A case brought by two members of the Universities Superannuation Scheme (USS) against directors of the scheme’s trustee company should not proceed to trial, a High Court judge has found.
According to a summary of the judgement produced by USS’s legal advisers, the judge decided that the claimants had “failed to show even a prima facie case” that would justify allowing any of their four claims to continue.
A spokesperson for USS, the UK’s largest private pension scheme, said it was pleased the High Court had denied permission for the claims to be pursued.
“We welcome the thoroughness with which the judge has assessed this case, and the way he has fully considered both the appropriateness of the ‘derivative’ claim mechanism and the underlying claims themselves,” the spokesperson said.
“Whilst pleased with that outcome, we are concerned that anyone should feel it necessary to take such action,” the spokesperson added. “We are committed to moving forward and to building stronger relationships with all stakeholders.”
The spokesperson also said much of the material considered by the court was already available on the scheme’s website and that “we encourage members to make use of that information to help them better understand the scheme and how we run it for them”.
In a statement of their own, the lecturers behind the claims against USS, Neil Davies, senior research fellow at Bristol Medical School, and Ewan McGaughey, senior lecturer at King’s College London, said the judge dismissed their claims because of “a technicality dating back to a case called Foss v Harbottle, from the year 1843”.
“We are confident that this decision is wrong,” they said, adding that they would confer with their legal team “to explore every avenue of appeal”.
“We are incredibly grateful to everyone that has supported and donated to our case, and against incredible odds to get this far,” they also said. “Today the High Court has rightly said that beneficiaries of a pension fund corporation have the right to sue directors for breach of duty, and we welcome that part of this path-breaking decision.”
Claims, evidence reviewed
Three of Davies’ and McGaughey’s claims centred on controversial USS’s 2020 actuarial valuation, which led to proposals for higher pension contributions and a reduction in the rate at which defined benefits will be built up. In February the pension fund’s joint negotiating committee passed a package of reforms proposed by employers to conclude the valuation, a move that has been followed by industrial action at a number of universities.
Davies and McGaughey alleged that the timing and methodology of the 2020 valuation was a breach of duty or “at least a misuse of directors’ powers, and failing to take into account relevant considerations of the assets’ recovery”, that proposed cuts amounted to unlawful discrimination, and that the directors have “driven a super-inflation in asset manager and total operating costs at USS in a way that serves themselves, not the company”.
A fourth claim was that USS not divesting from fossil fuels has caused, and would continue to cause, significant financial detriment and was not in beneficiaries’ interests. Davies and McGaughey’s legal action was crowdfunded.
The claims were framed as a “multiple derivative claim”, that is a claim on behalf of the trustee company (USSL) against its current and former directors. To protect companies from speculative claims, permission of the court is required for a derivative claim.
According to USS’s legal advisers, the judge confirmed that for permission to be given, he would need to be persuaded there was a loss caused to USSL reflecting the claimants’ own loss following a deliberate or dishonest breach of duty or the directors having improperly benefitted themselves at the expense of USSL.
The key point, they said, was for the claimants to show that their allegations justified the expense of a trial and the judge had to consider whether the “issues of fact” were such that he could accept the trustee company’s detailed evidence without the need for cross-examination, as anything requiring cross-examination would be for resolution at a trial.
The judgement follows a hearing in April. Last November USS said McGaughey’s and Davies’ case had “absolutely no merit” and asked the High Court to reject the legal action. In February the judge set aside a previous dismissal of the claimaints’ application he had ordered and allowed the case to proceed.
The hearing was initially due to be heard in late March, before the benefit changes, but the claimants’ QC became seriously ill with COVID-19 and the judge adjourned the application.