McGaughey v Universities Superannuation Scheme

The claimants sought permission to continue four claims as multiple derivative claims against the corporate trustee (Universities Superannuation Scheme Limited) and individual directors, invoking common law principles analogous to section 261 Companies Act 2006 and seeking prospective indemnity for costs. The court set out the common law test for multiple derivative claims (standing/sufficient interest; prima facie case that the claim falls within an exception to Foss v Harbottle; prima facie merits; and the exercise of discretion) and applied authorities including Prudential, Daniels, Estmanco and Harris v Microfusion.

The judge concluded that none of the four asserted claims (1: the 2020 actuarial valuation; 2: indirect discrimination under the Equality Act 2010; 3: excessive costs and expenses; 4: failure to plan divestment from fossil fuels) met the threshold for permission. Key holdings were that (a) the claimants lacked the requisite standing for claims where the trustee’s position was not shown to have suffered a loss reflective of the claimants’ own loss, (b) the fourth exception to Foss v Harbottle requires a prima facie showing of deliberate/dishonest breach or improper personal benefit (equitable fraud is not an unlimited gateway), and (c) on the material before the court the claimants had not shown prima facie that directors had acted for improper purposes or obtained improper personal benefit, nor that the company had suffered the pleaded reflective losses. The application for permission and the request for a prospective costs order were dismissed.

The claimants, both members of the Universities Superannuation Scheme (USS), applied for permission to continue four proposed claims on behalf of the corporate trustee (a company limited by guarantee) under common law multiple-derivative principles analogous to section 261 Companies Act 2006. They alleged breaches of statutory and fiduciary duties by current and former directors (and a shadow director) arising from the trustee's decision to proceed with a valuation dated 31 March 2020 and the consequential benefit and contribution proposals, indirect discrimination resulting from the benefit changes, excessive rise in operating and investment management costs, and the trustee's approach to fossil fuel investments. They also sought an indemnity for prospective costs.

Procedural posture: first instance Companies Court (Chancery Division). The application was initially dismissed on paper, renewed orally and heard on 5 April 2022. The judge accepted the application materials as amended and considered written and oral evidence from both sides.

Issues framed by the court:

• Whether each claim is a multiple derivative claim for the purposes of common law (rather than a direct claim by members);
• What the common law test is for permission to continue a multiple derivative claim (standing / sufficient interest; prima facie exception to Foss v Harbottle; prima facie merits; discretion);
• Whether, on the material before the court, each claim satisfied that test.

Reasoning and outcome (concise):

• The court applied the established common law framework (drawing on Prudential, Daniels, Fort Gilkicker, Boston Trust and other authorities). The judge emphasised that, for multiple derivative claims, a claimant must demonstrate that the subject company has suffered a loss and that that loss is reflective of the claimant’s own loss (reflective-loss principle and standing). The judge also endorsed the limited scope of the fourth exception to Foss v Harbottle: absent deliberate/dishonest breach or evidence that the wrongdoers improperly benefitted themselves, permission is unlikely.
• Claim 1 (2020 valuation): the judge concluded it was not a proper multiple derivative claim because the trustee had not been shown to have suffered loss reflective of the claimants’ loss; even on the merits the contemporaneous documents and witness evidence demonstrated that the trustee considered valuation timing and post-valuation experience, took actuarial and external advice, and that the claimants could not show a prima facie case of equitable fraud or improper personal benefit by directors.
• Claim 2 (discrimination): the court held that alleged company exposure to discrimination claims does not produce reflective loss in members and that the claimants had not established a prima facie case that directors knowingly tolerated indirect discrimination or acted for improper purposes; and that individual members are better placed to bring direct discrimination claims.
• Claim 3 (costs and expenses): the court accepted that depletion of scheme assets could give rise to a derivative-type claim in principle, but found no prima facie evidence that directors improperly benefited themselves or that the rises in costs could not be explained by legitimate factors, benchmarking and governance processes; many complaints also touched on limitation issues.
• Claim 4 (fossil fuels): the judge found no pleaded or evidential particularity showing immediate financial loss to the trustee reflective of the claimants’ loss, and accepted that trustees owe duties to invest in members’ best financial interests (Cowan v Scargill principles) and that the trustee’s engagement/net‑zero approach and stewardship policies were within its discretion.

Accordingly the permission application and the prospective costs order were refused.

The application for permission to continue all four proposed multiple derivative claims is dismissed. The court applied the common-law test for multiple derivative actions (sufficient interest/standing; prima facie case falling within the exceptions to Foss v Harbottle; prima facie merits; and discretion). The claimants could not show that the trustee had suffered a loss reflective of their own loss in relation to the 2020 valuation, discrimination or fossil-fuel claims, nor could they establish a prima facie case of deliberate/dishonest breach or that directors had improperly benefitted themselves. The court therefore refused permission and denied the prospective costs indemnity.