The Court of Appeal (CA) has ruled on whether a large pension scheme's investments in fossil fuels breached the trustee directors' fiduciary duties and duties towards contributors of the pension fund.
In McGaughey v Universities Superannuation Scheme Ltd, the CA dismissed an appeal brought by two members of the Scheme to continue several multiple derivative claims (MDCs) on behalf of the pension trustee company against certain of its directors and former directors. An MDC is a procedure under which, if certain conditions are satisfied, a Court may allow individuals to pursue a claim on behalf of a company.
The claimants alleged that the trustee directors had breached their general duties by failing to plan adequately for divesting from fossil fuels.
Dismissing the appeal, the CA upheld the earlier High Court decision that:
- The claimants had failed to justify their allegations that the Scheme's trustee directors had breached their duties under the Investment Regulations in relation to their power of investment. The CA held that the trustee directors had ensured a proper diversification of assets and had exercised their investment discretion following receipt of appropriate professional advice.
- The claimants were unable to show they had suffered loss due to the alleged breaches by the directors of their duties.
- There was no evidence that the directors had "furthered their own interests" or that they had "put their own beliefs with regards to fossil fuels" above the interests of the scheme members. In order to bring an MDC, the company in question must have suffered a loss or harm which the claim seeks to remedy, and the would-be claimant must have suffered harm or loss which is reflective of it.
The CA stressed that the derivative claim procedure is available only in exceptional circumstances. Its purpose is not to allow members to monitor every step taken by directors nor is it to enable would-be claimants to avoid other procedural hurdles.
Comment
This judgment follows litigation brought earlier in 2023 by ClientEarth against Shell plc, in which the claimant alleged that Shell had mismanaged climate risk by failing to prepare properly for transition to its net-zero target. That claim was also dismissed, with the High Court ruling that it was for the Shell directors to decide how best to promote the success of the company in accordance with their duties, and an MDC was an unsuitable process for such a climate risk claim.
Company law affords directors significant freedom in how they discharge their statutory duties. However, directors of corporate pension scheme trustees should consider carefully the ESG requirements and the climate risk issues when making their investment decisions in order to avoid potential action from members.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.