Lawrence Ewan McGaughey v Universities Superannuation Scheme Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Leech |
| Judgment Date | 24 May 2022 |
| Neutral Citation | [2022] EWHC 1233 (Ch) |
| Docket Number | CR-2021-001966 |
| Court | Chancery Division |
[2022] EWHC 1233 (Ch)
Mr Justice Leech
CR-2021-001966
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Mr David E Grant QC and Mr Gus Baker appeared on behalf of the Claimants.
Mr Andrew Short QC and Ms Helen Pugh (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared on behalf of the First Defendant.
Hearing date: 5 April 2022
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Table of Contents
| I. Introduction | [1] |
| II. The Legal Framework | [17] |
| A. Multiple Derivative Claims | [17] |
| B. The Common Law Test | [23] |
| (1) Standing or Sufficient Interest | [25] |
| (2) Prima facie case: the Fourth Exception | [34] |
| (3) Prima facie case: the Merits | [44] |
| (4) Discretion | [46] |
| C. The Pensions Act 2004 | [48] |
| D. The Scheme Rules | [56] |
| III. The Claims | [60] |
| E. Claim 1: The 2020 Valuation | [66] |
| (1) The Claimants' Case | [66] |
| (2) The Proposed Amendments | [72] |
| (3) The Claimants' Evidence | [73] |
| (4) The Company's Evidence | [80] |
| F. Claim 2: Discrimination | [101] |
| (1) The Claimants' Case | [101] |
| (2) The Claimants' Evidence | [104] |
| (3) The Company's Evidence | [106] |
| G. Claim 3: Costs and Expenses | [109] |
| (1) The Claimants' Case | [109] |
| (2) The Claimants' Evidence | [112] |
| (3) The Company's Evidence | [113] |
| H. Claim 4: Fossil Fuels | [120] |
| (1) The Claimants' Case | [120] |
| (2) The Claimants' Evidence | [124] |
| (3) The Company's Evidence | [125] |
| IV. The Issues | [129] |
| V. Analysis | [130] |
| I. Claim 1: The 2020 Valuation | [130] |
| (1) Is Claim 1 a multiple derivative claim? | [130] |
| (2) What is the applicable test? | [133] |
| (3) Is the applicable test met on the material before the Court? | [138] |
| J. Claim 2: Discrimination | [158] |
| (1) Is Claim 2 a multiple derivative claim? | [158] |
| (2) What is the applicable test? | [162] |
| (3) Is the applicable test met on the material before the Court? | [163] |
| K. Claim 3: Costs and Expenses | [175] |
| (1) Is Claim 3 a multiple derivative claim? | [175] |
| (2) What is the applicable test? | [177] |
| (3) Is the applicable test met on the material before the Court? | [178] |
| L. Claim 4: Fossil Fuels | [186] |
| (1) Is Claim 4 a multiple derivative claim? | [186] |
| (2) What is the applicable test? | [192] |
| (3) Is the applicable test met on the material before the Court? | [193] |
| VI. Disposal | [198] |
| VII. Postscript | [199] |
I. Introduction
By Application Notice dated 28 October 2021 the Claimants apply for permission to continue the claim in this action under the common law principles analogous to section 261 of the Companies Act 2006. They also seek an order that the First Defendant (to which I will refer as the “ Company”) indemnify them against liability for costs both in relation to this application and the claim itself. I will refer to this part of the application as the application for a “ Prospective Costs Order”.
The First Claimant, Dr Ewan McGaughey, is a Reader in Law at the School of Law, King's College, London. The Second Claimant, Dr Neil Davies, is a senior research fellow in the Bristol Medical School specialising in statistical epidemiology. Both are members of the Universities Superannuation Scheme (the “ Scheme”) of which the Company is the corporate trustee. On 1 October 2008 the First Claimant became a member of the Scheme and on 1 October 2006 the Second Claimant became a member.
On 18 April 1974 the Company was incorporated under the Companies Act 1948 as a private company limited by guarantee and registered under company registration no. 1167127. Its registered office is at the Royal Liver Building Liverpool L3 1PY. By a trust deed dated 2 December 1974 the Scheme was established for the purpose of providing superannuation benefits for academic and comparable staff in universities and other higher education institutions in the United Kingdom.
Membership of the Scheme is offered to university staff who are employed by many universities and related institutions and it is described in the Particulars of Claim as “a hybrid multi-employer scheme with 343 participating employers”. As at March 2020 there were 200,355 active members, 188,466 deferred members, 90,879 pensioners and 1,159 child pensioners. The Scheme is both a defined benefit (or “ DB”) scheme and a defined contribution (or “ DC”) scheme and it is the Claimants' case (as pleaded) that until 1 April 2022 it provided the following benefits for members:
“A. Accrued entitlement up to and including 31 March 2016 is calculated on a final salary basis using pensionable salary and pensionable service immediately prior to this date. From that date, these accrued benefits revalue in line with increases in official pensions.
B. Defined benefit accrual from 1 April 2016 onwards is on a Career Revalued Benefit basis for all members with a pension accrual of 1/75.
C. For pensionable service from 1 October 2016 members build up Career Revalued defined benefit rights up to a salary threshold set for each academic year. The threshold for 2016/2017 was £55,000 and has increased annually with CPI. The threshold for 2021/22 is £59,883.65. On salary above that level, members build up Defined Contribution rights. Both members and employers contribute to the Scheme by a percentage of the member's annual salary…..
D. Members can opt to pay additional contributions into the Defined Contribution section of which the first 1% is matched by the employer. As detailed below, the matching facility was removed with effect from 1 April 2019.”
The Company's purpose as registered at Companies House is pension funding (65300). Article 71(1) of its Memorandum and Articles of Association which were adopted by written resolution on 12 February 2020 (the “ Articles”) provides that the objects for which the Company was established was to undertake and discharge the office of trustee for the benefit of university teachers or other staff of comparable status of universities and similar establishments.
As a company limited by guarantee the Company has no shareholders and Article 2 of the Articles provides that a person appointed as a director automatically becomes a member. The Company does not generate any profits but recovers its costs in accordance with the rules of the Scheme (as amended from time to time) (the “ Scheme Rules”).
Article 26(1) provides that the Company must have between ten and twelve directors of whom four directors are appointed by Universities UK (“ UUK”) (another company limited by guarantee representing over 100 university employers) and three from the University and College Union (“ UCU”) (a trade union representing over 130,000 academics and support staff across the UK). No more than two of the three directors from UCU may be persons who are not pensioner members (as that expression is defined) and the Company must have no less than three nor more than five independent directors.
Article 28 provides that the independent directors are to be appointed by the board of directors and Article 29(3) contains the sole power to remove directors. That power is also vested in the board of directors although before 14 December 2018 both UUK and UCU had previously been able to remove those directors whom it had appointed to the board.
The individuals identified as the Second Defendants in Appendix 1 to the Claim Form were the directors of the Company as at the date of the Claimants' Application Notice (apart from Mr William Galvin, whom the Claimants assert is a shadow director). The individuals identified as the Third Defendants in Appendix 2 are former directors of the Company who were in office during the events giving rise to the claim. I will refer to all of these individuals collectively as the “ Directors” throughout this judgment. But where I use this expression, I intend to refer to those individuals named in Appendix 1 or Appendix 2 who held office at the date or dates of the events to which I discuss.
Rule 64 of the Scheme Rules provided for the establishment of the Joint Negotiating Committee (the “ JNC”), which consists of eleven persons of whom five are UUK appointees, another five are UCU appointees and one is an independent member, who also acts as the chair. The Scheme Rules confer important functions and powers on the JNC which include deciding whether to make contribution increases (or decreases) and benefit changes (as I set out below).
The Company also has an operating subsidiary, USS Investment Management Ltd (“ USSIM”), which provides investment management and advisory services to the Company. Mr William Galvin is the Chief Executive Officer of the Company (“ CEO”) and he has been a director of USSIM since 1 August 2013. But he is not a director of the Company itself. The Claimants contend that he is a shadow director because of his position as CEO of the group and the control or influence which he exerts over the Directors.
On 26 October 2021 the Claimants issued the Claim Form in this action indorsed with the Particulars of Claim and on 28 October 2021 they issued the Application Notice supported by witness statements from both Claimants. In the Particulars of Claim they set out the following summary of the four claims which they ask for permission to continue against the directors and former...
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