LAWRENCE EWAN MCGAUGHEY & Anor v UNIVERSITIES SUPERANNUATION SCHEME LIMITED & Ors [2022] EWHC 1233 (Ch)

“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.”

“(Claim 1) the current and former directors including a shadow director of the Company have been in breach of their statutory duties under the CA06 and/or fiduciary duties particularised below in certain ways concerning the valuation of the Scheme’s assets which amount to a failure to act properly within the directors’ powers, and a failure to promote the success of the Company whose purpose is to protect the interests of the beneficiaries of the Universities Superannuation Scheme (the “Scheme”) of which the Company is the corporate trustee. As a result, the Company has suffered and will continue to suffer loss. (Claim 2) by reason of the matters alleged in Claim 2, the change in benefit and contribution structure proposed by the current and former directors including a shadow director of the Company amounts to discrimination on the grounds of sex and/or age and/or race and has thus exposed or will expose the Company to claims for discrimination such as to amount to a breach of the statutory and/or fiduciary duties of the Directors and/or shadow director. (Claim 3) – in breach of statutory and/or fiduciary duty and/or negligently, the current and former directors including a shadow director of the Company have overseen dramatic increases in internal and external asset manager costs which the Claimants calculate as a 1318% increase for internal asset manager costs since 2008 and 320% increase in total operating costs. (Claim 4) – the failure of the current and former directors including a shadow director of the Company to create a credible plan for disinvestment from fossil fuel investments (as defined below) has prejudiced and will continue to prejudice the success of the Company.”

“But suppose [the subject company] is defrauded by insiders who control its affairs - by directors who hold a majority of the shares - who then can sue for damages?Those directors are themselves the wrongdoers. If a board meeting is held, they will not authorise the proceedings to be taken by the company against themselves. If a general meeting is called, they will vote down any suggestion that the company should sue them themselves. Yet the company is the one person who is damnified. It is the one person who should sue. In one way or another some means must be found for the company to sue. Otherwise the law would fail in its purpose. Injustice would be done without redress.”

“Once it is recognised that the derivative action is merely a procedural device designed to prevent a wrong going without a remedy (see Nurcombe v Nurcombe [1985] 1 WLR 370, 376A) then it is unsurprising to find the court extending locus standi to members of the wronged company’s holding company, where the holding company is itself in the same wrongdoer control. The would-be claimant is not exercising some right inherent in its membership, but availing itself of the court’s readiness to permit someone with a sufficient interest to sue as the company’s representative claimant, for the benefit of all its stakeholders.”

“The exceptions are four in number, and only one of which is of possible application in the present case. The first exception is that a shareholder can sue in respect of some attack on his individual rights as a shareholder; secondly, he can sue if the company, for example, is purporting to do by ordinary resolution that which its own constitution requires to be done by special resolution; thirdly, if the company has done or proposes to do something which is ultra vires; and fourthly, if there is fraud and there is no other remedy. There must be a minority who are prevented from remedying the fraud or taking any proceedings because of the protection given to the fraudulent shareholders or directors by virtue of their majority.”

“The claimants’ standing to bring the present proceedings is, as the judge correctly said, “the threshold question”

“On the other hand, if one looks at the economic relationships involved, there does seem to me a compelling analogy between a minority shareholder's action for damages on behalf of the company and an action by a member of a pension fund to compel trustees or others to account to the fund. In both cases a person with a limited interest in a fund, whether the company's assets or pension fund, is alleging injury to the fund as a whole and seeking restitution on behalf of the fund. And what distinguishes the shareholder and pension fund member on the one hand from the ordinary trust beneficiary on the other is that the former have both given consideration for their interests. They are not just recipients of the settlor's bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer's payments are not bounty. They are part of the consideration for the services of the employee. Pension funds are such a special form of trust, and the analogy between them and companies with shareholders is so much stronger than in the case of ordinary trusts, that in my judgment it would do no violence to established authority if we were to apply to them the Wallersteiner v. Moir procedure. Mr. Sher, who appeared for the defendants, said that this court had no jurisdiction to do this. He referred us to the statement of the limits of the court's inherent jurisdiction over trusts in the decision of the House of Lords in Chapman v. Chapman [1954] A.C. 429. But I say that the jurisdiction is to be found in section 51 of the Supreme Court Act 1981, which is subject only to rules of court and established principles. For the reasons I have given, I think that no such rule or principle would be violated.”

“[74] As I have said, the question is simply a question of the plaintiff’s standing to sue. This would have been obvious when the procedure was for the proposed plaintiff to apply to the court for leave to use the company’s name. On a question of standing, the court must ask itself whether the plaintiff has a legitimate interest in the relief claimed sufficient to justify him in bringing proceedings to obtain it. The answer in the case of person wishing to bring a multiple derivative action is plainly ‘Yes’. Any depletion of a subsidiary’s assets causes indirect loss to its parent company and its shareholders. In either case the loss is merely reflective loss mirroring the loss directly sustained by the subsidiary and as such it is not recoverable by the parent company or its shareholders for the reasons stated in Johnson v Gore Wood & Co [2002] 2 AC 1. But this is a matter of legal policy. It is not because the law does not recognise the loss as a real loss; it is because if creditors are not to be prejudiced the loss must be recouped by the subsidiary and not recovered by its shareholders. It is impossible to understand how a person who has sustained a real, albeit reflective, loss which is legally recoverable only by a subsidiary can be said to have no legitimate or sufficient interest to bring proceedings on behalf of the subsidiary. [75] This is not to allow economic interests to prevail over legal rights. The reflective loss which a shareholder suffers if the assets of his company are depleted is recognised by the law even if it is not directly recoverable by him. In the same way the reflective loss which a shareholder suffers if the assets of his company’s subsidiary are depleted is recognised loss even if it is not directly recoverable by him. The very same reasons which justify the single derivative actionalso justify the multiple derivative action. To put the same point another way, if wrongdoers must not be allowed to defraud a parent company with impunity, they must not be allowed to defraud its subsidiary with impunity.”

“The authorities which deal with simple fraud on the one hand and gross negligence on the other do not cover the situation which arises where, without fraud, the directors and majority shareholders are guiltyof a breach of duty which they owe to the company, and that breach of duty not only harms the company but benefits the directors. In that case it seems to me that different considerations apply. If minority shareholders can sue if there is fraud, I see no reason why they cannot sue where the action of the majority and the directors, though without fraud, confers some benefit on those directors and majority shareholders themselves. It would seem to me quite monstrous—particularly as fraud is so hard to plead and difficult to prove—if the confines of the exception to Foss v. Harbottle, 2 Hare 461, were drawn so narrowly that directors could make a profit out of their negligence. Lord Hatherley L.C. in Turquand v. Marshall, L.R. 4 Ch.App. 376, 386, opined that shareholders must put up with foolish or unwise directors. Danckwerts J. in Pavlides v. Jensen [1956] 1 Ch. 565 accepted that the forbearance of shareholders extends to directors who are "an amiable set of lunatics." Examples, ancient and modern, abound.”

“Apart from the benefit to themselves at the company's expense, the essence of the matter seems to be an abuse or misuse of power. “Fraud” in the phrase “fraud on a minority” seems to be being used as comprising not only fraud at common law but also fraud in the wider equitable sense of that term, as in the equitable concept of a fraud on a power. Now of course Daniels v. Daniels [1978] Ch. 406 was a case on acts by directors as such, rather than by shareholders, and I do not forget this. At the same time it seems to me to be useful as preventing “fraud” from being read too narrowly. Suppose, too, the decision to sell the land had been made not by the husband and wife qua directors, but by a resolution of the company carried by their votes: could it then be said that the minority could not sue? Is this exception from the rule in Foss v. Harbottle open to easy evasion by directors who hold the majority of votes in general meeting if they take care to reach their decisions not by voting as directors but by voting as shareholders? I think not. In considering whether there is a fraud on a minority in this case in the sense which this phrase has acquired, and whether Mr. Brodie has made good his main contention, certain matters seem plain enough. First, I do not think that it can reasonably be said to have been established that it is, or could reasonably be thought to be, for the benefit of the company that the action should be discontinued. This is not a case of a trading company, seeking to make a profit. The company is a non-profit-making company, and so the test cannot be the financial benefit of the company. The company was formed for a particular purpose, namely, to manage the block of Flats under the control of the purchasers of the flats; and the covenant by the council with the company was part of the mechanism for securing this result. On the face of it I do not think that it can readily be said to be for the benefit of a company to stultify a substantial part of the purpose for which it was formed. Of course, there may be difficulties about obtaining the necessary funds to support the litigation, and if these difficulties are not overcome it will be impossible to carry out the company's purpose: but it is one thing to say that it is not for the company's benefit for it to attempt to carry out its purpose, and another thing to say that although it is for the company's benefit to do this, unfortunately it has become impossible. Further, where, as here, a member of a minority seeks to litigate on the company's behalf, the question ceases to be merely one of the adequacy of the company's funds.”

“As I have indicated, I do not consider that this is a suitable occasion on which to probe the intricacies of the rule in Foss v. Harbottle and its exceptions, or to attempt to discover and expound the principles to be found in the exceptions. All that I need say is that in my judgment the exception usually known as “fraud on a minority” is wide enough to cover the present case, and that if it is not, it should now be made wide enough. There can be no doubt about the 12 voteless purchasers being a minority; there can be no doubt about the advantage to the council of having the action discontinued; there can be no doubt about the injury to the applicant and the rest of the minority, both as shareholders and as purchasers, of that discontinuance; and I feel little doubt that the council has used its voting power not in order to promote the best interests of the company but in order to bring advantage to itself and disadvantage to the minority. Furthermore, that disadvantage is no trivial matter, but represents a radical alteration in the basis on which the council sold the flats to the minority. It seems to me that the sum total represents a fraud on the minority in the sense in which “fraud” is used in that phrase, or alternatively represents such an abuse of power as to have the same effect.”

“31. I do not think that either of these cases (Estmanco or Gilkicker) supports Mr Harper's wider proposition that the exception to the rule in Foss v Harbottle is "opened up" in cases, short of deliberate and dishonest breach of duty, in the absence of personal benefit to the party allegedly in breach of duty. For my part, having reviewed the authorities, with the helpful assistance of counsel, I consider that the extent of the relevant exception to the rule is indeed as stated by David Richards J in Abouraya. 32. While the authorities to which I refer are all authorities at first instance, they are decisions of judges with the deepest of knowledge of our company law and I would not be inclined to depart from them except for very good reason. I can find no good reason to do so. 33. On the contrary, it seems to me that Miss Anderson was correct to say that principle supported her submission as to the extent of the exception. Essentially, people are free to join as members of corporate entities upon whatever terms they choose, formulated in articles of association, partnership deeds for LLPs or shareholders' agreements. They are bound by such arrangements and if majority rule is provided for, the minority is bound by the wishes of the majority. The majority can choose to excuse breaches of duty by directors, provided that the majority have not used their voting powers to confer benefits upon themselves in breach of duty and are not using the self-same powers to prevent the company from recovering the loss caused to it, in effect expropriating the minority in the process. The constraints imposed by equity make an exception to the rule in Foss v Harbottle in cases where the controlling members are precluded from ratifying the relevant breach by exercise of their majority votes. Thus, the "fraud on the minority" exception prevents directors from improperly benefitting themselves at the expense of the company.”

“It is one thing to ask whether the claimant has shown a prima facie case in the absence of an answer from the defendant and another thing to ask whether the claimant has still shown a prima facie case when one takes into account the suggested answer. If the facts relied upon by either the claimant or the defendant are not disputed, there may be little difficulty. But what if the claim and the suggested answer depend, as they often will, on disputed facts? Further, what if the resolution of that dispute will in due course require the trial judge to reach conclusions as to the credibility of witnesses? I consider that the court has to recognise that it cannot resolve disputes of fact at a hearing which does not involve any cross-examination of witnesses and which takes place in advance of any formal disclosure of documents. It will not be unusual to find that the claimant can establish a prima facie case, if one ignores the evidence relied upon by the defendant, but yet the claimant would fail at trial if the defendant's evidence were to be accepted. In such a case, I consider that it is still open to the court to hold that the claimant has made out a prima facie case because it would be wrong to assume that the defendant's evidence will be accepted at the trial and it may simply not be possible to predict with any degree of confidence whether the defendant's evidence will be so accepted.”

“I have recorded the concession by Miss Smith that the particulars of claim and the evidence in support of them disclose a sufficient prima facie case of a wrong done to FGL to satisfy that part of the common law test. None the less CPR Pt 19 , and in particular paragraph 1(a)(i) of the Practice Direction 19C supplementing Part 19 make it clear that the permission regime applies to “derivative claims, whether under Chapter 1 of Part 11 of the Companies Act 2006 or otherwise”, and it is common ground that the court has a discretion whether or not to permit any common law claim to continue which is not limited to a cold analysis of whether the common law requirements set out, for example, in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 are met.”

“Satisfaction of the requirement for the claimant to establish a prima facie case both that the company is entitled to the relief claimed and that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle does not automatically entitle the claimant to permission to commence or continue the action. The court exercises a discretion whether to grant permission and will have regard to all relevant factors. This is illustrated by the authorities which establish that a claimant who has been involved in the alleged wrongdoing or who seeks to bring the proceedings for an ulterior purpose will not be regarded as an appropriate claimant and will not be given permission: see Nurcombe v Nurcombe [1985] 1 WLR 370 at 376 per Lawton LJ, Barrett v Duckett [1995] 1 BCLC 243 at 250 per Peter Gibson LJ. Above all, it is illustrated by the requirement that a reasonable board of directors would consider it to be in the best interests of the company to pursue the proceedings.”

“(1) Every scheme is subject to a requirement (“the statutory funding objective”) that it must have sufficient and appropriate assets to cover its technical provisions. (2) A scheme's “technical provisions” means the amount required, on an actuarial calculation, to make provision for the scheme's liabilities. (3) For the purposes of this Part– (a) the assets to be taken into account and their value shall be determined, calculated and verified in a prescribed manner, and (b) the liabilities to be taken into account shall be determined in a prescribed manner and the scheme's technical provisions shall be calculated in accordance with any prescribed methods and assumptions.”

“(1) The trustees or managers must prepare, and from time to time review and if necessary revise, a written statement of— (a) their policy for securing that the statutory funding objective is met, and (b) such other matters as may be prescribed. This is referred to in this Part as a “statement of funding principles” (2) The statement must, in particular, record any decisions by the trustees or managers as to– (a) the methods and assumptions to be used in calculating the scheme's technical provisions, and (b) the period within which, and manner in which, any failure to meet the statutory funding objective is to be remedied. (3) Provision may be made by regulations– (a) as to the period within which a statement of funding principles must be prepared, and (b) requiring it to be reviewed, and if necessary revised, at such intervals, and on such occasions, as may be prescribed. (4) Where any requirement of this section is not complied with, section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to a trustee or manager who has failed to take all reasonable steps to secure compliance.”

“(1) The trustees or managers must obtain actuarial valuations– (a) at intervals of not more than one year or, if they obtain actuarial reports for the intervening years, at intervals of not more than three years, and (b) in such circumstances and on such other occasions as may be prescribed. (2) In this Part– (a) an “actuarial valuation” means a written report, prepared and signed by the actuary, valuing the scheme's assets and calculating its technical provisions, (b) the effective date of an actuarial valuation is the date by reference to which the assets are valued and the technical provisions calculated, (c) an “actuarial report” means a written report, prepared and signed by the actuary, on developments affecting the scheme's technical provisions since the last actuarial valuation was prepared, and (d) the effective date of an actuarial report is the date by reference to which the information in the report is stated.”

“(2) In any of those circumstances the Regulator may by order exercise all or any of the following powers– (a) it may modify the scheme as regards the future accrual of benefits; (b) it may give directions as to– (i) the manner in which the scheme's technical provisions are to be calculated, including the methods and assumptions to be used in calculating the scheme's technical provisions, or (ii) the period within which, and manner in which, any failure to meet the statutory funding objective is to be remedied; (c) it may impose a schedule of contributions specifying– (i) the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and (ii) the dates on or before which such contributions are to be paid. (3) No modification may be made under subsection (2)(a) that on taking effect would or might adversely affect any subsisting right of– (a) any member of the scheme, or (b) any survivor of a member of the scheme.”

“(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. (4) Assets held to cover the scheme's technical provisions must also be invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the scheme.(5) The assets of the scheme must consist predominantly of investments admitted to trading on regulated markets. (6) Investment in assets which are not admitted to trading on such markets must in any event be kept to a prudent level. (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.”

“228. It is necessary first to decide what is the purpose of the trust and what benefits were intended to be received by the beneficiaries before being in a position to decide whether a proposed course is for the benefit of the beneficiaries or in their best interests. As a result, I agree with his conclusion that ‘ . . to define the trustee’s obligation in terms of acting in the best interests of the beneficiaries is to do nothing more than formulate in different words a trustee’s obligation to promote the purpose for which the trust was created.’” “232. In this case, of course, the Scheme is closed to new membership and the continued accrual of benefits and is in severe deficit. However, given the uncertainties inherent in the administration of a pension scheme and the fact that a surplus or deficit is to some extent merely the product of the actuarial assumptions which have been applied, it seems to me that it would be wrong and entirely artificial to conclude that different duties arise depending upon whether there is a surplus or a deficit. In this case, given the extent of the deficit and the urgent need for deficit contributions in order to secure the benefits, it seems to me that the relevance of the position of the Employers capable of making such contributions and their interests is much the same as the circumstances which Chadwick LJ was considering and in the same way, it is perfectly legitimate for the Trustee to take such matters into account when exercising its powers for the purpose of promoting the purposes of the Scheme. 233 Accordingly, in my judgment, as long as the primary purpose of securing the benefits due under the Rules is furthered and the employer covenant is sufficiently strong to fulfil that purpose, it isreasonable and proper should the Trustee consider it appropriate to do so, to take into account the Employers’ interests both when determining whether to widen the pool of those liable to contribute and when considering whether to seek to reduce the element of cross-subsidy. In such circumstances, it seems to me that it is legitimate to take into account the relative burdens placed upon the Employers as commercial competitors.”

“If the trustee company determines, on actuarial advice, following an actuarial investigation under rule 76, that either an increase or a decrease in the aggregate contribution rate payable by employers is required towards the cost of benefits under the general fund, whether in respect of the cost of providing for such benefits for future service and/or in respect of the cost of remedying any deficit in the fund, the JNC shall decide how the cost of that increase, or the saving from that decrease, is to be addressed, either by increases or decreases in the rates of contributions payable under sub-rule 5.1 (Ordinary member contributions) and/or sub-rule 6.1 (Ordinary employer contributions) and/or by changes in benefits under the scheme. If the JNC does not agree, within the period allowed under sub-rule 76.4.2, how that cost, or that saving, is to be so addressed, the cost sharing arrangement under sub-rules 76.4 to 76.8 shall apply.”

“76.1 There shall be an actuarial investigation of the scheme by the actuary appointed for that purpose at intervals of not more than 3 years. Following each actuarial investigation, the actuary shall report to the trustee company on the financial condition of the scheme and shall make such recommendations as the actuary shall think fit, including as to the contributions to be payable by the employers under rule 6 (Ordinary employer contributions). 76.2 The actuarial valuation and actuarial statement to be prepared by the actuary shall comply with Part 3 of PA 04 and be sufficient to enable the trustee company to comply with its obligations under that Part. 76.3 In the event of the actuarial investigation disclosing that an alteration in or addition to the scheme is desirable, the trustee company, in consultation with the JNC and in accordance with rule 79 (Amendment), shall take such steps as it shall consider appropriate to achieve such alteration or addition. 76.4 In the event that: 76.4.1 the trustee company determines on or after the effective date, on actuarial advice, following the actuarial investigation, that an increase in the aggregate contribution rate payable by employers is required towards the cost of benefits under the fund, whether in respect of the cost of providing for such benefits for future service and/or in respect of the cost of remedying any deficit in the fund; and 76.4.2 the JNC does not decide, within a period of 3 months from the date on which the actuary's report on the actuarial investigation under sub-rule 76.1 is received by the JNC, or such longer period as the trustee company may allow, how the cost of that increase is to be addressed under sub-rule 64.10; then, if an increase in the aggregate contribution rate payable by employers is required towards the cost of such benefits, the rate of matching contributions payable by the employers to members' DC accounts under sub-rule 6.3 is to be prospectively reduced to the extent necessary, as determined by the trustee company, to meet that increase. 76.5 If that rate of matching contributions is extinguished under sub-rule 76.4, the JNC will consider a reduction in the rate of contributions payable by the employers to members' DC accounts on salary in excess of the salary threshold under sub-rule 6.5, among other potential changes. 76.6 Before the JNC makes any decision regarding any such reduction in the rate of those contributions payable under sub-rule 6.4.2 or any other such change, there shall first be a consultation in accordance with sections 259 to 261 of PA 04. 76.7 Following any such consultation referred to in sub-rule 76.6, the JNC may decide that the rate of contributions payable under sub-rule 6.4.2 is to be reduced, so far as is necessary, as determined by the trustee company, to meet the increase in the aggregate contribution rate payable by employers required towards the cost of benefits under the general fund. 76.8 If, after the application of the relevant foregoing provisions of this rule, there remains an increase in the aggregate contribution rate payable by the employers required towards the cost of such benefits, or there is a decrease in that aggregate contribution rate so required and a consequent saving in relation to the cost of such benefits, that cost (or that saving) shall be shared in the ratio 35:65 between members and employers, so that: 76.8.1 35% of that cost (or that saving) shall be applied to increase (or decrease) the contributions payable by each member under sub-rule 5.1; and 76.8.2 65% of that cost (or that saving) shall be applied to increase (or decrease) the contributions otherwise payable by each employer under sub-rule 6.1, provided that nothing in rules 76.4 to 76.8 shall affect the powers of the trustee company under sub-rule 6.1 (Ordinary employer contributions).”

“Where the JNC recommends to the trustee company any amendment of the rules, the trustee company shall, in accordance with this rule, take steps to implement the recommendation, unless it appears to the trustee company, acting on actuarial advice, to: 79.7.1 prejudice unfairly any one or more groups of members or former members when compared with another or other groups; 79.7.2 impose any unfair liability upon any one or more of the institutions or upon the trustee company; 79.7.3 be likely to result in HMRC having grounds to de-register the scheme under section 157 of FA 04; 79.7.4 be inconsistent with the constitution of the scheme as an irrevocable trust; or 79.7.5 be undesirable for any other reason which the trustee company shall notify in a reasoned written statement to the JNC.”

“[T]he valuation, whilst important, is only one part of the overall stewardship of the Scheme. Of much greater importance is the process that underpins the valuation and the governance of the Scheme itself. It is these which drive the culture and tone of the interaction between the Stakeholders and therefore the way in which the valuation is conducted, and its outcome enacted. Currently in USS, it appears to be the other way around: the valuation and its methodology drive all else, including the relationship between the Stakeholders and between the Stakeholders and the Trustee. As we said in our first report, this leads to a valuation outcome which is ‘test-driven’. The relationship issues appear to be reinforced by the Scheme Rules which do not foster a cooperative environment within which the Stakeholders can work well together.”

“68. The Company’s Update on the 2020 Valuation dated 3 March 2021 states that “…market conditions in early 2020, and their impact on the Scheme’s funding position, is something we would have had to address even if we had not already made a commitment to hold a 2020 valuation. A valuation would have been required by 31 March 2021 at the very latest in any event.” 69. The Update predicted a technical provisions deficit of between £14.9 and £17.9 billion depending upon the three scenarios previously outlined in the draft Rule 76 report and proposed that, to remedy this, contributions must rise, or a deficit reduction plan through cuts to benefits is necessary. In summary the Company proposed inter alia that: a. Under scenario 1, with deficit recovery contributions assumed to be 19.2% of pay, it was “difficult to envisage any meaningful defined benefit pension being provided under the hybrid structure”, with the result that members would only have defined contribution entitlements. b. Under scenario 2 “Very significant changes would be required to both the defined benefit and defined contribution elements to maintain total contributions at 30.7%.” e.g. reduced the defined benefit salary threshold from £59,000 to £40,000. c. The accrual rate for career average salary could be reduced from 1/75 to ‘between 1/155ths and 1/170ths’ (under Scenario 2) or “between 1/100 and 1/115ths” (under Scenario 3). 70. Misleadingly, the Update went on to state: “In sharing these illustrations, we are not proposing a view on the most appropriate response in terms of contribution rates or benefit changes. These are primarily matters for UUK and UCU via the JNC.”

“Why we decided to proceed with the 2020 valuation” (the “3 March Briefing”). It stated that when the Company filed the 2018 Valuation in the autumn of 2019 it had made a commitment to carry out another valuation in 2020. The Claimants rely on the following passage and footnote 2 from the briefing: “Firstly, TPR expressly cautioned trustees of schemes with valuation dates on or around 31 March 2020 against ‘cherry-picking’ more favourable dates in its 2020 Annual Funding Statement.” “Trustees should consider very carefully why they believe [changing the valuation date] is in the best interest of their members and the impact of any such change on member security, for example if the current conditions prevail for a long period. If they decide to change the valuation date they should do so having obtained and considered legal and actuarial advice, and consider taking account of changes in the investment markets and employer’s covenant since the new date of the valuation. Trustees who take this decision can expect us to question their reasons for the change.” (Emphases added.)”

“79. On or about 30 September 2021 the 2020 Valuation was finalised. In the process of finalising the 2020 valuation in September 2021, the Company has assumed a discount rate of 0.29% growth in assets above CPI inflation for the next 30 years. 80. Contrary to various statements made previously, post-evaluation date experience was not considered in the Schedule of Contributions finalised on 30 September 2021 prepared pursuant to section 227 PA04 where the Scheme Actuary says in his concluding notes: “Furthermore, I have taken no account of either adverse or beneficial outcomes that have become known to me since the effective date of the valuation.”

“81. In the circumstances, at all material times since at least 2018 the Directors have: A. Decided to maintain an “as at” 30 March 2020 valuation date despite: A.I. the absence of any legal need for a valuation as at this date; A.II. the unprecedented circumstances of the pandemic and its consequences on the performance of the stock market; A.III. the rise in asset values which occurred immediately after 30 March 2020. B. Assumed for the purposes of the proposed 2021 Valuation a reduced real future asset returns which offsets the asset value increase which had the consequence of inflating the funding deficit, C. Assumed in the valuation methodology that growth of assets would be 0.0% above CPI for 30 years without covenant support, increasing to 0.2% above CPI with covenant support assumed in the technical provisions consultation document, ignoring the relevant consideration that the Scheme assets had grown 32% in 16 months, namely from £66.5 billion in March 2020 to £87.8 billion in July 2021, D. Recommended to the JNC that it must impose contribution rises unless cuts were made to the defined benefit pension and accrual rates, ignoring the impact that this would have on members’ entitlements, employers or the Higher Education sector, and that the burden of funding the cost of past service benefits would fall on new or existing members with ongoing service. E. Failed to design a valuation methodology that protects and is in beneficiaries’ best interests. F. Failed to implement the recommendations of the final JEP report set out above including the reform of valuation governance. G. Failed to have regard to the fact that the level of assumed risk must be reasonable and prudent having regard to the objective of providing an affordable but secure financial future for members and their families. H. Adopted an imprudent assumption as to likely rates of return with the consequence that greater contributions are required by employers and members to maintain existing benefits or benefits reductions are required to avoid contribution increases. I. Ignored the fact that short-term and long-term perspectives are important and ignored that, as a scheme not closed to future defined benefit accrual, the Scheme is relatively immature for funding perspectives. J. Ignored the fact that intergenerational fairness is paramount in determining what, if any, contributions increases should be considered and whether benefit reductions are required to contain cost. K. Ignored the fact that it was possible to avoid raising contribution rates and reducing benefits by i) adopting reasonable assumptions as to investment returns, ii) making allowance for the unprecedented circumstances of the pandemic and/or iii) the subsequent investment performance of the Scheme and asset recovery since March 2020. L. At all times been apparently concerned primarily with the fact that TPR could be expected to question the Company’s reasons for the change of a valuation date and/or actuarial assumptions ignoring the facts that the question is one for the Company’s independent judgment which could be justified on legal, economic, actuarial and other grounds having regard to the following: L.I. adhering to a 31 March 2020 valuation and failing to update for experience would have profound long-term consequences for members; L.II. the sponsoring employers have an interest in retaining employees and maintaining security in retirement for employees; L.III. increasing contributions is likely to lead to more employees opting out and more employers from exiting the Scheme thus increasing the funding strain on remaining employees and/or employers. 82. By reasons of the matters set out above, the Directors and the shadow director have acted in breach of statutory and/or fiduciary duty: Particulars A. Acting beyond their powers by ignoring relevant considerations and/or taking into account irrelevant considerations. B. Failing to act in good faith in the way most likely to promote the success of the Company. C. Failing to exercise independent judgment. D. Fettering their discretion by committing in advance to an as-at 31 March 2020 valuation date. E. Failing to revisit the committal to an as-at 31 March 2020 valuation date. F. Failing to comply with Regulation 5 of the Occupational Pension Schemes (Scheme Funding) Regulations 2005 by failing to justify the change from the method or assumption used on the previous occasion on which the Scheme’s technical provisions were calculated by a chance of legal, demographic or economic circumstance. 83. The above breaches of statutory and/or fiduciary duty by the Directors have caused and will continue to cause the Company loss constituting the loss of assets and increased Scheme deficit identified in the as-at 31 March 2020 valuation, the need to recover such deficit, the loss of revenue as employers and members leave the Scheme and new members do not join, the loss of future investment return and other associated consequences of responding to this position.”

“106. The breaches in relation to Claim 1 and Claim 2 constituted equitable fraud and/or an impermissible furthering of the Directors’ interests for the following reasons. 107. The Directors’ breaches listed at paragraphs 81 to 83 above were done with the aim of reducing future defined benefit accrual in the Scheme. 108. The improper use of the power of the Company as trustee to conduct and control valuations of the Scheme assets to achieve the above aim constituted equitable fraud. Pursuing a policy of reducing future defined benefit accrual under the Scheme to achieve a result that is discordant with the object of the Company is a misuse of the Directors’ powers. It is to be inferred that the Directors pursued their own interests/benefits when undertaking the breaches at paragraphs 81 to 83 because no other explanation for their actions makes rational sense. 109. The Directors’ actions at paragraphs 81 to 83 were perverse. The only rational reason why the Directors would want to project a large deficit in the Scheme ignoring substantial subsequent increases in the Scheme’s assets was to force the JNC to cut the terms on which benefits would be accrued in future. 110. The reduction of future accrual in the Scheme was in the Directors’ interests because: a. those Directors who are trustees of universities who participate in the Scheme have an interest in reducing the future potential liabilities of their university to the Scheme; b. a reduction in the rate of future accrual reduces the risk of TPR intervention in the Scheme and the consequences of such intervention on the Scheme and the Directors; c. Mr Galvin has previously expressed the view that “DB pensions in the UK have failed. This is not controversial.”

“As a director of the Trustee the principles of trusteeship impose certain fiduciary duties and responsibilities on the board and each individual director. TPR’s Trustee guidance provides a general overview of the duties and responsibilities. These are broadly summarised below: • To act within the framework of the law and the regulatory requirements and in accordance with the Scheme Rules and other documents that govern the scheme; • To act in the best interests of members and beneficiaries. A duty to balance fairly the interests of different groups, to act impartially between different classes of beneficiaries (not necessarily to act equally) and to not act with any sense of “constituencies”

“DB pensions in the UK have failed. That is not controversial.”

“The Court is asked to draw an inference from the conduct of the Directors as detailed above. The inference that the Court is invited to draw is that the Directors wished to over-estimate the Scheme deficit in order to force the JNC to reduce rates of future accrual against the threat of marked contribution increases. No other explanation for the Directors’ conduct makes sense.”

“The Board noted that the Joint Negotiating Committee (“JNC”) had formally requested that the Board consider deferring the 2020 valuation. The Board discussed that: 3.1.8.1 Whilst the 2020 valuation was being undertaken earlier than a triennial valuation would be required under statute, given that (i) TPR had indicated that the 2018 valuation was on the cusp of the level of risk that TPR would consider unacceptable and (ii) the affordability threshold metric had been triggered, that if the Trustee was not currently undertaking a valuation it would be likely to conclude that it should consider undertaking one; 3.1.8.2 If the Trustee was not undertaking a full valuation as at 31 March 2020 it would still need to complete an actuarial report as at 31 March 2020 which would likely raise many of the same questions and issues as would need to be considered in the 2020 valuation; 3.1.8.3 If the 2020 valuation was deferred the Trustee would likely still need to consider taking actions in relation to potential change to its investment strategy or consider increasing contributions as a response to the current circumstances. The 2020 Valuation process would provide a more robust grounding for these considerations. It was observed that increasing contributions at the current time (for example by accelerating the contribution increases scheduled for October 2021) would increase short-term cash-flow pressure on employers so would appear not to be the most sensible course of action, especially if it was ultimately concluded that COVID-19’s impact on the HE sector was short-term only. It was reported during this discussion, that Alistair Jarvis of UUK had informally indicated to Mr Galvin that UUK would prefer for the 2020 valuation to continue rather than the October 2021 contribution increases be accelerated; 3.1.8.4 There may be some risk that stakeholders could challenge the validity of undertaking the valuation as at 31 March 2020 because of the current market volatility and uncertainty as to the long-term outlook. The Board observed that it would be open to the Trustee to take account of post valuation experience and that rather than defer the valuation it may be preferable to extend the timetable for completing it. This would also give flexibility should stakeholders wish to have some additional time to discuss benefit reform; 3.1.8.5 TPR was due to make an announcement about schemes with a 31 March 2020 valuation date in early April and that it was therefore sensible not to take any decisions to defer the 2020 valuation until after that announcement; and 3.1.8.6 The Trustee should therefore continue to proceed with the 2020 valuation.”

“Proceeding as planned with the 2020 valuation allows us to pursue a calm and considered response to these unprecedented circumstances and a deteriorating funding position. The only other options available were increasing the employer contributions or other covenant support commitments to the Scheme or, if those were not available, considering the need to accelerate the de-risking planned under the 2018 valuation. The 2020 valuation will also reflect the significant work we have done since filing the 2018 valuation. In that time, we have carried out a comprehensive review of our methodology. We have reflected on both JEP reports. We have engaged extensively with our stakeholders on the approach we will take, the process we will follow, and the critical issues that need to be addressed. This is reflected in the proposals we set out here for consultation, as trailed in our Discussion Document: the dual discount rate (DDR) approach, the removal of ‘Test 1’, the covenant assessment, questions of risk capacity and appetite and the associated investment strategy.”

“Given the financial market conditions at 31 March 2020, and consistent with the regulator’s recent guidance, both the pre- and post-retirement discount rates relative to gilts are higher than the Scheme Actuary would expect to recommend in more normal markets. The post-retirement discount rate of gilts+1% at 31 March 2020 is supportable due to the large credit spread on investment-grade corporate bonds on that date. Whilst not explicitly formulated as such, the post-retirement discount rate could be viewed as gilts+0.75% plus an additional allowance for this higher credit spread. The credit spread will vary over time but it is expected to fall from its elevated position at 31 March 2020. The pre-retirement discount rates we are consulting on reflect expected returns at 31 March 2020. These are higher relative to gilts than we would expect to use in more typical market conditions, including at both 31 December 2019 and 30 June 2020. This is due to the particular circumstances at that date. In deciding the discount rates to propose, we also took account of broader market practice. The Pensions Regulator publishes information on this annually in its analysis of scheme funding. Its analysis published in 2019 covers valuations with effective dates up to September 2017. See Appendix F for more information.”

“As we are using a dual discount rate approach for the 2020 valuation, there are actually two discount rates: one for valuing pension benefits after retirement and one for valuing benefits before retirement. This (along with other changes to the valuation methodology) makes it more challenging to compare prudence in the discount rate with past valuations. Nevertheless, we calculate a ‘single effective discount rate’ that averages the effect of both discount rates on all benefits. When viewed as a margin subtracted from our best estimate predictions, the impact of prudence in the discount rate on the TP liability in the 2020 valuation is very significant (around £15.4bn - £20.1bn). This corresponds to an 82% - 86% confidence level on the pre-retirement portfolio and 73% on the post-retirement portfolio. The range here reflects the indicative investment strategies being considered for the pre-retirement portfolio, as described in the Technical Provisions consultation document. Note that some of this prudence is essentially given back through the allowance for investment outperformance in the Recovery Plan (see below). No such allowance was made in the 2018 valuation.”

“We have also considered the overall position of the Scheme as at 30 June 2020 in order to evaluate whether the 31 March position was a short-term, unrepresentative ‘blip’, and whether financial market changes since that date would result in a more representative improved position. If that were the case, there could be an argument for departing from normal practice and focusing the valuation discussions on the more recent figures. In practice, we have concluded that the deficit would be slightly larger on a like-for-like basis at 30 June 2020 than at 31 March 2020. This is because, despite asset markets recovering over this period, the outlook for future investment returns (derived from FBB analysis) has deteriorated. From 31 March to 30 June 2020, equity prices bounced back rapidly (recovering about two-thirds of the December to March loss), while government bond yields and credit spreads fell (so increasing bond prices). As a result, expected returns fell for both equities and bonds, due to higher starting prices for both and a weakened outlook for equities. We will continue to keep this under review but have decided to continue to focus the valuation discussions on the 31 March 2020 position. Overall, we believe we have taken a rounded approach to our choice of discount rates, reflecting a range of factors.”

“The dual discount rate approach does not drive the investment strategy, so the actual portfolio need not be a combination of the two notional portfolios. To be consistent with the actual investment strategy, the expected returns on the combined notional portfolios assumed for the dual discount rate approach must be no higher than the expected return for the actual investment strategy. After input from its investment advisors taking into account possible alternative views of covenant strength, the Trustee previously selected two alternative notional portfolios to underly the dual discount rate methodology which were described in the TP consultation document as the “40% growth assets” and “55% growth assets” options (where the percentage of growth assets refers to the investment portfolio as a whole).”

“Market conditions as at 31 March 2020 were unusual compared to periods both before and after that date on account of elevated credit spreads and lower equity markets. This helps to justify higher investment return assumptions (taking the discount rate and additional investment return assumptions together), relative to gilt yields at that date than would be derived on a consistent basis at other dates. For the purposes of monitoring the funding position going forwards it should not be assumed that the same discount rates relative to gilt yields would remain appropriate.”

“Market conditions at 31 March 2020 were extraordinary, fuelled by the initial impact of the COVID-19 pandemic on the global economy. But they were not universally negative for the valuation: asset prices crashed, which affected the deficit in respect of pensions already promised – but lower market prices meant the outlook for future investment returns was unusually high. We compensated for these extraordinary conditions in the 2020 valuation principally through the: • discount rate – higher than normal (compared with low-risk returns) but moderated prudently • proposed deficit Recovery Plan – significant, enduring investment outperformance over 18 years At 31 March 2021, conditions had broadly normalised in a manner that supports the 2020 decisions: asset prices had recovered (allowed for in the proposed Recovery Plan) but, partly as a consequence, the outlook for future investment returns had reduced (allowed for in the discount rates). This is effectively a form of ‘smoothing’ that is consistent with our Fundamental Building Blocks (FBB) model for expected investment returns. In other words, the adjustments we made to take account of the exceptional market conditions as at 31 March 2020 (again, a form a smoothing) have been validated by ‘more normal’ conditions. But this means the same adjustments would not automatically carry over. That is why we would not expect the outcome of a 2021 valuation to be materially different. What has changed? Our assets have increased in value, but so have our TP liabilities. Asset prices have recovered, but the outlook for future investment returns has correspondingly reduced. Nominal gilt yields have increased and the expected rate of improvement in members’ life expectancy is slightly lower but market expectations for UK inflation are higher. We would expect to use a ‘more normal’ Recovery Plan.”

“The Trustee is responsible for the choice of assumptions for the valuation and for then setting an appropriate level of future contributions (having taken actuarial advice from me), in consultation with Universities UK ("UUK"), the body nominated for these purposes under the Scheme rules to act as the representative of the employers who sponsor the Scheme. The Joint Negotiating Committee (“JNC”) is responsible for deciding how any change to the required overall contribution rate will be addressed, whether by way of change to member and employer contributions, changes to the benefit structure, or both. The JNC has recommended changes to future service benefits to apply from April 2022, which in due course will be the subject of consultation with members. In parallel, UUK has confirmed that the employers will provide an enhanced level of covenant support to the Scheme (including a 20-year moratorium on employer exits, which would be replaced by an interim moratorium lasting a single valuation cycle in the event that the JNC recommendation is revoked by resolution of the JNC and not replaced by a further JNC recommendation by 28 February 2022). The Trustee has determined that different assumptions should apply dependent on whether or not a deed has been entered into effecting the recommendation of the JNC on or before 28 February 2022. This report covers both possibilities.”

“At this date expectations for future inflation were higher than at 31 March 2020. Gilt yields had increased, although expected returns relative to gilts on many asset classes were lower, and so the discount rates relative to gilts had decreased. The value of the Scheme’s assets had also increased significantly. As a result, the technical provisions deficit was lower as at 31 March 2021 and the notional future service contribution rate was higher.”

“The Trustee also adopted an interim monitoring framework which indicates that the technical provisions deficit as at 31 July 2021 was similar to that as at 31 March 2021, and the notional future service contribution rate at 31 July 2021 was higher than that as at 31 March 2021. This provides a directional indication of how the position has continued to change, although a full analysis of assumptions consistent with the Statement of Funding Principles has not been carried out at dates subsequent to 31 March 2021. I advised the Trustee that this is within the bounds of normal fluctuations which should be expected on a month-to-month basis and consequently the Trustee determined it was not necessary to revise its decision on the contribution rate.”

“It is clear that, rather than simply act in accordance with TPR’s wishes or directions, USSL took a very independent line.”

“46. With regards to actuarial valuations, under the Rules the role of USSL as trustee is to commission a report from the Scheme Actuary and then determine whether any increase or decrease is required in the aggregate contribution rate. USSL does not have any power to amend benefits except in certain limited circumstances relating to minor elements of the defined contribution elements of benefits (none of which have been relevant in relation to the 2020 Valuation). Any proposed change to the benefits resulting from a valuation outcome is primarily a matter for the JNC in use of its powers under Rule 64.10. 47. Throughout the valuation process USSL has taken actions to assist the stakeholders within the JNC (UUK and UCU) by providing information, costings and assessment of whether particular proposals could practically be implemented. That has included providing examples of what benefit levels might be provided at example contribution levels (both employer and member) consistent with the valuation and what effect structural changes to the employer covenant might have on the valuation outcome. USSL was very careful to make clear that any information thus provided was in response to requests from stakeholders and did not reflect proposals from USSL itself; nor did USSL have any preference as to whether proposals from UCU or UUK might eventually be accepted by the JNC under its governance and then passed back to USSL as an exercise of the power under Rule 64.10.”

“26. Across the university sector, the gender pay gap (average wages of men compared to women) was reported as 15.1% in 2019, while statistics are partial for the sector-wide ethnicity pay gap (average wages of white staff compared to black and ethnic minority staff). In the twenty-four ‘Russell Group’ universities, the ethnicity pay gap was reported to be as high as 26% in 2018…. 27. Across the UK as a whole, the gender pension gap (average male pension income compared to average female pension income) is approximately 40%, a figure that compounds the gender pay gap, and the fact that women tend to live approximately 4 years longer than men on average. We do not have data disclosed from the Company to determine what the gender or ethnicity pension gaps are in university pensions. 28. It is reasonably clear to me that the proposed salary threshold reductions, reduced accrual rates, and pension increase cap changes will have a particularly disparate impact upon female, younger and/or black and minority ethnic beneficiaries of the USS Scheme, compounding the existing inequality. This is true because: (A) less of the pension will be a defined benefit pension but rather a defined contribution pension, which runs out if people live longer; (B) women tend to live on average 3.9 years longer than men…….(C) in the case of younger beneficiaries, who are more likely to be black and minority members, the total benefits will be lower than for older beneficiaries who are further more likely to be white. 29. To my knowledge, the Company has neither conducted nor published an Equality Impact Assessment of its proposed changes. 30. The Company directors have failed to take into account both the relevant considerations of the particular disadvantages at which its proposals put women, young, and black and ethnicity members, and the exposure of the Company to claims for discrimination, to the detriment of all members.”

“There is a reduction of 17-25% in future service benefits for the sample members considered. Whilst the Trustee is taking legal advice on the way in which it should interpret “fairness” in this context, in our view this range does not indicate anything that on the face of it appears unfair between different groups of current active members from an actuarial perspective in relation to their future service. It is important to note that these figures are based on a range of assumptions, and the actual impact will only be known in the future, for example once the levels of future inflation are known.”

“99. By reason of the above, the increase in the total operating costs and/or investment management costs (including internal and external personnel costs) constitutes a breach of the Directors’ statutory and/or fiduciary duties to the Company and/or is negligent to the personal advantage of the Directors. 100. By reason of the above breaches of statutory and/or fiduciary duties, the Company has suffered loss in the form of the significant total alternatively investment management costs, including personnel costs, paid since 2007. The increase in internal and external management costs is in breach of statutory, fiduciary or other duty harms the success of the Company and needs to be remedied and reversed by the Directors and shadow director. If costs were reduced to levels in comparable schemes, the discount rate, which includes an adjustment for investment costs, could be increased. If the saving from such reduced costs since 2007 had been invested on behalf of the Scheme, the returns would significantly set off the deficit identified by the Company and reduce the need for any change to the benefit structure of the Scheme.”

“22. The cost control framework is part of the annual business planning cycle for USS. The planning cycle culminates in the USSL Board approving a suite of strategic objectives over a three-year time horizon, focused on improving employer and member outcomes. The cost required to run USS and deliver these strategic objectives is included in the business plan, with the first year’s cost base proposal forming the budget for that year. 23. As noted above, the USSL Board each year receives an assessment of the value for money performance of USSL. This review assesses whether the overall hybrid scheme delivers value for money taking several elements into account including performance under the CEM Benchmarking assessment. The review also considers additional elements including benchmarking of the DC element of the scheme performed by Redington (a specialist pension consultancy firm) against five commercial Master Trusts; costs as reported under the Cost Transparency Initiative (an industry standard for reporting institutional investment cost data) and a self-assessment for the overall hybrid scheme designed with Crowe LLP (a specialist provider of value for money assessments to the pensions industry).”

“The Governance Supplement explains how Principle 5 is implemented for USS [DIG1/163]. In summary: (a) USSL’s remuneration framework is designed to ensure it has access to the right mix of skills and expertise to deliver USSL’s long-term priorities and value for money for USS members. (b) Given the importance of attracting and retaining high-calibre employees in a competitive talent pool, fair and competitive salaries in comparison with our peers are offered. (c) Annual benchmarking is performed on salaries and total compensation levels. Two external benchmarking agencies are used for this: Aon McLagan and Willis Towers Watson. (d) USSL has an established Remuneration Committee, which is a subcommittee comprised of USSL directors responsible for reviewing the approach to and all elements of remuneration for USSL employees and, in conjunction with the USSIM Remuneration Committee, for USSIM employees. Last year, the Remuneration Committee adopted a new remuneration policy to document the group’s overall approach to remuneration and reward.”

“40. Mr Purcell has informed me of the following description of the approval process for director remuneration. In 2013, the JNC agreed a framework under which it set an overall fee cap for USSL director fees, with the USSL Board granted authority to determine the distribution of fees within that cap. The cap was revisited in 2016, with a JNC working group undertaking a review of fees and the time expectations of board members. The JNC proposed an increase in the aggregate cap to reflect an increase in expected time commitment from 24 to 30 days a year and for an increase in the cap by CPI (backdated to 2013). The JNC proposed the amendment, which the Remuneration Committee considered and recommended to the USSL Board for approval. Since 2016, the fee cap has risen in line with inflation but no further increases have been discussed by the JNC. 41. The Remuneration Committee recommends the distribution of fees within the cap set by the JNC for the members of the USSL Board to both the JNC and the USSL Board, each of which must approve the fee arrangements. The Remuneration Committee is responsible for performing an annual assessment as to whether to undertake a review of fees for USSL Board directors (among other things). After performing any review of such fees, the Remuneration Committee recommends any changes to the USSL Board and JNC, as appropriate. From time to time, the Remuneration Committee has requested a benchmarking exercise be undertaken. A substantive exercise was undertaken in 2021 with the Remuneration Committee concluding that director fees appeared to be in the range for a normal year against available benchmarking data, but on the lower side against comparable peers when taking account of current valuation workloads. To address that, a one-off payment of £2,600 was paid to directors and this fell within the agreed fee cap.”

“33. The table in Appendix 2 clearly shows an increase in costs from 2007 and 2008, when comparable costs were 0.125% and 0.140%. Thus between 2007 and 2008 total operating costs, even as a percentage of assets, have increased 43% and 28%, respectively. These increases occurred even though the USS’s assets have substantially increased over this period and economics of scale, and analysis by TPR suggests larger funds should more, not less efficient at reducing costs. Thus, Gibb’s statement does not provide evidence to rebut our claims that costs have unjustifiably inflated over time.” “34. Finally, at paragraphs 30 to 37, Mr Gibb describes how the USS decides CEO and director pay. Mr Gibb does not dispute our claim… that the directors allowed the CEO’s pay to substantially inflate from 2015 to 2020 while performance has led to continual cuts to benefits. 35. In summary, Mr Gibb’s witness statement supports our claim on costs, that the USS directors have overseen super-inflationary increases in operating, management and investment expenses.”

“The Scheme’s continued investment in fossil fuels without any or any adequate plan for divestment constitutes a breach of the Directors’ duty pursuant to, and on a proper construction of, sections 171 and 172 CA06 to act for proper purposes, including making investments that avoid significant risk of financial detriment to the Scheme, the beneficiaries and the Company, and to promote the success of the Company having regard inter alia to the Company’s long term interests.”

“(4) In relation to Claim 4: (A) Declarations that the absence of any or any adequate plan to divest from investment in fossil fuels is contrary to the interests of the Company as set out at paragraphs [103] – [106] constitutes a breach on the part of one or more of the individuals constituting the Second and/or Third Defendant of their statutory and/or fiduciary duties to the Company as alleged in paragraph 105. (B) Declarations that such breach(es) have caused or will cause the First Defendant loss as alleged at paragraph 106.”

“59. Annual updates are provided to the Board on climate change matters, along with annual Board training provided by USSIM. The most recent training takes the view that divestment from certain investments is not an appropriate way to achieve net zero (divestment has limited impact on climate change because if USS sells an asset, another investor will necessarily buy it, such transaction therefore having little if any impact on the underlying company or its carbon emissions); rather USS will have to play is role in engaging with the assets and the markets in which it invests. 60. In May 2021, USSL announced its ambition to be Net Zero for greenhouse gas emissions from USS’s £82bn investment portfolio by 2050 at the latest. In doing so it outlined why immediate divestment from certain industries was not in the financial interests of the scheme or therefore the financial interests of the members, as well as the importance of stewardship rather than immediate divestment. To help USSL achieve this target, USSIM has put in place interim targets by which to measure progress. Further developments have been published on the USS website, including changes to more than £5bn of assets under management and to introduce a climate tilt to a portion of the Global Developed Markets Equity funds held and, for short-term changes, detail of those interim targets themselves. 61. USSL also has policies on engagement and working with the companies in which it invests to transition towards carbon neutrality. By way of example, USSL co-ordinates activities with other large asset holders and one of the entities with which it has taken a lead over recent times is Shell. Pressure by way of engagement has led to Shell committing to take additional action on climate change, including a commitment to achieve net zero emissions. 62. USSL has on occasions excluded investments where it believes environmental, social and governance factors provide a reason to consider that holding those investments will be financially disadvantageous for USS. Specific actions have also been taken in recent years regarding divestments following long-term investment reviews. By way of example, in June 2020 USSIM announced its intention to divest from tobacco manufacturing, thermal coal mining and companies who have ties to the production of cluster munitions, white phosphorus and landmines. Divestment has been adopted here for the reasons stated in that announcement, and also where continued shareholder engagement had been assessed as not useful.”

“The substantive remedy sought is an order prohibiting the introduction of the new benefits regime, see PoC, prayer, at ¶¶1(C) and 2(D). That is, primarily, what the Claimants seek to achieve from these proceedings. Although these paragraphs are addressed to the Directors, the reality is that they are seeking to prevent USSL from implementing the changes. That is not, in substance, a remedy being sought “on behalf of”

“The term fraud in connection with frauds on a power does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could be properly termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power.”

“Perhaps the most common instance of this is where the exercise is due to some bargain between the appointor and appointee, whereby the appointor, or some other person not an object of the power, is to derive a benefit. But such a bargain is not essential. It is enough that the appointor's purpose and intention is to secure a benefit for himself, or some other person not an object of the power.”

““loss from its exposure to claims by relevant Scheme members for indirect discrimination on the grounds of sex, age and/or race”

“(1) A person (A) discriminates against another (B) if A applies to B a provision, criterion or practice which is discriminatory in relation to a relevant protected characteristic of B's. (2) For the purposes of subsection (1), a provision, criterion or practice is discriminatory in relation to a relevant protected characteristic of B's if— (a) A applies, or would apply, it to persons with whom B does not share the characteristic, (b) it puts, or would put, persons with whom B shares the characteristic at a particular disadvantage when compared with persons with whom B does not share it, (c) it puts, or would put, B at that disadvantage, and (d) A cannot show it to be a proportionate means of achieving a legitimate aim. (3) The relevant protected characteristics are— age; disability; gender reassignment; marriage and civil partnership; race; religion or belief; sex; sexual orientation.”

“81…..The claimants’ argument is that the causal link between the withdrawal of the pension and the protected characteristic is established because (i) the availability of the pension matters more for the wellbeing of disadvantaged members of society than it does for better off people, and (ii) people with a protected characteristic are disproportionately represented in the cohort of disadvantaged people, therefore (iii) it is indirectly discriminatory to deprive them of that benefit even though (iv) the criterion for access to that benefit is equally capable of being satisfied by people with and without that protected characteristic. 82. We do not accept that the causal link needed to establish a claim of indirect discrimination can be satisfied by that chain of reasoning. If it were, then there may well be other groups with a different protected characteristic combined with age who can also show that because they have suffered disadvantage in the workplace over the course of their lives, they are more reliant on a state pension than comparator groups and so were adversely affected to a greater degree by the increases in pension age since 1995. To say that it is unlawful not to provide a state pension to every such group would turn the state pension into something which it is not; another means-tested benefit. The state pension is not a means-tested benefit but is linked to payments of national insurance contributions over the course of the claimant's working life. There are other benefits provided which are means-tested, such as universal credit for those below the state pension age and pension credit for those above. These are the benefits designed to achieve a minimum level of income for poorer people; that is not the function of the state pension. 83. In our judgment, therefore, there is no sufficient causal link here between the withdrawal of the state pension from women in the age group 60 to 65 and the disadvantage caused to that group. The fact that poorer people are likely to experience a more serious adverse effect from the withdrawal of the pension and that groups who have historically been the victims of discrimination in the workplace are more likely to be poor does not make it indirectly discriminatory to apply the same criterion for eligibility to everyone, if that criterion is not more difficult for the group with the protected characteristic to satisfy.”

“I turn to the law. The starting point is the duty of trustees to exercise their powers in the best interests of the present and future beneficiariesof the trust, holding the scales impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount. They must, of course, obey the law; but subject to that, they must put the interests of their beneficiaries first. When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are normally their _ best financial interests. In the case of a power of investment, as in the present case, the power must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question; and the prospects of the yield of income and capital appreciation both have to be considered in judging the return from the investment.” “This leads me to the second point, which is a corollary of the first. In considering what investments to make trustees must put on one side their own personal interests and views. Trustees may have strongly held social or political views. They may be firmly opposed to any investment in South Africa or other countries, or they may object to any form of investment in companies concerned with alcohol, tobacco, armaments or many other things. In the conduct of their own affairs, of course, they are free to abstain from making any such investments. Yet under a trust, if investments of this type would be more beneficial to the beneficiariesthan other investments, the trustees must not refrain from making the investments by reason of the views that they hold.” “Third, by way of caveat I should say that I am not asserting that the benefit of the beneficiaries which a trustee must make his paramount concern inevitably and solely means their financial benefit, even if the only object of the trust is to provide financial benefits. Thus if the only actual or potential beneficiaries of a trust are all adults with very strict views on moral and social matters, condemning all forms of alcohol, tobacco and popular entertainment, as well as armaments, I can well understand that it might not be for the "benefit" of such beneficiaries to know that they are obtaining rather larger financial returns under the trust by reason of investments in those activities than they would have received if the trustees had invested the trust funds in other investments. The beneficiaries might well consider that it was far better to receive less than to receive more money from what they consider to be evil and tainted sources.”

“If an application for permission to appeal on the ground of lack of reasons is made to the trial judge, the judge should consider whether his judgment is defective for lack of reasons, adjourning for that purpose should he find this necessary. If he concludes that it is, he should set out to remedy the defect by the provision of additional reasons refusing permission to appeal on the basis that he has adopted that course. If he concludes that he has given adequate reasons, he will no doubt refuse permission to appeal. If an application for permission to appeal on the ground of lack of reasons is made to the appellate court and it appears to the appellate court that the application is well founded, it should consider adjourning the application and remitting the case to the trial judge with an invitation to provide additional reasons for his decision or, where appropriate, his reasons for a specific finding or findings. Where the appellate court is in doubt as to whether the reasons are adequate, it may be appropriate to direct that the application be adjourned to an oral hearing, on notice to the respondent.”

“49. I wish to add a few words to deprecate the practice which was adopted in this case of counsel writing to the judge, after a draft judgment has been provided, to ask him to reconsider his conclusions. It is a growing practice and in my view it should happen only in exceptional circumstances. 50. The purpose of the judge providing a draft of the judgment before hand down is to enable the parties to spot typographical, spelling and minor factual errors which have escaped the judge's eye. It is also to give the parties the opportunity to attempt to reach agreement on costs and to consider whether they wish to appeal. Consideration of such matters before hand down can save costs. Circulation of the draft is not intended to provide counsel with an opportunity to reargue the issues in the case. 51. Only in the most exceptional circumstances is it appropriate to ask the judge to reconsider a point of substance. Those circumstances might be, for example, where counsel feels that the judge had not given adequate reasons for some aspect of his/her decision. Then it may be appropriate to send a courteous note to the judge asking him/her to explain the reasons more fully. By way of further example, if the judge has decided the case on a point which was not properly argued or has relied on an authority which was not considered, the appropriate course will be to ask him/her either to reconvene for further argument or to receive written submissions from both sides. Letters such as the one sent in this case, which sought to reopen the argument on a wide variety of points, should not be sent.”