The Pensions Regulator v Payae Ltd & Ors

Section 16 of the Pensions Act 2004 does not require proof of dishonesty. The word knowingly concerns knowledge of the facts making conduct a misuse or misappropriation, rather than knowledge that the conduct has that legal character. A claim requires proof, on the balance of probabilities, that the assets belonged to an occupational or personal pension scheme, that they were misused or misappropriated, and that the defendant was involved in that conduct. Misuse and misappropriation are broad and disjunctive concepts. Where dishonesty is alleged, the court first determines the defendant’s knowledge or belief as to the facts and then applies the objective standards of ordinary decent people.

The Pensions Regulator brought proceedings under section 16 of the Pensions Act 2004 concerning the transfer of members’ pension pots into receiving schemes operated or controlled by the defendants. The claim alleged misuse or misappropriation through unauthorised payments, unsuitable investments and transfers to connected companies. The first three defendants settled. The trial proceeded principally against four individual defendants, with an independent trustee joined because the schemes lacked resources to pursue recovery. The issues were whether the schemes qualified as occupational pension schemes, whether their assets had been misused or misappropriated, whether each defendant was involved, and whether the involvement was dishonest.

1. Section 16 claim. The claim succeeded against the fourth to seventh defendants. Section 16 gives the Regulator standing to pursue persons knowingly concerned in misuse or misappropriation where the scheme trustee cannot effectively do so. Dishonesty is not an ingredient. “Knowingly” requires knowledge of the facts making the conduct a misuse or misappropriation, not knowledge that the conduct was legally wrongful.
2. Requirements. The Regulator had to prove the Asset Requirement, the Act Requirement and the Involvement Requirement. The requirements were satisfied. Breach of trust, unauthorised transfer of scheme assets, and directing or misleading a trustee into making a transfer in breach of trust fall within section 16.
3. Scheme status. Whether a scheme was established for a statutory purpose was assessed objectively from its terms and rules. The scheme documents were not shams merely because the parties’ undisclosed intentions differed. The receiving schemes qualified as occupational pension schemes, and the transfer arrangements did not provide a defence.
4. Dishonesty. Applying Ivey v Genting Casinos (UK) Limited trading as Crockfords [2017] UKSC 67 and Barlow Clowes International Limited v Eurotrust International Limited [2005] UKPC 37, the judge found each relevant defendant dishonestly involved on the facts. Evidence was assessed against contemporaneous documents, admitted facts and inherent probabilities. Serious allegations remained subject to the civil standard, but required sufficiently cogent evidence.
5. Relief. The sums transferred from the receiving schemes were recoverable in principle, subject to accounting for recoveries, residual balances, investment income and costs. No credit was given for rebates paid to members. Costs incurred by the independent trustee in restoring the schemes were recoverable in principle, subject to final calculation and apportionment.