The Pensions Regulator v Payae Ltd & Ors

The court adjudicated a claim by The Pensions Regulator under section 16 of the Pensions Act 2004 seeking restoration of pension scheme assets misused or misappropriated by a pension liberation operation. The judge held that the assets received into a series of "Receiving Schemes" were scheme assets for the purposes of s.16 (applying PSA93 s.1 and related definitions) and that transfers out of the Receiving Schemes and payments to third parties and members constituted misuse or misappropriation. The court found, on the evidence, that the fourth to seventh defendants were "involved" in the misuse or misappropriation and, where dishonesty was alleged, that the defendants (in particular the fourth defendant) acted dishonestly applying the Ivey test for dishonesty.

Key legal principles applied were: (i) the scope and elements of a s.16 claim (asset, act and involvement requirements); (ii) that "knowingly concerned" in s.16(2) requires knowledge of facts making conduct a misuse or misappropriation but does not import a separate requirement of dishonesty; (iii) the civil Ivey test for dishonesty; and (iv) conventional civil evidential rules (including that more cogent evidence is required for serious allegations). The court also addressed remedies and consequential accounting issues including costs incurred by the independent trustee appointed by TPR and set out issues to be addressed in quantification and apportionment of recoveries.

This was a first instance trial brought by The Pensions Regulator under section 16 of the Pensions Act 2004. TPR alleged that a network of receiving pension schemes (the "Receiving Schemes") had been used to induce some 245 members to transfer pension pots to those schemes and that, other than small cash inducements paid to members, the pension pot monies were removed from scheme bank accounts and routed to companies and persons associated with the operation. The claim sought orders restoring the parties to their pre-misuse position by requiring the defendants to take steps to restore sums lost from scheme assets.

Parties and procedural posture: The claimant was TPR. The defendants included corporate and individual defendants; the trial proceeded against the fourth to seventh defendants only (others had settled or did not attend). The eighth defendant was an independent professional trustee appointed by TPR and was joined as the trustee of the Receiving Schemes. The trial primarily concerned liability and dishonesty; quantification and detailed apportionment of recoveries and costs remained to be finalised.

Nature of the claim and issues framed:

• Whether the assets received and subsequently removed were assets of occupational or personal pension schemes (the Asset Requirement).
• Whether the transfers and payments constituted a "misuse or misappropriation" of scheme assets (the Act Requirement).
• Whether the relevant defendants were persons "involved" in that misuse or misappropriation (the Involvement Requirement under s.16(2)).
• Whether, where alleged, defendants acted dishonestly (applying the civil dishonesty test from Ivey).
• Remedial questions including the extent of recoveries, accounting for residual balances, rebates paid to members, recovery already made, and trustee costs incurred following discovery.

Court’s reasoning and conclusions:

• The judge construed s.16(2) as not requiring dishonesty: "knowingly concerned" imports knowledge of the facts that make conduct a misuse or misappropriation but not a separate requirement of dishonesty; trustees who behaved innocently could still fall within s.16 where they had the requisite factual knowledge.
• The Asset Requirement was made out: the Receiving Schemes were objectively established as occupational pension schemes (analysis of scheme documents, PSA93 s.1 and related rules), or, where a Receiving Scheme could not be treated as valid, the funds would be held on resulting or Quistclose-type trusts for the ceding schemes.
• The Act and Involvement Requirements were established on the available documentary evidence and unchallenged witness evidence: significant sums were transferred from ceding schemes to Receiving Schemes and then removed to entities controlled by the fourth defendant and associates; trustees (fourth to sixth defendants) acted as cyphers, opened and signed blank cheques, permitted transfers and payments and did not perform independent oversight.
• On dishonesty, applying the Ivey test, the judge concluded the fourth defendant masterminded and knowingly controlled the operation and acted dishonestly; the fifth and sixth defendants (trustees/sales agents) knowingly facilitated the scheme and acted contrary to ordinary standards of honest behaviour; the seventh defendant (director of a corporate trustee) procured a near total transfer of his scheme’s assets to an entity controlled by the fourth defendant and was held to be dishonest in procuring that transfer, given the lack of due diligence, the loan’s unsecured nature and the contemporaneous payment he received.
• On remedies, the court accepted in principle that sums removed from the Receiving Schemes should be recoverable from the involved defendants (jointly and severally where appropriate). The judgment addressed deductions and offsets (small residual balances, recoveries made, trustee costs, and the issue of rebates paid to members). The judge indicated how costs properly attributable to the misconduct should be treated and left certain quantification and apportionment matters to be resolved subsequently, inviting submissions on apportionment.
• The court rejected an application to redact the fourth defendant’s daughter’s name from the judgment and reiterated the strong default position in favour of open justice.

The judgment therefore resolved liability in TPR’s favour on the misuse/misappropriation and involvement issues and made findings of dishonesty where pleaded; the precise monetary relief and apportionment were left for subsequent determination or submission.

The claim is upheld. The court found that TPR had proved the s.16 elements (asset, act and involvement) in respect of the Receiving Schemes and that the fourth to seventh defendants were involved in misuse or misappropriation of scheme assets. Applying the civil test for dishonesty in Ivey, the court found the fourth defendant to be the mastermind and dishonestly involved and that the fifth, sixth and seventh defendants were knowingly involved and acted contrary to ordinary standards of honest behaviour. The judge directed that the defendants were liable to restore sums removed from the Receiving Schemes, left detailed quantification and apportionment issues (residual balances, rebates, recoveries, trustee costs and investment income) for resolution, and refused an application to redact a family member’s name on open justice grounds.