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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Palestine Solidarity & Anor, R (on the application of) v Secretary of State for Housing, Communities and Local Government [2020] UKSC 16 (29 April 2020) URL: http://www.bailii.org/uk/cases/UKSC/2020/16.html Cite as: [2020] HRLR 15, [2020] 4 All ER 347, [2020] UKSC 16, [2020] 1 WLR 1774, [2020] Pens LR 20, [2020] ICR 1013 |
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[2020] UKSC 16
On appeal from: [2018] EWCA Civ 1284
JUDGMENT
R (on the application of Palestine Solidarity Campaign Ltd and another) (Appellants) v Secretary of State for Housing, Communities and Local Government (Respondent)
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before
Lady Hale Lord Wilson Lord Carnwath Lady Arden Lord Sales
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JUDGMENT GIVEN ON |
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29 April 2020 |
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Heard on 20 November 2019 |
Appellants |
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Respondent |
Nigel Giffin QC |
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Julian Milford |
Zac Sammour |
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(Instructed by Bindmans LLP (London)) |
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(Instructed by The Government Legal Department) |
LORD WILSON: (with whom Lady Hale agrees)
The Issue
1. This appeal concerns the type of investments which those who administer the local government pension scheme are permitted to make or to continue to hold. More particularly, it concerns the breadth of the ethical investments which they are permitted to make or to continue to hold. By an ethical investment, I mean an investment made not, or not entirely, for commercial reasons but in the belief that social, environmental, political or moral considerations make it, or also make it, appropriate. Parliament has conferred on the respondent, the Secretary of State for Housing, Communities and Local Government (“the Secretary of State”), the power to issue guidance in relation to some of the functions of the administrators of the scheme, in accordance with which they are required to act. The issue arises out of two passages in the guidance which he has issued to them in relation to their making or continuing to hold ethical investments. By the second passage, which, as I will show, covers the ground covered by the first and indeed goes further, the Secretary of State provides that they “[s]hould not pursue policies that are contrary to UK foreign policy or UK defence policy”. The claim is that the issue of that guidance was unlawful. It was lawful only if it fell within the power conferred by Parliament on the Secretary of State. The issue therefore requires the court to analyse the scope of the power. Pursuant to the decision of the House of Lords in Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997, the court must analyse the power by construing the words by which it was conferred on him in their context. From the words in their context Parliament’s purpose in conferring the power can be identified; and the purpose will illumine its scope.
The Proceedings
2. The claim for judicial review of the two passages in the guidance was launched by, and in this appeal continues to be pursued by, two claimants. The first is Palestine Solidarity Campaign Ltd. This company is dedicated to campaigning both in support of the rights of the Palestinian people, in particular by challenging Israel’s occupation of the disputed territories, and in opposition to racism in all its forms, including antisemitism as well as islamophobia. The second is Ms Jacqueline Lewis, who is not only a member of the company’s executive committee but also an employee of a local authority and a member of its pension scheme.
3. The claim raised issues in relation to the guidance other than the issue identified above; they were determined, adversely to the claimants, in the lower courts and can now be ignored. On 22 June 2017 Sir Ross Cranston, sitting as a judge of the Administrative Court of the High Court of England and Wales, upheld the claim by reference to the issue identified above and declared the two passages in the guidance under challenge to be unlawful: [2017] EWHC 1502 (Admin), [2017] 1 WLR 4611. But on 6 June 2018 the Court of Appeal, by a judgment delivered by Sir Stephen Richards with which Davis and Hickinbottom LJJ agreed, upheld the Secretary of State’s appeal; set aside the declaration made by Sir Ross; and dismissed the claim: [2018] EWCA Civ 1284, [2019] 1 WLR 376. It is worthwhile to record that, in support of the application of the claimants for permission to appeal to our court, submissions were filed by the Religious Society of Friends in Britain, known as the Quakers, and by the organisation known as Campaign Against Arms Trade.
The Local Government Pension Scheme
7. Section 3 of the 2013 Act provides as follows:
“(1) Scheme regulations may, subject to this Act, make such provision in relation to a scheme under section 1 as the responsible authority considers appropriate.
(2) That includes in particular -
(a) provision as to any of the matters specified in Schedule 3;
(b) consequential, supplementary, incidental or transitional provision in relation to the scheme …”
Section 3(2)(a) therefore sends us to the matters specified in Schedule 3, in which there is reference in paragraph 1 to eligibility and admission to membership; in paragraph 2 to the benefits which must or may be paid under the scheme; in paragraph 3 to the persons to whom benefits under the scheme are payable; in paragraph 9 to contributions; in paragraph 11 to funds; and in paragraph 12 to the following:
“The administration and management of the scheme, including -
(a) the giving of guidance or directions by the responsible authority to the scheme manager …”
“One of the main aims of the [2016] regulations is to transfer investment decisions and their consideration more fully to administering authorities within a new prudential framework. Administering authorities will therefore be responsible for setting their policy on asset allocation, risk and diversity, amongst other things. In relaxing the regulatory framework for scheme investments, administering authorities will be expected to make their investment decisions within a prudential framework with less central prescription.”
9. Regulation 7 of the 2016 Regulations, entitled “Investment strategy statement”, provides:
“(1) An authority must, after taking proper advice, formulate an investment strategy which must be in accordance with guidance issued from time to time by the Secretary of State.
(2) The authority’s investment strategy must include -
(a) a requirement to invest fund money in a wide variety of investments;
(b) the authority’s assessment of the suitability of particular investments and types of investments;
(c) the authority’s approach to risk, including the ways in which risks are to be assessed and managed;
(d) the authority’s approach to pooling investments, including the use of collective investment vehicles and shared services;
(e) the authority’s policy on how social, environmental and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments; and
(f) the authority’s policy on the exercise of the rights (including voting rights) attaching to investments.”
The guidance
(a) at para 4.3(3), that the local government scheme was not technically a trust but that at a practical level the duties of those managing its assets were similar to those of trustees;
(b) at para 4.79, that in practice administering authorities under the scheme considered themselves to be quasi-trustees, acting in the best interests of their members, and that, insofar as they might consider whether to take account of wider or non-financial factors in relation to investment, the rules applicable to pension fund trustees should also apply to them; and
(c) at para 6.34, in relation to investment decisions by trustees, that
“In general, non-financial factors may only be taken into account if two tests are met:
(1) trustees should have good reason to think that scheme members would share the concern; and
(2) the decision should not involve a risk of significant financial detriment to the fund.”
“the authority’s policy on how social, environmental and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments;”
The reference to corporate governance considerations appears to relate to assessing investment in a company by reference to the quality or otherwise of the manner in which it is governed and operated, including no doubt its treatment of its workforce.
15. This is the first section of the relevant part of the text:
“Although administering authorities are not subject to trust law, those responsible for making investment decisions must comply with general legal principles governing the administration of scheme investments … [S]chemes should consider any factors that are financially material to the performance of their investments, including social, environmental and corporate governance factors, and over the long term, dependent on the time horizon over which their liabilities arise.”
16. This is the second section of the relevant part of the text:
“However, the Government has made clear that using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.”
This part of the guidance, which I present in bold, is the first of the two passages in it under challenge. It begins by stating that “the Government has made clear that …”. At the hearing of the appeal we asked where and in what circumstances the government had “made [it] clear”. In answer we were referred to a Procurement Policy Note, Information Note 01/16, issued by the Crown Commercial Service on 17 February 2016. It is entitled “Ensuring compliance with wider international obligations when letting public contracts”. It suffices to set out para 1:
“This [Note] sets out contracting authorities’ international obligations when letting public contracts. It makes clear that boycotts in public procurement are inappropriate, outside where formal legal sanctions, embargoes and restrictions have been put in place by the UK Government.”
The subject-matter of the note is therefore the entry by public authorities into contracts and, as its title indicates and its text proceeds to explain, the policy there identified has been substantially informed by international obligations. It has no relevance to investment decisions made by trustees or by those in an analogous position.
17. This is the third section of the relevant part of the text:
“Although schemes should make the pursuit of a financial return their predominant concern, they may also take purely non-financial considerations into account provided that doing so would not involve significant risk of financial detriment to the scheme and where they have good reason to think that scheme members would support their decision.”
It will be seen that this part of the guidance is an adoption, almost word for word, of the two tests identified by the Law Commission for investment by reference to non-financial considerations in para 6.34 of its report.
18. This is the “Summary of requirements”:
“In formulating and maintaining their policy on social, environmental and corporate governance factors, an administering authority:-
· Must take proper advice
· Should explain the extent to which the views of … interested parties … will be taken into account when making an investment decision based on non-financial factors
· Must explain the extent to which non-financial factors will be taken into account in the selection, retention and realisation of investments
· Should not pursue policies that are contrary to UK foreign policy or UK defence policy
· Should explain their approach to social investments.”
As indicated in para 1 above, the fourth bullet point, which I present in bold, is the second of the two passages in the guidance under challenge.
“The majority of respondents also expressed concern about the way in which the policy on compliance with UK foreign policy is to be taken forward in the guidance to be published under draft regulation 7(1). However, the Government remains committed to the policy set out in November’s consultation paper that administering authorities should not pursue investment policies against foreign nations and UK defence industries, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.”
The Legal Principles
“Parliament must have conferred the discretion with the intention that it should be used to promote the policy and objects of the Act [which] must be determined by construing the Act as a whole … [I]f the Minister … so uses his discretion as to thwart or run counter to the policy and objects of the Act, then our law would be very defective if persons aggrieved were not entitled to the protection of the court.”
21. In R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] 2 AC 349 the House of Lords applied the principle identified in the Padfield case, albeit in reaching a conclusion that the Secretary of State’s order was not unlawful. His order, under challenge by a landlord, capped otherwise justifiable increases in the rent which had been registered as payable under regulated tenancies. The order was made pursuant to a power conferred in wide terms by section 31 of the Landlord and Tenant Act 1985. The landlord argued that Parliament’s object in granting the power was that it should be used only in order to counter inflation but the appellate committee held that it had wider objects which extended to the purpose behind the capping order. Lord Bingham of Cornhill said at p 381:
“… no statute confers an unfettered discretion on any minister. Such a discretion must be exercised so as to promote and not to defeat or frustrate the object of the legislation in question … The object is to ascertain the statutory purpose or object which the draftsman had in mind when conferring on ministers the powers set out in section 31.”
Lord Nicholls of Birkenhead said at p 396:
“The present appeal raises a point of statutory interpretation: what is the ambit of the power conferred on the minister by section 31(1) …? No statutory power is of unlimited scope … Powers are conferred by Parliament for a purpose, and they may be lawfully exercised only in furtherance of that purpose … The purpose for which a power is conferred, and hence its ambit, may be stated expressly in the statute. Or it may be implicit. Then the purpose has to be inferred from the language used, read in its statutory context and having regard to any aid to interpretation which assists in the particular case. In either event … the exercise is one of statutory interpretation.”
22. In R (Ben Hoare Bell Solicitors) v Lord Chancellor [2015] EWHC 523 (Admin), [2015] 1 WLR 4175, the Divisional Court of the Queen’s Bench Division upheld a challenge by solicitors to the lawfulness of a regulation which withheld remuneration under the Civil Legal Aid scheme for work done on behalf of applicants for judicial review unless their applications eventually met with a specified result. The court chose to divide the challenge into two sections. It rejected the first, which it entitled “‘Strict’ ultra vires”, and upheld the second, which it entitled “The Padfield / statutory purpose ground”. With respect, it is not obvious that such was a helpful division of an inquiry into whether the impugned provision exceeded the scope of the statutory power under which it was claimed to have been made. For those who continue to insist on Latin, an inquiry by reference to the principle in the Padfield case is an inquiry into whether the provision is ultra vires: De Smith’s Judicial Review, 8th ed (2018), para 5-018.
The Application of the Principles
26. From these three instruments we therefore collect the following words:
(a) “administration”;
(b) “management”;
(c) “policy”;
(d) “how” considerations are taken into account;
(e) “preparing”;
(f) “maintaining”; and
(g) “strategy”.
Yes, all these words must be considered in their context. But in my view, when so considered, they all point in the same direction: that the policy of the Act, recognised in the case of the scheme by the regulations and indeed by most of the guidance, is to identify procedures - and indeed the strategy - which administrators of schemes should adopt in the discharge of their functions.
28. How does the Secretary of State seek to justify the prohibition?
29. In a witness statement one of his senior officers states as follows:
“UK foreign and defence policy are matters which are properly reserved for the UK government and do not fall within the competence of local government. It was therefore right to put safeguards in place to ensure that decisions made by the UK government on foreign and defence policy in the interests of the UK as a whole would not be undermined by local boycotts on purely non-pension grounds.”
The implied suggestion that the investment decisions in issue were a function of “local government” was adopted and developed by Sir Stephen Richards in para 20 of his judgment in the Court of Appeal, as follows:
“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.”
As it happens, central government pension schemes are unfunded so the concept of an investment strategy does not apply to them. But of greater significance is Sir Stephen’s description of scheme administrators as “part of the machinery of the state”. It is a description which Mr Milford, on behalf of the Secretary of State, commends to us as apt to the present context. Indeed he goes further. “Pension contributions to the [scheme]”, he writes, “are ultimately funded by the taxpayer”. “It’s public money”, so he said to us at the hearing.
“Pension benefits are part of the consideration which an employee receives in return for the rendering of his services. In many cases … membership of the pension scheme is a requirement of employment. In contributory schemes … the employee is himself bound to pay his or her contributions. Beneficiaries of the scheme, the members, far from being volunteers have given valuable consideration. The company employer is not conferring a bounty.”
The contributions of the employees into the scheme are deducted from their income. The contributions of the employers are made in consideration of the work done by their employees and so represent another element of their overall remuneration. The fund represents their money. With respect to Mr Milford, it is not public money.
The Result
32. I would allow the appeal and restore the order made by Sir Ross.
LORD CARNWATH:
34. The issue is as to the legality of two parts of the guidance:
“… the Government has made clear that using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government …
In formulating and maintaining their policy on social, environmental and corporate governance factors, an administering authority:- …
• Should not pursue policies that are contrary to UK foreign policy or UK defence policy …”
“52. Lord Wilson considers that the statement in the summary of requirements goes further than the statement in the body of the guidance that they should not pursue policies that are contrary to UK foreign policy or UK defence policy. However, the Secretary of State considers that the summary went no further than the body of the guidance. The appellants have not challenged that, and we proceed on that basis. The critical passage is therefore the statement in the body of the document.”
37. Even if one directs attention only to the first paragraph, it is far from evident what exactly is its scope. It begins by referring to an earlier, unidentified policy statement (“the Government has made clear …”). As Lord Wilson explains (para 16), this appears from the evidence to be a reference to a Procurement Policy Note issued in 2016, relating to boycotts in international trade. Like Lord Wilson I find it difficult to see the relevance of this to public sector pensions, which are governed by an entirely different statutory scheme. In what follows the objection in terms is limited to “boycotts, divestment and sanctions” against foreign nations and UK defence industries. Lady Arden and Lord Sales say there is “no issue” about the meaning of these concepts. That may be true as between the present parties, but again the meaning should be clear from the document itself.
38. From the government’s evidence (in the statement of Mr Megainey, quoted at length by Lady Arden and Lord Sales paras 53ff) it appears that the words were not intended to be read in the abstract, but reflected “concerns about the possible impact of the Boycott, Divestment and Sanctions movement”. Those terms are in turn explained by Mr Lanning, in a passage again quoted by Lady Arden and Lord Sales (para 51), as describing particular types of campaign conducted by his organisation and others, directed principally against the State of Israel and Israeli companies and their investors. If the reference to these specific concepts is intended to mean no more than that administering authorities should not actively participate in political campaigns of that kind, the advice is unremarkable and clearly right. What however is not clear, even from that paragraph, is whether it would also to apply, for example, to an independent decision by an authority on ethical grounds, supported by its members but not directly linked to any campaign, not to invest in defence companies. I doubt if that would be naturally described as “boycott”, “disinvestment” or “sanction”. But it might more readily be said to involve the pursuit of “policies … contrary to … UK defence policy”, contrary to the second paragraph.
“But the flaw in the Secretary of State’s approach is that the guidance has singled out certain types of non-financial factors, concerned with foreign/defence and the other matters to which reference has been made, and stated that administering authorities cannot base investment decisions upon them. In doing this I cannot see how the Secretary of State has acted for a pensions’ purpose. Under the guidance, these factors cannot be taken into account even if there is no significant risk of causing financial detriment to the scheme and there is no good reason to think that scheme members would object. Yet the same decision would be permissible if the non-financial factors taken into account concerned other matters, for example, public health, the environment, or treatment of the workforce. In my judgment the Secretary of State has not justified the distinction drawn between these and other non-financial cases by reference to a pensions’ purpose …” (para 32)
Although I am doubtful of the value of his reference to “pensions purposes” (a term of somewhat uncertain scope), I agree with his identification of the logical flaw in the guidance.
“One of the main aims of the new investment regulations is to transfer investment decisions and their consideration more fully to administering authorities within new prudential framework … The Secretary of State’s power of intervention does not interfere with the duty of elected members under general public law principles to make investment decisions in the best long-term interest of scheme beneficiaries and taxpayers.”
Responsibility for investment decisions thus rests with the administering authorities.
“… provided that doing so would not involve significant risk of financial detriment to the scheme and where they have good reason to think that scheme members would support their decision.”
These are judgements to be made by the administering authority, not the Secretary of State. The attempt of the Secretary of State to impose policy choices was objectionable, not so much because they were not “pensions purposes” (in the judge’s words - see above), but because they were choices to be made by the authorities, not by central government.
44. In this respect I agree with the submissions of Mr Giffin QC for the appellants:
“What the Secretary of State sought to do in the guidance was to promote the government’s own wider political approach, by insisting that, in two particular contexts related to foreign affairs and to defence, administering authorities could not refrain from making particular investments on non-financial grounds, regardless of the views held by the scheme members.
The analogy drawn by the Court of Appeal between the basis upon which the administering authority may properly act, and the purpose for which the Secretary of State may properly issue guidance, was therefore founded upon a misconception of the administering authority’s position in law. Whilst the Secretary of State was entitled to give guidance to authorities about how to formulate investment policies consistently with their wider fiduciary duties, he was not entitled to use the guidance-giving power, conferred by the Investment Regulations, to make authorities give effect to the Secretary of State’s own policies in preference to those which they themselves thought it right to adopt in fulfilment of their fiduciary duties.”
45. For these reasons I also would allow the appeal and restore the order of the judge.
LADY ARDEN AND LORD SALES: (dissenting)
46. Padfield v Minister for Agriculture, Fisheries and Food [1968] AC 997 (“Padfield”) was a ground-breaking decision of the House of Lords in which the exercise of a power by a minister for improper purposes was set aside. The House held that an unfettered statutory power could only be exercised to “promote the policy and objects of the Act.” We will call that holding “the Padfield principle”. The only issue on this appeal is whether it is outside the broad discretion given to the Secretary of State under the Public Service Pensions Act 2013 (“the 2013 Act”) to give guidance which prohibits the use of pension policies to pursue boycotts and similar activities against foreign nations against whom the UK has not imposed sanctions or taken similar steps. It is said that this exercise of the power contravenes the Padfield principle, in effect that this too was the exercise of a power for improper purposes rather than for the purposes of promoting “the policy and objects of the Act”.
The wide discretion
The guidance in issue
“The law is generally clear that schemes should consider any factors that are financially material to the performance of their investments, including social, environmental and corporate governance factors, and over the long term, dependent on the time horizon over which their liabilities arise.
However, the Government has made clear that using pension policies to pursue boycotts, divestment and sanctions against foreign nations and UK defence industries are inappropriate, other than where formal legal sanctions, embargoes and restrictions have been put in place by the Government.
Although schemes should make the pursuit of a financial return their predominant concern, they may also take purely non-financial considerations into account provided that doing so would not involve significant risk of financial detriment to the scheme and where they have good reason to think that scheme members would support their decision.
[…]
Summary of requirements
In formulating and maintaining their policy on social, environmental and corporate governance factors, an administering authority:-
…
· Must explain the extent to which non-financial factors will be taken into account in the selection, retention and realisation of investments
· Should not pursue policies that are contrary to UK foreign policy or UK defence policy …”
“By way of brief explanation, ‘boycotts’ involve withdrawing support for Israel, and Israeli and international companies, that are involved in the violation of Palestinian human rights. ‘Divestment’ campaigns urge banks, local councils, churches, pension funds and universities to withdraw investments from all Israeli companies and from international companies complicit in violations of Palestinian rights - actions by organisations that have funds under their control, by which they dispose of or do not acquire holdings in certain types of investment. ‘Sanctions’ campaigns pressure governments to fulfil their legal obligation to hold Israel to account, including by ending military trade and through free-trade agreements.” (First witness statement of Hugh Lanning, para 30)
“12. … It was clear to us that the new guidance on the new Investment Strategy Statement which replaced the [Statement of Investment Principles] under the 2016 Regulations would also need to cover what would be appropriate non-financial factors to take into account and the extent to which non-financial factors should or should not be taken into account. It was also clear that the power to give such guidance was provided by the 2013 Pensions Act (Schedule 3, paragraph 12) and that such guidance was consistent with the overall purpose of the Pensions Act.
13. However, there were factors which led us to consider whether the content and the status of the guidance on the 2016 Regulations should be strengthened in relation to local boycotts.
Firstly, there were concerns about the possible impact of the Boycott, Divestment and Sanctions movement which sought to give practical force to criticism of the policies of certain foreign nations and exports of certain types of arms to certain countries. The Government’s fear was that this might undermine UK foreign policy and legitimate UK trade which was in accordance with international law, if adopted by a part of the UK state, in the form of administering authorities. There were also concerns about whether such campaigns might be perceived as legitimising anti-Semitic or racist attitudes and attacks. I am aware from subsequent discussions with colleagues that although anti-Israel and pro-Palestinian campaigning in itself is not anti-Semitic, there is a pattern of anti-Semitic behaviour in connection with campaigns promoting a boycott of Israel. For example, protests outside an Israeli-owned shop in central Manchester in summer 2014 led to some Jewish people using the shop being racially abused by protestors, including shoppers being called ‘Child killer’, comments such as ‘You Jews are scum and the whole world hates you’, and Nazi salutes being made at Jewish shoppers using the Israeli-owned store. On social media, hashtags such as #BDS, #BoycottIsrael and #FreePalestine are regularly used by people posting anti-Semitic tweets and comments.
Secondly, a Procurement Policy Note had been issued by the Cabinet Office in February 2016 restating the existing policy on procurement, that authorities should comply with international law and that boycotts are inappropriate, except where sanctions, embargoes and restrictions have been put in place by the UK Government. To my knowledge the question of whether investment boycotts could legitimately be put in place had not previously arisen in relation to the LGPS. The overriding duty of authorities to maximise investment returns and act in the interests of scheme members and taxpayers was clear, as was the risk of legal challenge if authorities did not comply with that duty. However, the existing guidance did not specifically address the question of investment boycotts.
14. Given the serious nature of the concerns and the potential impacts across the UK set out above, we concluded that statutory guidance including a specific requirement to reflect UK foreign policy was justified and would fall within the powers in the 2013 Pensions Act. The protection of beneficiaries and taxpayers from the possibility that investment decisions might be taken by authorities purely on the basis of non-pensions considerations is in my view a pensions purpose.”
“22. However, we were clear that UK foreign and defence policy are matters which are properly reserved for the UK government and do not fall within the competence of local government. It was therefore right to put safeguards in place to ensure that decisions made by the UK government on foreign and defence policy in the interests of the UK as a whole would not be undermined by local boycotts on purely non-pension grounds. We expected these circumstances to arise very rarely but it seemed right to take these steps in view of the nature and scale of the potential risks.”
“23. The relevant section in the guidance was therefore carefully drafted in the light of the arguments in consultation responses and made in Parliament. It set out the very restricted range of investment policies which could go beyond the competence of an administering authority and potentially undermine policies of the UK government. But it left a very wide range of discretion for authorities on other investment policies which they may legitimately adopt and which are consistent with their wider responsibilities. One example might be local policies against investment in companies responsible for particular products which may be harmful to health (eg tobacco, sugar and alcohol) or which have operations or activities which cause environmental harm (eg water or air pollution caused by oil or gas companies). Administering authorities have responsibilities for public health and the environment in their areas. The guidance makes clear that they may legitimately take into account the potential for harm by refusing to invest in tobacco manufacturers, fossil fuel companies or high sugar products: such policies do not carry general risks to UK trade, security or communities.”
“24. The guidance did not therefore affect the ability of authorities to comply with their duty to act in the best interests of beneficiaries, nor did it prevent them from taking ethical considerations into account when making investment decisions except in a very narrow range of circumstances.”
The Padfield principle
63. This is an important principle of statutory construction, which for present purposes is encapsulated in the following passage from the speech of Lord Reid in Padfield [1968] AC 997, 1030:
“Parliament must have conferred the discretion with the intention that it should be used to promote the policy and objects of the Act; the policy and objects of the Act must be determined by construing the Act as a whole and construction is always a matter of law for the court. In a matter of this kind it is not possible to draw a hard and fast line, but if the Minister, by reason of his having misconstrued the Act or for any other reason, so, uses his discretion as to thwart or run counter to the policy and objects of the Act, then our law would be very defective if persons aggrieved were not entitled to the protection of the court. So it is necessary first to construe the Act.”
65. In R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] 2 AC 349 (“Spath Holme”), the House of Lords gave important guidance regarding the operation of the Padfield principle. Lord Bingham, referring to observations by Lord Simon of Glaisdale and Lord Diplock in Maunsell v Olins [1975] AC 373, 393, emphasised at [2001] 2 AC 349, 385E-G and 391A-B that a statute may well have more than one statutory objective. As Lord Simon (speaking for himself and Lord Diplock) said in Maunsell v Olins, in the passage relied on by Lord Bingham:
“For a court of construction to constrain statutory language which has a primary natural meaning appropriate in its context so as to give it an artificial meaning which is appropriate only to remedy the mischief which is conceived to have occasioned the statutory provision is to proceed unsupported by principle, inconsonant with authority and oblivious of the actual practice of parliamentary draftsmen. Once a mischief has been drawn to the attention of the draftsman he will consider whether any concomitant mischiefs should be dealt with as a necessary corollary.”
68. Thirdly, as Lord Nicholls explained in Spath Holme, at [2001] 2 AC 349, 396D-G, the Padfield principle depends upon the proper interpretation of the relevant statutory provision; and “an appropriate starting point is that language is to be taken to bear its ordinary meaning in the general context of the statute” (p 397B). “[T]he overriding aim of the court must always be to give effect to the intention of Parliament as expressed in the words used”: Spath Holme [2001] 2 AC 349, 388D, per Lord Bingham. Here, the language of section 3(1), according to its ordinary meaning, especially when it is read in context and alongside section 3(2) of and Schedule 3 to the 2013 Act, is apt to confer a very wide discretion upon the Secretary of State (as the responsible authority) to promulgate regulations which “make such provision in relation to a [public service pension scheme]” as the Secretary of State “considers appropriate”. We do not think that the limitation for which the appellant contends can be read into section 3(1). Again, we agree with Sir Stephen Richards, who said (para 21), “… I find it … helpful to put the question in terms of whether the legislation permits wider considerations of public interest to be taken into account when formulating guidance to administering authorities as to their investment strategy; and … given the framework nature of the statute and the broad discretion it gives to the Secretary of State as to the making of regulations and the giving of guidance, I can see no reason why it should not be so read.”
The policy and objects of the 2013 Act
“An Act to make provision for public service pension schemes; and for connected purposes.”
74. On governance, the Hutton Report stated:
“Clear guidance will be required for members of pension boards on their role and duties. They would fulfil similar duties to trustees, acting in accordance with scheme rules, impartially and prudently, balancing the interests of scheme beneficiaries and of taxpayers. There will be a need for effective committee structures to facilitate sound decision making and strong oversight of scheme administrators and fund managers.” (para 6.16)
“Lord Hutton’s fourth key test related to governance and transparency. The reformed schemes should be widely understood, both by scheme members and by taxpayers. People understand what is in their pay packet each month, and it should be just as easy to understand how their pension works. Under the Bill, the schemes will have robust and transparent management arrangements.
Clause 5 [which became section 5] provides for each scheme to have a pension board which will work to ensure that the scheme is administered effectively and efficiently. There will be local pension boards in the case of the locally administered police, fire and local authority schemes. The boards will consist of member representatives, employer representatives and officials. They will operate in a similar way to boards of trustees, holding scheme administrators to account and providing scheme members and the public with more information about the pensions. The board members will be identified publicly, and their duties will be made clear to scheme members. I welcome the greater transparency that the Bill will bring to this area of public pension administration.” (Hansard, vol 552, col 63-4, 29 October 2012)
“Beneficiaries of the scheme, the members, far from being volunteers, have given valuable consideration.”