The Board of the Pension Protection Fund v Dalriada Trustees Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Trower
Judgment Date06 Nov 2020
Neutral Citation[2020] EWHC 2960 (Ch)
Docket NumberCase No: PE-2019-000016

[2020] EWHC 2960 (Ch)

IN THE HIGH COURT OF JUSTICE

IN THE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

CHANCERY DIVISION

PROPERTY, TRUSTS AND PROBATE LIST

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

Mr Justice Trower

Case No: PE-2019-000016

Between:
The Board of the Pension Protection Fund
Claimant
and
Dalriada Trustees Limited
Defendant

and

Secretary of State for Work and Pensions
Interested Party

Edward Sawyer AND Daniel Scott (instructed by Herbert Smith Freehills LLP) for the Claimant

Fenner Moeran QC (instructed by Pinsent Masons LLP) for the Defendant

Jason Coppel QC AND Katherine Apps (instructed by the Government Legal Department)

Hearing dates: 14,15 and 16 July 2020

Further written submissions filed on 21 and 28 July 2020

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.

Mr Justice Trower Mr Justice Trower

Introduction

1

In these proceedings, the Board of the Pension Protection Fund (the “Board”) seeks the court's determination of a number of legal issues concerning the operation of the Fraud Compensation Fund (the “FCF”). The FCF is a statutory fund established by section 188 of the Pensions Act 2004 (“PA 2004”) for the purpose of providing compensation to occupational pension schemes where the value of the scheme's assets has suffered a reduction attributable to an act or omission constituting an offence of dishonesty.

2

The defendant, Dalriada Trustees Limited (“Dalriada”), is an independent professional trustee who is regularly appointed by the Pensions Regulator (“TPR”) and the court as trustee of occupational pension schemes whose affairs are a cause for concern. Many of these schemes have a potential call on the FCF. It is joined to these proceedings in its capacity as trustee of a purported occupational pension scheme, the Turnberry Wealth Management Pension Trust (the “Scheme”).

3

On 20 April 2020, the Secretary of State for Work and Pensions (the “Secretary of State”) was joined to the proceedings as an Interested Party. She was permitted by the order to make written and oral submissions at the trial which she did through her counsel Jason Coppel QC.

4

The Board was established under section 107 of PA 2004 and is responsible for the management and operation of both the FCF and the Pension Protection Fund (“PPF”). The FCF provides compensation to occupational pension schemes where there has been a reduction in the value of scheme assets attributable to an offence of dishonesty. The PPF is a fund designed to protect members of defined benefit and hybrid occupational pension schemes by paying compensation in the event that the employer is insolvent, and the scheme is underfunded.

5

The Board is the successor to the Pensions Compensation Board (“PCB”) which was established under section 78 of the Pensions Act 1995 (“PA 1995”) in response to the Goode Report (Pension Law Reform: the Report of the Pension Law Review Committee (HMSO, September 1993)). As with its predecessor administered by the PCB, only occupational pension schemes are eligible for compensation from the FCF. The fraud compensation provisions cover both defined benefit and defined contribution occupational pension schemes.

6

The FCF is funded by contributions levied by the Board through a fraud compensation levy on occupational pension schemes. Trustees or managers of eligible schemes are liable to pay this levy for the purpose of meeting expenditure payable out of the FCF: section 189(3) of PA 2004 and regulation 3(3) of the Occupational Pension Schemes (Fraud Compensation Levy) Regulations 2006 (SI 2006/558). The obligation to contribute does not extend to schemes which are not themselves eligible for fraud compensation by reason of section 182(1)(a) of PA 2004 (i.e. those prescribed by regulation 2 of the Occupational Pension Schemes (Fraud Compensation Payments and Miscellaneous Amendments) Regulations 2005 (SI 2005/2184)) (the “Fraud Compensation Regulations”): see section 189(2) of PA 2004. It follows that there is a legislative link between the occupational schemes that are liable to contribute to the funding of the FCF and those in respect of which a fraud compensation payment may be made.

7

The context in which the issues in these proceedings arise for determination is that since at least 2015 the Board has been notified of increasing numbers of occupational pension schemes which have been used as a vehicle for pension scams consisting of what is described in the papers as pension liberation activity (cf. section 18 of PA 2004). In broad terms, these are activities designed to enable members of pension schemes to gain access to their pension savings prior to the date permitted by the relevant tax legislation. They tend to be structured in a manner whereby the liberation payment does not amount to a direct payment by the scheme back to the member.

8

A common form of liberation activity is (or at least was) that members of a bona fide pension scheme were persuaded to transfer their accrued benefits to a scam scheme in return for a promise to return cash to them prior to the normal minimum retirement age of 55. The cash return was to be achieved through what were variously called “pension loans”, “savings advances”, “pension unlocking”, “cash incentives” and other similar forms of words. It was often the case that the liberation activity gave rise to tax liabilities being imposed on both the member and the scheme. In many instances, all or part of the transferred but unreturned funds were then misapplied or misappropriated through improper investments and the overcharging of administration expenses.

9

The establishment and operation of these liberation schemes may well have involved the commission of an offence of dishonesty by the perpetrators. These offences are likely to have included conspiracy to defraud or cheating the public revenue, theft and offences under the Fraud Act 2006 and the Proceeds of Crime Act 2002.

10

The scale of the problem is apparent from evidence adduced by the Board from its general counsel, Mr David Taylor, who explained that as at 9 December 2019, the Board had received eight applications for compensation and was on notice of a further 150 applications yet to be made with an estimated total compensation claimed across all applications in the region of £240 million. I was told at the trial that since those figures were prepared two further applications have been made and many more are pending with a total anticipated quantum exceeding £350 million. The affected schemes have several thousand members. Four of the applications so far received (including the one in relation to the Scheme) have been made by Dalriada.

11

The Board stresses that it does not have a duty to minimise calls on the FCF and has no preference as to whether the questions with which these proceedings are concerned are answered in the positive or negative sense. It simply wishes to ensure that it administers the FCF properly and by reference to the relevant statutory criteria. The proceedings have, however, been formulated in such a way that it will argue for answers that are most likely to minimise calls on the FCF while Dalriada will argue for answers to the opposite effect. In my view this is a sensible and pragmatic way in which to proceed.

Dalriada and the Scheme

12

On 13 June 2013, Dalriada was appointed as independent trustee of the Scheme by TPR pursuant to its powers under sections 7 and 9 of PA 1995 (an appointment that was confirmed by the court on 19 June 2013). In that capacity, it made an application for compensation from the FCF under section 182 of PA 2004 on 4 December 2017. The estimated value of the loss was said to be £3,194,668. The Board has not accepted the application in the light of what Mr Taylor describes as its doubts about the issues raised in these proceedings.

13

An outline explanation of what appear to have been the circumstances in which Dalriada came to make a claim for compensation from the FCF is necessary in order to put in context the issues that I am asked to determine and the extent to which Dalriada has a legitimate interest in advancing arguments contrary to those advanced by the Board. The Board has not yet satisfied itself that all of the matters which I now summarise have been established for the purposes of enabling it to comply with its statutory functions.

14

The Scheme appears to have been established pursuant to a trust deed dated 20 January 2013. Ten days later it was registered with HMRC as an occupational pension scheme. The original trustees of the Scheme were Margaret Brown and Martin Brown. The sponsoring employer, described in the trust deed as the provider, was Turnberry Wealth Management Limited (“Turnberry”), a company of which Mr and Mrs Brown were the sole directors and (together with an entity called the M Brown Trust) its sole shareholders.

15

Clause 3.2 of the deed by which the Scheme was established provides that:

The scheme has been established by an employer as an occupational pension scheme. Automatic eligibility for membership of the scheme is therefore limited to officers and employees of the employer provider and associated companies, and to family members of such officers and employees. Others who outside the above definition [sic] may only join the scheme with the consent of the trustees.

16

Initially the evidence was that Turnberry had no employees, although its liquidators' most recent progress report states that it had 6 employees at the date of its...

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1 firm's commentaries
  • Financial institutions general regulatory news, May 2021
    • United Kingdom
    • JD Supra United Kingdom
    • 17 May 2021
    ...funds of the Fraud Compensation Fund (FCF). This follows the decision in Board of the Pension Protection Fund v Dalriada Trustees Ltd [2020] EWHC 2960 (Ch), in which the High Court confirmed that members of certain types of scam pension schemes relating to pensions liberation are eligible f......

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