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- Barrister, Wilberforce Chambers, Lincoln’s Inn, London. This article is based on extracts from D Pollard, Pensions, Contracts and Trusts: Legal Issues on Decision Making (Bloomsbury Professional, 2020), but focusing on the position of trustees and the Braganza tests alone. 1 In practice such discretions are much more limited for a custodian or bare trustee. They are also much less relevant in non-express trusts (eg constructive or resulting). 2 Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223, CA. 3 Pitt v Holt, Futter v Futter [2013] UKSC 26, [2013] 2 AC 108. 4 Pitt v Holt involved a receiver appointed under the Mental Health Act 1983. The linked case, Futter v Futter , involved an exercise of discretion by trustees. 5 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 4 All ER 639.
Applying Wednesbury
Reasonableness to Legal Review
of Trustee Discretions after
Braganza and Pitt v Holt
David Pollard*
Trustees under express trusts have a number of powers and discretions and decisions that need to be made.^1 The exercise (or non-exercise) of these decision-making powers are subject to review by the courts. Trustees will want to know what they need to do in order to exercise a relevant discretion properly and others affected (eg beneficiaries or third parties) will want to know when they can successfully challenge a decision in a court. There are obvious similarities between decision making by trustees and decision making by public bodies. Both have discretions (conferred by the trust instrument or legislation) that they do not (in the main) exercise in their own interest and owe duties to others. The question arises as to whether the legal review of relevant decision making is then the same, or similar in some respects, as between trustees and public authorities. A number of decisions have, over the years, indicated that there are similarities, particularly in applying to trustees the long standing public law Wednesbury^2 test (in its two limbs, considering factors that ought to be considered and not reaching a decision that is perverse in the sense that no reasonable decision maker could reach it). Or if not applying Wednesbury expressly, at least applying a very similar test. More recently, in 2013 a seven-judge bench in the Supreme Court in Pitt v Holt^3 dealt with legal review of two decisions made by fiduciaries, including trustees.^4 Lord Walker, giving the only judgment, clarified that a breach of trust needed to be shown in order to invalidate a decision, and that there would be no breach of trust if the decision maker had taken ‘apparently competent advice’. Lord Walker also echoed criticism that had been made by the Court of Appeal earlier in the case about the use of public law. However, a little under two years later, in 2015, in Braganza v BP Shipping ,^5 a five-judge bench in the Supreme Court had to consider what review standard should apply to an exercise of a factual determination provision in a contract of employment. All five judges held that both
6 The position may differ where there has been statutory intervention – particularly in those jurisdictions (eg Jersey and Bermuda) which have enacted legislation with the aim of reversing the part of the decision of the UK Supreme Court in Pitt v Holt dealing with there being a need for a breach of duty. 7 Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 4 All ER 639. 8 Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223, CA. It is perhaps ironic that in public law cases the test of Wednesbury unreasonableness is having a lesser role in recent years in public law cases. Richard Nolan made this point in ‘Controlling Fiduciary Power’ [2009] CLJ 293 at 302. See also Lord Carnwath (extra-judicially) ‘From rationality to proportionality in the modern law’ (2014) 44 HKLJ 447. Wednesbury is making a comeback in public law outside fundamental EU rights – see, eg R (Plan B Earth) v Secretary of State for Transport [2020] EWCA Civ 214 at [75] and [79]. 9 Pitt v Holt, Futter v Futter [2013] UKSC 26, [2013] 2 AC 108. limbs of the public law Wednesbury test should apply to the exercise of a private law discretion. Two of the judges in the Supreme Court then took a different view from the majority as to whether that review standard had in the case been met. This article considers the impact of Pitt v Holt and Braganza on the tests applied by a court in relation to a decision by trustees and reaches the conclusion that, following Braganza , the two stage public law Wednesbury / Braganza reasonableness tests (applying the public law Wednesbury tests by analogy) apply to legal review of decisions made by trustees. The article deals with the laws of England and Wales, but the common law (and equitable) position does not seem to differ much in the other major common law jurisdictions (eg Australia, New Zealand, Singapore, Hong Kong or Ireland).^6 Braganza Braganza^7 broadly confirmed a trend to apply (in appropriate cases) a similar test in private law cases to the Wednesbury^8 reasonableness test developed in public law, applying both limbs of the public law Wednesbury test to the contractual decision-making power held by BP Shipping as employer to determine the cause of death at sea of its employee, Mr Braganza. Braganza applied both limbs of the public law Wednesbury test to a discretion for an employer in a private law contract. The decision maker must: (1) Process ( Braganza 1): take into account all matters it ought to take into account (sometimes shortened to consider all relevant matters and exclude all irrelevant matters); and (2) Outcome ( Braganza 2): reach a decision which is not so unreasonable that no reasonable decision-maker could have come to it. Braganza concerned a factual determination being made by an employer, but the decision has been cited and followed in many later cases outside the employment or pensions context, both in England and Wales and other jurisdictions (notably Australia and New Zealand). Much of the caselaw considers the application of the Braganza test in other contexts (eg leases, share options) and Braganza itself expressly notes that its application and ‘intensity’ are context specific. It seems clear that the Braganza tests will usually apply to most decisions and discretions of employers and principal companies under occupational pension schemes. There seems no reason why the Braganza / Wednesbury tests should not apply, by analogy with public law, to decisions and discretions of trustee boards and other trustees as well (despite comments to the contrary in Pitt v Holt^9 ).
15 Re Merchant Navy Ratings Pension Fund; Merchant Navy Ratings Pension Trustees Ltd v Stena Line Ltd [2015] EWHC 448 (Ch), [2015] Pens LR 239 (Asplin J). Citing Public Trustee v Cooper [2001] WTLR 901 (Hart J) and Cotton & Moore v Earl of Cardigan [2014] EWCA Civ 1312, [2015] WTLR 39. See Daniel Clarry, The Supervisory Jurisdiction over Trust Administration (Oxford University Press, 2018) at Ch 4. 16 Airways Pension Scheme Trustee Ltd v Fielder [2019] EWHC 3027 (Ch) (Zacaroli J) at [5], citing MF Global UK Ltd [2014] EWHC 2222 (Ch) (David Richards J). This applies even if relevant litigation has previously been authorised by a court order under the Beddoes jurisdiction: Airways Pension Scheme Trustee Ltd v Fielder [2019] EWHC 3032 (Ch) (Zacaroli J) at [20]. 17 Eg Lady Hale in Braganza at [18] and [19]. This is longstanding in public law – see, for example the comments of Lord Greene MR in Wednesbury [1948] 1 KB 223 at 228. Statute can sometimes include a more general review power, eg under the Pensions Act 2004 there is a right to refer some decisions of the determinations panel of the Pensions Regulator to the Upper Tribunal for a rehearing. Different rules may apply if trustees ask the court to approve a major decision – eg MNRPF ,^15 but even this is moving towards applying Braganza style rationality tests – Airways Pension Scheme Trustee Ltd v Fielder.^16 Unlike (say) decisions made by a court, there is no general right of appeal or re-hearing to the courts generally on the merits of a decision made under a trust (such as a pension scheme) or a contract or articles of association of a company. The relevant instrument provides that the decision in relation to the discretion or power is held by the relevant person. The courts will not re-write the provision to allow the court a right of general review, eg if it would have made a different decision on the relevant facts.^17 Partly this reflects respect for the terms of the contract (or trust) and partly an acknowledgement in some cases that the decision maker has an expertise that the court does not possess. But there are often limits to this judicial restraint. Even in contract cases, the courts may well find that decision makers’ decisions are reviewable at the extremes, even absent fraud or an absence of good faith. This is similar to the role of the courts in the well trodden area of public law when reviewing decisions of public authorities. The extent of this review leads to two issues: (a) For the decision maker, how does he, she or it make a proper (and non-challengeable) decision? What is the extent of its duties? What does it need to do to make a proper decision? (b) For the non-decision maker, what are the circumstances when a decision can be challenged (and what is the nature of that challenge)? And other parties may be expected to act on the basis of the relevant decision – when are they expected to only so act if the decision is not challengeable? Nature of challenge Conversely, parties affected by a decision may want to challenge that decision, in practice before the court. The context of a challenge is important to consider when looking at a particular judgment: (a) Who is bringing the challenge? (eg a beneficiary or an employer or a member or a new trustee?) (b) What remedy is being sought, for example compensation or damages; rescission or cancellation of the decision, replacement of the trustee, re-decision etc? This can be relevant as to the extent of the relevant scrutiny (eg it may perhaps be more difficult to overturn a decision instead of claiming damages).
18 This material may not be available to a potential challenger. The decision maker may not, depending on the circumstances, be obliged to give its reasons or disclose its material. 19 Eg the Court of Appeal in British Telecommunications Plc v BT Pension Scheme Trustees Ltd [2018] EWCA Civ 2694, [2019] Pens LR 10 per Asplin LJ at [24] and [25] on whether or not an index ‘becomes inappropriate’ with no decision maker expressly stated. (c) Who actually made the decision? Was it a trustee (a fiduciary) or an employer (not usually a fiduciary) or a third party (eg an actuary or a valuer)? (d) What were the reasons for the decision? What material did the decision maker consider? What factors or considerations were material?^18 Nature of decision A decision-making power or duty under a trust or contract can be of various forms, including: (a) A full discretion, ie with a range of various potential outcomes. For example, how much to pay under a discretionary trust, whether a trustee should agree to a scheme amendment and the form of the amendment. (b) A binary fact discretion – for example,‘in the opinion of the trustee’ is a relevant test met – is the person a child of the settlor, is a member incapacitated? This need for a decision can be distinguished from the position where a person (eg a trustee) is directed to do something if a particular fact is satisfied, for example pay a child of the settlor when she reaches age 21 or pay a pension when a pension scheme member reaches age 65. In this case there is no discretion given to the trustee – the payment must be made if the facts are proved (if disputed as the court may decide).^19 Grounds of challenge – general Despite the general desire to respect the terms of the contract or trust and to leave the relevant decision to the relevant decision-maker, the courts will still review a decision and allow a challenge in a number of ways. Set out below is a brief list of some of the major ways in which decisions can be challenged. This article focuses on the application of the Braganza tests to trustees. Braganza / Wednesbury provides two grounds for review: (1) Proper process, usually acting with due consideration (eg considering relevant factors) – this is the first, process, limb of Braganza/Wednesbury. (2) If a decision is fully irrational (or perverse), ie a decision that no reasonable decision maker could have reached. This is a (stiff) outcome test and the second limb of Braganza / Wednesbury. Who is making the decision? Who is making the relevant decision is also relevant to the issue of what legal review is appropriate. A decision being made by a trustee or other fiduciary is likely to be more intensely reviewed.
23 See Pollard ‘The short-form ‘best interests duty’; Mad, bad and dangerous to know’ (2018) 32 TLI 106 and 176. 24 See, eg the lists in relation to trustees in Tucker, Le Poidevin & Brightwell, Lewin on Trusts (20th edn) (Sweet & Maxwell,
- at 29-033 (listing four grounds of review) and Hayton, Matthews & Mitchell, Underhill and Hayton: Law of Trusts and Trustees (Lexis Nexis UK, 2016) at 57.1. See also Karger v Paul [1984] VR 161 (McGarvie J) and Kowalski v MMAL Staff Superannuation Fund Pty Ltd (No 3) [2009] FCA 53 (Finn J) at [22]. coherent structure. The nine major tests for a decision maker when exercising a discretion or making a decision under a trust are: (1) Act honestly (ie good faith) (2) Within the terms of the power (3) (part of test two) By the specified person, in the specified way and at the specified time (4) For a proper purpose (5) No unauthorised conflict (fiduciaries) (6) With due care and skill (7) With due consideration (process part of test six?) (8) Consider the reasonably discoverable and relevant factors: Braganza 1 (9) Not be perverse, capricious or fully irrational – ‘no reasonable decision maker’: Braganza 2. Note that it is better to consider that there is no (or at least no literal) overarching ‘act in best interests’ test in the UK (part of proper purpose test in Test 4 instead).^23 The aim of this list is to give a useful checklist for those making decisions (and those advising them). It suffers from necessarily being relatively high level – some of the points made in the case law (eg on delegation or making decisions at the right time) or in some commentary get into more detail,^24 but these seem to flow as a matter of logic from the higher level tests. Really only five major tests, with nine main limbs These nine major tests actually boil down to five (perhaps with nine limbs?) Those five major tests for a decision maker when exercising a discretion or making a decision under a trust are: (1) Act honestly (ie good faith) (2) Within the terms of the power (a) By the specified person, in the specified way and at the specified time (3) For a proper purpose (4) No unauthorised conflict (fiduciaries) (5) With due care and skill: (a) Process: With due consideration (b) Process: Consider the reasonably discoverable and relevant factors – Braganza (c) Outcome: Not be perverse, capricious or fully irrational – ‘no reasonable decision maker’ – Braganza. Good faith and trusts Clearly the courts will review a decision made by a fiduciary in bad faith, ie if there is dishonesty or fraud. For example, if there is deceit (see the example mentioned by McGarvie J
25 [1984] VR 161 (McGarvie J) at 175. 26 [2014] UKPC 9, [2014] 1 CLC 611. Contrast an internal transaction: Skandinaviska Enskilda Banken AB (Publ) v Conway and another (as Joint Official Liquidators of Weavering Macro Fixed Income Fund Ltd) [2019] UKPC 36 at [19]. 27 (1851) 3 Mac & G 440, 42 ER 330 (Lord Truro LC). 28 (1864) 11 HLC 31. See also Re Londonderry’s Settlements [1965] 1 Ch 918, CA, Whishaw v Stephens; Re Gulbenkian’s Settlement Trusts [1970] AC 508 at 518, Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 427, 428–429. 29 (1877) 3 App Cas 300, HL. 30 See Lord Penzance at 309, and Lord O’Hagan at 311. 31 See Speight v Gaunt (1883) 9 App Cas 1, HL at 19, per Lord Blackburn, approving Jessel MR in the Court of Appeal (1882) 22 Ch D 727 at 739–740 and Re Whiteley (1886) 33 Ch D 347, CA at 355, per Lindley LJ, on appeal Learoyd v Whiteley (1887) 12 App Cas 727, HL. The concept of ‘prudence’ is itself not very clear and is probably now better seen as being the same as ‘reasonableness’ (see eg the Law Commission report ‘Fiduciary Duties of Financial intermediaries’ (2014) at 3.72, discussing the Trustee Act 2000. 32 See, eg Karger v Paul [1984] VR 161 (McGarvie J) at 164 and Medforth v Blake [2000] Ch 86, CA at 103. 33 See, eg Re Marsella; Marsella v Wareham (No 2) [2019] VSC 65 (McMillan J) at [36]. 34 In re Londonderry’s Settlement; Peat v Walsh [1965] Ch 918 per Salmon LJ at 936G. 35 See also Lord Reid to similar effect in Re Gulbenkian’s Settlement [1970] AC 508 at 518C. 36 See, eg Michael Ashdown, Trustee Decision Making (Oxford University Press, 2015) at 3.36. See also Marsella v Wareham [2019] VSC 733 (McMillan J) at [37]: ‘In this context a lack of good faith, or mala fides, encompasses more than fraud. It may include the taking account of irrelevant considerations and a refusal to take into account relevant considerations … “Mere carelessness or honest blundering” will not amount to mala fides. [ Jones v Gordon (1877) 2 AC 616, 628]’. 37 D M Maclean, Trusts and Powers, (Sweet & Maxwell, 1989), p 58, n 78. 38 (1878) 10 ChD 273 (Malins V-C). in Karger v Paul^25 ). The courts of equity being founded on conscience, this is an obvious control. Where there are impacts on third parties, fraudulent acts may in some cases not be overturned: Fairfield Sentry Ltd v Migani.^26 Some of the older case law indicates that lack of good faith or honesty may be the only control. For instance, that trustees acting honestly and in good faith cannot have their decisions overturned: Re Beloved Wilkes’s Charity;^27 Duke of Portland v Topham.^28 Thus in 1877 in Gisborne v Gisborne ,^29 where the decision was at the trustees ‘discretion and of their uncontrollable authority’, it was held by the House of Lords that a bona fide exercise will not be reviewed by the court. But the court considered the exercises of the discretion in question to be a reasonable exercise.^30 And in the next decade, the House of Lords moved to a more stringent duty of care based on (at least) prudence and ‘the ordinary prudent man of business’.^31 In present times, good faith, at least in the context of trusts, is better considered now as meaning the same as honesty.^32 The use in the older cases of a potential wider meaning of ‘good faith’ should be regarded as seeking to encapsulate what has now become the other grounds of review outlined below (eg proper purpose and due consideration).^33 In 1965 in Re Londonderry’s Settlement ,^34 Salmon LJ held: ‘The settlement gave the absolute discretion to appoint to the trustees and not to the courts. So long as the trustees exercise this power bona fide with no improper motive, their exercise of the power cannot be challenged in the courts – and their reasons for acting are, accordingly, immaterial.’^35 It can be argued that the terminology of ‘bad faith’ or ‘mala fides’ under Gisborne (and later cases) in a trustee context could extend to include perversity.^36 But good faith (or bad faith) seems to be better seen (in a trustee context at least) as involving a subjective standard (similar to dishonesty). David Maclean, in Trusts and Powers ,^37 commented that a decision can be (say) perverse without being made in bad faith, citing Tabor v Brooks^38
46 [2013] UKSC 17, [2013] 1 WLR 935 per Lord Sumption at [14]. Cited by Lady Hale in Braganza at [23] and the Court of Appeal in IBM United Kingdom Holdings Ltd v Dalgleish [2017] EWCA Civ 1212, [2018] ICR 1681 at [227]. 47 This is suggested by Thomas on Powers , (2nd edn) (Oxford University Press, 2012) at 10.74 and by Finn, Fiduciary Obligations (Sydney, Law Book Co, 1977) at [62]. 48 [2003] Ch 409 at [29]. Cited by Lord Walker in Pitt v Holt at [11] – see below. 49 [1990] Ch 170, CA per Browne-Wilkinson V-C at 189B and Mustill LJ at 194C. 50 [1994] ICR 991, [1995] OPLR 79, CA per Glidewell LJ at 999G. 51 [2000] Ch 602, CA per Chadwick LJ at 627–630. Cited on this in later cases, including Merchant Navy Ratings Pension Fund Trustees Ltd v Chambers [2002] ICR 359, [2001] OPLR 321, [2001] PLR 137 (Blackburne J) at [7] and Merchant Navy Ratings Pension Fund Trustees v Stena Line [2015] EWHC 448 (Ch), [2015] PLR 239 (Asplin J) at [16] and [161]. 52 [1996] OPLR 129 (Carnwath J) at 135. Cited by Chadwick LJ in Edge (below) at 628. See also Telstra Super Pty Ltd v Flegeltaub [2000] VSCA 180, 2 VR 276 per Batt JA at [33] noting that ‘a decision of a superannuation fund trustee … is different in kind from, and arises in a context different from that of, the exercise of a discretion by a trustee of a trust for bounty or charity.’ Some of the modern case law uses the term ‘good faith’ in a wider sense (beyond just honesty) to include a lack of arbitrariness, etc, in effect applying one or both limbs of the Braganza tests. In Hayes v Willoughby ,^46 Lord Sumption commented on a meaning of good faith as encompassing a ‘logical connection’ between the evidence and the reason for a decision and this meaning an absence of arbitrariness, etc. He commented: ‘Rationality is not the same as reasonableness. Reasonableness is an external, objective standard applied to the outcome of a person’s thoughts or intentions … A test of rationality, by comparison, applies a minimum objective standard to the relevant person’s mental processes. It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and (which will usually amount to the same thing) an absence of arbitrariness, of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.’ Public law analogy in private law discretions? Some aspects of private law, particularly those involving review of discretions are clearly similar to public law in many respects.This is particularly true in relation to decisions and actions of trustees and other fiduciaries (eg directors). Just as with public officials, trustees are not usually acting for their own benefit, but instead for a relevant purpose, usually the benefit of a structure or third party. The two areas have tended to borrow from each other over the years, and in some cases public officials are seen as being fiduciaries in a similar role to trustees. It may therefore be appropriate to look at how the ‘no unlawful fetter’ rules have been applied in public law cases.^47 But public law is different to private law. The issue is, how different? It is clear that public law concepts should not all be imported and applied in a private law context. In a private trust case, Re Barr’s Settlement Trusts, Abacus Trust Co (Isle of Man) v Barr ,^48 Lightman J identified three important differences: the discretionary nature of relief on judicial review, a different approach to nullity, and strict time limits. But, following the decision in Braganza particularly, it seems appropriate to have a selective borrowing in this area – at least the two limbs of the Wednesbury review of decisions. There is an example of this (before Pitt v Holt ) in Byng v London Life Association Ltd ,^49 where the Court of Appeal applied proper purposes and public law Wednesbury tests to a review of decisions by a chair of a shareholder meeting. Before Pitt v Holt , various trust cases, including the pension cases Harris v Lord Shuttleworth ,^50 Edge v The Pensions Ombudsman^51 and Wild v Pensions Ombudsman ,^52 had looked at a review
53 Paul Finn ‘Fiduciary Reflections’ (2014) 88 ALJ 127 at 128. See also Paul Finn ‘Good Faith and Fair Dealing: Australia’ (2005) 11 NZBLQ 378, cited by Stephen Kos ‘Constraints on the Exercise of Contractual Powers’ (2011) 42 VULR 17 with comments at pp 35 and 36. Also Lionel Smith ‘Prescriptive fiduciary duties’ (2018) 37 UQLR 261 at 287 commenting that the parallels between the judicial control of fiduciary powers and the judicial control of power and authority in public law are very significant, citing Paul Finn, ‘Fiduciary Reflections’ (2014) 88 ALJ 127. 54 [2008] EWCA Civ 116, [2008] Bus LR 1304, CA per Rix LJ at [66]. 55 IBM United Kingdom Holdings Ltd v Dalgleish [2014] EWHC 980 (Ch) (Warren J). 56 See Ch 44 in Pollard, Pensions,Trusts and Contracts. of decisions on a very similar basis to Wednesbury and in some cases had expressly drawn an analogy with public law review on Wednesbury grounds. The Court of Appeal and Supreme Court in Pitt v Holt had clearly drawn back from this approach. The various trustee cases and Pitt v Holt are discussed in further detail below. Professor Finn (since the Supreme Court in Pitt v Holt ) commented that this division between public law and private fiduciary law is a mistake.^53 The analogy with public law had also been made in other areas, for example the Court of Appeal in Socimer International Bank Ltd v Standard Bank London Ltd^54 referred to various cases on when a contractual discretion in a contract could be challenged, referring to the public law Wednesbury test. In the IBM case^55 on an implied duty of trust and confidence as a limit on employer powers (called the ‘Imperial duty’), at first instance Warren J followed this: ‘442. Although one must heed Lord Hoffmann’s warning in O’Neill v Phillips [1999] 1 WLR 1092 (the well-known case concerning unfair prejudice petitions in a company law context) about importing concepts from one area of law to another in an inappropriate way, I do not see any difficulty in using the concepts of irrationality and perversity, as developed in the context of public law, to identify the test for establishing the scope of the Imperial duty.’ Public law: Braganza and trustees For trustees there was a fairly clear warning away from applying public law by the Court of Appeal in Pitt v Holt , although slightly less clear by Lord Walker in the Supreme Court. But two years later in Braganza , the Supreme Court unanimously decided that the public law Wednesbury test (in both limbs) is the right one to apply in a private law context. In effect Pitt v Holt should be treated as impliedly overturned on this point by Braganza. There is no express overturning in Braganza , in which Pitt v Holt was not cited either by counsel or by the judgments (Lord Neuberger and Lady Hale did sit in both cases). Following Braganza , it is clearly right to apply the public law Wednesbury irrationality test (in both limbs) to appropriate private law decisions as well, but that there still needs to be caution in the use of other public law concepts. For example, issues on voidness of decisions, who may claim, no implied ‘natural justice’ rule seem still not to be appropriate. It could perhaps be argued that Braganza (and the pubic law Wednesbury test) is limited to contractual discretions and not to family trusts (such as those involved in Pitt v Holt ), leaving more commercial trusts (such as a pension scheme or unit trust) still to be categorised. But Braganza has already been treated as applying in many commercial contexts^56 and, given the existing references to ‘relevant factors’ and ‘no reasonable trustee’ in many previous trust cases, it seems right that Braganza will be applied to trustee decisions as well.
to take into account matters which it ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that the local authority, nevertheless, have come to a conclusion so unreasonable that no reasonable authority could ever have come to it.” The first limb focusses on the decision-making process – whether the right matters have been taken into account in reaching the decision. The second focusses upon its outcome – whether even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it. The latter is often used as a shorthand for the Wednesbury principle, but without necessarily excluding the former. … [29] If it is part of a rational decision-making process to exclude extraneous considerations, it is in my view also part of a rational decision-making process to take into account those considerations which are obviously relevant to the decision in question. It is of the essence of “Wednesbury reasonableness” (or “GCHQ rationality”) review to consider the rationality of the decision-making process rather than to concentrate upon the outcome. Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker. [30] It is clear, however, that unless the court can imply a term that the outcome be objectively reasonable – for example, a reasonable price or a reasonable term – the court will only imply a term that the decision-making process be lawful and rational in the public law sense, that the decision is made rationally (as well as in good faith) and consistently with its contractual purpose. For my part, I would include both limbs of the Wednesbury formulation in the rationality test. Indeed, I understand Lord Neuberger (at para [103] of his judgment) and I to be agreed as to the nature of the test. [31] But whatever term may be implied will depend upon the terms and the context of the particular contract involved. I would add to that Mocatta J’s observation in The Vainqueur Joseì , that ‘it would be a mistake to expect [of a lay body] the same expert, professional and almost microscopic investigation of the problems, both factual and legal, that is demanded of a suit in a court of law’ ([1979] 1 Lloyd’s Rep 557 at 577). Nor would “some slight misdirection” matter, at least if it were clear that, had the legal position been properly appreciated, the decision would have been the same. It may very well be that the same high standards of decision-making ought not to be expected of most contractual decision-makers as are expected of the modern state. [32] However, it is unnecessary to reach a final conclusion on the precise extent to which an implied contractual term may differ from the principles applicable to judicial review of administrative action. Given that the question may arise in so many different contractual contexts, it may well be that no precise answer can be given.The particular context of this case is an employment contract, which, as Lord Hodge explains, is of a different character from an ordinary commercial contract. Any decision-making function entrusted to the employer has to be exercised in accordance with the implied obligation of trust and confidence.This must be borne in mind in considering how the contractual decision-maker should approach the question of whether a person has committed suicide.’ Braganza was a case involving the review of a contractual discretion. But the Supreme Court held that Wednesbury principles should apply, partly driven by the situation involving a discretion
61 See the case note on Braganza by Jonathan Morgan ‘Resisting judicial review of discretionary contractual powers ’ [2015] LMCLQ 483 at 487, n 29, noting the argument by Richard Hooley, ‘Controlling contractual discretion ’ [2013] CLJ 65 at 81 that any exclusion should not be allowed on public policy grounds or should require a ‘clear and unmistakeable exclusion’. In appropriate cases the consumer legislation could apply to such an exclusion (eg the Consumer Rights Act 2015 or the Unfair Contract Terms Act 1977 but note that those Acts do not apply to trusts or employment contracts). 62 [1994] ICR 991, [1995] OPLR 79, CA per Glidewell LJ at 86B. Cited by Park J in Trustees of the Saffil Pension Scheme v Curzon [2005] EWHC 293 (Ch), [2005] OPLR 113 at [23]. 63 Trustees of the Saffil Pension Scheme v Curzon [2005] EWHC 293 (Ch), [2005] OPLR 113 (Park J) at [23]. 64 Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896 per Lord Reid at 904. See the discussion in David Foxton, ‘A good faith goodbye? Good faith obligations and contractual termination rights’ [2017] LMCLQ 360 at 374 and (before Braganza in the Supreme Court) in R Hooley, ‘Controlling Contractual Discretions ’ [2013] CLJ 65, 79; Christopher Hare, ‘The expanding judicial review of contractual discretion: carte blanche or carton rouge?’ (2013) JIBFL 269; and Jonathan Morgan, ‘Against judicial review of discretionary contractual powers’ (2008) LMCLQ 230 at 239. 65 TJH and Sons Consultancy Ltd v CPP Group plc [2017] EWCA Civ 46 at [16]. David Foxton also cites other cases (2017) LMCLQ 360 at 374: Patural v DB Services (UK) Ltd [2015] EWHC 3659 (QB), [2016] IRLR 286, Carey Group plc v AIB Group (UK) plc and, from Australia, Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [195] and Solution 1 Pty Ltd v Optus Networks Pty Ltd [2010] NSWSC 1060 at [63]. 66 Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] Bus LR 1304. 67 Wellington City Council v Local Government Mutual Funds Trustee Ltd [2017] NZHC 2901 (Collins J) at [165] and [168]. 68 Esso Australia Ltd v Australian Petroleum Agents’ & Distributors Association [1999] 3 VR 642 at 652 and Ying Mui v Frank Kiang Ngan Hoh (No 6) [2017] VSC 730 (Vickery J) at [409]. See now on appeal Hoh v Ying Mui Pty Ltd [2019] VSCA 203. See also Thomas on Powers , (2nd edn) (Oxford University Press, 2012) at [11.12]. exercisable by an employer. If an employer is subject to the full Wednesbury test, it is difficult to see that a trustee board should be subject to any lesser review standard. Absolute powers Seemingly a statement in the relevant trust (or contract) that the decision is ‘absolute, final and unchallengeable’ may be enough to exclude or modify review by the courts.^61 Conversely some of the cases look at trusts where the trustee’s decision is stated to be ‘final’. Despite this the courts reviewed the decision on the irrationality basis. See for example Glidewell LJ in Harris v Lord Shuttleworth :^62 ‘The trustees shall be empowered conclusively to determine all matters, questions, and disputes touching or in connection with the fund’s affairs and all claims thereon … every such determination shall be conclusive and binding on all parties.’ In Saffil ,^63 the trust deed provided that ‘the decision of the Trustees shall be final’. Despite this, in both cases the courts reviewed the decision on the irrationality basis. Merely describing a power or discretion in the relevant contract or trust as ‘absolute’ or ‘sole and absolute’ may well not be enough to exclude the Braganza irrationality tests. There are a number of decisions where a power or discretion has been described as ‘absolute’ in the relevant instrument, but the courts have still applied review concepts: see, for example, Dundee General Hospital ,^64 TJH and Sons Consultancy Ltd v CPP Group plc ,^65 Socimer^66 and Wellington City Council.^67 Conversely if a discretion is not described as ‘absolute’ or ‘uncontrollable’ a court may be ‘more willing’ to intervene’: see Esso Australia Ltd v Australian Petroleum Agents’ & Distributors Association.^68 In practice there may be a higher level of intensity of review (similar to the different levels of intensity described above for factual determinations).
73 Donoghue (or M’Alister) v Stevenson [1932] AC 562, HL(Sc). 74 [2013] UKSC 26, [2013] 2 AC 108 per Lord Walker at [94]: ‘the working out of these principles will raise problems which must be dealt with on a case by case basis’. 75 Leiman, Ricardo v Noble Resources Ltd [2018] SGHC 166 (George Wei J). At least three earlier decisions in Singapore on discretions followed similar lines and cited the English cases on which Braganza is based, including both Wednesbury and Socimer : MGA International Pte Ltd v Wajilam Exports (Singapore) Pte Ltd [2010] SGHC 319 at [105], Edwards Jason Glenn v Australia and New Zealand Banking Group Ltd [2012] SGHC 61, ABN AMRO Clearing Bank NV v 1050 Capital Pte Ltd [2015] SGHC 271 (George Wei J) at [73] to [80]. 76 Teoranta v Opito Ltd [2018] CSOH 10 (Lord Bannatyne). 77 In particular Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825, 329 ALR 1 (Edelman J) at [1011]; and Bartlett v Australia & New Zealand Banking Group Ltd [2016] NSWCA 30. Hannover Life Re of Australasia Ltd v Jones [2017] NSWCA 233 referred to, but did not apply, the Braganza test (on the grounds that in Australia decisions of insurers are subject to a different general reasonableness review). Braganza was also mentioned by Edelman J in the High Court of Australia in a public law review case, Minister for Immigration and Border Protection v SZVFW [2018] HCA 30 at [133]. Braganza and Mineralology were considered by Lee J in two contractual cases: Avenia v Railway & Transport Health Fund Ltd [2017] FCA 859 at [215] and Bupa HI Pty Ltd v Andrew Chang Services Pty Ltd [2018] FCA 2033 at [120]. 78 Eg Peregrine Estate Ltd v Hay [2017] NZCA 496, [2018] 2 NZLR 345 and Wellington City Council v Local Government Mutual Funds Trustee Ltd [2017] NZHC 2901 (Collins J). See also the contract case, L&M Coal Holdings Limited v Bathurst Resources Limited [2018] NZHC 2127 (Dobson J) at [197] and [202] and a case on the power of an airline to refuse to carry a person: Sharma v Air New Zealand Ltd [2020] NZHC 230 (Paul Davison J). 79 FWD Life Insurance Co (Bermuda) Ltd v Poon Cindy [2019] HKCA 697 (Lam VP, Cheung and Chu JJA) at [34] and [35], Chok Kin Ming v Equal Opportunities Commission [2019] HKCFI 755, Global Gaming Philippines LLC v Deutsche Bank AG, Hong Kong Branch [2019] HKCFI 405 (Lisa Wong J), Pa Sam Nang v The Hongkong and Shanghai Banking Corporation Ltd [2016] HKCFI 409 (Deputy High Court Judge Paul Lam SC) and briefly in Invest Gain Ltd v Novel Good Ltd [2019] HKCFI 1633 (B Chu J). 80 Williamson v Port Authority of Jamaica [2019] JMCA Civ 8, (2019) 94 WIR 466. 81 Fiji Times Ltd v Solicitor General [2016] FJHC 548. 82 Platt v OBH Luxury Accommodation Ltd [2015] IEHC 793. 83 IBM United Kingdom Holdings Ltd v Dalgleish [2017] EWCA Civ 1212, [2018] IRLR 4, [2018] Pens LR 1. Allowing an appeal from the decisions of Warren J [2014] EWHC 980 (Ch) and [2015] EWHC 389 (Ch). Similar to the laws of negligence following Donoghue v Stevenson ,^73 the boundaries of Braganza will need to be worked out by later case law on a case-by-case basis (a comment also made in Pitt v Holt^74 ). Later cases The Supreme Court judgment in Braganza was given in March 2015. There are now over 50 decisions in England and Wales on Westlaw referring to it. There have also been decisions referring to Braganza in Singapore,^75 Scotland,^76 Australia,^77 New Zealand^78 Hong Kong^79 and Jamaica.^80 The decision in Braganza is also referred to in decisions in Fiji^81 (but dealing with legitimate expectations in a public law context) and Ireland^82 (but there dealing with the factual question of whether someone jumped from a window or fell). IBM The Court of Appeal in the IBM^83 case on the exercise of employer (and principal company) powers under an occupational pension scheme relied heavily on Braganza .The Court of Appeal held that the irrationality test in Braganza and Wednesbury should apply to non-fiduciary decision makers under a pension scheme. The relevant factors limb was not argued, so the employer decision was reviewed by reference to the ‘no reasonable decision maker’ limb ( Braganza 2 ). The Court of Appeal overturned Warren J at first instance and held that the employer (and principal company) had not acted irrationally in that sense.
84 British Airways PLC v Airways Pension Scheme Trustee Ltd [2018] EWCA Civ 1533, [2018] Pens LR 19, Lewison and Peter Jackson LJJ (Patten LJ dissenting), overturning Morgan J at first instance: British Airways PLC v Airways Pension Scheme Trustee Ltd [2017] EWHC 1191 (Ch), [2017] Pens LR 16. Leave was given to appeal to the Supreme Court, but this case later settled: Airways Pension Scheme Trustee Ltd v Fielder [2019] EWHC 3027 and 3032 (Ch) (Zacaroli J). 85 Originally individual trustees, but these were replaced by a trustee company (with the individual trustees as directors) during the course of the litigation. Nothing turned on this. 86 Morgan J’s decision on the relevant factors challenge to the decision of the trustee board was not appealed: Patten LJ at [31]. 87 British Airways PLC v Airways Pension Scheme Trustee Ltd [2017] EWHC 1191 (Ch), [2017] Pens LR 16 (Morgan J) (at [482] on). 88 Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896, HL. 89 Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705 (Robert Walker J) at 717. 90 [2000] Ch 602, CA. 91 [2013] UKSC 26, [2013] 2 AC 108. 92 [2017] EWHC 1191 (Ch) at [494]. 93 Ibid , at [630]. 94 See, eg Michael Bridge, ‘The exercise of contractual discretion’ (2019) 135 LQR 227; Ernest Lim and Cora Chan, ‘Problems with Wednesbury Unreasonableness in Contract Law: Lessons from Public Law’ (2019) 135 LQR 88; Jason Varuhas, ‘Judicial Review beyond Administrative Law: Braganza v BP Shipping Ltd and Review of Contractual Discretions’ UK Const L Blog (31 May 2017); Peter Susman, ‘Braganza and beyond: judicial review of the exercise of contractual discretion in private law’ (2017) 5 JIBFL 280; Wayne Courtney, ‘Reasonableness in contractual decision-making’ (2015) 131 LQR 552; David Foxton, ‘A good faith goodbye? Good faith obligations and contractual termination rights’ (2017) LMCLQ 360 and the paper by David Foxton of his talk in January 2018 to the Attorney General’s Chambers, Singapore, on ‘Controlling contractual discretions’. 95 Philp Sales, ‘Use of powers for proper purposes in private law’ (2020) 136 LQR 384. British Airways The British Airways case^84 in 2018 also involved an occupational pension scheme (called Airways Pension Scheme or APS). In this case the trustee board^85 was exercising a unilateral amendment power under the trust deed to confer on it a discretion to grant pension increases, which power it then proposed (having taken advice, including legal and actuarial advice) to use. The employer sought to challenge and set aside these decisions by the trustee board on various grounds, including on the basis that they were made for an improper purpose and with inadequate deliberation (ie in effect the first limb of the Braganza / Wednesbury tests, although neither of these cases is mentioned in any of the judgments). At first instance, Morgan J rejected the claims, but the employer appealed on the proper purpose ground (but not the relevant factors ground). The Court of Appeal (by a majority) upheld the appeal, holding that the power was being exercised for an improper purpose.^86 At first instance in British Airways ,^87 Morgan J referred to various of the trustee challenge cases, including Dundee General Hospitals ,^88 Scott v National Trust ,^89 Edge v Pensions Ombudsman^90 and Pitt v Holt.^91 The employer in British Airways sought to challenge the decision-making process as being pre-determined,^92 not taking into account all relevant considerations and taking into account some irrelevant considerations. A challenge based on the decisions being irrational and perverse was not ultimately pursued.^93 Papers on Braganza There have been a number of useful papers^94 on Braganza , but mainly focusing on its application outside trusts or pensions. Lord Sales has recently commented^95 (extra-judicially) that he is ‘critical of attempts to use the Wednesbury decision as an appropriate model, for which there appears to be something of a vogue at the moment’. But this seems to be in the context of its application to contractual
99 Lady Hale at [14], citing Teare J at first instance at [93] and at [37]. 100 Perhaps just as well given that five judges (three in the Court of Appeal and two in the Supreme Court) would have upheld the decision. Described on this point as ‘reassuring’ by David Foxton, ‘A good faith goodbye? Good faith obligations and contractual termination rights’ (2017) LMCLQ 360 at 368, n 64. 101 Lord Hodge at [52] and [53]. 102 Lord Hodge at [61], referring to Lady Hale at [36]. It is noticeable that this is not a pure general discretion as to whether or not to pay the death benefit. Instead the death benefit is payable unless BP reaches the relevant factual decision. This can be seen as having an impact on the ultimate decision in the case – it seems tantamount to mean that BP had the onus to show that the death resulted from a wilful act.^99 In light of the report, BP concluded that Mr Braganza had indeed committed suicide and so no lump-sum was payable. Mr Braganza’s wife brought a claim in tort against BP in negligence (under the Fatal Accidents Act 1976) and (presumably as Mr Braganza’s executor) under the contract for the payment of the death lump sum. (a) The negligence claim was dismissed by Teare J at first instance, but he upheld the contractual lump sum claim. (b) BP appealed and the Court of Appeal (unanimously) allowed the appeal and upheld BP’s decision on the lump sum. Braganza in the Supreme Court Mrs Braganza appealed to the Supreme Court which allowed her appeal (by a three-two majority), holding: (a) (unanimously) the public law Wednesbury test should apply (in both limbs); and (b) (by a majority) three (Lady Hale, Lord Hodge and Lord Kerr) to two (Lord Neuberger and Lord Wilson): applying this test, BP had acted irrationally (under the first limb of Wednesbury ) in reaching its decision. It had not considered all relevant factors. Mr Braganza was a Roman Catholic, so this meant suicide was more unlikely. BP’s decision was not considered to be irrational under the second Wednesbury limb based on the outcome, ie it was not considered to be one that no reasonable decision-maker could have reached: Lady Hale at [42].^100 Nor was it challenged as having been made for an improper purpose. Lord Kerr agreed with Lord Hodge, who agreed^101 with the bulk of Lady Hale’s judgment from [18] to [31] and that there had to be cogent evidence of suicide.^102 Lord Hodge went on to discuss in more detail the implication of this being a discretion in a contract of employment, ultimately concluding (at [63]) that, although BP had acted in good faith and not unfairly, ‘I do not think that the report of the investigation team gave [the BP decision maker] the evidential basis for forming the positive opinion that Mr Braganza had committed suicide’. BP had already conceded that, if its decision was overturned, then the lump sum would be paid. This, in effect, meant that there was no question of the Supreme Court (or the earlier courts) referring the decision back to BP itself to redecide the question based on the proper test: see Lady Hale at [14] referring to Teare J at first instance at [23]. See chapter 68 for a discussion of this point.
103 Braganza : Lady Hale at [24] and [30], Lord Neuberger at [103]. 104 Although on the facts and the 3-2 split on application of the public law Wednesbury test, the final decision came close to doing just that. 105 Although equivalent concepts of rationality had been mentioned in various cases, eg trustees in McPhail v Doulton [1971] AC 424 per Lord Wilberforce at 449C and employers in UC Rusal Alumina v Miller [2014] UKPC 39 at [51] and [55]. 106 [2008] EWCA Civ 116, [2008] Bus LR 1304, [2008] 1 Lloyd’s Rep 558. The Braganza rationality test The finding in Braganza was that the decision in that case must be exercised rationally (and consistent with its contractual purpose). Rational in the public law ( Wednesbury ) sense has the two limbs previously mentioned – process and outcome.^103 The Supreme Court was clear that the Court is not substituting its own decision on what is reasonable.^104 Thus Lady Hale at [18]: ‘Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.’ This use of the two-limb test is not new in private law, but until Braganza the use of the public law test in relation to a private law instrument had not been expressly approved in these terms by the Supreme Court.^105 The express application in Braganza of the public law Wednesbury concepts looks to be directly contrary to the reservations expressed two years earlier in Pitt v Holt on their use in relation to trustee discretions. In 2008 in Socimer International Bank Ltd v Standard Bank London Ltd^106 (a case involving a challenge to a bank’s valuation of securities on a default under a forward sale contract), Rix LJ had summarised the position (at [66]): ‘[A] decision-maker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time.’ Rix LJ went on to draw a distinction with purely objective reasonableness: ‘In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria. … Laws LJ in the course of argument put the
