Charlton et Al v Air Jamaica Ltd et Al
| Jurisdiction | Jamaica |
| Judge | Forte, J.A.,Carey, J.A.,Downer, J.A.,OR |
| Judgment Date | 12 May 1997 |
| Neutral Citation | JM 1997 CA 18 |
| Court | Court of Appeal (Jamaica) |
| Docket Number | Civil Appeal No. 27 of 1996 |
| Date | 12 May 1997 |
Court of Appeal
Carey, J.A., Forte, J.A., Downer, J.A.
Civil Appeal No. 27 of 1996
D.M Muirhead Q.C. & Miss Judith Hanson for appellants instructed by Clinton Hart & Co.
R.N.A Henriques Q.C. & Mr Basil Parker for Air Jamaica Ltd. instructed by Livingston Alexander & Levy.
Michael Hylton Q.C. & Miss Nicole Lambent for Life of Jamaica Ltd instructed by Myers Fletcher & Gordon.
Dennis Morrison Q.C. & Miss Ingrid Mangatal for respondents 3, 5-11 instructed by Dunn Cox Orrett & Asheniem.
Carl Dowding for Ian Blair instructed by Knight Pickersgill Dowding & Samuels.
Lennox Campbell & Miss Nicole Simmonds for Attorney General Instructed by Director of State Proceedings.
Trusts and trustees - Appellants as former employees of the first defendant and members of the first defendant pension trust fund sought by way of an amended originating summons a number of declarations, the grant of which would entitle them and those other employees on whose behalf they sued, to share in a windfall of $400M which remained after the current employees had been paid their pension benefits, and benefits to beneficiaries secured — Attorney General was allowed by order of the court on an appeal to intervene on the footing that the Crown was entitled to the funds bona vacantia — Attorney General rested his claim on the argument that the trust which set up the pension scheme offended the rule against perpetuity and was accordingly void — Learned judge found for the Government of Jamaica — Whether the pension trust fund breached the rule against perpetuities — If it did, whether there was nevertheless a resulting trust and if so to whom, the employees or the employers or both — Whether the pension trust fund was in effect discontinued and if so what would be the effect — Appeal was allowed — Order of the court below was set aside.
The appellants as former employees of Air Jamaica Ltd and members of the Air Jamaica Pension Trust Fund (the Fund) sought by way of an amended originating summons a number of declarations, the grant of which would entitle them and those other employees on whose behalf they sued, to share in a windfall of $400 M. in reality an actuarial surplus, which remained after current employees had been paid their pension benefits, and benefits to beneficiaries secured. During the hearing before Theobalds J and apparently after submissions from the counsel for the employees and the employers had been completed, the Attorney General was allowed by order of this court on an appeal thereto, to intervene, on the footing that the Crown was entitled to the funds as bona vacantia. The Attorney General rested his claim on the argument that the trust which set up the pension scheme offended the rule against perpetuity and was accordingly void. That argument prevailed before Theobalds, J. and provoked this appeal by the aggrieved former members of the pension scheme and as well the employer, Air Jamaica Ltd. That intervention by the Attorney General resulted unfortunately, in transforming what would otherwise have been a simple point of construction into a protracted and complicated debate ranging over the applicability of the anomalous and abstruse perpetuity rule, about resulting trusts and whether pension schemes are governed by the law of contract or by the law of trusts, all in all occupying some sixteen working days in this court.
No small degree of research energy has been expended by all counsel who argued before us and they all are to be commended for their admirable effort on behalf of their respective clients.
In order to appreciate the many and varied issues which arise for determination, some background information will be helpful. On 1st April 1969, Air Jamaica (1968) Ltd as it was then called, established the Air Jamaica Pension Trust Fund (the pension trust fund) by way of a Trust Deed. The Deed recited that the fund was established:
“…upon irrevocable trust for the purpose of securing pensions on retirement for all Members of the Plan and other benefits for such Members and after their death for their widows and/or designated beneficiary.”
Incorporated Into the deed was a Pension Plan (the plan) which provided the mechanics or the rules by which the plan would be operated.
By way of explanation, a “member of the plan” was an employee who contributed under the plan. All employees of Air Jamaica as part of their terms of employment ware required to contribute 5% of their compensation, save for paid 6% while the company for its part contributed a matching percentages plus:
“such other amounts as may be determined by the Trustees upon the advice and recommendation of the Commissioner of Income Tax for Jamaica and of the Actuary to provide the benefits specified in the plan”
The plan entitled members on retirement to a prescribed determined rate of benefits.
When the company began to incur losses, its main shareholder the Government took the decision to divest the company to private purchasers. To that end on June 30, 1994 the company terminated the services of all its employees who were, of course, members of the plan, but for four employees who were trustees of the plan. All contributions thereupon ceased. The employment of the four remaining employees was eventually terminated effective 30th September 1994. The Government to ensure the continued operation of Air Jamaica Ltd entered into an agreement with a group known as Air Jamaica Acquisition Group Ltd (AJAG) for the privatization of Air Jamaica whereby AJAG would capitalize Air Jamaica Ltd with $26 million in return for a 70% share in a holding company in which the Government would transfer all its shares. By one of the terms of this agreement, the Government of Jamaica warranted that as at the take-over date current assets would not be less than current liabilities and to the extent that current assets were less than current liabilities, the Government was required to pay the difference.
It should be pointed out that because Air Jamaica had for many years been operating at a loss the Government was obliged to fund these losses or to give guarantees to meet the company's loan or other financial obligations. This, of course, explains the Government's interest in obtaining control of the funds which it needed to be enabled to have current assets equal to current liabilities on the scheduled take-over date of 1st October 1994.
Air Jamaica did not by any resolution of its Board of Directors discontinue the plan as it was authorized under clause 13.2 which will need to be considered hereafter in this judgment.
The intervention of the Attorney General thus raises as a preliminary point so to speak, the validity of the trust deed - whether the trust established thereby infringes the rule against perpetuities. I wish then to dispose of this issue at this juncture.
The rule against perpetuities sets a limit on the period within which a disposition of property must vest. The rule is helpfully formulated thus in Halsbury (3rd edition) Vol. 38, paragraph 1427:
“A limitation created by way of a trust is void ab initio in so far as it infringes the rule against remoteness of vesting which requires that an executory devise or other future limitation to be valid must be certain to vest, if at all, within a life or lives in being at the date when the limitation operates and twenty-one years and a possible period of gestation thereafter.”
The word “vest”, it must be noted, is used in a peculiar sense lm property law, a good example of which is that for the purpose of the rule, a class gift is not “vested” until the exact membership of the class has been determined. That may be stated differently as, a class gift is still contingent if any more persons can become members of the class or if any present members can drop out of the class. Further a class gift is not “vested” in any member within the meaning of that word as used in the rule, until the interest of all members have vested.
From the above, it seems to be as plain as can be that the trust deed in the instant case created a trust of indefinite duration. The beneficiaries named in the trust deed are not ascertained persons for reasons already stated, in whom any interest vests but merely a class of persons in wham an interest may vest, not must vest as the rule ordains. Since there is no life in being, then the interest must vest within a period of twenty-one years from the date of the deed. This explains why it was felt necessary to include in pension trusts the royal lives clause, and why in England it was felt necessary to enact legislation exempting pensions scheme from the effect of the rule against perpetuities. See the Superannuation and other Funds (Validation) Act 1927 repealed in 1973 by the Social Security Act 1973. In Re Flavel's Will Trusts Coleman & anor v. Flavel & ors [1969] 2 All E.R. 232, Stamp, J (as he then was) observed at p.234:
“A trust for the employees of the time being of a company not confined within the limits allowed by the rules against perpetuities is in accordance with well-known principles void and…”
In my view these words are more than wide enough to cover a pension scheme created by a trust.
I would think that the trust created by the deed in the present case does fail for the reason that it transgresses the rule against perpetuities. But Mr. Muirhead Q.C. disagrees fundamentally. He argued that the interest and rights of members of the pension plan are founded in contract which constitutes an exception to the rule against perpetuities. The beneficiaries' rights he stated, derive from commercial and contractual origins. He emphasized that the status of the appellants as former members of the plan, is not of volunteers because they were obliged to make contributions to the...
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