The background facts in the Box Clever case are as follows:
- In 2011, TPR issued a financial support direction (FSD) against five companies in the ITV group (the Targets), requiring them to provide financial support to address an estimated deficit of £115m in the Box Clever Group Pension Scheme.
- TPR’s case for issuing an FSD was based on the Targets’ involvement in a joint venture known as Box Clever, which existed between 1999 and 2003. The joint venture was established by Granada (now owned by ITV) and Thorn (now Carmelite). The joint venture was funded by a loan secured on Box Clever’s assets.
- The pension scheme was established in 2001. The Box Clever companies were the sponsoring employers. Neither Granada nor Thorn were sponsoring employers and they had no liability to fund the scheme.
- In 2003, administrative receivers were appointed over the main Box Clever operating companies. The Box Clever business was sold, with all the proceeds of the sale going to the secured lender.
- Carmelite applied for clearance of the joint venture transaction in 2008. TPR did not grant a clearance statement but did send a letter of comfort, confirming that it would not pursue an FSD against Carmelite. This was based on TPR’s view at the time that it could not issue an FSD to a shareholder more than two years after an administrative receiver had been appointed.
- By the time Granada requested a comfort letter, TPR had decided that its earlier view was incorrect. TPR did not pursue the Carmelite group for an FSD.
- Following TPR’s decision to issue an FSD, the targets referred the decision to the Upper Tribunal. The Upper Tribunal confirmed that TPR had power to issue the FSD in this case and that it was reasonable to impose the requirements of the FSD on the targets. The targets appealed to the Court of Appeal against that decision.
Several elements of the FSD regime will change but the Box Clever case will still be relevant authority for many key aspects of the regime.
The Court of Appeal had to consider whether:
- TPR could have regard to events which occurred before the relevant legislation came into force on 6 April 2005.
- Each of the targets was connected with or an associate of the employers at the relevant time (31 December 2009).
- It was reasonable to impose an FSD on the targets.
The Court of Appeal dismissed the appeal, deciding the following:
- Retrospectivity: there are no express time limits under the legislation in relation to the matters which TPR must take into account when deciding whether it is reasonable to issue an FSD. The Targets argued that the legislation should nevertheless be construed as having no application to events occurring before 6 April 2005, but the Court said it is “unlikely that Parliament intended in effect to limit the scope of the power to issue an FSD to future circumstances rather than to give it a wide and immediate effect”.
- Association: on the facts, the targets were associated with the employers on 31 December 2009.
- Reasonableness: the Tribunal’s decision that it was reasonable in this case to impose an FSD on the targets involved no error of law. The Court said that it was “irrelevant whether this Court or a differently constituted Tribunal might have come to a different conclusion. The Tribunal was entitled to reach the conclusion which it did”.
- The Court of Appeal decision confirms that TPR has broad scope when issuing an FSD. The gateway tests for issuing an FSD are not fault based, being either that the scheme must be â€œinsufficiently resourcedâ€ on a financial test or the employer was a service company. Once either of these gateway conditions have been satisfied, provided that the potential target of an FSD falls within the scope of the connected or associated test, the decision to issue an FSD comes down to reasonableness, which encompasses all relevant factors relating to the relationship between the target, the scheme, their histories and their respective circumstances.
- It is expected that the FSD jurisdiction will be amended following consultation by the government on strengthening TPR’s powers. Under the proposed changes, TPR will instead issue “Financial Support Notices” as part of a single-stage process and impose a particular form/amount of enforceable financial support on the target. The scope of FSN targets will be extended to include individuals who are controlling shareholders of the sponsoring employer and the scope of targets for a contribution notice issued where there is non-compliance with an FSN will be extended to include individuals who are associated with or connected to the sponsoring employer.
- Several elements of the FSD regime will change but the Box Clever case will still be relevant authority for many key aspects of the regime, such as the scope of the reasonableness test.