By Roger Berry, Managing Director of Concept Group Limited.
As pension trustees we’re often asked “If my pension investments lose money and you’re my trustee aren’t you responsible?”
In some cases – the answer is yes – see the recent case where Malta’s Arbiter for Financial Services concluded that Momentum Pensions Malta was partly responsible for the losses suffered by clients of defunct advice firm Continental Wealth Management (CWM).
UK SIPP cases such as Carey Pensions and Berkeley Burke respectively demonstrate claims by pension members against trustees that have been unsuccessful and successful. Much turns on the extent of due diligence performed by the trustee and the appropriateness of the investments. The Pension Scams Industy Group (PSIG) provide a “Code of Good Practice” which provides useful guidance on collecting appropriate due diligence.
Is there any guidance for Guernsey pensions?
Khuller Case – An offshore pension trustees case, heard in the Royal Court of Guernsey, in which the trustees were found not responsible for significant investment losses arising on alternative investments. From a UK perspective – quite possibly investments that were not appropriate?
Manita Khuller, like many expats, was sold a QROPS into which she agreed to transfer her UK tax relieved pension assets.
Whilst interesting questions arise in this case about the transfer of two defined benefits schemes to the QROPS, the issue at point is what trustee responsibilities arose when subsequently some of the investments in the QROPS failed.
The investments included LM Managed Portfolio Fund (LM) and Mansion Student Accommodation Fund. LM is likely to be a total loss. Mansion has, over time, repaid most of the capital. In addition, there was an investment in Prestige Alternative Finance Fund which performed well.
Irrespective of performance, the investments were made up of “alternative” and “professional investor” type funds.
In considering Trustee responsibilities, review of Guernsey Trust law, regulation of the Trustees and the legal approval framework of the pension scheme will be required. However, critically, in understanding a Trustees powers and responsibilities examination of the governing documentation, the trust deed or instrument is required.
Following that one might also consider the “fair and reasonable” view which may be taken by an ombudsman. The UK case Berkeley Burke v FOS is of particular relevance.
In the Khuller case the deed was fairly standard, the Trustees had responsibilities for Investments and had the power to appoint an investment manager.
It is worth noting at this point that not all Guernsey QROPS have the same construction. It is not unusual to find “reserved powers” deeds in which typically the power to appoint the investment manager is with the member, not the Trustee.
Where a member has the power to appoint themselves or another party as the investment manager, the Trustee has considerably less responsibility.
In this case the Trustee had the power to appoint an Investment Manager who they reasonably considered was suitably qualified and competent.
It is perhaps notable that the adviser in this case was not licensed in the jurisdiction to provide the services of an Investment Manager. Albeit, did it need to be?
In providing advice on the investments it could be argued to be advising the Trustees who were in Guernsey, leaving the advisers outside a requirement to be licensed. Consequentially the Royal Court of Guernsey concluded the Trustees had not breached their duties by appointing and unlicensed investment adviser.
The court also considered Section 22 of the Trusts (Guernsey) Law 2007, which directs Trustees to act, inter alia, within the law, the provisions of the Trust and only in the interests of the beneficiaries. It also provides that the Trustees “act en bon pére de famille” (2).
The Trustees also relied on the Trust deed that contained provisions to protect them from liability except arising from their wilful misconduct (3) or gross negligence (4).
This is not an unusual provision in Guernsey, the Crown Dependencies and other offshore jurisdictions but is different to the UK position. In itself it may be the material differentiator behind a decision which might otherwise seem curious from UK eyes.
- See Combating Pension Scams – Code of Good Practice.
- Act en bon pére de famille – as a prudent man of business would act – see Spread Trustees v Hutchinson.
- Willful Misconduct – consciously doing the act or omitting an act– Armitage V Nurse and Re Vickery.
- Gross Negligence – something more fundamental than failure to exercise proper skill and care – Red Sea Tankers Ltd V Papachristidis. A serious or flagrant degree of negligence, not equating to reckless or intentional fault – Investec Trust (Guernsey) Limited v Glenalla Properties Ltd.