Standard Procedure Determination Notice under section 96(2)(d) of the Pensions Act 2004 and section 3 of the Pensions Act 1995.
Stuart James Garner
The Pensions Regulator case ref: C187900718
- By a Request dated 20 July 2023 (the Request) the case team (the Case Team) of The Pensions Regulator (TPR) asked the Determinations Panel (the Panel) of TPR to consider the issues in a Warning Notice dated 26 May 2023 (the Warning Notice).
Matters to be determined
- The Warning Notice asked the Panel to determine whether to make an Order under section 3(1)(c) of the Pensions Act 1995 (PA 95) to prohibit Stuart James Garner (Mr Garner) from acting as a trustee of trust schemes in general.
- The power to prohibit a person under section 3(1) PA 95 is a reserved function under paragraph 4 of Schedule 2 to the Pensions Act 2004 (PA 04) and can therefore only be exercised by the Panel.
Decision
- Members of the Panel (the Case Panel) determined to make an Order to prohibit Mr Garner from acting as a trustee of trust schemes in general as the Case Panel was satisfied that Mr Garner is not a fit and proper person to be a trustee of trust schemes. The terms of the Order prohibiting Mr Garner are set out at the conclusion of this Determination Notice.
Directly affected parties
- Under section 96(2)(d) PA 04 the Panel must give notice of its determination to such persons as appear to be directly affected by it. The Case Panel considered Mr Garner to be the only party directly affected by the regulatory action sought in the Warning Notice.
The factual background
- The Warning Notice and exhibits included the information in paragraphs 7 to 30 below by way of factual background.
- Mr Garner is a businessman who incorporated Norton Motorcycle Holdings Ltd (Norton) on 28 September 2009. Norton was established to acquire the rights to the Norton motorcycle brand and to invest in a UK manufacturing plant for motorcycles, which was owned and run by Norton’s trading subsidiary, Norton Motorcycles (UK) Limited (NMUK).
- Mr Garner was in control of Norton at all material times, holding the majority of its ordinary shares (which carried with them voting rights). Mr Garner was also a director of Norton and, from 27 June 2011, its sole director.
- Mr Garner was also the sole director of NMUK from 27 June 2011 and another subsidiary, Norton Racing Limited, from 9 May 2014, as well as a director of a third subsidiary of Norton, Donington Hall Estates Limited, since its incorporation on 10 July 2013.
- In a signed witness statement dated 3 September 2020, Mr Garner explained that in around 2012 it was “difficult [for Norton Motorcycles] to obtain finance from banks and we therefore sought to raise funds from investment”.
The Schemes
- Between March and September 2012 Mr Garner established a number of defined contribution occupational pension schemes, being the Donington MC Pension Scheme, The Dominator 2012 Pension Scheme and the Commando 2012 Pension Scheme (together the Schemes). The Schemes were set up and structured by T12 Administration (T12) after Mr Garner was introduced by XXX XXXX XXXXXXXX XXXXXXXX XXXXXXX XXXXXX XXXXXXXX XXXXXXX, to XXX XXXXXXX, Peter Bradley, and Andrew Meeson, directors of T12. Mr Garner stated that he carried out some due diligence in relation to T12, particularly noting Mr Meeson’s role as the President of the Association of Taxation Technicians, and trusted the advice he was given.
- Mr Peter Bradley and Mr Andrew Meeson were jailed for pension tax fraud in March 2013 and T12 stopped operating before being dissolved in March 2015. After T12 ceased operating, Mr Garner appointed LD Administration Limited as the Schemes’ administrator from 2 April 2014. In his statement from September 2020 Mr Garner states that this was after he discovered that “those involved in setting up and running the pension schemes were in fact criminals”.
- Manorcrest Limited (Manorcrest) was the principal employer in relation to each of the Schemes. Since its incorporation on 29 March 2012, Mr Garner was a director of Manorcrest (and the sole director since 5 April 2012). In addition, he exercised and controlled the voting power attached to the sole share in Manorcrest from the date of its incorporation and at all material times since.
- In the period April 2012 to December 2013, 255 individuals became members of the Schemes by transferring their pension assets into them from other unrelated pension arrangements. £11,543,517 of member funds were transferred into the Schemes which were subsequently each closed to new members with none of the Schemes ever having 100 or more members.
- The Schemes’ Statements of Investment Principles explained that the trustee of the Schemes invested primarily in preference shares in the capital of Norton. They also stated that funds could not be withdrawn for a period of 24 months from the date of transfer into the Schemes with a sliding scale of charges applied to “early transfers” out in the period of 24 months to 5 years.
- Mr Garner was the sole trustee of each of the Schemes. In the period from June 2012 to December 2013, Mr Garner invested nearly all of the Schemes’ assets (£10,910,161) in preference shares in Norton. Mr Garner confirmed to TPR that the preference shares in Norton were the only investments of the Schemes.
- Mr Garner sought to appoint an independent trustee to the Schemes once he became aware of the issues in relation to T12. He initially approached Capital Cranfield who did not want to get involved and, in 2017, approached Dalriada with a view to it being appointed as trustee. Dalriada was ultimately appointed as independent trustee by TPR – see paragraph 19 below.
- Norton went into administration on 29 January 2020 before entering into creditors’ voluntary liquidation in January 2021.
Previous TPR regulatory action
- On 21 May 2019 following a regulatory investigation by the Case Team, a case panel of the Determinations Panel appointed Dalriada Trustees Ltd (Dalriada) to act as independent trustee to the Schemes, with exclusive powers. The appointment followed concerns in relation to Mr Garner’s actions, particularly with regard to his conflicts of interest, inappropriate investment decisions, unlawful employer related investments, poor governance and his lack of knowledge and understanding of the law relating to pensions and investments. In its Determination Notice, the Panel concluded that “the failures of [Mr Garner] in acting whilst conflicted, making inappropriate and unlawful investments, and breaching scheme governance requirements all demonstrated to the Panel (both individually and in combination with each other) that he lacked sufficient knowledge and understanding”.
Member payments
- Prior to Dalriada’s appointment, a significant number of members experienced delays in payments from the Schemes which (according to the Schemes’ administrator, Margaret Liddell of LD Administration Limited) were verbally explained by Mr Garner as primarily attributable to cash flow issues in Norton and delays in raising money to enable repayment of preference shares. She reported that “It was very difficult to manage member expectations when Stuart Garner was so hard to contact and was so sporadic with the payments.” On 24 September 2018, there were 45 outstanding payment requests, being a combination of transfers, pension commencement lump sums and income drawdowns totalling £2,567,152. On 6 August 2019, there were 60 outstanding payment requests. There remains a shortfall between what the members paid in and what has been paid out to them of approximately £10 million.
- On 23 June 2020, the Pensions Ombudsman determined various complaints made by members of the Schemes and ordered Mr Garner to make a restorative payment to the Schemes. Dalriada subsequently issued a demand requiring Mr Garner to pay approximately £15.7 million (which amount included interest).
- On 26 May 2021 a bankruptcy order was made against Mr Garner, from which he was automatically discharged on 26 May 2022. Dalriada lodged claims with the administrator (now liquidator) and with Mr Garner. Whilst future recoveries remained possible, at the date of the Warning Notice nothing had been recovered, either from Mr Garner’s bankruptcy, the liquidation or any compensation fund.
Other regulatory action
- TPR prosecuted Mr Garner for three offences of agreeing to make employer related investments, contrary to section 40(5) PA 95 in each of the Schemes. The preference shares were employer-related investments within the meaning of section 40 of PA 95 as Norton was connected and associated with the employer, Manorcrest, given the common control of the two companies by Mr Garner. The investments were unlawful in each case as the value of the investments exceeded 5% of the market value of the total resources of each Scheme, contrary to section 40 of PA 95.
- Mr Garner pleaded guilty to each offence and on 31 March 2022 was sentenced to 8 months imprisonment for each of the offences to run concurrently and suspended for 2 years. Mr Garner was also disqualified by the court under section 2 of the Company Directors Disqualification Act 1986 (CDDA86) from acting as a company director for 3 years. For the period of his disqualification, Mr Garner is also automatically disqualified from being a trustee in accordance with section 29 of PA 95 i.e. until 30 March 2025.
Governance concerns
- In the course of its regulatory investigations, the Case Team had a number of concerns regarding governance of the Schemes, including in relation to the Schemes’ investments and whether appropriate advice was obtained in relation to these.
- There was no written record of any investment advice having been obtained by Mr Garner as trustee or T12. The only written advice which TPR discovered was general advice provided by Andrew Meeson of T12 to Mr Garner but this did not specifically refer to the investments in Norton.
- In July 2018, Mr Garner told Dalriada that he had received advice from XXXXXXXX XXXXXXXX XXXXXXX, an entity based in Belize that was not regulated or authorised by the Financial Conduct Authority to provide regulated financial advice. Subsequently in September 2018, Mr Garner told TPR in response to a request for information, that he took advice from T12, Simon Colfer and XX XXXXXX of XXXXXXXX XXXXXXXXX XXXXXXXXX. In a statement made in 2020, Mr Garner accepted that the only advice he received had been given verbally.
- As regards the investments themselves, Mr Garner was initially of the view that since the investments were not in the employer, they were not unlawful. In September 2018 in response to the Case Team’s question as to when he first appreciated that they were unlawful employer related investments, he wrote:
“I do not think they are Employer Related Investments as I was advised the employer is Manorcrest and the investment is in Norton. This advice was given by T12.”
- In his statement made in September 2020, Mr Garner stated:
“I now accept that the investments by each of the Schemes in preference shares issued by Norton was an unlawful employer related investment, on the basis that they exceeded 5% of the market value of the resources of the Schemes. I was not aware of this at the time that the Schemes were set up…
I only became aware of the issue that the investments in the Schemes exceeded 5% of the market value of the resources of the Schemes during correspondence with TPR during 2018. I had assumed at the time that the Schemes were structured that Andrew Meeson had correctly set up the Schemes….
Members who invested in the Schemes were fully aware of the nature of the investments; they were advised that the investments would be into Norton Motorcycles, with preference shares... that was the selling point for the Schemes and seemingly the attraction for members”.
- In addition to concerns relating to the Scheme’s investments, and advice obtained in relation to them, the Case Team also had concerns regarding Mr Garner’s failure to comply with certain fundamental statutory governance requirements, including:
- the requirement to obtain investment advice in accordance with section 36(3) of PA 95;
- the requirement to appoint a fund manager in accordance with section 47(2) of the PA 95; and
- the requirement to appoint an auditor and obtain audited accounts in accordance with section 47(1) of PA 95.
The Law
- Section 3 PA 95 states as follows:-
“Prohibition orders
(1)The Authority may by order prohibit a person from being a trustee of-
(a) a particular trust scheme,
(b) a particular description of trust schemes, or
(c) trust schemes in general,
if they are satisfied that he is not a fit and proper person to be a trustee of the scheme or schemes to which the order relates.
(2) Where a prohibition order is made under subsection (1) against a person in respect of one or more schemes of which he is a trustee, the order has the effect of removing him.
...
(6) The Authority must prepare and publish a statement of the policies they intend to adopt in relation to the exercise of their powers under this section.”
- When the Case Panel referred to the question of whether Mr Garner was a “fit and proper person” it was by way of shorthand for, and reference to, that section 3(1) test.
- The most recent statement published by TPR in accordance with section 3(6) was published in July 2016 (the Prohibition Statement). The Prohibition Statement contains the following guidance on the criteria for a ‘fit and proper person”:
“When considering whether a person ought to be prohibited, we will investigate whether [they are] a ‘fit and proper person’ to be a trustee of a trust scheme by looking at all the relevant information.
In particular we will consider any information which concerns the [person’s]:- honesty
- integrity
- competence and capability
- financial soundness
- any attempt to deceive
- any misuse of trust funds
- any breaches of trust or pensions law, particularly if these are significant, persistent, deliberate or contrary to legal advice received
- whether a trustee’s professional charges constitute a breach of trust or demonstrate a lack of internal controls
- criminal convictions, not limited to those involving dishonesty or deception, so including (for example) money laundering, violence or substance abuse
- Section 100 PA 04 states:
“(1) The Regulator must have regard to the matters mentioned in subsection
(2)—
(a) when determining whether to exercise a regulatory function—
(i) in a case where the requirements of the standard or special
procedure apply, or
(ii) on a review under section 99, and
(b) when exercising the regulatory function in question.
(2) Those matters are—
(a) the interests of the generality of the members of the scheme to which the
exercise of the function relates, and
(b) the interests of such persons as appear to the Regulator to be directly
affected by the exercise."
- Section 29 PA 95 provides, where relevant:-
1) Subject to subsection (5), a person is disqualified for being a trustee of any trust scheme if—…
(f) he is subject to a disqualification order or disqualification undertaking under the Company Directors Disqualification Act 1986 or the Company Directors Disqualification (Northern Ireland) Order 2002 or to an order made under section 429(2)(b) of the Insolvency Act 1986 (failure to pay under county court administration order).
- Section 36 PA 95 sets out duties of trustees:
“The trustees of a trust scheme must exercise their powers of investment in accordance with regulations and in accordance with subsections (3) and (4), and any fund manager to whom any discretion has been delegated under section 34 must exercise the discretion in accordance with regulations.
(1A) Regulations under subsection (1) may, in particular—
(a) specify criteria to be applied in choosing investments, and
(b) require diversification of investments.”
- Section 40 PA 95 provides:
“The trustees or managers of an occupational pension scheme must secure that the scheme complies with any prescribed restrictions with respect to the proportion of its resources that may at any time be invested in, or in any description of, employer-related investments.
(2) In this section—
“employer-related investments” means—
(a) shares or other securities issued by the employer or by any person who is connected with, or an associate of, the employer,
(5) If any resources of an occupational pension scheme are invested in contravention of subsection (1), any trustee or manager who agreed in the determination to make the investment is guilty of an offence and liable—
(a) on summary conviction, to a fine not exceeding the statutory maximum, and
(b) on conviction on indictment, to a fine or imprisonment, or both.”
- The Occupational Pension Schemes (Investment) Regulations 2005 include the following:-
“4 Investment by trustees
(1) The trustees of a trust scheme must exercise their powers of investment, and any fund manager to whom any discretion has been delegated under section 34 of the 1995 Act (power of investment and delegation) must exercise the discretion, in accordance with the following provisions of this regulation.
(2) The assets must be invested—
(a) in the best interests of members and beneficiaries; and
(b) in the case of a potential conflict of interest, in the sole interest of members and beneficiaries .
(3) The powers of investment, or the discretion, must be exercised in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio as a whole.
…
(7) The assets of the scheme must be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings and so as to avoid accumulations of risk in the portfolio as a whole. Investments in assets issued by the same issuer or by issuers belonging to the same group must not expose the scheme to excessive risk concentration….
7 Disapplication of regulations 4 and 5 in respect of schemes with fewer than 100 members
(1) Regulations 4 and 5 do not apply to a scheme which has fewer than 100 members.
(2) Where regulation 4 does not apply to a scheme by virtue only of paragraph (1), the trustees of the scheme in exercising their powers of investment, and any fund manager to whom any discretion has been delegated under section 34 of the 1995 Act in exercising the discretion, must have regard to the need for diversification of investments, in so far as appropriate to the circumstances of the scheme.”
- Section 247 of PA 04 provides as follows regarding trustee knowledge and understanding:
“(1) This section applies to every individual who is a trustee of an occupational pension scheme.
(2) In this section, “relevant scheme”, in relation to an individual, means any occupational pension scheme of which he is a trustee.
(3) An individual to whom this section applies must, in relation to each relevant scheme, be conversant with—
(a) the trust deed and rules of the scheme,
(b) any statement of investment principles for the time being maintained under section 35 of the Pensions Act 1995 (c. 26),
(c) in the case of a relevant scheme to which Part 3 (scheme funding) applies, the statement of funding principles most recently prepared or revised under section 223, and
(d) any other document recording policy for the time being adopted by the trustees relating to the administration of the scheme generally.
(4) An individual to whom this section applies must have knowledge and understanding of—
(a) the law relating to pensions and trusts,
(b) the principles relating to—
(i) the funding of occupational pension schemes, and
(ii) investment of the assets of such schemes, and
(c) such other matters as may be prescribed.
(5) The degree of knowledge and understanding required by subsection (4) is that appropriate for the purposes of enabling the individual properly to exercise his functions as trustee of any relevant scheme.”
The Case Team's arguments in the Warning Notice in support of prohibition
- The Warning Notice submitted that Mr Garner’s conduct and behaviours are so significant and detrimental that it is appropriate to prohibit him from acting as a trustee of trust schemes in general in order to protect future members across all schemes. In particular, when referring to TPR’s Prohibition Statement, the Case Team submitted that Mr Garner is not a fit and proper person to be a trustee due both to his lack of integrity and also his lack of competence and capability to act as a trustee.
- In making its case the Case Team relied on TPR’s Prohibition Statement and the factors to be taken into account when assessing fitness and propriety, including:-
“any attempt to deceive;
any misuse of trust funds;
any breaches of trust or pensions law, particularly if these are significant, persistent, deliberate or contrary to legal advice received;
whether a trustee’s professional charges constitute a breach of trust or demonstrate a lack of internal control; and
criminal convictions, not limited to those involving dishonesty or deception, so including (for example) money laundering, violence or substance abuse.”
Integrity
- In support of its case that Mr Garner lacked integrity, the Case Team relied on the fact that, as the sole trustee of the Schemes, Mr Garner invested substantial member funds (£10,910,161 out of the £11,543,517 transferred into the Schemes) in Norton, which benefitted financially given difficulties it was having at the time getting banks to lend money to it. It was submitted that Mr Garner had an obvious conflict with his role as the sole trustee of the Schemes and director/shareholder of Norton, and failed to follow advice from Andrew Meeson of T12 that any conflict of interest should be resolved in favour of the Schemes’ members. The Case Team submitted that Mr Garner’s decision to invest almost all the Schemes’ assets in Norton amounted to a misuse of the Scheme funds in breach of his fiduciary duties to invest prudently and to act in the best interests of the Schemes’ beneficiaries. In addition, his failure either to diversify the Schemes’ investments (the minimum required by regulation 7 of The Occupational Pension Scheme (Investment) Regulations 2005) (the Investment Regulations) or to take or obtain written investment advice in relation to the investments in accordance with section 36 PA 95 were serious breaches of pensions legislation.
- The Case Team submitted (amongst other things) that:-
- Mr Garner must have been aware that the investments were unlawful and inappropriate or was reckless as to those risks. It was obvious that placing the funds of the Schemes in only one form of investment created a risk that if Norton failed, then most of the assets of the Schemes would be lost;
- “It was unreasonable for him to take those risks as a trustee, having regard to the circumstances where he was the sole trustee; that the sums concerned were substantial; that nearly all of the Schemes’ assets were invested [in Norton]; and that the security of the investments was dependent on the trading performance of Norton”;
- “He was reckless in turning a blind eye to what was obvious to a person in his position as the trustee of the Schemes”. This was recognised in the sentencing remarks of Judge Shant who stated that he had acted recklessly in making the investments;
- Reckless behaviour has been found to be sufficient to demonstrate a lack of integrity without any need to find dishonesty, relying on Batra v FCA [2014] UKUT 0215.
Competence and Capability
- The Case Team also submitted that Mr Garner fell so far short of the standards expected of a trustee that he should be prohibited on competence and capability grounds.
In particular, it relied on the following:-
- In accordance with section 247 of PA 04, Mr Garner had a duty to have knowledge and understanding of (a) the law relating to pensions and trusts and (b) the principles relating to funding of occupational pension schemes and investment of scheme assets. The degree of knowledge and understanding required was that appropriate for the purposes of enabling him to properly exercise his functions as the trustee of the Schemes and Mr Garner fell significantly below these standards;
- Whilst he was the trustee of the Schemes, Mr Garner was responsible for very significant breaches of trustee duties and misuse of the Schemes’ funds as set out above. He also failed to understand and comply with basic but essential governance duties as a trustee;
- Mr Garner invested nearly all of the assets of the Schemes in Norton, of which he was a director and the controlling shareholder. Each of the Schemes had Conflicts of Interest Policies that should have put him on notice to consider whether he had a conflict of interest and take appropriate steps to manage it, but he did not. Similarly, TPR has published guidance in relation to trustee conflicts of interest which provides that in relation to evaluation, management and avoidance of conflicts, trustees should:
“seriously consider seeking independent legal advice where a non-trivial conflict of interest is identified and where such a conflict could have the potential to be detrimental to the conduct or decisions taken by the trustees, in order to help decide the best approach to manage or avoid it.”
Mr Garner failed to seek such legal advice. - Mr Garner failed to have regard to the need for the diversification of investments and so he failed to comply with his duty under regulation 7(2) of the Investment Regulations. The need for diversification was obvious in the circumstances, given that the investments were substantial; concerned nearly all of the Schemes’ assets; and they were made in only one company, which was connected and associated with the Schemes’ employer;
- Mr Garner failed to have knowledge and understanding of the important restrictions in law on employer related investments, and was convicted in relation to three offences;
- By failing to ensure that investment advice was given or confirmed in writing, Mr Garner failed to comply with section 36 PA 95.
Mr Garner’s current disqualification
- The Case Team submitted that a prohibition of Mr Garner as a trustee of trust schemes in general is appropriate, rather than simply relying on his current automatic disqualification from acting as trustee whilst disqualified as a company director, which is due to expire on 30 March 2025. It relied on one of TPR’s statutory objectives, namely to protect the benefits of members of pension schemes, arguing that this would be best served by a permanent prohibition. The Case Team submitted that it was in members’ interests for him not to be permitted to act again as a trustee, and so not to get the opportunity to put other members’ pension savings at risk.
Representations
- No representations in response to the Warning Notice were received from Mr Garner. The Case Panel was nevertheless satisfied that the Warning Notice had been properly served on Mr Garner by leaving a copy at his last known address.
Reasons for its decision
- In making its decision the Case Panel had regard to the objectives of TPR as set out in section 5 PA 04 and to the matters listed in section 100 PA 04.
- The Case Panel also had regard to TPR’s published statement on its policies regarding prohibition and specifically the criteria TPR takes into account when considering whether individuals are “fit and proper persons”. The Case Panel took note of the non-exhaustive list of factors listed in the statement including any misuse of trust funds and any breaches of trust or pensions law.
- As the Case Team had presented its case on grounds of both integrity and competence and capability, the Case Panel considered each in turn.
Integrity
- Having reviewed the legal authorities provided by the Case Team, the Case Panel noted that the concept of integrity is wider than the concept of dishonesty and does not necessarily involve deliberate behaviour (Page and others -v- Financial Conduct Authority [2022] UKUT 124 at paragraph 57). Acting recklessly can amount to acting without integrity (see paragraph 58).
- The Case Panel had particular regard to the comments of Herrington J in the recent case of Page v FCA where he stated that “in the regulatory context with which we are concerned, a reckless failure to consider whether something is a risk may equally be found to amount to lack of integrity, as could be a reckless disregard of a known risk.”
- The Case Panel concluded that Mr Garner was reckless as to the risks of investing the Schemes’ assets in Norton in circumstances where:-
i. He was an experienced businessman who knew that Norton had experienced difficulty in securing finance from ordinary commercial sources;
ii. He had been advised in relation to his conflicts of interest but failed to follow that advice;
iii. The Schemes’ investments were made solely in Norton and not diversified;
iv. He knew, or it should have been obvious to him, that the security of the investments was dependent on the uncertain trading performance of Norton; and
v. In spite of the above, he failed to take any proper advice in relation to either the legality or the appropriateness of the investments. Had he done so, he would have understood that the investments were unlawful employer related investments.
- Whilst the Case Panel was not entirely persuaded that Mr Garner appreciated that the investments were unlawful or inappropriate (and the evidence suggests that he was surprised to discover that they were unlawful), it was persuaded that Mr Garner was reckless in not taking advice on the suitability or concentration of the investments given his role and responsibilities as scheme trustee. In the Case Panel’s view, Mr Garner’s recklessness in this regard demonstrated a lack of integrity either because he recklessly failed to consider whether the Schemes’ investments in Norton were appropriate, or he knew that they were but disregarded this risk and went ahead anyway.
- The Case Panel agreed with the comments of Judge Shant when sentencing Mr Norton in respect of the unlawful employer related investments that “Dealing with your culpability first, the fact that banks and other institutions were not prepared to lend to your business should have been an alarm bell to you as an experienced businessman. Even if you did not know of the restrictions in relation to employer-related investments, you failed to make even a sufficient inquiry about your duties as a trustee, and indeed, as I have said, did not follow even the advice that you had been given. I therefore assess that your culpability in respect of those guidelines is one of being reckless.”
- Given the Case Panel’s conclusion that Mr Garner lacked integrity, it concluded that he is not a fit and proper person to act as a scheme trustee of schemes in general.
Competence and Capability
- Even if the Case Panel had found that Mr Garner did not lack integrity, it was of the view that he certainly lacked the appropriate competence and capability to act as a trustee.
- The Case Panel considered that there had been a number of breaches of duty or failures by Mr Garner that indicated that he was not a fit and proper person to be a scheme trustee but, particularly, the following:
Lack of Knowledge and Understanding
- The Case Panel considered that Mr Garner did not have the requisite knowledge and understanding required by section 247 of PA 04 but particularly knowledge and understanding of “the law relating to pensions and trusts” (section 247(4)(a) PA 04) and “the principles relating to “investment of the assets of such schemes” (section 247(4)(b)(ii)PA 04). The Case Panel agreed with the findings of an earlier case panel in its determination to appoint an independent trustee to the Schemes that the “failures of Mr Garner in acting while conflicted, making inappropriate and unlawful investments, and breaching scheme governance requirements, all demonstrated to the Panel (both individually and in combination with each other) that he lacked sufficient knowledge and understanding”.
- This lack of knowledge and understanding led to a number of breaches of pensions legislation, namely:-
i. A breach of the restrictions on employer related investments set out in section 40 PA 95 leading to a criminal conviction;
ii. Failure to comply with regulation 7(2) of the Investment Regulations requiring trustees to have regard to the need for diversification of investments. By Mr Garner’s own admission, the preference shares in Norton were the Schemes’ only investments;
iii. A failure to comply with section 36(3) of PA 95 to obtain and consider proper advice in relation to investments and for this advice to be given or confirmed in writing as required by section 36(7) PA 95. Whilst Mr Garner had indicated at various times that he received some advice from Simon Colfer, XX XXXXXX of XXXXXXXXXX XXXXXXXX XXXXXXX and XXXXX XXXXXX of XXXXXXX XXXXXXX, he had confirmed that he had no written advice. (Whilst Mr Garner did receive some written advice from Andrew Meeson of T12, this did not refer to any specific investments and appeared to indicate that Mr Garner was taking advice on the investment policy from XX XXXXXX of XXXXXXXXXX rather than T12);
iv. Failures to meet the requirements in section 47 PA 95 to appoint a fund manager and auditor.
Conflicts of interest
- The Case Panel agreed with the Case Team’s submission that Mr Garner demonstrated a lack of competence and capability and breached his fiduciary duty to act in the best interest of the Schemes’ members by making substantial investments in Norton when he had a conflict of interest. The conflict of interest should have been obvious to him but, in any event, he received general advice from T12 in May 2012 as regards trustees’ duties in relation to investments, including in relation to conflicts and the need for diversification. This included advice that “these matters are even more important in situations where the trustee has any conflict of interests with regard to a particular investment medium. A trustee is not required to eschew or avoid any such situations, but where one arises he must behave with "ultimate good faith" with regard to his duties as a trustee. The trustee must resolve any such conflict in favour of the members' funds under his care; any advantage accruing from the transaction must accrue to the pension fund, even when this is at the expense of the trustee's own personal or business interests…”
- The Case Panel agreed that taking the investment decisions he did, without apparent regard for his conflict of interest (and having failed to follow the advice he received in this regard), and without independent advice on their suitability, demonstrated a lack of competence and capability.
Conclusion
- Taking account of the criteria in TPR’s Prohibition Statement, the Case Panel determined that Mr Garner is not a fit and proper person to be a trustee. In doing so, the Case Panel noted that Mr Garner had had the opportunity to make representations in response to the matters set out in the Warning Notice and had not done so.
- The Case Panel noted that Mr Garner is currently disqualified from acting as a scheme trustee pursuant to section 29(1)(f) PA 95 by virtue of his disqualification from acting as a director for three years from 31 March 2022. Given the concerns identified above, both in relation to Mr Garner’s integrity and his competence and capability to act as a trustee, the Case Panel agreed with the Case Team that a prohibition was nevertheless appropriate and that the prohibition should apply to all schemes. A prohibition would continue beyond the period of the automatic disqualification unless otherwise waived and would help to protect all members of pension schemes generally.
- The Case Panel determined that an order be made in the following terms:
“The Pensions Regulator hereby orders as follows
Stuart James Garner (date of birth 20 November 1968) is hereby prohibited from acting as trustee of trust schemes in general.
The Order is made under section 3(1)(c) Pensions Act 1995 (PA 95).
This Order has the effect of removing the above-named individual from all or any schemes of which he is a trustee.
By section 6 PA 95, any person who purports to act as a trustee of a trust scheme whilst prohibited in relation to the scheme under section 3 or 3A is guilty of an offence and liable- on summary conviction to a fine not exceeding the statutory maximum, and
- on conviction on indictment to a fine or imprisonment or both.”
- Appendix 1 to this Determination Notice contains important information about the rights to refer this decision to the Upper Tribunal.
Signed:
Chair: Antony Townsend
Dated: 8 August 2023
Appendix 1
Referral to the Tax and Chancery Chamber of the Upper Tribunal
You have the right to refer the determination to which this Determination Notice relates to the Tax and Chancery Chamber of the Upper Tribunal (the Tribunal).
A reference to the Tribunal is made by way of a written notice signed by you or your representative on your behalf and sent or delivered to the Tribunal with a copy of this Determination Notice. The reference notice must be received by the Tribunal no later than 28 days after this Determination Notice is given to you, unless you obtain an extension from the Tribunal.
The Tribunal’s address is:
Upper Tribunal
(Tax and Chancery Chamber)
Fifth Floor
Rolls Building
Fetter Lane
London
EC4A 1NL
Tel: 020 7612 9730
The detailed procedures for making a reference to the Tribunal are contained in section 103 PA 04 and the Tribunal procedure rules.
You should note that the Tribunal procedure rules provide that at the same time as sending or delivering a reference notice with the Tribunal, you must send a copy of the reference notice to The Pensions Regulator. Any copy reference notice should be sent to:
Determinations Panel Support
The Pensions Regulator
Telecom House
125-135 Preston Road
Brighton
BN1 6AF
Tel: 01273 811852
Email: panelsupport@tpr.gov.uk
A copy of the form for making a reference, FTC3 “Reference Notice (Financial Services)” can be found on the GOV.UK website.