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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Baker & Anor v J E Clark & Co (Transport) UK Ltd & Anor [2006] EWCA Civ 464 (22 March 2006) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2006/464.html Cite as: [2006] EWCA Civ 464

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BRISTOL MERCANTILE COURT
(HIS HONOUR JUDGE HAVELOCK-ALLAN QC)

		Royal Courts of Justice Strand London, WC2
		22nd March 2006

1. LORD JUSTICE TUCKEY: This is an appeal with the permission of the judge from a judgment of HHJ Sir Mark Havelock-Allan QC, given in the Bristol Mercantile Court, in which he struck out the appellant, Mrs Derinda Baker's claim against the second defendant, Mr Jeremy Alan Clark, on the ground that it stood no reasonable prospect of success.
2. The appellant's late husband Victor Baker was employed by the first defendant company, J E Clark and Co, as a lorry driver from 1976 until he died in October 2002. He was a member of the company's group life scheme which provided him with a death in service benefit of twice his annual salary. For reasons which I will explain this benefit was not paid to the appellant following the death of her husband and her claim in these proceedings was against the company in contract and against Mr Clark, who was one of its directors and trustees of the scheme, in tort both in her capacity as personal representative and as beneficiary under her husband's will.
3. The judge held that an exemption clause in the trust deed governing the scheme gave Mr Clark a complete answer to the appellant's claims against him. The appellant obtained summary judgment against the company but it had ceased trading in 2003 and it seems unlikely that she will recover much if anything under that judgment. Her claim against Mr Clark on behalf of her husband's estate failed on the further ground that the deceased had not suffered any loss whilst he was alive. There is no appeal against this finding.
4. The appellant however contends that the judge was wrong to strike out her personal claim as beneficiary because she had a claim for breach of a common law or equitable duty of care, there was no evidence to show that the exception had been brought to the deceased notice so as to exclude such a claim and if it had been, the Unfair Contract Terms Act 1977 applied to it, in which case it was for Mr Clark to show that it passed the test of reasonableness which he had not and could not do summarily.
5. The scheme was set up with effect from 1 July 1988 under the terms of an interim trust deed dated 13 June 1988 made between the company and Mr Clark and his father as trustees. This deed has been lost but it is apparent that it contemplated a supplemental deed to bring into force rules containing such provisions as were necessary to establish the scheme in a form which would be tax exempt. Such a deed was executed on 8 October 1993. It recited that the original trustees had administered the scheme as "… the Administrator for all the purposes of chapter 1 of part 14 of the Income and Corporation tax 1988" and confirmed their appointment as trustees and administrator for the future. It exhibited the rules of the scheme and defined the powers and duties of the trustees. Clause 13.3 of the deed contained the exemption clause which says, so far as relevant:

"None of the trustees shall be liable for the consequence of any mistake or forgetfulness, whether of law or fact of the trustees or their advisors, whether legal or otherwise, or any of them or for any breach of duty or trust whatsoever, whether by commission or omission unless it shall be proved to be made, given, done or omitted in personal conscious or bad faith of the trustees or any of them."

Exemption clauses such as this are common in trust deeds nowadays.

6. The scheme was an insured scheme. The underwriters were the Colonial Mutual Society whose group life policy was issued to the trustees who were responsible for payment of the premium. It provided life cover to any employee notified to and accepted by the society's underwriters for the duration for his or her employment. The policy ran from 1 July each year, but contained no obligation to renew; cover terminated simply upon the society declining to accept premium.
7. The deceased was informed of the scheme by a letter of 3 June 1988 written by Mr Clark on behalf of the company. It said that the company were providing the life cover free to him and enclosed a short summary of the rules of the scheme which included a company-sponsored personal pension plan which, in the event, the deceased opted to join. In this document Mr Clark was described as the scheme administrator. The rules summarised relate solely to the personal pension plan. Under the heading "Alteration or Termination of the Plan", the document says:

"Although the employer intends to continue to sponsor the plan, changing circumstances may make it necessary to alter the plan or even terminate it. You will be advised in writing if this becomes necessary. If the plan is altered or terminated, contributions already paid into your account must provide benefits to you."

It is apparent therefore that this statement relates to the personal pension plan and not to the group life scheme.

8. Of more relevance to the group life scheme is clause 30 of the rules attached to the trust deed, which says:

"The employers or any of them may at any time by notice in writing given to the trustees terminate their liability to pay contributions under the plan in respect of all or a defined class of members in their employ. Upon receipt of any such notice, the death sum assured applicable to any affected member shall immediately terminate and the trustee shall notify him in writing to that effect."

9. All went well until about June 2001 when Colonial Mutual were taken over by Winterthur Life UK. It was Winterthur's policy not to insure group schemes where less than ten member employees were involved, as was the case with this company. There is a potential dispute about when it first learned this but at least by May 2002 it had been told by Winterthur that it would not renew cover for the group scheme. Winterthur would only provide cover to employees on an individual basis. When the existing cover expired on 30 June 2002 it was not renewed and no substitute cover was obtained.
10. In the meantime, unfortunately the deceased had developed a brain tumour. He first went off sick on 27 April 2002; the condition was then diagnosed and on 21 May he underwent surgery for its removal. He never fully recovered from the operation and died five months later at which time of course the insurance cover for the scheme had expired.
11. The claim formulated against Mr Clark was that as an administrator and or trustee of the scheme he:

"… owed a duty of care at common law and/or assumed responsibility and/or owed an equitable duty to exercise reasonable care and skill in carrying out the duties of an administrator and/or trustee of the scheme, and in particular the Second Defendant was under a duty to use reasonable care to ensure that the benefit under the scheme was to be provided and maintained by the First Defendant, or alternatively that an equivalent benefit should be provided by the First Defendant unless or until the deceased was otherwise notified."

12. The pleading went on to contend that as a matter of law these duties extended to the appellant. Surprisingly, the trustee exemption clause was not pleaded in the original defence. It was however raised in a draft-amended defence sent to the appellant's solicitors on 29 June 2005, a month before the hearing before the judge. The notice of appeal complains that in these circumstances the judge should not have allowed this point to be relied on in an application for summary judgment. That point however was sensibly not pursued before us. It was not a pre requisite to strike out that the point should have been taken in the defence as the judge noted. The only complaint which could have been made was that there was insufficient time to deal with the point. But the applicant was represented then as now by counsel, Mr McMeel, who did not apply for an adjournment and was able to deal fully with the point, as is apparent from the judge's judgment.
13. In short the judge held that the exemption clause protected Mr Clark from the claimant's claims because there was no allegation that he had acted in bad faith and he rejected the other arguments advanced in support of this appeal. Those arguments are advanced from an unashamedly common law standpoint. They are as follows. Mr Clark assumed a personal responsibility to act with reasonable care and skill as the administrator or trustee of the scheme with a duty to maintain the life cover or, at the very least, to notify the deceased if for some reason it had come to an end. The exemption clause did not operate to restrict Mr Clark's liability for breach of that duty because it had not been "incorporated into the relationship". There was no evidence that the deceased was aware of its terms or that any steps had been taken to bring it to his notice. If, contrary to this argument, the exemption clause did apply, as a matter of construction it was admittedly wide enough to exempt Mr Clark from liability for the appellant's claim but the Unfair Contract Terms Act applied to it and there was a triable issue as to whether it met the test of reasonableness under that act.
14. Succinctly and persuasively though these arguments were put, I think they fail at every stage. To show an assumption of responsibility by Mr Clark to Mr Baker, Mr McMeel relied on the letter of 3 June 1988, the summary of the plan and the notice term in the rules of the scheme to which I have already referred.
15. There is no significance in the use of the term "administrator". As I have said, the deed identifies the trustees as the Administrator for the purposes of the 1988 Taxes Act. That act imposed certain duties and obligations upon the Administrators of an exempt approved scheme such as the scheme in this case. In the case of a trust scheme, as this was, the Administrator "shall be the trustee or trustees of the scheme" (section 611(AA)). So the label "Administrator" in the scheme is used solely for this tax purpose and for our purposes is synonymous with trustees.
16. The summary of the plan relied on by the applicant, which is attached to the letter of 3 June does not, as I have already said, relate to the group life scheme. The rules do, but they form part of the trust deed which contains the exemption clause. All in all, it seems to me that the matters relied on by Mr McMeel show no more than that Mr Clark assumed the usual responsibilities of a trustee of a scheme of this kind and no more. There is therefore no basis for saying that he assumed some super-added common law or equitable duty of care, even if in such circumstances on other facts it was possible to spell out such a duty, which I doubt.
17. As to Mr McMeel's incorporation argument, the judge's answer was:

"It seeks, in my judgment, to import contractual concepts of the consensual relationship into the relationship which arises between a trustee and a beneficiary of the trust. In a trust relationship there is no such consensus. What clause 13(3) of the trust deed does is to define the ambit of the liability under which the trustees of that trust were prepared to act from the date the deed was executed. That willingness to act on those terms was not dependant on any assent on the part of the beneficiaries or any knowledge on their behalf as to what the trust deed provided."

I agree. As Mr Virgo, counsel for Mr Clark, says trustees undertake unilateral obligations and are entitled to limit the extent of the duties they assume other than the core duties of honesty and good faith. If a beneficiary wishes to take advantage of the terms of a settlement of this kind, he must do so on its terms. The judge went on to point out, in my view correctly, that the potential beneficiaries of a group scheme of this kind would be a shifting class whom it might be difficult to identify and that the trustees would have had an obligation to make a copy of the trust deed available to any beneficiary who asked for it.

18. I turn finally to the argument about the Unfair Contract Terms Act. The relevant provisions of that act are as follows. Section 1 says that for the purposes of Part 1 of this act:

"... negligence means the breach –

(a) of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract;

(b) of any common law duty to take reasonable care or exercise reasonable skill."

19. Mr McMeel rightly concedes that the obligation he contends for does not arise from a contract because a trust is not a contract so it is section 1(1)(b) which applies if this Act applies at all. That takes one to section 2(1) of the Act which says that:

"A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for … loss or damage … except insofar as the term or notice satisfies the requirement of reasonableness."

Section 14 says that:

"'notice' includes an announcement, whether or not in writing, and any other communication …"

20. It seems to me that there are insuperable difficulties in seeking to apply the 1977 Act to an exemption clause of the kind with which this case is concerned. Assuming that there is a common law duty of care, the question is whether the Clause 13.3 is a notice of the kind referred to in section 2. I do not think it is.
21. This point was considered by the Law Commission in their consultation paper 171 published in 2003 on the subject of trustee exemption clauses. After having concluded that a trustee exemption clause is not a contract they say at paragraph 2.62:

"While there may be a stronger argument that a trustee exemption clause is a form of 'notice', this may also be somewhat speculative in that it would seem that 'notice' within the 1977 Act is primarily intended to cover attempts to exclude liability by reference to a sign outside the confines of a formal legal document".

It is probably their reference to the argument being somewhat speculative which led them to say in paragraph 4.46 of the report:

"We have already made reference to the Unfair Contract Terms Act 1977 where we came to the conclusion that it does not generally apply to trustee exemption clauses".

It is worth noting that although the 1977 Act has been in force for many years and trustee exemption clauses have been a subject of some controversy there is no reported case of any attempt to impugn such a clause by reference to the 1977 Act. The point was not taken in the leading case on such clauses, Armitage v Nurse [1998] 2 Ch 241, although it is apparent from the report that a host of other points were. In their report the Law Commission referred to this case and say that it is now settled law in England and Wales that trustee exemption clauses can validly exempt trustees from liability for breaches of trust, except fraud.

22. So those are the reasons why I reject each of the stages in Mr McMeel's argument and why I would dismiss this appeal.
23. LORD JUSTICE CARNWATH: I agree.
24. MR JUSTICE BENNETT: I agree.

Order: Appeal dismissed.