Case No: HC12C01426
Neutral Citation Number: [2012] EWHC 21626 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 15/06/2012
Before :

THE CHANCELLOR OF THE HIGH COURT
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Between :

	Dalriada Trustees Limited	Claimant	
	- and -		
	(1)	John Laurence Woodward
(2)	Jennifer Doris Ilett
(3)	Hedge Capital Investments Ltd
(4)	Hedge Capital Investment Group Plc
(5)	Hedge Capital Ltd	Defendants	
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The first defendant appeared in person
The second defendant did not appear and was not represented
Andrew Spink QC and Fenner Moeran (instructed by Pinsent Masons LLP) for the Claimant
Alan Steinfeld QC, John Stephens and Ms Marika Lemos (instructed by DWF LLP) for the 3rd - 5th Defendants

Hearing dates: 29 - 30 May 2012
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Judgment
The Chancellor : 
1.	By trust deeds dated respectively 23rd August and 9th September 2011 made between Clarendon Hill Investments Ltd and the first and second defendants, Mr Woodward and Ms Ilett, the Pennines and the Mendip Retirement Benefit Schemes were established as occupational pension schemes for the sole purpose of providing pensions and lump sum benefits for their members.  In each case Mr Woodward and Ms Ilett were the trustees, T12 Administration was the scheme administrator and the Scheme was registered with HMRC under s.153 Finance Act 2004.  The effect of such registration was to confer substantial tax advantages on the schemes and their members as well as to impose limitations on what benefits might be conferred on such members and when.

2.	The establishment of the Pennines and Mendip schemes was part of a plan for ‘pensions liberation’ devised and implemented by and for Mr Woodward and Mr John Davies through the third, fourth and fifth defendants.  Mr Woodward is the sole shareholder and controlling director of both Clarendon Hill Investments Ltd and the fifth Defendant Hedge Capital Ltd (“HCL”).  Mr Davies is the majority shareholder and controlling director of the fourth defendant Hedge Capital Investment Group plc (“HCIG”).  He is also a director of its wholly owned subsidiary the third defendant, Hedge Capital Investments Ltd (“HCIL”).  The material elements of the plan were:
(1) Members of other occupational or personal pension schemes were to be encouraged to transfer the cash equivalent of their benefits under those schemes to Mr Woodward and Ms Ilett as the trustees of the Pennines or Mendip schemes under s.95 Pension Schemes Act 1993.
(2) The money so received by Mr Woodward and Ms Ilett was to be applied by them in subscribing for preference shares in HCIG yielding 3% per annum payable out of distributable profits and an additional dividend up to half such annual profits at the directors’ discretion.
(3) The subscription money received by HCIG was to be lent on to HCIL repayable on demand with interest at 3% above Barclays Bank base rate and secured by a debenture dated 20th October 2011 on all the assets present and future of HCIL.
(4) The proceeds of such loans from HCIG were to be applied by HCIL in (a) making loans to HCL repayable on three months notice with interest at 4% above Barclays Bank base rate as provided by an agreement made between them dated 20th October 2011 and secured by a debenture made the same day on all the property of HCL and (b) investing the balance in, as described by Mr John Davies, “alternative (or unregulated) products” or “appropriate investment opportunities”.
(5) The money lent to HCL by HCIL was to be applied in making advances to members of the Pennines or Mendip pension schemes.  The amount of such advances was calculated by reference to the lump sum to which the member would be entitled on retirement and carried interest at the rate of 5% payable monthly.  The advances were unsecured and repayable at the expiration of a term of between 14 and 27 years.
Thus, the overall effect of this plan was that the sums transferred into the Pennines or Mendip pension scheme funded the loan to the member if he wanted one and the investments held by HCIL.

3.	In implementation of the plan, between October 2011 and 28th March 2012 476 individuals transferred approximately £19m from other occupational pension schemes to the trustees of the Pennines and Mendip pension schemes.  Such sum (less expenses and a small retention in cash) was applied by them in subscribing for 18,086,000 preference shares in HCIG.  Approximately £6.5m was applied by HCL in making loans to members of one or other scheme.  £2.750m was invested by HCIL and is now represented by 58 plots of land in Brazil to be used for the growing and harvesting of teak trees, 1,000 acres of agricultural land in Florida, shares in Street of Dreams Ltd for investment in a musical production and shares in Ko-Su Ltd which has developed a mobile learning platform.  The balance has been used to pay commission or expenses or is now standing to the credit of the bank accounts of HCIG, HCIL or HCL.

4.	On 28th March 2012 the Pensions Regulator exercised its powers under ss.7 and 9 Pensions Act 1995 to appoint the claimant Dalriada Trustees Ltd (“Dalriada”) to be a trustee of both the Pennines and Mendip pension schemes with immediate effect.  The orders provided that (1) the powers and duties exercisable by the trustees should be exercisable by Dalriada to the exclusion of all other trustees of the schemes, (2) the fees and expenses of Dalriada should be paid out of the resources of the schemes and (3) that the property and assets of the schemes of whatever description and wherever situated should be transferred to and vested in Dalriada.  On 2nd April 2012 Arnold J, on the application of Dalriada, made a freezing order against each of the defendants limited to the sum of £12m.   

5.	These proceedings were instituted by a claim form issued by Dalriada on 3rd April 2012.  The Particulars of Claim were served on or about 24th April 2012.   The applications before me are:
(1) an application issued by HCIG, HCIL and HCL on 14th May 2012 for summary judgment under CPR Rule 24.2(a)(i) dismissing the claims against each of them on the ground that Dalriada does not have a real prospect of succeeding on any of them;
(2) an application issued by Dalriada on 3rd April 2012 for the continuation of the freezing order granted by Arnold J on 2nd April, and continued by him on 18th April, until trial or further order; and
(3) an application issued by HCIG, HCIL and HCL on 23rd May 2012 for an order that Dalriada provide security for their costs in the sum of £865,000.
HCIG, HCIL and HCL were represented by counsel, Mr Woodward appeared in person on the first day of the hearing but took no part in the proceedings, Ms Ilett did not appear by counsel or in person.  I heard full argument on the summary judgment application.  It was agreed that both the others should be adjourned to a date after I have given such judgment.   Accordingly, in this judgment I deal only with the arguments on the summary judgment application made by HCIG, HCIL and HCL.  Much of the voluminous evidence is irrelevant to that issue.  Before I consider counsel’s submissions I must refer to the relevant terms of the pension schemes, the statutory and taxation context and the allegations made in the particulars of claim.

The Pension Schemes

6.	The terms of the Pennines and Mendip schemes are the same.  I will quote the relevant provisions from the Trust Deed establishing the former.  As I have already indicated it was made between Clarendon Hill Investments Ltd defined as ‘the Provider’ and Mr Woodward and Ms Ilett.  It recites:
“A. The Provider has determined to establish the [Pennines/Mendip] RBS (“the Scheme”) with effect from this present date for the sole purpose of providing pensions and lump sum benefits under occupational pension arrangements made by individuals and individuals’ employers in accordance with the [Pennines/Mendip] RBS Scheme Rules 2010 [sic] (‘the Rules’) as may be amended from time to time.”
 [B..
C..]
D. The Provider has determined that T12 Administration shall act as the first Scheme Administrator.”

The operative part begins at clause 3.  That provides that the Scheme is established under an irrevocable trust. Clause 4 appoints Mr Woodward and Ms Ilett as the first trustees.  The Deed continues:
“5. The Provider and the Trustees shall execute such documents, give such undertakings or take whatever other action as may from time to time be required in order to establish and maintain the status of the Scheme as a Registered Scheme under Part 4 of the Finance Act 2004 and, if applicable, registration with the Pensions Regulator.
6.  The Rules form an integral part of this Deed.  The definitions contained in the Rules apply for the construction of this Deed…
[7,
8]
9...The Scheme Administrator will secure that the Scheme is in all respects managed in accordance with this Deed and in a manner consistent with the Scheme being treated as a Registered Scheme.
[10, 11, 12]
13. The Trustees shall ensure that, in relation to each Arrangement of a Member, all contributions and other amounts paid by or in respect of the Member to the Scheme as permitted by the Rules are applied in accordance with the Arrangement and that, in the case of each and every Arrangement, a separate and clearly designated account is maintained in respect of each Member’s Fund under the Scheme.
14.  An option conferred on a Member in accordance with an Arrangement under the Scheme may be exercised only by giving notice -
14.1 in writing to the Scheme Administrator at such address as is nominated by the Trustees for that purpose; or
14.2 by such electronic means as may be approved by the Trustees for that purpose.
15.  All assets, investments, deposits and money held for the purpose of the Scheme shall be in the legal ownership and under the control of the Trustees.  However, the Trustees may, with the written consent of the Provider, place those assets, investments, deposits and monies in the name of or under the control of a body corporate as nominee.
16.  The Trustees shall have and be entitled to exercise all powers, rights and privileges necessary or proper to enable the Trustees to carry out all or any transaction, act, deed or matter arising under or in connection with the Scheme but the Trustees shall, subject to the restrictions contained in this Deed and any requirements of the Board of Revenue & Customs at the time, take into account any specific written wishes of a Member (or of any person acting on a Member’s behalf with the Member’s prior written authorisation) as to the manner in which such Member’s Fund is invested.
17.  The Trustees may, with the consent of the Provider, engage in any lawful transaction not specifically authorised by the other provisions of this Deed which would, in the opinion of the Trustees, benefit the Scheme or any Arrangements under the Scheme.  This is however subject to the status of the Scheme as a Registered Scheme under Part 4 of the Finance Act 2004 not being prejudiced, whether by reason of a breach of the requirements and restrictions concerning permitted investment issued by the Board of Revenue & Customs in respect of pension schemes or otherwise.
[18..]
19.  All the expenses of administration management and investment of the Scheme shall be charged to and paid out of the designated account(s) of the Member(s) in respect of whom such costs have been incurred.  The Provider shall also have power to levy such further expenses as may be incurred in connection with the Scheme as it may, in its sole discretion, deem necessary.
[20 – 28]”

Clause 29 provides for the Deed to be subject to, and governed by, the laws of England and Wales.

7.	Reference is made in clause 6 and elsewhere to the rules of the scheme.  The evidence suggests that it was intended to adopt the Model Rules provided by the Scheme Administrator, but the only document purporting to contain such rules states that it is effective 1st May 2012.  There is no evidence that this or any other form of rules was adopted by Mr Woodward and Ms Ilett as trustees of the scheme.  In any event the only rule relied on was the definition of “Member’s fund” contained in clause 2, namely:
“the aggregate of 
•	The contributions paid to the scheme by or in respect of the member,
•	Any transfer payment accepted by the scheme in respect of the member,
•	Any pension credit rights accepted by the scheme in respect of the member, and
•	Any income or capital gain arising from the investment of such amounts.”

By s.252 Pensions Act 2004 the trustees or managers of the scheme are obliged to secure that no funding is accepted if and so long as there are no rules in force.

The Statutory and Taxation context

8.	Pension Schemes Act 1993 s.1 contains the definition of ‘occupational pension scheme’ as one of the categories of pension scheme to which Pensions Acts 1995 and 2004 apply.  It is not suggested that the Pennines or Mendip Scheme is not such a pension scheme.  Pensions Act 1995 s.7 confers power on the Pensions Regulator to appoint new trustees of the scheme for the purpose, inter alia, of securing the proper use or application of assets of the scheme or otherwise protecting the interests of the generality of members.  S.11(1)(c) authorises the Pensions Regulator to wind up the scheme if that is necessary to protect the interests of the generality of the members.  S.36 imposes duties on trustees of a trust scheme, defined in s.124(1) as an occupational pension scheme established under a trust, in relation to choosing investments.  So far as relevant it provides:
“(1) The trustees of a trust scheme must exercise their powers of investment in accordance with regulations and in accordance with subsections (3) and (4), and any fund manager to whom any discretion has been delegated under section 34 must exercise the discretion in accordance with regulations.
(1A) Regulations under subsection (1) may, in particular – 
(a)  specify criteria to be applied in choosing investments, and
(b) require diversification of investments.
(3) Before investing in any manner (other than in a manner mentioned in Part I of Schedule 1 to the Trustee Investments Act 1961) the trustees must obtain and consider proper advice on the question whether the investment is satisfactory having regard to the requirements of regulations under subsection (1), so far as relating to the suitability of investments and to the principles contained in the statement under section 35.”

9.	The regulations made under subsection (1A) are the Occupational Pension Schemes (Investment) Regulations 2005 No: 3378.  So far as relevant regulation 4 provides:
“4. —(1) The trustees of a trust scheme must exercise their powers of investment, and any fund manager to whom any discretion has been delegated under section 34 of the 1995 Act (power of investment and delegation) must exercise the discretion, in accordance with the following provisions of this regulation.

(2) The assets must be invested—
(a) in the best interests of members and beneficiaries; and

(b) in the case of a potential conflict of interest, in the sole interest of members and beneficiaries.
(3) The powers of investment, or the discretion, must be exercised in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio as a whole.

(4) Assets held to cover the scheme's technical provisions must also be invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the scheme.
(5) The assets of the scheme must consist predominantly of investments admitted to trading on regulated markets.

(6) Investment in assets which are not admitted to trading on such markets must in any event be kept to a prudent level.

(7) The assets of the scheme must be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings and so as to avoid accumulations of risk in the portfolio as a whole. Investments in assets issued by the same issuer or by issuers belonging to the same group must not expose the scheme to excessive risk concentration.”

10.	I should note that s.91 Pensions Act 1995 prohibits the assignment commutation or surrender of an entitlement or right to a future pension under an occupational pension scheme, any charge or lien thereover or the exercise of any set-off in relation thereto.  These provisions are complemented by those of ss. 19 to 21 Pensions Act 2004 which confer on the court power to order restitution or repatriation of any money which “has been liberated from a pension scheme”.  In addition s.255 of the latter Act requires the trustees of a scheme mainly administered in the United Kingdom to secure that the activities of the scheme are limited to “retirement benefit activities”, defined by subsection (4) to be operations and activities related to retirement benefits.

11.	S.5(1)(a) Pensions Act 2004 declares it to be a main objective of the Pensions Regulator to protect the benefits of members under an occupational pension scheme.  Ss.18 to 20 deal with what the Act calls ‘Pension liberation’.  The term is defined in subsection (2) so that, in general, if a transferee from the trustees or managers of a pension scheme uses money so transferred for an unauthorised purpose, as defined, the court may make restitution or repatriation orders under ss.19 and 20 against any recipient of a beneficial interest therein who is not a bona fide purchaser for value without notice.  In relation to an occupational pension scheme which has its main administration in the United Kingdom a funding payment may not be accepted unless the scheme is established under irrevocable trusts and it has written rules in force, s.252.

12.	The taxation of pension schemes is now governed by Part 4 Finance Act 2004.  Chapter 1 of that part contains definitions of “pension scheme”, “occupational pension scheme”, “member” and “arrangement”.  “Occupational pension scheme” is defined as:
“a pension scheme established by an employer or employers and having or capable of having effect so as to provide benefits to or in respect of any or all of the employees of (a) that employer or those employers or (b) any other employer (whether or not it has or is capable of having effect so as to provide benefits to or in respect of other persons.”

The definition of ‘arrangement’ in section 152 also includes definitions of ‘money purchase arrangement’ and ‘money purchase benefits’.  For present purposes it is only necessary to note that a money purchase benefit is one 
“the rate or amount of which is calculated by reference to an amount available for the provision of benefits to or in respect of the member”.

13.	Chapter 2 covers registration with HMRC.  S.153(3) provides that an application for registration must be accompanied by a declaration 

“that the instruments or agreements by which it is constituted do not entitle any person to unauthorised payments (see section 160(5)).”

If such a declaration is false in a material particular registration may be withdrawn, s.158(1)(e).  S.164(1) sets out a list of payments from a registered pension scheme which are authorised.  In summary the only payments to a member which are authorised are pensions and lump sums permitted by the rules and defined by ss. 165 and 166.

14.	In addition s.173 deems an unauthorised payment to have been made if:
“an asset held for the purposes of the pension scheme is used to provide a benefit (other than a payment) to –
(a) the person, or 
(b) a member of the person’s family or household.”

In such a case, as subsection (5) provides,
“the person who receives the benefit is to be treated as having received the unauthorised payment.”

The consequence of an unauthorised payment is the imposition on the recipient of the unauthorised payment a tax liability of 40% and a surcharge of 15% under ss.208 and 209.  Provision is also made for imposing a scheme chargeable payment in the case of unauthorised payments not exempt therefrom by s.241, but subsection (2) exempts unauthorised payments treated as made by s.173.  S.242 provides for a deregistration charge where registration is withdrawn; and if the amount thereof in any period of 12 months exceeds the deregistration threshold the scheme may be deregistered under s.158(1)(a).  The rate is 40% and is applied to the value of the scheme assets immediately before deregistration.

The Particulars of Claim

15.	Paragraphs 1 to 5 explain who the parties are and their respective interests.  Paragraphs 6 to 8 set out the relevant terms of the Pennines and Mendip schemes.  Paragraph 9 avers that the schemes were a form of pensions liberation.  Paragraphs 10 and 11 are in the following terms:
“10. Between 16th September 2011 and 28th March 2012:
(i) The Pennines Scheme paid out £8,270,000 to the 3rd Defendant and £3,876,000.00 to the 4th Defendant; and
(ii) The Mendip Scheme paid out £5,940,000 to the 3rd Defendant (together “the Transfers”) totalling £18,086,000.
11. In making the Transfers as set out above (whether by way of ‘investing’ in preference shares or otherwise) the 1st and 2nd Defendants acted in breach of trust in that:
(i)   The purpose of the Transfers was not for the sole purpose of the Schemes, namely the provision of pensions and lump sum benefits under occupational pension arrangements.  Accordingly the Transfers were outside the scope of the trustees powers and were void.
(ii)  The true purpose of the Transfers was to facilitate the making of loans by the 5th Defendant to the members of the Schemes.  Accordingly the Transfers were a fraud on the power(s) of the Scheme purportedly exercised in making them and were void.
(iii) The Transfers had the effect of making an unauthorised member payment within the meaning of the Finance Act 2004 part 4, by reason of the Schemes’ assets being used to provide a benefit (other than a payment by the Schemes) to the members (i.e. the loans to the members by the 5th Defendant).  Accordingly pursuant to Finance Act 2004 s.173 the Schemes were deemed to make unauthorised member payments.  In the premises the Transfers prejudiced the status of the Schemes as registered schemes under the Finance Act 2004 part 4, were in breach of trust pursuant to inter alia clauses 5, 9, 16 and 17 of the Schemes’ deeds, and were void.”

16.	Paragraph 12 sets out the relevant terms of the Occupational Pension Schemes (Investment) Regulations 2005 No: 3378.  Paragraph 13 then avers that:
“13.	In the premises in making the Transfers the 1st and 2nd Defendants were in breach of their duties as trustees in that to the extent that the Transfers were ‘investments’ in any sense:
(i) They were not calculated to ensure the security, quality, liquidity or profitability of the portfolio as a whole, in that loans to or investments in the 3rd Defendant, and preference shares in the 4th Defendants, are not secure, liquid or profitable;
(ii) Loans to or investments in the 3rd Defendant, and preference shares in the 4th Defendant, are not investments admitted to trading on regulated markets;
(iii) They were not kept to a prudent level.
(iv) There was no, or no proper, diversification of investment so as to avoid excessive reliance on a particular asset, issue or group of undertakings, and they exposed the Schemes to excessive risk concentration.”

17.	Paragraph 14 alleges that the transfers would not have been made but for the breaches of trust already alleged.  Paragraph 15 contends that in the premises all the transfers were void.  Paragraph 16 asserts that each of HCIG, HCIL and HCL were knowing recipients of such of the transfers as were paid to them, the relevant knowledge being derived from their respective directors, Mr John Davies and Mr Woodward.  I should also refer to paragraph 18 which claims compound interest on the basis of “wilful default and/or dishonest breach of trust”.  Counsel for Dalriada made it clear at the hearing before me that no allegation of dishonesty is now maintained against HCIG, HCIL and HCL.  The relief sought against them is an account of the Transfers and an inquiry as to the current identity and location of the transfers or proceeds thereof, rescission of any ‘investments’ in HCIG and/or HCIL and restoration of the Transfers to the schemes by HCIL and HCL.

Submissions of Counsel and my conclusions.

18.	Counsel for HCIG, HCIL and HCL accepts that summary judgment dismissing the claim against his clients necessitates demonstrating that Dalriada does not have a real prospect of success in establishing its case at trial.  As is well known, the emphasis is on the word “real” in that the prospects of success must be more than fanciful, see Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1, paras 94, 95, 158 and 159 and Swain v Hillman [2001] 1 AER 91.  For this reason, at least, there is no dispute at this stage as to the underlying facts.  Counsel submits that even if those facts are proved Dalriada does not have a real prospect of success for two interlocking reasons: (1) the actions of Mr Woodward and Ms Ilett of which complaint is made were not void but at the most voidable, (2) even if they were voidable only the members, not Dalriada, can avoid them.  In the latter connection the evidence includes witness statements of seven members supporting the actions of Mr Woodward and Ms Ilett as trustees of the schemes.

19.	In support of his argument counsel for HCIG, HCIL and HCL emphasised that the schemes are defined contribution or money purchase schemes.  Accordingly, each member has his own fund or ‘pot’.  In this connection he relied on clauses 13, 16 and 19 of the trust deeds quoted in paragraph 6 above.  These require an account for such fund to be set up and maintained and recognise its existence for purposes of investment and payment of expenses.  He points to the definition of “member’s fund” in rule 2 of the Model Rules, quoted in paragraph 7 above, as supporting this contention in relation to all defined contribution or money purchase schemes whether or not the rules are applicable to these schemes.  In these circumstances, he submitted, it cannot be seriously contended that Dalriada has any proprietary entitlement to any of the assets now vested in it beyond that of a head trustee of a number of sub-trusts, each for the benefit of a single member.  The consequence, so counsel submits, is that only that member as the sole beneficiary under that sub-trust can complain.

20.	In this connection counsel relied on the opinion of the Privy Council in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 and a dictum of Lord Browne-Wilkinson in Target Holdings Ltd v Redfern [1996] 1 AC 421 but sought to distinguish the judgment of Bean J in Dalriada Trustees Ltd v Faulds [2011] EWHC (Ch) 3391.  In Air Jamaica Ltd v Charlton a number of questions arose in connection with a defined benefit pension scheme funded by contributions from members and the company, in particular whether, as the judge at first instance had held, the trusts were void for perpetuity so that the fund reverted to the Crown in right of Jamaica as bona vacantia.  The Privy Council concluded that the rule against perpetuities applied but did not invalidate the whole scheme, notwithstanding the absence of a Royal lives clause, because a new settlement was created by the admission of a new member for the benefit of that member.

21.	At p.1409 Lord Millett explained:
“Their Lordships have considered the analysis of the effect of the Rule Against Perpetuities on pension schemes made by the English Law Commission in its recent Report on The Rules Against Perpetuities and Excessive Accumulations (1998) (Law Com. No. 251) at para. 3.53. They regard it as correct, at least in relation to a defined benefit scheme like the present. In their Lordships’ view such a scheme can properly be regarded as comprising a series of separate settlements. Every time an employee joins the scheme, a new settlement is created. The settlement comprises the contributions made in respect of the employee whether by him or by the Company. The Rule Against Perpetuities must be applied separately to each individual settlement, and each employee must be treated as a life in being in relation to his own settlement. On this footing, any benefits, whether payable as a lump sum or by way of an annuity, which are payable on the death or earlier retirement of the employee are valid.
Their Lordships do not accept the appellants’ submission that this analysis is inappropriate where the trust fund is a common fund to which all Members have contributed. It would fail to save the trusts if it could be said that contributions made by one Member and which were not used to fund his own benefits could be made available to provide benefits to other Members who were not lives in being at the date of his settlement. But the essential feature of a defined benefits pension scheme is that the benefits payable in respect of each Member are fixed at the outset at an amount which is capable of being funded by the contributions payable in respect of the Member without recourse to the contributions of any other Member. Of course, in practice some Members will receive more than they contribute and others will receive less; but this ought not to render the trusts void for perpetuity. The trust fund is only a security for the payment of benefits, and a defined benefits scheme can be regarded for this purpose as a form of mutual insurance. Where each Member’s contributions are sufficient to fund his own pension by the purchase of an annuity from an insurance company, there is no perpetuity merely because they are in effect employed in the purchase of the pension from the trust fund. Regarded in this light, the pension payable to a Member who takes out more than he puts in can be said to derive, not from the funds of settlements made by other Members, but from the successful investment of his own settlement funds.”

22.	In Target v Redferns [1996] AC 421 a finance company had transferred to solicitors the sum of £1.49m to be held by them on a bare trust for the solicitors pending its payment to a mortgagor as and when the mortgage was duly completed.  The solicitors wrongly paid it away before the mortgage was completed.   A month later the mortgage was duly completed but for extraneous reasons the finance company incurred a loss on the transaction.  The finance company sought to recover the full amount of £1.49m from the solicitors.  As Lord Browne-Wilkinson recorded at page 428:
“..this appeal raises a novel point on the liability of a trustee who commits a breach of trust to compensate beneficiaries for such breach. Is the trustee liable to compensate the beneficiary not only for losses caused by the breach but also for losses which the beneficiary would, in any event, have suffered even if there had been no such breach?”

23.	After describing the two lines or argument Lord Browne-Wilkinson continued:
“Before dealing with these two lines of argument, it is desirable to say something about the approach to the principles under discussion. The argument both before the Court of Appeal and your Lordships concentrated on the equitable rules establishing the extent and quantification of the compensation payable by a trustee who is in breach of trust. In my judgment this approach is liable to lead to the wrong conclusions in the present case because it ignores an earlier and crucial question, viz., is the trustee who has committed a breach under any liability at all to the beneficiary complaining of the breach? There can be cases where, although there is an undoubted breach of trust, the trustee is under no liability at all to a beneficiary. For example, if a trustee commits a breach of trust with the acquiescence of one beneficiary, that beneficiary has no right to complain and an action for breach of trust brought by him would fail completely. Again there may be cases where the breach gives rise to no right to compensation. Say, as often occurs, a trustee commits a judicious breach of trust by investing in an unauthorised investment which proves to be very profitable to the trust. A carping beneficiary could insist that the unauthorised investment be sold and the proceeds invested in authorised investments: but the trustee would be under no liability to pay compensation either to the trust fund or to the beneficiary because the breach has caused no loss to the trust fund. Therefore, in each case the first question is to ask what are the rights of the beneficiary: only if some relevant right has been infringed so as to give rise to a loss is it necessary to consider the extent of the trustee's liability to compensate for such loss.”

In the event the House of Lords concluded that the solicitors were not liable because the finance company ultimately obtained the requisite security so that although there had been a breach of trust it caused no loss to the finance company.

24.	In Dalriada Trustees Ltd v Faulds [2011] EWHC (Ch) 3391 Bean J was concerned with a form of pension liberation called ‘a pension reciprocation plan’.  Such a case involves two unconnected occupational pension schemes each of which lends money to a member of the other.  In that case there were six such schemes with a total membership of 487 and combined assets of £25m.  The Pensions Regulator had appointed Dalriada to be a trustee of all the schemes under the same statutory powers as in this case.  For the reasons he explained in paragraphs 46 to 57 Bean J concluded that all such loans were unauthorised member payments for the purposes of s.160(2) Finance Act 2004 because of the effect of s.173 of that Act.  In paragraph 57 Bean J said:
“I therefore conclude that the MPVA loans were unauthorised member payments as defined by s 160(2) of the Finance Act 2004. Counsel are agreed that if that is the case they were outside the powers of the Schemes' trustees and void in equity, and cannot be validated either retrospectively or prospectively by the amendments recently made to the Schemes. But since this matter may go further, and in deference to the sustained arguments of Mr Stallworthy supported by Mr Clifford, I turn to deal with the issues as to validity which do not derive from the 2004 Act; and do so on the basis, contrary to the ruling I have just given, that the MPVA loans were not unauthorised member payments within the terms of the Act.”

As counsel for HCIG, HCIL and HCL pointed out that conclusion was based on a concession.  Counsel does not agree with it, particularly in relation to this plan which is a substantially different form of pension liberation.

25.	I was also referred to the judgment of Lloyd LJ in Pitt v Holt [2012] Ch 132 in relation to the distinction between exercises of fiduciary powers which are void and those which are merely voidable.  For present purposes it is sufficient to point out the distinctions drawn by Lloyd LJ in paragraphs 96 to 99 and the cautionary note struck in paragraph 101.  On the one hand [96]:
“The purported exercise of a discretionary power on the part of trustees will be void if what is done is not within the scope of the power. There may be a procedural defect, such as the use of the wrong kind of document, or the failure to obtain a necessary prior consent. There may be a substantive defect, such as an unauthorised delegation or an appointment to someone who is not within the class of objects. Cases of a fraud on the power are similar to the latter, since the true intended beneficiary, who is not an object of the power, is someone other than the nominal appointee. There may also be a defect under the general law, such as the rule against perpetuities, whose impact and significance will depend on the extent of the invalidity.”

26.	On the other [99]:
“By contrast with the types of case to which I have referred at paragraph [96] above, if an exercise by trustees of a discretionary power is within the terms of the power, but the trustees have in some way breached their duties in respect of that exercise, then (unless it is a case of a fraud on the power) the trustees' act is not void but it may be voidable at the instance of a beneficiary who is adversely affected. The interest of a beneficiary in the trust property continues until it is brought to an end by an act of the trustees done in accordance with the terms of the trust (or the general law). This is an incident of the beneficiary's right to have the trust duly administered in accordance with the provisions of the trust instrument and the general law: see Target Holdings v Redfern [1996] AC 421 at 434.

27.	The cautionary note introduced in [101] is:
“In principle, cases where an act done by trustees which appears to be within their powers can be held to be void ought in my judgment to be kept to a minimum, just as at common law the cases where a transaction is void, rather than voidable, are few and far between.”

28.	Counsel for HCIG, HCIL and HCL maintains that the exercises of fiduciary powers of which Dalriada complains in this case are at best voidable.  The consequences are that only the member can avoid them or, as also submitted, sue in respect of them.  It must follow, so he submits, that Dalriada has no causes of action on which it can rely and no real prospect of success in the action so it should be summarily dismissed now.

29.	Counsel for Dalriada challenges all these submissions.  First, he contends that the schemes are not a series of subtrusts for individual members, but a single scheme under a trust.  The nature of that scheme is a defined contribution or money purchase scheme under which ‘the member’s fund’ is an accounting mechanism by which to measure the value of the member’s benefit without involving any actual segregation of assets.  Second, he submits that all the exercises of fiduciary powers relevant to this claim fall into the first category described by Lloyd LJ and were void.  Consequently, he submits, the identity of the person entitled to avoid them is immaterial.  Third, he contends that, whether void or voidable, Dalriada is entitled to claim recovery from HCIG, HCIL and HCL as recipients of trust assets with actual notice of their misapplication.  In this connection he relies on Lewin on Trusts 18th Ed para 39-76 and the decision of the Supreme Court of Victoria in Young v Murphy [1996] V.R 279.

30.	The resolution of these issues must start with an analysis of the interests of a member of the Pennines or Mendip Pension schemes.  There is no doubt that they are occupational pension schemes.  That was their sole purpose as declared by recital A.  It is not suggested that those schemes do not fall within the definitions of occupational pension scheme contained in s.1 Pension Schemes Act 1993 and 150(5) Finance Act 2004.  Nor is there any dispute that they are trust schemes within the meaning of s.124(1) Pensions Act 1995.  Apart from any other consideration clause 3 declares that they are established under irrevocable trusts on the terms set out in the respective trust deeds terminable only at the direction of Clarendon Hill Investments Ltd and then only in order to be wound up in accordance with the rules.

31.	The trustees of the schemes are required by clause 5 to establish and maintain them as registered schemes under Finance Act 2004 without which the taxation benefits are not be obtainable.  The assets of the schemes are declared by clause 15 to be in the legal ownership and under the control of the trustees.  The powers to make and manage investments and to carry out other transactions are, by clauses 16 and 17, conferred on the trustees, subject only to taking account of any specific wishes of a member.  The schemes are funded by the contributions of members and employers as provided by clause 10.  As declared by recital A the sole purpose of the schemes, as occupational pension schemes, is the provision of pensions and lump sum benefits in accordance with the rules, of which there are none.

32.	The argument for HCIG, HCIL and HCL rests largely on the terms of clause 13.  The use therein of the word “Arrangement” appears to be against the background of the definition of that word in s.152 Finance Act 2004.  That section also includes the definition of money purchase benefits.  It is, in my view, clear that the “separate and clearly designated account” to which clause 13 refers is intended to reflect the “amount available for the provision of benefits to..the member” by reference to which, in accordance with s.152(4), the rate or amount of the pension or lump sum benefit to which that member is entitled is to be calculated.  Such an accounting tool does not predicate a series of sub-trusts, one for each member;  it is consistent with a single trust scheme for all the members whose benefits are variable by reference to the contributions made by or in reference to them.  The requirements of clauses 16 and 19 do not lead to any different conclusion.  

33.	Nor, in my view, does the advice of the Privy Council in Air Jamaica.  That case was concerned with the application of the rule against perpetuities.  The conclusion that the accession of a new member led to the creation of a new settlement in respect of which that member was a life in being does not lead to the conclusion that such settlement took effect by way of subtrust under which the new member was the only beneficiary.  

34.	Counsel for HCIG, HCIL and HCL submitted in support of his argument that a member is entitled to require the return to him of the amount shown to the credit of his “separate and clearly designated account”, subject only to paying the tax then due under ss.208 and 209 Finance Act 2004.  In my judgment such a right would be inconsistent with the existence of these schemes as occupational pension trust schemes.  First, such a right would be inconsistent with the trusts being both irrevocable and non-terminable by a member, as provided by clauses 3 and 7.  Second, such a right, if exercised, would give rise to unauthorised payments.  Not only would such a right have to be declared in the application for registration, as required by s.153(3), but the failure to declare it would constitute a ground for deregistration under s.158(1)(e), consequential liability to a deregistration charge under s.242 and a breach of the trustees duty under clause 5.  This would be seriously detrimental to all the members not just the one to whom the unauthorised payments had been made.  Third, the consequential ‘pension liberation’ would infringe ss.18 to 20 Pensions Act 2004.

35.	In my judgment, therefore, a member of the Pennines or Mendip Pension Schemes is not the sole beneficiary of a sub-trust.  He is one of many beneficiaries entitled to benefits from the trust assets, the rate or amount of which is ascertainable in accordance with the rules and by reference to the amount credited to his account for contributions made by or in reference to him and investment returns thereon.  It must follow from that conclusion that applications of the assets of the scheme as a whole are the responsibility of the trustees, not the members individually or collectively.

36.	The claims with which I am concerned are those against HCIG, HCIL and HCL made in paragraph 16 of the particulars of claim, namely that they:
“...received the Transfers [defined in paragraph 10] knowing that they had been paid out in breach of trust, alternatively with such knowledge that it renders it unconscionable for them to retain the Transfers and they hold the Transfers and their proceeds as constructive trustees for [Dalriada] as trustee of the Schemes.”

37.	If the underlying facts are made good then Dalriada is entitled to sue in respect of them.  This is clear from the passage in Lewin on Trusts 18th Ed paragraph 39-76 where the editors write:
“The other trustees, including any judicial or other new trustees, have locus standi to take proceedings against defaulting trustees.  They can obtain replacement of lost assets even though they were themselves also guilty of the breach.  Usually, where trustees take proceedings against former trustees to have a breach of trust redressed, no issues arise between one beneficiary and another, or as between a beneficiary and the current trustees.  The object is to secure the return of the trust property for the benefit of all the beneficiaries according to their respective interests.”

The proposition is well established by the authorities cited in the footnotes, not least Young v Murphy [1996] V.R.19.	The availability of defences to a claim by an individual beneficiary, as indicated in Target Holdings v Redfern, is irrelevant to such a claim. 

38.	Moreover the availability of such a cause of action does not depend on whether the initial misapplication by the trustees was void or voidable.  If it is only voidable it may be defeated by one who acquired the legal estate in good faith and without notice of the misapplication.  But that defence is not available to these defendants if, as Dalriada avers, they took the trust property or property representing it with notice of the misapplication.  The point decided by Bean J in paragraph 57 of his judgment in Dalriada Trustees Ltd v Faulds does not arise.   Accordingly, it is not necessary for me to consider into which of the categories of void or voidable identified by Lloyd LJ in Pitt v Holt the alleged exercises of the powers of the trustees fall.

39.	I turn then to the underlying allegations made against Mr Woodward and Ms Ilett as the trustees of the schemes which, as indicated in paragraph 16, must also be established against the remaining defendants.  The first is that made in paragraph 11 of the particulars of claim quoted in paragraph 15 above.  Each of the sub-paragraphs raise issues of fact as to the purpose of the transfers and is clearly arguable with real prospects of success.  This is shown by the undisputed elements of the plan I have summarised in paragraph 2 above.  The legal consequence alleged in the second sentence of each sub-paragraph of paragraph 11 is, prima facie, well founded.

40.	Similarly the allegations made in paragraph 13, quoted in paragraph 16 above, are clearly justified by the terms of the Occupational Pension Schemes (Investment) Regulations quoted in paragraph 9 above and the application of the money paid out by the trustees of the two schemes as alleged in paragraph 10.  These allegations also have real prospects of success.

41.	The allegation made in paragraph 14 of the particulars of claim is an allegation that the Transfers were made in breach of trust as part of the wider plan for pension liberation.  As such it is arguable with a real prospect of success if the wider plan is made out on the evidence.  Paragraph 15 avers that the Transfers were void.  For reasons I have already given, I doubt if that is a material allegation; but, if it is, it is arguable with real prospects of success because the Transfers were not within the scope of any power available to Mr Woodward and Ms Ilett.  The conflict of interest or duty faced by Mr Woodward, as alleged in paragraph 17, is admitted in relation to the facts giving rise to it but this allegation adds nothing to the claims made by Dalriada against HCIG, HCIL and HCL.

42.	For all these reasons I conclude that all the claims made in this action by Dalriada against HCIG, HCIL and HCL are arguable with real prospects of success. Accordingly, I dismiss the application for their summary dismissal.