LB Re Financing No 1 Ltd v The Trustees of the Lehman Brothers Pension Scheme

This appeal concerned the statutory right of persons "directly affected" by a Determinations Panel decision under the Pensions Act 2004 to refer that decision to the Upper Tribunal (sections 96 and 103). The Court of Appeal upheld the Upper Tribunal's conclusions that (1) trustees of the Lehman Brothers pension scheme were persons "directly affected" for the purposes of section 96(3) and thus had standing to bring a reference, and (2) the two-year look-back time limit in section 43(9) does not prevent the Upper Tribunal, on a timely reference arising from a timely Panel determination, from directing the Regulator to issue or vary a financial support direction (FSD) to additional targets under its section 103 powers.

The court adopted a contextual and purposive approach to statutory interpretation, rejecting a narrow rule that "directly affected" requires an immediate change in legal rights. It held that trustees are directly affected because an FSD is a necessary precursor to any financial support arrangement or contribution notice that enhances scheme assets. It also reasoned that the Tribunal's powers under section 103 to determine appropriate action and remit the matter with directions are not constrained by the section 43(9) time limit applicable to the Regulator's own opinion-forming process.

Background and parties: The Determinations Panel of the Pensions Regulator decided to issue a financial support direction (FSD) addressed to six Lehman group companies. The trustees of the Lehman Brothers pension scheme sought the addition of a further 38 group companies (the Targets). The Targets applied to strike out the trustees' application for a reference to the Upper Tribunal. The Upper Tribunal dismissed the strike-out application on several grounds; most grounds fell away and two issues remained for this appeal: standing (whether the trustees were "directly affected persons" (DAPs) under s.96(3)) and whether the two-year time limit in s.43(9) precluded the Tribunal directing the Regulator to issue FSDs to additional targets.

Procedural posture: Appeal from the Upper Tribunal (Tax & Chancery Chamber, Financial Services) (decision of Bishopp & Herrington JJ) to the Court of Appeal.

Nature of the claim / relief sought: The trustees, as persons allegedly directly affected by the Determinations Panel decision, sought a reference under s.96(3) to the Upper Tribunal challenging the Panel's determination and seeking directions that would result in FSDs being issued to additional group companies.

Issues framed: (i) Whether trustees are "directly affected" for the purposes of section 96(3) so as to have standing to refer the Panel's determination; (ii) Whether the two-year period in s.43(9) prevented the Tribunal, on a timely reference arising from a timely Panel determination, from directing the Regulator to issue or vary an FSD so as to include additional targets.

Court's reasoning: On standing, the Court rejected a narrow, formalistic meaning of "directly affected" that requires an immediate change in a person's legal rights. The court held that trustees are directly affected because an FSD is an essential step in producing a financial support arrangement (or, failing that, contribution notices) which can enhance scheme assets; trustees therefore have a real and particular interest in the Panel's determination. The court also observed that Parliament intended the reference procedure to provide practical access to an independent tribunal and that the term "directly" excludes mere busybodies or duplicative derivative interests but was not meant to exclude trustees in this context.

On the time limit, the Court held that section 43(9) constrains the Regulator's own opinion-forming process (its determination and the look-back date) but does not continue to operate to limit the Upper Tribunal's powers under s.103 to determine the appropriate action and remit the matter with directions. The Tribunal may direct the Regulator to give effect to its determination; in doing so the Regulator acts mechanically under s.103(7), not by repeating the discretionary process under s.43. The Court favoured a purposive interpretation which preserved the utility of references and appeals and avoided rendering those rights illusory by requiring all references and appeals to be concluded within the original two-year look-back period.

Subsidiary findings & wider context: The court considered Article 6 ECHR issues and previous authorities (including Muldoon and Procola) but did not treat Convention jurisprudence as determinative of the statutory meaning. The judgment noted the novelty and potential severity of FSDs and observed that s.43(9) had since been amended so the precise pre-amendment application will not often recur.

The appeal is dismissed. The Court agreed with the Upper Tribunal that (i) scheme trustees are persons "directly affected" by a Determinations Panel decision to issue an FSD and so have standing under section 96(3) to refer that determination to the Upper Tribunal; and (ii) the two-year time limit in section 43(9) applies to the Regulator's own opinion-forming determination process but does not prevent the Upper Tribunal, on a timely reference arising from a timely Panel determination, from directing the Regulator under section 103 to issue or vary an FSD to include additional targets.

Appeal to the Court of Appeal from the decision of the Upper Tribunal (Tax & Chancery Chamber, Financial Services) (Judges Colin Bishopp & Timothy Herrington) which had dismissed the Targets' application to strike out the trustees' reference; neutral citation for the Upper Tribunal decision not provided in the judgment.