ITV Plc and Others v The Pensions Regulator and Another
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Floyd,Lord Justice Christopher Clarke |
| Judgment Date | 24 March 2015 |
| Neutral Citation | [2015] EWCA Civ 228 |
| Docket Number | Case No: A3/2014/0443 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 March 2015 |
[2015] EWCA Civ 228
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(Tax and Chancery Chamber)
Judge Herrington
FS/2012/0001-5
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Arden
Lord Justice Floyd
and
Lord Justice Christopher Clarke
Case No: A3/2014/0443
Lord Pannick QC, Mr Michael FurnessQC, Mr Brian Kennellyand Mr Edward Sawyer (instructed by Hogan Lovells International LLP) for the Appellants
Mr Nicolas Stallworthy QC, Mr Ben HooperandMr James Walmsley (instructed by The Pensions Regulator) for the 1 st Respondent
Mr Jonathan Hilliard and Mr Benjamin Faulkner (instructed by Eversheds LLP) for the 2 nd Respondent
Hearing dates: 16–17 December 2014
It is of great importance to employees and pensioners that their pension fund does not go into deficit. In this case, the beneficiaries of the pension fund are the former employees of the Box Clever group ("Box Clever"). There is now a deficit of over £60m on their pension fund. The Pensions Regulator ("TPR"), a body set up by the Pensions Act 2004 ("PA04") in succession to the Occupational Pensions Regulatory Authority, can take regulatory action to protect the benefits of members of occupational pension funds, including requiring additional funding from employers and associates, if there are grounds for doing so. TPR must give a warning notice ("WN") if it intends to take this action. This appeal concerns the extent to which, following a WN, TPR can rely on grounds that it did not mention in the WN if its action is challenged. It is a novel point: it does not appear that this point has been previously considered by the Court of Appeal in the context of the PA04.
TPR's powers importantly include the power to issue financial support directions ("FSDs") if it considers that the employer in relation to the scheme is insufficiently resourced at a time determined by TPR within a period of two years prior to giving a WN in respect of the FSD in question (section 43 PA04). An FSD requires the person or persons to whom it is addressed (which may be the employer or persons connected or associated with him) to provide additional financial support to the scheme. The financial support to be provided is not fixed by statute or the FSD. This —i.e. whether or not an FSD is to be issued — depends on such matters as TPR thinks relevant (section 43(7) PA04). Fault is not a necessary condition for liability, but can be taken into account.
The procedure to be adopted by TPR in this case is the standard procedure, to which the provisions of section 96 PA04 apply. The first step in the standard procedure is for TPR to issue a WN to persons who appear to TPR to be directly affected by the regulatory action it is considering. An FSD can only be issued if the Determinations Panel of TPR, whose membership is separate from TPR's executive officers, so decide.
On 30 September 2011, TPR issued WNs to five companies ("the targets") (all members of the Granada group) in respect of the Box Clever pension fund. Both TPR and the targets put in detailed representations to the Determinations Panel.
In their reasons, the Determinations Panel identified the factors that they considered relevant to the question whether it was reasonable to issue FSDs to the targets. Having regard to those facts the Determinations Panel concluded that it would be reasonable to issue FSDs to the targets.
The targets exercised their statutory right to refer the determination of the Determinations Panel to the Upper Tribunal. Following a procedural hearing, the Upper Tribunal (Judge Tim Herrington) in its judgment dated 13 December 2013 decided that TPR could maintain allegations that were not asserted in the WNs. The targets, now the appellants, appeal from the Upper Tribunal's determination.
Before I address the issues on this appeal, I shall summarise the relevant background about Box Clever, the reasons in brief why the Determinations Panel considered that TPR should issue FSDs, the steps taken by the parties and the arguments of the parties. The principal provisions of the PA04 relevant to this appeal are set out in the Annex to this judgment.
FACTUAL BACKGROUND
Formation of Box Clever and the Joint Venture transaction
Box Clever was formed as a joint venture between two entities which I shall call Granada and Thorn in June 2000 to run their TV rental businesses. By a transaction which I shall call "the Joint Venture transaction", Granada and Thorn (a) "hived down" (i.e. transferred for consideration) their businesses to Box Clever for the sum of £860m, most of which Box Clever borrowed from its bank; and (b) transferred the employees engaged in those businesses to Box Clever. A new pension scheme was established for Box Clever employees of which the trustee ("the trustee") was Box Clever Trustees Ltd. Using the loan monies, (simplifying somewhat) Box Clever paid approximately £530 million to Granada and the rest to Thorn.
Box Clever's business did not prosper. It was unable to service the loan from its bank and went into insolvent administrative receivership in about November 2003. There were inconclusive negotiations after this date about what should happen to the pension fund. At some point, TPR conducted the investigation which led to the issue of the WNs on 30 September 2011.
To simplify matters, I will where possible use the names Granada, Thorn and Box Clever to include their groups of companies, or a relevant member of that group, without identifying that company separately.
Investigation by TPR and decision to take regulatory action
The WNs issued by TPR were each some 96 pages in length (including appendices). They contain an explanation of the basis on which they were issued. They do not criticise as inadequate the price paid on the hive down of Granada's business to Box Clever; they simply say that the transaction was not an arm's length sale to, or investment in, an unconnected third party.
The WNs identified 30 December 2009 as the first day of the "look-back" period for the purposes of section 43(9) PA04 (see the Annex to this judgment). The significance of this is as follows. First, to be the subject of regulatory action, the employer must have been insufficiently resourced and a target must have been either the scheme employer or a person connected or associated with the employer (sections 43(2) and (5) PA04). Both these conditions must have been satisfied at the "the relevant time". At the date of the WNs in this case, "the relevant time" had to fall within a prescribed period which ended with the determination by the Regulator to exercise the power to issue the FSD. That period was prescribed as 24 months (The Pensions Regulator (Financial Support Directions etc) Regulations 2005, paragraph 5). All this meant that TPR had to determine to issue the FSDs by 31 December 2011. It did so, through the Panel, on 21 December 2011. These provisions have been modified with effect from 3 January 2012 so that the prescribed period ends with the giving of a warning notice: but that amendment has no application to the circumstances of the present case.
The "standard procedure" established by section 96 PA04 applied because the power to issue an FSD is a "reserved regulatory function" within paragraph 33 of schedule 2 to PA04 (see section 93(2)(c)), ie a function which the Determinations Panel had to authorise. Under the standard procedure, therefore, the next step was for the Determinations Panel to consider what action TPR should take.
The Determinations Panel issued its determination under section 96(2)(d) of the PA04 on 21 December 2011. It gave its reasons on 26 January 2012. It noted that there did not have to be evidence of fault. It noted that the jurisdiction to issue FSDs was not fault-based. It did not need therefore to find misconduct. It considered that the issue of FSDs was an appropriate and reasonable response to these events without finding misconduct. It concluded:
168…it is our view that it would be reasonable to issue FSDs to the Targets and to require them to secure that financial support is put in place for the Scheme, within six months of the issue of the FSDs. The factors that have weighed most heavily with us are the value of benefits received by the Targets from the Employers and the Targets' relationship with those Employers. Overall it seems to us that this is a case where the Scheme's principal employer, BCT, was set up by the Granada and Thorn groups as part of a transaction that aimed to extract value from the consumer rentals businesses of those groups, but leave them able to share in any future profit. A requirement of that transaction was that a pension scheme be set up for transferring employees; no value could have been extracted without this. Valuable financial benefits were received by the Targets, while the structure used to obtain them required BCT to borrow £860m from West LB, left all of BCT's assets charged to secure that borrowing, and left the Scheme with a weak employer as a result. It is also relevant that this borrowing was not secured on any assets of Granada or Thorn group companies, insulating them from financial difficulties of BCT. We do not find misconduct on the part of the Targets, but consider the issue of FSDs to be an appropriate and reasonable response to the events of 1999 to 2003 in relation to BCT and the Scheme.
In effect, therefore, the Determinations Panel based its conclusions on outcomes...
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