In May 2018, the Upper Tribunal ruled that the Pensions Regulator had jurisdiction to issue Financial Support Directions (FSDs) to five companies in the ITV group and that it was reasonable for it to do so. The companies (the Targets) appealed to the Court of Appeal, which has now handed down its judgment, dismissing that appeal and upholding the Upper Tribunal's ruling.
What is the Box Clever case about?
The case relates to the Box Clever Pension Scheme, which was established after Granada (now ITV) and Thorn (now Carmelite) sold their TV rental businesses to a joint venture, 'Box Clever'. Neither Granada nor Thorn were employers of the Scheme. The employers in the Box Clever group were the only ones who were directly liable for the Scheme's funding. The sale completed in 2000 and, in 2003, administrative receivers were appointed over the Box Clever group. In 2011, the Pensions Regulator decided to issue FSDs to the Targets. The Targets appealed to the Upper Tribunal and then to the Court of Appeal.
In our previous insight we discuss the facts of the case, the circumstances in which the Pensions Regulator can issue an FSD and the decision of the Upper Tribunal.
On what grounds did the Targets appeal to the Court of Appeal?
The Targets appealed to the Court of Appeal on several grounds:
The FSD legislation is not retrospective
The joint venture and the scheme were both established before the FSD legislation came into force on 6 April 2005. The Targets argued that, as a matter of law, the FSD legislation should be construed as not applying to events that occurred before 6 April 2005.
The Court of Appeal dismissed this appeal, saying that "… the obligation imposed on the Regulator … to exercise its functions so as to protect the benefits under occupational pension schemes and to reduce the risk of compensation becoming payable out of the PPF points strongly towards giving the words of s.43(7) their ordinary and natural meaning. It is unlikely that Parliament intended … to limit the scope of the power to issue an FSD to future circumstances rather than to give it a wide and immediate effect. Our view is … is reinforced by the fact that … liability can only be imposed if the Regulator [also] considers it reasonable to impose the requirements of an FSD. A target who is dissatisfied with the Regulator's decision on reasonableness also has the right to refer the matter for reconsideration by an independent tribunal…" The timing of events and the fact that it would not have been possible to make an application for clearance in 1999 – 2000 would be relevant to the decision on reasonableness.
The Targets also argued that Article 1 of the First Protocol to the European Convention on Human Rights (the right to peaceful enjoyment of possessions, in this case the amount payable under an FSD) prevented the FSD legislation from applying to events that took place before 6 April 2005. The Court of Appeal dismissed these arguments. It said that the Upper Tribunal's decision, which took the view that the legislation "struck a fair balance between the interests of the Targets; those of the members of under-funded pension schemes; and the [PPF] levy payers who would otherwise be required to fund the shortfall through the PPF", did not suggest that it had made any error of law.
The chain of control was broken
The Court of Appeal upheld the Tribunal's finding that appointment of the administrative receivers in September 2003 and other events did not break the "chain of control" and so that the Targets were still connected / associated with the Scheme employers at the relevant time.
Finally, the Targets argued that it was not reasonable for the Pensions Regulator to issue an FSD. They put forward a number of grounds, including the fact it had been accepted that that the joint venture was a "reasonable commercial decision" for them to have taken at the time, "did not involve any element of fault or misconduct including moral hazard" and was not something in relation to which they could have applied for clearance (because neither the FSD nor clearance legislation were in force or contemplation at the time).
The Court of Appeal confirmed that, whilst a decision as to whether it was reasonable for the Pensions Regulator to issue an FSD may be referred to the Upper Tribunal for consideration, the Court of Appeal's jurisdiction is limited to deciding whether the Upper Tribunal has made an error of law. It concluded that it had not and so dismissed the appeal on reasonableness: "Another way of asking whether it is reasonable for an FSD to be imposed … is to ask whether, having regard to: the relationship between the target and the employer; the target's connection with the scheme; and the value of any benefit received by the target from the employer, and giving appropriate weight to any retrospectivity and absence of moral hazard, fairness requires that an insufficiency of funding should be borne by the levy payers of the PPF and the scheme members on the one hand, or the target on the other. … Retrospectivity, even in a case where the target is not at fault, is not necessarily a trump card."
Osborne Clarke comment
The decisions of the Court of Appeal and the Upper Tribunal help to clarify the scope of the Pensions Regulator's power to issue an FSD, in particular the fact that they are not fault based and can be issued in relation to things that happened before the legislation came into force in April 2005. However, they also highlight the complexity of the FSD regime.
We have seen reports that the Court of Appeal has refused permission to appeal, but that ITV intends to apply to the Supreme Court for permission. If they decide not to apply, or are refused permission to appeal, the next step will be for them to put forward to the Pensions Regulator a proposal for financial support for the Scheme.
Employers and trustees who have any questions or concerns about how and when FSDs and contribution notices can be imposed, or about the anticipated changes in these areas, should consider taking legal advice.