The Court of Appeal has handed down a judgment that could result in more companies being issued with a Financial Support Direction (FSD) in the future as it confirms the right of pension scheme trustees to appeal a determination by the Determinations Panel (DP) of TPR not to issue a FSD.

Background

Many LBG companies went into administration in September 2008. Most UK employees of LBG were members of the Scheme which was sponsored by a service company in LBG. In May 2010 TPR issued a warning notice against 74 LBG companies (Targets) seeking an FSD for the Scheme deficit. An oral hearing took place before the DP in early September 2010 at which time the number of Targets had been reduced to 44. Under a week later on 13 September 2010, TPR issued a determination notice that a FSD should be imposed on six Targets but that no FSD should be issued against 38 Targets. Under s43(9) PA 2004 TPR had to issue a FSD within a period of two years after a past date, when various conditions were fulfilled, as selected by TPR. The DP issued its determination one day before the expiry of the two-year period.

The Trustees issued a reference to the Upper Tribunal (UT) appealing against the DP's decision not to issue a FSD against 38 Targets. The Targets sought to strike out that reference as a means of bringing the case against them to an end.

The Strike Out Application

The Targets put forward two grounds for striking out the Trustees' reference:

  • The Trustees had no right to refer the matter to the UT as only a "directly affected" person could do so under s96 PA 2004 and they were not "directly affected".
  • The two-year time limit in s43(9) PA 2004 for the DP to issue a determination had expired on 14 September 2010 and the UT could not direct the DP to impose an FSD outside of this period.

The UT determined that the Trustees were "directly affected" and that the two-year time limit applied to TPR's administrative processes and ceased to run when a determination was issued. The Targets appealed this decision to the Court of Appeal.

Court of Appeal Decision

The Court of Appeal dismissed the Targets' appeal.

Directly Affected Person Issue

The Court of Appeal held that the Trustees were "directly affected". It noted that the UT has power to determine whether a person has standing. The mere existence of this power means the determination of whether a person is "directly affected" depends upon the facts of the case.

The Targets relied on the House of Lords decision in R (o/a Muldoon) v. Liverpool CC [1996] 1 WLR 1103 as a basis that the Trustees were not "directly affected" but only indirectly affected. Muldoon held that a person is "directly affected" if he is affected without the intervention of any intermediate agency. The Targets argued that the Trustees are not "directly affected" as, once an FSD is issued, at least two or three steps are required before their rights change so it is not possible to say that the Trustees are affected without the intervention of an intermediate agency. This was not accepted for two reasons:

  • The determination and the scheme for financial support are connected steps for the enhancement of the scheme's assets. There can be no scheme unless there is a FSD.
  • "Directly affected" must be given a "contextual and purposive meaning". Parliament would not have intended that "directly affected" would include the "mere busybody".

The Court of Appeal did not accept the argument that allowing the Trustees to make a reference gave TPR a "second bite of the cherry" (as TPR cannot itself make a reference) as the Trustees made the same arguments as TPR had previously made to the DP. It held that the question of whether a Trustee can refer a determination to the Tribunal cannot depend on the nature of the arguments which the Trustees propose.

Time Limit Issue

The Court of Appeal acknowledged that ss43 and 103 PA 2004 could be interpreted in several ways on the time limit issue. It noted that s43(9) had been amended to ensure that Targets were not rushed in the process leading up to the determination.

The two-year limit was unlike a usual limitation period where the running of time stops when a claim is issued. Viewing s43(9) as a limitation period would render the rights of reference and appeal wholly illusory and a conclusion that avoids this undesirable consequence would be the appropriate interpretation.

The Court also noted that s103(6) PA 2004 gives the UT a broad non-exhaustive range of potentially suitable directions. S103(7) requires the DP to act in accordance with the Tribunal's determination and the Court held that when the DP acts in accordance with the Tribunal's determination it is acting "purely mechanically". It is incorrect to say that the DP has to go through the whole process again to add parties to an already issued FSD. The power of the UT to determine that a FSD should be issued to further Targets derives from s103(7) and not s43. Nonetheless, s43 PA 2004 will be a central aspect of the Tribunal's considerations.

The Court distinguished this case from Bonas, stating that the language used in s38(5) PA 2004 is more like a traditional limitation period than the look back period in s43(9) PA 2004.

Comment

This is a disappointing decision for the 38 Targets as it means they must now face a full hearing before the UT on whether it is reasonable that a FSD should be imposed on all or any of them unless they decide to appeal the matter to the Supreme Court. The UT hearing may not take place until 2014 as the references to the UT have been stayed until the outcome of the Supreme Court case on where a FSD sits in the order of priority on insolvency. Judgment in that case is awaited.