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

A statutory power to issue guidance must be exercised to promote the policy and objects of the enabling legislation. Those objects are identified from the statutory language read in context.

A power to guide local government pension authorities on how to formulate investment strategies does not authorise central government to dictate, for extraneous foreign or defence policy reasons, what investments they must avoid. Investment authorities have primary responsibility as quasi-trustees for scheme funds. They may consider non-financial factors where there is no significant risk of financial detriment and they have good reason to think scheme members would support the decision.

The Secretary of State issued mandatory guidance under regulation 7(1) of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016. It directed administering authorities not to pursue investment policies contrary to United Kingdom foreign or defence policy.

The appellants sought judicial review on the ground that these passages exceeded the statutory guidance-giving power. The Administrative Court upheld the claim in [2017] EWHC 1502 (Admin). The Court of Appeal reversed that decision in [2018] EWCA Civ 1284.

The Supreme Court had to determine whether the prohibition fell within the purpose and scope of the power conferred through the Public Service Pensions Act 2013 and the 2016 Regulations.

1. Appeal allowed by a majority of three to two. Lord Wilson, with whom Lady Hale agreed, and Lord Carnwath held that the challenged passages exceeded the Secretary of State’s statutory powers. The Administrative Court’s declaration of unlawfulness was restored.

2. Under the principle in Padfield, no statutory discretion is unfettered. Its lawful scope is found by construing the words conferring it in their statutory context and identifying Parliament’s purpose. Section 3 of the Public Service Pensions Act 2013, Schedule 3 and regulation 7 of the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 authorised guidance concerning the administration and management of the scheme and the formulation of an investment strategy.

3. Lord Wilson held that the statutory language concerned the procedures and strategy by which administering authorities discharged their investment functions. The challenged passages instead sought to enforce central government’s foreign and defence policies. A power to direct how authorities should approach non-financial considerations did not include power to direct, for extraneous reasons, what investments they should avoid.

4. Lord Carnwath agreed that investment choices remained the primary responsibility of administering authorities acting as quasi-trustees. The guidance could address substantive considerations relevant to formulating an investment strategy, but it could not impose central government’s own policy preferences. Authorities could take non-financial considerations into account where there was no significant risk of financial detriment and good reason to think members would support the decision.

5. The majority rejected the characterisation of scheme administrators as exercising ordinary functions of the state with public money. Employees’ contributions came from their income, while employers’ contributions formed part of remuneration for work. The fund represented the members’ money, and administrators had duties analogous to those of trustees.

6. Lady Arden and Lord Sales dissented. They considered that the 2013 Act permitted guidance reflecting the public interest and central government’s role in public service pension schemes, provided that authorities remained able to protect members’ financial interests. They would have dismissed the appeal.

1. United Kingdom Supreme Court: By a majority of three to two, allowed the appeal and restored the Administrative Court’s declaration that the challenged guidance was unlawful: [2020] UKSC 16.

2. Court of Appeal: Allowed the Secretary of State’s appeal, set aside the declaration and dismissed the judicial review claim: [2018] EWCA Civ 1284; [2019] 1 WLR 376.

3. Administrative Court: Upheld the claim and declared the two challenged passages unlawful: [2017] EWHC 1502 (Admin); [2017] 1 WLR 4611.