Analysis
The first defendant (Mr Woodward) and the second defendant (Ms Ilett) were the trustees of two pension schemes (the Pennines and the Mendip Retirement Benefit Schemes) established by deeds of trust dated 23 August and 9 September 2011. A scheme for ‘pensions liberation’ was devised and implemented by and for Mr Woodward and John Davies (Mr Davies) utilising the third, fourth and fifth defendants, which were entities controlled by them. Members of other pension schemes were encouraged to transfer the cash equivalent of their benefits to Mr Woodward and Ms Ilett as trustees of the Pennines or Mendip schemes, which was then used to buy shares in the fourth defendant (HCIG). The subscription money received by HCIG was then lent to the third defendant (HCIL), which in turn lent it to the fifth defendant (HCL). Unsecured advances were then made by HCL to the members of the Pennines or Mendip pension schemes, calculated in accordance with their entitlement on retirement and repayable after between 14 and 27 years. Between October 2011 and 28 March 2012, 476 individuals transferred approximately £19m from other pension schemes to the trustees of the Pennines or Mendip pension schemes.
On 28 March 2012 the Pensions Regulator appointed the claimant (Dalriada) as trustee of the Pennines and Mendip schemes. A freezing order was made on 2 April 2012 against each defendant limited to £12m. Dalriada claimed that that the trustees had acted in breach of trust in making transfers in that the transfers were not made for the sole purpose of providing pensions and were really made to facilitate advances to the members. Accordingly, the transfers to the defendants were a fraud on the powers of the scheme and the payments to the members were unauthorised and void. HCIL, HCIG and HCL were said to be knowing recipients of the transfers.
Applications were made by HCIL, HCIG and HCL for summary judgment of the claims against them on the basis that the claimant had no real prospect of succeeding on any of them. HCIL, HCIG and HCL argued that the payments were, at most, voidable rather than void and that they could only be avoided by the members, not by Dalriada. It was argued that the schemes were defined contribution or money purchase schemes. Each member had his own fund or ‘pot’ and was accordingly the sole beneficiary under a sub trust. Dalriada had no proprietary entitlement to any assets beyond that of a head trustee under a number of sub trusts. Only the sole beneficiary member was entitled to complain. The purported exercise of a power would only be void if it was not within the scope of the power. This was distinct from the exercise of a power within the terms of the power, but where the trustees breached their duties in some way in respect of that exercise. In the latter case, the exercise was merely voidable at the instance of the beneficiary.
Dalriada argued that the schemes were not sub trusts for individual members but a single scheme under a trust. Each member’s fund was an accounting mechanism, without any segregation of assets. All exercises of powers relevant to the claim were void, not voidable. Whether they were void or voidable, Dalriada was entitled to claim against the HCIL, HCIG and HCL as recipients of trust assets with actual notice of their misapplication.
Held (dismissing the application for summary judgment):
- (1) The use of an accounting tool to reflect each member’s entitlement does not predicate a sub trust for each member. It is consistent with a single scheme where members’ benefits are variable by reference to the contributions made by them (para [32]).
- (2) A member of the Pennines or Mendip pension scheme is one of many beneficiaries whose benefits are ascertainable in accordance with the rules and by reference to his contributions, and not the sole beneficiary of a sub trust. It follows from that conclusion that the application of assets of the schemes are the responsibility of the trustees, not the members individually or collectively (para [35]).
- (3) It is not necessary to decide whether the exercises of the powers of the trustees were void or voidable. Where the exercise of a power is merely voidable, then the cause of action can be defeated by a recipient who is a bona fide purchaser of the legal estate for value without notice. But this defence is not available where (as is alleged by Dalriada in this case) the recipients take trust property with notice of the misapplication (para [38]).
Continue reading "Dalriada Trustees Ltd v Woodward & ors [2012] EWHC 21626 (Ch)"