June 7th, 2018 by James Goudie KC

In R (Palestine Solidarity Campaign Ltd) v SoS for CLG (2018) EWCA Civ 1284 the Court of Appeal allowed the SoS’s appeal against a declaration at (2017) EWHC 1502 (Admin) that part of his statutory Guidance relating to the Investment Strategy of local authorities administering local government pension schemes was unlawful.  The Court of Appeal ruled that the SoS was within the broad discretion afforded to him by the Public Service Pensions Act 2013 in issuing Guidance on non-financial considerations, including those of wider public interest, such as foreign and defence policy.  Nor was the relevant passage in the Guidance contrary to Article 18 of Directive 2003/41/EC on the activities and supervision of institutions for occupational retirement provision (“the IORP Directive”), which it was common ground applies in relation to the LGPS.  The Guidance included a summary requirement that administering authorities “should not pursue policies that are contrary to UK foreign policy or UK defence policy”, with a fuller statement in the accompanying text that “using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are [sic] inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government”.As regards the broad discretion/authorised purpose point, Sir Stephen Richards, with whom Davis and Hickinbottom LJJ agreed, said:-

“19.    In considering this issue there is, in my judgment, a risk of over-elaborating what is in truth a simple point. The 2013 Act confers a broad discretion upon the responsible authority, in this case the Secretary of State. It provides a framework for the establishment of public service pension schemes by means of regulations which, subject to the Act, may make such provision in relation to a scheme as the responsible authority considers appropriate. That may include provision as to the administration and management of the scheme, including in turn the giving of guidance to the scheme manager. The power to make regulations and to give guidance must of course be exercised so as to promote the policy and objects of the legislation but the discretion conferred is nonetheless a wide one, and the range of considerations that may in principle be taken into account in its exercise is likewise wide.

  1. It is plainly within the scope of the legislation for an authority’s investment strategy to make provision for non-financial considerations to be taken into account in making investment decisions. Thus, nobody suggests that regulation 7(2)(e) falls outside the powers of the statute in requiring that an authority’s investment strategy must include the authority’s policy on how social, environmental and corporate government considerations are taken into account in the selection, non-selection, retention and realisation of investments. Since the Secretary of State is empowered to give guidance as to an authority’s investment strategy, it seems to me to be equally plainly within the scope of the legislation for the guidance to cover the extent to which such non-financial considerations may be taken into account by an authority. The detailed content of that guidance is a matter for the Secretary of State, subject to Wednesbury reasonableness. In particular, I can see nothing objectionable in his having regard to considerations of wider public interest, including foreign policy and defence policy, in formulating such guidance. In no way does that run counter to the policy and objects of the legislation. The public service pension schemes to be established under the 2013 Act include central as well as local government schemes. It must be possible to have regard to the wider public interest when formulating the investment strategy for central government schemes; and it would be very surprising if it could not also be taken into account in the giving of guidance to local government authorities, themselves part of the machinery of the state, in relation to the formulation of the investment strategy for schemes administered by them.”

“22.    … I do not accept that the relevant part of the Guidance was issued for an unauthorised purpose, and I am satisfied that it fell within the powers conferred by the legislation.”

As regards the IORP Directive, Sir Stephen said:-

“35.    I do not accept that a prohibition on interference by Member States with the freedom of institutions to take into account non-financial considerations can be spelled out of any part of Article 18. First, the article places obligations on Member States to require institutions to invest in accordance with the prudent person rule as more particularly set out in Article 18(1), and to prohibit institutions from borrowing or acting as a guarantor for third parties (Article 18(2)). It then prohibits Member States from requiring institutions to invest in particular categories of assets (Article 18(3)). None of those matters carries with it an implication that Member States are prohibited from limiting the non-financial considerations that may be taken into account. … The discretion granted to Member States in relation to prudential rules does not warrant the inference that they are prohibited from limiting the non-financial considerations that may be taken into account.”

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