Dalriada Trustees Ltd v David Alexander Faulds and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BEAN,Mr Justice Bean |
| Judgment Date | 15 December 2011 |
| Neutral Citation | [2011] EWHC 3391 (Ch) |
| Docket Number | Case No: HC-11-C02437 |
| Court | Chancery Division |
| Date | 15 December 2011 |
[2011] EWHC 3391 (Ch)
Mr Justice Bean
Case No: HC-11-C02437
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Andrew Spink QC and Fenner Moeran (instructed by McGrigors LLP) for the Claimant
Nicolas Stallworthy QC (instructed by Gateley Manchester LLP) for the First Defendant
James Clifford (instructed by Freedman Law) for the Second and Third Defendants
Hearing dates: 29 November 2011-1 December 2011
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This case concerns six Revenue registered occupational pension schemes ("the Schemes"), with a total membership of at least 487 members and funds of originally approximately £25 million.
The Schemes operated something called a 'Pensions Reciprocation Plan' ("PRP"). The PRP was conceived as a way of getting members access to their pension capital prior to retirement but without breaching HMRC rules. At the heart of the PRP model was a structure called a "Maximising Pension Value Arrangement" or "MPVA", whereby:
i) Scheme Y would 'loan' funds to a member of Scheme Z, and reciprocally
ii) Scheme Z would 'loan' the same amount of funds to a member of Scheme Y.
The principal question raised by the current proceedings is whether those MPVA 'loans' were made pursuant to valid exercises of the Schemes' respective powers of investment or whether they were invalidly made and thus void. At this trial I have been asked to consider:
i) the question of validity;
ii) a question that the Defendants have raised concerning the validity of two recent purported amendments, the first to each of the Schemes' power of investment and the second to each of the Schemes' power to meet expenses, in the case of the former of which it appears they consider may have had the effect of "curing" any prior invalidity there may have been in relation to the MPVAs (question 7A on the Amended Claim Form); and
iii) a question raising an issue of estoppel as well as other subsidiary issues following on from the MPVA validity question (question 8 on the Amended Claim Form ).
The parties
The Claimant is a professional trustee company. On 31st May 2011 it was appointed as a trustee over thirteen pension schemes, generally described as the "Ark Pension Schemes", which included the six Schemes the subject matter of this litigation. Its appointment was made by the Pensions Regulator pursuant to s 7 of the Pensions Act 1995 ("PA 1995"). The Claimant's appointment arose out of the Pension Regulator's concern over the PRP business model. Although the appointment did not remove the existing trustees, under the appointment the Claimant is entitled to exercise all the powers of the trustees to the exclusion of the other trustees (PA 1995 s 8(4))—effectively it therefore acts as a sole trustee in this matter.
As one of the trustees of the schemes (and as the only one not to have had involvement in the events giving rise to these proceedings), the Claimant is seeking to represent all members and those claiming through them in whose interests it is to argue that the MPVA loans were not, and would not be in future, valid.
The First Defendant is a member of the Woodcroft House Pension Scheme. A representation order is sought for him to represent all members, and those claiming through them, in whose interests it is to argue that the MPVA loans were, and would in future be, valid. Although he has transferred his pension funds into the scheme, he has not received an MPVA, as before this could occur the Claimant was appointed as one of the Trustees. However, it may well still be in his interest to argue that the MPVA loans were valid, as this would be the only way he could obtain an MPVA loan in the future, and Mr Nicolas Stallworthy QC on his behalf argued in favour of the MPVA loans having been validly made.
The Second and Third Defendants are the original trustees of the Schemes when they were each established ("the Original Trustees") and were the only trustees prior to the appointment of the Claimant as one of the Trustees. The Original Trustees were the trustees who made the MPVA loans. Mr James Clifford, on their behalf, supported the argument (principally advanced by the First Defendant) that the MPVA loans were valid, and himself advanced the argument that the purported amendments recently introduced by the Schemes' sponsoring "employers" are valid.
I observe that although pension schemes of the type under consideration are classified as "occupational pension schemes" and the principal sponsor is traditionally referred to as the "employer", those terms have in cases such as the present one no more than a vestigial meaning. It is sufficient to qualify a scheme for registration if it has a single employee; others, not employed by the sponsor, can then join in large numbers. The investors here were not employed by any of the sponsoring companies.
The correspondence indicates that HMRC has been invited to join in the proceedings and/or to agree to be bound by the decision, but has declined both options.
The Pensions Reciprocation Plan
The PRP was conceived as a way of getting members access to their pension capital prior to retirement but without breaching HMRC rules. It operates as follows:
i) An individual (Member A) with a pension "pot" in another, unrelated pension scheme is introduced to one of the Schemes (Scheme Y).
ii) Member A obtains a transfer of his benefits from his original pension scheme to Scheme Y.
iii) A 5% "standard fee" from the transfer sum is paid to the promoters of the PRP, and the remaining 95% of Member A's transfer value is used as follows:
a) Up to 50% of Member A's funds in Scheme Y is 'lent' to a member (Member B) of one of the other Schemes (Scheme Z) under an MPVA 'loan'.
b) A reciprocal MPVA 'loan' of equal value is then made by Scheme Z to Member A, using Member B's funds.
c) The remaining funds of both schemes are then invested in other assets.
The evidence of Craig Tweedley for the Defendants makes it clear that the purpose of the PRP Model was to set up a scheme which would "enable pension scheme members to have early access to a payment" from their pension fund in a way that complied with HMRC rules.
Mr Tweedley's witness statement goes on to say that the decision to allow a member to take an MPVA was one in which he was not involved. It was a matter for Athena and Minerva as trustees of the schemes. He expresses the belief that not all potential members' applications were accepted, but Mr Spink QC for the Claimant submits that there is no evidence from the trustees indicating whether any application was in fact rejected, and if so why.
According to Mr Tweedley the retirement "pot" available to a member who had taken an MPVA would comprise, on the vesting of his pension, the return made on the part of his fund invested by the trustees of his scheme in what might be described as orthodox investments, specifically property; and the right to be repaid the MPVA Discharge Amount (the sum originally loaned plus 3% simple interest per year, rolled up) owed by a member of a reciprocal scheme. But although the illustrative literature issued by the promoters of the PRP gave examples of directly paired members (Member A in Scheme Y and Member B in Scheme Z as set out above), the schemes were non-sectionalised: clause 1.2 of each Scheme's Trust Deed states that "no person has any right to any particular assets of the Scheme". This did mean that in the event of the death of or default by Member B of Scheme Z in the above example it would be the MPVA lenders in Scheme Y generally who would bear the loss, rather than it all falling on Member A. An exact pairing or matching rule, apart from concentrating the risk, would also have depended on the two MPVA loans being repayable at the same time, and on neither borrowing member having sought to transfer his fund to another pension scheme.
Another ground on which Mr Spink criticises the PRP Scheme is that its financial modelling assumed an average rate of return on the non-MPVA investments of between 8% and 9% over a 25 year period for a sufficient sum to be generated to discharge the MPVA obligation. It is right to say that the modelling for a 10 year loan, where only 25% of the fund would be the subject of the MPVA, assumed only 5% average growth. But the 25 year period was apparently (and understandably) the most popular, and a predicted rate of return in excess of 8% does seem unduly optimistic.
The promoters of the PRP who received the 5% fees referred to above were three connected limited liability partnerships: Ark Business Consulting LLP, Ark Commercial Pension Planning LLP and Ark Commercial Retirement Planning LLP. These were connected not only to each other but to Athena Pension Services Ltd and Minerva Pension Services Ltd, who were the Original Trustees and are the second and third defendants in these proceedings. Craig Tweedley is the sole shareholder in Athena and Minerva. Andrew Hields is the sole director of Athena and Carl Hanson the sole director of Minerva. Mr Tweedley, together with his wife and children, indirectly own Ark CPP and Ark CRP; and members of the Tweedley family together with Mr Hields and Mr Hanson own Ark BC. Mr Tweedley's daughter Rebecca is a director of four of the six sponsoring "employers".
The Schemes' Deeds and Rules
It is convenient to take the Trust Deed and Rules of the Lancaster Pension Scheme as representative of all six Schemes operating the PRP.
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