Air Jamaica Ltd v Charlton

Air Jamaica Ltd v Charlton , UKPC 20, is a leading case in English trusts law case at the Privy Council concerning resulting trusts.

Background Air Jamaica was the national airline of Jamaica, a former British colony whose judicial system included final rights of appeal to the Judicial Committee of the Privy Council. The rule against perpetuities prevents the creation of perpetual trust, or more precisely, a trust of a very long period of time. - In the United Kingdom, statutory exemptions from the perpetuity rule have been enacted for pension trusts,Perpetuities and Accumulations Act 1964 but no such legislation had been passed in Jamaica.Hanbury & Martin 17-028

Surpluses had arisen under Air Jamaica's pension trust fund, as the pension plan had been ended. The provisions of the trust deed relevant to the case were as follows:Hayton at 16-1084 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.

["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 or other persons entitled to benefits under the Plan"]Air Jamaica at

13.3(ii) … 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 1994, the company acted to amend the deed by replacing ss 4 and 13.3(ii) with terms that would allow for the creation of a trust that would hold the entirety of the surplus for the company, leaving nothing for the employees and pensioners.Hayton at 16-108

David v Richards & Wallington The Air Jamaica case was decided after the English law case Davis v Richards & Wallington 1 WLR 1511, which also involved surpluses under a pension scheme. In Davis, excess contributions from the employees and employers had resulted in a surplus under a pension fund scheme, whose trust deed did not contain provisions on how to manage such surpluses and was unamendable to include such provisions.Hayton at 16-107

The position, historically, had been, as regards funds set up for the benefit of their members (typically in the context of unincorporated associations that are later dissolved), surpluses would be distributed among the contributers by way of resulting trust according to how much they had contributed to the fund.Hanbury & Martin 11-012

The judge in Davis, however, ruled that the surplus from the employers' contribution would be held on resulting trust for the employers, but he also found that the surplus from the employee's contribution would be bona vacatia based on practical, statutory, and legal difficulties. These difficulties, however, were not present in the Air Jamaica case. Further, the surplus in Air Jamaica also arose from the failure of the trust and not excess contributions.Hayton at 16-114

Issues of law After Air Jamaica had made the 1994 amendments, the beneficiaries filed suit against the company, with the Attorney-General of Jamaica intervening. At trial, the court found in favour of the Crown's arguments, such that the surplus were bona vacantia, as neither the pension trusts nor the amendments were valid for perpetuity. The Privy Council found this reasoning "inconsistent", noting that the existence of a trust surplus logically requires there to be a trust in the first place, with such trust having been satisfied and thus creating the surplus. The judge also found that the beneficiaries had "received all the benefits to which they were entitled" and as such a resulting trust could not arise. -

At the Jamaican Court of Appeal, a two-thirds majority found in favour of the beneficiaries on a number of grounds. They found that the (i) beneficiaries had contractual rights to the surpluses and not merely equitable rights arising from the trust; (ii) the rule against perpetuity was not applicable as the duration of each beneficiary's interest could be regarded as falling within the relevant perpetuity period at law; (iii) the plan was discontinued in 1994; (iv) the 1994 amendments were invalid; and (v) the surplus should be paid to the beneficiaries according to s 13.3(ii).

The two major issues for the Privy Council were whether the 1994 amendments were valid and where the surplus ought to go. +IssuesIssuesSub-issuesCompanyAttorney-GeneralCourt of AppealWhether the pension scheme was void for perpetuity?Whether the beneficiaries' rights arose out of contract? - -YesWhether each beneficiary was "a relevant life in being whose interest must vest in possession on his own retirement or death"? - -YesWhether the trust was void ab initio?YesYesNoValidity of the 1994 amendmentsWhether the pension plan had been discontinuedYes YesNoWhether the 1994 amendments were valid?Yes -NoDestination of the surplusWhether clause 4 precluded the existence of a resulting trust for the company?NoYesYesWhether the beneficiaries had received everything they were entitled to? -YesNoWhether the surplus was bona vacantia?NoYesNoWhether the surplus must be distributed according to the original s 13.3(ii)?NoNoYes

Decision Lord Millett, in delivering the decision of the court, held:

That the beneficiaries' rights arose from trust, and not contract Each beneficiary was a "life in being" The trust was not fully void ab initio, although s 13.3 was for perpetuity The pension scheme was discontinued The 1994 amendments were invalid Clause 4 did not preclude the existence of a resulting trust The beneficiaries had not received everything they were entitled to The surplus was not bona vacantia The surplus had to be distributed according to the original deed He according ruled that the surplus was to be distributed to the beneficiaries according to their contributions to the fund.Hanbury & Martin 11-012

Equitable of beneficiaries' rights under pension scheme: -

Separate settlement with mutual insurance analysis: - Lord Millett held that

Clause 13.3 would usually be void for perpetuity because there was no statutory exemption in Jamaica to the common law rule. But with each new member, there was a new settlement, and each member was a life in being, so the termination of a new settlement could in fact be calculated, and so the scheme was in fact not void for perpetuity.

Discontinuance of pension scheme: -

Incurably bad amendments: -

Resulting trust analysis: -

Advice The Privy Council advised that a resulting trust of the surplus funds could still arise in favour of the company, and so it would not be bona vacantia.

The powers for the trustees to change the settlement's terms were void for perpetuity, and so was the power for the widows to designate a beneficiary to receive benefits, because these were only contingent on termination of the plan itself which could occur more than 21 years after the death of any particular beneficiary. (The individual settlements were contingent on the death of each individual beneficiary under the scheme.) In any event, the scheme's terms prohibited granting beneficial rights in the scheme to the company in clause 4. But a resulting trust for the company could still exist.

Lord Millett remarked1412 that although Mr Vandervell, in Re Vandervell No 2 did not wish the share option to result to him, he did not wish to make an outright gift to the trustee company either. A presumption in the transferor's favour can only be made where there is no evidence that there was an intention to create a trust, or make a gift, or make a loan of the property to the transferee.

Lord Steyn, Lord Hope, Sir Christopher Slade and Sir Andrew Leggatt concurred.

Air Jamaica Ltd v Charlton

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