CH-2024-000293 - [2025] EWHC 2980 (Ch)

The appellants accept that, if each Scheme involved a single trust fund, the Ombudsman was able to direct that they reconstitute that entire fund (and not just the parts attributable to the complaining respondents). They do not seek to challenge the Ombudsman’s conclusion to this effect at [13] to [16]. However, they challenge the premise of that conclusion, arguing that the Trustees held the assets of the Schemes on separate “sub-trusts” for each individual member rather than on a single trust for all members collectively. From that proposition, the appellants conclude that the appellants “do not have a single liability to reconstitute the Scheme, but separate liabilities to the individual complainants”.

Ground 2 also resonates in relation to the Ombudsman’s findings that there was insufficient diversification in investments ([446]) which informed his findings that the Trustees exceeded their investment powers and failed in their equitable duty to exercise skill and care ([470]). The appellants argue that, if each member had their own sub-trust, that puts a different complexion on the need or otherwise for diversification of investments within each sub-trust.

Given a challenge of that kind, it would have been helpful to see all legal documents that had some bearing on the nature of the trusts of members’ property that the Schemes embodied. It would also have been useful to have a full understanding of the factual context in which those documents operated. However, I have not been provided with any material other than the Determination which contains extracts only from relevant documents. I can therefore do no more than consider whether the Ombudsman’s conclusion, that each Scheme comprised a single trust fund, is sustainable by reference to the extracts of documentation and other matters referred to in the Determination itself.

Appendix 2 to the Determination sets out some extracts from the Scheme Rules applicable to all Schemes. Clause 2 provided for the Trustees “hold the Fund upon irrevocable trusts and with and subject to the powers contained in the Rules”.

Clause 1.1 defines “Fund” in the following terms:

“Fund” means all contributions, gifts and transfer payments made to and received by the Scheme and any other monies, investments, policies, property or other sums or assets for the time being held by the Trustees upon the trusts of the Scheme. The allocation of any part of the Fund to any Individual Fund or to the General Fund shall be notional and for the purpose of calculating benefits only.

This definition, when read together with Clause 2, suggests that it is the “Fund” (consisting of all contributions, gifts and transfer payments made to and received by the Scheme) that is held on trust. However, the Trustees have power to “allocate” part of that Fund to an “Individual Fund” with that allocation being “notional and for the purposes of calculating benefits only”. There is no suggestion in Clause 1 or Clause 2 that any “Individual Fund” is to be held on trusts separate from those applicable to the Fund.

An “Individual Fund” is defined as follows:

“Individual Fund” in relation to a Member or Dependant means that part of the Fund which the Trustees determine is attributable to him having regard to:

(i)

(in the case of a Member only) any contributions made by him and by any other person in respect of him;

(ii)

(in the case of a Member only) any reduction agreed with the Member as necessary to obtain Enhanced Protection;

(iii)

(in the case of a Dependant only) any part of the Individual Fund of a Member designated as available for the provision of income withdrawal in accordance with the Rules following the death of that Member;

(iv)

any transfers made to the Scheme in respect of him;

(v)

any allocation or reallocation of any part of the Fund in accordance with the Rules;

(vi)

any pension credit or pension debit applicable to him;

(vii)

any income, gains or losses (whether realised or not), fees, costs and expenses borne by the Fund and any actual or prospective liabilities of the Trustees (other than liabilities to pay Benefits) or of the Scheme Administrator attributable to the Fund

Understandably, the appellants emphasise the point that an “Individual Fund” is defined as being part of the Fund that is “attributable to” a particular member or dependant. However, that is simply a textual indication in a definitional provision. In order to demonstrate that an Individual Fund is indeed held on a separate trust, the appellants would need to show how the definition of “Individual Fund” is actually used in operative provisions and why those operative provisions establish a sub-trust rather than a notional allocation for the purposes of calculating benefits only. This argument was not attempted in the appellants’ skeleton argument. Nor did Ms Pope-Williams’s attempt it in her oral submissions (no doubt because without full scheme documentation in the appeal bundle, she lacked the raw material with which to make such an attempt).

In their skeleton argument, the appellants criticised the Ombudsman’s analysis of Rule 18.1 of each Scheme’s rules which provides as follows:

18 Multiple Individual Funds

18.1

The Trustees may at any time treat any existing part of a Member's Individual Fund or any new contribution in respect of a Member as if it were a separate Individual Fund, in which case it:

18.1.1

shall constitute a separate Individual Fund for the purposes of the Rules (including without limitation this Rule 18.1); but

18.1.2

shall not constitute a separate arrangement for the purposes of the [Finance Act 2014] unless the Member and Trustees expressly agree.

The appellants argue that this provision is neutral and says nothing about whether each member’s fund is held on a sub-trust or not. I agree. However, the Ombudsman did not express any different conclusion at [381] to [383]. Rather, in those paragraphs, the Ombudsman concluded only that he had seen no evidence that members agreed that that any separate Individual Funds should be separate “arrangements” for the purposes of Finance Act 2014 and, even if they were, that said nothing about whether separate Individual Funds were held on sub-trusts or not.

At [385], the Ombudsman noted that there was an additional provision relevant in the case of the Eleven Scheme only. The Establishing Trust Deed for that Scheme contained a Clause 13 that provided as follows:

The Trustee 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.

The Chancellor of the High Court considered identical wording in the case of Dalriada Trustees v Woodward [2012] EWHC 2162 (Dalriada) concluding that it represented an “accounting tool” that was applied to determine each member’s benefits rather than establishing a series of sub-trusts. The appellants argue in paragraph 30 of their skeleton argument that this case is different because, by contrast with the facts of Dalriada, members of the Schemes were “directing the trustees to invest in very specific investments” and because of those instructions, each member’s contributions should be seen as establishing separate sub-trusts.

I am prepared to accept that Clause 13 could, in principle, have a different legal effect from the identical wording considered in Dalriada if it was indeed being used in a different factual situation. However, the difficulty with the appellants’ position on Clause 13 is that it simply asserts that because members gave “directions to invest in very specific investments” those investments were necessarily held on sub-trusts rather than on the trust of the main “Fund”. However, that conclusion does not obviously follow: members of defined contribution pension schemes will frequently decide which assets they wish to be acquired without any suggestion that a separate sub-trust is thereby created. Some emphasis is placed on the fact that the respondents signed member-directed investment forms acknowledging that the “value of my pension will be reflected in the performance of the [asset acquired] and that the investment may be tied up for several years”. I am prepared to accept that this is consistent with the asset in question being allocated to an “Individual Fund”. However, it says almost nothing about whether the assets are held on sub-trusts.

Moreover, the Ombudsman did not even accept the factual premise of the appellants’ argument, to the effect that members were “directing” the Schemes to invest in specific investments. At [556], the Ombudsman found that the respondents themselves were simply issued with “pre-populated” forms that nominated particular investments and were invited to sign them. An arrangement such as this provides scant support for the proposition that investments were to be held on sub-trusts for each individual member.

The appellants rely on the fact that the member-directed investment forms permitted sums to be set aside from amounts contributed to the Schemes to defray costs and fees. They assert that this is suggestive of the Trustees holding assets on sub-trusts, but I do not agree. Even if assets were held on the trusts applicable to a single main “Fund” the Trustees could expect members to defray costs associated with the purchase of investments (although of course in this case, the costs have been found to be exorbitant). I can accept that costs associated with a particular member’s investments might be debited to that member’s Individual Account, but that is consistent with the “accounting tool” that the court described in Dalriada and does not compel the existence of a sub-trust arrangement.

The appellants argue that the Schemes were very different from typical defined contribution pension funds in the sense that each member understood that their benefits would be driven only by the performance of “their” investments without the “pooling” effect that is found in other schemes in which multiple members share in the performance of a single pool of assets. This too is a simple assertion about a state of affairs that is not grounded in a sufficiently detailed analysis of the legal documents that constituted the trust arrangement to displace the Ombudsman’s conclusion.

Nor even is the absence of pooling demonstrated on the facts. For example, when Mr S joined the Eleven Scheme, £13,189 of his funds were invested in shares in Harper International Consultants Limited. There must have been other members of the Eleven Scheme who were investing in Harper International Consultants Limited, because the Eleven Scheme was said to have invested £114,005 in shares in that company. Mr S must have been sharing in the risks and rewards of Harper International Consultants Limited with others, even if he was not doing so with all members of the Eleven Scheme.

The appellants criticise the Ombudsman’s reasoning at [384] where he concluded that the fact that various assets, such as shares or registered land, were registered in the name of the relevant Scheme or Trustee Company, and not in the name of any individual, pointed against the existence of sub-trusts. There is little force in that criticism. I agree that, if an asset were registered in the name of a Trustee only, that would be a neutral indication since conceptually that Trustee might hold the assets as part of a “Fund” for multiple beneficiaries, or on sub-trust for a single beneficiary. However, if an asset was, for example registered in the name of a Trustee “as trustee for [a specified Scheme]” rather than “as trustee for [a specified individual]” that might indeed point against the existence of sub-trusts as the Ombudsman concluded.

The appeal on Ground 2 is dismissed.