Commentary / Practical Considerations
- In this case TPR appointed Dalriada as independent trustee.
- TPR acted due to the previous trustees acting in a position of conflict and failing to take appropriate investment advice.
- In the circumstances it is not surprising that, having appointed an independent trustee, TPR took the further step of seeking (and obtaining) a prohibition under section 3(1) of the Pensions Act 1995 preventing the individuals concerned from acting as trustees of trust schemes in general.
- This case is one of a number of examples of TPR appointing trustees to schemes and can be seen as one of the central powers of TPR where it has concerns in respect of conflict, governance and investment
Case summary
(i) Facts and background:
- This case relates to EIP Group Pension Scheme (the 'Scheme') and concerns around the ability of Mr Phillips, Mr Lupton and Mr Mason (the 'Trustees') to manage the Scheme.
- Initially, the Determinations Panel (the 'Panel') appointed Dalriada Trustees Limited ('Dalriada')
- The appointment in this matter initially took place under TPR’s special procedure, which is an accelerated process used where TPR believes it is necessary to do so to protect members
(ii) Summary of decision: The Panel:
- Confirmed the appointment of the independent trustee
- Prohibited Mr Phillips, Mr Lupton and Mr Mason from acting as trustees of trust schemes.
(iii) Key factors in the decision
- This decision was on a number of grounds including the Trustees’ failure to manage conflicts of interest in the context of making Scheme investments.
(iv) Key legal principles
- This case looks at the strict fiduciary duties on trustees of pension schemes: to act honestly and in good faith, to act with due care, skill and diligence in relation to the best interests of members, to avoid conflicts of interest and not to profit from the scheme.
- Of particular importance was the duty on trustees to avoid conflicts between their own personal interests and those of the scheme in making Scheme investments.
(v) Practical considerations:
- In this case, in many instances conflicts of interest could have been avoided if the Trustees had obtained appropriate investment advice.
- The Panel concluded that the Trustees’ failure to do so here was linked to a lack of integrity and competence
- Schemes could give thought to whether they have a robust conflicts of interest policy in place.
Analysis
On 27 January 2012, the Regulator’s case team used the special procedure to ask the Panel to appoint Dalriada as an independent trustee to the Scheme and so replace the Trustees.
The Panel appointed Dalriada based on concerns about:
- the Trustees’ ability to recognise and manage conflicts of interest and
- the possibility that the Trustees might have profited from their positions.
All Trustees gave representations in response to the Dalriada appointment proceedings; however, only representations from Mr Phillips and Mr Lupton were received in response to the 2016 prohibition proceedings. Mr Lupton said that he would not oppose a prohibition order against him while Mr Phillips confirmed that he no longer wished to act as a trustee of any pension scheme.
The Panel considered that each of the Trustees had committed numerous and serious failures demonstrating that none of the Trustees was a fit and proper person to act as a trustee, in particular:
(i) none of the Trustees had demonstrated sufficient competence, capability or integrity;
(ii) all of the Trustees had failed to manage conflicts of interest appropriately, e.g. by seeking suitable investment advice; and
(iii) in the case of Mr Phillips, the Regulator further relied on the fact that he had continued to act as a trustee even though disqualified from doing so.
Overall, the Panel concluded that there was sufficient material against each of the Trustees individually to warrant their prohibition from acting as trustees of trust schemes in general.
In particular, in relation to the Scheme overall:
(i) In relation to the investments and loans investigated (including the PDS Loans, Crownsbury Agreement and Vega Investment), the Panel concluded that there was either no evidence of investment advice having been taken or only of insufficient advice having been taken.
(ii) It was not enough to have obtained business analysis advice. In relation to the Vega Investment, although the Panel noted Mr Phillips’ explanation that the Trustees did not invest in Vega per se but in its capacity as an FCA registered fund manager, it concluded that the ‘investment’ was nonetheless a risky strategy with extremely high fees and therefore one which required investment advice.
(iii) In relation to the excessive fees paid to the Scheme’s administrators and to the Trustees, the Panel concluded that there was insufficient material to establish whether there had been a breach of duty.
In particular, in relation to the individual Trustees:
(i) The Panel concluded that each of the Trustees had failed in their duties as trustees. In particular, they had failed in their duty to manage conflicts of interest in the context of making investments on behalf of the Scheme.
In relation to Mr Phillips, it was important that he had been disqualified as a director in 2007 and would therefore have been automatically removed as a trustee. The Panel concluded that his actions when he continued to hold himself out as a trustee whilst disqualified remained relevant in establishing whether he was a fit and proper person to act as a trustee. The Panel did not distinguish between actions taken when still a trustee and those taken whilst disqualified.
Key words
Trustee duties – conflicts of interest – prohibition from acting as trustees – fit and proper person – 3(1) of Pensions Act 1995 – investment advice
Date
20 October 2016
PA04 procedure & reference
Standard procedure (s 96(2)(d)), C8600597