Trusts, Contract, and the Future of Discretionary Powers: the IBM v Dalgleish litigation

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This seminar analyses the significant litigation leading to the victory of the appellant in the Court of Appeal case of IBM v Dalgleish [2017] EWCA Civ 1212 before Sir Timothy Lloyd and Arden and McCombe LJJ. Discussants will include members of IBM’s legal team Dr Daniel Schaffer (Slaughter and May) and Mr Fraser Campbell (Blackstone Chambers), who will describe the litigation and it doctrinal importance; and Prof Mark Freedland (Oxford) and Prof Alan Bogg (Bristol), who will be looking at the employment law implications. The seminar will be held in the Old Library at All Souls, and any student interested in trusts and/or labour law and the interaction between contract law and trusts, especially in an employment context, will find this valuable. In a seminar last term there was a pre-appeal discussion examining how the Courts (should) deal with the interaction between contract and trust doctrine where pension rights and duties are renegotiated. The main points are repeated below: - - First, UK employers when they established final salary pension scheme trusts retained significant non-fiduciary discretionary powers to themselves (eg scheme closure, conferral of generous early retirement pensions, amendment) – to retain financial control. Yet the pension scheme is ultimately a mechanism to deliver deferred remuneration. The tension between prioritising business interests over employees’ interests and expectations is tested in this crucible. The principles constraining behaviour of an employer and exercise by an employer of contractual discretions (eg award of bonuses under an employment contract) have been imported by the Courts into the trust domain to inform the constraint of exercise of non-fiduciary powers by employers and non-employers, raising some thorny issues of legal taxonomy and policy. Secondly, contract has been used widely in the last twenty years by employers seeking to reduce benefits otherwise payable under the rules of pension trusts, rather than seeking to achieve that objective directly by amending the provisions of the trust. This raises the issue whether and how a trustee is bound by a third-party (extrinsic) contract. The issue has major implications for UK employers with final salary pension schemes in deficit, and we can expect continuing and hard-fought litigation.