Independent Trustee Service Ltd v GP Noble Trustees Ltd & Ors

Professional pension trustees must exercise investment powers with the care and skill required by the circumstances, including the higher standard applicable to professional trustees. Investments must be assessed for the portfolio as a whole, including security, quality, liquidity, profitability and diversification. A trustee cannot justify transferring substantially all scheme assets to an assetless offshore vehicle without proper documentation, security or a credible investment basis. Trust exemption clauses cannot exclude liability for breach of the statutory duty of skill and care in investment functions under the Pensions Act 1995. Persons who knowingly participate in a dishonest misapplication of trust assets may be liable for dishonest assistance, while recipients may also face proprietary or knowing-receipt claims.

The claimant, an independent trustee appointed to underfunded occupational pension schemes, sought recovery of approximately £52 million transferred by the former trustees, GP Noble Trustees Ltd and BDC Trustees Ltd. The funds were moved from conservative investments to newly formed offshore companies and subsequently dissipated or placed into purported bonds and speculative ventures. Claims were brought against the former trustees, individuals and corporate recipients for breach of trust, breach of duty, dishonest assistance, knowing receipt and proprietary relief.

The trial proceeded against most defendants in their absence. Claims against Graham Pitcher and Gary Cordell were adjourned because of related criminal proceedings. Peter Malmstrom submitted to judgment without admission of liability. The central issues were whether the trustee investment decisions breached fiduciary, statutory and equitable duties, whether the purported bonds supplied valuable consideration or security, and whether recipients were liable to restore traceable trust assets.

1. Trustee duties. GP Noble and BDC were professional trustees. They had to exercise investment powers with the care and skill reasonable in the circumstances, having regard to their special knowledge and professional status under section 1 of the Trustee Act 2000. Their duties were augmented by sections 35–36 of the Pensions Act 1995 and regulation 4 of the Occupational Pension Schemes Investment Regulations 2005.
2. The portfolio had to be considered as a whole. Relevant requirements included the best interests of members and beneficiaries, security, quality, liquidity, profitability and proper diversification. Regulation 9 did not disapply regulation 4 because the schemes were not shown to be in winding up in circumstances engaging that exception.
3. The transfers breached trust and fiduciary and statutory duties. The trustees liquidated conservative assets and transferred virtually all scheme funds to assetless offshore companies without operative agreements, adequate security, proper investigation or a credible investment rationale. The purported bonds were later-created, incoherent and did not guarantee repayment of capital or interest. They therefore provided no valuable consideration or effective protection.
4. A trust exemption clause could not exclude liability for breach of the trustees’ duty of skill and care in investment functions under section 33 of the Pensions Act 1995. The court followed the analysis in Armitage v Nurse [1998] Ch 241 on the irreducible core of trustees’ obligations.
5. The court applied the objective standard for dishonesty discussed in Attorney General of Zambia v Meer Care & Desai [2007] EWHC 953 (Ch). Mr Morris dishonestly orchestrated the scheme. Mr Starkey and Mr Webb also provided dishonest assistance. The claims against the other recipient defendants were made out subject to further inquiries as to the extent of liability.
6. For knowing receipt, the court adopted the unconscionability or fault approach in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437. Dishonesty was unnecessary for that cause of action. Beneficiaries also retained proprietary and tracing rights in trust property and traceable proceeds, subject to the bona fide purchaser defence, following Foskett v Mckeown [2001] AC 103.
7. GP Noble and BDC were liable to account and to pay equitable compensation and damages for negligence and breach of duty. The claimant could trace into identified assets and assets found on further inquiry. The monies paid into court were ordered to be paid to the claimant. Further inquiries and orders were required in relation to the remaining defendants and the adjourned claims.

First-instance trial judgment. The judgment itself records earlier interlocutory and related decisions but does not state an appeal from this decision.