Thread by @ewanmcg

Our case to sue #USS directors and protect pensions has a judgment.

It’s pathbreaking: we won the right to sue *at all*.

But it’s defective: permission refused based on the 1843 case, Foss v Harbottle. We’ll look to appeal.

What did it say? /1 🧵
bailii.org/ew/cases/EWHC/…

First, our claims were the directors breached duties in the Companies Act 2006:

- a nonsense valuation, showing a £17.9 deficit, cutting benefits – by assuming assets grow 0.0% above CPI for 30 years. They grew 30% in 2 years. Directors cut anyway. /2
staff.admin.cam.ac.uk/new-uss-resear…

- the cuts cause a particular disadvantage to women, minorities and young people

It violates the Equality Act 2010 ss 19 and 61, exposing USS to a litany of discrimination claims /3
theguardian.com/education/2022…

- USS should cut its super-inflated costs, not the pension – they’re spending £120m extra every year in useless bureaucracy, and like the fat cat pay of failed CEO Bill Galvin.

Cutting costs, not the pension, would have a less discriminatory impact. /4

- USS directors unlawfully “risks significant financial detriment” to the company by failing to divest fossil fuels

...as members said USS should in 2020.

Fossil fuels are the worst performing asset class, and USS just lost £450m in Russia. /5
imperialcollegelondon.app.box.com/s/73em3ob3h1pu…

Second, we won the right to sue.

The directors of USS themselves are company ‘members’.

Under the USS constitution, they’re the only ones who have the right to bring statutory derivative claims: Companies Act 2006 s 260-3.

They won’t sue themselves! So, common law. /6

But, we argued that beneficiaries of a pension corporation have the economic interest in the fund.

Based on McDonald v Horn [1995] 1 All ER 961, we said we should be able to bring common law derivative claims.

The judge rightly accepted this. /7

In Re Fort Gilkicker, Briggs J (now on UKSC) said the common law deriviative claim for non-members of a survived codification in the Companies Act 2006 for members.

He also said claims could be brought for any breach of duty except ‘mere negligence’. /8
bailii.org/ew/cases/EWHC/…

But the #USS directors argued for a much more restrictive reading.

Going back to Foss v Harbottle, 1843, they said the cases established we could only sue if it was shown the directors personally benefitted from a breach of duty.

1843. 10 years before Dickens' Bleak House.
/9

The USS directors lawyers (funded with *beneficiaries’ money* to defend their wrongdoing) argued this comes from cases called Abouraya and Harris v Microfusion – they relied on para [31] of this in particular. /10

bailii.org/ew/cases/EWCA/…

We argued this interpretation is wrong: (1) it would destroy statutory directors’ duties.

Duties that did not result in personal benefits could never be enforced. Parliament’s enactment of statutory rights emptied by common law technicalities.

/11

legislation.gov.uk/ukpga/2006/46/…

… and (2) the USS lawyers’ interpretation was contradicted by at least 3 cases:

- Estmanco (where the a derivative claim is available for any ‘abuse of power’),

- McDonald (for breach of a trust’s terms) and

- Gilkicker (for anything except ‘mere negligence’). /12

Leech J completely failed to engage with our submissions here.

He ignored the point on statutory duties.

He got the section wrong - 171 also, not 172-177.

He didn’t even refer to the duties in his judgment, because he said it was already ‘lengthy’.

It was lengthy.

/13

Leech J simply said Estmanco was ‘unusual’, and failed to grapple with the purpose of a derivative claim.

He ignored the point of McDonald, and ignored Gilkicker, taking refuge in the most reductive reading from Harris... /14

We also pointed out that Harris v Microfusion says at [29] the essence of the test is if a director acts to further one’s own ends.

He refers to this but doesn’t see its significance.

Self-dealing directors may personally benefit from breach, but this isn’t a requirement. /15

Worse, Leech J invents a new hurdle of ‘reflective loss’ for bringing a derivative claim.

This came from the USS lawyers out of nowhere, into Leech J’s decision. It’s wrong.

The reflective loss rule prevents double recovery. Here’s it’s preventing single recovery. /16

Then on the merits, and with these tests in mind, the judge also said he’d refuse permission.

As above, he fails to even engage with the first breach of duty, getting the section of the Companies Act 2006 wrong – we said the directors violated section 171... /17

Directors have a duty to act for proper purposes. We submitted that the objects clause defines the purpose of the company to provide pensions for all university staff, not prefer accrued staff.

Leech J cites the wrong sections, and does not engage with the USS objects. /18

Leech J also fails to engage with the key point, that USS directors assumed 0.0% growth above inflation for 30 years, and failed to take account of the relevant consideration that this proved utterly wrong.

See Prof Rau again.
/19

So, Leech J ignored our evidence that even if we went through an era of depression and war, on the worst assumption, there'd be a £30bn surplus at USS.

Swamped by over 1000 pages of documents from USS lawyers he missed the most important evidence. /20
staff.admin.cam.ac.uk/new-uss-resear…

On discrimination, Leech J applied the test for discrimination wrong – is there a particular disadvantage that needs to be justified?

He complained we did not give statistical evidence.

We cannot because we have not yet got disclosure from USS on beneficiaries. /21

On costs, Leech J failed to engage with the point that cutting costs was a non-discriminatory way of reducing any so called deficit.

He simply accepted that it was ok for USS costs to have inflated by millions, because there was no direct personal benefit to directors. /22

On fossil fuels, perhaps the most stunning part of the judgment, Leech J ignored our evidence from Imperial College London that fossil fuels have consistently underperformed renewables.

He suggested we only submitted FT articles until corrected, but didn't correct it all. /23

Leech J also got the test wrong that we submitted – there’s a breach of duty by directors if they risk significant financial detriment.

This comes from the UKSC, which qualified or overturned Cowan v Scargill, yet Leech J cites Cowan v Scargill. /24

bailii.org/uk/cases/UKSC/…

So among the possible grounds for appeal are:

(1) the common law construction of a derivative claim cannot defeat statutory directors’ duties

(2) there’s no requirement of reflective loss

(3) there’s no requirement of personal benefit – all duties must be enforceable

/25

(4) the judge failed to engage with the objects/purposes of USS, section 171, and the evidence of a 0% growth assumption being used to breach

(5) the judge got the law on discriminatory impact wrong

/26

(6) the judge failed to see that cutting costs was a proportionate means of achieving any legitimate aim

(7) the judge got the law on ‘risk of significant financial detriment’ from fossil fuels wrong

/27

Some wrap-up thoughts.

This is, as should be clear, from the thread, not an easy case. It requires real knowledge of company law, pensions, and employment. Leech J’s job was not easy. What should not have happened was a mini-trial where USS lawyers... /28

… were able to submit tomes of documents at beneficiaries’ expense to defend their wrongdoing. The prima facie case that the claimants should have had to show was simply whether there was a potential breach of director’s duty. /29

If it’s in the interests of the company that there is a hearing, that should go ahead funded by the company against the unaccountable directors that have breached their duties to trash the pension, and caused mass university strikes. Thoughts and criticisms are very welcome.
/30