The Weekly Law Reports 23 July 1999

1399
1 W.L.R.

A [PRIVY COUNCIL]

*AIR J A M A I C A LTD. AND OTHERS . . . . APPELLANTS

AND

J O Y C H A R L T O N AND OTHERS RESPONDENTS

B
[APPEAL FROM THE COURT OF APPEAL OF JAMAICA]

1999 Feb. 22, 23, 25; Lord Steyn, Lord Hope of Craighead, Lord Millett,
April 28 Sir Christopher Slade and Sir Andrew Leggatt

Trusts—Pension scheme—Surplus fund—Company establishing defined

^ benefits pension scheme for employees— Whether scheme and powers
exercisable thereunder void for perpetuity—Contributions to scheme
ceasing—Whether pension plan discontinued—Whether company
validly amending plan to enable payment of surplus after payment
of benefits to company—Whether surplus devolving by way of
resulting trust for company and scheme members
y. The company created a pension scheme which provided defined
benefits for the company's employees, their widows and designated
beneficiaries, funded by members' contributions deducted from
their salaries and matching payments by the company. Clause 4 of
the trust deed provided that no money which at any time had
been contributed by the company was in any circumstances to be
repayable to the company. By section 8.6 of the pension plan
where a member's contributions with interest to the date his
E pension commenced, or his earlier death, exceeded the total of
any pension payments made to him, his widow, or designated
beneficiary, any excess was payable to the beneficiary designated
by the person last in receipt of a pension. Section 8.7 entitled the
member to designate a beneficiary to receive certain benefits, and
the member or his widow from time to time to change such
beneficiary. Section 13.1 authorised the company to amend the
plan from time to time, and by section 13.2 the company could
** discontinue the plan at any time but not so that any part of the
trust fund could be used other than for the exclusive use of
members and others entitled to benefits under the plan. Section
13.3 directed the trustees on discontinuance of the plan to convert
the trust fund into money and apply it to purchase annuities for
those receiving pensions or entitled to future pensions, and section
13.3(ii) provided that subject thereto any balance of the fund
Q should be applied to provide additional benefits for members, or
their widows or designated beneficiaries. In May 1994 the
government decided to dispose of its controlling interest in
the company and entered into an agreement for the sale of the
government's shareholding. No further contributions were made
to the trust fund. Under the agreement the company on 30 June
made all but four of its employees redundant. A substantial
balance remained in the trust fund after the payment of benefits
H and the plaintiffs, as representative members of the pension
scheme, commenced proceedings against the company, the fund
manager and the trustees seeking a declaration that the pension
plan had been discontinued by the company and an order that
the fund be dealt with in accordance with section 13 of the plan.
In August 1994 the company amended the trust deed and pension
plan so as to enable the surplus to be paid to the company. The
plaintiffs challenged the validity of those amendments and obtained
an interlocutory injunction to prevent their implementation which
 The Weekly Law Reports 23 July 1999
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Air Jamaica Ltd. v. Charlton (P.C.) |1999|

was subsequently replaced by an undertaking by the Attorney- ^

General on behalf of the government that should the court uphold
the plaintiffs' contentions the government would replenish the
fund to the full extent required. As directed by the trustees the
manager paid the balance of the trust fund to the company. The
four remaining employees were made redundant on 30 September
1994. On the plaintiffs' action the judge held that the trusts of the
pension scheme were void for perpetuity and the 1994 amendments
of no effect, and he ordered the surplus to revert to the Crown as B
bona vacantia. The Court of Appeal by a majority allowed the
plaintiffs' appeal, granted a declaration that the pension plan had
been discontinued by the company, and ordered the pension fund
to be dealt with in accordance with section 13 of the original
plan, the trust fund to be replenished in accordance with the
undertaking, and the money paid out to the company to be repaid
with compound interest at a specified rate. p
On the appeals of the company, the manager and the Attorney-
General to the Judicial Committee:—
Held, (1) that, in the absence of legislation in Jamaica
exempting authorised pension schemes, the company's scheme was
subject to the common law rule against perpetuities, but although
the trusts of the scheme were of unlimited and indefinite duration
they were not all void ab initio; that whenever an employee joined
the scheme a new settlement was created, comprising the D
contributions made in respect of that employee both by him and
the company, to which the rule against perpetuities had to be
applied separately; that since each employee was a life in being in
relation to his own settlement and any benefits payable on his
retirement or death were fixed at the outset, the trusts providing
for the payment of such benefits were valid; but that the widow's
powers under sections 8.6 and 8.7 of the pension plan to designate p
a beneficiary to receive benefits and to change the identity of a
designated beneficiary were void for perpetuity, as was the trust
contained in section 13.3(h) of the original plan since it was
contingent on the discontinuance of the plan, which might occur
more than 21 years after the death of any particular member, and
was a class gift in favour of persons who were not all lives in
being at the date of any individual settlement (post, pp. 1408E,
1409B-C, D-E, F, H-1410B, 1414B). F
(2) That section 13.2 of the plan validly conferred on the
company a liberty to discontinue the plan at any time, which
could be done without any formal resolution of the board of
directors; that since the payment of contributions had ceased there
had been no contributory members after 30 June 1994 and the
plan had been discontinued on that date; that the 1994
amendments made thereafter were invalid because the power to p
amend the trusts was void for perpetuity and the amendments
could not affect existing members of the scheme, and the company
was obliged to exercise its power to amend the plan in good faith
and could not do so in order to give any interest in the trust fund
to the company, which was in any event expressly prohibited by
clause 4 of the trust deed (post, pp. 1410H-1411A, B-E, F).
(3) Allowing the manager's appeal and allowing in part the
company's appeal but dismissing the Attorney-General's appeal, H
that the balance in the trust fund after discontinuance of the
pension plan did not revert to the Crown as bona vacantia but
was held on a resulting trust; that clause 4 of the trust deed
merely prevented the repayment of contributions to the company
under the terms of the scheme and did not preclude the company
from retaining a beneficial interest by way of a resulting trust
which arose by operation of law outside the scheme, and so much
of the surplus as was attributable to the contributions which the
 The Weekly Law Reports 23 July 1999
1401
1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)
^ company had made should be retained by the company or repaid
to it; that as a result of the invalidity of the trust in section
13.3(H) of the plan the members had not received all they had
bargained for, and so much of the surplus as was attributable to
contributions made by members should be divided pro rata among
the members and the estates of deceased members in proportion
to their respective contributions without regard to the value of the
benefits they had received and irrespective of the dates on which
B their contributions had been made; that the part of the surplus
attributable to the members' contributions which had been paid
to the company should be repaid to the trustees by the Crown
pursuant to the undertaking of the Attorney-General, which
properly construed required the repayment to be with compound
interest at the specified rate from the date of receipt by the
company to the date of repayment; that the manager was under
^ no liability to repay the money since it had acted properly in the
circumstances in paying the surplus to the company; and that,
therefore, the payment of any benefit dependent on the validity of
the powers conferred by sections 8.6 and 8.7 of the plan and the
trust in section 13.3(h) would cease (post, pp. 1406H, 1412B, D-F,
1413A, E, G-H, 1414C-E).
Davis v. Richards & Wallington Industries Ltd. [1990] 1 W.L.R.
1511 considered.
D Per curiam. The attention of the Jamaican authorities is drawn
to the need for retrospective legislation to exempt authorised
pension schemes from the rule against perpetuities (post,
p. 1414E-F).
Quaere. Whether payments of benefit already made under
provisions of the plan which are void for perpetuity are recoverable
(post, p. 1414E).
Order of the Court of Appeal of Jamaica varied.
h
The following cases are referred to in the judgment of their Lordships:
A.B.C. Television Ltd. Pension Scheme, In re (unreported), 22 May 1973,
Foster J.
Allot!, In re; Hanmer v. Allott [1924] 2 Ch. 498, C.A.
Davis v. Richards & Wallington Industries Ltd. [1990] 1 W.L.R. 1511; [1991]
2 All E.R. 563
F Havel's Will Trusts, In re [1969] 1 W.L.R. 444; [1969] 2 All E.R. 232
Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd. [1991] 1 W.L.R.
589; [1991] 2 All E.R. 597
Lucas v. Telegraph Construction and Maintenance Co. Ltd. [1925] L.N. 211
Meadows (Thomas) & Co. Ltd. and Subsidiary Companies (1960) Staff Pension
Scheme Rules, In re [1971] Ch. 278; [1970] 3 W.L.R. 524; [1971] 1 All E.R.
239
G Vandervell v. Inland Revenue Commissioners [1966] Ch. 261; [1965] 2 W.L.R.
1085; [1965] 2 All E.R. 37, Plowman J. and C.A.; [1967] 2 A.C. 291;
[1967] 2 W.L.R. 87; [1967] 1 All E.R. 1, H.L.(E.)

The following additional cases were cited in argument:

Barber v. Guardian Royal Exchange Assurance Group (Case C-262/88) [1991]
1 Q.B. 344; [1991] 2 W.L.R. 72; [1990] 2 All E.R. 660, E.C.J.
British Red Cross Balkan Fund, In re [1914] 2 Ch. 419
Courage Group's Pension Schemes, In re [1987] 1 W.L.R. 495; [1987] 1 All E.R.
528
Gillingham Bus Disaster Fund, In re [1958] Ch. 300; [1957] 3 W.L.R. 1069;
[1958] 1 All E.R. 37
Hockin v. Bank of British Columbia (1990) 71 D.L.R. (4th) 11
Imperial Foods Ltd. Pension Scheme, In re (unreported), 27 January 1986,
Walton J.
 The Weekly Law Reports 23 July 1999
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Air Jamaica Ltd. v. Charlton (P.C.) |1999|

Lock v. Westpac Bunking Corporation [1991] P.L.R. 167 A

Martin & Robertson Administration Ltd. v. Pension Commission of Manitoba
[1980] 2 A.C.W.S. (2d) 249
Mettoy Pension Trustees Ltd. v. Evans [1990] I W.L.R. 1587; [1991] 2 All E.R.
513
Mihlenstedt v. Barclays Bank International Ltd. [1989] I.R.L.R. 522, C.A.
Mover (CD.) Co. Trust Fund. In re (1977) 441 F.Supp. 1128
Parry v. Cleaver [1970] A.C. I; [1969] 2 W.L.R. 821; [1969] 1 All E.R. 555, R
H.L.(E.)
Schmidt v. Air Products of Canada Ltd. (1994) 115 D.L.R. (4th) 631
U.E.B Industries Ltd. Pension Plan. In re [1992] 1 N.Z.L.R. 294
Walsh v. Secretary of State for India (1863) 10 H.L.Cas. 367, H.L.(E.)
Washington-Baltimore Newspaper Guild Local 35 v. Washington Star Co. (1983)
555 F.Supp. 257
West Sussex Constabulary's Widows, Children and Benevolent (1930) Fund
C
Trustees, In re [1971]'Ch. 1; [1970] 2 W.L.R. 848; [1970] 1 All E.R. 544
Westdeutsche Landesbank Girozentrale v. Islington London Borough Council
[1996] A.C. 669; [1996] 2 W.L.R. 802; [1996] 2 All E.R. 961, H.L.(E.)
Wilson v. Law Debenture Trust Corporation Ltd. [1995] 2 All E.R. 337
Witham v. Vane (unreported), 27 April 1883, H.L.(E.)

APPEAL (NO. 27 of 1998) with leave of the Court of Appeal of Jamaica

by the company, Air Jamaica Ltd., the manager, Life of Jamaica Ltd., and ^>
the Attorney-General of Jamaica from the judgment of the Court of
Appeal of Jamaica given on 12 May 1997 (Forte and Downer JJ.A.,
Carey J.A. dissenting) allowing an appeal by the plaintiffs, Joy Charlton,
Clive Goodall, Barbara Clarke and Ian Philpotts, suing on behalf of
themselves and members of the Pension Plan for Employees of Air Jamaica
(1968) Ltd., from the judgment of Theobalds J. delivered on 8 March 1996 g
in the Supreme Court of Jamaica in Equity, whereby he had ordered that
the trust deed dated 1 April 1969 was void for perpetuity, and that the
trust fund reverted to the Crown as bona vacantia; and from the
supplemental judgment of the Court of Appeal (Forte, Downer and
Gordon JJ.A.) given on 29 July 1997. In the first judgment the Court of
Appeal had granted a declaration that the pension plan had been
discontinued by the company and had ordered, inter alia, that the fund of F
the pension plan be dealt with in accordance with section 13 of the
unamended plan, and that the Attorney-General should replenish the
pension fund in accordance with his undertaking given to the court. In the
supplemental judgment the Court of Appeal had unanimously ordered all
amounts paid to the company out of the trust fund to be repaid thereto
and the fund reinstated to its condition as at 30 June 1994; and by a Q
majority (Forte J.A. dissenting) that compound interest was due on the
trust fund from 30 June 1994 with yearly rests at 29-47 per cent.
The facts are stated in the judgment of their Lordships.

Roald Henriques Q.C., Basil Parker and Angela Fowler (all of the
Jamaican Bar) for the company.
B. St. Michael Hylton Q. C. and Nicole Lambert (both of the Jamaican H
Bar) for the manager.
Kenneth Rattray Q.C., Solicitor-General, Jamaica, and Douglas Leys,
Senior Assistant Attorney-General, Jamaica, for the Attorney-General.
David Muirheacl Q.C. and Patrick Foster (both of the Jamaican Bar)
for the plaintiffs.

Cur. adv. vult.

 The Weekly Law Reports 23 July 1999
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1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)

A 28 April. The judgment of their Lordships was delivered by LORD

MILLETT.

Background
Air Jamaica Ltd. ("the company") was incorporated in 1968 under the
Jamaican Companies Act to operate as the national civil aviation carrier
B for Jamaica. It was established in response to the need to provide air
services on a continuous basis to an island nation dependent on tourism
and communication. The Accountant General held a controlling interest
in the company on behalf of the Government of Jamaica.
A pension scheme for the employees of the company was created by a
trust deed and pension plan dated 1 April 1969. These established a
contributory pension scheme which provided defined benefits for employees
of the company, their widows and designated beneficiaries. The trust deed
was varied in 1973 in order to introduce an unlimited power of amendment.
The pension plan was amended in minor respects not material to the
present appeals in 1993. Life of Jamaica Ltd. ("the manager") was
appointed manager of the pension scheme.
The company incurred substantial losses from its operations and the
D Government of Jamaica decided to dispose of its controlling interest to the
private sector. On 6 May 1994 it entered into a privatisation agreement
with Air Jamaica Acquisition Group Ltd. for the sale and purchase of
the government's shareholding. The agreement recorded the intention of
the parties that there should be continuity of flag carrier services by the
company as the national airline of Jamaica, and that substantial ownership
and effective control of the airline should continue to be vested in Jamaican
nationals.
The privatisation agreement required the government to procure the
company to serve redundancy notices upon all its employees with the
exception of up to 10 employees selected by the new owners. It also
authorised the new owners during the period before completion of the
acquisition to require the company to engage up to 10 new employees,
F though it does not appear that the new owners exercised this right. The
government undertook responsibility for redundancy payments to the
employees made redundant prior to completion.
In accordance with the terms of the privatisation agreement virtually
all the employees of the company were made redundant on 30 June 1994.
There were only four exceptions. These were the four trustees of the
pension scheme. They were made redundant on 30 September 1994.
Under the privatisation agreement the new owners were obliged to
continue the company's operations and to maintain a level of service
consistent with its status as Jamaica's national airline. To enable them to
discharge these obligations the new owners offered to re-engage many of
the former employees of the company, and those who accepted entered
into new pension arrangements.
H By 1994 a substantial actuarial surplus had been built up in the trust
fund. As a result, after the defined benefits had been paid out in
accordance with the pension plan, a balance remained in excess of
$400m. On 10 August 1994 the plaintiffs, as representative members of the
pension scheme, issued an originating summons seeking a declaration that
the plan had been discontinued and an order that the balance of the fund
should be applied for the benefit of members and their dependants in
accordance with section 13 of the plan, that being the rule which was
 The Weekly Law Reports 23 July 1999
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Air Jamaica Ltd. v. Charlton (P.C.) [1999|

applicable in the event of discontinuance. The company, the trustees and A

the manager were made defendants to the proceedings.
On 19 August 1994 the company purported to make further
amendments to the trust deed and pension plan in order to enable the
surplus to be paid to the company. The plaintiffs challenged the validity of
these amendments and obtained an interlocutory injunction to restrain the
defendants from implementing them. The Attorney-General obtained leave
to intervene in the proceedings in order to claim that the trusts of the "
pension scheme were void for perpetuity and that the surplus funds were
bona vacantia. The injunction was discharged by consent and replaced by
an undertaking given by the Attorney-General on behalf of the Government
of Jamaica that, should the court uphold the plaintiffs' contentions, the
government would replenish the trust fund "to the full extent required."
At the direction of the trustees the manager then paid the balance of the Q
trust fund to the company, where it had the effect of reducing the financial
obligations of the government to the new owners under the privatisation
agreement.

The trust deed and pension plan

The trust deed established a trust fund to be held by trustees upon D
irrevocable trusts for the purpose of securing retirement pensions and other
benefits for contributing employees of the company, their widows and
designated beneficiaries. The trust deed contained a covenant by the
company with the trustees to pay contributions to the fund in accordance
with the plan. Clause 4 of the trust deed provided: "No moneys which at
any time have been contributed by the company under the terms hereof
shall in any circumstances be repayable to the company." The plan
provided for contributions to be made by members by deduction from
their salaries and for matching payments to be made by the company. The
company was also obliged to make further payments into the fund if these
were required by the trustees, acting on actuarial advice, in order to
provide the benefits specified by the plan. Their Lordships understand that
no such further payments were in fact ever required. "Members" were F
defined as contributing employees of the company.
The plan provided for fixed retirement pensions to be paid to members
who reached normal retirement age and for smaller pensions to be paid to
members who retired early. Where a member died in service then,
depending on his circumstances, either (i) his widow became entitled to a
widow's pension or (ii) his contributions were payable to his designated
beneficiary with compound interest: section 8.1. Where a member died
after his pension payments had commenced, his widow was entitled to a
widow's pension. Where a member's contributions with interest to the date
his pension commenced or his earlier death exceeded the total of any
pension payments made to the member or his widow, or designated
beneficiary the excess was payable to the beneficiary designated by the
person last in receipt of a pension: section 8.6. Section 8.7 authorised the H
member to designate in writing the beneficiary to receive any benefits
under section 8.1 or 8.6 and the member or his widow from time to time
to change such beneficiary.
Before the latest amendments in August 1994 section 13 of the plan
authorised the company to amend the plan from time to time and to
discontinue the plan at any time, but not so as to enable any part of'the
trust fund to be used otherwise than for the exclusive benefit of members
 The Weekly Law Reports 23 July 1999
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1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)

A or other persons entitled to benefits under the plan. Section 13.3 provided
for what was to happen in the event of discontinuance. It directed
the trustees to convert the trust fund into money and apply it first in the
purchase of annuities in place of pensions in payment and secondly in the
purchase of annuities or deferred annuities for those entitled to future
pensions. Subject thereto section 13.3(h) provided:
g "any balance of the fund shall be applied to provide additional
benefits for members and after their death for their widows or their
designated beneficiaries in such equitable and non-discriminatory
manner as the trustees may determine in accordance with the advice
of an actuary."
If valid, this would have enabled the trustees to deal effectively with the
Q surplus by using it to provide additional benefits for members, their widows
and designated beneficiaries.

The 1994 amendments

The trust deed and pension plan were amended in August 1994 in
order to enable the surplus to be returned to the company. This was
£) achieved by amending clause 4 of the trust deed, removing the proviso to
the power of discontinuance contained in section 13.1 of the plan, and
replacing section 13.3(h) by a trust to pay any balance of the fund
remaining to the company. Their Lordships observe that the ultimate trust
(now in favour of the company) still arose only in the event of
discontinuance. At the same time the trust deed was also amended by
belatedly introducing a royal lives clause. This was intended to meet any
E claim that the trusts were void for perpetuity.

The course of the proceedings below

There were two issues in the case. The first was concerned with the
validity of the 1994 amendments. The second was concerned with the
destination of the surplus of $400m. The trial judge (Theobalds J.) made
F no express finding whether there had been a discontinuance of the plan.
He held (i) that the trusts of the pension scheme were void for perpetuity;
(ii) that the 1994 amendments were of no effect; and (iii) that the surplus
reverted to the Crown as bona vacantia.
The judge assumed that the effect of the rule against perpetuities was
that all the trusts and powers of the scheme were void ab initio. He held
,-, that clause 4 of the trust deed excluded any resulting trust in favour of the
company, and that since the members and their dependants had received
all the benefits to which they were entitled they could not claim under a
resulting trust either. Accordingly he declared that the trust fund reverted
to the Crown as bona vacantia. It is not clear whether he intended the
declaration to apply to the whole trust fund or only to the surplus after
all accrued benefits had been satisfied. The Attorney-General has
H throughout limited the Crown's claim to the surplus, but their Lordships
observe that the existence of a surplus after the interests of beneficiaries
have been fully satisfied presupposes the validity of the trusts and is
inconsistent with the basis on which the Attorney-General has argued the
case and on which the judge reached his decision.
The company and the plaintiffs appealed from the order of Theobalds J.
to the Court of Appeal. The manager, which indicated throughout that it
would act in accordance with the directions of the court, was made a
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Air Jamaica Ltd. v. Charlton (P.C.) |1999|

party to the appeal. At the outset of the hearing of the appeal counsel for A
the plaintiffs indicated that the substantive issue in the appeal related to
the identity of the persons entitled to the balance of the trust fund and
that the resolution of this issue did not concern the manager. The Court
of Appeal agreed that, in the interests of saving costs, counsel for the
manager need not attend the hearing.
The Court of Appeal by a majority (Forte and Downer J J. A., with
Carey J.A. dissenting) allowed the plaintiffs' appeal. The majority held "
(i) that the rule against perpetuities had no application because the rights
of members arose out of their contracts of employment and were governed
by the law of contract rather than the law of trusts; (ii) that in any event
the trusts did not infringe the rule because each member was a relevant
life in being whose interest must vest in possession on his own retirement
or death; (iii) that the plan was discontinued either on 30 June 1994 or on Q
30 September 1994; (iv) that the 1994 amendments were of no effect;
(v) that the balance of the trust fund should be dealt with in accordance
with section 13.3(ii) of the pension plan as it stood before the 1994
amendments; and (vi) that the Attorney-General should cause the trust
fund to be replenished in accordance with his undertaking.
At a later hearing a reconstituted court ordered the moneys paid out
of the trust fund to the company to be repaid to the fund with compound D
interest. The court ordered the costs of all parties to be paid out of the
fund.

The issues on the appeal

The company and the Attorney-General now appeal from this decision.
They both contend that the trusts of the pension scheme are void for
perpetuity and that the pension plan was not discontinued, but here their
agreement ends. The company claims that it is entitled to the whole
balance of the fund. If the trusts of the pension scheme are void, this is
by way of resulting trust; if they are not void, it is by virtue of the 1994
amendments. The Attorney-General claims that the balance of the fund
has reverted to the Crown as bona vacantia. If the trusts of the pension
scheme are void, this is because the employees have received their full
entitlement under the plan and can have no further interest in the trust
fund, while clause 4 of the trust deed precludes the company from claiming
any part of the fund by way of resulting trust. If they are not void, it is
because even under the 1994 amendments the ultimate trust in favour of
the company took effect only in the event of discontinuance. If the appeal
fails, both these appellants submit that the reconstituted court should have
ordered repayment without interest or alternatively with simple interest
only. The manager appeals against the order in so far as it is taken to
impose a personal obligation upon it to repay the moneys which it had
paid to the company.

The manager's appeal

Their Lordships can dispose of the manager's appeal at once. There
was no basis for imposing any personal liability on the manager to make
repayment of the money which it paid to the company. It behaved properly
throughout, and it has not been accused of any impropriety. It was joined
as a party to the proceedings only because the fund was under its control.
It indicated throughout that it would deal with the fund in accordance
with the directions of the court. As was contemplated by the parties (and
 The Weekly Law Reports 23 July 1999
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1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)

A by the court) at the time, it paid the money to the company at the
direction of the trustees and against an undertaking by the Attorney-
General that the Crown would make repayment if required. The
undertaking was given and the injunction dissolved for the very purpose
of enabling the payment to be made. The order of the Court of Appeal
does not identify the party or parties by whom the repayment was to be
made. Their Lordships doubt that it was ever intended that it should be
° made by the manager. Regardless of the outcome of the remainder of this
appeal, the order should be varied to make this clear.

Does the rule against perpetuities apply?

A pension scheme can, in theory at least, be established by contract
between the employer and each employee and without using the machinery
of a trust. Such a scheme would have to be very simple. It would look
very like a self-employed pension policy. There would be no trust fund and
no trustees. The employer would simply contract with each of his
employees that, if the employee made weekly payments to the employer,
the employer would pay the employee a pension on retirement or a lump
sum on death. The employer would not make any contributions itself,
D since there would be no one to receive them. But the benefits would be
calculated at a higher level than would be justified by the employee's
contributions alone.
The company's pension scheme was, however, of a very different kind.
A trust fund was established with its own trustees. Contributions, whether
by members or by the company, were paid into the trust fund, and the
trustees were given powers of investment over the fund. The benefits were
funded in part by contributions and in part by the income of the
investments held in the fund. The interposition of a trust fund between the
company and the members meant that payment of benefits to members
was the responsibility of the trustees, not the company. The machinery
employed was that of a trust, not a contract.
This is not to say that the trust is like a traditional family trust under
F which a settlor voluntarily settles property for the benefit of the object of
his bounty. The employee members of an occupational pension scheme are
not voluntary settlors. As has been repeatedly observed, their rights are
derived from their contracts of employment 'as well as from the trust
instrument. Their pensions are earned by their services under their
contracts of employment as well as by their contributions. They are often
not inappropriately described as deferred pay. This does not mean, however,
that they have contractual rights to their pensions. It means only that, in
construing the trust instrument, regard must be had to the nature of an
occupational pension and the employment relationship that forms its
genesis.
In the present case prospective employees were informed that the
company maintained a pension scheme for its staff and that membership
H was compulsory for those under 55 years of age. They were told the
amount of the employee's contribution, and that the company paid "an
amount not less than the employee's contribution, plus any amount
necessary to support the financial viability of the scheme." Even if these
can be regarded as imposing contractual obligations on the company, the
only obligation which was undertaken by the company, and one which it
has fully performed, was to make contributions to the fund. The obligation
to make pension payments was not a contractual obligation undertaken by
 The Weekly Law Reports 23 July 1999
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Air Jamaica Ltd. v. Charlton (P.C.) |1999|

the company, but a trust obligation imposed on the trustees. Their \

Lordships agree with the observation of Carey J.A., who was dissenting in
the Court of Appeal, that each employee becomes a member of the
pension scheme by virtue of his employment, but that his entitlement to a
pension arises under the trusts of the scheme.
Their Lordships should add for completeness that, while the members'
entitlements arise under the trusts of the pension plan, the company's
obligation to deduct contributions from members and to pay them to "
the trustees together with its own matching contributions, is contractual.
The company undertook this obligation by its covenant with the trustees
in the trust deed. The obligation was, however, subject to the power of the
company unilaterally to discontinue the plan under section 13.2 of the
plan.
It is well established that, absent statutory intervention, such pensions Q
schemes are subject to the rule against perpetuities: see for example Lucas
v. Telegraph Construction and Maintenance Co. Ltd. [1925] L.N. 211; In re
Flavel's Will Trusts [1969] 1 W.L.R. 444; In re Thomas Meadows & Co.
Ltd. and Subsidiary Companies (1960) Staff Pension Scheme Rules [1971]
Ch. 278. Following the decision of Russell J. in the Telegraph case [1925]
L.N. 211 the Superannuation and other Trust Funds (Validation) Act 1927
was hurriedly introduced in England with retrospective effect to exempt ^
pension schemes from the rule against perpetuities provided that certain
criteria were satisfied. That Act has since been repealed and replaced by
the Social Security Act 1973 which makes special provision for all
qualifying occupational pension schemes to be exempt from the rule.
Similar legislation has been introduced in most other common law
jurisdictions both in the Commonwealth and in the United States. g
Unhappily no such legislation has been enacted in Jamaica, where no steps
have been taken to modernise the rule as was done in England by the
Perpetuities and Accumulations Act 1964. The company's pension scheme
is thus subject to the common law rule against perpetuities unaffected by
any legislative amendment.

F
The effect of the rule
The classic formulation of the rule is stated in Gray on Perpetuities,
4th ed. (1942), p. 191. Its effect is that no interest is valid unless it must vest,
if it vest at all, within a period of a life in being at the date of the gift
plus 21 years. The rule is applied remorselessly. A gift is defeated if by any
possibility, however remote, it may vest outside the perpetuity period. It is
not saved by the fact that, in the event, it vests inside the period. This can
create many traps. One well known trap relates to "the unborn widow." A
gift to A for life with remainder to his widow for life, where A is a life in
being at the date of the settlement, is valid; the gift to the widow must
vest, if it vests at all, on As death. But As widow cannot be ascertained
until As death. However old A may be, and however young his wife, in
theory his wife may die and he may remarry a woman not yet born at the H
date of the settlement. His widow is not, therefore, a life in being, and she
may survive A by more than 21 years. A gift which may not vest until her
death is accordingly void for perpetuity.
The rule against perpetuities also applies to the administrative trusts
and powers of the trustees. Such powers must not be capable of being
exercised outside the perpetuity period, and they may be void even if all
the trusts to which they are attached are valid. Where, therefore, there is a
 The Weekly Law Reports 23 July 1999
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1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)

A trust for A for life with remainder to his widow for life, and the trustees
are given a power to sell or lease land comprised in the settlement, the
power is void ab initio because it is capable of being exercised at any time
during the widow's life, and she may survive A by more than 21 years: see
In re Allott; Hanmer v. Allott [1924] 2 Ch. 498. The same rule applies to a
power to alter beneficial interests, such as a power of appointment. Such a
power may, however, be saved if its objects are such that, even if it is
° expressed to be exercisable without limit of time, the power is in fact only
capable of being exercised within the perpetuity period.
The original trust deed and pension plan contained no royal lives
clause. The trusts of the scheme are therefore of unlimited and indefinite
duration. It does not, however, follow that, as the judge held and the
Attorney-General and the company both claimed, the whole of the trusts
Q declared by the pension plan are void ab initio.
Their Lordships have considered the analysis of the effect of the rule
against perpetuities on pension schemes made by the English Law
Commission in its recent Report on The Rules against Perpetuities and
Excessive Accumulations (1998) (Law Com. No. 251), at p. 38, para. 3.53.
They regard it as correct, at least in relation to a defined benefit scheme
like the present. In their Lordships' view such a scheme can properly be
D regarded as comprising a series of separate settlements. Every time an
employee joins the scheme, a new settlement is created. The settlement
comprises the contributions made in respect of the employee whether by
him or by the company. The rule against perpetuities must be applied
separately to each individual settlement, and each employee must be
treated as a life in being in relation to his own settlement. On this footing,
£ any benefits, whether payable as a lump sum or by way of an annuity,
which are payable on the death or earlier retirement of the employee are
valid.
Their Lordships do not accept the appellants' submission that this
analysis is inappropriate where the trust fund is a common fund to which
all members have contributed. It would fail to save the trusts if it could be
said that contributions made by one member and which were not used to
F fund his own benefits could be made available to provide benefits to other
members who were not lives in being at the date of his settlement. But the
essential feature of a defined benefits pension scheme is that the benefits
payable in respect of each member are fixed at the outset at an amount
which is capable of being funded by the contributions payable in respect
of the member without recourse to the contributions of any other member.
,-, Of course, in practice some members will receive more than they contribute
and others will receive less; but this ought not to render the trusts void for
perpetuity. The trust fund is only a security for the payment of benefits,
and a defined benefits scheme can be regarded for this purpose as a form
of mutual insurance. Where each member's contributions are sufficient to
fund his own pension by the purchase of an annuity from an insurance
company, there is no perpetuity merely because they are in effect employed
H in the purchase of the pension from the trust fund. Regarded in this light,
the pension payable to a member who takes out more than he puts in can
be said to derive, not from the funds of settlements made by other
members, but from the successful investment of his own settlement funds.
On this analysis, the only provisions of the pension plan which are
struck down are the widow's power to designate a beneficiary to receive
benefits (section 8.6) and to change the identity of a designated beneficiary
(section 8.7); and the important trust contained in section 13.3(ii) of the
 The Weekly Law Reports 23 July 1999
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Air Jamaica Ltd. v. Charlton (P.C.) |I999|

original plan. This trust arises in the event of discontinuance and requires A
the trustees, after providing for all accrued benefits, to employ any surplus
in providing additional benefits to members, their widows and designated
beneficiaries. The trust cannot be saved by treating the pension plan as
constituting a series of separate settlements made by each of the members.
The trust is contingent on the discontinuance of the scheme, which may
occur more than 21 years after the death of any particular member. This
would not matter if the beneficiaries of the trust were confined to persons "
who were all lives in being at the date of the particular settlement. But it
is a class gift in favour of members (which cannot be read distributively to
confine it in each case to the member who made the settlement), their
widows and dependants. These are not all lives in being at the date of any
individual settlement.
As Carey J.A. observed, had the trust in section 13.3(ii) been valid, c
there would have been no surplus on discontinuance, since the trustees
would have been obliged to use up the balance of the trust fund in the
payment of additional benefits. It is the failure of this trust which has
created the surplus.

Was the pension plan discontinued? y>

The Court of Appeal were divided on the question whether the plan
had been discontinued. Carey J.A. considered that discontinuance required
a formal decision by the board of the company, and no such resolution
was in evidence. Forte J.A. considered that the company was acting in bad
faith by not resolving to discontinue the plan since it was seeking to obtain
for itself benefits which would otherwise have accrued to the members.
Downer J.A. considered that the plan was discontinued once there were no
current contributing members.
Before their Lordships counsel for the company and the Attorney-
General strenuously contended that the plan had not been discontinued
because (a) the business of Air Jamaica was still being carried on by the
company; only the shareholders had changed; and (b) pensions were still
in payment under continuing trusts. These contentions are misconceived. F
A pension scheme can be discontinued without discontinuing the employer's
business; and discontinuing a pension scheme is not the same as winding
it up.
A pension scheme is a continuing scheme under which new members
are continually joining and existing members leaving or taking their
benefits. In order to wind up such a scheme three steps must be taken,
though the first two may be taken simultaneously. First, the scheme must
be closed to new entrants. If no further steps are taken, the scheme
continues as a closed scheme, contributions continuing to be paid in
respect of existing members but no new members being admitted. Secondly,
contributions must cease to be paid in respect of existing members, who
will either have been made redundant or have been transferred to a new
scheme. At this stage the scheme is discontinued, since it ceases to be a H
continuing one. But pensions in payment continue to be payable until the
third stage is reached and the scheme is finally wound up.
It follows that all that was necessary to discontinue the pension plan
was that the company cease to deduct contributions from its employees
and to pay matching contributions to the trustees. This did not require a
formal resolution of the board. Section 13.1 of the pension plan gives the
company power to amend the plan by an instrument in writing signed by
 The Weekly Law Reports 23 July 1999
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1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)

A a majority of the directors, but no similar requirement is imported into

section 13.2 which allows the company to discontinue the plan at any time.
This is because it is not a power—if it were it would be void for
perpetuity—but a liberty. As their Lordships have pointed out, the
company's obligation to deduct contributions from members and account
for them to the trustees and to pay matching contributions of its own to
the trustees is contractual. Section 13.2 modifies the terms of the contract
" by giving the company liberty to discontinue contributions notwithstanding
its undertaking.
The evidence is that the company ceased to deduct contributions from
members or to pay contributions to the trustees after 31 May 1994. No
deductions were made from the last pay packets of employees who were
made redundant on 30 June, or from the wages paid to the four employees
Q who continued in employment until 30 September. There were no
contributing members after 30 June 1994, with the result that the plan was
discontinued on that date, that is to say before the 1994 amendments were
made.

The validity of the 1994 amendments

Their Lordships are satisfied that the 1994 amendments are incurably
bad. There are several reasons for this. In the first place, as their Lordships
have already explained, any power to amend the trusts is void for
perpetuity. This does not mean that an amendment is wholly without
effect. An employee who joins the plan after an amendment makes his
settlement upon the trusts of the plan as amended. But an amendment
cannot affect existing members. The 1994 amendments, which were made
after the plan had been closed to new members, were therefore without
effect.
In the second place, and perpetuity apart, the company's power to
amend the plan was subject to an obligation to exercise it in good faith:
see Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd. [1991]
1 W.L.R. 589. The company was not entitled simply to disregard or
override the interests of the members. Once it became likely that the plan
would be wound up, the company would have to take this fact into
account, and it is difficult to see how the plan could lawfully be amended
in any significant respect once it had actually been discontinued. But even
if it could, their Lordships are satisfied that it could not be amended in
order to confer any interest in the trust fund on the company. This was
expressly prohibited by clause 4 of the trust deed. The 1994 amendments
included a purported amendment to the trust deed to remove this
limitation, but this was plainly invalid. The trustees could not achieve by
two steps what they could not achieve by one.

Destination of the surplus

Prima facie the surplus is held on a resulting trust for those who
H provided it. This sometimes creates a problem of some perplexity. In the
present case, however, it does not. Contributions were payable by the
members with matching contributions by the company. In the absence of
any evidence that this is not what happened in practice, the surplus must
be treated as provided as to one half by the company and as to one half
by the members.
The Attorney-General contended that neither the company nor the
members can take any part in the surplus, which has reverted to the Crown
 The Weekly Law Reports 23 July 1999
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Air Jamaica Ltd. v. Charlton (P.C.) |1999|

as bona vacantia. He argued that clause 4 of the trust deed precludes any A
claim by the company, while the members cannot claim any part of the
surplus because they have received all that they are entitled to. There is
authority for both propositions. Their Lordships consider that they can be
supported neither in principle nor as a matter of construction.
In In re A.B.C. Television Ltd. Pension Scheme (unreported), 22 May
1973 Foster J. held that a clause similar to clause 4 of the present trust
deed "negatives the possibility of implying a resulting trust." This is wrong °
in principle. Like a constructive trust, a resulting trust arises by operation
of law, though unlike a constructive trust it gives effect to intention. But it
arises whether or not the transferor intended to retain a beneficial
interest—he almost always does not—since it responds to the absence of
any intention on his part to pass a beneficial interest to the recipient. It
may arise even where the transferor positively wished to part with the Q
beneficial interest, as in Vandervell v. Inland Revenue Commissioners [1967]
2 A.C. 291. In that case the retention of a beneficial interest by the
transferor destroyed the effectiveness of a tax avoidance scheme which the
transferor was seeking to implement. The House of Lords affirmed
the principle that a resulting trust is not defeated by evidence that the
transferor intended to part with the beneficial interest if he has not in fact
succeeded in doing so. As Plowman J. had said in the same case at first D
instance [1966] Ch. 261, 275: "As I see it, a man does not cease to own
property simply by saying 'I don't want it.' If he tries to give it away the
question must always be, has he succeeded in doing so or not?" Lord
Upjohn [1967] 2 A.C. 291, 314 expressly approved this.
Consequently their Lordships think that clauses of this kind in a
pension scheme should generally be construed as forbidding the repayment g
of contributions under the terms of the scheme, and not as a pre-emptive
but misguided attempt to rebut a resulting trust which would arise dehors
the scheme. The purpose of such clauses is to preclude any amendment
that would allow repayment to the company. Their Lordships thus construe
clause 4 of the trust deed as invalidating the 1994 amendments, but not as
preventing the company from retaining a beneficial interest by way of a
resulting trust in so much of the surplus as is attributable to its F
contributions.
The members' contributions stand on a similar footing. In Davis v.
Richards & Wallington Industries Ltd. [1990] 1 W.L.R. 1511 Scott J. held
that the fact that a party has received all that he bargained for is not
necessarily a decisive argument against a resulting trust, but that in the
circumstances of the case before him a resulting trust in favour of the ^
employees was excluded. The circumstances that impressed him were two-
fold. He considered that it was impossible to arrive at a workable scheme
for apportioning the employees' surplus among the different classes of
employees and he declined, at p. 1544, to "impute to them an intention
that would lead to an unworkable result." He also considered that he was
precluded by statute from "imputing to the employees an intention" that
they should receive by means of a resulting trust sums in excess of the H
maximum permitted by the relevant tax legislation.
These formulations also adopt the approach to intention that their
Lordships have already considered to be erroneous. Their Lordships would
observe that, even in the ordinary case of an actuarial surplus, it is not
obvious that, when employees are promised certain benefits under a scheme
to which they have contributed more than was necessary to fund them,
they should not expect to obtain a return of their excess contributions. In
 The Weekly Law Reports 23 July 1999
1413
1 W.L.R. Air Jamaica Ltd. v. Charlton (P.C.)

A the present case, however, the surplus does not arise from overfunding but
from the failure of some of the trusts. It is impossible to say that the
members "have received all that they bargained for." One of the benefits
they bargained for was that the trustees should be obliged to pay them
additional benefits in the event of the scheme's discontinuance. It was the
invalidity of this trust that gave rise to the surplus. Their Lordships
consider that it would be more accurate to say that the members claim
" such part of the surplus as is attributable to their contributions because
they have not received all that they bargained for.
Pension schemes in Jamaica, as in England, need the approval of the
Inland Revenue if they are to secure the fiscal advantages that are made
available. The tax legislation in both countries places a limit on the amount
which can be paid to the individual employee. Allowing the employees to
C enjoy any part of the surplus by way of resulting trust would probably
exceed those limits. This fact is not, however, in their Lordships' view a
proper ground on which to reject the operation of a resulting trust in
favour of the employees. The Inland Revenue had an opportunity to
examine the pension plan and to withhold approval on the ground that
some of its provisions were void for perpetuity. They failed to do so. There
is no call to distort principle in order to meet their requirements. The
D resulting trust arises by operation of the general law, dehors the pension
scheme and the scope of the relevant tax legislation.
Scott J. was impressed by the difficulty of arriving at a workable scheme
for apportioning the surplus funds among the members and the executors
of deceased members. This was because he thought it necessary to value
the benefits that each member had received in order to ascertain his share
E in the surplus. On the separate settlement with mutual insurance analysis
which their Lordships have adopted in the present case, however, no such
process is required. The members' share of the surplus should be divided
pro rata among the members and the estates of deceased members in
proportion to the contributions made by each member without regard to
the benefits each has received and irrespective of the dates on which the
contributions were made.
F
Interest
The Court of Appeal ordered that the moneys paid out of the trust
fund should be repaid to the trust fund with compound interest. The
company and the Attorney-General have appealed on the ground that no
case has been made out for the payment of compound interest. They rely
on the fact that the circumstances in which a court of equity will order
compound interest are narrowly circumscribed.
Their Lordships think that these arguments are based on a
misunderstanding. The moneys were released to the company on the
Attorney-General's undertaking to replenish the trust fund "to the full
extent required." In ordering the repayment to be made with compound
H interest, the Court of Appeal was not exercising its equitable jurisdiction
over trust funds, but merely giving effect to the Attorney-General's
undertaking as properly construed. Had the injunction not been discharged,
the trustees would have retained the money pending the determination of
the proceedings and held it in some suitable account where the interest
would have been rolled up and added to capital. The Crown's obligation is
to restore the trust fund (or so much thereof as is distributable to
members) to what it would have been if it had not been paid to the
 The Weekly Law Reports 23 July 1999
1414
Air Jamaica Ltd. v. Charlton (P.C.) |1999|

company. This does not require that the whole of the moneys paid to the A
company be repaid, but only so much as is attributable to the members'
contributions; but it does require repayment to be made with compound
interest.
Conclusion
Their Lordships will humbly advise Her Majesty that the company's
appeal should be allowed and the Attorney-General's appeal should be B
dismissed. The orders made by the Court of Appeal should be set aside,
and in lieu thereof it should be declared (i) that the widow's power to
designate a beneficiary conferred by section 8.6 of the pension plan and to
change the identity of a designated beneficiary conferred by section 8.7
and the trust contained in section 13.3(ii) of the pension plan are void for
perpetuity; (ii) that so much of the surplus as is attributable to p
contributions made by the company should be repaid to or retained by the
company; (iii) that so much of the surplus as is attributable to contributions
made by members is divisible pro rata among the members and the estates
of deceased members in proportion to their respective contributions
without regard to the value of the benefits they have received and
irrespective of the dates of their contributions; and (iv) that so much of
the surplus as is attributable to the contributions made by members and D
was paid to the company should be forthwith repaid to the trustees by the
Crown in accordance with the undertaking of the Attorney-General
together with compound interest at the rate specified by the Court of
Appeal from the date of receipt by the company to the date of payment.
The effect of declarations (i) and (ii) above is to bring to an end any
benefit currently in payment which depends on the validity of the
provisions in question. Their Lordships should not be taken to be deciding E
that past payments are recoverable. The costs of all parties to the appeal
should be met out of the surplus before it is dealt with in accordance with
declarations (ii) and (iii) above.

The need for legislation

Their Lordships would respectfully draw the attention of the authorities p
in Jamaica to the need for retrospective legislation affecting continuing
schemes to exempt authorised pension schemes from the rule against
perpetuities. It is virtually impossible to establish a modern pension scheme
with any degree of sophistication without some at least of the trusts and
powers being rendered invalid by the rule. It is, of course, possible to
include a royal lives clause from the outset, but this is not an ideal remedy
since a modern pension scheme ought to be designed to last indefinitely Q
and not brought to an end by some extraneous and irrelevant event. This
must, however, be a matter for the Jamaican legislature and not for their
Lordships.
Solicitors: Saunders & Co.; Myers Fletcher & Gordon; Simons Muirhead
& Burton.
S. S.