The University Superannuation Scheme (“the Scheme”) is one of the largest private occupational pension schemes in the UK. It provides superannuation benefits for academic and comparable staff in universities and other higher education institutions. The Scheme is administered by its corporate trustee, Universities Superannuation Scheme Limited ("the Company"), a company limited by guarantee with no shareholders.

The claimant academics are members of the Scheme. Through this common law derivative claim they sought permission to continue proceedings on behalf of the Company against its directors for breach of their directors' duties, alleging the following:

- The Scheme continues to invest in fossil fuels and, despite the Company’s stated ambition to be carbon neutral by 2050, its directors had no divestment plan, in breach of the directors’ duties in sections 171 and 172 of the Companies Act 2006.
- Further, or in the alternative, in failing to have a plan, the directors failed to take into account a number of relevant considerations, including the results of a members' ethical survey. The long-term interests of the Company and the Scheme could only be met by "an immediate plan for disinvestment" and that the only "rational action" that the directors could take pursuant to sections 171 and 172 was "devise and implement such a plan as soon as possible."
- The failure to take such steps had prejudiced the success of the Company which had suffered loss in consequence. The directors' breaches "furthered their own interests" and the directors "put their own beliefs with regard to fossil fuels above the interests of the beneficiaries and the Company."

The claimants sought declarations that the absence of a divestment plan constituted a breach of statutory and fiduciary duties, and that such breaches caused loss to the Company.

In August 2022, the High Court refused the claimants permission to proceed. The Court of Appeal, upholding that decision in July 2023, held:
- This cannot be characterized as a derivative action. There was no prima facie case of loss to the Company as a result of the alleged breaches of directors’ duties, meaning the claim fell at the first
hurdle.
- Also, it was not alleged the claimants suffered any loss as a result of the alleged breaches. Nor was it suggested the directors were acting in bad faith, or had done other than acted in what they considered to
be the best interests of the Company and the Scheme, having taken proper advice.
- There was no evidence the alleged directors’ breaches furthered their own interests or that the directors' actions put their own beliefs with regards to fossil fuels above the interests of the beneficiaries and the Company. It was doubtful there was a prima facie case in this regard.
- In effect, this was an attempt to challenge the Company’s management and investment decisions as trustee without any ground upon which to do so. There was nothing to suggest the Company has exercised its powers in an improper fashion.
- The claim was well suited to be brought as a direct claim in breach of trust and there was no reason, save perhaps a desire to avoid certain procedural burdens, to seek to bring it in as a derivative action. The derivative procedural mechanism is not intended to enable would be claimants to avoid other procedural hurdles. It is an exceptional remedy when a wrong would otherwise go unremedied. In effect, the claim was a challenge to the Company’s investment policy and should have been brought against it as just that.

McGaughey & Davies v. Universities Superannuation Scheme Limited

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McGaughey & Davies v. Universities Superannuation Scheme Limited - judgment

Filed

United Kingdom

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Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

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McGaughey & Davies v. Universities Superannuation Scheme Limited - judgment

Target

Impacted group

Just transition

Fossil fuel

Economic sector

Finance