England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/05/2015

Mrs Justice Andrews:

Introduction

1. The Claimant ("Granada") is now a wholly-owned subsidiary of ITV plc and part of the ITV group. In 2000, it was known as Granada Group Plc and was a publicly listed company.
2. This claim challenges the legality of, and seeks to set aside, certain arrangements that were made by Granada in August 2000, shortly after its merger with Compass Group Plc, to secure the payment of supplementary retirement and death benefits to Granada's executive directors, then five in number. One of the directors concerned subsequently transferred his pension arrangements to a new employer; the remainder retired before 1 October 2006. The Defendant ("the Trustee") is a professional corporate Trustee and the Trustee under those arrangements.
3. Having adhered to those arrangements for more than fourteen years, Granada now contends that they were entered into in contravention of section 320 of the Companies Act 1985 ("the 1985 Act") and are therefore voidable at its behest under section 322, because they did not obtain prior shareholder approval. This judgment follows the trial on issues of liability only.
4. S.320 of the 1985 Act provides, so far as material:

"(1) With the exceptions provided by the section next following, a company shall not enter into an arrangement –

(a) whereby a director of the company… or a person connected with such a director, acquires or is to acquire one or more non-cash assets of the requisite value from the company…

unless the arrangement is first approved by a resolution of the company in general meeting."

(2) For this purpose a non-cash asset is of the requisite value if at the time the arrangement in question is entered into its value … exceeds £100,000."

5. The expression "non-cash asset" is defined by s.739 of the 1985 Act:

"(1) In this Act "non-cash asset" means any property or interest in property other than cash; and for this purpose "cash" includes foreign currency.

(2) A reference to the transfer or acquisition of a non-cash asset includes the creation or extinction of an estate or interest in, or a right over, any property and also the discharge of any person's liability, other than a liability for a liquidated sum."

6. Granada's objective is to recover gilts worth in excess of £40 million, which are charged as security for its obligations under the supplementary pension scheme ("the Scheme"). It claims that the return of the security will make no difference to the underlying contractual obligations in respect of the pensions, which it will continue to honour.
7. If Granada is right, there will be significant adverse implications for the very large number of secured unfunded occupational pension schemes which include directors of the employer company among their members. Indeed Mr Newman QC, who appeared with Ms Stokes for the Trustee, pointed out that the decision could have a similar impact upon funded pension schemes as well, since most such schemes will involve the investment of non-cash assets, typically commercial property.
8. Moreover, many funded occupational pension schemes have adopted a practice, approved by the pensions regulatory authorities, of using security over non-scheme assets to help to fund the pension benefits. The assets (known as "contingent assets") will produce cash for the pension scheme contingent upon the happening of certain events, typically where the employer becomes insolvent, or where the funding of the scheme falls below a prescribed level. The adoption of this practice reduces the annual levies payable to the Pension Protection Fund ("PPF") by registered funded schemes. Although the PPF was only set up in 2004, and thus the draftsman of the 1985 Act could not have had it in mind, it is nevertheless a relevant consideration that if the security arrangements are voidable at the instance of the employer, the settled contingent asset arrangements of many pension schemes will be thrown into doubt. This, in turn, could cast doubt on the reductions of the PPF levies.
9. On any view, there are significant implications for the pensions industry in this jurisdiction if Granada is right. Mr Furness QC, who appeared with Mr Davies for Granada, acknowledged that Mr Newman may well be right about the wider ramifications of a decision in Granada's favour, although he pointed out that the consequences of infringing s.320 are that the arrangement is voidable, not void. He submitted that even if it was too late for the shareholders to ratify an existing scheme, it would still be open to the parties to revoke the existing schemes and replace them with fresh, identical schemes after obtaining shareholder approval. Thus, he submitted, the consequences of acceding to Granada's argument are not quite as dire as the Trustee would have the Court believe.
10. At the end of the day, the legal argument is either right or wrong; and if it is right, the fact that there are unforeseen adverse consequences for the pensions industry, however regrettable, cannot be a reason for the Court to refuse the relief that is sought. Indeed, if s.322 is rightly invoked, the Court has no choice but to accede to the application to set aside the voidable arrangement. However, the likely impact on many other pension schemes of a finding that Granada is right is a reason why the Court must scrutinise the rival arguments with particular care.

Factual background

11. At all material times, Granada had an occupational pension scheme for all its employees, ("the Granada Pension Scheme") which was approved by HMRC so as to qualify for tax relief on contributions, investments and benefits. However, the Finance Act 1989 introduced an earnings cap limiting the total amount of pensionable earnings which could be taken into account in calculating the benefits payable to members joining such schemes after 1 June 1989. After those changes were introduced, Granada, in common with many other companies whose senior executives earned salaries in excess of the cap, resolved to continue to provide new senior employees and directors with pensions based upon their full salary, so that they would not be disadvantaged in comparison with colleagues who had joined the Granada Pension Scheme before 1 June 1989.
12. In order to do so, it was necessary for Granada, as employer, to enter into "top up" arrangements to provide the benefits, which would operate outside the regime of HMRC approval. Such arrangements could be provided on a funded or an unfunded basis; Granada chose to go down the unfunded route. This involved Granada promising to "top up" the relevant member's benefits from the approved Granada Pension Scheme, but without making contributions into a trust fund which would accumulate and provide the source of those additional payments in due course. Therefore, Granada would have to find the money from its own resources when the time came.
13. Although that type of arrangement, known as an unfunded unapproved retirement benefits scheme, or "UURBS", had certain fiscal advantages and was simple to establish and run, the obvious disadvantage for the members was that the employer's promise was unsecured. While that remained the case, those who stood to benefit from the UURBS had no protection against the employer running into severe financial difficulty and being unable to afford to pay the additional sums. As a result, employers often provided security for the payment of the benefits promised under the UURBS.
14. On 11 May 2000, Granada's non-executive directors resolved that security should be granted in support of the "top up" contractual arrangements that had already been made by Granada in favour of its executive directors ("the Directors"). There has been no suggestion that in passing that resolution the non-executive directors acted otherwise than in accordance with their duties to act bona fide in the best interests of the company. On 23 May, an actuarial report was obtained which valued the prospective or contingent benefits payable to the Directors under the existing contractual arrangements collectively at £18,850,000.
15. On 1 June 2000, Lovells (acting for Granada) and Sacker & Partners, a specialist pensions firm (acting on behalf of the Trustee), attended a consultation with Leading Counsel, Mr David Richards QC (as he then was). In written instructions to Counsel dated 25 May 2000, which were given jointly on behalf of Granada and the Trustee, Counsel was given an explanation of Granada's policy to offer senior employees separate contractual commitments to provide retirement and death benefits as though the earnings cap had not applied. He was told that the commitments provided by Granada were intended to be legally binding, but they were not backed by a separate pool of assets or advance funding in any form. These commitments were, therefore, less secure than the benefits provided under the Granada Pension Scheme.
16. The instructions then state as follows:

"Granada Group Plc, accordingly, intends to establish the Scheme in order to provide relevant employees and directors with some additional security in relation to the unfunded pension commitments that they have already been given. Initially, only the main board directors of Granada Group Plc will be admitted to the Scheme, but it is intended, in due course, that other employees and directors within the Granada group of companies will be admitted to membership".

In the event, that intended course of action was not implemented in this case, but it was common ground that there are numerous secured UURBS's in existence in which the membership of the scheme is not confined to directors.

17. Counsel was instructed to advise on a number of matters, including whether the establishment of the Scheme and the grant of security in connection therewith would require the approval of Granada's shareholders. He was asked to identify any matters, particularly relating to legality and capacity or disclosure, which should be brought to Granada's or to the Trustee's attention.
18. The note of the consultation indicates that the main focus of discussion was upon whether the specific exception under section 346(3)(b) of the 1985 Act for trustees of a pension scheme was applicable. S.346 defines "connected persons" for the purposes of Part X of the 1985 Act, where that expression arises in various contexts. Section 346(2)(c) includes in the definition " a person acting in his capacity as trustee of any trust the beneficiaries of which include… the director, his spouse or civil partner or any children or step-children of his…" but s.346(3)(b) provides that that paragraph "does not apply to a person acting in his capacity as trustee under an employees' share scheme or a pension scheme."
19. Counsel queried whether the proposed arrangements amounted to a "pension scheme" but ultimately agreed to be guided on that question by Mr Ito of Lovells and Mr Couldrey of Sackers, who had greater experience of such matters. If they were both satisfied (as they were) that the arrangements did amount to a pension scheme, then Counsel was clear that this dealt with the s.320 point, and that approval of the arrangements by the shareholders would not be required.
20. It does not appear to have occurred to Counsel, or to Mr Ito or Mr Couldrey at the time that if the "connected persons" extension was inapplicable because of the exception for trustees of a pension scheme, the arrangement might fall foul of s.320 nevertheless, though that is now Granada's primary case.
21. On 4 August 2000 Lovells gave written advice to Granada that shareholder consent was not required. They stated that although the creation of a charge in favour of the trustee of the Scheme is the acquisition of a non-cash asset, the trustee of the Scheme will not be a "person connected with the directors" for the purposes of s.320 if the trustee is acting in its capacity as a trustee of a pension scheme. They said that the Scheme "undoubtedly is a pension scheme for this purpose."
22. The Scheme was established and is governed by the following documents, which are all dated 23 August 2000:

i) Letters sent to each of the Directors by Granada ("the Special Terms");

ii) The Trust Deed and Rules (as amended);

iii) The Charge Deed, by which Granada granted the Trustee a first fixed equitable charge over certain gilts, which Granada had acquired two days earlier.

23. The "Special Terms" were headed "Your pension rights under the Granada Pension Scheme and associated agreements". The letters, which were in materially identical terms, informed each of the Directors concerned that the previous agreements in respect of their pension and other benefits would be deemed to be revoked immediately before they were admitted as members of the "Granada Supplementary Pension Scheme." However, the Directors would continue to have all the benefits that they had enjoyed under the previous agreements as if they were set out in the letter in full. In the event of default by Granada in the provision of those benefits "the trustee of the Supplementary Scheme will be able to enforce the fixed charge over securities granted by [Granada] which forms part of the Supplementary Scheme".
24. From its establishment until, at the earliest, late 2013, the Scheme was administered by Granada and the Trustee on the basis that it was a valid arrangement, including throughout the period in which Granada suffered well-publicised financial difficulties.
25. In 2003, Granada's obligations under the Special Terms in respect of the three members of the Scheme who were still active Directors at that time were transferred to its then holding company, Granada Plc, following the transfer of their employment to that company. However, as one might expect, this had no impact on the security arrangements or the various covenants given by Granada itself to the Trustee under the Scheme.
26. On 2 February 2004, Granada Plc merged with Carlton plc to form ITV plc. As a result of this merger, Granada's financial statements were consolidated into the group financial statements of ITV plc. Thereafter, reference to the charge over the securities for the unfunded pension promises was made in each of the annual reports and accounts of ITV plc from 2004 to 2013, which were approved by the ITV board and presented to its shareholders. Specific reference is made to the Scheme itself in each of the annual reports and sets of consolidated accounts from 2010 to 2013.
27. Under the Trust Deed and Rules, and under Clause 6.2 of the Charge Deed, the value of the assets subject to the charge was required to be no less than 110% of the aggregate present value of the benefit prospectively or contingently payable under the Scheme in respect of each Member. In accordance with rule 6 of the Trust Deed and Rules, from 2000 to 2009 valuations of the securities were carried out by the Scheme actuary in September each year. If the value fell below the prescribed percentage, rule 6 obliged Granada to provide further security to make up the difference. It did so on several occasions between 2004 and 2011 in response to actuarial valuations showing that the value of the assets had fallen below the required amount.
28. Moreover, in 2007, by which time all five Directors had ceased to be directors of Granada or of its holding company, some of the original gilts were released from the charge and substituted by others, at the request of ITV plc.
29. A draft actuarial report for 2010 was prepared in September 2011, which indicated that the required ratio had been met, and therefore no further contributions were required at that time. In December 2011 the Trust Deed and Rules were amended to give Granada and the Trustee a discretion as to the time within which the actuary had to value the securities and the present value of the Scheme benefits. No further formal valuation of the securities has taken place since then, though the evidence before me was that the value of the securities as at 7 January 2014 was £37,587,000 and it was common ground that it is now in excess of £40 million.

An overview of the rival contentions

30. Granada contends that the "arrangement" entered into for the purposes of s.320 comprises the Charge, rule 6 of the Rules (pursuant to which Granada was obliged to provide security to the requisite value on an ongoing basis) and the actual security interests over the gilts that were created when the arrangement was entered into.
31. Its primary case (which it is fair to say does not emerge with any clarity from the pleadings, despite a request for further information) is that under the arrangement the Directors themselves, or at least one of their number, acquired a non-cash asset from Granada whose value exceeded £100,000. Therefore it did not matter whether the "connected persons" extension in s.320 operated to catch the interest of the Trustee, because the arrangement was caught by s.320(1)(a) regardless.
32. By Clause 2.2 of the Trust Deed, Granada gave a covenant to the Trustee to pay benefits to the members of the Scheme in accordance with the Special Terms, which was held on trust. Mr Furness initially submitted that this was a "bare trust" for the Directors, although he was later constrained to accept that the Scheme provided contingent benefits to their spouses, civil partners and dependents. The promise under Rule 6 to provide and maintain the security was also held in trust by virtue of Clause 2.2. So far as the charge itself was concerned, the power of sale under Clause 7 of the Charge Deed empowers the Trustee to serve an enforcement notice on Granada. As between the Trustee and Granada, the Trustee has the discretion whether or not to enforce the charge, depending on the circumstances in which any default in payment occurs, but it must exercise that discretion in accordance with its obligations as a trustee.
33. Granada's case on the direct application of s.320(1)(a) was that the Directors, as beneficiaries of the trust of the covenant to pay and covenant to provide security, have the right to compel the Trustee to enforce those covenants. Moreover, even in the absence of an express trust of the charge itself, the Directors would have the right to compel its enforcement by the Trustee in their interest. Those rights individually or collectively amounted to the "non-cash asset" (or assets) which the Directors acquired by virtue of the arrangement; and the value of the right to enforce the covenants and the charge must be equated to the value of the charge itself.
34. Alternatively, it was contended by Mr Furness that the exemption under s.346(3)(b) in respect of the Trustee's admitted acquisition of a non-cash asset (in the form of a charge over the gilts) did not apply, because the arrangement did nothing more than add security to back pre-existing contractual promises, and regardless of legal form, in reality the Trustee acted merely as a trustee of the security and not as the trustee of a pension scheme. The security arrangements are not arrangements under which pension benefits are provided, because those benefits were provided under the Special Terms and were no different from the benefits provided under the pre-existing arrangements between Granada and the Directors.
35. On behalf of the Trustee, Mr Newman contended that the only person who acquired an interest in the charge over the gilts, which he accepted was a non-cash asset, was the Trustee itself. Moreover, whilst the charge over the gilts was capable of valuation that was not the non-cash asset in which Granada claimed the Directors acquired an interest. S.320(1)(a) did not apply to the right of the beneficiaries under a trust to compel the proper administration of a trust, which in any event was incapable of valuation. So far as Granada's alternative case was concerned, the Trustee fell squarely within the statutory exemption in s.346(3)(b).

The purpose and ambit of s.320 of the 1985 Act

36. In order to evaluate these arguments, it is necessary for the Court to have regard to the purpose of s.320 and the mischief that it was designed to prevent. If a company decides to make a cash payment to one or more of its directors, that payment is going to be difficult, if not impossible, to conceal from the shareholders, and the value of what the director receives will be readily apparent on the face of the company's accounts. It is far easier to structure a transaction in which a director obtains an interest in a non-cash asset of the company, such as a property, in a manner in which the director's interest, or its value to him, is not transparent.
37. As Mr Furness pointed out, the value to be placed on a non-cash asset is often a matter of difficulty, or may be controversial, and the asset may have a particular value to a director which is greater than its open market value. For example, the director may own land adjacent to a strip of land owned by the company whose acquisition would greatly enhance the value of his own land ("a ransom strip"). Yet the company's strip of land may be of little use, and thus of little value, to anyone else. Thus there is scope for a director acting to his own benefit and to the detriment of the company if he buys the ransom strip, even if he appears to buy it at the open market value.
38. Parliament plainly intended that, where the sums involved were significant, the company should have the protection of a requirement that such arrangements be subject to the prior scrutiny of the general meeting rather than leaving them entirely to the judgment of the directors, at least some of whom will have a conflict of interest. In Duckwari plc v Offerventure Ltd (No 2) [1999] BCC 11 Nourse LJ at pp 19-20 identified the evident purpose of ss.320 and 322 as being: "to give shareholders specific protection in respect of arrangements and transactions which will or may benefit directors to the detriment of the company".
39. In British Racing Drivers Club Ltd v Hextall Erskine & Co [1996] BCC 727 at p.741A-B, Carnwarth J explained that this protection was not confined to instances of deliberate disloyalty:

"The thinking behind that section is that, if directors enter into a substantial commercial transaction with one of their number, there is a danger that their judgment may be distorted by conflicts of interest and loyalties, even in cases where there is no actual dishonesty. The section is designed to protect a company against such distortions. It enables members to provide a check. Of course, this does not necessarily mean that the members will exercise a better commercial judgment; but it does make it likely that the matter will be more widely ventilated, and a more objective decision reached."

40. S.320 is aimed at "arrangements". That expression is deliberately wide. It obviously includes a transaction in which there are multiple contracts. The company must enter into the "arrangement", but the director need not be a party to it. The section is triggered if the arrangement causes the director, or a connected person, to acquire (or enables him to acquire in the future) one or more non-cash assets of the requisite value from the company. It follows that the non-cash asset in question must be capable of valuation, and that value to the director must be above the requisite value, in this case, £100,000, at the time that the arrangement was entered into.
41. Granada's case on the direct application of s.320(1)(a) to the Directors themselves substantially depends on the extended definition of " acquisition of a non-cash asset" in s.739(2). The provisions of the 1985 Act extend to Scotland. In Micro Leisure Ltd v County Properties (No 1) [1999] SC 501, a decision of the Outer House in Scotland, Lord Hamilton accepted that as a matter of ordinary language, the concept of a person acquiring an asset from the company presupposes that the asset exists prior to its acquisition. The definition of "non-cash asset" does not embrace property or an interest in property that is brought into existence by the "acquisition" itself.
42. He then expressed the view, at p.509E, that s.739(2) was clearly designed to extend the concept of "acquisition" to certain situations in which what is acquired is created contemporaneously with its acquisition, but it does not extend to all assets so created. It applies only when what is created is "an estate or interest in, or a right over, any property." Lord Hamilton said that in his view the purpose of the extension effected by s.739(2) was to bring within the purview of s.320 "the creation… of subsidiary estates, interests and rights of substantial value".
43. The judge then went on to give examples of the kinds of rights and interests that would fall within the extended definition, rejecting an argument by counsel in that case that they should be confined to rights which, under Scots law, would be regarded as real rights rather than personal rights. He decided, at p.510B, that the application of a purposive construction to the statutory provisions made it appropriate to recognise that s.739(2) extends beyond subsidiary real rights to "subsidiary rights which, albeit personal, are capable of materially affecting the exercise by the other party of its proprietorial rights." On the basis of that analysis, he concluded at p.511A that s.739(2) was not apt to cover contractual rights to share in the profits made from the development of land, because those were in no sense rights over property.
44. I can readily accept that the extended definition under s.739(2) means that the interest that the director acquires (or is to acquire) in the non-cash asset does not have to be a proprietorial interest, but may include some other kind of right over the asset which is susceptible of being valued, such as an option or a licence, and arguably even (though I am more doubtful about this) the benefit of a contractual right to purchase the asset. However, the rights which Granada contends fall within the extended definition are specific examples of the rights that any beneficiary, under any trust, would have to compel the trustee to administer that trust properly, in the event that the trustee fails to do so. Those are personal rights against the trustee, not rights over the assets of the trust, which only arise when the trust is created, and (whether or not they are susceptible of valuation), in my judgment they do not fall within the meaning of the expression "rights over any property".
45. A right over property implies a direct link between the right in question and the property itself, which is why Lord Hamilton spoke of the creation of such a right having a material effect on the other party, (which in context must mean the company) exercising its full proprietorial rights. A charge is a right over property because it inhibits the owner's freedom to deal with that property as he pleases. However, the charge can only be enforced by the person in whom that right is vested. The right of beneficiaries, in certain circumstances, to compel a trustee to exercise his rights, including his rights as chargee, has no impact whatsoever on the chargor's use and enjoyment of his property. It is the charge, and the rights which it creates, which inhibit that use and enjoyment. A right to compel someone other than the owner of the property (in this case a trustee) to exercise a contractual right to require the owner of the property to do something with it, such as sell it and apply the proceeds in a particular way, is not a right over the property itself.
46. There is a further difficulty with Mr Furness' construction, namely, that if those rights against the trustee are enough to engage s.320 directly in any case where the trustee acquires an interest in a non-cash asset (of sufficient value) from the company, and at least one of the beneficiaries of the trust is a director, then the specific inclusion of trustees as "connected persons" would be largely unnecessary. I do not accept that it was Parliament's intention to include trustees in the definition of "connected persons" merely as a belt and braces safeguard. It seems obvious that the express extension to trustees is designed to preclude the evasion of the application of s.320 by the creation of a trust (whether direct or discretionary) which results in the trustee, instead of the director, acquiring the requisite interest in (or right over) the non-cash asset or assets, the value of which interest exceeds the statutory threshold. It is implicit that Parliament envisaged that s.320(1)(a) was unlikely to cover that situation if trustees were not included in the definition of "connected persons".
47. It seems to me, therefore, that s.320(1)(a) was not intended by Parliament to apply to the rights or interests of the director himself, whatever they may be, when the non-cash asset is held in trust for him by someone other than the company itself, save possibly where the trust arrangement is a "bare trust" or the so-called trustee is really a nominee. Where there is a "bare trust" the beneficiary (or all the beneficiaries acting together) can compel the trustee to wind up the trust and hand over the trust property: this is known as the rule in Saunders v Vautier (1841) Cr & Ph 240, 41 ER 482. To that extent, the beneficiary may be said, without artifice, to have a right "over" the trust property. Even in that situation, the "connected persons" extension obviates the necessity for the company seeking to set aside the arrangement under s.322 to prove that the trust is of that particular type.
48. The final point to note on the purposive construction of the statutory provisions is the effect on the overall interpretation of s.320 of the pension scheme exception to the "connected persons" extension. If the trustee acquires an interest in the non-cash asset in his capacity as trustee of a pension scheme of which the director is a member, he will not be a connected person, and therefore on the face of it s.320 will not extend to the arrangement by which he acquired that interest. The consequence of Mr Furness' argument is that the exception will not be effective to save secured unfunded pension scheme arrangements where the value of the security arrangement (or of the right to enforce it) to any one director-member at the time when he joins the scheme can be said to exceed £100,000.
49. If the direct interest in the non-cash asset acquired by the pension fund trustee is not caught, but what is said to be a "right over property" in the form of a right to compel the trustee to enforce his rights over the non-cash asset is caught, it would be a very curious and roundabout way of achieving that purpose, which makes it unlikely that this is what Parliament intended. If Parliament really intended that s.320 should apply to pension fund arrangements under which the value to a director-member of being able to compel the trustee to enforce that security could be said to exceed £100,000, it would have been easy for it to have made express provision to that effect.
50. On the face of it, the statutory exception for trustees of pension schemes appears to be absolute and comprehensive, and designed to remove pension scheme arrangements from the scope of s.320 altogether. The inference can be drawn that Parliament intended a complete exclusion, irrespective of the size of the individual director's supplementary pension or the impact of any security arrangements on his chances of receiving it. Bearing in mind the policy underlying s.320 this is understandable. The detriment to the company caused by tying up its capital in providing the security will be exactly the same regardless of whether the members of the supplementary pension scheme are all employees, or all directors, or a mixture of the two. The setting up of a pension scheme is not the type of commercial arrangement which is the natural target of s.320. It is not something of which the shareholders will be unaware. There was no lack of transparency in the present case; far from it. The present litigation does not appear to me to be driven by any dissatisfaction on the part of Granada's shareholders.
51. It is unlikely that Parliament envisaged that the members of a company should have to be consulted on every occasion when a highly paid director became a member of a secured UURBS, or that the security for that "top up" pension scheme should automatically be put in jeopardy if they were not consulted – let alone that the Board should have to go to the trouble of a complex valuation exercise to determine whether the director's "interest" in enforcement of the security by the pension scheme trustee triggered the requirement to go to the shareholders before he joined the scheme.
52. The benefits that the directors (or their dependents) actually stand to gain from membership of the pension scheme are ultimately cash benefits, which are paid either from the company's own resources or from the realisation of the securities if the company does not pay. There seems to be no good policy reason to discourage companies from securing their promises to pay top up pensions to high earning executives, or to require the sanction of the shareholders before they do so. It seems rather fanciful to suggest that the judgment of the directors would be distorted in the manner described by Carnwath J. in the British Racing Drivers Club case, if all they are deciding to do is provide security for the company's contractual obligations to pay top up pensions to its high-earning employees and executives, so as to put them on a par with colleagues who joined the original pension scheme earlier; especially since those contractual obligations are not themselves caught by s.320.

Issue A – Did the Directors acquire a non-cash asset by virtue of the security arrangement for the purpose of s.320 of the 1985 Act?

53. Mr Newman took me to a number of authorities that supported the proposition that the beneficiaries of a trust fund do not have a beneficial interest in the assets of a trust until the trust arrangements cease. Thus, he submitted, the Directors have no beneficial interest in the gilts themselves or in the charge over the gilts until such time as the charge is realised. At that point, they have an interest in the (cash) proceeds of the gilts, which are applied towards their pension payments. Until then, their only right is a personal right to compel the Trustee to administer the trust correctly. Those propositions are undoubtedly correct.
54. In Forde and McHugh Ltd v Revenue & Customs Commissioners the issue was whether contributions into a funded unapproved pension scheme constituted "earnings… paid to or for the benefit of an earner" which would attract a liability to pay national insurance contributions. The Supreme Court [2014] 1 WLR 810 eventually decided that issue in favour of the taxpayer, upholding the dissenting view of Rimer LJ in the Court of Appeal, [2012] STC 1872. One of the arguments deployed in the Upper Tribunal (Tax and Chancery Chamber) [2011] STC 1428 was that a beneficial interest in the assets was conferred on the employee when they were transferred into the scheme. That argument was rejected by the Upper Tribunal and by the Court of Appeal. Although there was a dispute between the members of the Court of Appeal as to the answer to the key issue in the case, there was no dispute between them as to how the scheme operated, and who had the legal and beneficial interest in, and rights over, the assets of the fund.
55. As Rimer LJ pointed out at [14], the material effect of the scheme was that the member in respect of whom the employer made the contribution receives no immediate realisable interest in his accumulated fund (my emphasis). His enjoyment of it is dependent upon his surviving to his retirement age and any attempt in the meantime to convert his interest to his own account pending that event would result in its forfeiture. Ryder J expressly agreed with that analysis at [78]. He said that the employee received a present right to a future benefit. That did not mean that he had a proprietary interest in the assets of the trust. He did not.
56. Therefore, this was an example of a situation in which both the legal and beneficial interest in the assets of the trust were vested in the Trustee. As Mr Newman pointed out, the scheme in that case was a funded scheme in which the assets in question (as it happens, gilts) were the subject of the trust, whereas the Scheme in the present case is at one remove from that situation, because the gilts held in trust are merely security for future payment by the employer, and may never be used. Indeed, the definition of the "trust fund" expressly excludes any assets held by the Trustee for security. If the members have no proprietary interest in the non-cash assets that are held in trust under a funded scheme, a fortiori they would have no such interest in non-cash assets held as security for an unfunded scheme.
57. Thus even if the extended definition of "acquisition" in s.739(2) means that a beneficial interest in trust property is potentially caught by s.320, there is no such beneficial interest in the property held as security here. The members of the Scheme have no rights over the gilts or the charge. As for the argument that s.320 also applies to arrangements under which a director "is to acquire" an asset, if in the future the charge is enforced, and the gilts are sold, what the director and other members will gain is the pension payment, which is cash, not the gilts themselves. There is no difference in this regard between the right to receive the proceeds of sale of the gilts and the right to receive a share in the future profits derived from the exploitation of the land in the Micro Leisure case. In any event, in order to come within the future acquisition limb of s.320 there has to be a high degree of certainty that the non-cash asset will be acquired by the director. It cannot be said with any degree of confidence that the stage will ever be reached where the gilts have to be sold.
58. Contrary to Mr Furness' initial submission, in my judgment this arrangement did not involve a bare trust; there are contingent beneficiaries, and Saunders v Vautier itself is authority for the proposition that the rule which bears its name does not apply in that situation. See also the discussion of the rule in the context of a pension fund trust by Lloyd LJ in Thorpe v Revenue and Customs Commissioners [2010] STC 964 at [22]-[25].
59. Therefore Granada's primary argument stands or falls upon the right of the Directors as members of the Scheme to compel the Trustee to administer the scheme properly, in accordance with its duties, being treated as a right "over" the gilts for the purposes of s.320 by virtue of s.739(2). I have already explained in paragraph 44 above why I consider that argument to be misconceived – such rights are not rights "over" property in the same way as an option or a charge could be so described.
60. I do not consider that even a generous purposive construction of s.320 would lead to the conclusion that the right, which all beneficiaries of all trusts enjoy, to require or compel the trustee to administer the trust in accordance with his duties as trustee, is the type of right that engages that section. If it did, there would be hardly any need for the "connected persons" provision to bring within its ambit the direct rights and interests of trustees over the trust property. Unlike the various rights listed by Lord Hamilton in Micro Leisure, which are all significant rights in relation to the property, the Directors have no comparable direct or present rights over the gilts. They cannot dictate to the Trustee what to do with the security save in contingent circumstances where the Trustee is failing in its duties, which may never arise.
61. Mr Newman pointed out that in the present case the Trustee is under no obligation to ensure that the security is adequate for the benefit of securing the benefits – rule 6.6 of the Trust Deed and Rules. The obligation to top up the security if its value falls below the requisite level rests on Granada. He accepted that the beneficiaries have the right to compel the Trustee to enforce that obligation if the Trustee fails to do so, or to step into the Trustee's shoes and enforce that obligation themselves. However Granada has always topped up the security in the past when this scenario has arisen; and this is a professional corporate Trustee. The most likely scenario in which Granada would fail to meet those obligations is where it does not have sufficient funds to buy the additional gilts, in which case an attempt to enforce would be unlikely to confer a benefit of any description on the members of the Scheme. It is inherently unlikely that the Trustee would fail to enforce compliance should Granada fail to put up the additional security in any other circumstances.
62. Therefore, the exercise of the right to compel the Trustee to enforce Granada's obligations to top up the security is dependent on a number of contingencies: (a) the value of the securities falls below the requisite level; (b) Granada fails to provide the additional securities to make up the difference (c) the Trustee decides not to take action, or fails to take action against Granada to compel it to provide the additional securities and (d) that decision or failure is in breach of the Trustee's duties. I accept Mr Newman's argument that such a right is far too nebulous to amount to an interest in or right over property in the sense required by s.320 and s.739(2).
63. Mr Newman contended that the same point applies with even greater force in respect of the beneficiary's entitlement to enforce the right of the Trustee to enforce the security in the event of default by Granada in paying the pensions, which involves yet another layer of contingency because the Trustee has no duty to enforce the security in those circumstances, but only a discretion. There may be understandable commercial reasons why the Trustee would not wish to enforce the security – for example, if the market in gilts had fallen and it would be preferable to seek to compel Granada to make up the deficit out of its own resources. The beneficiaries cannot challenge the exercise of the Trustee's discretion save in very limited circumstances: see Harris v Lord Shuttleworth [1994] ICR 991 at p.999F-H. If trustees ask themselves the correct questions, direct themselves correctly in law (in particular if they adopt the correct construction of the pension fund rules), and they reach a decision which is not perverse, the court will not interfere.
64. Mr Furness submitted that the discretion exists only as between Granada and the Trustee, and that as between the Directors and the Trustee there is no such discretion. I cannot accept that submission. The beneficiaries cannot compel the Trustee to enforce the security in circumstances in which it has taken a bona fide and legally unimpeachable decision that it would not be in the interests of the beneficiaries for it to do so.
65. If one stands back and asks whether these rights against the Trustee of the Scheme, exercisable only on the happening of so many different and frankly improbable contingencies, are the kind of commercially valuable benefits that Parliament was concerned that directors might confer upon themselves to the detriment of the company concerned, and which ought to be scrutinised by shareholders before the arrangement goes ahead, it seems to me that the answer is plainly that they are not. It may well cost the company a lot of money to buy the gilts which provide the security, but these rights arise as a matter of course on the creation of the trust, and cost the company nothing.
66. The force of these points about the nebulous nature of the "rights" relied on by Granada is brought home when one goes on to consider the question whether, even on the assumption in Granada's favour that the acquisition of such rights could be regarded as the acquisition of "rights over property" falling within s.320 as extended by s.739(2), it is possible to value those rights for the purposes of ascertaining whether the value is above the prescribed level. The more complex the valuation exercise and the more dependent that exercise is upon assumptions which could be the subject of dispute, the more inherently unlikely it is that Parliament intended that the rights concerned should fall within the ambit of the section.
67. Parliament has not defined the criteria by which the value of the non-cash asset is to be determined for the purposes of ss. 320-322. In a second judgment in Micro Leisure v County Properties & Developments Ltd [2000] BCC 872, Lord Hamilton was concerned with a dispute over the method of valuation to be adopted in respect of certain rights over the land concerned, including a contractual right to develop the land, which he had previously decided did fall within the ambit of s.320. He expressed the opinion, at p.874G-H, that the absence of statutory definition suggests that Parliament intended the value of the non-cash asset to be determined, having regard to the statutory purposes, in the particular circumstances of the transaction or arrangement. If it was known to the board and to the director concerned that the asset he was acquiring had a special enhanced value (for example, the ransom strip in the example considered at paragraph 37 above) then those circumstances would be relevant considerations in determining the value for the purposes of the section. Whilst I agree that, in principle, it would be appropriate in some circumstances to ascertain the special value to the director concerned rather than using an open market value, I doubt that it was intended by Parliament that the Board should have to carry out an expensive and complex valuation exercise in order to find out whether the individual interest of any one director in the non-cash asset concerned exceeded the statutory threshold.
68. In this particular case, Granada relied upon the expert report of Mr Matthews, whose opinions were not challenged. Mr Furness submitted that whatever might be the position with regard to floating charges or debentures, a fixed charge can be valued. What Mr Matthews did was to compare the value to the Directors of having an unsecured pension fund with the value to them of a secured pension fund, in order to ascertain whether the value to them, or any one of their number, of having the security in place exceeded £100,000. Since he was not valuing the charge with precision but only determining if it was worth more than the statutory threshold, he made what he said were conservative assumptions.
69. Mr Matthews explained that valuation practitioners calculate the present value of a payment due in future by applying a discount rate that takes into account the risk of the creditor defaulting. Essentially the task he set himself was to estimate a range of differences in the value of the pension payment obligations owed to the Directors under the Scheme with and without the security in place, by applying different discount rates in order to measure the reduced risk of default caused by the presence of the security.
70. However as Mr Newman pointed out, Mr Matthews was not asked to value, nor did he value, the "non-cash asset" that Granada has actually relied upon, which is the right to compel the Trustee to enforce the security (or the right to enforce the top up obligations). The Directors have no interest, whether legal or beneficial, in the gilts or in the charge over them, and the hypothetical value to them of the security, in terms of the reduction in risk of default of payment of their pensions, is not the value to be measured under s.320.
71. Mr Furness argued that the value of the charge to the Directors must be the same as the value of the right to compel the Trustee to enforce it. That cannot be correct. It is unduly simplistic to treat this situation as equivalent to a situation in which a charge over gilts has been created directly in favour of a director and ignore the fact that there is a trust. The legal structure cannot be ignored. As I have already pointed out, the right to compel the Trustee to enforce the charge arises only in circumstances where the Trustee can be demonstrated to have exercised its discretion unlawfully or perversely. If the Trustee is doing its duty, which one would expect, that right would never be exercised. The value of having such a right has nothing to do with measuring the hypothetical current value of a reduction in the risk of future default by Granada in making the contractual pension payments, because the relevant risk of future default is the risk of future default by the Trustee. The relevant value is the current value of having the ability in future circumstances (dependent on a series of imponderable and incalculable contingencies) in which the Trustee fails to carry out its duty, to make it do so. So far as I can tell, the proposition that one can measure in monetary terms the value of the right which every beneficiary has to require a trustee to administer the trust properly is a novel one.
72. I do not know how one could even begin to place a monetary value on those kinds of rights, but it could not possibly be assumed that the Trustee, even under compulsion, would necessarily recover the full value of the security. In any event, in the present context those circumstances are so unlikely to arise that it cannot be said that the right is of considerable value even if it were possible to place a monetary valuation upon it; and there is no evidence before me that it is capable of valuation. Certainly Granada has failed to establish that it is.
73. In my judgment Mr Newman is right that the value of the right to require the Trustee to adhere to his obligations as Trustee in these or any other respects is incapable of being measured by this or by any other reliable methodology. The right to compel the Trustee to enforce Granada's obligation to top up the security would be worthless if Granada was insolvent and is unlikely to be of practical utility in any other situation since, again, the Trustee is likely to enforce that obligation in the equally unlikely event that Granada decides, for the first time, not to comply with it even if it can afford to do so. The problematic nature of placing a value on these rights reinforces my view that they are not what Parliament had in mind as falling within s.320.
74. I therefore do not accept Mr Furness' submission that there can, and will be duplication in many cases involving the acquisition of non-cash assets by trustees, so that even if the trustee of a pension scheme is not a "connected party" the director's individual interest will still be enough to trigger the provisions of s.320. The beneficiary's right to compel the trustee to administer the trust properly is not a right over property, and it is incapable of valuation. For those reasons Issue A must be determined in favour of the Trustee.

Issue B: Did the Trustee acquire the charge over the gilts in the capacity of trustee of a pension scheme?

75. It is common ground that the Trustee acquired a non-cash asset in the form of the charge over the gilts, and that the Trustee would fall within the definition of "connected person" unless the exception in s.346 of the 1985 Act applies. There is no definition in the 1985 Act of the phrase "pension scheme" in s.346(3)(b) which would assist in construing the exception to the "connected persons" provisions. However, in the absence of a special definition it is to be assumed that Parliament intended that expression to be interpreted consistently with other legislation.
76. The Social Security Pensions Act 1975, which was in force when the 1985 Act came into force) defined an "occupational pension scheme" as:

"any scheme or arrangement which is comprised in one or more instruments and which has, or is capable of having, effect in relation to one or more descriptions or categories of employments so as to provide benefits, in the form of pensions or otherwise, payable on termination of service, or on death or retirement, to or in respect of earners with qualifying service in an employment of any such description or category."

77. Section 1(5) of the Pension Schemes Act 1993 defines "pension scheme" in broadly similar terms as:

"a scheme or other arrangement, comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people:

a) on retirement

b) on having reached a particular age or

c) on termination of service in an employment."

78. Mr Newman referred to some authorities for the proposition that the latter definition is to be construed liberally and not restrictively. In Parlett v Guppy's (Bridport) Ltd (No 2) [2000] PLR 195 the Court of Appeal held that a resolution embodied in the minutes of the annual general meeting to pay a pension to the employee in question sufficed to meet the statutory test. Chadwick LJ, at [31] cited with approval the observation by Millett LJ in Westminster City Council v Haywood [1998] Ch 377 at p.455B that the definition is "very wide".
79. Mr Furness submitted that this approach was entirely understandable in the context of pensions legislation, where the statutory objective is to protect the members of such schemes. However, he submitted that in the context of s.320 there would be no justification for adopting a similar approach, because the "connected persons" provisions are designed to widen the net of those caught by that section. Therefore the exception for trustees of pension schemes in s.346(3)(b) should be approached more restrictively in order to ensure there is less scope for evasion of the consequences of s.320 by the creation of artificial devices. Mr Furness contended that "pension scheme" should be restricted to any arrangement by which the employer is to pay the benefits in question to the members of the scheme. In the present case those arrangements remained the same regardless of the creation of the new security arrangements, and the Trustee had no role to play in them. The Trustee was therefore acting in its capacity as a trustee of security only, and not in the capacity of trustee of a pension scheme, when it took the charge over the gilts.
80. If that argument is carried through to its logical conclusion, a trustee under a funded unapproved retirement benefit scheme would fall within the exception because he would be holding the non-cash assets in the fund in trust for the purposes of paying the benefits in question out of those assets (or their proceeds or earnings) on behalf of the company when the time to do so arose. However, if the company chose not to pay the non-cash assets into the fund but to use them instead as security for payment of the same benefits, the trustee would not fall within the exception. That distinction makes no sense; I cannot see why one arrangement would fall within the mischief that s.320 was designed to prevent and the other arrangement would not.
81. I am not persuaded that there is any justification for applying any special or restricted interpretation to the words "pension scheme" in s.346(3)(b). It was Parliament's intention that such schemes, however structured, should not be caught by s.320, and there is no distinction drawn in the 1985 Act between pension schemes of any particular size. The purpose underlying s.320 would not be served by putting into jeopardy a company's arrangements to pay retirement or death benefits to its employees and directors, let alone jeopardising the security arrangements made to back them up. It seems to me to be particularly unlikely that Parliament intended that the provision of substantial security for the company's promise to pay such benefits, which is on the face of it a laudable objective, should in and of itself make the entire arrangement vulnerable, and enable the company to come to court many years later, having changed its mind, and take that security back from the trustees.
82. I am fortified in this conclusion by the approach taken by the court in an analogous situation in which transactions between the company and directors of the company or certain other persons connected with them are caught by a statutory prohibition, and the extended category of persons expressly includes trustees of a trust of which the director is a beneficiary, but excludes trustees of a pension scheme. The Insolvency Act 1986 provides that certain transactions between an insolvent company and a "connected person" (the definition of which includes a director or an "associate" of a director) in the two years prior to the company's insolvency are voidable at the instigation of the liquidator as preferences over the company's other creditors. Section 435(5) provides that a trustee other than (among others) a trustee of a pension scheme is an associate of a person if the beneficiaries of the trust included that person or associates of that person.
83. In Re Thirty Eight Building Ltd [1999] BCC 260 the issue was whether a retirement benefit scheme administered by an independent trustee for the benefit of the sole director and his family (who were also trustees of the scheme) was caught by the prohibition against preferences, or fell within the exception in s.435(5). The liquidator's counsel ran similar arguments to those put forward by Mr Furness in the present case, namely (i) that regard should be paid to the substance of the transaction, rather than to its form, where the latter involves the interposition of a trustee into what would otherwise be a transaction to the benefit of a "connected person", and (ii) that the exception for trustees of a pension scheme should be given a limited construction. (In that case, unlike the present, it was contended that the expression should be understood as meaning pension schemes for the benefit of all the company's employees, rather than pension schemes just for the benefit of the director and his family.)
84. The judge, Hazel Williamson QC, rejected both those arguments. She said, at pp.266H-267B:

"In my judgment, there is no basis on which this exception, applying to a trustee in his capacity as trustee of a "pension scheme" can be taken at anything less than its face value. As such it applies even to a "small" pension scheme, whose beneficiaries are limited to persons who are "connected with the company" such as in the present case….. Parliament has not seen fit to make any distinction between pension schemes of different size or application."

85. Mr Furness did not quarrel with that decision, but he rightly pointed out that the question in that case was not whether the beneficiary of a trust has a right or interest over the property subject to the trust. However, in my judgment the case does provide some support for the approach that I have taken to the exception to the "connected persons" provisions. The expression "pension scheme" is not to be given any special meaning here, merely because the Court is construing an exception to a provision designed to extend the ambit of the statutory prohibition. The sole question is whether the Trustee, in taking the security, is acting in its capacity as trustee of a pension scheme. The answer to that question is plainly yes.
86. In the present case, Recital B to the Trust Deed and Rules expressly records that the Scheme was intended to be established as an UURBS, pursuant to the relevant provisions of the Income and Corporation Taxes Act 1988. That statute defines a "retirement benefits scheme" as " a scheme for the provision of benefits consisting of or including relevant benefits" and "relevant benefits" include "any pension, lump sum, gratuity or any other like benefit given on or to be given on retirement or on death". The type of scheme that is there defined is consistent with the definitions of "pension scheme" or "occupational pension scheme" in the pensions legislation to which I have already referred.
87. That legislation expressly envisages that a pension scheme may be comprised in more than one document. Clause 1.1 of the Trust Deed and Rules states that the "Granada Supplementary Pension Scheme", defined as "the Scheme", is "hereby established under trust." The Trust Deed and Rules, the Charge Deed and the Special Terms all bear the same date, and contain cross-references to each other. For example, rule 4.1 of the Trust Deed and Rules says that the "benefits payable under the Scheme …to or in respect of the member shall correspond exactly to those specified as payable by the employer in the special terms". The Trustee is expressly described in the Special Terms evidencing the contract between employer and member as "trustees [sic] of the supplementary scheme" who can enforce the charge over the securities for the benefit of its members – by inference this envisages that when it enforces the security it will be acting in its capacity as trustee of the Scheme. A copy of the Special Terms was lodged with the Trustee.
88. It is clear that the security element is an integral part of an arrangement designed to ensure that the relevant benefits are paid to the members of the pension scheme in accordance with the employer's obligations under the Special Terms. In taking that security, with a view to being able to enforce it in future, and in becoming the trustee of Granada's promise to maintain the value of the security (and if necessary to top it up) under rule 6, the Trustee is undoubtedly acting as a trustee of a pension scheme and performing the duties of a trustee. It is not acting as a security agent, or an agent of any kind. Indeed the trustee-beneficiary relationship between the Trustee and the Directors was the very foundation for Granada's primary argument that the Directors themselves had an interest in the charge over the gilts.
89. It does not matter that before this Scheme was put in place, there was an unsecured supplementary pension scheme in otherwise identical terms. That scheme was expressly revoked and replaced by a new, secured scheme, as is clear from the Special Terms. I see no justification for Mr Furness' argument that the Trustee has no role in the Scheme because its function is to hold, and if necessary enforce, the security for the employer's obligations to pay the retirement or death benefits to the Directors or the contingent beneficiaries. The security arrangement would not have come into being but for the (fresh) contractual arrangement to pay retirement and death benefits to the members of the scheme. It cannot be regarded as something entirely independent; these arrangements are all part and parcel of a composite Scheme. The Trustees are acting as trustees of a pension scheme; it is one of their key duties to take steps, in appropriate circumstances, to enforce Granada's obligations to pay the benefits and those steps are not limited to realising the security.
90. I therefore concur in the advice given by Mr Richards QC, Lovells and Sackers back in 2000. The Scheme was a "pension scheme" and the security arrangements were an integral part of that scheme. The Trustee was acting in its capacity as trustee of a pension scheme when it acquired the charge over the gilts and undertook its various obligations under the Trust Deed and Rules and the Charge Deed. The Trustee was not a "connected person" and the interest it acquired in the non-cash assets is not caught by s.320. Issue B is therefore also resolved in favour of the Trustee.

The Counterclaim for an indemnity

91. The Trustee relies upon Clauses 5.1 and 5.4 of the Trust Deed and Rules, Clause 8 of the Charge Deed and item 3 of the agreement between Granada and the Trustee recorded in a letter of 14 June 2000. That letter, which was countersigned by Granada's company secretary to signify agreement with its terms, refers to the Trustee's discussions with Granada concerning "the terms for the Trustee's appointment as trustee of the Scheme", and sets out the details of its charges. Item 3 provides that the Trustee "will be entitled to be reimbursed for any expenses reasonably incurred by us in connection with the Scheme, including the fees of professional advisers."
92. It was common ground that this provision remained binding whatever the fate of the Trust Deed and Rules and the Charge Deed. In my judgment those words are wide enough to embrace the costs of litigation to protect the interests of the beneficiaries of the Scheme.
93. There was a debate before me as to whether the Trustee had "reasonably incurred" the costs and expenses of this litigation. Mr Furness submitted that a trustee should remain neutral and that it was unreasonable for the Trustee to have defended Granada's application. There may be situations in which it is appropriate for a trustee to remain neutral and to be bound by the court's determination, particularly if the trustee's indemnity is against the assets of the trust fund itself; for example, where there is a dispute between rival claimants to a trust fund, which was the situation in Alsop Wilkinson v Neary [1996] 1 WLR 1220. However, this situation is entirely different.
94. The Trustee was made a defendant to the claim; that was Granada's choice. It was left to the Trustee to notify the beneficiaries, which it did, but they have chosen not to seek to be joined in the litigation. The Trustee is not seeking an indemnity from the trust fund (it obviously cannot do so) but it relies on the contractual indemnities given to it by Granada, which Granada is not prepared to honour.
95. In my view the Trustee has acted entirely reasonably in defending these proceedings and ensuring that the Court heard both sides of these complex legal arguments. It was acting as it did in the interests of all the beneficiaries under the pension scheme. It would have been entitled to its indemnity pursuant to item 3 in the letter regardless of whether Granada had succeeded in the claim.
96. However, since Granada has failed to establish that s.320 is applicable by either of the routes that it has relied upon, all of the indemnity provisions upon which the Trustee relies survive and all are enforceable. These include the covenant under Clause 8 of the Charge Deed to "indemnify the Trustee fully on demand against all costs charges expenses liabilities claims demands actions or proceedings of any kind incurred hereunder by or made or brought against the Trustee." That clause also makes provision for interest to be paid on all sums payable under it, at the rate of 3% per annum over the base rate from time to time of Barclays Bank plc, to be compounded quarterly.
97. The Trustee is entitled to recover its costs of these proceedings on the indemnity basis. For the avoidance of doubt I would have granted it the indemnity it sought regardless of whether Granada had succeeded, by virtue of its entitlement to an indemnity under the terms of item 3 of the letter. However since the Charge Deed has not been set aside, it is also entitled to interest on those costs at the rate provided for in Clause 8 of the Charge Deed, compounded quarterly, to run from the date on which the costs were or are paid, both before and after judgment.

Conclusion

98. For the above reasons, the Scheme is not voidable under s.320. Granada's claim is dismissed and the Trustee's counterclaim for its declaration of its right to an indemnity succeeds.