Lawrence Ewan McGaughey v Universities Superannuation Scheme Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Asplin,Lord Justice Snowden,Sir Julian Flaux |
| Judgment Date | 21 July 2023 |
| Neutral Citation | [2023] EWCA Civ 873 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-001798 |
[2023] EWCA Civ 873
THE RT HON. Sir Julian Flaux, CHANCELLOR OF THE HIGH COURT
Lady Justice Asplin
Lord Justice Snowden
Case No: CA-2022-001798
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Mr Justice Leech
Royal Courts of Justice
Strand, London, WC2A 2LL
David E. Grant KC and Philip Stear (instructed by Leigh Day) for the Appellants
Andrew Short KC and Helen Pugh (instructed by CMS Cameron McKenna Nabarro Oslwang LLP) for the First Respondent
Hearing dates: 13–15 June 2023
Approved Judgment
This judgment was handed down remotely at 3.00 p.m. on 21 July 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
This appeal is concerned with an application by members of a pension scheme to continue proceedings on behalf of the pension trustee company against the company's current and former directors for breach of their directors' duties, as a common law derivative claim. It raises questions about the nature and requirements of such a claim and whether it is the appropriate procedure in circumstances in which the trustee company is limited by guarantee, the directors are its members and its sole purpose is to act as trustee of a single pension scheme which it is required to administer.
Background to the Parties and the Scheme
The Universities Superannuation Scheme was established under a trust deed dated 2 December 1974 for the purpose of providing superannuation benefits for academic and comparable staff in universities and other higher education institutions in the United Kingdom. It is one of the largest private occupational pension schemes in the United Kingdom if measured in terms of assets under management. It is described in the Particulars of Claim as a “hybrid multi-employer scheme”. It has 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 of the Scheme. The Scheme is both a defined benefit and a defined contribution scheme.
The Appellants, Dr McGaughey and Prof. Davies, are active members of the Scheme.
The First Respondent, Universities Superannuation Scheme Limited, (“USSL”) is the trustee and administrator of the Scheme and is limited by guarantee. In summary, the objects of USSL are to undertake and discharge the office of trustee of any pension scheme established solely for the benefit of university teachers and other staff of comparable status and, in particular, to act as trustee of the Scheme; and to carry out all duties and exercise all powers arising out of the trusteeship (Article 71 of USSL's Memorandum and Articles of Association (the “Articles”)). Further, amongst other things, Article 74 provides that the income and property of USSL shall be applied solely towards the promotion of its objects and any surplus on a winding up shall be held for such charitable purposes as the management committee shall think fit. USSL generates no profit and recovers its expenses and costs from the Scheme in accordance with Rule 62.6 of the Scheme Rules.
Pursuant to Article 26, USSL must have between ten and twelve directors of whom four are appointed by Universities UK (a company limited by guarantee representing over 100 university employers) and three from the University and College Union (the “UCU”) (a trade union representing over 130,000 academics and support staff). No more than two of the three directors from UCU may be persons who are not pensioner members and USSL must have no less than three but not more than five independent directors.
There are thirteen current directors and one alleged shadow director of USSL. They are listed in the first appendix to the Claim Form and are referred to together as the Second Respondents. Eighteen former directors, who were in office during the events which allegedly give rise to the claim, are listed in the second appendix to the Claim Form and are referred to together as the Third Respondents. As a company limited by guarantee, USSL has no shareholders. Pursuant to Article 2, however, a person appointed as a director automatically becomes a member of the company.
USSL's wholly owned subsidiary, USS Investment Management Limited, (“USSIM”) provides investment management and advisory services to USSL. The alleged shadow director, Mr Galvin, is the Chief Executive Officer of USSL and a director of USSIM.
Rule 64 of the Scheme Rules provides for the establishment of the Joint Negotiating Committee (the “JNC”) which consists of eleven persons of whom five are UUK appointees, five are UCU appointees and one is an independent member who acts as chair of the committee. In addition to the other functions prescribed in the Scheme Rules, Rule 64.1 provides that the functions of the JNC are: to approve any amendment to the Rules proposed by USSL; to initiate and approve amendments to the Rules; to consider any amendment to the Rules proposed by the advisory committee arising out of the operation of the Rules and to decide on contributions increases or decreases and/or benefit changes under sub-rule 64.10. Further, under Rule 62.6, it is the JNC which must agree the remuneration to which the directors of USSL are collectively entitled.
Procedural History
In October 2021, Dr McGaughey and Prof. Davies issued the Claim Form in this action endorsed with Particulars of Claim and an Application Notice seeking permission to continue the action on behalf of USSL and that they be indemnified against liability for the costs incurred in the application and the claim.
The Application Notice was dismissed on paper by Leech J by an order dated 13 December 2021 (the “2021 Order”). In his reasons for doing so, Leech J stated that:
i) he was not satisfied that the claim could be described as a double or multiple derivative claim or that the procedure for claims of that kind should be applied by analogy; Dr McGaughey and Prof. Davies were not members of USSL or its parent company but are beneficiaries of the trust of which USSL is the corporate trustee; and that although there are authorities such as Popely v Popely [2018] EWHC 276 (Ch) which use the description of “multiple” or “double” derivative claim to refer to a claim by beneficiaries against the directors of a corporate trustee, such a claim is better described as a “dog leg” claim [the 2021 Order at [2]];
ii) he was willing to accept (without deciding) that the procedure in CPR 19.9 applies to “dog-leg” claims by beneficiaries against the directors of a corporate trustee but it remained necessary for Dr McGaughey and Prof. Davies to establish both the grounds of a derivative action under company law and the grounds under trust law (referring to Lewin on Trusts 20 th ed (2020) Vol 2 at 47-017 and 47-006 – 011) [the 2021 Order at [3]]; and that
iii) he was not satisfied that there were exceptional circumstances which would justify the grant of permission to bring a derivative claim. He went on at [4] of the 2021 Order to state that, in particular, he was not satisfied that the claim could not be brought in any other way and that it was unclear to him why a claim by individual scheme members would not be financially viable. He concluded that the kind of relief sought would be more suited to an action for breach of trust directly against USSL rather than a dog-leg claim against its directors.
The application was renewed orally. At a without notice hearing at which the Respondent was not represented Leech J set aside his original order and directed that the Respondent be joined as a party to the application. The matter proceeded to a hearing on notice. At the hearing on notice, Dr McGaughey and Prof. Davies and the First Respondent only appeared, the Second and Third Respondents not having been served pending the outcome of the permission hearing. USSL had filed evidence in response to that which had been relied upon by Dr McGaughey and Prof. Davies when the matter was considered on paper.
Mr Grant KC, who appeared on behalf of Dr McGaughey and Prof. Davies (and also appeared with Mr Stear on their behalf before us) made clear in his written submissions for the without notice hearing that by the Claim Form the claimants had commenced a derivative claim under common law principles analogous to those set out in Chapter 1 of Part 11 of the Companies Act 2006 (“CA06”) and that the action was intended to be a common law derivative claim in the company law sense.
In his written submissions, to which we were referred, Mr Grant disavowed any intention to bring a “dog-leg” claim against the directors which he defined at [20] of his written submissions as “a claim by a beneficiary on their behalf against the director of a trustee company when the ordinary defendant (sic) is the trustee company itself” where the claim against the directors vested in the trustee company is conceptualised as an asset of the trust. He pointed out at [21] of his written submissions that the Particulars of Claim contained no allegation that the directors owed duties to the members of USSL or that USSL holds its rights against the directors on trust for Scheme members. He concluded that that was sufficient to dispose of the conclusion that the claim was better viewed as a “dog-leg” claim. He also noted at [23] of his written submissions that claims brought by beneficiaries of a trust against a third party have been described as derivative claims: Roberts v Gill ...
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