the proposition that the doctrine of constructive notice, as developed in the conveyancing context, does not apply to commercial transactions, Lewin cross-refers to paragraph 41-131 which in footnote 76 mentions a number of authorities. One of the authorities mentioned is Manchester Trust v Furness [1895] 2 QB 539, a decision of the Court of Appeal. Lord Justice Lindley, rejecting the notion that the holder of a bill of lading and the person who takes it in the ordinary course of business are to be treated as having notice of all the contents of the charterparty, said that there was no doctrine which went to anything like that extent, and he continued at page 545:

“... as regards the extension of the equitable doctrines of constructive notice to commercial transactions, the Courts have always set their faces resolutely against it. The equitable doctrines of constructive notice are common enough in dealing with land and estates, with which the Court is familiar; but there have been repeated protests against the introduction into commercial transactions of anything like an extension of those doctrines, and the protest is founded on perfect good sense. In dealing with estates in land title is everything, and it can be leisurely investigated; in commercial transactions possession is everything, and there is no time to investigate title; and if we were to extend the doctrine of constructive notice to commercial transactions we should be doing infinite mischief and paralyzing the trade of the country.”

The other members of the Court, Lords Justices Lopes and Rigby, delivered concurring judgments, and the passage in Lord Justice Lindley’s judgment cited above was referred to with approval in the judgments of Lords Justices Scrutton and Lawrence in the case of Greer v Downs Supply Company [1927] 2 KB 28, CA.

It seems to me that the passage in Lewin on Trusts and the Court of Appeal authorities demonstrate that the doctrine of constructive notice as developed in the conveyancing context cannot rigorously be applied in the commercial context. However this conclusion is only of limited assistance to Mr Grant’s case for two reasons. First, the present case is not one concerned with constructive notice. In the course of his submissions Mr Grant accepted that for the purposes of the preliminary issue, given that there was a presumption that the transfer of members was perfected in 1996, it would follow that in 1996 the Claimant knew of the transfer at that time and of the identity of the transferees. The present case is therefore concerned with actual notice which the Claimant had at least in 1996. Secondly, the present case is not concerned with a commercial transaction as was the position in both the Manchester Trust and Greer cases. MCP was a trustee of a pension fund scheme of which the D&R Works Transferees were members.

Mr Grant argued that there was no room in the present case for imputation of knowledge or notice to MCP because he maintained that it was not accepted that AON was an agent of MCP.

Mr Grant submitted that the rationale of what is now section 27 of the 1925 Act was to protect trustees, and he submitted that this was very clear from the decision of the Court of Appeal in Newton v Sherry, to which I have referred above. In reply he developed this point by reference to the article by Mr Docking to which I have referred above. Mr Grant maintained that if section 27 applies to a pension scheme, then it must have some force, and it would be contrary to the policy of protecting trustees if a court were to hold that even where the trustees have advertised and where they were not aware of the interests of the D&R Works Transferees, the trustees were nevertheless liable.

There is a significance, Mr Grant submitted, that section 27(2), like section 29 of Lord St. Leonard’s Act, twice qualifies the time at which notice is relevant. I have set out above the provisions of the 1925 Act, but since Mr Grant particularly emphasised the significance of the corresponding section in Lord St. Leonard’s Act, for the sake completeness I set out that provision here:

“Where an executor or administrator shall have given such or the like notices (i) as in the opinion of the court in which such executor or administrator is thought to be charged would have been given by the Court of Chancery in an administration suit, for creditors, and others, to send into the executor or administrator their claims against the estate of the testator or intestate, such executor or administrator shall at the expiration of the time named in the said notices or the last of the said notices for sending such claims, be at liberty to distribute the assets of the testator or intestate, or any part thereof, amongst the parties entitled thereto, having regard to the claims of which such executor or administrator has then notice (ii) and shall not be liable for the assets or any part thereof so distributed to any person of whose claim such executor or administrator shall not have had notice at the time of distribution of the same assets or a part thereof, as the case may be …”.

Both sections follow the same structure, first, in permitting distribution having regard to claims of which the trustee has notice at the time of distribution, and, secondly, excluding liability in relation to any claims of which the trustee did not have notice at such time. This double provision, Mr Grant submits, makes it clear that notice is to be determined only at a specific point in time, namely that of distribution.

Mr Grant relied upon Mr Docking’s article mentioned above for the proposition that “notice” should be given a restricted meaning. He developed this as a separate point both in his written and oral submissions, but it seems to me that it is really closely linked with his submission that section 27 is designed for the protection of trustees. Mr Grant drew particular attention to a passage in Mr Docking’s article at page 129:

“The issue of constructive notice is of particular relevance to pension fund trustees. In many situations, trustees will have actual notice of those who are beneficiaries of the scheme. But sometimes this will not be so. For example, a group of deferred pensioners may have been missed off trustees’ records but may have been noted as being beneficiaries in separate records kept by a participating employer. Equally trustees may be uncertain whether indirect discrimination has taken place against part-time employees in circumstances which would give these employees rights as scheme beneficiaries. Whether or not trustees would have constructive notice of these beneficiaries would depend very much on the circumstances. It turns on whether or not the trustees ought to have made further enquiries. In the first example, where a group of members were simply left off a list in circumstances where the trustees had no reason to suppose this to be the case, it would be harsh to impute constructive notice.”

It is to be noted however that Mr Docking on the same page expressed the view that:

“Placing a section 27 advertisement will not protect a trustee from any claim of which he has actual or constructive notice. This is irrespective of whether or not the claimant replies to the advertisement.”

Mr Grant submitted that InRe Montagu’s Settlement Trusts [1987] 1 Ch at 264, a decision of Sir Robert Megarry V-C, was particular helpful to AON. In Montagu the trustees of a family settlement released chattels to a beneficiary absolutely, and this was in breach of trust. Even if the beneficiary had ever once understood the true meaning of the provisions of the settlement, there was nothing to suggest that he remembered the relevant terms at the time when he received the chattels. He was therefore held not to be liable as a constructive trustee on the basis of “knowing receipt” of the chattels concerned.

Mr Grant emphasised the findings made by the Vice Chancellor at page 275 of the report, and in particular that the beneficiary’s solicitor in Montagu knew the relevant terms of the settlement, and understood their effect, and that the beneficiary concerned also had a copy of the settlement. The Vice-Chancellor held, however, that a time came when all concerned, because of a muddle, treated the relevant provision as allowing the trustees to assent to the beneficiaries taking any of the chattels that he wished, and keeping them.

Mr Grant relied upon the Vice-Chancellor’s judgment in particular at pages 277A – 278B and page 284B-G:

“In the books and the authorities the word "notice" is often used in place of the word "knowledge," usually without any real explanation of its meaning. This seems to me to be a fertile source of confusion; for whatever meaning the layman may attach to those words, centuries of equity jurisprudence have attached a detailed and technical meaning to the term "notice," without doing the same for "knowledge." The classification of "notice" into actual notice, constructive notice and imputed notice has been developed in relation to the doctrine that a bona fide purchaser for value of a legal estate takes free from any equitable interests of which he has no notice. I need not discuss this classification beyond saying that I use the term "imputed notice" as meaning any actual or constructive notice that a solicitor or other agent for the purchaser acquires in the course of the transaction in question, such notice being imputed to the purchaser. Some of the cases describe any constructive notice that a purchaser himself obtains as being "imputed" to him; but I confine "imputed" to notice obtained by another which equity imputes to the purchaser.

Now until recently I do not think there had been any classification of "knowledge" which corresponded with the classification of "notice". However, in the Baden case, at p. 407, the judgment sets out five categories of knowledge, or of the circumstances in which the court may treat a person as having knowledge. Counsel in that case were substantially in agreement in treating all five types as being relevant for the purpose of a constructive trust; and the judge agreed with them: p. 415. These categories are (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and (v) knowledge of circumstances which would put an honest and reasonable man on inquiry. If I pause there, it can be said that these categories of knowledge correspond to two categories of notice: Type (i) corresponds to actual notice, and types (ii), (iii), (iv) and (v) correspond to constructive notice. Nothing, however, is said (at least in terms) about imputed knowledge. This is important, because in the case before me Mr. Taylor strongly contended that Mr. Lickfold's knowledge must be imputed to the Duke, and that this was of the essence of his case.

It seems to me that one must be very careful about applying to constructive trusts either the accepted concepts of notice or any analogy to them. In determining whether a constructive trust has been created, the fundamental question is whether the conscience of the recipient is bound in such a way as to justify equity in imposing a trust on him. The rules concerning a purchaser without notice seem to me to provide little guidance on this and to be liable to be misleading. First, they are irrelevant unless there is a purchase. A volunteer is bound by an equitable interest even if he has no notice of it; but in many cases of alleged constructive trusts the disposition has been voluntary and not for value, and yet notice or knowledge is plainly relevant. Second, although a purchaser normally employs solicitors, and so questions of imputed notice may arise, it is unusual for a volunteer to employ solicitors when about to receive bounty. Even if he does, he is unlikely to employ them in order to investigate the right of the donor to make the gift or of the trustees or personal representatives to make the distribution; and until this case came before me I had never heard it suggested that a volunteer would be fixed with imputed notice of all that his solicitors would have discovered had he employed solicitors and had instructed them to investigate his right to receive the property.”

…

“There is a further question that I should consider, and that is forgetfulness. Little was said about this in argument; but in a case in which at one time the true position was known to Mr.Lickfold, and possibly to the Duke, I must say something about it. If a person once has clear and distinct knowledge of some fact, is he to be treated as knowing that fact for the rest of his life, even after he has genuinely forgotten all about it? To me, such a question almost answers itself. I suppose that there may be some remarkable beings for whom once known is never forgotten; but apart from them, the generality of mankind probably forgets far more than is remembered. So far as the doctrine of notice is concerned, there is authority, in relation to the rule in Dearie v. Hall (1828) 3 Russ. 1 , for saying that the question is whether at the time in question notice previously obtained continues to operate on the mind of the recipient: see Ipswich Permanent Money Club Ltd. v. Arihy [1920] 2 Ch. 257 . Of course, since 1925 there is a statutory scheme under section 137 of the Law of Property Act 1925 for regulating priority by means of the receipt of written notices; and nothing I say is intended to suggest that such notices might lose their effect if the recipient or anyone else forgets them. But apart from such statutory provisions, it seems to me that a person should not be said to have knowledge of a fact that he once knew if at the time in question he has genuinely forgotten all about it, so that it could not be said to operate on his mind any longer. This is emphasised in relation to constructive trusts in that, in my view, it would be wrong to hold that a person's conscience is affected by something that he does not know about. Even if section 199 of the Law of Property Act 1925 had any application, and notice were in issue, I cannot accept Mr. Taylor's contention that the section shows that what a person once knew he is conclusively presumed still to have notice of; for the section is framed in terms of what "is" within the purchaser's own knowledge, and not "is or ever has been" within his knowledge.”

Mr Grant laid emphasis on the passage in which the Vice-Chancellor said that he could not accept the contention that section 199 of the Law of Property Act 1925 showed that what a person once knew he was conclusively presumed still to have notice of.

Mr Grant, drawing together various strands in his submissions, argued that for the purposes of section 27(2), it was possible for a trustee to “forget” a fact of which he had once had notice, so that he would cease to be treated as having notice for the purposes of the section. In making this submission he relied upon three particular points:

Finally, Mr Grant submitted that the D&R Works Transferees’ accruing benefits in the scheme did not amount to a claim in respect of which there could be relevant notice for the purposes of section 27(2). He submitted that the transferees had no immediate right to the payment of any benefit, and that at the time when MCP was aware of the D&R Works Transferees, the scheme was not in wind up and MCP was not proposing to and did not buy out their benefits.

Mr Moeran opened his oral submission with a general point that AON’s case addressed knowledge and not notice whereas section 27 was concerned with notice and not knowledge.

Mr Moeran drew particular attention to the second proviso in section 27(2) to the effect that nothing in the section frees a trustee from any obligation to make a search or obtain official certificates of search similar to those which an intending purchaser would be advised to make or obtain. This second proviso, he submitted, demonstrated that the section did not equate notice with knowledge. It expressly preserved any obligation to make such searches as might be appropriate, which by definition must contemplate an enquiry into the existence of a matter of which a trustee did not have knowledge.

Mr Moeran then contrasted the provisions of section 27 with the provisions of section 28 of the Trustee Act 1925 which is in the following terms:

“A trustee or personal representative acting for the purposes of more than one trust or estate shall not, in the absence of fraud, be affected by notice of any instrument, matter, fact or thing in relation to any particular trust or estate if he has obtained notice thereof merely by reason of his acting or having acted for the purposes of another trust or estate.”

This provision, he submitted, underscored his submission that knowledge and notice were not to be equated; otherwise, he submitted, section 28 would be otiose. He submitted further that there was statutory recognition of the difference between notice and knowledge especially in section 199 of the Law of Property Act 1925, a point to which I shall return to later in this judgment.

As a further general point Mr Moeran observed that in the case of a Benjamin order, it is a usual requirement that there be advertising for the purposes protecting persons interested in a fund, but also that there be insurance to protect the interests of any who might be overlooked. Thus even where trustees acted honestly and reasonably in accordance with a court order, the interests of unidentified persons were to be protected by insurance even where their potential loss, upon a distribution, might not be attributable to any oversight on the part of a trustee. In the present case, he said, it was fortuitous that insurance had been arranged by MCP. The existence of such insurance was not something of which AON could take advantage because the insurance was to protect MCP in respect of a liability brought about by AON, and MCP’s claim against AON was one to which the insurers were subrogated.

Finally, as a general point, Mr Moeran submitted that as a matter of policy it would not be appropriate for innocent beneficiaries in circumstances such as those in the present case to be at risk of losing out because a trustee had been forgetful and overlooked an interested person’s claim. In the case of a pension scheme almost no trustee, he argued, could be shown to have known of a particular member, where there might be thousands of such members.

In the light of Mr Grant’s concession (for the purposes of the Preliminary Issue) as to MCP’s notice and knowledge of the D&R Works Transferees’ interests at the time of transfer into the Scheme in 1996, Mr Moeran contended that it was not necessary for MCP to rely upon any principle of imputed knowledge of agents or constructive knowledge or notice of records. However, he drew attention to the contractual obligations imposed upon AON under the terms of the agreement between the parties made on 26^th April 1994, whereby AON was formally appointed administrator to the Works Scheme. Contracts required that the services be provided “by appropriately experienced, qualified and trained professional personnel with all due skill and care … with all due skill, care and diligence including but not limited to best industry practice”. The services which were to be provided included the following:

“2.1: Maintaining a membership record database for all classes of member, updated regularly to reflect membership changes …

2.7: Storage of all relevant documentation to include members “expressly of wish” forms. [I suspect that this should have read “expressions of wish”.]

2.8: Preparing summaries of the membership as required by MCP for reporting and other purposes.

…

2.13: Liaison with MCP regarding benefit payments.

2.14: Provision of regular administration and membership reports as required by MCP and its advisers.

…

5.1: Maintaining a continuously updated database …”.

Mr Moeran submitted that in the light of these provisions, it was clear that AON assumed the duties of an agent so that the doctrine of imputed notice to MCP through AON should apply. Thus, he submitted, since AON had notice of who members were, such notice was imputed to MCP.

Mr Moeran submitted that far from assisting Mr Grant’s argument, Mr Docking’s article made it plain (at page 129) that a trustee who had actual (or indeed constructive) notice would not be protected by placing a section 27 advertisement.

With regard to In Re Montagu’s Settlement, Mr Moeran submitted that it was not authority for the proposition that proprietary rights were to be extinguished because someone had forgotten a material fact. He argued that the passages relied upon by Mr Grant were directed to another issue, namely whether a constructive trusteeship had been established by reason of knowledge (which it had not).

Mr Moeran relied in particular upon the Vice-Chancellor’s judgment at page 278B-E:

“Third, there seems to me to be a fundamental difference between the questions that arise in respect of the doctrine of purchaser without notice and constructive trusts. As I said in my previous judgment, ante, pp. 272H - 273B:

‘The former is concerned with the question whether a person takes property subject to or free from some equity. The latter is concerned with whether or not a person is to have imposed upon him the personal burdens and obligations of trusteeship. I do not see why one of the touchstones for determining the burdens on property should be the same as that for deciding whether to impose a personal obligation on a man. The cold calculus of constructive and imputed notice does not seem to me to be an appropriate instrument for deciding whether a man's conscience is sufficiently affected for it to be right to bind him by the obligations of a constructive trustee.’

I can see no reason to resile from that statement, save that to meet possible susceptibilities I would alter "man" to "person." I would only add that there is more to being made a trustee than merely taking property subject to an equity.”

Mr Moeran submitted that what the authorities, including In Re Montagu, demonstrate is that constructive trusteeship is imposed by knowledge. It does not begin to follow from that requirement of law that a trustee is exculpated from liability by lack of notice.

Mr Moeran submitted that since liability in the present case is to be determined by reference to notice rather than knowledge, the fact that the D&R Works Transferees were members of the scheme may have been forgotten or overlooked would not have afforded a trustee with a defence. For this proposition, in addition to his other submissions, he relied upon the following passage in the judgment of Mr Justice Vinelott, as he then was, in Eagle Trust plc v SBC Securities [1993] 1 WLR 484 at page 494:

“However “notice” is often used in a sense or in contexts where the facts do not support the inference of knowledge. A man may have actual notice of a fact and yet not know it. He may have been supplied in the course of a conveyancing transaction with a document and so have actual notice of its content, but he may not in fact have read it; or he may have read it some time ago and have forgotten its content. Sir Robert Megarry V.-C. observed in In re Montagu's Settlement Trusts [1987] Ch. 264 ,284: "I suppose that there may be some remarkable beings for whom once known is never forgotten; but apart from them, the generality of mankind probably forgets far more than is remembered." So also by statute a man may be deemed to have actual notice of a fact which is clearly not within his knowledge.

Constructive and imputed notice are most frequently, though not invariably, used in contrast to knowledge — to describe a situation in which a man is treated for some purposes as if he had knowledge of facts which were clearly not known to him. Lord Esher in English and Scottish Mercantile Investment Co. Ltd. v. Brunton [1892] 2 Q.B. 700 , 708 described the doctrine of constructive notice as "wholly founded on the assumption that a man does not know the facts." Moreover, a man may be affected by constructive notice even if there has been not only no want of probity but no carelessness on his part. He may have imputed to him notice of matters of which his counsel, solicitor or other agent had notice, actual or constructive, in the same transaction in which the question of notice arises: see section 199 of the Law of Property Act 1925 , re-enacting section 3(2) of the Conveyancing Act 1882(45 & 46 Vict. c. 39) which in turn was largely declaratory of the law.

In the field of conveyancing the law has historically set a very high standard; so much so that Maitland observed that "in reading some of the cases about constructive notice we may be inclined to say that equity demanded not the care of the most prudent father of a family but the care of the most prudent solicitor of a family aided by the skill of the most expert conveyancer:" see Maitland's Equity, 2nded. (1936), p. 119.

It is often said that man has constructive notice of matters which he would have discovered if he had made those inquiries which he ought reasonably to have made. But as Lindley L.J. pointed out in Bailey v. Barnes [1894] 1 Ch. 25 , 35:

“‘Ought’ here does not import a duty or obligation; for a purchaser need make no inquiry. The expression ‘ought reasonably’ must mean ought as matter of prudence, having regard to what is usually done by men of business under similar circumstances.”

Mr Moeran relied upon this authority for the proposition that “notice” included constructive notice (i.e. notice of what would have been ascertained had reasonable research been undertaken) and imputed notice (i.e. a trustee has imputed to him the notice, actual and constructive which his agents have, at least such notice as is required in acting in relation to the relevant trust).

Mr Moeran submitted that it was not necessary that a member of the scheme had a subsisting right to payment in order for there to be a claim of which the trustee had notice for the purposes of section 27. The Markwell case demonstrated, he submitted, that all that was necessary was a right to maintain a claim. At all material times, he argued, the D&R Works Transferees were entitled to maintain a claim to have the scheme correctly administered and in particular when the scheme went into wind up, as it did, they were entitled to be paid out benefits. These interests, Mr Moeran contended, were more than adequate to amount to a claim of which MCP had notice at the time of distribution.

Section 27(2) of the Trustee Act 1925 is, in terms, concerned with notice and not knowledge.

The passages in Sir Robert Megarry V-C’s judgment in Montagu, cited above, especially that at paragraph 278B-E of the report, emphasise the distinction that is to be drawn between notice and knowledge. The concepts have been developed for different purposes. As the Vice-Chancellor explained at pages 277A-278B in the same case, knowledge is relevant in a case of constructive trusteeship to the fundamental question of whether the conscience of a recipient is bound in such a way as to justify imposition of a trust upon him. For that purpose, mere notice will not suffice, as the result in Montagu demonstrates. Indeed, the Vice-Chancellor said at page 285D-E that whether a constructive trust arises, in a case of receipt of trust property, primarily depends on the knowledge of the recipient, “and not on notice to him”. The present case is not concerned with whether a trust should be imposed upon the Scheme’s trustees by reason of their consciences having been affected by knowledge. They were express trustees at all material times.

Further, as the passage (cited above) to which Mr Moeran referred in the Eagle Trust case demonstrates, notice has long been used in contrast to knowledge “to describe a situation in which a man is treated for some purposes as if he had knowledge of facts which were clearly not known to him.” The passage also demonstrates that a person can have actual notice of a forgotten fact.

I do not consider that the passage in Montagu at page 284F-G (cited above), where Sir Robert Megarry V-C dealt with section 199 of the Law of Property Act 1925 assists AON’s case. Section 199(1) is in the following terms:

“(1)

A purchaser shall not be prejudicially affected by notice of—

...

(ii)

any other instrument or matter or any fact or thing unless—

(a)

it is within his own knowledge, or would have come to his knowledge if such inquiries and inspections had been made as ought reasonably to have been made by him; or
(b) in the same transaction with respect to which a question of notice to the purchaser arises, it has come to the knowledge of his counsel, as such, or of his solicitor or other agent, as such, or would have come to the knowledge of his solicitor or other agent, as such, if such inquiries and inspections had been made as ought reasonably to have been made by the solicitor or other agent.”

The effect of the section is not to equate notice with knowledge. Its effect is very different. The section makes clear that notice will not prejudice a purchaser unless the relevant matter is within the purchaser’s knowledge (or would be on making appropriate enquiries). In the case of notice to the purchaser’s counsel or solicitor or agent, before such notice will have a prejudicial effect, the requirements are even more rigorous; the matter must have come to such person’s knowledge (or would have done so on making proper enquiries) when that person was acting “as such” for the purchaser, and in the same transaction. Thus the section emphasises the difference between notice and knowledge, and limits the circumstances in which notice, as opposed to knowledge, will prejudicially affect a purchaser. Against this background it seems to me that in the passage at page 284F-G in Montagu, the Vice-Chancellor was not suggesting that equity recognised a principle of “lapsed notice”; he was demonstrating, by reference to the wording of the section that notice, to be relevant for the statutory purpose, had to be linked to what was a purchaser’s current knowledge (including knowledge to be derived from proper enquiry) at the time of the transaction under consideration.

With this critical distinction between notice and knowledge in mind, it seems to me that the authorities such as Baden, which are concerned with categories of knowledge, are of little assistance in resolving the issue in the present case. Knowledge is not required for the purposes of section 27. A trustee will be liable if he has notice, which is not to be equated with knowledge. I therefore reject Mr Grant’s submissions, attractively though they were developed, to the effect that “notice” in section 27 of the Trustee Act 1925 must be limited to the first three classifications of knowledge in Baden. For equivalent reasons, I reject the submission that AON’s case is assisted by the decision in Montagu.

I do not consider that the wording of section 27 in the 1925 Act, or in corresponding provisions of Lord St Leonards’ Act, helps AON. Whilst it is correct that both provisions twice qualify the time by reference to which notice is relevant, they do not suggest that notice once given can lapse. The provisions, in my judgment, simply make clear that for there to be a liability in a trustee, he must have had notice of a claim no later than the time of distribution. If notice comes to the trustee after that time, there will be no liability.

Similarly I am completely unpersuaded by the submission that if section 27 applies to a pension scheme, then for it to have force, and consistently with the policy of protecting trustees, a pension scheme trustee who has advertised and who is not aware of a claim, should not be liable where he makes a distribution having overlooked a claim of which he was once aware. It would be inappropriate to colour the meaning of the word “notice” in this way and for this purpose. The section, I have held, does apply to a pension scheme trustee; if a trustee falls within its protection, by not having notice, then he can take advantage of the section. If he has notice he cannot. Merely because, in practice, pension scheme trustees may have more difficulty in establishing that they did not have notice of a relevant claim than might be the case with some other categories of trustees (if indeed that is the case), is not a reason for overlooking the well established distinction between notice and knowledge. In this regard I do not consider that Mr Docking’s article assists AON’s case; he specifically contemplates at page 129 of the article that a pension scheme trustee will not be protected by the section where he has actual or constructive notice. Although he expresses the view that it would be harsh to impute constructive notice to such a trustee where a group of members had been left off a list, whilst noted as beneficiaries in a separate list kept by a participating employer, he specifically qualified this view with the words “in circumstances where the trustees had no reason to suppose this to be the case”. That is not the situation in the present case; on the assumed facts, as I have recorded Mr Grant’s concession above, in 1996 MCP knew (and therefore had actual notice of) of the transfer of the D & R Works Transferees, and their identities.

As to Mr Grant’s submission on forgetfulness, plainly a trustee can forget a fact of which he had notice at some previous time. I do not accept, however, that forgetting such a fact has the effect of negating notice of it, so that the fact falls into some category of a “lapsed notice”. Such a principle would, in my view, undermine the distinction between knowledge and notice, which I have considered above.

For the reasons given above, I consider that in the light of the concession made that in 1996 MCP had knowledge, and therefore actual notice, of the D & R Works Transferees and their identities, it becomes unnecessary to decide questions of imputed notice. However, I accept Mr Moeran’s submission to the effect that AON was MCP’s agent, and therefore AON’s knowledge was to be imputed to MCP.

I accept also Mr Moeran’s submission that for the purposes of section 27, MCP had notice of a claim. He is right, I find, in the contention that Markwell demonstrates that what is necessary is a right to maintain a claim, and that the D&R Works Transferees were always entitled to claim to have the Scheme correctly administered, and when the Scheme went into wind up, to be paid out appropriate benefits.

Standing back from the authorities to which I have been referred, it would seem surprising if a pension scheme trustee, who had been aware of a member’s interests at some time in the past, could escape liability to that member because when the time came for distribution no provision was made for the member because of the trustee’s oversight or that of his agent. Neither the statutory provisions, nor the decided cases, suggest that such a surprising result should be achieved.

For the reasons given above, I conclude on the Preliminary Issue that on the true construction of section 27 of the Trustee Act 1925, MCP is liable to the D&R Works Transferees.

I cannot leave this case without paying tribute to both counsel for the very considerable assistance which I have derived from their submissions.