Palestine Solidarity Campaign Ltd & Anor, R (on the application of) v Secretary of State for Communities and Local Government

Broad statutory powers to establish and administer public service pension schemes may support guidance addressing the extent to which non-financial investment considerations are taken into account. Wider public-interest considerations, including foreign and defence policy, may inform that guidance. Their use does not make the guidance pursue an unauthorised purpose.

Under Article 18(4) of Directive 2003/41/EC, prior approval concerns external oversight of individual investment decisions before they are made. General guidance setting a framework for an investment-policy statement, even if it indirectly affects decisions, is not prior approval or systematic notification.

The respondents challenged passages in investment guidance issued under the Public Service Pensions Act 2013 and the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016. The passages stated that administering authorities should not pursue policies contrary to UK foreign or defence policy and that pension policies pursuing boycotts, divestment and sanctions were generally inappropriate.

The Administrative Court declared the passages unlawful, holding that the relevant powers could be exercised only for pensions purposes: [2017] EWHC 1502 (Admin). The Secretary of State appealed. The respondents sought to uphold the order on the alternative ground that the guidance breached Article 18 of Directive 2003/41/EC. The central issues were whether the guidance pursued an unauthorised purpose and whether it imposed prohibited prior approval of investment decisions.

1. Domestic law. The appeal was allowed and the declaration of unlawfulness was set aside. The Public Service Pensions Act 2013 establishes a broad framework under which scheme regulations may make appropriate provision for public service pension schemes, including their administration and management and guidance to scheme managers. The power must promote the policy and objects of the legislation, but the range of considerations that may in principle be taken into account is wide.
2. It was plainly within the statutory scheme for investment strategies to address non-financial considerations. It was therefore also within the Secretary of State’s power to give guidance on the extent to which such considerations could be taken into account. The detailed content of that guidance remained subject to ordinary public law principles, including Wednesbury reasonableness.
3. The Secretary of State was entitled to consider wider public-interest matters, including foreign policy and defence policy, when formulating the guidance. Drawing a distinction between those considerations and other non-financial factors did not convert the exercise into an unauthorised non-pensions purpose. The expression pensions purpose was potentially misleading and was not necessary to the analysis.
4. EU law. The respondents’ alternative challenge failed. The earlier Directive 2003/41/EC contains no general prohibition on Member States limiting the non-financial considerations relevant to investment decisions. Articles 18(1) to (3) and 18(5) and (6), read with the Directive as a whole, did not support that implication.
5. Article 18(4)’s prohibition on any kind of prior approval concerns a requirement that individual investment decisions be subjected to external oversight before investments are made. The guidance supplied a general framework for the content of investment-policy statements. It did not require the Secretary of State to vet individual decisions, nor did it require investment in or disinvestment from any particular financial product. The distinction was supported by Commission v Italy, Commission v Luxembourg, the later Commission v Italy decision and DKV Belgium, concerning technical frameworks that may affect decisions indirectly without prescribing the decisions themselves.
6. The respondents’ challenge under the Directive was rejected. The Secretary of State’s appeal was allowed and the Administrative Court’s declaration was set aside.

1. Court of Appeal (Civil Division) — Allowed the Secretary of State’s appeal and set aside the declaration: [2018] EWCA Civ 1284.
2. Administrative Court — Declared the challenged passages in the guidance unlawful on the basis that the relevant powers had been exercised for an unauthorised purpose: [2017] EWHC 1502 (Admin).