Monthly Archives

September 2020

LM Funds Marks Its Latest Casualty

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An article by Roger Berry, Managing Director of Concept Group Limited.

The appeal concerned a decision of the Royal Court of Guernsey from 2nd December 2019 Khuller v FNB, in which the Royal Court dismissed actions for breach of duty by FNB.

There had been some media attention raised by Manita Khuller before the hearing in which Khuller unsuccessfully represented herself.

The original decision concerned losses that had occurred on underlying investments in an insurance bond within a QROPS.  The most significant loss arising from investment of approximately half the pension fund in the infamous LM Performance fund, which was a total loss.  Originally, and for simplicities sake, it might be summarised by saying the Court did not find the Trustees grossly negligent or negligent at all as the Trustees had reasonably relied on the advice of an appointed investment adviser/manager.  The blurring of those differing roles a critical aspect in the successful appeal, finding the Trustees grossly negligent and in breach of their duties in allowing the investments.

This is an important decision highlighting the difference between investment adviser and investment manager when appointed by trustees and how it affects their normal responsibilities in a non-reserved powers trust.

The appeal was made on both the facts of the case the conclusion of law made.

Essentially it attacked two key elements of the case.  Firstly the appointment of adviser and secondly the investments made.  The latter element being where the appeal found success.

The trustees sought to show that they could rely on the delegation to the adviser/manager to remove or qualify its duties as trustee and in any event to be liable the trustees had to be shown to have acted with gross negligence (1).

Whilst in the appeal the appointment of the adviser was seen to be reasonable as certain checks had been made by the trustees and thus the original decision was undisturbed, the decision concerning breach of duties regards the choice of investments was overturned as it was concluded a mistake had been made in the original decision as to the position to which the adviser was appointed.  The appointment was as an adviser not as an investment manager, clear delegation of the trustees responsibilities was not achieved.

In reality, the adviser made direct instructions to the bond holder without prior knowledge of the trustees, who saw themselves unable to choose investments as they were not investment professionals.  The appeal court concluded the trustees had acted with indifference to its duty and the identified risks, which qualifies as being grossly negligent.

The quantum of damages is yet to be agreed.

  1. In this appeal case gross negligence was summarised as – a serious or flagrant degree of negligence, more fundamental than failure to exercise proper skill and/or care constituting negligence, and capable of embracing not only conduct undertaken with actual appreciation of the risks involved, but also serious disregard of or indifference to an obvious risk.

This case demonstrates that whilst some offshore advisers may have acted poorly for their clients, the deeper pockets of the trustees may be accessible to claims if the trustees have not properly delegated their responsibilities or used reserved powers trusts. 

Guernsey Secondary Pensions

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By Callum Beausire, Business Development & Marketing Associate at Concept Group Limited.

This is due to affect employers and their employees in 2022 although the effects of the COVID-19 pandemic may well delay the date.  The main take-away is that it will be mandatory to offer a form of qualifying pension scheme to all staff.

How will it work?

Once enrolled an employee can then decide to opt out, but the employer still has a legal duty to re-enrol their employees every three years (if the employee has opted out) and the employee is able to opt out again if they so wish.

For employees that do not opt out, which one would expect to be most as they will benefit from the employer contributions, the requirements will be that the employee contributes 1% of earnings in the first year of enrolment, which will then increase to 6.5% over a 7 year period.  The employer contributions will start at 1% and increase to 3.5% over a 7 year period. Together the employer and employee contribution rate will be minimum 2% of earnings in the first year, rising to 10% after 7 years. Minimum rates can be changed for employer and employee providing that the joint employer and employee rate is not less than the minimum in any year.

What is an Eligible Employee?

An eligible employee is any employee that is resident in Guernsey and paying Social Security contributions.  All eligible employees would need to be automatically enrolled into a qualifying scheme by their employer and the eligible employee has the option to opt out of the scheme if they so wish.

What should employers consider?

It is important for the employers to carefully consider what is the most suitable route to take in order to meet the new auto-enrolment obligations.  Considerations such as costs, ease of use, investments, green and sustainable investments, the number of employees, staff turnover and remuneration packages will all factor into which route is the most suitable to take.  Options for employers are:

  • Establish their own qualifying scheme with an alternative provider;
  • Use an existing pension scheme that they may have;
  • Enrol employees into the default States Secondary Pension Scheme.

Concept Group Limited is a long standing, locally owned and locally run Guernsey based pension provider and has vast experience in operating employer sponsored pension schemes.  If you or your company is looking for more information about employer sponsored pension schemes, please get in touch by emailing us at or calling 01481 723550.

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