Dalriada Trustees Limited (as Administrator of the Grosvenor Parade Pension Scheme & Ors) & Ors v The Commissioners for HMRC

This decision relates to the tax consequences of certain transactions which have been implemented by six registered occupational pension schemes (the “Ark Schemes”) – namely,

The Ark Schemes operated what was described as a “Pensions Reciprocation Plan” (or “PRP”), which was conceived as a way of allowing members access to the value of their pension capital prior to retirement but without triggering an unauthorised payment which would lead to tax charges under Part 4 of the Finance Act 2004 (the “FA 2004”). In this decision, unless another enactment is expressly specified, all section numbers refer to the relevant section of the FA 2004.

At the heart of the PRP model was a structure called a “Maximising Pension Value Arrangement” (or “MPVA”), whereby an individual transferred his or her pension funds into one of the Ark Schemes and received an “MPVA loan” from another of the Ark Schemes. Under the MPVA:

Dalriada Trustees Limited (“Dalriada”) is a company registered in Northern Ireland with registered number NI 38344 whose registered office is Linen Loft, Adelaide Street, Belfast, Northern Ireland, BT2 8FE and is a professional trustee company. On 31 May 2011, it was appointed by the Pensions Regulator (the “PR”) to act as an independent trustee in respect of thirteen pension schemes, including the Ark Schemes, due to concerns which the PR had over the PRP model. At the time of Dalriada’s appointment, the PR also ordered the vesting in and assignment and transfer to Dalriada, as trustee, of all property and assets of the Ark Schemes.

Although the appointment did not remove the existing trustees of the Ark Schemes, under the appointment Dalriada is entitled to exercise all the powers of the trustees to the exclusion of the other trustees pursuant to Section 8(4) of the Pensions Act 1995 (the “PA”). Effectively, it therefore acts as the sole trustee of each of the Ark Schemes. Moreover, upon its appointment, Dalriada became the “scheme administrator” of each of the Ark Schemes for the purposes of the pension scheme taxation rules in the FA 2004.

Following Dalriada’s appointment, the Respondents assessed Dalriada (in its capacity as the incumbent scheme administrator), as well as the members of the Ark Schemes, to tax under Part 4 of the FA 2004. Dalriada, and certain of the members, have appealed to the First-tier Tribunal (the “FTT”) in respect of the assessments made on them. In addition, Dalriada and one of the members, Ms Oades, have appealed against the Respondents’ refusal to discharge their liabilities under certain of the assessments made on them. Dalriada’s appeals and the appeals of two of the members, Ms Oades and Mr Donaghy-Sutton, are the subject of this decision. Dalriada’s appeals are set out in Part A of the Schedule. The appeals by Ms Oades and Mr Donaghy-Sutton are set out in Part B of the Schedule. This decision is merely a decision in principle in relation to the relevant appeals. The appeals of the other members of the Ark Schemes have been stayed pending this decision. However, the principles set out in this decision are also pertinent to those stayed appeals.

Before setting out the specific provisions in the FA 2004 which are relevant to this decision, we think that it is helpful to place those provisions in the context of the entire statutory scheme relating to pensions. That scheme is helpfully described in the decision of the Upper Tribunal in their decision in The Commissioners for Her Majesty’s Revenue and Customs v Bella Figura Limited [2020] UKUT 120 (TCC) (“Bella Figura”) as follows:

It may be seen from this description that an essential plank of the regime is that a member of a pension scheme should not be able to access the value in that scheme before the age of fifty-five except in certain closely-defined circumstances. To that end, Section 160 provides, inter alia, as follows:

The only payments which a registered pension scheme is authorised to make to or in respect of a person who is or has been a member of the pension scheme are those specified in section 164.

In this Part “unauthorised member payment” means –

a payment by a registered pension scheme to or in respect of a person who is or has been a member of the pension scheme which is not authorised by section 164, and

anything which is to be treated as an unauthorised payment to or in respect of a person who is or has been a member of the pension scheme under this Part”.

One of the provisions in Part 4 of the FA 2004 which identifies amounts that are to be treated as unauthorised payments for the purposes of that Part is Section 173, which, so far as material, provides as follows:

A registered pension scheme is to be treated as having made an unauthorised payment to a person who is or has been a member of the pension scheme if an asset held for the purposes of the pension scheme is used to provide a benefit (other than a payment) to

the person, or

a member of the person's family or household…

The person who receives the benefit is to be treated as having received the unauthorised payment…

The amount of an unauthorised payment treated as having been made by this section –

in relation to such benefits, and in such circumstances, as may be prescribed by regulations made by the Board of Inland Revenue, is an amount determined in accordance with the regulations, and

otherwise, is the amount which would be the cash equivalent of the benefit under the benefits code if the benefit were received by reason of an employment and the benefits code applied to it.

For the purposes of subsection (8) –

references in the benefits code to the employee are to be treated as references to the person who is or has been a member, and

references in the benefits code to the employer are to be treated as references to the pension scheme.

In this section –

In relation to the legislation set out above:

Just pausing there, it may be seen that Section 160(2), along with Section 173, contemplate two distinct types of “unauthorised member payment” which may be made by a pension scheme. These are as follows:

Section 208 imposes a charge to income tax – an “unauthorised payments charge” - at 40% on a member who receives an unauthorised member payment and Section 209 imposes a charge to income tax – an “unauthorised payments surcharge” - at 15% on a member who receives a “surchargeable unauthorised member payment”. There are complex rules for identifying which unauthorised member payments are surchargeable but, essentially, an unuathorised member payment needs to exceed a threshold before it becomes surchargeable. At the request of the parties, we do not address in this decision whether any particular unauthorised member payment exceeds that threshold and confine ourselves to matters of principle.

Whereas the amount of an actual UMP is straightforward to identify – the amount of the payment in question - the amount of a deemed UMP is not. As we have noted in paragraph 9 above, Section 173 requires the relevant amount to be quantified by reference to “the benefits code” as defined in Section 63(1) of the Income Tax (Earnings and Pensions) Act 2003 (the “ITEPA”). That definition includes Chapters 2 to 7 and 10 and 11 of Part 3 of the ITEPA. Of those chapters, Chapter 7 (Sections 173 to 191 of the ITEPA) is concerned with loans made to employees and is therefore relevant where the benefit provided to the relevant member by the use of the assets of the pension scheme takes the form of a loan. (In this case, if we conclude that the assets of an Ark Scheme have been used to provide a benefit to a member of that scheme in the form of an MPVA loan, then that MPVA loan would be “employment-related” as defined in that section by virtue of the effect of Section 173(8) of the FA 2004 (which, as noted above, equates the “employer” with the pension scheme and the “employee” with the scheme member.))

Under Chapter 7 of the ITEPA:

Section 239 provides for a charge to income tax, known as the “scheme sanction charge”, which arises where, in any tax year, one or more “scheme chargeable payments” are made by a registered pension scheme. The person liable to the scheme sanction charge is the scheme administrator (see Section 239(2)).

A scheme administrator’s liability ceases when that person ceases to be a scheme administrator of the pension scheme in question and the liability becomes that of the incoming replacement – see Section 271. The position has been modified in respect of independent trustees, like Dalriada, so that they do not assume liability, which instead remains with the previous scheme administrator, but this change took effect only in respect of independent trustee appointments made on or after 1 September 2014 and so does not apply to the scheme sanction charges which are in issue in these appeals – see Sections 272A to 272C.

It is also possible for liabilities of a scheme administrator to be assumed by others in circumstances where there is no scheme administrator of the pension scheme, the scheme administrator cannot be traced or the scheme administrator is in serious default – see Section 272.

The amount of the scheme sanction charge is determined under Section 240, as follows:

The scheme sanction charge for any tax year is a charge at the rate of 40% in respect of the scheme chargeable payment, or the aggregate of the scheme chargeable payments, made by the pension scheme in the tax year.

But if—

the scheme chargeable payment is an unauthorised payment, or any of the scheme chargeable payments are unauthorised payments, and

tax charged in relation to that payment, or any of those payments, under section 208 (unauthorised payments charge) has been paid,

The amount of the deduction is the lesser of—

25% of the amount of the scheme chargeable payment, or of the aggregate amount of such of the scheme chargeable payments as are tax-paid, and

the amount of the tax which has been paid under section 208 in relation to the scheme chargeable payment, or in relation to such of the scheme chargeable payments as are tax-paid.

A scheme chargeable payment is “tax-paid” if the whole or any part of the tax chargeable in relation to it under section 208 has been paid.”

The term “scheme chargeable payment” is defined in Section 241. So far as is material, that section provides:

In this Part “scheme chargeable payment”, in relation to a registered pension scheme, means—

an unauthorised payment by the pension scheme, other than one which is exempt from being scheme chargeable, and

An unauthorised payment is exempt from being scheme chargeable if—

it is treated as having been made by section 173 (use of scheme assets to provide benefits) and the asset used to provide the benefit in question is not a wasting asset,

“Wasting asset” has the same meaning as in section 44 of TCGA 1992.”

In this case, it is common ground that the cash which was used to make each MPVA loan was not a wasting asset and that therefore any deemed UMP which may have arisen under Sections 160(2)(b) and 173 by virtue of the use of that cash to give rise to a benefit for a member of the lending Ark Scheme was not a “scheme chargeable payment”. Thus, in this context, only an actual UMP can give rise to a scheme sanction charge.

Pursuant to Section 268, a person liable to an unauthorised payments surcharge in respect of an unauthorised payment, or a scheme administrator liable to a scheme sanction charge in respect of a scheme chargeable payment, can apply to the Respondents for the discharge of that liability.

In the case of an unauthorised payments surcharge, the ground of discharge is prescribed by Section 268(3) of the FA 2004 as being that, “in all the circumstances of the case, it would not be just and reasonable for the [relevant person] to be liable to the unauthorised payments surcharge in respect of the payment”.

An application to discharge an unauthorised payments surcharge is required to be made in accordance with paragraph 3 of the Registered Pension Schemes (Discharge of Liabilities under Sections 267 and 268 of the Finance Act 2004) Regulations 2005 (SI 2005/3452) (the “Discharge Regulations”). This requires that:

On receiving an application under Section 268 from a person who is liable to the unauthorised payments surcharge, the Respondents must decide whether to discharge that person’s liability to the unauthorised payments surcharge. If the Respondents refuse to discharge the liability, then an appeal to the FTT lies pursuant to Section 269. The FTT can then decide whether the liability ought to have been discharged.

In the case of a scheme sanction charge, the ground of discharge is prescribed by Section 268(7) as being that:

the scheme administrator reasonably believed that the unauthorised payment was not a scheme chargeable payment, and

in all the circumstances of the case, it would not be just and reasonable for the scheme administrator to be liable to the scheme sanction charge in respect of the unauthorised payment.”

An application to discharge a scheme sanction charge is required to be made in accordance with paragraph 3 of the Discharge Regulations. This requires that:

On receiving an application under Section 268 from the scheme administrator, the Respondents must decide whether to discharge the scheme administrator's liability to the scheme sanction charge in respect of the unauthorised payment. If the Respondents refuse to discharge the liability, then an appeal to the FTT lies pursuant to Section 269. The FTT can then decide whether the liability ought to have been discharged.

A crucial part of the evidence which we have considered for the purposes of the appeals is various spreadsheets.

Chief amongst those is a redacted spreadsheet (the “Final Redacted Spreadsheet”) which was prepared by Dalriada in co-operation with the Respondents for the purposes of the hearing and which was based on an earlier unredacted spreadsheet (the “Database”). The Database was sent to Dalriada following its appointment as the administrator of the Ark Schemes but without any explanation of the precise manner in which it had been created or the purposes for which it had been generated, both of which are in issue between the parties. The identities of the people who prepared the Database is unknown. However, it is common ground that they were part of the administration team employed by the Ark LLPs (as defined below) and the evidence of Mr Tweedley was that the Database may have been created out of paper records prepared by the directors of the two trustee companies, Mr Julian Hanson and Mr Andrew Hields. According to Mr Sean Browes, the main witness for Dalriada in these proceedings, the metadata for the Database shows that it was first created on 24 February 2011, some months after the PRP was first implemented and several months before the intervention of the PR and the appointment of Dalriada brought an abrupt end to the PRP. The Database is therefore a valuable contemporaneous record of what the individuals involved in creating and operating the PRP were thinking at the time when the PRP was in progress.

The Final Redacted Spreadsheet is essentially a reflection of the Database, given that it is simply a more developed version of the Database taking into account the attempts by Dalriada to make sense of the PRP following its appointment. Each row of the Final Redacted Spreadsheet relates to one member of the Ark Schemes. The Final Redacted Spreadsheet includes numerous columns relating to each member. For the purposes of the issues which we need to address in this decision, the most significant column in the Final Redacted Spreadsheet is one entitled “Matched With1”. In relation to most members, the “Matched With1” column includes the name of another member (and sometimes other members) of the Ark Schemes.

Another spreadsheet which was prepared by Dalriada, sent to the Respondents and provided to us for the purposes of the hearing was a bank statement reconciliation which tracked payments into and out of each Ark Scheme by and to each member and which included the dates, amounts and paying Ark Scheme in relation to each MPVA loan which was made to each member (the “Bank Statement Reconciliation”).

A further spreadsheet which was prepared by Dalriada, sent to the Respondents and provided to us for the purposes of the hearing compared some of the information set out in the Final Redacted Spreadsheet with other information held by Dalriada and identified consistencies and inconsistencies in that information (the “Comparison Spreadsheet”). The Comparison Spreadsheet was accompanied by a number of other spreadsheets which either:

The Final Redacted Spreadsheet, the Bank Statement Reconciliation, the Comparison Spreadsheet and the Exhibited Spreadsheets are referred to collectively in this decision as the “Spreadsheets”.

The parties to the appeals have divided the members of the Ark Schemes into different categories. Each category reflects a different fact pattern. The categories have developed over time and so the naming convention is not sequential. For example, there is no Category E or Category F. The various categories are as follows:

Of the Appellants, Ms Oades falls in Category B and Mr Donaghy-Sutton falls in Category C.

The Appellants and the Respondents have agreed certain facts. Those facts are set out in paragraphs 37 to 58 below.

As noted above, the PRP involved an arrangement under which each Ark Scheme made an MPVA loan to a member of another Ark Scheme. (For completeness, we would note that there are examples of cases where an Ark Scheme made an MPVA loan to one of its own members but it is common ground that those circumstances arose as a result of an error by those who were responsible for operating the PRP and was not the aim of the PRP. We do not consider those circumstances further in this decision.)

When a member of an Ark Scheme borrowed from another Ark Scheme, the borrowing member and the lending Ark Scheme would execute a deed known as an “MPVA Agreement”.

The typical MPVA Agreement provided for the lending Ark Scheme to make an MPVA loan to the borrowing member. Under the typical MPVA Agreement, the lending Ark Scheme was entitled to set a repayment date which would fall at least 25 years after the date of the MPVA Agreement. The MPVA Agreement did not expressly state that interest would accrue over its term. However, in most MPVA Agreements, the amount to be repaid at the end of the term (the “MPVA Discharge Amount”) was expressed as a fixed amount, calculated by reference to the amount borrowed plus 3% simple interest per annum over twenty-five years. Interest of 3% per annum above the base lending rate was also payable on any sum not repaid by its due date. The MPVA loan was unsecured.

The MPVA loan offered to the member would be up to 50% of the value of the member’s pension rights. The lending Ark Scheme did not carry out credit checks on any of the borrowing members.

Mr Craig Tweedley devised the PRP. He did so after being shown an alternative scheme which enabled members to access funds on the basis of their pension scheme entitlements (the “KJK Scheme”).

Mr Tweedley began to implement the PRP in May 2010, when the first two of the Ark Schemes were established. These were the Lancaster Scheme and the Portman Scheme, both established on 12 May 2010. The Grosvenor Scheme, the Cranborne Scheme, the Tallton Scheme and the Woodcroft Scheme were established on 26 January 2011.

The “Principal Sponsors” of the Ark Schemes are set out below:

The original sole trustee of each of the Ark Schemes was either Athena Pension Services Limited (“Athena”) or Minerva Pension Services Limited (“Minerva”), as identified further below.

The directors of Athena were:

The directors of Minerva were:

Outline details of the Ark Schemes (their trustees and the first and last dates on which funds were transferred) are set out below:

The trust deeds of each of the Ark Schemes stated that the trustee of each scheme (which is to say, Athena or Minerva) was to be the scheme administrator.

Apart from the Portman Scheme, Ark Commercial Pension Planning LLP (“Ark CPP LLP”) made the required declaration under Section 270 in respect of each of the Ark Schemes. Ark Commercial Retirement Planning LLP (“Ark CRP LLP”) made the required declaration under Section 270 in respect of the Portman Scheme.

Ark CPP LLP was incorporated on 11 March 2010 and dissolved on 13 August 2019. The members of Ark CPP LLP were:

Ark CRP LLP was also incorporated on 11 March 2010 and dissolved on 13 August 2019. The members of Ark CRP LLP were the same persons for the same periods as those of Ark CPP LLP (set out at paragraph 50 above).

The declarations pursuant to Section 270 were made on the following dates for each scheme:

The Respondents assessed Dalriada (as scheme administrator of each of the Ark Schemes) to scheme sanction charges under Sections 239 and 255, as set out in Part A of the Schedule.

On or about 6 August 2015, Dalriada appealed to the Respondents against each of the assessments.

On 24 July 2015, Dalriada made applications to the Respondents under Section 268 for the discharge of the scheme sanction charges in respect of each Ark Scheme.

On 18 January 2016, the Respondents rejected each of Dalriada’s applications under Section 268.

On 16 February 2016, Dalriada appealed to the Respondents against the decisions to reject their applications under Section 268.

On 19 February 2016, Dalriada notified its appeals against the Respondents’ decisions in relation to the applications to the FTT.

The following are the agreed facts relating to Ms Oades. They are agreed by Ms Oades, the Respondents and Dalriada (so far as it is aware) but not by Mr Donaghy-Sutton or any appellant under the stayed appeals and are as follows:

The following are the agreed facts relating to Mr Donaghy-Sutton. They are agreed by Mr Donaghy-Sutton, the Respondents and Dalriada (so far as it is aware) but not by Ms Oades or any appellant under the stayed appeals and are as follows:

Following Dalriada’s appointment as independent trustee, Dalriada commenced claims against:

In these claims, Dalriada sought declarations that the MPVA loans had not been made pursuant to valid exercises of the trustees’ powers of investment in respect of the Ark Schemes and were therefore void.

Approximately three weeks prior to start of the hearing in the High Court proceedings, Dalriada’s representatives at that time (McGrigors LLP, now Pinsent Masons LLP following a merger) wrote to the Respondents to ask if the Respondents were prepared to agree to be bound by the decision of the High Court.

A few days later, the Respondents wrote to McGrigors LLP to say that, whilst they would, of course, take notice of what the High Court said in reaching their view on the position following the hearing, they were not prepared to commit to be bound by the High Court’s decision. The Respondents added that:

Dalriada’s claims were heard by Bean J in November and December 2011 and Bean J’s decision - in Dalriada Trustees Ltd v Faulds and others [2011] EWHC 3391 (Ch), [2012] ICR 1106 (“Faulds”) – along with the implications of that decision for the present proceedings, is discussed in paragraphs 266 to 308 below. It is common ground that, not only were the Respondents not party to the proceedings but:

In view of the law summarised in paragraphs 7 to 27 above, and the agreed facts summarised in paragraphs 36 to 60 above, the parties have agreed the following to be the issues which are relevant to all parties to the appeals:

In addition, if the answer to Issue 3 is yes, while this is not technically an issue in any of the appeals which have so far been made, Dalriada has asked us to consider and determine how the benefit accruing to the members of Scheme Y should be quantified when:

Just pausing there, we think that it is convenient to address Issue 1 and Issue 2 together – given that they both relate to the potential application of Section 160(2)(a) – and Issue 3 and Issue 4 together – given that they both relate to the potential application of Sections 160(2)(b) and 173. In addition, in considering those two pairs of issues, we think that it is helpful to adopt the terminology chosen by the Respondents to describe their case in their skeleton argument and then adopted by the parties at the hearing, which is as follows:

Each of the Appellants considers that the Alternative Case is correct and that each of the Primary Case Preferred Analysis and the Primary Case Alternative Analysis is not. The Respondents consider that the Primary Case Preferred Analysis is correct and that, if we consider this not to be so, the Primary Case Alternative Analysis is correct. The Respondents then say that, as long as we agree that one of the Primary Case analyses is correct, the Alternative Case does not arise. However, the Respondents go on to say that, if we do not agree with either of the Primary Case analyses, the Alternative Case is correct. This is therefore a somewhat unusual situation, to say the least.

In the event that we decide that actual UMPs were made in respect of members of the Ark Schemes pursuant to Section 160(2)(a), we also need to decide Dalriada’s appeals against the Respondents’ decisions to refuse its applications under Section 268 to discharge the scheme sanction charges which have been assessed under Section 239. This is because, while those appeals involve only Dalriada (and not Ms Oades, Mr Donaghy-Sutton or any of the other members of the Ark Schemes), the determination of the appeals will affect each of the Ark Schemes a whole, and so in that sense they are common issues.

The determination of those appeals involves our considering two issues in relation to each actual UMP - namely, has Dalriada satisfied us that its liability to the scheme sanction charges ought to have been discharged because:

Mr Donaghy-Sutton’s appeals do not raise any issue which is different from the issues outlined above because Mr Donaghy-Sutton has not made an application to discharge the unauthorised payments surcharge which has been assessed against him.

The same is not true for Ms Oades because Ms Oades submits that she has made a valid application under Section 268(3) to discharge the unauthorised payments surcharge which was assessed under Section 209 in respect of the tax year 2010/11. That submission gives rise to two issues - namely:

We were provided with a considerable amount of written and oral evidence in relation to the proceedings.

In addition to the Spreadsheets, the written evidence included:

We were also provided with the oral testimony of Mr Browes, Mr Tweedley, Ms Oades, Mr Isles, Mr Donaghy-Sutton and Ms Allsopp at the hearing.

Before proceeding any further, we should say something about each of the witnesses who provided oral evidence at the hearing.

We considered that Mr Browes was an honest and straightforward witness who did his best to assist us in our attempts to grapple with the implications of the Spreadsheets. We are grateful to Mr Browes for the assistance which he provided to us in that regard and we have accorded considerable weight to his answers in weighing up the evidence.

Unfortunately, we cannot say the same for Mr Tweedley. Mr Tweedley repeatedly sought to avoid answering the questions which had actually been put to him, tried to anticipate future questions which had not actually been put to him, sought to defend the indefensible and was generally evasive and hostile. Many of his answers were inconsistent with the documents with which we had been provided and, in some cases, with his own evidence. In short, we have accorded almost no weight to Mr Tweedley’s evidence and, where that evidence is inconsistent with the documents, we have chosen to rely on the documents.

Whilst we are on the subject of Mr Tweedley, we would be remiss if we did not at this point make some observations about the PRP and the conduct of Mr Tweedley in devising and marketing the PRP because it has considerable relevance to these proceedings. In our view, leaving aside the tax consequences of the PRP – which are our primary concern and which, as will be seen in this decision, are, in our opinion, disastrous for every member who chose to participate in it – the PRP was fatally flawed from the commercial perspective. Not a single part of the scheme made any sense commercially, whether it was lending half the assets of each Ark Scheme on a long-term unsecured basis at a below-market rate of interest to individuals who had not been the subject of prior credit checks and without taking out insurance to cover death prior to the stipulated maturity date, through to the risky investments which were made with the remaining part of each Ark Scheme’s assets.

We would expand on those observations as follows. On the basis of the evidence with which we were provided as described in paragraphs 74 to 76 above, it is apparent that the essence of the proposal from the commercial perspective was that, for every £100 that was contributed on behalf of a member into an Ark Scheme:

There were a number of significant flaws in this model.

First, we were provided with figures at the hearing that showed that, even if each MPVA loan were to have been discharged in full, the other assets of each Ark Scheme would have needed to generate a return of between 8% and 9% in order to enable the assets of each Ark Scheme to be sufficient to enable the members to discharge their MPVA loans out of their tax-free lump sums. (At one point in his evidence, Mr Tweedley asserted that, in fact, the return required from the other investments was only 5% but he provided no figures to support this claim and it was contrary to the figures with which we had been provided. We therefore do not believe him).

There were a number of reasons why the MPVA loans were not going to be discharged in full. Those included the fact that:

Secondly, the assets of each Ark Settlement were invested in assets which were high risk and highly speculative and were therefore unlikely to grow in value at the required rate. They included:

In his evidence, Mr Tweedley was conspicuously vague on the extent of the due diligence which had been conducted in relation to each of the investments. For example, he accepted that his due diligence in relation to Freedom Bay involved little more than a Caribbean holiday. The only due diligence he had carried out in St Lucia had been to talk to some government officials to confirm that planning permission was in place. He also admitted that the Ark LLPs received commissions in connection with the making of many of the relevant investments.

Although, by dint of assiduous efforts following its appointment, Dalriada has been able to recover most of the amounts invested, the monies invested in the Guernsey company had not been recovered by the time of Mr Fairhead’s witness statement in relation to the Beddoe application in 2016 and none of the investments has produced anything close to the return of between 8% and 9% which they would have needed to produce in order for the PRP to have had any prospect of working from the commercial perspective.

As regards the making of the MPVA loans and the other investments, Mr Tweedley accepted in giving his evidence that:

Thirdly, the fees received by the Ark LLPs in connection with the PRP were substantial. Mr Tweedley was evasive when he was asked about the extent of those fees at the hearing but, in his witness statement in relation to the Beddoe application, Mr Fairhead testified that fees of a little over £1 million had been paid by the Ark Schemes to the Ark LLPs in aggregate.

Fourthly, the relationships between the various individuals who were responsible for operating the PRP was such as to give rise to some conspicuous conflicts of interest. Mr Tweedley himself owned the two trustee companies and so there was a connection between each trustee company even before taking into account the fact the two directors of the trustee companies, Mr Hanson and Mr Hields, were related to each other. In addition, each of Mr Hanson and Mr Hields, who were making the decisions in relation to accepting new members into the Ark Schemes and advancing MPVA loans, stood to profit, through their membership of Ark BC LLP, from the fees which were charged to the Ark Schemes and also received fees by virtue of acting as introducers of participants.

The issues which we have described above were reflected in the conclusions reached by the PR when it intervened to appoint Dalriada as independent trustee of the Ark Schemes. At that time, the PR noted its concern that the Ark Schemes involved a systematic breach of trustee investment duties, including not exercising powers of investment for the purposes for which they had been granted, high fees, irregular transfers and inconsistencies in the information which had been provided to the PR by the trustees.

In addition to the commercial flaws in the structure and the deficiencies in the conduct of Mr Tweedley described above, there were other highly regrettable aspects to Mr Tweedley’s conduct in relation to the PRP including, following Dalriada’s appointment, orchestrating an amendment to the rules of each Ark Scheme in an attempt (which ultimately failed) to enable further MPVA loans to be made, retrospectively to cure the invalidity of the MPVA loans which had previously been made and retrospectively to validate the fees which had previously been charged to the Ark Schemes.

None of this redounds terribly well to the credit of Mr Tweedley. We agree with the Respondents’ summary at closing that Mr Tweedley’s actions in relation to the PRP displayed a total disregard for due diligence and careful administration and was primarily motivated by a desire for personal financial gain. In giving his evidence, Mr Tweedley displayed very little remorse for the damage and misery that the PRP has caused to so many people.

Whilst Mr Isles was by no means as evasive as Mr Tweedley, there were certain parts of his evidence which troubled us.

Mr Isles was keen to distance himself from the PRP. For example, we were somewhat perplexed by his refusal to accept that he had acted as an introducer of members to the Ark Schemes even though:

In the light of his approach, we were not entirely convinced by his protestations to the effect that that he had subsequently divested himself of all of the commissions which he had obtained from the Ark LLPs for introducing members to the Ark Schemes, either to the member in question or to charity and, in any event, his assertion that he had not benefitted financially from the PRP in any way sat somewhat uncomfortably with his admission that the arrangement had produced benefits for the major client referred to in paragraph 95 above and that this had led to more work from that client and some new clients for I&S Limited.

Mr Isles also gave contradictory evidence in relation to the extent of his advice to prospective members. At one stage he said that he did not provide advice to potential members at all and, at another, he said that he had advised Ms Oades not to transfer her pension monies out of the NHS pension fund and into the PRP – advice which Ms Oades confirmed.

Finally, there was a perplexing exchange during Mr Isles’s cross-examination when he denied having signed documents relating to the attempt by the sponsoring employer companies, following the appointment of Dalriada, to enable further MPVA loans to be made, retrospectively to cure the invalidity of the MPVA loans which had previously been made and retrospectively to validate the fees which had previously been charged to the Ark Schemes even though he was the sole director of two of the sponsoring employer companies and had apparently referred to those amendments in his witness statement for the proceedings in Faulds. That was something which remained unresolved at the hearing.

Overall, we did not find Mr Isles to be a credible or reliable witness.

Although we experienced fewer problems in relation to the evidence of Ms Oades than we did with Mr Tweedley and Mr Isles, we did not find her to be entirely straightforward as a witness. We accept that Ms Oades did not wish to mislead us but there were certain features of her testimony which were unsatisfactory. For example, in a letter to the Respondents dated 26 August 2014, I&S Limited claimed on Ms Oades’s behalf that she had read a tax barrister’s opinion which blessed the arrangements before transferring her pension funds into the Portman Scheme – and Ms Oades repeated this assertion in giving her evidence at the hearing - but, in fact, it is clear from the documents bundle for the proceedings (the “DB”) and the evidence of Mr Tweedley that no opinion in relation to the PRP was obtained from tax counsel until some months after that transfer took place.

Ms Oades also:

Finally, in cross-examination, Ms Oades had a tendency to respond to questions which could logically only be answered in the affirmative but where an affirmative answer did not help her case with the answer “I don’t know”. We did not find this to be very helpful.

For these reasons, we did not consider Ms Oades to be entirely reliable as a witness.

We considered Mr Donaghy-Sutton to be a reliable and straightforward witness and had no reason to doubt any of his testimony. However, as Mr Donaghy-Sutton has not made any appeal in relation to an application to discharge the unauthorised payments surcharge, his evidence was of no relevance to the issues which we have to address in this decision.

Finally, we considered Ms Allsopp to be a reliable and straightforward witness and had no reason to doubt any of her testimony.

Given the issues set out in paragraphs 66 to 73 above, we have found it convenient to deal with the evidence, the submissions of the parties in relation to the evidence and our findings of fact based on the evidence under the following broad headings:

We have not found it necessary to make any separate findings of fact in relation to Issue 3, Issue 4 or Issue 6 for reasons which will become apparent.

For the avoidance of doubt, we should make it clear at this point that, although we have divided our summary of the evidence and our findings of fact into the separate headings described in paragraph 106 above for ease of reference, there is inevitably a degree of overlap between the various issues when it comes to the evidence and findings of fact. It should therefore be assumed that the evidence we describe in the paragraphs which follow, and the findings of fact we make in the paragraphs which follow, apply for the purposes of these proceedings as a whole and are not confined to the particular issue to which they have been nominally allocated.

By far the most significant part of the evidence in the proceedings related to the question of matching. By that we mean the question of whether the individuals who operated the PRP intended there to be member-to-member matching of MPVA loans – which was the Respondents’ position in the proceedings - or whether those individuals merely intended to ensure that each Ark Scheme within a pair of Ark Schemes had broadly the same value – which was the Appellants’ position in the proceedings.

In relation to this question, we were provided with various documents which were contained in the DB, along with the Spreadsheets.

One of the documents in the DB was a table setting out the MPVA loans which were made by each Ark Scheme to the members of other Ark Schemes. This revealed:

The DB also contained various standard documents which were completed by the Ark LLPs and by prospective participants in the PRP. These included:

The DB also contained various emails and letters which were relevant to the question of whether or not there was member-to-member matching. These included:

Turning to the Spreadsheets, the Final Redacted Spreadsheet contained columns with various entries in relation to each member, including columns specifying:

In the Final Redacted Spreadsheet:

The Comparison Spreadsheet contained a column (Column T) which set out a “Yes” or “No” answer provided by Dalriada to the following question:

The Exhibited Spreadsheets contained a column (Column G) which showed that the number of MPVA loans made to a member and the number of MPVA issued dates shown in the Final Redacted Spreadsheet in relation to that member were the same 76.9% of the time.

We were taken to two examples of a member who was shown in the Final Redacted Spreadsheet as having more MPVA issued date entries than MPVA issued amount entries. Those were as follows:

We were taken to two examples of a member who was shown as having a different number of MPVA issued date entries in the Final Redacted Spreadsheet than the number of MPVA Agreements in relation to that member which were shown in the Exhibited Spreadsheets as being in Dalriada’s possession. Those were as follows:

The Final Redacted Spreadsheet contained:

Finally, the Spreadsheets contained an example of Ms Diane Rotherforth, a member of the Lancaster Scheme, who received an MPVA loan of more than 50% of the amount that she had transferred into the Lancaster Scheme (approximately £44,600 transferred in and an MPVA loan of approximately £25,000 received).

In relation to the question of matching, Mr Tweedley testified that:

Mr Browes testified that:

Before setting out the substantive arguments of Mr Jones and Ms Poots in relation to the question of member-to-member matching, we should note that there was a dispute between Mr Jones and Ms Poots in relation to the burden of proof.

Mr Jones accepted that the burden of establishing that member-to-member matching was not intended (and therefore that each MPVA loan made by an Ark Scheme was not made “in respect of” a member or members of that Ark Scheme) lay with Dalriada. However, he said that, given that the point in question involved establishing a negative – that is to say that there had been no member-to-member matching – and the evidence which Dalriada had produced for the purposes of the proceedings which supported that proposition, the evidential burden had passed to the Respondents and it was for the Respondents to show why that evidence was insufficient. He relied in this respect on the decision of the FTT in Perenco Holdings v The Commissioners for Her Majesty’s Revenue and Customs [2015] UKFTT 65 (TC) (“Perenco”) at paragraphs [100] to [109].

In response, Ms Poots submitted that the evidential burden remained with Dalriada. She said that this was not a case like Perenco where both parties would have been in possession of the relevant evidence at the outset. Instead, it was Dalriada which held the fullest set of documentation in relation to this question and Dalriada which was able to call the appropriate witnesses. In addition, Dalriada had chosen to rely on Mr Tweedley’s hearsay evidence in this respect, instead of calling Mr Hanson or Mr Hields as witnesses. As such, Dalriada had not done enough to shift the evidential burden of proof onto the Respondents.

Turning then to the substantive arguments, Mr Jones submitted that there was no sound evidential basis for concluding that member-to-member matching had been intended by the administrators of the Ark Schemes. This was because that was contrary to the evidence of Mr Tweedley, the architect and controlling mind of the arrangement, and Mr Browes, who had given evidence on behalf of Dalriada and who and whose colleagues had studied the Database in some depth and reached that conclusion. In addition, it was contrary to the recollections of Ms Tweedley and Ms Kowalczyk.

In response, Ms Poots said that the only witness evidence in relation to the intentions of the trustees of the Ark Schemes provided by Dalriada was the hearsay evidence of Mr Tweedley and even that was based on what Mr Tweedley had been told by Mr Hanson who had been found to be dishonest in subsequent High Court proceedings. Neither Mr Hanson nor Mr Hields nor anyone involved in producing the Database which was the source of the Final Redacted Spreadsheet had provided any witness evidence. The letters from Ms Tweedley and Ms Kowalczyk should be discounted as both had disclaimed any first-hand knowledge of the day-to-day operation of the PRP.

Ms Poots added that, in any event, in considering this question, greater regard should be paid to the contemporaneous documentary evidence (in the form of contemporaneous emails and the Final Redacted Spreadsheet, based as it was on the contemporaneous Database) than on the recollections of witnesses some years after the events in question. This was consistent with the approach recommended by Leggatt J in Gestmin SGPS SA v Credit Suisse (UK) Ltd & another [2013] EWHC 3560 (Comm) (“Gestmin”) at paragraphs [15] to [22]. Although Gestmin was not a tax case, the same approach was relevant in the tax cases – see the Upper Tribunal decision in R (on the applications of) Mukesh Sehgal and Promila Sehgal v The Commissioners for Her Majesty’s Revenue and Customs [2021] UKUT 151 (TCC) at paragraphs [17] to [22].

Mr Jones pointed out that, although the Database on which the Final Redacted Spreadsheet was based had been prepared contemporaneously with the operation of the PRP, the Database had not been constructed by Mr Hanson and Mr Hields themselves. Instead, Mr Hanson and Mr Hields had conducted the allocation exercise on paper and then the Database had been constructed by others with the benefit of the papers. It was perfectly possible that the intention of Mr Hanson and Mr Hields was merely to match the value of each Ark Scheme within a pair of Ark Schemes but that the individuals who prepared the Database had misinterpreted the papers with which they had been provided and transposed that exercise into a document which bore the hallmarks of member-to-member matching.

Ms Poots said that that explanation did not make sense. On the balance of probabilities, as the Database had been prepared on the basis of the papers prepared by Mr Hanson and Mr Hields, it was highly likely to be a fair and accurate reflection of those papers and, hence, of their intentions.

Mr Jones said that attempting to match on a member-to-member basis was a hugely complicated task which carried with it no apparent advantage or benefit. Why would Mr Hanson and Mr Hields go to all that trouble given the complexities to which it gave rise and the fact that it was totally unnecessary to the effective operation of the arrangement? He added that the unsegregated nature of the Ark Schemes supported his position in relation to this question. Given that each Ark Scheme was unsegregated, there was no need to identify a matching member or matching members for each member. Accordingly, there was no obvious reason why the persons responsible for administering the Ark Schemes would have sought to match on a member-to-member basis.

In response, Ms Poots pointed out that there was no explanation for the “Matched With1” column apart from the fact that member-to-member matching was intended. In addition, the entries in that column and in the notes column for a number of individuals made it clear that member-to-member matching was intended.

As for Mr Jones’s allegation that the unsegregated nature of the Ark Schemes tended to support his position, the fact that the Ark Schemes were unsegregated meant that there was no need to ensure that each member in a matched member-to-member pairing needed to have the same maturity date for their MPVA loans or became entitled to access their pension funds at the same time and this meant that many of the reasons suggested for why member-to-member matching could not work fell away. Thus, that fact was neutral in considering this question.

Ms Poots said that, at this distance in time and without the evidence of the relevant people, it was hard to say why the trustees might have chosen to carry out member-to-member matching when it was so complicated to implement and unnecessary to the effective operation of the PRP. However, she speculated that it might have been because the PRP, as originally conceived and marketed, involved matching an MPVA loan made by one Ark Scheme to a member of the Ark Scheme with which it was paired with an MPVA loan made by the borrower’s Ark Scheme to a member of the first-mentioned Ark Scheme and the trustees might very well have extrapolated from that original concept to believe that member-to-member matching was required. Alternatively, it might have been because the trustees mistakenly believed that the assets of each Ark Scheme were in fact segregated and so each member had his or her own siloed pot of monies within his or her Ark Scheme. However, it didn’t really matter why the trustees had formed the intention to carry out member-to-member matching. All that was relevant was that they had had that intention.

Mr Jones said that Ms Poots’s proposition was inconsistent with the fact that there was no obligation on any member to take an MPVA loan and there was no obligation on the trustees to advance an MPVA loan even if one was requested. So it was perfectly possible for an individual to become a member without taking out an MPVA loan.

Ms Poots said that had the PRP been able to run for its full term, instead of being disturbed by the appointment of Dalriada, there was no practical likelihood that any member would not have received an MPVA loan. That was the whole reason why individuals had chosen to join the PRP and become members of the Ark Schemes.

Mr Jones said that, in any event, when one tried to put the position to the test, there were a number of gaps, inconsistencies and flaws with the proposition of member-to-member matching which emerged from a consideration of the detail, as outlined more fully by Mr Browes in his evidence.

In response, Ms Poots said that many of the discrepancies which had been noted by Mr Jones and Mr Browes could be attributed to the fact that the operation of the PRP had been disturbed by the appointment of Dalriada. For example, that explained why:

Mr Jones said that one of the discrepancies was the fact that, in the Final Redacted Spreadsheet, the number of entries in the MPVA issued amount column for a member was not the same as the number of entries in the MPVA issued date column for that member 49.5% of the time.

Ms Poots said that that could be explained by seeing the MPVA issued amount column as recording the MPVA loans which were expected to be made, as opposed to the MPVA loans which had actually been made, whereas the MPVA issued date column was recording the dates on which MPVA loans had actually been made. That explained why:

Mr Jones said that another problem for the proposition of member-to-member matching was that there was a discrepancy between the MPVA issued date (if any) shown in relation to a member in the Final Redacted Spreadsheet and the existence of an MPVA Agreement in relation to the relevant member which was shown in the Exhibited Spreadsheets as being in Dalriada’s possession.

Ms Poots said that, as the examples of the ACAM and Mr Wagjiani in paragraph 119 above showed, there were explanations for at least some of those cases.

Mr Jones said that there were numerous examples where the amounts which were said to be advanced to members on the basis of member-to-member matching were not the same.

Ms Poots said that the fact that bank fees and introducer’s fees were deducted from the amount of MPVA loans advanced accounted for a number of those discrepancies.

In their submissions, each of Mr Jones and Ms Poots sought to support his or her position by reference to a number of specific examples. In essence, Mr Jones sought to rely on the examples as indicating that, because of one or more identified discrepancies between the figures in the Spreadsheets and the figures which would have arisen from member-to-member matching had member-to-member matching applied, member-to member matching could not have been intended whereas Ms Poots’s position was that the discrepancies could be explained and were in fact consistent with an intention to carry out member-to-member matching.

For reasons which will become apparent, we do not think that, at the end of the day, this approach of claim and counter-claim provides a conclusive answer to the question of whether member-to-member matching was intended. However, since the relevant evidence was presented to us in great detail and these appeals may well proceed further, we have set out the evidence with which we were provided in relation to each specifically-identified member, along with the submissions made by Mr Jones and Ms Poots in relation to that member.

In relation to Ms Oades, who became a member of the Portman Scheme:

In relation to Ms Oades, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that:

In response, Ms Poots submitted that the likely reason for these anomalies was that there were various errors in the Final Redacted Spreadsheet.

As regards Mr Barnard and Mr Laing, a likely explanation was as follows:

As regards Ms Gray, a likely explanation was as follows:

In relation to the ACAM, who became a member of the Lancaster Scheme:

In relation to the ACAM, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that, although the dates of the MPVA loans to the ACAM and Mr Court matched, the amounts of those MPVA loans did not match.

In response, Ms Poots pointed out that the figures in the Spreadsheets did not take into account the bank fees and introducer’s fees which were paid by each member. It was clear from the DB and the Bank Statement Reconciliation that the ACAM had been required to pay an introducer’s fee of £1,300 to PP and, once that fee was taken into account, the amounts of the MPVA loans made to each of the ACAM and Mr Court did match.

In relation to Mr Barrie Richardson, who became a member of the Lancaster Scheme:

In relation to Mr Richardson, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that:

In response, Ms Poots pointed out that:

In relation to Mr Donaghy-Sutton, who became a member of the Portman Scheme:

In relation to Mr Donaghy-Sutton, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that:

In response, Ms Poots pointed out that:

In relation to Mr Philip Gorman, who became a member of the Grosvenor Scheme:

In relation to Mr Gorman, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that Mr Ewing had not received an MPVA loan and that this could not be explained by the appointment of Dalriada given that Mr Ewing joined the Woodcroft Scheme on 21 April 2011 and Mr Gorman received his MPVA loan on 10 May 2011, both well before the date on which Dalriada was appointed.

In response, Ms Poots pointed out that:

In relation to Ms Julie Baines, who became a member of the Tallton Scheme:

In relation to Ms Baines, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that:

In response, Ms Poots pointed out that the notes for Ms Bartlett made it clear that there had been difficulties in arranging the transfer of Ms Bartlett’s pension fund into the Cranborne Scheme and that those difficulties had not been resolved by the time of Dalriada’s appointment.

In relation to Mr Jeremy Beech, who became a member of the Grosvenor Scheme:

In relation to Mr David Beech:

In relation to Mr Jeremy Beech, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that, assuming the reference in the “Matched With1” column for Mr Caskey to Mr David Beech was indeed an error and was intended to be a reference to Mr Jeremy Beech, so that there was expressed to be mutual matching as between Mr Caskey and Mr Jeremy Beech, neither Mr Caskey nor Mr Jeremy Beech received an MPVA loan and Mr Caskey did not even become a member of an Ark Scheme.

In response, Ms Poots submitted that Mr Browes had accepted in his evidence that Mr Jeremy Beech and Mr Caskey were matched and that the only reason why neither had received an MPVA loan was that Dalriada had been appointed shortly after the transfer into the Grosvenor Scheme had been made in respect of Mr Jeremy Beech and before any transfer into the Woodcroft Scheme had been made in respect of Mr Caskey.

In relation to Mr David Beech, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that Mr Perkins and Mr Baker, with whom Mr David Beech was expressed to be matched, had transferred an aggregate sum of approximately £164,200 into the Tallton Scheme whereas Mr David Beech had received an MPVA loan of approximately £99,500, which was more than 50% of that aggregate amount.

In response, Ms Poots submitted that that discrepancy fell away once the anticipated transfer of an additional £57,000 into the Tallton Scheme in respect of Mr Baker referred to in paragraph 169(3) above was taken into account.

In relation to Mr Matthew Bradley, who became a member of the Cranborne Scheme:

In relation to Mr Bradley, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that, as regards the MPVA loans made to Mr Bradley and Mr Adderley, there were differences both in the amounts of the MPVA loans and the dates on which they were made.

In response, Ms Poots submitted that the figures in the Spreadsheets did not take into account the introducer’s fees which were paid by each member. Both MPVA loans could sensibly be rounded to £15,000 once those fees were taken into account and the notes column for Mr Adderley indicated that a £15,000 MPVA loan was intended to be made to him too.

In relation to Mr Thomas Ison, who became a member of the Cranborne Scheme:

In relation to Mr Ison, Mr Jones submitted that the fact that member-to-member matching was not intended could be seen in the fact that Mr Ison and Ms McStay were expressed to be mutually matched and yet the evidence of Mr Isles was that Mr Ison had never wanted to receive an MPVA loan and had not in fact received an MPVA loan whereas Ms McStay had received an MPVA loan of approximately £17,500.

In response, Ms Poots submitted that we should be slow to conclude that Mr Ison did not wish to receive an MPVA loan because:

The question of whether member-to-member matching was intended as the basis for operating the PRP is of fundamental importance to these proceedings. In short, we need to determine whether, taking into account the Final Redacted Spreadsheet, and the other evidence with which we have been presented, Mr Hanson and Mr Hields intended, in operating the PRP, to match members on a member-to-member basis or simply to balance the size of each Ark Scheme within a pair of Ark Schemes.

Mr Jones submits that the latter is the case. In making that submission, Mr Jones relies on:

We do not agree. We think that the evidence shows that, on the balance of probabilities, member-to-member matching was intended.

In order to explain why we have reached that conclusion, we would start by making seven general observations. 

The first is that, for the reasons which will shortly become apparent, we do not think that it is necessary to spend much time on the question of whether the Appellants have produced enough evidence to shift the evidential burden of proof onto the Respondents. That is because, in our view, the nature of the evidence is such that, wherever the evidential burden of proof may lie, it is clear that, on the balance of probabilities, the PRP was intended to involve member-to-member matching. However, we are inclined to agree with Mr Jones that, by pointing out the various examples in the Spreadsheets in which member-to-member matching appears to be impossible or at least questionable, Dalriada have done enough to shift the evidential burden of proof on this point onto the Respondents.

The second is that, in considering the evidence, we have relied almost exclusively on the Spreadsheets and, in particular, the Final Redacted Spreadsheet, based as it was on the Database that was produced contemporaneously with the operation of the PRP. We have done this in large part because of the direction in Gestmin to favour contemporaneous written evidence over the recollections of witnesses some time after the event but also because of the nature of the witness evidence in relation to this particular question.

There are two aspects to the above statement, namely:

As regards the reliability of the Final Redacted Spreadsheet, it is common ground that the Database on which the Final Redacted Spreadsheet was based was prepared by unnamed individuals working for the Ark LLPs and not Mr Hanson and Mr Hields. As such, the individuals who prepared the Database were not themselves responsible for the day-to-day operation of the PRP. Instead, they were merely recording that day-to-day operation in the Database. At the hearing, Mr Jones sought to make something of that distinction. As we have already mentioned, he pointed out that the actual allocation of each prospective member to an identified Ark Scheme as well as the approval of MPVA loans to members had been carried out by Mr Hanson and Mr Hields as a paper exercise and that the individuals who prepared the Database had simply misinterpreted the papers with which they had been provided and somehow transposed an exercise which merely involved an attempt to balance the size of each Ark Scheme within a pair of Ark Schemes into a spreadsheet which bore the hallmarks of member-to-member matching.

We do not accept that theory. We are reluctant to conclude that the information which was set out in the Database and has found its way into the Final Redacted Spreadsheet was the creation of the individuals who were responsible for recording the day-to-day operation of the PRP and did not truly reflect the intentions of Mr Hanson and Mr Hields. The fact is that the Database was prepared by the administration team on the basis of the information provided by Mr Hanson and Mr Hields. Whilst we have no direct evidence to that effect, Mr Tweedley speculated that that was the case (based on his discussions with Mr Hanson) and we consider it to be implausible that the individuals in question would have prepared the Database in a vacuum and without recourse to the papers prepared by Mr Hanson and Mr Hields. We therefore find as a fact that the individuals in question were possessed of the information provided by Mr Hanson and Mr Hields at the time when the Database was prepared. Whilst that conclusion in itself is not controversial, Mr Jones’s proposition is that, in the process of recording, in the Database, the information set out in the papers, the individuals in question misinterpreted the relevant information. We can see no reason why that would have been the case and we therefore think that, on the balance of probabilities, the entries in the Database will have reflected that information. Accordingly, we find as a fact for the purposes of the proceedings that the Database, and therefore the Final Redacted Spreadsheet, is a fair indication of the intentions of Mr Hanson and Mr Hields at the relevant time.

As regards the lack of reliability of the witness evidence, we wish to make it clear that we intend no discourtesy or criticism whatsoever of Mr Browes and his colleagues at Dalriada, who have sought so manfully to make sense of the materials with which they have been provided. We have the utmost admiration for the task which they have performed and we have given a lot of weight to the views which they have reached on this question but, at the end of the day, their conclusions, like ours, are necessarily constrained by the fact that they have been approaching the question in retrospect and have only the written evidence to rely on. More importantly, as Mr Browes conceded at the hearing, in preparing the Comparison Spreadsheet, he and his colleagues focused on whether, in each case, member-to-member matching was definitively possible based on the figures which appeared in the Final Redacted Spreadsheet than on whether, based on those figures, it was definitively possible that member-to-member to matching was intended but was simply not recorded in those figures for one or more reasons.

In contrast, in answering this question, we have placed no reliance whatsoever on the evidence of Mr Tweedley or the letters from Ms Tweedley and Ms Kowalczyk that were provided to us at the hearing.

We have discounted the evidence of Mr Tweedley essentially because we considered him to be an unreliable witness for the reasons set out in paragraphs 79 to 93 above but also because he was not involved in the day-to-day administration of the arrangements and therefore his opinion in relation to the mindset of Mr Hanson and Mr Hields was inevitably based on speculation and hearsay. Only Mr Hanson and Mr Hields were present at the meetings when prospective members were allocated to Ark Schemes and MPVA loans to members were approved and neither of them has provided any evidence in these proceedings. Moreover, as Mr Hanson has been found by the High Court in subsequent proceedings to be dishonest, Mr Tweedley’s report of what Mr Hanson may have told him about the intentions of the trustees in operating the PRP is hardly compelling.

We have also placed little weight on the views expressed in the letters of Ms Tweedley and Ms Kowalczyk. For reasons which are perhaps understandable, both of those individuals have sought to distance themselves from the operation of the PRP and declined to provide witness evidence for the purposes of these proceedings. Having done so, their recollections as to what was involved in the administration of the PRP carry little weight.

The third general point we wish to make is that we do not accept that any person became a member of an Ark Scheme without wishing to draw down an MPVA loan. The marketing literature made it very plain that that was the very essence of the PRP. Indeed, the example of the prospective member application form with which we were provided invited the prospective member to indicate the term and quantum of the MPVA loan which he or she wished to draw down and contained a statement to the effect that the Ark Scheme which the prospective member would join would be “determined by the administrators once an appropriate level of MPVA [loan] is identified”. In addition, the form that was completed by the Ark LLPs in relation to each member showed that the making of an MPVA loan was integral to the process whereby a person became a member of an Ark Scheme because it contained a place for that information to be recorded.

In the light of:

The fourth general point is that we think that it is a mistake to approach this question on the assumption that intentions underlying the day-to-day operation of the PRP would necessarily have been logical. The fact that the PR was obliged to step in and appoint Dalriada when it did, and the concerns which were articulated by the PR in doing so, speak volumes in relation to the individuals who were responsible for operating the PRP before Dalriada’s appointment. For that reason, we do not accept the premise that because member-to-member matching made the PRP unnecessarily complicated for Mr Hanson and Mr Hield to operate, that could not have been their intention. We think that it is perfectly possible that Mr Hanson and Mr Hields mistakenly concluded that member-to-matching was required in order for the PRP to operate. Although it is, of course, pure speculation, Ms Poots provided us with two possible reasons why they might have reached that conclusion – see paragraph 135 above.

Mr Jones submitted that it would be wrong for us to conclude that, just because, as a concept, the PRP was an irrational structure with fundamental commercial flaws, the people involved in the creation and operation of the PRP would irrationally undertake an academic exercise of enormous complexity for no benefit or apparent advantage. He said that those two things were very different. Whilst we accept that the two things are different, we are not persuaded. Both of them involve reaching conclusions which are not entirely logical and so, in that sense, they are related.

The criticisms made of the operators of the PRP by the PR bring us logically to the fifth general point which we wish to make, which is that we think that it is wrong to expect that, if member-to-member matching was intended, that process would have been carried out seamlessly and accurately. Even before taking into account Ms Poots’s theory about the impact of the appointment of Dalriada on the operation of the arrangement, which we find persuasive, we think that, given the individuals who were responsible for the operation of the PRP and the complexity of the process, mistakes in carrying out the process were inevitable. 

In referring to the potential for inaccuracies to have arisen, we have touched on the sixth general point, which is that we agree with Ms Poots that the appointment of Dalriada, which brought the operation of the PRP to a sudden end, will have had a severe impact on the manner in which the arrangement was being carried out and recorded and that this needs to be borne in mind in considering whether member-to-member matching was intended. The appointment of Dalriada would have had two distinct (and separable) impacts on how accurately the Final Redacted Spreadsheet could have reflected member-to-member matching had member-to-member matching been intended, as we think it was. The first impact is that it would have prevented participants and intended participants either from becoming members or from transferring funds into the arrangement or from receiving the MPVA loans which they expected to receive. And the second impact is that it would have meant that the individuals who were responsible for recording the information in relation to the operation of the PRP in the Database would have been interrupted in that task so that discrepancies would inevitably arise in the Database.

The fifth and sixth general points, taken together, mean that, in our view, it would be a mistake to expect that, if member-to-member matching was intended, we should expect to find that, in all cases, that was carried out properly and recorded accurately in the Final Redacted Spreadsheet. There were bound to be anomalies. It follows from this that, in our view, it would be a mistake for us to seek to answer this question by considering whether member-to-member matching works in all cases in the Final Redacted Spreadsheet. It inevitably does not. Our task is not to consider whether member-to-member matching actually occurred in all cases. Instead, it is to consider whether member-to-member matching was intended in all cases. Those two things are not the same. In answering the latter question, it is much more appropriate to look at the general picture and trends and to accept that there will be examples where the intention may not have been carried out properly or, if carried out properly, may not have been recorded accurately in the Database.

The final and seventh general point is that we do not think that the fact that the funds of each Ark Scheme were unsegregated takes us forward in answering this question. Mr Jones sought to rely on that fact to support his position and it is true that the unsegregated nature of the funds meant that it was unnecessary for Mr Hanson and Mr Hields to carry out member-to-member matching. However, as we have already noted in our fourth general point, the mere fact that it was unnecessary does not mean that it was not intended. Moreover, as Ms Poots pointed out, the unsegregated nature of the funds meant that some of the allegations in relation to the impracticality of member-to-member matching fall away. We therefore regard this to be a neutral point in answering the question.

The general observations set out above mean that, in our view, there is limited value in considering the respective submissions of Mr Jones and Ms Poots in relation to the specific members set out in paragraphs 146 to 179 above. As it happens, we think that there is considerable force in the explanations which have been provided by Ms Poots in relation to each of those members but that is not the basis on which we have ultimately reached our decision. That is because, as we have noted in paragraph 199 above, the question with which we are concerned is not whether member-to-member matching actually occurred in all cases but rather whether member-to-member matching was intended in all cases. For the reasons already rehearsed, even if member-to-member matching was intended, there were bound to be cases where member-to-member matching either failed or was not reflected in the Final Redacted Spreadsheet.

It follows that focussing on those cases where member-to-member matching did not actually exist does not really advance the position very much in either direction. Instead, what is needed is to identify the intention of those who were responsible for the day-to-day operation of the arrangement from the accumulation of evidence at our disposal. We have therefore set out in this decision the evidence in relation to those specific individuals and the parties’ respective submissions in relation to them only because of the time and energy which was devoted to them at the hearing and in case these proceedings should go further and the material we have recorded should be considered relevant by a higher court.

We think that a more fruitful approach to this question is to accept that there will have been cases where member-to-member matching did not actually occur or was not reflected in the Database, either because of mistakes made by the individuals who were operating the arrangement or because of Dalriada’s unexpected appointment, and focus instead on some specific questions which we think need answering.

For instance, if the intention had simply been to match on an Ark Scheme by Ark Scheme basis and not on a member-to-member basis:

In the circumstances, we think that the answers to the questions posed in paragraph 204 above lead inescapably to only one conclusion, which is that, on the balance of probabilities, Mr Hanson and Mr Hields, who were the individuals responsible for administering the PRP, intended there to be member-to-member matching and we therefore find that to be a fact for the purposes of these proceedings.

We recognise that, in making this finding of fact, we are reaching a different conclusion from the one reached by Bean J in Faulds. However, looking at the decision in Faulds, it appears to us that Bean J did not have the benefit of seeing the detailed documentary evidence in the form of the Spreadsheets with which we have been presented. Instead, he had only the transaction documents and witness statements from Mr Tweedley, Mr Fowler and Mr Browes. Moreover, because of the nature of the proceedings in question – an application under Part 8 of the CPR for certain declarations and directions – there was no cross-examination of the witnesses. The proceedings in Faulds lasted for only three days whereas these proceedings took place over ten days. This means that we have had the benefit of receiving considerably more by way of evidence and submissions in relation to this question than was available to Bean J. In short, we think that there are sound reasons why, without making any criticism of the process in the High Court, we are entitled to reach a different conclusion on this question from the one reached by Bean J.

We also recognise that, in making this finding of fact, we are reaching a different conclusion from the one reached by Mr Browes and his colleagues, who have spent no little time on the Spreadsheets. We do that with some diffidence. However, I think that everyone involved in these proceedings acknowledges that this is a difficult question in relation to which reasonable people can differ. The question is hard enough as it is, even before taking into account the fact that we did not have the benefit of receiving evidence from Mr Hanson, Mr Hields or the individuals who were responsible for creating and populating the Database.

The documentary evidence in relation to this question comprised:

The HMRC meeting note recorded that:

We do not propose to summarise the Mr Tweedley meeting note in this decision because we have discounted it as being an accurate record of what occurred at the HMRC meeting. We say that for three reasons.

The first is that, for the reasons set out in paragraphs 79 to 93 above, we have very little confidence in the evidence of Mr Tweedley in general. The second is that, on this specific point, we find it remarkable, to say the least, that, after failing to avail himself of any of the opportunities to comment on the HMRC meeting note, which had been prepared by Mr Bush a short time after the HMRC meeting was held, Mr Tweedley produced the Mr Tweedley meeting note some ten years later and only a short time before the hearing in these proceedings without any evidence to support his allegation that the note was based on a recording of the HMRC meeting. For example, we have not been provided with the recording itself or with the email to which the note was apparently attached. The third is that, when one looks at the note, it appears to be a fairly incomprehensible mixture of transcript and summary and contains numerous gaps. In addition, Mr Tweedley himself said that the tape had run out before the end of the meeting (see paragraph 215(11) below). It is therefore difficult to regard it as an accurate summary of the events which took place at the HMRC meeting.

The Instructions were prepared by Mr Fowler and sent to Ms Hardy on 8 March 2011, shortly after the HMRC meeting. In the Instructions:

The Counsel’s Opinion was issued on 27 March 2011 on the basis of the Instructions and a subsequent consultation. In the Counsel’s Opinion:

The witness evidence in relation to this question comprised the witness evidence of Mr Tweedley and Ms Allsopp.

Mr Tweedley’s testimony in relation to this question may be summarised as follows:

Ms Allsopp’s testimony in relation to this question may be summarised as follows:

The submissions of the parties in relation to the facts which were pertinent to the reasonableness of the scheme administrator’s belief focused on three key questions–

As regards the first of these questions, Mr Jones said that the fact that Mr Fowler had not provided written advice to Mr Tweedley in relation to the PRP was irrelevant. Oral advice could still be formal advice and that was what Mr Fowler had provided in this case. In addition, Mr Fowler had drafted the documents for the structure. In providing that advice and drafting the documents, Mr Fowler was acting independently.

In response, Ms Poots said that the advice which Mr Tweedley obtained from Mr Fowler was not independent professional advice because it was informal in nature – there was no engagement letter from either S&B or Mr Fowler himself, Mr Tweedley knew that Mr Fowler was not acting for S&B when he provided the advice and the advice was not in writing. In addition, and most significantly, Mr Tweedley knew that Mr Fowler intended to share in the profits arising from the PRP and that therefore Mr Fowler was not providing objective independent advice.

As regards the second of these questions, Mr Jones said that the HMRC note of the HMRC meeting did not suggest that Mr Bush and Ms Allsopp had expressed any doubts at the meeting about the ability of the PRP to avoid the application of the unauthorised payments regime. Instead, they had merely said, without offering any view on the question, that they wished to find out more about the PRP and its operation. In fact, they had not expressed any view on the PRP until after Dalriada had been appointed.

In response, Ms Poots said that the HMRC note of the HMRC meeting made it clear that, although Mr Bush and Ms Allsopp had not reached a concluded view on the matter and wished to find out more about the PRP and its operation, they were concerned that the PRP would give rise to unauthorised payments. Indeed, Mr Tweedley had admitted that to be the case in giving his testimony at the hearing and the terms of the Instructions had made it clear that that was his and Mr Fowler’s understanding following the HMRC meeting.

As regards the third of these questions, Mr Jones said that the reference in paragraph [35] of the Counsel’s Opinion to the transactions’ being at arm’s length should be considered in context. In that part of her advice, Ms Hardy was focused on connected party transactions and, in that paragraph, she was simply making the point that the MPVA loans were not connected party transactions. The reference in the paragraph to “arm’s length” was merely another way of saying that the parties to each MPVA loan were not connected. In fact, Ms Hardy had made an unequivocal statement in paragraph [30] of the Counsel’s Opinion that the PRP would not give rise to unauthorised payments because the MPVA loans were not connected party transactions and she had said nothing in that paragraph about the transactions’ being at arm’s length.

In response, Ms Poots said that the Instructions contained a number of misleading or incorrect statements. For example:

She added that there was no evidence from the Instructions (or the Counsel’s Opinion) that Ms Hardy had been told about the overall investment strategy or the underlying mathematics so that Ms Hardy would not have been able to reach a proper understanding of the precise mechanics of the PRP. This was manifest in paragraph [35] of the Counsel’s Opinion, where, after setting out the three categories of connected party transactions described in the RPS Manual, Ms Hardy noted that the PRP would not give rise to unauthorised payments because, in addition to the fact that the arrangement did not involve transactions between connected parties, those transactions were “on an arm’s length basis” and the assets in each Ark Scheme were “to be held for the purposes of providing benefits for its members”.

By his own admission:

The other evidence with which we have been provided in these proceedings is entirely consistent with those admissions. We therefore find each of the matters set out in paragraph 225 above to be facts for the purposes of these proceedings.

Mr Tweedley was more equivocal in relation to the question of whether or not Mr Fowler was ever a truly independent adviser. At one stage in his testimony, he suggested that there might have been an initial stage, before Mr Fowler became personally invested in the structure, when, even though Mr Fowler was acting on his own account and not as a representative of S&B, Mr Fowler was advising him on an independent basis that the PRP did not give rise to unauthorised payments. However, at another point in his testimony, Mr Tweedley accepted that he knew from the outset that Mr Fowler was not truly independent in providing his advice because he was part of the arrangement and stood to share in the profits arising out of the arrangement along with a share of the introducer’s fees and that Mr Tweedley had not sought truly independent advice until he obtained the advice of Ms Hardy in March 2011.

We think that the second of those two positions is the more accurate. That is because it seems to us to be inherently unlikely that there was ever an initial stage in which Mr Fowler intended to provide his advice in relation to the PRP as an independent adviser before subsequently deciding to take a stake as principal in the structure. We consider that, had that been Mr Fowler’s intention at the outset, he would have provided his advice through S&B, the firm for which he was acting at the relevant time, or alternatively entered into an engagement letter with Mr Tweedley to provide independent professional advice on his own account to Mr Tweedley. Mr Fowler did neither of those things. Instead, he engaged with Mr Tweedley from the outset as a principal with a personal stake in the structure. As Mr Tweedley noted in his evidence, Mr Fowler saw the PRP as a way of providing for his retirement and that was why he engaged with Mr Tweedley outside of his role with S&B and without providing an engagement letter on his own account. Since Mr Fowler engaged with Mr Tweedley on that basis, he had a vested personal interest in the PRP and was at no stage a truly independent objective adviser in relation to the structure and we find that to be a fact for the purposes of these proceedings.

Turning then to the facts relating to the HMRC meeting, we have already explained in paragraphs 210 and 211 above why we place no weight on the Mr Tweedley meeting note.

As for the remaining evidence, in the course of his testimony, Mr Tweedley accepted that:

The other evidence with which we have been provided in these proceedings is entirely consistent with those admissions. In particular, the evidence shows that, following the HMRC meeting, Mr Tweedley was well aware that Mr Bush and Ms Allsopp were concerned about the efficacy of the PRP. Although they had asked for further information about the structure and had not yet reached a concluded view, they had expressed concerns about it. That was why Mr Tweedley and Mr Fowler decided to consult Ms Hardy, having previously considered that that would be an unnecessary expense, and it was also why Mr Fowler, in describing the HMRC meeting to Ms Hardy in the Instructions, said that “[it] was apparent from the start that Mr Bush particularly had determined that the PRP amounted to avoidance, and commented that he did not consider PRP to be within the spirit of FA04”.

Accordingly, we find as facts for the purposes of these proceedings that, taking into account the HMRC meeting note, the content of the Instructions and Mr Tweedley’s testimony at the hearing, all as summarised in paragraphs 230 and 231 above, at the HMRC meeting, Mr Bush and Ms Allsopp:

In addition, we find as a fact for the purposes of these proceedings that Mr Tweedley did not say at the meeting that he would stop the PRP with immediate effect if the Respondents were to conclude that it gave rise to unauthorised payments. We say that because that statement is not contained in the HMRC meeting note (or, for that matter, the Mr Tweedley meeting note) and Ms Allsopp’s evidence, which we prefer to Mr Tweedley’s evidence, was that Mr Tweedley did not say that. Moreover, the behaviour of Mr Tweedley in the period following the HMRC meeting was not consistent with that fact, given that Mr Tweedley was aware that the Respondents had reservations about the PRP and were still investigating it and yet still persisted in marketing the PRP. Indeed, following his receipt of the Counsel’s Opinion, he had done so “with restored vigour”. He could easily have suspended the operation of the PRP during the period of the Respondents’ investigation but instead he simply ploughed on regardless.

Finally, as regards the advice from Ms Hardy, we find the following to be facts for the purposes of these proceedings:

We have made the finding of fact set out in paragraph 234(1) above for the reasons which we have set out in detail in discussing the credibility of Mr Tweedley as a witness in paragraphs 79 to 93 above.

As for the findings of fact set out in paragraph 234(2) above, given the significance to the outcome of these proceedings of those findings of fact, we should say a little more about why we have made them.

There is no indication whatsoever, either in the Instructions or the Counsel’s Opinion, that Ms Hardy was even informed of the non-arm’s length nature of the MPVA loans, let alone having her attention expressly drawn to that feature of the PRP. Reference was made in the Instructions to a brochure which described the PRP concept in more detail. We were not provided with that brochure at the hearing and it is conceivable that that brochure might have contained sufficient information for Ms Hardy to deduce that the MPVA loans were not at arm’s length. However, we think that that is unlikely given the entire absence from the Instructions and the Counsel’s Opinion of any mention of the terms on which the MPVA loans were made. If the brochure had made clear the terms on which the MPVA loans were made, we would have expected some mention of those terms, and the fact that they were not at arm’s length, to have appeared in the Counsel’s Opinion, particularly in the context of the reference in paragraph [35] of the Counsel’s Opinion to the arm’s length nature of the arrangements.

The focus of the Instructions was on the fact that the MPVA loans were being made to persons who were not connected with the lending Ark Scheme, rather than on the terms on which the MPVA loans were being made - hence, the references in the Instructions to the fact that:

As regards the Counsel’s Opinion, we have reflected on Mr Jones’s submission to the effect that the statement made by Ms Hardy in paragraph [30] of the Counsel’s Opinion – to the effect that the better view was that the PRP would not give rise to unauthorised member payments – was not qualified by any reference to the arm’s length nature of the MPVA loans. We agree that that was the case. However, the mere fact that the view expressed in that paragraph was not expressly made subject to that qualification does not mean that that was not the implicit understanding of Ms Hardy at the point when she made the statement. We think that the extracts from the RPS manual set out in paragraph [32] of the Counsel’s Opinion reveal quite clearly that Ms Hardy’s understanding was that each MPVA loan was “a genuine investment” and made “on an arm’s length basis at a market rate”. Had Ms Hardy thought otherwise, she would surely have gone on to make some comment in the Counsel’s Opinion in relation to how the fact that each MPVA loan was not “a genuine investment” and not “on an arm’s length basis at a market rate” might affect her conclusions in the light of what was being said in the relevant extracts from the RPS Manual. We therefore do not see the reference in paragraph [35] in the Counsel’s Opinion to the arm’s length nature of the MPVA loans as simply an isolated example of Ms Hardy’s equating the phrase “arm’s length basis” to the absence of a connection between the parties to each MPVA loan.

The documentary evidence in relation to this question comprised the correspondence which passed between the Respondents, on the one hand, and I&S Limited and Ms Oades, on the other hand.

The relevant correspondence was as follows:

At the hearing, Mr Isles testified that he had not received the letter from the Respondents dated 10 March 2015 acknowledging receipt of his letter of 6 March 2015 (as to which, see paragraphs 24(2) and 241(3) above) until 12 February 2018. However, he did not dispute that it had been sent and acknowledged that a copy of the letter was in the DB.

In relation to the facts which were pertinent to the question of whether or not Ms Oades had made a valid application for the discharge of the unauthorised payments surcharge within the applicable time limit, Ms Sheldon submitted as follows:

In response, Ms Poots submitted that I&S Limited’s letter of 6 March 2015 did no more than appeal against the two assessments which had been set out in the Respondents’ letter of 25 February 2015. The Respondents’ letter made it perfectly clear that, upon receipt of the assessments, Ms Oades had the right to appeal against them and that, quite separately and in addition, Ms Oades could make an application for the discharge of the unauthorised payments surcharge. It was very clear that, in its response to the assessments, I&S Limited was taking up the right to appeal but not making any application for the discharge of the unauthorised payments surcharge.

On the basis of the chain of correspondence described in paragraph 241 above, we find the following to be facts for the purposes of these proceedings:

The DB contained various documents which are relevant to this question, including:

In the standard form application form, the part of the application form which was executed by the prospective member contained a declaration to the effect that, inter alia:

The standard form application form also invited the prospective member to indicate the term and amount (expressed as a percentage of the relevant prospective member’s pension fund overall) of the MPVA loan which he or she wished to take and contained a statement to the effect that the Ark Scheme which the prospective member would join would be “determined by the administrators once an appropriate level of MPVA [loan] is identified”. The form also offered the prospective member the opportunity to indicate the nature of the investments which he or she wished his or her Ark Scheme to make with the portion of its assets that did not comprise MPVA loans.

The part of the standard form application form which was executed by the introducer contained statements to the effect that, inter alia:

Turning to the actual application form which was executed by Ms Oades and I&S Limited when Ms Oades applied to join an Ark Scheme, that had been executed by Ms Oades on 12 August 2010. The application form was in the standard form described in paragraphs 247 to 249 above. The introducer declaration, which had been completed with Mr Isles’s details, had not been signed by Mr Isles and a manuscript note at the bottom of the page containing the declaration indicated that the reason for the lack of signature was that Mr Isles was away on holiday at the time when the form had been completed.

The membership information form was dated 27 March 2011. It contained statements to the effect that all benefits provided under the PRP would be consistent with the Respondents’ requirements.

The information leaflet prepared by Ark BC LLP in relation to the PRP set out how the PRP was intended to operate, using example figures, and contained statements to the effect that:

Then, in a section headed “Important Notice” at the end of the leaflet, the leaflet stated that:

Each MPVA Agreement contained warranties from Ms Oades to the effect that:

The DB contained a letter to Ms Oades from Penvest Limited dated 20 May 2009 in which Penvest Limited:

The DB contained a letter from Mr Isles to the Respondents dated 26 August 2014 in which Mr Isles informed the Respondents that:

The witness evidence in relation to this question was provided by Mr Isles and Ms Oades.

The testimony of Mr Isles was as follows:

The testimony of Ms Oades was as follows:

In relation to the facts which are relevant to the question of whether or not, in all the circumstances of the case, it would not be just and reasonable for Ms Oades to be liable to the unauthorised payments surcharge, Ms Sheldon submitted that, although, in the course of her cross-examination, Ms Oades had not always been as clear on the detail of what she had read as she might have been:

In deciding to participate in the PRP, Ms Oades had clearly relied on a number of statements which were set out in the material provided to her. For example, the declaration included in her membership application form contained statements to the effect that she understood that:

In addition, although Ms Oades had clearly been wrong to refer in her grounds of appeal to having read the membership information form dated 27 March 2011, her testimony at the hearing was that she recalled seeing a similar notice. We should therefore proceed on the basis that, before applying to become a member, Ms Oades had received a notice from Ark BC LLP which said that the funds held in the Ark Schemes were held in accordance with the Respondents’ requirements and the Ark Schemes were all registered with the Respondents.

In response, Ms Poots said that Ms Oades:

We would start by saying that we do not think that the decision in Gestmin is of any relevance in making our findings of fact in relation to this question. The issue which was being addressed in Gestmin concerned the weight which should be given to the recollections of a witness when those recollections differed from the contemporaneous written evidence. The decision does not mean that, where the contemporaneous written evidence contains statements which a witness cannot recall reading at the time, the relevant court or tribunal should simply accept that the witness did read the relevant statements and relied on the contents of those statements. Accordingly, we do not think that it is safe to conclude that Ms Oades consciously relied on every single statement which was set out in her application form or in the other documents with which she was provided at the time when she became a member of the Portman Scheme. On the other hand, we do accept that Ms Oades would have taken some general comfort from the statements in those documents to the effect that the Ark Schemes were registered with the Respondents in concluding that the PRP would not give rise to problems under the rules relating to the early accessing of pension monies.

More specifically, on the basis of the evidence described in paragraphs 246 to 259 above, we find the following to be facts for the purposes of these proceedings:

These proceedings are somewhat unusual because, as noted in paragraphs 61 to 65 above, the circumstances which we have been asked to consider have previously been the subject of proceedings in the High Court. In Faulds, Bean J (as he then was) held, inter alia, that the making of an MPVA loan by a lending Ark Scheme involved the use of the assets of the lending Ark Scheme indirectly to provide a benefit to those members of the lending Ark Scheme who received a loan from another Ark Scheme and therefore fell within Sections 160(2)(b) and 173 – see Faulds at paragraphs [46] to [57]. In other words, “[the] PRP, as its name suggests, was established for the purpose of reciprocation” and therefore “when scheme Y (of which A is a member) makes an MPVA payment to B (the member of scheme Z), it does so in the sure and certain hope that a corresponding payment is going to be made by scheme Z to A; the payment to B “is used to provide” a benefit to A; and, on receiving that benefit in the form of the loan from scheme Z, A is to be treated as having received an unauthorised payment” (see Faulds at paragraphs [47] and [48]). This meant that each MPVA loan was outside the powers of the trustee of the lending Ark Scheme and was therefore void in equity. (Bean J went on to hold that each MPVA loan was outside the powers of the lending Ark Scheme for other reasons too, but those other reasons are not material to the present proceedings).

The conclusion set out above was predicated on the assumption that, as a matter of fact, there was no member-to-member matching between the person to whom the lending Ark Scheme advanced an MPVA loan and a member or members of the lending Ark Scheme. The decision referred to the fact that that was the evidence of Mr Tweedley and Mr Fowler (see Faulds at paragraphs [13] and [39], respectively) and it is apparent from the rest of the decision that that evidence was accepted by both parties and the Judge – see Faulds at paragraphs [36], [39], [43] and [48].

It is fair to say that the parties are not entirely aligned on the impact which the decision in Faulds should have on the present proceedings.

Before we elaborate on the points on which they disagree, we think that it is helpful to set out those points on which there is a common understanding. Those are as follows:

We agree with each of the propositions set out in paragraph 269 above for the reasons set out in those paragraphs.

The parties are also agreed that the fact that, in consequence of the MPVA loans’ being void in equity, they may be recovered from the borrowing members does not mean that the MPVA loans should be disregarded when considering the application of Section 160(2). They say that that is because of the conclusion reached by the Court of Appeal in Clark v The Commissioners for Her Majesty’s Revenue and Customs [2020] EWCA Civ 204 (“Clark CA”) to the effect that a payment made in breach of trust still amounted to a “payment” for the purposes of Section 160(2)(a) – see Clark CA at paragraphs [36] to [86]. In their view:

We agree with the proposition set out in paragraph 271(1) above. In these proceedings, where we are addressing the question of whether a “payment” has been made to or in respect of a member for the purposes of Section 160(2)(a), that is identical to the question which was addressed in Clark CA – namely, whether the section should apply on the basis that a payment has been made when the payment is void in equity and is subject to a resulting trust in favour of the paying scheme.

However, we consider that the potential application of the decision in Clark CA in the context of Sections 160(2)(b) and 173 is much more nuanced.

That is for essentially two reasons, as follows:

These two features suggest to us that it is not entirely clear that the reasoning adopted by the Court of Appeal in Clark CA should necessarily be extended to the construction and application of the deemed UMP regime in Sections 160(2)(b) and 173. Taking the two points into account, the question which we need to address is whether the fact that A has an obligation to account to B’s Ark Scheme for the MPVA loan advanced by B’s Ark Scheme to A because that loan was void in equity means that A has not obtained a “benefit” from the use of the assets of A’s Ark Scheme indirectly to provide that MPVA loan.

We can see how it might be said that no such “benefit” has arisen if A is under an obligation to pay to B’s Ark Scheme the amount of the MPVA loan so advanced (and the profits that have been derived from that MPVA loan) because the MPVA loan was made to A by B’s Ark Scheme in breach of trust. However, on balance, we are inclined to agree with the parties that, on the basis of the reasoning in Clark CA, A has obtained a “benefit” by reason of the MPVA loan made to A by B’s Ark Scheme even though that MPVA loan was void in equity. We say that because:

For the above reasons, we are inclined to agree with the parties that the fact that the MPVA loans in this case were void in equity does not mean that the borrower under each MPVA loan did not obtain a “benefit” for the purposes of Sections 160(2)(b) and 173. However, we think that the impact of the decision in Clark CA in that particular context is not as straightforward and obvious as the parties have assumed.

The parties are also agreed that it is not possible for a member to be liable to an unauthorised payments charge both pursuant to Section 160(2)(a) and pursuant to Sections 160(2)(b) and 173 because, where Section 160(2)(a) applies, that necessarily means that the exclusion in Section 173 for “payments” comes into play.

We regret to say that we do not agree with that conclusion. In our view, the two provisions are both capable of applying to the same member on the facts in this case for the simple reason that Section 160(2)(a) is potentially engaged by virtue of the MPVA loan made by the Ark Scheme of the member in question to a member of another Ark Scheme whereas Sections 160(2)(b) and 173 are potentially engaged by virtue of the benefit derived by the member in question from the MPVA loan made to the member in question by an Ark Scheme of which he or she is not a member.

Both Ms Poots and Mr Jones reached the view which they did for essentially the same reason although they put it slightly differently.

Mr Jones said that, in circumstances where Section 160(2)(a) has applied to an MPVA loan made by A’s Ark Scheme to B, because the MPVA loan has been made “in respect of” A:

Ms Poots said that, given that Sections 160(2)(b) and 173 were part of the same code as Section 160(2)(a), one would not expect the same event to give rise to an unauthorised payment both pursuant to Sections 160(2)(b) and 173 and pursuant to Section 160(2)(a). In other words, if A’s Ark Scheme made an MPVA loan to B and that MPVA loan to B was “in respect of” A so that it was to be regarded as an actual UMP by A’s Ark Scheme to A, it would be very surprising to find that the matching MPVA loan made by B’s Ark Scheme to A in consequence of the MPVA loan made by A’s Ark Scheme to B gave rise to a deemed UMP by A’s Ark Scheme to A.

She expanded on that proposition as follows. The focus of the language used in Sections 160(2)(a), 160(2)(b) and 208 was on the making of the payment in question – whether actual or deemed - by the relevant pension scheme, as opposed to the receipt of the payment in question by the member of the relevant pension scheme. That same focus could be seen in the way in which Section 173 operated in that, although the charge arising pursuant to that section was triggered by the receipt of a benefit, the receipt of the benefit was said to result in the relevant pension scheme’s being deemed to have made a payment (in contrast to its having actually made a payment) and it was that deemed payment which then triggered the charge under Section 208. Ms Poots said that this demonstrated that Sections 160(2)(b) and 173 were simply back-up provisions which deemed the pension fund to have made an unauthorised payment to a member in circumstances where it had not actually made an unauthorised payment to or in respect of the member and, as such, those provisions could not apply where the pension fund in question had actually made an unauthorised payment to or in respect of the member.

Ms Poots said that it followed from this reasoning that the exclusion in Section 173 for “payments” needed to be read as qualifying not just the word “benefit” but instead more widely as qualifying the whole phrase “used to provide a benefit”. On that basis, the relevant provision should be construed as if it read as follows:

With the greatest of respect to two such able counsel, and with considerable regret because of the dire financial consequences to which our conclusion inexorably leads, we do not agree with the construction of the relevant provision which both Mr Jones and Ms Poots have adopted. In our view, it involves reading the words “(other than a payment)” as if they qualified the word “used” and not, as we believe to be the correct construction, as if they qualified the word “benefit” and, once one reads the provision in that way, the exclusion does not apply on these facts.

We can see no basis in the language of Section 173 for adopting a construction which leads to the application of the exclusion for “payments” to the word “used” as opposed to the word “benefit”, given the way that the provision is set out. The fact that the legislation is focused on payments by the relevant pension scheme as opposed to receipts by the member of the relevant pension scheme does not seem to us to advance the position in this respect. One still needs to identify the circumstances in which a benefit received by the member does not give rise to a deemed UMP by the relevant pension scheme and the legislation makes it clear that that is solely where the benefit received by the member is itself an actual payment by the relevant pension scheme. Moreover, to pick up on the point which was made by Ms Poots to the effect that the charge arising pursuant to Sections 160(2)(b) and 173 is only a back-up in circumstances where Section 160(2)(a) has not applied, whilst we do not disagree with that statement as a general proposition, it is not entirely surprising to us that a scheme which sought to avoid falling within Section 160(2)(a) by ensuring that there was no direct payment by an Ark Scheme to a member of that Ark Scheme but which then failed to achieve that objective because the payment was held to be in respect of the member in question might then fall outside the scope of the language in Section 173 which was designed to avoid an overlap between the two different regimes.

We would elaborate on our conclusion as follows.

It is common ground – and we agree – that the word “payment” in the exclusion in Section 173 must mean a payment from the pension scheme of which the person receiving the payment is a member and not simply a payment from any source whatsoever. That is consistent with the language in Section 279(2) and is why Sections 160(2)(b) and 173 were held to apply on the facts in Faulds – see Faulds at paragraph [54]. That makes perfect sense in that the two parts of Section 160(2) can then be seen as operating symbiotically. Section 160(2)(a) captures payments made by a scheme to a member of the scheme and Sections 160(2)(b) and 173 capture benefits received by the member out of the use of the assets of the scheme other than benefits comprising payments made by the scheme to the member.

It follows that a benefit for A which takes the form of a payment from an Ark Scheme other than A’s own Ark Scheme is not an excluded benefit so far as Section 173 is concerned. It could hardly be an excluded benefit because, if it were, that would also prevent Sections 160(2)(b) and 173 from applying in circumstances where the payment made by A’s Ark Scheme which has led indirectly to the payment by B’s Ark Scheme to A has fallen outside Section 160(2)(a) and that would be contrary both to the position of all of the parties in these proceedings and to the conclusion of Bean J in Faulds.

The only way in which the parties’ position in these proceedings could be rendered consistent with the decision in Faulds would be to say that, whilst the exclusion for payments in Section 173 did not apply in Faulds in the light of Bean J’s conclusion to the effect that Section 160(2)(a) did not apply, that exclusion would have applied if Bean J had concluded that, on the contrary, Section 160(2)(a) did apply. However, that would necessarily entail explaining the conclusion in Faulds on the basis that the “payment” referred to in the exclusion in Section 173 does not extend to all payments made by the scheme of which the recipient of the benefit is a member but is instead limited to those payments made by that scheme which are “to or in respect of” that member and, hence, fall within Section 160(2)(a). There are two fundamental problems with that argument. The first, and less significant of the two, is that there is absolutely no indication in Bean J’s decision that he was reading those additional words into the exclusion for payments in Section 173. Instead, Bean J merely referred in paragraph [54] of the decision to the fact that “the words in brackets “other than a payment” must mean “other than a payment from the scheme”. However, there is a second, and more fundamental problem with the argument, which is that, even if those additional words were to be read into the exclusion, that would still not change the fact that the exclusion is qualifying the word “benefit” and not the word “used”. It therefore follows inexorably that, unless the benefit which is received by the relevant member is itself a payment made by that member’s own scheme, the exclusion is not engaged and that is regardless of whether Section 160(2)(a) has or has not applied to the use of the assets of that member’s scheme which has given rise to the benefit. Putting this another way, the benefit received by each relevant member in this case was the MPVA loan made to that member by an Ark Scheme of which he or she was not a member. That was not a payment made by the Ark Scheme of which he or she was a member and so the exclusion cannot apply regardless of whether the MPVA loan made by the member’s own Ark Scheme which has given rise to the MPVA loan to the member was made “to or in respect of” that member - and thus fallen within Section 160(2)(a) - or not made “to or in respect of” that member - and thus fallen outside Section 160(2)(a).

We have considered whether the language at the end of paragraph [54] in Faulds might be prayed in aid to support the proposition that the exclusion for payments in Section 173 necessarily applies where Section 160(2)(a) has applied. In that part of his decision, Bean J said the following:

Focusing on the language used in the final part of that paragraph, we have considered whether it might be said that the use of the assets of A’s Ark Scheme comprising the making of an MPVA loan to B which then gives rise to an MPVA loan made to A by B’s Ark Scheme should fall to be regarded as an indirect payment by A’s Ark scheme to A and therefore to amount to a payment falling within the exclusion for payments in Section 173. However, we think that that interpretation would be misconceived. It would involve:

It would also involve ignoring the clear distinction which exists in the section between “use” and “benefit”. When he referred to the “indirect provision of a payment” at the end of paragraph [54], Bean J was merely explaining why the indirect provision by A’s Ark Scheme of the MPVA loan made by B’s Ark Scheme to A ought to be treated in the same way as the indirect provision by A’s Ark Scheme of a free or subsidised flat or car to A. He was not saying that the indirect provision by A’s Ark Scheme of the MPVA loan made by B’s Ark Scheme to A should be regarded as equating to an indirect payment by A’s Ark Scheme to A. Indeed, had he been of that view, he would have held that the MPVA loan made by B’s Ark Scheme to A was an indirect payment to A by A’s Ark Scheme and therefore fell both within Section 160(2)(a) and within the exclusion for payments in Section 173. He did neither of those things.

In short, treating the MPVA loan made by B’s Ark Scheme to A as an indirect payment by A’s Ark Scheme to A for the purposes of applying the exclusion for payments in Section 173 would in fact be directly contrary to the reasoning of Bean J in Faulds. In that part of his decision, Bean J was explaining why the exclusion did not apply to prevent Section 173 from applying. If he had considered the MPVA loan made by B’s Ark Scheme to A to be an indirect payment by A’s Ark Scheme to A, he would have said so at that point as that would then have engaged Section 160(2)(a). On the contrary, he held that no such payment by A’s Ark Scheme to A (whether direct or indirect) had been made and that was why Sections 160(2)(b) and 173 applied.

To summarise our conclusions on this crucial point:

The soundness of that conclusion can be tested by comparing and contrasting the present facts against the paradigm scenario of a loan made by a scheme to one of its own members. In the latter case:

To conclude on this point, we think that, far from being successful in avoiding the application of Section 160(2) altogether, the PRP has exposed its participants to charges pursuant to both parts of the provision. We reach that conclusion with considerable reluctance but it seems to us to be inescapable, given the language used in the legislation. It is not entirely surprising to find that that disastrous outcome potentially arises from the PRP given that its raison d’etre was to avoid the charge for actual UMPs arising pursuant to Section 160(2)(a) so that, if it fails to do so, it would then fall outside the language in Section 173 which is intended to prevent actual UMPs from giving rise to deemed UMPs by excluding benefits which are actual UMPs from falling within the section. 

Turning then to the matters relating to the decision in Faulds on which the parties do not agree, those are twofold.

The first area of disagreement in relation to Faulds is whether part of the ratio of the decision reached in the case was that the MPVA loans fell outside Section 160(2)(a).

Mr Jones points out that:

Ms Poots disagrees. She is of the view that the decision in Faulds is not binding authority to the effect that the MPVA loans were not made “in respect of” any member of the lending Ark Scheme because:

In relation to this point, we prefer the submissions of Mr Jones. We think that it involves an overly-restricted reading of the decision in Faulds to say that the ratio of the decision on this issue was that the MPVA loans were unauthorised payments because they fell within Sections 160(2)(b) and 173 as opposed to saying that the ratio of the decision on this issue was that the MPVA loans were unauthorised payments because they fell outside Section 160(2)(a) but within Sections 160(2)(b) and 173. Reading paragraph [46] of the decision, it seems clear to us that the latter formulation was exactly what Bean J was deciding. Moreover, given that the key question which Bean J was considering was whether the MPVA loans were void in equity because they amounted to unauthorised payments, Bean J necessarily had to consider both parts of Section 160(2) and could not simply ignore Section 160(2)(a).

We should add that we are slightly perplexed by the Respondents’ position on this point when taken together with their position in relation to the manner in which the two parts of Section 160(2) interact, as outlined in paragraphs 282 to 284 above. Along with the Appellants, the Respondents’ position is that the MPVA loans cannot fall within Sections 160(2)(b) and 173 if they fall within Section 160(2)(a). That is why they rely on the application of Sections 160(2)(b) and 173 only for their Alternative Case and rely on Section 160(2)(a) for their two Primary Cases and why they submit that their Alternative Case is not engaged if one of their two Primary Cases succeeds. However, it is surely implicit in that position that Bean J can hardly have decided that the MPVA loans were unauthorised payments pursuant to Sections 160(2)(b) and 173 without also having decided that they were not unauthorised payments pursuant to Section 160(2)(a). Thus, on the Respondents’ own construction of the exclusion in Section 173, it was impossible for Bean J to have concluded that Sections 160(2)(b) and 173 applied to the MPVA loans without first having decided that Section 160(2)(a) did not so apply.

Be that as it may, given the conclusion which we have reached in paragraphs 278 to 297 above to the effect that Sections 160(2)(b) and 173 can still be engaged regardless of whether or not Section 160(2)(a) has applied, that is not the reason why we have reached our conclusion on this point. Instead, we base that conclusion on our view that, taking into account paragraphs [39], [40] and [46] of Faulds, part of the ratio of that case was that the MPVA loans fell outside Section 160(2)(a).

The second area of disagreement in relation to Faulds is whether the facts in the present proceedings are distinguishable from the facts found in Faulds.

Mr Jones submits that, regardless of whether or not we have been presented with more evidence in relation to the question of matching than was Bean J in Faulds, the evidence in relation to that question with which we have been presented shows that there was not intended to be any member-to-member matching of MPVA loans. He says that the purpose of the individuals who operated the PRP was simply to balance the overall values in each pair of matching Ark Schemes.

Ms Poots submits that the facts in the present proceedings are distinguishable from the facts in Faulds because:

For the reasons set out in the section of our decision containing our findings of fact in relation to the question of matching – see paragraphs 109 to 207 above, and, in particular, paragraph 204 above - we prefer Ms Poots’s submissions on this question.

Mr Jones accepted that, should we find as a fact, contrary to the facts found by Bean J in Faulds, that there was member-to-member matching in this case, then the Respondents were entitled to succeed in their Primary Case Preferred Analysis. Since we have made that finding of fact, we propose to say no more about the submissions of the parties in relation to the Primary Case Preferred Analysis.

However, in case these appeals should go further, we should set out the submissions of Mr Jones and Ms Poots in relation to the Primary Case Alternative Analysis. By definition, that analysis is predicated on a finding of fact that member-to-member matching did not exist.

Before we set out the parties’ respective submissions on this analysis, we need to provide a little more information about the calculation process which it involves. Ms Poots explained that the process identified by the Respondents for determining the extent to which each MPVA loan made by the lending Ark Scheme should be allocated to each member of that scheme under the Primary Case Alternative Analysis involved identifying, at any point in time, how much of the money held by the lending Ark Scheme and available for lending was attributable to each member of the lending Ark Scheme. In adopting that approach, the assumption was that the amount which each participant transferred into his or her Ark Scheme that then became available for lending by the relevant Ark Scheme was the same as the amount which that participant expected to be able to borrow. That assumption was implicit in the notice published by Ark BC LLP describing the PRP to which reference is made in paragraph 112(3) above. Moreover, in the vast majority of cases, the amount which the participant expected to be able to borrow was equal to 50% of the amount which the relevant participant transferred into his or her Ark Scheme and that would be the working assumption in applying the analysis in the absence of being displaced by specific evidence to the contrary.

Mr Jones submitted that there were six problems with the Primary Case Alternative Analysis.

The first was that there was no evidential basis for the proposition that, when the trustee of the lending Ark Scheme made an MPVA loan, it did so with a view to benefiting the general body of members of the lending Ark Scheme as a whole. For instance, the reciprocal MPVA loan, when it was made, was not made to the general body of members as a whole, acting jointly and severally. Instead, each MPVA loan was made to a particular named individual. Even if it might be said that, had the PRP continue to run for its full term as originally planned, each of the members of the lending Ark Scheme would ultimately have received an individual MPVA loan from another Ark Scheme, there was no basis for saying in relation to any individual MPVA loan that that MPVA loan had been made in respect of all of the members of the lending Ark Scheme. A generalised intention to confer some sort of potential benefit on some unidentifiable members of a class was too remote and weak to satisfy the “in respect of” requirement.

Ms Poots disagreed. She said that the essence of the PRP was implicit in its title. It involved reciprocation. That was its whole point. As such, if we were to conclude that there was no member-to-member matching and an MPVA loan was not made with a specific individual member in mind, then that must mean that the MPVA loan was being advanced in respect of a wider range of members, those being the members of the lending Ark Scheme who expected to receive MPVA loans themselves as a result of the advance of the MPVA loan in question.

Mr Jones’s second problem with the Primary Case Alternative Analysis was that, even if an evidential basis for a general intention to benefit all of the members of the lending Ark Scheme did exist, the Respondents’ approach was to identify the portion of the MPVA loan which had been made in respect of each member of the lending Ark Scheme by reference to the amount which was available for lending in relation to that particular member and that approach was too vague and remote to satisfy the “in respect of” requirement. For example, there might be members of the lending Ark Scheme who did not wish to borrow an MPVA loan at all or who wished to borrow less than 50% of the amounts which they had transferred into the lending Ark Scheme. The benefit on offer to the members of the lending Ark Scheme was very broad and unparticularised.

As regards this second point, Ms Poots said that, whilst it was true that no participant in the PRP was obliged to enter into an MPVA loan of any particular amount, and there might well be exceptions in a small number of cases as noted in paragraph 311 above, the essence of the PRP was that participants would be able to borrow 50% of the monies that they transferred into the arrangement. That was the whole aim of the PRP and what the vast majority of participants wanted. If a particular participant could show, by reference to the evidence, that he or she wanted to borrow only a smaller percentage of the monies which he or she transferred into the arrangement, then that smaller amount would be the amount which was taken into account both in calculating the aggregate amount available for lending by the relevant Ark Scheme and that participant’s share of that aggregate amount.

In response, Mr Jones said that the very fact that some participants might have wanted to borrow less than 50% of the monies that they transferred into the arrangement cut right through the heart of the analysis because, once it was accepted that participants wished to borrow different percentages, then it was impossible to adopt the “one size fits all” approach which was of the essence of the analysis. It would be necessary to ask each member of the lending Ark Scheme about his or her intentions as regards borrowing on each occasion that the lending Ark Scheme made an MPVA loan.

Mr Jones’s third point, which was related to his first two points, was that the very essence of the language used in Section 160(2)(a) was that there needed to be a specific identifiable member or specific identifiable members of the lending Ark Scheme in respect of whom the relevant MPVA loan had been made. Simply allocating the MPVA loan in question to all of the members of the lending Ark Scheme was too crude and imprecise to reach the standard of specificity which the language in Section 160(2)(a) required. It would result in certain members of the lending Ark Scheme paying a disproportionate amount of tax.

Ms Poots said that there was nothing crude or imprecise in the way that the method of calculation operated. It was entirely appropriate to treat the amount which each participant wished to borrow upon entering into the arrangement as the basis for determining at any time how much money remained available for lending by the relevant Ark Scheme and how much of that money was attributable to the relevant participant.

Mr Jones’s fourth point was that the Primary Case Alternative Analysis was inconsistent with the reasoning of, and the conclusions reached by, Bean J in Faulds. He pointed out that, despite noting in paragraph [47] of his decision that, when the lending Ark Scheme made an MPVA loan to a member of another Ark Scheme, it was doing so in the sure and certain hope that a corresponding payment was going to be made by the Ark Scheme of which the borrower was a member to a member of the lending Ark Scheme, Bean J had not concluded that the MPVA loan was in respect of all of the members of the lending Ark Scheme for the purposes of Section 160(2)(a). It was therefore implicit in Bean J’s conclusion that Section 160(2)(a) could not apply on this global basis.

In response, Ms Poots said that Bean J had not been required to consider whether Section 160(2)(a) might apply even in the absence of member-to-member matching because it had not been in the interests of any of the parties to the proceedings to argue for that proposition. Instead, he had simply been directed to consider whether Dalriada’s submission that the circumstances fell within Sections 160(2)(b) and 173 was correct. As such, it could not be said that the ratio of Faulds included a rejection of the Primary Case Alternative Analysis.

Mr Jones’s fifth point was that the method proposed by the Respondents for calculating the charge pursuant to Section 160(2)(a) under the Primary Case Alternative Analysis was extremely complicated. Indeed, the Respondents had yet to establish that it was workable in practice. We should be slow to adopt an interpretation of the legislation which had not been shown to work in practice. As a general matter, it was fair to assume that, in enacting legislation, Parliament intended the legislation to be capable of being practically applied. We should therefore be wary of adopting an interpretation which had not been shown to meet that threshold.

As regards this fifth point, Ms Poots said that the method itself was not complicated although, clearly, applying the method would involve a lot of work on the detailed figures in the light of the facts. And, having carried out the process, the likelihood was that, assuming that the PRP had run through to completion, the aggregate unauthorised payments made in respect of each member would, in the vast majority of cases, be equal to 50% of the amount that that member had transferred into the PRP, which is exactly what one would expect.

Mr Jones’s final point was that the method proposed by the Respondents for applying this analysis was flawed even as an abstract proposition. For instance, where a member of the lending Ark Scheme had already received an MPVA loan himself or herself by the time that the lending Ark Scheme made the MPVA loan in question, it was hard to see how the making of the MPVA loan in question could be said to be being made in order to benefit that particular member. Logically, that particular member ought to be removed from the pool of potential allottees upon receiving his or her MPVA loan and that would mean that the sooner a member received his or her MPVA loan, the lower the tax charge which would be visited on him or her under this method.

Ms Poots said that, as regards this final point, Mr Jones was not correct in saying that the sooner a participant received his or her MPVA loan, the lower the amount of the tax charge that would be visited on that participant. This was because the method being proposed by the Respondents did not take into account the time when a participant received his or her own MPVA loan. Under the Respondents’ method, each participant’s proportion of the aggregate monies available for lending by that participant’s Ark Scheme at any time was unaffected by whether or not the relevant participant had received an MPVA loan from another Ark Scheme. Instead, the proportion reduced only as a result of prior allocations to that participant of MPVA loans previously made by that participant’s Ark Scheme.

Mr Jones said that he did not see how a member of the lending Ark Scheme could still be said to have an intention to receive an MPVA loan once he or she had already received one. It therefore made no sense to allocate any part of an MPVA loan made by the lending Ark Scheme to any member of that scheme who had already received his or her own MPVA loan.

It is common ground that:

We agree with that conclusion. The meaning of the phrase “in respect of” in Section 160(2) was considered by the FTT in Gareth Clark v The Commissioners for Her Majesty’s Revenue and Customs [2016] UKFTT 0630 (TC) (“Clark FTT”) at paragraphs [87] to [105]. The FTT in Clark FTT noted that:

We should add for completeness that, from its explanation of the decision in Faulds, it is clear that the FTT in Clark FTT considered that the finding in Faulds that member-to-member matching did not exist was crucial to the conclusion of Bean J to the effect that the MPVA loans did not fall within Section 160(2)(a) and that, had Bean J found that member-to-member matching did exist, he would have held that the MPVA loans did fall within Section 160(2)(a) – see Clark FTT at paragraphs [94] to [97]. We agree with that interpretation of the conclusion in Faulds.

Although the decision in Clark FTT is not binding on us, we agree with the reasoning of the FTT in that case and the FTT’s construction of the phrase “in respect of”. We therefore conclude that, on the basis of our factual finding to the effect that member-to-member matching was intended when each MPVA loan was made, each MPVA loan was made “in respect of” the members of the lending Ark Scheme who were matched with the borrower of the MPVA loan from the lending Ark Scheme.

It follows from that conclusion that:

The conclusion which we have reached is perfectly straightforward to apply in cases where, at the time when the relevant MPVA loan was made, each person who was matched with the borrower:

However, as we have already seen in the various examples discussed in the section of this decision dealing with member-to-member matching, that was not invariably the case. We therefore need to consider how the conclusion which we have reached should apply in practice in those circumstances where the conditions set out in paragraph 332 above were not satisfied. In other words, we need to address the position in circumstances where:

Starting with the first two of those scenarios – the ones described in paragraphs 333(1) and 333(2) - it is in our view axiomatic from the language used in Section 160(2)(a) that a charge under that section can arise only if, at the time when the relevant payment is made, the person in respect of whom the payment is made “is or has been a member” of the pension scheme making the payment.

It follows that, in the case of the first scenario, where a person who was matched with the borrower never became a member of the lending Ark Scheme, we do not see how any of the MPVA loan which was made to the borrower in such a case can be said to have been made “in respect of a person who is or has been a member” for the purposes of Section 160(2)(a). Consequently:

We believe that precisely the same outcome arises in the second scenario, and for precisely the same reason. Even if the person who was not a member of the lending Ark Scheme at the time when the relevant MPVA loan was made subsequently became a member after that date, it cannot be said that, at the time when the payment comprising the advance of the MPVA loan was made, that person “is or has been a member” of the lending Ark Scheme. We do not think that membership arising only after the payment has been made can be sufficient to give rise to a charge pursuant to Section 160(2)(a) for the person becoming a member after the payment has been made.

So far, we have focused solely on the question of whether or not a person who was matched with the borrower was a member of the lending Ark Scheme at the time when the MPVA loan was made. We have not addressed the case where a person was such a member at the relevant time but either never transferred into the relevant lending Ark Scheme pension funds which were at least equal to that person’s pro-rata proportion of the MPVA loan in question or did so only after the MPVA loan in question was made. It is to those scenarios -the ones set out in paragraphs 333(3) and 333(4) above – that we now turn.

In our view, although it gives rise to a result which, at least in the case of the scenario described in paragraph 333(3) above is highly unfair, the amount of the pension funds which the relevant person transferred to the lending Ark Scheme either before the MPVA loan was made or thereafter is of no relevance to the application of Section 160(2)(a). This is because the funds of each Ark Scheme were unsegregated and therefore there was no sense in which the relevant person’s interest in the relevant lending Ark Scheme could properly be said to be confined to the pension funds which he or she transferred into the relevant lending Ark Scheme. Instead, each member of the lending Ark Scheme had an interest in the whole of the funds of that Ark Scheme. It follows that, in our view, the mere fact that the relevant person was a member at the time when the relevant MPVA loan was made is sufficient to mean that the relevant person should be regarded for the purposes of Section 160(2)(a) as having received an actual UMP in an amount equal to the MPVA loan in question (or the relevant person’s pro-rata proportion of the MPVA loan in question).

Finally in this context, we should make it clear that, when we refer in this section of our decision to a person’s being or becoming a member of an Ark Scheme, we mean that person’s being or becoming a member in accordance with Section 151 and pursuant to the rules of the relevant Ark Scheme. Although we do not understand there to be any dispute between the parties in relation to how that section and those rules work in this particular case, the parties may apply to us for clarification and make further submissions in relation to that application should they so wish in due course.

Similarly, when we refer in this section of our decision to a person’s pro-rata proportion of an MPVA loan made by a lending Ark Scheme, we mean that that proportion is to be identified by reference to the intentions of the operators of the PRP in carrying out the member-to-member matching. In other words, where two or more persons were matched with the relevant borrower, it will be necessary to identify, from the available evidence, what proportion of the MPVA loan made to the relevant borrower was intended to be identified with each of the relevant persons who were so matched. We appreciate that that is by no means straightforward, as is demonstrated by the section of this decision dealing with member-to-member matching. There will doubtless be a number of cases where it is hard to identify the persons who were intended to be matched with the borrower in the case of a particular MPVA loan or, where such persons are readily identifiable, the proportion of the particular MPVA loan in respect of which each such identified person was intended to be matched. That is an inevitable consequence of the flawed nature of the proposal to start with, the inadequate record-keeping and the appointment of Dalriada before the PRP could run to term. We do not wish to make light of those difficulties. However, based on the evidence with which we have been provided, we are hopeful that the appropriate answer will be identifiable in the vast majority of cases. In those cases where the relevant parties cannot reach agreement on the answer, they may apply to us for clarification and make further submissions in relation to that application should they so wish in due course.

In conclusion on the Primary Case Preferred Analysis, we accept that the conclusions which we have set out above will lead to difficulties in application, as well as somewhat arbitrary, and, in many cases, unfair, results. However, that is a function of the unusual facts in this case and, in particular:

Our conclusions in relation to the Primary Case Preferred Analysis make it unnecessary for us to consider the merits of the parties’ respective arguments in relation to the Primary Case Alternative Analysis. However, the parties have asked us to indicate how we would have answered that question in the event that we had concluded that, because there was no member-to-member matching in this case, the Primary Case Preferred Analysis failed.

There is a simple answer to this question and that is that, for the reasons which we have already rehearsed in paragraphs 299 to 304 above, we consider that we are bound by the decision of Bean J in Faulds to reject the Primary Case Alternative Analysis. Contrary to the submissions made by Ms Poots in relation to Mr Jones’s fourth objection – see paragraph 321 above - we believe that we are not entitled to reach any other conclusion than that in relation to the analysis. Once we assume that member-to-member matching was not present, we are confronted with the same relevant facts as those with which Bean J was confronted. We therefore do not see how we could conclude that Section 160(2)(a) applied to the facts without ignoring clear binding authority to the contrary.

At the hearing, Ms Poots said that, even if we were to find against her submissions in relation to the binding nature of the decision in Faulds, we might still provide some indication of our own views on the merits of the parties’ respective arguments. Such views are of course irrelevant for two distinct reasons, given the conclusions we have reached in relation to the Primary Case Preferred Analysis and our view on the binding nature of the decision in Faulds. However, had we been left entirely to our own devices, we would have been inclined to favour the submissions of Ms Poots in relation to this analysis. It seems to us that the very essence of the PRP was that each participant would agree to a proportion of his or her pension monies’ being made available by way of MPVA loan to other participants in the PRP in order for the first-mentioned participant to be able to borrow an equivalent amount by way of MPVA loan himself or herself. We therefore believe that it is not stretching the language of Section 160(2)(a) too broadly to say that each MPVA loan made by a lending Ark Scheme was being made “in respect of” all of the members of that lending Ark Scheme who transferred their pension monies into the lending Ark Scheme in anticipation of receiving MPVA loans themselves. Based on the conclusion of fact we have reached in paragraphs 193 and 194 above, to the effect that every participant entering into the PRP wished to borrow monies, this means that each MPVA loan made by a lending Ark Scheme was being made “in respect of” all of the members of that lending Ark Scheme at the time when the relevant MPVA loan was made.

We accept that that conclusion then gives rise to some issues to consider.

Starting at the beginning, were we to be untrammelled by prior authority, the conclusion which we would draw from the conclusion set out in paragraph 344 above is that the whole of each MPVA loan made by the lending Ark Scheme should be treated as amounting to an unauthorised payment in respect of each member of the lending Ark Scheme at the relevant time. After all, in the absence of any language which provides for an unauthorised payment made in respect of more than one member of a pension scheme to be apportioned between those members, the whole of each such payment would seem to be an unauthorised payment “in respect of” each of them. However, that does not produce a very satisfactory answer. It would mean that the aggregate unauthorised payments made by each lending Ark Scheme would be exponentially greater than the aggregate of the MPVA loans actually made by the lending Ark Scheme. It therefore makes sense to apply the legislation in a way that results in an apportionment of the relevant unauthorised payment between each of the persons in respect of whom the relevant unauthorised payment was made. That, after all, is what would happen in the case of an outright payment made by a pension scheme to two or more members jointly.

Once one reaches that conclusion, then it is simply a case of identifying a fair and reasonable method of apportionment in this particular case and we do not see any conceptual problems with the method proposed by the Respondents. We can see how the application of that method may give rise to some practical and evidential difficulties but, as a general proposition, it seems to us to be reasonable to apportion the unauthorised payment comprising each MPVA loan to each member of the lending Ark Scheme at the relevant time:

We say the first of those things because the evidence suggests that there was a correlation between the amount which each member transferred into his or her own Ark Scheme that was to be made available for lending by that Ark Scheme and the amount which the relevant member expected to be able to borrow from another Ark Scheme – see paragraph 112(3). It therefore makes sense to apportion each MPVA loan between the relevant members of the lending Ark Scheme on that basis in the absence of evidence to the contrary.

As for the second thing, this brings us to Mr Jones’s point that it makes no sense to allocate any part of an MPVA loan to a member of the lending Ark Scheme who has already received his or her MPVA loan from another Ark Scheme at the time when the relevant MPVA loan is made by the lending Ark Scheme because the latter MPVA loan cannot have been made with a view to benefiting such a member. Whilst we understand why Mr Jones has made that point, we think that it involves viewing each MPVA loan made by the lending Ark Scheme in isolation as opposed to seeing each such MPVA loan as part of a single unified programme involving multiple MPVA loans.

In the context of an arrangement such as the PRP which involves multiple MPVA loans and where it is necessary to identify an appropriate method for calculating how much of each MPVA loan in the programme is “in respect of” each member of the lending Ark Scheme, we think that it makes sense to ignore the timing of the MPVA loans which are made by other Ark Schemes to the members of the lending Ark Scheme in conducting the apportionment process. That will lead to a fair allocation of the aggregate unauthorised payments made by the lending Ark Scheme over the course of the programme as a whole across the members of the lending Ark Scheme – an allocation that depends on how much each member of the lending Ark Scheme wished to borrow by way of MPVA loan when he or she became a member of the lending Ark Scheme. In effect, an allocation of part of an MPVA loan made to a member of the lending Ark Scheme after that member has already received his or her MPVA loan from another Ark Scheme is simply making up for an under-allocation to that member of MPVA loans previously made by the lending Ark Scheme. In other words, it merely involves a catching up. In the long term, the effect is to allocate to each member of the lending Ark Scheme an amount equal to the MPVA loan which that member intended to draw down when he or she became a member of the lending Ark Scheme.

Having said that, the above discussion is entirely academic given our conclusion in relation to the Primary Case Preferred Analysis and the effect of the decision in Faulds.

As we have already discussed in paragraphs 278 to 297 above, we do not agree with the parties’ commonly-held view that Sections 160(2)(b) and 173 can apply to the PRP only in circumstances where Section 160(2)(a) has not applied. For the reasons set out in those paragraphs, we think that, even though we have found in favour of the Respondents to the effect that their Primary Case Preferred Analysis is correct, so that an MPVA loan made to a borrower is to be treated as an actual UMP for the member of the lending Ark Scheme who was matched with that borrower (pursuant to Section 160(2)(a)), the matched member of the lending Ark Scheme should still be treated as receiving a deemed UMP upon receiving the benefit of an MPVA loan from the borrower’s Ark Scheme (pursuant to Sections 160(2)(b) and 173).

Although there was a disagreement between the Respondents and the Appellants as to whether or not Sections 160(2)(b) and 173 applied in this case, that disagreement was predicated on their disagreement as to whether Section 160(2)(a) applied. There was no disagreement between the parties in relation to whether or not the language in Sections 160(2)(b) and 173 was satisfied in the event that Section 160(2)(a) did not apply.

The parties were also agreed that:

The only areas of disagreement between the parties in relation to Issue 3 and Issue 4 are ones which are not pertinent to any of the appeals which are the subject of these proceedings because they are not relevant on the facts as they currently stand. However, Dalriada has asked us to address those questions in the context of these proceedings because, although they relate to circumstances which have not yet occurred, those circumstances may well occur in future. We will do so, albeit briefly.

The first area of dispute relates to the application of Sections 160(2)(b) and 173 in circumstances when an MPVA loan is repaid in an amount which is greater than the amount of the MPVA loan originally advanced.

Mr Jones submitted that, in those circumstances, Section 191 of the ITEPA, as incorporated by reference into Section 173 by Sections 173(8)(b) and 173(9), should apply to enable the relevant member to make a claim for relief in respect of the tax previously paid by the relevant member by virtue of Section 175 of the ITEPA (to the extent that that tax was attributable to such part of the amounts chargeable under that section as was equal to that excess).

Ms Poots accepted that Section 191 of the ITEPA was, in principle, capable of applying in the context of Section 173 because of the deeming in Sections 173(8)(b) and 173(9). However, she submitted that, on the facts in this case, Section 191 of the ITEPA could never apply. This was because Section 191 of the ITEPA applied only where:

The second area of dispute relates to the application of Sections 160(2)(b) and 173 in circumstances where an MPVA loan is formally released or written-off.

Mr Jones submitted that, in those circumstances, the principal amount of the MPVA loan so released or written-off should be treated as a deemed UMP for the borrowing member in the same way that the release or writing-off of an employment-related loan by an employer would be treated as giving rise to employment income for the purposes of Chapter 7 of Part 3 to the ITEPA. He said that this was consistent with the architecture of the two sets of provisions, which was to calculate the tax arising under Sections 160(2)(b) and 173 in respect of the benefit of a loan in the same way as the tax arising under Chapter 7 of Part 3 of ITEPA in respect of the benefit of an employment-related loan.

Ms Poots did not say that that analysis was definitely incorrect. Instead, she submitted that there was some doubt over whether it was correct. She said that this was because of the way in which the deeming language in Section 173(8)(b) interacted with the charging provisions in Chapter 7 of Part 3 to the ITEPA. Section 173(8)(b) stipulated that the amount of the unauthorised payment arising pursuant to Sections 160(2)(b) and 173 was “the amount which would be the cash equivalent of the benefit under the benefits code if the benefit were received by reason of an employment and the benefits code applied to it”. However, when one then turned to the benefits code as so directed, one found that the way in which it operated was slightly different in the case of the release or writing-off of an employment-related loan than it was in the case of a beneficial rate of interest under such a loan.

The latter was taxable under Section 175 of the ITEPA. Section 175(1) of the ITEPA specified that the amount to be treated as employment earnings in the case of a cheap employment-related loan was “the cash equivalent of the benefit” and Section 175(3) of the ITEPA then set out the formula for calculating “the cash equivalent of the benefit”. In contrast, the former was taxable under Section 188 of the ITEPA. That section made no reference whatsoever to “the cash equivalent of the benefit”. Instead, it simply provided that, where the whole or part of an employment-related loan was released or written-off at a time when the borrower was still employed, “the amount released or written off was to be treated as earnings from the employment for that year”.

In addition, there was no other statutory provision which might apply to give rise to a charge in this context. The Respondents had initially considered that Section 174 – which applied to tax a shift in value out of a pension scheme to a member by the release of a right held by the pension scheme in circumstances which were not arm’s length – might give rise to a charge but had concluded that it would not apply in these circumstances because the MPVA loan being released or written-off would be held by a pension scheme other than that of the borrower and, in any event, such a release or writing-off might well be arm’s length if the MPVA loan was already worthless at the point of release or writing-off.

Mr Jones said that:

We agree with the parties that the language in Sections 160(2)(b) and 173 is satisfied in this case. Indeed, there could hardly be any disagreement on that question given the conclusion reached by Bean J in Faulds. Although Bean J was proceeding on the basis that Section 160(2)(a) did not apply on the facts that he had found, we have explained in paragraphs 278 to 297 and paragraph 352 above why we consider that the applicability or otherwise of Section 160(2)(a), whether on the facts that Bean J had found or on the facts which we have found, has no bearing on the applicability or otherwise of Section 160(2)(b) to both versions of the facts. It follows that, in our view, we are bound by the conclusion of Bean J to the effect that, on the facts which we have found, the present circumstances fall within Sections 160(2)(b) and 173.

We also agree with the parties that the combination of the deeming language in Sections 173(8) and 173(9) and the terms of Chapter 7 of Part 3 of the ITEPA means that the borrowing member is liable to tax pursuant to Sections 160(2)(b) and 173 on the benefit of the MPVA loan in an amount equal to the official rate of interest from time to time over the period in question. That is because no interest has been paid on any of the MPVA loans to date.

As we have already noted, we have been asked to address two questions which strictly do not arise in relation to the appeals before us but are likely to be relevant in due course in connection with the MPVA loans.

The first question is whether, when an MPVA loan is repaid in an amount which is greater than the amount of the MPVA loan originally advanced, Section 191 of the ITEPA, as incorporated by reference into Section 173 by Sections 173(8)(b) and 173(9), should apply to enable the relevant member to make a claim for relief in respect of the tax previously paid by virtue of Section 175 of the ITEPA to the extent that that tax is attributable to such part of the amounts chargeable under that section as is equal to that excess (as Mr Jones contends) or whether no such relief should be available (as Ms Poots contends).

In answering that question, we should start by noting that, in accordance with the agreed facts, an MPVA Agreement, insofar as it requires the borrower to compensate the lending Ark Scheme for being out of its money for the period of the relevant MPVA loan, does not provide for interest to accrue from day-to-day on the amount of the relevant MPVA loan. Instead, it simply provides that the MPVA loan is to be discharged at the MPVA Discharge Amount and the MPVA Discharge Amount is a specified fixed amount which happens to be equal to the amount of the initial MPVA loan together with an amount equal to simple interest at 3% over the entire originally-anticipated term of the MPVA loan – see paragraph 39 above.

It follows that a significant consequence of the manner in which each MPVA Agreement is drafted is that no provision has been made for the MPVA Discharge Amount to be reduced in the event of the repayment of the MPVA loan in question before its stipulated maturity date. In other words, the borrower is required to pay the same MPVA Discharge Amount no matter when the MPVA loan in question is actually repaid and the difference between the MPVA Discharge Amount and the original advance is simply a fixed premium on repayment.

Neither counsel made any submissions to us in relation to whether or not that premium might amount to “interest” as a matter of law. The case law in relation to the question of what constitutes “interest” as a matter of law, as opposed to some other compensation to a lender for being out of its money for the period of a financing – for example, a discount or a premium - is extensive and complicated and the answer in any particular case is not always straightforward. We therefore express no view in this decision on whether or not the premium (or at least some part of the premium) which is payable on the repayment of an MPVA loan in this case can properly be said to be “interest” despite not being described as such in the relevant MPVA Agreement.

All that we would say is that, insofar as it can properly be described as “interest” as a matter of law, it seems to us that that interest is not accruing daily, as is shown by the fact that the premium is payable in full no matter when the relevant MPVA loan is actually repaid. We therefore agree with Ms Poots that it is hard to see how any part of the premium can properly be described as being interest payable on the MPVA loan for any period, including a tax year. It follows that we believe that no relief should be available under Section 191 of the ITEPA, as incorporated by reference into Section 173 by Sections 173(8)(b) and 173(9), for any amount by which the MPVA Discharge Amount exceeds the MPVA loan originally advanced.

The second question is whether, upon a release or writing-off of an MPVA loan, the amount released or written-off should be treated as a deemed UMP pursuant to Sections 160 and 173, when taken together with Section 188 of the ITEPA. We do not think that there can be any doubt that the appropriate outcome in that situation, taking into account the clear purpose of both sets of provisions, is that the amount released or written-off should be so treated. No doubt, if the specific question had been raised in Parliament at the time when the deeming language in Sections 173(8)(b) and 173(9) was being enacted as to whether or not that should be the outcome in the event of a release or writing-off of a loan which had been made to a member of a pension scheme as a result of the use of the pension scheme’s assets, the conclusion would have been unanimously in the affirmative.

However, the fact that that might be expected to have been the purpose of Parliament at the time when the legislation was enacted is not the same as saying that that is what the legislation says. The authorities show that it is permissible, and indeed required, for a court or tribunal to adopt a purposive approach in construing legislation but the doctrine of purposive construction has its limits. It is not possible to override the clear words of the statute simply because those words give rise to an unlikely or unwelcome result. In determining purpose, the focus is must be on the words used by Parliament and not on some wider policy aspirations. As Lord Neuberger said in Williams v Central Bank of Nigeria [2014] AC 1189 at paragraph [72]:

If we then turn to examine the language of the provisions in question with that in mind, it is notable that:

From the matters described in paragraph 375 above, we think that the inescapable conclusion is that the phrase “cash equivalent” when it is used in Part 3 of the ITEPA is a term of art for the purposes of that part and that the phrase must bear the same meaning when it appears in Section 173(8)(b). As such, we do not see how, when it is used in Section 173(8)(b), the phrase can simply be regarded as a generic and more expansive term which extends to all amounts that happen to be subject to tax under the provisions of Part 3 of the ITEPA, regardless of how the charge to tax under that part is expressed in the relevant provision of that part. We are not persuaded by Mr Jones’s submission that, because the value of the benefit which is derived from the release or writing-off of a loan is clear and easy to quantify, there is no need for the charge under Section 188 of the ITEPA to refer to a “cash equivalent” of that benefit but the value of the benefit is nonetheless a “cash equivalent” for the purposes of Section 173(8)(b). The same point might be made in relation to several of the benefits in Part 3 of the ITEPA which contain a reference to a “cash equivalent” – for example, cash vouchers.

In our view, therefore, it would go beyond the boundaries of permissible purposive construction of the language in Sections 173(8)(b) and 173(9), taken together with Section 188 of the ITEPA, to treat the amount which is expressed to be chargeable to tax under Section 188 of the ITEPA in respect of the release or writing-off of an employment-related loan as falling within the charge to tax which arises pursuant to Sections 160 and 173 on the release or writing-off of a loan made to a member of a pension scheme by virtue of the use of the assets of the pension scheme. We recognise that this conclusion is a surprising one and might fairly be said to produce an arbitrary result. But there are limits to the ability of the courts and tribunals to remedy deficiencies in the drafting of the legislation and we think that those limits operate in this case.

Issue 5 and Issue 6 both pertain to the same matter, which is the appeals made by Dalriada against the Respondents’ refusal to discharge the scheme sanction charges which they have assessed on Dalriada. The outcome of those appeals depends on Dalriada’s satisfying us in relation to two things in relation to each scheme sanction charge as follows:

It is worth noting that the burden is on Dalriada to satisfy us in relation to both of these issues. If Dalriada fails in relation to Issue 5, then it is not necessary for us to consider Issue 6.

Issue 5 and Issue 6 arise because we have held that there have been actual UMPs for the purposes of Section 160(2)(a). Those were scheme chargeable payments for the purposes of Section 239 (see Section 241(1)(a)). The deemed UMPs which we have concluded also arose as a result of the operation of the PRP, pursuant to Sections 160(2)(b) and 173, are not scheme chargeable payments and therefore do not give rise to scheme sanction charges (see Section 241(2)).

Before outlining the submissions of the parties in relation to Issue 5, there are two important preliminary points which we need to address in relation to the identification of the “scheme administrator”.

The first point is to observe that the phrase “scheme administrator” is used in both Section 268(7)(a) – which is the provision relevant to Issue 5 – and Section 268(7)(b) – which is the provision relevant to Issue 6. It is common ground that, in the context of the circumstances which have led to these proceedings, those references must mean different persons if the relevant provisions are to make any sense. The reference to the “scheme administrator” in Section 268(7)(a) must mean the person, if any, who was the scheme administrator at the time when the relevant actual UMP was made. That is demonstrated by the use of the past tense in the provision in question. In contrast, the reference to the “scheme administrator” in Section 268(7)(b) must mean the person, if any, who has been assessed to the scheme sanction charge to which the application relates. That is demonstrated by the use of the conditional future tense in the provision in question.

We agree with that approach.

The second point is much more difficult to determine and it relates to the identity of the “scheme administrator” at the time when the actual UMPs in this case were made – which is to say, the “scheme administrator” for the purposes of Section 268(7)(a). It may be noted that, when we were outlining the differences between the two parts of Section 268(7) in paragraph 382 above, we referred to the possibility that there might not be a “scheme administrator” at any particular time. We did that because:

Section 270 provides that:

There is, perhaps unsurprisingly given the way in which the PRP was conceived and operated, a problem with how the provisions described above apply in the present case to the situation pertaining before Dalriada was appointed. This is because, at the inception of the PRP, the person who was appointed in accordance with the rules of each Ark Scheme to be responsible for the discharge of the functions conferred or imposed on the scheme administrator by or under Part 4 of the FA 2004 was the trustee of the relevant Ark Scheme – which is to say Athena or Minerva – and yet neither of those entities made the “required declaration” in relation to the relevant Ark Scheme. Instead, the “required declaration” was made by one of the Ark LLPs. As such, on the basis of the definition in Section 270, there was no “scheme administrator” in place at any time prior to the appointment of Dalriada.

Section 272 provides that, where there is no “scheme administrator” and no-one who remains subject to the liabilities of the “scheme administrator” under Section 271(4) by virtue of having previously been a “scheme administrator”, then the liabilities and obligations of the “scheme administrator” are to be assumed by certain persons who are identified by specific rules laid down in the section. Those rules set out a waterfall of identification such that, if a person specified under an earlier heading can be traced and is not in default of the liabilities or obligations in question, then a person specified under a later heading is not so liable or obliged. The earliest heading to apply for this purpose is one which identifies the trustee or trustees of the pension scheme to be the person or persons so liable as long as that person or those persons is or are resident in the United Kingdom. In this case, in the case of each Ark Scheme, that would be Athena or Minerva, as the trustee of the relevant Ark Scheme.

It is important to observe that Section 272 does not say that the person or persons who are identified by virtue of the rules set out in that section should be deemed to be the “scheme administrator” for the purposes of Part 4 of the FA 2004. Instead, it says merely that the person or persons who are identified by virtue of those rules assumes or assume the liabilities and obligations of the “scheme administrator”.

It is common ground that, on these facts:

Dalriada adds that another way of applying the legislation to the present facts and getting to the same result is to observe that:

We do not find that alternative view put forward by Dalriada to be at all persuasive. It seems to us that Section 270 does not set out two distinct requirements which need to be satisfied by a person in order for that person to be identified as the “scheme administrator” and then establish a hierarchy between the two requirements. Instead, it operates by:

Turning then to the basis on which the parties have both agreed that Mr Tweedley’s state of mind is the relevant one for the purposes of Section 268(7)(a), we find that analysis to be slightly more persuasive. That is because we can see how a practical and sensible approach to the language in Section 268(7)(a) would be to conclude that, where a person has been made subject to the liabilities and obligations of the “scheme administrator” by virtue of the operation of Section 272, one of the obligations of that person is to consider whether the payment in question was a scheme chargeable payment and therefore the state of mind of that person is the relevant one for the purposes of Section 268(7)(a).

However, the fact remains that Section 272 does not stipulate that the person who has been made subject to the liabilities and obligations of the “scheme administrator” is, in fact, the “scheme administrator”. Moreover, there is no compelling reason why the language in Section 268(7)(a) should be given an artificially broad construction simply to enable the test in that provision to be applied. By way of expanding on that statement, it seems to us to be arguable that, since:

After reflecting on this question, we have concluded, on balance, that, in this case, there was no person whose state of mind was relevant for the purposes of the test in Section 268(7)(a) for the simple reason that there was no “scheme administrator” at the relevant time the reasonableness of whose beliefs could be tested. That conclusion, in and of itself, means that, in our view, in this case, Dalriada has not satisfied the test in Section 268(7)(a). However, we recognise that the parties have reached a different view and we can certainly see that it is harsh to proceed on the basis that, even though there was a person who had the liabilities and obligations of the “scheme administrator” at the relevant time pursuant to Section 272, the beliefs of that person cannot be relied upon for the purposes of satisfying the test in Section 268(7)(a). Those factors, taken together with the significance of the test to the outcome of these proceedings, mean that we have set out in paragraphs 396 to 417 below the parties’ respective submissions, and our conclusions, in relation to the application of the test in Section 268(7)(a) in this case assuming that our view on this question is incorrect and that Mr Tweedley’s belief at any time during the period prior to Dalriada’s appointment should be regarded as the belief of the “scheme administrator”. Having said that, the conclusions set out in those paragraphs are of course irrelevant if our primary conclusion - which is that there was no “scheme administrator” at the relevant time – is correct.

Now that we have addressed those preliminary points, albeit at some length, we turn to consider the question which is relevant to Issue 5 – namely, whether the belief of Mr Tweedley to the effect that the MPVA loans in this case were not scheme chargeable payments was a reasonable one.

Mr Jones said that the Upper Tribunal decision in Bella Figura showed that it was reasonable to rely on implicit advice in reaching a view on whether or not particular circumstances gave rise to unauthorised payments. In that case, even though the sponsoring employer had not obtained explicit advice to the effect that the transaction did not give rise to an unauthorised payment, the fact that the sponsoring employer had instructed an appropriately-qualified practitioner to prepare the transaction documentation meant that it had received implicit advice to that effect – see Bella Figura at paragraphs [61], [69], [85] and [87].

Mr Jones said that, in this case:

In response, Ms Poots submitted that the situation of the sponsoring employer in Bella Figura was very different from the situation of Mr Tweedley in this case. In Bella Figura, the person who sought the input of the pensions practitioner was the director of an employer which was running its own pension scheme and sought the advice in that regard. It was in the interests of the person receiving the advice, the sponsoring employer itself, to ensure that the structure did not give rise to unauthorised payments. It had a direct personal interest in the efficacy of the arrangement. In contrast, in this case, Mr Tweedley had set up an arrangement which was not his own pension scheme but was merely designed to generate fees for himself and his associates. He therefore was not personally at risk if the structure did not achieve its objective. Where the person receiving the advice was not personally at risk in relation to the content of the advice, the duty of care on the recipient of the advice was much greater and therefore a higher standard was required before it could be said that reliance on the advice was reasonable.

More importantly:

Ms Poots said that, given all of the above, in the period prior to the HMRC meeting, it was manifestly unreasonable for Mr Tweedley to have believed that the PRP did not give rise to scheme chargeable payments.

Turning to the period following the HMRC meeting, Mr Jones said that Mr Tweedley’s continued belief during that period that the PRP did not give rise to unauthorised payments was also reasonable. Mr Bush and Ms Allsopp had expressed no view on the efficacy of the PRP at the HMRC meeting and had instead merely asked for further information about the structure. As such, there was no reason for Mr Tweedley to be concerned that the advice which he had previously received from Mr Fowler was wrong. Moreover, despite that, Mr Tweedley had not simply waited for the Respondents’ officers to reach a view but had immediately sought the advice of Ms Hardy and that advice had been that the better view was that the PRP did not give rise to unauthorised payments.

Ms Poots said that the situation following the HMRC meeting was even worse than in the initial period because, at that stage, Mr Tweedley had become aware that the Respondents had concerns about the efficacy of the structure and were actively carrying out further investigations. Accordingly, it was unreasonable for Mr Tweedley to have continued to believe that the PRP did not give rise to scheme chargeable payments following that meeting.

Mr Tweedley’s view to that effect remained unreasonable even after the consultation with Ms Hardy. At that point, the uncertainties following the HMRC meeting remained. That, along with the flawed basis on which the Counsel’s Opinion had been obtained, meant that, even after obtaining the Counsel’s Opinion, it was unreasonable for Mr Tweedley to have continued to believe that the PRP did not give rise to scheme chargeable payments.

In concluding, Mr Jones said that the tax treatment of the PRP was not straightforward, as had been shown by the protracted arguments in these proceedings. Mr Tweedley’s belief that the PRP did not give rise to unauthorised payments stemmed from the advice initially of Mr Fowler and then Ms Hardy, both of whom were reasonably considered by Mr Tweedley to be competent to give that advice. That advice was not obviously wrong to someone in Mr Tweedley’s position and he was entitled to rely on it.

Ms Poots said that the advice of each of Mr Fowler and Ms Hardy was flawed for different reasons – a lack of independence in the case of Mr Fowler and a lack of proper information in the case of Ms Hardy. As such, it was unreasonable for Mr Tweedley to rely on that advice and his view that the PRP did not give rise to unauthorised payments was unreasonable. More generally, as had been shown by his demeanour and evidence at the hearing, Mr Tweedley was someone who was prone to unreasonable beliefs. Even after all that had gone wrong with the PRP, the intervention of the PR, the decision in Faulds, the difficulties encountered by Dalriada in seeking to recover the Ark Schemes’ investments and the present proceedings, he was still convinced that there was nothing whatsoever wrong with the arrangement he had conceived.

If the conclusion set out in paragraph 394 above - to the effect that there was no “scheme administrator” in relation to the Ark Schemes in the period prior to the appointment of Dalriada - is correct, the reasonableness of Mr Tweedley’s belief over that period is not a relevant question. However, we set out below our views in relation to that question assuming that that conclusion is incorrect and that Mr Tweedley’s belief at any time in that period should be regarded as the belief of the “scheme administrator”. In approaching the question, we find it most convenient to divide the unauthorised payments with which these proceedings are concerned into three periods, as follows:

We say that because the facts changed over those periods and therefore the reasonableness or otherwise of Mr Tweedley’s belief over each period needs to be considered in the light of those changing facts.

Starting with Period 1, we consider that, in the light of the facts which we have found as set out in paragraphs 225 to 228 above, Mr Tweedley’s belief over that period that the PRP did not give rise to scheme chargeable payments was manifestly unreasonable. Mr Tweedley did not take independent professional advice in relation to the efficacy of the PRP but chose to rely on the advice of Mr Fowler whom he knew not to be independent as a result of having a financial interest in the arrangement’s proceeding. Mr Tweedley’s decision not to take the advice of Ms Hardy at that stage is incomprehensible given that so many people were being encouraged to entrust their life savings with him. The least that he should have done, given that he was aware of the rules which were designed to prevent early access to pension funds and had devised the PRP to get around those rules, was to seek the advice of an appropriately-qualified professional who had no “skin in the game” and provided his or her advice in writing and pursuant to the terms of a formal engagement letter. In the circumstances, we have concluded that Mr Tweedley’s belief that the unauthorised payments which were made in Period 1 were not scheme chargeable payments was not reasonable.

Turning then to Period 2, we think that the position in relation to the unauthorised payments made in this period is, if anything, worse than in relation to the unauthorised payments made in Period 1. In Period 2, Mr Tweedley still had not taken independent professional advice and, by then, he knew that the Respondents:

It therefore goes without saying that Mr Tweedley’s belief that the unauthorised payments which were made in Period 2 were not scheme chargeable payments was not a reasonable one.

The reasonableness of Mr Tweedley’s belief that the unauthorised payments which were made in Period 3 were not scheme chargeable payments is a much more finely-balanced question. That is because, by the start of Period 3, Mr Tweedley had received the Counsel’s Opinion to the effect that the PRP did not give rise to scheme chargeable payments. We agree with Mr Jones that Ms Hardy, who provided the Counsel’s Opinion, was an appropriately-qualified independent professional and therefore her advice cannot be discounted for the same reason as that for which we have discounted the advice of Mr Fowler. Moreover, we agree that, generally, a view reached by a layperson in relation to complicated legislation in reliance on the advice of an appropriately qualified independent professional would be a reasonable belief.

However, in this case, the position is complicated by two factors.

The first and more important of the two is that the views of Ms Hardy were sought on the basis of misleading instructions. We have set out in paragraph 234 above our findings of fact in relation to the basis on which Ms Hardy was instructed. None of the statements set out in that paragraph was in fact accurate and Mr Tweedley, had he been acting reasonably, would have known that to be the case. Taking them in order, contrary to the impression which was given to Ms Hardy:

It is important to note in this context that the fact that the MPVA loans were not made at arm's length was not just a minor inconsequential detail in terms of the tax analysis. Instead, it was fundamental to that tax analysis. It meant that the MPVA loans were totally inappropriate investments for the Ark Schemes to make. Taking into account the uncommercial features of the MPVA loans, the MPVA loans were not attractive investments and were in fact highly likely to deplete the value of the Ark Schemes. In terms of maximising the value of the funds held by an Ark Scheme, it made absolutely no commercial sense for the trustee of the lending Ark Scheme to make an MPVA loan. The only reason for making an MPVA loan was to generate an equally-depleting matching MPVA loan to a member or members of the lending Ark Scheme by the Ark Scheme of which the borrower from the lending Ark Scheme was a member. This meant that the non-arm’s length nature of each MPVA loan was the essential mechanism by which a member of the lending Ark Scheme was able to access part of his or her pension monies. In our opinion, had Ms Hardy's attention been directed by Mr Tweedley and Mr Fowler to the uncommercial features of the MPVA loans, she would have properly understood the ramifications of the structure and realised that, far from amounting to standard investments by the lending Ark Scheme, as the MPVA loans had been presented to her, the MPVA loans were simply a means for members of the lending Ark Scheme to obtain access to part of their pension monies. In our view, this would have had a fundamental impact on Ms Hardy’s conclusions in the Counsel’s Opinion.

As for the second of the two reasons, at the time that he received the Counsel’s Opinion, Mr Tweedley was aware of the Respondents’ reservations about the PRP and the fact that the Respondents were actively investigating the PRP. The fact that, knowing all of that, he continued to market the PRP “with restored vigour” over Period 3 in our view constitutes unreasonable behaviour on the part of Mr Tweedley.

We appreciate that the question we are required to address in this context in relation to any period is not whether Mr Tweedley acted reasonably over that period but rather whether Mr Tweedley’s belief over that period that the unauthorised payments were not scheme chargeable payments was reasonable. As such, it is theoretically possible for us to conclude that, although Mr Tweedley acted unreasonably in Period 3 in continuing to market the PRP with “restored vigour”, his view over that period that the unauthorised payments were not scheme chargeable payments was reasonable. However, we do think that Mr Tweedley’s knowledge of the Respondents’ position over that period – the fact that the Respondents were actively investigating the PRP and had expressed some reservations about it – does play into the question of whether or not Mr Tweedley’s view on this question over that period was reasonable. That is because it is more reasonable to rely on a favourable opinion received from an appropriately-qualified independent professional in circumstances where no doubts to the contrary have been expressed by the Respondents and the Respondents are not actively investigating the facts than it is where those are not the circumstances in which that favourable opinion has been received.

After reflecting on this question at some length, and recognising:

The conclusions we have reached in relation to there being no “scheme administrator” during the relevant period and in relation to Issue 5 mean that, strictly speaking, Issue 6 does not arise. However, since we have heard the evidence in relation to Issue 6 and heard the submissions of Mr Jones and Ms Poots in relation to it, we set out below those submissions and the conclusions which we would have reached in relation to Issue 6 if we had concluded that the belief of Mr Tweedley was relevant to the test in Section 268(7)(a) and concluded Issue 5 in Dalriada’s favour, either in whole or in part.

It was common ground that:

However, there were various points on which the parties did not agree.

Mr Jones submitted that there were a number of reasons why it would not be just and reasonable for Dalriada to be liable to the scheme sanction charges in this case. His starting point was the decision in Bella Figura. He observed that it was clear from Bella Figura at paragraphs [70] to [75] that, in assessing whether it is just and reasonable for a person to be liable to a scheme sanction charge, it is necessary to take into account:

Unauthorised payments could be more or less serious depending on the circumstances in which they were made. From the examples given by the Upper Tribunal in paragraph [75] of its decision in Bella Figura, it was clear that an unauthorised payment comprising a loan was less serious than an unauthorised payment comprising an outright payment. Moreover, from the reasoning adopted by the Upper Tribunal in relation to the facts in Bella Figura in paragraphs [76] to [79] of its decision, it was clear that both:

Mr Jones said that there were essentially four reasons why it would not be just and reasonable for the scheme sanction charges to apply in this case.

The first was that the burden of the scheme sanction charges would fall on the members of the Ark Schemes initially because the charges would be paid out of the funds held by the schemes to the extent that they were sufficient. That would be unfair as many of the members were in dire financial straits and the members were relatively unsophisticated in matters relating to tax and pensions and had been caught up in a complex arrangement that had been promoted to them at a time before the public in general had been made aware of the dangers inherent in such schemes. Imposing a further financial penalty on the members in addition to the fees and tax charges which they had suffered already would be unfair, particularly as some of the members in question hadn’t even received an MPVA loan before the PRP ceased to operate. Any penal, deterrent or sanctioning effect had already been served even without imposing scheme sanction charges. The total tax charge in respect of actual UMPs, taking into account the unauthorised payments charges, the unauthorised payments surcharges and the scheme sanction charges, amounted potentially to 95%. It was therefore well in excess of any reasonable reimbursement to the Respondents for the fact that the funds had been in a tax-favoured environment.

Mr Jones’s second point was that the MPVA loans were repayable, together, in most cases, with compensation to the lending Ark Scheme for being out of its money at a rate which equated to simple interest of 3%. They were not outright payments. As such, this was not the type of pensions liberation which was said in Bella Figura to be the most serious. In addition, given the structure of the PRP, saddling the Ark Schemes with scheme sanction charges would mean that the members would find it even more difficult to repay their MPVA loans because the tax-free lump sums to which they would become entitled at the point when they were required to repay their MPVA loans would be smaller. This would make the situation even more onerous for the members, who had already suffered severe damage to their pension funds and, in the long term, lead to an additional cost to the Exchequer as the members would be unable to fund their retirements.

Ms Poots responded as follows to those first two points:

Mr Jones’s third point was that the interaction between the scheme sanction charges and the unauthorised payments charges to which they were related was imperfect. There were two distinct problems with the operation of Section 240, as follows:

In relation to the first of those two problems, Ms Poots said that the way in which the formula in Section 240(3) applied meant that the charge to tax overall would be a maximum of 70%. This was certainly substantial but the rationale for it was both to deter the making of unauthorised payments and to compensate the Exchequer for the tax-beneficial nature of the pension regime – see Clark CA at paragraph [25]. Thus, that was in accordance with the underlying policy of the legislation.

In relation to the second problem, the one relating to timing, Ms Poots said that, in the view of the Respondents, Section 240(2) applied both in circumstances where the person who was liable to the unauthorised payments charge paid that charge before the scheme administrator paid the related scheme sanction charge in question and vice versa. Thus, Dalriada would be able to obtain a refund of the scheme sanction charge in the event that the relevant unauthorised payments charge was discharged after Dalriada had discharged the related scheme sanction charge. This was because the language in Section 240(2) was such that, even if the unauthorised payments charge was paid after the related scheme sanction charge, as soon as the unauthorised payments charge was paid, the deduction described in that section arose and this had the effect of reducing the amount of the scheme sanction charge “that would otherwise be chargeable”. In fact, because of the way in which an unauthorised payment was required to be reported, and the date on which the scheme sanction charge fell due, relative to the date on which the related unauthorised payments charge fell due, it was quite commonplace for a scheme sanction charge to be paid before the related unauthorised payments charge had been paid and then for a repayment to arise for the scheme administrator on the subsequent payment by the member of that unauthorised payments charge.

She added that there was no time limit within which the relevant unauthorised payments charge would need to be paid in order to generate the repayment for the scheme administrator in respect of the scheme sanction charge under Section 240(2). This was because obtaining such repayment did not require a claim to be made.

Mr Jones said that he did not see how the repayment could be accessed unless there was a claim in respect of it. Moreover, he did not accept that Dalriada would be entitled to obtain a repayment of a scheme sanction charge in the event that the related unauthorised payments charge was paid after the scheme sanction charge was paid without making a claim to that effect under Schedule 1AB of the Taxes Management Act 1970 (“Schedule 1AB”) and therefore without being subjected to the time limits set out in that schedule. He said that that schedule required a claim to be made where a person had paid an amount of income tax but the person believed that the tax was not due and the circumstances we were considering were just that.

Ms Poots said that, on the contrary, in a case such as the one we were considering, the relevant income tax – the scheme sanction charge - would have been due at the time when it was paid and then ceased to be due once the related unauthorised payments charge was paid. That was very different from a case where the relevant income tax had never become due, which was the situation with which Schedule 1AB was dealing. Thus, the schedule was not engaged.

Mr Jones’s fourth point was that, to the extent that the assets of the Ark Schemes were insufficient to meet the scheme sanction charges, Dalriada would have personal liability for the relevant charges. That was because Dalriada was the incumbent scheme administrator at the time when the scheme sanction charges were assessed and was unable to rely on the provisions in Sections 272A to 272C, which had been enacted in 2014 to ensure that, in cases like these, the liability for the scheme sanction charges remained with the person who had been the scheme administrator at the time when the unauthorised payments were made and did not pass to a person who had subsequently been appointed as independent trustee of the pension scheme in question.

In response, Ms Poots pointed out that it had not yet been established that the assets of the Ark Schemes would be insufficient to meet the scheme sanction charges such that Dalriada had to bear the cost of those charges itself. That meant that it would be very difficult for us to take that into account in reaching our conclusion on this question. Having said that, should Dalriada be obliged to meet the cost of the charges, it could always apply to the Respondents for relief from the charges on the grounds of hardship. She accepted that hardship was not the same as fairness but she understood that the Respondents would take fairness into account in considering any such hardship application.

Mr Jones said that it was not appropriate for Dalriada to have to rely on the Respondents’ discretion in considering a hardship application in order to avoid a personal liability for the scheme sanction charge. A non-binding statement of that nature was not of great comfort to Dalriada. The unfairness identified should be addressed using the discharge power in Section 268. In any event, a successful hardship application tended to involve merely giving the relevant taxpayer time to pay a tax liability as opposed to absolving the relevant taxpayer from the tax liability absolutely.

Although our conclusion in relation to Issue 6 is of academic interest only because of our conclusions in relation to there being no “scheme administrator” during the relevant period and in relation to Issue 5, we consider that, had Dalriada succeeded in relation to the test in Section 268(7)(a), we would have allowed its appeal against the refusal by the Respondents to discharge the scheme sanction charges.

We have reached that conclusion essentially for the four reasons advanced by Mr Jones. Indeed, given our conclusion to the effect that both Section 160(2)(a) and Sections 160(2)(b) and 173 apply in the context of the PRP, Mr Jones’s first point has an even greater resonance. Whilst the charges arising pursuant to Sections 160(2)(b) and 173 are relatively small in comparison to the charges arising pursuant to Section 160(2)(a), and do not themselves trigger scheme sanction charges, they are nevertheless an additional financial burden falling on the participants in the PRP over and above the charges arising pursuant to Section 160(2)(a) in respect of the unauthorised payments which constitute the scheme chargeable payments. For the Ark Schemes to face the additional cost of scheme sanction charges in these circumstances seems to us to be unfair.

We agree with Mr Jones that, because the unauthorised payments in this case arose by way of loan and are required to be repaid, these circumstances are at the less egregious end of the Bella Figura spectrum. We are not persuaded by the point made by Ms Poots in paragraph 426(4) above to the effect that a distinction should be drawn between loans to members and loans to employers for this purpose. In both cases, the relevant loan is required to be repaid and this, we think, makes the situation very different from an outright payment to a member.

We are also not persuaded by the point made by Ms Poots at paragraph 426(5) above. It may well involve an element of speculation on our part but we think that there is a high degree of probability that depleting an Ark Scheme by imposing scheme sanction charges will make it less likely that the members of that Ark Scheme who have received MPVA loans will be able to repay their MPVA loans. This, in turn, will make it less likely that the members of the lending Ark Schemes will themselves be able to repay the MPVA loans which they received, and so on. Such is the nature of the arrangement which we are considering.

For the reasons which we have given, we consider that the first two points made by Mr Jones are, in our view, sufficient, in and of themselves, to mean that Dalriada should succeed in relation to Issue 6. However, we also have considerable sympathy with most of his last two points.

Turning to the first part of Mr Jones’s third point, we agree with Ms Poots that inadequacies in the manner in which the formula set out in Section 240(3) operates are not a particularly sound basis for concluding that a particular scheme sanction charge which has been calculated in accordance with that formula is not just and reasonable. That is because the formula applies in all cases and without regard to the specific circumstances which have given rise to the particular scheme sanction charge. If the formula itself operates unfairly – as opposed to giving rise to an unfair result in particular specified circumstances - then that is because Parliament has seen fit to provide for it and it is not a sound basis on which to found an allegation that the Respondents’ refusal to discharge the particular scheme sanction charge in question is not just and reasonable.

However, we think that there is much greater force in the second part of Mr Jones’s third point. Ms Poots’s responses in relation to the allegations made by Mr Jones are threefold in nature. They are that:

We have some difficulties in relation to each of those responses and therefore in concluding that Section 240(2) operates in the manner suggested by the Respondents in circumstances where the scheme sanction charge is paid before the related unauthorised payments charge is paid.

In the first place, it seems to us to require a somewhat tortured construction of Section 240(2) to conclude that, after a scheme sanction charge has become “chargeable”, then been “charged” and finally been “paid”/”discharged”, the subsequent payment of the related unauthorised payments charge can be said to reduce “the amount of tax that would otherwise be chargeable”, as provided in Section 240(2). In those circumstances, the relevant scheme sanction charge will already have become “chargeable”, will already have been “charged” and will already have been “paid”/”discharged”. So it seems odd to suggest that the subsequent payment of the related unauthorised payments charge can, at that stage, change the amount that “would otherwise be chargeable”.

Secondly, we have some difficulty in seeing how, even if the section could operate in that way in principle, it would be able to operate without the making of a claim and without limit as to time. Is it really the case that, where a scheme sanction charge has been paid in, say, 2022, the subsequent payment of the related unauthorised payments charge in, say, 2052 can give rise to a repayment of the scheme sanction charge in question and without the making of a claim to that effect?

Thirdly, we are not persuaded by Ms Poots’s suggestion that Schedule 1AB would not apply in these circumstances on the basis that it applies only where the tax in question was not due at the time when taxpayer paid the tax whereas, in this case, the tax in question would have been due at the time when it was paid and would only subsequently have ceased to be due. We would have thought that, if Section 240(2) were to operate as the Respondents allege it does, and the subsequent payment of the authorised payments charge were retrospectively to reduce “the amount of tax that would otherwise be chargeable” for the purposes of Section 240(2), then that would mean that the scheme sanction charge previously paid was not “chargeable”, which would in turn mean that it was not “due” and that would then bring Schedule 1AB into play.

Finally, as regards Mr Jones’s fourth point, we do not agree with Ms Poots’s suggestion that, in exercising our judgment in relation to this question, we should not take into account the potential personal exposure of Dalriada for the scheme sanction charges because:

The fact is that, in 2014, Parliament saw fit to legislate in relation to circumstances such as these precisely because it would be so unfair for an independent trustee to face an exposure to personal liability. Dalriada cannot benefit from that legislation in this case because of the date when it was appointed but that does not make it any less unfair for Dalriada potentially to face that exposure. Indeed, it somewhat emphasises the extent to which that exposure is not just and reasonable. We therefore consider that Dalriada’s potential exposure to personal liability is something which we should necessarily take into account in assessing whether or not to allow Dalriada’s appeal against the refusal by the Respondents to discharge the scheme sanction charges.

In addition, it is not appropriate, in our view, for the Respondents to say that that potential exposure to personal liability should not be taken into account at the stage of determining Dalriada’s appeals on the basis that, should that eventuality arise, Dalriada can then go cap in hand to the Respondents and rely on some concessionary treatment on the Respondents’ part to avoid the liability. In our view, it is entirely inappropriate for us to exercise our appellate jurisdiction without taking that potential exposure into account and instead relying on the fact that, should Dalriada incur personal liability, the Respondents will act generously.

Of course, none of the above reasoning or conclusions is of any assistance to Dalriada, given the conclusions that we have reached in relation to there being no “scheme administrator” during the relevant period and in relation to Issue 5. It is highly unfortunate, to say the least, that Section 268(7) imposes a two-stage test, particularly given the one-stage test in Section 268(3). It is not entirely clear to us why the legislation is drafted in the way it is – in other words, why a scheme administrator should be prevented from obtaining a discharge of a scheme sanction charge in circumstances where, even though it, or an earlier scheme administrator, did not reasonably believe that the unauthorised payment which has given rise to the charge was not a scheme chargeable payment, it is not just and reasonable for the scheme administrator to be liable to the charge. It seems to us that it might have been more appropriate for the reasonableness of the scheme administrator’s belief simply to constitute one of the various factors to be taken into account in determining whether or not it would be just and reasonable for the scheme administrator to be liable to the scheme sanction charge.

Ms Sheldon said that there were three requirements for a valid application under Section 268(3), namely:

She said that each of those conditions had been met in this case by virtue of I&S Limited’s letter of 6 March 2015. That letter was clearly in writing, it had been sent before the deadline of 31 January 2017 and it contained the reasons for the application.

Ms Poots agreed that Ms Sheldon had correctly outlined the three requirements for a valid application under Section 268(3).

However, she submitted that the requirements had not been met in the present case. I&S Limited’s letter of 6 March 2015 did not contain an application for the discharge of the unauthorised payments surcharge. It merely contained an appeal against the unauthorised payments surcharge. In any event, that letter did not contain any particulars of the ground for any such application. The sole permissible ground for an application for the discharge of an unauthorised payments surcharge was the one set out in Section 268(3) – namely, that in all the circumstances of the case, it would not be just and reasonable for the relevant person to be liable to the unauthorised payments surcharge in respect of the unauthorised payment in question. I&S Limited’s letter made no mention of that. Instead, the grounds to which the letter referred were the grounds for appealing against the assessment to the unauthorised payments surcharge – namely, that the assessment was estimated, based on an incorrect interpretation of the law and subject to an ongoing dispute with the Respondents.

We think that the answer in relation to this issue is clear and that is that Ms Oades did not make a valid application for the discharge of the unauthorised payments surcharge in respect of the tax year 2010/11 within the applicable time limit.

The starting point is to note is that there is a world of difference between, on the one hand, appealing against an assessment to the unauthorised payments surcharge and, on the other hand, making an application for relief from the unauthorised payments surcharge under Section 268(3). I&S Limited’s letter of 6 March 2015 did the former but not the latter, as we have already observed in our findings of fact in paragraph 245 above.

In addition, I&S Limited’s letter did not set out any particulars of the ground relied on for applying to discharge the unauthorised payments surcharge. It merely set out the grounds of appeal against the assessment to the unauthorised payments surcharge. Those grounds were directed at why no unauthorised payment should be treated as having been made. That is why they were grounds of appeal against both the assessment to the unauthorised payments charge and the assessment to the unauthorised payments surcharge. In order to engage Section 268(3), the letter would have needed to say that, even if an unauthorised payment had been made and the unauthorised payments surcharge arose, it would not be just and reasonable in all the circumstances for Ms Oades to be liable to the unauthorised payments surcharge and then set out the reasons why that was the case. The letter did nothing of the sort.

The conclusion which we have reached in relation to Issue 7 means that, strictly speaking, Issue 8 does not arise. However, since we have heard the evidence in relation to Issue 8 and heard the submissions of Ms Sheldon and Ms Poots in relation to it, we set out below those submissions and the conclusions which we would have reached in relation to Issue 8 if we had concluded Issue 7 in Ms Oades’s favour.

Ms Sheldon submitted that there were a number of reasons why it would not be just and reasonable for Ms Oades to be liable to the unauthorised payments surcharge in this case, as follows:

Ms Poots said that, on the contrary, it would be just and reasonable for Ms Oades to be liable to the unauthorised payments surcharge in this case because she:

Although our conclusion in relation to Issue 8 is of academic interest only because of our conclusion in relation to Issue 7, we consider that, had Ms Oades made a valid application for the discharge of the unauthorised payments surcharge, we would have allowed her appeal against the refusal by the Respondents to discharge the liability in question. Having said that, we think that the position is very finely-balanced.

That is because there are a number of reasons why it might be said to be entirely just and reasonable for Ms Oades to bear the unauthorised payments surcharge in question.

Those are broadly the ones advanced by Ms Poots and set out in paragraph 460 above. Whilst we are sympathetic to the predicament in which Ms Oades now finds herself, Ms Oades was well aware that there were rules in the tax legislation which were designed to deter early access to pension monies and realised that she was by no means an expert in the area in question. Those two things should have strongly suggested to Ms Oades that, before applying to become a participant in the PRP, she should take independent advice on the wisdom of moving her pension funds out of the NHS pension scheme and into the Portman Scheme, read the material with which she had been provided (in order to make sure she properly understood it) and take independent advice in relation to the efficacy of the PRP and the documentation into which she was entering.

Ms Oades did none of those things.

As regards the first of them, we have found as a fact that she was advised by both Penvest Limited and Mr Isles that she should not move her pension funds out of the NHS pension scheme.

As regards the second of them, we have found as a fact that she had no understanding of what the statement in her declaration in the application form to the effect that the PRP did not involve the making of unauthorised payments actually meant.

Finally, despite the fact that the written material with which she was provided as part of the application process contained numerous injunctions to obtain independent advice, Ms Oades chose to proceed without taking any independent advice whatsoever. By any standards, that was not a reasonable course of action to take.

Indeed, at the hearing, Ms Oades accepted the propositions that:

We are also somewhat underwhelmed by Ms Oades’s attempt to justify her actions retrospectively by claiming in her witness statement that she saw the positive advice of a tax barrister before she applied to become a participant in the PRP - when no such advice was obtained in connection with the PRP until several months after Ms Oades became a member of the Portman Scheme - and that she was subjected to credit checks in advance of drawing down her MPVA loans - when no credit checks were ever carried out on any of the participants.

However, we need to weigh the matters described above against two things which point in the opposite direction.

The first is that, in our view, in terms of the levels of seriousness of unauthorised payments set out in Bella Figura, this is at the less egregious end of the scale. The MPVA loans which have given rise to the unauthorised payments surcharge in this case were advanced to other members of the Ark Schemes– the members with whom Ms Oades was matched – and not to Ms Oades herself. In addition, they were advanced by way of loan and they will ultimately be required to be repaid. Even if we take into account the fact that Ms Oades has herself received MPVA loans by virtue of her participation in the PRP, those MPVA loans will also be required to be repaid. We do not think that the fact that neither any individual with whom Ms Oades was matched nor Ms Oades has yet been required to repay the MPVA loans which he or she received or that the effective rate of finance on those MPVA loans was favourable gainsays those facts. As things stand at present, both the members with whom Ms Oades was matched and Ms Oades have a liability to repay the MPVA loans. Moreover, Ms Oades has testified that she intends to discharge, in full, the MPVA loans that she has drawn down. She therefore has not received an outright payment of any kind, either from the Portman Scheme of which she is a member or from the Lancaster Scheme from which she has drawn down her MPVA loans.

Secondly, we have taken into account the fact that, at the time when she chose to become a participant in the PRP, Ms Oades was of modest means and in dire financial straits and was therefore desperate to find a means of raising money. She was unsophisticated in relation to matters of tax and pensions law and the PRP seemed like an answer to her problems since it did not involve any payment to her from the Ark Scheme of which she was a member. Moreover, we have found as facts that Ms Oades took comfort from the fact that the Ark Schemes were registered with the Respondents and the statement in the membership information form with which she was provided to the effect that all benefits which were to be provided under the PRP would be consistent with the Respondents’ requirements. All in all, we believe that Ms Oades’s view that the PRP would not give rise to unauthorised payments was genuinely-held and that it was a reasonable conclusion for a lay person without any experience in the relevant area to draw, however erroneous it was and however much she ought to have realised that she should confirm that view with an independent financial adviser.

In weighing up all of the above, we have concluded that the mistakes made by Ms Oades as described in paragraphs 463 to 469 above were most certainly egregious, and ultimately costly, errors on her part. However, she has suffered a great deal for those errors in the form of the unauthorised payments charges which she has borne directly herself and the costs which she has borne indirectly in the form of the scheme sanction charges, administration costs and litigation costs which have been paid by, or will be paid by, the Portman Scheme and the Ark Schemes whose members have borrowed from the Portman Scheme and are relying on their pension entitlements from those Ark Schemes to finance their repayments to the Portman Scheme.

All things considered, we believe that Ms Oades has suffered enough by virtue of her decision to participate in the PRP without also facing the additional cost of the unauthorised payments surcharge. We agree with Ms Sheldon that the deterrent effect of the legislation has already been served before taking the unauthorised payments surcharge into account. For that reason, had we been required to reach a conclusion in relation to Issue 8, we would have found in favour of Ms Oades.

Of course, notwithstanding the above conclusion, because of the failure by Ms Oades to make a valid application for the discharge of the unauthorised payments surcharge, we are not required to reach a conclusion in relation to Issue 8 and Ms Oades will now still have to suffer the additional cost of the unauthorised payments surcharge.

For the reasons set out above, our main conclusions in relation to these proceedings can be summarised as follows:

Those main conclusions mean that:

In relation to the future:

Turning to the particular categories of members described at the start of this decision, the implications of the conclusions set out in paragraphs 476 to 478 above are as follows:

So far, we have merely described our conclusions in relation to the unauthorised payments which we consider have been made to or in respect of each member of the Ark Schemes without focusing on the tax liabilities to which those unauthorised payments will have given rise for that member and for Dalriada. Depending on the facts in any particular case:

For the reasons which we have given in paragraphs 378 to 450 above, Dalriada’s appeals against the Respondents’ refusal of its applications to discharge its liability to the scheme sanction charges are dismissed.

For the reasons which we have given in paragraphs 451 to 475 above, Ms Oades’s appeal against the Respondents’ refusal of her application to discharge her liability to the unauthorised payments surcharge is dismissed.

The conclusions we have described in paragraphs 476 to 480 above are sufficient to amount to decisions in principle in relation to each of the other appeals to which this decision relates.

We realise that the outcome of these proceedings will not be at all welcome either to Dalriada or to the members of the Ark Schemes, who have already had to endure great hardship as a result of the regrettable history of this matter.  We are indebted to Ms Brooks for drawing our attention at the hearing to the plight of so many of the members and the unfortunate consequences for them of our decision. Although those matters sadly have no bearing on the legal analysis in relation to the construction of Section 160(2), on which so much of this decision turns, they may well have a bearing on whether, in the case of any particular member, the imposition of an unauthorised payments surcharge was just and reasonable. 

Mr Donaghy-Sutton’s appeals, which are part of these proceedings, do not include an appeal against a refusal by the Respondents to discharge his liability to an unauthorised payments surcharge pursuant to an application made by him under Section 268(3).  As a result, neither the unfortunate consequences for Mr Donaghy-Sutton of our conclusions nor the circumstances in which the PRP was marketed and operated, can affect the outcome of his appeals.  However, there may well be other members of the Ark Schemes, whose appeals have been stayed pending the outcome of these proceedings, in relation to whom that will not be the case. That is why we have included in this decision as much as we have in relation to the circumstances in which the PRP was marketed and operated and the damage which the PRP has caused to the members. We are grateful to Ms Brooks for drawing that to our attention and, in closing, we wish to express our sympathy for the predicament of the members and our regret that our conclusions in relation to the application of the law to the relevant facts are as they are.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”). Given the complexity of the matters to which this decision relates, and the number of people who are affected by its conclusions, we have decided to extend the period in which any such application may be made. Accordingly, in accordance with Rule 5(3)(a) of the Tribunal Rules, we hereby direct that the time limit for making any such application shall be extended from the 56 days specified in Rule 39 by an additional 28 days, with the result that any such application must be received by this Tribunal not later than 84 days after this decision is sent to the relevant party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Part A: Ark Schemes’ challenges to scheme sanction charges

Part B: Members’ challenges to unauthorised payment charge / surcharge