Public property

In December 2011, Judge Charles Purle QC handed down his judgment in the Wedgwood Museum case in the High Court in Birmingham.

The Wedgwood Museum Trust operates the Wedgwood Museum in Stoke on Trent. In April 2005, the Museum Trust went into administration after a claim by the Wedgwood Group pension plan for a deficit of £134m. The Museum Trust had five employees who were a part of the pension plan '“ thought to have between 7,000 and 7,500 members in total, but, in the course of 2009, the other employers within the pension plan went into administration, leaving the museum as the only solvent employer.

The pension plan trustees made their claim under legislation introduced in the early 1990s in response to the Robert Maxwell scandal. Essentially, where there are a group of members within a pension scheme, and the scheme falls into a deficit, any company linked to the scheme can be held liable for the whole amount. As the only solvent member of the Wedgwood Group pension plan left in 2010, a claim was made against the assets of the Museum Trust. The trustees of the pension plan have made it clear that they had no choice in taking this action, as they have a legal duty to maximise the assets available to the pension fund, and, once the deficit had been identified, they had to take action. Unfortunately, in this case, no application could be made to the Pension Protection Fund, because one of the members (the Museum Trust) was still solvent, and so, despite the small proportion of employees who paid into the pension plan, the Museum Trust became liable for the whole amount.

As a result of this claim, the Museum Trust itself went into administration in April 2010, and the question arose as to the ownership of the museum collection, and whether that collection could be sold to help fund the deficit.

The Charity Commission investigated in the first instance, but, in October 2010, reluctantly came to the conclusion that there was no evidence that the collection was protected as permanent endowment or was otherwise protected by any trust arrangements.

The administrators of the Museum Trust then brought an action in the High Court to determine whether the collection was held on trust, or was part of the museum's assets that were available for distribution to its creditors, primarily of course the pension plan.

After a three-day hearing in September 2011, the judge has decided that the collection was part of the corporate assets of the Museum Trust, and therefore available to the creditors. The written judgment is awaited.

Public v pension

The trustees of the Museum Trust were understandably disappointed with the decision, and are working hard with the administrators to ensure as far as possible that the collection stays within the public domain.

This case highlights the potential reach of the pensions legislation, which was possibly not envisaged back in 1995 when it came into force. If based on the number of employees in the pension scheme, the Museum Trust's contribution would only have been in the region of £100,000, rather than the whole amount. However, rather than there being a balancing act between the public interest in the collection itself and the beneficiaries on the pension scheme, the law is set firmly in favour of the pension scheme, which does seem to be on the harsh side in this case, given that the only reason the museum became liable was because it was the only organisation in a group that had managed to stay solvent.

In general, charity trustees should be working to ensure that all assets within their charity are as protected as they can be, and a potential pensions' claim may not be high on the list of potential risk. In the current climate, however, perhaps this may become more common, and trustees may need to seek further professional advice. The law surrounding pensions is notoriously complicated, and this case demonstrates that appropriate professional advice should always be taken, even though there may be situations, such as this one, where there is very little that the trustees could have done to prevent this.

Continuous assessment

Solicitors who are advising museums and galleries should ensure that the trustees are assessing risk on a continuous basis, and where specialist advice is needed (for example, in the area of pensions, or tax), then this advice is taken. It is impossible to guard against all risk, but a sound knowledge of the current financial state of the organisation, as well as an understanding of potential risk, does mean that strategies can be put in place where possible.

As lawyers, it is important to take account of the nature of your client, and, while it may seem attractive after the Wedgwood decision to have large amounts of permanent endowment, this can be unduly restrictive and an appropriate balance needs to be found. Thought needs to be given to separating out collections from liabilities incurred in the day-to-day activities. In addition, museums and galleries will likely change what they hold depending upon what is considered of importance within their field, which can change over time. It is important that these organisations are able to sell pieces '“ either to ensure that the piece is held by the most relevant organisation to maximise public benefit, or (in certain circumstances) for financial gain. The Museum Association Code of Conduct lists the limited circumstances in which it takes the view that artefacts can be sold for financial reasons, but if it comes down to a choice between selling some of the collection and permanent closure, selling some of the collection will likely be the better option, as it potentially ensures the longevity of the whole collection for the benefit of the public.