Dishonest Assistance – QROPs transfer was an improper investment*

19 / 05 / 2021

Background
The claimant in this case, Mr Ross Burns, applied for summary judgment in his claim of dishonest assistance against certain defendants (summary judgment is usually possible when one party wants to move to a court decision without a trial – however, this generally only happens when the two parties agree to the critical facts of the issue, and the law allows summary judgement based on the undisputed facts at hand).

Dishonest assistance is a cause of action under which a non-trustee becomes personally liable for breaches of trust committed by one or more trustees. Liability arises where the non-trustee is an accessory to the breach of trust and has acted dishonestly. Liability is imposed if the accessory has not acted as an honest person would, in the circumstances, have acted. In applying this test it is assumed that an honest person does not participate in a transaction if he knows that it involves a misapplication of trust assets.

Transfer to a QROPs
The claimant claimed to have been induced by representations made by his younger cousin, Mr Keith Burns, to transfer his personal pension with St James’ Place Wealth Management (“SJP“) into a self-invested pension plan managed by Castle Trust & Management Services Limited (“Castle“), a company registered in Gibraltar. In September 2013, SJP transferred approx. £291k to Castle which, on the same day, transferred approx. £235k into the bank account of an English limited liability partnership, Capita Fora LLP (“LLP“). The defendants were the designated members of the LLP.


It was accepted that the LLP allowed the claimant’s monies to be intermingled in their Barclays account before being transferred to a firm of solicitors said to be acting for a property developer, Mr Anthony Lewis, apparently by way of a loan – which was lost. The claimant began proceedings claiming deceit against his cousin (the first defendant), breach of trust and negligence against Castle (the fifth defendant) for transferring his monies to the property developer without security being requested or obtained over any property. In addition the claimant claimed dishonest assistance and unlawful means conspiracy and knowing receipt against the second to fourth defendants (Mr Paul Zaki, Mr Harold Mercer and Mr Kelvin Mercer – referred to as “the Part 24 Defendants” by the Court).


Defence
The Part 24 Defendants in their defence said the claimant would have received a brochure “outlining the business activity in specific relation to Castle commercial loans and Capita where the risks are in writing and that any income generated was on a ‘best efforts’ basis”. Furthermore, the brochure described a charge being granted first in favour of the LLP who in turn would provide it back to the fifth defendant, securing the loan, and that the charge would only be granted once the property was completed.
For the purpose of the summary judgment application, the claimant invited the Court to assume in the Part 24 Defendants’ favour that the brochure had been available to him and that the investment had proceeded on the basis set out in the brochure, that registered first charges would be obtained on any property acquired.


What did the Court decide?
Master Teverson noted that a claim for dishonest assistance required the following elements to be satisfied:
1) there must be a trust or fiduciary relationship;
2) that trust or fiduciary relationship must have been breached;
3) in breaching that trust or fiduciary duty, the trustee or fiduciary need not have acted dishonestly;
4) that breach must have been procured or assisted by the defendant; and
5) the defendant must have acted dishonestly when so acting.

On the facts before him the Master held that the Part 24 Defendants were liable to the claimant for dishonest assistance. The dishonest assistance consisted of exposing the claimant to a type of risk that was not contemplated by the terms of the brochure promoting the investment. It was no defence for the Part 24 Defendants to rely on their subjective belief that they were acting honestly, nor is it a defence to say that the others known to them invested their own money in the same way and lost it. This was not a risk the Part 24 Defendants were entitled to take with the claimant’s pension monies. No ordinary decent person would have transferred the claimant’s pension monies in a way that the Part 24 Defendants did. They knew that the money was unsecured. They knew it was intended to be used by a developer for property development. They knew on their own evidence that final security would only be provided on completion of the development and that any interim protection offered was in the form of a charge over the developer’s family home not a property forming part of an existing property investment portfolio.


Summary judgment was therefore granted against the Part 24 Defendants in favour of the claimant.


WB Comment
Whilst each case is to be judged on its own facts and merits, transfers to QROPs and other overseas’ pension arrangements should not be entered into lightly. At the time this transfer took place (2013) QROPs and QNUPs were popular pension vehicles operated in many jurisdictions. Unfortunately however, many individuals who got involved in the promotion and administration of such arrangements did so without a full understanding of the statutory regime sitting behind them. Many saw these as ‘get rich quick’ schemes, which unfortunately have back-fired because the tax treatment was not as expected, or as in the Burns case, monies disappearing.


Alarm bells should have been ringing in the claimant’s head when details of this investment emerged originally. Whilst it is unclear whether the brochure was provided in the first instance, thorough due diligence and reputable professional advice should always be sought before signing on the dotted line on any transfer from a registered pension scheme.
Postscript – the proposed restrictions on pension transfers should provide further safeguards once the new Regulations are finalised and become effective (expected 1 October 2021).

*Burns v Burns & Others [2021] EWHC 75 (Ch)