Granada UK Rental & Retail Ltd & Others v The Pensions Regulator [2019] EWCA Civ 1032
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Granada UK Rental & Ors v The Pensions Regulator [2019] EWCA Civ 1032 concerns an appeal by five companies within the ITV group (collectively “the Targets”) against the Upper Tribunal’s decision confirming that the Pensions Regulator (“the Regulator”) had power to issue a Financial Support Direction (“FSD”) requiring them to provide financial support for the Box Clever Group Pension Scheme, which had an estimated deficit of approximately £115 million.
In June 2000 the Targets sold their television rental businesses to a joint venture company (Box Clever) for £600 million, financed by a loan facility of £860 million from WestLB secured on the joint venture’s assets. The joint venture established a defined benefit pension scheme in October 2001 for transferring employees. Administrative Receivers were appointed over most of the Box Clever companies in September 2003 following a declared default, though the Targets remained technically associated with certain employer companies through shareholdings. All the Box Clever companies subsequently became insolvent.
The Determination Panel of the Regulator decided on 21 December 2011 to issue an FSD against the Targets under section 43 of the Pensions Act 2004, using 31 December 2009 as the relevant look-back date. The Upper Tribunal, sitting as Rose J, Judge Timothy Herrington and Ian Abrams, confirmed both that the Regulator had jurisdiction to issue the FSD and that it was reasonable to do so. The Targets appealed raising three principal grounds.
On the first issue (retrospectivity), the Targets argued that section 43 should be construed as having no application to events occurring before its commencement on 6 April 2005, or alternatively that it should be read down under sections 3 and 6 of the Human Rights Act 1998 to avoid incompatibility with Article 1 of the First Protocol to the European Convention on Human Rights. All the relevant events relied upon by the Regulator occurred between 1999 and 2003 when the Administrative Receivers were appointed. The Court of Appeal rejected this argument on construction. The Court held that the terms of section 43(7), which required the Regulator to have regard to the relationship and connection which the target “has had” with the employer and scheme, pointed clearly towards giving the provision its natural meaning to include past events. The Court emphasised the purpose of the legislation, which was to protect pension scheme members and reduce the risk of compensation becoming payable from the Pension Protection Fund. Limiting the scope of the power to post-commencement events would substantially undermine that objective. The Court noted that the requirement for the imposition of an FSD to be reasonable, subject to reconsideration by an independent tribunal, provided significant safeguards. Reading the decision as a whole, the Tribunal had properly recognised that the lack of opportunity to seek clearance before the legislation was a relevant factor to be taken into account when assessing reasonableness. On the alternative A1P1 argument, the Court held that the legislation struck a fair balance between the competing interests. While accepting there was an element of retrospectivity, the Court considered this was at the lower end of the scale compared to legislation removing accrued rights or amending existing contracts. The Court emphasised that the reasonableness requirement and the right to an independent judicial hearing were material to the proportionality exercise.
On the second issue (association), the Targets contended they were not associated with the relevant employer companies at the relevant date because the appointment of Administrative Receivers had the effect of removing control from the shareholders. The Court rejected this argument. Under clause 4.2(iii) of the debenture, voting rights could be exercised by the chargor subject to clause 10.2. Clause 10.2 provided that after a declared default the Security Agent could exercise voting rights, but included a proviso that in the absence of notice from the Security Agent the chargor “may and shall continue to exercise any and all voting rights”. The Court agreed with the Tribunal that the proviso applied to all shares, not just those registered in the chargor’s name. No notice within the meaning of the proviso had been given, so the chargor retained the right to control voting. Further, even where an Administrative Receiver had been appointed, the registered shareholder remained “entitled to exercise” voting power within section 435(10) of the Insolvency Act 1986 as between itself and the company, notwithstanding that in practice the Administrative Receiver would decide how shares should be voted. The Tribunal was therefore correct that the Targets remained associated with both the Trio companies and TUK on the relevant date.
On the third issue (reasonableness), the Targets submitted that the Tribunal’s decision that it was reasonable to issue an FSD was one which no reasonable tribunal could properly reach. They emphasised that the joint venture was a bona fide commercial transaction, that no fault or misconduct was alleged against them, that they had no opportunity to seek clearance, and that all relevant events predated the legislation. The Court held that whether it is reasonable to impose an FSD must be decided at the date of determination and is not dependent on fault. The matters specified in section 43(7) required consideration not only of the present position but also the past relationship, benefits received and connection with the scheme. The Tribunal was required to take retrospectivity into account as a factor weighing against imposition of an FSD and to give it appropriate weight. Reading the Tribunal’s decision as a whole, it was clear that the Tribunal had regarded the retrospectivity factors as weighing heavily against an FSD and had described the Targets’ points on this as “powerful”, “strong” and “significant”. However, the Tribunal found that these factors were clearly outweighed by the Targets’ high degree of responsibility for creating a structure which left the scheme with a weak employer covenant while extracting substantial cash benefits for themselves on a non-recourse basis. The Court rejected the Targets’ criticism that the Tribunal applied too broad a test of “benefit”; the benefits identified by the Tribunal (immediate cash realisation, protection from downside risk while retaining potential upside, and debt reduction) were plainly benefits in the ordinary sense. The Court also rejected the argument that absence of fault meant the balance must necessarily come down against imposing an FSD. The distinction drawn by the Tribunal between fault and responsibility was valid. Even in a case where all events occurred before the legislation came into force and there was no criticism of the target’s conduct, a balance remained to be struck. The question whether it is reasonable to impose an FSD is not generally a question of law, and the Court could only intervene if satisfied that no tribunal properly instructed as to the relevant law could have reached the Tribunal’s conclusion. The Targets had not overcome that high hurdle. The Tribunal was entitled to conclude that fairness required that the insufficiency of funding should be borne by the Targets rather than by levy payers and scheme members.
In short, the Court of Appeal dismissed the appeals on all three grounds, upholding the Tribunal’s decision that the Regulator had power to issue the FSD and that it was reasonable to do so in the circumstances of this case.
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