Section 16 of the Pensions Act 2004 (PA 2004), so far as material, provided that: ‘If, on the application of the Regulator, the court is satisfied that there has been a misuse or misappropriation of any of the assets of an occupational or personal pension scheme, it may order any person involved to take such steps as the court may direct for restoring the parties to the position in which they were before the misuse or misappropriation occurred.’
 All ER (D) 118 (Jan)
*Pensions Regulator v Payae Ltd and others
 EWHC 36 (Ch)
Judge Pelling QC
23 January 2018
Pension – Pensions Regulator – Misuse or misappropriation of assets of pension scheme
The claimant Pensions Regulator (TPR) brought a claim, under PA 2004 s 16, seeking to recover sums lost as a result of what was characterised as an improper and dishonest pension liberation scheme, by which some 245 members of occupational schemes (the members), with pension pots worth about £55,000 on average, had been induced to transfer their respective pots from mainly occupational pension schemes operated by their employers (ceding schemes) to schemes established, controlled or operated by the third to seventh defendants (receiving schemes), by the promise that they would receive some money as a result of the transfer.
There had been a total of 11 receiving schemes, which fell into three broad categories. The sixth defendant (B) had been a trustee or the sole trustee of the first group of schemes (the Barratt schemes), until the eighth defendant company had been appointed. The fifth defendant (D) had been a trustee or the sole trustee of the second group of schemes (the Dalton schemes), until the eighth defendant had been appointed. The third category consisted of a single fund (the FPRF). The sole trustee of the FPRF was a company (FTL), of which the seventh defendant (H) had been the sole director. Initial contact had been made with members through a lead generation operation, using a variety of cold calling and web based techniques. One of the lead generators had been a company (SPI), which had been controlled by the fourth defendant (A). Both B and D had worked with SPI as sales agents. TPR alleged that A, who had controlled the receiving schemes’ bank accounts, had been the mastermind of the operation and had been controlled the activities of both B and D while they had acted as sales agents and as trustees of the receiving schemes.
Issues and decisions
(1) The court considered the ingredients of a claim under PA 2004 s 16. In particular, whether dishonesty was a necessary ingredient of such a claim. TPR advanced its case on the basis that A, B, D and H had not merely been concerned in the misuse or misappropriation alleged, but that they had each been dishonestly concerned in such conduct. None of the defendants, other than H, disputed that the receiving schemes were occupational pension schemes within the meaning of PA 2004 s 16. Consideration was given to PA 2004 ss 1(2)(a) and 318.
Dishonesty was not a necessary ingredient of a claim under PA 2004 s 16. Although the concept of being ‘knowingly concerned’ might suggest such a requirement, just as it did in the context of accessory liability for breach of trust, construing s 16(2) as imposing such a requirement would defeat, in part, the purposes for which it had been enacted. There was no obvious reason why TPR should be more fettered in the claims that it could bring under s 16, than a scheme trustee would be when making a claim for breach of trust, particularly when TPR was likely to bring s 16 proceedings only where the scheme trustee was unable or unwilling to do so through a lack of funds.
By s 16(2), a person was ‘involved’ if he appeared to the court to have been ‘knowingly concerned in the misuse or misappropriation of the assets’. Section 16 conferred on TPR standing to commence proceedings in relation to the misuse or misappropriation of the assets of a relevant pension scheme which it would not otherwise have, because it was not the trustee of any such schemes.
The effect of the word ‘knowingly’ was merely to import a requirement that the defendant concerned should know of the facts that made his or her actions a misuse or misappropriation, not that his or her actions constituted a misuse or misappropriation. Construing s 16 in that way did not expose trustees, who had misused assets without dishonesty, to claims that could not succeed if brought by a scheme trustee. Such a former trustee would be entitled to rely on exoneration provisions within scheme rules in relation to a claim by TPR under s 16 to the same extent and in the same circumstances as would such a former trustee when facing a claim for breach of trust by a scheme trustee. Similarly, persons against whom s 16 claims had been brought would be entitled to rely on statutory relief provisions, such as that contained in s 61 of the Trustee Act 1925 (TA 1925) and s 1157 of the Companies Act 2006 (CA 2006).
For a claim under s 16 to succeed, it was necessary for TPR to prove, on the balance of probabilities, that: (i) the assets that had allegedly been misused or misappropriated were assets of an occupational or personal pension scheme (the asset requirement); (ii) what the defendants had allegedly done or had failed to do had been a misuse or misappropriation of occupational or personal pension scheme assets (the Act requirement); and (iii) the defendant concerned was a person involved in the misuse or misappropriation alleged (the involvement requirement).
The test for dishonesty was the same in all civil and criminal proceedings where such an allegation had been made. For dishonesty to be established it was necessary, first, to establish (subjectively) the knowledge or belief of the person concerned as to the relevant facts and then to determine (objectively) whether the person’s conduct was honest by applying the standards of ordinary decent people. In a context such as that, it required the defendant’s knowledge of the transaction concerned to be such as to render his participation contrary to ordinary standards of honest behaviour.
The legal and evidential onus of proof rested throughout on the party alleging to prove, on the balance of probabilities, the allegations it relied on. While the standard of proof in a civil case was always the balance of probabilities, the more serious the allegation or the more serious the consequences of such an allegation being true, the more cogent the evidence had to be if the civil standard of proof was to be discharged. It did not necessarily follow from the fact that a witness had been shown to be dishonest in one respect that his evidence in all other respects was to be rejected (see - of the judgment).
Where the founder of the relevant scheme was a limited company which had had a director at the point in time when the scheme had been established, and the director was in an employment of the description concerned, then that person was a person to whom PA 2004 s 1(2)(a) applied. Whether a scheme has been established for a purpose identified in s 1 was to be judged objectively from the scheme’s terms and rules, rather than the subjective intentions of the founder (see ,  of the judgment).
Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd  1 All ER (Comm) 478 applied; Ivey v Genting Casinos (UK) Ltd (trading as Crockfords)  All ER (D) 134 (Oct) applied; Snook v London and West Riding Investments Ltd  1 All ER 518 considered; Onassis and Calogeropoulos v Vergottis  2 Lloyd’s Rep 403 considered; H (minors) (sexual abuse: standard of proof), Re  1 All ER 1 considered; Pi Consulting (Trustee Services) Ltd v The Pensions Regulator; Dalriada Trustees Ltd v Nidd Vale Trustees Ltd  All ER (D) 232 (Oct) considered; Gestmin SGPS S.A. v Credit Suisse (UK) Ltd  All ER (D) 191 (Nov) considered.
(2)(i) Whether receiving scheme assets had been misused or misappropriated; (ii) whether A, D, B and H had each been involved in any such misuse or misappropriation; and (iv) if they had been, whether they, or any of them, had been dishonestly involved in any such misuse or misappropriation (the elements). In respect of H, reference was made to a payment of £120,000 from FPRF to another company (Broadbridges).
Applying settled principles to the present case, TPR had established each of the elements against A, D, B and H and had proven, on the balance of probabilities, that the assets that it had alleged had been misused or misappropriated had been assets of an occupational or personal pension scheme. Accordingly, the asset requirement had been satisfied. On the evidence, A had been the mastermind of the operation, as TPR had alleged, and he had been dishonestly involved in the misuse or misappropriation of all of the sums that had been received into and then removed from the receiving scheme accounts. It was entirely clear that B had been fully aware that members had not been not entitled to receive payments from the pensions pots transferred to the receiving schemes. He had fully subscribed to the requirement that members should keep the receipt of such payments secret. Those conclusions applied with equal force to D. Further, in procuring the payment of £120,000 from FPRF to Broadbridges, H had been dishonestly concerned in the misuse or misappropriation of the assets of an occupational pension scheme, because his conduct had been contrary to ordinary standards of honest behaviour given his knowledge of the facts and matters referred to in the judgment (see ,  , , ,  of the judgment).
In principle, all of the sums transferred out of the receiving schemes should be recoverable as damages from A. Sums transferred out of the Barratt schemes should be recoverable jointly and severally from A and B. The sums transferred out of the Dalton schemes should be recovered jointly and severally from A and D. The sum transferred out of the FPRF scheme should be recoverable jointly and severally from A and H.
While account should plainly be taken of certain compensation issues (see  of the judgment) in arriving at the sums that each defendant should be directed to pay to the eighth defendant as trustee for the receiving schemes, that could and should be done (so far as sufficient funds were available) by setting those sums off against the costs element of the compensation that would otherwise be recoverable from them. No adjustment would be made the sums recoverable from A, D, B and H to take account of the rebates received by members. Counsel for TPR was invited to make submissions as to how the costs element of the compensation payable by A, D, B and H, applying those conclusions, ought to be apportioned (see , , ,  of the judgment).
Jonathan Hilliard QC, James Walmsley, Elizabeth Houghton, Nicholas Macklam and Sam Chandler (instructed by the Pensions Regulator) for TPR.
The first to the sixth defendants did not appear and were not represented.
H appeared in person on 6 December 2017, but otherwise did not appear and was not represented.
The eighth defendant did not appear and was not represented at trial, but was represented in the proceedings by Pinsent Masons LLP.
Carla Dougan-Bacchus Barrister.
The Chancery Division ruled that the Pensions Regulator had established a claim against four defendants, under s 16 of the Pensions Act 2004, to recover sums lost as a result of an improper and dishonest pension liberation scheme, by which some members of occupational schemes had been induced to transfer their respective pots from, mainly, occupational pension schemes operated by their employers to schemes established, controlled or operated by the third to seventh defendants.