LAWRENCE EWAN MCGAUGHEY & Anor v UNIVERSITIES SUPERANNUATION SCHEME LIMITED & Ors

Permission to continue a common-law multiple derivative claim requires the claimant to show standing, a prima facie case within the fraud-on-the-minority exception, a prima facie case on the merits, and that continuation is appropriate in all the circumstances.

Members of a pension scheme ordinarily need to show that the subject company has suffered loss reflective of their own loss. The fourth exception generally requires a deliberate or dishonest breach of duty, or an improper personal benefit obtained at the company’s expense. A prima facie case may be established despite disputed evidence where it would be wrong to accept the defendant’s evidence without cross-examination. The four claims failed principally because the claimants lacked standing or had not established the required prima facie case.

Two members of the Universities Superannuation Scheme applied for permission to continue four proposed claims against the corporate trustee’s current and former directors. The claims concerned the 2020 actuarial valuation, alleged indirect discrimination arising from benefit changes, investment and administration costs, and fossil-fuel investments. They also sought a prospective costs order.

The applications were made under common-law principles analogous to the statutory derivative-claim regime. The court considered whether each claim was a multiple derivative claim, the applicable common-law test, and whether that test was satisfied on the evidence.

1. Applicable framework. A common-law multiple derivative claim is a procedural device and the category is not closed. The claimant must establish sufficient interest or standing, a prima facie case within the fourth exception to the rule in Foss v Harbottle, a prima facie case on the merits, and that permission is appropriate in all the circumstances.
2. Standing. In the pension context, the claimants had to show that the subject company or scheme had suffered loss reflective of their own loss. Claims 1, 2 and 4 did not satisfy that requirement. The alleged valuation and benefit changes reduced the company’s liabilities or increased its assets; discrimination liability would be owed directly to affected members; and no immediate company loss or reflective loss was pleaded for the fossil-fuel claim.
3. Fourth exception. The applicable test was not widened merely because the company was a not-for-profit company limited by guarantee. The claimants had to show a prima facie case of a deliberate or dishonest breach of duty, or that the directors had improperly benefited themselves at the company’s expense. Estmanco was exceptional and did not extend the exception beyond that principle.
4. Merits and evidence. A prima facie case is established only where, having regard to the evidence, it would be wrong to accept the company’s evidence without cross-examination. The company’s contemporaneous records showed that it had considered deferral of the valuation, post-valuation experience, investment assumptions, regulatory views and expert advice. The claimants therefore failed to establish a prima facie breach.
5. Claim 3. A claim alleging wrongful depletion of scheme assets could in principle produce reflective loss and therefore satisfy the standing requirement. It nevertheless failed because the evidence did not show that the directors had used control of the company to confer remuneration or other benefits on themselves, and the costs evidence was adequately explained.
6. Claim 4. The investment decisions were within the trustee’s discretion. Regulation 4 required attention to security, quality, liquidity, profitability and diversification. The company’s net-zero policy, stewardship approach and engagement with investee companies were capable of satisfying those requirements.
7. Disposal. Permission to continue all four claims and the prospective costs order were refused. The judgment did not determine whether the company had committed breaches of trust or whether the benefit changes constituted indirect discrimination in direct claims by individual members.

Not an appeal. The judgment determined an application for permission to continue common-law derivative claims.