Trustees personally liable – The case study of Mr L

Mr L was a member of the Henry Davison Limited Pension Scheme (the Scheme), an occupational defined contribution pension scheme. Mr L and 13 additional applicants (the Additional Applicants) made complaints to us that the trustees of the Scheme (the Trustees) had: mismanaged the Scheme’s funds; issued fabricated benefit statements; and caused funds transferred into the Scheme to be lost.

Mr L and most of the Additional Applicants had joined the Scheme so that they could invest, via the Scheme, in a new financial product that had been marketed online. They had been introduced to one of the Trustees, Mr Davison, by an acquaintance of Mr Davison’s. It later transpired that the investment was fraudulent. Having managed to retrieve some of the funds from that investment, the Trustees gave the members the option of enabling Tivan Fiducaria S.A. (Tivan), with whom the Trustees had entered into an asset management agreement (the AMA), to trade their money, under the Trustees’ direction.

Information in relation to Tivan and the AMA, issued by the Trustees to Scheme members, promoted high level returns on investments and did not mention any fees, charges or commission payable to Tivan or to the two prime brokers who held the Scheme accounts, subject to Tivan’s discretionary management under powers of attorney granted to Tivan by the Trustees. The Trustees placed a net total of £1,328,963 of Scheme funds with Tivan during 2012.

Members became suspicious when the Trustees stopped issuing them with statements of account. It transpired that the value of the funds invested with Tivan had been reduced to £106,000. Most of that loss was attributable to charges, prime broker fees and commission paid to Tivan, which subsequently went into liquidation.

Our investigation included an oral hearing, as it seemed that the Trustees might be held personally liable for their shortcomings. Mr Davison, Mr L and three of the Additional Applicants attended the oral hearing. It was revealed that the extent of the Trustees’ due diligence in relation to the AMA, Tivan and the prime brokers had fallen far short of the standards required under trust law. For example: the Trustees had taken no independent advice in relation to entering into the AMA; the AMA’s terms were surprisingly onerous from the Trustees’ point of view; and the clause of the AMA which concerned fees and commission placed no limit on the amount that could be charged.

Further breaches of trust on the Trustees’ part that were revealed by our investigations included: nearly £800,000 of Scheme funds having been invested in loans which had defaulted; entering into an investment, without having taken independent advice, in shares in a company owned by Mr Davison (which had since been dissolved) via a ‘special purpose vehicle’; issuing statements of account, showing investment growth, to members without verifying the figures contained in those statements; and an unmanaged conflict of interest that had resulted in the Trustees having paid more than £100,000 of Scheme assets to a consultancy firm owned by Mr Davison.

In his Determination, the Ombudsman found the Trustees to be personally liable for the loss incurred by members and the Scheme as a consequence of the Trustees’ various breaches of trust. The Ombudsman also found that the Trustees’ actions amounted to maladministration and directed the Trustees to pay £5,000 to each of Mr L and the Additional Applicants in respect of the exceptional level of distress and inconvenience suffered by each of them over a prolonged period of time.  

Related determinations

• Henry Davison Limited Pension Scheme (PO-7292, PO-7951, PO-8118, PO-6703, PO-12813, PO-7616, PO-8801, PO-11753, PO-11759, PO-10259, PO-12802, PO-12801, PO-10848 & PO-10229)